Annual report pursuant to Section 13 and 15(d)

LOAN SALES AND SECURITIZATIONS

v3.3.1.900
LOAN SALES AND SECURITIZATIONS
 12 Months Ended
Dec. 31, 2015
Transfers and Servicing [Abstract]  
LOAN SALES AND SECURITIZATIONS
LOAN SALES AND SECURITIZATIONS
Residential Mortgage Portfolio
The following table summarizes activity relating to residential mortgage loans sold with servicing retained for the years ended December 31, 2015, 2014, and 2013:
 
  
Year Ended December 31,
(dollar amounts in thousands)
2015
 
2014
 
2013
Residential mortgage loans sold with servicing retained
$
3,322,723

 
$
2,330,060

 
$
3,221,239

Pretax gains resulting from above loan sales (1)
83,148

 
57,590

 
102,935

 
(1)
Recorded in mortgage banking income.
The following tables summarize the changes in MSRs recorded using either the fair value method or the amortization method for the years ended December 31, 2015 and 2014:
Fair Value Method
 
(dollar amounts in thousands)
2015
 
2014
Fair value, beginning of year
$
22,786

 
$
34,236

Change in fair value during the period due to:
 
 
 
Time decay (1)
(1,295
)
 
(2,232
)
Payoffs (2)
(3,031
)
 
(5,814
)
Changes in valuation inputs or assumptions (3)
(875
)
 
(3,404
)
Fair value, end of year
$
17,585

 
$
22,786

Weighted-average contractual life (years)
4.6

 
4.6

 
(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 and prepayment speeds.
Amortization Method
 
(dollar amounts in thousands)
2015
 
2014
Carrying value, beginning of year
$
132,812

 
$
128,064

New servicing assets created
35,407

 
24,629

Servicing assets acquired
—

 
3,505

Impairment recovery (charge)
(2,732
)
 
(7,330
)
Amortization and other
(22,354
)
 
(16,056
)
Carrying value, end of year
$
143,133

 
$
132,812

Fair value, end of year
$
143,435

 
$
133,049

Weighted-average contractual life (years)
5.9

 
5.9


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.
MSR values are very sensitive to movements in interest rates as expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly impacted by the level of prepayments. Huntington hedges the value of certain MSRs against changes in value attributable to changes in interest rates using a combination of derivative instruments and trading securities.
For MSRs under the fair value method, a summary of key assumptions and the sensitivity of the MSR value to changes in these assumptions at December 31, 2015, and 2014 follows:
 
December 31, 2015
 
December 31, 2014
 
 
 
Decline in fair value due to
 
 
 
Decline in fair value due to
(dollar amounts in thousands)
Actual
 
10%
adverse
change
 
20%
adverse
change
 
Actual
 
10%
adverse
change
 
20%
adverse
change
Constant prepayment rate (annualized)
14.70
%
 
$
(864
)
 
$
(1,653
)
 
15.60
%
 
$
(1,176
)
 
$
(2,248
)
Spread over forward interest rate swap rates
539 bps

 
(559
)
 
(1,083
)
 
546 bps

 
(699
)
 
(1,355
)
For MSRs under the amortization method, a summary of key assumptions and the sensitivity of the MSR value to changes in these assumptions at December 31, 2015, and 2014 follows:
 
 
December 31, 2015
 
December 31, 2014
 
 
 
Decline in fair value due to
 
 
 
Decline in fair value due to
(dollar amounts in thousands)
Actual
 
10%
adverse
change
 
20%
adverse
change
 
Actual
 
10%
adverse
change
 
20%
adverse
change
Constant prepayment rate (annualized)
11.10
%
 
$
(5,543
)
 
$
(10,648
)
 
11.40
%
 
$
(5,289
)
 
$
(10,164
)
Spread over forward interest rate swap rates
875 bps

 
(4,662
)
 
(9,017
)
 
856 bps

 
(4,343
)
 
(8,403
)

Total servicing, late and other ancillary fees included in mortgage banking income was $47 million, $44 million, and $44 million for the years ended December 31, 2015, 2014, and 2013, respectively. Total amortization and impairment of capitalized servicing assets included in mortgage banking income was $27 million, $24 million, and $29 million for the years ended December 31, 2015, 2014, and 2013, respectively. The unpaid principal balance of residential mortgage loans serviced for third parties was $16.2 billion, $15.6 billion, and $15.2 billion at December 31, 2015, 2014, and 2013, respectively.
Automobile Loans and Leases
The following table summarizes activity relating to automobile loans sold and/or securitized with servicing retained for the years ended December 31, 2015, 2014, and 2013:
 
 
Year Ended December 31,
(dollar amounts in thousands)
2015
 
2014 (1)
 
2013 (1)
Automobile loans securitized with servicing retained
$
750,000

 
—

 
—

Pretax gains resulting from above loan sales (2)
5,333

 
—

 
—

 
(1)
Huntington did not sell or securitize any automobile loans in 2014 or 2013.
(2)
Recorded in gain on sale of loans
In the 2015 second quarter, the UPB of automobile loans totaling $750 million were transferred to a trust in a securitization transaction in exchange for $780 million of net proceeds. The securitization and resulting sale of all underlying securities qualified for sale accounting. As a result of this transaction, Huntington recognized a $5 million gain which is reflected in gain on sale of loans on the Consolidated Statements of Income and recorded an $11 million servicing asset which is reflected in accrued income and other assets on the Consolidated Balance Sheets.
Huntington has retained servicing responsibilities on sold automobile loans and receives annual servicing fees and other ancillary fees on the outstanding loan balances. 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 years ended December 31, 2015, and 2014, and the fair value at the end of each period were as follows:
 
(dollar amounts in thousands)
2015
 
2014
Carrying value, beginning of year
$
6,898

 
$
17,672

New servicing assets created
11,180

 
—

Amortization and other
(9,307
)
 
(10,774
)
Carrying value, end of year
$
8,771

 
$
6,898

Fair value, end of year
$
9,127

 
$
6,948

Weighted-average contractual life (years)
3.2

 
2.6


A summary of key assumptions and the sensitivity of the automobile loan servicing rights value to changes in these assumptions at December 31, 2015, and 2014 follows:
 
 
December 31, 2015
 
December 31, 2014
 
 
 
Decline in fair value due to
 
 
 
Decline in fair value due to
(dollar amounts in thousands)
Actual
 
10%
adverse
change
 
20%
adverse
change
 
Actual
 
10%
adverse
change
 
20%
adverse
change
Constant prepayment rate (annualized)
18.36
%
 
$
(500
)
 
$
(895
)
 
14.62
%
 
$
(305
)
 
$
(496
)
Spread over forward interest rate swap rates
500 bps

 
(10
)
 
(19
)
 
500 bps

 
(2
)
 
(4
)



Servicing income, net of amortization of capitalized servicing assets was $5 million, $8 million, and $10 million for the years ended December 31, 2015, 2014, and 2013, respectively. The unpaid principal balance of automobile loans serviced for third parties was $0.9 billion, $0.8 billion, and $1.6 billion at December 31, 2015, 2014, and 2013, respectively.
Small Business Association (SBA) Portfolio
The following table summarizes activity relating to SBA loans sold with servicing retained for the years ended December 31, 2015, 2014, and 2013:
 
 
Year Ended December 31,
(dollar amounts in thousands)
2015
 
2014
 
2013
SBA loans sold with servicing retained
$
232,848

 
$
214,760

 
$
178,874

Pretax gains resulting from above loan sales (1)
18,626

 
24,579

 
19,556

 
(1)
Recorded in gain on sale of loans.
Huntington has retained servicing responsibilities on sold SBA loans and receives annual servicing fees on the outstanding loan balances. SBA loan servicing rights are accounted for using the amortization method. A servicing asset is established at fair value at the time of the sale using a discounted future cash flow model. 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 following tables summarize the changes in the carrying value of the servicing asset for the years ended December 31, 2015, and 2014:
 
(dollar amounts in thousands)
2015
 
2014
Carrying value, beginning of year
$
18,536

 
$
16,865

New servicing assets created
8,012

 
7,269

Amortization and other
(6,801
)
 
(5,598
)
Carrying value, end of year
$
19,747

 
$
18,536

Fair value, end of year
$
22,649

 
$
20,495

Weighted-average contractual life (years)
3.3

 
3.5


A summary of key assumptions and the sensitivity of the SBA loan servicing rights value to changes in these assumptions at December 31, 2015, and 2014 follows:


 
December 31, 2015
 
December 31, 2014
 
 
 
Decline in fair value due to
 
 
 
Decline in fair value due to
(dollar amounts in thousands)
Actual
 
10%
adverse
change
 
20%
adverse
change
 
Actual
 
10%
adverse
change
 
20%
adverse
change
Constant prepayment rate (annualized)
7.60
%
 
$
(313
)
 
$
(622
)
 
5.60
%
 
$
(211
)
 
$
(419
)
Discount rate
15.00

 
(610
)
 
(1,194
)
 
15.00

 
(563
)
 
(1,102
)

Servicing income, net of amortization of capitalized servicing assets was $8 million, $7 million, and $6 million for the years ended December 31, 2015, 2014, and 2013, respectively. The unpaid principal balance of SBA loans serviced for third parties was $1.0 billion, $0.9 billion and $0.9 billion at December 31, 2015, 2014, and 2013, respectively.