Friday marks the unofficial start of earnings season, with big banks J.P. Morgan, Wells Fargo and PNC Financial reporting their quarterly numbers.
But CNBC's Jim Cramer knows the fourth quarter tends to be "messier" for financial companies, so he wanted to make sure investors were prepared for the big day.
"I'm not trying to predict which banks will do well and which ones won't," the "Mad Money" host said. "I simply want to help separate the signal from the noise so that you'll be in a position to understand what's actually happening as it happens."
Top concerns
First, Cramer assessed the impact of the newly passed tax code. When it became clear in December that the bill would pass, major lenders like Citigroup started to incur one-time, multi-billion-dollar charges in order to offset future taxes.
"Big companies like the financials have tons of unrecognized losses at any given time," Cramer explained. "Those losses were much more valuable in 2017, offsetting a 35 percent tax rate, than they will be this year, when they only offset a 21 percent tax rate."
So, to take full advantage of the new tax code, banks decided to take write-offs in the fourth quarter despite their adverse effects on the earnings reports.
J.P. Morgan, for one, risks reporting a 35 percent drop in its year-over-year net income, Reuters reported.
"Put it all together and that means the earnings for the fourth quarter could look horrendous on the surface," Cramer said. "People will be [selling] the moment that it happens. I'm trying to steel you from that."
Second, Cramer predicted that trading volumes would be down dramatically year over year, in part because of the trading bonanza that followed Donald Trump's election in late 2016.
"That's pretty suboptimal, but you have to understand that the banks are coming up against some very difficult comparisons here," he said.
Key metrics
Next, Cramer laid out the most important ways for investors to evaluate the bank's individual performance, starting with the net interest margin.
The No. 1 key metric for the industry, net interest margin is the difference between what banks pay individuals for their deposits and what they charge individuals for loans.
"It's still the primary way that banks make their money," Cramer said. "Given that we got three rate hikes last year and the last quarter the net interest margins were pretty impressive, there's some real reason for optimism here and I think it could prevail."
If net interest margins go up this quarter, the regional banks — which are purer plays on lending than the larger institutions — would benefit the most, Cramer said.
The second-most important metric for the banks is loan growth, also a key indicator for the health of the broader economy.
Strong loan growth means good things for the banks and for business confidence, as companies become more willing to borrow based on improved prospects.
But Cramer was most excited to hear about the big banks' plans for their dividend and share buyback programs. Lower tax rates and a less strict regulatory environment have created a more favorable environment for returning capital to shareholders, he said.
And with a former investment banker about to become the new Federal Reserve chairman, Cramer expected the banks to feel encouraged, if not eager, to reward their investors.
"They are sitting on boatloads of cash, so let's see how much they can increase their buybacks or signal large dividend boosts without risking the ire of the Fed," he said.
Final thoughts
As always, Cramer said the most valuable information will come from the banks' conference calls, because managements undeniably understand their businesses better than anybody else.
"Here's the bottom line: when the banks start reporting tomorrow, please don't be thrown off by all the one-time charges from the fourth quarter — they will be humongous — but do listen to everything they have to say about net interest margins, about loan growth and their plans to send money back to you," the "Mad Money" host said. "The banks are the key leadership group in this market, and after our recent run, I don't think stocks can handle any real bank bad news. But I'm banking on the idea that we won't get much anyway."
WATCH: Cramer previews big banks' earnings
Disclosure: Cramer's charitable trust owns shares of J.P. Morgan and Citigroup.
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