Bank CFOs express confidence in their balance sheets

With one interest rate hike under the Federal Reserve’s belt and perhaps more in the near future, naturally the topic of rates arose in financial institutions’ third-quarter earnings calls.

Banking CFOs touted the strength of their balance sheets, reassuring investors that loan demand has remained strong, a CFO Brew review of recent quarterly earnings calls shows.

In recent commentary, Fitch Ratings noted that while the largest US banks had a strong third quarter, “the higher-rate environment still poses challenges.” The largest banks reported year over year revenue growth in Q3, citing “strong commercial and consumer loan growth, investment portfolio repricing, and disciplined deposit cost management,” the ratings agency added.

Interest rates affect bank’s margins and income, so managing a bank’s balance sheet becomes paramount.

For example, KeyCorp CFO Clark Khayat said on the Cleveland-based bank’s Oct. 20 earnings call that the bank “continue[s] to manage our balance sheet to a fairly neutral interest rate position over a 12-month horizon, which we view as prudent from a risk management perspective, given continued rate uncertainty.” Translation: the bank’s assets and liabilities are structured so market rates have little to no impact on earnings.

Interest rate hikes would “impact the pace and magnitude” of net interest margin expansion [a measure of the profitability of lending activities] a bit, “but we remain confident across the range of Fed paths,” Ally Financial CFO Russell Hutchinson said on the auto finance and online banking company’s Oct. 20 earnings call. He added that Ally’s balance sheet “is slightly asset sensitive,” as our “roughly $60 billion in floating rate exposures reprice higher.”

Fifth Third Bank’s loan pipelines “remain at record levels,” even amid expected future rate increases, according to the bank’s CFO, Bryan Preston.

“Certainly, as people talk about high rates, it influences how they think about the world,” he said during an Oct. 19 earnings call. “But I think in general, the feedback that we’re hearing [from clients] overwhelmingly is that it is still a growing economy. And high rates are not a meaningful driver of [their] decision-making from here.” Preston added that “another 50 to 100 basis points on rates does not impact their view. They do worry about demand from here if there were a broader slowdown because of rates. But in general, most of our clients are saying that they are going to continue to move forward with investment.”

Slow pace. A positive in this rate cycle is that the Fed funds rate has remained within a 100 basis point band since September 2024. “The interest rate paths haven’t taken wild swings,” Douglas Schosser, CFO of Ohio-based Northwest Bank, told CFO Brew in late September.

“All banks had lots of trouble dealing with all of the hikes that happened in [2022–2023], where they happened so quickly and [at] such an extreme going from 0% to 5%. These are a lot more measured, so they’re a lot easier to sort of deal with.”

In this cycle, a bank’s deposits may be a bigger issue. In the second quarter, “we saw a lot of loan growth across the industry [and] we didn’t see a lot of deposit growth,” he said. “I think most bank CFOs right now are waiting for the other shoe to drop, which might be heating up in deposit competition. A rate increase also drives up deposit rate prices potentially.”

Looking ahead. Experts say a pause in interest rate actions likely won’t last long.

Current economic indicators “in my opinion, do support a rate hike,” Kathy Bostjancic, chief economist of Nationwide, said on Monday, according to Reuters.

Speaking with CNBC, Heather Long, the chief economist of Navy Federal Credit Union, said that “inflation is still the No. 1 problem in the US economy, and there are a lot of signs it is getting more broad-based.”