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ANALYSIS OF INTEREST RATE SENSITIVITY you find net interest income (NII) as a percentage of In Chapter 7, the focus is interest rate risk management. Reg- total assets (TA). This is one calculation of NIM. You ulatory agencies began to collect relevant information in the may have noticed from a footnote in Chapter 6 that 1980s when large numbers of thrift institutions failed due to sometimes NIM is calculated using total assets as the their interest rate risk exposure at a time when market rates denominator, and sometimes total earning assets (TEA) were increasing both in level and volatility. You will find Inter- is used as the denominator as illustrated in Equation est Rate Risk Analysis or Interest Sensitivity Reports included (7-5). To transform the first measure of NIM(NII/TAA) in both the UBPR and the Bank Holding Company Performance to the second measure using TEA, we need to col- Report (BHCPR) as described in the appendix to Chapter 6. lect one more item from the FDIC's website. Using the Both reports are available at www.ffiec.gov. This is one area directions in Chapter 5's assignment, go to the FDIC's where measurement within banks and BHCs is more sophis- Statistics for Depository Institutions, www2.fdic ticated than the measures used by regulatory agencies. For .gov/sdi/, and collect from the Memoranda section of instance, to date none of the regulatory agencies require their Assets and Liabilities the earning assets as a percent- financial institutions to submit measures of duration gaps. age of total assets for your BHC and its peer group for Part One: NIM: A Comparison to Peers the two periods. We will add this information to this spreadsheet to calculate NIM (NII/TEA) as follows: www.mhhe.com/rosehudgins9e A. Open your Excel Workbook and access the spread- sheet with Comparisons with Peer Group. On line 36, Real Numbers for Real Banks Chapter 7 - Microsoft Excel Home Insert Page Layout Formulas Data Review View % Cut Arial - 9 - A = Wrap Text General AutoSum - Paste aCopy Format Painter BLUE - GAFF Merge & Center - - % " 28 28 Conditional Format Insert Delete Format Fill - Formatting . as Table . Styles ~ 2 Clear - Sort & Find & Filter . Select . Clipboard G Font Alignment Number G Styles Cells Editing A54 fx Interest Sensitivity Analysis B 55 D Interest Sensitivity Analysis AT Peer Group BB&T Peer Group 56 Total Eaming Assets (TEA) 12/31/2010 12/31/2010 12/31/2009 12/31/2009 82.87% 85 18% 83.75% 57 NIM using TEA as denominator 0.70% 0.89% 0.66% 84.32% -0.07% 58 59 14 4 ) H Basic Information Year-to-Year Comparisons Comparisons with Peer Group Ready 1810 1 100% Note: The above spreadsheet has been filled-in with the information for BB&T for 2009 and 2010 for illustrative purposes as directed below: B. Use your formula functions to generate the percentages BB&T in comparison to 96 basis points for the peer group. in row 57. For instance, cell B57 = B36/B56. The percentage change in NIMs was 6.5 percent for BB&T C. Once you have collected the data on NIM, write one para- in comparison to 1353.88 percent for the peer group. The graph discussing interest rate sensitivity for your bank rel- smaller difference/percentage change for BB&T relative to ative to the peer group across the two time periods based the peer group's average for 2010 could have occurred for on the NIM. Discuss what is revealed by the variation of a number of reasons; however, it is indicative that BB&T NIM across time. See the following illustrative paragraph was less exposed to interest rate changes than the average for BB&T using 2009 and 2010 Information. institution over this period
