Huntington National Bank 2006 Annual Report Download - page 100

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED
Changes in the carrying value of automobile loan servicing rights for the three years ended December 31, 2006, and the fair value
at the end of each period were as follows:
Year Ended December 31,
(in thousands of dollars) 2006 2005 2004
Carrying value, beginning of year $ 10,805 $20,286 $17,662
New servicing assets 4,748 2,113 16,249
Amortization (7,637) (11,528) (13,625)
Impairment charges —(66) —
Carrying value, end of year $ 7,916 $10,805 $20,286
Fair value, end of year $ 9,457 $11,658 $21,361
Huntington has retained servicing responsibilities and receives annual servicing fees from 0.55% to 1.00% and other ancillary fees
of approximately 0.40% to 0.47% of the outstanding loan balances. Servicing income, net of amortization of capitalized servicing
assets, included in other non-interest income amounted to $14.2 million in 2006, $12.5 million in 2005, and $10.1 million in
2004. The unpaid principal balance of automobile loans serviced for third parties was $1.5 billion, $1.7 billion, and $2.3 billion at
December 31, 2006, 2005, and 2004, respectively.
During the second quarter of 2006, Huntington transferred $1.2 billion automobile loans and leases to a trust in a securitization
transaction. The securitization did not qualify for sale accounting under Statement No. 140 and therefore, is accounted for as a
secured financing. There were no automobile loan securitizations in 2005 or 2004.
R
ESIDENTIAL
M
ORTGAGE
L
OANS
During 2006, Huntington sold $247.4 million of residential mortgage loans held for investment, resulting in a net pre-tax gain of
$0.5 million. During 2004, Huntington sold $199.8 million of residential mortgage loans held for investment, resulting in a net
pre-tax gain of $0.5 million. Huntington also exchanged for federal agency mortgage-backed securities $15.1 million and
$115.9 million of residential mortgage loans in 2005 and 2004, respectively, and retained all of the resulting securities.
Accordingly, these amounts were reclassified from loans to investment securities. There were no such exchanges of residential
mortgage loans in 2006.
A mortgage servicing right (MSR) is established only when the servicing is contractually separated from the underlying mortgage
loans by sale or securitization of the loans with servicing rights retained. Effective January 1, 2006, the Company adopted
Statement No. 156. The same risk management practices are applied to all MSRs and, accordingly, MSRs were identified as a
single asset class and were re-measured to fair value as of January 1, 2006, with an adjustment of $12.1 million, net of tax, to
retained earnings.
At initial recognition, the MSR asset is established at its fair value using assumptions that are consistent with assumptions used at
the time to estimate the fair value of the total MSR portfolio. Subsequent to initial capitalization, MSR assets are carried at fair
value and are included in accrued income and other assets. Any increase or decrease in fair value during the period is recorded as
an increase or decrease in servicing income, which is reflected in non-interest income in the consolidated statements of income.
The following table is a summary of the changes in MSR fair value for the year ended December 31, 2006:
(in thousands of dollars) 2006
Carrying value, beginning of year $ 91,259
Cumulative effect in change in accounting principle 18,631
Fair value, beginning of period 109,890
New servicing assets created 29,013
Servicing assets acquired 2,474
Change in fair value during the period due to:
Time decay(1) (4,086)
Payoffs(2) (11,058)
Changes in valuation inputs or assumptions(3) 4,871
Fair value, end of year $ 131,104
(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.
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