Securitizations and Variable Interest Entities ("VIEs")

9 Months Ended

Sep. 30, 2012

Securitizations and Variable Interest Entities ("VIEs")

NOTE 10. Securitizations and Variable Interest Entities (“VIEs”)

In 2005 and 2006, Susquehanna entered into term securitization transactions in which it sold portfolios of home equity loans to securitization trusts. Both of the securitization trusts are VIEs, and Susquehanna is the primary beneficiary of the VIEs. The VIEs were consolidated, and upon consolidation, Susquehanna removed retained interests of $23,705 and recorded interest-bearing deposits of $7,537, aggregate loans balances of $248,333, and long term-debt of $239,936 on January 1, 2010. In addition, on January 1, 2010, Susquehanna recognized a cumulative-effect adjustment that reduced retained earnings by $5,805 and an adjustment that reduced accumulated other comprehensive income by $6,922. Susquehanna entered into these securitization transactions primarily to achieve low-cost funding for the growth of its loan and lease portfolios and to manage capital. The investors and the VIEs have no recourse to Susquehanna for failure of debtors to pay when due.

2006 Transaction

In September 2006, Susquehanna securitized $349,403 of fixed-rate home mortgage loans and variable-rate line of credit loans. Susquehanna retained the right to service the loans.

Approximately 70.5% of the variable-rate loans that were securitized included a feature that permits the borrower to convert all or a portion of the loan from a variable interest rate to a fixed interest rate. If the total principal balance of the converted loans is greater than 10% of the total outstanding balance of the portfolio, Susquehanna is required to transfer the excess converted loans from the portfolio. Based upon Susquehanna’s experience with this product, Susquehanna has concluded that the event requiring the transfer of converted loans of the VIE would be remote.

2005 Transaction

In December 2005, Susquehanna securitized $239,766 of home equity line of credit loans. Susquehanna retained the right to service the loans.

Approximately 35.4% of the loans that were securitized included a feature that permits the borrower to convert all or a portion of the loan from a variable interest rate to a fixed interest rate. If the total principal balance of the converted loans is greater than 10% of the total outstanding balance of the portfolio, Susquehanna is required to transfer the excess converted loans from the portfolio. Based upon Susquehanna’s experience with this product, Susquehanna has concluded that the event requiring the transfer of converted loans of the VIE would be remote.

The following table presents quantitative information about delinquencies, net credit losses, and components of loan and lease sales serviced by Susquehanna, including securitization transactions.

	As of September 30,								For the Nine Months Ended September 30,
									Net Credit Losses (Recoveries)
	Principal Balance				Risk Assets (1)
	2012		2011		2012		2011		2012			2011
Loans and leases held in portfolio	$	12,503,737	$	9,503,538	$	155,540	$	202,696	$	52,203		$	88,874
Home equity loans held by VIEs		171,870		199,131		2,833		4,399		745			653
Leases serviced for others		0		25		0		9		(3	)		4
Total loans and leases serviced	$	12,675,607	$	9,702,694	$	158,373	$	207,104	$	52,945		$	89,531

⁽¹⁾  Includes nonaccrual loans and leases, foreclosed real estate, and loans and leases past due 90 days and still accruing.

Certain cash flows received from or conveyed to the VIEs associated with the securitizations are as follows:

Home Equity Loans

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Additional draws conveyed	$	6,408	$	7,712	$	19,209	$	22,814
Servicing fees received		198		225		612		684
Other cash flows received		738		811		3,049		3,293