Huntington Bancshares Inc. (HBAN, Financial) filed Quarterly Report for the period ended 2009-06-30.
Huntington Bancshares is a multi-state bank holding company. Its subsidiaries conduct a full-service commercial and consumer bankingbusiness engage in mortgage banking lease financing trust services discount brokerage services underwriting credit life and disability insurance selling other insurance products and issuing commercial paper guaranteed by Huntington and providing other financial products and services. Huntington Bancshares Inc. has a market cap of $2.59 billion; its shares were traded at around $4.77 with and P/S ratio of 1.2. The dividend yield of Huntington Bancshares Inc. stocks is 0.8%.
Our analysis indicated, as of June 30, 2009, a total of 14 Alt-A mortgage-backed securities and 4 private-label CMO securities could experience loss of principal in the future. The future expected losses of principal on these other-than-temporarily impaired securities ranged from 0.1% to 89.1% of their par value. The average amount of future principal loss was 3.9% of their par value. These losses were projected to occur beginning anywhere from 6 months to as many as 18 years in the future. We measured the amount of credit impairment on these securities using the cash flows discounted at each securities effective rate. As a result, in the 2009 second quarter, we recorded $5.9 million of credit OTTI in our Alt-A mortgage-backed securities portfolio representing additional impairment on four previously impaired securities and one security that was previously not impaired. Credit OTTI of $1.3 million was recorded for three newly impaired and one previously impaired private-label CMO securities in the 2009 second quarter.
The analysis was 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 each security and terms of each securitys structure. The credit review included analysis of profitability, credit quality, operating efficiency, leverage, and liquidity using the most recently available financial and regulatory information for each underlying collateral issuer. We also reviewed historical industry default data and current/near term operating conditions. Using the results of our analysis, we estimated appropriate default and recovery probabilities for each piece of collateral and then estimated the expected cash flows for each security. All deferrals were considered to be defaults and a recovery assumption of 10% on bank issuers and 15% on insurance issuers one year after the actual or projected default occurs was used. As a result of this testing, we believe we will experience a loss of principal on seven securities; and as such, recorded credit OTTI of $12.5 million for five newly impaired and two previously impaired pooled-trust-preferred securities in the 2009 second quarter.
For Regional Banking, we utilized both the income and market approaches to determine fair value. The income approach was based on discounted cash flows derived from assumptions of balance sheet and income statement activity. An internal forecast was developed by considering several long-term key business drivers such as anticipated loan and deposit growth. The long-term growth rate used in determining the terminal value was estimated at 2.5%. The discount rate of 14% was estimated based on the Capital Asset Pricing Model, which considered the risk-free interest rate (20-year Treasury Bonds), market risk premium, equity risk premium, and a company-specific risk factor. The company-specific risk factor was used to address the uncertainty of growth estimates and earnings projections of management. For the market approach, revenue, earnings and market capitalization multiples of comparable public companies were selected and applied to the Regional Banking units applicable metrics such as book and tangible book values. A 20% control premium was used in the market approach. The results of the income and market approaches were weighted 75% and 25%, respectively, to arrive at the final calculation of fair value. As market capitalization declined across the banking industry, we believed that a heavier weighting on the income approach is more representative of a market participants view. For the Insurance reporting unit, management utilized a m
Read the The complete Report
Huntington Bancshares is a multi-state bank holding company. Its subsidiaries conduct a full-service commercial and consumer bankingbusiness engage in mortgage banking lease financing trust services discount brokerage services underwriting credit life and disability insurance selling other insurance products and issuing commercial paper guaranteed by Huntington and providing other financial products and services. Huntington Bancshares Inc. has a market cap of $2.59 billion; its shares were traded at around $4.77 with and P/S ratio of 1.2. The dividend yield of Huntington Bancshares Inc. stocks is 0.8%.
Highlight of Business Operations:
As described in the Credit Risk discussion, credit quality performance continued to be under pressure during the first six-month period of 2009, with nonaccrual loans and leases (NALs) and nonperforming assets (NPAs) both increasing at June 30, 2009, compared with December 31, 2008, and June 30, 2008. The allowance for credit losses (ACL) of $964.8 million at June 30, 2009, was 2.51% of period-end loans and leases and 53% of period-end NALs.Our analysis indicated, as of June 30, 2009, a total of 14 Alt-A mortgage-backed securities and 4 private-label CMO securities could experience loss of principal in the future. The future expected losses of principal on these other-than-temporarily impaired securities ranged from 0.1% to 89.1% of their par value. The average amount of future principal loss was 3.9% of their par value. These losses were projected to occur beginning anywhere from 6 months to as many as 18 years in the future. We measured the amount of credit impairment on these securities using the cash flows discounted at each securities effective rate. As a result, in the 2009 second quarter, we recorded $5.9 million of credit OTTI in our Alt-A mortgage-backed securities portfolio representing additional impairment on four previously impaired securities and one security that was previously not impaired. Credit OTTI of $1.3 million was recorded for three newly impaired and one previously impaired private-label CMO securities in the 2009 second quarter.
The analysis was 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 each security and terms of each securitys structure. The credit review included analysis of profitability, credit quality, operating efficiency, leverage, and liquidity using the most recently available financial and regulatory information for each underlying collateral issuer. We also reviewed historical industry default data and current/near term operating conditions. Using the results of our analysis, we estimated appropriate default and recovery probabilities for each piece of collateral and then estimated the expected cash flows for each security. All deferrals were considered to be defaults and a recovery assumption of 10% on bank issuers and 15% on insurance issuers one year after the actual or projected default occurs was used. As a result of this testing, we believe we will experience a loss of principal on seven securities; and as such, recorded credit OTTI of $12.5 million for five newly impaired and two previously impaired pooled-trust-preferred securities in the 2009 second quarter.
For Regional Banking, we utilized both the income and market approaches to determine fair value. The income approach was based on discounted cash flows derived from assumptions of balance sheet and income statement activity. An internal forecast was developed by considering several long-term key business drivers such as anticipated loan and deposit growth. The long-term growth rate used in determining the terminal value was estimated at 2.5%. The discount rate of 14% was estimated based on the Capital Asset Pricing Model, which considered the risk-free interest rate (20-year Treasury Bonds), market risk premium, equity risk premium, and a company-specific risk factor. The company-specific risk factor was used to address the uncertainty of growth estimates and earnings projections of management. For the market approach, revenue, earnings and market capitalization multiples of comparable public companies were selected and applied to the Regional Banking units applicable metrics such as book and tangible book values. A 20% control premium was used in the market approach. The results of the income and market approaches were weighted 75% and 25%, respectively, to arrive at the final calculation of fair value. As market capitalization declined across the banking industry, we believed that a heavier weighting on the income approach is more representative of a market participants view. For the Insurance reporting unit, management utilized a m
Read the The complete Report
