BY JIM REBER, CPA, CFA PRESIDENT AND CEO, ICBA SECURITIES Remember “the wave?” It’s that spontaneous yet somewhat choreographed activity by sports fans in stadiums to ramp up the enthusiasm level. The most succinct description I can find is from Wikipedia: “The wave … is a type of metachronal rhythm achieved in a packed stadium or other large seated venue, when successive groups of spectators briefly stand and raise their arms. Immediately upon stretching to full height, the spectator returns to the usual seated position.” So, there you go. And don’t expect to see “metachronal” in this column ever again. Before you turn the page, I promise that the wave is relevant to community bank portfolio management. Flash back to 2020 at the onset of COVID-19, when the central banks attempted to stave off the impending economic collapse. “Cut interest rates to zero and motivate the consumer to consume,” went the reasoning, “and maybe we will limp our way through until we can get back outside.” Didn’t See It Coming The result of the aggressive monetary action was, of course, a tsunami of liquidity being dumped on community banks. This was aggravated by the phenomenon known as “flight to quality,” as depositors everywhere sought sanctuaries to park their savings, and there was no better place to do so than community banks. However, a lot of the cash was organically generated. Most of the bonds owned by banks have either an implicit or explicit call feature, which means borrowers (bond issuers) can pay them back early if rates fall after issuance. PORTFOLIO MANAGEMENT Falling Rates Should Boost Cash Flows 6 In Touch
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