FIN 4100 Management of Financial Institutions Fall 2019 Assignment 2 – repricing gap analysis and management You may do this assignment individually or with one other person. 1. Obtain the most recent...

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FIN 4100 Management of Financial Institutions Fall 2019 Assignment 2 – repricing gap analysis and management 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. Indicate the name and state of the bank you select, as well as the FDIC certificate number. [You can find Call Reports by searching the FDIC’s Institution Directory.] 2. From the call report obtain the maturity and repricing data for securities, loans and leases, and for deposit liabilities. Enter the amounts on a table with columns: maturities 3m >3m-1y >1y-3y >3y-5y >5y-15y >15y assets Securities MBS pass-throughs Other MBS Loans 1-4 family Other loans liabilities Brokered deposits 250k Brokered deposits >250k Time deposits 250k Time deposits >250k In addition, obtain the total savings deposits (in both “money market deposit accounts” and “other savings deposits” [Information for: securities is in schedule RC-B with a notation in the right margin M.2.a.1. through M.2.a.6., M.2.b.1. through M.2.a.6., and M.2.c.1 and M.2.c.2.; loans and leases is in schedule RC-C Part 1 with a notation in the right margin M.2.a.1. through M.2.a.6., and M.2.b.1. through M.2.a.6.; brokered deposits is in schedule RC-E with a notation in the right margin M.1.d.1. and M.1.d.3.; time deposits is in schedule RC-E with a notation in the right margin M.3.a.1. through M.3.a.4. and M.4.a.1. through M.4.a.4.; MMDAs and other savings deposits is in in schedule RC-E with a notation in the right margin M.2.a.1. and M.2.a.2.] 3. Assume a run-off percentage for total MMDA and other savings deposits between 15% and 50%, that occurs in the >3m-1y maturity range. 4 Compute the total rate sensitive assets (RSA) and rate sensitive liabilities (RSL) for maturity ranges: “3 months or less”; “over 3 months through 1 year”; “over 1 year through 3 years”; and “over 3 years”. When computing these totals: Include all “other MBS” assets from the “<3y” maturity="" range="" in="" the="" “over="" 1="" year="" through="" 3="" years”="" total.="" include="" all="" assets="" from="" the="" “="">3y-5y”, “>5y-15y”, and “>15y” ranges in the “over 3 years” total. Include all brokered deposits in the “over 3 months through 1 year” total. Include all expected runoff from MMDA and savings deposits in the “over 3 months through 1 year” total. 5. Compute the repricing gap for: three months or less, over three months through 12 months, over one year through three years, over three years. 6. Identify which repricing gaps have reinvestment risk and which have refinancing risk. 7. Compute the cumulative gap (CGAP) for one year, three years, and over three years. 8. Identify which cumulative gaps have reinvestment risk and which have refinancing risk. 9. Describe the expected effect on annual net interest income (NII) if over the next three months interest rates on RSA and RSL are expected to: a. decrease by 0.25% (25 basis points). b. increase by 0.50% (50 basis points). 10. Describe the expected effect on annual NII if over the next twelve months interest rates on RSA and RSL are expected to increase by 1.25%. 11. Describe the expected effect on net interest income if over the next twelve months interest rates on RSA are expected to increase by 150 basis points and interest rates on RSL increase by 100 basis points. 12a. For the worst outcome from the four scenarios in questions 9 through 11, describe what actions the bank’s management should take with respect to RSA and RSL to minimize the risk associated with the expected change in interest rates? (Be specific about the maturity of the assets and liabilities for which changes are recommended.) b. If the bank follows the recommendations from part a, i. what affect will the changes in assets will have on the bank’s interest income, ii. what effect the recommended change in liabilities will have on the bank’s interest expense, and iii. what will the net effect on the change in the bank’s net interest income be?