Well, another year has passed, and I am sure you will be glad in waving goodbye to 2020. Not sure what to say about 2020 other than if there is a checkmark box next to it, I would select the one that reads, “would not recommend.”

When I wrote the Securities article last time around, the two-year Treasury and 10-year Treasury sat at 1.609% and 1.832%. As I write this article today, the two and the 10 are at 0.127% and 0.956%. So now we have a much steeper curve but super-low short end (and really the whole curve). The 30 year is about an eighth lower than the 10 year from one year ago!

So now we have swung from curve inversions and imminent recession to widening spread but historically low rates. Add on to the fact that the Federal Reserve lowered the discount rate back to where we sat for over a decade, and it creates a perfect storm for margin compression. Last year at this time, I was musing about which direction the markets would go, with the trade issues with China as the most significant potential pendulum swinger. That was all before we had the worldwide COVID-19 pandemic rear its ugly head just a few weeks/months later. But interestingly, our markets have held up well under such stressed circumstances. That is most likely a testament to just how strong the U.S. economy really was and is even under our COVID-19 restrictions. Even in the face of soon to come increasing tax burdens across consumers and businesses. Even in the face of soon to come government spending and programs and re-tightening of regulations.

What does this mean for banks and community banks in general for 2021 and beyond? I have said for a long time, margins will compress without loan demand. Well, now they are really compressing; as a recent report indicated nationally, the overall NIM for banks was around 2.6%??? I know this includes all banks across a broad spectrum, but it still points to a potential for several years of very low margins.

So how do securities play into this going into 2021? Do we see any uptick from vaccines globally lifting the world’s economies? Does the U.S. get a bump next year? I really do not see securities portfolios, yields, etc., getting a large boost, but anywhere up from here must be a boost — 30,000 on the Dow as of writing versus 28,000 when I wrote this last year. We have held our ground, but not without great cost. We have had substantially lower yields across all investments and all loans. It will become more important than ever to effectively manage our investment portfolios and work hand in hand with our bond teams out there. FBBS and Vining Sparks/ICBA do a wonderful job of not just providing products, but really do provide more in-depth services through consulting and guidance in these especially lower rate environments. Quartile analysis against peers can demonstrate areas of improvement, concentrations, or just give us the ability to re-analyze our portfolio mix at the ALCO and/or policy level. Swaps right now are a good play to look at, and I recommend all our preferred providers out there for the services they offer.

2021 can only offer as much hope as we put into it, and I do hope that it is a better year for all versus 2020. I hope for a happy and healthy year for all our member and non-member Missouri banks out there. And hopefully, we can all successfully navigate whatever challenges come our way in 2021. Here’s to hoping everyone had a merry Christmas and a happy New Year and to having a happy and blessed New Year.