Independent Banker - October 2022 - 36

PORTFOLIO PORTFOLIO MANAGEMENT
New trials, new tricks
Proactive investment strategies are appearing in bank portfolios.
By Jim Reber, ICBA Securities
through the pandemic, when core
lending, particularly in most banks'
market footprint, was almost nonexistent.
Examples of these are
high-quality out-of-market whole
loan packages and commercial
mortgage-backed securities (MBS).
New challenges
t's been said before in this space,
and at the risk of redundancy
(not to mention banality), here goes:
Community bankers are a resourceful
lot. Examples are plentiful, but keeping
the discussion on the balance sheet,
here are just a few from the recent past:
 The quick work by community banks
to determine whether to embrace,
or to run and hide from, TARP
opportunities in 2008
 The adoption of policies and
procedures relating to the due
I
diligence required pre- and
post-purchase of municipal and
corporate bonds starting in 2013
pursuant to the beloved Rule 939-A
of Dodd-Frank
 Gradual and growing use of
off-balance sheet tools, namely
interest rate swaps, to improve
competitiveness and defease risk
(About 29% of community banks
have some type of derivative
contracts currently in place.)
 Increased use of loan surrogates
Community bankers have always been
willing to step up to a challenge, and
we can click off the more material
issues facing the industry in 2022.
For one, net interest margin (NIM) is
at an all-time low; the FDIC reported
that community bank NIM was 3.13%
for the first quarter this year. For
another, unrealized losses in the bond
portfolio were over 9% as of June 30,
which is a modern-era high.
Into this cauldron we add several
more ingredients. The growth in
community bank balance sheets since
2020 has caused most banks' capital
ratios to shrink, even as credit quality
has remained remarkably solid, and
earnings, while not at record levels,
have at least been respectable. Deposit
growth has slowed but was still up 10%
on a year-over-year basis in March.
Another development that has
affected bond portfolios is that the
supply of straight agency bonds (for
example, FHLB, FNMA, and FHLMC)
is smaller than at any time since 1998.
This has caused yield spreads in that
sector to shrink, and in many cases
has compelled investors to purchase
agency alternatives.
New paradigm
Proof of that is more than onequarter
of all bonds that community
banks purchased in the first half of
2022 were treasuries, according to
ICBA Securities' exclusive broker,
Stifel. This, again, is a high-water
allocation for the sector in well over
a decade. One of the motives for
34 Q ICBA Independent Banker Q October 2022
Photo by master1305/iStock

Independent Banker - October 2022

Table of Contents for the Digital Edition of Independent Banker - October 2022

Table of Contents
Independent Banker - October 2022 - Intro
Independent Banker - October 2022 - Cover1
Independent Banker - October 2022 - Cover2
Independent Banker - October 2022 - Table of Contents
Independent Banker - October 2022 - 2
Independent Banker - October 2022 - 3
Independent Banker - October 2022 - 4
Independent Banker - October 2022 - 5
Independent Banker - October 2022 - 6
Independent Banker - October 2022 - 7
Independent Banker - October 2022 - 8
Independent Banker - October 2022 - 9
Independent Banker - October 2022 - 10
Independent Banker - October 2022 - 11
Independent Banker - October 2022 - 12
Independent Banker - October 2022 - 13
Independent Banker - October 2022 - 14
Independent Banker - October 2022 - 15
Independent Banker - October 2022 - 16
Independent Banker - October 2022 - 17
Independent Banker - October 2022 - 18
Independent Banker - October 2022 - 19
Independent Banker - October 2022 - 20
Independent Banker - October 2022 - 21
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Independent Banker - October 2022 - 24
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Independent Banker - October 2022 - 27
Independent Banker - October 2022 - 28
Independent Banker - October 2022 - 29
Independent Banker - October 2022 - 30
Independent Banker - October 2022 - 31
Independent Banker - October 2022 - 32
Independent Banker - October 2022 - 33
Independent Banker - October 2022 - 34
Independent Banker - October 2022 - 35
Independent Banker - October 2022 - 36
Independent Banker - October 2022 - 37
Independent Banker - October 2022 - 38
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Independent Banker - October 2022 - 40
Independent Banker - October 2022 - 41
Independent Banker - October 2022 - 42
Independent Banker - October 2022 - 43
Independent Banker - October 2022 - 44
Independent Banker - October 2022 - 45
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Independent Banker - October 2022 - 78
Independent Banker - October 2022 - Cover3
Independent Banker - October 2022 - Cover4
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