cbak.com 18 In Touch Independent Banker Portfolio Management Shoptalk 2021 Here’s another conversation with our consummate community banker. “This is Jim Reber.” “Hi Jim, this is Charlie Brown with Community Trust Bank. Do you have a minute?” “I sure do, Charlie. I don’t think I’ve heard from you since the summer of 2020. How are things at the community bank?” “I think things are going pretty well. But you know what, as we’re getting pretty close to year-end, I believe we need to take a good look at our investment portfolio, and that’s why I’m calling. As you may have guessed, we need a refresher about the dos and don’ts for year-end strategies.” “Charlie, this conversation is taking place right now between hundreds of community bankers and their brokers, so your timing is pretty good, but we should get on this project immediately. Liquidity, in the sense of how efficiently your bonds can be sold, starts to dwindle as we get to mid-December, even for generic bonds like mortgage-backed securities (MBS). And municipal bonds are a wholly different story.” “Well, Jim, let me start by asking about taking gains versus taking losses. I know most tax accountants preach that we should sell bonds at a loss instead of gains because that speeds up the income tax liability. Am I saying that right?” “Yes, and I hasten to add that if you sell bonds you own at a gain, you’re almost certainly going to see your overall portfolio yield go down again. And if there’s a theme that I’ve heard this year from your peers, it’s that the returns on their bonds are dreadful. So, you’ll be aggravating that situation.” “Most community bankers I know don’t like to admit defeat. Are you suggesting I’m supposed to like selling my dogs and taking losses?” “Charlie, since you brought up the metaphor, let me remind you that the bond portfolio is just a complement to the rest of the balance sheet. It is the proverbial tail of the dog. And I’d guess that your annual earnings number is looking pretty good, right?” “Yes, but that’s because of some events aren’t likely to repeat themselves next year. I mean, we booked a lot of fee income from the Paycheck Protection Program (PPP), and our mortgage department has been ahead of budget all year too. I don’t see how we’re going to do better next year than we’ve done in 2021.” BY JIM REBER, PRESIDENT AND CEO OF ICBA SECURITIES
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