Q2 2024 KeyCorp Earnings Call

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Operator: Good morning and welcome to KeyCorp's second quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded.

Operator: Good morning and welcome to KeyCorp's second quarter 2020 earnings conference call. As a reminder, this conference is being recorded. I'd now like to turn the conference over to the head of investor relations, Brian Mawney. Please go ahead.

Good morning and welcome to KeyCorp's second quarter 2024 earnings conference call. As a reminder, this conference is being recorded. I'd now like to turn the conference over to the Head of Investor Relations, Brian Mawney. Please go ahead.

Brian Mauney: I'd now like to turn the conference over to the Head of Investor Relations. Brian Mauney, please go ahead.

Brian Mauney: Thank you, operator, and good morning, everyone. I'd like to thank you for joining KeyCorp's second quarter 2024 Earnings Conference Call. I'm here with Chris Gorman, Chairman and Chief Executive Officer, and Clark Khayat, our Chief Financial Officer. As usual, we will reference our earnings presentation slides, which can be found in the Investor Relations section of the Key.com website. In the back of the presentation, you will find our statement on forward-looking disclosures and certain financial measures, including non-GAAP measures. Discovers our earnings materials, as well as remarks made on this morning's call. Actual results may differ materially from forward-looking statements, and those statements speak only as of today.

Brian James Mauney: Thank you, Operator, and good morning, everyone. I'd like to thank you for joining KeyCorp's second quarter 2024 earnings conference call. I'm here with Chris Gorman, our Chairman and Chief Executive Officer, and Clark Khayat, our Chief Financial Officer. As usual, we will reference our earnings presentation slides, which can be found in the investor relations section of the Key.com website. In the back of the presentation, you will find our statement on forward-looking disclosures and certain financial measures, including non-GAAP measures.

Brian Mawney: Thank you, Operator, and good morning, everyone. I'd like to thank you for joining KeyCorp's second quarter 2024 earnings conference call. I'm here with Chris Gorman, our Chairman and Chief Executive Officer, and Clark Khayat, our Chief Financial Officer.

Speaker Change: As usual, we will reference our earnings presentation slides, which can be found in the investor relations section of the Key.com website.

In the back of the presentation, you will find our statement on forward-looking disclosures and certain financial measures, including non-GAAP measures.

Brian James Mauney: This covers our earnings materials as well as remarks made on this morning's call. However, actual results may differ materially from forward-looking statements, and those statements speak only as of today, July 18, 2024, and will not be updated. With that, I will turn it over to you, Brian. Thank you.

Speaker Change: This covers our earnings materials as well as remarks made on this morning's call. Actual results may differ materially from forward-looking statements, and those statements speak only as of today, July 18, 2024, and will not be updated. With that, I will turn it over to Chris.

Brian Mauney: July 18, 2024, and will not be updated.

Christopher Gorman: With that, I will turn it over to Chris. Thank you, Brian. I'm on slide two. This morning, we reported earnings of $237 million or 25 cents per share, which is down two cents from the year-ago quarter, but up five cents sequentially. On a quarter-over-quarter basis, revenue was essentially flat as we offset the expected pullback and investment banking fees from a record-first quarter with growth across the balance of the franchise. Expenses remained well-controlled, and credit costs were stable. Importantly, we continued to deliver on our clearly defined path to enhanced profitability, as we detailed a little over a year ago.

Christopher Marrott Gorman: I'm on slide two. This morning, we reported earnings of $237 million, or $0.25 per share, which is down two cents from the year-ago quarter but up five cents sequentially. On a quarter over quarter basis, revenue was essentially flat, as we offset the expected pullback in investment banking from a record first quarter with growth across the balance of the franchise. Importantly, we continue to deliver on our clearly defined path to enhance profitability, as we detailed a little over a year ago.

Chris: Thank you, Brian . I'm on slide two. This morning, we reported earnings of $237 million, or 25 cents per share.

Chris: which is down 2 cents from the year-ago quarter, but up 5 cents sequentially. On a quarter-over-quarter basis, revenue was essentially flat, as we offset the expected pullback in investment banking fees from a record first quarter with growth across the balance of the franchise.

Chris: Expenses remained well-controlled and credit costs were stable. Importantly, we continue to deliver on our clearly defined path to enhance profitability as we detailed a little over a year ago.

Christopher Gorman: Net interest income grew from what we continued to believe will be this cycle's low in the first quarter, and we remained confident in our ability to deliver on our NII commitments for both the full year 2024 as well as the fourth quarter exit rate. Deposit value creation continues to be a positive story for Key. This quarter, deposits grew by 1 percent sequentially, while the pace of increase in deposit costs continued to decelerate. Additionally, non-interest bearing deposits stabilized at 20 percent of total deposits. We were also pleased to see client deposits up 5 percent year over year.

Christopher Marrott Gorman: Net interest income grew from what we continue to believe will be this cycle's low in the first quarter, and we remain confident in our ability to deliver on our NII commitments for both the full year 2024 as well as the fourth quarter exit. The positive value creation continues to be a positive story for Key. This quarter, deposits grew by 1% sequentially, while the pace of increase in deposit costs continued to decelerate. Additionally, non-interest-bearing deposits stabilized at 20% of total deposits. We were also pleased to see client deposits up 5% year-over-year, and consumer relationship households are up 3.3% annualized year-to-date.

Chris: Net interest income grew from what we continue to believe will be this cycle's low in the first quarter, and we remain confident in our ability to deliver on our NII commitments for both the full year 2024 as well as the fourth quarter exit rate.

Chris: Deposit value creation continues to be a positive story for Key.

Chris: This quarter, deposits grew by 1% sequentially while the pace of increase in deposit costs continued to decelerate. Additionally, non-interest bearing deposits stabilized at 20% of total deposits.

Christopher Gorman: Consumer relationship households are up 3.3 percent annualized year-to-date. Finally, we continue to be very disciplined with respect to pricing. Our cumulative deposit data stands at 53 percent since the Fed began raising interest. and Chris rates.

Chris: We were also pleased to see client deposits up 5% year-over-year.

Chris: Consumer Relationship Households are up 3.3% annualized year-to-date.

Christopher Marrott Gorman: Finally, we continue to be very disciplined with respect to pricing. Our cumulative deposit data stands at 53% since the Fed began raising interest rates. With respect to non-interest income, we have made continued progress against our most important strategic initiatives. In our wealth management business, targeting mass affluent prospects, production volumes hit another record in the second quarter as we added 5.6 thousand households and over $6 hundred million of household assets to the platform.

Chris: Finally, we continue to be very disciplined with respect to pricing. Our cumulative deposit data stands at 53% since the Fed began raising interest rates.

Christopher Gorman: With respect to non-interest income, we have made continued progress against our most important strategic initiatives. In our wealth management business, targeting mass affluent prospects, production volumes hit another record in the second quarter as we added 5.6 thousand households in over $600 million of household assets to the platform. Since launching this business in March of last year, we have added over 31,000 households and about 2.9 billion of new household assets to Key. Within our existing customer base, we believe we have a great opportunity. Over 1 million key retail households have investable assets of over $250,000, and only about 10% are existing customers in our investment relations in our investment business.

Chris: With respect to non-interest income, we have made continued progress against our most important strategic initiatives.

Chris: In our wealth management business, targeting mass affluent prospects, production volumes hit another record in the second quarter as we added 5.6 thousand households and over 600 million dollars of household assets to the platform.

Christopher Marrott Gorman: Since launching this business in March of last year, we have added over 31,000 households and about $2.9 billion of new household assets to Key. Within our existing customer base, we believe we have a great opportunity. Over one million key retail households have investable assets of over $250,000, and only about 10% are existing customers in our investment relationship. Overall, as a company, our assets under management have now reached $57.6 billion.

Chris: Since launching this business in March of last year, we have added over 31,000 households and about $2.9 billion of new household assets to Key.

Chris: Within our existing customer base, we believe we have a great opportunity.

Chris: Over 1 million key retail households have investable assets of over $250,000, and only about 10% are existing customers in our investment business.

Christopher Gorman: Overall, as a company, our assets under management have now reached $57.6 billion. In commercial payments, we continue to see strength in our commercial deposits, with 9% growth year over year, and they are relatively flat beta since year end. Cash management fees are growing at approximately 10%. Our primacy focus has made this a core competency for us. We continue to see momentum as our clients are more focused than ever on working capital solutions and driving efficiency in their own businesses. Additionally, our focus on verticals like healthcare, real estate, and technology creates meaningful deposit opportunities, and our embedded banking strategy was well-timed given the growth we're seeing in that market.

Chris: Overall, as a company, our assets under management have now reached $57.6 billion.

Christopher Marrott Gorman: In commercial payments, we continue to see strength in our commercial deposits, with 9% growth year-over-year and a relatively flat beta since year-end. Cash management fees are growing at approximately 10%. Our primacy focus has made this a core competency for us.

Chris: In commercial payments, we continue to see strength in our commercial deposits, with 9% growth year-over-year and a relatively flat beta since year-end. Cash management fees are growing at approximately 10%.

Christopher Marrott Gorman: We continue to see momentum as our clients are more focused than ever on working capital and driving efficiency in their own business. Additionally, our focus on verticals like healthcare, real estate, and technology create meaningful deposit opportunities, and our embedded banking strategy was well-timed given the growth we're seeing in that market. In investment banking, as we have previously communicated, our second quarter fees were below those of the first quarter. Our positive outlook for the business, however, remains unchanged.

Speaker Change: Our primacy focus has made this a core competency for us. We continue to see momentum as our clients are more focused than ever on working capital solutions and driving efficiency in their own businesses.

Speaker Change: Additionally, our focus on verticals like healthcare, real estate, and technology create meaningful deposit opportunities, and our embedded banking strategy was well-timed given the growth we're seeing in that market.

Christopher Gorman: In investment banking, as we have previously communicated, our second quarter fees were below those of the first quarter. Our positive outlook for the business, however, remains unchanged. Our pipelines are higher today than last quarter, year end, and year go levels. Our M&A pipeline remains near record levels, and the near-term outlook for other investment banking fee revenue streams has improved. At this point, we expect a stronger second half of the year, consistent with our prior guidance. Our national third-party commercial loan servicing business also continues to perform well. This is a countercyclical business that also gives us unique insight into the commercial real estate market.

Speaker Change: In investment banking, as we have previously communicated, our second quarter fees were below those of the first quarter.

Christopher Marrott Gorman: Our pipelines are higher today than last quarter, year-end, and year-ago levels. Our M&A pipeline remains near record levels, and the near-term outlook for other investment banking fee revenue has improved. At this point, we expect a stronger second half of the year, consistent with our prior guidance. Our national third-party commercial loan servicing business also continues to perform well.

Speaker Change: Our positive outlook for the business, however, remains unchanged. Our pipelines are higher today than last quarter, year-end, and year-ago levels. Our M&A pipeline remains near record levels, and the near-term outlook for other investment banking fee revenue streams have improved.

Speaker Change: At this point, we expect a stronger second half of the year consistent with our prior guidance.

Speaker Change: Our national third-party commercial loan servicing business also continues to perform well. This is a counter-cyclical business that also gives us unique insight into the commercial real estate market. We continue to feel very good about our growth prospects for this business.

Christopher Marrott Gorman: This is a counter-cyclical business that also gives us unique insight into the commercial real estate market. We continue to feel very good about our growth prospects for this business. Lastly, on loans, broadly, loan demand remains tepid, and the pricing environment remains competitive. It has also taken some time after our focus on improving our liquidity and capital ratios last year to get our machine fully up to speed. Despite recent volume trends, we are optimistic we will start to see stabilization and potentially some growth in the back half of the year. Our pipelines are filling up.

Christopher Gorman: We continue to feel very good about our growth prospects for this business.

Christopher Gorman: Lastly, on loans. Broadly, loan demand remains tepid, and the pricing environment remains competitive. It has also taken some time after our focus on improving our liquidity and capital ratios last year to get our machine fully up to speed. Despite recent volume trends, we are optimistic we will start to see stabilization and potentially some growth in the back half of the year. Our pipelines are building. In the middle market, our pipelines are over 50% higher than last quarter, and in our institutional business, engagements broadly are picking up as well.

Speaker Change: Lastly, on loans. Broadly, loan demand remains tepid and the pricing environment remains competitive. It has also taken some time after our focus on improving our liquidity and capital ratios last year to get our machine fully up to speed.

Speaker Change: Despite recent volume trends, we are optimistic we will start to see stabilization and potentially some growth in the back half of the year.

Christopher Marrott Gorman: In the middle market, our pipelines are over 50% higher than last quarter. And in our institutional business, engagements are broadly picking up as well. Turning to Capital.

Speaker Change: Our pipelines are building.

Speaker Change: In the middle market, our pipelines are over 50% higher than last quarter.

Speaker Change: And in our institutional business, engagements broadly are picking up as well. Turning to capital, this quarter our common equity Tier 1 ratio improved by roughly another 20 basis points to 10.5%. Our marked CET1 and tangible capital ratios also improved.

Christopher Marrott Gorman: This quarter, our Common Equity Tier 1 ratio improved by roughly another 20 basis points to 10.5%. Our Mark CET1 and Tangible Capital Ratios also improved. As reported a few weeks ago, we have received the results of the Fed's stress test, or DFEST, which implied a preliminary stress capital buffer for key of 3.1%, which is up 60 basis points from the SCB we received in 2022. I'll make just a few

Christopher Gorman: Turning to Capital. This quarter, our Common Equity Tier 1 ratio improved by roughly another 20 basis points to 10.5%. Our mark CET-1 intangible capital ratios also. William Proof. As reported a few weeks ago, we have received the results of the Fed's Stress Test, or Defest, which implied a preliminary stress capital buffer for T of 3.1%, which is up 60 basis points from the FCD we received in 2022. I'll make just a few comments. The new 7.6% implied minimum, so the results continue to illustrate our strong capital position. Secondly, we, like others in our industry, don't have insight into the Fed's models.

Speaker Change: As reported a few weeks ago, we have received the results of the Fed's Stress Test, or DFEST.

Speaker Change: which implied a preliminary stress capital buffer for key of 3.1% which is up 60 basis points from the SCV we received in 2022. I'll make just a few comments. First

Christopher Marrott Gorman: First, even under this preliminary buffer, we have plenty of excess capital. Our 10.5% CET1 ratio compares to what would be a new 7.6% implied minimum. So the results continue to illustrate our strong capital. Secondly, we, like others in our industry, don't have insight into the Fed's model. The Fed's modeled loan losses for key, particularly for our commercial real estate and first lien mortgage portfolios, are inconsistent with our internally run stress

Speaker Change: Even under this preliminary buffer, we have plenty of excess capital. Our 10.5% CET1 ratio compares to what would be a new 7.6% implied minimum. So the results continue to illustrate our strong capital position.

Speaker Change: Secondly, we, like others in our industry, don't have insight into the Fed's models.

Christopher Gorman: The Feds model loan losses for T, particularly for our commercial real estate and first lean mortgage portfolios, are inconsistent with our internally run stress tests. We look forward to a continued constructive dialogue with our regulators on this topic.

Speaker Change: The Fed's model loan losses for key, particularly for our commercial real estate and first lien mortgage portfolios, are inconsistent with our internally run stress tests. We look forward to a continued constructive dialogue with our regulators on this topic.

Christopher Marrott Gorman: We look forward to continued constructive dialogue with our regulators on this topic. Looking ahead, I am excited about what lies ahead for Key. We have been discussing our net interest income pivot for each of the last several quarters. The pivot is now upon us. NII headwinds that we have experienced will now become NII tailwinds as we go forward.

Christopher Gorman: Looking forward, I am excited about what lies ahead for Key. We have been discussing our net interest income pivot for each of the last several quarters. The pivot is now upon us. NII headwinds that we have experienced will now become NII tailwinds as we go forward. Currently, I'm also encouraged by the business momentum we continue to see across the franchise. We demonstrated momentum in wealth management and commercial payments begin this past quarter, and we are driving meaningful client deposit growth across the entire franchise. Lastly, investment banking and loan pipelines are up meaningfully from prior periods.

Speaker Change: Looking forward, I am excited about what lies ahead for Key. We have been discussing our net interest income pivot for each of the last several quarters.

Speaker Change: The pivot is now upon us.

Speaker Change: NII headwinds that we have experienced will now become NII tailwinds as we go forward.

Clark Harold Ibrahim Khayat: I'm also encouraged by the business momentum we continue to see across the franchise. We demonstrated momentum in wealth management and commercial payments again this past quarter, and we are driving meaningful client deposit growth across the entire franchise. Lastly, investment banking and loan pipelines are up meaningfully from prior periods. With that, I'll turn the call over to Clark to provide more details on our financial results. Thanks, Chris. And thank you, everyone, for joining us today.

Speaker Change: Concurrently, I'm also encouraged by the business momentum we continue to see across the franchise. We demonstrated momentum in wealth management and commercial payments again this past quarter, and we are driving meaningful client deposit growth across the entire franchise.

Speaker Change: Lastly, investment banking and loan pipelines are up meaningfully from prior periods. With that, I'll turn the call over to Clark to provide more details on our financial results. Clark.

Clark Khayat: With that, I'll turn the call over to Clark to provide more details on our financial results. Clark, thanks Chris, and thank you everyone for joining us today. And now on slide 4. The second quarter is Chris mentioned. We reported earnings per share of 25 cents or 5 cents per share versus the first quarter or 3 cents per share, adjusting for last quarter's FDIT special assessment. Sequentially, revenue was essentially flat, down half of 1%, as a 1.5% increase in net interest income was offset by a 3% decline in non-interesting income. While expenses decline more meaningfully by 6% or 4%, excluding FDIT assessment impacts.

Clark Harold Ibrahim Khayat: Now on slide four. In the second quarter, as Chris mentioned, we reported earnings per share of $0.25, of $0.05 per share versus the first quarter, or $0.03 per share, adjusting for last quarter's FDIT special. Consequently, revenue was essentially flat, down half of 1%.

Clark: Thanks, Chris, and thank you, everyone, for joining us today. I'm now on slide four. So the second quarter, as Chris mentioned, we reported earnings per share of $0.25, $0.05 per share versus the first quarter, or $0.03 per share, adjusting for last quarter's FDIC special assessment.

Clark Harold Ibrahim Khayat: The 1.5% increase in net interest income was offset by a 3% decline in non-executives. However, expenses declined more meaningfully by 6%, or 4% excluding FDIC assessments. Credit costs were stable and included roughly $10 million in our allowance for credit loss. On a year-over-year basis, EPS declined, driven by a tough net income comparison, but as we've shared previously, we expect NII will start to become a real tailwind next quarter in the back half. Non-interest income grew 3% while expenses were flat.

Clark: Sequentially, revenue was essentially flat, down half of 1%, as a 1.5% increase in net interest income was offset by a 3% decline in non-interest income, while expenses declined more meaningfully by 6%, or 4% excluding FDIC assessment impacts.

Clark Khayat: Credit costs were stable and included roughly $10 million bill to our allowance for credit losses this quarter. On a year-over-year basis, EPS decline driven by a tough net interest income comparison, but as we share previously, we expect NII will start to become a real tailwind next quarter in the back half of the year. Non-interesting income grew 3% while expenses were flat.

Clark: Credit costs were stable and included a roughly $10 million bill to our allowance for credit losses this quarter.

Clark: On a year-over-year basis, EPS declined, driven by a tough net income comparison, but as we've shared previously, we expect NII will start to become a real tailwind next quarter and in the back half of the year.

Clark Khayat: Moving to the balance sheet on slide 5. Average loans declined about 2% to coinculate to $109 billion and ended the quarter at about $107 billion. The decline reflects tepid client demand, a 1% decline in CNI utilization rates, our disciplined approach to what we choose to put on our balance sheet, and the intentional runoff of low yielding consumer loans as they pay down a mature. As Chris mentioned, we continue to have active dialogue with clients and prospects, and our loan pipelines are building nicely, which gives us optimism that balances will stabilize or begin to improve from June 30th levels.

Clark Harold Ibrahim Khayat: Moving to the balance sheet on slide five, average loans declined about 2% sequentially to $109 billion and ended the quarter at about $107 billion. The decline reflects tepid client demand, a 1% decline in C&I utilization rates, our disciplined approach as to what we choose to put on our balance, and The Intentional Runoff of Low-Yielding Consumer Loans as They Pay Down. As Chris mentioned, we continue to have active dialogue with clients and prospects, and our loan pipelines are building nicely, which gives us optimism that balances will stabilize or begin to improve from June 30th. On slide six, average deposits increased nearly 1% sequentially to $144 billion, reflecting growth across consumer and commercial deposits.

Clark: Non-interest income grew 3% while expenses were flat.

Clark: Moving to the balance sheet on slide 5. Average loans declined about 2% sequentially to $109 billion, and end of the quarter at about $107 billion.

Clark: The decline reflects tepid client demand, a 1% decline in C&I utilization rates, our disciplined approach as to what we choose to put on our balance sheet, and the intentional runoff of low-yielding consumer loans as they pay down and mature.

Clark: As Chris mentioned, we continue to have active dialogue with clients and prospects, and our loan pipelines are building nicely, which gives us optimism that balances will stabilize or begin to improve from June 30th levels.

Clark Khayat: On slide 6, average deposits increased nearly 1% to coinculate to $144 billion, reflecting growth across consumer and commercial deposits. Cointed deposits for a 5% year-over-year as broker deposits have come down by roughly $5.8 billion dollars from a year-to-go lows. Both total and intersparing profit deposits increased by 8 basis points during the quarter, a slower rate of increase compared to the first quarter as shorter rates have remained high. Three basis points of the increase is due to the intentional addition of roughly $1.6 billion dollars of time deposits, reflecting a more conservative approach as we prepare for anticipated changes in liquidity rules.

Chris: On slide 6, average deposits increased nearly 1% sequentially to $144 billion, reflecting growth across consumer and commercial deposits. Client deposits broke 5% year over year as broker deposits have come down by roughly $5.8 billion from year-ago levels.

Clark Harold Ibrahim Khayat: Client deposits are up 5% year over year as broker deposits have come down by roughly $5.8 billion from a year ago. Both total and interest-bearing cost of deposits increased by eight basis points during the quarter, a slower rate of increase compared to the first quarter as short-term rates have remained unchanged. Three basis points of the increase are due to the intentional addition of roughly $1.6 billion of time deposits, reflecting a more conservative approach as we prepare for anticipated changes in liquidity.

Clark: Both total and interest-bearing cost of deposits increased by eight basis points during the quarter, a slower rate of increase compared to the first quarter as short-term rates have remained high.

Clark: Three basis points of the increase is due to the intentional addition of roughly $1.6 billion of time deposits, reflecting a more conservative approach as we prepare for anticipated changes in liquidity rules.

Clark Khayat: Non-intersparing deposits stabilized at 20% of total deposits, and what adjusted for non-intersparing deposits in our hybrid accounts, this percentage remained flat-linked quarter at 24%. Our cumulative intersparing deposit rate was 53% since the Fed began raising interest rates. Our deposit rates remained stable across the franchise with ongoing testing by product and market. Given higher rates to the year, we have not seen as much opportunity to reduce deposit rates. However, we have continued to attract client deposits without having to lead the market on rates, nor have we been paying the cash premiums that many of our competitors are offering to attract new operating accounts.

Clark Harold Ibrahim Khayat: Non-interest bearing deposits stabilize at 20% of total deposits, and when adjusted for non-interest bearing deposits in our hybrid accounts, this percentage remains flat linked quarter to quarter. Our cumulative interest-bearing deposit beta has been 53% since the Fed began raising interest rates. Transcripts provided by Transcription Outsourcing, LLC.

Clark: Non-interest bearing deposits stabilized at 20% of total deposits, and when adjusted for non-interest bearing deposits in our hybrid accounts, this percentage remained flat in the quarter at 24%.

Clark: Our cumulative interest bearing deposit beta was 53% since the Fed began raising interest rates.

Clark Harold Ibrahim Khayat: Even higher rates through the year, we have not seen as much opportunity to reduce deposits. However, we've continued to attract client deposits without having to leave the market on rates, nor have we been paying the cash premiums that many of our competitors are offering to attract new operators. Moving to net interest income on the slide, tax-equivalent net interest income was $899 million, up $13 million from the prior quarter.

Clark: Our deposit rates remain stable across the franchise with ongoing testing by product and market.

Clark: Given higher rates through the year, we have not seen as much opportunity to reduce deposit rates. However, we have continued to attract client deposits without having to leave the market on rates, nor have we been paying the cash premiums that many of our competitors are offering to attract new operating accounts.

Clark Khayat: Moving to net interest income in the margin on slide 7. Tax equivalent net interest income was $899 million dollars, of $13 million dollars from the prior quarter. The benefit from fixed rate asset reprising mostly from swaps and short gated US Treasuries was partly upset by higher funding costs, lower loan balances, and impact from roughly $1.25 billion dollars of forward starting swaps that became effective this quarter. You will recall that we put these swaps in place in 2023 at a then prevailing forward rate of 3.4% because we were managing the rolloffs of the 2024 swaps. Net interest margin increased by two basis points to 2.04%.

Clark: Moving to net interest income in the margin on slide 7.

Clark: Tax equivalent net interest income was $899 million, up $13 million from the prior quarter. The benefit from fixed-rate asset repricing, mostly from swaps and short-dated U.S. Treasuries,

Clark Harold Ibrahim Khayat: The benefit from fixed-rate asset repricing, mostly from swaps and short-dated U.S. Treasury, was partly offset by higher funding costs, lower loan balances, and the impact from roughly $1.25 billion of forward-starting swaps that became effective this year. You will recall that we put these swaps in place in 2023 at a then-prevailing forward rate of 3.4% as we were managing the roll-offs of the 2024- That In addition to the NII drivers just mentioned, the previously mentioned liquidity bill this quarter impacted NIM by about 2.5%. Cash assets increased by roughly $3.5 billion.

Clark: was partly offset by higher funding costs, lower loan balances, and impact from roughly $1.25 billion of forward-starting swaps that became effective this quarter.

Clark: You will recall that we put these swaps in place in 2023 at a then prevailing forward rate of 3.4% as we were managing the roll-offs of the 2024 swaps.

Clark Khayat: In addition to the NII drivers just mentioned, the previously mentioned liquidity bill this quarter impacted NIN by about two basis points. Cash assets increased by roughly $3.5 billion dollars. We continue to believe that our NIN bottomed in the third quarter of 2023 and that NII bottomed in the first quarter of 2024. Turning to slide 8, net interest income was $627 million dollars, of 3% year over year. Compared to the prior year, the increase is primarily driven by trust and investment services, commercial mortgage servicing fees, and investment banking fees. This offset a 21% decline in corporate services income, which is reverted to a more normalized level. At 2022, in the first half of 2023, benefited from elevated LIBORs, so for a related transition activity.

Clark: Net interest margin increased by two basis points to 2.04%. In addition to the NII drivers just mentioned, the previously mentioned liquidity bill this quarter impacted NIM by about two basis points.

Clark Harold Ibrahim Khayat: I continue to believe that our NIM bottomed in the third quarter of 2023 and that NII bottomed in the first quarter of 2024. Turning to slide eight, non-interest income of $627 million for a 3% year, Compared to the prior year, the increase was primarily driven by trust and investment services, commercial mortgage servicing fees, and investment... This offset a 21% decline in corporate services income, which has reverted to a more normalized level. 2022 and the first half of 2023 benefited from elevated LIBOR SOFR-related... Commercial mortgage servicing fees rose 22% year over year, reflecting growth in servicing and active special services. At June 30th, we serviced about $680 billion of assets on behalf of third-party clients, including about $230 billion of special services.

Clark: Cash assets increased by roughly $3.5 billion sequentially.

Clark: We continue to believe that our NIM bottomed in the third quarter of 2023 and that NII bottomed in the first quarter of 2024.

Clark: Turning to slide 8, non-interest income was $627 million, up 3% year-over-year.

Clark: Compared to the prior year, the increase was primarily driven by trust and investment services, commercial mortgage servicing fees, and investment banking fees.

Clark: This offset a 21% decline in corporate services income, which has reverted to a more normalized level as 2022 and the first half of 2023 benefited from elevated LIBOR SOFR-related transition activities.

Clark Khayat: Commercial mortgage servicing fees rose 22% year over year, reflecting growth in servicing and active special servicing balances. At June 30th, we serviced about 680 billion of assets on behalf of third party clients, including about 230 billion of special servicing, $7 billion dollars of which was an active special servicing. Trust and investment service fees grew 10% year over year, as assets under management grew 7% to 57.6 billion. We saw positive net new flows in the quarter, and as Chris mentioned, sales production set another record in the quarter. Our investment banking fees were consistent with our prior guidance for the quarter.

Clark: Commercial mortgage servicing fees rose 22% year-over-year, reflecting growth in servicing and active special servicing balances.

Clark: At June 30th, we serviced about $680 billion of assets on behalf of third-party clients, including about $230 billion of special servicing, $7 billion of which was in active special servicing.

Clark Harold Ibrahim Khayat: $7 billion of which was in active, Trust and investment service fees grew 10% year over year as assets under management grew 7% to 57%. We saw positive net new flows in the quarter, and as Chris mentioned, sales production set another record. Our investment banking fees were consistent with our prior guidance for the court.

Clark: Trust and Investment Service fees grew 10% year-over-year as assets under management grew 7% to $57.6 billion.

Speaker Change: We saw positive net new flows in the quarter, and as Chris mentioned, sales production set another record in the quarter.

Clark Khayat: Across products, higher M&A and debt origination activity offset lower syndication. and Commercial Holdings Activity.

Clark Harold Ibrahim Khayat: Cross product higher M&A and debt origination activity offset lower syndication. For slide 9, second quarter non-interest expenses were $1.08 billion flat year-over-year and down 4% sequentially excluding FDIC. This quarter, we incurred an additional $5 million FDIC charge on top of last quarter's $29 million. On a year-over-year basis, personnel expenses were up due to Key's higher stock price, offset by lower marketing and business services. Coincidentally, the decline was driven by lower incentive compensation and employee benefits from FICA.

Speaker Change: Our investment banking fees were consistent with our prior guidance for the quarter. Across products, higher M&A and debt origination activity offset lower syndication and commercial mortgage activity.

Clark Khayat: On slide nine, second quarter, nine intersections were $1.08 billion, flat year-over-year, and down 4% sequentially, excluding FDIC special assessors. This quarter, we incurred an additional $5 million FDIC charge on top of last quarter's $29 million dollars. On a year-over-year basis, personal expenses were up due to key higher stock price, offset by lower marketing and business services and professional fees. Coincidentally, the crime was driven by lower incentive compensation and employee benefits from bike-ass seasonality in the first quarter.

Speaker Change: On slide 9, second quarter non-interest expenses were $1.08 billion flat year-over-year and down 4% sequentially excluding FDIC special assessments.

Speaker Change: This quarter we incurred an additional $5 million FDIC charge on top of last quarter's $29 million assessment.

Speaker Change: On a year-over-year basis, personnel expenses were up due to Key's higher stock price, offset by lower marketing and business services and professional fees.

Speaker Change: Unfortunately, the decline was driven by lower incentive compensation and employee benefits from FICA seasonality in the first quarter.

Clark Khayat: Moving to slide 10, credit quality remained solid. That charge us were $91 million or 34 basis points of average loans and the link with these picked up on the FD basis points. Now performing loans increased 8% sequentially and remained low at 66 basis points, appeared in loans at June 30th. And as expected, the pace has increased and criticized loans slowed markedly to 6% in 2Q following our deep dive in the first quarter. We expect that to continue to moderate and flatten out by the end of the year, assuming no material macro deterioration.

Clark Harold Ibrahim Khayat: Moving to slide 10, credit quality remains solid. Net charge-offs were $91 million, or 34 basis points on average. The link will be picked up on. Non-performing loans increased 8% sequentially and remain low at 66 basis points of period end loans. And, as expected, the pace of increase in criticized loans slowed markedly to 6% in, following our deep dive in the first quarter. We expect that to continue to moderate and flatten out by the end of the year, assuming there is no material change in that. Turning to slide 11, we continue to build our capital. CDT1 was up 20 basis points in the second quarter to 10 and a half.

Speaker Change: Moving to slide 10, credit quality remained solid. Net charge-offs were $91 million or 34 basis points of average loans, and delinquency ticked up only a few basis points.

Speaker Change: Non-performing loans increased 8% sequentially and remained low at 66 basis points of period end loans at June 30th.

Speaker Change: And as expected, the pace of increase in criticized loans slowed markedly to 6% in 2Q following our deep dive in the first quarter. We expect that to continue to moderate and flatten out by the end of the year, assuming no material macro deterioration.

Clark Khayat: Turning to slide 11, we continue to build our capital position with CDT1 up 20 basis points in the second quarter to 10.5%. Our marked CDT1 ratio rates, which includes unrealized AFS and pension losses, improved to 7.3%, and our changeable common equity ratio increased to 5.2%. The increases reflect work we've done over the past year to build capital and reduce our exposure to higher rates. We have reduced our CDT1 by 20% over the past 12 months, and at June 30th, a balance sheet is effectively interest rate neutral over 12 months right now. Quite higher rates. Our AOTI improved by about $170 million to negative $5.1 billion a quarter end, including $4.3 billion related to AFS.

Speaker Change: Turning to slide 11, we continue to build our capital position with CDT1 up 20 basis points in the second quarter to 10.5%.

Clark Harold Ibrahim Khayat: Our Mark CET1 ratio, which includes unrealized AFS and pension losses, improved to 7.3%, and our tangible common equity ratio increased to 5.1%. The increases reflect work we've done over the past year to build capital and reduce our exposure to higher... We've reduced our DV01 by 20% over the past 12 months, and at June 30th, our balance sheet is effectively interest rate neutral over a 12-month period. Quite higher rates, our AOTI improved by about $170 million to negative $5.1 billion a quarter, including $4.3 billion related to ads.

Speaker Change: Our Mark CET1 ratio, which includes unrealized AFS and pension losses, improved to 7.3% and our Tangible Common Equity ratio increased to 5.2%.

Speaker Change: The increases reflect work we've done over the past year to build capital and reduce our exposure to higher rates. We have reduced our DDO1 by 20% over the past 12 months, and at June 30th, our balance sheet was effectively interest rate neutral over a 12-month horizon.

Speaker Change: At quite higher rates, our AOTI improved by about $170 million to negative $5.1 billion at quarter end, including $4.3 billion related to AFS.

Clark Khayat: On the right side of this slide, we've extended our AOTI projections through 2026. As we've been doing, we show two scenarios: the Ford curve is a June 30th, which assumes 6 cuts through 2026, and another scenario where rates are held at June 30th levels throughout the forecast and time rises. With the Ford curve, we would expect AOTI to improve by 1.9 billion or 39% by year end 2026. If current rates remain in place, we would still expect 1.7 billion of improvement given the materials cash flow in time.

Clark Harold Ibrahim Khayat: On the right side of this slide, we've extended our AOCI projections through 2020. As we've been doing, we've shown two scenarios, the forward curve as of June 30th, which assumes six cuts through 2026, and another scenario where rates are held at June 30th levels throughout the forecast. For the forward curve, we would expect AOCI to improve by $1.9 billion or 39% by year-end 2020 assuming current rates remain in

Speaker Change: On the right side of this slide, we've extended our AOCI projections through 2026.

Speaker Change: As we've been doing, we showed two scenarios, the forward curve as of June 30th, which assumes six cuts through 2026, and another scenario where rates are held at June 30th levels throughout the forecasted time horizon.

Speaker Change: With the forward curve, we would expect AOCI to improve by $1.9 billion, or 39% by year-end 2026.

Clark Harold Ibrahim Khayat: We would still expect $1.7 billion of improvement given the maturities of cash. Slide 12 provides your outlook for 2024 relative to 2018. P&L guidance remains unchanged across all major lines.

Speaker Change: If current rates remain in place, we would still expect $1.7 billion of improvement given the maturity's cash flow and time.

Clark Khayat: Flight 12 provides our outlet for 2024 relative to 2023. Our P&L guidance remains unchanged across all major line items. We have updated our loan guidance to reflect the lack of domain we referenced. We now expect average loans to be down 7 to 8% in 2024, and for the year end 2024 loans to be down 4 to 5% compared to the end of 2023. This implies 4th quarter loan balances are flat to up 1 billion dollars from June 30th levels. We also positively revised our average deposit guidance to relatively stable from flat to down 2%, with client deposit growth in a low single-digit range.

Speaker Change: Slide 12 provides our outlook for 2024 relative to 2023.

Clark Harold Ibrahim Khayat: We have updated our loan guidance to reflect the lack of demand we referenced. We now expect average loans to be down 7% to 8% in 2022, and for year-end 2024 loans to be down four to five percent. This implies fourth-quarter loan balances are flat to up $1 billion from June 30. We also positively revised our average deposit guidance to relatively stable from flat to down 2% with client deposit growth in the low.

Speaker Change: Our P&L guidance remains unchanged across all major line items.

Speaker Change: We have updated our loan guidance to reflect the lack of demand we referenced. We now expect average loans to be down 7% to 8% in 2024 and for the year-end 2024 loans to be down 4% to 5% compared to the end of 2023.

Speaker Change: This implies fourth quarter loan balances are flat to up one billion dollars from June 30th levels.

Speaker Change: We also positively revised our average deposit guidance to relatively stable from flat to down 2% with client deposit growth in the low single-digit range.

Clark Khayat: We continue to believe we can hit our full year 2024 and 4th quarter exit rate net interest income commitments, even if loan volumes end up slightly short of our revised current.

Clark Harold Ibrahim Khayat: We continue to believe we can hit our full year 2024 and fourth quarter exit rate net interest income commitments even if loan volumes end up slightly short of our revised. For slide 13, we update the net interest income opportunity from swaps and short-dated treasury. Accumulative opportunities stood at about $950 million using the June 30 forward curve, little change from last year. As of the end of the second quarter, we've realized approximately 50% of this opportunity, which is shown on the left side in gray.

Speaker Change: We continue to believe we can hit our full-year 2024 and fourth quarter exit rate net interest income commitments, even if loan volumes end up slightly short of our revised target.

Clark Khayat: On slide 13, we update the net interest income opportunity from swaps and short data Treasuries, the Turing. The cumulative opportunity stood at about 950 million using the June 34, current little change from last. As to the end of the second quarter, we've realized approximately 50% of this opportunity, which is shown on the left side in the gray bars. This leads about $480 million annualized NII opportunity left, which we expect to capture over the next three quarters, with the most meaningful benefits expected to occur in the fourth quarter and first quarter of 2025.

Speaker Change: On slide 13, we update the net interest income opportunity from swaps and short-dated treasuries maturing.

Speaker Change: The cumulative opportunity stood at about $950 million using the June 30 forward curve, a little change from last quarter.

Speaker Change: As of the end of the second quarter, we've realized approximately 50% of this opportunity, which is shown on the left side in the gray bars.

Clark Harold Ibrahim Khayat: This leaves about $480 million annualized NII opportunity left, which we expect to capture over the next three quarters, with the most meaningful benefits expected to occur in the fourth quarter and first quarter. Moving to slide 14, we've laid out for you the path of how we intend to get from the 899 million of reported net interest income in the second quarter to a $1 billion-plus number by the end of the year under a couple of potential...

Speaker Change: This leaves about $480 million annualized NII opportunity left, which we expect to capture over the next three quarters with the most meaningful benefits expected to occur in the fourth quarter and first quarter of 2025.

Clark Khayat: Moving to slide 14, we've laid out for you the path of how we intend to get from the 899 million of reported net interest things. We've made some of the second quarter to a 1 billion plus number by the end of the year under a couple potential rate scenarios. In short, we believe we have about 130 million of tailwinds from lower fixed rate assets and swaps running off and from higher rate count. The rats largely net that includes what we believe are relatively conservative assumptions around modic loan growth, deposit costs, funding mix, and near term negative NII impact from a Fed rate cut for two.

Speaker Change: Moving to slide 14, we've laid out for you the path of how we intend to get from the 899 million of reported net interest income in the second quarter to a one billion plus number by the end of the year under a couple of potential wage scenarios.

Clark Harold Ibrahim Khayat: In short, we believe we have about $130 million of tailwinds from lower fixed-rate assets and swaps running off, and from higher fixed-rate assets running off. The rest largely nests out and includes what we believe are relatively conservative assumptions around modest loan growth, deposit costs, funding mix, and near-term negative NII impact from a fed-based approach. In the top block, we've laid out the drivers of growth, assuming the Fed cuts once in December. In this scenario, we expect about $80 million in benefits from swaps in U.S. Treasuries.

Speaker Change: In short, we believe we have about $130 million of tailwinds from lower fixed rate assets and swaps running off and from higher daytown.

Speaker Change: The rest largely nets out and includes what we believe are relatively conservative assumptions around modest loan growth, deposit costs, funding mix, and near-term negative NII impact from a Fed rate cut or two.

Clark Khayat: In the top block, we've laid out the drivers of the growth, assuming the Fed cuts once in December. In this scenario, we expect about $80 million benefit from swaps and US Treasuries. We also expect growth from redeployment of lower yielding assets, more specifically approximately $2 billion of other security caseloads in the back half of the year and about $1.5 billion in maturing consumer loans. J count and some pickup and loan fees drives the other $10 to $15 million. In the bottom block, we've performed the same exercise, but this time, assuming that cuts by 25 basis points in September and again in December.

Speaker Change: In the top block, we've laid out the drivers of the growth, assuming the Fed cuts once in December .

Speaker Change: In this scenario, we expect about $80 million benefit from swaps in U.S. Treasuries.

Clark Harold Ibrahim Khayat: We also expect growth from redeployment of lower-yielding assets, more specifically, approximately $2 billion of other security cash flows in the back half of the year and about $1.5 billion in maturing accounts and some pickup and loan fees drive the owner $10 to $15,000. In the bottom walk, we perform the same exercise, but this time assuming the Fed cuts by 25 basis points in September. Well, we still believe we can comfortably achieve our full-year NII target rate in this scenario.

Speaker Change: We also expect growth from redeployment of lower-yielding assets, more specifically approximately $2 billion of other security cash flows in the back half of the year and about $1.5 billion of maturing consumer loans.

Speaker Change: Day count and some pickup and loan fees drives the other $10 to $15 million.

Speaker Change: In the bottom walk, we performed the same exercise, but this time assuming the Fed cuts by 25 basis points in September and again in December .

Clark Khayat: While we still believe we can comfortably achieve our full year NII target rate in this scenario, we do become a little tighter on fourth quarter exit rate, although we still think we'll hit that guy. Keep in mind, while two rate cuts this year would have a near-term impact on NII as it takes time to deploy deposit data, we would expect to recapture that effect in 2025. We would also likely drive improved balance sheet dynamics as we would see benefit from the approximately $7 billion of forward starting received fixed swaps that come off in the first half of 2025 as we position ourselves to be modestly liability sensitive next year.

Clark Harold Ibrahim Khayat: We do become a little tighter on the fourth-quarter exit rate, although we still think we'll hit that. Keep in mind, while two rate cuts this year would have a near-term impact on NII as it takes time to deploy deposit data, we would expect to recapture that effect in 2025, and would also likely drive improved balance sheet dynamics. We benefit from the approximately $7 billion of forward-starting received fixed swaps that come off in the first half of 2025 as we position ourselves to be modestly liability-bound.

Speaker Change: Well, we still believe we can comfortably achieve our full-year NII target rate in this scenario. We do become a little tighter on fourth-quarter exit rate, although we still think we'll hit that guy.

Speaker Change: Keep in mind, while two rate cuts this year would have a near-term impact on NII as it takes time to deploy deposit data, we would expect to recapture that effect in 2025.

Speaker Change: It would also likely drive improved balance sheet dynamics, as we would see benefit from the approximately $7 billion of forward-starting received fixed swaps that come off in the first half of 2025, as we position ourselves to be modestly liability-sensitive next year.

Clark Khayat: In addition, rate cuts would most likely provide benefits beyond NII, higher client transition transaction activity, more demand for credit, and improvements capital, so we would welcome this trade-off.

Speaker Change: In addition, rate cuts would most likely provide benefits beyond NII, higher client transaction activity, more demand for credit, and improvements to capital, so we would welcome this tradeoff.

Operator: With that, I'll now turn the call back to the operator for instructions for the Q&A portion of our call. Operator. Thank you. Ladies and gentlemen, if you would like to ask a question, you may press one, then zero on your telephone keypad. You will hear acknowledgement that your line has been placed in Q. You may remove yourself from this Q by depressing the one-year-old once again. One moment, please, for the first question.

Clark Harold Ibrahim Khayat: In addition, rate cuts would most likely provide benefits beyond NII, higher client transaction activity, more demand for credit, and improvements to capital, so we would welcome this. With that, I'll now turn the call back to the operator for instructions for the Q&A portion of our call. Thank you. Ladies and gentlemen, if you would like to ask a question, you may press 1, then 0 on your telephone keypad.

Speaker Change: With that, I'll now turn the call back to the operator for instructions for the Q&A portion of our call. Operator?

Speaker Change: Thank you. Ladies and gentlemen, if you would like to ask a question, you may press 1 then 0 on your telephone keypad. You will hear acknowledgement that your line has been placed in queue. You may remove yourself from this queue by depressing the 1-0 once again. One moment please for the first question.

Operator: You will hear acknowledgement that your line has been placed in queue. You may remove yourself from this queue by depressing the 1-0 once again. One moment, please, for the first question. And we go to the line of Ebrahim Poonawala with Bank of America. Please go ahead. Good morning. Morning, Ebrahim.

Ebrahim Poonawala: And we go to the line of Ibrahim Punewala with Bank of America. Please go ahead.

Speaker Change: And we go to the line of Ebrahim Poonawala with Bank of America. Please go ahead.

Ebrahim Poonawala: Good morning. Morning, Ibrahim.

Ebrahim Poonawala: I guess maybe cloud just starting out with NII, huge focus for the stock.

Clark Harold Ibrahim Khayat: I guess maybe Clark, just starting out with NII, a huge focus for the stock, looking at slide 14, it seems like the $120 million is locked in no matter what. So fourth quarter NII, $102 million. The upside from there is driven by how some of the... The second part of that walk works out.

Speaker Change: A good morning. Good morning, Ebrahim.

Ebrahim Huseini Poonawala: I guess maybe Clark, just starting out with NII, huge focus for the stock, looking at the slide 14, it seems like the $120 million is locked in no matter what, so fourth quarter NII, one or two or, and then

Ebrahim Poonawala: Looking at the slide 14, it seems like the 120 million is locked in no matter what. So fourth core NII, one or two. And then the upside from there is driven by how some of the second part of that walk works out.

Speaker Change: The upside from there is driven by how some of the...

Ebrahim Poonawala: So give us a sense of the downside risk on NII if loan growth ends up being weaker or negative in the back half. And implications, I guess, more so for 25 was 24.

Clark Harold Ibrahim Khayat: So give us a sense of the downside risk on NII if loan growth ends up being weaker or negative in the back half, and the implications, I guess, more so for 25 versus 24. Just talk through it with us in terms of, so you've given us good color on the Fed rate. I'm just wondering what weaker loan growth would imply and the scenario where we get to the 2.5 NIM versus the 2.4. Yeah, okay. Thanks, Ebrahim. And maybe I'll just kind of reground everybody in the whole whole thing.

Speaker Change: Second part of that work works out to give us a sense of.

Speaker Change: [inaudible]

Ebrahim Poonawala: Just talk through us in terms of you given good color on the federates. I'm just wondering what we can loan growth would imply.

Speaker Change: I'm just wondering what weaker loan growth would imply and the scenario where we get to the 2.5 name versus the 2.4.

Clark Khayat: Yeah, okay, thank you, Ebrahim.

Clark Harold Ibrahim Khayat: And then I'll get to your question, because I'm sure this is not a unique question in the NII question for the fourth quarter. So, first of all, I think we've been really consistent or tried to be that a lot of this pull through will happen in the second half of 24, which we would expect will materialize, as you see on the slide. So, we've talked a lot about the structural roll-off in swaps and treasuries, so just, you know, a reminder: $5.5 billion of treasuries maturing in the second half at an average yield of about 47 basis points, $3.8 billion of swaps at about 60 basis points, and then $2 billion of securities repricing at roughly, you know, a low to mid 2% yield. So, just that's the piece on the left that you referred to.

Clark Khayat: And maybe I'll just kind of reground everybody in the whole thing, and then I'll get to your question because I'm sure this is not the, you're not unique in the NII question for the fourth quarter. So, first of all, I think we've been really consistent or tried to be that a lot of this pull through will happen in the second half of 24, which we would expect will materialize as you see on this slide, and you know it. So, we've talked a lot about the structural roll off and swaps and Treasuries. So, just, you know, a reminder: five and a half billion of treasuries maturing in the second half at an average yield of about 47 basis points, 3.8 billion of swaps at about 60 basis points, and then 2 billion securities reprising at roughly, you know, low to mid 2% yield.

Speaker Change: Yeah okay thanks Ebrahim and maybe I'll just kind of reground everybody in the whole whole thing and then I'll get to your question because I'm sure...

Speaker Change: This is not, uh, you're not unique in the, in the...

Speaker Change: In the NII question for the fourth quarter. So first of all, I think we've been really consistent or tried to be that a lot of this pull through will happen in the second half of 24, which we would expect will materialize as you see on the slide and you noted.

Speaker Change: So, we've talked a lot about the structural roll-off in swaps and treasuries, so just, you know, a reminder, $5.5 billion in treasuries maturing in the second half at an average yield of about 47 basis points.

Speaker Change: 3.8 billion of swaps at about 60 basis points and then 2 billion securities repricing.

Clark Khayat: So, just that's, that's the piece on the left that you referred to. There's another 10 to 15 million in day count and fees. So, again, we feel fairly, really good about that pulling through. We do expect deposit costs to continue to rise. So, let's assume one, one cut coming in December. We got into a mid 50s beta. If there's no cuts. So, a little bit of direct up. If there's one cut in December, that won't be impacted, you know, materially. We will see some benefit on beta as if there's a cut in September. But we will also see the impact, obviously, of loan yields coming down.

Speaker Change: at roughly low to mid 2% yield. So just that's the piece on the left that you referred to. There's another 10 to 15 million in day count and fees. So again, we feel fairly good about that pulling through.

Clark Harold Ibrahim Khayat: There's another $10 to $15 million in day count and fees, so, again, we feel fairly good about that pulling through. We do expect deposit costs to continue to rise, so let's assume one cut coming in December. We got into a mid-50s beta if there are no cuts, so a little bit of drift up. If there's one cut in December, that won't be impacted, you know, materially. We will see some benefit on betas if there's a cut in September, but we will also see the impact, obviously, of loan yields coming down, and that'll happen in advance, not just because the loans reprice immediately, but SOFR will reflect that, as you know, a little bit before that cut.

Speaker Change: We do expect deposit costs to continue to rise. So let's assume one cut coming in December . We got into a mid-50s beta. If there's no cuts, so a little bit of drift up. If there's one cut in December , that won't be impacted materially.

Speaker Change: We will see some benefit on betas if there's a cut in September .

Clark Khayat: And that'll happen in advance, not just because the loans reprised immediately, but sulfur will reflect that, as you know, a little bit before that cut. So, there's a little bit of negative drag in 2024 if there's a, you know, a first cut in September. As you commented, right, loan balances will be the variable. So, we've been a little weaker in the quarter than planned. As Chris said, our pipelines are strengthening materially. I think that's a function of, you know, ongoing engagement with our teams, with clients and prospects. As you said, middle market is up 50% plus on the pipeline side.

Speaker Change: But we will also see the impact, obviously, of loan yields coming down, and that'll happen in advance, not just because the loans reprice immediately, but SOFR will reflect that, as you know, a little bit before that cut. So there's a little bit of negative drag in 2024 if there's a, you know, a first cut in September .

Clark Harold Ibrahim Khayat: So there's a little bit of negative drag in 2024 if there's a first cut in September. As you commented, right, loan balances will be the variable. So we've been a little weaker in the quarter than planned.

Speaker Change: As you commented, right, loan balances will be the variable. So we've been a little weaker in the quarter than planned.

Clark Harold Ibrahim Khayat: As Chris said, our pipelines are strengthening materially. I think that's a function of ongoing engagement with our teams, with clients, and prospects. As you said, the middle market is up 50% plus on the pipeline side, so we do expect and are starting to see some traction in the back half. I think if there's a little bit lighter loan growth than what we guided to, we'll still be okay getting there. I think if it's materially lower, then that's a different conversation.

Speaker Change: As Chris said, our pipelines are strengthening materially. I think that's a function of ongoing engagement with our teams.

Speaker Change: with clients and prospects.

Clark Khayat: So, we do expect and are starting to see some traction in the back half. I think if there's a little bit lighter loan growth than what we got into, we'll still be okay getting there.

Speaker Change: As you said, middle market is up 50% plus on the pipeline side, so we do expect and are starting to see some traction in the back half. I think if there's a little bit lighter loan growth than what we guided to, we'll still be okay getting there. I think if it's materially lower, then that's a different conversation.

Clark Khayat: And if it's materially lower, then, you know, that's a different conversation. What the real implication is, I think, and probably where your question is going, is what does that mean for 2025? And the size of the balance sheet and the loan book going there. So, look, I do think we all expect rate cuts to come, although I'm certainly not very good at predicting the economy. So, I won't try to do that. But should we get some rate cuts? We do think that will create more client activity. We're already, as we talked about in pipeline and engagement dialogue, seeing client interest in that.

Clark Harold Ibrahim Khayat: What the real implication is, I think, and probably where your question is going is, what does that mean for 2025 and the size of the balance sheet in the loan book going there? So, look, I do think we all expect rate cuts to come, although I'm certainly not very good at predicting the economy, so I won't try to do that. But should we get some rate cuts, we do think that will create more client activity.

Speaker Change: What the real implication is, I think, and probably where your question's going is, what does that mean for 2025?

Speaker Change: and the size of the balance sheet in the loan book going there. So, look, I do think we all expect rate cuts to come although I'm certainly not very good at predicting the economy so I won't try to do that but.

Speaker Change: Should we get some rate cuts? We do think that will create more client activity. We're already, as we talked about in pipeline and engagement dialogue, seeing client interest in that.

Clark Khayat: I think that means even if we start on a lower exit rate on loans, we will see good, strong growth going into 2025 on loans. You know, in the 12 years, I've been a key other than the last 12 months. We've been a leader on commercial loan growth. And I don't see anything today that would cause me to believe that will be different going forward.

Clark Harold Ibrahim Khayat: We're already, as we talked about in the pipeline and engagement dialogue, seeing client interest in that. I think that means even if we start at a lower exit rate on loans, we will see good, strong growth going into 2025 on loans. You know, in the 12 years I've been at Key, other than the last 12 months, we've been a leader in commercial loan growth, and I don't see anything today that would cause me to believe that will be different going forward.

Speaker Change: I think that means even if we start at a lower exit rate on loans, we will see good, strong growth.

Speaker Change: Closing into 2025 on loans. You know in the twelve years I've been at Key, other than the last 12 months, we've been a leader on commercial loan growth and I don't see anything today that would cause me to believe that would be different going forward.

Clark Khayat: But I do think it's valuable maybe to add a couple pieces of content on 2025 that we really haven't covered. We've been, you know, laser-focused on 2024 swaps and treasury. So let me just add something that we've included in the appendix on slide 20, which just gives you some sense of maybe some repricing opportunity in 25 as well. And that is about 20 billion additional asset repricing. that comes next year, those yields are low 3%, and that comprised, you know, 5.2 billion swaps coming off at 180. So, you know, some more swap pickup, not as meaningful as what we're seeing today, but not unmeaningful at those levels.

Clark Harold Ibrahim Khayat: But I do think it's valuable, maybe, to add a couple pieces of content on 2025 that we really haven't covered. We've been, you know, laser focused on 2024 swaps and Treasury, so let me just add something that we've included in the appendix on slide 20, which just gives you some sense of maybe some repricing opportunities in 2025 as well, and that is about $20 billion of additional asset repricing that comes next year. Those yields are a low 3%.

Speaker Change: But I do think it's valuable maybe to add a couple pieces of content on 2025 that we really haven't covered.

Speaker Change: laser focused on 2024 swaps and Treasury. So let me just add

Speaker Change: Something that we've included in the appendix on Slide 20, which just gives you some sense of maybe some repricing opportunity in 25 as well. And that is about $20 billion of additional asset repricing.

Clark Harold Ibrahim Khayat: And that was comprised of, you know, 5.2 billion of swaps coming off at 180. So, you know, some more swap pickup, not as meaningful as what we're seeing today, but not unmeaningful at those levels. Another 11 billion plus of fixed rate loan repricing that are coming off at 415. And then 4.2 billion of fixed rate securities that are about 275. So, definite opportunity there.

Speaker Change: That comes next year. Those yields are low 3%.

Speaker Change: And that comprised of, you know, 5.2 billion of swaps coming off at 180, so, you know, some more swap pickup, not as meaningful as what we're seeing today, but not unmeaningful at those levels. Another 11 billion plus of fixed rate loan repricing that are coming off at 415.

Clark Khayat: Another 11 billion plus a fixed rate loan repricing that are coming off at 415. And then 4.2 billion of fixed rate securities that are about 275. So, definite opportunity there; you'll also get the full year move and impact of the 4th quarter Treasuries that will come off the books and swaps. And then, as rate cuts come in, we'll have the full year 25 to deploy that data into our consumer book. So, I do think there are headwinds or tailwinds for us, sorry, as we get into 2025. And I think, you know, we have confidence we'll be able to grow loans and add clients on the commercial side as well.

Clark Harold Ibrahim Khayat: You'll also get the full year move and impact of the fourth quarter treasuries that will come off the books and swaps. And then as rate cuts come in, we'll have the full year 25 to deploy that beta into our consumer book. So, I do think there are headwinds or tailwinds for us as we get into 2025. But I think, you know, we have confidence we'll be able to grow loans and add clients on the commercial side. Let's get some color.

Speaker Change: and then $4.2 billion of fixed-rate securities that are about $275,000. So, definite opportunity there. You'll also get the full-year move and impact of the fourth quarter treasuries that will come off the books and swaps.

Speaker Change: And then as rate cuts come in, we'll have the full year 25 to deploy that beta into our consumer book. So I do think there are headwinds or tailwinds for us, sorry, as we get into 2025.

Speaker Change: And I think, you know, we have confidence we'll be able to grow loans and add clients on the commercial side as well.

Ebrahim Poonawala: Let's recall a thanks clerk for walking through the other question. Just on slide 10, you look at NPLs and criticize picking up sequentially. We are seeing a lot of banks talk more about losses coming from CNI. Remind us in terms of your outlook on sort of what you are seeing from your customers on CNI.

Christopher Marrott Gorman: Thanks, Clark, for walking us through. The other question: on slide 10, you look at NPLs and criticize picking up sequentially. We are seeing a lot of banks talk more about losses coming from CNI. Remind us in terms of your outlook on sort of what you are seeing from your customers on CNI, any specific areas where you're seeing credit degradation that could lead to just higher NPLs going forward and charge-offs. Thank you. So, Abraham, it's Chris.

Speaker Change: That's great, Carla. Thanks, Clark, for walking through. The other question, just on slide 10.

Speaker Change: You look at NPLs and criticize picking up sequentially.

Speaker Change: We are seeing a lot of banks talk more about losses coming from CNI. Remind us in terms of your outlook on sort of what you are seeing from your customers on CNI, any specific areas where you're seeing credit degradation that could lead to just higher NPLs going forward and charge-offs. Thank you.

Ebrahim Poonawala: Any specific area where you see credit degradation that could lead to just higher NPLs going forward and charges. Thank you.

Christopher Gorman: So, Abraham, it's Chris. A couple things. One, the normal migration from criticized to non performers, it's playing out exactly as we would have expected it to. So, stepping back for just a second, you know, our CNI book, 53% of it is investment grade, 70% is secured. And so, most of them have very low utilization in terms of borrowing. So, we start from a pretty good place.

Christopher Marrott Gorman: A couple things. One, the normal migration from criticized to non-performers is playing out exactly as we would have expected it to. Stepping back for just a second, you know, our C&I book, 53% of it is investment grade, and 70% is secured. And so, most of them have very low utilization in terms of borrowing, so we start from a pretty good place. Your question's a good one, though, as to where, sort of, the action is, and let me tell you where we're seeing... Some people impacted by the hire for longer scenario. Consumer goods, some business services, and some equipment businesses.

Chris: So Ebrahim, Chris, a couple things. One, the normal migration from criticized to non-performers

Speaker Change: It's playing out exactly as we would have expected it to. Stepping back for just a second, you know, our C&I book, 53% of it is investment grade, 70% is secure.

Speaker Change: And so most of them have very low utilization in terms of borrowing. So we start from a pretty good place. Your question's a good one, though, as to where sort of the action is. And let me tell you where we're seeing

Christopher Gorman: Your question's a good one, though, as to where sort of the action is. And let me tell you where we're seeing some people impacted by the higher-for-longer scenario. Consumer goods, some business services, some equipment businesses. On the other side of the equation, we're starting to see actually healing in the healthcare sector. So, think about seniors housing, think about facilities-based healthcare. We're seeing that kind of going in the other direction. The other thing that we always look at is what's the mix of downgrades to upgrades, and downgrades still exceed upgrades, but that ratio is starting to close.

Speaker Change: Some people impacted by the hire-for-longer scenario. Consumer goods...

Christopher Marrott Gorman: On the other side of the equation, we're starting to see healing in the healthcare sector. So think about seniors' housing, think about facilities-based healthcare. We're seeing that kind of going in the other direction. The other thing that we always look at is what's the mix of downgrades to upgrades? And downgrades still exceed upgrades, but that ratio is starting to close. So that's kind of...

Speaker Change: Some business services, some equipment businesses. On the other side of the equation, we're starting to see actually healing in the healthcare sector. So think about...

Speaker Change: Seniors Housing, Think About Facilities-Based Health Care.

Speaker Change: We're seeing that kind of going in the other direction. The other thing that we always look at is what's the mix of downgrades to upgrades, and downgrades still exceed upgrades, but that ratio is starting to close. So that's kind of...

Christopher Gorman: So, that's kind of how we're thinking about it. Obviously, CNI is a very broad category in general, but that's kind of how we're thinking about it.

Unknown Attendee: Unknown Attendee, Erika Najarian, Manan Gosalia, Bill Carcache, Robert Siefers, KeyCorp, from the financial standpoint, you know, we built the reserve very strongly over the last 12 months. We came in, you know, I think solidly in net charge-off and provision in the quarter. We do expect some normalization, so we'd expect net charge-offs to pick up in the back half. That's, I think, fairly consistent with where we've been. We're comfortable with our 30 to 40 basis point range.

Speaker Change: C&I is a very broad category in general, but that's kind of how we're thinking about it.

Christopher Gorman: And the only other thing ever he might, I just follow on from the financial standpoint. You know, we built the reserve very strongly over the last 12 months. We came in, you know, I think solidly in net charge off and provision in the quarter. We do expect some normalization, so we expect net charge off to pick up in the back half. That's, I think, fairly consistent with where we've been. We're comfortable on our 30 to 40 basis point range. I did say last month, we probably 10 to the higher end of that, but that's really a denominator issue on loans versus more charge off.

Speaker Change: from the financial standpoint, you know, we built the reserve.

Speaker Change: Barry

Barry: Strongly over the last 12 months.

Barry: We came in...

Barry: You know, I think solidly.

Speaker Change: in net charge offs and provision in the quarter. We do expect some normalization, so we'd expect net charge offs to pick up in the back half. That's, I think, fairly consistent with where we've been.

Unknown Attendee: I did say last month we'd probably tend to the higher end of that, but that's really a denominator issue on loans versus more charge-offs than a, Thank you for taking my questions. Thank you. Next, we go to Scott Siefers with Piper Sandler. Please go ahead.

Speaker Change: We're comfortable on our 30 to 40 basis point range. I did say last month we'd probably tend to the higher end of that, but that's really a denominator issue on loans versus more charge-offs than expected.

Ebrahim Poonawala: Thank you for taking my questions. Thank you.

Scott Siefers: Next, we go to Scott Siefers with Piper Sandler. Please go ahead.

Speaker Change: Thank you for taking my questions. Thank you. Next we go to Scott Siefers with Piper Sandler. Please go ahead.

Scott Siefers: Thanks for taking the question. Clark, appreciate that sort of walkthrough on the NII.

Clark Harold Ibrahim Khayat: Morning, guys. Thanks for taking the question. So, Clark, I appreciate that sort of walk-through on the NII. I still have one NII-related question. Maybe when you look at sort of the deposits that, you know, the deposit base looks like it's going to come in better than you had anticipated previously. Can you maybe walk through what kinds of deposits you're growing and sort of what the spread looks like on those? So I think there's probably some question if we dial back the loan growth expectation, but, you know, we're still getting. Transcripts provided by Transcription Outsourcing, LLC. Yeah, so it's so good.

Robert Scott Siefers: Thanks for taking the question.

Scott Siefers: I still have sort of an NII related question. Maybe when you look sort of the deposits that, you know, so the deposit based looks like it's going to come in better than you haven't just taken previously.

Robert Scott Siefers: So, Clark, appreciate that sort of walk-through on the NII. I'll still have sort of an NII-related...

Robert Scott Siefers: Question.

Robert Scott Siefers: Maybe when you look at sort of the deposits that, you know, so the deposit basically is going to come in better than you had anticipated previously, can you maybe walk through what kinds of deposits you're growing and what sort of what the spread?

Clark Khayat: Can you maybe walk through what kinds of deposits are growing and what sort of what the spread looks like on those.

Clark Khayat: So I think there's probably some question if we dial back the long growth expectation, but you know, we're still getting funds in that'll go into something, you know, just sort of what that what that spread looks like in your view.

Speaker Change: looks like on those. So I think there's you know, probably some question if you if we dial back the the loan growth expectation But you know, we're still getting funds in that'll go into something, you know, just sort of what that what that spread looks like in your view

Clark Khayat: Yeah, so thanks, Scott, for the question. So one, I'd say what we're always going to, we're always trying to grow operating accounts and checking accounts. So we're going to, we'll do that kind of regardless of what we think's happening on the assets side of the balance sheet. We did mention we added a little bit of CDs intentionally just to get ahead of what we think are some tightening liquidity expectations. And if we don't see long growth for whatever reason, again, we don't expect that we do have some funding optimization, whether it's continuing to drive down the brokerage CDs or our FHLB advances.

Clark Harold Ibrahim Khayat: Thanks, Scott, for the question. So first, I'd say, Look, we're always trying to grow operating accounts and checking accounts. So we'll do that kind of regardless of what we think is happening on the asset side of the balance sheet. We did mention we added a little bit of CDs intentionally just to get ahead of what we think are some tightening liquidity expectations. And if we don't see loan growth for whatever reason, and again, we don't expect that, we do have some funding optimization, whether it's continuing to drive down the brokered CDs or our FHLB advances. So we think we'll have some opportunity to do that. We have built our cash position, so at the end of the quarter, we were kind of in the $15 billion range.

Speaker Change: We're always trying to grow operating accounts and checking accounts, so we'll do that regardless of what we think is happening on the asset side of the balance sheet.

Speaker Change: We did mention we added a little bit of...

Speaker Change: Cities intentionally just to get ahead of what we think are some tightening liquidity expectations

Speaker Change: And if we don't see loan growth for whatever reason, and again, we don't expect that, we do have some funding optimization, whether it's continuing to drive down the brokered CDs or our FHLB advances. So we think we'll have some opportunity.

Clark Harold Ibrahim Khayat: So that gives you some indication of, you know, where that cash is sitting at the moment. But I would say just on deposits, maybe highlight a couple things on where we see the back half going. One, I think positively in the commercial book; we continue to have very active dialogue with clients about their accounts. We've talked a lot about hybrids, for example, and that continues to be a really good product for our clients and for Key.

Clark Khayat: So we think we'll have some opportunity to do that. We have built the cash position. So, at the end of the quarter, we were kind of in the $15 billion range. So that gives you some indication of, you know, where that cash is sitting at the moment.

Speaker Change: to do that. We have built the cash position. So at the end of the quarter, we were kind of in the $15 billion range.

Speaker Change: So that gives you some indication of...

Clark Khayat: But I would say just on deposits, maybe highlight a couple of things on where we see the back half gone. One, I think positively in the commercial book. We continue to have very active dialogue with clients about their accounts. We've talked a lot about hybrids; for example, that continues to be a really good product for our clients and for Key. And we've actually moved pretty meaningfully the percentage of clients that we would deem as sort of index or index-like. So, as we have dialogue as they talk about rates, we've been able to move them to a more index-like product or structure with obviously anticipation of down rate.

Speaker Change: where that cash is sitting at the moment.

Speaker Change: But I would say just on deposits, maybe highlight a couple things on

Clark Harold Ibrahim Khayat: And we've actually moved pretty meaningfully the percentage of clients that we would deem as sort of index or index-like. So as we have dialogue, as they talk about rates, we've been able to move them to a more index-like product or structure with obviously anticipation of down rates. So we think that'll benefit us when cuts start to come. And we're continuing to shorten the CD maturities. Rates have stayed higher, so we haven't been as active driving those prices down, but we have been pulling in the maturities, and we do have a decent amount coming due here in the fourth quarter that we'll be able to reprice to the extent rates do come down.

Speaker Change: where we see the back half going. One, I think positively in the commercial book.

Speaker Change: We continue to have

Speaker Change: Very active dialogue with clients about their accounts.

Speaker Change: We've talked a lot about hybrids, for example, that continues to be a really good product for our clients and for Key. And we've actually moved pretty meaningfully the percentage of clients that we would deem as sort of index or index-like. So as we have dialogue, as they talk about rates.

Speaker Change: We've been able to move them to a more index-like product or structure with obviously anticipation of down rates. So we think that will benefit us when cuts start to come.

Clark Khayat: So we think that'll benefit us when cuts start to come. And we're continuing to shorten the CD maturities, you know, rates of state higher. So we haven't been as active driving those prices down, but we have been pulling in the maturities. And we do have a decent amount coming due here in the fourth quarter that will be able to reprise to the extent rates do come down.

Speaker Change: And we're continuing to shorten the CD maturities, you know, rates have stayed higher, so we haven't been as active driving those prices down, but we have been pulling in the maturities, and we do have a decent amount coming due here in the fourth quarter that we'll be able to reprice to the extent.

Clark Khayat: So, you know, that's kind of a long you on that, and we'd expect, you know, we've been pretty clear conservatively on downbait as if there's one cut. If there's a second cut, we'll obviously have more opportunity to deploy that in the fourth quarter, but we still think we'll probably lag a little bit. But that'll be a tailwind for 25.

Clark Harold Ibrahim Khayat: So you know, that's kind of a long view on that, and we'd expect, you know, we've been pretty clear conservatively on down betas, if there's one cut, if there's a second cut, we'll obviously have more opportunity to deploy that in the fourth quarter, but we still think we'll probably lag a little bit, but that'll be. Taylor Winford.

Speaker Change: [inaudible]

Speaker Change: You know, we've been pretty clear conservatively on down betas. If there's one cut, if there's a second cut, we'll obviously have more opportunity to deploy that in the fourth quarter, but we still think we'll probably lag a little bit, but that'll be tailwind for 25.

Scott Siefers: Perfect. Okay.

Clark Harold Ibrahim Khayat: Perfect. Okay. Thank you, Clark.

Scott Siefers: Thank you, Clark.

Scott Siefers: And then a little bit of a take attack question on the swaps commentary on slide 13. So you said the $950 million annualized opportunity, which was that down a little from $975 last quarter. So I've got a couple questions.

Speaker Change: Perfect. Okay, thank you, Clark. And then a little bit of a Tiki Tech question on the swaps commentary on

Speaker Change: Slide 13. So you cite the $950 million annualized opportunity, which was

Scott Siefers: Is that represent a reduction in expectations, or is that we've just already absorbed that difference in the 950 is what's still remaining in the future? That should be a function of just where rates are as we do the calculations, but I can we can follow up and give you this detail on that. If the forward curve is coming down a little bit, that would impact that. Okay, perfect. All right. Good.

Speaker Change: That's down a little from 975.

Speaker Change: Last quarter. So I've gotten a couple questions. Does that represent a reduction in expectations or is it that we've just already absorbed that difference and the 950 is what's still remaining in the future?

Clark Harold Ibrahim Khayat: And then a little bit of a tiki-tac question on the swaps commentary on slide 13. So you said the $950 million annualized opportunity, which is down a little from 975 last quarter. So I've got a couple questions.

Speaker Change: That should be a function of just where rates are as we do the calculation, but we can follow up and give you the detail on that. If support curves come down a little bit, that would impact that.

Clark Harold Ibrahim Khayat: Does that represent a reduction in expectations? Or is it that we've just already absorbed that difference, and the 950 is what's still remaining in the future? That should be a function of just where rates are as we do the calculation, but we can follow up and give you the detail on that. If the fork curves come down a little bit, that would impact.

Scott Siefers: Thank you for taking the questions. Yep.

Scott Siefers: Thanks, Scott.

Speaker Change: Okay, perfect. All right, good. Thank you for taking the questions. Yep. Thanks, Scott.

Clark Harold Ibrahim Khayat: Okay, perfect. All right, good. Thank you for taking the questions.

Ken Usdin: Next, we go to Ken Usdin with Jefferies.

Ken Usdin: Please go ahead. Hey guys, good morning.

Clark Harold Ibrahim Khayat: Yep. Thanks, Scott. Next, we go to Ken Ustin with Jeffreys.

Speaker Change: Next we go to Ken Ustin with Jefferies. Please go ahead.

Ken Usdin: The follow up on just the low loans in the context of the whole balance sheet.

Ken Usdin: So I'm just wondering if you can give us a little bit more color on just, you know, how much of the loan growth it versus, you know, what we see in H A where we see appears is just you guys just being more conservative. And can you talk a little bit about, like, how much did you keep of your originated? Did that change?

Kenneth Michael Usdin: Hey guys, good morning. Just a follow-up on just the loans in the context of the whole balance sheet. So I'm just wondering if you can give us a little bit more color.

Kenneth Michael Usdin: I'm just...

Kenneth Michael Usdin: You know, how much of the loan growth versus, you know, what we see in H.A., what we see in peers is just you guys just being more conservative. And can you talk a little bit about like, how much did you keep of your originated? Did that change? And where specifically to when you mentioned earlier, Clark?

Ken Usdin: And, and, and where specifically, when you mentioned earlier, Clark, the pipelines, like, what areas do you see those pipelines coming in? Is it more just the straight up commercial? Thanks.

Speaker Change: The pipelines like what areas you see those pipelines coming and is it more just the straight-up commercial? Thanks

Christopher Gorman: Sure. Ken, it's Chris. Let me start by kind of sharing with you kind of what's going on out there in the marketplace.

Clark Harold Ibrahim Khayat: Please go ahead. Hey guys, good morning. Just a follow-up on just the loans in the context of the whole balance sheet. So I'm just wondering if you can give us a little bit more color on just, you know, how much of the loan growth versus what we see in H8 appears to be just you guys just being more conservative. And can you talk a little bit about, like, how much did you keep of your original?

Christopher Marrott Gorman: Did that change? And specifically, when you mentioned earlier, Clark, the pipelines, like what areas do you see those pipelines coming in? Is it more just the straight up commercial?

Kenneth Michael Usdin: Sure Ken, it's Chris. Let me start by kind of sharing with you kind of what's going on out there in the marketplace because I think

Christopher Gorman: Because I think, I think loan demand is pretty tepid across the board. And here's what is we're talking to clients. I think these are the unknowns that are keeping people from borrowing in general. One is just concerned about the economy. What's the trajectory? The next is rates. And it's two things. One, obviously the cost of capital has gone up significantly as Fed funds rose from 25 to 525 bips. But on top of that, we've just had a lot of volatility in the 10 year. And so, you know, today, it's around 4.2%. I actually think we'll have higher for longer.

Christopher Marrott Gorman: Thanks. Sure, Ken, it's Chris. Let me start by kind of sharing with you kind of what's going on out there in the marketplace, because I think loan demand is pretty tepid across the board, and here's what, as we're talking to clients, I think these are the unknowns that are keeping people from borrowing in general. One is just concern about the economy, what its trajectory. The next is rates, and there are two things. One, obviously, the cost of capital has gone up significantly as Fed funds rose from $25 to $525 bps.

Speaker Change: I think loan demand is pretty tepid across the board, and here's what, as we're talking to clients, I think these are the unknowns that are keeping people from borrowing in general.

Speaker Change: One is just concern about the economy. What's the trajectory? The next is rates, and it's two things. One, obviously, the cost of capital has gone up significantly as Fed funds rose from 25 to 525 bps.

Christopher Marrott Gorman: But on top of that, we've just had a lot of volatility in the 10-year. And so, you know, today it's around 4.2%. I actually think we'll have higher rates for longer, and I think once that settles in, people will borrow.

Speaker Change: But on top of that, we've just had a lot of volatility in the tenure. And so, you know, today it's around

Christopher Gorman: And I think once that settles in, people will borrow. But as I talk to clients, if they think that it's going to go down and they think rates are going to go down precipitously, they're less inclined to make a move.

Christopher Marrott Gorman: But as I talk to clients, if they think that it's going to go down and they think rates are going to go down and go down precipitously, they're less inclined to make a move. Also, there's kind of a 12- to 18-month lead time around most big CapEx and property plant and equipment projects, and people have kind of been putting those on hold. I think the election, I think that also is just another variable out there. A lot of these closely held businesses as they think about things like tax policy and the ability to take accelerated depreciation. So I think all of those are in the mix.

Speaker Change: 4.2%, I actually think we'll have higher for longer, and I think once that settles in, people will borrow, but as I talk to clients, if they think that it's going to go down, and they think rates are going to go down, and go down precipitously,

Christopher Gorman: Also, there's kind of a, you know, 12 to 18 month lead time around most big capex. And property, plant, and equipment projects. And people have kind of been putting those on hold.

Speaker Change: They're less inclined to make a move. Also, there's kind of a, you know, 12 to 18 month lead time around most big CapEx.

Christopher Gorman: I think the election. I think that also is just another variable out there. A lot of these closely held businesses was they think about things like tax policy and the ability to take accelerated depreciation. So I think all of those are in the mix.

Speaker Change: and Property Plant and Equipment Projects.

Speaker Change: and people have kind of been putting those on hold. I think the election, I think that also is just another variable out there. A lot of these closely-held businesses, as they think about things like tax policy and the ability to take accelerated depreciation. So I think all of those...

Christopher Marrott Gorman: The next thing that I think also impacts it is that there's no question that the rate of inflation is coming down. And so people that were first during the pandemic motivated to kind of go long inventory because of the supply issues, and then they were motivated to go long inventory because of inflation, that's kind of wearing off. So what we actually saw was a contraction in our utilization rate by a percentage point.

Christopher Gorman: The next thing that I think also impacts that is there's no question that the rate of inflation is coming down. And so people that were first during the pandemic motivated to kind of go long inventory because of the supply issues. And then they were motivated to go long inventory because of inflation. That's kind of wearing off. So what we actually saw was a contraction in our utilization rate by a percentage point.

Speaker Change: are in the mix. The next thing that I think also impacts it is there's no question that the rate of inflation is coming down.

Speaker Change: and so people that were first during the pandemic.

Speaker Change: motivated to kind of go long inventory because of the supply issues. And then they were motivated to go long inventory because of inflation. That's kind of wearing off. So what we actually saw was a contraction in our utilization rate by a percentage point.

Christopher Marrott Gorman: Going to your question about what we keep on the balance sheet and what we pay out, in the quarter just ended, we raised $23 billion for the benefit of our customers, and we kept 16% of it on our balance sheet. Typically, throughout our history, we typically would have 20%. 16% is up a bit from last quarter, so that kind of gives you sort of a flavor of what's going on. There is, I sat down with all of our senior credit officers yesterday, and we are seeing in the marketplace some degradation in terms of structure. And as people compete for the loans that are out there, we clearly are not going to reach for structure at all.

Clark Khayat: Going to your question about kind of what we keep on the balance sheet and what we place in the quarter just ended. We raised $23 billion for the benefit of our customers, and we kept 16% of it on our balance sheet. And typically throughout our history, we typically would have 20%. 16 is up a bit from last quarter.

Speaker Change: Going to your question about kind of what we keep on the balance sheet and what we place, in the quarter just ended, we raised $23 billion for the benefit of our customers and we kept 16% of it on our balance sheet.

Speaker Change: And typically, throughout our history, we typically would have 20%. Sixteen is up a bit from last quarter, so that kind of gives you sort of a flavor of what's going on.

Christopher Gorman: So that kind of gives you sort of a flavor of what's going on. There is, I sat down with all of our senior credit officers yesterday, and we are seeing in the marketplace some degradation in terms of structure. And as people compete for the loans that are out there, we clearly are not going to reach for structure at all. We don't feel like we need to do that. But that is that is an element, but it's not the lion's share of what's going on on the positive side.

Speaker Change: There is, I sat down with all of our senior credit officers yesterday and we are seeing in the marketplace

Speaker Change: Some degradation in terms of structure.

Speaker Change: and as people compete for the loans that are out there.

Christopher Marrott Gorman: We don't feel like we need to do that. But that is, that is an element, but it's not, the lion's share of what's going on. On the positive side, we're starting to see transactional finance starting to come into the pipeline. For example, in our real estate business, 30% of the pipeline right now is transactional, which is a big change. So maybe that, hopefully that's helpful, Ken, in terms of how we're thinking about it, and what's going on out in the marketplace. Great, thank you for that color.

Speaker Change: We clearly are not going to reach for structure at all. We don't feel like we need to do that.

Speaker Change: But that is an element, but it's not the lion's share of what's going on. On the positive side, we're starting to see...

Christopher Gorman: We're starting to see transactional finance starting to come into the pipeline. For example, in our real estate business, 30% of the pipeline right now is transactional, which is a big change. So maybe that hopefully that's helpful, Ken, in terms of how we're thinking about it once going on out in the marketplace.

Speaker Change: Transactional finance starting to come into the pipeline. For example, in our real estate business, 30% of the pipeline right now is transactional, which is a big change.

Kenneth Michael Usdin: Hopefully that's helpful, Ken, in terms of how we're thinking about it, what's going on out in the marketplace.

Ken Usdin: Great, thank you for that color.

Christopher Marrott Gorman: And the second question is, when we think about just the entirety of the balance sheet, you know, your RWAs have come down a lot over the last year. So, CT1 is growing, CT1 even with AOCI, as we can see on slide 24, up to 7.3. The stress test went a little bit tougher.

Ken Usdin: And the second question is just when we think about just the entirety of the balance sheet, you know, your RWAs have come down a lot over the last year, so CT1 is growing CT1 even with AOCI. We can see in 524 up to 7.3. The stress test went a little bit tougher.

Kenneth Michael Usdin: Great, thank you for that color. And the second question is just...

Kenneth Michael Usdin: And when we think about just the entirety of the balance sheet, you know, your RWAs have come down a lot over the last year or so.

Speaker Change: CET1 is growing. CET1 even with AOCI we can see in slide 24 up to 7.3. The stress test went a little bit tougher.

Christopher Gorman: So just how important is that in managing to that with AOCI number if at all relative to your, you know, 10-3 regular way and just how you're thinking about just managing your capital position vis-a-vis, you know, the loan book and RWA growth, thanks. Can we feel good about our capital position? Obviously, since the beginning, since the initial proposal to the Basel 3N game, clearly, when the re-proposal comes out, it will be pushed out and it will be less severe. We had said initially that we had a clear path to get to where we wanted to get to on both a CT1 and a marked CT1.

Speaker Change: So, just how important is that, is managing to that with AOCI number, if at all, relative to your, you know, 10-3 regular way, and just how you're thinking about just managing your capital position vis-a-vis, you know, the loan book and RWA growth. Thanks.

Christopher Marrott Gorman: So just how important is that, is managing to that AOCI number, if at all, relative to your, you know, 10-3 regular way, and just how you're thinking about just managing your capital position vis-à-vis, you know, the loan book and RWA growth? Thanks. Ken, we feel good about our capital position. Obviously, since the beginning of, since the initial proposal of the Basel III endgame, clearly, when the re-proposal comes out, it will be pushed out, and it will be less severe.

Speaker Change: Can we we feel good about our capital position obviously since the beginning of since the initial proposal of the Basel III endgame

Speaker Change: Clearly.

Christopher Marrott Gorman: We had said initially that we had a clear path to get to where we wanted to get to on both a CET-1 and a marked CET-1, and that really hasn't changed. The other thing that I've said in the past is, I think as all these rules are applied, and there are a lot of question marks because we've got the long-term debt proposal, we've got the Basel III endgame, I think when you put it all together, I won't be surprised if most people are where we are right now, where you have kind of a mid-70s sort of loan-to-deposit Okay, I got it. Thank you, Chris.

Speaker Change: When the re-proposal comes out, it will be pushed out and it will be less severe. We had said initially that we had a clear path.

Speaker Change: to get to where we wanted to get to on both a CET-1 and a marked CET-1.

Christopher Gorman: And that really hasn't changed.

Christopher Gorman: The other thing that I've said in the past is I think is all these rules are applied, and there's a lot of question marks because we've got the long-term debt proposal, we've got the Basel 3N game. I think when you put it all together, I'm not, I won't be surprised that most people are where we are right now, where you have kind of a mid-70s sort of loan to deposit ratio. But that remains to be seen because we are yet to know. You know, we'll have to see how it plays out on a couple of these rules.

Speaker Change: And that really hasn't changed. The other thing that I've said in the past is, I think as all these rules are applied, and there's a lot of question marks because we've got the long-term debt proposal, we've got the Basel III endgame, I think when you put it all together,

Speaker Change: I'm not, I won't be surprised if most people are where we are right now where you have kind of a mid-70s sort of loan-to-deposit ratio. But that remains to be seen because we are yet to know, you know, we'll have to see how it plays out on a couple of these rules.

Erika Najarian: Okay, got it. Thank you, Chris.

Erika Najarian: Thank you, Jen. Our next question is from Erica Najarian with UBS.

Christopher Marrott Gorman: Thank you, Ken. Our next question is from Erika Najarian with UBS. Please go ahead. Hi, good morning.

Speaker Change: Okay, got it. Thank you, Chris. Thank you, Ken.

Erika Najarian: Please go ahead. Hi, good morning.

Speaker Change: Our next question is from Erika Najarian with UBS. Please go ahead.

Erika Najarian: I'm in prison. Hey, just on slide 14. So, you know, it's pretty clear that, you know, 899 plus what let's call it, you know, 125, you've got, you know, a billion, 24 in theory, quote, in the bad for 4224. I'm wondering of those green bars, Kristen Clark, in terms of improved funding mix and loan growth, and we just heard Chris talk about how, you know, perhaps the macro environment is not that great for loan growth. Could you walk us through sort of the, you know, the probability of those green bars saying green? You know, obviously the last two will have everything to do with the rate curve, right?

Clark Harold Ibrahim Khayat: Hey, I'm just on slide 14. So, you know, it's pretty clear that, you know, 899 plus, let's call it, you know, 125, you've got, you know, a billion 24, in theory, quote, in the bag for 4224. And I'm wondering about those green bars.

Erika Najarian: Hi. Good morning. I'm a first person.

Erika Najarian: A.

Speaker Change: Just on slide 14, so, you know, it's pretty clear that...

Erika Najarian: you know, 899 plus, let's call it, you know, 125. You've got, you know, 1,000,024, in theory, quote, in the bag for 4Q24. And I'm wondering, of those green bars,

Clark Harold Ibrahim Khayat: Chris and Clark in terms of an improved funding mix and loan growth. And we just heard Chris talk about how, you know, perhaps the macro environment is not that great for loan growth. Could you walk us through sort of the, you know, probability of those green bars staying green?

Erika Najarian: Chris and Clark in terms of improved funding mix and loan growth.

Erika Najarian: and we just heard Chris talk about how...

Erika Najarian: [inaudible]

Clark Harold Ibrahim Khayat: You know, obviously, the last two will have everything to do with the rate curve, right? So, and you gave us pretty good guardrails in terms of how to think about deposit costs. But tell us a little bit more about, you know, how you plan to achieve the improved funding mix and the loan growth to be net positive on that number. Sure. So, let me handle the first one, Erika.

Clark Khayat: So, and you gave us pretty good guard rails in terms of how to think about the positive cost. But tell us a little bit more about how you plan to achieve the improved funding mix and the longer to the net positives to that number.

Speaker Change: But tell us a little bit more about, you know, how you plan to achieve the improved funding mix and the loan growth to be net positive to that number.

Clark Khayat: Sure. So, let me, let me handle the first one, Erica. So, look on improved funding mix. You know, we're still sitting on something on the order of kind of 7 billion of FHLB advances. So, we have some opportunity to continue to bring that down. We brought broker down close to 6 billion over the last year, but still some opportunity to manage that as well. And then on the margin, you know, we can kind of calibrate where we think overall the positive cost will be based on the size of the balance sheet and the loan book.

Clark Harold Ibrahim Khayat: So, look, on the improved funding mix. You know, we're still sitting on something on the order of kind of seven billion FHLB advances. So we have some opportunity to continue to bring that down. We've brought broker down close to six billion over the last year, but there is still some opportunity to manage that as well. And then, on the margin, you know, we can kind of calibrate where we think overall deposit costs will be based on the size of the balance sheet and the loan book.

Kristen Clark: Sure. So, let me handle the first one, Erika. So, look, on improved funding mix,

Kristen Clark: We're still sitting on something on the order of...

Kristen Clark: Kind of seven billion FHLB advances. So we have some opportunity to continue to bring that down. We've brought broker down close to six billion over the last year but still some opportunity to manage that as well. And then on the margin, you know, we can kind of calibrate where we think.

Clark Harold Ibrahim Khayat: So we do think we have some opportunity to do that and a little bit of leverage here in the back half of the year on maturities around things like CDs and MMDAs. So we're, you know, looking at that very dynamically. We're watching our loan pipelines as they materialize, and we feel like we should be able to pivot one way or the other based on how much traction we're getting on. And Erika, areas where we would expect to get long growth are in areas where we've always been able to get a lot of long growth, things like renewables that are where we're a market leader.

Clark Khayat: So, we have some opportunity to do that and a little bit of leverage here in the back half of the year on maturities around things like CDs and MMDA. So, we're, you know, looking at that very dynamically. We're watching our loan pipelines as they materialize, and we feel like we should be able to pivot one way or the other based on how much traction we're getting upon. and Erika, where we would expect to get lung growth or in areas where we've always been able to get a lot of lung growth, things like renewables that are where we're a market leader and those are project financing where we were not aggressive last year and now we are the things like affordable similarly and also sort of the healthcare area where there's just a lot of consolidation.

Kristen Clark: Overall deposit costs will be based on the size of the balance sheet and the loan book. So we do think we have some opportunity to do that and a little bit of leverage here in the back half of the year on

Kristen Clark: Maturities around things like CDs and MMDAs, so we're, you know, looking at that very dynamically, we're watching our loan pipelines as they materialize, and we feel like we should be able to pivot one way or the other based on how much traction we're getting on loans.

Speaker Change: And Erika, where we would expect to get lung growth are in areas where we've always been able to get a lot of lung growth.

Clark Harold Ibrahim Khayat: And those are project financings where we were not aggressive last year. And now we are in things like affordable housing, similarly, and also sort of a healthcare area where there's just a lot of consolidation. Got it.

Erika Najarian: Things like renewables, where we're a market leader, and those are project financings.

Erika Najarian: where we were not aggressive last year and now we are. The things like affordable, similarly, and also sort of the healthcare area where there's just a lot of consolidation.

Clark Khayat: Got it.

Clark Harold Ibrahim Khayat: And my second question is a follow-up to Ken's question about capital. I think what struck me on slide 11 is, you know, I'm not sure how different the forward rate versus flat rate scenario is in terms of the treasury rates don't decline by that much, but how time versus, you know, rates, although, granted, you only have a 25 basis point difference in terms of the belly of the curve here, you know, is really what's going to heal the AOCI.

Erika Najarian: And my second question is a follow-up to Ken's question about capital.

Speaker Change: Got it. And my second question is a follow-up to Ken's question about capital. I think what's

Clark Khayat: I think what struck me on slide 11 is, you know, I'm not sure how different the forward rate versus flat rate scenario are in terms of, as you said, declined by that much, but how time versus, you know, rate, although granted, you only have 25 basis points difference in terms of the belly of the curve here. You know, it's really what's going to heal the AOCI, and obviously the stress test is a was a bit of a sort of a negative surprise. You know, as Clark said, you guys have always been a premier grower in commercial, and if macro comes back, you know, you would think that Key isn't the position to outperform peers.

Speaker Change: [inaudible]

Speaker Change: how time versus

Speaker Change: you know, race, although...

Speaker Change: [inaudible]

Clark: As Clark said, you guys have always been a premier grower and commercial, and if macro comes back, you would think that KeyCorp is in a position to outperform peers. So to that end, I guess, how much...

Erika Najarian: So to that end, I guess how much is this adjusted AOCI impacting if, with all your growth plans, you know, it seems to be impacting your multiple and how investors think about you, but, you know, perhaps, you know, sort of, you know, square that for your investments in terms of how your RMS are going to market versus, you know, this, you know, this sort of the difference between adjusted and reported. And Clark, just quick confirmation that should we assume a flat balance sheet from the 170 point six through the end of the year.

Clark Harold Ibrahim Khayat: And obviously, the stress test was a bit of a negative surprise. Is this adjusted AOCI impacting, if at all, your growth plan? It seems to be impacting your multiple and how investors think about you, but perhaps sort of square that for your investor base in terms of how your RMs are going to market versus the difference between adjusted and reported. Clark, just quick confirmation that should we assume a flat balance sheet from the $170.6 through the end of the year? Thank you.

Speaker Change: is this adjusted AOCI impacting, if at all, your growth plans?

Speaker Change: It seems to be impacting your multiple and how investors think about you, but, you know, perhaps...

Speaker Change: for your investor base, in terms of how your RMs are going to market versus

Speaker Change: [inaudible]

Christopher Gorman: Thank you. I'll start with the first part of that, you know, that our AOCI position has no impact at all on our RMS out competing in the marketplace. That's just not, that's just not a variable for them at all. And to your point, under different, under the two different rates and errors, we talked about the differences: only 200 million. So it is a function of time, but it doesn't impact how we run the business day in and day out. Yeah, and I would just add to that, right, we do have consumer loans that continue to come down, and that gives us both liquidity and capital to redeploy in the commercial there.

Christopher Marrott Gorman: I'll, I'll start with the first part of that: you know, our AOCI position has no impact at all on our arms out competing in the market. That's just not a variable for them at all. And to your point, under the two different rate scenarios we talked about, the difference is only 200 million. So it is a function of time, but it doesn't impact how we run the business day in and day out. Yeah, and I would just add to that, right?

Speaker Change: I'll start with the first part of that, you know, our AOCI position has no impact at all on RRMs out competing in the marketplace.

Speaker Change: That's just not a variable for them at all, and to your point, under the two different rate scenarios that we talked about, the difference is only 200 million, so it is a function of time, but it doesn't impact how we run the business day in and day out.

Clark Harold Ibrahim Khayat: We do have consumer loans that continue to come down, and that gives us both liquidity and capital to redeploy into commercial there. So to Chris's point, right, that's not something we're viewing as a limiter in the field. As far as the balance sheet through the rest of the year, I think, you know, relatively flat is a good place to start. As I said to you in response to your optimization question, that can move around a little bit, but I wouldn't expect it to be, you know, meaningfully large moves on earnings.

Speaker Change: Yeah, and I would just add to that, right, we do have consumer loans that continue to come down and that gives us both liquidity.

Clark Khayat: So, to Chris's point, right, that's not something we're viewing as a limiter in the field as far as the balance sheet through the rest of the year. I think, you know, relatively flat is a good place to start. As I said to your in response, your optimization question that can move around a little bit, but I wouldn't expect it to be, you know, meaningfully large moves on hurting assets.

Speaker Change: and Capital to Redeploy.

Speaker Change: In the commercial there, so to Chris's point, right, that's not something we're viewing as a limiter.

Speaker Change: As far as the balance sheet, through the rest of the year, I think relatively flat is a good place to start. As I said in response to your optimization question, that could move around a little bit, but I wouldn't expect it to be meaningfully large moves on earning assets.

Christopher Gorman: So just to confirm, it feels like, you know, obviously the go to market strategy, you were very firm, Chris, if that's not impacted in terms of managing the balance sheet for these, these wins. Should we expect any RWA mitigation or credit risk transfers, or do you feel like that's very much a 2023 story at this point? Yeah, I mean, and I appreciate your consistency on that particular item, Erica. If look, it's something we spent a lot of time looking at and understanding, but, you know, which I think a lot of us did. We obviously had some peers do some things.

Clark Harold Ibrahim Khayat: So just to confirm, it feels like, you know, obviously, the go-to-market strategy, you're very firm, Chris. If that's not impacted, in terms of managing the balance sheet for these wins, should we expect any RWA mitigation or credit risk transfers? Or do you feel like that's very much a 2023 story at this point? Yeah, I mean, and I appreciate your consistency on that particular item, Erika.

Speaker Change: So just to confirm, it feels like...

Speaker Change: You know, obviously, the go-to-market strategy, you're very firm, Chris, if that's not impacted. In terms of managing the balance sheet for these wins, should we expect any RWA mitigation or credit risk transfers, or do you feel like that's very much a 2023 story at this point?

Chris: Yeah, I mean and I appreciate your consistency on that particular item Erica

Clark Harold Ibrahim Khayat: It's look, it's something we spent a lot of time looking at and understanding, you know, which I think a lot of a lot of us did. We obviously had some peers do some things, by the way, in places where we had already made moves. So, auto, in particular, where we had left back in 21.

Speaker Change: If

Speaker Change: Look, it's something we spent a lot of time looking at and understanding, you know, which I think a lot of a lot of us did. We obviously had some peers.

Christopher Gorman: By the way, in places where we had already made moves, so auto in particular, where we had exited back in 21. There are some opportunities for us to do that, but frankly, we don't see a huge value in getting that additional CT1 at the moment. If something were to change, we know how to execute the transaction like that. And we have a couple portfolios that are likely, you know, prime candidates for that, but it's not clear to me at this moment that that's not a lever that we need to pull, you know, to drive improved capital.

Speaker Change: do some things.

Speaker Change: By the way, in places where we had already made moves, so auto in particular, where we had exited back in 21, there are some opportunities for us to do that, but frankly, we don't see...

Clark Harold Ibrahim Khayat: There are some opportunities for us to do that, but frankly, we don't see a huge value in getting that additional CDT one at the moment. If something were to change, we know how to execute the transaction like that.

Speaker Change: a huge value in getting that additional CDT-1 at the moment. If something were to change, we know how to execute the transaction like that. We have a couple portfolios that are likely prime candidates for that, but it's not.

Clark Harold Ibrahim Khayat: We have a couple portfolios that are likely, you know, prime candidates for that. But it's not clear to me at this moment that that's not a lever that we need to pull, you know, to drive improved capital. Obviously, the better you think your portfolio is, the more expensive the transaction. Got it. Thank you so much. Next, we go to Gerard Cassidy with RBC. Please go ahead.

Speaker Change: Clear to me at this moment that that's a lever that we need to pull, you know, to drive improved capital. Obviously, the better you think your portfolio is, the more expensive the transaction is.

Christopher Gorman: Obviously, the better you think your portfolio is, the more expensive the transaction.

Gerard Cassidy: Thank you so much.

Gerard Cassidy: Next, we go to Gerard Cassidy with RBC; please go ahead. Hi, Chris. Hi, Clark.

Speaker Change: Got it. Thank you so much.

Speaker Change: I'm sure. Thank you.

Speaker Change: Next we go to Gerard Cassidy with RBC. Please go ahead.

Christopher Marrott Gorman: Hi Chris, and Hi Clark. Hey Gerard and Chris, I know this is not really quantifiable, but obviously, you've been at this for quite some time, but I took an interest in your comments about your pipelines and how strong they are. Can you give us some confidence on, you know, there are pipelines and there are pipelines. How confident are you that these are real, that they could pull through as you look at them over the next 12 months?

Christopher Gorman: Hey Gerard. Chris, I know this is not really quantifiable, but obviously you've been at this for quite some time. I took interest in your comments about your pipelines and how strong they are. Can you give us some confidence on, you know, there's pipelines and there's pipelines. How confident are you that these are real, that they could pull through as you look at it over the next 12 months? Yeah, well, as you can imagine, we have a pretty detailed review of our pipelines for just the reason that you mentioned. And I look at pipelines as a combination of a probability, time to time, time to speed.

Speaker Change: Hi Chris, Hi Clark. Hey Gerard.

Gerard: Chris, I know this is not really quantifiable, but obviously you've been at this for a long time.

Gerard Sean Cassidy: for quite some time, but I took interest in your comments about your pipelines and how strong they are. Can you give us some confidence on, you know, there's pipelines and there's pipelines?

Speaker Change: How confident are you that these are real, that they could pull through as you look at it over the next 12 months?

Christopher Marrott Gorman: Yeah, well, we, as you can imagine, we have a pretty detailed review of our pipelines for just the reason that you mentioned. And when I look at pipelines, it's a combination of probability times time times fee. We spend a lot of time looking at them. Will some fall away?

Speaker Change: Yeah, well, we, as you can imagine, we have a pretty detailed review of our pipelines for just the reason that you mentioned.

Speaker Change: And I look at pipelines, it's a combination of probability times time times fee.

Christopher Gorman: We spend a lot of time looking at them. We'll some follow away. I'm sure they will. We'll, some things appear that will be relatively short dated that will close expeditiously. That will happen as well.

Speaker Change: We spend a lot of time looking at them. Will some fall away? I'm sure they will. Will some things appear that will be relatively short-dated, that will close expeditiously? That will happen as well.

Christopher Gorman: But we we sweat the details on these pipelines where we haven't been as tight as been on some of the long pipelines. Just because those that have a few more variables and people sometimes think those deals get done away from you, but with respect to our investment banking pipelines, you know, we're in good step. Now, if we have a huge downturn and all of a sudden the markets change significantly, obviously those pipelines can go away, but we feel good about the pipelines. Very good.

Speaker Change: But we sweat the details on these pipelines, where we haven't been as tight as has been on some of the loan pipelines, just because

Speaker Change: Those that have a few more variables and people, sometimes those deals get done away from you.

Christopher Marrott Gorman: I'm sure they will. Will some things appear that will be relatively short-dated that will close expeditiously? That will happen as well, but we sweat the details on these pipelines. Where we haven't been as tight is on some of the loan pipelines just because those that have a few more variables and people sometimes think those deals get done away from you. But with respect to our investment banking pipelines, we're in good stead. Now, if we have a huge downturn and all of a sudden the markets change significantly, obviously, those pipelines can go away. But we feel good about the pipelines.

Speaker Change: But with respect to our investment banking pipelines, we're in good stead. Now, if we have a huge downturn and all of a sudden the markets change significantly, obviously those pipelines can go away, but we feel good about the pipelines.

Christopher Marrott Gorman: Very good. And then as a follow-up on the credit, your slide 10, I think you guys mentioned that there seems to be some improvement in the healthcare area, and in the C&I, I think you said it may have been durable consumer. The question on the C&I portfolio: obviously, you guys have been very strong in capital markets for a number of years, and part of that, I presume, you work with the sponsors, the private equity guys, and in earning the fees from those folks, they tend to also use your balance sheet.

Christopher Gorman: And then, as a follow-up on the credit, your slide 10, I think you guys mentioned that there seems to be some improvement in the healthcare area and in the CNI. I think you said it may have been durable consumer. The question on the CNI portfolio, obviously you guys have been very strong in capital markets for a number of years. And part of that, I presume, you work with your spot, you know, the sponsors, the private equity guys, and in earning the fees from those folks, they tend to also use your balance sheet. Is there any evidence that on the private equity side or the loans to non-depository financials that category, and I know it includes insurance companies and less riskier borrowers.

Speaker Change: Very good.

Speaker Change: And then as a follow-up on the credit, your slide 10, I think you guys mentioned that

Speaker Change: There seems to be some improvement in the healthcare area and in the C&I, I think you said it may have been durable consumer. The question on the C&I portfolio, obviously you guys have been very strong in capital markets for a number of years.

Speaker Change: Part of that, I presume, you work with the sponsors, the...

Speaker Change: Private Equity Guys, and in earning the fees from those folks, they tend to also use your balance sheet. Is there any evidence that...

Christopher Marrott Gorman: Is there any evidence that on the private equity side or the loans to non-depository financials, that category, and I know it includes insurance companies and less risky borrowers, but is there any evidence that there are any credit concerns in that category of loans? No, there's not.

Speaker Change: On the private equity side or the loans to non-depository financials, that category, and I know it includes insurance companies and less riskier borrowers, but is there any evidence that there's any credit concerns in that category of loans?

Christopher Gorman: But is there any evidence that there's any credit concerns in that category of loans?

Christopher Gorman: No, there's not. And you asked specifically about loans to the private equity community. Obviously, those are in the category of leverage loans, and we are literally in this kind of this kind of rate increase. We're underwriting those literally every quarter. Are there are there some issues as there've been some migration absolutely, but we're not we're not concerned about about that universe of borrowers. And Gerard, that portfolio that would drive kind of that financials concentration. We've been in that 20 years. I think maybe there's one loss in that timeframe, like literally one credit. It's super clean.

Christopher Marrott Gorman: And you asked specifically about loans to the private equity community. Obviously, those are in the category of leveraged loans. And we are literally in this kind of rate, We're underwriting those literally every quarter. Are there some issues?

Speaker Change: No, there's not. And you asked specifically about loans to the private equity community. Obviously, those are in the category of leveraged loans, and we are literally in this kind of rate increase.

Christopher Marrott Gorman: Has there been some migration? Absolutely, but we're not we're not concerned about that universe.

Speaker Change: We're underwriting those literally every quarter. Are there some issues? Has there been some migration? Absolutely. But we're not concerned about that universe.

Clark Harold Ibrahim Khayat: And Gerard, that portfolio that would drive kind of that financials concentration, we've been in that 20-ish years; I think maybe there's been one loss in that time frame, like literally just one credit. It's super clean, great returns, and it is actually the portfolio that we entered into that portfolio agreement with Blackstone, and that was entirely to manage the credit risk concentration, not for any concerns about the quality of that.

Speaker Change: of Borrowers.

Speaker Change: And Gerard, that portfolio that would drive kind of that financials concentration.

Gerard Sean Cassidy: We've been in that 20-ish years. I think maybe there's one loss in that time frame, like literally one credit.

Christopher Gorman: Great returns, and it is actually the portfolio that we entered into that portfolio agreement with Blackstone, and that was entirely to manage the credit risk concentration, not for any concerns about the quality.

Gerard Sean Cassidy: It's super clean, great returns.

Gerard Sean Cassidy: And it is actually the portfolio that we entered into that forward flow agreement with Blackstone, and that was entirely to manage the credit risk concentration, not for any concerns about the quality of that portfolio.

Clark Khayat: and Clark Whitwell.

Clark Harold Ibrahim Khayat: And Clark, while I have you, just a quick technical question on slide 20, where you gave us the 25, you know, refinancing dollar amounts, and the coupon on the, you know, what you're receiving. What's the increase, for example, the 180 on the weighted average rate received? If that was to convert today, what would it convert to?

Clark Khayat: I have you just a quick technical question on that slide 20 where you gave us the 25 refinancing dollar amounts and the coupon on what you're receiving. What's the increase? For example, the 180 on the weighted average rate received, if that was to convert today, what would it convert to? Same thing with the fixed rate loans? Yeah, so today we are putting forward starters on in 2025 for the purpose of getting a little bit liability sensitive going forward, and we're putting those on kind of in the 4% range. So obviously, that depends on how forward starting and how long they are, but that compares to the 180 quite favorably, obviously.

Gerard Sean Cassidy: Got it. And Clark, while I have you, just a quick technical question on that slide 20 where you gave us the 25.

Gerard Sean Cassidy: [inaudible]

Clark Harold Ibrahim Khayat: Same thing with the fixed rate loans? Yeah, so today, you know, we are putting forward starters on in 2025 for the purpose of, you know, getting a little bit liability sensitive going forward. And we're putting those on kind of in the 4% range. So, obviously, that depends on how forward starting and how long they are. But that compares to the 180 quite favorably, obviously.

Clark: Yeah, so today...

Speaker Change: You know, we are putting forward starters on in 2025.

Speaker Change: For the purpose of, you know, getting a little bit liability sensitive going forward and we're putting those on kind of in the 4% range. So, you know, obviously, that depends on how forward starting and how long they are, but that compares to the 180.

Clark Harold Ibrahim Khayat: And even the 278 that sits out there in 26. So there is a definite benefit on the fixed rate consumer loans at 415. Those are probably well one; the student loan market just isn't there for a variety of reasons, rates and rates and the sort of give overhang of the forgiveness in the holiday from the government. But if you were going to put on kind of the jumbo mortgage market, that's probably in the six and a half to seven range, but that is incredibly vibrant at the moment either, but those would be the kind of comparison points, and then on your Yeah, if you did CNI, you'd be at seven. So that would be the way we'd probably think about that replacement rate. And then on security, that 274 today is coming on kind of five and a half to 575. Very, very good

Clark Khayat: And even the 278 that's out there 26. So definite benefit there. On the fixed rate consumer loans at 415, those are probably what won?

Speaker Change: [inaudible]

Clark Khayat: The student loan market just isn't there for a variety of reasons: rates and rates and sort of give overhang and the forgiveness and the holiday from the government. But if you were going to put on kind of the jumbo mortgage market, that's probably in the 6.5 to 7 range, but that isn't incredibly vibrant at the moment either. But those would be the kind of comparison points. And then on your, yeah, if you did see an eye, you'd be at 7. So that would be the way we'd probably think about that replacement rate. And then on the security that 274 today is coming on kind of five and a half to 575 this range.

Speaker Change: The student loan market just isn't there for a variety of reasons, rates and

Speaker Change: rates and sort of give an overhang of the forgiveness and the holiday from the government. But if you were going to put on kind of the jumbo mortgage market, that's probably in the six and a half to seven range, but that isn't incredibly vibrant at the moment either, but those would be the kind of comparison points. And then

Speaker Change: If you did C&I, you'd be at seven. So that would be the way we'd probably think about that replacement rate. And then on the security, that 274 today is coming on kind of,

Clark Khayat: Very, very good.

Clark Khayat: Thank you, Clark.

Speaker Change: 5.5 to 5.75-ish range.

Clark Khayat: Yeah.

John Pancari: Next, we have a question from John Pancari with Evercore.

Clark Harold Ibrahim Khayat: Thank you, Clark. Yeah. Next, we have a question from John Pancari with Evercore. Please go ahead. Good morning. Good morning, Jeff.

Speaker Change: Very good. Thank you, Clark.

Speaker Change: Yeah.

John Pancari: Please go ahead. Good morning.

Speaker Change: Next we have a question from John Pancari with Evercore. Please go ahead.

John Pancari: Good morning, Joe. I should looking at the impact of the swap and treasure maturities and the benefit to MII. I know a heavy focus on the 4Q exit rate of the min and what it means. And clearly that is a pretty positive impact on 2025. And I believe from a revenue perspective, you could be looking at double-digit revenue growth. And the teams are selling MII next year in terms of growth, just given that dynamic. What type of, how do we think about how much of that benefit really fall to the bottom line operating leverage for next year?

Christopher Marrott Gorman: As you're looking at the impact of the swap and treasury maturities and the benefit to NII, I know there is a heavy focus on the 4Q exit rate of the NIM and what it means, and clearly that has a pretty positive impact on 2025. And I believe from a revenue perspective, you could be looking at double-digit revenue growth and mid-teens or so on NII next year in terms of growth, just given that dynamic.

John G. Pancari: Good morning. Good morning, Jeff.

John G. Pancari: As you're looking at the impact of the swap in treasury maturities and the benefit to NII, I know heavy focus on the 4Q exit rate of the NIM and what it means and clearly that has a pretty positive impact on 2025.

Speaker Change: And I, you know, I believe from a revenue perspective, you could be looking at double-digit revenue growth and mid-teens or so on NII next year, in terms of growth, just given that dynamic, what type of...

Christopher Marrott Gorman: What type of, How should we think about how much of that benefit really falls to the bottom line? Operating leverage for next year looks like, you know, it could be anywhere in the ballpark of eight to 900 basis points positive operating leverage based on how consensus is thinking about it if you're looking at a 2% expense growth rate.

Speaker Change: How should we think about how much of that benefit really fall to the bottom line?

John Pancari: It looks like, you know, it could be anywhere in a ballpark of 8 to 900 basis points, positive operating leverage based on how content to stick it about it if you're looking at a 2% expense growth rate. So is that why the positive operating leverage that you'll allow to materialize and allow this to fall the bottom line, or you think that we could be looking at something less than that?

Speaker Change: It could be anywhere in the ballpark of eight to nine hundred basis points positive operating leverage based on how consensus is thinking about it if you're looking at a two percent.

Christopher Marrott Gorman: So is that wide of positive operating leverage that you'll allow to materialize and allow this to fall to the bottom line? Or do you think that we could be looking at something less than that? Hey, John. It's Chris.

Speaker Change #102: expense growth rate. So is it that wide of positive operating leverage that you'll allow to materialize and allow this to fall to the bottom line, or do you think that we could be looking at something less than that?

Clark Khayat: Hey, John, it's Chris. We, I don't disagree with your assumptions, but obviously we're not yet coming out with sort of what our view is of 2025.

Clark Harold Ibrahim Khayat: We, I don't disagree with your assumptions. But obviously, we're not yet coming out with sort of what our view is of 2025. Okay. All right, thanks. And then separately, on deposit costs. I know you indicated that you expect some incremental pressure on deposit costs, and they increased this quarter, but a little bit less than the first quarter. And you say the CD's actions on that front.

Chris: Hey John , it's Chris. I don't disagree with your assumptions, but obviously we're not yet coming out with sort of what our view is of 2025.

Clark Khayat: All right, thanks.

Clark Harold Ibrahim Khayat: Can you just help us think about the incremental upside that you think is likely under maybe a forward curve assumption when you look at deposit costs from here? And when you say upside, just so I understand, are you talking about an increase in rates or beta? Increase, increase in rates. Yeah, look, so we got it to kind of the mid-50s if there were no cuts; one cut will have a maybe minor impact on that if that cut is in December, as you know, there's just not a lot of time to [inaudible] September as well.

John Pancari: And then separately on the deposit costs that I may be indicated that you expect some incremental pressure on the deposit costs, and they increased this quarter, but a little bit less than first quarter. And you cited the CD actions on that front.

Chris: Okay.

Speaker Change: Alright, thanks. And then...

Chris: separately on the

Speaker Change: Deposit Costs that I know you indicated that you expect.

Speaker Change #101: Some incremental pressure on deposit costs, and they increased this quarter, but a little bit less than first quarter.

Clark Khayat: Can you just help us think about the incremental upside that you think is likely under maybe a forward curve assumption when you look at deposit costs from here? And when you say upside, just so I understand, you're talking about increase in rates or data increase increase in rates. Sorry. Yeah, yeah. Look, so we guided to kind of mid 50s. If there were no cuts, one cut will have a maybe minor impact on that. If that cut is in December, as you know, it's just not a lot of time to implement that. And the reality is, I guess, technically, if that cut occurs, the beta cycle sort of over.

Speaker Change: And you say the CD's actions on that front, can you just help us think about the incremental upside that you think is likely under maybe a forward curve assumption when you look at deposit costs from here?

Speaker Change: And when you say upside, just so I understand, you're talking about increase in rates or beta? Increase. Increase in rates, yes.

Speaker Change #100: are. Yeah, yeah, yeah. Look, so we got it to kind of mid-50s if there were no cuts.

Speaker Change #100: to implement that. And the reality is, I guess, technically, if that cut occurs, the beta cycle is sort of over. So the question is, you know, is your beta on that first cut positive or negative? I think it would be, you know, in December , again, not a lot of impact. If we do get a cut in

Clark Khayat: So the question is, you know, is your beta on that first cut positive or negative? I think it would be, you know, in December, again, not a lot of impact. If we do get a cut in September, as well, as I said, I think you're going to have a little bit of drift just by nature of sticking this to the consumer book. But we think we'd have kind of a plus or minus 20 beta. Coming down what that does on the overall cost. Again, you get kind of into the technical definition of data cycles ending.

Clark Harold Ibrahim Khayat: As I said, I think you're going to have a little bit of drift just by nature of the stickiness of the consumer book. But we think we'd have kind of a plus or minus 20 beta coming down. What that does on the overall cost, again, you get kind of into the technical definition of beta cycles ending. But I think you'd see rates start to really flatten through the back half of the year, whereas with one cut in December, they may still be up. Got it. Okay, great. Thanks, Clark. Excuse me, next we go to Matt O'Connor with Deutsche Bank. Please go ahead. Good morning.

Speaker Change #100: September as well. As I said, I think you're going to have a little bit of drift just by nature of the stickiness of the consumer book, but we think we'd have kind of a plus or minus

Speaker Change #100: 20 beta coming down, what that does on the overall cost, again, you get kind of into the technical definition of beta cycles ending, but I think you'd see in a September cut rate start to

Clark Khayat: But I think you'd see in a September cut rate start to really flatten through the back half of the year, whereas with one cut in December, they may still be up a bit. Got it. Okay. Great. Thanks, Claire.

Speaker Change #100: to really flatten through the back half of the year, whereas with one cut in December they may still be up a bit.

Operator: Excuse me.

Speaker Change #100: Got it. Okay, great. Thanks, Clark.

Matt O'connor: Next, we go to Matt O'Connor with Deutsche Bank.

Matt O'connor: Please go ahead. Good morning.

Speaker Change #100: Next we go to Matt O'Connor with Deutsche Bank. Please go ahead.

Christopher Marrott Gorman: Just to bring it all together on investment banking fees and the strong kind of out pipelines. How are you feeling about the back half of the year? I think you talked about $300 to $350 million in revenues maybe last month, so do you still feel comfortable about that range? Yeah, Matt, it's Chris that that is the range that we believe we'll do, and our revenues will be in the back half of the year. We ended the first half of the year right around 300, and we've guided all along to 6 to 650. And that's it.

Matt O'connor: Just to bring it all together on the investment banking fees, the strong kind of pipeline.

Matt O'connor: Good morning. Just to bring it all together on the investment banking feeds, the strong kind of pipelines.

Clark Khayat: How are you thinking about the back half of the year? Claire, I think you talked about 300 to 359 of revenues, maybe last month. So how do you still feel comfortable about that range?

Matt O'connor: How do you feel about the back half of the year? I think you talked about $300 to $350 million of revenues maybe last month. Do you still feel comfortable about that range?

Clark Khayat: Yeah, man, it's Chris. That is the range that we would, that we believe we'll do in our revenues will be in the back half of the year. We ended the first half of the year right around 300, and we've guided all along to six to six 50, and that's unchanged. Okay.

Speaker Change #100: Yeah Matt, it's Chris. That is the range that we believe our revenues will be in the back half of the year.

Speaker Change #103: We ended the first half of the year right around 300, and we've guided all along to 6 to 650, and that's unchanged.

Christopher Marrott Gorman: Okay, and then sticking with fees, you know, Trust Investment Management or Investment Services, obviously, nice growth there, some boost from the market. But just remind us what else is going on there that might drive growth beyond what the market's given us here. Thank you.

Clark Khayat: And then sticking with fees, you know, the shots of the management or investing services, obviously nice growth there. Some boost from the market.

Speaker Change #105: Okay, and then sticking with fees, you know, the trust investment management or investment services, obviously nice growth there, some boost from the market, but just remind us what else is going on there that, you know, might drive growth beyond what the market's giving us here. Thank you.

Clark Khayat: I just remind us what else is going on there that might drive growth beyond what the market's given us. Thank you. Well, one of the things we talked about in my initial comments is we're clearly really growing our massive willing business. That was the business where we brought in 30,000 new customers and about $3 billion of total assets to Key. So that's really the; that's a big driver of that line.

Christopher Marrott Gorman: Well, one of the things we talked about in my initial comments is we're clearly really growing our mass affluent business. That was the business where we brought in 30,000 new customers and about $3 billion of total assets to Key. So that's really the big driver of that line. Okay, thank you very much. Thank you, Matt. Next, we go to Manan Gosalia with Morgan Stanley. Please go ahead. Hey, good morning.

Speaker Change #106: Well, one of the things we talked about in my initial comments is, we're clearly really growing our mass affluent business. That was the business where we brought in 30,000 new customers.

Speaker Change #107: and about three billion dollars of total assets to Key. So that's really the, that's a big driver of that line.

Matt O'connor: Okay, thank you very much.

Matt O'connor: Thank you, man.

Manan Gosalia: Next, we go to Manan Gosalia with Morgan Stanley.

Speaker Change #108: Okay, thank you very much.

Manan Gosalia: Please go ahead. Hey, good morning.

Matt: Thank you, Matt.

Speaker Change #110: Next we go to Manan Gosalia with Morgan Stanley . Please go ahead.

Christopher Marrott Gorman: I just wanted to ask about the ACL ratio. I mean, as the loans are coming down, you're ratcheting up reserves from a dollar perspective, so the ACL ratio has been going up fairly steadily. How do you think about those reserve levels and, you know, what's the right level here if the macro environment remains stable? Well, first of all, thank you for the question.

Manan Gosalia: I just wanted to ask on the ACL ratio. I mean, there's a launcher coming down. You're ratcheting up results from a dollar perspective, so the ACL ratio has been going up fairly steadily.

Manan Gosalia: Hey, good morning. I just wanted to ask on the ACL ratio. I mean, as the loans are coming down, you're ratcheting up reserves from a dollar perspective, so the ACL ratio has been going up fairly steadily. How do you think about those reserve levels and, you know, what's the right level here if the macro environment remains stable?

Christopher Gorman: How do you think about those reserve levels and what's the right level here if the macro environment remains stable? Sure, well, first of all, thank you for the question. You know, the three things that really drive that are, as you point out, long growth, your view of the macro economy, and then idiosyncratic to the actual credits. I could see a scenario depending on how this plays out where we evaluate, you know, what the total reserve is, but I think it's premature right now only because it's still unclear to us exactly what path the economy is going to take.

Christopher Marrott Gorman: You know, the three things that really drive that are, as you point out, loan growth, your view of the macroeconomy, and then idiosyncrasy to the actual credit. I could see a scenario, depending on how this plays out, where we evaluate what the total reserve is, but I think it's premature right now, only because it's still unclear to us exactly what path the economy is going to take. But as we get more clarity, we'll continue to evaluate it.

Speaker Change #112: First of all, thank you for the question. You know, the three things that really drive that are, as you point out, loan growth, your view of the macroeconomy, and then idiosyncratic to the actual credits.

Speaker Change #112: I could see a scenario, depending on how this plays out, where we evaluate, you know, what the total reserve is, but I think it's premature right now only because

Christopher Gorman: But as we get more clarity, we'll continue to evaluate it. So I guess what you're saying is until there's uncertainty, you probably keep the reserves at these levels and then, you know, when you get a little bit more certainty, you can start to bring that down and right size that relative to your long growth, is that far? Right, we'd constantly be looking at it and adjusting it based on the three metrics that I just shared with you. You know, one, our view of the macro economy; secondly, the size of the book, which obviously is going down in this instance; and also just the idiosyncratic, you know, look at things like migration and what we have in terms of non-performers and so forth.

Speaker Change #112: It's still unclear to us exactly what path the economy is going to take, but as we get more clarity, we'll continue to evaluate it.

Christopher Marrott Gorman: So I guess what you're saying is until there's uncertainty, you probably keep the reserves at these levels. And then, you know, when you get a little bit more certainty, you can start to bring that down and right-size it relative to your loan growth. Is that fair?

Speaker Change #113: So, I guess what you're saying is, until there's uncertainty, you probably keep the reserves at these levels, and then, you know, when you get a little bit more certainty, you can start to bring that down and right-size that relative to your loan growth, is that fair?

Christopher Marrott Gorman: Right. We've constantly been looking at it and adjusting it based on the three metrics that I just shared with you. You know, one, our view of the macroeconomy, secondly, the size of the book, which obviously is going down in this instance, and also just the idiosyncrasies, you know, look at things like migration and what we have in terms of non-performers and so forth. Thank you. Thank you. Next, we go to Steve Alexopoulos with J.P. Morgan. Please go ahead. Good morning, everyone.

Speaker Change #114: Right, we'd constantly be looking at it and adjusting it based on the three metrics that I just shared with you, you know, one, our view of the macroeconomy, secondly, the size of the book, which obviously is going down in this instance, and also just the idiosyncratic

Speaker Change #114: You know, look at things like migration and what we have in terms of non-performers and so forth.

Manan Gosalia: Got it, thank you.

Manan Gosalia: Thank you.

Steve Alexopoulis: Next, we go to Steve Alexopoulis with J.P.

Speaker Change #115: Got it, thank you. Thank you.

Steve Alexopoulis: Morgan, please go ahead. Good morning, everyone.

Speaker Change #115: Next we go to Steve Alexopoulos with J.P. Morgan. Please go ahead.

Steve Alexopoulis: I want to start, Clark, thank you for all the details, the sloters on NII. We've obviously put that word on this call quite a bit, but just assuming that we get to cut this year, just say September and December, what's your bias in terms of where you're likely to be in terms of the NII range of the year? Look, I think with two cuts, we're going to be closer to the bottom end of our range, but I would tell you just from an overall health of the business, I take the second cut because I think it drives more loan demand, I think it buys more capital market activity, I think it gets people more engaged in economic investment, so I think it's a trade we certainly would make going into 2025 versus, you know, I guess maximizing what's in the fourth quarter.

Clark Harold Ibrahim Khayat: I want to start, Clark, thank you for all the detail and disclosures on NII, and we've obviously beat that horse on this call quite a bit, but just assuming that we get two cuts this year, just say September and December, what's your bias in terms of where you'll likely be in terms of the NII range for the year? Look, I think with two cuts, we're going to be closer to the bottom end of our range.

Steven Alexopoulos: Good morning, everyone.

Steven Alexopoulos: I want to start, Clark, thank you for all the detailed disclosures on NII and we've obviously beat that horse on this call quite a bit.

Steven Alexopoulos: But just assuming that we get two cuts this year, just say September and December , what's your bias in terms of where you'll likely be in terms of the NII range for the year?

Clark Harold Ibrahim Khayat: But I would tell you just from the overall health of the business, I take the second cut because I think it drives, Yeah, loan demand. I think it buys more capital markets activity. I think it gets people more engaged in economic investment. So I think it's a trade we certainly would make going into 2025 versus, you know, I guess maximizing what's in the fourth quarter. Got it. Thanks.

Clark: Look, I think with two cuts, we're going to be closer to the bottom end of our range.

Clark: But I would tell you just from an overall health of the business, I'd take the second cut, because I think it drives

Clark: and I think it buys more loan demand, I think it buys more capital markets activity, I think it gets people more engaged in economic investment. So I think it's a trade we certainly would make going into 2025 versus, you know,

Clark Khayat: Got it, okay.

Steve Alexopoulis: Thanks, and for my follow-up question, I want to go back and ask John's question a little bit differently. I know you're not going to 2025 outlook at this point, but if you do achieve the expense outlook this year, I think it's basically three years in a row where you haven't had any real expense growth, and I guess we'll be curious of the lots of ways to achieve that. One of them is just deferring expenses and projects until the environment's better. It is not the key to self-assessment. Understand that, is there a catch-up in expenses coming because you've been deferring and you haven't expense growth for multiple years, or should you know, the next year is the revenue environment gets better, just look like a more normal expense year for the company.

Clark Harold Ibrahim Khayat: And for my follow-up question, I want to go back and ask John's question a little bit differently on expenses. I know you're not going to give 2025 outlook at this point, but if you do achieve the expense outlook this year, I think it's basically three years in a row where you haven't had any real expense growth. And I guess what we're curious about, you know, there are lots of ways to achieve that

Clark: I guess maximizing what's in the fourth quarter.

Speaker Change #117: Got it. Okay.

Speaker Change #118: Thanks. And for my follow-up question, I want to go back and ask John's question a little bit different.

Speaker Change #119: I know you're not going to give 20-25 outlook at this point, but if you do achieve

Speaker Change #120: The expense outlook this year, I think it's basically three years in a row where you haven't had any real expense growth.

Christopher Marrott Gorman: One of them is just delaying expenses and projects until the environment is better. And is that the key? Just help us understand that. Is there a catch-up in expenses coming because you've been deferring and you haven't had expense growth for multiple years? Or should, you know, the next year, as the revenue environment gets better, just look like a more normal expense year for the company? So, Steve, the answer is, as we look forward, it will be a more normal expense year for the company as we continue to come out of the position that we're in.

Speaker Change #121: And I guess what we're curious of, you know, there's lots of ways to achieve that. One of them is just deferring expenses and projects until the environment's better. And is that the key? Just help us understand that. Is there a catch-up in expenses coming because you've been deferring?

Speaker Change #122: and you have an expense growth for multiple years, or should, you know, the next year as the revenue environment gets better, just look like a more normal expense year for the company?

Speaker Change #123: So, Steve, the answer is, as we look forward, it will be a more normal expense year for the company.

Christopher Marrott Gorman: We have been investing, though, and the reason we've been able to invest is that we took $400 million of expenses out last year just for the purpose of being able to invest in people and in technology and in the businesses that we're trying to grow, like our private client business, our payments business, and our investment banking business. So expenses will go up in 2025 as you see the pull-through of the earnings that we're talking about, but we have not starved the business. We've continued to invest in our migration to the cloud. We've continued to spend $800 million a year in our tech area.

Speaker Change #124: to come out of the position that we're in. We have been investing, though. And the reason we've been able to invest is we took $400 million of expenses out last year.

Speaker Change #124: Just for the purpose of being able to invest in people, and in technology, and in the businesses that we're trying to grow, like our private client business, our payments business, our investment banking business. So, expenses will go up in 2025, as you see the pull-through of the earnings that we're talking about, but we have not starved the business. We've continued to invest in our migration to the cloud. We've continued to spend...

Christopher Marrott Gorman: But in order to be able to continue to invest in the business, I think you can imagine that expenses will go up in 2025, but it's not because of deferred expenses. It's just because our business continues to grow, reiterate Chris's point there, it just Investment will be stabled. It's just the lack of a clear takeout to fund that. That'll be, "Yep, got it." Okay. It's a great caller. Thanks a lot.

Speaker Change #124: $800 million a year in our tech area, so, but in order to be able to continue to invest in the business, I think you can imagine that expenses will go up in 2025, but it's not because

Speaker Change #124: of Deferred Expenses. It's just because our business continues to grow. Yeah, just to put it...

Speaker Change #124: Reiterate Chris's point there, it's just...

Chris: Investment will be stable to up, it's just the lack of a clear takeout to fund that, that'll be the difference.

Clark Harold Ibrahim Khayat: Thanks, Steve. Next, we go to Mike Mayo with Wells Fargo. Please go ahead.

Chris: Yep, got it. Okay. That's great, Culler. Thanks a lot. Thanks, Andy.

Clark Harold Ibrahim Khayat: Hi, I think I'm missing something very basic, and that is that you have the same, no change to the fixed asset repricing, you have less favorable loan growth guidance, yet you still have the same NII guidance. So what am I missing in my logic? Yeah, look, I mean, it's look, part of it is there is a range, Mike, so where you land in the range is part of that.

Chris: Next we go to Mike Mayo with Wells Fargo. Please go ahead.

Michael Lawrence Mayo: Hi, I think I'm missing something very basic, and that is that you have the same no change to the fixed asset repricing. You have less favorable loan growth guidance, yet you still have the same NII guidance. So what am I missing in my logic?

Speaker Change #125: Yeah, look, I mean, part of it is there is a range, Mike, so where you land in the range is part of that. A lot of that, as we've talked about on the call, a lot of the increase is going to be structural to the fixed asset repricing.

Clark Harold Ibrahim Khayat: A lot of that, as we've talked about in the call, a lot of the increase is going to be structural due to the fixed asset repricing. So the plus or minus pieces on that, I think are largely going to be whether or not we have loan growth, but a little bit of that muted loan growth is offset by a little bit stronger deposit performance. So we hit both of those balance sheet components, one to the negative, one to the positive, and we think those are somewhat offsetting. So the amount of loan growth we see in the second half would be kind of a plus or minus. You said that middle market pipelines are up 50% quarter over quarter. Is that correct?

Michael Lawrence Mayo: The plus or minus pieces on that I think is largely going to be whether or not we have loan growth.

Michael Lawrence Mayo: But a little bit of that muted loan growth is offset by a little bit stronger deposit performance. So we hit both of those balance sheet components, one to the negative, one to the positive. And we think those are somewhat offsetting. So the amount of loan growth we see in the second half would be kind of the plus or minus on that.

Christopher Marrott Gorman: And how much is the middle market of your total commercial? The answer is the 50% quarter recorder is correct, and Middle Market would be probably 40% of total commercial. So even though you have it.

Michael Lawrence Mayo: coverage.

Speaker Change #128: You said middle market pipelines are up 50% quarter over quarter, is that correct? And how much is middle market of your total commercial?

Speaker Change #127: The answer is the 50% quarter recorder is correct and middle market would be of total commercial probably 40%.

Christopher Marrott Gorman: So even though you have such, you know, strong backlogs, and it seems like you have a certain degree of conviction, you still thought you should guide loan growth lower. Is that correct? We did. And one of the things, one of the reasons we felt that way, Mike, was that our exit rate was lower than our average loan rate, which was, which was part of our thinking there. And then, just a separate topic, Chris, in terms of the merger environment.

Speaker Change #130: So even though you have.

Speaker Change #129: So even though you have such strong backlogs and it seems like you have a certain degree of conviction, you still thought you should guide loan growth lower, is that correct?

Speaker Change #127: We did, and one of the reasons we felt that way, Mike, is that our exit rate was lower than our average loan rate, which was part of our thinking there.

Speaker Change #127: And then just a separate, a separate topic, Chris, in terms of the merger environment,

Christopher Marrott Gorman: I feel like the topic died down here recently, but you said that you'd be willing and able to pursue another First Niagara sort of deal. Is that still the case, and under what circumstances do you think it would become more likely?

Chris: I feel like the topics died down here recently, but you said that you'd be willing and able to pursue another first Niagara sort of deal. Is that still the case and under what circumstances do you think it would become more likely? Would it be more likely after the election? What do you think the tone is in D.C. and what's your appetite?

Christopher Marrott Gorman: Would it be more likely after the election? What do you think the tone is in D.C., and what's your appetite? Sure. But as it relates to a depository, I don't see anything happening in the near future. I think the obstacles to completing a deal are, first of all, can you get it approved? Secondly, if you can get it approved, how long does it take, and what's left of the business after you get it approved?

Speaker Change #133: Sure. So, as it relates to a depository, I don't see anything happening in the near future. I think the obstacles...

Christopher Marrott Gorman: As I mentioned earlier, I think there are some real questions about, you know, everyone seems to be coalescing around the soft landing. I hope people are right, but I'm not sure that that's a fait accompli.

Chris: to completing a deal is, first of all, can you get it approved? Secondly, if you can get it approved, how long does it take and what's left of the business after you get it approved?

Speaker Change #127: As I mentioned earlier, I think there's some real questions on...

Speaker Change #127: you know.

Speaker Change #132: Everyone seems to be coalescing around the soft landing. I hope people are right.

Speaker Change #127: I'm not sure that that's a fait accompli, and so...

Christopher Marrott Gorman: And so, I think as you're thinking about buying a business, you're buying their book. And, of course, unrealized losses become realized losses. So, for all those reasons, I don't see it happening in the near future. What I had mentioned on the call that you sponsored is, I said, We're proud of our ability to buy entrepreneurial niche businesses and integrate them into our business. That's really hard for a big company to do.

Speaker Change #127: I think as you're thinking about buying a business, you're buying their book, and of course, unrealized losses become realized losses. So, for all those reasons,

Speaker Change #131: I don't see it happening in the near future. What I had mentioned on the call that you had sponsored is I said, with respect to First Niagara, you know, we were able to keep the clients and keep the people and take 42% of the costs out of the business.

Speaker Change #131: And I think that's a pretty good business model, you know, in any industry. So I think that, I think there will be consolidation. What I've shared with our team is I don't think there's going to be any consolidation until there's a lot. So I think that...

Speaker Change #131: I think there will be consolidation. Where you will see us spending time is on these entrepreneurial businesses. I'm really proud of our ability to buy entrepreneurial niche businesses.

Christopher Marrott Gorman: And I think we've done it pretty well. And those would be things that we'd be focused on in the near and medium term. And then last question, investment banking. I know your mix is different, you're more loan syndications, you have mergers, but you're relative to the big banks. I know it's not apples to apples completely, but it just doesn't really compare so favorably to them.

Speaker Change #131: and integrate them into our business. That's really hard for a big company to do, and I think we've done it pretty well, and that would be things that we'd be focused on in the near and medium term.

Speaker Change #134: And then last question, investment banking, I know your mix is different, you're more loan syndications, you have mergers, but you're relative to the big banks.

Christopher Marrott Gorman: On the other hand, you said you have record backlogs in investment banking. So in what areas of investment banking are you seeing the record backlog? Sure, so the divergence. I'll start with the divergence.

Speaker Change #135: I know it's not apple to apple completely, but it just doesn't really compare so favorably.

Speaker Change #135: to them.

Speaker Change #136: On the other hand, you said you have record backlogs in investment banking. So what areas of investment banking are you seeing the record backlogs?

Christopher Marrott Gorman: We are focused on certain industries. I think a lot of people had a pretty good quarter with respect to equities. We did not particularly, just because one, it's not a huge business for us.

Speaker Change #137: Sure, so the divergence, I'll start with the divergence. We are focused on certain industries. I think a lot of people had a pretty good quarter with respect to equities.

Christopher Marrott Gorman: And secondly, the equities team tends to be issued in certain verticals at certain times. Where we have a strong backlog and it's the most important place for us given our middle market franchise, Mike, is in M&A because our M&A business pulls through a lot of things like loans and hedging. So that's where our pipelines are strong. The other area is our commercial mortgage business, and as rates come down, I think you're gonna see that business go down and stabilize. And I think you need both, candidly, for all the reasons I talked about earlier.

Speaker Change #138: We did not, particularly, just because, one, it's not a huge business for us, and secondly,

Speaker Change #138: Equities team tend to be issued in certain verticals at certain times.

Speaker Change #138: where we have a strong backlog and it's the most important place for us given our middle market franchise, Mike.

Speaker Change #138: [inaudible]

Speaker Change #138: And as rates come down, I think you're going to see that business rates come down and stabilize. And I think you need both, candidly, for all the reasons I talked about earlier. I think you're going to see that really pick up in terms of what comes out of the pipe in the second half of the year.

Christopher Marrott Gorman: I think you're gonna see that really pick up in terms of what comes out of the pipe in the second half of the year. Got it. Thank you. Thank you, I appreciate your questions. And next, we go to Peter Winter with D.A.

Christopher Marrott Gorman: Davidson. Please go ahead. Good morning.

Speaker Change #139: Got it. Thank you.

Speaker Change #140: Thank you. Appreciate your question.

Clark Harold Ibrahim Khayat: Consumer loan growth was under quite a bit of pressure in the second quarter. I'm just wondering if you could talk about the outlook for the consumer side of the lending business. Sure. One, you know, our consumer lending, we, as you know, Peter, we don't have a huge credit card book. It's really mortgage, home equity, personal loans, student loans. Not an enormous amount of volume in the mortgage market, the jumbo mortgage market, or the nonconforming mortgage market, or the student loan market, which is generally what has been on the balance sheet for us.

Speaker Change #140: And next we go to Peter Winter with D.A. Davidson. Please go ahead.

Peter J. Winter: Good morning. The consumer loan growth was under quite a bit of pressure in the second quarter. I'm just wondering if you could talk about the outlook on the consumer side of the lending business.

Speaker Change #142: Sure. One, you know, our consumer lending, we, as you know, Peter, we don't have a huge

Peter J. Winter: Credit Card Book, it's really mortgage, home equity, personal loans, student loans, not an enormous amount of volume in the mortgage market, the jumbo mortgage market, or non-conforming market, or the student loan market, which is

Clark Harold Ibrahim Khayat: We continue to support clients where we can, particularly in help to sell mortgages, but I would suspect as we go forward, you will see us do, and rates come down, and those businesses get a little stronger, you'll see us support those clients very actively, but probably do a little bit more of it off balance sheet. So we'll view that a little bit more as a fee income generator as we service those clients.

Peter J. Winter: Generally what has been on balance sheet for us...

Peter J. Winter: We continue to support clients.

Peter J. Winter: where we can, particularly in help for sale mortgages, but I would suspect

Peter J. Winter: as we go forward.

Peter J. Winter: You will see us do, and rates come down, and those businesses get a little stronger. You'll see us support those clients very actively, but probably do a little bit more of it.

Peter J. Winter: Off Balance Sheet. So we'll view that a little bit more as a fee. Income Generators, as we service those clients.

Clark Harold Ibrahim Khayat: We will always have some room on the balance sheet to accommodate good clients as it relates to, you know, non-conforming structures as an example, but that'll probably be less so than it's been in the last Would you expect, just given the low yields, a similar type of decline going forward on the consumer side, in terms of what we've seen this year? Well, just relative to the second quarter. Yeah, I mean, I'd have to go back and look for sure.

Peter J. Winter: We will always have some room on the balance sheet to accommodate good clients as it relates to, you know, non-conforming structures as an example, but that'll be probably less so than it's been in the last few years.

Speaker Change #143: Would you expect a simple, just given...

Speaker Change #143: The low yields, a similar type of decline going forward on the consumer side.

Speaker Change #144: In terms of what we've seen this year.

Clark Harold Ibrahim Khayat: But, you know, you have student loans and mortgages, right? They just have structural paydowns every month. So we'll see that book continue to come down. You know, at a sort of normalized rate, I think it will accelerate as rates come down, but they have to come down quite a bit, frankly, for a lot of refi. So I think, you know, what you're seeing is probably illustrative of what you'd expect going forward.

Speaker Change #145: Well just just relative to the second quarter.

Speaker Change #146: Yeah, I mean, I'd have to go back and look for sure. But, you know, you have, you know, student loans and

Speaker Change #146: You know, at a, at a sort of

Speaker Change #147: Normalized rate, you know, I think it will, it will accelerate as rates come down, but they have to come down quite a bit, frankly, for a lot of refi. So I think, you know, what you're seeing is probably illustrative of what you'd expect going forward.

Clark Harold Ibrahim Khayat: I don't know of any unique thing that happened in the second quarter that would have driven Consumer Loan Growth down more. Okay, and then just on a different question, just on buybacks. I know there are no plans to buy back stock this year, but Chris, I'm just wondering, what are some of the parameters you're looking at to get back into the market to buy back stock? Well, the first parameter would be to really have a firm understanding of where the Basel III endgame is going to be, because until we know... What the phase-in period is and what capital is going to be required, that's just, I think that's a very important piece of the equation.

Speaker Change #148: I don't know of any unique thing that happened in the second quarter that would have driven consumer loan growth down more than...

Speaker Change #149: Okay. And then just on a different question, just on buybacks, I know there are no plans to buy back stock this year, but Chris, I'm just wondering, what are some of the parameters you're looking at to get back into the market to buy back stock?

Chris: Well, the first parameter would be to really have a firm understanding of where the Basel III endgame is going to be, because until we know

Chris: What the phase-in period is and what capital is going to be required.

Clark Harold Ibrahim Khayat: And for us, obviously, we had mentioned we've been under-earning, and as our balance sheet heals, that will give us an opportunity at the appropriate time to revisit that. But we've been very clear, we're not going to engage in any buybacks this year, for sure, because we, in fact, don't even have a plan approved by the board.

Chris: [inaudible]

Speaker Change #150: Our balance sheet heals. That'll give us an opportunity at the appropriate time to revisit that, but we've been very clear. We're not going to engage in any buybacks this year, for sure, because we, in fact, don't even have a plan approved by the board.

Clark Khayat: But, you know, going forward, obviously, like everybody, we'll be taking a look at it.

Christopher Marrott Gorman: You know, going forward, obviously, like everybody, we'll be taking a look at it. And then just one last clarification question, Clark, on Steve's question about the NII range you mentioned with two rate cuts closer to the bottom end of the range. Does that mean it means closer to 2% down? Closer to five. So it would be the upper end, the upper end of the down range. Yeah, we can wrestle on those semantics, but yes, closer to that. Closer to the side, yeah.

Speaker Change #150: But, you know, going forward, obviously, like everybody, we'll be taking a look at it.

Clark Khayat: I mean, just one last disclarification question: Clark on Steve's question about the NII range. You mentioned with two ray cuts closer to the bottom. End of the range, does that mean closer to 2% down? It's closer to 5%, so it would be the upper end of the down range. Yeah, we can wrestle on this, but yes, closer to the 5 down. Got it. Thanks.

Clark: And then just one last clarification question, Clark, on Steve's question about the NII range you mentioned with two rate cuts closer to the bottom end of the range. Does that mean closer to 2% down?

Speaker Change #151: Closer to five, so it would be the upper end of the down range. Yeah, we can wrestle on those semantics, but yes, closer to that.

Clark Harold Ibrahim Khayat: Got it. Thanks. Thanks for taking the questions. Thanks, Peter.

Operator: Thanks for taking the questions.

Speaker Change #152: Closer to the side, yeah.

Christopher Gorman: Thanks, Peter.

Christopher Gorman: And on altering the conference back to Chris Gorman for closing remarks.

Speaker Change #153: Got it. Thanks. Thanks for taking the questions.

Christopher Marrott Gorman: And I'll turn the conference back to Chris Gorman for closing remarks. Again, thank you for participating in our call today. If you have any follow-up questions, you can direct them to Brian and our Investor Relations team. This concludes our remarks. Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using the AT&T teleconference service. You may now disconnect.

Christopher Gorman: Again, thank you for participating in our call today.

Speaker Change #153: And now I'll turn the conference back to Chris Gorman for closing remarks.

Brian Mauney: If you have any follow-up questions, you can direct them to Brian and our Investor Relations team.

Christopher Marrott Gorman: Again, thank you for participating in our call today. If you have any follow-up questions, you can direct them to Brian and our Investor Relations team. This concludes our remarks. Thank you.

Operator: This concludes our remarks. Thank you.

Operator: Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference Service. You may now disconnect.

Speaker Change #155: Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference service. You may now disconnect.