As the third-quarter earnings season concludes, U.S. banks have delivered another strong performance despite persistent geopolitical uncertainty and concerns about consumer confidence. With 274 of 276 banks in the Russell 3000 reporting, 70% beat earnings estimates, and 7% met expectations, underscoring the sector’s resilience. For those that exceeded forecasts, earnings were on average 6% above consensus.

Consumer Spending Strong Despite Labor Concerns

Contrary to fears of a weakening labor market, consumer spending remained robust. Visa and Mastercard reported year-over-year U.S. spending growth of 8% and 7%, respectively. Credit card banks saw stable to improving delinquencies and charge-offs. However, spending bifurcation by income level emerged: higher-income consumers accelerated spending, while lower-income cohorts held steady.

Capital Ratios Edge Higher Amid Uncertainty

Banks continued returning excess capital through dividends and buybacks, while maintaining strong capitalization. The median CET1 ratio ticked up from 11.20% to 11.30%, driven by free cash flow, even as regulatory uncertainty constrained further capital deployment.

Private Credit Risks Under Scrutiny

Lending to Non-Bank Financial Institutions (NBFIs) remains a focal point for investors and regulators. While banks emphasize stringent collateral requirements, recent fraud cases—such as Tricolor Holdings and First Brands Group—have spotlighted vulnerabilities in due diligence. Heightened scrutiny and calls for transparency across private credit markets are likely to intensify.

Asset Quality Stable with Minor Charge-Off Uptick

Asset quality indicators were stable to improved: NPLs to total loans declined to 1.09%, while net charge-offs edged up slightly to 0.62%. Management commentary attributed higher charge-offs to idiosyncratic issues rather than systemic weakness.

NII and IB Revenues Drive Growth

Net Interest Income (NII) grew across most banks, with Net Interest Margin improving by 10 basis points to 3.28%. Forward guidance remains constructive. Meanwhile, Investment Banking revenues surged 21% across the largest six banks, fueled by M&A momentum and robust underwriting activity. Bank of America led with a 51% quarter-over-quarter increase, signaling optimism for continued deal flow into 2026.

Loan Growth Solid Amid Mixed Credit Conditions

Loan growth remained solid at 5.3% year-over-year, driven by strong demand for Commercial & Industrial loans (+7.8%) and HELOCs (+5.5%). While lending standards tightened for C&I and CRE, they eased modestly for auto loans, reflecting nuanced credit conditions.

Key Takeaways for Investors

  • Resilience Amid Uncertainty: Banks are navigating geopolitical and macroeconomic headwinds with strong earnings and disciplined capital management.
  • Consumer Bifurcation: Spending strength persists, but divergence by income level warrants close monitoring.
  • Private Credit Risks: NBFI lending transparency will remain a regulatory and investor priority.
  • Growth Engines: Investment Banking and NII continue to underpin revenue strength, while loan growth signals healthy demand.

Looking ahead to 2026, U.S. banks are expected to demonstrate continued resilience despite evolving macroeconomic and geopolitical challenges. Regulatory clarity will be critical in shaping capital deployment strategies, while opportunities in investment banking and consumer lending remain strong drivers of growth. Institutions that balance prudent risk management with innovation and transparency will be best positioned to capitalize on these trends.

Sources: S&P Capital IQ, Company Filings, Bloomberg LP.

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