Quarterly report pursuant to Section 13 or 15(d)

Available for-Sale and Other Securities

v2.4.0.6
Available for-Sale and Other Securities
3 Months Ended
Mar. 31, 2013
Securities [Abstract]  
AVAILABLE-FOR-SALE AND OTHER SECURITIES

4. 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 March 31, 2013 and December 31, 2012:

        March 31, 2013   December 31, 2012
        Amortized           Amortized      
(dollar amounts in thousands)   Cost     Fair Value     Cost     Fair Value
  U.S. Treasury:                      
    Under 1 year $ ---   $ ---   $ ---   $ ---
    1-5 years   50,947     51,526     51,111     51,770
    6-10 years   508     537     508     539
    Over 10 years   1     3     1     2
  Total U.S. Treasury   51,456     52,066     51,620     52,311
  Federal agencies: mortgage-backed securities:                      
    Under 1 year   ---     ---     1     1
    1-5 years   170,623     173,392     182,722     185,792
    6-10 years   504,508     519,486     503,045     521,068
    Over 10 years   3,400,142     3,484,055     3,464,196     3,557,809
  Total Federal agencies: mortgage-backed securities   4,075,273     4,176,933     4,149,964     4,264,670
  Other agencies:                      
    Under 1 year   5,483     5,562     4,934     5,017
    1-5 years   306,501     315,210     304,769     314,149
    6-10 years   32,758     33,719     39,143     40,460
    Over 10 years   ---     ---     ---     ---
  Total other agencies   344,742     354,491     348,846     359,626
Total U.S. Government backed agencies   4,471,471     4,583,490     4,550,430     4,676,607
Municipal securities:                      
  Under 1 year   125     126     466     466
  1-5 years   180,238     185,309     173,300     177,593
  6-10 years   348,124     353,519     257,314     265,490
  Over 10 years   52,643     52,111     58,000     57,451
Total municipal securities   581,130     591,065     489,080     501,000
Private-label CMO:                      
  Under 1 year   ---     ---     ---     ---
  1-5 years   ---     ---     ---     ---
  6-10 years   6,043     6,245     7,394     7,567
  Over 10 years   64,033     60,735     68,163     64,001
Total private-label CMO   70,076     66,980     75,557     71,568
Asset-backed securities:                      
  Under 1 year   26,000     26,180     26,000     26,258
  1-5 years   497,044     504,242     506,319     514,616
  6-10 years   264,637     271,501     204,525     210,477
  Over 10 years   395,436     296,940     389,471     277,732
Total asset-backed securities   1,183,117     1,098,863     1,126,315     1,029,083
Covered bonds:                      
  Under 1 year   ---     ---     ---     ---
  1-5 years   281,711     289,409     282,080     290,625
  6-10 years   ---     ---     ---     ---
  Over 10 years   ---     ---     ---     ---
Total covered bonds   281,711     289,409     282,080     290,625
Corporate debt:                      
  Under 1 year   26,768     26,951     27,153     27,411
  1-5 years   293,788     307,094     458,516     468,077
  6-10 years   196,952     197,343     158,878     162,453
  Over 10 years   10,138     10,327     10,146     10,201
Total corporate debt   527,646     541,715     654,693     668,142
Other:                      
  Under 1 year   500     500     1,500     1,498
  1-5 years   2,400     2,400     2,400     2,400
  6-10 years   1,500     1,500     ---     ---
  Over 10 years   ---     ---     ---     ---
  Non-marketable equity securities   311,738     311,738     308,075     308,075
  Marketable equity securities   16,461     16,979     16,877     17,177
Total other   332,599     333,117     328,852     329,150
Total available-for-sale and other securities $ 7,447,750   $ 7,504,639   $ 7,507,007   $ 7,566,175
                           

Other securities at March 31, 2013 and December 31, 2012 include $165.6 million of stock issued by the FHLB of Cincinnati, $3.5 million of stock issued by the FHLB of Indianapolis, and $142.6 million and $139.0 million, respectively, of Federal Reserve Bank stock. Other securities also include corporate debt and marketable equity securities. Non-marketable equity securities are valued at amortized cost. At March 31, 2013 and December 31, 2012, Huntington did not have any material equity positions in FNMA or FHLMC.

 

The following tables provide amortized cost, fair value, and gross unrealized gains and losses recognized in accumulated other comprehensive income by investment category at March 31, 2013 and December 31, 2012:

            Unrealized      
      Amortized     Gross     Gross     Fair
(dollar amounts in thousands)   Cost     Gains     Losses     Value
March 31, 2013                      
U.S. Treasury $ 51,456   $ 610   $ ---   $ 52,066
Federal agencies:                      
  Mortgage-backed securities   4,075,273     103,210     (1,550)     4,176,933
  Other agencies   344,742     9,751     (2)     354,491
Total U.S. Government                      
  backed securities   4,471,471     113,571     (1,552)     4,583,490
Municipal securities   581,130     12,691     (2,756)     591,065
Private-label CMO   70,076     1,081     (4,177)     66,980
Asset-backed securities   1,183,117     16,759     (101,013)     1,098,863
Covered bonds   281,711     7,698     ---     289,409
Corporate debt   527,646     16,668     (2,599)     541,715
Other securities   332,599     533     (15)     333,117
Total available-for-sale and other securities $ 7,447,750   $ 169,001   $ (112,112)   $ 7,504,639
                         
            Unrealized      
      Amortized     Gross     Gross     Fair
(dollar amounts in thousands)   Cost     Gains     Losses     Value
December 31, 2012                      
U.S. Treasury $ 51,620   $ 691   $ ---   $ 52,311
Federal agencies:                      
  Mortgage-backed securities   4,149,964     114,984     (278)     4,264,670
  Other agencies   348,846     10,781     (1)     359,626
Total U.S. Government                      
  backed securities   4,550,430     126,456     (279)     4,676,607
Municipal securities   489,080     13,927     (2,007)     501,000
Private-label CMO   75,557     1,087     (5,076)     71,568
Asset-backed securities   1,126,315     16,287     (113,519)     1,029,083
Covered bonds   282,080     8,545     ---     290,625
Corporate debt   654,693     15,301     (1,852)     668,142
Other securities   328,852     333     (35)     329,150
Total available-for-sale and other securities $ 7,507,007   $ 181,936   $ (122,768)   $ 7,566,175
                         

The following tables provide detail on investment securities with unrealized losses aggregated by investment category and length of time the individual securities have been in a continuous loss position, at March 31, 2013 and December 31, 2012:

      Less than 12 Months     Over 12 Months     Total
      Fair     Unrealized     Fair     Unrealized     Fair     Unrealized
(dollar amounts in thousands )   Value     Losses     Value     Losses     Value     Losses
March 31, 2013                                  
U.S. Treasury $ ---   $ ---   $ ---   $ ---   $ ---   $ ---
Federal agencies:                                  
  Mortgage-backed securities   198,901     (1,550)     ---     ---     198,901     (1,550)
  Other agencies   1,099     (2)     ---     ---     1,099     (2)
Total U.S. Government                                  
  backed securities   200,000     (1,552)     ---     ---     200,000     (1,552)
Municipal securities   159,973     (2,756)     ---     ---     159,973     (2,756)
Private-label CMO   21,434     ---     29,855     (4,177)     51,289     (4,177)
Asset-backed securities   48,626     (368)     115,455     (100,645)     164,081     (101,013)
Covered bonds   ---     ---     ---     ---     ---     ---
Corporate debt   137,837     (2,289)     44,690     (310)     182,527     (2,599)
Other securities   ---     ---     2,573     (15)     2,573     (15)
                                     
Total temporarily impaired securities $ 567,870   $ (6,965)   $ 192,573   $ (105,147)   $ 760,443   $ (112,112)
                                     
      Less than 12 Months     Over 12 Months     Total
      Fair     Unrealized     Fair     Unrealized     Fair     Unrealized
(dollar amounts in thousands )   Value     Losses     Value     Losses     Value     Losses
December 31, 2012                                  
U.S. Treasury $ ---   $ ---   $ ---   $ ---   $ ---   $ ---
Federal agencies:                                  
  Mortgage-backed securities   44,836     (278)     ---     ---     44,836     (278)
  Other agencies   801     (1)     ---     ---     801     (1)
Total U.S. Government                                  
  backed securities   45,637     (279)     ---     ---     45,637     (279)
Municipal securities   51,316     (2,007)     ---     ---     51,316     (2,007)
Private-label CMO   22,793     ---     34,617     (5,076)     57,410     (5,076)
Asset-backed securities   28,089     (73)     108,660     (113,446)     136,749     (113,519)
Covered bonds   ---     ---     ---     ---     ---     ---
Corporate debt   138,792     (1,472)     119,620     (380)     258,412     (1,852)
Other securities   ---     ---     1,630     (35)     1,630     (35)
                                     
Total temporarily impaired securities $ 286,627   $ (3,831)   $ 264,527   $ (118,937)   $ 551,154   $ (122,768)

The following table is a summary of realized securities gains and losses for the three-month periods ended March 31, 2013 and 2012:

        Three Months Ended
        March 31,
(dollar amounts in thousands)     2013     2012
  Gross gains on sales of securities   $ 199   $ 779
  Gross (losses) on sales of securities     (12)     (155)
Net gain on sales of securities   $ 187   $ 624
               

Pooled-Trust-Preferred, and Private-Label CMO Securities

 

The highest risk category of our investment portfolio are the private-label CMO and the pooled-trust-preferred portfolios. Of the $67.0 million of the private-label CMO securities reported at fair value at March 31, 2013, approximately $30.8 million are rated below investment grade. The pooled-trust-preferred securities are in the asset-backed securities portfolio. The performance of the underlying securities in each of these categories continued to reflect the economic environment. Each of these securities in these two categories is subjected to a rigorous review of its projected cash flows. These reviews are supported with analysis from independent third parties.

The following table summarizes the relevant characteristics of our pooled-trust-preferred securities portfolio, which are included in asset-backed securities, at March 31, 2013. Each security is part of a pool of issuers and supports a more senior tranche of securities except for the I-Pre TSL II, and MM Comm III securities which are the most senior class.

Trust Preferred Securities Data                    
March 31, 2013                          
(dollar amounts in thousands)         Actual          
                        Deferrals   Expected      
                        and   Defaults      
                      # of Issuers Defaults   as a % of      
                    Lowest Currently as a % of   Remaining      
        Amortized Fair Unrealized Credit Performing/ Original   Performing   Excess  
Deal Name Par Value Cost Value Loss (2) Rating (3) Remaining (4) Collateral   Collateral Subordination (5)
Alesco II (1) $ 41,645 $ 30,238 $ 11,601 $ (18,637) C 31/35 8 % 10 % --- %
Alesco IV (1)   21,630   8,247   4,177   (4,070) C 32/39 9   13   ---  
ICONS   20,000   20,000   13,948   (6,052) BB 23/24 3   13   47  
I-Pre TSL II   26,203   26,136   22,137   (3,999) A 22/24 5   10   73  
MM Comm III   7,220   6,898   4,931   (1,967) B 6/10 5   9   22  
Pre TSL IX (1)   5,000   3,955   1,757   (2,198) C 32/46 20   14   7  
Pre TSL X (1)   17,466   9,041   5,158   (3,883) C 35/50 26   13   ---  
Pre TSL XI (1)   25,225   21,680   7,217   (14,463) C 42/62 29   15   ---  
Pre TSL XIII (1)   29,070   22,701   8,927   (13,774) C 43/63 30   22   3  
Reg Diversified (1)   25,500   6,908   462   (6,446) D 24/43 40   12   ---  
Soloso (1)   12,500   3,546   335   (3,211) C 37/64 32   23   ---  
Tropic III   31,000   31,000   10,308   (20,692) CC 25/42 30   18   31  
Total at March 31, 2013 $ 262,459 $ 190,350 $ 90,958 $ (99,392)                
Total at December 31, 2012 $ 266,863 $ 195,760 $ 84,296 $ (111,464)                
                                   
(1) Security was determined to have OTTI. As such, the book value is net of recorded credit impairment.
(2) The majority of securities have been in a continuous loss position for 12 months or longer.
(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.

Security Impairment

 

Huntington evaluates its available-for-sale securities portfolio on a quarterly basis for indicators of OTTI. Huntington assesses whether OTTI has occurred when the fair value of a debt security is less than the amortized cost basis at period-end. Management reviews the amount of unrealized loss, the length of time the security has been in an unrealized loss position, the credit rating history, market trends of similar security classes, time remaining to maturity, and the source of both interest and principal payments to identify securities which could potentially be impaired. OTTI is considered to have occurred; (1) if Huntington intends to sell the security; (2) if it is more likely than not Huntington will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of the expected cash flows is not sufficient to recover all contractually required principal and interest payments.

 

For securities that Huntington does not expect to sell and it is not more likely than not to be required to sell, the OTTI is separated into credit and noncredit components. A discounted cash flow analysis, which includes evaluating the timing of the expected cash flows, is completed for all debt securities subject to credit impairment. The measurement of the credit loss component is equal to the difference between the debt security's cost basis and the present value of its expected future cash flows discounted at the security's original effective yield. The credit-related OTTI, represented by the expected loss in principal, is recognized in noninterest income. The remaining difference between the security's fair value and the present value of future expected cash flows is due to factors that are not credit-related and, therefore, are recognized in OCI. Huntington believes that it will fully collect the carrying value of securities on which noncredit-related OTTI has been recognized in OCI. Noncredit-related OTTI results from other factors, including increased liquidity spreads and extension of the security. For securities which Huntington does expect to sell, or if it is more likely than not Huntington will be required to sell the security before recovery of its amortized cost basis, all OTTI is recognized in earnings. Presentation of OTTI is made in the Condensed Consolidated Statements of Income on a gross basis with a reduction for the amount of OTTI recognized in OCI. Once an OTTI is recorded, when future cash flows can be reasonably estimated, future cash flows are re-allocated between interest and principal cash flows to provide for a level-yield on the security.

 

Huntington applied the related OTTI guidance on the debt security types listed below.

 

Alt-A mortgage-backed and private-label CMO securities are collateralized by first-lien residential mortgage loans. The securities are valued by a third party pricing specialist using a discounted cash flow approach and proprietary pricing model. The model uses inputs such as estimated prepayment speeds, losses, recoveries, default rates that are implied by the underlying performance of collateral in the structure or similar structures, discount rates that are implied by market prices for similar securities, collateral structure types, and house price depreciation / appreciation rates that are based upon macroeconomic forecasts.

 

Pooled-trust-preferred securities are CDOs 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. 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 cumulative probability of default ranges from a low of 1% to 100%. 

 

Many collateral issuers have the option of deferring interest payments on their debt for up to five years.  For issuers who are deferring interest, assumptions are made regarding the issuers ability to resume interest payments and make the required principal payment at maturity; the cumulative probability of default for these issuers currently ranges from 1% to 100%, and a 10% recovery assumption.  The fair value of each security is obtained by discounting the expected cash flows at a market discount rate, ranging from LIBOR plus 4.3% to LIBOR plus 16.3% as of March 31, 2013.  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).

 

For the three-month periods ended March 31, 2013 and 2012, 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
        March 31,
(dollar amounts in thousands)     2013     2012
Available-for-sale and other securities:            
  Alt-A Mortgage-backed   $ ---   $ ---
  Pooled-trust-preferred     (360)     ---
  Private label CMO     (336)     (1,237)
  Total debt securities     (696)     (1,237)
  Equity securities     ---     ---
Total available-for-sale and other securities   $ (696)   $ (1,237)

The following table rolls forward the OTTI amounts recognized in earnings on debt securities held by Huntington for the three-month periods ended March 31, 2013 and 2012 as follows:

      Three Months Ended
      March 31,
(dollar amounts in thousands)     2013     2012
Balance, beginning of period   $ 49,433   $ 56,764
  Reductions from sales/maturities     ---     (1,097)
  Credit losses not previously recognized     ---     ---
  Additional credit losses     696     1,237
Balance, end of period   $ 50,129   $ 56,904

The fair values of these assets have been impacted by various market conditions. The unrealized losses were primarily the result of wider liquidity spreads on asset-backed securities and increased market volatility on non-agency mortgage and asset-backed securities that are collateralized by certain mortgage loans. In addition, the expected average lives of the asset-backed securities backed by trust-preferred securities have been extended, due to changes in the expectations of when the underlying securities would be repaid. 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 fair value is recovered, which may be maturity and; therefore, does not consider them to be other-than-temporarily impaired at March 31, 2013.

 

As of March 31, 2013, Management has evaluated all other investment securities with unrealized losses and all non-marketable securities for impairment and concluded no additional OTTI is required.