Pub. 8 2020 Issue 3

17 The Community Banker Webinar series continues ICBA Securities and its exclusive broker-dealer Vining Sparks are hosting three webinars covering a range of topics in September, October and November to conclude its 2020 Community Banking Matters series. One free hour of CPE for each event is offered. To reg- ister, visit viningsparks.com or contact your Vining Sparks sales rep. Trusted in Montana for Over 60 Years CWG Architecture Architecture Engineering Interior Design (406) 443-2340 650 Power St. Helena, MT cwg-architects.com the bank’s interest rate risk posture. However, sometimes the man- ager decides the portfolio is longer than desired, in which case the DIY is called. This entails executing a pay-fixed interest rate swap to turn the asset into a receive-floating adjustable rate bond. Lockdown corner The best way to explain this is to lift the definition from Wikipe- dia: “These elite defenders cover an offensive receiver so effective- ly on either side of the field that the quarterback does not target the receiver being covered.” To the community banker, this means owning assets that cannot be called away or converted to cash when interest rates are not favorable (e.g., now). The way to lock down your assets is to buy “bullets,” which have no call features, or securities such as multifamily mortgage-backed securities (MBS) with prepayment penalties or yield-maintenance provisions. Man in motion This entails sending one or more offensive players running parallel to the scrimmage line before the snap to better position them for the play. In investment management, its equivalent is the purchase of newly issued bonds with extended original set- tlement dates, which further coincide with upcoming maturities of bonds currently in the portfolio. This play has been especially beneficial in recent months, as the amount of maturities and calls have outpaced new issuances, creating something of a scrum among investors. Nickel back Sometimes a team will insert a fifth defensive back into the lineup on obvious passing downs to give it a better chance of covering the potential pass receivers. This “nickel package” ap- pears in balance sheet management in the form of match-fund- ing assets and liabilities. If a community bank strategically adds assets through an acquisition or outright leverage, it must balance the altered interest rate risk. Tools such as Vining Sparks’ Performance Architect can quantify the balance sheet’s new dynamics, including the impact on capital, mar- gins, and earnings. Fourth-quarter rally The third quarter of the calendar year for broker-dealers is often a period of low volume. Some of it has to do with portfolio managers not taking time to identify beneficial port- folio opportunities until the figurative two-minute warning. This year especially, there are plenty of good reasons to be distracted. The bad news is that there are a lot of community bankers who operate in a last-second mode. Late December is rarely a good time to sell securities; it can, however, be a buy- ers’ market. Make decisions early — 10 minutes to go in the game is still relatively early. Late fourth-quarter comebacks are hard to pull off. Go team! Jim Reber (jreber@icbasecurities.com ) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks.