Graduate School of Banking at LSU
Asset/Liability Management II – Bank Study Project
Part I – Bank Research
Provide a one-page description of your bank and its business model (Retail residential, Commercial, or
Agricultural orientation. Mixed?). Please also provide a summary of the competitive landscape (what
geographical markets does the bank operate in? And who are your primary competitors each market?) Lastly,
describe your role and responsibilities in helping the bank succeed?
Part II – Earnings Performance
With the use of the Uniform Bank Performance Report (UBPR), compare the Bank’s net interest margin trends
with its PEERs over the past 3-years. For newly chartered banks, the time frame may be shortened. Pay close
attention to pages 1-4 and page 6 in the UBPR. Note important trends you see in the following…
a) Balances for Investments and Loans (volume and mix)
b) Investment and Loan Yields
c) Balances for Non-Maturity Deposit, Time Deposit, and Borrowings (volume and mix)
d) Non-maturity deposit, Time Deposit, and Borrowing costs
Explain what factors caused variations in both net interest margin (NIM) and net interest income (NII) during
this period.
Please provide your Bank’s UBPR (ie. FDIC Certificate) number with this analysis.
Obtain a copy of your bank’s ALCO report or Risk Management Report. With the help of these materials,
as well as the Call report or UBPR, discuss your bank’s balance sheet risk posture.
Part III – Capital
Describe your bank’s capital position.
a) How do the Tier 1 leverage and Risk Based Capital Ratios compare to regulatory minimums? Internal
policy targets/minimums?
b) How much support for loss do your capital ratios support before reaching regulatory minimums?
Internal policy targets/minimums?
c) How much growth can your bank’s capital position support before reaching regulatory minimums?
Internal policy targets/minimums?
Assess the strength in your banks’ capital position (weak, modest, or strong). Please explain.
Part IV - Liquidity
Describe your banks liquidity posture.
a)
b)
c)
d)
e)
f)
Quantify the bank’s cash liquidity position.
Quantify the banks’ total available investment collateral position (assume a 5% haircut).
Is your bank a member of the FHLB system? If so, quantify total loan collateral (net of haircuts).
How much collateral is already pledged? Quantify Net Available Collateral (investments and loans).
Does your bank have bonds available-for-sale that are not included in the above collateral numbers?
Does your bank have any other unsecured funding alternatives (e.g. fed funds lines, internal policy
authorized access to the brokered deposit markets, etc.)? If so, quantify how much (volume and mix)?
Assess the strength in your banks’ liquidity position (weak, modest, or strong). Please explain.
Part V – Interest Rate Risk
Describe your Bank’s interest rate risk position.
a) Is the bank structurally asset sensitive or liability sensitive? What should this mean for margins if
interest rates rise or fall? If your bank uses a static gap, describe the bank’s current cumulative GAP
positions (6-month, 1-year, and 2-year). Explain what the GAP figures indicate regarding the bank’s
interest rate risk posture.
b) Does your bank have longer duration assets or liabilities on average? Is option risk (cash flow
variability) an issue? If your bank conducts an economic value of equity (EVE) sensitivity analysis,
discuss the EVE and the EVE/EVA ratio in the 0 rate shock scenario. Explain what happens to EVE
and the EVE/EVA ratio if rates move suddenly (higher or lower) and interpret the implications of the
results.
c) Examine the earnings (or margin) sensitivity simulation/analysis. Explain what happens to earnings
(or margin) if rates remain flat vs. what happens if rates rise and fall. Why do these trends occur as
they do? Do these results differ from expectation in the above GAP analysis? If so, why?
Assess the significance of your bank’s interest rate risk position (low, moderate, high). Please explain. How
do the GAP, earnings sensitivity, and/or EVE sensitivity levels compare to your banks policy risk parameters
(i.e. risk tolerance)? Reflect on the current economic environment and expectations for future interest rates. Is
your bank positioned to perform better or worse if broad market expectations materialize?
Part VI – Extra Credit
Given your assessment of risk in Parts III, IV, and V, offer your opinion on the level of urgency your bank
should have in addressing liquidity, capital, or interest rate risk exposure(s) – versus earnings/margin
maintenance. Which items do you have the highest/lowest level of concern? In general, explain what are
strategies you might recommend to address these issues?
PLEASE CONTACT PAUL CRETIEN AT (Cretien619@aol.com)
WITH ANY QUESTIONS YOU MAY HAVE.