27 Hoosier Banker June 2016 even preclude, the adjustments that were the reason such securities were acquired. Do It With Cash Flow Rather than depending on rigid structures that control the manner and timing of how and when individual securities reprice, a different way to achieve rate sensitivity is to do it with cash flow. Rate-sensitive assets are fungible, and your balance sheet doesn’t care whether the rate-sensitive asset in question is a floating-rate security or cash. Your income statement might care, though, because you have no control over the repricing of that floating-rate security; however, if that repriceable asset is cash, you can deploy it however you choose. By designing a cash-flow distribution that provides a portfolio manager with the means to reprice earning assets every month at prevailing yields, the ability to keep up with market changes is greatly enhanced. And by keeping up with those market changes, the portfolio as a whole will be a better reflection of prevailing yields, and excessive market depreciation can be avoided. No portfolio is totally insulated from untoward market moves, but an agile portfolio can substantially reduce market risk, while capturing the higher yields of a rising-rate environment. The creation and maintenance of stable, predictable cash flows provides much agility. By building a portfolio with a significant element of agency-issued, high-cash-flow, amortizing passthrough pools and collateralized mortgage obligations, those steady, monthly cash-flow volumes become a rate-sensitive asset just waiting to be repriced at prevailing market rates. There are no lags, no caps, no mismatched indices to worry about. By taking advantage of the higher yields and self-liquidating nature of the right kind of amortizing securities, the current income of the portfolio does not become the sacrificial lamb of rate sensitivity. t Your Full-Service Community Development Financial Partner We support communities and economic development initiatives through: • Creative Loans & Financial Resources • Investments • Best-In-Class Services Cinnaire will support and enhance community stabilization and economic development by providing our partners with creative financial resources, expertise and best-in-class services. cinnaire.com | 844-4CINNAIRE The Indiana Bankers Association is serving in 2016 as presenting sponsor of the official Indiana bicentennial medal, entitling IBA-member banks to serve as exclusive distribution points for medal order forms. Order form kits have been provided to all member banks; additionally downloadable promotional materials are available at: indianabankers.org/bicentennial. For questions or more information, please contact IBA’s Christina Bennett at 317-387-9380, email: cbennett@ indianabankers.org. t Bicentennial Medals
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