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Bank earnings results have proved to be much more resilient and reassuring relative to what many in the market appeared to fear. Results are not just better than feared but actually better than expected. As a result, the Finance sector’s Q1 earnings are now expected to be up +7.6% from the year-earlier period, a significant improvement from the +0.3% growth expected a week ago ahead of the results.

The three most prominent players in the space – JPMorgan (JPM - Free Report), Bank of America (BAC - Free Report), and Citigroup (C - Free Report) – not only handily beat top- and bottom-line estimates on the back of strength in their lending businesses but also provided favorable commentary on that count for the coming periods.

JPMorgan’s Q1 earnings were up an impressive +52.4% from the same period last year on +24.8% higher revenues on record net-interest income. Management raised the outlook for this key profitability measure for the rest of the year, even though they see net-interest income next year to be below the 2023 level. Q1 earnings at Bank of America were up +15.5%, though Citi’s earnings were down -8.1% from the year-earlier period. Earnings estimates for the June quarter have been increasing after the releases, with the trend particularly notable for JPMorgan and Citigroup.

Many smaller regional banks have yet to report Q1 results, but the bigger regional players have largely tracked the profitability trends of the money-center players. You can see that in the Q1 results from US Bancorp (USB - Free Report), PNC Financial (PNC - Free Report), and M&T Bank (MTB - Free Report).

We will know more as we see results from the smaller banking players, but it is increasingly becoming clear that Silicon Valley Bank’s failure wasn’t reflective of an industry-wide systemic problem but rather a function of idiosyncratic and company-specific factors. That said, the SVB failure and the resulting scramble for deposits has put a spotlight on the industry-wide competition for deposits that will have negative implications for net-interest margins in the coming quarters.

The Earnings Big Picture

The chart below shows the evolution of aggregate earnings estimates for 2023 since the start of 2022.

Image Source: Zacks Investment Research

As noted earlier, the current aggregate earnings total for the index approximates to an index ‘EPS’ of $213.47, down from $242.98 in mid-April, 2022.

The chart below tracks these index ‘EPS’ values since the start of 2022. Please note that these ‘EPS’ values are imputed approximations and have been previously published on the dates listed in the chart below.

Image Source: Zacks Investment Research

The chart below provides a big-picture view of earnings on a quarterly basis. The growth rate for Q1 is on a blended basis, where the actual reports that have come out are combined with estimates for the still-to-come companies.

Image Source: Zacks Investment Research

The chart below shows the overall earnings picture on an annual basis.

Image Source: Zacks Investment Research

As mentioned earlier, 2023 aggregate earnings estimates on an ex-Energy basis are already down by more than -14% since mid-April 2022. Perhaps there will be some more downward adjustments to estimates over the coming weeks as companies report Q1 results and provide guidance for the coming quarters. But it is factually inaccurate to claim that 2023 earnings estimates have not fallen much.

The only scenario in which the more than -14% cut to 2023 earnings estimates may be called inadequate would be if the U.S. economy were headed toward a major economic downturn. The risk of such a ‘hard landing’ for the U.S. economy can’t be ruled out, but it is not our base case.

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