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. þ Yes o 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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o  Yes þ  No

As of October 31, 2008, 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 I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - At September 30, 2008, December 31, 2007, and September 30, 2007			3
Condensed Consolidated Statements of Income - For the three-months and nine-months ended September 30, 2008 and 2007			4
Condensed Consolidated Statements of Changes in Shareholders’ Equity - For the nine-months ended September 30, 2008 and 2007			5
Condensed Consolidated Statements of Cash Flows - For the nine-months ended September 30, 2008 and 2007			6
Notes to The Unaudited Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3. Quantitative and Qualitative Disclosures about Market Risk			26
Item 4. Controls and Procedures			26
Item 4T. Controls and Procedures			26
Part II. Other Information
Item 6. Exhibits			26
Signatures			28
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.1

Part I. Financial Information

Item 1. Financial Statements

Huntington Preferred Capital, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

		September 30,				December 31,				September 30,
(in thousands, except share data)		2008				2007				2007
Assets
Cash and interest bearing deposits with The Huntington National Bank		$	45,930			$	47,464			$	139,353
Due from The Huntington National Bank			82,165				121,981				76,476
Loan participation interests:
Commercial real estate			3,554,080				3,121,083				3,259,808
Consumer and residential real estate			1,023,069				1,217,956				1,271,226
Total loan participation interests			4,577,149				4,339,039				4,531,034
Allowance for loan participation losses			(72,073	)			(62,275	)			(56,255	)
Net loan participation interests			4,505,076				4,276,764				4,474,779
Accrued income and other assets			15,881				19,665				38,890
Total assets		$	4,649,052			$	4,465,874			$	4,729,498
Liabilities and shareholders’ equity
Liabilities
Allowance for unfunded loan participation commitments		$	3,423			$	3,856			$	4,125
Dividends payable			10,232				—				23,246
Other liabilities			71				59				55
Total liabilities			13,726				3,915				27,426
Shareholders’ Equity
Preferred 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				1,000
Preferred securities, Class B, variable-rate noncumulative and conditionally exchangeable; $1,000 par and liquidation value per share; authorized 500,000 shares; 400,000 shares issued and outstanding			400,000				400,000				400,000
Preferred securities, Class C, 7.875% noncumulative and conditionally exchangeable; $25 par and liquidation value; 2,000,000 shares authorized, issued, and outstanding			50,000				50,000				50,000
Preferred securities, Class D, variable-rate noncumulative and conditionally exchangeable; $25 par and liquidation value; 14,000,000 shares authorized, issued, and outstanding			350,000				350,000				350,000
Preferred securities, $25 par, 10,000,000 shares authorized; no shares issued or outstanding			—				—				—
Common stock — without par value; 14,000,000 shares authorized, issued and outstanding			3,660,959				3,660,959				3,694,753
Retained earnings			173,367				—				206,319
Total shareholders’ equity			4,635,326				4,461,959				4,702,072
Total liabilities and shareholders’ equity		$	4,649,052			$	4,465,874			$	4,729,498

See notes to unaudited condensed consolidated financial statements.

See notes to unaudited condensed consolidated financial statements.

See notes to unaudited condensed consolidated financial statements.

See notes to unaudited condensed consolidated financial statements.

Notes to the Unaudited Condensed Consolidated Financial Statements

Note 1 — Organization

     Huntington Preferred Capital, Inc. (HPCI) 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. Four related parties own HPCI’s common stock: Huntington Capital Financing LLC (HCF); Huntington Preferred Capital II, Inc. (HPCII); Huntington Preferred Capital Holdings, Inc. (Holdings); and Huntington Bancshares Incorporated (Huntington). Subsequent to September 30, 2008, all shares of HPCI’s common stock held by Huntington, were transferred to 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. Huntington is a multi-state diversified financial holding company organized under Maryland law and headquartered in Columbus, Ohio. At September 30, 2008, the Bank, on a consolidated basis with its subsidiaries, accounted for over 98% of Huntington’s consolidated total assets and over 93% of 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 2007, HPCI had one subsidiary, HPCLI, Inc. (HPCLI), a taxable REIT subsidiary formed in March 2001 for the purpose of holding certain assets (primarily leasehold improvements). On December 31, 2007, HPCI paid common stock dividends consisting of cash and the stock of HPCLI to the HPCI common stock shareholders. As a result, HPCLI became a wholly owned subsidiary of Holdings.

Note 2 — Basis of Presentation and New Accounting Pronouncements

     The accompanying unaudited condensed consolidated 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 consolidated financial position, the results of operations, and cash flows for the periods presented. These unaudited condensed consolidated 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 2007 Annual Report on Form 10-K (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. For periods prior to 2008, HPCI’s former subsidiary, HPCLI, had elected to be treated as a taxable REIT subsidiary and, therefore, a separate provision related to its income taxes is included in the accompanying unaudited condensed consolidated financial statements.

     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.”

     Certain prior period amounts have been reclassified to conform to current year’s presentation.

FASB Statement No. 157, Fair Value Measurements (Statement No. 157) - In September 2006, the FASB issued Statement No. 157. This Statement establishes a common definition for fair value to be applied to GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. Statement No. 157 is effective for fiscal years beginning after November 15, 2007. HPCI adopted Statement No. 157, effective January 1, 2008. The impact of this new pronouncement was not material to HPCI’s consolidated financial statements as an insignificant amount of its assets are measured at fair value.

FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilitie s (Statement No. 159) - In February 2007, the FASB issued Statement No. 159. Statement No. 159 permits entities to choose to measure financial instruments and certain other financial assets and financial liabilities at fair value. Statement No. 159 is effective for fiscal years beginning after November 15, 2007. HPCI adopted Statement No. 159, effective January 1, 2008. HPCI has not elected the fair value provisions of Statement No. 159 for any of its financial assets or liabilities.

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 four states of Ohio, Michigan, Indiana, and Kentucky comprised 89.9%, 91.7%, and 93.3% of the portfolio at September 30, 2008, December 31, 2007, and September 30, 2007, respectively.

     Participations in loans on non-accrual status and loans past due 90 days or more and still accruing interest were as follows:

     At September 30, 2008, Huntington had a commercial credit exposure to Franklin Credit Management Corporation (Franklin) of $979.3 million. HPCI has never held a loan participation interest in any Franklin loans.

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, 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 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 the reduction in ALPL.

     The following table reflects activity in the ACL for the three-month and nine-month periods ended September 30, 2008 and 2007:

     As of September 30, 2008, December 31, 2007, and September 30, 2007, HPCI’s unfunded loan commitments totaled $626.5 million, $539.4 million, and $679.2 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 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.

     A summary of dividends declared by each class of preferred securities, follows for the periods indicated: