I'm Dejra Woolard sitting in for Chris Hill and I'm joined by Motley Fool Senior and

let's Jason Moser. Hi Jason. Hey, how are you? Doing good and and Bank of America is doing pretty good too. They announced earnings today. They beat earnings estimates even though profit was down. You know, banks like B of A Wells Fargo, JP Morgan, they're all getting this boost from higher interest rate income even as deposits are slowing down. Our higher interest rates kind of a good news, bad news situation for banks. Yeah, I think that's probably a fair way to put it. I would I would say it probably favors more good news than bad.

You know, you look at you look at banks that are maybe a little bit more levered to mortgage lending and maybe that that dries up a little bit as rates go up. Generally speaking, and we've been kind of hoping to see this at some point or another with banks as interest rates continue to rise. We see ultimately the net interest income numbers for these banks. This this quarter really taking off net interest income. For those unfamiliar with it. It's the difference ultimately between the revenue generated from a banks.

So interest bearing assets and the expenses associated with paying on the interest bearing liabilities. And so ultimately as rates go up, we should see banks making a little bit more money in that net interest income. And if you look at Bank of America, that net interest income was up 24% for the quarter JP Morgan net interest income was up 34% Wells Fargo up 36%.

So it's a nice thing to see even even though you probably don't like you don't like seeing your adjustable rate mortgage. Take up unsure, but I think that probably speeds to the merits of getting 30 year fixed mortgage. But yeah, I think I think probably more good news than bad.

That I noticed about the BFA earnings was that the consumer is is still spending consumer consumers are still sort of it's slowing, but it's still strong. But banks are really preparing for the worst. They're pumping up their loss reserves. What does that mean? And is there a possibility that that could be too much? Can they over prepare?

I don't think they really I don't think they can over prepare. I mean, you know, banks are obviously very heavily regulated industry. And so so they have to they have to keep a close eye on this.

Always right. And so so we always every quarter we see either you know, they're pumping up those reserves or they're releasing those reserves. And ultimately that loan loss provision. It's just it's something that banks set aside for potential.

Uncollected loans and payments right it covers non performing loans customer bankruptcies things like that. And so, you know, we always we always say you want to prepare yourself for a rainy day. And this is kind of the banks version of preparing themselves for a potential rainy day.

And indefinitely we've seen a lot of these banks setting aside a bit more as opposed to to releasing money recently. If you look at Bank of America, their net reserve bill was 378 million.

That was versus a net reserve release of 1.1 billion a year ago JP Morgan another another bank that that increase that reserve they built up 808 million versus a release of 2.1 billion a year ago. And then Wells.

They also they added 784 million to their to their loan loss reserves. And so it is it is something when you see banks doing this impacts earnings right and we when we see them them setting this money aside that that is a little bit of a headwind to earnings.

Conversely when we see them releasing that money that can be a little bit of a tailwind. And so it's something that that just plays out.

And so it's a quarter to quarter in year to year. And ultimately you know you look for those tailwinds when you feel like they've got that that money set aside.

If economic conditions are a little bit are starting to improve right when they start setting that money aside that when they start building that reserve it can be a little bit of a clue as to what they see coming down the pike right.

And so it feels like to me they anticipate potentially a challenging situation here in the coming quarters. We hear a lot of talk about recession potentially hitting in 2023 a lot of people that are getting there were already in recession now right.

So so I think it's one of those things you expect to see it with banks whether they are are are reserving or releasing. But the fact that they're reserving does does give us a little bit of a clue that maybe maybe they see some challenges on the horizon.

And so those challenges are things like consumers maybe defaulting on on their credit cards or things like that.

Yeah, I mean you when you look at recessionary times obviously coupled with inflationary times the consumer is really in a pinch right now and credit card balances are historic high levels consumer savings rate the personal savings rate is around 3.5% which is historically very low level.

So it's a consumer right now that's a little bit of a challenging spot in the banks are saying hey things might get worse before they get better and we may have some some loans out there that ultimately won't get paid we need to put this money aside to make sure that we that we have our business order and we're meeting those capital ratios that that regulators expect to see.

And you're kind of famous for talking about the war on cash and Bank of America saw 44% more sell transactions and checks written are we also in the midst of a war on checks and which kind of fintech companies are going to be the beneficiaries of that.

Yeah, you know, I I hate having to write checks personally every once the while you got to do it but we're seeing more and more now that is just that that's becoming sort of the old way of doing business right.

...