Risk Management and Enhancing Investment Decisions · 2019. 5. 21. · Balance Sheet Solutions, LLC is a SEC Registered Investment Advisor SEC# 801-63345 CRD# 124786. All securities

www.balancesheetsolutions.org

Risk Management and Enhancing Investment Decisions

Patty Moen,Institutional Fixed Income Sales Representative

Michael Finley,Senior Portfolio Analyst


All information contained in this document is the confidential property of Balance Sheet Solutions, LLC.Distribution outside of the credit union is strictly prohibited.

The information contained herein is prepared for general circulation and is distributed for general information only. This information does not consider the specific investment objectives, financial situations or particular needs of any specific individual or organization that may receive this report. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. All opinions, prices, and yields contained herein are subject to change without notice. Investors should understand that statements regarding future prospects might not be realized. Please contact Balance Sheet Solutions to discuss your specific situation and objectives.

Balance Sheet Solutions, LLC only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the affecting or attempting to affect transactions in securities, or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion.

Balance Sheet Solutions, LLC is a SEC Registered Investment Advisor SEC# 801-63345 CRD# 124786

All securities are offered through CU Investment Solutions LLC (ISI). The home office of ISI is located at 8500 W. 110th St., Overland Park, KS 66210. ISI is registered with the Securities and Exchange Commission (SEC) as a broker-dealer under the Securities Exchange Act of 1934. ISI also is registered in the state of Kansas as an investment advisor. Member of FINRA and SIPC. All investments carry risk; please speak with your representative to gain a full understanding of said risks. Securities offered by ISI are not insured by the FDIC or NCUSIF and may lose value. All opinions, prices and yields are subject to change without notice.


Overview

Macro OverviewWhere Have We Been?Where Are We Heading?

Portfolio Risk Management

Enhancing Investment Decisions Bond Analytics Credit Analysis


Market Landscape


Market Landscape:Where Have We Been?


The End of QE: What Happens Next


Everything but the Kitchen Sink

Massive and Unprecedented Monetary Stimulus Zero interest-rate policy (ZIRP) for 7.5

years (92 months) $3.5 trillion of quantitative easing (QE)

Largest U.S. Fiscal Expansion Ever Government debt increased $10 trillion U.S. total debt now $65 trillion (370% of

GDP) U.S. deficit risen by 40% to 105% of GDP


Real GDP is LOWEST Since Great Depression

1.3% Lowest Since Great

Depression!

3-4%


The End of the Bull?

LowerLow

LowerHigh


Yield Curve Continues to Flatten


Agency Spreads Continue to Contract


Bond Market Volatility at Record Low Levels

Record Low


Market Landscape: Where Are We Heading?


In a World Sans ZIRP and QEWill growth accelerate or slow down?Will inflation rise or decline?Will the Fed normalize rates or lower rates? How high/low will rates go?Will the yield curve steepen or flatten?


Will the Fed Follow the Dots?

1.25%

2%

3% 3%


The End of QE: What Happens Next


13 Fed Hiking Cycles: 10 Landed in Recession

Sheet1


Last 10 Rate Hikes Have Led to Financial Crisis


More Questions Than Answers


How Good Are the Fed Forecasts?


Throw Away the Crystal Ball


Portfolio Risk Management


Understanding Risk: Investment Portfolio

Liquidity

Option

CreditYield Curve

Cash Drag


Understanding Risk: Investment Portfolio

Potential Yield Curve Scenarios

Instantaneous and significant changes in rates

Substantial changes in rates over time

Changes in the slope and the shape of the yield curve


A Repeat of 2004 Rate Hike Cycle?

Beginning

End


The Biggest MistakeRelative Performance (12/08-12/16)

Agency Total Return Cash < 1-year 4.50%1-2.9 year 11.04%3-4.9 year 26.76%5-6.9 year 39.37%


Enhancing Investment Decisions



Scope of investment options for credit unions ~ Reg. 703

Suitability and decisions need to fit within your ALM strategy

Comfort level with sectors/structures

Investment policy limitations


Enhancing Investment Decisions Pre and post purchase analysis

• First step is always analyze a particular investment• Bloomberg screenshots• Check-list for each type of security• CDs (show yield/spread comparison to agencies)

Analytics program (BondEdge) to further enhance analysis


Utilizing Portfolio Analytics to Manage Risk and Enhance Investment Making Decisions


How to Select a Fixed Income Analytics Package?

Comprehensive security coverage and functionality

Deliver robust risk/reward analysis

Assists in developing investment strategies

Reports designed to meet regulatory/compliance requirements

Allows CU to focus on higher value added, more strategic work

Saves the CEO/CFO time and resources


Comprehensive Analysis & Reporting

Extensive security coverage Fixed income portfolio analysis & review Cash flow analysis Stress testing and scenario analysis Bond swap analysis Pre-post purchase “what-if” analysis Credit reports (upgrades/downgrades) Called bonds report Independent third-party pricing (IDC pricing)


Summary Overview

Sector Par ($000) Coupon Maturity (Yrs) Avg Life Eff Dur MV w/o Acc (000) Bk Val ($000) Gain/Loss ($000) Bk Yld YTW% Held

(MV)

Cash 10,000 1.250 0.052 0.083 0.052 10,000 10,000 0.00 1.247 1.247 13.750

CDs 16,781 1.356 1.117 1.117 1.095 16,785 16,781 4.01 1.359 1.317 23.070

Treasuries

Non-Callable Agency 17,500 1.477 1.719 1.719 1.679 17,469 17,413 55.17 1.473 1.412 24.080

Callable Agency 2,500 0.875 0.356 0.333 0.355 2,479 2,500 -20.55 0.875 3.238 3.410

Step-Up Agency

Fixed MBS 18,559 3.101 2.170 2.170 1.999 18,858 18,939 -80.81 1.696 1.750 25.930

Fixed CMO 3,944 2.163 3.641 3.641 3.396 3,908 3,966 -57.40 1.936 2.258 5.370

Floating MBS/CMO

Agency CMBS 2,944 3.720 2.534 2.500 2.427 3,190 3,118 72.78 1.351 0.398 4.390

Small Business Admin

Fixed Corporate

Floating Corporate

Taxable Muni

Other

Total: 72,229 1.943 1.560 1.562 1.484 72,690 72,717 -26.80 1.473 1.518 100.000

Summary Analysis


Sector, Coupon & Duration Overview Fixed Income Sector Exposure Quality Distribution

Coupon Distribution Effective Duration

Sector Quality Allocations

Treasury: 0.0%

Agency: 27.5%

Corporate: 0.0%

Non-Corporate: 0.0%

MBS Pass-throughs: 25.9%

CMO: 5.4%

ABS: 0.0%

CMBS: 0.0%

Taxable Municipal: 0.0%

Cash: 36.8%

Other: 4.4%

N/A: 0.0%

Aaa: 72.5%

Aa: 0%

A: 0%

Baa: 0%

Ba: 0%

B: 0%

Caa: 0%

Ca: 0%

C: 0%

D: 0%

NR: 0%

N/A: 27.5%

42.1

48.6

8.5

0.8

0 10 20 30 40 50 60

Neg

0.0 - 1.0

1.0 - 3.0

3.0 - 4.0

4.0 - 6.0

> 8.0

% Held (MV)

10.3

54.9

14.0 13.8

3.4 3.7

0

10

20

30

40

50

60

% He

ld (M

V)


Quantifying Cash Flows Annual Breakdown of Principal Cash Flow over next Five Years

DateInt CF-Gov/Corp Maturity CF Call CF

Int CF-MBS/ABS

Princ CF-MBS/ABS

Prepay CF-MBS Total Int CF

Total Princ CF

Total Cashflow

2018 486 27,413 0 643 5,528 1,789 1,129 34,729 35,8592019 253 6,384 0 429 4,419 1,062 682 11,865 12,5472020 120 12,984 0 288 3,160 623 408 16,767 17,1752021 0 0 0 153 4,080 373 153 4,453 4,6062022 0 0 0 82 1,587 204 82 1,791 1,872

Total 859 46,781 0 1,595 18,774 4,050 2,454 69,605 72,060

0

5000

10000

15000

20000

25000

30000

35000

Jun-2018 Jun-2019 Jun-2020 Jun-2021 Jun-2022

USD

(000

)

Maturity CF Call CF Princ CF-MBS/ABS Prepay CF-MBS


Measuring, Managing and Controlling Risk

Interest Rates/Yield Curve Risk Stress test/scenario analysis Instantaneous/aged/probability weighted Parallel shifts/non-parallel shifts

Spread DurationCredit spread changes for sectors, industries and

issuersMBS spread changes by underlying

collateral/tranche types


NCUA: Focused on “Stress” Testing


NCUA: Focused on “Stress” Testing Parallel Simulation(24-Month Aged)



Type: Aged-Govt Spot Curve

Horizon Months: 12yBalance Sheet Sectors Par (000) Identifier Issuer Name Coupon Maturity

Mkt Val (USD 000) -300 -200 -100 0 100 200 300

Cash 10,000 1.250 Avg Life= 0.1 10,022 0.181 0.280 0.590 1.128 1.668 2.209 2.750 10,000 CASH CASH & EQUIVALENTS 1.250 7/19/2017 10,022 0.181 0.280 0.590 1.128 1.668 2.209 2.750CDs 16,781 1.356 Avg Life= 1.1 16,819 2.130 1.795 1.524 1.365 1.211 1.062 0.919 249 14056MCU CAPITOL BK MADISON WIS 1.000 2/15/2018 249 0.757 0.757 0.858 1.175 1.491 1.807 2.123 247 147748AD CASS CNTY BK INC 1.750 3/30/2020 248 7.306 5.494 3.724 1.995 0.305 -1.348 -2.964 248 12738RCW CADENCE BK N A BIRMINGHAM AL 1.250 2/12/2018 249 0.694 0.694 0.799 1.120 1.441 1.761 2.081 149 14042RAV CAPITAL ONE NATL ASSN VA 1.600 10/15/2018 150 2.271 1.976 1.683 1.396 1.110 0.827 0.546 249 2027505K COMMONWEALTH BUSINESS BK L A 1.500 3/25/2019 249 3.895 3.146 2.409 1.683 0.965 0.257 -0.444 249 27002YCU EAGLEBANK BETHESDA MD 1.100 6/4/2018 249 1.075 1.075 1.091 1.160 1.229 1.298 1.366 249 31114PAD FARMINGTON BANK 1.350 7/24/2018 249 1.437 1.371 1.307 1.246 1.185 1.124 1.064 248 204161AP COMMUNITYBANK TEX N A BEAUMO 1.600 3/16/2020 247 7.195 5.419 3.685 1.990 0.333 -1.289 -2.877 249 24854QAC DENMARK ST BK WIS 1.000 4/30/2018 249 0.828 0.828 0.856 1.019 1.181 1.342 1.504 248 440392FD HORICON BK HORICON WIS 1.500 12/30/2019 247 6.494 4.935 3.409 1.913 0.446 -0.993 -2.403 98 02006LQE ALLY BK MIDVALE UTAH 1.050 4/16/2018 98 0.997 0.998 1.038 1.231 1.423 1.615 1.806 248 92834CBN VISION BK IOWA WEST DES MOIN 1.000 3/15/2018 248 0.724 0.724 0.793 1.055 1.316 1.577 1.838 249 43738AFT HOMEBANC NATL ASSN LAKE MARY 1.200 3/29/2018 249 0.922 0.922 0.976 1.212 1.448 1.683 1.918 100 02587DKM AMERICAN EXPRESS CENTRN 1.750 7/19/2017 101 0.167 0.266 0.576 1.114 1.654 2.194 2.736 249 06426HAL BANK OF OAKFIELD WIS 1.000 5/4/2018 249 0.835 0.836 0.867 1.015 1.162 1.309 1.455 249 08883AAT BIDDEFORD SVGS BANK 1.100 3/6/2018 249 0.628 0.628 0.709 0.987 1.265 1.542 1.819 249 04522BAC ASI FED CR UN HARAHAN LA 1.700 5/1/2020 249 7.614 5.708 3.849 2.035 0.262 -1.470 -3.164 248 05573J4P BMO HARRIS BK NATL ASSN CHIC 1.100 9/22/2017 249 0.236 0.302 0.578 1.084 1.591 2.099 2.607

Total Rate of Return By Security



Type: Instantaneous-Maturity Matched (Govt)

Horizon Months: 12Currency: US

Par (000) Identifier Issuer Name Coupon MaturityMkt Val

(USD 000) YTW Eff Dur -300 -200 -100 0 100 200 300100 02587DKM AMERICAN EXPRESS CENTRN 1.750 7/19/2017 101 0.996 0.052 100.204 100.151 100.098 100.046 99.994 99.942 99.891

10,000 CASH CASH & EQUIVALENTS 1.250 7/19/2017 10,022 1.247 0.052 100.157 100.104 100.052 100.000 99.948 99.897 99.846250 29266NXJ ENERBANK USA UT 1.400 8/29/2017 250 1.018 0.163 100.559 100.393 100.228 100.064 99.901 99.739 99.578

1,000 3133XMCL FEDERAL HOME LN BKS 4.875 9/8/2017 1,022 1.289 0.190 101.262 101.064 100.867 100.672 100.478 100.285 100.094248 05573J4P BMO HARRIS BK NATL ASSN CHIC 1.100 9/22/2017 249 0.960 0.229 100.724 100.490 100.258 100.027 99.798 99.571 99.346250 431103AR HIGHLANDS ST BK VERNON N J 1.250 9/27/2017 251 0.787 0.243 100.847 100.599 100.353 100.109 99.867 99.626 99.387250 34387AAF FLUSHING BK N Y 1.050 10/2/2017 250 0.797 0.256 100.844 100.583 100.323 100.066 99.811 99.557 99.306249 5L21944 58665 LIVE OAK BANKING COMPA 1.450 10/3/2017 249 1.314 0.258 100.820 100.556 100.295 100.036 99.779 99.523 99.270

99 5L20895 27314 SYNCHRONY BANK 1.150 10/12/2017 99 1.320 0.282 100.810 100.522 100.237 99.953 99.672 99.392 99.115249 58043PCF MCFARLAND ST BK WIS 0.900 10/17/2017 249 1.116 0.296 100.838 100.535 100.236 99.938 99.643 99.350 99.059

2,500 313381WB FEDERAL HOME LOAN BANKS 0.875 11/7/2017 2,487 3.238 0.355 100.057 99.886 99.532 99.178 98.826 98.474 98.125250 90206QAR TWO RIVER CMNTY BK MIDDLETW 1.250 11/14/2017 251 0.821 0.373 101.296 100.915 100.536 100.161 99.789 99.420 99.055248 88413QAH THIRD FED SVGS & LN ASSN OF 1.150 11/21/2017 249 0.840 0.391 101.322 100.920 100.521 100.126 99.734 99.346 98.962250 5L20996F KANSAS STATE BANK CD 1.000 1/11/2018 250 1.358 0.529 101.422 100.880 100.344 99.813 99.288 98.767 98.253250 062649YN BANK OF HOLLAND 1.000 1/16/2018 250 1.442 0.542 101.413 100.857 100.307 99.762 99.223 98.690 98.162

2,500 31315PZE FEDERAL AGRIC MTG CORP MTNS 0.930 1/24/2018 2,508 1.102 0.564 101.628 101.047 100.472 99.903 99.340 98.783 98.232250 48124JRX JP MORGAN CHASE STEP UP CD 1.300 1/25/2018 251 1.531 0.565 101.598 101.015 100.439 99.869 99.305 98.747 98.194249 5L21626F MELROSE CU 1.450 1/28/2018 250 1.363 0.574 101.806 101.215 100.630 100.051 99.479 98.912 98.352249 91103MCE UNITED NATL BK CAIRO GA 1.000 1/30/2018 249 1.206 0.581 101.654 101.057 100.468 99.884 99.307 98.736 98.171250 94986TLX WELLS FARGO BANK STEP UP CD 0.850 1/31/2018 248 2.839 0.579 100.607 100.018 99.435 98.859 98.289 97.725 97.167248 12738RCW CADENCE BK N A BIRMINGHAM AL 1.250 2/12/2018 249 1.124 0.615 101.969 101.333 100.704 100.082 99.467 98.859 98.258

Price Sensitivity Report


Yield Curve ScenariosNon-Parallel Curve Shifts: New Neutral – Old Neutral

Aged-Govt Spot Curve Horizon Months: 12 Reinvestment Rate:1.118

Begin End Change (bps) Begin End Change (bps) Begin End Change (bps)

Total Return 1.015 Total Return 1.913 Total Return -1.687

Price Return -0.846 Price Return 0.15 Price Return -3.711

Income Return 1.862 Income Return 1.762 Income Return 2.024

Mkt Value (000) 211549.834 213698.018 Mkt Value (000) 211549.834 215596.073 Mkt Value (000) 211549.834 207979.954

Eff Duration 1.928 1.363 Eff Duration 1.928 1.031 Eff Duration 1.928 1.571

Ave. Life 2.048 1.484 Ave. Life 2.048 1.134 Ave. Life 2.048 1.665

Yield to Worst 1.827 1.977 Yield to Worst 1.827 1.212 Yield to Worst 1.827 3.431

New Neutral Curve Scenario No Change Curve Scenario Old Neutral Curve Scenario

0

1

2

3

4

5

6 Month 2 Year 5 Year 10 Year 30 Year

%

Yield Curves

New Neutral Current Curve Old Neutral -4 -2 0 2 4

Total Return

Price Return

Income Return

New Neutral Current Curve Old Neutral

0

1

1

2

2

3

3

4

4

Eff Dur Ave Life YTW

New Neutral Current Curve Old Neutral


Yield Curve ScenariosNon-Parallel Curve Shifts: Japan Sovereign – 1984 Bear

Aged-Govt Spot Curve Horizon Months: 12 Reinvestment Rate:1.118

Begin End Change (bps) Begin End Change (bps) Begin End Change (bps)

Total Return 2.962 Total Return 1.913 Total Return -6.925

Price Return 1.337 Price Return 0.15 Price Return -9.172

Income Return 1.626 Income Return 1.762 Income Return 2.247

Mkt Value (000) 211549.834 217816.872 Mkt Value (000) 211549.834 215596.073 Mkt Value (000) 211549.834 196899.421

Eff Duration 1.928 0.759 Eff Duration 1.928 1.031 Eff Duration 1.928 1.547

Ave. Life 2.048 0.782 Ave. Life 2.048 1.134 Ave. Life 2.048 1.63

Yield to Worst 1.827 0.122 Yield to Worst 1.827 1.212 Yield to Worst 1.827 5.934

Japan Sovereign Curve Scenario No Change Curve Scenario 1984 Bear Curve Scenario

-10123456789

10

6Month

2 Year 5 Year 10 Year 30 Year

%

Yield Curves

Japan Sovereign Current Curve

1984 Bear -10 -5 0 5

Total Return

Price Return

Income Return

Japan Sovereign Current Curve 1984 Bear

0

1

2

3

4

5

6

7

Eff Dur Ave Life YTW

Japan Sovereign Current Curve 1984 Bear


Enhance Investment Decisions Pre-Trade/What-If Bond Swap AnalysisQuantify how portfolio changes impact return BEFORE

trading Stand-alone basis Total portfolio 12-month aged simulations +/- 300 basis points TROR

Measures Risk Before and After SwapEffective duration/WALSector/credit Coupon distributions

Measure Twice, Cut Once!


I. Bond Swap Analysis – Buy vs. Sell Bonds

Quantify How Buy vs. Sell Bonds Impact:Gains/losses & book value pickupYield & coupon enhancementAverage lifeOASQuality pickupEffective duration/convexityTime to break even

Measures Risk “Before” and “After” Swap 12-month aged simulations +/- 300 basis points TROR


Pre-Trade Bond Swap Analysis (Investing Cash)Pricing Date:

Yield to Worst

Book Yield Coupon

Average Life Quality

Efective Duration Convexity OAS Book Value Gain/Loss

Sell Cash 0.999 0.999 1.000 0.083 AAA 0.076 0.000 11 $3,000.00 -$ Buy Asset Mix 2.019 2.019 2.391 4.040 AA+ 3.39 -0.421 11 $3,050.00 N/A

DIFFERENCE 1.020 1.020 1.391 3.957 N/A 3.310 -0.421 50.00 -$

Par (000) Coupon Maturity Mkt Price Mkt Val (000) Yield to WorstBook Price Book Val (000) Yld at Cost Gain/Loss3,000 1.000 100.000 3,000 0.999 100.000 3,000 0.999

CASH CASH & EQUIVALENTS 3,000 1.000 05/19/2017 100.000 3,000 0.999 100.000 3,000 0.999

Par (000) Coupon Maturity Mkt Price Mkt Val (000) Yld / Worst Quality Modified Dur Eff. Dur Convexity 3,000 2.391 101.482 3,050 2.019 4.23 3.39 (0.42)

90331HNB US BANK ASSN CINCINNATI OH M 200 2.000 01/24/2020 100.950 203 1.635 A1 2.66 2.65 0.023134GBDW FEDERAL HOME LN MTG CORP 400 2.000 04/26/2021 100.020 400 1.960 Aaa 3.83 1.92 -0.953135G0S3 FEDERAL NATL MTG ASSN 400 2.000 01/05/2022 101.630 409 1.638 Aaa 4.46 4.46 0.1169353RFB PNC BK N A PITTSBURGH PA 200 2.625 02/17/2022 101.410 204 2.309 A2 4.49 4.52 0.103135G0T4 FEDERAL NATL MTG ASSN 400 1.875 04/05/2022 99.810 399 1.915 Aaa 4.71 4.71 0.133130AB4V FEDERAL HOME LOAN BANKS 400 2.200 04/11/2022 99.756 399 2.252 Aaa 4.68 2.07 -1.3331418CHR FNMA POOL - MA2939 500 3.000 03/01/2027 103.590 519 2.024 Aaa 3.78 3.33 -0.283128MMV2 FHLMC GOLD POOL - G18632 500 3.000 02/01/2032 103.240 517 2.296 Aaa 4.62 3.57 -0.68

BUY Totals Weighted Averages

BUY

BOND SWAP SUMMARY

SECURITIES INCLUDED IN THE TRANSACTION

Time to Break Even (Yrs): 0.000

Sample Credit Union

SELL

SELL Totals Weighted Averages

April 21, 2017


Pre-Trade Bond Swap AnalysisPricing Date:

5

Sell Bonds: Buy Bonds:Yield Change

(bps) Cash Asset Mix Difference

-300 0.13 7.43 7.30-250 0.15 6.59 6.44-200 0.19 5.77 5.58-150 0.26 4.96 4.71-100 0.39 4.12 3.73-50 0.65 3.20 2.550 0.92 2.17 1.2550 1.19 1.07 -0.12

100 1.46 -0.50 -1.95150 1.73 -2.11 -3.84200 2.00 -3.73 -5.73250 2.27 -5.34 -7.60300 2.54 -6.92 -9.46

Sample Credit Union April 21, 2017BOND SWAP RETURN SIMULATIONSTOTAL RATE OF RETURN SIMULATION

Aged Horz (Mos): 12

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

-300 -250 -200 -150 -100 -50 0 50 100 150 200 250 300

TO

TA

L R

ET

UR

N (

%)

INTEREST RATE CHANGE (bps)

SELL vs. BUY TRR SIMULATION

Cash Asset Mix


II. What-If Analysis – Total Portfolio Quantify How Pre and Post-Trade What-If Analysis

Impact: Annual income pickup Coupon/yield & book yield pickup Effective duration/WAL Sector/credit Coupon distributions

Measure Total Portfolio Risk “Before” and “After” Swap Quantify how total portfolio changes impact return

BEFORE trading 12-month aged simulations +/- 300 basis points TROR


Pre-Trade What-If Analysis

Par ($000) CouponMaturity

(Yrs) Ave Life Eff DurMV w/o

Accr ($000)Bk Val ($000)

Gain/Loss ($000) Bk Yld YTW

Ann Inc ($000)

Bk Income ($000)

30,751 1.498 1.432 1.432 1.375 30,784 29,251 1.457 1.453 461 426

30,751 1.633 1.869 1.821 1.700 30,828 29,295 1.562 1.553 502 457

0.135 0.437 0.389 0.325 44.000 44.000 0.105 0.100 41 31

Sector (Market Wtd)

Pre-Swap Portfolio:

Post-Swap Portfolio: Difference Coupon

Pre-Swap Portfolio:

Post-Swap Portfolio: Difference

Cash 95.0 85.1 (9.9) CASH 95.0 85.1 (9.9) U.S. Government 3.3 8.5 5.2


Pricing Date:

5

Yield Change (bps)

Pre-Swap Portfolio:

Post-Swap Portfolio: Difference

-300 2.92 3.63 0.72-250 2.62 3.26 0.63-200 2.33 2.88 0.55-150 2.05 2.51 0.46-100 1.78 2.14 0.37-50 1.55 1.80 0.250 1.32 1.45 0.1250 1.10 1.09 -0.01

100 0.88 0.69 -0.19150 0.67 0.29 -0.38200 0.45 -0.11 -0.56250 0.24 -0.51 -0.75300 0.03 -0.90 -0.93

Aged Horz (Mos): 12

Sample Credit Union April 21, 2017WHAT IF RETURN SIMULATIONS

TOTAL RATE OF RETURN SIMULATION

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

-300 -250 -200 -150 -100 -50 0 50 100 150 200 250 300

TOTA

L RE

TURN

(%

)

INTEREST RATE CHANGE (bps)

PRE-SWAP vs. POST-SWAP TRR SIMULATION

Pre-Swap Portfolio: Post-Swap Portfolio:

Pre-Trade What-If Analysis


Measuring, Managing and Controlling Risk

Option Risk Portfolio alerts for any announced callsAllows you time to determine what to do with

the funds coming back to you before you get it

Credit Risk Watchlist/upgrades/downgrades Monitored by IDC for your entire portfolio


Portfolio Review Insights:Portfolio Alerts - Call Risk


Portfolio Alerts – Credit Risk Watchlist/Upgrades/Downgrades


The BSS Fixed Income Sales Advantage

Best-in-class fixed income risk analytics Quantify interest rate risk Quantify credit risk NCUA compliance (the NCUA uses BondEdge!) Enhances investment decision Pre-trade bond swap and what-if analysis

Access to dedicated Portfolio Analyst (Me)



Credit Analysis• Can no longer rely on Moody’s and S&P• Independent analysis required• Third party (e.g. Gimme Credit)


• Provides CUs with independent and unbiased credit analysis

• Provides necessary due diligence to support the investment decision

• Ensures ongoing credit surveillance and monitoring• Pro-active , real-time response to credit changes

(upgrades/downgrades) • Enhances portfolio risk management process• Diversifies the portfolio – Increase Yield and Income • Opens up investment universe to CUs

Why Gimme Credit?


Wrapping it up

Investment Portfolio Risk Credit Analysis

Risk Management Enhancing Investment Decisions

Economic Review, Forecasting Bond Analytics


A Happy Regulator is a Happy Credit Union


Any Questions?


THANK YOU!

Patty [email protected](630) 276-2755

Michael [email protected](630) 276-2724



September 6-8, 2017Chicago, IL | InterContinental Magnificent Mile

View Details and Registerwww.alloyacorp.org/symposium2017

http://www.alloyacorp.org/symposium2017

Slide Number 1Slide Number 2Overview Market LandscapeMarket Landscape:�Where Have We Been?Slide Number 6Everything but the Kitchen SinkSlide Number 8Slide Number 9Slide Number 10Slide Number 11Bond Market Volatility at Record Low LevelsSlide Number 13In a World Sans ZIRP and QESlide Number 15Slide Number 16Slide Number 17Slide Number 18Slide Number 19Slide Number 20How Good Are the Fed Forecasts?Slide Number 22Portfolio Risk ManagementPortfolio Risk Management Understanding Risk: Investment Portfolio Understanding Risk: Investment Portfolio Slide Number 27The Biggest Mistake�Relative Performance (12/08-12/16)Enhancing Investment DecisionsEnhancing Investment DecisionsEnhancing Investment DecisionsUtilizing Portfolio Analytics to Manage Risk and Enhance Investment Making DecisionsHow to Select a Fixed Income Analytics Package? Comprehensive Analysis & Reporting Summary Overview Sector, Coupon & Duration Overview Quantifying Cash Flows Measuring, Managing and Controlling RiskNCUA: Focused on “Stress” TestingNCUA: Focused on “Stress” Testing NCUA: Focused on “Stress” Testing NCUA: Focused on “Stress” Testing �Yield Curve Scenarios� �Non-Parallel Curve Shifts: New Neutral – Old Neutral�Yield Curve Scenarios� �Non-Parallel Curve Shifts: Japan Sovereign – 1984 BearEnhance Investment Decisions I. Bond Swap Analysis – Buy vs. Sell Bonds Pre-Trade Bond Swap Analysis (Investing Cash)Pre-Trade Bond Swap AnalysisII. What-If Analysis – Total PortfolioPre-Trade What-If AnalysisSlide Number 51Measuring, Managing and Controlling RiskPortfolio Review Insights:�Portfolio Alerts - Call RiskPortfolio Alerts – Credit Risk Watchlist/Upgrades/DowngradesSlide Number 55Enhancing Investment DecisionsEnhancing Investment DecisionsSlide Number 58Slide Number 59Slide Number 60Slide Number 61Slide Number 62Wrapping it upA Happy Regulator is a Happy Credit Union Any Questions?Slide Number 66Slide Number 67

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Risk Management and Enhancing Investment Decisions · 2019. 5. 21. · Balance Sheet Solutions, LLC is a SEC Registered Investment Advisor SEC# 801-63345 CRD# 124786. All securities