LaxPower Back-Up Stick

cradleandshoot wrote: ↑Thu Oct 05, 2023 7:28 am

OCanada wrote: ↑Thu Oct 05, 2023 7:19 amIMG_0687.png

Those same 10% also decide what laws and regulations apply to them and which ones don't. Do you understand the problem here??

Huge wealth transfer up. Great wealth disparity leads to civil unrest.

OCanada wrote: ↑Tue Oct 10, 2023 10:01 pm

cradleandshoot wrote: ↑Thu Oct 05, 2023 7:28 am

OCanada wrote: ↑Thu Oct 05, 2023 7:19 amIMG_0687.png

Those same 10% also decide what laws and regulations apply to them and which ones don't. Do you understand the problem here??

Huge wealth transfer up. Great wealth disparity leads to civil unrest.

Which started with the financial crisis as catalyst. It may have been building but if it isn’t apparent that everything that’s come since is a form of revolution by now it'll never be obvious. Insane policies, Tea party, Trump, (I’d argue rose of Bernie and Elizabeth Warren - talk a big game but incapable of being much more than form over substance in the real world).

But as Jon Oliver pointed out, the last thing the millenial and below dipsh*t cohorts needed to do was remake “we didn’t start the fire”. (Thankfully he didn’t point out that the new version idiot band doesn’t realize he’s blaming us for 9/11 which is like a small child who hits another kid in the face with a rock going “he called me a name first”-about the moral logic for some)

https://m.youtube.com/watch?v=2LkVKCWL0U4

Farfromgeneva wrote: ↑Wed Oct 11, 2023 5:14 am Which started with the financial crisis as catalyst. It may have been building but if it isn’t apparent that everything that’s come since is a form of revolution by now it'll never be obvious. Insane policies, Tea party, Trump, (I’d argue rose of Bernie and Elizabeth Warren - talk a big game but incapable of being much more than form over substance in the real world).

Which one?

It started long before the '08 crisis. But yeah, each crisis has been an accelerant. I know a lot of places around here that are sitting pretty after the COVID economic stimuli. And unless you were blatant with your fraud (buying fancy cars and houses like those idiots getting prosecuted), I doubt the IRS is gonna come after you.

NattyBohChamps04 wrote: ↑Wed Oct 11, 2023 11:51 am

Farfromgeneva wrote: ↑Wed Oct 11, 2023 5:14 am Which started with the financial crisis as catalyst. It may have been building but if it isn’t apparent that everything that’s come since is a form of revolution by now it'll never be obvious. Insane policies, Tea party, Trump, (I’d argue rose of Bernie and Elizabeth Warren - talk a big game but incapable of being much more than form over substance in the real world).

Which one?

It started long before the '08 crisis. But yeah, each crisis has been an accelerant. I know a lot of places around here that are sitting pretty after the COVID economic stimuli. And unless you were blatant with your fraud (buying fancy cars and houses like those idiots getting prosecuted), I doubt the IRS is gonna come after you.

I'm pegging 1980 and the advent of the "psis down my leg and tell me it's raining" Reaganomics. The astounding thing, to me, anyway, is how the party most victimized by the policies and transfer-by-tax-cut inequity we see today, the working class (which is now pretty much all of us if we aren't in the top .5%), keeps voting for this plan. It's like economic Stockholm Syndrome. I wish I could shake people and get them to "wake the fcuk up." Oh, wait, is that more woke-ism...

And the Fed? Time for a re-examination of that red-haired stepchild. That shite is, in my opinion, clearly, if not unconstitutional, then extra-constitutional. I understand the history of regular bank failures that they were seen as a solution to, but they have gotten out of control.

Raise unemployment, with its attendant evils, in order to attempt to adjust a metric of dubious validity, inflation (which measure?)? Really, who the fcuk said they could do that?

Meanwhile, the village idiots who make up the majority of the polity will happily lap up whatever nonsense that spills from the various sphincters of the commentariat, and ascribe various economic conditions to a specific political party. Laughable. Personally, I blame the parlous state of education in this country. See the John Oliver piece about home schooling? Sweet Jeebus!

NattyBohChamps04 wrote: ↑Wed Oct 11, 2023 11:51 am

Farfromgeneva wrote: ↑Wed Oct 11, 2023 5:14 am Which started with the financial crisis as catalyst. It may have been building but if it isn’t apparent that everything that’s come since is a form of revolution by now it'll never be obvious. Insane policies, Tea party, Trump, (I’d argue rose of Bernie and Elizabeth Warren - talk a big game but incapable of being much more than form over substance in the real world).

Which one?

It started long before the '08 crisis. But yeah, each crisis has been an accelerant. I know a lot of places around here that are sitting pretty after the COVID economic stimuli. And unless you were blatant with your fraud (buying fancy cars and houses like those idiots getting prosecuted), I doubt the IRS is gonna come after you.

I’m an 80s and 90s kid so younger in perspective on some guy I don’t view the S&L crisis, early 90s recession, end of 90s/early 2000s recession as anywhere near the financial crisis which literally was a 100yr flood economically. Many of the issues had been building since the 70s clearly but I see most everything that’s happened from the prior decade here through that lens perhaps much like my premed generation inundated everyone with their experiences from Korea through Vietnam and including Woodstock/Tim Leary. (Think of all the trash like Forrest Gump and saving private Ryan from the late 80s early 90s that repackaged that nostalgia for boomers)

I was worried the GFC would create a civil war. May have been he case and we just don’t know it yet.

PizzaSnake wrote: ↑Wed Oct 11, 2023 12:32 pm

NattyBohChamps04 wrote: ↑Wed Oct 11, 2023 11:51 am

Farfromgeneva wrote: ↑Wed Oct 11, 2023 5:14 am Which started with the financial crisis as catalyst. It may have been building but if it isn’t apparent that everything that’s come since is a form of revolution by now it'll never be obvious. Insane policies, Tea party, Trump, (I’d argue rose of Bernie and Elizabeth Warren - talk a big game but incapable of being much more than form over substance in the real world).

Which one?

It started long before the '08 crisis. But yeah, each crisis has been an accelerant. I know a lot of places around here that are sitting pretty after the COVID economic stimuli. And unless you were blatant with your fraud (buying fancy cars and houses like those idiots getting prosecuted), I doubt the IRS is gonna come after you.

I'm pegging 1980 and the advent of the "psis down my leg and tell me it's raining" Reaganomics. The astounding thing, to me, anyway, is how the party most victimized by the policies and transfer-by-tax-cut inequity we see today, the working class (which is now pretty much all of us if we aren't in the top .5%), keeps voting for this plan. It's like economic Stockholm Syndrome. I wish I could shake people and get them to "wake the fcuk up." Oh, wait, is that more woke-ism...

And the Fed? Time for a re-examination of that red-haired stepchild. That shite is, in my opinion, clearly, if not unconstitutional, then extra-constitutional. I understand the history of regular bank failures that they were seen as a solution to, but they have gotten out of control.

Raise unemployment, with its attendant evils, in order to attempt to adjust a metric of dubious validity, inflation (which measure?)? Really, who the fcuk said they could do that?

Meanwhile, the village idiots who make up the majority of the polity will happily lap up whatever nonsense that spills from the various sphincters of the commentariat, and ascribe various economic conditions to a specific political party. Laughable. Personally, I blame the parlous state of education in this country. See the John Oliver piece about home schooling? Sweet Jeebus!

I’ve been an Investment banker to banks previously and believe that deposit insurance harms more than helps our country. Zero interest in pegging to a commodity however. But the Fed Reserve is superfluous to our well being IMO. All those failures that “justified” the Fed Reserve were modest modest stressors that enforced some discipline. I don’t see it at all form bank execs anymore

UAW overplaying their hand it seems now. Looking like house Republicans and Netanyahu. All or nothing.

https://www.axios.com/2023/10/12/uaw-st ... shawn-fain

Wikipedia can be a funny thing. All this effort to describe this awesome growth as a child and who gives a sh*t when you’re directly and deeply involved with stealing somewhere between $5-$10Bn…

I present Caroline Ellison. A criminal who knows math and dated the boss. (And honestly makes me long to see your braces awkward Chelsea Clinton again).

Early life and education
Edit

Ellison was born in Boston and grew up in nearby suburbs Cambridge and Newton.[1][10] She is the eldest of three daughters of Glenn and Sara Fisher Ellison, both economists at MIT.[1][3][11] Ellison was brought up Catholic.[12] She says she and her siblings were exposed to economics early, learning Bayesian statistics in primary school.[13] At age 8, Ellison gave her father an economic study of stuffed animal prices from Toys "R" Us for his birthday.[14] At Bigelow Middle School,[15][16] Ellison and her younger sister Anna competed with the math team coached by their father.[17] In 2008, Ellison received top honors in the American Mathematics Competitions.[1][3][14] As a Newton North High School student, she represented the US in the 2011 International Linguistics Olympiad and received an honorable mention and an award for "best solution".[14][18][19] Ellison competed in the Greater Boston Math League through her high school and served as the team's captain.[1][14] She represented Newton several times in the Math Prize for Girls. During her senior year, Ellison was accepted into the MIT PRIMES after-school program.[20] She graduated in 2012 with a National Merit Scholarship.

Ellison graduated from Stanford University in 2016 with a bachelor's degree in mathematics.[10][21][22] While at Stanford, she scored in the top 500 students in the 2013, 2014, and 2015 Putnam Competitions.[23][24][25] As a freshman, Ellison developed an interest in effective altruism, a data-based philanthropic movement. She joined Stanford's effective altruism club and served as its vice president.[14][26]

Career

Legal proceedings
Edit

In December 2022, Ellison hired Stephanie Avakian[39] of law firm WilmerHale as her lead attorney.[40] On December 18,[41][42] Ellison pleaded guilty in the Southern District of New York to conspiracy to commit wire fraud on customers of FTX, conspiracy to commit wire fraud on lenders of Alameda Research, wire fraud on lenders of Alameda Research, conspiracy to commit commodities fraud, conspiracy to commit securities fraud, and conspiracy to commit money laundering.[5][43][44] On that day, FTX co-founder Gary Wang also pleaded guilty to several charges. A transcript of her plea hearing was unsealed on December 23, revealing she had admitted to judge Ronnie Abrams that she and others conspired to steal billions of dollars from customers of FTX, while misleading its investors and lenders.[45] Ellison told Judge Abrams that Sam Bankman-Fried and other FTX executives had received billions of dollars in secret loans from Alameda Research.[46] As a part of her plea deal, she agreed to make restitution of an amount to be decided by the courts.[47]

Lucky for you all this isn’t cut and paste format supported.

Market Outlook: No Surprise in September CPI (Capital Market Research) (Weekly Market Outlook)

https://www.Moodys.com/research/doc--PBC_1384983
cid=GAR9PTU7VKT2671&emailToken=eyJ0eXAiOiJKV1QiLCJhbGciOiJIUzI1NiJ9.eyJVc2VySWQiOiI2ZWNhODg3Mi01MTNjLTRjOTctYTUxMy02ZTk0YWE0NmE0MmQiLCJEb2NJZCI6IlBCQ18xMzg0OTgzIiwiY3JlYXRpb25EYXRlIjoiMjAyMy0xMC0xMlQxOToyMToyNC43MTY4MjQ4LTA0OjAwIiwiZXhwIjoxNjk3NDEyMDg0LCJVc2VyTmFtZSI6InNtY2dseW5uQHB1bHRlbmV5c3RyZWV0Y2FwaXRhbC5jb20iLCJVc2VyVHlwZSI6IjIifQ.aiRkIANA9u2h6q16GWbwLrCj6if637fFlQ8EOkVGuao

Dropping some recent daily/periodic data/emails I get here, none paywalled I believe so will drop links for now to soar any whining about sharing more words.

FED Reserve

1. Nowcast page-https://www.newyorkfed.org/research/pol ... t#/nowcast

Through the New York Fed Staff Nowcast, we aim to read the real-time flow of information and evaluate its effects on current economic conditions. The Staff Nowcast platform applies Bayesian estimation and Kalman-filtering techniques to a dynamic factor model. This approach incorporates a reliable big data framework that captures the salient features of macroeconomic data dynamics in a parsimonious way. In addition, the platform is designed to digest incoming data as “news,” mimicking the way markets work. Hardly comprehensive but some good stuff for those interested.

2. Home price change heat map (may have shared one of these before updated monthly) - https://www.newyorkfed.org/research/home-price-index

Trepp - Commercial Real Estate Mortgage Backed Securities data analytics firm (and broadly CRE capital markets where bond data and reporting is available)

3. (Headline of piece): Bank CRE Loan Performance Q2 2023: Surge in Office Charge-Offs, Anemic Origination Volume, Increased Risk Concerns All Around

https://www.trepp.com/trepptalk/cre-loa ... e=hs_email

4. (Headline) Commercial Real Estate Debt Universe Grows 5.9% Annually in Q2 2023

https://www.trepp.com/trepptalk/commerc ... e=hs_email

The slide into oligarchy continues apace…

““The story the Moores told about Charles’ involvement with KisanKraft is directly at odds with the fiduciary responsibilities of an individual holding a board seat for an Indian company,” Mindy Herzfeld, director of the masters program in international tax at the University of Florida law school, wrote in Tax Notes.

And there are other indications of Moore’s more extensive involvement with KisanKraft than his testimony indicated. The company paid for his travel to India four times and he made at least two investments beyond the $40,000 stake he put up in 2006.

Moore also was prepared to invest an another roughly $250,000. That money was ultimately returned by KisanKraft, along with 12% interest.

One other inconsistency is that while the Moores say they jointly invested the money, only Charles Moore’s name appears in company documents.

The couple and their lawyers did not disclose any of that information in legal filings in three different federal courts, including the Supreme Court.”

https://apnews.com/article/supreme-cour ... ea9a231e4f

Please please let’s get rid of this which CNBC is pimping this am as if it’s a paid programming.

https://www.experian.com/blogs/ask-expe ... s-account/

A. Pay more cash comp
B. Of course the investment/asset management industry loves the idea! Anything to get the float in world with declining liquidity and more retail investments to pick off (er offer) retail investors
C. Pay more cash comp, the tax savings isn’t meaningful and the time value of the money is worth more in employee pockets just they don’t understand the true value of the liquidity preference (information asymmetry)

And I was on the other side of some auto worker demand recall. But this isn’t driven by employers this is driven by the retail asset management industry. Consider that when evaluating the value of the option.

Posted on: September 18, 2023
AFFORDABLE HOUSING FINANCE
Insurance Costs Weigh on LIHTC Deals
Syndicators report on the latest market issues and trends and share their mid-year results.
By Donna Kimura

Surging insurance costs are making it difficult for affordable housing developments to pencil out.

The rising prices have been one of the biggest issues for the low-income housing tax credit (LIHTC) market this year, according to syndicators.

“The large increase in insurance costs throughout the portfolio has caused challenges both in new project underwriting and projects converting to permanent financing as well as eroding cash flow in the stabilized portfolio,” says Amy Dickerson, managing director, investor relations, at Hunt Capital Partners.

Other syndicators also point to swelling insurance bills as adding stress to developers and their projects.“Insurance costs are extremely volatile and have been hamstringing deals in coastal and fire-prone communities,” says Julie Sharp, executive vice president at Merchants Capital, noting that costs have surged 30% to 100% in some markets.

The challenge is further exacerbated by carriers pulling out of specific markets, limiting coverage options, adds Jason Gershwin, managing director at R4 Capital.

He says his firm is proactively addressing this issue by analyzing its portfolio to determine insurance cost increases by region. The data allows R4 Capital to run downside sensitivities to better understand what a property’s cash flow and debt-service coverage ratio will look like if insurance costs increase at the historical average for the region in which the property is located, according to Gershwin.

“We are also working with our development partners and their insurance carriers to understand the risk modeling the carrier is using to price coverage,” he says.

Property insurance costs have risen a staggering 26% on average for over the past year alone, reported the National Multifamily Housing Council’s recently released “2023 State of Multifamily Risk Survey and Report.”

Some apartment firms reported even higher spikes in property premiums and significant challenges across all other lines of coverage, such as liability, cyber, builders risk, and more.

The ability to secure project insurance at a price that a deal can support, especially in certain markets like California and Florida where some major providers have pulled away, remains a key concern heading into the second half of the year, says David Leopold, senior vice president and head of affordable housing at Berkadia, noting that the situation is further exacerbated by the recent wildfire in Hawaii.

Prices Hold Firm in Q2

Despite the notable headwinds, the average price paid per dollar of tax credit continues to be about 88.8 cents in the recent second quarter, according to an Affordable Housing Finance survey of syndicators. That’s right in line with the 88.9 cents reported in surveys covering the second and fourth quarters of 2022.

Yields to investors also held firm in the second quarter, averaging just under 5.5%.

Half of the firms surveyed say prices will decline in the second half of the year, while the other half believe they will remain unchanged. No one is anticipating prices to increase in the next several months.

“We expect the market to hold steady through the second half of 2023 as investors already have their allocations determined for the year,” says Catherine Cawthon, president and CEO of Ohio Capital Corporation for Housing. “Any decrease would more likely be for deals in 2024.”

The LIHTC supply continues to be constrained because of the recent expiration of the 12.5% allocation increase to the 9% credit program, and there continues to be strong demand from investors, notes Stephanie Kinsman, managing director, investor relations, at Red Stone Equity Partners.

She’s continuing to keep a close eye on the 10-year Treasury yield, which some housing credit investors use as a benchmark.

“While the 10-year Treasury held relatively steady in the first half of 2023, we are starting to see increases again, which may put some pressure on pricing and LIHTC yield targets,” she says.

Once the new year begins, there should be fewer and fewer deals that work given costs and interest rates, adds Philip Porter, senior vice president at Enterprise Housing Credit Investments.

“For the strongest sponsors in Community Reinvestment Act (CRA) locations, prices will be strong and perhaps higher than the second half of 2023,” he says. “But, for non-CRA locations, pricing may well further drop until interest rates decline.”

Deals in many higher-demand CRA markets have remained stable, but there has also been some evidence of pricing decreases in CRA markets impacted by the failure of several regional banks as well as in the broader market as some larger bank and economic investors adjusted their yield and upper-tier price targets heading into the second half of the year, according to Tammy Thiessen, managing director and co-head of originations and sales at RBC Community Investments.

The Loss of Key Investors
The collapse of three banks—Silicon Valley, Signature, and First Republic—has been another hit to the market this year. All were active LIHTC investors, according to syndicators.

“Between the aftermath of the three bank failures, the continued pressure from inflation and high interest rates, and the general pause we have seen from the economic investors, it has been very difficult to attract investor capital at the same levels we have seen in years past,” says Tony Bertoldi, co-president of CREA. “As a result, we are seeing smaller national funds in the market. Additionally, with the increased carry costs, syndicators are less willing to take down speculative product on their warehouse lines without certainty of a timely execution.”

The recent bank failures raised concerns from other investors about counter-party risk in deals and funds. While those worries seem to have subsided, “it is still on investors’ radar as something to monitor,” says Stephen M. Daley, executive vice president, at The Richman Group Affordable Housing Corp., about how the market is different compared with a year ago.

Other regional banks have a softening appetite for housing credits this year, report a few survey respondents.

Underwriting Changes
Syndicators were also asked about changes in underwriting, which has been impacted by both rising insurance costs and interest rates.

It’s been a “continuation of 2022 with the emphasis on ensuring deals have sufficient cushion in the capital stack to absorb cost overruns related to construction and interest expense,” says Steve Kropf, president and CEO of Raymond James Affordable Housing Investments.

Other syndicators are also focusing on the interest reserves and rate expectations in the sponsor’s budget.

“We are adjusting both in real time as rates move, and we are including cushions in case rates continue to increase,” says Robert Chiles, head of Regions Affordable Housing.

While including an appropriate cushion is critical, it currently is putting a lot of pressure on project budgets.

“We are discussing creative measures with our developer and investor clients such as higher insurance deductibles on policies not only to help manage costs but to also ensure a project can secure insurance coverage period,” says RBC Community Investments’ Thiessen.

Insurance, real estate taxes, and utility costs all continue to rise, impacting permanent debt sizing, adds Dickerson of Hunt Capital Partners. “Combined with increased interest rates, project feasibility is challenged,” she says. “Sponsors are having to spend additional time and resources to source gap funding, extending the underwriting period.”

CREA’s Bertoldi reports seeing more deals that have deferred development fees above 50%, including some over 75%. He’s being asked to approve lower terms such 1.15 debt-service coverage ratio on bond deals and operating deficit reserves sizes to less than six months of coverage.

“We are attempting to hold the line on these terms and only granting variances when there are other mitigants present,” he says.

In the second half of the year, syndicators will continue to closely watch interest rates, with hopes that they will begin to settle.

“As inflation stabilizes and rates come down, we are optimistic that closing timelines decrease and we see fewer deals fall out of balance,” says Bertoldi.

Dana Boole, president and CEO of CAHEC, is optimistic on several points—"a soft landing for the economy,” signs pointing to interest rate reductions in 2024, and hopefully no significant ramifications for the market caused by CRA reform.

Many market participants believe the Federal Reserve is moving close to the end of its tightening cycle, which will help stabilize interest rates.

“Projects have been able to absorb increases so far so any deceleration in tightening will be welcomed,” adds Chiles.

2023 MIDYEAR LIHTC SURVEY
COMPANY CAPITAL CLOSED (IN MILLIONS) LIHTC PROJECTS ACQUIRED
Alliant Capital $365.3 32
Berkadia $135.6 7
Boston Financial $291.8 20
CAHEC $47.0 8
CREA $416.0 25
Enterprise Housing Credit Investments $682.0 37
Evernorth $73.8 10
Hunt Capital Partners $119.0 11
Massachusetts Housing Investment Corp. $92.1 7
Merchants Capital $237.8 22
Merritt Community Capital Corp. $56.5 7
Ohio Capital Corporation for Housing $92.9 11
PNC Real Estate $630.0 29
Raymond James Affordable Housing Investments $780.5 42
RBC Community Investments $462.0 26
Red Stone Equity Partners $445.0 27
Regions Affordable Housing $237.0 14
R4 Capital $429.2 23
The Richman Group Affordable Housing Corp. $472.0 24
WNC $173.0 25
Source: AHF Survey, August 2023

Denying moral hazard exists is as bad as defaulting to it and "slippery slope" arguments IMO. This is small scale version of Lehman Bros and the GSEs where govt intervention with respect to Bear Stearns, and LTCM previously, led many smart people to believe there would bu govt support for businesses. In the YRC case industrial owners escehwed a hot lease market in 21-22 because of the problematic support of Yellow during Covid.

https://www.bisnow.com/national/news/co ... dium=email

37 Leases On The Line As Yellow's Bankruptcy Fallout Continues
National
September 5, 2023 Olivia Lueckemeyer, Dallas-Fort Worth
Yellow Corp. is looking for court approval to back out of more than three dozen leases across the U.S. and Canada as the trucking company's bankruptcy proceedings unfold.

The 37 leases include truck terminals, offices, warehouses and outdoor storage space for semitrailers, per CoStar. Yellow's corporate headquarters in Nashville, Tennessee, and its regional HQ in Overland Park, Kansas, are among the affected properties.

Mounting debt forced the company to file for Chapter 11 bankruptcy in early August. The business is 94 years old and is the third-largest small-freight trucking company in the U.S., per USA Today.

Yellow has seen its financial obligations accumulate in recent years following the acquisition of Roadway Express and several subsidiaries of USFreightways. As of March, Yellow had about $1.5B in outstanding debt.

Among the company’s creditors is the U.S. government, which issued Yellow a $700M loan as part of a pandemic relief program in 2020. That move has since been labeled a misstep by the Treasury and Defense departments given Yellow’s “precarious financial position at the time of the loan,” according to USA Today.

The company’s 160 truck terminals are headed to auction next month, and much of its debt is expected to be paid down via the sale of those assets. Old Dominion Freight Line has offered $1.5B to acquire the portfolio, which will likely be designated as the minimum bid unless a higher offer emerges ahead of the auction.

Contact Olivia Lueckemeyer at [email protected]

Think this is lunacy and will be proven wrong but hope I’m
Wrong rather than the Fed-interesting how they use survey methodology as was questioned in another thread.

https://libertystreeteconomics.newyorkf ... repayment/

Borrower Expectations for the Return of Student Loan Repayment

Raji Chakrabarti, Daniel Mangrum, Sasha Thomas, and Wilbert van der Klaauw

Illustration: Headline Student Loans - Will borrowers continue to spend? Red background with illustration of a student pushing a full shopping cart.
After forty-three months of forbearance, the pause on federal student loan payments has ended. Originally enacted at the onset of the COVID-19 pandemic in March 2020, the administrative forbearance and interest waiver lasted until September 1, 2023, and borrowers’ monthly payments resumed this month. As discussed in an accompanying post, the pause on student loan payments afforded borrowers over $260 billion in waived payments throughout the pandemic, supporting borrowers’ consumption and savings over the last three years. In this post, we analyze responses of student loan borrowers to special questions in the August 2023 SCE Household Spending Survey designed to gauge the expected impact of the payment resumption on future spending growth, the risk of credit delinquency for borrowers, and the economy at large. The findings suggest that the payment resumption will have a relatively small overall effect on consumption, on the order of a 0.1 percentage point reduction in aggregate spending from August levels, and a (delayed) return of student loan delinquency rates back to pre-pandemic levels. Across groups, we see little variation in spending responses but find that low-income borrowers, female borrowers, those with less than a bachelor’s degree, and those who were not in repayment before the pandemic expect the highest likelihood of missed student loan payments.

The SCE Household Spending Survey is fielded every four months as a rotating module of the Survey of Consumer Expectations (SCE), which itself is a monthly, nationally representative internet-based survey of a rotating panel of household heads conducted by the Federal Reserve Bank of New York since June 2013. Here, we focus on responses by about 1,000 respondents to a special set of questions added to the August 2023 survey. Of these respondents, 225 reported having outstanding student loans, of which a subset of 151 respondents indicated that their federal student loans were previously “paused” but will be entering repayment in October. The remaining group includes those whose payments were never paused or those who are enrolled in school full-time and not resuming repayment. We asked those borrowers entering repayment how they plan to afford their looming monthly student loan payments and how their probability of missing student and non-student-loan payments will change due to the payment resumption.

We begin by briefly discussing our sample. An overwhelming majority of our sample of student loan borrowers held federal loans (with 74 percent reporting they hold federal loans only and 20 percent reporting they hold both federal and private loans). Of the 151 respondents who will be entering repayment, 71 percent were making monthly payments prior to the payment pause; roughly half of the borrowers in repayment were in a standard (ten-year) repayment plan (36 percent) and half were in an income-driven repayment (IDR) plan (35 percent). About 23 percent of our sample entering repayment were in deferment or forbearance prior to the pandemic, most under in-school deferment. Around 6 percent of ­borrowers were not actively making payments despite payments being required.

Expectations for Income-Driven Repayment Enrollment

We began by asking borrowers if they would enter the standard ten-year repayment plan (the default option) or enroll in an IDR plan. The Biden Administration recently debuted a new IDR plan, the Saving on a Valuable Education (SAVE) plan, that lowered payments for low-income borrowers and has already enrolled over four million borrowers (as of September 5). Our survey results suggest that the appealing terms of the SAVE plan for low-income borrowers will likely increase enrollment in IDR plans. Of those borrowers who were previously in a standard repayment plan, 20 percent expect to enroll in an IDR plan, and 84 percent of those who were previously in an IDR plan expect to remain enrolled in IDR—results that taken together would represent a modest uptick in IDR enrollment among the more seasoned borrowers. Meanwhile, borrowers who were not in repayment prior to the pandemic overwhelmingly favor IDR over the standard payment, with 78 percent of first-time repayers stating an intent to enroll in IDR. As shown by the flows in the chart below, we estimate the IDR enrollment among those in repayment would increase from 50 percent pre-pandemic to 58 percent after payments resume.

The SAVE Plan Will Likely Drive New Interest in Income-Driven Repayment (IDR) for Student Loan Borrowers

Chart showing projected flows into standard repayment plans (to 42.1% of repayers) and income-driven repayment plans (to 57.9% of repayers) after the payment pause lifts.
Source: New York Fed SCE Household Spending Survey, August 2023.
Notes: To classify borrowers into pre-pandemic groups, we asked respondents “Prior to March 2020, were you making most of the payments on these loans?,” with the following options: (a) Yes, I was in a standard repayment plan; (b) Yes, I was in an income-driven repayment plan; (c) No, my payments were deferred (i.e., in-school deferment, military deferment, etc.); or (d) No, payments were required but I was not making most payments. To classify borrowers into post-pause groups, we framed our question in this way: “The automatic forbearance and interest waiver for federal student loans will end after August 2023. In September, interest will begin to accrue, and payments will be due starting in October. What are you planning to do after student loan payment resumes? (select all that apply),” with the following options: (a) Make the standard monthly payments; (b) Enroll in an income-driven repayment plan; (c) Skip some payments; (d) Other (please specify); and (e) Not applicable (I am in school, and payments will not be required). Respondents selecting (e) were excluded from the sample. Borrowers were sorted into “standard repayment plan” or IDR using responses to (a) or (b) and open-ended responses from (d).
Expectations for Changes to Monthly Spending

Next, we turn to borrower’s expectations for changes in monthly spending (separate from student loan payments) due to the resumption of payments. More specifically, we ask borrowers, “When student loan payments resume from October, how do you expect that the payment resumption will affect your average monthly spending in the three months starting with October 2023?” On average, borrowers expect to reduce consumption by around $56 per month from their average monthly spending reported in August. If we scale this monthly decline up to the 28 million borrowers with federally-managed loans currently in forbearance, this would suggest nearly a $1.6 billion decline in monthly spending, or 0.1 percentage point of August 2023 personal consumption expenditures (PCE). For context, average monthly student loan payments for federally-managed loans was around $6 billion prior to the pandemic.

In the chart below, we plot the average reported change in expected October spending for paused borrowers as a share of their August reported average monthly spending. Most groups report relatively small expected reductions in spending while some groups report higher expected future spending despite the resumption of payments (survey panelists without student loans also report higher future spending). These relatively modest consumption declines, although not statistically different from zero, could be because borrowers already began adjusting consumption prior to August or because borrowers plan to reduce and/or deplete savings to make payments. They are also likely to reflect the large share expecting to enroll in the more generous IDR program. Due to our relatively small sample size, 95 percent confidence bands are wide across groups; however, the point estimates with the largest differences are between those with at least a bachelor’s degree (who expect larger spending reductions) and those with less than a bachelor’s degree, potentially reflecting differences in average outstanding student loan balances and payment sizes.

Paused Student Loan Borrowers Only Expect Modest Consumption Declines from August Spending when Payments Resume


Source: New York Fed SCE Household Spending Survey, August 2023.
Notes: The chart reports point estimates and 95 percent confidence intervals for the expected change in spending as a share of average monthly spending, split by various groups. To calculate this share, we asked borrowers, “When student loan payments resume from October, how do you expect that the payment resumption will affect your average monthly spending in the three months starting with October 2023? Please exclude loan payments from your estimation of spending. Starting October 2023, I expect my average monthly spending to (increase/decrease) by [ ].” We then asked borrowers for their average monthly spending at the time of survey: “Approximately, what do you think was your average monthly household spending during the past three months? I estimate that my average monthly household spending was [ ].” We compute the percent change in spending for each respondent using a ratio of these two answers.
Expectations for Missing Student Loan Payments

We also asked paused student loan borrowers about the expected probability (“percent chance”) they would miss a student loan payment or a non-student-debt payment in the three months following the payment resumption. Overall, paused borrowers reported an average probability of missing a student loan debt payment of 22.6 percent. Note that this statistic may overstate expected hardship and payment difficulty. Recent guidance from the U.S. Department of Education informs student loan servicers to not report missed payments to credit bureaus. As such, borrowers may be more likely to voluntarily miss payments while consequences are less severe.

In the chart below, we compare the self-reported probability of missing a student loan payment across several groups, finding stark and statistically significant differences across gender and income. Female respondents reported more than twice the probability of missing a student loan payment at 28.9 percent compared to 12.5 percent for males. Additionally, borrowers with household income lower than $60,000 reported an average probability of missing a payment of nearly 39 percent, compared to 14.3 percent for those with household income above $60,000. Although the estimates are not statistically different, non-white borrowers reported a higher average likelihood of missing a payment than white non-Hispanic borrowers and those without a college degree reported a higher likelihood than those with a degree. Lastly, we see a large difference in expectations for missed payments between borrowers who were in repayment prior to the pause and those who are entering repayment for the first time, with first-time repayers expecting more than twice the likelihood of missed student loan payments.

Expectations for Missed Student Loan Payments Are High, but Similar to Pre-Pandemic Levels

This chart compares the self-reported probability of missing a student loan payment across gender, age, education, household income, race and pre-pandemic repayment status, finding stark and statistically significant differences across gender and income.
Source: New York Fed SCE Household Spending Survey, August 2023.
Notes: The chart reports point estimates and 95 percent confidence intervals for the expected likelihood a respondent will miss student loan payments once payments resume, split by various groups. More specifically, we ask, “When student loan payments resume from October, what is the percent chance that you will miss a minimum payment on any of your student loan debt, federal and/or private, in the three months starting with October 2023?”
But how do expectations for missed payments compare to payment delinquency before the payment pause? While we do not have an apples-to-apples, pre-pandemic comparison for expectations of student loan missed payments, we can compare this probability with the borrower delinquency rate from our 2022 Student Loan Update, based on credit report data. As shown in the update, in the fourth quarter of 2019, roughly 15 percent of all student loan borrowers were either ninety or more days delinquent or in default. However, the denominator on this delinquency rate includes borrowers not in repayment, a category of borrowers we exclude from this SCE survey sample. Removing the 15.4 million borrowers reported by the Department of Education as not in repayment (that is, in school, grace, deferment, or forbearance) suggests a pre-pandemic delinquency rate of 23 percent (for those in repayment)—a rate quite similar to the self-reported average probability of missing a student loan payment in the SCE survey of 22.6 percent.

Expectations for Missing Non-Student-Loan Payments

Lastly, we asked student loan borrowers to report the expected increase in the likelihood of missing a non-student-debt monthly obligation (such as a mortgage, credit card, or auto loan payment) due to student loan payments restarting. On average, borrowers reported a 11.8 percent increase in the likelihood of missing a non-student debt payment owing to the student debt payment resumption. Borrowers across groups were also much more similar in their expectations of missing payments for other obligations than for student loans, with no evidence of statistical difference between groups. Interestingly, female respondents reported a lower probability of missing a non-student-loan payment than male respondents (although not statistically different). That female respondents report a far higher likelihood of missing student loan payments than males suggests female borrowers may be more likely than male borrowers to prioritize their non-student-loan obligations ahead of student debt if they face difficulties fulfilling all debt obligations.

Conclusion

Consumer spending has been surprisingly strong so far in 2023. However, there is considerable concern about the strength of headwinds stemming from the resumption of student loan payments, with some economic forecasters predicting it could lower consumption growth by as much as 0.8 percentage point. There are also concerns about rising delinquencies as payments resume, perhaps to levels higher than before the pandemic. Our findings here based on expectations survey responses suggest only modest reductions in spending for borrowers entering repayment (of approximately 0.1 percentage point of August PCE) and likelihood of missed student loan payments roughly in line with pre-pandemic levels. One reason for these relatively small effects is that potentially many borrowers already made changes to their savings and consumption decisions after learning that payments would certainly resume in October. The chart below shows some evidence for this hypothesis. Here, we plot the daily deposits at the U.S. Treasury by the Department of Education, of which the overwhelming majority are federal student loan payments. We see that deposits increased after the U.S. Supreme Court decision reversing the broad student loan forgiveness program and continued to rise up until the end of the zero percent interest waiver. This pattern seems consistent with some borrowers electing to make bulk payments against their loans after learning that their loans would not be forgiven and before interest resumed.

Total Daily Education Department Deposits at U.S. Treasury

This chart plots the daily deposits at the U.S. Treasury by the Department of Education from April-October 2023.
Source: U.S. Department of Treasury.
Another likely reason behind the less-than-dire forecast as the payment pause ends is the strength still apparent in the health of the U.S. consumer. Several policy changes by the White House and Department of Education bode well, too. A large take-up of the new SAVE plan would reduce monthly payments and waive unpaid interest for low-income student loan borrowers, and a one-year “on ramp” for borrowers will ignore missed payments for credit reporting purposes. In addition, more than $127 billion in federal student loans across over 3.6 million borrowers was cancelled or forgiven during the pandemic payment pause. While these factors will make the resumption of payments more smooth than otherwise, and lessen the expected decline in consumption growth, some student loan borrowers will surely struggle managing their debt obligations just as before the pandemic forbearance. Nevertheless, we expect the potential spillover to the broader economy to be limited, and we will continue to monitor developments in the coming months.

Interesting piece. I’ve tried to find arb opportunities with ECIP banks but a program I’m less familiar with. Legacy program from the financial crisis-the actual one, I’ve got early 30s guys in finance try to tell me Covid was the same-I treat them like Questlove treats the Yeet Skeet brothers when they come with that foolishness because they aren’t eh same- https://m.youtube.com/watch?v=3sxRAeh8f7w)

Dealt with a few MS banks but not a fan of the state in general so tried to not make it a heavy prospecting area.

https://www.spglobal.com/marketintellig ... a-77780208

Federal funds key driver behind Mississippi bank M&A

Mississippi community banks are leveraging a generous government program that benefits low and moderate-income financial institutions to fund M&A transactions.

Funding from the Emergency Capital Investment Program (ECIP) is playing a significant role in the state's M&A environment, sources said in interviews with S&P Global Market Intelligence. As interest rates stabilize and deal activity in Mississippi shows signs of an uptick, community development financial institutions (CDFIs) in the state that have received ECIP funding are likely the best positioned to strike a deal.

The buyers in the five most recent bank deals in the state were all ECIP recipients. Commerce Bancorp Inc. received $70 million from the program, Guaranty Capital Corp. received $183.8 million, BankFirst Capital Corp. received $175 million and Merchants and Planters Bank received $18.5 million, according to US Treasury data.

"The terms are quite generous, and the amount of capital provided is stupendous relative to the size of the institutions," Jeff Davis, managing director of Mercer Capital's financial institutions group, said in an interview. "For some institutions, this capital provides the means for acquisitions."

SNL Image

ECIP funding opens doors to M&A

ECIP allows banks to sell perpetual preferred stock to the US Treasury with no dividend for the first two years and an annual dividend no higher than 2% thereafter. If the capital can be deployed and produce higher returns than the dividend, the differential accrues to the common shareholders, Davis said.

The federal government established the program as part of the Consolidated Appropriations Act of 2021 in an effort to help minority deposit institutions and CDFIs make loans and support affordable housing initiatives. As a result, 175 such institutions across the country received a total of $8.57 billion in investments, including more than $1.6 billion to 25 financial institutions in Mississippi.

The access to inexpensive capital that ECIP provides for minority deposit institutions and CDFIs has a significant impact in Mississippi, which has a disproportionate amount of CDFIs, Nelson Mullins banking partner Robert Klingler said in an interview. The 2% dividend cap has made the funding increasingly attractive as the Federal Reserve hiked rates over the past year, and in some cases, using that capital to make an acquisition can be easier than deploying it for organic growth, he added.

Banks that have struck deals in recent years are likely to remain acquisitive, and those that have received ECIP funding are also well-positioned, Davis said.

"If you've got ECIP capital, your holding company is probably cash-rich," Davis said.

Miss. deal activity picking up

M&A activity in Mississippi has been limited because out-of-state banks have not had an interest in making acquisitions in the state, and Mississippi regional banks already have a presence in the markets they are interested in, Davis said. As a result, most of the deals in the last decade have been in-state transactions between community banks.

Only four of the 25 most recent deals in the state have been out-of-state deals, all of which took place in or before 2014, according to S&P Global Market Intelligence data.

Mississippi banks have announced two deals so far in 2023, including Guaranty's acquisition of First American Bancshares Inc. and Commerce Bancorp Inc's pending acquisition of Morton Bancorp Inc. In a sign that deal activity may be picking up in the state, the announcements came at a slightly faster clip than in 2022, when the state did not reach two deal announcements for the year until September.

Subsiding uncertainty around interest rates may explain the uptick, Klingler said.

"There's just a little greater ability to say [that] what we look like today is likely to still be what we're going to look like in six months or nine months," Klingler said.

Mixed performance at Miss. community banks

Over the 12 months ended June 30, Mississippi community banks of all asset classes underperformed in terms of year-over-year changes in return on average equity (ROAE) and net interest margin (NIM) compared to the median US bank. Mississippi community bank efficiency ratios also worsened across asset categories as the median US bank's efficiency ratio improved year over year by 192 basis points.

Nonperforming asset (NPA) trends at Mississippi community banks were mostly in line with the median year-over-year decline of 2 basis points, except for Mississippi banks with assets between $500 million and $3 billion, which reported no median change year over year.

SNL Image

Mississippi community banks outperformed the median US bank in terms of loans and deposits. Those with assets between $3 billion and $10 billion reported both the largest median year-over-year deposit growth, at 6.7%, and the largest median loan increase, at 17.9%. The median US bank recorded deposit declines of 1.2% and loan increases of 10.7%.

Among the 20 largest community banks in the state, Peoples Bank Biloxi Mississippi had the highest ROAE at 23.21%, Merchants & Marine Bancorp Inc. had the highest NIM at 4.37% and BNA Bank had the lowest efficiency ratio at 51.88%.

FNB Oxford Bank had the fewest NPAs relative to assets at just 0.1%, while BankFirst Financial Services recorded the greatest year-over-year deposit growth at 28.6% and The First Bank recorded the most loan growth at 60.2%.

SNL Image

A look inside spirit sales, seems like a rather good barometer as to how people are thinking about their discretionary cash.

US cheapskates dampen high-end liquor’s party spirit: https://www.ft.com/content/0f787487-d3f ... c382dfbc38

Jefferies has spotted worrying signals from supermarket sales that Americans are starting to trade down from $40 to $50 tequila to bottles that cost $20 to $30, though so far they’re still eschewing the real rotgut. That’s particularly bad news because the agave-based spirit recently overtook whisky and is on track to displace vodka as the US’s favourite hooch.

Agave was on Whisky's heels the past couple years, looks like they got em.

Farfromgeneva wrote: ↑Thu Oct 19, 2023 8:46 am Interesting piece. I’ve tried to find arb opportunities with ECIP banks but a program I’m less familiar with. Legacy program from the financial crisis-the actual one, I’ve got early 30s guys in finance try to tell me Covid was the same-I treat them like Questlove treats the Yeet Skeet brothers when they come with that foolishness because they aren’t eh same- https://m.youtube.com/watch?v=3sxRAeh8f7w)

Dealt with a few MS banks but not a fan of the state in general so tried to not make it a heavy prospecting area.

https://www.spglobal.com/marketintellig ... a-77780208

Federal funds key driver behind Mississippi bank M&A

Mississippi community banks are leveraging a generous government program that benefits low and moderate-income financial institutions to fund M&A transactions.

Funding from the Emergency Capital Investment Program (ECIP) is playing a significant role in the state's M&A environment, sources said in interviews with S&P Global Market Intelligence. As interest rates stabilize and deal activity in Mississippi shows signs of an uptick, community development financial institutions (CDFIs) in the state that have received ECIP funding are likely the best positioned to strike a deal.

The buyers in the five most recent bank deals in the state were all ECIP recipients. Commerce Bancorp Inc. received $70 million from the program, Guaranty Capital Corp. received $183.8 million, BankFirst Capital Corp. received $175 million and Merchants and Planters Bank received $18.5 million, according to US Treasury data.

"The terms are quite generous, and the amount of capital provided is stupendous relative to the size of the institutions," Jeff Davis, managing director of Mercer Capital's financial institutions group, said in an interview. "For some institutions, this capital provides the means for acquisitions."

SNL Image

ECIP funding opens doors to M&A

ECIP allows banks to sell perpetual preferred stock to the US Treasury with no dividend for the first two years and an annual dividend no higher than 2% thereafter. If the capital can be deployed and produce higher returns than the dividend, the differential accrues to the common shareholders, Davis said.

The federal government established the program as part of the Consolidated Appropriations Act of 2021 in an effort to help minority deposit institutions and CDFIs make loans and support affordable housing initiatives. As a result, 175 such institutions across the country received a total of $8.57 billion in investments, including more than $1.6 billion to 25 financial institutions in Mississippi.

The access to inexpensive capital that ECIP provides for minority deposit institutions and CDFIs has a significant impact in Mississippi, which has a disproportionate amount of CDFIs, Nelson Mullins banking partner Robert Klingler said in an interview. The 2% dividend cap has made the funding increasingly attractive as the Federal Reserve hiked rates over the past year, and in some cases, using that capital to make an acquisition can be easier than deploying it for organic growth, he added.

Banks that have struck deals in recent years are likely to remain acquisitive, and those that have received ECIP funding are also well-positioned, Davis said.

"If you've got ECIP capital, your holding company is probably cash-rich," Davis said.

Miss. deal activity picking up

M&A activity in Mississippi has been limited because out-of-state banks have not had an interest in making acquisitions in the state, and Mississippi regional banks already have a presence in the markets they are interested in, Davis said. As a result, most of the deals in the last decade have been in-state transactions between community banks.

Only four of the 25 most recent deals in the state have been out-of-state deals, all of which took place in or before 2014, according to S&P Global Market Intelligence data.

Mississippi banks have announced two deals so far in 2023, including Guaranty's acquisition of First American Bancshares Inc. and Commerce Bancorp Inc's pending acquisition of Morton Bancorp Inc. In a sign that deal activity may be picking up in the state, the announcements came at a slightly faster clip than in 2022, when the state did not reach two deal announcements for the year until September.

Subsiding uncertainty around interest rates may explain the uptick, Klingler said.

"There's just a little greater ability to say [that] what we look like today is likely to still be what we're going to look like in six months or nine months," Klingler said.

Mixed performance at Miss. community banks

Over the 12 months ended June 30, Mississippi community banks of all asset classes underperformed in terms of year-over-year changes in return on average equity (ROAE) and net interest margin (NIM) compared to the median US bank. Mississippi community bank efficiency ratios also worsened across asset categories as the median US bank's efficiency ratio improved year over year by 192 basis points.

Nonperforming asset (NPA) trends at Mississippi community banks were mostly in line with the median year-over-year decline of 2 basis points, except for Mississippi banks with assets between $500 million and $3 billion, which reported no median change year over year.

SNL Image

Mississippi community banks outperformed the median US bank in terms of loans and deposits. Those with assets between $3 billion and $10 billion reported both the largest median year-over-year deposit growth, at 6.7%, and the largest median loan increase, at 17.9%. The median US bank recorded deposit declines of 1.2% and loan increases of 10.7%.

Among the 20 largest community banks in the state, Peoples Bank Biloxi Mississippi had the highest ROAE at 23.21%, Merchants & Marine Bancorp Inc. had the highest NIM at 4.37% and BNA Bank had the lowest efficiency ratio at 51.88%.

FNB Oxford Bank had the fewest NPAs relative to assets at just 0.1%, while BankFirst Financial Services recorded the greatest year-over-year deposit growth at 28.6% and The First Bank recorded the most loan growth at 60.2%.

SNL Image

“M&A activity in Mississippi has been limited because out-of-state banks have not had an interest in making acquisitions in the state,”

Shocking.

PizzaSnake wrote: ↑Thu Oct 19, 2023 8:37 pm

Farfromgeneva wrote: ↑Thu Oct 19, 2023 8:46 am Interesting piece. I’ve tried to find arb opportunities with ECIP banks but a program I’m less familiar with. Legacy program from the financial crisis-the actual one, I’ve got early 30s guys in finance try to tell me Covid was the same-I treat them like Questlove treats the Yeet Skeet brothers when they come with that foolishness because they aren’t eh same- https://m.youtube.com/watch?v=3sxRAeh8f7w)

Dealt with a few MS banks but not a fan of the state in general so tried to not make it a heavy prospecting area.

https://www.spglobal.com/marketintellig ... a-77780208

Federal funds key driver behind Mississippi bank M&A

Mississippi community banks are leveraging a generous government program that benefits low and moderate-income financial institutions to fund M&A transactions.

Funding from the Emergency Capital Investment Program (ECIP) is playing a significant role in the state's M&A environment, sources said in interviews with S&P Global Market Intelligence. As interest rates stabilize and deal activity in Mississippi shows signs of an uptick, community development financial institutions (CDFIs) in the state that have received ECIP funding are likely the best positioned to strike a deal.

The buyers in the five most recent bank deals in the state were all ECIP recipients. Commerce Bancorp Inc. received $70 million from the program, Guaranty Capital Corp. received $183.8 million, BankFirst Capital Corp. received $175 million and Merchants and Planters Bank received $18.5 million, according to US Treasury data.

"The terms are quite generous, and the amount of capital provided is stupendous relative to the size of the institutions," Jeff Davis, managing director of Mercer Capital's financial institutions group, said in an interview. "For some institutions, this capital provides the means for acquisitions."

SNL Image

ECIP funding opens doors to M&A

ECIP allows banks to sell perpetual preferred stock to the US Treasury with no dividend for the first two years and an annual dividend no higher than 2% thereafter. If the capital can be deployed and produce higher returns than the dividend, the differential accrues to the common shareholders, Davis said.

The federal government established the program as part of the Consolidated Appropriations Act of 2021 in an effort to help minority deposit institutions and CDFIs make loans and support affordable housing initiatives. As a result, 175 such institutions across the country received a total of $8.57 billion in investments, including more than $1.6 billion to 25 financial institutions in Mississippi.

The access to inexpensive capital that ECIP provides for minority deposit institutions and CDFIs has a significant impact in Mississippi, which has a disproportionate amount of CDFIs, Nelson Mullins banking partner Robert Klingler said in an interview. The 2% dividend cap has made the funding increasingly attractive as the Federal Reserve hiked rates over the past year, and in some cases, using that capital to make an acquisition can be easier than deploying it for organic growth, he added.

Banks that have struck deals in recent years are likely to remain acquisitive, and those that have received ECIP funding are also well-positioned, Davis said.

"If you've got ECIP capital, your holding company is probably cash-rich," Davis said.

Miss. deal activity picking up

M&A activity in Mississippi has been limited because out-of-state banks have not had an interest in making acquisitions in the state, and Mississippi regional banks already have a presence in the markets they are interested in, Davis said. As a result, most of the deals in the last decade have been in-state transactions between community banks.

Only four of the 25 most recent deals in the state have been out-of-state deals, all of which took place in or before 2014, according to S&P Global Market Intelligence data.

Mississippi banks have announced two deals so far in 2023, including Guaranty's acquisition of First American Bancshares Inc. and Commerce Bancorp Inc's pending acquisition of Morton Bancorp Inc. In a sign that deal activity may be picking up in the state, the announcements came at a slightly faster clip than in 2022, when the state did not reach two deal announcements for the year until September.

Subsiding uncertainty around interest rates may explain the uptick, Klingler said.

"There's just a little greater ability to say [that] what we look like today is likely to still be what we're going to look like in six months or nine months," Klingler said.

Mixed performance at Miss. community banks

Over the 12 months ended June 30, Mississippi community banks of all asset classes underperformed in terms of year-over-year changes in return on average equity (ROAE) and net interest margin (NIM) compared to the median US bank. Mississippi community bank efficiency ratios also worsened across asset categories as the median US bank's efficiency ratio improved year over year by 192 basis points.

Nonperforming asset (NPA) trends at Mississippi community banks were mostly in line with the median year-over-year decline of 2 basis points, except for Mississippi banks with assets between $500 million and $3 billion, which reported no median change year over year.

SNL Image

Mississippi community banks outperformed the median US bank in terms of loans and deposits. Those with assets between $3 billion and $10 billion reported both the largest median year-over-year deposit growth, at 6.7%, and the largest median loan increase, at 17.9%. The median US bank recorded deposit declines of 1.2% and loan increases of 10.7%.

Among the 20 largest community banks in the state, Peoples Bank Biloxi Mississippi had the highest ROAE at 23.21%, Merchants & Marine Bancorp Inc. had the highest NIM at 4.37% and BNA Bank had the lowest efficiency ratio at 51.88%.

FNB Oxford Bank had the fewest NPAs relative to assets at just 0.1%, while BankFirst Financial Services recorded the greatest year-over-year deposit growth at 28.6% and The First Bank recorded the most loan growth at 60.2%.

SNL Image

“M&A activity in Mississippi has been limited because out-of-state banks have not had an interest in making acquisitions in the state,”

Shocking.

MS as a state blows. Feels crappy crossing the border from AL which says a lot.

I’m semi close to two that happen to have Hqs across the street from each other in Tupelo and have a combined $60-$65Bn in assets (one is like
$50 and the other is between $10-$15, the smaller one had the son of bank CEO at a predecessor who adopted a Chinese kid because it was the good thing to do then turned around and named him Charlie. While I know the difference between a Vietnamese person and a Chinese in his smaller MS town then Tupelo it is just asking for the kid to be tortured in HS….

Exec buddy at a Dallas based bank that has a massive and highly profitable trucking payment subsidiary sent me this tonight which I thought was interesting.

https://www.freightwaves.com/news/freig ... ong-winter

Freight brokerage bubble bursting as freight markets face long winter

Craig Fuller, CEO at FreightWaves · Wednesday, October 18, 2023

Industry could see more freight brokerage closures amid a changing financial climate. (Photo: Jim Allen/FreightWaves)
Player Image
FreightWaves

Freight brokerage bubble bursting as freight markets face long winter

On Wednesday, FreightWaves reported that Convoy was winding down operations. Earlier in the morning, I had started writing an article about liquidity issues that some freight brokerages are having or will have. Then the news broke that one of the most iconic freight brokers to come out of the venture era of freight tech funding would fail on the same morning.

Convoy was a victim of a violent commoditized industry that is facing one of its deepest recessions in decades and a sudden change in investor appetite from risk to unit economics.

While many articles will be written in the coming weeks about Convoy, unfortunately, it won’t be the only significant broker to suddenly shut down.

This is unusual.

After all, anyone who has been in trucking knows that asset-based carriers face imminent failure frequently. However, it has been rare for freight brokers to suddenly shutter. Compared to trucking fleets, freight brokers have a lot more flexibility in their business model to adjust to changing market conditions

But we will see many more sizable freight brokers shut down suddenly. And the reason is a significant change in the financing climate.

In an article earlier this week, I wrote about the growth and proliferation of the freight brokerage industry over the past decade. Freight brokers have moved from a small cottage industry to one of the most important forces in freight. A large part of FreightWaves’ success has been driven by the increasing importance that freight brokers play in the industry.

After all, freight brokers are the day traders of the freight market, and as such need up-to-date information about the freight market.

FreightWaves was created at a time when freight brokerages morphed from a small part of the industry to a dominant force. FreightWaves owes a lot of our success to this reality.

But much of the brokerage industry’s growth has been fueled by financing structures, such as venture capital (VC) and asset-based lines of credit. The appetite for venture funding of freight brokerages has been dead for over a year and is partially responsible for the reason Convoy has failed. VC investors have woken to the reality that freight brokerage is not venture-investible.

For those brokers that didn’t use VC funding but financed growth through alternative lenders, the story is different, but the results are the same. These alternative lenders are common across the freight market. Trucking companies use factoring companies to finance their receivables on a transactional basis. Brokers do the same; however, it is often not on a per-transaction basis, but rather on a portfolio of receivables.


(Photo: Jim Allen/FreightWaves)
Receivables are pledged as collateral against lines of credit, described as an “asset-based line of credit,” or ABL, and this enables a brokerage to grow quickly without having to wait for shippers to pay.

If the market and unit economics are expanding, it’s a very efficient way to grow. For traders in the stock market, it can be compared to using margin to purchase stocks.

If a stock position is increasing in value, you gain a bigger line of credit. The danger, of course, is if you use the line of credit to buy more of the same stock. If that stock collapses, you are in real trouble because your losses will only accelerate on the downside.

The same thing is happening in the brokerage sector. Freight brokers went out and borrowed against their AR portfolios to fuel growth, racking up debt at cheap rates. When the Fed changed the cost of capital, that debt became more expensive. That in and of itself isn’t the problem.

But something else happened to the trucking market.

The average transaction size of loads also collapsed. Loads that generated $3,000 in revenue two years ago now ship for only $1,500 in revenue. Do enough of those transactions and the size of the credit facility starts to collapse.

That isn’t necessarily a problem if brokers had held onto the capital when times were good. But it does become a problem when that capital is used for more growth or to make other purchases. For Convoy, it was to fuel growth. For other brokers, it could be for personal uses like homes, cars, airplanes, yachts, etc.

The capital is now spent, but the debt is still there. And finance companies, aware of the risks of freight volatility, tried to protect themselves by placing covenants into these lines of credit, often benchmarked against margins.

As margins compressed, the covenants were violated, and the financiers became nervous. Now some of them are facing a dilemma: continue to fund the line of credit or call it in. In Convoy’s case, it appears the line of credit was called in.

In recent weeks, FreightWaves has been hearing from sources that a number of midsize freight brokers are in financial trouble. One CEO of a large broker that had discussed potential transactions told me the risk was most pronounced in brokerages that generate $50 million to $250 million in revenues.

A CEO of a major bank with exposure to trucking told me he had three large brokers that are in dire financial shape in their portfolio and he expects them to shutter in the coming months.

These firms have used receivables funding to fuel growth. However, due to collapsing market fundamentals, they have breached their covenants.

The banks that financed these asset-based loans have been trying to play matchmaker for some of these brokers, but their patience is starting to wear thin.

Unfortunately, it will get worse.

The most brutal part of the cycle for a freight broker isn’t a soft market.

It’s when the freight market starts to turn up and spot rates improve, while contract rates remain pressured. This squeezes brokerage margins.

In other words, the spread between spot and contract narrows. When that happens, it hurts the take rate for freight brokers.

A large percentage of contract rates get established during bid season. If conditions are soft at the time of bids, contract rates will fall.

Bid season traditionally starts in mid-October and ends in February. Freight rates have been very soft all year, and there has been no improvement as bid season gets underway.

The overcapacity in the market has kept both spot and contract rates low — on some lanes, as low or lower than in 2019. These conditions will be a significant drag on contract rates during the 2023-2024 bid season. We foresee contract rates dropping further as carriers realize “it’s lower for longer.”

Spot rates, currently at levels where carriers lose money on many of the miles they run, are unlikely to fall much further.

This will compress brokerage margins, exacerbating any financial struggles that brokerages may have.

Therefore, I expect we will see some frantic deals in freight brokerage happen over the next few months as healthier players take out the weaker ones.

I also expect bankruptcies for those firms that are under significant financial stress. Bankruptcies are common in trucking, but it’s usually asset-based carriers that go under.

This cycle could be the first time we see a number of bankruptcies impact the brokerage market.

F3: Future of Freight Festival

NOVEMBER 7-9, 2023 • CHATTANOOGA, TN • IN-PERSON EVENT

The second annual F3: Future of Freight Festival will be held in Chattanooga, “The Scenic City,” this November. F3 combines innovation and entertainment — featuring live demos, industry experts discussing freight market trends for 2024, afternoon networking events, and Grammy Award-winning musicians performing in the evenings amidst the cool Appalachian fall weather.