Asset/Liability Management Series Session 2 Presenter: Christopher M. Uhl, CMA, MOSM Senior ALM Consultant

Transcription

1 Strategic Solutions Institute Click here to view a recording of this webinar Asset/Liability Management Series Session 2 Presenter: Christopher M. Uhl, CMA, MOSM Senior ALM Consultant 1 2 1

2 3 MASTERING the Report Empowered Decision Making Assumptions 4 2

3 5 5 Key Factors New Business Rates and Terms Prepay Speeds & Discount Rates Decay Rates Balance Sheet Dividend Rates 6 3

4 Balance Sheet Coupon Concentration Remaining Term Existing Interest Rate Risk 7 Dividend Rates Dividend Sensitivity Current Rates Large Impact on Overall Results 8 4

5 Decay Rates Non Maturity Deposit Study NERA Study 9 Prepay Speeds & Discount Rates 10 5

6 New Business

7 13 Net Economic Value (NEV) Gap Net Interest Income (NII) Three IRR Reports 14 7

8 Gap Ratio 15 Gap is the measure of SHORT Term Risk Six Months Gap Ratio 16 8

9 The Gap Ratio Captures Liability Asset Gap Ratio Maturity or Repricing Mismatch 17 Rate Sensitive Assets Total Assets Rate Sensitive Liabilities Gap Ratio Formula 18 9

10 GAP ANALYSIS Maturing/Repricing Assets (000s) within 6 months Cash 5,000 Investments 10,000 Loans 35,000 Rate Sensitive Assets 50,000 Liabilities (000s) Shares 50,000 Member CD's 12,000 Borrowings 5,000 Rate Sensitive Liabilities 67,000 Rate Sensitive Gap -17,000 Total Assets 250,000 Gap Ratio -6.80% Gap Ratio Formula 19 Positive Gap Ratio Sensitive Rising Rates: Asset Yields rise faster than Funding Costs = Improved Gross Spread Gap Results 20 10

11 Positive Gap Ratio Sensitive Falling Rates: Asset Yields fall faster than Funding Costs = Reduced Gross Spread Gap Results 21 Negative Gap Ratio Sensitive Rising Rates: Funding Costs rise faster than Asset Yields= Reduced Gross Spread Gap Results 22 11

12 Negative Gap Ratio Sensitive Falling Rates: Funding Costs fall faster than Asset Yields= Improved Gross Spread Gap Results 23 Gap Results 24 12

13 Are you still awake? 25 NII is the measure of INTERMEDIATE Term Risk Between 1 to 2 years Net Interest Income Simulation 26 13

14 NII illustrates changes in both Net Interest Income Net Income Net Interest Income Simulation Month Net Interest Income Projection -300 Flat +300 Assets (000s) Cash 3,000 5,000 8,000 Investments 65,000 75,000 83,000 Loans 110, , ,000 Interest Income 178, , ,000 Liabilities (000s) Shares 15,000 25,000 55,000 Member CD's 25,000 40,000 53,000 Borrowings 5,000 5,000 5,000 Interest Expense 45,000 70, ,000 Net Interest Income 133, , ,000 $ Change 3,000-7,000 % Change 2.31% -5.38% Net Interest Income Simulation 28 14

15 Remember This? New Business Rates and Terms Net Interest Income Simulation Components 29 Book Values Investments 35,000 Vehicle Loans 90,000 Real Estate Loans 75,000 All Other Loans 34,000 Total Assets 234,000 Borrowings 5,000 Share Drafts 126,000 Money Market Shares 12,000 Share Certificates 70,000 IRA Accounts 19,718 Total Funds & Liabilities 232,718 Base NII Basecase % of +300 % of Income/Expense Total Income/Expense Total % % % % % % % % % % % % % % % % % % % % % % Market Value Basecase +300 Market Value +300 Market Value Market Value $ Change % Change (1,600.00) % (4,300.00) % (5,800.00) % (1,840.00) % (13,540.00) % 9200 (1,000.00) % (6,100.00) % (170.00) -1.71% (1,900.00) % (800.00) -8.02% (9,970.00) % Net Interest Income Simulation Risk/Return Relationship 30 15

16 Book Values Investments 35,000 Vehicle Loans 90,000 Real Estate Loans 75,000 All Other Loans 34,000 Total Assets 234,000 Borrowings 5,000 Share Drafts 126,000 Money Market Shares 12,000 Share Certificates 70,000 IRA Accounts 19,718 Total Funds & Liabilities 232,718 Base NII Basecase % of +300 % of Income/Expense Total Income/Expense Total % % % % % % % % % % % % % % % % % % % % % % Market Value Basecase +300 Market Value +300 Market Value Market Value $ Change % Change (1,600.00) % (4,300.00) % (5,800.00) % (1,840.00) % (13,540.00) % 9200 (1,000.00) % (6,100.00) % (170.00) -1.71% (1,900.00) % (800.00) -8.02% (9,970.00) % Net Interest Income Simulation Risk/Return Relationship 31 Book Values Investments 35,000 Vehicle Loans 90,000 Real Estate Loans 75,000 All Other Loans 34,000 Total Assets 234,000 Borrowings 5,000 Share Drafts 126,000 Money Market Shares 12,000 Share Certificates 70,000 IRA Accounts 19,718 Total Funds & Liabilities 232,718 % of +300 % of +300 Risk/Reward NII Total NEV Change Ratio 6.47% % % % % % % % % % % % % % % -1.71% % % % -8.02% % % % NEV Change % NII Change Net Interest Income Simulation Risk/Return Relationship 32 16

17 WAL Spread Weighted Average Lives (WAL) Flat Assets Liabilities WAL Spread Net Interest Income Simulation Components 33 Net Economic Value 34 17

18 5 + Years Equity Position All Things Remaining The Same Net Economic Value 35 Market Value Net Economic Value 36 18

19 Market Value Minus Market Value Net Economic Value Formula 37 Book Values -300 Market Value Flat +300 Cash & Investments 15,000 14,850 15,150 15,150 Vehicle Loans 40,000 43,200 39,996 36,800 Real Estate Loans 30,000 32,700 30,597 27,300 All Other Loans 15,000 16,500 15,599 13,500 MV Assets 100, , ,342 92,750 Borrowings 1,000 1,050 1, Share Drafts 35,000 37,100 34,997 32,900 Money Market Shares 25,000 26,750 25,498 23,250 Share Certificates 17,000 18,360 17,678 15,640 IRA Accounts 12,000 13,080 11,640 10,920 MV Liabilities 90,000 96,340 90,822 83,660 Net Economic Value Formula NEV 10,000 10,910 10,519 9,090 NEV Ratio 10.00% 10.17% 10.38% 9.80% $ NEV Change 391 (1,429) % NEV Change 3.72% % 38 19

20 Positive Change in NEV Results Net Economic Value Results 39 Negative Change in NEV Results Net Economic Value Results 40 20

21 41 We Did it! 42 21

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23 45 Identify Control ALM Measure Monitor & Report 46 23

24 Identify Trends Successes Changes Shortfalls 47 Measure Growth Retention Profitability Risk 48 24

25 Monitor & Report Satisfy Examiners Empower the Board Evaluate Expansion 49 Control Empowered Decisions Vertical Adoption Engaged Board Knowledgeable Staff 50 25

26 ALM 51 Policy Guidelines Risk Low Moderate High GAP < 10% 10 20% > 20% Gap Ratio 52 26

27 Policy Guidelines Risk Low Moderate High NII > 20% 20 30% < 30% NII +300 bps Percentage Change 53 Policy Guidelines Risk Low Moderate High NEV > 25% 25 50% < 50% NEV +300 Percentage Change 54 27

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29 57 What questions do YOU have? Examples include: Why are you such a nerd? Why didn t anyone tell me to bring popcorn? Are you available to make a presentation for me? 58 29

30 Thank you! Seriously and honestly, thank you for the opportunity to share some of my knowledge with you. Christopher M. Uhl, CMA, MOSM