Earnings call transcript Q2 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, and welcome to KeyCorp's Second Quarter 2023 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

Thank you for joining us for KeyCorp's Second Quarter 2023 Earnings Conference Call.

call Mark Clark Officer. Midkiff, the Financial our on and Officer; our me today Khayat, are Chief Joining Chief Risk

Slide segment including find and will and comments cover X, on as materials call. On disclosure the well forward-looking question-and-answer our our presentation certain our measures. non-GAAP statement measures, as These of statements financial you

am I now moving to Slide X.

cover perform businesses, quarterly earnings operating discuss despite priorities and to which challenging results, our our of to want our the I covers environment. strengths Clark well Before the continue fundamental strategic

In at our target. X%, our relationship Consumer Bank, we're Day an consistent growing households Investor of annualized rate with

strongest growth younger by Our driven to continues the West, in clients. be

in We double-digit management with in have strong year-over-year also growth wealth asset experienced growth management sales.

continue our relationships we and our bank. investment Commercial integrated and to through business, expand add commercial In

us to through well market our ability risk Our distribute and importantly, serves clients well conditions. all serves

This balance significantly quarter, XX% our billion capital placing $XX placed we last the raised balance capital This clients, our on sheet sheet. quarter. of for we the XX% raised on is our of from down

our are Although XXXX. remain challenged, of first up basis, from revenue pipelines capital the half year-to-date solid. On our markets M&A a is

banking of fees up We expect second half be investment the the in to year.

franchises common account, our clients' a commitment whether or are primary it's across One theme to our business. operating strategic long-standing Primacy, having an individual

total in are and XX% deposits XX% of our balances diversity accounts. commercial our reflected quality core commercial our Nearly the and primacy clients. retail, from from accounts. are our are is small XX% our deposits Further, relationship base. Our of focus business, of on of operating escrow deposit wealth

commercial have average, average, of On relationships. XX for for XX clients long-standing been years. our over years key and are our retail over these clients on clients Importantly,

quarter, period deposits billion. end increased our $X by This

find deposit month diversity growth the the detail presentation, of appendix our July. continued you base. seen and of we've Additionally, our the additional In can regarding of in quality

relates to interest the potential volatility impacting as cycle to and changes manage proactively it regulatory rate the macroeconomic continue We through environment, industry. our

interest next a from Going forward, the net will months. benefit well-defined opportunity income over Key XX

swaps by see income As and quarter basis reach benefit on annual the short-term our reprice, net we XXXX. approximately first a $XXX that an of interest treasuries million will will

continue from sheet and capital both proactive to also We be balance perspective. optimization a allocation

We are risk-weighted capital to positioned well build and assets. reduce

non-strategic continue will and We prioritize exit business assets. full and non-relationship to relationships

In balances loan the declined $X our second period-end billion. by quarter,

We up will from make of benefit over continue our strong to fee-based our revenue. which businesses, XX%

reducing will balance markets our our capital differentiated platform, income utilize normalize, sheet. and As we driving naturally fee

we roll will of benefit the over as AOCI XX On front, our the will next XX% capital months. down over

will our area, C&I than our our the quality The current These in FICO exposure investment a and score XX% of of over decade are derisking greater. model. consumer to underwrite Today, over have the asset like losses or concert through distribute reflect industry. remained But the our loans the low move grade half originations business past in measures to with of discuss credit cycle, XXX next the portfolio our to of relatively is across we Credit environment. I as more would matter.

limited our Central be exposure two-thirds affordable unmet in in have Business exposure need Districts including risk which $XXX this We multifamily, class C and significant is other to office office million, categories. B exposure lending, country. in housing, of high real and to a totaled leveraged estate loans commercial continues

real of to off servicing commercial over us benefit from from continue estate $XXX billion as estate our business, also We exposure. we gained service third-party insights real

to Finally, on we will continue improving productivity and focus efficiency.

will These company-wide first and efforts million to Actions expense annualized effort we over results completed opportunities in base year efficiency. identify Our to the $XXX and earlier completion the efficiency. this improve in as both our X% new productivity successful this quarter represented benefit. a quarter reflect of remain improve ongoing of

Clark, the back. to call take I a turning step over to want Before

the balance losses. built for our we This strategically managed credit quarter, quarter, sheet our built size capital, consecutive of for and allowance third the

covered to regulatory will manage steps continue earlier, of risk-weighted of consideration assets take in level we changes. I our to anticipated As

I is outlook by close our for will business. affirming confidence my long-term

durable will have business deliver a We to relationship-based to serve clients, our and that value our model our continue prospects shareholders.

over on details it provide the turn Clark? I'll more that, to quarter. results for With to the Clark

Clark Khayat

on X. now Slide I'm Chris. Thanks,

common from from driven per the year, and income items. the continuing quarter, For two was net second $X.XX last prior operations down notable quarter, from in share, $X.XX $X.XX down by part

or provision in $XX additional included charge-offs results share reserves. expense million as to build net excess per our of Our $X.XX post-tax of continue we

$XX also severance $X.XX costs, of related refunds B and This per notable fair incurred adjustment. includes expenses a and fees or Visa, share. We value on Class million claims post-tax

continue X. Relative X%, XX% loans at to loans with ended increased consumer loans quarter. for period XXXX, the billion, ago year support ago $XXX Commercial up year XX% down the billion, Slide remained clients. to Average Turning the quarter we $X consumer prior loans grew and as while quarter were relationship from commercial loans same stable. quarter than $XXX.X the the from X% increased relatively to Compared of from prior period quarter. first up the X%. billion period, the loans from less the Total

for a Key's stable, to support X. core base commitment long-standing Slide to deposits privacy of on continues funding. Continuing diverse to

of total XX% in focused We total on rates XXXX. Our eye was began of cost interest March sheet cumulative Fed QX XXX balance raising and minimizing since deposit an management the remain the in was deposits cost beta funds. points with our toward basis

than trends. down of $XXX.X inflation, and changing May relatively XXXX, saw seasonal ended approximately normalization that from June. higher average. quarter. to balances we were more the in from spend up in across totaled $XXX at and Regular same million offset on $XXX.X from billion, we The retail a outflows and the in due quarter elevated driven billion in the the pandemic due Deposits Year-over-year, rates. stable billion $X reflects saw period the quarter deposits, ago quarter, from behavior decrease to deposit period of average the second April year client were down deposits levels declines prior by X% for elevated Average the prior continuation

X. billion second XX% net compared interest was to the both Turning periods. year ago the against in approximately $X.X Taxable with Slide prior quarter down for million equivalent income $XXX and quarters,

levels. Our net net X.XX% partially interest supported the income net X.XX% by mix second the and compared impacted and offset Year-over-year, investments. net X.XX% higher quarter and deposits last and interest interest to yield deposit income decline cost costs, on quarter. year the in which elevated wholesale margin The by same margin funding interest the was in period was prior cash shift for growth for for borrowings, higher were interest-bearing higher a in in loans part to

points first costs the higher our basis and asset to to XX asset XX interest in interest-bearing and points related earning a yields to Relative by funding margin net was and growth. basis quarter, points offset earning mix liquidity, deposit higher impacted change basis negatively XX from related by partly

Our XX swap interest interest net margin portfolio and our this and short-dated points million treasuries by $XXX quarter. lowered income basis reduced net by

X. Slide to Turning

treasury curve, benefit, we currently we annualized and increasing the expects first million mentioned, from and significantly Key a forward. our to at as meaningful swap begun Based swap in benefit of to of continue expect to from benefit to maturity estimated book, previously maturities the As move forward XXXX. $XXX short-dated has the more begin on quarter

XQ in continued and undertaken of take since. have activity We benefit, lock analysis hedging but includes XXXX measured approach addition opportunistic in and beginning to a to this this potential the

allowing We have not plan swaps and the asset come XXXX, book higher of through to rates. instead and short-term not replace the do loan natural in off benefit to from sensitivity rolling

from XXXX, second to year for $XXX million was ago reflects million and a advisory $XX for syndication quarter. $XXX year debt the period million The in ago and in to decline of the Moving fees, Non-interest compared investment placement reflecting and XX. quarter Slide period non-interest decline income fees. in banking first $XXX lower million the the income

previously charges lower first fees account rates. higher million, in structure in deposit accounts to analysis declined our service related fee and The $XX and the from implemented income driven on quarter by Additionally, $XX NSF/OD increase changes corporate in and a non-interest advisory debt customer million reflecting an reflects reflecting decline banking announced derivative activity. lower income, a investment placement in services $XX fees, offset decline partially and increase million interest syndication in by

increases year I'm Slide the was and from by $XX technology in non-interest and fees partially and benefit the service on reflecting quarter downsizing expense increase year costs. ago net business for $XX were These $XX corporate the a $XXX a million, million. expense quarter, million now Total occupancy reflecting down ago a decreased decreases personnel expense, $X XX. down quarter. expense merit $XX of with $X.XXX million Compared offset million increase and from last in decreased million facilities and higher period billion, professional

personnel decreased prior expense $XX the incentive, reflecting Compared to million, stock-based severance. compensation and quarter, lower

Additionally, restructuring expense as million in expense quarter related the $XX other included the charges quarter first second actions. decreased to

Slide solid. Moving now remains Overall credit quality to XX.

net relatively average has million, $XX remained across basis charge-offs quarter, second loans. the Delinquencies were XX For of or points stable. portfolio

$XXX tax. Our pointed as net provision million we for exceeded or which after charge out, credit losses have the [ph] for was $XXX second million million, quarter, $XX

XX level remains basis X.XX% in through-the-cycle Despite increases for well our of outlook to the provision increase allowance loans. our allowance, excess points. period-end basis our charge-offs points the net XX losses The targeted to credit of for below

and share engage Now complete continue expect needs. targeted term. us prior Slide up We order the This in in with X% the XX. being to share a X support employee capacity Equity provides second into their to from Common to customers open and to ratio nor within We not we on represents quarter range to of do compensation, quarter near relationship second the of the market X.X%. our to material unmotivated ended sufficient repurchases X.X%, with Tier did our any

dividends. to continue will client and and supporting We activity relationship paying capital focus our

AOCI of we from XX% XXXX, In the that will regulators, any the is the XXXX. our by side On expected appropriate of the slide end the changes public reduction and mark. end an approximately in AOCI comments The mark period. expect recent with by implemented of be and declines by alignment with XX% right remarks phase-in

the that, in required period. more our accrete the sheet capital future significantly, Given and, requirements reduction organically AOCI new view to to us necessary and or earnings that management over allow levels would marks our is any balance for

XX fourth an Slide the outlook quarter provides and of third XXXX. for

of prior respectively. This sheet Similar quarter trends our shifted in trends to Third and are given guidance results. focus into is quarter quarter have guidance the curve quarterly of as a relative provides of approach to tracking the clear Balance view anticipated. fourth each mostly X. year-end using on heading we forward third last year, to July our as

quarter fourth as and be We expect to clients. capital X% actively balance to and our in down continue both third the manage loans prior sheet relationship to versus quarter average support X% the recycle to we

quarter the expect deposits stable to fourth in We average third both versus periods. prior be relatively and

beta outlook to assumes fourth and net in XX is flat be a year-end. the interest linked-quarter quarter. deposit Our approaching down On expected cumulative by X% third to quarter basis, in to decline X% income the a X%

As XXXX, more repricing we drive interest interest swaps in expect growth of income in the from treasuries benefit we margin. net and our and our net both

guidance reaching remaining continue pricing the for funds impact along These are to the expectations and fluid X.X% and quarter, Our a our year-end. assumes through assumptions, outlook Fed competitive flat rate prospectively. customer will with behavior interest very environment, our third rate in

quarters. quarter to X% in quarter and Non-interest is both in remain relatively the income stable up periods, Non-interest gradual to be expected X% up the reflecting improvement third a X% prior in third in fourth expense to markets. capital to is versus the fourth X% and estimated

net the both points quarter, to basis quality of targeted to to in points We below expected remains points. in XX basis charge-offs in average be the quarter the to XX and over-the-cycle XX our assume credit basis range in of third solid XX range loans XX to XX fourth

fourth the to for guidance and Our GAAP tax quarter XX% XX%. third rate is

X% to down relatively year basis improved to feel continue full We positioning interest our prior would to profile. and GAAP balanced for XX% XX the earnings core X%, versus XX%, stable, our the businesses. down the tax in for year XXXX guidance, of we diverse headwinds, XX%. outlook XX our following: the a company in our high-quality to near-term confident Using base on the execution the strong XXXX of our net focused of to to be business, from of income power net our our foundation year durability franchise rate of charge-offs be in risk and the Despite deposit long-term benefit and points expenses fees quarterly XX%

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

Operator

the moment, will at Scott [Operator come Instructions] the Piper That Siefers first Sandler. question. of you. from with least for One Thank line

Scott Siefers

Good morning, Thank guys. you.

Chris Gorman

Good morning, Scott.

Scott Siefers

to the talk Clark wanted outlook. NII Hey, about I

So happen. factors you allow should fourth that half, quarter, the pace course of in second from especially. of you more color the slow NII treasuries sort little beta to of curious degradation in your I the the main view, a looks Maybe factors like main and just expectation, the considerably see of swaps, it to know outlook? that hear rationalize the you've sort would got on the and that but

Clark Khayat

Thanks, this worth topic will think Scott. I time And spending a Sure. on. little be a

a quarter, the without of guidance, to we guided bottom. you swaps to recent recent that let $XXX you the set. second and just me we the near -- you back XXX So remind the been would give first, the which have to have were level kind about go being in the XXX million quarter at If treasuries, just would or most NIM

So Scott, expectation bit point, that changed to continued rate back comment. the of What the decline. our consistent in it's is half your the of very the I'd year. What's fundamentals a are with of business say a is little

cuts time, at So in fourth that expecting we two quarter. were the

little As the end and bit and one it a of the little I I the that now remarks, than the the the going of we is a will of a to the prepared through drag the implication see stated through treasuries hike of will flat be drift And expected. we're back betas bigger and year. swaps the think higher kind in year, previously half

That are of said, we those moderating. both do think that factors

slope the flatten. now to will And So the of portfolio swaps we're quarter. seeing deposit beta to balances that stabilize, in continuing increase see mature begin the we're and seeing treasury we're third and mature

those opportunity see books we'll as off. two So come

reflect NIM that guidance is of individual providing wanted the quarter. then and each for seeing flattening NII that we're quarter, as we what go to So fourth we and trajectory into by

As we the Slide we X with start think a we'll consistent did last swap go so quarter. I pickup. beyond that portfolio, XXXX, into see to and treasury what isolates

XX ago, XX it And treasuries a the its million about points. QX drag I'd I $XXX As stated is points billion few between million in with US and that average in basis way an the of think, fixed of quarter, between end this and received and in yield, points. XX simplest just or basically with maturing $X minutes terms XXXX, basis a XX swaps $XX.X now think start basis of rate

So as yield $XX $XX put in gets to those deck what that XXXX. XXX, looking close on to million almost or and XXXX, together, quarter have you're quarter the billion XXX you X per with per by the an pickup of -- that's sorry, of slide at QX X% we the end

say as just go because, specific I understand. the that But to relative would to funding with doesn't that and touch So on on betas want again, What we provide trying isolate swaps transparency I is treasuries or that that. in these costs case, as it's there I can to and important that again, we're think headwinds. the much just include

a of look at the the coming which the the we If million $XXX the the equivalent muted you quote we different end the or to rates pickup. had quarter, rate a end where that at muted impact were have million, slightly quarter $XXX was and environment, is of consistent would down NII on this with that year --

$XXX be $XXX the The and rates, swaps betas higher. million gone As treasuries from million. in think, pickup has But just to are now. be I we to higher commensurately, going said, will those

to X to and going intended can. is move to treasuries isolated just again, sure much we be, swaps the So as sync. in you Slide as make giving those to we're disclosure are those on

Scott Siefers

helpful That's Okay. extraordinarily color.

more of up funding about this around want to benefit weighing your end NII the visible the that visible next your a get bottoming and back So aggregate, I more words see way and of early would treasury of but material maybe year, the a mouth, best but start inflection swap pricing does appreciate maturities. then Is that. then you to to be in think sort And don't ends I on sort the but as in from up year, dynamics expectation put that costs, it?

Clark Khayat

Yeah, I was think stated. that very well

Scott Siefers

very I right. All much. Perfect. appreciate Thank you Okay. it.

Clark Khayat

Yeah. Thanks, Scott.

Operator

go We'll of Ebrahim America. the Bank next to of line Poonawala with

Ebrahim Poonawala

Just wanted the NII. questioning to I that follow-up, same think, on around line Scott of

and swaps the appreciate treasuries. lift So from

I the of mentioned the to has we think look getting deeper before I you talk the how guidance, been we level any you this I to sense that confidence this, entire you that helpful. provide us it, the for interest feel this the just would get in investors XX% year-over-year. in Give appreciate and industry level rate throughout negative that When half, backdrop, of when And back big that been visibility but concern can change has guidance do think, year. the at you be to point color tough a handicap the good any for a valley implies is kept absent Clark, have? of it's you

Clark Khayat

Sure.

So as level. has been the think we've biggest gone the look, rate the I through change year

the happen and specific the like now as of benefit with again, industry, that's in I those off, relatively We So with very swaps we we overall, right outperformed sharing what's feel the rates, the and get feel consistent I given because we're here. very come very would trajectory on peer up like, are And last commentary we just think But these to catching some prepared stable we're in good feel on treasuries. of we about headwinds year, I our did but your happening group. I to much sort deposit say, line that. think betas, have

would the good. environment, our in that confidence rate say would expected be I So

Ebrahim Poonawala

flexing bigger question, about as X a around leverage half, Chris around on EPS focus for is second I for into guidance and I back see Give opportunity half. expense RWA a us flat expenses. And it. as talked think any and also things. back sense, Got Street there's expenses the actions. if XXXX about One thinks we at least move the proactive the

be or I could impactful nonstrategic relationships. rid for How you of getting that capital? mentioned think exiting

Christopher Gorman

Sure.

closely great as they them So are a together, question. that's you put And related.

scrutiny to if not relationship see scale. going So stay change is the how Ebrahim, remain duration, one to I deposits, we the incredible regs sure talked of of focused and the of a unfold. about us, our just whereas and intense terms granularity, to future composition deposit back around we going Clark We're here, not were on as on there's here's going for all our in model. reasons the and you focused base, we the step of pivoted that of the we're lot going think that But having leading we What's the to that's protected kind made be beta. targeted

directly I to and Next -- your gets -- question. there's think this to gets

significant I loan-to-deposit think ratios. change there's to be in a going

run for we ratios I And models, very kind are this X Category through focused think of to loan-to-deposit this. you run models on be they're our less. your significantly As it all they're mid-XXs now, through and banks, if going we

only the that quarter important. stopped by but that high keep kind like all double to but it grew end think so which first back we XX%, mind, were And should of is growth, X% our a on the before quarter, last grow we to actually And I path March. I in X%, $X events we in digits. then billion pushed not of really the I teens. around really, happened mean high And say, year, loans this of

said rest basis, that loans there think portfolio bank. then strategic if lot what to being we on standalone is right lot you be always doing you more a in assured that a loans capital cost to return carry we are you of be about and capital about will And a more us. having now, that you their won't risk-adjusted think every don't credit-only capital. relationships the most expensive, most I've of we're can the -- have And scrutinizing have

those for So we'll relationships. preserve our capital

third As them. you loans we to push But see we're at down Clark to our you that quarter, with gave X% that. do X% we we you, know, fourth to a looking lot in guidance be will can X% continuing average quarter and X% assets. And the hit down in will down in the being the

and your rightsized sure is related, then part also of assured, which we're sheet, our the So that rest second question, -- base make the our future well. expense company. at as balance is to of going as base looking we asset And we're to for the shrink have that

Ebrahim Poonawala

if Chris, squeeze I And may in. one

the Just the give of X% lot us been a a of yield. dividend There's sense focus, dividend.

know of of As confident as are of dividend Board, into the half I sustainability in but the every the Chairman it's plug XXXX? quarter, terms we through evaluated you how back kind

Chris Gorman

Board spend Sure. the the lot a manage we dividend no about Well, am And But dividend member, exception. about confident. I is strategy is policy. policy a We company there headline for as the long-term. talking and the time talking of

Our as third just to prospects clients, a is dividends. to last Board support quarter pay capital approve mentioned, and did And I our point, dividend. our our $X.XXX your unchanged, week, to are priorities,

It's dividend. of both very, Keep been paid a cash form XX% our and in just we in mind, the have buybacks history, very over out often.

So about that. paying we're obviously it. feel close good attention I to

$X.XXX so capital. bit we because dividend, the talk challenges me some Clark we spite Let this capital in related. and We mentioned, This little paid of -- built about a a reserves. grew of it's quarter,

investment reversal fees, so also strong. of is earnings build the company a capital think earnings you We is banking about the power the look our power long-term headwind into the tailwind and at we can NII And normalized of reasonable expectation and as of company, perspective, this when there. having around taking a our that

really continues will by be burn that plan XXXX. the last mentioned, and out And credit we then, think, game is is XX/XX there's this the -- hunks bunch credit play XX/XX having I a risk-weighted book. AOCI important, assets I I than XXXX, bigger destroys to as Clark And nothing cycle just as then well-positioned have it's XX% a important. XX% the faster going losses. think that thing And capital important mentioned and we by around that down, to be have of

together, all a And on put it. things those about perspective take so we dividend. feel I the We long-term good

Ebrahim Poonawala

much. color. helpful so you Thank Very

Chris Gorman

Ebrahim. Thank Sure. you.

Operator

the go Usdin Ken to of next with Jefferies. line We'll

Ken Usdin

guys. Hey,

Just a a investment guess your any couple of you in doing your to the of bank? see follow-ups of on in to to of originations. teens your And for investment couple retaining then, you're half balance side. wondering, you back sheet out bit door because start that confidence the the been And I connected just that second bank, in on – the back loan opposed starting things Obviously, investment said banking you as keep the is like the the to I'm generate -- the ability last get just you're little that throughput upper point in business of kind have does that terms have improvement years?

Chris Gorman

Well, It's all, by for fact first usual, to lot that, with of Ken. the has question, thank it. a complicated mix do you your as

The debt a So lot investment the grade. second lot actually distributed quarter. we it of is a in was of reality

fees, So of in not so great. investment terms banking

in fact, be the of our to the the paper as very velocity of terms important. shrink look -- will, to to different our will be In sheet, balance premise of lot balance important. of distribute your a very, sheet, keeping question, But ability places we

important will so an And mix. part the be of that

M&A here's of year-over-year saying. what our I'm what seeing, One, backlog kind is of up. In terms I'm

see of Our market, pipeline. total not but is of out not the backlog the which by in a to big I'm kind things encouraged we're is mid-single down, coming digits is most down deal. Obviously, that I'm equity What really starting that. seeing

what sure. discovery. recently the of through pleased go clients of as clients really proceeding our large percolating the is been people our I some all to for in I'm with time of I kind transaction with a You're for one price seeing that's fact, who sort to that as talk yesterday, talked is But -- time as

more part gut for really around on my So this it's been a business feel so having long. just

Ken Usdin

Laurel being Got and there, Road with factors that also just every specifically, -- And But scrutinizing thinking how that you're other can moratorium there. the the loan Laurel obviously, you of the consumer as talk as just one more. through cost it. but just some happens Road, in what debt far making, portfolios. you're about also terms too, incremental

Chris Gorman

But then and a and to as Clark. we to Sure. spent of lot one, to reset, have question these I'm over make I'll we going gone time a sure great it's have. about flip we capabilities it our it's start, of sort through need that we've talking

of securitized Road, Before they Laurel and loans. bought we XXX% distributed their

forward, securitizing their Going be we're going to and distributing loans.

We have do the it. we the people have ability and to

a question. it's good really So

I'm it student a payment loans, account, checking importantly, can holiday. Road, is card, platform, been Laurel While pivots we've One, federal into on we the on Road other loan et have Laurel digital complete whereby of deposits, cetera. thing made we point the the turned we really two done with in mortgage, what's going on

But mortgage falsely only that, complex our this, opening why made people to in the a around and back we're Ken, that well. whole repayment It's as up you asset-light you thing public talk getting other a but we've forgiveness, thing. GradFin, need don't someone which debt good in bought income-based GradFin we we really is the market is not service government leader around loan The early is of the did and advising when -- aperture days for. but pivot question which is your speak of sort another to about help sort of But particularly Clark, about there. that's through model. it, to that you the

Clark Khayat

Yes.

commentary look more lot Laurel the never distribute. consumer and that, complexities going and think some full-service build that that, we consistently, we distribute made to side. the I was the student of seen loan some income-driven where time. point mean was to have we continue headline. Road our we that that intended over in the this just that think and some acquired forgiveness, of generator, around to I got to a we're service platform, IDR may a is banking specifically loan to think week only I want differentiated capabilities a The . and repayment it of and really largely, kind which out to you the Chris benefit past think, to do debt. And government we think of be reiterate to on the So public unique. now, be toward will continue I around going accrue to We're to have capability of expand I it's I It

Ken Usdin

Got it.

the it NII So, if in is and fee-generating -- sacrifice I towards time down, -- loan the yeah. move together, growth that NII say of less to trade-off terms that over side just help more the a on fair of you'll LDR then model can capital wrap some getting less

Clark Khayat

Yeah.

I that's right idea. think the

I deposit right to again, also more way But relatively think demonstrating still we're new those capability growing in the there. about having And think it. capabilities. I that's we're think

So, more than advice and shot. of a generator core loan banking a fee

Ken Usdin

Okay. Got it. Thank you.

Clark Khayat

Yep.

Operator

We'll the to go Pancari go next line Evercore. ahead. with Please John of

John Pancari

morning. Good

Chris Gorman

morning, Good John.

John Pancari

pickup to slide the NII and from swap maturities. of the X going Just treasury million back on $XXX

way? do From in a deposit prevent to you numbers. way, So let that? of rate and gets your your that that investor What interest risks? could skepticism it the the change an that the it way of from it picture the what you the fair -- the risk prevent me side I Is the this million backdrop aside in a asset that? in its side, is up you realize around perspective, realizing just know, from there's $XXX are ask or realized? could the the from being ability of more outlook, into how not amount on find rate What that size do

Clark Khayat

Yeah.

I would would biggest be the been of mature think, the that rate single million. the is available $XXX mean, and factor, So swaps treasuries I reflected $XXX in when moving and the sort -- to have million

So -- do of a that's income the think kind and variables. couple again, portion of of there's that. I isolating

or use in the in market, them as or think whether funding reinvest we So about them them the not treasuries, hold cash. replacement

other make. we drop relatively of of side this. But three, all which time, which those. kind was on if today, funding then a a is might between those a of Today, those little neutral. the are Over pickup your And you or it's disparity three bit decision point right, depending there's push across see of

opportunity, to gone as when here showed of you expectations beta end $XXX that of at QX, million reflect my way. in related well tried comments beta a I higher but in that we a today, opportunity kind lower has expectations of So the up

want I least think don't one-to-one fairly at a those pretend to moving of in So, tide, know but about correlated are would and don't I those direction. I kind

John Pancari

it. Got

as you separately, non-strategic the you're Okay. optimization, you. exit to And to then on make like or a in X% -- as would All that optimization continue those businesses right. loan that incremental incrementally the to the the just front? evaluating any -- the confirm, to progress would front other Thank and you of on lead addition, provide would that decline incremental to of downside be X% anything to numbers. guidance So, on that potential

Clark Khayat

maybe incremental. a is business, think this Chris what the be we're was built running the think significant to, management I which something right how referred now. is of business guidance if what very into we've active I But that would more there than

John Pancari

Okay. All you. right. Thank

Operator

We'll Matt Deutsche go with next to line of O'Connor the Bank.

Matt O'Connor

to I coming some of X.X% Good in first is what XX% guess CETX. question are of terms questions. capital proposals like follow-up your out. But peers? I capital kind to of seem lot And on there's is to guess line thoughts XX% your the to on target moving a of X% that the XX.X% your peers to be of obviously, morning. I closer plus thing first want the targeting

Chris Gorman

X.X% given our is we business us think right to mix. Matt, for number the X% So,

about funding business about XX% any from don't or quarter, C&I fact zone. being so, we -- FICO and in And having strike obviously, the have grown to that this it we at credit XXX speak the our really we're if have think consumer think you that it's in you fact think grade, X.X% our the you right think business number. scores about card of of X.X% of, right if a we book investment If the

digest number. anything Having not-too-distant right now, out our business, we future the everybody that's of that in will the point. said that, feel that reevaluate wait right But all we, and else, like it comes and for at

Matt O'Connor

timing when the then of to optimization, RWA the the in or it size possible benefit is you'll And terms range Okay. give of and a that that? get of

Chris Gorman

different guidance I'm around most looking gave just at We're right directing looking I'll to a well. loans. other comfortable mentioned, of I now, things. the you that leave as But at we're as at lot we But things that. it

Matt O'Connor

Okay. you. Thank

Chris Gorman

Matt. you, Thank

Operator

of next Stanley. Morgan Gosalia with to go We'll line Manan the

Manan Gosalia

some that the mean on Category comments Hi, and will that LDRs non-deposit in banks? your debt, X move have to banks, the have you morning. like the for given TLAC you longer-term lower. believe room that industry or to for your apply rules Category to particular, that is funding earlier for good call also potential the wanted unlikely Does to X optimize of that I some clarify

Clark Khayat

Yes.

think second would even that I quarter. bit do in have that little we have a and that, you us So, do here the seen of

one And your But do So, rules. us to proposed and loan question over opportunity funding. mentioned, long-term gives in wholesale for we'll reliance or debt an we final follow-on I TLAC right well. to as deposit reduction around is Chris think think the on time just as reduced that wait, the

Manan Gosalia

it. Got

you that that the as maybe was more -- ACL well. do? entirely current Okay. environment there an then And on ratio? of this quarter is reserve buildup a the up buildup into model-driven? given baked much how I side, of sort guess what a Was have to And And do of credit

Chris Gorman

Sure.

So, just obviously, CECL it's from very perspective, forward-looking. a

we And -- half that step Fed of second. soft what my just portfolio to kind percentage what of it's terms -- will of successfully I is driven, and think My model-driven, half. sort back you In is a assumption that have engineer is the think can I is going assumption percent for to kind a is of assume landing.

I think it XXXX. probably will happen in

Having And conservative an both don't And in of also is economy. on that, look of on impact those have down of I the as the things. will at the yet tightening in how the what we impact impact I think market of said credit. and pretty terms banks is think such, we're

be always by do economy. impacted first so is thing in anything And any flows anything where look could way is that a at cash the and slowing leveraged the we

portfolios. we kind kind the we're it. that of There's So looked nothing There is of that We looked at nothing lens across about. all the that's particularly specific. worried

Manan Gosalia

landing, really -- ratios So we towards as imply soft we move that would if to need higher? the move do a that ACL you don't

Chris Gorman

Yes. reserve, have Right like now, reserved we I what we sure. for need feel to

Manan Gosalia

Thank you. it. Got

Operator

Mike next line of Securities. We'll to you. Fargo Thank with go Wells Mayo the

Mike Mayo

you me? Hi. hear Can

Chris Gorman

can. Yes, Good Mike, we morning.

Mike Mayo

morning. Good Okay.

down -- in it to another the Even does What X% and was for third in X% the NII the guiding you're your terms, mean So guess, I NIM? in X.XX% X% quarter it fourth quarter. second quarter? X% to that broad was in

Clark Khayat

it expect the then to flat trend be in and would to quarter up. we third Yes, start relatively

Mike Mayo

Okay.

your NII quarter, So about end but that's one-fourth per $XXX the lowest the margin? margin guess midpoint by from by financial And the quarter I since quarter. it and is saying And of goes ever, a Fed $XXX my is least next I were which I math, then which increase, the about a of around using the here. million -- year, crisis. $X.XX I you $XXX to NII get correct core quarter global second look, there fourth then margin the And rate is, such question hikes. you're guess And then slim you the where billion such of after I down mean, to million before right? why XXXX, so in the to possibly you're million, even is at the guess, the low in that up can goes

annualized, plus million $XXX NII. XX around that gets So you $XXX X/X million of XX

with a hikes. NII NIM, the rate a before wind level at numbers you a throwing Fed end, here. around of up I'm But that's with So the lot in you wind up

So year, incremental getting of any an with which the still positive, potential that improvement next the for took you're would hikes Fed place. rate not be even credit

of balance that leads happened with So NIM and sheet what the low a to the structural NII? positioning such

Clark Khayat

what if credit in our you look higher I'd quality credit yields. Mike, mean where but the it at I lower composition view, loan comes there, I general, book quality, of with generally our start is, So -- in higher that is

we C&I our book XX% have So books. consumer over is grade, have investment of super-prime we

broadly very So those we are little which the same loans, is or little we which very credit not exposure going to. to personal like consumer card, something exposure to rates carry have have

is that a little starting lower in bit what that probably is higher quality counter to structurally a we NII, regard, credit we're So think but the book.

least back through have place that and not at over an talk happy starts but do X think, specific you math we that and to us I be. go But to think it starting NIM I'll the So there, that's But point. -- offline. is for a I'm about to time, a with unreasonable have

Mike Mayo

NII about fourth right, next level so from And by guiding that year, the one-fourth is should by where stabilizes, -- go it of so the up you're basically end at the quarter least the next $XXX year. end saying little And you're gaining or words, annualized fourth then by the for million basically guiding quarter year. a million In above. of other the $XXX to you're close you're

correct, all higher So fourth go Is that level, would quarter logic? else one-fourth that the from that NII imply equal. would

Clark Khayat

exactly. Not

So the first XXXX. of quarter annualized is million the $XXX of as

Mike Mayo

Okay.

later. just by goes So, NII one-fourth. it. little bit up Got a eventually, But

Clark Khayat

Correct.

Mike Mayo

could all logic could say not -- but What And would equal, what be back to NIM that from help I what missing? help X%? said the go X% words, that equal? else What NII, is

Clark Khayat

-- obvious it's I that think, is there I the mean, one points swaps right treasuries. XX from comes basis Well, and the

about. getting costs. general what that's And betas So of getting and we're betas, with funding -- or kind rates I in think, averages, historical talking line or more overall

loan yet just which is see pull-through wholesale to we we're some have obviously spreads. some funding, we on as to opportunity talked reduce So expensive, still and about,

broadly of think I not which we that experienced factors at of in that, are a industry. the many of either or variety So kind could seen the there's improve haven't moment

Mike Mayo

banking What expect for investment second last stronger There's drought some for one, or in to the then off you started be been year. And you the saying gives the Chris, industry industry. confidence the you for either Key for both? of half

Chris Gorman

so for the Mike, transactions this I to experience have. I of around -- conversation. but this in is as on being defer People logjam just will I It long, earlier the business eventually starts long my as sort mentioned break. was based

issue equity I it bit in a think business. starting we're to see little new the

And else. deals these and that months, going they're move now think I've to I something clients. do are people to deals And on start on hold talking put just to or out to either been for XX have going happen,

just So, and looking it's on, secondly, based one, more And scrutinizing then out people. the backlog. as talking I'm to just instinctive,

Mike Mayo

cut fish So time? bait or

Chris Gorman

Yes, for sure.

Mike Mayo

you. Thank Okay.

Chris Gorman

Thank you, Mike.

Operator

Najarian UBS. We'll go with the next Erika line of to

Erika Najarian

Hi.

from… question First

Chris Gorman

Hi, Erika.

Erika Najarian

X.X% Hey. after target in including and get fully that AOCI? your an CETX? at AOCI the we CETX be loaded inclusive X%, What would be even presume would was I your NPR CETX adjusted of target And quarter, like

Clark Khayat

Yes.

target ultimate rules. that the appropriate is, reflect whatever will Erika, So,

that if then AOCI is correctly. think that eliminated, yes, of you stated I So the

about that XXX level So, for AOCI AFS XXX. is

Erika Najarian

Got it.

given fears with question that but out second sounds my having shareholders. is Chris. if stock price that price sort you, So, the is this is. where I conversation performance were this some Clearly, the your the today long-term in I'm for yield challenging, the And of is dividend market to big of trying apologize

were pandemic, And you been question sustainability it like for of your think happened sort that years challenged. mentioned big like dividend. I of the ago the your quarter, the and in that feels the about the XX% day, it end I'm discussion denominator three And of is having has the it's the with at that same getting really feels you that this that, right, payout, investors

of that feels or So, right set and it doesn't the sheet rate isn't quite business. environment imply balance to your just received rates the these essentially steady fixed been ratio have whether up zero it's like having reflect potential efficiency expenses really just the previously a forever,

wrapped reflected entire potential of be next vagaries what So, your feel that I is the sensitive -- that dividend that the an in necessarily dividend earnings your power the -- have as mean up with it at of are your you earnings are the NIM, get how conversation the I Board I is the gets have you But because feels macro? like going your is really franchise NIM you power? to but earning -- swaps. think to and to like the in the like years, three time, about not discussion albatross, the

Chris Gorman

it. appreciate Well, all, the question. the I I agree first of premise with of

challenging was were our is us, we under-earning, at the business under-earning week our just I We we we with and have and my position. we're challenge well. length about this, -- clearly thing our how for talking performing business are last based sheet and is Our balance on Board --

by Erika, And banking earnings when is just that the me that's investment why really get driven I fees, confidence, we mentioned one something things the normalized about gives we But when of the of talked power that's what company, else. sensitive lot off. on we need need the will time we you to is have, that burn the which that. And time to a we liability is be for of wouldn't at position want that liability do a passage sensitive,

and the it between XX/XX/XXXX. as Unfortunately, is it this the relates mentioned, and But passage by to burn down XX%, of XX/XX/XXXX, time. AOCI as now I is

issue. and think be the as said we And are unwinds down. we the over-earning now position we is that and rolls right are will under-earning So, I -- differently,

Erika Najarian

Got it.

you. Thank Okay.

Chris Gorman

Thank you.

Operator

And Cassidy line the we'll RBC. next to Gerard with of go

Gerard Cassidy

Chris Hey, and Clark.

Chris Gorman

Good morning.

Gerard Cassidy

some suspect special the up, the remarks on picked servicing you estate the opening in commercial CMBS challenges with with $XXX think business? billion. servicing you special share servicing color the maybe within us I that the mortgage about in Can market, Chris, your segment particularly portfolio, has you touched your real market, said there? Obviously, and I in business commercial

Chris Gorman

career. escrows, a countercyclical. ever it's it my through important the for a a of because It's business have in important question. thanks generates great Well, great today also Sure. are business deposits which been because more – bunch It's than it's they

So aren't the that the together. put servicer as we are financing you complex named when a is special debt with for familiar business, of those large

then of row estate, special ticking quarter I a for would point, a a fees. And the real into agent. so goes us to in if, you're we is as the sort when second workout are the And this off record terms special servicing get of sort of you named And it of servicer, fact, think and default, what set just in fee. all Gerard's we in

than is going two-thirds active I going continue office. But I And to on. that's of we is a continue. will to servicing special won't I more think that is be to challenge in an think And continue. think to -- challenge. to you, but office And a think office this is going Gerard, because surprise so And what not it's be focus Key asset it's be significant class not I for going

Gerard Cassidy

workout since with for on a with experience phase you And Chris, quite based the these bit takes of this, a fees time? stay while your

Chris Gorman

very -- $X -- million. for a are of It's structures. to are capital of fees very fees that these not complex large lot Yes, advisory these unusual These kind million, $X be $X single of large on very million, take a deal people. it's think

Gerard Cassidy

you commercial then is just of Great. economy doing commercial guys front you that? of doing loans, we with with estate you any us what could get to real are on more delinquencies sticking you in know see the soft to if what defaults, if And I in front potential challenges lead are necessarily, -- not the what out share said this, But guys can landing economy? you're and the now thinking. does just

Chris Gorman

we Yes. of a spend Well, area lot time. where an is this

debt it leveraged. the that's floating We anything as rate are has focused C&I book, that relates on to particularly --

verticals. under and me, on loans for are industry -- on X% Mark ago. is so book us is with focused we our this. laying it's lot and of the And Chief literally us, Officer, room is -- decade I same Midkiff and it It's our a the of are than leverage others eyes he was Risk there's who a our our But in

any And vulnerable. close where about time where into and feel an environment a good really the a pay we we pay portfolio feel our We you really my business portfolios, of most about lot cost EBITDA of I to where We go got declining attention. spend you attention. and time going up, leverage capital -- sort but very the because But with that's good about have what's feel good of where is. close that's of all that's you

Gerard Cassidy

Thank you.

Chris Gorman

Thank you, Gerard.

Operator

Alexopoulos Steven JPMorgan. And we'll go to next with

Steven Alexopoulos

everyone. Hi. morning, Good

Chris Gorman

Alexopoulos. morning, Good Steve

Steven Alexopoulos

answer, to your Chris, the open at the that in potentially terms you is signaling dividend? Are rightsizing of question. to all door on first up I Ebrahim's follow not wanted

Chris Gorman

new trajectory it's of and I see our dividend the I open payout the all. wouldn't But is, say, yet to construct. the The rules. at with put that what comfortable not very is, reason saying under I've I'm would capital caveat our current business I'm

Steven Alexopoulos

Got it.

the And But X% green shoots the the heard the to capital and fees helpful. IDDs give right, could are fee on up then income that to and cushion, needed That's -- deliver then sorry, Okay. up X% Are range, those around still this guide, other back, us X% to to messaging I guide? really factors, the income markets. you and us on X%? X% fee don't get X% then to some come there which if

Chris Gorman

of we the year year fees There's investment big half we to order but And I other hit than of cushion, to fees the trajectory investment areas in that. mean, banking a back where more we in in have are of front component banking need on have did the these half the numbers.

Steven Alexopoulos

Got it.

And I'm X/XX. then just NIM, a surprised finally, of Mike about picture Okay. Obviously, seeing big as questions lot just a view. as

NIM think you that's there? For is managing don't balance around NII situation Thanks. on which we're So do get once NIM hang is interest range so sheet on really again you and big you Clark, this the picture? about the how payout do you seeing where do of swaps? all sort how low risk get you a in rate this into X% what the differently tied ratio guidance, But to think you're about high, the dividend missing that

Clark Khayat

question. great a It's Yeah.

I direction -- just scenarios and story, more additional a longer probably to requires Steve, little a variety short of of the pace a think rate considering you in it think dynamic movements. I and and But bit be probably being have answer.

as if think about putting would much of I less think moved on we positions. to just rates have certain dynamic an know, I and did you in in be So had this fashion, They more issue. our an not, thinking orderly be

Steven Alexopoulos

it. Got

Thanks taking questions. for my Okay.

Operator

the time. to there no it queue you. in questions I'll at Mr. turn Thank Gorman. back And are further

Chris Gorman

operator. our call Thank Well, thank in participating you today. much, for you so

If Investor everybody. direct any you our team, remarks. you, good questions, to or concludes Thank can Relations have our Have good XXX-XXX-XXXX. This morning. you afternoon follow-up it a

Operator

today. And Conferencing. your ladies conclude that you and Thank using AT&T does and Thank for you. Event for our conference for participation gentlemen,

You now may disconnect.

KeyCorp (KEY) 20 Jul 232023 Q2 Earnings call transcript