Q3 2026 Bank Earnings Show Net Interest Income Growing Again Just as the Fed Turns to Hikes
The four biggest US commercial banks reported their third quarters on October 13 and 14. The Federal Open Market Committee started its two-day October meeting today. Between those dates sits the question every bank investor is asking: what does a tightening cycle do to lending margins, when the banks spent the last year planning for the opposite?
Start with the constraint. Through the first half of 2026 the Fed held its target range at 3.50 to 3.75 percent, with one governor dissenting for cuts at three meetings in a row. By July the dissent had flipped: three regional presidents voted for a hike. On September 16 the committee raised rates 25 basis points to 3.75 to 4.00 percent, unanimously. No cuts this year. One hike, and the market is asking whether there’s another.
Net interest income, the gap between what a bank earns on loans and securities and what it pays depositors, is the line that answers it.
What the quarter showed
All figures are from the banks’ own earnings releases and supplements, year on year.
| Bank | Q3 NII | Change | Net income | Provision for credit losses |
|---|---|---|---|---|
| JPMorgan Chase | $27.04B | +13% | $15.31B, +6% | $2.74B, down 19% |
| Citigroup | $16.98B | +14% | $5.25B, +40% | $2.59B, up 6% |
| Bank of America | $16.45B | +8% | $6.93B, down 17% | $1.27B, down 2% |
| Wells Fargo | $12.52B | +5% | $5.95B, +6% | $1.03B, up 51% |
Among the investment banks, Morgan Stanley’s NII rose 30 percent to $3.25 billion and Goldman Sachs’s slipped 2 percent to $3.77 billion. Neither runs on deposit margins the way the big four do.
Three things stand out.
The growth came from volume and mix as much as from rates. Average deposits rose about 8 percent at JPMorgan, 11 percent at Citi and 11 percent at Wells Fargo. Bank of America’s grew 1.5 percent, and its NII growth was a little over half of JPMorgan’s and Citi’s. Banks with more money coming in had more to lend and invest. That’s a simpler story than rate sensitivity, and it fits the numbers better.
Wells Fargo said the quiet part. Its release credits part of the year-on-year change in NII to “the impact of lower interest rates”. The policy rate in the quarter was still lower than a year earlier, after the cuts of late 2025, and the September hike came too late to lift the average much. CEO Charlie Scharf named the new risk in the same release: higher interest rates, higher oil prices and persistent inflation. That’s a bank telling you its own forecast moved.
Credit is diverging. JPMorgan cut its provision by almost a fifth. Wells Fargo raised its by half, while its net charge-offs rose only 3 percent, to $983 million. Citi built reserves by $369 million. A provision that rises faster than losses is a bank paying ahead for losses it expects. Two of the four are doing that.
Evidence and judgement
The evidence is the table. What follows is judgement, and should be read as such.
A hike helps banks that reprice assets faster than deposits. Floating-rate loans and short Treasury bills reset within weeks. Deposit rates lag. That gap is why NII tends to rise in the first months of a tightening cycle, and the September move lands on a third-quarter base that already had volume behind it.
The limit is the borrower. Higher rates at 3.75 to 4.00 percent plus oil-driven inflation put pressure on the same card and commercial borrowers that generate the margin. Bank of America’s card net charge-off rate was 3.22 percent this quarter. If the Fed hikes again, the margin gain shows up first and the losses follow, usually a few quarters later. The provisions at Wells Fargo and Citi look like banks pricing that sequence in now.
The net is that NII guidance for 2026 should hold or tick up, and the risk for 2027 sits in credit rather than margin.
What to watch next
The FOMC statement on October 28 is the first read. A second hike, or language that leaves one open for December 8 to 9, extends the margin tailwind and the credit risk together. Then watch fourth-quarter deposit costs: if banks start paying up to keep deposits, the lag that makes hikes profitable shortens, and the NII gains in this quarter’s table shrink back.
For the Treasury side of the same rate move, see the site’s work on the 30-year yield and mortgage spreads and Treasury’s issuance doctrine. Market-level coverage of the earnings season runs on analysis.org.