Q1 Bank Earnings Preview: High Expectations

The war in Iran and economic growth concerns continued to spook investors during March, and bank stocks weren't spared. After surging nearly 70% between April 2025 and early February 2026, the KBW Nasdaq Bank Index (BKX) has fallen roughly 11% over the past two months.

Even so, Wall Street largely remains bullish on both banks and the broader financials sector. Analysts polled by FactSet expect the S&P 500 financials sector to deliver 15.1% year-over-year earnings growth in the first quarter. The sector delivered just 6% year-over-year earnings growth during the same period a year ago.

With high expectations this quarter and a lot to prove for the likes of JPMorgan Chase (JPM), Bank of America (BAC), and Citigroup (C), among others, investors may be more focused on forward guidance and what banks have to say about the road ahead.

"The actual results are almost secondary right now," said Alex Coffey, senior trading and derivatives strategist at Schwab. "What I want to hear is how bank CEOs are planning for a world where energy prices are driving costs higher while the job market is cooling. Their outlook and how much they're setting aside for potential loan losses will tell you far more than last quarter's numbers."

For many banks, trading revenues and net interest income (NII) remain the core drivers of earnings results, making them key areas for investors to watch this earnings season. NII measures the money banks make lending minus what they pay to customers.

Banks typically borrow at short-term rates and lend at long-term rates, so when the gap between those two rates widens—often called yield curve steepening—it tends to boost NII. That's what happened in recent years, providing a strong tailwind for banks' earnings.

Some expect this to continue in the first quarter and throughout 2026. Bank of America, for example, forecasted a 7% year-over-year jump in its NII this earnings season.

However, there are signs this trend could be slowing. In the first few months of 2026, the spread between 10-year and 2-year Treasuries narrowed, while the spread between the 10-year and 3-month Treasuries widened only slightly.

These spreads remain far wider than they were a year ago, which could potentially support year-over-year NII comparisons in the near term. Still, investors will want to see strong full-year NII guidance from banks.

Overall loan growth, which plays a key role in sustaining NII, will also get a spotlight. With consumers feeling the strain of stubborn inflation and a "low hire, low fire" labor market, loan growth could potentially slow. If it does, it will be important to monitor banks' earnings calls to see whether it's a broad-based slowdown or something that's concentrated in only a few loan categories.

In addition to NII, trading revenues will be in focus given the market volatility caused by the Iran war late in the first quarter. Trading revenues mainly reflect the income banks generate from facilitating institutional trades in equities, fixed income, commodities, and currencies. Periods of elevated volatility can potentially increase banks' trading revenues since trading volumes tend to rise.

Trading revenue results were already strong in the fourth quarter of last year. JPMorgan Chase, for example, saw its equity trading revenues spike 40% year over year to $2.9 billion, while Goldman Sachs' (GS) equity trading revenues surged 25% year over year to $4.3 billion. Topping those growth figures could be challenging, so it's something investors will be closely monitoring.

Mergers and acquisitions (M&A) activity has accelerated this year after a strong 2025, even as the Iran war and AI disruption fears sparked volatility in equity markets. AI-related deals and big tech transactions still moved forward. Large transactions—including a record 22 deals of more than $10 billion—helped drive the total deal value up 26% year over year to $1.2 trillion in the first quarter, Reuters reported, citing London Stock Exchange Group (LSEG) data. This could potentially support investment banking revenues this earnings season and throughout the year as investment banks generate revenue from advising, underwriting, and financing M&As.

Surging investment banking revenues already helped drive bank stocks higher last year. For the full-year 2025, Goldman Sachs and Wells Fargo (WFC) saw their investment banking fees rise 21% and 14% year over year, respectively, while Morgan Stanley (MS) and Citigroup reported increases of 23% and 22%, respectively. Investors will be looking for more evidence of this investment banking renaissance this earnings season.

The initial public offering (IPO) market may also work in banks' favor after a solid 2025 that delivered $44 billion in proceeds, despite April's tariff-related volatility.

Deloitte expects IPO capital proceeds of between $55 billion and $65 billion for the full year of 2026. And if giants like OpenAI or Anthropic test the market, that figure could rise to a record. Morningstar noted a few of these companies alone could raise more than $100 billion in IPO proceeds. This could boost equity capital markets fees and underwriting revenues at some banks.

"The pipeline is real, but that fee revenue really only flows to a handful of Wall Street banks," Coffey said. "It's not a story that lifts the whole sector—it's one that rewards owning the right names."

Note: Moody's Corporation is separate from and not affiliated with Schwab. Deloitte Touche Tohmatsu Limited is separate from and not affiliated with Schwab.

As far as headwinds, bank investors will likely be focused on credit quality this earnings season amid concerns about inflation and the labor market.

"I see banks' biggest headwind as the one-two punch of rising prices from the Middle East conflict and a job market that's clearly slowing," Coffey said. "We actually lost jobs in February, and the Fed can't cut rates with inflation reaccelerating. That's tough for banks. Borrowing costs stay high while everyday consumers start struggling to keep up with their bills."

If the economy does weaken substantially, analysts and investors will likely be watching banks' loan portfolios and their borrowers' ability to repay their debts. One key area to monitor is loan loss provisions, or the funds banks put aside in case loans go bad.

If banks sharply increase their loan loss provisions in the first quarter, which they tend to do when they're afraid of a rise in defaults, it could be evidence they're preparing for an economic slowdown. This can weigh on earnings growth.

Investors could also track any rise in loan delinquency rates for signs of consumer stress in banks' earnings. In the fourth quarter of 2025, aggregate delinquency rates worsened slightly, according to the New York Federal Reserve's Household Debt and Credit Report. Roughly 4% of mortgages, 7% of auto loans, 8% of credit cards, and 15% of student loans were past due by 30 days or more. Also consider tracking net credit card charge-off rates—the percentage of credit card debt banks expect they won't be able to recover.

Stress in the private credit market has also drawn increased attention this year, with multiple private credit funds facing liquidity issues and a few high-profile borrow defaults. Earnings call discussions about those or associated risks may make sense. Moody's reported that U.S. banks had over $300 billion in private credit loan exposure last October.

Finally, with banks dramatically increasing their AI spending in recent years on areas like fraud detection, payment error, and customer service products, the first-quarter earnings season could provide evidence for how these investments are progressing.

"Banks will be beneficiaries of AI, but not overnight. The thing to watch is whether they're getting more done without adding people," said Coffey. "If revenues are growing but headcount isn't, that tells you the technology investments are working. Most banks are still writing the checks [for AI], not cashing them yet."

As always, investors will also want to monitor whether banks are beating Wall Street's earnings estimates, and by how much. For the major banks reporting over the next few weeks, analysts expect the following:

• JPM: Earnings per share (EPS) of $5.41 (up 6.7% year over year) on revenue of $49.1 billion (up 4.7% year over year)
• BAC: EPS of $1 (up 11.3% year over year) on revenue of $29.9 billion (up 12.3% year over year)
• WFC: EPS of $1.58 (up 13.9% year over year) on revenue of $21.8 billion (up 3.7% year over year)
• C: EPS of $2.62 (up 33.7% year over year) on revenue of $23.4 billion (down 30.6% year over year)
• USB: EPS of $1.14 (up 10.8% year over year) on revenue of $7.3 billion (down 3.3% year over year)
• MS: EPS of $3 (up 15.3% year over year) on revenue of $19.7 billion (down 32.5% year over year)
• GS: EPS of $16.37 (up 15.9% year over year) on revenue of $16.9 billion (down 46.5% year over year)

Note: Earnings and revenue estimates are as of April 6, 2026, and subject to change.