1. INTEREST RATE SWAP Southwest Savings Association
11.5% Fixed-Rate Obligation in Eurobond Market
S&L pays interest on $15 million at 11.5%
Southwest Savings Association
Commercial Bank Counterparty
Bank Pays Interest on $15 Million at LIBOR + .25%
Variable-Rate Obligation on Deposits

2. SOUTHWEST SAVINGS ASSOCIATION BALANCE SHEET
INTEREST RATE SWAP
SOUTHWEST SAVINGS ASSOCIATION BALANCE SHEET
ASSETS
Adjustable rate loans (10.5%) $25.5 Fixed rate loans (13.50%) $65.8 Non-earning assets $ $95.8
LIABILITIES & NET WORTH
Adjustable rate funds (9.8%) $62.5 Fixed-rate funds (11.85%) $28.8 Net Worth $ $95.8
GAP = $ $62.5 = -$37.0

3. SOUTHWEST SAVINGS ASSOCIATION INCOME STATEMENT
INTEREST RATE SWAP
SOUTHWEST SAVINGS ASSOCIATION INCOME STATEMENT
PROJECTED PRE-TAX EARNINGS
REVENUES: Rate Sensitive Assets $ Fixed-Rate Assets $ $11.561
INTEREST EXPENSE: Rate-Sensitive Liabilities ($6.125) Fixed-Rate Liabilities ($3.413) ($9.538)
PRE-TAX EARNINGS $2.023

4. Projected Pre-Tax Earnings with SWAP and no Interest Rate Change
INTEREST RATE SWAP
Projected Pre-Tax Earnings with SWAP and no Interest Rate Change
REVENUES: Rate Sensitive Assets $ Fixed-Rate Assets Swap Interest Income ($15 at 10.60%) $ INTEREST EXPENSE: Rate-Sensitive Liabilities ($6.125) Fixed-Rate Liabilities (3.413) Swap Payments ($15 at 11.50%) (1.725) ($11.26) PRE-TAX EARNINGS $1.888

5. Projected Pre-Tax Earnings with Interest Rate Increase
INTEREST RATE SWAP
Projected Pre-Tax Earnings with Interest Rate Increase
REVENUES: Rate Sensitive Assets (at 12.30%) $ Fixed-Rate Assets (at 13.50%) $ INTEREST EXPENSE: Rate-Sensitive Liabilities (at 11.10%) ($6.938) Fixed-Rate Liabilities (at 11.85%) (3.413) ($10.351) PRE-TAX EARNINGS $1.669
Without Swap

6. Projected Pre-Tax Earnings with Interest Rate Increase
INTEREST RATE SWAP
Projected Pre-Tax Earnings with Interest Rate Increase
REVENUES: Rate Sensitive Assets (at 12.30%) $ Fixed-Rate Assets (at 13.50%) Swap Interest Income ($15 at 12.20%) $ INTEREST EXPENSE: Rate-Sensitive Liabilities (at 11.10% ($6.938) Fixed-Rate Liabilities (at 11.85%) (3.413) Swap Payments ($15 at 11.50%) (1.725) ($12.076) PRE-TAX EARNINGS $1.774
With Swap

7. Projected Pre-Tax Earnings with Interest Rate Decrease
INTEREST RATE SWAP
Projected Pre-Tax Earnings with Interest Rate Decrease
REVENUES: Rate Sensitive Assets (at 9.50%) $ Fixed-Rate Assets (at 13.50%) $ INTEREST EXPENSE: Rate-Sensitive Liabilities (at 8.90%) ($5.563) Fixed-Rate Liabilities (at 11.85%) (3.413) ($8.976) PRE-TAX EARNINGS $2.330
Without Swap

8. Projected Pre-Tax Earnings with Interest Rate Decrease
INTEREST RATE SWAP
Projected Pre-Tax Earnings with Interest Rate Decrease
REVENUES: Rate Sensitive Assets (at 9.50%) $ Fixed-Rate Assets (at 13.50%) Swap Interest Income ($15 at 9.55%) $ INTEREST EXPENSE: Rate-Sensitive Liabilities (at 8.90%) ($5.563) Fixed-Rate Liabilities (at 11.85%) (3.413) Swap Payments ($15 at 11.50%) (1.725) ($10.701) PRE-TAX EARNINGS $2.038
With Swap