10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

QUARTERLY PERIOD ENDED September 30, 2010

Commission File Number 000-33243

Huntington Preferred Capital, Inc.

Ohio	31-1356967
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

41 South High Street, Columbus, Ohio  43287

Registrant's telephone number (614) 480-8300

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

¨ Yes   ¨ No

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

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

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

¨Yes   xNo

As of October 31, 2010, 14,000,000 shares of common stock without par value were outstanding, all of which were held by affiliates of the registrant.

HUNTINGTON PREFERRED CAPTIAL, INC.
INDEX
Part 1.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Balance Sheets at September 30, 2010, December 31, 2009, and September 30, 2009	3
	Condensed Statements of Income for the three and nine months ended September 30, 2010 and 2009	4
	Condensed Statements of Changes in Shareholders' Equity for the nine months ended September 30, 2010 and 2009	5
	Condensed Statements of Cash Flows for the nine months ended September 30, 2010 and 2009	6
	Notes to Unaudited Condensed Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION
Item 6.	Exhibits	26
Signatures		27

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Part 1.  FINANCIAL INFORMATION

Item 1.  Financial Statements

Huntington Preferred Capital, Inc.
Condensed Balance Sheets
(Unaudited)
	2010			2009
(inthousands,exceptsharedata)	September30,			December31,			September30,
Assets
Cash and interest bearing deposits with The Huntington National Bank	$	516,639		$	715,663		$	653,865
Due from The Huntington National Bank		116,578			—			56,589
Loan participation interests:
Commercial real estate		2,935,260			3,129,026			3,073,289
Consumer and residential real estate		611,384			744,627			790,829
Total loan participation interests		3,546,644			3,873,653			3,864,118
Allowance for loan participation losses		(147,607	)		(156,431	)		(97,331	)
Net loan participation interests		3,399,037			3,717,222			3,766,787
Accrued income and other assets		9,790			10,470			10,552
Total assets	$	4,042,044		$	4,443,355		$	4,487,793
Liabilities and shareholders' equity
Liabilities
Allowance for unfunded loan participation commitments	$	1,919		$	1,607		$	1,649
Dividends and distributions payable		1,159			500,000			3,257
Due to The Huntington National Bank		—			8,640			—
Other liabilities		65			74			63
Total liabilities		3,143			510,321			4,969
Shareholders' equity
Preferred securities, Class A, 8.000% noncumulative, non-exchangeable; $1,000 par and liquidation value per share; 1,000 shares authorized, issued and outstanding		1,000			1,000			1,000
Preferred securities, Class B, variable-rate, noncumulative, and conditionally exchangeable; $1,000 par and liquidation value per share; authorized 500,000 shares; 400,000 shares issued and outstanding		400,000			400,000			400,000
Preferred securities, Class C, 7.875% noncumulative and conditionally exchangeable; $25 par and liquidation value per share; 2,000,000 authorized, issued, and outstanding		50,000			50,000			50,000
Preferred securities, Class D, variable-rate, noncumulative, and conditionally exchangeable; $25 par and liquidation value per share; 14,000,000 shares authorized, issued, and outstanding		350,000			350,000			350,000
Preferred securities, $25 par, 10,000,000 shares authorized; no shares issued or outstanding		—			—			—
Common stock - without par value; 14,000,000 shares authorized, issued, and outstanding		3,160,217			3,160,217			3,660,217
Retained earnings (deficit)		77,684			(28,183	)		21,607
Total shareholders' equity		4,038,901			3,933,034			4,482,824
Total liabilities and shareholders' equity	$	4,042,044		$	4,443,355		$	4,487,793

See notes to unaudited condensed financial statements.

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Huntington Preferred Capital, Inc.
Condensed Statements of Income
(Unaudited)	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
Interest and fee income
Interest on loan participation interests:
Commercial real estate	$	27,173		$	26,575		$	80,591		$	82,972
Consumer and residential real estate		10,418			13,392			33,018			43,146
Total loan participation interest income		37,591			39,967			113,609			126,118
Fees from loan participation interests		276			379			1,194			938
Interest on deposits with The Huntington National Bank		383			395			814			781
Total interest and fee income		38,250			40,741			115,617			127,837
Provision (reduction in allowance) for credit losses		(3,957	)		27,701			(4,532	)		87,186
Net interest income after provision (reduction in allowance) for credit losses		42,207			13,040			120,149			40,651
Noninterest income:
Rental income		18			17			52			49
Collateral fees		511			609			1,591			1,926
Total noninterest income		529			626			1,643			1,975
Noninterest expense:
Servicing costs		1,945			2,264			6,086			7,202
Other		174			162			517			562
Total noninterest expense		2,119			2,426			6,603			7,764
Net income	$	40,617		$	11,240		$	115,189		$	34,862
Dividends declared on preferred shares		(3,406	)		(3,507	)		(9,322	)		(13,255	)
Net income applicable to common shares(1)	$	37,211		$	7,733		$	105,867		$	21,607

(1)All of HPCI's common stock is owned by HPCII and Holdings and therefore, net income per share is not presented.

See notes to unaudited condensed financial statements.

4

Huntington Preferred Capital, Inc.
Condensed Statements of Changes in Shareholders' Equity
(Unaudited)
	Preferred, Class A				Preferred, Class B				Preferred, Class C
(in thousands)	Shares		Amount		Shares		Amount		Shares		Amount
Nine Months Ended September 30, 2009
Balance, beginning of period		1	$	1,000		400	$	400,000		2,000	$	50,000
Comprehensive Income:
Net income
Total comprehensive income
Balance, end of the period		1	$	1,000		400	$	400,000		2,000	$	50,000
Nine Months Ended September 30, 2010
Balance, beginning of period		1	$	1,000		400	$	400,000		2,000	$	50,000
Comprehensive Income:
Net income
Total comprehensive income
Balance, end of the period		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
Nine Months Ended September 30, 2009
Balance, beginning of period		14,000	$	350,000		—	$	—		14,000	$	3,660,217	$	—		$	4,461,217
Comprehensive Income:
Net income														34,862			34,862
Total comprehensive income																	34,862
Dividends declared on Class A preferred securities														(80	)		(80	)
Dividends declared on Class B preferred securities														(3,177	)		(3,177	)
Dividends declared on Class C preferred securities														(2,953	)		(2,953	)
Dividends declared on Class D preferred securities														(7,045	)		(7,045	)
Balance, end of the period		14,000	$	350,000		—	$	—		14,000	$	3,660,217	$	21,607		$	4,482,824
Nine Months Ended September 30, 2010:
Balance, beginning of period		14,000	$	350,000		—	$	—		14,000	$	3,160,217	$	(28,183	)	$	3,933,034
Comprehensive Income:
Net income														115,189			115,189
Total comprehensive income																	115,189
Dividends declared on Class A preferred securities														(80	)		(80	)
Dividends declared on Class B preferred securities														(1,079	)		(1,079	)
Dividends declared on Class C preferred securities														(2,953	)		(2,953	)
Dividends declared on Class D preferred securities														(5,210	)		(5,210	)
Balance, end of the period		14,000	$	350,000		—	$	—		14,000	$	3,160,217	$	77,684		$	4,038,901

See notes to unaudited condensed financial statements.

5

Huntington Preferred Capital, Inc.
Condensed Statements of Cash Flows
(Unaudited)	Nine Months Ended
	September 30,
(in thousands)	2010			2009
Operating activities
Net income	$	115,189		$	34,862
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (reduction in allowance) for credit losses		(4,532	)		87,186
Change in due to/from The Huntington National Bank		827			5,083
Other, net		1,542			3,562
Net cash provided by (used for) operating activities		113,026			130,693
Investing activities
Participation interests acquired		(1,226,260	)		(1,151,578	)
Sales and repayments of loans underlying participation interests		1,422,373			1,616,739
Net cash provided by (used for) investing activities		196,113			465,161
Financing activities
Dividends paid on preferred securities		(8,163	)		(9,998	)
Dividends paid on common stock		—			(224,258	)
Return of capital to common shareholders		(500,000	)		(742	)
Net cash provided by (used for) financing activities		(508,163	)		(234,998	)
(Decrease) increase in cash and cash equivalents		(199,024	)		360,856
Cash and cash equivalents at beginning of period		715,663			293,009
Cash and cash equivalents at end of period	$	516,639		$	653,865
Supplemental disclosures:
Dividends and distributions declared, not paid	$	1,159		$	3,257
Non-cash change in loan participation activity with The Huntington National Bank		126,045			23,249

See notes to unaudited condensed financial statements.

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Notes to Unaudited Condensed Financial Statements

Note 1 - Organization

Huntington Preferred Capital, Inc. (HPCI or the Company) was organized under Ohio law in 1992 and designated as a real estate investment trust (REIT) in 1998. HPCI’s principal business objective is to acquire, hold, and manage mortgage assets and other authorized investments that will generate net income for distribution to its shareholders. Two related parties own HPCI’s common stock: Huntington Preferred Capital II, Inc. (HPCII); and Huntington Preferred Capital Holdings, Inc. (Holdings). On June 14, 2010, Huntington Capital Financing LLC (HCF) merged into HPCII and the common stock previously owned by HCF is now owned by HPCII.

HPCII and Holdings are direct and indirect subsidiaries of The Huntington National Bank (the Bank), a national banking association organized under the laws of the United States and headquartered in Columbus, Ohio. The Bank is a wholly owned subsidiary of Huntington Bancshares Incorporated (Huntington). Huntington is a multi-state diversified financial holding company organized under Maryland law and headquartered in Columbus, Ohio. At September 30, 2010, the Bank, on a consolidated basis with its subsidiaries, accounted for over 99% of Huntington’s consolidated total assets and essentially all of year-to-date net income. Thus, for purposes of presenting consolidated financial statements for the Bank, Management considers information for the Bank and for Huntington to be substantially the same for these periods.

Note 2 – Subsequent Event

During the first quarter of 2010, HPCI’s Board of Directors approved a proposal to exchange HPCI’s preferred class D shares, currently held by Holdings, for newly issued preferred class E shares. On October 28, 2010, the exchange occurred and one new share of class E preferred securities was issued and exchanged for each ten shares of class D preferred securities. The newly issued 1,400,000 class E preferred shares have the same terms as the class D preferred securities. The per share liquidation value of the class E preferred securities is ten times ($250) that of the class D securities. The dividend rate and terms remain the same. The exchange had no impact on HPCI’s financial results since the liquidation value remains at $350,000,000.

In conjunction with applicable accounting standards, all material subsequent events have been either recognized in the financial statements or disclosed in the notes to the financial statements.

Note 3 - Basis of Presentation and New Accounting Pronouncements

The accompanying unaudited condensed financial statements of HPCI reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of Management, necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. These unaudited condensed financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. The Notes to the Consolidated Financial Statements appearing in HPCI’s Annual Report on Form 10-K for the year ended December 31, 2009 (Form 10-K), which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.

HPCI elected to be treated as a REIT for federal income tax purposes and intends to maintain compliance with the provisions of the Internal Revenue Code and, therefore, is not subject to federal income taxes.

All of HPCI’s common stock is owned by affiliates; therefore, net income per common share information is not presented.

Cash and cash equivalents used in the Condensed Statements of Cash Flows is defined as “Cash and Interest bearing deposits with The Huntington National Bank.”

 Accounting Standards Update (ASU) 2010-6 – Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. The ASU amends Subtopic 820-10 with new disclosure requirements and clarification of existing disclosure requirements. New disclosures required include the amount of significant transfers in and out of levels 1 and 2 fair value measurements and the reasons for the transfers. In addition, the reconciliation for level 3 activity will be required on a gross rather than net basis. The ASU provides additional guidance related to the level of disaggregation in determining classes of assets and liabilities and disclosures about inputs and valuation techniques. The amendments are effective for annual or interim reporting periods beginning after December 15, 2009, except for the requirement to provide the reconciliation for level 3 activity on a gross basis which will be effective for fiscal years beginning after December 15, 2010. The adoption of this guidance had no impact on HPCI’s condensed financial statements.

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Accounting Standards Update (ASU) 2010-20 – Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The ASU will require more information about the credit quality of the loan portfolio in the disclosures to financial statements, such as aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. The disaggregation of information is based on how a company develops its allowance for credit losses and how it manages its credit exposure. The disclosures related to period-end balances are effective for annual or interim reporting periods ending after December 15, 2010 and the disclosures of activity that occurs during the reporting period are effective for annual or interim reporting periods beginning after December 15, 2010.

Note 4 - Lending Concentrations and Participations in Nonperforming Assets and Past Due Loans

There were no underlying loans outstanding that would be considered a concentration of lending in any particular industry, group of industries, or business activity. Underlying loans were, however, generally collateralized by real estate. Loans made to borrowers in the five states of Ohio, Michigan, Indiana, Pennsylvania and Kentucky comprised approximately 94.3%, 93.8%, and 93.8% of the portfolio at September 30, 2010, December 31, 2009, and September 30, 2009, respectively.

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

	September 30,		December 31,		September 30,
(in thousands)	2010		2009		2009
Commercial real estate	$	87,302	$	165,184	$	192,661
Consumer and residential real estate		4,979		5,554		5,467
Total participations in nonperforming assets	$	92,281	$	170,738	$	198,128
Participations in accruing loans past due 90 days or more	$	4,737	$	8,631	$	10,294

Note 5 - Allowance for Credit Losses (ACL)

The allowance for credit losses (ACL) is comprised of the allowance for loan participation losses (ALPL) and the allowance for unfunded loan participation commitments (AULPC). Loan participations are acquired net of related ALPL. As a result, the related ALPL is transferred to HPCI from the Bank and is reflected as ALPL acquired, rather than HPCI having to record a provision expense for ALPL. If credit quality deteriorates more than implied by the ALPL acquired, a provision to the ALPL is made. If credit quality performance is better than implied by the ALPL acquired, an ALPL reduction is recorded. As loan participations mature, refinance, or other such actions occur, any allowance not absorbed by loan losses is released through the reduction in ALPL.

The following table reflects activity in the ACL for the three-month and nine-month periods ended September 30, 2010 and 2009:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
ALPL balance, beginning of period	$	144,097		$	95,748		$	156,431		$	65,456
ALPL for loan participations acquired		19,135			9,331			44,082			18,134
Net loan losses		(11,359	)		(36,080	)		(48,062	)		(74,097	)
Provision (reduction in allowance) for ALPL		(4,266	)		28,332			(4,844	)		87,838
ALPL balance, end of period		147,607			97,331			147,607			97,331
AULPC balance, beginning of period		1,610			2,280			1,607			2,301
Provision (reduction in allowance) for AULPC		309			(631	)		312			(652	)
AULPC balance, end of period	$	1,919		$	1,649		$	1,919		$	1,649
Total ACL	$	149,526		$	98,980		$	149,526		$	98,980

As of September 30, 2010, December 31, 2009, and September 30, 2009, HPCI’s unfunded loan commitments totaled $194.5 million, $303.7 million, and $290.2 million, respectively.

 

8

 

Note 6 - Preferred Dividends

Holders of Class A preferred securities, a majority of which are held by Holdings and the remainder by current and past employees of Huntington and the Bank, are entitled to receive, if, when, and as declared by the Board of Directors of HPCI out of funds legally available, dividends at a fixed rate of $80.00 per share per annum. Dividends on the Class A preferred securities, if declared, are payable annually in December to holders of record on the record date fixed for such purpose by the Board of Directors in advance of payment.

The holder of the Class B preferred securities, HPC Holdings-II, Inc., a direct non-bank subsidiary of Huntington, is entitled to receive, if, when, and as declared by the Board of Directors of HPCI out of funds legally available, dividends at a variable rate equal to three-month LIBOR published on the first day of each calendar quarter times par value. Dividends on the Class B preferred securities, which are declared quarterly, are payable annually and are non-cumulative. No dividend, except payable in common shares, may be declared or paid upon Class B preferred securities unless dividend obligations are satisfied on the Class A, Class C, and Class D preferred securities.

Holders of Class C preferred securities are entitled to receive, if, when, and as declared by the Board of Directors of HPCI out of funds legally available, dividends at a fixed rate of 7.875% per annum, of the initial liquidation preference of $25.00 per share, payable quarterly. Dividends accrue in each quarterly period from the first day of each period, whether or not dividends are paid with respect to the preceding period. Dividends are not cumulative and if no dividend is paid on the Class C preferred securities for a quarterly dividend period, the payment of dividends on HPCI’s common stock and other HPCI-issued securities ranking junior to the Class C preferred securities (i.e., Class B preferred securities) will be prohibited for that period and at least the following three quarterly dividend periods.

The holder of Class D preferred securities, Holdings, is entitled to receive, if, when, and as declared by the Board of Directors of HPCI out of funds legally available, dividends at a variable rate established at the beginning of each calendar quarter equal to three-month LIBOR published on the first day of each calendar quarter, plus 1.625%, times par value, payable quarterly. Dividends accrue in each quarterly period from the first day of each period, whether or not dividends are paid with respect to the preceding period. Dividends are not cumulative and if no dividend is paid on the Class D preferred securities for a quarterly dividend period, the payment of dividends on HPCI’s common stock and other HPCI-issued securities ranking junior to the Class D preferred securities (i.e., Class B preferred securities) will be prohibited for that period and at least the following three quarterly dividend periods. See Note 2 regarding the exchange of Class D preferred securities for the newly created Class E preferred securities on October 28, 2010.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2010		2009		2010		2009
Class A preferred securities	$	—	$	—	$	80	$	80
Class B preferred securities		533		588		1,079		3,177
Class C preferred securities		984		984		2,953		2,953
Class D preferred securities		1,889		1,935		5,210		7,045
Total dividends declared	$	3,406	$	3,507	$	9,322	$	13,255

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 a regulatory dividend limitation, the Bank could not have declared and paid a dividend at September 30, 2010, without regulatory approval. As a subsidiary of the Bank, HPCI is also restricted from declaring or paying dividends on Class A, B, and C preferred securities without regulatory approval. The Office of the Comptroller of the Currency (OCC) has approved the payment of HPCI's dividends on its preferred securities throughout 2009 and 2010. For the foreseeable future, management intends to request approval for any future dividend; however, there can be no assurance that the OCC will approve future dividends.

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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 loan participation interests to date were acquired directly or indirectly from the Bank.

The Bank performs the servicing of the commercial real estate, consumer, and residential real estate loans underlying the participations held by HPCI in accordance with normal industry practice under the amended participation and subparticipation agreements. In its capacity as servicer, the Bank collects and holds the loan payments received on behalf of HPCI until the end of each month. Loan servicing costs totaled $1.9 million and $2.3 million for the three-month periods ended September 30, 2010 and 2009, respectively. For the respective nine-month periods, the costs were $6.1 million and $7.2 million.

In 2010 and 2009, the annual servicing rates the Bank charged with respect to outstanding principal balances were:

	January 1, 2009
	through
	September 30, 2010
Commercial real estate		0.125	%
Consumer		0.650	%
Residential real estate		0.267	%

Pursuant to the existing participation and sub-participation agreements, the amount and terms of the loan-servicing fee between the Bank and HPCI are determined by mutual agreement from time-to-time during the terms of the agreements. In lieu of paying higher servicing costs to the Bank with respect to commercial real estate loans, HPCI waived its right to receive any origination fees associated with participation interests in commercial real estate loans. The Bank and HPCI performed a review of loan servicing fees in 2010, 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 2011.

Huntington’s and the Bank’s personnel handle day-to-day operations of HPCI such as financial analysis and reporting, accounting, tax reporting, and other administrative functions. On a monthly basis, HPCI reimburses the Bank and Huntington for the cost related to the time spent by employees for performing these functions. These personnel costs totaled $0.1 million for both of the three-month periods ended September 30, 2010 and 2009, and are included in other noninterest expense. For both of the respective nine-month periods, the cost was $0.3 million.

The following table represents the ownership of HPCI’s outstanding common and preferred securities as of September 30, 2010:

	Number of		Number of Preferred Securities
Shareholder:	Common Shares		Class A		Class B		Class C		Class D
Held by related parties:
HPCII		11,130,000		—		—		—		—
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 September 30, 2010, 10.5% of the Class A preferred securities were owned by current and past employees of Huntington and its subsidiaries in addition to the 89.5% owned by Holdings. The Class A preferred securities are non-voting. All of the Class B preferred securities are owned by HPC Holdings-II, Inc., a non-bank subsidiary of Huntington, and are non-voting. In 2001, the Class C preferred securities were obtained by Holdings, who sold the securities to the public. Various board members and executive officers of HPCI have purchased a portion of the Class C preferred securities. At September 30, 2010, HPCI board members and executive officers beneficially owned, in the aggregate, a total of 5,871 shares, or 0.294% of the Class C preferred securities. At September 30, 2010, all of the Class D preferred securities were owned by Holdings.

10

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. See Note 2 regarding the exchange of Class D preferred securities for the newly created Class E preferred securities on October 28, 2010.

As only related parties hold HPCI’s common stock, there is no established public trading market for this class of stock.

HPCI had a receivable from the Bank of $116.6 million at September 30, 2010, a payable to the Bank of $8.6 million at December 31, 2009, and a receivable from the Bank of $56.6 million at September 30, 2009. 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.

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.

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 Values of Assets and Liabilities

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 used in 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.

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.

Impairment of Loan Participation Interests

Periodically, HPCI records nonrecurring adjustments of collateral-dependent loan participation interests 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. Appraisals are generally obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties and cost of construction. HPCI considers these fair values Level 3. In cases where the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized.

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For the nine months ended September 30, 2010 and 2009, HPCI identified the following loans where the carrying value exceeded the fair value of the underlying collateral for the loan. The fair value impairment was recorded within the provision for credit losses.

			Fair Value Measurements Using
			Quoted Prices		Significant			Significant
			In Active		Other			Other
	Nine Months		Markets for		Observable			Unobservable		Total
	Ended		Identical Assets		Inputs			Inputs		Gains/
(in millions)	September 30,		(Level 1)		(Level 2)		(Level 3)			(Losses)
2010
Loan participation interests	$	9.3	$	—	$	—		$	9.3	$	(10.0	)
2009
Loan participation interests	$	77.3	$	—	$	—		$	77.3	$	(26.4	)

There were no changes in the valuation techniques or related inputs used to measure similar assets in prior periods.

Fair Value of Financial Instruments

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 fair value based on its highly liquid nature.

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 September 30, 2010, the net carrying amount of $3.5 billion corresponded to a fair value of $2.9 billion. As of September 30, 2009, the net carrying value of $3.8 billion corresponded to a fair value of $2.8 billion. At September 30, 2010, the valuation of the loan portfolio reflected discounts that HPCI believed are consistent with transactions occurring in the market place.

Note 9 - Commitments and Contingencies

The Bank is eligible to obtain collateralized advances from various federal and government-sponsored agencies such as the Federal Home Loan Bank. 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 one such facility. The Bank has a line of credit from the FHLB, limited to $2.3 billion as of September 30, 2010, based on the Bank’s holdings of FHLB stock. As of this same date, the Bank had borrowings of $43.8 million under this facility. This was down from borrowings of $172.1 million at December 31, 2009.

HPCI has entered into an Amended and Restated Agreement with the Bank with respect to the pledge of HPCI’s assets to collateralize the Bank’s borrowings from the FHLB. The agreement provides that the Bank will not place at risk HPCI’s assets in excess of an aggregate dollar amount or aggregate percentage of such assets established from time-to-time by HPCI’s board of directors, including a majority of HPCI’s independent directors. The pledge limit was established by HPCI’s board at 25% of total assets, or approximately $1.0 billion as of September 30, 2010. This pledge limit may be changed in the future by the board of directors, including a majority of HPCI’s independent directors. The amount of HPCI’s participation interests pledged was $0.5 billion at September 30, 2010. In 2010, the loans pledged consisted of 1-4 family residential mortgage loans. The agreement also provides that the Bank will pay HPCI a monthly fee based upon the total loans pledged by HPCI. The Bank paid HPCI a total of $0.5 million and $0.6 million for the three months ended September 30, 2010 and 2009, respectively, as compensation for making such assets available to the Bank. The amounts paid to HPCI for the first nine months of 2010 and 2009 were $1.6 million and $1.9 million, respectively. The fee represented thirty-five basis points per year on total pledged loans.

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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 or pay letters of credit issued for those accounts for any of HPCI’s loan participation interests, to the extent provided in the loan agreements underlying HPCI’s participation interests. As established by HPCI’s board, these unfunded loan commitments may not exceed 25% of total assets. As of September 30, 2010, December 31, 2009, and September 30, 2009, HPCI’s unfunded loan commitments totaled $194.5 million, $303.7 million, and $290.2 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.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

INTRODUCTION

Huntington Preferred Capital, Inc. (HPCI or the Company) is an Ohio corporation operating as a real estate investment trust (REIT) for federal income tax purposes. HPCI’s principal business objective is to acquire, hold, and manage mortgage assets and other authorized investments that will generate net income for distribution to its shareholders.

HPCI is a party to a Third Amended and Restated Loan Subparticipation Agreement with Huntington Preferred Capital Holdings, Inc. (Holdings) and a Second Amended and Restated Loan Participation Agreement with The Huntington National Bank (the Bank). The Bank is required, under the participation and/or subparticipation agreements, to service HPCI’s loan portfolio in a manner substantially the same as for similar work for transactions on its own behalf. The Bank collects and remits principal and interest payments, maintains perfected collateral positions, and submits and pursues insurance claims. In addition, the Bank provides to HPCI accounting and reporting services as required. The Bank is required to adhere to HPCI’s policies relating to the relationship between HPCI and the Bank and to pay all expenses related to the performance of the Bank’s duties under the participation and subparticipation agreements. All of these participation interests to date were acquired directly or indirectly from the Bank.

The following discussion and analysis provides information the Company believes is necessary for understanding the financial condition, changes in financial condition, results of operations, and cash flows and should be read in conjunction with the financial statements, notes, and other information contained in this report. The Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) appearing in HPCI’s Annual Report on Form 10-K for the year ended December 31, 2009 (Form 10-K) should be read in conjunction with this interim MD&A.

Forward-looking Statements

This report, including this MD&A, contains forward-looking statements about HPCI. These include descriptions of products or services, plans, or objectives of Management for future operations, and forecasts of revenues, earnings, cash flows, or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.

By their nature, forward-looking statements are subject to numerous assumptions, risks, and uncertainties. A number of factors could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements. These factors include, but are not limited to, those set forth under the heading “Risk Factors” included in Item 1A of HPCI’s Form 10-K and other factors described in this report and from time to time in other filings with the Securities and Exchange Commission (SEC).

Management encourages readers of this report to understand forward-looking statements to be strategic objectives rather than absolute forecasts of future performance. Forward-looking statements speak only as of the date they are made. HPCI assumes no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events.

Risk Factors

HPCI is subject to a number of risks that may adversely affect its financial condition or results of operation, many of which are outside of the Company’s direct control, though efforts are made to manage those risks while optimizing returns. Credit risk related to retail properties and single family homebuilders is of particular concern in the current economy. See “Credit Risk’ section of this report. Additionally, more information on risk is set forth under the heading “Risk Factors” included in Item 1A of HPCI’s Form 10-K, and subsequent filings with the SEC.

Critical Accounting Policies

HPCI’s financial statements were prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of financial statements in conformity with GAAP requires the Company to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in our financial statements. Note 1 to HPCI’s consolidated financial statements included in its Form 10-K lists significant accounting policies used in the development and presentation of its financial statements. This MD&A, the significant accounting policies, and other financial statement disclosures, identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of HPCI, its financial position, results of operations, and cash flows.

14

 

Use of Significant Estimates

The preparation of financial statements in conformity with GAAP requires Management to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in the Company’s financial statements. An accounting estimate requires assumptions about uncertain matters that could have a material effect on the financial statements if a different amount within a range of estimates were used or if estimates changed from period to period. Readers of this interim report should understand that estimates are made under facts and circumstances at a point in time and changes in those facts and circumstances could produce actual results that differ from when those estimates were made. HPCI’s Management has identified the most significant accounting estimates and their related application in its Form 10-K.

Allowance for Credit Losses (ACL)

The allowance for credit losses (ACL) is comprised of the allowance for loan participation losses (ALPL) and the allowance for unfunded loan participation commitments (AULPC). The amount of the ACL was determined by judgments regarding the quality of each individual loan portfolio and loan commitments. All known relevant internal and external factors that affected loan collectability were considered, including analysis of historical charge-off experience, migration patterns, changes in economic conditions, and changes in loan collateral values. Such factors are subject to regular review and may change to reflect updated performance trends and expectations, particularly in times of severe stress. It is HPCI’s policy to rely on the Bank’s detailed analysis as of the end of each quarter to estimate the required level of the ALPL and AULPC. The Bank’s methodology to determine the adequacy of the ALPL relies on a number of analytical tools and benchmarks. No single statistic or measurement, in itself, determines the adequacy of the allowance. HPCI believes the Bank’s process for determining the ACL considers all of the potential factors that could result in credit losses. However, the process includes judgmental and quantitative elements that may be subject to significant change. There is no certainty that the ACL will be adequate over time to cover credit losses in the portfolio because of continued adverse changes in the economy, market conditions, or events adversely affecting specific customers, industries or markets. To the extent actual outcomes differ from our estimates, the credit quality of our customer base materially decreases, the risk profile of a market, industry, or group of customers changes materially, or if the ACL is determined to not be adequate, additional provision for credit losses could be required, which could adversely affect our business, financial condition, liquidity, capital, and results of operations in future periods.

QUALIFICATION TESTS

Qualification as a REIT involves application of specific provisions of the Internal Revenue Code relating to various asset tests. A REIT must satisfy six asset tests quarterly: (1) 75% of the value of the REIT's total assets must consist of real estate assets, cash and cash items, and government securities; (2) not more than 25% of the value of the REIT's total assets may consist of securities, other than those includible under the 75% test; (3) not more than 5% of the value of its total assets may consist of securities of any one issuer, other than those securities includible under the 75% test or securities of taxable REIT subsidiaries; (4) not more than 10% of the outstanding voting power of any one issuer may be held, other than those securities includible under the 75% test or securities of taxable REIT subsidiaries; (5) not more than 10% of the total value of the outstanding securities of any one issuer may be held, other than those securities includible under the 75% test or securities of taxable REIT subsidiaries; and (6) a REIT cannot own securities in one or more taxable REIT subsidiaries which comprise more than 20% of its total assets. At September 30, 2010, HPCI met all of the quarterly asset tests.

Also, a REIT must annually satisfy two gross income tests: (1) 75% of its gross income must be from qualifying income closely connected with real estate activities; and (2) 95% of its gross income must be derived from sources qualifying for the 75% test plus dividends, interest, and gains from the sale of securities. In addition, a REIT must distribute 90% of the REIT’s taxable income for the taxable year, excluding any net capital gains, to maintain its non-taxable status for federal income tax purposes. For 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 September 30, 2010, HPCI was exempt from registration as an investment company under the Investment Company Act and intends to operate its business in a manner that will maintain this exemption.

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RESULTS OF OPERATIONS

HPCI’s income is primarily derived from its participation in loans acquired from the Bank and Holdings. Income varies based on the level of these assets and their respective interest rates. The cash flows from these assets are used to satisfy HPCI’s preferred dividend obligations. The preferred securities are considered equity and, therefore, the dividends are not reflected as interest expense.

The following table details the results of operations for the last five quarters. The increase in net income for the third quarter of 2010, compared with same period of 2009, was primarily the result a reduction in the allowance for credit losses compared with a provision for credit losses in the prior year quarter, partially offset by lower interest and fee income.

Table 1 - Quarterly Statements of Income

	2010									2009						3Q10 vs. 3Q09
(in thousands)	Third			Second			First			Fourth			Third			$ chg			%Chg
Interest and fee income
Interest on loan participation interests:
Commercial real estate	$	27,173		$	26,857		$	26,561		$	26,321		$	26,575		$	598			2.25	%
Consumer and residential real estate		10,418			10,994			11,606			12,576			13,392			(2,974	)		(22.21	)
Total loan participation interest income		37,591			37,851			38,167			38,897			39,967			(2,376	)		(5.94	)
Fees from loan participation interests		276			427			491			297			379			(103	)		(27.18	)
Interest on deposits with The Bank		383			272			159			454			395			(12	)		(3.04	)
Total interest and fee income		38,250			38,550			38,817			39,648			40,741			(2,491	)		(6.11	)
Provision (reduction in allowance) for credit losses		(3,957	)		(1,182	)		607			84,740			27,701			(31,658	)	N.M.
Interest income after provision (reduction in allowance) for credit losses		42,207			39,732			38,210			(45,092	)		13,040			29,167		N.M.
Noninterest income:
Rental income		18			17			17			16			17			1			5.88
Collateral fees		511			524			556			578			609			(98	)		(16.09	)
Total noninterest income		529			541			573			594			626			(97	)		(15.50	)
Noninterest expense:
Servicing costs		1,945			2,024			2,117			2,180			2,264			(319	)		(14.09	)
Other		174			180			163			172			162			12			7.41
Total noninterest expense		2,119			2,204			2,280			2,352			2,426			(307	)		(12.65	)
Net income (loss)	$	40,617		$	38,069		$	36,503		$	(46,850	)	$	11,240		$	29,377		N.M.		%
Dividends declared on preferred shares		(3,406	)		(2,953	)		(2,963	)		(2,940	)		(3,507	)		101			(2.88	)
Net income (loss) applicable to common shares(1)	$	37,211		$	35,116		$	33,540		$	(49,790	)	$	7,733		$	29,478		N.M.		%

(1)All of HPCI's common stock is owned by HPCII and Holdings and, therefore, net income per share is not presented

N.M. — Not a meaningful value.

The following table details the results of operations for the year to date periods ending September 30, 2010 and 2009. The increase in net income for the first nine-months of 2010, compared to the same period of 2009, was primarily the result of much lower provision for credit losses, partially offset by lower interest income.

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Table 2 - Selected Year to Date Income Statement Data

	Nine Months Ended September 30,						Change
(in thousands)	2010			2009			Amount			Percent
Interest and fee income
Interest on loan participation interests:
Commercial real estate	$	80,591		$	82,972		$	(2,381	)		(2.9	)%
Consumer and residential real estate		33,018			43,146			(10,128	)		(23.5	)
Total loan participation interest income		113,609			126,118			(12,509	)		(9.9	)
Fees from loan participation interests		1,194			938			256			27.3
Interest on deposits with The Bank		814			781			33			4.2
Total interest and fee income		115,617			127,837			(12,220	)		(9.6	)
Provision (reduction in allowance) for credit losses		(4,532	)		87,186			(91,718	)	N.M.
Interest income after provision (reduction in allowance) for credit losses		120,149			40,651			79,498		N.M.
Noninterest income:
Rental income		52			49			3			6.1
Collateral fees		1,591			1,926			(335	)		(17.4	)
Total noninterest income		1,643			1,975			(332	)		(16.8	)
Noninterest expense:
Servicing costs		6,086			7,202			(1,116	)		(15.5	)
Other		517			562			(45	)		(8.0	)
Total noninterest expense		6,603			7,764			(1,161	)		(15.0	)
Net income	$	115,189		$	34,862		$	80,327		N.M. %
Dividends declared on preferred shares		(9,322	)		(13,255	)		3,933			(29.7	)
Net income applicable to common shares(1)	$	105,867		$	21,607		$	84,260		N.M.		%

N.M., not a meaningful value.

(1)All of HPCI's common stock is owned by HPCII and Holdings and therefore, net income per share is not presented

Interest and Fee Income

HPCI’s primary source of revenue is interest and fee income on its participation interests in loans. At September 30, 2010and 2009, HPCI did not have any interest-bearing liabilities or related interest expense. Interest income is impacted by changes in the levels of interest rates and earning assets. The yield on earning assets is the percentage of interest income to average earning assets.

The tables below show HPCI’s average balances, interest and fee income, and yields for the three-month and nine-month periods ended September 30, 2010 and 2009:

Table 3 - Quarterly Interest and Fee Income

	Three Months Ended September 30,
	2010							2009
(dollar amounts in millions)	Average Balance		Income(1)		Yield			Average Balance		Income(1)		Yield
Loan participation interests:
Commercial real estate	$	2,982.7	$	27.4		3.64	%	$	3,116.7	$	26.9		3.42	%
Consumer and residential real estate		638.5		10.5		6.51			814.3		13.4		6.56
Total loan participations		3,621.2		37.9		4.15			3,931.0		40.3		4.07
Interest bearing deposits in the Bank		500.2		0.4		0.30			618.2		0.4		0.25
Total	$	4,121.4	$	38.3		3.68	%	$	4,549.2	$	40.7		3.55	%

(1)Income includes interest and fees

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Table 4 - Year-To-Date Interest and Fee Income

	Nine Months Ended September 30,
	2010							2009
(dollar amounts in millions)	Average Balance		Income(1)		Yield			Average Balance		Income(1)		Yield
Loan participation interests:
Commercial real estate	$	3,029.3	$	81.6		3.60	%	$	3,230.5	$	83.6		3.46	%
Consumer and residential real estate		687.2		33.2		6.46			874.8		43.4		6.64
Total loan participations		3,716.5		114.8		4.13			4,105.3		127.0		4.14
Interest bearing deposits in the Bank		385.8		0.8		0.28			416.4		0.8		0.25
Total	$	4,102.3	$	115.6		3.77	%	$	4,521.7	$	127.8		3.78	%

(1)Income includes interest and fees

Interest and fee income was $38.3 million for the three-months ended September 30, 2010 compared with $40.7 million for the year ago quarter. As shown in Table 3, the decrease in interest and fee income was the result of lower overall loan balances, offset by a slight increase in rates. For the three-months ended September 30, 2010 and 2009, the yield increased 13 basis points to 3.68%, while average earning asset balances decreased $427.8 million, or 9.4%. For the nine-months ended September 30, 2010 and 2009, interest and fee income was $115.6 million and $127.8 million, respectively. As shown in Table 4, the decrease in interest and fee income was the result of lower earning asset balances. At September 30, 2010, December 31, 2009, and September 30, 2009, approximately 74%, 72%, and 71%, respectively, of the portfolio was comprised of variable interest rate loan participations. The table above includes interest received on participations in loans that are on a non-accrual status in the individual portfolios.

Provision (reduction in allowance) for credit losses

The provision (reduction in allowance) 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 allowance for loan participation losses (ALPL). As a result, this ALPL is transferred to HPCI from the Bank and is reflected as ALPL acquired, rather than HPCI having to record a provision expense for ALPL. If credit quality deteriorates more than implied by the ALPL acquired, a provision to the ALPL is made. If credit quality performance is better than implied by the ALPL acquired, an ALPL reduction is recorded. As loan participations mature, refinance, or other such actions occur, any allowance not absorbed by loan losses is released through the reduction in ALPL. Such adjustments for the quarter ended September 30, 2010 resulted in a reduction in allowance for credit losses of $4.0 million compared to a provision for credit losses of $27.7 million for the year-ago quarter. For the nine months ended September 30, 2010, the reduction in allowance for credit losses was $4.5 million, compared with a provision for credit losses of $87.2 million in the same period of the prior year. The decrease in provision during 2010 was primarily related to the moderate improvement in HPCI’s delinquency levels, and reduced levels of nonperforming assets. See additional discussion in Allowance for Credit Losses (ACL).

Noninterest Income and Noninterest Expense

Noninterest income included fees from the Bank for use of HPCI’s assets as collateral for the Bank’s advances from the Federal Home Loan Bank (FHLB). These fees totaled $0.5 million and $0.6 million for the three-months ended September 30, 2010 and 2009, respectively. For the nine months ended September 30, 2010 and 2009, noninterest income was $1.6 million and $1.9 million, respectively. (See Note 8to the unaudited condensed financial statements for more information regarding use of HPCI’s assets as collateral for the Bank’s advances from the FHLB.)

Noninterest expense for the 2010 third quarter was $2.1 million compared with $2.4 million for the same period last year. For the nine months ended September 30, 2010 and 2009, noninterest expense was $6.6 million and $7.8 million, respectively. The predominant component of HPCI’s noninterest expense is the fee paid to the Bank for servicing the loans underlying the participation interests. For the 2010 third quarter, servicing costs amounted to $1.9 million, compared with $2.3 million for the comparable quarter of the prior year. The servicing costs for the nine months ended September 30, 2010 and 2009 totaled $6.1 million and $7.2 million, respectively. The annual servicing rates the Bank charged with respect to outstanding principal balances in 2010 and 2009 were:

18

	January 1, 2009
	through
	September 30, 2010
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 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 2010, 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 2011.

Provision for Income Taxes

HPCI has elected to be treated as a REIT for Federal income tax purposes and intends to maintain compliance with the provisions of the Internal Revenue Code and, therefore, is not subject to federal income taxes.

CREDIT EXPOSURE RISK

HPCI’s largest credit exposure was commercial real estate loan participation interests, which totaled $2.9 billion and represented 83% of total loan participation interests at September 30, 2010, compared with 80% at September 30, 2009. Total consumer and residential real estate loan participation interests were $0.6 billion and represented 17% of total loan participations at September 30, 2010, compared with 20% at September 30, 2009. These portfolios are discussed in greater detail below in the “Commercial Real Estate Credit” and “Consumer and Residential Real Estate Credit” sections of this report.

Credit Risk

Credit risk is the risk of loss due to adverse changes in a borrower’s ability to meet its financial obligations under agreed upon terms. Credit risk is mitigated through a combination of credit policies and processes and portfolio diversification. These include loan origination/underwriting criteria, portfolio monitoring processes, and effective problem asset management.

HPCI’s exposure to credit risk is managed by personnel of the Bank through this credit risk management process. Based upon an assessment of the credit risk inherent in HPCI’s portfolio of loan participation interests, an ALPL is transferred from the Bank to HPCI on loans underlying the participations at the time the participations are acquired.

The maximum level of credit exposure to individual commercial borrowers is limited by policy guidelines based on the default probabilities associated with the credit facilities extended to each borrower or related group of borrowers. All authority to grant commitments is delegated through the Bank’s independent credit administration function, and is monitored and regularly updated in a centralized database.

Concentration risk is managed with limits on loan type, geographic and industry diversification, country limits, and loan quality factors. The checks and balances in the credit process and the independence of the credit administration and risk management functions are designed to minimize problems and to facilitate the early recognition of problems when they do occur.

The following table provides aging information for the loans underlying HPCI’s loan participations at September 30, 2010, December 31, 2009, and September 30, 2009.

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Table 5 - Loan Participation Interest Aging(1)

	September 30, 2010							December 31, 2009							September 30, 2009
(dollar amounts in thousands)	Total Number of Loans		Aggregate Principal Balance		Percentage by Aggregate Principal Balance			Total Number of Loans		Aggregate Principal Balance		Percentage by Aggregate Principal Balance			Total Number of Loans		Aggregate Principal Balance		Percentage by Aggregate Principal Balance
Current		16,795	$	3,283,855		92.6	%		19,206	$	3,506,912		90.5	%		21,035	$	3,442,707		89.1	%
1 to 30 days past due		1,121		135,784		3.8			1,343		201,739		5.2			1,541		211,753		5.5
31 to 60 days past due		233		58,181		1.6			291		43,760		1.1			253		83,817		2.2
61 to 90 days past due		113		9,528		0.3			135		17,612		0.5			151		34,159		0.9
over 90 days past due		307		59,296		1.7			397		103,630		2.7			341		91,682		2.4
Total		18,569	$	3,546,644		100	%		21,372	$	3,873,653		100	%		23,321	$	3,864,118		100	%

(1)Includes non-accrual loans.

Commercial Real Estate Credit

Commercial real estate credit approvals are made by the Bank and are based on, among other factors, the financial strength of the borrower, assessment of the borrower’s management, industry sector trends, type of exposure, transaction structure, and the general economic outlook.

In commercial lending, ongoing credit management is dependent on the type and nature of the loan. Loans within commercial lending include both owner-occupied and non-owner occupied loans secured by real estate. In general, significant credit exposures are monitored quarterly. Internal risk ratings are revised and updated with each periodic monitoring event. There is also extensive macro portfolio management analysis on an ongoing basis. Huntington continually reviews and adjusts credit criteria based on actual experience, which may result in further changes to such criteria, in future periods.

Commercial real estate loan participation interests outstanding by property type and location at September 30, 2010 were as follows:

Table 6- Commercial Real Estate Loans by Property Type and Property Location

	September 30, 2010
(dollar amounts in thousands)	Ohio			Michigan			Indiana			Pennsylvania			Kentucky			Other			TotalAmount			%
Industrial and warehouse	$	377,721		$	172,673		$	37,790		$	10,899		$	14,717		$	20,542		$	634,342			21.6	%
Retail properties		351,181			100,111			47,266			39,323			19,661			59,392			616,934			21.0
Office		332,659			90,001			31,370			31,857			7,357			27,118			520,362			17.7
Raw land and other land uses		182,803			76,656			17,229			7,497			15,092			9,198			308,475			10.5
Health care		167,375			84,355			1,419			19,692			154			14,498			287,493			9.8
Multi family		142,073			7,079			36,531			13,001			22,559			9,926			231,169			7.9
Single family home builders		109,011			43,512			11,789			10,208			1,616			1,116			177,252			6.0
Other		64,123			36,183			4,976			6,357			1,021			46,573			159,233			5.5
Total	$	1,726,946		$	610,570		$	188,370		$	138,834		$	82,177		$	188,363		$	2,935,260			100	%
% of total portfolio		59	%		21	%		6	%		5	%		3	%		6	%		100	%

HPCI’s commercial real estate loan participation interests are diversified by customer, as well as throughout the Bank’s lending area of Ohio, Michigan, Indiana, Kentucky, and Pennsylvania. However, the following components are noteworthy.

Retail properties

HPCI’s portfolio of commercial real estate loans secured by retail properties totaled $0.6 billion, or approximately 21% of total commercial real estate loans, and had an ALPL associated with these loans of $32.7 million at September 30, 2010. Credit approval in this loan segment is generally dependant on pre-leasing requirements, and net operating income from the project must cover interest expense by specified percentages when the loan is fully funded.

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The weakness of the economic environment in the Bank’s geographic regions significantly impacted the projects that secure the loans in this portfolio segment. Increased unemployment levels compared with prior years, and the expectation that these levels will remain elevated for the foreseeable future, are expected to adversely affect the borrowers’ ability to repay these loans. The Bank has increased the level of credit risk management analysis that is applied to this portfolio. The Bank also performed a detailed analysis of the retail property loans in much greater detail by combining property type, geographic location, tenants, and other data, to assess and manage credit concentration risks.

Single family homebuilders

HPCI’s portfolio of commercial real estate loans secured by builders of single family homes totaled $0.2 billion or approximately 6% of total commercial real estate loans, and had an ALPL associated with these loans of $12.0 million at September 30, 2010.

The housing market across the Bank’s geographic footprint remained stressed, reflecting relatively lower sales activity, declining prices, and excess inventories of houses to be sold, particularly impacting borrowers in the East Michigan and northern Ohio regions. Further, a portion of the loans extended to borrowers located within the Bank’s geographic regions was to finance projects outside of its geographic regions. Based on portfolio management processes, including charge-off activity, over the past 30 months, we believe that we have substantially addressed the credit issues in this portfolio. We do not anticipate any future significant credit impact from this portfolio segment.

Consumer and Residential Real Estate Credit

Extensions of consumer credit by the Bank are based on, among other factors, the financial strength of the borrower, type of exposure, transaction structure, and the general economic outlook. Consumer credit decisions are generally made in a centralized environment utilizing decision models. Each credit extension is assigned a specific probability-of-default and loss-in-event-of-default. The probability-of-default is generally a function of the borrower’s credit bureau score, while the loss-in-event-of-default is related to the type of collateral and the loan-to-value ratio associated with the credit extension.

In consumer lending, credit risk is managed from a loan type and vintage performance analysis. All portfolio segments are continuously monitored for changes in delinquency trends and other asset quality indicators. The Bank makes extensive use of portfolio assessment models to continuously monitor the quality of the portfolio and identify under-performing segments. This information is then incorporated into future origination strategies. The Bank’s independent risk management group has a consumer process review component to ensure the effectiveness and efficiency of the consumer credit processes.

Nonperforming Assets (NPAs)

NPAs consist of participation interests in underlying loans that are no longer accruing interest. Underlying commercial real estate loans are placed on non-accrual status and stop accruing interest when collection of principal or interest is in doubt or generally when the underlying loan is 90-days past due. Underlying consumer and residential real estate loans are generally placed on non-accrual status when they became 180 days past due. When interest accruals are suspended, accrued interest income is reversed with current year accruals charged to earnings and prior year amounts generally charged off as a credit loss.

The following table shows NPAs at the end of the most recent five quarters:

Table 7 - Quarterly Nonperforming Assets (NPAs)

	2010									2009
(dollaramountsinthousands)	September30,			June30,			March31,			December31,			September30,
Participation interest in non-accrual loans
Commercial real estate	$	87,302		$	123,205		$	149,997		$	165,184		$	192,661
Consumer and residential real estate		4,979			5,263			5,916			5,554			5,467
Total nonperforming assets (NPAs)	$	92,281		$	128,468		$	155,913		$	170,738		$	198,128
Participations in accruing Loans Past Due 90 Days or More	$	4,737		$	6,504		$	4,326		$	8,631		$	10,294
NPAs as a % of total participation interests		2.60	%		3.52	%		4.15	%		4.41	%		5.13	%
ALPL as a % of NPAs		160			112			102			92			49
ACL as a % of NPAs		162			113			103			93			50

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Total NPAs decreased to $92.3 million at September 30, 2010, from $170.7 million at December 31, 2009, and from $198.1 million at September 30, 2009, representing 2.60%, 4.41%, and 5.13% of total loan participation interests, respectively. The decrease in 2010, was principally related to the commercial real estate loan participations and was spread across the different property types of that portfolio.

The following table presents a coverage ratio analysis at the end of the most recent five quarters:

Table 8 - Quarterly ALPL / Loan Participation Coverage Ratio Analysis

	2010									2009
(dollar amounts in millions)	Third			Second			First			Fourth			Third
Loan participation interests ending balances:
Accruing	$	3,454,363		$	3,516,660		$	3,598,796		$	3,702,915		$	3,665,990
Impaired evaluated on a pool basis		31,006			32,910			36,365			40,040			40,838
Impaired evaluated under ASC310(1)		61,275			95,558			119,548			130,698			157,290
Total non-accrual		92,281			128,468			155,913			170,738			198,128
Total loan participation interests	$	3,546,644		$	3,645,128		$	3,754,709		$	3,873,653		$	3,864,118
Loan participation interests (ALPL):
Accruing	$	114,089		$	114,753		$	122,824		$	127,405		$	69,449
ALPL associated with impaired evaluated on a pool basis		8,645			8,600			9,689			10,270			3,109
Impaired evaluated under ASC310(1)		24,873			20,744			26,450			18,756			24,773
Total non-accrual		33,518			29,344			36,139			29,026			27,882
Total ALPL	$	147,607		$	144,097		$	158,963		$	156,431		$	97,331
ALPL as a % of loan participation interests:
Accruing		3.30	%		3.26	%		3.41	%		3.44	%		1.89	%
Impaired evaluated on a pool basis		27.88			26.13			26.64			25.65			7.61
Impaired evaluated under ASC310(1)		40.59			21.71			22.13			14.35			15.75
Total non-accrual		36.32			22.84			23.18			17.00			14.07
Total loan participation interests		4.16	%		3.95	%		4.23	%		4.04	%		2.52	%

(1)Accounting Standards Codification Topic 310, "Receivables"

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 nonperforming status, or is renegotiated due to the financial deterioration of the borrower. The Bank may, in accordance with HPCI’s guidelines, institute foreclosure proceedings, exercise any power of sale contained in any mortgage or deed of trust, obtain a deed in lieu of foreclosure, or otherwise acquire title to a property underlying a mortgage loan by operation of law or otherwise in accordance with the terms of the participation and subparticipation agreements. Prior to completion of foreclosure or liquidation, the participation is sold to the Bank at fair market value. The Bank then incurs all costs associated with repossession and foreclosure.

For a further discussion of “Credit Quality,” see HPCI’s Form 10-K for the year ended December 31, 2009.

Allowance for Credit Losses (ACL)

The allowance for credit losses (ACL) is comprised of the allowance for loan participation losses (ALPL) and the allowance for unfunded loan participation commitments (AULPC). Loan participations are acquired net of related ALPL. As a result, this ALPL is transferred to HPCI from the Bank and is reflected as ALPL acquired, rather than HPCI having to record a provision expense for ALPL. If credit quality deteriorates more than implied by the ALPL acquired, a provision to the ALPL is made. If credit quality performance is better than implied by the ALPL acquired, an ALPL reduction is recorded. As loan participations mature, refinance, or other such actions occur, any allowance not absorbed by loan losses is released through the reduction in ALPL.

The following table shows the activity in HPCI’s ALPL and AULPC for the last five quarters ended September 30, 2010 and for the nine months ended September 30, 2010 and 2009:

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Table 9 - Allowance for Credit Loss Activity

	2010									2009
(dollar amounts in thousands)	Third			Second			First			Fourth			Third
ALPL balance, beginning of period	$	144,097		$	158,963		$	156,431		$	97,331		$	95,748
Allowance of loan participations acquired		19,135			11,058			13,888			15,498			9,331
Net loan losses
Commercial real estate		(8,822	)		(22,141	)		(7,360	)		(37,480	)		(32,138	)
Consumer and residential real estate		(2,537	)		(2,553	)		(4,648	)		(3,700	)		(3,942	)
Total net loan losses		(11,359	)		(24,694	)		(12,008	)		(41,180	)		(36,080	)
Provision for (reduction in) ALPL		(4,266	)		(1,230	)		652			84,782			28,332
ALPL balance, end of period	$	147,607		$	144,097		$	158,963		$	156,431		$	97,331
AULPC balance, beginning of period	$	1,610		$	1,562		$	1,607		$	1,649		$	2,280
Provision for (reduction in) AULPC		309			48			(45	)		(42	)		(631	)
AULPC balance, end of period	$	1,919		$	1,610		$	1,562		$	1,607		$	1,649
Total allowance for credit losses, end of period	$	149,526		$	145,707		$	160,525		$	158,038		$	98,980
ALPL as a % of total participation interests		4.16	%		3.95	%		4.23	%		4.04	%		2.52	%
ACL as a % of total participation interests		4.22			4.00			4.28			4.08			2.56

	Nine Months Ended September 30,
(in thousands)	2010			2009
ALPL balance, beginning of period	$	156,431		$	65,456
Allowance for loan participations acquired		44,082			18,134
Net loan losses
Commercial real estate		(38,323	)		(65,781	)
Consumer and residential real estate		(9,739	)		(8,316	)
Total net loan losses		(48,062	)		(74,097	)
Provision for (reduction in) ALPL		(4,844	)		87,838
ALPL balance, end of period	$	147,607		$	97,331
AULPC balance, beginning of period	$	1,607		$	2,301
Provision for (reduction in) AULPC		312			(652	)
AULPC balance, end of period	$	1,919		$	1,649
Total allowance for credit losses	$	149,526		$	98,980

The decrease in allowance and provision during 2010 was primarily related to moderate reduction of HPCI‘s delinquency levels, as well as reduced levels of nonperforming assets. In Management’s judgment, both the ALPL and the AULPC were adequate at September 30, 2010, to cover credit losses inherent in the loan participation portfolio and portfolio of loan participation commitments.

Although credit quality asset metrics and trends, including those mentioned above, have improved during the first nine-month period of 2010, the economic environment in our markets remains weak and uncertain as reflected by continued weak residential values, continued weakness in industrial employment in northern Ohio and southeast Michigan, and the significant subjectivity involved in commercial real estate valuations for properties located in areas with limited sale or refinance activities. Residential real estate values continued to be impacted by high unemployment, increased foreclosure activity, and the elimination of home-buyer tax credits. In the near-term, we believe these factors will result in continued stress in our portfolios secured by residential real estate and an elevated level of NCOs compared to historic levels. Further, concerns continue to exist regarding the economic conditions in both national and international markets, the state of financial and credit markets, the unemployment rate, the impact of the Federal Reserve monetary policy, and continued uncertainty regarding federal, state, and local government budget deficits. We do not anticipate any meaningful change in the overall economy in the near-term. All of these factors are impacting consumer confidence, as well as business investments and acquisitions. Given the combination of these factors, we believe that our ALPL and AULPC coverage levels are appropriate.

 Additional information regarding asset quality appears in the "Credit Quality" section of the Form 10-K.

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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 approximately 26% of its loan participation portfolio at September 30, 2010 was 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 September 30, 2010, interest income for the next 12-month period would be expected to increase by $15.4 million, or 14.2%, 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 $6.2 million, or 5.7%, 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 September 30, 2010, the fair value of loan participation interests over the next 12 month period would be expected to increase $8.5 million, or 0.2%, 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. 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 $44.9 million, or 1.1%.

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 or pay letters of credit issued for those accounts for any of HPCI’s loan participation interests, to the extent provided in the loan agreements underlying HPCI’s participation interests. At September 30, 2010, December 31, 2009, and September 30, 2009, HPCI’s unfunded commitments totaled $194.5 million, $303.7 million, and $290.2 million, respectively. It is expected that the existing cash balances and cash flows generated by the existing portfolio will be sufficient to meet these obligations.

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 September 30, 2010, December 31, 2009, and September 30, 2009, HPCI maintained cash and interest bearing balances with the Bank totaling $516.6 million, $715.7 million, and $653.9 million, respectively. HPCI maintains and transacts all of its cash activity with the Bank and may invest available funds in Eurodollar deposits with the Bank for a term of not more than 30 days at market rates.

At September 30, 2010, HPCI had no material liabilities or contractual obligations, other than unfunded loan commitments of $194.4 million, with a weighted average remaining maturity of 1.2 years. In addition to anticipated cash flows, as noted above, HPCI has cash and interest bearing balances with the bank totaling $516.6 million to supplement the funding of these liabilities and contractual commitments.

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As of September 30, 2010, and December 31, 2009, shareholders’ equity was $4.0 billion and $3.9 billion, respectively. Shareholders’ equity as of September 30, 2009, was $4.5 billion.

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 a regulatory dividend limitation, the Bank could not have declared and paid a dividend at September 30, 2010, without regulatory approval. As a subsidiary of the Bank, HPCI is also restricted from declaring or paying dividends without regulatory approval. The OCC has approved the payment of HPCI's dividends on its preferred securities throughout 2009 and 2010. For the foreseeable future, management intends to request approval for any future dividends; however, there can be no assurance that the OCC will approve future dividends.

Regulatory capital ratios are the primary metrics used by regulators in assessing the “safety and soundness” of banks. At September 30, 2010, the Bank met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for “well-capitalized” institutions. The capital ratios for Huntington and the Bank at the end of the most recent five quarters are as follows:

Table 10- Regulatory Capital Ratios

	2010									2009
	September 30,			June 30,			March 31,			December 31,			September 30,
Tier 1 leverage ratio (5.00% "well-capitalized")
Huntington		10.54	%		10.45	%		10.05	%		10.09	%		11.30	%
Bank		6.85			6.54			5.99			5.59			6.48
Tier 1 risk-based capital ratio (6.00% "well-capitalized")
Huntington		12.82			12.51			11.97			12.03			13.04
Bank		8.28			7.80			7.11			6.66			7.46
Total risk-based capital ratio (10.00% "well-capitalized")
Huntington		15.08			14.79			14.28			14.41			16.23
Bank		12.69			12.23			11.53			11.08			11.75

At September 30, 2010, Huntington had $569.9 million of outstanding trust-preferred-securities that, if disallowed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, would reduce regulatory Tier 1 risk-based capital ratio by approximately 133 basis points. Even with this reduction, the capital ratios would remain above “well-capitalized” levels. There is a 3-year phase-in period beginning on January 1, 2013, that Management believes will provide sufficient time to evaluate and address the impacts of this new legislation on Huntington's capital structure. Accordingly, Huntington does not anticipate this potential change would have a significant impact to it's business.

During the 2010 third quarter, the Basel Committee on Banking Supervision revised the Capital Accord (Basel III), which narrows the definition of capital and increases capital requirements for specific exposures. The new capital requirements will be phased-in over six years beginning in 2013. If these revisions were adopted currently, it is estimated to have a negligible impact on the regulatory capital ratios based on the current understanding of the revisions to capital qualification. Clarification from the banking regulators may be needed on their interpretation of Basel III and any additional requirements to the stated thresholds.

During 2008, Huntington received $1.4 billion of equity capital by issuing to the U.S. Department of Treasury 1.4 million shares of its Series B Preferred Stock as a result of its participation in the Troubled Asset Relief Program (TARP) voluntary Capital Purchase Plan (CPP). During the 2008 fourth quarter and the 2009 fourth quarter, Huntington contributed $500 million and $400 million, respectively, of capital received to the Bank in the form of subordinated debt qualified as Tier 2 capital. During the 2009 second and third quarters, Huntington also contributed a total of $500 million of Tier 1 capital to the Bank. Huntington has also contributed $375.5 million to the bank as Tier 1 capital thus far in 2010. These actions had a positive impact on the Bank’s capital ratios.

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures for the current period can be found in the Market Risk section of this report, which includes changes in market risk exposures from disclosures presented in HPCI's Form 10-K.

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Item 4. Controls and Procedures

HPCI maintains disclosure controls and procedures designed to ensure that the information disclosed in its filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported appropriately and on a timely basis. HPCI's management, with the participation of its President (principal executive officer) and the Vice President (principal financial officer), evaluated the effectiveness of HPCI’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon such evaluation, HPCI's President and Vice President have concluded that, as of the end of such period, HPCI's disclosure controls and procedures are effective.

There have not been any changes in HPCI’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2010, to which this report relates, that have materially affected, or are reasonably likely to materially affect, HPCI's internal control over financial reporting.

PART II.  OTHER INFORMATION

In accordance with the instructions to Part II, the other specified items in this part have been omitted because they are not applicable or the information has been previously reported.

Item 6.      Exhibits

This report incorporates by reference the documents listed below that HPCI has previously filed with the SEC. The SEC allows incorporation by reference in this document. The information incorporated by reference is considered to be a part of this document, except for any information that is superseded by information that is included directly in this document.

This information may be read and copied at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. The SEC also maintains an Internet web site that contains reports, proxy statements, and other information about issuers, like HPCI, who file electronically with the SEC. The address of the site is http://www.sec.gov. The reports and other information filed by HPCI with the SEC are also available at Huntington’s Internet web site. The address of the site is http://www.huntington.com. Except as specifically incorporated by reference into this Quarterly Report on Form 10-Q, information on those web sites is not part of this report. Reports, proxy statements, and other information about HPCI can also be inspected at the offices of the NASDAQ National Market at 33 Whitehall Street, New York, New York.

(a)

3.1.	Amended and Restated Articles of Incorporation (previously filed as Exhibit 3(a)(ii) to Amendment No. 4 to Registration Statement of Form S-11 (File No. 333-61182), filed with the Securities and Exchange Commission on October 12, 2001, and incorporated herein by reference.)
3.2.	Code of Regulations (previously filed as Exhibit 3(b) to the Registrant's Registration Statement of Form S-11 (File No. 333-61182), filed with the Securities and Exchange Commission on May 17, 2001, and incorporated herein by reference.)
4.1	Specimen of certificate representing Class C preferred securities, previously filed as Exhibit 4 to the Registrant's Amendment No. 1 to Registration Statement of Form S-11 (File No. 333-61182), filed with the Securities and Exchange Commission on May 31, 2001, and incorporated herein by reference.
31.1.	Rule 13a – 14(a) Certification – President (chief executive officer).
31.2.	Rule 13a – 14(a) Certification – Vice President (chief financial officer).
32.1.	Section 1350 Certification – President (chief executive officer).
32.2.	Section 1350 Certification – Vice President (chief financial officer).
99.1.         Unaudited Condensed Consolidated Financial Statements of Huntington Bancshares Incorporated as of and for the three month and nine month periods ended September 30, 2010 and 2009.

26

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 12th day of November, 2010.

HUNTINGTON PREFERRED CAPITAL, INC.
(Registrant)
By:	/s/ Donald R. Kimble	By:	/s/ Thomas P. Reed
	Donald R. Kimble		Thomas P. Reed
	President and Director		Vice President and Director
	(Principal Executive Officer)		(Principal Financial and Accounting Officer)

27

EX-31.1

 

Exhibit 31.1

CERTIFICATION

I, Donald R. Kimble, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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;

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;

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 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: November 12, 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 Quarterly Report on Form 10-Q 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;

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;

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 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: November 12, 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 Quarterly Report of Huntington Preferred Capital, Inc. (the “Company”) on Form 10-Q for the quarter ending September 30, 2010, 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)

  November 12, 2010

EX-32.2

Exhibit 32.2

SECTION 1350 CERTIFICATION

In connection with the Quarterly Report of Huntington Preferred Capital, Inc. (the “Company”) on Form 10-Q for the quarter ending September 30, 2010, 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)

  November 12, 2010

EX-99.1

Exhibit 99.1

Huntington Bancshares Incorporated

Condensed Consolidated Balance Sheets

(Unaudited)

	2010			2009
(in thousands, except number of shares)	September 30,			December 31,			September 30,
Assets
Cash and due from banks	$	1,139,226		$	1,521,344		$	1,882,108
Interest bearing deposits in banks		274,240			319,375			397,941
Trading account securities		138,677			83,657			121,366
Loans held for sale (includes $699,001; $459,179 and $491,564 respectively, measured at fair value) (1)		744,439			461,647			530,861
Available-for-sale and other securities		9,723,558			8,587,914			8,503,150
Loans and leases (includes $590,223 at September 30, 2010 measured at fair value) (2)		37,500,587			36,790,663			37,304,094
Allowance for loan and lease losses		(1,336,352	)		(1,482,479	)		(1,031,971	)
Net loans and leases		36,164,235			35,308,184			36,272,123
Bank owned life insurance		1,450,335			1,412,333			1,402,134
Premises and equipment		489,349			496,021			496,280
Goodwill		444,268			444,268			443,648
Other intangible assets		243,666			289,098			302,612
Accrued income and other assets		2,434,783			2,630,824			2,160,436
Total assets	$	53,246,776		$	51,554,665		$	52,512,659
Liabilities and shareholders’ equity
Liabilities
Deposits	$	41,072,371		$	40,493,927		$	39,829,057
Short-term borrowings		1,859,134			876,241			852,076
Federal Home Loan Bank advances		23,643			168,977			920,045
Other long-term debt (includes $422,294 at September 30, 2010 measured at fair value) (2)		2,393,071			2,369,491			2,434,858
Subordinated notes		1,202,568			1,264,202			1,674,054
Accrued expenses and other liabilities		1,128,586			1,045,825			1,127,463
Total liabilities		47,679,373			46,218,663			46,837,553
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		1,337,749			1,325,008			1,320,898
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			362,507			362,507
Common stock		7,180			7,167			7,154
Capital surplus		6,743,724			6,731,796			6,723,923
Less treasury shares, at cost		(8,969	)		(11,465	)		(11,827	)
Accumulated other comprehensive loss		(28,396	)		(156,985	)		(211,842	)
Retained (deficit) earnings		(2,846,392	)		(2,922,026	)		(2,515,707	)
Total shareholders’ equity		5,567,403			5,336,002			5,675,106
Total liabilities and shareholders’ equity	$	53,246,776		$	51,554,665		$	52,512,659
Common shares authorized (par value of $0.01)		1,500,000,000			1,000,000,000			1,000,000,000
Common shares issued		718,015,276			716,741,249			715,409,524
Common shares outstanding		717,132,197			715,761,672			714,469,066
Treasury shares outstanding		883,079			979,577			940,458
Preferred shares issued		1,967,071			1,967,071			1,967,071
Preferred shares outstanding		1,760,578			1,760,578			1,760,578

(1) Amounts represent loans for which Huntington has elected the fair value option. See Note 13.

(2) Amounts represent certain assets and liabilities of a consolidated variable interest entity (VIE) for which Huntington has elected the fair value option. See Note 15.

See Notes to Unaudited Condensed Consolidated Financial Statements

1

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Income

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2010			2009			2010			2009
Interest and fee income
Loans and leases
Taxable	$	458,792		$	476,832		$	1,405,181		$	1,462,647
Tax-exempt		1,806			3,184			3,821			7,741
Investment securities
Taxable		61,438			64,955			180,039			180,445
Tax-exempt		2,725			1,356			8,675			7,454
Other		9,908			7,519			19,385			28,520
Total interest income		534,669			553,846			1,617,101			1,686,807
Interest expense
Deposits		103,380			161,593			346,504			525,243
Other borrowings		21,327			29,434			67,086			111,341
Total interest expense		124,707			191,027			413,590			636,584
Net interest income		409,962			362,819			1,203,511			1,050,223
Provision for credit losses		119,160			475,136			547,574			1,180,680
Net interest income (loss) after provision for credit losses		290,802			(112,317	)		655,937			(130,457	)
Service charges on deposit accounts		65,932			80,811			211,205			226,042
Brokerage and insurance income		36,376			33,996			108,636			105,996
Mortgage banking income		52,045			21,435			122,613			87,680
Trust services		26,997			25,832			83,161			76,364
Electronic banking		28,090			28,017			81,334			74,978
Bank owned life insurance income		14,091			13,639			44,953			40,817
Automobile operating lease income		11,356			12,795			35,501			39,139
Net gains on sales of investment securities		2,421			16,208			11,831			34,459
Impairment losses on investment securities:
Impairment recoveries (losses) on investment securities		27,775			(53,307	)		24,568			(145,359	)
Noncredit-related (recoveries) losses on securities not expected to be sold (recognized in other comprehensive income)		(30,492	)		34,725			(36,570	)		103,253
Net impairment losses on investment securities		(2,717	)		(18,582	)		(12,002	)		(42,106	)
Other income		32,552			41,901			90,406			117,730
Total non-interest income		267,143			256,052			777,638			761,099
Personnel costs		208,272			172,152			586,789			519,819
Outside data processing and other services		38,553			38,285			118,305			111,283
Deposit and other insurance expense		23,406			23,851			74,228			89,410
Net occupancy		26,718			25,382			81,192			79,000
OREO and foreclosure expense		12,047			38,968			28,547			75,379
Equipment		21,651			20,967			63,860			62,663
Professional services		20,672			18,108			67,757			51,220
Amortization of intangibles		15,145			16,995			45,432			51,247
Automobile operating lease expense		9,159			10,589			28,892			32,920
Marketing		20,921			8,259			49,756			23,975
Telecommunications		5,695			5,902			18,071			17,880
Printing and supplies		4,062			3,950			11,628			11,673
Goodwill impairment		—			—			—			2,606,944
Gain on early extinguishment of debt		—			(60	)		—			(73,827	)
Other expense		21,008			17,749			64,756			51,262
Total non-interest expense		427,309			401,097			1,239,213			3,710,848
Income (loss) before income taxes		130,636			(257,362	)		194,362			(3,080,206	)
Provision (benefit) for income taxes		29,690			(91,172	)		4,915			(355,714	)
Net income (loss)		100,946			(166,190	)		189,447			(2,724,492	)
Dividends on preferred shares		29,495			29,223			88,278			145,467
Net income (loss) applicable to common shares	$	71,451		$	(195,413	)	$	101,169		$	(2,869,959	)
Average common shares — basic		716,911			589,708			716,604			471,958
Average common shares — diluted		719,567			589,708			719,182			471,958
Per common share
Net income (loss) — basic	$	0.10		$	(0.33	)	$	0.14		$	(6.08	)
Net income (loss) — diluted		0.10			(0.33	)		0.14			(6.08	)
Cash dividends declared		0.01			0.01			0.03			0.03

See Notes to Unaudited Condensed Consolidated Financial Statements

2

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

																								Accumulated
	Preferred Stock																							Other			Retained
	Series B				Series A						Common Stock				Capital			Treasury Stock						Comprehensive			Earnings
(in thousands)	Shares		Amount		Shares			Amount			Shares		Amount		Surplus			Shares			Amount			Loss			(Deficit)			Total
Nine Months Ended September 30, 2009
Balance, beginning of period		1,398	$	1,308,667		569		$	569,000			366,972	$	3,670	$	5,322,428			(915	)	$	(15,530	)	$	(326,693	)	$	365,599		$	7,227,141
Cumulative effect of change in accounting principle for noncontrolling interest																												1,765			1,765
Balance, beginning of period — as adjusted		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																												(2,724,492	)		(2,724,492	)
Cumulative effect of change in accounting principle for other-than- temporarily impaired debt securities																									(3,541	)		3,541			—
Non-credit-related impairment losses on debt securities not expected to be sold																									(67,114	)					(67,114	)
Unrealized net gains on investment securities arising during the period, net of reclassification for net realized gains																									175,401						175,401
Unrealized gains on cash flow hedging derivatives																									5,673						5,673
Change in accumulated unrealized losses for pension and other post- retirement obligations																									4,432						4,432
Total comprehensive loss																															(2,606,100	)
Issuance of common stock												307,008		3,069		1,137,657															1,140,726
Conversion of Preferred Series A stock						(206	)		(206,493	)		41,072		411		262,117												(56,035	)		—
Amortization of discount				11,931																								(11,931	)		—
Cash dividends declared:
Common ($0.03 per share)																												(14,859	)		(14,859	)
Preferred Series B ($37.50 per share)																												(52,428	)		(52,428	)
Preferred Series A ($63.75 per share)																												(25,073	)		(25,073	)
Recognition of the fair value of share-based compensation																5,128															5,128
Other share-based compensation activity												358		4		652												(813	)		(157	)
Other				300												(4,059	)		(25	)		3,703						(981	)		(1,037	)
Balance, end of period		1,398	$	1,320,898		363		$	362,507			715,410	$	7,154	$	6,723,923			(940	)	$	(11,827	)	$	(211,842	)	$	(2,515,707	)	$	5,675,106
Nine Months Ended September 30, 2010
Balance, beginning of period		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
Cumulative effect of change in accounting principle for consolidation of variable interest entities, net of tax of $3,980																									(4,249	)		(3,462	)		(7,711	)
Balance, beginning of period — as adjusted		1,398		1,325,008		363			362,507			716,741		7,167		6,731,796			(980	)		(11,465	)		(161,234	)		(2,925,488	)		5,328,291
Comprehensive Income:
Net income																												189,447			189,447
Non-credit-related impairment losses on debt securities not expected to be sold																									23,771						23,771
Unrealized net gains on investment securities arising during the period, net of reclassification for net realized gains																									88,428						88,428
Unrealized gains on cash flow hedging derivatives																									17,141						17,141
Change in accumulated unrealized losses for pension and other post- retirement obligations																									3,498						3,498
Total comprehensive income																															322,285
Issuance of common stock												537		5		2,264															2,269
Amortization of discount				12,741																								(12,741	)		—
Cash dividends declared:
Common ($0.03 per share)																												(21,505	)		(21,505	)
Preferred Series B ($37.50 per share)																												(52,427	)		(52,427	)
Preferred Series A ($63.75 per share)																												(23,110	)		(23,110	)
Recognition of the fair value of share-based compensation														3		11,410															11,413
Other share-based compensation activity												737		5		457												(525	)		(63	)
Other																(2,203	)		97			2,496						(43	)		250
Balance, end of period		1,398	$	1,337,749		363		$	362,507			718,015	$	7,180	$	6,743,724			(883	)	$	(8,969	)	$	(28,396	)	$	(2,846,392	)	$	5,567,403

See Notes to Unaudited Condensed Consolidated Financial Statements

3

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	September 30,
(in thousands)	2010			2009
Operating activities
Net income (loss)	$	189,447		$	(2,724,492	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Impairment of goodwill		—			2,606,944
Provision for credit losses		547,574			1,180,680
Depreciation and amortization		209,070			160,473
Change in current and deferred income taxes		175,715			(243,482	)
Net sales (purchases) of trading account securities		(55,020	)		818,403
Originations of loans held for sale		(2,468,265	)		(3,907,458	)
Principal payments on and proceeds from loans held for sale		2,213,303			3,736,250
Other, net		54,292			211,230
Net cash provided by (used for) operating activities		866,116			1,838,548
Investing activities
Increase (decrease) in interest bearing deposits in banks		22,754			(294,238	)
Proceeds from:
Maturities and calls of investment securities		2,639,403			564,433
Sales of investment securities		3,120,777			2,836,072
Purchases of investment securities		(6,610,248	)		(7,099,257	)
Net proceeds from sales of loans		685,592			949,398
Net loan and lease activity, excluding sales		(1,744,418	)		1,500,544
Purchases of operating lease assets		—			(119	)
Proceeds from sale of operating lease assets		17,585			7,647
Purchases of premises and equipment		(45,951	)		(32,672	)
Proceeds from sales of other real estate		78,073			39,733
Other, net		1,917			4,207
Net cash provided by (used for) investing activities		(1,834,516	)		(1,524,252	)
Financing activities
Increase (decrease) in deposits		563,474			1,895,145
Increase (decrease) in short-term borrowings		893,501			(375,011	)
Maturity/redemption of subordinated notes		(83,870	)		(151,942	)
Proceeds from Federal Home Loan Bank advances		450,000			206,286
Maturity/redemption of Federal Home Loan Bank advances		(595,536	)		(1,875,534	)
Proceeds from issuance of long-term debt		—			598,200
Maturity/redemption of long-term debt		(544,250	)		(578,072	)
Dividends paid on preferred stock		(75,537	)		(82,084	)
Dividends paid on common stock		(21,437	)		(49,349	)
Net proceeds from issuance of common stock		—			1,135,662
Other, net		(63	)		(157	)
Net cash provided by (used for) financing activities		586,282			723,144
Increase (decrease) in cash and cash equivalents		(382,118	)		1,037,440
Cash and cash equivalents at beginning of period		1,521,344			844,668
Cash and cash equivalents at end of period	$	1,139,226		$	1,882,108
Supplemental disclosures:
Income taxes refunded	$	148,518		$	112,232
Interest paid		435,272			686,077
Non-cash activities
Dividends accrued, paid in subsequent quarter		23,373			21,820

See Notes to Unaudited Condensed Consolidated Financial Statements.

4

Notes to Unaudited Condensed Consolidated Financial Statements

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Huntington Bancshares Incorporated (Huntington or the Company) reflect all adjustments consisting of normal recurring accruals which are, in the opinion of Management, necessary for a fair presentation of the consolidated financial position, the results of operations, and cash flows for the periods presented. These unaudited condensed consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. The Notes to Consolidated Financial Statements appearing in Huntington’s 2009 Annual Report on Form 10-K (2009 Form 10-K), which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.

For statement of cash flows purposes, cash and cash equivalents are defined as the sum of “Cash and due from banks” which includes amounts on deposit with the Federal Reserve and “Federal funds sold and securities purchased under resale agreements.”

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.

2. ACCOUNTING STANDARDS UPDATE

FASB Accounting Standards Codification (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 to a trust in a securitization transaction. With adoption of the amended guidance, the trust was consolidated as of January 1, 2010. Huntington elected the fair value option under ASC 825, Financial Instruments, for both the auto loans and the related debt obligations. Total assets increased $621.6 million, total liabilities increased $629.3 million, and a negative cumulative effect adjustment to other comprehensive income and retained earnings of $7.7 million was recorded. Based upon the current regulatory requirements, the consolidation of the trust resulted in a slight decrease to risk weighted capital ratios. (See Note 15 for more information on the consolidation of the trust).

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 is 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 13).

Accounting Standards Update (ASU) 2010-20 — Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The ASU will require more information about the credit quality of the loan portfolio in the disclosures to financial statements, such as aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. The disaggregation of information is based on how a company develops its allowance for credit losses and how it manages its credit exposure. The disclosures related to period-end balances are effective for annual or interim reporting periods ending after December 15, 2010 and the disclosures of activity that occurs during the reporting period are effective for annual or interim reporting periods beginning after December 15, 2010.

5

3. LOANS AND LEASES

The following table provides a detail listing of Huntington’s loan and lease portfolio at September 30, 2010, December 31, and September 30, 2009.

	September 30,			December 31,			September 30,
(in thousands)	2010			2009			2009
Loans and leases:
Commercial and industrial	$	12,424,529		$	12,888,100		$	12,547,221
Commercial real estate		6,912,573			7,688,827			8,714,761
Automobile loans		5,295,705			3,144,329			2,939,223
Automobile leases		89,491			246,265			309,248
Home equity		7,689,420			7,562,060			7,576,458
Residential mortgage		4,511,272			4,510,347			4,467,714
Other consumer loans		577,597			750,735			749,469
Loans and leases		37,500,587			36,790,663			37,304,094
Allowance for loan and lease losses		(1,336,352	)		(1,482,479	)		(1,031,971	)
Net loans and leases	$	36,164,235		$	35,308,184		$	36,272,123

The Bank has access to the Federal Reserve’s discount window and advances from the FHLB - Cincinnati. As of September 30, 2010, these borrowings and advances are generally secured by $16.9 billion of loans and securities.

Franklin Credit Management relationship

Franklin Credit Management Corporation (Franklin) is a specialty consumer finance company primarily engaged in servicing residential mortgage loans. 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 the investor will be unable to collect all contractually required payments.

During the 2010 second quarter, $397.7 million of Franklin-related loans ($333.0 million of residential mortgages and $64.7 million of home equity loans) at a value of $323.4 million were transferred to loans held for sale. At the time of the transfer to loans held for sale, the loans were marked to the lower of cost or fair value less costs to sell. This resulted in charge-offs at the time of the transfer, which when added to other charge-offs during the quarter, resulted in total 2010 second quarter Franklin-related NCOs of $80.0 million ($64.2 million related to residential mortgages and $15.9 million related to home equity loans, partially offset by $0.2 million of C&I net recoveries). The 2010 second quarter provision for credit losses included $80.0 million related to Franklin, with $75.5 million related to transferring the loans to loans held for sale. During 2010 third quarter, the Franklin-related residential mortgages and home equity loans were sold at essentially book value. In the 2010 third quarter, Franklin-related consumer NCOs totaled $4.5 million, ($3.4 million of residential mortgage NCOs and $1.2 million of home equity loan NCOs), which were offset by $4.5 million of Franklin-related commercial net recoveries. At September 30, 2010, the only Franklin-related assets remaining were $15.3 million of OREO properties, which have been marked to the lower of cost or fair value less costs to sell.

6

The following table presents a rollforward of the accretable discount for the three months and nine month periods ended September 30, 2010 and 2009:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in thousands)	2010		2009			2010			2009
Balance, beginning of period	$	—	$	39,031		$	35,286		$	—
Additions		—		—			—			39,781
Accretion		—		(2,478	)		(1,773	)		(3,228	)
Reclassification to nonaccretable difference (1)		—		—			(7,460	)		—
Transfer to loans held for sale		—		—			(26,053	)		—
Balance, end of period	$	—	$	36,553		$	—		$	36,553

(1) Result of moving loans to nonaccrual status.

The following table reflects the outstanding balance of all contractually required payments and carrying amounts of the acquired loans at September 30, 2010, December 31, 2009, and September 30, 2009:

	September 30,				December 31,				September 30,
	2010				2009				2009
	Carrying		Outstanding		Carrying		Outstanding		Carrying		Outstanding
(in thousands)	Value		Balance		Value		Balance		Value		Balance
Residential mortgage	$	—	$	—	$	373,117	$	680,068	$	392,516	$	698,466
Home equity		—		—		70,737		810,139		72,656		820,648
Total	$	—	$	—	$	443,854	$	1,490,207	$	465,172	$	1,519,114

In accordance with ASC 805, at March 31, 2009 Huntington 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 a tax benefit in the 2009 first quarter. On March 31, 2010, the net deferred tax asset increased by $43.6 million as a result of the assets no longer being subject to the limitations of Internal Revenue Code (IRC) Section 382. In general, the limitations under IRC Section 382 apply to bad debt deductions, but IRC Section 382 only applies to bad debt deductions recognized within one year of the acquisition. Any bad debt deductions recognized after March 31, 2010 would not be limited by IRC Section 382.

7

4. AVAILABLE-FOR-SALE AND OTHER SECURITIES

Listed below are the contractual maturities (under 1 year, 1-5 years, 6-10 years, and over 10 years) of investment securities at September 30, 2010, December 31, 2009, and September 30, 2009:

	September 30, 2010				December 31, 2009				September 30, 2009
	Amortized				Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
U.S. Treasury
Under 1 year	$	49,998	$	50,334	$	—	$	—	$	251	$	252
1-5 years						99,735		99,154		150,731		150,785
6-10 years		—		—		—		—		—		—
Over 10 years		—		—		—		—		—		—
Total U.S. Treasury		49,998		50,334		99,735		99,154		150,982		151,037
Federal agencies — mortgage backed securities
Mortgage backed securities
Under 1 year		—		—		—		—		—		—
1-5 years		—		—		—		—		—		—
6-10 years		715,725		731,869		692,119		688,420		544,953		547,873
Over 10 years		3,825,377		3,951,671		2,752,317		2,791,688		2,996,736		3,046,139
Total mortgage-backed Federal agencies		4,541,102		4,683,540		3,444,436		3,480,108		3,541,689		3,594,012
Temporary Liquidity Guarantee Program (TLGP) securities
Under 1 year		50,148		50,564		—		—		—		—
1-5 years		527,581		530,350		258,672		260,388		311,414		312,621
6-10 years		—		—		—		—		—		—
Over 10 years		—		—		—		—		—		—
Total TLGP securities		577,729		580,914		258,672		260,388		311,414		312,621
Other agencies
Under 1 year		114,396		115,200		159,988		162,518		129,023		131,613
1-5 years		1,890,250		1,903,181		2,556,213		2,555,782		2,380,213		2,390,314
6-10 years		13,232		13,794		8,614		8,703		7,116		7,343
Over 10 years		—		—		—		—		—		—
Total other Federal agencies		2,017,878		2,032,175		2,724,815		2,727,003		2,516,352		2,529,270
Total U.S. Government backed agencies		7,186,707		7,346,963		6,527,658		6,566,653		6,520,437		6,586,940
Municipal securities
Under 1 year		—		—		—		—		—		—
1-5 years		61,488		63,329		6,050		6,123		6,050		6,094
6-10 years		67,297		70,466		54,445		58,037		58,317		62,662
Over 10 years		230,485		234,077		57,952		60,625		65,206		68,838
Total municipal securities		359,270		367,872		118,447		124,785		129,573		137,594
Private label CMO
Under 1 year		—		—		—		—		—		—
1-5 years		—		—		—		—		—		—
6-10 years		13,004		13,424		—		—		—		—
Over 10 years		282,639		262,800		534,377		477,319		562,104		475,285
Total private label CMO		295,643		276,224		534,377		477,319		562,104		475,285
Asset backed securities (1)
Under 1 year		40,000		40,115		—		—		—		—
1-5 years		657,980		664,940		352,850		353,114		147,711		148,040
6-10 years		273,246		274,611		256,783		262,826		235,419		244,549
Over 10 years		349,527		197,958		518,841		364,376		580,062		423,790
Total asset-backed securities		1,320,753		1,177,624		1,128,474		980,316		963,192		816,379
Other
Under 1 year		300		305		2,250		2,250		2,250		2,250
1-5 years		187,877		189,179		4,656		4,798		4,657		4,790
6-10 years		1,205		1,336		1,104		1,166		1,104		1,186
Over 10 years		—		—		—		—		64		193
Non-marketable equity securities		310,142		310,142		376,640		376,640		427,772		427,772
Marketable equity securities		54,649		53,913		54,482		53,987		51,135		50,761
Total other		554,173		554,875		439,132		438,841		486,982		486,952
Total available-for-sale and other securities	$	9,716,546	$	9,723,558	$	8,748,088	$	8,587,914	$	8,662,288	$	8,503,150

(1) Amounts at September 30, 2010 and December 31, 2009 include automobile asset backed securities with a fair value of $563.6 million and $309.4 million, respectively which meet the eligibility requirements for the Term Asset-Backed Securities Loan Facility, or “TALF,” administered by the Federal Reserve Bank of New York. Amounts at December 31, 2009 include securities with a fair value of $161.0 million backed by student loans with a minimum 97% government guarantee.

8

Other securities at September 30, 2010, December 31, 2009 and September 30, 2009 include $165.6 million, $240.6 million, and $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 $98.9 million, $90.4 million and $ 141.5 million, respectively, of Federal Reserve Bank stock. Other securities also include corporate debt and marketable equity securities. Non-marketable equity securities are valued at amortized cost. At September 30, 2010, December 31, 2009 and September 30, 2009, Huntington did not have any material equity positions in Federal National Mortgage Association (FNMA or Fannie Mae) or the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac).

The following tables provide amortized cost, fair value, and gross unrealized gains and losses recognized in accumulated other comprehensive income by investment category at September 30, 2010, December 31, 2009, and September 30, 2009.

			Unrealized
	Amortized		Gross		Gross			Fair
(in thousands)	Cost		Gains		Losses			Value
September 30, 2010
U.S. Treasury	$	49,998	$	336	$	—		$	50,334
Federal Agencies
Mortgage-backed securities		4,541,102		142,537		(99	)		4,683,540
TLGP securities		577,729		3,185		—			580,914
Other agencies		2,017,878		14,420		(123	)		2,032,175
Total U.S. Government backed securities		7,186,707		160,478		(222	)		7,346,963
Municipal securities		359,270		8,776		(174	)		367,872
Private label CMO		295,643		1,177		(20,596	)		276,224
Asset backed securities		1,320,753		8,928		(152,057	)		1,177,624
Other securities		554,173		1,522		(820	)		554,875
Total available-for-sale and other securities	$	9,716,546	$	180,881	$	(173,869	)	$	9,723,558

			Unrealized
	Amortized		Gross		Gross			Fair
(in thousands)	Cost		Gains		Losses			Value
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		1,128,474		7,709		(155,867	)		980,316
Other securities		439,132		296		(587	)		438,841
Total available-for-sale and other securities	$	8,748,088	$	67,746	$	(227,920	)	$	8,587,914

9

			Unrealized
	Amortized		Gross		Gross			Fair
(in thousands)	Cost		Gains		Losses			Value
September 30, 2009
U.S. Treasury	$	150,982	$	55	$	—		$	151,037
Federal Agencies
Mortgage-backed securities		3,541,689		55,894		(3,571	)		3,594,012
TLGP securities		311,414		1,207		—			312,621
Other agencies		2,516,352		13,195		(277	)		2,529,270
Total U.S. Government backed securities		6,520,437		70,351		(3,848	)		6,586,940
Municipal securities		129,573		8,036		(15	)		137,594
Private label CMO		562,104		—		(86,819	)		475,285
Asset backed securities		963,192		15,278		(162,091	)		816,379
Other securities		486,982		345		(375	)		486,952
Total available-for-sale and other securities	$	8,662,288	$	94,010	$	(253,148	)	$	8,503,150

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 September 30, 2010, December 31, 2009, and September 30, 2009.

	Less than 12 Months					Over 12 Months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(in thousands )	Value		Losses			Value		Losses			Value		Losses
September 30, 2010
U.S. Treasury	$	—	$	—		$	—	$	—		$	—	$	—
Federal Agencies
Mortgage-backed securities		49,491		(99	)		—		—			49,491		(99	)
TLGP securities		—		—			—		—			—		—
Other agencies		249,879		(121	)		502		(2	)		250,381		(123	)
Total U.S. Government backed securities		299,370		(220	)		502		(2	)		299,872		(222	)
Municipal securities		23,621		(168	)		3,814		(6	)		27,435		(174	)
Private label CMO		—		—			172,450		(20,596	)		172,450		(20,596	)
Asset backed securities		79,753		(391	)		179,729		(151,666	)		259,482		(152,057	)
Other securities		64,499		(645	)		459		(175	)		64,958		(820	)
Total temporarily impaired securities	$	467,243	$	(1,424	)	$	356,954	$	(172,445	)	$	824,197	$	(173,869	)

	Less than 12 Months					Over 12 Months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(in thousands )	Value		Losses			Value		Losses			Value		Losses
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	)

10

	Less than 12 Months					Over 12 Months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(in thousands )	Value		Losses			Value		Losses			Value		Losses
September 30, 2009
U.S. Treasury	$	50,738	$	—		$	—	$	—		$	50,738	$	—
Federal Agencies
Mortgage-backed securities		496,255		(3,571	)		—		—			496,255		(3,571	)
TLGP securities		—		—			—		—			—		—
Other agencies		274,587		(260	)		3,124		(17	)		277,711		(277	)
Total U.S. Government backed securities		821,580		(3,831	)		3,124		(17	)		824,704		(3,848	)
Municipal securities		—		—			3,805		(15	)		3,805		(15	)
Private label CMO		16,922		(2,514	)		458,363		(84,305	)		475,285		(86,819	)
Asset backed securities		158,909		(1,697	)		207,678		(160,394	)		366,587		(162,091	)
Other securities		38,671		(156	)		431		(219	)		39,102		(375	)
Total temporarily impaired securities	$	1,036,082	$	(8,198	)	$	673,401	$	(244,950	)	$	1,709,483	$	(253,148	)

The following table is a summary of realized securities gains and losses for the three months and nine month periods ended September 30, 2010, and 2009:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
Gross gains on sales of securities	$	7,930		$	16,504		$	22,811		$	45,011
Gross (losses) on sales of securities		(5,509	)		(296	)		(10,980	)		(10,552	)
Net gain on sales of securities		2,421			16,208			11,831			34,459
Other-than-temporary impairment recorded — pre adoption (1)		—			—			—			(3,938	)
Other-than-temporary impairment recorded — post adoption (1)		(2,717	)		(18,582	)		(12,002	)		(38,168	)
Net other-than-temporary impairment recorded		(2,717	)		(18,582	)		(12,002	)		(42,106	)
Total securities gain (loss)	$	(296	)	$	(2,374	)	$	(171	)	$	(7,647	)

(1) Huntington adopted the current other-than-temporary impairment provisions of ASC Topic 320 on April 1, 2009.

Huntington adopted the current other-than-temporary impairment provisions of ASC Topic 320 on April 1, 2009. Huntington evaluates its investment securities portfolio on a quarterly basis for other-than-temporary impairment (OTTI). 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 Huntington does not expect to sell or it is not more likely than not to be required to sell, credit-related OTTI, represented by the expected loss in principal, is recognized in earnings, while noncredit-related OTTI is recognized in other comprehensive income (OCI). For securities which Huntington does expect to sell, all OTTI is recognized in earnings. Noncredit-related OTTI results from other factors, including increased liquidity spreads and extension of the security. Presentation of OTTI is made in the income statement on a gross basis with a reduction for the amount of OTTI recognized in OCI.

Huntington applied the related OTTI guidance 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.

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

For the three months and nine months ended September 30, 2010 and 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, subsequent to the adoption of current other-than-temporary impairment provisions of ASC Topic 320.

	Three Months Ended September 30,
	Alt-A			Pooled			Private
(in thousands)	Mortgage-backed			Trust-Preferred			Label CMO			Total
2010
Total OTTI recoveries (losses) (unrealized and realized)	$	1,112		$	18,877		$	7,786		$	27,775
Unrealized OTTI recognized in OCI		(1,472	)		(19,075	)		(9,945	)		(30,492	)
Net impairment losses recognized in earnings	$	(360	)	$	(198	)	$	(2,159	)	$	(2,717	)
2009
Total OTTI recoveries (losses) (unrealized and realized)	$	(8,345	)	$	(38,551	)	$	(6,411	)	$	(53,307	)
Unrealized OTTI recognized in OCI		6,062			23,986			4,677			34,725
Net impairment losses recognized in earnings	$	(2,283	)	$	(14,565	)	$	(1,734	)	$	(18,582	)

	Nine Months Ended September 30,
	Alt-A			Pooled			Private
(in thousands)	Mortgage-backed			Trust-Preferred			Label CMO			Total
2010
Total OTTI recoveries (losses) (unrealized and realized)	$	(3,065	)	$	21,229		$	6,404		$	24,568
Unrealized OTTI recognized in OCI		1,503			(24,643	)		(13,430	)		(36,570	)
Net impairment losses recognized in earnings	$	(1,562	)	$	(3,414	)	$	(7,026	)	$	(12,002	)
2009 (1)
Total OTTI recoveries (losses) (unrealized and realized)	$	(14,325	)	$	(107,206	)	$	(19,890	)	$	(141,421	)
Unrealized OTTI recognized in OCI		6,161			80,187			16,905			103,253
Net impairment losses recognized in earnings	$	(8,164	)	$	(27,019	)	$	(2,985	)	$	(38,168	)

(1) Huntington adopted the current other-than-temporary impairment provisions of ASC Topic 320 on April 1, 2009.

Amount represents from the period of adoption through September 30, 2009.

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The following table rolls forward the unrealized OTTI recognized in OCI on debt securities held by Huntington for the three months and nine month periods ended September 30, 2010 and 2009:

	Three Months Ended September 30,
	Alt-A			Pooled			Private
(in thousands)	Mortgage-backed			Trust-Preferred			Label CMO			Total
2010
Balance, beginning of period	$	9,161		$	87,924		$	21,245		$	118,330
Reductions from sales		(618	)		—			(8,605	)		(9,223	)
Credit losses not previous recognized		—			—			675			675
Change in expected cash flows		(854	)		(24,357	)		(2,786	)		(27,997	)
Additional credit losses		—			5,282			771			6,053
Balance, end of period	$	7,689		$	68,849		$	11,300		$	87,838
2009
Balance, beginning of period	$	99		$	56,201		$	12,228		$	68,528
Credit losses not previous recognized		6,160			28,212			5,245			39,617
Change in expected cash flows		(99	)		(4,226	)		(567	)		(4,892	)
Additional credit losses		—			—			—			—
Balance, end of period	$	6,160		$	80,187		$	16,906		$	103,253

	Nine Months Ended September 30,
	Alt-A			Pooled			Private
(in thousands)	Mortgage-backed			Trust-Preferred			Label CMO			Total
2010
Balance, beginning of period	$	6,186		$	93,491		$	24,731		$	124,408
Reductions from sales		(618	)		—			(8,605	)		(9,223	)
Credit losses not previous recognized		3,972			—			5,612			9,584
Change in expected cash flows		(2,170	)		(31,921	)		(11,566	)		(45,657	)
Additional credit losses		319			7,279			1,128			8,726
Balance, end of period	$	7,689		$	68,849		$	11,300		$	87,838
2009 (1)
Balance, beginning of period	$	—		$	—		$	—		$	—
Credit losses not previous recognized		6,259			84,413			17,473			108,145
Change in expected cash flows		(99	)		(4,226	)		(567	)		(4,892	)
Additional credit losses		—			—			—			—
Balance, end of period	$	6,160		$	80,187		$	16,906		$	103,253

(1) Huntington adopted the current other-than-temporary impairment provisions of ASC Topic 320 on April 1, 2009.

Amount represents from the period of adoption through September 30, 2009.

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 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 September 30, 2010.

As of September 30, 2010, 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.

5. LOAN SALES AND SECURITIZATIONS

Residential Mortgage Loans

For the three month periods ended September 30, 2010 and 2009, Huntington sold $0.9 billion and $0.8 billion of residential mortgage loans with servicing retained, resulting in net pre-tax gains of $21.8 million and $18.4 million, respectively, recorded in other non-interest income. During the nine month periods ended September 30, 2010 and 2009, sales of residential mortgage loans with servicing retained were $2.5 billion and $3.5 billion, respectively, resulting in net pre-tax gains of $55.3 million and $74.0 million, respectively.

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A mortgage servicing right (MSR) is established 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 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. Any increase or decrease in the fair value of MSRs carried under the fair value method, as well as amortization and impairment of MSRs under the amortization 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 three month and nine month periods ended September 30, 2010 and 2009:

	Three Months Ended						Nine Months Ended
Fair Value Method	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
Fair value, beginning of period	$	132,405		$	196,932		$	176,426		$	167,438
New servicing assets created		—			—			—			23,074
Change in fair value during the period due to:
Time decay (1)		(1,088	)		(1,836	)		(4,295	)		(5,164	)
Payoffs (2)		(9,158	)		(7,295	)		(22,835	)		(30,603	)
Changes in valuation inputs or assumptions (3)		(10,004	)		(17,348	)		(37,141	)		18,814
Other changes		—			—			—			(3,106	)
Fair value, end of period	$	112,155		$	170,453		$	112,155		$	170,453

(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.

	Three Months Ended						Nine Months Ended
Amortization Method	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
Carrying value, beginning of year	$	46,733		$	22,350		$	38,165		$	—
New servicing assets created		7,506			9,086			24,247			31,530
Impairment charge		(2,043	)		—			(6,899	)		—
Amortization and other		(2,757	)		(919	)		(6,074	)		(1,013	)
Carrying value, end of period	$	49,439		$	30,517		$	49,439		$	30,517
Fair value, end of period	$	50,832		$	32,182		$	50,832		$	32,182

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 September 30, 2010 to changes in these assumptions follows:

				Decline in fair value due to
				10%			20%
				adverse			adverse
(in thousands)	Actual			change			change
Constant pre-payment rate		16.56	%	$	(6,469	)	$	(12,464	)
Spread over forward interest rate swap rates	515		bps		(2,351	)		(4,702	)

MSR values are 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.

14

Total servicing fees included in mortgage banking income amounted to $12.1 million and $12.3 million for the three month periods ended September 30, 2010 and 2009, respectively. For the nine month periods ended September 30, 2010, and 2009, servicing fees totaled $36.6 million and $36.2 million, respectively.

Automobile Loans and Leases

With the adoption of amended accounting guidance for the consolidation of variable interest entities (VIE), Huntington consolidated a trust containing automobile loans on January 1, 2010. As a result of this consolidation, total assets increased $621.6 million, total liabilities increased $629.3 million, and a negative cumulative effect adjustment to other comprehensive income and retained earnings of $7.7 million was recorded. (See Note 15 for more information on the consolidation of the trust)

Automobile loan servicing rights are accounted for using the amortization method. A servicing asset is established at fair value at the time of the sale. 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 three and nine month periods ended September 30, 2010 and 2009, and the fair value at the end of each period were as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
Carrying value, beginning of period	$	373		$	17,423		$	12,912		$	1,656
New servicing assets created		—			—			—			19,538
Amortization and other (1)		(228	)		(2,391	)		(12,767	)		(6,162	)
Carrying value, end of period	$	145		$	15,032		$	145		$	15,032
Fair value, end of period	$	387		$	16,472		$	387		$	16,472

(1) The nine months ended September 30, 2010, included a $12.4 million reduction related to the consolidation of the VIE as noted above.

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 $0.5 million and $1.8 million for the three month periods ended September 30, 2010 and 2009, respectively. For the nine month periods ended September 30, 2010, and 2009, servicing income, net of amortization of capitalized servicing assets, was $2.1 million and $4.5 million, respectively.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

A rollforward of goodwill by business segment for the nine month period ended September 30, 2010, was as follows:

	Retail &
	Business		Commercial		Commercial				Treasury/		Huntington
(in thousands)	Banking		Banking		Real Estate		PFG		Other		Consolidated
Balance, beginning of period	$	310,138	$	5,008	$	—	$	124,283	$	4,839	$	444,268
Other adjustments		—		—		—		—				—
Balance, end of period	$	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 the carrying value may not be recoverable. There were no events or changes in circumstances which indicated the goodwill of a reporting unit may have been impaired during the 2010 third quarter, 2010 second quarter, or 2010 first quarter.

15

At September 30, 2010, December 31, 2009 and September 30, 2009, Huntington’s other intangible assets consisted of the following:

	Gross					Net
	Carrying		Accumulated			Carrying
(in thousands)	Amount		Amortization			Value
September 30, 2010
Core deposit intangible	$	376,846	$	(206,658	)	$	170,188
Customer relationship		104,574		(32,579	)		71,995
Other		25,164		(23,681	)		1,483
Total other intangible assets	$	506,584	$	(262,918	)	$	243,666
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
September 30, 2009
Core deposit intangible	$	373,300	$	(154,158	)	$	219,142
Customer relationship		104,574		(23,710	)		80,864
Other		25,164		(22,558	)		2,606
Total other intangible assets	$	503,038	$	(200,426	)	$	302,612

The estimated amortization expense of other intangible assets for the remainder of 2010 and the next five years is as follows:

	Amortization
(in thousands)	Expense
2010	$	15,100
2011		53,279
2012		46,075
2013		40,511
2014		35,858
2015		19,756

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7. OTHER LONG-TERM DEBT AND SUBORDINATED NOTES

The following table summarizes the changes in other long-term debt and subordinated notes during the nine month periods ended September 30, 2010, and 2009:

	Other			Subordinated
(in thousands)	Long-term Debt			Notes
Balance, January 1, 2010	$	2,369,491		$	1,264,202
Notes payable from consolidation of variable interest entities (VIE)		634,125	(1)		—
Redemptions/maturities		(544,250	)		(83,870	)
Amortization of issued discount		(6,141	)		(399	)
Fair value changes related to hedging		3,935			22,635
Other		(64,089	)		—
Balance, September 30, 2010	$	2,393,071		$	1,202,568
Balance, January 1, 2009	$	2,331,632		$	1,950,097
Issuances		600,000	(2)		—
Redemptions/maturities		(578,072	)(2)		(223,315	)(3)
Amortization of issued discount		—			(28	)
Fair value changes related to hedging		(2,961	)		(52,700	)
Franklin 2009 Trust liability		82,309	(4)
Other		1,950			—
Balance, September 30, 2009	$	2,434,858		$	1,674,054

(1) With the adoption of amended accounting guidance for the consolidation of variable interest entities (VIE), Huntington consolidated a trust containing automobile loans and related notes payable on January 1, 2010.

(2) In the 2009 first quarter, the Bank issued $600 million of guaranteed other long-term 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 maturities in 2009.

(3) During the second quarter of 2009, Huntington redeemed $166.3 million junior subordinated notes associated with outstanding trust preferred securities, for an aggregate of $96.2 million, resulting in a net pre-tax gain of $67.4 million. This was reflected as a debt extinguishment in the condensed consolidated financial statements.

(4) Franklin 2009 Trust liability was a result of the consolidation of Franklin 2009 Trust on March 31, 2009. See Note 3 for more information regarding the Franklin relationship.

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 14 for more information regarding such financial instruments.

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8. OTHER COMPREHENSIVE INCOME

The components of Huntington’s other comprehensive income for the three months and nine month periods ended September 30, 2010 and 2009, were as follows:

	Three Months Ended
	September 30, 2010
	Tax (expense)
(in thousands)	Pretax			Benefit			After-tax
Non-credit-related impairment recoveries on debt securities not expected to be sold	$	30,492		$	(10,672	)	$	19,820
Unrealized holding gains (losses) on debt securities available for sale arising during the period		28,767			(10,276	)		18,491
Less: Reclassification adjustment for net losses (gains) losses included in net income		296			(104	)		192
Net change in unrealized holding gains (losses) on debt securities available for sale		59,555			(21,052	)		38,503
Unrealized holding gains (losses) on equity securities available for sale arising during the period		(53	)		19			(34	)
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		(53	)		19			(34	)
Unrealized gains and losses on derivatives used in cash flow hedging relationships arising during the period		25,180			(8,813	)		16,367
Change in pension and post-retirement benefit plan assets and liabilities		1,794			(628	)		1,166
Total other comprehensive income (loss)	$	86,476		$	(30,474	)	$	56,002

	Three Months Ended
	September 30, 2009
	Tax (expense)
(in thousands)	Pretax			Benefit			After-tax
Non-credit-related impairment losses on debt securities not expected to be sold		(34,725	)	$	12,154		$	(22,571	)
Unrealized holding (losses) gains on debt securities available for sale arising during the period		69,689		$	(24,758	)	$	44,931
Less: Reclassification adjustment for net losses (gains) losses included in net income		2,374			(830	)		1,544
Net change in unrealized holding (losses) gains on debt securities available for sale		37,338			(13,434	)		23,904
Unrealized holding (losses) gains on equity securities available for sale arising during the period		323			(113	)		210
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		323			(113	)		210
Unrealized gains and losses on derivatives used in cash flow hedging relationships arising during the period		55,527			(19,435	)		36,092
Change in pension and post-retirement benefit plan assets and liabilities		2,272			(795	)		1,477
Total other comprehensive (loss) income	$	95,460		$	(33,777	)	$	61,683

	Nine Months Ended
	September 30, 2010
	Tax (expense)
(in thousands)	Pretax			Benefit			After-tax
Cumulative effect of change in accounting principle for consolidation of variable interest entities	$	(6,365	)	$	2,116		$	(4,249	)
Non-credit-related impairment recoveries on debt securities not expected to be sold		36,570			(12,799	)		23,771
Unrealized holding gains (losses) on debt securities available for sale arising during the period		137,051			(48,578	)		88,473
Less: Reclassification adjustment for net losses (gains) losses included in net income		171			(60	)		111
Net change in unrealized holding gains (losses) on debt securities available for sale		173,792			(61,437	)		112,355
Unrealized holding gains (losses) on equity securities available for sale arising during the period		(241	)		85			(156	)
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		(241	)		85			(156	)
Unrealized gains and losses on derivatives used in cash flow hedging relationships arising during the period		26,371			(9,230	)		17,141
Change in pension and post-retirement benefit plan assets and liabilities		5,382			(1,884	)		3,498
Total other comprehensive income (loss)	$	198,939		$	(70,350	)	$	128,589

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	Nine Months Ended
	September 30, 2009
	Tax (expense)
(in thousands)	Pretax			Benefit			After-tax
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		(103,253	)		36,139			(67,114	)
Unrealized holding (losses) gains on debt securities available for sale arising during the period		263,094			(92,787	)		170,307
Less: Reclassification adjustment for net losses (gains) losses included in net income		7,647			(2,676	)		4,971
Net change in unrealized holding (losses) gains on debt securities available for sale		167,488			(59,324	)		108,164
Unrealized holding (losses) gains on equity securities available for sale arising during the period		188			(65	)		123
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		188			(65	)		123
Unrealized gains and losses on derivatives used in cash flow hedging relationships arising during the period		8,728			(3,055	)		5,673
Change in pension and post-retirement benefit plan assets and liabilities		6,819			(2,387	)		4,432
Total other comprehensive (loss) income	$	177,775		$	(62,924	)	$	114,851

Activity in accumulated other comprehensive income, net of tax, for the nine month periods ended September 30, 2010 and 2009, were as follows:

									Accumulated
							Unrealized		Unrealized
	Unrealized			Unrealized			gains and		Losses for
	gains and			gains and			losses on		Pension and
	losses on			losses on			cash flow		Other Post-
	debt			equity			hedging		retirement
(in thousands)	securities			securities			derivatives		obligations			Total
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		108,164			123			5,673		4,432			118,392
Balance, September 30, 2009	$	(102,804	)	$	(206	)	$	50,311	$	(159,143	)	$	(211,842	)
Balance, December 31, 2009	$	(103,060	)	$	(322	)	$	58,865	$	(112,468	)	$	(156,985	)
Cumulative effect of change in accounting principle for consolidation of variable interest entities		(4,249	)		—			—		—			(4,249	)
Period change		112,355			(156	)		17,141		3,498			132,838
Balance, September 30, 2010	$	5,046		$	(478	)	$	76,006	$	(108,970	)	$	(28,396	)

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9. SHAREHOLDERS’ EQUITY

Change in Shares Authorized

During the second quarter of 2010, Huntington amended its charter to increase the number of authorized shares of common stock from 1.0 billion shares to 1.5 billion shares.

Issuance of Common Stock

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

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.

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.

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.

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
(in thousands)	Quarter 2009		Quarter 2009		Total
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 September 30, 2010). 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 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.

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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, 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 September 30, 2010, Huntington is in compliance with all TARP standards, restrictions, and dividend payments.

Share Repurchase Program

As a condition to participate in the TARP, Huntington may not repurchase shares without prior approval from the Department of Treasury. Huntington did not repurchase any shares during the three months or nine month periods ended September 30, 2010. 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).

10. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is the amount of earnings (loss) (adjusted for dividends declared on preferred stock) available to each share of common stock outstanding during the reporting period. Diluted earnings (loss) per share is the amount of earnings (loss) 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 9). 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 earnings (loss) per share, net income (loss) 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 income (loss) available to common shareholders is adjusted by the associated preferred dividends. The calculation of basic and diluted earnings (loss) per share for each of the three months and nine month periods ended September 30, 2010 and 2009 was as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2010			2009			2010			2009
Basic earnings (loss) per common share
Net income (loss)	$	100,946		$	(166,190	)	$	189,447		$	(2,724,492	)
Preferred stock dividends and amortization of discount		(29,495	)		(29,223	)		(88,278	)		(145,467	)
Net income (loss) available to common shareholders	$	71,451		$	(195,413	)	$	101,169		$	(2,869,959	)
Average common shares issued and outstanding		716,911			589,708			716,604			471,958
Basic earnings (loss) per common share	$	0.10		$	(0.33	)	$	0.14		$	(6.08	)
Diluted earnings (loss) per common share
Net income (loss) available to common shareholders	$	71,451		$	(195,413	)	$	101,169		$	(2,869,959	)
Net income (loss) applicable to diluted earnings per share	$	71,451		$	(195,413	)	$	101,169		$	(2,869,959	)
Average common shares issued and outstanding		716,911			589,708			716,604			471,958
Dilutive potential common shares:
Stock options and restricted stock units		1,764			—			1,711			—
Shares held in deferred compensation plans		892			—			867			—
Dilutive potential common shares:		2,656			—			2,578			—
Total diluted average common shares issued and outstanding		719,567			589,708			719,182			471,958
Diluted earnings (loss) per common share	$	0.10		$	(0.33	)	$	0.14		$	(6.08	)

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Due to the loss attributable to common shareholders for the three months and nine months ended 2009, no potentially dilutive shares are included in loss per share calculations for those periods as including such shares in the calculation would reduce the reported loss per share. Approximately 19.2 million and 24.2 million options to purchase shares of common stock outstanding at the end of September 30, 2010, and 2009, 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 $18.06 per share and $17.26 per share at the end of each respective period.

11. 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 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 months and nine month periods ended September 30, 2010, and 2009.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Assumptions
Risk-free interest rate		2.14	%		3.06	%		2.31	%		2.71	%
Expected dividend yield		0.63			1.01			0.67			0.95
Expected volatility of Huntington’s common stock		32.5			60.0			38.6			51.4
Expected option term (years)		6.0			6.0			6.0			6.0
Weighted-average grant date fair value per share	$	2.05		$	2.09		$	2.21		$	1.94

The following table illustrates total share-based compensation expense and related tax benefit for the three months and nine month periods ended September 30, 2010 and 2009:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2010		2009		2010		2009
Share-based compensation expense	$	4,525	$	2,488	$	11,413	$	5,128
Tax (expense) benefit		1,584		871		3,995		1,795

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. This resulted in a reduction to share-based compensation expense of $2.8 million.

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Huntington’s stock option activity and related information for the nine month periods ended September 30, 2010, was as follows:

						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
(in thousands, except per share amounts)	Options			Price		Life (Years)		Value
Outstanding at January 1, 2010		23,722		$	17.21
Granted		2,639			6.00
Exercised		(42	)		3.81
Forfeited/expired		(3,698	)		16.77
Outstanding at September 30, 2010		22,621		$	16.00		3.2	$	4,521
Vested and expected to vest at September 30, 2010 (1)		20,863		$	16.89		2.9	$	3,456
Exercisable at September 30, 2010		17,484		$	19.11		2.3	$	1,140

(1) The number of options expected to vest includes an estimate of expected forfeitures.

The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the “in-the-money” option exercise price. For the three months and nine month periods ended September 30, 2010, cash received for the exercises of stock options was $0.2 million. There were no exercises of stock options for the three months and nine months ended September 30, 2009.

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 September 30, 2010, and activity for the nine month periods ended September 30, 2010:

				Weighted-					Weighted-
				Average					Average
	Restricted			Grant Date		Restricted			Grant Date
	Stock			Fair Value		Stock			Fair Value
(in thousands, except per share amounts)	Units			Per Share		Awards (1)			Per Share
Nonvested at January 1, 2010		2,717		$	7.50		174		$	3.45
Granted		3,104			6.24		280			5.70
Released		(431	)		19.23		(52	)		4.00
Forfeited		(132	)		7.46		—			—
Nonvested at September 30, 2010		5,258		$	5.80		402		$	4.94

(1) Includes restricted stock awards granted under the Amended and Restated 2007 Stock and Long-Term Incentive Plan to certain executives as a portion of their annual base salary. These awards are 100% vested as of the pay date and not subject to any requirement of future service. However, the shares are subject to restrictions regarding sale, transfer, pledge, or disposition until certain conditions are met.

The weighted-average grant date fair value of nonvested shares granted for the nine month periods ended September 30, 2010, and 2009, were $6.20, and $3.67, respectively. The total fair value of awards vested during the nine month periods ended September 30, 2010 and 2009, was $2.8 million, and $1.5 million, respectively. As of September 30, 2010, the total unrecognized compensation cost related to nonvested awards was $21.8 million with a weighted-average expense recognition period of 2.0 years.

Of the remaining 45.5 million shares of common stock authorized for issuance at September 30, 2010, 28.3 million were outstanding and 17.2 million were available for future grants. Huntington issues shares to fulfill stock option exercises and restricted stock units from available authorized shares. At September 30, 2010, the Company believes there are adequate authorized shares available to satisfy anticipated stock option exercises in 2010.

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12. 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 requirements but not more than the deductible under the Internal Revenue Code.

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 was 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 were changes to the way the future early and normal retirement benefits are calculated under the Retirement Plan for service on and after January 1, 2010. While these changes did 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.

The following table shows the components of net periodic benefit expense of the Plan and the Post-Retirement Benefit Plan:

	Pension Benefits						Post Retirement Benefits
	Three Months Ended						Three Months Ended
	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
Service cost	$	5,051		$	6,155		$	—		$	465
Interest cost		7,217			7,056			433			896
Expected return on plan assets		(10,528	)		(10,551	)		—			—
Amortization of transition asset		1			2			—			276
Amortization of prior service cost		(1,442	)		121			(339	)		95
Amortization of gains		3,748			—			(174	)		—
Settlements		3,925			1,725			—			—
Recognized net actuarial loss (gain)		—			1,872			—			(231	)
Benefit expense	$	7,972		$	6,380		$	(80	)	$	1,501

	Pension Benefits						Post Retirement Benefits
	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
Service cost	$	15,153		$	18,464		$	—		$	1,395
Interest cost		21,651			21,167			1,299			2,687
Expected return on plan assets		(31,584	)		(31,653	)		—			—
Amortization of transition asset		5			4			—			828
Amortization of prior service cost		(4,326	)		362			(1,014	)		284
Amortization of gains		11,242			—			(525	)		—
Settlements		7,375			5,175			—			—
Recognized net actuarial loss (gain)		—			5,620			—			(693	)
Benefit expense	$	19,516		$	19,139		$	(240	)	$	4,501

There is no required minimum contribution for 2010 to the Retirement Plan.

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The Huntington National Bank, as trustee, held all Plan assets at September 30, 2010, and December 31, 2009. The Plan assets consisted of investments in a variety of Huntington mutual funds and Huntington common stock as follows:

	Fair Value
(in thousands)	September 30, 2010				December 31, 2009
Cash equivalents:
Huntington funds — money market	$	204	—	%	$	11,304	2	%
Other		—	—			2,777	1
Fixed income:
Huntington funds — fixed income funds		134,523	30			125,323	28
Corporate obligations		1,097	—			1,315	—
U.S. Government Agencies		506	—			497	—
Equities:
Huntington funds — equity funds		293,956	64			256,222	57
Huntington funds — equity mutual funds		—	—			31,852	7
Other — equity mutual funds		4,029	1			122	—
Huntington common stock		22,344	5			14,347	3
Other common stock		—	—			10,355	2
Fair value of plan assets	$	456,659	100	%	$	454,114	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 September 30, 2010 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 changes in the values of investments will occur in the near term and 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 September 30, 2010, Plan assets were invested 70% in equity investments and 30% in bonds, with an average duration of 3.1 years on bond investments. 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.

Huntington also sponsors other nonqualified retirement plans, the most significant being the Supplemental Executive Retirement Plan (SERP) and the Supplemental Retirement Income Plan (SRIP). The SERP provides certain former officers and directors, and the SRIP provides certain current officers and directors of Huntington and its subsidiaries with defined pension benefits in excess of limits imposed by federal tax law. The cost of providing these plans was $0.7 million and $1.0 million for the three month periods ended September 30, 2010 and 2009, respectively. For the respective nine-month periods, the cost was $2.3 million and $2.7 million.

Huntington has a defined contribution plan that is available to eligible employees. In the 2009 first quarter, 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. Effective May 1, 2010, Huntington reinstated the employer matching contribution to the defined contribution plan. The cost of providing the plan for the 2010 third quarter was $3.3 million. For the nine month periods ended September 30, 2010 and 2009, the cost of providing the plan was $5.4 million and $3.1 million, respectively.

13. 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.

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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	Hierarchy	Valuation methodology
Mortgage loans held-for-sale	Level 2	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 September 30, 2010, mortgage loans held for sale had an aggregate fair value of $699.0 million and an aggregate outstanding principal balance of $675.0 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 $57.2 million and $75.6 million for the nine months ended September 30, 2010 and 2009, respectively.
Available-for-sale Securities & Trading Account Securities (1)	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 variable rate demand notes 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.
Automobile loans (2)	Level 1	Consists of certain automobile loan receivables measured at fair value based on interest rates available from similarly traded securities.
	Level 3	Consists of certain automobile loan receivables measured at fair value. The key assumptions used to determine the fair value of the automobile loan receivable included a projection of expected losses and prepayment of the underlying loans in the portfolio and a market assumption of interest rate spreads.
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. Based on updated market data and trends, the prepayment assumptions were lowered during the second quarter of 2010.
Derivatives (4)	Level 1	Consist of exchange traded contracts 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.
Securitization trust notes payable (4)	Level 1	Consists of certain notes payable related to the automobile loans measured at fair value. The notes payable are valued based upon Level 1 prices because they are actively traded in the market.

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(1) Refer to Note 4 for additional information.

(2) Refer to Note 5 for additional information.

(3) Refer to Note 14 for additional information.

(4) Refer to Note 2, 5, and 14 for additional information.

Assets and Liabilities measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis at September 30, 2010, December 31, 2009 and September 30, 2009 are summarized below:

	Fair Value Measurements at Reporting Date Using						Netting			Balance at
(in thousands)	Level 1		Level 2		Level 3		Adjustments (1)			September 30, 2010
Assets
Mortgage loans held for sale	$	—	$	699,001	$	—	$	—		$	699,001
Trading account securities		63,105		75,572		—		—			138,677
Available-for-sale securities		2,687,196		6,018,748		707,472		—			9,413,416
Automobile loans		401,148		—		189,075		—			590,223
Mortgage servicing rights		—		—		112,155		—			112,155
Derivative assets		980		547,784		11,745		(126,221	)		434,288
Equity investments		—		—		—		—			—
Liabilities
Securitization trust notes payable		422,294		—		—		—			422,294
Derivative liabilities		9,044		293,741		4,018		—			306,803

	Fair Value Measurements at Reporting Date Using						Netting			Balance at
(in thousands)	Level 1		Level 2		Level 3		Adjustments (1)			December 31, 2009
Assets
Mortgage loans held for sale	$	—	$	459,719	$	—	$	—		$	459,719
Trading account securities		56,009		27,648		—		—			83,657
Available-for-sale 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			Balance at
(in thousands)	Level 1		Level 2		Level 3		Adjustments (1)			September 30, 2009
Assets
Mortgage loans held for sale	$	—	$	491,564	$	—	$	—		$	491,564
Trading account securities		64,738		56,628		—		—			121,366
Available-for-sale securities		3,015,587		4,112,699		947,092		—			8,075,378
Mortgage servicing rights		—		—		170,453		—			170,453
Derivative assets		41		497,525		5,740		(136,256	)		367,050
Equity investments		—		—		24,706		—			24,706
Liabilities
Derivative liabilities		10,083		264,319		4,041		(39,710	)		238,733

(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.

27

The tables below present a rollforward of the balance sheet amounts for the three months and nine month periods ended September 30, 2010 and 2009, 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.

	Level 3 Fair Value Measurements
	Three Months Ended September 30, 2010
							Investment Securities
	Mortgage						Alt-A			Pooled
	Servicing			Derivative			Mortgage-			Trust-			Private									Equity
(in thousands)	Rights			Instruments			backed			Preferred			Label CMO			Other			Loans			Investments
Balance, beginning of period	$	132,405		$	6,492		$	112,230		$	106,710		$	394,611		$	262,128		$	186,388		$	—
Total gains/losses:
Included in earnings		(20,250	)		3,872			(195	)		(198	)		(1,598	)		—			4,887			—
Included in OCI		—			—			753			(6,065	)		12,674			—			—			—
Purchases		—			—			—			—			—			—			—			—
Sales		—			—			(11,977	)		—			(109,310	)		(28,838	)		—			—
Repayments		—			—			—			—			—			—			(2,200	)		—
Issuances		—			(1,741	)		—			—			—			—			—			—
Settlements		—			(896	)		(3,107	)		(193	)		(20,153	)		—			—			—
Balance, end of period	$	112,155		$	7,727		$	97,704		$	100,254		$	276,224		$	233,290		$	189,075		$	—
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	$	(20,250	)	$	2,976		$	136		$	(6,064	)	$	3,727		$	—		$	2,687		$	—

	Level 3 Fair Value Measurements
	Three Months Ended September 30, 2009
							Investment Securities
	Mortgage						Alt-A			Pooled
	Servicing			Derivative			Mortgage-			Trust-			Private								Equity
(in thousands)	Rights			Instruments			backed			Preferred			Label CMO			Other			Loans		Investments
Balance, beginning of period	$	196,932		$	(4,537	)	$	274,065		$	128,864		$	510,503		$	183,361		$	—	$	28,462
Total gains/losses:
Included in earnings		(26,479	)		3,207			1,951			(14,544	)		(1,121	)		(2,205	)		—		(156	)
Included in OCI		—			—			(8,001	)		3,849			5,777			6,727			—		—
Purchases		—			—			—			—			—			—			—		—
Sales		—			—			(97,935	)		—			—			—			—		—
Repayments		—			—			—			—			—			—			—		—
Issuances		—			—			—			—			—			—			—		—
Settlements		—			3,029			(4,299	)		(26	)		(39,874	)		—			—		(3,600	)
Balance, end of period	$	170,453		$	1,699		$	165,781		$	118,143		$	475,285		$	187,883		$	—	$	24,706
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	$	(26,479	)	$	3,028		$	(6,050	)	$	(10,695	)		4,656		$	4,522		$	—	$	(156	)

28

	Level 3 Fair Value Measurements
	Nine Months Ended September 30, 2010
							Investment Securities
	Mortgage						Alt-A			Pooled
	Servicing			Derivative			Mortgage-			Trust-			Private									Equity
(in thousands)	Rights			Instruments			backed			Preferred			Label CMO			Other			Loans			Investments
Balance, beginning of period	$	176,427		$	(4,236	)	$	116,934		$	106,091		$	477,319		$	195,588		$	—		$	25,872
Total gains/losses:
Included in earnings		(64,272	)		12,811			(1,107	)		(3,781	)		(5,429	)		—			14,990			—
Included in OCI		—			—			4,810			(1,547	)		37,640			—			—			—
Purchases		—			—			—			—			—			—			—			—
Sales		—			—			(14,608	)		—			(166,704	)		(28,837	)		—			—
Repayments		—			—			—			—			—			—			(5,934	)		—
Issuances		—			(1,741	)		—			—			—			—			—			—
Settlements		—			893			(8,325	)		(509	)		(66,602	)		(73,025	)		—			—
Transfers in/out of Level 3 (1)		—			—			—			—			—			139,564			180,019			(25,872	)
Balance, end of period	$	112,155		$	7,727		$	97,704		$	100,254		$	276,224		$	233,290		$	189,075		$	—
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	$	(64,272	)	$	11,708		$	3,931		$	(1,547	)	$	18,613		$	—		$	9,056		$	—

(1) Transfers in/out of other investment securities includes the addition of $323.6 million relating to municipal securities, a transfer out of $184.0 million related to the consolidation of the 2009 Trust (see Notes 5 and 15), a transfer in of $180.0 of loans related to the 2009 Trust, and a transfer out of $25.9 million related to Equity Investments no longer valued under the fair value guidance of ASC 820.

	Level 3 Fair Value Measurements
	Nine Months Ended September 30, 2009
							Investment Securities
	Mortgage						Alt-A			Pooled
	Servicing			Derivative			Mortgage-			Trust-			Private								Equity
(in thousands)	Rights			Instruments			backed			Preferred			Label CMO			Other			Loans		Investments
Balance, beginning of period	$	167,438		$	1,032		$	322,421		$	141,606		$	523,515		$	—		$	—	$	36,893
Total gains/losses:
Included in earnings		3,733			(668	)		3,943			(29,361	)		(1,019	)		(908	)		—		(87	)
Included in OCI		—			—			26,141			7,459			64,173			9,052			—		—
Purchases		2,388			—			—			—			5,448			211,296			—		1,017
Sales		—			—			(170,027	)		—			—			(78,676	)		—		—
Repayments		—			—			—			—			—			—			—		—
Issuances		—			—			—			—			—			47,119			—		—
Settlements		(3,106	)		1,335			(16,697	)		(1,561	)		(116,832	)		—			—		(13,117	)
Balance, end of period	$	170,453		$	1,699		$	165,781		$	118,143		$	475,285		$	187,883		$	—	$	24,706
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	$	3,733		$	(2,542	)	$	30,084		$	(21,902	)		63,154		$	8,144		$	—	$	(87	)

29

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 three months and nine month periods ended September 30, 2010 and 2009.

	Level 3 Fair Value Measurements
	Three Months Ended September 30, 2010
						Investment Securities
	Mortgage					Alt-A			Pooled
	Servicing			Derivative		Mortgage-			Trust-			Private								Equity
(in thousands)	Rights			Instruments		backed			Preferred			Label CMO			Other		Loans			investments
Classification of gains and losses in earnings:
Mortgage banking income (loss)	$	(20,250	)	$	3,872	$	—		$	—		$	—		$	—	$	—		$	—
Securities gains (losses)		—			—		(360	)		(198	)		(2,159	)		—		(3,533	)		—
Interest and fee income		—			—		165			—			561			—		8,420			—
Noninterest income		—			—		—			—			—			—		—			—
Total	$	(20,250	)	$	3,872	$	(195	)	$	(198	)	$	(1,598	)	$	—	$	4,887		$	—

	Level 3 Fair Value Measurements
	Three Months Ended September 30, 2009
						Investment Securities
	Mortgage					Alt-A			Pooled
	Servicing			Derivative		Mortgage-			Trust-			Private								Equity
(in thousands)	Rights			Instruments		backed			Preferred			Label CMO			Other			Loans		investments
Classification of gains and losses in earnings:
Mortgage banking income (loss)	$	(26,479	)	$	3,207	$	—		$	—		$	—		$	—		$	—	$	—
Securities gains (losses)		—			—		(2,284	)		(14,565	)		(1,734	)		—			—		—
Interest and fee income		—			—		4,235			21			613			(2,205	)		—		—
Noninterest income		—			—		—			—			—			—			—		(156	)
Total	$	(26,479	)	$	3,207	$	1,951		$	(14,544	)	$	(1,121	)	$	(2,205	)	$	—	$	(156	)

	Level 3 Fair Value Measurements
	Nine Months Ended September 30, 2010
						Investment Securities
	Mortgage					Alt-A			Pooled
	Servicing			Derivative		Mortgage-			Trust-			Private								Equity
(in thousands)	Rights			Instruments		backed			Preferred			Label CMO			Other		Loans			investments
Classification of gains and losses in earnings:
Mortgage banking income (loss)	$	(64,272	)	$	12,811	$	—		$	—		$	—		$	—	$	—		$	—
Securities gains (losses)		—			—		(1,562	)	$	(3,413	)		(7,027	)		—		(7,933	)		—
Interest and fee income		—			—		455			(368	)		1,598			—		22,923			—
Noninterest income		—			—		—			—			—			—		—			—
Total	$	(64,272	)	$	12,811	$	(1,107	)	$	(3,781	)	$	(5,429	)	$	—	$	14,990		$	—

	Level 3 Fair Value Measurements
	Nine Months Ended September 30, 2009
						Investment Securities
	Mortgage					Alt-A			Pooled
	Servicing		Derivative			Mortgage-			Trust-			Private								Equity
(in thousands)	Rights		Instruments			backed			Preferred			Label CMO			Other			Loans		investments
Classification of gains and losses in earnings:
Mortgage banking income (loss)	$	3,733	$	(668	)	$	—		$	—		$	—		$	—		$	—	$	—
Securities gains (losses)		—		—			(9,670	)		(29,452	)		(2,985	)		—			—		—
Interest and fee income		—		—			13,613			91			1,966			(908	)		—		—
Noninterest income		—		—			—			—			—			—			—		(87	)
Total	$	3,733	$	(668	)	$	3,943		$	(29,361	)	$	(1,019	)	$	(908	)	$	—	$	(87	)

30

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. Appraisals are generally obtained to support the fair value of the collateral and incorporate measures such as recent sales prices for comparable properties and cost of construction. In cases where the carrying value exceeds the fair value of the collateral less cost to sell, an impairment charge is recognized. Huntington considers these fair values a Level 3 input in the valuation hierarchy. During the nine month periods ended September 30, 2010 and 2009, Huntington identified $58.6 million, and $662.8 million, respectively, of impaired loans for which the fair value is recorded based upon collateral value. For the nine month periods ended September 30, 2010 and 2009, nonrecurring fair value impairment of $28.4 million and $268.2 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. At September 30, 2010 and 2009, Huntington had $123.1 million and $142.6 million, respectively of OREO assets at fair value. For the three months and nine months ended September 30, 2010, fair value losses of $0.9 million and $4.1 million, respectively were recorded within noninterest expense. For the three months and nine months ended September 30, 2009, fair value losses were $5.3 million and $8.0 million, respectively

At the end of 2010 second quarter, $398 million of Franklin-related loans ($333.0 million of residential mortgages and $64.7 million of home equity loans) at a value of $323 million were transferred into loans held for sale. Reflecting the transfer, these loans were marked to lower of cost or fair value, which resulted in 2010 second quarter charge-offs of $75.5 million ($60.8 million related to residential mortgages and $14.7 million related to home equity loans), and the provision for credit losses was increased by $75.5 million. During the 2010 third quarter, the Franklin-related residential mortgages and home equity loans were sold at essentialy book value.

Fair values of financial instruments

The carrying amounts and estimated fair values of Huntington’s financial instruments at September 30, 2010, December 31, 2009, and September 30, 2009 are presented in the following table:

	September 30, 2010						December 31, 2009						September 30, 2009
	Carrying			Fair			Carrying			Fair			Carrying			Fair
(in thousands)	Amount			Value			Amount			Value			Amount			Value
Financial Assets:
Cash and short-term assets	$	1,413,466		$	1,413,466		$	1,840,719		$	1,840,719		$	2,280,049		$	2,280,049
Trading account securities		138,677			138,677			83,657			83,657			121,366			121,366
Loans held for sale		744,439			744,439			461,647			461,647			530,861			530,861
Investment securities		9,723,558			9,723,558			8,587,914			8,587,914			8,503,150			8,503,150
Net loans and direct financing leases		36,164,235			34,894,220			35,308,184			32,598,423			36,272,123			31,424,545
Derivatives		434,288			434,288			287,756			287,756			367,050			367,050
Financial Liabilities:
Deposits		(41,072,371	)		(41,323,675	)		(40,493,927	)		(40,753,365	)		(39,829,057	)		(40,151,292	)
Short-term borrowings		(1,859,134	)		(1,854,637	)		(876,241	)		(857,254	)		(852,076	)		(832,849	)
Federal Home Loan Bank advances		(23,643	)		(23,643	)		(168,977	)		(168,977	)		(920,045	)		(920,045	)
Other long term debt		(2,393,071	)		(2,400,942	)		(2,369,491	)		(2,332,300	)		(2,434,858	)		(2,391,241	)
Subordinated notes		(1,202,568	)		(1,047,875	)		(1,264,202	)		(989,989	)		(1,674,054	)		(1,224,506	)
Derivatives		(306,803	)		(306,803	)		(238,947	)		(238,947	)		(238,733	)		(238,733	)

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.

31

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 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.

14. DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments are recorded as either 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 13. Collateral agreements are regularly entered into as part of the underlying derivative agreements with Huntington’s counterparties to mitigate counter party credit risk. At September 30, 2010, December 31, 2009 and September 30, 2009, aggregate credit risk associated with these derivatives, net of collateral that has been pledged by the counterparty, was $45.2 million, $20.3 million and $50.4 million, respectively. The credit risk associated with interest rate swaps is calculated after considering master netting agreements.

At September 30, 2010, Huntington pledged $253.9 million of investment securities and cash collateral to various counterparties, while various other counterparties pledged $145.2 million of investment securities and cash collateral to Huntington to satisfy collateral netting agreements. In the event of credit downgrades, Huntington would be required to provide $1.0 million of additional collateral.

32

The following table presents the gross notional values of derivatives used in Huntington’s asset and liability management activities at September 30, 2010, identified by the underlying interest rate-sensitive instruments:

	Fair Value		Cash Flow
(in thousands )	Hedges		Hedges		Total
Instruments associated with:
Loans	$	—	$	9,237,500	$	9,237,500
Deposits		1,825,264		—		1,825,264
Subordinated notes		298,000		—		298,000
Other long-term debt		35,000		—		35,000
Total notional value at September 30, 2010	$	2,158,264	$	9,237,500	$	11,395,764

The following table presents additional information about the interest rate swaps used in Huntington’s asset and liability management activities at September 30, 2010:

			Average				Weighted-Average
	Notional		Maturity		Fair		Rate
(in thousands )	Value		(years)		Value		Receive			Pay
Asset conversion swaps
Asset conversion swaps — receive fixed — generic	$	9,237,500		1.8	$	111,906		1.61	%		0.69	%
Liability conversion swaps — receive fixed — generic		2,158,264		2.5		78,139		1.79			0.39
Total swap portfolio	$	11,395,764		1.9	$	190,045		1.64	%		0.64	%

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 to net interest income of $43.9 million, and $48.1 million for the three month period ended September 30, 2010, and 2009, respectively. For the nine month periods ended September 30, 2010 and 2009, the net amounts resulted in an increase to net interest income of $150.3 million and $121.6 million, respectively.

In connection with securitization activities, Huntington purchased interest rate caps with a notional value totaling $1.0 billion. These purchased caps were assigned to the securitization trust for the benefit of the security holders. Interest rate caps were also sold totaling $1.0 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 September 30, 2010, the fair value of the swap liability of $3.6 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 September 30, 2010, December 31, 2009 and September 30, 2009 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

	September 30,		December 31,		September 30,
(in thousands)	2010		2009		2009
Interest rate contracts designated as hedging instruments	$	190,045	$	85,984	$	176,756
Interest rate contracts not designated as hedging instruments		357,739		255,692		320,769
Total contracts	$	547,784	$	341,676	$	497,525

Liability derivatives included in accrued expenses and other liabilities

	September 30,		December 31,		September 30,
(in thousands)	2010		2009		2009
Interest rate contracts designated as hedging instruments	$	—	$	3,464	$	—
Interest rate contracts not designated as hedging instruments		297,380		234,026		268,212
Foreign exchange contracts not designated as hedging instruments		2,440		—		—
Total contracts	$	299,820	$	237,490	$	268,212

33

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 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 the three months and nine month periods ended September 30, 2010 and 2009 for derivatives designated as fair value hedges:

Derivatives in fair value	Location of change in fair value recognized	Three Months Ended						Nine Months Ended
hedging relationships	in earnings on derivative	September 30,						September 30,
(in thousands)		2010			2009			2010			2009
Interest Rate Contracts
Deposits	Interest expense — deposits	$	(2,031	)	$	(1,771	)	$	(3,631	)	$	(2,874	)
Subordinated notes	Interest expense — subordinated notes and other long term debt		(3,846	)		(8,092	)		(12,136	)		(21,743	)
Other long term debt	Interest expense — subordinated notes and other long term debt		(354	)		(91	)		(985	)		745
Total		$	(6,231	)	$	(9,954	)	$	(16,752	)	$	(23,872	)

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 (loss) (OCI) and the location in the consolidated statements of income of gains and (losses) reclassified from OCI into earnings for the nine month periods ended September 30, 2010 and 2009 for derivatives designated as effective cash flow hedges:

							Amount of (gain) or
	Amount of gain or						loss reclassified from
Derivatives in cash	(loss) recognized in						accumulated OCI into
flow hedging	OCI on derivatives					Location of gain or (loss) reclassified from	earnings (effective
relationships	(effective portion)					accumulated OCI into earnings (effective portion)	portion)
(in thousands)	2010		2009				2010			2009
Interest rate contracts
Loans	$	81,517	$	(977	)	Interest and fee income — loans and leases	$	(100,623	)	$	1,168
FHLB Advances		—		1,338		Interest expense — other borrowings		2,580			5,374
Deposits		—		326		Interest expense — deposits		—			4,153
Subordinated notes		—		101		Interest expense — other borrowings		(1,264	)		(2,179	)
Other long term debt		—		—		Interest expense — other borrowings		—			(378	)
Total	$	81,517	$	788			$	(99,307	)	$	8,138

34

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 three months and nine month periods ended September 30, 2010, and 2009.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in thousands)	2010			2009		2010			2009
Derivatives in fair value hedging relationships
Interest rate contracts
Deposits	$	(875	)	$	8,566	$	(306	)	$	8,969
Derivatives in cash flow hedging relationships
Interest rate contracts
Loans		89			14,280		663			12,101
FHLB Advances		—			—		—			(792	)

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 September 30, 2010, December 31, 2009, and September 30, 2009 were $38.8 million, $45.1 million and $49.7 million, respectively. Changes in fair value of $3.8 million and $2.2 million for the three month period ended September 30, 2010 and 2009, respectively, and $10.2 million and $8.6 million for the nine month periods ended September 30, 2010 and 2009, 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 $9.4 billion, $9.6 billion and $9.7 billion at September 30, 2010, December 31, 2009, and September 30, 2009, respectively. Huntington’s credit risks from interest rate swaps used for trading purposes were $357.7 million, $255.7 million and $320.8 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 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:

	September 30,			December 31,			September 30,
(in thousands)	2010			2009			2009
Derivative assets:
Interest rate lock agreements	$	11,745		$	995		$	5,740
Forward trades and options		980			7,711			41
Total derivative assets		12,725			8,706			5,781
Derivative liabilities:
Interest rate lock agreements		(379	)		(1,338	)		(148	)
Forward trades and options		(6,604	)		(119	)		(10,083	)
Total derivative liabilities		(6,983	)		(1,457	)		(10,231	)
Net derivative asset (liability)	$	5,742		$	7,249		$	(4,450	)

35

The total notional value of these derivative financial instruments at September 30, 2010, December 31, 2009 and September 30, 2009, was $2.8 billion, $3.7 billion, and $4.7 billion, respectively. The total notional amount at September 30, 2010 corresponds to trading assets with a fair value of $13.8 million. Total MSR hedging gains and (losses) for the three month period ended September 30, 2010, and 2009, were $24.3 million, and $16.1 million, respectively, and $82.5 million, and ($24.7) million for the nine month periods ended September 30, 2010, and 2009, respectively. Included in total MSR hedging gains and losses for the three month period ended September 30, 2010, and 2009 were gains and (losses) related to derivative instruments of $24.2 million, and $15.7 million, respectively, and $81.9 million, and ($28.0) million for the nine month periods ended September 30, 2010, and 2009, respectively. These amounts are included in mortgage banking income in the condensed consolidated statements of income.

15. VARIABLE INTEREST ENTITIES

Consolidated Variable Interest Entities

Consolidated variable interest entities at September 30, 2010, consisted of the Franklin 2009 Trust (See Note 3) and certain loan securitization trusts. Loan securitizations include automobile loan and lease securitization trusts formed in 2009, 2008, 2006, and 2000. Huntington has determined the trusts are variable interest entities (VIEs). Through Huntington’s continuing involvement in the trusts (including ownership of beneficial interests and certain servicing or collateral management activities), Huntington is the primary beneficiary.

With the adoption of amended accounting guidance for VIEs, Huntington consolidated the 2009 Trust containing automobile loans on January 1, 2010. Huntington has elected the fair value option under ASC 825, Financial Instruments, for both the automobile loans and the related debt obligations. Upon adoption of the new accounting standard, total assets increased $621.6 million, total liabilities increased $629.3 million, and a negative cumulative effect adjustment to other comprehensive income and retained earnings of $7.7 million was recorded.

The carrying amount and classification of the trusts’ assets and liabilities included in the consolidated balance sheet are as follows:

	September 30, 2010
	Franklin
(in thousands)	2009 Trust		2009 Trust		2008 Trust			2006 Trust			2000 Trust		Total
Assets
Cash	$	—	$	23,134	$	22,322		$	224,378		$	1,483	$	271,317
Loans and leases		—		590,223		348,797			1,242,156			—		2,181,176
Allowance for loan and lease losses		—		—		(2,790	)		(9,937	)		—		(12,727	)
Net loans and leases		—		590,223		346,007			1,232,219			—		2,168,449
Accrued income and other assets		47,091		2,595		1,695			5,266			—		56,647
Total assets	$	47,091	$	615,952	$	370,024		$	1,461,863		$	1,483	$	2,496,413
Liabilities
Other long-term debt	$	10,019	$	422,294	$	204,804		$	1,065,031		$	—	$	1,702,148
Accrued interest and other liabilities		8,957		805		414			13,370			—		23,546
Total liabilities	$	18,976	$	423,099	$	205,218		$	1,078,401		$	—	$	1,725,694

The automobile 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 September 30, 2010 follows:

36

				Principal amount of		Investment in
				subordinated note/		unconsolidated
(in thousands)	Rate			debenture issued to trust (1)		subsidiary (2)
Huntington Capital I		1.17	%(3)	$	138,816	$	6,186
Huntington Capital II		0.92	(4)		60,093		3,093
Huntington Capital III		6.69			114,065		10
BancFirst Ohio Trust Preferred		8.54			23,261		619
Sky Financial Capital Trust I		8.52	(5)		64,544		1,856
Sky Financial Capital Trust II		3.46	(6)		30,929		929
Sky Financial Capital Trust III		1.27	(7)		77,564		2,320
Sky Financial Capital Trust IV		1.51	(7)		77,565		2,320
Prospect Trust I		3.78			6,186		186
Total				$	593,023	$	17,519

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

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

(3) Variable effective rate at September 30, 2010, based on three month LIBOR + 0.70.

(4) Variable effective rate at September 30, 2010, based on three month LIBOR + 0.625.

(5) Variable effective rate at September 30, 2010, based on three month LIBOR + 2.95.

(6) Variable effective rate at September 30, 2010, based on three month LIBOR + 3.25.

(7) Variable effective rate at September 30, 2010, based on three month LIBOR + 1.40.

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 no extension period may extend beyond the stated maturity of the related debentures. During any such extension period, distributions to the 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 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 September 30, 2010, December 31, 2009 and September 30, 2009, Huntington had commitments of $269.4 million, $285.3 million and $274.2 million, respectively of which $238.9 million, $192.7 million and $187.6 million, respectively were funded. The unfunded portion is included in accrued expenses and other liabilities.

16. 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 contractual amounts of these financial agreements at September 30, 2010, December 31, 2009 and September 30, 2009, were as follows:

37

	September 30,		December 31,		September 30,
(in millions)	2010		2009		2009
Contract amount represents credit risk
Commitments to extend credit
Commercial	$	5,854	$	5,834	$	6,055
Consumer		5,264		5,028		4,964
Commercial real estate		644		1,075		1,177
Standby letters of credit		477		577		624

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 $2.0 million, $2.8 million and $3.0 million at September 30, 2010, December 31, 2009 and September 30, 2009, respectively.

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 September 30, 2010, Huntington had $0.5 billion of standby letters of credit outstanding, of which 72% were collateralized.

Huntington uses an internal loan grading system to assess an estimate of loss on its loan and lease portfolio. This same loan grading system is used to monitor credit risk associated with standby letters of credit. Under this risk rating system as of September 30, 2010, approximately $61.3 million of the standby letters of credit were rated strong with sufficient asset quality, liquidity, and good debt capacity and coverage, approximately $353.7 million were rated average with acceptable asset quality, liquidity, and modest debt capacity; and approximately $62.3 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 September 30, 2010, December 31, 2009 and September 30, 2009, Huntington had commitments to sell residential real estate loans of $1,254.4 million, $662.9 million and $729.5 million, respectively. These contracts mature in less than one year.

Income Taxes

The Company and its subsidiaries file income tax return in the U.S. federal jurisdiction and various state, city and foreign jurisdictions. Federal income tax audits have been completed through 2005. Various state and other jurisdictions remain open to examination for tax years 2000 and forward.

Both the IRS and state tax officials from Ohio, Kentucky, and Illinois have proposed adjustments to the Company’s previously filed tax returns. Management believes 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 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, the Company believes 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 September 30, 2010, the Company had a net unrecognized tax benefit of $22.8 million in income tax reserves related to tax positions. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. However, any ultimate settlement is not expected to be material to the financial statements as a whole. The company recognizes interest and penalties on income tax assessments or income tax refunds in the financial statements as a component of its provision for income taxes. Huntington does not anticipate the total amount of unrecognized tax benefits to significantly change within the next 12 months.

38

Health Care and Education Reconciliation Act of 2010 (HCER Act)

On March 23, 2010, the HCER Act was signed into law. The HCER Act includes a provision to repeal the deduction for employer subsidies for retiree drug coverage under Medicare Part D. Under prior law, an employer offering retiree prescription drug coverage that is at least as valuable as Medicare Part D was entitled to a subsidy. Employers were able to deduct the entire cost of providing prescription drug coverage, even though a portion was offset by the subsidy. For taxable years beginning after December 31, 2012, the HCER Act repeals the current rule permitting the deduction of the portion of the expense that was offset by the Part D subsidy. As a result of this provision, the deferred tax asset associated with prescription drug coverage was reduced by $3.6 million.

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 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 on December 4, 2009, and the plaintiffs thereafter filed a Notice of Appeal to the United States Court of Appeals for the Sixth Circuit. On April 22, 2010 the plaintiffs dismissed their appeal with prejudice.

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 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 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. The Board has appointed a special independent committee to review and investigate the allegations made in the letter, and based upon that investigation, to recommend to the Board what actions, if any, should be taken. The Court of Common Pleas of Franklin County, Ohio granted the defendant’s motion to dismiss the derivative lawsuit pending in that court. On October 8, 2010, an agreed order to dismiss the derivative suit was entered in the Court of Common Pleas of Delaware County, Ohio. 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.

17. PARENT COMPANY FINANCIAL STATEMENTS

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

39

Balance Sheets	September 30,		December 31,		September 30,
(in thousands)	2010		2009		2009
ASSETS
Cash and cash equivalents (1)	$	858,965	$	1,376,539	$	1,780,345
Due from The Huntington National Bank (2)		953,074		955,695		540,741
Due from non-bank subsidiaries		246,458		273,317		280,338
Investment in The Huntington National Bank		3,524,432		2,821,181		3,157,018
Investment in non-bank subsidiaries		813,788		815,730		859,202
Accrued interest receivable and other assets		167,712		112,557		194,654
Total assets	$	6,564,429	$	6,355,019	$	6,812,298
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term borrowings	$	687	$	1,291	$	1,290
Long-term borrowings		637,434		637,434		637,434
Dividends payable, accrued expenses, and other liabilities		358,905		380,292		498,468
Total liabilities		997,026		1,019,017		1,137,192
Shareholders’ equity (3)		5,567,403		5,336,002		5,675,106
Total liabilities and shareholders’ equity	$	6,564,429	$	6,355,019	$	6,812,298

(1) Includes restricted cash of $125,000

(2) Related to subordinated notes described in Note 7.

(3) See Huntington’s Condensed Consolidated Statements of Changes in Shareholders’ Equity.

	Three Months Ended						Nine Months Ended
Statements of Income	September 30,						September 30,
(in thousands)	2010			2009			2010			2009
Income
Dividends from
The Huntington National Bank	$	—		$	—		$	—		$	—
Non-bank subsidiaries		15,000			15,450			33,000			24,700
Interest from
The Huntington National Bank		20,611			11,841			62,351			34,828
Non-bank subsidiaries		2,873			3,581			9,322			11,872
Other		461			435			2,537			68,004
Total income		38,945			31,307			107,210			139,404
Expense
Personnel costs		9,751			11,120			22,769			13,835
Interest on borrowings		6,028			5,838			17,303			23,755
Other		11,416			8,621			37,321			21,148
Total expense		27,195			25,579			77,393			58,738
Income before income taxes and equity in undistributed net income of subsidiaries		11,750			5,728			29,817			80,666
Income taxes		(656	)		(2,072	)		15,088			17,130
Income before equity in undistributed net income of subsidiaries		12,406			7,800			14,729			63,536
Increase (decrease) in undistributed net income of:
The Huntington National Bank		95,156			(168,462	)		196,214			(2,761,828	)
Non-bank subsidiaries		(6,616	)		(5,528	)		(21,496	)		(26,200	)
Net income (loss)	$	100,946		$	(166,190	)	$	189,447		$	(2,724,492	)

40

	Nine Months Ended
Statements of Cash Flows	September 30,
(in thousands)	2010			2009
Operating activities
Net income (loss)	$	189,447		$	(2,724,492	)
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed net income of subsidiaries		(192,718	)		2,788,028
Depreciation and amortization		765			3,204
Other, net		(76,881	)		(91,326	)
Net cash (used for) provided by operating activities		(79,387	)		(24,586	)
Investing activities
Repayments from subsidiaries		(384,162	)		369,861
Advances to subsidiaries		43,572			(591,640	)
Net cash used for investing activities		(340,590	)		(221,779	)
Financing activities
Payment of borrowings		(604	)		(99,418	)
Dividends paid on preferred stock		(75,537	)		(82,084	)
Dividends paid on common stock		(21,437	)		(49,349	)
Proceeds from issuance of common stock		—			1,135,662
Other, net		(19	)		(157	)
Net cash (used for) provided by financing activities		(97,597	)		904,654
Change in cash and cash equivalents		(517,574	)		658,289
Cash and cash equivalents at beginning of period		1,376,539			1,122,056
Cash and cash equivalents at end of period	$	858,965		$	1,780,345
Supplemental disclosure:
Interest paid	$	17,303		$	23,755

18. SEGMENT REPORTING

Huntington operates as five distinct segments: 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.

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 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 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. 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 September 30, 2010, 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.

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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 2,300 automotive dealerships within the Company’s primary banking markets, as well as Eastern Pennsylvania and five New England states. 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 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.

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. Huntington utilizes a full-allocation methodology, where all Treasury/Other expenses, except those related to servicing Franklin-related assets, reported “Significant Items” (excluding the goodwill impairment), and a small residual of other unallocated expenses, are allocated to the other five business segments.

Beginning in the 2010 fourth quarter, we intend to reorganize. The purpose of the reorganization is to better align certain business unit reporting to segment executives with more related business units, accelerating cross sell results. Our reorganization also addresses certain span of management opportunities allowing greater focus on execution of our strategic plans.

Listed below is certain operating basis financial information reconciled to Huntington’s 2010, and 2009 reported results by business segment:

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	Three Months Ended September 30,
	Retail &									Former
Income Statements	Business						Commercial			Regional									Treasury/			Huntington
(in thousands)	Banking			Commercial			Real Estate			Banking			AFDS			PFG			Other			Consolidated
2010
Net interest income	$	237,500			59,487			43,775		$	340,762		$	43,306			24,371			1,523		$	409,962
Provision for credit losses		(68,634	)		(3,698	)		(32,433	)		(104,765	)		(5,089	)		(9,275	)		(31	)		(119,160	)
Non interest income		147,842			25,999			4,432			178,273			16,867			62,616			9,387			267,143
Non interest expense		(261,951	)		(42,212	)		(13,449	)		(317,612	)		(27,533	)		(72,601	)		(9,563	)		(427,309	)
Income taxes		(19,165	)		(13,852	)		(814	)		(33,831	)		(9,643	)		(1,789	)		15,573			(29,690	)
Operating/reported net income (loss)	$	35,592		$	25,724		$	1,511		$	62,827		$	17,908		$	3,322		$	16,889		$	100,946
2009
Net interest income	$	210,427		$	51,722			33,965		$	296,114		$	33,438			19,493			13,774		$	362,819
Provision for credit losses		(116,699	)		(92,010	)		(245,463	)		(454,172	)		(11,375	)		(9,035	)		(554	)		(475,136	)
Non-Interest income		131,738			23,828			(591	)		154,975			17,247			58,938			24,892			256,052
Non-Interest expense		(237,819	)		(37,235	)		(9,826	)		(284,880	)		(27,340	)		(61,875	)		(27,002	)		(401,097	)
Income taxes		4,324			18,793			77,671			100,788			(4,190	)		(2,632	)		(2,794	)		91,172
Operating/reported net income (loss)	$	(8,029	)	$	(34,902	)	$	(144,244	)	$	(187,175	)	$	7,780		$	4,889		$	8,316		$	(166,190	)
	Nine Months Ended September 30,
	Retail &									Former
Income Statements	Business						Commercial			Regional									Treasury/			Huntington
(in thousands)	Banking			Commercial			Real Estate			Banking			AFDS			PFG			Other			Consolidated
2010
Net interest income	$	683,200			169,338			123,362		$	975,900		$	126,607			70,420			30,584		$	1,203,511
Provision for credit losses		(190,508	)		(57,295	)		(211,430	)		(459,233	)		9,004			(4,476	)		(92,869	)		(547,574	)
Non interest income		409,993			78,383			8,558			496,934			49,929			191,858			38,917			777,638
Non interest expense		(757,879	)		(121,415	)		(33,984	)		(913,278	)		(82,568	)		(212,111	)		(31,256	)		(1,239,213	)
Income taxes		(50,682	)		(24,154	)		39,723			(35,113	)		(36,040	)		(15,992	)		82,230			(4,915	)
Operating/reported net income (loss)	$	94,124		$	44,857		$	(73,771	)	$	65,210		$	66,932		$	29,699		$	27,606		$	189,447
2009
Net interest income	$	666,806			156,231			101,287		$	924,324		$	105,116		$	57,274		$	(36,491	)	$	1,050,223
Provision for credit losses		(310,807	)		(207,667	)		(577,826	)		(1,096,300	)		(68,553	)		(27,019	)		11,192			(1,180,680	)
Non-Interest income		385,628			69,511			778			455,917			44,327			183,657			77,198			761,099
Non-Interest expense, excluding goodwill impairment		(674,386	)		(104,461	)		(25,389	)		(804,236	)		(85,907	)		(177,310	)		(36,451	)		(1,103,904	)
Goodwill impairment		—			—			—			(2,573,818	)(1)		—			(28,895	)		(4,231	)		(2,606,944	)
Income taxes		(23,535	)		30,235			175,402			182,102			1,756			(2,697	)		174,553			355,714
Operating/reported net income (loss)	$	43,706		$	(56,151	)	$	(325,748	)	$	(2,912,011	)	$	(3,261	)	$	5,010		$	185,770		$	(2,724,492	)

(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.

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	Assets at						Deposits at
	September 30,		December 31,		September 30,		September 30,		December 31,		September 30,
(in millions)	2010		2009		2009		2010		2009		2009
Retail & Business Banking	$	17,099	$	16,565	$	17,604	$	29,220	$	28,877	$	28,120
Commercial Banking		7,819		7,767		8,281		6,931		6,031		6,241
Commercial Real Estate		5,993		7,426		6,621		637		535		454
AFDS		7,083		5,142		4,942		103		83		96
PFG		3,430		3,254		3,403		3,085		3,409		2,954
Treasury / Other		11,823		11,401		11,662		1,096		1,559		1,964
Total	$	53,247	$	51,555	$	52,513	$	41,072	$	40,494	$	39,829

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