Quarterly report pursuant to Section 13 or 15(d)

AVAILABLE-FOR-SALE AND OTHER SECURITIES

v3.3.0.814
AVAILABLE-FOR-SALE AND OTHER SECURITIES
9 Months Ended
Sep. 30, 2015
Investments, Debt and Equity Securities [Abstract]  
AVAILABLE-FOR-SALE AND OTHER SECURITIES
AVAILABLE-FOR-SALE AND OTHER SECURITIES
Listed below are the contractual maturities (under 1 year, 1-5 years, 6-10 years, and over 10 years) of available-for-sale and other securities at September 30, 2015 and December 31, 2014:
 
September 30, 2015
 
December 31, 2014
(dollar amounts in thousands)
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Fair Value
U.S. Treasury, Federal agency, and other agency securities:
 
 
 
 
 
 
 
U.S. Treasury:
 
 
 
 
 
 
 
1 year or less
$
8,583

 
$
8,585

 
$

 
$

After 1 year through 5 years
5,451

 
5,510

 
5,435

 
5,452

After 5 years through 10 years

 

 

 

After 10 years

 

 

 

Total U.S. Treasury
14,034

 
14,095

 
5,435

 
5,452

Federal agencies: mortgage-backed securities:
 
 
 
 
 
 
 
1 year or less
52,951

 
53,052

 
47,023

 
47,190

After 1 year through 5 years
125,173

 
128,473

 
216,775

 
221,078

After 5 years through 10 years
227,466

 
231,846

 
184,576

 
186,938

After 10 years
6,261,562

 
6,350,842

 
4,825,525

 
4,867,495

Total Federal agencies: mortgage-backed securities
6,667,152

 
6,764,213

 
5,273,899

 
5,322,701

Other agencies:
 
 
 
 
 
 
 
1 year or less
1,702

 
1,712

 
33,047

 
33,237

After 1 year through 5 years
8,264

 
8,672

 
9,122

 
9,575

After 5 years through 10 years
214,184

 
219,193

 
103,530

 
105,019

After 10 years
144,292

 
146,961

 
204,016

 
203,712

Total other agencies
368,442

 
376,538

 
349,715

 
351,543

Total U.S. Treasury, Federal agency, and other agency securities
7,049,628

 
7,154,846

 
5,629,049

 
5,679,696

Municipal securities:
 
 
 
 
 
 
 
1 year or less
280,971

 
276,600

 
256,399

 
255,835

After 1 year through 5 years
499,125

 
501,559

 
269,385

 
274,003

After 5 years through 10 years
987,208

 
993,630

 
938,780

 
945,954

After 10 years
530,386

 
556,302

 
376,747

 
392,777

Total municipal securities
2,297,690

 
2,328,091

 
1,841,311

 
1,868,569

Private-label CMO:
 
 
 
 
 
 
 
1 year or less

 

 

 

After 1 year through 5 years

 

 

 

After 5 years through 10 years

 

 
1,314

 
1,371

After 10 years

 

 
42,416

 
40,555

Total private-label CMO

 

 
43,730

 
41,926

Asset-backed securities:
 
 
 
 
 
 
 
1 year or less

 

 

 

After 1 year through 5 years
90,168

 
90,580

 
228,852

 
229,364

After 5 years through 10 years
128,425

 
129,530

 
144,163

 
144,193

After 10 years
624,998

 
593,899

 
641,984

 
582,441

Total asset-backed securities
843,591

 
814,009

 
1,014,999

 
955,998

Corporate debt:
 
 
 
 
 
 
 
1 year or less
20,695

 
20,746

 
18,767

 
18,953

After 1 year through 5 years
325,773

 
333,460

 
314,773

 
323,503

After 5 years through 10 years
95,909

 
94,883

 
145,611

 
143,720

After 10 years

 

 

 

Total corporate debt
442,377

 
449,089

 
479,151

 
486,176

Other:
 
 
 
 
 
 
 
1 year or less

 

 
250

 
250

After 1 year through 5 years
3,950

 
3,914

 
3,150

 
3,066

After 5 years through 10 years

 

 

 

After 10 years

 

 

 

Non-marketable equity securities
332,418

 
332,418

 
331,559

 
331,559

Mutual funds
11,154

 
11,153

 
16,151

 
16,161

Marketable equity securities
755

 
1,348

 
536

 
1,269

Total other
348,277

 
348,833

 
351,646

 
352,305

Total available-for-sale and other securities
$
10,981,563

 
$
11,094,868

 
$
9,359,886

 
$
9,384,670


Non-marketable equity securities at September 30, 2015 and December 31, 2014 include $157.0 million of stock issued by the FHLB of Cincinnati and $175.4 million and $174.5 million, respectively, of Federal Reserve Bank stock. Non-marketable equity securities are recorded at amortized cost.
The following tables provide amortized cost, fair value, and gross unrealized gains and losses recognized in OCI by investment category at September 30, 2015 and December 31, 2014:
 
 
 
Unrealized
 
 
(dollar amounts in thousands)
Amortized
Cost
 
Gross
Gains
 
Gross
Losses
 
Fair Value
September 30, 2015
 
 
 
 
 
 
 
U.S. Treasury
$
14,034

 
$
61

 
$

 
$
14,095

Federal agencies:
 
 
 
 
 
 
 
Mortgage-backed securities
6,667,152

 
104,044

 
(6,983
)
 
6,764,213

Other agencies
368,442

 
8,096

 

 
376,538

Total U.S. Treasury, Federal agency securities
7,049,628

 
112,201

 
(6,983
)
 
7,154,846

Municipal securities
2,297,690

 
49,426

 
(19,025
)
 
2,328,091

Private-label CMO

 

 

 

Asset-backed securities
843,591

 
4,471

 
(34,053
)
 
814,009

Corporate debt
442,377

 
7,983

 
(1,271
)
 
449,089

Other securities
348,277

 
592

 
(36
)
 
348,833

Total available-for-sale and other securities
$
10,981,563

 
$
174,673

 
$
(61,368
)
 
$
11,094,868

 
 
 
Unrealized
 
 
(dollar amounts in thousands)
Amortized
Cost
 
Gross
Gains
 
Gross
Losses
 
Fair Value
December 31, 2014
 
 
 
 
 
 
 
U.S. Treasury
$
5,435

 
$
17

 
$

 
$
5,452

Federal agencies:
 
 
 
 
 
 
 
Mortgage-backed securities
5,273,899

 
63,906

 
(15,104
)
 
5,322,701

Other agencies
349,715

 
2,871

 
(1,043
)
 
351,543

Total U.S. Treasury, Federal agency securities
5,629,049

 
66,794

 
(16,147
)
 
5,679,696

Municipal securities
1,841,311

 
37,398

 
(10,140
)
 
1,868,569

Private-label CMO
43,730

 
1,116

 
(2,920
)
 
41,926

Asset-backed securities
1,014,999

 
2,061

 
(61,062
)
 
955,998

Corporate debt
479,151

 
9,442

 
(2,417
)
 
486,176

Other securities
351,646

 
743

 
(84
)
 
352,305

Total available-for-sale and other securities
$
9,359,886

 
$
117,554

 
$
(92,770
)
 
$
9,384,670


At September 30, 2015, the carrying value of investment securities pledged to secure public and trust deposits, trading account liabilities, U.S. Treasury demand notes, and security repurchase agreements totaled $3.7 billion. There were no securities of a single issuer, which are not governmental or government-sponsored, that exceeded 10% of shareholders’ equity at September 30, 2015.
The following tables provide detail on investment securities with unrealized losses aggregated by investment category and the length of time the individual securities have been in a continuous loss position, at September 30, 2015 and December 31, 2014:
 
Less than 12 Months
 
Over 12 Months
 
Total
(dollar amounts in thousands )
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Federal agencies:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
417,246

 
$
(1,087
)
 
$
262,384

 
$
(5,896
)
 
$
679,630

 
$
(6,983
)
Other agencies

 

 

 

 

 

Total Federal agency securities
417,246

 
(1,087
)
 
262,384

 
(5,896
)
 
679,630

 
(6,983
)
Municipal securities
282,128

 
(11,078
)
 
243,660

 
(7,947
)
 
525,788

 
(19,025
)
Private-label CMO

 

 

 

 

 

Asset-backed securities
102,467

 
(221
)
 
248,239

 
(33,832
)
 
350,706

 
(34,053
)
Corporate debt
45,450

 
(469
)
 
21,876

 
(802
)
 
67,326

 
(1,271
)
Other securities
788

 
(22
)
 
1,486

 
(14
)
 
2,274

 
(36
)
Total temporarily impaired securities
$
848,079

 
$
(12,877
)
 
$
777,645

 
$
(48,491
)
 
$
1,625,724

 
$
(61,368
)
 
Less than 12 Months
 
Over 12 Months
 
Total
(dollar amounts in thousands )
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Federal agencies:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
501,858

 
$
(1,909
)
 
$
527,280

 
$
(13,195
)
 
$
1,029,138

 
$
(15,104
)
Other agencies
159,708

 
(1,020
)
 
1,281

 
(23
)
 
160,989

 
(1,043
)
Total Federal agency securities
661,566

 
(2,929
)
 
528,561

 
(13,218
)
 
1,190,127

 
(16,147
)
Municipal securities
568,619

 
(9,127
)
 
96,426

 
(1,013
)
 
665,045

 
(10,140
)
Private-label CMO

 

 
22,650

 
(2,920
)
 
22,650

 
(2,920
)
Asset-backed securities
157,613

 
(641
)
 
325,691

 
(60,421
)
 
483,304

 
(61,062
)
Corporate debt
49,562

 
(252
)
 
88,398

 
(2,165
)
 
137,960

 
(2,417
)
Other securities

 

 
1,416

 
(84
)
 
1,416

 
(84
)
Total temporarily impaired securities
$
1,437,360

 
$
(12,949
)
 
$
1,063,142

 
$
(79,821
)
 
$
2,500,502

 
$
(92,770
)

The following table is a summary of realized securities gains and losses for the three-month and nine-month periods ended September 30, 2015 and 2014:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in thousands)
2015
 
2014
 
2015
 
2014
Gross gains on sales of securities
$
6,173

 
$
198

 
$
6,256

 
$
17,678

Gross (losses) on sales of securities
(5,985
)
 

 
(5,986
)
 
(20
)
Net gain on sales of securities
$
188

 
$
198

 
$
270

 
$
17,658


Security Impairment
Huntington evaluates the available-for-sale securities portfolio on a quarterly basis for impairment. We conduct a comprehensive security-level assessment on all available-for-sale securities. Impairment would exist when the present value of the expected cash flows are not sufficient to recover the entire amortized cost basis at the balance sheet date. Under these circumstances, any impairment would be recognized in earnings. The contractual terms and / or cash flows of the investments do not permit the issuer to settle the securities at a price less than the amortized cost. Huntington does not intend to sell, nor does it believe it will be required to sell these securities until the amortized cost is recovered, which may be maturity. To reduce asset risk weighting and credit risk in the investment portfolio, the remainder of the private-label CMO portfolio was sold in the 2015 third quarter.  Huntington recognized OTTI on this portfolio in prior periods.
The highest risk segment in our investment portfolio is the trust preferred CDO securities which are in the asset-backed securities portfolio. This portfolio is in run off, and we have not purchased these types of securities since 2005. The fair values of the CDO assets have been impacted by various market conditions. The unrealized losses are primarily the result of wider liquidity spreads on asset-backed securities and the longer expected average lives of the trust-preferred CDO securities, due to changes in the expectations of when the underlying securities will be repaid.
Collateralized Debt Obligations are backed by a pool of debt securities issued by financial institutions. The collateral generally consists of trust-preferred securities and subordinated debt securities issued by banks, bank holding companies, and insurance companies. Many collateral issuers have the option of deferring interest payments on their debt for up to five years. A full cash flow analysis is used to estimate fair values and assess impairment for each security within this portfolio. A third party pricing specialist with direct industry experience in pooled-trust-preferred security evaluations is engaged to provide assistance estimating the fair value and expected cash flows on this portfolio. The full cash flow analysis is completed by evaluating the relevant credit and structural aspects of each pooled-trust-preferred security in the portfolio, including collateral performance projections for each piece of collateral in the security and terms of the security’s structure. The credit review includes an analysis of profitability, credit quality, operating efficiency, leverage, and liquidity using available financial and regulatory information for each underlying collateral issuer. The analysis also includes a review of historical industry default data, current / near term operating conditions, and the impact of macroeconomic and regulatory changes. Using the results of our analysis, we estimate appropriate default and recovery probabilities for each piece of collateral then estimate the expected cash flows for each security. The fair value of each security is obtained by discounting the expected cash flows at a market discount rate. The market discount rate is determined by reference to yields observed in the market for similarly rated collateralized debt obligations, specifically high-yield collateralized loan obligations. The relatively high market discount rate is reflective of the uncertainty of the cash flows and illiquid nature of these securities. The large differential between the fair value and amortized cost of some of the securities reflects the high market discount rate and the expectation that the majority of the cash flows will not be received until near the final maturity of the security (the final maturities range from 2032 to 2035).
On December 10, 2013, the Federal Reserve, the OCC, the FDIC, the CFTC and the SEC issued final rules to implement the Volcker Rule contained in section 619 of the Dodd-Frank Act, generally to become effective on July 21, 2015. The Volcker Rule prohibits an insured depository institution and its affiliates (referred to as “banking entities”) from: (i) engaging in “proprietary trading” and (ii) investing in or sponsoring certain types of funds (“covered funds”) subject to certain limited exceptions. These prohibitions impact the ability of U.S. banking entities to provide investment management products and services that are competitive with nonbanking firms generally and with non-U.S. banking organizations in overseas markets. The rule also effectively prohibits short-term trading strategies by any U.S. banking entity if those strategies involve instruments other than those specifically permitted for trading.
On January 14, 2014, the five federal agencies approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities from the investment prohibitions of section 619 of the Volcker Rule. Under the interim final rule, the agencies permit the retention of an interest in or sponsorship of covered funds by banking entities if certain qualifications are met. In addition, the agencies released a non-exclusive list of issuers that meet the requirements of the interim final rule. At September 30, 2015, we had investments in eight different pools of trust preferred securities. Seven of our pools are included in the list of non-exclusive issuers. We have analyzed the ICONS pool which was not included on the list and believe that it is more likely than not that we would not be required to sell and will be able to hold the security to recovery under the final Volcker Rule regulations.

For the three-month and nine-month periods ended September 30, 2015 and 2014, the following table summarizes by security type the total OTTI losses recognized in the Unaudited Condensed Consolidated Statements of Income for securities evaluated for impairment as described above.
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in thousands)
 
2015
 
2014
 
2015
 
2014
Available-for-sale and other securities:
 
 
 
 
 
 
 
 
Pooled-trust-preferred
 
$
2,440

 
$

 
$
2,440

 
$

Total debt securities
 
2,440

 

 
2,440

 

Total available-for-sale and other securities
 
$
2,440

 
$

 
$
2,440

 
$


The following table rolls forward the OTTI recognized in earnings on debt securities held by Huntington for the three-month and nine-month periods ended September 30, 2015 and 2014 as follows:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(dollar amounts in thousands)
 
2015
 
2014
 
2015
 
2014
Balance, beginning of period
 
$
30,869

 
$
30,869

 
$
30,869

 
$
30,869

Reductions from sales/maturities
 
(14,941
)
 

 
(14,941
)
 

Additional credit losses
 
2,440

 

 
2,440

 

Balance, end of period
 
$
18,368

 
$
30,869

 
$
18,368

 
$
30,869


The following table summarizes the relevant characteristics of our CDO securities portfolio, which are included in asset-backed securities, at September 30, 2015. Each security is part of a pool of issuers and supports a more senior tranche of securities except for the MM Comm III securities which are the most senior class.

Collateralized Debt Obligation Data
September 30, 2015
(dollar amounts in thousands)
Deal Name
Par Value
 
Amortized
Cost
 
Fair
Value
 
Unrealized
Loss (2)
 
Lowest
Credit
Rating
(3)
 
# of Issuers
Currently
Performing/
Remaining (4)
 
Actual
Deferrals
and
Defaults
as a % of
Original
Collateral
 
Expected
Defaults
as a % of
Remaining
Performing
Collateral
 
Excess
Subordination
(5)
Alesco II
$
41,646

 
$
28,229

 
$
25,392

 
$
(2,838
)
 
C
 
30/32
 
5
%
 
7
%
 
4
%
ICONS
19,515

 
19,515

 
15,670

 
(3,844
)
 
BB
 
19/21
 
7

 
16

 
57

MM Comm III
5,459

 
5,216

 
4,341

 
(875
)
 
BB
 
6/9
 
5

 
6

 
32

Pre TSL IX
5,000

 
3,955

 
3,019

 
(936
)
 
C
 
27/38
 
18

 
10

 
6

Pre TSL XI
25,000

 
20,278

 
15,475

 
(4,803
)
 
C
 
42/55
 
16

 
9

 
9

Pre TSL XIII
27,530

 
19,869

 
16,840

 
(3,028
)
 
C
 
46/56
 
10

 
11

 
23

Reg Diversified (1)
25,500

 
5,706

 
1,765

 
(3,942
)
 
D
 
24/40
 
33

 
7

 

Tropic III
31,000

 
31,000

 
18,671

 
(12,329
)
 
CCC+
 
29/40
 
20

 
8

 
39

Total at September 30, 2015
$
180,650

 
$
133,768

 
$
101,173

 
$
(32,595
)
 
 
 
 
 
 
 
 
 
 
Total at December 31, 2014
$
193,597

 
$
139,194

 
$
82,738

 
$
(56,456
)
 
 
 
 
 
 
 
 
 
 
(1)
Security was determined to have OTTI. As such, the carrying value is net of recorded credit impairment.
(2)
These securities have been in a continuous loss position for longer than 12 months.
(3)
For purposes of comparability, the lowest credit rating expressed is equivalent to Fitch ratings even where the lowest rating is based on another nationally recognized credit rating agency.
(4)
Includes both banks and/or insurance companies.
(5)
Excess subordination percentage represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences credit impairment. Excess subordinated percentage is calculated by (a) determining what percentage of defaults a deal can experience before the bond has credit impairment, and (b) subtracting from this default breakage percentage both total current and expected future default percentages.