---
title: 4 Reports for Analyzing & Understanding IRR
description: Read this blog by Dave Wicklund, former FDIC examiner, to learn 4 reports for analyzing & understanding your IRR.
image: https://blog.plansmith.com/hubfs/office-3295556_1920%20(1).jpg
---

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# Plansmith Blog

# 4 Reports for Analyzing & Understanding IRR

Posted by [Dave Wicklund](https://blog.plansmith.com/author/dave-wicklund) on 11/18/19 1:48 PM

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Knowing and understanding your organization's risk position is important. Regulators expect you to keep a close eye on your IRR exposure and be ready for a rising rate environment.

Here are four reports to help you measure and monitor your interest rate risk.

**4 Reports for Analyzing & Understanding IRR**

**1. Margin Risk Tolerance**

**How much rate change can your organization absorb?**

- Start with your 12-month NIM projection
- Add non-interest income
- Deduct capital requirements and non-interest expense
- How much can rates change before your cushion goes to zero?

**2. Rate Shocked Margin**

**Will you survive low probability, high impact events?**

- Review your 12- and 24-month horizon of earnings
- Run shocks out to +/-400 bps in 100 bp increments
- What if rates don't move in a parallel fashion?  
    - Run multiple likely and unlikely non-parallel shifts
- Will earnings fall below your minimum required margin? 
    - If so, will capital be jeopardized?

**3. Value-at-Risk**

**MVE, EVE, NEV and MVPE - Whatever you call it, "V" is for value!**

- Bank-specific assumptions are essential:  
    - Prepayment and decay rates have the biggest impact on results
- Focus on how the capital value changes in the shocked scenarios
- Value shouldn't fall below board policy limits

**4. Sensitivity Test**

**Do the analysis again using likely and unlikely assumptions...**

- Change decay rates to the extreme:  
    - Are you still within board limits?
- Change one assumption at a time to identify the greatest vulnerability
- Run multiple scenarios using low probability assumptions: 
    - What's the worst case scenario?

If you have any questions about these reports or IRR in general, **[email us](mailto:advisory@Plansmith.com)** or **[click to schedule a discovery call](https://www4.plansmith.com/contact-us/)**.

 

![Wicklund Head Shot 1-1](https://blog.plansmith.com/hs-fs/hubfs/Wicklund%20Head%20Shot%201-1.jpg?width=109&height=136&name=Wicklund%20Head%20Shot%201-1.jpg)Dave Wicklund  
*Director of ALM Advisory Services*

 

 

 Topics: [interest rate risk](https://blog.plansmith.com/topic/interest-rate-risk), [community bank interest rate risk](https://blog.plansmith.com/topic/community-bank-interest-rate-risk), [interest rate risk management](https://blog.plansmith.com/topic/interest-rate-risk-management), [bank irr reporting](https://blog.plansmith.com/topic/bank-irr-reporting)

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