The "Big Four" U.S. banks delivered on guidance that they are mostly done building credit loss reserves for now, but investors showed acute sensitivity to plummeting net interest income and interest rate pressures that do not appear likely to let up soon.

JPMorgan Chase & Co. kicked off third-quarter earnings reports with a wide beat to analyst forecasts, helped in part by strong performance in its capital markets businesses, though investment banking and trading revenues did retreat from a blowout second quarter. The bank also reduced its credit loss allowance by more than $500 million from the previous quarter, but its reserves for future write-offs of $33.64 billion are still more than twice as high as the year prior, after adopting current expected credit loss accounting and large reserve builds in the first two quarters of 2020. With net charge-offs of $1.18 billion in the third quarter lower than in any quarter in 2019, JPMorgan's provision for credit losses of $611 million was also the lowest in more than three years.

However, net interest income at JPMorgan also sank another 6.1% from the previous quarter to $13.01 billion, and the bank's guidance implied that a fast rebound is unlikely. About $13 billion per quarter is a "good place to start" for expectations for 2021, CFO Jennifer Piepszak reiterated on the bank's earnings call, with balance sheet growth and asset mix shift lifting the full year to perhaps $53 billion, down from $55 billion anticipated for 2020. JPMorgan's shares fell 1.6% the day it reported earnings, with the "NII miss" probably driving the move, Keefe Bruyette & Woods analyst Brian Kleinhanzl said in a note.

The story was similar at the other large banks. Bank of America Corp. added about $415 million to its credit loss reserves, with a release for consumer loans more than offset by a build for pandemic-impacted industries such as travel and entertainment. Overall, its third-quarter provision of $1.39 billion was about 50% higher than its quarterly average in 2019, but well below the roughly $5 billion it set aside in each of the first two quarters of 2020. The bank's net interest income dropped another 6.6% from the previous quarter to $10.13 billion, the lowest level in more than three years. BofA's shares lost 5.3% the day it reported.

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Across the Big Four, third-quarter credit provisions were roughly 40% to 80% lower than consensus analyst forecasts as they moved close to pre-pandemic levels. Year-over-year drops in net interest income of about 8% to 20% were also worse than analyst projections, except for Citigroup Inc. shares, which dropped 4.8% the day it reported. Wells Fargo & Co. shares, which lost 6%, were also weighed down by costly operational failures and encounters with regulators.

Analysts interrogated Citi executives about how much they expect to spend to fix risk and control issues under consent orders recently imposed by regulators, without eliciting specific numerical guidance. Wells recognized another $961 million in expenses in the third quarter in connection with its effort to compensate customers for past abuses, and executives said net interest income could decline again in 2021.

BofA stuck to its guidance that the third quarter will represent the trough in net interest income, with executives saying interest rates do not have room to move appreciably lower and business credit line utilization may have bottomed along with credit card balances as consumer spending recovers. The bank has also been moving an enormous cash stockpile generated by huge deposit inflows into securities. Still, "investor concern about whether [net interest income] can truly inflect higher from here weighed on [BofA's] shares," Kleinhanzl wrote.

But while banks have generally been shifting from cash into securities, JPMorgan executives said the bank will be cautious. "We're not going to invest it in stuff making 50, 60 or 70 basis points, so we get to see a teeny little bit more of [net interest income]," Chairman and CEO Jamie Dimon said. "If your [net interest income] gets squeezed a little bit, so be it. But we don't want to be in a position where we lose a lot of money" from exposure to long-term bonds when rates increase.

Banks also warned that while a substantial increase in net charge-offs might not materialize until late 2021 because of the time it takes overdue loans to progress through delinquency classifications, a great deal of economic uncertainty persists, and they have established reserves for outcomes worse than base-case forecasts.

Credit losses should be "manageable" relative to earnings in the near term, Bain Rumohr, a senior director at Fitch Ratings, said in a note. "However, a failure to contain the spread of the coronavirus over the next couple of quarters, coupled with a delay in further stimulus, may necessitate further reserve builds putting more pressure on earnings."