Best Practices in Balance Sheet Hedging

It's a classic banker's dilemma: borrowers want long loans, with today's low interest rates, and banks want to be as short as they can. In a volatile rate environment, we tackle the challenge of risk management and managing your balance sheet, as we discuss hedging strategies with Robert Perry, principal at ALM First.  

Transcript

ALM First In Your Best Interests Podcast

Featuring Robert Perry

Mike Einsweiler (00:01):

Welcome everyone to the 14th episode of in your best interests, an ALM First podcast, a show that will explore common depository challenges, give you an insider's view of the latest market trends and share stories and insights from industry leaders. I'm your host, Mike Einsweiler. Given the current low rate environment, we have the classic banking dilemma, commercial and consumer borrowers want long loans, and depositers want to stay short as possible. Freddie Mac released the results of their primary mortgage market survey in July 15th. And one of the big takeaways is that 30 year fixed rate mortgages average 2.8%, which is a couple of basis points lower than the previous week. It's down 30 basis points from this year's high in April and it's down dent 10 basis points from one year ago. Add that to our client's portfolio, going more of their 30 year mortgages. I thought it made sense to take a deeper dive into one aspect of risk management and managing the balance sheet. And that is balance sheet hedging. Last August. In episode two, we discuss best practices for managing the balance sheet with Robert Perry. And I've asked Robert to join me today and share his thoughts and insights on the profitable side of risk management.

Mike Einsweiler (00:00):

Welcome Robert. And thanks for joining me today. 

Robert Perry (00:48):

Thanks Mike. 

Mike Einsweiler (00:00):

You know, we, we talked about balance sheet management, best practices back in episode two, which was way back in August of 2020, and the world is changing. And I'd like to focus today on one aspect of balance sheet management, namely hedging, there was a lot of different ways to hedge in a depository. So let's focus on core hedging strategies versus Forex or pipeline hedging or servicing rights or any of those types of things. And maybe we can start with the basics and get progressively deeper. So if I'm a depository, why do I want to hedge? Am I looking to lock in profits to manage risk, attract more business, extend my duration of liabilities, some combination, or is it something else?

Robert Perry (00:48):

Well, you know, Mike, it's really, um, all of the above, you know, institutions, um, worked with clients over the years and have always encouraged institutions, whether they're hedging or not is to look at their balance sheet and especially on the asset side and price their assets in a risk adjusted framework. Um, which would mean in the end of the day, you're, you're eliminating the interest rate risk component from the asset pricing. Um, and if you looked at a Ray rock model or our Roe model that we use, that's, what's implied in it. So then you know that you're correctly pricing assets given a capital allocation. And if you choose them to remove the interest rate risk from that transaction, where that portfolio of assets what's left over is enough compensation given the capital allocation for the shareholder or the member or whoever you want, think about your balance sheet.

Robert Perry (01:44):

So once you've put that type of framework in place, hedging is a natural outcome from that. You can say, here's my loan pricing across the yield curve, and here's my auto loan and consumer loan pricing. And I'm pricing it relative to the yield curve plus credit costs and like an Roe framework. And if you can naturally fund it with your deposits, then hedging doesn't come into the equation. You know, that you're just funding up the front part of the yield curve. If you're looking at longer duration assets or more term loans, 30 or mortgages, longer duration commercial, uh, CRE type loans, then you're going to you'll use the same exact framework for pricing. But then you may say you have an, I'm not comfortable with the interest rate risk that comes with that loan, but it doesn't fit well together with the rest of my balance sheet so that when I'm going to hedge or I'm going to these assets, these categories of assets are ones that are designated as I'm going to ultimately hedge these because we know they don't fit together with the rest of the balance sheet, right?

Robert Perry (02:42):

So it's not really a blind decision, but it starts with good asset pricing, a Ray rock model, a good Roe model. And then from there, risk management comes in and takes over. And I know you've heard me say this numerous times. Um, but there's why don't why don't some institutions hedge. And if you thought about it for a minute, if you priced your assets poorly, longer duration assets yep. You didn't price them in a good Roe or Ray rod kind of model. If you hedge them in, you're going to hedge in low profits. So you don't want to do that. Right. I have a really low marginal return on equity and I'm going to hedge it in and have it on the balance sheet for years and years and years. So a lot of times you hear that is that people that do a good job at financial intermediation, they do a good job at portfolio management.

Robert Perry (03:27):

They price assets accurately. They want a hedge to expose their good head. They're good pricing. Right? Right. You have a comparative advantage either in bond portfolio management or in loan pricing where they have a niche model and what the last thing they want to have happen is have interest rates come in and wipe out all this good work I did. Right. So those are the guys that want to hedge. Yeah. And then typically you see some of these other institutions said, well, maybe they're not their institutions, not that valuable. They're going to hedge in low market value. They're going to hedge in poor profits. So they they're more speculative than the way they run their balance sheets because of that problem, right.

Mike Einsweiler (04:02):

Is rate interest rate risk. The only thing that depositories are hedging, for example, we've had institutions come to us and say, Hey, I want to lock in these gains. Is that a reasonable strategy?

Robert Perry (04:14):

Yeah. The problem with that is, is that there are other components inside of an assets yield that are typically either not Hedgeable or they're the profits that you want to expose the portfolio to. So if you hedged out all of the spread and, and then you you'd have very little left, so right. If there is a credit premium that you're earning that you're able to diversify the credit risk at a portfolio level and then hedge the interest rate risk. Yeah. Then your that's your job. You're not hedging the credit risk. That's a diversifiable risk. It's not a pebble risk typically, especially in community banks. And then you have options costs and other things that are embedded in there that most institutions don't try to hedge. You're going to expose the balance sheets to that basis. Risk. A good example is liquidity premiums. If you look across the market, um, as a depository, part of your profit comes from being a liquidity provider.

Robert Perry (05:16):

So you're, you have to manage liquidity correctly, right? In a big picture, but some of your portfolio assets you're getting compensated for being the liquidity provider. That's part of your profit because that borrowers coming to you and needs liquidity and you're providing it. Yep. So by being a depository or kind of the idea of financial intermediation, this theories of financial intermediation, that's one of the things that you're paid for. You're diversifying credit, risky assets into portfolios of let's say less risky, right? Cause you're diversifying right. You're hedging interest rate risk very directly. And then you're collecting credit premiums and liquidity premiums and option premiums and deposit premiums. And you add them up together. And then you say, well, I can, I can build a reasonably hedged and diversified balance sheet to generate a pretty nice net interest margin. I mean, that's kind of textbook banking, but top performing institutions behave just like that.

Robert Perry (06:10):

And that's where good profits come from you. There is a profitable side to this risk management idea that if you have good models, um, good technology, accurate data, you can identify Hedgeable assets. And you know, your, your systems and tools are, are strong enough to help you identify what the risk profile looks like so that you can do a better job at hedging. And then you're more profitable and less volatile. And in the stock market, people pay you a premium for that. So in a, in a noncooperative form that, you know, institutions that have very stable earnings over the long run and very predictable and understandable credit costs and generate reasonable margins and marginal returns on equity. They're compensated for that, right. Markets see that if you're bad at it, and you're on, these are all over the world and your profits go up and down and what time you're going to pay the price through your cost of capital will be higher in a fair market.

Robert Perry (07:03):

Sure. So there is a, you know, whenever we, it's kind of an academic way to think about hedging, but risk management and hedging institutions are compensated for doing a good job at it where there's more faith from the depositors. There's more, less regulatory scrutiny. If you, if you good, good at it, if you're not good at it, and it's a mess, then you're getting, you know, you're going to hear it from everybody. But the people that do a good job at it are typically rewarded for it, but you've got to have all the pieces in place to do a good job at it. Yep.

Mike Einsweiler (07:30):

So looking at our client base, which is heavy on the residential mortgage side and given the current level of rates is now a good time to hedge.

Robert Perry (07:40):

You know, I think it's almost always a good time to hedge. Um, and it's a reasonable way to, like I said, just a second ago, you know, if you think about asset pricing, um, and bringing hedging to the table with asset pricing, it, it brings discipline to the pricing of the asset. Um, and then it becomes a capital allocation thing. So now you have to say, well, okay, I can price assets fairly all up and down the yield curve. I can hedge with fairly simple instruments so I can remove the interest rate component. Now I have to look at well, here's these six different assets that are all competing for a piece of my capital to capitalize that asset. And I have members or shareholders that that capital belongs to them. Right? So now I have to do a sensible job of allocating that capital toward the assets that are all competing for a place on the balance sheet.

Robert Perry (08:30):

So what you see a lot of times with commercial banks in a risk-based capital framework, single family mortgages are not the big asset on the balance sheet because they're capital intensive compared to bonds and commercial loans. Yep. So a lot of commercial banks get built with more commercial loans, CRE type loans, CNI loans, um, and a securities portfolio and liquidity where the mortgage itself, it has to have it doesn't compete as well as some of these assets in terms of capital allocations. Yeah. Um, on the credit union side, there are some restrictions obviously on credit unions and what they can do on the commercial loan side. Although, uh, you know, we've worked with many over the years that have low-income designations that basically don't have a commercial on cap, but they're still big consumer land consumer lenders and a lot of them. So that model looks like an old thrift model where you're originating mortgages, you're selling a portion of them to the agencies.

Robert Perry (09:26):

And you're keeping some on your balance sheet. That's a pretty common model for the credit union model. And that's because the ones that go to the agencies are priced so tight, it's difficult to justify keeping that asset on the balance sheet. Yeah. But I'll write the one to the non QM borrower or the jumbo loan or the guy over here or whatever it is. And some of them, you can, they're priced well enough that you could capitalize them and hedge them. And they fit on a balance sheet, but the ones that are, you know, right down the fairway really, really clean Fanny loans, most of the time, it makes it more sensitive to go ahead and deliver those outcomes. Right.

Mike Einsweiler (10:01):

Okay. So what tools are at my disposal, the hedge

Robert Perry (10:06):

With the most common, uh, hedging instrument that's been around for a long time now is just a plain vanilla interest rate swap where the entity is typically paying fixed and receiving a floating rate. Um, a lot of institutions used to account for those transactions as liability hedges. And they S they called it synthetic alteration. And it's basically synthetically extending the duration of a short-term funding source. So I've taken this floating rate funding that I have, that's going to increase when interest rates go up and it's in my loan is fixed, right? So when that funding cost goes up, my margin gets thinner. It's like the definition of interest rates, right? So I could just, I can receive a floating rate and pay a fixed rate. And it turned my three month funding that rolls over every three months. I can turn it into 10 year funding.

Robert Perry (10:56):

Now it fits a lot better together with a mortgage or a longer duration commercial loan. The interest rate risk is coming from the asset, but a lot of times it's easier to hedge the liability. So meter where you want to look at it, it's a mismatch between the assets and the liabilities. It has to be dealt with. Um, there is some new rules as you're well aware that came out 2017 was the original ASC 8 1 5 that came out. Um, and we spoke about it at an AI CPA conference. A few years ago, there was a few flaws in it and a couple of things that were not quite as clear as they could be. Um, and the FASBI just came out with, uh, the, the changes to, um, 8 1 5 of the comment period ended on July the fifth. Um, I've reviewed, I've reviewed the documents, but I haven't reviewed the comments yet, but basically it was the first thing that we saw also that was a difficulty in hedging, a closed pool of prepayable and of mortgages, which is what they were doing there.

Robert Perry (12:01):

If you go back prior to that, hedging mortgages was difficult because the notional not the prepayment risk, right? The duration gets smaller. When rates go down, only my mortgages pay off. I still got my hedges. You know, everybody's had to deal with this dilemma where you're rebalancing all the time. And rebalancing kind of counting are not friendly, right. Once you lock it down and accounting-wise rebalancing is pretty difficult, so they just weren't fitting together. Sure. So they did a pretty good job trying to make the economics and the accounting for hedging mortgages closer together. And they created what was the last of layer. Um, and that is now changing to a portfolio layer. So the term lasts the layers going, uh, going away. Yeah. And there, and people have been speculating all along the way that they had to do this, that you would be able to hedge multiple layers under a single pool of loans.

Robert Perry (12:49):

And that's what that's all about now. So our initial thought was, well, if I can only put one hedge against it now, if I had to the tenure part of it, and that's only 20% of the balance, it's still outstanding. That's not enough hedges. Right. So I would have to break up a portfolio into a bunch of little portfolios and hedge them all independently with two-year five-year ten-year hedges. And that would be complicated. And you'd have to think about them back rolled up together again. So they've, we all started doing that math, the minute they came out with it and we're like, that's not the best way to do it. So they basically came around and fixed it. And that's what that new documents about. It's sitting up there on the internet, if anybody wants to read it. Uh, but it's just the change to ASC 8 1 5, um, as it relates to that last layer.

Mike Einsweiler (13:30):

I do. Okay. Well, so then maybe let's just take a, I know we don't have a lot of time on this podcast, but if we could do a deeper dive into, uh, some of the more common strategies, um, and maybe, you know, how you might want to look at it, what tools you might want to use or instruments you might want to use, if I'm a residential mortgage lender or a commercial lender, or like you said, I'm hedging the bond portfolio, or as we know a lot of commercial banks, um, they, they use back-to-back swaps. So maybe you can just start tackling a few of those strategies

Robert Perry (14:01):

For yeah. Well, one of the things that we always advocate, uh, to the extent you can hedge at a portfolio level, not at an individual asset level, um, which can be difficult depending on what kind of assets you're hedging. So big commercial loans, how many do you need in a portfolio to actually do a good job at it? It might be prohibitive, which is why many institutions use back-to-back swaps they'll hedge it alone level. And the responsibility of it basically sits with the bar, right?

Mike Einsweiler (14:27):

So the cost flows back through to the borrower.

Robert Perry (14:29):

Exactly. So that takes the financial institution out of that boat of saying, I've got to always manage a big diversified portfolio and hedge it at a portfolio level. If you can do that, having models to identify where your risks are lying along the yield curve is really, really important. So as we all know, with mortgages, there's a lot of exposure to tenure rates. And even though a mortgage pool, whether it's a bond or alone might have a duration of four, it might still have 60 or 70% of its sensitivity to changes in tenure rates because that's, what's drives refinancing activity and mortgage duration. Yep. So that's the big one on the mortgage side, you have to be able to hedge five and ten-year risk and you have to be able to compute partial duration. So you know, how much of it is there. Yeah. And then you hedge fives and tens.

Robert Perry (15:15):

So a lot of our clients and a lot of institutions just think I'm willing to take, you know, two and three year yield curve type risk, because I'm a pretty natural funder in there, but I'm not a natural funder in the five and 10 year part of the yolk, or I'm not the FHLB, I can't just go borrow money for 10 years. Right. Whenever I want it, if you're a bank or a credit union, it's expensive, broker deposits, FHLB advances other forms of term financing. You're paying the term premium and you're better off hedging. So if you looked at funding rates in the two, and three-year part of the curve compared to swap rates, they're a lot closer than the tenure. Sure. And there are a lot closer than the 50 care, right? When you get way out there, it's expensive to go borrow. So if you can synthetically alter your own funding and you know, so many institutions today have so much excess liquidity anyway. Yeah. They don't need borrowing. They need funding. What they need is they need hedges. Yeah. Because there's a lot of demand for longer-term loans. And there's a lot of cash sloshing around in the front end of the ochre and the balance sheets, just not fitting together well, and it's risky to take, you know, a lot of money market accounts and make mortgages and long-term commercial loans without a hedging.

Mike Einsweiler (16:27):

Well, as you mentioned earlier about the, the assets prepaying, borrowings are a lot less liquid than swaps.

Robert Perry (16:36):

That's correct. That is

Mike Einsweiler (16:37):

All you need to rebalance, take them off, whatever

Robert Perry (16:39):

More difficult. Yeah. That's corrected the other thing too, with the, you know, some, if you, if rates are up and your asset prices are down and you have hedges on that are not winning and you want to sell that asset and capture the gains in your hedges, it's much easier to do it in the derivative market than it is to do it in the funding markets. Yeah. It's very hard to get the FHLB to pay you that 20 point premium that your advances up when rates go up 200 basis points, they're not going to give it to you. Sure. So you, you, if you're trying to extract out the gains, dealing directly with a financial market is a lot better for you in the end and capturing your gains and losses. Okay.

Robert Perry (17:22):

So interest rate swaps are the big one. Uh, there are a few options out there that institutions can trade, um, interest rates, caps, um, interest rate floors, which don't get used that much, typically interest rate floors are used to hedge for rates down. And that would be hedging and MSRs that are hedging a deposit franchise intangible or something. That's going to lose value when rates go down. Yep. Most everything else on the balance sheets winning when rates go down cleaning your bond portfolio. So there's not a lot of need to hedge for down rates. Sure. Um, there are swaptions, which is an option on a swap and those are pretty popular with mortgage hedgers. And the reason is if you're, if your duration is for today at a portfolio of mortgages and you figure out you need X dollars worth of swaps, when rates go up 200 basis points or a hundred basis points, the Delta where the duration on the mortgage is getting longer as pre-payment expectations, slow it's extension risk.

Robert Perry (18:20):

So raise up a hundred or rates up 200. You find out what my, my duration went to five, and then it went to six. So I need more hedges. So I can either come in and rebalanced by re hedging, or I can put on a swap and a swap option. And that option is an option that I'm buying today to enter into more swaps as rates go up. So it fixes itself, but an option that Delta of an option changes by itself. That's why you pay a premium for it, the Delta on a swap doesn't because you're not paying any premium for it. So you're either rebalancing your hedges or you're hedging core duration. And then you're adding options to hedge that convexity risk, which is for rates higher. Okay. So a lot of asset managers and people that hedge like we do on a trading desk where we're kind of live all the time.

Robert Perry (19:07):

We're able to rebalance hedges whenever we need to it's called Delta hedging or synthetic option creation. And what I w what I want to do is once I build a mortgage portfolio, I don't want to go spend 50 basis points on options. I'd like to try to keep it and let it get to the bottom line. And I can rebalance my hedges along the way. And let's say there's 50 basis points of options, cost, and a mortgage portfolio. If I dealt, if I dealt a hedge all year, and I only spent 15 cents, then I make 35 basis points more than the guy that went and bought options, but you can't do it if you don't have, you know, a guy with his finger on the trigger, watching rates all day, rebalancing, thresholds, all of those programs that we work with clients on for like MSR hedging, where we're rebalancing, given rate moves. Yup. And then when things are really calm, you just collect more profits and then things get more volatile when you get whipped around a little bit, and you have to spend a few bucks in rebalancing, but as long as you're not spending as much as you would by buying options. Yeah. You're better off doing it that way.

Mike Einsweiler (20:04):

Okay. So that, that brings up a really good point with these, with the different strategies you might employ with the different instruments you put on, how are you measuring performance?

Robert Perry (20:16):

Well, there's a couple of ways that institutional investors and hedgers typically look at performance. Um, you've only, you always had the accounting side and then you've got the economics, right? And the accounting side is basically saying, are your hedge is effective given the way that you set up the accounting for them, that's not really performance, but it's, it is a measure of success in that I built a portfolio and hedged it in a way where my head and my assets are zigging and zagging, and that gains and losses on the derivatives are being deferred because I did a good job of putting them together. Yeah. If you don't do a good job at putting them together, which is me, which basically means I didn't get, I didn't have a good handle on the risk profile of the asset, and it's doing something completely different than I thought, then your hedges are gonna fall out of bed.

Robert Perry (21:04):

You did a bad job modeling the asset. Sure. On the economic side, typically what people look for is they look at the variance of the return over time and see, how is it a men variants hedging program where I can come back in and say the fit between the change in the value in my hedges and the change in the value of my assets, the fit is 90 and 95%, which would be like an R squared. How well are they fitting together? How well is my hedge covering the market value, changes in my asset. And if it's doing a perfect job in it, your R squared would be one. Yeah. A perfectly that never happens because there's other things moving around. You're only hedging the rates. Remember you've got spreads, liquidity premiums, all these other things that are moving, that assets, price that you're not hedging, but you can still do a pretty good job keeping it tuned up.

Robert Perry (21:54):

So that's the way we do it. We measure, you know, an ex-post post performance series, we've measured the R squared and the mean return. And if you have high mean returns and low variants in the hedge portfolio, that's that is success. Whether you're hedging a pipeline, an MSRs set of whatever ever it is, you know, high performance. And the volatility in that return over time is small because you're hedging. It that's the best way to look at it. It's easier to do that with marketable assets. So when I can look at a bond portfolio and price that every day, yeah. Or I could look at an MSR asset and price it, or a mortgage pipeline, hedging alone, a portfolio of commercial mortgages that don't have a market out there it's much more difficult to look at performance that way, because you don't have a price every day or every year to measure against the changes in your hedges.

Robert Perry (22:42):

Yeah. So typically the way those that performance is measured is, is a longer term idea in that are the earnings that I'm getting off of the portfolio hedged nice and stable. So if I did think about it, if I did a good job of hedging, the rate risk, which would mean almost the same thing as saying, I understand the risk profile well enough to fund, to match funding. Cause my pages are turning my liabilities, my short term liabilities into longer term liabilities. So if I build it right and I do a good job at estimating my credit costs, then the, then the interest spread that I'm earning off that portfolio should be nice and stable hedged. Yep. And if it's not, then you're not doing a good job. You don't have to have pricing to measure that you can measure the earnings off of it. And if you did that, right, if you went through a Ray rock model, price, the asset, correct. Estimated the credit cost correctly got the risk profile, right? So you entered it correctly along the yield curve, then your expected earnings and your after the fact realized earnings should be really, really to one another. I thought it was, I priced it all to hedge it and have credit costs to make 225 basis points. And that's what I learned. You know, you're getting a good job.

Mike Einsweiler (23:56):

So as we are winding down here, do you have a best practices checklist for the, uh, the hedger practitioner?

Robert Perry (24:03):

You know, I think there's a few things Mike, that successful hedgers and successful hedging programs all have in common. Um, the ability to, to identify the Hedgeable risk inside of an asset when you're pricing, it is super important. If you can't get your hands around the risk profile of the asset, you're not going to be successful hedging. And that's typically what happens when people have hedging issues. It's usually not the edges, it's their inability to actually analyze the asset and identify the risk profile correctly. And then later they say, I looked ahead, just didn't work. But it's like, now they did exactly what they were going to. You didn't Mollie asset, right? So you have to have systems and analytics to get your hands around and be confident around the risk estimates for the assets you're hedging. So that would be a that's key. Um, and that's probably really the biggest one.

Robert Perry (24:51):

If you can do a good job at that, of course, you know, routine analytics routine, you know, making sure you keep tabs on it and keep an eye on it. So, you know, if something is not quite doing what you thought it was going to do, which is why we run a lot of analytics, right? We run weekly analytics on 17,000 bonds. So that we're constantly seeing is that asset doing what we thought it was going to do. And it helps you just refine your modeling. And the other thing that it will help you do is it it'll help you refine your pricing. So looking, excuse me, ex-post at performance is going to help you refine your pricing. Also in that you might find that you probably see asset too thin and there's not enough profit and after you hedge it, so you've got to adjust your pricing.

Robert Perry (25:35):

So these things all kind of come hand in hand. Um, but the analytics, the routine nature, um, simplifying the instruments, making sure you understand the hedge accounting side. So, you know, you don't get some surprises through your financial statements. Yep. Um, and then keeping an eye on it, um, you know, access to the swap markets and that is the agreements. And you know, whether you do it yourself or work with a provider like KLM, first, those things are all pretty simple. Yeah. Right. That's the simple half of it. The difficult part of it is the beginning. I'm trying to hedge a complex asset with simplistic software wrong. That doesn't work. Right. I don't have enough data elements for me to really model the asset correctly. So I'm making way too many assumptions of way too many estimates, bronc. You're going to, you know, in the end it's just not going to work. Right. So if you get everything tuned up in the front end, then actually executing the hedges and getting that part of it done. That's the easy part.

Mike Einsweiler (26:30):

So we are just about out of time, any other final thoughts that you'd like to share with the audience?

Robert Perry (26:36):

Uh, you know, I think over all years, Mike, there's a, there's a profitable side to risk management that is, you know, interesting. See in practice when institutions actually get all the pieces together where they're confident in their pricing meetings, everybody's on the same page and the way we're pricing assets given allocated capital. Everybody's comfortable with the idea that, you know, if we get too many of these loans on, we're just going to answer them, it's fine. As long as you price them, right. It just removes all this mystery from so many meetings that we've all been in where the marketing guy wants to price this over here. And then we're arguing with the finance guy over here on what's right. And then they said, we can't do many, too many of those loans. They have too much duration. There's all these excuses flying around the table and this is not good banking.

Robert Perry (27:15):

And if you bring analytics and modeling and a pricing model and hedging into the room and get everybody comfortable with it, the whole nature of the discussions change. Yeah. I can expand the product mix I have for clients. I can do things that I didn't think I could ever do before. Um, if everybody starts getting on the same page between these different areas, like lending and marketing and pricing and funds management, you get altogether, and that's a high that's what a high performing institution looks like. And if you really thought to yourself, what should a good Alco meeting look like? We should stop redoing so many reports and do more of that. And it's more successful institutions. They do that. They know I got to check these boxes, but then what are we really doing? We're talking about how do we allocate capital? And we priced assets, how do we manage risk? And how do we make profits in the end of the day? And that's what it, that's what it should look like. And anybody that listens to this I'd strive to do that. It's driving your Alco or your pricing meetings to there'll be more like that.

Mike Einsweiler (28:11):

Well, thanks so much Robert, for taking time today, to share your thoughts on managing and hedging, the balance sheet. 

Robert Perry (27:15):

That's great. Thanks Mike.

I would like to think Robert again for joining us today at the end of each episode, I'd like to take a moment and let you know about some additional resources we have available registration for the ALM. First financial forum is now open and it will be a live event in Napa California. Please. Note space is limited. Robert Perry will be presenting at the event. There'll be a good time to meet him and gain additional insight on loan, pricing, hedging, and other balance sheet management topics. We also have a robust webinar schedule, so be sure to visit our website www.alanfirst.com for more details on these and additional educational offerings. We also have a resource center on our website that contains recorded webinars articles, and more as always stay safe, stay healthy, and thank you for listening to in your best interest and ALM first podcast.