By Scott Hallermann.
Early 4Q results trends among banks with $10B in assets or greater show 60% of companies beating consensus EPS expectations for the quarter. Median EPS are higher by 4.9% sequentially and 7.2% from the prior year. Earnings have grown from higher net loans (+2.5% q/q) and higher Net Interest Margin (+4.0% q/q). While charge offs and Non-performing Assets remain well below historical levels, banks are building reserves with industry provision on track to increase more than $1B from the 3Q22 level. Non-interest expense remains elevated from inflation pressures while Non-Interest Income is soft from weakened capital markets activity and a steep fall-off in housing.
The base case 2023 outlook for most banks is a mild recession with unemployment rising towards 5%. To humanize this outlook a little, a hypothetical increase in unemployment to 5% equates to about 2.5mm additional workers without a job. This calls to mind the adage, a recession is when your neighbor loses their job while a depression is when you lose yours.
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