Q3 2023 KeyCorp Earnings Call

Okay.

Speaker 1: Good morning and welcome to T Corp's third quarter earnings conference call. As a reminder, this conference is being recorded. I would now like to turn the conference over to the chairman and CEO , Chris Gorman. Please go ahead.

Good morning, and welcome to Keycorp's third quarter earnings Conference call. As a reminder, this conference is being recorded.

I would now like to turn the conference over to the Chairman and CEO , Chris Gorman. Please go ahead.

Speaker 2: Thank you for joining us for T-corps third quarter 2023 earnings conference call. Joining me on the call today are Clark Caiot, our chief financial officer, and Mark Miccif, our chief risk officer. On slide two, you'll find our statement on forward-looking disclosure and certain financial measures, including non-gaps.

Thank you for joining us for Keycorp's third quarter 2023 earnings Conference call. Joining me on the call today are Clark Khayat, our Chief Financial Officer, and Mark Midkiff our.

Chief risk officer.

Slide two you'll find our statement on forward looking disclosure.

Financial measures, including non-GAAP measures. These statements cover our presentation materials and comments as well as the question and answer segment of our call.

Speaker 2: These statements cover our presentation materials and comments, as well as the question and answer segment of our call. I am now moving to slide 3. This morning, we reported earnings of $266 million, or 29 cents per share.

Now moving to slide three.

Morning, we reported earnings of $266 million.

<unk> 29 per share.

Speaker 2: Our results reflect broad-based growth across our franchise, supported by our strong balance sheet and disciplined risk management.

Our results reflect broad based growth across our franchise supported by our strong balance sheet and disciplined risk management.

Speaker 2: We continue to benefit from our focus on relationship banking and primacy, namely having our clients' primary operating system.

We continue to benefit from our focus on relationship banking and privacy, namely having our clients primary operating account.

Speaker 2: We continue to add and deepen relationships in both our consumer and commercial businesses, as well as improve both the quality and diversity of our deposits.

We continue to add and deepened relationships in both our consumer and commercial businesses as well as improve both the quality and diversity of our deposits.

Speaker 2: Average deposits increased relative to the prior quarter and the year ago period.

Average deposits increased relative to the prior quarter.

And the year ago period.

Our focus on relationship continues to guide our balance sheet optimization efforts. This quarter, we reduced average loans by over $3 billion as we deemphasize credit only and other non relationship business.

Speaker 2: Our focus on relationship continues to guide our balance sheet optimization efforts.

Speaker 2: This quarter, we reduced average loans by over $3 billion as we de-emphasized credit only and other non-relationship business.

Speaker 2: Importantly, our common equity tier 1 ratio increased by 50 basis points to 9.8% as a result of our proactive balance sheet management.

Importantly, our common equity tier one ratio increased by 50 basis points to nine 8% as a result of our proactive balance sheet management.

Speaker 2: Risk-weighted assets decreased by $7 billion in the third quarter and $9 billion from the beginning of the year, which is approaching our 2023 full-year target of $10 billion.

Risk weighted assets decreased by $7 billion in the third quarter.

$10 billion from the beginning of the year, which is approaching our 2023 full year target of $10 billion.

Speaker 2: The increase in our common equity tier one ratio this quarter moves us above our current targeted capital range of 9 to 9.5%, where we would expect to remain for the foreseeable future. Other capital ratios were relatively stable this quarter, including our tangible common equity ratio, which was down 10 basis points despite the impact of higher interest rates.

The increase in our common equity tier one ratio this quarter moves us above our current targeted capital range.

The nine 5%, where we would expect to remain for the foreseeable future. Other capital ratios were relatively stable this quarter, including our tangible common equity ratio, which was down 10 basis points. Despite the impact of higher interest rates overall, our capital remains strong.

Speaker 2: Overall, our capital remains strong and we are well positioned relative to our capital priorities and the phase-in of the proposed future capital requirements.

We are well positioned relative to our capital priorities.

And the phase in of the proposed future capital requirements.

Speaker 2: Although we would not expect the same magnitude of change in risk-weighted assets next year, we will continue to take steps to manage our balance sheet in conjunction with anticipated regulatory changes.

Although we would not expect the same magnitude of change in risk weighted assets next year, we will continue to take steps to manage our balance sheet in conjunction with anticipated regulatory changes.

Speaker 2: Net interest income in the quarter reflected the continued high interest rate environment and our balance sheet position.

Net interest income in the quarter reflected the continued high interest rate environment.

Our balance sheet positioning.

Speaker 2: Clark will discuss our balance sheet in his remarks, but I would point out that he has a very well-defined net interest income opportunity over the next five quarters as our short-term swaps and treasuries reprice.

Mark will discuss our balance sheet in his remarks, but I would point out the key is a very well defined net interest income opportunity over the next five quarters as our short term swaps and treasuries reprice.

Operator: Good morning and welcome to KeyCorp's third quarter earnings conference call. As a reminder, this conference is being recorded.

Speaker 2: In our slide deck, we showed net interest income benefit will reach approximately $1 billion on an annualized basis by the first quarter of 2025.

Christopher Gorman: I would now like to turn the conference over to the chairman and CEO Chris Gorman. Please go ahead. Thank you for joining us for KeyCorp's third quarter, 2023 earnings conference call. Joining me on the call today are Clark Khayat, our chief financial officer, and Mark Mickiff, our chief risk officer. On slide two, you'll find our statement on forward looking disclosure. And certain financial measures, including non-gap measures. These statements cover our presentation materials and comments as well as the question and answer segment of our call.

In our slide deck, we show that interest income benefit will reach approximately $1 billion on an annualized basis by the first quarter of 2025.

Speaker 2: Our net interest margin has been a challenge for us this year. We believe, however, the third quarter represented the low point for the site.

Our net interest margin has been a challenge for us this year.

We believe however, the third quarter represented the low point for the cycle.

Speaker 2: Our results continue to benefit from our strong feed-based business.

Our results continue to benefit from our strong fee based businesses, which consistently make up 40% of our revenue.

Speaker 2: which consistently make up 40% of our revenue. This revenue mix will be a clear competitive advantage under the proposed regulatory framework.

This revenue mix will be a clear competitive advantage under the proposed regulatory framework.

Christopher Gorman: I am now moving to slide three. This morning, we reported earnings of $266 million for 29 cents per share. Our results were like broad base growth across our franchise, supported by our strong balance sheet and discipline risk management. We continue to benefit from our focus on relationship banking and primacy, namely having our clients primary operating account. We continue to add in deepened relationships in both our consumer and commercial businesses, as well as improve both the quality and diversity of our deposits.

Speaker 2: This quarter, the income was up 6%, driven by a 17% linked quarter increase in investment banking and debt placement.

This quarter fee income was up 6% driven by a 17% linked quarter increase in investment banking and debt placement fees, we expect investment banking fees to increase again in the fourth quarter based on current pipelines the absolute level of improvement is of course market dependent.

Speaker 2: We expect investment banking fees to increase again in the fourth quarter based on current pipelines. The absolute level of improvement is of course market dependent.

Speaker 2: Given the significance of our integrated corporate and investment bank, any normalization in the capital markets represents an upside opportunity for PEEP from both a fee generation and balance sheet management perspective.

Given the significance of our integrated corporate and investment bank any normalization in the capital markets represents an upside opportunity for Pete from both the fee generation and balance sheet management perspective.

Speaker 2: In addition to capital markets, our fee income will continue to benefit from our strong positions in both payments, an area where we have consistently invested, and wealth, where we benefit from critical mass, with assets under management of $53 billion.

In addition to capital markets, our fee income will continue to benefit from our strong positions in both payments and area, where we have consistently invested.

Christopher Gorman: Average deposits increased relative to the prior quarter and the year ago period. Our focus on relationship continues to guide our balance sheet optimization efforts. This quarter, we reduced average loans by over $3 billion, as we deemphasize credit only and other non-relationship business. Importantly, our common equity tier one ratio increased by 50 basis points to 9.8% as result of our proactive balance sheet management. Risk-related assets decreased by $7 billion in the third quarter and $9 billion from the beginning of the year, which is approaching our 2023 pull-your-target of $10 billion.

And well, where we benefit from critical mass with assets under management of $53 billion.

Speaker 2: expense management remains a priority. Our results reflect the successful completion earlier this year of a company-wide effort to improve productivity and efficiency.

Expense management remains a priority our results reflect the successful completion earlier this year.

Company wide effort to improve productivity and efficiency.

Speaker 2: We are continuing our efficiency journey by further simplifying and streamlining our business.

We are continuing our efficiency journey by further simplifying and streamlining our businesses as.

Speaker 2: As we narrow our focus, we will continue to drive additional expense savings, which provide the funding to continue to invest in our business.

As we narrow our focus we will continue to drive additional expense savings, which provide the funding to continue to invest in our business.

Speaker 2: Finally, I want to comment on credit quality, which I believe is the most important determinant of return on tangible common equity and shareholder value over time.

Finally, I want to comment on credit quality, which I believe is the most important determinant of return on tangible common equity and shareholder value over time.

Christopher Gorman: The increase in our common equity tier one ratio, this quarter, moves us above our current targeted capital range of 99.5%, where we would expect to remain from the foreseeable future. Other capital ratios will relatively stable this quarter, including our change will come in equity ratio, which was down 10 basis points, despite the impact of higher interest rates. Overall, our capital remains strong and we are well positioned relative to our capital priorities and the phase-in of the proposed future capital requirements.

Speaker 2: Credit quality remains a clear strength of key. Our credit measures reflect the de-risking we have done over the past decade and our distinctive underwrite distribute model.

Credit quality remains a clear strength of key our credit measures reflect the derisking, we have done over the past decade, and our distinctive underwrite to distribute model.

Speaker 2: This quarter, our net charge offs were 24 basis points. Over the next several quarters, we expect to continue to operate below our targeted through the cycle range of 40 to 60 basis points.

This quarter, our net charge offs were 24 basis points over the next several quarters, we expect to continue to operate below our targeted through the cycle range of 40 to 60 basis points.

Speaker 2: The quality of our loan portfolio continues to serve us well with over half of our CNI loans rated as investment grade or the equivalent.

The quality of our loan portfolio continues to serve us well with over half of our C&I loans rated as investment grade or the equivalent.

Christopher Gorman: Although we would not expect the same magnitude of change in risk-related assets next year, we will continue to take steps to manage our balance sheet in conjunction with anticipated regulatory changes. Net interest income in the quarter reflected the continued high interest rate environment and our balance sheet positioning. We will discuss our balance sheet in his remarks, but I would point out that the key is a very well-defined net interest income opportunity over the next five quarters as our short-term swaps and treasuries reprise.

Speaker 2: Similarly, our consumer clients have a weighted average flight score of approximately 770 at origination.

Similarly, our consumer clients had a weighted average FICO score of approximately 770 at origination.

Speaker 2: As a reminder, we have limited exposure to leverage lending, office loans, and other high-risk categories.

As a reminder, we have limited exposure to leverage lending office loans and other high risk categories.

Speaker 2: B&C class office exposure and central business districts total $115 million.

C class office exposure in central business districts total of $116 million.

Speaker 2: Two-thirds of our commercial real estate exposure is in multi-family, including affordable housing, which continues to be a significant, unmet need in this country.

Two thirds of our commercial real estate exposure is in multifamily, including affordable housing, which continues to be a significant unmet need in this country.

Christopher Gorman: In our slide deck, we show that interest income benefit will reach approximately $1 billion on an annualized basis by the first quarter of 2025. A net interest margin has been a challenge for us this year. We believe, however, the third quarter represented the low point for the cycle. Our results continue to benefit from our strong fee-based businesses, which consistently make up 40% of our revenue. This revenue mix will be a clear competitive advantage under the proposed regulatory framework.

Speaker 2: I will close by underscoring my confidence in the long-term outlook for Keith. Our businesses are well-positioned, and we continue to strengthen our balance.

I will close by underscoring my confidence in the long term outlook for key our businesses are well positioned and we continue to strengthen our balance sheet.

Speaker 2: Credit quality remains one of our most significant strengths. We will continue to focus on maintaining the quality of our love book and enhancing our risk management framework.

Credit quality remains one of our most significant strengths, we will continue to focus on maintaining the quality of our loan book and enhancing our risk management framework.

Speaker 2: This positions us well to deliver sound, proper growth, and create value for our shareholders. With that, I'll turn it over to Clark to provide more details on our results from the court. Clark.

This positions us well to deliver sound profitable growth and create value for our shareholders with that I'll turn it over to Clarke to provide more details on our results for the quarter Park.

Christopher Gorman: This quarter, fee income was up 6%, driven by a 17% linked quarter increase in investment banking and debt placement fees. We expect investment banking fees to increase again in the fourth quarter based on current pipelines. The absolute level of improvement is, of course, market dependent. Given the significance of our integrated corporate and investment bank, any normalization in the capital markets represents an upside opportunity for fee, from both a fee generation and balance sheet management perspective.

Speaker 3: Thanks Chris, I'm now on slide five. The third quarter, netting them from continuing operations was $0.29 per common share of two cents from the prior quarter and down $0.26 from last.

Thanks, Chris I'm now on slide five.

Third quarter net income from continuing operations was $29 per common share of <unk> <unk> from the prior quarter and down 26% from last year.

Speaker 3: Our results were generally consistent with the guidance we provided for the quarter and we've affirmed the full year outlook we shared in our last earnings call.

Our results were generally consistent with the guidance, we provided for the quarter and we've affirmed our full year outlook, we shared at our last earnings call.

Speaker 3: Chris highlighted in his remarks, her results reflect the strength of our core business, focus on privacy, balance sheet optimization, and our discipline risk management. I'll cover each of these strategic focus areas in my remarks this morning. I'll cover each of these strategic focus areas in my remarks this morning.

Chris highlighted in his remarks.

<unk> reflects the strength of our core business focus on privacy balance sheet optimization, and our disciplined risk management I'll cover each of these strategic focus areas of my remarks. This morning.

Christopher Gorman: In addition to capital markets, our fee income will continue to benefit from our strong positions in both payments, an area where we have consistently invested, and wealth, where we benefit from critical mass, with assets under management of $53 billion. Expense management remains a priority. Our results reflect the successful completion earlier this year of a company-wide effort to improve productivity and efficiency. We are continuing our efficiency journey by further simplifying and streamlining our businesses.

Turning to slide six.

Speaker 3: Average loans for the quarter were $117.6 billion, up 3% from the year ago period, and down 3% from the prior quarter.

Average loans for the quarter were $117 6 billion up.

Up 3% from the year ago period, and down 3% from the prior quarter.

Speaker 3: Total loans ended the period at $115.5 billion, down $3.5 billion from the prior quarter. The decline in average loans was driven primarily by a reduction in C&I balances, which were down almost 4% from the prior quarter. The reduction reflects our balance sheet optimization, which prioritizes full relationships, and de-emphasizes credit-only and non-relationship business, as we prepare the balance sheet for a battle-free endgame world.

Total loans ended the period at $115 5 billion down.

Down $3 $5 billion from the prior quarter.

The decline in average loans was driven primarily by a reduction in C&I balances, which were down almost 4% from the prior quarter the.

The reduction reflects our balance sheet optimization, which prioritizes full relationships and de emphasizes credit only and non relationship business as we prepare the balance sheet for our Basel III and game World.

Christopher Gorman: As we narrow our focus, we will continue to drive additional expense savings which provide the funding to continue to invest in our business. Finally, I want to comment on credit quality, which I believe is the most important determinant of return on tangible common equity and shareholder value over time. Credit quality remains a clear string of key. Our credit measures reflect the de-risking we have done over the past decade and our distinctive underwrite distribute model.

Speaker 3: The reduction in loans contributed to the decline and risk-booted assets representing roughly half of the RWA decline this quarter.

The reduction in loans contributed to the decline in risk weighted assets, representing roughly half of the RW a decline this quarter.

Speaker 3: RWA's were also impacted by our optimization efforts to which we were able to apply more attractive capital treatment to existing portfolios. Importantly, this allowed us to manage RWA's proactively while minimizing impacts in that interest income.

<unk> were also impacted by our optimization efforts to rich, we were able to apply more attractive capital treatment to existing portfolios.

Importantly, this allowed us to manage our WH proactively while minimizing impact to net interest income.

Turning to slide seven.

Speaker 3: He's longstanding commitment to crime to continue to support the stable, diverse space of court deposits for funding. This quarter averaged deposits sold $144.8 billion, relatively stable from the year ago period, and up nearly $2 billion from the prior quarter.

These longstanding commitment to privacy continues to support a stable diverse base of core deposits for funding.

This quarter average deposits totaled $144 8 billion relatively stable from the year ago period, and up nearly $2 billion from the prior quarter.

Christopher Gorman: This quarter are net chargeoffs for 24 basis points. Over the next several quarters, we expect to continue to operate below our targeted through the cycle range of 40 to 60 basis points. The quality of our loan portfolio continues to serve us well, with over half of our CNI loans rated as investment grade or the equivalent. Similarly, our consumer clients have a weighted average FICO score of approximately 770 at origination. As a reminder, we have limited exposure to leverage lending, office loans, and other high risk categories. B&C class office exposure and central business districts total $116 million. Two-thirds of our commercial real estate exposure is in multi-family, including affordable housing which continues to be a significant unmet need in this country.

Speaker 3: The increase in average deposit balances from the prior quarter was driven by increase in both consumer and commercial deposit balance.

The increase in average deposit balances from the prior quarter was driven by an increase in both consumer and commercial deposit balances.

Speaker 3: Importantly, we have continued to improve the quality of our funding mix by growing core relationship balances and reducing wholesale and broker deposits.

Importantly, we have continued to improve the quality of our funding mix by growing core relationship balances, reducing wholesale and brokered deposits. This.

Speaker 3: This quarter broker deposits the claim by $2.6 billion on average and $3.2 billion relative to period end balance.

This quarter brokered deposits declined by $2 $6 billion on average and $3 2 billion relative to period end balances at.

Speaker 3: At the end of the quarter, we took advantage of our improved funding profile and called $1.2 billion about standing bank debt for redemption. We expect to redeem the debt at the end of October .

At the end of the quarter, we took advantage of our improved funding profile and called $1 2 billion of outstanding Bank debt for redemption, we expect to redeem the debt at the end of October .

Speaker 3: Our total cost of deposits was 188 basis points in the third quarter and our cumulative deposit beta, which includes all interest-faring deposits, was 46% since the Fed began raising interest rates in March 2020.

Our total cost of deposits was 188 basis points in the third quarter and our cumulative deposit beta which includes all interest bearing deposits was 46% since the fed began raising interest rates in March 2022.

Higher interest rates resulted in the continued deposit mix shift this quarter. We've seen this mix shifts slow and we are testing reduced rates in certain markets. We did not deploy higher rates in our retail business against the July interest rate hike.

Speaker 3: Higher interest rates resulted in the continued deposit makeshift this quarter. We've seen this makeshift slow, and we are testing reduced rates in certain markets. We did not deploy higher rates in our retail business against this July interest rate height.

Christopher Gorman: I will close by underscoring my confidence in the long-term outlook for key. Our businesses are well-positioned and we continue to strengthen our balance. Credit quality remains one of our most significant strengths. We will continue to focus on maintaining the quality of our love book and enhancing our risk management framework. This positions us well to deliver sound, proper growth and create value for our shareholders.

Speaker 3: continue to expect that our cumulative deposit beta will approach 50% by the end of the year.

We continue to expect that our cumulative deposit beta will approach, 50% by the end of the year.

Turning to slide eight.

Speaker 3: Tactical net interest income was $923 million for the third quarter, down 23% from the year ago period, and down 6% from the prior quarter.

Taxable net interest income was $923 million for the third quarter down 23% from the year ago period, and down 6% from the prior quarter.

Clark Khayat: With that, I'll turn it over to Clark to provide more details on our results from the quarter. Clark? Thanks, Chris. I'm now on slide five. The third quarter, net income from continuing operations was $0.29 per common share of two cents from the prior quarter and down $0.26 from last year. Our results were generally consistent with the guidance we provided for the quarter and we've affirmed the full year outlook we shared at our last earnings call. This Chris highlighted in his remarks, our results reflect the strength of our core business, focus on primacy, balance sheet optimization, and our discipline risk management.

Speaker 3: Our net interest margin was 2.01% for the third quarter compared to 2.74% for the same period last year and 2.12% for the prior quarter.

Our net interest margin was 2.0% to 1% for the third quarter compared to $2, 74% for the same period last year, and two 1%, 2% for the prior quarter year.

Speaker 3: Year over year, net interest income and the net interest margin were impacted by higher interest rates, and a shift in funding mix to higher cost deposits and borrow.

Year over year net interest income and the net interest margin were impacted by higher interest bearing deposit costs and a shift in funding mix to higher cost deposits and borrowings.

Speaker 3: Well, it's due to the second quarter that it's fined and that interesting come with lots of plan reduction in earning asset balances from our balance sheet optimization efforts in higher interest rates deposit.

Relative to the second quarter the decline in net interest income reflects the planned reduction in earning asset balances from our balance sheet optimization efforts and higher interest bearing deposit costs.

Speaker 3: Our net interest margin and net interest income continue to reflect the headwind from our short gated creasuries and swaps.

Our net interest margin and net interest income continue to reflect the headwind from our short dated treasuries and swaps.

Clark Khayat: I'll cover each of these strategic focus areas in my remarks this morning. Turning to slide six. Average loans for the quarter were $117.6 billion, up 3% from the year ago period and down 3% from the prior quarter. Total loans ended the period at $115.5 billion, down $3.5 billion from the prior quarter. The decline in average loans was driven primarily by a reduction in CNI balances, which were down almost 4% from the prior quarter.

Speaker 3: Our swap portfolio and short-gated treasuries reduce net interest income by $370 million and lower net interest margin by 80 basis points this quarter.

Our swap portfolio in short dated treasuries reduced net interest income by $370 million and lowered our net interest margin by 80 basis points this quarter.

Speaker 3: We believe that NIMM bottomed in the third quarter is we see continued benefit from maturity of swaps and treasures. Consider it with our previous comments, we expect that we are at or near the bottom one, and I...

We believe that NIM bottomed in the third quarter as we see continued benefit from the maturity of swaps and treasuries.

Instant with our previous comments, we expect that we are at or near the bottom on NII.

In the third quarter, we executed $6 $7 billion of spot pay fixed swaps in October subsequent to the quarter end, we terminated seven $5 billion of receive fixed cash flow swaps, which were scheduled to mature throughout 2024.

Speaker 3: In the third quarter, we executed $6.7 billion of spot pay fixed swat.

Speaker 3: In October subsequent to the quarter end, we terminated $7.5 billion of receipt fixed cash loans swaps, which were scheduled to mature throughout 2024.

Clark Khayat: The reduction reflects our balance sheet optimization, which prioritizes full relationships and de-emphasizes credit-only and non-relationship business as we prepare the balance sheet for a basil tree and game world. The reduction in loans contributed to the decline in risk-weighted assets representing roughly half of the RWA decline in this quarter. RWA's were also impacted by our optimization efforts to which we were able to apply more attractive capital treatment to existing portfolios. Importantly, this allowed us to manage RWA's proactively while minimizing the impact in that interest income.

Speaker 3: Swap termination locked in the AOC ad position of those swaps, which will amortize throughout 2024 and the original maturity skates.

The swap termination locked in the Aoc acquisition of those swaps, which will amortize throughout 2024 and the original maturity schedule.

Speaker 3: This should have no impact to our AOCI position at the end of 2024, but will guard against future hikes or reduction in rates that is slower than the Ford curve predict.

This should have no impact to our OCI position at the end of 2024, but will guard against future hikes or a reduction in rates that is slower than the forward curve predicts.

Speaker 3: These actions along with the planned maturity of our short-term preveries make key less liability sensitive, protect capital, and reduce our exposure to higher risk.

These actions along with the planned maturity of our short term treasuries make key less liability sensitive protect capital and reduce our exposure to higher rates.

Clark Khayat: Turning to slide seven. He's willing to see any commitment to crime sheet continues to support the stable, diverse space of core deposits for funding. This quarter averaged deposits totaled $144.8 billion, relatively stable from the year ago period and up nearly $2 billion from the prior quarter. The increase in average deposit balances from the prior quarter was driven by an increase in both consumer and commercial deposit balance. Importantly, we've continued to improve the quality of our funding mix by growing core relationship balances and reducing wholesale and broker deposits.

Turning to slide nine as Chris mentioned earlier, our balance sheet positioning which has been a near term drag on earnings represents a clear and well defined opportunities based.

Speaker 3: Turning to slide nine. As Chris mentioned earlier, our balance sheet positioning, which has been a near-term drag on earnings, represents a clear and well-defined opportunity. Based on the forward curve, which continues to adjust to higher levels, we project an annualized net interest income benefit of approximately $1 billion from the maturities of our short-term treasuries and swaps by the first quarter of 2020.

Based on the forward curve, which continues to adjust to higher levels. We project an annualized net interest income benefit of approximately $1 billion from the maturities of our short term treasuries and swaps by the first quarter of 2025, we.

Speaker 3: We'll continue to take a measure but opportunistic approach to lock in the center.

We will continue to take a measured but opportunistic approach to lock in the center.

Moving to slide 10.

Speaker 3: Now, that interesting come with $643 million for the third quarter of 2023, down $40 million from the year ago period, and up $34 million from the second quarter.

Interest income was $643 million for the third quarter of 2023 down $40 million from the year ago period, and up $34 million from the second quarter the.

Clark Khayat: This quarter broker deposits decline by $2.6 billion on average and $3.2 billion relative to period end balance. At the end of the quarter, we took advantage of our improved funding profile and called $1.2 billion about standing bank debt for redemption. We expect to redeem the debt at the end of October. Our total cost of deposits was 188 basis points in the third quarter and our cumulative deposit data, which includes all interest-faring deposits, was 46 percent since the Fed began raising interest rates in March 2022.

Speaker 3: The decrease in non-interesting income from the year-go period reflects a $23 million decline in corporate services income to the lower customer derivatives trading.

The decrease in noninterest income from the year ago period reflects a $23 million decline in corporate services income due to lower customer derivatives trading revenue.

Speaker 3: Additionally, service charges on deposit accounts decline $23 million, driven by the previously announced and implemented changes in our NSFOD fee structure and lower account analysis fees related to interest.

Additionally service charges on deposit accounts declined $23 million driven by the previously announced and implemented changes in our NSF fee structure and lower account analysis fees related to interest rates.

Speaker 3: The increase in non-interesting income from the second quarter reflects a $21 million increase in investment banking and debt placement fees, and an $18 million increase in other income from higher trading income and a gain on loan sale.

The increase in noninterest income from the second quarter reflects a $21 million increase in investment banking and debt placement fees and an $18 million increase in other income from higher trading income and a gain on loan sale.

Clark Khayat: Higher interest rates resulted in the continued deposit mix shift this quarter. We've seen this mix shift slow and we are testing reduced rates in certain markets. We did not deploy higher rates in our retail business against the July interest rate height. We continue to expect that our cumulative deposit data will approach 50 percent by the end, of the Year. Turning to slide eight. Tactical net interest income was $923 million for the third quarter, down 23% from the year-go period, and down 6% from the prior quarter.

I'm now on slide 11.

Speaker 3: Total net interest expense for the quarter was $1.1 billion, of $4 million from the year ago period, and a $34 million from last quarter. Compared to the year ago quarter, computer processing expense increased $12 million driven by technology investments, and personnel expense increased $8 million driven by higher salaries and employee benefits, partially upset by lower incentive and stack base income.

Total noninterest expense for the quarter was $1 1 billion up $4 million from the year ago period, and up $34 million from last quarter compared to the year ago quarter computer processing expense increased $12 million driven by technology investments and personnel expense increased $8 million driven by higher salaries and employee benefits, partially offset by lower <unk>.

Incentive and stock based compensation.

Clark Khayat: Our net interest margin was 2.01% for the third quarter, compared to 2.74% for the same period last year, and 2.12% for the prior quarter. Year-over-year net interest income and the net interest margin were impacted by higher interest sharing deposit costs and a shift in funding mix to higher costs. Relative to the second quarter, the decline in net interest income reflects a plan reduction in earning asset finances from our balance sheet optimization efforts in higher interest sharing deposit costs.

Speaker 3: The increase in expenses relative to the prior quarter was driven by personal expense, which increased $41 million from incentive and stock-based compensation, a majority of which was from production-related expenses and a higher stock price at the end of the quarter.

The increase in expenses relative to the prior quarter was driven by personnel expense, which increased $41 million from incentive and stock based compensation, a majority of which was from production related expenses and a higher stock price at the end of the quarter.

Speaker 3: As we continue to proactively manage our expense base and simplify and streamline our businesses, this will improve the client experience, reduce complexity and cost and provide flexibility to continue to invest for the

As we.

To proactively manage our expense base and simplify and streamline our businesses. This will improve the client experience reduce complexity and cost and provide flexibility to continue to invest for the future.

Speaker 3: Our goal, as expressed previously, is to again keep core expenses flat in 2024. We expect to have additional efficiency related expenses in the fourth quarter connected with these efforts. Well, not complete. We would estimate those charges to be in the range of 50 million.

Our goal is expressed previously is to again keep core expenses flat in 2024.

Clark Khayat: Our net interest margin and net interest income continue to reflect the headwind from our short-gated treasuries and swaps. Our swap portfolio and short-gated treasuries reduced net interest income by $370 million and lowered our net interest margin by 80 basis points this quarter. We believe that NIMM bottomed in the third quarter as we see continued benefit from maturity of swaps and treasuries. Consistent with our previous comments, we expect that we are at or near the bottom on NIA.

We expect to have additional efficiency related expenses in the fourth quarter connected with these efforts we will not complete we would estimate those charges to be in the range of $50 million.

We will provide full 2024 guidance during our fourth quarter earnings call.

Speaker 3: will provide full 2024 guidance during our fourth quarter of the year's call.

Moving now to slide 12.

Speaker 3: Overall, credit quality and our related outlook remain strong. In the third quarter, net charge was $71 million or 24 basis points of average work.

Overall credit quality and our related outlook remains strong for the third quarter net charge offs were $71 million or 24 basis points of average loans.

Clark Khayat: In the third quarter, we executed $6.7 billion of spot-pay fixed swaps. In October subsequent to the quarter end, we terminated $7.5 billion of receipt fixed cash flow swaps, which were scheduled to mature throughout 2024. The swap termination locked in the AOCI position of those swaps, which will amortize throughout 2024 and the original maturity schedule. This should have no impact to our AOCI position at the end of 2024, but will guard against future hikes or reduction in rates that is slower than the forward curve predicts.

Speaker 3: While non-performing loans and criticized loans continue to move up from their historical lows, we believe he is well-positioned in terms of credit migration and potential cost cuts.

Nonperforming loans and criticized loans continue to move up from their historic lows. We believe key is well positioned in terms of credit migration and potential loss content.

Speaker 3: Our provision for credit losses was $81 million for the third quarter, and our allowance for credit losses to period end loans increased from 1.49% to 1.54%.

Our provision for credit losses was $81 million for the third quarter and our allowance for credit losses to period end loans increased from 149% to 154%.

Turning to slide 13.

We ended the third quarter with a common equity tier one ratio of nine 8% up 50 basis points from the prior quarter and well above our targeted range of 90% to 95% going forward, we expect to stay above our current targeted range will determine and share any changes to that targeted range. Once the new capital rules are finalized.

Speaker 3: We ended the third quarter with a common equity tier one ratio of 9.8% up 50 basis points from the prior quarter and well above our targeted range of 9 to 9.5%. Going forward, we expect to stay above our current targeted range. We'll determine and share any changes to that targeted range once the new capital rules are final.

Clark Khayat: These actions along with the planned maturity of our short-term treasuries make key less liability sensitive, protect capital, and reduce our exposure to higher rates. Turning to slide 9. As Chris mentioned earlier, our balance sheet positioning, which has been a near-term drag on earnings, represents a clear and well-defined opportunity. Based on the forward curve, which continues to adjust to higher levels, we project an annualized net interest income benefit of approximately $1 billion from the maturities of our short-term treasuries and swaps by the first quarter of 2025.

Speaker 3: Rule remain focused on building capital advance of newly proposed capital rules and continue to support client activity in the return of capital. We do not expect to engage in material.

We will remain focused on building capital advance of newly proposed capital rules and continue to support client activity and the return of capital we.

We do not expect to engage in material share repurchase in the near term.

Speaker 3: The right side of this slide shows key's expected reduction in our AOC I mark. The AOC I mark is expected to decline by approximately 27% by the end of 2024 and 39% by the end of 2025, which will provide approximately $2.5 billion of capital bill through that time.

The right side of this slide shows key as expected reduction in our OCI marks the OCI Mark is expected to decline by approximately 27% by the end of 2024 and 39% by the end of 2025, which will provide approximately $2 5 billion of capital build through that timeframe.

Clark Khayat: We'll continue to take a measure but opportunistic approach to lock in the center. Moving to slide 10. Not an interest income was $643 million for the third quarter of 2023, down $40 million from the year-go period, and up $34 million from the second quarter. The decrease in non-interesting income from the year-go period reflects a $23 million decline in corporate services income to the lower customer derivatives trading revenue. Additionally, service charges on deposit accounts decline $23 million, driven by the previously announced and implemented changes in our NSFOD fee structure, and lower account analysis fees related to interest rates.

Speaker 3: During the third quarter, the AOTI position decreased by $500 million in structural birth.

During the third quarter, the OCI position decreased by $500 million in structural Bergen.

Speaker 3: The increase in rates, specifically in the five-year timeframe, increased the position by approximately $1.1 billion, which resulted in the net change of 600 million.

The increase in rates specifically in the five year timeframe increase the position by approximately $1 1 billion, which resulted in the net change of $600 million.

Speaker 3: Importantly, only 10% of our projected $2.5 billion of AOCI reduction between now and 2025 is driven by the benefit of lower rates represented in the current forward curve. Said differently, or the 90% of this reduction will occur, even if rates remain flat to current levels during by maternity, cash flows.

Importantly, only 10% of our projected $2 $5 billion of OCI reduction between now and 2025 is driven by the benefit of lower rates represented in the current forward curve said differently more than 90% of this reduction will occur even if rates remain flat to current levels driven by maturities cash flows and tons.

Clark Khayat: The increase in non-interesting income from the second quarter reflects a $21 million increase in investment banking and debt placement fees, and an $18 million increase in other income from higher trading income and a gain on loan sale. Now it's slide 11. Total net interest expense for the quarter was $1.1 billion of $4 million from the year-go period, and up $34 million from last quarter. Compared to the year-go quarter, computer processing expense increased $12 million, driven by technology investments, and personnel expense increased $8 million, driven by higher salaries and employee benefits, personally offset by lower incentive and stack-based income.

Speaker 3: Given the proposed capital rules, we believe our reduction in AOCI marks, along with our future earnings and balance sheet management, would allow us to organically pre-capital to the required.

Given the proposed capital rules, we believe our reduction in OCI marks along with our future earnings and balance sheet management will allow us to organically accrete capital to the required levels.

Speaker 3: Like 14 provides an outlook for the fourth quarter, relative to the third quarter, as well as the full year compared to the price.

Slide 14 provides an outlook for the fourth quarter relative to the third quarter as well as the full year compared to the prior year.

Speaker 3: Our guidance uses the Ford Curve as of September 30th, which holds that funds flat at 5.5% through August of 2024, ending 2024 at 5%.

Our guidance uses the forward curve as of as of September 30, which hold fed funds flat at five 5% through August of 2024, ending 2024 at 5%.

Speaker 3: Balance sheet trends are tracking as anticipated. We expect average loans to be down 1 to 3% in the fourth quarter versus the prior quarter, as we continue to optimize our balance sheet and recycle capital to support relationship climate.

Balance sheet trends are tracking as anticipated, we expect average loans to be down 1% to 3% in the fourth quarter versus the prior quarter as we continue to optimize our balance sheet and recycle capital to support relationship clients.

Clark Khayat: The increase in expenses relative to the prior quarter was driven by personnel expense, which increased $41 million from incentive and stock-based compensation, a majority of which was from production related expenses and a higher stock price at the end of the quarter. As we continue to proactively manage our expense base and simplify and streamline our businesses, this will improve the client experience, reduce complexity and cost, and provide flexibility to continue to invest for the future.

Speaker 3: We expect average deposits to be relatively stable in the fourth quarter. Our outlook assumes a cumulative deposit beta approaching 50 by year end. We also expect to continue to improve our funding mix and liquidity.

We expect average deposits to be relatively stable in the fourth quarter.

Our outlook assumes accumulative cumulative deposit beta approaching 50 by year end. We also expect to continue to improve our funding mix and liquidity.

Speaker 3: On a link quarter basis, net interest income is expected to be relatively stable in the fourth quarter, changed from our previous guidance of flat to down 2%.

On a linked quarter basis net interest income is expected to be relatively stable in the fourth quarter changed from our previous guidance of flat to down 2%.

Clark Khayat: Our goal, as expressed previously, is to again keep core expenses flat in 2024. We expect to have additional efficiency related expenses in the fourth quarter connected with these efforts. While not complete, we would estimate those charges to be in the range of $50 million. We'll provide full 2024 guidance during our fourth quarter earnings call. Moving now to slide 12. Overall, credit quality and our related outlook remains strong. For the third quarter, net charge costs were $71 million or 24 basis points of average loans.

Speaker 3: Our guidance for nine interesting numbers changed to up one to three percent reflecting stronger of being coming to third quarter, in terms of the fourth quarter. Our full year outlook for fees.

Our guidance for non interest income change to up 1% to 3%, reflecting stronger fee income in the third quarter compared to the fourth quarter our.

Our full year outlook for fees remains unchanged.

Speaker 3: Non-intersex expenses expected to remain relatively stable in the fourth quarter, excluding the potential FDIC special assessment charge, additional efficiency related expenses, and an expected pension settlement charge of 15 to 20 million.

Non interest expense is expected to remain relatively stable in the fourth quarter, excluding the potential FDIC special assessment charge additional efficiency related expenses and an expected pension pension settlement charge of $15 million to $20 million.

We expect credit quality to remain solid and net charge offs to average loans to be in the range of 25% to 35 basis points in the fourth quarter.

Clark Khayat: While non-performing loans and credit size loans continue to move up from their historical lows, we believe Key is well-positioned in terms of credit migration and potential cost cuts. Our provision for credit losses was $81 million for the third quarter, and our allowance for credit losses to period end loans increased from 1.49% to 1.54%. For any of the slide 13, we ended the third quarter with a common equity tier 1 ratio of 9.8% of 50 basis points from the prior quarter and well above our targeted range of 9 to 9.5%.

Speaker 3: We expect credit quality to remain solid and net charge off the average loans to be in the range of 25 to 35 basis points in the fourth quarter. Below are expected over the cycle. Terminid range of 40 to 50 basis.

Hello are expected over the cycle targeted range of 40 to 60 basis points.

Speaker 3: Our guidance for Fort Port of Gap Tax Rate is 18 to 19%.

<unk> for fourth quarter GAAP tax rate is 18% 19%.

Speaker 3: Once again, our full year outlif for 2023 versus the prior year has not.

Once again, our full year outlook for 2023 versus the prior year has not changed we feel confident in the foundation of our business and in our strategic efforts to strengthen capital liquidity manage risks and improve earnings with that I'll now turn the call back to the operator for instructions for the Q&A portion of the call operator.

Speaker 3: We feel confident in the foundation of our business and in our strategic efforts to strengthen capital and liquidity, manage risks and improve it.

Speaker 4: With that, I'll now turn the call back to the operator for instructions for the Q&A portion of the call. Operator. Thank you, and ladies and gentlemen. If you want...

Clark Khayat: Going forward, we expect to stay above our current targeted range. We'll determine and share any changes to that targeted range once the new capital rules are finalized. We will remain focused on building capital advance of newly proposed capital rules and continue to support client activity in the return of capital. We do not expect to engage in material, share, repurchase, and the near term. The right side of this slide shows Key's expected reduction in our AOC I mark.

Thank you and ladies and gentlemen, if you wish to ask a question. Please press one then zero on your Touchtone phone.

Speaker 1: Please press 1-0 on your touchtone phone. You will hear an acknowledgement tone that you've been placed in the queue, and you may remove yourself from queue at any time by repeating the 1-0 command. If you want to speak your phone, please pick up your hands at before pressing the number. Once again, if you have a question, please press 1-0.

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Clark Khayat: The AOC I mark is expected to decline by approximately 27% by the end of 2024 and 39% by the end of 2025, which will provide approximately $2.5 billion of capital bill through that timeframe. During the third quarter, the AOC I position decreased by $500 million in structural burden. The increase in rates, specifically in the five year timeframe, increased the position by approximately $1.1 billion, which resulted in the net change of $600 million.

Our first question will come from Scott.

Speaker 1: Our first question will come from Scott, he first from, type the same one, please go ahead. Leaving.

From Piper Sandler. Please go ahead.

Good morning, everyone. Thanks for taking the question Scott.

Speaker 5: So great news that we can hit the low on the margin and are at or near the bottom on NII. I guess I'm curious to that outlook contemplate any further risk-witted asset reductions that might be outside the scope of the 10 billion you've articulated for this year. I guess along those lines, do you see a need to do anything beyond what you'll do this year? I mean, it looks like you're

So great news that we've kind of hit the low on the margin and are at or near the bottom on NII I guess I am curious does that outlook contemplate.

Any further risk weighted asset reductions that might be outside the scope of the $10 billion you articulated for this year.

I guess, along those lines do you see a need to do anything beyond what you'll do this year.

Clark Khayat: Importantly, only 10% of our projected $2.5 billion of AOC I reduction between now and 2025 is driven by the benefit of lower rates represented in the current forward curve. Said differently or the 90% of this reduction will occur even if rates remain flat to current levels during by maturity, cash, lows, and time. Given the proposed capital rules, we believe our reduction in AOC I mark along with our future earnings and balance sheet management would allow us to organically create capital to the required levels.

It looks like you're kind of ramping up the capital base more quickly. So how are we thinking about overall.

Speaker 5: kind of ramping up the capital base more quickly. So how are we thinking about overall balance sheet size within the scheme of bottoming and eye eye trajectory?

Balance sheet size within the scheme of bottoming NII trajectory.

Speaker 3: Yeah, so thanks Scott. Our prompt that was then your first question would be expenses, but yeah.

So thanks, Scott our prop that was that your first question would be expenses, but.

Speaker 3: This is the way I would think about it is, you know, we've got it the lone balances down one to three in the fourth quarter. I think that's going to be the vast majority of any reduction in the balance sheet. We could still see cash come down a bit.

Yes.

Yes.

The the way I would think about it is.

We've guided the loan balance is down one to three in the fourth quarter I think thats going to be the vast majority of <unk>.

Clark Khayat: Slide 14 provides an outlook for the fourth quarter relative to the third quarter, as well as the full year compared to the prior year. Our guidance uses the forward curve as of September 30th, which holds that funds flat at 5.5% through August of 2024, ending 2024 at 5%. Balance sheet trends are tracking as anticipated. We expect average loans to be down 1 to 3% in the fourth quarter versus the prior quarter, as we continue to optimize our balance sheet and recycle cash.

Any reduction in the balance sheet, we could still see cash come down a bit.

Speaker 3: And we are still doing some optimization efforts. They won't carry the same size that we would have seen in this quarter. So you'll see a leveling off of that and that 10 billion, I think, is the right number.

And we are still doing some optimization efforts they won't carry the same size that we would have seen in this quarter. So.

Youll see a leveling off of that and that $10 billion. I think is the right number to be focused on.

Okay perfect. That's good thank you and it did have an expense question I think you largely hidden in there. So I'll refrain from asking about that one I guess, maybe a broader question Mark I think you've talked about a 3% margin.

Speaker 5: Okay, perfect, that's good, thank you. And I did have an expense question, but I think you largely hit it in there, so I'll refrain from asking about that one. I guess maybe a broader question though, but I think you've talked about a 3% margin in a normal environment. I think that's still well above what would be implied by the extra billion or so of benefit through next year. So maybe just the sort of top level, what else would happen to get you there? How are we sort of thinking about that that 3% normalized margin?

Clark Khayat: This is the capital to support relationship clients. We expect average deposits to be relatively stable in the 4th quarter. Our outlook assumes a cumulative deposit beta approaching 50 by year end. We also expect to continue to improve our funding mix and liquidity. On a link quarter basis, net interest income is expected to be relatively stable in the 4th quarter, change from our previous guidance of flat to down 2%. Our guidance for 9th interest income has changed to up 1 to 3% reflecting stronger of being come in the 3rd quarter, compared to the 4th quarter.

Normal environment.

That's still well above what would be implied by the extra billion or so of benefit through next year. So maybe just sort of top level, what else would happen to <unk>.

Happened to get you there.

Are we sort of thinking about that that 3% normalized margin.

Speaker 3: Yeah, so to be clear, you know, I think three-ish area is, you know, again, not, not, um...

So to be clear.

<unk> three ish area is again not not.

Clark Khayat: Our full year outlook for fees remains unchanged. Now an interest expense is expected to remain relatively stable in the 4th quarter, excluding the potential FDIC special assessment charge, additional efficiency related expenses, and an expected pension settlement charge of $15 to $20 million. We expect credit quality to remain solid and net charge off the average loans to be in the range of 25 to 35 basis points in the 4th quarter, below are expected over the cycle targeted range of 40 to 50 basis points.

Speaker 3: out of the realm, I think to your point, Scott, if you adjusted today, the 80 basis points that we talked about on drag, you'd be at 281, would have been 285 last quarter, kind of 319 before that. So, you know, I think it's going to be kind of continued asset mix over time and funding mix and what you're seeing. If I just point to the third quarter, you saw kind of bladdish deposits.

Out of the realm I think to your point Scott if you adjusted today, the 80 basis points that we talked about on drag you'd be at $2 81 would have been 285 last quarter kind of 319 before that so.

I think it's going to be kind of continued asset mix over time and funding mix and what youre seeing.

If I'd just point to the third quarter, you saw kind of flattish deposits.

Speaker 3: And that included a significant reduction in brokerage. So, you know, more client deposits, but the other piece that I think is really important is that we did and we will continue to focus on reducing our alliance on wholesale funding. So you would have seen that come down on the order of like four billion in the quarter. And obviously that has, you know, more expense over time.

And that included a significant reduction in brokered so more client deposits, but the other piece that I think is really important.

Clark Khayat: Our guidance for 4th quarter gap tax rate is 18 to 19%. Once again, our full year outlook for 2023 versus the prior year has not changed. We feel confident in the foundation of our business and in our strategic efforts to strengthen capital and liquidity, manage risks, and improve others.

That we did and we will continue to focus on reducing our reliance on wholesale funding. So you would've seen that come down on the order of like $4 billion in the quarter and obviously that has more expense over time now. Your next question is probably once we get into long term debt rules and were issuing more wholesale debt.

Operator: With that, I'll now turn the call back to the operator for instructions for the Q&A course of the call. Operator? Thank you and ladies and gentlemen. If you wish to ask a question, please press 1-0 on your touchstone phone. You will hear an acknowledgement telling that you've been placed in the queue, and you may remove yourself from queue at any time by repeating the 1-0 command. If you want to speak your phone, please pick up your hands before pressing the number. Once again, if you have a question, please press 1-0.

Speaker 3: Now, your next question is probably, once we get into long-term debt rules and we're issuing more wholesale debt, how does that impact that? I think that, we size that a little bit. We will factor that in, but again, I think, when you start to put all these pieces together in a more normalized environment, something in the high twos to threes is not, is not out of the realm of possibility. Okay.

How does that impact that I think that we size that a little bit we will factor that in but again I think when you start to put all these pieces together in a more normalized environment something in the high twos or threes is not.

Is not out of the realm of possibility.

Scott: Our first question will come from Scott, he first from Piper Sam, but please go ahead. Good morning, everyone. Thanks for taking the question. So great news that we've kind of hit the low on the margin and are at or near the bottom on NII. I guess I'm curious to that outlook contemplate any further risk-witted asset reductions that might be outside the scope of the $10 billion you've articulated for this year. I guess along those lines, do you need to do anything beyond what you'll do this year? I mean, it looks like you're kind of ramping up the capital base more quickly. So how are we thinking about overall balance sheet size within the scheme of bottoming NII eye trajectory?

Okay perfect Alright, Thank you guys very much.

Yes.

Thank you. The next question is from Erika Najarian from UBS. Please go ahead.

Speaker 6: Thank you. The next question is from Erica Nadirian from UBS. Please go ahead. Hi. Good morning. Good morning. I guess, you know, my question.

Hi, Good morning, good morning, Eric.

I guess.

My question was on the arguably mitigation.

I'm going to follow up on.

In terms of Clark's answer to that question.

Speaker 6: So, you know, you're pointing us to the 10 billion as the right area, which is a lot of RWA to take out. And I guess I'm wondering, you know, number one, you depend.

Youre pointing us to the 10 billion is the right area, which is a lot a lot of RW way and to take out and I guess I'm wondering.

Number one.

Could you give us a sense of how much has already been taken out and what's to come.

Speaker 6: Give us a sense of how much has already been taken out and what's to come. And second, as we think about the net interest income trajectory for next year, you know.

Clark Khayat: Yeah, so thanks Scott. Our prop bet was that your first question would be expenses, but the way I would think about it is, you know, we've guided the loan balances down 1-3 in the fourth quarter. I think that's going to be the vast majority of any reduction in the balance sheet. We could still see cash come down a bit, and we are still doing some optimization efforts. They won't carry the same size that we would have seen in this quarter.

And second.

As we think about the net interest income trajectory for next year.

Yes.

Does the comment of the.

Speaker 6: NII bottoming about here, or in the fourth quarter, consider the cost of the RWA mitigation that you have left.

<unk> bottoming about here.

The fourth quarter consider the cost of.

Arguably a litigation that you have left.

Speaker 2: So the answer to the first part of your question, Erica, is, are we're currently through the third quarter we've reduced 9 billion. So in the third quarter we reduced 7 billion on a cumulative basis for the year we've reduced the reduced 9 billion of our WAs. We are well on target to hit our 10 billion.

Sure so.

<unk> answered the first part of your question Erika is we're currently through the third quarter. We produced 9 billion. So in the third quarter, we reduced <unk> 7 billion on accumulative basis for the year, we produced reduced $9 billion of RW ways, we are well on target to hit our $10 billion.

Scott: So you'll see a leveling off of that and that $10 billion, I think, is the right number to be focused on. Okay, perfect. That's good. Thank you.

Scott: And I did have an expense question. I think you largely hit it in there. So I'll refrain from asking about that one.

Susan: I guess maybe a broader question though, Clark, I think you've talked about a 3% margin in a normal environment. I think that's still well above what would be implied by the extra billion or so of benefit through next year. So, you know, maybe just this sort of top level, what else would happen? How it happened to get you there? You know, how are we sort of thinking about that that 3% normalized margin?

Speaker 2: As you try to pivot from RWAs to the impact on NII, interestingly, there is a certain universe of those RWAs that we were able to get just different treatment on, namely the treatment that we qualify for in any of them.

As you try to kind of pivot from RW ways to the impact on NII Interestingly there is a certain universe of those <unk> that we were able to get different treatment on namely the treatment that we qualified for in any event.

Speaker 2: Secondly, there was a lot of unused line fees in there that obviously those two categories don't have any effect impact on NII. As you look forward, the other reduction in RWA's would have a marginal impact on NII, but a positive impact.

<unk> there was a lot of unused line fees in there that obviously those two categories don't have any FX impact on NII.

Susan: Susan. Yeah, so, to be clear, you know, I think three-ish area is, you know, again, not out of the realm. I think to your point, Scott, if you adjusted today, the 80 basis points that we talked about on drag, you'd be at 281, would have been 285 last quarter, kind of 319 before that. So, you know, I think it's going to be kind of continued asset mix over time. And, and in funding mix and what you're seeing, if I just point to the third quarter, you saw kind of bladdish deposits.

We look forward the other reduction in <unk> <unk>.

Have a marginal impact.

But a positive impact.

Speaker 2: Certainly on our returns, certainly on our margins.

Certainly on our returns certainly on our margins other thing that taking out all these <unk> enables us to do is to focus on right sizing our expense base as we take out these <unk>. So that's.

Speaker 2: Another thing that taking out all these RWAs enables us to do is to focus on right sizing our expense basis. We take out these RWAs.

Kind of how I think about it.

Got it.

Speaker 6: Got it. And Chris, I guess the follow up to there is, you know, Basel's 3N game clearly gives the bank time. And as you mentioned, you know, the moves that you're making in terms of improving the margin, you know, being mindful of balance sheet size, being mindful of the expense base, you know, that the target would be to improve CT1 generation from here.

Chris I guess, just a follow up to there is.

Susan: And that included a significant reduction in brokerage. So, you know, more client deposits. But the other piece that I think is really important, is that we did, and we will continue to focus on reducing our alliance on wholesale funding. So, you would have seen that come down on the order of like 4 billion in the quarter. And obviously that has, you know, more expense over time. Now, your next question is probably, once we get into long-term debt rules, and we're issuing more wholesale debt, you know, how does that impact that?

Basel three endgame clearly gives the bank's time and as you mentioned the moves that you're making in terms of improving the margin.

Being mindful of balance sheet size being mindful of the expense base.

Target would be to improve CET, one generation from here I guess, how do you.

How do you balance the notion of Okay. We have just 10 billion of RW a reduction chat that's done.

Speaker 6: How do you balance the notion of, okay, we have just 10 billion of RWA reduction?

Speaker 6: that's done, you know, and you know, potentially we're ready to be a little bit more aggressive in the market or not. You tell me, one of your peers said that they're ready for a loan growth next year versus the notion of, you know, with US bank being freed from its category to commitments, whenever everyone runs the data on a adjusted C-T-1, you know, T sort of ends up at the bottom of the list. So, you know, how do you balance in terms of, you know, running the bank?

Susan: I think that, you know, we size that a little bit. We will factor that in. But, again, I think, you know, when you start to put all these pieces together in a more normalized environment, something in the high twos to threes is not out of the realm of possibility.

And potentially we're ready to be a little bit more aggressive in the market are not you tell me one of your peers said that they are ready for a loan growth next year versus the notion of with U S Bank being freed from category two commitments whenever everyone runs a data on adjusted CET one.

Scott: Okay. Perfect. All right. Thank you guys very much. Thank you.

Key sort of ends up at the bottom of the list. So how do you balance in terms of.

Erica Naterian: The next question is from Erica Naterian from UBS. Please go ahead. Hi. Good morning. I guess, you know, my question was on the RWA mitigation. So, I just, I'm going to follow up on in terms of Clark's answer to that question. So, you know, you're pointing us to the 10 billion as the right area, which is a lot of RWA to take out. And I guess I'm wondering, you know, number one, could you give us a sense of how much has already been taken out and what's to come?

Running the bank day to day right versus.

Speaker 6: day to day, right, versus, you know, how your investors are thinking about key in sort of this new world order for ready.

How your investors are thinking about keycorp in sort of this new world order for regulation.

Sure well first of all as you know the rules are still preliminary and they're probably likely to change that said, we're certainly confident that under the proposed current rules, including the definitions and the associated Timeframes Erika that we can hit them and so what we need to do what I wanted to do is sort of win.

Speaker 2: Sure, well, first of all, as you know, the rules are still preliminary and they're probably likely to change. That set were certainly competent than under the proposed current rules, including the definitions and the associated timeframes, Erica, that we can hit them. And so what we need to do, what I wanted to do is sort of when the events of March happened and then these rules came out in July , I wanted us to hit the reset button and reset our business.

When the events of March happened and then these rules came out in July I wanted us to hit the reset button and reset our business and make the difficult decisions. So we can get back to growing our business as I've always said the underlying business is in good shape.

Erica Naterian: And second, you know, as we think about the net interest income trajectory for next year, you know, there's a comment of the, you know, NII bottoming about here or in the fourth quarter, consider the cost of, you know, the RWA mitigation that you have left. Sure. So, the answer to the first part of your question, Erica, is are we're currently through the third quarter. We've reduced nine billion. So, in the third quarter, we reduced seven billion on a cumulative basis for the year we reduced the juice nine billion of RWA's.

Speaker 2: make the difficult decisions so we can get back to growing our fists.

Speaker 2: I've always said the underlying business is in good shape. We're adding clients on the consumer side, we're adding clients on the commercial side. And what I want to do is right size our balance sheet, get our loan deposit where it needs to be, get our wholesale funding mix where it needs to be, and then free up our people to get back out in the marketplace and do what they do and that's grow our business. So that is the needle that we're currently threatening.

We're adding clients on the consumer side, we're adding clients on the commercial side and what I want to do is rightsize our balance sheet.

Yet our loan to deposit where it needs to be get our wholesale funding mix, where it needs to be and then free up our people to get back out in the marketplace and do what they do and Thats grow our business. So that is the.

Erica Naterian: We are well on target to hit our 10 billion. As you try to kind of pivot from RWA's to the impact on NII. Interestingly, there is a certain universe of those RWA's that we were able to get just different treatment on namely the treatment that we qualify for in any event. Secondly, there was a lot of unused line fees in there that obviously those two categories don't have any effect impact on NII.

That is the needle that we're currently <unk>.

Thank you.

Our next question is from the line of Peter Winter from D. A Davidson. Please go ahead.

Speaker 1: is from the line of Peter Winter from DA Davidson.

Hi, good morning.

Speaker 2: Good morning. You guys have mentioned that capital markets should be up in the fourth quarter, but I was just wondering, you know, just between higher rates and the geopolitical risk, just how are you thinking about the outlook for capital markets over the median terms?

You guys mentioned that capital markets should be up.

In the fourth quarter, but I was just wondering.

Just between higher rates and the geopolitical risks just how youre thinking about the outlook.

Capital markets over the medium term.

Erica Naterian: As you look forward, the other reduction in RWA's would have a marginal impact on NII but a positive impact certainly on our returns, certainly on our margins. The other thing that taking out all these RWA's enables us to do is to focus on right sizing our expense basis we take out these RWA's. Louis, that's kind of how I think about it.

Speaker 2: The median term I feel really good about it, Peter. Over the near term, which I would consider the fourth quarter, both of the things you mentioned are a challenge.

The medium term I feel really good about it Peter over the near term, which I would consider the fourth quarter. Both of the things you mentioned are a challenge.

Speaker 2: We will be up on a linked quarter basis as I look at our back box. As I mentioned in my comments, the absolute level of the increase remains to be seen. Obviously, the geopolitical issues are an issue of the other thing. You think about over the last five or six trading days where the bond market has been, that obviously has an impact as well. So in the near term, I think there's probably additional headwinds.

We will be up on a linked quarter basis as I look at our backlog, but the absolute as I mentioned in my comments the absolute level of.

Increase remains to be seen.

Obviously, the geopolitical issues our initiatives. The other thing you think about over the last five or six trading days, where the where the bond market has been that obviously has an impact as well.

Christopher Gorman: Got it. And Chris, I guess the follow-up to there is, you know, Basel's 3N game clearly gives the bank's time. And as you mentioned, you know, the moves that you're making in terms of improving the margin, you know, being mindful of balance sheet size, being mindful of the expense base, you know, the target would be to improve CT1 generation from here. I guess how do you, you know, how do you balance the notion of, okay, we have this 10 billion of RWA reduction check that's done, you know, and you know, potentially we're ready to be a little bit more aggressive in the market or not.

In the near term I think there is probably additional headwinds, but over the medium term I think.

Speaker 2: but over the medium term, I think I feel good about this.

Good about the business.

Speaker 2: Private equity firms are starting to transact, which is important.

Private equity firms are starting to transact which is important.

Speaker 2: If you look at the amount of M&A that was completed this year in the 100 million, no billion area, it's down about 50%. And over time, obviously that comes back. So in the near term, I think we'll be up. I don't know to what degree in the intermediate term as in as you look in 2024 when there's clarity on where these rates settle in and some of these geopolitical concerns, I think there's gonna be a lot of that.

You look at the amount of M&A.

It was completed this year and the 100 million billion area.

Down about 50% and.

Over time, obviously that comes back so in the near term.

<unk> will be up I don't know to what degree in the intermediate term as and as you look at 2024, when there is clarity on where these rates settle in and some of these geopolitical concerns.

Christopher Gorman: You tell me, one of your peers said that they're ready for a loan growth next year versus the notion of, you know, with US bank being freed from its category to commitments, whenever everyone runs the data on adjusted CT1, you know, key sort of ends up at the bottom of the list. So, you know, how do you balance in terms of, you know, running the bank day-to-day, right, versus, you know, how your investors are thinking about T-Corp in sort of this new world order for regulation?

I think theres going be a lot of activity.

Got it and then Chris if I can ask about the dividend I mean, you have.

Speaker 7: And then Chris, if I could ask about the dividend, I mean, you have...

Speaker 7: Now, a 7% plus payout ratio. Can you just talk about your commitment to maintaining that dividend? And is there any risk that you could be forced to pick up the dividend?

70% plus payout ratio can you just talk about your commitment to maintaining that dividend.

Is there any risk that you could be forced to cut the dividend.

So I'd be happy to address that let me, let me start by just saying my views on our dividend are unchanged.

Speaker 2: So I'd be happy to address that. Let me start by just saying, my views on our dividend are unchanged.

Christopher Gorman: Sure, well, first of all, as you know, the rules are still preliminary and they're probably likely to change. That said, we're certainly competent than under the proposed current rules, including the definitions and the associated timeframes, Erica, that we can hit them. And so what we need to do, what I wanted to do is sort of when the events of March happened, and then these rules came out in July, I wanted us to hit the reset button and reset our business and make the difficult decisions so we can get back to growing our business.

Speaker 8: And we managed this business, we managed the business for the long term.

No.

We manage this business, we manage the business for the long term.

Speaker 2: Similarly, our board takes the same approach on everything including the dividend. And so when we gather in November , we'll review the dividend as we always do in the context of a range of scenarios you were just talking about geophysical scenarios, et cetera, the macro condition.

Similarly, our board takes us to take the same approach on everything including the dividend and so when we gather in November .

A review of the dividend as we always do.

In the context of a range of scenarios you were just talking about geopolitical scenarios et cetera, the macro conditions.

Speaker 8: But importantly, we're going to take into consideration as we always do the normalized earnings power of our

Shortly we're going to take into consideration as we always do.

Normalized earnings power of our company and.

Christopher Gorman: As I've always said, the underlying business is in good shape. We're adding clients on the consumer side, we're adding clients on the commercial side, and what I want to do is right size our balance sheet, get our wholesale funding mix where it needs to be, and then free up our people to get back out in the marketplace and do what they do and that's grow our business. So that is the needle that we're currently threading.

Speaker 8: and our capital priorities are unchange.

Our capital priorities are unchanged, we want to support our relationships.

Operator: Thank you.

Speaker 8: We want to support our relationships as our clients and prospects and secondly to dividend.

Clients and prospects and secondly, the dividend the other factors that I think are really important.

Speaker 8: The other factors that I think are really important, first and foremost, is credit quality, because there's nothing that can agrarates capital more than credit losses. I feel really good about our credit quality. We'll also obviously be looking at the fern down of AOCI, that obviously is tied in.

First and foremost as credit quality because there is nothing.

Denigrate capital more than credit losses, I feel really good about our credit quality will also obviously be looking at deferred out of <unk> that obviously is tied in and then our ability to organically build capital we've already talked about that a little bit through a reduction of <unk> and other actions. We took we were able to grow our.

Speaker 2: And then our ability to organically build capital. We've already talked about that a little bit through a reduction of RWA's and other actions we took.

Peter Winter: Our next question is from the line of Peter Winter from DA Davidson, please go ahead. Good morning. You guys have mentioned that capital markets should be up in the fourth quarter, but I was just wondering just between higher rates and the geopolitical risk, just how are you thinking about the outlook for capital markets over the median term? The median term I feel really good about it, Peter, over the near term, which I would consider the fourth quarter, both of the things you mentioned are a challenge.

Speaker 2: We were able to grow our capital for CET-1 by 50 basis points this quarter.

Capital our CET, one by 50 basis points. This quarter, so thats kind of how I think about it but kind of all I'll end, where I started that my views on the dividend Havent changed.

Speaker 2: Let's kind of how I think about it, but kind of how end-war started is that, you know, my views on the dividend haven't changed.

And the next question will come from Ken is Dan <unk> from Jefferies. Please go ahead.

Speaker 1: And the next question will come from Ken, is then from Jeffreece, please go ahead.

Speaker 9: Hi, thanks. Good morning. Clark, I was wondering if you can kind of walk through some of the hedging strategy changes to 522, a lot of new executions and terminations this quarter. I guess to start just, can you help us understand like the net impact of these new moves in terms of like that help or hurt fourth quarter NII just to kind of put it into perspective.

Hi, Thanks. Good morning, I was wondering if you could kind of walk through some of the hedging strategy changes.

Peter Winter: We will be up on a linked quarter basis, as I look at our back box, but the absolute, as I mentioned in my comment, the absolute level of the increase remains to be seen. Obviously, the geopolitical issues are an issue of the other thing. If you think about over the last five or six trading days where the bond market has been, that obviously has an impact as well. So in the near term, I think there's probably additional headwinds, but over the median term, I think I feel good about the business.

<unk> 22, a lot of new executions and terminations this quarter I guess to start just.

Can you help us understand like the net impact of these new moves in terms of like does that does that.

Help or hurt fourth quarter, NII, just to kind of put it into perspective.

Speaker 10: Sure. So just to be clear in the

Sure so just to be clear in the.

Speaker 10: On that page can you'll see an incremental 6.7 billion of paid fixed

On that page, Ken Youll see an incremental $6 7 billion.

Paid fixed.

Speaker 10: swaps those were put on to provide some AOCI protection to higher rates.

Swaps those were put on to provide sir.

Peter Winter: Thomas, you know, private equity firms are starting to transact, which is important. If you look at the amount of M&A that was completed this year in the 100 million, no billion area, it's down about 50%, and over time, obviously, that comes back. So, in the near term, I think we'll be up, I don't know to what degree, in the intermediate term, as in, as you look at 2024, when there's clarity on where these rates settle in, and some of these geopolitical concerns, I think there's going to be a lot of activity on it.

Protection to higher rates.

Speaker 10: And then the termination of the 7.5 billion of 2024 pay-fix swap.

And then the termination of the seven 5 billion of 2024 pay fixed swaps.

Speaker 3: that we've been obviously talking about now for a couple quarters. Also done really to guard against higher rates, or the prospect higher rates, or as we said, kind of rates that remain higher than the foreign curve, which...

That we've been obviously talking about now for a couple of quarters.

<unk> also done really to guard against higher rates or the prospect of higher rates or as we said kind of rates that remain higher than the forward curve, which is relatively flat down through 'twenty four but.

Speaker 3: relatively flat down through 24, but have some cuts in the back end. So anything that's there or higher, we'll get some protection from those positions. And I would think about it in terms of...

He has some cuts in the backend so anything that sort of there or higher.

We'll get some protection for both of those positions.

Christopher Gorman: And then Chris, if I could ask about the dividend, I mean, you have, you know, a 70% plus payout ratio, can you just talk about your commitment to maintaining that dividend, and is there any risk that you force to cut the dividend? So, I'd be happy to address that. Let me, let me start by just saying, my views on our dividend are unchanged. You know, as we've managed this business, we've managed the business for the long term.

I would think about in terms of.

<unk>.

Speaker 10: reducing our kind of NII at risk to higher rates kind of by half to a

Reducing our kind of NII at risk to higher rates.

Kind of by half two.

Speaker 10: to a staged 200 basis point rise. So kind of an extreme scenario, but we're kind of reducing that liability sensitivity there just to protect both capital in.

Two of our stage 200 basis point right. So.

Kind of an extreme scenario, but we're kind of reducing that liability sensitivity there just to protect both both capital and earnings.

Speaker 9: Okay, so I guess I'm just trying to figure out with all of that, um, the, you know, your outlook for stable NII fourth to, oh, over third.

Okay. So I guess I'm, just trying to figure out with all of that.

Christopher Gorman: Similarly, our board takes the same approach on everything including the dividend. And so, when we gather in November, we'll review the dividend as we always do, in the context of a range of scenarios you were just talking about geopolitical scenarios, etc., the macro conditions. But importantly, we're going to take into consideration as we always do the normalized earnings power of our company. And our capital priorities are unchanged. We want to support our relationships as our clients and prospects, and secondly, the dividend.

So your outlook for stable NII fourth.

Over a third.

Speaker 9: We've got the RWA reductions kind of working against that. And then I guess, and then we have the slide to give us some maturities. These new ads also incremental in the fourth to your and helping your fourth quarter forecast.

We've got the.

The <unk> reduction is kind of working against that and then I guess and then we have this slide you gave us on maturities.

These new ads also incremental in the fourth two you're helping your fourth quarter forecast.

Speaker 3: So if I think about the NII fourth versus third can swap the swaps and treasuries and maturing, which we've talked about and think about like if rates don't change, the swap terminations won't have a huge impact versus what we've already shared. It's really a kind of protection against rates going up.

If I think about.

The NII fourth versus third Ken swaps to swaps and treasuries maturing, which we've talked about in the.

Christopher Gorman: The other factors that I think are really important, first and foremost, is credit quality, because there's nothing that denigrates capital more than credit losses. I feel really good about our credit quality. We'll also obviously be looking at the ferns out of AOCI, that obviously is tied in. And then our ability to organically build capital. We've already talked about that little bit through a reduction of RWA's and other actions we took. And we were able to grow our capital for CET-1 by 50 basis rates this quarter. So, that's kind of how I think about it, but I'll end where I start, is that my views on the dividend haven't changed.

Think about like if rates don't change the swap terminations won't have a huge impact versus what we've already shared it's really.

Kind of protection against rates going up.

Speaker 10: The payers will add a little bit of NII because we're picking up a little bit of incremental positive carry there. And then you'll see the benefit of a pull-through in the quarter of the lower wholesale bar.

Youll see the payers will add a little bit of NII, because we're picking up a little bit of.

Incremental positive carry there and then you'll see the benefit of a pull through in the quarter.

Lower wholesale borrowings.

Speaker 3: Got it. Okay. All right. Perfect. Thanks. And all of that incorporates, I think this was sorry, implicit or maybe explicit in your question. It all incorporates the RWA reduction in the loan reduction specifically.

Got it okay, all right perfect. Thanks, Andrew.

And all of that incorporates I think this was sorry implicit or maybe exports in your question at all incorporates.

<unk> reduction in the loan reduction specifically that we talked about.

Speaker 9: Understood. Thanks. And the last just one is just so we're going to get that that treasury book run off Any any update thoughts in terms of what you do with the the rest of the the security support boil will that continue to just cash flow Down as well over time

Understood. Thanks, and the last one is just so we're going to get that Treasury book run off any any updated thoughts in terms of what you do with the rest of them.

Ken Isden: In the next question, we'll come from Ken Isden from Jeffrey's. Please go ahead. Hi, thanks.

The securities portfolio will that continue to just cash flow down as well over time.

Clark Khayat: Good morning. Clark, I was wondering if you could kind of walk through some of the hedging strategy changes to 522, a lot of new executions and terminations this quarter. I guess to start just, can you help us understand like the net impact of these new moves in terms of like the help or hurt fourth quarter NII just to kind of put it into perspective? Sure. So, just to be clear on that page, Ken, you'll see an incremental 6.7 billion of paid, fixed swaps.

Speaker 3: Yeah, so we're seeing about anywhere, just call it roughly a billion dollars of cash flow per quarter coming out of that book. We've used some of that sort of through the course of this year as cash and just short-term liquidity, just given some of the things that have happened. You'll see us start to deploy that back into the portfolio in a variety of different ways, but really focus on bringing the duration of that overall portfolio down. Okay.

Yes, so we're seeing about anywhere just call it roughly $1 billion of cash flow per quarter coming out of that book, we've used some of that sort of through the course of this year as cash and just short term liquidity just given some of the things that have happened youll see us start to deploy that back into the portfolio.

And a variety of different ways, but.

Really focused on bringing the duration of that overall portfolio down.

Okay, great. Thank you.

Thank you and the next question is from Gerard Cassidy from RBC. Please go ahead.

Speaker 4: Thank you. And the next question is from Gerard Cassie from RBC. Please go ahead. Hi Chris. Hi Claire.

Clark Khayat: Those were put on to provide some AOCI protection to higher rates, and then the termination of the $7.5 billion of 2024 pay-fix swaps that we've been obviously talking about now for a couple quarters. Also done really to guard against higher rates, or the prospect higher rates, or as we said, kind of rates that remain higher than the foreign curve, which is relatively flat now through 24 but has some cuts in the back end.

Hi, Chris Clark.

Sure.

Speaker 11: Chris, you were very emphatic about the strength of the credit book for KeyCorp, which is great.

Chris.

You were very.

<unk> about the strength of the credit book for key Corp, which is great.

Speaker 11: Can you guys share with us the second derivative risk? And what I mean by that is maybe some of the non-depository competitors or even depository competitors in your footprint or franchise may be taking undue risk?

Can you guys share with us.

The second derivative risk and what I mean by that is maybe some of the non depository competitors or even depositary competitors in your footprint and our franchise, maybe taking undue risk and you may have a customer that borrows from them as well that could then impact your credit quality.

Speaker 11: and you may have a customer that borrows from them as well that could then impact your criticality. Do you know if the competitors are being more rational than in prior cycles, which would obviously have an impact on everybody not just key core?

Clark Khayat: So anything that's sort of there or higher. We'll get some protection from those positions. I would think about it in terms of reducing our kind of NII at risk to higher rates kind of by half to a stage 200 basis point rise. So kind of an extreme scenario, but we're kind of reducing that liability sensitivity there just to protect both capital and earnings. Okay, so I guess we're just trying to figure out with all of that, the, you know, your outlook for stable NII fourth to over third, we've got the RWA reductions kind of working against that.

You know if the competitors are being more rational than in prior cycles, which would obviously have an impact on everybody not just keycorp.

Speaker 2: Thanks for your question. Unfortunately, I think because there's excess capacity in the loan market in general, I don't think you're seeing the kind of increase in spreads that you would expect to see at this point in the cycle in the private loan market. And I don't think you're seeing, frankly, some of the changes that you would expect to see.

Well thanks for your question.

Unfortunately, I think because there is excess capacity in the loan market in general I don't think youre seeing that kind of increase in spreads that you would expect to see at this point in the cycle in the private loan market and I don't think Youre seeing frankly, some of the changes that you would expect to see.

<unk>.

Speaker 2: broadly in terms of structure. So, I think, as you know, I've said many, many times on a risk-adjusted basis.

Broadly in terms of structure so.

Yes, I think.

I've said, many many times.

On a risk adjusted basis.

Clark Khayat: And then I guess and then we have the slide to give us some maturities. These, these new ads also incremental in the fourth to your, at helping your fourth quarter forecast. So if I think about the NII fourth versus third can, you know, swap the swaps and treasuries maturing, which we've talked about in the think about like if rates don't change, the swap terminations won't have a huge impact versus what we've already shared.

Speaker 2: a properly graded standalone credit, rarely returns its cost to capital. So if I'm right about that, by definition, a lot of that stuff in my opinion is under...

A properly grade graded standalone credit rarely return its cost of capital. So if I'm right about that by definition.

A lot of that stuff in my opinion is is under priced now the other thing that we are seeing obviously and we have great visibility and is our third party commercial loan servicing business, where we have over over 640, some odd billion that we service, but we have over $200 billion that is special.

Speaker 8: Now the other thing that we are seeing, obviously, and we have great visibility in, is our third-party commercial loan servicing business.

Speaker 8: where we have over 640 some odd billion that we service, but we have over 200 billion.

Clark Khayat: It's really a protection against rates going up. You'll, the payers will add a little bit of NII because we're, you know, picking up a little bit of incremental positive carry there. And then you'll see the benefit of a pull through in the quarter of the lower wholesale borrowing. Got it. Okay, all right, perfect. Thanks. And then all of that incorporates, I think this was sorry implicit or maybe explicit in your question at all incorporates the RWA reduction in the loan reduction specifically that we talked about.

Speaker 2: that is special servicing. So that's where we're servicing, basically, where the workout agent for very complex deals that we're not a part of.

Servicing so that's where we're servicing basically where the workout agent for very complex deals that were not a part of.

Speaker 8: And that business has already set a record for the year at this point in the cycle. So that gives you a little bit of an insight.

And that business has already set a record for the year at this point in the cycle. So that gives you a little bit of an insight into what's going on out there Clarke would you add anything to that yes, just maybe a couple of things one.

Speaker 3: What's going on out there Clark would you add anything to that? Yeah, just it maybe a couple things one Gerard I think among banks and and it be consistent with all the comments we've made about managing relationships

Gerard I think among banks and it would be consistent with all the comments, we've made about managing relationships youll see at.

Speaker 3: You'll see all of us kind of defending our best relationships on the credit side, but it's with additional business that comes with that to make those relationships hurtle to Chris's point about standalone credit. So again, I think that banks are being rational broadly but defending their best relationships as you would expect.

All of us kind of defending our best relationships on the credit side, but it's with.

Clark Khayat: Understood. Thanks. And the last just one is just so we're going to get that that treasury book runoff. Any update thoughts in terms of what you do with the rest of the securities portfolio will that continue to just cash flow down as well over time? Yeah, so we're seeing about, you know, anywhere, just call it roughly a billion dollars of cash flow per quarter coming out of that book. We've used some of that sort of through the course of this year as cash and just, you know, short-term liquidity, just given some of the things that have happened, you'll see I've started to play that back into the portfolio. You know, in a variety of different ways, but really focus on bringing the duration of that overall portfolio down.

Operator: Okay, great. Thank you.

Additional business that comes with that to make those relationships hurdle to Chris's point about standalone credit so.

Again, I think the banks are being rational broadly, but defending their best relationships as you would expect.

Speaker 10: If you think about the third party non-bank, credit market, I would just, I'd maybe, hey, hey, hey.

If you think about the third party non bank credit market I would just I'd make maybe.

Retro effective comment and approach perspective comment looking backward I think there's been a lot of credit Thats gone outside the bank market. The question I think which is sort of embedded in yours as do some of those kind of call. It just for the sake of argument non bank or Fintech originally originated loans sit on bank balance.

Speaker 3: Retro, respective comment and a pro-spective comment. Looking backward, I think there's been a lot of credit that's gone outside the bank market. The question I think, which is sort of embedded in yours, is do some of those kind of colleges for the sake of argument, non-bank or FinTech original originated loans sit on bank balance sheets? That would be a question we should be asking broadly. We do not, a key, have much of any of that business.

<unk> that would be a question we should be asking broadly we do not at key had much if any of that business.

Gerard Cassidy: On the next question is Gerard Cassie from RBC. Please go ahead. Chris, I clerk. Thank you. Chris, you were very emphatic about the strength of the credit book for key court, which is great. Can you guys share with us the second derivative risk, and what I mean by that is maybe some of the non-depository competitors or even depository competitors in your footprint or franchise, maybe taking undue risk and you may have a customer that borrows from them as well that could then impact your credit quality.

Speaker 3: The second piece would be around the prospective, which is some of the capital rules are obviously making the private credit fund.

The second piece would be around the prospective which is some of the capital rules are obviously, making the private credit funds.

Speaker 3: You know, engaging conversations about flow agreements and taking credit over time. That is yet to be written, but clearly there's a lot of conversation in the next.

Engage in conversations about flow agreements and taking credit over time.

That is yet to be written but clearly theres a lot of conversation in activity there.

Very good and thank you for those insights and then as a follow up question Clark on the hedging strategy given us a lot of detail and we all acknowledge.

Speaker 11: very good thank you for those insights and then as a follow up question Clark on the hedging strategy you've given us a lot of detail and we all acknowledge you know forecasting interest rates is very difficult in fact I find it very interesting if you go back to the federal reserve June 21 dots forecast for the fed

Casting interest rates is very difficult and in fact I find it very.

Gerard Cassidy: Do you know if the competitors are being more rational than in prior size? I think there's a lot of vehicles which would obviously have an impact on everybody not just KeyCorp. Thanks for your question. Unfortunately, I think because there's excess capacity in the loan market in general, I don't think you're seeing the kind of increase in spreads that you would expect to see at this point of cycle in the private loan market.

Testing if you go back to the federal Reserve's June 'twenty, one Dodge forecast for the fed funds rate at the end of 'twenty three they were forecasting a 0.625 fed funds rate. They missed it by 500 basis points. So my question for you guys the long tail risk.

Speaker 11: At the end of 23, they were forecasting a 0.625 side fundraiser. They missed it by 500 basis points. So my question for you guys, the long-tailed risk.

Speaker 11: What is that for next year? Everybody sees you. You have been very clear about the benefits by the ninnitus income on an annualized basis, first quarter, 25. Everybody sees that. What could go wrong or what's that long tail risk that we need to just keep our eyes on or you guys are keeping your eyes on?

What is that.

For next year and everybody sees you you've been very clear about the benefits.

The net interest income on an annualized basis first quarter 'twenty five everybody sees that what could go wrong or what is that long tail risks that we need to just keep our eyes on where you guys are keeping your eyes on.

Gerard Cassidy: And I don't think you're seeing, frankly, some of the changes that you would expect to see broadly in terms of structure. So, you know, I've said it many, many times on a risk-adjusted basis, a properly graded standalone credit rarely returns its cost to capital. So if I'm right about that by definition, a lot of that stuff in my opinion is underpriced. Now, the other thing that we are seeing, obviously, and we have great visibility in is our third party commercial loan servicing business, where we have over 640 some odd billion that we service, but we have over 200 billion that is special servicing.

Yes, it's probably a couple of versions, but if you think right now.

Speaker 3: Yeah, it's probably a couple versions, but if you think right now, and we are asymmetrically at risk to higher rates. And so we are very contemplative of what happens.

We are asymmetrically at risk to higher rates and so we are very contemplated of what happens when rates go up because as the treasuries and swaps mature it's still there's still a time component right. So right you feel the cost immediately.

Speaker 10: When rates go up because as the treasuries and swaps mature, there's still a time component, right? So you feel the cost immediately in the yield sort of pull through.

Yield sort of pull through.

Speaker 3: We are contemplating things like a stagnation scenario, right? Where the macro economy is a little softer, and you have higher rates. I think often we assume weaker economy rates come down. There are obviously scenarios where that's not the case. So we're just trying to think through all the implications of that and the levers and sensitivities that we...

We are contemplating things like a stagflation scenario right, where it's the macro economy is a little softer and you have higher rates I think often we assume weaker economy rates come down. There are there are obviously scenarios, where that's not the case. So we're just trying to think through all the implications of that and the levers and sensitivities that we have to address.

Gerard Cassidy: So that's where we're servicing, basically, we're the workout agent for very complex deals that we're not a part of. And that business has already set a record for the year at this point in the cycle. So that gives you a little bit of an insight into what's going on out there. Clark, would you add anything to that? Yeah, just maybe a couple things. One, Gerard, I think, among banks, and it'd be consistent with all the comments we've made about managing relationships.

Speaker 3: have to address that. I think the other piece over time, and we've talked, you know, we used to talk more about this before 2023, which one?

That I think the other piece over time, and we've talked we used to talk more about this before 2023, which was rates come down quickly as these things are repricing and can we ensure that we're getting.

Speaker 3: rates come down quickly as these things are repricing and can we ensure that we're getting?

Gerard Cassidy: You'll see all of us kind of defending our best relationships on the credit side, but it's with additional business that comes with that to make those relationships hurdles to Chris's point about standalone credit. So again, I think that banks are being rational broadly, but defending, you know, their best relationships as you would expect. If you think about the third party non bank credit market, I would just, I'd make maybe a retro perspective comment and a pro perspective comment looking backward, I think there's been a lot of credit that's gone outside the bank market.

Speaker 3: you know, the right repricing characteristics when the treasuries and swaps mature. We've talked to that around the hedging we've done for 23 and obviously we have other significant advantages right now if rates were to come down rapidly. So we're thinking about that broad range of conditions Gerard and we're trying to, you know, project our best view of it, but we're certainly making sure we're prepared for different.

Right.

Repricing characteristics, when the treasuries and swaps mature.

We've talked to that around the hedging we've done for 23.

And obviously, we have other significant advantages right now if rates were to come down rapidly. So we're thinking about that broad range of conditions Gerard and we're trying to.

Project, our best view of it, but we're certainly making sure we're prepared for different trajectories.

Speaker 11: and park on the common about rates coming down more rapidly which is a good way i mean i'm glad you guys are thinking about that that does not seem likely but if it did happen would your funding costs you deposit really think what they fall as quickly as what would happen on the asset side of the balance sheet from your guys experience or would they like

And mark on the comment about rates coming down more rapidly, which is a good way I mean I'm glad you guys are thinking about that though it doesn't seem likely but if it did happen would your funding cost deposit rates do you think would they fall as quickly as what would happen on the asset side of the balance sheet from your guys' experience or would they lag.

Gerard Cassidy: The question I think, which is sort of embedded in yours is, do some of those kind of colleges for the sake of argument non bank or FinTech originally originated loans sit on bank balance sheets. That would be a question we should be asking broadly. We do not a key have much of any of that business. The second piece would be around the perspective, which is some of the capital rules are obviously making the private credit funds, you know, engage in conversations about flow agreements and taking credit over time.

Speaker 3: So, you know, the nice thing on the way down from the Commercial Deposit book, which I know you know Gerard, but it's sort of, you know, 55-ish billion was 33 pre-pandemic. So it's pretty meaningful for us. A lot of that's indexed, so it'll move, you know, when rates move. Now, they're not all indexed at 100%, so you'd have to take that into account. But that stuff tends to move as the market moves. And I think that's a positive. What's always tougher to predict is

No.

The nice thing on the way down from the commercial deposit book, which.

I know you know Gerard, but it's sort of.

55 ish billion was 33 pre pandemic, so it's pretty meaningful for us a lot of that is indexed so it will move when rates move now they're not all indexed to 100% so you'd have to take that into account, but that stuff tends to move as the market moves and I think that's a positive what's always tougher to predict is.

Gerard Cassidy: And that is yet to be written, but clearly there's a lot of conversation in that. Thank you for those insights. And then as a follow-up question, Clark, on the hedging strategy, you've given us a lot of detail. And we all acknowledge, you know, forecasting interest rates is very difficult. In fact, I find it very interesting if you go back to the Federal Reserve June 21 dots forecast for the Fed Fund rate. At the end of 23, they were forecasting a 0.625 Fed Fund rate. They missed it by 500 basis points.

The consumer book, which obviously was a little sticky going up and it generally is a little sticky coming down and I think that will be as much a function of.

Speaker 3: The consumer book, which obviously was a little sticky going up and it generally is a little sticky coming down. And I think that'll be as much a function, micro market and micro competitive environment. So how are people thinking about those? And

Micro market and micro competitive environment. So how are people thinking about those in and other sources of funding if rates do come down quickly. It does tend to make people people being sort of the industry broadly think about wholesale funding differently. So you might see more relief on deposits that would.

Speaker 3: and other sources of funding. If rates do come down quickly, it does tend to make people being, you know, sort of the industry broadly, think about wholesale funding differently, so you might see more relief on deposits that would cause the consumer to follow faster, but the pace at which consumer betas come down is always the question there.

Cause the consumer to follow faster, but the pace at which consumer betas come down as always the question there.

Gerard Cassidy: So my question for you guys, the long-tail risk, what is that in for next year? Everybody sees you. You have been very clear about the benefits by the net interest income on an annualized basis, 1st quarter 25. Everybody sees that. What could go wrong or what's that long-tail risk that we need to just keep our eyes on or you guys are keeping your eyes on? Yeah, it's probably a couple versions, but if you think right now, kind of, you know, we are asymmetrically at risk to higher rates.

Great. Thank you so much sir.

The next question is from the line of John <unk> from Evercore. Please go ahead.

Speaker 1: The next question is from the line of John Pancari from Evercore. Please go ahead.

Okay.

Good morning, Good morning, Hey, John .

Speaker 12: On the on the expense outlook, I want to see the videos a little bit more color. You know, I know third quarter came in a little bit above expectations and some of that is on P revenue. But as you look at fourth quarter and your flat expectation.

On the on the expense outlook I just wanted to see the deal.

Gerard Cassidy: And so we are very contemplative of what happens when rates go up because as the treasuries and swaps mature, it's still, there's still a ton component, right? So you feel the cost immediately in the yield sort of pull through. We are contemplating things like a stagnation scenario, right, where the macro economy is a little softer and you have higher rates. I think often we assume weaker economy rates come down. There are obviously scenarios where that's not the case.

A little bit more color.

Third quarter came in a little bit above expectations and some of that is on fee revenue, but as you look at fourth quarter end Youre flat expectation.

Speaker 12: for 2024. Can you maybe talk about the put and takes there, like what are some of the areas where you could see pressure and where do you really see an opportunity to pull back and keep a number stable? Thank you.

For 2024 can you maybe talk about the puts and takes there like what are some of the areas, where you could see pressure and where do you really see an opportunity to pull back and keep.

Number stable. Thank you.

Speaker 10: Sure, so let me just hit the third quarter for a second, Jen, because I just want to clarify. So we came in a Little bit high as you mentioned. I would just point to Kind of about 20 million at one time costs in that in the quarter related to a legal reserve build Abitza settlement that came in and laid in the quarter and then some elevated medical claims I think net of those we were sort of consistent with the relatively stable guidance

Sure so.

Let me just hit the third quarter for a second John because I just want to clarify so we came in a little.

Bit high as you mentioned I would just point to.

Gerard Cassidy: So we're just trying to think through all the implications of that and the levers and sensitivities that we have to address that. I think the other piece over time and we've talked, you know, we used to talk more about this before 2023, which was rates come down quickly as these things are repricing and can we ensure that we're getting, you know, the right repricing characteristics when the treasuries and swaps mature. We've talked to that around the hedging we've done for 23 and obviously we have other significant advantages right now if rates were to come down rapidly.

Kind of about $20 million of one time costs in that in the quarter related to a legal reserve build a beat.

Settlement that came in in late in the quarter and then some elevated medical claims I think net of those we were sort of consistent with the relatively stable guidance.

Speaker 10: The core in fourth quarter we think will be consistent there as well. Again, relatively stable. Just to reiterate kind of pointing out a couple very or a few very identifiable one-timers namely, FDIC assessment should have come through. Some additional expense management related charges and a pension charge. So relative or net of those, we feel like it will be stable.

Core in fourth quarter, we think.

We'll be consistent there as well again relatively stable.

Just to reiterate kind of pointing out a couple of very or a few very.

Identifiable one timers, namely FDIC assessment should it come through some additional.

Gerard Cassidy: So we're thinking about that broad range of conditions, Gerard, and we're trying to, you know, project our best view of it, but we're certainly making sure we're prepared for different trajectories. And Clark, I'm coming about rates coming down more rapidly, which is a good way. I mean, I'm glad you guys are thinking about that. That doesn't seem likely. But if it did happen, would your funding costs, you know, deposit rate, you think what they fall as quickly as what would happen on the asset side of the balance sheet from your guy's experience or would they lag?

Expense management related charges.

And a pension charge, so relative or net of those we feel like it'll be stable.

Speaker 10: The big move also in the quarter was around personnel and that was primarily driven by the change in stock price so that is a variable. But the work that we did earlier in the year as Chris reference, kind of the beginning of the year, getting 23 flat and some of the work we're doing in anticipation of making 24 flat.

The Big move also in the quarter was around personnel and that was primarily driven by the change in stock price of that.

That is a variable but the.

The work that we did earlier in the year as Chris referenced kind of at the beginning of the year getting 23 flat and some of the work we're doing in anticipation of making 24 flat.

Gerard Cassidy: So, you know, the nice thing on the way down from the commercial deposit book, which I know you know Gerard, but it's sort of, you know, 55-ish billion was 33 pre-pandemic, so it's pretty meaningful for us. A lot of that indexed, so it'll move, you know, when rates move. Now, they're not all indexed at 100%, so you'd have to take that into account. But that stuff tends to move as the market moves, and I think that's a positive.

Speaker 3: Aside from the charges, we take will provide a little bit of tailwind on expenses in the quarter and we continue to push hard on real estate and things like third-party contracts, which we historically have talked to, but we're moving more and more away from third parties and more focused on using our own folks to do the work we're doing. So we think we have that circled

<unk> from the charges, we take will.

Provide a little bit of tailwind on expenses in the quarter and we continue to push hard on <unk>.

Real estate and things like.

Third party contracts, which we historically have talked to but we're moving more and more away from.

Third parties and more focused on using our own folks to do the work. We're doing so we think we have that circle.

Gerard Cassidy: What's always tougher to predict is the consumer book, which obviously was a little sticky going up, and it generally is a little sticky coming down. And I think that'll be as much a function, you know, micro market and micro competitive environment, so how are people thinking about those and other sources of funding? If rates do come down quickly, it does tend to make people being, you know, sort of the industry broadly think about wholesale funding differently, so you might see more relief on deposits that would cause the consumer to follow faster. But the pace at which consumer betas come down is always the question. Great. Thank you so much. Sure.

Speaker 3: And, you know, there's obviously always surprises that can come through, but we feel pretty good about the four stables.

And there's obviously always surprises that can come through but we feel pretty good about the core stability.

And that real estate rationalization in that third party contract. So if any of the main areas.

Speaker 12: And that real estate rationalization and the third party contract, are they the main areas of opportunity as you look at 2024 as well?

Of opportunity as you look at 2024 as well.

Speaker 3: There will be as Chris said, as you shrink the balance sheet, you do have to shrink the expense base and our largest cost is personnel. So they'll of course be some personnel related to that.

There will there will be as Chris said as you as you kind of shrink the balance sheet you do have to shrink the expense base and our largest cost is personnel. So they will of course be some personnel related to that.

But we are starting to understand the trajectory of in office now and I think we're going to be even more aggressive than we have been about real estate positioning.

Speaker 3: You know, we are starting to understand the trajectory of in office now. And I think we're going to be even more aggressive than we have been about real estate positioning.

Stephen Alexopoulos: The next question is from the line of John Pancari from Evercore. Please go ahead. Morning. Good morning. Hey, John. On the, on the expense outlook, I just want to see the video. So a little bit more color. You know, I know third quarter came in a little bit above expectations. And some of that is on Fee revenue. But as you look at fourth quarter and your flat expectation for 2024, can you maybe talk about the puts and takes there?

Speaker 2: And third, you know, again, those third party contracts. So I would, I would you it as, you know, meaningful pieces of all three of those, but certainly people will be part of it. And John , it's Chris, we'll continue to work across the board on all of this.

And again those third party contract so I would view it as.

Meaningful pieces of all three of those but that certainly people will be part of it John It's Chris will continue to work across the Florida. All of these things were down from an FTE perspective in the last year about 900 people teammates and so as we continue to focus on simplifying our business.

Stephen Alexopoulos: Like what are some of the areas where you could see pressure and where do you really see an opportunity to pull back and keep a number stable? Thank you. Sure. So, let me just hit the third quarter for a second, John. I just want to clarify. So we came in a little bit high. As you mentioned, I would just point to kind of about 20 million of one time costs in that in the quarter related to a legal reserve build.

Speaker 2: We're down from an FTV perspective in the last year, about 900 people, teammates. And so as we continue to focus on,

Speaker 8: Streamlining our business being a smaller, simpler, more profitable.

Lining our business being a smaller simpler more profitable company.

Speaker 3: We'll have more to say on that in the before after we wrap up the before.

We'll have more to say on that.

We wrap up the fourth quarter.

Speaker 12: All right, thanks. Chris, I just asked one last one on the commercial portfolio, shared national credit, sorry if I missed this, but have you sized up the size of that shared national credit book and then what portion of it that you're leading?

Got it alright, thanks, Chris if I could just ask one last one on the.

The commercial portfolio shared national credits, sorry, if I missed this but have you sized up the size of that shared national credit book, and then what portion of that.

Sure.

<unk>.

So we've never we've never given numbers around the Snick book.

Speaker 8: So we've never given numbers around the SNCC book. Everyone obviously just got their SNCC results and I can tell you in all my time in this business, our results were the absolute best we've ever had. But we've never disclosed the numbers in terms of dollars or amounts.

Everyone. Obviously, just got their snick results and I can tell you in all my time in this business. Our results were the absolute best we've ever had but we've never disclosed the numbers in terms of dollars or amounts.

Stephen Alexopoulos: A visa settlement that came in and laid in the quarter and then some elevated medical claims. I think net of those we were sort of consistent with the relatively stable guidance. The core in fourth quarter, we think will be consistent there as well. Again, relatively stable. Just to reiterate kind of pointing out a couple very or a few very. Identifiable one timers, namely Fee, I see assessment should have come through some additional expense management related charges and a pension charge.

Okay and any plans to.

So we really had.

Speaker 8: So we really had, it's just something that we haven't disclosed in the past. But as I said, we just got our results back, John , and just very, very pleased with them.

It's just something that we haven't disclosed in.

In the past, but as I said.

We just got our results back John and.

Just very very pleased with them.

Got it okay. Thanks, so much Chris.

Speaker 1: The next question is from the line of Men in Gasalya from Morgant Family. Please go ahead.

The next question is from the line of Marlin Gastonia from Morgan Stanley . Please go ahead.

Stephen Alexopoulos: So relative or net of those we feel like it will be stable. The big move also in the quarter was around personnel and that was primarily driven by the change in stock price so that. That is a variable but the work that we did earlier in the year as Chris reference kind of the beginning of the year getting 23 flat and some of the work we're doing in anticipation of making 24 flat.

Hi, good morning, good morning.

Got it.

Speaker 13: On the RWA reduction, you know, it sounds like you're saying 10 billion down is the right level and you don't see the need to do any more next year. But does that mean you can you can grow next year and can you lean into long growth a little bit in certain areas? And if so, does the level of rates in the 10 year matter, right? So if the 10 year moves higher from here, does that mean you have to do a little bit more on the RWA side? Or does that not really matter?

On the <unk> reduction it.

It sounds like Youre, saying 10 billion down is the right level.

Don't see the need to do any more next year, but does that mean you can grow next year and then can you lean into loan growth a little bit in certain areas.

And if so.

Stephen Alexopoulos: Aside from the charges, we take will provide a little bit of tailwind on expenses in the quarter and we continue to push hard on real estate and things like. Third party contracts which we historically have talked to but we're moving more and more away from third parties and more focused on using our own folks to do the work we're doing. So we think we have that circle and there's obviously always surprises that can come through but we feel pretty good about the four stability.

Does it level of rents in the Danielle matter that enables higher from here does that mean, you have to do a little bit more on the <unk> side or does that not really matter.

Speaker 8: So it's a great question. When I was answering Erica's question, it's Chris. When I was answering Erica's question.

So it's a great question.

What I was answering <unk> question, it's Chris Thanks, Erik <unk> question, we're not going to be leaning into <unk> <unk> reduction in the manner that we have this year, but make no mistake. We will continue to go through every portfolio, we have and rationalize our <unk> because that's the raw.

Speaker 2: We're not going to be leaning into RWA reduction in the manner that we have this year, but make no mistake, we will continue to go through every portfolio we have and rationalize our RWA's, because that's the raw material for us to also be expanding our client base. So we're not done on the RWA side. The point I was trying to make is, at this point in the cycle, we're gonna be doing both.

Cereal for us to also be expanding our client base. So we're not done on the <unk> side. The point I was trying to make is at this point and are in the cycle, we're going to be doing both.

Stephen Alexopoulos: And that and that real estate rationalization and the third party contracts are the main areas of of opportunity as you look at 2024 as well. There will there will be as Chris said as you as you kind of shrink the balance sheet you do have to shrink the expense base and our largest cost is personnel so they'll of course be some personnel related to that. But you know we are starting to understand the trajectory of in office now and I think we're going to be even more aggressive than we have been about real estate positioning and third you know again those third party contracts.

Got it Okay and then.

Speaker 13: As we think about gas and liquidity levels.

As we think about cash and liquidity levels.

Speaker 13: I think you noted there might still be some more room to bring down cash a little bit. A lot of your peers seem to be building cash quite meaningfully this quarter. So how are you thinking about the right levels of liquidity? Is it just a function of you might be replacing the majority maturing treasuries with cash or with other low duration treasuries? And what's the right level you think you need to hold right now?

I think you noted there might still be some more room to bring down cash a little bit.

A lot of Europeans seem to be building building.

Building cash quite meaningfully this quarter.

So how are you thinking about the right levels of liquidity.

Is it just a function of if you might be replacing the maturity maturing treasuries with.

Stephen Alexopoulos: So I would I would do it as you know meaningful pieces of all three of us but certainly people will be part of it and John it's Chris we'll continue to work across the board, and all these things. We're down from an FTE perspective in the last year, about 900 people, teammates.

With cash or with other lower duration treasuries.

And what's the right level or do you think you need to hold right now.

Yeah. Good question. So historically, we would have been kind of $2 billion.

Speaker 10: Yeah, good question. So historically, Mon, we would have been kind of two billion.

Speaker 3: On any given day, I think we went at high as 11 or 12 this year in the kind of 6, 7, 8 range in the quarter. I think we'd migrate that down to 4 to 5 over time. But your view on as treasuries mature holding those in cash or shorter duration treasur report is a right way to think about it.

On any given day I think we went as high as 11 or 12 this year.

John Pancari: And so as we continue to focus on simplifying our business, streamlining our business, being a smaller, simpler, more profitable company, we will have more to say on that in the fourth, after we wrap up the fourth quarter. Alright, thanks Chris, I've just asked one last one on the commercial portfolio, shared national credit, sorry if I missed this, but have you sized up the size of that shared national credit book and then what portion of it that you're leading agent?

In the kind of $6 seven to eight range in the quarter I think we'd migrate that down to four to five over time, but your view on.

As treasuries mature holding those in cash or a shorter duration treasury portfolio is the right way to think about it.

Got it thank you.

Speaker 1: Thank you. The next question is from the light of Matt O'Connor. Please go ahead.

Thank you. Our next question is from the line of Matt O'connor. Please go ahead.

Speaker 3: Good morning. Want to follow up on expenses in a couple of things. I guess first what's the base of expense for this year that you're trying to keep flat to? Because you have some items coming in for you called out from the quarter and obviously had something one queue as well. So what's the base as we think about flat cost for 24 that you're targeting? I would think the range has been at 4.4 billion.

Hi, Good morning wanted to follow up on expenses on a couple of things I guess first what's the base of expense for this year that you are trying to keep flat too.

John Pancari: So we've never, we've never given numbers around the snake book. Everyone obviously just got their snake results and I can tell you in all my time in this business, our results were the answer. Absolutely best we've ever had, but we've never disclosed the numbers in terms of dollars or amounts. Okay, any plans too? No, we really had, it's just something that we haven't disclosed in the past, but as I said, we're, we just got our results back John and just very, very pleased with them. Got it. Okay, thanks so much Chris.

Because you have some items coming in <unk> called out from this quarter. Obviously, you had some <unk> as well so what's the base as we think about flat costs were <unk> 24 that you are targeting.

Take the range of kind of $4 $4 billion Matt.

Speaker 9: Okay, that's helpful. And then the pension settlement charge, just for modeling purposes. I know that X, the guidance for 4Q. How much do you expect that to be? We said 15 to...

Okay. That's helpful. And then the pension settlement charge just for modeling purposes, I know that's ex the guidance for <unk>.

But how much do you expect that to be.

We said 15 to 20 in that range.

Speaker 14: Okay, sorry, I'm just glad. Then just ask me anything on the criticize loan.

Okay, sorry, I missed that and then just lastly, anything on the criticized loans.

Manan Gosalia: The next question is from the line of men in Gassalia from Morgan's family, please go ahead.

Speaker 14: Not everybody disclosed this, but you've got a sliding attack that shows it and it's, you know, bumped up a couple of quarters and around here. That's just kind of normal progression or what would you call out there?

Not everybody discloses that but you've got a slide in your deck that shows that in.

Bumped up a couple of quarters in a row here.

Manan Gosalia: Good morning. On the RW reduction, you know, sounds like you're saying 10 billion down is the right level and you don't see the need to do any more next year. But does that mean you can, you can grow next year and can you lean into long growth a little bit in certain areas? And if so, does the level of rates in the 10 year matter, right? So if the 10 year moves higher from here, does that mean you have to do a little bit more on the RWA side or does that not really matter?

Kind of normal progression or what would you call out there.

Speaker 8: Yeah, that's just, Matt, that's us just very critically rating our portfolio. There'd be a few categories in there as we look through it. Transportation would be one. Healthcare would be another. There's some consumer product type businesses there, but...

Yes, that's just math, that's us just very critically grading our portfolio.

There'd be a few categories in there as we look through it transportation would be one health care would be another.

Some consumer product businesses there, but.

Speaker 8: We take a fair amount of pride in Mark Mischief is here in the room with us of really going through with a fine tooth comb.

We take a fair amount of pride and Mark Midkiff is here in the room with us.

Really going through with a fine tooth comb.

Speaker 8: I don't think there's any additional loss content there, but at this point in the cycle, and you start looking at anyone that has floating rate debt, you know, I think you need to look at that pretty critically. So that's really the genesis of it going from 3.3% to 3.9%.

Christopher Gorman: So it's a great question. When I was answering Erica's question, it's Chris. When I was answering Erica's question, we're not going to be leaning into RWA reduction in the manner that we have this year. But make no mistake, we will continue to go through every portfolio we have in rationalize our RWA's because that's the raw material for us to also be expanding our client base. So we're not done on the RWA side. The point I was trying to make is at this point in our, in the cycle, we're going to be doing both.

I don't think theres any additional loss content there, but at this point in the cycle.

And you start looking at any one that has floating rate debt.

I think you need to look at that pretty critically so that's really the genesis of it going from three 3% to $3 nine.

Okay. That's helpful. Thank you.

Thanks, Matt.

Speaker 1: Our next question is from Iberham, Punowala, from Bank of America. Please go ahead.

Our next question is from Ebrahim <unk> from Bank of America. Please go ahead.

Hey, good morning.

Speaker 15: This one had a quick follow up clerk for you. So I guess going back to some of the discussion you had with Ken. When we look at the 46 million in NII.

Just had a quick follow up.

Mark for you so.

Manan Gosalia: Got it again. And then as we think about cash and liquidity levels, I think you noted there might still be some more room to bring down cash a little bit. A lot of your peers seem to be building cash quite meaningfully this quarter. So how are you thinking about the right levels of liquidity? Is it just a function of you might be replacing the majority, maturing treasuries with cash or with other low duration treasuries? And what's the right level do you think you need to hold right now?

I guess going back to some of the discussion you had with Ken.

When we look at the $46 million in NII that is going to come in from the roll off in the fourth quarter.

Speaker 15: That's going to come in from the rule of in the fourth quarter. Your NRI guidance is flat.

Our guidance is flat so ex that 46 million NII would be down 5% quarter over quarter.

Speaker 15: So X that 46 million NII would be down 5% quarter or quarter. Just, and I appreciate that a bunch of moving pieces, as we think about the core level of NII beyond fourth quarter.

And I appreciate that a bunch of moving pieces as we think about that.

Core level of NII beyond fourth quarter ought to be optimization deposit re pricing like what's your expectation for those deposits.

Speaker 15: RWA optimization, deposit repricing, like what's your expectation for those deposits?

Speaker 15: NNI, sorry, does that NNI hold flat? Or do you still expect that NNI is on a core basis to give floor? Yes.

And I'm, sorry, I've got deny hold flat or do you still expect that and I just on a core basis to give color.

Manan Gosalia: Yeah, good question. So historically, Monica, we would have been kind of two billion on any given day. I think we went aside the 11 or 12 this year in the kind of 6, 7, 8 range in the quarter. I think we'd migrate that down to 4 to 5 over time. But your view on as treasuries mature holding those in cash or shorter duration treasuries portfolio is the right level.

Matt O'connor: Thank you.

Yeah. So.

Speaker 15: And when you say a core basis, sorry, just I want to make sure I'm understanding the question. If we remove the lift from the slide nine that you have from the Swaps and the Treasury majorities, if we didn't have that, what in your view would NII do through the next few quarters? Yes.

And when you say a core basis, sorry, just I don't want to make sure I understand the question.

If we remove the lift from the slide nine that you have from the swaps in detergent and maturities. If we didn't have that what in your view NII due to the next few quarters.

I got it.

Speaker 3: Well, so not to be picking word choices, but I would say the core is actually without those positions, underlying visits.

Well, so not to be.

Matt O'connor: The next question is from the light of Matt O'Connor. Please go ahead. Good morning. Want to follow up on expenses in a couple of settings? I guess first, what's the base of expense for this year that you're trying to keep flat to because you have some items coming in for you, called out from this quarter and obviously had something 1Q as well. So what's the base as we think about flat costs for 24 that you're targeting?

Picking word choices, but I would say the core is actually without those physician underlying businesses.

Speaker 10: is reflected there. So I just, that's an important, I think, quality of business point to make. But, um,

As reflected there so I just.

That's an important I think just a quality of business point to make but.

Speaker 10: I think you know you're right on puts and takes and obviously if rates using the foreign curve with rates where to you know stay flat.

I think youre right on puts and takes and obviously.

If rates using the forward curve if rates were to stay flat, we have seen already in the second quarter to third quarter trajectory deposit pricing has slowed I think niv, while running off still a bed is stabilizing so you'll still see some drift in those deposit costs I think the places where and obviously were.

Speaker 10: We have seen already in the second quarter to third quarter trajectory deposit pricing has slowed. I think NIB, while running off still a bit, is stabilizing. So you'll still see some drift in those deposit costs. I think the places where, and obviously we're continuing to shrink the loan book a little bit. So those create some headwinds as we did say though, we are...

Matt O'connor: I would think the range has got a 4.4 billion math. Okay, that's helpful. And then the pension settlement charge just for modeling purposes. I know that X, the guidance for 4Q, how much do you expect that to be? We said 15 to 20 and that range. Okay, sorry, I missed that. Then just lastly, anything on the criticized loans not everybody just goes this, but you've got a sliding attack that shows it and it's, you know, bumped up a couple quarters and around here.

Continuing to shrink the loan book, a little bit so those create some headwinds as we did say that we are moving aggressively to reduce wholesale funding cost as well and those are.

Speaker 3: moving aggressively to reduce wholesale funding costs as well. And those are obviously relative to deposit costs generally higher.

Relative to deposit cost generally higher so that will provide a little bit of relief against those <unk>.

Speaker 10: So that will provide a little bit of relief against those, you know, the trends that you're talking about. So I would focus more on, you know, what do we think the core business is doing from a performance standpoint, which...

<unk> that you're talking about so.

Matt O'connor: That's just kind of normal progression or what would you call out there? Yeah, that's just Matt. That's us just very critically grading our portfolio. There'd be a few categories in there as we look through it. Transportation would be one health care would be another. There's some consumer product type businesses there, but we take a fair amount of pride in and mark it is here in the room with us of really going through the fine to come.

I would focus more on what do we think the core business is doing from a performance standpoint, which.

Speaker 3: which we would do without those who have some interest.

Which we would view without those without those swaps and treasuries, we did say at or near the bottom on NII I feel good about that again, assuming the forward curve. The one hesitation I have on that honestly ebrahim as first quarter as you know has.

Speaker 10: We did say, you know, add or near the bottom on NII, I feel good about that again, assuming the Ford curve, the one hesitation I have on that, honestly, it behemoths first quarter, as you know, has...

Speaker 3: one fewer day, which has some impact, and always has seasonality in deposit balances. So if you go back...

One fewer day, which has some impact and always had seasonality and deposit balances. So if you go back a decade other than 2021, which was an anomaly for us.

Matt O'connor: I don't think there's any additional loss content there, but at this point, the cycle, and you start looking at anyone that has floating rate debt, you know, I think you need to look at that pretty critically. So that's really the genesis of it going from 3.3% to 3.9. Okay. Okay, that's helpful. Thank you.

Speaker 10: a decade other than 2021, which was an anomaly for pandemic-related reasons. We've always been down kind of one to three percent of deposit balances in the first quarter. So those are the components we're working.

Pandemic related reasons, we've always been down kind of 1% to 3% of deposit balances in the first quarter. So those are the components, we're working through and we will have a clearer cleaner view on 'twenty four.

Matt O'connor: Thanks, Ben.

Speaker 3: We'll have a clear, cleaner view on 24 when we guide on the

When we guide on the fourth quarter call.

Speaker 15: So that's helpful, yeah, all I'm trying to get to is here at 920 million on the fourth quarter.

Got it Thats helpful. You, all I'm trying to get to $920 million in the fourth quarter.

Ebrahim Poonawala: Our next question is from Eberham Punowala from Bank of America. Please go ahead.

The loan loss to dig that 900 to $1 1 billion something in that vicinity and I'm just trying to think what would be the Michigan school getting to a $1 1 billion quarterly NII by the end of next year.

Speaker 15: The role of should take that 900 to 1.1 billion, something in that vicinity. And I'm just trying to think what would be the mitigate still getting to a 1.1 billion quarterly and I by the end of next year. But that was good color. Thank you, Petrol.

Ebrahim Poonawala: Good morning. This one had a quick follow up clerk for you. So I guess going back to some of the discussion you had with Ken, when we look at the 46 million in NII that's going to come in from the roll off in the fourth quarter, your NII guidance is flat. So X that 46 million NII would be down 5% quarter over quarter. Just and I appreciate that a bunch of moving pieces.

But.

That is good color. Thank you.

Yes.

Speaker 1: Thank you. Our next question is from Bill Carcati from Wolfly Search. Please go ahead.

Thank you. Our next question is from Bill <unk> from Wolfe Research. Please go ahead.

Alright. Thank you good morning, Christian Clark I wanted to follow up on the points you've made around the NII opportunity from repricing, there's a debate around the possibility that some of the upside from the repricing of the swaps and the securities could be offset by the need to further reduce.

Speaker 16: I wanted to follow up on the points you've made around the NII opportunity from repricing. There's a debate around the possibility that some of the upside from the repricing of the swaps and the securities could be offset by the need to further reduce our WA levels beyond that $10 billion level that you've highlighted. And I think you've talked around some of the surrounding points, but maybe if you could speak to that specifically, that would be up.

Ebrahim Poonawala: As we think about the core level of NII beyond fourth quarter, RWA optimization, deposit leap rising, like what's your expectation for those deposits for the NII? Sorry. Does that NII hold flat? Or do you still expect that NII just on a core basis to drift lower? Yeah, so and when you say a core basis, sorry, just I want to make sure I'm understanding the question. If we remove the lift from the slide 9 that you have from the swaps and the tragedy majorities, if we didn't have that, what in your view would NII do to the next few quarters?

<unk> levels beyond that $10 billion.

Level that you've highlighted and.

I think you've talked around some of some of the surrounding points, but maybe if you could speak to that specifically that would be helpful.

Speaker 10: Yeah, so maybe just to clarify so that we're all talking about the same thing. That page 9, I believe, which we've shared a few quarters in a row now, just to make sure, right? That is focused on...

Yes, so so maybe just to clarify so that we're all talking about the same thing that page nine I believe which we've shared a few quarters in a row now just to make sure REIT that is focused on.

Ebrahim Poonawala: I got it. Well, so not to be picking word choices, but I would say the core is actually without those positions underlying businesses is reflected there. That's an important, I think, quality of business point to make. I think, you know, you're right on puts and takes. And obviously, if rates, using the foreign curve with rates were to, you know, stay flat, we have seen already in the kind of second quarter to third quarter trajectory deposit pricing has slowed.

Speaker 3: specifically the impact from the treasuries and the swaps. So as we've said before, there are other components when rates go up and that improves. There are obviously funding pressures as well that come in and conversely when rates come down and these numbers look a little lower if there's funding pressure relief. So just wanna make sure that we are isolating the thing that we're talking.

Specifically the impact from the treasuries and the swaps. So as we've said before there are other components when rates go up and that improves there are obviously funding pressures as well.

That come in and Conversely, when rates come down and these numbers look a little lower there is funding pressure relief. So just wanted to make sure that we are isolating the thing that we're talking about.

Speaker 3: As it relates to this pool, this is obviously hedging a portion of the loan book and not all of the loan books. So even if we reduce loans, we expect we would see the benefits here, but there are obviously NII pressures if we were to continue to reduce the loan book beyond what we've talked about.

As it relates to this pool bill.

Ebrahim Poonawala: I think NID, while running off still a bit, is stabilizing. So you'll still see some drift in those deposit costs. I think the places where, and obviously we're continuing to shrink the loan book a little bit. So those create some headwinds as we did say though, we are moving aggressively to reduce wholesale funding costs as well. And those are, you know, obviously relative to deposit cost generally higher. So that will provide a little bit of relief against those, you know, the trends that you're talking about.

This is obviously hedging.

A portion of the loan book and not all of the loan book So.

Even if we reduce loans, we expect we would see the benefits here, but there are obviously NII pressures. If we were to continue to reduce our loan book beyond what we've talked about that.

Speaker 16: Answer your question. Understood. No, that is helpful. If I may separately, wanted to ask, if you have a feel like you have a good handle on key customers that had put on swaps when we were still in a low rate environment and are now gonna be facing pressure from rates resetting higher, any color that you can give on that dynamic, know that credit metrics are very good, but I guess any color on that dynamic across your commercial portfolio.

To answer your question.

Understood that is helpful.

Separately.

Wanted to ask if you have a feel like you have a good handle on key customers that had put on swaps, where we were still in a low rate environment and are now going to be facing pressure from rates resetting higher.

Ebrahim Poonawala: So I would focus more on, you know, what do we think the core business is doing from a performance standpoint, which we would do without those, without those swaps and treasuries. We did say, you know, add or near the bottom on NII, I feel good about that again, assuming the foreign curve. The one hesitation I have on that, honestly, Ibrahim is first quarter, as you know, has one fewer day, which has some impact and always has a seasonality in deposit balances.

Is there any color that you can give on that dynamic now that credit metrics are very good but yes.

I guess any color on that dynamic across your commercial portfolio.

Speaker 16: uh... and and you know to accept that you feel that's how to play the uh... in in any of the other in the other so it would be a good so there's no bill

And to the extent that you feel thats contemplated.

Ebrahim Poonawala: So if you go back a decade, other than 2021, which was an anomaly for pandemic-related reasons, we've always been down kind of one to three percent of deposit balances in the first quarter. So those are the components we're working through and we'll have a clearer, cleaner view on 24 when we guide on the fourth quarter call. So that's helpful. Yeah, all I'm trying to get to is if you're at 920 million on the fourth quarter, the role of should take that 900 to 1.1 billion, something in that vicinity. And I'm just trying to think what would be the mitigate still getting to a 1.1 billion quarterly and I buy the end of next year. But that is good color. Thank you. That's all I have.

And then in the <unk>.

So it would be that would be great.

So theres no builds Chris there is no question.

One of the things that we are so focused on just getting back to the answer that I gave around.

Speaker 2: One of the things that we are still focused on just gets back to the answer that I gave a lot of...

Bill Carcache: Thank you.

Speaker 8: criticized the increase in criticized loans. We are looking at any customers that are exposed to rates.

Criticized the increase in criticized loans, we are looking at any customers that are exposed to rate increases. However, they are so exposed it so because we have the primary relationship.

Speaker 8: However, they are so exposed. So because we have the primary relationship, we know a lot about these customers and to the extent we have visibility on that. Yes, we are looking at that. And yes, it's factored into our...

<unk> a lot about these customers and to the extent we.

We have visibility on that yes, we are looking at that and yes, its factored into our numbers.

Speaker 16: Understood. Thank you. Thank you for taking my questions.

Understood. Thank you. Thank you for taking my questions sure Bill.

Thank you and the next question is from Steven Alexopoulos from Jpmorgan. Please go ahead.

Speaker 17: Thank you. And the next question is from Stephen Alec Fappelus from Davey Morgan, please go ahead. Hey, good morning, everyone. I see. I want to start so I'm positive operating.

Hey, good morning, everyone.

Yes.

Wanted to start so on positive operating leverage if you look at the third quarter revenues down 17% or so year over year expenses flat just given the trajectory of revenue through 2023 is there any chance you could deliver positive operating leverage in 2024.

Bill Carcache: Our next question is from Bill Carcati from Wolf Research. Please go ahead. Thank you.

Stephen Alexopoulos: Good morning, Christian Clark. I wanted to follow up on the points you've made around the NII opportunity from repricing. There's a debate around the possibility that some of the upside from the repricing of the Swapson and the securities could be offset by the need to further reduce our WAA levels beyond that $10 billion level that you've highlighted. And I think you've talked around some of some of the surrounding points, but maybe if you could speak to that specifically, that would be helpful.

I know you said you plan to hold expenses flat.

But do you feel more of a sense of urgency to do more on the expense side I think the last time you actually delivered.

Positive operating leverage at least of consequences 2019.

Speaker 2: So we'll give, as we mentioned, we're going to give guidance with respect to 2024 when we report our fourth quarter numbers.

So we will get as we mentioned, we're going to give guidance with respect to 2024, when we report our fourth quarter numbers, but we do feel the urgency to continue to do more on expenses and just just to remind you we took out $200 million of expenses in the first quarter.

Speaker 8: But we do feel the urgency to continue to do more in expenses and just to remind you, we took out 200 million of expenses in the first quarter, which is about 4%. And we are actively right now, as I mentioned, simplifying our business.

Stephen Alexopoulos: Yeah, so maybe just to clarify so that we're all talking about the same thing. That page 9 I believe, which we've shared a few quarters in a row now, just to make sure, right, that is focused on specifically the impact from the Treasuries and the Swaps. So as we've said before, there are other components when rates go up and that improves. There are obviously funding pressures as well that come in and conversely when rates come down and these numbers look a little lower if there's funding pressure relief.

Which is about 4%.

We are actively right now as I mentioned simplifying our business.

Speaker 2: We're shrinking our WAs. We will come out with more detail in the fourth quarter, but yes, we do feel a sense of urgency to rationalize the cost-based, particularly because, as I said, we're going to be a smaller, simpler company.

We're shrinking <unk>, we will come out with more detail in the fourth quarter, but yes, we do feel.

Sense of urgency to rationalize the cost base, particularly because as I said, we're going to be a smaller simpler company.

Okay.

Stephen Alexopoulos: So just want to make sure that we are isolating the thing that we're talking about, as it relates to this pool, Bill, this is obviously hedging a portion of the loan book and not all of the loan books. So even if we reduce loans we expect we would see the benefits here, but there are obviously NII pressures if we were to continue to reduce the loan book beyond what we've talked about. That answer your question.

Is there any chance you think Chris that you do deliver positive operating leverage next year.

I know, we'll get more next quarter, but how are you thinking right now.

Speaker 17: We'll know more when we finish our planning for 2024. Steve. And then separately, obviously a lot of.

We'll know more when we finish our planning for 2020 for Steve.

Okay.

Then separately.

Obviously, a lot of investor focus on your capital levels I'm curious given what we've seen out of the five year and 10 year part of the curve. So far how does that change the projected OCI impact.

For year end.

So what youre, calling out on slide 13 here.

Stephen Alexopoulos: I wanted to ask if you have a feel like you have a good handle on key customers that had put on swaps when we were still in a low rate environment and are now going to be facing pressure from rates resetting higher. Just any color that you can give on that dynamic, I know that credit metrics are very good, but I guess any color on that dynamic across your commercial portfolio. And you know to the extent that you feel that's how depleted in NII in the allow it so it would be that would be great.

Speaker 10: Sorry, David Clark. Can you just be a little clearer? How does it change? So another.

Sorry, Steve it's Glenn.

Can you just be a little clearer how does it change.

In other words rates rates are moving up which is where yes you.

Speaker 17: Yeah, your AOCI and you're saying use the forward curve. I don't believe the forward curve in September

You are saying you use the forward curve I don't believe the forward curve in September .

Five or 10 year, where it is so where you're saying you'll go from negative six 6% to $6 two how does that $6 to change given what we've seen in the year.

The media part of the curve.

Speaker 10: Got it. I don't have that number in front of me. It's obviously up given where we're really sort of focused on the five

Got it.

I don't have that number in front of me, it's obviously up given where we're really sort of focus on the five year.

Stephen Alexopoulos: So there's no built Chris. There's no question on one of the things that we are so focused on this gets back to the answer that I gave around criticized the increase in criticized loans. We are looking at any customers that are exposed to rate increases, however they are so exposed. So because we have the primary relationship we know a lot about these customers and to the extent we have visibility on that. Yes, we are looking at that and yes, it's factored into our numbers. Understood. Thank you for taking my questions. Thank you.

Speaker 10: So, you know, we have taken, as we talked about, some steps to at least mitigate that, but clearly when rates are moving at this magnitude, you can't cover all of it. So we continue to watch that closely. We manage.

So.

We are we have taken as we talked about some steps to at least mitigate that but clearly when rates are moving at this magnitude.

You can't cover all of it so we continue to watch that closely.

We managed TCE I think reasonably well in the quarter given some of those changes.

Speaker 3: PCE I think reasonably well in the quarter given some of those changes That you've talked about but we're really focused on on managing you know Assuming as Chris said to the to the contemplated new capital rules and time frame making sure that we're in a position to Get our capital the right level as things phase in and and markets move and will Take the steps that we need to take to be compliant with those rules

You've talked about but we're really focused on managing.

I.

Assuming as Chris said to the to the contemplated new capital rules and timeframe, making sure that we're in a position to get our capital in the right level as things phase in and.

Operator: And the next question is from Stephen Alec Fappelus from D.P. Morgan, please go ahead. Hey, good morning everyone.

End markets move and will.

The steps that we need to take to be compliant with those rules.

Christopher Gorman: I want to start. So I'm positive operating leverage. If you look at the third quarter revenues down 17% or so year-over-year expenses flat, just given the trajectory of revenue through 2023, is there any chance you could deliver positive operating leverage in 2024? And I know you said you plan to hold expenses flat, but do you feel more of a sense of urgency to do more on the expense side? I think the last time we actually delivered positive operating leverage a lease of consequences 2019.

Okay.

Fair enough. Thanks for taking my questions sure. Thanks, Steve.

Thank you and at this time there are no further questions. Thank you and I would like to turn the conference back to CEO , Chris Gorman for closing remarks. Please go ahead.

Speaker 2: Thank you and at the same there are no further questions. Thank you. And I would like to turn the conference back to CEO Chris Gorman for closing remarks. Please go ahead. Again, we thank you for participating in our call today. If you have any follow-up questions, you can direct them to our Investor Relations team. 216-689-4221. That concludes our remarks. Thank you again and have a good afternoon. Goodbye.

Again, we thank you for participating in our call today. If you have any follow up questions. You can direct them to our investor relations team to $106 $6 $8 94 to two one that concludes our remarks. Thank you again and have a good afternoon goodbye.

Christopher Gorman: So we'll give, as we mentioned, we're going to give guidance with respect to 2024 when we report our fourth quarter numbers. But we do feel the urgency to continue to do more on expenses and just to remind you, we took out 200 million of expenses in the first quarter, which is about 4%. And we are actively, right now, as I mentioned, simplifying our business, we're shrinking RWA's. We will come out with more detail in the fourth quarter.

Thank you, ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using AT&T conferencing you may now disconnect.

Speaker 1: Thank you, ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T event conferencing. You may now.

Christopher Gorman: But yes, we do feel a sense of urgency to rationalize the cost base, particularly because, as I said, we're going to be a smaller, simpler company. Okay, is there any chance you think, Chris, that you do deliver positive operating leverage next year? I know we've got more next quarter, but how are you thinking right now? We'll know more when we finish our planning for 2020, and then separately, obviously a lot of investor focus on your capital levels.

Christopher Gorman: I'm curious, given what we've seen out of the five-year and ten-year part of the curve so far, how does that change the projected AOCI impact for a year-end to what you're calling out of the flight 13-year? Sorry, Steve, it's Clark. Can you just be a little clearer? How does it change? So in other words, rates are moving up, which is working against your AOCI, and you're saying you use the full-work curve.

Christopher Gorman: I don't believe the full-work curve is September, contemplated the five or ten-year where it is. So, where you're saying you go from negative 6.6 to 6.2, how does that 6.2 change, given what we've seen in the intermediate part of the curve? Got it. I don't have that number in front of me. It's obviously up given where we're really sort of focused on the five-year. So, you know, we have taken, as we talked about, some steps to at least mitigate that, but clearly when rates are moving at this magnitude, you can't cover all of it.

Christopher Gorman: So we continue to watch that closely. We managed TCE, I think, reasonably well in the quarter, given some of those changes that you've talked about, but we're really focused on managing, you know, assuming, as Chris said, to the contemplated new capital rules and time frame, making sure that we're in a position to get our capital on the right level as things phase in and markets move. And we'll take the steps that we need to take to be compliant with those rules. Okay. Fair enough. Thanks for taking my questions. Sure. Thanks, Steve. Thank you, and at this time, there are no further questions. Thank you.

Christopher Gorman: And I would like to turn the conference back to CEO Chris Gorman for closing remarks. Please go ahead. Again, we thank you for participating in our call today. If you have any follow-up questions, you can direct them to our Investor Relations team, 216-689-4221.

Operator: That concludes our remarks. Thank you again, and have a good afternoon. Goodbye.

Operator: Thank you, ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T event conferencing.

Operator: You may not.