Huntington National Bank 2003 Annual Report Download - page 115

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Huntington recorded pre-tax gains of $40.0 million in 2003 from sales of automobile loans. No sales of automobile loans were made in
2002 or 2001. Huntington recorded net pre-tax gains from automobile loan securitizations of $5.6 million, $11.0 million, and $6.6
million in 2003, 2002, and 2001, respectively. Gains or losses from securitizations depend in part on the previous carrying amount of
the financial assets involved, which are allocated between the assets sold and the retained interests based on their relative fair value at
the date of transfer.
Quoted market prices are generally not available for retained interest in automobile loan securitizations. The key economic
assumptions used during 2003, to measure the fair value of the retained interest at the time of securitization are included in the table
below. In 2003 and 2002, the interest rate paid to transferees on variable-rate securities was estimated based on the forward one-month
London Interbank Offered Rate (LIBOR) yield plus the average contractual spread over LIBOR of 34 basis points.
At December 31, 2003, the assumptions and the sensitivity of the current fair value of the retained interest to immediate 10% and 20%
adverse changes in those assumptions were:
Decline in fair value due to
(in millions of dollars) Actual
10%
adverse
change
20%
adverse
change
Monthly prepayment rate (ABS curve) 1.45% $ — $ —
Expected annual credit losses 2.51 — 0.1
Discount rate 10.00 — 0.1
Certain cash flows received from and paid to securitization trusts were:
Twelve Months Ended
December 31,
(in million of dollars) 2003 2002
Collections used by the trusts to purchase new balances in revolving securitizations $252 $480
Servicing fees received 612
Other cash flows received on retained interest 27 81
R ESIDENTIAL M ORTGAGE L OANS
During 2003, Huntington securitized $354.2 million of residential mortgage loans and retained all of the resulting securities.
Accordingly, the securitized amounts were reclassified from loans to securities available for sale.
The unpaid principal balance of residential mortgage loans serviced for third parties was $6.4 billion, $3.8 billion, and $3.0 billion at
December 31, 2003, 2002, and 2001, respectively. Changes in the carrying value of mortgage servicing rights and the associated
valuation allowance for the three years ended December 31, 2003, were as follows:
(in thousands of dollars) 2003 2002 2001
Balance, Beginning of Year $ 29,271 $ 35,282 $ 29,630
New servicing assets 52,896 41,586 53,144
Amortization (25,966) (12,051) (6,590)
Impairment recovery (charges) 14,957 (14,114) (6,322)
Sales (71) (21,432) (34,580)
Balance, End of Year $ 71,087 $ 29,271 $ 35,282
Servicing rights are evaluated quarterly for impairment based on the fair value of those rights, using a disaggregated approach. The fair
value of the servicing rights is determined by estimating the present value of future net cash flows, taking into consideration market
loan prepayment speeds, discount rates, servicing costs, and other economic factors. Seven risk tranches are used in the evaluation of
mortgage servicing rights for impairment: three tranches for servicing rights on 30 year mortgage loans (based on interest rate bands of
below 6.00%; 6.00% up to 6.99%; and 7.00% and above), three tranches for servicing rights on 15 year mortgage loans (based on
interest rate bands of below 5.50%; 5.50% up to 6.49%; and 6.50% and above), and one tranche encompassing balloon and adjustable
rate mortgages. Huntington began using the expanded interest rate bands in the fourth quarter of 2003. Temporary impairment is
HUNTINGTON BANCSHARES INCORPORATED 113