banksearningsmacro

Bank Earnings Misses: A Checklist for Investors — From Loan Losses to Credit Card Rate Caps

UUnknown

2026-02-21

11 min read

A concise investor checklist and model inputs to update NII, charge‑offs, deposit beta and regulatory scenarios after bank earnings misses.

Hook: You just saw a bank miss — now what?

Pain point: Big banks (BoA, Citi, JPM, Wells) missed expectations, shares dropped, and your portfolio is exposed. You need a fast, actionable checklist to separate transitory headlines from structural damage — and model inputs to update your financials quickly.

Topline takeaways — act first, analyze second

Immediate triage: Was the miss driven by Net Interest Income (NII) or non‑interest items (charge‑offs, trading, fees)?
Priority models to update: NII sensitivity, charge‑off curves, deposit beta, and regulatory scenarios (notably credit card rate caps).
Risk timeline: Different problems need different horizons — NII and spread compression play out over quarters; regulatory caps can be immediate and structural.

Why 2026 is different — context you must fold into models

Late‑2025 and early‑2026 developments shifted the operating backdrop for large banks. A renewed political push to cap credit card APRs — widely reported and looming in policy discussions — amplifies regulatory risk. At the same time, pockets of resilient corporate activity and wealthy client franchise strength kept investment banking and wealth management revenue more stable. That combination produced the K‑shaped performance this quarter: mass‑market consumer portfolios under pressure while premium franchises held firm.

Investor checklist: 12 items to inspect after a bank earnings miss

Work down this checklist in order. The first five determine near‑term valuation impacts; the remaining seven shape medium‑term risk and upside.

NII & NIM sensitivity

Find reported NII and Net Interest Margin (NIM). Ask management: what was interest rate mix and what contributed to any quarter‑over‑quarter NIM compression?
- Model input: NIM shift per 25 bps — derive from bank disclosure or assume 3–10 bps NIM change per 25 bps move depending on asset duration and deposit beta.
- Quick check: If NIM fell >10–15 bps q/q, run a sensitivity table: NIM -10/-25/-50 bps and show EPS impact.
Loan growth by segment

Break out growth across mortgages, commercial & industrial (C&I), CRE, and consumer unsecured (credit cards, HELOAN). Weakness concentrated in consumer unsecured is a red flag for credit quality and fees.
- Model inputs: loan growth % by segment (base, downside, stress). Example: base: +2% y/y, downside: 0% y/y, stress: -3% y/y.
Charge‑offs, provisioning and allowance coverage

Separate reported charge‑offs (net charge‑off rate), new provisions, and the allowance for loan and lease losses (ALLL). Rising provision adds an immediate drag on earnings; shrinking allowance raises capital/regulatory concerns.
- Model inputs: net charge‑off rate (annualized) and forward provisioning pace. Stress scenarios: +25/50/150 bps to current card charge‑off rate.
- Red flag: allowance/loan ratio falling while charge‑offs tick up.
Deposit trends & cost of funds

Deposit outflows and higher cost of deposits compress margins and can force wholesale funding. Parse retail vs. wholesale deposits and compute the deposit beta (how much deposit rates rise when policy rates move).
- Model inputs: deposit outflow % (quarterly), deposit beta (0–100%). Example scenarios: beta 20% (sticky), 50% (reactive), 90% (flighty).
- Quick math: If 5% of deposits reprice upward by 200 bps with 50% beta, cost of deposits incremental = deposits * 5% * 200 bps * 50%.
Spread compression across asset classes

Decompose where spread compression occurred — new originations, reinvestment of securities, or deposit cost. That determines whether it's a one‑off or persistent.
- Model inputs: yield on new loans vs. yield on book, reinvestment yield, securities yield curve shifts. Example: reinvestment yield -50 bps vs. maturing securities.
Fee & trading revenue — cyclical vs structural

Fees and trading are more volatile but can offset NII weakness. Distinguish recurring fees (card interchange, asset management) from one‑time gains.
- Model inputs: % of revenue from recurring fees, sensitivity to volume declines (eg. card spending -5% = fee revenue -x%).
Regulatory risk: credit card rate caps (scenario analysis)

This is a 2026‑specific game changer. Political proposals to cap APRs on credit cards can alter yields on a large, profitable pool of unsecured balances.
- Run three policy scenarios: limited (cap = 30% APR), moderate (cap = 24% APR), aggressive (cap = 18% APR). Model the impact on card yields and provisioning.
- Model input: card loan balances, current average APR, delta APR under each cap, and elasticity of charge‑offs to rate cuts.
- Simplified revenue impact: ΔNII_card ≈ balances * ΔAPR * (1/4) for quarterly impact. Adjust for interchange and fee changes.
Capital ratios & stress test buffers

Examine CET1, Tier 1, and leverage ratios. A small EPS miss is manageable if capital buffers are strong; persistent earnings erosion triggers capital raising risk.
- Model inputs: stress loss as % of assets (base: 25bps, downside: 100–300bps). Compute CET1 impact then estimate issuance dilution if needed.
Liquidity & wholesale funding reliance

Measure LCR (liquidity coverage ratio), available HQLA, and short‑dated wholesale debt. Rapid deposit outflows increase funding costs quickly.
- Model inputs: % of funding maturing in 3/6/12 months and bid‑ask spreads on wholesale issuance. Scenario: wholesale costs +100 bps → immediate funding cost increase.
Asset quality leads: delinquencies, new‑to‑30+ months

Card delinquency roll rates and 30+ day metrics are leading indicators for charge‑offs. Rising 30–90 day delinquencies foreshadow higher provisions.
- Model inputs: 30+ day delinquency % and roll rates; assume lag from delinquency to charge‑off (eg. 6–12 months for cards).
Cost base & expense control

Some misses stem from stubborn operating expenses. Track expense discipline, Opex/Gross revenue, and one‑time charges.
- Model inputs: expected opex turnbacks (y/y %), restructuring costs, long‑term efficiency ratio targets.
Management tone & forward guidance — the qualitative filter

Listen closely to commentary on consumer strength, AI investment returns, M&A timelines, and regulatory lobbying. Management credibility matters for re‑rating risk.

"We have not seen a meaningful shift in consumer behavior yet," — typical CEO line. Map that against data (card volumes, delinquencies) and call out inconsistencies.

How to update your valuation and earnings model — practical inputs & formulas

Below are concise model inputs and sample calculations you can plug into an Excel model within 30–60 minutes.

1) NII sensitivity table (quarterly)

Inputs:

Current NII = $X (use bank reported figure)
NIM change scenarios: -10 / -25 / -50 bps
Balance sheet size = Assets A

Simple calculation:

ΔNII ≈ Assets * ΔNIM

Example: Assets $2.5T, ΔNIM -25bps → ΔNII = 2.5T * -0.0025 = -$6.25B annual (~-$1.56B quarterly).

2) Deposit cost shock

Inputs:

Deposit base D
Portion that reprice p (eg. 5% of deposits are not sticky)
Rate shock s (bps)
Deposit beta b

Calculation:

Incremental cost = D * p * s * b

Example: D = $1.5T, p = 5% (0.05), s = 200bps (0.02), b = 50% (0.5) → cost = 1.5T*0.05*0.02*0.5 = $750M annual.

3) Credit card APR cap scenarios (quarterly P&L impact)

Inputs:

Card balances B
Current average APR r0
Cap APR rc
Elasticity of balances to APR change (ε), and change in charge‑offs (ΔCO%)

Step 1: ΔAPR = rc - r0 (if negative, revenue hit).

Step 2: ΔNetInterest ≈ B * ΔAPR * (1/4) (quarterly)

Step 3: Adjust for increased charge‑offs and lower fees (estimate ΔProvision = B * ΔCO%).

Example: B = $250B, r0 = 23% (0.23), rc = 18% (0.18). ΔAPR = -0.05. ΔNII_q = 250B * -0.05 / 4 = -$3.125B quarterly (~ -$12.5B annual). Add provisions (say +0.5% of B annual = $1.25B) and fee erosion—net impact can be material.

Note: This is an illustrative calculation; actual banks may re‑price through fees, alter underwriting, or shift product mix.

4) Charge‑off curve stress

Inputs: current card net charge‑off rate c0 (annualized). Scenario +x bps.

ΔProvision ≈ Loan balance * Δc

Example: B = $250B, Δc = 100bps (0.01) → additional provisions = $2.5B annual.

Red flags that should trigger an immediate action

NIM down >15 bps q/q driven by deposit cost — high probability of persistent earnings hit.
Card balances falling while APRs are near political headlines — signaling imminent regulatory intervention.
Allowance/loan ratio falling with rising charge‑offs — capital and earnings risk combined.
Wholesale funding reliance >20% of liabilities with short maturities amid deposit outflows.
Management guidance trimmed materially without offsetting cost cuts or capital actions.

Actionable investor moves — short and medium term

Short term (days–weeks)

Update EPS estimates with NIM and provision sensitivity (run the three NIM and three charge‑off scenarios).
Trim exposure if the stock lacks a clear path to margin recovery or if regulatory scenarios show >10% EPS downside.
Hedge with interest‑rate sensitive derivatives if you’re long a large bank with significant duration mismatch.

Medium term (weeks–quarters)

Revisit target price using risk‑adjusted ROE: lower NII and higher provisions reduce sustainable ROE — discount the terminal multiple accordingly.
Monitor deposit beta and wholesale funding costs monthly; rerun models if deposit beta steps up 20–30 pts.
Follow regulatory signals closely — a policy cap on card APRs is binary and could force banks to raise fees, restrict credit, or shrink card portfolios.

Investor Q&A: 10 questions to ask management on the call

What drove NIM compression this quarter? New originations, reinvestment, or deposit cost?
Can you quantify deposit beta and the proportion of stickier retail deposits?
How are card APRs changing vs. delinquency/charge‑offs in recent months?
What assumptions underlie your allowance coverage for consumer unsecured loans?
How would a legislative cap at X% (ask specific numbers) impact your card business and provisioning?
What’s your plan to offset any NII decline — cost cuts, product repricing, shifts to fee income?
Do you see meaningful consumer behavior changes (spending, rotating balances) that differ across income cohorts?
How much of next year’s funding needs are in the wholesale market and at what rates?
What are your capital contingency plans if earnings shortfalls persist?
Are any balance sheet hedges or derivatives positions in place to protect NII from spread compression?

Case study: Quick read on Bank X (composite of BoA/Citi/JPM/Wells traits)

Bank X reported a Q4 miss driven by a 20bp NIM compression, a 40% jump in card charge‑offs, and $15B of deposit outflows over 90 days. Immediate responses:

Management cut FY guidance and accelerated cost saves targeting a 50bp efficiency ratio improvement.
Board approved a $5B share buyback pause to preserve capital buffer.
Investors re‑rated the stock on the expectation that card yield erosion (from policy) would depress NII by ~10% over 12 months.

Investor lesson: when NIM + charge‑offs + deposit outflows combine, the earnings impact is multiplicative. Model all three simultaneously — not in isolation.

Trading & allocation ideas

Long: banks with strong wealth/investment banking franchises and lower consumer unsecured exposure (Goldman, MS style firms) — better fee diversification.
Short / underweight: retail‑heavy banks with outsized card exposure and weak deposit franchises until regulatory clarity emerges.
Hedges: buy protection via out‑of‑the‑money puts or use CDX/IG indices for broader credit hedging if systemic risk rises.

Monitoring cadence — what to check weekly

Credit card balances and volumes (monthly consumer credit data releases)
Delinquency roll rates across bank filings
Deposit flows in weekly FDIC/quarterly call reports
Political developments around APR cap proposals — hearings, white papers, or executive orders

Final checklist to file away (one‑page quick reference)

Update NIM sensitivity (-10/-25/-50 bps)
Stress card APR cap at 30/24/18% and compute ΔNII
Run charge‑off shock +25/100/200 bps vs cards
Compute deposit shock with betas 20/50/90%
Check allowance / loan coverage and CET1 buffer
Assess wholesale funding maturing within 12 months and extra cost
Listen for management tone and reconcile with hard metrics

Closing — the smart investor’s playbook after a miss

Bank earnings misses in early 2026 are rarely one‑dimensional. The interplay of NII, charge‑offs, deposit dynamics and newly heightened regulatory risk (credit card rate caps) creates cross‑currents that demand disciplined, quantitative responses. Use the checklist above to triage, then update your models with the concrete inputs provided. Treat regulatory outcomes as binary events and run parallel scenarios — your decisions should be driven by probability‑weighted outcomes, not headlines.

Next step: If you want a ready‑to‑use Excel template that runs the NIM, deposit, charge‑off, and APR cap scenarios described, subscribe to our model pack or request a tailored sensitivity grid for the bank tickers in your portfolio.

Call to action

Don’t leave your allocations to chance. Download our Bank Earnings Triage Checklist and Scenario Model (tailored for BoA, Citi, JPM, Wells) and get email alerts when key indicators move. Stay ahead of regulation, deposit flows, and credit trends — sign up now for real‑time market alerts and model updates.

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