Huntington Bancshares Incorporated Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

VIEs

VIEs

12 Months Ended

Dec. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Consolidated VIEs

Consolidated VIEs at December 31, 2016, consisted of certain loan and lease securitization trusts. 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. During the 2015 first quarter, Huntington acquired two securitization trusts with its acquisition of Huntington Technology Finance. During the 2016 first quarter, Huntington canceled the Series 2012A Trust. As a result, any remaining assets at the time of the cancellation were no longer part of the trust.

The following tables present the carrying amount and classification of the consolidated trusts’ assets and liabilities that were included in the Consolidated Balance Sheets at December 31, 2016 and 2015:



	December 31, 2016
	Huntington Technology Funding Trust			Other Consolidated VIEs		Total
(dollar amounts in thousands)		Series 2014A		Other Consolidated VIEs		Total
Assets:
Cash		$	1,564	$	—	$	1,564
Net loans and leases		69,825		—		69,825
Accrued income and other assets		—		281		281
Total assets		$	71,389	$	281	$	71,670
Liabilities:
Other long-term debt		$	57,494	$	—	$	57,494
Accrued interest and other liabilities		—		281		281
Total liabilities		57,494		281		57,775
Equity:
Beneficial Interest owned by third party		13,895		—		13,895
Total liabilities and equity		$	71,389	$	281	$	71,670



	December 31, 2015
	Huntington Technology Funding Trust				Other Consolidated VIEs		Total
(dollar amounts in thousands)	Series 2012A		Series 2014A		Other Consolidated VIEs		Total
Assets:
Cash	$	1,377	$	1,561	$	—	$	2,938
Net loans and leases	32,180		152,331		—		184,511
Accrued income and other assets	—		—		229		229
Total assets	$	33,557	$	153,892	$	229	$	187,678
Liabilities:
Other long-term debt	$	27,153	$	123,577	$	—	$	150,730
Accrued interest and other liabilities	—		—		229		229
Total liabilities	27,153		123,577		229		150,959
Equity:
Beneficial Interest owned by third party	$	6,404	$	30,315	—		36,719
Total liabilities and equity	$	33,557	$	153,892	$	229	$	187,678

The 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 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 December 31, 2016, and 2015:



	December 31, 2016
(dollar amounts in thousands)	Total Assets		Total Liabilities		Maximum Exposure to Loss
2016-1 Automobile Trust	$	14,770	$	—	$	14,770
2015-1 Automobile Trust	2,227		—		2,227
2012-1 Automobile Trust	—		—		—
2012-2 Automobile Trust	—		—		—
Trust Preferred Securities	13,919		252,552		—
Low Income Housing Tax Credit Partnerships	576,880		292,721		576,880
Other Investments	79,195		42,316		79,195
Total	$	686,991	$	587,589	$	673,072



	December 31, 2015
(dollar amounts in thousands)	Total Assets		Total Liabilities		Maximum Exposure to Loss
2015-1 Automobile Trust	$	7,695	$	—	$	7,695
2012-1 Automobile Trust	94		—		94
2012-2 Automobile Trust	771		—		771
Trust Preferred Securities	13,919		317,106		—
Low Income Housing Tax Credit Partnerships	425,500		196,001		425,500
Other Investments	68,746		25,762		68,746
Total	$	516,725	$	538,869	$	502,806

AUTOMOBILE TRUST SECURITIZATIONS

The following table provides a summary of automobile transfers to trusts in separate securitization transactions.



(dollar amounts in millions)	Year	Amount Transferred
2016-1 Automobile Trust	2016	$	1,500
2015-1 Automobile Trust	2015	750
2012-1 Automobile Trust	2012	1,300
2012-2 Automobile Trust	2012	1,000

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 Consolidated Balance Sheets. The maximum exposure to loss is equal to the carrying value of the servicing asset. See Note 7 for more information.

During the 2016 first quarter, Huntington canceled the 2012-1 Automobile Trust. As a result, any remaining assets at the time of the cancellation were no longer part of the trust. During the 2016 third quarter, Huntington canceled the 2012-2 Automobile Trust. As a result, any remaining assets at the time of the cancellation were no longer part of the trust.

TRUST-PREFERRED SECURITIES

Huntington has certain wholly-owned trusts whose assets, liabilities, equity, income, and expenses are not included within Huntington’s 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 Consolidated Balance Sheet as subordinated notes. The trust securities are the obligations of the trusts, and as such, are not consolidated within Huntington’s Consolidated Financial Statements. A list of trust-preferred securities outstanding at December 31, 2016 follows:



(dollar amounts in thousands)	Rate			Principal amount of subordinated note/ debenture issued to trust (1)		Investment in unconsolidated subsidiary
Huntington Capital I	1.59	%	(2)	$	69,730	$	6,186
Huntington Capital II	1.59		(3)	32,093		3,093
Sky Financial Capital Trust III	2.40		(4)	72,165		2,165
Sky Financial Capital Trust IV	2.25		(4)	74,320		2,320
Camco Financial Trust	3.43		(5)	4,244		155
Total				$	252,552	$	13,919


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


(2)	Variable effective rate at December 31, 2016, based on three-month LIBOR + 0.70.


(3)	Variable effective rate at December 31, 2016, based on three-month LIBOR + 62.5.


(4)	Variable effective rate at December 31, 2016, based on three-month LIBOR + 1.40.


(5)	Variable effective rate (including impact of purchase accounting accretion) at December 31, 2016, based on three month LIBOR + 1.33.

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.

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 uses the proportional amortization method to account for a majority of its investments in these entities. These investments are included in accrued income and other assets. Investments that do not meet the requirements of the proportional amortization method are recognized using the equity method. Investment losses related to these investments are included in noninterest income in the Consolidated Statements of Income.

The following table presents the balances of Huntington’s affordable housing tax credit investments and related unfunded commitments at December 31, 2016 and 2015.



(dollar amounts in thousands)	December 31, 2016			December 31, 2015
Affordable housing tax credit investments	$	877,237		$	674,157
Less: amortization	(300,357		)	(248,657		)
Net affordable housing tax credit investments	$	576,880		$	425,500
Unfunded commitments	$	292,721		$	196,001

The following table presents other information relating to Huntington’s affordable housing tax credit investments for the years ended December 31, 2016, 2015, and 2014:



	Year Ended December 31,
(dollar amounts in thousands)	2016		2015		2014
Tax credits and other tax benefits recognized	$	79,696	$	59,614	$	51,317
Proportional amortization method
Tax credit amortization expense included in provision for income taxes	52,713		42,951		39,021
Equity method
Tax credit investment losses included in noninterest income	637		355		434

There were no sales of LIHTC investments in 2016, 2015 or 2014. Huntington recognized immaterial impairment losses for the years ended December 31, 2016, 2015 and 2014. The impairment losses recognized related to the fair value of the tax credit investments that were less than carrying value.

OTHER INVESTMENTS

Other investments determined to be VIE’s include investments in New Market Tax Credit Investments, Historic Tax Credit Investments, Small Business Investment Companies, Rural Business Investment Companies, certain equity method investments and other miscellaneous investments.