Banks discussed varying degrees of increased yield benefits from higher rates while also acknowledging that a hiking cycle could lead to further pressure on deposit costs and eventual headwind to loan demand.
The impact of higher rates was a hot topic during Barclays investor conference presentations that took place just before the Federal Reserve's Sept. 16 decision to raise its benchmark interest rate for the first time in more than three years by 25 basis points to between 3.75% and 4%. The expectation of the rate hike colored much of the commentary from bank executives at the event.
Several banks project margin gains
First Horizon Corp. Chairman, President and CEO D. Bryan Jordan described the bank's balance sheet as asset-sensitive and said that, in general, rising rates should benefit its net interest margin, with some benefits potentially materializing as early as the fourth quarter. While Jordan acknowledged that higher rates can adversely affect certain areas, he pointed out that mortgage activity and fixed-income revenue had already been slow in advance of the Fed raising short-term rates.
"We've sort of incurred some of the offsets," Jordan said.
The executive identified mortgage warehouse lending, which is sensitive to refinancing activity, and commercial real estate, where higher rates can affect whether new projects still "pencil out," as the most rate-sensitive business lines at First Horizon.
PNC Financial Services Group Inc. is currently in a "neutral spot," with interest rates expected not to have a big impact in 2026, according to CFO Robert Reilly. However, he noted that the effect would be "significant in the outer years as the yield curve steepens."
"We're constructive in a higher rate environment, all else being equal and assuming that the economy holds in there with a steeper yield curve, we're going to do better," Reilly said.
Deposit betas in a Fed hike scenario would likely be about 50%, which is the historical norm, according to the executive.
For Zions Bancorp. NA, higher rates are broadly positive for net interest income (NII) and should support margins over time, as the bank reprices its assets and eventually reinvests securities at higher yields, according to Chairman and CEO Harris Simmons. A 100-basis-point parallel upward shift in rates should increase NII by about 4%, all else equal, he said.
Higher rates support Bank of America Corp. management's confidence in its 2.3% medium-term NIM outlook, because "the repricing comes in at a higher rate." However, Chairman and CEO Brian Moynihan cautioned that high rates are beneficial only if loan demand remains healthy, and that a substantial rate increase could slow financing demand or require transactions to be restructured and repriced.
"The trick is you always have to remember when the rates are high or low or what's going on around you to make sure there's loan demand and other things," he said.
Impact on deposit costs, loan demand
KeyCorp's NII and NIM guidance is "rate movement agnostic," with the bank positioned to remain neutral to changes in interest rates, according to CFO Clark Khayat.
A Fed rate hike would be "slightly beneficial" to 2026 results, Khayat said. He expects the initial deposit beta to be in the low-40% range following a Fed hike, rising over time toward 50% to 55%, which would make the impact more neutral. However, Khayat noted that additional rate hikes could eventually slow loan demand, creating a trade-off between NII growth and NIM.
Truist Financial Corp. CFO Michael Maguire said a Fed rate hike is already factored into the bank's outlook, and higher rates are expected to modestly help NIM in the second half of 2026 through fixed-rate asset repricing. "That's the bonds rolling up the curve," Maguire said.
However, he noted that the rate environment creates some pressure and uncertainty.
"We've got a little bit of a volatile rate environment at the moment. And so I think that's a watch item at what level and at what point might an even higher for longer rate environment begin to impact consumers and their spending habits and savings rates or even commercial and corporate clients," Maguire said.
Flagstar Bank NA CFO, co-President and co-COO Lee Smith said that a higher-rate environment could keep deposit competition elevated and slow the pace of reducing the bank's nonaccrual loans.
"I think we're at an inflection point where we can continue to grow deposits but keep the cost of the deposits relatively flat," Smith said, adding that the bank might see a couple of basis points of increase but not a big jump.
At Huntington Bancshares Inc., higher interest rates are expected to pressure results through increased funding costs and limited NIM expansion.
"The market implied Fed funds path has shifted sharply higher since the start of the year, swinging from expectations of rate cuts to expectations for rate hikes," Chairman and CEO Stephen Steinour said. "That flatter, higher-for-longer rate path has elevated deposit costs above the level we had anticipated at the start of the year. Compounding that dynamic is that deposit demand has intensified industrywide."
Huntington cut its 2026 revenue growth forecast and 2027 earnings-per-share projections, citing the changing interest-rate environment.
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