Let's Talk Loans - Vol. 60

Welcome back or welcome for the first time! ?Each week we chat about what's trading and trending in the whole loan market. If you're interested in shop talk from the Raymond James whole loan desk, you've come to the right newsletter. If you enjoy the content, please like or share with a peer.

Bank earning's season is upon us. So far, it's the tier 1 shops. Not much on the smaller regionals or community banks of yet. Earnings have been strong along with solid growth to net interest income. A few headlines for you. "JPMorgan Chase Profit Soars Past $14 Billion". That's a 67% increase. Wells Fargo: "The bank earned $4.94 billion, up 57% from the year-earlier quarter". Citi: "The New York-based bank reported $2.9bn in net income, down from $4.5bn in the same period last year". Most of you reading this are more in the community or regional lending space. You missed out on the opportunity to make a $2.7bn gain by rescuing First Republic. Diving deeper into the numbers, I'm looking to see what that pinch to margin was for these larger shops - which I feel is the better indicator for community depositories. It's still early innings on the rising cost of deposits, typically a lagging factor, which I think will be more acutely felt for smaller institutions in the coming quarters ahead. Note on the graph below, only JPM had an increase in deposits. Wells, Citi and State Street all had mild declines. JPM did see NIM move from 2.63% to 2.62% - its first decline after consecutive quarters of rapid growth. Wells Fargo also saw a decline from 3.20% (Q1) to 3.09% (Q2). Note that State Street's numbers on net income growth were much more meager.

This link will take you to the below graph that the WSJ will be updating as earning season progresses. A great graphic and one I plan to revisit next week.

Mortgage lenders out there. Good news for depositories. You're gaining back lost ground. You've got a balance sheet. You can compete against your non bank lenders with relationship lending. They can't hold loans for long. You can.

"Banks and thrifts represented nine of the top 20 lenders in 2022, a slight increase from seven the year before. Additionally, six of the top 10 spots went to banks, compared to just three in 2021"

Now be careful. If we are higher for longer, giving below market coupons to drive volume can bite you. While you don't have to mark these to market, if you are forced to sell at a later date, in a higher interest rate environment, with less liquidity present, pain can be felt. I want to BOLDLY HIGHLIGHT the below quote. It does not get any more real than this.

"Two commercial banks, First Republic Bank and PNC Bank NA, managed to achieve year-over-year increases in funded loans at 17.3% and 7.3%, respectively, despite the decline in mortgage volumes, though First Republic ultimately failed at the beginning of May this year"

Lastly, rates and inflation. In the previous week, we had a very odd set of jobs numbers and rate reaction. ADP came out on Thursday and rates took off. Then the BLS came out with a somewhat contradictory message and we saw a muted retreat. Fast forward to this week and we get what many economist's expected - cooling inflation. Both PPI and CPI came in lower than expected - implying we have conquered inflation (again). Bonds have rallied, rates have plummeted. We had a 2 year that was right at 5% after the ADP number and has dropped some 25bps in a week with the CPI number. Volatility remains alive and well. Despite the cooling inflationary numbers, a 25bps hike is very much expected at the Fed meeting later in the month. We are not done with this rate hike cycle yet.

Before we say we've tamed inflation (again), I found the Nick, the "Fed Whisperer", Timiraos comments thoughtful. That last mile to truly kill inflation will be a slog. Rents and cars should give us a quick drop in the coming months and many will cheer that progress. However, core inflation could take a good while to get back to the Fed's target of 2% or below.

Lastly, for auto originators out there. Join us for another conversation with 穆迪分析 and Michael Brisson . We will discuss the current challenges faced by the auto credit industry, the outlook for U.S. Autos and its impact on banks, credit unions, non-banks, and auto finance. Should be a timely discussion!

Have a great weekend! m22-241872