Bank Analysis School Case Study eBook

Sunny State Bank

EARNINGS - NET INTEREST MARGIN

Net Interest Margin

4.30% 4.30%

(All)

4.20%

20X9Q2

4.10%

20X9Q3

4.00%

Metrics

3.91%

3.87%

20X9Q4

3.90%

3.85%

Bank State All Banks

3.87%

20X0Q1

3.80%

3.74%

3.70%

20X0Q2

3.63%

3.60%

20X0Q3

20X0Q4

20X9Q4

20X0Q4

20X1Q4

20X2Q4

20X3Q4

20X4Q4

20X5Q4

20X1Q1

Yield on Assets

Cost of Funds

20X1Q2

5.20% 5.17%

0.90% 0.88%

20X1Q3

5.00%

0.80%

20X1Q4

0.72%

20X2Q1

4.80%

0.70%

20X2Q2

0.60%

4.60%

0.60%

4.51%

4.59%

20X2Q3

0.53%

4.40%

0.50%

20X2Q4

4.30%

0.43%

20X3Q1

4.29%

4.16%

0.44%

0.44%

4.20%

0.40%

4.18%

20X3Q2

20X3Q3

20X9Q4 20X0Q4 20X1Q4 20X2Q4 20X3Q4 20X4Q4 20X5Q4

20X9Q4 20X0Q4 20X1Q4 20X2Q4 20X3Q4 20X4Q4 20X5Q4

• The Net Interest Margin (NIM) is calcluated as net interest income divided by average earnings assets. Tax-equivalent adjustments are made to enable meaningful comparisons for banks that have tax-exempt income. This ratio measures the proftability of the bank’s primary activities of obtaining funds and making loans and investing (buying and selling money). • The Yield on Assets and Cost of Funds ratios are sub-components of the NIM. The Yield on Assets is calculated as Interest Income/Average Earning Assets and Cost of Funds is calculated as Interest Expenses/Average Earning Assets. Yields and costs related to specifc asset and liability categories on Page 3 of the UBPR can be further analyzed to determine the root causes of NIM changes. These ratios may change for a variety of reasons. For example, management may have restructured the balance sheet, the interest rate environment may have changed, or bank loan and deposit pricing became more or less competitive.