US Regional bank stocks - PNC Financial, TFS - Truist, USB- USB Bank, MTB - M&T Bank etc

[hasilp89]

6 minutes ago, Castanza said:

 

I don't think anyone on here is panicking considering the discussion is primarily "what banks to buy and how to capitalize on a seemingly irrational fear of bank runs."

It was a joke (but a not very good one)

[Castanza]

1 minute ago, hasilp89 said:

It was a joke (but a not very good one)

So what are the banks?  

[james22]

6 hours ago, John Hjorth said:

Berkshire had approx. USD 125 B in liquidity YE2022 [ex. liquidity in railroad, utility & energy], deduct from that USD 30 B as cash reserves for a "rainy" [<-?] day in the insurance operations, which leaves approx. USD 95 billion. [I haven't even included a deduction for adding to Pilot here - was it approx. USD 8 B?] Would even a material part that figure make any difference in the US banking system somewhere? I think not really.

 

Could a $5 billion investment from Berkshire Hathaway make a difference here? Potentially, yes. The $30 billion in deposits FRC got from its fellow banks gave it a cash infusion. If it got another $5 billion by selling 10% yielding preferreds to Berkshire, it would increase that amount by 16.66%, but without a possibility of it being withdrawn. The preferreds would create a $500 million annual cash outflow, which is much more manageable than the cash drain created by billions of dollars' worth of withdrawals in a week.

 

So, yes, a $5 billion investment from Berkshire could potentially tip the scales enough to make FRC an investable stock. 

 

https://archive.ph/sEkus

[changegonnacome]

1 hour ago, Castanza said:

So what are the banks?  

 

Exactly  

[tnathan]

I strongly agree that the most important metric right now is understanding the deposit base of specific banks. When we think about book value, the deposit base composition is not included directly in the calculation, but we really should be thinking about it in the same way (just in the reverse) as we are thinking about the mtm losses on the security / loan portfolios on the asset side. Low cost / NIB deposits are worth a TON in this environment, and there are some banks (very few) which have an outsized advantage...check out SBCF and PFS for two good examples of smaller banks. I personally would be far less concerned with the lending portfolio right now, as I don't think that has as large an effect on the next few years as the deposit makeup. Banks with the strongest NIB deposits are going to be able to keep some (not all) of their margin profile which will help protect them when we start to seen higher loan losses...whereas I think you'll start to see huge margin compression on other banks that might screen "cheaper" at the moment over the next year and therefore might not be cheap at all

Edited March 20, 2023 by tnathan

[Castanza]

9 minutes ago, tnathan said:

I strongly agree that the most important metric right now is understanding the deposit base of specific banks. When we think about book value, the deposit base composition is not included directly in the calculation, but we really should be thinking about it in the same way (just in the reverse) as we are thinking about the mtm losses on the security / loan portfolios on the asset side. Low cost / NEB deposits are worth a TON in this environment, and there are some banks (very few) which have an outsized advantage...check out SBCF and PFS for two good examples of smaller banks. I personally would be far less concerned with the lending portfolio right now, as I don't think that has as large an effect on the next few years as the deposit makeup. Banks with the strongest NEB deposits are going to be able to keep some (not all) of their margin profile which will help protect them when we start to seen higher loan losses...whereas I think you'll start to see huge margin compression on other banks that might screen "cheaper" at the moment over the next year and therefore might not be cheap at all

NEB? 

[tnathan]

On 3/17/2023 at 7:36 AM, Spekulatius said:

@tnathanCould you elaborate on $MTB. MTB has been a value investors favorite from what i can remember. the CEO writes very well written shareholder letters and the bank is sensibly run.

 

I did notice relatively high commercial real estate exposure (~$43B vs ~$23b in equity) as well as high non performing loans - ~1.85% of the total. That's a very high number in the current economic framework.

 

They do not have egregiously large holdings of long duration securities though.

 

FWIW, i bought a few shares as part of my regional bank stock basket.

I didn't dig overly deeply into the loan portfolio but it has a higher portion of non interest bearing deposits than some of the other large regional banks, it seems like their management has been more thoughtful about the move up in rates vs. other management (which to me makes me more confident in their ability to stay flexible in what will be turbulent times). Perhaps the commercial real estate exposure starts to bite them, but I still think their overall profile is more attractive (even more so when you take into account the lower valuation)

[tnathan]

2 minutes ago, Castanza said:

NEB? 

Sorry edited - meant to type NIB "non interest bearing"

[Castanza]

3 minutes ago, tnathan said:

Sorry edited - meant to type NIB "non interest bearing"

 

Thanks

Edited March 20, 2023 by Castanza

[Spekulatius]

Eastern Bank - $EBC now offers 3.56% MM and 4% 6 month CD to name one example. I don’t  bank with them  but they are local to me. I agree we are likely to see some NIM compression. The free ride on higher interest rates may have ended and now they need to pass them on.

 

[lnofeisone]

12 hours ago, changegonnacome said:

 

Curious what banks did this? Like you I think deposit rates/funding costs across the banking system are gonna go through the roof.......NIM's will get crushed......loans to the extent they are even available will come with a higher price tag reflecting higher funding costs.

Go to NerdWallet and you'll find some banks paying 4.25% on savings accounts. I know of at least 1 credit union in the pacific northwest offering 7% up to 5k in checking and 3% in savings. 

[Ulti]

https://www.simplysafedividends.com/world-of-dividends/posts/5757-most-regional-banks-look-stable-but-may-face-tougher-regulations-higher-funding-costs

 

https://1.simplysafedividends.com/wp-content/uploads/2023/03/Bank-Risk-Assessment-Simply-Safe-Dividends.xlsx

 

https://www.investors.com/etfs-and-funds/sectors/banks-report-most-exposed-to-uninsured-deposits/

 

Articles\spreadsheet on uninsured deposits spreadsheet on bank risk assessment

 

[yesman182]

I feel like the requirements for disclosure is really hurting the banks. I feel like when SVB started talking about capital levels, they went under. The same type of issue seems to be taking place with FRC and PAC West. I feel like these CEOs should be disclosing more with the fed and less to the public/shareholders. When Covid hit everyone became an over night covid expect, now everyone is a bank expect. I hope the banks I am invested in don’t put anything over the news wire. 

[Gregmal]

Totally. I find companies were I trust management and then hope and even sometimes encourage them to limit disclosure. Too many scumbag social media divas and short sellers out there why even play that game? An average investor wants as much disclosure as possible because they’re lazy and don’t want to do the work themselves. 

[Spekulatius]

8 hours ago, yesman182 said:

I feel like the requirements for disclosure is really hurting the banks. I feel like when SVB started talking about capital levels, they went under. The same type of issue seems to be taking place with FRC and PAC West. I feel like these CEOs should be disclosing more with the fed and less to the public/shareholders. When Covid hit everyone became an over night covid expect, now everyone is a bank expect. I hope the banks I am invested in don’t put anything over the news wire. 

This makes no sense. Then information doesn’t come from news wires either, it can be found in 10-k and 10-q and the FDIC filings. The capital level and loan book disclosures are not voluntary but required.

[yesman182]

4 hours ago, Spekulatius said:

This makes no sense. Then information doesn’t come from news wires either, it can be found in 10-k and 10-q and the FDIC filings. The capital level and loan book disclosures are not voluntary but required.

I am referring to the news releases like what pac west out out yesterday. I don’t believe any of that was required and I think telling people about your deposits daily/weekly is foolish. For those who want to scour the SEC website and look through 100 page 10k fine. 
 

 

[Spekulatius]

33 minutes ago, yesman182 said:

I am referring to the news releases like what pac west out out yesterday. I don’t believe any of that was required and I think telling people about your deposits daily/weekly is foolish. For those who want to scour the SEC website and look through 100 page 10k fine. 
 

 

The CEO is sort of required to make material development public, especially since they also tapped financing from Atlas for an asset based loan. I think it is very likely that Atlas has this information already. I think you really rail against how US capital markets work.

[HWWProject]

On 3/18/2023 at 9:44 AM, Castanza said:

Semi useful chart 

 

 

Could someone point out where the 'unrealized losses' show up for USB in their 2022 10k?  I was able to find them for FRC and WAL, not seeing them for USB. 

[Cigarbutt]

7 hours ago, HWWProject said:

 

Could someone point out where the 'unrealized losses' show up for USB in their 2022 10k?  I was able to find them for FRC and WAL, not seeing them for USB. 

Note: USB has a diverse deposit base, serves a variety of consumers, businesses, in different industries and states so their deposit base is much less at risk of an isolated run although the possibility cannot be completely ruled out.

[CorpRaider]

Are people selling the trust banks hard because they don't have FDIC insured deposits?

 

Unrelated:  would you rather BK, STT, or NTRS?

Edited March 24, 2023 by CorpRaider

[Spekulatius]

FRED data - Large bank vs small bank deposits.

Looks like large bank deposits have been trending down for a while (-5% over one year), but no change in trend the last 2 weeks. Small bank deposits have been more stable, but have taken a hit recently - down 2% last week.

 

Edited March 25, 2023 by Spekulatius

[HWWProject]

On 3/24/2023 at 8:28 AM, Cigarbutt said:

Note: USB has a diverse deposit base, serves a variety of consumers, businesses, in different industries and states so their deposit base is much less at risk of an isolated run although the possibility cannot be completely ruled out.

 

Thank you for the help, I was stuck in the note on Fair Value.  Appreciate this discussion and input from others.  Can better see how banks operate.  

[Dalal.Holdings]

So we've seen the 10 year U.S. treasury yield drop from a YTD high of 4.07% to 3.37% today. On Dec 31 (when bank balance sheets show their 10-ks), it was ~3.88%.

 

As for the 30 year note, it's down from YTD high of 4.02% to 3.64% today. On Dec 31 it was ~3.98%.

 

If you took a bank's balance sheet today (and likely on 03/31/23 which 10-Q for Q1 will record), there should be a decline in unrealized losses. Some banks might even have been able to unload some loans/securities at decent terms in order to generate liquidity. Meanwhile, some of those proceeds can be parked in ultra short term Treasuries yielding north of 4.5%...

 

Interesting to consider that if long end of the curve keeps falling how much of the banking "problem" of unrealized losses gets solved and how quickly.

Edited March 25, 2023 by Dalal.Holdings

[changegonnacome]

6 hours ago, Dalal.Holdings said:

Interesting to consider that if long end of the curve keeps falling how much of the banking "problem" of unrealized losses gets solved and how quickly.

Interesting then to consider that if Powell/Fed fails to address inflation in a meaningful way in a reasonable timeframe as per current inflation expectations....…..the long end of the curve would be forced to incorporate higher expectations….and things would get worse for the banks balance sheets....significantly worse....another reason perhaps why Powell et al will act with fortitude on rates in the face of weakening economic data later this year.........to fail to address inflation in this tightening cycle........would be to lose control of the long end of the curve but specifically the 10yr........turning a mini mark-to-market banking crisis like we have now into something much much worse......

 

Edited March 25, 2023 by changegonnacome

[Viking]

The Fed over the past 2 years has executed a perfect game of ‘How to blow up a community banking system in 6 easy steps’.

 

Not sure if this podcast has been linked. Great discussion about held-to-maturity and why banks went down that road and what it means today. Two very different views discussed. The ‘debate’ begins at the 5 minute mark.

 

Randy’s answer to the question at the 19 minute mark really helps explain the Fed’s role in shaping the current crisis:

1.) step 1: Fed takes interest rates to zero

2.) step 2: Fed with QE take spreads even lower

- mortgage borrowers all refinance at crazy low rates (driven by 1 and 2 above). This now locks in crazy low yields on mortgages held at banks.

3.) step 4: government at the same time floods market with liquidity (historic fiscal response). Deposits at some banks DOUBLE overnight. Deposits are then invested at lowest yields in history. 
4.) step 4: Fed TELLS ALL PLAYERS that rates will stay crazy low for years (“lower for longer” and “not even thinking about thinking about raising rates”). 
5.) step 5: Fed raises interest rates 500 basis points in 12 months. Engages in QT. 
6.) step 6: assets at banks are now in big loss position

- on a delayed basis, deposit/funding rates (costs) start to increase. Impairs ability of banks to fund assets. Check-mate.
 

Solution? Time. Banks need time to heal. Need time for assets to run off and get re-priced at prevailing rates. 

 

 

Edited March 26, 2023 by Viking