KBRA Financial Intelligence

Bank Stock Gains Fueled by Robust Lending Income

Equities Rise Into the New Year

Shares of publicly traded U.S. banks rallied into the end of last year amid a broader gain in equities. KBRA Financial Intelligence (KFI) data show that the combined market capitalization of all publicly traded U.S. banks has rebounded by more than $1.45 trillion since reaching a 2025 low in the immediate aftermath of last April’s “Liberation Day,” brushing off macro uncertainty tied to a regime of new tariffs implemented by the White House.

The KBW Nasdaq Bank Index (BKX), which tracks share prices of 24 publicly traded banks, was up around 30% throughout 2025, nearly doubling an S&P 500 gain of roughly 16% over the same period. If bank earnings continue to rise into 2026—amid improving credit quality measures and resurgent growth in net interest income (NII) fueled by the core banking segment—outperformance of broader indices could also be in the cards.

Improved Loan Performance Bolsters Income

NII growth among all publicly traded U.S. banks surged to its fastest rate in more than two years in 3Q 2025, with early indications from some of the largest banks’ latest earnings figures suggesting further growth. Bank of America Corp. (KFI Score: B) and JPMorgan Chase & Co. (KFI Score: B+) reported NII growth of 10% and 7%, respectively, year-over-year (YoY).

If loan performance were to improve materially in the new year, income could benefit from an additional financial tailwind through the potential release of allowances for credit losses. These allowances—contra-accounts commonly referred to as loan-loss reserves (LLR)— are used by banks to absorb expected future losses on outstanding loans that may become delinquent and ultimately be charged off. Amounts provisioned as LLRs are recorded as expenses on the income statement, reflecting the possibility that the funds will be needed to offset future credit losses. In contrast, a net reserve build of $2.2 billion at JPMorgan, driven by the forward purchase commitment of the Apple credit card portfolio from The Goldman Sachs Group, Inc. (KFI Score: B+), reduced earnings per share (EPS) by $0.60 in 4FQ 2025.

Conversely, if banks have overprovisioned for losses that fail to materialize, LLRs can be released and reclaimed as income in subsequent quarters. KFI has previously noted that, from March 2021 to June 2022, U.S. banks released a significant portion of their LLRs, reducing balances by $58.8 billion—equivalent to 27.2% of total LLRs at the time—which materially boosted the profitability of many publicly traded U.S. banks. Until early January, aggregate LLRs held by U.S. banks exceeded $200 billion; however, a sharp weekly decline of more than $3.2 billion–the largest in over three years–pushed reserves below that level for the first time since July 2024.

Although delinquency and charge-off rates increased as the Federal Reserve tightened monetary policy during 2022-2023, both measures have sine stabilized and edged lower over the past two years amid gradual easing. As a result, the rationale for continued reserve building may be diminishing. A reversal of this trend could provide a meaningful uplift to bank profitability in the coming quarters.