As we’re getting into the warmer months, it’s reassuring that baseball season is well underway. Your correspondent confesses a deep and abiding passion for the sport. While I’ve been only partially successful in getting my wife engaged in watching live baseball, she has gamely accompanied me to over two dozen major league stadiums. Nothing says “springtime” to me quite like the crack of a wooden bat on horsehide and the roar of a crowd. Might I add a beer and a hot dog? It occurs to me that with a little thought there may be some parallels between our national pastime and community banking. Follow along as we see what lessons we might glean from the grand old game. And don’t buy what Yogi Berra asked: “Who can think and play baseball at the same time?” Bunt This strategy is something of a lost art in this era of homerun hysteria. It’s intentionally tapping a pitch very softly in front of the plate in hopes of reaching base safely before the defense can react. The ball doesn’t travel very far, but it can be very effective. For a portfolio manager in 2024, it can mean a money-market instrument that matures in less than a year. Lately, three-month t-bills out-yield everything on the treasury curve, including the 30-year bond. Double The ultimate goal of bond portfolio managers. I’ve had many astute bankers tell me that they’re not trying to maximize yield from their securities collection. They’d much rather have great liquidity and modest price volatility, and they’ll leave the riskiness to the loan portfolio. A two-base hit automatically puts the portfolio in scoring position. Relief Pitcher When the starting pitcher is beginning to tire out (which these days is more like the fifth inning versus the eighth), a quick fix can often be found by bringing in a fresh arm from the bullpen. For a community bank’s balance sheet, which suddenly has some interest rate exposure — whether due to a shock in rates, a surge in certain types of credit products or a shift in deposit makeup — a quick fix can often be found by executing an interest rate swap. A bank can efficiently increase or decrease rate sensitivity as needed on virtually any segment of the balance sheet. Umpire The Federal Reserve. The various branches and broad powers of our central bank can, in some ways, dictate the tenor and the flow of the whole financial services industry. As a regulator, it acts as the arbiter of balls and strikes, whether a batted ball is foul or fair, and whether a baserunner is safe or out. As the setter of monetary policy, it determines the ground rules that govern play. Stolen Base This is akin to a tax swap. A runner advancing one base after the pitcher begins his delivery puts the player 90 feet closer to scoring a run, assuming he beats the throw from the catcher. A tax swap is a strategy in which an investor sells a bond, any bond, at a loss and reinvests the proceeds into a tax-free muni. The loss on sale is recorded at the net-of-tax number; the earnings on the new bond are 100% tax-free. This built-in head start helps to advance your earnings closer to home plate. Even better, while “stolen” has a pejorative tone, a tax swap is totally within the rules of the game. Play Ball! National Pastime Gives Us Some Portfolio Management Guidance By Jim Reber, President and CEO, ICBA Securities 24 | The Show-Me Banker Magazine
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