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%.

Richmond State Bank
Balance Sheet at December 31, 2018
			Amount	Duration
			($ millions)	(years)
Assets
Cash and Cash items			$8.00	0.00
Reserves at Fed			3.00	0.00
Securities:
Less than 1 year			41.00	0.40
1 - 2 years			3.00	1.60
Greater than 2 years			8.00	4.16
Residential mortgages:
Variable-rate			30.00	0.40
Fixed-rate (30 years)			15.00	10.30
Commercial loans:
Less than 1 year			47.00	0.90
1 - 2 years			36.00	1.80
Greater than 2 years			25.00	15.00
Building and Equipment			10.00	0.00
Other Assets			1.00	0.00
Total Assets			$227.00
			Amount	Duration
			($ millions)	(years)
Liabilities
Checkable deposits			$9.00	1.00
Money market demand accounts			8.00	0.80
Savings deposits			20.00	1.00
Certificates of deposit:
Variable-rate			52.00	0.90
Less than 1 year			21.00	0.30
1 - 2 years			17.00	1.80
Greater than 2 years			4.00	8.00
Fed funds borrowed			15.00	0.01
Borrowings:
Less than 1 year			40.00	0.40
1 - 2 years			9.00	1.20
Greater than 2 years			26.00	12.00
Other liabilities			1.00	0.00
Total Liabilities			$222.00
Equity Capital			$5.00
Total Liabilities and Equity			$227.00

Part A (2.5 points) To prepare your presentation for the bank officers, you anticipate and answer the following questions (Show your work and carry all numbers out 3 decimal places.)

A) What is the total for interest-rate-sensitive assets for the bank?

B) What is the total for interest-rate-sensitive liabilities for the bank?

C)What is the ISGAP of the bank?

D) If interest rates increase by 2.5%, what will be the estimated change in net interest income for the bank?

E) What is the weighted average duration of total assets for the bank?

F) What is the weighted average duration of total liabilities for the bank?

G) What is the duration gap of capital for the bank?

H) If interest rates increase by 2.5%, what will be the expected change in the market value of capital for the bank?