10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2009

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file Number 000-33243

Huntington Preferred Capital, Inc.

(Exact name of registrant as specified in its charter)

Ohio	31-1356967
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
41 S. High Street, Columbus, OH	43287
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (614) 480-8300

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Noncumulative Exchangeable Preferred Securities, Class C (Liquidation Amount $25.00 each)
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Exchange Act. o Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. o Yes þ No

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 (or for such shorter period that the registrant was required to file such reports), 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 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). o Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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

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

All common stock is held by affiliates of the registrant as of December 31, 2009. As of February 28, 2010, 14,000,000 shares of common stock without par value were outstanding. The aggregate market value of the common stock held by non-affiliates of the registrant as of the close of business on June 30, 2009: $0.00

Documents Incorporated By Reference

Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive Information Statement for the 2010 Annual Shareholders’ Meeting.

HUNTINGTON PREFERRED CAPITAL, INC.

INDEX

Part I.
Item 1. Business	3
Item 1A: Risk Factors	11
Item 1B: Unresolved Staff Comments	17
Item 2. Properties	17
Item 3. Legal Proceedings	17
Item 4. Submission of Matters to a vote of Security Holders	17
Part II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6. Selected Financial Data	18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A. Quantitative and Qualitative Disclosures about Market Risk	34
Item 8. Financial Statements and Supplementary Data	34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	53
Item 9A. Controls and Procedures	53
Item 9A(T). Controls and Procedures	53
Item 9B. Other Information	53
Part III.
Item 10. Directors and Executive Officers and Corporate Governance	53
Item 11. Executive Compensation	53
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	54
Item 13. Certain Relationships and Related Transactions, and Director Independence	54
Item 14. Principal Accounting Fees and Services	54
Part IV.
Item 15. Exhibits and Financial Statement Schedules	54
Signatures	55
Exhibits	56
Exhibit 12.1
Exhibit 24.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1

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Huntington Preferred Capital, Inc.

Part I

Item 1: Business

General

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. 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 or 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 December 31, 2009 and 2008, the Bank, on a consolidated basis with its subsidiaries, accounted for over 98% of Huntington’s consolidated assets, and accordingly, Management considers the balance sheets of the Bank to be substantially the same as the balance sheet of Huntington for each of these dates. For periods prior to and including December 31, 2007, the consolidated income statements of the Bank and Huntington are substantially the same. For 2008, a substantial portion of the losses associated with Huntington’s relationship with Franklin Credit Management Corporation (Franklin) was recorded at a direct subsidiary of Huntington. This portion of the losses did not affect the Bank and, thus, affects the comparability of the Bank’s income statement with that of Huntington. Other than the impact of these losses associated with Huntington’s relationship with Franklin, there were no material differences in the income statements of the Bank and Huntington for the year ended December 31, 2008. These changes had no impact on net cash flows of the Bank or of Huntington for the year ended December 31, 2008. There were no material differences in the income statements of the Bank and Huntington for the year ended December 31, 2009. The following chart outlines the relationship among affiliates at December 31, 2009:

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General Description of Assets

The Internal Revenue Code requires a REIT to invest at least 75% of the total value of its assets in real estate assets, which includes residential real estate loans and commercial real estate loans, including participation interests in residential or commercial real estate loans, mortgage-backed securities eligible to be held by REITs, cash, cash equivalents which includes receivables, government securities, and other real estate assets (REIT Qualified Assets). HPCI must satisfy other asset and income tests in order to remain qualified as a REIT. In addition, HPCI must satisfy other tests in order to maintain its exemption from the registration requirements of the Investment Company Act. Additional information regarding these tests is set forth in the “Qualification Tests” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of this report.

Commercial Real Estate Loans

Participation interests acquired in commercial real estate loans are secured by real property such as office buildings, multi-family properties of five units or more, 1-4 family residences, industrial, warehouse, and self-storage properties, office and industrial condominiums, retail space, strip shopping centers, mixed use commercial properties, mobile home parks, nursing homes, hotels and motels, churches, and farms. Commercial real estate loans may not be fully amortizing. This means that the loans may have a significant principal balance or “balloon” payment due on maturity. Additionally, there is no requirement regarding the percentage of any commercial real estate property that must be leased at the time HPCI acquires a participation interest in a commercial real estate loan secured by such property nor are commercial loans required to have third party guarantees.

The credit quality of a commercial real estate loan may depend on, among other factors, the existence and structure of underlying leases; the physical condition of the property, including whether any maintenance has been deferred; the creditworthiness of tenants; the historical and anticipated level of vacancies; rents on the property and on other comparable properties located in the same region; potential or existing environmental risks; the availability of credit to refinance the loan at or prior to maturity; and the local and regional economic climate in general. Foreclosures of defaulted commercial real estate loans generally are subject to a number of complicating factors, including environmental considerations, which are not generally present in foreclosures of residential real estate loans.

At December 31, 2009, $2.9 billion, or 91%, of the commercial real estate loans underlying HPCI’s participation interests in such loans were secured by a first mortgage or first lien and most bear variable or floating interest rates. The remaining balance is comprised of $0.1 billion of second, third, and fourth mortgages, and $0.1 billion of loans not secured by real property.

Consumer Loans and Residential Real Estate Loans

HPCI owns participation interests in consumer loans primarily secured by a first or junior mortgage on the borrower’s primary residence. Many of these mortgage loans were made for reasons such as home improvements, acquisition of furniture and fixtures, or debt consolidation. These loans are predominately repaid on an installment basis and income is accrued based on the outstanding balance of the loan over original terms that range from 6 to 360 months. Of the loans underlying the consumer loan participations, most bear interest at fixed rates. Huntington has not originated stated income consumer loans that allow negative amortization. Also, Huntington has not originated consumer loans with an LTV ratio greater than 100%, except for infrequent situations with high quality borrowers. However, recent declines in housing prices have likely eliminated a portion of the collateral for this portfolio as some consumer loans with an original LTV ratio of less than 100% currently have an LTV ratio above 100%.

HPCI also owns participation interests in adjustable rate, fixed rate, conforming, and nonconforming residential real estate loans. Conforming residential real estate loans comply with the requirements for inclusion in a loan guarantee or purchase program sponsored by either the Federal Home Loan Mortgage Corporation (FHLMC) or Federal National Mortgage Association (FNMA). A majority of the nonconforming residential real estate loans underlying the participation interests acquired by HPCI to date are nonconforming because they have original principal balances which exceeded the requirements for FHLMC or FNMA programs, the original terms are shorter than the minimum requirements for FHLMC or FNMA programs at the time of origination, or generally because they vary in certain other respects from the requirements of such programs other than the requirements relating to creditworthiness of the mortgagors. Huntington does not originate residential real estate loans that allow negative amortization or are “payment option adjustable-rate mortgages”.

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Each residential real estate loan is evidenced by a promissory note secured by a mortgage or deed of trust or other similar security instrument creating a first or second lien on single-family residential properties. Residential real estate properties underlying residential real estate loans consist of individual dwelling units, individual condominium units, two- to four-family dwelling units, and townhouses.

Geographic Distribution

The following table shows the geographic location of borrowers underlying HPCI’s loan participations at December 31, 2009:

Table 1 — Total Loan Participation Interests by Geographic Location of Borrower
(in thousands)

					Percentage by
			Aggregate		Aggregate
	Number		Principal		Principal
State	of Loans		Balance		Balance
Ohio		12,134	$	2,228,845		57.5	%
Michigan		6,044		813,071		21.0
Indiana		1,611		299,843		7.7
Kentucky		1,125		166,206		4.3
Pennsylvania		225		129,151		3.3
		21,139		3,637,116		93.8
All other locations		233		236,537		6.2
Total loan participation interests		21,372	$	3,873,653		100.0	%

Dividend Policy and Restrictions

HPCI expects to pay an aggregate amount of dividends with respect to the outstanding shares of its capital stock equal to substantially all of its REIT taxable income, which excludes capital gains. In order to remain qualified as a REIT, HPCI must distribute annually at least 90% of its REIT taxable income to shareholders. Dividends are declared at the discretion of the board of directors after considering its distributable funds, financial condition, and capital needs, the impact of current and pending legislation and regulations, economic conditions, tax considerations, its continued qualification as a REIT, and other factors. Although there can be no assurances, HPCI expects that both its cash available for distribution and its REIT taxable income will be in excess of amounts needed to pay dividends on the preferred securities in the foreseeable future because substantially all of HPCI’s real estate assets and other authorized investments are interest-bearing; all outstanding preferred securities represent, in the aggregate, only approximately 18% of HPCI’s capitalization; and HPCI does not anticipate incurring any indebtedness other than permitted indebtedness, which includes acting as a co-borrower or guarantor of certain obligations of the Bank. HPCI’s board has limited any such pledges to 25% of HPCI’s assets. In addition, HPCI expects its interest-earning assets will continue to exceed the liquidation preference of its preferred securities. For further discussion regarding co-borrower and guarantor obligations, see “Commitments and Contingencies” in the Notes to Financial Statements included in Part II, Item 8 of this report.

Payment of dividends on the preferred securities could also be subject to regulatory limitations if the Bank fails to be “adequately capitalized” for purposes of regulations issued by The Office of the Comptroller of the Currency (OCC). The Bank currently intends to maintain its capital ratios in excess of the “well-capitalized” levels under these regulations. However, there can be no assurance that the Bank will be able to maintain its capital in excess of the “well-capitalized” levels. The Bank’s risk-weighted assets, as defined for regulatory reporting purposes, declined to $43.1 billion at December 31, 2009, from $46.5 billion at December 31, 2008, as both loans outstanding and unfunded loan commitments decreased. At December 31, 2009, the Bank had Tier 1 and Total risk-based capital in excess of the minimum level required to be considered “well-capitalized” of $0.3 billion and $0.5 billion, respectively. Capital ratios for the Bank as of December 31, 2009 and 2008 are as follows:

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Table 2 — Capital Ratios for the Bank

	“Well-			“Adequately-
	Capitalized			Capitalized			December 31,
	Minimums”			Minimums”			2009			2008
Tier 1 Risk-Based Capital		6.00	%		4.00	%		6.66	%		6.44	%
Total Risk-Based Capital		10.00			8.00			11.08			10.71
Tier 1 Leverage Ratio		5.00			4.00			5.59			5.99

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 December 31, 2009, 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 2008 and 2009. 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.

Conflict of Interests and Related Policies

As of December 31, 2009, the Bank controlled 98.7% of the voting power of HPCI’s outstanding securities. Accordingly, the Bank expects to continue to have the right to elect all of HPCI’s directors, including its independent directors, unless HPCI fails to pay dividends on its Class C and Class D preferred securities. In addition, all of HPCI’s officers and six of its nine directors are also officers of Huntington or the Bank. Because of the nature of HPCI’s relationship with Holdings, HPCII, HCF, and the Bank, conflicts of interest have arisen and may arise in the future with respect to certain transactions, including without limitation, HPCI’s acquisition of assets from the Bank or Holdings, HPCI’s disposition of assets to the Bank or Holdings, servicing of the loans underlying HPCI’s participation interests, particularly with respect to loans placed on nonaccrual status, as well as the modification of the participation and subparticipation agreements. Any future modification of these agreements will require the approval of a majority of HPCI’s independent directors. HPCI’s board of directors also has broad discretion to revise its investment and operating strategy without shareholder approval.

It is the intention of HPCI, Holdings, and the Bank that any agreements and transactions between them and/or their affiliates be fair to all parties and consistent with market terms for such types of transactions. The requirement in HPCI’s articles of incorporation that certain actions be approved by a majority of HPCI’s independent directors also is intended to ensure fair dealings among HPCI, Holdings, the Bank and their respective affiliates. HPCI’s independent directors serve on its audit committee and review material agreements among HPCI, Holdings, the Bank, and their respective affiliates. HPCI’s independent directors have approved an agreement with the Bank with respect to the pledge of HPCI’s assets to collaterize the Bank’s borrowings from the Federal Home Loan Bank (FHLB) as more described in the Risk Factors section of this report.

There are no provisions in HPCI’s articles of incorporation limiting any of its officers, directors, shareholders, or affiliates from having any direct or indirect financial interest in any asset to be acquired or disposed of by HPCI or in any transaction in which it has an interest or from engaging in acquiring, holding, and managing its assets. It is expected that the Bank will have direct interests in transactions with HPCI including, without limitation, the sale of assets to HPCI. At December 31, 2009, there were no direct or indirect financial interests in any asset of HPCI by any of its officers or directors.

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Other Management Policies and Programs

General

In administering HPCI’s participation interests and other authorized investments, the Bank has a high degree of autonomy. HPCI has policies to guide its administration with respect to the Bank’s underwriting standards, the acquisition and disposition of assets, credit risk management, and certain other activities. These policies, which are discussed below, may be amended or revised from time to time at the discretion of HPCI’s board of directors, subject in certain circumstances, to the approval of a majority of HPCI’s independent directors, but without a vote of its shareholders.

Underwriting Standards

The Bank has represented to Holdings, and Holdings has represented to HPCI, that the loans underlying HPCI’s participation interests were originated in accordance with underwriting policies customarily employed by the Bank during the period in which the loans were originated. The Bank emphasizes “in-market” lending which means lending to borrowers that are located where the Bank or its affiliates have branches or loan origination offices.

Some of the loans, however, were obtained by the Bank in connection with the acquisition of other financial institutions. Upon renewal, these loans must meet the Bank’s underwriting standards prior to the purchase of any participation or interest by HPCI. As a result of the Sky Financial acquisition, Huntington has a significant loan relationship with Franklin Credit Management Corporation (Franklin). No Franklin loans have been participated to HPCI.

Asset Acquisition and Disposition Policies

It is HPCI’s policy to purchase from the Bank participation interests generally in loans that:

• are performing, meaning they have no more than two payments past due;

• are in accruing status;

• are not made to related parties of HPCI, Huntington, or the Bank;

• are secured by real property such that they are REIT qualifying; and

• have not been previously sold, securitized, or charged-off either in whole or in part.

HPCI’s policy also allows for investment in assets that are not REIT-Qualified Assets up to but not exceeding the statutory limitations imposed on organizations that qualify as REITs. In the past, Holdings has purchased from the Bank and sold to HPCI participation interests in loans not secured by real property because of available proceeds from loan repayments and pay-offs. Management, under this policy, also has the discretion to purchase other assets to maximize its return to shareholders.

It is anticipated that from time to time HPCI will receive participation interests in additional real estate loans from the Bank on a basis consistent with secondary market standards pursuant to the loan participation and subparticipation agreements, out of proceeds received in connection with the repayment or disposition of loan participation interests in HPCI’s portfolio. Although HPCI is permitted to do so, it has no present plans or intentions to purchase loans or loan participation interests from unaffiliated third parties. It is currently anticipated that participation interests in additional loans acquired by HPCI will be of the types described above under the heading “General Description of Assets,” although HPCI is not precluded from purchasing additional types of loans or loan participation interests.

HPCI may continue to acquire from time to time limited amounts of participation interests in loans that are not commercial or residential loans, such as automobile loans and equipment loans, or other authorized investments. Although currently there is no intention to acquire any mortgage-backed securities representing interests in or obligations backed by pools of mortgage loans that will be secured by single-family residential, multi-family, or commercial real estate properties located throughout the United States, HPCI is not restricted from doing so. HPCI does not intend to acquire any interest-only or principal-only mortgage-backed securities. HPCI also will not be precluded from investing in mortgage-backed securities when the Bank is the sponsor or issuer. At December 31, 2009, HPCI did not hold any mortgage-backed securities.

HPCI currently anticipates that it will not acquire the right to service any loan underlying a participation interest that it acquires in the future and that the Bank will act as servicer of any such additional loans. HPCI anticipates that any servicing arrangement that it enters into in the future with the Bank will contain fees and other terms that would be substantially equivalent to or more favorable to HPCI than those that would be contained in servicing arrangements entered into with third parties unaffiliated with HPCI.

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HPCI’s policy is not to acquire any participation interest in any commercial real estate loan that constitutes more than 5.0% of the total book value of HPCI’s real estate assets at the time of acquisition. In addition, HPCI’s policy prohibits the retention of any loan or any interest in a loan other than an interest resulting from the acquisition of mortgage-backed securities, which loan is collateralized by real estate located in West Virginia or that is made to a municipality or other tax-exempt entity.

HPCI’s policy is to reinvest the proceeds of its assets in other interest-earning assets such that its Funds from Operations (FFO), which represents cash flows from operations, over any period of four fiscal quarters will be anticipated to equal or exceed 150% of the amount that would be required to pay annual dividends on the Class A, Class C, and Class D preferred securities, except as may be necessary to maintain its status as a REIT. FFO is equal to net cash provided by operating activities as reflected in HPCI’s consolidated statement of cash flows. For the years ended December 31, 2009, 2008, and 2007, HPCI’s FFO were $169.9 million, $263.8 million, and $321.2 million, respectively. These significantly exceeded the minimum requirement of 150% of dividends on Class A, Class C, and Class D securities or $19.1 million, $33.3 million, and $42.5 million, for the same periods, respectively. HPCI’s articles of incorporation provide that it cannot amend or change this policy with respect to the reinvestment of proceeds without the consent or affirmative vote of the holders of at least two-thirds of the Class C preferred securities and two thirds of the Class D preferred securities, voting as separate classes.

Credit Risk Management Policies

It is expected that participation interests in each commercial or residential real estate loan acquired in the future will represent a first lien position and will be originated by the Bank, one of its affiliates, or an unaffiliated third party in the ordinary course of its real estate lending activities based on the underwriting standards generally applied by or substantially similar to those applied by the Bank at the time of origination for its own account. It is also expected that all loans will be serviced by or through the Bank pursuant to the participation and subparticipation agreements, which require servicing in conformity with any loan servicing guidelines promulgated by HPCI and, in the case of residential real estate loans, with FNMA and FHLMC guidelines and procedures.

Other Policies

HPCI intends to operate in a manner that will not subject it to regulation under the Investment Company Act. Unless otherwise approved by its board of directors, HPCI does not intend to:

• invest in the securities of other issuers for the purpose of exercising control over such issuers;

• underwrite securities of other issuers;

• actively trade in loans or other investments;

• offer securities in exchange for property; or

• make loans to third parties, including, its officers, directors, or other affiliates.

The Investment Company Act exempts entities that, directly or through majority-owned subsidiaries, are “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate” (Qualifying Interests). Under current interpretations by the staff of the Securities and Exchange Commission, in order to qualify for this exemption, HPCI must maintain at least 55% of its assets in Qualifying Interests and also may be required to maintain an additional 25% in Qualifying Interests or other real estate-related assets. The assets that HPCI may acquire therefore may be limited by the provisions of the Investment Company Act. HPCI has established a policy, which it monitors monthly, of limiting authorized investments that are not Qualifying Interests to no more than 20% of the value of its total assets.

HPCI is not prohibited by its Articles of Incorporation from repurchasing its capital securities; however, any such action would be taken only in conformity with applicable federal and state laws and regulations and the requirements for qualifying as a REIT.

HPCI distributes to its shareholders, in accordance with the Securities and Exchange Act of 1934, as amended, annual reports containing financial statements prepared in accordance with accounting principles generally accepted in the United States and certified by its independent registered public accounting firm. HPCI’s articles of incorporation provide that it will maintain its status as a reporting company under the Exchange Act for so long as any of the Class C preferred securities are outstanding and held by unaffiliated shareholders.

HPCI currently makes investments and operates its business in such a manner consistent with the requirements of the Internal Revenue Code to qualify as a REIT. However, future economic, market, legal, tax, or other considerations may cause its board of directors, subject to approval by a majority of its independent directors, to determine that it is in HPCI’s best interest and the best interest of its shareholders to revoke HPCI’s REIT status. The Internal Revenue Code prohibits HPCI from electing REIT status for the five taxable years following the year of such revocation.

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Employees

At December 31, 2009, HPCI had six executive officers and two additional officers, but no employees. Day-to-day activities and the servicing of the loans underlying HPCI’s participation interests are administered by the Bank. All of HPCI’s officers are also officers or employees of Huntington, the Bank, and/or Holdings. HPCI maintains corporate records and audited financial statements that are separate from those of Huntington, the Bank, and Holdings.

Although there are no restrictions or limitations contained in HPCI’s articles of incorporation or bylaws, HPCI does not anticipate that its officers or directors will have any direct or indirect financial interest in any asset to be acquired or disposed of by HPCI or in any transaction in which HPCI has an interest or will engage in acquiring, holding, and managing assets, other than as borrowers or guarantors of loans underlying HPCI’s participation interests. In cases where HPCI’s officers or directors do have a direct or indirect financial interest as borrower or guarantors of loans underlining HPCI participation interests, the loans would be on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the time for comparable transaction with others and would not involve more than the normal risk of collectability or present other unfavorable features.

Servicing

The loans underlying HPCI’s participation interests are serviced by the Bank pursuant to the terms of (i) the participation agreement between the Bank and HPCI, (ii) the participation agreement between the Bank and Holdings and the subparticipation agreement between Holdings and HPCI.

The participation and subparticipation agreements require the Bank to service the loans underlying HPCI’s participation interests in a manner substantially the same as for similar work performed by the Bank for transactions on its own behalf. The Bank or its affiliates collect and remit principal and interest payments, maintain perfected collateral positions, and submit and pursue insurance claims. The Bank and its affiliates also provide accounting and reporting services required by HPCI for its participation interests. The Bank may, in accordance with HPCI’s guidelines, dispose of any loans that become classified, are placed in a non-performing status, or are renegotiated due to the financial deterioration of the borrower. The Bank is required to pay all expenses related to the performance of its duties under the participation and subparticipation agreements, including any payment to its affiliates for servicing the loans. The Bank or its affiliates 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 mortgaged property underlying a real estate loan by operation of law or otherwise in accordance with the terms of the participation and subparticipation agreements.

Under the participation and subparticipation agreements, the Bank has the right, in the exercise of its reasonable discretion and in accordance with prudent banking practices, to give consents, waivers, and modifications of the loan documents to the same extent as if the loans were wholly owned by the Bank; provided, however, that the Bank shall not grant or agree to any (i) waiver of any payment default, (ii) extension of the maturity, (iii) reduction of the rate or rates of interest with respect to the loans, (iv) forgiveness or reduction of the principal sum of the loans, (v) increase the lending formula or advance rates, (vi) waiver of any right to elect to foreclose on any loan in default, or (vii) amendment or modification of the financial covenants contained in the loan documents that would make such financial covenants less restrictive with respect to any of the borrowers without the prior written consent of Holdings or HPCI, except that the Bank shall be permitted to grant or agree to any of such consents, waivers, or modifications pursuant to and in accordance with guidelines and limitations provided by Holdings or HPCI to the Bank in writing from time to time.

The Bank has the right to accept payment or prepayment of the whole principal sum and accrued interest in accordance with the terms of the loans, waive prepayment charges in accordance with the Bank’s policy for loans in which no participation interest has been granted, and accept additional security for the loans. No specific term is specified in the participation and subparticipation agreements; the agreements may be terminated by mutual agreement of the parties at any time, without penalty. Due to the relationship among HPCI, Holdings, and the Bank, it is not anticipated that these agreements will be terminated by any party in the foreseeable future.

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The Bank, in its role as servicer under the terms of the loan participation agreements, receives a loan-servicing fee designed as a reimbursement for costs incurred to service the underlying loan. The amount and terms of the fee are determined by mutual agreement of the Bank, Holdings, and HPCI from time to time during the term of the participation and subparticipation agreements. The fees and other terms contained in the servicing arrangements are substantially equivalent to, but may be more favorable to HPCI, than those that would be attained in agreements with unaffiliated third parties. Additional information regarding the servicing fee rates are set forth under the caption “Non-Interest Income and Non-Interest Expense” of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of this report.

Competition

Competition that impacts Huntington’s ability to attract new business, particularly in the form of loans secured by real estate, also affects HPCI’s availability to invest in participation interests in such loans. Huntington is impacted by competition in the form of price and service from other banks and financial companies such as savings and loans, credit unions, finance companies, and brokerage firms which is intense in most of the markets served by Huntington and its subsidiaries. Mergers between and the expansion of financial institutions both within and outside Ohio have provided significant competitive pressure in major markets. Since 1995, when federal interstate banking legislation became effective that made it permissible for bank holding companies in any state to acquire banks in any other state, and for banks to establish interstate branches (subject to certain limitations by individual states), actual or potential competition in each of Huntington’s markets has intensified. Internet banking also competes with Huntington’s business.

Segment Reporting

HPCI’s operations consist of acquiring, holding, and managing its participation interests. Accordingly, HPCI only operates in one segment.

Regulatory Matters

HPCI is an indirect subsidiary of the Bank and, therefore, regulatory authorities have the right to examine HPCI and its activities and, under certain circumstances, to impose restrictions on the Bank or HPCI. The Bank is subject to examination and supervision by the OCC. In addition to the impact of federal and state regulation, the Bank is affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy.

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). Participation in the CPP requires companies to adopt certain standards and conditions on executive compensation, restrictions on the payment of dividends and the repurchase of common stock. We do not believe these standards and conditions adopted by Huntington will have a significant impact on HPCI’s financial condition or results of operations.

Available Information

HPCI’s investor information is accessible on Huntington’s Internet website, under the “Investor Relations” link found on Huntington’s homepage at www.huntington.com. HPCI makes available free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after those reports have been electronically filed or submitted to the SEC. These filings are also accessible on the SEC’s website at www.sec.gov. The public may read and copy any materials HPCI files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

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Item 1A: Risk Factors

HPCI is subject to a number of risks, many of which are outside of Management’s control, though Management strives to manage those risks while optimizing returns. In addition to the other information included in this report, readers should carefully consider that the following important factors, among others, could materially impact HPCI’s business, future results of operations, and future cash flows.

A decline in the Bank’s capital levels may result in HPCI’s preferred securities being subject to a conditional exchange into Bank preferred securities at a time when the Bank’s financial condition is deteriorating. Consequently, the likelihood of dividend payments, as well as the liquidation preference, voting rights, and liquidity of securities would be negatively impacted. In addition, this exchange would most likely be a taxable event to shareholders.

The OCC, as the primary regulator of the Bank, has the ability to cause the exchange of HPCI’s Class C preferred securities if:

• the Bank becomes “undercapitalized;”

• the OCC, in its sole discretion, anticipates that the Bank will become “undercapitalized” in the near term; or

• the Bank is placed in conservatorship or receivership.

None of the holders of HPCI’s Class C preferred securities, HPCI, or the Bank can require or force such an exchange. In the event of an OCC-directed exchange, each holder of HPCI’s Class C preferred securities would receive a Class C preferred security from the Bank for each Class C preferred security of HPCI. This would represent an investment in the Bank and not in HPCI. Under these circumstances, there would likely be a significant loss associated with this investment. Also, since preferred shareholders of HPCI would become preferred shareholders of the Bank at a time when the Bank’s financial condition has deteriorated, it is unlikely that the Bank would be in a financial position to make any dividend payments on the Bank’s preferred securities.

In the event of a liquidation of the Bank, the claims of depositors and creditors of the Bank are entitled to priority in payment over the claims of holders of equity interests, such as the Bank preferred securities, and, therefore, preferred shareholders likely would receive substantially less than would have been received had the preferred securities not been exchanged for Bank preferred securities.

The exchange of the preferred securities for Bank preferred securities would most likely be a taxable event to shareholders under the Internal Revenue Code and, in that event, shareholders would incur a gain or loss, as the case may be, measured by the difference between the basis in the preferred securities and the fair market value of the Bank preferred securities received in the exchange.

Although the terms of the Bank preferred securities are substantially similar to the terms of HPCI’s preferred securities, there are differences, such as the Bank preferred securities do not have any voting rights or any right to elect independent directors if dividends are missed. In addition, the Bank preferred securities will not be listed on the NASDAQ Stock Market or any exchange and a market for them may never develop.

The Bank would be considered to be “undercapitalized” if: its Tier 1 risk-based capital (“RBC”) ratio is below 4%, its Total RBC ratio is below 8% or its Tier 1 leverage ratio is below 4%. The Bank currently intends to maintain its capital ratios in excess of the levels it needs to be considered to be “well-capitalized” under regulations issued by the OCC. These guidelines, as well as the Bank’s regulatory capital ratios for December 31, 2009, are discussed in table 2 of Item I, Part 1 of this report.

The Bank is a wholly owned subsidiary of Huntington. Huntington is a one-bank holding company which files annual, quarterly, and current reports, proxy statements, and other information with the Securities and Exchange Commission (the SEC), under the Securities Exchange Act of 1934, as amended (the Exchange Act). At December 31, 2009 and 2008, the Bank, on a consolidated basis with its subsidiaries, accounted for over 98% of Huntington’s consolidated assets, and accordingly, Management considers the balance sheets of the Bank to be substantially the same as the balance sheet of Huntington for each of these dates. For periods prior to and including December 31, 2007, the consolidated income statements of the Bank and Huntington are substantially the same. For 2008, a substantial portion of the losses associated with Huntington’s relationship with Franklin was recorded at a direct subsidiary of Huntington. This portion of the losses did not affect the Bank and, thus, affects the comparability of the Bank’s income statement with that of Huntington. Other than the impact of these losses associated with Huntington’s relationship with Franklin, there were no material differences in the income statements of the Bank and Huntington for the year ended December 31, 2008. These changes had no impact on net cash flows of the Bank or of Huntington for the year ended December 31, 2008. There were no material differences in the income statements of the Bank and Huntington for the year ended December 31, 2009.

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These filings are available to the public over the Internet at the SEC’s web site at http://www.sec.gov and on the investor relations page of Huntington’s website at http://www.huntington.com. Any document filed by Huntington with the SEC can be read and copied at the SEC’s public reference facilities. Further information on the operation of the public reference facilities can be obtained by calling the SEC at 1-800-SEC-0330. Copies of these SEC filings can be obtained at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street N.E., Washington, D.C. 20549. In addition, copies of these SEC filings can also be obtained by written request to Investor Relations, Huntington Bancshares Incorporated, 41 South High Street, Columbus, Ohio 43287 or by calling 614-480-4060. Huntington’s financial statements for the fiscal year ended December 31, 2009 are also filed with this report as Exhibit 99.1.

Legislative and regulatory actions taken now or in the future to address the current liquidity and credit crisis in the financial industry may significantly affect our financial condition, results of operation, liquidity, or stock price.

Current economic conditions, particularly in the financial markets, have resulted in government regulatory agencies and political bodies placing increased focus on and scrutiny of the financial services industry. The U.S. Government has intervened on an unprecedented scale, responding to what has been commonly referred to as the financial crisis. In addition to the U.S. Treasury Department’s Capital Purchase Plan (CPP) under the Troubled Asset Relief Program (TARP) announced in the fall of 2008 and the new Capital Assistance Program (CAP) announced in spring of 2009, the U.S. Government has taken steps that include enhancing the liquidity support available to financial institutions, establishing a commercial paper funding facility, temporarily guaranteeing money market funds and certain types of debt issuances, and increasing insurance on bank deposits. The U.S. Congress, through the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009, has imposed a number of restrictions and limitations on the operations of financial services firms participating in the federal programs.

These programs subject the Bank, and other financial institutions that participate in them, to additional restrictions, oversight, and costs that may have an adverse impact on our business, financial condition, or results of operations. In addition, new proposals for legislation continue to be introduced in the U.S. Congress that could further increase regulation of the financial services industry and impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices, including as related to compensation, interest rates, the impact of bankruptcy proceedings on consumer real property mortgages, and otherwise. Federal and state regulatory agencies also frequently adopt changes to their regulations and/or change the manner in which existing regulations are applied. We cannot predict the substance or impact of pending or future legislation, regulation, or its application. Compliance with such current and potential regulation and scrutiny may significantly increase our costs, impede the efficiency of our internal business processes, negatively impact the recoverability of certain of our recorded assets, require us to increase our regulatory capital, and limit our ability to pursue business opportunities in an efficient manner.

Huntington participated in TARP in the fall of 2008, as well as other such programs in 2009. A company that participates in the TARP must adopt certain standards for executive compensation and accept restrictions on the payment of dividends and the repurchase of common stock. The United States government also has the ability to impose additional conditions on participants in the TARP. These additional conditions could have an adverse impact on Huntington’s financial position and future results of operations. Because of the nature of HPCI’s relationship with Huntington, this could have an adverse impact on HPCI’s financial position and future results of operations.

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A sustained weakness or weakening in business and economic conditions generally or specifically in the markets in which we do business could adversely affect our business and operating results.

Our business could be further adversely affected to the extent that the above-mentioned conditions continue to exert direct or indirect impacts on us or on our customers and counterparties. These conditions could lead, for example, to one or more of the following:

• A decrease in the demand for loans;

• An increase in the number of customers and counterparties who become delinquent, file for protection under bankruptcy laws, or default on their loans or other obligations to us.

An increase in the number of delinquencies, bankruptcies, or defaults could negatively impact our business and result in a higher level of related nonperforming assets, net charge-offs, and provision for credit losses. The markets we serve are dependent, indirectly, on industrial businesses and are vulnerable to adverse changes in economic conditions in these markets.

Our portfolio of commercial real estate loan participation interests has and will continue to be affected by the on-going correction in residential real estate prices and reduced levels of home sales.

At December 31, 2009, we had $3.1 billion of commercial real estate loan participation interests, including $0.2 billion of loan participation interests to builders of single family homes. There continues to be a general slowdown in the housing market across our geographic footprint, reflecting declining prices and excess inventories of houses to be sold. As a result, home builders have shown signs of financial deterioration. We expect the home builder market to continue to be volatile and anticipate continued pressure on the home builder segment in the coming months. As we continue our on-going portfolio monitoring, we will make credit and reserve decisions based on the current conditions of the borrower or project combined with our expectations for the future. If the slow down in the housing market continues, we could experience higher charge-offs and delinquencies in this portfolio.

Declines in home values and reduced levels of home sales in our markets could continue to adversely affect us.

We are subject to the effects of any economic downturn. There has been a slowdown in the housing market across our geographic footprint, reflecting declining prices and excess inventories of houses to be sold. These developments have had, and further declines may continue to have, a negative effect on our financial conditions and results of operations. At December 31, 2009, we had participation interests in $0.7 billion of consumer and residential real estate loans, representing 19% of total loans. Continuing declines in home values are likely to lead to higher charge-offs and delinquencies in each of these portfolios.

We rely on the Bank’s credit underwriting standards and on-going process of credit assessment. There can be no assurance that the Bank’s standards and assessments will protect us from significant credit losses on loans underlying its participation interests.

To date, we have purchased, and intend to continue to purchase, all of our participation interests in loans originated by or through the Bank and its affiliates. After we purchase the participation interests, the Bank continues to service the underlying loans. Accordingly, in managing our credit risk, we rely on the Bank’s credit underwriting standards and on-going process of credit assessment. The Bank’s exposure to credit risk is managed through the use of consistent underwriting standards that emphasize “in-market” lending while avoiding highly leveraged transactions as well as excessive industry and other concentrations. The Bank’s credit administration function employs risk management techniques to ensure that underlying loans adhere to corporate policy and problem loans underlying our participation interests are promptly identified. There can be no assurance that the Bank’s credit underwriting standards and its on-going process of credit assessment will protect us from significant credit losses on loans underlying its participation interests.

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We have no control over changes in interest rates and such changes could negatively impact our financial condition, results of operations, and ability to pay dividends.

Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. Conditions such as inflation, recession, unemployment, money supply, and other factors beyond our control may also affect interest rates. Our income consists primarily of interest and fees on loans underlying its participation interests. Changes in interest rates also can affect the value of our loan participation interest. At December 31, 2009, 28% of the loans underlying our participation interests, as measured by the aggregate outstanding principal amount, bore interest at fixed rates and the remainder bore interest at adjustable rates. Adjustable-rate loans decrease the risks associated with increases in interest rates but involve other risks. As interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, and the increased payment increases the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on the loans underlying our participation interests as the borrowers refinance their mortgages at lower interest rates. Under these circumstances, we may find it more difficult to acquire additional participation interests with rates sufficient to support the payment of the dividends on the preferred securities. Because the rate at which dividends are required to be paid on the Class A and C preferred securities is fixed, there can be no assurance that a declining interest rate environment would not adversely affect our ability to pay full, or even partial, dividends on our preferred securities.

Bank regulators may limit HPCI’s ability to implement its business plan and may restrict its ability to pay dividends.

Because HPCI is an indirect subsidiary of the Bank, regulatory authorities have the right to examine HPCI and its activities and, under certain circumstances, impose restrictions on the Bank or HPCI. These restrictions could impact HPCI’s ability to conduct its business and could adversely affect its financial condition and results of operations.

If the OCC determines that the Bank’s relationship with HPCI results in an unsafe and unsound banking practice, the OCC and other regulators of the Bank have the authority to restrict HPCI’s ability to transfer assets, restrict its ability to make distributions to shareholders or redeem preferred securities, or require the Bank to sever its relationship with HPCI or divest its ownership in HPCI. Certain of these actions by the OCC would likely result in HPCI’s failure to qualify as a REIT. The payment of dividends on the preferred securities could also be subject to regulatory limitations if the Bank becomes “under-capitalized” for purpose of regulations issued by the OCC, as described under the heading “Dividend Policy and Restrictions” in Item I, part 1 of this report.

Legal and regulatory limitations on the payment of dividends by the Bank could also affect HPCI’s ability to pay dividends to unaffiliated third parties, including the preferred shareholders. Since HPCI, HPCII, HCF, and Holdings are members of the Bank’s consolidated group, payment of common and preferred dividends by the Bank and/or any member of its consolidated group to unaffiliated third parties, including payment of dividends to the shareholders of preferred securities, would require regulatory approval if aggregate dividends on a consolidated basis exceed certain limitations. 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.

At December 31, 2009, the Bank could not declare or pay dividends 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 2008 and 2009. 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

HPCI could suffer adverse tax consequences if it failed to qualify as a REIT.

No assurance can be given that HPCI will be able to continue to operate in such a manner so as to remain qualified as a REIT. Qualification as a REIT involves the application of highly technical and complex tax law provisions for which there are only limited judicial or administrative interpretations and involves the determination of various factual matters and circumstances not entirely within its control. No assurance can be given that new legislation or new regulations, administrative interpretations, or court decisions will not significantly change the tax laws in the future with respect to qualification as a REIT or the federal income tax consequences of such qualification in a way that would materially and adversely affect HPCI’s ability to operate. Any such new legislation, regulation, interpretation, or decision could be the basis of a tax event that would permit HPCI to redeem all or any preferred securities. If HPCI were to fail to qualify as a REIT, the dividends on preferred securities would not be deductible for federal income tax purposes. HPCI would face a tax liability that could consequently result in a reduction in HPCI’s net earnings after taxes. A reduction in net earnings after taxes could adversely affect its ability to add interest-earning assets to its portfolio and pay dividends to its preferred security holders.

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If in any taxable year HPCI fails to qualify as a REIT, unless it is entitled to relief under certain statutory provisions, it would also be disqualified from treatment as a REIT for the five taxable years following the year its qualification was lost. As a result, the amount of funds available for distribution to shareholders would be reduced for the year or years involved.

As a REIT, HPCI generally will be required each year to distribute as dividends to its shareholders at least 90% of REIT taxable income, excluding capital gains. Failure to comply with this requirement would result in earnings being subject to tax at regular corporate rates. In addition, HPCI would be subject to a 4% nondeductible excise tax on the amount by which certain distributions considered as paid with respect to any calendar year are less than the sum of 85% of ordinary income for the calendar year, 95% of capital gains for the calendar year, and 100% of undistributed taxable income from prior periods. Qualification as a REIT also involves application of other specific provisions of the Internal Revenue Code. Two specific provisions are an income test and an asset test. At least 75% of HPCI’s gross income, excluding gross income from prohibited transactions, for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property. Additionally, at least 75% of HPCI’s total assets must be represented by real estate assets. At December 31, 2009, HPCI had qualifying income and qualifying assets that exceeded 75%.

Although HPCI currently intends to operate in a manner designed to qualify as a REIT, future economic, market, legal, tax, or other considerations may cause it to determine that it is in its best interests and the best interests of holders of common and preferred securities to revoke the REIT election. As long as any class of preferred securities is outstanding, any such determination may be made without shareholder approval, but will require the approval of a majority of independent directors.

HPCI is dependent, in virtually every phase of its operations, on the diligence and skill of the officers and employees of the Bank, the Bank’s ability to retain key employees, and its relationship with the Bank may create potential conflicts of interest.

The Bank is involved in virtually every aspect of HPCI’s existence. As of December 31, 2009, all of its officers and six of its nine directors are also officers or directors of the Bank and/or its affiliates. Officers that are common with the Bank devote less than a majority of their time to managing HPCI’s business. The Bank has the right to elect all of HPCI’s directors, including independent directors, except under limited circumstances if it fails to pay dividends. The Bank and its affiliates have interests that are not identical to HPCI’s and, therefore, conflicts of interest could arise in the future with respect to transactions between or among the Bank, Holdings, HPCII, HCF, and HPCI.

The Bank administers HPCI’s day-to-day activities under the terms of participation and sub-participation agreements. The parties to these agreements are all affiliated and, accordingly, these agreements were not the result of arms-length negotiations and may be modified at any time in the future. Although the modification of the agreements requires the approval of a majority of independent directors, the Bank, through its control of voting power of HPCI’s outstanding securities, controls the election of all of the directors, including independent directors. Therefore, HPCI cannot assure shareholders that modifications to the participation and sub-participation agreements will be on terms as favorable to it as those that could have been obtained from unaffiliated third parties.

Huntington, the owner of all the Bank’s common shares, may have investment goals and strategies that differ from those of the holders of HPCI’s preferred securities. In addition, neither Huntington nor the Bank has a policy addressing the treatment of conflicts regarding new business opportunities. Thus, new business opportunities identified by Huntington or the Bank may be directed to affiliates other than HPCI. HPCI’s board of directors has broad discretion to revise its investment and operating strategy without shareholder approval. The Bank, through its direct and indirect ownership of Holdings, HCF, and HPCII’s common stock and their ownership of HPCI’s common stock, controls the election of all of HPCI’s directors, including independent directors. Consequently, HPCI’s investment and operating strategies will largely be directed by Huntington and the Bank.

HPCI is dependent on the diligence and skill of the officers and employees of the Bank for the selection and structuring of the loans underlying its participation interests and other authorized investments. The Bank selected the amount, type, and price of loan participation interests and other assets that were acquired from the Bank and its affiliates. HPCI anticipates that it will continue to acquire all or substantially all of its assets from the Bank or its affiliates for the foreseeable future. Although these acquisitions are made within investment policies, neither HPCI nor the Bank obtained any third-party valuations. HPCI does not intend to do so in the future. Although HPCI has policies to guide the acquisition and disposition of assets, these policies may be revised or exceptions may be approved from time to time at the discretion of the board of directors without a vote of shareholders. Changes in or exceptions made to these policies could permit the acquisition of lower quality assets.

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HPCI is dependent on the Bank and others for monitoring and servicing the loans underlying its participation interests. Conflicts could arise as part of such servicing, particularly with respect to loans that are placed on nonaccrual status. HPCI has no control over the actions of the Bank in pursuing collection of any non-performing assets. HPCI’s ability to make timely payments of dividends on the preferred and common securities will depend in part upon the Bank’s prompt collection efforts on its behalf. HPCI pays substantial servicing fees to the Bank. HPCI incurred servicing fees of $9.4 million in 2009, $10.9 million in 2008, and $11.1 million in 2007.

The Bank may seek to exercise its influence over HPCI’s affairs so as to cause the sale of its assets and their replacement by lesser quality assets acquired from the Bank or elsewhere. This could adversely affect HPCI’s business and its ability to make timely payment of dividends on the preferred and common securities.

A change of control of Huntington could result in a change in the way that HPCI operates and this could have an adverse impact on HPCI’s financial position and future results of operations.

HPCI’s assets may be used to guarantee certain of the Bank’s obligations that will have a preference over the holders of HPCI’s preferred securities.

The Bank is eligible to obtain advances from various federal and government-sponsored agencies, such as the Federal Home Loan Bank (FHLB). Any such agency that makes advances to the Bank where HPCI has acted as a co-borrower or guarantor or has pledged its assets as collateral will have a preference over the holders of HPCI’s preferred securities. These holders would receive their liquidation preference only to the extent there are assets available after satisfaction of HPCI’s indebtedness and other obligations under any such guarantee or pledge, if any. 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 $3.2 billion as of December 31, 2009, based on the Bank’s holdings of FHLB stock. As of that same date, the Bank had borrowings of $0.2 billion under the facility.

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 amount or 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, or approximately $1.1 billion as of December 31, 2009, as reflected in HPCI’s month-end management report. This pledge limit may be changed in the future by the board of directors, including a majority of HPCI’s independent directors. As of December 31, 2009, HPCI’s total loans pledged consisted of one-to-four family residential mortgage portfolio, which aggregated to $0.7 billion as of that same date. A default by the Bank on its obligations to the FHLB could adversely affect HPCI’s business and its ability to make timely dividend payments on preferred and common securities.

HPCI may redeem the Class C and Class D preferred securities upon the occurrence of certain special events and holders of such securities may receive a redemption amount that is different than the then current market price for the securities.

At any time following the occurrence of certain special events, HPCI will have the right to redeem the Class C and Class D preferred securities in whole, subject to the prior written approval of the OCC. The occurrence of such an event will not, however, give a preferred shareholder any right to request that such Class C or Class D preferred securities be redeemed. A special event includes:

• a tax event which occurs when HPCI receives an opinion of counsel to the effect that, as a result of a judicial decision or administrative pronouncement, ruling, or other action or as a result of certain changes in the tax laws, regulations, or related interpretations, there is a significant risk that dividends with respect to HPCI’s capital stock will not be fully deductible by HPCI or it will be subject to a significant amount of additional taxes or governmental charges;

• an investment company event which occurs when HPCI receives an opinion of counsel to the effect that, as a result of certain changes in the applicable laws, regulations, or related interpretations, there is a significant risk that HPCI will be considered an investment company under the Investment Company Act of 1940; and

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• a regulatory capital event which occurs when, as a result of certain changes in the applicable laws, regulations, or related interpretations, there is a significant risk that HPCI’s Class C preferred securities will no longer constitute Tier 1 capital of the Bank (other than as a result of limitations on the portion of Tier 1 capital that may consist of minority interests in subsidiaries of the Bank).

In the event HPCI redeems its Class C or Class D preferred securities, holders of such securities will be entitled to receive the redemption price of $25.00 per share plus accrued and unpaid dividends on such shares. The redemption price may differ from the market price of the Class C preferred securities.

Item 1B: Unresolved Staff Comments

Not Applicable.

Item 2: Properties

HPCI does not own any material physical property or real estate.

Item 3: Legal Proceedings

HPCI is not the subject of any material litigation. HPCI is not currently involved in nor, to Management’s knowledge, is currently threatened with any material litigation with respect to the loans underlying its participation interests other than routine litigation arising in the ordinary course of business.

Item 4: Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the period covered by this report.

Part II

Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

There is no established public trading market for HPCI’s common stock. As of February 28, 2010, there were three common shareholders of record, all of which are affiliates of the Bank. There were no dividends declared to common shareholders in 2009. During 2008 and 2007, dividends of $224.3 million and $266.6 million were declared to common shareholders, respectively. In addition, HPCI had return of capital distributions on common stock of $500.0 million, $0.1 million, and 33.8 million, for the years ended December 31, 2009, 2008, and 2007, respectively. These dividends and distributions were either accrued or paid by the last business day in each year.

Information regarding restrictions on dividends, as required by this item, is set forth in Part I, Item 1 “Dividend Policy and Restrictions”.

HPCI did not sell any unregistered equity securities during the year ended December 31, 2009. Neither HPCI nor any “affiliated purchaser” (as defined by Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) repurchased any equity securities of HPCI in any month within the fourth quarter ended December 31, 2009.

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Item 6: Selected Financial Data

The table below represents selected financial data relative to HPCI as of and for the years ended December 31, 2009, 2008, 2007, 2006, and 2005.

Table 3 — Selected Financial Data

(in thousands)	2009			2008			2007			2006			2005
STATEMENTS OF INCOME:
Interest and fee income	$	167,485		$	254,549		$	324,811		$	331,306		$	302,743
Provision for (reduction in) allowance for credit losses		171,926			(14,855	)		3,390			(22,041	)		(19,796	)
Non-interest income		2,569			3,064			12,042			7,525			9,391
Non-interest expense		10,116			11,689			15,587			15,322			17,065
(Loss) income before provision for income taxes	$	(11,988	)	$	260,779		$	317,876		$	345,550		$	314,865
Provision for income taxes		—			—			1,617			1,313			547
Net (loss) income	$	(11,988	)	$	260,779		$	316,259		$	344,237		$	314,318
Dividends declared on preferred securities		16,195			36,521			49,643			47,944			34,634
Net (loss) income applicable to common shares	$	(28,183	)	$	224,258		$	266,616		$	296,293		$	279,684
Dividends and distributions declared on common stock	$	500,000		$	225,000		$	300,410		$	450,000		$	700,000
BALANCE SHEET HIGHLIGHTS:
At year end:
Net loan participation interests	$	3,717,222		$	4,343,035		$	4,276,764		$	4,048,506		$	4,454,795
All other assets		726,133			345,533			189,110			901,230			899,090
Total assets		4,443,355			4,688,568			4,465,874			4,949,736			5,353,885
Total shareholders’ equity		3,933,034			4,461,217			4,461,959			4,495,753			4,649,460
Average balances:
Net loan participation interests	$	3,966,491		$	4,311,659		$	4,289,099		$	4,349,214		$	4,664,505
Total assets		4,503,403			4,588,530			4,653,184			4,816,467			5,217,640
Total shareholders’ equity		4,422,497			4,562,126			4,617,576			4,774,542			5,197,654
KEY RATIOS AND STATISTICS:
Yield on interest earning assets		3.69	%		5.51	%		6.98	%		6.94	%		5.84	%
Return on average assets		(0.26	)		5.68			6.80			7.15			6.02
Return on average equity		(0.27	)		5.72			6.85			7.21			6.05
Average shareholders’ equity to average assets		98.20			99.42			99.23			99.13			99.62
Preferred dividend coverage ratio		(0.74	)x		7.14	x		6.37	x		7.18	x		9.08	x

All of HPCI’s common stock is owned by HCF, HPCII, and Holdings and, therefore, net income per common share information is not presented. At the end of all years presented, HPCI did not have any interest-bearing liabilities and, therefore, no liabilities are presented under this item.

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Item 7: 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 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 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 HPCI’s participation interests to date were acquired directly or indirectly from the Bank.

Forward-looking Statements

This report, including management’s discussion and analysis of financial condition and results of operations, contains forward-looking statements about HPCI. These include descriptions of plans, or objectives of Management for future operations, and forecasts of its 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 this report and other factors described from time to time in HPCI’s 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 does not 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.

Critical Accounting Policies and Use of Significant Estimates

HPCI’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). 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 its financial statements. Note 1 to the consolidated financial statements included in this report lists significant accounting policies used by Management in the development and presentation of HPCI’s financial statements. This discussion and analysis, 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 the organization and its financial position, results of operations, and cash flows.

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 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. Management has identified the allowances for credit losses (ACL) as the most significant accounting estimate. At December 31, 2009, the ACL was $158.0 million and represented the sum of the allowance for loan participation losses (ALPL) and allowance for unfunded loan participation commitments (AULPC). The ACL represents Management’s estimate as to the level of allowances considered appropriate to absorb probable inherent credit losses in the loan participation portfolio, as well as unfunded loan participation 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 such as have been experienced throughout 2009. HPCI believes the process for determining the ACL considers all of the potential factors that could result in credit losses. However, the process includes judgmental and

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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 estimates, the credit quality of the Bank’s 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 HPCI’s business, financial condition, liquidity, capital, and results of operations in future periods. At December 31, 2009, the ACL as a percent of total loan participation commitments was 4.08%. To illustrate the potential effect on the financial statements of our estimates of the ACL, a 10 basis point increase in this ratio to 4.18% would require $4.0 million in additional provision for credit losses, and would also negatively impact 2009 net (loss) income by approximately $4.0 million. A discussion about the process used to estimate the ACL is presented in the Credit Risk section of Management’s Discussion and Analysis in this report.

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. For the year ended December 31, 2009, 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. For the tax year 2009, HPCI met all annual income and distribution tests.

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 December 31, 2009, 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 stock is considered equity and, therefore, the dividends are not reflected as interest expense.

HPCI reported a net loss of $12.0 million for 2009, as compared with net income of $260.8 million for 2008, and $316.3 million for 2007. The decrease in net income for 2009 was the result of increased provision for allowance for credit losses, particularly from participation interests in commercial real estate. Net loss available to common shares was $28.2 million for 2009, compared to net income available to common shares of $224.3 million in 2008, and $266.6 million for 2007. Return on average assets (ROA) was (0.26) % for 2009, 5.68% for 2008, and 6.80% for 2007. Return on average equity (ROE) was (0.27) % for 2009, 5.72% for 2008, and 6.85% for 2007.

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Interest and Fee Income

HPCI’s primary source of revenue is the interest and fee income on its participation interests in loans. At December 31, 2009 and 2008, 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 table below shows HPCI’s average annual balances, interest and fee income, and yields for the three years ended December 31:

Table 4 — Interest and Fee Income

	2009							2008							2007
	Average							Average							Average
(in millions)	Balance		Income (1)		Yield			Balance		Income (1)		Yield			Balance		Income (1)		Yield
Loan participation interests:
Commercial real estate	$	3,195.9	$	110.1		3.45	%	$	3,283.0	$	176.8		5.39	%	$	3,178.8	$	231.3		7.28	%
Consumer and residential real estate		848.2		56.2		6.62			1,093.8		72.5		6.63			1,162.8		77.6		6.67
Total loan participations		4,044.1		166.3		4.11			4,376.8		249.3		5.70			4,341.6		308.9		7.12
Interest bearing deposits with The Huntington National Bank		490.4		1.2		0.25			239.2		5.2		2.17			307.2		15.9		5.10
Total	$	4,534.5	$	167.5		3.69	%	$	4,616.0	$	254.5		5.51	%	$	4,648.8	$	324.8		6.98	%

⁽¹⁾ Income includes interest and fees.

Interest and fee income for the years ended December 31, 2009 and 2008 were $167.5 million and $254.5 million, respectively. As shown in Table 4, the decrease in interest and fee income was the result of lower interest rate yields, as well as a significant increase in non-accrual loan balances. See table 5 for a breakdown fixed and variable rate loans as of December 31, 2009 and 2008. The yield decreased to 3.69% in 2009 from 5.51% in 2008 while average total earning asset balances decreased by $81.5 million, or 1.8%. The table above includes interest received on participations in loans that are on a non-accrual status in the individual portfolios.

Interest and fee income for the years ended December 31, 2008 and 2007 were $254.5 million and $324.8 million, respectively. The decrease in interest and fee income was the result of lower interest rates. For the years ended December 31, 2008 and 2007, the yield decreased from 6.98% to 5.51%, while average total earning asset balances decreased by $32.8 million, or 0.7%.

Provision for (reduction in allowances for) Credit Losses

The provision for (reduction in allowances for) credit losses is the charge (credit) 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 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 the reduction in ALPL. The provision for credit losses was $171.9 million for 2009, compared with reduction in allowances for credit losses of $14.9 million in 2008 and a provision for credit losses of $3.4 million in 2007. The provision expense during 2009 was primarily the result of a change in estimate resulting from the 2009 fourth quarter review of our ACL practices and assumptions. See discussion of allowances for credit losses within the “Credit Quality” section of this report.

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Noninterest Income and Noninterest Expense

Noninterest income was $2.6 million, $3.1 million, and $12.0 million in 2009, 2008, and 2007, respectively. During 2007, non-interest income included rental income received from the Bank related to leasehold improvements owned by HPCLI. On December 31, 2007, HPCLI became a wholly owned subsidiary of Holdings. As a result, HPCI no longer received rental income in periods after that date. Noninterest income included rental income of $6.8 million in 2007. Non-interest income also 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). Collateral fees totaled $2.5 million, $3.0 million, and $5.2 million in 2009, 2008, and 2007, respectively. See Note 9 to the consolidated financial statements included in this report for more information regarding use of HPCI’s assets as collateral for the Bank’s advances from the FHLB.

Noninterest expense was $10.1 million, $11.7 million, and $15.6 million in 2009, 2008, and 2007, respectively. The predominant components of HPCI’s non-interest expense are the fees paid to the Bank for servicing the loans underlying the participation interests. The servicing costs for the years ended December 31, 2009, 2008, and 2007 totaled $9.4 million, $10.9 million, and $11.1 million, respectively.

In 2009, 2008, and 2007, the annual servicing rates the Bank charged with respect to outstanding principal balances were:

	January 1, 2007
	through
	December 31, 2009
Commercial and commercial 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 waives 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.

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 income taxes. HPCI’s former subsidiary, HPCLI, elected to be treated as a taxable REIT subsidiary and, therefore, a separate provision related to its income taxes is included in the accompanying consolidated financial statements. 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. Thus, HPCI had no provision for income taxes for the years ended December 31, 2009 and 2008.

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. However, 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.

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MARKET RISK

The predominate market risk to which HPCI is exposed is the risk of loss due to a decline in interest rates. If there is a decline in market interest rates, HPCI may experience a reduction in interest income from its loan participation interests and a corresponding decrease in funds available to be distributed to shareholders. When rates rise, HPCI is exposed to declines in the economic value of equity since only approximately 28% of its loan participation portfolio is fixed rate.

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 December 31, 2009, interest income for the next 12-month period would be expected to increase by $15.7 million, or 12.8%, 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 $8.9 million, or 7.2%, 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 December 31, 2009, the fair value of loan participation interests over the next 12 month period would be expected to increase $41.0 million, or 1.0%, based on an immediate 200 basis point decline in rates above the forward rates implied in the yield curve. Many of HPCI’s variable rate loans are based on LIBOR interest rates, which was at 0.23% at December 31, 2009. 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 fair value would be expected to decline only to $75.9 million, or 1.9%.

Using the income simulation model for HPCI as of December 31, 2008, interest income for the next 12-month period would be expected to increase by $16.8 million, or 12.3%, 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 5.4%, 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 December 31, 2008, the fair value of loan participation interests over the next 12 month period would be expected to increase $69.7 million, or 1.6%, based on an immediate 200 basis point decline in rates above the forward rates implied in the yield curve. Many of HPCI’s variable rate loans are based on LIBOR interest rates, which was at 1.08% at December 31, 2008. 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 fair value would be expected to decline only to $59.0 million, or 1.3%.

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The following table shows data with respect to interest rates of the loans underlying HPCI’s loan participations at December 31, 2009 and 2008, respectively.

Table 5 — Total Loan Participation Interests by Interest Rates

December 31, 2009	Fixed Rate							Variable Rate (1)
					Percentage by							Percentage by
			Aggregate		Aggregate					Aggregate		Aggregate
	Number		Principal		Principal			Number		Principal		Principal
(in thousands)	of Loans		Balance		Balance			of Loans		Balance		Balance
under 3.00%		50		5,750		0.5	%		970		1,693,937		60.5	%
3.00% to 3.99%		28		1,819		0.2			766		455,710		16.3
4.00% to 4.99%		528		33,728		3.1			546		211,845		7.6
5.00% to 5.99%		3,173		207,979		19.5			405		212,002		7.6
6.00% to 6.99%		5,552		387,650		36.2			336		130,880		4.5
7.00% to 7.99%		4,012		283,995		26.5			406		75,700		2.7
8.00% to 8.99%		2,393		102,070		9.5			152		17,677		0.6
9.00% and over		2,035		48,647		4.5			20		4,264		0.2
Total		17,771	$	1,071,638		100.0	%		3,601	$	2,802,015		100.0	%

December 31, 2008	Fixed Rate							Variable Rate (1)
					Percentage by							Percentage by
			Aggregate		Aggregate					Aggregate		Aggregate
	Number		Principal		Principal			Number		Principal		Principal
(in thousands)	of Loans		Balance		Balance			of Loans		Balance		Balance
under 3.00%		28		1,192		0.1	%		506		862,577		28.4	%
3.00% to 3.99%		41		1,548		0.1			1,172		1,328,934		43.8
4.00% to 4.99%		625		39,629		2.9			609		504,378		16.6
5.00% to 5.99%		3,974		282,158		20.6			511		92,039		3.0
6.00% to 6.99%		7,063		504,473		36.7			558		105,076		3.5
7.00% to 7.99%		4,892		356,461		25.9			626		107,165		3.5
8.00% to 8.99%		2,946		129,681		9.4			218		28,849		1.0
9.00% and over		2,468		59,389		4.3			26		4,942		0.2
Total		22,037	$	1,374,531		100.0	%		4,226	$	3,033,960		100.0	%

⁽¹⁾ The variable rate category includes loan participation interests with variable and adjustable rates.

CREDIT QUALITY

At December 31, 2009, commercial real estate loan participations were 81% of total loan participations up from 78% at December 31, 2008. Consumer and residential real estate loan participations were 19% of total loan participations at December 31, 2009, down from 22% of total loan participations at December 31, 2008. The change in portfolio mix in the current year reflects the decision by HPCI not to purchase any new consumer and residential real estate loan participations in 2009.

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. 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.

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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 December 31, 2009 and 2008.

Table 6 — Loan Participation Interests Aging ⁽¹⁾

	December 31, 2009							December 31, 2008
					Percentage by							Percentage by
	Total		Aggregate		Aggregate			Total		Aggregate		Aggregate
	Number		Principal		Principal			Number		Principal		Principal
(in thousands)	of Loans		Balance		Balance			of Loans		Balance		Balance
Current		19,206	$	3,506,912		90.5	%		24,011	$	4,156,094		94.3	%
1 to 30 days past due		1,343		201,739		5.2			1,516		147,936		3.4
31 to 60 days past due		291		43,760		1.1			318		33,368		0.8
61 to 90 days past due		135		17,612		0.5			154		11,565		0.3
over 90 days past due		397		103,630		2.7			264		59,528		1.2
Total		21,372	$	3,873,653		100.0	%		26,263	$	4,408,491		100.0	%

⁽¹⁾ Includes non-accrual loans.

Commercial Real Estate Credit

Commercial real estate (CRE) 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 capabilities, industry sector trends, type of exposure, transaction structure, and the general economic outlook. While these are the primary factors considered, there are a number of other factors that may be considered in the decision process. There are two processes for approving credit risk exposures. The first, and more prevalent approach, involves individual approval of exposures. Credit officers that understand each local region and are experienced in the industries and loan structures of the requested credit exposure, make credit extension decisions. All credit exposures greater than $5 million are approved by a senior loan committee, led by our chief credit officer. The second involves a centralized loan approval process for the standard products and structures utilized in small business banking. In this centralized decision environment, where the above primary factors are the basis for approval, certain individuals who understand each local region make credit-extension decisions to preserve our local decision-making focus. In addition to disciplined, consistent, and judgmental factors, a sophisticated credit scoring process is used as a primary evaluation tool in the determination of approving an exposure.

In commercial lending, ongoing credit management is dependent on the type and nature of the loan. We monitor all significant exposures on a periodic basis. All commercial credit extensions are assigned internal risk ratings reflecting the borrower’s probability-of-default and loss-given-default. This two-dimensional rating methodology, which results in 192 individual loan grades, provides granularity in the portfolio management process. The probability-of-default is rated on a scale of 1-12 and is applied at the borrower level. The loss-given-default is rated on a 1-16 scale and is applied based on the type of credit extension and the underlying collateral. The internal risk ratings are assessed and updated with each periodic monitoring event. There is also extensive macro portfolio management analysis on an ongoing basis. The single family home builder portfolio and retail projects are examples of segments of the portfolio that have received more frequent evaluation at the loan level as a result of the economic environment and performance trends (see “Single Family Home Builder” and “Retail Properties” discussions). The risk rating criteria is continually reviewed and adjusted based on actual experience. The continuous analysis and review process results in a determination of an appropriate ALLL amount for the commercial loan portfolio.

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In addition to the initial credit analysis initiated during the approval process, the credit review group performs analyses to provide an independent review and assessment of the quality and/or exposure of the loan. This group is part of the Risk Management area, and reviews individual loans and credit processes and conducts a portfolio review for each of the Bank’s regions on a 15-month cycle. The loan review group validates the internal risk ratings on approximately 60% of the portfolio exposure each calendar year. Similarly, to provide consistent oversight, a centralized portfolio management team monitors and reports on the performance of the small business banking loans.

Credit exposures may be designated as monitored credits when warranted by individual borrower performance, or by industry and environmental factors. Monitored credits are subjected to additional monthly reviews in order to adequately assess the borrower’s credit status and to take appropriate action.

The Special Assets Division (SAD) is a specialized credit group that handles workouts, commercial recoveries, and problem loan sales. This group is involved in the day-to- day management of relationships rated substandard or lower. Its responsibilities include developing an action plan, assessing the risk rating, and determining the adequacy of the reserve, the accrual status, and the ultimate collectibility of the managed monitored credits.

Commercial real estate loan participation interests outstanding by property type at December 31, 2009 and 2008, were as follows:

Table 7 — Commercial Real Estate Loan Participation Interests by Property Type and Borrower Location

	At December 31, 2009
	Geographic Region														Percent
(in thousands of dollars)	Ohio		Michigan		Indiana		Kentucky		Pennsylvania		Other		Total Amount		of Total
Retail properties	$	416,983	$	96,555	$	43,707	$	30,256	$	30,671	$	71,687	$	689,859		22.0	%
Industrial and warehouse		375,420		157,435		62,590		13,258		9,557		36,355		654,615		20.9
Office		304,918		119,331		19,017		12,996		31,758		42,429		530,449		17.0
Raw land and other land uses		195,904		80,422		27,375		16,538		10,265		15,440		345,944		11.1
Multi family		128,847		13,355		67,343		40,103		9,116		12,479		271,243		8.7
Health care		171,363		42,359		1,004		170		18,031		14,805		247,732		7.9
Single family home builders		127,263		30,006		12,764		6,961		12,984		2,011		191,989		6.1
Other		101,358		56,453		6,676		1,434		5,874		25,400		197,195		6.3
Total	$	1,822,056	$	595,916	$	240,476	$	121,716	$	128,256	$	220,606	$	3,129,026		100.0	%

	At December 31, 2008
	Geographic Region														Percent
(in thousands of dollars)	Ohio		Michigan		Indiana		Kentucky		Pennsylvania		Other		Total Amount		of Total
Industrial and warehouse	$	404,075	$	180,371	$	52,201	$	18,220	$	4,682	$	42,194	$	701,743		20.5	%
Retail properties		390,256		80,335		58,725		40,560		26,244		88,213		684,333		19.9
Office		328,805		149,729		34,581		20,342		40,484		57,403		631,344		18.4
Raw land and other land uses		210,997		124,824		33,818		8,877		12,246		22,706		413,468		12.0
Single family home builders		171,033		61,423		18,300		10,575		17,995		41,904		321,230		9.4
Multi family		114,234		14,558		83,495		39,076		1,237		22,150		274,750		8.0
Health care		111,012		7,853		1,033		181		1,011		16,717		137,807		4.0
Other		140,322		61,465		11,295		3,059		9,647		43,409		269,197		7.8
Total	$	1,870,734	$	680,558	$	293,448	$	140,890	$	113,546	$	334,696	$	3,433,872		100.0	%

At December 31, 2009, HPCI had $3.1 billion of commercial real estate loan participation interests. Our commercial real estate loan participation interests are diversified by customer, as well as throughout our lending area of Ohio, Michigan, Indiana, Kentucky, and Pennsylvania. However, the following segments are noteworthy.

Retail properties

Our portfolio of commercial real estate loans secured by retail properties totaled $0.7 billion, or approximately 22% of total loans, and an ALPL associated with these loans of $34.6 million at December 31, 2009. 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.

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The weakness of the economic environment in our geographic regions significantly impacted the projects that secure the loans in this portfolio segment. Lower occupancy rates, reduced rental rates, increased unemployment levels compared with recent years, and the expectation that these levels will continue to increase for the foreseeable future are expected to adversely affect our borrowers’ ability to repay these loans. We have increased the level of credit risk management activity to this portfolio segment, and we analyze our retail property loans in detail by combining property type, geographic location, tenants, and other data, to assess and manage our credit concentration risks.

Single family homebuilders

Our portfolio of commercial real estate loans secured by builders of single family homes totaled $0.2 billion or approximately 6% of total loans, and an ALPL associated with these loans of $9.4 million at December 31, 2009. The decrease primarily reflected the reclassification of loans secured by 1-4 family residential real estate rental properties to C&I loans, consistent with industry practices in the definition of this segment. Other factors contributing to the decrease in exposure include no new originations in this portfolio segment in 2009, increased property sale activity, and substantial charge-offs. The increased sale activity was evident throughout 2009.

The housing market across our geographic footprint remained stressed, reflecting relatively lower sales activity, declining prices, and excess inventories of houses to be sold, particularly impacting borrowers in our East Michigan and northern Ohio regions. Further, a portion of the loans extended to borrowers located within our geographic regions was to finance projects outside of our geographic regions. Based on the 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 expect any future significant credit impact from this portfolio segment.

Consumer Credit

Extensions of consumer credit by the Bank are based on, among other factors, the financial strength and payment history of the borrower, type of exposure, and the transaction structure. Consumer credit decisions are generally made in a centralized environment utilizing decision models. However, certain individuals who understand each of the Bank’s local regions have the authority to make credit extension decisions to preserve our local decision-making focus. Each credit extension is assigned a specific probability-of-default and loss-given-default. The probability-of-default is generally based on the borrower’s most recent credit bureau score (FICO), which is updated quarterly, while the loss-given-default is related to the type of collateral and the LTV 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, which may result in changes to future origination strategies. The continuous analysis and review process results in a determination of an appropriate ALLL amount for our consumer loan portfolio. The independent risk management group has a consumer process review component to ensure the effectiveness and efficiency of the consumer credit processes.

Collection action is initiated on an “as needed” basis through a centrally managed collection and recovery function. The collection group employs a series of collection methodologies designed to maintain a high level of effectiveness while maximizing efficiency. In addition to the retained consumer loan portfolio, the collection group is responsible for collection activity on all sold and securitized consumer loans and leases. Please refer to the “Nonperforming Assets” discussion for further information regarding the placement of consumer loans on nonaccrual status and the charging off of balances to the ALPL.

The residential real estate portfolio is primarily located throughout our geographic footprint. The general slowdown in the housing market has impacted the performance of the residential real estate portfolio over the past year. While the degree of price depreciation varies across our markets, all regions throughout our footprint have been affected.

Allowances for Credit Losses (ACL)

HPCI maintains two reserves, both of which are available to absorb probable credit losses: the allowance for loan participation losses (ALPL) and the allowance for unfunded loan participation commitments (AULPC). When summed together, these reserves constitute the total allowances for credit losses (ACL).

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The ALPL represents the estimate of probable losses inherent in the loan portfolio at the balance sheet date. Additions to the ALPL and AULPC result primarily from an allocation of the purchase price of participations acquired.

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. The allowance is comprised of two components: the transaction reserve and the economic reserve.

The transaction reserve component of the ACL includes both (a) an estimate of loss based on pools of commercial and consumer loans with similar characteristics and (b) an estimate of loss based on an impairment review of each loan greater than $1 million. For commercial loans, the estimate of loss based on pools of loans with similar characteristics is made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis. The reserve factors applied to these portfolios were developed based on internal credit migration models that track historical movements of loans between loan ratings over time and a combination of long-term average loss experience of our own portfolio and external industry data. In the case of more homogeneous portfolios, such as consumer loans, the determination of the transaction reserve is based on reserve factors that include the use of forecasting models to measure inherent loss in these portfolios. Models and analyses are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies. Adjustments to the reserve factors are made as needed based on observed results of the portfolio analytics.

The economic reserve incorporates the Bank’s determination of the impact of risks associated with the general economic environment on the portfolio. During the 2009 fourth quarter, the Bank performed a review of our ACL practices. The review included an analysis of the adequacy of the ACL in light of current economic conditions, as well as expected future performance. Based on the results of the review, the Bank made the following enhancements:

• Current market conditions, such as higher vacancy rates and lower rents, have driven commercial real estate values lower and caused loss given default (LGD) experience to rise significantly over the past year. Management of the Bank believes that factors driving the higher losses will continue to be evident for at least the next 18 to 24 months, making it necessary to develop cyclical LGD factors that are collateral specific and based in part on market projections.

• Probability of Default (PD) factors have recently migrated higher for commercial and commercial real estate loans. Based on this change in market conditions, Management has increased the loss emergence time frame to 24 months from 12 months.

• Management of the Bank has redefined the general reserve in broader terms to incorporate: (a) current and likely market conditions along with an assessment of the potential impact of those conditions, (b) uncertainty in the risk rating process, and (c) the impact of portfolio performance, portfolio composition, origination channels, and other factors.

• PD factors were updated to include current delinquency status across all consumer portfolios.

These enhancements allow for a more meaningful discussion of the Bank’s view of the current economic conditions and the potential impact on HPCI’s credit losses. The continued use of quantitative methodologies for the transaction reserve and the economic reserve may result in period-to-period fluctuation in the absolute and relative level of the ACL.

The levels of the ALPL and AULPC are adjusted based on the results of the above-mentioned detailed quarterly analysis. 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 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. Such adjustments for the year ended December 31, 2009 resulted in a provision for credit losses of $171.9 million. This compared to a reduction in allowances for credit losses of $14.9 million for 2008 and a provision for credit losses of $3.4 million for 2007.

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The following table shows the activity in HPCI’s ALPL and AULPC for the last five years:

Table 8 — Allowances for Credit Loss Activity

(in thousands)	2009			2008			2007			2006			2005
ALPL balance, beginning of year	$	65,456		$	62,275		$	48,703		$	57,530		$	61,146
Allowance of loan participations acquired		33,632			36,284			26,530			19,404			25,071
Net loan losses
Commercial real estate		(103,261	)		(12,483	)		(12,001	)		(3,370	)		(3,928	)
Consumer and residential real estate		(12,016	)		(7,320	)		(4,295	)		(3,151	)		(4,593	)
Total net loan losses		(115,277	)		(19,803	)		(16,296	)		(6,521	)		(8,521	)
Provision for (reduction in) ALPL		172,620			(13,924	)		3,338			(21,710	)		(19,228	)
Economic Reserve transfer from (to) AULPC		—			624			—			—			(938	)
ALPL balance, end of year	$	156,431		$	65,456		$	62,275		$	48,703		$	57,530
AULPC balance, beginning of year	$	2,301		$	3,856		$	3,804		$	4,135		$	3,765
Provision for (reduction in) AULPC		(694	)		(931	)		52			(331	)		(568	)
Economic Reserve transfer (from) to ALPL		—			(624	)		—			—			938
AULPC balance, end of year	$	1,607		$	2,301		$	3,856		$	3,804		$	4,135
Total Allowances for Credit Losses	$	158,038		$	67,757		$	66,131		$	52,507		$	61,665
ALPL as a % of total participation interests		4.04	%		1.48	%		1.44	%		1.19	%		1.27	%
ACL as a % of total participation interests		4.08			1.54			1.52			1.28			1.37

The $91 million increase in the ALPL was due to both increases in transaction and economic reserves. The increase in transaction reserve primarily reflected an increase in reserves associated with impaired loans and an increase associated with risk-grade migration, predominantly in the commercial real estate (CRE) portfolio. The increase in economic reserve is the result of a change in estimate resulting from the Bank’s 2009 fourth quarter review of our ACL practices and assumptions, with a related impact to HPCI consisting of:

• Approximately $18 million increase in the judgmental component.

• Approximately $33 million allocated primarily to the CRE portfolio addressing the severity of CRE loss-given-default percentages and a longer term view of the loss emergence time period.

• Approximately $1 million from updating the consumer reserve factors to include the current delinquency status.

In Management’s judgment, both the ALPL and the AULPC are adequate at December 31, 2009, to cover probable credit losses inherent in the loan participation portfolio and loan commitments.

HPCI, through reliance on methods utilized by the Bank, allocates the ALPL to each loan participation category based on an expected loss ratio determined by continuous assessment of credit quality based on portfolio risk characteristics and other relevant factors such as historical performance, internal controls, and impacts from mergers and acquisitions. For the commercial real estate loan participations, expected loss factors are assigned by credit grade at the individual underlying loan level at the time the loan is originated by the Bank. On a periodic basis, these credit grades are reevaluated. The aggregation of these factors represents an estimate of the probable inherent loss. The portion of the allowance allocated to the more homogeneous underlying consumer loan participations is determined by developing expected loss ratios based on the risk characteristics of the various portfolio segments and giving consideration to existing economic conditions and trends.

The following table shows the allocation in HPCI’s ALPL and AULPC:

Table 9 — Allowance for Credit Losses by Product ⁽¹⁾

	At December 31,
(in thousands)	2009				2008				2007				2006				2005
Commercial real estate	$	147,893	80.8	%	$	59,827	77.9	%	$	56,668	71.9	%	$	42,560	76.6	%	$	48,938	74.4	%
Consumer and residential real estate		8,538	19.2			5,629	22.1			5,607	28.1			6,143	23.4			8,592	25.6
Total ALPL		156,431	100.0	%		65,456	100.0	%		62,275	100.0	%		48,703	100.0	%		57,530	100.0	%
AULPC		1,607	—			2,301	—			3,856	—			3,804	—			4,135	—
Total	$	158,038	100.0	%	$	67,757	100.0	%	$	66,131	100.0	%	$	52,507	100.0	%	$	61,665	100.0	%

⁽¹⁾ Percentages represent the percentage of each loan participation interests category to total loan participation interests.

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Net Charge-offs

Total net charge-offs were $115.3 million, or 2.85%, of total average loan participations, for the year ended December 31, 2009, an increase from $19.8 million, or 0.45%, for the year ended December 31, 2008. The $95.5 million increase in net charge-offs reflected the continued economic weakness in our regions as the increase was spread across all regions.

Table 10 — Net Charge-offs ⁽¹⁾

(In thousands)	2009				2008				2007				2006				2005
Commercial real estate	$	103,261	3.23	%	$	12,483	0.38	%	$	12,001	0.38	%	$	3,370	0.10	%	$	3,928	0.11	%
Consumer and residential real estate		12,016	1.42			7,320	0.68			4,295	0.37			3,151	0.30			4,593	0.42
Total Net Charge-offs	$	115,277	2.85	%	$	19,803	0.45	%	$	16,296	0.38	%	$	6,521	0.15	%	$	8,521	0.18	%

⁽¹⁾ Percentages represent the percentage in each loan category to average loan participation interests.

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 within 180 days past due. 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 years:

Table 11 — Non-Performing Assets

	At December 31,
(in thousands)	2009			2008			2007			2006			2005
Participation interests in non-accrual loans
Commercial real estate	$	165,184		$	54,246		$	42,060		$	20,653		$	20,893
Consumer and residential real estate		5,554			6,041			4,136			4,649			5,722
Total Non-Performing Assets	$	170,738		$	60,287		$	46,196		$	25,302		$	26,615
NPAs as a % of total participation interests		4.41	%		1.37	%		1.06	%		0.62	%		0.59	%
ALPL as a % of NPAs		92			109			135			192			216
ACL as a % of NPAs		93			112			143			208			232
Accruing loans past due 90 days or more	$	8,631		$	9,543		$	4,440		$	5,392		$	3,188

Total NPAs increased to $170.7 million at December 31, 2009 from $60.3 million at December 31, 2008, representing 4.41% and 1.37% of total participation interests, respectively. The increase in 2009 was principally related to the commercial real estate loan participations and was spread across the different property types of that portfolio. Additionally, HPCI had $0.1 million of accruing commercial and residential mortgage loans that have been restructured in 2009.

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The following table presents a coverage ratio analysis at December 31, 2009 and 2008.

Table 12 — Annual ALPL / Loan Participation Coverage Ratio Analysis

(in thousands)	2009			2008
Loan participation interests ending balances:
Accruing Loans	$	3,702,915		$	4,348,204
Loans subject to reserves measured as a pool		40,040			31,368
Loans subject to specific reserves (1)		130,698			28,919
Total non-accrual loans		170,738			60,287
Total loan participation interests	$	3,873,653		$	4,408,491
Allowance for loan participation interests (ALPL):
Accruing Loans	$	127,405		$	56,570
Loans subject to reserves measured as a pool		10,270			1,965
Loans subject to specific reserves (1)		18,756			6,921
Total non-accrual loans		29,026			8,886
Total ALPL	$	156,431		$	65,456
ALPL as a % of loan participation interests
Accruing Loans		3.44	%		1.30	%
Loans subject to reserves measured as a pool		25.65			6.26
Loans subject to specific reserves (1)		14.35			23.93
Total non-accrual loans		17.00	%		14.74	%
Total loan participation interests		4.04	%		1.48	%

(1) Loans whose ALPL are subject to specific reserves in accordance with Accounting Standards Codification (ASC) 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.

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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. At December 31, 2009 and 2008, unfunded commitments totaled $303.7 million and $486.6 million, respectively. It is expected that cash flows generated by the existing portfolio will be sufficient to meet these obligations.

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 December 31, 2009 and 2008, HPCI maintained cash and interest bearing deposits with the Bank totaling $715.7 million and $293.0 million, respectively. HPCI maintains and transacts all of its cash activity with the Bank and invests available funds in Eurodollar deposits with the Bank for a term of not more than 30 days at market rates.

At December 31, 2009, HPCI had no material liabilities or contractual obligations, other than unfunded loan commitments of $303.7 million, with a weighted average maturity of 1.4 years. In addition to anticipated cash flows, as noted above, HPCI has interest bearing and non-interest bearing cash balances with the bank totaling $715.7 million to supplement the funding of these liabilities and contractual commitments.

Shareholders’ equity was $3.9 billion at December 31, 2009 and $4.5 billion at December 31, 2008. A return of capital was distributed to shareholders through a distribution paid on January 8, 2010, which reduced our cash balances by $500.0 million.

The preferred dividend coverage ratio for 2009 was (0.74)x, compared to 7.14x in 2008. The decrease from the prior year primarily relates to lower income levels, as well as lower dividends as a result of reduced market rates in 2009.

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 December 31, 2009, 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 2008 and 2009. 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.

32

RESULTS FOR THE FOURTH QUARTER

Table 13 — Quarterly Statements of Income

	2009												2008			4Q09 vs 4Q08
(in thousands)	Fourth			Third			Second			First			Fourth			$ Chg			% Chg
Interest and fee income
Interest on loan participation interests:
Commercial real estate	$	26,321		$	26,575		$	27,071		$	29,326		$	44,591		$	(18,270	)		(41.0	)%
Consumer and residential real estate		12,576			13,392			14,278			15,476			16,614			(4,038	)		(24.3	)
Total loan participation interest income		38,897			39,967			41,349			44,802			61,205			(22,308	)		(36.4	)
Fees from loan participation interests		297			379			290			269			277			20			7.2
Interest on deposits with The Huntington National Bank		454			395			284			102			498			(44	)		(8.8	)
Total interest and fee income		39,648			40,741			41,923			45,173			61,980			(22,332	)		(36.0	)
Provision for (reduction in allowances for) credit losses		84,740			27,701			40,497			18,988			(1,194	)		85,934			N.M.
Interest (loss) income after provision for (reduction in allowances for) credit losses		(45,092	)		13,040			1,426			26,185			63,174			(108,266	)		N.M.
Non-interest income:
Rental income		16			17			16			16			16			—			—
Collateral fees		578			609			640			677			745			(167	)		(22.4	)
Total non-interest income		594			626			656			693			761			(167	)		(21.9	)
Non-interest expense:
Servicing costs		2,180			2,264			2,387			2,551			2,675			(495	)		(18.5	)
Other		172			162			235			165			181			(9	)		(5.0	)
Total non-interest expense		2,352			2,426			2,622			2,716			2,856			(504	)		(17.6	)
Net (loss) income	$	(46,850	)	$	11,240		$	(540	)	$	24,162		$	61,079		$	(107,929	)		N.M.	%
Dividends declared on preferred securities		(2,940	)		(3,507	)		(4,613	)		(5,135	)		(10,188	)		(7,248	)		(71.1	)
Net (loss) income applicable to common shares (1)	$	(49,790	)	$	7,733		$	(5,153	)	$	19,027		$	50,891		$	(100,681	)		N.M.	%

(1)	All of HPCI’s common stock is owned by Huntington, HCF, HPCII, and Holdings and therefore, net income per share is not presented.
N.M., Not Meaningful.

Net loss for the fourth quarter 2009 was $46.9 million, down from net income of $61.1 million for the fourth quarter 2008. Net loss applicable to common shares was $49.8 million for the fourth quarter of 2009, a decrease from net income of $50.9 million, in fourth quarter of 2008. Dividend declarations on preferred stock decreased by 71.1% in the most recent quarter to $2.9 million compared with $10.2 million for the fourth quarter 2008, due to lower three-month LIBOR rates on which payments on Class B and Class D preferred shares are based.

Interest and fee income for the recent quarter was $39.6 million, which was down from $62.0 million for the prior year quarter, due to lower yields on both total loan participations and interest on deposits with The Huntington National Bank. The yield on earning assets decreased to 3.44% from 5.24% for the same respective quarterly periods.

Total assets decreased to $4.4 billion at the end of 2009, from $4.7 billion at December 31, 2008. The slight decrease is primarily related to lower loan participation balances, offset by higher cash and interest bearing balances.

The ACL increased to 4.08% of total loan participation interests at December 31, 2009, from 1.54% at the end of the prior year. The increase in the ACL reflected the impact of increasing monitored credits, primarily resulting from softness in the commercial real estate markets in the Midwest.

Net charge-offs in the fourth quarter of 2009 were $41.2 million versus $11.0 million for the fourth quarter of 2008. This represents 4.23% and 0.97% of average loan participations for the same respective quarterly periods.

The provision for allowances for credit losses was $84.7 million in the fourth quarter of 2009, compared with a reduction in allowances for credit losses of $1.2 million in the fourth quarter of 2008. The increase of $85.9 million from the same period in the prior year was primarily due to a change in estimate resulting from the 2009 fourth quarter review of our ACL practices and assumptions. At December 31, 2009, the assignment of loans subject to the small business reserve factors was changed from loans with an original aggregate exposure of $0.5 million or less, to loans with original aggregate exposure of $1.0 million or less.

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Non-interest income decreased to $0.6 million in the fourth quarter of 2009, compared to $0.8 million in the fourth quarter of 2008.

Non-interest expense included servicing fees incurred by HPCI which amounted to $2.2 million, and $2.7 million for the fourth quarters of 2009 and 2008, respectively.

Item 7A: Quantitative and Qualitative Disclosures about Market Risk

Information required by this item is set forth in the caption “Market Risk” included in Item 7 above.

Item 8: Financial Statements and Supplementary Data

The following consolidated financial statements of HPCI at December 31, 2009 and 2008 and for the years ended December 31, 2009, 2008, and 2007 are included in this report at the pages indicated. Quarterly statements of income are found on page 32 of this report.

	Page
Report of Management		35
Report of Independent Registered Public Accounting Firm		36
Consolidated Balance Sheets		38
Consolidated Statements of Income		39
Consolidated Statement of Changes in Shareholders’ Equity		40
Consolidated Statements of Cash Flows		41
Notes to Consolidated Financial Statements		42

34

Report of Management

The management of HPCI (the Company) is responsible for the financial information and representations contained in the consolidated financial statements and other sections of this report. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. In all material respects, they reflect the substance of transactions that should be included based on informed judgments, estimates, and currently available information.

Management maintains a system of internal accounting controls, which includes the careful selection and training of qualified personnel, appropriate segregation of responsibilities, communication of written policies and procedures, and a broad program of internal audits. The costs of the controls are balanced against the expected benefits. During 2009, the audit committee of the board of directors met regularly with Management, HPCI’s internal auditors, and the independent registered public accounting firm, Deloitte & Touche LLP, to review the scope of the audits and to discuss the evaluation of internal accounting controls and financial reporting matters. The independent registered public accounting firm and the internal auditors have free access to, and meet confidentially with, the audit committee to discuss appropriate matters. Also, HPCI maintains a disclosure review committee. This committee’s purpose is to design and maintain disclosure controls and procedures to ensure that material information relating to the financial and operating condition of HPCI is properly reported to its chief executive officer, chief financial officer, internal auditors, and the audit committee of the board of directors in connection with the preparation and filing of periodic reports and the certification of those reports by the chief executive officer and the chief financial officer.

Report of Management’s Assessment of Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, including accounting and other internal control systems that, in the opinion of Management, provide reasonable assurance that (1) transactions are properly authorized, (2) the assets are properly safeguarded, and (3) transactions are properly recorded and reported to permit the preparation of the financial statements in conformity with accounting principles generally accepted in the United States. HPCI’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009. In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on that assessment, Management believes that, as of December 31, 2009, the Company’s internal control over financial reporting is effective based on those criteria. Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has issued an attestation report on effectiveness of the Company’s internal control over financial reporting.

By:		By:
	Donald R. Kimble		Thomas P. Reed
	President		Vice President
	(Principal Executive Officer)		(Principal Financial and Accounting Officer)

March 15, 2010

35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Huntington Preferred Capital, Inc.
Columbus, Ohio

We have audited the internal control over financial reporting of Huntington Preferred Capital, Inc. (the “Company”) as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2009 of the Company and our report dated March 15, 2010 expressed an unqualified opinion on those financial statements.

Columbus, Ohio
March 15, 2010

36

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Huntington Preferred Capital, Inc.
Columbus, Ohio

We have audited the accompanying consolidated balance sheets of Huntington Preferred Capital, Inc. (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Huntington Preferred Capital, Inc. at December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2010 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Columbus, Ohio
March 15, 2010

37

Huntington Preferred Capital, Inc.

Consolidated Balance Sheets

	December 31,			December 31,
(in thousands, except share data)	2009			2008
Assets
Cash and interest bearing deposits with The Huntington National Bank	$	715,663		$	293,009
Due from The Huntington National Bank		—			38,423
Loan participation interests:
Commercial real estate		3,129,026			3,433,872
Consumer and residential real estate		744,627			974,619
Total loan participation interests		3,873,653			4,408,491
Allowance for loan participation losses		(156,431	)		(65,456	)
Net loan participation interests		3,717,222			4,343,035
Accrued income and other assets		10,470			14,101
Total assets	$	4,443,355		$	4,688,568
Liabilities and shareholders’ equity
Liabilities
Allowance for unfunded loan participation commitments	$	1,607		$	2,301
Dividends and distributions payable		500,000			225,000
Due to The Huntington National Bank		8,640			—
Other liabilities		74			50
Total liabilities		510,321			227,351
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
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
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
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
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		3,160,217			3,660,217
Retained (deficit) earnings		(28,183	)		—
Total shareholders’ equity		3,933,034			4,461,217
Total liabilities and shareholders’ equity	$	4,443,355		$	4,688,568

See notes to consolidated financial statements.

38

Huntington Preferred Capital, Inc.

Consolidated Statements of Income

	Year Ended
	December 31,
(in thousands)	2009			2008			2007
Interest and fee income
Interest on loan participation interests:
Commercial real estate	$	109,293		$	176,048		$	230,994
Consumer and residential real estate		55,722			72,017			77,153
Total loan participation interest income		165,015			248,065			308,147
Fees from loan participation interests		1,235			1,198			779
Interest on deposits with The Huntington National Bank		1,235			5,286			15,885
Total interest and fee income		167,485			254,549			324,811
Provision for (reduction in allowances for) credit losses		171,926			(14,855	)		3,390
Interest (loss) income after provision for (reduction in allowances for) credit losses		(4,441	)		269,404			321,421
Noninterest income:
Rental income		65			66			6,840
Collateral fees		2,504			2,998			5,202
Total noninterest income		2,569			3,064			12,042
Noninterest expense:
Servicing costs		9,382			10,935			11,080
Other		734			754			4,507
Total noninterest expense		10,116			11,689			15,587
(Loss) income before provision for income taxes		(11,988	)		260,779			317,876
Provision for income taxes		—			—			1,617
Net (loss) income	$	(11,988	)	$	260,779		$	316,259
Dividends declared on preferred securities		(16,195	)		(36,521	)		(49,643	)
Net (loss) income applicable to common shares	$	(28,183	)	$	224,258		$	266,616

See notes to consolidated financial statements.

39

Huntington Preferred Capital, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

	Preferred, Class A				Preferred, Class B				Preferred, Class C
(in thousands)	Shares		Amount		Shares		Amount		Shares		Amount
Balance, January 1, 2007		1	$	1,000		400	$	400,000		2,000	$	50,000
Comprehensive income:
Net income
Total comprehensive income
Balance, December 31, 2007		1	$	1,000		400	$	400,000		2,000	$	50,000
Comprehensive income:
Net income
Total comprehensive income
Balance, December 31, 2008		1	$	1,000		400	$	400,000		2,000	$	50,000
Comprehensive (loss) income:
Net (loss) income
Total comprehensive (loss) income
Balance, December 31, 2009		1	$	1,000		400	$	400,000		2,000	$	50,000

	Preferred, Class D				Preferred				Common					Retained
(in thousands)	Shares		Amount		Shares		Amount		Shares		Amount			Earnings			Total
Balance, January 1, 2007		14,000	$	350,000		—	$	—		14,000	$	3,694,753		$	—		$	4,495,753
Comprehensive income:
Net income															316,259			316,259
Total comprehensive income																		316,259
Dividends declared on Class A preferred securities															(80	)		(80	)
Dividends declared on Class B preferred securities															(21,300	)		(21,300	)
Dividends declared on Class C preferred securities															(3,938	)		(3,938	)
Dividends declared on Class D preferred securities															(24,325	)		(24,325	)
Dividends declared on common stock															(266,616	)		(266,616	)
Return of capital												(33,794	)					(33,794	)
Balance, December 31, 2007		14,000	$	350,000		—	$	—		14,000	$	3,660,959		$	—		$	4,461,959
Comprehensive income:
Net income															260,779			260,779
Total comprehensive income																		260,779
Dividends declared on Class A preferred securities															(80	)		(80	)
Dividends declared on Class B preferred securities															(14,302	)		(14,302	)
Dividends declared on Class C preferred securities															(3,938	)		(3,938	)
Dividends declared on Class D preferred securities															(18,201	)		(18,201	)
Dividends declared on common stock															(224,258	)		(224,258	)
Return of capital												(742	)					(742	)
Balance, December 31, 2008		14,000	$	350,000		—	$	—		14,000	$	3,660,217		$	—		$	4,461,217
Comprehensive (loss) income:
Net (loss) income															(11,988	)		(11,988	)
Total comprehensive (loss) income																		(11,988	)
Dividends declared on Class A preferred securities															(80	)		(80	)
Dividends declared on Class B preferred securities															(3,461	)		(3,461	)
Dividends declared on Class C preferred securities															(3,938	)		(3,938	)
Dividends declared on Class D preferred securities															(8,716	)		(8,716	)
Return of capital												(500,000	)					(500,000	)
Balance, December 31, 2009		14,000	$	350,000		—	$	—		14,000	$	3,160,217		$	(28,183	)	$	3,933,034

See notes to consolidated financial statements.

40

Huntington Preferred Capital, Inc.

Consolidated Statements of Cash Flows

	Year Ended
	December 31,
(in thousands)	2009			2008			2007
Operating activities
Net (loss) income	$	(11,988	)	$	260,779		$	316,259
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (reduction in allowances for) credit losses		171,926			(14,855	)		3,390
Change in due to/from The Huntington National Bank		5,927			10,180			(4,937	)
Other, net		4,069			7,736			6,482
Net cash provided by operating activities		169,934			263,840			321,194
Investing activities
Participation interests acquired		(1,538,238	)		(2,955,839	)		(2,964,050	)
Sales and repayments of loans underlying participation interests		2,032,153			2,974,065			2,747,799
Net cash provided by (used for) investing activities		493,915			18,226			(216,251	)
Financing activities
Dividends paid on preferred securities		(16,195	)		(36,521	)		(49,643	)
Dividends paid on common stock		(224,258	)		—			(546,488	)
Return of capital to common shareholders		(742	)		—			(187,502	)
Net cash used for financing activities		(241,195	)		(36,521	)		(783,633	)
Increase (decrease) in cash and cash equivalents		422,654			245,545			(678,690	)
Cash and cash equivalents at beginning of year		293,009			47,464			726,154
Cash and cash equivalents at end of year	$	715,663		$	293,009		$	47,464
Supplemental information:
Income taxes paid	$	—		$	—		$	2,098
Dividends and distributions declared, not paid		500,000			225,000			—
Non cash change in loan participation activity with The Huntington National Bank		(41,136	)		(73,378	)		(17,617	)
Dividend of subsidiary stock		—			—			16,420

See notes to consolidated financial statements.

41

Notes to the Consolidated Financial Statements

Note 1 — Significant Accounting Policies

Basis of Presentation: The consolidated financial statements include the accounts of Huntington Preferred Capital, Inc. (HPCI) and prior to December 31, 2007, its former subsidiary, and are presented in conformity with accounting principles generally accepted in the United States (GAAP). The consolidated financial statements 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, results of operations, and cash flows for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation.

Business: 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. 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). Subsequent to September 30, 2008, all shares of HPCI’s common stock held by Huntington Bancshares Incorporated (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 December 31, 2009 and 2008, the Bank, on a consolidated basis with its subsidiaries, accounted for over 98% of Huntington’s consolidated assets, and accordingly, Management considers the balance sheets of the Bank to be substantially the same as the balance sheet of Huntington for each of these dates. For periods prior to and including December 31, 2008, the consolidated income statements of the Bank and Huntington are substantially the same. For 2008, a substantial portion of the losses associated with Huntington’s relationship with Franklin Credit Management Corporation (Franklin) was recorded at a direct subsidiary of Huntington. This portion of the losses did not affect the Bank and, thus, affects the comparability of the Bank’s income statement with that of Huntington. Other than the impact of these losses associated with Huntington’s relationship with Franklin, there were no material differences in the income statements of the Bank and Huntington for the year ended December 31, 2008. These changes had no impact on net cash flows of the Bank or of Huntington for the year ended December 31, 2008. There were no material differences in the income statements of the Bank and Huntington for the year ended December 31, 2009.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires Management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from those estimates.

Due from/to The Huntington National Bank: HPCI’s due from/to The Huntington National Bank primarily consists of the net settlement amounts due to, or from, the Bank for the last month of the period’s activity. 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. The amounts are settled with the Bank within the first few days of the following month.

Loan participation interests: Loan participation interests are purchased from the Bank either directly or through Holdings by HPCI at the Bank’s carrying value, which is the principal amount outstanding plus accrued interest, net of unearned income, if any, less an allowance for loan losses. The purchase price paid approximates fair value on the date the loan participations are purchased. Participation interests are categorized based on the collateral securing the underlying loan. HPCI does not purchase loan participation interests in loans made to directors or executive officers of HPCI or Huntington.

Interest income is accrued based on unpaid principal balances of the underlying loans as earned. The underlying commercial real estate loans are placed on non-accrual status and stop accruing interest when collection of principal or interest is in doubt. 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 underlying consumer loans are charged off in accordance with regulatory statutes governing the Bank. Consumer home equity loan participations are placed on non-accrual status when they exceed 180 days past due. Residential real estate loans are placed on non-accrual status when principal payments are 180 days past due. A charge-off on a residential real estate loan is recorded when the loan has been foreclosed and the loan balance exceeds the fair value of the collateral. A home equity charge-off occurs when it is determined that there is not sufficient equity in the loan to cover HPCI’s position.

For non-performing loans, cash receipts are applied entirely against principal until the loan has been collected in full, after which time any additional cash receipts are recognized as interest income. When, in Management’s judgment, the borrower’s ability to make periodic interest and principal payments resumes, the loan is returned to accrual status.

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A loan is considered impaired when, based on current information and events, it is probable that it will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The significance of payment delays and payment shortfalls is determined on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower. This includes the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Loan impairment is measured on a loan-by-loan basis by comparing the recorded investment in the loan to the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s estimated market price, or the fair value of the collateral if the loan is collateral dependent. Impaired loans are taken into consideration when evaluating the allowance for loan losses. Interest income is recognized on impaired loans using a cost recovery method unless the receipt of principal and interest as they become contractually due is not in doubt, such as in a troubled debt restructuring (TDR). TDRs of impaired loans that continue to perform under the restructured terms continue to accrue interest.

Allowances for Credit Losses (ACL): The ACL is comprised of the allowance for loan participation losses (ALPL) and the allowance for unfunded loan participation commitments (AULPC). 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 ACL represents Management’s estimate as to the level of reserves considered appropriate to absorb inherent probable credit losses. This judgment is based on the size and current risk characteristics of the portfolio, a review of individual loan participations, and historical and anticipated loss experience. External influences such as general economic conditions, regulatory guidelines, and other factors are also assessed in determining the level of the allowance.

The determination of the allowance requires significant estimates, including the timing and amounts of expected future cash flows on impaired loans, consideration of economic conditions, and historical loss experience pertaining to pools of homogeneous loans, all of which may be susceptible to change. ALPL is transferred to HPCI either directly or through Holdings from the Bank on loans underlying the participations at the time the participations are acquired. Based on Management’s quarterly evaluation of the factors previously mentioned, the allowance for loan losses may either be increased through a provision for credit losses, net of recoveries, charged to earnings or lowered through a reduction in allowance for credit losses, net of recoveries, credited to earnings. Credit losses are charged against the allowance when Management believes the loan balance, or a portion thereof, is uncollectible.

The ACL consists of two components, the transaction reserve, which includes a specific reserves related to loans considered to be impaired and loans involved in troubled debt restructurings, and the economic reserve. The two components are more fully described below.

The transaction reserve component of the ACL includes both (a) an estimate of loss based on pools of commercial and consumer loans with similar characteristics and (b) an estimate of loss based on an impairment review of each loan greater than $1 million. For commercial loans, the estimate of loss based on pools of loans with similar characteristics is made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis. The reserve factors applied to these portfolios were developed based on internal credit migration models that track historical movements of loans between loan ratings over time and a combination of long-term average loss experience of our own portfolio and external industry data. In the case of more homogeneous portfolios, such as consumer loans, the determination of the transaction reserve is based on reserve factors that include the use of forecasting models to measure inherent loss in these portfolios. Models and analyses are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies. Adjustments to the reserve factors are made as needed based on observed results of the portfolio analytics.

The economic reserve incorporates the Bank’s determination of the impact of risks associated with the general economic environment on the portfolio. During the 2009 fourth quarter, the Bank performed a review of our ACL practices. The review included an analysis of the adequacy of the ACL in light of current economic conditions, as well as expected future performance. Based on the results of the review, the Bank made the following enhancements:

• Current market conditions, such as higher vacancy rates and lower rents, have driven commercial real estate values lower and caused loss given default (LGD) experience to rise significantly over the past year. Management of the Bank believes that factors driving the higher losses will continue to be evident for at least the next 18 to 24 months, making it necessary to develop cyclical LGD factors that are collateral specific and based in part on market projections.

• Probability of Default (PD) factors have recently migrated higher for commercial and commercial real estate loans. Based on this change in market conditions, Management has increased the loss emergence time frame to 24 months from 12 months.

43

• Management of the Bank has redefined the general reserve in broader terms to incorporate: (a) current and likely market conditions along with an assessment of the potential impact of those conditions, (b) uncertainty in the risk rating process, and (c) the impact of portfolio performance, portfolio composition, origination channels, and other factors.

• PD factors were updated to include current delinquency status across all consumer portfolios.

Net Income per Share: HCF, HPCII, and Holdings own all of HPCI’s common stock and, therefore, net income per common share information is not presented.

Income Taxes: HPCI has elected to be treated as a REIT for federal income tax purposes and intends to comply with the provisions of the Internal Revenue Code. Accordingly, HPCI will not be subject to federal income tax to the extent it distributes its earnings to stockholders and as long as certain asset, income, and stock ownership tests are met in accordance with the Internal Revenue Code. As HPCI expects to maintain its status as a REIT for federal income tax purposes, a provision for income taxes is included in the accompanying financial statements only for its subsidiary’s taxable income. During 2007, HPCI had a subsidiary, HPCLI, which elected to be treated as a taxable REIT subsidiary and, therefore, a separate provision related to its income taxes is included in the accompanying consolidated financial statements. On December 31, 2007, HPCI paid common stock dividends consisting of cash and the stock of HPCLI to the HPCI common stock shareholders. HPCLI became a wholly owned subsidiary of Holdings.

Statement of Cash Flows: Cash, cash equivalents, and interest-bearing deposits are defined as “Cash and cash equivalents.”

Note 2 — Subsequent Events

In preparing these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users, or filed with the Securities and Exchange Commission. 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.

On March 12, 2010, HPCI’s Board of Directors approved a proposal to exchange HPCI’s preferred class D shares, currently held by HPCH, for newly issued preferred class E shares. One new share of class E preferred stock would be issued and exchanged for each ten shares of class D preferred stock. The newly issued 1,400,000 class E preferred shares would have the same terms as the class D preferred stock. The per share liquidation value of the class E preferred stock would be ten times ($250) that of the class D stock. The dividend rate and terms will remain the same. The exchange would have no impact on HPCI’s financial results since the liquidation value remains at $350,000,000.

Note 3 — Accounting Standards Update

FASB Accounting Standards Codification (ASC) Topic 105 — Generally Accepted Accounting Principles (Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162) (ASC 105). This accounting guidance was originally issued in June 2009 and is now included in ASC 105. The guidance identifies the FASB Accounting Standards Codification (Codification) as the single source of authoritative U.S. Generally Accepted Accounting Principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. The Codification reorganizes all previous GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure. All existing standards that were used to create the Codification will be superseded, replacing the previous references to specific Statements of Financial Accounting Standards (SFAS) with numbers used in the Codification’s structural organization. The guidance is effective for interim and annual periods ending after September 15, 2009. After September 15, only one level of authoritative GAAP will exist, other than guidance issued by the Securities and Exchange Commission (SEC). All other accounting literature excluded from the Codification will be considered non-authoritative. The adoption of the Codification did not have a material impact on the HPCI’s consolidated financial statements.

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ASC Topic 810 — Consolidation (Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51) (ASC 810). This accounting guidance was originally issued in December 2007 and is now included in ASC 810. The guidance requires that noncontrolling interests in subsidiaries be initially measured at fair value and classified as a separate component of equity. The guidance is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption was prohibited. The adoption of this new Statement had no impact on HPCI’s consolidated financial statements.

ASC Topic 825 — Financial Instruments (FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments) (ASC 825). This accounting guidance was originally issued in April 2009 and is now included in ASC 825. The guidance requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance was effective for reporting periods ended after June 15, 2009 (See Note 8).

ASC Topic 855 — Subsequent Events (Statement No. 165, Subsequent Events) (ASC 855). This accounting guidance was originally issued in May 2009 and is now included in ASC 855. The guidance establishes general standards of accounting for and disclosure of subsequent events. Subsequent events are events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance is effective for interim or annual periods ending after June 15, 2009. The adoption of this guidance was not material to HPCI’s financial statements.

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.

Note 4 — Loan Participation Interests

Loan participation interests are categorized based on the collateral underlying the loan. At December 31, loan participation interests were comprised of the following:

(in thousands)	2009		2008
Commercial real estate	$	3,129,026	$	3,433,872
Consumer and residential real estate		744,627		974,619
Total Loan Participation Interests	$	3,873,653	$	4,408,491

Underlying loans were generally collateralized by real estate and were made primarily to borrowers in the five states of Ohio, Michigan, Indiana, Kentucky, and Pennsylvania, which comprised 93.8% and 92.0% of the portfolio at December 31, 2009 and 2008, respectively.

At December 31, 2009, HPCI had $3.1 billion of commercial real estate loan participation interests, including loans secured by retail properties of $0.7 billion, with an ALPL associated with these loans of $34.6 million. 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 our geographic regions significantly impacted the projects that secure the loans in this portfolio segment. Lower occupancy rates, reduced rental rates, increased unemployment levels compared with recent years, and the expectation that these levels will continue to increase for the foreseeable future are expected to adversely affect our borrowers’ ability to repay these loans. We have increased the level of credit risk management activity to this portfolio segment, and we analyze our retail property loans in detail by combining property type, geographic location, tenants, and other data, to assess and manage our credit concentration risks.

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Also included in the commercial real estate loan participation interests at December 31, 2009 were $0.2 billion of loan participation interests to builders of single family homes, with an ALPL associated with these loans of $9.4 million. The housing market across the Bank’s geographic footprint remains stressed, reflecting relatively lower sales activity, declining prices, and excess inventories of houses to be sold, particularly impacting borrowers in the eastern Michigan and northern Ohio regions. Further, a portion of the loans extended to borrowers located within our geographic regions was to finance projects outside of our geographic regions. Based on the 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.

Other than the credit risk concentration described above, there were no other underlying loans outstanding that would be considered a concentration of lending in any particular industry, group of industries, or business activity.

Participations in Non-Performing Loans and Past Due Loans

At December 31, 2009 and 2008, the participations in loans in non-accrual status and loans past due 90 days or more and still accruing interest, were as follows:

(in thousands)	2009		2008
Commercial real estate	$	165,184	$	54,246
Consumer and residential real estate		5,554		6,041
Total Participations in Non-Accrual Loans	$	170,738	$	60,287
Participations in Accruing Loans Past Due 90 Days or More	$	8,631	$	9,543

The amount of interest that would have been recorded under the original terms for participations in loans classified as non-accrual was $7.3 million for 2009, $5.5 million for 2008, and $6.0 million for 2007. Amounts actually collected and recorded as interest income for these participations totaled $0.6 million, $0.3 million, and $0.4 million in the same respective years.

Note 5 — 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). 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 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.

The following tables reflect activity in the ACL for the three years ended December 31:

(in thousands)	2009			2008			2007
ALPL balance, beginning of year	$	65,456		$	62,275		$	48,703
Allowance of loan participations acquired		33,632			36,284			26,530
Net loan losses		(115,277	)		(19,803	)		(16,296	)
Provision for (reduction in) ALPL		172,620			(13,924	)		3,338
Economic Reserve transfer from AULPC		—			624			—
ALPL balance, end of year	$	156,431		$	65,456		$	62,275
AULPC balance, beginning of year	$	2,301		$	3,856		$	3,804
Provision for (reduction in) AULPC		(694	)		(931	)		52
Economic Reserve transfer from ALPL		—			(624	)		—
AULPC balance, end of year	$	1,607		$	2,301		$	3,856
Total ACL	$	158,038		$	67,757		$	66,131
Balance of Impaired Loans, at end of year (1):
With specific reserves assigned to the loan balances	$	82,255		$	35,088		$	30,604
With no specific reserves assigned to the loan balances		47,834			7,733			2,297
Total	$	130,089		$	42,821		$	32,901
Average Balance of Impaired Loans for the Year (1)	$	124,057		$	41,201		$	25,157
Allowance for Loan Losses on Impaired Loans (1)		17,761			11,265			6,366

⁽¹⁾ Includes impaired commercial real estate loans with outstanding balances greater than $1 million. 2008 and prior periods includes impaired commercial and industrial loans and commercial real estate loans with outstanding balances greater than $1 million for business-banking loans, and $500,000 for all other loans. A loan is impaired when it is probable that HPCI will be unable to collect all amounts due according to the contractual terms of the loan agreement. The amount of interest recognized on impaired loans while they were considered impaired was less than $0.1 million in 2009, 2008, and 2007.

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The $91 million increase in the ALPL was due to both increases in transaction and economic reserves. The increase in transaction reserve primarily reflected an increase in reserves associated with impaired loans and an increase associated with risk-grade migration, predominantly in the commercial real estate (CRE) portfolio. The increase in economic reserve is the result of a change in estimate resulting from the Bank’s 2009 fourth quarter review of our ACL practices and assumptions, with a related impact to HPCI consisting of:

• Approximately $18 million increase in the judgmental component.

• Approximately $33 million allocated primarily to the CRE portfolio addressing the severity of CRE loss-given-default percentages and a longer term view of the loss emergence time period.

• Approximately $1 million from updating the consumer reserve factors to include the current delinquency status.

Note 6 — 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 the 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 in December and are non-cumulative. No dividend, except payable in common shares, may be declared or paid on 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:

(in thousands)	2009		2008		2007
Class A preferred securities	$	80	$	80	$	80
Class B preferred securities		3,461		14,302		21,300
Class C preferred securities		3,938		3,938		3,938
Class D preferred securities		8,716		18,201		24,325
Total preferred dividends declared	$	16,195	$	36,521	$	49,643

As of December 31, 2009 and 2008, all declared dividends on preferred securities were paid to shareholders.

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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 December 31, 2009, 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 2008 and 2009. 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.

For HPCI to meet its statutory requirement for a REIT to distribute 90% of its taxable income to its shareholders, the holders of common shares received dividends declared by the board of directors, subject to any preferential dividend rights of the outstanding preferred securities. Dividends and return of capital distributions on common stock declared for each of the years ended December 31, 2009, 2008, and 2007 were $500.0 million, $225.0 million, and $300.4 million, respectively.

Note 7 — 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, residential real estate, and consumer loans underlying the participations held by HPCI in accordance with normal industry practice under the 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. Servicing costs incurred by the Bank totaled $9.4 million, $10.9 million, and $11.1 million for the respective years ended 2009, 2008, and 2007.

In 2009, 2008 and 2007, the annual servicing rates the Bank charged with respect to outstanding principal balances were:

	January 1, 2007
	through
	December 31, 2009
Commercial and commercial 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. Effective July 1, 2004, 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.

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 $0.4 million for the years ended December 31, 2009 and 2008 and $0.5 million for the year ended December 31, 2007, and are recorded in other non-interest expense.

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The following table represents the ownership of HPCI’s outstanding common and preferred securities as of December 31, 2009:

	Number of
	Common		Number of Preferred Securities
Shareholder:	Shares		Class A		Class B		Class C		Class D
Held by related parties:
HPCII		4,550,000		—		—		—		—
HCF		6,580,000		—		—		—		—
Holdings		2,870,000		895		—		—		14,000,000
HPC Holdings-II, Inc.		—		—		400,000		—		—
Total held by related parties		14,000,000		895		400,000		—		14,000,000
Other shareholders		—		105		—		2,000,000		—
Total shares outstanding		14,000,000		1,000		400,000		2,000,000		14,000,000

As of December 31, 2009, 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 December 31, 2009, HPCI board members and executive officers beneficially owned, in the aggregate, a total of 6,771 shares, or 0.34% of the HPCI Class C preferred securities. All of the Class D preferred securities are owned by Holdings. 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 lower than the then current market price of the Class C preferred securities.

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.

A return of capital was distributed to common shareholders through a distribution paid on January 8, 2010, which reduced HPCI’s cash balance by $500.0 million.

HPCI’s premises and equipment were acquired from the Bank through Holdings. Leasehold improvements were subsequently contributed to HPCLI for its common shares in the fourth quarter of 2001. HPCLI charged rent to the Bank for use of applicable facilities by the Bank. The amount of rental income received by HPCLI was $6.8 million for year ended December 31, 2007. Rental income is reflected as a component of non-interest income in the consolidated statements of income. On December 31, 2007, HPCI paid common stock dividends consisting of cash and the stock of HPCLI to the HPCI common stock shareholders. HPCLI became a wholly owned subsidiary of Holdings.

HPCI had a non-interest bearing payable due to the Bank of $8.6 million at December 31, 2009, and receivable from the Bank of $38.4 million at December 31, 2008. The balances represent the net settlement amounts due to, or from, the Bank for the last month of the period’s activity. 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. The amounts are settled with the Bank within the first few days of the following month.

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 9.

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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 8 — 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. Fair value measurements are classified within one of three levels in a valuation hierarchy 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 nonrecurring adjustments of collateral-dependent loan participation interest measured for impairment when establishing the allowance for credit losses. 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 2009 and 2008, HPCI identified $112.7 million and $23.1 million, respectively, of loans where the carrying value exceeded the fair value of the underlying collateral for the loan, a level 3 input in the valuation hierarchy. For the years ended December 31, 2009 and 2008, nonrecurring fair value losses of $27.4 million and $8.2 million, respectively 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 December 31, 2009, the carrying amount of $3.7 billion corresponded to a fair value of $2.7 billion. As of December 31, 2008, the carrying value of $4.3 billion corresponded to a fair value of $3.6 billion. At December 31, 2009, the valuation of the loan portfolio reflected discounts that HPCI believed are consistent with transactions occurring in the market place.

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Note 9 — 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 as guarantor of the Bank’s obligations under such advances and/or pledge all or 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 all or 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 $3.2 billion as of December 31, 2009, based on the Bank’s holdings of FHLB stock. As of this same date, the Bank had borrowings of $0.2 billion under the facility.

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, or approximately $1.1 billion as of December 31, 2009, as reflected in HPCI’s month-end management report. 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 $0.7 billion at December 31, 2009. In 2009, the loans pledged consisted of the 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 $2.5 million, $3.0 million, and $5.2 million in the respective annual periods ended December 31, 2009, 2008, and 2007 as compensation for making such assets available to the Bank. The fee represented thirty-five basis points per year on total pledged loans after April 1, 2007.

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 December 31, 2009 and 2008, the unfunded loan commitments totaled $303.7 million and $486.6 million, respectively.

Note 10 — 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.

Note 11 — Income Taxes

HPCI accounts for uncertainties in income taxes in accordance with ASC 740, Income Taxes. As of December 31, 2009, there were no unrecognized tax benefits. HPCI does not anticipate the total amount of unrecognized tax benefits to significantly change within the next 12 months.

The federal tax returns for years ended 2006 and after are open for review by the Internal Revenue Service.

HPCI recognizes interest and penalties on tax assessments or tax refunds in the financial statements as a component of its provision for income taxes. There were no amounts recognized for interest and penalties for the years ended December 31, 2009, 2008, and 2007 and no amounts accrued at December 31, 2009 and 2008.

During 2008, the State of Indiana proposed adjustments to HPCI’s previously filed tax returns. Management believes that the positions taken related to such proposed adjustments were correct and supported by applicable statutes, regulations, or judicial authority, and intends to vigorously defend them. However, 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.

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Note 12 — Quarterly Results of Operations (Unaudited)

The following is a summary of the unaudited quarterly results of operations for the years ended December 31:

(in thousands)	Fourth			Third			Second			First
2009
Interest and fee income	$	39,648		$	40,741		$	41,923		$	45,173
Provision for (reduction in allowances for) credit losses		84,740			27,701			40,497			18,988
Non-interest income		594			626			656			693
Non-interest expense		2,352			2,426			2,622			2,716
Net (loss) income		(46,850	)		11,240			(540	)		24,162
Dividends declared on preferred securities		(2,940	)		(3,507	)		(4,613	)		(5,135	)
Net (loss) income applicable to common shares	$	(49,790	)	$	7,733		$	(5,153	)	$	19,027
2008
Interest and fee income	$	61,980		$	62,933		$	61,226		$	68,410
Provision for (reduction in allowances for) credit losses		(1,194	)		(7,437	)		(5,079	)		(1,145	)
Non-interest income		761			761			749			793
Non-interest expense		2,856			2,900			2,952			2,981
Net income		61,079			68,231			64,102			67,367
Dividends declared on preferred securities		(10,188	)		(7,632	)		(7,439	)		(11,262	)
Net income applicable to common shares	$	50,891		$	60,599		$	56,663		$	56,105

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Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A: Controls and Procedures

Disclosure Controls and Procedures

HPCI maintains disclosure controls and procedures designed to ensure that the information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, are recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. HPCI’s management, with the participation of its President (principal executive officer) and the Vice President (principal financial officer), evaluated the effectiveness of our 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.

Internal Controls Over Financial Reporting

Information required by this item is set forth in “Report of Management” and “Report of Independent Registered Public Accounting Firm” included in Part II, Item 8 of this report.

Changes in Internal Control Over Financial Reporting

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 December 31, 2009 to which this report relates that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Item 9A(T): Controls and Procedures

Not applicable.

Item 9B: Other Information

Not applicable.

Part III

Item 10: Directors and Executive Officers and Corporate Governance

Information required by this item is set forth under the caption “Election of Directors” and under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” of HPCI’s 2010 Information Statement, and is incorporated herein by reference.

Item 11: Executive Compensation

Information required by this item is set forth under the caption “Compensation of Directors and Executive Officers” of HPCI’s 2010 Information Statement and is incorporated herein by reference.

53

Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

No HPCI securities were issued under equity compensation plans. Additional information required by this item is set forth under the caption “Ownership of Voting Stock” of HPCI’s 2010 Information Statement and is incorporated herein by reference.

Item 13: Certain Relationships and Related Transactions, and Director Independence

Information required by this item is set forth under the caption “Transactions with Directors, Executive Officers, and Certain Beneficial Owners” of HPCI’s 2010 Information Statement and is incorporated herein by reference.

Item 14: Principal Accounting Fees and Services

Information required by this item is set forth under the caption “Proposal to Ratify the Appointment of Independent Registered Public Accounting Firm” of HPCI’s 2010 Information Statement and is incorporated herein by reference.

Part IV

Item 15: Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report:

(1)	The report of independent registered public accounting firm and consolidated financial statements appearing in Item 8.
(2)	HPCI is not filing separately financial statement schedules because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or the notes thereto.
(3)	The exhibits required by this item are listed in the Exhibit Index on pages 56 and 57 of this Form 10-K.

(b) The exhibits to this Form 10-K begin on page 58.

(c) See Item 15 (a) (2) above.

54

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 15th day of March, 2010.

HUNTINGTON PREFERRED CAPITAL, INC.
(Registrant)

By:	/s/ Donald R. Kimble Donald R. Kimble	By:	/s/ Thomas P. Reed Thomas P. Reed
	President and Director		Vice President and Director
	(Principal Executive Officer)		(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 15th day of March, 2010.

Richard A. Cheap * Richard A. Cheap	Director
Reginald D. Dickson * Reginald D. Dickson	Director
Edward J. Kane * Edward J. Kane	Director
Roger E. Kephart * Roger E. Kephart	Director
James D. Robbins * James D. Robbins	Director
Karen D. Roggenkamp * Karen D. Roggenkamp	Director
/s/ Donald R. Kimble Donald R. Kimble

* Attorney-in fact for each of the persons indicated.

55

Exhibit Index

This document incorporates by reference certain documents listed below that HPCI has previously filed with the SEC (file number 000-33243). The documents incorporated by reference 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 worldwide 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.

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.
10.1.	Third Amended and Restated Loan Participation Agreement, dated May 12, 2005, between The Huntington National Bank and Huntington Preferred Capital Holdings, Inc. (previously filed as Exhibit 10(a) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, and incorporated herein by reference).
10.2.	Third Amended and Restated Loan Subparticipation Agreement, dated May 12, 2005, between Huntington Preferred Capital Holdings, Inc. and Huntington Preferred Capital, Inc. (previously filed as Exhibit 10(b) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, and incorporated herein by reference).
10.3.	Second Amended and Restated Loan Participation Agreement, dated May 12, 2005, between The Huntington National Bank and Huntington Preferred Capital, Inc. (previously filed as Exhibit 10(c) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, and incorporated herein by reference).
10.4.	Subscription Agreement, dated October 15, 2001, for the Class C preferred securities between Huntington Preferred Capital, Inc., The Huntington National Bank, and Huntington Preferred Capital Holdings, Inc. (previously filed as Exhibit 10(f) to Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference).
10.5.	Subscription Agreement, dated October 15, 2001, for the Class D preferred securities between Huntington Preferred Capital, Inc., The Huntington National Bank, and Huntington Preferred Capital Holdings, Inc. (previously filed as Exhibit 10(g) to Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference).
10.6.	Amended and Restated Agreement dated June 1, 2005 between Huntington Preferred Capital Inc. and Huntington National Bank to govern the terms on which Huntington Preferred Capital Inc. may pledge certain of its assets as collateral for the Huntington National Bank’s borrowings from the Federal Home Loan Bank of Cincinnati under a secured revolving loan facility (previously filed as Exhibit 99.1 to Form 8-K dated June 1, 2005).
10.7.	Limited Waiver of Contract Provision, dated August 13, 2008, with Huntington Preferred Capital Holdings, Inc., Huntington Preferred Capital, Inc., and The Huntington National Bank. (previously filed as Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, and incorporated herein by reference).
12.1.	Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
14.1.	Code of Business Conduct and Ethics dated January 14, 2003 and revised on February 14, 2006 and Financial Code of Ethics for Chief Executive Officer and Senior Financial Officers, adopted January 18, 2003 and revised on October 21, 2009, as applicable to all of its affiliated companies, and ratified by HPCI’s Board of Directors on March 25, 2004, are available on Huntington Bancshares Incorporated’s website at http://www.investquest.com/iq/h/hban/main/cg/cg.htm.

56

24.1.	Power of Attorney.
31.1.	Rule 13a-14(a) Certification — Chief Executive Officer.
31.2.	Rule 13a-14(a) Certification — Chief Financial Officer.
32.1.	Section 1350 Certification — Chief Executive Officer.
32.2.	Section 1350 Certification — Chief Financial Officer.
99.1.	Consolidated Financial Statements of Huntington Bancshares Incorporated as of December 31, 2009 and 2008 and for the years ended December 31, 2009, 2008, and 2007.

57

EX-12.1

Exhibit 12.1

Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

Huntington Preferred Capital, Inc

	Year Ended December 31,
(in thousands)	2009			2008			2007			2006			2005
Earnings:
(Loss) income before taxes	$	(11,988	)	$	260,779		$	317,876		$	345,550		$	314,865
Add: Fixed charges, excluding interest on deposits		—			—			—			—			—
Earnings available for fixed charges, excluding interest on deposits		(11,988	)		260,779			317,876			345,550			314,865
Add: Interest on deposits		—			—			—			—			—
Earnings available for fixed charges, including interest on deposits	$	(11,988	)	$	260,779		$	317,876		$	345,550		$	314,865
Combined Fixed Charges and Preferred Stock Dividends:
Interest expense, excluding interest on deposits	$	—		$	—		$	—		$	—		$	—
Interest factor in net rental expense		—			—			—			—			—
Total fixed charges, excluding interest on deposits		—			—			—			—			—
Add: Interest on deposits		—			—			—			—			—
Total fixed charges, including interest on deposits		—			—			—			—			—
Preferred stock dividends		16,195			36,521			49,643			47,944			34,634
Combined fixed charges and preferred stock dividends	$	16,195		$	36,521		$	49,643		$	47,944		$	34,634
Ratio of Earnings to Fixed Charges and Preferred Stock Dividends		(0.74	)x		7.14	x		6.40	x		7.21	x		9.09	x

EX-24.1

Exhibit 24.1

POWER OF ATTORNEY

Each director and officer of Huntington Preferred Capital, Inc. (the “Corporation”), whose signature appears below hereby appoints Donald R. Kimble and Thomas P. Reed, or any of them, as his or her attorney-in-fact, to sign, in his or her name and behalf and in any and all capacities stated below, and to cause to be filed with the Securities and Exchange Commission, the Corporation’s Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended December 31, 2009, and likewise to sign and file any amendments, including post-effective amendments, to the Annual Report, and the Corporation hereby also appoints such persons as its attorneys-in-fact and each of them as its attorney-in-fact with like authority to sign and file the Annual Report and any amendments thereto in its name and behalf, each such person and the Corporation hereby granting to such attorney-in-fact full power of substitution and revocation, and hereby ratifying all that such attorney-in-fact or his substitute may do by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney, in counterparts if necessary, effective as of March 15, 2010.

DIRECTORS/OFFICERS:

Signatures	Title
/s/ Donald R. Kimble Donald R. Kimble	President and Director  (Principal Executive Officer)
/s/ Thomas P. Reed Thomas P. Reed	Vice President and Director  (Principal Financial and Accounting Officer)
/s/ Richard A. Cheap Richard A. Cheap	Director
/s/ Reginald D. Dickson Reginald D. Dickson	Director
/s/ Edward J. Kane Edward J. Kane	Director
/s/ Roger E. Kephart Roger E. Kephart	Director
/s/ James D. Robbins James D. Robbins	Director
/s/ Karen D. Roggenkamp Karen D. Roggenkamp	Director

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Donald R. Kimble, certify that:

1. I have reviewed this Annual Report on Form 10-K of Huntington Preferred Capital, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2010

/s/ Donald R. Kimble Donald R. Kimble, President

(chief executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Thomas P. Reed, certify that:

1. I have reviewed this Annual Report on Form 10-K of Huntington Preferred Capital, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2010

/s/ Thomas P. Reed Thomas P. Reed, Vice President

(chief financial officer)

EX-32.1

Exhibit 32.1

SECTION 1350 CERTIFICATION

In connection with the Annual Report of Huntington Preferred Capital, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald R. Kimble, President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Donald R. Kimble Donald R. Kimble

(chief executive officer)

March 15, 2010

EX-32.2

Exhibit 32.2

SECTION 1350 CERTIFICATION

In connection with the Annual Report of Huntington Preferred Capital, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas P. Reed, Vice President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Thomas P. Reed Thomas P. Reed

(chief financial officer)

March 15, 2010

EX-99.1

Exhibit 99.1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Huntington Bancshares Incorporated

Columbus, Ohio

We have audited the accompanying consolidated balance sheets of Huntington Bancshares Incorporated and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Huntington Bancshares Incorporated and subsidiaries at December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 18, 2010 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Columbus, Ohio

February 18, 2010

131

Consolidated Balance Sheets

	December 31,
	2009			2008
(In thousands, except number of shares)
ASSETS
Cash and due from banks	$	1,521,344		$	806,693
Federal funds sold and securities purchased under resale agreements		—			37,975
Interest bearing deposits in banks		319,375			292,561
Trading account securities		83,657			88,677
Loans held for sale		461,647			390,438
Investment securities		8,587,914			4,384,457
Loans and leases:
Commercial and industrial loans and leases		12,888,100			13,540,841
Commercial real estate loans		7,688,827			10,098,210
Automobile loans		3,144,329			3,900,893
Automobile leases		246,265			563,417
Home equity loans		7,562,060			7,556,428
Residential mortgage loans		4,510,347			4,761,384
Other consumer loans		750,735			670,992
Loans and leases		36,790,663			41,092,165
Allowance for loan and lease losses		(1,482,479	)		(900,227	)
Net loans and leases		35,308,184			40,191,938
Bank owned life insurance		1,412,333			1,364,466
Premises and equipment		496,021			519,500
Goodwill		444,268			3,054,985
Other intangible assets		289,098			356,703
Accrued income and other assets		2,630,824			2,864,466
Total assets	$	51,554,665		$	54,352,859
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits in domestic offices
Demand deposits — non-interest bearing	$	6,907,238		$	5,477,439
Interest bearing		33,229,726			31,732,842
Deposits in foreign offices		356,963			733,005
Deposits		40,493,927			37,943,286
Short-term borrowings		876,241			1,309,157
Federal Home Loan Bank advances		168,977			2,588,976
Other long-term debt		2,369,491			2,331,632
Subordinated notes		1,264,202			1,950,097
Accrued expenses and other liabilities		1,045,825			1,000,805
Total liabilities		46,218,663			47,123,953
Shareholders’ equity
Preferred stock — authorized 6,617,808 shares;
5.00% Series B Non-voting, Cumulative Preferred Stock, par value of $0.01 and liquidation value per share of $1,000		1,325,008			1,308,667
8.50% Series A Non-cumulative Perpetual Convertible Preferred Stock, par value of $0.01 and liquidation value per share of $1,000		362,507			569,000
Common stock —
Par value of $0.01 and authorized 1,000,000,000 shares		7,167			3,670
Capital surplus		6,731,796			5,322,428
Less treasury shares, at cost		(11,465	)		(15,530	)
Accumulated other comprehensive loss		(156,985	)		(326,693	)
Retained (deficit) earnings		(2,922,026	)		367,364
Total shareholders’ equity		5,336,002			7,228,906
Total liabilities and shareholders’ equity	$	51,554,665		$	54,352,859
Common shares issued		716,741,249			366,972,250
Common shares outstanding		715,761,672			366,057,669
Treasury shares outstanding		979,577			914,581
Preferred shares issued		1,967,071			1,967,071
Preferred shares outstanding		1,760,578			1,967,071

See Notes to Consolidated Financial Statements

132

Consolidated Statements of Income

	Year Ended December 31,
	2009			2008			2007
(In thousands, except per share amounts)
Interest and fee income
Loans and leases
Taxable	$	1,933,639		$	2,447,362		$	2,388,799
Tax-exempt		10,630			2,748			5,213
Investment securities
Taxable		249,968			217,882			221,877
Tax-exempt		8,824			29,869			26,920
Other		35,081			100,461			100,154
Total interest income		2,238,142			2,798,322			2,742,963
Interest expense
Deposits		674,101			931,679			1,026,388
Short-term borrowings		2,366			42,261			92,810
Federal Home Loan Bank advances		12,882			107,848			102,646
Subordinated notes and other long-term debt		124,506			184,843			219,607
Total interest expense		813,855			1,266,631			1,441,451
Net interest income		1,424,287			1,531,691			1,301,512
Provision for credit losses		2,074,671			1,057,463			643,628
Net interest income after provision for credit losses		(650,384	)		474,228			657,884
Service charges on deposit accounts		302,799			308,053			254,193
Brokerage and insurance income		138,169			137,796			92,375
Mortgage banking income		112,298			8,994			29,804
Trust services		103,639			125,980			121,418
Electronic banking		100,151			90,267			71,067
Bank owned life insurance income		54,872			54,776			49,855
Automobile operating lease income		51,810			39,851			7,810
Net (losses) gains on sales of investment securities		48,815			(197,370	)		(29,738	)
Impairment losses on investment securities:
Impairment losses on investment securities		(183,472	)		—			—
Noncredit-related losses on securities not expected to be sold (recognized in other comprehensive income)		124,408			—			—
Net impairment losses on investment securities		(59,064	)		—			—
Other income		152,155			138,791			79,819
Total non-interest income		1,005,644			707,138			676,603
Personnel costs		700,482			783,546			686,828
Outside data processing and other services		148,095			130,226			129,226
Deposit and other insurance expense		113,830			22,437			13,785
Net occupancy		105,273			108,428			99,373
OREO and foreclosure expense		93,899			33,455			15,185
Equipment		83,117			93,965			81,482
Professional services		76,366			49,613			37,390
Amortization of intangibles		68,307			76,894			45,151
Automobile operating lease expense		43,360			31,282			5,161
Marketing		33,049			32,664			46,043
Telecommunications		23,979			25,008			24,502
Printing and supplies		15,480			18,870			18,251
Goodwill impairment		2,606,944			—			—
Gain on early extinguishment of debt		(147,442	)		(23,542	)		(8,058	)
Other expense		68,704			94,528			117,525
Total non-interest expense		4,033,443			1,477,374			1,311,844
(Loss) income before income taxes		(3,678,183	)		(296,008	)		22,643
Benefit for income taxes		(584,004	)		(182,202	)		(52,526	)
Net (loss) income	$	(3,094,179	)	$	(113,806	)	$	75,169
Dividends on preferred shares		174,756			46,400			—
Net (loss) income applicable to common shares	$	(3,268,935	)	$	(160,206	)	$	75,169
Average common shares — basic		532,802			366,155			300,908
Average common shares — diluted		532,802			366,155			303,455
Per common share
Net (loss) income — basic	$	(6.14	)	$	(0.44	)	$	0.25
Net (loss) income — diluted		(6.14	)		(0.44	)		0.25
Cash dividends declared		0.0400			0.6625			1.0600

See Notes to Consolidated Financial Statements

133

Consolidated Statements of Changes in Shareholders’ Equity

																								Accumulated
	Preferred Stock																							Other			Retained
	Series B				Series A						Common Stock				Capital			Treasury Stock						Comprehensive			Earnings
	Shares		Amount		Shares			Amount			Shares		Amount		Surplus			Shares			Amount			Loss			(Deficit)			Total
(In thousands)
Year Ended December 31, 2009
Balance, beginning of year		1,398	$	1,308,667		569		$	569,000			366,972	$	3,670	$	5,322,428			(915	)	$	(15,530	)	$	(326,693	)	$	367,364		$	7,228,906
Comprehensive Income:
Net loss																												(3,094,179	)		(3,094,179	)
Cumulative effect of change in accounting principle for other-than-temporarily impaired debt securities, net of tax of $1,907																									(3,541	)		3,541			—
Non-credit-related impairment losses on debt securities not expected to be sold, net of tax of ($43,543)																									(80,865	)					(80,865	)
Unrealized net gains on investment securities arising during the period, net of reclassification for net realized gains, net of tax of ($102,268)																									188,780						188,780
Unrealized gains on cash flow hedging derivatives, net of tax of ($7,661)																									14,227						14,227
Change in accumulated unrealized losses for pension and other post-retirement obligations, net of tax of $27,519																									51,107						51,107
Total comprehensive loss																															(2,920,930	)
Issuance of common stock												308,226		3,081		1,142,670															1,145,751
Conversion of Preferred Series A stock						(206	)		(206,493	)		41,072		411		262,117												(56,035	)		—
Amortization of discount				16,041																								(16,041	)		—
Cash dividends declared:
Common ($0.04 per share)																												(22,020	)		(22,020	)
Preferred Series B ($50.00 per share)																												(69,904	)		(69,904	)
Preferred Series A ($85.00 per share)																												(32,776	)		(32,776	)
Recognition of the fair value of share-based compensation																8,547															8,547
Other share-based compensation activity												471		5		635												(838	)		(198	)
Other				300												(4,601	)		(65	)		4,065						(1,138	)		(1,374	)
Balance, end of year		1,398	$	1,325,008		363		$	362,507			716,741	$	7,167	$	6,731,796			(980	)	$	(11,465	)	$	(156,985	)	$	(2,922,026	)	$	5,336,002

See Notes to Consolidated Financial Statements

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Consolidated Statements of Changes in Shareholders’ Equity

																							Accumulated
	Preferred Stock																						Other
	Series B				Series A				Common Stock					Capital			Treasury Stock						Comprehensive			Retained
	Shares		Amount		Shares		Amount		Shares			Amount		Surplus			Shares			Amount			Loss			Earnings			Total
(In thousands)
Year Ended December 31, 2008
Balance, beginning of year		—	$	—		—	$	—		367,002		$	3,670	$	5,237,783			(740	)	$	(14,391	)	$	(49,611	)	$	773,639		$	5,951,090
Cumulative effect of change in accounting principle for fair value of assets and liabilities, net of tax of ($803)																											1,491			1,491
Cumulative effect of changing measurement date provisions for pension and post-retirement assets and obligations, net of tax of $4,324																								(3,834	)		(4,654	)		(8,488	)
Balance, beginning of year — as adjusted		—		—		—		—		367,002			3,670		5,237,783			(740	)		(14,391	)		(53,445	)		770,476			5,944,093
Comprehensive Loss:
Net (loss) income																											(113,806	)		(113,806	)
Unrealized net losses on investment securities arising during the period, net of reclassification for net realized gains, net of tax of $108,131																								(197,745	)					(197,745	)
Unrealized gains on cash flow hedging derivatives, net of tax of ($21,584)																								40,085						40,085
Change in accumulated unrealized losses for pension and other post-retirement obligations, net of tax of $62,240																								(115,588	)					(115,588	)
Total comprehensive loss																														(387,054	)
Issuance of Preferred Class B Stock		1,398		1,306,726																										1,306,726
Issuance of Preferred Class A Stock						569		569,000							(18,866	)														550,134
Issuance of warrants convertible to common stock															90,765															90,765
Amortization of discount				1,941																							(1,941	)		—
Cash dividends declared:
Common ($0.6625 per share)																											(242,522	)		(242,522	)
Preferred Class B ($6.528 per share)																											(9,126	)		(9,126	)
Preferred Series A ($62.097 per share)																											(35,333	)		(35,333	)
Recognition of the fair value of share-based compensation															14,091															14,091
Other share-based compensation activity										(30	)		—		(874	)											(199	)		(1,073	)
Other															(471	)		(175	)		(1,139	)					(185	)		(1,795	)
Balance, end of year		1,398	$	1,308,667		569	$	569,000		366,972		$	3,670	$	5,322,428			(915	)	$	(15,530	)	$	(326,693	)	$	367,364		$	7,228,906

See Notes to Consolidated Financial Statements

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Consolidated Statements of Changes in Shareholders’ Equity

																						Accumulated
	Preferred Stock																					Other
	Series B				Series A				Common Stock					Capital		Treasury Stock						Comprehensive			Retained
	Shares		Amount		Shares		Amount		Shares		Amount			Surplus		Shares			Amount			Loss			Earnings			Total
(In thousands)
Year Ended December 31, 2007
Balance, beginning of year		—	$	—		—	$	—		236,064	$	2,064,764		$	—		(590	)	$	(11,141	)	$	(55,066	)		1,015,769		$	3,014,326
Cumulative effect of change in accounting principle for noncontrolling interests																										1,706
Balance, beginning of year — as adjusted		—		—		—		—		236,064		2,064,764			—		(590	)		(11,141	)		(55,066	)		1,017,475			3,016,032
Comprehensive Loss:
Net income																										75,169			75,169
Unrealized net losses on investment securities arising during the period, net of reclassification for net realized losses, net of tax of $13,245																							(24,265	)					(24,265	)
Unrealized losses on cash flow hedging derivatives, net of tax of $6,707																							(12,455	)					(12,455	)
Change in accumulated unrealized losses for pension and other post-retirement obligations, net of tax of ($22,710)																							42,175						42,175
Total comprehensive income																													80,624
Assignment of $0.01 par value per share for each share of Common Stock												(2,062,403	)		2,062,403														—
Cash dividends declared ($1.06 per share)																										(319,249	)		(319,249	)
Shares issued pursuant to acquisition										129,827		1,298			3,135,239														3,136,537
Recognition of the fair value of share-based compensation															21,836														21,836
Other share-based compensation activity										1,111		11			15,943														15,954
Other															2,362		(150	)		(3,250	)					244			(644	)
Balance, end of year		—	$	—		—	$	—		367,002	$	3,670		$	5,237,783		(740	)	$	(14,391	)	$	(49,611	)	$	773,639		$	5,951,090

See Notes to Consolidated Financial Statements

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Consolidated Statements of Cash Flows

	Year Ended December 31,
	2009			2008			2007
(In thousands)
Operating activities
Net (loss) income	$	(3,094,179	)	$	(113,806	)	$	75,169
Adjustments to reconcile net (loss) income to net cash provided by (used for) operating activities:
Impairment of goodwill		2,606,944			—			—
Provision for credit losses		2,074,671			1,057,463			643,628
Losses on investment securities		10,249			197,370			29,738
Depreciation and amortization		228,041			244,860			127,261
Change in current and deferred income taxes		(471,592	)		(251,827	)		(157,169	)
Net sales (purchases) of trading account securities		856,112			92,976			(996,689	)
Originations of loans held for sale		(4,786,043	)		(3,063,375	)		(2,815,854	)
Principal payments on and proceeds from loans held for sale		4,667,792			3,096,129			2,693,132
Gain on early extinguishment of debt		(147,442	)		(23,541	)		(8,058	)
Other, net		21,709			1,080			66,063
Net cash provided by (used for) operating activities		1,966,262			1,237,329			(342,779	)
Investing activities
Increase in interest bearing deposits in banks		(319,989	)		(228,554	)		(188,971	)
Net cash paid in acquisitions		—			—			(80,060	)
Proceeds from:
Maturities and calls of investment securities		1,004,293			386,232			405,482
Sales of investment securities		3,585,644			555,719			1,528,480
Purchases of investment securities		(8,386,223	)		(1,338,274	)		(1,317,630	)
Net proceeds from sales of loans		949,398			471,362			108,588
Net loan and lease activity, excluding sales		1,544,524			(2,358,653	)		(1,746,814	)
Purchases of operating lease assets		(119	)		(226,378	)		(76,940	)
Proceeds from sale of operating lease assets		11,216			25,091			27,591
Purchases of premises and equipment		(49,223	)		(59,945	)		(109,450	)
Proceeds from sales of other real estate		60,499			54,520			35,883
Other, net		4,619			19,172			8,471
Net cash used for investing activities		(1,595,361	)		(2,699,708	)		(1,405,370	)
Financing activities
Increase (decrease) in deposits		2,559,633			195,142			(165,625	)
Decrease in short-term borrowings		(277,215	)		(1,316,155	)		1,464,542
Proceeds from issuance of subordinated notes		—			—			250,010
Maturity/redemption of subordinated notes		(484,966	)		(76,659	)		(46,660	)
Proceeds from Federal Home Loan Bank advances		207,394			1,865,294			2,853,120
Maturity/redemption of Federal Home Loan Bank advances		(2,627,786	)		(2,360,368	)		(1,492,899	)
Proceeds from issuance of long-term debt		598,200			887,111			—
Maturity/redemption of long-term debt		(642,644	)		(540,266	)		(353,079	)
Dividends paid on preferred stock		(107,262	)		(23,242	)		—
Dividends paid on common stock		(55,026	)		(279,608	)		(289,758	)
Net proceeds from issuance of preferred stock		—			1,947,625			—
Net proceeds from issuance of common stock		1,135,645			—			—
Other, net		(198	)		(1,073	)		16,997
Net cash provided by financing activities		305,775			297,801			2,236,648
Increase (decrease) in cash and cash equivalents		676,676			(1,164,578	)		488,499
Cash and cash equivalents at beginning of year		844,668			2,009,246			1,520,747
Cash and cash equivalents at end of year	$	1,521,344		$	844,668		$	2,009,246
Supplemental disclosures:
Income taxes (refunded) paid	$	(112,412	)	$	69,625		$	104,645
Interest paid		869,503			1,282,877			1,434,007
Non-cash activities
Common stock dividends accrued, paid in subsequent quarter		6,670			39,675			76,762
Preferred stock dividends accrued, paid in subsequent quarter		16,635			21,218			—
Common stock and stock options issued for purchase acquisitions		—			—			3,136,537

See Notes to Consolidated Financial Statements.

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1.   SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations — Huntington Bancshares Incorporated (Huntington or the Company) is a multi-state diversified financial holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through its subsidiaries, including its bank subsidiary, The Huntington National Bank (the Bank), Huntington is engaged in providing full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, brokerage services, customized insurance service programs, and other financial products and services. Huntington’s banking offices are located in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. Selected financial service activities are also conducted in other states including: Auto Finance and Dealer Services offices in Nevada, New Jersey, and New York; Private Financial and Capital Markets Group offices in Florida; and Mortgage Banking offices in Maryland and New Jersey. Huntington Insurance offers retail and commercial insurance agency services in Ohio, Pennsylvania, Michigan, Indiana, and West Virginia. International banking services are available through the headquarters office in Columbus and a limited purpose office located in both the Cayman Islands and Hong Kong.

Basis of Presentation — The consolidated financial statements include the accounts of Huntington and its majority-owned subsidiaries and are presented in accordance with accounting principles generally accepted in the United States (GAAP). All intercompany transactions and balances have been eliminated in consolidation. Companies in which Huntington holds more than a 50% voting equity interest or are a variable interest entity (VIE) in which Huntington absorbs the majority of expected losses are consolidated. Huntington evaluates VIEs in which it holds a beneficial interest for consolidation. VIEs are legal entities with insubstantial equity, whose equity investors lack the ability to make decisions about the entity’s activities, or whose equity investors do not have the right to receive the residual returns of the entity if they occur. VIEs in which Huntington does not absorb the majority of expected losses are not consolidated. For consolidated entities where Huntington holds less than a 100% interest, Huntington recognizes a minority interest liability (included in accrued expenses and other liabilities) for the equity held by others and minority interest expense (included in other long-term debt) for the portion of the entity’s earnings attributable to minority interests. Investments in companies that are not consolidated are accounted for using the equity method when Huntington has the ability to exert significant influence. Those investments in non-marketable securities for which Huntington does not have the ability to exert significant influence are generally accounted for using the cost method and are periodically evaluated for impairment. Investments in private investment partnerships are carried at fair value. Investments in private investment partnerships and investments that are accounted for under the equity method or the cost method are included in accrued income and other assets and Huntington’s proportional interest in the equity investments’ earnings are included in other non-interest income.

The preparation of financial statements in conformity with GAAP requires Management to make estimates and assumptions that significantly affect amounts reported in the financial statements. Huntington uses significant estimates and employs the judgments of management in determining the amount of its allowance for credit losses and income tax accruals and deferrals, in its fair value measurements of investment securities, derivatives, mortgage loans held for sale, mortgage servicing rights and in the evaluation of impairment of loans, goodwill, investment securities, and fixed assets. As with any estimate, actual results could differ from those estimates. Significant estimates are further discussed in the critical accounting policies included in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

Securities — Securities purchased with the intention of recognizing short-term profits or which are actively bought and sold are classified as trading account securities and reported at fair value. The unrealized gains or losses on trading account securities are recorded in other non-interest income, except for gains and losses on trading account securities used to hedge the fair value of mortgage servicing rights, which are included in mortgage banking income. All other securities are classified as investment securities. Investment securities include securities designated as available for sale and non-marketable equity securities. Unrealized gains or losses on investment securities designated as available for sale are reported as a separate component of accumulated other comprehensive loss in the consolidated statement of changes in shareholders’ equity.

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Declines in the value of debt and marketable equity securities that are considered other-than-temporary are recorded in non-interest income as securities losses.

Huntington evaluates its investment securities portfolio on a quarterly basis for indicators of other-than-temporary impairment (OTTI). This determination requires significant judgment. Huntington assesses whether OTTI has occurred when the fair value of a debt security is less than the amortized cost basis at the balance sheet date. Under these circumstances, OTTI is considered to have occurred (1) if Huntington intends to sell the security; (2) if it is more likely than not Huntington will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis. For securities that Huntington does not expect to sell or it is not more likely than not to be required to sell, the OTTI is separated into credit and noncredit components. The credit-related OTTI, represented by the expected loss in principal, is recognized in noninterest income, while noncredit-related OTTI is recognized in other comprehensive income (loss) (OCI). Noncredit-related OTTI results from other factors, including increased liquidity spreads and extension of the security. For securities which Huntington does expect to sell, all OTTI is recognized in earnings. Presentation of OTTI is made in the income statement on a gross basis with a reduction for the amount of OTTI recognized in OCI. Once an other-than-temporary impairment is recorded, when future cash flows can be reasonably estimated, future cash flows are re-allocated between interest and principal cash flows to provide for a level-yield on the security.

Securities transactions are recognized on the trade date (the date the order to buy or sell is executed). The amortized cost of sold securities is used to compute realized gains and losses. Interest and dividends on securities, including amortization of premiums and accretion of discounts using the effective interest method over the period to maturity, are included in interest income.

Non-marketable equity securities include stock acquired for regulatory purposes, such as Federal Home Loan Bank stock and Federal Reserve Bank stock. These securities are generally accounted for at cost and are included in investment securities.

Loans and Leases — Loans and direct financing leases for which Huntington has the intent and ability to hold for the foreseeable future (at least 12 months), or until maturity or payoff, are classified in the balance sheet as loans and leases. Loans and leases are carried at the principal amount outstanding, net of unamortized deferred loan origination fees and costs and net of unearned income. Direct financing leases are reported at the aggregate of lease payments receivable and estimated residual values, net of unearned and deferred income. Interest income is accrued as earned using the interest method based on unpaid principal balances. Huntington defers the fees it receives from the origination of loans and leases, as well as the direct costs of those activities. Huntington also acquires loans at a premium and at a discount to their contractual values. Huntington amortizes loan discounts, loan premiums and net loan origination fees and costs on a level-yield basis over the estimated lives of the related loans.

Loans that Huntington has the intent to sell or securitize are classified as held for sale. Loans held for sale (excluding loans originated or acquired with the intent to sale) are carried at the lower of cost or fair value. The fair value option was elected for mortgage loans held for sale to facilitate hedging of the loans. Fair value is determined based on collateral value and prevailing market prices for loans with similar characteristics. Subsequent declines in fair value are recognized either as a charge-off or as non-interest income, depending on the length of time the loan has been recorded as held for sale. When a decision is made to sell a loan that was not originated or initially acquired with the intent to sell, the loan is reclassified into held for sale.

Residual values on leased automobiles and equipment are evaluated quarterly for impairment. Impairment of the residual values of direct financing leases is recognized by writing the leases down to fair value with a charge to other non-interest expense. Residual value losses arise if the expected fair value at the end of the lease term is less than the residual value recorded at original lease, net of estimated amounts reimbursable by the lessee. Future declines in the expected residual value of the leased equipment would result in expected losses of the leased equipment.

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For leased equipment, the residual component of a direct financing lease represents the estimated fair value of the leased equipment at the end of the lease term. Huntington uses industry data, historical experience, and independent appraisals to establish these residual value estimates. Additional information regarding product life cycle, product upgrades, as well as insight into competing products are obtained through relationships with industry contacts and are factored into residual value estimates where applicable.

Commercial and industrial loans and commercial real estate loans are generally placed on non-accrual status and stop accruing interest when principal or interest payments are 90 days or more past due or the borrower’s creditworthiness is in doubt or other reasons. A loan may remain in accruing status if it is sufficiently collateralized, which means the collateral covers the full repayment of principal and interest, and is in the process of active collection.

Management evaluates direct financing leases individually for impairment. Commercial loans are evaluated periodically for impairment. An allowance is established as a component of the allowance for loan and lease losses when, based upon current information and events, it is probable that all amounts due according to the contractual terms of the loan or lease will not be collected. The amount of the impairment is measured using the present value of expected future cash flows discounted at the loan’s or lease’s effective interest rate or, as a practical expedient, the observable market price of the loan or lease, or, the fair value of the collateral if the loan or lease is collateral dependent. When the present value of expected future cash flows is used, the effective interest rate is the contractual interest rate of the loan adjusted for any premium or discount. When the contractual interest rate is variable, the effective interest rate of the loan changes over time. Interest income is recognized on impaired loans using a cost recovery method unless the receipt of principal and interest as they become contractually due is not in doubt, such as in a troubled debt restructuring (TDR). TDRs of impaired loans that continue to perform under the restructured terms continue to accrue interest. Huntington does not have significant commitments to lend additional funds to borrowers whose loans have been modified as a TDR.

Consumer loans and leases are subject to mandatory charge-off based on specific criteria and are not classified as non-performing prior to being charged off. Huntington recently adjusted the timing of the loss recognition to ensure a conservative view of the value of the underlining real estate collateral. A charge-off on a residential mortgage loan is recorded when the loan has been foreclosed and the loan balance exceeds the fair value of the collateral. (See Note 5 for further information.) A home equity charge-off occurs when it is determined that there is not sufficient equity in the loan to cover Huntington’s position. A write down in value occurs as determined by Huntington’s internal processes, with subsequent losses incurred upon final disposition. In the event the first mortgage is purchased to protect Huntington’s interests, the charge-off process is the same as residential mortgage loans described above.

For non-performing loans and leases, cash receipts are applied entirely against principal until the loan or lease has been collected in full, after which time any additional cash receipts are recognized as interest income. When, in management’s judgment, the borrower’s ability to make required interest and principal payments resumes and collectability is no longer in doubt, the loan or lease is returned to accrual status. 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.

Included within loans are $323 million of amounts due from borrowers which are in the form of lower floater bonds. The bonds are a long-term loan with a short-term adjustable interest rate, supported by a letter of credit from a Huntington. The bonds were obtained in 2009 in satisfaction of existing letter of credit draws to the same borrowers. Because the letters of credit on the bonds are with Huntington and Huntington can at anytime put the bonds back to the issuer and thereby convert the bond to a loan, the company classifies these instruments as loans.

Sold Loans and Leases — For loan or lease sales with servicing retained, an asset is recorded for the right to service the loans sold, based on the fair value of the servicing rights.

Gains and losses on the loans and leases sold and servicing rights associated with loan and lease sales are determined when the related loans or leases are sold to either a securitization trust or third party. Fair values of the servicing rights are based on the present value of expected future cash flows from servicing the underlying loans, net of adequate compensation to service the loans. The present value of expected future cash

140

flows is determined using assumptions for market interest rates, ancillary fees, and prepayment rates. The servicing rights are recorded in accrued income and other assets in the consolidated balance sheets. Servicing revenues on mortgage and automobile loans are included in mortgage banking income and other non-interest income, respectively.

Allowance for Credit Losses — The allowance for credit losses (ACL) reflects Management’s judgment as to the level of the ACL considered appropriate to absorb probable inherent credit losses. This judgment is based on the size and current risk characteristics of the portfolio, a review of individual loans and leases, historical and anticipated loss experience, and a review of individual relationships where applicable. External influences such as general economic conditions, economic conditions in the relevant geographic areas and specific industries, regulatory guidelines, and other factors are also assessed in determining the level of the allowance.

The determination of the allowance requires significant estimates, including the timing and amounts of expected future cash flows on impaired loans and leases, consideration of current economic conditions, and historical loss experience pertaining to pools of homogeneous loans and leases, all of which may be susceptible to change. The allowance is increased through a provision for credit losses that is charged to earnings, based on Management’s quarterly evaluation of the factors previously mentioned, and is reduced by charge-offs, net of recoveries, and the allowance associated with securitized or sold loans.

The ACL consists of two components, the transaction reserve, which includes specific reserves related to loans considered to be impaired and loans involved in troubled debt restructurings, and the economic reserve. The two components are more fully described below.

The transaction reserve component of the ACL includes both (a) an estimate of loss based on pools of commercial and consumer loans and leases with similar characteristics and (b) an estimate of loss based on an impairment review of each loan greater than $1 million. For commercial loans, the estimate of loss based on pools of loans and leases with similar characteristics is made through the use of a standardized loan grading system that is applied on an individual loan level and updated on a continuous basis. The reserve factors applied to these portfolios were developed based on internal credit migration models that track historical movements of loans between loan ratings over time and a combination of long-term average loss experience of our own portfolio and external industry data. In the case of more homogeneous portfolios, such as consumer loans and leases, the determination of the transaction reserve is based on reserve factors that include the use of forecasting models to measure inherent loss in these portfolios. Models and analyses are updated frequently to capture the recent behavioral characteristics of the subject portfolios, as well as any changes in loss mitigation or credit origination strategies. Adjustments to the reserve factors are made as needed based on observed results of the portfolio analytics.

The reserve incorporates our determination of the impact of risks associated with the general economic environment on the portfolio. During the 2009 fourth quarter, Management performed a review of our ACL practices. The review included an analysis of the adequacy of the ACL in light of current economic conditions, as well as expected future performance. Based on the results of the review, Huntington made the following enhancements:

•  Current market conditions, such as higher vacancy rates and lower rents, have driven commercial real estate values lower and caused loss given default (LGD) experience to rise significantly over the past year. Management believes that factors driving the higher losses will continue to be evident for at least the next 18 to 24 months, making it necessary to develop cyclical LGD factors that are collateral specific and based in part on market projections.

•  Probability of Default (PD) factors have recently migrated higher for commercial and commercial real estate loans. Based on this change in market conditions, Management has increased the loss emergence time frame to 24 months from 12 months.

•  Management has redefined the general reserve in broader terms to incorporate: (a) current and likely market conditions along with an assessment of the potential impact of those conditions,(b) uncertainty

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in the risk rating process, and (c) the impact of portfolio performance, portfolio composition, origination channels, and other factors.

•  PD factors were updated to include current delinquency status across all consumer portfolios.

Other Real Estate Owned — Other real estate owned (OREO) is comprised principally of commercial and residential real estate properties obtained in partial or total satisfaction of loan obligations. OREO also includes government insured loans in the process of foreclosure. OREO obtained in satisfaction of a loan is recorded at the estimated fair value less anticipated selling costs based upon the property’s appraised value at the date of transfer, with any difference between the fair value of the property and the carrying value of the loan charged to the allowance for loan losses. Subsequent changes in value are reported as adjustments to the carrying amount, not to exceed the initial carrying value of the assets at the time of transfer. Changes in value subsequent to transfer are recorded in non-interest expense. Gains or losses not previously recognized resulting from the sale of OREO are recognized in non-interest expense on the date of sale.

Resell and Repurchase Agreements — Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally treated as collateralized financing transactions and are recorded at the amounts at which the securities were acquired or sold plus accrued interest. The fair value of collateral either received from or provided to a third party is continually monitored and additional collateral is obtained or is requested to be returned to Huntington as in accordance with the agreement.

Goodwill and Other Intangible Assets — Under the acquisition method of accounting, the net assets of entities acquired by Huntington are recorded at their estimated fair value at the date of acquisition. The excess cost of the acquisition over the fair value of net assets acquired is recorded as goodwill. Other intangible assets are amortized either on an accelerated or straight-line basis over their estimated useful lives. Goodwill is evaluated for impairment on an annual basis at October 1st of each year or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Mortgage Banking Activities — Huntington recognizes the rights to service mortgage loans as separate assets, which are included in other assets in the consolidated balance sheets, only when purchased or when servicing is contractually separated from the underlying mortgage loans by sale or securitization of the loans with servicing rights retained. Servicing rights are initially recorded at fair value. All mortgage loan servicing rights (MSRs) are subsequently carried at either fair value or amortized cost, and are included in other assets.

To determine the fair value of MSRs, Huntington uses a option adjusted spread cash flow analysis incorporating market implied forward interest rates to estimate the future direction of mortgage and market interest rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. The current and projected mortgage interest rate influences the prepayment rate; and therefore, the timing and magnitude of the cash flows associated with the MSR. Expected mortgage loan prepayment assumptions are derived from a third party model. Management believes these prepayment assumptions are consistent with assumptions used by other market participants valuing similar MSRs.

Huntington hedges the value of MSRs using derivative instruments and trading account securities. Changes in fair value of these derivatives and trading account securities are reported as a component of mortgage banking income.

Premises and Equipment — Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight-line method over the estimated useful lives of the related assets. Buildings and building improvements are depreciated over an average of 30 to 40 years and 10 to 20 years, respectively. Land improvements and furniture and fixtures are depreciated over 10 years, while equipment is depreciated over a range of three to seven years. Leasehold improvements are amortized over the lesser of the asset’s useful life or the term of the related leases, including any renewal periods for which renewal is reasonably assured. Maintenance and repairs are charged to expense as incurred, while improvements that extend the useful life of an asset are capitalized and depreciated over the remaining useful

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life. Premises and equipment is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Bank Owned Life Insurance — Huntington’s bank owned life insurance policies are carried at their cash surrender value. Huntington recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from death benefits. A portion of cash surrender value is supported by holdings in separate accounts. Huntington has also purchased insurance for these policies to provide protection of the value of the holdings within these separate accounts. The cash surrender value of the policies exceeds the value of the underlying holdings in the separate accounts covered by these insurance policies by approximately $9.1 million at December 31, 2009.

Derivative Financial Instruments — A variety of derivative financial instruments, principally interest rate swaps, are used in asset and liability management activities to protect against the risk of adverse price or interest rate movements. These instruments provide flexibility in adjusting Huntington’s sensitivity to changes in interest rates without exposure to loss of principal and higher funding requirements.

Derivative financial instruments are recorded in the consolidated balance sheet as either an asset or a liability (in other assets or other liabilities, respectively) and measured at fair value, with changes to fair value recorded through earnings unless specific criteria are met to account for the derivative using hedge accounting.

Huntington also uses derivatives, principally loan sale commitments, in hedging its mortgage loan interest rate lock commitments and its mortgage loans held for sale. Mortgage loan sale commitments and the related interest rate lock commitments are carried at fair value on the consolidated balance sheet with changes in fair value reflected in mortgage banking revenue. Huntington also uses certain derivative financial instruments to offset changes in value of its residential mortgage loan servicing assets. These derivatives consist primarily of forward interest rate agreements, and forward mortgage securities. The derivative instruments used are not designated as hedges. Accordingly, such derivatives are recorded at fair value with changes in fair value reflected in mortgage banking income.

For those derivatives to which hedge accounting is applied, Huntington formally documents the hedging relationship and the risk management objective and strategy for undertaking the hedge. This documentation identifies the hedging instrument, the hedged item or transaction, the nature of the risk being hedged, and, unless the hedge meets all of the criteria to assume there is no ineffectiveness, the method that will be used to assess the effectiveness of the hedging instrument and how ineffectiveness will be measured. The methods utilized to assess retrospective hedge effectiveness, as well as the frequency of testing, vary based on the type of item being hedged and the designated hedge period. For specifically designated fair value hedges of certain fixed-rate debt, Huntington utilizes the short-cut method when certain criteria are met. For other fair value hedges of fixed-rate debt, including certificates of deposit, Huntington utilizes the regression method to evaluate hedge effectiveness on a quarterly basis. For fair value hedges of portfolio loans, the regression method is used to evaluate effectiveness on a daily basis. For cash flow hedges, the regression method is applied on a quarterly basis. For hedging relationships that are designated as fair value hedges, changes in the fair value of the derivative are, to the extent that the hedging relationship is effective, recorded through earnings and offset against changes in the fair value of the hedged item. For cash flow hedges, changes in the fair value of the derivative are, to the extent that the hedging relationship is effective, recorded as other comprehensive income and subsequently recognized in earnings at the same time that the hedged item is recognized in earnings. Any portion of a hedge that is ineffective is recognized immediately as other noninterest income. When a cash flow hedge is discontinued because the originally forecasted transaction is not probable of occurring, any net gain or loss in other comprehensive income is recognized immediately as other noninterest income.

Like other financial instruments, derivatives contain an element of credit risk, which is the possibility that Huntington will incur a loss because a counterparty fails to meet its contractual obligations. Notional values of interest rate swaps and other off-balance sheet financial instruments significantly exceed the credit risk associated with these instruments and represent contractual balances on which calculations of amounts to be exchanged are based. Credit exposure is limited to the sum of the aggregate fair value of positions that have become favorable to Huntington, including any accrued interest receivable due from counterparties. Potential

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credit losses are mitigated through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of high quality institutions, collateral agreements, and other contract provisions. Huntington considers the value of collateral held and collateral provided in determining the net carrying value of it derivatives.

Advertising Costs — Advertising costs are expensed as incurred and recorded as a marketing expense, a component of noninterest expense.

Income Taxes — Income taxes are accounted for under the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future book and tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are determined using enacted tax rates expected to apply in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income at the time of enactment of such change in tax rates. Any interest or penalties due for payment of income taxes are included in the provision for income taxes. To the extent that Huntington does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is recorded. All positive and negative evidence is reviewed when determining how much of a valuation allowance is recognized on a quarterly basis. In determining the requirements for a valuation allowance, sources of possible taxable income are evaluated including future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in appropriate carryback years, and tax-planning strategies. Huntington applies a more likely than not recognition threshold for all tax uncertainties. Huntington reviews its tax positions quarterly.

Treasury Stock — Acquisitions of treasury stock are recorded at cost. The reissuance of shares in treasury is recorded at weighted-average cost.

Share-Based Compensation  — Huntington uses the fair value recognition concept relating to its share-based compensation plans. Compensation expense is recognized based on the fair value of unvested stock options and awards over the requisite service period.

Segment Results — Accounting policies for the lines of business are the same as those used in the preparation of the consolidated financial statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs and benefits, expenses, and other financial elements to each line of business. Changes are made in these methodologies utilized for certain balance sheet and income statement allocations performed by Huntington’s management reporting system, as appropriate.

Statement of Cash Flows — Cash and cash equivalents are defined as “Cash and due from banks” which includes amounts on deposit with the Federal Reserve and “Federal funds sold and securities purchased under resale agreements.”

Fair Value Measurements — The Company records certain of its assets and liabilities at fair value. 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. Fair value measurements are classified within one of three levels in a valuation hierarchy 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.

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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.

See Note 21 for more information regarding fair value measurements.

2.   SUBSEQUENT EVENTS

In preparing these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users, or filed with the Securities and Exchange Commission. 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.

3.   ACCOUNTING STANDARDS UPDATE

FASB Accounting Standards Codification (ASC) Topic 105 — Generally Accepted Accounting Principles (Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162) (ASC 105). This accounting guidance was originally issued in June 2009 and is now included in ASC 105. The guidance identifies the FASB Accounting Standards Codification (Codification) as the single source of authoritative U.S. Generally Accepted Accounting Principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. The Codification reorganizes all previous GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure. All existing standards that were used to create the Codification have been superseded, replacing the previous references to specific Statements of Financial Accounting Standards (SFAS) with numbers used in the Codification’s structural organization. The guidance is effective for interim and annual periods ending after September 15, 2009. After September 15, only one level of authoritative GAAP exists, other than guidance issued by the Securities and Exchange Commission (SEC). All other accounting literature excluded from the Codification is considered non-authoritative. The adoption of the Codification does not have a material impact on the Company’s consolidated financial statements.

ASC Topic 810 — Consolidation (Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51) (ASC 810). This accounting guidance was originally issued in December 2007 and is now included in ASC 810. The guidance requires that noncontrolling interests in subsidiaries be initially measured at fair value and classified as a separate component of equity. The guidance is effective for fiscal years beginning on or after December 15, 2008. The adoption of this guidance did not have a material impact on Huntington’s consolidated financial statements.

ASC Topic 805 — Business Combinations (Statement No. 141 (Revised 2008), Business Combinations) (ASC 805). This accounting guidance was originally issued in December 2007 and is now included in ASC 805. The guidance requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. The guidance requires prospective application for business combinations consummated in fiscal years beginning on or after December 15, 2008. The Franklin restructuring transaction described in Note 5 and the Warren Bank transaction described in Note 4 was accounted for under this guidance.

ASC Topic 944 — Financial Services — Insurance (Statement No. 163, Accounting for Financial Guarantee Insurance Contracts — an interpretation of FASB Statement No. 60) (ASC 944). This accounting guidance was originally issued in May 2008 and is now included in ASC 944. This guidance requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. The guidance also clarifies the recognition and measurement criteria to be used to account for premium revenue and claim liabilities in financial guarantee insurance contracts. The guidance also requires expanded disclosures about financial guarantee insurance contracts. The guidance is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The adoption of this guidance did not have a material impact on the Huntington’s consolidated financial statements.

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ASC Topic 320 — Investments — Debt and Equity Securities (FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments) (ASC 320). This accounting guidance was originally issued in April 2009 and is now included in ASC 320. The guidance amends the previous other-than-temporary impairment (OTTI) guidance for debt securities and included additional presentation and disclosure requirements for both debt and equity securities. The guidance is effective for interim reporting periods ending after June 15, 2009. The adoption of this guidance requires an adjustment to retained earnings and other comprehensive income (OCI) in the period of adoption to reclassify non-credit related impairment to OCI for securities that the Company does not intend to sell (and will not more likely than not be required to sell). The adoption resulted in the reclassification of $3.5 million (net of tax) from retained earnings to OCI. (See Consolidated Statements of Changes in Shareholders’ Equity and Note 15).

ASC Topic 820 — Fair Value Measurements and Disclosures (Staff Position (FSP) FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly) (ASC 820). This accounting guidance was originally issued in April 2009 and is now included in ASC 820. The guidance reaffirms the exit price fair value measurement concept and also provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. The guidance was effective for interim reporting periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on the Huntington’s consolidated financial statements.

ASC Topic 825 — Financial Instruments (FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments) (ASC 825). This accounting guidance was originally issued in April 2009 and is now included in ASC 825. The guidance requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance was adopted for interim reporting periods ending after June 15, 2009 (See Note 21).

ASC Topic 855 — Subsequent Events (Statement No. 165, Subsequent Events) (ASC 855). This accounting guidance was originally issued in May 2009 and is now included in ASC 855. The guidance establishes general standards of accounting for and disclosure of subsequent events. Subsequent events are events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance is effective for interim or annual periods ending after June 15, 2009. The adoption of this guidance was not material to Huntington’s consolidated financial statements.

ASC Topic 810 — Consolidation (Statement No. 167, Amendments to FASB Interpretation No. 46R) (ASC 810) This accounting guidance was originally issued in June 2009 and is now included in ASC 810. The guidance amends the consolidation guidance applicable for variable interest entities (VIE). The guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2009, and early adoption is prohibited. Huntington previously transferred automobile loans and leases to a trust in a securitization transaction. With adoption of the amended guidance, the trust will be consolidated as of January 1, 2010. Total net assets are anticipated to increase by approximately $600 million. Based upon the current regulatory requirements, Huntington anticipates the impact of adopting will result in a slight decrease to risk weighted capital ratios.

ASC Topic 860 — Transfers and Servicing (Statement No. 166, Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140) (ASC 860). This accounting guidance was originally issued in June 2009 and is now included in ASC 860. The guidance removes the concept of a qualifying special purpose entity and changes the requirements for derecognizing financial assets. Many types of transferred financial assets that would have been derecognized previously are no longer eligible for derecognition. The guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2009, and early adoption is prohibited. The guidance applies prospectively to transfers of financial assets occurring on or after the effective date. The guidance will impact structuring of securitizations and other transfers of financial assets in order to meet the amended sale treatment criteria.

ASC Topic 715 — Compensation — Retirement Benefits (FSP FAS 132R-1, Employers’ Disclosures about Postretirement Benefit Plan Assets) (ASC 715). This accounting guidance was originally issued in December 2008 and is now included in ASC 715. The guidance requires additional disclosures about plan

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assets in an employer’s defined benefit pension and other postretirement plans. The required disclosures have been included in Note 20.

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. (See Note 21).

4.   ACQUISITIONS

On October 2, 2009, Huntington assumed the deposits and certain assets of Warren Bank located in Macomb County, Michigan from the Federal Deposit Insurance Corporation (FDIC). Under the agreement, approximately $410.0 million of deposits and $66.2 million of other assets (primarily cash and due from banks and investment securities) were transferred to Huntington for consideration including a premium for the deposits of $0.9 million. The FDIC transferred cash to Huntington for the difference between the assets purchased and the liabilities assumed net of the premium. Goodwill of $0.6 million was established related to this transaction.

5.   LOANS AND LEASES

At December 31, 2009, $8.5 billion of commercial and industrial loans and home equity loans were pledged to secure potential discount window borrowings from the Federal Reserve Bank, and $8.0 billion of real estate loans were pledged to secure advances from the Federal Home Loan Bank.

Huntington’s loan and lease portfolio includes lease financing receivables consisting of direct financing leases on equipment, which are included in commercial and industrial loans, and on automobiles. Net investments in lease financing receivables by category at December 31 were as follows:

	At December 31,
	2009			2008
(In thousands)
Commercial and industrial
Lease payments receivable	$	934,470		$	1,119,487
Estimated residual value of leased assets		54,635			56,705
Gross investment in commercial lease financing receivables		989,105			1,176,192
Net deferred origination costs		3,207			3,946
Unearned income		(109,090	)		(151,296	)
Total net investment in commercial lease financing receivables	$	883,222		$	1,028,842
Consumer
Lease payments receivable	$	91,099		$	246,919
Estimated residual value of leased assets		171,610			362,512
Gross investment in consumer lease financing receivables		262,709			609,431
Net deferred origination fees		(384	)		(840	)
Unearned income		(16,060	)		(45,174	)
Total net investment in consumer lease financing receivables	$	246,265		$	563,417

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The future lease rental payments due from customers on direct financing leases at December 31, 2009, totaled $1.0 billion and were as follows: $0.4 billion in 2010; $0.3 billion in 2011; $0.2 billion in 2012; $0.1 billion in 2013; and less than $0.1 billion in 2014 and thereafter.

Other than the credit risk concentrations described below, there were no other economic, industry, or geographic concentrations of credit risk greater than 10% of total loans in the loan and lease portfolio at December 31, 2009.

Franklin Credit Management relationship

Franklin Credit Management Corporation (Franklin) is a specialty consumer finance company primarily engaged in servicing residential mortgage loans. At December 31, 2008, Huntington’s total loans outstanding to Franklin were $650.2 million, all of which were on nonaccrual status. Additionally, the specific ALLL for the Franklin portfolio was $130.0 million, resulting in a net exposure to Franklin at December 31, 2008 of $520.2 million. The collateral to Huntington’s loans was a Franklin owned portfolio of loans secured by first and second liens on 1-4 family residential properties.

On March 31, 2009, Huntington entered into a transaction with Franklin whereby a Huntington wholly-owned REIT subsidiary (REIT) exchanged a non controlling amount of certain equity interests for a 100% interest in Franklin Asset Merger Sub, LLC (Merger Sub), a wholly owned subsidiary of Franklin. This was accomplished by merging Merger Sub into a wholly-owned subsidiary of REIT. Merger Sub’s sole assets were two trust participation certificates evidencing 83% ownership rights in a newly created trust, Franklin Mortgage Asset Trust 2009-A (Franklin 2009 Trust) which holds all the underlying consumer loans and OREO that were formerly collateral for the Franklin commercial loans. The equity interests provided to Franklin by REIT were pledged by Franklin as collateral for the Franklin commercial loans.

Franklin 2009 Trust is a variable interest entity and, as a result of Huntington’s 83% participation certificates, Franklin 2009 Trust was consolidated into Huntington’s financial results. The consolidation was recorded as a business combination with the fair value of the equity interests issued to Franklin representing the acquisition price.

ASC 310 (formerly SOP 03-3) provides guidance for accounting for acquired loans, such as these, that have experienced a deterioration of credit quality at the time of acquisition for which it is probable that the investor will be unable to collect all contractually required payments.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized in interest income over the remaining life of the loan, or pool of loans, in situations where there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The difference between the contractually required payments at acquisition and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable discount. Subsequent decreases to the expected cash flows will generally result in an increase to the allowance for loan and lease losses. Subsequent increases in cash flows result in reversal of any nonaccretable discount (or allowance for loan and lease losses to the extent any has been recorded) with a positive impact on interest income. The measurement of undiscounted cash flows involves assumptions and judgments for credit risk, interest rate risk, prepayment risk, default rates, loss severity, payment speeds, and collateral values. All of these factors are inherently subjective and significant changes in the cash flow estimates over the life of the loan can result.

At December 31, 2009, there were no additional credit losses recorded on the portfolio and no adjustment to the accretable yield or nonaccretable yield was required.

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The following table reflects the contractually required payments receivable, cash flows expected to be collected, and fair value of the loans at the acquisition date on March 31, 2009:

	Loans			OREO			Total
(In thousands)
Contractually required payments including interest	$	1,612,695		$	113,732		$	1,726,427
Less: nonaccretable difference		(1,079,362	)		(34,136	)		(1,113,498	)
Cash flows expected to be collected		533,333			79,596			612,929
Less: accretable yield		(39,781	)		—			(39,781	)
Fair value of loans acquired	$	493,552		$	79,596		$	573,148

The fair values of the acquired mortgage loans and OREO assets were based upon a market participant model. Under this market participant model, expected cash flows for first-lien mortgages were calculated based upon the net expected foreclosure proceeds of the collateral underlying each mortgage loan. Appraisals or other indicators of value provided the basis for estimating cash flows. Sales proceeds from the underlying collateral were estimated to be received over a one to three year period, depending on the delinquency status of the loan. Expected proceeds were reduced assuming housing price depreciation of 18%, 12%, and 0% over each year of the next three years of expected collections, respectively. Principal and interest cash flows were estimated to be received for a limited time for non delinquent loans. Limited value was assigned to all second-lien mortgages because, after considering the house price depreciation rates above, little if any proceeds would be realized. The resulting cash flows were discounted at an 18% rate of return.

The following table presents a rollforward of the accretable yield from the beginning of the period to the end of the period:

	Accretable
	Yield
(In thousands)
Balance at December 31, 2008	$	—
Impact of Franklin transaction on March 31, 2009		39,781
Additions		—
Accretion		(4,495	)
Reclassification from (to) nonaccretable difference		—
Balance at December 31, 2009	$	35,286

The following table reflects the outstanding balance of all contractually required payments and carrying amounts of the acquired loans at December 31, 2009:

	Carrying		Outstanding
	Value		Balance
(In thousands)
Residential mortgage	$	373,117	$	680,068
Home equity		70,737		810,139
Total	$	443,854	$	1,490,207

At December 31, 2009, $129.2 million of the loans accrue interest while $314.7 million were on nonaccrual. Management has concluded that it cannot reliably estimate the timing of collection of cash flows for delinquent first and second lien mortgages, because the majority of the expected cash flows for the delinquent portfolio will result from the foreclosure and subsequent disposition of the underlying collateral supporting the loans.

The consolidation of Franklin 2009 Trust at March 31, 2009 resulted in the recording of a $95.8 million liability, representing the 17% of Franklin 2009 Trust certificates not acquired by Huntington. At December 31, 2009, the balance of the liability was $79.9 million. These certificates were retained by Franklin.

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In accordance with ASC 805, at March 31, 2009 Huntington has recorded a net deferred tax asset of $159.9 million related to the difference between the tax basis and the book basis in the acquired assets. Because the acquisition price, represented by the equity interests in the Huntington wholly-owned subsidiary, was equal to the fair value of the 83% interest in the Franklin 2009 Trust participant certificate, no goodwill was created from the transaction. The recording of the net deferred tax asset resulted in a bargain purchase under ASC 805, and, therefore, was recorded as tax benefit in the 2009 first quarter.

Single Family Home Builders

At December 31, 2009, Huntington had $857.4 million of loans to single family homebuilders, including loans made to both middle market and small business homebuilders. Such loans represented 2% of total loans and leases. Of this portfolio, 67% were to finance projects currently under construction, 15% to finance land under development, and 18% to finance land held for development. The decline from December 31, 2008 was primarily the result of a reclassification of loans from commercial real estate to commercial and industrial. Other factors contributing to the decrease in exposure include no new originations in this portfolio segment in 2009, increased property sale activity, and substantial charge-offs.

The housing market across Huntington’s geographic footprint remained stressed, reflecting relatively lower sales activity, declining prices, and excess inventories of houses to be sold, particularly impacting borrowers in our eastern Michigan and northern Ohio regions. Further, a portion of the loans extended to borrowers located within Huntington’s geographic regions was to finance projects outside of our geographic regions.

Retail properties

Huntington’s portfolio of commercial real estate loans secured by retail properties totaled $2.1 billion, or approximately 6% of total loans and leases, at December 31, 2009. Loans to this borrower segment decreased by $0.2 billion from $2.3 billion at December 31, 2008. Credit approval in this loan segment is generally dependant on pre-leasing requirements, and net operating income from the project must cover interest expense when the loan is fully funded.

The weakness of the economic environment in the Company’s geographic regions significantly impacted the projects that secure the loans in this portfolio segment. Increased unemployment levels compared with recent years, and the expectation that these levels will continue to increase for the foreseeable future, are expected to adversely affect our borrowers’ ability to repay these loans.

Home Equity and Residential Mortgage Loans (excluding loans in Franklin 2009 Trust)

There is a potential for loan products to contain contractual terms that give rise to a concentration of credit risk that may increase a lending institution’s exposure to risk of nonpayment or realization. Examples of these contractual terms include loans that permit negative amortization, a loan-to-value of greater than 100%, and option adjustable-rate mortgages.

Huntington does not originate mortgage loan products that contain these terms. Recent declines in housing prices have likely eliminated a portion of the collateral for the home equity portfolio, such that some loans originally underwritten at an LTV of less than 100% are currently at higher than 100%. Home equity loans totaled $7.6 billion at both December 31, 2009 and 2008, or 21% and 18% of total loans at the end of each respective period. At December 31, 2009, 84% of the home equity loans had a loan to value ratio at origination of less than 90%.

As part of the Company’s loss mitigation process, Huntington increased its efforts in 2008 and 2009 to re-underwrite, modify, or restructure loans when borrowers are experiencing payment difficulties, and these loan restructurings are based on the borrower’s ability to repay the loan.

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Related Party Transactions

Huntington has made loans to its officers, directors, and their associates. These loans were made in the ordinary course of business under normal credit terms, including interest rate and collateralization, and do not represent more than the normal risk of collection. These loans to related parties for the year ended December 31 are summarized as follows:

	2009			2008
(In thousands)
Balance, beginning of year	$	90,787		$	96,393
Loans made		28,608			121,417
Repayments		(45,831	)		(127,023	)
Balance, end of year	$	73,564		$	90,787

6.   INVESTMENT SECURITIES

The following tables provide amortized cost, fair value, and gross unrealized gains and losses recognized in accumulated other comprehensive income by investment category at December 31, 2009 and 2008.

			Unrealized
	Amortized		Gross		Gross			Fair
	Cost		Gains		Losses			Value
(In thousands)
December 31, 2009
U.S. Treasury	$	99,735	$	—	$	(581	)	$	99,154
Federal Agencies
Mortgage-backed securities		3,444,436		44,835		(9,163	)		3,480,108
TLGP securities		258,672		2,037		(321	)		260,388
Other agencies		2,724,815		6,346		(4,158	)		2,727,003
Total U.S. Government backed securities		6,527,658		53,218		(14,223	)		6,566,653
Municipal securities		118,447		6,424		(86	)		124,785
Private label CMO		534,377		99		(57,157	)		477,319
Asset backed securities(1)		1,128,474		7,709		(155,867	)		980,316
Other securities		439,132		296		(587	)		438,841
Total investment securities	$	8,748,088	$	67,746	$	(227,920	)	$	8,587,914

(1) Amounts at December 31, 2009 include securities backed by automobile loans with a fair value of $309.4 million which meet the eligibility requirements for the Term Asset-Backed Securities Loan Facility, or “TALF,” administered by the Federal Reserve Bank of New York, and securities with a fair value of $161.0 million backed by student loans with a minimum 97% government guarantee.

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			Unrealized
	Amortized		Gross		Gross			Fair
	Cost		Gains		Losses			Value
(In thousands)
December 31, 2008
U.S. Treasury	$	11,141	$	16	$	—		$	11,157
Federal Agencies
Mortgage-backed securities		1,625,656		18,822		(16,897	)		1,627,581
TLGP securities		—		—		—			—
Other agencies		587,500		16,748		(8	)		604,240
Total U.S. Government backed securities		2,224,297		35,586		(16,905	)		2,242,978
Municipal securities		710,148		13,897		(13,699	)		710,346
Private label CMO		674,506		—		(150,991	)		523,515
Asset backed securities		652,881		—		(188,854	)		464,027
Other securities		443,991		114		(514	)		443,591
Total investment securities	$	4,705,823	$	49,597	$	(370,963	)	$	4,384,457

The following tables provide detail on investment securities with unrealized losses aggregated by investment category and length of time the individual securities have been in a continuous loss position, at December 31, 2009 and 2008.

	Less than 12 Months					Over 12 Months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
(In thousands)
December 31, 2009
U.S. Treasury	$	99,154	$	(581	)	$	—	$	—		$	99,154	$	(581	)
Federal Agencies
Mortgage-backed securities		1,324,960		(9,163	)		—		—			1,324,960		(9,163	)
TLGP securities		49,675		(321	)		—		—			49,675		(321	)
Other agencies		1,443,309		(4,081	)		6,475		(77	)		1,449,784		(4,158	)
Total U.S. Government backed securities		2,917,098		(14,146	)		6,475		(77	)		2,923,573		(14,223	)
Municipal securities		3,993		(7	)		3,741		(79	)		7,734		(86	)
Private label CMO		15,280		(3,831	)		452,439		(53,326	)		467,719		(57,157	)
Asset backed securities		236,451		(8,822	)		207,581		(147,045	)		444,032		(155,867	)
Other securities		39,413		(372	)		410		(215	)		39,823		(587	)
Total temporarily impaired securities	$	3,212,235	$	(27,178	)	$	670,646	$	(200,742	)	$	3,882,881	$	(227,920	)

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	Less than 12 Months					Over 12 Months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
(In thousands )
December 31, 2008
U.S. Treasury	$	—	$	—		$	—	$	—		$	—	$	—
Federal Agencies
Mortgage-backed securities		417,988		(16,897	)		—		—			417,988		(16,897	)
TLGP securities		—		—			—		—			—		—
Other agencies		—		—			2,028		(8	)		2,028		(8	)
Total U.S. Government backed securities		417,988		(16,897	)		2,028		(8	)		420,016		(16,905	)
Municipal securities		276,990		(6,951	)		40,913		(6,748	)		317,903		(13,699	)
Private label CMO		449,494		(130,914	)		57,024		(20,077	)		506,518		(150,991	)
Asset backed securities		61,304		(24,220	)		164,074		(164,634	)		225,378		(188,854	)
Other securities		1,132		(323	)		1,149		(191	)		2,281		(514	)
Total temporarily impaired securities	$	1,206,908	$	(179,305	)	$	265,188	$	(191,658	)	$	1,472,096	$	(370,963	)

Other securities at December 31, 2009 and 2008 include $240.6 million of stock issued by the Federal Home Loan Bank of Cincinnati, $45.7 million of stock issued by the Federal Home Loan Bank of Indianapolis, and $90.4 million and $141.7 million, respectively, of Federal Reserve Bank stock. Other securities also include corporate debt and marketable equity securities. At December 31, 2009 and 2008, Huntington did not have any material equity positions in Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac).

During the first quarter of 2010, Federal Home Loan Bank of Cincinnati redeemed $75.0 million of stock held by Huntington.

Contractual maturities of investment securities as of December 31 were:

	2009				2008
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
(In thousands)
Under 1 year	$	162,238	$	164,768	$	11,690	$	11,709
1 — 5 years		3,278,176		3,279,359		637,982		656,659
6 — 10 years		1,013,065		1,019,152		225,186		231,226
Over 10 years		3,863,487		3,694,008		3,394,931		3,049,334
Non-marketable equity securities		376,640		376,640		427,973		427,973
Marketable equity securities		54,482		53,987		8,061		7,556
Total investment securities	$	8,748,088	$	8,587,914	$	4,705,823	$	4,384,457

Non-marketable equity securities are valued at amortized cost.

At December 31, 2009, the carrying value of investment securities pledged to secure public and trust deposits, trading account liabilities, U.S. Treasury demand notes, and security repurchase agreements totaled $2.8 billion. There were no securities of a single issuer, which are not governmental or government-sponsored, that exceeded 10% of shareholders’ equity at December 31, 2009.

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The following table is a summary of securities gains and losses for the years ended December 31, 2009, 2008 and 2007:

	2009			2008			2007
(In thousands)
Gross gains on sales of securities	$	59,762		$	9,364			15,216
Gross (losses) on sales of securities		(10,947	)		(10	)		(1,680	)
Net gain (loss) on sales of securities		48,815			9,354			13,536
Net other-than-temporary impairment recorded		(59,064	)		(206,724	)		(43,274	)
Total securities gain (loss)	$	(10,249	)	$	(197,370	)		(29,738	)

Huntington applied the related OTTI guidance as further described in Note 1 on the debt security types listed below.

Alt-A mortgage-backed and private-label collateralized mortgage obligation (CMO) securities represent securities collateralized by first-lien residential mortgage loans. The securities are valued by a third party specialist using a discounted cash flow approach and proprietary pricing model. The model used inputs such as estimated prepayment speeds, losses, recoveries, default rates that were implied by the underlying performance of collateral in the structure or similar structures, discount rates that were implied by market prices for similar securities, collateral structure types, and house price depreciation/appreciation rates that were based upon macroeconomic forecasts.

Pooled-trust-preferred securities represent collateralized debt obligations (CDOs) backed by a pool of debt securities issued by financial institutions. The collateral generally consisted of trust-preferred securities and subordinated debt securities issued by banks, bank holding companies, and insurance companies. A full cash flow analysis was used to estimate fair values and assess impairment for each security within this portfolio. We engaged a third party specialist with direct industry experience in pooled trust preferred securities valuations to provide assistance in estimating the fair value and expected cash flows for each security in this portfolio.

Relying on cash flows was necessary because there was a lack of observable transactions in the market and many of the original sponsors or dealers for these securities were no longer able to provide a fair value that was compliant with ASC 820.

For the period ended December 31, 2009, the following tables summarizes by debt security type, total OTTI losses, OTTI losses included in OCI, and OTTI recognized in the income statement for securities evaluated for impairment as described above

	Alt-A			Pooled			Private
	Mortgage-Backed			Trust-Preferred			Label CMO			Total
(In thousands)
Total OTTI losses (unrealized and realized)	$	(16,906	)	$	(131,902	)	$	(30,727	)	$	(179,535	)
Unrealized OTTI recognized in OCI		6,186			93,491			24,731			124,408
Net impairment losses recognized in earnings	$	(10,720	)	$	(38,411	)	$	(5,996	)	$	(55,127	)

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The following table rolls forward the unrealized OTTI recognized in OCI on debt securities held by Huntington for the year ended December 31, 2009 as follows:

	Alt-A		Pooled			Private
	Mortgage-Backed		Trust-Preferred			Label CMO			Total
(In thousands)
Balance, beginning of year	$	—	$	—		$	—		$	—
Credit losses not previous recognized		6,186		94,522			28,184			128,892
Change in expected cash flows		—		(7,748	)		(3,453	)		(11,201	)
Additional credit losses		—		6,717			—			6,717
Balance, end of year	$	6,186	$	93,491		$	24,731		$	124,408

The fair values of these assets have been impacted by various market conditions. The unrealized losses were primarily the result of wider liquidity spreads on asset-backed securities and, additionally, increased market volatility on non-agency mortgage and asset-backed securities that are backed by certain mortgage loans. In addition, the expected average lives of the asset-backed securities backed by trust preferred securities have been extended, due to changes in the expectations of when the underlying securities would be repaid. The contractual terms and/or cash flows of the investments do not permit the issuer to settle the securities at a price less than the amortized cost. Huntington does not intend to sell, nor does it believe it will be required to sell these securities until the fair value is recovered, which may be maturity and, therefore, does not consider them to be other-than-temporarily impaired at December 31, 2009.

The following table displays the cumulative credit component of OTTI recognized in earnings on debt securities held by Huntington for the year ended December 31, 2009 is as follows:

	2009
(In thousands)
Balance, beginning of year	$	—
Credit component of OTTI not reclassified to OCI in conjunction with the cumulative effect transition adjustment		24
Additions for the credit component on debt securities in which OTTI was not previously recognized		55,127
Balance, end of year	$	55,151

As of December 31, 2009, management has evaluated all other investment securities with unrealized losses and all non-marketable securities for impairment and concluded no additional other-than-temporary impairment is required.

7.   LOAN SALES AND SECURITIZATIONS

Residential Mortgage Loans

For the years ended December 31, 2009, 2008, and 2007, Huntington sold $4.3 billion, $2.8 billion and $1.9 billion of residential mortgage loans with servicing retained, resulting in net pre-tax gains of $87.2 million, $27.8 million and $23.9 million, respectively, recorded in other non-interest income.

A MSR is established only when the servicing is contractually separated from the underlying mortgage loans by sale or securitization of the loans with servicing rights retained.

At initial recognition, the MSR asset is established at its fair value using assumptions that are consistent with assumptions used to estimate the fair value of existing MSRs carried at fair value in the portfolio. At the time of initial capitalization, MSRs are grouped into one of two categories depending on whether Huntington intends to actively hedge the asset. MSR assets are recorded using the fair value method if the Company will engage in actively hedging the asset or recorded using the amortization method if no active hedging will be performed. MSRs are included in accrued income and other assets in the Company’s consolidated balance

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sheet. Any increase or decrease in the fair value or amortized cost of MSRs carried under the fair value method during the period is recorded as an increase or decrease in mortgage banking income, which is reflected in non-interest income in the consolidated statements of income.

The following tables summarize the changes in MSRs recorded using either the fair value method or the amortization method for the years ended December 31, 2009 and 2008:

Fair Value Method	2009			2008
(In thousands)
Fair value, beginning of year	$	167,438		$	207,894
New servicing assets created		23,074			38,846
Change in fair value during the period due to:
Time decay(1)		(6,798	)		(7,842	)
Payoffs(2)		(38,486	)		(18,792	)
Changes in valuation inputs or assumptions(3)		34,305			(52,668	)
Other changes		(3,106	)		—
Fair value, end of year	$	176,427		$	167,438

(1)	Represents decrease in value due to passage of time, including the impact from both regularly scheduled loan principal payments and partial loan paydowns.
(2)	Represents decrease in value associated with loans that paid off during the period.
(3)	Represents change in value resulting primarily from market-driven changes in interest rates.

Amortization Method	2009			2008
(In thousands)
Carrying value, beginning of year	$	—		$	—
New servicing assets created		40,452			—
Amortization and other		(2,287	)		—
Carrying value, end of year	$	38,165		$	—
Fair value, end of year	$	43,769		$	—

MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs occur, the precise terms and conditions are typically not readily available. Therefore, the fair value of MSRs is estimated using a discounted future cash flow model. The model considers portfolio characteristics, contractually specified servicing fees and assumptions related to prepayments, delinquency rates, late charges, other ancillary revenues, costs to service, and other economic factors. Changes in the assumptions used may have a significant impact on the valuation of MSRs.

A summary of key assumptions and the sensitivity of the MSR value at December 31, 2009 to changes in these assumptions follows:

				Decline in Fair Value Due to
				10%			20%
				Adverse			Adverse
	Actual			Change			Change
(In thousands)
Constant pre-payment rate		10.26	%	$	(11,811	)	$	(21,133	)
Spread over forward interest rate swap rates		483	bps		(3,656	)		(7,312	)

MSR values are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly impacted by the level of prepayments. The Company hedges against changes in MSR fair value attributable to changes in interest rates through a combination of derivative instruments and trading securities.

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Total servicing fees included in mortgage banking income amounted to $48.5 million, $45.6 million, and $36.0 million in 2009, 2008, and 2007, respectively. The unpaid principal balance of residential mortgage loans serviced for third parties was $16.0 billion, $15.8 billion, and $15.1 billion at December 31, 2009, 2008, and 2007, respectively.

Automobile Loans and Leases

During the first quarter of 2009, Huntington transferred $1.0 billion automobile loans and leases to a trust in a securitization transaction. The securitization qualified for sale accounting under ASC 860. Huntington retained a portion of the related securities, with par values totaling $210.9 million and recorded a $47.1 million retained residual interest as a result of the transaction. Subsequent to the transaction, in the second quarter of 2009, Huntington sold a portion of these securities with par values totaling $78.4 million. These amounts were recorded as investment securities on Huntington’s consolidated balance sheet. Huntington also recorded a $5.9 million loss in other noninterest income on the consolidated statement of income and recorded a $19.5 million servicing asset in accrued income and other assets associated with this transaction.

Automobile loan servicing rights are accounted for under the amortization method. A servicing asset is established at fair value at the time of the sale using the following assumptions: actual servicing income of 0.55% — 1.00%, adequate compensation for servicing of 0.50% — 0.65%, other ancillary fees of approximately 0.37% — 0.50%, a discount rate of 2% — 10% and an estimated return on payments prior to remittance to investors. The servicing asset is then amortized against servicing income. Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows. The primary risk characteristic for measuring servicing assets is payoff rates of the underlying loan pools. Valuation calculations rely on the predicted payoff assumption and, if actual payoff is quicker than expected, then future value would be impaired.

Changes in the carrying value of automobile loan servicing rights for the years ended December 31, 2009 and 2008, and the fair value at the end of each period were as follows:

	2009			2008
(In thousands)
Carrying value, beginning of year	$	1,656		$	4,099
New servicing assets created		19,538			—
Amortization and other		(8,282	)		(2,443	)
Carrying value, end of year	$	12,912		$	1,656
Fair value, end of year	$	14,985		$	1,926

Huntington has retained servicing responsibilities on sold automobile loans and receives annual servicing fees and other ancillary fees on the outstanding loan balances. Servicing income, net of amortization of capitalized servicing assets, amounted to $6.4 million, $6.8 million and $11.9 million for the years ended December 31, 2009, 2008 and 2007, respectively. The unpaid principal balance of automobile loans serviced for third parties was $1.1 billion, $0.5 billion , and $1.0 billion at December 31, 2009, 2008 and 2007, respectively.

At December 31, 2009, retained interests in automobile securitizations totaled $45.9 million. Quoted market prices are generally not available for retained interests in automobile securitizations. At December 31,

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2009, the key economic assumptions used to measure the fair value of retained interests and the sensitivity of such fair value to immediate 10% and 20% adverse changes in those assumptions were as follows:

				Decline in Fair Value Due to
				10%			20%
				Adverse			Adverse
	Actual			Change			Change
(In thousands)
Monthly prepayment rate (ABS curve)		1.3		$	(361	)	$	(642	)
Expected cumulative credit losses		3.0	%		(2,919	)		(5,756	)
Discount rate		11.0			(1,697	)		(3,325	)
Certain cash flows received from the securitization trusts during 2009 were:
Servicing fees received	$	6,838
Other cash flows on retained interest		6,934

8.   ALLOWANCES FOR CREDIT LOSSES (ACL)

The Company maintains two reserves, both of which are available to absorb possible credit losses: an allowance for loan and lease losses (ALLL) and an allowance for unfunded loan commitments and letters of credit (AULC). When summed together, these reserves constitute the total allowances for credit losses (ACL). A summary of the transactions in the allowances for credit losses and details regarding impaired loans and leases follows for the three years ended December 31, 2009, 2008 and 2007:

	Year Ended December 31,
	2009			2008			2007
(In thousands)
Allowance for loan and leases losses, beginning of year (ALLL)	$	900,227		$	578,442		$	272,068
Acquired allowance for loan and lease losses		—			—			188,128
Loan and lease losses		(1,561,378	)		(806,329	)		(517,943	)
Recoveries of loans previously charged off		84,791			48,262			40,312
Net loan and lease losses		(1,476,587	)		(758,067	)		(477,631	)
Provision for loan and lease losses		2,069,931			1,067,789			628,802
Economic reserve transfer		—			12,063			—
Allowance for assets sold and securitized		(9,188	)		—			—
Allowance for loans transferred to held-for-sale		(1,904	)		—			(32,925	)
Allowance for loan and lease losses, end of year	$	1,482,479		$	900,227		$	578,442
Allowance for unfunded loan commitments and letters of credit, beginning of year (AULC)	$	44,139		$	66,528		$	40,161
Acquired AULC		—			—			11,541
Provision for (reduction in) unfunded loan commitments and letters of credit losses		4,740			(10,326	)		14,826
Economic reserve transfer		—			(12,063	)		—
Allowance for unfunded loan commitments and letters of credit, end of year	$	48,879		$	44,139		$	66,528
Total allowances for credit losses (ACL)	$	1,531,358		$	944,366		$	644,970

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	Year Ended December 31,
	2009		2008		2007
(In thousands)
Recorded balance of impaired loans, at end of year(1):
With specific reserves assigned to the loan and lease balances(2)	$	873,215	$	1,122,575	$	1,318,518
With no specific reserves assigned to the loan and lease balances		221,384		75,799		33,062
Total	$	1,094,599	$	1,198,374	$	1,351,580
Average balance of impaired loans for the year(1)	$	1,010,044	$	1,369,857	$	424,797
Allowance for loan and lease losses on impaired loans(1)		175,442		301,457		142,058

(1)

2009 includes impaired commercial and industrial loans and commercial real estate loans with outstanding balances greater than $1 million. 2008 and prior periods includes impaired commercial and industrial loans and commercial real estate loans with outstanding balances greater than $1 million for business-banking loans, and $500,000 for all other loans. A loan is impaired when it is probable that Huntington will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are included in non-performing assets. The amount of interest recognized in 2009, 2008 and 2007 on impaired loans while they were considered impaired was $0.1 million, $55.8 million, and $0.9 million, respectively. The recovery of the investment in impaired loans with no specific reserves generally is expected from the sale of collateral, net of costs to sell that collateral.

(2)

As a result of the troubled debt restructuring , the loans to Franklin of $1.2 billion and $0.7 billion are included in impaired loans at the end of 2007 and 2008, respectively.

As shown in the table above, in 2008, the economic reserve component of the AULC was reclassified to the economic reserve component of the ALLL, resulting in the entire economic reserve component of the ACL residing in the ALLL.

The $582.3 million increase in the ALLL primarily reflected an increase in specific reserves associated with impaired loans and an increase associated with risk-grade migration, predominantly in the commercial portfolio. The increase is also the result of a change in estimate resulting from the 2009 fourth quarter review of our ACL practices and assumptions, consisting of:

•  Approximately $200 million increase in the judgmental component.

•  Approximately $200 million allocated primarily to the commercial real estate (CRE) portfolio addressing the severity of CRE loss-given-default percentages and a longer term view of the loss emergence time period.

•  Approximately $50 million from updating the consumer reserve factors to include the current delinquency status.

Partially offset by:

•  $130 million of previously established Franklin specific reserves utilized to absorb related net charge-offs due to the 2009 first quarter Franklin restructuring.

9.   GOODWILL AND OTHER INTANGIBLE ASSETS

During the second quarter of 2009, Huntington reorganized its internal reporting structure. The Regional Banking reporting unit, which through March 31, 2009 had been managed geographically, is now managed on a product segment approach. Regional Banking was divided into Retail and Business Banking, Commercial Banking, and Commercial Real Estate segments. Regional Banking goodwill was assigned to the new reporting units affected using a relative fair value allocation. Auto Finance and Dealer Services (AFDS), Private Financial Group (PFG), and Treasury / Other remained essentially unchanged. A rollforward of goodwill by

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line of business for the years ended December 31, 2009 and 2008, including the reallocation noted above, was as follows:

				Retail &
	Regional			Business		Commercial		Commercial					Treasury/			Huntington
	Banking			Banking		Banking		Real Estate		PFG			Other			Consolidated
(In thousands)
Balance, January 1, 2008	$	2,906,155		$	—	$	—	$	—	$	87,517		$	65,661		$	3,059,333
Adjustments		(17,811	)		—		—		—		65,661			(52,198	)		(4,348	)
Balance, December 31, 2008		2,888,344			—		—		—		153,178			13,463			3,054,985
Impairment, March 31, 2009		(2,573,818	)		—		—		—		(28,895	)		—			(2,602,713	)
Reallocation of goodwill		(314,526	)		309,518		5,008		—		—			—			—
Balance, April 1, 2009		—			309,518		5,008		—		124,283			13,463			452,272
Goodwill acquired
during the period		—			620		—		—		—			—			620
Impairment		—			—		—		—		—			(4,231	)		(4,231	)
Other adjustments		—			—		—		—		—			(4,393	)		(4,393	)
Balance, December 31, 2009	$	—		$	310,138	$	5,008	$	—	$	124,283		$	4,839		$	444,268

Goodwill is not amortized but is evaluated for impairment on an annual basis at October 1st of each year or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. During the first quarter of 2009, Huntington experienced a sustained decline in its stock price, which was primarily attributable to the continuing economic slowdown and increased market concern surrounding financial institutions’ credit risks and capital positions as well as uncertainty related to increased regulatory supervision and intervention. Huntington determined that these changes would more likely than not reduce the fair value of certain reporting units below their carrying amounts. Therefore, Huntington performed a goodwill impairment test, which resulted in a goodwill impairment charge of $2.6 billion in the first quarter of 2009. An impairment charge of $4.2 million was recorded in the second quarter related to the sale of a small payments-related business completed in July 2009. Huntington concluded that no other goodwill impairment was required during 2009.

Goodwill acquired during the period was the result of Huntington’s assumption of the deposits and certain assets of Warren Bank in October 2009.

There were no goodwill impairment charges recorded prior to December 31, 2008. The change in consolidated goodwill for the year ended December 31, 2008, primarily related to final purchase accounting adjustments of acquired bank branches, operating facilities, and other contingent obligations primarily from an acquisition made on July 1, 2007. Huntington also transferred goodwill between businesses in response to other organizational changes. Huntington does not expect a material amount of goodwill from mergers in 2009 or 2007 to be deductible for tax purposes.

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At December 31, 2009 and 2008, Huntington’s other intangible assets consisted of the following:

	Gross					Net
	Carrying		Accumulated			Carrying
	Amount		Amortization			Value
(In thousands)
December 31, 2009
Core deposit intangible	$	376,846	$	(168,651	)	$	208,195
Customer relationship		104,574		(26,000	)		78,574
Other		26,465		(24,136	)		2,329
Total other intangible assets	$	507,885	$	(218,787	)	$	289,098
December 31, 2008
Core deposit intangible	$	373,300	$	(111,163	)	$	262,137
Customer relationship		104,574		(16,776	)		87,798
Other		29,327		(22,559	)		6,768
Total other intangible assets	$	507,201	$	(150,498	)	$	356,703

The estimated amortization expense of other intangible assets for the next five years is as follows:

	Amortization
	Expense
(In thousands)
2010	$	60,455
2011		53,342
2012		46,130
2013		40,525
2014		35,843

10.   PREMISES AND EQUIPMENT

At December 31, premises and equipment were comprised of the following:

	2009			2008
(In thousands)
Land and land improvements	$	118,875		$	119,042
Buildings		355,352			352,294
Leasehold improvements		194,405			185,278
Equipment		571,307			557,653
Total premises and equipment		1,239,939			1,214,267
Less accumulated depreciation and amortization		(743,918	)		(694,767	)
Net premises and equipment	$	496,021		$	519,500

Depreciation and amortization charged to expense and rental income credited to net occupancy expense for the three years ended December 31, 2009, 2008 and 2007 were:

	2009		2008		2007
(In thousands)
Total depreciation and amortization of premises and equipment	$	66,089	$	77,956	$	64,052
Rental income credited to occupancy expense		11,755		12,917		12,808

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11.   SHORT-TERM BORROWINGS

At December 31, short-term borrowings were comprised of the following:

	At December 31,
	2009		2008
(In thousands)
Federal funds purchased	$	800	$	50,643
Securities sold under agreements to repurchase		850,485		1,238,484
Other borrowings		24,956		20,030
Total short-term borrowings	$	876,241	$	1,309,157

Other borrowings consist of borrowings from the U.S. Treasury and other notes payable.

12.   FEDERAL HOME LOAN BANK ADVANCES

Huntington’s long-term advances from the Federal Home Loan Bank had weighted average interest rates of 0.88% and 1.23% at December 31, 2009 and 2008, respectively. These advances, which predominantly had variable interest rates, were collateralized by qualifying real estate loans. As of December 31, 2009 and 2008, Huntington’s maximum borrowing capacity was $3.0 billion and $4.6 billion, respectively. The advances outstanding at December 31, 2009 of $169.0 million mature as follows: $142.0 million in 2010; $4.9 million in 2011; none in 2012; $13.9 million in 2013; and $8.2 million in 2014 and thereafter.

13.   OTHER LONG-TERM DEBT

At December 31, Huntington’s other long-term debt consisted of the following:

	At December 31,
	2009		2008
(In thousands)
1.66% The Huntington National Bank medium-term notes due through 2018(1)	$	788,397	$	505,177
1.34% Securitization trust notes payable due through 2012		—		4,005
0.90% Securitization trust notes payable due through 2013(2)		1,059,249		721,555
4.62% Securitization trust note payable due 2018(3)		391,954		1,050,895
7.88% Class C preferred securities of REIT subsidiary, no maturity		50,000		50,000
Franklin 2009 Trust liability(4)		79,891		—
Total other long-term debt	$	2,369,491	$	2,331,632

(1)	Bank notes had fixed rates with a weighted-average interest rate of 1.66% at December 31, 2009.
(2)	Variable effective rate at December 31, 2009, based on one month LIBOR + 0.67 or 0.90%.
(3)	Combination of fixed and variable rates with a weighted average interest rate of 4.62% at December 31, 2009.
(4)	Franklin 2009 Trust liability was a result of the consolidation of Franklin 2009 Trust on March 31, 2009.

See Note 5 for more information regarding the Franklin relationship.

Amounts above are net of unamortized discounts and adjustments related to hedging with derivative financial instruments. The derivative instruments, principally interest rate swaps, are used to hedge the fair values of certain fixed-rate debt by converting the debt to a variable rate. See Note 22 for more information regarding such financial instruments.

In the 2009 first quarter, the Bank issued $600 million of guaranteed debt through the Temporary Liquidity Guarantee Program (TLGP) with the FDIC. The majority of the resulting proceeds were used to satisfy unsecured other long-term debt obligations maturing in 2009.

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Other long-term debt maturities for the next five years are as follows: $0.2 billion in 2010; none in 2011, $0.9 billion in 2012; $0.1 billion in 2013, none in 2014 and $1.2 billion thereafter. These maturities are based upon the par values of long-term debt.

The terms of the other long-term debt obligations contain various restrictive covenants including limitations on the acquisition of additional debt in excess of specified levels, dividend payments, and the disposition of subsidiaries. As of December 31, 2009, Huntington was in compliance with all such covenants.

14.   SUBORDINATED NOTES

At December 31, Huntington’s subordinated notes consisted of the following:

	At December 31,
	2009		2008
(In thousands)
Parent company:
6.21% subordinated notes due 2013	$	48,732	$	48,391
0.98% junior subordinated debentures due 2027(1)		138,816		158,366
0.88% junior subordinated debentures due 2028(2)		60,093		71,093
8.54% junior subordinated debentures due 2029		23,299		23,347
7.33% junior subordinated debentures due 2030		64,971		65,910
3.45% junior subordinated debentures due 2033(3)		30,929		30,929
3.76% junior subordinated debentures due 2033(4)		6,186		6,186
1.23% junior subordinated debentures due 2036(5)		77,809		78,136
1.27% junior subordinated debentures due 2036(5)		77,810		78,137
6.69% junior subordinated debentures due 2067(6)		114,045		249,408
The Huntington National Bank:
8.18% subordinated notes due 2010		84,144		143,261
6.21% subordinated notes due 2012		64,861		64,816
5.00% subordinated notes due 2014		133,930		221,727
5.59% subordinated notes due 2016		112,385		284,048
5.67% subordinated notes due 2018		144,202		244,769
5.45% subordinated notes due 2019		81,990		181,573
Total subordinated notes	$	1,264,202	$	1,950,097

(1)	Variable effective rate at December 31, 2009, based on three month LIBOR + 0.70.
(2)	Variable effective rate at December 31, 2009, based on three month LIBOR + 0.625.
(3)	Variable effective rate at December 31, 2009, based on three month LIBOR + 2.95.
(4)	Variable effective rate at December 31, 2009, based on three month LIBOR + 3.25.
(5)	Variable effective rate at December 31, 2009, based on three month LIBOR + 1.40.
(6)	The junior subordinated debentures due 2067 are subordinate to all other junior subordinated debentures.

Amounts above are reported net of unamortized discounts and adjustments related to hedging with derivative financial instruments. The derivative instruments, principally interest rate swaps, are used to match the funding rates on certain assets to hedge the interest rate values of certain fixed-rate debt by converting the debt to a variable rate. See Note 22 for more information regarding such financial instruments. All principal is due upon maturity of the note as described in the table above.

During 2009, Huntington repurchased $702.4 million of junior subordinated debentures, bank subordinated notes and medium-term notes resulting in net pre-tax gains of $147.4 million. In 2008, $48.5 million of the junior subordinated debentures were repurchased resulting in net pre-tax gains of $23.5 million.

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These transactions have been recorded as gains on early extinguishment of debt, a reduction of noninterest expense in the consolidated financial statements.

15.   OTHER COMPREHENSIVE INCOME

The components of Huntington’s other comprehensive income in the three years ended December 31, were as follows:

	2009
				Tax (Expense)
	Pretax			Benefit			After-Tax
(In thousands)
Cumulative effect of change in accounting principle for OTTI debt securities	$	(5,448	)	$	1,907		$	(3,541	)
Non-credit-related impairment losses on debt securities not expected to be sold		(124,408	)		43,543			(80,865	)
Unrealized holding gains (losses) on debt securities available for sale arising during the period		280,789			(98,678	)		182,111
Less: Reclassification adjustment for net losses (gains) losses included in net income		10,249			(3,587	)		6,662
Net change in unrealized holding gains (losses) on debt securities available for sale		166,630			(58,722	)		107,908
Unrealized holding gains (losses) on equity securities available for sale arising during the period		10			(3	)		7
Less: Reclassification adjustment for net losses (gains) losses included in net income		—			—			—
Net change in unrealized holding gains (losses) on equity securities available for sale		10			(3	)		7
Unrealized gains and losses on derivatives used in cash flow hedging relationships arising during the period		21,888			(7,661	)		14,227
Change in pension and post-retirement benefit plan assets and liabilities		78,626			(27,519	)		51,107
Total other comprehensive income (loss)	$	261,706		$	(91,998	)	$	169,708

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	2008
				Tax (Expense)
	Pretax			Benefit			After-Tax
(In thousands)
Unrealized holding (losses) gains on debt securities available for sale arising during the period	$	(502,756	)	$	177,040		$	(325,716	)
Less: Reclassification adjustment for net losses (gains) losses included in net income		197,370			(69,080	)		128,290
Net change in unrealized holding (losses) gains on debt securities available for sale		(305,386	)		107,960			(197,426	)
Unrealized holding (losses) gains on equity securities available for sale arising during the period		(490	)		171			(319	)
Less: Reclassification adjustment for net losses (gains) losses included in net income		—			—			—
Net change in unrealized holding (losses) gains on equity securities available for sale		(490	)		171			(319	)
Unrealized gains and losses on derivatives used in cash flow hedging relationships arising during the period		61,669			(21,584	)		40,085
Cumulative effect of changing measurement date provisions for pension and post-retirement assets and obligations		(5,898	)		2,064			(3,834	)
Change in pension and post-retirement benefit plan assets and liabilities		(177,828	)		62,240			(115,588	)
Total other comprehensive (loss) income	$	(427,933	)	$	150,851		$	(277,082	)

	2007
				Tax (Expense)
	Pretax			Benefit			After-tax
(In thousands)
Unrealized holding (losses) gains on debt securities available for sale arising during the period	$	(66,676	)	$	23,454		$	(43,222	)
Less: Reclassification adjustment for net losses (gains) losses included in net income		29,738			(10,408	)		19,330
Net change in unrealized holding (losses) gains on debt securities available for sale		(36,938	)		13,046			(23,892	)
Unrealized holding (losses) gains on equity securities available for sale arising during the period		(573	)		200			(373	)
Less: Reclassification adjustment for net losses (gains) losses included in net income		—			—			—
Net change in unrealized holding (losses) gains on equity securities available for sale		(573	)		200			(373	)
Unrealized gains and losses on derivatives used in cash flow hedging relationships arising during the period		(19,162	)		6,707			(12,455	)
Change in pension and post-retirement benefit plan assets and liabilities		64,885			(22,710	)		42,175
Total other comprehensive income (loss)	$	8,212		$	(2,757	)	$	5,455

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Activity in accumulated other comprehensive income for the three years ended December 31, were as follows:

							Unrealized			Accumulated
							Gains and			Unrealized
	Unrealized			Unrealized			Losses on			Losses for Pension
	Gains and			Gains and			Cash Flow			and Other
	Losses on Debt			Losses on			Hedging			Post-Retirement
	Securities			Equity securities			Derivatives			Obligations			Total
(In thousands)
Balance, January 1, 2007	$	13,891		$	363		$	17,008		$	(86,328	)	$	(55,066	)
Period change		(23,892	)		(373	)		(12,455	)		42,175			5,455
Balance, December 31, 2007		(10,001	)		(10	)		4,553			(44,153	)		(49,611	)
Cumulative effect of change in measurement date provisions for pension and post-retirement assets and obligations		—			—			—			(3,834	)		(3,834	)
Period change		(197,426	)		(319	)		40,085			(115,588	)		(273,248	)
Balance, December 31, 2008		(207,427	)		(329	)		44,638			(163,575	)		(326,693	)
Cumulative effect of change in accounting principle for OTTI debt securities		(3,541	)		—			—			—			(3,541	)
Period change		107,908			7			14,227			51,107			173,249
Balance, December 31, 2009	$	(103,060	)	$	(322	)	$	58,865		$	(112,468	)	$	(156,985	)

16.   SHAREHOLDERS’ EQUITY

Issuance of Common Stock

During 2009, Huntington completed several transactions to increase capital, in particular, common equity.

In the 2009 third quarter, Huntington completed an offering of 109.5 million shares of its common stock at a price to the public of $4.20 per share, or $460.1 million in aggregate gross proceeds. In the 2009 second quarter, Huntington completed an offering of 103.5 million shares of its common stock at a price to the public of $3.60 per share, or $372.6 million in aggregate gross proceeds.

Also, during 2009, Huntington completed three separate discretionary equity issuance programs. These programs allowed the Company to take advantage of market opportunities to issue a total of 92.7 million new shares of common stock worth a total of $345.8 million. Sales of the common shares were made through ordinary brokers’ transactions on the NASDAQ Global Select Market or otherwise at the prevailing market prices.

Conversion of Convertible Preferred Stock

In 2008, Huntington completed the public offering of 569,000 shares of 8.50% Series A Non-Cumulative Perpetual Convertible Preferred Stock (Series A Preferred Stock) with a liquidation preference of $1,000 per share, resulting in an aggregate liquidation preference of $569 million.

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During the 2009 first and second quarters, Huntington entered into agreements with various institutional investors exchanging shares of common stock for shares of the Series A Preferred Stock held by the institutional investors. The table below provides details of the aggregate activities:

	First		Second
	Quarter 2009		Quarter 2009		Total
(In thousands)
Preferred shares exchanged		114		92		206
Common shares issued:
At stated convertible option		9,547		7,730		17,277
As deemed dividend		15,044		8,751		23,795
Total common shares issued:		24,591		16,481		41,072
Deemed dividend	$	27,742	$	28,293	$	56,035

Each share of the Series A Preferred Stock is non-voting and may be converted at any time, at the option of the holder, into 83.668 shares of common stock of Huntington, which represents an approximate initial conversion price of $11.95 per share of common stock (for a total of approximately 30.3 million shares at December 31, 2009). The conversion rate and conversion price will be subject to adjustments in certain circumstances. On or after April 15, 2013, at the option of Huntington, the Series A Preferred Stock will be subject to mandatory conversion into Huntington’s common stock at the prevailing conversion rate, if the closing price of Huntington’s common stock exceeds 130% of the conversion price for 20 trading days during any 30 consecutive trading day period.

Troubled Asset Relief Program (TARP)

In 2008, Huntington received $1.4 billion of equity capital by issuing to the U.S. Department of Treasury 1.4 million shares of Huntington’s 5.00% Series B Non-voting Cumulative Preferred Stock, par value $0.01 per share with a liquidation preference of $1,000 per share, and a ten-year warrant to purchase up to 23.6 million shares of Huntington’s common stock, par value $0.01 per share, at an exercise price of $8.90 per share. The proceeds received were allocated to the preferred stock and additional paid-in-capital based on their relative fair values. The resulting discount on the preferred stock is amortized against retained earnings and is reflected in Huntington’s consolidated statement of income as “Dividends on preferred shares”, resulting in additional dilution to Huntington’s earnings per share. The warrants are immediately exercisable, in whole or in part, over a term of 10 years. The warrants are included in Huntington’s diluted average common shares outstanding using the treasury stock method. Both the preferred securities and warrants were accounted for as additions to Huntington’s regulatory Tier 1 and Total capital.

The Series B Preferred Stock is not mandatorily redeemable and will pay cumulative dividends at a rate of 5% per year for the first five years and 9% per year thereafter. With regulatory approval, Huntington may redeem the Series B Preferred Stock at par with any unamortized discount recognized as a deemed dividend in the period of redemption. The Series B Preferred Stock rank on equal priority with Huntington’s existing 8.50% Series A Non-Cumulative Perpetual Convertible Preferred Stock.

A company that participates in the TARP must adopt certain standards for executive compensation, including (a) prohibiting “golden parachute” payments as defined in the Emergency Economic Stabilization Act of 2008 (EESA) to senior executive officers; (b) requiring recovery of any compensation paid to senior executive officers based on criteria that is later proven to be materially inaccurate; (c) prohibiting incentive compensation that encourages unnecessary and excessive risks that threaten the value of the financial institution, and (d) accepting restrictions on the payment of dividends and the repurchase of common stock. As of December 31, 2009, Huntington is in compliance with all TARP standards and restrictions.

Share Repurchase Program

As a condition to participate in the TARP, Huntington may not repurchase any additional shares without prior approval from the Department of Treasury. Huntington did not repurchase any shares under the 2006

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Repurchase Program for the year ended December 31, 2009. On February 18, 2009, the board of directors terminated the previously authorized program for the repurchase of up to 15 million shares of common stock (the 2006 Repurchase Program).

17.   (LOSS) EARNINGS PER SHARE

Basic (loss) earnings per share is the amount of (loss) earnings (adjusted for dividends declared on preferred stock) available to each share of common stock outstanding during the reporting period. Diluted (loss) earnings per share is the amount of (loss) earnings available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for stock options, restricted stock units, distributions from deferred compensation plans, and the conversion of the Company’s convertible preferred stock and warrants (See Note 16). Potentially dilutive common shares are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive. For diluted (loss) earnings per share, net (loss) income available to common shares can be affected by the conversion of the Company’s convertible preferred stock. Where the effect of this conversion would be dilutive, net (loss) income available to common shareholders is adjusted by the associated preferred dividends. The calculation of basic and diluted (loss) earnings per share for each of the three years ended December 31 was as follows:

	Year Ended December 31,
	2009			2008			2007
(In thousands, except per share amounts)
Basic (loss) earnings per common share
Net (loss) income	$	(3,094,179	)	$	(113,806	)	$	75,169
Preferred stock dividends and amortization of discount		(174,756	)		(46,400	)		—
Net (loss) income available to common shareholders	$	(3,268,935	)	$	(160,206	)	$	75,169
Average common shares issued and outstanding		532,802			366,155			300,908
Basic (loss) earnings per common share	$	(6.14	)	$	(0.44	)	$	0.25
Diluted (loss) earnings per common share
Net (loss) income available to common shareholders	$	(3,268,935	)	$	(160,206	)	$	75,169
Net (loss) income applicable to diluted earnings per share	$	(3,268,935	)	$	(160,206	)	$	75,169
Average common shares issued and outstanding		532,802			366,155			300,908
Dilutive potential common shares:
Stock options and restricted stock units		—			—			1,887
Shares held in deferred compensation plans		—			—			660
Dilutive potential common shares:		—			—			2,547
Total diluted average common shares issued and outstanding		532,802			366,155			303,455
Diluted (loss) earnings per common share	$	(6.14	)	$	(0.44	)	$	0.25

Due to the loss attributable to common shareholders for the years ended December 31, 2009 and 2008, no potentially dilutive shares are included in loss per share calculations for those years as including such shares in the calculation would reduce the reported loss per share. Approximately 23.7 million, 26.3 million and 14.9 million options to purchase shares of common stock outstanding at the end of 2009, 2008, and 2007, respectively, were not included in the computation of diluted earnings per share because the effect would be antidilutive. The weighted average exercise price for these options was $19.71 per share, $19.45 per share, and $23.20 per share at the end of each respective period.

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18.   SHARE-BASED COMPENSATION

Huntington sponsors nonqualified and incentive share-based compensation plans. These plans provide for the granting of stock options and other awards to officers, directors, and other employees. Compensation costs are included in personnel costs on the condensed consolidated statements of income. Stock options are granted at the closing market price on the date of the grant. Options granted typically vest ratably over three years or when other conditions are met. Options granted prior to May 2004 have a term of ten years. All options granted after May 2004 have a term of seven years.

Huntington uses the Black-Scholes option-pricing model to value share-based compensation expense. This model assumes that the estimated fair value of options is amortized over the options’ vesting periods. Forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. Expected volatility is based on the estimated volatility of Huntington’s stock over the expected term of the option. The expected dividend yield is based on the dividend rate and stock price at the date of the grant. The following table illustrates the weighted-average assumptions used in the option-pricing model for options granted in the three years ended December 31, 2009, 2008 and 2007.

	2009			2008			2007
Assumptions
Risk-free interest rate		2.70	%		3.41	%		4.74	%
Expected dividend yield		0.96			5.28			5.26
Expected volatility of Huntington’s common stock		51.8			34.8			21.1
Expected option term (years)		6.0			6.0			6.0
Weighted-average grant date fair value per share	$	1.95		$	1.54		$	2.80

As a result of increased employee turnover, during the 2009 second quarter Huntington updated its forfeiture rate assumption and adjusted share-based compensation expense to account for the higher forfeiture rate. The following table illustrates total share-based compensation expense and related tax benefit for the three years ended December 31, 2009, 2008 and 2007:

	2009		2008		2007
(In thousands)
Share-based compensation expense	$	8,492	$	14,142	$	21,836
Tax benefit		2,972		4,950		7,643

Huntington established an additional paid-in capital pool (APIC Pool) on January 1, 2006. With the continued decline in Huntington’s stock price, the tax deductions have been less than the recorded compensation expense, resulting in the related APIC Pool to be reduced to zero. As a result, Huntington is required to record tax expense to remove the related deferred tax asset in periods in which options are exercised or expire unexercised.

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Huntington’s stock option activity and related information for the year ended December 31, 2009, was as follows:

						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Options			Price		Life (Years)		Value
(In thousands, except per share amounts)
Outstanding at January 1, 2009		26,289		$	19.45
Granted		3,106			4.24
Exercised		—			—
Forfeited/expired		(5,673	)		20.49
Outstanding at December 31, 2009		23,722		$	17.21		3.4	$	34
Exercisable at December 31, 2009		19,218		$	19.71		2.8	$	—

The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the “in-the-money” option exercise price. There were no exercises of stock options for the years ended December 31, 2009 or 2008. The total intrinsic value of stock options exercised during 2007 was $4.3 million.

Huntington also grants restricted stock units and awards. Restricted stock units and awards are issued at no cost to the recipient, and can be settled only in shares at the end of the vesting period. Restricted stock awards provide the holder with full voting rights and cash dividends during the vesting period. Restricted stock units do not provide the holder with voting rights or cash dividends during the vesting period and are subject to certain service restrictions. The fair value of the restricted stock units and awards is the closing market price of the Company’s common stock on the date of award.

The following table summarizes the status of Huntington’s restricted stock units and restricted stock awards as of December 31, 2009, and activity for the year ended December 31, 2009:

				Weighted-					Weighted-
				Average					Average
	Restricted			Grant Date		Restricted			Grant Date
	Stock			Fair Value		Stock			Fair Value
	Units			per Share		Awards			per Share
(In thousands, except per share amounts)
Nonvested at January 1, 2009		1,823		$	14.64		—		$	—
Granted		1,543			3.81		274			2.93
Vested		(413	)		21.61		(100	)		2.02
Forfeited		(236	)		13.90		—			—
Nonvested at December 31, 2009		2,717		$	7.50		174		$	3.45

The weighted-average grant date fair value of nonvested shares granted for the years ended December 31, 2009, 2008 and 2007, were $3.68, $7.09 and $20.67, respectively. The total fair value of awards vested during the years ended December 31, 2009, 2008 and 2007, was $1.8 million, $0.4 million, and $3.5 million, respectively. As of December 31, 2009, the total unrecognized compensation cost related to nonvested awards was $9.6 million with a weighted-average expense recognition period of 1.8 years.

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The following table presents additional information regarding options outstanding as of December 31, 2009.

	Options Outstanding						Exercisable Options
			Weighted-
			Average		Weighted-				Weighted-
			Remaining		Average				Average
Range of			Contractual		Exercise				Exercise
Exercise Prices	Shares		Life (Years)		Price		Shares		Price
(In thousands, except per share amounts)
$1.28 to $10.00		4,495		6.1	$	5.12		485	$	7.00
$10.01 to $15.00		1,551		1.1		13.90		1,543		13.90
$15.01 to $20.00		6,543		2.1		17.77		6,540		17.77
$20.01 to $25.01		11,133		3.4		22.22		10,650		22.32
Total		23,722		3.4	$	17.21		19,218	$	19.71

Of the remaining 31.7 million shares of common stock authorized for issuance at December 31, 2009, 26.6 million were outstanding and 5.1 million were available for future grants. Huntington issues shares to fulfill stock option exercises and restricted stock units from available authorized shares. At December 31, 2009, the Company believes there are adequate authorized shares to satisfy anticipated stock option exercises in 2010.

On January 14, 2009, Huntington announced that Stephen D. Steinour, has been elected Chairman, President and Chief Executive Officer. In connection with his employment agreement, Huntington awarded Mr. Steinour an inducement option to purchase 1,000,000 shares of Huntington’s common stock, with a per share exercise price equal to $4.95, the closing price of Huntington’s common stock on January 14, 2009. The option vests in equal increments on each of the first five anniversaries of the date of grant, and expires on the seventh anniversary.

19.   INCOME TAXES

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state, city and foreign jurisdictions. Federal income tax audits have been completed through 2005. In 2009, the IRS began the audit of our consolidated federal income tax returns for tax years 2006 and 2007. In addition, various state and other jurisdictions remain open to examination for tax years 2000 and forward.

The Internal Revenue Service, State of Ohio and other state tax officials have proposed adjustments to the Company’s previously filed tax returns. Management believes that the tax positions taken by the Company related to such proposed adjustments were correct and supported by applicable statutes, regulations, and judicial authority, and intends to vigorously defend them. It is possible that the ultimate resolution of the proposed adjustments, if unfavorable, may be material to the results of operations in the period it occurs. However, although no assurance can be given, we believe that the resolution of these examinations will not, individually or in the aggregate, have a material adverse impact on our consolidated financial position.

Huntington accounts for uncertainties in income taxes in accordance with ASC 740, Income Taxes. At December 31, 2009, Huntington had a net unrecognized tax benefit of $13.5 million in income tax liability related to tax positions. Huntington does not anticipate the total amount of unrecognized tax benefits to significantly change within the next 12 months.

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The following table provides a reconciliation of the beginning and ending amounts of unrecognized tax benefits.

	2009
(In thousands)
Unrecognized tax benefits at beginning of year	$	—
Gross increases for tax positions taken during prior years		10,750
Gross increases for tax positions taken during the current year		6,464
Unrecognized tax benefits at end of year		17,214
Federal benefit for state and local positions		(3,763	)
Net deferred tax asset (liability)	$	13,451

The company recognizes interest and penalties on income tax assessments or income tax refunds if any, in the financial statements as a component of its provision for income taxes. There were no significant amounts recognized for interest and penalties for the years ended December 31, 2009, 2008, and 2007 and no significant amounts accrued at December 31, 2009 and 2008.

The following is a summary of the provision for income taxes (benefit):

	Year Ended December 31,
	2009			2008			2007
(In thousands)
Current tax (benefit) provision
Federal	$	(326,659	)	$	(30,164	)	$	135,196
State		9,860			(102	)		288
Total current tax (benefit) provision		(316,799	)		(30,266	)		135,484
Deferred tax (benefit) provision
Federal		(267,872	)		(152,306	)		(188,518	)
State		667			370			508
Total deferred tax (benefit) provision		(267,205	)		(151,936	)		(188,010	)
(Benefit) provision for income taxes	$	(584,004	)	$	(182,202	)	$	(52,526	)

Tax benefit associated with securities transactions included in the above amounts were $3.6 million in 2009, $69.1 million in 2008, and $10.4 million in 2007.

The following is a reconcilement of (benefit) provision for income taxes:

	Year Ended December 31,
	2009			2008			2007
(In thousands)
(Benefit) provision for income taxes computed at the statutory rate	$	(1,287,364	)	$	(103,603	)	$	7,925
Increases (decreases):
Tax-exempt interest income		(5,561	)		(12,484	)		(13,161	)
Tax-exempt bank owned life insurance income		(19,205	)		(19,172	)		(17,449	)
Asset securitization activities		(3,179	)		(14,198	)		(18,627	)
Federal tax loss carryforward /carryback		(12,847	)		(12,465	)		—
General business credits		(17,602	)		(10,481	)		(8,884	)
Reversal of valuation allowance		—			(7,101	)		—
Loan acquisitions		(159,895	)		—			—
Goodwill impairment		908,263			—			—
Other, net		13,386			(2,698	)		(2,330	)
Benefit for income taxes	$	(584,004	)	$	(182,202	)	$	(52,526	)

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The significant components of deferred tax assets and liabilities at December 31, were as follows:

	At December 31,
	2009			2008
(In thousands)
Deferred tax assets:
Allowances for credit losses	$	555,276		$	220,450
Loan acquisitions		159,895			—
Loss and other carryforwards		19,211			16,868
Fair value adjustments		123,860			170,360
Securities adjustments		—			44,380
Partnerships investments		—			7,402
Pension and other employee benefits		1,009			—
Accrued expense/prepaid		42,478			42,153
Purchase accounting adjustments		—			3,289
Other		4,738			14,014
Total deferred tax assets		906,467			518,916
Deferred tax liabilities:
Lease financing		154,088			283,438
Pension and other employee benefits		—			33,687
Purchase accounting adjustments		70,820			—
Mortgage servicing rights		62,867			31,921
Operating assets		15,163			5,358
Loan origination costs		39,004			34,698
Securities adjustments		57,700			—
Partnership investments		13,563			—
Other		11,832			13,929
Total deferred tax liability		425,037			403,031
Net deferred tax asset before valuation allowance	$	481,430		$	115,885
Valuation allowance		(899	)		(14,536	)
Net deferred tax asset	$	480,531		$	101,349

At December 31, 2009, Huntington’s deferred tax asset related to loss and other carry-forwards was $19.2 million. This was comprised of net operating loss carry-forward of $1.8 million, which will begin expiring in 2023, an alternative minimum tax credit carry-forward of $0.6 million, a general business credit carryover of $15.2 million which will expire in 2029, a charitable contribution carry-forward of $0.7 million which will expire in 2014 , and a capital loss carry-forward of $0.9 million, which will expire in 2010. A valuation allowance in the amount of $0.9 million has been established for the capital loss carry-forward because management believes it is more likely than not that the realization of these assets will not occur. The valuation allowance on this asset decreased $12.8 million from 2008. In Management’s opinion the results of future operations will generate sufficient taxable income to realize the net operating loss and alternative minimum tax credit carry-forward. Consequently, management has determined that a valuation allowance for deferred tax assets was not required as of December 31, 2009 or 2008 relating to these carry-forwards.

At December 31, 2009 federal income taxes had not been provided on $139.8 million of undistributed earnings of foreign subsidiaries that have been reinvested for an indefinite period of time. If the earnings had been distributed, an additional $48.9 million of tax expense would have resulted in 2009.

20.   BENEFIT PLANS

Huntington sponsors the Huntington Bancshares Retirement Plan (the Plan or Retirement Plan), a non-contributory defined benefit pension plan covering substantially all employees hired or rehired prior to January 1, 2010. The Plan provides benefits based upon length of service and compensation levels. The funding policy of Huntington is to contribute an annual amount that is at least equal to the minimum funding

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requirements but not more than that deductible under the Internal Revenue Code. There was no minimum required contribution to the Plan in 2009.

In addition, Huntington has an unfunded defined benefit post-retirement plan that provides certain health care and life insurance benefits to retired employees who have attained the age of 55 and have at least 10 years of vesting service under this plan. For any employee retiring on or after January 1, 1993, post-retirement health-care benefits are based upon the employee’s number of months of service and are limited to the actual cost of coverage. Life insurance benefits are a percentage of the employee’s base salary at the time of retirement, with a maximum of $50,000 of coverage. The employer paid portion of the post-retirement health and life insurance plan will be eliminated for employees retiring on and after March 1, 2010. Eligible employees retiring on and after March 1, 2010, who elect retiree medical coverage will pay the full cost of this coverage. The company will not provide any employer paid life insurance to employees retiring on and after March 1, 2010. Eligible employees will be able to convert or port their existing life insurance at their own expense under the same terms that are available to all terminated employees.

Beginning January 1, 2010, there will be changes to the way the future early and normal retirement benefit is calculated under the Retirement Plan for service on and after January 1, 2010. While these changes will not affect the benefit earned under the Retirement Plan through December 31, 2009, there will be a reduction in future benefits. In addition, employees hired or rehired on and after January 1, 2010 are not eligible to participate in the Retirement Plan.

On January 1, 2008, Huntington transitioned to fiscal year-end measurement date of plan assets and benefit obligations. As a result, Huntington recognized a charge to beginning retained earnings of $4.7 million, representing the net periodic benefit costs for the last three months of 2008, and a charge to the opening balance of accumulated other comprehensive loss of $3.8 million, representing the change in fair value of plan assets and benefit obligations for the last three months of 2008 (net of amortization included in net periodic benefit cost).

The following table shows the weighted-average assumptions used to determine the benefit obligation at December 31, 2009 and 2008, and the net periodic benefit cost for the years then ended.

	Pension						Post-Retirement
	Benefits						Benefits
	2009			2008			2009			2008
Weighted-average assumptions used to determine benefit obligations
Discount rate		5.88	%		6.17	%		5.54	%		6.17	%
Rate of compensation increase		4.50			4.00			N/A			N/A
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate:
January 1, 2009 through October 31, 2009		6.17	%		N/A			6.17	%		N/A
November 1, 2009 through December 31, 2009		5.83			N/A			5.46			N/A
2008		N/A			6.47	%		N/A			6.47	%
Expected return on plan assets		8.00			8.00			N/A			N/A
Rate of compensation increase		4.00			5.00			N/A			N/A

N/A, Not Applicable

The expected long-term rate of return on plan assets is an assumption reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. The expected long-term rate of return is established at the beginning of the plan year based upon historical returns and projected returns on the underlying mix of invested assets.

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The following table reconciles the beginning and ending balances of the benefit obligation of the Plan and the post-retirement benefit plan with the amounts recognized in the consolidated balance sheets at December 31:

							Post-Retirement
	Pension Benefits						Benefits
	2009			2008			2009			2008
(In thousands)
Projected benefit obligation at beginning of measurement year	$	469,696		$	427,828		$	60,433		$	59,008
Impact of change in measurement date		—			(1,956	)		—			(804	)
Changes due to:
Service cost		23,692			23,680			1,550			1,679
Interest cost		28,036			26,804			3,274			3,612
Benefits paid		(9,233	)		(8,630	)		(5,285	)		(3,552	)
Settlements		(12,071	)		(12,459	)		—			—
Effect of plan combinations		24,411			—			—			—
Plan amendments		(45,413	)		—			(25,947	)		—
Plan curtailments		—			—			(527	)		—
Medicare subsidies		—			—			550			—
Actuarial assumptions and gains and losses		25,741			14,429			(875	)		490
Total changes		35,163			43,824			(27,260	)		2,229
Projected benefit obligation at end of measurement year	$	504,859		$	469,696		$	33,173		$	60,433

Benefits paid are net of retiree contributions collected by Huntington. The actual contributions received in 2009 by Huntington for the retiree medical program were $3.1 million.

The following table reconciles the beginning and ending balances of the fair value of Plan assets at the December 31, 2009 and 2008 measurement dates with the amounts recognized in the consolidated balance sheets.

	Pension Benefits
	2009			2008
(In thousands)
Fair value of plan assets at beginning of measurement year	$	407,079		$	516,893
Impact of change in measurement date		—			(10,347	)
Changes due to:
Actual (loss) return on plan assets		51,202			(127,354	)
Employer contributions		—			50,000
Settlements		(12,394	)		(13,482	)
Plan combinations		17,460			—
Benefits paid		(9,233	)		(8,631	)
Total changes		47,035			(99,467	)
Fair value of plan assets at end of measurement year	$	454,114		$	407,079

Huntington’s accumulated benefit obligation under the Plan was $504.6 million and $433 million at December 31, 2009 and 2008. As of December 31, 2009, the accumulated benefit obligation exceeded the fair value of Huntington’s plan assets by $50.5 million.

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The following table shows the components of net periodic benefit cost recognized in the three years ended December 31, 2009:

	Pension Benefits									Post-Retirement Benefits
	2009			2008			2007			2009			2008			2007
(In thousands)
Service cost	$	23,692		$	23,680		$	19,087		$	1,550		$	1,679		$	1,608
Interest cost		28,036			26,804			24,408			3,274			3,612			2,989
Expected return on plan assets		(41,960	)		(39,145	)		(37,056	)		—			—			—
Amortization of transition asset		6			5			4			920			1,104			1,104
Amortization of prior service cost		(553	)		314			1			91			379			379
Amortization of gain		8,689			—			—			(888	)		(1,095	)		(368	)
Curtailments		—			—			—			(527	)		—			—
Settlements		6,213			7,099			2,218			—			—			—
Recognized net actuarial loss		—			3,550			11,076			—			—			—
Benefit cost	$	24,123		$	22,307		$	19,738		$	4,420		$	5,679		$	5,712

Included in benefit costs are $0.7 million, $0.6 million and $0.4 million of plan expenses that were recognized in the three years ended December 31, 2009, 2008 and 2007. It is Huntington’s policy to recognize settlement gains and losses as incurred. Management expects net periodic pension cost, excluding any expense of settlements, to approximate $16.2 million for 2010. There will be no net periodic post-retirement benefits costs in 2010, as the postretirement medical and life subsidy was eliminated for anyone that retires on or after March 1, 2010.

The estimated transition obligation, prior service cost (credit) and net actuarial loss for the plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is less than $1 million, $(6.8) million and $13.9 million, respectively.

Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, Huntington has registered for the Medicare subsidy and a resulting $15.5 million reduction in the post-retirement obligation is being recognized over a 10-year period beginning October 1, 2005.

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At December 31, 2009 and 2008, The Huntington National Bank, as trustee, held all Plan assets. The Plan assets consisted of investments in a variety of Huntington mutual funds and Huntington common stock as follows:

	Fair Value
	2009				2008
(In thousands)
Cash	$	—	—	%	$	50,000	12	%
Cash equivalents:
Huntington funds — money market		11,304	2			295	—
Other		2,777	1			—	—
Fixed income:
Huntington funds — fixed income funds		125,323	28			128,655	32
Corporate obligations		1,315	—			—	—
U.S. Government Agencies		497	—			—	—
Equities:
Huntington funds — equity funds		256,222	57			197,583	48
Huntington funds — equity mutual funds		31,852	7			—	—
Other — equity mutual funds		122	—			—
Huntington common stock		14,347	3			30,546	8
Other common stock		10,355	2			—	—
Fair value of plan assets	$	454,114	100	%	$	407,079	100	%

Investments of the Plan are accounted for at cost on the trade date and are reported at fair value. All of the Plan’s investments at December 31, 2009 are classified as Level 1 within the fair value hierarchy. In general, investments of the Plan are exposed to various risks, such as interest rate risk, credit risk, and overall market volatility. Due to the level of risk associated with certain investments, it is reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the Plan assets.

The investment objective of the Plan is to maximize the return on Plan assets over a long time horizon, while meeting the Plan obligations. At December 31, 2009, Plan assets were invested 69% in equity investments and 31% in bonds, with an average duration of 4 years on bond investments. The estimated life of benefit obligations was 11 years. Management believes that this mix is appropriate for the current economic environment. Although it may fluctuate with market conditions, management has targeted a long-term allocation of Plan assets of 69% in equity investments and 31% in bond investments.

The number of shares of Huntington common stock held by the Plan at December 31, 2009 and 2008 was 3,919,986 for both years. The Plan has acquired and held Huntington common stock in compliance at all times with Section 407 of the Employee Retirement Income Security Act of 1978.

Dividends and interest received by the Plan during 2009 and 2008 were $8.4 million and $21.0 million, respectively.

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At December 31, 2009, the following table shows when benefit payments, which include expected future service, as appropriate, were expected to be paid:

			Post-
	Pension		Retirement
	Benefits		Benefits
(In thousands)
2010	$	27,775	$	5,319
2011		29,968		5,273
2012		32,782		5,173
2013		34,346		5,107
2014		35,379		5,015
2014 through 2018		196,938		23,666

There is no expected minimum contribution for 2010 to the Plan. However, Huntington may choose to make a contribution to the Plan up to the maximum deductible limit in the 2010 plan year. Expected contributions for 2010 to the post-retirement benefit plan are $3.8 million.

The assumed health-care cost trend rate has an effect on the amounts reported. A one percentage point increase would decrease service and interest costs and the post-retirement benefit obligation by $0.1 million and $0.4 million, respectively. A one-percentage point decrease would increase service and interest costs and the post-retirement benefit obligation by $0.1 million, and $0.4 million respectively. The 2010 health-care cost trend rate was projected to be 8.5% for pre-65 participants and 9.3% for post-65 participants compared with an estimate of 8.8% for pre-65 participants and 9.8% for post-65 participants in 2009. These rates are assumed to decrease gradually until they reach 4.5% for both pre-65 participants and post-65 participants in the year 2028 and remain at that level thereafter. Huntington updated the immediate health-care cost trend rate assumption based on current market data and Huntington’s claims experience. This trend rate is expected to decline over time to a trend level consistent with medical inflation and long-term economic assumptions.

Huntington also sponsors other retirement plans, the most significant being the Supplemental Executive Retirement Plan and the Supplemental Retirement Income Plan. These plans are nonqualified plans that provide certain current and former officers and directors of Huntington and its subsidiaries with defined pension benefits in excess of limits imposed by federal tax law. At December 31, 2009 and 2008, Huntington has an accrued pension liability of $22.8 million and $38.5 million, respectively associated with these plans. Pension expense for the plans was $2.8 million, $2.4 million, and $2.5 million in 2009, 2008, and 2007, respectively.

The following table presents the amounts recognized in the consolidated balance sheets at December 31, 2009 and 2008 for all of Huntington defined benefit plans:

	2009		2008
(In thousands)
Accrued income and other assets	$	—	$	—
Accrued expenses and other liabilities		106,738		161,585

The following tables present the amounts recognized in accumulated other comprehensive loss (net of tax) as of December 31, 2009 and 2008 and the changes in accumulated other comprehensive income for the years ended December 31, 2009, 2008, and 2007.

	2009			2008			2007
(In thousands)
Net actuarial loss	$	(151,564	)	$	(156,762	)	$	(36,301	)
Prior service cost		39,093			(4,123	)		(4,914	)
Transition liability		3			(2,690	)		(2,938	)
Defined benefit pension plans	$	(112,468	)	$	(163,575	)		(44,153	)

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	2009
				Tax (Expense)
	Pretax			Benefit			After-tax
(In thousands)
Balance, beginning of year	$	(251,655	)	$	88,080		$	(163,575	)
Impact of change in measurement date		—			—			—
Net actuarial (loss) gain:
Amounts arising during the year		(6,155	)		2,154			(4,001	)
Amortization included in net periodic benefit costs		14,153			(4,954	)		9,199
Prior service cost:
Amounts arising during the year		69,986			(24,494	)		45,492
Amortization included in net periodic benefit costs		(283	)		99			(184	)
Transition obligation:
Amounts arising during the year		—			—			—
Amortization included in net periodic benefit costs		925			(324	)		601
Balance, end of year	$	(173,029	)	$	60,561		$	(112,468	)

	2008
				Tax (Expense)
	Pretax			Benefit			After-tax
(In thousands)
Balance, beginning of year	$	(67,928	)	$	23,775		$	(44,153	)
Impact of change in measurement date		(1,485	)		520			(965	)
Net actuarial (loss) gain:
Amounts arising during the year		(186,922	)		65,423			(121,499	)
Amortization included in net periodic benefit costs		2,608			(913	)		1,695
Prior service cost:
Amortization included in net periodic benefit costs		964			(337	)		627
Transition obligation:
Amounts arising during the year		(1	)		—			(1	)
Amortization included in net periodic benefit costs		1,109			(388	)		721
Balance, end of year	$	(251,655	)	$	88,080		$	(163,575	)

	2007
				Tax (Expense)
	Pretax			Benefit			After-tax
(In thousands)
Balance, beginning of year	$	(132,813	)	$	46,485		$	(86,328	)
Net actuarial (loss) gain:
Amounts arising during the year		53,312			(18,659	)		34,653
Amortization included in net periodic benefit costs		12,169			(4,260	)		7,909
Prior service cost:
Amounts arising during the year		(2,318	)		811			(1,507	)
Amortization included in net periodic benefit costs		615			(215	)		400
Transition obligation:
Amortization included in net periodic benefit costs		1,107			(387	)		720
Balance, end of year	$	(67,928	)	$	23,775		$	(44,153	)

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Huntington has a defined contribution plan that is available to eligible employees. In the first quarter of 2009, the Plan was amended to eliminate employer matching contributions effective on or after March 15, 2009. Prior to March 15, 2009, Huntington matched participant contributions, up to the first 3% of base pay contributed to the plan. Half of the employee contribution was matched on the 4th and 5th percent of base pay contributed to the plan. The cost of providing this plan was $3.1 million in 2009, $15.0 million in 2008, and $12.9 million in 2007. The number of shares of Huntington common stock held by this plan was 14,714,170 at December 31, 2009, and 8,055,336 at December 31, 2008. The market value of these shares was $53.7 million and $61.7 million at the same respective dates. Dividends received by the plan were $5.1 million during 2009 and $14.3 million during 2008.

21.   FAIR VALUES OF ASSETS AND LIABILITIES

Huntington follows the fair value accounting guidance under ASC 820 and ASC 825.

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 was established for disclosure of fair value measurements. 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.

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Financial Instrument(1)	Hierarchy		Valuation methodology
Mortgage loans held-for-sale		Level 2	As of January 1, 2008, Huntington elected to apply the fair value option for mortgage loans originated with the intent to sell which are included in loans held for sale. Mortgage loans held-for-sale are estimated using security prices for similar product types. At December 31, 2009, mortgage loans held for sale had an aggregate fair value of $459.7 million and an aggregate outstanding principal balance of $453.9 million. Interest income on these loans is recorded in interest and fees on loans and leases. Included in mortgage banking income were net gains resulting from changes in fair value of these loans, including net realized gains of $90.6 million and $32.2 million for the year ended December 31, 2009 and 2008, respectively.

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Financial Instrument(1)	Hierarchy		Valuation methodology
Investment Securities & Trading Account Securities(2)		Level 1	Consist of U.S. Treasury and other federal agency securities, and money market mutual funds which generally have quoted prices.
		Level 2	Consist of U.S. Government and agency mortgage-backed securities and municipal securities for which an active market is not available. Third-party pricing services provide a fair value estimate based upon trades of similar financial instruments.
		Level 3	Consist of asset-backed securities, pooled trust-preferred securities, certain private label CMOs, and residual interest in auto securitizations for which fair value is estimated. Assumptions used to determine the fair value of these securities have greater subjectivity due to the lack of observable market transactions. Generally, there are only limited trades of similar instruments and a discounted cash flow approach is used to determine fair value.
Mortgage Servicing Rights (MSRs)(3)		Level 3	MSRs do not trade in an active, open market with readily observable prices. Although sales of MSRs do occur, the precise terms and conditions typically are not readily available. Fair value is based upon the final month-end valuation, which utilizes the month-end curve and prepayment assumptions.
Derivatives(4)		Level 1	Consist of exchange traded options and forward commitments to deliver mortgage-backed securities which have quoted prices.
		Level 2	Consist of basic asset and liability conversion swaps and options, and interest rate caps. These derivative positions are valued using internally developed models that use readily observable market parameters.
		Level 3	Consist primarily of interest rate lock agreements related to mortgage loan commitments. The determination of fair value includes assumptions related to the likelihood that a commitment will ultimately result in a closed loan, which is a significant unobservable assumption.
Equity Investments(5)		Level 3	Consist of equity investments via equity funds (holding both private and publicly-traded equity securities), directly in companies as a minority interest investor, and directly in companies in conjunction with our mezzanine lending activities. These investments do not have readily observable prices. Fair value is based upon a variety of factors, including but not limited to, current operating performance and future expectations of the particular investment, industry valuations of comparable public companies, and changes in market outlook.

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(1)	Refer to Notes 1 and 20 for additional information.
(2)	Refer to Note 6 for additional information.
(3)	Refer to Note 7 for additional information.
(4)	Refer to Note 21 for additional information.
(5)	Certain equity investments are accounted for under the equity method and, therefore, are not subject to the fair value disclosure requirements.

Assets and Liabilities measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis at December 31, 2009 and 2008 are summarized below:

	Fair Value Measurements at Reporting Date Using						Netting			Total
	Level 1		Level 2		Level 3		Adjustments(1)			2009
(In thousands)
Assets
Mortgage loans held for sale	$	—	$	459,719	$	—	$	—		$	459,719
Trading account securities		56,009		27,648		—		—			83,657
Investment securities		3,111,845		4,203,497		895,932		—			8,211,274
Mortgage servicing rights		—		—		176,427		—			176,427
Derivative assets		7,711		341,676		995		(62,626	)		287,756
Equity investments		—		—		25,872		—			25,872
Liabilities
Derivative liabilities		119		233,597		5,231		—			238,947

	Fair Value Measurements at Reporting Date Using						Netting			Total
	Level 1		Level 2		Level 3		Adjustments(1)			2008
(In thousands)
Assets
Mortgage loans held for sale	$	—	$	378,437	$	—	$	—		$	378,437
Trading account securities		51,888		36,789		—		—			88,677
Investment securities		626,130		2,342,812		987,542		—			3,956,484
Mortgage servicing rights		—		—		167,438		—			167,438
Derivative assets		233		668,906		8,182		(218,326	)		458,995
Equity investments		—		—		36,893		—			36,893
Liabilities
Derivative liabilities		11,588		377,248		50		(305,519	)		83,367

(1) Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions and cash collateral held or placed with the same counterparties.

The tables below present a rollforward of the balance sheet amounts for the years ended December 31, 2009 and 2008, for financial instruments measured on a recurring basis and classified as Level 3. The classification of an item as Level 3 is based on the significance of the unobservable inputs to the overall fair value measurement. However, Level 3 measurements may also include observable components of value that can be validated externally. Accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology. Transfers in and out of Level 3 are presented in the tables below at fair value at the beginning of the reporting period.

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	Level 3 Fair Value Measurements
	Year Ended December 31, 2009
							Investment Securities
	Mortgage						Alt-A			Pooled
	Servicing			Derivative			Mortgage-			Trust-			Private						Equity
	Rights			Instruments			Backed			Preferred			Label CMO			Other			Investments
(In thousands)
Balance, beginning of year	$	167,438		$	8,132		$	322,421		$	141,606		$	523,515		$	—		$	36,893
Total gains/losses:
Included in earnings		9,707			(5,976	)		2,264			(40,272	)		(3,606	)		(2,031	)		408
Included in OCI		—			—			27,332			6,688			93,934			6,365			—
Purchases		2,388			(7,100	)		—			—			5,448			211,296			1,688
Sales		—			—			(216,357	)		—			—			(78,676	)		—
Repayments		—			—			—			—			—			—			—
Issuances		—			—			—			—			—			47,119			—
Settlements		(3,106	)		708			(18,726	)		(1,931	)		(141,972	)		(185	)		(13,117	)
Transfers in/out of Level 3		—			—			—			—			—			11,700			—
Balance, end of year	$	176,427		$	(4,236	)	$	116,934		$	106,091		$	477,319		$	195,588		$	25,872
The amount of total gains or losses for the period included in earnings (or OCI) attributable to the change in unrealized gains or losses relating to assets still held at reporting date	$	9,707		$	(8,475	)	$	19,858		$	(33,584	)		90,328		$	6,320		$	408

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	Level 3 Fair Value Measurements
	Year Ended December 31, 2008
							Investment Securities
	Mortgage						Alt-A			Pooled
	Servicing			Derivative			Mortgage-			Trust-			Private						Equity
	Rights			Instruments			Backed			Preferred			Label CMO			Other			Investments
(In thousands)
Balance, beginning of year	$	207,894		$	(46	)	$	547,358		$	279,175		$	—		$	7,956		$	41,516
Total gains/losses:
Included in earnings		(40,769	)		8,683			(174,591	)		(14,528	)		(3,435	)		(6,258	)		(9,242	)
Included in OCI		—			—			(33,211	)		(120,292	)		(149,699	)		(187	)		—
Purchases		—			—			—			—			—			—			4,619
Sales		313			—			—			—			—			—			—
Repayments		—			—			—			—			—			—			—
Issuances		—			—			—			—			—			—			—
Settlements		—			(505	)		(26,407	)		(2,749	)		(97,126	)		(1,511	)		—
Transfers in/out of Level 3		—			—			9,272			—			773,775			—			—
Balance, end of year	$	167,438		$	8,132		$	322,421		$	141,606		$	523,515		$	—		$	36,893
The amount of total gains or losses for the period included in earnings (or OCI) attributable to the change in unrealized gains or losses relating to assets still held at reporting date	$	(40,769	)	$	8,179		$	(207,802	)	$	(134,820	)	$	(153,134	)	$	(6,445	)	$	(3,469	)

The table below summarizes the classification of gains and losses due to changes in fair value, recorded in earnings for Level 3 assets and liabilities for the years ended December 31, 2009 and 2008.

	Level 3 Fair Value Measurements
	Year Ended December 31, 2009
						Investment Securities
	Mortgage					Alt-A			Pooled
	Servicing		Derivative			Mortgage-			Trust-			Private						Equity
	Rights		Instruments			Backed			Preferred			Label CMO			Other			Investments
(In thousands)
Classification of gains and losses in earnings:
Mortgage banking income (loss)	$	9,707	$	(5,976	)	$	—		$	—		$	—		$	—		$	—
Securities gains (losses)		—		—			(12,225	)		(40,843	)		(5,996	)		—			—
Interest and fee income		—		—			14,489			571			2,390			(2,031	)		—
Noninterest income		—		—			—			—			—			—			408
Total	$	9,707	$	(5,976	)	$	2,264		$	(40,272	)	$	(3,606	)	$	(2,031	)	$	408

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	Level 3 Fair Value Measurements
	Year Ended December 31, 2008
						Investment Securities
	Mortgage					Alt-A			Pooled
	Servicing			Derivative		Mortgage-			Trust-			Private						Equity
	Rights			Instruments		Backed			Preferred			Label CMO			Other			Investments
(In thousands)
Classification of gains and losses in earnings:
Mortgage banking income (loss)	$	(40,769	)	$	8,683	$	—		$	—		$	—		$	—		$	—
Securities gains (losses)		—			—		(176,928	)		(14,508	)		(5,728	)		(5,457	)		—
Interest and fee income		—			—		2,337			(20	)		2,293			(801	)		—
Noninterest income		—			—		—			—			—			—			(9,242	)
Total	$	(40,769	)	$	8,683	$	(174,591	)	$	(14,528	)	$	(3,435	)	$	(6,258	)	$	(9,242	)

Assets and Liabilities measured at fair value on a nonrecurring basis

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, Huntington records nonrecurring adjustments of collateral-dependent loans measured for impairment when establishing the allowance for credit losses. 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 years ended 2009 and 2008, Huntington identified $898.0 million, and $307.9 million, respectively, of impaired loans for which the fair value is recorded based upon collateral value, a Level 3 input in the valuation hierarchy. For the years ended December 31, 2009 and 2008, nonrecurring fair value losses of $305.4 million and $103.3 million, respectively, were recorded within the provision for credit losses.

Other real estate owned properties are valued based on appraisals and third party price opinions, less estimated selling costs. During 2009 and 2008, Huntington recorded $140.1 million and $122.5 million, respectively of OREO assets at fair value. Losses of $93.9 million and $33.5 million were recorded within noninterest expense.

Goodwill at March 31, 2009 with a carrying amount of $3.0 billion was written down to its implied fair value of $351.3 million. Also during the 2009 second quarter, goodwill related to the sale of a small payments-related business completed in July 2009,with a carrying amount of $8.5 million was written down to its implied fair value of $4.2 million.

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Fair values of financial instruments

The carrying amounts and estimated fair values of Huntington’s financial instruments at December 31, 2009 and 2008 are presented in the following table:

	December 31, 2009						December 31, 2008
	Carrying			Fair			Carrying			Fair
	Amount			Value			Amount			Value
(In thousands)
Financial Assets:
Cash and short-term assets	$	1,840,719		$	1,840,719		$	1,137,229		$	1,137,229
Trading account securities		83,657			83,657			88,677			88,677
Loans held for sale		461,647			461,647			390,438			390,438
Investment securities		8,587,914			8,587,914			4,384,457			4,384,457
Net loans and direct financing leases		35,308,184			32,598,423			40,191,938			33,856,153
Derivatives		287,756			287,756			458,995			458,995
Financial Liabilities:
Deposits		(40,493,927	)		(40,753,365	)		(37,943,286	)		(38,363,248	)
Short-term borrowings		(876,241	)		(857,254	)		(1,309,157	)		(1,252,861	)
Federal Home Loan Bank advances		(168,977	)		(168,977	)		(2,588,976	)		(2,588,445	)
Other long term debt		(2,369,491	)		(2,332,300	)		(2,331,632	)		(1,979,441	)
Subordinated notes		(1,264,202	)		(989,989	)		(1,950,097	)		(1,287,150	)
Derivatives		(238,947	)		(238,947	)		(83,367	)		(83,367	)

The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include trading account securities, customers’ acceptance liabilities, short-term borrowings, bank acceptances outstanding, Federal Home Loan Bank Advances and cash and short-term assets, which include cash and due from banks, interest-bearing deposits in banks, and federal funds sold and securities purchased under resale agreements. Loan commitments and letters of credit generally have short-term, variable-rate features and contain clauses that limit Huntington’s exposure to changes in customer credit quality. Accordingly, their carrying values, which are immaterial at the respective balance sheet dates, are reasonable estimates of fair value. Not all the financial instruments listed in the table above are subject to the disclosure provisions of ASC 820.

Certain assets, the most significant being operating lease assets, bank owned life insurance, and premises and equipment, do not meet the definition of a financial instrument and are excluded from this disclosure. Similarly, mortgage and non-mortgage servicing rights, deposit base, and other customer relationship intangibles are not considered financial instruments and are not included above. Accordingly, this fair value information is not intended to, and does not, represent Huntington’s underlying value. Many of the assets and liabilities subject to the disclosure requirements are not actively traded, requiring fair values to be estimated by management. These estimations necessarily involve the use of judgment about a wide variety of factors, including but not limited to, relevancy of market prices of comparable instruments, expected future cash flows, and appropriate discount rates.

The following methods and assumptions were used by Huntington to estimate the fair value of the remaining classes of financial instruments:

Loans and Direct Financing Leases

Variable-rate loans that reprice frequently are based on carrying amounts, as adjusted for estimated credit losses. The fair values for other loans and leases are estimated using discounted cash flow analyses and employ interest rates currently being offered for loans and leases 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

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profit. This value is also reduced by an estimate of probable losses and the credit risk associated in the loan and lease portfolio. The valuation of the loan portfolio reflected discounts that Huntington believed are consistent with transactions occurring in the market place.

Deposits

Demand deposits, savings accounts, and money market deposits are, by definition, equal to the amount payable on demand. The fair values of fixed-rate time deposits are estimated by discounting cash flows using interest rates currently being offered on certificates with similar maturities.

Debt

Fixed-rate, long-term debt is based upon quoted market prices, which are inclusive of Huntington’s credit risk. In the absence of quoted market prices, discounted cash flows using market rates for similar debt with the same maturities are used in the determination of fair value.

22.   DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments are recorded in the consolidated balance sheet as either an asset or a liability (in other assets or other liabilities, respectively) and measured at fair value.

Derivatives used in Asset and Liability Management Activities

A variety of derivative financial instruments, principally interest rate swaps, are used in asset and liability management activities to protect against the risk of adverse price or interest rate movements. These instruments provide flexibility in adjusting Huntington’s sensitivity to changes in interest rates without exposure to loss of principal and higher funding requirements. Huntington records derivatives at fair value, as further described in Note 21. Collateral agreements are regularly entered into as part of the underlying derivative agreements with Huntington’s counterparties to mitigate counter party credit risk. At December 31, 2009 and 2008, aggregate credit risk associated with these derivatives, net of collateral that has been pledged by the counterparty, was $20.3 million and $40.7 million, respectively. The credit risk associated with interest rate swaps is calculated after considering master netting agreements.

At December 31, 2009, Huntington pledged $230.7 million investment security and cash collateral to various counterparties, while various other counterparties pledged $74.5 million investment security and cash collateral to Huntington to satisfy collateral netting agreements. In the event of credit downgrades, Huntington could be required to provide an additional $1.8 million in collateral.

The following table presents the gross notional values of derivatives used in Huntington’s asset and liability management activities at December 31, 2009, identified by the underlying interest rate-sensitive instruments:

	Fair Value		Cash Flow
	Hedges		Hedges		Total
(In thousands)
Instruments associated with:
Loans	$	—	$	8,685,000	$	8,685,000
Deposits		801,525		—		801,525
Subordinated notes		298,000		—		298,000
Other long-term debt		35,000		—		35,000
Total notional value at December 31, 2009	$	1,134,525	$	8,685,000	$	9,819,525

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The following table presents additional information about the interest rate swaps and caps used in Huntington’s asset and liability management activities at December 31, 2009:

			Average				Weighted-Average
	Notional		Maturity		Fair		Rate
	Value		(Years)		Value		Receive			Pay
(In thousands)
Asset conversion swaps — receive fixed — generic	$	8,685,000		1.8	$	47,044		1.91	%		0.49	%
Liability conversion swaps — receive fixed — generic		1,134,525		3.1		35,476		2.38			0.33
Total swap portfolio	$	9,819,525		2.0	$	82,520		1.96	%		0.47	%

These derivative financial instruments were entered into for the purpose of managing the interest rate risk of assets and liabilities. Consequently, net amounts receivable or payable on contracts hedging either interest earning assets or interest bearing liabilities were accrued as an adjustment to either interest income or interest expense. The net amounts resulted in an increase/(decrease) to net interest income of $167.9 million, $10.5 million, and $(3.0) million for the years ended December 31, 2009, 2008 and 2007, respectively.

In connection with securitization activities, Huntington purchased interest rate caps with a notional value totaling $1.1 billion. These purchased caps were assigned to the securitization trust for the benefit of the security holders. Interest rate caps were also sold totaling $1.1 billion outside the securitization structure. Both the purchased and sold caps are marked to market through income.

In connection with the sale of Huntington’s class B Visa shares, Huntington entered into a swap agreement with the purchaser of the shares. The swap agreement adjusts for dilution in the conversion ratio of class B shares resulting from the Visa litigation. At December 31, the fair value of the swap liability of $3.9 million is an estimate of the exposure liability based upon Huntington’s assessment of the probability-weighted potential Visa litigation losses.

The following table presents the fair values at December 31, 2009 and 2008 of Huntington’s derivatives that are designated and not designated as hedging instruments. Amounts in the table below are presented gross without the impact of any net collateral arrangements.

Asset derivatives included in accrued income and other assets

	December 31,
	2009		2008
(In thousands)
Interest rate contracts designated as hedging instruments	$	85,984	$	230,601
Interest rate contracts not designated as hedging instruments		255,692		436,131
Total contracts	$	341,676	$	666,732

Liability derivatives included in accrued expenses and other liabilities

	December 31,
	2009		2008
(In thousands)
Interest rate contracts designated as hedging instruments	$	3,464	$	—
Interest rate contracts not designated as hedging instruments		234,026		377,249
Total contracts	$	237,490	$	377,249

Fair value hedges are purchased to convert deposits and subordinated and other long term debt from fixed rate obligations to floating rate. The changes in fair value of the derivative are, to the extent that the hedging

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relationship is effective, recorded through earnings and offset against changes in the fair value of the hedged item.

The following table presents the increase or (decrease) to interest expense for derivatives designated as fair value hedges:

		Increase (decrease) to
Derivatives in Fair	Location of Change in Fair Value Recognized in	interest expense
Value Hedging Relationships	Earnings on Derivative	2009			2008			2007
(In thousands)
Interest Rate Contracts
Deposits	Interest expense — deposits	$	(3,648	)	$	(2,322	)	$	4,120
Subordinated notes	Interest expense — subordinated notes and other long term debt		(27,576	)		(15,349	)		260
Other long term debt	Interest expense — subordinated notes and other long term debt		378			3,810			6,598
Total		$	(30,846	)	$	(13,861	)	$	10,978

For cash flow hedges, interest rate swap contracts were entered into that pay fixed-rate interest in exchange for the receipt of variable-rate interest without the exchange of the contract’s underlying notional amount, which effectively converts a portion of its floating-rate debt to fixed-rate. This reduces the potentially adverse impact of increases in interest rates on future interest expense. Other LIBOR-based commercial and industrial loans were effectively converted to fixed-rate by entering into contracts that swap certain variable-rate interest payments for fixed-rate interest payments at designated times.

To the extent these derivatives are effective in offsetting the variability of the hedged cash flows, changes in the derivatives’ fair value will not be included in current earnings but are reported as a component of accumulated other comprehensive income in shareholders’ equity. These changes in fair value will be included in earnings of future periods when earnings are also affected by the changes in the hedged cash flows. To the extent these derivatives are not effective, changes in their fair values are immediately included in interest income.

The following table presents the gains and (losses) recognized in other comprehensive income (OCI) and the location in the consolidated statements of income of gains and (losses) reclassified from OCI into earnings for derivatives designated as effective cash flow hedges:

	Amount of										Amount of Gain
	Gain or (Loss)									Location of Gain or (Loss)	or (Loss) Reclassified
Derivatives in Cash	Recognized in									Reclassified from Accumulated	from Accumulated
Flow Hedging	OCI on Derivatives									OCI into Earnings	OCI into Earnings
Relationships	(Effective Portion)									(Effective Portion)	(Effective Portion)
	2009			2008			2007				2009			2008			2007
(In thousands)
Interest rate contracts
Loans	$	(68,365	)	$	54,887		$	—		Interest and fee income — loans and leases	$	117,669		$	(9,207	)	$	10,257
FHLB Advances		1,338			2,394			(4,186	)	Interest expense — FHLB Advances		6,890			(12,490	)		(13,034	)
Deposits		326			2,842			(1,946	)	Interest expense — deposits		4,153			(4,169	)		(360	)
Subordinated notes		101			(101	)		—		Interest expense — subordinated notes and other long term debt		(2,717	)		(4,408	)		(5,512	)
Other long term debt		—			239			(125	)	Interest expense — subordinated notes and other long term debt		(899	)		(865	)		(886	)
Total	$	(66,600	)	$	60,261		$	(6,257	)		$	125,096		$	(31,139	)	$	(9,535	)

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The following table details the gains and (losses) recognized in noninterest income on the ineffective portion on interest rate contracts for derivatives designated as fair value and cash flow hedges for the years ending December 31, 2009, 2008 and 2007.

	December 31,
	2009			2008			2007
(In thousands)
Derivatives in fair value hedging relationships Interest rate contracts
Deposits	$	10,847		$	(274	)	$	(1,134	)
Derivatives in cash flow hedging relationships
Interest rate contracts
Loans		16,638			3,821			—
FHLB Deposits		(792	)		783			9

Derivatives used in trading activities

Various derivative financial instruments are offered to enable customers to meet their financing and investing objectives and for their risk management purposes. Derivative financial instruments used in trading activities consisted predominantly of interest rate swaps, but also included interest rate caps, floors, and futures, as well as foreign exchange options. Interest rate options grant the option holder the right to buy or sell an underlying financial instrument for a predetermined price before the contract expires. Interest rate futures are commitments to either purchase or sell a financial instrument at a future date for a specified price or yield and may be settled in cash or through delivery of the underlying financial instrument. Interest rate caps and floors are option-based contracts that entitle the buyer to receive cash payments based on the difference between a designated reference rate and a strike price, applied to a notional amount. Written options, primarily caps, expose Huntington to market risk but not credit risk. Purchased options contain both credit and market risk. The interest rate risk of these customer derivatives is mitigated by entering into similar derivatives having offsetting terms with other counterparties. The credit risk to these customers is evaluated and included in the calculation of fair value.

The net fair values of these derivative financial instruments, for which the gross amounts are included in other assets or other liabilities at December 31, 2009 and 2008 were $45.1 million and $41.9 million, respectively. Changes in fair value of $10.2 million, $27.0 million, and $17.8 million for the years ended December 31, 2009, 2008 and 2007, respectively, were reflected in other noninterest income. The total notional values of derivative financial instruments used by Huntington on behalf of customers, including offsetting derivatives, were $9.6 billion and $10.9 billion at December 31, 2009 and 2008, respectively. Huntington’s credit risks from interest rate swaps used for trading purposes were $255.7 million and $429.9 million at the same dates, respectively.

Derivatives used in mortgage banking activities

Huntington also uses certain derivative financial instruments to offset changes in value of its residential mortgage servicing assets. These derivatives consist primarily of forward interest rate agreements and forward mortgage securities. The derivative instruments used are not designated as hedges. Accordingly, such

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derivatives are recorded at fair value with changes in fair value reflected in mortgage banking income. The following table summarizes the derivative assets and liabilities used in mortgage banking activities:

	At December 31,
	2009			2008
(In thousands)
Derivative assets:
Interest rate lock agreements	$	995		$	8,182
Forward trades and options		7,711			233
Total derivative assets		8,706			8,415
Derivative liabilities:
Interest rate lock agreements		(1,338	)		(50	)
Forward trades and options		(119	)		(11,588	)
Total derivative liabilities		(1,457	)		(11,638	)
Net derivative liability	$	7,249		$	(3,223	)

The total notional value of these derivative financial instruments at December 31, 2009 and 2008, was $3.7 billion, $2.2 billion, respectively. The total notional amount at December 31, 2009 corresponds to trading assets with a fair value of $3.2 million and trading liabilities with a fair value of $15.5 million. The gains and (losses) related to derivative instruments included in mortgage banking income for the years ended December 31, 2009, 2008 and 2007 were ($41.2) million, ($19.0) million and ($25.5) million, respectively. Total MSR hedging gains and (losses) for the years ended December 31, 2009, 2008, and 2007, were ($37.8) million, $22.4 million and ($1.7) million, respectively, and were also included in mortgage banking income.

23.   VARIABLE INTEREST ENTITIES

Consolidated Variable Interest Entities

Consolidated variable interest entities at December 31, 2009 consist of the Franklin 2009 Trust (See Note 5) and certain loan securitization trusts. Loan securitizations include auto loan and lease securitization trusts formed in 2008, 2006, and 2000. Huntington has determined that the trusts are not qualified special purpose entities and, therefore, are variable interest entities (VIEs) based upon equity guidelines established in ASC 810. Huntington owns 100% of the trusts and is the primary beneficiary of the VIEs, therefore, the trusts are consolidated. The carrying amount and classification of the trusts’ assets and liabilities included in the consolidated balance sheet are as follows:

	December 31, 2009
	Franklin
	2009 Trust		2008 Trust			2006 Trust			2000 Trust			Total
(In thousands)
Assets
Cash	$	—	$	26,286		$	215,655		$	44,134		$	286,075
Loans and leases		443,854		535,337			1,241,671			31,594			2,252,456
Allowance for loan and lease losses		—		(8,940	)		(20,736	)		(527	)		(30,203	)
Net loans and leases		443,854		526,397			1,220,935			31,067			2,222,253
Accrued income and other assets		29,857		3,234			6,375			138			39,604
Total assets	$	473,711	$	555,917		$	1,442,965		$	75,339		$	2,547,932

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	December 31, 2009
	Franklin
	2009 Trust		2008 Trust		2006 Trust		2000 Trust		Total
(In thousands)
Liabilities
Other long-term debt	$	79,891	$	391,954	$	1,059,249	$	—	$	1,531,094
Accrued interest and other liabilities		3,093		743		12,402		—		16,238
Total liabilities	$	82,984	$	392,697	$	1,071,651	$	—	$	1,547,332

The auto loans and leases were designated to repay the securitized notes. Huntington services the loans and leases and uses the proceeds from principal and interest payments to pay the securitized notes during the amortization period. Huntington has not provided financial or other support that was not previously contractually required.

Trust Preferred Securities

Huntington has certain wholly-owned trusts that are not consolidated. The trusts have been formed for the sole purpose of issuing trust preferred securities, from which the proceeds are then invested in Huntington junior subordinated debentures, which are reflected in Huntington’s condensed consolidated balance sheet as subordinated notes. The trust securities are the obligations of the trusts and are not consolidated within Huntington’s balance sheet. A list of trust preferred securities outstanding at December 31, 2009 follows:

	Principal Amount of		Investment in
	Subordinated Note/		Unconsolidated
	Debenture Issued to Trust (1)		Subsidiary
(In thousands)
Huntington Capital I	$	138,816	$	6,186
Huntington Capital II		60,093		3,093
Huntington Capital III		114,045		10
BancFirst Ohio Trust Preferred		23,299		619
Sky Financial Capital Trust I		64,971		1,856
Sky Financial Capital Trust II		30,929		929
Sky Financial Capital Trust III		77,809		2,320
Sky Financial Capital Trust IV		77,810		2,320
Prospect Trust I		6,186		186
Total	$	593,958	$	17,519

(1) Represents the principal amount of debentures issued to each trust, including unamortized original issue discount.

Huntington’s investment in the unconsolidated trusts represents the only risk of loss.

As mentioned in Note 14, during 2009, Huntington repurchased $702.4 million of junior subordinated debentures, bank subordinated notes and medium-term notes resulting in net pre-tax gains of $147.4 million. In 2008, $48.5 million of the junior subordinated debentures were repurchased resulting in net pre-tax gains of $23.5 million.

These transactions have been recorded as gains on early extinguishment of debt, a reduction of noninterest expense in the consolidated financial statements.

Each issue of the junior subordinated debentures has an interest rate equal to the corresponding trust securities distribution rate. Huntington has the right to defer payment of interest on the debentures at any time, or from time to time for a period not exceeding five years, provided that no extension period may extend beyond the stated maturity of the related debentures. During any such extension period, distributions to the

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trust securities will also be deferred and Huntington’s ability to pay dividends on its common stock will be restricted. Periodic cash payments and payments upon liquidation or redemption with respect to trust securities are guaranteed by Huntington to the extent of funds held by the trusts. The guarantee ranks subordinate and junior in right of payment to all indebtedness of the company to the same extent as the junior subordinated debt. The guarantee does not place a limitation on the amount of additional indebtedness that may be incurred by Huntington.

Low Income Housing Tax Credit Partnerships

Huntington makes certain equity investments in various limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (LIHTC) pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital, to facilitate the sale of additional affordable housing product offerings and to assist us in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnerships include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.

Huntington does not own a majority of the limited partnership interests in these entities and is not the primary beneficiary. Huntington uses the equity method to account for the majority of its investments in these entities. These investments are included in accrued income and other assets. At December 31, 2009 and 2008, Huntington has commitments of $285.3 million and $216.2 million, respectively of which $192.7 million and $166.4 million, respectively are funded. The unfunded portion is included in accrued expenses and other liabilities.

24.   COMMITMENTS AND CONTINGENT LIABILITIES

Commitments to extend credit

In the ordinary course of business, Huntington makes various commitments to extend credit that are not reflected in the financial statements. The contract amounts of these financial agreements at December 31, 2009 and December 31, 2008, were as follows:

	At December 31,
	2009		2008
(In millions)
Contract amount represents credit risk
Commitments to extend credit
Commercial	$	5,834	$	6,494
Consumer		5,028		4,964
Commercial real estate		1,075		1,951
Standby letters of credit		577		1,272

Commitments to extend credit generally have fixed expiration dates, are variable-rate, and contain clauses that permit Huntington to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer’s credit quality. These arrangements normally require the payment of a fee by the customer, the pricing of which is based on prevailing market conditions, credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements. The interest rate risk arising from these financial instruments is insignificant as a result of their predominantly short-term, variable-rate nature.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Most of these arrangements mature within two years. The carrying amount of deferred revenue associated with these guarantees was $2.8 million and $4.5 million at December 31, 2009 and 2008, respectively.

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Through the Company’s credit process, Huntington monitors the credit risks of outstanding standby letters of credit. When it is probable that a standby letter of credit will be drawn and not repaid in full, losses are recognized in the provision for credit losses. At December 31, 2009, Huntington had $0.6 billion of standby letters of credit outstanding, of which 60% were collateralized. Included in this $0.6 billion total are letters of credit issued by the Bank that support securities that were issued by customers and remarketed by The Huntington Investment Company (HIC), the Company’s broker-dealer subsidiary. As a result of a change in credit ratings and pursuant to the letters of credit issued by the Bank, the Bank repurchased substantially all of these securities, net of payments and maturities, during 2009.

Huntington uses an internal loan grading system to assess an estimate of loss on its loan and lease portfolio. The same loan grading system is used to help monitor credit risk associated with standby letters of credit. Under this risk rating system as of December 31, 2009, approximately $83.7 million of the standby letters of credit were rated strong with sufficient asset quality, liquidity, and good debt capacity and coverage, approximately $440.3 million were rated average with acceptable asset quality, liquidity, and modest debt capacity; and approximately $68.8 million were rated substandard with negative financial trends, structural weaknesses, operating difficulties, and higher leverage.

Commercial letters of credit represent short-term, self-liquidating instruments that facilitate customer trade transactions and generally have maturities of no longer than 90 days. The goods or cargo being traded normally secures these instruments.

Commitments to sell loans

Huntington enters into forward contracts relating to its mortgage banking business to hedge the exposures from commitments to make new residential mortgage loans with existing customers and from mortgage loans classified as held for sale. At December 31, 2009 and 2008, Huntington had commitments to sell residential real estate loans of $662.9 million and $759.4 million, respectively. These contracts mature in less than one year.

Litigation

Between December 19, 2007 and February 1, 2008, two putative class actions were filed in the United States District Court for the Southern District of Ohio, Eastern Division, against Huntington and certain of its current or former officers and directors purportedly on behalf of purchasers of Huntington securities during the periods July 20, 2007 to November 16, 2007, or July 20, 2007 to January 10, 2008. On June 5, 2008, the two cases were consolidated into a single action. On August 22, 2008, a consolidated complaint was filed asserting a class period of July 19, 2007 through November 16, 2007, alleging that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act by issuing a series of allegedly false and/or misleading statements concerning Huntington’s financial results, prospects, and condition, relating, in particular, to its transactions with Franklin. The action was dismissed with prejudice on December 4, 2009, and the plaintiffs thereafter filed a Notice of Appeal to the United States Court of Appeals for the Sixth Circuit. Because the case is currently being appealed, it is not possible for management to assess the probability of an adverse outcome, or reasonably estimate the amount of any potential loss.

Three putative derivative lawsuits were filed in the Court of Common Pleas of Delaware County, Ohio, the United States District Court for the Southern District of Ohio, Eastern Division, and the Court of Common Pleas of Franklin County, Ohio, between January 16, 2008, and April 17, 2008, against certain of Huntington’s current or former officers and directors variously seeking to allege breaches of fiduciary duty, waste of corporate assets, abuse of control, gross mismanagement, and unjust enrichment, all in connection with Huntington’s acquisition of Sky Financial, certain transactions between Huntington and Franklin, and the financial disclosures relating to such transactions. Huntington is named as a nominal defendant in each of these actions. The derivative action filed in the United States District Court for the Southern District of Ohio was dismissed with prejudice on September 23, 2009. The plaintiff in that action thereafter filed a Notice of Appeal to the United States Court of Appeals for the Sixth Circuit, but the appeal was dismissed at the

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plaintiff’s request on January 12, 2010. That plaintiff subsequently sent a letter to Huntington’s Board of Directors demanding that it initiate certain litigation, which letter has been taken under advisement. Motions to dismiss the other two actions were filed on March 10, 2008, and January 26, 2009, and currently are pending. At this stage of the proceedings, it is not possible for management to assess the probability of an adverse outcome, or reasonably estimate the amount of any potential loss.

Between February 20, 2008 and February 29, 2008, three putative class action lawsuits were filed in the United States District Court for the Southern District of Ohio, Eastern Division, against Huntington, the Huntington Bancshares Incorporated Pension Review Committee, the Huntington Investment and Tax Savings Plan (the Plan) Administrative Committee, and certain of the Company’s officers and directors purportedly on behalf of participants in or beneficiaries of the Plan between either July 1, 2007 or July 20, 2007 and the present. On May 14, 2008, the three cases were consolidated into a single action. On August 4, 2008, a consolidated complaint was filed asserting a class period of July 1, 2007 through the present, alleging breaches of fiduciary duties in violation of the Employee Retirement Income Security Act (ERISA) relating to Huntington stock being offered as an investment alternative for participants in the Plan and seeking money damages and equitable relief. On February 9, 2009, the court entered an order dismissing with prejudice the consolidated lawsuit in its entirety, and the plaintiffs thereafter filed a Notice of Appeal to the United States Court of Appeals for the Sixth Circuit. During the pendency of the appeal, the parties to the appeal commenced settlement discussions and have reached an agreement in principle to settle this litigation on a classwide basis for $1,450,000, subject to the drafting of definitive settlement documentation and court approval. Because the settlement has not been finalized or approved, it is not possible for management to make further comment at this time.

On May 7, 2008, a putative class action lawsuit was filed in the United States District Court for the Southern District of Ohio, Eastern Division, against Huntington (as successor in interest to Sky Financial), and certain of Sky Financial’s former officers on behalf of all persons who purchased or acquired Sky Financial common stock in connection with and as a result of Sky Financial’s October 2006 acquisition of Waterfield Mortgage Company. The complaint alleged that the defendants violated Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the issuance of allegedly false and misleading registration and proxy statements leading up to the Waterfield acquisition and their disclosures about the nature and extent of Sky Financial’s lending relationship with Franklin. On May 1, 2009, the plaintiff filed a stipulation dismissing the lawsuit with prejudice. The dismissal entry was approved by the Court on May 5, 2009, and the case is now terminated.

Commitments Under Capital and Operating Lease Obligations

At December 31, 2009, Huntington and its subsidiaries were obligated under noncancelable leases for land, buildings, and equipment. Many of these leases contain renewal options and certain leases provide options to purchase the leased property during or at the expiration of the lease period at specified prices. Some leases contain escalation clauses calling for rentals to be adjusted for increased real estate taxes and other operating expenses or proportionately adjusted for increases in the consumer or other price indices.

The future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2009, were $44.8 million in 2010, $42.7 million in 2011, $41.2 million in 2012, $38.5 million in 2013, $35.3 million in 2014, and $155.2 million thereafter. At December 31, 2009, total minimum lease payments have not been reduced by minimum sublease rentals of $36.7 million due in the future under noncancelable subleases. At December 31, 2009, the future minimum sublease rental payments that Huntington expects to receive are $14.5 million in 2010; $11.5 million in 2011; $3.7 million in 2012; $3.2 million in 2013; $2.4 million in 2014; and $1.4 million thereafter. The rental expense for all operating leases was $49.8 million, $53.4 million, and $51.3 million for 2009, 2008, and 2007, respectively. Huntington had no material obligations under capital leases.

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25.   OTHER REGULATORY MATTERS

Huntington and its bank subsidiary, The Huntington National Bank, are subject to various regulatory capital requirements administered by federal and state banking agencies. These requirements involve qualitative judgments and quantitative measures of assets, liabilities, capital amounts, and certain off-balance sheet items as calculated under regulatory accounting practices. Failure to meet minimum capital requirements can initiate certain actions by regulators that, if undertaken, could have a material adverse effect on Huntington’s and The Huntington National Bank’s financial statements. Applicable capital adequacy guidelines require minimum ratios of 4.00% for Tier 1 Risk-based Capital, 8.00% for Total Risk-based Capital, and 4.00% for Tier 1 Leverage Capital. To be considered “well-capitalized” under the regulatory framework for prompt corrective action, the ratios must be at least 6.00%, 10.00%, and 5.00%, respectively.

As of December 31, 2009, Huntington and The Huntington National Bank (the Bank) met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for “well-capitalized” institutions. The period-end capital amounts and capital ratios of Huntington and the Bank are as follows:

	Tier 1						Total Capital						Tier 1 Leverage
	2009			2008			2009			2008			2009			2008
(In millions)
Huntington Bancshares Incorporated
Amount	$	5,201		$	5,036		$	6,231		$	6,535		$	5,201		$	5,036
Ratio		12.03	%		10.72	%		14.41	%		13.91	%		10.09	%		9.82	%
The Huntington National Bank
Amount	$	2,873		$	2,995		$	4,780		$	4,978		$	2,873		$	2,995
Ratio		6.66	%		6.44	%		11.08	%		10.71	%		5.59	%		5.99	%

Tier 1 Risk-based Capital consists of total equity plus qualifying capital securities and minority interest, excluding unrealized gains and losses accumulated in other comprehensive income, and non-qualifying intangible and servicing assets. Total Risk-based Capital is Tier 1 Risk-based Capital plus qualifying subordinated notes and allowable allowances for credit losses (limited to 1.25% of total risk-weighted assets). Tier 1 Leverage Capital is equal to Tier 1 Capital. Both Tier 1 Capital and Total Capital ratios are derived by dividing the respective capital amounts by net risk-weighted assets, which are calculated as prescribed by regulatory agencies. Tier 1 Leverage Capital ratio is calculated by dividing the Tier 1 capital amount by average total assets for the fourth quarter of 2009 and 2008, less non-qualifying intangibles and other adjustments.

The parent company has the ability to provide additional capital to the Bank to maintain the Bank’s risk-based capital ratios at levels at which would be considered “well-capitalized.”

Huntington and its subsidiaries are also subject to various regulatory requirements that impose restrictions on cash, debt, and dividends. The Bank is required to maintain cash reserves based on the level of certain of its deposits. This reserve requirement may be met by holding cash in banking offices or on deposit at the Federal Reserve Bank. During 2009 and 2008, the average balance of these deposits were $1.4 billion and $44.8 million, respectively.

Under current Federal Reserve regulations, the Bank is limited as to the amount and type of loans it may make to the parent company and non-bank subsidiaries. At December 31, 2009, the Bank could lend $478.0 million to a single affiliate, subject to the qualifying collateral requirements defined in the regulations.

Dividends from the Bank are one of the major sources of funds for Huntington. These funds aid the parent company in the payment of dividends to shareholders, expenses, and other obligations. Payment of dividends to the parent company is subject to various legal and regulatory limitations. Regulatory approval is required prior to the 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

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common stock. At December 31, 2009, the bank could not have declared and paid additional dividends to the parent company without regulatory approval.

26.   PARENT COMPANY FINANCIAL STATEMENTS

The parent company condensed financial statements, which include transactions with subsidiaries, are as follows.

	December 31,
Balance Sheets	2009		2008
(In thousands)
ASSETS
Cash and cash equivalents(1)	$	1,376,539	$	1,122,056
Due from The Huntington National Bank(2)		955,695		532,746
Due from non-bank subsidiaries		273,317		338,675
Investment in The Huntington National Bank		2,821,181		5,274,261
Investment in non-bank subsidiaries		815,730		854,575
Accrued interest receivable and other assets		112,557		146,167
Total assets	$	6,355,019	$	8,268,480
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term borrowings	$	1,291	$	1,852
Long-term borrowings		637,434		803,699
Dividends payable, accrued expenses, and other liabilities		380,292		234,023
Total liabilities		1,019,017		1,039,574
Shareholders’ equity(3)		5,336,002		7,228,906
Total liabilities and shareholders’ equity	$	6,355,019	$	8,268,480

(1)	Includes restricted cash of $125,000 at December 31, 2009.
(2)	Related to subordinated notes described in Note 14.
(3)	See Huntington’s Consolidated Statements of Changes in Shareholders’ Equity.

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	Year Ended December 31,
Statements of Income	2009			2008			2007
(In thousands)
Income
Dividends from
The Huntington National Bank	$	—			142,254		$	239,000
Non-bank subsidiaries		70,600			69,645			41,784
Interest from
The Huntington National Bank		51,620			19,749			18,622
Non-bank subsidiaries		14,662			12,700			12,180
Management fees from subsidiaries		—			—			3,882
Other		68,352			108			1,180
Total income		205,234			244,456			316,648
Expense
Personnel costs		21,206			24,398			24,818
Interest on borrowings		29,357			44,890			41,189
Other		28,398			240			14,667
Total expense		78,961			69,528			80,674
Income before income taxes and equity in undistributed net income of subsidiaries		126,273			174,928			235,974
Income taxes		20,675			(120,371	)		(39,509	)
Income before equity in undistributed net income of subsidiaries		105,598			295,299			275,483
Increase (decrease) in undistributed net income of:
The Huntington National Bank		(3,130,329	)		(98,863	)		(176,083	)
Non-bank subsidiaries		(69,448	)		(310,242	)		(24,231	)
Net (loss) income	$	(3,094,179	)		(113,806	)	$	75,169

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	Year Ended December 31,
Statements of Cash Flows	2009			2008			2007
(In thousands)
Operating activities
Net (loss) income	$	(3,094,179	)	$	(113,806	)	$	75,169
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of subsidiaries		3,199,777			266,851			200,315
Depreciation and amortization		3,458			2,071			4,367
Other, net		(103,464	)		65,076			(51,283	)
Net cash (used for) provided by operating activities		5,592			220,192			228,568
Investing activities
Net cash paid for acquisition		—			—			(313,311	)
Repayments from subsidiaries		393,041			540,308			333,469
Advances to subsidiaries		(1,017,892	)		(1,337,165	)		(442,418	)
Net cash used for investing activities		(624,851	)		(796,857	)		(422,260	)
Financing activities
Proceeds from issuance of long-term borrowings		—			—			250,010
Payment of borrowings		(99,417	)		(98,470	)		(42,577	)
Dividends paid on preferred stock		(107,262	)		(23,242	)		—
Dividends paid on common stock		(55,026	)		(279,608	)		(289,758	)
Proceeds from issuance of preferred stock		—			1,947,625			—
Proceeds from issuance of common stock		1,135,645			—			—
Other, net		(198	)		(1,073	)		16,782
Net cash provided by (used for) financing activities		873,742			1,545,232			(65,543	)
Change in cash and cash equivalents		254,483			968,567			(259,235	)
Cash and cash equivalents at beginning of year		1,122,056			153,489			412,724
Cash and cash equivalents at end of year	$	1,376,539		$	1,122,056		$	153,489
Supplemental disclosure:
Interest paid	$	29,357		$	44,890		$	41,189
Dividends in-kind received from The Huntington National Bank		—			124,689			—

27.   SEGMENT REPORTING

In the second quarter of 2009, Huntington reorganized its Regional Banking segment to reflect how its assets and operations are now managed. The Regional Banking line of business, which through March 31, 2009, had been managed geographically, is now managed on a product segment approach. The five distinct segments are: Retail and Business Banking, Commercial Banking, Commercial Real Estate, Auto Finance and Dealer Services (AFDS), and the Private Financial Group (PFG). A sixth group includes the Treasury function and other unallocated assets, liabilities, revenue, and expense. All periods have been reclassified to conform to the current period presentation.

Segment results are determined based upon the Company’s management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around the Company’s organizational and management structure and, accordingly, the results derived are not

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necessarily comparable with similar information published by other financial institutions. An overview of this system is provided below, along with a description of each segment and discussion of financial results.

Retail and Business Banking:  This segment provides traditional banking products and services to consumer and small business customers located in its 11 operating regions within the six states of Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. It provides these services through a banking network of over 600 branches, and over 1,300 ATMs, along with internet and telephone banking channels. It also provides certain services on a limited basis outside of these six states, including mortgage banking and small business administration (SBA) lending. Retail products and services include home equity loans and lines of credit, first mortgage loans, direct installment loans, small business loans, personal and business deposit products, treasury management products, as well as sales of investment and insurance services. At December 31, 2009, Retail and Business Banking accounted for 39% and 71% of consolidated loans and leases and deposits, respectively.

Commercial Banking:  This segment provides a variety of banking products and services to customers within the Company’s primary banking markets who generally have larger credit exposures and sales revenues compared with its Retail and Business Banking customers. Commercial Banking products include commercial loans, international trade, cash management, leasing, interest rate protection products, capital market alternatives, 401(k) plans, and mezzanine investment capabilities. The Commercial Banking team also serves customers that specialize in equipment leasing, as well as serves the commercial banking needs of government entities, not-for-profit organizations, and large corporations. Commercial bankers personally deliver these products and services by developing leads through community involvement, referrals from other professionals, and targeted prospect calling.

Commercial Real Estate:  This segment serves professional real estate developers or other customers with real estate project financing needs within the Company’s primary banking markets. Commercial Real Estate products and services include CRE loans, cash management, interest rate protection products, and capital market alternatives. Commercial real estate bankers personally deliver these products and services by: (a) relationships with developers in the Company’s footprint who are recognized as the most experienced, well-managed, and well-capitalized, and are capable of operating in all phases of the real estate cycle (“top-tier developers”), (b) leads through community involvement, and (c) referrals from other professionals.

Auto Finance and Dealer Services (AFDS):  This segment provides a variety of banking products and services to approximately 2,200 automotive dealerships within the Company’s primary banking markets. During the first quarter of 2009, AFDS discontinued lending activities in Arizona, Florida, Tennessee, Texas, and Virginia. Also, all lease origination activities were discontinued during the 2008 fourth quarter. AFDS finances the purchase of automobiles by customers at the automotive dealerships; finances dealerships’ new and used vehicle inventories, land, buildings, and other real estate owned by the dealership; finances dealership working capital needs; and provides other banking services to the automotive dealerships and their owners. Competition from the financing divisions of automobile manufacturers and from other financial institutions is intense. AFDS’ production opportunities are directly impacted by the general automotive sales business, including programs initiated by manufacturers to enhance and increase sales directly. Huntington has been in this line of business for over 50 years.

Private Financial Group (PFG):  This segment provides products and services designed to meet the needs of higher net worth customers. Revenue results from the sale of trust, asset management, investment advisory, brokerage, insurance, and private banking products and services including credit and lending activities. PFG also focuses on financial solutions for corporate and institutional customers that include investment banking, sales and trading of securities, and interest rate risk management products. To serve high net worth customers, we use a unique distribution model that employs a single, unified sales force to deliver products and services mainly through Retail and Business Banking distribution channels.

In addition to the Company’s five business segments, the Treasury/Other group includes revenue and expense related to assets, liabilities, and equity that are not directly assigned or allocated to one of the five business segments. Assets in this group include investment securities and bank owned life insurance. Net interest income/(expense) includes the net impact of administering the Company’s investment securities

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portfolios as part of overall liquidity management. A match-funded transfer pricing (FTP) system is used to attribute appropriate funding interest income and interest expense to other business segments. As such, net interest income includes the net impact of any over or under allocations arising from centralized management of interest rate risk. Furthermore, net interest income includes the net impact of derivatives used to hedge interest rate sensitivity. Non-interest income includes miscellaneous fee income not allocated to other business segments, including bank owned life insurance income. Fee income also includes asset revaluations not allocated to business segments, as well as any investment securities and trading assets gains or losses. The non-interest expense includes certain corporate administrative, merger costs, and other miscellaneous expenses not allocated to business segments. This group also includes any difference between the actual effective tax rate of Huntington and the statutory tax rate used to allocate income taxes to the other segments.

In 2009, a comprehensive review of the FTP methodology resulted in changes to various assumptions, including liquidity premiums. Business segment financial performance for 2009 reflect the methodology changes, however, financial performance for 2008 was not restated to reflect these changes, as the changes for that year were not material. As a result of this change, business segment performance for net interest income comparisons between 2009 and 2008 are affected.

The management accounting process used to develop the business segment reporting utilized various estimates and allocation methodologies to measure the performance of the business segments. During 2009, Huntington implemented a full-allocation methodology, where all Treasury/Other expenses, except those related to servicing Franklin assets, reported “Significant Items” (excluding the goodwill impairment), and a small residual of other unallocated expenses, are allocated to the other five business segments. Prior to this implementation, only certain expenses were allocated to the five business segments. Business segment financial performance for 2009 reflect the implementation, however, financial performance for 2008 was not restated to reflect these changes, as the methodology in place at that time was appropriate. As a result of this change, business segment performance comparisons for noninterest expense between 2009 and 2008 are affected.

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Listed below is certain operating basis financial information reconciled to Huntington’s 2009, 2008, and 2007 reported results by line of business:

	Retail &									Former
	Business						Commercial			Regional									Treasury/			Huntington
Income Statements	Banking			Commercial			Real Estate			Banking			AFDS			PFG			Other			Consolidated
(In thousands )
2009
Net interest income	$	882,026		$	209,376		$	134,190		$	1,225,592		$	141,989		$	77,390		$	(20,684	)	$	1,424,287
Provision for credit losses		(526,399	)		(359,233	)		(1,050,554	)		(1,936,186	)		(91,342	)		(57,450	)		10,307			(2,074,671	)
Non-Interest income		511,298			92,986			1,613			605,897			61,003			244,255			94,489			1,005,644
Non-Interest expense,
excluding goodwill impairment		(902,111	)		(143,420	)		(36,357	)		(1,081,888	)		(113,119	)		(243,738	)		12,246			(1,426,499	)
Goodwill impairment		—			—			—			(2,573,818	)(1)					(28,895	)		(4,231	)		(2,606,944	)
Income taxes		12,315			70,102			332,888			415,305			514			2,953			165,232			584,004
Operating/reported net income	$	(22,871	)	$	(130,189	)	$	(618,220	)	$	(3,345,098	)	$	(955	)	$	(5,485	)	$	257,359		$	(3,094,179	)
2008
Net interest income	$	941,807		$	313,353		$	202,178		$	1,457,338		$	149,236		$	74,651		$	(149,534	)	$	1,531,691
Provision for credit losses		(219,348	)		(102,143	)		(215,548	)		(537,039	)		(69,143	)		(13,279	)		(438,002	)		(1,057,463	)
Non interest income		405,654			96,676			13,288			515,618			59,497			258,300			(126,277	)		707,138
Non interest expense		(779,010	)		(147,329	)		(31,550	)		(957,889	)		(123,158	)		(248,540	)		(147,787	)		(1,477,374	)
Income taxes		(122,186	)		(56,195	)		11,071			(167,310	)		(5,751	)		(24,896	)		380,159			182,202
Operating/reported net income	$	226,917		$	104,362		$	(20,561	)	$	310,718		$	10,681		$	46,236		$	(481,441	)	$	(113,806	)
2007
Net interest income	$	710,154		$	245,690		$	147,884		$	1,103,728		$	138,786		$	57,985		$	1,013		$	1,301,512
Provision for credit losses		(48,373	)		5,352			(145,134	)		(188,155	)		(30,745	)		(961	)		(423,767	)		(643,628	)
Non interest income		363,990			81,873			11,675			457,538			41,594			197,436			(19,965	)		676,603
Non interest expense		(694,942	)		(133,652	)		(24,313	)		(852,907	)		(77,435	)		(202,364	)		(179,138	)		(1,311,844	)
Income taxes		(115,790	)		(69,742	)		3,461			(182,071	)		(25,270	)		(18,234	)		278,101			52,526
Operating/reported net income	$	215,039		$	129,521		$	(6,427	)	$	338,133		$	46,930		$	33,862		$	(343,756	)	$	75,169

(1) Represents the 2009 first quarter goodwill impairment charge associated with the former Regional Banking segment. The allocation of this amount to the new business segments was not practical.

	Assets at				Deposits at
	December 31,				December 31,
	2009		2008		2009		2008
(In millions)
Retail & Business Banking	$	16,565	$	17,232	$	28,877	$	27,350
Commercial Banking		7,767		8,685		6,031		5,769
Commercial Real Estate		7,426		8,360		535		487
AFDS		5,142		6,373		83		70
PFG		3,254		3,210		3,409		1,728
Treasury/Other		11,401		7,605		1,559		2,539
Unallocated goodwill(1)		—		2,888		—		—
Total	$	51,555	$	54,353	$	40,494	$	37,943

(1) Represents the balance of goodwill associated with the former Regional Banking business segment. The allocation of these amounts to the new business segments is not practical.

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28.   QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations, for the years ended December 31, 2009 and 2008:

	2009
	Fourth			Third			Second			First
(In thousands, except per share data)
Interest income	$	551,335		$	553,846		$	563,004		$	569,957
Interest expense		(177,271	)		(191,027	)		(213,105	)		(232,452	)
Net interest income		374,064			362,819			349,899			337,505
Provision for credit losses		(893,991	)		(475,136	)		(413,707	)		(291,837	)
Non-interest income		244,546			256,052			265,945			239,102
Non-interest expense		(322,596	)		(401,097	)		(339,982	)		(2,969,769	)
Loss before income taxes		(597,977	)		(257,362	)		(137,845	)		(2,684,999	)
Benefit for income taxes		228,290			91,172			12,750			251,792
Net loss income		(369,687	)		(166,190	)		(125,095	)		(2,433,207	)
Dividends on preferred shares		(29,289	)		(29,223	)		(57,451	)		(58,793	)
Net loss applicable to common shares	$	(398,976	)	$	(195,413	)	$	(182,546	)	$	(2,492,000	)
Net loss per common share — Basic	$	(0.56	)		(0.33	)		(0.40	)		(6.79	)
Net loss per common share — Diluted		(0.56	)		(0.33	)		(0.40	)		(6.79	)

	2008
	Fourth			Third			Second			First
(In thousands, except per share data)
Interest income	$	662,508		$	685,728		$	696,675		$	753,411
Interest expense		(286,143	)		(297,092	)		(306,809	)		(376,587	)
Net interest income		376,365			388,636			389,866			376,824
Provision for credit losses		(722,608	)		(125,392	)		(120,813	)		(88,650	)
Non-interest income		67,099			167,857			236,430			235,752
Non-interest expense		(390,094	)		(338,996	)		(377,803	)		(370,481	)
(Loss) income before income taxes		(669,238	)		92,105			127,680			153,445
Benefit (provision) for income taxes		251,949			(17,042	)		(26,328	)		(26,377	)
Net (loss) income		(417,289	)		75,063			101,352			127,068
Dividends declared on preferred shares		(23,158	)		(12,091	)		(11,151	)		—
Net (loss) income applicable to common shares	$	(440,447	)	$	62,972		$	90,201		$	127,068
Net (loss) income per common share — Basic	$	(1.20	)	$	0.17		$	0.25		$	0.35
Net (loss) income per common share — Diluted		(1.20	)		0.17			0.25			0.35

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