Huntington National Bank 2014 Annual Report Download - page 150

Download and view the complete annual report

Please find page 150 of the 2014 Huntington National Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 208

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196
  • 197
  • 198
  • 199
  • 200
  • 201
  • 202
  • 203
  • 204
  • 205
  • 206
  • 207
  • 208

144
Fair Value Method
(dollar amounts in thousands) 2014 2013
Fair value, beginning of year $ 34,236 $ 35,202
Change in fair value during the period due to:
Time decay (1) (2,232) (2,648)
Payoffs (2) (5,814) (11,851)
Changes in valuation inputs or assumptions (3) (3,404) 13,533
Fair value, end of year $ 22,786 $ 34,236
Weighted-average life (years) 4.6 4.2
(1) Represents decrease in value due to passage of time, including the impact from both regularly scheduled loan principal payments
and partial loan paydowns.
(2) Represents decrease in value associated with loans that paid off during the period.
(3) Represents change in value resulting primarily from market-driven changes in interest rates and prepayment speeds.
Amortization Method
(dollar amounts in thousands) 2014 2013
Carrying value, beginning of year $ 128,064 $ 85,545
N
ew servicing assets create
d
24,629 34,743
Servicing assets acquired 3,505 ---
Impairment recovery (charge) (7,330) 22,023
Amortization and other (16,056) (14,247)
Carrying value, end of year $ 132,812 $ 128,064
Fair value, end of year $ 133,049 $ 143,304
Weighted-average life (years) 5.9 6.8
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 very sensitive to movements 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
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 fair value method, a summary of key assumptions and the sensitivity of the MSR value to changes in these
assumptions at December 31, 2014, and 2013 follows:
December 31, 2014 December 31, 2013
Decline in fair value due Decline in fair value due
10% 20% 10% 20%
adverse adverse adverse adverse
(dollar amounts in thousands) Actual change change Actual change change
Constant prepayment rate (annualized) 15.60 % $ (1,176) $ (2,248) 11.90 % $ (1,935) $ (3,816)
Spread over forward interest rate swap rates 546 bps (699) (1,355) 1,069 bps (1,376) (2,753)