Independent Banker - November 2020 - 34

PORTFOLIO
Portfolio Management
By Jim Reber, ICBA Securities
Slowing the coaster
I
Investors are finding ways to limit prepayment risk in their portfolios.
t's beyond trite to describe this year as
a roller coaster, but I can't resist. At the
conclusion of the thrill ride (if that's what 2020
can charitably be called), as the circuit comes
to an end, the riders can feel the conductor
pumping the brakes. That's the technique of
applying a series of soft " pumps, " versus a
hard and sudden stop, to limit the stress on the
equipment and the passengers, but to halt the
coaster, nonetheless.
In the community banking arena, its
equivalent is a strategy to limit the exposure
to prepayments that A) amortizing securities
possess, which is B) aggravated by the dramatic
drop in mortgage rates since March 2020. As
32 Q ICBA Independent Banker Q November 2020
we will see, some of these measures can be
quite cost-eff ective. It's not a stretch to say
they can be a major determinant in how well a
community bank's net interest margin weathers
the pandemic's stimulus storm.
Meaningful scale
For many community banks, the returns of their
mortgage-backed securities (MBS) will determine
the overall bond portfolio's performance.
When we account for all amortizing securities,
they are now around 57% of the total.
There are several reasons community banks own
more MBS than ever before. One is that the supply
of other popular securities is severely limited; in
Jim Reber, CPA,
CFA (jreber@
icbasecurities.com),
is president and CEO
of ICBA Securities,
ICBA's institutional,
fixed-income
broker-dealer for
community banks

Independent Banker - November 2020

Table of Contents for the Digital Edition of Independent Banker - November 2020

Table of Contents
Independent Banker - November 2020 - Intro
Independent Banker - November 2020 - Cover1
Independent Banker - November 2020 - Cover2
Independent Banker - November 2020 - Table of Contents
Independent Banker - November 2020 - 2
Independent Banker - November 2020 - 3
Independent Banker - November 2020 - 4
Independent Banker - November 2020 - 5
Independent Banker - November 2020 - 6
Independent Banker - November 2020 - 7
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Independent Banker - November 2020 - Cover3
Independent Banker - November 2020 - Cover4
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