18 HќќѠіђџȱ юћјђџ юѦȱ2014 &RQWLQXHG RQ SDJH DIRECTORS / SENIOR MANAGEMENT Like a typical household, a typical community bank has a variety of diverse characters under its roof. It might be expected, then, that these diverse characters occupy their time with diverse activities. If a bank is to operate as a happy household, it is important that all the members of that household get along with each other. It also would be nice if their various activities work in harmony, or at least don’t work against each other. Like so many good intentions, this is easier said than done. In most community banks, it ȱȱȱȱ¢ȱĴȱ (ALCO) to ensure that the disparate activities of lending, investing and funding are all working together. Sometimes the magic works, and sometimes it doesn’t. During those times when there is an element of discord in the house, it may have more to do with the nature of the ȱȱ ȱȱĴȂȱ oversight. When loan demand is soft, and the available supply of high-grade borrowers is small, are we going to deny a loan to a creditworthy applicant because the terms requested aren’t exactly consistent ȱȱĴȂȱǵȱ ¢ȱ not. Are we going to discourage a long-time customer from doubling his or money market deposit account (MMDA) balance when what we really need are 30-month CDs? Probably not. So, to a degree, the complexion and the characteristics of a community bank’s balance sheet are in the hands of others. Those others would be your customers, who probably are not overly concerned with the challenges you face in running the bank. Why Can’t We All Just Get Along? Fortunately, there’s one element on the balance sheet in which your customers play no role in building. The investment portfolio is yours alone to administer and, if handled ě¢ǰȱȱȱȱȱ for those borrowers and depositors whose preferences and desires may not be consistent with management’s ȱǯȱ ȱȱě¢ǰȱ however, the imbalances resulting ȱěȱȱȱ customers may become more pronounced. Put another way, an unbridled quest for yield alone could potentially worsen a bad situation. If a portfolio ȱȱ ȱęȱȱ with housemates, he or she may become exiled to the garage. While the consideration of returns is certainly part of the mix, management should contemplate other characteristics, such as liquidity, average life, duration and ȱĚ ǯȱ ȱȱȱȱȱ maintenance of stable, predictable ȱĚ ȱ¢ȱ¢ȱ ȱȱȱ community banker’s best defense against interest-rate risk. It follows, then, that the securities that are contained within the portfolio must behave themselves; that they act like they are supposed to and not subject the rest of the household to mutinous behavior. No teenage truculence allowed. Straighten Up and Fly Right! Unfortunately, some securities, not unlike brain-addled adolescents, have trouble remembering the rules. This ȱȱ¢ȱęȱ concern when confronted with a volatile interest-rate environment. Portfolio managers who chased the Your Bond Portfolio Does Not Live Alone яќѢѡȱѡѕђȱ Ѣѡѕќџ Lester F. Murray joined The Baker Group in 1986 and currently serves as a senior vice president within ȱęȂȱęȱȱǰȱȱ- nity banks develop and implement investment and A/L management strategies. He is a frequent speaker at investment conferences and educational seminars. Prior to joining Baker, Murray worked at two broker/ dealer banks in Oklahoma City and also was an assistant national bank examiner. He is a graduate of Oklahoma State University. For more information, ȱ ȱ ¢ȱȱŞŖŖȬşřŝȬŘŘśŝǰȱDZȱȓ gobaker.com. The Baker Group is a Diamond Associate Member of the Indiana Bankers Association and an IBA Preferred Service Provider.
RkJQdWJsaXNoZXIy MTg3NDExNQ==