Big banks kick off earnings: NIMs steady, provisions creep—resilience or late‑cycle fragility as CRE and a sticky long end bite?

Earnings season opens with the sector that translates macro headlines into cash flows: the banks. In the last 24 hours, the first mega‑lenders cracked the books and, depending on your angle, either validated “resilience” or flashed “late‑cycle.” Net interest margins (NIMs) are stabilizing or inching up on a gently steeper curve. Trading is mixed. Provisions are quietly rising. Buyback chatter is back—just as the long end refuses to play along and 2025–26 refinancing walls loom for borrowers.

Start with the part bulls like—NIMs. If the front end drifts lower on September‑cut bets while 10s/30s won’t follow, the curve steepens and headline margins breathe. But deposit beta didn’t forget 2023. Savers learned what money funds pay; corporates still demand yield. Funding costs don’t collapse on a dot plot. Margins grind; they don’t surge.

Credit is the line item you won’t hear on the highlight reel. Provision releases are over; builds are back. Card and auto delinquencies are drifting up from artificially low baselines; small‑business charge‑offs are inching higher. In commercial real estate (CRE), office remains a drip you can’t ignore: criticized/classified migration continues, lease rolls collide with capex‑heavy re‑tenanting, and maturities bunch in 2025–26. Extend‑and‑pretend buys time; it also raises the wall you’ll hit later.

AOCI still matters. A stickier long end plus rate vol keep securities marks jumpy. Unrealized losses don’t sink well‑capitalized franchises, but they do blunt buyback bravado and box capital allocation when marks swing into the headlines. “Resilience” isn’t an immunity cloak if duration gnaws at equity flexibility.

Capital markets and fees won’t rescue a weakening tape. Trading had pockets of strength where rates/commodities vol helped; ECM/DCM windows reopened—but episodically. If term premium keeps the 10‑year stubborn, the cost of equity and debt stays uncomfortably high just as CFOs want to term out liabilities and fund M&A.

Here’s the provocation: the Street is celebrating the part of the curve that flatters banks today while ignoring the part that taxes the real economy tomorrow. A steepener helps NIMs and punishes housing relief, capex math, and duration‑heavy valuations across your client base. If you’re long the sector because “higher long yields help,” be honest—you’re also long a world in which your borrowers’ refinancing gets pricier.

What to watch (plumbing over platitudes)

- NIM guidance vs. deposit beta: are funding costs falling—or simply plateauing?

- Net charge‑offs by product (cards, autos, SME) and provision trajectories.

- CRE disclosures: office LTVs, criticized/classified migration, 2025–26 maturity ladders.

- AOCI sensitivity and hedge posture: who can stomach a long‑end tantrum without blinking?

- Capital returns vs. buffers: buybacks now, buffers later—or vice versa?

- Lending standards (SLOOS) and utilization: does “resilience” reach borrowers or just the buyback desk?

Winners, losers, mirages

- Winners: balance‑sheet adults—low‑cost sticky deposits, diversified fee income, modest office exposure, rules‑based buybacks; select insurers/brokers that monetize higher long yields and volatility.

- Losers: lenders dressed as “yield” with thin coverage; duration‑heavy IG that relies on a friendly 10‑year; banks leaning on AOCI‑sensitive securities without hedges.

- Mirages: “margin expansion forever” without loan growth; “cuts fix housing” (mortgages obey the 10‑year + MBS basis); “Basel lite” as pure multiple fuel (late‑cycle provisions still collect).

Positioning without romance

- Pair quality bank exposure with curve hedges (steepeners) that fund equity protection and align with NIM optics.

- Keep duration honest; if you must own long bonds, demand convexity and quality.

- Favor franchises with granular retail deposits over hot corporate money; reward fee diversity (payments, wealth, custody).

- Treat CRE exposure as a balance‑sheet tell, not a talking point—ask for criticized/classified migration and the real plan for 2025–26 maturities.

Earnings prove capacity; cycles test judgment. The first prints say the system can take a punch. The curve—and your borrowers’ cash flows—say the punches are coming in slow motion. Enjoy the resilience headlines. Then read the footnotes where late‑cycle risk actually lives.