Friday, January 19, 2018
MANAGING DIRECTOR: Scott Carrithers   PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty Robert Brickson • Kevin Doyle • Lonnie Harris •  Mark Tranckino • Robert Schuyler  Tom Toburen • Josh Kiefer • Nicole Burczyk • Kelley Frye • Natalie Regan • Aaron Stoffer • Chuck Honeywell

US Treasury Market
Date	1 mo	3 mo	6 mo	1 yr	2 yr	3 yr	5 yr	7 yr	10 yr	20 yr	30 yr
1/11/18	1.32	1.43	1.58	1.77	1.98	2.09	2.32	2.46	2.54	2.72	2.91
1/12/18	1.31	1.43	1.59	1.78	1.99	2.12	2.35	2.48	2.55	2.71	2.85
1/16/18	1.33	1.45	1.63	1.79	2.03	2.12	2.36	2.48	2.54	2.69	2.83
1/17/18	1.31	1.44	1.63	1.79	2.05	2.15	2.39	2.51	2.57	2.71	2.84
1/18/18	1.29	1.45	1.63	1.79	2.05	2.17	2.43	2.55	2.62	2.77	2.90

                                                                                       Source: U.S. Department of the Treasury, as of 1/18/18  

ANALYZING THE RETURN ON MUNICIPAL BONDS

If your second-grader is accustomed to getting two cookies in his/her lunchbox every day and you suddenly cut back to one cookie, will he/she turn that cookie down?  I think not!

That’s not much different than the scenario that many of us are facing when analyzing the return on municipal bonds.  Yes, tax rates have been cut (hooray!)  … yes, “taxable-equivalent” yields of municipal bonds are lower (boo!)  …  but if that taxable equivalent yield of your municipal bond STILL outweighs the alternatives (after taking credit risk into account), doesn’t it still pay to put that on the books?

Whether you are a C-Corp or an S-Corp (and we all know that deciphering the impact of the new tax code is anything but simple), municipal bonds still offer a taxable-equivalent yield spread commensurate with the risk.   Munis have historically held a prominent spot in the most successful bank portfolios as was recently highlighted in a BankNews piece authored by our chief market strategist, Jeff Goble (see link below).   We expect that to continue to hold true. 

Currently, we see value in the tax-free market particularly in the 10-20 year maturity range.  Good quality (AA or better) 10-year bank qualified municipal bonds were being priced this past week at a tax-free yield of roughly 2.25%.  For an S-Corp, that equates to somewhere in the vicinity of a 3.16% to 3.50% taxable equivalent.  Do the math and let us help you explore if that can be beat.  

Municipal bonds have always been an integral part of bank portfolios not just for the added return but also as a vehicle to support local communities and infrastructure.  Let’s not abandon that ideal when the need is perhaps greater than ever.   Be grateful for the cookie that’s still in your lunchbox.  We welcome your feedback and inquiries.

 Bank News article:  Got Yield?  Another January, Same Old Challenges

This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

•Not FDIC Insured •No Bank Guarantee •May Lose Value