Reference no: EM132209854
Financial Management Assignment - Analyzing a bank's repricing risk
You may do this assignment individually or with one other person.
1. Obtain the most recent Call Report for a bank located in a state other than Utah (Do not use Forcht Bank in Lexington, Kentucky).
You can access Call Reports on the FDIC website. Under the "Industry Analysis" menu, select "Bank Data & Statistics" and "Institution Directory". Enter the desired state (or city and state) in the form and click "search". This will provide a list of institutions in the selected state sorted by total assets. You can sort instead by name of the bank or other listed variables. Find the bank you want to use for this assignment and click on the "cert" number (i.e., the bank's FDIC certificate numbers). On the screen that appears, click on "FFIEC Call/TFR Report.
2. From the call report obtain the maturity and repricing data for securities (in schedule RB-C), loans and leases (in schedule RC-C), and for deposit liabilities (in schedule RC-E). Enter the amounts on a table with columns:
"securities",
"loans and leases", and
"deposit liabilities"
and rows:
"three months or less",
"over three months through 12 months",
"over one year through three years",
"over three years through five years",
"over five years through 15 years", and
"over 15 years"
In addition, obtain the total savings deposits (both "money market deposit accounts" and "other savings deposits" from schedule RC-E).
(If the bank's Call Report does not provide detail for all six maturity ranges, use the maturity ranges for which data is provided in the Call Report.)
3a. Calculate the ratio of total savings to the sum of total savings and total risk sensitive liabilities.
b. Assume a run-off percentage between 10% and 45% and assume that include half of the expected run-off as risk sensitive liabilities in the 3 month or less bucket and the other half in the over 3 months through 12 months bucket..
c. Compute the total rate sensitive assets and rate sensitive liabilities for maturity ranges: three months or less; over 3 months through 12 months; over 1 year through 3 years; and over three years. (Be sure to include all risk sensitive assets that reprice after three years in the over three year range.)
4. Compute the repricing gap for:
three months or less,
over three months through 12 months,
over one year through three years,
over three years.
5. Compute the cumulative gap for one year, three years, and over three years.
6. Identify which maturity ranges and cumulative ranges have reinvestment risk and which have refinancing risk.
7. Describe the expected effect on net interest income for assets that reprice within one year if the interest rate on rate sensitive assets and liabilities decreases by 75 basis points.
8. Describe the expected effect on net interest income for assets the reprice within three years if the interest rate on rate sensitive assets and liabilities increase by 1.25%.
9. Describe the expected effect on net interest income for assets that reprice within one year if the interest rate on rate sensitive assets increases by 50 basis points and the interest rate on rate sensitive liabilities increases by 75 basis points.
10. Describe the expected effect on net interest income for assets that reprice within three years if the interest rate on rate sensitive assets decreases by 1% and the interest rate on rate sensitive liabilities decreases by 75 basis points.
11. Select one of the four scenarios described above. If the bank's management expects interest rates to change as described in that scenario, what actions should the bank take with respect to rate sensitive assets and liabilities in preparation for the expected change in interest rates and explain what affect the recommended changes will have on the bank's net interest income?