EXHIBIT 7.3
Expected Changes in Net Interest Income from a Change in (A) the Level
of Rates, (B) the Spread, (C) Asset Size (Volume), and (D) Balance Sheet
Mix
A. 1% Increase in Level of All Short-Term Rates
Rate sensitive
Fixed-rate
Nonearning/Nonpaying
Assets
$500
350
Yield Rates
Liabilities
Interest Costs
7%
9%
$600
220
3%
4
150
100
Equity
80
Total
$1,000
$1,000
Net interest income
0.07($500) +0.09($350) - 0.03 ($600) - 0.04($220)
$66.50-$26.80
$39.70
Net interest margin
$39.70/$850 = 4.67%
GAP
$500-$600-$100
B. 1% Decrease in Spread between Asset Yields and Interest Costs
Rate sensitive
Fixed-rate
Nonearning/Nonpaying
Assets
Yield Rates
Liabilities
Interest Costs
$500
6.5%
3.5%
350
9
150
$1,000
Total
Net interest income
0.065($500) +0.09($350) - 0.035($600) - 0.04($220)
$64.00-$29.80
$34.20
GAP
Net interest margin $34.20/$850-4.02%
$500-$600-$100
C. Proportionate Doubling of Size
Rate sensitive
Fixed-rate
Nonearning/Nonpaying
Assets
$1,000
Yield Rates
Liabilities
6%
700
9
300
Interest Costs
2%
4
$1,200
440
200
Equity
160
Total
$2,000
$2,000
Net interest income
0.06($1,000) +0.091 ($700) -0.02($1,200) - 0.04 ($440) = $81.40
$81.40/$1,700-4.79%
$1,000-$1,200-$200
GAP
D. Increase in RSAs and Decrease in RSLS
Rate sensitive
Fixed-rate
Nonearning/Nonpaying
Assets
$540
Yield Rates
Liabilities
Interest Costs
6%
$560
2%
310
9
260
4
150
100
Equity
80
$1,000
$1,000
Total
Net interest income = 0.06($540) +0.09($310) -0.02($560) - 0.04($260)
= $60.30-$21.60
= $38.70
Net interest margin
GAP
$38.70/$850 = 4.55%
$540-$560-$20
Note: RSAs are rate sensitive assets; RSLs are rate sensitive liabilities.
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