Independent Banker - June 2022 - 30

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PORTFOLIO PORTFOLIO MANAGEMENT
What we hoped for?
Community bankers wished for higher rates in 2022. And now...
By Jim Reber, ICBA Securities
confess an affinity for Casey
Stengel. The legendary manager of
the New York Yankees in the 1950s,
during which his teams won seven
World Series titles, could politely be
referred to as garrulous. Casey also
had a way of mangling the English
language that came to be known as
" Stengelese. " Many of his comments
are transportable to other walks of
I
life, and some have appeared in this
column over the last 17 years. Now
that we're well into the 2022 baseball
season, I'd like to dust off another
of the Old Professor's quotes and
attempt to maneuver it back to bond
portfolio management: " There are
three things you can do in a baseball
game. You can win, or you can lose, or
it can rain. "
Praying for rain
Casey Stengel,
baseball manager
extraordinaire of the
1950s, had thoughts
on portfolio bond
management ... kind of.
If your duties include managing
you community bank's collection
of bonds, it might be said that your
goal at the end of the quarter, or
year, or career is to end in a tie.
By that, I mean the portfolio has a
reasonable risk-adjusted return, and
the attendant unrealized gain or loss
is purely a sidebar. It's simple enough
to calculate the return over a period
of time, the standard being taxequivalent
yield. It's easy to compare
your bank's returns with your peers',
as the call report contains enough
information for reporting agencies,
including bank regulators, to make
that information public.
It's also simple to quantify the risks
associated, especially since credit risk
is assumed to be confined to the loan
portfolio. The major remaining risk
is price volatility, and you will recall
the primary means of measuring that
is duration. Duration is essentially
the weighted average period of time
until your bonds reprice, one way or
another. Your bank's bond accounting
provider will calculate the effective
duration each period and estimate
how that would change if rates rise
or fall.
Unrealized = unfinished
Which brings us to the third rail
of many investment committees'
measuring sticks: gain or loss in the
market value of the holdings. I have
long contended that the net change in
market values of a collection of bonds
gets far too much attention from
community bank management. This
is especially so since the end of the
Great Recession, which was the last
time there were any real impairments
to bond holdings. In the past 14 years,
gains or losses have been purely the
result of changes in interest rates.
We also remember just a couple
30 Q ICBA Independent Banker Q June 2022

Independent Banker - June 2022

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

Table of Contents
Independent Banker - June 2022 - Intro
Independent Banker - June 2022 - Cover1
Independent Banker - June 2022 - Cover2
Independent Banker - June 2022 - Table of Contents
Independent Banker - June 2022 - 2
Independent Banker - June 2022 - 3
Independent Banker - June 2022 - 4
Independent Banker - June 2022 - 5
Independent Banker - June 2022 - 6
Independent Banker - June 2022 - 7
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Independent Banker - June 2022 - Cover3
Independent Banker - June 2022 - Cover4
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