www.bell.bank Member FDIC 34617 Partner with Bell for: Participation loans Bank stock and ownership loans Holding company loans and lines of credit Reg. O loans to bank employees, insiders or directors Equipment financing Find the terms and flexibility you need on large or small loans at Bell, with faster turnaround from an experienced team dedicated to correspondent lending. Whatever Loan Amount You’re Looking For, We Can Help. Bill Lloyd Call me at 573.268.5172 – Based in Columbia, MO Serving Missouri and Kansas 34617 AD Missouri Independent Bankers Assn. 2022_Bill Lloyd.indd 1 3/11/22 11:51 AM Many portfolio managers opted for the lower coupon, given the need to stabilize the shrinking net interest margins. Jim Reber is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. He can be reached at jreber@icbasecurities.com. New ICBA Securities Directors ICBA Securities has added these four leadership bankers to its Board of Directors: Tommy Bates, ICBA Chairman, Legends Bank, Clarksville, Tenn.; Aza Bittinger, Community Bankers Association of Ohio, Columbus, Ohio; Blake Heid, First Option Bank, Paola, Kan.; and Craig Wanichek, Summit Bank, Eugene, Ore. neither of these are expected to have much prepayment activity in the near future, as the collateral for both is plainly out of the money to be refinanced. DISCOUNT MUNIS: BUYERS BE ALERT Let’s shift investment sectors, but stay on message. The tax-free municipal segment of a bank’s collection of bonds is an important determinant of overall performance. Certain rules apply to tax-frees purchased at prices below par that you may have forgotten since “discount munis” was an oxymoron for most of the last four years. The Internal Revenue Code states that a tax-free bond that came to market either at a par or premium price, which is subsequently purchased in the secondary market at a discount, is subject to capital gains tax to the extent the yield is attributable to the discount. For example, a bond with a 3.0% coupon that came to market at par, and is now priced at a discount to yield 4.0%, will be taxed at the capital gains rate on the 1.0% incremental market yield. The upshot is a muni priced to yield 4.0%may not yield 4.0%, given its coupon and original price. Your brokers can and should walk you through the ramifications of these matters, which have some subplots that space does not allow to discuss here. The easiest workaround? You guessed it: up-in-coupon bonds. Munis that have higher stated rates, which today mean fours and fives, have built-in cushions against falling prices and avoid capital gains tax liabilities. Ultimately, multiple applications of this strategy suggested here can make life better for your community bank. Limited price volatility? Probably. More predictable cash flow? Likely. Up with income? Most expectedly. ■ August 2022 | 31
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