In the ‘headlines of interest’ I post most evenings I am adding in smaller bank earnings – even those without preferred stock outstanding. The idea in doing this is to keep those smaller banks front and center. I don’t read all of what I post, but I do skim the articles and generally speaking smaller banks (not the too big to fail banks) are reporting earnings that are reasonably decent given the situation in interest rates. Many (not all) are reporting growing deposits and modestly rising allowances for bad debt. One bank with earnings falling substantially NJ banker OceanFirst Financial (OCFC) reported earnings which were off 50% from a year ago – the change because of a $17 million participation in a Manhattan office building which went bad and was written down to $8 million. Of course the question is how many more similar loans are going to go bad. Contrary to OceanFirst earnings Bank OZK reported record earnings, although allowances for credit losses increased fairly substantially. My question (for which there is no answer) is how many bad loans are being swept under the carpet–bank examiners can’t be everywhere and you can be certain a bank or two will blow up. On a historical basis these things take substantial time to work through the system–things are great until they aren’t. We’ll see.
So interest rates were higher again yesterday with the 10 year closing at 4.99%, but rates have backed off to 4.94% this morning. The assault on the 5% level will have to wait until next week as there is little economic news today. We have only 1 Fed speaker today–a welcome respite after this weeks gaggle of speakers. Fed Chair Powell spoke yesterday and was as expected – not going to commit to any spoken word on future Fed Funds hikes or reductions but definitely keeping the future hikes on the table.
Next week we have personal consumption expenditures (PCE) being released on Friday – a key data point which could move interest rates substantially – higher or lower.
So let’s see where the day takes us – the 10 year treasury has climbed up 3 basis point to 4.97% just since I started typing this not – maybe the 5% assault will come again today – who knows.