Big Banks Post Mixed Q3 as Net Interest Margins Finally Compress

The six largest U.S. banks reported third-quarter results this week that marked an inflection point: net interest margins compressed year-over-year for the first time since 2022, as deposit costs caught up with asset yields.

Aggregate net interest income across the six was flat year-over-year at $68 billion, ending a two-year streak of double-digit growth. The average NIM fell 18 basis points to 2.62%.

"The deposit franchise is finally repricing," said Marcus Whitfield, bank analyst at Ellsworth Research. "Banks that grew deposits cheaply during the zero-rate era are now paying market rates to keep them."

The good news is that other revenue lines more than filled the gap. Investment banking fees rose 22% year-over-year on the back of the M&A rebound and improved equity issuance. Trading revenue was up 14%, with fixed-income trading particularly strong.

Credit quality remains benign but is showing signs of normalization. Net charge-offs rose to 0.54% of average loans from 0.42% a year earlier, driven by credit card and commercial real estate office exposures. Reserve builds were modest.

Capital returns accelerated. The six banks collectively announced $42 billion of buybacks and $19 billion of dividends for the quarter. Several raised payouts after strong stress test results in June.