How to analyze banking stocks: Key metrics and ratios
Understanding how to evaluate U.S. banks requires mastery of eight key financial metrics that assess profitability, capital adequacy, and growth potential. As of Q4 2024, central U.S. banks reported record earnings, with JPMorgan Chase reporting $58.5 billion in annual net income. Yet investors must look beyond headlines to assess the company's proper financial health. This guide provides specific formulas, current data, and benchmarks tailored for Indian investors evaluating American banking stocks.
Understanding fundamental analysis tools for Indian investors provides the foundation for mastering these critical banking metrics.
The U.S. banking sector enters 2026 with 11.4% return on equity, strong capital buffers exceeding regulatory minimums, and investment banking revenues surging 25-59% across major institutions. However, commercial real estate stress, $481 billion in unrealised securities losses, and deposit competition from money market funds demand scrutiny.
Net interest margin reveals a bank's core profitability engine
Net interest margin measures how efficiently a bank earns from lending operations. It calculates the difference between interest earned on loans and interest paid on deposits, expressed as a percentage of earning assets.
The formula is: NIM equals net interest income divided by average earning assets, multiplied by 100. A NIM of 3% or higher is generally considered healthy for large U.S. banks. Community banks often achieve 3.5-4.5% given their focus on traditional lending. The industry average NIM reached 3.28% in Q4 2024, exceeding pre-pandemic levels for the first time since early 2024.
Current NIM data shows JPMorgan Chase at approximately 2.5%, Bank of America at 1.97%, Wells Fargo at 2.67%, Citigroup at 2.86%, U.S. Bancorp at 2.71%, and PNC Financial at 2.75%. Bank of America's lower NIM reflects its calculation method, which uses total assets rather than earning assets. When comparing banks, differences in methodology matter significantly.
Net interest income represents the absolute dollar amount calculated as interest income minus interest expense. This typically accounts for 50-75% of total bank revenue. JPMorgan generated $92.6 billion in NII for 2024 and guides to approximately $94 billion for 2025.
Historical NIM trends reveal the Federal Reserve's profound impact. NIMs collapsed to 2.54% in 2021 when rates were near zero, expanded to 3.30% in 2023 as the Fed hiked rates to 5.25-5.50%, and then stabilised as the Fed cut rates by 100 basis points in late 2024. When rates rise, banks initially benefit because loans reprice faster than deposits. When rates fall, the reverse can occur unless managed carefully.
Credit quality metrics signal future loan losses.
Non-performing assets and loans indicate potential trouble in a bank's loan portfolio. These are loans where borrowers have missed payments for 90 or more days, or where the bank doubts full repayment. The NPA ratio divides non-performing loans by total loans. An excellent ratio falls below 0.5%, while ratios exceeding 2% warrant concern.
The formula is: NPL ratio equals (loans 90+ days past due + nonaccrual loans) divided by total loans, then multiplied by 100. The provision coverage ratio measures a bank's cushion against bad loans. It divides the allowance for credit losses by non-performing loans. A PCR above 100% means the bank has reserved more than enough to cover current problem loans. Above 150% indicates conservative provisioning.
Current data show JPMorgan with normalised NPLs and a PCR over 200%. Bank of America shows improving credit quality with adequate PCR. Wells Fargo maintains stable NPLs with approximately 150% PCR. PNC Financial achieves an impressive 226% PCR, while U.S. Bancorp maintains a remarkable 438% PCR despite elevated non-performing assets.
The CECL accounting standard, implemented in 2020, requires banks to recognise lifetime expected losses at loan origination rather than waiting until losses are probable. This creates more volatile provisions but provides earlier warning signals. Credit card charge-offs peaked around 4.59% in Q4 2024, elevated but well below the 2008 crisis levels. Commercial real estate represents the sector's most watched risk, with CRE delinquencies reaching 1.57%, the highest in a decade.
Capital adequacy determines a bank's ability to survive.
Standard Equity Tier 1 (CET) ratio is the most essential capital metric. It measures the highest-quality capital as a percentage of risk-weighted assets. This ratio demonstrates a bank's ability to absorb losses while remaining operational.
The formula is: CET1 ratio = Common Equity Tier 1 capital/risk-weighted assets × 100.
Basel III requires a minimum 4.5% CET1, plus a 2.5% capital conservation buffer, plus bank-specific stress capital buffers with a minimum of 2.5%, plus G-SIB surcharges for systemically important banks ranging from 1% to 3.5%.
Current CET1 ratios show JPMorgan Chase leading at 15.7%, with a 420-basis-point excess over requirements. Bank of America sits at 11.9%, Wells Fargo at 11.1%, Citigroup at 13.6%, Goldman Sachs at 14.6%, and Morgan Stanley at 15.2%. JPMorgan's industry-leading capital position enables continued dividends and $4 billion quarterly buybacks even during stress.
Basel III Endgame proposals, initially targeting 16-25% capital increases, have been scaled back to approximately 9% for G-SIBs following industry opposition. Implementation has stalled under the current regulatory environment. This remains a key monitoring point for bank valuations.
Return on assets reveals management effectiveness.
Return on assets measures profit efficiency by dividing net income by average total assets. Banks typically have ROAs of 0.8-1.5%, compared with technology companies, because they use substantial leverage. A 1% or higher ROA is considered good, while 1.5% or higher is excellent.
Return on equity shows shareholder returns by dividing net income by average shareholders' equity. The relationship where ROE equals ROA multiplied by leverage explains why banks with high ROE but low ROA may carry excessive risk. A 10-15% ROE is suitable for traditional banks, while 15-20% is excellent.
These profitability metrics are among the essential financial ratios every Indian investor should understand when evaluating any stock.
Return on tangible common equity, or ROTCE, excludes goodwill and intangibles. This makes it more useful for comparing banks with acquisition histories. ROTCE typically exceeds ROE since the denominator is smaller.
Current profitability metrics show JPMorgan Chase with 18% ROE and 22% ROTCE. Morgan Stanley achieves 18.8% ROTCE. Goldman Sachs reports 12.7% ROE. Wells Fargo delivers 11.4% ROE and 13.4% ROTCE. Bank of America posts 9.4% ROE and 13% ROTCE. Citigroup trails at approximately 7% ROTCE.
The efficiency ratio measures cost management by dividing non-interest expense by total revenue. Lower is better. JPMorgan's industry-leading 52% efficiency ratio means it spends just 52 cents to generate each dollar of revenue. Ratios above 65% indicate operational inefficiencies that require attention.
Deposit metrics parallel India's CASA ratio concept
Indian investors familiar with the CASA ratio, which measures current and savings account deposits as a percentage of total deposits, will recognise similar concepts in U.S. banking. The U.S. equivalent focuses on core deposits and non-interest-bearing deposits, which represent low-cost funding that boosts profitability.
Low-cost deposits matter because current accounts typically pay 0% interest while term deposits cost 4-5% or more. Higher core deposit ratios mean lower funding costs and higher net interest margins. Bank of America held $513.4 billion in non-interest-bearing deposits, representing 27% of total deposits, versus $1.41 trillion in interest-bearing deposits at 73%.
The loan-to-deposit ratio equals total loans divided by total deposits. This indicates funding efficiency. An 80-90% LDR strikes a balance between profitability and liquidity. Above 100% indicates reliance on wholesale funding. Silicon Valley Bank's catastrophic 160% LDR before failure demonstrates the risk of excessive lending relative to its deposit base.
Deposit competition intensified as money market funds reached $8.07 trillion by late 2025, with online savings accounts offering 4.5% or more, compared with brick-and-mortar savings accounts averaging 0.47%. Banks responded with promotional campaigns and relationship-based incentives, though deposit momentum recovered with $255 billion growth in Q1 2025.
Bank valuationcentress on book value multiples.
Unlike most industries, where price-to-earnings dominates, bank valuation emphasises book value because bank assets, primarily loans, carry meaningful balance-sheet value.
Price-to-tangible book value equals market price divided by tangible book value per share. TBVPS excludes goodwill and intangibles, providing a conservative floor value that is particularly relevant for acquisition analysis.
A P/TBV below 0.5x indicates deep value or distress. A range of 0.5x to 1.0x suggests potential undervaluation. Between 1.0x and 1.5x represents fair value for average banks. Between 1.5x and 2.0x indicates a premium for high-quality banks, and above 2.0x signals an exceptional franchise premium.
JPMorgan's book value of $116.07 and tangible book value of $97.30 per share, both up 11-13% year over year, reflect industry-leading profitability, which justifies premium valuations. Banks trading below 1.0x P/TBV may be undervalued or signalling asset-quality concerns that warrant investigation.
Dividend yields for major banks typically range 2-3%, with payout ratios maintained to preserve capital for growth and regulatory compliance. All major banks announced substantial capital returns in 2024. Citigroup announced a $20 billion share buyback program, while JPMorgan repurchased $4 billion in shares quarterly.
Red flags every bank investor must monitor
Rising NPAs and NPLs provide the earliest warning of loan portfolio deterioration. Track quarter-over-quarter trends rather than absolute levels. Accelerating charge-offs matter more than temporarily elevated ratios.
NIM compression exceeding 20 basis points in a single quarter, or NIM significantly below peer averages, signals funding cost problems or asset yield challenges.
Unrealised securities losses emerged as the defining risk from the 2023 banking crisis. At year-end 2024, aggregate unrealised losses totalled $481 billion across FDIC-insured banks. Banks with unrealised losses exceeding 30% of Tier 1 capital are more vulnerable to deposit runs.
Deposit concentration proved fatal for Silicon Valley Bank, where 93.9% of deposits were uninsured. Concentrated customer bases amplify risk in the digital age when bank runs can mobilise billions in hours.
High efficiency ratios above 65% indicate poor cost control requiring management attention. Track the improvement trajectory, as Wells Fargo's decline from 77% to 66% demonstrates a successful operational transformation.
CRE concentration above 300% of Tier 1 capital triggers regulatory concern. Office properties down 30% from peaks represent particular stress. Banks with significant office CRE exposure require careful monitoring despite strong coverage of provisions.
Navigating bank financial statements efficiently
Finding NIM requires examining the Management Discussion and Analysis section of 10-Q and 10-K filings. Banks typically present NIM tables showing quarterly trends and earning asset composition.
Finding NII involves locating income statement lines for interest income and interest expense. The difference equals net interest income, usually the most significant revenue component for commercial banks.
Finding credit-quality data requires examining the balance sheet for the allowance for credit losses and the income statement for the provision for credit losses. Notes to financial statements contain detailed loan portfolio breakdowns, NPL ratios, and charge-off data by category.
Finding capital ratios requires reviewing the regulatory capital section in quarterly filings. This section details CET1, Tier 1, and total capital calculations with risk-weighted asset breakdowns. Essential SEC filings include 10-K annual reports, 10-Q quarterly updates, 8-K material events, and proxy statements for executive compensation and governance.
U.S. bank analysis for Indian investors requires balancing profitability metrics such as NIM, ROE, and ROTCE with safety metrics such as CET1, PCR, and NPL ratios, alongside valuation measures such as P/TBV relative to ROTCE. The strongest banks combine JPMorgan-style metrics, including 22% ROTCE, 15.7% CET1, 52% efficiency ratio, and over 200% provision coverage. Looking ahead, the Fed's current rate environment and normalising yield curve support NIM expansion, while investment banking pipelines at multi-year highs promise continued fee income growth.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
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Table of Contents
Understanding how to evaluate U.S. banks requires mastery of eight key financial metrics that assess profitability, capital adequacy, and growth potential. As of Q4 2024, central U.S. banks reported record earnings, with JPMorgan Chase reporting $58.5 billion in annual net income. Yet investors must look beyond headlines to assess the company's proper financial health. This guide provides specific formulas, current data, and benchmarks tailored for Indian investors evaluating American banking stocks.
Understanding fundamental analysis tools for Indian investors provides the foundation for mastering these critical banking metrics.
The U.S. banking sector enters 2026 with 11.4% return on equity, strong capital buffers exceeding regulatory minimums, and investment banking revenues surging 25-59% across major institutions. However, commercial real estate stress, $481 billion in unrealised securities losses, and deposit competition from money market funds demand scrutiny.
Net interest margin reveals a bank's core profitability engine
Net interest margin measures how efficiently a bank earns from lending operations. It calculates the difference between interest earned on loans and interest paid on deposits, expressed as a percentage of earning assets.
The formula is: NIM equals net interest income divided by average earning assets, multiplied by 100. A NIM of 3% or higher is generally considered healthy for large U.S. banks. Community banks often achieve 3.5-4.5% given their focus on traditional lending. The industry average NIM reached 3.28% in Q4 2024, exceeding pre-pandemic levels for the first time since early 2024.
Current NIM data shows JPMorgan Chase at approximately 2.5%, Bank of America at 1.97%, Wells Fargo at 2.67%, Citigroup at 2.86%, U.S. Bancorp at 2.71%, and PNC Financial at 2.75%. Bank of America's lower NIM reflects its calculation method, which uses total assets rather than earning assets. When comparing banks, differences in methodology matter significantly.
Net interest income represents the absolute dollar amount calculated as interest income minus interest expense. This typically accounts for 50-75% of total bank revenue. JPMorgan generated $92.6 billion in NII for 2024 and guides to approximately $94 billion for 2025.
Historical NIM trends reveal the Federal Reserve's profound impact. NIMs collapsed to 2.54% in 2021 when rates were near zero, expanded to 3.30% in 2023 as the Fed hiked rates to 5.25-5.50%, and then stabilised as the Fed cut rates by 100 basis points in late 2024. When rates rise, banks initially benefit because loans reprice faster than deposits. When rates fall, the reverse can occur unless managed carefully.
Credit quality metrics signal future loan losses.
Non-performing assets and loans indicate potential trouble in a bank's loan portfolio. These are loans where borrowers have missed payments for 90 or more days, or where the bank doubts full repayment. The NPA ratio divides non-performing loans by total loans. An excellent ratio falls below 0.5%, while ratios exceeding 2% warrant concern.
The formula is: NPL ratio equals (loans 90+ days past due + nonaccrual loans) divided by total loans, then multiplied by 100. The provision coverage ratio measures a bank's cushion against bad loans. It divides the allowance for credit losses by non-performing loans. A PCR above 100% means the bank has reserved more than enough to cover current problem loans. Above 150% indicates conservative provisioning.
Current data show JPMorgan with normalised NPLs and a PCR over 200%. Bank of America shows improving credit quality with adequate PCR. Wells Fargo maintains stable NPLs with approximately 150% PCR. PNC Financial achieves an impressive 226% PCR, while U.S. Bancorp maintains a remarkable 438% PCR despite elevated non-performing assets.
The CECL accounting standard, implemented in 2020, requires banks to recognise lifetime expected losses at loan origination rather than waiting until losses are probable. This creates more volatile provisions but provides earlier warning signals. Credit card charge-offs peaked around 4.59% in Q4 2024, elevated but well below the 2008 crisis levels. Commercial real estate represents the sector's most watched risk, with CRE delinquencies reaching 1.57%, the highest in a decade.
Capital adequacy determines a bank's ability to survive.
Standard Equity Tier 1 (CET) ratio is the most essential capital metric. It measures the highest-quality capital as a percentage of risk-weighted assets. This ratio demonstrates a bank's ability to absorb losses while remaining operational.
The formula is: CET1 ratio = Common Equity Tier 1 capital/risk-weighted assets × 100.
Basel III requires a minimum 4.5% CET1, plus a 2.5% capital conservation buffer, plus bank-specific stress capital buffers with a minimum of 2.5%, plus G-SIB surcharges for systemically important banks ranging from 1% to 3.5%.
Current CET1 ratios show JPMorgan Chase leading at 15.7%, with a 420-basis-point excess over requirements. Bank of America sits at 11.9%, Wells Fargo at 11.1%, Citigroup at 13.6%, Goldman Sachs at 14.6%, and Morgan Stanley at 15.2%. JPMorgan's industry-leading capital position enables continued dividends and $4 billion quarterly buybacks even during stress.
Basel III Endgame proposals, initially targeting 16-25% capital increases, have been scaled back to approximately 9% for G-SIBs following industry opposition. Implementation has stalled under the current regulatory environment. This remains a key monitoring point for bank valuations.
Return on assets reveals management effectiveness.
Return on assets measures profit efficiency by dividing net income by average total assets. Banks typically have ROAs of 0.8-1.5%, compared with technology companies, because they use substantial leverage. A 1% or higher ROA is considered good, while 1.5% or higher is excellent.
Return on equity shows shareholder returns by dividing net income by average shareholders' equity. The relationship where ROE equals ROA multiplied by leverage explains why banks with high ROE but low ROA may carry excessive risk. A 10-15% ROE is suitable for traditional banks, while 15-20% is excellent.
These profitability metrics are among the essential financial ratios every Indian investor should understand when evaluating any stock.
Return on tangible common equity, or ROTCE, excludes goodwill and intangibles. This makes it more useful for comparing banks with acquisition histories. ROTCE typically exceeds ROE since the denominator is smaller.
Current profitability metrics show JPMorgan Chase with 18% ROE and 22% ROTCE. Morgan Stanley achieves 18.8% ROTCE. Goldman Sachs reports 12.7% ROE. Wells Fargo delivers 11.4% ROE and 13.4% ROTCE. Bank of America posts 9.4% ROE and 13% ROTCE. Citigroup trails at approximately 7% ROTCE.
The efficiency ratio measures cost management by dividing non-interest expense by total revenue. Lower is better. JPMorgan's industry-leading 52% efficiency ratio means it spends just 52 cents to generate each dollar of revenue. Ratios above 65% indicate operational inefficiencies that require attention.
Deposit metrics parallel India's CASA ratio concept
Indian investors familiar with the CASA ratio, which measures current and savings account deposits as a percentage of total deposits, will recognise similar concepts in U.S. banking. The U.S. equivalent focuses on core deposits and non-interest-bearing deposits, which represent low-cost funding that boosts profitability.
Low-cost deposits matter because current accounts typically pay 0% interest while term deposits cost 4-5% or more. Higher core deposit ratios mean lower funding costs and higher net interest margins. Bank of America held $513.4 billion in non-interest-bearing deposits, representing 27% of total deposits, versus $1.41 trillion in interest-bearing deposits at 73%.
The loan-to-deposit ratio equals total loans divided by total deposits. This indicates funding efficiency. An 80-90% LDR strikes a balance between profitability and liquidity. Above 100% indicates reliance on wholesale funding. Silicon Valley Bank's catastrophic 160% LDR before failure demonstrates the risk of excessive lending relative to its deposit base.
Deposit competition intensified as money market funds reached $8.07 trillion by late 2025, with online savings accounts offering 4.5% or more, compared with brick-and-mortar savings accounts averaging 0.47%. Banks responded with promotional campaigns and relationship-based incentives, though deposit momentum recovered with $255 billion growth in Q1 2025.
Bank valuationcentress on book value multiples.
Unlike most industries, where price-to-earnings dominates, bank valuation emphasises book value because bank assets, primarily loans, carry meaningful balance-sheet value.
Price-to-tangible book value equals market price divided by tangible book value per share. TBVPS excludes goodwill and intangibles, providing a conservative floor value that is particularly relevant for acquisition analysis.
A P/TBV below 0.5x indicates deep value or distress. A range of 0.5x to 1.0x suggests potential undervaluation. Between 1.0x and 1.5x represents fair value for average banks. Between 1.5x and 2.0x indicates a premium for high-quality banks, and above 2.0x signals an exceptional franchise premium.
JPMorgan's book value of $116.07 and tangible book value of $97.30 per share, both up 11-13% year over year, reflect industry-leading profitability, which justifies premium valuations. Banks trading below 1.0x P/TBV may be undervalued or signalling asset-quality concerns that warrant investigation.
Dividend yields for major banks typically range 2-3%, with payout ratios maintained to preserve capital for growth and regulatory compliance. All major banks announced substantial capital returns in 2024. Citigroup announced a $20 billion share buyback program, while JPMorgan repurchased $4 billion in shares quarterly.
Red flags every bank investor must monitor
Rising NPAs and NPLs provide the earliest warning of loan portfolio deterioration. Track quarter-over-quarter trends rather than absolute levels. Accelerating charge-offs matter more than temporarily elevated ratios.
NIM compression exceeding 20 basis points in a single quarter, or NIM significantly below peer averages, signals funding cost problems or asset yield challenges.
Unrealised securities losses emerged as the defining risk from the 2023 banking crisis. At year-end 2024, aggregate unrealised losses totalled $481 billion across FDIC-insured banks. Banks with unrealised losses exceeding 30% of Tier 1 capital are more vulnerable to deposit runs.
Deposit concentration proved fatal for Silicon Valley Bank, where 93.9% of deposits were uninsured. Concentrated customer bases amplify risk in the digital age when bank runs can mobilise billions in hours.
High efficiency ratios above 65% indicate poor cost control requiring management attention. Track the improvement trajectory, as Wells Fargo's decline from 77% to 66% demonstrates a successful operational transformation.
CRE concentration above 300% of Tier 1 capital triggers regulatory concern. Office properties down 30% from peaks represent particular stress. Banks with significant office CRE exposure require careful monitoring despite strong coverage of provisions.
Navigating bank financial statements efficiently
Finding NIM requires examining the Management Discussion and Analysis section of 10-Q and 10-K filings. Banks typically present NIM tables showing quarterly trends and earning asset composition.
Finding NII involves locating income statement lines for interest income and interest expense. The difference equals net interest income, usually the most significant revenue component for commercial banks.
Finding credit-quality data requires examining the balance sheet for the allowance for credit losses and the income statement for the provision for credit losses. Notes to financial statements contain detailed loan portfolio breakdowns, NPL ratios, and charge-off data by category.
Finding capital ratios requires reviewing the regulatory capital section in quarterly filings. This section details CET1, Tier 1, and total capital calculations with risk-weighted asset breakdowns. Essential SEC filings include 10-K annual reports, 10-Q quarterly updates, 8-K material events, and proxy statements for executive compensation and governance.
U.S. bank analysis for Indian investors requires balancing profitability metrics such as NIM, ROE, and ROTCE with safety metrics such as CET1, PCR, and NPL ratios, alongside valuation measures such as P/TBV relative to ROTCE. The strongest banks combine JPMorgan-style metrics, including 22% ROTCE, 15.7% CET1, 52% efficiency ratio, and over 200% provision coverage. Looking ahead, the Fed's current rate environment and normalising yield curve support NIM expansion, while investment banking pipelines at multi-year highs promise continued fee income growth.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
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