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

Investment Strategy Alternatives....

If you believe rates are going to rise...

• A. Keep duration short • Generally, keep portfolio effective duration below 2.0)

• B. Monitor projected portfolio price depreciation in a rising rate scenario

• eg Keep projected price depreciation in a +300 bp environment below 12% overall and 20% for individual securities)

• C. Buy agencies, MBS and CMO's with short final maturities and very predictable cash flows • Buy high coupon 10 and seasoned 15 year MBS; and agencies with maturities < 5 years • D. Buy bonds with low convexity (avoid extension risk) • E. Buy short to intermediate maturity tax exempt munis • F. Buy high credit quality investments that will not be stressed by higher rates • G. Buy high coupon, premium priced securities • Cushion Callable, High Coupon MBS (Low Loan Bal, Seasoned, Investor Property)

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