HPCCP Huntington Preferred Capital - Class C Preferred Stock (MM)

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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]                     Accelerated filer [ ]                      Non-accelerated filer [X]

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

As of October 31, 2007, 14,000,000 shares of common stock without par value were outstanding, all of which were held by affiliates of the registrant.

HUNTINGTON PREFERRED CAPITAL, INC.

INDEX

Part I.   Financial Information
Item 1.		Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets - At September 30, 2007, December 31, 2006, and September 30, 2006			3
		Condensed Consolidated Statements of Income - For the three-months and nine-months ended September 30, 2007 and 2006			4
		Condensed Consolidated Statements of Changes in Shareholders’ Equity - For the nine-months ended September 30, 2007 and 2006			5
		Condensed Consolidated Statements of Cash Flows - For the nine-months ended September 30, 2007 and 2006			6
		Notes to the Unaudited Condensed Consolidated Financial Statements			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			24
Item 4.		Controls and Procedures			24
Item 4T.		Controls and Procedures			24
Part II. Other Information
Item 6.		Exhibits			24
Signatures					26
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.1

Part I. Financial Information

See notes to unaudited condensed consolidated financial statements.

See notes to unaudited condensed consolidated financial statements.

See notes to unaudited condensed consolidated financial statements.

Notes to the Unaudited Condensed Consolidated Financial Statements

Note 1 - Organization

     Huntington Preferred Capital, Inc. (HPCI) was organized under Ohio law in 1992 and designated as a real estate investment trust (REIT) in 1998. Four related parties own HPCI’s common stock: Huntington Capital Financing LLC (HCF); Huntington Preferred Capital II, Inc. (HPCII); Huntington Preferred Capital Holdings, Inc. (Holdings); and Huntington Bancshares Incorporated (Huntington). HPCI has one subsidiary, HPCLI, Inc. (HPCLI), a taxable REIT subsidiary formed in March 2001 for the purpose of holding certain assets (primarily leasehold improvements). HCF, HPCII, and Holdings are direct and indirect subsidiaries of The Huntington National Bank (the Bank), a national banking association organized under the laws of the United States and headquartered in Columbus, Ohio. The Bank is a wholly owned subsidiary of Huntington. Huntington is a multi-state diversified financial holding company organized under Maryland law and headquartered in Columbus, Ohio. At September 30, 2007, the Bank, on a consolidated basis with its subsidiaries, accounted for 99% of Huntington’s consolidated total assets and, for the nine months ended September 30, 2007, accounted for 91% of Huntington’s consolidated net income. Thus, for the purpose 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.

     Certain amounts in the prior year’s financial statements have been reclassified to conform to the 2007 presentation.

Note 2 - Basis of Presentation and New Accounting Pronouncements

     The accompanying unaudited condensed consolidated financial statements of HPCI reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of Management, necessary for a fair presentation of the consolidated financial position, the results of operations, and cash flows for the periods presented. These unaudited condensed consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. The Notes to the Consolidated Financial Statements appearing in HPCI’s 2006 Annual Report on Form 10-K (Form 10-K), which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.

     HPCI has elected to be treated as a REIT for federal income tax purposes. Management intends to maintain compliance with the provisions of the Internal Revenue Code and, therefore, HPCI is not subject to federal income taxes. HPCI’s subsidiary, HPCLI, has elected to be treated as a taxable REIT subsidiary and, therefore, a separate provision related to its income taxes is included in the accompanying unaudited condensed consolidated financial statements.

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

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

Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes – In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes . This Interpretation of FASB Statement No. 109, Accounting for Income Taxes , contains guidance on the recognition and measurement of uncertain tax positions. HPCI adopted FIN 48 on January 1, 2007. HPCI recognizes the impact of a tax position if it is more likely than not that it will be sustained upon examination, based upon the technical merits of the position. The adoption of this new pronouncement did not impact HPCI’s financial condition, results of operations, or cash flows (See Note 9).

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

FASB Statement No. 157, Fair Value Measurements (Statement No. 157) – In September 2006, the FASB issued Statement No. 157. This Statement establishes a common definition for fair value to be applied to GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. Statement No. 157 is effective for fiscal years beginning after November 15, 2007. The impact of this new pronouncement is not expected to be material to HPCI’s financial condition, results of operations, or cash flows.

FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilitie s (Statement No. 159) – In February 2007, the FASB issued Statement No. 159. This Statement permits entities to choose to measure financial instruments and certain other financial assets and financial liabilities at fair value. This Statement is effective for fiscal years beginning after November 15, 2007. The impact of this new pronouncement is not expected to be material to HPCI’s financial condition, results of operations, or cash flows.

Note 3 - Lending Concentrations and Participations in Non-Performing Assets and Past Due Loans

     There were no underlying loans outstanding that would be considered a concentration of lending in any particular industry, group of industries, or business activity. Underlying loans were, however, generally collateralized by real estate. Loans made to borrowers in the four states of Ohio, Indiana, Kentucky, and Michigan comprised 93.3%, 94.6%, and 95.1% of the portfolio at September 30, 2007, December 31, 2006, and September 30, 2006, respectively.

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

Note 4 - Allowances for Credit Losses (ACL)

     The allowances for credit losses (ACL) are 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. Over time as loan participations mature, refinance, or other such actions occur, their allowance, not absorbed by loan losses, is released through the reduction in ALPL.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

     The following table reflects activity in the ACL for the three and nine months ended September 30, 2007 and 2006:

Note 5 - Preferred Dividends

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

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

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

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

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

Note 6 - Related Party Transactions

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

     The Bank performs the servicing of the commercial, commercial real estate, residential real estate, and consumer 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 $3.0 million and $2.6 million for the three-month periods ended September 30, 2007 and 2006, respectively. For the respective nine-month periods, the costs were $8.1 million for both periods.

     In 2007 and 2006, the annual servicing rates the Bank charged with respect to outstanding principal balances were:

     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 and commercial real estate loans, HPCI waived its right to receive any origination fees associated with participation interests in commercial and commercial real estate loans transferred on or after July 1, 2004. The Bank and HPCI performed a review of loan servicing fees in 2007, 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 2008.

     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 each of the three-month periods ended September 30, 2007 and 2006 and are included in other non-interest expense. For the respective nine-month periods, the cost was $0.4 million for each period.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

     The following table represents the ownership of HPCI’s outstanding common and preferred securities as of September 30, 2007:

     As of September 30, 2007, 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, 2007, HPCI board members and executive officers beneficially owned, in the aggregate, a total of 4,713 shares, or 0.2%, of the Class C preferred securities. All of the Class D preferred securities are owned by Holdings. Dividends declared and accrued to the Class C shareholders for the first nine months of 2007 were approximately $3.0 million.

     Both the Class C and Class D preferred securities are entitled to one-tenth of one vote per share on all matters submitted to HPCI shareholders. The Class C and Class D preferred securities are exchangeable, without shareholder approval or any action of shareholders, for preferred securities of the Bank with substantially equivalent terms as to dividends, liquidation preference, and redemption if the Office of the Comptroller of the Currency (OCC) so directs only if the Bank becomes, or may in the near term become, undercapitalized or the Bank is placed in conservatorship or receivership. The Class D preferred securities are currently redeemable and Class C preferred securities are redeemable at HPCI’s option on or after December 31, 2021, with prior consent of the OCC. In the event HPCI redeems its Class C or Class D preferred securities, holders of such securities will be entitled to receive $25.00 per share plus accrued and unpaid dividends on such shares. The redemption amount may be significantly lower than the then current market price of the Class C or Class D preferred securities.

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

     HPCI’s premises and equipment were acquired from the Bank through Holdings. Leasehold improvements were subsequently contributed to HPCLI for its common shares in 2001. HPCLI charges rent to the Bank for use of applicable facilities by the Bank. The amount of rental income received by HPCLI was $1.7 million and $1.6 million for the three-months ended September 30, 2007 and 2006, respectively. The amount of rental income received by HPCLI for the nine-months ended September 30, 2007 was $5.1 million and $4.8 million for the same period in 2006. Rental income is reflected as a component of non-interest income in the condensed consolidated statements of income.

     HPCI had a non-interest bearing receivable from the Bank of $76.5 million at September 30, 2007, $134.8 million at December 31, 2006, and $45.9 million at September 30, 2006. The balances represent the net settlement amounts due to, or from, the Bank for the last month of the period’s activity. Principal and interest payments on loan participations remitted by customers are due from the Bank, while new loan participation purchases are due to the Bank. The amounts are settled with the Bank within the first few days of the following month.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

     HPCI has assets pledged in association with the Bank’s advances from the Federal Home Loan Bank of Cincinnati (FHLB). For further information see Note 7.

     HPCI maintains and transacts all of its cash activity through the Bank. Typically, cash is invested with the Bank in an interest-bearing account. These interest-bearing balances are invested overnight or may be invested in Eurodollar deposits with the Bank for a term of not more than 30 days at market rates.

Note 7 - Commitments and Contingencies

     The Bank is eligible to obtain collateralized advances from various federal and government-sponsored agencies such as the FHLB. From time-to-time, HPCI may be asked to act as guarantor of the Bank’s obligations under such advances and / or pledge all or a portion of its assets in connection with those advances. Any such guarantee and/or pledge would rank senior to HPCI’s common and preferred securities upon liquidation. Accordingly, any federal or government-sponsored agencies that make advances to the Bank where HPCI has acted as guarantor or has pledged all or a portion of its assets as collateral will have a liquidation preference over the holders of HPCI’s securities. Any such guarantee and/or pledge in connection with the Bank’s advances from the FHLB falls within the definition of Permitted Indebtedness (as defined in HPCI’s articles of incorporation) and, therefore, HPCI is not required to obtain the consent of the holders of its common or preferred securities for any such guarantee and/or pledge.

     Currently, HPCI’s assets have been used to collateralize only one such facility. The Bank has a line of credit from the FHLB, limited to $4.5 billion as of September 30, 2007, based on the Bank’s holdings of FHLB stock. As of this same date, the Bank had borrowings of $2.8 billion under this facility.

     HPCI has entered into an Amended and Restated Agreement with the Bank with respect to the pledge of HPCI’s assets to collateralize the Bank’s borrowings from the FHLB. The agreement provides that the Bank will not place at risk HPCI’s assets in excess of an aggregate dollar amount or aggregate percentage of such assets established from time-to-time by HPCI’s board of directors, including a majority of HPCI’s independent directors. The pledge limit was established by HPCI’s board at 25% of total assets, or approximately $1.2 billion as of September 30, 2007, as reflected in HPCI’s month-end management report. This pledge limit may be changed in the future by the board of directors, including a majority of HPCI’s independent directors. The amount of HPCI’s participation interests pledged was $0.1 billion at September 30, 2007, December 31, 2006, and at September 30, 2006. In 2007, the loans pledged consisted of 1-4 family residential mortgage portfolio and consumer second 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 $0.1 million for each of the three months ended September 30, 2007 and 2006, as compensation for making such assets available to the Bank. The amounts paid to HPCI for the first nine months of 2007 and 2006 were $0.3 million and $0.9 million, respectively. The fee represented thirty-five basis points per year on total pledged loans after April 1, 2006.

     Under the terms of the participation and subparticipation agreements, HPCI is obligated to make funds or credit available to the Bank, either directly or indirectly through Holdings so that the Bank may extend credit to any borrowers, or pay letters of credit issued for the account of any borrowers, to the extent provided in the loan agreements underlying HPCI’s participation interests. As of September 30, 2007, December 31, 2006, and September 30, 2006, HPCI’s unfunded loan commitments totaled $679.2 million, $624.5 million, and $819.2 million, respectively.

Note 8 - 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.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

Note 9 - Income Taxes

     HPCI adopted the provisions of FIN 48 on January 1, 2007. The implementation of FIN 48 did not impact HPCI’s financial statements. As of September 30, 2007, there were no unrecognized tax benefits.

     The federal tax return for years ended 2004 and forward are open for review by the Internal Revenue Service.

     HPCI recognizes interest and penalties on tax assessments or tax refunds in the financial statements as a component of its provision for income taxes.

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

INTRODUCTION

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

     HPCI is a party to a Third Amended and Restated Loan Subparticipation Agreement with Holdings and a Second Amended and Restated Loan Participation Agreement with the Bank. The Bank is required, under the participation and/or subparticipation agreements, to service HPCI’s loan portfolio in a manner substantially the same as for similar work for transactions on its own behalf. The Bank collects and remits principal and interest payments, maintains perfected collateral positions, and submits and pursues insurance claims. In addition, the Bank provides to HPCI accounting and reporting services as required. The Bank is required to adhere to HPCI’s policies relating to the relationship between HPCI and the Bank and to pay all expenses related to the performance of the Bank’s duties under the participation and subparticipation agreements. All of 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. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) appearing in HPCI’s 2006 Annual Report on Form 10-K (Form 10-K), as updated by the information contained in this report, should be read in conjunction with this interim MD&A.

Forward-looking Statements

     This report, including 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.

     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.

Critical Accounting Policies

     Note 1 to HPCI’s consolidated financial statements included in its Form 10-K lists critical accounting policies used in the development and presentation of its financial statements. These critical accounting policies, as well as this discussion and analysis and other financial statement disclosures, identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of HPCI, its financial position, results of operations, and cash flows.

Use of Significant Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires Management to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in its financial statements. 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.

SUMMARY DISCUSSION OF RESULTS

     HPCI’s revenue is primarily derived from its participation in loans acquired from the Bank and Holdings. Revenue 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.

     HPCI’s net income was $86.6 million for both of the three-month periods ended September 30, 2007 and 2006, while net income applicable to common shareholders was $74.2 million and $74.0 million, respectively, for the same three-month periods. The changes in net income applicable to common shareholders was the result of lower dividends declared on preferred securities due to lower three-month LIBOR rates. For the nine-month period ended September 30, 2007 and 2006, HPCI’s net income was $243.7 million and $256.2 million, respectively, while net income available to common shareholders was $206.3 million and $220.7 million, respectively. The decrease in net income was primarily the result of a lower reduction in the allowance for credit losses. The changes in net income applicable to common shareholders were the result of the decrease in net income and higher dividends declared on preferred securities due to higher three-month LIBOR rates over the nine-month period ended September 30, 2007.

     HPCI had total assets of $4.7 billion at September 30, 2007, down slightly from $4.9 billion at December 31, 2006, and at the end of the same period in the prior year. Total assets consisted principally of participation interests in loans which aggregated $4.5 billion, $4.1 billion, and $4.3 billion, at September 30, 2007, December 31, 2006, and September 30, 2006, respectively. The addition to total loan participation interests and total assets from the end of 2006 and a year ago was due to new loan participation purchases.

     Participation interests in underlying loans by category were as follows:

     HPCI’s participation interests in commercial loans represented 0.5% of total assets as of September 30, 2007. The decrease in these balances from September 30, 2006 was due to continued portfolio run off. Commercial real estate loan participations at September 30, 2007, which represented 68.4% of total assets, increased $127.6 million from December 31, 2006. Consumer loan participation interests, which include participations in home equity loans, represented 24.9% of total assets at September 30, 2007, and increased $334.2 million from December 31, 2006. The increases in the commercial real estate and consumer loan balances from the beginning of the year were due to the purchase of new loan participations. The decrease in commercial real estate and consumer loan balances from September 30, 2006 to December 31, 2006 was the result of fewer new loan participation purchases during that time. Residential real estate loan participation interests represented 2.0% of total assets at September 30, 2007. The decline in balance was due to portfolio run off, as there were no additional residential real estate loan purchases in this time period.

     HPCI incurs no direct loan origination costs. In lieu of paying higher servicing costs to the Bank with respect to commercial and commercial real estate loans, HPCI waived its right to receive any origination fees associated with

participation interests in commercial and commercial real estate loans transferred on or after July 1, 2004. The Bank and HPCI performed a review of loan servicing fees in 2007, 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 2008.

     Cash and interest bearing deposits with the Bank were $139.4 million, $726.2 million, and $529.1 million at September 30, 2007, December 31, 2006, and September 30, 2006, respectively. The reduction in cash balances from the beginning of the year was related to the common stock dividend and capital distribution for 2006 paid on January 3, 2007, and the purchase of new loan participations, offset by amounts provided by operations. Typically, cash is invested with the Bank in an interest bearing account. These interest-bearing balances are invested in Eurodollar deposits with the Bank for a term of not more than 30 days at market rates.

     HPCI had a non-interest bearing receivable from the Bank of $76.5 million at September 30, 2007, $134.8 million at December 31, 2006, and $45.9 million at September 30, 2006. 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 and purchases of loan participation interests late in the quarter are due from the Bank, while new loan participation purchases are due to the Bank. The amounts are settled with the Bank within the first few days of the following month.

     Total liabilities were $27.4 million, $454.0 million, and $27.1 million at September 30, 2007, December 31, 2006, and September 30, 2006, respectively. The decrease from the beginning of the year was due to the payment of the 2006 common stock dividend and capital distribution.

     Shareholders’ equity was $4.7 billion at September 30, 2007, up from $4.5 billion at December 31, 2006, and down from $4.9 billion at September 30, 2006. The increase from the beginning of the year is the result of income from operations. The decline from the same quarter a year ago was due to the return of capital to common shareholders from dividends declared in December 2006.

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, which includes residential real estate loans and commercial real estate loans, including participation interests in residential or commercial real estate loans, mortgage-backed securities eligible to be held by REITs, cash 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, 2007, 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 2006, HPCI met all annual income and distribution tests. HPCI expects to meet the income tests for the tax year 2007 and intends to make distributions that will maintain its non-taxable status for federal income tax purposes.

     HPCI operates in a manner that will not cause it to be deemed an investment company under the Investment Company Act. The Investment Company Act exempts from registration as an investment company an entity that is primarily engaged in the business of “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate” (Qualifying Interests). Under positions taken by the SEC staff in no-action letters, in order to qualify for this exemption, HPCI must invest at least 55% of its assets in Qualifying Interests and an additional 25% of its assets in

real estate-related assets, although this percentage may be reduced to the extent that more than 55% of its assets are invested in Qualifying Interests. The assets in which HPCI may invest under the Internal Revenue Code therefore may be further limited by the provisions of the Investment Company Act and positions taken by the SEC staff. At September 30, 2007, HPCI was exempt from registration as an investment company under the Investment Company Act and intends to operate its business in a manner that will maintain this exemption.

RESULTS OF OPERATIONS

     Net income for the third quarter 2007 was $86.6 million, consistent with net income for the third quarter of 2006. Net income applicable to common shares was $74.2 million for the third quarter of 2007, an increase of $0.2 million, or 0.3%, compared to the third quarter of 2006. The increase in net income applicable to common shares was the result of lower dividends declared on preferred securities due to lower three-month LIBOR rates applicable to the Class B and Class D preferred securities.

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

     Net income for the nine-months ended September 30, 2007 was $243.7 million, down 4.9%, from $256.2 million for the same period in 2006. Net income applicable to common shares for the nine-months ended September 30, 2007 was $206.3 million, a decrease of $14.4 million, or 6.5%, compared to the same period in 2006. Decreased net income for the first nine-months of 2007, compared with the same period of 2006, was primarily the result of a lower reduction in allowances for credit losses. The decline in net income applicable to common shares was the result of the decrease in net income and higher dividends declared on preferred securities due to higher three-month LIBOR rates applicable to the Class B and Class D preferred securities.

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

Interest and Fee Income

     HPCI’s primary source of revenue is interest and fee income on its participation interests in loans. At September 30, 2007 and 2006, 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 and nine months ended September 30, 2007 and 2006: