Strategic Restructuring at a Hypothetical S&L

Simplified balance sheets of a hypothetical S&L, which show the process of the three major areas discussed above (1-rate exposure, 2-size, 3-diversity). It also points out, that the achievement of this goals is not easy, as well as it illustrates the close connection between considerations of longer-term business mix and short-term asset-liability management.  
 
Hypothetical Thrift Balance Sheet (in millions of dollars)                           Example of Strategic Restucturing at a Hypothtical S&L
                             
Present position     3 years   Phase 1       3 years       Phase 2  
almost a solely mortgage trader (82% of its assets)                            
Assets         Assets               Assets  
                             
Cash and Federal funds $ 200       comparable (relative to size) to commercial banks               Cash and Federal funds $ 200
Mortgage loans receiveable $4,000       average repricing interval: 1 month -> reducing I/R risk               Mortgage loans  
    GOALS: Net woth ratio above 4%         GOALS: Replace $ 9.9 billion mortgages with ARMs       Fixed rate $ 3,100
      Grow $ 7 billion-earning assets           Grow $ 7 billion-earning assets       Adjustable rate $ 2,000
      Diversify into other aeras   Commercial Loans $ 1,000     Originate another $ 1.1 billion of ARM loans       Commercial Loans $ 1,000
Securities $ 500   Maturity ratio min 50%           (One month pricing interval)       Securities $ 800
Real estate and other assets $ 200               Increase securities portfolio->shorten asset life       Real estate and other assets $ 300
  $4,900 CONSEQUENCES:     $ 1,000   CONSEQUENCES:       $ 7,400
    Net wort ratio has fallen to 4.9%         Fixed rate loans, at $ 3.1 billion fall to 42% of total assets        
Maturity Ratio: 18% -> highly exposed to rising I/R Increasing the assets by 20% within 3 yrs period         ARMs account nearly 40% of an average maturity of 7 yrs.        
    Deliberate mismatch in order to reduce I/R risk         Thereby aiding to shorten asset life        
Liabilities and Equity   Yet maturity ratio has increased to only 20%   Liabilities     Maturity Ratio above 50%     Liabilities  
make up the bulk of liabilities                            
Deposits $3,900       Deposit growth $ 960             Deposits $ 5,970
FHLB advances $ 400       one year deposits ->               FHLB advances $ 650
Mortgage-backed bonds $ 350       -> maturity mismatch to its counterpart: commercial loans               Mortgage-backed bonds $ 490
Equity $ 250       Equity growth $ 40             Stockholder' Equity $ 290
  $4,900         $ 1,000               $ 7,400
          increase in stockholder's equity                  
          assumtion 2% net interest margin on the commercial loans                 © Richard Weberberger