By Philip van Doorn

For the largest banks, revenue spiked the previous quarter from high IPO activity. So focus on year-over-year improvements.

The largest six U.S. banks will report their third-quarter results on Tuesday and Wednesday.

The big banks will kick off third-quarter earnings season on Tuesday, as investors have been eagerly awaiting the first look at how the recent surge in Treasury yields and oil prices, as well as uncertainties about the outlook for the economy, may have the affected the behavior of companies and consumers.

The financial sector, and bank stocks in particular, are viewed by many as a leading indicator of the health of broader stock market. That's because banks provide the fuel for growth in the economy in the form of financing and loans - companies need to borrow so they can grow their businesses, and consumers need to borrow to make larger purchases, such as homes and cars.

Investors have been expressing concerns that generational highs in longer-term interest rates and sky-high prices at the pump have curtailed companies' and consumers' appetite for taking on new debt, which means less business for banks. It didn't help that executives at some banks, including Bank of America (BAC), said that company dealmaking had slowed in the latest quarter, while the latest economic data on how consumers are feeling have come in below expectations.

The Invesco Bank ETF KBWB had soared more than 18% in three months to reach a record high on Aug. 14, but it has tumbled more than 12% since then. Meanwhile the S&P 500 index SPX has edged slightly higher since Aug. 14.

Christoner Marinac, the director of research at Brean Capital, which provides investment-banking services for small- and middle-market banks, said that the recent decline in bank stocks resulted from the market "pricing in higher interest rates that had been ignored in prior months."

But there is a bright side. Despite the all the macro worries, the largest of the big banks, JPMorgan Chase (JPM), previewed its quarterly report by saying in mid-September that the U.S. economy and consumers were strong, credit was good, company management teams were confident and deal activity was robust.

Investors will get an even clearer picture when JPMorgan, Citigroup (C), Wells Fargo (WFC) and Goldman Sachs (GS) all announce their third-quarter results on Tuesday. Bank of America (BAC) and Morgan Stanley (MS) will follow with their reports on Wednesday.

Marinac told MarketWatch that "to some extent, the market does worry about a recession," and that after a strong three months for stock prices (before August), "a cooling-off was warranted."

"Now [during earnings season] people will focus on the fundamentals, which are still pretty good ," Marinac said.

The third-quarter numbers will include sharp declines in investment-banking income from the second quarter, when all six of the largest U.S. banks participated in SpaceX's (SPCX) record initial public offering in June.

Despite JPMorgan's assurance that credit was good, there was some concern that surging bond yields might impact middle- to small-corporate borrowers, given they are more likely to be exposed to floating rate debt than the larger companies.

But Macrae Sykes, the portfolio manager of the Gabelli Financial Services Opportunities ETF GABF, highlighted the strong labor market as a mitigating factor for credit concerns. "The No. 1 credit input is unemployment, which has been under 5% for 61 consecutive quarters," he said during an interview with MarketWatch.

Sykes summed up "a pretty strong operating environment for banks" by citing high levels of consumer spending and continuing increases in U.S. households' net worth.

Considering the decline in banks' market valuations, given worries that the current environment may be hurting profits, investors may be presented with opportunities to buy if the earnings reports help quell those worries.

A tough sequential comparison but a different story year over year

The six largest U.S. banks all served as joint bookrunners for the SpaceX IPO, through which the company raised $85 billion on June 12. So profits are expected to decline from the second quarter, but all six are expected to show year-over-year increases in earnings per share:

 
Bank                Total assets ($bil)  Estimated Q3 EPS  Q2 EPS  Q3, 2025 EPS 
JPMorgan Chase                   $5,015             $5.93   $7.70         $5.07 
Bank of America                  $3,499             $1.10   $1.21         $1.06 
Citigroup                        $2,895             $2.65   $3.15         $1.86 
Wells Fargo                      $2,282             $1.85   $2.00         $1.66 
Goldman Sachs                    $2,128            $12.86  $20.98        $12.25 
Morgan Stanley                   $1,675             $2.93   $3.46         $2.80 
                                                                Source: FactSet 

Banks don't report their segment results in a uniform manner, so here is a look at consensus estimates for third-quarter noninterest income among analysts polled by FactSet, with expected sequential and year-over-year changes.

 
Bank                Est. Q3 nonint. income  Q2 nonint. income  Q3, 2025 nonint. income  Projected sequential change  Projected year-over-year change 
JPMorgan Chase                     $24,110            $31,923                  $22,277                       -24.5%                             8.2% 
Bank of America                    $14,137            $16,272                  $13,690                       -13.1%                             3.3% 
Citigroup                           $7,132             $7,709                   $7,191                        -7.5%                            -0.8% 
Wells Fargo                         $9,681             $9,831                   $9,236                        -1.5%                             4.8% 
Goldman Sachs                      $14,256            $16,376                  $11,343                       -12.9%                            25.7% 
Morgan Stanley                     $17,225            $18,641                  $15,755                        -7.6%                             9.3% 
                                                                                                                                     Source: FactSet 

JPMorgan expected to show the largest sequential decline in noninterest income, but it is expected to show an 8.2% year-over-year increase. This is less than the projected increases for Goldman Sachs and Morgan Stanley, which are more tightly focused on investment banking and wealth management than the other four. But JPM stands out among the largest four banks (including Bank of America, Citi and Wells Fargo), which also have traditional branch networks and diverse lending businesses.

Another important item for investors to look at is net interest income - interest income from loans and investments less interest expense from deposits and borrowings. Matt Stucky, the chief portfolio manager for equities at Northwestern Mutual, expects a positive trend for banks' net interest income because of the steepening yield curve as the selloff in the bond market has raised intermediate and long-term yields on U.S. Treasury securities.

"Banks are asset-sensitive still," Stuckey said during an interview with MarketWatch. This means that for most banks, loans are repricing more quickly than deposits.

Investors might focus on the trends for banks' net interest margins. But growth of net interest income (NII) may be more important.

 
Bank                Est. Q3 NII   Q2 NII  Q2, 2005 NII  Projected sequential change  Projected year-over-year change 
JPMorgan Chase          $26,880  $25,511       $23,966                         5.4%                            12.2% 
Bank of America         $16,480  $15,997       $15,233                         3.0%                             8.2% 
Citigroup               $16,628  $17,125       $14,940                        -2.9%                            11.3% 
Wells Fargo             $12,640  $12,317       $11,950                         2.6%                             5.8% 
Goldman Sachs               N/A   $3,954        $3,852                          N/A                              N/A 
Morgan Stanley           $2,798   $2,780        $2,491                         0.6%                            12.3% 
                                                                                                     Source: FactSet 

FactSet doesn't have a consensus estimate for Goldman's net interest income. Among the four banks at the top of the list with traditional deposit-gathering networks, JPMorgan Chase stands out with the highest expected sequential and year-over-year increases in net interest income.

What about credit quality rumblings?

Rising Treasury rates have led to a spike in mortgage rates, and there are concerns that borrowers with commercial real-estate loans coming up for renewal may have problems with a combination of declining collateral values and much higher rates for new loans.

There are signs of trouble ahead for securitized commercial real-estate loans, with a "specially serviced rate" of 12%, which is combination of delinquent loans and those likely to default, according to research by Deutsche Bank.

But for CRE loans on banks' balance sheets, the rate for criticized loans (those that are delinquent or appear unlikely to qualify for renewal) is closer to 4% or 5%, according to Marinac.

"We do have a credit cycle," he said. "But I think most banks have been stress-testing their CRE for several years now."

"CRE is the first line of defense for most [smaller] banks," Marinac said. "Larger banks don't have as much CRE, but they do bigger deals. I think most banks, in this higher-rates environment, will show higher losses, but I do not think It will be substantial."

And it would seem that the largest banks don't see big trouble ahead - at least not yet.

A bank's provision for loan loss reserves (LLR) is its quarterly addition to or subtraction from reserves. Specific reserves are set aside for commercial loans as soon as there is any hint of delinquency or an inability to renew maturing loans. For consumer and mortgage loans, banks add to reserves based on anticipated charge-off rates.

For a credit cycle in the banking industry, it is useful to look at quarterly changes for a one-year period. So here are estimated provisions for LLR for the third quarter, along with actual numbers for the previous four quarters. Again, the numbers are in billions:

 
Bank                Est. Q3 provision for LLR  Q2 provision  Q1 provision  Q4, 2025 provision  Q3, 2025 provision 
JPMorgan Chase                         $2,790        $2,515        $2,507              $4,655              $3,403 
Bank of America                        $1,499        $1,366        $1,337              $1,308              $1,295 
Citigroup                              $2,624        $2,603        $2,605              $2,200              $2,254 
Wells Fargo                            $1,148          $914        $1,135              $1,040                $681 
Goldman Sachs                            $407          $102          $315             -$2,123                $339 
Morgan Stanley                            $88           $98           $98                 $18                  $0 
                                                                                                  Source: FactSet 

For JPMorgan Chase, the estimated Q3 provision for LLR is higher than it was the previous two quarters, but lower than it was during the third quarter of last year. The others are expected to show year-over-year increases in provisions.

The stocks

Here is a summary of year-to-date returns, dividend yields and price ratios for the largest six U.S. banks' stocks, leaving them in the same order as the tables above.

 
Bank                2026 total return  Forward P/E  Forward P/E at end of 2025  Price/ tangible book value  Dividend Yield 
JPMorgan Chase                   5.3%         13.2                        15.3                         3.0           2.39% 
Bank of America                  0.4%         10.7                        12.6                         1.9           2.90% 
Citigroup                       12.8%         10.4                        11.6                         1.3           3.93% 
Wells Fargo                     -8.9%         10.6                        13.2                         1.8           2.88% 
Goldman Sachs                    3.3%         12.7                        15.8                         2.6           2.91% 
Morgan Stanley                   8.9%         14.1                        16.8                         3.6           4.05% 
                                                                                                           Source: FactSet 

Click on the tickers for more about each bank.

The forward P/E ratios are the most recent closing prices divided by consensus 12-month earnings-per-share estimates among analysts polled by FactSet. They compare to weighted forward P/E of 10.9 for KBWB and 19.3 for the S&P 500.

The forward P/E have declined for all six stocks this year, because rolling consensus 12-month EPS estimates have increased more rapidly than the share prices.

The table also includes ratios of price to tangible book value, which is book value net of intangible assets, such as goodwill and loan servicing rights.

Citi remains the cheapest of the six, with forward P/E of 10.4 and price/TBV of 1.3.

Sykes of Gabelli continues to favor Wells Fargo as an investment because of the ongoing remediation story after the Federal Reserve lifted its regulatory cap on the bank's asset growth last year. That cap had been placed as part of a series of regulatory actions in 2018.

Wells Fargo trades at a price/TBV ratio of 1.8. Sykes believes the stock should be trading closer to twice TBV, as the bank moves closer to its long-term target of a return on tangible common equity (ROTCE) of 17% to 18%.

During the second quarter, when its revenue spiked from the high level of IPO activity, Wells Fargo's ROTCE was 17.7%. But it was 14.5% for each of the preceding two quarters, and analysts polled by LSEG expect the bank's third-quarter ROTCE to come in at 15.9%.

Stucky of Northwest Mutual said he had "heard some sentiment building [with] a bit of money rotating from Bank of America for Wells Fargo's idiosyncratic opportunities, but at this point in the cycle, I am emphasizing quality."

"For me it does not get higher quality, for the opportunity to invest in the changing technological background, than JPMorgan Chase," he said.

When discussing JPM, Stucky said: "They are not managing to be the most efficient, but they have been outgrowing the industry by directing capital to where it will benefit the most in the longer run."

-Philip van Doorn

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