Thank you operator, and good morning everyone. I'd like to thank you for joining KeyCorp's third quarter 2026 earnings conference call.

I'm here with Chris Gorman, our Chairman and Chief Executive Officer, Clark Khayat, our Chief Financial Officer and Head of Technology, and Mo Ramani, our Chief Risk Officer. As usual, we will reference our earnings presentation slides, which can be found in the investor relations section of the key.com website.

In the back of the presentation, you will find our statement on forward-looking disclosures and certain financial measures, including non-GAAP measures. This covers our earnings material as well as remarks made on this morning's call.

Actual results may differ materially from forward-looking statements, and those statements speak only as of today, October 20, 2026, and will not be updated. With that, I will turn it over to Chris.

Thank you Troy, and good morning everyone. We reported third quarter earnings of $0.51 per share, up 24% year-over-year, reflecting the strength of Key's relationship driven franchise, the disciplined execution of our strategy, and the momentum we continue to build across the business.

We reported record quarterly revenue of over $2 billion, which represents 8% year-over-year growth. PPNR growth of $60 million on a linked quarter basis, and importantly, return on tangible common equity that exceeded 15%.

As we continue to make significant progress with respect to achieving and sustaining a 15% plus return on tangible common equity by year end 2027. On our path to achieving our current long-term target between 16% and 19%.

We continue to deliver on the commitments we have made. Our relationship focused business model continues to differentiate Key and was evident again this quarter.

Our deposit franchise continues to perform well in a competitive environment. Average total deposits grew $3.6 billion, while interest bearing deposit costs increased only three basis points during the quarter.

Overall funding costs rose just one basis point. Net interest margin expanded six basis points sequentially to 2.95%, reflecting the continued fixed asset repricing and funding optimization.

Our capital markets team delivered strong results with investment banking and debt placement fees increasing 27% sequentially with growth in M&A and syndications. Asset quality remains strong.

Our net charge-off ratio improved to 32 basis points and our non-performing asset ratio improved 19 basis points to 55 basis points. During the quarter, we repurchased $320 million of common stock, keeping us on pace to achieve our full year share repurchase target of $1.3 billion.

We remain comfortable with our current capital levels. With strong organic capital generation, we will continue to take a measured approach to capital management.

As a reminder, our capital priorities remain unchanged. First, we will continue to support our clients and prospects.

Second, we will continue to invest in people and technology. Third, we will maintain our strong dividend.

Finally, we will return capital to shareholders through share repurchases. While we continue to successfully complete tuck-in acquisitions like Clearwater, traditional whole bank M&A is not a priority.

The economic environment remains constructive and our momentum continues to be strong. We are seeing healthy client engagement and activity across our businesses.

We continue to organically grow clients. In the third quarter, commercial clients increased 3% and relationship households increased 2% from the prior year.

Commercial loan growth remains strong and broad-based by both industry and geography. Period-end C&I loans increased 5% sequentially, reflecting both new client acquisition and a 200 basis point increase in line utilization to 33%, the highest level in over three years.

The line utilization increase is reflective of clients continuing to invest in their businesses. Our consumer trends remain strong and resilient as our clients continue to benefit from a healthy labor market and the wealth effect.

We continue to see strong performance and are gaining share across our priority fee-based businesses, investment banking, commercial payments and wealth management. In the third quarter, these businesses collectively grew 12% compared to the prior year.

Investment banking pipelines are up 5% sequentially, despite significant pull-through in the third quarter, and remain at historically elevated levels, supported by record M&A pipelines. While middle market M&A activity has yet to normalize, we continue to see significant client engagement and remain confident in our expectation for mid-single digit investment banking fee growth this year.

In commercial payments, total gross payment fees increased 8% compared to the prior year. We continue to scale embedded banking and are encouraged by our trajectory.

In wealth, assets under management reached another record this quarter. Wealth remains a significant opportunity for us as we are less than 10% penetrated with respect to our current base of mass affluent households who bank with Key.

We continue to invest in people and technology. We are attracting top talent and continue to hire frontline bankers.

Our $1 billion technology budget this year has supported new product and service capabilities while allowing us to position the company for the future. We continue to embed AI in enterprise-wide end-to-end processes, currently targeting four domains: commercial onboarding and servicing, commercial originations, consumer servicing, and software engineering.

Earlier this year, Clark assumed leadership of our technology organization, creating even tighter alignment among our business strategy, operating model, and technology investments. Under his leadership, we are accelerating the deployment of AI across these domains to simplify processes, increase productivity, and help our teammates spend more time delivering advice and solution to clients.

While we remain in the early stages, we are encouraged by the opportunity in front of us. As we look ahead, the geopolitical and macro outlook remain uncertain.

At Key, we remain focused on managing what we can control and remain well-positioned to perform through a range of potential economic scenarios. While our results are strong, we acknowledge there is uncertainty in the broader market.

We are actively managing the risks and maintaining discipline throughout the bank. We are well positioned for a range of potential rate scenarios and continue to intentionally manage our balance sheet to be fairly neutral from an interest rate perspective.

In summary, we are proud of our third quarter performance and the sustained momentum across our business. These results would not be possible without the contributions from each of our teammates.

Thank you for your dedication that will result in what we expect to be both a record revenue and record PPNR year in 2026. We are currently in the midst of our planning process, and will have more to say on 2027 at year-end.

But with our strong trajectory and healthy pipelines, I believe we are well positioned to drive another year of outsized revenue and earnings growth in 2027. With that, I'll turn it over to Clark.

Thanks, Chris. As Chris highlighted, continued execution of our relationship-based strategy drove strong performance in the quarter.

For the third quarter, revenue exceeded $2 billion. PPNR reached a record level and improved returns inclusive of improving credit quality.

Starting on slide 4. We reported third quarter earnings per share of $0.51.

Revenue was up 8% year-over-year, while non-interest expenses increased by 5% when excluding the FDIC special assessment in the year-ago quarter. Tax-equivalent NII increased 10% year-over-year and 4% sequentially.

Non-interest income increased 6% year-over-year. Provision for credit losses was $61 million, including $89 million or 32 basis points of net charge-offs and a reserve release of $28 million.

The net release reflected improved portfolio performance, scenario impacts, and continued remix to higher credit quality relationships, partially offset with some qualitative builds to reflect ongoing economic and geopolitical uncertainty. We remain well reserved for a range of economic outcomes.

Return on average tangible common equity increased 260 basis points year-over-year to 15.1%. Moving to the balance sheet on slide 5.

Average loans were up $1.5 billion sequentially. Average C&I loans increased 4% or $2.3 billion, partly offset by the runoff of low-yielding consumer loans.

On a period end basis, C&I loans increased by $3.3 billion or 5%. As Chris mentioned, growth came from a combination of broad-based new client acquisition and an increase in utilization.

Turning to slide 6. Average deposit balances increased $3.6 billion or 2.4% sequentially, exceeding loan growth and allowing us to reduce wholesale funding.

Client deposits, which exclude growth from CDs, grew $2.8 billion or 1.9%, driven by growth in commercial operating balances. Last quarter, we communicated expectations for $3 billion or more of client deposit growth in the second half of 2026, and based on the growth in the third quarter, we have nearly achieved that.

While we continue to monitor deposit dynamics in a higher rate environment, we now expect incremental client deposit growth beyond the original $3 billion, and we expect our loan growth for the remainder of 2026 to be fully client deposit funded. Total deposit cost increased three basis points sequentially to 1.66%, and total funding cost rose just one basis point.

If market expectations materialize as currently estimated, we expect beta in the rate hiking cycle to be roughly symmetrical to the rate easing cycle, reaching a mid-fifties cumulative beta over time with a beta lag in the first few quarters. Turning to the drivers of NII and NIM on slide seven.

Taxable equivalent NII was up 4% and net interest margin of 2.95% increased six basis points from the prior quarter. The increase was driven by commercial loan growth, funding optimization via strong client deposit growth, swaps and securities repricing at higher rates, as well as an additional day in the quarter.

We continue to manage our balance sheet to a fairly neutral interest rate position over a 12-month horizon, which we view as prudent from a risk management perspective, given continued rate uncertainty and our focus on driving performance through the cycle. On slide eight, non-interest income increased 6% year-over-year, including the negative impact of a $6 million Visa-related charge in the current quarter.

Investment banking debt placement fees were $214 million, a 27% increase sequentially driven by M&A and syndication activity. Trust and investment services income grew 10% year-over-year, reflecting higher market values and positive net flows.

Cards and payments and service charges on deposit accounts increased by 8% and 5% year-over-year respectively, both reflecting strong commercial payment activity. Corporate services fees were stable compared to the year ago quarter, as higher loan commitment and client FX fees were offset by lower hedging activity.

Commercial mortgage servicing fees were $53 million. At quarter end, we were named primary or special servicer on approximately $735 billion of commercial real estate loans, of which about $270 billion is in special servicing.

Active special servicing third party assets were flat sequentially at $10 billion, about half of which is office. We continue to expect $50 million-$60 million of commercial mortgage servicing fees for the fourth quarter.

On slide nine, third quarter non-interest expenses were $1.2 billion, up 2% sequentially. The increase was driven by investments in people and technology, higher incentive compensation related to strong fee growth, and an additional day in the quarter.

We continue to expect full year expense growth of 4%. A portion of our technology investment is focused on leveraging AI to create a more efficient and scalable operating model.

As Chris mentioned, in addition to broad-based adoption of AI tools, we've selected four end-to-end processes against which to apply these capabilities at scale. The confluence of well-understood processes with supporting data and an opportunity to reimagine client and employee experiences is proving to be a valuable recipe for AI tools.

We are still early in the process but are optimistic that we can generate growth and efficiency while improving risk and controls. In commercial onboarding and servicing, we're focused on delivering a faster client onboarding experience, which speeds our time to revenue generation while simplifying client support.

In consumer servicing, we're deploying AI to automate high volume tasks, reduce fraud, and enable faster issue resolution. In commercial originations, we're streamlining the credit and collateral processes to improve client and banker experiences and accelerate cycle times.

In software engineering, we're transforming how we build, deliver, and support technology through AI to achieve greater speed, quality, resiliency, and efficiency. In summary, I'm energized by the opportunities ahead and what AI can unlock across Key.

Turning to slide 10, credit quality is broadly improving as our focus on disciplined client selection, prudent underwriting standards, and deep domain expertise in helping clients navigate the uncertain environment was evident this quarter. Net charge-offs were $89 million, or an annualized 32 basis points of average loans.

As expected, non-performing assets decreased $191 million, or 19 basis points sequentially, and at 55 basis points is the lowest since late 2023. The decrease was driven by broad-based portfolio resolutions.

The criticized loan ratio was stable at 4.9%. Moving to slide 11, our CET1 ratio was 11.1%, and our marked CET1 ratio was 9% at quarter end.

Since the start of the year, we've repurchased over $1 billion of shares and have approximately $250 million remaining to complete our targeted $1.3 billion of repurchases in 2026. Moving to slide 12, we are updating our 2026 guidance.

We are tightening our full year net interest income growth outlook to approximately 10% compared to the prior guide of 9%-11%. We now expect average loan growth to increase approximately 5% compared to the prior guide of 4%-5%, and average commercial loan growth of approximately 10% compared to the prior guide of 8%-10%.

We see full year net charge-offs coming in in the range of 37-39 basis points compared to the previous guidance of 40-45 basis points. The outlook reflects the improving credit trends we've seen in our portfolio to date.

We now expect to generate a net interest margin of approximately 3% in the fourth quarter of 2026, reflecting average earning asset growth of approximately $1.5 billion-$2 billion from the third quarter. The updated guide is primarily a function of continued commercial loan growth and preferred capital optimization, actions that are accretive to EPS and returns but are slightly dilutive to NIM.

Compared to our guidance in the second quarter, we now expect fourth quarter earning assets excluding AOCI to be approximately $2.5 billion higher. This increases NII and return but reduces NIM approximately two basis points.

We will continue to execute our relationship-based strategy to drive attractive returns from new and existing clients. With respect to preferred capital, we redeemed $525 million of Series D preferreds back in September, and we're planning to opportunistically issue new preferreds in the second half of the year.

Based on prevailing market conditions, however, we've not yet made the decision to issue new preferreds. We'll continue to watch the market and act accordingly to optimize our capital structure.

As a result, we'll see lower preferred dividend payments in Q4, which from an earnings standpoint, will be partially offset by slightly lower NII. The net result is de minimis on EPS but will impact NIM by about one basis point.

All other guidance remains unchanged. In summary, we continue to see strong momentum in our business through the fourth quarter and expect to deliver on our commitments while navigating a dynamic and evolving environment.

With that, I'd like to now turn the call back to the operator to provide instructions for the Q&A session. Operator?

Hey, good morning. Clark, you saw a nice acceleration in average deposit growth this quarter.

Can you unpack what drove that deposit growth and what goes into your expectations for that mid-50s deposit beta that you outlined? Actually, maybe if you can layer onto that, given that the deposit growth was higher than loan growth this quarter, how much opportunity is there to reduce the reliance on wholesale borrowings over the next few quarters?

Yep. Thanks, Manan.

As you noted, we grew deposits by about $3.6 billion on average in the quarter, with $2.8 billion of that being client deposits. As you noted, deposit costs were only up about three basis points.

On the second quarter call, we noted we had some visibility into seasonal deposit flows, primarily commercial operating deposits.

That view supported our guide at the time of $3 billion of client deposit growth in the second half. We obviously saw that and more in the third quarter alone, driven not just by the seasonal growth, but by deepening deposit relationships with the existing clients and adding deposits from new to bank customers, which would have come on with loans in the first half of the year.

Overall, very pleased with the trajectory on the deposit side. I'd say the trends we're seeing now continue to be encouraging, which gives us confidence that we can fund our 4Q loan growth with client deposits.

Given the rate hike in September, we don't expect the same modest price increase of three basis points, but we do feel like we can effectively manage the cost along with the balance growth. Competition at this point is certainly intense, but it has been competitive all year, and we haven't really seen that intensity increase yet.

Increased industry loan demand could ratchet that up, although we expect some of the loan growth for us to moderate actually in 4Q. To be clear, I'd say we aren't taking a victory lap here, and we're definitely not getting complacent.

The deposit gain requires consistent effort, so we're not going to let off the gas at all. I would say our focus on primacy, including deposits and commercial payments over the last decade plus, is serving us well.

Our visibility here is based on name-by-name, bottoms-up analysis, and that's really what's driving our confidence. To your point about deposit growth outpacing loan growth in the quarter, we mentioned we expect to fund that loan growth with deposits in the fourth quarter, and I think going forward through 2027 would expect to grow deposits at or better than loan growth.

Got it. Then maybe on the flip side, on the loan growth side the C&I growth was really strong this quarter at up 5% Q on Q.

I think you touched on this in your remarks a little, but can you expand on what's driving that strength, especially given that the utilization rate is up 200 basis points Q on Q? How sustainable is that, and how should we think about that into 2027?

Yeah, Manan, it's Chris. Good morning.

It's broad based. As I mentioned, it's broad based from a geographic perspective.

It's broad based from an industry perspective. We're growing new clients, which obviously is helpful.

The other thing that obviously is driving it is people are investing in their business. We've been looking forward to that happening for some time.

You're seeing people spending money on CapEx, people buying small tuck-in acquisitions, and we're expanding the customer base. It's pretty broad based.

The one area that I would point out where we've had really significant growth, and it's an area that we're really strong in, is our utilities, power, and renewable. You can imagine with all the discussion about the shortage of electrons in this country and the shortage of distribution, our good clients that are investment-grade utilities are also making some pretty significant investments.

Morning, guys. Thanks for taking the question.

Clark, I was hoping you could please help to put a finer point on the margin progression. Sounds like there will be some noise in the fourth quarter, and then you will also be impacted by the strong loan growth you are seeing.

But you are sticking with the 3.25% plus margin by 4Q 2027, which is great. Maybe once we get through that transitory noise in the fourth quarter, maybe if you can help bridge the gap between now and end of 2027.

What keeps you confident that you can still get there over the next several quarters?

Sure. Thanks, Scott, and welcome back to the call.

First, maybe let me just-

Thank you.

zoom out a little bit and start with the broader objective of ROTCE. I would just remind you the most important target we have out there for the fourth quarter 2027 is delivering 15%+ ROTCE.

Based on what we are seeing today and the performance we are delivering, we remain highly confident we are going to achieve that. We are also maintaining, as we said, and you noted, the 3.25%+ NIM for 4Q 2027, so that remains intact as well.

I would just note that when we first offered that target, the environment was quite different, and we did note at the time that we thought we had multiple paths to achieve that, and we still believe that to be true. As we build the bridge, I would say the most valuable opportunity for sure is the fixed asset repricing opportunity.

Between now and the end of 2027, we have about $24 billion of security swaps and resi mortgages rolling off. Given the current view of rates and our forward starting swap positions, we see a weighted average yield pickup of about 165 basis points there.

If you consider that, say that alone drives roughly 70% of the NIM expansion required to hit that target. More mechanical than it was a quarter ago, and that is just a function of the rate environment.

The second driver would be client deposit growth, which we just covered a little bit. As we have discussed, we have seen great client deposit growth and attractive rates, and we feel we can fund our loan growth going forward with deposits.

Third, and I would say probably more of an expansion of the second, we think we can actually grow deposits, client deposits, faster than loans here, which allows us to pay down wholesale funding, and again, would be accretive to that NIM expansion there. Those deposit benefits are going to be partially offset by rate hikes given our modest liability sensitivity on the short end of the curve.

Net net, we think those components get us there. I think it is important to remember we are managing the balance sheet to be fairly neutral in rate moves here, and the pressure on deposits from higher rates often carries with it better reinvestment rates on the fixed asset repricing.

So there is a little bit of a trade in both directions there. As I noted, the move up in rates, particularly over the last month or so, has made achieving the target more mechanical than it was just a quarter ago.

Hopefully that provides you a little bit of detail.

Yeah, that is perfect, and thank you for that. Then maybe, Chris, one for you.

Investment banking, great to see the better pull through. I guess the change since last quarter is maybe there has been a little bit, I guess, just this little air pocket in overall activity industry wide.

Maybe just sort of your updated thoughts. It was good to hear you reiterate the full year expectations for investment banking, but maybe sort of where are we?

Where do you feel more and less confident than you may have felt, say, 90 days or so ago?

Sure. In this business, I never really, Scott, as you know, focus a whole lot on one quarter or the other.

The business just broadly has a lot of trajectory. As you know, it is a business that is a mature business that we have had for some time.

We have a public goal of getting to $1 billion a year by 2028. We are very comfortable that we can hit our mid-single-digit number.

Pipelines continue to be strong. The pipelines, in spite of the pull through, are up 5% on a linked quarter basis and 20% year-over-year.

Now, the one piece of that, and I am still comfortable with our guidance, by the way, the one piece of that we have to watch is the real estate piece, because transactional real estate, the cost of capital is such a significant part of those deals. Every piece of transactional real estate right now is getting retraded.

I personally think that we will get through this because I think once people come to grips with the fact that we are in a higher for longer environment, I think people will transact. But that is the one wildcard.

As you know, I feel good about the business. We have been building it for a long time, and we have got a bunch of great clients.

Hey, good morning.

Good morning.

Maybe just, Chris, following up on, I think you mentioned power utility driving loan growth or contributing meaningfully. It sounds like that is sort of a second derivative of when we think about the whole AI CapEx and compute build-out.

Maybe talk to us around your visibility into the amount of growth that's being driven AI related, second, third derivative versus loan. And where I'm trying to get to is, and I'd love your perspective, if we see a stalling in AI financing in the markets and things slow down, does it meaningfully then slow down when we think about just customer activity across the board for Key and your peers?

That's a great question. There's a lot in that.

Let me unpack that a little bit. The first part of the question is secondary and tertiary derivatives of the AI build-out.

I would contend that the investment cycle for these publicly owned utilities is one that's literally decades long, and we've been deficient in the amount of power that we've had. I don't think that stops.

Is part of it on the margin driven by AI? Yes.

I mean, obviously, those are big consumers of power. With respect to our book of business, as it relates to data centers specifically, we have less than $1 billion of exposure, and that exposure is directly to the hyperscalers as opposed to directly to people just building out the data centers.

I do think there are long tentacles to the build-out. I think if you think about, for example, trying to buy a diesel generator, right now you will have to wait 24 or 36 months in order to get one.

I do think the tentacles of the build-out are fairly long. It is hard for me to calculate for you exactly what the primary, secondary, and tertiary factors are there, but I think the tentacles are long.

Chris, I think that is well said. Maybe a couple other points from a risk management perspective.

One, we do have internal sector limits, so utilities would, of course, fall into that. These relationships typically span over three decades.

Again, we have been very careful with clients that are tried and true. We are not really focused on merchant power generation.

Again, we are looking for contracted power. Again, to Chris's point, really there is a need for electrons regardless of the AI build-out.

Things like our largest sponsors are less than 7% of our portfolio. Again, take or pay contracts and the like.

Again, we feel good about the exposure. Again, just a reminder, there are internal limits.

On the AI front, too, we did do a bit of an exercise relative to what sectors could be what I call adjacent. We did kind of carve out what could be higher impact, what could be kind of neutral, and then what are some areas to watch.

Again, in terms of high impact on what I call AI adjacency outside of the data center point that Chris made, that number is very small, less than $1 billion of potential disruption there in business services. So we are looking at it from multiple angles, and we do feel comfortable with the exposure.

That is helpful. Maybe just a separate, I know you talked about capital markets looking into the fourth quarter, but just in terms of momentum in capital markets, if there are investments you have made that should help as we look into next year.

Maybe, Chris, give us a mark to market on sponsor activity. I think you mentioned about 40% of the business is exposed to sponsors.

Are higher rates more sort of geopolitical headlines? Is all that again serving as a wet blanket on activity there?

Yeah, I do think the mid-market, which as you correctly point out, sponsors are a big part of, is yet to normalize. I'll give you a statistic.

Deals under $1 billion this year are down 11%, whereas deals over $1 billion are up 12%. However, as you well know, there's an inverse relationship between your cash-on-cash return and the holding period.

I'm optimistic that those deals will start to come out, and we're obviously when we talk about our pipeline, these are where we have a signed engagement letter and people are spending a lot of time on it. Obviously, when you have dislocations in the market like we had in the debt market over the last month, that obviously puts things on hold.

But once people come to grips with we're in a higher-for-longer, pick your tenure, 5%, 6%, I think people will transact there. Yes, it's still depressed.

Yes, it's in the backlog. And yes, I think it'll start to free up.

And maybe just to respond to your question about investments, Ebrahim, just a reminder that we've added a fair amount of bankers over the last two years. Those could hit the ground running pretty well.

And then obviously we closed Clearwater here in the quarter, so we're continuing to build capability by market and industry.

Hi. Just more on the commercial loan growth.

I am trying to separate what is the industry tailwind from what is the drawdown, which a lot of banks are not seeing the loan utilization improve, and new business as a result of your hiring. I see three different parts of that.

I know you hired a lot of commercial bankers. Remind us how much you hired, what you are still hiring, and how much they contributed to the loan and deposit growth.

Thank you.

So there is a lot in that, Mike. Good morning.

Let me start with the final part of the question. Last year we increased our number of bankers on the ground by around 10%.

We monitor very closely their ramp up. We have always said that it takes 12 to 18 months for bankers to be successful.

We were very pleased in that the cohort of middle market bankers that we hired last year, 90% of them brought in a piece of business. That does not mean that they were profitable to hire, but brought in a piece of business in the first quarter.

We are pleased with that trajectory. As you know, we have hired groups of people very successfully and integrated them.

With respect to bifurcating what is utilization and what is other loan growth. If you look at the end of period, $2 billion of our $3.3 billion in loan growth was utilization.

I think that utilization plays out in a few areas. One is, as I have said for some time, I expected people to start to go a little longer on inventory in the environment that we are in.

I think we are starting to see that. I think some of the utilization was actually people actually buying smaller businesses, and you can see strategic moves there.

Also we have talked about ever since the Big Beautiful Bill in July of 2025, that we expected people to be investing more in CapEx. So those are some of the points.

As far as Key being an outlier in terms of utilization, a portion of that, Mike, is our starting point. 57% of our C&I loans are investment grade, and as a consequence, a 31% utilization rate is probably significantly below probably many of our peers.

The reason we are able to do that is because we can lend to investment grade companies because we can do so many other things for them, payments, hedging, advice, et cetera. So that is just a bit of the texture of the puts and takes around utilization.

Just one follow-up. The newer question that comes up is exposure to data centers.

You have a choice to participate as much or as little as you want. Is that an area that you're focused on, that you're worried about, that's a growth area?

Maybe is it just the early days of that whole process? Or how do you kind of factor that in with your experience in wholesale banking for several decades?

Sure. It's not an area that we're focused on, Mike.

As I mentioned, we have about $1 billion of data center exposure, but that data center exposure is really to the hyperscalers. It's not necessarily to the people building the data centers per se.

My sense of it is, having done this for a while, anytime you see growth at such a pace, I think it's time to be a little cautious. We're cautious in terms of lending directly into the data centers at this point.

Good morning. Thanks.

Good question. Clark, on the capital ratios, obviously the moving rates adjusted the ratios this quarter.

Could you just speak about appetite for buybacks? I know I hear you on the fourth quarter with the $1.3 billion, but as we contemplate Basel III with great uncertainty and improving growth, how do we think about the toggle between the two over the medium term?

Thanks.

Yeah. Thanks, Chris.

First of all, I'd say we feel very good about our current capital position and our ability to manage that. I think with mark capital, which we've been talking about now for several years, it's really half the equation, and we haven't been including the benefit of the Basel III changes, which I think we all feel are highly probable to arrive early in 2027, with implementation in 2028.

As a reminder, when those come in on the risk-weighted asset reduction, we get roughly 100 basis points of additional benefit to the capital ratio. That point puts us squarely back into our range.

We'd expect not to be overly concerned about the current position. We've talked about being willing to be below that 9.5-10 range on a limited basis.

I wouldn't describe that as kind of spending in advance of that Basel III, but I think we'd be short-sighted not to include it given the timing and probability of that materializing. I think that's sort of the broad base.

We did reiterate, as you noted, fourth quarter buybacks to get to the 1.3 for the year. I think we'll have more conversation in January about how to think about the go forward.

But I would really consider buybacks as Chris went through the capital priority stack as managing sort of at the end of the discussion around capital ratios and capital return. I don't know that we'll give the same kind of clarity on expectations for buybacks going forward post 2026.

We are doing a few things, I think, in the AFS to HTM realm that will insulate us a bit from further moves up. Happy to unpack that as well, but I think you can expect us.

We've been a low user of HTM historically for a variety of reasons. I think some of those are changing.

You will see us move up the HTM percentage of our portfolio. But again, I think the capital priorities are pretty clear and the buybacks to us are sort of the last decision we're making in that process.

Okay, great. Then on the operating leverage front, I hear you on the investments in AI and what you're doing there.

Any notable expense projects over the medium term that would interrupt the momentum you have on the operating leverage? Chris, I heard you talk about next year being another good year for PPNR and revenue growth.

But anything on the expense horizon that we should be mindful?

No. We're going to continue to invest in people and in technology.

Our technology budget's gone from $800 million to $900 million to $1 billion. But obviously we're generating a lot of capital, and there's no huge expense out there, Chris, on the horizon.

We're going to keep focusing on organic growth and continue to build the business brick by brick.

Yeah. I do think the one reminder is just the full year impact of Clearwater, which we talked a little bit about recently.

That'll hit obviously for year-over-year. So it will look a little bit higher than otherwise would be planned, but we don't see any reason why post 2027 we couldn't be managing to sort of 3% annual expense growth.

Hi. Good morning.

Good morning.

Chris, good morning. I was just struck by something you said in prepared remarks.

You mentioned another outsized revenue growth year in 2027. I fully appreciate you're in the middle of budget season, but if I just unpack the components, you're looking for 18 basis points of NIM expansion for 4Q25 to 4Q26.

Your guidance implies 25 basis points of margin expansion from 4Q26 to 4Q27. If I think about it, you're looking at 10% NII growth for 2026, is that the right ballpark to think about 2027?

Or is there sort of an asset growth slowdown that we should consider?

Well, a couple things. One, you're kind to ask the question, but we'll obviously provide guidance for 2027 at the end of the year.

However, I think Clark mentioned something that I think is really important, and that is of the increase in margin, 70% of it is now mechanical based on the $24 billion repricing in the last quarter of this year and next year. Obviously we've got a lot of momentum in our business, and we're going to continue to grow the business.

We'll have more to say on specific targets after the fourth quarter.

But I think, Erika, you're picking up on something we've been talking about and the industry's been talking about, which is the trade-off between good quality loan growth and NIM. Obviously, we've made, as others have, some trade-offs to go into what we believe will be very accretive long-term client relationships at the expense of NIM, but not at the expense of returns, EPS or NII.

I think your comment about asset growth slowdown is probably the right place to be focused, and that trade-off is something that likely continues to present itself. But with the visibility we have now, we think we can manage that combination.

Just to follow up on that, obviously deposit growth has been impressive and there is a seasonal aspect. As we think about slowing earning asset growth, how should we think about year-over-year deposit growth progression?

In other words, you hired a bunch of bankers, you have clearly made the investments. How should we think about the progress year-over-year on deposit growth sort of eliminating for seasonality?

Yeah, I think the way to consider that is when you make a loan to a client, we have a theory here that we have espoused for the last decade or so, which we refer to as kind of payments attachment. Which means when you make a loan, the expectation to the banker is you are going to get the deposit, you are going to get the payments with it.

I think we do a very good job with that, but it does not necessarily happen on day one. It takes a little bit of time to move accounts and to get things changed.

Some of the third quarter growth you would have seen would have been off new clients in the first half. It is hard to predict exactly how long that timeframe takes, but even if we had a little bit of new loan slowdown in 2027, I think you would still see some pull through from the 2026 production in terms of commercial deposits.

Morning.

Good morning.

Just on back to the loan demand side. You saw the pretty good step up in utilization in the quarter, but you also cited the expected moderation in loan growth in the fourth quarter.

Can you just elaborate a little bit more on what areas that you expect that moderation? And also, are you beginning to see any erosion around loan demand at all amid the rise in rates, and is that what's influencing your expectation on that front in any way?

Thanks.

I would say we're not seeing an erosion in loan demand with the notable exception, John, that I made earlier, and that's on transactional real estate. I think some of those deals are clearly slowing down.

Look, there's significant loan demand out there. When we're out talking to our clients, loan demand doesn't grow evenly quarter to quarter.

But we feel good that there's a lot of demand out there. And keep in mind, we're doing this at a time when we're distributing about 70% or 82% of the capital that we're raising.

So there's a fair amount of activity out there, and we're being selective, but we've got a lot of opportunity.

John, we guided just to remind you of earning asset growth in the fourth quarter of about $1.5 billion to $2 billion, just relative to where we were in the third quarter. That's a little bit of a step down.

And some of that, I think, to Chris's point, will get priced in the market.

Got it. Right.

Okay. No, that helps.

Thank you. On the deposit side, I know growth came in better than your expectation.

You are confident in the ability to fund upcoming loan growth with deposits. How should we think about the mix and the non-interest bearing component of that?

On the beta front, I know you are looking for the mid-50s over time. How does that play out in the near term in terms of deposit cost compression as we look at the next few quarters from here?

I know you are up about three bps in the third quarter. Thanks.

Sure. I think, look, deposit competition or composition, sorry, on the commercial side, I think it is going to look more interest bearing than non-interest bearing from a reporting standpoint, just given our use of hybrids.

We continue to use that as a vehicle to capture a full client relationship. I think we will see primary growth in operating accounts, which is allowing us to manage the overall expense.

So I think that commercial loan growth will come on kind of consistent with the portfolio rate we see today, obviously subject to indexed changes from rate hikes. So we feel like it will be a representative sample there broadly.

On the consumer side, we have started to pick some places to raise some rates and do some targeted deposit raising, which we have had some early success on, and we are doing that to raise some balances, but not more broadly raise the overall consumer deposit rates. So we feel pretty good about our early returns there.

Based on how that materializes, I think we will have the opportunity to do a little more of that. But we also still really are not at the full offer to some of the competition, but we have picked up our MMDA promo and CD rates in certain markets in targeted ways in the last quarter.

Again, we have seen some positive response to that. So I think it is not going to be all commercial, but we will start to see a little bit of consumer growth come on that we think will be valuable, and that commercial growth we think will be kind of representative of what it looks like today on a portfolio basis.

Hi. Thanks for taking the questions.

You mentioned about being neutral to interest rates and the forward curve. Does the path to 325, you mentioned about 70%-75% of it is mechanical.

With being rate kind of neutral, does that mean loan growth is the main swing factor? Can you unpack that a bit?

Sure. I think it's really loan growth and deposit growth and the cost of the deposit growth.

I do think we'll see kind of low 40s beta here in the fourth quarter, and that'll over the next probably first or second quarter of 2027 would start to move up to mid-50s. Obviously depends on if there are or are not additional rate hikes in the year.

But we'd expect over sort of two to three quarters to get to that 50 to mid-50s number. If that were to be more loan growth or less deposit growth or more expensive deposit growth, I think that is the combination of things that we're watching really closely.

But the visibility we have now makes us feel like we can fund that loan growth with deposits. We can potentially pay down some wholesale funding with deposits, and we can effectively manage the cost of those deposits within the scope of where rates are.

And there's that natural trade-off, as I mentioned, between higher rates on the front end delivering better reinvestment rates and the counter if rates go down. So we think there's a little bit of a natural hedge in that neutrality.

Thanks. Very helpful.

My follow-up, in your prepared remarks you mentioned about with the AI use cases. You mentioned four pillars.

I was interested in the comment about commercial originations as being part of that AI use case. Normally, when I think of commercial banks, it's relationship banking and somewhat insulated from AI.

Can you walk through how you're using AI for commercial originations?

Yeah. If you think about particularly complex commercial relationships, there's a lot of decision making, interaction, and work that goes into that process.

We just think there's opportunities to streamline that to make them more informed, to improve the borrower experience and the banker experience in something that historically has been maybe a little bit more analog in nature because they tend to be, to your point, person-to-person relationships. We just think we can build a chassis underneath that that is AI enabled and streamlined.

That is not at the expense of the relationship. It is to augment the relationship.

I think it's to reduce paper and a lot of back and forth and make that process more streamlined.

David, for example, you asked about commercial loans, but if you think about commercial onboarding and servicing, we completely re-engineered that process over the last three years, which now opens it up to use AI. Our goal there is to have twice the throughput in half the time, and frankly, have it be a better client experience and a better experience for our employees.

That's kind of how we think about it. These four domains that we're talking about are enterprise-wide.

So it involves re-engineering the whole process and then using AI as an enabler. Thank you, David.

Our next question is from Gerard Cassidy from RBC. Your line is now open.

Please go ahead.

Hi, Chris. Hi, Clark.

Hey, Gerard.

Good morning. Chris, coming back to the investment banking comments about sponsor activity, and we all recognize that the uncertainty in the economy and the geopolitical risks, the political risks in this country, those are constants.

We hear about them for years. Putting them aside for a moment, what has to happen to get that activity in the middle market M&A to really pick up?

Or is it the companies themselves that are in these portfolios are just not worth what the sponsors think they're worth, and it may never come back?

Well, I think part of it is I'm sure there's some element of sort of bid-ask, what is the value, what's the exit strategy, what's the timing. I personally think one of the big constraints has been not only the volatility in interest rates, but the volatility in the forwards of interest rates.

If you thought there were going to be five cuts, and in fact there were no cuts-

And there was an increase. I think that kind of puts people on the sideline.

I think once people have a clear view of where rates are or where they think they're going to be over a period of time, Gerard, I think that frees it up. Another thing that has changed a bit, though, are these continuation funds.

So some of the algorithms as to years holding period, I think some of those have changed with some of the continuation funds. Having said that, there is a very significant backlog out there that at some point is going to have to clear.

Very good. I might regret asking this question.

I asked it on one of your competitor's calls. Can you guys give us some insights on credit quality?

Has there been a structural change in the way the industry and KeyCorp in particular is underwriting credit today? Because credit is so resilient and you guys had obviously some meaningful improvement this quarter.

Across the board, the banking industry's credit is very strong. We're certainly not naive enough to suggest that in a down economic cycle, credit's not going to get worse.

We know that. It just seems that things are really quite good.

Has the industry been more conservative or the financial crisis driving the regulators to de-risk the industry? What are your guys' thoughts on that?

I'll give you some perspective on what I think drives it industry-wide and then some things that I think are idiosyncratic to us. I think in the global financial crisis, there were a lot of lessons learned.

I think if you think about here at Key, where we built the underwrite to distribute model, including in real estate, that was a big fundamental change for our risk profile. So that's the lessons learned in the global financial crisis.

I think the advent of the private credit market, where in the private credit market really dominated the small leverage deals. For some time, that's what, a $3 trillion market.

I think that would have been in the banking system, and it's not in the banking system. I think those are two kind of fundamental things, Gerard.

The other thing I would say that's idiosyncratic to Key is on our consumer side. As you know, we don't have a big card portfolio, and we have a super prime portfolio.

At funding, our average FICO score is 766, and currently it's 787. So on the consumer side, we have a super prime book.

Lastly, which I think is a huge advantage that is idiosyncratic to Key, is this notion of going to market by industry groups. I think is really helpful because I think it enables you to decipher and discern among the people in the industry.

I think you put all that together, I think those are the things that have changed.

I might add one just data point, Gerard. If you go back to when I joined Key in 2012, I think our leverage book was about $2 billion.

I think today it's $2 billion. We're obviously a much larger bank, so that's not where I think the banks broadly have seen the growth.

That growth is happening. It's just not happening, I think, in some of the traditional banking spaces.

Hey, Gerard, great question. This is Mo.

The only other thing I would add is I think, again, from a supervisory perspective, the financial risks continue to be a major focus for them. Tying our stress testing to our underwriting, to our portfolio limits and having that all be one ecosystem.

We just continue to add that sophistication as well as, again, connecting the dots with data across the enterprise as well. We just continue to be expected to raise the bar, and we're also just continue to uplift these programs.

Good morning. You guys are obviously focused on growing the commercial side of the loan book, and the results are looking really good.

Just remind us on the consumer side, you've been running down there and where do those balances kind of level out, and are there any areas that you're kind of leaning into or would like to be better at over time on the consumer lending side? Thank you.

Sure, Matt. By design, we have been running down our consumer book.

We would've said two quarters ago that the quarterly runoff would've been about $600 million. Given where rates have gone, the current runoff is about $400 million.

What we're doing is we're basically redeploying out of mortgages that are very safe mortgages because they're made to they're jumbo mortgages, they're first mortgages to doctors and dentists. But we're redeploying that in our C&I portfolio, where we have a really good track record of having a complete relationship and driving a bunch of revenue.

We're going to continue to do that. The one area that we've tasked our consumer folks with doing is, given some of the metrics I just gave about our consumer customer, many of our customers have significant equity in their homes.

What we're doing is we're building a digital interface that's as good as for home mortgage. I'm sorry, for home equity, that's as good as our home equity, our home mortgage app.

That'll be an area that you'll see grow in 2027.

Okay, that's helpful. Then just one cleanup question on the fees.

The corporate services income was down Q2 and flat year-over-year. Just remind us what, one, what drove that, and then the interplay of that and, say, loan growth.

As loans grow, is there a counter there or what that relationship is, if there is one. Thank you.

Yeah. Thanks, Matt.

Generally, you would see corporate services increase with loan growth. What's in there would be FX fees, derivatives fees, and some loan fee categories.

In the quarter, we saw derivatives or client hedging fees come down, and I think that's really just reflective of the rate volatility. We might see that come back.

I think fourth quarter we'd expect it to be pretty flat to fourth quarter of 2025. We did see a dip there in direct client activity off lending, and again, just driven by sort of an unwillingness of clients to lock in rates with the current volatility.

I would say that's sort of flip side of our spot and forward starting swaps are coming on at pretty attractive rates, and clients aren't wanting to take the other side of that in some cases.

Yeah. The other piece of it, of course, we do a lot of hedging around oil and gas, and as you can imagine, there's not a lot of activity in terms of people hedging oil and gas right now.

Thanks. Hey, good morning, guys.

Clark, just wanted to ask you talked about being slightly liability sensitive to the front end of the curve, and I wonder if you can kind of talk us through that and the incremental swap adds you've made. Does that get you to the point where you want to be in terms of balance, and how does that affect the future rate sensitivity when you consider all of that you've added this quarter and the forwards that are still coming on?

Thanks.

Sure. Yeah.

So the short end rate sensitivity or liability sensitivity, really when we talk about that is if you think we're getting to the kind of mid-50s terminal betas that we talked about, the break even is kind of low to mid-40. So we're going to be a little bit liability sensitive on the front end of that deposit beta.

As we noted, assuming no material change in the shape of the curve, we would assume we'd get some of that back on the reinvestment rate. I think we feel, again, quite good about the neutral position we're in.

I think the steeper the curve is, the better that is for us. The flatter it is obviously is the inverse.

And we've effectively been replacing swaps at this point as they roll off and, as we noted, replacing them at much higher levels right now. And we've done a little bit of maintenance sort of out into 2028 and 2029 where we saw some portfolio gaps on the swap side.

But generally speaking, I think we're pretty much in maintenance mode and feel good about maintaining that neutrality.

Thank you. We appreciate your interest in Key.

If you have any further questions, feel free to reach out to Troy Gates and the rest of our IR team. Thank you.