Pub. 2 2012-2013 Issue 5

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S March • April 2013 15 portfolio managers have to ask is whether an extra 10-20bp in current yield is worth an extra 5 points in price risk. 2. Look closely at unrealized losses – Given the current level of rates, most portfolio holdings are carried at a gain. There are, though, securities that are currently carried at an unrealized loss. This isn’t a bad thing but if unrealized losses are a result of structural changes in securities, or credit concerns, look to remove them. 3. Consider taking gains now – This is referred to as the “bird in the hand” strategy. As mentioned above, there are many holdings carried at significant unrealized gains, and given the uncertainty of the year ahead, many institutions like the idea of having some realized gains tucked away for future use. • Consider short securities that will be rolling off (or largely rolling-off) before year-end or longer holdings with large percentage gains. In the first case, an institution is simply transferring this year’s income from margin to gain-in-sale, in the second, minimizing the proceeds needed to produce a target gain. In either case, future flexibility is enhanced by taking the gain now for use to offset losses as the year progresses, 4. Move out of negative yield mortgage assets – Carry is important, and the fact that balance sheets are flush with cash – earning nearly nothing – means that the earnings produced by the portfolio are essential. If a mortgage holding is generating a sub-0% current yield, look closely at moving it. From a macro perspective, for portfolio managers, it’s the ex- ercise of evaluating holdings that is most important. Whether an institution actually undertakes action is secondary to the benefit derived by thoroughly evaluating each holding. This exercise simply provides a means to better manage the impact that a changing environment can have on the portfolio and balance sheet. While it may feel as if 2013 could be a repeat of 2012, there are some important differences for market participants. The Fed is an even bigger asset acquirer, so spreads are tighter. Portfolio yields continue to roll lower and cash balances continue to in- crease, so earnings pressure is likely to increase as well. We are also one year closer to the end of this cycle, and the longer that the market remains in this mode, the more that portfolio risk increases. It is imperative to stay engaged. Q Give your small business customers greater access to capital with CHFA’s Cash Collateral Support program. This streamlined program is easy to use and allows you to use your own underwriting criteria. In a short time, you could have cash deposited at your bank equal to up to 25 percent of the loan amount. Take advantage of the industry’s best kept secret. Contact CHFA Business Finance today and get the deal done! get the deal done 800.877. chfa (2432) www.chfainfo.com financing the places where people live and work