Huntington Bancshares Incorporated Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

VIEs

VIEs

9 Months Ended

Sep. 30, 2015

Variable Interest Entities [Abstract]

Consolidated VIEs

Consolidated VIEs at September 30, 2015, 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.

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 September 30, 2015 and December 31, 2014:



	September 30, 2015
	Huntington Technology Funding Trust				Other Consolidated Trusts		Total
(dollar amounts in thousands)	Series 2012A		Series 2014A		Other Consolidated Trusts		Total
Assets:
Cash	$	—	$	—	$	—	$	—
Loans and leases	40,968		180,165		—		221,133
Allowance for loan and lease losses	—		—		—		—
Net loans and leases	40,968		180,165		—		221,133
Accrued income and other assets	—		—		229		229
Total assets	$	40,968	$	180,165	$	229	$	221,362
Liabilities:
Other long-term debt	$	34,192	$	149,387	$	—	$	183,579
Accrued interest and other liabilities	—		—		229		229
Total liabilities	34,192		149,387		229		183,808
Equity:
Beneficial Interest owned by third party	6,776		30,778		—		37,554
Total liabilities and equity	$	40,968	$	180,165	$	229	$	221,362



	December 31, 2014
(dollar amounts in thousands)		Other Consolidated Trusts		Total
Assets:
Cash		$	—	$	—
Loans and leases		—		—
Allowance for loan and lease losses		—		—
Net loans and leases		—		—
Accrued income and other assets		243		243
Total assets		$	243	$	243
Liabilities:
Other long-term debt		$	—	$	—
Accrued interest and other liabilities		243		243
Total liabilities		243		243
Equity:
Beneficial Interest owned by third party		—		—
Total liabilities and equity		$	243	$	243

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 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 September 30, 2015, and December 31, 2014:



	September 30, 2015
(dollar amounts in thousands)	Total Assets		Total Liabilities		Maximum Exposure to Loss
2015-1 Automobile Trust	$	9,378	$	—	$	9,378
2012-1 Automobile Trust	445		—		445
2012-2 Automobile Trust	1,231		—		1,231
2011 Automobile Trust	—		—		—
Tower Hill Securities, Inc.	46,591		65,000		46,591
Trust Preferred Securities	13,919		317,098		—
Low Income Housing Tax Credit Partnerships	407,191		181,788		407,191
Other Investments	88,745		27,289		88,745
Total	$	567,500	$	591,175	$	553,581



	December 31, 2014
(dollar amounts in thousands)	Total Assets		Total Liabilities		Maximum Exposure to Loss
2012-1 Automobile Trust	$	2,136	$	—	$	2,136
2012-2 Automobile Trust	3,220		—		3,220
2011 Automobile Trust	944		—		944
Tower Hill Securities, Inc.	55,611		65,000		55,611
Trust Preferred Securities	13,919		317,075		—
Low Income Housing Tax Credit Partnerships	368,283		154,861		368,283
Other Investments	83,400		20,760		83,400
Total	$	527,513	$	557,696	$	513,594

2015-1, 2012-1, 2012-2, and 2011 AUTOMOBILE TRUST

During the 2015 second quarter, 2012 fourth quarter, 2012 first quarter and 2011 third quarter, we transferred automobile loans totaling $0.8 billion, $1.0 billion, $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.

During the 2015 third quarter, Huntington cancelled the 2011 Automobile Trust. As a result, any remaining assets at the time of the cancellation are no longer part of the trust.

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 Sheets 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 September 30, 2015 follows:



(dollar amounts in thousands)	Rate			Principal amount of subordinated note/ debenture issued to trust (1)		Investment in unconsolidated subsidiary
Huntington Capital I	1.00	%	(2)	$	111,816	$	6,186
Huntington Capital II	0.96		(3)	54,593		3,093
Sky Financial Capital Trust III	1.73		(4)	72,165		2,165
Sky Financial Capital Trust IV	1.68		(4)	74,320		2,320
Camco Financial Trust	2.77		(5)	4,204		155
Total				$	317,098	$	13,919


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


(2)	Variable effective rate at September 30, 2015, based on three month LIBOR +0.70%.


(3)	Variable effective rate at September 30, 2015, based on three month LIBOR +0.625%.


(4)	Variable effective rate at September 30, 2015, based on three month LIBOR +1.40%.


(5)	Variable effective rate (including impact of purchase accounting accretion) at September 30, 2015, 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 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. 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 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 gains/losses related to these investments are included in non-interest-income in the Unaudited Condensed Consolidated Statements of Income.

The following table presents the balances of Huntington’s affordable housing tax credit investments and related unfunded commitments at September 30, 2015 and December 31, 2014:



(dollar amounts in thousands)	September 30, 2015			December 31, 2014
Affordable housing tax credit investments	$	646,215		$	576,381
Less: amortization	(239,024		)	(208,098		)
Net affordable housing tax credit investments	$	407,191		$	368,283
Unfunded commitments	$	181,788		$	154,861

The following table presents other information relating to Huntington’s affordable housing tax credit investments for the three-month and nine-month periods ended September 30, 2015 and 2014:



	Three Months Ended September 30,					Nine Months Ended September 30,
(dollar amounts in thousands)	2015			2014		2015		2014
Tax credits and other tax benefits recognized	$	16,412		$	13,370	$	46,592	$	41,430
Proportional amortization method
Tax credit amortization expense included in provision for income taxes	10,942			9,659		33,235		28,537
Equity method
Tax credit investment (gains) losses included in non-interest income	(86		)	290		208		737

Huntington recognized immaterial impairment losses on tax credit investments during the three-month and nine-month periods ended September 30, 2015 and 2014.

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.