Four takeaways from the first week of bank earnings season

• Key insight: Bank M&A was one of the hottest topics during the first week of earnings season.
  
• What's at stake: As consolidation accelerates, many banks are feeling pressure to get bigger or sell.
  
• Forward look: Home Bancshares in Arkansas and First Horizon Corp. in Tennessee both indicated interest in being buyers.

Banks' credit quality has been under the microscope for the last week, as fraud scandals and a weakening labor market cast a shadow over what have been otherwise positive financial reports.

Despite relatively strong earnings, a handful of massive credit hits prompted skittish investors to sell off bank stocks en masse last week — the KBW Nasdaq Regional Bank Index fell some 8% in two days. But bank executives have maintained that the losses are isolated, and most of them have had data to back up their claims.

"We have seen in the market some … idiosyncratic and uncorrelated events," Truist Financial Chairman and CEO Bill Rogers told analysts during the bank's earnings call last week. "That being said … the number-one risk for a bank is credit risk, and we're vigilant about that. We have been in the past. We're hyper-vigilant today. And we'll be hyper-vigilant tomorrow."

The banks' robust earnings reports and related commentary from top executives seemed to assuage investors, as bank-stock trading activity stabilized.

Still, even those financial institutions that delivered third-quarter earnings beats warned of possible factors that could cloud future results, like a spike in unemployment.

The gangbuster atmosphere in bank mergers and acquisitions in recent months also generated buzz, as analysts wondered which company will be the next buyer and seller. Some banks reiterated that they remained laser focused on organic growth, but others said that buying a bank was very much on the table.

Below is a look at four big takeaways from the first week of banks' third-quarter earnings season.

Investors are spooked about borrower fraud

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An apparent increase in serious borrower fraud schemes has cast a pall over earnings season, which got off to a promising start with upbeat reports from a number of banks, including Wells Fargo, Bank of America and PNC Financial Services Group.

Worries about banks' exposure to fraud had been percolating for months, sparked in part by a $200 million Ponzi scheme linked to WaterStation, a bankrupt purveyor of water vending machines. The alleged fraud led the $2.2 billion-asset First Federal Bancorp in Port Angeles, Washington, to part ways with CEO Matthew Deines this summer.

On the heels of that imbroglio came the collapses of subprime auto lender Tricolor Holdings amid fraud allegations and auto parts supplier First Brands, which had been dogged by questions surrounding its accounting practices.

The list of banks tarnished by those snafus includes JPMorganChase; Cincinnati-based Fifth Third Bancorp; the $9.7 billion-asset Origin Bancorp in Rustin, Louisiana; and Jefferies Financial Group, the New York-based investment bank.

Fraud concerns intensified last week when the $87 billion-asset Western Alliance Bancorp in Phoenix and the $89 billion-asset Zions Bancorp. in Salt Lake City revealed they had made substantial loans to funds involved in the purchase of distressed commercial mortgage loans.

But both Zions and Western Alliance assured investors during their earnings calls that the situations were one-offs.

"This was a case where we had some unusual things going on that really are not commonplace," said Zions CEO Harris Simmons. "We're going to continue reviewing with an external party to make sure that we're learning from the experience and seeing what we can continue to improve upon."

Kenneth Vecchione, CEO at Western Alliance, said that his bank had reviewed other large loans that were in the same portfolio, and had found no other "irregularities."

Fading tariff uncertainty helped commercial banking, investment banking

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This year's second quarter began with new tariffs on almost 90 countries, followed by the Trump administration's sporadic moves to pause, increase or make exceptions to the levies. The resulting uncertainty had a chilling effect on many businesses' long-term investment plans, and it also put a damper on corporate mergers and acquisitions.

But by the end of the third quarter, many bank executives said during earnings calls, that uncertainty had largely subsided. As the tariffs became more of a fixed element of the economic landscape, commercial clients began to invest for the future again. And in the investment banking business, M&A pipelines began to unclog.

"As we've seen more certainty now around trade and tariffs, and around taxes as well, it's allowed our client base to make longer-term decisions, and that's reflected in our investment banking activity," Bank of America Chief Financial Officer Alastair Borthwick said during the bank's third-quarter earnings call. "So we feel good about the pipeline and the way it's developing."

Goldman Sachs CEO David Solomon echoed this observation, saying that after a period of "heightened uncertainty and volatility," many clients had "adapted to the current state of play."

"I think that we are going to see a very constructive M&A environment through the end of the year into 2026," Solomon said.

Bank M&A is scorching hot

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The acceleration in bank mergers and acquisitions did not go unmentioned during earnings calls. Analysts were curious: Which banks might want to do a deal?

Certain banks said they're not interested. U.S. Bancorp in Minneapolis and Citizens Financial Group in Providence, Rhode Island, both emphasized that they're more focused on organic growth.

But Home Bancshares in Arkansas put its name on the list. John Allison, chairman and CEO of the $22.7 billion-asset parent company of Centennial Bank, told analysts last week that Home signed a letter of intent "with someone that runs a good business" that's based in the United States and "it's several billion dollars." But that was all the information that Allison shared. 

"You're not going to get anything else out of me other than that," he said.

Home's most recent acquisition took place in 2022 when it finalized the purchase of Happy Bancshares in Canyon, Texas. During Home's second-quarter earnings call in July, Allison said the bank intends to pursue a deal in order to help push its annual earnings above $500 million.

Meanwhile, First Horizon Corp. in Memphis, Tennessee, raised some eyebrows during its earnings call when Chairman and CEO Brian Jordan said he is "increasingly confident in [the bank's] ability to integrate a well-structured merger … if such an opportunity arises in 2026 or beyond."

The statement sparked a bunch of questions from analysts, since First Horizon has been widely viewed as a takeover target, and led to a double-digit decline in the share price.

As of midafternoon Wednesday, First Horizon's stock price had not recovered. It was down 9% for the month. 

Consumers are showing resilience, but banks remain on alert

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Banks reported that consumers are still spending and paying their bills, despite rumblings that a softening labor market, the effects of tariff and a three-week-old government shutdown may put pressure on American households.

While executives did flag some warning signs that they're monitoring during their third-quarter earnings calls, large and regional banks generally reported stable, or improving, consumer business and asset quality in the third quarter.

JPMorganChase's chief financial officer, Jeremy Barnum, said that consumer spending remained "robust," and delinquency rates were "coming in below expectations."

But the company is still keeping an eye on macroeconomic risks, as the personal savings rate and income are a bit lower than expected, Barnum added.

"There are a variety of challenges and sources of volatility and uncertainty," he said. "So it's pretty easy to imagine a world where the labor market deteriorates from here. And if that happens, obviously, as you well know, we're going to see worse consumer credit performance."

Loss rates and delinquencies have been on the decline in the credit card business, after issuers tightened their underwriting practices, according to second-quarter data released last week from the Federal Reserve Bank of Philadelphia.

The second quarter of 2025 also marked an all-time peak in credit card purchase volume, but that record was driven by cardholders with higher credit scores. Those with scores below 720 have been spending less than they were two years ago, according to the Philly Fed.

Bill Demchak, CEO at PNC Financial Services Group, said during an Oct. 15 earnings call that consumers "remain on solid footing," as spending and credit improve at the bank. But he added that credit card and debit card spending has grown "across all buckets," which he said will eventually "hit limitations." 

Plus, most of the year-over-year increase in consumer spending is coming from what Demchak called the "wealth effect." Wealthier clients are seeing value from the rising stock market and improving economy, he said.

Ally Financial, a digital lender with a stronghold in auto loans, saw consumer behaviors that beat the company's expectations, despite the macroeconomic uncertainty and investor fear about the subprime auto lending sector.

Chief Financial Officer Russ Hutchinson said Ally was benefiting from its decision to tighten underwriting in 2023, and noted that even loans within some of lower credit tiers were performing stronger than predicted.