KEY - Earnings call 3 2023

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Operator

Good morning, and welcome to KeyCorp's Third Quarter 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.

Christopher Gorman

Thank you for joining us for KeyCorp's Third Quarter 2020 Earnings Conference Call.

call Mark Clark Officer. Midkiff, the Financial our on and Officer; our me today Khayat, are Chief Joining Chief Risk Slide non-GAAP our certain find X, forward-looking On and disclosure statement financial measures. on including measures, you'll These as our question-and-answer well comments the our statements segment presentation cover and as materials call. of

X. moving reported morning, earnings per of I am This $X.XX now $XXX share. to Slide we million or

our reflect management. strong across supported balance and growth our Our broad-based by results risk sheet disciplined franchise,

on focus relationship and continue to our We primary from having namely account. clients' banking our benefit primacy, operating

year our continue and improve and We diversity deposits quarter add deepened ago to quality the to the businesses relationships of as period. in well relative both deposits. Average prior increased consumer as our and commercial the both and

relationship balance Our continues efforts. our to optimization guide sheet focus on

over reduced quarter, deemphasize and other we This business. loans credit-only average billion we nonrelationship as $X by

proactive us Tier approaching ratio The increase to would expect equity beginning $XX the future. assets XXXX this basis for full a foreseeable third Importantly, year, result increased by billion. in of is the billion $X our our XX targeted quarter our common quarter which X.X%, year of in capital current where sheet the we our target above Tier moves range to our ratio the and common X billion X% X.X% as X by to remain $X balance from points of management. equity of decreased Risk-weighted

strong, requirements. well to rates. priorities Overall, the was the Other of interest the XX capital phase-in despite including capital capital tangible remains basis impact future capital our common equity ratios were down our and ratio, positioned which stable proposed relatively and quarter, are this higher of relative we our points

in next we we sheet continue not manage changes. will take year, assets change same risk-weighted our the steps balance with of conjunction anticipated to Although to magnitude in regulatory would expect

balance high and X out Key interest sheet our our discuss short-term that as the remarks, reprice. and rate balance in has positioning. Net treasuries his well-defined interest next sheet point reflected our will very interest the would quarter the in quarters net environment over a continued income Mark I swaps opportunity income but

interest approximately on slide basis of will deck, XXXX. we $X the benefit income billion first reach by an showed In net annualized our quarter

Our challenge us quarter net year. third point believe, the represented for margin interest the the has low been for a this cycle. however, We

Our make mix proposed the results regulatory from a This under consistently of benefit advantage revenue up competitive continue our framework. strong will to fee-based our revenue. which businesses, be XX% clear

income quarter by banking up fees. fee driven XX% placement was quarter, a linked X%, This investment and increase in debt

We based expect on in banking is, The of absolute course, again of quarter to fourth fees the level improvement pipelines. dependent. increase current market investment

the any in capital sheet perspective. the investment Given represents integrated from for and fee upside corporate of bank, normalization opportunity our markets and Key balance management a an both significance generation

under management addition wealth In fee income billion. we mass, benefit with continue invested, of where where our both strong $XX an we from our assets consistently have area from in will positions to benefit to and payments, critical capital markets,

Expense management remains a priority.

of earlier reflect results a this the successful efficiency. to year completion and productivity effort Our improve company-wide

by continuing businesses. and our are simplifying efficiency further our We streamlining journey

provide our to business. additional our will to focus, drive expense to which narrow we we As continue in continue savings, funding invest the

tangible the on comment and to clear most remains return determinant want of strength equity Credit quality I shareholder value which is credit common quality, a over Key. on Finally, of I time. important believe

have past done over we our measures underwrite model. credit the reflect decade the distribute distinctive and Our derisking

This quarter, our charge-offs net were basis points. XX

XX through-the-cycle range operate to expect XX of below next points. basis the our several quarters, we Over to to targeted continue

clients grade or had portfolio over a of rated our consumer half with to our FICO at ] approximately as well, equivalent. loan origination. C&I our loans average continues [ of weighted us score investment of quality Similarly, The XXX serve the

to reminder, X/X including a B of and real high-risk and estate exposure our loans affordable in in in commercial continues office C be categories. million. we class is districts other exposure leveraged central housing, lending, unmet have multifamily, to $XXX need a business limited this which country. totaled As significant office exposure

will I my close underscoring outlook confidence in long-term the Key. by for

our continue Our and are quality we strengths. most positioned, remains X Credit businesses well significant strengthen to balance our of sheet.

our This to sound, profitable maintaining us focus the well on positions to shareholders. book and risk will of enhancing growth create continue framework. loan quality our for We our and deliver management value

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

Clark Khayat

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

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

were guidance the with generally at for call. and affirmed quarter, we the the we've year results we Our full our earnings consistent provided shared last outlook

sheet highlighted and optimization our in each the cover morning. I'll risk remarks, on this As strategic areas focused his business focus of of disciplined Chris our in results remarks our reflect strength these balance my management. primacy, core

up prioritizes from was Turning $XXX.X Total reflects year the prior quarter decline X% X% C&I balance the world. the to billion, Average for ago quarter. the optimization, prior reduction nonrelationship and reduction the quarter. The loans in the $X.X primarily sheet for Basel ended average which period the our driven we III sheet and from billion, relationships Slide quarter. at in game loans a The were and from prepare from balances, $XXX.X deemphasizes almost a billion were which period X. full business loans end down down balance down X% credit-only as prior by

The roughly treatment we this attractive risk-weighted by efforts, optimization decline were RWAs representing our half the quarter. reduction were assets, through in also RWA contributed the apply to portfolios. which impacted to decline more in existing of able to loans capital

to us RWAs allowed income. manage interest Importantly, while proactively impact to this minimizing net

X. diverse Turning These base continues primacy to of a funding. to to for support deposits commitment Slide core long-standing stable

quarter. stable average balances. in from year by an deposit both consumer relatively driven the from $X from $XXX.X ago The period, billion, the increase nearly up balances quarter deposits totaled was the and deposit This quarter, in commercial and average prior increase prior billion

our to brokered continued funding the of core and growing relationship balances quality we've wholesale by deposits. improve Importantly, and reducing mix

brokered billion to $X.X quarter, average This relative declined on billion balances. period-end and deposits by $X.X

At our and advantage improved we funding the took of end of $X.X of bank profile the redemption. billion called quarter, for outstanding debt

to at the end We the expect redeem debt of October.

XX% basis which raising cost total XXX Fed beta, deposits XXXX. Our interest the deposits, was cumulative began rates since of deposit in quarter, and all third in our points was includes interest-bearing March the

this quarter. rates and our higher rates resulted interest hike. interest rate markets. continued did seen Higher mix We've we not certain the deploy in slow, deposit business mix against We shift testing this reduced retail rates shift in in the July are

of the by to We continue expect deposit our beta the will approach year. cumulative that XX% end

Turning Taxable $XXX period prior from and down was net ago X. X% the interest to for third quarter, quarter. million year Slide the down the from income XX%

in quarter, deposit efforts interest deposits higher income mix to reflects planned earning margin to prior from interest third by interest quarter Year-over-year, were a interest-bearing X.XX% optimization income for reduction and the year and same net asset second and costs sheet margin the net Our deposit shift X.XX% Relative interest the for in net X.XX% was and the the balance for decline last quarter. compared and net balances our the higher borrowings. costs. higher cost in to interest-bearing period a impacted funding

Our to swaps. the short-dated treasuries from net margin income interest reflect continue interest headwind net our and and

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

to This scheduled the flow locked schedule. will swaps, maturity we AOCI is benefit near see the impact we have NIM swap those We the quarter should October, or amortize in to predicts. fixed bottomed slower Consistent terminated on continued that position expect at In The the the pay XXXX termination AOCI treasuries. position XXXX. and swaps the $X.X we in cash in the previous our quarter are third bottom which believe at comments, end, or original which from curve quarter, throughout than in guard reduction hikes billion we our as forward spot we executed mature XXXX, maturity swaps, of throughout of billion of NII. will that the rates end of swaps. fixed the no of third a In subsequent $X.X that against were future to but with received

protect actions, the planned with and along reduce liability-sensitive, of rates. exposure higher These capital our maturity to less our treasuries made Key short-term

Slide to X. Turning

forward Chris adjust curve, clear As which project mentioned represents sheet the to a which opportunity. an has been [indiscernible]. earlier, this positioning, our income earnings, opportunistic a near-term continues balance levels, of on maturities by net and billion annualized continue Based XXXX. approach we higher to our We'll the of first well-defined on drag of take quarter the treasuries swaps but from measured, short-term lock benefit to $X in to interest and a approximately

million to income revenue. Noninterest the year $XXX corporate noninterest Moving $XX from in the XX. million third trading customer income ago second to down quarter million in from year period decline lower the reflects of income $XX decrease was from for million and $XX The a Slide period the up quarter. ago XXXX, derivatives services due

fee implemented Additionally, previously in NSFOD million, rates. related to announced structure our $XX and account service charges the and lower interest on deposit fees changes analysis driven declined by accounts

a income an gain from The in in a $XX and from debt increase increase quarter the income investment banking noninterest trading [ on $XX increase and loan income ]. million fees higher second other and reflects in placement sales million

and billion, $X driven Slide and the offset now from ago quarter from by stock-based $X million million, investments, employee million, the XX. on by quarter, year Compared personnel processing lower expense partially computer benefits, $XX last Total and noninterest million ago $XX incentive compensation. quarter. for and increased the expense was to up I'm year higher by technology up expense salaries $X.X period driven increased

expenses expense, stock-based higher of a $XX production-related and majority the driven incentive from relative prior expenses a quarter. the which and compensation, by price in at increase end to million the personnel quarter which was stock was from of The increased

this experience, streamline the reduce the complexity future. and to As we for continue manage to will and our client our and to base expense improve flexibility invest continue businesses, and provide cost simplify proactively

Our to expenses core goal, is XXXX. previously, flat keep in again as expressed

We related the quarter expenses connected fourth to efforts. expect additional have in efficiency these with

While in $XX We'll during provide million. [ of charges be the those not call. earnings XXXX to full we our quarter fourth range ] complete, estimate guidance would

related our Overall, now outlook and quality remains to credit XX. Slide strong. Moving

For average $XX quarter, net charge-offs of were loans. million or basis XX the third points

lows, While positioned believe their terms [indiscernible]. in well and to Key continue and potential migration credit up nonperforming criticized of move we loans from is loans historical

credit for from losses credit X.XX% X.XX%. for third to period-end provision to Our was for quarter, allowance losses the and our million loans $XX increased

XX. points from basis our Tier equity quarter with X.X%. targeted third Slide ended well of to quarter X.X%, X XX the We a up above of common X% Turning prior the range ratio to and

targeted current share any the We'll range our new above stay once to expect range. determine rules we that targeted forward, are Going capital changes to and finalized.

We activity will advance to share do capital We continue rules near client building repurchase of in return proposed remain of the and focused newly capital. in material the term. expect on not engage in to capital and support

The side to which by will of slide XX% our the the shows AOCI end time approximately this by approximately provide XXXX through that by of reduction in expected $X.X build capital Key's frame. XX% The billion XXXX, and is decline market right expected market. end of AOCI of

$XXX AOCI burn the During billion, by increase million. in position time in which X-year million resulted in a in specifically the the quarter, of $X.X position The the increased decreased down. $XXX third frame, approximately net by rates, change structural

billion lower will Importantly, rates to of only benefit flat than the levels and now remain our reduction reduction of occur Said forward projected flows rates current if XXXX current $X.X and curve. cash in XX% this by AOCI more XX% driven represented of the maturities, even driven by time. of is differently, between

to we the would believe capital with earnings proposed management, to and accrete future in capital marks, the us reduction balance AOCI organically Given rules, our sheet along [indiscernible]. our allow

Slide as as XX the the for provides the quarter year. outlook quarter an the to third relative prior to full well fourth compared year

X%. holds curve Balance the sheet as through which tracking at trends XX, uses September Fed are XXXX flat anticipated. XXXX, X.X% at of as ending forward guidance August funds of Our

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

relatively We deposits to expect fourth in average quarter. be the stable

by beta Our cumulative approaching deposit XX year-end. assumes outlook

quarter, to our expect improve net relatively changed a X%. is expected funding and fourth be in guidance On basis, linked-quarter continue our stable We previous income to to flat of interest liquidity. the down mix also from to

fourth guidance Our quarter. quarter in X% income noninterest the changed stronger up for reflecting to has fee to the to X%, compared third income

remains year for full unchanged. Our fees outlook

relatively remain expected of assessment and million. special an settlement the efficiency-related $XX pension to million $XX in Noninterest additional fourth FDIC expense is stable expected to charge potential the quarter, expenses excluding charge,

remain net points be in targeted fourth charge-offs credit quality below solid XX of to to over-the-cycle [ XX loans XX basis expected expect basis the to points. to We ] and average our to range the of range quarter, in XX

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

again, for capital our the versus changed. foundation Once and year XXXX manage strategic full our efforts liquidity, and confident year not to business We in and earnings. improve feel in prior the outlook strengthen of our risk has

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

Operator

Our from Scott first question Instructions] [Operator Sandler. Siefers come Piper will from

Robert Siefers

reductions this contemplate lines, scope beyond that or the more year? might the do near the we've along see bottom need of I the So low $XX you're anything you've what further this like the that articulated billion a guess those are looks it for up risk-weighted do curious, at outlook asset you'll I kind does I guess kind do mean the of that year? capital quickly. base hit of outside NII. great you ramping and to news on And on any be margin I'm

thinking NII are within overall we size sheet the bottoming of So balance about how scheme trajectory?

Clark Khayat

Yes.

thanks, So Scott.

Our [indiscernible]. question that your but be would probe was expenses, first

the I X% way we've fourth loan about is guided quarter. would down to the X% So in it think balances the

optimization to come won't still any seen the efforts. we in be sheet. bit. majority going some this carry in size reduction have we We that's a They vast think I the that are the still of see quarter. doing And same could cash would down balance

focused that, is So off of leveling be you'll on. I the see billion, $XX a and that number think, right to

Robert Siefers

did there. good. an it you question, have That's think in I Perfect. but largely Okay. expense And I hit

that broader guess refrain maybe though, Park. So from a asking one. I'll about I question

about normal you've think X% talked environment. a in a I margin

billion think through would well implied or ] still of that's what $X I so above by benefit the year. be extra [ next

are just sort get happen else maybe X% to margin? what happen of sort thinking would of we top How have there? level, So to that -- about normalized you

Clark Khayat

Yes.

realm. X-ish to is, think So I not be of out again, area clear, the

before basis I of XX your quarter, drag, at points Scott, point, be [ X.XX you today, if on we ], [ think, adjusted you'd to [ the have that been kind X.XX would about X.XX last talked ] that. ]

just the included funding. funding that mix be think in mix. asset going brokered, you're think client deposits. seeing, I other did, that kind is to you third reducing to it's the reduction flattish is continued kind I So a point But our to of And continue what over time important quarter, on we on will piece focus I of if significant and saw and really reliance wholesale and we so more deposits, that

more in seen that order expense has And the would down $X the like have over you obviously, that So come on billion of time. quarter.

more size that impact and bit. wholesale little I -- that long-term issuing we're we think Now next that once how is a rules that? debt, we your into get question probably debt does

But We these in again, start the not in. in to pieces high to all you realm Xs possibility. think environment, factor will when more out of I is a the Xs that something together of normalized put

Operator

question from next from UBS. The is Najarian Erika

L. Erika Penala

I question the RWA mitigation. was on guess my

in So that going I to to of Clark's terms follow answer -- question. up I'm just

has come? in of as is And to the lot, fourth bottoming RWA much taken #X, guess right billion the does a a net And mitigation of the to a comment I next cost lot quarter, could that been of the have it's us $XX sense give So you're about out. as out you RWA for the income of already wondering; us pointing the the or area, you I'm the which second, NII how we left. to what's here consider interest and year, about think trajectory take

Christopher Gorman

Sure.

answer is, the part billion. currently to So your reduced quarter, the of third Erika, $X question, we've the first we're through

a cumulative RWAs. $X billion $X reduced we we for quarter, year, third of the billion the in on So reduced basis,

on are $XX our target to well We billion. hit

universe to RWAs interestingly, on, qualified those try event. to that we we As a different NII, treatment of there get just of any were certain namely kind that from to for you is the on the treatment pivot RWAs in impact able

a lot categories those don't have X in Secondly, any NII. that of line was obviously impact on there unused fees there

look a reduction you RWAs As have would marginal on other in a forward, the on on NII, our but impact returns, impact margins. certainly certainly positive our

to thing base we these rightsizing other focus on do The is expense all our RWAs taking that enables us out take these as out RWAs. to

So I think about that's kind it. of how

L. Erika Penala

be the the more to gives size, do making improve sheet we notion Chris, here. done, of of have And, the And balance follow-up the clearly to not? I terms potentially mentioned, how margin, aggressive as it. reduction, be the in expense the III would Got time. that in bit little game the guess, banks base, target this is end being from of CETX there you're we're to improving the Basel that's a of me. just generation I guess you RWA being moves or market balance mindful mindful ready $XX tell check, and of, billion You okay, you

CETX, said the One everyone loan peers of runs they're at category bottom from Key whenever of year data its versus the notion list. for the of U.S. Bank X your next ends commitments, up ready freed being growth with sort the on that if adjusted

in regulation? how of your So how versus investors of bank world balance KeyCorp thinking new terms are in sort this for about running the do you day-to-day, right, order

Christopher Gorman

current proposed can hit rules, Erika, definitions of still know, the That rules they're under confident frames, are change. time that to likely the them. you Sure. including we're all, associated said, as preliminary, the and probably we Well, and that first certainly the

wanted March of what the make hit business events and sort in out our rules we to we the us difficult our of is button the to need and these to when happened can I came get so And so to do do what and growing then I business. back wanted July, -- reset reset decisions

business the in always I've shape. good As is said, underlying

adding where We're to side. We're to we're balance on our needs adding do our be to what on what be, our consumer our get commercial is where sheet, And our to needs in and do funding clients the that's then and deposit clients mix grow get want loan people up marketplace get they rightsize to free it the back out I wholesale the it side. and business. do

So we're that is needle that the treating. currently

Operator

question next line from of Winter D.A. the Our is Peter from Davidson.

Peter Winter

You guys up mentioned higher the But markets over term? risk, for quarter. about I rates just wondering, outlook just that capital medium in be geopolitical should and markets between the thinking was the how you're fourth capital the just

Christopher Gorman

The medium about really good it, feel term, Peter. I

Over fourth quarter, I term, consider the would mentioned the you both challenge. are the near of which a things

I as be the backlog, an will increase of a I We geopolitical basis Obviously, seen. the -- linked mentioned my in be issue. on at our the as issues look to the up comments, but quarter level are absolute remains absolute

other X last the or the where X bond has as been, well. an over days trading The that about impact you thing think obviously has market

feel near think headwinds, I the business. but medium the think I I over the in probably good term, term, So additional about there's

are important. which firms to equity Private starting is transact,

obviously, XX%. comes at amount completed $XXX the And you in it's If that back. billion down this about M&A that time, area, year of look over was the

degree. I be geopolitical activity. the near of In XXXX, think term don't to be as there's settle going these the these you of to know lot clarity in intermediate concerns, there's up. we'll where as rates in look term, I So at a in what some when and think on I

Peter Winter

Can I be then, could And And talk to your XX%-plus dividend, any a you that about payout if cut is dividend? forced commitment that just it. ask ratio. you the about risk Chris, have maintaining could mean to I there Got the you dividend?

Christopher Gorman

that. I'd to So address be happy

me my dividend unchanged. on views saying Let start by are our just

term. everything, manage on same Board our takes approach managed the for Similarly, the As long we've business take dividend. us we the to including business, this the

in do when as range November, gather in context we always the so review of dividend the And a we of we'll scenarios.

clients et capital our are scenarios, normalized cetera, as geopolitical our about conditions. We the But importantly, we're we And to our want earnings going always macro to company. into talking priorities unchanged. relationships support consideration, secondly, just the were prospects, and dividend. as the our power You and do, take of

organically important, nothing The quality. denigrates there's in. more XX be were other our losses. able of credit RWAs I little the bit is And than at about I talked our capital. factors CETX already and capital a really actions took, obviously and first feel obviously to that we points foremost then through grow quality We really credit for this by because AOCI. is that ability down tied think that That credit good burn build about a to capital also looking we our reduction other quarter. of are We'll basis

I'll of about I So dividend the think that's started where that end kind it, changed. but kind how haven't I -- on views of my

Operator

And come from Ken from the Jefferies. next Usdin will question

Kenneth Usdin

I perspective? help to Clark, like and strategy quarter this wondering can was put through like of of the the moves into executions does fourth us net some just impact could just changes of hedging lot of to I of or a quarter. guess these new new hurt help terminations in kind if you to it start, that XX, you NII terms of Slide walk understand kind

Clark Khayat

Sure.

we the to as to cuts back to Also billion now has but forward for through of paid of page, the that that be that higher pay clear, in termination put Ken, or AOCI kind billion then now the of Those of relatively on in higher than really rates remain done against protection quarters. rates. talking the you'll higher higher prospect swaps provide an fixed curve, fix which a couple obviously to $X.X see rates guard $X.X some of So swaps. is end. said, the some of 'XX, we've incremental rates, on the or And just -- about flat been XXXX were

from or positions. there higher, we'll of those sort of get protection that's anything both some So

it terms higher at in a our I of of about kind to XXX-basis-point reducing kind NII of staged rates risk by half would to rise. think

of just we're but So scenario, protect capital extreme to earnings. reducing an liability sensitivity that kind there kind and both of

Kenneth Usdin

Okay.

guess we've I for working of for got RWA stable NII that, over to and then fourth the have in -- on gave also quarter out and the of we your that. trying against new incremental fourth just -- I figure Are slide -- you reduction So kind And then guess these I'm us to all your the your with outlook maturities. helping adds third, is forecast?

Clark Khayat

So rates a if really It's I incremental picking benefit of up the there. wholesale like versus little can and have of payers NII about. protection think terminations the pull-through we're the little bit a bit carry shared. rates talked quarter maturing, then add we've the gets lower fourth think what swap don't The about will versus the huge -- you'll see we've up. borrowings. because of a going impact which the positive of in And already NII -- treasuries if third won't and a swaps about change,

Kenneth Usdin

it. Got

Okay. All then... And right. Perfect.

Clark Khayat

all of incorporates sorry, reduction is, specifically we the talked And maybe explicit this think that in question. or and about. implicit It that the all RWA loan your reduction incorporates, I

Kenneth Usdin

the to securities in with of rest flow cash what Understood. And terms just time? that thoughts that continue do get so we're -- X just last runoff. Any book treasury is down the the portfolio? well as just Will to updated going over of you

Clark Khayat

Yes.

that call some this just of flow just of We've short-term cash and roughly some quarter sort that $X of liquidity, given anywhere, as year through about book. the of the per out billion used that it, cash course coming happened. things have just we're of of So seeing

on us different to into overall see deploy back variety the but in of down. of that duration ways, really portfolio focused a that portfolio start the You'll bringing

Operator

And the RBC. Cast Gerard from from question next is

Gerard Cassidy

your you mean very share strength some I were the risk, second have you than Can customer for cycles, Chris, more in the undue franchise, that KeyCorp, risk? emphatic being you an from have of the in a prior taking is just us them and quality. with are guys or by that credit competitors on borrows depository about great. impact obviously KeyCorp. know derivative maybe or of you maybe as may And impact would rational competitors competitors even the could that book is non-depository Do if which the your then footprint which everybody not credit what well

Christopher Gorman

Well, the you loan in general, your seeing because thanks excess kind there in is market for in think I would think of that increase you're to I capacity expect question. don't see point of spreads Unfortunately, structure. private market. in terms don't see I at seeing, expect in broadly the this the in you're the would think of cycle you some And that frankly, changes to loan the

-- So many properly I've and cost I credit capital. think know, its stand-alone rarely a as a risk-adjusted graded you basis, said many, times. of On returns

definition, my a So I'm about of stuff, that, if underpriced. that by lot right in opinion, is

we we have is Now over loan servicing special is that commercial where we billion that the service, over $XXX servicing. other thing in, our that billion $XXX-some-odd visibility we are seeing, obviously, business, great and we have third-party but have

in business not servicing. part So deals workout that cycle. has the a point we're record that's that of. the at where Basically, agent the a complex for were for we're this very set already year And

that on bit into add you little an insight you there. to anything of that? out a what's going gives would So Clark,

Clark Khayat

to kind Yes, just make among hurdle, about of that to couple defending made maybe of point, and side, think I relationships us credit One, be the the relationships a we've stand-alone best of those all about you'll that business all our but additional things. with managing comments with on comes relationships, Gerard, credit. Chris' banks see consistent it's it'd with

I think being would banks broadly, but again, rational expect. the So relationships, are defending you their as best

credit comment. and comment a -- would maybe just market, nonbank third-party prospective retrospective the I I'd about think you If a make

or for loans of Looking that call market. originated much, key, sake of that's argument, is backward, those The do bank would any, of Fintech think, in do broadly. not, asking sit on balance sheets. at question nonbank if That of I a have sort bank credit just of it, the the some think be is, We of question, there's should gone business. be been we kind embedded a I lot yours which outside

the private capital to time. taking making The rules in of second is That there. yet credit are flow obviously conversations over prospective, piece be written, which conversation is credit and of the would funds agreements and the activity engage be some lot a around there's clearly, about but

Gerard Cassidy

as Very hedging And us the rates follow-up given strategy, question, you've a difficult. good. interest then Clark, lot acknowledge all on very we detail. And of is forecasting a

rate, In X.XXX it the they Federal forecasting I at interesting, were you go funds missed it June Fed if rate. end 'XX, They Fed a for forecast by basis back dots find the fact, very Reserve's funds to XX XXX points. the of

for guys, first the long my but very for Everybody interest about tail net risk, everybody sees that your So next an keeping keep guys what's our that. eyes the Or clear tail basis, that what benefits is to need year? you've annualized been on or quarter income eyes are sees go risk long question on? you could 'XX, the wrong? we that What just on, you

Clark Khayat

rates. Yes. we at think It's higher risk probably now, versions. asymmetrically of kind right to a if But couple of are you

component, right? -- the of yield sort And because so immediately that when time pull contemplative it's happens are and the you up cost mature, we treasuries So still the of as there's what very go a feel still through. rates swaps and

where are softer it's little contemplating higher scenario, economy a you macro right, like rates. things a the stagflation We -- have is and

down. case. that's not obviously often, think are where we There rates economy assume scenarios weaker come the I

through the we address have the and all implications to think that levers just So sensitivities that trying that. of we're to and

as to was, repricing, and other piece getting we're we've ensure I and and are swaps talk -- we these mature? rates before for over which that have more think talked the when the about And hedging down that used We've we obviously, rates come quickly can we XXXX, this things come other repricing down right significant talked around if the the characteristics treasuries we've 'XX. to done were right rapidly. advantages time, to now

prepared trying of trajectories. different thinking project certainly our we're we're that view conditions, to for Gerard, it, making about So broad and we're but range best of we're sure

Gerard Cassidy

likely. seem a thinking But way funding And as the the Or as is did I'm rate, that they would -- if on side that, coming your about would down rapidly, good guys are sheet Clark, what would rates which they glad you comment guys' I would costs lag? about it on fall quickly your asset balance the happen, deposit from happen doesn't you mean, of think, do more experience?

Clark Khayat

down nice sort deposit I from was know know, thing Gerard, it's you the the on which but billion the book, commercial way $XX-ish billion pre-pandemic. So $XX of

it's pretty indexed. that's of us. for lot A So meaningful

will move it So move. rates when

of positive. What's Now it stuff account. and tougher book, consumer have function a a But competitive that predict they're going moves. generally a down, market was be as I into obviously indexed you'd to that will coming little sticky is and micro is to so think the think move market XXX%, that's that much sticky to the always which environment. not as I up, And at a little tends and take all micro

funding. So how are people of thinking other about sources and those

you If deposits is funding might wholesale consumer industry always rates the does quickly, beta down down differently, has of cause follow faster. come at the question that more tend see consumer pace the so being about there. on do the to broadly, people which think to But would it come relief make sort

Operator

line question Evercore. from next the The from is John of Pancari

John Pancari

areas pull pressure? the opportunity XXXX, where the what you end, your for And the flat that some But fee really you bit on the us outlook, you as could expectation could of just give of see there? came maybe I is more at are expectations On look to see third revenue. number you want keep color. do I puts can back know quarter stable? takes in and quarter a see you a and if to Like above an fourth about talk bit little where expense little and some

Clark Khayat

Sure.

want just So for a the hit I quarter John, because just second, clarify me third to let it.

quarter in to So that in kind of about in reserve late in onetime some and elevated mentioned. build, little that costs as we a settlement came then bit million came high, I the to in quarter of related point medical $XX the would just legal you claims. a -- [indiscernible]

I core again, were will quarter, the there think, stable. guidance. of in those, be we sort consistent think The of consistent stable net as relatively we relatively fourth with well,

very come expense through, namely should Just very out pension to couple a assessment a charges some charge. one-timers, management FDIC pointing of a it identifiable kind few related additional or and reiterate

those, feel will of net or be relative So it we like stable.

the primarily stock personnel, driven The big by was was and move quarter also that in in change the price. around

we aside have in referenced, do on we estate the work tailwind And provide charges from a of of on third-party the the to we're hard expenses earlier push did own the So in take getting anticipation a we Chris folks as in variable. parties and using quarter. that that things more will is at kind making we work on 'XX the we're doing the more but like and year, which But focused contracts, some the from work the 'XX we're to, doing. year, historically and of little beginning of our of talked flat real to flat continue third more moving bit away and

we good have circled. that obviously that about So we through, there's can think stability. And pretty always feel surprises but we come core the

John Pancari

the estate And of look in main they opportunity the as areas that are well? as XXXX contracts, real rationalization at third-party you

Clark Khayat

There will be.

said, shrink as shrink personnel. you the of base Chris have you kind do the is our cost largest and sheet, balance to As expense

those the of aggressive So about starting are be some than we to -- related think But and we to been I even to of going now, that. there more contracts. third will, trajectory and understand have course, in-office personnel third-party positioning, estate we're again, real be

pieces part it people of as be meaningful it. certainly, of view So would all of those. X But will I

Christopher Gorman

perspective, work year, continue John, teammates. of board on across these We're XXX people, about And it's down last in the an to from the We'll things. FTE Chris. all

more up have focus simpler, our profitable wrap the company, in we the business, say we continue after a we'll And to being as simplifying on quarter. so to on -- more business, smaller, streamlining that our fourth

John Pancari

Got could just it. one. All if right. X Chris, last I ask

portfolio, size of the that if Shared missed your lead agent? you sorry book? Credit [indiscernible] I And Nation of that then portion have National this, Credit, the up but commercial what Shared On

Christopher Gorman

got numbers never we've dollars SNC absolute but of disclosed So And or this you given were all never in we've we've business, just around their the amounts. the numbers time tell the results. SNC I ever had, in in best book. our terms Everyone can my results obviously

John Pancari

to? plans Any Okay.

Christopher Gorman

said, No. the in haven't with John, and hadn't. results really it's But pleased disclosed just very We something we them. just we very, just I back, as got that our past.

Operator

The Stanley. next question is from from the line Gosalia Manan Morgan of

Manan Gosalia

down to But year? reduction, growth it any you're more does On need saying next next billion you level, you can grow the can RWA that and year. loan lean little mean bit sounds the the does see is do right from level $XX if certain And XX-year the right? do a you moves don't the like to mean have so, the here, in bit areas? And in side? higher that on does that not a Or does you rates really matter, little of So more if the RWA matter? into XX-year

Christopher Gorman

be we our every it's our So answering a to year. When material for When through client question to question, going manner was But RWAs into that's this -- I question. make Erika's the it's raw was answering go great rationalize have to base. that I the leaning in reduction Erika's and we not we're Chris. be RWA will portfolio also expanding have continue mistake, us we no because

make on to So cycle, be point both. we're -- trying not this going our we're in the The the in doing is, side. RWA at I was to point done

Manan Gosalia

it. Got

some think might meaningfully bit. down and A quarter. little as room cash still I And quite building more this Okay. liquidity your you to levels, noted of there then cash be peers we lot seem think be to a bring about cash

you other you the maturing right what's might how it And right need function treasuries? hold treasuries you Is with replacing a or about cash the now? of right So are think the just thinking of you do to be maturity, if levels liquidity? low-duration with level

Clark Khayat

question. Good Yes.

of any given Manan, kind historically, would day. on billion have we $X So been

think went range year kind the as high I to ]% X X%, XX of we X%, quarter. this [ the in as or XX in

treasuries think about those in down on is we'd way X% But your portfolio [ cash shorter that migrate I duration over to it. treasury ] the time. as right to view to or holding think a X% mature,

Operator

question O'Connor. is the Matt line next from Our of

Matthew O'Connor

the I base to wanted things. expenses some what's to XQ expense obviously called on I items you're and well. that keep some for flat guess, first, had you up XQ, in to quarter a out from because this of follow couple as in this have coming year on of trying

targeting? base the about you're we that think So as flat what's 'XX cost for

Clark Khayat

the Matt. think of would kind range of billion, I $X.X

Matthew O'Connor

I modeling expect you to for much for the do ex how that's but Okay. That's helpful. the purposes. And then know pension charge settlement just guidance be? XQ, that

Clark Khayat

We said to in that [ range. ] XX% XX%

Matthew O'Connor

just it, then disclosed couple bumped And this, of anything normal Not you that would deck progression? a on that. criticized everybody and the got you've of kind just shows missed your I call Sure Okay. a but row out here. in there? up in a it's loans. that quarters Or Is lastly, slide what

Christopher Gorman

in businesses pride of as That's consumer it. Health us through there, that's Mark be be our another. portfolio. There's categories and Transportation just Matt, -- would just amount we a Midkiff fair few grading be but don't start look product-type this us care some content any of there's take fine-toothed one. critically the there would through very that there. is a There'd really you with going at looking floating at room rate the need point, think that to loss additional cycle anyone has pretty the and here you at think in I I look critically. comp. debt, But we

So that's genesis it the from X.X%. of really X.X% to going

Operator

Our next from Ebrahim Bank question Poonawala is America. of from

Ebrahim Poonawala

you. follow-up, quick a had Just Clark, for

I of in your in you quarter, with roll-off fourth the $XX in look from So had is the back million at guidance guess come some going NII Ken. the NII When that's to flat. we going the discussion to

quarter-over-quarter. be would X% that So down NII ex $XX million

a there're Just bunch -- pieces. of appreciate I and moving

that level NI core that what's on your lower? the repricing, about RWA or core beyond sorry? for drift NII NII just you basis -- think flat, hold optimization, NII, of deposit expectation fourth Does a for expect quarter, like still we deposits As to those do

Clark Khayat

Yes.

want a when basis question... core just you sorry, say I sure and I the -- -- to make understand So

Ebrahim Poonawala

what, view, from lift the next the swaps X we and we have If through didn't that remove the treasury few quarters? your if the Slide in would from do NII the have maturities, you that,

Clark Khayat

And say just be to think, seen core and quarter picking choices, in those right an to takes. I to rates slowed. without we I there stay but But third already business is has the rates so actually to underlying that's make. word trajectory, -- I Well, I business important, is if forward it. using you're not of the The have flat, quality second puts -- obviously, point I think quarter reflected got curve, positions. pricing the would if kind of deposit so on were

stabilizing. bit, a I think is off still running while NIB,

see you'll So some still drift costs. deposit in those

I think shrink a continuing we're loan bit. -- to the book the obviously, and little places where

headwinds. some those create So

reduce are well, As we to we those costs moving higher. to deposit though, aggressively relative and costs obviously, generally are funding wholesale did as say,

provide the those little will a that you're bit So -- of that against relief talking trends about.

we do I we a view the would core swaps which business and those standpoint, on treasuries. what is think focus would performance more without from So doing

first that, curve, did is good but you impact as hesitation honestly, seasonality We always deposit have at X about in has bottom NII. balances. assuming say I feel X and or near day the again, which some on forward know, on the quarter, fewer that Ebrahim, has I has

back which go for XXXX, we've X% an quarter. X% other kind of of in to first you deposit was a reasons, anomaly been balances the always pandemic-related decade, than down So if

view cleaner So on a on have quarter we're fourth call. working those we'll are the guide when the components we through, 'XX and

Ebrahim Poonawala

vicinity. just I'm color. the of to that take All million be something by to So a if year? the good would you're trying to in fourth the trying at in quarterly $XXX end billion that And NII the X is should $X.X what Tier to $X.X quarter, I'm next getting is, But think mitigants get that helpful. that's million roll-off to $XXX billion,

Operator

Research. is Wolfe Carcache Our from question from Bill next

Bill Carcache

of level NII and the repricing securities to around debate follow opportunity upside the the swaps on from possibility a offset further some helpful. could you but the to highlighted. $XX maybe of to some could made There's wanted would up talked need around from points you've the the add repricing. that, be points, to if I the the surrounding speak of you've I the that specifically, by beyond be billion RWA levels reduce think you've around that that And

Clark Khayat

Yes.

quarters clarify we've make that believe, is focused a So to Page all on the so sure, and the the right, the about now, treasuries X, from swaps. I talking which maybe same thing. in to we're a shared impact that That just few row just specifically

we've said are down a So relief. obviously rates conversely, numbers before, that and in. components improves, there're as when when rates pressures and pressure funding as there's well these funding come other there come And up go lower, that little look

we are isolating So just the to I sure want that talking that make thing we're about.

portion relates book this not and a this it the As hedging all is to pool, loan of obviously book. of Bill, the loan

see your we if we we there were we even about. that NII reduce the expect loans, question? here, obviously would we've are benefits So Does to what beyond book to pressures talked but the if continue answer reduce loan

Bill Carcache

feel If I environment ask be from to that on have pressure -- you we are I separately, were a Understood. wanted had a helpful. is No, rates swaps where low put Key still facing rate now in have going handle if on customers you a to higher. that resetting like and good may,

are good, guess, contemplated allowance I across the metrics on dynamic extent color that credit any dynamic. Just your that can but portfolio, I any very give on know that that in that you would the color that that's feel great. you commercial to and be

Christopher Gorman

Yes.

increase self things I around This -- focused that the no no criticized Chris, back the gets on. the of So answer criticized there's build, X in that loans. there's question we to gave are

exposed. are to rate any increases, customers so however, are are looking they We at that exposed

because have extent that. into And we on and are know lot a yes, relationship, we these so customers, yes, our it's the about have And we the that, primary visibility factored to looking numbers. at we

Operator

And question from JPMorgan. from next Alexopoulos the is Steven

Steven Alexopoulos

quarter, look year-over-year I revenue so, we want operating to leverage, on third if so XX% start, positive flat. at expenses the or down is

I XXXX. sense flat. delivered positive the do operating plan the XXXX, through more is in But feel to side? do said expenses on deliver positive you think you at operating And any could you was given chance leverage, urgency Just revenue expense least you leverage of XXXX? hold the know you more of I of consequence, there of a actually last time to trajectory

Christopher Gorman

took expenses business. RWAs. -- guidance expenses. we're first urgency XXXX to actively, do I We're you, quarter, going to to do we now, our with out respect, more just Steve, continue So give simplifying And fourth we are $XXX million we as remind in the the in mentioned, we we'll X%. mentioned, shrinking as But when about And of to we our is which feel to give numbers. quarter report right

we with smaller, urgency we're because, do cost out be come more detail I the the rationalize base, yes, in will sense as particularly fourth company. going a to quarter. said, a simpler We to feel of But

Steven Alexopoulos

know we'll any you do thinking now? next Chris, how leverage Okay. get you that I Is more quarter, think, positive right there are chance you operating but next deliver year?

Christopher Gorman

We'll know planning more when for Steve. we XXXX, our finish

Steven Alexopoulos

Okay. levels. Slide X-year separately, obviously, lot capital impact And for then, how far, projected part of so curve the of given calling XX of I'm AOCI to XX-year on a on out your year-end investor out what curious, that focus we've the what seen does here. and the change you're

Clark Khayat

little does Clark. Sorry, clear, you Steve, a it just be how change... it's Can

Steven Alexopoulos

other moving your So are up, working words, in rates AOCI. against

the to I the X- curve contemplated don't forward the September forward believe where saying XX-year curve. You're or is. use in it

what to part negative we've the seen given ] [ that how ] million you'll million $X.X X.X saying [ you're [ intermediate change the where curve? from million of go $X.X So ] does in

Clark Khayat

up given in Got where really me. don't sort we're front have of it. It's the X-year. I on that of focused number obviously

rates least taken, you at at are moving But some So it. talked all of that. clearly, have this we mitigate magnitude, steps we cover as are to about, we -- when can't

reasonably a to phase time need as continue assuming, to sure that our take TCE, those with we're rules. get things that capital in the and steps to rules managing we're that and compliant well in take we'll in the position making closely. And level move. quarter, to focused and the Chris capital frame, in the to talked right we be of markets contemplated managed on think, really as said, some about. we you've So But those changes given I new We watch that

Operator

to further And would back queue. are And at to the closing turn this I questions like CEO, ahead. Chris there go Gorman, in Please conference no time, for remarks.

Christopher Gorman

our for participating today. you thank in we Again, call

XXX-XXXX. have remarks. any follow-up them afternoon. again, (XXX) you Relations our Thank you you concludes good can questions, team and to That direct have If our a Goodbye. Investor

Operator

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

now may You disconnect.

KeyCorp (KEY) 19 Oct 232023 Q3 Earnings call transcript