QuantyPhi Quarterly | December 2024
A Message from the President
As we approach the end of another outstanding year, I want to extend my heartfelt gratitude to each of you for your continued trust and partnership with QuantyPhi. Your dedication to your own credit union, the broader credit union movement, and to working collaboratively have been instrumental in our journey, and we are truly honored to work alongside such a committed community.
This year has been filled with significant achievements and milestones. Together, we have navigated the complexities of the financial landscape, always striving to optimize your balance sheets, enhance your investment portfolios, help understand impacts to ALM, and assist with all other aspects of risk management programs. Your success is our success, and we are proud to support your financial goals.
Looking ahead, we are excited to share that we are diligently working on developing several new products and services tailored to meet your evolving needs. Our commitment to innovation and excellence remains unwavering, and we are eager to bring you solutions that will further empower your credit unions.
Thank you once again for your trust and partnership. We look forward to continuing our journey together and achieving even greater heights in the coming year.
Warm regards,
Adam Stone
President of QuantyPhi
Product Spotlight
Spotlight on liquidity risk management.
Liquidity risk is now a top concern for credit union leaders and examiners. The NCUA has prioritized liquidity in their Supervisory Guidelines, making it crucial to have a robust liquidity risk management program.
QuantyPhi's Liquidity Framework Review can help enhance your internal program and tools, ensuring you have timely insights into your liquidity position and emerging risks. Contact us today to discuss our services and request a recording of our recent webinar for an in-depth look.
A better valuation model for mortgage servicing rights.
Mortgage servicing rights (MSR) let loan originators sell mortgage loans while keeping the administrative tasks, providing a steady revenue stream. This helps financial institutions focus on creating and disbursing new loans. QuantyPhi has developed a valuation model for accurately reporting MSR assets, considering how changing interest rates affect prepayment speeds and income. A case study using real credit union loan data shows the model's benefits, highlighting its focus on asset/liability management and interest rate risk.
QuantyPhi to offer CECL Validation services.
We are thrilled to announce that QuantyPhi is currently developing a CECL Validation service. This new offering will help credit unions assess the soundness of their CECL reporting process, ensuring both accuracy and compliance with regulations. We look forward to sharing more details very soon and helping you strengthen your financial reporting. Stay tuned for updates!
Market Update
Our mantra holds true – follow the numbers, not your gut.
By: Danny McIntyre, Vice President Investment Services
It has been an interesting three months since the last QuantyPhi newsletter. Despite witnessing the finale of a hotly contested Presidential election, the attention of the US financial markets continued to be dominated by projections of the Federal Reserves’ monetary policy. We saw the much-anticipated pivot from the Fed in September, when they announced a 50-basis point ease followed by another 25-basis point cut in November. In 16 months, beginning in March 2022, the Fed had raised rates 525 basis points and then kept them there for another 14 months before September’s rate cut.
A review of the interest rate path since the September rate cut provides additional credibility to one of our mantras, “follow the numbers, not your gut.” With everything pointing to the Fed pivot ahead, portfolio managers were scrambling to improve performance in the rates down scenarios that were likely on the horizon. From its start in January, our Investments 201 webinar series outlined the market sentiment calling for the Fed to begin pushing rates lower. We also pointed out during these webinars that the forward yield curve was implying a major transformation of the shape of the curve in the year ahead. Before plotting the best path forward to address rates down scenarios, we cautioned that portfolio managers should understand the impact of a yield curve shifting from a sharp inversion to a “normal” positive slope on the credit union’s balance sheet and investment portfolio.
For those following the numbers, the caution flags were easily spotted. Total return analysis showed that using our gut instinct to extend duration in front of falling rates was an effective strategy – if rates fell uniformly across the curve. However, the analysis also pointed to potential problems if the interest rate path followed that suggested by the forward curve. The forward curve implied that the Fed pivot would be felt chiefly in the very short end while the intermediate and long sectors would likely see a much milder reaction to the Fed’s easing. The result would be a slightly positively sloped yield curve in the next twelve months.
The initial inverted yields combined with modest participation from intermediate and longer yields to follow the short end down had a significant impact on the risk/reward profiles.
The analysis confirmed that duration extension could be beneficial, but it was imperative to find the right securities, or combination of securities, to successfully navigate the waters. Solid analysis accounting for cash flow volatility along with non-parallel yield curve twists provides additional data to make effective strategic decisions to steer the portfolio and the balance sheet.
So, where have interest rates gone since the Fed’s initial ease in September? Short rates (90 days and shorter) have fallen approximately 35 basis points. One-year rates went up 30 basis points, while the intermediate and long end of the curve saw rates climb to 60 basis points. Nothing close to the rate path our guts told us to suspect.
Market Update and Security Offerings Email
This weekly communication will provide an update on key market rates, as well as provide indicated offering levels for Treasuries, Agencies, Mortgage-Backed Securities, and select other investment types available through Corporate Central’s Broker/Dealer program. It will include robust fundamental analysis and total return analytics to help credit union members identify characteristics in the market sectors that meet their needs.
Financial Reads
Are you looking for some good reading that might help you at work too?
Money Anxiety
Dan Geller, Ph. D., introduces the next stage in behavioral economics with this book on financial anxiety. Many have read about elasticity of demand, but Geller moves one step further to measure how we behave with deposits in various steps in the economic cycle. Financial institutions would do well to understand this behavior.
How to Lie with Statistics
Darrell Huff takes a lighthearted but interesting view of what we all thought we knew; public opinion polls, growth statistics and even growth figures. This book can help you understand what many don’t and build a healthy level of skepticism that is necessary to know how the world really works.
Getting to Know Your CUSO Team
Meet Lynda, our multi-talented ALM & Investment Analyst with a love for adventure and community.
Lynda joined Corporate Central in 2021, bringing her expertise to help member credit unions thrive. She specializes in analyzing financial data for current and potential members, managing investment accounting programs, and providing valuable support for Asset Liability Management (ALM) programs. Lynda also offers economic and market insights, supports investment and loan product sales, assists with member safekeeping, and is instrumental in helping to complete credit union consulting projects.
Before joining Corporate Central, Lynda spent a decade as a Controller at a community bank in Alaska. She holds a bachelor’s degree in Accounting from the University of Alaska and the University of Phoenix.
Outside of work, Lynda enjoys hiking, baking, and crafting. She loves exploring Wisconsin’s beautiful lakes and trails with her husband. Excitingly, she’s preparing to welcome her first grandchild soon!
Spotlight on SimpliCD
SimpliCD makes it easy to turn your excess liquidity into a high yielding certificate of deposit portfolio.
With SimpliCD, your credit union can:
- Purchase multiple CDs in a single transaction with no fees
- Eliminate the need for multiple wire transfers - Corporate Central makes the transfers for you
- Receive one consolidated interest payment to your Corporate Central account
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