KBRA Financial Intelligence

Van’s View on Bank Earnings, Liquidity Rule Proposal, and Recent M&A

Van’s View: Big Bank Earnings Consistent With a Soft Landing

Big bank earnings from 4Q 2023 are pointing to a soft landing for the U.S. economy with continuing strong loan quality more than offsetting the effects of monetary tightening, according to KBRA’s Chief Strategist Van Hesser.

Most bank loan books are performing better than just about anyone expected last year, according to Van, host of the 3 Things in Credit podcast. Loan loss provisions remained well behaved in 4Q with Bank of America even reporting a net release of reserves. J.P. Morgan and Wells Fargo reported modest increases in their reserves partly due to credit card growth and write-downs in their office loan portfolios.

These results come as the Federal Reserve signals it is contemplating the beginning of a rate cut cycle. Traders are anticipating the central bank will cut its benchmark by more than 100 basis points (bps) by year-end, according to the CME FedWatch Tool. Van is less dovish, expecting three rate cuts starting at midyear.

For more macro insights, subscribe to Van Hesser’s 3 Things in Credit podcast and his new show, Leading Voices in Credit, which showcases interviews with credit market thought leaders.

Attending Bank Director’s Acquire or Be Acquired Conference in Phoenix?

Join Van Hesser’s panel One Year Later: The Bond Market’s View of Community Banks on Monday, January 29. Members of the KFI team will be on-site. Stop by table 23 or contact Jake Bartlett for a demo at [email protected].

OCC Calls for Liquidity Review Following Bank Failures

Acting Comptroller of the Currency Michael Hsu called for new liquidity rules on January 24 to help prevent the kind of deposit runs that led to bank failures last year.

Hsu is calling for small and midsize lenders to pledge enough assets at the Federal Reserve’s lending facility of last resort in the event of short-term deposit outflows. In a speech at Columbia Law School, Hsu said bank runs can happen faster because of technology, evidenced by last year’s $40 billion of outflows from Signature Valley Bank in one day.

The growth in uninsured deposits, mobile banking, and the dissemination of news via social media have made the risks of a bank run more acute, according to Hsu. To be enacted, the proposal would have to go through the lengthy rulemaking process and be open to public comments.

In Case You Missed It

96% of Bank Failures From 2010 Through 2023 Had KFI Scores of D or Lower

More than 96% of banks that failed from 2010 through 2023 had a KFI Score of D or lower in the quarter prior to the FDIC date of failure, according to KBRA Financial Intelligence (KFI) data. Use the KFI Score Insights tool to see which banks have D or E KFI Scores.

4Q Call Reports Available on KFI Within 24 Hours of Filing

More than 2,600 banks and credit unions have filed their 4Q call reports as of January 25. The quarterly reports are added to KBRA Financial Intelligence (KFI) generally within 24 hours after being filed. Use the Data Wizard to see if your peer has already filed.

Recent M&A

Three Credit Unions Buy Banks

Beacon Credit Union (KFI Score: B) agreed on January 25 to buy Mid-Southern Savings Bank FSB (KFI Score: A-) and its holding company in a purchase and assumption agreement for about $45.2 million. The combination, which is expected to close by 4Q 2024, between the two Indiana-based lenders will have about $1.7 billion in assets.

Hudson Valley Credit Union (KFI Score: B+), a $6.9 billion lender, agreed on January 10 to buy Catskill Hudson Bank (KFI Score: B) for about $28.6 million. Following the completion of the merger, which is expected in 2H 2024, Hudson Valley will have about $7.4 billion in assets.

Global Federal Credit Union (KFI Score: B-) agreed on January 11 to buy First Financial Northwest Bank (KFI Score: B) in a purchase and assumption agreement for about $231.2 million in a deal that is expected to close by 4Q 2024. Anchorage, Alaska-based Global Credit Union has almost $12 billion in assets, making it one of the 20 largest credit unions. First Financial Northwest had total assets of $1.5 billion as of September 30, 2023.

Virginia Banks Announce Merger

National Bankshares Inc. and its subsidiary National Bank of Blacksburg (KFI Score: B+) agreed on January 24 to buy Frontier Community Bank (KFI Score: B) for about $17.1 million. The deal, which is expected to close in 2Q 2024, would create a $1.7 billion asset bank based on September 30, 2023 financial data.