Chris McGratty

Chris McGratty from KBW asked about the drivers behind Flagstar Bank N.A.'s projected 90-100 basis point margin improvement over the next two years, specifically how much of this is attributable to the resolution of credit issues and the suppression of the margin from non-accrual loans. He also inquired about the board's discussions on strategic uses of capital (growth, buybacks, other options) for a year from now, and the embedded thoughts on cash levels and security balances for the next one to two years.

Answer

CFO Lee Smith explained that reducing non-accruals is a key part of the strategy, as they are 150% risk-weighted and generate no earnings. He projected a $1 billion reduction in non-accruals in 2026, which would free up capital and allow reinvestment into higher-yielding assets like C&I loans. Other NIM drivers include multifamily loan resets, C&I growth, new CRE and residential originations, and managing core deposits. CEO Joseph Otting stated that the board has not yet discussed strategic uses of excess capital, but will assess options like growth and buybacks mid-2026 after significant progress on NPLs and business growth. Lee Smith added that securities balances are expected to increase by $1 billion in Q4 2025 and remain stable through 2026, with cash levels around $7-$8 billion in 2026.

Chris McGratty from KBW asked about the potential impact of lower interest rates on Valley National Bancorp's commercial real estate (CRE) book, specifically how it might influence the expectation for low single-digit growth. He also posed a strategic question to CEO Ira Robbins regarding the consideration of inorganic growth (M&A) versus share buybacks, given the current stock valuation and the open M&A window for larger banks.

Answer

CFO Travis Lan explained that while lower rates could accelerate payoffs, Valley National Bancorp is somewhat insulated due to its fixed-rate loan portfolio. President of Commercial Banking Gino Martocci added that lower rates could also drive transaction volume, noting a rebuilt pipeline. CEO Ira Robbins reiterated a "shareholder first" approach, emphasizing that buybacks at current valuations represent a good use of capital. CFO Travis Lan highlighted the strong organic growth opportunities and how M&A disruption benefits Valley National Bancorp.

Chris McGrathy inquired about Western Alliance Bancorporation's post-quarter-end buybacks and capital arbitrage strategy. He also asked for biases within the Q4 guidance ranges for net interest income, fees, and expenses.

Answer

CFO Dale Gibbons explained the $300 million stock buyback authorization, with $25 million executed, and the potential for subordinated debt issuance to accelerate buybacks, aiming for CET1 closer to 11%. President and CEO Ken Vecchione noted share purchases in the mid-to-high $80s and further purchases when the stock dropped. Dale Gibbons indicated continued strength in non-interest income (due to a class action settlement), bolstered incentive accruals for expenses, and stable insurance costs for Q4.

Chris McGrathy asked for clarification on Western Alliance Bancorporation's post-quarter-end buybacks and comments regarding capital arbitrage.

Answer

CFO Dale Gibbons explained that the company plans to use subordinated debt to provide liquidity at the parent, accelerating the $300 million stock buyback program and aiming to bring the CET1 ratio closer to the 11% target. President and CEO Ken Vecchione added that shares were purchased in the mid-to-high $80s and more aggressively when the stock dropped. In a follow-up on guidance biases, Dale Gibbons indicated expectations for continued strong non-interest income, bolstered incentive accruals in Q4, and stable insurance costs. Ken Vecchione emphasized the projected 17-19% EPS growth for 2025.

Chris McGratty questioned the company's capital management strategy, specifically the tension between growing CET1 and returning capital, given the 11% CET1 ratio and the potential for significant capital build even with buybacks. He asked if 11% is the 'right number' for CET1, implying it might be higher than peers. He also asked if NII is expected to grow from the Q4 base into 2026, assuming low single-digit loan growth.

Answer

CEO Jim Ryan acknowledged the healthy tension in capital allocation, considering shareholders, ratings agencies, and economic conditions. He suggested there are opportunities for the CET1 ratio to come down over time and for substantially more buybacks in future periods, but the company is not ready to commit to that yet, expecting a slight capital build in the near term for more clarity. CFO John Moran confirmed that NII is expected to grow into 2026, with margins stable-ish, depending on yield curve dynamics, and noted that steepening of the yield curve would be beneficial.

Chris McGratty questioned Old National Bancorp's capital strategy, specifically regarding the CET1 ratio. He noted the current 11% ratio and the potential to build 50 basis points annually, asking if 11% is the target or if the company might allow it to come down, given that many peers operate at 10.5% or 10%. He also asked CFO John Moran if Net Interest Income (NII) is expected to grow from the fourth-quarter base into 2026, considering the projected rate cuts and loan growth.

Answer

CEO Jim Ryan acknowledged the healthy tension between shareholder expectations, rating agencies, and economic conditions regarding capital. He stated that while there are opportunities to let the CET1 ratio come down over time, they are not ready to make that commitment yet, expecting some capital build as they gain more clarity. He emphasized that returning capital to shareholders is the best use and they could do substantially more in future periods. CFO John Moran confirmed that NII is expected to absolutely grow into 2026, with margins stable-ish, depending on yield curve dynamics, noting that steepening in the yield curve would be beneficial.

Chris McGratty from KBW asked for Zions Bancorporation's big-picture perspective on the implications of deregulation. He also followed up on the non-interest-bearing deposit disclosures, inquiring if they represent merely a reclassification with more expected next quarter, or if there are other significant factors at play.

Answer

Chairman and CEO Harris Simmons welcomed the current regulatory attitudes focusing on core financial stability rather than "trivia," stating it would not materially change Zions Bancorporation's operations but would eliminate distractions. CFO Ryan Richards confirmed the non-interest-bearing deposit changes are a reclassification of a low-cost consumer interest-bearing product, slightly beneficial to funding costs, with all affiliates now rolled through. President and COO Scott McLean emphasized the stability of non-interest-bearing deposits and the bank's peer-leading mix over three decades.

Chris McGratty asked for Harris Simmons' big-picture view on deregulation and its implications for Zions. He also followed up on the non-interest-bearing deposit disclosures, inquiring if the recent changes were primarily a reclassification or something more significant, and what to expect next quarter.

Answer

Chairman and CEO Harris Simmons welcomed the current regulatory attitudes focusing on core financial stability rather than politically motivated or trivial issues, stating it would not materially change how Zions operates but would eliminate distractions. CFO Ryan Richards confirmed that the non-interest-bearing deposit changes were a reclassification of a low-cost consumer interest-bearing product, now rolled out across all affiliates, with enthusiasm for market receptivity and future growth from marketing. President and COO Scott McLean emphasized the stability of non-interest-bearing deposits, which have maintained a peer-leading mix for decades, even through rate cycles.

Chris McGratty questioned Huntington Bancshares' operating leverage comments, specifically the 250 basis points, and how this trend might evolve medium-term given the balance of synergies and investments. He also asked about M&A conversations following the Veritechs deal close.

Answer

CFO Zach Wasserman expressed satisfaction with the 2.5% operating leverage, noting a sustainable approach involving a 1% annual reduction in baseline operating expenses funneled into offensive investments. He anticipates 1-2% operating leverage for 2026. CEO Steve Steinour emphasized the company's primary focus on organic growth, citing three combinations in 15 years and significant investments in organic expansion, including the Veritechs partnership, while not being involved in other recent M&A.

Chris McGratty sought clarification on the increase in non-accrual C&I loans from $520 million to $800 million, specifically the contribution of the First Brands exposure and whether it has been reserved for or charged off. He also asked for confirmation on the 15% ROTCE target being a full-year goal for 2027.

Answer

Chief Risk Officer Brad Bender confirmed that the increase in non-accrual C&I loans reflects a return to recent levels after outsized resolutions in Q2 2025, with First Brands exposure captured within this increase and accounted for in the forward NCO guide. CEO Bill Rogers confirmed that the 15% ROTCE target is for the full year 2027.

Chris McGratty asked about M&T Bank's operating leverage outlook for 2026 and the medium term, focusing on the drivers of revenue and expense trends. He also sought clarity on the continued improvement in CRE criticized loans and the bank's M&A geographic strategy, specifically regarding 'adjacent markets'.

Answer

Daryl Bible, SEVP and CFO, expressed positivity about operating leverage, expecting revenue growth to outpace expenses, driven by strong fee businesses, NIM expansion, and growing loan portfolios. He confirmed continued improvement in CRE criticized balances across all property types, potentially leading to the removal of the related slide from presentations. Mr. Bible clarified that 'expanded geography' in M&A refers to a target bank having some operations outside M&T's 12-state footprint, while the focus remains on density within existing states.

Chris McGratty of KBW asked about U.S. Bancorp's potential to revisit its medium-term targets, given that the bank is already operating within or achieving many of them, and what specific triggers or conditions would lead to such a revision.

Answer

John Stern, Vice Chair and CFO, stated that while the bank is pleased to be operating within its medium-term targets, there is no formal plan to change them yet, but they do expect to improve over time. He indicated that staying consistently in the range and then hitting the upper end of each range, coupled with an improving operating environment and execution exceeding expectations, would be triggers for revisiting the targets. Gunjan Kedia, CEO, added that consistent performance at the upper end of the ranges would prompt a reevaluation.

Chris McGratty of KBW asked about U.S. Bancorp's potential to revisit its medium-term targets, given that the bank is already operating within or achieving many of them, and what specific triggers or conditions would lead to such a revision.

Answer

John Stern, Vice Chair and CFO, stated that while the bank is pleased to be operating within its medium-term targets, there is no formal plan to change them yet, but they do expect to improve over time. He indicated that staying consistently in the range and then hitting the upper end of each range, coupled with an improving operating environment and execution exceeding expectations, would be triggers for revisiting the targets. Gunjan Kedia, CEO, added that consistent performance at the upper end of the ranges would prompt a reevaluation.

Chris McGratty asked about the specific drivers behind the $9 billion surge in commercial interest-bearing deposits during the third quarter. He also sought PNC's expectations for the deposit mix and overall deposit growth heading into 2026, considering a lower interest rate environment.

Answer

Rob Reilly, Executive Vice President and CFO, explained that the commercial deposit surge was driven by a combination of new and existing corporate clients, as well as some sweep accounts moving on-balance sheet due to narrowing rate differentials with money markets. He anticipates continued deposit growth into 2026 with a generally stable mix, though a slight increase in non-interest-bearing deposits is possible in Q4.

Chris McGraty asked about the drivers behind the $9 billion surge in commercial interest-bearing deposits during the third quarter, whether it represented new balance sheet activity or a change in client behavior, and the outlook for this trend. He also inquired about expectations for the deposit mix growth heading into next year, given lower rates and the commercial focus of year-over-year growth.

Answer

EVP and CFO Rob Reilly explained that the deposit surge was a combination of new and existing corporate clients, with some customers shifting from sweep accounts and money markets to on-balance sheet deposits due to narrowing rate differentials. Mr. Reilly anticipates further deposit growth next year, with the mix remaining fairly stable, though a slight increase in non-interest-bearing deposits is possible in the fourth quarter.

Chris McGratty (speaking through Andrew Leischner) from KBW inquired about First Horizon's capital allocation strategy, asking if buybacks would continue to be a function of loan growth or if there would be a greater appetite for them as the company progresses towards its 10.75% CET1 target.

Answer

CFO Hope Dmuchowski confirmed that the first priority for capital deployment is loan growth, with any remaining capital then allocated to share buybacks. This approach considers the forecast for loan growth at the beginning of each quarter.

Chris McGratty asked how the 'Reimagine the Bank' initiative's benefits connect to Citizens Financial Group's 16%-18% ROTCE target and about the company's near-to-intermediate-term uses of capital.

Answer

CEO Bruce Van Saun stated that Citizens is on track for the 16%-18% ROTCE target independently, and 'Reimagine the Bank' benefits would further enhance these numbers, offering optionality for reinvestment. He prioritized facilitating loan growth and regular dividend increases as primary uses of capital. He also mentioned potential for smaller, strategic M&A in specific verticals or tech, alongside continued share repurchases, believing the stock is undervalued.

Chris McGratty asked about any emerging credit quality concerns, areas of caution, or specific lending segments the company is avoiding despite overall strong credit results.

Answer

CFO Alastair Borthwick stated that there are no immediate changes in credit outlook, with continued strong performance in credit portfolios, and both consumer and commercial charge-offs declining. Chair and CEO Brian Moynihan emphasized the company's responsible growth strategy, which aims for a strong risk appetite and industry-leading loan growth, noting that the industry's credit statistics are robust, comparable to 2019's 50-year low.

Chris McGratty asked if Bank of America had any credit quality concerns or areas of lending avoidance, given the strong credit results and picking up balance sheet growth.

Answer

Alastair Borthwick (CFO, Bank of America) stated that credit portfolios are performing very well, with consumer and commercial charge-offs declining, and no current changes to risk appetite. Brian Moynihan (Chair and CEO, Bank of America) reinforced that the industry's regulated banks are in strong shape, comparing current credit performance favorably to 2019, a 50-year low for credit losses.

Chris McGratty asked about the sustainability and sources of improvement in operating leverage by segment as Citi approaches its 10-11% ROTC goal for next year.

Answer

CEO Jane Fraser attributed sustained operating leverage to continued volume growth, new client acquisition, disciplined market strategies (e.g., prime, financing), USPB growth (Barclays portfolio, product innovations), and synergies across businesses. CFO Mark Mason added that positive operating leverage is targeted for the full firm and most segments in 2026, with strategic investments potentially impacting specific segments, all driving improved returns beyond 2026.

Chris McGratty asked about the sustainability and sources of improvement in operating leverage across Citi's segments as the firm approaches its 10-11% ROTCE target for the next year.

Answer

CEO Jane Fraser attributed operating leverage improvement to volume growth from new and existing clients, disciplined market strategies (prime, financing, securitizations), and growth in USPB (including the Barclays portfolio and product innovations). She also highlighted synergies across businesses and continued operational efficiency. CFO Mark Mason added that positive operating leverage is targeted for the full firm and most segments in 2026, with potential for strategic investments in some areas.

Chris McGratty of KBW asked about Wells Fargo's deposit growth expectations within retail, specifically identifying geographies or products being pushed hardest and where the biggest opportunities for growth lie in the coming years.

Answer

CFO Mike Santomassimo stated that on the consumer side, Wells Fargo is most focused on growing checking accounts and expanding active core primary checking accounts for households over the long term.

Chris McGratty asked about Wells Fargo's deposit growth expectations within retail, specifically identifying geographies or products being pushed hardest and the biggest opportunities for growth in the coming years.

Answer

CFO Mike Santomassimo stated that the primary focus on the consumer side is growing checking accounts and expanding the number of active core primary checking accounts for households over the long term.

Chris McGratty asked about Wells Fargo's deposit growth expectations within the retail segment, specifically identifying which geographies or products are being prioritized and where the largest opportunities for growth lie in the coming years.

Answer

CFO Mike Santomassimo stated that Wells Fargo's primary focus on the consumer side is growing checking accounts and expanding the number of active core primary checking accounts for households over the long term.

An analyst on behalf of Chris McGratty from KBW inquired about the expected cadence of the net interest margin (NIM) throughout 2025 and whether the company's appetite for share buybacks has increased.

Answer

CFO Rick Kraemer explained that while avoiding specific margin guidance, he anticipates Net Interest Income (NII) will start lower in Q1 due to day count and then gradually increase through 2025. CEO Curtis Myers stated that capital allocation priorities remain unchanged, with share buybacks ranked third, although the company maintains the flexibility of an approved authorization.