BAS Presentations - March 2023

BANK INVESTMENTS TYPES OF D B SECURITIES

U.S. Treasuries • Direct obligations of the U.S. government. • Considered "risk free." U.S. Agencies • Obligations of the issuing government agency. • Examples: Federal Home Loan Bank, Freddie Mac, Fannie Mae, Ginnie Mae). • Not a direct obligation of the U.S. government (with the exception of GNMA), but are perceived to have virtually no credit risk. Mortgage-Backed Securities (MBS) • Most are backed by 1-4 family residential home mortgages, although some are backed by commercial mortgages • Vast majority are issued by government agencies (e.g. Fannie Mae or Freddie Mac) and some are issued by private companies (private label MBS). • Pass-Through: Investor recieves a portion of principal and interest payments as they are collected. • Collateralized Mortgage Obligation (CMO): Partitioned into "tranches" and payments are distributed based on priority position. Municipal Bonds • General obligations: backed by the full faith and credit (taxing authority) of the municipality issuing the debt. • Revenue: supported by revenue applicable to a specific department (e.g. sewer, water) or project. • Industrial Development: purpose is to lower the costs for a private company’s relocation to a municipality or to assist in the expansion of facilities. Repayment is from revenues of the company. Considered highest risk type of Municipal. • Quality of Municipal obligations can differ greatly depending on the nature of the obligation and the credit standing of the issuer. Corporate Bonds • Issued by major U.S. corporations. • Generally present the highest level of credit risk within the securities portfolio.

Low

CREDIT RISK

High