Huntington National Bank 2007 Annual Report Download - page 94

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AUTOMOBILE LOANS
Sales of automobile loans for which servicing is retained were $259.2 million, $710.3 million and $425.6 million in 2007, 2006 and
2005, respectively. Pre-tax gains related to sales of automobile loans totaled $2.1 million, $3.1 million and $1.2 million in 2007,
2006 and 2005, respectively.
Automobile loan servicing rights are accounted for under the amortization provision of Statement No. 156. A servicing asset is
established at fair value at the time of the sale using the following assumptions: actual servicing income of 0.55% — 0.65%,
adequate compensation for servicing of approximately 0.69%, other ancillary fees of approximately 0.41%, a discount rate of 10%
and an estimated return on payments prior to remittance to investors. 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 payoff is quicker than expected, then
future value would be impaired.
Changes in the carrying value of automobile loan servicing rights for the two years ended December 31, 2007, 2006 and 2005, and
the fair value at the end of each period were as follows:
(in thousands) 2007 2006
Year Ended December 31,
Carrying value, beginning of year $ 7,916 $10,805
New servicing assets 1,900 4,748
Amortization (5,717) (7,637)
Impairment charges ——
Carrying value, end of year $ 4,099 $ 7,916
Fair value, end of year $ 5,005 $ 9,457
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 0.60% of the outstanding loan balances. Servicing income, net of amortization of capitalized servicing
assets, included in other non-interest income amounted to $11.9 million in 2007, $14.2 million in 2006, and $12.5 million in 2005.
The unpaid principal balance of automobile loans serviced for third parties was $1.0 billion, $1.5 billion, and $1.7 billion at
December 31, 2007, 2006, and 2005, 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 2007 or 2005.
7. ALLOWANCES FOR CREDIT LOSSES (ACL)
The Company maintains two reserves, both of which are available to absorb possible credit losses: an allowance for loan and lease
losses (ALLL) and an allowance for unfunded loan commitments and letters of credit (AULC). When summed together, these
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED