Quarterly report pursuant to Section 13 or 15(d)

LOAN SALES AND SECURITIZATIONS

v3.10.0.1
LOAN SALES AND SECURITIZATIONS
 6 Months Ended
Jun. 30, 2018
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 three-month and six-month periods ended June 30, 2018 and 2017:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(dollar amounts in millions)
2018
 
2017
 
2018
 
2017
Residential mortgage loans sold with servicing retained
$
897

 
$
798

 
$
1,740

 
$
1,646

Pretax gains resulting from above loan sales (1)
19

 
17

 
40

 
39

(1)
Recorded in mortgage banking income.
The following table summarizes the changes in MSRs recorded using the amortization method for the three-month and six-month periods ended June 30, 2018 and 2017:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(dollar amounts in millions)
2018
 
2017
 
2018
 
2017
Carrying value, beginning of period
$
200

 
$
178

 
$
191

 
$
172

New servicing assets created
11

 
8

 
20

 
18

Impairment recovery (charge)
—

 
(3
)
 
7

 
(1
)
Amortization
(7
)
 
(7
)
 
(14
)
 
(13
)
Carrying value, end of period
$
204

 
$
176

 
$
204

 
$
176

Fair value, end of period
$
212

 
$
177

 
$
212

 
$
177

Weighted-average life (years)
7.0

 
7.1

 
7.0

 
7.1


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 highly sensitive to movement 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 economically 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 amortization method, a summary of key assumptions and the sensitivity of the MSR value to changes in these assumptions at June 30, 2018, and December 31, 2017 follows:
 
June 30, 2018
 
December 31, 2017
 
 
 
Decline in fair value due to
 
 
 
Decline in fair value due to
(dollar amounts in millions)
Actual
 
10%
adverse
change
 
20%
adverse
change
 
Actual
 
10%
adverse
change
 
20%
adverse
change
Constant prepayment rate (annualized)
8.50
%
 
$
(5
)
 
$
(10
)
 
8.30
%
 
$
(5
)
 
$
(10
)
Spread over forward interest rate swap rates
952
 bps
 
(8
)
 
(15
)
 
1,049
 bps
 
(7
)
 
(13
)


Additionally, at June 30, 2018 and 2017, Huntington held MSRs recorded using the fair value method of $11 million and $13 million, respectively.
Total servicing, late and other ancillary fees included in mortgage banking income were $15 million and $14 million for the three-month periods ended June 30, 2018 and 2017, respectively. For the six-month periods ended June 30, 2018 and 2017, total servicing, late and other ancillary fees included in mortgage banking income were $29 million and $28 million. The unpaid principal balance of residential mortgage loans serviced for third parties was $20.2 billion and $19.8 billion at June 30, 2018 and December 31, 2017, respectively.
Automobile Loans
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 payoffs are faster than expected, then future value could be impaired.
Changes in the carrying value of automobile loan servicing rights for the three-month and six-month periods ended June 30, 2018 and 2017, and the fair value at the end of each period were as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(dollar amounts in millions)
2018
 
2017
 
2018
 
2017
Carrying value, beginning of period
$
6

 
$
15

 
$
8

 
$
18

Amortization
(1
)
 
(3
)
 
(3
)
 
(6
)
Carrying value, end of period
$
5

 
$
12

 
$
5

 
$
12

Fair value, end of period
$
5

 
$
12

 
$
5

 
$
12

Weighted-average contractual life (years)
3.2

 
3.8

 
3.2

 
3.8


Servicing income amounted to $3 million and $5 million for the three-month periods ending June 30, 2018, and 2017. For the six-month periods ended June 30, 2018 and 2017, servicing income was $6 million and $10 million, respectively. The unpaid principal balance of automobile loans serviced for third parties was $0.8 billion and $1.0 billion at June 30, 2018 and December 31, 2017, respectively.
Small Business Association (SBA) Portfolio
The following table summarizes activity relating to SBA loans sold with servicing retained for the three-month and six-month periods ended June 30, 2018 and 2017:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(dollar amounts in millions)
2018
 
2017
 
2018
 
2017
SBA loans sold with servicing retained
$
97

 
$
88

 
$
161

 
$
165

Pretax gains resulting from above loan sales (1)
10

 
7

 
17

 
13


(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 table summarizes the changes in the carrying value of the servicing asset for the three-month and six-month periods ended June 30, 2018 and 2017:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(dollar amounts in millions)
2018
 
2017
 
2018
 
2017
Carrying value, beginning of period
$
28

 
$
21

 
$
27

 
$
21

New servicing assets created
3

 
4

 
5

 
6

Amortization
(3
)
 
(2
)
 
(4
)
 
(4
)
Carrying value, end of period
$
28

 
$
23

 
$
28

 
$
23

Fair value, end of period
$
33

 
$
27

 
$
33

 
$
27

Weighted-average life (years)
3.4

 
3.3

 
3.4

 
3.3


Servicing income amounted to $3 million and $3 million for the three-month periods ending June 30, 2018, and 2017, respectively. For the six-month periods ended June 30, 2018 and 2017, servicing income was $6 million and $5 million, respectively. The unpaid principal balance of SBA loans serviced for third parties was $1.5 billion and $1.4 billion at June 30, 2018 and December 31, 2017, respectively.