The impact of rising interest rates on U.S. banks’ bottom lines revealed itself in third-quarter earnings, a report from Fitch Ratings says, as income and margins grew amid pressure on deposits.

The large U.S. banks showed stronger core earnings and positive operating leverage in Q3, which was in line with Fitch’s overall expectations. At the same time, banks’ deposits were down by 2% on a quarter-over-quarter basis.

“The Fed’s accelerating quantitative tightening is pulling liquidity out of the banking system and higher market rates raise the attractiveness of other short-term investment alternatives over deposits,” it said.

As a result, Fitch said it expects deposit balances to contract over the next year or two, “although trends could vary considerably across banks depending on deposit mix.”

Despite the growing pressure on deposits, the report noted that the banks still enjoyed strong loan growth and wider net interest margins, which supported net interest income and helped offset headwinds from rising expenses and pressure on a number of other business lines. Those included mortgage revenues amid rapidly increasing rates, deposit account fees, and wealth and asset management due to lower asset market levels.

In capital markets, investment banking revenues also came under pressure in the third quarter, while trading revenues benefited from higher market volatility.

Additionally, credit and asset quality stayed robust, Fitch said. “Underlying credit performance remained strong despite the uptick in provision expenses in the quarter driven by loan growth and to a lesser extent, deteriorating economic forecasts.”

Credit losses remain well below their historical averages and are expected to remain low until “well into 2023 as leading indicators of credit performance remain relatively benign, and in some cases, continue to improve,” it said.

Credit card delinquencies ticked up in the third quarter, but loss rates — a “significant driver” of credit losses for the industry overall — remained flat to down in the quarter, Fitch said.