Bank Directors Seminar, Coeur d'Alene, ID, September 15-17, 2019

Investment Portfolio Management — Six Keys to Success

1. Implement a Written Quarterly Investment Strategy Your road map to success

Keeps you focused on the types and structure you should be buying Modify the strategy regularly as interest rates change and as your needs change

2. Develop Processes and Management/Board Reports Appropriate for Your Portfolio Consider the size and complexity of your portfolio If your portfolio changes or investing style changes assess your reports and policies When doing a portfolio restructure model it first Utilize techniques such as duration and convexity to measure portfolio risk Utilize these same analytics to establish policy risk limits Pursue training and education opportunities to maintain perspective on the markets

3. Manage the Portfolio as Part of Your Entire Balance Sheet Use the portfolio as an important tool in your A/L management Goals for your portfolio change as your balance sheet changes

4. Diversify the Portfolio

Each security type has its strengths and weaknesses —use them Diversify the portfolio across sectors Diversify within each sector (coupon, structure, maturities, calls) Spread purchases over time and through rate cycles Avoid making big bets on the direction of interest rates

5. Build Steady, Consistent Cash Flow

Provides liquidity for loan funding or deposit outflows Provides funds for reinvestment opportunities when rates rise Helps avoid having excessive funds to invest at one time

6. Manage Your Tax Position Optimize the tax benefits of municipal bonds — most big banks don't invest here Consider taxable munis Spreads have remained generous in the seven to ten year "sweet spot" Munis have positive convexity or low negative convexity When the Treasury curve has inverted the muni curve remained positively shaped Tax—exempt munis have about two thirds the duration of comparable taxable bonds Diversify and carefully manage credit risk in the muni sector If S corp, remember built-in-gains/losses and "cushion" in the "AAA" account

-34-