Pub. 4 2013 Issue 1

spring 2013 11 The Correspondent Division of CenterState Bank employs over seventy dedicated correspondent professionals, and we manage over 590 rela Ɵ onships throughout the Southeastern United States. Capital Markets Services Por ƞ olio Strategies Bond Accoun Ɵ ng and Safekeeping BondRisk and SwapRisk So Ō ware Treasury Services x Brokered CDs x Repurchase Agreements x Federal Funds Accommoda Ɵ ons x Deriva Ɵ ve Instruments Asset/Liability Management Modeling and Consul Ɵ ng x Plansmith Bankers GPS - Call Report Model x FICast Sendero - Instrument-Level Model Bond School and Customized Educa Ɵ onal Func Ɵ ons Interna Ɵ onal Services Foreign Wire Transfers S.W.I.F.T. Messaging Foreign Currency and Travelers Checks Foreign Check Clearing Foreign Dra Ō s Foreign Exchange Advisory Services Payment Solu Ɵ ons Cash Management x Converge (On-line Pla ƞ orm) x Sweep Account x Federal Funds Program 120 Club Oaks Court, Suite 150 y Winston-Salem, NC 27104 y 336.659.7100 y 877.604.8282 www.csbcorrespondent.com As our customers and their communi Ɵ es expand and grow, CenterState Bank is commi Ʃ ed to delivering innova Ɵ ve products and services that Include: or liability sensitive and need to extend or shorten the net duration of their assets. Relative Value Swap: At any given point in time, some sectors of the bond market offer better value than others. Moreover, the relative advantage of the different sec- tors (as measured by their yield spread relationships) is constantly changing. Mortgage-backed securities versus municipals, callables versus MBS… all of these rela- tionships should be monitored as markets move. Savvy portfolio managers will take advantage of the changing relationships and do swaps that sell what is rich and buy what is cheap compared to historical averages. As always, each bank will have a different sector allocation that is optimal for them given their liquidity and cash f low needs, tax position, etc. Here again, a big-picture view of the balance sheet is necessary. Muni Tax-Loss Swap: Banks should always be looking at their tax position and working with their accountants to optimize their after-tax performance. Each bank has its own unique set of circumstances, but generally the Tax Code al- lows for a loss on the sale of securities to be deducted for tax purposes. Moreover, for a taxable bank, the interest income from reinvestment is allowed to be earned tax free if the proceeds are used to purchase municipals. The bottom line is that the bank can recoup a tax-deductible loss with tax- free income. This strategy in particular is best executed at the turn of the year in order to have an entire twelve months to recover any loss. Cash Flow/Liquidity Management Swap: To a very large extent, investment portfolio management is simply the management of cash flows. Just as we look at rate sensitivity for the overall balance sheet, we must also take a macro view of the portfolio and pay close attention to the positioning of cash flows for reinvestment. This involves creating and maintaining a sched- ule of maturities, prepayments, and other sources of principal return that will optimize the risk and reward of reinvestment in future months and years, regardless of the direction of inter- est rates. Cash flows for many securities, callable bonds, and MBS in particular, are moving targets because of the options risk. This makes it critical that the profile be monitored and measured for changes in rates, and adjusted with bond swaps when necessary. Q For more information, contact Jeff Caughron at The Baker Group: 800-937-2257, www.GoBaker.com , or email: jcaughron@GoBaker. com. The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.