Pub. 5 2014 Issue 3

www.wvbankers.org 10 West Virginia Banker I n most community banks, it falls to the ALCO Committee to ensure that the disparate activities of lending, invest- ing, and funding are all working together. Sometimes the magic works, and some- times it doesn’t. During those times when there is an element of discord in the house, it may have more to do with the nature of the business than with the Committee’s oversight. When loan demand is soft and the available supply of high-grade borrow- ers is small, are we going to deny a loan to a credit-worthy applicant because the terms they request aren’t exactly consistent with the Committee’s ideal? Probably not. Are we going to discourage a long time cus- tomer from doubling their MMDA balance when what we really need are thirty-month CDs? Probably not. So, to a degree, the complexion and the characteristics of a community bank’s balance sheet are in the hands of others. Those others would be your customers. Wonderful people though they may be, they’re probably not overly concerned with the challenges you face in running the bank. Why Can’t We All Just Get Along? Fortunately, there’s one element on the balance sheet in which your customers play no role in building. The investment portfolio is yours alone to administer and, if handled effectively, can serve to com- pensate for those borrowers and depositors whose preferences and desires may not be consistent with management’s big picture. If handled ineffectively, however, the imbalances resulting from efforts to ac- commodate customers may become more pronounced. Put another way, an unbri- dled quest for yield alone could potentially worsen a bad situation. If a portfolio man- ager acts without first checking with his housemates, he may find himself exiled to the garage. Your Bond Portfolio Does Not Live Alone By Lester Murray, Sr. Vice-President / Financial Strategies Group, The Baker Group Like a typical household, a typical community bank has a variety of diverse characters under its roof. It might be expected, then, that these diverse characters occupy their time with diverse activities. If a bank is to operate as a happy household, it’s important that all the members of that household get along with each other. And too, it might be nice if their various activities work in harmony. Or, at the very least, don’t work against each other. Like so many things, this can be easier said than done.