You are analyzing the exposure of State Banks income to interest rate risk. Your analysis uses the repricing model with a one-year horizon and you collected the balance sheet information below.

RSA (one-year horizon) = $200M

List of Liabilities

Checking deposits = $135M

One-month CDs =$45M

Three-month CDs = $135M

Two-year time deposits = $90M

Six-month debt = $45M

Additionally, you decided to make the following assumptions:

• A 1.0 percentage point increase (decrease) in the market rate leads to a 0.6 percentage point increase (decrease) in the rate paid on new time deposits.
• A 1.0 percentage point increase (decrease) in the market rate leads to a 1.0 percentage point increase (decrease) in the rate paid on other rate-sensitive liabilities or assets.

Following this approach, what is the effect of a decrease in the market rate by 1.0 percentage point on the banks net interest income (NII) over a one-year horizon?

+$0.34M

-$2.0M

+$0.88M

+$0.25M

-$0.47M