RISING Rates Are Here Again Time to Celebrate or Danger Ahead?

Transcription

1 Risk Management Strategy & Solutions RISING Rates Are Here Again Time to Celebrate or Danger Ahead? November 9, 2017 Frank Farone, Managing Director 2017 Darling Consulting Group, Inc. 260 Merrimac Street Newburyport, MA Tel: DarlingConsulting.com Page 1

2 Outline Industry & Economic Trends/Issues The Earnings Model & Why Growth is Necessary The Basic Business of a Bank Risk/Return Trade-offs in Balance Sheet Management Key Challenge: Financial Performance & Regulatory Compliance Measuring and Managing Interest Rate Risk Effectively Balance Sheet Strategies: Case Studies Conclusion with Q & A 2017 Darling Consulting Group, Inc. Page 2

3 Bank NET Interest Margins Rapid Decline Since Darling Consulting Group, Inc. Page 3

4 Asset Yields Have Been Under Pressure for a LONG time Yield on Earning Assets (%) ($100mm-$10B) ? 4.00 Yield on Earning Assets (%) Darling Darling Consulting Group, Group, Inc. Inc. Inc. Page 4

5 Funding Costs floored for LONG time until now! 0.9 Cost of Funds (%) $100MM-$10B ??? Q12012Q22012Q32012Q42013Q12013Q22013Q32013Q42014Q12014Q22014Q32014Q42015Q12015Q22015Q32015Q42016Q12016Q22016Q3 Cost of Funds (%) 2017 Darling Consulting Group, Inc. Page 5

6 Happy NEW Year 2016! Steeper Curve = WIDER Margins Happy New Year 2016! ECB taper rumor: FOMC convince market rate rise likely before year end China slows, Japan goes negative Brexit 2017 Darling Consulting Group, Inc. Page 6

7 Steeper Yield Curve Impact (Dec 2016 vs. Sep 2016) Net Interest Income ($000) BASE SIMULATION AS OF 12/31/2016 BASE SIMULATION AS OF 9/30/2016 Net Interest Income ($000) 5,725 5,725 5,475 5,475 5,225 5,225 4,975 4,975 4,725 4,725 4,475 4,475 Base Down 100BP Up 200BP Base Down 100BP Up 200BP NII SUMMARY NII SUMMARY Down 100BP Base Up 200BP Year 1 Year 1 Net Interest Inc. 62,277 63,198 59,967 Net Interest Inc. Net Interest Inc. ($ Change) ,231 Net Interest Inc. ($ Change) Net Interest Inc. (% Change) -1.46% -5.11% Net Interest Inc. (% Change) Down 100BP 58,941-1, % Base 59,973 Up 200BP 57,697-2, % Year 2 Year 2 Net Interest Inc. 61,911 66,314 64,015 Net Interest Inc. Net Interest Inc. ($ Change) -1,288 3, Net Interest Inc. ($ Change) Net Interest Inc. (% Change) -2.04% 4.93% 1.29% Net Interest Inc. (% Change) 58,341-1, % 62,941 61,935 2,968 1, % 3.27% 2-Year (Cumulative) Net Interest Inc. Net Interest Inc. ($ Change) Net Interest Inc. (% Change) 2-Year (Cumulative) 124, , ,982 Net Interest Inc. 117, , ,632-5,324-5,530 Net Interest Inc. ($ Change) -5,632-3, % -4.27% Net Interest Inc. (% Change) -4.58% -2.67% CHANGE / DIFFERENCE IN RESULTS Year-1 NII Down 100BP 3,336 Base 3,225 Up 200BP 2,270 Year-2 NII 3,570 3,373 2, Darling Consulting Group, Inc. Page 7

8 Not So FAST! History Repeats Pattern Higher Short Rates & Flatter Curve (flatter ahead?) 2017 Darling Consulting Group, Inc. Page 8

9 NOTE: Patterns and Duration of Cycles (& Recessions) Can this time be different? I think so! (discuss ECB)? Darling Darling Consulting Group, Group, Inc. Inc. Inc. Page 9

10 U.S. Inflation Met FED 2% Goal only 1 month Since 2012 Continued Disconnect Between Employment and Inflation 2017 Darling Consulting Group, Inc. Page 10 10

11 So, What s a Banker to Do NOW? 2017 Darling Consulting Group, Inc. Page 11

12 Five Critical Questions the ALCO Needs to Answer How Much Liquidity Do We Have? How Much Liquidity Do We Need? How Much Do We Want to Pay For Liquidity? How Much Exposure Do We Have to Change in Rates? Are We Being Paid Adequately for the Risks We Take? 2017 Darling Consulting Group, Inc. Page 12

13 Risk Return Trade- Offs in Balance Sheet Management 2017 Darling Consulting Group, Inc. Page 13

14 Creating Appropriate Perspective What is the basic Business of a Bank? 2017 Darling Consulting Group, Inc. Page 14

15 Profit/Loss (Manufacturing Analogy) REVENUES: LESS: Products Sold Cost Of Goods GROSS PROFIT MARGIN 2017 Darling Consulting Group, Inc. Page 15

16 Are A Bank s Products: Assets? Loans/Investments Liabilities? Savings/NOW CDs, etc. Both Assets & Liabilities? 2017 Darling Consulting Group, Inc. Page 16

17 Profit/Loss (Bank) REVENUES: Loans & Investments LESS: Cost Of Funds NET INTEREST INCOME 2017 Darling Consulting Group, Inc. Page 17

18 Basic Business Financial Intermediary That Buys and Sells Money 2017 Darling Consulting Group, Inc. Page 18

19 More Leverage NEEDED as Margins Shrink ROA X LEVERAGE = ROE (NI/Capital) Increase Margin Asset Yields Cost of Funds Fee Income Expense Control Asset Sales (Gains) Tax Management Growth Local Expansion Acquisition Capital Markets 2017 Darling Consulting Group, Inc. Page 19

20 Key Challenges Balancing Risks! (Be Prepared) MAXIMUM RISK ALCO REGULATOR CAPITAL Low Managed High GROWTH High Managed Low CREDIT RISK High Managed Low LIQUIDITY Low Managed High INT. RATE RISK High Managed Low MAXIMIZE INCOME?? GOING CONCERN?? OPTIMIZE INCOME GOING CONCERN Model MINIMIZE INCOME LIQUIDATION Model aka EVE Key Question: Appropriate Accounting/Management Model? 2017 Darling Consulting Group, Inc. Page 20

21 Liquidity & Funds Management It s Game Time! 2017 Darling Consulting Group, Inc. Page 21

22 Liquidity Use is Increasing Do Liquidity Policies Reflect Business Practices and Provide Flexibility??? Loans / Deposits Loan growth is outpacing deposit growth Policies??? The declining liquid asset cushions and increased use of potentially non-stable liquidity sources suggest that small banks as a group are increasing their liquidity risk profiles FDIC Supervisory Insights, Summer Loans / Assets 2017 Darling Consulting Group, Inc. Page 22

23 5 Critical Questions the ALCO Needs to Answer 1. How Much Liquidity Do We Have? 2. How Much Liquidity Do We Need? 3. How Much Do We Want to Pay For That Liquidity? 4. How Much Exposure Do We Have to Change in Rates? 5. Are We Being Paid Adequately for the Risks We Take? Darling Consulting Group, Inc. Inc. Page 23 23

24 Liquidity Defined The Ability to Raise Cash Quickly, Without Principal Loss and at a Reasonable Cost Do Traditional Liquidity Ratios Work? Example #1: Loan to Deposit Ratio of 55% Example #2: Loan to Deposit Ratio of 125% 2017 Darling Consulting Group, Inc. Page 24 24

25 Traditional Measures Theory vs. Practice: Does the Definition Fit? Non-Core Funding Dependency Loan/Deposit The Ability to Raise Cash, Quickly, at a Reasonable Cost and Without Principal Loss Cashflow <12, 24 Months 2017 Darling Consulting Group, Inc. Page 25

26 Basic Surplus On-Balance Sheet Liquidity Policies At Each Level Just In Time Inventory Strategic Reserve Darling Consulting Group, Inc. Inc. Page 26 26

27 Basic Surplus No Requirement to Carry Cash AFS/HTM Does Not Matter $50MM of Municipals as well, but not included Darling Consulting Group, Inc. Inc. Page 27 27

28 Basic Surplus Should Be Quantitatively and Qualitatively Supported Deposit study Darling Consulting Group, Inc. Inc. Page 28 28

29 Basic Surplus How Much Liquidity Do You Have? Darling Consulting Group, Inc. Inc. Page 29 29

30 Modern Day Reality: Deposits vs. Borrowings RELATIONSHIPS? PROTECTION? AVAILABLE IN BULK? COST? TERMS DETERMINED BY NEW DEPOSITS Potentially Insurance At a Price Rate + Cost of Conversion Depositor BORROWINGS No (Most Cases) Collateral Yes Coupon Bank *Brokered CDs and FHLB Borrowings are a Stable Source of Core Funds. **Out of market deposits are not always HOT $ Darling Consulting Group, Inc. Page 30

31 How Much Liquidity Do You Need? LIQUIDITY 90-DAY HORIZON Current Basic Surplus w/ FHLB Current 572,329 Previous Forecast 567,778 Actual 567,778 Forecast Variance Less: Net New Loan Fundings Plus: Net Customer Deposit Flows Plus: Non-Pledgable Investment Cash flow 26,500 (12,600) 7,630 21,600 28,600 7,905 (15,119) (8,480) 7,905 36,719 (37,080) 0 Equals: Projected Basic Surplus (Deficit) at 90-Days 540, , ,322 (361) 24-MONTH WHOLESALE CASH FLOW PROJECTIONS Q1Y1 Q2Y1 Q3Y1 Q4Y1 Q1Y2 Q2Y2 Q3Y2 Q4Y2 Cash Investments Investments Total Inv. Cash Flow ,149 25,654 26,149 25, ,186 18,532 30,345 18,883 23,546 18,861 19,186 18,532 30,345 18,883 23,546 18,861 Brokered Deposits National CDs Borrowings Total Funding Maturities 0 15,954 3,499 7, ,996 3,541 7,543 1,806 15, , ,848 15, , Darling Darling Consulting Group, Group, Inc. Inc. Page 31 31

32 Liquidity Management Impacts: Your Perspective on Liquidity and the Role of Wholesale Funding WILL IMPACT: Loan Strategy Deposit Pricing Strategy Investment Strategy Growth Strategy Earnings Jumpstart Strategic Discussion Darling Darling Consulting Group, Group, Inc. Inc. Page 32 32

33 Contingency Liquidity planning Risk Monitor Note: annually review ratios & risk levels for relevancy and policy changes Darling Darling Consulting Group, Group, Inc. Inc. Page 33 33

34 Liquidity Funds Management Process Plan Needs to Include: Balance Sheet Liquidity Cash and Securities Just in Time Inventory FHLB Strategic Reserve Brokered CDs Catastrophe Insurance FRB Contingency Liquidity Policy/Plan What if/stressed Scenarios Policy Development Darling Darling Consulting Group, Group, Inc. Inc. Page 34 34

35 Liquidity Checklist Focus on Total Liquidity (on and off-balance sheet) Set expectations for wholesale funding use with stakeholders Review and update policies (as needed) Ensure current liquidity management philosophy is represented Confirm risk measures/limits are appropriate (watch traditional ratios) Expand use of forward-looking forecasting Baseline and stress testing alternatives Develop scenarios based upon bank-specific vulnerabilities Refine liquidity risk monitoring ( Early Warning ) system Continue to build upon Contingency Funding Plan 2017 Darling Consulting Group, Inc. Page 35

36 Managing Uncertainty: Important 1 st Step 2017 Darling Consulting Group, Inc. Page 36

37 Earnings at Risk RAMPS Static vs. Growth Model Parallel & Non-Parallel Shifts 1-2 Year vs. 5 Year Earnings at Risk SHOCKS Earnings at Risk Net Income (KEY) Value at Risk EVE (be careful) Stress Testing Strategic ALCO or Analysis Paralysis? Upwards of scenarios each quarter! YIKES which to focus on? Gap Reporting (1 year? Useful data base, look to >5 year results ) Core Funding Utilization defines Fixed Rate Capacity, a Powerful Tool! Which Core scenarios to FOCUS on when Making Decisions and Developing Strategies? 2017 Darling Consulting Group, Inc. Page 37 37

38 Warning: Shocks Can be Misleading! Can Over Estimate Benefit for Asset Sensitive Institution 2017 Darling Consulting Group, Inc. Page 38

39 Warning: Shocks Can be Misleading! Can Overestimate Negative Impact for Liability Sensitive Institution 2017 Darling Consulting Group, Inc. Page 39

40 Prolonged Movement of Rates Base Simulation as of 3/31/2017 Prolonged Rate Movements- 24 Months 22,250 Net Interest Income ($000) 22,250 Net Interest Income ($000) 20, bp +100bp +100bp 20,600 18,950 18, % -2.4% 17,300 17,300 15,650 15,650 14,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 14,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Base Up 200BP Flat Up 200BP Base Up 200BP Flat Up 200BP NII SUMMARY NII SUMMARY Base Up 200BP Flat Up 200BP Base Up 200BP Flat Up 200BP Year-1 NII Year-2 NII Year-3 NII Year-4 NII Year-5 NII 65,560 62,806 62,344 Year-1 NII 65,560 64,219 63,977 68,314 67,160 64,857 Year-2 NII 68,314 66,425 64,979 68,185 72,981 69,165 Year-3 NII 68,185 70,343 67,193 68,143 78,432 73,405 Year-4 NII 68,143 76,447 71,874 68,163 82,575 76,677 Year-5 NII 68,163 81,160 75,564 CHANGE / DIFFERENCE IN RESULTS Base Up 200BP Flat Up 200BP Year-1 NII Year-2 NII Year-3 NII Year-4 NII Year-5 NII 0 1,413 1, ,638-1, ,985-1, ,415-1,113 Projected exposure/benefit depends on how fast rates move pace matters! Darling Darling Consulting Group, Group, Inc. Inc. Page 40

41 Is 2 Year Horizon Enough for NII Simulation? Net Interest Income ($000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Base Down 100BP Up 200BP 2017 Darling Consulting Group, Inc. Page 41

42 Net Interest Income Simulation 5 Year Net Interest Income ($000) Managing Horizon Planning Horizon Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Base Down 100BP Up 200BP 2017 Darling Consulting Group, Inc. Page 42

43 2 year Parallel Rate Ramps: Concern Higher Rates? Net Interest Income ($000) BASE SIMULATION AS OF 3/31/2017 BASE SIMULATION AS OF 12/31/2016 Net Interest Income ($000) 2,475 2,475 2,350 2,350 2,225 2,225 2,100 2,100 1,975 1,975 1,850 1,850 Base Down 100BP Up 200BP Base Down 100BP Up 200BP NII SUMMARY NII SUMMARY Down 100BP Base Up 200BP Year 1 Year 1 Net Interest Inc. 26,067 26,363 25,461 Net Interest Inc. Net Interest Inc. ($ Change) Net Interest Inc. ($ Change) Net Interest Inc. (% Change) -1.12% -3.42% Net Interest Inc. (% Change) Down 100BP 26, % Base 26,653 Up 200BP 25, % Year 2 Year 2 Net Interest Inc. 24,991 26,706 26,259 Net Interest Inc. Net Interest Inc. ($ Change) -1, Net Interest Inc. ($ Change) Net Interest Inc. (% Change) -5.21% 1.30% -0.39% Net Interest Inc. (% Change) 25,199-1, % 26,998 26, % -1.64% 2-Year (Cumulative) Net Interest Inc. Net Interest Inc. ($ Change) Net Interest Inc. (% Change) 2-Year (Cumulative) 51,057 53,069 51,720 Net Interest Inc. 51,380 53,651 52,012-2,012-1,349 Net Interest Inc. ($ Change) -2,271-1, % -2.54% Net Interest Inc. (% Change) -4.23% -3.05% CHANGE / DIFFERENCE IN RESULTS Year-1 NII Down 100BP -114 Base -290 Up 200BP -335 Year-2 NII Darling Consulting Group, Inc. Page 43 43

44 Parallel Rate Ramps (5 yr. horizon) Net Interest Income ($000) BASE SIMULATION AS OF 3/31/2017 Net Interest Income ($000) BASE SIMULATION AS OF 12/31/2016 9,650 9,650 8,725 8,725 7,800 7,800 6,875 6,875 5,950 5,950 5,025 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 5,025 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Base Down 100BP Up 200BP Base Down 100BP Up 200BP NII SUMMARY NII SUMMARY Down 100BP Base Up 200BP Down 100BP Base Up 200BP Year-1 NII 26,067 26,363 25,461 Year-1 NII 26,181 26,652 25,795 Year-2 NII 24,991 26,706 26,259 Year-2 NII 25,198 26,998 26,216 Year-3 NII 26,066 29,427 30,956 Year-3 NII 25,809 29,084 30,172 Year-4 NII 24,829 29,324 32,659 Year-4 NII 25,317 29,685 32,660 Year-5 NII 23,852 29,359 34,799 Year-5 NII 24,420 29,739 34,664 CHANGE / DIFFERENCE IN RESULTS Down 100BP Base Up 200BP Year-1 NII Year-2 NII Year-3 NII Year-4 NII Year-5 NII Darling Consulting Group, Inc. Page 44 44

45 All Up 200BP Scenarios Analysis is IMPORTANT! 14,150 Net Interest Income ($000) p p, 13,075 12,000 More Aggressive Fed (+200bp 1 Year) Pace Matters More Gradual Fed (+200bp 2 Years) Shape Matters Parallel Ramp Flattening Curve 10,925 9,850 8,775 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Base Up 200BP 12M Up 200BP 24M Flat Up 200BP 12M Flat Up 200BP 24M Darling Darling Consulting Group, Group, Inc. Inc. Inc. Page 45

46 NII at Risk using SHOCKS 29,800 Net Interest Income ($000) SHOCK ANALYSIS 26,425 23,050 19,675 16,300 12,925 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Base Shock Down 100BP Shock Up 100BP Shock Up 200BP Shock Up 300BP Shock Up 400BP NII SUMMARY Shock Down 100BP Base Shock Up 100BP Shock Up 200BP Shock Up 300BP Shock Up 400BP Year-1 NII 78,720 83,226 79,772 75,936 71,839 67,716 Year-2 NII 73,055 83,025 81,989 80,095 77,705 75,033 Year-3 NII 68,539 82,463 84,540 85,835 86,922 87,578 Year-4 NII 65,423 82,048 86,727 90,604 94,228 97,587 Year-5 NII 63,728 82,123 88,804 94, , ,601 More severe shocks ultimately become best performing scenarios Darling Darling Consulting Group, Group, Inc. Inc. Page 46

47 EVE Myth vs. Reality EVE is an Adequate Predictor of Capital Loss (NOT TRUE) EVE Offers Predictive Power for Net Worth as Rates Rise/Fall (NOT TRUE) EVE is an Adequate Indicator of Short Term Earnings Sensitivity (NOT TRUE) 2017 Darling Consulting Group, Inc. Page 47

48 Economic Value of Equity ( Value at risk ) RATE SHOCK SCENARIOS Economic Value of Equity ($000s) ASSETS Investments Book Value -100BP 0 Shock +100BP +200BP +300BP +400BP 301, , , , , , , , ,000 Loans 538, , , , , , , ,000 Other Assets 71,151 71,151 71,151 71,151 71,151 71,151 71,151 80,000 TOTAL ASSETS (EVA) % Chg from 0 Shock 910, , , , , , , % 2.40% -2.79% -5.84% -8.74% % 60,000 40,000 LIABILITIES Non Maturity Deposits 553, , , , , , ,859 20,000 0 Time Deposits 63,383 63,453 62,948 62,440 61,940 61,448 60,964 Borrowings 212, , , , , , ,693 Other Liabilities TOTAL LIABILITIES (EVL) % Chg from 0 Shock (142) (534) (923) 830, , , , , , , % 4.50% -3.69% -7.04% % % 4.0% 2.0% EVE ($) - Pct. Chg from 0 Shock 0.0% ECONOMIC VALUE OF EQUITY (EVE) 80, , , , , , , % -4.0% % Chg from 0 Shock Policy Limits EVE Ratio (EVE/EVA) -11.3% 3.1% 2.0% 0.0% -2.7% -10.0% -10.0% -20.0% -30.0% -40.0% 8.86% 11.46% 13.23% 14.03% 14.34% 14.50% 14.55% -6.0% -8.0% -10.0% -12.0% BP Chg from 0 Shock % Risk Summary Grid* 16.0% 14.0% EVE Ratio (EVE/EVA) Post Shock EVE/EVA Ratio Over 10% 6.00% to 10.00% 4.00% to 6.00% Below 4.00% 0 to 100bp 100 to 200bp 200 to 400bp Over 400bp Min. Risk -1 MIN. RISK (1) Min. Risk -1 Mod. Risk -2 Min. Risk -1 Min. Risk -1 Mod. Risk -2 Sig. Risk -3 Min. Risk -1 Mod. Risk -2 Sig. Risk -3 High Risk -4 Mod. Risk -2 Sig. Risk -3 High Risk -4 High Risk % 10.0% 8.0% *Included for discussion purposes only. Grid evaluates +200/-100 scenarios for risk assessment. *Current risk assessment for Risk Summary Grid is based on -100 scenario. Average lives of non-maturity deposits are based upon DCG deposit study. The aggregate average life based upon the current deposit mix is 6.97 years. The market value of derivatives is represented in the "Other Liabilities" section of the chart. Please refer to Deposit Study Tear Sheet for additional documentation Year Aggregate Average Life on NMDs 6.0% 4.0% 2.0% 0.0% 2017 Darling Consulting Group, Inc. Page 48 48

49 Strategy Development Creating Clarity for Balance Sheet Management Interest Rate Risk Liquidity Capital/Earnings Credit? Misinformation/ Under-information = Incorrect/Suboptimal Decisions 2017 Darling Consulting Group, Inc. Page 49

50 Asset Sensitive OBJECTIVES: Lengthen Assets Shorten Liabilities ASSET SENSITIVE DILEMMA: Reluctance to Utilize Capacity for Longer-Term Assets??? 2017 Darling Consulting Group, Inc. Page 50

51 If Asset Sensitive Considerations: Extend Cash Understand Capacity to Extend Assets Mismatched Leverage Hold Portion of Fixed Rate Mortgages Flexibility With Commercial Deals and Structures Interest Rate Floors (new Acct g Rules) 2017 Darling Consulting Group, Inc. Page 51

52 Cash Equivalents Redeployment: Fixed Resi Loans Also, Discuss Fixed Rate Commercial Never Make Less $$$ Than Today Opportunity Cost 2017 Darling Consulting Group, Inc. Q: What About Funding with Borrowings? Page 52

53 Fixed Rate Points of Indifference to Prime Floating Rate 2017 Darling Consulting Group, Inc. Page 53

54 Liability Sensitive OBJECTIVES: Shorten Assets Lengthen Liabilities LIABILITY SENSITIVE DILEMMA: How Cover Cost of Insurance? Calculate the breakeven cost Don t take medicine that s worse than the poison? 2017 Darling Consulting Group, Inc. Page 54

55 If Liability Sensitive Considerations: Magnitude of Exposure? More Fearful of Rising or Falling Rates? If Extending: How Much Insurance and How Far? Swaps/Caps Deposit Pricing Strategy Shorten Assets? Be Careful!!! EARNINGS? Investment Strategy Public Funds Strategy Mismatched Funding/Leverage 2017 Darling Consulting Group, Inc. Page 55

56 How To Profit From Rising Rates Frank s Strategies for Success Focus on continued Growth Understand your retail deposits and deposits at risk Be prepared - it s game time with liquidity and funds management Know your TRUE IRR Become better students of Derivatives Use scenario analysis and stress testing to inspire decision-making then Execute Game Plan! 2017 Darling Consulting Group, Inc. Page 56

57 2017 Darling Consulting Group, Inc. Page 57