The data on the next page are taken from the 2013 annual report which reported 8
ID: 2540228 • Letter: T
Question
The data on the next page are taken from the 2013 annual report which reported 812 million in NII before provisions and 26.3 billion in average assets in 2013...
1.) what were the banks spread and NIM (net interest margin) in 2013 ? why do the two differ?
TABLE 4 (continued) 2013 (dollars irn thousands) Net interest income/ margin Less Taxable-equivalent adjustment NET INTEREST INCOME, ACTUAL Yiel Balance Interest Rat 812,376 3.40' Average 2,184 810,192 (1)Average loans are shown net of deferred fees and costs. Non-performing loans are included (2)Interest income includes loan fees as follows: 2013-$25.6 million, 2012-$19.8 million, and 2011-$17.3 million (3) Reflects taxable-equivalent adjustments, using the statutory federal tax rate of 35%, adjusting interest on tax-exempt loans and investment securities to a taxable-equivalent basis. (4)Includes average net unrealized gains on investment securities available for sale of $12.0 million, $66.3 million, and $98.6 million for the years ended December 31, 2013, 2012, and 2011, respectively.Explanation / Answer
From the given financial data,
the bank spread is 3.89% - 0.68% = 3.21%; while the actual yield of NII is 3.40%.
In figures,
the average interest receipts based on bank spread data = $ 23,909,192x 3.89% = $ 930,067.5688
the average interest paid based on bank spread data = $ 17,473,497x0.68% = $ 118,819.7796
Bank spread in $ = $ 811,247.7892
while,
Net Interest Income/ Margin = $812,376 (before adjustments)
The difference exists between bank spread and NII, because, Bank spread is calculated on average basis, the average rate of deposits and average rates of loans are taken for which, the deposits might be of different life and so the loans.
But coming to NII, the NII is calculated based on actual interest received and actual interest paid. So, difference exists between them normally.
Hope it is helpful!!
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