Summary: We've analyzed just over 14,000 securities in detail worth over $17 billion in par value and found some very interesting things you can likely benefit from. We welcome the conversation about your specific situation and portfolio as we cannot share particulars in a general forum without a better knowledge of your institutions specific portfolio -- and there is a great deal to learn and share. In fact there is likely not a better advisor out there who has the cost control and yield improvement subject matter expertise in the Community Financial Institution marketplace. 

Up front and center. Buying Larger -- and counter-intuitively -- "Smaller" Odd-lot Security Sized Quantities can generally improve Yield, ROI, ROA, and Capital for very different reasons in many situations. A second is that the cost savings curves seem to differ by security type with Munis, Corporates, Agencies and MBSs having demonstrably different, what we call, affordability curves. Of course there can be hurdles on both sides of the continuum, and, every institution is different and requires it's own careful and specific analysis. Conducting a deep dive from a fiduciary can be an important cornerstone of enhanced due-diligence and portfolio oversight -- one we think should be considered every few years -- and especially independently after major market moves -- like the ones we are in the middle of. More eyes on a fast-moving situation can often uncover overlooked intricacies that can lead to unexpected benefits.

Some important generalities to consider include:

• they are easier for the broader institutional market to move (i.e., sell),
• there is often times unrealized margin in them to be unbundled into smaller units that can then be sold in less efficient markets in smaller chunks,

There are other potential advantages coming from larger blocks including:

• the fewer cusips that an institution needs to manage can tend to help with oversight and regulatory compliance,
• maintaining a research file of all securities is often less challenging when their are fewer cusips to track,
• all things being equal, exception reporting and the potential for a credit debacle could be reduced,
• the costs associated with safekeeping can be reduced

Disadvantages may exist too including: the potential for reduced diversity in the portfolio (especially for smaller community financial institutions) could become an issue with concentration risk in volatile markets with significant moves. For smaller institutions, buying in smaller round lots where possible may help with this specific disadvantage.

What is "odd" is oftentimes also dependent on the size of the institution with larger institutions who have greater security portfolio assets considering an CMO purchase under a million 'current' an odd-lot whereas as smaller institution with a smaller overall securities portfolio might consider a CMO under $500,000 'current' an odd-lot. Similarly CDs, Corporates, and other securities could be an odd-lot for the larger institution, but not the smaller institution.

Additionally, and this is where a detailed analysis is likely required, the amount charged by firms to financial institutions regardless of size, can differ wildly across asset classes of securities. We have generally rank ordered them below from what we have found to be most expensive to the most economical securities type to financial institutions in general as outlined in the summary above. Of course the added costs incurred within the bond usually do not out way the reason to purchase the specific asset class, but it's a fascinating analysis none-the-less for the most informed possible purchase decisions for an institution -- each security type with its own specific added cost curves, by size of security purchase, with some security types favoring smaller size purchases, others larger size purchases, and still one with middle-sizes purchases while staying away from the larger and smaller sizes.

1. Corporate Bonds
2. Municipal Bonds
3. Mortgage-Backed Securities (MBSs)
4. Agency Bonds
5. Treasuries

There are likely reasons why your institution may not be shown some interesting Treasuries strategies right now – that is because they are just not as profitable for the institution selling to you. But that is the topic of the next From The Desk Of.

We would be happy to share our detailed findings with you, and that of other industry subject matter experts for that matter, while we look at your specific situation. It's likely due-diligence that you have never completed before, and will most certainly leave you with enhanced knowledge on ways to optimize your specific portfolio. Since our consultation and Transparency Analysis is complementary (yes, free) there is really no reason for your institution not to dig in -- and you'll end up being the hero either way.

As always, consider a first or second opinion from SB Value Partners by eMailing us back today.

Let SB Value help you examine all these, and other methodologies, to build out your future pathways to optimizing your success.

Questions? ASK US HOW to start a complementary analysis now. It’s a great time to get some additional clarity. Learn some additional truths on the front end. It may position your bank for added improvements in 2022 and into a better position for 2023. Listen to what a few thought leaders have to say who have written white papers on the topic at hand. Take a read through a few Fact Sheets on the subject that we would be happy to provide.

As fiduciaries we see quite a lot – in fact we have recently reviewed just under 14,000 data points from Community Financial Institutions – likely just like yours. We look forward to sharing with you some of what we have learned. In the meantime, we thought we would help with some general information that you and your team can consider right away to round out what you are already doing. There is a lot that’s beneficial, starting with cost savings, yield improvements, and likely better balance – even protection. To find out more please click here on our website.