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, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Consolidated VIEs

Consolidated VIEs at September 30, 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 Unaudited Condensed Consolidated Balance Sheets at September 30, 2016 and December 31, 2015:



	September 30, 2016
	Huntington Technology Funding Trust			Other Consolidated VIEs		Total
(dollar amounts in thousands)		Series 2014A		Other Consolidated VIEs		Total
Assets:
Cash		$	1,562	$	—	$	1,562
Net loans and leases		86,510		—		86,510
Accrued income and other assets		—		219		219
Total assets		$	88,072	$	219	$	88,291
Liabilities:
Other long-term debt		$	70,857	$	—	$	70,857
Accrued interest and other liabilities		—		219		219
Total liabilities		70,857		219		71,076
Equity:
Beneficial Interest owned by third party		17,215		—		17,215
Total liabilities and equity		$	88,072	$	219	$	88,291



	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 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, 2016, and December 31, 2015:



	September 30, 2016
(dollar amounts in thousands)	Total Assets		Total Liabilities		Maximum Exposure to Loss
2015-1 Automobile Trust	$	4,298	$	—	$	4,298
Trust Preferred Securities	13,919		292,544		—
Low Income Housing Tax Credit Partnerships	568,182		298,679		568,182
Other Investments	80,480		33,493		80,480
Total	$	666,879	$	624,716	$	652,960



	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

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

During the 2015 second quarter, 2012 fourth quarter and 2012 first quarter, we transferred automobile loans totaling $0.8 billion, $1.0 billion and $1.3 billion, respectively, to trusts in securitization transactions. The securitizations and the resulting sale of all underlying securities qualified for sale accounting. 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 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 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, 2016 follows:



(dollar amounts in thousands)	Rate			Principal amount of subordinated note/ debenture issued to trust (1)		Investment in unconsolidated subsidiary
Huntington Capital I	1.46	%	(2)	$	92,230	$	6,186
Huntington Capital II	1.48		(3)	49,593		3,093
Sky Financial Capital Trust III	2.24		(4)	72,165		2,165
Sky Financial Capital Trust IV	2.05		(4)	74,320		2,320
Camco Financial Trust	3.32		(5)	4,236		155
Total				$	292,544	$	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, 2016, based on three-month LIBOR +0.70%.


(3)	Variable effective rate at September 30, 2016, based on three-month LIBOR +0.625%.


(4)	Variable effective rate at September 30, 2016, based on three-month LIBOR +1.40%.


(5)	Variable effective rate (including impact of purchase accounting accretion) at September 30, 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 gains/losses related to these investments are included in noninterest-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, 2016 and December 31, 2015:



(dollar amounts in thousands)	September 30, 2016			December 31, 2015
Affordable housing tax credit investments	$	854,077		$	674,157
Less: amortization	(285,895		)	(248,657		)
Net affordable housing tax credit investments	$	568,182		$	425,500
Unfunded commitments	$	298,679		$	196,001

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, 2016 and 2015:



	Three Months Ended September 30,					Nine Months Ended September 30,
(dollar amounts in thousands)	2016		2015			2016		2015
Tax credits and other tax benefits recognized	$	21,200	$	16,412		$	57,634	$	46,592
Proportional amortization method
Tax credit amortization expense included in provision for income taxes	13,608		10,942			38,513		33,235
Equity method
Tax credit investment (gains) losses included in non-interest income	132		(86		)	396		208

Huntington recognized immaterial impairment losses on tax credit investments during the three-month and nine-month periods ended September 30, 2016 and 2015. 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 Historic Tax Credit Investments, Small Business Investment Companies, Rural Business Investment Companies, certain equity method investments and other miscellaneous investments.