Pub. 3 2015 Issue 3

21 Fall 2015 The Community Banker KANSAS COMMUNITY BANK CATCHES, PASSES PEERS USING BOND PORTFOLIO By Jim Reber, President and CEO of ICBA Movin’ On Up S teve Handke runs his community bank’s bond portfolio the same way he manages his family’s farm out- side of Horton, Kan. He rolls up his sleeves and gets engaged. Handke, the president and CEO of Union State Bank of Everest, a $310 million-asset institution, had an epiphany more than a decade ago while attending a bond school for community banks. During the event, he recalled seeing a table that displayed the impact on a bank’s bottom line return on assets (ROA) for having a high-performance investment portfolio. “It was astounding how much money banks were leaving on the table,” he says. “And the fact of the matter was that these lower performers had balance sheets that looked a lot like ours.” Looks familiar Handke could have added that those banks with lower per- forming investment portfolios had income statements looked like Union State Bank’s as well. At the time his bank’s portfolio was in the third quartile in terms of overall industry yield, which is saying its yields were below more than half of its national peers. He remembers, “When I extrapolated the impact on our bottom line, we were voluntarily forfeiting more than $120,000 each year. And we were much smaller than we are now.” Being a part-time farmer, and therefore not afraid of a project that has deferred gratification, Handke set about improving his bank’s standing amongst its peers. He had no illusions about the duration of the job. “I was in for the long haul as far as being a community banker,” he says. “It was maybe going to be three years or more before the bank’s yields were in the top quartile, so no time better than then to get started.” Owners’ manual Handke and all other commu- nity bankers had a valuable tool at their disposal, ICBA Securities’ Performance Profile. He recalls, “I learned about the Perfor- mance Profile from Jim Need - ham, a community banker from Troy [Kan.], who was respected by everyone in the state. Jim had been managing his bonds using this report, and if it was good enough for him, it was plenty good enough for Union State Bank.” Vining Sparks, the exclu- sively-endorsed broker of ICBA Securities, can create an institu- tion-specific report each quarter that allows a portfolio manager to track his or her progress rel- ative to the community bank’s peer group. This complimentary Performance Profile was the barometer by which Handke tracked his progress. “I had some help from the ad- vice I got from my brokers too. The Performance Profile would point out the differences in my portfolio and the top quartile’s, but it still took some discussion with [brokers] to find the right bonds, and the right mix,” says Handke. “We make it a policy to diversify our investments among agencies, mortgage se- curities and munis, so we need advice and documentation about what we buy, and why.” Live and in person Fast forward to 2015. Union State Bank of Everest is well-en- trenched in the top quartile of its peers. Handke says “now we’re in a mode of maintaining our investment structure to stay at the top. The Profile basically defines what our next purchases need to be. And another nice thing is that the Profile’s recom - mendations take our interest rate risk into account, so we’re not helping yield while sacrific - ing sound risk management.” Steve Handke will be one of 11 instructors at the ICBA Bond Academy this fall. In his workshop he will explain the steps his community bank took to create a high performance investment portfolio. The Bond Academy will be held November 8-10 in Memphis, Tenn., at the Peabody Hotel. Participants are eligible to receive up to 16 hours of CPE credit. For more information or to register, visit www.icbasecurities.com/ 2015bondacademy. Jim Reber is president and CEO of ICBA Securities and can be reached at 800-422- 6442 or jreber@icbasecurities.com .