Balance Sheet Management & Investment Advisory Services

Our service is quite simple: we help financial institution executives  improve profitability while monitoring and managing risks – a service we call Balance Sheet Management (BSM). The value we bring our clients is providing education, documentation, and – most importantly – advice with strategies in many areas such as: asset/liability, investment, liquidity/funding, capital, and risk management.

Our clients, who may lack time, resources, and/or expertise, have been happy with the solutions we develop in our areas to address the complex issues of balance sheet management. Our collective balance sheet knowledge acquired through multiple engagements has enabled us to deliver our service to institutions like yours, mindful of strategies and ideas we implement for other clients. Our intent is to bring accountability, focus, planning, and follow-through to the process.

Examiners and accountants have found our approach & analytics helpful in teaching executives about the risks & opportunities in the balance sheet and investment portfolio, including profitability improvement and net interest margin management.

At HUB Financial Services, we’re strong proponents of managing investment portfolios from a whole balance sheet perspective. This approach is often ignored by many investment advisors who end up managing the portfolio in isolation. Our years of experience and data analysis have taught us that it’s imperative to consider other parts of the balance sheet in addition to the current investment philosophy, because investment strategies need to be institution-specific.

HUB Financial Services is an SEC Registered Investment Advisor serving only financial institutions. We are not a brokerage firm, but a team of asset-liability analysts and consultants who help financial institutions achieve their goals. Our investment management approach provides our clients with a better understanding of institutional investment management, and it enhances ideas and risk management strategies based on your institution’s unique balance sheet and marketplace. The ultimate objective? Helping you facilitate a highly focused discussion with management to improve investment decision-making and monitoring.

Financial crises happen. Our strategies are designed to help you get through it.

We have a proven track record of helping institutions successfully navigate through crisis situations when asset quality deterioration leads to capital and liquidity erosion. Our balance sheet management discipline integrates capital, asset quality, earnings, liquidity, and sensitivity as part of our crisis management plan. Our ultimate goal is to keep community financial institutions independent and thriving in their communities, and our history proves we can help make it happen.

From time to time, financial institutions may receive criticism from the regulatory authorities. These can come it the form of Matters Requiring Attention (MRA), Prompt Corrective Action (PCA), Memorandum of Understanding, (MOU), or Cease and Desist Orders (C&D). Often times these orders come with short timelines to comply.

HUB Financial Services is your trusted partner to ensure timely and accurate compliance with these regulatory requirement within their stated deadlines.

Regulatory guidelines call for banks to review each step of the interest rate risk (IRR) management process for integrity and reasonableness. This includes corporate governance, model output, and back-testing analysis. Organizations such as the OCC, FDIC, FRB, and NCUA have issued statements containing guidelines to manage IRR, including “Interagency Advisory on Interest Rate Risk Management” and OCC Bulletin 2011-12 “Supervisory Guidance on Model Risk Management.”

These documents stipulate that all institutions are expected to have internal controls to ensure the integrity of all elements of the IRR management process. To meet these complex standards, it’s recommended that IRR policies, procedures, and models are reviewed annually by a third party independent of the IRR management process at the bank.

Why not turn a regulatory exercise into a chance to make improvements?

We’ll dive in and take a look at ways you can improve your process by incorporating best practices for managing, monitoring, and controlling interest rate risk. We’ll work closely with your institution and the model provider to gather appropriate data and develop a customized report based on the unique characteristics of your organization.

We’ll assist with:

• Compliance with IRR Policy, Duties/Responsibilities of ALCO and the Board, review of ALCO meeting minutes, Net Interest Income and Economic Value of Equity risk limits, Stress Testing, etc.
• Suitability of the risk measurement system, accuracy of source data into the model, review of validity of assumptions (loan prepayment speeds, deposit beta and decay assumptions), etc.
• Back-Testing of Net Interest Income, the Balance Sheet, and yields/costs.
• Recommendations and advice on best practices to improve the IRR process, maximize the usefulness of the model, and meet regulatory requirements.

Ready to learn more about ALM, capital, liquidity, interest rate risk, portfolio management, and more?

If so, you’re like countless others at financial industry conferences throughout the country, where HUB Financial Services is invited to speak. We’ve also enjoyed talking with and educating various state banking associations, financial institutions, and regulatory bodies.

Formal, ongoing board education and training is now a regulatory requirement for financial institutions. HUB Financial Services routinely offers this type of training as part of the Balance Sheet Management Service, or as a stand alone service. Where we can help to educate, we’re always willing.

Score credit the right way.

Institutions can no longer rely on credit ratings alone in determining creditworthiness of investments. Specifically, regulators now expect a more in-depth and periodic analysis of the municipal bond portfolio. Unfortunately, there are several challenges many banks face when trying to perform this type of analysis in-house or even using some third parties:

• The range of available information for a particular security varies greatly.
• The information usually comes from a variety of sources.
• It is difficult to synthesize all available information and objectively determine credit quality.
• Most third party information is incomplete providing only demographic or financial data without a grading scale.

It’s our mission to stay on top of these challenges, and our firm has developed a credit quality scoring model. We use a weighted multi-factor grading approach that assesses several key credit factor components. When it comes to reviewing credit, we don’t take chances. You shouldn’t either.

Banks are looking for ways to get more out of their municipal portfolio without sacrificing credit standards, liquidity, or expanding their geographic scope.

Benefits of the Strategy

• Provides a vehicle to efficiently own general market municipals
• Maximizes liquidity and earnings characteristics of owning general market municipals
• Takes advantage of the relative value added of owning general market municipals over bank qualified municipals

The primary difference between bank qualified (BQ) and general market (GM) municipal issues have to do with a $10 million bond issuance limit per year.  The BQ & GM designation is not regulatory, nor is it dependent on credit characteristics, or geographic location.  Banks with a wholly owned investment subsidiary are able to efficiently purchase GM munis which have a 19:1 supply ratio and higher tax-free yields of up to 100bps versus similar BQ munis.

The Tailored Path

• SEC registered investment advisor who is the market leader in the strategy
• Dedicated staff that covers the general municipal market
• Dedicated staff to independently grade and monitor municipal issuer credit
• Purchasing power and strong relationships with municipal underwriters to significantly lower transaction costs, improving liquidity and returns

For details on the performance of HUB Financial Services investment advisory clients, please contact us at sasha.antskaitis@hubinternational.com or 502-412-2205.

We perform Impairment analysis and valuation for a variety of investment types. Through our years of experience, Taylor Advisors has become an expert in helping your financial institution manage:

• Municipal Debt
• Corporate Debt
• Private Label CMO
• Trust Preferred Security, including single issuer and pooled
• Collateralized Debt Obligation (CDO), both cash and synthetic
• Collateralized Loan Obligations (CLO)
• Other structured credit