Uncle Sean's Update - 5/3/24

Happy Friday!!!
 
How is it already May??? 🤷‍♂️  Here is the Uncle Sean Update for 5/3/24:
 

• It’s Fed Week!!!  As expected by pretty much everyone across the entire planet, the FOMC held rates steady (yawning 🥱) at 5.25% - 5.5% where they have been since July of 2023.  However, the QT Taper (slight easing of quantitative tightening) era is here…  Beginning in June, the committee will slow the pace of balance sheet reduction from $95B per month to $60B per month by reducing Treasury securities by $35B per month allowing them to roll of the books as they mature.
  • Chairman Powell stated that his forecast still is for inflation to come down this year, but he is less confident than before citing a "lack of further progress" – but reiterated that rates are restrictive enough and simply need more time.
    • If you want to cozy up with a blanket, dim the lights a little, maybe pour some wine, soft music, and get really weird (like Uncle Sean 😯🤠) – you can watch Chairman Powell’s Press Conference Video and even read along with the written transcript (24 pages). LOL!!!

 

• Meanwhile, the U.S. economy added 175,000 jobs in April (below estimates of 240,000) while unemployment ticked up ever so slightly from 3.8% to 3.9% per the BLS Report (labor force participation rate remained unchanged at 67.2%).
  • March jobs gain was revised up by 12,000 to 315,000; and February was revised down 34,000 to 236,000.
  • Average hourly earnings rose 0.2% from the previous month and 3.9% from a year ago, both below consensus estimates and an encouraging sign for inflation.
    • For comparison purposes, recall that CPI for April came in at 0.4% for the month and 4.9% YoY.  From a very simple math standpoint, this looks like wage inflation appears to be slowing – but remember that one month does not make a trend… 😊

 

• 👀 Unfortunately, we had a bank failure late last week.  On Friday, April 26, 2024, Republic First Bank dba Republic Bank (FDIC 27332) “Republic Bank”) was closed by the Pennsylvania Department of Banking and Securities; and the FDIC was named Receiver.  Fulton Bank, N.A. (FDIC 7551) assumed substantially all deposit accounts and substantially all the assets.  Some quick analysis points based solely on Call Report data from the FedFis software platform:
  • The FedFis Rating© for Republic Bank was 3.88 as of 12/31/23, placing it in the bottom 1% of all US banks.
  • At 12/31/23, Republic Bank had $5.9B in assets and $4.4B in deposits, including $1M in brokered deposits.  Regulatory capital ratios were:  Leverage—4.43%; Tier 1 RBC—8.83%; and Total RBC—9.59%.  Republic Bank had $101M in tangible equity capital as of12/31/23.
    • Republic Bank had significant operational performance issues involving duration risk, liquidity, and unrealized losses in the securities portfolio.
      • Unrealized Losses on Securities equaled $425M (comprised of $262M HTM plus $163M AFS).  Essentially all securities were Pledged ($2B pledged versus $2.1B fair value) with $1.4B having remaining maturities at over 15 years.
      • Total tangible equity of $101M renders them insolvent when adjusting for HTM Securities at FV.
      • The bank reported a Net Loss of $43M for 2023 as Cost of Funds increased to 3.17% (versus 0.78% for 2022) and Other Borrowed Money jumped to $1.3B. 
      • Net Interest Income fell to 31.1% in 2023 – down from 82.3% in 2022 (calculated as a % of Total Interest Income – for my non-banker friends, think of this like gross profit margin).  Interest expense on Other Borrowed Money for 2023 was $62M.
      • The bank had significant portions of its $3B loan portfolio concentrated in Commercial Real Estate (42.7% of total loans) and 1-4 Residential (38.4% of total loans).  However, there are no real asset quality concerns represented in the call report data as of 12/31/23.
        • Similar duration problems in the loan portfolio with approximately $1B having remaining maturity / repricing at over 15 years.
      • From the FDIC FAQs - No one lost any money on deposit as a result of the closure of this bank. All deposits, regardless of dollar amount, were transferred to Fulton Bank, N.A.  The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) related to the failure of Republic Bank will be $667 million.

 

• And another CU buying  a bank…  Texas Dow Employees Credit Union (Charter 60705; $4.8B) to acquire Sabine State Bank and Trust Company (FDIC 8141; Total Assets $1.3B).
  • This makes 7 CU acquisitions of a bank thus far in 2024 compared to 11 in 2023, 16 in 2022, 13 in 2021, 7 in 2020, and 16 in 2019.

 

• The good folks at Atomic are making headlines again this week as Lumin Digital selects Atomic to provide “direct deposit, verification of income and employment (VOIE), and payment method switching solutions to financial institutions” on the Lumin Digital platform. 🚀

 

• Congrats to my friends at Revio announcing their new partnership with Tioga State Bank! 
  • “Tioga State Bank is an industry leading community bank. We look forward to working with their bankers to help them leverage their bank’s data to gain better insights and build better customer relationships,” said Sanjay Bhaskar, Chief Revenue Officer at Revio. “Through a data-driven understanding of customer needs, their teams will be empowered to better serve their customers with the right financial products and services.”

 

• Xplor announced the launch of Xplor Capital for small businesses powered by Parafin with loans issued by Celtic Bank.

 

• Digits (AI accounting platform) announced the launch of AI Bill Pay accounts payable solution.

 

• Airwallex to provide faster international payments for BILL customers.

 

• Orum launches No Code Verify solution to help businesses and institutions determine within seconds “whether a bank account is open and valid before initiating payments — all without integrating an API.”

 

• Nova Credit launched NovaScore Cash Flow (NSCF) scoring making it easier for lenders to adopt cash flow underwriting by tapping into bank transaction data.  NSCF “assigns individuals a score ranging from 300 to 850 and can be used in conjunction with existing credit scores or when thin-file applicants lack sufficient data for a traditional credit score.”  NSCF is part of their Cash Atlas™ platform that uses consumer-permissioned transaction data for cash flow analysis in credit decisioning. 
  • Pretty cool as a supplemental underwriting strategy! 😊

 

• Some personnel moves:
  • Synctera appoints Ellen Linardi as Chief Product and Technology Officer.
  • LawFi names Bob Culliton as SVP of Partnerships.
  • Feedzai appoints David Larson as Chief Financial Officer.

 

• Notable FinTech funding for the week:
  • Baselayer (B2B / KYB identity and verification for fraud mitigation and business account onboarding) raised a $6.5M Seed round.
  • Ansa (platform that allows businesses to create and manage their own branded digital wallets) raised $14M in Series A funding round.
  • Altruist (modern custodian platform built exclusively for RIA’s)  raised $169M in Series E round at a $1.5B valuation.

 
 
Random Uncle Sean stuff:

• Quick PSA – don’t forget that Mother’s Day is just around the corner next Sunday, May 12th. ❤️
• But first, it’s Cinco de Mayo this weekend!!!!!  🎉🪅🍺   No – it’s not Mexican Independence Day (which is Sept 16).  Cinco De Mayo is the celebration of Mexican victory over the French at the Battle of Puebla in 1862.  However, here in Texas it is largely a celebration of Hispanic culture with great food, fun times with family and friends, music, and typically plenty of ice cold adult beverages (at least for me anyway)! 😊  Ah yes!!!!
• Okay – couple of quick Dad / Bad jokes to get us into the weekend vibe!!!!
  • What do you call the soft tissue between a shark’s teeth?  A slow swimmer! 🦈😬
  • For my Wealth Management friends:
    • I’ve started investing in stocks:  beef, chicken, and vegetable…  One day I hope to be a bouillonaire….  🙃
    • Borrow money from pessimists -  they don’t expect it back! 👍
    • Racecar backwards is racecar…  Racecar upside down is expensive… 
      • Be sure to follow me for more financial advice!  🤣

 
 
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.