The management of Richmond State Bank has asked you to examine the interest rate risk of the bank. Management is concerned that interest rates will increase by the end of the year and wants to see what would happen to the relative profitability of the bank if the increase actually occurs.   

The Balance Sheet at December 31, 2018 is attached to this project and presented in the accompanying Excel file. Also provided are the durations for the assets and liabilities. Other information you may need for your analysis is:

1). 10% of Fixed-rate mortgages mature within the next year.

2). 15% of Checkable deposits and 22% of Savings deposits are rate sensitive.

3). Reserves at the Fed DO earn interest and are considered a rate sensitive asset.

4). Current market rates are 4%.

Calculate 

a). the total interest-rate-sensitive assets and liabilities, 

b). the weighted average duration of total assets and total liabilities,  

c). the duration gap of capital of the bank.

 

Transcribed Image Text:

A в E F H. 2. Richmond State Bank 3 Balance Sheet at December 31, 2018 4 Amount Duration ($ millions) (years) 6 7 Assets 8 Cash and Cash items $8.00 0.00 Reserves at Fed 3.00 0.00 10 Securities: Less than 1 year 1- 2 years Greater than 2 years Residential mortgages: 11 41.00 0.40 12 3.00 1.60 13 8.00 4.16 14 15 Variable-rate 30.00 0.40 16 Fixed-rate (30 years) 15.00 10.30 17 Commercial loans: Less than 1 year 1- 2 years Greater than 2 years Building and Equipment 18 47.00 0.90 19 36.00 1.80 20 25.00 15.00 21 10.00 0.00 22 Other Assets 1.00 0.00 23 Total Assets $227.00 24 25 26 Amount Duration 27 ($ millions) (years) Liabilities Checkable deposits Money mark et demand accounts Savings deposits Certificates of deposit: 28 29 $9.00 1.00 30 8.00 0.80 31 20.00 1.00 32 33 Variable-rate 52.00 0.90 34 Less than 1 year 21.00 0.30 1 -2 years Greater than 2 years 35 17.00 1.80 36 4.00 8.00 37 Fed funds borowed 15.00 0.01 Воmowings: Less than 1 year 1 - 2 years Greater than 2 years Other liabilities 38 39 40.00 0.40 40 9.00 1.20 41 26.00 12.00 42 1.00 0.00 43 Total Liabilities $222.00 44 45 Equity Capital $5.00 46 Total Liabilities and Equity $227.00 47 48 mmmnm m A в E F H. 2. Richmond State Bank 3 Balance Sheet at December 31, 2018 4 Amount Duration ($ millions) (years) 6 7 Assets 8 Cash and Cash items $8.00 0.00 Reserves at Fed 3.00 0.00 10 Securities: Less than 1 year 1- 2 years Greater than 2 years Residential mortgages: 11 41.00 0.40 12 3.00 1.60 13 8.00 4.16 14 15 Variable-rate 30.00 0.40 16 Fixed-rate (30 years) 15.00 10.30 17 Commercial loans: Less than 1 year 1- 2 years Greater than 2 years Building and Equipment 18 47.00 0.90 19 36.00 1.80 20 25.00 15.00 21 10.00 0.00 22 Other Assets 1.00 0.00 23 Total Assets $227.00 24 25 26 Amount Duration 27 ($ millions) (years) Liabilities Checkable deposits Money mark et demand accounts Savings deposits Certificates of deposit: 28 29 $9.00 1.00 30 8.00 0.80 31 20.00 1.00 32 33 Variable-rate 52.00 0.90 34 Less than 1 year 21.00 0.30 1 -2 years Greater than 2 years 35 17.00 1.80 36 4.00 8.00 37 Fed funds borowed 15.00 0.01 Воmowings: Less than 1 year 1 - 2 years Greater than 2 years Other liabilities 38 39 40.00 0.40 40 9.00 1.20 41 26.00 12.00 42 1.00 0.00 43 Total Liabilities $222.00 44 45 Equity Capital $5.00 46 Total Liabilities and Equity $227.00 47 48 mmmnm m A в E F H. 2. Richmond State Bank 3 Balance Sheet at December 31, 2018 4 Amount Duration ($ millions) (years) 6 7 Assets 8 Cash and Cash items $8.00 0.00 Reserves at Fed 3.00 0.00 10 Securities: Less than 1 year 1- 2 years Greater than 2 years Residential mortgages: 11 41.00 0.40 12 3.00 1.60 13 8.00 4.16 14 15 Variable-rate 30.00 0.40 16 Fixed-rate (30 years) 15.00 10.30 17 Commercial loans: Less than 1 year 1- 2 years Greater than 2 years Building and Equipment 18 47.00 0.90 19 36.00 1.80 20 25.00 15.00 21 10.00 0.00 22 Other Assets 1.00 0.00 23 Total Assets $227.00 24 25 26 Amount Duration 27 ($ millions) (years) Liabilities Checkable deposits Money mark et demand accounts Savings deposits Certificates of deposit: 28 29 $9.00 1.00 30 8.00 0.80 31 20.00 1.00 32 33 Variable-rate 52.00 0.90 34 Less than 1 year 21.00 0.30 1 -2 years Greater than 2 years 35 17.00 1.80 36 4.00 8.00 37 Fed funds borowed 15.00 0.01 Воmowings: Less than 1 year 1 - 2 years Greater than 2 years Other liabilities 38 39 40.00 0.40 40 9.00 1.20 41 26.00 12.00 42 1.00 0.00 43 Total Liabilities $222.00 44 45 Equity Capital $5.00 46 Total Liabilities and Equity $227.00 47 48 mmmnm m A в E F H. 2. Richmond State Bank 3 Balance Sheet at December 31, 2018 4 Amount Duration ($ millions) (years) 6 7 Assets 8 Cash and Cash items $8.00 0.00 Reserves at Fed 3.00 0.00 10 Securities: Less than 1 year 1- 2 years Greater than 2 years Residential mortgages: 11 41.00 0.40 12 3.00 1.60 13 8.00 4.16 14 15 Variable-rate 30.00 0.40 16 Fixed-rate (30 years) 15.00 10.30 17 Commercial loans: Less than 1 year 1- 2 years Greater than 2 years Building and Equipment 18 47.00 0.90 19 36.00 1.80 20 25.00 15.00 21 10.00 0.00 22 Other Assets 1.00 0.00 23 Total Assets $227.00 24 25 26 Amount Duration 27 ($ millions) (years) Liabilities Checkable deposits Money mark et demand accounts Savings deposits Certificates of deposit: 28 29 $9.00 1.00 30 8.00 0.80 31 20.00 1.00 32 33 Variable-rate 52.00 0.90 34 Less than 1 year 21.00 0.30 1 -2 years Greater than 2 years 35 17.00 1.80 36 4.00 8.00 37 Fed funds borowed 15.00 0.01 Воmowings: Less than 1 year 1 - 2 years Greater than 2 years Other liabilities 38 39 40.00 0.40 40 9.00 1.20 41 26.00 12.00 42 1.00 0.00 43 Total Liabilities $222.00 44 45 Equity Capital $5.00 46 Total Liabilities and Equity $227.00 47 48 mmmnm m

Answer rating: 100% (QA)

a Interest Rate Sensitive Assets Amount in Securities with maturity less than 1 year 41 Variable Rate Residential Mortgage 30 10 of Fixed Rate Residen... View the full answer