Huntington National Bank 2008 Annual Report Download - page 60

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Table34—NetInterestIncomeatRisk
Net Interest Income at Risk (%)
Basis point change scenario –200 –100 +100 +200
Board policy limits –4.0% –2.0% –2.0% –4.0%
December 31, 2008 –0.3% –0.9% +0.6% +1.1%
December 31, 2007 –3.0% –1.3% +1.4% +2.2%
The net interest income at risk reported as of December 31, 2008 for the ‘‘+200 basis point scenario” shows a change from the
prior year to a lower near-term asset sensitive position, reflecting actions taken by us to reduce net interest income at risk. The
factors contributing to the change include:
– 1.9% incremental liability sensitivity reflecting the execution of $2.5 billion of receive fixed-rate, pay variable-rate interest
rate swaps, and the termination of $0.2 billion of pay fixed-rate, receive variable-rate interest rate swaps during the 2008
first quarter.
– 1.6% incremental asset sensitivity reflecting improved rate-deposit-pricing and balance-sensitivity models in the 2008 fourth
quarter. The impact of these improved models, discussed above, resulted in significantly less sensitivity to changes in market
interest rates.
– 1.6% incremental liability sensitivity reflecting the execution of a net increase of $2.3 billion of receive fixed-rate, pay
variable-rate interest rate swaps during the 2008 fourth quarter.
– 0.9% incremental asset sensitivity reflecting the receipt of $1.4 billion of equity capital resulting from the TARP voluntary
CPP funds during the 2008 fourth quarter (see “Capital” section).
The remainder of the change in net interest income at risk “+200” basis points was primarily related to slower growth in fixed-rate
loans and a shift in deposits towards fixed-rate time deposits from money market accounts, offset by the impact of slower
prepayments on mortgage assets.
The primary simulations for EVE at risk assume immediate “+/-100” and ‘‘+/-200” basis point parallel shifts in market interest
rates beyond the interest rate change implied by the current yield curve. The table below outlines the December 31, 2008, results
compared with December 31, 2007. All of the positions were well within the board of directors’ policy limits.
Table 35 — Economic Value of Equity at Risk
Economic Value of Equity at Risk (%)
Basis point change scenario –200 –100 +100 +200
Board policy limits –12.0% –5.0% –5.0% –12.0%
December 31, 2008 –3.4% –1.0% –2.6% –7.2%
December 31, 2007 –0.3% +1.1% –4.4% –10.8%
The EVE at risk reported as of December 31, 2008 for the “+200 basis point scenario” shows a change from the prior year to a
lower long-term liability sensitive position. The factors contributing to the change include:
– 3.0% incremental asset sensitivity reflecting improved rate-deposit-pricing and balance-sensitivity models in the 2008 fourth
quarter. The impact of these improved models, discussed above, resulted in significantly less sensitivity to changes in market
interest rates.
– 1.9% incremental asset sensitivity reflecting the receipt of $1.4 billion of equity capital resulting from the TARP voluntary
CPP funds during the 2008 fourth quarter (see “Capital” section).
The remainder of the change in EVE at risk “+200” basis points was primarily related to slower growth in fixed-rate loans, a shift
in deposits towards fixed-rate time deposits from money market accounts, and the impact of expected faster prepayments on
mortgage assets going forward, offset by the net increase in receive fixed-rate, pay variable-rate interest rate swaps executed during
2008.
Mortgage Servicing Rights (MSRs)
(This section should be read in conjunction with Significant Item 4.)
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
58
Management’s Discussion and Analysis Huntington Bancshares Incorporated