- Earnings call transcript Q3 2022

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Operator

Good morning. And welcome to KeyCorp’s Third Quarter 2022 Earnings Conference Call.

As a reminder, this conference is being recorded. I would now like to turn the conference over to the Chairman and CEO, Chris Gorman. Please go ahead.

Chris Gorman

joining KeyCorp’s for earnings quarter you call. conference thank us third for XXXX Well,

the are disclosure Officer; call Chief on our On me Joining today will you Clark our Risk find our slide Midkiff, two, Financial on Don Khayat, Chief non-GAAP Mark Strategy forward-looking and statement Chief Officer. and Officer; our Kimble, we I measures. reported share. three. question-and-answer segment the It well as as slide million $XXX covers financial of to our earnings our am call. or comments, This common moving presentation morning, materials and per now of $X.XX

XX-basis-point per approach of driven in of quarter, X% to margin. interest $X.XX our included results that our in was risk. to provision relative loan by excess higher Our Key debt charge-offs. up increase Revenue apart thing share is a One managing additional net second loss sets rate interest the interest net with income

intentional with very been managing a in have perspective. long-term deliberate We and

over this be interest net upside over our While a to billion. swaps rates, years. swaps unique securities as benefit If the at we $X.X have an and treasuries event re-price. would we income rates current next presents Even were for remain double-digits income we our balance levels, significant Key that two expected of to sheet at interest positioning experience the re-price will benefit short-term a in meaningful up existing interest our and and today’s year, net is our annualized

approximately as In accounts. our strong low businesses, XX% to retail targeted are relationships again of We deposits stable, with our and expand from continue commercial cost our operating our benefits this clients. XX% loans core deposits our balances. are escrow sheet stable quarter add grew deposit of balance Approximately we base. from Our and in our

profile. moderate came does in commercial away meet business our underwriting businesses. from diligent that from both and not have our remain growth and our risk consumer We our practices walked Our

prior businesses the market fees reflecting conditions. Investment equity price and currently The virtually and market banking fee-based from quarter, debt down M&A up the slowdown the to the engaged markets. period, Our capital continue meaningfully reflect the is current market but were issue new non-existent is placement from in in million $X year-ago discovery.

solid, M&A. remain in pipelines Our particularly

rate However, the pull-through market be impacted continues adversely to by uncertainty.

activity quarter, on We our record retained we third see $XX continue long-term of sheet. for clients, to XX%. the more well sheet, our our onto balance raised above moving a average In XX% billion which balance was our of

what offering is our sheet on solutions. including off-balance We will for best to clients, do and continue

make Key, are Importantly, and our progress areas our targeted we growth continue to economy. scale with but opportunities high only for both to our which matter respect that to country not sectors,

relationships sectors, and recently certain our communities. renewable growing We Federal areas have over nurses. transition. Act with healthcare, we Laurel Road include significant Infrastructure our billion business, $XXX Legislation. Inflation market are made decision a including and affordable and Bipartisan growing the and resources affordable providers for passed housing extension to to the focus our impact our energy allocated are invest Both Bill that Combined, expanding our energy In of healthcare, both vital healthcare renewable housing energy investment recent in conscious and Reduction including clients and and have

over refinance to all for pre-qualified team XXXX have the new of held acquisition XX,XXX We May consultations individual and joined are public loan service prospects, These consultations results our they with Since prudential also Key. very Key, pleased from are GradFin GradFin. forgiveness. early with the

investments to continue reflect expenses Our our teammates, and digital in analytics. our

growth remain percentage net of committed the declined strong Non-performing investments quarter. profitable of charge-offs this our prior loans a by We quarter, discipline from continue risk. future. to Credit balance as with points. sound, respect XX remained to maintaining expense discipline the loans We for average with basis to with delivering quality

will perform cycles. through positions to the continue our company maintaining profile, while which business our support all clients well moderate-risk to We

Our capital capital providing capacity our remains strength, the return to clients us shareholders. our with to sufficient support and

Our path progress operating positive a long-term to guidance deliver and concurrently, of in again XXXX, each keeps us against quarter fourth goals. on make our leverage

and also we households tangible Day. from progress XX,XXX. by member to in XX%, as Laurel against households business goals at consumer for to our growing We XXXX our growing These continue growing earlier senior the Road by make our year relationship are bankers this commitments three announced Investor XXX,XXX XX%, our follows,

on pace are all We achieve to measures. three

of in We outlook. confident the Don to have provide reflecting more Don? future number our members, turn value of as and results our I of create and stakeholders. in our as back the senior remain will solid have and our the well to ability consumer Overall, Road quarter. banker of our our Key I current although this With conditions. all delivered half for market Laurel bankers, quarter it the to senior hires another that, grown on households over details slower been year,

Don Kimble

Chris. Thanks, five. I slide now am on

was share, from from For year. last up continuing net down in and the quarter, the third $X.XX common per quarter $X.XX $X.XX operations income prior

growth from with positioned quarter, we X% to in up that current by and driven increase market sheet the interest condition. revenues our balance navigate revenue net was through as business higher loan our the operating X% strong way model results by resiliency rates. to we quarter Our from and performance reflect Pre-provision the the a core the of continue in second current benefit

on reflect also our management risk Our results ongoing our expense profile. and focus strong

period the billion, up quarter. Turning to from six. year loans Average slide the were for X% quarter prior the ago from and up $XXX XX%

our reflecting add across increased our loans both our growth and deepen businesses. client consumer quarter industry across continue Commercial which in relationships commercial to verticals. from franchise, growth drove X% last We and loan broad-based

or this healthcare slide its on seven. segment, to -- approximately billion. ongoing strong Average our estate loans be student of originated XX% saw balances, beta rates. both impacted Consistent as third as deposit focus payment the continue stimulus of of a decline $XXX of mortgage in performance quarter. $X commercial business costs the federal the both non-operating from commercial reflected to in and This quarter prior originations basis deposits. by -- funds. quarter X%. professionals. the on XX resulted the in billion were interest a with $XXX consumer prior Year-over-year, quarter real the prior the in as with Interest-bearing consumer were of a compared related million points The we deposits of our residential Laurel balances, by year holiday, consumer totaled Our impact continued strong health quarter reduction offset areas Continuing XXXX, to $X.X partially retail loan and with billion decline saw for X% lower reflecting of cumulative deposit down an well to healthcare increased Road increase originations ago period. we from deposit

with a core deposit base approximately deposits of strong have deposit to for continue stable XX% We total consumer our accounting mix.

In from core addition, are of accounts. our XX% operating commercial deposits

Turning the and to income in was compared prior billion third equivalent slide $X.X the in year-ago interest quarter, the quarter. $X.X for quarter billion to Taxable net eight. $X.X billion

third higher asset impact Quarter-over-quarter, loan balances the from growth, PPP Both Included prior net of the as interest and net as margin interest benefited partially period auto forgiveness, favorable quarter well well benefited margin asset to the the loan margin by fees net and interest-bearing to X.XX% interest benefit position. appendix of offset for income of quarter. net the XXXX. year additional our the for costs. Our third and from investment reflect and last X.XX% sheet indirect as and in Year-over-year, higher a rates. the balance interest detail earning quarter, is of on loan compared higher income interest sale same higher our portfolio the interest mix, net and X.XX% liability deposit in lower interest portfolio related for was rates income as

continue As higher Chris benefit Key from we few next positioned have mentioned, to over the rates years. intentionally interest to

years us continue and grow to treasuries increase. positions interest swaps each interest rates, $XX income For billion This would not example, billion few we today’s if interest to $X net benefit income our if do annualized margin for billion. $X.X re-price next net even to short-term and an over in of have over of interest the of the net we were existing rates

nine. $XXX million and $XXX XXXX, million of was to quarter the ago income quarter. the year to compared Non-interest third second period for the in Moving $XXX slide million for

a from income derivatives from reflecting commercial in Our last in $XX fee million on this partially gain in quarter, to income lower to was last offset margins. litigation Consumer be slowdown also million million declines. banking was prepaid addition fees other income and banking income quarter $X down capital declines. were increase Despite quarter, lease and $X corporate brokerage by investment to partially the declined, year, also million the offset services card $XX Increases these revenue, million. continue were Operating income, lower the was $X fees quarter. growth. reflects Investment which due markets. payments income businesses cards impacted terminations in driven but lower income placement payments and Compared services commissions. by the reduction in fees settlement. Strength income down and mortgage $X in lower, in up banking line lower the to investment year-over-year. reflecting million for the $XXX investment Trust lower, was partially lease the cards lower core to by and fees, higher these increase million related offset Quarter-over sale debt

was for the up I periods line quarter. Total well current prior reclassified million income from stable also XX. to income quarter derivative reclassified last expense slide on our was we other period, with related now year relatively customer quarter change comparability. $X.X in income. items reflected the last and certain as in billion, corporate services This am as for $XX This from non-interest

related declines fees. million and partially ongoing and investments items, an included digital, year analytics lower $XX in Our higher $XX initiatives. teammates. up prior expenses salaries down loan across expense seasonal in our Higher from million. from deferred by non-interest labor of our costs loan $X to related deferred were expenses was and contract million. Higher was costs personnel of costs $XX This $X ago expense. saw and these services costs offset technology million this the non-personnel slower slower line reflect drove increase to salaries to million including quarter, of Compared caused quarter increase professional to declines increase staffing We business most personnel our higher related This originations. Compared originations lower increase. the to

stock-based compensation most non-personnel across was incentives line Partially price and stock services related a higher offsetting and relative incentive million on including were driven by items, change addition, professional declines business fees. the compensation. In increase to increases and $XX these occupancy

quality remains credit Overall on XX. moving strong. Now to slide

$XX quarter. loans. third were the basis from Non-performing points a were $XXX in both this decline historic basis XX loans of and loans, quarter, $XX XX-day increase criticized XX-day our near million For quarter, We of loans million net the or charge-offs prior average lows. or million of period-end very to points a slight delinquencies quarter remain see did although XX this

Our million credit million in for charge-offs The economic quarter, quarter the second the for by in $XX $XXX was from the losses was provision the change increase net up driven the by in $XX exceeding provision million. outlook. and

continue of quarter ended equity X.X%. to capital slide us X with This ratio within Now our provides with and to on customers our XX. and shareholders. to to of targeted their range our a to support X% Tier third the needs, sufficient return We borrowing common capacity X.X%

Board to as continue and first, our consistent and will will supporting capital we have the of Directors our third, with evaluate shares. priorities; repurchasing fourth dividends our a manage of growth capital mentioned second, dividend businesses; in increase We before our paying organic quarter;

million, our in of repurchases any now our quarter, share through quarter of third share place the current an $XXX authorization which of XXXX. We the did extension approved the in Directors During of complete repurchase not is Board period.

guidance ranges, to operating outlook slide comments our using As relative the positive quarter we of quarter years, XX have leverage updated which our of in to year support we third fourth Chris’ show prior delivering another our about midpoints in XXXX. have results,

interest between and loan We X% expect interest Net to income will X%. growth up be balances and average between X% in X% X% X%, loans expected be reflecting is average and and rates. higher deposits up average up to

be the impact fourth fourth expected decrease well our quarter of rate to is $XX approximately a to Our of The by of Non-interest below between charges pickup placement guidance to for assuming OD businesses which X.XX% by pressure accounts XXXX will reflects X% an deposit the curve Fed forward also this debt on is XXXX. credit will fees, funds in million expected quarter. the implementation on earnings is up seasonal based investment the This this service fee we expect X%. the end quarter of new banking rate so This also XXXX accounts income results. and expected structure, interest and the our line would be of environment higher commercial further in item. and NSF

We quarter, X% for up other expense. including settlement X% incentive between and charges the will as charge, relative million as well expect quarter, non-interest expense in to be fee higher to of reflecting flow production, the pension which a fourth fourth through compensation $XX one-time

at credit quality lower-end quarter, to the strong XX-basis-point XX-basis-point net to charge-offs be of expect the our remain For we to and range.

at the remains rate guidance approximately XX%. GAAP Our tax for same

are which our targets, Finally, slide shown long-term of the the unchanged. at remain bottom

for make continue Overall, our on Q&A and the call. in and productivity which will these to over for progress we the call grow confident back efficiency, profile now instructions targets our portion Operator remain the to and commitments. quarter deliver by our was will a to our maintaining drive of returns. expect to improving that, risk With turn and I We solid Operator? ability our moderate on it

Operator

[Operator go Please Alex Instructions] is JPMorgan. ahead. Alexopoulos question [ph] Our first with from

Steven Alexopoulos

morning, everybody. Good

Chris Gorman

Good morning.

name, your Steve? changed You

Steven Alexopoulos

Yeah.

start to I on side. So want deposit the

the if non-operating bearing, are So at calling in billion right, look decline in we the the out non-interest appropriately deposits. you $X decline

the at billion to of is where see If ended quarter, risk look that and outflows? at you the non-operational much still how $XX you

Don Kimble

would say honest, that quarter, that were be commercial range. we at at some balances, to I deposit it’s little when look a our still that part do we XX% end the the that of of we part some our increase. of one quarter it’s decline, changes, for factors, is that stingy in that And of really showing believe have on deposit then is and beta use that is deposits We and customer retain fourth seasonal non-operating. also, two, are the and outlook or additional attract rates our maybe two of to relationships of

Steven Alexopoulos

X%, that out going I Okay. different That’s three-month gives now interest-bearing points money commentary which look in XX and helpful bills materially What know quarters but we basis retail expansion, is ahead it’s to for only you or sleepy, with ramp are commentary, that you at Could see for really us? Don. why was the [ph] continue you fee if the could the Thanks. historically, that, costs Follow-up, you aren’t and clearly NIM move costs at to today. so around everybody? swaps? right, the signaling guys deposit flesh really a era for you confidence that the treasuries and deposit

Chris Gorman

-- things. couple kept in A disciplined were out. awash liquidity, Chris. it’s Steve, of So, pushed were how we deposits about when and One, pretty we deposits we what what we

in starting bit it’s been our other where So cycles. point is from differentiated a

deposits been which for have four are has -- significant on been of has some and of The And consumer both have in other XX% really escrow deposits or one pillars our our focused we on is thing deposits. XX% been which focused to that keep time. mind things, our primacy business,

cumulative I beta position through think we three XX% ever quarters. will a we think different year. that bit X% So is been are is than for as beta in We seeing we the the our the little cycle our are cumulative changes. in first What be have

endpoint spot above XX%. on a We are projecting an of just basis

the rise anticipating the the did on of interest rates. -- significant but all So prior experience had work ramp, we to that a interest in we have before the we are fairly not kind based

Steven Alexopoulos

Okay.

half the you the to guiding going are most confident and to Thanks. say year next will So NIMs in Are that through down probably of NIM half. first banks trend see expansion peak then second is safe in than are it XXXX? you guys

Don Kimble

and half provide and will beyond that just even short-term rollovers benefit deposit with outlook in that how right, that you January. margin the going and But swaps grow as even look -- increased we Chris first and treasuries those referred the with that We as as beta. interest on we the do so the positioned more to net at we both that income short-term far this to are and XXXX of are we are believe I XXXX

on to be how now, that XXXX. focus that as and And bit we far as we us intentional more will have basis throughout we of costing so was while interest that our relative XXXX long-term part on and risk, rate periods that think a of recouping think little a manage the later we it’s a

Steven Alexopoulos

color. Okay. Thanks all the for

Chris Gorman

Thank you.

Operator

UBS. to go go Erika will we the Please line of with Najarian ahead. Next

Erika Najarian

Good morning. Hi.

Chris Gorman

morning. Good

Don Kimble

Erika. morning, Good

Erika Najarian

the Chris, remarks, you mentioned, and $X.X billion on it prepared early Don, again. time your mentioned You over in benefit

that let was from essentially the continues I as swaps C&I the about time ask me XX% the book should versus think beta we from benefit of one, similar And $X.X this So, what that and much to and expect your swap beta your guess, of that income? loan billion question. a how do the Fed Is coming we rates? into raise securities net $X.X impact quarter. back interest that coming over Number loan as is the the book realize back, billion you period

Don Kimble

commercial take and out Sure. have for total Erika. can for it C&I XX linked-quarter And swap basis at basis. points crack go broken a but I yields Maybe the commercial, I on cost don’t impact a for us that, ahead

you of basis actual loan XXX seeing yields instead would commercial increase. And for the to increase translated just so the itself are point that have that

see impact that from far with more on for you hedge as as think category might we seeing kind that this and the that change did swaps. that of have I that’s relative so And don’t be going impact much be some what others to quarter consistent so

to short-term the really end the $X.X and now also billion and and billion $X between total have the that another throughout late in of maturities the book The and XXXX. XXXX $X.X swap which billion maturities treasuries. got mature about $X.X far As we of that, swap as Those swap treasuries relates and billion throughout really it book XXXX. XXXX,

at of period $XXX so same billion income period. time the and that will $X for time that two And in we as re-pricing, just pickup as annualized occur if look net million next math have two-year we far years the that that using

Chris Gorman

billion. $X.X

Don Kimble

period. occur $X.X time in billion, out $X.X Yeah. the million of Of am The I two-year sorry. billion that $XXX the

Erika Najarian

not been Got good I it. the Key relative And of expenses, given and million fees getting am wondering, million surprised going -- remain my this the think And I the that relative talent that side fee even capital though this competition follow-up the something has terms always And it that I managing $XX sorry, I dislocated, to particularly of probably the how at the your to we I $XXX and that costs question just quickly some upward? expenses, is continue very this think this other inflation will on forward? should for is, in the million question, push out I about is am and pressure street the called think especially. personnel my to happened what and slides, $XX you guess, on markets in am out

Don Kimble

had couple what quarter guided were things. for Yeah. second higher One, expenses year. for A to we the the and this of of half our than

that change our One this of what I outlook that, are one-time the really your and for than expected. be three of more previously caused drove item. as of If what to question to look all that we XXXX is get higher a is you will part components items at there

the actually quarter. associated we our from those those to also continue so were what the to but and of is other of with the will quarter third our good losses huge positioning got the seeing that action branch we we and not And of $XX through for projected it don’t us. about stimulus is down to And it to down pension it’s year and the with the losses, the for what thing that come expense fourth good the second start and was building was card they and was that and ongoing up limited relative increase increase, our saw our structure product will operating that that about we second consolidation we has a personnel, actually branch, winding for and so think combined that expectation us. costs taken have within $XX time, category, wasn’t type consolidation two that compared and go to Outside prepaid second through as we have an over but that but distributed the thing that quarter during in a fourth the to half to have These the million a were address operating settlement quarter, of funds a life are see are million. expected -- We costs related impact loss programs and part some us.

loan The us cost third component, about gets that some is that we origination see deferred that consumer associated of we a and with and And originations so previous Erika, deferred from increases origination million. $XX period for that our costs are the seeing levels. will our loan of time return and with not the cost continue most because really reset is of that

there. be that will So

revenues quarter, compensation tend capital before, said markets be of fourth we expense up. to our the expect have $X.XX correlated the see to as on pick to about the the For tune we incentive And dollar.

will that come banking incentives. So debt placement for and dollar we see every investment increase, fee through of

As I for about and far items, year-over-year, personnel for I for deferred looking the talked costs that, adjusting at other see loan just of where the as origination and costs these things. say, we some salary would

and XX% up headcount total were about X%. dollars is Our about salary up

some a some salaries. X% X% have imply the we that for year acquisitions smaller Now impact done inflationary the includes the throughout of so that to and some of of does

of end And very here, we for we and our increases important through I we Some the on lower pressure think increases, that beyond. expectation some its will of that, for that Erika, thing driving market the said, because merit working are focused leverage. have also is scale is XXXX of of the as that operating pay be and to continued positive

this year the several we We continue as next years to guidance haven’t but we yet, XXXX and expect or do to that well. given through beyond for that expect

Erika Najarian

you. Thank

Don Kimble

Thank you.

Operator

will we go John Evercore. Next with ahead. to go Pancari Please

John Pancari

morning. Good

Chris Gorman

morning Good

John Pancari

of the mean, last efficiency are leverage, you your your see ratio how maintain your could see you year-to-date. target, if could the to I on Thanks. with we think about XX% think help thinking wondering to you there cash is level? help achieve separately, XXXX to that that in us magnitude at and the comment could And operating should be XX%, if running leverage that XXXX? -- about just that -- to about Related for you you pause us how if what And if not, maybe you XX% need then to able long-term how off we at

Chris Gorman

John, it’s Chris. Good morning.

mentioned, we So to we toward of think about continues you investments of the fruition us to that move we XX% that an long-term continue if that target about to referenced and efficiency back, just -- NII positive that obviously, make think many XX% do to you XX%. was perspective, as get coming Don aspire you what business It’s about around think quarter some right are our I capital to really not think on leverage. ratio markets XX%. printed Don is operating And our if we to described for from the But coming focused to trajectory that XX%. you the

John Pancari

levels. about wanted XXXX. I deposit interest-bearing could are the Chris. non-interest-bearing mix expectations, of you talk separately, you color bit Maybe appreciate then XXXX? Thanks, the gave terms deposit towards as on incremental you declines think of right. early into growth about overall of and near-term. just And possible we get growth you in if to then, look growth think look as All shift into how you the Do a little color I of part Thanks. Okay.

Chris Gorman

our over have has I that really we we And I into kind to sensitive that forward. in mean, we pretty scrubbed to that, continue interest public non-interest-bearing rate that book and of of uncharted tell I well though, fact, pretty consistent sensitive that going sector been third customers a rate earlier, been deposits movement been have previously you more some not right where don’t some lot a of that mentioned were are the and our all around saw will, deposit quarter of Having anticipate this, as go some moved. be are deemed rise, hasn’t will in sensitive. territory. in a period rates be interest as of that moved And bit Well, said as we I time. moving interest XX% rate this interest

are, closely certainly Fed obviously, So we balance watching their sheet very the dynamic, it particularly unwinds as and it’s an interesting concurrently.

John Pancari

taking my Thanks Okay. for question.

Operator

go RBC. line Next Cassidy ahead. we to with the of Please Gerard will go

Gerard Cassidy

Good Don. morning, Chris. Good morning,

Chris Gorman

Good morning, Gerard.

Don Kimble

Good morning.

Gerard Cassidy

vein, portfolio us you loans; how as you syndicated are balance your share to markets. have your sheet Chris, that of coming the you going portfolio can one, big on talked and is past the about more of your customers to than and taken impact on did than in growth, with originations the more have the that and strength in questions; capital in commercial and quarter? loan rather industrial same of also, this then what growth your you A couple loan percentage is kind considered of that leveraged the of

Chris Gorman

total of is leverage X.X% been were has our X.X% pretty And of much been even we consistent loans. at smaller book, what’s company. couple a a about when interesting So, about it’s Gerard, things, that

It’s of in the about we There’s some focus. the it’s -- in So deals been velocity. segments in lot that hung of has which portfolio our some lately. talk a that are

last mark minimis just book. six a had that months over just have We the in de

that growth is and we book do manner have is really investment-grade of investment-grade, now, about an a of grown balance a about that’s is Most of were and an market bit the of to our So the our our seeing which and outlier as that. onto trying in we bank dislocated more really enough C&I the size. we really the feel for credit XX% was Right an expeditious brought things book really, conversely percentage good C&I sheet. our investment-grade clients you are

Gerard Cassidy

And do quite in new higher do you from are that you always -- rates higher I are underwrite here? guys protected assume stressing you so basis points if originations, when to or a XXX but rates, points basis you XXX for are bit you the go this, just

Chris Gorman

because run mean, XXX sure. that’s is actually basis And stress have run increase decline rates, we of concurrent I first always interest respect points stress in do stressing costs -- you other when lot into the you credits. that’s lot that and of For we our those EBITDA get borrowing as EBITDA stress we danger we anything we the stresses. and that’s of with leveraged, leveraged and of stress to and a anything a the

Gerard Cassidy

a defining then the good. credit your cycle. obviously your and going through know of peers Very question, is to many I Like be that’s moment you And a quality as superb. follow-up folks for

question the consumer I the on scores. the have is with FICO loan So portfolio

it they where really showed grades you I case? out scores to guys guys you scores compare have XXX. these averages inflated. as Are that inflated like, to not been think the has some I are them FICO that FICO seeing you you Have or ago, five is call, years chatter anything been think, -- there if

Chris Gorman

the done time. personally analysis haven’t look because but at we all stuff the just I the

I think of the there’s probably SAP. like lot teach a they

are you, think that for of really super customers I that as how the metrics. we your all on our good get of We which if score up. Having book said originations focused, quarter. mortgage the example, XX% there kind on about to some were consumer look really, we about our last doctors, is think dentists, prime feel FICO across instruction

Don Kimble

of they scores right, exclude certain, was and what, some the FICO And know or loans if like, costs it there don’t technical some or in had Gerard, was change medical-related you to by are or law I expenses. actually

you be our so would higher instead points And and several ago I even XX if historic to XXX, a probably, adjust still in years would that, of XXX, the prime today’s score FICO think, is super for might XX be a standards. basis points is, same so basis which and it

Gerard Cassidy

Thank Very good. Chris. Don. Thank you, you,

Chris Gorman

Thanks, Gerard.

Operator

America. of go Please Ebrahim to of go Poonawala will Next line ahead. we Bank with the

Ebrahim Poonawala

morning. Good Hey.

Chris Gorman

Good morning.

Don Kimble

Ebrahim. morning, Good

Ebrahim Poonawala

I portfolio. treasury swap wanted guess, Don, and follow to the securities on just up the

because assuming or should to I time the in XX of that a ahead next you we time? months. expect you I that start there how sense three worry next and is do we otherwise to months rates benefit terms you -- us lower, upside just rates that to ahead Is there lock that of lock six anything to for if way give had plan is, this would that of of have that a get That’s the So that losing help in months what stay in get NII. some so high of do to XX obviously to months

Don Kimble

us looking to we to going and several our committee help that a are quarters in and We higher use that are for on our on in we of think benefit kick a not have actually these that’s we forward regular to what that you we that, expect that, put just as benefit. ALCO even of of to seen tool next But get some that that, start mature I up that the that far we bit are swaps review as exactly basis. a to that forward we lock swaps over would experienced say will are We And wholesale to repositioning have little Ebrahim, a continuing that some the to some longer type ready starting in in with lock to rates as as to well. is given to together. achieve see as purpose tend of for again do of the of tick current but do continue marketplace.

Ebrahim Poonawala

back creating X.X% in certainly a bank you on a market seeing widening? that with guess, up do you terms portfolio, as the customer the but have Fed And left to segment? where your are in into more pressure expect spread commercial where you market how what start a following -- rise are question, of where and are seeing are a pulled do on just the of you of rapid Like separate Fed areas we you as credit do for the base, areas a I have stressed what given That’s lens Like pulled that kind subset seeing fair. CRE. funds middle and pain you you you seeing sort X%, of actually like in where back rates interest do

Chris Gorman

was Clearly, that will if our higher would for And -- September, longer. we billion I are view entering. $X.X and been I will stress when market you go that has be portfolio, I the exited and Sure. mean, these that we thought be to back under take and persistent one. to that year that area believe last intense be sometime still would auto for would we inflation that have year rates that a indirect an in in ago

is The look other leverage there’s leverage, I had a That’s and place of about asked Cassidy, loans. question for we that to. a Gerard that pay lot thing area just an always any that attention

we values respectively. And XX% is we lot Interestingly, apartments, respect by are industrial. to real pay of a broadly. area from on strategy, XX%, -- focused pre-pandemic Another attention and just multifamily those are levels that estate significantly and up

The think lot other that in, area not a those is C of have there’s I are way class work. in office, dislocation in office, way. changed people they That’s B a and obviously, and where business we to be because any leveraged, are buildings particularly significant the that going

that that’s Although, to the servicing bring where attention. loan the debt your we to B category a districts. these would central I’d starting few servicing retail in $XXX you largest billion are business are a off offices second into expect of now that’s do special commercial which C class third-party places portfolio, active and is us. And go have Those below

Ebrahim Poonawala

the it office, of to decade quarter the or as given seen what any leases you over cliff be just or the is event given And opposed box just it’s big on year? retail, we with any do in to more think going nature where out last the a have like played given it’s malls,

Chris Gorman

Yeah.

-- event. think a I I it’s think cliff don’t

these if it’s Because office with class and termination you burn. think leases. B many a think tenants dates on their about C varying I slow space, many, they have

it burn. will think but I consistent slow a be

Ebrahim Poonawala

Thanks for questions. my taking

Chris Gorman

Sure.

Operator

Next go Scott line of Sandler. Siefers Piper the we go will ahead. to Please with

Scott Siefers

Thanks question. Hey. taking for my guys. morning, Good

Chris Gorman

Good morning.

Scott Siefers

pipelines hoping investment could the sort banking was and pull-through. I you through walk Chris, of

still can companies some industry. of segment, of the we at think keeping what’s noting the But smaller of activity up all it’s happening enough to I sort middle prop going activity the end that numbers. see there’s sort enough that market taking in place are and below

are your versus where activity do given you point So and get -- what’s seeing And a will activity economic we think discovery increased slow? higher a there’s say background, weaker just price still rates backdrop? where despite you will healthier then and

Chris Gorman

I So do.

good area, So a very where in the like it finance. syndicated quarter activity we this was has remained and areas had strong

be really you that a the strong. binary, are now, or you continues market. markets, to The M&A is can’t. come the are where equity And either am market, So that challenged it’s confident right area that’s and debt unlike clearly issue basically public can The back. equity can’t you areas will market I

what There’s if if and are over horizon is you have out sort a lot to you are looking sort buyer, is no a deal and look free up, impetus of wait you the these your is huge close. discussions. like. so strategic have and a in Scott, happening, a involved Everyone basically of We the downturn see feet drag of And what’s to downturn, locked a you and predicting going option.

that in strong remain business. pipelines Our

back. relationship fourth change to it’s I said have hire don’t point. back. that working business for to don’t as It I do back. We going think close there’s an by throw I so the in a will this it’s come and and people. the amount I come But continue have long market the between way. come deal the quarter, any selectively that Having been out to that, on of see going actually the time time, will significant I doing that inverse watch a you been the probability think

Scott Siefers

Perfect.

their Okay. And more portfolios notion this tangible and have attention. maturity. heads to maybe, then book Don, begun pretty TCE a gotten That’s of to and good to color. move Thank companies the of lot of substantial curious you. has A amounts marks lot held AOCI

go you TCE So sense, the the wave you as a to tangible book in sort with hand, so of away can speak. of make

you on what keeping TCE your like To why govern So thinking eyes, or capital it maybe management does available-for-sale. just matter of in any guys your that? does things are some thoughts mostly degree

Don Kimble

be available-for-sale. to are whereas into as only the -- we into at put That primarily we of Sure. our a those look future starting portion to purchases, used held-to-maturity, security it

of to And to of move maturities to we swaps for need do just available-for-sale TCE we want those bullet some keep isn’t a priority where high can into it to them we so ratio type might we are held-to-maturity. opposed life in have The separating us. attached some where end that as

other Tier the Our main and ratios X or focus ratio X on common it’s capital ratio that Tier the equity whether some is we of regulatory total.

across issuance quarter we you And that good issuance we take are so also that’s with feel preferred third stock we a sub-debt how the and saw positioned -- in why a about action and capital us very spectrum.

TCE The basis if impact which so up just adjusted on will by those so realized well. would AOCI that our other all risk back over points, back ratio ratio, we come for focus about, TCE are us of not you thing paid to far the would they treasuries, the that’s as or all of time, out that as off think U.S. XXX agencies too, take basis, investments and more as don’t area going we because are the to for that because have being see of and

Scott Siefers

Perfect.

you questions. Okay. for Good. Thank guys taking the

Chris Gorman

Yeah.

Operator

Next O’Connor line Matt Please ahead. to we go go will Deutsche of Bank. the with

Matt O’Connor

Good morning.

any specifically higher are are we because trends, widening in obviously, the the in marketplace public is? rates. what -- in improvement you commercial, But that given up is you in of pricing seeing absolute yield loan see spreads markets wondering Just going seeing in

Don Kimble

spreads this for credit space, in Matt. question, is, investment serve of about that capital there be out seen middle more to-date grade the because the to tends they we and the have that is And markets seeing a widen it competition the market ironic are for because we what’s That’s local. great what companies

are spreads near-term to the for yet. the over not time But holding commercial here. spreads middle up We expanding much widen in the We would haven’t customers. but seen the expect pick lower commercial market on that that

Matt O’Connor

mentioned, overweight Any the a others, quantify on for investment probably your so that’s way you to grade as versus positive you. investment-grade,

Don Kimble

credit we spread on seen the pricing the credit that, a and for of is probably points in us, it Well, basis would widening have XX widening, reflective of I spreads generally say market. on good

Matt O’Connor

Okay. Thank very much. you

Operator

Mike we Mayo a with go from Please question ahead. Next have Fargo Wells Securities.

Mike Mayo

one-time might how and Hi. fourth the maybe get positive. -- just it’s one-time guess, they I I the The aren’t just you I One seem up quarter-to-quarter much the so have items so negative more. said, some quarter -- personnel one-time. and items is repeat, negative, X% therefore, one expense mean, to versus

when we positive come do ago numbers, year one-time outlook because or get core more the a as we are mean, I expected? years of for interest help crisis global that? hurt your the more you items a NIM, and that. zero ins out close rates to in it some and outs to NIM the X.X%. of as Could X.X% NII had now was we XX side, could get expense on Next what almost And financial back the Conceptually, you the decade or far that of higher have that do are little expect seemed potentially or of that your since to way than and getting X.X%, all

Don Kimble

Sure.

thing little the in to there a remain realize that employees we is incentive see, our as as that is higher, have rates one-time is that, of The have And position price. objective with stock in a things want our we long even through is they so future one this a that have shareholders being of have to to higher truly different. settlement we The the thing just and shareholders One long-term couple portion tied at to what compensation about see one-time. fourth charge. think as have will will and a good our a threshold are pension in we well. be personnel, go quarter. do good us come more consistent to higher, a as the the for being be as our to that far where you as or we or far And Mike, rates is is is talked that shouldn’t As loss losses

compensation see from price expense share from and and expectation time increase share expense so our hope of our our And with see is so does with to will that, incentive increase, that we the part and price so incentive that as compensation will you fluctuate time that well.

of current I the Beyond XX%, for item quarter up as ago, increases. say, year I that that, versus about that is line Mike, a salary the from X% would mentioned before, about with headcount core coming related

kind had the reflects lower throughout Some that’s had we well of and seeing. And have year that of we are done. salaries, that some X% impact a we we of to the experience merit about the from increase acquisitions that for pressure but rightsizing the as market also

I as see that and we And will grow but especially forward, are business, in with forward. as typical a than the the wage we settle be Chris has And in the and near-term, sure those our also and returns continue bankers I down. will the we to our holding said, investments appropriate as frontline going think, that continue see investments people we inflation probably our making so but far to in to make talent accountable X% will that, to getting little we going space that think higher on will technology showing growth

Chris Gorman

people there the we digital engineers that the some that a just labor has on is, important that that become to contract we think of add we about transition, been to we would I our talent. full to are thing only the are, control bank that stack as part Don, continue Yeah. technology think headcount. from it’s We front,

piece a of what seeing that’s Mike? So you there, are

Don Kimble

that. our Yeah. far a and X.X% I we what from it the than as relationship as is different want start to is thinking Mike, see because historically do that And so we be based. to going margin But risk significant don’t at expansion. much people it are growth was then, margin, profile

clearly and a income talked of math our meaningful mid-Xs for and layered of swaps the about from play so that on And the X.X% to just -- that kind interest range. But and a gets see be this lift the one the we that, into you the top not would with at of full $X.X re-pricing rates would year simple we treasuries, out net environment. look that billion some for and taking just if the if you the maybe here

Mike Mayo

change? And less then of point so is the that your the that about control employees and just tipping was you technology, and what full-time that this destiny, one better follow-up more on idea consultants comment for tech can so that tech

Chris Gorman

to everybody in we were we drive areas our The we our with was of to from get as the its strategy dial talent, we I of go kind than When in we made made, can leaders certain decision have to a that the of the platform hire Mike, is leadership was, turnover with consistent literally more able attract our next some in. on onto were and to contract to of contractors have tipping people and to full in and wanted we some getting we so wanted frankly the way back as the want say labor thing wanted be and we and the level. acquisitions we the have stack that continuity point pandemic that engineers, nice to the short we kind

Mike Mayo

All right. Thank you.

Chris Gorman

Thank you.

Operator

from is Please Ken Jefferies. go with question next Usdin ahead. our And

Ken Usdin

balance then with sheet given has run-off around hanging the on just so in am portfolio that morning. the funded gets growth? in I are portfolio decent more the Good Thanks good from loan about one mix, maturities, want size a here slide to lot. to trying securities around understand securities billion have follow-up to understand still planned been the Don, that keep incrementally $XX you back just and expecting you expect do the that just the and that how

Don Kimble

-- investment $X which is billion and about core about is other two book, That billion. is really our of there’s pieces the the the which are Yeah. portfolio. $XX treasuries, One U.S.

liquidity we I a perspective balance think appropriate just billion and from mix. $XX that a that will we in near-term core sheet and level and around our so outlook would the think that’s suggest hang think portfolio there

into as core portion maturities that future make some through use For assessments -- we that or ahead and roll the for we we will maturities those U.S. get the funding whether the as benefit of portfolio. will that go we come portfolio, the just treasury of and

determined that And how on plays so, yet $X would say be less there’s short-term certainty billion I that, out, to portfolio. treasury probably but that

Ken Usdin

billion to on delta out swaps so the -- sizing years? contemplate following in the of like that just that benefit both would And $X.X any the type you book and securities of does to get then, book as those overall

Don Kimble

stay same of the it line treasuries the same and portfolio, funding time. rolling book and more or at assumed in it on year swap that point using assumes the net impact over that would either into The has for that impact bottom this one the it treasury then has

Ken Usdin

happens? kind to rates you get I understand help near-term gets bottom Okay. you next of kind higher swaps you then of incremental and do of just, guess, then rate an when start an the when can to just from And natural of sorry, like sounds this follow-up, benefit have just pivot more do happen, to the that change one understanding or its you but it that in us understanding that’s starts just year, detriment have

Don Kimble

book, Well, to when when I impact know picking-up the short-term over they basis have because driver a the me, the be XXX that as would we XXX of to rollovers that’s do for we existing points to going that, swaps main things basis be excuse say rollover. happens as for we would as would And of rates couple portfolio. have negative that the over will then on, points peak, that, on

that, other start the in to that but probably move will offset direction. peak that and XXXX so And help see that it’s we sometime

Ken Usdin

it. Got Thanks, Okay. Don.

Don Kimble

you. Thank

Operator

from And ahead. our with Betsy next Graseck is question go Morgan Please Stanley.

Betsy Graseck

Hi. Good morning.

Chris Gorman

Good morning.

Don Kimble

morning. Good

Betsy Graseck

loan you One, that what outlook couple you for growth to I what your questions. fund your how baked is A have to going growth? into just of and of understand loan expectation wanted got kind are

Chris Gorman

same trajectory experienced we see couple -- last quarters. on the growth the of we we in have growth that the of what loan loan not would front, So

are growth are targeting Our consumer -- same over but QX have lift I guidance of that we going you XXXX, the the see to X% I is side a lift to level several Betsy. we X% with to -- on for the of -- lot quarters. don’t given in yet haven’t see X% from And we respect guidance the loan think quarter. fourth so last X%, for to had

Don Kimble

far deposits. it’s our go And a midpoints fund quarter also for as X% And just close around of our of in there guidance to increase the X% pretty that if through math, billion $X to as both fourth that the the kind match is range. you

And so it’s -- that through we close will funding to be the fairly sheet just balance think core growth. we

We other but more going in to funding used that gap wholesale it expect fill core help have quarters, forward. of couple the to last be

Betsy Graseck

securities funding for how piece? give your or is come reason, you And wholesale the it funding go if hierarchy of through the just go whatever would to you about you don’t deposits it, roll-off can us first

Don Kimble

set locking FHLB Near-term advances or maturities and into term those we maturities. have been using

through mentioned the as to they coming continue proceeds. I those roll-off then, and undecided probably use before, we is then start far still would we we yet XXXX next treasuries the as U.S. of year when So And that. as are how

Betsy Graseck

considering impacts forward got cycle And the XXXX, the they further is then into that, curve XXXX, we the help, be the any early end off the have with I that should to know you short-term be for rate going that in I outlook the hike but if lastly, benefit I up here? extending looking just should done there know here? how expect we am Fed of timing rolling swaps that of is but just should wondering, you mentioned

Don Kimble

don’t there’s there we cliff I still the any Yeah. going think rates view up. that, events any or

even betas for us. swaps positive deposit treasuries than just the have before, what of being and with have the still then net and will re-pricing We be higher will a additive the been they

beyond do will think current of throughout so couple years, interest income grow next margin And we net rates we to still if and able that even go be the the outlook.

Betsy Graseck

Got it.

Okay. the last to strong to question, of tail, that that in just understand was very going the back here results I And main for then with. mortgage legs what type and quarter, driver Thanks. the the of wanted quarter on just increase? the

Chris Gorman

Sure.

purchased, was relationship is XX% really purchase, professionals. medical it driven the business, us a our of based XX% So for originations and by were this were

-- believe are for longer. higher a from for continues So decline to as we completely refinance basically this cycle business, has in ours we will Betsy, would up. purchased dried in environment I that here mortgage that’s envision

Betsy Graseck

Right.

So XX-year construct? so two or reflecting started this putting should of these had tail-off can are ARM are that floaters, and sense us loans you in give you a is on probably a fixed XX-year we quarter that ago, expect the or to

Don Kimble

XX-year. of It is a modest room dentist in had. be growth do program the be think past, we those. And in more there. I’d something in levels still some say, had us lower the than what expect fixed fourth core our mix that see of is XX-year quarter underweighted doctor, we sheet quarter But product we balance have some and tends the to have the we We still for third that ARMs it’s so there origination It some for would in a was. to

Betsy Graseck

Okay. Great. you. Thank

Don Kimble

you. Thank

Operator

And Wolfe ahead. with Carcache our come Research. from Please will final question go Bill

Bill Carcache

Hey. Good morning, Chris Don. and

Chris Gorman

Hi.

Bill Carcache

wanted unemployment the in would to implicit X% to say, outlook. increase the unemployment reserve go Can I in modest reserve to economic more kind rate around assumption of to the the rate up give on what and on X.X% detail follow range? what the your is bit increase were that if little expect due comments to, you reserve you to a to

Don Kimble

Yeah.

and about economic we year that for as reserves, are using far did last for say levels components X, the levels assessments or would in tend they for levels of what to a baseline were XXXX shift so what that don’t XX were today back and XX we we and X% unemployment where would from I Moody’s if be what and consensus that, impact say unemployment our that January the a outlook with this know was our about now start would unemployment XXXX, But top have going seeing basis year. outlook. than the have I’d level I to what head look to we the reserves at us. today my CECL the a use there As say points of worse see our to X%, as that Moody’s we of our the I’d at because than other we are little reserve economic are seeing basis for higher points that, off

it’s to that but of moving a lot would parts in not huge a going reserves. be reflective I and our change, But pieces. So think be it’s still

Bill Carcache

a little give receive of actually the that class, seems of it this the perform cohort through seeking that are actually loan that using products so, for well separately, you And and are would Laurel potential if you. targeting on that rate intuitive and approval a Thank with But those there Laurel one? downturn. helpful. kind less color the -- That’s data can you to bit is what’s history a customers relatively analytics in asset Road Road you of and underwrite customers? credit your And

Don Kimble

side I history loans. and would is do have dentists to the be for continuing also both doctors data built residential out. say for on That and student mortgage that we programs

with our would approaching $XX,XXX year for doctor it’s who I in exact are is assume underwriting a $XXX,XXX-plus of that are insight from, firm say, you a inform to large decision. in we given has probably nature and approval that new assignment fairly order rate loans. the But hospital. the high and the compensation credit We to don’t a that using a going commitment have

a So high would approval it’s it I assume could fairly that rate. be --

Bill Carcache

Thank Understood. questions. my for taking you

Don Kimble

you. Thank

Operator

service. your participation that gentlemen, teleconference using for AT&T for Thank and conclude does and you Ladies conference for your today.

now may disconnect. You

Chris Gorman

Again, our thank for call participating in you today.

direct Good-bye. Thank If our XXX-XXX-XXXX. them Investor to you team have any questions, can you Relations you again.

KeyCorp (KEY) 20 Oct 222022 Q3 Earnings call transcript