Q3 2025 KeyCorp Earnings Call

Good morning, and welcome to Keycorp's third quarter 2025 earnings Conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. 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 like to turn the conference over to Brian morning, Keith.

Speaker #1: Good morning and welcome to KEYCORP /2025 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, if you would like to ask a question, please press star followed by one on your telephone keypad.

Operator: Good morning and welcome to KeyCorp's third 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. 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 like to turn the conference over to Brian Mauney, KeyCorp's Director of Investor Relations. Please go ahead.

<unk> director of Investor Relations.

Please go ahead thank.

Thank you operator, and good morning, everyone I'd like to thank you for joining Keycorp's third quarter 2025 earnings conference call I'm here with Chris Gorman, Our chairman and Chief Executive Officer, Clark Khayat, Our Chief Financial Officer, and Mel Romani, our chief risk officer as usual, we will reference our earnings presentation slides, which can be found in the investor Relations section of the <unk>.

Speaker #1: As a reminder, this conference is being recorded. I would now like to turn the conference over to Brian Mauney, KeyCorp Director of Investor Relations.

<unk> Com web site in the back of the 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 October 16th 2025 and will not be up.

Speaker #1: Please go ahead.

Speaker #2: Thank you, Operator, and good morning, everyone. I'd like to thank you for joining KeyCorp's Q3 2025 earnings conference call. I am here with Christopher Gorman, our Chairman and Chief Executive Officer; Clark Khayat, our Chief Financial Officer; and Mo Rahmani, our Chief Risk Officer.

Brian Mauney: Thank you, Operator, and good morning, everyone. I'd like to thank you for joining KeyCorp's third quarter 2025 earnings conference call. I am here with Chris Gorman, our Chairman and Chief Executive Officer, Clark Khayat, our Chief Financial Officer, and Mo Ramani, our Chief Risk 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. 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, October 16, 2025, and will not be updated. With that, I will turn it over to Chris.

Speaker #2: 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.

David with that I will turn it over to Chris.

Thank you, Brian and good morning, everyone. Our third quarter results reflect the steady progress we continue to make and achieving higher levels of both profitability and returns we reported earnings per share of <unk> 41. Additionally.

Speaker #2: 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, October 16th, 2025, and will not be updated.

Additionally, return on assets surpassed 1%.

Pre provision net revenue was up $33 million quarter over quarter, or 5%, marking the sixth straight quarter of improving <unk>.

Speaker #2: With that, I will turn it over to Chris.

Speaker #3: Thank you, Brian, and good morning, everyone. Our third quarter results reflect the steady progress we continue to make in achieving higher levels of both profitability and returns.

Chris Gorman: Thank you, Brian, and good morning, everyone. Our third quarter results reflect the steady progress we continue to make in achieving higher levels of both profitability and returns. We reported earnings per share of $0.41. Additionally, return on assets surpassed 1%. Pre-provision net revenue was up $33 million, quarter over quarter, or 5%, marking the sixth straight quarter of improving pre-provision net revenue. Revenues, adjusting for last year's securities portfolio repositioning, grew 17%. While revenues continue to increase as a result of our clearly defined net interest income tailwinds, we also continue to differentiate ourselves with respect to fee income, which was up high single digits compared to 2024 for both the quarter and on a year-to-date basis. Net interest income continues to benefit from strong business dynamics across both deposits and loans. Deposit balances were up while costs of deposits were down this quarter.

Revenues adjusting for last year's Securities portfolio repositioning grew 17%.

Speaker #3: We reported earnings per share of $0.41. Additionally, return on assets surpassed 1%. Pre-provisioned net revenue was up $33 million quarter over quarter, or 5%, marking the sixth straight quarter of improving PP&R.

While revenues continue to increase as a result of our clearly defined that interest income tailwind. We also continue to differentiate ourselves with respect to fee income, which was up high single digits compared to 2024 for both the quarter.

Speaker #3: Revenues, adjusting for last year's securities portfolio repositioning, grew 17%. While revenues continue to increase as a result of our clearly defined net interest income tailwinds, we also continue to differentiate ourselves with respect to fee income.

And on a year to date basis net interest income continues to benefit from strong business dynamics across both deposits and loans.

Posit balances were up while cost of deposits were down this quarter with respect to loans. We continue to remix the portfolio from low yielding consumer mortgages into relationship C&I loans at healthy risk adjusted returns.

Speaker #3: Which was up high single digits compared to 2024, for both the quarter and on a year-to-date basis. Net interest income continues to benefit from strong business dynamics across both deposits and loans.

We achieved a 275% NIM in the quarter, reaching our year end target one quarter ahead of schedule and asset quality metrics continued to trend in a positive direction with NPS and criticized loans declining while net charge offs were relatively stable our net charge off ratio year to do.

Speaker #3: Deposit balances were up, while costs of deposits were down this quarter. With respect to loans, we continue to remix the portfolio from low-yielding consumer mortgages into relationship C&I loans with healthy risk-adjusted returns.

Chris Gorman: With respect to loans, we continue to remix the portfolio from low-yielding consumer mortgages into relationship C&I loans and healthy risk-adjusted returns. We achieved a 2.75% net interest margin in the quarter, reaching our year-end target one quarter ahead of schedule. Asset quality metrics continued to trend in a positive direction, with non-performing assets and criticized loans declining while net charge-offs were relatively stable. Our net charge-off ratio year to date is squarely within our full-year target range of 40 to 45 basis points. As it pertains to the two recent bankruptcies making headlines in the auto industry, we have no direct exposure. Finally, we continue to build upon our peer leading capital ratios, with reported CET1 approaching 12% at quarter end. This excess capital provides us with both flexibility and optionality as we move forward. Franchise momentum continues to accelerate.

<unk> is squarely within our full year target range of 40 to 45 basis points.

Speaker #3: We achieved a 2.75% NIM in the quarter, reaching our year-end target one quarter ahead of schedule. Asset quality metrics continue to trend in a positive direction, with NPAs and criticized loans declining while net charge-offs were relatively stable.

As it pertains to the two recent bankruptcies, making headlines in the auto industry, we have no exposure.

Finally, we continued to build upon our peer leading capital ratios with reported CET, one approaching 12% at quarter end. This excess capital provides us with both flexibility and Optionality as we move forward franchise momentum continues to accelerate relationship households, and commercial.

Speaker #3: Our net charge-off ratio year-to-date is squarely within our full-year target range of 40 to 45 basis points. As it pertains to the two recent bankruptcies making headlines in the auto industry, we have no direct exposure.

Clients, both continue to grow at about 2% this year and wealth assets under management reached a record $68 billion additional.

Speaker #3: Finally, we continue to build upon our peer-leading capital ratios. With reported CET1 approaching 12% at the quarter end, this excess capital provides us with both flexibility and optionality as we move forward.

Additionally, sales production in our mass affluent segment also set a record this quarter since we launched this business in 2023, we have added approximately 50000 households, $3 billion of AUM and over $6 billion of total client assets to key.

Speaker #3: Franchise momentum continues to accelerate. Relationship households and commercial clients both continue to grow at about 2% this year. In wealth, assets under management reached a record $68 billion.

Chris Gorman: Relationship households and commercial clients both continue to grow at about 2% this year. In wealth management, assets under management reached a record $68 billion. Additionally, sales production in our mass affluent segment also set a record this quarter. Since we launched this business in 2023, we have added approximately 50,000 households, $3 billion of assets under management, and over $6 billion of total client assets to KeyCorp. Commercial pipelines are higher, nearly double the levels from one year ago. Investment banking pipelines are also up meaningfully from prior periods, particularly our M&A pipeline, which has a multiplier effect as advisory assignments often drive additional ancillary business. We raised a robust $50 billion in capital on behalf of our clients in the third quarter, retaining 15% on our balance sheet.

Commercial pipelines are higher nearly double the levels from one year ago investment banking pipelines are also up meaningfully from prior periods, particularly our M&A pipeline, which has a multiplier effect as advisory assignments often drive additional ancillary business, we raised a <unk>.

Speaker #3: Additionally, sales production and our mass-affluence segment also set a record this quarter. Since we launched this business in 2023, we have added approximately 50,000 households.

Speaker #3: $3 billion of AUM and over $6 billion of total client assets to keep. Commercial pipelines are higher, nearly double the levels from one year ago.

<unk> $50 billion in capital on behalf of our clients in the third quarter, retaining 15% on our balance sheet.

Speaker #3: Investment banking pipelines are also up meaningfully from prior periods, particularly our M&A pipeline, which has a multiplier effect as advisory assignments often drive additional ancillary business.

Assuming market conditions remain favorable we would anticipate that our fourth quarter fees would be similar to last year's fourth quarter, which was one of our best quarters on record.

We remain on track to deliver our second best year in investment banking in our history.

Speaker #3: We raised a robust $50 billion in capital on behalf of our clients in the third quarter, retaining 15% on our balance sheet. Assuming market conditions remain favorable, we anticipate that our fourth quarter fees will be similar to last year's fourth quarter.

And commercial payments fee equivalent revenue continues to grow in the high single digit range, reflecting our focus and commitment to helping our clients run their businesses better everyday.

Chris Gorman: Assuming market conditions remain favorable, we would anticipate that our fourth quarter fees would be similar to last year's fourth quarter, which was one of our best quarters on record. We remain on track to deliver our second-best year in investment banking in our history. In commercial payments, fee equivalent revenue continues to grow in the high single-digit range, reflecting our focus and commitment to helping our clients run their businesses better every day. As we enjoy this broad-based momentum, we continue to invest in relationship bankers, client advisors, and in our technology platforms. We remain on track to increase our frontline staff by approximately 10% this year. We are already seeing good production volumes from many of these recent hires and broadly expect to see payback from all of our hires over the next 12 to 18 months.

As we enjoy this broad based momentum we continued to invest in relationship bankers client advisors and in our technology platforms. We remain on track to increase our frontline staff by approximately 10%. This year, we are already seeing good production volumes for many of these recent hires and broad.

Speaker #3: Which was one of our best quarters on record. We remain on track to deliver our second-best year in investment banking in our history.

Speaker #3: In commercial payments, fee-equivalent revenue continues to grow in the high single-digit range, reflecting our focus and commitment to helping our clients run their businesses better every day.

Expect to see payback from all of our hires over the next 12 to 18 months before I turn it over to Clarke I want to briefly cover the medium term targets that we disclosed a few weeks ago in our investor presentation that is available for you to review on our website.

Speaker #3: As we enjoy this broad-based momentum, we continue to invest in relationship bankers, client advisors, and in our technology platforms. We remain on track to increase our front-line staff by approximately 10% this year.

Speaker #3: We are already seeing good production volumes from many of these recent hires and broadly expect to see payback from all of our hires over the next 12 to 18 months.

We believe we can achieve a return on tangible common equity of 15% or better on a run rate basis by the end of 2027, let me outline the building blocks to achieving those returns.

Speaker #3: Before I turn it over to Clark, I want to briefly cover the medium-term targets that we disclosed a few weeks ago in our investor presentation that is available for you to review on our website.

Chris Gorman: Before I turn it over to Clark, I want to briefly cover the medium-term targets that we disclosed a few weeks ago in our investor presentation that is available for you to review on our website. We believe we can achieve a return on tangible common equity of 15% or better on a run-rate basis by the end of 2027. Let me outline the building blocks to achieving those returns. First of all, by improving NIM by another 50 basis points to 3.25% or better, with half of it coming from the mechanical lift of fixed asset repricing, the rest coming from strong execution in our businesses by continuing to focus on primacy and generating relationship lending opportunities. Secondly, by continuing to compound our fee advantages, leveraging our proven ability to broaden and monetize client relationships.

First of all.

By improving NIM by another 50 basis points to 325% or better with half of it coming from the mechanical lift of fixed asset repricing the rest coming from strong execution in our businesses by continuing to focus on privacy and generating relationship lending.

Speaker #3: We believe we can achieve a return on tangible common equity of 15% or better on a run-rate basis by the end of 2027. Let me outline the building blocks to achieving those returns.

<unk> secondly by continuing to compound our fee advantages leveraging our proven ability to broaden and monetize client relationships.

Speaker #3: First of all, by improving NIM by another 50 basis points, to 3.25% or better, with half of it coming from the mechanical lift of fixed asset repricing, the rest coming from strong execution in our businesses by continuing to focus on primacy and generating relationship lending opportunities.

Third by maintaining our expense discipline, including ongoing continuous improvement initiatives that are part of our DNA and lastly through share repurchases and the ordinary course of business that maintain our CET one ratios at our current relatively high level.

Speaker #3: Secondly, by continuing to compound our fee advantages and leveraging our proven ability to broaden and monetize client relationships. Third, by maintaining our expense discipline, including ongoing continuous improvement initiatives that are part of our DNA.

To this end consistent with my comments last quarter that we would crawl walk run when it comes to share buybacks. He expects to be back in the open market repurchasing approximately $100 million of common stock in the fourth quarter.

Chris Gorman: Third, by maintaining our expense discipline, including ongoing continuous improvement initiatives that are part of our DNA. Lastly, through share repurchases in the ordinary course of business that maintain our CET1 ratios at our current relatively high levels. To this end, consistent with my comments last quarter that we would crawl, walk, run when it comes to share buybacks, we expect to be back in the open market repurchasing approximately $100 million of common stock in the fourth quarter. To be clear, we believe the path to 15% has low execution risk as we continue to deliver against our compelling organic growth plan. Given our current excess capital position, we could accelerate our trajectory and improve returns through incremental share repurchases and/or more balance sheet restructurings.

Speaker #3: And lastly, through share repurchases in the ordinary course of business, we aim to maintain our CET1 ratios at our current relatively high levels. To this end, consistent with my comments last quarter that we would crawl, walk, run when it comes to share buybacks, KeyCorp expects to be back in the open market repurchasing approximately $100 million of common stock in the fourth quarter.

To be clear, we believe the path to 15% as low execution risk as we continue to deliver against our compelling organic growth plan given our current excess capital position, we could accelerate our trajectory and improve returns through incremental share repurchases and.

For more balance sheet restructurings.

Speaker #3: To be clear, we believe the path to 15% has low execution risk, as we continue to deliver against our compelling organic growth plan. Given our current excess capital position, we could accelerate our trajectory and improve returns through incremental share repurchases and/or more balance sheet restructurings.

15% should not be viewed as a final goal, but rather an important milestone on our journey to achieving higher levels of both sustainable profitability and returns for our shareholders in summary, I am proud of our results this quarter contributing to what will be a record revenue year in <unk>.

2025, we are currently in the midst of our budget process. We will have more to say on 2026 at year end, but with our strong trajectory and healthy pipelines I believe we are well positioned to drive another year of outsized revenue and earnings growth in 2026 with that I'll turn it over to Clark.

Speaker #3: The 15% should not be viewed as a final goal, but rather an important milestone on our journey to achieving higher levels of both sustainable profitability and returns for our shareholders.

Chris Gorman: The 15% should not be viewed as a final goal, but rather an important milestone on our journey to achieving higher levels of both sustainable profitability and returns for our shareholders. In summary, I am proud of our results this quarter, contributing to what will be a record revenue year in 2025. We are currently in the midst of our budget process and will have more to say on 2026 at year end, but with our strong trajectory and healthy pipelines, I believe we are well positioned to drive another year of outsized revenue and earnings growth in 2026. With that, I'll turn it over to Clark to review the quarter's financial results in greater detail. Clark?

Speaker #3: In summary, I am proud of our results this quarter, contributing to what will be a record revenue year in 2025. We are currently in the midst of our budget process and will have more to say on 2026 at year-end, but with our strong trajectory and healthy pipelines, I believe we are well-positioned to drive another year of outsized revenue and earnings growth in 2026.

To review the quarter's financial results in greater detail Clark.

Chris starting on slide five our third quarter results reflect strong performance and continued momentum across the company.

As a reminder, last year's third quarter results were impacted by securities portfolio repositioning.

As such all comparisons are on an adjusted basis revenue was up 17% year over year, while expenses increased 7%.

Speaker #3: With that, I'll turn it over to Clark to review the quarter's financial results in greater detail. Clark? Thanks, Chris. Starting on slide five. Our third quarter results reflect strong performance and continued momentum across the company.

Tax equivalent net interest income was up 4% sequentially, primarily driven by commercial loan and low cost client deposit growth non interest income increased 8% year over year again growing a little faster than expenses this quarter.

Clark Khayat: Thanks, Chris. Starting on slide five, our third quarter results reflect strong performance and continued momentum across the company. As a reminder, last year's third quarter results were impacted by a securities portfolio repositioning. As such, all comparisons are on an adjusted basis. Revenue was up 17% year over year, while expenses increased 7%. Tax equivalent net interest income was up 4% sequentially, primarily driven by commercial loan and low-cost client deposit growth. Non-interest income increased 8% year over year, again growing a little faster than expenses this quarter. Loan loss provision of $107 million included net charge-offs of $114 million, or 42 basis points of average loans, offset by a modest reserve release primarily due to the reductions in non-performing assets and criticized loans this quarter. Tangible book value per share increased 4% sequentially and 14% year over year.

Speaker #3: As a reminder, last year's third-quarter results were impacted by a securities portfolio repositioning. As such, all comparisons are on an adjusted basis. Revenue was up 17% year-over-year, while expenses increased 7%.

Loan loss provision of $107 million included net charge offs of $114 million or 42 basis points of average loans.

Offset by a modest reserve release, primarily due to the reductions in NPA is in criticized loans this quarter.

Speaker #3: Tax-equivalent net interest income was up 4% sequentially, primarily driven by commercial loan and low-cost client deposit growth. Non-interest income increased 8% year over year, again growing a little faster than expenses this quarter.

Book value per share increased 4% sequentially and 14% year over year. Finally, we were pleased to have received a one notch upgrade to both our long and short term ratings from Fitch this quarter with our senior unsecured debt now rated a minus we also continue to maintain a positive outlook with Moody's moving to the balance sheet on slide six average loans.

Speaker #3: Loan loss provision of $107 million included net charge-offs of $114 million, or 42 basis points of average loans, offset by a modest reserve release, primarily due to the reductions in NPAs and criticized loans this quarter.

<unk> increased by <unk> 5 billion sequentially, reflecting a 2% increase in C&I loans and a modest increase in CRE loans, partially offset by planned run off of about $600 million of low yielding consumer loans on a spot basis C&I loans grew by $700 million led by new relationships to key most of the growth came.

Speaker #3: Tangible book value per share increased 4% sequentially and 14% year over year. Finally, we are pleased to have received a one-natch upgrade to both our long and short-term ratings from fits this quarter, with our senior unsecured debt now rated A-.

Clark Khayat: Finally, we were pleased to have received a one-notch upgrade to both our long and short-term ratings from Fitch this quarter, with our senior unsecured debt now rated A-minus. We also continue to maintain a positive outlook with Moody’s. Moving to the balance sheet on slide six, average loans increased by $0.5 billion sequentially, reflecting a 2% increase in C&I loans and a modest increase in CRE loans, partially offset by planned runoff of about $600 million of low-yielding consumer loans. On a spot basis, C&I loans grew by $700 million, led by new relationships to Key. Most of the growth came from the power and utility sector and in middle market broadly across sectors and regions. Line utilization decreased approximately 1% sequentially to 31%, driven largely by an increase in commitments to large corporate clients. Draws were roughly flat from the second quarter.

Speaker #3: We also continue to maintain a positive outlook with Moody's. Moving to the balance sheet on slide six. Average loans increased by half a billion dollars sequentially, reflecting a 2% increase in C&I loans, and a modest increase in CRE loans, partially offset by planned runoff of about $600 million of low-yielding consumer loans.

From the power and utility sector and in middle market broadly across sectors and regions.

Line utilization decreased approximately 1% sequentially to 31% driven largely by an increase in commitments to large corporate clients draws were roughly flat from the second quarter in middle market, we saw utilization rates increase about 50 basis points.

Speaker #3: On a spot basis, C&I loans grew by $700 million, led by new relationships to keep. Most of the growth came from the power and utility sector and in the middle market, broadly across sectors and regions.

Turning to slide seven <unk>.

Average deposits grew 2% and period end deposits grew 3% sequentially, primarily driven by growth with commercial clients average consumer deposits. Excluding Cds grew 1% average noninterest bearing deposits grew 2% sequentially and remained stable at 19% of total deposits were 23% when adjusted for a hybrid accounts.

Speaker #3: Line utilization decreased approximately 1% sequentially to 31%, driven largely by an increase in commitments to large corporate clients. Draws were roughly flat from the second quarter.

Speaker #3: In the middle market, we saw utilization rates increase by about 50 basis points. Returning to slide seven, average deposits grew 2%, and period-end deposits grew 3% sequentially, primarily driven by growth with commercial clients.

Clark Khayat: In middle market, we saw utilization rates increase about 50 basis points. Turning to slide seven, average deposits grew 2% and period end deposits grew 3% sequentially, primarily driven by growth with commercial clients. Average consumer deposits, excluding CDs, grew 1%. Average non-interest bearing deposits grew 2% sequentially and remained stable at 19% of total deposits or 23% when adjusted for our hybrid accounts. Total deposit cost declined by two basis points to 1.97%. Our cumulative interest bearing beta remained at about 55% through the third quarter, in line with up betas. We've been able to get a little more aggressive than we expected due to our lower loan-to-deposit ratio as we entered the year, the ongoing remixing of loans from consumer to commercial, which limits our incremental funding needs, and that the markets we operate in have to date generally remained pretty rational from a competition standpoint.

Total deposit cost declined by two basis points to 197%.

Accumulative interest bearing beta remained at about 55% through the third quarter in line with update us.

Speaker #3: Average consumer deposits, excluding CDs, grew 1%. Average non-interest-bearing deposits grew 2% sequentially and remained stable at 19% of total deposits, or 23% when adjusted for our hybrid accounts.

We've been able to get a little more aggressive than we expected due to our lower loan to deposit ratio as we entered the year the ongoing remixing of loans from consumer to commercial which limits our incremental funding needs and that the markets. We operate in have to date generally remained pretty rational from a competition standpoint overall interest bearing funding cause.

Speaker #3: Total deposit costs declined by 2 basis points to 1.97%. Our cumulative interest-bearing beta remained at about 55% through the third quarter, in line with our betas.

<unk> declined by eight basis points, resulting in accumulative interest bearing funding beta of 74%.

Speaker #3: We've been able to get a little more aggressive than we expected due to our lower loan-to-deposit ratio as we entered the year, the ongoing remixing of loans from consumer to commercial, which limits our incremental funding needs, and that the markets we operate in have to date generally remained pretty rational from a competition standpoint.

Slide eight provides drivers of NII and NIM this quarter.

Tax equivalent NII was up 4% sequentially, primarily driven by our continued balance sheet optimization efforts. We grew relationship commercial loans at relatively stable spreads to the existing book as well as low cost client deposits, while running off lower yielding consumer loans and higher cost long term debt and other wholesale borrowings and I.

Speaker #3: Overall, interest-bearing funding costs declined by 8 basis points, resulting in a cumulative interest-bearing funding beta of 74%. Slide eight provides drivers of NII and NIM this quarter.

Clark Khayat: Overall, interest bearing funding costs declined by 8 basis points, resulting in a cumulative interest bearing funding beta of 74%. Slide eight provides drivers of NII and NIM this quarter. Tax equivalent NII was up 4% sequentially, primarily driven by our continued balance sheet optimization efforts. We grew relationship commercial loans at relatively stable spreads to the existing book, as well as low-cost client deposits, while running off lower yielding consumer loans and higher cost long-term debt and other wholesale borrowing. NII also benefited from an additional day in the quarter. We achieved our year-end net interest margin goal a quarter early, with NIM increasing 9 basis points sequentially to 2.75%. I'll discuss our outlook shortly, but we currently expect NII and NIM to grow modestly in the fourth quarter off of the third quarter.

Also benefited from an additional day in the quarter, we achieved our year end net interest margin goal a quarter early with NIM, increasing nine basis points sequentially to 275% I'll discuss our outlook shortly but we currently expect NII and NIM to grow modestly in the fourth quarter. After the third quarter, our balance sheet is positioned to be fairly neutral two additional fed rate cuts.

Speaker #3: Tax-equivalent net interest income (NII) was up 4% sequentially, primarily driven by our continued balance sheet optimization efforts. We grew relationship commercial loans at relatively stable spreads to the existing book, as well as low-cost client deposits, while running off lower-yielding consumer loans and higher-cost long-term debt and other wholesale borrowing.

In the short term.

Turning to slide nine adjusted noninterest income increased 8% year over year and included a visa related settlement charge of approximately $8 million.

Speaker #3: NII also benefited from an additional day in the quarter. We achieved our year-end net interest margin goal a quarter early, with NIM increasing 9 basis points sequentially to 2.75%.

Investment banking and debt placement fees were $184 million, an increase of 8% year over year year to date investment banking debt placement fees are up 15%.

Speaker #3: I'll discuss our outlook shortly, but we currently expect NII and NIM to grow modestly in the fourth quarter off of the third quarter. Our balance sheet is positioned to be fairly neutral to additional Fed rate cuts in the short term.

Clark Khayat: Our balance sheet is positioned to be fairly neutral to additional Fed rate cuts in the short term. Turning to slide nine, adjusted non-interest income increased 8% year over year and included a Visa-related settlement charge of approximately $8 million. Investment banking and debt placement fees were $184 million, an increase of 8% year over year. Year to date, investment banking and debt placement fees are up 15%. The strong quarter was driven by broad-based debt and equity capital markets activity. Middle market M&A volumes across the industry remain tepid. Although, as Chris Gorman mentioned, we've begun to see an encouraging pickup in strategic dialogue among our clients over the past month, and our M&A pipelines are up materially from where they were last quarter. Trust and investment services income grew 7% year over year, reflecting higher market values and positive net flows.

The strong quarter was driven by broad based debt and equity capital markets activity middle market M&A volumes across the industry remained tepid.

Speaker #3: Turning to slide nine, adjusted non-interest income increased 8% year over year, and included a Visa-related settlement charge of approximately $8 million. Investment banking and debt placement fees were $184 million, an increase of 8% year over year.

As Chris mentioned, we've begun to see an encouraging pickup in strategic dialogue among our clients over the past month, and our M&A pipelines are up materially from where they were last quarter.

Speaker #3: Year to date, investment banking and debt placement fees are up 15%. The strong quarter was driven by broad-based debt and equity capital markets activity.

And investment services income grew 7% year over year, reflecting higher market values and positive net flows.

Assets under management reached a new record high of $68 billion.

Speaker #3: Middle market M&A volumes across the industry remained tepid. Although, as Chris mentioned, we've begun to see an encouraging pickup in strategic dialogue among our clients over the past month, and our M&A pipelines are up materially from where they were last quarter.

Commercial mortgage servicing fees were $73 million remaining near historic highs.

Our active special servicing balances remained elevated at over $11 billion up 48% compared to the prior year.

Speaker #3: Trust and investment services income grew 7% year over year, reflecting higher market values and positive net flows. Assets under management reached a new record high of $68 billion.

We would expect to see these fees declined in the fourth quarter to the $60 million to $65 million range, reflecting the impact of lower fed funds rates and successful resolutions with interactive special servicing book, our service charges and corporate service fees increased roughly 12% and 4% year over year, respectively. The increase in service charges was largely driven by.

Clark Khayat: Assets under management reached a new record high of $68 billion. Commercial mortgage servicing fees were $73 million, remaining near historic highs. Our active special servicing balances remained elevated at over $11 billion, up 48% compared to the prior year. We would expect to see these fees decline in the fourth quarter to the $60 to $65 million range, reflecting the impact of lower Fed funds rates and successful resolutions within our active special servicing book. Our service charges and corporate service fees increased roughly 12% and 4% year over year, respectively. The increase in service charges was largely driven by continued momentum in commercial payments, which overall grew fee equivalent revenue at a high single-digit rate, while corporate services income is driven by loan and derivatives client activity. On slide 10, third quarter non-interest expenses of $1.2 billion increased 2% from the prior quarter and 7% year over year.

Speaker #3: Commercial mortgage servicing fees were $73 million, remaining near historic highs. Our active special servicing balances remained elevated at over $11 billion, up 48% compared to the prior year.

Continued momentum in commercial payments, which overall grew fee equivalent revenue at a high single digit rate, while corporate services income is driven by loan and derivatives client activity.

Speaker #3: We would expect to see these fees decline in the fourth quarter to the 60 to 65 million dollar range, reflecting the impact of lower Fed funds rates and successful resolutions within our active special servicing book.

On slide 10 third quarter non interest expenses of $1 2 billion increased 2% from the prior quarter and 7% year over year year over year expense growth was primarily driven by higher personnel expense related to increases in head count mainly in the frontline producers that Chris mentioned and higher incentive compensation attributable to the strong.

Speaker #3: Our service charges and corporate service fees increased roughly 12% and 4% year over year, respectively. The increase in service charges was largely driven by continued momentum in commercial payments, which overall grew fee-equivalent revenue at a high single-digit rate.

Speaker #3: While corporate services income is driven by loan and derivatives client activity. On slide 10, third-quarter non-interest expenses of $1.2 billion increased 2% from the prior quarter and 7% year over year.

The environment and the impact from keys higher stock price.

Personnel expenses rose modestly as we made an $8 million contribution to our charitable foundation during the quarter.

Business services and professional fees and computer processing costs also rose slightly reflecting technology related investments consistent with our prior guidance. We expect expenses to increase again in the fourth quarter, reflecting continued hiring in technology investments anticipated growth.

Speaker #3: Year-over-year expense growth was primarily driven by higher personnel expenses related to increases in headcount, mainly in the front-line producers that Chris mentioned, and higher incentive compensation attributable to the strong fee environment and an impact from Key's higher stock price.

Clark Khayat: Year-over-year expense growth was primarily driven by higher personnel expense related to increases in headcount, mainly in the frontline producers that Chris mentioned, and higher incentive compensation attributable to the strong fee environment and the impact from KeyCorp's higher stock price. Non-personnel expenses rose modestly as we made an $8 million contribution to our charitable foundation during the quarter. Business services and professional fees and computer processing costs also rose slightly, reflecting technology-related investments. Consistent with our prior guidance, we expect expenses to increase again in the fourth quarter, reflecting continued hiring and technology investments, anticipated growth in non-interest income and client activity, and other year-end seasonality factors. As shown on slide 11, credit quality is relatively stable to improving. Net charge-offs were $114 million, or an annualized 42 basis points of average loans.

Speaker #3: Non-personnel expenses rose modestly as we made an $8 million contribution to our charitable foundation during the quarter. Business services and professional fees and computer processing costs also rose slightly, reflecting technology-related investments.

Noninterest income and client activity and other year end seasonality factors as shown on slide 11 credit quality is relatively stable to improving.

Net charge offs were $114 million or an annualized 42 basis points of average loans.

Speaker #3: Consistent with our prior guidance, we expect expenses to increase again in the fourth quarter, reflecting continued hiring in technology investments, anticipated growth in non-interest income and client activity, and other year-end seasonality factors.

Year to date net charge offs of 41 basis points are squarely within our full year target range of 40% to 45 basis points nonperforming assets declined by 6% sequentially and the NPA ratio improved by three basis points to 63 basis points criticized loans declined by about another $200 million or 3% sequentially.

Speaker #3: As shown on slide 11, credit quality is relatively stable to improving. Net charge-offs were $114 million, or an annualized 42 basis points of average loans.

Turning to slide 12, our CET one ratio was 11, 8% at quarter end driven by net earnings generation.

Speaker #3: Year to date, net charge-offs of 41 basis points are squarely within our full-year target range of 40 to 45 basis points. Non-performing assets declined by 6% sequentially, and the NPA ratio improved by 3 basis points to 63 basis points.

Clark Khayat: Year-to-date net charge-offs of 41 basis points are squarely within our full-year target range of 40 to 45 basis points. Non-performing assets declined by 6% sequentially, and the NPA ratio improved by three basis points to 63 basis points. Criticized loans declined by about another $200 million, or 3% sequentially. Turning to slide 12, our CET1 ratio was 11.8% at quarter end, driven by net earnings generation. Our marked CET1 ratio, which includes unrealized AFS and pension losses, increased by about 30 basis points to 10.3%. We believe both ratios continue to be at or near the top of the pyramid. Given our marked CET1 increasing comfortably above the top end of our target range, we plan to be active in repurchasing roughly $100 million of our shares in the fourth quarter and continue, as previously stated, in 2026.

Our Mark CET, one ratio, which includes unrealized NFS and pension losses increased by about 30 basis points to 10, 3%.

We believe both ratios continue to be at or near the top of the peer group.

Speaker #3: Criticized loans declined by about another $200 million or 3% sequentially. Turning to slide 12, our CET-1 ratio was 11.8% at quarter end, driven by net earnings generation.

Given our Mark CET, one increasing comfortably above the top end of our target range, we plan to be active in repurchasing roughly $100 million of our shares in the fourth quarter and continue as previously stated in 2026.

Speaker #3: Our marked CET-1 ratio, which includes unrealized AFS and pension losses, increased by about 30 basis points to 10.3%. We believe both ratios continue to be at or near the top of the peer group.

Moving to slide 13, we are increasing our full year and exit rate guidance. Following the strong third quarter results. As we now have good line of sight into how the fourth quarter shaping up as a reminder, this guidance holds across a range of potential yield curve environments over the course of the fourth quarter. We now expect full year net interest income growth of about 22%.

Speaker #3: Given our marked CET-1 increase in comfortably above the top end of our target range, we plan to be active in repurchasing roughly $100 million of our shares in the fourth quarter, and continue as previously stated in 2026.

At the high end of the previously guided 20% to 22% range in conjunction are fourth quarter exit rate NII should grow 13% or more compared to the fourth quarter of 2024, assuming a fairly flat balance sheet in the fourth quarter compared to the third this implies a fourth quarter NIM in the $2 75 to two.

Speaker #3: Moving to slide 13, we are increasing our full-year and exit rate guidance, following the strong third quarter results as we now have good line of sight into how the fourth quarter is shaping up.

Clark Khayat: Moving to slide 13, we are increasing our full-year and exit rate guidance following the strong third quarter results as we now have good line of sight into how the fourth quarter is shaping up. As a reminder, this guidance holds across a range of potential yield curve environments over the course of the fourth quarter. We now expect full-year net interest income growth of about 22% at the high end of the previously guided 20% to 22% range. In conjunction, our fourth quarter exit rate NII should grow 13% or more compared to the fourth quarter of 2024. Assuming a fairly flat balance sheet in the fourth quarter compared to the third, this implies a fourth quarter NIM in the 2.75% to 2.8% range. We expect fees to grow between 5% and 6%.

Speaker #3: As a reminder, this guidance holds across a range of potential yield curve environments over the course of the fourth quarter. We now expect full-year net interest income growth of about 22%.

<unk> percent range.

We expect these to grow between 5% and 6%.

Speaker #3: At the high end of the previously guided 20% to 22% range. In conjunction, our fourth quarter exit rate NII should grow 13% or more compared to the fourth quarter of 2024.

We believe we can land towards the higher end of this range, assuming we see some pull through of our improved M&A pipelines. Prior to year end is currently expected in market conditions remain favorable.

Speaker #3: Assuming a fairly flat balance sheet in the fourth quarter compared to the third, this implies a fourth quarter NIM in the 2.75% to 2.8% range.

As we've previously mentioned, we expect full year expenses to fall within the middle of the range. We provided at the beginning of the year or approximately 4%, we expect our GAAP tax rate to come in around 22% in the fourth quarter for the full year. We currently expect the GAAP and tax equivalent effective rates to land at approximately 21 and 22% respectively.

Speaker #3: We expect these to grow between 5% and 6%. We believe we can land towards the higher end of this range, assuming we see some pull-through of our improved M&A pipelines prior to year-end, as currently expected.

Clark Khayat: We believe we can land towards the higher end of this range, assuming we see some pull-through of our improved M&A pipelines prior to year end, as currently expected, and market conditions remain favorable. As we've previously mentioned, we expect full-year expenses to fall within the middle of the range we provided at the beginning of the year, or approximately 4%. We expect our GAAP tax rate to come in around 22% in the fourth quarter. For the full year, we currently expect the GAAP and tax equivalent effective rates to land at approximately 21% and 22% respectively, both toward the better end of the previously guided ranges. Our other guidance remains unchanged.

Speaker #3: And market conditions remain favorable. As we've previously mentioned, we expect full-year expenses to fall within the middle of the range we provided at the beginning of the year, or approximately 4%.

<unk> both towards the better end of the previously guided ranges our other guidance remains unchanged in summary, subject to the usual macro caveats, we expect to maintain our strong momentum through the fourth quarter, which would result in record revenue in 2025 fee based operating leverage of greater than 100 basis points and north of 10% paused.

Speaker #3: We expect our GAAP tax rate to come in around 22% in the fourth quarter. For the full year, we currently expect the GAAP and tax-equivalent effective rates to land at approximately 21% and 22%, respectively, both toward the better end of the previously guided ranges.

<unk> operating leverage overall with that I'll now turn the call back to the operator to provide instructions for the Q&A session operator.

Speaker #3: Our other guidance remains unchanged. In summary, subject to the usual macro caveats, we expect to maintain our strong momentum through the fourth quarter, which would result in record revenue in 2025, fee-based operating leverage of greater than 100 basis points, and north of 10% positive operating leverage overall.

Thank you thank.

Clark Khayat: In summary, subject to the usual macro caveats, we expect to maintain our strong momentum through the fourth quarter, which would result in record revenue in 2025, fee-based operating leverage of greater than 100 basis points, and north of 10% positive operating leverage overall. With that, I'll now turn the call back to the Operator to provide instructions for the Q&A session. Operator?

If you would like to ask a question. Please press star followed by one on your telephone keypad. If your question has been answered or you wish Timna as your question. Please press star followed by Tim again to ask a question Press Star. One if you are using a speakerphone. Please pick up your handset before asking your question.

Speaker #3: With that, I'll now turn the call back to the Operator to provide instructions for the Q&A session. Operator?

Our first question comes from the line of Manan <unk> with Morgan Stanley. Your line is now open.

Speaker #1: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If your question has been answered or you wish to remove your question, please press star followed by two.

Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If your question has been answered or you wish to remove your question, please press star followed by two. Again, to ask a question, press star one. If you are using a speakerphone, please pick up your handset before asking your question. Our first question comes from the line of Manon Gosalia with Morgan Stanley. Manon, your line is now open.

Hi, Good morning, Chris Clark.

Good morning.

Speaker #1: Again, to ask a question, press *1. If you are using a speakerphone, please pick up your handset before asking your question. Our first question comes from the line of Manan Gosalya with Morgan Stanley.

I appreciate that the timing.

I appreciate the timing and details related to that 15% ROTC call and 225, plus NIM targets.

I guess at Dupont question here.

Can you provide a little bit more detail on the drivers to get to that 13, plus ROTC target.

Speaker #1: Manan, your line is now open.

Speaker #4: Hi, good morning, Chris, Clark. Appreciate the timing. Appreciate the timing and detail related to the 15% Roth SQL and the 325 plus NIM targets.

[Analyst]: Hi, good morning, Chris, Clark. Appreciate the timing and detail related to the 15% ROTCE goal and the 3.25% plus NIM targets. I guess a two-part question here. First, can you provide a little bit more detail on the drivers to get to that 15% plus ROTCE target? Second, you do have some peers who are targeting closer to a 16% to 19% ROTCE over a similar timeframe. Chris, I know you noted that the 15% plus is not the final goal, but maybe help us understand why the ROTCE can't be higher in the medium term. Thanks.

And second.

You do have something Angela targeting closer to 60% to 90% ROTC over some of that timeframe.

Chris I know you had noted that 15% plus is not the final call.

Speaker #4: I guess a two-part question here. First, can you provide a little bit more detail on the drivers to get to that 15-plus Roth SQL target?

Maybe help us understand why the ROTC cant be higher in the medium term.

Sure.

Speaker #4: And second, you do have some peers who are targeting closer to a 16% to 19% Roth SQL over a similar timeframe. Chris, I know you noted that the 15% plus is not the final goal, but maybe help us understand why the Roth SQL can't be higher in the medium term.

It's Marc I'll take that.

So first just to reiterate what you just said, which is Christmas point that the 15% is a stop and not the.

A destination so.

I think thats, an important element here, but let me get at.

Both our OTC target, we set out an all included in that the NIM since Thats, a big driver obviously of the numerator and if we start there.

Speaker #4: Thanks.

Speaker #3: Sure. Hey, Manan and Clark, I'll take that. So first, just to reiterate what you just said, which is Chris's point that the 15% is a stop and not the destination.

Clark Khayat: Sure. Hey, Manon, it's Clark. I'll take that. First, just to reiterate what you just said, which is Chris's point that the 15% is a stop and not the destination. I think that's an important element here. Let me get at both the ROTCE target we set out, and I'll include in that the NIM since that's a big driver, obviously, of the numerator. If we start there, you're talking about the NIM moving up about 50 basis points over that timeframe. That's meaningful moves. We've started from a lower level than others, and we're moving up nicely over the course of the last year.

Talking about the NIM moving up about 50 basis points over that timeframe. That's meaningful moves obviously, we started from a lower level than others and we're moving up nicely over the course of the last year, but if I look at that as a split between mechanical movement fixed asset repricing and our six.

Speaker #3: So I think that's an important element here. But let me get at both the ROTCE target we set out, and I'll include in that the NIM since that's a big driver, obviously, of the numerator.

Speaker #3: And if we start there, you know you're talking about the NIM moving up about 50 basis points over that timeframe. That's a meaningful move. Obviously, we've started from a lower level than others, and we're moving up nicely over the course of the last year.

Curious book over time.

Swaps and just as a note there youll see with forward starters coming on something like 34 billion of swaps in the three 8% to three 9% range. So as rates come down those will go from a slight negative carry today to a pretty strong benefit.

Speaker #3: But if I look at that as a split between, you know, mechanical movement, fixed asset repricing, and our securities book over time, and the swaps—just as a note there, you know you'll see with forward starters coming on, something like $34 billion of swaps in the 3.8% to 3.9% range.

Clark Khayat: If I look at that as a split between mechanical movement, fixed asset repricing in our securities book over time, in the swaps, and just as a note there, you'll see with forward starters coming on something like $34 billion of swaps in the 3.8% to 3.9% range. As rates come down, those will go from a slight negative carry today to a pretty strong benefit. We feel very good about that position. We think that is about half of that gain, with the other half coming from continued strong organic activity. I think that'll be loan growth. We'll continue to focus on good, strong commercial loan growth offsetting the runoff in consumers. Think about that as like a 2% pickup over time.

So we feel very good about that position.

And then and that we think is about half of that gain with the other half coming from continued strong organic activity and I think that'll be loan growth will continue to focus on good strong commercial loan growth offsetting the runoff in consumers to think about that as like a 2% pickup over time.

Speaker #3: So as rates come down, those will go from a slight negative carry today to a pretty strong benefit. So we feel very good about that position.

We expect to continue to grow high quality granular deposits, which we've been doing both on the commercial and the consumer space and to manage the pricing on those deposits effectively and I would say kind of $50 ish beta over that timeframe.

Speaker #3: And then that we think is about half of that gain. With the other half coming from continued strong organic activity, and I think that'll be loan growth, we'll continue to focus on good strong commercial loan growth, offsetting the runoff in consumers to think about that as like a 2% pickup.

Not necessarily in any one quarter, but over that time frame is kind of what we would expect there and I think those two pieces together gets you to 50 basis points in that timeframe.

Speaker #3: Over time, we expect to continue to grow high-quality, granular deposits, which we've been doing both in the commercial and the consumer space, and to manage the pricing on those deposits effectively.

Clark Khayat: We expect to continue to grow high-quality granular deposits, which we've been doing both in the commercial and the consumer space, and to manage the pricing on those deposits effectively. I would say a kind of 50s-ish beta over that timeframe, not necessarily in any one quarter, but over that timeframe is kind of what we would expect there. I think those two pieces together get you the 50 basis points in that timeframe. If you move to fees, we continue to see very strong growth across our high-priority fee businesses, capital markets, commercial payments, wealth, and commercial mortgage servicing. We would continue to invest in those and have. We expect that growth to continue through that timeframe. All of those, of course, have very strong ROTCEs and don't use up a lot of capital. That benefits certainly the 15%.

If you move to fees.

We continue to see very strong growth across our high priority fee businesses capital markets commercial payments wealth.

Speaker #3: And I would say you know a kind of 50s-ish beta over that timeframe, not necessarily in any one quarter, but over that timeframe is kind of what we would expect there.

In commercial mortgage servicing we would continue.

To invest in those in half and so we expect that growth to continue through that timeframe.

Speaker #3: And I think those two pieces together get you to the 50 basis points in that timeframe. If you move to fees, you know we continue to see very strong growth across our high priority fee businesses, capital markets, commercial payments, wealth.

All of those of course have very strong rotc's don't use up a lot of capital so that benefit certainly the 15% on.

On the expense side I think we are pretty well demonstrated ability to manage expenses effectively we of course plan to continue doing that and using our continuous improvement activities to continue to fund meaningful and needed investments and then on the provision side feeling very good about credit quality and we think we will continue to.

Speaker #3: In commercial mortgage servicing, we will continue to invest in those, as we have, and we expect that growth to continue through that timeframe. All of those, of course, have very strong ROTCEs and don't use up a lot of capital, so that certainly benefits the 15%.

Focus on high quality borrowers, where we can monetize those loans through our compelling fee platform. So all of that we think.

Speaker #3: On the expense side, you know I think we have pretty well-demonstrated ability to manage expenses effectively. We, of course, plan to continue doing that and using our continuous improvement activities to continue to fund meaningful and needed investments.

Clark Khayat: On the expense side, I think we have pretty well-demonstrated ability to manage expenses effectively. We, of course, plan to continue doing that and using our continuous improvement activities to continue to fund meaningful and needed investments. On the provision side, feeling very good about credit quality, and we think we'll continue to focus on high-quality borrowers where we can monetize those loans through our compelling fee platforms. All of that, we think by the end of 2027 gets us a good portion of the way to the 15%. I would think about that in ROAs that are in line with or better than some peers, north of 1.20 ROAs. I think that's an important milestone for us as well. The second obvious piece here is the denominator, which is the capital base.

At end of 2007 gets us a good portion of the way to the 15% I would think about that in the <unk> that are in.

In line with or better than some peers north of 120, <unk>. So I think thats, an important milestone for us as well.

Speaker #3: And then on the provision side, you know, feeling very good about credit quality. We think we'll continue to focus on high-quality borrowers where we can monetize those loans through our compelling fee platform.

And then I think the second obvious piece here is the denominator, which is the capital base.

Speaker #3: So all of that we think by that end of 27 gets us a good portion of the way to the 15% and I would think about that in ROAs that are you know in line with or better than some peers you know north of 120 ROAs.

As you are well aware, we have strong CET, one and Mark CB, one today in absolute and relative terms and this analysis assumes we will manage buybacks, which as Chris said, we will initiate again here in some size in the fourth quarter to effectively our current mark to levels, which are about $10 three.

Speaker #3: So I think that's an important milestone for us as well. And then I think the second obvious piece here is the denominator, which is the capital base.

So maybe one or two additional comments here to just.

To frame this.

Speaker #3: As you are well aware, we have strong CET-1 and marked CET-1 today and absolute and relative terms. And this analysis assumes we'll manage buybacks, which, as Chris said, we'll initiate again here in some size in the fourth quarter, to effectively our current marked levels, which are about 10.3.

Clark Khayat: As you are well aware, we have strong CET1 and marked CET1 today in absolute and relative terms. This analysis assumes we'll manage buybacks, which, as Chris said, we'll initiate again here in some size in the fourth quarter to effectively our current marked levels, which are about 10.3%. Maybe one or two additional comments here to frame this, and I think they're pretty important. First, the 15% we see as low risk, no real big swings in here. This is running our business effectively as we're doing today. We are high on the capital side, and we're going to generate and are generating solid capital growth. We have ample ability here to increase buybacks or to restructure to accelerate to our targeted balance sheet if that's what we need to do. Both of those speed up the 15%, and they offer clear outperformance to that midterm milestone.

And I think they're pretty important so first the 15% we see as low risk no real big swings in here. So this is running our business effectively as we're doing today.

But we are high on the capital side, and we're going to generate and are generating solid capital growth.

So we have ample ability here to increase buybacks or to restructure to accelerate to our targeted balance sheet. If that's what we need to do both of those speed up to 15% and they offer clear outperformance to that near term milestone.

Speaker #3: So maybe one or two additional comments here to just to frame this. And I think they're pretty important. So first, the 15% we could see as low risk, no real big swings in here.

Speaker #3: So this is running our business effectively, as we're doing today. But we are high on the capital side, and we're going to generate—and are generating—solid capital growth.

We haven't decided sitting here today, we're going to pull those levers. In addition to the buybacks, we're already assuming nor the greed to which we would do it if we choose to do it. So again, we feel like it's a very good position to be in here, we can pull either or both of those levers deliver very strong returns on both a relative and absolute basis and still be at or near the high end of our peer capital range.

Speaker #3: So we have ample ability here to increase buybacks or to restructure to accelerate our targeted balance sheet if that's what we need to do.

Speaker #3: Both of those speed up the 15%. And they offer clear outperformance to that midterm milestone. We haven't decided, sitting here today, if we're going to pull those levers in addition to the buybacks we're already assuming.

So just to dimension that one more way if we took our current mark capital at 10, three and we took that down to the peer level of nine one that would generate an additional 2% of our OTC. So we can do that math, we can do that with continued solid business performance in some more aggressive capital management and we can get comfortably passed at <unk>.

Clark Khayat: We haven't decided sitting here today if we're going to pull those levers in addition to the buybacks we're already assuming, nor the degree to which we would do it if we choose to do it. We feel like it's a very good position to be in here. We can pull either or both of those levers, deliver very strong returns on both a relative and absolute basis, and still be at or near the high end of our peer capital range. To dimension that one more way, if we took our current marked capital at 10.3% and we took that down to the peer level of 9.1%, that would generate an additional 2% of ROTCE. We can do that math. We can do that with continued solid business performance and some more aggressive capital management, and we could get comfortably past that 15% target.

Speaker #3: Nor the degree to which we would do it if we choose to do it. So again, we feel like it's a very good position to be in here.

Speaker #3: We could pull either or both of those levers to deliver very strong returns on both a relative and absolute basis, and still be at or near the high end of our peer capital range.

Plus percent targets.

Speaker #3: So just to dimension that, one more way, if we took our current marked capital at 10.3 and we took that down to the peer level of 9.1, that would generate an additional 2% of ROTCE.

Yes, just to add to Clark's point, our current long term goal for return on tangible common equity of 16 to 19, we haven't updated that but I can tell you that when we do it well.

Speaker #3: So, we can do that math. We can do that with continued solid business performance and some more aggressive capital management, and we could get comfortably past that 15% plus target.

Much different than 16 to 19.

Got it.

Great I really appreciate the fulsome response.

Speaker #3: Yeah, just to add to Clark's point, our current long-term goal for return on tangible common equity is 16 to 19. We haven't updated that, but I can tell you that when we do, it won't look much different than 16 to 19.

Chris Gorman: Yeah, just to add to Clark Khayat's point, our current long-term goal for return on tangible common equity is 16% to 19%. We haven't updated that, but I can tell you that when we do, it won't look much different than 16% to 19%.

I guess, a quick follow up given that the NIM is.

A big driver here.

As we think about that 325 plus NIM.

How do you think about rate cuts and the yield curve do you need to see a specific level of steepness in the curve to get there.

I don't think we do I do think that kind of $50 ish beta is the right way to think about it right now thats just given the forward curve.

Speaker #4: Got it. That's great. I really appreciate the fulsome response here. I guess a quick follow-up, given that NIM is a big driver here.

[Analyst]: Got it. That's great. I really appreciate the fulsome response here. I guess a quick follow-up, given that NIM is a big driver here. As we think about that 3.25% plus NIM, how do you think about rate cuts in the yield curve? Do you need to see a specific level of steepness in the curve to get there?

Deepening.

It might be true for most banks that Steepening, obviously provided some additional benefits we expect to see some of that coming through again in the forwards more.

Speaker #4: As we think about that 325 plus NIM, how do you think about rate cuts and the yield curve? Do you need to see a specific level of steepness in the curve to get there?

More steep.

A steeper curve said differently I think benefit us more but right now that really just relies on that kind of $50 ish beta and the forward curve, which does have a little bit of steepening. It.

Speaker #3: I don't think we do. I do think that kind of 50s-ish beta is the right way to think about it. And right now, that's just given the forward curve.

Clark Khayat: I don't think we do. I do think that kind of 50s-ish beta is the right way to think about it. Right now, that's just given the forward curve. Steepening, which might be true for most banks, obviously provides some additional benefit, and we expect to see some of that coming through again in the forwards. More, you know, a steeper curve, said differently, would, I think, benefit us more. Right now, that really just relies on that kind of 50s-ish beta and the forward curve, which does, again, have a little bit of steepening in it.

Speaker #3: Steepening might be true for most banks, but steepening, obviously, provides some additional benefit, and we expect to see some of that coming through again in the forwards.

Got it thank you.

Thank you.

Speaker #3: The more you know, the steeper the curve; said differently, I think it would benefit us more. But right now, that really just relies on that kind of 50s-ish beta and the forward curve, which does, again, have a little bit of steepening in it.

Our next question comes from the line of Ebrahim <unk> with Bank of America. Abraham Your line is now open.

Good morning.

Good morning, I guess.

Just one quick question first on.

Bank M&A these days.

Speaker #4: Got it. Thank you.

[Analyst]: Got it. Thank you.

<unk> seen some activity I think there was some discussion around keeping enrolled in a recent transaction and I think the.

Speaker #1: Thank you. Our next question comes from the line of Ibrahim Punawala with Bank of America. Ibrahim, your line is now open.

Operator: Thank you. Our next question comes from the line of Ibrahim Poonawala with Bank of America. Ibrahim, your line is now open.

The concern that I've heard from investors is given your stock valuation.

This call significant tangible book dilution and what that entails is going I think there's just.

Speaker #5: Good Good morning. I

[Analyst]: Good morning.

Speaker #3: Good morning.

Chris Gorman: Good morning.

Speaker #5: I guess just one quick question first on bank M&A. We've seen some activity. I think there was some discussion around keeping involved in a recent transaction.

[Analyst]: I guess, just one quick question first on bank M&A. We've seen some activity. I think there was some discussion around KeyCorp being involved in a recent transaction. I think the concern that I've heard from investors is given your stock valuation, the risk of significant tangible book dilution and what that entails. I think there's just a caution towards owning banks that are viewed as potential buyers of other banks. I would love for you to frame for us how you're thinking about bank M&A from a financial metrics perspective, and are you actively sort of just your appetite for doing it? Thank you.

Caution towards owning banks that are viewed as potential buyers of other banks. So I would love for you to seem put us how youre thinking about bank M&A from a financial metrics perspective.

Speaker #5: And I think the concern that I've heard from investors is, given your stock valuation, the risk of significant tangible book dilution and what that entails.

And are you actively sort of just you had appetite for doing a deal. Thank you.

Well. Thank you for the question this is a topic that.

Speaker #5: And I think there's just a caution towards owning banks that are viewed as potential buyers of other banks. So I would love for you to frame for us how you're thinking about Bank M&A from a financial metrics perspective, and are you actively adjusting your appetite for doing a deal?

I know it has gotten some discussion probably more than is warranted. So let me start off with talking a little bit about what our strategic focus is and I think Clarke just did a really great job of walking everyone through the pieces and parts of the step up in our return on tangible common equity that's what we can control that's what we are.

Speaker #5: Thank you.

Speaker #3: Well, thank you for the question. This is a topic that I know has gotten some discussion, probably more than is warranted. So let me start off by talking a little bit about what our strategic focus is.

Chris Gorman: Thank you for the question. This is a topic that I know has gotten some discussion, probably more than is warranted. Let me start off with talking a little bit about what our strategic focus is. I think Clark just did a really great job of walking everyone through the pieces and parts of the step-up in our return on tangible common equity. That's what we can control. That's what we are focused on. Obviously, as we build up our return on tangible common equity, we will get a multiple and have a currency that will put us in a good position if we ever wanted to transact at some point. Our real focus is this huge organic opportunity that's right in front of us that we have to execute on. That's how we can create the greatest value for our shareholders.

Focused on obviously as we build up our return on tangible common equity, we will get a multiple and have a currency that will put us in a good position if we ever wanted to transact at some point. So our real focus is this huge organic opportunity that's right in front of us that we have to execute on.

Speaker #3: And I think Clark just did a really great job of walking everyone through the pieces and parts of the step-up in our return on tangible common equity.

That is how we can create the greatest value for our shareholders specifically as it relates to.

Speaker #3: That's what we can control. That's what we are focused on. Obviously, as we build up our return on tangible common equity, we will get a multiple and have a currency that will put us in a good position if we ever want to transact at some point.

Bank M&A, that's pretty far down the capital priorities. So let me kind of walk everyone through what our capital priorities are first is to support our clients I mentioned that we have a backlog that's two X today than what it was just one year ago. So we're going to use our capital for our clients. Secondly, we are going to pursue.

Speaker #3: So our real focus is this huge organic opportunity that's right in front of us that we have to execute on. That's how we can create the greatest value for our shareholders.

Speaker #3: Specifically, as it relates to bank M&A, that’s pretty far down the capital priorities. Now, let me kind of walk everyone through what our capital priorities are.

Tuck in deals in support of our targeted scale strategy. Those are really fee based capabilities really knowledge workers I think we have a really good track record of being able to buy these relatively small businesses and plug them in and integrate them, we're going to continue to do that.

Chris Gorman: Specifically, as it relates to bank M&A, that's pretty far down the capital priorities. Now, let me kind of walk everyone through what our capital priorities are. First is to support our clients. I mentioned that we have a backlog that's 2x today what it was just one year ago. We're going to use our capital for our clients. Secondly, we are going to pursue tuck-in deals in support of our targeted scale strategy. Those are really fee-based capabilities, really knowledge workers. I think we have a really good track record of being able to buy these relatively small businesses and plug them in and integrate them. We're going to continue to do that. Obviously, we'll support the dividend at $0.205 a share. We now have sort of turned the valve open on share repurchases. I think Clark did a nice job of walking through.

Speaker #3: First, we need to support our clients. I mentioned that we have a backlog that's 2X higher today than it was just one year ago. So, we're going to use our capital for our clients.

Obviously, we will support the dividend at $20.05 a share we now have sort of turn the valve open on share repurchases.

Speaker #3: Secondly, we are going to pursue tuck-in deals and support our targeted scale strategy. Those are really fee-based capabilities, really knowledge workers. I think we have a really good track record of being able to buy these relatively small businesses and plug them in and integrate them.

Clarke did a nice job of walking through we clearly have in front of us some opportunity to work on our balance sheet a bit as we use without frankly using a lot of capital. For example, we have about $14 billion of Cmos and CBS is the <unk> bonds that are less than 2%. So that's an opportunity for us and then.

Speaker #3: We're going to continue to do that. Obviously, we'll support the dividend at 20 and a half cents a share. We now have sort of turned the valve open on share repurchases I think Clark did a nice job of walking through.

As it pertains specifically to bank M&A.

Speaker #3: We clearly have in front of us some opportunity to work on our balance sheet a bit as we use, without frankly using a lot of capital.

Really tight screen that we would look at first it has to be absolutely on strategy.

Chris Gorman: We clearly have in front of us some opportunity to work on our balance sheet a bit as we use, without frankly using a lot of capital. For example, we have about $14 billion of CMOs and CMBSs, the CMBS bonds that are less than 2%. That's an opportunity for us. As it pertains specifically to bank M&A, it's a really tight screen that we would look at. First, it has to be absolutely on strategy, and there's not many banks that would check that. Secondly, it has to be a bank that has a culture that we think we can integrate into ours. We have a bit of a unique culture because we have a unique business model. As you know, Ibrahim, leading the integration of First Niagara, I sort of know what's involved in that, and that's not easy. That's actually the hard part.

And theres not many theres not many banks that we've checked that secondly, it has to be.

Speaker #3: For example, we have about $14 billion of CMOs and CMBSs that CMBS bonds that are less than 2%. So that's an opportunity for us.

A bank that has a culture that we think we can integrate into ours, we have a bit of a unique culture, because we have a unique business model and as you know in marine.

Speaker #3: And then, as it pertains specifically to bank M&A, it's a really tight screen that we would look at. First, it has to be absolutely on strategy.

Is leading the integration of first Niagara I sort of know whats involved in that and that's not easy that's actually the hard part.

Speaker #3: And there's not many there's not many banks that would check that. Secondly, it has to be a bank that has a culture that we think we can integrate into ours.

And then lastly, and important for this group for sure.

It would have to check the box on a variety of important financial metrics.

Speaker #3: We have a bit of a unique culture because we have a unique business model. And, as you know, Ibrahim, as leading the integration of First Niagara, I sort of know what's involved in that.

Inclusive of tangible book value dilution. So that's just broadly how im thinking about our strategy and sort of where.

Inorganic growth Vincent Thanks for the question.

Speaker #3: And that's not easy. That's actually the hard part. And then lastly, and important for this group for sure, it would have to check the box on a variety of important financial metrics.

Chris Gorman: Lastly, and important for this group for sure, it would have to check the box on a variety of important financial metrics, inclusive of tangible book value dilution. That's just broadly how I'm thinking about our strategy and sort of where inorganic growth fits in. Thanks for the question.

Got it so it sounds like unless someone gifted your bank. The bar is extremely high fluidity. Thank you walk into that.

On a separate question.

Speaker #3: Inclusive of tangible book value dilution. So that's just broadly how I'm thinking about our strategy and sort of where inorganic growth fits in. Thanks for the question.

Yes.

We have a pretty good sense of the capital markets whats going on.

The focus on the exposure of banks to <unk>.

<unk> talked to us in terms of how you view the risk on your balance sheet.

Speaker #5: Got it. So it sounds like unless someone gifted your bank, the bar is extremely high for a deal. Thank you for walking through that.

And this is the lack of visibility that the banks have been providing these van host facilities non bank providers.

[Analyst]: Got it. It sounds like unless someone gifted your bank, the bar is extremely high for a deal. Thank you for walking through that. Just on a separate question, Chris, you have a pretty good sense of just the capital markets, what's going on, given the focus on this, the exposure of banks to NDFIs. One, talk to us in terms of how you view the risk on your balance sheet and the risk of the lack of visibility that the banks have when providing these warehouse facilities to non-bank providers.

Speaker #5: Just on a separate question, Chris, you have a pretty good sense of just the capital markets what's going on. Given the focus on this the exposure of banks to NDFIs, one, talk to us in terms of how you view the risk on your balance sheet.

Yes, So let me talk about.

Within our India.

Portfolio and why at least from a key perspective I don't think it's an issue we have a business called <unk>, which we've been in for 20 years and we do a lot of the payments work, we do a lot of the securitization work I don't think we had a charge off.

Speaker #5: And the risk of the lack of visibility that the banks have when providing these warehouse facilities for non-bank providers.

In 20 years, So my point is that.

Speaker #3: Yeah, so let me talk about what's in our NDFI portfolio and why at least from a key perspective, I don't think it's an issue.

Chris Gorman: Yeah. Let me talk about what's in our NDFI portfolio and why, at least from a KeyCorp perspective, I don't think it's an issue. We have a business called SFL, which we've been in for 20 years, and we do a lot of the payments work. We do a lot of the securitization work. I don't think we've had a charge-off in 20 years. My point is the key for NDFI is for banks to be readily engaged with these borrowers and not just have a piece of paper that they put on the shelf. For example, in our bucket, you'd find REITs. Obviously, one of our best businesses is our real estate business, and we're constantly in touch with these folks around payments, capital raising, etc.

The key for <unk> is for banks to be readily engaged with these borrowers and not just have a piece of paper that they put out on the shelf for example in our budget you'd find rights. While obviously one of our best businesses is our real estate business and were constantly in touch with these <unk>.

Speaker #3: We have a business called SFL, which we've been in for 20 years, and we do a lot of the payments work. We do a lot of the securitization work.

Speaker #3: I don't think we've had a charge-off in 20 years. So my point is, the key for NDFI is for banks to be readily engaged with these borrowers and not just have a piece of paper that they put on the shelf.

Looks around payments capital raising et cetera, So I think if.

If I was if I was sitting in your seat one of the things that I'd be curiously interested in us.

What are the asset classes within <unk> within.

Speaker #3: For example, in our bucket, you'd find REITs. Well, obviously, one of our best businesses is our real estate business, and we're constantly in touch with these folks around payments, capital raising, etc.

Within the Dod.

Dod financial investment group and then non depository beg your pardon and then I wanted to know how engaged the banks are day in and day out with those borrowers Clark what would you add to that.

Speaker #3: So I think if I was if I was sitting in your seat, one of the things that I'd be curiously interested in is what are the asset classes within the non-financial investment group?

Chris Gorman: I think if I was sitting in your seat, one of the things that I'd be curiously interested in is what are the asset classes within the non-financial investment group or non-depository, I beg your pardon. Then I'd want to know how engaged the banks are day in and day out with those borrowers. Clark, what would you add to that?

I think.

Ron as you sort of hit and EFI I think is a fairly.

Broad undefined category from a regulatory standpoint, so I think the important thing to know is it is.

Speaker #3: And then or non-depository, beg your pardon. And then I'd want to know how engaged the banks are day in and day out with those borrowers.

Chris said, it's not one thing.

Code for US a collection of businesses that don't necessarily align perfectly to those write reports, but the more important thing is their businesses. We've been in for a long time, where we have very deep expertise and we generally apply our strong relationship strategy to that and in many of these cases, we have.

Speaker #3: Clark, what would you add to that? You know.

Speaker #4: So I think

Clark Khayat: I think, you know, one, as you sort of hit, NDFI, I think, is a fairly broad, undefined category from a regulatory standpoint. I think the important thing to know is, as Chris said, it's not one thing. It's, for us, a collection of businesses that don't necessarily align perfectly to those reg reports. The more important thing is they are businesses we've been in for a long time where we have very deep expertise, and we generally apply our strong relationship strategy to that. In many of these cases, we have what we refer to as targeted scale. We have real deep expertise in a very targeted segment of clients, and we perform really well in those groups.

Speaker #3: One, as you sort of hit Non-Depository Financial Institutions (NDFI), I think is a fairly broad undefined category from a regulatory standpoint. So I think the important thing to know is, as Chris said, it's not one thing.

What we referred to as targeted scale, we have real deep expertise and a very targeted segment of clients and we perform really well in those groups.

Speaker #3: It's a collection of businesses that don't necessarily align perfectly to those regulatory reports. But the more important thing is that they are businesses we've been in for a long time, where we have very deep expertise.

For example, we have we have separate teams that deal with each and every part of the groups that we have and this is more mining one thing I might add too as I review the fuel followed with structures and feel really good about where we sit and chief credit officer twice.

Speaker #3: And we generally apply our strong relationship strategy to that. In many of these cases, we have what we refer to as targeted scale.

Speaker #3: We have real deep expertise in a very targeted segment of clients and we perform really well in those groups. Yeah. For example, we have we have separate teams that deal with each and every part of the groups that we have.

In my career journey, so my ability to dig in on these structures is quite strong we don't play in the more esoteric areas of and EFI.

Chris Gorman: For example, we have separate teams that deal with each and every part of the groups that we have.

Again, if you think about again the region.

Speaker #3: Yeah.

CLO and things like that I think thats pretty much down the fairway relative to.

Speaker #6: And this is Mo Rahmani. One thing I might add too is I've reviewed the deal files and structures and feel really good about you know where we sit.

Mo Ramani: This is Mo Ramani. One thing I might add is I've reviewed the deal files and structures and feel really good about where we sit. I've been Chief Credit Officer twice in my career journey, so my ability to dig in on these structures is quite strong. We don't play in the more esoteric areas of NDFI. If you think about the REITs and CLOs and things like that, I think that's pretty much down the fairway relative to risk appetite. We have a strong portfolio management structure. We have a very advanced limit structure that prevents outside growth. No area of the bank can grow to infinity. We do have very strong limits in place as well to control growth across portfolios.

Risk appetite and also we have a strong portfolio management structure. So we have a very advanced limit structure that prevents outside growth. So no area of the bank and grow to infinity.

Speaker #6: I've been Chief Credit Officer twice. In my career journey, my ability to dig into these structures is quite strong. We don't play in the more esoteric areas of NDFI.

You have very strong limits in place as well as the control.

Speaker #6: Again, if you think about the REITs and, you know, CLOs and things like that, I think that's pretty much down the fairway relative to risk appetite.

Growth across portfolios.

Does that answer the question.

Yes.

Helpful. Thank you for the whole some of those folks.

Speaker #6: And then also, we have a strong portfolio management structure. So we have a very advanced limit structure that prevents outside growth. So no area of the bank can grow to infinity.

Okay. Thank you.

Thank you. Our next question comes from the line of Brian Foran with.

Securities Brian Your line is now open.

Speaker #6: We do have a very strong limit in place to control, you know, growth across portfolios.

I was going to ask about credit and I. Appreciate all the detail I have to call out that you.

Speaker #3: Thanks for that, Mo. Does that answer the question?

Chris Gorman: Thanks for that, Mo. Does that answer the question?

Speaker #5: Yeah, that was helpful. Thanks for the wholesome response.

Included charge offs to the Penny in the earnings release.

[Analyst]: Yeah, that was helpful. Thanks for the wholesome response.

They accounted that last 56.

Speaker #3: Thank you.

Chris Gorman: Thank you.

Maybe if I could shift to growth though.

Speaker #1: Thank you. Our next question comes from the line of Brian Foran with Truist Securities. Brian, your line is now open.

Operator: Thank you. Our next question comes from the line of Brian Foran with Truist Securities. Brian, your line is now open.

It's interesting if I look at your loan book and the supplement it's kind of like two halves. It's the C&I book growing nicely, it's now up 8% year over year.

Speaker #7: I was going to ask about credit and I appreciate all the detail. I have to call out that you included charge-offs to the penny in the earnings release.

[Analyst]: I was going to ask about credit, and I appreciate all the detail. I have to call out that you included charge-offs to the penny in the earnings release. I'm impressed they counted that last $0.56. Maybe if I could shift to growth, though. It's interesting if I look at your loan book and the supplement, it's kind of like two halves. It's the C&I loans book growing nicely. It's now up 8% year over year, and then everything else kind of summing to $50 billion and being down 7% year over year. As we sharpen our pencils over the next year or two, is there any help you can give in terms of like, is there a target size for some of these books, or is there a timing when you think new production starts outweighing some of the lower yielding stuff rolling off and pay downs?

And then everything else kind of summing to 50 billion in being down 7% year over year.

Speaker #7: So I'm impressed they counted that last 56 cents. Maybe if I could shift to growth though, you know it's interesting if I look at your loan book and the supplement, it's kind of like two halves.

As we sharpen our pencils over the next year or two is there any help you can give in terms of like is there a target size for some of these books or is there.

Timing when you think new production starts.

Speaker #7: It's the C&I book growing nicely. It's now up 8% year over year. And then everything else kind of summing to 50 billion and being down 7% year over year.

Outweighing some of the lower yielding stuff rolling off and Paydowns, just how to think about the part of the book that shrinking and what the end goal is there.

Speaker #7: As we sharpen our pencils over the next you know year or two, is there any help you can give in terms of like is there a target size for some of these books or is there a timing when you think new production starts outweighing some of the lower-yielding stuff rolling off and paydowns?

Yes. So obviously, we can give you a lot of clarity on where we think the shrink is going to come from because those are.

Those are high quality mortgages, principally to doctors and dentists that roll off based on the curve. We can give you great estimates of what we think is going to roll off in terms of what we're actually going to put on our balance sheet because of our underwrite and distribute model.

Speaker #7: You know just how to think about the part of the book that's shrinking and what the end goal is there.

[Analyst]: Just how to think about the part of the book that's shrinking and what the end goal is there.

Speaker #3: Yeah, so obviously we can give you a lot of clarity on where we think the shrink is going to come from because those are high-quality mortgages, principally to doctors and dentists, that roll off. Based on the curve, we can give you great estimates of what we think is going to roll off.

Little harder because a lot of the capital that we raised we actually placed with others, but I can tell you I've mentioned in my comments that our basically our middle market C&I book, our backlog is <unk>, what it was last year.

Chris Gorman: Yeah. Obviously, we can give you a lot of clarity on where we think the shrink is going to come from because those are high-quality mortgages, principally the doctors and dentists that roll off. Based on the curve, we can give you great estimates of what we think is going to roll off. In terms of what we're actually going to put on our balance sheet, because of our underwrite and distribute model, that's a little harder because a lot of the capital that we raise, we actually place with others. I can tell you, I mentioned in my comments that basically, our middle market and C&I book, our backlog is 2x what it was last year. One of the areas, a few areas where I think you're going to see a pickup. In the fourth quarter, we'll basically accelerate our C&I book by about $1 billion.

One of the areas a few areas, where I think youre going to see a pickup in the fourth quarter, but basically.

Speaker #3: In terms of what we're actually going to put on our balance sheet, because of our underwrite and distribute model, that's a little harder because a lot of the capital that we raise, we actually place with others.

Accelerate our C&I book by about one 1 billion and I think you'll see it continue to accelerate from there in 2026, the other areas, where I think we will get some benefit.

Speaker #3: But I can tell you, you know I mentioned in my comments that our basically our middle market and C&I book backlog is 2x what it was last year.

One is transaction CRE right now you can see that CRE is sort of coming into equilibrium.

Speaker #3: One of the areas a few areas where I think you're going to see a pickup. In the fourth quarter, we'll basically accelerate our C&I book by about a billion.

But I think you'll see us actually grow our CRE outstandings in 2026 also.

Speaker #3: And I think you'll see it continue to accelerate from there in 2026. The other areas where I think we'll get some benefit one is transaction CRE right now, you can see that CRE is sort of coming into equilibrium.

Chris Gorman: I think you'll see it continue to accelerate from there in 2026. The other areas where I think we'll get some benefit, one is transaction CRE. Right now, you can see that CRE is sort of coming into equilibrium. I think you'll see us actually grow our CRE outstandings in 2026. Also, Clark mentioned this in his comments. We have not had a lot of middle market M&A activity. We have very large pipelines, but we haven't had a lot coming out of the pipeline in spite of the fact that we had strong investment banking and debt placement fees. It was not driven by M&A. That will help us in 2026. I continue to believe this tax bill is really important. This accelerated depreciation, I think, will bode well for growth. The other thing that obviously we haven't seen, as you look at our numbers, is utilization.

Mark mentioned this in his comments comments, we have not had a lot of middle market M&A activity. We are very large pipelines, but we havent had a lot coming out of the pipeline in spite of the fact that we had a strong investment banking and debt placement fees. It was not driven by M&A that will help us in 2026.

Speaker #3: But I think you'll see us actually grow our CRE outstandings in 2026. Also, Clark mentioned this in his comment, we have not had a lot of middle market M&A activity.

And I continue to believe this this tax bill is really important this accelerated depreciation I think will bode well.

For growth the other thing that obviously, we haven't seen as you look at our numbers is utilization utilization actually ticked down. However, we feel good about that because the reason it ticked down large commitments that we brought on new clients.

Speaker #3: We have very large pipelines, but we haven't had a lot coming out of the pipeline in spite of the fact that we had a strong investment banking and debt placement fees.

Speaker #3: It was not driven by M&A. That will help us in 2026. And I continue to believe this tax bill is really important. This accelerated depreciation I think will bode well for growth.

In our institutional bank, whereas in our middle market, we actually didn't have a lift in utilization does that help you.

Speaker #3: The other thing that obviously we haven't seen as you look at our numbers is utilization. Utilization actually ticked down. However, we feel good about that because the reason it ticked down was large commitments that we brought on with new clients in our institutional bank.

That's awesome detail, it's good to hear the CRE book is starting to flip I guess, one follow up if I could ask yet when I look at mortgage home equity and other consumer call.

Chris Gorman: Utilization actually ticked down. However, we feel good about that because the reason it ticked down was large commitments that we brought on new clients in our institutional bank, whereas in our middle market, we actually did have a lift in utilization. Does that help you?

Call. It 30 billion right now or I guess, 30% of loans any framing you'd give like do you want that to eventually get to 'twenty before it stabilizes 25.

Speaker #3: Whereas in our middle market, we actually did have a lift in utilization. Does that help you?

Speaker #7: That's awesome detail. It's good to hear the CRE book is starting to flip. I guess one follow-up if I could ask it. When I look at mortgage home equity and other consumer you know call it 30 billion right now or I guess 30% of loans.

Any kind of bigger than a bread basket sizing on where.

[Analyst]: That's awesome detail. It's good to hear the CRE book is starting to flip. I guess one follow-up, if I could ask it, when I look at mortgage, home equity, and other consumer, you know, call it $30 billion right now, or I guess 30% of loans. Any framing you'd give? Like, do you want that to eventually get to 20% before it stabilizes? 25%? Any kind of bigger than a breadbasket sizing on where that will land?

Our land.

Yes, we've always said we want to have a balance we need both consumer and we need commercial which means first of all we've got to replace some of the runoff I think a couple of areas, where you will see us replace the runoff that's actually.

Speaker #7: Any framing you'd give? Like, do you want that to eventually get to 20 before it stabilizes, 25? You know, any kind of bigger than a breadbasket sizing on where that will land?

Good for us because most of the yield on those mortgages that are running off for about three 3% or so you'll see us step up in terms of how mortgage.

Speaker #3: Yeah, we've always said we want to have a balance. We need both consumer and we need commercial, which means, first of all, we've got to replace some of the runoff.

Chris Gorman: Yeah, we've always said we want to have a balance. We need both consumer and we need commercial, which means, first of all, we've got to replace some of the runoff. I think a couple of areas where you'll see us replace the runoff, that's actually good for us because most of the yield on those mortgages that are running off are about 3.3% or so. You'll see us step up in terms of home mortgage. We obviously have a whole lot of customers that have a lot of equity in their homes. There's not a lot of houses that are trading. We have that business now. We're investing in some technology to have it be a better client experience. That's one area.

We obviously have a lot of customers that have a lot of equity in their homes. There's not a lot of houses that are trading we have that business now we're investing in some technology to have it be a better client experience. That's one area. The other business, we have that as a really good business, but it's very dependent.

Speaker #3: I think a couple of areas where you'll see us replace the runoff that's actually good for us, because most of the yield on those mortgages that are running off are about 3.3% or so.

<unk> dependent upon both the vintage of student loans and also the curve as our student loan refinance business. We think the curve. We think interest rates have to come down another 100 to 150 basis points for that to really kick in.

Speaker #3: You'll see us step up in terms of home mortgage. We obviously have a whole lot of customers that have a lot of equity in their homes.

Speaker #3: There are not a lot of houses that are trading. We have that business now. We're investing in some technology to have it be a better client experience.

That's great. Thank you so much.

Speaker #3: That's one area. The other business we have that is a really good business, but it's very dependent upon both the vintage of student loans and also the curve, is our student loan refinance business.

Chris Gorman: The other business we have that is a really good business, but it's very dependent upon both the vintage of student loans and also the curve, is our student loan refinance business. We think the curve, we think interest rates have to come down another 100 to 150 basis points for that to really kick in.

Sure.

Thank you. Our next question comes from the line of Ryan Nash with Goldman Sachs. Brian. Your line is now open.

Speaker #3: We think the curve suggests interest rates have to come down another 100 to 150 basis points for that to really kick in.

Hey, Thanks, good morning, everyone.

Hey, Brian Good morning, so.

Chris Christopher Clark.

Chris I think you talked about crawling before you walk on the buyback and I think you highlighted the $100 million <unk> I guess, just given how robust the capital levels or maybe just talk a little bit of how you think about the pacing beyond <unk>.

Speaker #7: That's great. Thank you so much.

[Analyst]: That's great. Thank you so much.

Speaker #3: Sure.

Speaker #1: Thank you. Our next question comes from the line of Ryan Nash with Goldman Sachs. Ryan, your line is now open.

Chris Gorman: Sure.

Operator: Thank you. Our next question comes from the line of Ryan Nash with Goldman Sachs. Ryan, your line is now open.

Speaker #8: Hey, thanks. Good morning, everyone.

[Analyst]: Hey, thanks. Good morning, everyone.

I'm assuming to get to your targets work out and you sound like you have a high degree of confidence in them you probably believe the stock is going to be a lot higher so I guess why not be more aggressive at this point given all the tailwind that you have in front of you.

Speaker #3: Hey, Ryan.

Chris Gorman: Hey, Brian. Good morning.

Speaker #8: Good morning. Chris, Chris, or Clark, you know Chris. I think you talked about, you know, crawling before you walk on the buyback. And I think you highlighted $100 million in Q4.

[Analyst]: Chris or Clark, you know, Chris, I think you talked about crawling before you walk on the buyback, and I think you highlighted $100 million in Q4. I guess just given how robust the capital levels are, maybe just talk a little bit of how you think about the pacing beyond Q4. I'm assuming if your targets work out and you sound like you have a high degree of confidence in them, you probably believe the stock is going to be a lot higher. I guess why not be more aggressive at this point given all the tailwinds that you have in front of you?

Yes totally fair question. This is Clark Ryan.

Speaker #8: I guess just given how robust the capital levels are, maybe just talk a little bit about how you think about the pacing beyond Q4. And I'm assuming, if your targets work out—and you sound like you have a high degree of confidence in them—you probably believe the stock is going to be a lot higher.

Fair question I would say just from a timing standpoint, as we sit here today just a couple.

Just a couple of things to consider one this is really the first time, we have been comfortably above that 10% Mark number and we've sort of talked about running at the higher level amid some level of uncertainty we are getting close to being in our dividend payout target range of 30% to 50%. So this quarter will be.

Speaker #8: So I guess why not be more aggressive at this point given all the tailwinds that you have in front of you?

Speaker #3: Yep. Totally fair questions, Clark and Ryan. Very fair question. I would say just from a timing standpoint, as we sit here today, just a couple of things to consider.

Clark Khayat: Yep. Totally fair questions, Clark, Ryan. Very fair question. I would say just from a timing standpoint, as we sit here today, just a couple of things to consider. One, this is really the first time we've been comfortably above that 10% mark number, and we've sort of talked about running at the higher level amid, you know, some level of uncertainty. We are getting close to being in our dividend payout target range of 30% to 50%. This quarter will be just a hair north of 50%. We want to get that, you know, more squarely in. There is still a little bit of broad uncertainty, although that feels like it is normalizing and stabilizing a little bit more. I think your question's right. The point in highlighting the denominator and the flexibility around that in my walk on ROTCE is exactly that.

Just a hair north of 50, so we want to get that more squarely in.

Speaker #3: One, this is really the first time we've been comfortably above that 10% mark number and we've sort of talked about running at the higher level amid you know some level of uncertainty.

And then there is still a little bit of broad uncertainty, although that feels like it is normalizing and stabilizing a little bit more so I think I think your question's right I think the point in highlighting the denominator and the flexibility around that in my walk on our OTC is exactly that so that is a lever we can pull.

Speaker #3: We are getting close to being in our dividend payout target range of 30% to 50%. So, this quarter will be just a hair north of 50%.

Speaker #3: So we want to get that you know more squarely in. And then you know there is still a little bit of broad uncertainty, although that feels like it is normalizing and stabilizing a little bit more.

<unk> will be a little bit more.

Directive I think in the guidance call for 26 on exactly how much to expect but I think that 100 million for the fourth quarter is likely going to be the low level as we move forward subject.

Speaker #3: So I think I think your question's right. I think the point in highlighting the denominator and the flexibility around that in my walk on ROTC is exactly that.

The normal macro caveat movements.

Speaker #3: So, that is a lever we can pull. We'll be a little bit more directive, I think, in the guidance call for '26 on exactly how much to expect.

Clark Khayat: That is a lever we can pull. We'll be a little bit more directive, I think, in the guidance call for 2026 on exactly how much to expect. I think that $100 million for the fourth quarter is likely going to be the low level as we move forward, subject to, you know, the normal macro caveat movements.

And if I could just thanks for that clock and if I could ask a follow up to Brian's question, maybe to put a.

Final point on it as you think about reaching these targeted levels 15, plus ROTC and $3 25, plus NIM.

Speaker #3: But I think that $100 million for the fourth quarter is likely going to be the low level as we move forward you know subject to you know the normal macro caveat movements.

Do you think we get earning asset growth along the way and what's the right way to think about earning asset growth and related to that would you guys take action to accelerate the runoff of consumer loans. So that you could start to return to net growth. Thanks for taking my questions.

Speaker #4: And if I could just thank you for that, Clark. And if I could ask a follow-up to Brian's question, maybe to put a finer point on it.

[Analyst]: Thank you for that, Clark. If I could ask a follow-up to Brian's question, maybe to put a finer point on it. As you think about reaching these targeted levels, 15% plus ROTCE and 3.25% plus NIM, do you think we get earning asset growth along the way? What's the right way to think about earning asset growth? Related to that, would you guys take action to accelerate the runoff of consumer loans so that you could start to return to net growth? Thank you for taking my question.

So a couple of things obviously that the last part of your question is always an option and we're always looking at all the pieces and parts could take action. There I also mentioned some <unk> and some <unk> that we can take action on in terms of earning assets.

Speaker #4: As you think about reaching these targeted levels, 15 plus Roth C and 325 plus NIM, do you think we get earning asset growth along the way?

Speaker #4: And what's the right way to think about earning asset growth? And related to that, you know would you guys take action to accelerate the runoff of consumer loans so that you could start to return to net growth?

I've always said Youll see us really grow our earning assets when the markets are in a little bit of dislocation because our job is really to serve our clients right. Now we can do a better job of serving our clients basically by by placing paper elsewhere because of our risk appetite vis vis others, you'll see it.

Speaker #4: Thanks for taking my question.

Speaker #3: So, a couple of things. Obviously, the last part of your question is always an option, and we're always looking at all the pieces and parts.

Chris Gorman: A couple of things. Obviously, the last part of your question is always an option, and we're always looking at all the pieces and parts. We could take action there. I also mentioned some CMOs and some CMBS that we could take action on. In terms of earning assets, I've always said you'll see us really grow our earning assets when the markets are in a little bit of dislocation because our job is really to serve our clients. Right now, we can do a better job of serving our clients basically by placing paper elsewhere because of our risk appetite vis-à-vis others. You'll see it grow. I've also said that I think probably the right place for a bank our size going forward in terms of a loan-to-deposit ratio is probably mid-70s, and we're obviously not there right now.

Speaker #3: We could take action there. I also mentioned some CMOs and some CMBS that we could take action on. In terms of earning assets, I've always said you'll see us really grow our earning assets when the markets are in a little bit of dislocation because our job is really to serve our clients.

Grow and I've also said that I think probably the right place for bank our size going forward in terms of our loan to deposit ratio is probably mid seventy's and we're obviously not there right now.

Speaker #3: Right now, we can do a better job of serving our clients basically by placing paper elsewhere because of our risk appetite vis-à-vis others. You'll see it grow.

Thank you.

Thank you.

Speaker #3: And I've also said that I think probably the right place for a bank our size going forward in terms of a loan-to-deposit ratio is probably in the mid-70s, and we're obviously not there right now.

Our next question comes from the line of Erika Najarian with UBS Erica Your line is now open.

Yes, thanks for taking my question.

I just wanted to re ask the question Ebrahim put forth and I'm, sorry to keep beating a dead horse, but the stocks down two 5% clearly, it's not a two 5% down quarter and certainly not a down two 5% outlook given how you walked us through the ROTC.

Speaker #8: Thank you.

[Analyst]: Thank you.

Speaker #1: Thank you. Our next question comes from the line of Erica Najarian with UBS. Erica, your line is now open.

Operator: Thank you. Our next question comes from the line of Erica Najarian with UBS. Erica, your line is now open.

Speaker #9: Yes, thanks for taking my question. I just wanted to reask the question that Ibrahim put forth, and I'm sorry to keep beating a dead horse, but the stock's down 2.5 percent.

[Analyst]: Yes, thanks for taking my question. I just wanted to re-ask the question that Ibrahim put forth. I'm sorry to keep beating a dead horse, but the stock's down 2.5%. Clearly, it's not a 2.5% down quarter and certainly not a down 2.5% outlook given how you walked us through the ROTCE. I guess my question is, you know, Chris, we heard you loud and clear in terms of your priorities for capital. I think the concern, the specific concern that we are hearing from investors is your multiple. Obviously, there was some conjecture out in the market that you were a high bid for First Bank. In that very tight screen that you talked about, how is pricing taken into account? How sensitive would you be in terms of book dilution? You also went through the First Niagara deal, of course. How sensitive are you to book dilution?

I guess my question is Chris we heard you loud and clear in terms of your priorities for capital.

I think the concern and the specific concern that we've been hearing from investors is your multiple.

Speaker #9: Clearly, it's not a two and a half percent down quarter and certainly not a down two and a half percent outlook given how you walked us through the Roth C.

And in that and obviously there were some conjecture out in the market that you were a high bid for first bank, but in that very tight screen that you talked about how it is.

Speaker #9: So I guess my question is, you know Chris, we heard you loud and clear in terms of your priorities for capital. I think the concern, the specific concern that we are hearing from investors is your multiple.

Pricing.

Taking into account how sensitive would you be.

In terms of book dilution you also went through the first Niagara deal of course, how sensitive are used to book dilution and maybe walk us through very plainly the opportunity to buy your bank at 137 times tangible book first is using that as currency given seller.

Speaker #9: And you know, in that very obvious context, there were some conjectures out in the market that you were a high bid for First Bank.

Speaker #9: But in that very tight screen that you talked about, how is pricing taken into account? How sensitive would you be in terms of book dilution?

Spectation.

Yes.

I think we've been pretty clear on this the real focus Eric for US is to get our return on tangible common equity.

Speaker #9: You know, you also went through the First Niagara deal, of course. How sensitive are you to book dilution? And maybe walk us through very plainly the opportunity to buy your bank at 1.37 times tangible book versus using that as currency given seller expectations.

[Analyst]: Maybe walk us through very plainly the opportunity to buy your bank at 1.37 times tangible book versus using that as currency given seller expectations.

First up to 15, and then beyond that and we also when you mentioned buying our bank, we mentioned that we're going to buy a $100 million of our stock in this quarter. So thats.

That's exactly what we're doing.

Speaker #3: Yeah, well, I think we've been pretty clear on this. The real focus, Erica, for us is to get our return on tangible common equity first up to 15% and then beyond it.

Chris Gorman: Yeah, I think we've been pretty clear on this. The real focus, Erica, for us is to get our return on tangible common equity, first up to 15% and then beyond it. When you mentioned buying our bank, we mentioned that we're going to buy $100 million of our stock in this quarter. That's exactly what we're doing. You can rest assured we are, I am personally sensitive to tangible book value dilution. I was here when we announced the First Niagara deal, and I understand the extreme sensitivity on behalf of many investors with respect to tangible book value dilution. I think I've been pretty clear. Our focus from a strategic perspective is to drive our return on tangible common equity.

And you can rest assured we are.

Personally sensitive to tangible book value dilution I was here when we announced the first Niagara deal.

Speaker #3: And we also, when you mentioned buying our bank, we mentioned that we're going to buy $100 million of our stock in this quarter. So that's exactly what we're doing.

<unk>.

Understand the extreme sensitivity on behalf of many investors with respect to tangible book value dilution, but.

Sure.

I think I've been pretty clear our focus from a strategic perspective is to drive our return on tangible common equity.

Speaker #3: And you know, you can rest assured we are, I am personally sensitive to tangible book value dilution. I was here when we announced the First Niagara deal, and I understand the extreme sensitivity on behalf of many investors with respect to tangible book value dilution.

That's that's helpful. Chris Thank you and just as a follow up question to Clark.

Thinking about the potential for further balance sheet restructuring what conditions would you be looking for in terms of the rate backdrop or if any other preconditions.

Speaker #3: But I think I've been pretty clear. Our focus, from a strategic perspective, is to drive our return on tangible common equity.

When thinking about that decision tree.

Yes. Thanks for the question Erika So I mean, probably not different than what we've said, which is our first goal is to really support clients I think realistically.

Speaker #1: That's that's helpful, Chris. Thank you. And just as a follow-up question to Clark, you know as you think about the potential for you know further balance sheet restructuring, what conditions would you be looking for in terms of the rate backdrop or if any other preconditions when thinking about that decision tree?

[Analyst]: That's helpful, Chris. Thank you. Just as a follow-up question to Clark, as you think about the potential for further balance sheet restructuring, what conditions would you be looking for in terms of the rate backdrop or if any other preconditions when thinking about that decision tree?

Given the amount of capital we have over time, and it's going to be hard to deploy all of that and.

Further incentive.

Organic client growth. So we will look at the right opportunistic moment potentially to either use capital for share repurchase or to do whether it's the CMO or the mortgage loans.

Speaker #3: Yeah, thanks for the question, Erica. So I mean, probably not different than what we've said, which is our first goal is to really support clients.

Clark Khayat: Yeah, thanks for the question, Erica. I mean, probably not different than what we've said, which is our first goal is to really support clients. I think realistically, given the amount of capital we have over time, it's going to be hard to deploy all of that in further rents of organic client growth. We will look at the right opportunistic moments potentially to either use capital for share repurchase or to do, whether it's the CMOs or the mortgage loans, think about how to monetize those differently. It's not, again, it's not something we've spent an enormous amount of time to this point, just given where our ratios were and our desire to get to the top end of that range and to get our earnings back to our dividend payout ratio.

Speaker #3: I think realistically, given the amount of capital we have over time, it's going to be hard to deploy all of that in furtherance of organic client growth.

Think about how to monetize those differently.

But I mean, it's not again, it's not something we've spent an enormous amount of time at this point, just given where our ratios were in our desire to get to the top end of that range and to get our earnings back to our dividend payout ratio, but I think now that we're sort of getting to that area, you'll see us.

Speaker #3: So we will look at you know the right opportunistic moments potentially to either use capital for share repurchase or to do whether it's the CMOs or the mortgage loans you know think about how to monetize those differently.

Well you won't see US you should know we will be working harder on thinking through the scenarios and just understanding.

Speaker #3: But I mean, it's not again, it's not something we've spent an enormous amount of time to this point just given where our ratios were and our desire to get, you know, to the top end of that range.

What are opportunities, where our best opportunities are to deploy that capital I do think it all assumes.

Good constructive macro environment, because obviously if that changes we would have a different view on capital use.

Speaker #3: And to get our earnings back to our dividend payout ratio. But I think now that we're sort of getting to that area, you'll see us... well, you won't see us.

Clark Khayat: I think now that we're sort of getting to that area, you should know we will be working harder on thinking through these scenarios and just understanding what our opportunities, what our best opportunities are to deploy that capital. I do think it all assumes a good constructive macro environment because obviously if that changes, we would have a different view on capital use.

And just really quick follow up you mentioned the upgrade by Fitch and a positive outlook from Moody's does that.

Speaker #3: You should know we will be working harder on thinking through these scenarios and just understanding, you know, what our opportunities are and what our best opportunities are to deploy that capital.

Have any impact in terms of how free you feel about making decisions on capital distribution or balance sheet restructuring going forward.

Speaker #3: I do think it all assumes you know good constructive macro environment because obviously if that changes, we would have a different view on capital use.

Yes, I think I mean.

One thing I'd say is we have done a lot of work as you know well to reposition the balance sheet and to engage with a variety of constituents, including the rating agencies. So they understand what we're doing why we're doing it and what our intentions are so to the extent we wanted to go down that path, we would probably.

Speaker #9: And just really quick follow-up, you mentioned the upgrade by Fitch and the positive outlook from Moody's. Does that have any impact in terms of how free you feel about making decisions on capital distribution or you know balance sheet restructuring going forward?

[Analyst]: Just really quick follow-up, you mentioned the upgrade by Fitch and the positive outlook from Moody’s. Does that have any impact in terms of how free you feel about making decisions on capital distribution or, you know, balance sheet restructuring going forward?

We've probably spent some time with them to make sure that we fully understand their reaction to those things because.

Speaker #3: Yeah, I think I mean, one thing I'd say is we have done a lot of work, as you know well, to reposition the balance sheet and to engage with a variety of constituents, including the rating agency.

Clark Khayat: I think one thing I'd say is we have done a lot of work, as you know well, to reposition the balance sheet and to engage with a variety of constituents, including the rating agency, so they understand what we're doing, why we're doing it, and what our intentions are. To the extent we wanted to go down that path, we would probably spend some time with them to make sure that we fully understand their reaction to those things because getting the rating is a lot of work. Keeping the rating is a lot of work, and that's very important to us. I don't know that that would be the driver of the decision, but it's certainly an important input.

Getting the rating is a lot of work keeping the rating is a lot of work and that's very important to us. So.

I don't know that that would be.

Speaker #3: So they understand what we're doing, why we're doing it, and what our intentions are. To the extent we wanted to go down that path, we would probably spend some time with them to make sure that we fully understand their reaction to those things because, you know, getting the rating is a lot of work.

Driver of the decision, but it's certainly an important input one of the things that it does the upgrade does for us Erika as it enables us to bid on some conduit deals that tend to bring pretty significant escrow balances that otherwise, we would not able to bid on.

That's in our commercial real estate.

Speaker #3: Keeping the rating is a lot of work and that's very important to us. So I don't know that that would be the driver of the decision, but it's certainly an important input.

Yes.

Perfect. Thank you for the extra question and thank you.

Sure.

Speaker #3: One of the things that it does the upgrade does for us, Erica, is it enables us to bid on some conduit deals that tend to bring pretty significant escrow balances that otherwise we were not able to bid on.

Thank you.

Chris Gorman: One of the things that it does, the upgrade does for us, Erica, is it enables us to bid on some conduit deals that tend to bring pretty significant escrow balances that otherwise we were not able to bid on.

Question comes from the line of John <unk> with Evercore, John Your line is now open.

Good morning.

Good morning.

Speaker #3: That's in our commercial real estate servicing book.

Clark Khayat: That's in our commercial real estate servicing book.

Just on the expenses.

Speaker #4: Yep.

[Analyst]: Yep.

On the expense side, particularly well contained this quarter.

Speaker #1: Thank you for the extra question, and thank you.

Operator: Thank you for the extra question, and thank you.

Youre running around a 62% kind of sufficiency ratio now.

Speaker #3: Sure.

Clark Khayat: Sure.

Speaker #1: Thank you. Our next question comes from the line of John Pancari with Evercore. John, your line is now open.

Operator: Thank you. Our next question comes from the line of John Panchari with Evercore. John, your line is now open.

This year youre going to put up.

Pretty solid positive operating leverage given the revenue dynamic in the structural benefit to the margin.

Speaker #8: Good Good morning.

Clark Khayat: Morning.

As you look into 2026 and the way the investments Youre, making I mean, how should we think about a reasonable level of operating leverage as you look at the year end.

Speaker #3: Good morning.

Chris Gorman: Morning.

Speaker #5: Just on the expense side, particularly well-contained this quarter, and you're running around a 62% cash efficiency ratio now. This year, you're going to put up pretty solid positive operating leverage given the revenue dynamic and the structural benefit to the margin.

Clark Khayat: Just on the expense side, particularly well-contained this quarter, and you're running around a 62% cash efficiency ratio now. This year, you're going to put up pretty solid positive operating leverage given the revenue dynamic and the structural benefit to the margin. As you look into 2026 and you weigh the investments you're making, I mean, what is, how should we think about a reasonable level of operating leverage as you look at the year? You know, related to that, what efficiency ratio is baked into your medium-term 15% ROTCE target? Yeah. So look, we've guided to being, you know, kind of 4% this year. I think in the medium to longer term, I would expect to be, you know, probably in the 2 to 3% range.

Related to that what efficiency ratio was baked into your medium term, 15% ROTC target.

Yes so.

Speaker #5: As you look into 2026 and you weigh the investments you're making, I mean, what is how should we think about a reasonable level of operating leverage as you look at the year end?

Look what we've guided to being kind of 4% this year.

I think in the.

Medium to longer term I would expect to be.

Speaker #5: You know what you know related to that, what efficiency ratio is baked into your medium-term 15% Roth C target?

Probably in the 2% to 3% range.

We'll guide you. This in January maybe a little bit higher next year still.

But not.

Speaker #3: Yeah, so look, we’ve guided to being, you know, kind of 4% this year. I think in the medium to longer term, I would expect to be, you know, probably in the 2% to 3% range.

<unk>, but we expect to.

Fully deliver positive operating leverage.

Every year I don't know.

We've targeted exactly what that amount will be this year.

Promised fee based operating leverage of 100 basis points, we feel confident we can deliver that or in excess of that so we will come back to you with expectations as we move forward but.

Speaker #3: We may be, you know, we'll guide you to this. In January, maybe a little bit higher next year still. But, you know, not appreciably, but we expect to, you know, fully deliver positive operating leverage every year.

Clark Khayat: We may be, you know, we'll guide you to this in January, maybe a little bit higher next year still, but you know, not appreciably. We expect to, you know, fully deliver positive operating leverage every year. I don't know that we've targeted exactly what that amount will be. This year, we had, you know, we promised fee-based operating leverage of 100 basis points. We feel confident we can deliver that or in excess of that. You know, we'll come back to you with expectations as we move forward. Obviously, the most valuable thing to driving your efficiency ratio down is more NII, given that shows up with a zero efficiency ratio. As we continue to do that and drive towards NIMs, you know, north of 3, then I think you will see that efficiency ratio to, you know, continue to come down over time.

Obviously, the most valuable thing to driving your efficiency ratio down is more NII given that shows up with a zero efficiency ratio as we continue to do that and drive towards Nims.

Speaker #3: I don't know that we've targeted exactly what that amount will be. This year, we had you know we promised fee-based operating leverage of 100 basis points.

Speaker #3: We feel confident we can deliver that or an excess of that. So, you know, we'll come back to you with expectations as we move forward.

North of three.

I think you will see that efficiency ratio.

You need to come down over time.

Speaker #3: But you know obviously the most valuable thing to driving your efficiency ratio down is more NII given that shows up with a zero efficiency ratio.

We haven't set again, another target on that but it would get closer and closer I think to the broad peer group.

I will tell you we don't spend an enormous amount of time talking specifically about the efficiency ratio here, we're really trying to drive.

Speaker #3: As we continue to do that and drive towards NIMs, you know, north of 3, then I think you will see that efficiency ratio continue to come down over time.

Good organic growth against our strategic objectives here and get the our OTC up and frankly the fee based businesses are always going to carry a little bit higher efficiency ratios. So we may run above the peer group over time, and I think we're comfortable with that given the mix of business.

Speaker #3: We haven't set again another target on that, but it would get closer and closer, I think, to the broad peer group. I will tell you we don't spend an enormous amount of time talking specifically about the efficiency ratio here.

Clark Khayat: We haven't set, again, another target on that, but it would get closer and closer, I think, to the broad peer group. I will tell you, we don't spend an enormous amount of time talking specifically about the efficiency ratio here. We're really trying to drive good organic growth against our strategic objectives here and get the ROTCE up. Frankly, the fee-based businesses are always going to carry a little bit higher efficiency ratios. We may run above the peer group over time, and I think we're comfortable with that given the mix of business.

Okay. Thank you for that.

On the.

Speaker #3: We're really trying to drive good organic growth against our strategic objectives here and get the ROTCE up. And frankly, the fee-based businesses are always going to carry a little bit higher efficiency ratios.

On that 2026 margin and your expectation for about $3 25, plus medium term margin.

When it comes to the rate backdrop.

Speaker #3: So, we may run above the peer group over time. And I think we're comfortable with that, given the mix of business.

I appreciate your color you gave them some forward curve youre, assuming in the steeper curve will be better in the fifties ballpark beta.

Speaker #8: Okay, Clark. Thank you for that. And then on the you know on that 2026 margin and your expectation for about a 325 plus medium-term margin, you know when it comes to the rate backdrop, I you know I appreciate your color you gave that it's the forward curve.

Chris Gorman: Okay, Clark, thank you for that. On that 2026 margin and your expectation for about a 3.25% plus medium-term margin, when it comes to the rate backdrop, I appreciate your color you gave that it's the forward curve. You're assuming a steeper curve will be better and a 50% ballpark beta. Is there any other way you could help us with sensitivity around the level of fed funds and the level of the 10-year to help provide the guardrails around those expectations? We've seen a number of banks that have put out their targets here and clearly in the volatile rate environment, they're kind of easily shifting, easily getting shifted off their targets. What can you give us to give us confidence on that front?

Is there any other way you could help us with sensitivity around the level of fed funds and a level of the 10 year to help provide the guardrails around those expectations I mean, we've seen.

A number of banks put out their targets here and then clearly in the volatile rate environment kind of easily shifted easily getting shifted off their targets and.

Speaker #8: You're assuming that a steeper curve will be better and a 50s ballpark beta. Is there any other way you could help us with sensitivity around the level of Fed Funds and a level of the 10-year to help provide the guardrails around those expectations?

What can you give us to give us confidence on that front.

Yeah Fair question, So one I would say.

We've been trying to drive to a relatively neutral rate position and I think we have.

Speaker #8: I mean, we've seen a number of banks that have put out their targets here, and clearly in the ballpark of the rate environment, they're kind of easily shifting, easily getting shifted off their targets.

To your question, if you unpack that and you think about the short term sensitivity in the mid term sensitivity and just candidly. We generally are focused a little bit more on the five year than the 10 year, just because of our investment portfolio duration is really more driven by the five year.

Speaker #8: And you know what? Can you give us something to boost our confidence on that front?

Speaker #3: Yeah, fair question. So one, I would say, you know we've been trying to drive to a relatively neutral rate position. And I think we have.

Clark Khayat: Yeah, fair question. One, I would say we've been trying to drive to a relatively neutral rate position, and I think we have. To your question, if you unpack that and you think about the short-term sensitivity and the midterm sensitivity, and just candidly, we generally are focused a little bit more on the 5-year than the 10-year just because our investment portfolio duration is really more driven by the 5-year. We would view the short-term beta or the short-term rate sensitivity really around betas in the low 40s. Given our swap position currently, given the floating rate nature of the book, which is obviously natural asset sensitivity, and given the deposit book, we would view anything kind of at low 40s to be pretty neutral to rate cuts and anything above that to be beneficial.

We would view the short term data for the short term rate sensitivity really around betas in the low 40, so given our swap position currently given the floating rate nature of the book, which is obviously natural asset sensitivity and give us the deposit book.

Speaker #3: To your question, if you unpack that and think about the short-term sensitivity and the mid-term sensitivity—and just candidly, we generally are focused a little bit more on the five-year than the 10-year—just because our investment portfolio duration is really more driven by the five-year.

Would view anything kind of at low forties to be pretty neutral to rate cuts and anything above that to be beneficial. So it's really about.

Speaker #3: We would view the short-term beta or the short-term rate sensitivity really around betas in the low 40s. So, given our swap position currently, given the floating rate nature of the book, which is obviously natural asset sensitivity, and given the deposit book, we would view anything kind of at low 40s to be pretty neutral to rate cuts.

Getting into the various deposit portfolios remaining managing those as effectively as we can.

We had 55 data on the cuts to date I don't think we expect that on these incremental in fact, we expect the incremental this year to be closer to that low 40 to kind of neutralize it but.

That remains to be seen.

Speaker #3: And anything above that to be beneficial. So it's really about, you know, getting into the various deposit portfolios and managing those as effectively as we can.

And then the longer term.

Clark Khayat: It's really about getting into the various deposit portfolios and managing those as effectively as we can. We have 55% beta on the cuts to date. I don't think we expect that on the incremental. In fact, we expect the incremental this year to be closer to that low 40% to kind of neutralize it, but that remains to be seen. The longer term, that 5-year rate is really about reinvestments in the portfolio, which we have a fair amount of that every quarter. That's not the type of thing that I think really impacts, say, fourth quarter of 2025. As you go out through 2026 and 2027, consistently lower reinvestment rates, i.e., a flatter curve, would impact some of the returns on that over time.

That five year rate is really about reinvestments in the portfolio of which we have a fair amount of that every quarter. So that's not the type of thing that I think really impacts say fourth quarter of 'twenty five but as you go out through 'twenty six 'twenty seven consistently lower reinvestment rates are a flatter curve.

Speaker #3: As you know, we have 55 basis points on the cuts to date. I don't think we expect that on the incremental. In fact, we expect the incremental this year to be closer to the low 40s to kind of neutralize it.

Speaker #3: But you know that remains to be seen. And then the longer term, you know that the five-year rate is really about reinvestments in the portfolio, which we have a fair amount of every quarter.

Would impact some of the returns on that over time. So the forward curve, which is generally demonstrating some steepness gives us I think the benefit on that front and as well as some additional reinvestment juice.

Speaker #3: So that's not the type of thing that I think really impacts, say, fourth quarter of '25. But as you go out through '26 and '27, consistently lower reinvestment rates, i.e., a flatter curve, would impact some of the returns on that over time.

I think we have some ability to manage the flattening curve to a degree but it really will depend on how severe.

The differences are from what the current forward looks like.

Got it okay. Thanks for that color very helpful.

Speaker #3: So the forward curve, which is generally demonstrating some steepness, gives us, I think, the benefit on that front end, as well as some additional reinvestment juice.

Clark Khayat: The forward curve, which is generally demonstrating some steepness, gives us, I think, the benefit on that front end as well as some additional reinvestment juice. I think we have some ability to manage the flattening curve to a degree, but it really will depend on how severe the differences are from what the current forward looks like.

Sure.

Thank you. Our next question comes from the line of Ken <unk> with Bernstein Society Generale.

Speaker #3: I think we have some ability to manage the flattening curve to a degree, but it really will depend on how severe the differences are from what the current forward looks like.

Ken Your line is now open.

Good morning, guys good morning.

Want to ask a quick question, thanks, and good morning.

I know you talked about betas before but I just wanted to ask you a little bit about deposit growth.

Speaker #8: Got it. Okay, Clark. Thanks for that color. Very helpful.

Chris Gorman: Got it. Okay, Clark, thanks for that color. Very helpful.

<unk> to be driven it looks like in the commercial segment.

Speaker #3: Sure.

Clark Khayat: Sure.

Our retail segment to feel a little bit down so I'm just wondering like how.

How you are managing to future deposit growth because obviously the commercial comes in with a little.

Speaker #1: Thank you. Our next question comes from the line of Ken Estes with Bernstein Societé. General Group, Ken, your line is now open.

Operator: Thank you. Our next question comes from the line of Ken Estes with Bernstein Societe Generale Group. Ken, your line is now open.

With a higher cost in your in your in your mix relative to.

How are you.

I guess I'm, just trying to get at Mike how that informs like the NIM trajectory in terms of where you expect deposit growth to come from going forward. Thank you.

Speaker #8: Hi guys. Good morning.

[Analyst]: Hi, guys. Good morning.

Speaker #3: Good morning, Ken.

Clark Khayat: Good morning, Ken.

Speaker #8: I just want to ask a quick question. Thanks. Good morning. I know you talked about betas before, but I just want to ask you a little bit about deposit growth.

[Analyst]: I just want to ask a quick question. Thanks. Good morning. I know you talked about betas before, but I just want to ask you a little bit about deposit growth. It continues to be driven, it looks like, in the commercial segment. The retail segment is still a little bit down. Just wondering how you're managing to future deposit growth because obviously the commercial comes in with a higher cost in your mix relative to how you, I guess I'm just trying to get at how that informs the NIM trajectory in terms of where you expect deposit growth to come from going forward. Thank you.

Yes, yes. Good question, so maybe like just a little.

Speaker #8: It continues to be driven. It looks like in the commercial segment, the retail segment is still a little bit down. So just wondering like how how you how you're how you're managing to you know future deposit growth because obviously the commercial comes in with a little with a higher cost in your in your in your mix relative to you know how you I guess I'm just trying to get at like how that informs like the NIM trajectory in terms of where you expect deposit growth to come from going forward.

Trip through history, when we left the second quarter, we had shared that we let a fair bit of commercial deposits leave in the quarter excess deposits because of rate competition. We thought we would get those back we have and that is for two reasons. One would be there is just more rational competition.

I think others backed off kind of high at fed funds or higher level payment on commercial deposits. So given that those are more.

Speaker #8: Thank you.

Speaker #3: Yep. Yeah. Yep. Good question. So maybe like just a little trip through history. When we left the second quarter, we had shared that we let a fair bit of commercial deposits leave in the quarter—excess deposits.

Clark Khayat: Yep. Yeah. Yep. Good question. Maybe, like, just a little trip through history. When we left the second quarter, we had shared that we let a fair bit of commercial deposits leave in the quarter, excess deposits because of rate competition. We thought we would get those back. We have. That is for two reasons. One would be there is just more rational competition. I think others backed off kind of high at-fed funds or higher level payment on commercial deposits. Given that those are, you know, more attractive rates, we brought some of those deposits back. We've had good C&I loan growth, and that's driven new to Key deposit growth on the commercial side. You know, feel very good about that, and that is kind of in line with what we expected. Overall, commercial rates, despite the growth, came down a basis point, the overall rate.

Attractive rates, we brought some of those deposits back and then we've had good C&I loan growth and that's driven new to key deposit growth on the commercial side. So.

Feel very good about that and that is kind of in line with what we expected overall commercial rates. Despite the growth came down a basis point, the overall rate and Thats a combination of.

Speaker #3: Because of rate competition, we thought we would get those back. We have. And that is for two reasons. One would be there is just more rational competition.

Solid pricing as expected, but also increase in noninterest bearing in that commercial book as well.

Speaker #3: I think others backed off kind of high at Fed funds or higher level payment on commercial deposits. So given that those are you know more attractive rates, we brought some of those deposits back.

Reflection of both our commercial servicing business escrowed as well as those new to key clients that are bringing operating accounts with them. So I think that's a very good mix. We also saw consumer come down a few basis points.

Speaker #3: And then we've had good CNI loan growth, and that's driven new-to-key deposit growth on the commercial side. So, you know, I feel very good about that.

And that's really that sort of static overall balance is really underneath a mix out of Cds into MDA. So.

Speaker #3: And that has kind of been in line with what we expected. Overall, commercial rates, despite the growth, came down a basis point. The overall rate is a combination of solid pricing, as expected, but also an increase in non-interest bearing in that commercial book as well.

Clark Khayat: That's a combination of, you know, solid pricing as expected, but also an increase in non-interest bearing in that commercial book as well. That's a reflection of both our commercial servicing business escrows as well as those new to Key clients that are bringing operating accounts with them. I think that's a very good mix. We also saw consumer come down a few basis points. That's really that sort of static overall balance is really underneath a mix out of CDs into MMDAs. We have purposely not been aggressive on CD rates relative to competition. We've had, frankly, still pretty decent retention on those CDs, but we're seeing a lot more of that going to MMDAs, which we're very comfortable with, and we're getting, you know, better rates on those, obviously. We're seeing kind of static balances, but better mix from our standpoint.

We have purposely not been aggressive on CD rates relative to competition, we've had frankly still.

Speaker #3: And that's a reflection of both our commercial servicing business escrows as well as those new to key clients that are bringing operating accounts with them.

Pretty decent retention on the Cds, but we're seeing a lot more of that go into Mbas, which we're very comfortable with.

We're getting better rates on those obviously, so we're seeing kind of static balances, but better mix from our standpoint.

Speaker #3: So, I think that's a very good mix. We also saw consumer come down a few basis points. And that really, that sort of static overall balance, is really underneath a mix out of CDs into MMDA.

And Thats, what we would expect to see as we go forward in a down rate environment and I think that's just kind of a natural client behavior as well.

And then obviously in any particular quarter.

Speaker #3: So we have purposely not been aggressive on CD rates. Relative to competition, we've had frankly still pretty decent retention on those CDs, but we're seeing a lot more of that going to MMDAs.

You see more opportunity to raise commercial deposits because they come in chunky or bunches I think over the timeframe that we've been talking about which is late 'twenty seven.

You need to see some opportunity to grow our consumer client base, whether it's just net household growth whether it's the mass affluent where we've seen $3 billion of deposits come in over the last two years right. So I think there is definite avenues over the timeframe were talking about where our consumer business can continue to deliver really strong.

Speaker #3: Which we're very comfortable with. And we're getting you know better rates on those obviously. So we're seeing kind of static balances but better mix from our standpoint.

Speaker #3: And that's what we would expect to see as we go forward in a down rate environment. I think that's just kind of the natural client behavior as well.

Clark Khayat: That's what we would expect to see as we go forward in a down-rate environment. I think that's just kind of the natural client behavior as well. Obviously, in any particular quarter, you see more opportunity to raise commercial deposits because they come in chunkier bunches. I think over the timeframe that we've been talking about, which is late 2027, you continue to see some opportunity to grow our consumer client base, whether it's just net household growth, whether it's the mass affluent where we've seen, you know, $3 billion of deposits come in over the last two years, right? I think there's definite avenues over the timeframe we're talking about where our consumer business can continue to deliver really strong and high-quality deposit growth.

Speaker #3: And then obviously in any particular quarter, you see more opportunity to raise commercial deposits because they come in chunkier bunches. I think over the timeframe that we've been talking about, which is late '27, you continue to see some opportunity to grow our consumer client base, whether it's just net household growth, whether it's the mass affluent where we've seen you know $3 billion of deposits come in over the last two years, right?

<unk> and high quality deposit growth.

Great color, thanks for that and.

One follow up.

The bank continues to do well in.

It seems like it's on track for.

Improved fourth quarter I just wanted to just ask you to just talk about the environment at any broadening youre seeing in terms of the various businesses in terms of the environment that we're that we're in where it seems to be.

Proving backdrop, along the way.

Speaker #3: So I think there are definite avenues over the timeframe we're talking about where our consumer business can continue to deliver really strong and high-quality deposit growth.

Yes, Ken it's Chris I think.

We're seeing improvement as Theres, obviously been a lot of transaction announcements, but it's really been larger deals. We're obviously a middle market bank there hasnt been a whole lot of M&A volume within the middle market and we really see that picking up so thats an area thats picking up.

Speaker #8: Great color. Thanks for that. And one follow-up: you know, the investment bank continues to do well, and it seems like it's on track for an improved fourth quarter.

[Analyst]: Great color. Thanks for that. One follow-up, the investment bank continues to do well and seems like it's on track for an improved fourth quarter. I just wanted to ask you to talk about the environment and any broadening you're seeing in terms of the various businesses, in terms of the environment that we're in, where it seems to be an improving backdrop along the way.

Speaker #8: I just wanted to just ask you to just talk about the environment. Did any broadening you're seeing in terms of the various businesses in terms of the environment that we're that we're in where it seems to be a you know an improving backdrop along the way?

As everybody knows the private equity firms have not been exiting.

Much at all over the last three years.

The inverse relationship between return on capital and holding period is real and so I think thats going to be a significant step up our our goal of that business is to get it to a $1.

Speaker #3: Yeah, Ken, it's Chris. I think where we're seeing improvement is there's obviously been a lot of transaction announcements, but it's really been larger deals.

Chris Gorman: Yeah, Ken, it's Chris. I think where we're seeing improvement is there's obviously been a lot of transaction announcements, but it's really been larger deals. We're obviously a middle market bank. There hasn't been a whole lot of M&A volume within the middle market, and we really see that picking up. That's an area that's picking up. As everybody knows, the private equity firms have not been exiting much at all over the last three years. The inverse relationship between return on capital and holding period is real. I think that's going to be a significant step up. Our goal in that business is to get it to $1 billion in revenue. In 2021, we were $940 million or some such number, but that was obviously an outlier of a year.

Speaker #3: We're obviously a middle market bank. There hasn't been a whole lot of M&A volume within the middle market. And we really see that picking up.

<unk> and revenue.

2021, we were 940 or some such number but that was obviously an outlier over year, but I think with all the hiring we've done in what I think is a pretty strong pipeline im looking forward to what that business can do over the next few years.

Speaker #3: So that's an area that's picking up. And as everybody knows, the private equity firms have not been exiting much at all over the last three years.

Speaker #3: And you know the inverse relationship between return on capital and holding period is real. And so I think that's going to be a significant step up.

And Emily.

Mike just to add one other maybe one other quick comment to the deposit point.

Speaker #3: Our our goal in that business is to get it to a billion dollars in revenue in 2021. We were 940 or some such number, but that was obviously an outlier every year.

As much as I know the world loves loan growth this remixing opportunity.

Real benefit of that other than the pickup in yield is the reduced.

Demand on new deposit balances. So we can be a little bit more discerning on which ones were taken at which price I think that's valuable as well.

Speaker #3: But I think with all the hiring we've done and what I think is a pretty strong pipeline, I'm looking forward to what that business can do over the next few years.

Chris Gorman: I think with all the hiring we've done and what I think is a pretty strong pipeline, I'm looking forward to what that business can do over the next few years.

Long as we're in this position.

And I just think thats.

That's something that.

That we're seeing the benefit and then the second piece is we have continued to carry more cash than we intended to that's a function of again strong deposit growth in the corner and I think you will see us bring that down over time, that's not going to have a lot of NII impact, but it will help the NIM.

Speaker #8: Great. Thanks for that.

[Analyst]: Great. Thanks, Larry.

Speaker #3: Emily, I

Speaker #3: might just add one other maybe one other quick comment to the deposit point. As much as I know the world loves loan growth, this remixing opportunity the real benefit of that other than the pickup in yield is the reduced demand on new deposit balances.

Clark Khayat: I might just add one other, maybe one other quick comment to the deposit point. As much as I know the world loves loan growth, this remixing opportunity, the real benefit of that, other than the pickup in yield, is the reduced demand on new deposit balances. We can be a little bit more discerning on which ones we take and at which price. I think that's valuable as long as we're in this position. I just think that's something that we're seeing the benefit of. The second piece is we have continued to carry more cash than we intended to. That's a function of, again, strong deposit growth in the quarter. I think you will see us bring that down over time. That's not going to have a lot of NII impact, but it will help the NIM.

Speaker #3: So we can be a little bit more discerning on which ones we take and at which price. I think that's valuable as long as we're in this position.

Great. Thanks again Mark.

Yes.

Thank you. Our next question comes from the line of Scott <unk> with Piper Sandler.

Speaker #3: And I just think that's a you know that's something that that we're seeing the benefit of. And then the second piece is we have continued to carry more cash than we intended to.

Your line is now open.

Thank you good morning, guys. Thanks for taking my question.

Speaker #3: That's a function of, again, strong deposit growth in the quarter. I think you will see us bring that down over time. That's not going to have a lot of NII impact, but it will help the NIM.

So pace. So Chris you guys have kind of leaned into hiring and investments you certainly had the revenue wherewithal to do so what stage would you say you are at in terms of some of the hiring you've done and those investments more broadly I guess im sort of wondering if we've now seen most of the related expense lift.

Speaker #8: Great. Thanks, again, Clark.

[Analyst]: Great. Thanks again, Clark.

Speaker #3: Yep.

Clark Khayat: Yep.

When we think about expense growth from here or were things like magnitude of fee based positive operating leverage in <unk> I know you touched on operating leverage a bit a couple of questions ago, but just how are you thinking about that stuff more broadly.

Speaker #1: Thank you. Our next question comes from the line of Scott Seivers with Piper Sandler. Scott, your line is now open.

Operator: Thank you. Our next question comes from the line of Scott Siefers with Piper Sandler. Scott, your line is now open.

Speaker #8: Thank you. Morning, guys. Thanks for taking the question.

[Analyst]: Thank you. Morning, guys. Thanks for taking the question.

Speaker #3: Good morning, Scott.

Chris Gorman: Good morning, Scott.

Speaker #8: So, hey, Chris. You guys have kind of leaned into hiring and investments, and you've certainly had the revenue wherewithal to do so. What stage would you say you're at in terms of some of the hiring you've done and those investments more broadly?

[Analyst]: Chris, you guys have kind of leaned into hiring and investments, and you certainly had the revenue wherewithal to do so. What stage would you say you're at in terms of some of the hiring you've done and those investments more broadly? I guess I'm sort of wondering if we've now seen most of the related expense lift come when we think about expense growth from here or things like, you know, magnitude of fee-based positive operating leverage. Clark, I know you touched on operating leverage a bit a couple of questions ago, but just how are you thinking about that stuff more broadly?

Sure. So our goal again was was to grow by 10% the folks in our wealth business specifically focusing.

On mass affluent we are.

Basically there on that one.

Speaker #8: I guess I'm sort of wondering if we've now seen most of the related expense lift, kind of when we think about expense growth from here, or things like, you know, magnitude of fee-based positive operating leverage.

As you look at our middle market, we've made huge progress we're more than halfway there as you look at our institutional bank.

We're pretty far along there as well so what youre going to see is over the next period of time, the actual upfront expense will start to wane. The important piece is although we've been fortunate as I mentioned in my prepared remarks, we've been fortunate that some of these folks have hit the ground running a lot faster than we thought.

Speaker #8: And Clark, I know you touched on operating leverage a bit a couple of questions ago, but just how are you thinking about that stuff more broadly?

Speaker #3: Sure. So our goal, again, was to grow by 10%. The folks in our wealth business, specifically focusing on mass affluent, we are basically there on that one.

Chris Gorman: Sure. Our goal, again, was to grow by 10%. The folks in our wealth business specifically focusing on mass affluent. We are basically there on that one. As you look at our middle market, we've made huge progress. We're more than halfway there. As you look at our institutional bank, we're pretty far along there as well. What you're going to see is over the next period of time, the actual upfront expense will start to wane. The important piece is, although we've been fortunate, as I mentioned in my prepared remarks, we've been fortunate that some of these folks have hit the ground running a lot faster than we thought they would. For example, we hired a group out of Chicago and a group out of Los Angeles who's been particularly productive in our middle market.

They would for example, we hired a group out of Chicago and a group out of Los Angeles has been particularly productive in our middle market, We would expect Scott that there'd be basic.

Speaker #3: As you look at our middle market, we've made huge progress. We're more than halfway there. As you look at our institutional bank, we're pretty far along there as well.

Basically a 12 to 18 month lag on these folks hitting full production described so expense still running about a bit but we're getting the benefit.

Speaker #3: And so what you're going to see is over the next period of time, the actual you know upfront expense will start to wane. The important piece is although we've been fortunate, as I mentioned in my in my prepared remarks, we've been fortunate that some of these folks have hit the ground running a lot faster than we thought they would.

Going forward these folks getting on the platform and being successful.

The other piece there Scott is one as we've said in the past.

A pretty good view on the right.

Speaker #3: For example, we hired a group out of Chicago and a group out of Los Angeles who's been particularly productive in our middle market. We would expect Scott that there'd be basically a 12 to 18-month lag on these folks hitting full production stride.

Of compensation to return profile and if it gets too heavy we will back off to 10%.

And we do expect folks to produce and kind of as 12 to 18 month timeframe I think we've seen some some of the teams we brought on outperformed that pretty materially, but if we don't see that level of performance. There is also an opportunity to slow that down.

Chris Gorman: We would expect, Scott, that there'd be basically a 12 to 18-month lag on these folks hitting full production stride. Expense still running out a bit, but we're getting the benefit going forward of these folks getting on the platform and being successful.

Speaker #3: So expense still running out a bit, but we're getting the benefit going forward of these folks getting on the platform and being successful.

Got it perfect. Thank you and then one just.

Speaker #4: I think the other piece there, Scott, is one, as we've said in the past, you know we have a pretty good view on the right kind of compensation to return profile.

Clark Khayat: I think the other piece there, Scott, is, one, as we've said in the past, we have a pretty good view on the right kind of compensation-to-return profile. If it gets too heavy, we will back off to 10%. We do expect folks to produce in this 12 to 18-month timeframe. I think we've seen some of the teams we brought on outperform that pretty materially. If we don't see that level of performance, there's also an opportunity to slow that down.

Really picky tack one.

I think Chris at the beginning you talked about fourth quarter 25 fees being flat with the fourth quarter 24 level you were talking about total fees rather than just investment banking.

Speaker #4: And if it gets too heavy, we will back off to 10%. And we do expect the folks to produce in kind of this 12 to 18-month timeframe.

Correct.

No I was actually talking about investment banking fees and I think from memory.

Quarter of last year was.

Speaker #4: I think we've seen some of the teams we brought on outperform that pretty materially. But if we don't see that level of performance, there's also an opportunity to slow that down.

<unk> hundred 20, or something like that so that'd be about a 20% lift.

Sure.

Yes, Okay perfect that's great I appreciate the clarification.

Speaker #8: Got it. Perfect. Thank you. And then one, just really ticky tack one. I think, Chris, at the beginning, you talked about fourth quarter 25 fees being flat with the the fourth quarter 24 level.

[Analyst]: Got it. Perfect. Thank you. One just really ticky tack one. I think, Chris, at the beginning, you talked about fourth quarter 2025 fees being flat with the fourth quarter 2024 leverage. You were talking about total fees rather than just investment banking. Is that correct?

Hey, thanks.

Our next question comes from the line of Gerard Cassidy with RBC.

Speaker #8: You were talking about total fees rather than just investment banking. Is that correct?

Your line is now open.

Hi, Chris.

Speaker #3: No, I was actually talking about investment banking fees. And I think from memory, I think the fourth quarter of last year was 220 or something like that.

Hey, Gerard good morning Gerard.

Chris Gorman: No, I was actually talking about investment banking fees.

[Analyst]: Oh, investment banking fees.

Chris Gorman: I think from memory, I think the fourth quarter of last year was $220 million or something like that. That'd be about a 20% lift late.

Chris can you share with us.

If we step back for a moment for broader view question here.

Speaker #3: So that'd be about a 20% lift linked group.

Speaker #8: Yeah. Okay. Perfect. No, that's great. I appreciate the clarification.

Obviously, you've been at the bank for a number of years can you share with US your experience right now with the bank regulators.

[Analyst]: Yeah. Okay, perfect. No, that's great. I appreciate the clarification.

Speaker #3: Okay. Thanks. Yep.

Chris Gorman: Okay. Thanks.

Clark Khayat: Yep.

Speaker #1: Thank you. Our next question comes from the line of Gerard Cassidy with RBC. Gerard, your line is now open.

No, it's changing but obviously you've been on the front lines for number of years can you maybe give us some color on what youre seeing and what that might mean for not only your improved.

Operator: Thank you. Our next question comes from the line of Gerard Cassidy with RBC. Gerard, your line is now open.

Speaker #8: Hi, Chris. Hi, Clark.

Improved profitability going forward, but maybe the industry as well.

[Analyst]: Hi, Chris. Hi, Clark.

Speaker #3: Hey, Gerard. Good morning, Gerard.

Chris Gorman: Hey, Gerard. Morning, Gerard.

Sure I'd be happy to address that I'm actually going to see this evening.

Speaker #8: Chris, can you share with us a bigger, if we stick step back for a moment for a broader view question here? Obviously, you've been at the bank for a number of years.

[Analyst]: Chris, can you share with us a bigger, if we step back for a moment, a broader view question here? Obviously, you've been at the bank for a number of years. Can you share with us your experience right now with the bank regulators? We know it's changing, but obviously, you've been on the front lines for a number of years. Can you maybe give us some color on what you're seeing and what that might mean for not only your improved profitability going forward, but maybe the industry as well?

Yes.

Yes.

It's a remarkable change and so to kind of give everyone a historical perspective from the global financial crisis.

Speaker #8: Can you share with us your experience right now with the bank regulators? We know it's changing, but obviously, you've been on the front lines for a number of years.

It became sort of a layering of regulation on regulation and a lot of focus on process a lot of focus on procedure a lot of focus on documentation.

Speaker #8: Can you maybe give us some color on what you're seeing and what that might mean for not only your improved profitability going forward, but maybe the industry as well?

And I've been really pleased with what has been a pretty dramatic change in that just a refocusing on safety and soundness and safety and soundness of course is liquidity capital and earnings and so we've really seen.

Speaker #3: Sure. I'd be happy to to address that. I'm I'm actually going to to DC this evening and I'm it's it's it's a remarkable change.

Chris Gorman: Sure. I'd be happy to address that. I'm actually going to DC this evening. It's a remarkable change. To kind of give everyone a historical perspective, from the global financial crisis, it became sort of a layering of regulation on regulation and a lot of focus on process, a lot of focus on procedure, a lot of focus on documentation. I've been really pleased with what has been a pretty dramatic change in that, just a refocusing on safety and soundness.

Speaker #3: And so to kind of to give everyone a historical perspective from the global financial crisis, it became sort of a layering of regulation on regulation.

Just a change.

In that regard the other thing is the regulators are.

Absolutely.

Doing well.

Working on coordinating such that we have these exams that we can do concurrently as opposed to consecutively and so getting rid of some of the duplication, which has which has a big dividend because.

Think about cyber for example.

Have a great cyber team, we invest a lot of money I want our cyber team thinking about all of the risks and looking around the corner as opposed to preparing for exams going through exams and wrapping up exams. So it's been it's been.

Operator: Safety and soundness, of course, is liquidity, capital, and earnings. We've really seen a change in that regard. The other thing is the regulators are absolutely working on coordinating such that we have these exams that we can do concurrently as opposed to consecutively. Getting rid of some of the duplication has a big dividend because, think about cyber, for example. I want—we have a great cyber team. We invest a lot of money. I want our cyber team thinking about all the risks and looking around the corner as opposed to preparing for exams, going through exams, and wrapping up exams. It's been really encouraging to see the shift. Thanks for the question.

Really encouraging to see the shift thanks for the question.

Thank you.

The color and then as a follow up the.

This ties a little bit into Clark's comments about deposits.

It started with the bigger banks Jpmorgan Bank of America, but now since third P&C or some of your peers that are building out branches.

With.

Strengthening their consumer banking franchises.

What's your guys view.

That type of organic growth you talked earlier, Chris about supporting organic growth I think it was more to the commercial side, where you are quite strong, but what about on the consumer side and branches.

Brian Mauney: Thank you. Thank you for the color. As a follow-up, this ties a little bit into Clark's comments about deposits. It started with the bigger banks, J.P. Morgan, Bank of America, but now Fifth Third, PNC, or some of your peers that are building out branches as a way of, you know, strengthening their consumer banking franchises. What's your guys' view of, you know, that type of organic growth? You talked earlier, Chris, about supporting organic growth. I think it was more to the commercial side where you're quite strong. What about on the consumer side and branches?

Yes. So there is no question that that granular retail deposits are of Paramount importance and so we have 943 branches Gerard.

Right now we're upgrading many of those were also.

Repositioning some closing sub opening some.

But I think I think the gating item for many banks going forward is going to be the duration and the granularity of your retail deposit base. We are fortunate to have a very good retail deposit base and Youll see us continue to invest to make sure that we not only maintain but grow that deposit base right now.

Operator: Yeah. There's no question that granular retail deposits are of paramount importance. We have 943 branches, Gerard. Right now, we're upgrading many of those. We're also repositioning some, closing some, opening some. I think the gating item for many banks going forward is going to be the duration and the granularity of your retail deposit base. We are fortunate to have a very good retail deposit base. You'll see us continue to invest to make sure that we not only maintain but grow that deposit base. Right now, I think in the last quarter, we grew our retail deposits by 2%. Since the financial crisis, we've grown them some number like 7%, just hardcore retail deposits. We're going to continue to focus on that.

I think in the last quarter, we grew our retail deposits by 2% since the financial crisis, we've grown up some number like 7% just hardcore retail deposits and we're going to continue to focus on that.

I appreciate it thank you.

Thank you.

Thank you. Our next question comes from the line of Chris Mcgratty with <unk>, Chris Your line is now open.

Great Good morning, everyone.

Chris just a follow up on the <unk>.

Banking capital markets strategy I think in the <unk>.

You've talked about seven vehicles.

Hey, guys interested in kind of where youre leaning most heavily today and if you were to use some capital to build it out I guess, what specialties are you.

Brian Mauney: Appreciate it. Thank you.

Perhaps not where you need to be thank you.

Operator: Thank you.

Sure. So right now we're seeing thanks for the question, where we're seeing significant growth in terms of our backlogs are principally in the areas of energy we've been a very early adopter of kind of what's going on with all the data centers.

Chris Gorman: Thank you. Our next question comes from the line of Chris McGraty with KBW. Chris, your line is now open.

Clark Khayat: Oh, great. Good morning, everybody. Chris, just a follow-up on the investment banking capital markets strategy. I think in the past, you've talked about seven verticals. I guess interested in kind of where you're leaning most heavily today. If you were to use some capital to build it out, what specialties are you perhaps not where you need to be? Thank you.

What's going on with renewable energy and Theres, just a lot in that sector right now the other area, where there is a lot of activity is healthcare and so we continue to invest in health care.

Youll, probably see US do is and our investments is go deeper in the sectors that we're in.

Operator: Sure. Right now, we're seeing just significant growth in terms of our backlogs, principally in the areas of energy. We've been a very early adopter of kind of what's going on with all the data centers, what's going on with renewable energy. There's just a lot in that sector right now. The other area where there's a lot of activity is healthcare, and we continue to invest in healthcare. What you'll probably see us do in our investments is go deeper in the sectors that we're in. We'll probably also continue to invest in financial services because, as you well know, financial services are becoming a bigger and bigger part of our economy. We have a business there, but there's an opportunity for us to continue to invest. Those are the places where we're investing.

Oh, great. Good morning, everybody. Um, Chris, just a just a follow up on the um Investment Banking Capital markets, uh strategy. I think, in the past, you've talked about 7 vertical um, I guess interested in kind of where your leaning most heavily today. And and if you were to use some Capital to build it out, I guess, what what, um, Specialties are, are you um, uh, perhaps, not where you need to be? Thank you.

We will probably also continue to invest in financial services, because as you well know financial services are becoming a bigger and bigger part of our economy. We haven't business there, but there is an opportunity for us to continue to invest and so those are the places where we're where we're investing.

Great. That's all I had thank you.

Thank you Chris.

Thank you that will conclude the question and answer session I will pass the call back over to Chris for closing remarks.

Well. Thank you. We appreciate everyone's interest in key should you have additional questions. Please don't hesitate to reach out to Brian money directly. Thank you and have a good day goodbye.

Ladies and gentlemen. This concludes the key Corp third quarter 2025 earnings Conference call. If you have additional questions. Please contact the Investor Relations team. Thank you for your participation you may now disconnect.

Clark Khayat: Great. That's all I had. Thank you.

Sure. So right now we're we're seeing and thanks for the question where we're seeing just significant growth in terms of our backlogs. Our principally in the areas of energy, we've been a very early adopter of kind of what's going on with all the data centers. Um what's going on with um renewable energy and there's just a lot in that sector right now the other area where there's a lot of activity is Healthcare and so we continue to invest in healthcare. Um what you'll probably see us do is and our investments is Go deeper in the sectors that we're in. Um we'll probably also uh continue to invest in financial services because as you well know, financial services are becoming a bigger and bigger part of our economy, we have a business there, but there's an opportunity for us to continue to invest. And so those are the places where we're uh, we're investing.

Operator: Thank you, Chris.

Great. That's all I had. Thank you.

Thank you, Chris.

Chris Gorman: Thank you. That will conclude the question and answer session. I will pass the call back over to Chris for closing remarks.

Thank you. That will conclude the question and answer session. I will pass the call back over to Chris for closing remarks.

Operator: Thank you. We appreciate everyone's interest in KeyCorp. Should you have additional questions, please don't hesitate to reach out to Brian Mauney directly. Thank you and have a good day. Goodbye.

Well, thank you. We appreciate everyone's interest and key. Should you have additional questions, please don't hesitate to reach out to Brian or me directly. Thank you, and have a good day. Goodbye.

Chris Gorman: Ladies and gentlemen, this concludes the KeyCorp third quarter 2025 earnings conference call. If you have additional questions, please contact the Investor Relations team. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, this concludes the KeyCorp Q3 2025 earnings conference call. If you have additional questions, please contact the Investor Relations team. Thank you for your participation. You may now disconnect.