##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED September 30, 2006
 Commission File Number: 000-33243
 Huntington Preferred Capital, Inc.
 Ohio
    
    31-1356967(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 41 South High Street, Columbus, Ohio 43287
 (614) 480-8300
 þ o
  o o þ
 o þ




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##### 



HUNTINGTON PREFERRED CAPITAL, INC.
  Part I.Financial InformationItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets - At September 30, 2006, December 31, 2005, and September 30, 2005
    
    
    3Condensed Consolidated Statements of Income - For the three-months and nine-months ended September 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Changes in Shareholders Equity - For the nine-months ended September 30, 2006 and 2005
    
    
    5Condensed Consolidated Statements of Cash Flows - For the nine-months ended September 30, 2006 and 2005
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4.
    
    Controls and Procedures
    
    
    23Part II. Other InformationItem 6.
    
    Exhibits
    
    
    24Signatures
    
    
    25EX-31.AEX-31.BEX-32.AEX-32.BEX-99.A
  2




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 Huntington Preferred Capital, Inc.
 
 Condensed Consolidated Balance Sheets
 
 September 30,
    
    
    December 31,
    
    
    September 30,(in thousands, except share data)
    
    2006
    
    
    2005
    
    
    2005(Unaudited)
    
    
    
    
    
    
    (Unaudited)AssetsCash and interest bearing deposits with The Huntington National Bank
    
    $
    529,129
    
    
    $
    810,102
    
    
    $
    590,733Due from The Huntington National Bank
    
    
    45,910
    
    
    
    46,321
    
    
    
    93,597Loan participation interests:Commercial
    
    
    35,041
    
    
    
    46,559
    
    
    
    57,350Commercial real estate
    
    
    3,287,901
    
    
    
    3,311,275
    
    
    
    3,455,398Consumer
    
    
    888,603
    
    
    
    997,094
    
    
    
    935,139Residential real estate
    
    
    121,262
    
    
    
    157,397
    
    
    
    170,422Total loan participation interests
    
    
    4,332,807
    
    
    
    4,512,325
    
    
    
    4,618,309Allowance for loan losses
    
    
    (51,729
    )
    
    
    (57,530
    )
    
    
    (56,866
    )Net loan participation interests
    
    
    4,281,078
    
    
    
    4,454,795
    
    
    
    4,561,443Premises and equipment
    
    
    18,658
    
    
    
    21,683
    
    
    
    22,732Accrued income and other assets
    
    
    22,516
    
    
    
    20,984
    
    
    
    19,222Total assets
    
    $
    4,897,291
    
    
    $
    5,353,885
    
    
    $
    5,287,727Liabilities and shareholders equityLiabilitiesAllowance for unfunded loan participation commitments
    
    $
    4,658
    
    
    $
    4,135
    
    
    $
    3,565Dividends and distributions payable
    
    
    22,306
    
    
    
    700,000
    
    
    
    9,299Other liabilities
    
    
    123
    
    
    
    290
    
    
    
    174Total liabilities
    
    
    27,087
    
    
    
    704,425
    
    
    
    13,038Shareholders EquityPreferred securities, Class A, 8.000% noncumulative, non-
exchangeable; $1,000 par and liquidation value per share;
1,000 shares authorized, issued and outstanding
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000Preferred securities, Class B, variable-rate noncumulative and
conditionally exchangeable; $1,000 par and liquidation
value per share; authorized 500,000 shares; 400,000
shares issued and outstanding
    
    
    400,000
    
    
    
    400,000
    
    
    
    400,000Preferred securities, Class C, 7.875% noncumulative and
conditionally exchangeable; $25 par and liquidation
value; 2,000,000 shares authorized, issued, and outstanding
    
    
    50,000
    
    
    
    50,000
    
    
    
    50,000Preferred securities, Class D, variable-rate noncumulative and
conditionally exchangeable; $25 par and liquidation
value; 14,000,000 shares authorized, issued, and outstanding
    
    
    350,000
    
    
    
    350,000
    
    
    
    350,000Preferred securities, $25 par, 10,000,000 shares
authorized; no shares issued or outstanding
    
    
    
    
    
    
    
    
    
    
    Common stock  without par value; 14,000,000 shares authorized,
issued and outstanding
    
    
    3,848,460
    
    
    
    3,848,460
    
    
    
    4,268,776Retained earnings
    
    
    220,744
    
    
    
    
    
    
    
    204,913Total shareholders equity
    
    
    4,870,204
    
    
    
    4,649,460
    
    
    
    5,274,689Total liabilities and shareholders equity
    
    $
    4,897,291
    
    
    $
    5,353,885
    
    
    $
    5,287,727
 See notes to unaudited condensed consolidated financial statements.
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##### Table of Contents



Huntington Preferred Capital, Inc.
 
 Condensed Consolidated Statements of Income
 (Unaudited)
 
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Interest and fee incomeInterest on loan participation interests:Commercial
    
    $
    772
    
    
    $
    1,006
    
    
    $
    2,410
    
    
    $
    3,650Commercial real estate
    
    
    61,475
    
    
    
    54,013
    
    
    
    177,098
    
    
    
    154,748Consumer
    
    
    15,338
    
    
    
    15,465
    
    
    
    48,105
    
    
    
    44,077Residential real estate
    
    
    1,880
    
    
    
    2,420
    
    
    
    6,119
    
    
    
    7,963Total loan participation interest income
    
    
    79,465
    
    
    
    72,904
    
    
    
    233,732
    
    
    
    210,438Fees from loan participation interests
    
    
    227
    
    
    
    539
    
    
    
    799
    
    
    
    1,659Interest on deposits with The Huntington National Bank
    
    
    6,129
    
    
    
    4,439
    
    
    
    10,910
    
    
    
    8,482Total interest and fee income
    
    
    85,821
    
    
    
    77,882
    
    
    
    245,441
    
    
    
    220,579Reduction in allowances for credit losses
    
    
    (3,255
    )
    
    
    (8,106
    )
    
    
    (17,641
    )
    
    
    (15,387
    )Interest income after reduction in allowances for credit losses
    
    
    89,076
    
    
    
    85,988
    
    
    
    263,082
    
    
    
    235,966Non-interest income:Rental income
    
    
    1,591
    
    
    
    1,590
    
    
    
    4,773
    
    
    
    4,772Collateral fees
    
    
    108
    
    
    
    907
    
    
    
    941
    
    
    
    2,053Total non-interest income
    
    
    1,699
    
    
    
    2,497
    
    
    
    5,714
    
    
    
    6,825Non-interest expense:Servicing costs
    
    
    2,611
    
    
    
    2,717
    
    
    
    8,114
    
    
    
    8,480Depreciation and amortization
    
    
    984
    
    
    
    1,086
    
    
    
    3,000
    
    
    
    3,325(Gain) loss on disposal of premises and equipment
    
    
    
    
    
    
    45
    
    
    
    (31
    )
    
    
    578Other
    
    
    201
    
    
    
    205
    
    
    
    573
    
    
    
    615Total non-interest expense
    
    
    3,796
    
    
    
    4,053
    
    
    
    11,656
    
    
    
    12,998Income before provision for income taxes
    
    
    86,979
    
    
    
    84,432
    
    
    
    257,140
    
    
    
    229,793Provision for income taxes
    
    
    332
    
    
    
    173
    
    
    
    927
    
    
    
    296Net income
    
    $
    86,647
    
    
    $
    84,259
    
    
    $
    256,213
    
    
    $
    229,497Dividends declared on preferred securities
    
    
    (12,681
    )
    
    
    (9,023
    )
    
    
    (35,469
    )
    
    
    (24,584
    )Net income applicable to common shares
    
    $
    73,966
    
    
    $
    75,236
    
    
    $
    220,744
    
    
    $
    204,913
 See notes to unaudited condensed consolidated financial statements.
 4




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Huntington Preferred Capital, Inc.
 
 Condensed Consolidated Statements of Changes in Shareholders Equity
 
 Preferred, Class A
    
    
    Preferred, Class B
    
    
    Preferred, Class C(in thousands)
    
    Shares
    
    
    Securities
    
    
    Shares
    
    
    Securities
    
    
    Shares
    
    
    SecuritiesNine Months Ended September 30, 2005 (Unaudited):Balance, beginning of period
    
    
    1
    
    
    $
    1,000
    
    
    
    400
    
    
    $
    400,000
    
    
    
    2,000
    
    
    $
    50,000Comprehensive Income:Net incomeTotal comprehensive incomeBalance, end of period (Unaudited)
    
    
    1
    
    
    $
    1,000
    
    
    
    400
    
    
    $
    400,000
    
    
    
    2,000
    
    
    $
    50,000Nine Months Ended September 30, 2006 (Unaudited):Balance, beginning of period
    
    
    1
    
    
    $
    1,000
    
    
    
    400
    
    
    $
    400,000
    
    
    
    2,000
    
    
    $
    50,000Comprehensive Income:Net incomeTotal comprehensive incomeBalance, end of period(Unaudited)
    
    
    1
    
    
    $
    1,000
    
    
    
    400
    
    
    $
    400,000
    
    
    
    2,000
    
    
    $
    50,000
 Preferred, Class D
    
    
    Preferred
    
    
    Common
    
    
    Retained(in thousands)
    
    Shares
    
    
    Securities
    
    
    Shares
    
    
    Securities
    
    
    Shares
    
    
    Stock
    
    
    Earnings
    
    
    TotalNine Months Ended September 30, 2005 (Unaudited):Balance, beginning of period
    
    
    14,000
    
    
    $
    350,000
    
    
    
    
    
    
    $
    
    
    
    
    14,000
    
    
    $
    4,268,776
    
    
    $
    
    
    
    $
    5,069,776Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229,497
    
    
    
    229,497Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229,497Dividends declared on Class A preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    (80
    )Dividends declared on Class B preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,219
    )
    
    
    (9,219
    )Dividends declared on Class C preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,953
    )
    
    
    (2,953
    )Dividends declared on Class D preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,332
    )
    
    
    (12,332
    )Balance, end of period (Unaudited)
    
    
    14,000
    
    
    $
    350,000
    
    
    
    
    
    
    $
    
    
    
    
    14,000
    
    
    $
    4,268,776
    
    
    $
    204,913
    
    
    $
    5,274,689Nine Months Ended September 30, 2006 (Unaudited):Balance, beginning of period
    
    
    14,000
    
    
    $
    350,000
    
    
    
    
    
    
    $
    
    
    
    
    14,000
    
    
    $
    3,848,460
    
    
    $
    
    
    
    $
    4,649,460Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256,213
    
    
    
    256,213Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256,213Dividends declared on Class A preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    (80
    )Dividends declared on Class B preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,024
    )
    
    
    (15,024
    )Dividends declared on Class C preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,953
    )
    
    
    (2,953
    )Dividends declared on Class D preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,412
    )
    
    
    (17,412
    )Balance, end of period(Unaudited)
    
    
    14,000
    
    
    $
    350,000
    
    
    
    
    
    
    $
    
    
    
    
    14,000
    
    
    $
    3,848,460
    
    
    $
    220,744
    
    
    $
    4,870,204
 See notes to unaudited condensed consolidated financial statements.
 5




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Huntington Preferred Capital, Inc.
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 
 Nine Months EndedSeptember 30,(in thousands)
    
    2006
    
    
    2005Operating activitiesNet income
    
    $
    256,213
    
    
    $
    229,497Adjustments to reconcile net income to net
cash provided by operating activities:Reduction of allowances for credit losses
    
    
    (17,641
    )
    
    
    (15,387
    )Depreciation and amortization
    
    
    3,000
    
    
    
    3,325Deferred income tax (benefit) expense
    
    
    (515
    )
    
    
    53(Gain) loss on disposal of premises and equipment
    
    
    (31
    )
    
    
    578Increase in due from The Huntington National Bank
    
    
    (3,318
    )
    
    
    (26,716
    )(Decrease) increase in other liabilities
    
    
    (167
    )
    
    
    124Other, net
    
    
    250
    
    
    
    315Net cash provided by operating activities
    
    
    237,791
    
    
    
    191,789Investing activitiesParticipation interests acquired
    
    
    (2,090,195
    )
    
    
    (2,137,775
    )Sales and repayments of loans underlying
participation interests
    
    
    2,284,538
    
    
    
    2,351,751Proceeds from the sale of premises and equipment
    
    
    56
    
    
    
    Net cash provided by investing activities
    
    
    194,399
    
    
    
    213,976Financing activitiesDividends paid on preferred securities
    
    
    (13,163
    )
    
    
    (15,285
    )Dividends paid on common stock
    
    
    (279,684
    )
    
    
    (263,798
    )Return of capital to common shareholders
    
    
    (420,316
    )
    
    
    (336,202
    )Net cash used for financing activities
    
    
    (713,163
    )
    
    
    (615,285
    )Change in cash and cash equivalents
    
    
    (280,973
    )
    
    
    (209,520
    )Cash and cash equivalents at beginning of year
    
    
    810,102
    
    
    
    800,253Cash and cash equivalents at end of period
    
    $
    529,129
    
    
    $
    590,733Supplemental information:Income taxes paid
    
    $
    1,577
    
    
    $
    Dividends and distributions declared, not paid
    
    
    22,306
    
    
    
    9,299Change in loan participation activity due from The Huntington National Bank
    
    
    (3,729
    )
    
    
    91,046
 See notes to unaudited condensed consolidated financial statements.
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Notes to the Unaudited Condensed Consolidated Financial Statements
 Note 1  Organization
  Note 2  Basis of Presentation and New Accounting Pronouncements
     Financial Accounting Standards Board (FASB) Statement No. 154, Accounting Changes and Error
Corrections  a replacement of APB Opinion No. 20 and FASB Statement No. 3 (Statement No. 154) Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 7




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Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
 Note 3
 Lending Concentrations and Participations in Non-Performing Assets and Past Due Loans
   September 30,
    
    
    December 31,
    
    
    September 30,(in thousands)
    
    2006
    
    
    2005
    
    
    2005Commercial
    
    $
    143
    
    
    $
    147
    
    
    $
    746Commercial real estate
    
    
    16,784
    
    
    
    20,746
    
    
    
    17,735Consumer
    
    
    3,375
    
    
    
    2,799
    
    
    
    2,028Residential real estate
    
    
    1,598
    
    
    
    2,923
    
    
    
    3,695Total participations in non-performing assets
    
    $
    21,900
    
    
    $
    26,615
    
    
    $
    24,204Participations in accruing loans past due 90 days or more
    
    $
    6,124
    
    
    $
    3,188
    
    
    $
    3,382
 Note 4  Allowances for Credit Losses (ACL)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005ALL balance, beginning of period
    
    $
    51,466
    
    
    $
    60,987
    
    
    $
    57,530
    
    
    $
    61,146Allowance for loan participations acquired
    
    
    5,055
    
    
    
    5,875
    
    
    
    16,689
    
    
    
    18,396Net loan losses
    
    
    (881
    )
    
    
    (2,975
    )
    
    
    (4,326
    )
    
    
    (7,489
    )Reduction in ALL
    
    
    (3,911
    )
    
    
    (7,021
    )
    
    
    (18,164
    )
    
    
    (14,249
    )Economic reserve transfer to AULPC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (938
    )ALL balance, end of period
    
    $
    51,729
    
    
    $
    56,866
    
    
    $
    51,729
    
    
    $
    56,866AULPC balance, beginning of period
    
    $
    4,002
    
    
    $
    4,650
    
    
    $
    4,135
    
    
    $
    3,765Provision for (reduction in) AULPC
    
    
    656
    
    
    
    (1,085
    )
    
    
    523
    
    
    
    (1,138
    )Economic reserve transfer from ALL
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    938AULPC balance, end of period
    
    $
    4,658
    
    
    $
    3,565
    
    
    $
    4,658
    
    
    $
    3,565Total ACL
    
    $
    56,387
    
    
    $
    60,431
    
    
    $
    56,387
    
    
    $
    60,431
 Note 5
 Preferred Dividends
  8




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Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
   i.e.
 i.e.,
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Class A preferred securities
    
    $
    
    
    
    $
    
    
    
    $
    80
    
    
    $
    80Class B preferred securities
    
    
    5,480
    
    
    
    3,529
    
    
    
    15,024
    
    
    
    9,219Class C preferred securities
    
    
    984
    
    
    
    984
    
    
    
    2,953
    
    
    
    2,953Class D preferred securities
    
    
    6,217
    
    
    
    4,510
    
    
    
    17,412
    
    
    
    12,332Total dividends declared
    
    $
    12,681
    
    
    $
    9,023
    
    
    $
    35,469
    
    
    $
    24,584
 Note 6  Related Party Transactions
   9




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##### Table of Contents



Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
   July 1, 2005
    
    January 1, 2005thru
    
    thruSeptember 30, 2006
    
    June 30, 2005Commercial and commercial real estate
    
    
    0.125
    %
    
    
    0.125
    %Consumer
    
    
    0.650
    %
    
    
    0.750
    %Residential real estate
    
    
    0.267
    %
    
    
    0.267
    %
    Number ofCommon
    
    Number of Preferred SecuritiesShareholder:
    
    Shares
    
    Class A
    
    Class B
    
    Class C
    
    Class DHeld by related parties:HPC II
    
    
    4,550,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    HCF
    
    
    6,580,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Holdings
    
    
    2,851,333
    
    
    
    895
    
    
    
    
    
    
    
    
    
    
    
    14,000,000HPC Holdings-II, Inc.
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    
    
    
    
    Huntington
    
    
    18,667
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total held by related parties
    
    
    14,000,000
    
    
    
    895
    
    
    
    400,000
    
    
    
    
    
    
    
    14,000,000Other shareholders
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    2,000,000
    
    
    
    Total shares outstanding
    
    
    14,000,000
    
    
    
    1,000
    
    
    
    400,000
    
    
    
    2,000,000
    
    
    
    14,000,000
  10




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Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
        Note 7  Commitments and Contingencies
 s /
   11




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##### Table of Contents



Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
   Note 8  Segment Reporting
  12




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##### Table of Contents



Item 2. Managementss Discussion and Analysis of Financial Condition and Results of Operations
 INTRODUCTION
    Forward-looking Statements
    Critical Accounting Policies
  Use of Significant Estimates
  13




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SUMMARY DISCUSSION OF RESULTS
     
 Table 1  Loan Participation Interests
 
 % of

    
    
    
    
    
    
    % of

    
    
    
    
    
    
    % ofSeptember 30,
    
    
    
    Total

    
    December 31,
    
    
    
    Total

    
    September 30,
    
    
    
    Total(in thousands)
    
    2006
    
    
    
    Assets

    
    2005
    
    
    
    Assets

    
    2005
    
    
    
    AssetsGross loan participation interests:Commercial
    
    $
    35,041
    
    
    
    0.7
    
    
    $
    46,559
    
    
    
    0.9
    
    
    $
    57,350
    
    
    
    1.1Commercial real estate
    
    
    3,287,901
    
    
    
    67.1
    
    
    
    3,311,275
    
    
    
    61.8
    
    
    
    3,455,398
    
    
    
    65.3Consumer
    
    
    888,603
    
    
    
    18.1
    
    
    
    997,094
    
    
    
    18.6
    
    
    
    935,139
    
    
    
    17.7Residential real estate
    
    
    121,262
    
    
    
    2.5
    
    
    
    157,397
    
    
    
    2.9
    
    
    
    170,422
    
    
    
    3.2Total
    
    $
    4,332,807
    
    
    
    88.4
    
    
    $
    4,512,325
    
    
    
    84.2
    
    
    $
    4,618,309
    
    
    
    87.3
   14




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QUALIFICATION TESTS
    15




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##### Table of Contents



RESULTS OF OPERATIONS
   Table 2  Quarterly Statements of Income2006
    
    
    2005
    
    
    
    3Q06 vs 3Q05(in thousands)
    
    Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    Third
    
    
    
    $ Chg
    
    
    % ChgInterest and fee incomeInterest on loan participation interests:Commercial
    
    $
    772
    
    
    $
    792
    
    
    $
    846
    
    
    $
    982
    
    
    $
    1,006
    
    
    
    $
    (234
    )
    
    
    (23.3)
    %Commercial real estate
    
    
    61,475
    
    
    
    59,841
    
    
    
    55,782
    
    
    
    55,053
    
    
    
    54,013
    
    
    
    
    7,462
    
    
    
    13.8Consumer
    
    
    15,338
    
    
    
    16,067
    
    
    
    16,700
    
    
    
    16,268
    
    
    
    15,465
    
    
    
    
    (127
    )
    
    
    (0.8
    )Residential real estate
    
    
    1,880
    
    
    
    2,007
    
    
    
    2,232
    
    
    
    2,341
    
    
    
    2,420
    
    
    
    
    (540
    )
    
    
    (22.3
    )Total loan participation interest income
    
    
    79,465
    
    
    
    78,707
    
    
    
    75,560
    
    
    
    74,644
    
    
    
    72,904
    
    
    
    
    6,561
    
    
    
    9.0Fees from loan participation interests
    
    
    227
    
    
    
    279
    
    
    
    293
    
    
    
    320
    
    
    
    539
    
    
    
    
    (312
    )
    
    
    (57.9
    )Interest on deposits with The Huntington National Bank
    
    
    6,129
    
    
    
    3,290
    
    
    
    1,491
    
    
    
    7,200
    
    
    
    4,439
    
    
    
    
    1,690
    
    
    
    38.1Total interest and fee income
    
    
    85,821
    
    
    
    82,276
    
    
    
    77,344
    
    
    
    82,164
    
    
    
    77,882
    
    
    
    
    7,939
    
    
    
    10.2Reduction in allowances for credit losses
    
    
    (3,255
    )
    
    
    (5,203
    )
    
    
    (9,183
    )
    
    
    (4,409
    )
    
    
    (8,106
    )
    
    
    
    4,851
    
    
    
    59.8Interest income after reduction in allowances
for credit losses
    
    
    89,076
    
    
    
    87,479
    
    
    
    86,527
    
    
    
    86,573
    
    
    
    85,988
    
    
    
    
    3,088
    
    
    
    3.6Non-interest income:Rental income
    
    
    1,591
    
    
    
    1,591
    
    
    
    1,591
    
    
    
    1,590
    
    
    
    1,590
    
    
    
    
    1
    
    
    
    0Collateral fees
    
    
    108
    
    
    
    115
    
    
    
    718
    
    
    
    976
    
    
    
    907
    
    
    
    
    (799
    )
    
    
    (88.1
    )Total non-interest income
    
    
    1,699
    
    
    
    1,706
    
    
    
    2,309
    
    
    
    2,566
    
    
    
    2,497
    
    
    
    
    (798
    )
    
    
    (32.0
    )Non-interest expense:Servicing costs
    
    
    2,611
    
    
    
    2,720
    
    
    
    2,783
    
    
    
    2,730
    
    
    
    2,717
    
    
    
    
    (106
    )
    
    
    (3.9
    )Depreciation and amortization
    
    
    984
    
    
    
    999
    
    
    
    1,017
    
    
    
    1,045
    
    
    
    1,086
    
    
    
    
    (102
    )
    
    
    (9.4
    )(Gain) loss on disposal of premises and equipment
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    4
    
    
    
    45
    
    
    
    
    (45
    )
    
    
    N.M.Other
    
    
    201
    
    
    
    202
    
    
    
    170
    
    
    
    288
    
    
    
    205
    
    
    
    
    (4
    )
    
    
    (2.0
    )Total non-interest expense
    
    
    3,796
    
    
    
    3,921
    
    
    
    3,939
    
    
    
    4,067
    
    
    
    4,053
    
    
    
    
    (257
    )
    
    
    (6.3
    )Income before provision for income taxes
    
    
    86,979
    
    
    
    85,264
    
    
    
    84,897
    
    
    
    85,072
    
    
    
    84,432
    
    
    
    
    2,547
    
    
    
    3.0Provision for income taxes
    
    
    332
    
    
    
    310
    
    
    
    285
    
    
    
    251
    
    
    
    173
    
    
    
    
    159
    
    
    
    91.9Net income
    
    $
    86,647
    
    
    $
    84,954
    
    
    $
    84,612
    
    
    $
    84,821
    
    
    $
    84,259
    
    
    
    $
    2,388
    
    
    
    2.8
    %Dividends declared on preferred securities
    
    
    (12,681
    )
    
    
    (11,781
    )
    
    
    (11,007)
    
    
    
    (10,050
    )
    
    
    (9,023
    )
    
    
    
    (3,658)
    
    
    
    (40.5)Net income applicable to common shares(1)
    
    $
    73,966
    
    
    $
    73,173
    
    
    $
    73,605
    
    
    $
    74,771
    
    
    $
    75,236
    
    
    
    $
    (1,270
    )
    
    
    (1.7)
    %
 
 (1)
    
    All of HPCIs common stock is owned by Huntington, HPCII, HCF, and Holdings and, therefore, net income per share is not presented.  16




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##### Table of Contents



Table 3  Year-To-Date Statements of Income
 Nine Months EndedSeptember 30,
    
    
    
    2006 vs 2005(in thousands)
    
    2006
    
    
    2005
    
    
    
    $ Chg
    
    
    % ChgInterest and fee incomeInterest on loan participation interests:Commercial
    
    $
    2,410
    
    
    $
    3,650
    
    
    
    $
    (1,240
    )
    
    
    (34.0
    )%Commercial real estate
    
    
    177,098
    
    
    
    154,748
    
    
    
    
    22,350
    
    
    
    14.4Consumer
    
    
    48,105
    
    
    
    44,077
    
    
    
    
    4,028
    
    
    
    9.1Residential real estate
    
    
    6,119
    
    
    
    7,963
    
    
    
    
    (1,844
    )
    
    
    (23.2
    )Total loan participation interest income
    
    
    233,732
    
    
    
    210,438
    
    
    
    
    23,294
    
    
    
    11.1Fees from loan participation interests
    
    
    799
    
    
    
    1,659
    
    
    
    
    (860
    )
    
    
    (51.8
    )Interest on deposits with The Huntington National Bank
    
    
    10,910
    
    
    
    8,482
    
    
    
    
    2,428
    
    
    
    28.6Total interest and fee income
    
    
    245,441
    
    
    
    220,579
    
    
    
    
    24,862
    
    
    
    11.3Reduction in allowances for credit losses
    
    
    (17,641
    )
    
    
    (15,387
    )
    
    
    
    (2,254
    )
    
    
    (14.6
    )Interest income after reduction in allowances
for credit losses
    
    
    263,082
    
    
    
    235,966
    
    
    
    
    27,116
    
    
    
    11.5Non-interest income:Rental income
    
    
    4,773
    
    
    
    4,772
    
    
    
    
    1
    
    
    
    0.0Collateral fees
    
    
    941
    
    
    
    2,053
    
    
    
    
    (1,112
    )
    
    
    (54.2
    )Total non-interest income
    
    
    5,714
    
    
    
    6,825
    
    
    
    
    (1,111
    )
    
    
    (16.3
    )Non-interest expense:Servicing costs
    
    
    8,114
    
    
    
    8,480
    
    
    
    
    (366
    )
    
    
    (4.3
    )Depreciation and amortization
    
    
    3,000
    
    
    
    3,325
    
    
    
    
    (325
    )
    
    
    (9.8
    )(Gain) loss on disposal of premises and equipment
    
    
    (31
    )
    
    
    578
    
    
    
    
    (609
    )
    
    
    N.M.Other
    
    
    573
    
    
    
    615
    
    
    
    
    (42
    )
    
    
    (6.8
    )Total non-interest expense
    
    
    11,656
    
    
    
    12,998
    
    
    
    
    (1,342
    )
    
    
    (10.3
    )Income before provision for income taxes
    
    
    257,140
    
    
    
    229,793
    
    
    
    
    27,347
    
    
    
    11.9Provision for income taxes
    
    
    927
    
    
    
    296
    
    
    
    
    631
    
    
    
    N.M.Net income
    
    $
    256,213
    
    
    $
    229,497
    
    
    
    $
    26,716
    
    
    
    11.6
    %Dividends declared on preferred securities
    
    
    (35,469
    )
    
    
    (24,584
    )
    
    
    
    (10,885
    )
    
    
    (44.3
    )Net income applicable to common shares(1)
    
    $
    220,744
    
    
    $
    204,913
    
    
    
    $
    15,831
    
    
    
    7.7
    %
 
 (1)
    
    All of HPCIs common stock is owned by Huntington, HPCII, HCF
and Holdings and, therefore, net income per share is not presented.N.M.
 Not Meaningful. Interest and Fee Income
  17




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Table 4  Quarterly Average Balance Sheets and Net Interest Margin Analysis
  Three Months Ended September 30,2006
    
    
    2005Average
    
    
    
    
    
    
    
    
    
    
    Average(in millions)
    
    Balance
    
    
    Income(1)
    
    
    Yield
    
    
    Balance
    
    
    Income(1)
    
    
    YieldLoan participation interests:Commercial
    
    $
    36.3
    
    
    $
    0.8
    
    
    
    8.44
    %
    
    $
    61.8
    
    
    $
    1.0
    
    
    
    6.50
    %Commercial real estate
    
    
    3,287.8
    
    
    
    61.5
    
    
    
    7.43
    
    
    
    3,540.8
    
    
    
    54.4
    
    
    
    6.09Consumer
    
    
    909.8
    
    
    
    15.5
    
    
    
    6.75
    
    
    
    914.7
    
    
    
    15.7
    
    
    
    6.79Residential real estate
    
    
    125.4
    
    
    
    1.9
    
    
    
    6.00
    
    
    
    178.8
    
    
    
    2.4
    
    
    
    5.42Total loan participations
    
    
    4,359.3
    
    
    
    79.7
    
    
    
    7.25
    
    
    
    4,696.1
    
    
    
    73.5
    
    
    
    6.21Interest bearing deposits in the Bank
    
    
    457.2
    
    
    
    6.1
    
    
    
    5.25
    
    
    
    519.6
    
    
    
    4.4
    
    
    
    3.39Total
    
    $
    4,816.5
    
    
    $
    85.8
    
    
    
    7.06
    %
    
    $
    5,215.7
    
    
    $
    77.9
    
    
    
    5.93
    %
 
 (1)
    
    Income includes interest and fees. 
 Table 5  Year-To-Date Average Balance Sheets and Net Interest Margin
Analysis
 
 Nine Months Ended September 30,2006
    
    
    2005Average
    
    
    
    
    
    
    
    
    
    
    Average(in millions)
    
    Balance
    
    
    Income(1)
    
    
    Yield
    
    
    Balance
    
    
    Income(1)
    
    
    YieldLoan participation interests:Commercial
    
    $
    42.0
    
    
    $
    2.4
    
    
    
    7.69
    %
    
    $
    84.9
    
    
    $
    3.7
    
    
    
    5.79
    %Commercial real estate
    
    
    3,317.9
    
    
    
    177.5
    
    
    
    7.15
    
    
    
    3,627.2
    
    
    
    155.8
    
    
    
    5.74Consumer
    
    
    958.4
    
    
    
    48.5
    
    
    
    6.77
    
    
    
    868.4
    
    
    
    44.6
    
    
    
    6.87Residential real estate
    
    
    137.2
    
    
    
    6.1
    
    
    
    5.95
    
    
    
    197.7
    
    
    
    8.0
    
    
    
    5.37Total loan participations
    
    
    4,455.5
    
    
    
    234.5
    
    
    
    7.04
    
    
    
    4,778.2
    
    
    
    212.1
    
    
    
    5.93Interest bearing deposits in the Bank
    
    
    285.9
    
    
    
    10.9
    
    
    
    5.03
    
    
    
    369.1
    
    
    
    8.5
    
    
    
    3.07Total
    
    $
    4,741.4
    
    
    $
    245.4
    
    
    
    6.92
    %
    
    $
    5,147.3
    
    
    $
    220.6
    
    
    
    5.73
    %
 
 (1)
    
    Income includes interest and fees.  Allowances for Credit Losses (ACL)
  18




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##### Table of Contents



Table 6  Allowances for Credit Loss Activity
 
 2006
    
    
    2005(in thousands)
    
    Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    ThirdALL balance, beginning of period
    
    $
    51,466
    
    
    $
    53,586
    
    
    $
    57,530
    
    
    $
    56,866
    
    
    $
    60,987Allowance of loan participations acquired
    
    
    5,055
    
    
    
    5,172
    
    
    
    6,462
    
    
    
    6,675
    
    
    
    5,875Net loan lossesCommercial
    
    
    77
    
    
    
    633
    
    
    
    256
    
    
    
    232
    
    
    
    159Commercial real estate
    
    
    (145
    )
    
    
    (2,162
    )
    
    
    (776
    )
    
    
    (400
    )
    
    
    (2,083
    )Consumer
    
    
    (780
    )
    
    
    (743
    )
    
    
    (621
    )
    
    
    (712
    )
    
    
    (1,004
    )Residential real estate
    
    
    (33
    )
    
    
    
    
    
    
    (32
    )
    
    
    (152
    )
    
    
    (47
    )Total net loan losses
    
    
    (881
    )
    
    
    (2,272
    )
    
    
    (1,173
    )
    
    
    (1,032
    )
    
    
    (2,975
    )Reduction in ALL
    
    
    (3,911
    )
    
    
    (5,020
    )
    
    
    (9,233
    )
    
    
    (4,979
    )
    
    
    (7,021
    )ALL balance, end of period
    
    $
    51,729
    
    
    $
    51,466
    
    
    $
    53,586
    
    
    $
    57,530
    
    
    $
    56,866AULPC balance, beginning of period
    
    $
    4,002
    
    
    $
    4,185
    
    
    $
    4,135
    
    
    $
    3,565
    
    
    $
    4,650Provision for (reduction in) AULPC
    
    
    656
    
    
    
    (183
    )
    
    
    50
    
    
    
    570
    
    
    
    (1,085
    )AULPC balance, end of period
    
    $
    4,658
    
    
    $
    4,002
    
    
    $
    4,185
    
    
    $
    4,135
    
    
    $
    3,565Total Allowance for Credit Losses
    
    $
    56,387
    
    
    $
    55,468
    
    
    $
    57,771
    
    
    $
    61,665
    
    
    $
    60,431ALL as a % of total participation interests
    
    
    1.19
    %
    
    
    1.17
    %
    
    
    1.19
    %
    
    
    1.27
    %
    
    
    1.23
    %ACL as a % of total participation interests
    
    
    1.30
    
    
    
    1.26
    
    
    
    1.28
    
    
    
    1.37
    
    
    
    1.31
 Nine Months EndedSeptember 30,(in thousands)
    
    2006
    
    
    2005ALL balance, beginning of period
    
    $
    57,530
    
    
    $
    61,146Allowance for loan participations acquired
    
    
    16,689
    
    
    
    18,396Net loan lossesCommercial
    
    
    966
    
    
    
    1,015Commercial real estate
    
    
    (3,083
    )
    
    
    (4,775
    )Consumer
    
    
    (2,144
    )
    
    
    (3,650
    )Residential real estate
    
    
    (65
    )
    
    
    (79
    )Total net loan losses
    
    
    (4,326
    )
    
    
    (7,489
    )Reduction in ALL
    
    
    (18,164
    )
    
    
    (14,249
    )Economic reserve transfer to AULPC
    
    
    
    
    
    
    (938
    )ALL balance, end of period
    
    $
    51,729
    
    
    $
    56,866AULPC balance, beginning of period
    
    $
    4,135
    
    
    $
    3,765Provision for (reduction in) AULPC
    
    
    523
    
    
    
    (1,138
    )Economic reserve transfer from ALL
    
    
    
    
    
    
    938AULPC balance, end of period
    
    $
    4,658
    
    
    $
    3,565Total
Allowance for Credit Losses
    
    $
    56,387
    
    
    $
    60,431
  19




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##### Table of Contents



Non-Performing Assets (NPAs)
   
 Table 7  Quarterly Non-Performing Assets
 
 2006
    
    
    2005(in thousands)
    
    Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    ThirdParticipation interests in non-accrual loansCommercial
    
    $
    143
    
    
    $
    108
    
    
    $
    108
    
    
    $
    147
    
    
    $
    746Commercial real estate
    
    
    16,784
    
    
    
    16,834
    
    
    
    20,133
    
    
    
    20,746
    
    
    
    17,735Consumer
    
    
    3,375
    
    
    
    3,545
    
    
    
    3,282
    
    
    
    2,799
    
    
    
    2,028Residential real estate
    
    
    1,598
    
    
    
    1,687
    
    
    
    2,144
    
    
    
    2,923
    
    
    
    3,695Total Non-Performing Assets
    
    $
    21,900
    
    
    $
    22,174
    
    
    $
    25,667
    
    
    $
    26,615
    
    
    $
    24,204Participations in Accruing Loans
Past Due 90 Days or More
    
    $
    6,124
    
    
    $
    6,079
    
    
    $
    3,402
    
    
    $
    3,188
    
    
    $
    3,382NPAs as a % of total
participation interests
    
    
    0.51
    %
    
    
    0.50
    %
    
    
    0.57
    %
    
    
    0.59
    %
    
    
    0.52
    %ALL as a % of NPAs
    
    
    236
    
    
    
    232
    
    
    
    209
    
    
    
    216
    
    
    
    235ACL as a % of NPAs
    
    
    257
    
    
    
    250
    
    
    
    225
    
    
    
    232
    
    
    
    250
    20




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##### Table of Contents



Non-Interest Income and Non-Interest Expense
 (See Note 7 to the unaudited condensed consolidated financial statements
for more information regarding use of HPCIs assets as collateral for the Banks advances from the
FHLB.)
  July 1, 2005
    
    January 1, 2005thru
    
    thruSeptember 30, 2006
    
    June 30, 2005Commercial and commercial real estate
    
    
    0.125
    %
    
    
    0.125
    %Consumer
    
    
    0.650
    %
    
    
    0.750
    %Residential real estate
    
    
    0.267
    %
    
    
    0.267
    %
  Provision for Income Taxes
  21




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##### Table of Contents



MARKET RISK
     OFF-BALANCE SHEET ARRANGEMENTS
  LIQUIDITY AND CAPITAL RESOURCES
    22




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##### Table of Contents



Item 3. Quantitative And Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
   23




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##### Table of Contents



PART II. OTHER INFORMATION
  
 Item 6. Exhibits
  3.(i).
    
    
    Amended and Restated Articles of Incorporation (previously filed as Exhibit
3(a)(ii) to Amendment No. 4 to Registration Statement of Form S-11 (File No.
333-61182), filed with the Securities and Exchange Commission on October 12,
2001, and incorporated herein by reference.)3.(ii).
    
    Code of Regulations (previously filed as Exhibit 3(b) to the Registrants
Registration Statement of Form S-11 (File No. 333-61182), filed with the
Securities and Exchange Commission on May 17, 2001, and incorporated herein by
reference.)4.
    
    
    Specimen of certificate representing Class C preferred
securities, previously filed as Exhibit 4 to the Registrants Amendment No. 1 to
Registration Statement of Form S-11 (File No. 333-61182), filed with the
Securities and Exchange Commission on May 31, 2001, and incorporated herein by
reference.10.(a)
    
    
    Limited Waiver of Contract Provision, dated August 11, 2006, with Huntington
Preferred Capital Holdings, Inc., Huntington Preferred Capital, Inc., and The
Huntington National Bank.31.(a).
    
    
    Rule 13a  14(a) Certification  President (chief executive officer).31.(b).
    
    
    Rule 13a  14(a) Certification  Vice President (chief financial officer).32.(a).
    
    
    Section 1350 Certification  President (chief executive officer).32.(b).
    
    
    Section 1350 Certification  Vice President (chief financial officer).99.(a).
    
    
    Unaudited Condensed Consolidated Financial Statements of Huntington
Bancshares Incorporated as of and for the three-month and nine-month periods
ended September 30, 2006 and 2005.
 24




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##### Table of Contents



Signatures
  
 By:
    
    /s/ Donald R. Kimble

Donald R. Kimble
    
    
    
    By:
    
    /s/ Thomas P. Reed

Thomas P. ReedPresident and Director
    
    
    
    
    
    Vice President and Director(Principal Executive Officer)
    
    
    
    
    
    (Principal Financial and Accounting Officer)
 25




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##### Table of Contents



Exhibit 10.(a)
 Limited Waiver of Contract Provision
 WHEREAS
 WHEREAS
 WHEREAS
 WHEREAS
 WHEREAS
 WHEREAS
 WHEREAS,
 NOW, THEREFORE
 1.
    
    The Corporation, and Holdings each agree to waive their respective rights as
transferees under the Agreements to receive any origination fees associated with
participation interests in commercial and commercial real estate loans transferred on
or after July 1, 2004, until such time as this waiver is terminated by the subsequent
agreement of each of the Corporation, and Holdings.




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##### Table of Contents



2.
    
    This waiver does not effect the transfer of origination fees with respect to loan
participation interests in loans other than commercial and commercial real estate loans.
 Huntington Preferred Capital, Inc.By:
Name:
Title:
Date:
    
    /s/ Donald R. Kimble

Donald R. Kimble

President

August 11, 2006Huntington Preferred Capital Holdings, IncBy:
Name:
Title:
Date:
    
    /s/ Michael S. Mayer

Michael S. Mayer

Vice President

August 11, 2006
 Acknowledged by:
    
    The Huntington National BankBy:
Name:
Title:
Date:
    
    /s/ Edward J. Kane

Edward J. Kane

Senior Vice President

August 11, 2006