Independent Banker - March 2019 - 45

obligations, and since they were only
eligible to be issued in 2009 and 2010
when banks had little or no earnings,
they were an attractive alternative to
tax-free bonds.
There was other language that
applied to only 2009 and 2010 issues.
The size limit on Bank-Qualifi ed (BQ)
bonds was raised from $10 million
to $30 million, and in spite of ICBA's
best eff orts, the provision expired in
December 2010. Tax-free bonds that
were not BQ could be treated as such
by a community bank if a) the issues
were " new money " and b) the bonds
in aggregate were less than 2 percent
of the bank's total assets. These are
known as " 2 Percent Rule Bonds. "
Also, 2009 and 2010 issues were not
subject to the Alternative Minimum
Tax (AMT) if they were not refi nancings
of older outstanding deals.
Advance notice
What do these divergent municipal
bonds have in common? Most of the
longer maturities in each case came to
market with a 10-year call date. And
those dates have arrived, or will soon.
So, if you haven't already noticed, you
may experience a fl ood of calls this
year or next.
Economically, the issuers of these
seasoned bonds probably have good
reason to call them. Not only are longer
(fi ve years and up) rates lower
than they were in 2009-2010, but the
ever-present demand from the retail
sector keeps market yields on the short
end depressed. So many of the BABs,
BQs and 2 Percent bonds are actually
in-the-money to be called as soon as
the call date gets here.
Get out in front
My advice is to get a current projected
cash fl ow ladder of all of your bonds,
including municipals. Your favorite
broker should be able to provide this
information in the " base case, " and
Education on Tap
Convention
workshops
ICBA Securities and its
exclusive broker, Vining Sparks,
will present four Learning Labs
at ICBA LIVE 2019, March 18-22.
Visit icba.org/convention and
click on " Education Sessions "
for further details.
Webinar series
continues
ICBA Securities and Vining
Sparks have announced the
next segment of their 2019
webinar series Community
Banking Matters for March 26
at 10 a.m. CST. Dennis Porcaro
and Justin Sparks of Vining
Sparks will discuss " Municipal
Market Update: Investment
Strategies and Credit. " Free
CPE is available. To register,
visit viningsparks.com
Banking
Forward
focused.
thinking.
Did we mention
compliance savvy?
shocked at +/- 400 basis points. If you
have some stacked up to be called in
the next two years, you have options.
Most community banks at this point
of the economic cycle could use some
liquidity. However, given the relatively
low yields that persist for shorter
munis, it's possible (if not likely) to
make the math work on an extension
swap. And even if you'd be selling
something at a gain, which often makes
the economics of a muni swap more
challenging, remember that any BABs
that you would sell are taxable to start
with, which helps the math.
So why don't you take a look back
into your muni holdings, focusing on
those that have born-on dates in 2009
and 2010. Those call dates may be
gaining on you.
Strategy
Web
Brand
Digital
Social
877.630.6115 * pannosmarketing.com
James Pannos, CFMP
jpannos@pannosmarketing.com
c. 617.962.2182
http://www.icba.org/convention http://www.viningsparks.com http://www.pannosmarketing.com
Independent Banker - March 2019

Table of Contents for the Digital Edition of Independent Banker - March 2019
