Q1 2025 KeyCorp Earnings Call

Good morning, and welcome to Keycorp's first quarter 2025 earnings conference call at this time.

Operator: Good morning, and welcome to KeyCorp's first quarter 2025 earnings conference call. At this time, I'll Good morning, and welcome to KeyCorp's first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode.

Good morning, and welcome to Keycorp's first quarter 2025 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. So at that time, if you would like to ask a question. Please press star followed by one on your telephone keypad. As a reminder, this conference is being recorded I would now.

Operator: Later, we will conduct a question and answer session. So at that time, if you would like to ask a question, please press star followed by one on your telephone keypad. As a reminder, this conference is being recorded.

Brian Mauney: I would now like to turn the conference over to Brian Mauney, KeyCorp Director of Investor Relations. Please go ahead. Thank you, Operator, and good morning, everyone. I'd like to thank you for joining KeyCorp's first quarter 2025 earnings conference call. I am 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.

Speaker Change: Turning the conference over to Brian money Keycorp director of Investor Relations. Please go ahead.

Brian Money: Thank you operator, and good morning, everyone I'd like to thank you for joining key Corp's first quarter 2025 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 Dot Com web site in the back of the <unk>.

Speaker Change: Presentation, you will find our statement on forward looking disclosures and certain financial measures, including non-GAAP measures. 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 April 17th 2025, and will not be updated with that I will turn it over to Chris. Thank you.

Brian Mauney: This covers our earnings materials as well as remarks made on this morning's call.

Brian Mauney: Actual results may differ materially from forward-looking statements, and those statements speak only as of today, April 17, 2025, and will not be updated.

Christopher Gorman: With that, I will turn it over to Chris. Thank you, Brian, and good morning. This morning, we reported very strong first quarter results. Both revenues and expenses were favorable to expectations. Revenues were up 16% from a year ago, while expenses were essentially flat. Our pre-provisioned net revenue increased more than $90 million from the fourth quarter on an operating basis. Concurrently, credit costs, NPAs, and criticized loans are all trending in a positive direction, with NPAs declining by nearly 10% sequentially.

Speaker Change: Brian and good morning. This morning, we reported very strong first quarter results, both revenues and expenses were favorable to expectations revenues were up 16% from a year ago, while expenses were essentially flat our pre provision net revenue increased more than $90 million from the fourth quarter on an operating.

Speaker Change: Basis concurrently credit costs, Npa's and criticized loans are all trending in a positive direction with NPA is declining by nearly 10% sequentially.

Christopher Gorman: Clark will walk you through the details of the quarter shortly, but first, I want to spend some time addressing what I'm sure is top of mind, given everything that's going on. Namely, what are we seeing? What are we hearing from clients? And how are we thinking about our go forward strategy? Recent events are clearly having an impact on markets and client sentiment, as the outlook for the economy is becoming more uncertain. At the same time, inflation remains sticky, potentially limiting some of the response actions the Fed can take. And finally, the geopolitical environment remains both uncertain and complex.

Clark will walk you through the details of the quarter shortly but first I want to spend some time addressing what I'm sure is top of mind, given everything thats going on namely what are we seeing what are we hearing from clients and how are we thinking about our go forward strategy.

Speaker Change: Events are clearly, having an impact on markets and client sentiment as the outlook for the economy is becoming more uncertainty at the same time inflation remains sticky potentially limiting some of the response actions that fed could take and finally, the geopolitical environment remains both uncertain and compete.

Christopher Gorman: While the market backdrop is dynamic, and some of the recent announcements provide incremental stability, so far in the quarter, that is, since the tariff announcements, we have seen our clients pause transactional activity, waiting to see how things play out.

Speaker Change: Next while the market backdrop is dynamic and some of the recent announcements provide incremental stability. So far in the second quarter that is since the tariff announcements we have seen our clients pause transactional activity waiting to see how things play out at.

Christopher Gorman: At Key, we are successfully navigating the current macro uncertainty. In the normal course of business, we use broad range-based forecasting to manage our company. We are currently managing Key to an even broader range of potential scenarios. I am fully confident we are prepared to deal with whatever comes. We are here for our clients with our balance sheet and through our strategic advice, as we have made, and by the way, continue to make investments that make key relevant to our clients and prospects in times like these. We are using this as an opportunity to be out in front of consumer and commercial clients and prospects.

Speaker Change: At key we are successfully navigating the current macro uncertainty in the normal course of business. We use broad range based forecasting to manage our company. We are currently managing key to an even broader range of potential scenarios.

Speaker Change: I am fully confident we are prepared to deal with whatever comes we are here for our clients with our balance sheet and through our strategic advice as we have made and by the way continue to make investments that make key relevant to our clients and prospects in times like these.

Speaker Change: We are using this as an opportunity to be out in front of consumer and commercial clients and prospects. We're also here for our communities. We continue to invest in the communities. We so proudly serve we took the opportunity to increase our charitable foundation contribution this quarter. Additionally, our teammates continue to.

Christopher Gorman: We are also here for our communities. We continue to invest in the communities we so proudly serve. We took the opportunity to increase our charitable foundation contribution this quarter. Additionally, our teammates continue to volunteer their valuable time. Last year, Key teammates volunteered more than 68,000 hours in their communities and served on almost 1,000 nonprofit boards.

Solid tier their valuable time last year key teammates volunteered more than 68000 hours in their communities and served on almost 1000 nonprofit boards were fortunate to enter this environment from a position of strength in retrospect the scotiabank.

Christopher Gorman: We are fortunate to enter this environment from a position of strength. In retrospect, the Scotiabank Strategic Minority Investment that we closed at the end of last year was well-timed. It enabled us to reposition our business for the future, accelerating our capital and earnings trajectory, while increasing our strategic agility to successfully navigate exactly the type of environment we are currently experiencing. We ended the quarter with a CET1 ratio of 11.8% and a marked CET1 ratio of approximately 10%, both at the high end of our peer group. Having excess capital is a luxury, not a burden. It enables us to support existing and prospective clients, and enables us to take advantage of the inevitable dislocations that develop from time to time in the marketplace.

Speaker Change: Eric minority investment that we closed at the end of last year was well timed it enabled us to reposition our business for the future accelerating our capital and earnings trajectory, while increasing our strategic agility to successfully navigate exactly the type of environment. We are currently experiencing.

Speaker Change: We ended the quarter with a CET one ratio of 11, 8% and a marked CET one ratio of approximately 10%.

Speaker Change: Both at the high end of our peer group, having excess capital is a luxury not a burden it enables us to support existing and prospective clients and enables us to take advantage of the inevitable dislocations that develop from time to time in the marketplace, we have ample liquidity as well.

Christopher Gorman: We have ample liquidity as well, ending the quarter with over 30% of our balance sheet in cash and cash equivalents. Our low to moderate risk profile also protects us, relatively speaking, from tail risk events. We feel very good about the quality and profile of our loan book. With respect to tariffs, we are currently performing a name-by-name review of our largest clients to refine on a bottoms-up basis our potential exposure to the rapidly evolving landscape. Based on our top-down view of our industry concentrations, we believe this direct exposure will prove to be limited.

Speaker Change: Ending the quarter with over 30% of our balance sheet in cash and cash equivalents.

Speaker Change: Our low to moderate risk profile also protects us relatively speaking from tail risk events, we feel very good about the quality and profile of our loan book with respect to tariffs. We are currently performing a name by name review of our largest clients to refine a bottoms up basis.

Speaker Change: Our potential exposure to the rapidly evolving landscape based on our top down view of our industry concentrations. We believe this direct exposure will prove to be limited.

Christopher Gorman: We also enter this period of uncertainty with strong momentum and clearly defined tailwind. Some of which are hardwired in nature, particularly as it pertains to net interest income. Our leading indicators are pointing in the right direction. Loans are up sequentially on a spot basis, with commercial loans up $1.2 billion. Our pipelines remain elevated and are not meaningfully reliant on M&A activity. We are confident that project loans, which are characterized by long lead times and complex governmental approvals, will continue to fund as we move throughout the year. We continue to drive strong deposit growth and beta dynamics.

Speaker Change: We also entered this period of uncertainty with strong momentum and clearly defined tailwind.

Speaker Change: Some of which are hardwired in nature, particularly as it pertains to net interest income.

Speaker Change: Our leading indicators are pointing in the right direction.

Speaker Change: Loans are up sequentially on a spot basis with commercial loans up $1 $2 billion.

Speaker Change: Our pipelines remain elevated and are not meaningfully reliant on M&A activity.

Speaker Change: We are confident that project loans, which are characterized by long lead times and complex governmental approvals will continue to fund as we move throughout the year. We continued to drive strong deposit growth and beta dynamics on a year over year basis deposits were up mid single digits household really.

Christopher Gorman: On a year-over-year basis, deposits were up mid-single digit. Household relationships were up 2%, and our commercial payments business continued to experience strong momentum, while being very disciplined with respect to rate management.

Speaker Change: <unk> chips were up 2% and our commercial payments business continued to experience strong momentum.

Speaker Change: While being very disciplined with respect to rate management.

Speaker Change: For the second consecutive year, our first quarter investment banking fees or a record despite the pull through our pipelines remain at historically elevated levels and were roughly flat compared to year end, we remain cautiously optimistic that this business will ultimately grow mid to.

Christopher Gorman: For the second consecutive year, our first-quarter investment banking fees were a record. Despite the pull-through, our pipelines remained at historically elevated levels and were roughly flat compared to year-end. We remain cautiously optimistic that this business will ultimately grow mid-to-high single digits in 2025. But, of course, risks to this level of performance are rising. As mentioned earlier, asset quality indicators are trending in the right direction. Overall credit migration improved for a fifth consecutive quarter.

Speaker Change: High single digits in 'twenty five.

Speaker Change: But of course risk to this level of performance are rising.

Speaker Change: As mentioned earlier asset quality indicators are trending in the right direction overall credit migration improved for a fifth consecutive quarter.

Christopher Gorman: While normally this would have driven a reserve release, we elected to make an adjustment in excess of $100 million to reflect potential economic weakness that could develop later this year.

Speaker Change: Normally this would have driven a reserve release, we elected to make an adjustment in excess of $100 million to reflect the potential economic weakness that could develop later this year.

Christopher Gorman: Lastly, in March, we announced a $1 billion share repurchase authorization by our board of directors, which we currently expect to commence in the second half of the year. Pace and magnitude of any share buybacks will depend on a number of factors, most notably how the rapidly developing macro environment evolves.

Speaker Change: Lastly in March we announced a $1 billion share repurchase authorization by our board of directors, which we currently expect to commence in the second half of the year pace and magnitude of any share buybacks will depend on a number of factors most notably how the rapidly developing.

Speaker Change: Macro environment evolves to wrap up as an industry. Once again, we find ourselves operating in a turbulent environment, having said that we feel key is well positioned for a wide range of outcomes.

Christopher Gorman: To wrap up, as an industry, once again, we find ourselves operating in a turbulent environment. Having said that, we feel Key is well positioned for a wide range of outcomes. We enter this period from a position of strength, from a capital, from a liquidity and from a reserves perspective. We enjoy strong earnings and business momentum and a clearly defined structural net interest income tailwind. We have a durable, well-positioned balance sheet. Given these unique benefits, and of course, subject to market conditions not deteriorating further, I feel confident in our ability to deliver on the 2025 financial commitments, which we have previously communicated.

Speaker Change: We entered this period from a position of strength.

Speaker Change: From a capital from a liquidity and from a reserves perspective.

Speaker Change: We enjoy strong earnings and business momentum and a clearly defined structural net interest income tailwind.

Speaker Change: We have a durable well positioned balance sheet.

Speaker Change: Given these unique benefits and of course subject to market conditions not deteriorating further I feel confident in our ability to deliver on the 2025 financial commitments, which we have previously communicated with that I'd like to turn it over to Clark Clark.

Clark Khayat: With that, I'd like to turn it over to Clark. Clark. Thanks, Chris. Starting on slide four, we reported first quarter earnings per share of $0.33. Revenue was up 16% year over year, while expenses were up 1%, excluding last year's FDIC special assessment. tax equivalent net interest income was $1.1 billion or up 4% sequentially and up 25% year over year. Non interest income increased 3% year over year reflecting continued momentum across commercial mortgage servicing, investment banking, wealth, and commercial payments. On an adjusted basis, we achieved about 170 basis points of fee-based operating leverage on a year-over-year basis.

Clark: Thanks, Chris starting on slide four we reported first quarter earnings per share of <unk> 33.

Clark Clark: Revenue was up 16% year over year, while expenses were up 1%, excluding last year's FDIC special assessment.

Clark: Tax equivalent net interest income was $1 1 billion.

Clark: We're up 4% sequentially and up 25% year over year.

Clark: Noninterest income increased 3% year over year, reflecting continued momentum across commercial mortgage servicing investment banking wealth and commercial payments.

Clark: On an adjusted basis, we achieved about 170 basis points of fee based operating leverage on a year over year basis.

Clark Khayat: provision for credit losses of $118 million included $110 million of net charge offs and an $8 million reserve bill. The net build was a result of improved credit migration trends offset by our decision to add reserves to account for the current macro uncertainty. Our CET1 ratio was 11.8% and tangible book value per share increased roughly 26% year-over-year.

Clark: Provision for credit losses of $118 million included $110 million of net charge offs and an $8 million reserve build.

Clark: Net build was a result of improved credit migration trends offset by our decision to add reserves to account for the current macro uncertainty.

Clark: Our CET one ratio was 11, 8% intangible book value per share increased roughly 26% year over year.

Clark Khayat: Moving to the balance sheet on slide five. Average loans were down slightly sequentially, but we're up about half a billion dollars to $105 billion on a period end basis. On a spot basis, C&I loans grew $1.5 billion, or 3%, offset by intentional runoff of low-yielding consumer loans, namely residential mortgages, and some net paydown activity in CRE. Within C&I, the growth was broad based across industries and regions, and primarily investment grade with both new and existing clients. As we've mentioned before, our business model provides clients with the best execution capabilities, whether it's on or off our balance.

Clark: Moving to the balance sheet on slide five.

Clark: Average loans were down slightly sequentially, but were up about <unk> 5 billion to $105 billion on a period end basis.

Clark: On a spot basis, C&I loans grew $1 5 billion or 3% offset by intentional runoff of low yielding consumer loans, namely residential mortgages and some net paydown activity in CRE.

Clark: Within C&I growth was broad based across industries and regions and primarily investment grade with both new and existing clients.

Clark: As we've mentioned before our business model provides clients with the best execution capabilities, whether it's on or off our balance sheet.

Clark Khayat: This quarter we raised roughly $25 billion of capital for our clients, retaining 17% on our balance sheet while distributing the remainder through our capital markets platform. Looking forward, if current market uncertainty persists or worsens, we have the flexibility and capacity to use our balance sheet to support clients who may have less attractive options in the capital market. On slide 6, average deposits declined by less than 1% from last quarter toward the better end of our typical first quarter seasonality. Total deposits and client deposits both increased 4% year over year, reflecting growth in both consumer and commercial balance.

Clark: This quarter, we raised roughly $25 billion of capital for our clients retaining 17% on our balance sheet, while distributing the remainder through our capital markets platform.

Clark: Looking forward, if current market uncertainty persists or worsens, we have the flexibility and capacity to use our balance sheet to support clients, who may have less attractive options in the capital markets.

Clark: On slide six average deposits declined by less than 1% from last quarter towards the better end of our typical first quarter seasonality.

Clark: Total deposits in client deposits, both increased 4% year over year, reflecting growth in both consumer and commercial balances.

Clark Khayat: On a reported basis, non-interest bearing deposits were stable at about 19% of total deposits. Similarly, when adjusted for the non-interest bearing deposits in our hybrid accounts, that percentage remains stable at approximately 23%. Interest-bearing deposit costs decreased by 18 basis points during the quarter, while total deposit costs decreased by 12 basis points. Deposit paydays continue to come in stronger than expected, reaching 46 percent through the first quarter and closer to 50 percent through the month of March. We also continue to steadily reduce our reliance on market funds. Wholesale borrowings and brokered CDs were 10% of earning assets in the first quarter, down from 11% in the fourth quarter and 15% a year ago.

Clark: On a reported basis noninterest bearing deposits were stable at about 19% of total deposits.

Clark: Similarly, when adjusted for the noninterest bearing deposits and our hybrid accounts that percentage remained stable at approximately 23%.

Clark: Interest bearing deposit costs decreased by 18 basis points during the quarter.

Clark: While total deposit costs decreased by 12 basis points deposit betas continue to come in stronger than expected, reaching 46% through the first quarter and closer to 50% through the month of March.

Clark: Also continued to steadily reduce our reliance on market funds wholesale borrowings and brokered Cds were 10% of earning assets in the first quarter down from 11% in the fourth quarter and 15% a year ago. As a result overall funding cost declined by 23 basis points this quarter.

Clark Khayat: As a result, overall funding costs declined by 23 basis points this quarter.

Clark Khayat: Slide seven provides drivers of net interest income and NIM this quarter. Tax equivalent net interest income was up 4% and net interest margin increased 17 basis points from the prior quarter to 2.58%. The increase was largely driven by last quarter securities repositioning and related Scotiabank investment, as well as fixed-rate assets and swap repricing, impact of our loans remixing from low-yielding consumer into C&I, and proactive deposit beta management, which more than offset the impact of seasonally lower deposits and two fewer days in the quarter. Turning to slide 8, non-interest income was $668 million, up 3% year-over-year.

Clark: Slide seven provides drivers of net interest income in NIM this quarter.

Tax equivalent net interest income was up 4% and net interest margin increased 17 basis points from the prior quarter to 258%.

Clark: The increase was largely driven by last quarter securities repositioning and related Scotiabank investment as well as fixed rate assets and swap re pricing impact of our loans remixing from low yielding consumer into C&I and proactive deposit beta management, which more than offset the impact of seasonally lower deposits and two fewer days in the quarter turn.

Clark: Turning to slide eight.

Noninterest income was $668 million up 3% year over year.

Clark Khayat: Excluding the impact from operating lease income, which reflects a prior change in accounting treatment, fee growth is closer to 6%. Commercial mortgage servicing fees were record and grew approximately 36% year over year. As of March 31st, we are the named primary or special servicer on approximately $710 billion of CRE loans, of which about $250 billion is special services. Active special servicing assets reached an all-time high of $12 billion. As a reminder, this is an off us counter cyclical business with a meaningful amount of special servicing situations expected to be resolved this year. This is an excellent example of our targeted scale strategy, and we expect this business to continue to perform well in the coming quarters.

Clark: Including the impact from operating lease income, which reflects a prior change in accounting treatment fee growth was closer to 6%.

Clark: Commercial mortgage servicing fees were a record and grew approximately 36% year over year.

As of March 31, where the named primary or special servicer, and approximately $710 billion of CRE loans of which about $250 billion is special servicing.

Clark: Active special servicing assets reached an all time high of $12 billion.

Clark: As a reminder, this is an off us countercyclical business with a meaningful amount of special servicing situations expected to be resolved this year.

Clark: This is an excellent example of our targeted scale strategy and we expect this business to continue to perform well in the coming quarters.

Clark Khayat: Investment banking and debt placement fees were $175 million, a record for a first quarter, exceeding last year's previous first quarter record by 3%. syndication and debt capital markets activity drove the growth while M&A remained healthy. As Chris mentioned, pipelines remain at historically elevated levels and roughly flat to year-end. The ultimate yield on those pipelines, of course, are subject to overall market conditions. Elsewhere, service charges increased roughly 10% largely driven by continued momentum in commercial payments, which saw fee equivalent revenue growth in the low teens year over year. Wealth management fees were up 2% and assets under management held relatively steady sequentially at $61 billion.

Clark: Investment banking debt placement fees were $175 million a record for a first quarter exceeding last year's previous first quarter record by 3%.

Clark: Syndication and debt capital markets activity drove the growth while M&A remained healthy.

Clark: As Chris mentioned pipelines remain at historically elevated levels and roughly flat to year end.

Speaker Change: Summit yield on those pipelines of course are subject to overall market conditions.

Speaker Change: Elsewhere service charges increased roughly 10% largely driven by continued momentum in commercial payments, which saw fee equivalent revenue growth in the low teens year over year wealth management fees were up 2% and assets under management held relatively steady sequentially at 61 billion.

Speaker Change: On slide nine first quarter noninterest expenses of $1, one $3 billion decreased 8% from the prior quarter and increased 1% year over year on an adjusted basis.

Clark Khayat: On slide 9, first quarter non-interest expenses of $1.13 billion decreased 8% from the prior quarter and increased 1% year over year on an adjusted basis. The slight expense growth year-over-year was driven by higher personnel expense related to the fee growth, as well as higher technology-related investment. Compared to the fourth quarter, personnel expenses declined due to lower incentive compensation, benefits expenses and fewer days in the quarter. Business services and professional fees, marketing and other expenses declined primarily due to seasonality and some unusually elevated expenses last quarter that we expected would not recur. While we continue to manage expenses diligently, we do expect expenses to increase throughout the year consistent with previous guidance.

Speaker Change: The slight expense growth year over year was driven by higher personnel expense related to the fee growth as well as higher technology related investments.

Speaker Change: Compared to the fourth quarter personnel expenses declined due to lower incentive compensation benefits expenses and fewer days in the quarter business services and professional fees marketing and other expenses declined primarily due to seasonality and some unusually elevated expenses last quarter that we expected would not recur.

Speaker Change: While we continue to manage expenses diligently we do expect expenses to increase throughout the year consistent with previous guidance.

Clark Khayat: These increases reflect an anticipated pickup in investment spend, salary increases, which for Key become effective in March, other personnel costs, and seasonality impact.

Speaker Change: These increases reflect an anticipated pickup in investment spend salary increases which for key become effective in March other personnel costs and seasonality impacts.

Clark Khayat: As shown on slide 10, credit quality is stable to improving. On a link quarter basis, net charge-offs were $110 million, down 4% for an annualized 43 basis points on average loan. Non-performing loans were down 9%. The NPL ratio decreased 8 basis points to 65 basis points. Criticized loans were down roughly 1% driven by commercial real estate. Turning to slide 11, our CET1 ratio was 11.8% as of March 31, and our marked CET ratio, which includes unrealized AFS and pension losses, came in at 9.9%, both of which we believe are at or near the top of our peer group.

Speaker Change: As shown on slide 10 credit quality as stable to improving on a linked quarter basis net charge offs were $110 million down, 4% or an annualized 43 basis points on average loans.

Speaker Change: Nonperforming loans were down 9% the NPL ratio decreased eight basis points to 65 basis points.

Speaker Change: Criticized loans were down roughly 1% driven by commercial real estate.

Speaker Change: Turning to slide 11, our CET one ratio was 11, 8% as of March 31, and our Mark CET ratio, which includes unrealized NFS and pension losses came in at nine 9% both of which we believe are at or near the top of our peer group.

Clark Khayat: As Chris mentioned, having this excess capital is a luxury during these times of elevated uncertainty.

Speaker Change: As Chris mentioned, having this excess capital as the luxury during these times of elevated uncertainty.

Clark Khayat: Moving to slide 12, our 2025 guidance remains unchanged from January despite a more uncertain backdrop. This guidance incorporates a range of potential rate scenarios anywhere from zero to four cuts as we move through the year. We continue to expect to deliver 20% net interest income growth this year. This reflects both our built-in structural tailwinds, as well as our strong loan and deposit performance to start the year. As we shared previously, a significant portion of this growth comes from actions we took in 2024, connected to the Scotiabank Strategic Minority Investment and related portfolio restructuring, and as such is largely in place.

Speaker Change: Moving to slide 12, our 2025 guidance remains unchanged from January despite a more uncertain backdrop.

Speaker Change: This guidance incorporates a range of potential rate scenarios anywhere from zero to four cuts as we move through the year.

Speaker Change: We continue to expect to deliver 20% net interest income growth this year.

Speaker Change: This reflects both our built in structural tailwind as well as our strong loan and deposit performance to start the year as.

Speaker Change: As we shared previously a significant portion of this growth comes from actions. We took in 2020 for connected to the Scotiabank strategic minority investment and related portfolio restructuring and as such is largely in place.

Clark Khayat: Our balance sheet is roughly rate neutral, allowing us the ability to manage moves in either direction. We also continue to feel very good about our ability to deliver on our fourth quarter exit rate NII of up 10% or more compared to the fourth quarter of 2024, and for NIM to be 2.7% or better. As we think about the bridge from first to fourth quarter, we have a number of tailwinds coming from approximately $11 billion of low-yielding fixed-rate investment securities, consumer loans, and swaps expected to mature at an average rate of 2.7 percent. Daycount, and our strong business momentum across both consumer and commercial.

Speaker Change: Our balance sheet is roughly right neutral, allowing us the ability to manage moves in either direction.

Speaker Change: We also continue to feel very good about our ability to deliver on our fourth quarter exit rate NII of up 10% or more compared to the fourth quarter of 2024 and for NIM to be two 7% or better.

Speaker Change: As we think about the bridge from first to fourth quarter, we have a number of tailwind coming from approximately $11 billion of low yielding fixed rate investment securities consumer loans and swaps expected to mature at an average rate of two 7%.

Speaker Change: Day, count and our strong business momentum across both consumer and commercial.

Clark Khayat: Beyond NII, our base case expectation is that the U.S. avoids a recession in 2025. Of course, uncertainty has increased and business conditions are subject to change based on the environment. Assuming our macro view holds, we continue to believe adjusted fees will grow 5% or better this year, underpinned by mid to high single-digit growth across investment banking, wealth, and commercial payments. If conditions worsen or deal activity remains on pause into the second half of 2025, we believe under most scenarios that we would have sufficient flexibility on expenses to still deliver fee-based operating leverage this year. On asset quality, year-to-date indicators are all trending in the right direction, but, of course, future charge-offs will depend on the path of the economy.

Speaker Change: Beyond NII, our base case expectation is that the U S avoids a recession in 2025.

Speaker Change: Of course uncertainty has increased in business conditions are subject to change based on the environment.

Speaker Change: Assuming our macro view holds we continue to believe adjusted fees will grow 5% or better this year underpinned by mid to high single digit growth across investment banking wealth and commercial payments.

Speaker Change: If conditions worsen or deal activity remains on pause into the second half of 2025, we believe under most scenarios that we would have sufficient flexibility on expenses to still deliver fee based operating leverage this year.

Asset quality year to date indicators are all trending in the right direction, but of course future charge offs will depend on the path of the economy with that I will now turn the call back to the operator to provide instructions for the Q&A portion of our call operator.

Operator: With that, I will now turn the call back to the operator to provide instructions for the Q&A portion of our call.

Operator: Operator. Thank you.

Speaker Change: Thank you we will now begin today's Q&A portion of the call. If you would like to ask a question. Please press star followed by one on your telephone keypad.

Operator: We will now begin today's Q&A portion of the call. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your headset before asking a question. We'll pause here briefly while your questions are registered.

Speaker Change: Any reason you would like to remove that question. Please press star followed by Kim again to ask a question press Star one.

Speaker Change: A reminder, if you are using a speaker phone. Please remember to pick up your handset before asking a question. We'll pause here briefly all your questions are registered.

Speaker Change: The first question is from the line of Mike Mayo with Wells Fargo. You May proceed.

Mike Mayo: The first question is from the line of Mike Mayo with Wells Fargo. You may proceed. Hey Chris, I'm trying to reconcile your comments at the start about all the macro issues from markets to client uncertainty to geopolitical risks and all the stuff that we all know about. And I know you said you think we'll avoid a recession this year, but reconciling that with your guide. So the world's a lot more risky and worse, and you've lost $7 trillion of stock market wealth out there. But at the same time, the curve isn't as good, and you're still reiterating 20% NII guide.

Speaker Change: Hey, Chris.

Speaker Change: I'm trying to reconcile each quarter comments.

Speaker Change: I'm trying to reconcile your comments at the start of that all the macro issues from markets to client uncertainty due to geopolitical risks.

Speaker Change: All the stuff that we all know about.

Speaker Change: And I know you said you think we will avoid a recession this year, but reconciling that with your guide.

Speaker Change: The world a lot more risky and worse and you've lost $7 million of stock market wealth out there, but at the same time.

Speaker Change: The curve isn't as good and you're still reiterating 20% NII guide GDP doesn't seem too good but you are not building reserves markets are choppy, but you still expect 5% growth and inflation is sticky in your own words and cost.

Mike Mayo: GDP doesn't seem so good, but you're not building reserves. Markets are choppy, but you still expect 5% growth. And inflation is sticky in your own words, and costs are still guiding kind of the same ballpark.

Speaker Change: Youre guiding kind of the same ballpark, so how do I reconcile a world that seems so much more.

Christopher Gorman: How do I reconcile a world that seems so much more problematic with your guide that isn't changing? Sure. Well, let me kick it off and then I'll have Clark walk you through some of the details of our guide. I think the short answer, Mike, is that we, the economy, is in a period of great uncertainty. We're 15 days into these tariffs. The reality is our credit book is in good shape. Our clients are in good shape. Our backlogs are in good shape. Our business is doing well. But clearly, as you point out, there's a lot of uncertainty out there.

Speaker Change: <unk> problematic with your guide, but isn't changing.

Clark: Sure well, let me, let me kick it off and then I'll have Clarke walk you through some of the details of our guide I think the short answer Mike is that we.

Speaker Change: The economy is in a period of great uncertainty were 15 days into these tariffs.

Speaker Change: The reality is our credit book is in good shape. Our clients are in good shape. Our backlogs are in good shape, our business is doing well, but clearly as you point out there's a lot of uncertainty out there.

Christopher Gorman: Our base case is not that we will go into recession, but I can tell you we run a whole bunch of scenarios, including stagflation scenarios, which is probably the worst case for a bank. And in each instance, you know, we're holding up well. So that's kind of the macro, and there's just so much uncertainty out there. I personally think, as I talk to our clients, they remain cautiously optimistic. These companies are agile. A lot of them have pulled in their supply chain. And I think to the extent we can, we, the United States, can come up with some guidelines.

Speaker Change: Our base case is not that we will go into a recession, but I can tell you we run a whole bunch of scenarios, including stagflation scenario, which is probably the worst case for bank and in each instance.

Speaker Change: We are holding up well.

Speaker Change: So that's kind of that's kind of the macro.

Speaker Change: There's just so much uncertainty out there I personally think as I talk to our clients. They remain cautiously optimistic. These companies are agile lot of them have pulled in their supply chains.

Speaker Change: And I think to the extent, we can we United States can Kevin.

I mean.

Christopher Gorman: What does that mean pulled in supply chains? Well, I mean, so during the pandemic, for example, Mike, a lot of our middle market companies that had been having a lot of things manufactured, for example, in Southeast Asia, frankly, have moved them in many instances to Mexico, by the way, and in many instances, back to capacity they had here. So my point there is, those companies are probably less impacted, if in fact the trade war goes on as long as it could. So just making the point that as I'm out talking to our clients, they're not as concerned as some of the markets would indicate.

Speaker Change: What does that mean pulled it with supply chain. So I wanted to.

Speaker Change: So during the past during the pandemic for example, Mike a lot of our middle market companies that had been having a lot of things manufactured for example in southeast Asia frankly have move them in many instances to Mexico by the way and in many instances back to capacity they had here so.

Speaker Change: Point there as those companies are probably less impacted if in fact, the trade work goes on as long as it could.

Speaker Change: So im.

Speaker Change: I'm, just making the point that as I'm out talking to our clients. They are not as they're not as concerned as some of the markets would indicate.

Mike Mayo: Does that make sense? Yeah, thank you. I interrupted your flow, but that was an important point. No, no. Thank you for your question.

Speaker Change: Does that makes sense.

Speaker Change: Yes. Thank you I interrupted your floor, but that was an important point. Thank you.

No. Thank you for your question Clark why don't why don't you step, Mike and the rest of the listeners through kind of the details of our guidance. Because we have spent trust me we spend a lot of time looking at this.

Clark Khayat: Clark, why don't you step, Mike, and the rest of the listeners through kind of the details of our guidance? Because we've spent, trust me, we've spent a lot of time looking at this. Yeah. So, I mean, short story, NII, we remain confident on the 20% up year over year. I can talk through the details of that, but, you know, a lot of that, as we mentioned, is sort of in from actions we took last year. On fees, you know, as Chris mentioned, the pipelines remain robust, and dialogue with clients is very active. We think the recent uncertainty here has created a pause, and our view right now is it is a pause.

Speaker Change: So I.

Speaker Change: I mean short story in NII, we remain confident on the 20%.

Speaker Change: Up year over year I can talk through the details of that but a lot of that as we mentioned is sort of in from actions. We took last year on fees as Chris mentioned, the pipelines remain robust and dialogue with clients is very active.

Speaker Change: We think the recent uncertainty here has created a pause in our view right now is it as a pause.

Clark Khayat: So, if things resolve quickly and constructively, I think you'll see kind of a rubber band-like snapback. I think activity will pick up again, and our clients are watching, and they're waiting, frankly, for signs to reengage. If the pause persists, obviously that impacts Q2, and there's probably already a little bit of softness in Q2, just even though we're, you know, 15 or so days into it. If it comes back relatively quickly in a positive way, I think you'll see really good activity come back in, and I think you'll see that, you know, a robust second half, and maybe that pushes the 5 plus down to 5, you know, just based on timing.

Speaker Change: So if things resolve quickly and constructively I think youll see kind of a rubber band like snapback I think activity will pick up again, and our clients are watching and waiting frankly for signs to reengage.

Speaker Change: If the pause persists, obviously that impacts Q2, and there is probably already a little bit of softness in Q2, just even though.

Speaker Change: 15, or so days into it.

Speaker Change: If it comes back relatively quickly in a positive way I think youll see really good activity come back in and I think youll see that.

Robust second half and maybe that pushes the five plus down to five but just based on timing, but we would see and expect that.

Clark Khayat: But we'd see and expect that fee base to come back. If it continues and persists longer, then you will see deals drop, you'll see clients head to the sideline and wait. But, you know, again, over our base case right now is that it's a pause, and while the duration is, you know, as of yet unknown, we don't expect a recession. We're not trying to be Pollyannish here. We just think it's more likely to find a relatively constructive landing spot in the near term than not. Now, if that's not the case... Right? If we see a more sustained downturn or recession, then obviously investment banking will be impacted, wealth will be impacted.

Speaker Change: That fee based to come back if it continues and persists longer than you will see deals drop youll see clients had to the sidelines and wait.

Speaker Change: But again over our base case right now is that it's a pause and while the duration is.

Speaker Change: As of yet unknown, we don't expect a recession.

Speaker Change: We're not trying to be pollyanna ish year, we just think it's more likely to find a relatively constructive landing spot in the near term than not.

Speaker Change: Now if that's not the case.

Speaker Change: Right, if we see a more sustained downturn or recession, then obviously investment banking will be impacted wealth will be impacted and if.

Clark Khayat: And if lower rates come with that downturn, you could see things like syndications, other debt options like commercial mortgage benefit a bit, but it would depend on what's driving rates down. We do view our fee base generally as fairly diversified beyond banking and wealth. CRE servicing would strengthen, I think, in a translate in payment. If we do see a lot of fee pressure based on a downturn, as we've said, we think we do have natural offsets in the expense base, and we'd be focused on delivering positive fee-based operating leverage in the year. We won't do that at the expense of long-term or mid-term opportunities to build the franchise, but we think we have a lot of natural flex in the expense base overall.

Speaker Change: Lower rates come with that downturn, you could see things like syndications other debt options like commercial mortgage benefit a bit.

Speaker Change: It would depend on what's driving rates down.

Speaker Change: We do view our fee base generally is fairly diversified beyond banking and wealth CRE servicing would strengthen I think in a downturn and in a lower rate environment, you could see hard dollar fees translate.

Speaker Change: Payments.

Speaker Change: If we do feel.

Speaker Change: A lot of fee pressure based on a downturn as we've said we think we do have natural offsets in the expense base and we'd be focused on delivering positive fee based operating leverage in the year.

Speaker Change: We won't do that at the expense of long term or mid term opportunities to build the franchise, but we think we have a lot of natural flex in.

Speaker Change: The expense base overall.

Clark Khayat: So the last point, which, again, it's too early to call, and that's one of the reasons why taking the stance we are, but if we do see a recession, the actions we took last year, I think, have positioned the balance sheet and the business very well to weather that, and frankly, we think it may provide some dislocation opportunities with clients and markets that we can take advantage.

Speaker Change: No.

Speaker Change: The last point, which again, it's too early to call and Thats one of the reasons why we're taking the stance we are but if we do see a recession.

Speaker Change: Actions, we took last year I think have positioned the balance sheet in the business very well to weather that and frankly, we think it may provide some dislocation opportunities with clients in markets that we can take advantage of.

Speaker Change: But just one follow up there would be.

Mike Mayo: But just one follow up there would be. The tariffs, you're going name by name. I assume you have not finished that. You've done a top-down review of reserving, but not your name by name. And it was interesting. I guess the pandemic is kind of a dress rehearsal for some of that, but you still have to go. through the whole portfolio? And do you know when that'll be done? And is that a risk to your reserving where you are today? We have gone through the first cut. But, you know, one, the tariffs continue to move around.

Speaker Change: The tariffs youre going name by name I assume you have not finished that you've done a top down review of reserving, but not your name by name.

Speaker Change: It was interesting I guess pandemic, it's kind of a dress rehearsal for some of that but you still have to go.

Speaker Change: Through the whole portfolio and.

Speaker Change: When that will be done and is that a risk to your reserving where you are today.

Speaker Change: We have gone through the first cut but.

Speaker Change: One that tariffs continue to move around that's 0.1 0.2. There is the first order effect, which is the direct tariff Mike.

Christopher Gorman: That's point one. Point two, there's the first order effect, which is the direct tariff, Mike. And then there is the second and third order effect. We have not yet really scoped that out, although we've estimated what we think it is. And then lastly, what's not knowable is what a response is going to be from one of our trading partners. So it's early days, but I think it's important for you and everybody else to know we have all the analysis up and running and it's a dynamic process.

Speaker Change: And then there is the second and third order effect, we have not yet really scope that out although we've estimated what we think it is and then lastly, what's not knowable is what our response is going to be from one of our trading partners. So it's early days, but I think it's important for you and everybody else to know we have all of the analysis up and running in.

Speaker Change: I'd say, it's a dynamic process.

Clark Khayat: And maybe, Mike, let me just add, on the reserve, you know... On a net basis, we added $8 million, so it doesn't look like a particularly large build. But for the recent uncertainty, we would have seen a pretty material release. So we did now, from a reserving standpoint, incorporate a pretty severe downturn at about a 20% probability, and that's what the reserve reflects. So as we move through time, if things don't improve, you'll see the probability of that increase, and we'll reserve, you know, appropriately for that. But at this point, we are incorporating, at least on the reserve side, a qualitative bill that reflects a pretty meaningful percentage, or pretty meaningful recession, albeit it's still a, you know, kind of 20th, 20th, 20-ish percent probability.

Speaker Change: And maybe Mike Let me just add on the reserve.

Speaker Change: On a net basis, we added $8 million. So it doesn't look like a particularly large build.

Speaker Change: But for the recent uncertainty we would have seen a pretty material release.

Speaker Change: So we did now and from a reserving standpoint standpoint incorporate a pretty severe downturn at about a 20% probability.

Speaker Change: And Thats, what the reserve reflects so as we move through time, if things don't improve youll see the probability of that increase and we will reserve appropriately for that but at this point, we are incorporating at least on the reserve side, a qualitative build that reflects a pretty meaningful percentage or pretty meaningful recession, albeit it's still.

Speaker Change: Kind of 20th 20th Twentyish percent.

Speaker Change: Probability.

Mike Mayo: Great.

Speaker Change: Great. Thank you. Thank you.

Operator: Thank you.

Speaker Change: The next question is from the line of Manan Azalea with Morgan Stanley You May proceed.

Manan Gosalia: The next question is from the line of Manan Gosalia with Morgan Stanley. You may proceed. Hi, good morning.

Manan Azalea: Hi, good morning.

Manan Gosalia: Chris, given what you said at the start of the call on some of this uncertainty impacting client sentiment, how are you thinking about C&I loan growth from here? So, you know, utilization rates were up in the first quarter. Can you talk about what drove that? And can you talk about the interplay between debt capital markets and loan growth? You know, are you seeing some refis out of loan growth in the first quarter? And how do you expect that to behave? So, later in the quarter, we did, in fact, experience pretty strong C&I loan growth, and it was really broad-based.

Speaker Change: Chris given what you said it is not at the calls on some of this uncertainty impacting client sentiment.

Speaker Change: How are you thinking about C&I loan growth from the yard so utilization rates were up in the first quarter.

Speaker Change: Can you talk about what drove that and can you talk about the interplay between debt capital markets and loan growth are you seeing some refis out of loan growth in the first quarter and how do you expect that to be here for the rest of the year.

Speaker Change: Sure. So later in the quarter, we did in fact experience pretty strong C&I loan growth and it was really broad based it was broad based from a region perspective, we put some new teams on the ground in places like Chicago, and Southern California, where we have traction we also had traction in.

Christopher Gorman: It was broad-based from a region perspective. We put some new teams on the ground in places like Chicago and Southern California where we have traction. We also had traction in things like affordable housing and renewables. Those are project-based deals. And those are, you know, once they're locked in, we've got pretty good visibility on those. You did mention something important, and that is we finally saw an uptick in utilization. I think it was about 92 basis points, and I had personally thought that we would see that a lot earlier. I thought people would be forward-buying the tariffs, so we saw just a little tick up there.

Speaker Change: <unk>.

Speaker Change: Things like affordable housing in renewables those are project based deals and those are once they are locked in we got pretty good visibility on those.

Speaker Change: You did mention something important and that is we finally saw an uptick in utilization I think it was about 92 basis points.

Speaker Change: And I had I had personally thought that we would see that a lot earlier I thought people would be forward buying the tariffs. So we saw just a little tick up there I would anticipate given this 90 day reprieve that we'll continue to see probably a little bit of an increase in utilization.

Christopher Gorman: I would anticipate, given this 90-day reprieve, that we'll continue to see probably a little bit of an increase in utilization.

Christopher Gorman: And then to the second part of your question, which is really, really important as you think about our business model, I think, you know, everything was flashing green at the end of last year. I think we were putting 15% or 16% of the capital we raised on our balance sheet. This time, this quarter, it went up to 17%. What you'll see is as you get dislocations in markets, and obviously the credit markets, if you go back to a week ago Wednesday, were clearly in dislocation. That's when you'll see us have the opportunity to really opportunistically grow our balance sheet.

Speaker Change: And then the second part of your question, which is really really important as you think about our business model.

Speaker Change: I think everything was flashing green at the end of last year I think we were putting 15 15 or 16% of the capital we raise on our balance sheet.

Speaker Change: At this time this quarter it went up to 17% what Youll see is as you get dislocations in markets and obviously the credit markets. If you go back to a week ago, Wednesday, where clearly dislocation.

Speaker Change: That's when you'll see us have the opportunity to really opportunistically grow our balance sheet. So I think to the extent we see this choppiness continue youll see us put more on our balance sheet in an opportunistic way. Thanks for the question.

Manan Gosalia: So I think to the extent we see this choppiness continue, you'll see us put more on our balance sheet in an opportunistic way. Thanks for the question. Got it. Very, very helpful.

Speaker Change: Got it very helpful.

Clark Khayat: And then maybe just to follow up to the prior line of questioning, can you just talk about some of the puts and takes in that 20% NII guide? So, you know, if the belly of the curve starts to come back down, maybe if you see weaker C&I loan growth, just as sentiment weakens, What other flexibility do you have in that guide to still hit that? Yeah, thanks Manan, it's Clark. So look, a fair amount of the 20% as we've talked about is reflected on the restructurings we did last year. And, you know, we were trying to be opportunistic at the time, turns out, I think we did doing those restructurings when we did getting the deal closed late in the fourth quarter, I think has all benefited us for the year, both from a timing and a market reinvestment level.

Speaker Change: And then maybe just a follow up to the prior line of questioning can you just talk about some of the puts.

Speaker Change: Puts and takes in that 20% NII guide so.

Speaker Change: If the belly of the curve start to come back down maybe if you if you see weaker C&I loan growth just as sentiment weakened what flexibility do you have in that guide to still hit that 20% number.

Speaker Change: Yes, Thanks, Matt Clark.

Speaker Change: So look a fair amount of the 20% as we've talked about is reflected on the restructuring as we did last year.

Speaker Change: And we.

Speaker Change: We were trying to be opportunistic at the time. It turns out I think we did doing those restructurings when we did getting the deal closed late in the fourth quarter. I think is all benefited us for the year, both from a timing and a market reinvestment level. So.

Clark Khayat: So, you know, I think that provides a little bit of tailwind that is not insignificant. I think we've seen good loan growth to start, I think we've seen good deposit performance to start. So all of that would trend us to, you know, high degree of confidence. The things that would have to happen for us to not hit the 20 at this point are pretty significant, you'd have to see, you know, a fairly, and there's a combination of things, but a fairly big pullback in the C&I loan book. Again, we don't necessarily see that happening. We started the quarter off up a billion and a half.

Speaker Change: I think that provides a little bit of tailwind that is not insignificant.

Speaker Change: I think we've seen good loan growth to start I think we've seen good deposit performance to start so all of that would trend up to a high degree of confidence.

Speaker Change: The things that would have to happen for us to not hit the 'twenty at this point are pretty significant you'd have to see.

Speaker Change: A fairly and there is a combination of things right, but a fairly big pullback in the C&I loan book.

Speaker Change: We don't necessarily see that happening we started the quarter off up 1 billion and a half so that would have to reverse and actually go down to the extent the economy weakens and you see.

Clark Khayat: So, you know, that would have to reverse and actually go down to the extent the economy weakens and you see inflation continue, retail checking, dropping, obviously, could put some pressure there. And then as you said, just the shape and level of the curve. So a lower flatter curve, obviously becomes a little bit more challenging, but it would have to be a fair bit lower and a fair bit flatter, and it would have to be moving pretty rapidly. So as we talked about a month or so ago, you know, the kind of tail That's very helpful.

Speaker Change: Inflation continue retail checking dropping obviously.

Speaker Change: Could put could put some pressure there and then as you said just the shape and level of the curve. So a lower flatter curve, obviously becomes a little bit more challenging, but it would have to be a fair bit lower and a fair bit flatter than it would have to be.

Speaker Change: Moving pretty rapidly so as we talked about a month or so ago.

Speaker Change: Kind of tail.

Speaker Change: Parts of the curve upper down 100 in very quick succession, I think are the places where we would have a tougher time reacting but the balance sheet is fairly neutral at this point.

Speaker Change: To the extent loan growth doesn't come in we've got some opportunity again to optimize funding as we did last quarter and just.

Speaker Change: To remind you EBIT in cases, as Chris said, where we're building. The C&I book, we are often trading out of the consumer loans. So it's not like we're building a bigger funding need we're just changing out.

Speaker Change: Profile of the loan book, So again, there are some scenarios, where the <unk> doesn't happen.

Speaker Change: We think it's a little bit of.

Speaker Change: Some tail things coming together and we think we've got some offsets to manage that if necessary, but at this moment, we still feel pretty good about it.

Speaker Change: That's very helpful. Thanks, Bob.

Manan Gosalia: Thanks, Bob. Thank you.

Speaker Change: Sure.

Brian Money: Thank you. The next question is from the line of Brian on the Walnut with Bank of America. You May proceed.

Ebrahim Poonawala: The next question is from the line of Ebrahim Poonawala with Bank of America. You may proceed. Hey, good morning. I guess maybe just one thing to follow up, Chris, I think in your prepared remarks, and then you answer some of this to Mike's question, but you mentioned project loans will continue to fund throughout the year.

Brian Money: Hey, good morning.

Brian Money: Hey, good morning, I guess, maybe just one.

Brian Money: One to follow up Chris I think in your prepared remarks, and then you answer.

Speaker Change: To Mikes question, but you mentioned project loans will continue to fund throughout the year.

Christopher Gorman: I guess part of the concern is there's just so much uncertainty, CAPEX projects are on the sidelines, some of these tariff negotiations may take months, if not longer, do you think when you talk to these customers who want to make CAPEX decisions, like, what's your sense of the amount of clarity they need on this front before they can pull the trigger? Well, so there's kind of two things. One is if they have a CapEx project that's in flight. Full speed ahead. The last 90 days haven't changed a thing because those are planned and committed long before they start.

Speaker Change: I guess part of the concern is there's just so much uncertainty capex projects are on the sidelines. Some of these status negotiations may take.

Speaker Change: Months, if not longer do you think when you talk to these customers when we want to make capex decisions.

Speaker Change: Like what's your sense of the.

Speaker Change: The amount of clarity they need on this.

Speaker Change: Before they can pull the trigger.

Speaker Change: Well, so theres kind of two things one is if they have a capex project thats in flight.

Speaker Change: Full speed ahead, the last 90 days haven't changed a thing because those are planned and committed long before.

Speaker Change: They start.

Christopher Gorman: I will say, over the last 90 days, most everybody is pausing until they have better visibility going forward. So existing things that are in the pipeline, I don't see them being impacted. In terms of new projects being launched, until there's more clarity, I think obviously the current environment hinders that.

Speaker Change: I will say.

Speaker Change: The last 90 days.

Speaker Change: Most everybody is pausing until they have better visibility going forward. So existing things that are in the pipeline I don't see them being impacted in terms of new projects being launched until there's more clarity I think that will I think obviously the current environment hinders that.

Speaker Change: Understood and.

Clark Khayat: Understood. And on the buyback authorization, so a billion dollars, pretty meaningful. Remind us what you're targeting on the CET-1. How much of a ramp up should we expect and think about when we are forecasting earnings as far as the pace of buybacks is concerned, starting, I guess, with third quarter? Sure. So first, let me kind of just, in terms of kind of a target, we're targeting nine and a half to 10 on a marked basis, marked CET1. And obviously, we're there right now. And we've got great trajectory, we'll continue to build capital.

Speaker Change: On the buyback authorization to $1 billion is pretty meaningful.

Speaker Change: Remind us what you are targeting on the CET one how much of a ramp up should we expect and think about the near forecasting earnings.

Speaker Change: As far as the pace of buybacks is concerned starting I guess with third quarter.

Speaker Change: Sure.

Speaker Change: First let me kind of just.

Speaker Change: In terms of kind of a target we're targeting nine five to 10 on a marked basis Mark CET, one and obviously, we're there right now and we've got great trajectory will continue to build capital. So thats kind of put that aside for a second and then what we've always talked about in terms sort of our order of operations with <unk>.

Christopher Gorman: So that's kind of put that aside for a second. And then what we've always talked about in terms sort of our order of operations with respect to our capital is first and foremost to support our clients. And as we, you know, it's it's murky out there right now, but we're seeing a lot of activity. And our goal is to use our capital to support both our clients and our prospects. That's the first thing. Second thing, of course, is to invest in the business. As you know, we've continued to invest in the business, which in our business is really technology and hiring people.

Speaker Change: Respect to our capital is first and foremost to support our clients.

Speaker Change: And as we.

Speaker Change: It's murky out there right now, but we're seeing a lot of activity and our goal is to use our capital to support both our clients and our prospects. That's the first thing second thing of course is to invest in the business.

Speaker Change: As you know we've continued to invest in the business, which in our business is really technology and hiring people will continue to do that we'll continue to look at kind of.

Christopher Gorman: We'll continue to do that. We'll continue to look at kind of, you know, niche acquisitions, I think we have a pretty good track record of successfully integrating entrepreneurial groups into key. We'll continue to do, we'll continue to do that. And then the lastly, obviously, there's a couple different levers we can pull with capital. One is we can, we can tweak our balance sheet as we've restructured significantly last year, we can do that. And also the lever of being able to repurchase our shares. And so where this will, it'll probably be a combination of all the above.

Speaker Change: Niche acquisitions, I think we have a pretty good track record of successfully integrating entrepreneurial groups into key will continue to do we'll continue to do that.

Speaker Change: And then lastly, obviously there is a couple of different levers, we can pull with capital one as we can we can tweak our balance sheet as we've restructured significantly last year, we can do that and also the lever of being able to repurchase our shares and so.

Speaker Change: Where this it'll probably be a combination of all of the above but I think we need clarity on a couple of things one we need clarity as we've been talking on this call of exactly where we all think the economy is going that's the first thing second thing we need clarity on is where does the Basel III and game and and I think I don't frankly think that's going to be.

Christopher Gorman: But I think we need clarity on a couple things. One, we need clarity as we've been talking on this call of exactly where we all think the economy is going. That's the first thing. Second thing we need clarity on is where does the Basel III end game end? And I think, I don't frankly think that's going to be that material in our instance, but I think it's important to see that. And after we get some clarity on those two things, we'll probably commence, as I mentioned in my prepared remarks, in the second half of the year.

Speaker Change: That material and our incidence, but I think it's important to see that and after we get some clarity on those two things will probably commence as I mentioned in my prepared remarks.

Speaker Change: In the second half of the year and there is enough moving pieces that I want to remain flexible as to both.

Christopher Gorman: And there's enough moving pieces that I want to remain flexible as to both, both the pace and the timing of that.

Speaker Change: Both the pace and the timing of that.

Speaker Change: That's good color thanks, guys.

Ebrahim Poonawala: That's good color, thanks guys. Thank you.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of Peter Winter with D. A Davidson <unk> co you May proceed.

Peter Winter: The next question is from Milan of Peter Winter with BA Davidson & Co. You may proceed. Thanks. Clark, last quarter, you talked about the margin hitting 3% plus. At some point next year, what are the main drivers to get there versus 258 currently? And what are some of the potential risks we should watch out for so the margin may be falling short of that medium-term target? Yeah, thanks, Peter. So, you know, on the one hand, I think it's continued over time, continued strong commercial loan growth, right, that obviously comes in at strong margins and, and in some size.

Thanks.

Speaker Change: Last quarter, you talked about the margin hitting 3% plus at some point next year what are the main drivers to get there versus $2 58.

Speaker Change: Currently and what are some of the potential risk we should watch out for so the margin may be falling short.

Speaker Change: Medium term.

Speaker Change: Target.

Speaker Change: Yes.

Speaker Change: Thanks, Peter so.

Speaker Change: On the one hand, I think it's continued over time continued strong.

Speaker Change: Commercial loan growth rate that obviously comes in at.

Speaker Change: Strong margins and.

Clark Khayat: So to the extent we see that return over time, we start to build, continue to build the commercial book as we did here in the first quarter. I think the trade off there is the continued rundown of some of these lower yielding consumer mortgages. Over time, we recall that those are coming off at kind of a 3.3% yield. So quite materially lower than where we're trading into C&I. And then obviously, the shape of the yield curve and the reinvestment rate on the investment portfolio. So to the extent we get steepening, that obviously helps all of us in that process.

Speaker Change: And some side so to the extent, we see that return over time, when we start to build continue to build the commercial book as we did here in the first quarter.

Speaker Change: I think the <unk>.

Speaker Change: Tradeoff. There is the continued rundown of some of these lower yielding consumer mortgages overtime recall that those are coming off it kind of a three 3% yield.

Speaker Change: So quite materially lower than where we're trading into C&I.

And then obviously the shape of the yield curve and the reinvestment rate on the investment portfolio. So to the extent, we get steepening that obviously helps all of us in that process.

Clark Khayat: If we're kind of lower and flatter, becomes a little more challenging, although obviously, we'd have an offset there on deposit pricing. So it's a little bit of put and take on, you know, growth of the economy, our ability to continue to sort of change out into C&I where we have real strength, and then manage the deposit base appropriately. I do think one of the benefits, as I mentioned earlier, in this kind of remixing of the loan portfolio is that it doesn't require a lot more liquidity to do that. So we don't have to be aggressive on deposit pricing, as much in, you know, subject to other things happening in the market.

Speaker Change: If were kind of lower and flatter becomes a little more challenging although obviously, we'd have an offset there on on deposit pricing. So it's a little bit of put and take on.

Speaker Change: The growth of the economy, our ability to continue to sort of change out into C&I, where we have real strength.

Speaker Change: And then manage the deposit base.

Speaker Change: <unk> I do think one of the benefits as I mentioned earlier in this kind of Remixing of the loan portfolio is that it doesn't require a lot more liquidity to do that so we don't have to be aggressive on deposit pricing as much.

Speaker Change: <unk>.

Speaker Change: Subject to other things happening in the market.

Clark Khayat: We are just re, you know, redeploying it to a different loan type with a much better yield. So I do think that that benefits us. Is that there isn't low growth or the risk is that we have a, you know, a very flat or inverted yield curve over some period of time, because the economy is reflecting, you know, softness. So hard to predict that.

Speaker Change: We are just re redeploying it to a different loan type with a much better yield so I do think that benefits us the risk.

Speaker Change: Is that there isn't loan growth or the risk is that we have.

Speaker Change: A very flat.

Speaker Change: Or inverted yield curve over some period of time because of the economy.

Speaker Change: As reflecting softness so hard to predict that.

Peter Winter: But I do think, again, the actions we took last year put us in a good position to get at or near that level over the course of the next eight, Thanks. And then...

Speaker Change: But I do think again the actions we took last year put us in a good position to get at or near that.

Speaker Change: Level over the course of the next 18 months or so.

Speaker Change: Got it thanks and then.

Clark Khayat: If I could follow up on your comment with capital management, you talked about maybe tweaking the balance sheet. I'm just curious. Why not reposition some of the securities portfolio now and pull forward some of that benefit and lock it in? Well, as you can imagine, Peter, we're always looking at everything. And we obviously are looking at the numbers all the time, we're looking at our capital. Right now, before we would do that, or repurchase our shares, as I mentioned, I'd want greater clarity on the trajectory of the economy. And I'd also like greater trajectory on how much capital we actually need to carry.

So if I can follow up on your comment with capital management, you talked about maybe tweaking the balance sheet I was just curious.

Speaker Change: Why not reposition.

Speaker Change: Some of the securities portfolio now.

Speaker Change: Now and pull forward some of that benefit in <unk>.

Speaker Change: Get in.

Well as you can imagine Peter we're always looking at everything and.

Speaker Change: We.

Speaker Change: We obviously are looking at the numbers all the time, we're looking at our capital right now before we would do that or repurchase our shares as I mentioned I'd want greater clarity on the trajectory of the economy and I would also like greater trajectory on how much capital, we actually need to carry so we're looking at it as we've mentioned.

Clark Khayat: So we're looking at it, as we've mentioned, on other calls, we also have looked at a variety of kind of transactions around the balance sheet. But obviously, right now, I like how we're positioned, I like the two step that we did last year, where we repositioned about $10 billion worth of our bonds and picked up about 300 basis points. So I feel good about the trajectory of the balance sheet. And maybe one, just add one level deeper there, Peter, I think to Chris's point, we need clarity on the economy first and foremost. So I don't think you want to go move around capital until we have a sense of where that's going.

Speaker Change: On other calls we also have looked at a variety of transactions around the balance sheet, but obviously right now I like how we're positioned unlike the two step that we did last year, where we repositioned about $10 billion worth of our bonds and picked up about 300 basis points. So I feel good about that.

Speaker Change: Trajectory of the balance sheet and maybe one just add one level deeper there Peter I think to Chris's point, we need clarity on the economy first and foremost so I don't think you want to go.

Speaker Change: Move around capital until we have a sense of where that's going and then just in the prioritization right. The first thing we're going to want to do is continue to support our clients.

Clark Khayat: And then just in the in the prioritization, right, the first thing we're going to want to do is continue to support our clients. As we did that in the first quarter, remember, CNI loans have 100% plus risk weighting, the consumer loans are running off for more like 50. So we are using dollar for dollar, a little bit more capital, and we do that we think it's the right thing to do, and has the appropriate returns. So we have to be in a place where we feel like the economy is stable, and we're not seeing as much loan growth as we'd like to really dig into something like another restructuring.

Speaker Change: As we did that in the first quarter remember C&I loans have 100% plus risk weighting. The consumer loans are running off are more like 50. So we are using dollar for dollar a little bit more capital. When we do that we think it's the right thing to do and has the appropriate returns.

Speaker Change: So we'd have to be in a place where we feel like the economy is stable and we're not seeing as much loan growth as we'd like to really dig into something like another restructuring now it doesn't mean, we might not do things on the margin or in smaller chunks, and we will do that opportunistically, but to do something more significant we'd have to.

Clark Khayat: Now, it doesn't mean we might not do things on the margin or in smaller chunks. And we will do that opportunistically. But to do something more significant, we'd have to see the sort of the ordered pair of, you know, moderate to strong economy and not a lot of loan growth. And as of right now, Thanks, Clark.

Speaker Change: See the sort of the ordered pair of.

Speaker Change: Moderate to strong economy, and not a lot of loan growth and as of right. Now we just don't see that pairing shown up.

Clarke: Got it thanks Clarke.

Speaker Change: Yes.

Speaker Change: Thank you. The next question is from the line of Nathan <unk> with Deutsche Bank You May proceed.

Nathan Steen: The next question is from the line of Nathan Steen with Deutsche Bank. You may proceed. Hey guys, good morning. Thanks for taking the call. You talked about how dislocation in the markets gives you opportunities to maybe gain share.

Nathan: Hey, guys. Good morning, Thanks for taking the question.

Nathan: You talked about how dislocation in the market gives you opportunities to maybe gain share can you just elaborate more on what kinds of markets and customers Youre targeting.

Christopher Gorman: Can you just elaborate more on what kinds of markets and customers you're targeting and how would you gain share during periods of volatility when people are pushing back new CapEx plans, like you said? Well, there's a variety. For example, I'll use real estate. We have a, I think, one of the best real estate platforms in the country. To the extent someone wants to go to the CMBS market, and the CMBS market is backed up, or it's volatile, or it's choppy, or it's not even available, and these are good clients that we finance time after time, those are transactions that we could bridge and then take it out to the CMBS market.

Nathan: How would you gained share during periods of volunteer volatility when people are pushing back new Capex plans like you said.

Nathan: Well, there's a variety of for example.

Nathan: I'll use I'll use real estate we have.

Nathan: One of the best real estate platforms in the country to the extent someone wants to go to the <unk> market and the <unk> market has backed up or it's volatile.

Nathan: Or it's choppy or it's not even available and these are good clients that we financed time. After time those are transactions that we could bridge and then take it out to the <unk> market that would be that would be an example of what I'm talking about.

Christopher Gorman: If that would be, that would be an example of what I'm talking about. Great.

Nathan: Alright. Thanks.

Clark Khayat: And then separately, could you talk briefly about the commercial real estate gross charge offs, which were a little elevated in the first quarter? Can you just talk about the drivers of that? I will have to get back to you on the specifics of that. We definitely had some movement in that book, largely positive around paydowns. And actually, our crit number overall came down largely based on CRE. But I'll come back to you on details of that charge-off number. Thanks. Thank you. Sorry, actually, I will. I'll just give you it's really two names. two names that came off in the quarter.

Speaker Change: And then separately could you talk briefly about the.

Nathan: Commercial real estate gross charge offs, which were a little elevated in the first quarter could you just talk about the drivers of that.

Nathan:

Nathan: We'll have to get back to you on the specifics of that we definitely have.

Nathan: Moving to net book largely positive around Paydowns.

Nathan: And actually our current number overall came down largely based on CRE, but I'll come back to you.

Nathan: Details of that charge off number.

Nathan: Thanks.

Nathan: Thank you sorry, actually I will just give you its really two names.

Nathan: <unk>.

Nathan: Two names that came off in the quarter.

Clark Khayat: So I wouldn't say broad based across the portfolio. In fact, we think the health of the portfolio generally is improving. But in any quarter, a name or two that resolves will potentially make that ratio look a little wider. Thank you.

Nathan: So I wouldn't say broad based across the portfolio. In fact, we think the health of the portfolio generally is improving.

Nathan: But in any quarter, a name or two that resolves will potentially.

Nathan: Potentially make that ratio look a little worse.

Doug: Thank you Doug.

Operator: There are currently no questions registered at this time.

Doug: There are currently no questions registered at this time.

Christopher Gorman: I will have to pass the call back over to Chris Gorman for any final further remarks. Well, I just want to close by saying thank you. We appreciate your interest in Key.

Doug: Ill pass the call back over to Chris Gorman for any final further remarks.

Doug: So I just want to close by saying. Thank you. We appreciate your interest in key. This concludes our first quarter earnings conference call. If you have any further questions. Please reach out to our IR team directly. Thank you goodbye.

Operator: This concludes our first quarter earnings conference call. If you have any further questions, please reach out to our IR team directly. Thank you, goodbye. Thank you all.

Doug: Thank you that concludes today's conference call. Once again, we appreciate you all's participation will be all have a wonderful day and you may now disconnect your lines.

Operator: That concludes today's conference call. Once again, we appreciate you all's participation. We hope you all have a wonderful day, and you may now disconnect your line.