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 March 31,
2010





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





Registrant's
telephone number (614)
480-8300





Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.  x Yes    ̈ No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).     ̈ Yes    ̈ No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer   x (Do not check if
      a smaller reporting company)
            Smaller
      reporting company  ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


 ̈ Yes   x No





As of
April 30, 2010, 14,000,000 shares of common stock without par value were
outstanding, all of which were held by affiliates of the
registrant.





HUNTINGTON
PREFERRED CAPITAL, INC.





INDEX





Part
      1.
                FINANCIAL
      INFORMATIONItem
      1.
                Financial
      Statements (Unaudited)Condensed
      Balance Sheets at March 31, 2010, December 31, 2009, and March 31,
      2009
                3Condensed
      Statements of Income for the three months ended March 31, 2010 and
      2009
                4Condensed
      Statements of Changes in Shareholders’ Equity for the three months
      ended  March 31, 2010 and 2009
                5Condensed
      Statements of Cash Flows for the three months ended March 31, 2010 and
      2009
                6Notes
      to Unaudited Condensed Financial Statements
                7Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                14Item
      3.
                Quantitative
      and Qualitative Disclosures about Market Risk
                27Item
      4.
                Controls
      and Procedures
                27Item
      4T.
                Controls
      and Procedures
                27PART
      II.
                OTHER
      INFORMATIONItem
      6.
                Exhibits
                27Signatures
                
                29


2




Part
1.  FINANCIAL INFORMATION
 
 Item
1.  Financial Statements (Unaudited)
  Huntington
Preferred Capital, Inc.
 Condensed
Balance Sheets
 (Unaudited)
 
 March 31,
                                            
                                            
                                            December 31,
                                            
                                            
                                            March 31,(in thousands, except share data)
                                            
                                            2010
                                            
                                            
                                            2009
                                            
                                            
                                            2009AssetsCash
      and interest bearing deposits with The Huntington National
      Bank
                                            
                                            $
                                            262,542
                                            
                                            
                                            $
                                            715,663
                                            
                                            
                                            $
                                            272,375Due
      from The Huntington National Bank
                                            
                                            
                                            99,892
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            95,196Loan
      participation interests:Commercial
      real estate
                                            
                                            
                                            3,051,953
                                            
                                            
                                            
                                            3,129,026
                                            
                                            
                                            
                                            3,282,302Consumer and residential real
      estate
                                            
                                            
                                            702,756
                                            
                                            
                                            
                                            744,627
                                            
                                            
                                            
                                            902,608Total
      loan participation interests
                                            
                                            
                                            3,754,709
                                            
                                            
                                            
                                            3,873,653
                                            
                                            
                                            
                                            4,184,910Allowance for loan participation
      losses
                                            
                                            
                                            (158,963
                                            )
                                            
                                            
                                            (156,431
                                            )
                                            
                                            
                                            (79,889
                                            )Net loan participation
      interests
                                            
                                            
                                            3,595,746
                                            
                                            
                                            
                                            3,717,222
                                            
                                            
                                            
                                            4,105,021Accrued income and other
    assets
                                            
                                            
                                            10,335
                                            
                                            
                                            
                                            10,470
                                            
                                            
                                            
                                            11,683Total assets
                                            
                                            $
                                            3,968,515
                                            
                                            
                                            $
                                            4,443,355
                                            
                                            
                                            $
                                            4,484,275Liabilities
      and shareholders' equityLiabilitiesAllowance
      for unfunded loan participation commitments
                                            
                                            $
                                            1,562
                                            
                                            
                                            $
                                            1,607
                                            
                                            
                                            $
                                            2,492Dividends
      and distributions payable
                                            
                                            
                                            334
                                            
                                            
                                            
                                            500,000
                                            
                                            
                                            
                                            1,493Due
      to The Huntington National Bank
                                            
                                            
                                            —
                                            
                                            
                                            
                                            8,640
                                            
                                            
                                            
                                            —Other liabilities
                                            
                                            
                                            45
                                            
                                            
                                            
                                            74
                                            
                                            
                                            
                                            46Total liabilities
                                            
                                            
                                            1,941
                                            
                                            
                                            
                                            510,321
                                            
                                            
                                            
                                            4,031Shareholders'
      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, andconditionally
      exchangeable; $1,000 par and liquidationvalue
      per share; authorized 500,000 shares; 400,000shares
      issued and outstanding
                                            
                                            
                                            400,000
                                            
                                            
                                            
                                            400,000
                                            
                                            
                                            
                                            400,000Preferred
      securities, Class C, 7.875% noncumulative andconditionally
      exchangeable; $25 par and liquidation valueper
      share; 2,000,000 shares authorized, issued, and
outstanding
                                            
                                            
                                            50,000
                                            
                                            
                                            
                                            50,000
                                            
                                            
                                            
                                            50,000Preferred
      securities, Class D, variable-rate, noncumulative, andconditionally
      exchangeable; $25 par and liquidation valueper
      share; 14,000,000 shares authorized, issued, and
    outstanding
                                            
                                            
                                            350,000
                                            
                                            
                                            
                                            350,000
                                            
                                            
                                            
                                            350,000Preferred
      securities, $25 par, 10,000,000 sharesauthorized;
      no shares issued or outstanding
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —Common
      stock - without par value; 14,000,000 shares authorized,issued,
      and outstanding
                                            
                                            
                                            3,160,217
                                            
                                            
                                            
                                            3,160,217
                                            
                                            
                                            
                                            3,660,217Retained earnings (deficit)
                                            
                                            
                                            5,357
                                            
                                            
                                            
                                            (28,183
                                            )
                                            
                                            
                                            19,027Total shareholders' equity
                                            
                                            
                                            3,966,574
                                            
                                            
                                            
                                            3,933,034
                                            
                                            
                                            
                                            4,480,244Total liabilities and shareholders'
      equity
                                            
                                            $
                                            3,968,515
                                            
                                            
                                            $
                                            4,443,355
                                            
                                            
                                            $
                                            4,484,275
 
 See
notes to unaudited condensed financial statements.
  3
 
 Huntington
Preferred Capital, Inc.
 Condensed
Statements of Income
 (Unaudited)
 
 Three Months EndedMarch31,(inthousands)
                        
                        2010
                        
                        
                        2009Interest
      and fee incomeInterest
      on loan participation interests:Commercial
      real estate
                        
                        $
                        26,561
                        
                        
                        $
                        29,326Consumer and residential real
      estate
                        
                        
                        11,606
                        
                        
                        
                        15,476Total
      loan participation interest income
                        
                        
                        38,167
                        
                        
                        
                        44,802Fees
      from loan participation interests
                        
                        
                        491
                        
                        
                        
                        269Interest on deposits with The Huntington National
      Bank
                        
                        
                        159
                        
                        
                        
                        102Total interest and fee
    income
                        
                        
                        38,817
                        
                        
                        
                        45,173Provision for credit losses
                        
                        
                        607
                        
                        
                        
                        18,988Interest income after provision for credit
      losses
                        
                        
                        38,210
                        
                        
                        
                        26,185Noninterest
      income:Rental
      income
                        
                        
                        17
                        
                        
                        
                        16Collateral fees
                        
                        
                        556
                        
                        
                        
                        677Total noninterest income
                        
                        
                        573
                        
                        
                        
                        693Noninterest
      expense:Servicing
      costs
                        
                        
                        2,117
                        
                        
                        
                        2,551Other
                        
                        
                        163
                        
                        
                        
                        165Total noninterest expense
                        
                        
                        2,280
                        
                        
                        
                        2,716Net income
                        
                        $
                        36,503
                        
                        
                        $
                        24,162Dividends declared on preferred
      securities
                        
                        
                        (2,963
                        )
                        
                        
                        (5,135
                        )Net income applicable to common
      shares
                        
                        $
                        33,540
                        
                        
                        $
                        19,027
 
 See
notes to unaudited condensed financial statements.
  4
 
 Huntington Preferred Capital, Inc.
 Condensed
Statements of Changes in Shareholders' Equity
 (Unaudited)
 
 Preferred,ClassA
                                
                                
                                Preferred,ClassB
                                
                                
                                Preferred,ClassC(inthousands)
                                
                                Shares
                                
                                
                                Amount
                                
                                
                                Shares
                                
                                
                                Amount
                                
                                
                                Shares
                                
                                
                                AmountThree
      Months Ended March 31, 2009:Balance,
      beginning of period
                                
                                
                                1
                                
                                
                                $
                                1,000
                                
                                
                                
                                400
                                
                                
                                $
                                400,000
                                
                                
                                
                                2,000
                                
                                
                                $
                                50,000Comprehensive
      Income:Net
      incomeTotal
      comprehensive incomeBalance, end of the period
                                
                                
                                1
                                
                                
                                $
                                1,000
                                
                                
                                
                                400
                                
                                
                                $
                                400,000
                                
                                
                                
                                2,000
                                
                                
                                $
                                50,000Three
      Months Ended March 31, 2010:Balance,
      beginning of period
                                
                                
                                1
                                
                                
                                $
                                1,000
                                
                                
                                
                                400
                                
                                
                                $
                                400,000
                                
                                
                                
                                2,000
                                
                                
                                $
                                50,000Comprehensive
      Income:Net
      incomeTotal
      comprehensive incomeBalance, end of the period
                                
                                
                                1
                                
                                
                                $
                                1,000
                                
                                
                                
                                400
                                
                                
                                $
                                400,000
                                
                                
                                
                                2,000
                                
                                
                                $
                                50,000
 
 Preferred,ClassD
                                                        
                                                        
                                                        Preferred
                                                        
                                                        
                                                        Common
                                                        
                                                        
                                                        Retained(inthousands)
                                                        
                                                        Shares
                                                        
                                                        
                                                        Amount
                                                        
                                                        
                                                        Shares
                                                        
                                                        
                                                        Amount
                                                        
                                                        
                                                        Shares
                                                        
                                                        
                                                        Amount
                                                        
                                                        
                                                        Earnings
                                                        
                                                        
                                                        TotalThree
      Months Ended March 31, 2009:Balance,
      beginning of period
                                                        
                                                        
                                                        14,000
                                                        
                                                        
                                                        $
                                                        350,000
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        $
                                                        —
                                                        
                                                        
                                                        
                                                        14,000
                                                        
                                                        
                                                        $
                                                        3,660,217
                                                        
                                                        
                                                        $
                                                        —
                                                        
                                                        
                                                        $
                                                        4,461,217Comprehensive
      Income:Net
      income
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        24,162
                                                        
                                                        
                                                        
                                                        24,162Total
      comprehensive income
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        24,162Dividends
      declared on Class A preferred securities
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (80
                                                        )
                                                        
                                                        
                                                        (80
                                                        )Dividends
      declared on Class B preferred securities
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (1,413
                                                        )
                                                        
                                                        
                                                        (1,413
                                                        )Dividends
      declared on Class C preferred securities
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (984
                                                        )
                                                        
                                                        
                                                        (984
                                                        )Dividends
      declared on Class D preferred securities
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (2,658
                                                        )
                                                        
                                                        
                                                        (2,658
                                                        )Balance,
      end of the period
                                                        
                                                        
                                                        14,000
                                                        
                                                        
                                                        $
                                                        350,000
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        $
                                                        —
                                                        
                                                        
                                                        
                                                        14,000
                                                        
                                                        
                                                        $
                                                        3,660,217
                                                        
                                                        
                                                        $
                                                        19,027
                                                        
                                                        
                                                        $
                                                        4,480,244Three
      Months Ended March 31, 2010:Balance,
      beginning of period
                                                        
                                                        
                                                        14,000
                                                        
                                                        
                                                        $
                                                        350,000
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        $
                                                        —
                                                        
                                                        
                                                        
                                                        14,000
                                                        
                                                        
                                                        $
                                                        3,160,217
                                                        
                                                        
                                                        $
                                                        (28,183
                                                        )
                                                        
                                                        $
                                                        3,933,034Comprehensive
      Income:Net
      income
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        36,503
                                                        
                                                        
                                                        
                                                        36,503Total
      comprehensive income
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        36,503Dividends
      declared on Class A preferred securities
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (80
                                                        )
                                                        
                                                        
                                                        (80
                                                        )Dividends
      declared on Class B preferred securities
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (254
                                                        )
                                                        
                                                        
                                                        (254
                                                        )Dividends
      declared on Class C preferred securities
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (984
                                                        )
                                                        
                                                        
                                                        (984
                                                        )Dividends
      declared on Class D preferred securities
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (1,645
                                                        )
                                                        
                                                        
                                                        (1,645
                                                        )Balance,
      end of the period
                                                        
                                                        
                                                        14,000
                                                        
                                                        
                                                        $
                                                        350,000
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        $
                                                        —
                                                        
                                                        
                                                        
                                                        14,000
                                                        
                                                        
                                                        $
                                                        3,160,217
                                                        
                                                        
                                                        $
                                                        5,357
                                                        
                                                        
                                                        $
                                                        3,966,574
 
 See
notes to unaudited condensed financial statements.
  5
 
 Huntington
Preferred Capital, Inc.
 Condensed
Statements of Cash Flows
 (Unaudited)
 
 Three Months EndedMarch 31,(inthousands)
                            
                            2010
                            
                            
                            2009Operating
      activitiesNet
      income
                            
                            $
                            36,503
                            
                            
                            $
                            24,162Adjustments
      to reconcile net income to netcash
      provided by operating activities:Provision
      for credit losses
                            
                            
                            607
                            
                            
                            
                            18,988Change
      in due to/from The Huntington National Bank
                            
                            
                            323
                            
                            
                            
                            3,376Other,
      net
                            
                            
                            403
                            
                            
                            
                            2,414Net cash provided by operating
      activities
                            
                            
                            37,836
                            
                            
                            
                            48,940Investing
      activitiesParticipation
      interests acquired
                            
                            
                            (388,992
                            )
                            
                            
                            (324,860
                            )Sales
      and repayments of loans underlying participation interests
                            
                            
                            400,664
                            
                            
                            
                            483,928Net cash provided by investing
      activities
                            
                            
                            11,672
                            
                            
                            
                            159,068Financing
      activitiesDividends
      paid on preferred securities
                            
                            
                            (2,629
                            )
                            
                            
                            (3,642
                            )Dividends
      paid on common stock
                            
                            
                            —
                            
                            
                            
                            (224,258
                            )Return
      of capital to common shareholders
                            
                            
                            (500,000
                            )
                            
                            
                            (742
                            )Net cash used for financing
      activities
                            
                            
                            (502,629
                            )
                            
                            
                            (228,642
                            )Decrease
      in cash and cash equivalents
                            
                            
                            (453,121
                            )
                            
                            
                            (20,634
                            )Cash and cash equivalents at beginning of
      period
                            
                            
                            715,663
                            
                            
                            
                            293,009Cash and cash equivalents at end of
      period
                            
                            $
                            262,542
                            
                            
                            $
                            272,375Supplemental
      information:Dividends
      and distributions declared, not paid
                            
                            $
                            334
                            
                            
                            $
                            1,493Non
      cash change in loan participation activity with The Huntington National
      Bank
                            
                            
                            108,855
                            
                            
                            
                            60,149
 
 See
notes to unaudited condensed financial statements.
  6
  Notes
to Unaudited Condensed Financial Statements
 
 Note
1 - Organization
 
 Huntington
Preferred Capital, Inc. (HPCI or the Company) was organized under Ohio law in
1992 and designated as a real estate investment trust (REIT) in 1998. 
HPCI’s principal business objective is to acquire, hold, and manage mortgage
assets and other authorized investments that will generate net income for
distribution to its shareholders.  Three related parties own HPCI’s common
stock: Huntington Capital Financing LLC (HCF); Huntington Preferred Capital II,
Inc. (HPCII); and Huntington Preferred Capital Holdings, Inc.
(Holdings).
 
 HCF,
HPCII, and Holdings are direct and indirect subsidiaries of The Huntington
National Bank (the Bank), a national banking association organized under the
laws of the United States and headquartered in Columbus, Ohio.  The Bank is
a wholly owned subsidiary of Huntington Bancshares Incorporated
(Huntington).  Huntington is a multi-state diversified financial holding
company organized under Maryland law and headquartered in Columbus, Ohio. 
At March 31, 2010, the Bank, on a consolidated basis with its subsidiaries,
accounted for over 98% of Huntington’s consolidated total assets and net income.
Thus, for purposes of presenting consolidated financial statements for the Bank,
Management considers information for the Bank and for Huntington to be
substantially the same for these periods.
 
 During
the first quarter of 2010, HPCI’s Board of Directors approved a proposal to
exchange HPCI’s preferred class D shares, currently held by Holdings, for newly
issued preferred class E shares. As of March 31, 2010, the exchange has not yet
occurred.  Upon exchange, one new share of class E preferred stock will be
issued and exchanged for each ten shares of class D preferred stock. The newly
issued 1,400,000 class E preferred shares will have the same terms as the class
D preferred stock. The per share liquidation value of the class E preferred
stock will be ten times ($250) that of the class D stock. The dividend rate and
terms will remain the same. The exchange will have no impact on HPCI’s financial
results since the liquidation value remains at $350,000,000.
 
 In
conjunction with applicable accounting standards, all material subsequent events
have been either recognized in the financial statements or disclosed in the
notes to the financial statements.
 
 Note
2 - Basis of Presentation and Accounting Standards Update
 
 The
accompanying unaudited condensed financial statements of HPCI reflect all
adjustments consisting of normal recurring accruals, which are, in the opinion
of Management, necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented.  These
unaudited condensed financial statements have been prepared according to the
rules and regulations of the Securities and Exchange Commission (SEC) and,
therefore, certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States (GAAP) have been omitted.  The Notes to the
Consolidated Financial Statements appearing in HPCI’s Annual Report on Form 10-K
for the year ended December 31, 2009 (Form 10-K), which include descriptions of
significant accounting policies, as updated by the information contained in this
report, should be read in conjunction with these interim financial
statements.
 
 HPCI
elected to be treated as a REIT for federal income tax purposes and intends to
maintain compliance with the provisions of the Internal Revenue Code and,
therefore, is not subject to federal income taxes.
 
 All of
HPCI’s common stock is owned by affiliates; therefore, net income per common
share information is not presented.
 
 Cash and
cash equivalents used in the Statement of Cash Flows is defined as “Cash and
interest bearing deposits with The Huntington National Bank.”
  7
  Accounting Standards Update (ASU)
2010-6 – Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements.The ASU amends Subtopic 820-10
with new disclosure requirements and clarification of existing disclosure
requirements.  New disclosures required include the amount of significant
transfers in and out of levels 1 and 2 fair value measurements and the reasons
for the transfers.  In addition, the reconciliation for level 3 activity
will be required on a gross rather than net basis.  The ASU provides
additional guidance related to the level of disaggregation in determining
classes of assets and liabilities and disclosures about inputs and valuation
techniques.  The amendments are effective for annual or interim reporting
periods beginning after December 15, 2009, except for the requirement to provide
the reconciliation for level 3 activity on a gross basis which will be effective
for fiscal years beginning after December 15, 2010.  The adoption of this
guidance was not material to HPCI’s condensed financial statements.
 
 Note
3 – Lending Concentrations and Participations in Non-Performing Assets and Past
Due Loans
 
 There
were no underlying loans outstanding that would be considered a concentration of
lending in any particular industry, group of industries, or business activity.
Underlying loans were, however, generally collateralized by real estate. Loans
made to borrowers in the five states of Ohio, Michigan, Indiana, Pennsylvania
and Kentucky comprised 94.4%, 93.8%, and 92.0% of the portfolio at March 31,
2010, December 31, 2009, and  March 31, 2009, respectively.
 
 Participations
in loans on non-accrual status and loans past due 90 days or more and still
accruing interest were as follows:
 
 March 31,
                      
                      
                      December 31,
                      
                      
                      March 31,(in thousands)
                      
                      2010
                      
                      
                      2009
                      
                      
                      2009Commercial
      real estate
                      
                      $
                      149,997
                      
                      
                      $
                      165,184
                      
                      
                      $
                      100,675Consumer and residential real
      estate
                      
                      
                      5,916
                      
                      
                      
                      5,554
                      
                      
                      
                      7,035Total participations in non-performing
      assets
                      
                      $
                      155,913
                      
                      
                      $
                      170,738
                      
                      
                      $
                      107,710Participations in accruing loans past due 90 days
      or more
                      
                      $
                      4,326
                      
                      
                      $
                      8,631
                      
                      
                      $
                      4,909
 
 Note
4 - Allowance for Credit Losses (ACL)
 
 The
allowance for credit losses (ACL) is comprised of the allowance for loan
participation losses (ALPL) and the allowance for unfunded loan participation
commitments (AULPC). Loan participations are acquired net of related ALPL. As a
result, the related ALPL is transferred to HPCI from the Bank and is reflected
as ALPL acquired, rather than HPCI recording provision for credit losses. If
credit quality deteriorates more than implied by the ALPL acquired, a provision
for credit losses is made. If credit quality performance is better than implied
by the ALPL acquired, a reduction in allowance for credit losses is recorded. As
loan participations mature, refinance, or other such actions occur, any
allowance not absorbed by loan losses is released through the reduction in
ALPL.
  8
  The
following table reflects activity in the ACL for the three-month periods ended
March 31, 2010 and 2009:
 
 Three Months EndedMarch 31(in thousands)
                              
                              2010
                              
                              
                              2009ALPL
      balance, beginning of period
                              
                              $
                              156,431
                              
                              
                              $
                              65,456ALPL
      for loan participations acquired
                              
                              
                              13,888
                              
                              
                              
                              4,130Net
      loan losses
                              
                              
                              (12,008
                              )
                              
                              
                              (8,494
                              )Provision for credit losses
                              
                              
                              652
                              
                              
                              
                              18,797ALPL balance, end of period
                              
                              $
                              158,963
                              
                              
                              $
                              79,889AULPC
      balance, beginning of period
                              
                              $
                              1,607
                              
                              
                              $
                              2,301Provision for (reduction in)
      AULPC
                              
                              
                              (45
                              )
                              
                              
                              191AULPC balance, end of
period
                              
                              $
                              1,562
                              
                              
                              $
                              2,492Total ACL
                              
                              $
                              160,525
                              
                              
                              $
                              82,381
 
 As of
March 31, 2010, December 31, 2009, and March 31, 2009, HPCI’s unfunded loan
commitments totaled $265.7 million, $303.7 million, and $388.2 million,
respectively.
 
 Note
5 – Preferred Dividends
 
 Holders
of Class A preferred securities, a majority of which are held by Holdings and
the remainder by current and past employees of Huntington and the Bank, are
entitled to receive, if, when, and as declared by the Board of Directors of HPCI
out of funds legally available, dividends at a fixed rate of $80.00 per share
per annum.  Dividends on the Class A preferred securities, if declared, are
payable annually in December to holders of record on the record date fixed for
such purpose by the Board of Directors in advance of payment.
 
 The
holder of the Class B preferred securities, HPC Holdings-II, Inc., a direct
non-bank subsidiary of Huntington, is entitled to receive, if, when, and as
declared by the Board of Directors of HPCI out of funds legally available,
dividends at a variable rate equal to three-month LIBOR published on the first
day of each calendar quarter times par value.  Dividends on the Class B
preferred securities, which are declared quarterly, are payable annually and are
non-cumulative.  No dividend, except payable in common shares, may be
declared or paid upon Class B preferred securities unless dividend obligations
are satisfied on the Class A, Class C, and Class D preferred
securities.
 
 Holders
of Class C preferred securities are entitled to receive, if, when, and as
declared by the Board of Directors of HPCI out of funds legally available,
dividends at a fixed rate of 7.875% per annum, of the initial liquidation
preference of $25.00 per share, payable quarterly.  Dividends accrue in
each quarterly period from the first day of each period, whether or not
dividends are paid with respect to the preceding period.  Dividends are not
cumulative and if no dividend is paid on the Class C preferred securities for a
quarterly dividend period, the payment of dividends on HPCI’s common stock and
other HPCI-issued securities ranking junior to the Class C preferred securities
(i.e., Class B
preferred securities) will be prohibited for that period and at least the
following three quarterly dividend periods.
 
 The
holder of Class D preferred securities, Holdings, is entitled to receive, if,
when, and as declared by the Board of Directors of HPCI out of funds legally
available, dividends at a variable rate established at the beginning of each
calendar quarter equal to three-month LIBOR published on the first day of each
calendar quarter, plus 1.625%, times par value, payable quarterly. 
Dividends accrue in each quarterly period from the first day of each period,
whether or not dividends are paid with respect to the preceding period. 
Dividends are not cumulative and if no dividend is paid on the Class D preferred
securities for a quarterly dividend period, the payment of dividends on HPCI’s
common stock and other HPCI-issued securities ranking junior to the Class D
preferred securities (i.e., Class B preferred
securities) will be prohibited for that period and at least the following three
quarterly dividend periods.
  9
 
 A summary
of dividends declared by each class of preferred securities follows for the
periods indicated:
 
 Three Months EndedMarch 31(in thousands)
                              
                              2010
                              
                              
                              2009Class
      A preferred securities
                              
                              $
                              80
                              
                              
                              $
                              80Class
      B preferred securities
                              
                              
                              254
                              
                              
                              
                              1,413Class
      C preferred securities
                              
                              
                              984
                              
                              
                              
                              984Class D preferred
securities
                              
                              
                              1,645
                              
                              
                              
                              2,658Total dividends declared
                              
                              $
                              2,963
                              
                              
                              $
                              5,135
 
 Regulatory
approval is required prior to the Bank’s declaration of any dividends in excess
of the Bank’s available retained earnings.  The amount of dividends that
may be declared without regulatory approval is further limited to the sum of net
income for the current year and retained net income for the preceding two years,
less any required transfers to surplus or common stock.  Based on these
regulatory dividend limitations, the Bank could not have declared and paid a
dividend at March 31, 2010, without regulatory approval. As a subsidiary of the
Bank, HPCI is also restricted from declaring or paying dividends on Class A, B,
and C preferred securities without regulatory approval.  The Office of the
Comptroller of the Currency (OCC) has approved the payment of HPCI's dividends
on its preferred securities throughout 2009 and the first quarter of 2010.
For the foreseeable future, management intends to request approval for any
future dividend; however, there can be no assurance that the OCC will continue
to approve future dividends.
 
 Note
6 - Related Party Transactions
 
 HPCI is a
party to a Third Amended and Restated Loan Subparticipation Agreement with
Holdings and a Second Amended and Restated Loan Participation Agreement with the
Bank.  The Bank is required, under the participation and/or
subparticipation agreements, to service HPCI’s loan portfolio in a manner
substantially the same as for similar work for transactions on its own behalf.
The Bank collects and remits principal and interest payments, maintains
perfected collateral positions, and submits and pursues insurance claims. In
addition, the Bank provides accounting and reporting services to HPCI. The Bank
is required to adhere to HPCI’s policies relating to the relationship between
HPCI and the Bank and to pay all expenses related to the performance of the
Bank’s duties under the participation and subparticipation agreements. All of
these participation interests to date were acquired directly or indirectly from
the Bank.
 
 The Bank
performs the servicing of the commercial real estate, consumer, and residential
real estate loans underlying the participations held by HPCI in accordance with
normal industry practice under the amended participation and subparticipation
agreements.  In its capacity as servicer, the Bank collects and holds the
loan payments received on behalf of HPCI until the end of each month.  Loan
servicing costs totaled $2.1 million and $2.6 million for the three-month
periods ended March 31, 2010 and 2009, respectively.
 
 In 2010
and 2009, the annual servicing rates the Bank charged with respect to
outstanding principal balances were:
 
 January 1, 2009throughMarch 31, 2010Commercial
      real estate
                          
                          
                          0.125
                          %Consumer
                          
                          
                          0.650
                          %Residential
      real estate
                          
                          
                          0.267
                          %
 
 Pursuant
to the existing participation and sub-participation agreements, the amount and
terms of the loan-servicing fee between the Bank and HPCI are determined by
mutual agreement from time-to-time during the terms of the agreements.  In
lieu of paying higher servicing costs to the Bank with respect to commercial
real estate loans, HPCI waived its right to receive any origination fees
associated with participation interests in commercial real estate loans. The
Bank and HPCI performed a review of loan servicing fees in 2009, and have agreed
to retain current servicing rates for all loan participation categories,
including the continued waiver by HPCI of its right to origination fees, until
such time as servicing fees are reviewed in 2010.
  10
 
 Huntington’s
and the Bank’s personnel handle day-to-day operations of HPCI such as financial
analysis and reporting, accounting, tax reporting, and other administrative
functions.  On a monthly basis, HPCI reimburses the Bank and Huntington for
the cost related to the time spent by employees for performing these
functions.  These personnel costs totaled $0.1 million for both of the
three-month periods ended March 31, 2010 and 2009, and are included in other
non-interest expense.
 
 The
following table represents the ownership of HPCI’s outstanding common and
preferred securities as of March 31, 2010:
 
 Number ofCommon
                              
                              
                              Number of Preferred SecuritiesShareholder:
                              
                              Shares
                              
                              
                              Class A
                              
                              
                              Class B
                              
                              
                              Class C
                              
                              
                              Class DHeld
      by related parties:HPCII
                              
                              
                              4,550,000
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —HCF
                              
                              
                              6,580,000
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Holdings
                              
                              
                              2,870,000
                              
                              
                              
                              895
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              14,000,000HPC
      Holdings-II, Inc.
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              400,000
                              
                              
                              
                              —
                              
                              
                              
                              —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
 
 As of
March 31, 2010, 10.5% of the Class A preferred securities were owned by current
and past employees of Huntington and its subsidiaries in addition to the 89.5%
owned by Holdings.  The Class A preferred securities are non-voting. 
All of the Class B preferred securities are owned by HPC Holdings-II, Inc., a
non-bank subsidiary of Huntington, and are non-voting.  In 2001, the Class
C preferred securities were obtained by Holdings, who sold the securities to the
public.  Various board members and executive officers of HPCI have
purchased a portion of the Class C preferred securities.  At March 31,
2010, HPCI board members and executive officers beneficially owned, in the
aggregate, a total of 6,771 shares, or 0.34% of the Class C preferred
securities.  All of the Class D preferred securities are owned by
Holdings.  Dividends declared and accrued to the Class C shareholders for
the first three months of 2010 were approximately $1.0 million.
 
 Both the
Class C and Class D preferred securities are entitled to one-tenth of one vote
per share on all matters submitted to HPCI shareholders.  The Class C and
Class D preferred securities are exchangeable, without shareholder approval or
any action of shareholders, for preferred securities of the Bank with
substantially equivalent terms as to dividends, liquidation preference, and
redemption if the Office of the Comptroller of the Currency (OCC) so directs
only if the Bank becomes, or may in the near term become, undercapitalized or
the Bank is placed in conservatorship or receivership.  The Class D
preferred securities are currently redeemable and Class C preferred securities
are redeemable at HPCI’s option on or after December 31, 2021, with prior
consent of the OCC.  In the event HPCI redeems its Class C or Class D
preferred securities, holders of such securities will be entitled to receive
$25.00 per share plus accrued and unpaid dividends on such shares.  The
redemption amount may be significantly different than the current market price
of the Class C or Class D preferred securities.
 
 As only
related parties hold HPCI’s common stock, there is no established public trading
market for this class of stock.
 
 HPCI had
a noninterest bearing receivable from the Bank of $99.9 million at March 31,
2010, a payable to the Bank of $8.6 million at December 31, 2009, and a
receivable from the Bank of $95.2 million at March 31, 2009.  The balances
represent the net settlement amounts due from or to, the Bank for the last month
of the period’s activity, and are settled shortly after period-end. 
Principal and interest payments on loan participations remitted by customers are
due from the Bank, while new loan participation purchases are due to the
Bank.
  11
 
 HPCI has
assets pledged in association with the Bank’s advances from the Federal Home
Loan Bank (FHLB).   For further information regarding this, see Note
8.
 
 HPCI
maintains and transacts all of its cash activity through the Bank. 
Typically, cash is invested with the Bank in an interest-bearing account. 
These interest-bearing balances are invested overnight or may be invested in
Eurodollar deposits with the Bank for a term of not more than 30 days at market
rates.
 
 Note
7 - Fair Value of Financial Instruments
 
 Fair
value is defined as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date.  A three-level valuation
hierarchy for disclosure of fair value measurements was established.  The
valuation hierarchy is based upon the transparency of inputs to the valuation of
an asset or liability as of the measurement date.  The three levels are
defined as follows:
 
 Level 1 – inputs to the
valuation methodology are quoted prices (unadjusted) for identical assets or
liabilities in active markets.
 
 Level 2 – inputs to the
valuation methodology include quoted prices for similar assets and liabilities
in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial
instrument.
 
 Level 3 – inputs to the
valuation methodology are unobservable and significant to the fair value
measurement.
 
 A
financial instrument’s categorization within the valuation hierarchy is based
upon the lowest level of input that is significant to the fair value
measurement.
 
 Certain
assets and liabilities may be required to be measured at fair value on a
nonrecurring basis in periods subsequent to their initial recognition. These
assets and liabilities are not measured at fair value on an ongoing basis;
however, they are subject to fair value adjustments in certain circumstances,
such as when there is evidence of impairment.
 
 Periodically,
HPCI records adjustments of collateral-dependent loan participation interest
measured for impairment when establishing the ACL. Such amounts are generally
based on the fair value of the underlying collateral supporting the loan. In
cases where the carrying value exceeds the fair value of the collateral, an
impairment charge is recognized. During the three months ended March 31, 2010,
HPCI had $2.9 million of impaired loans for which the fair value is recorded
based upon collateral value, a Level 3 input in the valuation hierarchy. 
For the three months ended March 31, 2010 nonrecurring fair value losses of $0.7
million were recorded within the provision for credit losses.
 
 The
following methods and assumptions were used by HPCI to estimate the fair value
of the classes of financial instruments:
 
 Cash and interest-bearing deposits,
and due from The Huntington National Bank- The carrying value
approximates the fair value.
 
 Loan participation interests– Underlying variable rate loans that reprice frequently are based on
carrying amounts, as adjusted for estimated credit losses. The fair values for
other loans are estimated using discounted cash flow analyses and employ
interest rates currently being offered for loans with similar terms. The rates
take into account the position of the yield curve, as well as an adjustment for
prepayment risk, operating costs, and profit. This value is also reduced by an
estimate of probable losses and the credit risk associated in the loan
portfolio. As of March 31, 2010, the carrying amount of $3.8 billion
corresponded to a fair value of $2.8 billion. At March 31, 2010, the valuation
of the loan portfolio reflected discounts that HPCI believed are consistent with
transactions occurring in the market place.
  12
 
 Note
8 - Commitments and Contingencies
 
 The Bank
is eligible to obtain collateralized advances from various federal and
government-sponsored agencies such as the FHLB.  From time-to-time, HPCI
may be asked to act asguarantor of the
Bank’s obligations under such advances and/or pledge a portion of its
assets in connection with those advances.  Any such guarantee and/or pledge
would rank senior to HPCI’s common and preferred securities upon liquidation.
Accordingly, any federal or government-sponsored agencies that make advances to
the Bank where HPCI has acted as guarantor or has pledged a portion of its
assets as collateral will have a liquidation preference over the holders of
HPCI’s securities. Any such guarantee and/or pledge in connection with the
Bank’s advances from the FHLB falls within the definition of Permitted
Indebtedness (as defined in HPCI’s articles of incorporation) and, therefore,
HPCI is not required to obtain the consent of the holders of its common or
preferred securities for any such guarantee and/or pledge.
 
 Currently, HPCI’s assets have been used to collateralize
only one such facility.  The Bank has a line of credit from the FHLB,
limited to $2.3 billion as of March 31, 2010, based on the Bank’s holdings of
FHLB stock.  As of this same date, the Bank had borrowings of $0.2 billion
under this facility, the same amount that was borrowed at  December 31,
2009.
 
 HPCI has
entered into an Amended and Restated Agreement with the Bank with respect to the
pledge of HPCI’s assets to collateralize the Bank’s borrowings from the FHLB.
The agreement provides that the Bank will not place at risk HPCI’s assets in
excess of an aggregate dollar amount or aggregate percentage of such assets
established from time-to-time by HPCI’s board of directors, including a majority
of HPCI’s independent directors.  The pledge limit was established by
HPCI’s board at 25% of total assets as reflected in HPCI’s month-end management
report, or approximately $1.0 billion as of March 31, 2010. This pledge limit
may be changed in the future by the board of directors, including a majority of
HPCI’s independent directors.  The amount of HPCI’s participation interests
pledged was $0.6 billion at March 31, 2010.  In 2010, the loans pledged
consisted of 1-4 family residential mortgage loans.  The agreement also
provides that the Bank will pay HPCI a monthly fee based upon the total loans
pledged by HPCI.  The Bank paid HPCI a total of $0.6 million and $0.7
million for the three months ended March 31, 2010 and 2009, respectively, as
compensation for making such assets available to the Bank.  The fee
represented thirty-five basis points per year on total pledged
loans.
 
 Under the terms of the participation and
subparticipation agreements, HPCI is obligated to make funds or credit available
to the Bank, either directly or indirectly through Holdings, so that the Bank
may extend credit to any borrowers, or pay letters of credit issued for the
account of any borrowers, to the extent provided in the loan agreements
underlying HPCI’s participation interests. As of March 31, 2010, December 31,
2009, and March 31, 2009, HPCI’s unfunded loan commitments totaled $265.7
million, $303.7 million, and $388.2 million, respectively.
 
 During
2008, the State of Indiana proposed adjustments to HPCI’s previously filed tax
returns.  Management believes that HPCI’s positions taken related to such
proposed adjustments were correct and supported by applicable statutes,
regulations, or judicial authority, and intends to vigorously defend them.
Although no assurance can be given, we believe that the resolution of this
examination will not have a material adverse impact on HPCI’s financial position
or results of operations.
 
 Note
9 - Segment Reporting
 
 HPCI’s
operations consist of acquiring, holding, and managing its participation
interests.  Accordingly, HPCI only operates in one segment.  HPCI has
no external customers and transacts all of its business with the Bank and its
affiliates.
  13
  Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
 
 INTRODUCTION
 
 Huntington
Preferred Capital, Inc. (HPCI or the Company) is an Ohio corporation operating
as a real estate investment trust (REIT) for federal income tax purposes. HPCI’s
principal business objective is to acquire, hold, and manage mortgage assets and
other authorized investments that will generate net income for distribution to
its shareholders.
 
 HPCI is a
party to a Third Amended and Restated Loan Subparticipation Agreement with
Huntington Preferred Capital Holdings, Inc. (Holdings) and a Second Amended and
Restated Loan Participation Agreement with The Huntington National Bank (the
Bank).  The Bank is required, under the participation and/or
subparticipation agreements, to service HPCI’s loan portfolio in a manner
substantially the same as for similar work for transactions on its own behalf.
The Bank collects and remits principal and interest payments, maintains
perfected collateral positions, and submits and pursues insurance claims. In
addition, the Bank provides to HPCI accounting and reporting services as
required. The Bank is required to adhere to HPCI’s policies relating to the
relationship between HPCI and the Bank and to pay all expenses related to the
performance of the Bank’s duties under the participation and subparticipation
agreements. All of these participation interests to date were acquired directly
or indirectly from the Bank.
 
 The
following discussion and analysis provides information the Company believes is
necessary for understanding the financial condition, changes in financial
condition, results of operations, and cash flows and should be read in
conjunction with the financial statements, notes, and other information
contained in this report. The Management’s Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) appearing in HPCI’s Annual Report
on Form 10-K for the year ended December 31, 2009 (Form 10-K) should be read in
conjunction with this interim MD&A.
 
 Forward-looking
Statements
 
 This
report, including this MD&A, contains forward-looking statements about HPCI.
These include descriptions of products or services, plans, or objectives of
Management for future operations, and forecasts of revenues, earnings, cash
flows, or other measures of economic performance. Forward-looking statements can
be identified by the fact that they do not relate strictly to historical or
current facts.
 
 By their
nature, forward-looking statements are subject to numerous assumptions, risks,
and uncertainties. A number of factors could cause actual conditions, events, or
results to differ significantly from those described in the forward-looking
statements. These factors include, but are not limited to, those set forth under
the heading “Risk Factors” included in Item 1A of HPCI’s Form 10-K and other
factors described in this report and from time to time in other filings with the
Securities and Exchange Commission (SEC).
 
 Management
encourages readers of this report to understand forward-looking statements to be
strategic objectives rather than absolute forecasts of future performance.
Forward-looking statements speak only as of the date they are made. HPCI assumes
no obligation to update forward-looking statements to reflect circumstances or
events that occur after the date the forward-looking statements were made or to
reflect the occurrence of unanticipated events.
 
 Risk
Factors
 
 HPCI is
subject to a number of risks that may adversely affect its financial condition
or results of operation, many of which are outside of the Company’s direct
control, though efforts are made to manage those risks while optimizing returns.
Credit risk related to retail properties and single family homebuilders is of
particular concern in the current economy.  See “Credit Risk” section of
this report. Additionally, more information on risk is set forth under the
heading “Risk Factors” included in Item 1A of HPCI’s Form 10-K, and subsequent
filings with the SEC.
  14
 
 Critical
Accounting Policies
 
 HPCI’s
financial statements were prepared in accordance with accounting principles
generally accepted in the United States (GAAP). The preparation of financial
statements in conformity with GAAP requires the Company to establish critical
accounting policies and make accounting estimates, assumptions, and judgments
that affect amounts recorded and reported in our financial statements. Note 1 to
HPCI’s consolidated financial statements included in its Form 10-K lists
significant accounting policies used in the development and presentation of its
financial statements. This MD&A, the significant accounting policies, and
other financial statement disclosures, identify and address key variables and
other qualitative and quantitative factors that are necessary for an
understanding and evaluation of HPCI, its financial position, results of
operations, and cash flows.
 
 Use
of Significant Estimates
 
 The
preparation of financial statements in conformity with GAAP requires Management
to establish critical accounting policies and make accounting estimates,
assumptions, and judgments that affect amounts recorded and reported in the
Company’s financial statements. An accounting estimate requires assumptions
about uncertain matters that could have a material effect on the financial
statements if a different amount within a range of estimates were used or if
estimates changed from period to period. Readers of this interim report should
understand that estimates are made under facts and circumstances at a point in
time and changes in those facts and circumstances could produce actual results
that differ from when those estimates were made. HPCI’s Management has
identified the most significant accounting estimates and their related
application in its Form 10-K.
 
 Total Allowances for Credit
Losses (ACL)
 
 The
allowance for credit losses (ACL) is comprised of the allowance for loan
participation losses (ALPL) and the allowance for unfunded loan participation
commitments (AULPC). The amount of the ACL was determined by judgments regarding
the quality of each individual loan portfolio and loan commitments.  All
known relevant internal and external factors that affected loan collectability
were considered, including analysis of historical charge-off experience,
migration patterns, changes in economic conditions, and changes in loan
collateral values.  Such factors are subject to regular review and may
change to reflect updated performance trends and expectations, particularly in
times of severe stress. It is HPCI’s policy to rely on the Bank’s detailed
analysis as of the end of each quarter to estimate the required level of the
ALPL and AULPC.  The Bank’s methodology to determine the adequacy of the
ALPL relies on a number of analytical tools and benchmarks. No single statistic
or measurement, in itself, determines the adequacy of the allowance. HPCI
believes the Bank’s process for determining the ACL considers all of the
potential factors that could result in credit losses.  However, the process
includes judgmental and quantitative elements that may be subject to significant
change.  There is no certainty that the ACL will be adequate over time to
cover credit losses in the portfolio because of continued adverse changes in the
economy, market conditions, or events adversely affecting specific customers,
industries or markets.   To the extent actual outcomes differ from our
estimates, the credit quality of our customer base materially decreases, the
risk profile of a market, industry, or group of customers changes materially, or
if the ACL is determined to not be adequate, additional provision for credit
losses could be required, which could adversely affect our business, financial
condition, liquidity, capital, and results of operations in future
periods.
 
 The ACL
of $160.5 million at March 31, 2010, was 4.28% of total loan participation
interests.  To illustrate the potential effect on the financial statements
of our estimates of the ACL, a 50 basis point, or 11.7%, increase would have
required $19.0 million in additional reserves (funded by additional provision
for credit losses), which would have negatively impacted the net income of the
first three-month period of 2010 by approximately $19.0 million.  The ACL
of $160.5 million at March 31, 2010, represented a 1.6% increase from $158.0
million at December 31, 2009.
  15
  QUALIFICATION
TESTS
 
 Qualification
as a REIT involves application of specific provisions of the Internal Revenue
Code relating to various asset tests.  A REIT must satisfy six asset tests
quarterly: (1) 75% of the value of the REIT's total assets must consist of real
estate assets, cash and cash items, and government securities; (2) not more than
25% of the value of the REIT's total assets may consist of securities, other
than those includible under the 75% test; (3) not more than 5% of the value of
its total assets may consist of securities of any one issuer, other than those
securities includible under the 75% test or securities of taxable REIT
subsidiaries; (4) not more than 10% of the outstanding voting power of any one
issuer may be held, other than those securities includible under the 75% test or
securities of taxable REIT subsidiaries; (5) not more than 10% of the total
value of the outstanding securities of any one issuer may be held, other than
those securities includible under the 75% test or securities of taxable REIT
subsidiaries; and (6) a REIT cannot own securities in one or more taxable REIT
subsidiaries which comprise more than 20% of its total assets.  At March
31, 2010, HPCI met all of the quarterly asset tests.
 
 Also, a
REIT must annually satisfy two gross income tests: (1) 75% of its gross income
must be from qualifying income closely connected with real estate activities;
and (2) 95% of its gross income must be derived from sources qualifying for the
75% test plus dividends, interest, and gains from the sale of securities. 
In addition, a REIT must distribute 90% of the REIT’s taxable income for the
taxable year, excluding any net capital gains, to maintain its non-taxable
status for federal income tax purposes.
 
 HPCI
operates in a manner that will not cause it to be deemed an investment company
under the Investment Company Act.  The Investment Company Act exempts from
registration as an investment company an entity that is primarily engaged in the
business of "purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate" (Qualifying Interests).  Under positions taken by
the SEC staff in no-action letters, in order to qualify for this exemption, HPCI
must invest at least 55% of its assets in Qualifying Interests and an additional
25% of its assets in real estate-related assets, although this percentage may be
reduced to the extent that more than 55% of its assets are invested in
Qualifying Interests.  The assets in which HPCI may invest under the
Internal Revenue Code therefore may be further limited by the provisions of the
Investment Company Act and positions taken by the SEC staff.  At March 31,
2010, HPCI was exempt from registration as an investment company under the
Investment Company Act and intends to operate its business in a manner that will
maintain this exemption.
 
 RESULTS
OF OPERATIONS
 
 HPCI’s
income is primarily derived from its participation in loans acquired from the
Bank and Holdings. Income varies based on the level of these assets and their
respective interest rates. The cash flows from these assets are used to satisfy
HPCI’s preferred dividend obligations. The preferred securities are considered
equity and, therefore, the dividends are not reflected as interest
expense.
 
 The
following table details the results of operations for the last five quarters.
The increase in net income for the first quarter of 2010, compared with same
period of 2009, was primarily the result of lower provision for credit losses,
which more than offset lower interest and fee income.
  16
 
 Table 1
      -
      Quarterly Statements of Income2010
                                                                    
                                                                    
                                                                    2009
                                                                    
                                                                    
                                                                    1Q10vs1Q09(in thousands)
                                                                    
                                                                    First
                                                                    
                                                                    
                                                                    Fourth
                                                                    
                                                                    
                                                                    Third
                                                                    
                                                                    
                                                                    Second
                                                                    
                                                                    
                                                                    First
                                                                    
                                                                    
                                                                    $Chg
                                                                    
                                                                    
                                                                    %ChgInterest
      and fee incomeInterest
      on loan participation interests:Commercial
      real estate
                                                                    
                                                                    $
                                                                    26,561
                                                                    
                                                                    
                                                                    $
                                                                    26,321
                                                                    
                                                                    
                                                                    $
                                                                    26,575
                                                                    
                                                                    
                                                                    $
                                                                    27,071
                                                                    
                                                                    
                                                                    $
                                                                    29,326
                                                                    
                                                                    
                                                                    $
                                                                    (2,765
                                                                    )
                                                                    
                                                                    
                                                                    (9.4
                                                                    )%Consumer
      and residential real
      estate
                                                                    
                                                                    
                                                                    11,606
                                                                    
                                                                    
                                                                    
                                                                    12,576
                                                                    
                                                                    
                                                                    
                                                                    13,392
                                                                    
                                                                    
                                                                    
                                                                    14,278
                                                                    
                                                                    
                                                                    
                                                                    15,476
                                                                    
                                                                    
                                                                    
                                                                    (3,870
                                                                    )
                                                                    
                                                                    
                                                                    (25.0
                                                                    )Total
      loan participation interest income
                                                                    
                                                                    
                                                                    38,167
                                                                    
                                                                    
                                                                    
                                                                    38,897
                                                                    
                                                                    
                                                                    
                                                                    39,967
                                                                    
                                                                    
                                                                    
                                                                    41,349
                                                                    
                                                                    
                                                                    
                                                                    44,802
                                                                    
                                                                    
                                                                    
                                                                    (6,635
                                                                    )
                                                                    
                                                                    
                                                                    (14.8
                                                                    )Fees
      from loan participation interests
                                                                    
                                                                    
                                                                    491
                                                                    
                                                                    
                                                                    
                                                                    297
                                                                    
                                                                    
                                                                    
                                                                    379
                                                                    
                                                                    
                                                                    
                                                                    290
                                                                    
                                                                    
                                                                    
                                                                    269
                                                                    
                                                                    
                                                                    
                                                                    222
                                                                    
                                                                    
                                                                    
                                                                    82.5Interest
      on deposits with the
      Bank
                                                                    
                                                                    
                                                                    159
                                                                    
                                                                    
                                                                    
                                                                    454
                                                                    
                                                                    
                                                                    
                                                                    395
                                                                    
                                                                    
                                                                    
                                                                    284
                                                                    
                                                                    
                                                                    
                                                                    102
                                                                    
                                                                    
                                                                    
                                                                    57
                                                                    
                                                                    
                                                                    
                                                                    55.9Total
      interest and fee income
                                                                    
                                                                    
                                                                    38,817
                                                                    
                                                                    
                                                                    
                                                                    39,648
                                                                    
                                                                    
                                                                    
                                                                    40,741
                                                                    
                                                                    
                                                                    
                                                                    41,923
                                                                    
                                                                    
                                                                    
                                                                    45,173
                                                                    
                                                                    
                                                                    
                                                                    (6,356
                                                                    )
                                                                    
                                                                    
                                                                    (14.1
                                                                    )Provision
      for credit
      losses
                                                                    
                                                                    
                                                                    607
                                                                    
                                                                    
                                                                    
                                                                    84,740
                                                                    
                                                                    
                                                                    
                                                                    27,701
                                                                    
                                                                    
                                                                    
                                                                    40,497
                                                                    
                                                                    
                                                                    
                                                                    18,988
                                                                    
                                                                    
                                                                    
                                                                    (18,381
                                                                    )
                                                                    
                                                                    
                                                                    96.8Interest
      income (loss) afterprovision
      for credit
      losses
                                                                    
                                                                    
                                                                    38,210
                                                                    
                                                                    
                                                                    
                                                                    (45,092
                                                                    )
                                                                    
                                                                    
                                                                    13,040
                                                                    
                                                                    
                                                                    
                                                                    1,426
                                                                    
                                                                    
                                                                    
                                                                    26,185
                                                                    
                                                                    
                                                                    
                                                                    12,025
                                                                    
                                                                    
                                                                    
                                                                    45.9Noninterest
      income:Rental
      income
                                                                    
                                                                    
                                                                    17
                                                                    
                                                                    
                                                                    
                                                                    16
                                                                    
                                                                    
                                                                    
                                                                    17
                                                                    
                                                                    
                                                                    
                                                                    16
                                                                    
                                                                    
                                                                    
                                                                    16
                                                                    
                                                                    
                                                                    
                                                                    1
                                                                    
                                                                    
                                                                    
                                                                    6Collateral
      fees
                                                                    
                                                                    
                                                                    556
                                                                    
                                                                    
                                                                    
                                                                    578
                                                                    
                                                                    
                                                                    
                                                                    609
                                                                    
                                                                    
                                                                    
                                                                    640
                                                                    
                                                                    
                                                                    
                                                                    677
                                                                    
                                                                    
                                                                    
                                                                    (121
                                                                    )
                                                                    
                                                                    
                                                                    (17.9
                                                                    )Total
      noninterest
      income
                                                                    
                                                                    
                                                                    573
                                                                    
                                                                    
                                                                    
                                                                    594
                                                                    
                                                                    
                                                                    
                                                                    626
                                                                    
                                                                    
                                                                    
                                                                    656
                                                                    
                                                                    
                                                                    
                                                                    693
                                                                    
                                                                    
                                                                    
                                                                    (120
                                                                    )
                                                                    
                                                                    
                                                                    (17.3
                                                                    )Non-interest
      expense:Servicing
      costs
                                                                    
                                                                    
                                                                    2,117
                                                                    
                                                                    
                                                                    
                                                                    2,180
                                                                    
                                                                    
                                                                    
                                                                    2,264
                                                                    
                                                                    
                                                                    
                                                                    2,387
                                                                    
                                                                    
                                                                    
                                                                    2,551
                                                                    
                                                                    
                                                                    
                                                                    (434
                                                                    )
                                                                    
                                                                    
                                                                    (17.0
                                                                    )Other
                                                                    
                                                                    
                                                                    163
                                                                    
                                                                    
                                                                    
                                                                    172
                                                                    
                                                                    
                                                                    
                                                                    162
                                                                    
                                                                    
                                                                    
                                                                    235
                                                                    
                                                                    
                                                                    
                                                                    165
                                                                    
                                                                    
                                                                    
                                                                    (2
                                                                    )
                                                                    
                                                                    
                                                                    (1.2
                                                                    )Total
      noninterest
      expense
                                                                    
                                                                    
                                                                    2,280
                                                                    
                                                                    
                                                                    
                                                                    2,352
                                                                    
                                                                    
                                                                    
                                                                    2,426
                                                                    
                                                                    
                                                                    
                                                                    2,622
                                                                    
                                                                    
                                                                    
                                                                    2,716
                                                                    
                                                                    
                                                                    
                                                                    (436
                                                                    )
                                                                    
                                                                    
                                                                    (16.1
                                                                    )Net
      income
      (loss)
                                                                    
                                                                    $
                                                                    36,503
                                                                    
                                                                    
                                                                    $
                                                                    (46,850
                                                                    )
                                                                    
                                                                    $
                                                                    11,240
                                                                    
                                                                    
                                                                    $
                                                                    (540
                                                                    )
                                                                    
                                                                    $
                                                                    24,162
                                                                    
                                                                    
                                                                    $
                                                                    12,341
                                                                    
                                                                    
                                                                    
                                                                    51.1Dividends
      declared on preferred
      securities
                                                                    
                                                                    
                                                                    (2,963
                                                                    )
                                                                    
                                                                    
                                                                    (2,940
                                                                    )
                                                                    
                                                                    
                                                                    (3,507
                                                                    )
                                                                    
                                                                    
                                                                    (4,613
                                                                    )
                                                                    
                                                                    
                                                                    (5,135
                                                                    )
                                                                    
                                                                    
                                                                    2,172
                                                                    
                                                                    
                                                                    
                                                                    42.3Net income (loss)
      applicable to common shares (1)
                                                                    
                                                                    $
                                                                    33,540
                                                                    
                                                                    
                                                                    $
                                                                    (49,790
                                                                    )
                                                                    
                                                                    $
                                                                    7,733
                                                                    
                                                                    
                                                                    $
                                                                    (5,153
                                                                    )
                                                                    
                                                                    $
                                                                    19,027
                                                                    
                                                                    
                                                                    $
                                                                    14,513
                                                                    
                                                                    
                                                                    
                                                                    76.3
                                                                    %
 (1) All of
HPCI’s common stock is owned by HPCII, HCF, and Holdings and, therefore, net
income (loss) per share is not presented.
  17


Interest and Fee
Income
 
 HPCI’s
primary source of revenue is interest and fee income on its participation
interests in loans.  At March 31, 2010 and 2009, HPCI did not have any
interest-bearing liabilities or related interest expense.  Interest
income is impacted by changes in the levels of interest rates and earning
assets.  The yield on earning assets is the percentage of interest
income to average earning assets.
 
 The
tables below show HPCI’s average balances, interest and fee income, and yields
for the three-month periods ended March 31, 2010 and 2009:
 
 Table
      2 - Interest and Fee IncomeThree Months Ended March 31,2010
                                                    
                                                    
                                                    2009(in
      millions)
                                                    
                                                    Average
                                                      Balance
                                                    
                                                    
                                                    Income (1)
                                                    
                                                    
                                                    Yield
                                                    
                                                    
                                                    Average
                                                      Balance
                                                    
                                                    
                                                    Income (1)
                                                    
                                                    
                                                    YieldLoan
      participation interests:Commercial
      real estate
                                                    
                                                    $
                                                    3,105.3
                                                    
                                                    
                                                    $
                                                    27.0
                                                    
                                                    
                                                    
                                                    3.53
                                                    %
                                                    
                                                    $
                                                    3,383.5
                                                    
                                                    
                                                    $
                                                    29.5
                                                    
                                                    
                                                    
                                                    3.53
                                                    %Consumer
      and residential real estate
                                                    
                                                    
                                                    725.0
                                                    
                                                    
                                                    
                                                    11.6
                                                    
                                                    
                                                    
                                                    6.52
                                                    
                                                    
                                                    
                                                    940.2
                                                    
                                                    
                                                    
                                                    15.6
                                                    
                                                    
                                                    
                                                    6.73Total
      loan participations
                                                    
                                                    
                                                    3,830.3
                                                    
                                                    
                                                    
                                                    38.6
                                                    
                                                    
                                                    
                                                    4.09
                                                    
                                                    
                                                    
                                                    4,323.7
                                                    
                                                    
                                                    
                                                    45.1
                                                    
                                                    
                                                    
                                                    4.23Interest
      bearing deposits in the Bank
                                                    
                                                    
                                                    254.9
                                                    
                                                    
                                                    
                                                    0.2
                                                    
                                                    
                                                    
                                                    0.25
                                                    
                                                    
                                                    
                                                    176.4
                                                    
                                                    
                                                    
                                                    0.1
                                                    
                                                    
                                                    
                                                    0.23Total
                                                    
                                                    $
                                                    4,085.2
                                                    
                                                    
                                                    $
                                                    38.8
                                                    
                                                    
                                                    
                                                    3.85
                                                    %
                                                    
                                                    $
                                                    4,500.1
                                                    
                                                    
                                                    $
                                                    45.2
                                                    
                                                    
                                                    
                                                    4.07
                                                    %(1) Income
      includes interest and
fees.
 
 Interest
and fee income was $38.8 million for the three-months ended March 31, 2010,
compared with $45.2 million for the year ago quarter. As shown in Table 2, the
decrease in interest and fee income was the result of lower yields and lower
balances, as well as a $48.2 million increase in non-accrual loan balances in
that same time period. For the three-months ended March 31, 2010 and 2009, the
yield decreased 22 basis points to 3.85%, while average earning asset balances
decreased $414.8 million, or 9.2%.  At March 31, 2010, December 31,
2009, and March 31, 2009, approximately 73%, 72%, and 68%, respectively, of the
portfolio was comprised of variable interest rate loan
participations.  The table above includes interest received on
participations in loans that are on a non-accrual status in the individual
portfolios.
 
 Provision for credit
losses
 
 The
provision for credit losses is the charge to earnings necessary to maintain the
ACL at a level adequate to absorb Management’s estimate of inherent probable
losses in the loan portfolio. Loan participations are acquired net of related
allowance for loan participation losses (ALPL).  As a result, this
ALPL is transferred to HPCI from the Bank and is reflected as ALPL acquired,
rather than HPCI recording provision for credit losses. If credit quality
deteriorates more than implied by the ALPL acquired, a provision to the ALPL is
made. If credit quality performance is better than implied by the ALPL acquired,
an ALPL reduction is recorded. As loan participations mature, refinance, or
other such actions occur, any allowance not absorbed by loan losses is released
through a reduction in ALPL. Such adjustments for the quarter ended March 31,
2010 resulted in a provision for credit losses of $0.6 million compared with a
provision for credit losses of $19.0 million for the year-ago
quarter.
 
 Noninterest Income and
Noninterest Expense
 
 Noninterest
income included fees from the Bank for use of HPCI’s assets as collateral for
the Bank’s advances from the Federal Home Loan Bank (FHLB).  These
fees totaled $0.6 million and $0.7 million for the three-months ended March 31,
2010 and 2009, respectively(See Note 8to the unaudited condensed financial
statements for more information regarding use of HPCI’s assets as collateral for
the Bank’s advances from the FHLB.)
  18
 
 Noninterest
expense for the first quarter of 2010 was $2.3 million compared with $2.7
million for the same period last year. The predominant component of HPCI’s
noninterest expense was the fee paid to the Bank for servicing the loans
underlying the participation interests.  For the first quarter 2010,
servicing costs amounted to $2.1 million, compared with $2.6 million for the
comparable quarter of the prior year.  The annual servicing rates the
Bank charged with respect to outstanding principal balances in 2010 and 2009
were:
 
 January 1, 2009throughMarch 31, 2010Commercial
      real estate
                                                
                                                
                                                0.125
                                                %Consumer
                                                
                                                
                                                0.650
                                                %Residential
      real estate
                                                
                                                
                                                0.267
                                                %
 
 Pursuant
to the existing participation and subparticipation agreements, the amount and
terms of the loan-servicing fee between the Bank and HPCI are determined by
mutual agreement from time to time during the terms of the
agreements.  In lieu of paying higher servicing costs to the Bank with
respect to commercial real estate loans, HPCI waived its right to receive any
origination fees associated with participation interests in commercial real
estate loans.  The Bank and HPCI performed a review of loan servicing
fees in 2009, and agreed to retain current servicing rates for all loan
participation categories, including the continued waiver by HPCI of its right to
origination fees, until such time as servicing fees are reviewed in
2010.
 
 Provision for Income
Taxes
 
 HPCI has
elected to be treated as a REIT for Federal income tax purposes and intends to
maintain compliance with the provisions of the Internal Revenue Code and,
therefore, is not subject to federal income taxes.
 
 During
2008, the State of Indiana proposed adjustments to HPCI’s previously filed tax
returns.  Management believes that HPCI’s positions taken related to
such proposed adjustments were correct and supported by applicable statutes,
regulations, or judicial authority, and intends to vigorously defend them.
Although no assurance can be given, we believe that the resolution of this
examination will not have a material adverse impact on HPCI’s financial position
or results of operations.
 
 CREDIT
EXPOSURE MIX
 
 HPCI’s
largest credit exposure was commercial real estate loan participation interests,
which totaled $3.1 billion and represented 81% of total loan participation
interests at March 31, 2010, compared with 78% at March 31,
2009.   Total consumer and residential real estate loan
participation interests were $0.7 billion and represented 19% of total loan
participations at March 31, 2010, compared with 22% at March 31, 2009. These
portfolios are discussed in greater detail below in the “Commercial Real Estate
Credit” and “Consumer Credit” sections of this report.
  19
  Credit
Risk
 
 Credit
risk is the risk of loss due to adverse changes in a borrower’s ability to meet
its financial obligations under agreed upon terms.  Credit risk is
mitigated through a combination of credit policies and processes and portfolio
diversification.  These include loan origination/underwriting
criteria, portfolio monitoring processes, and effective problem asset
management.
 
 HPCI’s
exposure to credit risk is managed by personnel of the Bank through this credit
risk management process. Based upon an assessment of the credit risk inherent in
HPCI’s portfolio of loan participation interests, an ALPL is transferred from
the Bank to HPCI on loans underlying the participations at the time the
participations are acquired.
 
 The
maximum level of credit exposure to individual commercial borrowers is limited
by policy guidelines based on the default probabilities associated with the
credit facilities extended to each borrower or related group of
borrowers.  All authority to grant commitments is delegated through
the Bank’s independent credit administration function, and is monitored and
regularly updated in a centralized database.
 
 Concentration
risk is managed with limits on loan type, geographic and industry
diversification, country limits, and loan quality factors.  The checks
and balances in the credit process and the independence of the credit
administration and risk management functions are designed to minimize problems
and to facilitate the early recognition of problems when they do
occur.
 
 The
following table provides aging information for the loans underlying HPCI’s loan
participations at March 31, 2010, December 31, 2009, and March 31,
2009.
 
 Table 3 - Loan
      Participation Interests Aging (1)March 31, 2010
                                                                            
                                                                            
                                                                            December 31, 2009
                                                                            
                                                                            
                                                                            March 31, 2009Percentage by
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Percentage by
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Percentage byTotal
                                                                            
                                                                            
                                                                            Aggregate
                                                                            
                                                                            
                                                                            Aggregate
                                                                            
                                                                            
                                                                            Total
                                                                            
                                                                            
                                                                            Aggregate
                                                                            
                                                                            
                                                                            Aggregate
                                                                            
                                                                            
                                                                            Total
                                                                            
                                                                            
                                                                            Aggregate
                                                                            
                                                                            
                                                                            AggregateNumber
                                                                            
                                                                            
                                                                            Principal
                                                                            
                                                                            
                                                                            Principal
                                                                            
                                                                            
                                                                            Number
                                                                            
                                                                            
                                                                            Principal
                                                                            
                                                                            
                                                                            Principal
                                                                            
                                                                            
                                                                            Number
                                                                            
                                                                            
                                                                            Principal
                                                                            
                                                                            
                                                                            Principal(in
      thousands)
                                                                            
                                                                            of
      Loans
                                                                            
                                                                            
                                                                            Balance
                                                                            
                                                                            
                                                                            Balance
                                                                            
                                                                            
                                                                            of
      Loans
                                                                            
                                                                            
                                                                            Balance
                                                                            
                                                                            
                                                                            Balance
                                                                            
                                                                            
                                                                            of
      Loans
                                                                            
                                                                            
                                                                            Balance
                                                                            
                                                                            
                                                                            BalanceCurrent
                                                                            
                                                                            
                                                                            18,522
                                                                            
                                                                            
                                                                            $
                                                                            3,492,004
                                                                            
                                                                            
                                                                            
                                                                            93.0
                                                                            %
                                                                            
                                                                            
                                                                            19,206
                                                                            
                                                                            
                                                                            $
                                                                            3,506,912
                                                                            
                                                                            
                                                                            
                                                                            90.5
                                                                            %
                                                                            
                                                                            
                                                                            22,247
                                                                            
                                                                            
                                                                            $
                                                                            3,861,114
                                                                            
                                                                            
                                                                            
                                                                            92.3
                                                                            %1 to
      30 days past due
                                                                            
                                                                            
                                                                            1,190
                                                                            
                                                                            
                                                                            
                                                                            120,969
                                                                            
                                                                            
                                                                            
                                                                            3.2
                                                                            
                                                                            
                                                                            
                                                                            1,343
                                                                            
                                                                            
                                                                            
                                                                            201,739
                                                                            
                                                                            
                                                                            
                                                                            5.2
                                                                            
                                                                            
                                                                            
                                                                            1,451
                                                                            
                                                                            
                                                                            
                                                                            180,978
                                                                            
                                                                            
                                                                            
                                                                            4.331
      to 60 days past due
                                                                            
                                                                            
                                                                            288
                                                                            
                                                                            
                                                                            
                                                                            44,239
                                                                            
                                                                            
                                                                            
                                                                            1.2
                                                                            
                                                                            
                                                                            
                                                                            291
                                                                            
                                                                            
                                                                            
                                                                            43,760
                                                                            
                                                                            
                                                                            
                                                                            1.1
                                                                            
                                                                            
                                                                            
                                                                            331
                                                                            
                                                                            
                                                                            
                                                                            42,378
                                                                            
                                                                            
                                                                            
                                                                            1.061
      to 90 days past due
                                                                            
                                                                            
                                                                            659
                                                                            
                                                                            
                                                                            
                                                                            11,371
                                                                            
                                                                            
                                                                            
                                                                            0.3
                                                                            
                                                                            
                                                                            
                                                                            135
                                                                            
                                                                            
                                                                            
                                                                            17,612
                                                                            
                                                                            
                                                                            
                                                                            0.5
                                                                            
                                                                            
                                                                            
                                                                            109
                                                                            
                                                                            
                                                                            
                                                                            20,035
                                                                            
                                                                            
                                                                            
                                                                            0.5over
      90 days past due
                                                                            
                                                                            
                                                                            340
                                                                            
                                                                            
                                                                            
                                                                            86,126
                                                                            
                                                                            
                                                                            
                                                                            2.3
                                                                            
                                                                            
                                                                            
                                                                            397
                                                                            
                                                                            
                                                                            
                                                                            103,630
                                                                            
                                                                            
                                                                            
                                                                            2.7
                                                                            
                                                                            
                                                                            
                                                                            308
                                                                            
                                                                            
                                                                            
                                                                            80,405
                                                                            
                                                                            
                                                                            
                                                                            1.9Total
                                                                            
                                                                            
                                                                            20,999
                                                                            
                                                                            
                                                                            $
                                                                            3,754,709
                                                                            
                                                                            
                                                                            
                                                                            100.0
                                                                            %
                                                                            
                                                                            
                                                                            21,372
                                                                            
                                                                            
                                                                            $
                                                                            3,873,653
                                                                            
                                                                            
                                                                            
                                                                            100.0
                                                                            %
                                                                            
                                                                            
                                                                            24,446
                                                                            
                                                                            
                                                                            $
                                                                            4,184,910
                                                                            
                                                                            
                                                                            
                                                                            100.0
                                                                            %(1)
      Includes non-accrual
loans.
 
 Commercial
Real Estate Credit
 
 Commercial
credit approvals are made by the Bank and are based on, among other factors, the
financial strength of the borrower, assessment of the borrower’s management,
industry sector trends, type of exposure, transaction structure, and the general
economic outlook.
 
 In
commercial lending, ongoing credit management is dependent on the type and
nature of the loan. Loans within commercial lending include both owner-occupied
and non-owner occupied loans secured by real estate.  In general,
significant credit exposures are monitored quarterly. Internal risk ratings are
revised and updated with each periodic monitoring event. There is also extensive
macro portfolio management analysis on an ongoing basis.  Huntington
continually reviews and adjusts credit criteria based on actual experience,
which may result in further changes to such criteria, in future
periods.
  20
 
 Commercial
real estate loan participation interests outstanding by property type and
location at March 31, 2010 were as follows:
 
 Table
      4 - Commercial Real Estate Loans by Property Type and Property
      LocationAt
      March 31, 2010Geographic
      Region
                                                                    
                                                                    
                                                                    Total
                                                                    
                                                                    
                                                                    Percent(in
      thousands of dollars)
                                                                    
                                                                    Ohio
                                                                    
                                                                    
                                                                    Michigan
                                                                    
                                                                    
                                                                    Indiana
                                                                    
                                                                    
                                                                    Pennsylvania
                                                                    
                                                                    
                                                                    Kentucky
                                                                    
                                                                    
                                                                    Other
                                                                    
                                                                    
                                                                    Amount
                                                                    
                                                                    
                                                                    of
      TotalRetail properties
                                                                    
                                                                    $
                                                                    369,675
                                                                    
                                                                    
                                                                    $
                                                                    93,898
                                                                    
                                                                    
                                                                    $
                                                                    55,027
                                                                    
                                                                    
                                                                    $
                                                                    30,549
                                                                    
                                                                    
                                                                    $
                                                                    25,665
                                                                    
                                                                    
                                                                    $
                                                                    72,585
                                                                    
                                                                    
                                                                    $
                                                                    647,399
                                                                    
                                                                    
                                                                    
                                                                    21.2
                                                                    %Industrial and warehouse
                                                                    
                                                                    
                                                                    375,600
                                                                    
                                                                    
                                                                    
                                                                    151,997
                                                                    
                                                                    
                                                                    
                                                                    65,000
                                                                    
                                                                    
                                                                    
                                                                    5,262
                                                                    
                                                                    
                                                                    
                                                                    13,004
                                                                    
                                                                    
                                                                    
                                                                    26,915
                                                                    
                                                                    
                                                                    
                                                                    637,778
                                                                    
                                                                    
                                                                    
                                                                    20.9Office
                                                                    
                                                                    
                                                                    336,858
                                                                    
                                                                    
                                                                    
                                                                    124,576
                                                                    
                                                                    
                                                                    
                                                                    18,669
                                                                    
                                                                    
                                                                    
                                                                    32,203
                                                                    
                                                                    
                                                                    
                                                                    12,817
                                                                    
                                                                    
                                                                    
                                                                    25,595
                                                                    
                                                                    
                                                                    
                                                                    550,718
                                                                    
                                                                    
                                                                    
                                                                    18.0Raw land and other land uses
                                                                    
                                                                    
                                                                    192,047
                                                                    
                                                                    
                                                                    
                                                                    81,346
                                                                    
                                                                    
                                                                    
                                                                    26,982
                                                                    
                                                                    
                                                                    
                                                                    9,264
                                                                    
                                                                    
                                                                    
                                                                    16,017
                                                                    
                                                                    
                                                                    
                                                                    18,258
                                                                    
                                                                    
                                                                    
                                                                    343,914
                                                                    
                                                                    
                                                                    
                                                                    11.3Multi family
                                                                    
                                                                    
                                                                    132,475
                                                                    
                                                                    
                                                                    
                                                                    8,779
                                                                    
                                                                    
                                                                    
                                                                    67,062
                                                                    
                                                                    
                                                                    
                                                                    9,273
                                                                    
                                                                    
                                                                    
                                                                    39,688
                                                                    
                                                                    
                                                                    
                                                                    12,422
                                                                    
                                                                    
                                                                    
                                                                    269,699
                                                                    
                                                                    
                                                                    
                                                                    8.8Health care
                                                                    
                                                                    
                                                                    161,523
                                                                    
                                                                    
                                                                    
                                                                    43,791
                                                                    
                                                                    
                                                                    
                                                                    996
                                                                    
                                                                    
                                                                    
                                                                    18,327
                                                                    
                                                                    
                                                                    
                                                                    166
                                                                    
                                                                    
                                                                    
                                                                    14,800
                                                                    
                                                                    
                                                                    
                                                                    239,603
                                                                    
                                                                    
                                                                    
                                                                    7.9Single family home builders
                                                                    
                                                                    
                                                                    118,947
                                                                    
                                                                    
                                                                    
                                                                    31,340
                                                                    
                                                                    
                                                                    
                                                                    12,373
                                                                    
                                                                    
                                                                    
                                                                    12,969
                                                                    
                                                                    
                                                                    
                                                                    1,017
                                                                    
                                                                    
                                                                    
                                                                    1,109
                                                                    
                                                                    
                                                                    
                                                                    177,755
                                                                    
                                                                    
                                                                    
                                                                    5.8Other
                                                                    
                                                                    
                                                                    95,979
                                                                    
                                                                    
                                                                    
                                                                    51,215
                                                                    
                                                                    
                                                                    
                                                                    5,765
                                                                    
                                                                    
                                                                    
                                                                    5,807
                                                                    
                                                                    
                                                                    
                                                                    1,074
                                                                    
                                                                    
                                                                    
                                                                    25,247
                                                                    
                                                                    
                                                                    
                                                                    185,087
                                                                    
                                                                    
                                                                    
                                                                    6.1Total
                                                                    
                                                                    $
                                                                    1,783,104
                                                                    
                                                                    
                                                                    $
                                                                    586,942
                                                                    
                                                                    
                                                                    $
                                                                    251,874
                                                                    
                                                                    
                                                                    $
                                                                    123,654
                                                                    
                                                                    
                                                                    $
                                                                    109,448
                                                                    
                                                                    
                                                                    $
                                                                    196,931
                                                                    
                                                                    
                                                                    $
                                                                    3,051,953
                                                                    
                                                                    
                                                                    
                                                                    100.0
                                                                    %% of
      total portfolio
                                                                    
                                                                    
                                                                    59
                                                                    %
                                                                    
                                                                    
                                                                    19
                                                                    %
                                                                    
                                                                    
                                                                    8
                                                                    %
                                                                    
                                                                    
                                                                    4
                                                                    %
                                                                    
                                                                    
                                                                    4
                                                                    %
                                                                    
                                                                    
                                                                    6
                                                                    %
                                                                    
                                                                    
                                                                    100
                                                                    %
 
 HPCI’s
commercial real estate loan participation interests are diversified by customer,
as well as throughout the Bank’s lending area of Ohio, Michigan, Indiana,
Kentucky, and Pennsylvania.  However, the following components are
noteworthy.
 
 Retail
properties
 
 HPCI’s
portfolio of commercial real estate loans secured by retail properties totaled
$0.6 billion, or approximately 21% of total loans, and had an ALPL associated
with these loans of $36.1 million at March 31, 2010. Credit approval in this
loan segment is generally dependant on pre-leasing requirements, and net
operating income from the project must cover interest expense by specified
percentages when the loan is fully funded.
 
 The
weakness of the economic environment in the Bank’s geographic regions
significantly impacted the projects that secure the loans in this portfolio
segment.  Increased unemployment levels compared with prior years, and
the expectation that these levels will continue to remain elevated for the
foreseeable future, are expected to adversely affect the borrowers’ ability to
repay these loans.  The Bank has increased the level of credit risk
management analysis that is applied to this portfolio. The Bank also performed a
detailed analysis of the retail property loans in much greater detail by
combining property type, geographic location, tenants, and other data, to assess
and manage credit concentration risks.
 
 Single
family homebuilders
 
 HPCI’s
portfolio of commercial real estate loans secured by builders of single family
homes totaled $0.2 billion or approximately 6% of total loans, and had an ALPL
associated with these loans of $10.8 million at March 31, 2010.
 
 The
housing market across the Bank’s geographic footprint remained stressed,
reflecting relatively lower sales activity, declining prices, and excess
inventories of houses to be sold, particularly impacting borrowers in the East
Michigan and northern Ohio regions.  Further, a portion of the loans
extended to borrowers located within the Bank’s geographic regions finance
projects outside of its geographic regions.  Based on portfolio
management processes, including charge-off activity, over the past 30
months, we believe that we have substantially addressed the credit issues in
this portfolio. We do not anticipate any future significant credit impact
from this portfolio segment.
  21
  Consumer
and Residential Real Estate
 
 Extensions
of consumer credit by the Bank are based on, among other factors, the financial
strength of the borrower, type of exposure, transaction structure, and the
general economic outlook.  Consumer credit decisions are generally
made in a centralized environment utilizing decision models.  Each
credit extension is assigned a specific probability-of-default and
loss-in-event-of-default.  The probability-of-default is generally a
function of the borrower’s credit bureau score, while the
loss-in-event-of-default is related to the type of collateral and the
loan-to-value ratio associated with the credit extension.
 
 In
consumer lending, credit risk is managed from a loan type and vintage
performance analysis.  All portfolio segments are continuously
monitored for changes in delinquency trends and other asset quality
indicators.  The Bank makes extensive use of portfolio assessment
models to continuously monitor the quality of the portfolio and identify
under-performing segments.  This information is then incorporated into
future origination strategies.  The Bank’s independent risk management
group has a consumer process review component to ensure the effectiveness and
efficiency of the consumer credit processes.
 
 Allowance
for Credit Losses (ACL)
 
 ACL is
comprised of the ALPL and the AULPC. Loan participations are acquired net of
related ALPL. As a result, this ALPL is transferred to HPCI from the Bank and is
reflected as ALPL acquired, rather than HPCI having to record a provision
expense for ALPL. If credit quality deteriorates more than implied by the ALPL
acquired, a provision for credit losses is made. If credit quality performance
is better than implied by the ALPL acquired, a reduction in the ALPL is
recorded. As loan participations mature, refinance, or other such actions occur,
any allowance not absorbed by loan losses is released through the reduction in
ALPL.
 
 The
following table shows the activity in HPCI’s ALPL and AULPC for the last five
quarters ended March 31, 2010:
 
 Table
      5 - Allowances for Credit Loss Activity2010
                                                                    
                                                                    
                                                                    2009(in
      thousands)
                                                                    
                                                                    First
                                                                    
                                                                    
                                                                    Fourth
                                                                    
                                                                    
                                                                    Third
                                                                    
                                                                    
                                                                    Second
                                                                    
                                                                    
                                                                    FirstALPL
      balance, beginning of period
                                                                    
                                                                    $
                                                                    156,431
                                                                    
                                                                    
                                                                    $
                                                                    97,331
                                                                    
                                                                    
                                                                    $
                                                                    95,748
                                                                    
                                                                    
                                                                    $
                                                                    79,889
                                                                    
                                                                    
                                                                    $
                                                                    65,456Allowance
      of loan participations acquired
                                                                    
                                                                    
                                                                    13,888
                                                                    
                                                                    
                                                                    
                                                                    15,499
                                                                    
                                                                    
                                                                    
                                                                    9,331
                                                                    
                                                                    
                                                                    
                                                                    4,673
                                                                    
                                                                    
                                                                    
                                                                    4,130Net
      loan lossesCommercial
      real estate
                                                                    
                                                                    
                                                                    (7,360
                                                                    )
                                                                    
                                                                    
                                                                    (37,480
                                                                    )
                                                                    
                                                                    
                                                                    (32,138
                                                                    )
                                                                    
                                                                    
                                                                    (26,901
                                                                    )
                                                                    
                                                                    
                                                                    (6,742
                                                                    )Consumer
      and residential real estate
                                                                    
                                                                    
                                                                    (4,648
                                                                    )
                                                                    
                                                                    
                                                                    (3,700
                                                                    )
                                                                    
                                                                    
                                                                    (3,942
                                                                    )
                                                                    
                                                                    
                                                                    (2,622
                                                                    )
                                                                    
                                                                    
                                                                    (1,752
                                                                    )Total
      net loan losses
                                                                    
                                                                    
                                                                    (12,008
                                                                    )
                                                                    
                                                                    
                                                                    (41,180
                                                                    )
                                                                    
                                                                    
                                                                    (36,080
                                                                    )
                                                                    
                                                                    
                                                                    (29,523
                                                                    )
                                                                    
                                                                    
                                                                    (8,494
                                                                    )Provision
      for ALPL
                                                                    
                                                                    
                                                                    652
                                                                    
                                                                    
                                                                    
                                                                    84,782
                                                                    
                                                                    
                                                                    
                                                                    28,332
                                                                    
                                                                    
                                                                    
                                                                    40,709
                                                                    
                                                                    
                                                                    
                                                                    18,797ALPL
      balance, end of period
                                                                    
                                                                    $
                                                                    158,963
                                                                    
                                                                    
                                                                    $
                                                                    156,431
                                                                    
                                                                    
                                                                    $
                                                                    97,331
                                                                    
                                                                    
                                                                    $
                                                                    95,748
                                                                    
                                                                    
                                                                    $
                                                                    79,889AULPC
      balance, beginning of period
                                                                    
                                                                    $
                                                                    1,607
                                                                    
                                                                    
                                                                    $
                                                                    1,649
                                                                    
                                                                    
                                                                    $
                                                                    2,280
                                                                    
                                                                    
                                                                    $
                                                                    2,492
                                                                    
                                                                    
                                                                    $
                                                                    2,301Provision
      for (reduction in) AULPC
                                                                    
                                                                    
                                                                    (45
                                                                    )
                                                                    
                                                                    
                                                                    (42
                                                                    )
                                                                    
                                                                    
                                                                    (631
                                                                    )
                                                                    
                                                                    
                                                                    (212
                                                                    )
                                                                    
                                                                    
                                                                    191Reserve
      transfer to ALPL
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —AULPC
      balance, end of period
                                                                    
                                                                    $
                                                                    1,562
                                                                    
                                                                    
                                                                    $
                                                                    1,607
                                                                    
                                                                    
                                                                    $
                                                                    1,649
                                                                    
                                                                    
                                                                    $
                                                                    2,280
                                                                    
                                                                    
                                                                    $
                                                                    2,492Total
      Allowance for Credit Losses
                                                                    
                                                                    $
                                                                    160,525
                                                                    
                                                                    
                                                                    $
                                                                    158,038
                                                                    
                                                                    
                                                                    $
                                                                    98,980
                                                                    
                                                                    
                                                                    $
                                                                    98,028
                                                                    
                                                                    
                                                                    $
                                                                    82,381ALPL
      as a % of total participation interests
                                                                    
                                                                    
                                                                    4.23
                                                                    %
                                                                    
                                                                    
                                                                    4.04
                                                                    %
                                                                    
                                                                    
                                                                    2.52
                                                                    %
                                                                    
                                                                    
                                                                    2.41
                                                                    %
                                                                    
                                                                    
                                                                    1.91
                                                                    %ACL
      as a % of total participation interests
                                                                    
                                                                    
                                                                    4.28
                                                                    
                                                                    
                                                                    
                                                                    4.08
                                                                    
                                                                    
                                                                    
                                                                    2.56
                                                                    
                                                                    
                                                                    
                                                                    2.47
                                                                    
                                                                    
                                                                    
                                                                    1.97
 
 The
increase in allowance and provision during the first three months of 2010 was
primarily related to the commercial real estate portfolio, and was a reflection
of the overall economic slowdown in the Midwest markets.
 
 Total net
charge-offs for the quarter ended March 31, 2010, were $12.0 million, or an
annualized 1.25% of average loan participation interests, up from $8.5 million,
or 0.79%, in the same quarter a year ago.
 
 The
reduction in AULPC, which also is reflected on the income statement, was less
than $0.1 million for the three-month period ended March 31, 2010, compared with
a provision for $0.2 million in the same period of the prior
year.
  22
 
 In
Management’s judgment, both the ALPL and the AULPC were adequate at March 31,
2010, to cover credit losses inherent in the loan participation portfolio and
portfolio of loan participation commitments.  Additional information
regarding asset quality appears in the "Credit Quality" section of the Form
10-K.
 
 Non-Performing Assets
(NPAs)
 
 NPAs
consist of participation interests in underlying loans that are no longer
accruing interest. Underlying commercial real estate loans are placed on
non-accrual status and stop accruing interest when collection of principal or
interest is in doubt or generally when the underlying loan is 90-days past due.
Underlying consumer and residential real estate loans are generally placed on
non-accrual status when they became 180 days past due as to principal and 210
days past due as to interest.  When interest accruals are suspended,
accrued interest income is reversed with current year accruals charged to
earnings and prior year amounts generally charged off as a credit
loss.
  The
following table shows NPAs at the end of the most recent five
quarters:
  Table
      6 - Quarterly Non-Performing Assets2010
                                                                                                                  
                                                                                                                  
                                                                                                                  2009(in
      thousands)
                                                                                                                  
                                                                                                                  First
                                                                                                                  
                                                                                                                  
                                                                                                                  Fourth
                                                                                                                  
                                                                                                                  
                                                                                                                  Third
                                                                                                                  
                                                                                                                  
                                                                                                                  Second
                                                                                                                  
                                                                                                                  
                                                                                                                  FirstParticipation
      interests in non-accrual loansCommercial
      real estate
                                                                                                                  
                                                                                                                  $
                                                                                                                  149,997
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  165,184
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  192,661
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  166,810
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  100,675Consumer
      and residential real estate
                                                                                                                  
                                                                                                                  
                                                                                                                  5,916
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  5,554
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  5,467
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  6,588
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  7,035Total
      Non-Performing Assets
                                                                                                                  
                                                                                                                  $
                                                                                                                  155,913
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  170,738
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  198,128
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  173,398
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  107,710Participations
      in Accruing LoansPast
      Due 90 Days or More
                                                                                                                  
                                                                                                                  $
                                                                                                                  4,326
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  8,631
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  10,294
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  6,113
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  4,909NPAs
      as a % of totalparticipation
      interests
                                                                                                                  
                                                                                                                  
                                                                                                                  4.15
                                                                                                                  %
                                                                                                                  
                                                                                                                  
                                                                                                                  4.41
                                                                                                                  %
                                                                                                                  
                                                                                                                  
                                                                                                                  5.13
                                                                                                                  %
                                                                                                                  
                                                                                                                  
                                                                                                                  4.36
                                                                                                                  %
                                                                                                                  
                                                                                                                  
                                                                                                                  2.57
                                                                                                                  %ALPL
      as a % of NPAs
                                                                                                                  
                                                                                                                  
                                                                                                                  102
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  92
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  49
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  55
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  74ACL
      as a % of NPAs
                                                                                                                  
                                                                                                                  
                                                                                                                  103
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  93
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  50
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  57
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  76
 
 The
increase in the first three months of 2010, as compared to the same period in
the prior year, was principally related to the commercial real estate loan
participations and was spread across the different property types of that
portfolio.
  23
 
 The
following table presents a coverage ratio analysis at the end of the most recent
five quarters:
 
 Table
      7 - Quarterly ALPL / Loan Participation Coverage Ratio
      Analysis2010
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          2009(in
      thousands)
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          First
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          Fourth
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          Third
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          Second
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          FirstLoan
      participation interests ending balances:Accruing
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          3,598,796
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          3,702,915
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          3,665,990
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          3,800,218
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          4,077,200Impaired
      evaluated on a pool basis
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          36,365
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          40,040
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          40,838
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          44,008
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          28,068Impaired
      evaluated under ASC 310 (1)
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          119,548
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          130,698
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          157,290
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          129,390
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          79,642Total
      non-accrual
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          155,913
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          170,738
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          198,128
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          173,398
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          107,710Total
      loan participation interests
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          3,754,709
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          3,873,653
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          3,864,118
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          3,973,616
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          4,184,910Allowance
      for loan participation interests (ALPL):Accruing
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          122,824
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          127,405
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          69,449
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          66,661
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          62,788ALPL
      associated with impaired evaluatedon
      a pool basis
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          9,689
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          10,270
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          3,109
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          3,707
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          2,103ALPL
      determined in accordance with ASC 310 (1)
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          26,450
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          18,756
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          24,773
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          25,380
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          14,998Total
      non-accrual
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          36,139
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          29,026
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          27,882
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          29,087
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          17,101Total
      ALPL
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          158,963
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          156,431
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          97,331
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          95,748
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          $
                                                                                                                                                                                                                                                                          79,889ALPL
      as a % of loan participation intererstsAccruing
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          3.41
                                                                                                                                                                                                                                                                          %
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          3.44
                                                                                                                                                                                                                                                                          %
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          1.89
                                                                                                                                                                                                                                                                          %
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          1.75
                                                                                                                                                                                                                                                                          %
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          1.54
                                                                                                                                                                                                                                                                          %Impaired
      evaluated on a pool basis
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          26.64
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          25.65
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          7.61
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          8.42
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          7.49Impaired
      evaluated under ASC 310 (1)
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          22.13
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          14.35
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          15.75
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          19.62
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          18.83Total
      non-accrual
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          23.18
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          17.00
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          14.07
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          16.77
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          15.88Total
      loan participation interests
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          4.23
                                                                                                                                                                                                                                                                          %
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          4.04
                                                                                                                                                                                                                                                                          %
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          2.52
                                                                                                                                                                                                                                                                          %
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          2.41
                                                                                                                                                                                                                                                                          %
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          
                                                                                                                                                                                                                                                                          1.91
                                                                                                                                                                                                                                                                          %(1)Accounting Standards Codification Topic 310,
      "Receivables"
  The
increase in the ALPL related to the accruing portfolio reflected current
economic conditions.  The increase in NPA did not result in
proportionate increase in ALPL, as a predominant portion of the increase was
from loans whose allowance for credit losses is subject to specific
reserves.   As substantially all of these loans are supported by
commercial real estate collateral, the specific reserve was based on an estimate
of the net realizable value of the underlying collateral.  In
addition, it reflected some situations where there is no allowance because the
net realizable value of the underlying collateral exceeded our net investment in
the loan participation.
 
 Under the
participation and subparticipation agreements, the Bank may, in accordance with
HPCI’s guidelines, dispose of any underlying loan that has an internal credit
grade of substandard or lower, is placed in a non-performing status, or is
renegotiated due to the financial deterioration of the borrower. The Bank may,
in accordance with HPCI’s guidelines, institute foreclosure proceedings,
exercise any power of sale contained in any mortgage or deed of trust, obtain a
deed in lieu of foreclosure, or otherwise acquire title to a property underlying
a mortgage loan by operation of law or otherwise in accordance with the terms of
the participation and subparticipation agreements. Prior to completion of
foreclosure or liquidation, the participation is sold to the Bank at fair market
value. The Bank then incurs all costs associated with repossession and
foreclosure.
 
 For a
further discussion of “Credit Quality,” see HPCI’s Form 10-K for the year ended
December 31, 2009.
  24
  MARKET
RISK
 
 Huntington
conducts its monthly interest rate risk management on a centralized basis and
does not manage HPCI’s interest rate risk separately.  Two broad
approaches to modeling interest rate risk are employed: income simulation and
economic value analysis.  An income simulation analysis was used to
measure the sensitivity of forecasted interest income to changes in market rates
over a one-year horizon.  The economic value analysis was conducted by
subjecting the period-end balance sheet to changes in interest rates and
measuring the impact of the changes in the value of the assets.  The
models used for these measurements assume, among other things, no new loan
participation volume.
 
 Using the
income simulation model for HPCI as of March 31, 2010, interest income for the
next 12-month period would be expected to increase by $15.3 million, or 13.0%,
based on a gradual 200 basis point increase in rates above the forward rates
implied in the yield curve.  Interest income would be expected to
decline $7.4 million, or 6.3%, in the event of a gradual 200 basis point decline
in rates from the forward rates implied in the yield curve.  The
gradual 200 basis point decline in market rates over the next 12-month period
assumes market interest rates would reach a bottom and not fall below historical
levels.
 
 Using the
economic value analysis model for HPCI as of March 31, 2010, the fair value of
loan participation interests over the next 12 month period would be expected to
increase $27.1 million, or 0.7%, based on an immediate 200 basis point decline
in rates below the forward rates implied in the yield
curve.   Many of HPCI’s variable rate loans are based
on  LIBOR interest rates.  Because the gradual 200 basis
point decline in market rates over the next 12 month period assumes market
interest rates would not fall below 0%, the market value would be expected to
decline $72.5 million, or 1.9%.
 
 OFF-BALANCE
SHEET ARRANGEMENTS
 
 Under the
terms of the participation and subparticipation agreements, HPCI is obligated to
make funds or credit available to the Bank, either directly or indirectly
through Holdings so that the Bank may extend credit to any borrower, or pay
letters of credit issued for the account of any borrowers, to the extent
provided in the loan agreements underlying HPCI’s participation interests. As of
March 31, 2010, December 31, 2009, and March 31, 2009, HPCI’s unfunded loan
commitments totaled $265.7 million, $303.7 million, and $388.2 million,
respectively. It is
expected that the existing cash balances and cash flows generated by the
existing portfolio will be sufficient to meet these
obligations.
  25
  LIQUIDITY
AND CAPITAL RESOURCES
  The
objective of HPCI’s liquidity management is to ensure the availability of
sufficient cash flows to fund its existing loan participation commitments, to
acquire additional participation interests, and to pay operating expenses and
dividends. Unfunded commitments and additional participation interests in loans
are funded with the proceeds from repayment of principal balances by individual
borrowers, utilization of existing cash and cash equivalent funds, and, if
necessary, new capital contributions.  Payment of operating expenses
and dividends will be funded through cash generated by operations.
 
 In
managing liquidity, HPCI takes into account forecasted principal and interest
payments on loan participations as well as various legal limitations placed on a
REIT.  To the extent that additional funding is required, HPCI may
raise such funds through retention of cash flow, debt financings, additional
equity offerings, or a combination of these methods. However, any cash flow
retention must be consistent with the provisions of the Internal Revenue Code
requiring the distribution by a REIT of at least 90% of its REIT taxable income,
excluding capital gains, and must take into account taxes that would be imposed
on undistributed income.
 
 At March
31, 2010, December 31, 2009, and March 31, 2009, HPCI maintained interest
bearing and non-interest bearing cash balances with the Bank totaling $262.5
million, $715.7 million, and $272.4 million, respectively.  HPCI
maintains and transacts all of its cash activity with the Bank and may invest
available funds in Eurodollar deposits with the Bank for a term of not more than
30 days at market rates.
 
 At March
31, 2010, HPCI had no material liabilities or contractual obligations, other
than unfunded loan commitments of $265.7 million, with a weighted average
remaining maturity of 1.2 years. In addition to anticipated cash flows, as noted
above, HPCI has interest bearing and non-interest bearing cash balances with the
bank totaling $262.5 million to supplement the funding of  these
liabilities and contractual commitments.
 
 As of
March 31, 2010 and December 31, 2009, shareholders’ equity was $4.0
billion.  Shareholders’ equity was $4.5 billion as of March 31, 2009.
A return of capital was distributed to shareholders through a distribution
declared in 2009 and paid on January 8, 2010, which reduced HPCI’s cash balances
by $500.0 million.
 
 Regulatory
approval is required prior to the Bank’s declaration of any dividends in excess
of available retained earnings.  The amount of dividends that may be
declared without regulatory approval is further limited to the sum of net income
for the current year and retained net income for the preceding two years, less
any required transfers to surplus or common stock.  Based on these
regulatory dividend limitations, the Bank could not have declared and paid a
dividend at March 31, 2010, without regulatory approval.  As a
subsidiary of the Bank, HPCI is also restricted from declaring or paying
dividends without regulatory approval.  The OCC has approved the
payment of HPCI's dividends on its preferred securities throughout 2009 and the
first quarter of 2010. For the foreseeable future, management intends to request
approval for any future dividends; however, there can be no assurance that the
OCC will continue to approve future dividends.
 
 Regulatory
capital ratios are the primary metrics used by regulators in assessing the
“safety and soundness” of banks.  At March 31, 2010, Huntington and
the Bank met all capital adequacy requirements and had regulatory capital ratios
in excess of the levels established for “well-capitalized”
institutions.  The capital ratios for Huntington and the Bank at
the end of the most recent five quarters are as follows:
  Table
      8 - Regulatory Capital Ratios2010
                
                
                2009First
                
                
                Fourth
                
                
                Third
                
                
                Second
                
                
                FirstTier
      1 Leverage Ratio (5.00% "well-capitalized")Huntington
                
                
                10.05
                %
                
                
                10.09
                %
                
                
                11.30
                %
                
                
                10.62
                %
                
                
                9.67
                %Bank
                
                
                5.99
                
                
                
                5.59
                
                
                
                6.48
                
                
                
                6.46
                
                
                
                5.95Tier
      1 Risk-based Capital Ratio (6.00% "well-capitalized")Huntington
                
                
                11.97
                
                
                
                12.03
                
                
                
                13.04
                
                
                
                11.85
                
                
                
                11.14Bank
                
                
                7.11
                
                
                
                6.66
                
                
                
                7.46
                
                
                
                7.14
                
                
                
                6.79Total
      Risk-based Capital Ratio (10.00% "well-capitalized")Huntington
                
                
                14.28
                
                
                
                14.41
                
                
                
                16.23
                
                
                
                14.94
                
                
                
                14.26Bank
                
                
                11.53
                
                
                
                11.08
                
                
                
                11.75
                
                
                
                11.35
                
                
                
                11.00
 26
 
 During
2008, Huntington received $1.4 billion of equity capital by issuing to the U.S.
Department of Treasury 1.4 million shares of its Series B Preferred Stock as a
result of its participation in the Troubled Asset Relief Program (TARP)
voluntary Capital Purchase Plan (CPP). During the 2008 fourth quarter,
Huntington contributed $500 million of the capital received to the Bank in the
form of subordinated debt qualified as Tier 2 capital. During 2009, Huntington
also made cash contributions to the Bank’s common capital of $500 million, which
qualified as Tier 1 capital to the Bank.  In the 2010 first quarter,
Huntington made a similar contribution of $300 million to the Bank. These
actions had a positive impact on the Bank’s capital ratios.
 
 Participation
in the CPP requires companies to adopt certain standards and conditions on
executive compensation, the payment of dividends and the repurchase of common
stock.  HPCI does not believe these standards and conditions adopted
by Huntington will have a significant impact on HPCI’s financial condition or
results of operations.
 
 Item
3.   Quantitative and Qualitative Disclosures about Market
Risk
 
 Quantitative
and qualitative disclosures for the current period can be found in the Market
Risk section of this report, which includes changes in market risk exposures
from disclosures presented in HPCI's Form 10-K.
 
 Item
4.   Controls and Procedures
 
 HPCI
maintains disclosure controls and procedures designed to ensure that the
information disclosed in its filings with the Securities and Exchange Commission
is recorded, processed, summarized, and reported appropriately and on a timely
basis.  HPCI's management, with the participation of its President
(principal executive officer) and the Vice President (principal financial
officer), evaluated the effectiveness of HPCI’s disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this
report.  Based upon such evaluation, HPCI's President and Vice
President have concluded that, as of the end of such period, HPCI's disclosure
controls and procedures are effective.
 
 There
have not been any changes in HPCI’s internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the quarter ended March 31, 2010, to which this report relates, that
have materially affected, or are reasonably likely to materially affect, HPCI's
internal control over financial reporting.
 
 Item
4T.  Controls and Procedures
 
 Not applicable
 
 PART
II.  OTHER INFORMATION
 
 In
accordance with the instructions to Part II, the other specified items in this
part have been omitted because they are not applicable or the information has
been previously reported.
 
 Item
6.  Exhibits
 
 This
report incorporates by reference the documents listed below that HPCI has
previously filed with the SEC.  The SEC allows incorporation by
reference in this document.  The information incorporated by reference
is considered to be a part of this document, except for any information that is
superseded by information that is included directly in this
document.
 
 This
information may be read and copied at the Public Reference Room of the SEC at
100 F Street, N.E., Washington, D.C. 20549.  The SEC also maintains an
Internet web site that contains reports, proxy statements, and other information
about issuers, like HPCI, who file electronically with the SEC.  The
address of the site is http://www.sec.gov.  The
reports and other information filed by HPCI with the SEC are also available at
Huntington’s Internet web site.  The address of the site is http://www.huntington.com.  Except
as specifically incorporated by reference into this Quarterly Report on Form
10-Q, information on those web sites is not part of this
report.  Reports, proxy statements, and other information about HPCI
can also be inspected at the offices of the NASDAQ National Market at 33
Whitehall Street, New York, New York.
  27
 
 (a)
 3.1.
              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.)
 
 3.2.
              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.)
 
 4.1
              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.
 
 31.1.
              Rule
      13a – 14(a) Certification – President (chief executive
      officer).
 
 31.2.
              Rule
      13a – 14(a) Certification – Vice President (chief financial
      officer).
 
 32.1.
              Section
      1350 Certification – President (chief executive
  officer).
 
 32.2.
              Section
      1350 Certification – Vice President (chief financial
    officer).
 
 99.1.
              Unaudited
      Condensed Consolidated Financial Statements of Huntington Bancshares
      Incorporated as of and for the three month period ended March 31, 2010 and
      2009.
  28
  SIGNATURES
 
 Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 17th day of May, 2010.
 
 HUNTINGTON
PREFERRED CAPITAL, INC.
 (Registrant)
 
 By:
                /s/ Donald R. Kimble
                
                By:
                /s/Thomas P.
      ReedDonald
      R. Kimble
                
                
                Thomas
      P. ReedPresident
      and Director
                
                
                Vice
      President and Director(Principal
      Executive Officer)
                
                
                (Principal
      Financial and Accounting
Officer)
  29