KeyCorp Q2 2025 Earnings Report

KeyCorp EPS Results

• Actual EPS: $0.35
• Consensus EPS: $0.34
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.25

KeyCorp Revenue Results

• Actual Revenue: $1.84 billion
• Expected Revenue: $1.81 billion
• Beat/Miss: Beat by +$32.80 million
• YoY Revenue Growth: +20.60%

KeyCorp Announcement Details

• Quarter: Q2 2025
• Date: 7/22/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, July 22, 2025
• Conference Call Time: 9:00AM ET

KeyCorp (NYSE:KEY) operates as the holding company for KeyBank National Association that provides various retail and commercial banking products and services in the United States. It operates in two segments, Consumer Bank and Commercial Bank. The company offers various deposits, investment products and services; commercial leasing, investment management, consumer finance; and personal finance and financial wellness, student loan refinancing, mortgage and home equity, lending, credit card, treasury, business advisory, wealth management, asset management, cash management, portfolio management, and trust and related services to individuals and small and medium-sized businesses. It also provides a suite of banking and capital market products, such as syndicated finance, debt and equity capital market products, commercial payments, equipment finance, commercial mortgage banking, derivatives, foreign exchange, financial advisory, and public finance, as well as commercial mortgage loans to consumer, energy, healthcare, industrial, public sector, real estate, and technology sectors for middle market clients. In addition, the company offers community development financing, securities underwriting, brokerage, and investment banking services. The company was founded in 1849 and is headquartered in Cleveland, Ohio.

KeyCorp Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: EPS of $0.35, revenues up 21%, and pre-provision net revenue grew for the fifth straight quarter, driving over 60% PPNR growth since Q1 2024.
• Positive Sentiment: Commercial loans rose by $3 billion, meeting the full-year growth target by mid-year, with institutional and middle-market backlogs building into H2.
• Positive Sentiment: Deposit costs fell below 2% with a cumulative down-beta of 55%, contributing to an 8 bp sequential lift in net interest margin to 2.66%.
• Positive Sentiment: Noninterest income climbed 10% as investment banking fees hit the second-best first half ever, assets under management reached a record $64 billion, and other fee businesses grew mid-single digits.
• Positive Sentiment: Credit quality improved with net charge-offs down 7%, criticized loans down 3%, stable NPAs, and commercial upgrades exceeding downgrades for the sixth consecutive quarter.

Presentation

[Operator]

Morning, and welcome to KeyCorp's Second Quarter twenty twenty five Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to Brian Monney, KeyCorp Director of Investor Relations. Please go ahead.

[Brian Mauney, Director - Investor Relations at KeyCorp]

Thank you, operator, and good morning, everyone. I'd like to thank you for joining KeyCorp's second quarter twenty twenty five earnings conference call. I'm here with Chris Gorman, our Chairman and Chief Executive Officer and Clark Kayet, our Chief Financial Officer. As usual, we will reference our earnings presentation slides, which can be found in the Investor Relations section ofthekey.com website. In the back of the presentation, you will find our statement on forward looking disclosures and certain financial measures, including non GAAP measures.

[Brian Mauney, Director - Investor Relations at KeyCorp]

This covers our earnings materials as well as remarks made on this morning's call. Actual results may differ materially from forward looking statements, and those statements speak only as of today, 07/22/2025, and will not be updated. With that, I will turn it over to you, Chris.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Thank you, Brian, and good morning, everyone. Today, we reported strong second quarter results in what can be described as a dynamic and complex macro environment. Earnings per share were 35¢ even while we added $36,000,000 to our loan loss reserves and elected to prefund our charitable foundation this quarter. Revenues were up 21% from a year ago, while expenses were up about 6% excluding the charitable contribution. Our pre provision net revenue increased by $44,000,000 sequentially, marking the fifth straight quarter that our PPNR has increased.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

In the aggregate, our PPNR has grown over 60% since the first quarter of twenty twenty four. We continue to demonstrate strong commercial loan growth. As of June 30, we had already achieved our full year plan to grow commercial loans by about $3,000,000,000 in 2025, and our backlogs in both institutional and middle market continue to build as we look to the second half of the year. We also continue to drive incremental value from our high quality deposit franchise, Entering the year with a historically low loan to deposit ratio of 70%, combined with the runoff of low yielding consumer mortgages, has afforded us the flexibility to prioritize beta management in the first half of the year. As a result, we have been able to manage down our deposit costs, which are now below 2%.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Additionally, our cumulative down beta has reached the mid 50% range, which matches our terminal beta from the rising rate cycle. With respect to fees, which grew 10% from a year ago, our priority fee based businesses all continued to perform very well. Investment banking had its second best first half of the of the year in history as debt and equity issuance normalized after pausing in April, particularly as we approach the end of the quarter. We raised over $30,000,000,000 of capital for our clients in the quarter, retaining 22% on our balance sheet. Commercial payments fee equivalent revenue grew high single digits year over year.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Assets under management reached a record $64,000,000,000. Additionally, sales production in our mass affluent segment was a record in the first half of the year. Finally, commercial mortgage servicing continued its strong performance as named special servicing balances reached record levels, and active special servicing balances remained near record levels. While top line momentum remains robust, concurrently, all of our credit metrics continue to migrate in the right direction. Net charge offs, criticized loans, and delinquencies all declined from the first quarter, while NPAs were essentially stable.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Our overall credit migration improved for the sixth consecutive quarter with commercial upgrades exceeding downgrades this quarter. Our strong first half results, combined with our healthy pipelines and active client engagement, drive our optimism that we will meet or exceed all of the full year and exit rate financial targets that we detailed for you at the beginning of the year. As Clark will discuss in more depth shortly, we are increasing our net interest income and loan growth guidance. Based on the rebound in client activity, we continue to feel good about our ability to deliver 5% or better fee growth this year. Investment banking pipelines remain at historically elevated levels, essentially flat on a linked quarter basis.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Concurrently, we remain committed to holding expense growth in the low to mid single digit range even while investing meaningfully in our frontline bankers and increasing our tech spend by nearly a $100,000,000 this year. On the hiring front, we are on track to increase our frontline bankers and client advisers by roughly 10% this year. We have successfully recruited highly skilled investment bankers, middle market relationship managers, wealth managers, and payments advisers to our platform, and our active recruiting pipelines remain strong. I'm also encouraged by our strong retention rates, which are reflective of our highly engaged sales force. As a reminder, we accelerated investments in people and technology late last year, and we are already seeing returns on those investments.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

For example, in the case of our middle market banking, the teams that we onboarded in Chicago and Southern California this last November have already driven new client growth, loan volumes, payments, and investment banking business. Our platform is very attractive to bankers with specific expert expertise that aligns to our industry verticals. Our new teammates can join the key team and be more impactful to both their clients and their prospects. To wrap up, we had a solid first half of the year. We remain vigilant in a dynamic environment and are well positioned for a wide range of scenarios.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

We are operating from a position of strength. We have a leading capital position among our peers and ample liquidity that gives us flexibility to take advantage of the inevitable market dislocations. Our clearly defined structural net interest income tailwind is materializing as expected. We are enjoying significant success in the marketplace while concurrently making investments in people and technology that will drive our future growth. With that, I'd like to turn it over to Clark. Clark?

[Clark H. I. Khayat, CFO at KeyCorp]

Thanks, Chris. Starting on slide four. We reported second quarter earnings per share of $0.35 Revenue was up 21% year over year, while expenses increased 7% or 6% adjusting for a charitable foundation contribution that we've historically done later in the year. Tax equivalent net interest income was up 4% sequentially and 28% year over year. Noninterest income increased 10% year over year, reflecting continued momentum across investment banking, commercial mortgage servicing, commercial payments and wealth.

[Clark H. I. Khayat, CFO at KeyCorp]

We achieved approximately fourteen hundred and three hundred basis points of total and fee based operating leverage, respectively, year over year. Provision for credit losses of $138,000,000 included a $102,000,000 of net charge offs and a $36,000,000 reserve build. Roughly half of the build is driven by loan growth and mix shift and the remainder from the net impact deterioration in the Moody's macroeconomic scenario. Recall, last quarter, we made a qualitative adjustment to account for the heightened uncertainty at the time. We reversed some of that build this quarter as the uncertainty is now reflected in the Moody's scenario.

[Clark H. I. Khayat, CFO at KeyCorp]

Tangible book value per share increased 3% sequentially and 27% year over year. Moving to the balance sheet on Slide five. Average loans were up $1,400,000,000 sequentially and increased $1,600,000,000 on a period end basis. On a spot basis, C and I loans grew $1,700,000,000 and CRE loan loans grew $05,000,000,000 partially offset by the intentional runoff of low yielding consumer loans, namely residential mortgages. Within C and I, the growth continues to be broad based across industries and regions with both large institutions and middle market clients.

[Clark H. I. Khayat, CFO at KeyCorp]

Most of the growth was from new clients to key. T and I line utilization ticked up approximately 50 basis points to 32%. The CRE growth was primarily driven by project based deals in affordable housing, traditional multifamily, and data centers. On slide six, average deposits declined by less than 1% from last quarter as we prioritize data management in the first half of the year and primarily reflected a reduction in higher cost commercial client balances and retail fees. Compared to the prior year, total deposits and client deposits both increased by 2%, reflecting growth in consumer balances.

[Clark H. I. Khayat, CFO at KeyCorp]

95% of commercial balances are with clients that have an operating account with Key. Noninterest bearing deposits were 19% of total deposits or 23% when adjusted for the noninterest bearing deposits in our hybrid accounts, stable to the first quarter. Interest bearing deposit costs decreased by nine basis points during the quarter, and total deposit costs were managed below 2%. Cumulative deposit betas to the Fed rate cuts continue to perform better than expectations, reaching 55% in the second quarter. Overall, interest bearing funding costs declined by six basis points, and our cumulative interest bearing funding beta was 69% through the second quarter.

[Clark H. I. Khayat, CFO at KeyCorp]

Slide seven provides drivers of net interest income and NIM this quarter. Tax equivalent net interest income was up 4% sequentially and net interest margin increased by eight basis points to 2.66%. The increase was largely driven by proactive deposit beta management, fixed rate asset repricing, swap maturities and commercial loan growth. NII also benefited from an additional day in the quarter. While client sentiment has improved compared to where it was on our last earnings call in mid April, the environment remains dynamic.

[Clark H. I. Khayat, CFO at KeyCorp]

Given the macro uncertainty, we continue to hold roughly $4,000,000,000 to 5,000,000,000 more cash and other short term liquidity than we anticipate needing over the medium term. This excess cash position had a four to five basis points impact on NIM, but a de minimis impact to NII. Turning to slide eight. Noninterest income was $690,000,000 up 10% year over year with all of our priority fee based businesses growing mid single digits or better. Investment banking and debt placement fees were $178,000,000 an increase of 41% year over year.

[Clark H. I. Khayat, CFO at KeyCorp]

For the first half of twenty twenty five, investment banking fees were $353,000,000, the second best first half in our company's history. This quarter's growth was driven by syndication, commercial real estate and equity issuance activity. Several clients accelerated their transactions into the end of the quarter to take advantage of lower yields and tighter spreads. While this does pull forward some activity from the third quarter, we have since backfilled a good majority of that pipeline. And so if current conditions hold, we're optimistic that third quarter investment banking fees could look similar to 2Q levels.

[Clark H. I. Khayat, CFO at KeyCorp]

Elsewhere, commercial mortgage servicing fees continue to perform well, growing approximately 15% year over year. As of June 30, we were the named primary or special servicer in approximately $710,000,000,000 of CRE loans, of which about $260,000,000,000 is special servicing. Active special servicing balances remain elevated at approximately $11,000,000,000 up 59% compared to the prior year. Our service charges and corporate services fees increased roughly eleven percent and twelve percent, respectively. The increase in service charges was largely driven by continued momentum in commercial payments, while corporate services income was driven by loan derivative and ex FX client activity.

[Clark H. I. Khayat, CFO at KeyCorp]

Despite market volatility earlier in April and a one month lag in how we book our fees, trust and investment services income grew 5% and assets under management reached a record high of $64,000,000,000 On Slide nine, second quarter noninterest expenses of $1,150,000,000 increased 2% from the prior quarter and 7% year over year on a recorded basis. Year over year expense growth was driven by higher personnel expense related to the strong fee generation, continued investments in people and technology, as well as higher other business services and professional fees. During the quarter, we made a $10,000,000 contribution to our charitable foundation. Consistent with prior guidance, we expect expenses to increase through the remainder of the year, reflecting continued hiring and technology investments, anticipated growth in noninterest income and client activity, day count, and other seasonality factors. As shown on Slide 10, credit quality is broadly stable to improving.

[Clark H. I. Khayat, CFO at KeyCorp]

On a linked quarter basis, net charge offs were $102,000,000 down 7% or an annualized 39 basis points of average loans. Nonperforming asset trends were stable. Dollars increased by 1%, but NPAs to loans and OREO declined by one basis point to 66 basis points. Criticized loans declined by about $200,000,000 or 3%. Turning to Slide 11.

[Clark H. I. Khayat, CFO at KeyCorp]

Our CET1 ratio was 11.7% quarter end as loan growth and a change in loan mix offset net earnings generation. Our marked CET1 ratio, which includes unrealized AFS and pension losses, rose slightly to 10%. We believe both ratios continue to be at or near the top of the peer group. Moving to Slide 12, we are positively revising our 2025 guidance given the strong first half of the year and encouraging pipelines we see heading into the back half. This guidance continues to incorporate a range of potential scenarios anywhere from zero to four cuts as we move through the balance of the year.

[Clark H. I. Khayat, CFO at KeyCorp]

We now expect full year net interest income growth of 20% to 22% compared to prior guidance of approximately 20%. As a reminder, roughly 8% of our NII growth this year is due to the Scotiabank investment and related securities portfolio repositionings that we executed late in 2024, implying organic NII growth in the low teens this year. We also now expect our fourth quarter exit rate NII to grow 11% or better compared to the 2024 and fourth quarter NIM to be approximately 2.75%. We've also improved our loan guidance for the year. As a reminder, our previous guidance for average loans was down 2% to 5% with loans flat on a period end basis, including commercial loans up 2% to 4%.

[Clark H. I. Khayat, CFO at KeyCorp]

We now expect average loans for the full year to be down 1% to 3%. On a period end basis, loans are now expected to be up approximately two percent with commercial loans growing about 5%. Other p and l guidance remains broadly unchanged. We continue to expect adjusted fees will grow 5% or a little better with the upside primarily dependent on IB pipelines pulling through the second half. Expenses up 3% to 5%, and note that we are currently planning to be at the midpoint of this range given client activity levels and pipelines to date.

[Clark H. I. Khayat, CFO at KeyCorp]

Net charge offs as a percent of loans in the 40 to 45 basis point range. With respect to capital, we continue to target marked CET1 ratio of 9.5% to 10% over time. But as the macro outlook remains dynamic, it's our intention to manage to the high end of this range in the near term. With that, I will now turn the call back to the operator to provide instructions for the Q and A session. Operator?

[Operator]

Thank you. Please press 1. The first question comes from Ryan Nash with Goldman Sachs. You may proceed.

[Ryan Nash, MD - Regional Banks & Consumer Finance at Goldman Sachs]

Hey. Good morning,

[Clark H. I. Khayat, CFO at KeyCorp]

Hey. Good morning, Ryan.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Hi, Ryan.

[Ryan Nash, MD - Regional Banks & Consumer Finance at Goldman Sachs]

Chris, hey, Clark.

[Ryan Nash, MD - Regional Banks & Consumer Finance at Goldman Sachs]

So, you know, you guys had better than expected investment banking fees, and you also had stronger loan growth in the quarter. It sounds like pipelines are still pretty healthy coming into the back half. Clark, you made some comments about 3Q investment banking, sounded pretty upbeat. Maybe just to start off, Chris, can you maybe just talk about what you're hearing from clients in terms of their sentiment and their eagerness to borrow and transact? And maybe, Clark, can you just talk about how all of this translated into your financial outlook in terms of the higher NII and loan growth? Thank you. And I have a follow-up.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Sure. Well, let me start. From a client sentiment, I would say that our clients are cautiously optimistic. I'm out, as you know, talking to our clients all the time, and it's interesting. They go through all the macro concerns, geopolitical, tariffs, trade.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

And then you ask them about their business, and they say they feel pretty good about their business. So let me start with the consumer, Ryan. Our consumer is just fine. Just as a reminder, our at at Funding, our consumers have a FICO score of about seven sixty seven. And so as you look at how the credits are performing, if you look at how spending volumes are performing, our clients are in good shape.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

I think one of the things that the models really fail to pick up is the wealth effect and the fact that household wealth in The United States over the last fifteen years has increased by about a $100,000,000,000,000, and, that is, that's not inconsequential. And I think, you know, when people start looking at hours worked and they start looking at the labor participation rate, I think sometimes that's missed. For example, we're a main street bank, and we have perfect information. And a million of our 2,500,000 customers have between a half a million and $2,000,000 to invest. So that's the consumer.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

The consumer's in good shape. Let's talk about commercial for a second. I think balance sheets are healthy. Their liquidity is in good shape. I think the companies are a lot more agile, Ryan, than they were even going into the pandemic.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

If you look at their supply chains, if you look at their ability to just make changes on the fly, it's interesting. We perform a very detailed survey on 850 customers that borrowed $10,000,000 or more. 50% of them think that the current environment is an opportunity for growth. As it relates to tariffs, because that's always a topic for everyone, 30% of our customers are impacted by tariffs. But here's the interesting thing.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Of the 56,000,000,000 that we have outstanding in C and I, only 3% are significantly impacted in a direct way by tariffs. So, that's just a little bit of a rundown there. The one thing I would add, I guess, that I don't think people are talking about enough, it's not that pertinent to publicly traded companies. But for private companies, this 100% bonus depreciation, I think that's very significant. And none of that is in any of the plans that we're sharing with you today in any of our updated guidance.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

I think in the back half of the year, for the first time in a long time, you're gonna see a significant ramp up in CapEx. And I'll just close by just giving a couple watch points, as I always do. I think, you know, while we at Key, our criticized loans are down 13% year over year, the areas that we're watching very, very closely are any place there's leverage. One of my view is we could very well be in a higher for longer scenario. And if that's the case, we gotta really watch these leverage companies.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Only two to 3% of our loans are leveraged. The other place we're watching is any place that's dependent on Medicare funding. So that's hospitals and other places. We're watching those. And then we have a little bit of an outside in perspective from our third party commercial loan servicing business.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

As you know, we're named special servicer on 267,000,000,000 of loans. And when they go into active, we're basically the workout agent. And it won't surprise you, but, you know, what's in active special, servicing right now is office multifamily, principally in the Sunbelt. And then what's new is there's been a little bit of a surge in lodging, which I thought was interesting. But that's kind of a, that's kind of a round robin on kind of how we see the customers. Clark, what would you add to that?

[Clark H. I. Khayat, CFO at KeyCorp]

So, you know, let's maybe start with NII since I think that's been in focus most of the year and, you know, another good quarter for us up 4% first quarter to second quarter. And that's led to the kind of revised guidance here. So just as a reminder and for avoidance of doubt, we went from approximately 20% NII up year over year to 20% to 22%. And fourth quarter exit rate from 10% plus to 11% plus, and we picked up the NIM there as well. I think important to note that we have the equivalent level of confidence in the revised guidance we did in the previous, which means we believe we can deliver this across a range of conditions, inclusive kind of no cuts to poor cuts and barring any significant macro or event driven shifts.

[Clark H. I. Khayat, CFO at KeyCorp]

Built on strong first half performance, so more C and I growth than planned, better deposit performance, so down nine basis points on interest bearing deposits in the quarter. So really good performance on both there. We expect that to continue, but not likely at the same rate in the second half as competition begins to pick up a little bit on the deposit side. I think it's also important to note that the potential upside that Chris referenced and things like bonus depreciation and CapEx spend is not part of that guide. So if that materializes in any significant way, that could be a potential upside there.

[Clark H. I. Khayat, CFO at KeyCorp]

I would say achieving the middle of the improved guidance range of the 20% to 22% does imply a pretty healthy 2% to 3% quarterly organic growth rate off second quarter levels. So we don't think it's a layup to be sure. On fees, we had a very good second quarter across all the priority fee categories and again aided by a late rally the last few weeks of June in investment banking. I think back in early June, I noted the April pause was making the 5% plus guide on fees a little tighter. Since then, obviously, activity has picked up considerably.

[Clark H. I. Khayat, CFO at KeyCorp]

I think that's reflective of clients' willingness and ability to act quickly and a significant amount of investor capital that's on the sidelines waiting to get into the market. I think if we see that level of capital markets activity continue in the second half, we feel like we can deliver on the plus component of that fee guide. As for expenses, we continue to invest as we've shared. We'll see an uptick in the second half based on continued hiring and investments in technology. I'd remind you, we accelerated the same types of investments in the fourth quarter last year, and we've seen those benefits already in 2025.

[Clark H. I. Khayat, CFO at KeyCorp]

Very confident on this expense guide And to the extent the market turned and we saw some softness, we have ways to address fee growth through the back half of the year, but we don't plan to do that at the expense of sound investments for future profitable growth. And then lastly, credit metrics, stable to improving across the board. We're quite comfortable with our reserve at the moment and the direction of travel there, as it always does, will obviously depend on how the economy unfolds in the second half.

[Ryan Nash, MD - Regional Banks & Consumer Finance at Goldman Sachs]

Got it. I appreciate the in-depth response. So maybe just as my quick follow-up sort of where you left off, Clark. Results in the first half coming in better than expected, and this should set you up well for 2026 revenue growth. And when you think about expenses, talked about the midpoint of the range for this year.

[Ryan Nash, MD - Regional Banks & Consumer Finance at Goldman Sachs]

Can you maybe just talk about how you're thinking about the pacing of investments over the short to medium term? It feels like you're playing more offense now in terms of hiring and technology investing. And maybe just as we look ahead, what is the right way to think about the pacing of positive operating leverage over the medium term? Thank you.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Hey, Ryan. So a couple of things. Obviously, positive operating leverage for us is a fait accompli this year. We focused on really generating positive operating leverage from a fee perspective, and we'll continue to focus on that. We've also continued to invest probably at the current rates.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

We're growing our we mentioned in our prepared remarks that we're growing bankers, middle market relationship managers, wealth managers, payment advisers. We're gonna continue to invest there. We frankly have been investing in technology the whole time. You know, every year, we've replaced core systems. We've actually migrated half of our apps now to the cloud.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Our systems are in the cloud. We'll continue, you know, we'll continue along that investment. But I'm a big believer that you've gotta continually through you you know, through continuous improvement, we we have to be able to take out costs and serve our clients better. And, you know, we were an early adopter when you think about, you know, robotic process automation. We've been an early adopter on machine learning.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

You'll get we've that goes as far back as our performance in PPP, you'll remember. And, you know, we're very focused on using technology to take not only take out expense, but have it be a better experience for both our teammates and our employees.

[Ryan Nash, MD - Regional Banks & Consumer Finance at Goldman Sachs]

Thanks again.

[Operator]

Thank you. Thank you. The next question comes from Scott Siefers with Piper Sandler. You may proceed.

[R. Scott Siefers, MD & Senior Research Analyst at Piper Sandler Companies]

Good morning, guys. Thanks for taking the question.

[Clark H. I. Khayat, CFO at KeyCorp]

Hey, Scott.

[R. Scott Siefers, MD & Senior Research Analyst at Piper Sandler Companies]

Clark was hoping you could expand a little on some of the deposit comments you made in response to the last question. Just basically sort of deposit pricing strategy given the nine basis points improvement sequentially and expectations that will continue maybe more, I guess, broadly sort of the pricing versus growth balance. I know you're in an excess liquidity position, but would just be curious to hear your thoughts there.

[Clark H. I. Khayat, CFO at KeyCorp]

Sure. So just to maybe put a finer point on your last comment there. We came in at kind of loan to deposit ratios at the low end of the peer group 70. So I think that affords us a little bit of flexibility there. I think our deposit costs slightly higher, so some room there and a lot of CDs and MMDA promotional rates rolling over kind of month to month.

[Clark H. I. Khayat, CFO at KeyCorp]

That will continue in the second half. And then the last piece that hasn't played out exactly the way we thought at the beginning of the year, but continues to be beneficial on the liquidity side. It's just the trade of residential real estate pay downs and then the the movement of those dollars into C and I loans. So it didn't happen as much as we had thought going in, which is, you know, the benefit of of faster loan growth, but that is still a benefit, you know, on the liquidity side. So we saw some positive pricing in the quarter.

[Clark H. I. Khayat, CFO at KeyCorp]

We did, on two fronts, kind of make it an active decision to let some deposits roll off in two places in particular, kinda high end commercial where we did see some relatively competitive pricing happening and we didn't feel the need to to match those offers. Those remain clients, and we could go back to those dollars if we needed them. And then on the retail CD side, we let about a billion 4 roll off that were, you know, not not turning over at the same rates. I will say, while our front book production on CDs and promotional and MDAs is a little bit lower given some of our market rates. Our retention client retention rates in those pockets are better than expected.

[Clark H. I. Khayat, CFO at KeyCorp]

So, again, we're seeing you know, I think I'd argue maybe consumers aren't chasing 25 basis points at these levels. And then maybe one other point on deposits, which are you know, in the quarter, we did see CRE clients use cash to do acquisitions instead of pay down. Those pay downs would have been deposits. So you're using cash to buy new properties that would also exist in our servicing book. So in both cases, we saw a little bit lower deposits on those sides.

[Clark H. I. Khayat, CFO at KeyCorp]

We'll see how that transpires in the second half. But normally, our low point in deposits would be mid to late April after tax season. That really rolled a bit into May, but we've seen a nice rebound, particularly on the commercial side going into the end of the quarter. We have good commercial deposit pipelines, and we'd expect to see that grow going into the second half. But we are very much watching some of the deposit actions of competitors given some of the comments we've heard across the industry in the quarter.

[R. Scott Siefers, MD & Senior Research Analyst at Piper Sandler Companies]

Gotcha. Perfect. Thank you. And then let's switch to capital for just a second. So I think you're now at the high end of the mark common equity tier one target.

[R. Scott Siefers, MD & Senior Research Analyst at Piper Sandler Companies]

Just maybe a a thought on where we are sort of with resuming repurchase and sort of order of magnitude in terms of appetite as we look into the second half of the year.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

So Scott, kind of our thought on capital is, one, yes, we are at the high end of our targeted marked CET1 right at 10%. Having said that, we've said that in this environment, we think it's good to carry a little additional capital and and preserve optionality. There's a few things going on. One, our underlying organic business is very strong right now, and we want to make sure we have capital to support our clients, first and foremost, in the marketplace. Secondly, I think there's gonna be an opportunity out there for kind of for us to continue to invest in people.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

And if they may come in groups, invest in technology, which I just talked about, that's high on our list. The next thing that I think you'll see us kinda continuing that we always look at is kinda niche or tuck in acquisitions. I think we're pretty good at buying these entrepreneurial groups and plugging them into our platform. Obviously, the dividend is important. And then that gives you kind of at the bottom of the stack that gives you two things that we could do with the excess capital.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

One is we could do tweaking of our balance sheet, which we're constantly looking at, or we could resume our share repurchases. I think we'll do that, but it'll be kind of a crawl, walk, run approach. I would say that in the third quarter, you can assume that we would have modest share repurchases and then probably stepping up later in the fourth quarter. That's how we're thinking about it now based on the opportunities that we have in front of us.

[Clark H. I. Khayat, CFO at KeyCorp]

Got it. All right. Perfect. Thank you, Thanks, Scott.

[Operator]

Thank you. The following question comes from Ebrahim Goonwala with Bank of America. You may proceed.

[Ebrahim Poonawala, MD & Head - North American Banks Research at Bank of America Merrill Lynch]

Hey. Good morning. Guess maybe just, Clark, following up with you on the NII and the margin outlook. I think in the past, you've talked about the margin potentially hitting 3% as you think about normalized level for the margin. So if you don't mind, if you think about the February 5 exit run rate in the fourth quarter, one, do you think we can get to 3% by next year?

[Ebrahim Poonawala, MD & Head - North American Banks Research at Bank of America Merrill Lynch]

And in that world, I know you talked about the loan to deposit ratio. Like, is the balance sheet larger or smaller before you get to the 3% NIM?

[Clark H. I. Khayat, CFO at KeyCorp]

Yeah. So, look, I think one note, you know, we're at $2.66 in the quarter. And as we noted, we are carrying a little bit extra cash that probably cost us four or five basis points on NIM. So I think there's continued strong performance there. We still feel confident that by end of twenty six, we can be at 3% at the current course and speed.

[Clark H. I. Khayat, CFO at KeyCorp]

You know, in terms of balance sheet size, I'd say there's, you know, probably a couple ways to think about it. One, in our business model, and this is not a an NII specific answer, but we don't feel that we necessarily need to grow the balance sheet to grow the business given some of our capital markets distribution capabilities. That said, we will continue to see residential real estate runoff, you know, something like about 600,000,000 a quarter is what we've seen this year, maybe another 2,000,000,000 or so next year that affords us some liquidity to invest in C and I growth on an ongoing basis. And at this point, given our liquidity position, we could take down cash and or reduce the securities book a little bit if we wanted to. So I think there's ways to actually grow NII and reflect that in a better NIM over time without necessarily a significantly larger balance sheet.

[Clark H. I. Khayat, CFO at KeyCorp]

But again, we'll operate based on, to some degree, where the environment is and we've carried additional cash in the quarter just given the April pause and some of the uncertainty we've seen out there.

[Ebrahim Poonawala, MD & Head - North American Banks Research at Bank of America Merrill Lynch]

Got it. And I guess maybe just going back, so I think it's my takeaway based on your responses was momentum both on lending and capital market seems to be strengthening as we look into the back half of the year. And I think, Chris, you mentioned about hiring of bankers. Just remind us the I'm not I'm not sure if you spelled out the number of bankers you plan to hire. And are these within your existing verticals?

[Ebrahim Poonawala, MD & Head - North American Banks Research at Bank of America Merrill Lynch]

Kind of what's the focus when you think about incremental banker hiring?

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Yeah. So what we what we said is we were gonna increase our frontline people by 10%. And specifically, we talked about investment bankers. So we're really building those are clearly being built out within our verticals. We talked about middle market relationship managers, and those folks, as you know, are typically in a in a a given geography, but they obviously point to many of our industry verticals because that's where we have the greatest leverage in the marketplace.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

We've talked about wealth managers, and our wealth managers are a little bit different than some because we're often for when it comes to mass affluent mining, the huge opportunity that we have within our existing business, We've only penetrated to the tune of about 10%, in our mass affluent, area. So our our our hiring there is a little bit different. Also, our payment advisers, Ebrahim, are typically really software folks because it's all about implementation of our complex and important embedded banking, for example. So those are the kind of people we're hiring. And as we mentioned in our opening remarks, there's a there's a lot of people available right now.

[Ebrahim Poonawala, MD & Head - North American Banks Research at Bank of America Merrill Lynch]

Got it. Thank you.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Thank you.

[Operator]

Thank you. The next question comes from Chris McGratty with Keefe, Breyer and Woods. You may proceed.

[Christopher Mcgratty, MD & Head - U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

All right. Good morning.

[Clark H. I. Khayat, CFO at KeyCorp]

Good morning, Chris.

[Christopher Mcgratty, MD & Head - U.S. Bank Research at Keefe, Bruyette & Woods (KBW)]

Chris, on the deregulatory question, I think you addressed the kind of uses of capital. But if we think about where Key is spending spending money, you talked about the increase in tech spend. If we do get broader deregulatory reform, is there a reallocation of where you're allocating dollars maybe towards more productive revenue producers versus, you know, more just back office regulatory costs? Thanks.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Well, the interesting thing, Chris, is we've really even though Basel III endgame hasn't been finalized and there's liquidity rules out there, we have basically adopted all of the proposals as they've come out. So we really feel like the the, you know, the investment that we've needed to make in terms of sort of the plumbing has been made. And so we feel like we have the opportunity to really lean in on hiring more frontline people because we think we have a unique business model and also on technology. So I think you'd see us, really no matter where I mean, the right clearly, the regulatory environment is gonna do nothing but get more favorable. And we feel like from a starting point of where we are, we're in good stead there.

[Clark H. I. Khayat, CFO at KeyCorp]

Great. Thank you. Sure.

[Operator]

The next question comes from Ben Rizbeck with Autonomous. It's Ken Usdin.

[Ken Usdin, Senior Research Analyst, Large-Cap Banks at Autonomous Research]

Chris, you mentioned in your prepared remarks that you kept about 20% of the $30,000,000,000 you originated for clients. It's a little higher of a keep rate than you had in the past. I'm just wondering how much more you're willing to push that in terms of both seeing the improved potential originations out there and and your comfort with, like, your hold levels of that origination capacity.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Yeah. Well, it's a great observation. Typically, over over time, we've typically held about 18%. And as you point out, we were above 20. We were 22% this last quarter.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

And it really, Ken, is all driven on what's in the client's best interest. And when the markets dislocated a bit for three weeks in April, it gave us the opportunity to structure things and put them on our balance sheet in a manner that we'd be very satisfied to have them on our balance sheet. So, you know, if if I've I've said this before. Actually, if everything's flashing green, it's really hard. Given our platform, if we get a little bit of dislocation in the market, that's actually good for us. And, it was certainly good for us last quarter.

[Ken Usdin, Senior Research Analyst, Large-Cap Banks at Autonomous Research]

Okay. And and just a little bit of a dig on the dig in on the line. You you had talked mid quarter about line you being up, and it looks like it was only up about a point 5% in in the quarter itself. Can you just talk about the dynamics that you're seeing there in terms of unfunded growth and also just clients' willingness to draw down their lines?

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Yeah. That's a great question, and it's one that, frankly, has confounded us. I would have thought that people would have been aggressively forward buying all the tariffs. It's interesting. In the middle of the quarter, we were actually up more like a percent, and we ended up the quarter of up about half a percent.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

It continues to be something that we're watching. Obviously, that's the easiest way for us to grow loans. You know, I think as we get into an environment where, there's probably more certainty, We may see people forward buying the tariffs, but we have not seen a lot of that in our book, and we're pretty close to our to our customers. I've been surprised.

[Clark H. I. Khayat, CFO at KeyCorp]

Got it. Thank you. One other slight point on that utilization rate, Ken, is the denominator grew a little bit in the quarter as well. So that wouldn't offset the entire half a percent, but would certainly bring it down a little bit.

[Ken Usdin, Senior Research Analyst, Large-Cap Banks at Autonomous Research]

Yes. Understood.

[Operator]

Thank you. We have a question from Manon Gosalia with Morgan Stanley. You may proceed.

[Manan Gosalia, Head - U.S. Midcaps Banks Research at Morgan Stanley]

Hey. Good morning. Can you talk about just pricing competition on both the loan and deposit side? You know, I think some of your peers have noted some pressure on spreads, and you also called out tighter spreads in the capital markets. So as you think about your forward loan growth, can you talk about how you expect spreads to trend?

[Manan Gosalia, Head - U.S. Midcaps Banks Research at Morgan Stanley]

And maybe also on the deposit side, I think you called out that you you expect more competition there. So if you can talk a little bit more about that.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Sure. So let's let's start with loans because we've touched a little bit on deposits this morning. So on the loans, if you look at the pricing of our loans, we're basically flat year over year. We are seeing, additional competition, additional market participants, and that sometimes manifests itself in people taking larger hold levels. It manifests itself in people stretching maybe a bit on structure.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

We clearly aren't doing that. But as I've said many times, a properly graded commercial loan can't return its cost of capital, and that's why our business model is so important, Manon, in that we can do so many other things for these clients. So our pricing has actually stayed flat. But I think pricing on quality loans will continue to be a challenge just based on, what I see as excess capacity out there. Having said that, as you can see, we are able to monetize these relationships in a variety of ways.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Well over 95% of our borrowing commercial customers, in fact, have a more wholesome relationship than just borrowing. So I think that's really important. I think that's that's the key, and that frankly is is how banks like like Key can compete with a variety of competitors. On the deposit front, I think Clark covered that. We've we've seen very rational, pricing to date.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Although, obviously, we, like you, have heard some of the recent discussions of of increased focus on pricing. Clark, what would you add to that?

[Clark H. I. Khayat, CFO at KeyCorp]

Look, we're we noted a little bit more competitive pricing on the commercial deposit side. We'll watch that closely, particularly as we expect some growth in that book in the second half. I think broadly, in our markets at least, consumer pricing has been pretty rational, as Chris noted. There are some spots where we've either a push on premiums or a push on some teaser rates. We have seen conversely in a couple of western markets, some large players actually take their front book rates down.

[Clark H. I. Khayat, CFO at KeyCorp]

So it's a little bit of a mixed bag. And I think when you get to this level in the deposit game, it is a very local market to market business, and we're watching it in exactly that way.

[Manan Gosalia, Head - U.S. Midcaps Banks Research at Morgan Stanley]

Got it. Very helpful. Maybe on the credit side, with the strong C and I growth and the mix shift in loans, how should we think about the reserve ratio from here? Has it bottomed here, or is there more room to bring it down if criticized loans and NPLs keep moving lower?

[Clark H. I. Khayat, CFO at KeyCorp]

Yeah. I mean, you know, look. Three three things, as you know, drive the reserve. Right? The the loan growth, the general credit quality of our own book, and then the macroeconomic environment.

[Clark H. I. Khayat, CFO at KeyCorp]

So I think our as we said, our our credit metrics overall stable to improving. If we continue in that direction, you would see that reflected appropriately in the reserve. Half of our build this quarter was really loan growth. That's a high class problem, generally speaking. And then the macroeconomic conditions, obviously, are a little bit outside our control.

[Clark H. I. Khayat, CFO at KeyCorp]

We'll reflect that appropriately. I think if some of the upside that Chris referenced earlier came to pass and that, you know, led to a stronger, more constructive economy, there's clearly room to reduce the reserve. But, you know, we still see a fair amount of uncertainty, and that's why we didn't pull off the entirety of the qualitative reserve we put on in the first quarter.

[Manan Gosalia, Head - U.S. Midcaps Banks Research at Morgan Stanley]

Great. Thank you.

[Operator]

Thank you. The following comes from Erika Najran with UBS. You may proceed.

[Erika Najarian, MD & Equity Research Analyst - Large-Cap Banks & Consumer Finance at UBS Group]

Hi. Good morning. Just wanted to unpack the loan growth guide. Ending loans up 2%, you're already there for the first half of the year. Is that dynamic that you're expecting for the second half related to, Clark, what you said about maybe some resi growth funding loan growth?

[Erika Najarian, MD & Equity Research Analyst - Large-Cap Banks & Consumer Finance at UBS Group]

I mean, Chris sounded quite bullish. He said underlying organic growth is very strong. I'm sure he's referring to C and I. So I wanted to unpack that and clarify what you had said about, you know, you said something about getting to the midpoint of the NII guide would require, you know, 2% to 3% organic growth in I just wanted to circle that square.

[Clark H. I. Khayat, CFO at KeyCorp]

Okay. So on maybe start with the latter, which is, you know, if you go from our second quarter results and get to the midpoint of the guide at 21%, you sort of have somewhere in the two to three range of growth in the quarters to get there, which we think is, you know, again, not necessarily simple, but we think very achievable. So, if if that doesn't make sense, then let me know, we can we can go deeper into that. On the loan growth, I think it's what you noted there, which is sorry. Go ahead.

[Erika Najarian, MD & Equity Research Analyst - Large-Cap Banks & Consumer Finance at UBS Group]

All good. Go ahead.

[Clark H. I. Khayat, CFO at KeyCorp]

Okay. Okay. Thank you. Sorry. Low so loan growth look.

[Clark H. I. Khayat, CFO at KeyCorp]

We saw stronger growth in the first half than we expected. We continue to expect to see growth just, again, not necessarily on balance sheet at the same level. It'll be offset by what we would expect right now, which is a little bit of CRE paydown and some resi real estate pay down. So right now, we're sort of kinda net neutral on a balanced basis, but moving more and more to that C and I profile, which, you know, we prefer. The other way I would think about it is if the capital markets get really strong, you could actually see more of that loan production go straight into the market and even some come off balance sheet and get refied into the market.

[Clark H. I. Khayat, CFO at KeyCorp]

That's pretty typical and that would be our model, which is often reflected in kind of the lower retention rate of the capital we raise in a quarter. Conversely, if things slow, as Chris noted, we might use the balance sheet a little bit more, but it's probably on aggregate lower volume. So it gets us kind of similarly to a balance sheet growth rate on the C and I side, which again, we think gets, you know, offset by the runoff of those other portfolios. All of that to say if some of the upside based on the CapEx and bonus depreciation provisions does occur, that's not really in the guide, and you could see some potential for a little bit of outperformance on C and I.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

We're assuming at current rates that the runoff of our mortgage book our mortgage book is 600,000,000 to $700,000,000 a quarter, just to give it perspective.

[Erika Najarian, MD & Equity Research Analyst - Large-Cap Banks & Consumer Finance at UBS Group]

Got it. Thank you for that. And my second question is just wanted to sort of unpack maybe the balance sheet mix for the rest of the year and into '26. Clark, you mentioned, I think, four to five basis point net interest margin impact from excess cash. I think you said you're running have 4,000,000,000 to $5,000,000,000 more than you need.

[Erika Najarian, MD & Equity Research Analyst - Large-Cap Banks & Consumer Finance at UBS Group]

I guess, I'm wondering, as we think about the balance of the year, how you're thinking about running down that excess liquidity not and how we should think about deposit growth from here. I think fully understand your comments on pricing. But as we think about the second half of the year, should you we expect T Corp to continue to prioritize price optimization versus deposit growth? Or are there sort of seasonal and business benefits for the second half?

[Clark H. I. Khayat, CFO at KeyCorp]

Yeah. So great question. And you hit on a bunch of the components. So we generally would see seasonal growth in the second half. We would expect that, as I noted in the commercial book for sure, although we'll watch the kind of price balance trade off. I don't think given the loan growth we saw that we would be as sort of slanted to pricing versus balances as we were in the first half. I think we'd be in little bit more of a lack of ironic term, a balanced approach here between, you know, rate and dollars. And I think, you know, you'll see stable to slightly growing consumer deposits as well.

[Clark H. I. Khayat, CFO at KeyCorp]

So I think we we'd expect the deposit book overall to grow. We think we have a little bit, all other things being equal, a little bit of pricing opportunity here just as CDs and MMVA promos roll off. But we're we're watching that closely. There's been a lot of deposit dynamics in the industry as we heard through the last week of earnings calls. So we'll watch it closely, but I don't think we will be, you know, as rate oriented in the second half.

[Clark H. I. Khayat, CFO at KeyCorp]

And then on your cash question, look, given given April and some of the other uncertainty, we certainly felt comfortable carrying a little bit more cash. Didn't really impact NII at all. It did drop the NIM a little artificially. As long as we feel like the environment's constructive, we'd probably bring that level down, and we'll, you know, we'll continue to watch that as it transpires over the next month or so.

[Operator]

Okay. Thanks for taking my questions.

[Clark H. I. Khayat, CFO at KeyCorp]

Of course.

[Operator]

Thank you. We have a question from John Pancari with Evercore. You may proceed.

[John Pancari, Senior MD & Senior Research Analyst at Evercore ISI]

Morning. Morning, John. Just looking for just looking for additional color on the loan growth drivers within C and I. I I know it it sounds like you do expect some strengthening there, particularly as you see the continued roll off in CRE and you're investing the residential roll off into C and I. What are the industries and what type of lending do you expect to be the to gain the greatest momentum within the C and I book throughout the back half?

[John Pancari, Senior MD & Senior Research Analyst at Evercore ISI]

And does your guidance for commercial growth, does it reflect that expectation at the capital markets gain steam and you could see some financing go into the into the markets?

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

So let me start with the last part of the question first. It it does not. I mean, we sort of assume kind of continuation of the way the markets are currently operating because that's just the easier way to plan. In terms of where we can see where we see the volume, it's pretty broad based. But we're fortunate in that we are significant players in certain areas that lend themselves to sort of continuous new projects.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

One would be renewables, and obviously, have been in the media a lot lately. We finance literally the the best players in the renewable energy space. The way the the bill was written is as long as you're completed in four years, you're in good shape. And so our backlogs there are intact. And then talking to our leaders there, we feel good about that.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

The next area where we get a lot of growth is affordable. Affordable is one of the few areas that I've always said, you know, people on all on both sides of the aisle really agree on, and there's a bunch of things that are very good on a net basis for affordable. So those pipelines are strong. And then the other place where we're getting a fair amount of growth is around both our our health care business. Obviously, health care is going through a big transformation.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

There's opportunity there. We also have a public sector business that's having a a good year. And then just broadly, our middle market bankers, are gaining share, broadly. So that that's where the growth is coming from both that which we funded and that's that which we see in the pipeline.

[John Pancari, Senior MD & Senior Research Analyst at Evercore ISI]

Got it. Great. Thanks, Chris. And then separately on the capital front, we've seen a pickup in sector m and a amid the the regional activity. And just curious in your updated thoughts around bank M and A.

[John Pancari, Senior MD & Senior Research Analyst at Evercore ISI]

Where is it on your priority list? And would you consider smaller transactions at all on that front if something interesting came up? And then maybe just an updated outlook around nonbank.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Sure. So I'll start with banks. And specifically, I'll talk about kind of our appetite. It's it's not high on our list. I kinda walked through our capital priorities, not high on our list of priorities.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

I I just think, right now, I think there's an environment where in the larger banks, you have a lot of people interested in buying and no one interested in selling. And with smaller banks, I think you probably have a lot of people that are interested in selling and not a lot of people interested in buying. Having said that, I do think we're gonna start to see a pickup in bank m and a. We've already seen, obviously, a little bit of that. So that's the first point.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

The second point, is actually really important for our business, and that is just greater velocity in m and a in general. We obviously have a very large m and a business. That business, you know, middle market m and a has been down significantly, and I think you're gonna see that start to pick up after Labor Day. So in spite of how well our investment bank is performing, we're not we haven't gotten much of a lift on m and a. And I think people are getting pretty good clarity now on what can get done and importantly, how quickly things can be approved.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

And I think that holds true for banking and nonbanking.

[Clark H. I. Khayat, CFO at KeyCorp]

And maybe just the last add on is the nonbank acquisition front for us, which Chris, I think, noted once or twice. It just that is a little bit of our bread and butter, and we consistently look at that whether it's capital markets, payments, or anything else that fits our priority fee businesses generally, and we'll continue to do that.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Yeah. We have a long history there. I'm I'm really proud of our ability to buy entrepreneurial businesses. This goes back to all the partnerships we did with fintechs and all the boutiques. Not many large companies, I don't think, do a really good job of bringing on entrepreneurial businesses, and I think we do.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

We we look at a lot of them, John. We obviously don't act on many, but, I think that's an opportunity for us.

[Mo Ramani, Chief Risk Officer at KeyCorp]

Hey, John. It's Movamani, chief risk chief risk officer. Just on your prior comment on loan growth, we do look at that closely. We've been able to grow without stretching our risk appetite. So for example, we look at weighted average risk rating at origination versus the back book.

[Mo Ramani, Chief Risk Officer at KeyCorp]

We look at policy exceptions. So there's nothing that'll give us concern that we're having a stretch to achieve this loan growth. So

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Good point, Bob.

[John Pancari, Senior MD & Senior Research Analyst at Evercore ISI]

K. Great. Thank you for the color.

[Clark H. I. Khayat, CFO at KeyCorp]

Thank

[Operator]

you. We have a question from Matthew O'Connor with Deutsche Bank. You may proceed.

[Matt O'Connor, Analyst at Deutsche Bank]

Good morning. Can you frame how far along you are in terms of adding the 10% bank gross across the businesses? Are you halfway? Have you front ended it a bit?

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

It I I don't have those numbers in each of the categories, Matt. But we're we front end it a bit because, as you know, there's somewhat of a recruiting season. And so we've been very busy from the time people receive their bonuses to present. And, obviously, as we get late in the year, it will tail off.

[Matt O'Connor, Analyst at Deutsche Bank]

Mhmm. Okay. That's helpful. And then just separately, any updated thoughts on consumer lending strategy? I know you talked about continued rundown in the mortgage book, and obviously, areas have been running off as well.

[Matt O'Connor, Analyst at Deutsche Bank]

But just any updated strategic thoughts on consumer lending? Thank you.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Sure, Matt. I think what you'll see us is lean into HELOCs. You know, we we have the capability to do it. We're in the business right now. And, obviously, our client base is older, has equity in their home for a variety of reasons that you know well, probably won't be moving and will be looking at tapping into the equity.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

And so I think that's probably a 2 or $3,000,000,000, opportunity for us as we ramp that up.

[Matt O'Connor, Analyst at Deutsche Bank]

Okay. Thank you.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Thank you, Matt.

[Operator]

Thank you. I'll now pass it back to Chris Gorman for closing remarks.

[Christopher M. Gorman, Chairman & CEO at KeyCorp]

Well, we appreciate everyone's interest in Key and the discussion this morning. If anyone has any further questions, please reach out to our Investor Relations team directly. Thank you. We're adjourned. Goodbye.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect your line.

Participants

Executives

• Brian Mauney, Director - Investor Relations
• Christopher M. Gorman, Chairman & CEO
• Clark H. I. Khayat, CFO
• Mo Ramani, Chief Risk Officer

Analysts

• Ryan Nash, MD - Regional Banks & Consumer Finance at Goldman Sachs
• R. Scott Siefers, MD & Senior Research Analyst at Piper Sandler Companies
• Ebrahim Poonawala, MD & Head - North American Banks Research at Bank of America Merrill Lynch
• Christopher Mcgratty, MD & Head - U.S. Bank Research at Keefe, Bruyette & Woods (KBW)
• Ken Usdin, Senior Research Analyst, Large-Cap Banks at Autonomous Research
• Manan Gosalia, Head - U.S. Midcaps Banks Research at Morgan Stanley
• Erika Najarian, MD & Equity Research Analyst - Large-Cap Banks & Consumer Finance at UBS Group
• John Pancari, Senior MD & Senior Research Analyst at Evercore ISI
• Matt O'Connor, Analyst at Deutsche Bank