US bank profitability reaches highest level in more than a decade in Q3'25

US banks' pre-provision net revenue jumped in the third quarter, reaching its highest point since at least 2012.

US commercial banks, savings banks, and savings and loan associations, excluding nondepository trusts and companies with a foreign banking organization charter, reported aggregate pre-provision net revenue (PPNR) of $122.82 billion, representing a sequential increase of $5.86 billion or 5.0%, according to data from S&P Global Market Intelligence. The increase pushed the total above the previous record high of $120.37 billion in the first quarter of 2023.

On a median basis, PPNR for the industry surged 6.0% quarter over quarter and 24.4% year over year. PPNR is a profitability metric that excludes the impact of credit loss provisions and income taxes. The definition is net interest income plus noninterest income less noninterest expense.

This analysis, which covers US commercial banks, savings banks, and savings and loan associations, examines third-quarter 2025 financial performance based on aggregate and median change because the sector remains dominated by larger institutions that can skew the results. For instance, the four largest banks held 40.1% of the industry's assets as of Sept. 30.

Profitability trending up

Net interest income (NII) was the primary driver of the PPNR surge. On a linked-quarter basis, aggregate NII was up 4.2% and the median change was 3.6%.

Banks have been able to boost loan yields while keeping funding costs in check, translating to wider margins. While a portion of the increase in NII was from bigger balance sheets, the majority came from net interest margins going up 9 basis points. Two regional banks more than doubling that rate of margin expansion were Glacier Bank Inc. and East West Bank, with increases of 26 basis points and 22 basis points, respectively.

The other components of PPNR, noninterest income and noninterest expense, had mixed results. On a median basis, noninterest income growth outpaced noninterest expense growth by just 1 percentage point. For the aggregate, however, noninterest income growth fell short by 59 basis points.

Accounting for provisions, taxes and all other income statement items, aggregate net income was $79.35 billion, up $9.44 billion or 13.5% sequentially, representing the second-highest level in the last decade. The high-water mark was $79.80 billion, notched more than two years ago.

Loans to NDFIs still driving growth

Loan growth remained relatively strong in the third quarter. On a median basis, total loans and leases grew 1.3%. That was slower than the 1.7% growth in the second quarter but faster than the 1.1% a year earlier. The aggregate rose $158.92 billion, or 1.2% quarter over quarter, a step down from the 2.1% growth rate in the second quarter but double the rate from a year ago.

Loans to nondepository financial institutions (NDFIs) increased $80.84 billion, or 5.9% quarter over quarter, and represented a little more than half of the aggregate growth in total loans and leases. The vast majority of the NDFI growth was fairly evenly split between private equity funds, business credit intermediaries and mortgage intermediaries. Loans to consumer credit intermediaries increased to a lesser degree, while all other NDFI loans were down more than $8 billion.

Some of the change in loans to NDFIs in regulatory filings could have been reclassifications from commercial and industrial (C&I), which declined $6.49 billion in the third quarter. In public company filings, banks often lump commercial loans to NDFIs into a general C&I bucket.

The rapid growth of NDFI loans, along with the high-profile bankruptcies of auto NDFIs Tricolor Holdings LLC and First Brands Group LLC, is shining the spotlight on the lending category.

The nation's largest bank by total assets, JPMorgan Chase Bank NA, also is the biggest NDFI lender, with an outstanding balance of $226.02 billion as of Sept. 30. Among banks with at least $10 billion of loans to NDFIs at the end of September, Fifth Third Bank NA disclosed the highest sequential growth rate of 17.3%. The parent companies of both JPMorgan and Fifth Third recognized higher net charge-offs (NCOs) in large part because of their exposure to Tricolor.

Other loan growth categories in the third quarter included credit card, auto, commercial real estate (CRE), multifamily and one-to four-family mortgages. On the other hand, nonresidential construction and development loans decreased 2.0% to $371.74 billion.

Even with stress in the NDFI and office CRE sectors, credit quality showed little to no deterioration. NCOs as a percentage of average loans moved up 1 basis point quarter over quarter on an aggregate basis and the median change was zero. The aggregate and median changes also were zero for the nonperforming asset ratio.

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Other notable balance sheet changes

Cash and equivalents is one metric that highlights how different the industry can look when comparing aggregate and median change.

On an aggregate basis, balances were cut $174.75 billion, or 5.1% sequentially, following two quarters of cushion-building by the industry. JPMorgan Chase alone accounted for more than 65% of the third-quarter decline. Bank of New York Mellon and Bank of America NA also reduced cash and equivalents by more than $30 billion.

In contrast, the quarterly change was up 0.4% on a median basis, swinging from down 5.7% in the second quarter and up 11.0% in the first quarter.

Total securities increased 1.0% in aggregate and 0.2% on a median basis. For the aggregate, the bulk of the change was from a higher fair value balance of available-for-sale securities. For the first time in the last 11 quarters, held-to-maturity (HTM) securities on a cost basis also went up. BMO Bank NA was an outlier, with its HTM securities more than tripling to $20.17 billion as of Sept. 30.

Total deposits were up 0.4% sequentially for the entire industry, representing the slowest growth rate in the last five quarters. The median change was a 0.8% increase, which was up from 0.1% in the second quarter but down from 1.1% in the year-ago quarter. Many banks improved the quality of their funding bases, with smaller balances for nonbrokered deposits and borrowings.