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 materials, as well as remarks made on this morning's call.

Actual results may differ materially from forward-looking statements, and those statements speak only as of today, October 20th, 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 51 cents 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 continued 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 3 basis points during the quarter. Overall funding costs rose just 1 basis point.

Net interest margin expanded 6 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 nonperforming 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 remained 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 3 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 expectations 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 project 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 solutions 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 pre-provision net revenue year in 2026.

We are currently in the midst of our planning process, and will have more to say on 2027 at year-end. 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 we improved returns inclusive of improving credit quality. Starting on slide 4, we reported third quarter earnings per share of 51 cents.

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

Noninterest income increased 6% year-over-year. Provision for credit losses is $61 million, included $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 brokered 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 costs increased 3 basis points sequentially to 1.66%, and total funding costs rose just 1 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-50s cumulative beta over time, with a beta lag in the first few quarters. Turning to drivers of NII and NIM on slide 7, tax-equivalent NII was up 4%, and net interest margin of 2.95% increased 6 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 8, noninterest income increased 6% year-over-year, and included the negative impact of a $6 million Visa-related charge in the current quarter. Investment banking and debt placement fees were $214 million, a 27% increase sequentially, driven by M&A and syndication activity.

Trust and investment services income increased 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 remained 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 to $60 million of commercial mortgage servicing fees for the fourth quarter. On slide 9, third quarter noninterest 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 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 supporting 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, proven 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, nonperforming 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 have 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 guidance of 9% to 11%.

We now expect average loan growth to increase approximately 5% compared to the prior guidance of 4% to 5%, and average commercial loan growth of approximately 10% compared to the prior guidance of 8% to 10%. We see full-year net charge-offs coming in in the range of 37 to 39 basis points, compared to the previous guidance of 40 to 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 to $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 returns, but reduces NIM approximately 2 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 E preferred stock in September, and were planning to opportunistically issue new preferred in the second half of the year. Based on prevailing market conditions, however, we have not yet made the decision to issue new preferred.

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 4Q, which from an earnings standpoint will be partially offset by slightly lower NII.

The net result is de minimis on EPS, though will impact NIM by about 1 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 3 basis points.

On the second quarter call, we noted we had some visibility into seasonal deposit flows, primarily commercial operating deposits, and 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 seasonal growth, but by deepening deposit relationships with 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 3 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'd expect some of the loan growth broadly 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 game requires consistent effort, 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 kind of 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 '27, would expect to grow deposits at or better than loan growth.

Got it. Then maybe on flip side on 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 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?

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, and we've been looking forward to that happening for some time, and 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 renewables. 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 sort of a finer point on the margin progression. Sounds like there'll be some sort of just some noise in the fourth quarter, and then you'll also be impacted by the strong loan growth that you're seeing, but sticking with the 3.25%-plus margin by 4Q '27, which is great.

Maybe once we get through that sort of transitory noise in the fourth quarter, maybe if you can help sort of bridge the gap between now and end of '27, sort of 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 zoom out a little bit and start with the broader objective of ROTCE. I'd just remind you, the most important target we have out there for the fourth quarter '27 is delivering 15%-plus ROTCE, and based on what we're seeing today in the performance we're delivering, we remain highly confident we're going to achieve that.

We are also maintaining, as we said, and you noted, the 3.25%-plus NIM for 4Q '27, so that remains intact as well. I'd 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'd say the most valuable opportunity for sure is the fixed asset repricing opportunity between now and the end of '27. We have about $24 billion of security swaps and resi mortgages rolling off, and 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's just a function of the rate environment.

The second driver would be client deposit growth, which we just covered a little bit, but as we've discussed, we've seen great client deposit growth at attractive rates, and we feel we can fund our loan growth going forward with deposits. Third, and I'd say probably more of an extension 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, but net-net, we think those components get us there. I think it's important to remember we're managing the balance sheet to be fairly neutral to rate moves here, and the pressure on deposits from higher rates often carries with it better reinvestment rates on the fixed asset repricing.

There's a little bit of a trade in both directions there, and 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.

That's 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's 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 focus a whole lot on one quarter or the other.

The business just broadly has a lot of trajectory. We've, as it's a business that's a mature business that we've had for some time.

We have a public goal of getting to $1 billion a year by 2028. We're 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'm still comfortable with our guidance, by the way, the one piece of that 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're in a higher-for-longer environment, I think people will transact. That's the one wildcard.

I feel, as I feel good about the business. We've been building it for a long time, and we've got a bunch of great clients.

Hey, good morning.

Good morning.

Maybe just, Chris, following up on I think you mentioned power, utilities driving loan growth or contributing meaningfully, it sounds like that is sort of a second derivative of when you think about the whole AI CapEx, compute buildout. Maybe talk to us around when you have visibility into the amount of growth that's being driven AI-related second, third derivative versus non.

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 you 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 buildout.

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 driven on the margin driven by AI? Yes.

It's 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 buildout, and I think if you think about, for example, trying to buy a diesel generator, right now you'll have to wait 24 or 36 months in order to get one. I do think the tentacles of the buildout are fairly long.

It's hard for me to calculate for you exactly what the primary, secondary, and tertiary factors are there, but I do think the tentacles are long.

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

One, we do have internal sector limits, utilities would of course fall into that. These relationships typically span over three decades, again, we've been very careful with clients that are tried and true.

We're not really focused on merchant power generation, again, we're looking for contracted power, and again, to Chris's point, really, there's a need for electrons regardless of the AI buildout. 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, and 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.

We are looking at it from multiple angles, and we do feel comfortable with the exposure.

That's helpful. Maybe just 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've made that should help as we look into next year, and 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?

Thanks. I do think that 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 think 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.

I do think, and I think once, 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 10-year, 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.

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, most have hit the ground running pretty well. Then obviously we closed Clearwater here in the quarter, we're continuing to build capability by market and industry.

Hi. Just more on the commercial loan growth.

I'm trying to separate what's the industry tailwind from what's the drawdown, which a lot of banks are not seeing, the loan utilization improved, and kind of new business as a result of your hiring. It seems like kind of three different parts of that, and I know you hired a lot of commercial bankers, and remind us how much you hired, what you're still hiring, and how much they contributed to the loan and deposit growth.

Thank you.

There's 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%.

One of and we monitor very closely their ramp-up. We've 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 doesn't mean they were profitable to hire, but brought in a piece of business in the first quarter, we're pleased with that trajectory, and we've, as we've hired groups of people very successfully and integrated them. With respect to kind of 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 said, I've said for some time, I expected people to start to go a little longer on inventory in the environment that we're in.

I think we're 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've talked about, ever since the Big Beautiful Bill in July of 2025, that we expected people to be investing more in CapEx. Those are some of the points.

Now, 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 below, significantly below probably many of our peers.

The reason we're 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, etc. That's just a bit of the texture of kind of the puts and takes around utilization.

Then

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

Now 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?

It's 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 for the question.

Clark, on the capital ratios, obviously the moving rates adjusted the ratios a bit 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 rate uncertainty and improving growth, how do we think about the toggle between the three over the medium term? Thanks.

Thanks, Chris. I'd say, we feel very good about our current capital position and our ability to manage that.

I think with marked 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 high highly probable to arrive, early in '27 with with implementation in '28. 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, and in 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% to 10% range on 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 sort of broad-based, 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 as Chris went through the capital priority stack, as managing sort of at the end of the discussion around capital ratios and and capital return. I don't know that we'll give the same kind of clarity on expectations for buybacks going forward post-'26.

We are doing a few things, I think, in the AFS to HTM realm that will insulate us a bit from further moves up, and, happy to unpack that as well, but I think you can expect us, we've we've been a a low user of HTM historically for a variety of reasons, I think some of those are changing, you can see us you will see us move up the HTM percentage of our portfolio. 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.

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.

Anything on the expense horizon that we should be mindful of?

No, we're going to continue to invest in people and in technology. Our technology budget's gone from 800 to 900 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.

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 year-over-year, it will look a little bit higher than otherwise would be planned, but we don't see any reason why kind of post-'27, we couldn't be managing to sort of 2% to 3% annual expense growth.

Hi, good morning.

Good morning,

Erika. Morning.

I was just struck by something you said in prepared remarks. You mentioned another outsized revenue growth year in 2027.

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 4Q '25 to 4Q '26. Your guidance implies 25 basis points of margin expansion from 4Q '26 to 4Q '27.

If I think about it and you're looking at 10% NII growth for '26, is that the right ballpark to think about 2027, or is there sort of an asset growth slowdown that we should consider?

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, and so we'll have more to say on specific targets after the fourth quarter.

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, and 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.

Got it.

Just to follow up on that, obviously deposit growth has been impressive, and there's 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 clearly made the investments, and so how should we think about the progress year-over-year on deposit growth sort of eliminating for seasonality?

I think the way to consider that is, when you make a loan to a client, we have a theory here that we've espoused for the last decade or so, which we've referred to as kind of payments attachment, which means when you make a loan, the expectation to the bankers, you're going to get the deposit and you're going to get the payments with it. I think we do a very good job with that, but it doesn't 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, and it's hard to predict exactly how long that timeframe takes, but even if we have a little bit of new loan slowdown in '27, I think you'd still see some pull-through from the '26 production in terms of commercial deposits.

Morning.

Morning, John.

Just 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? Then 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.

No, 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.

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. 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 to $2 billion, just relative to where we were in the third quarter. That's a little bit of a step-down.

Some of that, I think, to Chris's point, will get placed in the market.

Got it. Right.

No, that helps. Thank you.

Then on the deposit side, I know growth came in better than your expectation. You're confident in the ability to fund upcoming loan growth with deposits.

How should we think about the mix and non-interest-bearing component of that? On the beta front, I know you're looking for the mid-50s over time.

How does that play out in the near term in terms of deposit cost progression as we look at the next few quarters from here? I know you're up about 3 bps in the third quarter.

Thanks.

Sure. I think look, deposit composition on the commercial side, I think it's going to look more interest-bearing than non-interest-bearing from a reported standpoint just given our use of hybrids, and we continue to use that as a vehicle to capture a full client relationship.

I think we'll see primary growth in operating accounts, which is allowing us to manage the overall expense. I think that commercial loan growth will come on kind of consistent with the portfolio rate we see today, obviously subject to index changes from rate hikes.

We feel like it'll 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've had some early success on, and we're doing that to raise some balances, but not more broadly raise the overall consumer deposit rates.

We feel pretty good about our early returns there, and based on how that materializes, I think we'll have the opportunity to do a little more of that, but we also still really aren't 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, and again, we've seen some positive response to that. I think it's not going to be all commercial, but we'll 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 3.25%, you mentioned about 70% to 75% of it is mechanical. Does that mean with being rate kind of neutral, 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 failed to fully answer the last question. I do think we'll see kind of low-40s beta here in the fourth quarter, and that all over the next, probably first or second quarter of '27 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.

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. We think there's a little bit of a natural hedge in that neutrality.

Thanks. Very helpful.

My follow-up, in your prepared remarks, 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, and 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 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, and then that is not at the expense of the relationship, it is to augment the relationship. I think it's reduced 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, and 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 enterprisewide, it involves re-engineering the whole process, and then using AI as an enabler.

Hi, Chris. Hi, Clark.

Hey,

good morning. Thanks.

Coming back to the investment banking comments about sponsor activity, and we all recognize that the uncertainty in the economy, the geopolitical risks, the political risks in this country, those are constants. We hear about them three years.

Putting that 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?

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, for example, 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, and 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 competitors' calls, but 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 a meaningful improvement this quarter, but across the board, the banking industry's credit was very strong.

Now, 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, and has the industry been more conservative, or the financial crisis driving the regulators to be with 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. That's the lessons learned in the global financial crisis.

I think the advent of the private credit market, where the private credit market really dominated the small, leveraged 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 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. On the consumer side, we have a super-prime book.

Then 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, 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.

I think this is Moe, 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. Again, tying our stress testing to our underwriting, to our portfolio limits, and having that all be one ecosystem, we just continue to have that sophistication, as well as, again, connecting the dots with data across the enterprise as well.

We just continue to be expected to chin the bar, and we're also continuing to chin up with these programs.

Good morning. You guys are obviously focused on growing the commercial side of the loan book and results there have been 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 have said two quarters ago that the quarterly run-off would have been about $600 million. Given where rates have gone, the current run-off is about $400 million, and what we're doing is we're basically redeploying out of mortgages that are very, very safe mortgages, because 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, and what we're doing is we're building a digital interface for home equity that's as good as our home mortgage app.

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

That's helpful. Then just one clean-up question on the fees.

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

As loans grow, is there a contra 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 foreign exchange 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 '25, but 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, and I would say that's sort of the 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.

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, 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. The short-end rate sensitivity, or liability sensitivity, 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-40s.

We're going to be a little bit liability-sensitive on the front end of that deposit beta. Again, 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. 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.

We've done a little bit of maintenance sort of out into '28 and '29 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.