Key Points
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Earnings for banks are increasing, despite higher funding costs.
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There are, however, some concerns about an eventual credit cycle.
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Both banks have proven their strategies over the long haul.
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With the third-quarter earnings season well underway, most banks have now reported.
Largely speaking, bank profits have continued to climb, as most banks take advantage of higher interest rates and a steep yield curve, in which lower-maturity bonds yield less than higher-maturity ones, an environment that most banks tend to benefit from.
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Banks typically borrow money at short-term rates and lend it out at longer-term rates, which is why banks benefit from a steeper yield curve. Still, it’s not all roses. Banks are also grappling with higher funding costs, while investors wonder whether a real credit cycle will ever show up.
Here are two bank stocks to buy after their third-quarter earnings reports.
1. JPMorgan Chase
For investors just starting to look at bank stocks, or who simply want a little exposure, JPMorgan Chase (NYSE: JPM) is an easy place to begin. It’s the country’s largest bank, with more than $5 trillion in assets, and is run by Chief Executive Officer Jamie Dimon, whom many regard as the best leader in banking.
JPMorgan Chase is good at many different banking businesses, from credit card lending to investment banking to wealth management and payments.
So you’ve got a bank that can benefit from a steep yield curve like other traditional banks, but JPMorgan will also benefit from large initial public offerings like the one planned for artificial intelligence (AI) company Anthropic, which only a handful of the country’s largest investment banks can say. This gives JPMorgan revenue diversity that few banks have.
JPMorgan actually missed Wall Street estimates for both earnings and revenue in the third quarter, which is rare for the bank. The undershot came from weaker fixed-income trading revenue and higher expenses.
However, JPMorgan raised its full-year outlook for net interest income (NII), the spread revenue the bank makes on its loans and bond holdings after covering its funding costs for the deposits and other interest-bearing liabilities that fund those assets.
Management provided a forecast of $107 billion for NII in 2027, representing roughly a 10% increase over its projected 2026 NII. While JPMorgan trades at a premium valuation of roughly 3 times its tangible book value (TBV), or its theoretical liquidation value, it has earned this premium during two decades of excellence.
Investors should ignore the third-quarter earnings miss and buy the stock for the long haul.
2. First Citizens BancShares
Raleigh, North Carolina-based First Citizens BancShares (NASDAQ: FCNCA) has total assets of roughly $241 billion, putting it at a fraction of the size of JPMorgan Chase, but still one of the larger banks in the country.
First Citizens has delivered a masterclass in growth through acquisition, particularly by purchasing distressed banks or those on the brink of failure.
For instance, First Citizens acquired the struggling CIT Group in 2022, which traded at a significant discount to its TBV. As a result, the deal was 38% accretive to First Citizens’ TBV, which is a huge increase. Most bank acquisitions dilute TBV and take two or three years to earn back the dilution.
First Citizens struck again when it acquired all of Silicon Valley Bank’s deposits, loans, and branches after the Federal Deposit Insurance Corporation (FDIC) took over during the banking crisis in 2023, of which Silicon Valley Bank was at the center.
Shares of First Citizens soared about 40% after announcing the acquisition. Furthermore, First Citizens had a loss-sharing agreement with the FDIC on loans, as well as other protections that made the deal even more appealing.
After its third-quarter earnings on Oct. 23, First Citizens’ stock rose nearly 8% after adjusted earnings per share of $55.37 easily topped estimates of $45.89, according to FactSet. The bank’s board also approved a $1.2 billion share repurchase plan through next year.
First Citizens is a proven acquirer, and I suspect it will continue to grow in this manner.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.
