Uncle Sean's Update - 5/31/24

​Happy Friday!!!
 
Don’t forget that you can sign up here to have the Uncle Sean Update delivered straight to your inbox each week!  It was a short but busy week, so let’s get right to it.  Here is the Uncle Sean Update for 5/31/24:
 

• Another CU acquisition of a bank.  This week it is Atlanta Postal Credit Union (Charter 67389; Total Assets $2.4B) to acquire Affinity Bank, N.A. (FDIC 29510; Total Assets $870M).
  • And the count is now up to 11 announced whole-bank acquisitions by a CU thus far in 2024 compared to 11 in 2023, 16 in 2022, 13 in 2021, 7 in 2020, and 16 in 2019 (source: FedFis).

 

• Jenius Bank (a direct digital bank and division of SMBC MANUBANK) announced they have reached $1 billion in deposits for its high-yield savings product – WOW!!!  Even more impressive is the fact that Jenius Bank isn’t even one year old yet.  If you’ve followed Uncle Sean for very long you know that I am a big fan of the direct digital bank model as a diversified funding solution and a strategic way to attack niche markets (akin to the bank launching its own fintech while being able to own the ledger, tech, and compliance).  🚀😊

 

• EquipiFi is making the rounds again this week – this time they are powering up Kane County Teachers Credit Union to enable their launch of BNPL for eligible debit card transactions through the digital banking side on a post-purchase basis.

 

• Infinant to acquire Figure Pay's Card Processing Technology built by Figure Technologies.  This adds to Infinant’s digital payment capabilities, including real-time debit card issuance and processing, as a feature of Infinant's Interlace Platform.

 

• Rho (business banking platform) has partnered with Navan to launch a unified product suite to “help businesses simplify the finance stack and save time and money.”

 

• Sharing a funny Uncle Sean economic geek moment – LOL 🤓…  So I ran across this Economic Synopses, which is really good, from the Saint Louis Fed titled, Balance Sheet Normalization: Monitoring Quantities and Prices.  Again, great research piece – and I completely understand this is a finesse style balancing act in reducing securities holdings while maintaining ample reserves to preserve liquidity (recall the huge repurchase agreement “repo” rate spikes in Sept 2019 of 315 bps above interest on reserve balances)…  Here is where my 7th grade humor took over:
  • The article states that Chair Powell noted in his March 20, 2024, press conference, that the FOMC currently characterizes reserves as abundant, but that the FOMC desires an ample level of reserves, "which is a little bit less than abundant." 🤔🤷‍♂️ LOL!!!
    • To me, this is the ‘Fed speak’ equivalent of, “do these pants make my butt look big?”  😬  The point is that you MUST tread very lightly, but diligently, in preparing a strategic response to both of these questions – and never, NEVER, EVER quantify your answer!!!!! 😲😂  I cracked myself up a little too much writing that!!!  Okay – back to the Update… 🤠

 

• More research…  Interesting to me that Federal Reserve Governor, Michelle Bowman’s speech this week titled, The Federal Reserve's Balance Sheet as a Monetary Policy Tool had a little bit of a different opinion on the timing / pace of taper of QT.  But definitely the exact same concerns surrounding liquidity and reserves as they point to repo rates (“Repo Spike”) and stability concerns for banks borrowing / lending to each other.

 

• And more research…  If you are a member of the Bankers Helping Bankers online platform (bankers only), you saw me post this earlier this week…  This report from the Federal Reserve Bank of New York titled, Tracing Bank Runs in Real Time, is another great piece of research from the bank failures last year.  Some key points in tracking deposit outflows in March 2023:
  • 22 banks experienced a run (holy smokes) defined as “significant net liquidity outflows on one of the days between March 9 and March 14, exceeding five standard deviations of their historical net outflows.”
  • The bank runs were driven by large institutional depositors (via FedWire), rather than many small retail depositors (via ACH).
  • Disproportionately targeted publicly traded banks. 🤔
  • Banks that survived a run did so by borrowing new funds and then raising deposit rates, not by selling liquid securities.
    • My take –  👀keep an eye out for possible changes in liquidity coverage ratio (LCR) requirements to include more banks, uninsured deposit emphasis, and discount window readiness as regulators hone in on liquidity measures.
      • For my non-banker friends, this is the old “capital versus liquidity” discussion.  Capital allows the bank to absorb losses while liquidity management is critical (especially in times of volatility) since banks rely on deposits (short-term liabilities) to make loans (long-term assets).

 

• You guessed it - more research…  The FDIC released the Quarterly Banking Profile report for 1Q2024 and accompanying summary remarks and graphs.  Some key points:
  • If you take out last quarters FDIC special assessment expense, 1Q2024 Net Income increased 14.3% as higher noninterest income and lower provision expense offset lower net interest income.  NIM declined 10 bps to 3.17% in large part to increased funding costs.
  • Unrealized losses for AFS and HTM securities increased by $39B to $517B.  This is the ninth straight quarter of unusually high unrealized losses since the Fed began raising rates in 1Q2022.
  • Overall Asset Quality remains good with non-current rates of 0.91%, well below pre-pandemic averages of 1.28%.  However, there was material deterioration in CRE and Credit Card loan performance.
  • Deposits increased for a second consecutive quarter; and the shift to interest-bearing deposits continues.
  • Number of banks on the Problem Bank List (CAMELS composite rating of 4 or 5) increased to 63 institutions from 52 in 4Q2023.
    • For comparison, the FedFis Rating© for 1Q2024 shows 68 banks with a score of 3.82 or worse representing the bottom 1 percent of all US banks.  Clearly I am not above a shameless plug! 😊

 

• Even MORE research…  The Federal Reserve released their Beige Book - May 2024 showing overall continued economic expansion with most districts reporting slight to modest growth.  Tempered by lower discretionary spending and heightened price sensitivity among consumers (yep – you can include me in that group of “heightened price sensitivity” - oof 😲).

 

• Paze (digital wallet by Early Warning Services) is beginning its U.S. rollout after previously being available only to EWS employees and their friends and family earlier this year.  Now available in Arizona and Texas as well as rolling out in the New England states of Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island and Vermont; with expectations to be in all 50 states by summer and ready to go full speed for the year-end holiday shopping season.

 

• PayPal brings in new leadership to build new advertising platform (PayPal Ads) to “help make merchants smarter to sell more products and services effectively, as well as enable consumers to discover more of what they love.”
  • I am reminded of the launch of Chase Media Solutions by JPMorgan that we covered back in early April….

 

• Jelena McWilliams (former FDIC chair) was appointed Chapter 11 Trustee to manage the Synapse bankruptcy.  Next court status conference is scheduled for June 7.

 

• Some personnel moves:
  • Former GS executive Beth Hammack to be the next President of the Federal Reserve Bank of Cleveland, effective Aug 21.
  • Lindsay Borgeson has been promoted to President of the BaaS Division at Core Bank where she was most recently Chief Deposit Officer.  Congrats!!!! 🎉

 

• Notable FinTech funding for the week:
  • Solutions by Text (embedded payments via text) raised $110M in capital that is described as a growth round.
  • Relay (business banking platform) raised $32.2M in Series B funding round.
  • Frich (social and financial literacy platform) raised $2.8M in Seed round.
  • Novel Capital (revenue-based financing platform) raised $15M in Pre-Series A funding.
  • Forward (embedded payments) raised a $16M Seed round.
  • Slingshot (financial services for artists and creators) raised $2.2M in Pre-seed funding round.

 
 
Random Uncle Sean stuff:

• This should be interesting – Amazon has been granted FAA approval to expand drone deliveries for online orders through their Prime Delivery platform.  Basically allows Amazon’s drone operators to fly “beyond visual line of sight” specifically approved for College Station, Texas.
• Let’s get to the Dad / Bad Jokes to kick off this beautiful weekend as I see some adult beverages in my immediate future 🍺:
  • A snake that is 3.14 feet long is called a Pi-thon… 🐍🙄
  • Inside the fire hydrant is H2O…  Outside is K9P…  🐶😂
  • Disco music gives me the heebie Bee Gees… 🕺🎵🎶
  • I went to the paint store to get thinner….  It didn’t work! 🤠

 
 
Have a GREAT weekend and please stay safe!!!
 
Uncle Sean
 
 
Sometimes known as Sean Mayo – contact me directly for scope and pricing of custom reports / analysis projects at [email protected] | 214-604-6961 – or you can contact FedFis Sales Team at 512-960-0911 | [email protected] #FedFisHasTheData FedFis
 
FedFis, LLC disclaimer – The views and opinions of Uncle Sean are of his own and may not necessarily represent the views, endorsements, and/or opinions of FedFis, LLC – we all know he’s a little bit different; but that’s why we love him.