Q4’22 Trending Earnings Topics Recap – Week of January 16, 2023

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Welcome to the first weekly edition of our Q4’22 earnings season update on trending topics, macro trends, and key management commentary. With a busy first week of earnings that saw some banking companies in the S&P 500 report, Goldman Sachs, JPMorgan Chase, PNC Financial Services, M&T Bank, Fifth Third, Citizens Financial, and KeyCorp were some of the notable names. 

Prior to diving into the management commentary, we wanted to address the rising uncertainty in the macro environment in light of a possible recession that has led to unprecedented restructuring and layoffs by numerous firms across North America. As we just began 2023, several sources have confirmed that almost 60,000 employees* have been laid off within this short period, with 174 tech firms contributing to that statistic. Salesforce & Amazon announced that they would be letting go of about 16,000 employees (combined) during an internal restructuring in the first week of 2023. Microsoft joined the list when 10,000 employees were laid off soon afterward on January 18th. Most recently, Google has also announced that 12,000 (6%) of its employees were impacted by a workforce reduction. We will continue to monitor this theme and will be providing more extensive reporting on executive responses from these firms and more as this earnings season progresses over the coming weeks.

In the meantime, here are some key trending topics that emerged during earnings updates over the last week:


While a recessionary environment is likely to slow loan growth across the banking sector, companies continue to report strong performance in loans and guide towards normalized or slowing growth in their 2023 outlook, even after accounting for macroeconomic pressures.

JPMorgan Chase – Prepared Remarks

Expenses of $19 billion were up $1.1 billion or 6% year-on-year, primarily driven by higher structural expenses and investments. And credit costs of $2.3 billion included net charge-offs of $887 million. The net reserve build of $1.4 billion was driven by updates to the firm’s macroeconomic outlook, which now reflects a mild recession in the central case, as well as loan growth in Card Services, partially offset by a reduction in pandemic-related uncertainty…

Loans were up 14% year-on-year and 3% sequentially. C&I loans were up 4% quarter-on-quarter, reflecting continued strength in originations and revolver utilization. CRE loans were up 2% quarter-on-quarter, reflecting a slower pace of growth from earlier in the year due to higher rates, which impacts both originations and prepayment activity.

Regions Financial – Q&A

Question – Betsy L. Graseck: Hey. A couple of questions. One, just on the loan growth outlook, I know you indicated you expect ending balance to be about 4% up year-on-year. Could you just give us a sense as to how you’re thinking through the dynamics of which pieces of the loan growth are likely to accelerate, be on the high side, lower side, and then how much longer that run-off portfolio is going to impact the numbers? Thanks.

Answer – David Jackson Turner: Yeah. So, we expect loan growth to slow just with the general economy slowing. I think our growth opportunities will manifest itself in the corporate banking group, commercial and corporate banking as line utilization likely goes up a bit. I think there will be some opportunities in the real estate. We did have some growth of real estate, primarily multi-family, still happy with that. And we do have one of the lowest concentrations of investor real estate compared to the peer groups. But we look at utilizing our capital selectively with the right customers, doing the right things, in particular, like I said, multi-family.

Answer – John M. Turner: Yeah. I would just add, despite the fact that we expect the small business customer to be under some pressure in more challenged economy, we’re seeing real opportunity through the Ascentium Capital platform, making loans to businesses on business essential equipment. We’re able to leverage that platform, which is very specialized in nature, through our branch system in our existing customer base. And over 35% plus of our branches in 2022 originated loan through Ascentium Capital. We’ll see more of that grow I think, and again, another opportunity to leverage an acquisition into our existing customer base.

M&T Bank – Prepared Remarks

Next, turning to the outlook for average loans. We expect average loan and lease balances during 2023 to grow in the 8% to 9% range when compared to the 2022 full-year average of $119.3 billion. This implies total average loan and lease balances in the fourth quarter of 2023 to be flat to slightly up from the $129.4 billion average during the fourth quarter of 2022.

  • Darren J. King – M&T Bank Corp., Senior Executive Vice President & Chief Financial Officer

KeyCorp – Q&A

Question – Steven Alexopoulos: I wanted to start on the loan outlook. If I look at where period end and average loans end in 2022, it appears that you’re not looking for much loan growth in 2023 on a period end basis. Can you confirm that and maybe give some color on why such a sluggish outlook? I don’t know if you’re tightening your credit box or whatnot.

Answer – Donald R. Kimble: Steve, this is Don. And as far as the outlook, the period end balance sometimes can be a little misleading. So, if you just take a look at the fourth quarter average for total loans at $117.5 billion, our midpoint of our guidance range is in the $120-million range. And all of that really is coming from commercial. And so, with this change in our economic outlook that also influenced our – or determined what our allowance was, we’ve also pulled back on some of those loan growth outlook.

We also see, Steve, that our consumer loan balances are flat throughout next year. And what – our expectation there is that we’ll continue to have residential mortgage origination, that we’ll continue to see some of the home-equity balances trade down and relatively flat on other consumer categories. And so, it is very modest incremental growth from here, but we think it’s appropriate given the backdrop of the economic outlook we have.

  • Donald R. Kimble – KeyCorp, Chief Financial & Administrative Officer

Truist Financial – Q&A

Question – Ken Usdin: Thanks. Good morning. I was just wondering if you can provide us little breakdown detail between – inside your revenue growth guide to the year, just generally speaking, what are you expecting for NII versus fees and what curve – rate curve are you using in your NII forecast?

Answer – Michael B. Maguire: Hey, Ken. It’s Mike. I’ll take that one. I guess, starting with the last question on the rate curve, our outlook is that we’ll see two rate hikes in the first quarter, 25 basis points (00:32:38) a piece in February and March, and see a policy rate stable until November where we would expect a cut which, obviously, at the end of the year, probably doesn’t have much of an impact on our NII perspective.

Breaking revenue for the year into two components. From an NII perspective, the way I think about it is we obviously had really strong growth in 2022. The second half, in particular, also had very nice margin expansion. So, we have a really nice exit velocity from an NII perspective. We believe we have a little bit of asset sensitivity left. So, we do have the opportunity to realize some of the upside of the hikes in the first quarter. And we’ll have, as Bill mentioned, slowing loan growth.

But those two factors combined, we think, give us a stable outlook for Q1 NII. And then, for the rest of the year, that, we believe, will stay relatively stable. Some pressure on in the NIMs offset by some modest amount of loan growth. On a year-over-year basis, just given the average loan growth that we would expect, that’ll be, we think, very nice growth and, frankly, will drive the majority of the growth potential in the revenue guide.


In 2022, banks began building up reserves due to economic uncertainty around inflation and rapidly rising interest rates and the potential impact on the economy. A majority of banks added to their reserves in the fourth quarter and are addressing the economic downturn and related factors that drove their decision-making

Citigroup – Q&A

Question – Sharon Leung: Hi. Good afternoon. This is actually Sharon Leung filling in for Steven. Just on the topic of credit, one of your peers noted this morning that they would expect to see an incremental $6 billion or so of reserves if they assume 6% unemployment under CECL. Can you – just wondering if you could provide some similar sensitivity to reserve levels and how should we think about the provision trajectory versus the 4Q base based on your macro outlook and potential growth math headwinds.

Answer – Mark A. L. Mason: Yeah, thank you. Why don’t I take that? I’m not going to kind of do sensitivity scenarios with you or here on the fly. What I will say is that as we build these reserves, we are building them against three scenarios, that base scenario that I mentioned, the downside scenario, and upside scenario, and we weight both scenarios. And the base that we used this quarter built in a mild recession, and in that baseline, unemployment was, call it, 4.4% or so in terms of the unemployment assumption. We also had a downside scenario, unemployment in the downside scenario got to a 6.9% or so, and then we had an upside scenario.

The weighted average across the quarters was about the 5%, 5.1% that I mentioned, and those were factors that went into the reserve that we established in the quarter. And largely, when you think about the weightings we put on those scenarios, the weightings skewed towards that base and that downside.

The reserve we built this quarter was largely in the consumer business, PBWM, and specifically around Cards, and that really had to do – the change quarter-over-quarter with the change in HPI. But what I would say is that it also reflects, as I mentioned earlier, a Cards portfolio that remains of a very good quality and with loss rates that are well-below what they would be in a normal cycle, and it does pick up the fact that there’s volume growth that we saw in the quarter there.

So I’m not going to kind of run scenarios for you, but hopefully that gives you some perspective as to what’s underneath the models that we’ve used to establish these reserves, and obviously we do that on a quarter-by-quarter basis.

SVB Financial – Q&A

Question – Jared Shaw: …You look at the credit expectations and the growth in the allowance. Looks like on slide 30 you’re nearly at peak stage losses or very close to it for coverage. How much higher do you think we can see the allowance as a ratio go with sort of your broader credit expectation backdrop for normalizing losses?

Answer – Marc C. Cadieux: So, it’s Marc. I’ll start. Dan or others may wish to chime in. So certainly there is a fair bit of reserve build, as you pointed out in 2022. Could the reserve go higher in 2023? As I think you probably know, economic forecasts can drive the reserve as it did for us this particular quarter. So that’s one factor. We could – as we’ve noted, the higher levels of non-performing loans that could drive higher specific reserves and so there is that potential for the reserve to go higher, again, recognizing that we have a fair bit of reserve build behind us in 2022.

M&T Bank – Prepared Remarks

Next, let’s turn to credit. Despite the challenges of labor shortages and persistent inflation, credit remained stable. The allowance for credit losses amounted to $1.93 billion at the end of the fourth quarter, up $50 million from the end of the linked quarter. In the fourth quarter, we recorded a $90 million provision for credit losses compared to the $115 million provision in the third quarter. Net charge-offs were $40 million in the fourth quarter compared to $63 million in last year’s third quarter.

The reserve build was largely due to growth in our C&I and consumer portfolios. The baseline macroeconomic forecast experienced nominal deterioration during the fourth quarter for those indicators that our reserve methodology is most sensitive to, including the unemployment rate, GDP growth and residential and commercial real estate values.

  • Darren J. King – M&T Bank Corp., Senior Executive Vice President & Chief Financial Officer

PNC Financial Services – Prepared Remarks

Average loans grew 3% during the quarter, driven by growth in both commercial and consumer. For the full year, average loans were up 15%, and we continue to grow our loan book in a disciplined manner. As we look ahead, we are operating our company with the expectation for a shallow recession in 2023.

Accordingly, this outlook drove an increase in our loan loss provision in the quarter and a modest build in reserves under the CECL methodology. Importantly, as the credit environment continues to trend towards normalized levels, our overall credit quality metrics remain solid.

Goldman Sachs – Q&A

Question – Steven Chubak: So, David and Denis, I wanted to start off with a question just on the provision outlook. Admittedly, the loan loss provision came in higher than we had anticipated. I was hoping you could just speak to how much of it was growth math related versus deterioration in the macro. And given some of the planned actions you’re going to take for that business, how should we think about like normalized level of loan growth and provision expectation that we should expect going forward?

Answer – Denis P. Coleman: Good morning. Thank you. Thank you for that. So, let me help with some color as it relates to provisions, particularly in the fourth quarter. So, order of magnitude, the component of that build attributable to growth was about 50%. Net charge-offs about 25% and the balance attributable to our scenario.

I think what you can see in the build of the provisions over the course of the fourth quarter, and we do expect some of this to continue over the course of 2023, is that we began the on-balance sheet originations and our point-of-sale lending platform, GreenSky, and so, that obviously brings with it an upfront reserve build. So, that’s something that initiated over the balance of this past year and will continue through the following year.


As recessionary concerns loom on the horizon, organizations share their outlook on the macro environment and how they expect their businesses to perform throughout the course of 2023

Bank of America – Prepared Remarks

Provision expense was $1.1 billion in quarter four. In addition to higher charge-offs, provision included a roughly $400 million reserve build. This was higher than quarter three, reflecting good credit card and other loan growth combined with the reserve-setting scenario. So let’s just stop on the reserve-setting scenario. Our scenario – our baseline scenario contemplates a mild recession. That’s the base case of the economic assumptions in the blue-chip and other methods we use.

But we also add to that a downside scenario, and what this results in is 95% of our reserve methodology is weighted towards a recessionary environment in 2023. That includes higher expectations of inflation leading to depressed GDP and higher unemployment expectations. This scenario is more conservative than last quarter’s scenario. Now to be clear, just to give you a sense of how that scenario plays out, it contemplates a rapid rise in unemployment to peak at 5.5% early this year in 2023, and remain at 5% or above all the way through the end of 2024, obviously, much more conservative than the economic estimates that are out there.

Baker Hughes – Prepared Remarks

Turning to slide 5, in 2023, the global economy is expected to experience some challenges under the weight of inflationary pressures and tightening monetary conditions. Despite recessionary pressures in some of the world’s largest economies, we maintain a positive outlook for the energy sector. With years of underinvestment now being amplified by recent geopolitical factors, global spare capacity for oil and gas has deteriorated and will likely require years of investment growth to meet forecasted future demand.

For this reason, we continue to believe that we are in the early stages of a multiyear upturn in global activity and are poised to see a second consecutive year of solid double-digit increases in global upstream spending in 2023. In addition to strong growth in traditional oil and gas spending, we also believe that the Inflation Reduction Act in the US and potential new legislation in Europe will support significant growth opportunities in New Energy in 2023 and beyond.

Schlumberger NV – Prepared Remarks

Moving to the macro. We entered 2023 against the backdrop of market fundamentals that remain compelling for both oil and gas and low-carbon energy resource. First, despite concern for potential economic slowdown in certain regions, oil and gas demand growth remains resilient. The IEA forecasts that oil and gas demand will grow by 1.9 million barrels to reach approximately 102 million barrels per day. In parallel, markets will remain tightly supplied with modest production increase offset by the end of SPR release and well productivity declines in certain regions, most notably in North America.

Second, there is a greater sense of urgency around energy security. This is resulting in new investment in capacity expansion and diversity of supply. You will see this reflected in a number of new project sanctions, gas supply agreements signed and the return of offshore exploration, all at the pace unforeseen just 18 months ago.

Procter & Gamble – Q&A

Question – Andrea Teixeira:…Can you comment on how you’re preparing your portfolio in Europe for a potential recession? As you called out, things may – the bills, the energy bills may be kicking out – kicking up now as we enter your third quarter fiscal. Thank you.

Answer – Andre Schulten:…I think on the European portfolio, we have prepared, like everywhere else, our portfolio for a recession, and it comes back to the basic strategies on the categories we play in. We are in nondiscretionary categories to a large degree that people won’t deselect easily. They continue to wash their laundry. They continue to wash their hair. So, that’s step number one for recession-proofing our business model. Step number two is investment in Irresistible Superiority.

When consumers see the benefit our brands can deliver, the value will be clear to them, and our ability to communicate that value clearly is critical and that’s why we continue to invest in both the performance as well as the communication. And then the last part is just accessibility of the portfolio both in terms of brand tiering, so having premium brands but also value brands, and price points across different channels, be that discounters or other retailers. So, I think the portfolio-proofing has been done, and I think it’s showing results in a very difficult environment that we think speak to the strength of the strategy.


*Layoff data sourced from https://layoffs.fyi/

Thanks for reading this issue of the Earnings Recap blog for the Q4’22 Earnings season. Stay tuned for our trending topics recap next week.

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