Huntington National Bank 2011 Annual Report Download - page 84

The following table shows the economic value sensitivity of select portfolios to changes in market interest
rates. The change in economic value for each portfolio is measured as the percent change from the base economic
value for that portfolio. For the +200 basis points scenario, total net tangible assets decrease in value 3.1% to
changes in market interest rates, while total net tangible liabilities increase in value 2.9% to changes in market
interest rates. EVE at risk for the +200 basis points scenario is liability sensitive because of the decrease in
economic value of total net tangible assets, which reduces the EVE, and the increase in economic value of total
net tangible liabilities, which also reduces the EVE.
Table 25 — Economic Value Sensitivity
Percent of
Total Net
Tangible
Assets(1)
Percent Change in Economic Value for
a Given Change in Interest Rates
Over/(Under) Base Case Parallel
Shocks
Basis point change scenario ................................ –200 –100 +100 +200
Total loans .............................................. 74% 1.1% 0.9% –1.3% –2.6%
Total investments and other earning assets ..................... 17 2.3 2.2 –2.9 –6.0
Total net tangible assets(2) ................................. 1.3 1.2 –1.5 –3.1
Total deposits ........................................... 80 –1.9 –1.3 1.6 3.1
Total borrowings ......................................... 8 –1.0 –0.7 0.8 1.6
Total net tangible liabilities(3) .............................. –1.8 –1.2 1.5 2.9
(1) At December 31, 2011.
(2) Tangible assets excluding ALLL.
(3) Tangible liabilities excluding AULC.
MSR
(This section should be read in conjunction with Note 6 of the Notes to the Consolidated Financial
Statements.)
At December 31, 2011, we had $137.4 million of capitalized MSRs representing the right to service $15.9
billion in mortgage loans. Of this $137.4 million, $65.0 million was recorded using the fair value method, and
$72.4 million was recorded using the amortization method.
MSR fair values are very sensitive to movements in interest rates as expected future net servicing income
depends on the projected outstanding principal balances of the underlying loans, which can be greatly reduced by
prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage
interest rates rise. We have employed strategies to reduce the risk of MSR fair value changes or impairment. In
addition, we engage a third party to provide valuation tools and assistance with our strategies with the objective
to decrease the volatility from MSR fair value changes. However, volatile changes in interest rates can diminish
the effectiveness of these hedges. We typically report MSR fair value adjustments net of hedge-related trading
activity in the mortgage banking income category of noninterest income. Changes in fair value between reporting
dates are recorded as an increase or a decrease in mortgage banking income.
MSRs recorded using the amortization method generally relate to loans originated with historically low
interest rates, resulting in a lower probability of prepayments and, ultimately, impairment. MSR assets are
included in other assets in the Consolidated Balance Sheets.
Price Risk
Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments
that are carried at fair value and subject to fair value accounting. We have price risk from trading securities,
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