By Scott Hallermann.

By the numbers after the 1st full week of bank earnings results, 62% of the 47 U.S. banks with greater than $10B in assets that have reported beat consensus EPS expectations by a median 2.5%. Median EPS are lower -8.7% from the December quarter while higher 17.8% from the linked quarter. Negative revisions to full year 2023 consensus expectations now have earnings contracting -0.5% from 2022.

Other noteworthy metrics find provision expense trending lower by -5% sequentially along with slightly lower non-performing assets as credit quality remains well below historic averages. Net Interest Margin is lower by approximately -4% from the prior quarter. Net loan balances are higher by slightly more than 1% with commentary that paydowns are slowing faster than originations. Positive earnings, securities gains and lower buybacks are driving Tangible Book Value higher by about 4.5%.

From the earnings calls, FITB CEO Tim Spence provided a lengthy answer that I think is a well stated synopsis to the current environment. I have added my emphasis to his expectations regarding Fed policy path.

“We have been operating under the belief that some of the rosier data that came out in the winter was a
little bit of a head fake because you had unseasonably good weather and the byproduct of that was you
had spending and a variety of other indicators flash more positive than I think people had anticipated.
And in part, that’s why you saw the Fed ramp-up rhetoric.

Again, the ISM indices are, from my point of view, the best thing to watch here. They certainly are in our
footprint, and they all are signaling a slowdown. And the Fed is not going to be able to relent and get
inflation under control, just based on what we hear from clients without sticking at a 5-plus level for
some extended period of time. And when that happens, that’s very restrictive, right? Things are going
to break.

My own view is that this is — we’re likely to return to a period where there’s more regional divergence
than you’ve seen in the most recent 2 cycles. I am very happy to be a Midwest and Southeast bank in a
moment like the data that’s come out of the Census Bureau on spending on factories, right? We had $108
billion in spending on factories last year, which was an all-time record. Financial times did nice work on
commitments that have been made. There’s more than $200 billion in capital commitments. This is all
stuff that’s tied to the $2 trillion that the government intends to invest in rebuilding supply chains here in
the U.S.

And if you just look at the manufacturing jobs that were added last year, like there were 348,000
manufacturing jobs added in the U.S. compared to, I think, 6,000 in 2010 as an example, and 60% of those
were in our footprint. So the markets that are going to benefit from the government’s investment in
infrastructure and domestic supply chain and that sort of broader trend in reshoring are going to do better
than markets that were more reliant on technology and professional services or that have more profound
challenges as it relates to state budget deficits or challenged city centers. They’re just going to be a
divergence that materializes there.
So I at least think you should be more focused on regional economic data than on the economy overall as
you think about where losses may materialize.â€

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