Quarterly report pursuant to Section 13 or 15(d)

Variable Interest Entities

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Variable Interest Entities
3 Months Ended
Jun. 30, 2012
Variable Interest Entities [Abstract]  
VARIABLE INTEREST ENTITIES

15. VIEs

 

Consolidated VIEs

 

Consolidated VIEs at June 30, 2012, consisted of certain loan securitization trusts. These securitizations included automobile loan and lease securitization trusts formed in 2009 and 2006. Huntington has determined the trusts are VIEs. Huntington has concluded that it is the primary beneficiary of these trusts because it has the power to direct the activities of the entity that most significantly affect the entity's economic performance and it has either the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.

 

The following tables present the carrying amount and classification of the consolidated trusts' assets and liabilities that were included in the Unaudited Condensed Consolidated Balance Sheets at June 30, 2012, and December 31, 2011:

            June 30, 2012
            2009     2006     Other      
            Automobile     Automobile     Consolidated      
(dollar amounts in thousands)         Trust     Trust     Trusts     Total
Assets:                            
  Cash       $ 15,927   $ 54,521   $ ---   $ 70,448
  Loans and leases         210,031     601,737     ---     811,768
  Allowance for loan and lease losses         ---     (4,754)     ---     (4,754)
  Net loans and leases         210,031     596,983     ---     807,014
  Accrued income and other assets         852     2,334     350     3,536
Total assets       $ 226,810   $ 653,838   $ 350   $ 880,998
                               
Liabilities:                            
  Other long-term debt       $ 32,794   $ 225,236   $ ---   $ 258,030
  Accrued interest and other liabilities         82     56     350     488
Total liabilities       $ 32,876   $ 225,292   $ 350   $ 258,518
                               
    December 31, 2011
      2008     2009     2006     Other      
      Automobile     Automobile     Automobile     Consolidated      
(dollar amounts in thousands)   Trust     Trust     Trust     Trusts     Total
Assets:                            
  Cash $ 12,722   $ 18,212   $ 52,325   $ ---   $ 83,259
  Loans and leases   131,563     296,250     704,345     ---     1,132,158
  Allowance for loan and lease losses   (1,118)     ---     (5,987)     ---     (7,105)
  Net loans and leases   130,445     296,250     698,358     ---     1,125,053
  Accrued income and other assets   610     1,692     2,959     1,117     6,378
Total assets $ 143,777   $ 316,154   $ 753,642   $ 1,117   $ 1,214,690
                               
Liabilities:                            
  Other long-term debt $ 18,230   $ 123,039   $ 333,644   $ ---   $ 474,913
  Accrued interest and other liabilities   40     298     88     419     845
Total liabilities $ 18,270   $ 123,337   $ 333,732   $ 419   $ 475,758
                               

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.

Unconsolidated VIEs

 

The following tables provide a summary of the assets and liabilities included in Huntington's Unaudited Condensed Consolidated Financial Statements, as well as the maximum exposure to losses, associated with its' interests related to unconsolidated VIEs for which Huntington holds an interest, but is not the primary beneficiary, to the VIE at June 30, 2012, and December 31, 2011:

    June 30, 2012
(dollar amounts in thousands)   Total Assets   Total Liabilities   Maximum Exposure to Loss
             
2012 Automobile Trust $ 16,804 $ --- $ 16,804
2011 Automobile Trust   9,933   ---   9,933
Tower Hill Securities, Inc.   89,100   65,000   89,100
Trust Preferred Securities   14,889   464,125   ---
Low Income Housing Tax Credit Partnerships   358,017   130,143   358,017
Total $ 488,743 $ 659,268 $ 473,854
               
    December 31, 2011
(dollar amounts in thousands)   Total Assets   Total Liabilities   Maximum Exposure to Loss
             
2011 Automobile Trust $ 13,377 $ --- $ 13,377
Tower Hill Securities, Inc.   90,514   65,000   90,514
Trust Preferred Securities   17,364   554,496   ---
Low Income Housing Tax Credit Partnerships   376,098   157,754   376,098
Total $ 497,353 $ 777,250 $ 479,989
               

2012 AUTOMOBILE TRUST and 2011 AUTOMOBILE TRUST

 

During the 2012 first quarter and 2011 third quarter, we transferred automobile loans totaling $1.3 billion and $1.0 billion, respectively, to trusts in securitization transactions. The securitizations and the resulting sale of all underlying securities qualified for sale accounting. Huntington has concluded that it is not the primary beneficiary of these trusts because it has neither the obligation to absorb losses of the entities that could potentially be significant to the VIEs nor the right to receive benefits from the entities that could potentially be significant to the VIEs. Huntington is not required and does not currently intend to provide any additional financial support to the trusts. Investors and creditors only have recourse to the assets held by the trusts. The interest Huntington holds in the VIEs relates to servicing rights which are included within accrued income and other assets of Huntington's Unaudited Condensed Consolidated Balance Sheets. The maximum exposure to loss is equal to the carrying value of the servicing asset.

 

TOWER HILL SECURITIES, INC.

 

In 2010, we transferred approximately $92.1 million of municipal securities, $86.0 million in Huntington Preferred Capital, Inc. (Real Estate Investment Trust) Class E Preferred Stock and cash of $6.1 million to Tower Hill Securities, Inc. in exchange for $184.1 million of Common and Preferred Stock of Tower Hill Securities, Inc. The municipal securities and the REIT Shares will be used to satisfy $65.0 million of mandatorily redeemable securities issued by Tower Hill Securities, Inc. and are not available to satisfy the general debts and obligations of Huntington or any consolidated affiliates. The transfer was recorded as a secured financing. Interests held by Huntington consist of municipal securities within available for sale and other securities and Series B preferred securities within other long term debt of Huntington's Unaudited Condensed Consolidated Balance Sheets. The maximum exposure to loss is equal to the carrying value of the municipal securities.

 

TRUST PREFERRED SECURITIES

 

Huntington has certain wholly-owned trusts whose assets, liabilities, equity, income, and expenses are not included within Huntington's Unaudited Condensed Consolidated Financial Statements. These 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 Unaudited Condensed Consolidated Balance Sheet as subordinated notes. The trust securities are the obligations of the trusts, and as such, are not consolidated within Huntington's Unaudited Condensed Consolidated Financial Statements. A list of trust preferred securities outstanding at June 30, 2012, follows:

          Principal amount of Investment in
          subordinated note/ unconsolidated
(dollar amounts in thousands) Rate   debenture issued to trust (1) subsidiary
Huntington Capital I 1.45 % (2)   $ 111,816     $ 6,186  
Huntington Capital II 1.09   (3)     54,593       3,093  
Huntington Capital III 6.85         114,116       10  
Sky Financial Capital Trust II 3.42   (4)     30,929       929  
Sky Financial Capital Trust III 1.87   (5)     72,165       2,165  
Sky Financial Capital Trust IV 1.87   (5)     74,320       2,320  
Prospect Trust I 3.72   (6)     6,186       186  
Total         $ 464,125     $ 14,889  
                         
(1) Represents the principal amount of debentures issued to each trust, including unamortized original issue discount.  
(2) Variable effective rate at June 30, 2012, based on three month LIBOR + 0.70.  
(3) Variable effective rate at June 30, 2012, based on three month LIBOR + 0.625.  
(4) Variable effective rate at June 30, 2012, based on three month LIBOR + 2.95.  
(5) Variable effective rate at June 30, 2012, based on three month LIBOR + 1.40.  
(6) Variable effective rate at June 30, 2012, based on three month LIBOR + 3.25.  

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

 

During the 2012 second quarter, Huntington redeemed $80.0 million of trust preferred securities. The trust preferred securities were redeemed at the redemption price (as a percentage of the liquidation amount) plus accrued and unpaid distributions to the redemption date. These redemptions were consistent with the capital plan we submitted to the Federal Reserve, will be funded from our existing cash and resulted in a gain of $1.7 million.

 

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 in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnerships include the identification, development, and operation of multi family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.

Huntington is a limited partner in each Low Income Housing Tax Credit Partnership. A separate unrelated third party is the general partner. Each limited partnership is managed by the general partner, who exercises full and exclusive control over the affairs of the limited partnership. The general partner has all the rights, powers and authority granted or permitted to be granted to a general partner of a limited partnership under the Ohio Revised Uniform Limited Partnership Act. Duties entrusted to the general partner of each limited partnership include, but are not limited to: investment in operating companies, company expenditures, investment of excess funds, borrowing funds, employment of agents, disposition of fund property, prepayment and refinancing of liabilities, votes and consents, contract authority, disbursement of funds, accounting methods, tax elections, bank accounts, insurance, litigation, cash reserve, and use of working capital reserve funds. Except for limited rights granted to consent to certain transactions, the limited partner(s) may not participate in the operation, management, or control of the limited partnership's business, transact any business in the limited partnership's name or have any power to sign documents for or otherwise bind the limited partnership. In addition, the general partner may only be removed by the limited partner(s) in the event the general partner fails to comply with the terms of the agreement and/or is negligent in performing its duties.

 

Huntington believes the general partner of each limited partnership has the power to direct the activities which most significantly affect the performance of each partnership, therefore, Huntington has determined that it is not the primary beneficiary of any LIHTC partnership. Huntington uses the equity or effective yield method to account for its investments in these entities. These investments are included in accrued income and other assets. At June 30, 2012, and December 31, 2011, Huntington had net investment commitments of $358.0 million and $376.1 million, respectively, of which $345.8 million and $322.5 million, respectively, were funded. The unfunded portion is included in accrued expenses and other liabilities.