KeyCorp Stock

Good morning, and welcome to KeyCorp's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to Troy Gates, KeyCorp's Director of Investor Relations. Please go ahead.

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 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 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, 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. And finally, we will return capital to shareholders through share repurchases. While we continue to successfully complete tuck-in acquisitions like Clearwater, traditional old 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 remained 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 4 domains: commercial onboarding and servicing, commercial originations, consumer servicing and software engineering. Earlier this year, Clark assumed the 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 we'll 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 we 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 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 of $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 build 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 the beta lag in the first few quarters.

Turning to the drivers of NII and ME on Slide 7. Taxable 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 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 renamed primary for special service are 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 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 4 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 has proven 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 feeds 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. And 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 is 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, 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 March CET1 ratio was 9% at current. In the start of the year, we've repurchased over $1 billion of shares and 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% to 11%. We now expect average loan growth to increase approximately 5% compared to the prior guide of 4% to 5%, and average commercial loan growth of approximately 10% compared to the prior guide of 8% to 10%. We see full year net charge-offs coming 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 billion 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 diluted to them.

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 D preferred stock 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 4Q, which from an earnings standpoint will be partially offset by slightly lower NII. The net result is tremendous on EPS, but 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?

[Operator Instructions] Our first question today is from Manan Gosalia from Morgan Stanley.

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? And actually, maybe if you can layer on to 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?

Yes. Thanks, Manan. So 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. And as you noted, deposit costs were only up about 3 basis points. So 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 in 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. So 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 balanced 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 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 game requires consistent efforts 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. So 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. And 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?

Yes. Manan, it's Chris. So 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. So 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. So you can imagine with all the discussion about the shortage of electrons in this country and the shortage of distribution are good clients that are investment-grade utilities are also making some pretty significant investments.

Our next question is from Scott Siefers from TD Securities.

Clark, I was hoping you could please help to put sort of a finer point on the margin progression. It sounds like there will be some sort of just some noise in the fourth quarter and then you'll also be impacted by the strong loan growth you're seeing, but you're sticking with the 325 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. So first, maybe let me just zoom out a little bit and start with the broader objective of ROTCE. So I'd just remind you the most important target we have out there for the fourth quarter '27 is delivering 15-plus percent ROTCE. And based on what we're seeing today and 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. And 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.

So as we build the branch 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 were only 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. So if you consider that say that alone drives roughly 70% of the NIM expansion required to hit that target. So 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 expansion of a 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. And 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. So 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. So hopefully, that provides you a little bit of detail.

Yes. That's perfect. And then maybe, Chris, one for you. So 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. So 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. So 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. We've -- as you know, 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. But that's the one wildcard. But I feel -- as you know, I feel good about the business. We've been building it for a long time, and we've got a bunch of great clients.

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

Maybe just Chris, following up on, I think you mentioned power utilities driving loan growth contributing meaningfully. It sounds like that is sort of a second derivative of when we think about the whole AI CapEx and complete build-out. Maybe talk to us around when you like your visibility into the amount of growth that's been driven AI-related, second, third derivative versus non. And what 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 kind of -- 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 efficient in the amount of power that we've had. So I don't think that stops. Is part of it driven -- on the margin driven by AI? Yes. I mean, 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 build-out. And I think if you think about, for example, trying to buy a diesel generator. Right now, there's a waiting -- you'll have to wait 24 or 36 months in order to get one. So I do think the tentacles of the build-out 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 -- I think the tentacles are long.

First, I think that's well said. And maybe a couple of 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 3 decades. So again, we've been very careful with clients that are tried and true. We're not really focused on merchant power generation. So again, we're looking for contracted power. And again, to Chris' point, really, there's a need for electrons regardless of the AI build-out. Things like our largest sponsors are less than of our portfolio, again, take-or-pay contracts and the like. So 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. So 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. And 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. So potential disruption there in business services. So we are looking at it from multiple angles, and we do feel comfortable with the exposure.

That's helpful. And maybe just a separate. I know you talked about capital markets looking into over 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?

Yes, 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.

So 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 that we're in a hire for longer, pick your tenure, 5%, 6%. I think people will transact there. So yes, it's still depressed. Yes, it's in the backlog. And yes, I think it will 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 2 years, most to 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.

Our next question is from Mike Mayo from Wells Fargo.

Just more on the commercial loan growth, I'm trying to separate what the industry tailwind from what's the drawdown, which a lot of banks are not seeing those loan utilization improve and kind of new business as a result of your hiring. So I see like kind of 3 different parts of that. 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.

Well, there's a lot in that, Mike. Let me start with the final part of the question. So last year, we increased our number of bankers on the ground by around 10%. 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 as a higher, but probably in a piece of business in the first quarter. So we're pleased with that trajectory. And we -- as you know, 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. And I think that utilization plays out in a few areas. One is, as 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. And 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. So those are some of the points.

Now as far as Key being an outlier in terms of utilization, a portion of that might rate is probably below significantly below probably many of our peers. And the reason we're able to do that is because we can lend to investment-grade companies because we can do so much, so many other things for them, payments, hedging, advice, et cetera. So that's just a bit of the texture of kind of the puts and takes around utilization.

Do you -- 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 back that in with your experience in wholesale banking for several decades?

Sure. So 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, it's such a pace I think it's time to be a little cautious. And so we're cautious in terms of lending directly into the data centers at this point.

Our next question is from Chris McGratty from KBW.

Clark, on the capital ratios. The -- obviously, the move in rates adjusted ratios a bit this quarter. Could you just speak about appetite for buyback? I know I hear you in 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 3 over the medium term?

Yes. Thanks, Chris. So 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 '27 with implementation of '28. So 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 in that point puts us squarely back into our range.

So we'd expect not be overly concerned about the current position. We've talked about being willing to be below that 9.5% to 10% range on a limited basis. And I wouldn't describe that as kind of spending in advance of that Basel III, but I think we'd be shortsighted not to include it given the timing and probability of that materializing. So I think that's sort of the broad base we did reiterate, as you noted, the fourth quarter buybacks to get to the [ 13% ] 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.

So 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 impact 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. So you can see us -- 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. And 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 have -- we're going to continue to invest in people and in technology. Our technology budget has gone from $800 million to $900 million to $1 billion. But obviously, we're generating a lot of capital, and there's nothing -- there's no huge expense out there, Chris, on the horizon. We're going to keep focusing on organic growth and keep -- 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 will hit, obviously, for year-over-year or so 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 3% annual expense growth.

Our next question is from Erika Najarian from UBS.

Chris, this is struck -- I was just strucked by something you said in prepared remarks. You mentioned another outsized revenue growth year in '27 and fully appreciate you're in the middle 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. And so if I think about it, and you're looking at 10% NII growth for '26, is that the right ballpark to think about '27? Or is there sort of an asset growth slowdown that we should consider?

A couple of things. One, you're kind of 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. And 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.

But I think, Erika, you're picking up on something we've been talking about and the industry has 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 slow down 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.

So 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?

Yes. 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 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, 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 1. It takes a little bit of time to move accounts to get things changed. So 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 time frame takes.

But even if we had 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.

Our next question is from John Pancari from Evercore ISI.

Just back to the loan demand side, I mean 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 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?

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, we're seeing -- look, there's significant loan demand out there, and we're out talking to our clients. Loan demand is -- it's never -- it 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.

And 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' point, will get placed in the market.

Okay. No, that helps. And then on the deposit side, I know growth came in better than your expectation and you're confident in the ability to fund upcoming loan growth with deposits. How should we think about the mix and noninterest-bearing component of that? And 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.

Sure. I think, look, deposit competition or composition, sorry, on the commercial side, I think it's going to look more interest-bearing to noninterest-bearing from a reported standpoint, just given our use of hybrids, and we continue to use that as a vehicle to sort of capture a full client relationship. But I think we'll 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've had some early success on and we're doing that to raise some balances but not more broadly raised the overall consumer deposit rate. So 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.

So 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.

Our next question is from David Chiaverini from Jefferies.

You mentioned about being neutral to interest rates and the forward curve. Does the path to $325 million -- you mentioned about 70% to 75% of it is mechanical. Does that mean 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. So I fail to fully answer the last question. I do think we'll see kind of low 40s beta here in the fourth quarter, and that over the next -- probably first or second quarter of '27 would start to move up to mid-50s obviously depends on if there are not additional rate hikes in the year. But we'd expect over sort of 2 to 3 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 in the counter if rates go down. So we think there's a little bit of a natural hedge in that neutrality.

Very helpful. And my follow-up, in your prepared remarks, you mentioned about with the AI use cases, you mentioned 4 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?

Yes. If you think about you think about particularly complex commercial relationships, they tend to be -- 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 historically been 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. So I think it's to reduce paper and a lot of back and forth and make that process more streamlined.

So David, for example, you asked about commercial loans, but if you think about commercial onboarding and servicing, we completely reengineered that process over the last 3 years which now opens it up to use AI. And our goal there is to have twice throughput and 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. And these 4 domains that we're talking about are enterprise-wide. So it involves reengineering the whole process and then using AI as an enabler.

Our next question is from Gerard Cassidy from RBC.

Coming back to the investment banking comments about sponsor activity, and we all recognize that the uncertainty in the economy and the geopolitical risk, the political risk in this country. Those are constants. We hear about them for years. So putting them aside for a moment, what do you -- 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 they 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 also think 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 interest rates if you thought there were going to be 5 cuts. And in fact, there were no cuts, and there were -- 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. And I might regret asking this question. I asked that 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 kind of it's so resilient, and you guys have obviously some meaningful improvement this quarter. But across the board, the banking initiatives credit was very strong now.

We're certainly not naive enough to suggest that in a down economic cycle, credit is not going to get worse. We know that. But it just seems that things are really quite good. And has the industry been more conservative or the financial prices driving the regulators to derisk the industry? What are your guys thoughts on that?

So I'll give you some perspectives 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. And so 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, the low financial crisis. I think the advent of the private credit market were 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. So I think those are 2 kind of fundamental things, Gerard. The other thing I would say that's idiosyncratic, the key is on our consumer side, as you know, we don't have a big card portfolio, and we have a super pont portfolio at funding. Our average FICO score is 766. And and currently, it's 787. So on the consumer side, we have a super prime book. And 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. So 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.

Gerard, great question. I think the only [indiscernible] other thing I would add is I think, again, from a supervisory perspective, the financial risks continue to be a major focus for them. So again, tying our stress testing to our underwriting to our portfolio limits and having that all be one ecosystem. We continue to add to that sophistication as well as, again, connecting adapts with data across the enterprise as well. So we just continue to be expected to trend the bar, and we're seeing -- we're also just continue to uplift these programs.

Our next question is from Matthew O'Connor from Deutsche Bank.

You guys are obviously focused on growing the commercial side of the loan book and the results there have been really good. Just remind us on the consumer side, you've been running down there? And where are those balances kind of level out? And are there any areas that you're kind of leaving into or would like to be better at over time in the consumer lending side?

We would have said 2 quarters ago that the quarterly runoff would have been about $600 million given where rates have gone, the current runoff 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 made to their jumbo mortgages to 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 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. And so that will be an area that you'll see grow in 2027.

Okay. That's helpful. And then just one clear question on the fees. The corporate services income was down Q2 and flat year-over-year. Just remind us kind of what -- well, one, what drove that? And then the interplay of that and say loan growth like as loans grow, is there like a contra there? Or what that relationship is, if there is one?

Yes. Thanks, Matt. Generally, you would see corporate services increase with loan growth. So what's in there would be foreign exchange fees, derivative 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. So 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 of 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 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.

Yes. And 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 huge -- a lot of activity in terms of people hedging oil and gas right now.

Our next question is from Ken Usdin from Autonomous Research.

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 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 added this quarter and the forwards that are still coming on?

Yes. So the short-end rate sensitivity or liability sensitivity, if you -- 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 breakeven is kind of low to mid-40s. So we're going to be a little bit liability sensitive on the front end of that deposit data. But again, as we noted, assuming no material change in the shape of the curve, we would assume we 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 '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.

That concludes our Q&A session. I would now like to pass the conference call over to CEO, Chris Gorman, for any closing remarks.

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.

Thank you. This concludes today's call. Thank you for joining. You may now disconnect your lines.

I'm Jason Goldberg. I cover the large-cap banks in the U.S. for those that missed this morning's sessions. Last 2 large-cap banks for the day, we have KeyCorp and then Citigroup. From Key, which is up next, very pleased to have Clark Khayat, Chief Financial Officer. Clark, good afternoon.

Thank you, Jason. Nice to be here.

I guess last year when you were on stage, the macro backdrop looked quite different than it does today. Just how are you thinking about the outlook for the U.S. economy and the path of rates and just any notable changes in client behavior or sentiment recently?

Yes. So if we were here a year ago, we would have been talking about how many cuts there were going to be coming into '26. We obviously haven't seen that. And if you look at the forwards this morning, now it's 3 pretty high probability hikes. So very different. That said, I think client activity generally remains constructive. The economy appears resilient. And I think some aspect of that is throughout '26, we've been working with an underlying constructive economy and a bunch of uncertainty. And every month, the driver of the uncertainty changes a little bit, but it's uncertainty. So this is, I think, a flavor of it. And I feel like when we talk to our clients, they're telling us, regardless of that source of uncertainty, they're getting comfortable sort of navigating this area.

So business is performing well. Loan growth continues to be strong, albeit a little bit moderated in the second half versus the first half, but the first half was exceptionally strong. We continue to grow clients. We continue to see really good activity in pipelines and fee-based businesses. So overall, I think we're feeling quite good about the health of the business. And then credit quality continues to be pretty benign to improving. So again, you can point to a lot of things that we're watching, and we are watching, as you mentioned, rates some of the general tariff activity, the geopolitical risk. We're watching all those things. But generally speaking, it feels like the activity continues to be pretty good.

I guess another change since last year, about 6 months ago, you also assumed responsibility for tech and ops services at Key. And just maybe delve more into that, just what opportunities do you see to drive additional efficiency? Where is incremental investment needed? $1 billion tech budget. Is that enough in this backdrop? And just more broadly, what role do you see AI playing across functions throughout the organization?

Sure. So the first thing I'd say is we've been on this journey since I got to Key in 2012 of kind of some proactive modernization of core systems every year. So we pick a couple, we modernize and we make sure we're never too far behind. I think while we spend some money every year that feels like maybe not the most valuable in the moment, over time, you just have a portfolio that's generally current and you're avoiding any significant huge investments. So I think that's -- we've continued to do that. We'll continue to do that.

The second thing I'd say is I inherited technology and ops. Over the course of March to July, we sort of assessed that, and I no longer have ops. I moved all of the ops to the business. So that now is aligned directly with the businesses they support, and we did that because we think at this point, it's really more important to have visibility end-to-end on that client and employee journey to understand that process, to have the data that underlies that. And frankly, that's where we've seen AI be most powerful when you have all of those components in there. So you'll see us sitting here where everybody in the building has got access to Copilot and things like that, and they're becoming more efficient, but we're looking at some of these big end-to-end areas to find some real AI-driven efficiencies, and we think they're there.

So I'm sure we'll talk about it as we go here. But from this technology seat, I'm pretty optimistic about the ways we're unlocking the power of some of these tools. And I think they have the potential to create some real efficiency. And the question is, is that expense dollars out? Or is it effectively just more revenue for the same dollar of expense?

Got it. Maybe shifting to loans, I want to follow up on something you said. But in July, you raised your average loan growth outlook for the year to 4% to 5%, which had 8% to 10% in commercial loan growth within C&I strength in utilities, power, renewables, technology. You talked about loan growth moderating in the back half of the year. Is that kind of in line with expectations? Just any update on how commercial loan growth is trending so far?

Yes. So I think we're confident here on the loan -- midpoint of the overall loan guide for the year. I think we -- if anything, we might be leaning a little higher on the commercial side. So again, we're seeing really good client relationship growth in those businesses, the industries you talked about, but also just broad-based middle market across all geographies. So again, continue to see really positive opportunities there to add clients and add good return relationships over time. So it's moderating relative to, again, what was a significant first half growth, but it's still quite valuable and quite strong.

Any thoughts just how AI-related investments -- what role AI-related investments is playing? And maybe just looking further out to the extent that rates back off those 3 hikes that you talked about, how does that impact overall borrower demand?

Yes. So for us, we've been a leader in renewables now for a couple of decades, and we're seeing the demand for power just drive a lot of utilities and renewable growth, and we're well positioned to take advantage of that, and we are. We don't have huge direct exposure to data centers, maybe $700 million, $800 million, not a lot in the broad scheme. But we don't see the power demand abating really anytime soon unless something pretty significant happens. So we feel good about like how we're picking our spots there and what we're seeing. Our guidance on NII and NIM is pretty kind of rate movement agnostic right now. So I think we're set up to be neutral as we have been for several quarters, and we can kind of zig and zag with those moves.

I think the thing I would have expected maybe at this point, just coming into the year is a little bit less loan demand than we've seen just because rates are not necessarily historically high, but they're certainly higher than people would have thought at the beginning of the year. That hasn't seemed to drive through the bank loan market. I think if we got 3 more hikes, you might start to see something slow, but we just haven't seen that yet.

And then something on the second quarter earnings call that a bunch of banks called out was just kind of loan spread narrowing. Just maybe give us some color in terms of what you're seeing.

Yes. So we saw a little bit of dip middle -- through maybe the middle of the second quarter. It stabilized at prior levels at the end of the quarter, and we've seen that be stable through the third quarter so far. I think for us, the loan spreads at this point are almost 100% a function of the credit quality of the borrower. So as we're going up the credit spectrum, we're obviously going to see naturally better spread, but it's not a pricing issue or a competitive issue as much as it is just the quality of the borrower.

And then one of the things kind of weighing on loan growth overall and just why total loan growth is less than commercial loan growth as you've been running off some of these lower-yielding consumer loans. Just where are you in that initiative today? How much further do you have to go in that process?

Yes. So what's interesting is we have a little bit higher loan balances this year because of rates, and so we haven't seen that book run down as much as possible. That -- if you care about loan balances, you like that. If you care about the composition of those, you don't. So I'd rather see those run off faster because we're recycling those dollars for funding. And obviously, we're picking up spread and return profile. So that's been a little bit of a headwind, actually, the lack of that and call that we would have expected maybe $500 million to $600 million rolling off in a quarter. Now it feels like closer to $400 million.

So we've got some time to go. I don't think today, there's a lot of volume to replace that. Mortgage rates, I think, are maybe as high as they've been since pre-financial crisis or close. So I don't think we're going to be replacing any of that with current mortgage. We do have some opportunities in home equity. I think those are a little further out. So I'd expect this runoff pace to sort of continue through '27. But again, for us right now, it's a good recycling mechanism and an opportunity to pick up both spread and overall return.

And then I guess on the second quarter earnings call, you talked about deposits. I think we had the deposits rise after troughing in May, but I think you noted there were some onetime factors involved. At the same time, you're calling for average client deposits to increase by more than 2% or I think, $3 billion in the back half of this year. Is that still the way to think about that? And maybe just talk about current trends, whether it's balances, mix, pricing?

Yes. So look, I think appropriately, the question on the call was, hey, how do you -- how do you have confidence that you can actually grow deposits at that level and do it at a valuable balanced price mix? So what I would say gave us confidence there, and we're seeing it pull through. So I feel obviously better about it is we have a lot of data over time on seasonal trends, particularly in our commercial operating book. We've seen those build back up after that kind of May bottom. And we're seeing that happen, and we're seeing it happen at what is a constructive price. So we're not seeing a ton of movement on overall deposit costs, maybe a basis point or 2 so far.

I think we're on pace to meet or exceed that deposit growth. So, so far, if we've seen net loan growth in the quarter up maybe $1.5 billion, we're seeing deposit growth exceed that by more than $1 billion, right? So we're seeing those things bounce back the way we had historically expected. And on top of that, as we add new relationships, we're seeing new-to-bank deposits come in. And often, those are going to be operating in nature, and so they're well priced.

I guess deposits a little bit better than expected. I guess when you look across your markets, whether it's kind of Northeast, Midwest, Pacific Northwest, West, just any differences in the competitive dynamics or pricing behavior? And then say the Fed hikes on Wednesday, what kind of beta should we be thinking about?

Yes. So let me bifurcate just consumer and commercial because we'll talk a little bit about that. I think commercial deposits, I'm not sure the markets are hugely different, particularly kind of middle market and up. They're sort of a kind of market-based view of that generally. And so I don't view those often as hugely geographic specific. And frankly, we lend all over the country. So it's not as tied to the branch network as the consumer deposits. In our consumer book -- and by the way, we're seeing more of the growth in the commercial side. So understanding that dynamic has been very helpful.

On the consumer side, we think of 3 markets, kind of the Northeast, the Midwest and the West. We aren't seeing a change really in the competitive intensity or the behaviors, but there are 3 very different markets that give us a little bit of a balance effect because we're not getting hit in any one way all at once. And so that's been sort of the way it's operated for the last few years, and that hasn't really changed this year.

From a Fed hike standpoint, if we got a hike, we'd be slightly -- that would be slightly beneficial. But again, we're pretty neutral. And my expectation is you'd see kind of a low 40s beta pretty quickly as kind of the consumer term stuff rolls in over time. That again, would be slightly accretive to us in '26. And then it would sort of get more neutral over time as that deposit beta. I presume we get back to kind of 50% to 55% as it has in the last up and down cycle.

Got it. And you mentioned this quarter deposit growth outpacing loan growth. Last quarter, loan growth is outpacing deposit growth. Who knows what the fourth quarter will bring. But when you -- in the second quarter, you kind of added some short-term borrowings. Just maybe talk to just how you think about just overall borrowings and the balance sheet funding. You guys have these hybrid accounts and just how you think about just balancing the overall funding strategy?

Yes. I mean, at the end of the day, we talk a lot about deposits and deposit betas for all the reasons that make sense, the gross majority of funding. But at the end of the day, what really matters is what's your cost of funds overall and how effectively are you managing that. So our view is we want to be core client deposit funded for the most part. And when we're seeing the seasonality that we tend to see, and we saw it in the second quarter, we've talked a little bit about that. You don't want to move the entire interest-bearing book to solve a short-term problem.

So again, we have the confidence there that it was going to rebound post May. It's done that. And because we had some historic visibility into that, we used some wholesale borrowings to fill that gap in that time frame. As these deposits grow and they outpace loan growth, we'll be able to bring those back down. And again, we'll always sort of pull that lever on the margin, but we're trying to be as client deposit funded as possible pretty much at all the time.

Got it. And then net interest margin, you're 2.89% in the second quarter. Maybe just walk us through the path to reach kind of the 4Q target of to 3.05%, if that's still the level. And then 3.25% plus for next year. And as we think about next year, just kind of what do you need to do or need to see to get to that plus figure?

Yes. So the -- I mean the story, I think, is now maybe becoming a little boring because it's a similar story. There's a bunch of fixed asset repricing. We'll see $9 billion in the second half of '26. And then the rest is really around what we just talked about, which is deposit balances at the appropriate rate and otherwise funding optimization, right? So that's really what we're seeing there on the NIM side. And we feel good about that given the trajectory we're seeing year-to-date. If you roll into '27, kind of similar story, another $21 billion or so of fixed asset repricing and then deposit balance funding optimization, the same sort of dynamics. Look, I think if we see 3 rates, more rate hikes or more, I think the real question is what's happened to loan demand.

So -- and while the loan demand is obviously -- should be, in most cases, NII accretive, it is on the margin today, a little bit NIM dilutive. So if we're just talking about NIM for the moment, right? Less loan demand means less requirement for funding, which means you can price the deposits a little bit less aggressively, right? So you've got some trade-offs there on the NIM side. And I think we just have to watch as that rolls out because, again, as I watch this year, I would have expected as rates stayed high, loan demand to come down, it just hasn't happened.

I guess you mentioned $21 billion of fixed-rate assets repricing next year, 10-year 5% today. You mentioned mortgage rates very historically elevated. I assume that kind of helps the repricing story.

It helps the repricing story on certainly our investment portfolio. And to the extent you're putting swaps in place on the floating-rate book, you're seeing levels -- swap levels we haven't seen in quite some time. On the demand -- loan demand level, the question is how much loan demand will there be? And then I think the other point is if there are going to be those hikes, our funding costs are obviously going to go up across the board. The question is, is spread going to move? And I think the question really is if you're not willing to take more credit risk, is the spread for that quality client really moving even though overall funding costs are going up, and that's just to be seen at this point.

Fair. You touched on kind of balancing NII growth with NIM growth and kind of sometimes the trade-offs between the two. Just how do you balance that?

Carefully. I mean, look, I think in a perfect world, we're often looking at something that is NII accretive and NIM neutral or maybe it's NIM accretive and NII neutral. You're trying not to have to go down on either one really aggressively. And again, we've been on the margin. I think we took our NIM guidance down a couple of basis points just because we were putting on good relationships, and we thought that was the right thing to do long term because I think if I'm sitting here in a year and I tell you, this would be hard to do. But theoretically, if I said, hey, we're going to hit our NIM guidance, but miss our return guidance, I think that's a worse answer than the alternative. So we're obviously trying to do both, but we're also trying to build long-term consistent franchise value and returns. And so really, it's -- at some point, it's discussion about what are we looking at, what's available and how much confidence do we have that the return profile, if it is NIM dilutive, is valuable.

Makes sense. And maybe just tying this loan-to-deposit NIM discussion together. You talked to 9% to 11% NII growth for this year, average earning assets of roughly -- up roughly $1 billion to $2 billion in the back half of the year. Is that still the right way to think about it?

Yes. I think we feel really good about the 9% to 11%. The earning asset piece deal against -- still feels about right. So we're on trend for both. We put out some updated guidance today, didn't impact that at all. So again, still feeling good about it.

Any other changes in the guidance we should know about?

We really changed fees and expenses to reflect the Clearwater -- closing the Clearwater acquisition in August.

I crossed that question off. Yes. I guess on investment banking, I don't see what you guided to, so I can't...

Okay. So we took fees and expenses from 3% to 4% to 4% to 5% -- sorry, fees to 3% to 4% to 4% to 5%, and we took our expenses from 3% to 4% to about 4%. So think about that as roughly kind of a PPNR-neutral transaction in the back half of the year, just given some deal structures and integration costs and things. We're confident over time, it migrates to sort of standard profitability. But really, that is the driver of the guidance change.

Got it. And I guess maybe sticking on investment banking. You were talking about 20% sequential growth for that line item, fee pool down this quarter. Maybe just update us there. And just looking further out, middle market M&A activity has yet to normalize and financial sponsors return. What's your outlook for these businesses and just...

[Audio Gap] internally is how is the broad market performing versus our expectations. And there was a strong second quarter. We weren't as strong in some of that natural business mix versus some of the league tables. The other piece is we tend to zoom out and really think about capital markets on more than a quarter basis because it's hard sometimes to time exactly when the transaction is going to happen. But our view is when we get into a specific quarter, and we guided up, as you said, 20% plus, which we feel good about based on current activity, it really is a bottom-up client activity and has a little bit less to do with kind of a broader market trend in a particular quarter, we tend to see those trends play out a little bit more over time, assuming they apply to our book, right? So we're not a big trading business, right, but we're bigger and obviously things like syndications, M&A.

We continue to see very strong pipelines, record pipelines we talked about in M&A. We hadn't seen those pull through. We're starting to see some of that pull through, but I would not call it normalized. And I wouldn't say the sponsor behavior is normalized either. The guide that we've given on '26 and '27 as it relates to returns doesn't require those to be sort of going full go. So if those markets opened up and really started going, I think there's some upside there. But right now, we're seeing, again, good client activity and expecting to see that pull through. The one place that rates really does impact in the near term is kind of commercial mortgage placement. So as rates go up, people tend to want to sort of watch and time the market a little bit on a permanent rate before they hit the market.

Got it. And then you touched on Clearwater. It's now closed. Maybe just talk about just how that impacts your overall franchise and just kind of the strategic rationale for that business.

Yes. So we've obviously, over time, done a fair amount of capital markets add-ons. Clearwater is a firm based in the U.K. with some European footprint where we've been a referral partner now for 5 or 6 years. We've co-led some transactions together or referred. So we know the partners, we know the principals, good cultural fit between the businesses, and we've operated quite well as a team. So it felt like this is just a formalization of a prior referral relationship. So on the integration side, on the cultural fit side, on the overall execution of a transaction, it felt very low risk. And it gives us now very connected distribution into the U.K. and Europe and vice versa. So there is a natural fit there that we feel benefits the firm strategically over time.

As I said, it's pretty neutral from a PPNR standpoint this year. We'd expect it to add something in the sort of $60 million to $70 million of revenue next year. Again, market neutral. If the market remains constructive, we'll see what happens. But -- and that doesn't necessarily require us to be realizing a ton of synergies on top of that. It just -- it's a very solid business with folks that we know. So it's consistent with us and kind of lower risk. We'll continue to look at transactions that sort of fit that either by expanding distribution capabilities or filling or building industry [ depth ]. So we've been an industry-focused bank for decades now, and that served us well. And these platforms tend to be most productive when they're not generalist but are kind of equally focused on certain industry groups.

And when we look at the change in fee guide, it was solely due to Clearwater. And then maybe away from capital markets, when you just think about fee income in general, where do you see the biggest opportunities for growth?

Yes. For us, it continues to be payments and wealth. So the payment side, we've seen low double-digit growth in those platforms. Year-over-year, we continue to see really good deepening of client relationships. We've had a focus on payments now for over a decade. If you were sort of in our pipeline meetings, you'd hear people talk about payment attachment. When we make a loan, we expect the payment -- the deposits and the payment products to be connected to that loan and then sort of get those clients up and running as quickly as we can. You talked earlier about hybrid accounts. Just recall, those are sort of put your noninterest-bearing and your interest-bearing deposits in one pool. We do the calculation on compensating balances for the client. We apply the excess rate we've agreed to. It also gives us opportunity to deepen those relationships through additional payments products. And we've done a phenomenal job expanding that. And what that means is we either get more card fees or we get more compensating balances that show up as noninterest-bearing.

So that's been a phenomenal opportunity for us. We'll continue to do that. And then if you think about wealth, second quarter, we had a record AUM for Key at $74 billion. We continue to drive great traction in our mass affluent segment, and we continue to be pretty lightly penetrated even though we've added something around 60,000 accounts in the last 2.5, 3 years. And we just -- we see pretty good runway there, and we'll continue to invest in that. I think both of those areas from an M&A standpoint are challenging for banks just given the multiples in those businesses.

So at this point, we're kind of a decade plus into making equity investments, commercializing fintech capability in the payment space. We feel very capable and very experienced doing that. We'll continue to do that where it makes sense. On the wealth side, it's a much more organic story because it's just a little bit harder to make those deals work.

Makes sense. On expenses, even adjusting for the acquisition, wealth seems like a pickup in the back half of the year versus the front half. But just maybe just talk about any seasonality to that and how you're thinking about it.

Yes. So a couple of things happen every year. We get -- we tend to have -- because of our capital markets focus, we tend to have more client activity in the back half, which drives a little bit more incentive comp. So that's very normal for us. And if it doesn't happen, obviously, we don't pay out the incentive comp. So we have some variability in that base. We tend to do a little bit more marketing in the fourth quarter in the back half of the year. And we tend to, over the course of the year, ramp up some of our technology investment spend. So that's normal. We don't see anything there that's going to pop or out of line. We are, again, seeing the Clearwater piece add to that. So we just want to reflect that in the guide because we know that will come.

Got it. And I guess maybe your guide still kind of 400 basis points plus of positive operating leverage for this year. I was talking earlier kind of starting the 2027 budgeting process. Just how are you thinking about expense growth investment priorities and just operating leverage in 2027?

Yes. I mean, one, we tend to want to be very focused on operating leverage for all the obvious reasons, and we continue to feel really good about the organic growth story. So we think we've got runway, again, subject to anything changing in the macro environment. We're going to invest in the business. We've added a lot of bankers. We've invested in technology. We'll continue to do that. We haven't really determined the pace of that. We're -- as you were talking before we started, we're sort of in the beginnings of our '27 planning. So we'll obviously share that in January. But we feel good that we can continue to invest in the business and manage expenses in a disciplined way.

And again, I feel like some of the early AI proliferation we're seeing inside of Key that makes me really optimistic that we're finding ways to scale that don't actually require us to add a lot of people. So if revenue came down, we might have a different conversation. But right now, if you're seeing revenue growth, I feel like we can do a lot of the current activities we're doing today through the benefit of AI, we don't have to add staffing to support more clients and more revenue because some of that work can be done on those platforms.

And then maybe shifting gears to credit quality. Nonperforming assets were up $126 million in the second quarter. You talked about a few specific credits in real estate, consumer goods and agricultural sectors. I know charge-offs were relatively benign and you didn't change your charge-off guidance for the year. But just maybe update us on those 3 credits and are those sectors of concern? Just what else you're watching more broadly?

Yes. I think those 3 sort of reflect the overall sectors of concern. So if you think about where we're watching things, it's commercial real estate, it's agriculture, it's consumer goods, right? Those 3 whether it's rates, whether it's tariffs, whether it's labor availability, whether it's the ongoing Amazon effect where all those things sort of hit those 3 areas. That said, we're seeing all our credit metrics improved in the quarter. The NPAs we talked about last quarter, we thought we had line of sight to resolution. We're seeing that happen. Our charge-offs are coming in, I think, they're going to come in below the guide. So that's 1 quarter, so we're going to continue to watch that. But if we see the current progression, we might have some opportunity to lower that view for the year. But right now, credit quality just continues to be really benign.

I guess against that backdrop, how do we think about maybe reserve levels going forward? You actually had a release in 2Q despite the NPA rise...

Yes. I mean I feel like, one, we built through a lot of '25 just given some of the uncertainty. As you noted, we did have a little bit of release last quarter. I think we feel pretty good about our reserve levels, but the trends overall continue to improve. So at some point, you have to figure out what you're holding and how supportable that is. So I don't know where we are exactly on that, but I wouldn't see obviously a build coming unless something changes dramatically in the next 2 weeks. And I could see some opportunity to release. The question is how much just given the trends we've seen so far in the quarter.

I guess does the potential backup in rates tighten you at all?

I mean it is 100% something we're going to watch, right? So the question is in which areas, and we talked about commercial real estate, the way that has manifested over the last few quarters when it happens is good clients stay on, they put more dollars in the interest reserves. They decide they want to extend. They put more capital up. They basically say, hey we're just -- we're going to stay with you until the market changes. We're generally comfortable with that. So we'll see where that goes, but that certainly is a watch point. And then I think if you look at some of the geopolitical risks and other things that are happening, we're just -- we're always watching that, and that's been reflected in our reserve builds over the last several years. And those reserve builds have often been a qualitative offset to what our models are telling us. So the question is, do you keep building qualitatively if you see good performance?

And then on capital, CET1 mark was like 9.8% last quarter within the 9.5% to 10% guide you talked about. Potential Basel changes should be beneficial. Share repurchase, I think you can do at least $1.3 billion this year. Just how do we think about capital deployment going forward against the backdrop where you maybe don't need as much?

Yes. I mean our capital priorities remain pretty consistent. So you support client growth where you can. And obviously, we've had a fair amount of that. So we would have seen some real capital consumption in commercial loan growth this year. We're more than happy to do that. You pay the dividend. We don't see that changing or a need to change that over time. And then you think about how to monitor the overall ratio, and you tend to use those share buybacks to manage that. So we've been out there saying 1.3. I feel very good about that number. I don't see any reason to back off that. I do think we've talked a lot about rates as it relates to deposit competition, loan demand, general economy. The one place where it's had a significant impact is just on the AOCI in the portfolio. So the rules aren't official, but we've been operating as if they are. That will have an impact on our market capital in the quarter. I would expect us to be below the 9.5% in the quarter, just given that AOCI move.

And I think we're very comfortable there given we've taken a very measured approach to capital return. There's nothing in front of us right now that would say don't achieve the 1.3. We think that's the right answer. And frankly, you mentioned the Basel III, not official yet. Our expectation at this point is high probability, it looks the way it's been proposed, probably gets implemented in '27 for realization in '28. And I think we'd probably be shortsighted not to consider that aspect of it, which we think is 100-plus basis points of marked capital. We're not spending it today, but the question is, would you start pulling back on activities if you have some confidence that that's coming in the relative near term. So I think that's the balance. And right now, we feel very good about operating below that 9.5% given everything else going on.

Got it. And before we were talking about Clearwater, you kind of went through nonbank acquisition and sectors you're looking at. Maybe just shift gears to kind of bank acquisitions. I know you kind of always emphasize organic growth, but we do expect industry consolidation to pick up over the next few years. Just where does traditional bank M&A fit in with that capital hierarchy?

Yes. I mean I would continue to say at this point, it's just not really a focus. And the question, we've sat down and said we feel very good about the organic growth opportunity. I think we've demonstrated we can do that. We've done these fill-ins because we think they're overall just incrementally accretive to what we're trying to do. And I think we feel like the risk profile of those types of transactions is manageable. But I think we are focused on executing on delivering on the commitments we've made. We've made them out now to fourth quarter '27. We feel very committed to delivering on those.

And I think other things need to be different for us to really feel comfortable that the time is right for bank M&A. And that's -- we need to deliver. We need to get our multiples and returns in a different place, and we think we have the organic path to do that. So that's job 1, 2 and 3 at the moment. And if things change or some opportunity emerged that we weren't thinking about, maybe we think differently. But right now, there just isn't anything on the horizon.

Maybe sticking with the capital theme. I saw last month, we filed notice redeemed $500 million of preferreds. Just how are you thinking about the capital stack going forward?

Yes, it's a great question. So we redeemed, I think, about $525 million of our Series D. With that will come a little bit of redemption premium. So you'll see a little bit of noise in that preferred dividend line for us in the quarter. We have a Series E, another $0.5 billion coming up in, I think, December. In both cases, what you were getting was at the call date, a pretty meaningful step-up in the back-end floating rate. So it was very efficient for us to take those out. I suspect we will go through the same calculus and it will probably tell us to redeem the E.

Within that, our hope would be to issue some new preferred, not at the full amount of those, but maybe something on the order of about 50%. The market hasn't been as kind on that profile in the last few weeks. We watch that closely. So we'll see if there presents an opportunity there. But all of this is probably noise in the second half on the preferred dividend line, all of it to be in a more capital-efficient position over time, which frankly, is very likely to lower those dividends.

Do you want to quantify the 3Q incremental impact?

I think it's probably on the order of about $5 million.

And then on Scotiabank, I know they own 15% in Key. They filed to take it to 19.9%. Just maybe update us on that and just the relationship and opportunities with them.

Yes. I mean, one, overall, I think we continue to have a very constructive relationship with them, although at least from my seat, not a lot of interaction. So I think if you were listening to their calls, they frequently touched on this as a financial investment, I think one that they're quite happy with. And frankly, if you're going from 14.9% to 19.9%, like presumably, you think there's benefit in holding more. I do think it's important just to remind people that the original deal in '24 allowed them to go to 19.9%. So there's nothing from the Key Scotia relationship here that is different. We aren't contemplating nor would we contemplate issuing additional shares to get there. This is really Scotia and the Fed dealing with their allowable ownership percentage within that 19.9%.

And they have basically 2 paths to get to that ownership percentage. One is go buy in the open market. We view that as positive for us. The other is to not sell to us in the buyback and just allow themselves to float up. I think we've seen more of the latter and my suspicion is it's a little bit about not wanting their absolute dollar investment to go down while preserving the appropriate level of ownership. So it really doesn't have much to do with Key, but we view it as a positive sign that they're happy with the investment.

Helpful. And then I guess, based on what we've discussed so far, it feels like you're on track to outperform the 15% plus 4Q '27 ROTCE target. Is that correct? And then beyond 2027, what do you need to do to kind of get back to that 16% to 19% ROTCE range?

Yes. Look, I think the -- we said on the call in July that we were incrementally more confident. I think that holds, again, subject to market conditions holding. So I think that caveat is always out there, but what we're stating. I think it's not the sexiest answer in the world, but it is about continued NIM optimization and improvement over time. So getting to 3.25% and above, obviously adds lots of value to that return profile, continuing to invest and realize our fee-based businesses. So frankly, when we're adding commercial loans at the rate we are, we expect our bankers to be able to cross-sell those into our fee businesses, and we should see better fee growth performance over time, and we should be accountable for that.

I think the third is continued disciplined expense management. So we think we can be in that kind of 3%-ish range over time and feel very good about doing that while investing appropriately because you don't want to starve the franchise, managing capital at the right level. So Basel III comes in, is 9.5% still the right lower end or not? And if it is, what levers are we pulling to make sure we stay in that? And then obviously, you got to manage credit well because that tends to put a hole in the boat when you don't. So I think it's a pretty simple recipe, and it really comes down to executing it effectively and appropriately. But I don't think there's probably anything I said there that you haven't heard repeatedly in your long career of doing this.

No, makes sense. We have -- and a minute we have remaining, I guess anything I would have to ask, anything on investors focus on?

No, look, I think despite some of the rate concerns and maybe some of the continued uncertainty, I think we feel very good about where the bank's positioned and how the business is performing. Clients continue to express a lot of confidence, and we've been the beneficiary of that, and we'll continue to engage with them. I think we're on track to meet the commitments we've made, and we take that seriously. So subject to a lot of uncertainty, and it's our job to manage that effectively. We feel -- as we sit here today, we feel quite good about where we are.

Great. On that note, please join me in thanking Clark for his time today.

Good morning, and welcome to KeyCorp Second Quarter 2026 Earnings Conference Call. My name is Megan, and I will be your moderator for today. [Operator Instructions]. As a reminder, this conference is being recorded. And I would now like to turn the conference over to [ Troy Gates ], KeyCorp's Director of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. I'd like to thank you for joining KeyCorp's second quarter 2026 earnings conference call. I'm here with Chris Gorman, our Chairman and Chief Executive Officer; Clark Khayat, our Chief Financial Officer; 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, July 21, 2026, and will not be updated.

With that, I will turn it over to Chris.

Thank you, Troy, and good morning, everyone. Our second quarter results reflect strong business momentum and continued progress against our strategic and financial commitments. We reported second quarter earnings of $0.44 per share up 26% year-over-year. Revenue grew 7% year-over-year, and pre-provision net revenue grew 9%. Net interest margin expanded sequentially to 2.89%, and we are on track to meet or exceed 3% by year-end, supported by several tailwinds that we expect will contribute to accelerated margin expansion in the second half of the year.

Commercial loan growth remained strong. Period-end C&I loans increased $2.1 billion or 3% sequentially, reflecting continued success in attracting new clients across our markets while concurrently deepening existing relationships. Our deposit franchise continues to perform well in a competitive environment with total deposit costs declining 2 basis points during the quarter. Asset quality remains strong, while nonperforming loans increased modestly during the quarter, reflecting idiosyncratic items. Broader portfolio performance remains stable, tightly managed and consistent with our expectations.

Our net charge-off ratio was 42 basis points during the quarter, and our year-to-date charge-offs remain at the low end of our 40 to 45 basis point full year outlook. Given our stronger-than-expected business performance, I have even greater confidence in our ability to generate a return on tangible common equity exceeding 15% by the end of 2027, on our path to achieving our 16% to 19% long-term target. Importantly, we continue to deploy capital in a disciplined manner supporting client growth, investing in the franchise and returning capital to shareholders through ongoing share repurchases.

During the quarter, we repurchased more than $340 million of common stock putting us on pace to achieve our full year share repurchase target of at least $1.3 billion. As we continue to repurchase our shares, our strong capital position enables us to concurrently drive organic growth and invest in our business. As an example, during the quarter, we announced an agreement to acquire Clearwater U.K. This transaction represents a strategic extension of our leading middle market advisory franchise and expands our ability to serve M&A clients and prospects internationally. We expect this transaction to close in the second half of 2026. While the macroeconomic environment remains uncertain, our momentum continues to be strong. We are seeing healthy client engagement, solid activity levels across our businesses and remain well positioned to perform through a range of potential economic scenarios.

We continue to grow clients, in the second quarter, relationship households increased 3% and commercial clients increased 2% from the prior year. Commercial loan pipelines remained strong up 6% from the prior year. Our priority fee-based businesses, investment banking, commercial payments and wealth, [Audio Gap] bankers and scaling embedded banking build momentum. In wealth, assets under management reached another record $74 billion. Since the launch of our mass affluent strategy in 2023, we've added 59,000 households over $4 billion of AUM and nearly $8 billion of total client assets to Key. Wealth remains a significant opportunity for us as we are less than 10% penetrated with respect to our base of currently existing mass affluent households.

Overall, we are encouraged by our second quarter performance and the sustained momentum across the business. As a result of our continued favorable [indiscernible], we have increased our full year guidance with respect to net interest income, revenue and loan growth. Our guidance implies substantial positive operating leverage as we expect to grow revenues twice as fast as expenses in 2026. As always, our guide reflects a range of potential interest rate scenarios and assumes markets remain constructive. We enter the second half of the year from a position of strength. The underlying trends across Key remain favorable. We will continue to drive disciplined execution across our franchise.

With that, I'll turn it over to Clark. Clark?

Thanks, Chris. Starting on Slide 4. We reported second quarter earnings per share of $0.44. Revenue was up 7% year-over-year, while expenses [ increased ] by 5%. Tax equivalent net interest income increased 9% year-over-year and 2% sequentially, primarily driven by commercial loan growth portfolio repricing. Noninterest income increased 2% year-over-year. Loan loss provision of $92 million included $115 million or 42 basis points of net charge-offs, a reserve release of $23 million. The net release was driven by improvement in Moody's economic scenarios and a continued remix to higher credit quality relationships, partially offset by a qualitative build to account for increased economic uncertainty. We grew tangible book value per share 6% year-over-year.

Moving to the balance sheet on Slide 5. Average loans were up $2.3 billion sequentially. Period-end loans increased by $1.2 billion, driven by C&I growth of $2.1 billion or 3%, partly offset by the ongoing planned runoff of low-yielding consumer loans. Growth was largely from new relationships and broad-based across industries and regions. The largest industry contributors were utilities, power and renewables, real estate and technology. The C&I line utilization decreased 50 basis points sequentially to 31% driven by higher commitments.

Turning to Slide 6. Average deposit balances were relatively flat sequentially and year-over-year consistent with historical seasonal trends. Average noninterest-bearing deposits increased 2.3% sequentially, representing 19% of total deposits or 24% when adjusted for our hybrid accounts. As expected, the average deposits for the quarter were consistent with Q1, and we saw end-of-period deposits up versus prior quarter after troughing in May. At the end of June, deposit balances, which pulled the quarter at $153 billion, were temporarily elevated by about $4 billion due to the timing of transaction activity among our relationship clients. Total deposit costs declined 2 basis points sequentially to 1.63%. Our cumulative interest-bearing deposit beta held steady at 56%. To support our continued strong commercial loan growth, we supplemented funding with short-term borrowings. Given our expectations that client deposits will grow in the second half, we used wholesale funds in the second quarter rather than repricing existing deposit relationships. As a result, total funding costs increased by 1 basis point. We continue to pay close attention to deposit dynamics and will take proactive and strategic actions to manage funding effectively to achieve our goals. We expect to increase average client deposits by more than 2% through year-end.

Slide 7 provides drivers of NII and NIM this quarter. Taxable equivalent NII was up 2% and net interest margin increased 2 basis points from the prior quarter to 2.89%. The increase was driven by commercial loan growth, fixed rate asset repricing and an additional day in the quarter. We continue to manage our balance sheet to a fairly neutral interest rate risk position and move through the remainder of 2026.

On Slide 8, noninterest income increased 2% year-over-year. Investment banking and debt placement fees were $169 million for the quarter. The first half of 2026 investment banking fees were $366 million, an increase of 4% compared to the same year ago period. As Chris mentioned, our pipelines are at historically elevated levels. Compared to the prior quarter, overall pipelines are up 9% and M&A pipelines are up 7% to a new record. We expect third quarter investment banking fees to be up 20% plus quarter-over-quarter and remain confident in delivering mid-single-digit investment banking fee growth for the year. Trust and investment services income grew 9% year-over-year, reflecting higher market values and assets under management reached a new record high of $74 billion. Service charges on deposit accounts and corporate services fees each increased by 5% year-over-year. The increase in service charges were driven by growth in commercial payments, while corporate services income was driven by higher loan commitment fees.

Commercial mortgage servicing fees were $49 million, down $21 million year-over-year, largely driven by lower deposit placement fees and special servicing fees. At quarter end, we [indiscernible] special service earned approximately $735 billion of commercial real estate loans, of which about $270 billion 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 commercial mortgage servicing fees to run about $50 million to $60 million per quarter for the remainder of the year.

On Slide 9, second quarter noninterest expenses were $1.2 billion, an increase of 3% sequentially and 5% compared to the year ago quarter. The increase was driven by higher personnel expenses related to the investments in frontline bankers, impact of Key's higher stock price on incentive compensation as well as higher benefits costs. Sequentially, expenses increased due to higher incentive compensation, professional fees and marketing expenses as well as an additional day in the quarter. Expenses are expected to modestly tick up through the second half of the year reflecting our ongoing investments in people and technology and incentive compensation associated with expected seasonally higher fees. We continue to expect to be within our full year expense growth guide of 3% to 4%.

Turning to credit. Net charge-offs were $115 million or an annualized 42 basis points of average loans. Criticized loans were relatively stable at an annualized 4.9%. Nonperforming assets increased by $126 million sequentially to an annualized 74 basis points of loans. The increase was largely driven by 3 credits in the real estate, consumer goods and agriculture industries. In our current assessment, we do not expect these credits to result in meaningful incremental losses, and they do not alter our outlook for net charge-offs. Moving forward, we expect several sizable nonperforming loans to resolve through the rest of the year. Overall, our portfolio remains healthy, fundamental performance of our borrowers remains resilient and is tracking in line with expectations.

Moving to Slide 11. Our CET1 ratio was 11.2% and our marked CET1 ratio was 9.8% at quarter end. As Chris mentioned, we continue to expect to repurchase at least $1.3 billion of our shares for the year. Moving to Slide 12. We are increasing our 2026 guidance to reflect our loan growth out-performance. We now expect revenue to grow 7% to 8% compared to approximately 7% that was previously communicated. We also now expect full year net interest income to increase 9% to 11% compared to the prior guide of 9% to 10%. This guidance holds under a fairly broad range of interest rate scenarios, including a [indiscernible] scenario. We now expect to exit the year with a net interest margin in the range of 3% to 3.05% and with average earning assets increasing between $1 billion to $2 billion from the second quarter. This outlook assumes continued loan growth and a stable competitive deposit environment, while incremental balance sheet growth may be modestly margin-dilutive, we are willing to trade NIM to a degree to add quality relationship clients with a short term profile. Additionally, we continue to expect the benefits of over $9 billion of low-yielding fixed asset repricing through year-end, and disciplined deposit management to more than offset that impact.

We now expect average loans to increase 4% to 5% compared to our previous guidance of 2% to 4%, and average commercial loans are now expected to increase 8% to 10% this year. The higher outlook reflects strong loan growth through the first half of the year, continued success in adding and expanding client relationships and healthy commercial loan pipelines that continue to support growth in the second half of 2026. All other guidance remains unchanged.

In summary, subject to the usual macro caveats and a constructive environment that remains broadly consistent with today, we expect to maintain our strong momentum through the second half of the year and deliver a solid return on and return of capital to shareholders. With that, I would like to now turn the call back to the operator to provide instructions for the Q&A session. Operator?

[Operator Instructions] The first question will go to the line of Ryan Nash with Goldman Sachs.

Clarke, maybe to start on the net interest margin [Audio Gap] Including deposit costs, fixed rate asset repricing. And any other impacts you think we could see that happened this quarter that may not repeat? And I have a follow-up.

Well, Ryan, first of all, thanks for the question. Let me just make a brief comment. NIM is clearly an important metric for us. But as you can imagine, what we're most densely focused on is our long-term return targets. By the way, both of which are still intact. So Clark, you can maybe step us through the detail.

Sure. Thanks for the question, Ryan. So maybe first, just to remind everyone NIM was up in the quarter, just not up maybe as much as we would have expected. But maybe just a couple of factors in Q2. So stronger loan growth than we expected through the quarter. We obviously covered that. The loans we put on came in at a higher credit quality and therefore, a little bit tighter spreads, so bigger balance sheet, a little bit tighter spread. And then overnight SOFR was down about 4 basis points in the quarter. So put all those together, again, a little bit bigger balance sheet, a little better margin. We had a known seasonal low in deposits. So as we told you, troughing in late May that happened sort of as expected with the timing of that loan growth, created a little larger funding need in the period, and we chose to fill that with wholesale funds rather than reprice the client deposit base because the expectation is we're going to see some good deposit growth here in the second half.

So -- as you transition then, it gets us confident we'll go from where we are at 3%. And you hit most of the elements there, Ryan, but about $9 billion of fixed asset repricing coming in the back half with a pickup of about 1.25%. As I mentioned, solid client deposit growth, so about 2% or $3 billion in the second half, largely from core operating deposits. So should be very solid growth with good relative pricing. And because that's coming, as I noted, that's why we chose to bridge with short-term wholesale funds. And then while we do expect loan growth, we would expect it to moderate off the first half pace. And some of that is just not that client activity will be down, but it will be a mix between the balance sheet and the market. So put all those together and I think what we see as a path to 3% plus with what we think is relatively low execution risk based on what's in front of us today.

The last piece I'd say just on deposit costs, is rates are stable, we would expect deposit costs through the period to be pretty stable. If we see a hike as is sort of becoming more probable, I guess, from a market standpoint, we would see deposit costs start to drift up a little bit, but will get the offset in loan yields and frankly, I don't think that will be really impactful in the back half of '26.

Got it. And then maybe as my follow-up, Chris, seems that results on investment banking fell a little bit shy of expectations. We're obviously seeing strong results across the industry. I know 1Q was a record. But maybe just talk about what drove the miss? And then when you look at pipelines, you mentioned you expect to be up 20% in 3Q. Maybe just talk about expectations that are embedded for the back half of the year?

Sure. Well, thanks for the question. And we did come up short of what we had anticipated in the quarter. We obviously came off [ a first ] quarter and we're coming off strong comps in 2025. Having said that, we remain confident that we'll have the ability to grow mid-single digit. In the first half, we completed about $366 million, and so we're up about 4%. So as we mentioned, the pipelines are very, very strong. We're up 9% linked quarter, up 31% year-over-year. And as you know, Ryan, there tends to be some seasonality in this business and that particularly in these middle market deals, a lot of people want to get them closed by year-end. That is a natural thing. So over time, we always see a step up in the back half of the year.

When you mentioned that people who were having great quarters and indeed they are. What's interesting is, to date, there's been a real bifurcation between large deals and the middle market deals, transaction volume is actually down 24% year-to-date. However, the value believe it or not, is up 83%. So as you can see, a real skew sort of two larger deals. I feel good about how we're positioned. It's not as though any of these deals fell apart, they get pushed out, which often happens in due diligence, et cetera. And when I speak about pipelines, these are engaged deals that people are spending valuable time and money on. So people are invested in these deals. I think we'll see them come out in the in the back half of the year.

And the last comment I would make, and this sounds kind of counterintuitive, Clark just commented on the interest rate environment. I think in a higher-for-longer environment, when people think that rates are either going to be higher for longer or potentially even go up. Today [indiscernible] is obviously around 4.6%. I think that's actually a better climate to get deals done than a climate where people are anticipating a bunch of rate cuts and tend to kind of sit on the sidelines. So that might be more than you're looking for, but that's how I'm thinking about the business.

Our next question will go to the line of Ebrahim Poonawala with Bank of America.

I guess maybe on this whole NIM versus NII debate, Chris and Clark, you said something willing to trade NIM to add clients with a strong return profile. Maybe unpack that for us in that if loan growth is stronger, my read is there's pressure on incremental pressure on the NIM. But as a management team, how do you think about that in the framework of the 16% to 18% ROTCE that you want to hit over the medium term? Just contextualize how long does it take to make up for that NIM that you give up to drive growth on the fee side or how we should think about the time line?

Yes. So it's a great question. And I don't think our target of 15% plus by 12/31/27 is in conflict with growing the business, generating more NII, generating more EPS. We are very targeted on who we want to do business with. And we're fortunate enough to bring a lot of these new to client customers onto the balance sheet. We have a in perspective, about 58% of our C&I loans are investment grade. So obviously, and I've said this many times, you usually start by providing some capital. But in order to get the kind of returns that we have to get we've got to do a lot more things for them. And usually, that takes a bit of time. But I don't think it's a trade that's in conflict. I actually think growing the business with our targeted customers is actually helpful on our long-term path to achieve our -- the kind of returns on tangible common equity that we're looking for.

Got it. And I guess maybe just a follow-up, mentioned the 2% deposit growth in the back half. It looks like you have a pretty decent line of sight in terms of what's coming through. How should we then think about, one, if there's any more color on that deposit growth drivers of that? And then just, Chris, to your point about the 15% ROTCE by fourth quarter '27, do we still feel good about the margin being the 3.25% plus that you've about in the past?

Yes. So Ebrahim, it's Clark. Thanks for the question. So we do have, we think, very good visibility on that deposit growth. It will be largely commercial in nature and connected to relationship clients with whom we have very tight interaction. So we -- as we see that there is a seasonal build in the commercial book. I think that's pretty broadly known. And again, we have very good line of sight again on what we think is a rich pool of operating deposits coming through. And again, appropriately priced. We think some of that won't all be noninterest-bearing, for example. Some of that will be interest-bearing. Some of that will be in our hybrid accounts, et cetera, but we sort of like the profile of that for sure.

As it relates to the 15% return in fourth quarter '27 and the related NIM target, what I'd say is -- just to reiterate Chris' point, at the end of the day, returns really are the most important thing we're looking at over time and making them sustainable. That is not to say NIM is not an important factor and something that we keep track of. And at this point, there's nothing that would tell us we have concerns about hitting either of those targets in Q4 '27.

Our next question will go to the line of Chris McGratty with KBW.

Clarke or Chris, the operating leverage comment. Obviously, it's very wide this year. I'm interested in, I guess, sustainability. And again, what's factored into the medium term in terms of operating leverage, can you continue to generate operating leverage [indiscernible]?

Yes. Chris, it's Clark. Look, again, assuming a constructive macro environment, we feel very good about that. I think we have demonstrated over time, we can manage expenses very effectively. And as Chris has noted, many times here, we like the pipelines, the current status of the business and the momentum going forward. So if you put those two together, we do feel comfortable that we can drive operating leverage going forward. We have talked before about kind of long-term expense growth, and we think we're a little bit -- we were a little bit higher last year. We're still going to be kind of above that long-term target, but fighting to that over time. And that's a combination of continuous improvement efforts and finding opportunities to reinvest in the business, understanding that you got to cover inflation and people and some of the other costs. So there's nothing again in our crystal ball as good or bad as it may be that tells us we're concerned about not being able to deliver that sustainably.

By the way, that's -- while we're investing significantly in the business, whether it's hiring or the $1 billion we're going to spend this year on tech and ops.

Got it. Okay. Wonderful. And then, Chris, on the buyback, you reiterated $1.3 billion at least this year. Obviously, we have the Basel proposals that will be a tailwind. But I'm interested in just your views of the toggle between what appears to be strengthening growth and returning capital? I know you had a comment in the release about return on and [ merchant both capital ].

Sure. So our capital priorities remain unchanged, Chris. The first is to support our clients and our prospects, and that's where we're going to focus. Secondly, what I just mentioned, we're going to continue to invest heavily in the business because we think there's a great opportunity. Third would be our dividend. And then lastly would be share repurchases. Obviously, we have an abundance of capital right now. We think if Basel III plays out the way it's currently described, we'll be the beneficiary under some time line of another 100 basis points, but we haven't given any guidance yet with respect to that through 2027.

The only thing I'd add there is, as you noted, Chris, on track to the $1.3 billion. We're a little bit ahead of schedule. I would just sort of assume kind of $300 million a quarter in the back half which gets just north of that number. But I think maybe the takeaway there is less about the number and more about just a methodical, thoughtful kind of quarter-by-quarter approach, which may not get us exactly to the place we want to be quickly, but I think gives us maximum flexibility to support clients as that evolves and obviously, to absorb any macro deterioration that might happen.

And the other thing I would add to the discussion is we basically have reaffirmed the target of 9.5% to 10% on a marked basis. We think that's the right amount of capital. Having said that, we wouldn't be adverse to going below that from time to time if we needed to because we're generating a lot of capital.

Our next question will go to the line of Erika Najarian with UBS.

My first question is from -- my first question is for you, Clark. Clearly, the stock is hoping lower. And I'm wondering if it's just a lower exit rate. As we think about that path to 3.25%, and obviously, fully hear everybody loud and clear that client growth is way more important than just NIM. How much of the path from, let's call it, 3.02% in 4Q of '26 to 3.25%, is baked relative to the balance sheet dynamics that you see? So I guess what the market is trying to figure out in terms of the initial reaction is how safe is consensus EPS for '27 relative to the NIM outlook?

Yes. Great question, Eric. So one, and I'm not being flipped at all. I think the difference between 3.05% and 3% to 3.05% isn't significant enough to get people or shouldn't be significant enough to get people concerned about the full year '27. And obviously, we haven't provided full guidance for '27, which we'll do as we get through the year. But I think to your question and just start sort of broadly on the structural piece, between now and 12/31 of '27, we're looking at about $30 billion of fixed asset -- fixed asset repricing across the swap book, securities and consumer mortgages. So again, that's pretty well baked, as you can imagine, and assuming the rate environment is what it is today, the returns on that are pretty solid.

We continue starting in the second half here to see good paths to operating deposit growth, which obviously helps on the funding optimization side going forward. And we'll see where loan growth goes from here. But obviously, it has been strong, and we will continue to play in that as it makes sense. So I think just all around, we feel very good about that path. We think our view, I think, would be rates are probably relatively flat in the back half here. But certainly, if there are hikes, we are prepared to manage those as well and think that the 3.25% will remain intact.

And I'll follow-up offline to unpack that a little bit more. Chris second question is, so where are we in the middle market investment banking cycle? So I think there has been hope that this capital markets renaissance, which is starting with large cabin strategics, is going to be multiyear. And I guess, like as we think about middle market activity, how much is key tied to sponsors versus how much is just tied to maybe sort of a lag in sentiment and pro-activeness in terms of middle market activity?

Great question, Erika. I think we -- I think the middle market activity is lagging the large activity. And I think -- what I mentioned earlier about interest rates, I think, has been a factor I think what's been going on, frankly, in the private credit market has been a factor for us. 40% of our fees are driven by private equity. And as you know, it's pretty well documented that the exits have been fewer and a lot more stretched out. So I think -- we are in the early innings of -- to use your words, the renaissance of middle market M&A. I'm actually very -- I'm very encouraged by what I see. As you know, as long as there's an inverse relationship between hold period and cash-on-cash turn, eventually, those transactions will come out.

Our next question will go to the line of Manan Gosalia with Morgan Stanley.

Clark, you made a point that lower loan spreads are coming from pivoting to higher-quality clients. I guess a number of banks have made that comment this quarter. The question is, what do you see that is driving that? Is it more demand related to CapEx and AI-related investment spend from larger clients? Or is it something else?

Yes. I mean it's a great question, Manan. I think it is consistent with the histories we're in and the clients we target, frankly, our book has [indiscernible] been a little bit more investment grade, just given our capital markets platform because those are the clients that tend to need those capabilities. So I don't know if you've heard that across the industry. I don't know if it's a broad or sustained trend, but at least for us, those are the deals that we saw in the quarter that were very consistent with our targeted approach, and you're happy to to serve those clients more broadly than just the lending, obviously, and it helps the credit profile turnover as well.

For example, a lot of the credit that's being provided is for the build-out of the electrical infrastructure in this country. One of the things that AI has made abundantly clear is that there's a massive shortage, both of power generation and distribution. And as you can well imagine, we are a significant player in that and specifically people that are market leaders in that are very significant companies, for example.

Yes. And I guess maybe the other element I might raise is we had some growth in our REIT portfolio, which was entirely investment-grade in nature. So again, it is tied to Chris' point in the REIT point to pockets of real targeted scale for us.

Got it. And maybe as a related question, Chris, in your response to Ebrahim's question, you spoke about it taking some time for the fees and other higher returning businesses coming through from some of the new clients. What's your level of conviction that you can bring in that business over the next year or so? I guess the reason I'm asking that question is, a couple of years ago, we just went through around across the industry, for running off some of the lower returning lending-only relationships. So maybe if you can unpack on why you have more conviction on bringing in those fee-based businesses this time around?

Sure. So I guess the easy part of that question are with our existing customers, where every 6 months, we go through a deep dive on all of our significant exposure, what are we getting in addition to the credit exposure, what are we pitching? And this is a discipline that we've had for a long time. You've probably heard me speak before that a properly graded commercial loan can't return its cost of capital. And that's why we're so committed to this targeted scale approach by industry. With respect to the new clients -- we expect to hit our return hurdles, and we expect to hit them within 12 to 18 months. and we're looking at those every 6 months.

And so it's just -- it's a lot of discipline and -- but it's something that, as you know, we've been at for a long time. And we don't bet a thousand. There'll be some that we don't get the kind of returns that we expect to, and we will exit those. But we have a pretty good track record, particularly with our focused by industry group, where we can do a lot more for these companies with respect to payments, hedging, advisory, et cetera.

Our next question will be to the line of John Pancari with Evercore ISI.

On the -- back to the loan growth that towards higher quality but lower yielding again. The answer to Manan's question, is there at all an intentional shift on your part focusing on these borrowers? Or is it more of a market shift where you're seeing this? And related to that, are you avoiding any pockets of lending whether it be India fire-related or areas like that, given the backdrop? And then maybe can you just talk about loan pricing competition? Is there outright intensification around new loan yields that you're seeing impact this?

Yes. So first of all, where we focus -- it's easier to talk about where we focused and where we don't focus because we're really focused on 7 industry verticals. So within those verticals, we feel like we understand kind of who the winners are, who the losers are, who's gaining share, who's losing share, et cetera. So we're very focused on those industry verticals because we're focused on those industry verticals, as those companies grow, a greater percentage of them become investment-grade companies, and we continue to serve them. So that's really -- it's all about our industry focus, which is a bit unique to us.

With respect to a similarly graded credit, if you look at kind of spread over SOFR from a year ago to present, there's some degradation, but it's not that significant, John. candidly. It still goes back to my basic premise that if you're going to provide capital, you better be able to do a lot of other things because you're never going to get your returns based on the spreads today or last year.

And maybe the -- just two additions, John. One, on NDFI, we noted we're up about $600 million in the quarter. We don't really avoid that. We like -- we don't actually think about it as a thing other than when we report it and answer questions on it, we did grow our REIT business in the quarter, that is in the NDFI category. We grew our specialty finance lending business a little bit, call it, $100 million or so, so not hugely significant. We're not shying away from those for the purposes of avoiding the NDFI designation. We are not doing deals that don't make sense for us. So specialty finance lending, in particular, over the past years, a few years, we have walked away from a handful of things that just didn't make sense to us. So -- it's not a function of the categorization at all. We're just -- we're trying to make good underwriting decisions in those cases.

And just one other thing. A lot of times, people can slatei NDFI with private credit. So our NDFI numbers are more than twice what our private credit numbers are. And within private credit, there's SFL, but we have uni-tranche. We have our real estate lenders, and we also have some other things like insurance companies, just some background.

Got it. Okay. And then separately, back to the margin. Just want to get a little bit more color around -- I mean you cited the confident in that 4Q exit rate, you cited that you see low execution risk. Just what about the second quarter margin performance that surprised you negatively. Is now likely to surprise you again? Just is it -- was it the type of growth that you saw or the the spread or the rate backdrop? Maybe if you could just talk to us like why should we not worry about that as you cited the low execution risk on that [indiscernible] NIM?

Yes. So fair question. I think it's really the mismatch in timing between the asset growth and the deposit levels in the quarter. So you trough [indiscernible] again, we troughed sort of at the time and at the levels we expected. We just had larger client balances on the loan side at that time. So to the extent loan growth does slow a bit. And again, just to be clear, I don't mean client activity is slowing, just loan growth, we think, will be a little lighter as the capital market activity picks up. But given that we believe we can fill the funding stack with quality deposits here, that's really the biggest difference. And if the loan growth that we expect to see for the year had come in uniformly, I think you would see a smoother kind of movement in NIM.

Our next question will go to the line of Matt O'Connor with Deutsche Bank.

I was hoping you guys could elaborate on the small deal that you did within the Investment Bank in terms of what product or where exactly to add them?

Sure, Matt. I'd be happy to speak to that. So -- the business that we announced is a company that we had a JV with for the last 6 years. And so -- it's important -- it's an M&A boutique basically. And it's important when you're representing companies in the states that you have distribution in the U.K. and on the continent. And conversely, obviously, people selling their business in Europe want to have access to among other things, the private equity buyers in the United States. So not many JVs really work that well in the financial services industry. This is one where we work together. We've worked on many deals over the last 6 years. And as a consequence, we were able to put together the deal. I think it is both for offense and defensive purposes. And I think it will be a good buttress to our leading M&A practice.

And then maybe more broadly speaking, I mean, everyone's kind of leaning into the capital markets side, banking set of businesses. Is there an argument that you want to be a little more diversified. You've got obviously the strength in the middle market, which, as you alluded to earlier, has not been as strong as some of the bigger kind of transactions out there. Any thoughts on, if you need to branch out a little bit from your current expertise?

We're always looking -- thank you for the question. We're always looking at other industry verticals where we think we could be really relevant. And we also, as you know, have done, I think, a really good job of expanding our core middle market business in new cities that we haven't been in, in the past. So we're always looking at where -- and usually, it's something that is an adjacency or tangential to what we're doing. But you can expect we'll continue to look for opportunities where there's big pockets of potential fees, where we think we have a good opportunity to win.

Our next question will go to the line of Mike Mayo with Wells Fargo.

So I'm not sure if your forecast will be correct. First, that you have 2% deposit growth with flat deposit rates. So that's the first point I guess. I'm questioning if you'll be -- it will be on the third quarter earnings call or the fourth quarter earnings call. Well, it didn't quite play out the way we thought. And the other thing I'm not sure is if you -- that 40% of fees driven by private equity is actually going to translate to something in investment banking. We've been hearing that for 3 years from you and everybody else. And the big banks had investment banking go up 50% year-over-year, yours is down 5%. So I do think, like you said, that's kind of important. I did hear you that it should be up 20% plus in the third quarter, but two pushbacks, deposit growth, 2% and then private equity investment banking fees coming back

Sure. Well, let me on touch on the 2% because it's something we haven't talked about on this call, but I think it's important. So about 10 years ago, on the commercial side, we became very, very focused on primacy. 82% of our deposits, we have primacy. And the reason I share that is those same companies have other deposits that are elsewhere. We talk to -- they are our clients. We know where the deposits are. We know what they cost, and we know we could go get them. So I just -- I give you that kind of as a backdrop because we're really tight on our disciplines around that.

With respect to giving you additional confidence, Mike, with respect to our investment banking numbers, as I said, these pipelines are real, timing of investment banking deals, as you know, is always a challenge. If you look at our long-term compound annual growth rate, I think you'll see it's been very, very significant. We're coming off a record year last year, coming off a record first quarter. I think we've given some pretty conservative numbers and it's hard out to go out there and deliver those, and we will. Cark, what would you add to the 2% question?

Yes. So Mike, fair pushback, I would say, as it relates to the operating deposit growth, some of that we know is coming from new clients we've added in the year, and those operating deposits will come on if they don't come on necessarily on day 1. So we see the process of them coming on.

The second is just the visibility we have into standard client flows over the quarter and the year, and there is some seasonality to that. We've got to Chris' point, years of data that would support that. So we feel good about it, but we can have this rematch on the third quarter call [indiscernible]. To be clear on the pricing, though, because I just want to make sure we're all saying the same thing, that assumes relatively stable deposit pricing for us, assumes no hikes. If there are hikes, we're obviously going to feel that in the deposit cost base. So we're not trying to say we're going to keep deposit prices flat if there is a hike. My point was that, that will be relatively neutral from an impact standpoint on NII and NIM in the back half of the year. So we think we can insulate ourselves through Q4 if there is a hike or two. If there isn't -- if there aren't any, we would expect deposit pricing to be relatively stable. So I just wanted to be clear on that.

Okay. And one follow-up on the investment banking. And Chris, I know you built that business and -- once again, the 4 set of fees from private equity, again it's you and everybody else who's talked about sponsors coming back for at least the last 3 years, and we're just waiting and one big competitor said, hey, they're going to see momentum, and I don't know. Do you really think it's going to come back at some point? Or do you have any evidence that it's picking up a little bit? And do you really need it to come back for kind of a greater acceleration. And for your C&I loan growth, I think what you've said is the new normal is that your clients are used to the geopolitical uncertainties. They're pursuing their capital expenditures and building their plants and getting their equipment and all that. So why wouldn't that new normal also apply to middle market M&A?

Sure. So the direct question is we do need -- because I mentioned it's 40% of the business with financial sponsors. We do need that to come back. I am confident that it will come back, looking both at our specific pipelines, these are engaged pipelines and also what we're out there in the market with. And I think your comments with respect to loans is true. And what we've seen, and you saw it in a bifurcation between the big banks and the folks like us that are really focused on the middle market is the big companies moved first -- that's why we were just talking about the significant year-over-year. We have 12% C&I loan growth, mostly investment-grade year-over-year. Real estate, we've got a backlog now. We expect pipelines to be up 18% from -- they're up 18% from year-end. So we're starting to see this activity, and I just think the middle market and frankly, the private equity the private equity holders are the last to move.

And as I said earlier, I think one of the reasons they were last to move is they try to optimize when they look for an exit, but you can only optimize so long before to generate the kind of returns that you need to, so you can raise the next fund, you've got to come out. So thank you for the follow-up.

Our next question will go to the line of Gerard Cassidy with RBC. My apologies. The next question is actually from Ken Usdin from Autonomous.

Okay. Great. We've never taken place of Gerard. Two quick follow-ups. One on the deposit side. Just -- I know you've given us some color now about expected growth and there was a transactional stuff in the second quarter. But can you just talk about noninterest-bearing mix, should we be thinking more about the second quarter average as a growth point? And then related just on the consumer deposit side, can you just talk about ins and outs with regards to either maturing CDs and underlying account growth?

Yes. So thanks for the question, Ken. If I look at interest-bearing -- noninterest-bearing in the second quarter, I would think about that as kind of flattish through the back half. So as we have talked about before, and I referenced a little bit earlier, some of those operating deposits come on as interest-bearing, albeit at relatively low rates or they're in the hard accounts which we do try to adjust for, but I would expect noninterest-bearing as a percentage, again, to be relatively flat in the back half, but the quality of the operating deposits coming on are quite strong.

On the Consumer side, we talked about 3% household growth in the second quarter. We continue to see some positive growth there. That's core checking accounts coming on in the thousands of dollars at a time. So that takes time to build. And then I do think we'll see a little bit of pickup in CD and MMDA production here in the second half. So we have gone out in a few select markets with a little bit higher rates than we've had over the last 4 or 5 quarters. And so we would expect a little bit of pickup, but I wouldn't expect that to be the lion's share of the deposit growth.

Got it. Great. And just one other question on credit. In your prepared remarks, you put a fine point on on the potential resolution of some of the bigger NPAs in the back half I just wonder if you could just give us a little bit more granularity on -- you had talked about this in conference season about how you're watching a couple of things. So I just want to understand, obviously, the reserve went down. You mentioned that the underlying still feels really strong. And so just any points you can further on giving us the confidence that, that loss content is quite low and that the direction of travel on NPAs should be positive?

Yes. So let me maybe just make a broad comment about the reserve and then Mo can hit some of the more fine points here. So one, we released despite the NPAs being up because generally, the overall health of the portfolio is improving. Some of that is the higher credit quality we talked about. Some of that is other charge-off and resolutions that have happened throughout the year and some of this just economic continued sort of constructive economic profile. So we look at that, our quantitative measures would have actually called for a significantly larger release just given some of the geopolitical uncertainty, we still feel out there in some of the -- again, some of maybe the lack of clarity on path forward caused us to overlay some qualitative build there and just reduce the size of that. So if it were purely quantitative here, we would have released quite a bit more. We just didn't feel like that was appropriate given the broad environment. But but we generally, again, feel quite good about the strength of the overall balance sheet.

Yes. Thanks, Clark. And just to continue that theme relative to credit. Again, I think as you all know, we have a very proactive risk culture in terms of risk identification. We did see an uptick in credit class NPL, but really kind of based on a few factors. First of all, none of the migration was private credit related. And so we don't think that this is a harbinger of anything from a macro perspective that we are overly concerned about. But we had some names in the multifamily space, consumer goods and then our agriculture book. Then just from a timing perspective, happened to land this quarter. Again, as we mentioned, when we see signs of migration, we [indiscernible] because we also think that helps us from a resolution perspective. We do have specific reserves against our NPLs, which again is why we feel relatively confident that from an NCO guide perspective, we're still on track for our 40 to 45 basis points for the year.

And again, some other little tidbits, the multifamily space again, very strong. We've got sponsors with equity on those deals. We expect quick resolutions. So again, not a lot of loss content there. Consumer just sort of episodic with a couple of names. And in agriculture, just given some of the fuel and fertilizer and labor dynamics there as well. But overall, we don't feel like a lot of lost content relative to this move.

The next question will come from the line of Gerard Cassidy with RBC.

Hi, Chris and Clark.

Is this the real Gerard?

Ken is smarter. That was good to have him go first. The question is just a bigger picture question. Obviously, the AI industry in this country is on fire, is doing phenomenally well. It's growing by leaps and bounds, and everybody is benefiting from it, it seems like. So my question is, I'm always looking at the second derivative or derivative of a strong industry because eventually, the industry will slow down. The rate of growth, that second derivative is certainly going to slow down. And so have you guys been able to start preparing for credits that are not directly -- I know you're not building data centers with construction loans. But what are the second derivative customers that -- aside from the HVAC guys and plumbers that you may see have actually exposure to AI and when that slows down, maybe to some issues with them down the road. Have you guys trying to map that out? Or how will you map it out?

That's a great question. We have spent time. I'm not going to tell you that we're completely mapped out on it but we spend time talking about it. Let me talk about where I think the trajectory is going to continue for a while. And then by definition, initially as they say, trees don't grow to the sky. So eventually, there will be a reversal. But in the near term, and when I say near term, I'm talking about a 5-year period. One of the things, and I mentioned it earlier on the call, one of the things that this has laid bare is just the absolute shortage of electrons in the United States. We have a shortage of power, and we have a shortage of distribution. I've actually been involved in this for the last couple of years and a couple of business groups I'm part of -- and so I think that is going to continue, Gerard literally for a long time. And I think

the problem existed before, but it was exacerbated by the fact that these obviously huge data centers take down in some instances, as much power as a small city. So that is on the positive side. So we're looking at that. And I just wonder when the build-out will finally end and kind of what the -- how that will play out.

More near term is things like software companies. We have fortunately less than about $300 million of exposure direct to software companies in spite of the fact we have a good tech business. That's an area that we're worried about. Other areas that we're taking a look at are professional service areas. Think about lawyers, consultants, accountants, there's no question that large language models are most easily applied in some of those instances. So that's the kind of discussions we've been having around our table here.

And just from a portfolio rigor perspective, again, we conduct quarterly portfolio reviews, and we are looking for emerging risk hotspots. So this is something that your question about second derivative is actually perfect because those are the types of things that we're thinking about as well.

Anything else?

Real quick, just coming back to Mo for a second. I know you mentioned the multifamily credit. But there's other -- and you guys have strong credit. So I'm not terribly concerned about that today. But I'm curious, those two other credits. Was it become customers are over-levered or they lose a big customer of theirs that hit cash flow, but I'm just curious what happened in those idiosyncratic issues that you guys have identified?

Yes. No, great question, Gerard. One was just a consumer name that was impacted by tariffs, multibank deal. And so again, we actually expect a probably formal resolution later this year, but it was a company that filed for bankruptcy. So again, we sort of view that as it was tariff related, but sort of idiosyncratic relative to that space. And I do think, again, Consumer probably is going to be still a choppy area relative to as you think about not only in the K-shaped economy, but certain types of businesses as well. And so we're, again, increasingly selective there relative to the portfolio, but that was really the driver.

And then you might just talk about the the ag deal was really -- so we have some ag exposure that is in Western Washington. And the biggest challenge there, obviously, people talk about fuel, they talk about fertilizer. The biggest challenge is workers. There's not -- there are just not enough workers to properly to do the farming.

And just as an add-on, since it's topical, we -- no exposure to lattice farming. So typically, our ag book is, again, potatoe and other things you might find in the Pacific Northwest.

Consumer market at this point, Gerard, is Amazon, COVID and tariffs, like back to back to back. So the guys who are hanging in there are resilient and durable and a lot to ask for any industry.

Our next question will go to the line of David Chiaverini with Jefferies.

On fee income, good momentum in payments and wealth up 8% collectively year-over-year. Could you talk about the outlook there and drivers of that growth?

Yes. So let's start with payments. We've been investing in payments for a long time. Places like embedded banking, that's been a double-digit grower for us for each of the last few years, and we project it to be a double-digit grower for us as we go forward. So we've got a lot of traction there. With respect to our wealth business, that's a strong business. We're at $74 billion of AUM, show that is up 9% year-over-year. But if you really looked at the fees related to wealth management, those are growing at about 14%. So that's a business we feel good about. And we've been very focused, as I mentioned, since 2023 on this mass affluent space, which we think is a sort of an unmet need out there in the marketplace.

And then on deposit pricing, it sounds like it's very rate dependent, but how would you characterize the competitive environment in your markets more intense or about the same versus, say, 3 to 6 months ago?

It's good question. So when we talk about our markets, it's a little challenging to have one answer because we really view ourselves as being in very different geographic markets between the Northeast and Midwest and the Pacific Northwest or the West. They do operate a little bit differently. They do have a slightly different competitive set. I would say there are certain places where it has been much more intense from the beginning of the year. I think that's owing to some unique circumstances of the competitive set. But I think given the loan growth and the rate environment combination, we are definitely seeing, again, throughout the year, a little bit more deposit intensity in general, but the rate sensitivity comment, again, just to be clear, is really just the betas that are going to follow from any Fed move. So we're not necessarily thinking about the rates in a flat environment, moving meaningfully from where they are today.

That concludes our Q&A session. I would now like to pass the conference call over to our CEO, Christopher Gorman, for any closing remarks.

Well, thank you, Megan, and thank you all for joining our call today. We appreciate your continued interest in Key. If you have any additional questions, please do not hesitate to reach out directly to Troy or others on the Investor Relations team. Thank you all. The meeting is now adjourned.

That concludes today's conference call. Thank you for your participation, and enjoy the rest of your day.

Okay. Up next, we have KeyCorp, and we're delighted to have with us today, Clark Khayat as CFO, and now Head of Tech and Operations of KeyCorp. Clark, thanks so much for joining us.

Thank you for having me.

So Clark, you've been now been CFO for a little over 3 years. Over that time, the stock has around doubled. You've increased your NII guide for about 2 years in a row and capital has clearly become a strength. Now you're taking on an expanded role at Key, your leading tech and operations in addition to finance. So I want to start there, and then we'll move into the rest of the business.

But in your new role, what are your top priorities as you take on this new responsibility and how closely integrated our finance tech and operations today?

Yes. So first, I'd say what a time to take over technology. So the last 3 or 4 months have been pretty wild and dynamic. And I'd say, look, two, maybe two major things which are more I think, strategic than tactical at this point. The first would be just learning as much as I can, not just about what's going on in a technology world, but how we do it at Key, how we think about it. I do think historically, the CFO role has been pretty tightly aligned on technology, obviously, things like funding and sorts and project approvals. So I always knew what's going on, but getting into the details is obviously more important.

And then the second really is just around ensuring we have the right alignment across the organization so that the work we're doing in technology and operations is supportive of what the business is trying to accomplish, and I think that's going to be more and more important over time, given how quickly things are changing and the types of things banks like Key want to do with technology going forward. So lots of learning. It's been an energizing experience to sort of roll up your sleeves and get into something else. And hopefully, we can deliver the next 3 years like the last 3 years.

Perfect. So well, you mentioned it's an exciting time to be doing this. And obviously, the reason for that is AI and all the changes going on there. So can you talk about how technology is shaping the -- how AI is shaping the technology strategy to Key?

Yes. So I think like when we talk about AI, it's important. I think the question you get a lot, which is sort of this is what's your AI strategy? And I think it really has to be how is your business strategy enabled or advanced with AI. I think that's really the better way to think about it. And I would say I'd break it into two components.

One, probably feels like every company in the world, which is like lots of exploration, we'll say 60-ish proofs of concept out there today, all of them we should probably do, they're all pretty incremental in marginal. So think about the thing that makes, Manan, work 4% more efficient or get you to do three things more productively, like on the margin, that's all really valuable stuff, it improves employee productivity, improves employee experience, client experience, things like that, but they're not like I'm not going to come to the next conference and say, look at how much value we generated from those activities because they're very sort of individual a little bit here and a little bit there, absolutely valuable.

They probably don't cost a lot. I'm not sure they drive massive change.

And difficult to measure as well.

Yes and difficult to measure, right? And then you go to the next piece, which is how do you actually get scaled value out of these tools? And that's where I think we, in some ways, looked into two components that fit really well together. Over the last 4 or 5 years, we've had a very intense focus on end-to-end in a handful of areas. So really understanding everything that starts with the client that goes literally all the way back through the organization regardless of who's part of the organization it is, which sometimes can be challenging in larger companies.

The second is having almost all of our data and applications in the cloud, which just allows you to spin up things very quickly to develop at pace and as importantly, to tie -- to develop tie a data model to that end-to-end process, which are really the core requirements of applying AI effectively. So we've got a couple of areas. You'll hear us talk about them probably more as we go through the year and stand these up where we think we can get end-to-end scaled value out of AI. And some of it will be customer experience and pull-through in productivity, and some of it will be more automated, less manual processes. It's all the stuff we talk about.

We're just trying to do it in three to four places at size. The one that sort of really sits in my new world is going to be software engineering, and I think about that in three pretty basic ways. One is have the ability to develop appropriately on behalf of business strategies. The second is to have the governance and tooling and platforms to allow the businesses to use these things, right? You have people in the business who want to build also. And you don't have to be a coder to build anymore, which is cool and terrifying at the same time.

And then the third is applying those practices to the engineering team and getting us much better at running the shop more effectively, more productively over time. And despite my CFO hat, I don't view this as an expense thing. I view it as very comfortable spending the dollars we're spending, we just want to make them more productive.

It's all about productivity there.

Yes.

And then I guess on the data side, you have all your data in the cloud already, and then it's about making sure you have the right data quality. Is that a process? It's all about...

And we would call these operational data zones as sort of our phrase and it's get the operation really well-defined end-to-end and match the data that helps you run and manage that process. So we try to pull data, and we haven't done it everywhere, right? But in the places where we're most advanced and I think most AI-ready, we have these processes well defined. They have the appropriate operational and risk metrics and then they have the data that supports all that capability. And that's where you can just apply AI with some pace.

And it can be things like just, again, creating automation, it can be creating or replacing software. So there's a bunch of different ways to apply it. And the hardest thing to date has been like, well, which platform do you pick and which model and how do you get access to the appropriate model at the appropriate time. And it's all moving -- there's a big announcement this morning, right?

Literally, you wake up and something's changed from yesterday. So it's getting enough sort of capability and traction quickly to make progress while retaining enough flexibility that you can change when the world is changing.

And so is it for now a productivity opportunity and an expense opportunity? How are you thinking about it from a revenue perspective?

When I think productivity, a lot of times, that's what it is. It's, for example, how do you make the client onboarding experience smoother and easier and the outcome of that is we get to revenue sooner. So I used to run our payments business and the comment I used to make is, hey, if you make a loan, you give the clients the money on day 1, they have the money. You sign a payments contract, like the work starts the day you sign the contract. You're not seeing flow on that day because usually, you have to -- there's an implementation, there's a rewiring and then there's an optimization of usage, right?

If you can pull that forward, make that easier, make the APIs and the interconnectivity of that simpler and faster and instead of 6 months or 4 months until the pipes are running, they're running in a month. And I can optimize them faster and get more flow there, you will see revenues. So that's probably the easiest way to think about it, but there's a handful of ways where we're trying to make our client and employee interaction much more dynamic and much faster in a way that allows us to just onboard sooner.

So it looks like there's a lot of opportunity there. One of the questions that comes up in client meetings is just the importance of scale with AI, right? Because it feels like the benefits of going to the largest across different industries. But as you think about super regional banks like Key relative to maybe some of the money center banks, I guess, how do you think about the puts and takes about AI there?

Yes. So I mean, I think if your view is I have to have the best toy at all times, that is really expensive. And I think the question we have to ask ourselves in a lot of cases is what is good enough to accomplish what we're trying to do. And in many cases, the tool that might not be the most current is still pretty well fit for purpose to do what we needed to do.

And that's sort of my point of if you just wait to get fluent on the most current thing, you're out of date next week and then you have to start over versus saying I have a platform that's working for me. Those tools are good enough for what I need to do right now. And then it's our job to make sure the chassis is interchangeable with the new tool, but the core of like, how am I getting this productivity, that toolkit has to be like established at some point.

So I do think there's benefits to just getting in the game, even if it's not necessarily at the most extreme version, and if you think about the biggest thing in the last 3 months has been how you handled Mythos and the cyber risk and all those. One, I think the industry, and I give people a lot of credit here, does a very good job when there's an industry-wide threat of sort of pulling together and sharing best practices.

The second thing is you have massive vendors who are sending you the vulnerability patches out and saying like put this in the system, right? So you're getting a lot of outside-in help on how to accomplish this. And then even if you're not using the most current model, the lab model is pretty good at doing this stuff. And when you put the three together, you can manage it. So again, we're really sensitive to not showing up on a call and saying, our expenses just got blown out because we didn't really -- we weren't tracking our tokens, right?

And to date, we really haven't had that issue. And I think going to the cloud when we did, which is 4 or 5 years ago, we've got some muscle built around managing consumption. So we've got a FinApps team that tracks how much cloud consumption we're using and who's using it and what are they using it for? That's the same level of rigor you need to be watching tokens and just make sure that you've got a process to deploy them to people who know how to use them and then that you're moderating that usage to make sure not that you're not spending money that you're getting value for the money you're spending.

And then you brought up cyber, I guess, how much time are you devoting to that now relative to what you were doing before? And how much more worried are you about it given Mythos and all the headlines there?

Yes. Well, before I was like talking about it, now I'm living it a little bit more. So lots more time, again, I think a lot of what happened in the last 3 or 4 months has driven that just there's a little bit of fear of the unknown. I think now that we've seen the tools, and we've seen some of the output, I think people are getting more comfortable that it's manageable. And again, I think it's been a fairly well-orchestrated kind of unified response, which I think is important to the stability of the system. So I'm thankful that people have done that.

I'd say with AI every day, I am -- there's something that gets me really excited about it and something that terrifies me about it, and that's probably going to be the way it is. So the more you know, the more you know. And again, it's like, wow, that's incredible. And then you're like, well, that's incredible. That's something to watch for. So it's sort of high alert for both reasons.

Got it. Okay. And maybe staying at the intersection of tech and operations, how are you thinking about the implications of stable coin into organization for the banking industry? And then can you talk about how you see that impacting, whether it's deposits, payments or earnings durability over time?

So this one is interesting because when you think about blockchain and stablecoin, they've been around a long time. And then you think about like how fast AI is progressing, and they're sort of on different paths. I think we've been a believer at Key since 2015, maybe that cross-border could benefit from blockchain. So -- and I think the advent of stablecoin versus not backed crypto is a big part of that, right?

So I think it does create some safety and security to that process that probably wasn't resident a decade ago. But that use case, I think, is just immensely logical. I think, of trust disbursements, I think of escrow management, right. There's a bunch of these things that with programmable money in smart contracts absolutely should be out there. And so -- and I think they will get traction. And when you think about Key, we do spend a lot of time thinking about trying to be as close to the edge as we can on payments capabilities.

And I think those to me are very resident with payments or our fee-based businesses. So I would imagine, as those really emerge you will see us playing in that pool. We're in every consortium discussion out there around tokenized deposits and there are a lot of them. I think it's all learning at this point. And I think at some point, you have to decide that there are going to be three or four of these or is there going to be one, and I'm not sure we know the answer to that. So we're just trying to make sure we're exposed and engaged in all of it. And I'm sure whatever the final outcome is, we'll play appropriately.

In terms of durability of earnings over time, I think it all comes down to how extreme adoption of stablecoin is and what it means for deposits, and you can take it to logical extremes, which I don't really see happening in the near term. I think it will be more likely just part of the ecosystem. And the -- a lot of the use cases, frankly, for day-to-day interactions are less compelling in the U.S. as they are in other countries. So I don't necessarily see that maybe getting as much traction as soon as it could or has in other places.

But I do think it's just going to be part of the ecosystem going forward. And I think we're most likely to see it valuable in some of these kind of fee-based client platform opportunities.

And what do you think about -- I guess, once you get tokenized money market funds and you have agentic AI and you have the ability to move your money around a lot faster, what do you think happens with deposit costs over time?

Yes. I mean I think a lot of those abilities are there today. Like if you're a rate optimizer in deposits, you have all the tools you need to rate optimize. The question is, do you want to spend the time doing it. And I think there's like some percentage of the population that does that, right? And my equation on -- because if you go back 3 years, the question we used to get all the time is how come all deposits don't have a 100% beta.

And my response would always be like, well, are your deposits all priced at the absolute maximum at all times? And the answer, of course, is not. So I think there's, again, some -- whether it's AI or stablecoin because, frankly, to me, those have the same potential impact to the broad system, which is if there are fewer deposits available and if they are more expensive, I think that impacts credit access over time, right?

And if you don't have enough credit, I think that is really the way the U.S. economy works. So I think we all probably have to think about that more broadly than the individual pieces. But if I think about our hybrid commercial accounts today, we're doing a version of rate optimization for clients. So we offer that. They use it because it's convenient to them. We actually don't have to pay them 100% of the index, right? Because it's a convenience we provide.

There's a cost to that....

So again, I think there's elements of it that happen today. I don't see it as a near-term issue. But again, the more capability that exists and the less movement friction that exists over time, the more people will begin to use this. And I think we'll all just have to watch and see what that means. But I see it also as this is an industry thing, it's not a key bank.

Of course. Yes. And you bring up an interesting point that the cost of credit might go up as well, and that has ramifications for the rest of the economy. It has ramifications for borrowing for interest rates, everything else. So there's a lot that would have to move around that if it does happen.

Correct.

Okay. Perfect. Okay. So let's get to your CFO hat. Well, let's maybe talk about Monitor in the second quarter. Anything you'd like to call out for 2Q so far?

Yes. So look, I think another sort of solid quarter as we kind of march back to the targets we've shared. I think we're seeing, again, good loan growth of about $1.5 billion quarter-to-date. So continues to be solid, and that's a mix of new client activity and some additional uptick in utilization from the first quarter.

That, I think, will drive NII on the order of maybe 3% quarter-to-quarter. So again, we're just -- we're continuing to see that build as we expected. Fees, I think we spoke on the first quarter call of investment banking debt placement sort of $175 million to $180 million for the quarter. That's kind of where we see it coming in. That gets us up 6% to 7% in the first half from last year. And I get very comfortably on pace for our mid-single digits growth year-over-year.

Again, I think a big question there is, do you see the middle market M&A component pull through? We haven't seen as much of that yet. And so that's still something we're watching, but the pipelines continue to be very strong and conversation is very, very consistent.

Expenses, we're going to see a little bit of a pickup in the second quarter, call it, 3.5% to 4%. That's not the trajectory for the year. So there's a pickup really off first quarter from some of the banker hiring we've done from general merit pools from some benefits cost and that some of those are market-based. So as the market has been strong, we adjust those up. I think we'll see those plateau in the second half. So they'll be up but not to the same degree, and that gets us very comfortable with the kind of 3% to 4% expense guide for the year.

And then credit, still pretty benign. I think charge-offs, we feel good about that kind of 40-ish basis point number. After 4, 5 quarters consistently of every credit metric improving, you might see a little bit of plateauing or maybe even an uptick in one or two. I think that's really around some of the rate movement and some of the softness pockets that are really driven by oil, whether that's ag or consumer products companies or transportation right, that are just feeling a little bit of that pitch. I don't think that drives through to loss in the near term, but we have some fairly conservative triggers on credit metrics, and we'll follow those. So if I stand back and look at that, I'd say the year, we just -- we feel really good about the guidance for the year, and we'll continue to march forward.

And just to be clear on the quarter guide, the NII numbers that you gave and the expense numbers you gave, those are Q-on-Q?

Correct. Yes, if I did say that, that was the intent. So thank you for clarity.

That's great. Okay. Very clear. So let's get into some of the other drivers. So as we think about NII, loan growth has been picking up nicely. You just mentioned there is more utilization that's happening. I think you also spoke about embedding an appropriate level of conservatism in the guide? And how have these loan trends progressed, whether it's in -- on the C&I side or whether it's on the consumer side, I know you're running off parts of the portfolio. So can you paint the picture for us on the loan side?

Yes. So -- our commercial continues to be very strong. So as I mentioned up. So to be up roughly $4 billion from year-end if you put the first and second quarter to date together, that has been I'd say the most positive is if you look at our middle market business, it's broad-based, it's market, it's industry. There's nothing. It's just that the teams have been productive broadly. And that's across all markets, newer teams, older just that business is really operating pretty consistently.

And then really in the larger areas, utilities and power, where we have some strength that has been -- continues to be a source of strength. And it's just -- I don't know where that stops given the demand for power in general. So I think we've been well positioned for that just given how focused we've been in that industry for a while, and we're continuing to see that come through.

I think some of the other balance sheet dynamics with rates where they are, we're seeing not quite as much resi pay down as we would have expected at the beginning of the year, which makes sense that mortgage replacement rates are higher. Similarly, on the commercial real estate, less paydown activity and less refi. And a lot of times, that refi goes off the balance sheet to some permanent solution that we'll place. So we would see a little bit of loan balances sitting there on top of what we're originating.

At this point, utilization, which was up well in the first quarter, up again strong in the second quarter has actually come down a little bit from its peak earlier in the second quarter. So that's always going to be something we're watching. And I think at this point, we feel comfortable with our guide for the year. But if it continues at this pace, we'll revisit it as we get probably early into the third quarter.

So I guess with more growth on the C&I side, slower paydowns, I guess the other side of the balance sheet is how you fund that growth. We were just talking about industry deposit competition offline. Can you talk a little bit more about what you're seeing quarter-to-date there? Are there any changes in the deposit competition side?

Yes. So we're -- I think we're a little bit different in that. We have pretty seasonal flows in the first quarter and first half of the year. We tend to trough in May. We did that again and then we start to build up from there. We would -- and we're seeing that. So we'd expect second quarter averages to be pretty close to first quarter averages on deposits. We'd expect end of period to be at or above where the first quarter was. So we'll see that dip. And then we expect it to build throughout the back half of the year.

So if that plays out the way we see it happening, we feel very good given that growth, the loan-to-deposit starting point, which tends to be lower than others. And the remixing, even though it's lower, we're still remixing out of residential mortgage, that's allowing us to recycle some funding. If loan growth got stronger or those deposits didn't come on at quite the same rate, then we'll look back at what the funding profile looks like. I feel like we have lots of ample funding, whether it's client deposits or wholesale funding and the question it just comes down to cost and efficiency.

So we'll look at that when we need to. We haven't felt that yet. And just to put maybe a finer point on it, we've been at kind of 350 on our front book in consumer since March of last year, we haven't moved that up. We have others who are market-by-market doing different things. And we haven't felt the need yet to do it if some of those balance sheet dynamics change, then we'll obviously look at that and make an adjustment. And I think if there's a hike at some point, then you probably do need to make a change. But we're watching that literally daily, and we'll start to make some adjustments if we need to.

Yes. I was just going to ask you about that. I guess, if there is -- even if there's a possibility of a hike later in the year, are you seeing deposit competition ramp up for the industry? I get that you might not have to act because you have a lot of flexibility on your balance sheet. But are you seeing more competition in the industry? We've heard a few banks talk about more competition in the Midwest. Are you seeing any of that out there in the market?

I mean, look, we are seeing higher rates in certain markets. The Midwest would be one of them. I think there are probably some exogenous or unique reasons for that happening that aren't necessarily broad. But look, if rates are going to stay higher or they're going to get higher, historically, that tends to drive fewer deposit dollars and those dollars are more expensive. So we all have to be prepared for that in advance. And I would say the rigor that we put in, particularly on deposit management since 2023, we've kept going even though things have felt better because it's just -- we think it's the right way to run the bank.

So we're watching this, and I think you made the point earlier, like you can't wait until things change to change them. You got to really do some of this in advance. And we'll put all those factors together, and we'll do what we need to do to make sure we're in a good spot.

So maybe to round out that conversation as we think about NII and NIM, you just reiterated the NII guide for the year. You also have guidance out there for NIM to hit about 3.25% plus by the end of 4Q '27. Is that still kind of how you're thinking about it? I know the Street is actually not quite there, but is that still how you're thinking about it?

There wouldn't be anything I'm seeing at this point that would cause me to change that. If I think about our interest rate position, we've been neutral now for a while, which I think is right, given some of the uncertainty. And we've just been talking about it 3 or 4 months ago, there were how many cuts were coming, and now it's more likely than not a hike. So I think that neutrality has served us pretty well.

And when I really break that apart, we're slightly liability sensitive on the front end. We're asset sensitive in the belly of the curve and 40 basis points of 3- to 5-year rate increase gives us a little bit of reinvestment rate that I think more than offsets or offsets pretty comfortably whatever the front end would cause us to feel in year. So that's, again, why we feel pretty good about the guide in a variety of situations because we've got a little bit of offsetting plays on the curve.

Got it. Okay. Let's talk about these diverse set of fee businesses, I think right after earnings, you announced you'll be able to acquire Clearwater, which is a European investment bank. Can you talk about the rationale for that deal?

Sure. So this one, I think, hopefully, is pretty straightforward. One, the value of our business is ensuring that our sell-side clients get the opportunity to get in front of the broadest group of potential buyers. And we've seen now for years, Europe being a place that has a lot of appetite. And vice versa, when we're doing buy-side opportunities, we want the ability to showcase opportunities that are not just domestic. We've had a referral relationship with Clearwater now for 5 or 6 years. It's been quite productive.

So in terms of acquisitions when you think about it, this is like people we've been working with pretty closely for a while. We know them. We've got good working relationships. We've seen the value of how this can work back and forth. And so it was really just a formalization of something we've been doing. And to me, it just -- it was kind of a natural thing that we've sort of talked with them about over time and just this year was really the right time to take a further step at that.

So to us, it's -- we've talked about these boutique deals as sort of pseudo organic extensions of how we run the business. This one is literally can you formalize this thing we've been doing with them now for some time. So I feel like it's -- this one is about as natural as probably an acquisition could be.

Got it. All right. So -- and then you also spoke about on the M&A side, middle market M&A not quite picking up just yet. What do you think you need to see for that to pick up? Because you said pipelines are pretty good, right? So...

Yes. I mean they were record high earlier in the year. They've stayed -- I don't know if they stayed exactly at that level, but they're pretty close. I do think that is more about rates than maybe the large ticket M&A because those deals are going to be more stock for stock or those are just companies that are going to transact when they've decided they're going to transact.

And the shape of the curve or the absolute rates maybe don't matter as much. I think we're also seeing -- we see a lot of sponsor activity and more and more, I don't know what the percentage is, but the concept of moving a -- an asset portfolio company to a continuation fund versus selling it if it's not the right market is becoming more prevalent. So I think we're trying to figure out exactly like what is the thing that pushes it. And I think it tends to be -- it will be certainty of some kind, right?

And we've -- I think we've continued to be a version of uncertainty now for whatever it is 6, 7, 8 quarters. So if rates are going to be higher, people will figure it out. As long as they know that if rates are going to be lower, people will transact. If we don't know, then people tend to want to wait and see.

Is there a window within which people are trying to transact or not quite. It's just more about certainty?

I would say it's probably more about certainty unless it's some lifetime -- we got to get out of this fund at some point. But again, that's partially why these continuation vehicles have become popular because they can bridge that without exiting completely.

Got it. All right. Let's talk about capital. So the capital story continues to be a good one. You announced a $3 billion buyback authorization intra-quarter and you still have higher capital levels than peers. So what -- I guess, the question is before we get into maybe buybacks and capital deployment, have you seen tangible benefits from holding that higher level of capital, whether it's in client conversations or in any other way?

I mean, for sure, I was thinking about -- like I'm not sure these are tangible. Maybe they are. I have to think about that for a minute. But I think our ability to attract quality people to the platform and our ability to get our people out and prospecting for new clients is completely different post August of '24 than it was before. We have been coming off this diet.

We were telling people -- I mean, Chris was out telling everybody like we're going on offense. But if you're coming out of that, you're like, well, maybe but I want to make sure that whatever balance sheet I have, I have for my best clients, so I don't want to use it somewhere else. The minute we got capital and we started sort of fixed our liquidity issues, fixed our capital issues and get our earnings back in place. I think people just have a level of confidence that we can go out and serve clients the way we want to and the way we need to.

And I think you've seen it in client growth and loan growth over that time. So -- and we've done a really -- I mean, we hired -- we said 9-plus percent new bankers last year to the platform. I think that would have been hard to do if our capital was in a worse position.

Yes, I'd call that tangible. Fair enough. And then as you're thinking about capital deployment from your when you think about the level of capital, right, like Moody's recently placed a company in review for a potential upgrade. And then you also spoke about 100 basis points benefit of CET1 from Basel Endgame. So how does that impact how you're thinking about either buybacks or any incremental capital deployment from here?

Yes. So one, I think we're always going to do whatever we can with good clients. So we want to make sure that we're sticking to our relationship strategy, but we want the balance sheet to be open to good clients and new clients. I don't suspect at this point, we'll push on the dividend very hard. I think that yield is sort of right in line with people. It feels right. And then for us, I think the buyback component is something that is more consistent and sort of methodical than anything.

We've been asked like, do you just use that 100 basis points on day 1. And I just -- that, to me, feels particularly in times of uncertainty is like not the most judicious safest decision versus telling people like you can expect us to just continue to do this over time until we get to that range in a way that we're very comfortable. So I think you'll see more of the same, and we're on track to do the $1.3 billion of buybacks that we talked about this year, and we'll just continue to sort of work through that authorization over time.

Got it. And it's a relative game as well, right? So if everyone is freeing up capital at the same time, you don't want to do everything on day 1.

Yes, correct. And if things go sideways, you'll be asking me why I did all those things on day 1.

I hear you.

I don't want to answer that question.

I hear you. All right. Great. So let's put it all together. You're well on your way to achieving the 15% plus ROTCE target by 4Q '27 and then you have 16% to 19% in the longer term. What are the biggest drivers that get you from the medium term, 15% plus to that 16% to 19%?

I think, one, it's getting -- I mean, this is just the math, right? It's getting the balance sheet efficiency to the right level, which we continue to have fixed asset repricing. We'll have that for some time. But if you get that to the right place and you're always going to have a little bit of it, I think you see NIM in a much more comfortable place.

It's good quality relationship loan growth because that often is the driver to our fee businesses, right? The more new clients we have and the more credit we have out there, we tend to do better on payments and payments, commercial deposits and capital markets. And I think that combination is the right return profile and then continue to invest and grow our wealth business.

And behind that, just manage our expenses appropriately, which I think we've done a good job. So again, just to reiterate, when I think about what we can do with things like AI, it's not spending less. It's getting more out of the dollars we're spending. And I feel like we're -- we've got some ways to do that, that will support that kind of return.

Got it. All right. With that, we're out of time. Clark, thanks so much for joining us.

Good to see you.

Thank you.

Hello, and welcome to the Annual Meeting of Shareholders of KeyCorp. Please note that today's meeting is being recorded. During the meeting, we'll have a question-and-answer session. [Operator Instructions]

It is now my pleasure to turn today's meeting over to Chris Gorman, Chairman and CEO of Key. The floor is yours.

Thank you, Ryan, and good morning, everyone. The meeting is now in session. Welcome to our 2026 Annual Meeting of Shareholders. I am Chris Gorman, Chairman and CEO of KeyCorp. We thank everyone for being with us today through our virtual meeting platform.

With me today is James Waters, Secretary of KeyCorp. James will first explain the meeting formalities. After the meeting, I will share a few highlights from the company's 2025 results. Shareholders may submit questions at any time during the meeting by clicking the Q&A icon in the virtual meeting platform. When submitting questions, shareholders should follow the guidelines set forth in the rules of conduct available within the virtual meeting platform.

James, I turn the meeting over to you.

Thank you, Chris. The list of the corporation shareholders as of the close of business on Friday, March 20, 2026, the record date set for today's meeting, is available for inspection during this meeting by clicking the Documents icon in the virtual meeting platform. A notice of this meeting was duly and properly mailed to shareholders, and the certificate to that effect will be filed with the meeting records.

Your Board of Directors has authorized a representative of Computershare Investor Services, our transfer agent, to act as the Inspector for the meeting. Computershare is responsible for the following: determining the number of shares represented at the meeting, confirming that we have a quorum, confirming the validity of all proxies, receiving and tabulating all votes cast, and reporting the voting results. The Inspector's Oath will be filed with the meeting records.

The Inspector has reported that we have a quorum. Accordingly, this meeting has been duly convened to transact any business properly brought before it.

The voting at this meeting will be done on the virtual meeting platform. Although voting is done primarily by proxy, if you wish to vote or change your vote during this meeting, you may do so in the virtual meeting platform. Any shareholder who has already voted and does not want to change their vote need not take any further action.

The order of business for today's meeting will be as follows. First, Chris will introduce the nominees for election as Director, followed by 3 other proposals presented for vote by management. Second, we will address questions that have been submitted by shareholders related to the proposals. Third, we will vote on the proposals. And fourth and finally, we will announce the preliminary voting results.

After the formal meeting has concluded, Chris will share performance highlights from the company's 2025 results and will answer general questions that have been submitted by shareholders concerning our strategy, our performance and the financial services industry in general.

At any time during or following the formal meeting, Chris or any person addressing the shareholders on behalf of Key may make forward-looking statements about Key's future performance. A notice regarding forward-looking statements appears within the Document section of the virtual meeting platform. Please review that statement and take note of the same.

I now call your attention to the rules of conduct set forth for this meeting. These are available to each shareholder within the Document section of the virtual meeting platform. We ask that you please review and abide by those rules.

There will be a question-and-answer period during the meeting limited to the proposals being voted on today and another question-and-answer period following the adjournment of the formal meeting for general questions regarding Key's strategy, performance and the financial services industry in general.

A representative from Key is reviewing questions that have been submitted and will read your questions aloud at the appropriate time. To facilitate full and fair shareholder participation, we ask that you limit yourself to 1 question on the proposals being voted on today and 1 general question following the adjournment of the formal meeting. You may submit questions within the virtual meeting platform by clicking on the Q&A icon. We ask that questions be brief.

That concludes the meeting formalities.

Thank you, James. The next order of business is to describe the proposals to be voted on at today's meeting.

The first proposal concerns the election of directors to serve a 1-year term, expiring at the 2027 Annual Meeting of Shareholders. The size of Key's Board of Directors is currently set at 14 members.

The nominees for election are as follows: Jacqueline Allard, Group Head of the Global Wealth Management Division, Scotiabank; Sandy Cutler, retired Chairman and Chief Executive Officer, Eaton Corporation plc; James Dallas, retired Senior Vice President of Quality & Operations, Medtronic, Inc.; Antonio DeSpirito, retired Managing Director, BlackRock, Inc.; Betsy Gile, retired Managing Director, Deutsche Bank AG; Robin Hayes, Chief Executive Officer, Airbus Americas, Inc.; Christopher Henson, retired Head of Banking and Insurance, Truist Financial Corporation; Richard Hipple, retired Executive Chairman, Materion Corporation; Somesh Khanna, Co-Executive Chairman, Apexon, Inc.; Devina Rankin, retired Executive Vice President and Chief Financial Officer, Waste Management, Inc.; Barbara Snyder, President, The Association of American Universities; Richard Tobin, President and Chief Executive Officer, Dover Corporation; Todd Vasos, Chief Executive Officer, Dollar General Corporation. Todd is our Lead Director. Additionally, I am honored to stand for election as your Board Chairman. The Board of Directors recommends a vote for each of the nominees.

One of the long-standing strengths of Key has been the quality and dedication of the members of our Board of Directors. I would like to extend my appreciation for the valuable service that our directors provide to Key and to you, our shareholders. I would also like to extend a special thanks to Ruth Ann Gillis, Carlton Highsmith and David Wilson for their years of dedicated service as directors. We thank them for their meaningful contributions to Key and wish them well in their retirement.

The next proposal to be voted on is the ratification of the Auditors Committee appointment of Ernst & Young as Key's Independent Auditor for 2026. Tanya Wisniewski, a representative of Ernst & Young, is present today and will be available to answer questions submitted through the virtual meeting platform. The Board of Directors recommends that the shareholders vote for this proposal.

The next proposal is an advisory vote on KeyCorp's Executive Compensation Program. The Board of Directors has placed this proposal before the shareholders as required by the Dodd-Frank Act and applicable securities laws. The Board is of the opinion that Key's Executive Compensation Program provides appropriate incentives to its executive officers and, at the same time, does not encourage its executive officers to take unnecessary risks. For those reasons, the Board recommends the shareholders vote for the proposal.

The final proposal before the shareholders is a vote to approve KeyCorp's 2026 Equity Compensation Plan. A copy of the equity plan was included as Appendix A to the proxy statement. The Board believes that equity compensation is an integral part of Key's compensation program. Shareholder approval of the equity plan will allow Key to continue to provide the appropriate levels and types of equity compensation for our employees and nonemployee directors. For that reason, the Board recommends that the shareholders vote for the proposal.

I will now address any questions that have been submitted on the proposals being presented today.

There are no questions at this time.

We have received -- we have not received any questions regarding the proposals. If you are voting during the meeting through the virtual meeting platform, please make sure you have completed your voting at this time.

[Voting]

Voting is now closed.

Because we permit voting by telephone, by proxy cards, over the Internet and on the virtual meeting platform, it will take additional time to finalize the tabulation. The final tabulation will be filed with the SEC on a Form 8-K within 4 days of this meeting. However, I can announce preliminary results of the voting.

First, the Inspector has informed me that each of the nominees identified in the proxy statement has been elected to the Board of Directors by at least 90% of the votes cast.

Second, the shareholders have ratified the appointment of Ernst & Young as the company's Independent Auditor for 2026. The issue received a favorable vote of 95% of the votes cast.

Third, 92% of the votes cast were to provide advisory approval of the company's Executive Compensation Program.

Finally, the shareholders have approved KeyCorp's 2026 Equity Compensation Plan. The plan received a favorable vote of 97% of the votes cast.

There being no further business, this meeting is adjourned.

I will now share a few performance highlights from our 2025 results, after which we will answer any general questions submitted.

Our full year results demonstrated continued progress on our organic path to higher returns of capital and returns on capital. We met or exceeded each financial target we communicated at the beginning of 2025. We delivered record revenue, which increased 16% compared to the prior year. Expenses grew a modest single digit even as we concurrently made investments in our franchise.

Fee income increased by 7.5%, with each of our priority fee-based businesses growing at a high single or low double-digit rate. During the year, we added approximately 10% to our frontline banker staff across wealth management, commercial payments, middle market and investment banking. Total loans grew 2% in 2025, with commercial loans growing 6% driven by C&I loan growth.

We continue to maintain our strong risk discipline. Full year charge-offs were 41 basis points. We ended 2025 with a strong capital position, including a marked CET1 ratio of 10.4%.

We completed $200 million of share repurchases in the fourth quarter and repurchased nearly $400 million of shares in the first quarter of 2026. We have committed to repurchasing at least $1.3 billion of stock throughout 2026.

I want to thank each of our teammates for their contributions to our performance. I am very proud of all that our team accomplished in 2025. Together, we delivered record revenue, strengthened our balance sheet and capitalized on strong momentum, while positioning Key for continued future success.

As we turn to 2026, I am confident we will deliver another year of outsized revenue and earnings growth as we make significant progress on our path to achieving a sustainable 15%-plus return on tangible common equity by year-end 2027. I remain confident in our ability to continue to deliver value to our shareholders, our clients and our communities.

I would like to thank each of you for your participation today and your commitment to Key. I will now be happy to address any questions you may have. Susan, are there any questions?

There are no questions submitted at this time.

In that there are no questions, we thank you again, and this meeting is adjourned.

This concludes the meeting. You may now disconnect.

Good morning, and welcome to KeyCorp's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Brian Mauney, KeyCorp's Director of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. I'd like to thank you for joining KeyCorp's First Quarter 2026 Earnings Conference Call. I'm here with Chris Gorman, our Chairman and Chief Executive Officer; Clark Khayat, our Chief Financial Officer; 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, April 16, 2026, and will not be updated.

With that, I will turn it over to Chris.

Thank you, Brian, and good morning, everyone. Our strong first quarter performance demonstrates disciplined execution and significant momentum as we continue to deliver on our commitments. We reported first quarter earnings of $0.44 per share, up 33% year-over-year. Return on tangible common equity exceeded 13% as we continue to make significant progress with respect to our goal of 15% plus return on tangible common equity by year-end 2027. Revenue grew 10% year-over-year with revenue growing more than 2x the rate of expenses. Adjusted pre-provision net revenue grew an additional $29 million sequentially, marking the eighth consecutive quarter of adjusted PPNR growth.

Net interest margin expanded 5 basis points sequentially to 2.87% as we remain on track to exceed 3% net interest margin by year-end. Commercial loan growth was strong and broad-based across industries and geographies, increasing $3.3 billion or 4% sequentially on a period-end basis. We continue to be disciplined with respect to funding cost management. Total funding costs declined by 15 basis points during the quarter with interest-bearing deposit costs decreasing 22 basis points resulting in a cumulative through-the-cycle down beta of 56%.

Asset quality metrics remained strong, with a net charge-off ratio of just 38 basis points. In addition to improving our return on capital, we remain committed to substantial return of capital to our shareholders. During the quarter, we took advantage of the pullback in regional bank stock prices and repurchased nearly $400 million of common stock, well in excess of the $300 million plus commitment we made in January.

We are also encouraged by the latest Basel III end game proposal. Our preliminary estimate shows a 100-plus basis point benefit to our marked CET1 ratio under the revised standardized approach, if implemented as currently proposed. This would imply a fully phased-in ratio of around 11%, higher than our peers and higher than we believe we need to operate our business in the ordinary course.

Our capital position gives us flexibility to continue to lean in aggressively this year and in the coming years to support our clients, to support our own organic growth and to repurchase our shares. Subject to market conditions, we expect to buy back at least $1.3 billion of our shares in 2026, up from the $1.2 billion we previously communicated.

While the macroeconomic environment has continued to be dynamic, we will remain laser-focused on managing what we can control, the delivery of our differentiated capabilities, acceleration of new client acquisition and exceptional service to all our clients.

We continue to grow clients. Commercial clients were up 3%, and relationship households were up 2% from the prior year in the first quarter. We continue to gain share across our priority fee-based businesses, wealth, investment banking and commercial payments. In the first quarter, these businesses collectively grew by 12% when compared to the prior year. This past quarter, we raised nearly $47 billion of capital on behalf of our clients, retaining 19% on our balance sheet.

Investment Banking pipelines continue to remain elevated, up 5% from year-end with M&A pipelines at record levels. While we do currently expect investment banking fees to decline in the second quarter compared to the record first quarter given current market conditions, we continue to feel very comfortable that we can grow investment banking fees in the mid-single digits for the full year.

Commercial loan pipelines also remained very healthy, up nearly 20% from year-end despite the strong pull-through in the first quarter. Our mass affluent wealth strategy continues to bring in new households, net flows and client assets to Key reaching 57,000 households and $7.4 billion of total client assets as of March 31. With a mass affluent household opportunity of 1.15 million customers, we remain less than 10% penetrated implying a significant runway going forward.

We continue to hire frontline bankers. This past quarter, we hired a middle market banking team based in Atlanta and a family office and private capital team based in Kansas City. We also hired talented investment bankers and wealth managers as our differentiated platforms continue to attract top bankers. We will continue to grow our banker ranks including evaluating team hires and niche tuck-in nonbank transaction opportunities as they arise in order to leverage our unique but currently underleveraged platforms.

Lastly, we are investing approximately $1 billion in technology this year that will give us new product and service capabilities and deliver better outcomes and experiences for those we serve. As it pertains to AI, we are focused on a few thematic use cases that will enhance client experiences, accelerate credit decisioning, increased technology productivity and strengthen risk and security monitoring.

Given the strong start to the year and the favorable dynamics we are seeing across loans and deposits, we have increased our full year net interest income and loan guidance while reiterating each of our other financial commitments. While we enjoy strong momentum, we will remain vigilant as it pertains to a wide variety of potential macroeconomic outcomes.

Our updated NII guidance assumes a wide range of interest rate scenarios. Additionally, we have added to our already elevated qualitative loan loss reserves this past quarter in order to account for a wider range of potential macroeconomic outcomes. As it pertains to private credit, we have provided additional disclosures this quarter. The summary here is we continue to be very comfortable with these books of business.

Finally, the first quarter was a strong quarter, and our business enjoys a significant amount of momentum. Before turning it over to Clark, I am pleased to announce that Clark has assumed an expanded role to lead our technology and operations organization, in addition to his role as CFO. We look forward to the contributions he will bring to our technology and operations teams at a pivotal and exciting time as we leverage AI to grow our business and better serve our clients.

With that, I'd like to turn it over to Clark. Clark?

Thanks, Chris. Starting on Slide 4. We reported first quarter earnings per share of $0.44. Revenue was up 10% year-over-year, while expenses increased by 4%. Taxable equivalent net interest income increased 11% year-over-year and was up 1% sequentially despite impact from 2 fewer days in the quarter and seasonally lower deposits. Noninterest income increased 8% year-over-year as our priority fee-based businesses collectively grew by 12%.

Loan loss provision of $106 million included 38 basis points of net charge-offs and a reserve build of $5 million. The net build reflected additional qualitative reserves to account for the macro uncertainty, offsetting improvement in Moody's economic scenarios and credit migration trends. Tangible book value per share increased 10% year-over-year.

Moving to the balance sheet on Slide 5. Average loans were up $1.4 billion sequentially and increased $2.6 billion on a period-end basis. Average C&I loans and average CRE loans both grew by 3%, partly offset by the ongoing intentional runoff of low-yielding consumer loans. On a period-end basis, C&I loans grew by $3 billion or 5%. Growth was broad-based across industries and regions with both institutional and middle-market clients. The largest industry contributors were within our financial services and utilities, power and renewables industry verticals.

C&I line utilization increased 1% sequentially to 31.5% as loan growth outpaced commitments.

Turning to Slide 6. With the attention that NDFI and private credit have been getting lately, we provided some additional disclosures with respect to our portfolio, and we want to share how we manage the businesses. First, a reminder that the NDFI nomenclature is a regulatory definition. As you know, these definitions have changed and continue to be refined, and we will continue to apply our best efforts to categorize these loans within the spirit of these definitions.

In the quarter, we grew NDFI loans by $2.4 billion. A 1/3 of that growth is a result of the reclassification of existing loans. So that's not actual loan growth but rather an expansion of what had previously been included in the category based on further examination of the regulatory guidance. The loans here are real estate nonowner occupied.

The additional growth of approximately $1.6 billion comes from three areas. About half of these are loans connected to real estate debt funds run by sophisticated sponsors with whom we have deep relationships, and where the underlying properties are geographically diversified. We expect to syndicate about 25% of these loans in the second quarter. Second, $400 million of this growth is fairly evenly split between insurance and other high-quality finance companies. And third, our specialty finance business loans grew about $400 million, primarily from AAA-rated CLOs.

While we will, of course, continue to disclose NDFI under the regulatory rules, this is not the way we think about these loans. There are a reflection of 4 distinct businesses that are collectively 90% investment-grade, institutional real estate lending, specialty finance lending, insurance and finance companies and our unitranche funds. Each business is relationship based and has its own set of credit concentration limits and risk parameters with de minimis NPLs and much lower criticized loan rates than our other commercial loans.

As it pertains to private credit, as the waterfall shows, we estimate approximately $10.9 billion of outstandings as of March 31, with roughly 70% through our specialty finance lending business, which are asset-backed loans made largely through bankruptcy remote SPE vehicles. SFL loans are 98% investment-grade, diversified by industry and geography with thousands of underlying obligors. We typically underwrite to the counterparty and their underwriting policies and have a long list of collateral eligibility criteria that they must adhere to.

First loss cushions typically range from 30% to 50% and we're very disciplined when it comes to ongoing collateral and liquidity monitoring with structural protections if performance deteriorates. Through the first quarter, all of our facilities are performing as structured and required.

In short, we think these are great businesses. They are relationship based with excellent credit profiles and require the focus and expertise that make them excellent examples of our targeted scale strategy.

Turning to Slide 7. Average deposits decreased by 2% sequentially, reflecting typical seasonal patterns and the intentional runoff of $1.6 billion in higher-cost brokered CDs. We expect the deposits to trough in early May and grow from there through year-end. Reported average noninterest-bearing deposits decreased 5.5% sequentially but remained stable at 24% of total deposits when adjusted for our hybrid accounts.

Total deposit costs declined by 16 basis points to 1.65%. Our cumulative interest-bearing deposit beta increased to 56%. We continue to take proactive actions in repricing deposits through limiting our incremental funding needs by remixing loans from consumer to commercial, gathering low-cost commercial deposits, particularly in payments while allowing certain rate-sensitive excess commercial deposits to leave and by actively rotating maturing CDs in the money market deposits in consumer. Overall, interest-bearing funding costs decreased by 21 basis points, bringing our cumulative funding beta to 68%.

Slide 8 provides drivers of NII and NIM this quarter. Taxable equivalent NII was up 1% and net interest margin increased 5 basis points from the prior quarter to 2.87%. The increase was driven by remixing lower-yielding consumer loans into higher-yielding commercial loans, swap repricing and proactive deposit beta management, which more than offset the impact of seasonally lower deposits and 2 fewer days in the quarter.

Our balance sheet position continues to be fairly neutral to changes in interest rates as we move through 2026. We would see some modest benefit from reductions in the short end of the curve as well as from increases in 3- and 5-year reinvestment rates.

On Slide 9, noninterest income increased 8% year-over-year. Investment banking and debt placement fees were $197 million, an increase of 13% year-over-year and a new first quarter record. Growth was driven by M&A, equity issuance activity and commercial mortgage debt placement activity. Our pipelines remain elevated and were up about 5% from year-end. M&A pipelines were at record levels.

Still, as Chris mentioned, given uncertain market conditions, we're planning for second quarter investment banking fees to be in the $175 million to $180 million range with upside if geopolitical and other macro risks subside. We continue to feel very comfortable that investment banking fees will grow mid-single digits in 2026.

Trust and investment services income also grew 13% year-over-year, reflecting positive net flows and higher market values. Assets under management remained stable at $70 billion. Service charges on deposit accounts and corporate service fees increased by 12% and 9% year-over-year, respectively. The increase in service charge was driven by growth in commercial payments which grew fee equivalent revenue at 11%, while corporate services income was driven by higher loan commitment fees and client FX activity.

Commercial mortgage servicing fees were $62 million, down $14 million year-over-year, largely driven by lower deposit placement fees as well as resolutions in special servicing. At quarter end, we were named primary or special servicer on approximately $720 billion of CRE loans, of which about $265 billion is special servicing. Active special servicing third-party assets were $10 billion, about half in [ orders ]. This is down from $12 billion a year ago as the commercial real estate industry continues to recover. We continue to expect commercial mortgage servicing fees to run about $50 million to $60 million per quarter for the remainder of the year.

On Slide 10, first quarter noninterest expenses of $1.2 billion improved 6% sequentially when excluding the prior quarter's FDIC special assessment and increased 4% year-over-year. Compared to the year ago quarter, the increase was driven by higher personnel expenses related to our frontline banker hiring, incentive compensation associated with the strong fee performance and higher benefits costs. Sequentially, expenses declined due to lower incentive compensation, seasonally lower professional fees and marketing expenses and fewer days in the quarter.

Expenses are expected to increase through the balance of the year, reflecting our ongoing investments in people and technology incentive compensation associated with expected continued revenue momentum and other seasonal impacts. We continue to feel very comfortable with our full year expense growth guide of 3% to 4%.

Turning to the next slide. Credit quality remains solid. Net charge-offs were $101 million, down 3% sequentially and were an annualized 38 basis points of average loans. Nonperforming assets increased by $65 million sequentially back to third quarter 2025 levels and remain below historical levels at 63 basis points. The increase was driven by 2 credits in utilities and multifamily real estate industries, respectively. We're confident we will resolve these credits in the coming quarters, and we are well reserved against them today.

Lastly, criticized loans declined by $3 million sequentially.

Moving to Slide 12. Our CET1 ratio was 11.4% and our marked CET1 ratio was 10% at quarter end. Our preliminary assessment of the updated Basel III Endgame proposal is that our risk-weighted assets would decline by approximately 9% under the revised standardized approach resulting in a 100 basis point plus improvement to our marked CET1 ratio. RWA relief would come primarily from lower risk weights associated with off-balance sheet commercial loan commitments, residential mortgages and corporate loans. As we wait for rules to be finalized, we'll continue to manage our marked CET1 ratio in the 9.5% to 10% range under current RWA methodology.

We expect to repurchase at least $300 million of our shares per quarter for the balance of the year which implies at least $1.3 billion for the full year. We remain focused on supporting our clients and growing our business. And as Chris mentioned, delivering a return of capital and a return on capital for our shareholders.

Moving to Slide 13. We're positively revising our 2026 guidance given the strong start to the year. We now expect full year net interest income growth of 9% to 10% compared to our prior guide of 8% to 10%. We now also expect to exit the year with a net interest margin of approximately 3.05% on a stable earning asset base relative to the first quarter. This guidance holds under a fairly broad range of interest rate scenarios. As of today, our base case assumes no cuts this year. We also improved our loan guidance. Average loans are expected to increase 2% to 4% compared to our previous guidance of 1% to 2% and average commercial loans are now expected to grow 6% to 8% this year.

All of our other guidance remains unchanged, although as you would expect, we continue to monitor macro conditions closely.

In summary, subject to the usual macro caveats, we're confident that we will deliver another year of outsized organic revenue and earnings growth for our shareholders.

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

[Operator Instructions] Our first question will go to the line of Erika Najarian with UBS.

The first one is for you, Chris. Given the strength that you showed this quarter on both lending and fees, maybe talk a little bit about client sentiment and how they're balancing sort of the geopolitical volatility with some of the positive on the ground big beautiful bill stimulus and everything else that's happening domestically. And additionally, thank you so much for the NDFI break down. I'm wondering what you're seeing in terms of sponsor activity, what you're seeing in terms of your private credit clients? And one of your peers, David Solomon mentioned actually in the private credit space widening spreads. I'm wondering if KeyCorp is seeing something similar.

Well, sure. Erika, let me start, if I could, with the consumer because that's a little less complicated. The consumer is in great shape. If you look at all of our credit metrics, if you look at the fact that these tax refunds from the big beautiful bill will exceed what they did last year, if you look at spending, spending is up kind of mid-single digits year-over-year. Online spending is up maybe double digits.

The other thing that's interesting with our client base is the wealth effect. And I think this is something that's been underreported. So we're talking -- when we talk about mass affluent, we're talking about our customers with between $250,000 and $2 million to invest. 18 months ago, we thought that universe was 1 million of our 3.5 million customers. We went back and redid it based on market activity. We now believe it to be 1.15 million, so up 15%. So on the consumer side, the consumer -- actually, our consumer is in good shape.

Now on the commercial side, there's obviously some puts and takes. You saw for the first time, as Clark detailed, our utilization went up, which is a good thing. We're starting to see people actually invest more in CapEx with some of the benefits from the big beautiful bill that you pointed out. And then, of course, the flip side of it is, is just the macro uncertainty. And so what we did see in the quarter is some people pulled some deals forward. So think about if you were going to go to the investment-grade credit markets and the activity started, you probably pulled that forward.

Conversely, on M&A deals, what's happening is they're not going away, but people are kind of slow playing it, doing a lot of due diligence because there's so much volatility kind of day-to-day, week-to-week. And so we saw -- sort of saw both sides of that. Having said that, as we said earlier, our pipelines remain very, very strong. So I'm very optimistic about kind of where we are from our commercial businesses. But obviously, it's not without impact from the near-term volatility.

Second part of your question as it relates to NDFIs a very great question because this is kind of a developing area. And so we've seen a steady march down in terms of spreads for a long time because there's just been too much capacity in the market with respect to commercial loans. What we're seeing just as of late is a firming there. And part of the firming of that is that some of the private credit players, obviously, in light of redemptions are not in the market the way they have been.

And I actually think, as you look forward, there's a lot of discussion around private credit. I personally don't think there's a credit problem, but these redemptions are real. And that if you have a bunch of redemption requests, the first thing you do is stop shoveling it out the front door, which I think will give the banks in some instances, an opportunity to reintermediate some of those activities. So that's kind of a -- that's my perspective. Anything else on that, Erika?

Operator, we will take the next question.

Yes, of course. Next question will go to the line of Ken Usdin with Autonomous.

I appreciate it. I want to ask a question on deposits. I know the first quarter is seasonal and it had a decline in brokered CDs. Just wondering how you think that deposits will trend from here? And if you think you're getting close to the bottom of that NIB mix, which I know was part of that seasonality in the first quarter?

Yes. Ken, it's Clark. Thanks for the question. So you hit on the -- I think, the bigger drivers broker deposits coming out at about $1.6 billion seasonal decline. So first, I would say, as we did decline, we are actually slightly better in the first quarter than we would have planned. So I think just consistent with our expectations. On NIB, you did see that come down on a reported basis. I think if you put our hybrids in there, we're stable. So those continue to be a very good vehicle to work with commercial clients and maintain those high-quality operating deposits.

And I think, as usual, we would expect to trough kind of mid-May and then build up through the quarter. So I'd say first quarter to second quarter average balances will be stable to maybe slightly up, but I'd expect ending balances June 30 to be higher and those to continue to rise through the course of the year. So we feel very good about the liquidity we have if loan growth continues or picks up. We have low loan-to-deposit ratio on a relative basis. We brought our market funds down.

So we have a lot of third-party capacity if we need it. And then we have great access to client, excess deposits and new operating deposits. So if we need to fund more loan growth, that's a high-class problem that we feel very confident about.

Yes. And as a follow-up, on the cost side, you put in the slides about the cumulative down base has been great at 56%. With rates presumably on hold for a while, can you just talk about deposit competition? How much room do you have, if any, to continue to bring down deposit costs and just the environment out there across the businesses for deposit taking?

Yes, sure. So look, I think you hit it. With no cuts, and that is our base case, we'd expect deposit pricing in general to sort of stabilize. Now if loan growth really kicked in, some of the dynamics Chris talked about if banks really step back in, we would expect some intensification of that deposit pricing. Right now, our view is that those will be fairly stable. Our deposit price will be fairly stable at this point. And as I just outlined, we will get back some balances on things like NIB and others.

So I think we have some puts and takes. We will continue to drive down broker deposits through the first half. But if we needed more funding, and we had to dip into that market to not hit more painful pricing across the book, we can do that. So I think we continue to have a lot of avenues at our disposal. I think if there were cuts, our deposit betas will probably drop a little bit in year just given the timing component of that. Again, our base case is stable, and I think we can hold serve in the mid-50s as we move forward. But that's all premised on the loan growth we're guiding to.

So if that came in stronger, we might see a little bit of a dip there, but I think we'd make that trade-off as long as it's good quality relationship growth.

Our next question will go to the line of John Pancari with Evercore ISI.

I guess just -- similarly, on the competitive front on the lending side, and one of two of your peers have cited a bit more aggressiveness out there on the lending front, particularly on structure for the most part, also to a degree on pricing. Are you seeing this showing up in your markets? And maybe if you can talk about how it's influenced loan spreads that you're seeing as you're pricing new originations?

Yes, John. So the phenomenon you're talking about has definitely been a prevailing phenomenon for some time. What I was describing in my answer to Erika is sort of real-time some adjustment that we're seeing. But there's no question there's been excess capacity for some time, and I've talked about this at length that a properly graded commercial loan can't return its cost of capital. And there's been just a constant pressure on spreads and on structure.

I think we may be, and I emphasize the word may be at an inflection point on that trend.

And just from a risk management perspective, again, we have not adjusted any of our credit boxes or underwriting standards. We are still maintaining, again, the same standards that we've always had.

Yes. No, I think that's a good point. I mean, we never give on structure. Obviously, it's a market out there, and we price where we need to price. The advantage we have, John, is we can do a lot of other things for these clients, whether it's payments, whether it's strategic advice, hedging, et cetera, that's how we run our business.

And frankly, if the capital markets have a better deal, we'll place it.

Yes, as we did 80% of the time this last quarter.

Got it. Okay. Very helpful. And then you gave some pretty good color here on the capital front in terms of buyback expectations. I guess just if you could just remind us of your allocation priorities there? And if anything, could impact that pace of buyback? And how do you think about any potential inorganic opportunities?

So I mean, obviously, what could impact it more than anything is if we had a severe macroeconomic downturn and started having credit losses. We do not see that. We feel really good about our credit book. Our capital priorities remain unchanged. It's first to support the growth of our clients, which we were pleased to see that we got in this last quarter. The next thing is to invest in our business. And we always talk about -- when we talk about investing in our business, it's really people and it's technology. And so we'll continue to invest heavily in our business.

We also, as I mentioned in my remarks, will continue to hire a lot of individual bankers, we'll hire groups of bankers. And opportunistically, we would look at small acquisitions of kind of boutique type operations, which are really just an extension of hiring a group of people. The next priority, of course, is to pay our dividend, which we don't talk about a lot, but it's $0.25 a share, which is not inconsequential as you look at the yield. And then lastly, purchase -- repurchase our shares. And we said earlier in our comments, John, we plan to repurchase $1.3 billion worth of stock in the year.

The next question will go to the line of Ryan Nash with Goldman Sachs.

So Chris, if I look at the high end of the loan growth guidance, it doesn't imply that much growth from the 1Q end-of-period levels. Now I know you mentioned some moving pieces and one of your other answers, some syndications that could be coming in 2Q. But curious on the drivers of loan growth from here. What will drive the slowdown? And can there be some upside from current expectations?

Well, thanks for the question. I'll start with, I guess, what the premise of your question is the loan guide conservative and that if we didn't book a whole bunch of more loans will basically grow at 6% for the year. And I'd say there probably is some appropriate conservatism in the number, given the macro uncertainty out there. But let me kind of give you the pieces and parts. Utilization actually for the first time in a long time spiked up. I wouldn't necessarily imagine that, that will continue to spike up. We waited a long time for it to start moving.

We do have broad-based growth across all geographies and industries, which should play forward. I mentioned in my remarks that we have a 20% increase in our backlog from year-end. Obviously, we would expect some of that to in fact, pull through. Utilities and Power continue to be an area of huge opportunity when you think about both renewables and the massive build-out that's required for GenAI.

And then there's two other areas where we're starting to see some traction. One is healthcare. We're starting to see consolidation, which is necessary, by the way, in the healthcare industry. And then lastly, for the first time in a long time, we're starting to see this backlog of commercial real estate transactional activity. We've been refinancing a lot of commercial real estate. But what we're starting to see is people are starting to trade as the bid and the ask comes in and everybody sort of gets comfortable that we're going to be in this kind of an interest rate range for a while.

So that's kind of the -- that's the puts -- and then also, I just would remind you, we're going to continue to run off $0.5 billion to $600 million of commercial -- residential mortgages per quarter. So that's kind of the puts and takes, Ryan.

Got you. No, super helpful, Chris. And maybe as a follow-up to something that was talked about before. Within the Investment Banking business, if I look at the mid-single-digit guidance implies low single-digit growth for the remainder of the year. And I feel like coming into the year, you are upbeat on the potential return of M&A to drive upside. Historically, it's been a bigger part of your business. So it sounds like from your comments earlier that M&A hasn't been as robust as you would have expected. But are there other parts of the business that are trailing and what would we need to see for some of those -- some parts of the business to begin to outperform expectations?

Sure. So with respect to M&A, what's interesting about M&A, Ryan, is there's been a lot of headline numbers. And as you well know, the G-SIBs have reported some incredible numbers with respect to advisory. I think deal volumes in total are up like 46%. Transaction volumes, however, are down 26%. And so all -- you put all that together, and we're still waiting for this huge surge of middle market M&A activity to come through. And so that is something that we're keeping a close eye on. That's -- those transactions are binary.

What we're guiding to right now is 5% to 6% growth year-over-year. So we did about $780 million last year. So at the middle of the range, that would be something like $825 million off of a record year last year. So I feel really good about the business. But admittedly, some of the -- while we have record backlogs we're not seeing as much come out of the pipeline right now as we would hope. I think when some of the geopolitical things are resolved, I think it will be a little better environment for that. Thanks for your question, Ryan.

Our next question will go to the line of Scott Siefers with Piper Sandler.

I wanted to return for a moment to the capital discussion. It seems like there really should be good capital management runway for a while, especially if you elect to put to work some of the additional excess you'd have should the Fed NPRs pass as proposed. I guess I'm curious to hear how you would decide when and how aggressively to deploy that additional excess if those proposals in particular, do advance? And what other considerations are there, whether it's ratings agencies, investor expectations, et cetera, just as you think about the appropriate capital levels to sort of land on?

Scott, it's Clark. Thanks for the question. So one, we guided on the fourth quarter call that we try to get to 10% marked by the end of the year. We actually arrived there a few quarters early in this quarter. So we feel very comfortable there and would feel comfortable over the course of the year dipping into that 9.5% to 10%, and that's under the current regime. So again, no issues there.

To the extent the NPR passes as proposed, we expect, as we said, 100-plus basis points of additional marked capital there. So I think that gives us more room to continue to both invest in growing client activities, but also to continue our share repurchase. So on the one hand, we're guiding to $1.3 billion for the year. Short of some more extreme situations, I would expect that to be more like the floor for buybacks for the year. I don't know how much more we'll go over that. We'll play that by ear. But we certainly believe, over time, as you know, we've got more capacity to lean into capital return.

The other point that I would just make is I don't think anybody should expect one big swing at this. I think you should expect from us thoughtful, orderly kind of methodical capital management over time, where we are sharing as much visibility as we have given conditions and kind of marching down to that range over some meaningful and manageable period of time, but we're not going to do anything dramatic in any quarter or two.

Got you. Okay. Perfect. And then maybe switching gears for a second. I appreciate the refresh and the color you guys have given on the full year Investment Banking expectations. Clark, I was hoping maybe you could kind of provide some thoughts on how you see some of the other key areas, whether it's wealth payments, some of those other focus areas projecting through the year?

Sure. So one, as Chris noted, we continue to get gains in our wealth business. So to the extent the market cooperates, we'd expect to see Investment management fees continue to grow, and I think that's a mid- to high single-digit number for the year. So that's tracking pretty well even despite a little bit of volatility in the first quarter. Our payments business, particularly on a fee equivalent revenue, which, as you know, Scott, is the gross fees continues to be very strong. If you unpacked for example, what happened in the quarter on deposit service charges, those numbers would have been mid-teens year-over-year.

So we continue to get really good activity from our payments team, either selling additional services into existing clients or anchoring with new clients as they come in. No reason to think that, that's going to stop. We continue to add new capabilities in payments whether it's in our portal, our information reporting or things like embedded banking, I think all of those are on very good trajectories and we continue to expect to see those grow. So that's, again, on a gross number, kind of low single digits on a net number high -- sorry, low double digits on a net number, high single digits, sorry, for that confusion there.

Then corporate services, which is really FX and derivatives and other hedging, so the oil volatility has created some tailwinds there. If that settles in, derivatives tends to follow with loan growth. So that's been very positive and we've seen some good traction in FX as well. So I think all of those categories continue to look up and have been consistently strong.

The one place that we called out in the fourth quarter call and will continue to be year-over-year down but that is not a reflection of the quality of the business, is our commercial real estate servicing business. And again, that's a function of advance rates coming down, clients paying us with deposits versus fees and some recovery in the industry that causes special servicing and other resolutions to likely be down year-over-year. So again, nothing negative to say about that business. That's just the market trends that are affecting you right now.

So in summary, expenses and fees, we expect to be relatively close. We'd like to be a little bit better on fees, but we're really looking at reported fees to be, again, pretty consistent with expense growth over the course of the year and then adjusted fees being in that mid-single-digit range and priority fee bases high single digit.

Our next question will go to the line of Mike Mayo with Wells Fargo.

Chris, you have already answered part of the question about your investment banking and debt placement business. And I know you've built that business, big organic grower, but when you said you're looking for mid-single-digit growth this year, like that's not so exciting, right? Like waiting this [Technical Difficulty] markets to come back. I know it's been skewed towards the large mergers. And you're saying it's not really back yet. And so I guess that mid-single-digit guide, is that just like what it is or that what it is given your thoughts that activity will be delayed maybe until next year?

Well, first of all, that's what it is based on where we are right now in the market. I do take a lot of comfort in that our first quarter was a record. It was a record after last first quarter was a record. Last year was our second best. Our pipelines are at record levels. If we could get some stability out there in terms of rates and in terms of people's perspective going forward, I think there's a huge opportunity here. But right now, as we look at it, what we're comfortable with is guiding 5% to 6%, understanding that the business has a lot of momentum.

What do you think the difference is for the very large mergers and what we heard from the biggest banks is that de-reg and pent-up demand and still very high stock prices and liquidity, that's all transcending the conflict and you're seeing these pipelines get replenished and all that. With more of your middle market companies, the activity is still subdued.

Yes. So I think it's a couple of things. One, those are transactions that obviously require a lot of regulatory approval, and there's no question that regulatory approval has improved geometrically. So that's the first thing. Second thing is many of those deals are stock-for-stock are a huge component of stock and therefore, don't require nearly as much financing. And then the third thing is, typically, I've always noticed as you come out of this -- of a rut and we have been in a rut in M&A., the first deals to start coming out are really large, high-quality deals. And I think that's what you've seen. And I think it will matriculate to the entire market.

Mike, one other just element we're seeing more consistently also, sorry, on the middle market end, which, as you know, is heavily sponsored back. We're seeing more continuation vehicles as an option versus outright sales, and those obviously don't always translate to the same level of activity.

That all makes sense. Would you say that some of the same factors, though, that could drive more loan demand due to CapEx could also drive merger? In other words, to the extent that middle market CEOs become more comfortable, then they're more likely to spend for CapEx and maybe, therefore, they're more likely to mergers. So what's the demand for CapEx-driven financing?

Well, I don't think there's any question. I think as people get comfortable with the forward view and get comfortable kind of where they think rates are going to be, I think that will be an impetus to transact. And I think having gone through a bunch of market disruptions, I think once people see that sort of the coast is clear, I think there's probably a lot of people that are gearing up to go and we have many in our backlog.

Our next question will go to the line of Manan Gosalia with Morgan Stanley.

Chris, Clark, since you gave the ROTCE guide, NII and loan growth are trending better. You noted a 100 basis points or so of benefit from Basel Endgame, that's fairly sizable. I'm assuming you should be able to use some of it. Would that, I guess, all be upside as we think about the 15% or so exit ROTCE for 2027?

Well, clearly, I think as the rules get finalized, we will have greater flexibility. We mentioned to the tune of, if you just look at the standard approach, 100 basis points or so. So we'll have -- we'll have more to say about that after we -- after the final rules come out and we make final decisions with respect to standard approach or ERBA.

Got it. Okay. Great. And then you noted that, I guess, the balance sheet stay fairly flat in 2026, which would mean that the LDR moves a little bit higher. How should we think about that going into 2027? Is there still more room to take the LDR up? And as we think about deposits and maybe some of the higher cost deposits, at what point does it make sense from a relationship perspective and a franchise perspective to keep and pay out for them rather than [indiscernible]?

Yes. Manan, it's Clark. So I think you hit that right. I mean, on a general basis, that last point is probably the most important here, which is, as we've talked about before, I'll just talk to commercial for the benefit of this answer. 80% of those deposits are operating accounts and 95%, 96% of the deposits come from clients with operating deposits. Meaning, these are strong relationships. We know where the dollars are, and we're making often name-by-name decisions month-by-month about where the bid is on those excess deposits and whether we want to fund with those or not.

So in the first quarter, we let some of those go. We did that last year in the first half and then brought them back in the second half. I would not be surprised if that happened again this year. And as we go forward past 2026, and we start to see some balance sheet growth, we will have the opportunity to make those calls as we do today. And my guess is if we're starting to grow the balance sheet, we will look to fund with client deposits wherever we can as long as it makes sense on the margin. The nice thing about those commercial deposits is they are at some level, individual decisions, and we're not sort of repricing the whole book across the board.

But this is why, as I mentioned, with the hybrid accounts earlier that we've gotten real benefit out of that because we get advantageous rates there, and we get deeper client relationships as we provide them with more and more payment services.

And just to add to that, Manan, we wouldn't let these excess deposits go if we thought it put our relationship at risk. These are excess deposits with people that are very good customers of ours. As Clark said, 81% of our commercial deposits are core accounts, core operating. This goes back to our focus on primacy going back a decade. So we really have the flexibility to move those in and out as we need to.

And I'd say there's one last point just worth making because we talked about in commercial mortgage servicing some clients paying us with deposits instead of hard fees. So we took deposits back on balance sheet in the first quarter. We also then just to manage the deposit base took some deposits off balance sheet. And those can be brought back if we needed additional funding. So we have a fair bit of levers to fund as it grows. We're not sitting here overly concerned to Chris' point about the marginal dollar funding if a quality loan is available.

Our next question will go through the line of Ebrahim Poonawala with Bank of America.

I guess just two sort of macro level questions, but Chris, you should have a great perspective on this. When we think about the AI data center loans that are being made right now, is it your understanding that most of that is being distributed in the capital markets? Or when we think about loan growth at the banks, is some of that being syndicated to banks, and it's coming on bank balance sheets and who knows how to think about AI 2 years from now in these investments, but is there risk tied to this data center spending that is being put on bank balance sheets at Key and just broadly across the industry?

So it's a great question. The answer is the funding for these data center buildouts are in the capital markets and also at some of the banks. And we've been funding -- we've been in the Power business for a long time. And as a consequence, I think we do it pretty well. There's all kinds of nuances in these deals. Who pays for the cost overruns for example, et cetera, et cetera, who has the right to do what under a bunch of circumstances? We feel very good about the loans that we have, but these loans are both in the capital markets and in the banking system.

Yes. And Chris, I just might add that our data center exposure is fairly de minimis. We've also looked at what we call AI adjacent type exposure and kind of worked with our Board on that as well. And again, very, very well controlled and monitored. We're really not chasing a lot again these larger projects or hyperscalers. And so again, it's very well managed.

Got it. And just one quick follow-up, Chris. I think you talked about this. When we think about investment cycles are far longer than political cycles, are you actually seeing some element of manufacturing reshoring showing up in your footprint or across your businesses that's leading to longer-term domestic CapEx, which creates loan growth opportunities, not just this year, but as we think about the next 2 to 5 years?

So we're starting to see that. I could give you some specific examples of people that are -- and typically, it plays out like this. It's people expanding existing facilities in lieu of having contract manufacturers that are overseas. The other thing that we are seeing is people relocating from the Far East to Mexico and really shortening their supply lines and taking control that way. So we're starting to see it, but I wouldn't say it's the biggest driver at all of, say, loan growth. It's very early days on that front.

Our next question will go to the line of David Chiaverini with Jefferies.

I wanted to ask about credit quality. You mentioned about the NPL increase was driven by 2 credits utilities and multifamily. Are you able to point to any emerging trends by sector or geography that you're watching more closely?

Well, we're always looking at certain sectors. As it relates to those two, when you have it kind of bumping along the bottom, there'll always be one deal or two. Neither of those do we look at as systemic in any way. We're watching a few areas as we always are, things like agriculture, things like transportation, but there's nothing that each of those are idiosyncratic in their nature.

And again, just to remind you, that slight uptick was not private credit related. But again, just again, to Chris's point, just idiosyncratic.

And then shifting over to when thinking about expenses, and you mentioned about the hiring of frontline bankers. Curious, is there more to come there? And how is the pipeline looking?

So last year, we talked a lot about the fact that we hired -- we grew our sales forces by 10% collectively in our investment banking, in our wealth business and our payments business. We continue to hire people in all of those businesses. Those are our targeted fee businesses where you'll see in our report out today, we grew about 12% in the aggregate. We track all of this very, very closely, and we're pleased with the trajectory of the people we've been able to hire and as a consequence, we'll continue to do that.

Our next question will go to the line of Gerard Cassidy with RBC.

Chris, can we circle back to -- you pointed out about the emerging affluent, how it grew 15%, I think, you said to 1.15 million of total customer base of 3.5 million. How can you guys embrace AI to penetrate that client base and make it even more profitable because you're using AI?

That's a great question, and it's very timely because I spoke to our big producers in this business as recently as Tuesday morning at their sales conference. I think there's a huge opportunity to use AI. We're already investing heavily in our wealth platforms and I think as you think about serving that many customers, I think there's a huge opportunity for AI. We'll have more to say on that in the future, but that is a perfect application. Many of these customers are rather homogeneous in their needs.

And I think just we are armed with perfect information, obviously, because it's all running through the bank. And I think harvesting more detailed information so we can do a better job of serving these customers that are -- already know and trust Key but have their money on some other platform where, as you can imagine, they're not getting incredible service just because it used to be that if you had $5 million, you got incredible service everywhere. Now, as you know, the number is a lot higher. And so this is a huge opportunity for us.

And then to put Clark on the spot. But following up with this AI, do you think we'll ever get to the point where outsiders like folks on this call could actually measure for your dollar of spending in AI, it actually incrementally led to a 50 basis point of ROTCE improvement? Will we get to that kind of metric at some point in the future?

Well, we would have to get to that first and then share it because as you know, Gerard, these are pretty hard to measure. I'd say where we and I think others are seeing benefits is in efficiency and capacity, but it's really showing up more in avoidance of future investments. And so that -- it's hard for me to come and say, "Hey, Gerard, I didn't spend these dollars I may have otherwise spent".

So the way I think we really need to demonstrate that is to scale some of these platforms, which has been a theme of Chris' now for, I don't know, as long as I've known him. If we can do that, then you start to see the scale of the platform and the benefit of that cost avoidance in a real way. And then we can come back and say, we spent these dollars. We created these improved processes and they drove this level of margin expansion.

Great. And then just as a follow-up question, Chris, obviously, Key is well positioned as a commercial lender, and it looks like commercial lending for the industry and for you specifically is picking up. You obviously have your industry verticals that are national that drives this commercial product along with, as you pointed out, it's not just a loan, but it's the multiple of products. Outside of those 7 verticals, is there much opportunity for commercial lending in the Pacific Northwest or the Midwest or New England? How do you look at that kind of commercial lending or do you really don't do it and it's just in those 7 verticals?

No, we do both. Our 7 verticals obviously give us what we think is a unique competitive advantage because our middle market bankers call who are also our payments representatives they call with our investment bankers, and that's something that others can't do. So in those 7 verticals, we have a huge advantage. But we also are out there looking for great payments and commercial banking customers just like everybody else. And yes, there are significant opportunities outside of our 7 industry verticals, and we compete effectively there as well.

And Gerard, just as a reminder, over the last couple of quarters, we've seen not just great industry vertical growth, but we've seen very consistent broad-based geographic middle market growth. So it's been a combination of both. We've been adding bankers in verticals and markets. And as we've talked about before, whether it's Chicago, Southern California, recently Atlanta or this family office business, we're adding bankers in new geographies with new capabilities in the middle market because we see exactly what you're referencing, which is really good opportunity to grow in specific geographies.

And our uniqueness isn't limited to just the investment banking area. In our payments area, which Clark at one point ran by the way, and now Ken Gaverty runs both our commercial business and our payments business, we feel like we have a competitive advantage there as well, Gerard.

And speaking of payments and here's a layup maybe for Clark and you used to run payments. We all know about the risk and credit, and you guys have been very clear how you manage your credit risk, and it's quite good. What's the risk in payments? And as you grow new commercial customers, is it an increasing fraud risk we got to watch out for? I mean, which is totally out of the risk questions that we normally ask, but what do you guys think about that part of the equation that as payments -- and not just for you folks because every commercial bank seems to be telling us the whole relationship includes a payments part of it. Do we have a risk here that none of us are really focusing in on yet?

Yes. I mean there is a little bit of credit risk and things like ACH and merchant, but those are very manageable and I think well understood. To your point, I think you see probably two versions of risk. The biggest pool is going to be operational. This is a technology business. So whether it's fraud or security, and often the easiest doors in are through clients who aren't necessarily educated enough to manage the risk. So we do a lot of proactive client outreach on how to better secure their own platforms.

But it is clearly a technology and software business, and that's why you need to be very dialed in on that level of risk. And then the other one is just reputational, right? You're getting into clients, you're offering services. I used to joke, but I think it's true that when we make a loan to a client, they sign the paperwork to get the money. We talk to them in a couple of weeks or months. When you sign a payments contract with the client, the work begins because you pop open the hood and you start wiring the enterprise.

So that comes with a lot of potential client friction. You have to manage that onboarding and servicing relationship very carefully and very thoughtfully, and -- it's a bit of an offensive linemen game where they expect things to work and when they don't is when you hear from them. So there's a lot of very important proactive communication and management of that process. And so I really think about it in the obvious operational risk you raise, which we spend an enormous amount of time thinking about and managing and then the reputational piece because as we say Key, our payments business is about helping clients run their business better every day because they use it every day, which means there's an opportunity for something to go wrong every day, and we have to manage that.

Our last question will go to the line of Christopher McGratty with KBW.

This is [indiscernible] Connell filling in for Chris. I just wanted to circle back to the margin discussion. And just given the overall shift in the rate environment this past quarter towards higher for longer environment. What impact do you think that might have on the margin improvement story?

Yes. So as we noted, our base case would be no cuts. So that's incorporated in this, and we did improve the margin guidance a bit. So what I would say, maybe alternatively, is we feel very good about managing to those -- to that guidance under a variety of circumstances. We'd likely feel a little stress if there were highs, and we've got some upside potentially if there were cuts assuming those cuts as we would expect, at least at this point, come with a little bit of steepening of the curve. So right now reflected a slight improvement in that margin guidance incorporates a flat no cut scenario. So hopefully, that's responsive to your question, Chris.

Okay. Great. And then you guys provided a ton of color on private credit and the specifics, both in the discussion and the deck and overall credit quality, relatively stable for the quarter. But just wondering if you could kind of stack rank or update us on you all worry on maybe more hot button credit pockets. And then where private credit either as a whole or kind of within the parts that you disclosed and discussed kind of falls within that stack ranking, I guess, in particular, with context of your view versus the overall markets?

Sure. So I'd be happy to address that, Chris. So I wouldn't put private credit in my basket of things that we're really focused on right now. A few areas that we spend time thinking about. First is the oil and gas producers, depending on how they're hedged, they actually could be making more money in this environment, particularly if they're unhedged. We have a couple of billion dollars of exposure there. We have another $2.5 billion or so exposure in transportation. And to the extent people don't have escalators with their customers, obviously, fuel costs are a significant issue.

There's no issue yet with respect to consumer discretionary but if we remain in an inflationary environment, and people are spending a lot more for gas, it goes to -- the theory is, is that they'll have less money to spend on discretionary consumer, which I agree. On the other side of it, we've seen some interesting recovery, and we've been worried a bit about healthcare. Healthcare is firming up nicely. So we feel good about that. We also were really focused on some materials and construction products. Those areas have also firmed up nicely.

So that's kind of where we're worried -- where we look. Any time I focus on areas of concern, it's where there's leverage. And we, frankly, have very little. If you look at our leverage book, it's about $2 billion and it's been $2 billion for as long as I can remember. So I'm not too worried about that. So that's kind of around the horn on our portfolios.

With no additional questions waiting in queue. I would now like to pass the conference over to our CEO, Christopher Gorman, for any closing remarks.

Well, thank you, Megan, and thank you all for joining our call today. We appreciate your continued interest in Key. If you have additional questions, please do not hesitate to reach out directly to Brian or others on the Investor Relations team. Thank you, and have a great day. Operator, this concludes today's call. You may now disconnect.

Go ahead and get started. So for our first regional bank presentation, as has been tradition over the last few years, we have Chris Gorman, Chairman and CEO of KeyCorp. So Chris, thank you so much for joining us.

So it's great to be here, and we always appreciate kind of kicking off your conference. It's a great conference. And we were just chatting. Ebrahim covers more companies, I think, than anybody on the planet. So hardest working man in finance. So it's nice to be with you.

Thank you. Thanks for the Jack of all fades, I guess, master of none. I don't know if it was a back-handed compliment or...

It was a compliment.

But maybe just, Chris, I think it's been an eventful few years, right? Like as we think about going back to coming out of the COVID, just rates went up, you had the COVID shock like for the industry around interest rates. Just give us a mark-to-market in terms of the evolution of the KeyCorp franchise over the last 3 years, just and how you're feeling about the business?

Yes. So I'll start with the last piece of that. I'm feeling really good about our business. I think we're really, really well positioned. And the reason I think we're so well positioned is you correctly point out, so the biggest hiking cycle in 60 years, that starts in 2022. In 2024, we raised capital.

We raised $2.8 billion. We used about half of it to reposition the balance sheet, which, by the way, we just reported to our Board is more accretive than the day we announced it that August 17, 2024. So that gave us really a lot of tailwinds. And that was really, really -- that was important. And what we talked about is pivoting to play offense.

And I'm just so proud of the team and how they've done it. So let's talk a little bit about 2025, and then I'll talk a little bit about why that gives me great feelings for the trajectory we carry into 2026. So in 2025, we grew PPNR by 44%. You know that we had huge growth like 23% NII, which is obviously helpful. We grew our fees by about 7.5%.

So in investment banking, we had the second best year that we've ever had, and we weren't hitting on all cylinders and that the M&A business, you read a lot about how M&A had a lot of momentum near the end of last year. That's true, but those were really large deals.

And what's happened is now that's starting to matriculate down into the middle market, which is really our space. And I'll give you a couple of just data points on that. Last year, our M&A business was about 18% of our fee business there. And typically, M&A business would be kind of mid-20s.

Typically, we do 30% to 40% of our business with private equity shops. It was nowhere near that. So now all of a sudden, so fast -- and then the other thing that I think is most important as you think about kind of where we're positioned is last year in 2025, we grew our commercial clients by 4%.

People talk about loans, they talk about deposits, they talk about fees. All that's important. But what I really care about is that we're constantly growing the number of clients that we have. Because with our model, we might do -- we might raise capital for them, we might put it on our balance sheet, but actually growing clients is important.

On the consumer side, the consumer is very healthy. And I just listened with interest as Brian talked about it. Contrary to what you read, the consumer is extremely healthy. Kind of give you -- our noninterest-bearing accounts today have 25% more cash in them than they did pre-pandemic. So a lot of cash.

The spend, we're seeing a 5% increase in spend if you look at Zelle, ACH, et cetera. If you look at cards, it's about 3%. I think one of the things that a lot of these stats miss is just the wealth effect. So in the first 235 years of our country, there was $60 trillion in household wealth. Today, there's $200 trillion which is hard to even fathom in a 15-year period.

And I think, obviously, that gives you -- you can have a little bit of a dislocation between what's going on with the labor market and what's going on with the economy. So getting back to -- we go into 2026, after having a great year in 2025, we have more bankers than ever. We talked about hiring 10% more bankers in each of our 3 fee areas, namely mass affluent, I just touched on that a little bit.

In our middle market in payments, 10% and in our investment bank, 10%. So we hired all these folks, brought them online. Interestingly, they've been productive much more quickly than we would have imagined. I'll give you a statistic that surprised even me. 93% of the folks that we hired in payments and middle market actually closed the deal within the first 3 months of coming over.

That never used to happen. We always said it takes 12 to 18 months. There will be a burn-in period. But the point is because we're out there recruiting and because it's an attractive platform for people, we're able to get people on the platform, and we're able to hire people that are productive because obviously, if people are productive that quickly, it's really a function of their relationships, et cetera.

So as we go into 2026, backlogs are at a record loan backlogs overall are up 20%. Middle market backlogs are up 50%. Our investment bank backlogs are up kind of mid-single digits, but that's off of a really strong number, obviously, that we had last year.

We had $9 billion, by the way, of additional commitments that we put out in 2025. I assume some of those will fund up. So you put all that together and then you add the one other piece I'd say is, and you know this, we're very conservative from a credit perspective.

I mean the one thing that can derail the momentum for any bank is to have credit challenges. And on the consumer side, we have a super prime book. I think our average charge-offs for the last decade have been like 27 basis points. On the commercial side, because we distribute so much paper, we just don't carry a lot of risk.

So that's kind of the lay of the land. We feel pretty good about where we are.

So that's a good overview. So when we think about -- we came into this year, I think when I talk to investors, I think there's hope and expectation around the broadening in domestic CapEx, the tax bill had incentives.

And right until the end of the year, it felt like it was all on the comps, like everybody -- there are lots of conversations, but it wasn't quite materializing yet. Has that begun?

The answer is yes. So let me give you some numbers. And these are -- obviously, it's very early in the year. But as you look at from the end of the year to January, we grew loans by about $600 million, and we grew C&I by $900 million. So there is, in fact, momentum. And part of that is we're starting to see a little bit of growth in real estate, which we hadn't seen.

And so as we look forward, there's some headwinds and obviously, some tailwinds like any business. A couple of the headwinds would be our SFL business. We turned down more deals in the last quarter -- in the last half of 2025 than we had any time before in the 17 years we've been in the business. By the way, I think we've had one charge-off. We're very particular. So there's a little slippage in structure there, and we're just not going to stretch. We don't have to.

Some other things, there was a little bit of a pull forward in renewables and power because there was a tax incentive to have it pulled forward into 2025. That grew 20%. So that's kind of -- I'd put that in the headwinds category. In the tailwinds category, I already mentioned that we had all these commitments that we put in place last year.

Those will fund up. I actually think the middle market is going to be a lot more active. We've had some public announcements, just deals we're advising on these middle market public companies. You'll see some more traction there. And I really think one of the -- that's one unlock.

And another unlock is what's going on in real estate. So you can imagine -- look, the 10-year is basically settled in and pick your number, is it 4.2%? Is it 4.3%? Is it 4.4%? It doesn't much matter. What does matter in the real estate business is if the forwards are telling people that it's going to -- that the 10-year is going to go from 4.2% to 3.2%, they won't transact.

But now the bid and the ask are kind of coming together. There really hasn't been any transactional activity in real estate. There's been a lot of refinance, but there hasn't been transactional. So you put all that together, I think it could line up.

Oh, you asked specifically about CapEx. 60%, of our customers that we pull say that the big beautiful bill will be a benefit to them this year. And one of the benefits, if you have a small company, you having to immediately -- the ability to immediately expense all the investment is quite a luxury. So I'm optimistic on that front.

Got it. And just one on sort of the big picture CapEx stuff. We're doing a dinner last night, and I think it seems like the reshoring manufacturing jobs coming back or projects starting is real. Would you agree with that as opposed to there's still a lot of policy uncertainty, nobody wants to make long-dated investments. Where do you settle on that sort of argument?

Well, I think there's some truth to both of those things. I don't think the reshoring has happened to the degree that I think that it will. I think that's just starting. And the other thing to keep in mind is part of the reshoring is out of China, out of Vietnam into Mexico. It doesn't necessarily go out of China to Miami, for example.

But I do think that there is some momentum there. So I think it will happen. The other part of your question was, are people sort of over the policy uncertainty? I think they are. As I travel around and talk to all of our customers, look, Liberation Day was a shock. It was a shock to people.

It caught people flat-footed. People didn't know how to react. People didn't know what the secondary and tertiary impact of Liberation Day was going to be. I happen to be in a senator's office watching it on television with him when it was announced from The Lawn of the White House, and it was -- I mean -- but people have worked through all that.

Businesses are amazingly resilient and also these things have a way of settling out. I don't see the macro angst as I go out and travel around and talk to people today that existed. First, there was the actual election. So that was uncertainty, right? And then all of a sudden, there was a change in administration, which they always say people or policy.

So that kind of was the sort of the first quarter. And then kind of the peak of the uncertainty, I would say, was Liberation Day. And I think the uncertainty has dissipated. Either that or we've just gotten used to the fact that there's going to be volatility and there's going to be uncertainty, which is part of it, too.

And just maybe coming back to sort of loan growth. It sounds like signs of life on commercial real estate in terms of new production coming through. Even I think your implied C&I loan growth implies some slowdown year-over-year, but it sounds like you could actually do better than that if things continue the way they have started.

Yes, there's no question. Look, we do kind of a bottoms-up. Loan forecasting is a challenging thing. One, it has kind of short lead times. That's the first thing. The second thing, in our business model, we do what's right for the client. So when everything is kind of flashing green, we may be placing a lot of paper. As you know, we placed about $110 billion worth of paper. So all that being said, and we do try to be conservative. I think last year at this time, we would have said our total commercial loans would grow 3%. They grew 5%.

We would have said C&I would have grown something less than 9%, it grew 9% so I just don't think there's -- we'll update Ebrahim, as the year goes on. But we're off to a very good start, and I feel good about it.

And I think the other thing you mentioned, Chris, around just last year was a lot about large deals happening. Are we seeing that broadening out in the middle market in terms of what that means for your business?

Yes. We are. Yes. And it's 2 things. The private equity investors have been very quiet, unusually quiet for the last 3 years. And obviously, that sort of builds a backlog because there's an inverse relationship between the holding period and cash-on-cash return. That's building up.

And just we're seeing more middle market deals, which are really our deals. So if you went to FactSet or something, you'd see that $1.5 billion deal, $2 billion deal. That's kind of our -- that's our bread and butter as opposed to some of the blockbuster deals that we all saw last year.

And are there any sectors that are particularly sort of in focus where you're seeing activity?

Well, I would say just activity in general, here's where we're seeing the most activity. One area is this -- is our power and renewables business. There's a huge shortage of power in the United States, and that takes whether it's power generation, power distribution, basically renewables, a lot of activity there, and we're a big player in that.

Another area where I think there's a lot of activity and you're going to see more and more is in health care. Health care, the current structure of health care is rather unsustainable. We are a significant player in health care. And I think there's going to be significant -- additional significant consolidation because I think it just has to happen.

And then the third area where we're seeing a lot of activity where we haven't seen much activity in the recent past is kind of just basic industrial businesses. People kind of deciding that they want to get scale and they're having -- we're having good strategic discussions there.

And you've done a good job over the years, Chris, in terms of adding verticals within the investment banking business. When you look at the business today, are there any gaps where you would like to lift out a team or like do a tuck-in to sort of...

Well, so the answer is yes, and we're always out talking to people. And we're focused right now on -- we have 7 industry verticals, but there's a bunch of subverticals and we're focused on strategically building out those. And then the other thing that to have an M&A business as big as we have, you have to have a little bit more global reach. That's another thing we're thinking about.

Got it. And maybe just pivoting towards thinking about deposit growth.

Yes.

Just talk to us, I mean, I recall, I think it was at the Investor Day many, many years ago, you talked about Key has an interesting branch footprint, right? You've got some Northwest presence, Midwest, Northeast. Just talk to us around how competitive it is? How are you going about just acquiring households and growing core deposits in this environment?

Sure. So I completely agree with you. The crux of banking these core deposits are very, very important. We have about $88 billion of kind of core retail deposits, and they're very good, very sticky deposits. And we do have kind of a bifurcated approach in what goes on in the East for Key is we have many, many customers that have been with us for a very long time, very, very dedicated.

People accumulate wealth over time, as I described earlier. And as a consequence, that's a huge opportunity for us in what we call our mass affluent. So we consider mass affluent to be $250,000 of investable assets to $2 million of investable assets. And these are people coming into our branch every day that have banked with us for 20 years that know us, trust us, like us.

And guess what, they're being completely ignored. Wherever that money is, whether it's on a platform at Schwab or Fidelity, they're not getting any kind of personal attention because at $250,000 to $2 million, you just don't get a lot of attention. And most of these customers, by the way, are older, and they actually really like attention.

70% of our AUM, which, by the way, is $70 billion, is in the East. So that's kind of -- that's the incredible, and we're doing a great job of mining that. We have 3.5 million customers. We think 1 million of them have between $250,000 and $2 million to invest. We started really focusing on this group less than 24 months ago. We've grown our -- we've only penetrated 10%, but we've grown from 50,000 to 100,000 of the 1 million in the last 24 months.

So great opportunity. We've brought in $7 billion of deposits and AUM to Key. So that's sort of the Eastern front. And then as you think about the Western side of our business, and by the way, in the East, there's a ton of bank, there's 4,400 banks. There's a ton of credit unions, very competitive, et cetera.

The West is a much better market. And it's a better market for a few reasons. We have 300 branches, 300 of our 950 branches are in the West. The West grows significantly faster in terms of new households than the East does. And the reason for that is there's a few things. One, there's in-migration, which is really, really important.

If you look at income growth, income growth in places like Colorado and Utah and Washington and Oregon, significantly faster growth, like 10% faster wage growth than in other parts of the country. So you have young people, you have in-migration. We have a great digital offering. And so that's why we're really focused out there.

So as you see us repositioning branches, typically, it's out West. And so that will be an area -- and by the way, the competitive landscape is, I think, much better. And I say much better, there's great competitors, including BofA, obviously, including Wells, including JPMorgan, including U.S. Bank. But the reality is those are very disciplined competitors.

And would you say Key has enough density in those markets to actually take advantage of the demographics?

Yes. I think with 300 branches, I think we're in good stead. We've put in new branches in Utah and in Washington and in Colorado. But I don't really think -- if you have the right digital offering, what you do have to have -- the branch has to be in the right place and you have to have the right people. That's frankly more important than absolute branch density.

Got it. And maybe just wrapping up, it sounds like loan growth could be better than expected depending on how the year goes. Deposit growth you talked about. When we look at the NII guidance, I think about 8% to 10%. Just talk to us around the resiliency of that outlook, upside versus downside risks as we think of -- is it the market?

Is it the Fed funds rate? Like what should we be thinking about here?

Sure. So we have -- to start with some of it is pretty mechanical. And the part that's pretty mechanical is we have $17 billion of low-yielding assets that's just the roll down of this year. So $17 billion rolls off. And by the way, there's another $17 billion that similarly rolls off in 2027. So $34 billion.

So that's a pretty good tailwind, like that's -- you're 50% of the way there kind of before you start. The other things that I think will be helpful is we obviously are -- to your point, we're growing loans, which is helpful. We're out there managing expenses, et cetera, et cetera. What could hurt it is if all of a sudden, it became very competitive to bid for deposits.

My deposit assumptions is low 50s beta on the down as opposed to mid-50s beta on the up cycle. So far, that hasn't been much of a challenge, but that could put it in jeopardy.

The other thing that could happen is if you had either -- if the curve either inverts, which makes the reinvestment a little more challenging or if the curve even just goes flat, that could put it at risk. But I feel really good about the trajectory of our net interest income.

Understood. And maybe just pivoting to the expense side.

Just talk to us. You talked about tech spend, like the areas where the bank is really investing and how you think about operating leverage in that backdrop in terms of levers to control expenses in the world where revenue growth may not be as great as expected.

Sure. So we are investing heavily in our business. That's one of the things I'm most proud of. You started asking me kind of what's the state of Key right now. And we have been making significant investments throughout. And that's really important. We've migrated all of our core systems are in the cloud.

Every core system with the exception of our deposit system, we've replaced since I became CEO. Half of our apps are all in the cloud. So we've been modernizing the place and investing heavily. The trajectory of our investment has been as follows. In 2024, we spent $800 million. Last year, we spent $900 million. This year, we're going to spend $1 billion.

And when you ask me like where are we investing, we're investing in things like our wealth business to have an even better platform. We're investing in APIs and our payments business, another area where we're investing. You'll see us investing significantly in AI. I'm a huge believer in AI, and we have kind of a top-down bottoms-up approach.

Top-down is we're looking at huge processes that stretch across the enterprise, and we're reengineering those and applying technology. So think about commercial onboarding and servicing. That's a pain point for every bank. It takes too long to bring on a new client. It's the first experience that client experiences.

We're completely looking at that process. And we've reengineered it. Now we're applying technology. What you have to do is reengineer it before you apply the technology. The next thing we're looking at is underwriting. We underwrite in different areas. People have different approaches. In commercial underwriting, we're going to have one approach and we're going to -- we're designing it end-to-end.

Now on the bottoms-up way approach, there's a bunch of things you can do. Obviously, like everyone, we've used a lot of AI in our call centers to great effect. It's a better customer experience and instead of costing $9 a call, it costs $0.25 a call. So that's good. One of the areas I'm really focused on right now is AML, BSA, KYC.

We have over 500 people in those areas. And I think it lends itself very, very well to the use of technology. Now you asked if, in fact, the revenues aren't there, what levers do we have to pull, which is fair. It's something we think about all the time. Just the way you should think about our business this year is we will grow our revenue twice as fast as we grow our expenses.

So think about it as being a little bit elastic. And right now, we've said we're going to grow revenues by 7%. That's kind of -- that's what we're targeting to grow. We will get that operating leverage. And part of it comes naturally to us because we have some important businesses like our $70 billion of AUM, there's a lot of variable pay in that business.

And there's a lot of variable pay in our 10% of our sales -- of our revenues, which is investment banking. So we naturally have a little more variability. And like anyone else, look, if we had to, we can pull whatever lever we need to.

And if you're spending $1 billion on tech, you can certainly change the sequencing. There's a lot you can do.

When you put that together, Chris, when you think about the ROTCE target, I think 15% 2027. A bunch of your peers have talked about like even higher return on equity, tangible equity target. Just give us a sense of, one, getting to that 15%. I think you've outlined kind of the case for how you get there.

But then as you think from a medium-term perspective, is that the full potential of the franchise? Should this be earning a lot more higher returns, all else equal?

Yes. So 15% is not the goal, but it's an important milepost on the journey. And so what we've said is that we'll be at 15% by 12/31/27. But we also said that, that assumed that we would have 10.3% marked CET1 and we've already said we're going to burn that down to the top end of our range, which is 9.5% to 10%.

So my message is if we're not going to have 10.3% marked CET1, we'll either get there sooner or when we -- at 12/31/27, we'll have more than 15% return on tangible common equity. The long-term goal that we've laid out is 16% to 19%. And I think it's -- I think based on the trajectory we're on and the levers we have and the fact that we've announced that we're going to buy back $300 million because obviously, that's a big factor.

We're going to buy back $300 million per quarter. I think we'll be able to -- we'll update everyone once we hit the 15%, but it's not the goal. As I said, it's a milepost.

Got it. And you mentioned I'm not sure if it's related or not, but I saw one of the LinkedIn post, I think you were with a member of the Scotiabank doing a fireside in Canada recently. Just talk to us about that investment. I think it was unique for those of us who followed regional banks for a long time, started out as a financial investment. Like is there more to do there strategically or internationally as you alluded to?

Yes. So first of all, I do think -- I think it was a very unique financing. And I thought -- I think for us, it was really important. And we've talked a lot about all the momentum we have and how front-footed we are, and that enabled us to be front-footed faster than we otherwise would have been.

So I'm really pleased that we did it. So that's the first thing. Second thing is it's a financial investment for Scotia. And they're able to -- this investment is actually in their -- I call it the sin bucket where you basically get very favorable capital treatment. So the returns on their investments have been phenomenal.

Last year, our TSR was 26%. For the last 2 years, it's been 58%. So in and of itself, I think it's been a great investment. We haven't really unlocked what I think we can do together. And part of it is because it is a financial investment, we haven't -- we spent time doing it.

But as you correctly point out that you saw in the LinkedIn post, I was up in Canada as recently as last week, and I do think there are things we can do. So we talk about -- you asked about reshoring. If reshoring goes to Mexico, we have absolutely no presence in Mexico. Scotiabank has a significant presence in Mexico. So think about that.

Think about moving money around the globe. Obviously, Scotia has that in place. We're never going to invest the money to basically have the piping around the globe that wouldn't make any sense for us. It makes a lot of sense for us to partner.

Our integrated corporate and investment bank focused on certain sectors and certain companies, I think, can be really helpful to them on a variety of fronts as they think about things. So we're -- I can't tell you that we've gotten -- we didn't plan for any synergies, and we haven't gotten any yet to speak of.

But I do think there's a lot we can do together. And I think that was one of the reasons I went up to see Scott and the team last week. I just want to keep it front and center for people. They've been a great partner, by the way.

So I guess the message is stay tuned and more to come.

Yes.

And maybe just for the time we have left, Chris, one, I think you've been in the industry for a long time. When we think about the regulatory changes that are underway, be it from capital requirements, liquidity requirements to supervision that Brian talked about earlier.

Just give us a sense of like what's changed for Key? And what do you expect from the regulators over the coming months and next year that could maybe cause you to run the business differently?

I'm not sure that we would run the business differently. But what -- I think Brian did a good job of walking the group through. I think if you're not in the business, you don't have an appreciation for the amount of time that is spent -- has been spent with regulators on documentation, process, procedures. I am all for safety and soundness. Safety and soundness is earnings, it's capital and it's liquidity, and I'm completely on board for all of that.

But what happened since the global financial crisis, for example, last night, we had a dinner and Ken Gavrity joined me who runs our payments and middle market business, and he shared with the group at dinner that his group alone had 30 reviews by regulators last year. And of course, that means our internal audit folks have to review the review, right?

And so 30 becomes 60. And so if you think about the pre-planning meeting of basically what's an audit, the actual audit and the post audit I mean it's pretty shocking. And so my message to everyone is the free up of time and bandwidth of the management teams is -- I can't quantify.

It's easy to quantify how much capital you have to have or what the liquidity is of this or that. What I can't quantify for people, but it is absolutely the biggest benefit is just getting rid of the duplicative -- I'll give you an example. I think cyber risk is the #1 risk to the United States. I think it's the #1 risk to the financial services industry, and I think it's the #1 risk to Key.

Having said all that, what I don't think we need are a bunch of consecutive audits on cyber covering the exact same thing. And to Miki Bowman's credit and to Jonathan Gould's credit, the changes in terms of coordinating these exams is really, really favorable.

And so -- and the other things, if you think about liquidity assumptions, if you think about capital, we -- if you think about dynamic stress testing, we already do that anyway. So as the Basel III end game gets rolled out, I'm not that focused, but I'm very, very optimistic about the time dividend of not doing things that are duplicative.

Got it. I guess 2 more things, Chris. One, obviously, there's a lot of optimism around most things with regards to the economy. Just touch about credit quality. Anything to worry about? Like what could go wrong? Are there any areas of stress even today that you're looking at within your portfolio or...

Well, when you're renting out dollars and getting paid pennies, a lot could go wrong. So you got to be really careful. Seriously, you got to be -- I mean, that's how -- as banks, the thing that can derail this is doing -- is silly credit deals, and we just -- we won't do it.

As we think about our portfolio, there's a few places where I always focus. And the first thing is any place there's leverage. Leverage cuts both ways. Our leveraged finance book is $2 billion, which is virtually nothing. And it was that size when we were half the size that we are now. So leveraged finance is one place you always look.

I mentioned health care. Health care is a place that I keep my eye on. I said there had to be consolidation because I didn't think that was sustainable the way it is. And so I think health care is an area where we -- I keep a close eye on that. And then there's always little idiosyncratic things.

For example, we have an ag business that's in Eastern Washington and mostly cherries and apples, if you're interested. And what they're having -- some of those companies are having trouble right now. And the reason they're having trouble is they can't get any labor.

So you always have these little idiosyncratic things. I can -- but stepping back for a minute and kind of opening up the aperture, I feel really good about our credit by every metric. If you look at delinquencies, if you look at criticized, if you look at classified, we are on a steady improvement -- path to improvement.

And I will tell you this, we've had a lot of kind of -- in terms of building our reserves, we've had a little bit of qualitative build when there was the uncertainty around that we talked about earlier. And I think as we look at our reserves, probably if we were going to say there we're under or over, we'd probably say we're probably a little over where we need to be.

And I think the one thing on credit, the market's woken up to AI disruption risk over the last 10 days, be it the software sector, business services. Like is that something that you all now actively incorporate in the credit review underwriting process to figure out which of your clients could be disrupted by AI?

First, let me talk about our credit book, and then I'll talk about what's happened in the market over the last few days, which I don't think makes a lot of sense, candidly. But we have great data. For example, as soon as the trade came on that AI -- this was the Anthropic Cloud announcement that AI wins and Software as a Service is definitely going to be annihilated, immediately able to go through our databases.

We have less than $300 million of exposure to software companies. Think about software companies is there's not a lot of debt out there because software companies are inherently profitable. They throw off a lot of cash. And so they either don't borrow or if they do borrow, that's not appealing to us, and we don't lend the money.

So I'm not -- from Key's perspective, and by the way, technology is 10%. It's not like it's nothing, but it's 10% of our investment banking fees, just to put it in perspective. Now as it relates to kind of how the market, I guess, today in the crosshairs, I haven't looked at my screen, but I guess Moody's is in the crosshairs and a few others today.

Yesterday, it was the insurance companies. Last week -- but I mean, I am a huge believer in AI. We are investing heavily in AI. I spend a lot of time with my management team every single month going over all the opportunities. But -- and I'm a huge believer, but it's not going to happen overnight.

For example, the biggest companies, yes, they might develop their own CRM, but it's not like every company, all these middle market companies that say are on Salesforce, I'll just make it up. And I'm not promoting one platform or another. But the reality is those can't really be -- those can't be replaced overnight.

And a lot of the AI that people are going to apply is going to come through these -- the software that they're running. So I guess my whole point is, is AI a game changer? Absolutely. Am I a huge believer in it? I certainly am. But I think some of the market reactions that I've seen in the last week seem a little excessive.

Got it. One last question. So I think you've been very clear recently around not having a high degree of interest in bank M&A. But just talk to us about -- as you watch the industry, you're seeing consolidation take place in front of our eyes. Like when you look at that, do you think it becomes a competitive disadvantage for Key to not being able to engage? Or does the disruption create opportunities to hire bankers, pick up relationships, which tends to happen post mergers?

Yes. No, I don't feel -- like there's 4,400 banks, and I don't feel like we're missing out on anything. I really don't. What's been -- the anomaly was really not what's currently going on. The anomaly was what went on for like the 4 years in the Biden administration when there just wasn't any transactional activity at all, right?

It's very unusual for there to be 4,400 market participants and there's no consolidation. This is a sea change that will go on for a long time. I certainly don't think we're missing it. We have an incredible organic opportunity, and I want everyone in our organization focused on that organic opportunity.

So I don't feel like I'm missing out. I don't think we'll be disadvantaged at all. I think the greatest way for us to create value is to drive organic growth. And I do think -- and you'll see it play out, the opportunity for disruption is huge. When there's a lot of activity out there, there's a lot of dislocation and you can pick up the dislocation for free as opposed to paying a huge premium for it.

Got it. On that note, Chris, thank you so much for your time this morning.

Thank you. Appreciate it.

All right. Good afternoon, everybody. So rounding off the corporate presentation today, we have KeyCorp. And we had Ken Gavrity. He is the Head of the Commercial Bank. And before he sits down with me for a fireside chat, he wanted to share a few slides. Ken, thank you for coming.

Perfect. Well, thanks for having me, Erika, pleased to be here, of course. So as Erika said, I lead Key's Commercial Banking business, which includes our Middle Market business segment as well as our Commercial Payments platform, and as a reminder, we define the middle market segment as companies with annual revenue size from $10 million in revenue, up to as high as $1 billion in revenue. And our commercial payments organization serves a broader range of customers that goes all the way down from small business through middle market, up to our corporate and institutional clients as well.

So before I jump into the slides, I've been asked to read the following in the back of today's presentation, which you can find in the Investor Relations section of key.com website. You'll find our statements on forward-looking disclosures. These statements cover our presentation and related comments as well as the question-and-answer segment of today's webcast.

Forward-looking statements speak only as of today, February 9, 2026. So with that, okay, I'm going to start on Slide 2, overview of the Commercial Bank. So from a size and scale perspective, you can see on the right-hand side of the page, it's a significant portion of Key's overall revenue and core liquidity. In 2025, the Commercial Bank contributed $2.1 billion of revenue, a little less than 1/3 of Key's overall total, and drove meaningful low-cost funding for Key accounting for roughly 40% of our overall deposits.

The 2 primary components that make up the Commercial Bank, as I talked about before, the Middle Market business, where we have a national reach and teams in 30 markets today and roughly 5,000 clients. And our Payments business, where we have a scaled national franchise that serves clients in all 50 states and a steady source of growth for us over the last decade. While the performance has been strong across both of these areas, the opportunity continues to be meaningful. There are 200,000 middle-market companies across the U.S. that represent 1/3 of private sector GDP. And with less than a 3% market share today, we really like our runway for growth.

On the Payment side, getting core operating accounts of our clients is truly embedded in our culture, is driving meaningful growth and the natural tailwinds in this industry make the forward look very compelling. All in, our Commercial Banking platform is an efficient, high-return growth business. Our middle market franchise has consistently generated a return on equity in the high teens to low 20s. And our Commercial Payments revenue has grown 9% annually over the past 5 years, showing the sticky, recurring, high-value nature of that income.

Underpinning the strength of our business is our end-to-end operating model, everything from business development teams, product teams, onboarding and servicing all under one roof. It's a really important part of the differentiation, and it's why the client experience feels so connected for our customers. And it's what allows us to drive productivity and scalability through the value chain, more effectively deploying analytics, automation and process improvement through the entire client journey.

Moving to Slide 3. Our Middle Market presence spans across the U.S., a significantly wider scope than our consumer business. We operate in 11 of the top 20 MSAs for Middle Market companies, and we're actively serving clients in all 50 states. It's an attractive footprint with meaningful opportunities to continue to build density in our existing markets, but we've also shown that this model travels well, and we'll continue to selectively expand our presence when we find talent with deep market ties or deep vertical expertise.

Last year, I talked about onboarding 2 new teams in Chicago and Southern California. Those teams, which have now been fully integrated onto our platform have already driven significant new customer growth, core deposits and loan production at roughly 2x the rate of the rest of our portfolio. Earlier today, I announced a new team that we've onboarded based in Kansas City that focuses solely on family offices nationally, a high-growth part of the market and one that is very well suited for our integrated model.

The primary takeaway is that we have an attractive platform for both clients and bankers, our holistic offering of capital markets, payments, wealth and lending all built to specifically serve this Middle Market space in an authentic relationship-driven culture. It's what allows us to show up in a way that feels very different to customers and allows the best bankers to be more successful on our platform. The net result, period-end loans -- period-end C&I loan balances grew at 9% in 2025. Clients grew at 4%. And pipelines continue to remain strong, up more than 50% from this time last year, all while credit quality within the portfolio remains healthy with net charge-offs and NPLs at the low end of our targeted range for the Middle Market.

And the quality of the relationship is equally as important with 98% of middle-market deposits coming from clients with an operating account and significant payments product penetration with 90% having at least one deposit repayment product and more than 50% of clients having 3-plus products. Simply said, Middle Market clients want a holistic relationship.

Moving to Slide 4. Payments has been a focus for ours for quite some time, and we recognize early that payments got us closer to our clients, allows us to integrate into everyday business operations and creates durable, high-value income streams that have become a real growth engine for us. You can see in the bottom left chart, gross payment fees have been growing at an 8% CAGR for us over the last 6 years and grew 9% in 2025. This compares very favorably, it appears, and we maintain our belief that we can grow Commercial Payment fees at a high single-digit, low double-digit rate moving forward. Our conviction is supported by 3 strategic areas: First, our continued focus on Primacy across the commercial segment in Key, including Business Bank, Middle Market, all the way up through the institutional bank. It's built into our sales motions, our incentives and our measurement, we expect to get payments when we use our balance sheet with clients. It's cultural for us. It's driven by our CEO on down through the organization. And now 1/3 of new commercial clients are payment and deposit led, where we're winning with industry experience or expertise and service.

Second, we've continued to increase investments in our product development simplifying and streamlining core capabilities like treasury, liquidity, FX and card services, making it easier to do business with Key, while enhancing the innovative capabilities that we've been talking about now for over a decade, including payments automation and virtual ledgering, supported by our fintech strategy where we built a very strong brand and a partnership model that creates very meaningful opportunities for growth. With recent examples like our partnership with Qolo, Versapay and RevSpring, places where we've identified a clear client need and a provider with best-in-class software solutions.

Finally, we're continuing to scale our embedded banking strategy, where the tailwinds continue to be meaningful as more technology companies look to connect with a banking partner that combines a deep understanding of their industry, a platform that they can grow with over time and the service model that moves at their pace. We've clearly shown that our value proposition resonates. We doubled this business in 2025 and look to do the same again in 2026 as we continue to attract clients like our recent win with a pharmacy software platform that has boarded as many merchant clients in a month is our entire branch network.

We're early in the journey. This will continue to become a more meaningful part of our growth strategy -- our growth story. And overall, our full suite of Commercial Payment capabilities and industry expertise is a truly differentiated offering, that has sustained success and a place that we continue to invest to scale the business.

So Slide 5. This shows the growth in Middle Market and Payments from a pre-pandemic view through last year and why we believe our strategy is working, which supports continued investment to drive outsized growth in these areas. In the Middle Market over the last 6 years, our revenues are up meaningfully with a strong trajectory headed into 2026. Deposits, up approximately $5 billion, while the quality has increased with operating deposits now making up 88% of the total for this segment. While coupled with an attractive return profile, this growth is meaningfully accretive to our overall business.

And across Commercial Payments, you can see the meaningful growth in deposits, while maintaining a high-quality mix as well. 80% of overall balances in operating deposits and slightly higher than that in the fourth quarter. And during the most recent down rate cycle, a cumulative deposit beta of approximately 70%, which outperformed our high 60s beta during the rate hiking cycle, driven by our index deposit strategy, the operational and analytical rigor that we've built around this business.

On the fee side, we show a breakout of our gross payment fees and diversity that we continue to build in these income streams, with FER that continues to grow as we increase Middle Market clients and drive Primacy across the business and a merchant income stream that will continue to benefit as we build the Embedded Banking business. So as we look forward, our strategy remains the same. We're going to continue to add more bankers to our platform, continue to invest in our products and drive scalability and productivity across the Commercial Bank. On the Banker Opportunities, we said last year that we would add 10% to our banker account. We achieved that goal and plan to target a similar increase again this year, with more emphasis on building our own talent internally, while continuing to target select geographies to build density or continue to expand.

As I previously said, our holistic platform is very attractive to bankers, and we really like our pipeline of talent. Second, we'll continue investing for the future through continuous innovation across our payment platform and a digital refresh this year that will be visible and impactful to our customers and scaling our embedded banking strategy, as I discussed earlier, collectively, a set of strategies that we know well, we've shown we can deliver against, in targeting high single-digit, low double-digit growth in commercial payment fees.

Finally, we're going to drive scalability and productivity across the platform, driving meaningful improvement in banker production and our cost to serve, adding workflow tools, streamlined process across our credit originations to free up banker capacity and building on the success we had in 2025, driving self-service adoption with targeted areas for automation and artificial intelligence that will drive results in 2026.

So in closing, our Commercial Bank model delivers real, tangible value to customers and strong sustainable returns for shareholders. Our strategy has been consistent, put in place over many years and it's very hard to replicate. And our priorities are very clear across the business, positioning us for outperformance and meaningful opportunity to scale.

So with that, I'll turn it back to you, Erika.

Yes, Ken. Do you want to get comfortable and join me for the fireside chat.

Thank you.

So thank you for the update on your business. If we could just pull up for a second. Obviously, we're in the crosshairs of geopolitical and macro uncertainty. But what are your clients saying as we think about the macro environment for 2026? And specifically for your business, how do they feel about tariff policy today versus a year ago? And also, how much of an impact will the Big Beautiful Bill really have in terms of CapEx spend?

Great question. So I think for just a little bit of context for everybody. I think just understanding what the last 5 to 6 years has been like for a Middle Market client and everybody has experienced this, but if you're a midsized company and you go through the pandemic and you have a supply chain disruption that was truly an existential event, will I be able to continue to deliver product? That was a huge shock to the organization. followed by the inflation that we know in double digits across that. And then a year later, the interest rate increases, all of them materially affecting the bottom line.

And so the reason that that matters is through that period of time those Middle Market customers grew, on average, double-digit rates on the revenue side through '21, '22, '23, '24. So this is a very resilient group. And so -- if you read the headlines and you look at all the news around tariffs and what it could potentially do to our economy, I think the view of this particular cohort was we've seen bigger shocks than this. And so I don't think anybody is thrilled about it. We've done plenty of surveys out to the customer base to say it had to be a top priority to react to it, but they've seen bigger shocks. They want to make sure that it's a very level playing field.

They want to make sure that corporates -- larger corporates didn't have any loopholes or exclusions that made an unfair advantage. But as long as we have a level playing field, they felt optimistic about their ability to respond, and we've done a Middle Market client survey. We haven't released their results yet, but will be coming out next year. The topline of that was when asked what's your view on the macro economy, it was fairly neutral. It was a little north of 50%. When asked about their individual businesses, 77% of them said that they were very positive about their own business. And I think it reflects everything we talked about a little bit more of the adversity they had gone through, the dexterity they had built, they also saw 100 basis points of decrease in interest rates. They start to see the benefits of technology and operation investments they had made during the supply chain crisis.

So they're seeing all that play through and now they're looking at a one Big Beautiful Bill that clearly benefits with accelerated depreciation, the investment in property, plant and equipment, and now they're looking at use cases around artificial intelligence that they're not forecasting for this year, but they see the long-term benefits and they're investing there as well. So I think it's a balanced sort of cautious optimism, but with a lot of reasons to believe that they're going to see near-term cash flow benefits.

So let's unpack that for a little bit. Are there any key themes for CapEx for the Middle Market companies as we think about this year and next year?

I think it really -- across the Middle Market where we're serving every single industry, it's a little bit different industry by industry. But generally, it's adding the new production line. It's adding new geographies. You don't see too much adding brand new products, but I also see a lot more interest in M&A. And I know that's another topic we want to get to today, but there is a lot more of a view of I've had an eye on targets for a while. The bid-ask spread between buyers and sellers is getting a little bit more narrow. I want to make sure that I'm getting the debt capacity to be able to do some of these roll-ups.

So I just want to call out some of the numbers that you put up on the screen and tie that back to this year's guidance. 9% end of period commercial loan growth. 54% pipeline growth on the loan side, and the AHA Data, which we discussed earlier today, is better than seasonal. I think for the large bank cohort, which Key is a part, it's one standard deviation above the seasonal trend.

So given that your guide for the full year for '26, is a little bit more conservative, closer to 5% to 6%. How should we think about that in this context? And what type of growth are you expecting in the Middle Market?

It's a great question. And I'll start with maybe the headline of we expect to outperform the market. And so it's a bit of a relative comparison, and it's about how do we see the year playing out. And so if I think about what we saw in '23 and '24, all banks generally were pulling back in the marketplace on asset generation and so you had this pent-up client demand. And I think in the second half of '24 and early '25, we were really good in mobilizing, getting in front of clients, getting in front of prospects, as I said before, 4% new client growth. So we were knocking on a lot of doors, but there was a pent-up demand, and I think that helped us quite a bit in getting to the 9%.

So as I look to a more normalized level, clearly, it's a more favorable start to the year and the projection out in the marketplace anywhere depending on estimates, 3% to 5% C&I loan growth, we expect to do north of that, but also embedded in that forecast is a view of a pickup in M&A in the middle market. And so while we'll benefit from that on the fee side of the business, it likely will be a little bit of a headwind against balance build as it targets the companies that we're bringing on as relationship. So we like the 5% to 6% that we put out there, but we do expect to outperform the market.

So let's maybe talk about competition in your business, either from banks or for private capital. So tell us what are the primary considerations for Middle Market companies to choose on-balance sheet bank financing versus other alternatives? And are client expectations changing in terms of product, pricing, any of that?

Yes. I'll unpack that a little bit. So I'll talk about competing about the banks differently than maybe some of the private markets. I think from a bank perspective, everything I talked about in that presentation, our value proposition still really holds. And so this notion of bringing industry expertise in our capital markets platform and our payments platform, but specifically dedicated towards serving this middle market customer base that's very different than what you can get out in the marketplace. So if you're talking to -- if you're looking at a G-SIB, they're going to have every product that we have. But generally, they find it very hard to coordinate that full platform toward a Middle Market $250 million industrial client. They're set up to be able to serve that to a United Airlines, a Google and Amazon or Costco, but it's not well coordinated. There's just diseconomies of scale when you're that large, to be able to show up in a really high-quality way in front of that smaller client.

So our expertise and the ability to have a QB with a relationship wrapper around that, but then true sophistication in terms of the number of people or the quality of people we put in the room with them does show up differently. And when you compare that to the regionals, they just haven't been as committed to building out the space the way that we have. They certainly love the C&I lending, but they don't have the scale and sophistication of the capital markets and the payments business that we built over time, and we've done that for a decade at this point. We have several hundred investment bankers specific by vertical that are calling on these companies, and there's a lot of depth to that, and it shows up differently.

On the private capital side, I think a really important call out is that, we still don't see them competing for our core commercial customer. It's a trend that we're very close to. We've seen the $2 trillion of capital that's available in the space. But the reality is these are single product funds that need to be able to get a higher return, so they go after the high-end leverage in the market. They're going after 5, 6, 7 turns on EBITDA. That's something we're generally not putting on our balance sheet anyway. They're not interested in the low leverage revolver and getting the payments business. And that's core to who we are.

So we're certainly following the trend. We see it out in the marketplace that if I have a client who has that particular need, let's say, maybe for an M&A transaction, we're happy to make the introduction. And generally, as we've heard in the corporate and institutional bank, we put only 15% to 20% of client originations on our balance sheet, the rest we find out in the marketplace. There are a lot of private capital solutions that we can offer those customers.

So given the momentum in this business, and we just heard you describe it as national. Tell us about what you want to do in terms of continuing to fill out the footprint and the magnitude and the speed at which you're trying to expand.

Yes. The reality is it's targeting high-quality bankers. And so we have -- I think about it really in a three-pronged strategy where we have existing markets, particularly in places like Chicago and Southern California that we just got into where we know we want to add density or places like New York and Colorado. These are fantastic markets. We have great momentum. We have a great brand, but we don't have the density that we want to be at yet. And the more that we continue to attract a talent, there's a lot of runway to build in those existing markets that we love.

Then there are the expansion markets. And I talked about in the presentation being in 11 of the top 20 MSAs, we will selectively continue to expand. There is no pace at which I need to see all 20 boxes checked. It's going to be around finding the right team in those markets, but places like the Southeast that clearly have hubs and places like Atlanta, where Middle Market business customer concentration is fairly high we're going to find the right teams in those markets, and then we'll continue to build density the way we have everywhere else.

Maybe one last piece to that strategy and maybe a little less heralded is that there are these micro markets that we tend to target. And I call this strategy follow great bankers, which is -- these are markets that wouldn't show up on any screen that we're looking at, whether it's a Toledo and Akron, Northern Indiana, places that aren't going to show up in a place where you'd say the demographics are the reason I want to get there. But if you can find the top talent in those markets, it's incredibly profitable business when they're able to go in and take material share in a place like that.

So that's how we think about it methodically. Generally, that shows up in about 10% target that we're going to add, but we'll be above that or below that based on the quality of the pipeline, and we really like our pipeline of talent right now.

So to that end, follow great bankers. I don't think in my nearly 25 years of covering banks has never been competitive, it's always been a competitive environment for hiring. But given sort of that base level of competition, what is it like to try to hire those great bankers today? Is it more intense than over the past few years? So unpack that for us? And when you approach a banker or a banker team, how does your brand resonate with them?

Yes. No, it's a great question. And I would say there's almost no top 20 bank that hasn't announced the plan to increase their Middle Market.

Even in micro markets, by the way.

Absolutely true. There's a great line in -- for people who have been around the Middle Market space for a while, including the customers that I'll say the middle market has a 100-year memory. And that's a very true statement. And so the customer base knows when you're in and out of the segment, overtime. So I think the most important thing we always start with is this is the core part of our commercial franchise. This is what we're differentiated in at KeyBank, we have full conviction from the board, to the CEO on down. We are going to grow in the middle market. We love it. We built our platform around it. When you start with that conviction, it already shows up differently. And then when we talk about how the G-SIBs are in when there aren't really big fees in the corporate space, then they're out when they are they've seen that, like you don't have to tell a customer that they've seen it and they've seen it through different crises over time. They know when banks left them.

So I think that credibility matters most. And then when you get into the model that I talked about before, how holistic it is, recognizing that the most important thing those bankers have is their brand and reputation in the marketplace. They want to know the quality of who you're going to bring in the room is going to inure to their benefit that they believe it's going to make them look good. And then the final piece is, and can I be productive on this platform. And I think what we've shown -- what we've heard over time, what we've clearly shown is that you can be more productive on this platform because of the way that we incentivize.

And so what I mean by that is there are a lot of our competitors, whether it's the larger ones or even other regionals, we're bringing in an investment banker in the room is a nice check of the box on the scorecard or bringing the wealth team in the room is, I filled out my responsibilities. We're a direct drive model. If you bring an investment banking opportunity, they know how they're going to get paid for that. If you have a Middle Market company that ultimately is going through the first wealth transition in selling their business, and we get to step in and manage that wealth, they know exactly how they're going to get paid for that.

And so I think it's a really important part of our model. They're allowed to monetize anything that they can bring to that client when we know it's the right thing to do for the customer, we want to make sure they know that they get taken care of for.

So the 10% growth in bankers that you talked about during your presentation, how is that cohort performing overall? And is it in line with your expectations?

It's been better than our expectations. So I shared the number in the presentation where in the new markets that we entered, in particular, in Chicago and Southern California, it's been at 2x the rate of the standard portfolio, and that's generally what we built the business case around. So we're thrilled to see that. But the second part of it is if you just look at any bankers we've brought onto the platform over the last 2 years and a really great stat is 93% of them brought on business within the first 3 months.

And that's part of what we're trying to show is there's a lot of operational rigor around how we source that talent, how we board them. When I say board, it's how we connect them to the thought leaders across the platform, how we make them understand in a fairly early way, how do you originate credit? How do you make sure that you're delivering the payment side? Who do you need to know to make sure as you're getting through any obstacles, what phone call do you need to make to be able to dislodge those. So we're really focused around that. And then ultimately, the performance management ramp on the back end.

We expect to have these bankers ramped 12 to 18 months, be at the same level of new client origination, same level of loan production as someone who's been on the platform longer than that. So at the average of the portfolio within the first 12 to 18 months, and then they get to fee level of production usually around 18 to 24 months, so a little bit longer than that. But I have to tell you, in the last 2 years, it's ramped even a little bit faster than that.

So let's talk about that. You said 12- to 18-month ramp. I'm sure you've been hiring throughout 2025. How long is the tailwind in terms of how these new hires are contributing to growth?

The reality is like back to the stat I gave before. It's -- they're more productive earlier than we would have expected. And I think there's a level of conviction we've built around this strategy to continue to do that. So what I'm going to keep my eye on in managing the business is when is there too many people that are in the less than 2 years bucket, that we've got to make sure that the quality of onboarding, the quality of the ramp is still where we want it to be. So we'll move at a pace that makes sense. We're not going to add bodies just to add bodies. We have to have the same level of operating performance.

Got it. And I do want to touch on payments, but before I do that, just a housekeeping item for the audience. If you want to ask a question to Ken, you have the QR code and input your question and I'm going to receive it in this fancy iPad over here. So in terms of payments, this is a consistent focus for KeyCorp for some time. Can you give us some context on the 10% payment fee growth outlook, where is this coming from? Who are you taking this from? And broadly speaking, you talked about your competitors, how do your payment offerings compare to the G-SIBs, for example?

Yes. No, great question. So I think overall, when we think about that number, we showed -- what we're so proud of as an organization is just the methodical growth of that over time. And we could have extended that graph back further years, and you'd see the same thing, right? So it's been a good 10-year ramp for us to be able to methodically add it. The core of that philosophy is just our focus on payments attachment. And I talked about it a little bit in the presentation, just this notion that when we're using our balance sheet, and we're lending to a customer. We expect to get the operating count, core treasury, merchant, card. So it's not just a view of, I hope to get Payments business, and it's not a, I want just a portion of the wallet share. The reality is that Middle Market customer truly does want a holistic relationship. And it's for a very simple reason. They tend to have all the same needs that a large corporate customer has. They just don't have the finance staff to really do it in-house.

So they're looking to their external vendors to say, who can be a real partner, who can proactively bring the ideas and if you can come to the table showing me a way to take cost out of my working capital cycle, whether it's through financial operations or through the lending side, I'm all ears. And a lot of times, we even help CFOs building their Board presentation of, okay, here's the change that I want to make, help me sell it to my Board, right? So it's a very integrated relationship and that payments attachment piece of making sure that we are measuring very specifically by bank, by region, by portfolio, are we getting the product that we would expect to get. I think the stat that I used in the presentation of 90% of middle market clients have at least one product and more than 50% have 3.

So it tells you, and if you were to look at those numbers, 5 to 10 years ago, those were very different, and we have methodically built that rhythm, overtime. So we're going to continue to do that. But we also have industry expertise. And again, that's one of the things I think differentiates us puts us closer to the way the G-SIBs go to market. But when we show up to a middle market customer and we have an oil and gas team, we have a power and utilities team, real estate team, a tech team, health care team, the level of commitment that we've built around building client segment expertise is truly differentiated.

And when you're in the room with the client, you're using their language, you understand the metrics that they're being measured on, it truly does resonate. And so that's an area where you start to see us use more software, more automation, some of our fintech partnerships. And so we're seeing a really good tailwind behind that. And then the last piece, the embedded banking, if you just think about the example that I gave in that presentation, or actually, let me just remind everybody, embedded banking just means our -- the existing payment and reporting capabilities that we have today, and putting an API wrapper around those. It's allowing our clients to interact with us the way they want to. Instead of going to our digital portal, they can take an API and put it into their own technology roadmap.

So we have several hundred commercial clients today that are tech-forward and using our capabilities that way. But the real power of that strategy is to go after a software platform like the pharmacy software I talked about in the presentation, and I could have done dental software, logistics software. Like there's so many of these areas that we're looking at, where I can go to one platform and then get access to their several hundred, sometimes several thousand clients underneath. And so the power of that stat in 1 month in December, that 1 client originated as many merchant mids as our entire branch network shows you the power and the scale of that strategy.

So you put all those 3 ways together, and that's why we see not only the 8% long-term growth we've seen, we're starting to see a little bit of an uptick in why we've talked about high single digit, low double-digit growth in that space.

And just to reclarify similar to how you mentioned the incentive structure, for example, in terms of bringing wealth management or someone from Randy Paine's team in the room given -- to give capital markets advice or sell product, the same incentive structure is in place for payments, I presume.

Absolutely I mean it's so important to start with the fact that the client wants a holistic relationship. They want the proactive advice what we have really built rigor around is making sure that we're not only making it easy to deliver the whole thing, but we're allowing the best bankers that know how to talk through the whole product set, making it easy for them to monetize their relationships.

I wanted to touch on one of the slides that you put up and you were highlighting some of the investments that you've made in your platform. Now would you characterize these investments as differentiating, like driving differentiation versus your regional peers? Or is it closing existing gaps? And of course, I have to ask you the AI question I would like to unpack how you're thinking about the AI use case in your business.

Yes. So a couple of things. I think when you have a platform as wide as our commercial payments platform, you're going to have a mix of both, right? You're always going to have some parity that you're working on. And the reality is you don't want to be differentiated everywhere. And I think the prioritization that we put around understanding, where does the client just need good enough and that's all they care about versus where do they want it to be differentiated. We spent a lot of time in market research and talking to customers, building our backlogs and our prioritization methodology.

So that's incredibly important, and we're always going to invest around making sure that we're not falling behind in any area. But places like digital where the experience they expect is constantly evolving. You're going to see from us later this year and clients will feel a full digital refresh across our platform. It will be enhanced analytics and reporting. They're going to see different payment modules. They're going to see much easier way for them to access information across their business and their accounts. So these are the type of things that we know start to set us apart. And then the vertical strategy is being able to invest in the type of partnerships that I talked about in the presentation, where we start with the client need, work backwards and say, if we don't have that capability today, are we the best builder of it?

If the answer is no, then I'm going to go find one out in the marketplace, and that's generally how we started 10 years ago, our fintech strategy, that's been a very profitable good growth business for us. So we'll continue to lean in there. And then Embedded Banking, as I said before, it's just a place where we see tremendous tailwinds. We like how we're positioned there and we'll continue to lean in.

And the AI. The AI piece. Look, there's tremendous potential in AI. And I will tell you, talking to my clients and then looking inside the bank itself, I've never seen a technology, in my career, get this pervasive, this fast. Our clients have proof-of-concepts in their own businesses, regardless if they're metal bender, they're a law firm, a real estate firm. Everybody is already starting to ring-fence use cases. In our own business, commercial servicing is a place where when you think through the number of manual touch points to take a request in from a customer, and get all the way into our back-end systems. There is so much latency in that. There's so many manual decisions that are occurring there.

And I can tell you, we are live in production with multiple agents right now in a proof-of-concept to be able to start to take some of the friction out of that. So it will take time to make sure that we do it right. Service and expertise is how we win in the marketplace. So we're not going to make a mistake here, but I think the upside is pretty interesting.

Ken, you also showed us some impressive stats on operating deposits, deposit growth. There's been a lot of us around stable coins and tokenized deposits. What is your focus here? And what's both the short-term and the long-term impact and outlook for the industry and particularly for the Middle Market Key customer base.

Yes. I'm afraid I don't have a great answer here, but I think the time that we've spent in the payments ecosystem as long as we have, we know the thought leaders in this space. We know the big VC firms, we know the CEOs of the scaled fintechs that have grown up over the last decade, the processors, the networks. We have this ongoing conversation with all of them. So we're doing our market research around that. We're involved in the consortiums that are out there where groups are trying to create some critical mass around it. But everything we do starts from solving a customer problem and working backwards.

And I think there's some conviction starting to build around cross-border payments and a notion of where you could take expense out in that process. you're starting to see more view of could it be more efficient in settlements and workflow, in the mid-office and the back office for payments more broadly. But I can tell you it's early days. And I think a lot more of the focus has been around the legislation, rightfully so, it creates the rules of the game.

So there's been a lot of energy there. But I still think we're early days in creating an outcome that fundamentally changes business for a Middle Market client. There's not a single Middle Market client that's asking for this, and most of them don't know what it is. Now that's not to say, therefore, put your head in the sand. We're doing all of the right things in all the right conversations. We were very early to the fintech game. But I need to see more conviction around true value delivery in this space before I start putting more chips on some of these use cases.

So I have to ask you before I ask you for some concluding remarks. There have been, obviously, the Cockroach episode over the fourth quarter and 2025 and then you had the Software Panic of last week. Are there any sectors that you're watching a little bit more closely from a credit standpoint?

Yes. I mean I think what we love about the Middle Market book is it's just highly diversified, right? We're in every industry in a bunch of different geographies. So when we look across our business, I can tell you that I don't feel like there are any concentrations that I need to be worried about. That said, right, we're constantly looking through the book. We're running analytics on the book. The areas that still have some pressure are the ones that have had pressure over the last year or 2. Agriculture because of commodity prices, health care because of reimbursement rates and consumer responsibility and some of the bad debt associated with that.

And probably consumer goods, where it's just a lower margin industry generally, and you have more components coming from overseas. So they've had a little bit more impact on the tariff side. But I think those are the areas we're watching. But again, when I look at my criticized assets, when I look at NPLs and I look at charge-offs, all trending in a really good direction even those industries, although they're a little bit higher than some of the others.

So concluding question, and I'll see if there's any questions from the audience. You laid out a very sort of organized and neat thought process for investors to take away from the -- for the Commercial Banking business. But what do you think is the top one or two most underrated things about your business that you wish resonated better with investors.

I think if I brought you all out into the marketplace in front of a bunch of our Middle Market customers, you'd realize how good this platform is. A lot of people say that in these investor presentations, but you have to talk to a CEO of a multigenerational business to understand how we've helped them grow, overtime, in a material way, but we've also given them the capabilities they need when they need it. So they never outgrow us. There isn't a level of sophistication that we can't deliver. It's about giving them what they need in the right time.

Great. And I think we may have time for one question for Ken. Any questions in the room? I don't see any on the iPad. All right, Ken. That was nice to me. Thank you so much for joining us.

Thank you for the invitation.

Absolutely.

Good morning, and welcome to KeyCorp's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to Brian Mauney, KeyCorp Director of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. I'd like to thank you for joining KeyCorp's Fourth Quarter 2025 Earnings Conference Call. I am here with Chris Gorman, our Chairman and Chief Executive Officer; Clark Khayat, our Chief Financial Officer; and Mo Romani, 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, January 20, 2026, and will not be updated.

With that, I will turn it over to Chris.

Thank you, Brian, and good morning, everyone. Our fourth quarter and full year results demonstrate the continued progress we are making with respect to our organic path to achieving consistently higher returns on capital. We reported fourth quarter earnings of $0.43 per share. Revenue exceeded $2 billion, growing 12% year-over-year on an adjusted basis while expenses grew 2%. Both fourth quarter NIM and net interest income were above our previously communicated targets.

Asset quality metrics continue to trend in a positive direction with net charge-offs, NPAs, criticized loans and delinquencies all declining sequentially. We have also committed to a more meaningful return of capital to our shareholders, which commenced in the fourth quarter. We repurchased $200 million of common stock, 2x the original commitment we made in October, at an average price of $18 per share.

In spite of stepped-up share repurchases, we continue to maintain peer-leading capital ratios. We ended the quarter with a 10.3% marked CET1 ratio. We intend to manage this ratio down to the higher end of our targeted capital range of 9.5% to 10% by the end of 2026. Combined with our business momentum and meaningful ongoing capital generation, this puts us in a position to accelerate our repurchase activity further in 2026. We plan to buy back at least $300 million of stock in the first quarter and anticipate repurchasing similar amounts in subsequent quarters throughout 2026.

Fourth quarter puts an exclamation point on what was a substantial year of progress for Key and positions us to achieve even greater success going forward. We met or exceeded all of the financial targets that we communicated at the beginning of the year. We delivered full year record revenue, which increased 16% compared to the prior year, with both net interest income and fee revenue growing greater than projected. Expenses grew 4.6%. As a result, we generated approximately 1,200 basis points of operating leverage and PPNR growth of about 44%.

Loan growth outperformed, particularly C&I loans, which grew at 9%. And the recycling of lower-yielding consumer loans into commercial loans enabled us to manage our funding costs more proactively. Deposit dynamics were favorable with client deposits up 2% while we remained disciplined with respect to pricing. Fee income growth was 7.5% as all of our priority fee-based businesses grew at a high single or low double-digit rate.

Expenses were within our targeted range even as we made meaningful investments in our franchise throughout the year and compensated bankers for our strong fee performance. We added nearly 10% to our frontline banker staff across wealth management, commercial payments, middle market and investment banking. We invested an additional $100 million in technology focused on customer-facing capabilities that make it easier for our clients to bank at Key.

Lastly, we continue to maintain our strong risk discipline. Full year net charge-offs were 41 basis points. Additionally, all leading indicators, nonperforming assets, criticized loans and delinquencies, all moved in the right direction. These results would not have been possible without the talented team we have in place driving our strong momentum. Together, we delivered record revenue, strengthened our balance sheet and met every commitment we set at the beginning of the year.

Our team continues to demonstrate focus, resilience and dedication, navigating a dynamic environment and delivering value to the stakeholders we serve: our shareholders, our clients and our communities. I want to thank each of our teammates for their contributions to our performance.

As we turn the page to 2026, Clark will go through our financial guidance shortly. But I am confident we will deliver another year of outsized revenue and earnings growth and make substantial progress toward our commitment to achieve a 15% plus return on tangible common equity by year-end 2027. Current environment plays well to our strengths. We expect to continue to grow our priority fee-based businesses at a mid- to high single-digit pace as we capitalize on our strong pipelines and momentum. Additionally, we expect to see returns from our recent hires as they ramp up and further utilize our platforms, which we believe are underleveraged.

Coming off the second best year ever in investment banking, we continue to feel good about the trajectory of this business. Our pipelines remain at historically elevated levels. We raised nearly $140 billion of capital on behalf of our clients in 2025, retaining 20% on our balance sheet. The market environment remains favorable for continued new issuance in 2026. We anticipate middle market M&A activity to improve in 2026 after being muted for much of the past 3 years. We also expect financial sponsors who stayed largely on the sidelines with respect to middle market transactions last year but typically generate a meaningful percentage of our fees to be more active this year.

In wealth, assets under management reached a record $70 billion. We achieved a third consecutive year of record sales production in our mass affluent segment. Since we've launched this business in 2023, we have added 54,000 new households, nearly $4 billion of AUM and $7 billion of total client assets to Key. In commercial payments, fee equivalent revenue grew 11% in 2025 as the investments we made in bankers, new geographies and scaling-embedded banking capabilities continued to build momentum.

With respect to NII, we continue to have substantial tailwinds from fixed rate asset repricing as $17 billion of low-yielding swaps, securities and consumer mortgages are expected to mature or prepay this year. Our loan pipelines remain healthy. Our outstandings in 2026 should benefit from the 9% commercial commitment growth we generated in 2025. We remain well positioned for a variety of forward rate curve scenarios. As a result, I am highly confident we will grow revenues at a high single-digit rate this year with expenses growing approximately half that rate, indicating substantial operating leverage again this year.

In summary, Key is very well positioned as we enter 2026. Our trajectory has never been better. Current macro conditions and client sentiment play to our strengths given our differentiated business model and platforms. We anticipate that in 2026, we will successfully increase both our return on capital our return of capital.

And lastly, before I turn it over to Clark, I want to cover some changes to our Board that we announced just this morning. These changes reaffirm our Board's commitment to strong corporate governance and long-term shareholder value.

First, the Board will nominate Tony DeSpirito and Chris Henson for election as directors at KeyCorp's 2026 Annual Meeting of Shareholders. Both candidates have impressive backgrounds in the financial services industry and bring capabilities that are directly aligned with Key's priorities.

Tony DeSpirito most recently served as Global Chief Investment Officer for Fundamental Equities at BlackRock. Tony has portfolio manager experience spanning over 30 years. He brings deep expertise in public markets, capital allocation and long-term value creation. Chris Henson is a former senior banking executive with extensive experience leading large financial institutions. He most recently served as Head of Banking and Insurance at Truist, and part of that was President, Chief Operating Officer and Chief Financial Officer at BB&T.

We believe these additions will enhance an already highly engaged and very capable Board as we drive the next phase of value creation for Key. Following the additions of Mr. DeSpirito and Mr. Henson, the Board will have added 8 new directors during my tenure as CEO.

We also announced that the lead independent director role has transitioned from Sandy Cutler to Todd Vasos, Todd, who currently serves as the CEO of Dollar General, has served as Director of Key since 2020. Todd has been an excellent contributor to our Board, and I look forward to working even more closely with Todd in his new role. Sandy Cutler will continue serving as an independent director to ensure a smooth transition to Todd.

I would like to thank Sandy for his exemplary service, dedication and significant contributions to Key as our lead independent director. Sandy has been a steady and principal presence in the boardroom, providing independent oversight as Key transformed and navigated periods of significant industry change.

Additionally, Carton Highsmith and Ruth Ann Gillis have informed us of their plans to retire from the Board effective at the Annual Meeting. As we announced last week, David Wilson has retired from the Board effective immediately due to health considerations. We are deeply grateful to David, Carlton and Ruth Ann for their meaningful contributions and dedicated service to Key during their time on the Board.

With that, I'd like to turn it over to Clark. Clark?

Thanks, Chris. Starting on Slide 5. Our fourth quarter results demonstrated continued strong momentum across the franchise. As a reminder, the 2024 4th quarter results were impacted by a securities portfolio repositioning and all comparable periods included FDIC special assessment impact. As such, all year-over-year comparisons are on an adjusted basis.

Fourth quarter earnings per share were $0.43 or $0.41 when adjusted. Fourth quarter revenue was up 12% year-over-year while expenses increased by 2%. Tax equivalent net interest income was up 15% year-over-year. Noninterest income increased 8% year-over-year, reflecting broad-based growth across our high-priority fee-based businesses.

Loan loss provision of $108 million included net charge-offs of $104 million and a very modest $4 million build. The build was largely a result of increased commitments, partially offset by reductions in NPAs and criticized loans. The fourth quarter net charge-off ratio was 39 basis points. Tangible book value per share increased 3% sequentially and 18% year-over-year.

Turning to Slide 6. Chris touched on our full year earnings performance earlier, but just to add a little more context, both net interest income and fees outperformed our guidance this past year. Net interest income increased by 23% versus our original expectation for 20% growth as commercial loan growth was stronger and deposits were better from both a balance and beta perspective. Fees grew 7.5% versus our original expectation for 5% plus as investment banking fees were up 13% even without the benefit of expected levels of M&A activity for much of the year.

Wealth, commercial payments and commercial mortgage servicing all grew at high single-digit to low double-digit rates this past year. Expenses grew roughly 4.6% primarily due to the hiring of frontline producers and the strong fee momentum. We achieved nearly 1,200 basis points of total operating leverage and 280 basis points of fee-based operating leverage in 2025, both better than we had expected coming into the year.

Moving to the balance sheet on Slide 7. Average loans were relatively flat sequentially, reflecting a $1 billion increase in C&I loans, offset by the intentional runoff of $550 million of low-yielding consumer loans as well as some net paydown activity in CRE. On a spot basis, commercial loans grew by about $1.2 billion with growth in both C&I and CRE. Growth was primarily from the power and utility sector and from broad-based middle market growth across all of our regions. C&I line utilization decreased by approximately 1% sequentially to 30% driven by an increase in commitments. C&I loan balances outstanding increased by $900 million.

Turning to Slide 8. Average deposits increased by approximately $300 million sequentially, with $2 billion of commercial client deposit growth partially offset by a decline of $1.3 billion of higher cost brokered CDs. Brokered CDs averaged $2.5 billion in the fourth quarter. Average noninterest-bearing deposits grew 1% sequentially and remained stable at 19% of total deposits or 24% when adjusted for our hybrid accounts.

Total deposit costs declined by 16 basis points to 1.81%. Our cumulative interest-bearing deposit beta declined modestly as expected to 51% through the fourth quarter, reflecting some impact from the recent Fed cuts that we would expect to pull through more fully in the coming months. We've taken proactive actions in repricing deposits this past year by entering the year with a low loan-to-deposit ratio, limiting our incremental funding needs by remixing loans from consumer to commercial and by gathering lower-cost commercial deposits, particularly in payments, while managing deposit costs in consumers we actively rotated maturing CDs into money market deposits. .

Overall, interest-bearing funding costs declined by 22 basis points, resulting in a cumulative interest-bearing funding beta of 67%.

Slide 9 provides drivers of NII and NIM this quarter. Tax-equivalent NII was up 3% sequentially driven by client deposit growth and continued balance sheet optimization efforts. We grew relationship commercial loans at relatively stable spreads to the existing book while running off lower-yielding consumer loans. On the funding side, the commercial client deposit growth enabled us to allow the maturity of approximately $2.4 billion of higher-cost brokered CDs, long-term debt and other short-term borrowings. We exited the year with a net interest margin of 2.82%, an increase of 7 basis points sequentially and above our previously indicated target of 2.75% to 2.8%. Our balance sheet remains positioned to be fairly neutral to additional Fed fund cuts as we move through 2026.

Turning to Slide 10. Adjusted noninterest income increased 8% year-over-year. Investment banking and debt placement fees were $243 million, an increase of 10% year-over-year. Growth was driven by debt capital markets and commercial mortgage debt placement activity. Virtually, M&A activity also picked up after industry middle market volume tepid for the first 9 months of the year. We're encouraged by our M&A pipelines and, at this point, feel good about our ability to deliver investment banking fee growth in the first quarter off of what had been a record first quarter in 2025.

Trust and investment services income grew 10% year-over-year, reflecting record positive net flows and higher market values. Assets under management reached a new record high of $70 billion. Service charges on deposit accounts and corporate service fees increased by 20% and 17% year-over-year, respectively. The increase in service charges was driven by momentum in commercial payments, which grew fee equivalent revenue at 12%, while corporate services income was driven by higher loan commitment fees and client FX and derivatives activity.

Commercial mortgage servicing fees were $68 million, flat year-over-year and down $6 million from the third quarter, reflecting the impact of lower rates on fees for lower interest-earning advances and successful resolutions within our special servicing book.

Beginning this quarter, certain of our clients have elected to collectively hold a little over $1 billion of escrow deposit balances with us in lieu of paying fees. This will have a de minimis impact on total revenue but will benefit net interest income and NIM with an offsetting impact of fees of approximately $40 million annually. We expect commercial mortgage servicing fees to run at about $50 million to $60 million per quarter in 2026.

On Slide 11, fourth quarter noninterest expenses were $1.3 billion, up 7% sequentially and 2% year-over-year. There were roughly $30 million of unusually elevated expenses in the fourth quarter and therefore would not use this quarter as a run rate moving forward. Versus the year ago quarter, growth was primarily driven by higher personnel expense related to frontline banker hires, higher employee benefits costs and higher incentive compensation related to the strong revenue performance.

Fortunately, expense growth was driven by investments in technology and talent, higher incentive compensation, seasonality in areas such as employee benefits costs, contractor and professional services spend and marketing as well as certain elevated expenses in the quarter.

As shown on Slide 12, product quality is broadly improving. Net charge-offs were $104 million, down 9% sequentially and were an annualized 39 basis points of average loans. Full year net charge-offs of 41 basis points toward the better end of our full year target range of 40 to 45 basis points. Nonperforming assets declined by 6% sequentially and the NPA ratio improved by 4 basis points to 59 basis points. Criticized loans declined by $500 million or 8% sequentially with broad-based improvements across C&I and commercial real estate.

Turning to Slide 13. Our CET1 ratio was 11.7% at quarter end as net earnings generation was offset by RWA growth associated with loan mix and commitments growth and capital return from share buybacks and dividends. Our March CET1 ratio, which includes unrealized AFS and pension losses, was flat sequentially at 10.3%. As Chris mentioned earlier, we plan to repurchase at least $300 million worth of shares in the first quarter and at least $1.2 billion for the full year 2026.

Slide 14 provides our 2026 guidance relative to 2025 and the reiteration of our medium- and long-term targets. We expect revenue to be up about 7% driven by net interest income growth of 8% to 10% and noninterest income growth of 3% to 4%. Adjusting for recent business decisions that net-net will have no impact on earnings, we expect noninterest income to grow 5% to 6%. Within that, we expect investment banking fees to grow about 5%, wealth fees to grow in the high single digits and commercial payment fees to grow in the low double digits.

We expect expenses to be up 3% to 4% this year or half the rate of revenue growth, which implies substantial positive operating leverage of approximately 300 to 400 basis points in 2026. We expect average loans to grow 1% to 2% with commercial loans growing at about 5% as we continue to remix the runoff of consumer loans into higher-yielding relationship-based commercial loans. We expect full year net charge-off ratio to remain stable at 40 to 45 basis points. Finally, we expect the tax rate to be approximately 22% or 23% on a taxable equivalent basis.

In summary, subject to the usual macro caveats, we're confident that we will deliver another year of outsized organic revenue and earnings growth for our shareholders.

With that, I will now turn the call back to the operator to provide....

[Operator Instructions] Our first question will go to the line of Ebrahim Poonawala with Bank of America.

I guess maybe first for you, Chris. You talked about the capital plan, the changes to the Board this morning. All very clear. As we think about just from your standpoint, from an organic perspective, what are the strategic priorities as we think about where you're spending your time? Is it about getting to the 15% growth fee at a faster rate, banker hiring? Like just talk to us like where you're focused on as we think about 2026, which could lead to maybe better growth, better ROE for Key.

Sure. Well, thank you for the question. So first and foremost, I'm thinking about growing the business organically. And any time we talk about that, we talk about really kind of the three key areas. One is middle market and payments. The others are investment bank. And then lastly, wealth and specifically, mass affluent. That's where we've made a ton of investments. We think we have a great opportunity. Frankly, there's a lot of market disruption that's there to be had.

And so what I'm focused on is we sit down with our teams every single week is we've added all these people, we've onboarded them, we inspect what they do and making sure we're out there in the marketplace. We have a right to win and we have a way to win and we focus a lot on that. Next is, of course, the return on capital. And as we've talked about, we have a lot of levers that we can pull to get there. We've talked about 15%, but it's on the path to 16% to 19%. And a lot of that is mechanical, but there's a lot of things that we can do in terms of growing the business and generating those kind of returns.

Next, we obviously think about return of capital. And I think we were pretty clear this morning as to what our path is in terms of return of capital. And so we're working on that. And then lastly is to continue to position the business for the next leg of growth. We've made all these investments. We announced some pretty significant changes to our Board of Directors today. We've hired a lot of people. We're in the marketplace right now hiring people.

We're investing heavily in AI and technology. Our investments in tech and ops has gone from $800 million to $900 million last year to $1 billion this year. I think we're doing well with respect to implementing AI, but there's a lot more that we can do. We've done it in certain areas like our call centers and certain areas like internal things, but there's opportunities to really rethink our entire business, for example, loan underwriting and processing. We can look at those horizontal areas and apply a lot of technology. It will be money saving. And by the way, it will be a better experience for our clients.

So that's kind of what I'm focused on day in and day out. Thank you for the question.

That's helpful. And I guess maybe one follow-up for Clark. I think you mentioned investment banking fees should be up from a year ago. It looks like you're resetting and just everything that you all have talked about, sponsor activity, middle market activity picking up, that investment banking should be much stronger. Your fee guide seems conservative. Just tell us like how the assumptions underpinning that fee guide and why investment banking in the low 200s or mid-200 range per quarter is not a reasonable sort of run rate going forward?

Yes. Thanks, Ebrahim. So maybe a couple of just specific comments on that area. So we talked about a 10% banker hire target for last year. We achieved just over 9%. So again, the 10% is a guidepost. We didn't want to hit 10% just to do it. We're picking the right people in the right markets at the right price. In investment banking, it was closer to 5%. And again, that market, we added some excellent people, but it's competitive, obviously, and heating up. So we didn't stretch too far for people that weren't the right fit for us. That goes to the 5% guide.

And while we saw our first, I think, pop in middle market M&A here in the fourth quarter, and we expect that to roll into the first quarter, we don't have a ton of visibility throughout the rest of the year that, that will continue. If we see that, we think there's clear upside to that guide. But at the moment, we're a little bit hesitant because we just haven't seen that trend continue for more than a quarter at a time at this point.

Our next question will go to the line of Ryan Nash with Goldman Sachs.

Maybe as a follow-up to the last question. Obviously, 7% revenue growth, the exit run rate maybe looks a tad slower. You just talked in your remarks about hiring a handful of bankers. So can you maybe just expand on your expectations for growth? Do you think that we could see a pickup as these bankers start producing? I'm really just trying to get a sense for how you're thinking about the conservatism of your growth guidance both in '26 and over the medium term.

Sure. So we've done a lot of hiring. We're going to continue to hire. We've been very successful in doing that. We've always said that the burn in is about 12 to 18 months. And by the way, we hired a bunch of people in the middle and late last year, so obviously, that will take a little bit of time. Having said that, for example, some groups that we brought on at the very end of 2024 were extremely productive in 2025.

I think the market is going to be hospitable to getting deals done. So I look at our backlogs and I look at the people we've hired. We have more clients today than we've ever had. We have more people on the street with the Key business card than we've ever had, and we have a pretty good market. And our backlogs are at historically high levels. So I'm optimistic as we look forward.

Ryan, this is Clark. I might just add a couple of maybe contextual points to that. So as I mentioned in the last answer, we hired just above 9%. If I break that out and think about where we hired folks in our consumer bank, that number would have been more low double digits. And what they're going to drive is kind of 8% growth in the year across the areas of consumer that they drive. There's a bunch of fees in consumer that aren't connected to these hires.

Wealth, as we said, up high single digits. And managed fees in wealth, which we're transitioning away from transactional fees to managed fees, should be up low double digits. So just to give you a flavor for that, middle market and payments were up about 8%. We're going to see FER growth, fee equivalent revenue growth, in payments up low double digits. And then as I said, in investment banking, 5% hires and up 5%.

Maybe a little bit more color on what I said in the last response. There are some elements of potential here that we haven't included. I mean, one, we haven't included a macro deterioration. But on the other side, we haven't assumed for the full year that middle-market M&A will return as both a lending and a fee opportunity. We haven't incorporated any cuts beyond the two that are in the forwards today, and we haven't really incorporated significant CapEx increase from things like the bonus depreciation. We've talked to clients about that. They're talking about it. We just haven't seen it manifest yet. If it does, I think there's a lot of opportunity there for us to grow a little bit faster.

Got it. And Clark, maybe as a follow-up. When I look at the 4Q exit run rate guidance for net interest margin average earning assets, it looks like the run rate for average earning assets is a little bit lower from the current level. Maybe just talk a little bit about what's causing that. Obviously, we know that there's the consumer runoff, but anything else? And what can we expect average earning assets to bottom and begin to grow again?

Sure. So we did show actual loan growth this year. So commercial will continue to be strong at 5 or-so percent. We'll see 1% to 2% loan growth in the year. So I think we've seen the bottom on earning assets and we'll start to see that elevate over time.

Maybe two quick comments on just the composition of the balance sheet that I think are important. One, we've talked pretty frequently about the remixing of C&I loans away from residential real estate primarily, so long-dated, low-grade assets into broad-based relationship commercial assets. So that will continue. And then secondly, on the deposit side, we continue to remix from brokered CDs and deposits into client deposits. So you'll see deposit balances for the year relatively stable, but we will take broker deposits basically to 0 by the middle of this year and replace that completely with client deposits.

So again, it's really just creating much more efficiency in the balance sheet and sustainability. And I think the other component to your question, Ryan, is just the seasonality of the quarter. So every first quarter is our low point in NII. We'll see that again this year. We'll grow throughout the year. And I feel pretty confident that we'll exit the year with an NII that's $1.3 billion or more. So a little bit above, I think, the math you were doing there, but that sort of owns the seasonality and growth throughout the year.

And Ryan, the only thing I would add to that is just to remind people our business model is a bit differentiated from others. When the markets are wide open as they are right now, we only put about 20% of the capital we raise on our balance sheet, which obviously manifests itself in fees but it certainly doesn't in balance sheet growth. So I would just add that.

Our next question will go to the line of John Pancari with Evercore ISI.

As more follow-up to that, regarding your margin and NIM expectation, could you maybe give us a deposit beta assumption that underlies that margin exit rate to 3% to 3.05% by the end of the year?

Sure. So right now, we ended the year at the low 50s. That came down slightly from the third quarter as we expected, just given the cuts in the fourth quarter and the timing it takes to get primarily some of the consumer rates through the system. We'd expect to pick that up this year. But we do expect a low to mid-50s beta throughout the year on a relatively stable deposit base, as I said. But that is a remixing of broker deposits into client deposits, and that broker deposit balance in the fourth quarter average was about $2.5 billion.

Got it. And on the 15% fee that you reiterated for year-end '27, can you maybe give us some color on the components? Like how are thinking about the margin underlying that? And then also, you talked about the growth dynamics impacting the balance sheet and the remix. How do you think about the growth that gets you to that fee as you think about it for 2027? And maybe the thoughts on efficiency components as well.

Sure. Thanks, John. So we have guided to 3-plus NIM in fourth quarter '26. We feel very good about that. Similarly, 3.25-plus in the fourth quarter of '27. And really, I think about that as having components. One would be just the stabilization as we bring on this remix of C&I loans at higher yields and run off the consumer. So that's sort of the organic rotation in the loan book. There is a bunch of fixed asset repricing going on, about $17 billion in 2026 and probably a similar amount in '27 that will roll over into better returns.

So those two components and then I think ongoing solid deposit growth and deposit management. I'd say about 75% of '26 growth is mechanical versus organic, and it starts to get a little bit closer to 50-50 as we move through that 2-year cycle. But I think overall, the biggest driver of that is just the NIM expansion that we've talked about. Our view this year and there are some moving pieces on the fee side, but fees basically growing in line with or slightly better than expenses.

I think as you get into '27, we can continue to deliver positive fee-based operating leverage, which will drive a little bit more returns and then will, again, continue to manage expenses. And we've talked about the capital return in '26. We haven't committed to what that looks like in '27 at this point. But presuming a constructive macro environment and expected performance in our credit book, you could see us pull some levers there that would allow us to comfortably get to that 15% or beyond.

Thanks for.

Our next question will go to the line of Mike Mayo with Wells Fargo Securities.

You made some several changes to your Board. I guess you added Tony and Chris to your Board and you changed the lead director. And I just want to -- I know you've covered this in the past, but as far as your appetite for a bank acquisition, where is that given these Board changes? Different Boards just can have different views.

And then separately, as far as a nonbank acquisition such as to propel your capital markets, investment banking, M&A business. Can you just clarify, do you have some visibility past the first quarter? I know you said first quarter should be up versus your record first quarter last year. But how do you see that playing out? So a few questions in there.

Sure. Thanks, Mike. So a few things. Our capital priorities are unchanged. We've been pretty consistent about communicating them. I think I was unambiguous about our capital priorities at Goldman. And those again are just, first and foremost, to support our clients. Secondly, to continue to invest in people and technology, and some of those are groups of people. I already touched on our investments in technology, which we're leaning into. Third is obviously to pay the dividend. That goes without saying. Fourth, our complementary fee-based and capability-enhancing acquisitions, which was part of your multipart question.

The answer is yes. We're keenly interested in adding groups of knowledge workers, whether those are group hires, individual hires or boutiques. And you can assume that we're out there and having discussions, and we see probably everything that goes on out there. And then lastly, what's left over, and we covered that today as well, are the buybacks. And obviously, the buybacks are sort of a product. We're generating a lot of capital. And we started with a lot of capital. So as you can imagine, the ability to have a pretty aggressive buyback program is there.

The last part of your question was visibility past the first quarter. I would say, look, it's the deal business. I would say we have very good visibility through quarter 1. Also, our backlogs are at historically high levels. So our view on that, frankly, is rather conservative. In this business, you can't have a great year without having a great start. And we will get off to a great start and we have good backlogs. Let's help the markets stay in place, and we can revisit it as the year develops.

And as far as the bank acquisition question part of it.

I thought I hit that head on twice. I'll do it again. We were unambiguous, Mike. That is not something we're focused on. In spite of the fact that we have made some Board changes, that doesn't change our philosophy of basically what our capital priorities are.

And just one last follow-up. You're calling for -- middle market M&A has been muted for 3 years, all right? We see the biggest players, they're really starting to go gangbuster. It hasn't really trickled down yet. You're saying it's trickled down. Fosters should be more active. You have historically elevated levels. What's causing the delay? And why is it turning now? And why don't you have visibility past the first quarter if you think it's back?

Well, I mean, we do have visibility. It's just that it's the deal business, and there's just a lot of uncertainty. The reason it's been muted for 3 years is basically what we've all lived through. And a lot of it from the financial sponsor perspective,was the assumption of rates. And obviously, the forwards have been so wrong for so long. There were going to be 7 cuts and then there are going to be 5 cuts and then there are going to be 3 cuts. And that does not really facilitate a lot of financing.

I think it's pretty clear now that the 10-year, in spite of the turbulence, even in a day like today, that the 10-year is kind of range-bound, call it, 4 to 4.3, something like that. And you can transact very, very significantly there. So what happened last year is there was a lot of strategic deals and then there were some very large financial sponsor deals. And what we saw on the actual discussions we're having, both with the financial sponsors and at the [ port co ] level, is we think that's going to break free.

As long as there's an inverse relationship between the holding period and the cash-on-cash return, I think there's going to be a lot of people looking for liquidity this year.

And Mike, I'd just add that last year, lower percentage of our capital markets fees came from M&A advisory and financial sponsors as we would normally expect. We saw a little bit of reversion to the long-term mean in the fourth quarter. And we would expect that again in the first quarter. The challenge in that market, particularly given the prevalence of private equity, has been more fund-to-fund transfers than actual outright sales. So what we need to break is them not trading across funds or within funds but actually moving the properties across GPs, basically.

Our next question will go to the line of Gerard Cassidy with RBC Capital Markets.

Chris, can you share with us -- when you look at your average loans in Slide 7, there's a nice pickup after the first quarter of 2025, which, of course, all the uncertainty around Liberation Day in the spring of 2025. Can you share with us what your commercial C&I customers are feeling today versus 9 months ago and their outlook? Are they just more comfortable living with the uncertainty that we're getting out of Washington when it comes to the policies this administration is pursuing?

Well, it's a great question. I think there's a couple of things that have happened in the last 9 months. One, people have gotten used to having a fair amount of uncertainty and I think people have adjusted to that. But there's been some significant hurdles for middle market companies that have been clarified. The first was Liberation Day absent what's going on this weekend. The tariff thing has sort of played out, and I think most companies are very comfortable with it.

The second thing that has played out and it played out, obviously, not until early July was the new tax bill, which allows you to pull forward all of this accelerated depreciation which is CapEx. We constantly interview our clients, and 50% believe that their business will be helped by the tax bill that passed in early July.

So I think it's a combination of things. One, the recession that everyone had been predicting as imminent forever, it didn't happen. So that's one thing. You got greater clarity with respect to tariffs. You got a tax break. And in the meantime, these businesses, Gerard, are doing very well. They're generating a lot of cash. So you put all that together, and I'm actually pretty optimistic as we look forward.

Very good. I appreciate that, Chris. And then you also gave us good details on your NDFI portfolio, Slide 19. And can you just remind us, I know the quality of it is very strong, but what are you guys seeing there in terms of growth? And has there been any changes in trends on quality? It doesn't appear to be that way, but how about any further color on Slide 19?

Sure. Just I'll give you a couple of comments and then going to turn it over to Clark. One, the biggest piece of that is something we call SFL, which we've been in 20 years. And I think we've had one charge-off. Very, very high quality. The next biggest piece are investment-grade REITs, which we're lending to the entity, not to the project, which I think is a really important point, 40-something loan to value.

The next piece of it are a lot of insurance companies. And as you well know, insurance companies are sort of required to keep a certain amount of capital. So I feel really, really good about the portfolio. You asked about the trajectory of growth. Part of there is some growth there, but a lot of it is sort of a reclass in the way that we're reporting it. Clark?

Yes. And so I know you're familiar, Gerard, with all the regulatory reporting changes. We did not see an enormous amount of growth particularly in the second half of that book. And I would say it's largely because in our specialty finance lending business, we were turning away deals that we just did not think fit the structural integrity of what we're trying to do there.

And if the Head of our business was here today, turned down more deals in 2025 than he has in the prior 1.5 to 2 decades. So if we see a reversion to what we think the right standards are, you will see growth there. But to the extent we don't, we're happy to stay on the sidelines and wait to clean it up later.

Our next question will go to the line of Chris McGratty with KBW.

Chris or Clark, the CET1 target, the 9.5% to 10% over time, I'm interested in kind of the walk from where you are today at 10.3%, the consumption of it, right? You talked about buybacks of $1.3 billion plus this year. I would imagine at some point, there's going to be a hand off on balance sheet growth versus syndicating more out. But any thoughts there would be great.

Sure. So kind of from a perspective of where we are and where we're going, you're exactly right. On a marked basis, we're at 10.3%. On a reported basis, we're 11.7%. We will burn down in 2026 from 10.3% to 10%, hence the share repurchases. There will also be, as you know, we're finally going to get some finalization on the capital rules. And this is a dynamic thing. We'll continue to revisit what we think is the right target for us at the right time. So that's kind of the big picture.

Yes. And Chris, the components I might just give you just 10.3% to 10%, call that $0.5 billion. We'll distribute another $700 million or more throughout the year. So we will pay out likely above our target payout ratio of 70% to 80%, which is dividends and buybacks in 2026. So again, that gets us to the top end of the range. As Chris said, we'll keep an eye out for what changes occur on the regulatory front.

The other two components -- or three components will be loan growth, which obviously is our top priority, and we'll continue to support that where it makes sense. The second will be just the macro environment and overall credit performance. So obviously, the capital is there to support any issues there. And then the third is around just the rating agencies and where we need to be relative to that, although we feel, again, very good about where we sit today.

So I think job one in 2026 is get us to the top end of that range and then take a look at where we are and how strong we feel about our own performance in the economy and then decide where we want to be in that range going forward.

Great. And my follow-up will be on Slide 14. You may have hit it, but I want to make sure. The walk between the 15-plus ROTCE in 4Q of '27 and that 16% to 19%. I'm interested in kind of the timing. I don't think you've given a timing for that 16% to 19%. And also, what do you think the biggest -- what do you need to do to get into that range beyond the 15% at the end of next year?

Sure. So the first answer to your first part of the question, we have not given a time that we will hit to our long-term goal of 16% to 19%. But I can tell you this, the big hurdles, we say half of it to get to 17% is -- as you get the 15% is mechanical. Obviously, as we go forward, more and more of that will have to be business generated and we'll have to do that. And the other thing that you always have to do when you're talking about returns is we have to maintain our credit quality. There's nothing that -- and by the way, I'm quite confident that we will based on our model, but that's the other thing we're focused on.

And I would just say, Chris, we've been a little bit on this balance sheet optimization path for the last couple of years. That will continue for the most part in 2026. I think the two real opportunities are going to be getting that more efficient balance sheet, which is reflected in the NIM that looks like 3.25-plus and then growing the balance sheet from there sustainably with good client relationships. It's going to be growing fees at or above our expense growth rate which, again, I think, provides a little bit more leverage and then managing capital to the right level. So I think pulling all three of those dials as we go forward gets us into that 16% to 19% range. .

Our next question will go to the line of Matthew O'Connor with Deutsche Bank.

It seems like commercial real estate, kind of broadly speaking, has inflected with the growth starting to pick up at least kind of industry-wide. And I was hoping you could talk about what you're seeing across your customer base there and how you think about the leverage to Key. And I understand it's both a lending and fee opportunity.

Yes, Matt, thanks for the question. And I actually think our real estate platform is probably one of our very best platforms. We have not seen loan growth, per se. I think if you look at our guide, basically what we're saying is that it will be flat on an average basis this year and it will be up 3% from the fourth quarter of '25 to the fourth quarter of '26. That's a business that's an interesting one because we only have about $12 billion or so on our balance sheet, and in a typical year, would probably place even more than that into the markets.

And so that's a business that I think is really poised to grow. And I think it's poised to grow because there really hasn't been a lot of transactional activity. Most of it's been refinanced. And I think we're at a point now where the bid and the ask are coming together. And I think you're going to see a lot of activity. So I think that's some upside for us as we look forward.

Yes. And Matt, just give you some high-level views. So we would think our CRE business in its entirety will grow rate 6%, 7%, 8% this year. I break that into our sort of traditional banking businesses, lending and capital markets and then just separate that from servicing, which we've talked a lot about and had a record year in 2025. That will be down this year just given a couple of components. From a total revenue standpoint, it would be roughly flat to down maybe low single digits.

On the fee side, that will be down somewhat significantly owing really to three things. One is a movement of some deposits which were previously placed going to our balance sheet, which produces NII. That's kind of a net neutral. We do see rates on advances coming down as Fed funds and SOFR come down, so that does impact the business. And then obviously, as the market resolves, we see less special servicing, and again, coming off a record high.

All in all, again, down for the year but coming off a fantastic 2025. It's a business we love and feel very good about. And we think to the extent CRE has a broad market player comes back, we'll have more and more opportunities to grow our primary services. But net-net, we continue to love the commercial real estate business. I just want to give a little bit of context on the components.

Our next question will go to the line of Usdin with Autonomous.

As you move past 2026, you mentioned you've done doing a lot of hiring this year, and that puts a really good revenue start because of the baked-in stuff you mentioned earlier. As you think about getting past this year when it's a little bit more of a 50-50 kind of baked in versus kind of just what the market gives, how do you think about just what the right natural expense growth rate of the company is and given the pace at which you're really leaning into hiring this year?

Yes. So thanks, Ken. We've talked about really long-term sort of 2% to 3% expense growth, and that is always going to include some meaningful component of continuous improvement where we're finding efficiencies and reinvesting them. You saw us at about 4.5% in '25. We're talking about 3% to 4% this year. And I think we'll just step down over the next year or to get to that longer-term growth rate.

Okay. And just one follow-up on the consumer book. You mentioned that you still expect some runoff for the year. So relative to the $30 billion or so consumer loans at the end of the year, do you have a view of like when and where that bottoms as your runoff heads towards the bottom?

So we've talked about this. Every quarter, we run off. And obviously, it depends what the rates are. Just to refresh everyone's memory, most of this runoff are mortgages to doctors and dentists. They yield about 3.3%. So we think they're money good. But obviously, from a balance sheet perspective, the runoff is just fine. We think the runoff will be about as I said, about $600 million a quarter. And I would suspect it depends on rates, but I would suspect it would bottom out in the next couple of years.

That's a total for the total consumer book. Okay.

Yes, that's correct. And what we're doing, just so you know, what we're doing to try to get some consumer loan growth is we're really building out our home equity capabilities. 50% of our customers have significant equity in their homes. And so slowly but surely, we're replacing that mortgage product with home equity. And then the other thing that we have that will kick in at some point as the rate cycle plays out is we still have our student lending platform that refinances federally issued student loans. But obviously, both the vintage and the interest rates have to be right for that.

Our next question will go to the line of Erika Najarian with UBS.

I know it's a busy day for investors, so just one cleanup question. Clark, implied in the earlier questions is that the investor base is thinking that the guide is a little bit sort of "softer" than high expectations. No good deed goes unpunished. But just to level set, you did mention that there's a level of conservatism embedded in the guide in terms of the macro backdrop. And so it feels like, I guess that's a good conclusion to have, that there's some conservatism in the guide relative to what the macro could be in '26.

Yes. So maybe I'll make a couple of comments and then you can tell me if I was responsive here. But the first point, and I think you made it there is the strength of our '25 results obviously impacts the year-over-year comparison. But what I would say is the guide we're providing here is a little bit better than we would have expected a quarter or 2 ago in terms of absolute dollars. The growth rate obviously starts with where we ended the year.

But I'd say overall, as we mentioned, we feel good about the numbers. There's obviously a lot of moving pieces for Key in the economy here. But as you saw last year, I think we're pretty dialed in on running these businesses. And with regard to our forecasting, as pieces come into clear focus, we'll share the updates throughout the year. So as of now, this really reflects the visibility we have in front of us.

But our ability to outperform our guide last year was driven by the compelling trajectory of the businesses here and our ability to seize opportunities as we see them, and we'll continue to do them. But I would just underscore that we continue to be very confident in the guide and very positive about the direction of travel.

Our next question will go to the line of Manan Gosalia with Morgan Stanley.

So I just wanted to follow up on all the comments made on the commercial loan growth side this morning. It feels like there's some strong momentum there. Rates are lower. 60% or more expect that they will benefit from the OBBA. CRE is starting to look better. I think you noted in your deck that lines grew nicely in the quarter as well.

So I guess the question there is, given the guide for commercial launch to grow at about 5% year-on-year next year -- or in 2026, is there room for growth to accelerate as we go through the year? And is there some upside there as well?

Yes, I think there is. I mean if you think about commercial at 5%, you've got C&I in there at, call it, 7%. And I already talked about CRE. So I do think there's an opportunity for the guide to go up as the year develops, and we'll see how it plays out.

Yes. I might just add on, from again a risk perspective, we are not adjusting our risk appetite. So we think we can achieve this growth with prudent underwriting just as we have. So again, we're not losing our standards to achieve this growth.

Great. And then, Chris, you spoke about how much more there is to do on AI and you also continue to hire more frontline bankers. So I guess when we look at the expense guide of 3% to 4%, could you just break out what level of investment spend that includes and what the ongoing efficiencies you're generating from the business are?

Yes. So it's too early to be able to claim a lot of efficiencies yet with respect to AI. But I can tell you, I said we've stepped up $100 million in each of the last 3 years. And we also, by the way, have found through continuous improvement about $100 million in savings each and every year. And so I think that it's one of those things as we properly reconfigure Key and start to look at these horizontal teams and use technology, I think we'll actually be able to fund a lot of it.

So it's early to claim some kind of cost savings. Obviously, I could give you specific ones like a call to a call center costs $0.25 using AI. And if a human picks it up, it costs $9. Those are small, very focused things. We're focused really on more transformational activities.

Our next question will go to the line of David Chiaverini with Jefferies.

So I had a follow-up on balance sheet growth over the medium term. So you're guiding to a flattish average earning assets. And in '26, what's a reasonable growth rate in average earning assets? As you hit your stride, say, over 3 years, is GDP plus the right way to think of it as your investments kind of take hold?

Yes. So the way we tend to think about that, David, is in our 4 industry verticals, when the market is open and we like the risk profile, we think we can grow GDP-plus because of our focus and expertise in those areas. I think broadly, commercial loan growth at sort of GDP with maybe a little bit of upside is right. And then consumer, probably running slightly below GDP. So I think overall, your combined loan growth probably looks in that ZIP code of GDP. It's just that you'd have to break out the composition and probably understand which is moving in which direction. .

And then my follow-up is on credit quality. Good trends in nonperforming assets and criticized loans. Remind us of your ACL comfort level and reserve build outlook. And then any areas you're watching more closely?

Yes. So let me start with the reserve and then Mo will maybe comment on the areas he's focused on. So generally, we've seen very good credit trends throughout the year. We had a very solid fourth quarter in terms of NPAs, NCOs and credit coming down. We built reserves over the course of the year, about $40 million. I think two things there, one -- or maybe three. One is loan growth drives reserving in general, and we've had that on the C&I side.

The rotation from residential to C&I over time will require a little bit more reserving because C&I loans are going to, all other things being equal, have a little bit more credit cost than our super prime consumer loans. And then the third piece is we just are so reflecting some macro uncertainty that continues to be out there. I think there is some potential for release throughout the year if we get more clarity on that or the economy just gets visibly more stable broadly, things like geopolitical risk, et cetera. But that's really what's reflected in that reserving at this point.

Yes. I think that's well said, Clark. And again, overall benign economic environment from our perspective, just a few watch areas that we're considering, consistent with our culture of early risk identification. So consumer discretionary, that's about a $5 billion portfolio. One area we're watching probably not surprising given probably what you all see also in the macro environment. Some parts of health care again had some ups and downs, but again, we don't expect a lot loss content. And lastly, agriculture, again, an area we're watching, but again a relatively small portfolio. So overall, I think our outlook is still pretty sanguine. But again, consistent with the strong culture of early risk identification, we do have some areas that we're watching.

With no additional questions registered at this time, I'll go ahead and turn the call back over to you, Chris, for closing remarks.

Certainly. That concludes our fourth quarter earnings call. Thank you for all of your interest in Key. To the extent people have additional questions, please do not hesitate to reach out directly to Brian Mauney. Thank you so much, and have a good day. Goodbye.

That concludes today's conference call. Thank you for your participation. Enjoy the rest of your day.

So up next, we're once again excited to have KeyCorp joining us at the conference. Key's had another strong year, driving return improvement through significant margin expansion and fee growth, which has resulted in best-in-class operating leverage, more recently it began returning additional capital via share repurchase and should be another lever help it achieve its 15% ROTCE return by year-end '27.

Here to tell us more about how they're going to achieve these goals is Chairman and CEO, Chris Gorman. Today's discussion will be a fireside chat. So welcome, Chris.

Well, thanks, Ryan, and it's great to be here. I always enjoy coming to your conference.

Absolutely. Appreciate having you here. So maybe just to start off, Chris, as we wrap up 2025 maybe talk a little bit about what are some of the big accomplishments you're most proud of as an organization. And conversely, any areas in retrospect that could have gone a little bit better? And what areas you focus on improving into 2026?

Sure. Let me start with 2025, and I'll just give you kind of a brief recap. It was a really important year for us. So in 2025, we celebrated our 200th birthday. And that in and of itself isn't of all that import. But what was important is I was out in the market, probably 50 separate sort of town hall meetings with 300 clients. And I couldn't help but really be energized by how our folks were focused on prospects, how they were focused on our customers, just the whole energy around it.

One of the things I've been trying to do is to really pivot our -- we've always been a great service organization. I want us to be a great sales organization, and that's really manifesting itself that way. If you look at our backlogs, whether it's investment banking, whether it's our loan backlogs, significantly above today where they were 6 months ago, significantly above now where they were a year ago.

So we're making significant progress there. I think one of the really important things is it teed us up for what I think will be a great run in both '26, '27 and beyond.

So from a financial perspective, we made -- we continue to make a whole lot of investments. We've set a very aggressive goal early in the year that we were going to grow our sales forces, particularly our fee-based sales forces by 10% and we achieved that. So you've got wealth management, you've got payments in middle market and investment banking. We grew our frontline people by 10% in each of those areas.

As it relates to technology, we invested an additional $100 million this year and successfully implemented that. So I think we made a ton of progress. As you think about from a financial perspective, this will be a record year from a revenue perspective. So I think that's really important. We closed the year with obviously high levels of capital, which gives us optionality.

And so it just was just a very, very -- we're in good shape from a credit perspective. So as you pivot to what can we expect? I think what we're focused on is continuing the momentum that we have.

So we have a ton of momentum in our business. We're going to continue to hire people. We think we have these under-leveraged platforms.

As I mentioned, we have a lot of capital, and we're generating a lot of capital, and we'll focus -- it sets it up for both the return of and the return on capital.

Great. So Chris, I know you're out in the markets a lot talking to clients going out on pitches and stuff. Maybe just give us an update on your views on the economy and client sentiment as we head into 2016? And how do you think the bank is positioned for this environment?

So let me start with the last part of your question first. I think we're positioned extremely well. I'll get into my macro view, which I think is actually a little favorable to some that are out there. I think if you think about our credit book, if you think about the capital that we have that gives us optionality and if you think about our fee-based businesses and the momentum there, we've never had more bankers, we've never had more customers.

And so I think we're really -- and I think the markets are going to be really, really good for middle market kind of transactions. So I think we're well positioned as we go forward.

Now as it relates to -- let's start with the consumer. I happen to think that the consumer contrary to what you -- at least I'll speak to our consumer. Look, there's obviously consumers a very broad range. But as you think about our consumer, our consumer today has more money in their account than they did pre-COVID, like 20% more. They're spending more than they have in the past.

They're spending 2% to 3% more this year versus last year. We have $68 billion of AUM, which is a lot -- I think the wealth effect is one thing that's throwing off a lot of the data. Here's an interesting stat. In the first 235 years of our country, household net worth was $60 trillion. In the last 15 years, it's increased by another $140 trillion. So I think as you think about kind of the impacts of that I think our consumer is healthy.

Our charge-offs for consumers has been 27 bps over the last 10 years. All credit metrics are getting better. Let's switch over to commercial for a moment if we could. Our commercial clients are doing well.

It was an interesting year because I think early in the year with the uncertainty around liberation day, everyone kind of took a pause I think with the tax bill that passed right around the fourth of July, I think there's a lot of momentum. 60% of our clients think that they will be beneficiaries of the tax bill as we sort of are out talking to our clients.

The big thing there is accelerated depreciation. It doesn't mean a lot for huge companies. It means a lot for small companies. And so you can basically manage your earnings and manage your tax liability. So I feel good about kind of where our customers are and where we're positioned.

So Chris, on the back of that, let's talk a little bit about loan growth. You've seen strong commercial growth year-to-date. I think you were up 5% in total commercial, including 7% in C&I. Well, obviously, we're continuing to optimize the consumer. Maybe just talk about how loan growth is trending in the quarter? Have you seen any change in utilization rates? And do you think it can accelerate into next year?

Sure. So let me kind of give you the dynamics. It's kind of a -- sort of -- for us, it's a little bit of a tale of 2 cities. We are seeing significant growth in C&I. We'll end the year -- period over period from the last time we reported, we'll be up another $1 billion.

Our C&I growth is about 9%. So we have really healthy C&I growth. On the other side of the equation, commercial real estate down a little bit. And then, of course, our consumer book, which you're well aware of, we have $19 billion of first mortgages, $14 billion of the $19 billion are at 4% or less.

Those are running off to the tune of $0.5 billion to $600 million per quarter. So call it $2 billion a year. As I look forward, I see continued growth in terms of loans, Ryan. I think, one, the growth that we've had in C&I is going to continue.

So call that kind of 9%. The M&A business has -- the middle market M&A business, and I'm sure we'll talk about this more, hasn't really kicked in. When that kicks in, for example, in the last 12 months, we raised $160 billion in capital. We only put 16% on our balance sheet because, frankly, there's a bunch of other people out there that in serving our clients, they're better served to have our -- to have us place the capital.

The other thing that's going to kick in is you're going to start to see -- in commercial real estate, I think is one of our best business, you're going to see there's going to start to be transactional activity in commercial real estate. So far, it's all been refinancing. Everyone is sort of wondering where rates are going to be.

People are going to start to transact, 4.1%, 4.2%, 10 year, you can do that all day. And then the last thing I'd say that will give us some growth next year on the consumer side, we're in the process.

We have the customers for home equity, 50 of our customers that own homes, they have 50% equity in their houses, and we're just really investing right now in making sure that, that's an easy straight through digital process.

Super helpful. I guess, Chris, before we get into next year and your strategic priorities, any additional data points you'd like to get out there in terms of the fourth quarter, whether it's fees, deposit repricing, NII or credit?

Sure. I'd be happy to. So here's the fourth quarter update for the benefit of the group. We expect healthy fee growth north of $750 million in the fourth quarter. Our fourth quarter investment banking fees are expected to be better than last year by $10 million to $20 million.

You'll recall in the third quarter, I said they'd be about the same, they're going to be more. We see high single-digit growth in our other priority businesses in terms of fees, wealth management, commercial payments. At this point, we expect full year fees to be comfortably north of 6.5%. That's up from prior guidance of 5% to 6%. Full year expense growth will be a little higher than 4%, but you would expect that when you have the kind of fee growth that we have given the comp structure.

I am proud of the fact, however, that we'll get 250 basis points of fee-based operating leverage. Obviously, if you look at total operating leverage, it would be sort of off the chart based on our NII incredible trajectory that we've got there. On the point of NII, NII growth will be better than 22%.

So that will beat the guide that we've given, and we upped our guide 2x this year as you're well aware. Credit, as I mentioned earlier, remains stable. Full year charge-offs well within our 40 to 45 bps guidance. And then importantly, on the buyback front. We had said that we were going to buy back $100 million worth of stock in the fourth quarter. We're going to buy back $200 million.

And as of last night, we were at $175 million. So we are -- with our undervalued stock and significant capital position, we are stepping on the gas.

Seems like a pretty upbeat update there, Chris.

Well, thank you. We're really proud of -- we have a ton of momentum.

Awesome. No, I appreciate all that. I guess turning to 2026, fully understanding that you're probably still in the budgetary process. But high level, just how are you thinking about revenue growth, whether it's both NI or fees operating leverage, investment spend and other PPNR drivers? And then I guess related to that, are you still going to continue to use this fee-based operating leverage just maybe a highlight of how you're thinking about those different pieces.

Sure. That's a great question. So as we start to think about planning before we start to even get all the numbers pulled together, it's -- where do we want to invest? In business, it's a constant trade-off. How much do you want to invest right now? How much of the earnings do you want to realize?

And one of the things I'm really proud of is in spite of some of the issues that we've had over the last few years, we've always continued to invest, but we're going to continue to invest in people. We're going to continue to invest in technology.

We're going to continue to build the business. And I think that's really, really important. The other thing we always look at is we're very focused on who we want to do business with, what clients are we going after? And in order to go after those clients today and tomorrow, what do you have to be competitive, to be successful.

Because we all know, while everyone is very focused on loans, on the commercial side, loans don't even return their cost of capital. So you've got to figure out what these clients want and how we do that. The next thing that we spend a lot of time thinking about is capital, right?

And the question is how much capital do we need? Obviously, we have more than we need at this point. We're generating a lot of capital. And so those are kind of some of the big picture things that we look at. When you put all that into the equation, what does next year look like?

One, we'll continue to have high single-digit revenue growth. I'm very pleased with the trajectory. You'll continue to see that. We'll continue to have very good credit quality, which obviously is really, really important. When you start focusing on return on tangible common equity, one of the things when we do our planning that I should mention is, right now, our return on tangible common equity is 12%.

That's obviously not acceptable. It needs to be higher. And one of the things we're challenging our team to do right now is, yes, we want to continue to invest. But in the meantime, where do we take out expenses, where do we rethink how we do business?

We have 420 people in AML BSA, for example. If you think about technology, if you think about AI, there are huge opportunities. We basically take $100 million out of our expense base every year to invest back in the business.

So one of the things we think about in 2026 is making sure we're on that path to go from 12 to 15 to 16 to 19 that you referenced in one of your earlier questions. And then the last thing that we think about, and it's going to be really important is not only the trajectory of our return on tangible common equity, getting to that 15 by 12/31/27 but also that's just a mile marker we're going to get to 16 to 19.

We're thinking about how to pull all those levers. Part of that will be, again, the management of capital, and we'll return a bunch of capital to our investors in 2026.

Basically, where we are on the share repurchases is we said we were going to do $100 million, we're going to do $200 million, that leaves $800 million in our existing authorization. And I would anticipate, Ryan, that we'll be going back to our Board in 2026 to reload that.

Got you. That's super helpful. Maybe to dig in, you talked about high single-digit revenue growth next year. Obviously, capital markets will be a big contributor to that. Maybe just talking about how you're feeling about capital market activity into next year. And then related, I think you threw out achieving $1 billion in the business over time, how quick can you get there? And how much is secular help especially from things like M&A, what do you need to get there?

Yes. Well, let me just spend a couple of minutes talking about our capital markets business because I think it's one of the things that is misunderstood by investors and as a consequence, is one of the reasons I don't think we're valued where we should be valued. It's an incredible business.

It's a business that is unique, there are not many people that have the capabilities we do. There are certainly people that have an M&A shop, et cetera. But for someone to compete with us, they have to, one, have the capabilities that we have to be focused on the middle market and be able to -- and have a balance sheet.

And if you think about all the players, there's very, very few players that have all that. The other thing that I think is missed by the market a lot is the amount of repeat business that we get. We get a whole lot of repeat business. And if you think about $0.75 billion or our aspirational goal of $1 billion of fee income, that's pretty remarkable.

If you had a high-end consulting firm and you were generating those kind of revenues, you'd get an incredible valuation on that. So I just think -- I think it's -- and what's unique about us, by the way, is a lot of banks our size have some of these capabilities, but they don't go to market based on industry verticals, which I think is the secret sauce.

As a consumer of the investment banking product, I wouldn't want a banker calling on me that one day was calling on a software company and one day was calling on a distribution company, just for me, that doesn't work.

And so I just think this is a really important business I feel great about this business. One of the -- not only are we going to have the second best year we've ever had, but we're not even hitting on all cylinders yet.

And what I mean by that is M&A, there's been a lot of big-ticket M&A announced. M&A has been very muted for the past 3 years. If you look at, for example, the private equity world, that has been very muted, like 50% of what it typically is.

We're going to have our second best year, Ryan, and we're going to be 20% below where we are -- where we typically are in the M&A side. And the reason I say that is M&A pulls through a lot of things. If you're advising someone and helping them buy a company, you get the financing, you get the hedging, you get the payments, et cetera.

So I feel great about the business. There's no question that the $1 billion is aspirational because I want to challenge the team, but we've never had more bankers. We've never had more customers.

If you go back to 2021, which was an outlier year, I think that year, we had like $930 million or $40 million in revenue. So we know that the platform can generate it. We know we can process that level of business, and we are a much stronger platform today than we were then.

So Chris, let's -- I want to spend a little bit of time on capital and deployment priorities. I see here in the slide it says not pursuing depository institutions. I'm sure you noticed the market's reaction to report a few weeks back that claim you were potentially interested in opportunities in the Pacific Northwest. Maybe first, anything you want to clarify when it came to that report?

Well, let me start by being very specific. We are not interested in any depositories. We are looking at 0 depositories. So I'll repeat that. We have no interest in purchasing a depository. So I just want to be crystal clear on that. I'll tell you what we are interested in is we're interested in growing organically.

And we think we have a great trajectory to grow organically. The comments that I made about the Pacific Northwest, we're actually about growing organically. We grew about 5% in the Pacific Northwest in terms of households and retail.

We grow 2% or 3% nationwide. So you can imagine, there's a bunch of areas where we're not growing that fast. And if you think about markets like Denver, like Seattle, like Portland, like Boise, like Salt Lake City, those are great markets. They're also great markets for our business.

We got a market, as I said, on verticals. Some of our strongest verticals are like power. We've been in the power vertical forever. And as everyone knows, it's all about power right now. We've been in technology forever. When you think about Bellevue, Washington, that's sort of the cloud computing capital of the world, just to mention one spot that happens to be out West.

So that was the genesis of my discussion. The other thing that I said, and I think this is really important, and I think it's important that everyone understands this. The other thing that I was that I commented on is I don't have some huge sense of urgency that there's this narrow window that's going to absolutely close at the midterms.

You got to think about how we got here. We got here by layer and layer and layer of additional regulation that basically squashed consolidation in our industry over 15 years. That is not going to change no matter who controls the house, no matter who controls the Senate or ultimately in 3 years or whatever it is, who controls the White House.

So I don't have any sense of urgency that -- I do think there'll be consolidation. I think there'll be consolidation in our industry for a long time. We are not participating. So I just want you to know that. What else would you like to know?

So I guess, just a sort of a quick follow-up, you're not pursuing this. Is there any time around this? Is it until you reach your [indiscernible] goals, any sort of parameters to think about investor investments?

No, I'm not focused on any hypotheticals. We are shut down, locked down we are focused on generating organic growth. We have an incredible path ahead of us. And we're going to basically spend our time on a couple of things.

One, taking advantage of the disruption that's out there in the marketplace. When there is an acquisition, basically all customers are up for grabs, and that's free. And so we're going to spend time focused on disruption. And the other thing that we're going to spend time buying is KeyCorp stock.

We are an undervalued stock. We believe that strongly, and we're going to spend our capital buying our stock.

I guess, Chris, you're obviously not pursuing depository. Is there anything on the fill inside non-bank that you could look at, if at all?

Yes, that's an area where we would have an interest. And keep in mind, these are not large deals. But we think we have these unique and underleveraged platforms. And as a consequence, whether it's hiring individual bankers or lifting teams out where we frankly have had a lot of success or buying boutiques.

We're going to continue to do that because what we find is when we get great professionals and we plug them into our platform, they can be more meaningful to their clients than they were wherever they used to be. And so we're going to continue to do that.

And we are, in fact, looking at some of those on the margin. It's not like they consume a lot of capital, but it certainly can help us sort of continue to turbocharge our business. One of the areas I'm kind of interested in now there's -- I talked about this wealth effect. One of the secondary impacts of that are all the family offices.

And obviously, we, like many of you have done businesses with family offices forever, what's unique now about family offices is in many respects, they're looking a lot like private equity looked 10 years ago. They're buying a lot of private businesses.

And -- we -- obviously, if we have $68 billion of AUM and you can provide a lot of M&A advice, that's a little bit -- that's interesting to me.

So Chris, let's talk about a little bit more about capital and capital targets. You said your -- you did $200 million in buyback this quarter. We talked about going back to the Board. So I assume that means you're going to use the additional $800 million next year, which is good to hear.

You still have 10.3% CET1 and we think about the path on your ROTC, I think it assumes capital staying at elevated levels. So how do you think about the potential to bring down capital levels on an adjusted basis? And then what does that mean for your ability to return capital over the medium term?

Sure. So your assumptions are right. When we talked about having multiple paths to get to 15% return on tangible common equity, by 12/31/27, that assumed that we just keep our market and we always talk about marked CET1, our Mark CET1 at 10.3.

Obviously, to the -- and by the way, the path to get there, I just -- I think it's important that people understand, half of that is purely mechanical. That's why we're so confident. We have $35 billion of assets and swap that just the pull to par in the ordinary course.

The other thing, as I mentioned, we have tremendous momentum, organic momentum in our fee-based businesses. we're obviously going to pay attention to expenses. The other thing that we're going to do is make sure we don't stub our toe from a credit perspective.

I've said many times to this group, on a stand-alone basis, these loans don't return their cost of capital, so you better not stretch for them. That's the other thing that can destroy return on tangible common equity.

So getting to the milepost of 15% by 12/31/27. That's an easy one. And the assumption there that we're going to stay at 10.3 is extremely conservative. Our target is 9.5 to 10. And I'll give you just an example. If we decided to go -- and this is an if, if we decided to burn down our capital from 10.3 marked CET1 to 9.3 marked CET1. That adds another 200 basis points to return on tangible common equity by 12/31/27.

So 15 becomes 17 with just that move. I'm not saying that we're going to do that. But I will say that we have a target for a reason, and you'll probably see us move into our target over time. Having said all that, I think running with bare bones capital is not a prudent thing to do.

You think about Ryan, what we've all lived through in the last 5 years, we had COVID. We had all the stimulus. We had all the inflation related to the stimulus, we had the biggest hiking cycle in 60 years related to the hiking cycle is related to stimulus.

And then as a result of that, we had what went on in 2023 in the banks. I'm not interested in burning it down to nothing, but we certainly don't need to run with 10.3.

So I guess just one last quick follow-up on capital. Obviously, your stated and marked are 150 basis points apart, [indiscernible] you're in a good capital position. How do you think about the trade-off of accelerating/improving returns by doing further restructurings versus just letting the capital accrete over time.

Yes, I think at this point, what I'd like to do is really focus not on restructuring our balance sheet, but taking that capital and buying back shares.

I just feel -- I mean, by definition, those deals are NPV 0. And so then the question is, do those really pay off? And where our stock is valued right now. I want to take our dry powder and focus it on buying back our stock as opposed to repositioning the balance sheet. The pull to par is real.

It's $35 billion, and it happens in the not-too-distant future, and we'll sort of let it come to us and I -- one caveat, if there was some huge dislocation in the market. I mean, it's our job to pay attention to what's going on in the market, and we would take advantage of a dislocation.

But absent that, no.

So we spent a good amount of time covering capital allocation and deployment. Obviously, there was a presentation out last week about KeyCorp or for any broader changes. Maybe just any reaction or comments you have to that deck that came out regarding Key this past week.

Sure. So we're still digesting it. We're looking at all the content in there. I will tell you this, I think we and that particular investor are pretty closely aligned on the most important themes. Most important theme is a moratorium on doing bank deals. I've sort of been pretty clear on that today.

I think we're perfectly aligned on that. The second thing is return of capital. And we had -- this has been the path that we've been on, that we've laid out. And we're buying back our shares in a certain way. We absolutely agree with that investor that our shares are undervalued and that we have excess capital, and we're going to buy it back.

The other thing that I would -- I think is important just to mention is we have made a lot of changes over the last 2 or 3 years in terms of really making sure that we're buttoned down and tight, particularly from a finance perspective. And I would just add that to the discussion.

Got you. That's super helpful. So a couple of other areas that I wanted to touch upon. Talk a little bit about retail scale. I know in the past, you've talked about what has really mattered has been targeted scale.

I see I would apply to commercial banking. But maybe just talk a little bit about retail. You have 950 branches across 15 states. You need more branches, marketing, sales presence in order to be able to win in consumer over the longer term?

Yes. So there's no question that in retail scale is helpful. So I mean that goes without saying. But the question is, how do you get that scale? Because you have to have -- it's not just a matter of having branches.

You have to have branches in the right place. I feel like we are getting that, we have ours in the right place since the financial crisis, we've grown our consumer deposits by 7%. We continue to grow households by 2% and 3%. What we're really focused on is making sure we can do more within our branches.

I've talked a lot about mass affluent, Ryan. And we have a lot of those people in our branches. We hired 100 people in our mass affluent area this year. So the question is, what can you do?

The other thing I will share with you is, there's a lot of discussion about people building x number of branches, de novo which is interesting.

But if you really look under the covers, in most cases, net-net, the number of branches are actually down because there's a bunch of consolidations, a bunch of closures and a bunch of openings.

And so, I like where we're positioned from a retail perspective, and we're going to continue to lean in, particularly with having these professionals in the branches and that's small business and mass affluent because that's where you can connect with those customers.

So we've got a couple of minutes to go here, Chris. Just a couple of more topics that I wanted to get through. So first, maybe just on credit, you touched upon it before, when you talked about the fourth quarter. So maybe just how are you thinking about credit into '26? Are there any areas that you're watching more closely? Maybe just spend a minute on your NDFI portfolio and some stats about why you feel good about the credit performance in this book. Sure.

So I feel very good about our credit posture. I mean, just stepping back for a second, and I mentioned this earlier, if you think about the fact that of all the capital we raised, we only put 15% or 16% on our balance sheet. We don't -- we serve our clients without having massive tail risk. .

If you think about our consumer, our consumer, as I mentioned earlier, is a super prime consumer.

Now having said that, there's always things to worry about in terms of areas. The areas that I'm kind of focused, I always focus any place there's leverage. Anytime you have leverage, it turbocharges your returns, and it also -- it requires a really clear look at that.

Everyone should know, we have less leveraged loans today than we did when we were like half as big as we are. That's not a big area for us because there's a bunch of people that want that paper, and we're happy to distribute it to them for a fee.

So the area that I'm paying close attention to right now, and I think everybody should just because it's in such a state of flux is health care. I mean obviously, the way we fund health care in this country. The government is about 2/3 of all health care.

And so obviously, to the extent that the government makes significant changes in how health care is reimbursed, it impacts the entire industry. We are very, very strong in health care. We advise on many, many things, Cain Brothers is a market-leading company.

And as a result, we're involved in all aspects. We don't have a lot of exposure in our balance sheet but we're paying close attention. You asked about NDFI. NDFI of course, is a very broad category that by the way, the way it's categorized has changed. But making a long story short, I am not worried about anything that we have in NDFI.

Our biggest piece of that is SFL, our structured finance business. When you think about verticalization when you think about targeted scale, we've been in that business for 20 years, and we've had but 90% of it is investment grade.

We've had one charge-off in 20 years. We feel like we kind of know what we're doing there. The next area where we have exposure or REITs. And with respect to REITs, these are investment-grade credits in REITs, and probably everyone in this room knows that, instead of lending on a project basis, you lend to an investment-grade company that then has projects.

I feel good about that. And then the third bucket that we have, we have our own unitranche deals, by the way, that have been very successful. We have 2 of them. We're going to launch a third one for real estate because right now, I think they're going to start -- there's going to be a bunch of real estate transactions.

And we have -- and the other thing that's in there is insurance companies. And as everyone knows, insurance companies are regulated state by state, and they can't really run thin on capital by definition.

So I hear the applause in the other rooms, that means we got time for one. I think you're going to get an applause after this. But maybe just to wrap up. So the stock is trading a little above 1.3x price to tangible, which means investors think low teens returns into perpetuity, obviously different from what you put up on the slides. What do you think is still misunderstood at Key?

I think there's a few things that's understood. I think, one, just the trajectory of the business. Our trajectory right now is better than it's ever been. So I think people misunderstand the trajectory. I think people probably misunderstand the credit exposure that we had.

It was interesting that when there were a few things that tipped over, all the banks got hit, and that's just not really. Not all banks are the same.

I think people don't understand that. So it's our unique business model, the trajectory, our credit. And I mean, those are the biggest things, Ryan. If you think about those 3 things, unique business model, trajectory of the business and credit and our ability -- I'd be remiss if I didn't mention this lastly. The fact that we have an abundance of capital, our ability to not only serve our clients but return capital to our investors.

And so what you'll see is you'll see elevated return on and return of capital elevated growth of tangible book value, elevated growth of earnings kind of across the board.

Great. Please join me in thanking Chris .

Thank you.

All right. I think we're ready to start. Welcome back from the break. Thanks, everyone. We have KeyCorp up next. Key is a large regional bank with $187 billion of assets based in Cleveland, Ohio. So today, presenting for Key, we have Clark Khayat, and we have Victor Alexander. Clark has been with the organization since 2012 and prior to becoming a CFO was Chief Strategy Officer, responsible for corporate strategy, M&A, corporate and strategic investments. We also have Victor. Victor Alexander has been with the bank since he was an intern. So congratulations on that.

Thank you.

He's Head of Consumer Banking. Consumer Banking serves more than 3 million customers across 15 states. Prior to this role, you were doing home lending, Head of Home Lending, and you've also had roles at the bank doing treasury and I think probably many other roles. So thank you very much for coming to our conference. And I know you're going to make a brief presentation, and then we'll get into Q&A.

I'm, yes. Thanks, [ Ruth ]. And good to see everyone, and thanks for your interest in Key in the conference today. So as Ruth mentioned, I'm Victor Alexander, and I lead the consumer bank at Key. I spent 25 years with the bank starting as that summer intern. First 1/3 of my career was in our excellent corporate investment banking business, moved through finance, and I've had the privilege of leading our consumer business and now just wrapping up my sixth year.

Before I start, I want to reference our forward-looking statements on Slide 9. These will cover my remarks as well as the question-and-answer portion of the presentation for both Clark and me.

Let's see. Moving to Slide 2. Very high level overview. I wanted to start with a high-level overview of our consumer bank, our businesses and our markets. Our retail and business banking teams serve more than 2 million households and 0.25 million small business clients who reward us with $80 billion of very attractive deposits. And our growing wealth business now manages a record $68 billion on behalf of our clients. Our footprint always attracts attention and comments, but we like the balance and the growth that it provides. Our Eastern markets are a little more affluent. 75% of that $68 billion in wealth that we manage actually comes from the eastern part of our franchise.

We also really like the growth tailwinds that are occurring in our Western markets, places like Utah, Idaho, Colorado and the Pacific Northwest. It's an advantage to have 1/3 of your branches in such high-growth markets, and we've benefited as our relationship household growth rate is about double in the West, what we see in the East.

Slide 3 shows the role of the consumer bank within Key. Most importantly, we are the major source of raw material for the bank. $88 billion of deposits, the most granular, highest liquidity value, lowest cost deposits that we have. The cost of this $88 billion well inside of our overall company average. Our excellent commercial businesses can take this material and transform it into very high-quality, very high-returning middle market client relationships. But this business is an important component of their success.

In addition, while we're certainly not the largest contributor to fee income at Key, as you all know, consumer generates roughly $1 billion annually. And because most of this is in categories like cards and payments, wealth management, these fees are very stable quarter in and quarter out. Lastly, our consumer business is additive to Key's strong credit profile. We're a super prime lender. We don't participate in any indirect businesses. The average FICO of our consumer portfolio today is 790 and in our largest asset class, residential mortgage, is north of 800. That formula, sizable low-cost deposits, stable fees and solid credit performance positions the consumer bank to deliver strong returns through the cycle.

Moving to Slide 4. Chris and I both assumed our current roles in 2020, and he's always pushing us to stay focused. Focus propels growth is something that we repeat often around Key. We really tried to incorporate this into our everyday execution in our consumer business over the last 5.5 years. And since 2020, we've had a more consistent focus on what I think are the most core activities of our consumer bank, growing relationship households, growing our wealth business and taking the best care of our clients that we can day in and day out. This consistent focus has helped us execute better than we did historically, and we still believe we have headroom in every one of these areas.

But we're also pleased with the progress we've made. We have a better consumer business today than we've had historically. We're growing relationship households faster. On an annual basis, we've more than doubled our wealth sales, which has resulted in solid net flows and enabled our assets under management to rise meaningfully along with rising markets in recent years. We'll talk more about wealth in a few minutes. We're also taking better care of our clients today than historically. Internal measures of their satisfaction with our branch, digital and contact center channels are all up double digits over the last few years. Our clients are also telling J.D. Power and Apple that we're doing better as well.

Now let me be clear, we are not high fiving each other in Cleveland about being # 11. But the reality is it takes a lot of hard work to gain ground. It takes work across people, across systems, across culture, and we're pleased with our trajectory. No one wants to give up their spot to us, but we intend to keep climbing.

We've also driven efficiencies while taking this ground. Our branch is 40% bigger on average, and we have 1,000 fewer people working in the business today than we did just a few years ago.

On Slide 5, we've talked about being a relationship bank for the entire time I worked at Key since I was that 20-year-old intern. But the reality of that was in our consumer business, we never really aligned our products and services offering to back that up. Today, we do. For us, it all starts with an active checking account. This is the anchor of a relationship household at Key. Relationship households have an active checking account and one additional product. It could be a savings or investment account, credit card, home equity line of credit or other lending solution, and they are the most valuable component of our retail client base. You see the differences depicted on this page. Significantly greater deposit balances drive higher revenue, and these households also stay with Key longer and outperform from a credit perspective.

In 2022, we more closely aligned our value proposition, services, rates, other benefits to reward our clients for our relationship with Key. This has helped us grow and strengthen our client base. Today, 80% of our consumer deposits are from a relationship household, up from approximately 70% pre-COVID. And these households are more engaged with Key than ever before as measured by debit and digital activity. I'm also encouraged by the growth trends within our relationship household base. We're 200 years old as a bank. We celebrated that in April this year, but nearly 1/4, 22% of our relationship households have joined Key since 2020. And relative to our longer tenured client base, these new clients are younger and also more likely to reside in the Western United States, the western part of our footprint I talked about earlier.

They're also continuing our trend of outsized value from relationship households. While not yet as valuable as our longer tenured and older clients, our new relationship households have twice the balances at Key today as non-relationship households from the same vintage. So we're encouraged by the curves that we're seeing early in our new household acquisition. I'd now like to focus on Slide 6 on our wealth business for the remainder of my presentation this morning. We're fortunate at Key to have a really nice wealth business, and wealth is the second largest component of our fee income after investment banking.

Our roots in wealth are deep, and we have the capabilities to serve clients across the wealth continuum from our recently launched mass affluent initiative, which targets clients with $250,000 to $2 million of investable assets, up through our private banking business, which serves thousands of families and institutions with wealth that can be measured in the billions at the highest end. On a relative per branch basis, we are the second largest wealth business among our peers with the largest having done a significant wealth acquisition more than a decade ago.

On [indiscernible], while we've had a capable wealth business for a long time, we haven't always had a strong organic growth trajectory in this business. And in the spirit of focus propels growth under Chris' leadership, in 2020, wealth was an area we specifically selected as a distinctive growth opportunity for the consumer bank and Key. We sharpened our focus and began to execute in a more purposeful manner. Over the past few years, we've added significant talent throughout the business from senior leadership to field sales leaders to relationship managers at the tip of the spear across both our high net worth and mass affluent businesses. We built and launched a holistic mass affluent offering covering both banking and investments. We call this Key private client. This has been a significant deepening opportunity for us. 50,000 mass affluent households have brought $6 billion of additional assets to Key, split roughly evenly between deposits and investments. That works out to $125,000 per family. It's been meaningful for us.

Like the rest of consumer, we increased our efforts to improve the client experience within our wealth business, which includes everything from how often our clients hear from us and what's the intellectual content we're providing to them on a regular basis to the depth and breadth of our planning capabilities to their servicing experience across our digital and physical channels. Lastly, we leaned into our franchise and redoubled our partnership efforts with our retail business as well as our commercial and institutional teammates. Key's branch business is the #1 feeder into wealth and has been critical to the success and growth of Key private client, but it's also the #1 referral partner into our private bank. And while we've had phenomenal wins with our commercial partners, these are too episodic in [indiscernible] judgment. And along with Ken and Randy, our consumer teams are working on ways to be more consistent in our execution and better capitalize on the opportunity we know exists within our commercial client base.

Much like in the rest of our business, we feel like we're just getting started and have plenty of headroom in wealth. We'll start 2026 with 100 more sales professionals, tip of the spear producers than we had in January 2025. Our mass affluent business continues to scale. Our new client wins, I talked about that $125,000 number on average with the first 50,000. Well, this year, that number is closer to $175,000. So we're being more impactful with every client that we're winning. We just had a record quarter of managed money production within the mass affluent space. And in fact, third quarter was a record quarter. July was a record month. We beat that in August. We beat that in September. So a record quarter with 3 consecutive record months. This business is still accelerating.

Every month, we talk to more clients and do more plans. That sounds really simple, but that's a significant leading indicator of organic growth and happy clients. This is going to be the second consecutive year where the number of plans we do with our clients approximately doubles. Taken together, we think this is the recipe for consistent organic growth in Wealth Management. And with constructive markets, we've set a goal of $100 billion in assets under management by 2030 for Key's wealth business.

To wrap on the final page, thank you for your time and interest in Key and our consumer bank. We're a valuable contributor of stable, low-cost deposits, the raw material for Key's excellent commercial businesses, generate roughly $1 billion of fee income annually, have a disciplined approach to credit. Together, this combination results in solid returns on capital. And as we look ahead, our relationship strategy, combined with good execution, will enable consumer to deliver consistent growth at attractive returns. We will continue to organically grow relationship households, which will further the attractive funding we provide to Key. We will continue to organically grow in wealth and expect to approach $100 billion in assets under management by 2030. And we will continue to make our business better for our clients and shareholders, building off the steady progress we've made over the last 5 years. I'm excited for the future of Key and our consumer franchise. Thanks for joining us and look forward to your questions.

Great. Thank you, Victor. That was a great update. It sounds like he's made a lot of progress in consumer bank and moving up in performance metrics. And I just would like to get a sense of the competition has invested a lot in consumer banking and no one is standing still. So how confident are you that you can continue to close the gap?

Yes. I would say we're more confident today than we've been at any time in my tenure. Funny thing about life, I think like sometimes the inertia is a powerful thing and the hardest part about getting momentum is kind of taking those first couple of steps and establishing that. I think we've done that. I think there's no question this is a very attractive part of the banking space, the low-cost stable. Everyone sees the same -- the value of the raw materials that come from a consumer franchise, but that's not new. People have been investing in it. And we've been able to accelerate our progress kind of through that over the last 5 years. And as we look forward, we see no reason why that can't continue.

So if you think about these new households that are coming in, kind of what's the value proposition that you think is drawing new customers?

Sure. So we are proud of the relationship value proposition that we built that I referenced in my comments. If you have that active checking account with Key, it all starts with that. You're going to get better rewards on our credit card products. You're going to get better deposit rates on our savings products. You're going to get lower interest rates on our lending products. You're going to get priority routing in our contact center. So we've tried to enable both kind of hard financial as well as soft service benefits. That's made a big difference. And the other thing that's made a big difference that we don't underestimate is the client experience, right? If clients walk into our branches, they're served by our teammates. They are consistently really satisfied with that experience. They're increasingly satisfied with the experience they get on our digital properties. We've got a number of investments queued up to make sure that, that continues. And I just think as we continue to provide value to clients, as we continue to give them a great service experience, they stay with Key, they tell their friends and families, and we've been able to really grow our business consistently through that.

Okay. So I guess the next question is really around the density because you are in 15 states. You have a lot of branches. I think you've got like 942 branches. Yes. So it's -- but the question is really around that branch density. And do you need to be top 5 in a market to really be able to get that conversion for the community.

Yes. We like the density of our footprint. We like the markets that we have. We're in 25 markets as we think about it from -- in the states I showed on the picture. In every single one of those markets, we're growing relationship households this year. In every single one of those markets, we grew relationship households last year. I do think it's an advantage that we have 300 of our branches, plus or minus. I actually don't know the number exactly, but around 1/3 in the high-growth Western part of our franchise, right? We don't need to build 50 new ones or 100 new ones to be able to participate in some of the fastest-growing economic growth areas of the country. We already have them, right? We just need to continue to perform better.

The other thing that I think sometimes is underappreciated is that of our deposit franchise, 70% of it is in a market where we start with the top 5 branch position. So we like the balance of our footprint, the diversity it provides, the growth that it provides, and we've been able to see growth kind of from West to East with really outsized growth coming from our Western markets.

Okay. Clark, I'm going to pivot over to you. I wanted to touch on M&A. And I think at the conference call, Chris made some comments about being sensitive to any sort of tangible book value dilution and that the focus is really on organic growth. But I guess the question is really around M&A is picking up. The industry, there's been more consolidation. Is there a scenario where you would consider buying a depository institution?

Yes. I mean maybe just to double down on the comment you made, we feel very good about the organic path. Our capital priorities haven't changed, right? And very, very low down on that list is depository M&A. If I just quickly remind folks, it's supporting our clients inorganic growth. We've had great C&I growth in particular this year. We see that continuing. We obviously want to participate in that. I do think you'll see us do some potential acquisitions, but in what we call the bolt-on or add-on spaces, things like Cain Brothers and Pacific Crest that we've done in the past. We'll continue to do those. I tend to think about those as kind of organic extensions or pseudo-organic because they're just part and parcel to the way we run our businesses, and we're quite good at integrating those.

Our dividends is our dividend. And I might remind folks that 2 years ago, I was here and asked directly if we're going to keep paying our dividend. So it's a different place to be today. So I'm sure we'll talk about that in a minute. But we'll keep our dividend where it is. And then we've gotten back into share repurchase. We said on the call, we do $100 million. I think we're going to comfortably get above that here in the fourth quarter. And I think people can feel comfortable that whatever as we do this quarter, as we go into 2026, we'll exceed that kind of throughout 2026 on a quarterly basis.

There are other things we can do with the capital we have, and we are very lucky today to have a lot of excess capital. We will consider more buybacks faster. We'll consider potentially doing some things on the balance sheet. And look, given the market we're in with M&A, it's the right question to ask. But candidly, the bar strategically is very high. if we get through that, the bar financially is exceptionally high given Chris' comments about tangible book value dilution. And frankly, unless we can extract some unique value out of a property, given where our multiple is, we're not likely to win any sort of auction.

So candidly, we're just not spending a lot of time on that right now. And we're just really focused on -- I think Victor's story is a microcosm of what we're doing, which is let's just run the bank better, let's take the opportunities that are in front of us and let's continue to do the best work we can to build the best bank we can, and we feel really good about that.

Okay. That's great. So you mentioned this just now, but you have $100 million that you've kind of committed for buyback in the fourth quarter. But again, kind of given the excess capital, given the valuation of the stock, I mean, really, could you do more?

Yes. And so again, I think we do -- we will do more in the quarter than the $100 million. I'm pretty confident about that given what we've done quarter-to-date. I think the bigger question is how much more and when. We're sitting at 11.8% CET1. We're sitting at 10.3% marked capital. We really talked much more about marked capital. And we've said, look, we think our kind of long-term targets are 9.5% to 10%. So we've got clear room to get down to that kind of 9.5%. And then I think our closest peers at the end of the third quarter were kind of 9.1%, 9.2%. So we're well above that, and we will lean into share buybacks. I can't say sitting here today exactly how much we're going to do or some big wave of that, but I think people can feel confident that we're going to -- they're going to see more of that.

Okay. Great. Victor, I'm going to pivot back to you. You gave a really good update on the wealth business and really good to hear about the successes that you're having there. Can you kind of give us some of the KPIs that you have around the relation growing households and AUM? And what are some of the kind of primary metrics that we should be looking at?

Sure. So in wealth, what I really sweat the teams on a bunch of things, and they sweat themselves on stuff a lot that they don't necessarily need me. But what we really look at is we look at the number of people that we have, both new to the platform as well as the existing base of more tenured producers. We look at their productivity. So on the new hires, how are they ramping? Are they ramping according to our expectations on our kind of legacy book, how are they performing? And where we need to make changes, we do. But so far, we've been really pleased with both the performance of our teammates that have been on the platform for a while as well as the ramping of our new hires, and that would be in both the private banking business as well as the mass affluent business.

We look at, as I mentioned, the number of plans. We look at how often we're talking to our clients and how often we're doing planning activities. And again, I know it just sounds incredibly simple. But one of the things we've seen over the last few years, we've significantly increased how often our bankers are in front of our clients. We've increased how often they're doing financial planning with them, and we've increased the quality of the content that our Chief Investment Office does within the private banking business, quality and the frequency of that content, especially down to the mass affluent sector. So we never -- historically, it's going to sound silly. We never were generating all we've got this legacy private banking business. It's been a strong business for decades, very sophisticated. Until a couple of years ago, we never took their intellectual content down to the mass affluent space. Today, we do. It makes our advisers better, and it makes our clients think more highly of Key. That's what we're focused on.

So I mean, wealth is a very desirable area and lots of competition. Many regional banks want to grow this business. What do you think is the differentiation for Key and the wealth platform versus other regional banks?

Sure. I think 2 things. I think number one, it gets back a little bit to the footprint where we started. We do have, by virtue of especially the eastern part of our franchise, we've got an older, more affluent client base. Like we would say we've got 1 million households that we think are qualified for Key private client today. I talked about the 50,000 that we've been able to convert. That's great. But a small -- and that we've gotten $125,000 per family from each one of those [ 50 ]. So as we accelerate and as we grow into this opportunity, it can be very meaningful for Key, but we still think we are kind of in the early innings of the opportunity, I would say.

I think the other thing that we've done is I was just in one of our markets yesterday. I was talking to our private client team, there was an adviser that joined us from another regional bank. And I asked him, I said, "Hey, what's something that they did better than us and what's something that we did better than them? And I'll answer both sides of that in case you're curious. So they had some better kind of middle office tech that really makes the kind of banker experience better. It's actually tech that we're going to deploy in the first quarter of next year. So we'll have that gap closed in the next 3, 4 months. We feel very good about that.

But what he said in terms of like, hey, has been great about Key is the partnership between the mass affluent business and the branches. We built Key Private Client from scratch. It took us 1.5 years to do it, and it was a bunch of us, both from the retail business as well as the wealth business, really sweating every detail of that experience.

How are we going to incent people? How are we going to staff, how are we going to align roles? What are the expectations of our branch teammates, and it was built jointly. And we have an incredibly strong partnership between both those organizations. And that was his perspective to us was, hey, I'm not competing internally. Referrals are flowing naturally. We are getting our clients in front of the right people at the right time better than he had seen previously. And I think that's been an important component of how we've been able to kind of accelerate into this opportunity. We've gotten focus propels growth. We've got our retail business and our wealth business incredibly focused on the mass affluent opportunity.

So you have hired a lot of bankers, I think, about 10% growth this year. I mean where are you sourcing? Where are you -- you mentioned someone from another regional bank. So where are you sourcing these?

Yes, all the above, and I'll let Clark comment more broadly on bankers across the rest of the franchise. In our wealth business, actually, one of the top areas is our retail business. So again, back to this, we've created a lot of focus on wealth and some of our best, and we've got some kind of developmental roles, but some of our best new hires are actually folks that were already productive on our platform. They know Key, they know our branches, they know our clients, they know our teammates, they're trusted. They can come right in. We can train them up on wealth, and they've been able to really be additive to the platform. But I would say beyond that, we've been successful hiring from other regionals, from RIAs, from kind of a who's who across the board. And again, a lot of focus. Every month, we look at every new hire, how they're ramping. And so far, so good. We feel like they've been able to come to Key and be very productive.

Okay. I'm going to go to the audience and take a couple of questions and then move on and get back to some questions with Clark. But I want to go ahead. I think the microphone is coming, just a second.

So a question for Victor and then a follow-up question for Clark. Victor, my question is around the $35 billion or so of loans in the consumer bank. I know a large chunk of those are on the mortgage side, which are running off. But can you talk a little bit more about the opportunity set to grow the other parts of the consumer loan book? And then my follow-up question for Clark is you just mentioned that in addition to buybacks, there could be other things that you're considering on the balance sheet. Can you talk about what those are and what the time frame for that could be?

Sure. Sure. Thanks for your question. So just to give you a perspective on how we think about lending in general. Number one, first and foremost, we want to be able to support our relationship clients with lending products. And so today, we have a pretty full suite of lending products, everything from student lending, credit card, personal lending, mortgage, as you talked about. So that's important for us to support our clients. And while the overall residential portfolio is shrinking for those key private clients that still have $250,000 with the of bank, if they have a home lending opportunity, we want that to be done through Key, and we are really confident that we can give them a great client experience.

As we think about lending overall, I would say we prioritize return on equity above all else. And one of the reasons we do that is, Ken and Randy aren't here, but we have really strong commercial businesses that have a proven ability to take capital and monetize that very effectively into high-returning commercial relationships. And so that just raises the bar for us from a consumer lending perspective. And so that's the biggest reason we don't do any indirect businesses, right?

For some people, they work, but the ROE on an indirect business or I'm not going to get any cross-sell at all is just simply not as good as what we know we can get in commercial. The same holds true for resi mortgage, candidly, right? It's a lower returning product. If you have $250,000 with the bank, well, and there's enough deposits and investments there that, that ROE is reasonably competitive, what we can do on the commercial side. If not, it's a little different, right? And so we're really content to, hey, let's have a very strong credit focus -- let's make sure we're generating high returns on the capital that we provide. And then let's make sure if we don't need it, that Randy and Ken can use it to help us grow the business on that side of the house.

We still do see opportunities to the second part of your question on growth. I would say the HELOC business, in particular, home equity line of credit is an area that we feel good about going forward. There's -- as you all know, right, home equity in America is at an all-time high. Again, our client base back to the comments I was making earlier, SKUs in some of our markets, a little bit older, a little bit more affluent, more likely to be a homeowner. Many of those homeowners might have a low rate first that they don't want to touch. We think there's meaningful opportunity in the coming years, multiyear play to kind of get a little bigger in the line of credit space than we are today.

I think the only thing I'd add to that before I answer your second question, Manan, is we've told Victor like we want them to lend money to relationships, right? Resi mortgage is a hard relationship product, and it's very hard to try to acquire somebody with a mortgage and then make them a relationship. We tried that. We frankly didn't do it as well as we wanted to. So it's just not where we're going to spend time when we've identified the places where we think we can actually create a lot more value. So you'll likely see us break out kind of what we think that runoff portfolio will be over time, and then we can talk about the growth on the platform that we want.

To your question about other things, I'd first say we are in a position today where I'm not contemplating do something on the balance sheet in lieu of doing buybacks. I think we have the opportunity to do both. And the question is, is it -- does it make sense and when might it make sense to do something either to move maybe some of those residential mortgages we don't want off the balance sheet faster or address the remaining component of our investment portfolio that just isn't where it needs to be. We don't have to do either of those, but it is an opportunity we have to, again, sort of pull that 15% ROTCE up and sooner. So we'll contemplate both of those, but it won't be restructuring the balance sheet in lieu of doing buybacks. I think it's an opportunity to do both.

I will take one more question in the back.

Clark, can you give a capital markets update? And then on the consumer side, I guess you have 2 million households. And yesterday, Bank of America said they've grown 3 million new customers this decade. JPMorgan has grown 10 million new customers this decade. So looking out 5 to 10 years, do you really have the scale to compete?

Sure. So capital markets off, I think, look, we're 1/3 of the way through the quarter, off to a solid start. I think debt issuance continues to be very strong just given the markets, although a little bit of spread widening here in the last kind of week to 10 days. We are starting to see a little bit of the uptick we're expecting in middle market M&A. We obviously -- that's a very important business for us. It's been slow this year. So on the one side, I'd say we are very happy with our capital markets results year-to-date when the M&A component is running kind of about half of its normal contribution. We have seen that start to pick up. If that continues, we'll feel very good about the quarter and going into 2026.

And I would say on the second part of that question, I guess my perspective is that I think both can be true. I mean there's banks out there that have done a nice job growing their consumer franchise. But the stats that I talked about at the beginning are real, right? The last 5 years, we're growing faster than we have historically. We're winning in wealth more than we have historically. Our branches are more efficient and more productive. And our clients are happier with us today than they were really at any point in the history of Key. And so we feel like we can, to Clark's point, just keep grinding forward. I talked about kind of 4 or 5 yards at a time in our businesses. That's what we're really focused on, and I see no reason for that not to be able to continue regardless of what else is happening around us.

So Clark, I wanted to ask you about some topics that are kind of front and center right now, and one of that is -- one is on NDFI. I know you haven't been caught up in any of the issues around the fraud or bankruptcy, but you do screen as having a high concentration to NDFI. So can you just kind of talk about the -- or do an overview of the portfolio, how fast it's grown and the quality you have of the book?

Sure. So one, I just -- I think everybody knows this, but worth a public reminder that we did not grow NDFI's $12-plus billion last year. That was a reg reporting change where we tried our best to comply with the spirit of an expansion of those disclosures. Historically, it would have been $5.5 billion. It shows up now around $18 billion. So we are absolutely in NDFI as it is defined today. And I would tell you, we are really happy to be in those businesses. And I'll tell you why here. I mean, one, we don't think of it as NDFI. We don't think of it in the reg reporting categories. So there are many categories. We get a lot of questions about what's in this bucket. And the short answer is if you ask me, I will say, I don't know what's in that specific bucket, but I'll tell you what's in the $18 billion. And we really think about it as very dedicated examples of targeted scale for us at Key, where we have deep expertise. We've been in these businesses a long time. We think we're really good at them, and they are hard core relationship businesses. So of the $18 billion, think about $7 billion as being what we call our specialty finance lending business. That is what I think is most in scope in these NDFI questions. So it's lending to lenders.

I'll remind you that this is a business we've been in close to 2 decades. We've had literally one loss in that time frame. This is where we got SSFA treatment, 20% risk weighting in late '23. This is where we did our deal with Blackstone, right? So this is a portfolio that has been scrubbed a bunch of different ways, highly structured, highly profitable. We have deposits, payments and capital markets business with these clients. I will continue to grow that business as long as it's available. It's a great business for us. I think we do it exceptionally well. There's $6 billion of REITs. We think we're an outstanding commercial real estate platform. REITs is an extension of that, that is 97% investment grade. It is 40% loan-to-value. It is 3x fixed cost coverage. And we are top of the heap in terms of equity capital markets for REITs, which is just one other example of having dedicated targeted scale there. So we're going to keep doing that business.

We have about $3 billion of insurance and finance company business that is super high-quality borrowers where we have deposits. In many cases, we are running their payment operations or claims operations. So again, very deep client relationships, very profitable book, very high quality.

And the last piece is about $1 billion of what we refer to as our unitranche fund. This is for the benefit of our own clients and prospects. This is a way for us to compete with direct lenders. It's an off-balance sheet JV with a third party who's put in 87.5% equity. We put in 12.5%. We're the senior lender to that facility. And we are going to expand that because it's gone very well, and it's a very good tool in our bankers' toolkit to retain great clients and win new relationships.

So -- when I talk about that book, like that is 4 examples of what we think is outstanding excellent business where we excel, and we're going to continue to grow that. Now we have not grown it exceptionally $700 million of growth in the first 3 quarters of this year, just below kind of our overall C&I growth, but that's not because we're backing off, right? It's just because we are being selective and continuing to do deals that we think makes sense. And if the head of our Specialty Finance lending business were here today, he would say he turned down more deals this year than he's done -- than he's ever turned down in the time he's been doing this, and it's largely because he has seen the competition loosen standards, tighten spreads and be more aggressive on deals in a way that he doesn't think makes sense for the bank. So we're going to do the deals that make sense for us. We're going to continue to lean into this business.

So another question or a topic that's been in the news is the U.S. government shutdown. Has there been any impact that you can comment on whether it's consumer, commercial or corporate area from the government shutdown?

Yes. So maybe I'll hit the capital markets piece and then Victor can talk about his consumer client base. Really, the places we look when we get the government shutdown are IPOs because the SEC needs to review things and our commercial mortgage business because Fannie and Freddie need to be open for business at FHA. There is a little bit of risk and the longer this goes on, we will likely see some deterioration in those numbers. To date, we're not expecting it. We really haven't seen it. It's sort of a marginal number, but those are the pockets where we would be concerned. And then I think just the broader comment, which is part of your question, Ruth, which is the longer this goes on, how much more kind of expansive effect does it have just on the economy.

With respect to consumer, I would say, very little impact. I think just given the nature of our footprint, there's federal government employees across the country, obviously, but not -- has not been a significant impact. We do have kind of the standard forbearance programs available that we make -- that we bring out when things like this happen, we would -- but little impact so far.

Okay. Great. I think we have time for one more question. Yes, can you just wait for the microphone? Or if you say it, I can repeat it.

[indiscernible].

Yes. So the question is around our relationship with Bank of Nova Scotia as an almost 15% owner and our business relationship there flows. So one, I would say we've talked about this for some period of time, like we are scoping out what we think the opportunities are. And I've equated this because this might be another question, I've equated this sort of how we're thinking about AI. And the reason I use those as comparisons is you start by saying, what's even the possibility of opportunity there? And frankly, and coincidentally, in both cases, we've sort of identified kind of 40 to 50 things we could do. And now the work is how do you whittle that down to 2 or 3 things that actually matter. We're not going to do 50 things in AI. We're not going to try to do 50 different things with Bank of Nova Scotia.

I will say to date, and Victor can comment on this also, it's not been a top 2 or 3 priority. We've got a lot of opportunity in front of us, and we continue to sort of chop the wood on the stuff that is right in front of us sitting in the -- in the halls of our branches and buildings. So we are way more focused on that than we are on what the Nova Scotia opportunities are.

We do think there are probably 2 or 3 things that are meaningful over time, and they continue to look like us supporting their clients in the U.S. and vice versa and potentially porting some product capability that we have that maybe they don't have as much of or vice versa, right? And for us, it would probably be payments supporting them. For them, it would be some of the wealth stuff that they do in Canada, maybe porting down to the U.S. But more to come there. I would say I couldn't give you a number that was material today on what that has happened because not much has happened. And I can't give you a scoping of what it could be. We do, again, think there's something material, but we'll talk about it as we move further.

Clark and Victor, thank you so much for coming to BAAB. We appreciate the update, and thank you so much.

Thank you, [ Ruth ]. Thank you all.

Good morning, and welcome to KeyCorp's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Brian Mauney, KeyCorp Director of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. I'd like to thank you for joining KeyCorp's Third Quarter 2025 Earnings Conference Call. I am here with Chris Gorman, our Chairman and Chief Executive Officer; Clark Khayat, our Chief Financial Officer; and Mo Romani, 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 16, 2025, and will not be updated. With that, I will turn it over to Chris.

Thank you, Brian, and good morning, everyone. Our third quarter results reflect the steady progress we continue to make in achieving higher levels of both profitability and returns. We reported earnings per share of $0.41. Additionally, return on assets surpassed 1%. Pre-provision net revenue was up $33 million quarter-over-quarter or 5%, marking the sixth straight quarter of improving PPNR.

Revenues adjusting for last year's securities portfolio repositioning grew 17%. While revenues continue to increase as a result of our clearly defined net interest income tailwind. We also continue to differentiate ourselves with respect to fee income, which was up high single digits compared to 2024 for both the quarter and on a year-to-date basis.

Net interest income continues to benefit from strong business dynamics across both deposits and loans. Deposit balances were up while cost of deposits were down this quarter. With respect to loans, we continue to remix the portfolio from low-yielding consumer mortgages into relationship C&I loans at healthy risk-adjusted returns. We achieved a 2.75% NIM in the quarter, reaching our year-end target 1 quarter ahead of schedule. Asset quality metrics continue to trend in a positive direction, with NPAs and criticized loans declining, while net charge-offs were relatively stable.

Our net charge-off ratio year-to-date is squarely within our full year target range of 40 to 45 basis points. As it pertains to the two recent bankruptcies making headlines in the auto industry, we have no direct exposure.

Finally, we continue to build upon our pure leading capital ratios. With reported CET1 approaching 12% at quarter end. This excess capital provides us with both flexibility and optionality as we move forward. Franchise momentum continues to accelerate. Relationship households and commercial clients, both continue to grow at about 2% this year.

In wealth, assets under management reached a record $68 billion. Additionally, sales production in our mass affluent segment also set a record this quarter. Since we launched this business in 2023, we have added approximately 50,000 households, $3 billion of AUM and over $6 billion of total client assets to Key. Commercial pipelines are higher, nearly double the levels from 1 year ago. Investment Banking pipelines are also up meaningfully from prior periods, particularly our M&A pipeline, which has a multiplier effect as advisory assignments often drive additional ancillary business. We raised a robust $50 billion of capital on behalf of our clients in the third quarter, retaining 15% on our balance sheet.

Assuming market conditions remain favorable, we would anticipate that our fourth quarter fees would be similar to last year's fourth quarter, which was one of our best quarters on record. We remain on track to deliver our second best year in investment banking in our history.

In commercial payments, fee equivalent revenue continues to grow in the high single-digit range. reflecting our focus and commitment to helping our clients run their businesses better every day. As we enjoy this broad-based momentum, we continue to invest in relationship bankers client advisers and in our technology platforms. We remain on track to increase our frontline staff by approximately 10% this year. We are already seeing good production volumes from many of these recent hires and broadly expect to see payback from all of our hires over the next 12 to 18 months.

Before I turn it over to Clark, I want to briefly cover the medium-term targets that we disclosed a few weeks ago in our investor presentation that is available for you to review on our website. We believe we can achieve a return on tangible common equity of 15% or better on a run rate basis by the end of 2027.

Let me outline the building blocks to achieving those returns. First of all, by improving NIM by another 50 basis points to 3.25% or better, with half of it coming from the mechanical lift of fixed asset repricing, the rest coming from strong execution in our businesses by continuing to focus on primacy and generating relationship lending opportunities.

Secondly, by continuing to compound our fee advantages, leveraging our proven ability to broaden and monetize client relationships, third, by maintaining our expense discipline, including ongoing continuous improvement initiatives that are part of our DNA.

And lastly, through share repurchases in the ordinary course of business that maintain our CET1 ratios at our current relatively high levels.

To this end, consistent with my comments last quarter that we would crawl, walk, run when it comes to share buybacks, and he expects to be back in the open market repurchasing approximately $100 million of common stock in the fourth quarter.

To be clear. we believe the path to 15% has low execution risk as we continue to deliver against our compelling organic growth plan. Given our current excess capital position, we could accelerate our trajectory and improve returns through incremental share repurchases and/or more balance sheet restructurings. The 15% should not be viewed as a final goal, but rather an important milestone on our journey to achieving higher levels of both sustainable profitability and returns for our shareholders.

In summary, I am proud of our results this quarter, contributing to what will be a record revenue year in 2025. We are currently in the midst of our budget process, and we'll have more to say on 2026 at year-end but with our strong trajectory in healthy pipelines, I believe we are well positioned to drive another year of outsized revenue and earnings growth in 2026.

With that, I'll turn it over to Clark to review the quarter's financial results in greater detail. Clark?

Thanks, Chris. Starting on Slide 5. Our third quarter results reflect strong performance and continued momentum across the company. As a reminder, last year's third quarter results were impacted by a securities portfolio repositioning. As such, all comparisons are on an adjusted basis.

Revenue was up 17% year-over-year, while expenses increased 7%. Tax equivalent net interest income was up 4% sequentially, primarily driven by commercial loan and low-cost client deposit growth. Noninterest income increased 8% year-over-year, again growing a little faster than expenses this quarter. Loan loss provision of $107 million included net charge-offs of $114 million or 42 basis points of average loans, offset by a modest reserve release primarily due to the reductions in NPAs and criticized loans this quarter. Tangible book value per share increased 4% sequentially and 14% year-over-year.

Finally, we were pleased to have received a one notch upgrade to both our long and short-term ratings from Fitch this quarter with our senior unsecured debt now rated A-. We also continue to maintain a positive outlook with Moody's.

Moving to the balance sheet on Slide 6. Average loans increased by $0.5 billion sequentially, reflecting a 2% increase in C&I loans and a modest increase in CRE loans, partially offset by planned runoff of about $600 million of low-yielding consumer loans. On a spot basis, C&I loans grew by $700 million, led by new relationships to Key. Most of the growth came from the power and utility sector and in middle market broadly across sectors and regions. Line utilization decreased approximately 1% sequentially to 31% driven largely by an increase in commitments to large corporate clients. Draws were roughly flat from the second quarter. In middle market, we saw utilization rates increase about 50 basis points.

Turning to Slide 7. Average deposits grew 2% and period-end deposits grew 3% sequentially, primarily driven by growth with commercial clients. Average consumer deposits, excluding CDs, grew 1%. Average noninterest-bearing deposits grew 2% sequentially and remained stable at 19% of total deposits or 23% when adjusted for our hybrid accounts. Total deposit costs declined by 2 basis points to 1.97%. Our cumulative interest-bearing beta remained at about 55% through the third quarter, in line with updates. We've been able to get a little more aggressive than we expected due to our lower loan-to-deposit ratio as we entered the year. The ongoing remixing of loans from consumer to commercial, which limits our incremental funding needs and that the markets we operate in have to date generally remain pretty rational from a competition standpoint.

Overall, interest-bearing funding costs declined by 8 basis points, resulting in a cumulative interest-bearing funding beta of 74%.

Slide 8 provides drivers of NII and NIM this quarter. Tax equivalent NII was up 4% sequentially, primarily driven by our continued balance sheet optimization efforts. We grew relationship commercial loans at relatively stable spreads to the existing book as well as low-cost client deposits while running off lower-yielding consumer loans and higher cost long-term debt and other wholesale borrowing. NII also benefited from an additional day in the quarter. We achieved our year-end net interest margin goal a quarter early with NIM increasing 9 basis points sequentially to 2.75%. I'll discuss our outlook shortly, but we currently expect NII and NIM to grow modestly in the fourth quarter off of the third quarter. Our balance sheet is positioned to be fairly neutral to additional Fed rate cuts in the short term.

Turning to Slide 9. Adjusted noninterest income increased 8% year-over-year and included a Visa related settlement charge of approximately $8 million. Investment banking and debt placement fees were $184 million, an increase of 8% year-over-year. Year-to-date, investment banking and debt placement fees are up 15%. The strong quarter was driven by broad-based debt and equity capital markets activity. Middle market M&A volumes across the industry remain tepid.

Although, as Chris mentioned, we've begun to see an encouraging pickup in strategic dialogue among our clients over the past month, and our M&A pipelines are up materially from where they were last quarter.

Trust and investment services income grew 7% year-over-year, reflecting higher market values and positive net flows. Assets under management reached a new record high of $68 billion. Commercial mortgage servicing fees were $73 million, remaining near historic highs. Our active special servicing balances remain elevated at over $11 billion, up 48% compared to the prior year. We would expect to see these fees declined in the fourth quarter to the $60 million to $65 million range, reflecting the impact of lower Fed funds rates and successful resolutions within our active special servicing book.

Our service charges and corporate service fees increased roughly 12% and 4% year-over-year, respectively. The increase in service charges was largely driven by continued momentum in commercial payments, which overall grew fee equivalent revenue at a high single-digit rate. while corporate services income was driven by loan and derivatives client activity.

On Slide 10, third quarter noninterest expenses of $1.2 billion increased 2% from the prior quarter and 7% year-over-year. Year-over-year expense growth was primarily driven by higher personnel expense related to increases in headcount, mainly in the frontline producers that Chris mentioned and higher incentive compensation attributable to the strong fee environment and the impact from Key's higher stock price.

Non-personnel expenses rose modestly as we made an $8 million contribution to our charitable foundation during the quarter. Business services and professional fees and computer processing costs also rose slightly reflecting technology-related investments. Consistent with our prior guidance, we expect expenses to increase again in the fourth quarter, reflecting continued hiring and technology investments, anticipated growth in noninterest income and client activity and other year-end seasonality factors.

As shown on Slide 11, credit quality is relatively stable to improving. Net charge-offs were $114 million or an annualized 42 basis points of average loans. Year-to-date net charge-offs of 41 basis points are squarely within our full year target range of 40 to 45 basis points. Nonperforming assets declined by 6% sequentially and the NPA ratio improved by 3 basis points to 63 basis points. Criticized loans declined by about another $200 million or 3% sequentially.

Turning to Slide 12. Our CET1 ratio was 11.8% at quarter end, driven by net earnings generation. Our marked CET1 ratio, which includes unrealized AFS and pension losses, increased by about 30 basis points to 10.3%. We believe both ratios continue to be at or near the top of the peer group. Given our marked CET1 increasing comfortably above the top end of our target range, we plan to be active in repurchasing roughly $100 million of our shares in the fourth quarter and continue as previously stated, in 2026.

Moving to Slide 13. We are increasing our full year and exit rate guidance following the strong third quarter results as we now have good line of sight into how the fourth quarter is shaping up. As a reminder, this guidance holds across a range of potential yield curve environments over the course of the fourth quarter. We now expect full year net interest income growth of about 22% at the high end of the previously guided 20% to 22% range. In conjunction, our fourth quarter exit rate NII should grow 13% or more compared to the fourth quarter of 2024, assuming a fairly flat balance sheet in the fourth quarter compared to the third, this implies a fourth quarter NIM in the 2.75% to 2.8% range. We expect fees to grow between 5% and 6%. We believe we can land towards the higher end of this range, assuming we see some pull-through of our improved M&A pipelines prior to year-end as currently expected and market conditions remain favorable.

As we previously mentioned, we expect full year expenses to fall within the middle of the range we provided at the beginning of the year or approximately 4%. We expect our GAAP tax rate to come in around 22% in the fourth quarter. For the full year, we currently expect the GAAP and tax equivalent effective rates to land at approximately 21% and 22%, respectively, both toward the better end of the previously guided ranges. Our other guidance remains unchanged.

In summary, subject to the usual macro caveats, we expect to maintain our strong momentum through the fourth quarter, which would result in record revenue in 2025, fee-based operating leverage of greater than 100 basis points and north of 10% positive operating leverage overall.

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

[Operator Instructions] Our first question comes from the line of Manan Gosalia with Morgan Stanley.

Chris, Clark, we say the timing -- I appreciate the timing and details related to the 15% [indiscernible] and the [ 325 ] plus NIM targets. I guess a 2-part question here. First, can you provide a little bit more detail on the drivers to get to that 15-plus [indiscernible] target? And second, you do have some peers who are targeting closer to a 16% to 19% ROTCE over a similar time frame. Chris, I know you noted that the 15% plus is not the final goal. But maybe help us understand why the ROTCE can't be higher in the medium term?

Sure. Manon, it's Clark. I'll take that. So first, just to reiterate what you just said, which is Chris' point that the 15% is stopped and not the destination. So I think that's an important element here. But let me get at both target we set out, and I'll include in that the NIM since that's a big driver, obviously, of the numerator. And if we start there you're talking about the NIM moving up about 50 basis points over that time frame. That's meaningful moves. Obviously, we've started from a lower level than others, and we're moving up nicely over the course of the last year. But if I look at that as a split between mechanical movement, fixed asset repricing in our securities book over time in the [indiscernible] and just as a note there, you'll see with forward starters coming on something like $34 billion of swaps in the 3.8% to 3.9% range. So as rates come down, those will go from a slight negative carry today to a pretty strong benefit. So we feel very good about that position.

And then that, we think, is about half of that gain with the other half coming from continued strong organic activity. And I think that will be loan growth. We'll continue to focus on good, strong commercial loan growth offsetting the runoff in consumers. So think about that as like a 2% pickup over time. We expect to continue to grow high-quality granular deposits, which we've been doing, both in the commercial and the consumer space. And to manage the pricing on those deposits effectively. And I would say kind of 50-ish beta over that time frame, not necessarily in any 1 quarter, but over that time frame is kind of what we would expect there. And I think those two pieces together get to the 50 basis points in that time frame.

If you move to fees, we continue to see very strong growth across our high priority fee businesses, capital markets, commercial payments, wealth and commercial mortgage servicing. We would continue to invest in those and have. And so we expect that growth to continue through that time frame. All of those, of course, have very strong our ROTCEs and don't use up a lot of capital. So that benefits certainly to 15%.

On the expense side, I think we have pretty well demonstrated ability to manage expenses effectively. We, of course, plan to continue doing that and using our continuous improvement activities to continue to fund meaningful and needed investments. And then on the provision side, feeling very good about credit quality, and we think we'll continue to focus on high-quality borrowers where we can monetize those loans through our compelling seed platform. So all of that, we think by that end of 27 gets us a good portion of the way to the 15%. And I would think about that in ROAs that are in line with or better than some peers north of 120 ROA. So I think that's an important milestone for us as well.

And then I think the second obvious piece here is the denominator, which is the capital base. As you are well aware, we have a strong CET1 and mark CE1 today in absolute and relative terms. And this analysis assumes we'll manage buybacks, which, as Chris said, will initiate again here in some size in the fourth quarter, to effectively our current market levels, which are about 10.3%.

So maybe one or two additional comments here to just to frame this, and I think they're pretty important. So First, the 15% we see as low risk, no real big swings in here. So this is running our business effectively as we're doing today. But we are high on the capital side, and we're going to generate and are generating solid capital growth. So we have ample ability here to increase buybacks or to restructure to accelerate to our targeted balance sheet if that's what we need to do. Both of those speed up to 15%, and they offer clear outperformance to that midterm milestone.

We haven't decided sitting here today if we're going to pull those levers in addition to the buybacks we're already assuming nor a degree to which we would do it if we choose to do it. So again, we feel like it's a very good position to be in here. We could pull either or both of those levers deliver very strong returns on both a relative and absolute basis and still be at or near the high end of our peer capital range.

So just to dimension that, one more way, if we took our current mark capital and we took that down to the peer level of [ 9.1% ], that would generate an additional 2% of our ROTCE. So we can do that math. We can do that with continued solid business performance and some more aggressive capital management and we can get comfortably past that 15-plus percent target.

Just to add to Clark's point, our current long-term goal for return on tangible common equity is 16% to 19%. We haven't updated that, but I can tell you that when we do, it won't look much different than 16% to 19%.

Got it. That's great. I really appreciate the fulsome response here. I guess a quick follow-up, given that NIM is a big driver here. As we think about that [ 325-plus ] NIM, how do you think about rate cuts in the yield curve? Do you need to see a specific level of steepness in the curve to get there? .

I don't think we do. I do think that kind of 50-ish beta is the right way to think about it. Right now, that's just given the forward curve steepening it might be true for most banks, but steepening obviously provides some additional benefit, and we expect to see some of that coming through again in the forwards, more steeper curve said differently, would, I think, benefit us more. But right now, that really just relies on that kind of 50-ish beta and the forward curve, which does, again, have a little bit of steepening in it.

Our next question comes from the line of Ebrahim Poonawala with Bank of America.

Good morning. Just one quick question first on bank M&A. We've seen some activity. I think there was some discussion around Key being involved in a recent transaction. And I think the concern that I've heard from investors is given your stock valuation, the risk of significant tangible book dilution and what that entails. And I think there's just caution towards owning banks that are viewed as potential buyers of other banks. So I would love for you to frame for us how you're thinking about bank M&A from a financial metric perspective. And are you actively sort of just your appetite for doing with you?

Well, thank you for the question. This is a topic that I know he's gotten some discussion probably more than is warranted. So let me start off with talking a little bit about what our strategic focus is. And I think Clark just did a really great job of walking everyone through the pieces and parts of the step-up in our return on tangible common equity. That's what we can control. That's what we are focused on.

Obviously, as we build up our return on tangible common equity, we will get a multiple and have a currency that will put us in a good position if we ever wanted to transact at some point. So our real focus is this huge organic opportunity that's right in front of us that we have to execute on that's how we can create the greatest value for our shareholders. Specifically, as it relates to bank M&A, that's pretty far down the capital priorities.

So let me kind of walk everyone through what our capital priorities are, First is to support our clients. I mentioned that we have a backlog that's 2x today what it was just 1 year ago. So we're going to use our capital for our clients. Secondly, we are going to pursue tuck-in deals in support of our targeted scale strategy. Those are really fee-based capabilities, really knowledge workers I think we have a really good track record of being able to buy these relatively small businesses and plug them in and integrate them. We're going to continue to do that.

Obviously, we'll support the dividend at $0.25 a share. We now have sort of turned the valve open on share repurchases. I think Clark did a nice job of walking through. We clearly have in front of us some opportunity to work on our balance sheet a bit as we use -- without, frankly, using a lot of capital. For example, we have about $14 billion of CMOs and CMBS, the CMBS bonds that are less than 2%. So that's an opportunity for us.

And then as it pertains specifically to bank M&A, it's a really tight screen that we would look at. First, it has to be absolutely on strategy and there's not many banks that would check that. Secondly, it has to be a bank that has a culture that we think we can integrate into ours. We have a bit of a unique culture because we have a unique business model. And as you know, we bring leading the integration of -- first [indiscernible], I sort of know what's involved in that, and that's not easy. That's actually the hard part. And then lastly, and important for this group for sure, it would have to check the box on a variety of important financial metrics, inclusive of tangible book value dilution. So that's just broadly how I'm thinking about our strategy and sort of where inorganic growth fits in.

Got it. So it sounds like unless someone gifted your bank, the bar is extremely high for the deal.

Just on a separate question, Chris, you have a pretty good sense of just the capital markets, what's going on given the focus on the exposure of banks to NBFIs, one, talk to us in terms of how you view the risk on your balance sheet and the risk of the lack of visibility that the banks have when providing these warehouse facilities nonbank providers?

Yes. So let me talk about what's in our portfolio and why, at least from a key perspective, I don't think it's an issue. We have a business called SFL, which we've been in for 20 years, and we do a lot of the payments work. We do a lot of the securitization work. I don't think we've had a charge-off in 20 years. So my point is the key for NBFI is for banks to be readily engaged with these borrowers and not just have a piece of paper that they put on the shelf.

For example, in our bucket, you'd find REITs well, obviously, one of our best businesses is our real estate business, and we're constantly in touch with these folks around payments, capital raising, et cetera. So I think if I was sitting in your seat, one of the things that I'd be curiously interested in is what are the asset classes within the nonfinancial investment group and then -- or nondepository, I beg your pardon. And then I want to know how engaged the banks are day in and day out with those borrowers. Clark, what would you add to that?

So I think, one, as you sort of hit NBFI, I think, is a fairly broad undefined category from a regulatory standpoint. So I think the important thing to know is, as Chris said, it's not one thing. It's a for us a collection of businesses that don't necessarily align perfectly to those [indiscernible] reports. But the more important thing is they are businesses we've been in for a long time where we have very deep expertise and we generally apply our strong relationship strategy to that. And in many of these cases, we have what we refer to as targeted scale. We have real deep expertise in a very targeted segment of clients, and we performed really well in those groups.

For example, we have separate teams that deal with each and every part of the groups that we have.

And this is Mohit Ramani. One thing I might add too is I reviewed the fuel files and structures and feel really good about where we sit. I've been Chief Credit Officer twice in my career journey. So my ability to dig in on these structures is quite strong. We don't play in the more esoteric areas of NBFI. Again, if you think about again the REITs and CLOs and things like that, I think that's pretty much down the fairway relative to risk appetite. And also, we have a strong portfolio management structure. So we have a very advanced limit structure that prevents outside growth. So no area of the bank can grow to Infinity. We do have very strong limits in place as well to control growth across portfolios.

Thanks for that Mo. Does that answer the question?

Our next question comes from the line of Brian Foran with Truth Securities.

I was going to ask about credit, and I appreciate all the detail. I have to call out that you included charge-offs to the penny in the earnings release. So I'm impressed that counted that last $0.56.

Maybe if I could shift to growth, though. It's interesting in the loan book and the supplement, it's kind of like two halves. It's the C&I book growing nicely. It's now up 8% year-over-year. And then everything else kind of something to $50 billion and being down 7% year-over-year. As we sharpen our pencils over the next year or 2, is there any help you can give in terms of like is there a target size for some of these books? Or is there a timing when you think new production starts outweighing some of the lower yielding stuff rolling off and pay downs just how to think about the part of the book that's shrinking and what the end goal is there?

Yes. So obviously, we can give you a lot of clarity on where we think the shrink is going to come from because those are high-quality mortgages, principally to doctors and dentists that roll off. And based on the curve we can give you great estimates of what we think is going to roll off.

In terms of what we're actually going to put on our balance sheet because of our underwrite and distribute model, that's a little harder because a lot of the capital that we raised, we actually place with others. But I can tell you, I mentioned in my comments that our -- basically our middle market C&I book, our backlog is 2x what it was last year. One of the areas -- a few areas where I think you're going to see a pickup.

In the fourth quarter, we'll basically accelerate our C&I book by about $1 billion. And I think you'll see it continue to accelerate from there in 2026. The other areas where I think we'll get some benefit. One is transaction CRE. Right now, you can see that CRE is sort of coming into equilibrium. But I think you'll see us actually grow our CRE outstandings in 2026.

Also, Clark mentioned this in his comments, comments. We have not had a lot of middle-market M&A activity. We have very large pipelines, but we haven't had a lot coming out of the pipeline in spite of the fact that we had a strong investment banking and debt placement fees. It was not driven by M&A. That will help us in 2026.

And I continue to believe this tax bill is really important. This accelerated depreciation, I think, will bode well for growth. The other thing that obviously we haven't seen, as you look at our numbers, is utilization. Utilization actually ticked down. However, we feel good about that because the reason it ticked down was large commitments that we brought on new clients in our institutional bank, whereas in our middle market, we actually did have a lift in utilization. Does that help you?

That's awesome detail. It's good to hear the CRE book is starting to flip. I guess one follow-up, if I could ask it. When I look at mortgage, home equity and other consumer call it, $30 billion right now or I guess, 30% of loans. Any framing you'd give like do you want that to eventually get to [ 20 ] before it stabilizes, [ 25 ]? Any kind of bigger than a bread basket sizing on where [indiscernible] land?

Yes. We've always said we want to have a balance. We need both consumer and we need commercial, which means, first of all, we've got to replace some of the runoff. I think a couple of areas where you'll see us replace the runoff that's actually good for us because most of the yield on those mortgages that are running off are about 3.3% or so. You'll see us step up in terms of home mortgage. We obviously have a whole lot of customers that have a lot of equity in their homes. There's not a lot of houses that are trading. We have that business now. We're investing in some technology to have it be a better client experience. That's one area.

The other business we have that is a really good business, but it's very dependent upon both the vintage of student loans and also the curve is our student loan refinance business. We think the -- we think interest rates have to come down another 100 to 150 basis points for that to really kick in.

Our next question comes from the line of Ryan Nash with Goldman Sachs.

Chris or Clark, Chris, I think you talked about crawling before you walk on the buyback, and I think you highlighted $100 million in 4Q. I guess, just given how robust the capital levels are. Maybe just talk a little bit how you think about the pacing beyond 4Q. And I'm assuming if your targets work out and you sound like you have a high degree of confidence in them, you probably believe the stock is going to be a lot higher. So I guess, why not be more aggressive at this point given all the tailwinds that you have in front of you?

Yes. Totally fair question. This is Clark. Ryan. A very fair question. I would say, just from a timing standpoint as we sit here today, just a couple of things to consider. One, this is really the first time we've been comfortably above that 10% mark number. We've sort of talked about running at the higher level amid some level of uncertainty. We are getting close to being in our dividend payout target range of 30% to 50%. So this quarter will be just a hair north of 50%. So we want to get that more squarely in. And then there is still a little bit of broad uncertainty, although that feels like it is normalizing and stabilizing a little bit more.

So I think your question is right. I think the point in highlighting the denominator and the flexibility around that in my walk on ROTCE is exactly that. So that is a lever we can pull will be a little bit more directive, I think in the guidance call for '26 on exactly how much to expect. But I think that $100 million for the fourth quarter is likely going to be the low level as we move forward, subject to the normal macro caveat movements.

And if I could just -- if I could ask a follow-up to Brian's question maybe to put a finer point on it. As you think about reaching these targeted levels, 15 plus ROTCE and [ 325 ] plus NIM, do you think we get earning asset growth along the way and what's the right way to think about earning asset growth? And related to that, would you guys take action to accelerate the runoff of consumer loans so that you could start to return to net growth?

So a couple of things. Obviously, that last part of your question is always an option, and we're always looking at all the pieces and parts. We could take action there. I also mentioned some CMOs and some CMBS that we could take action on.

In terms of earning assets, I've always said you'll see us really grow our earning assets when the markets are in a little bit of dislocation because our job is really to serve our clients. Right now, we can do a better job of serving our clients basically by placing paper elsewhere because of our risk appetite vis-a-vis others. You'll see it grow. And I've also said that I think probably the right place for a bank our size going forward in terms of the loan-to-deposit ratio is probably mid-70s, and we're obviously not there right now you.

Our next question comes from the line of Erika Najarian with UBS.

I just wanted to reask the question that Ebrahim put forth. And I'm sorry to keep beating a dead horse, but the stock is down 2.5%. Clearly, it's not a 2.5% down quarter and certainly not a down outlook given how you walked us through the ROTCE. So I guess my question is, Chris, we heard you loud and clear in terms of your priorities for capital I think the concern -- the specific concern that we're hearing from investors is your multiple. And in that -- and obviously, there were some conjecture out in the market that you were a high bid for First Bank. But in that very tight screen that you talked about, how is pricing taken into account, how sensitive would you be in terms of book dilution, you also went through the First [ Niagara ] deal, of course. How sensitive are you to book dilution? And maybe walk us through very plainly the opportunity to by your bank at 1.37x tangible book versus using that as currency given seller expectations?

Yes. Well, I think we've been pretty clear on this. The real focus, Erika, for us is to get our return on tangible common equity first up to 15 and then beyond it. And we also -- when you mentioned buying our bank, we mentioned that we're going to buy $100 million of our stock in this quarter. So that's exactly what we're doing. And you can rest assured, we are -- I am personally sensitive to tangible book value dilution. I was here when we announced the First [ Niagara ] deal, and I understand the extreme sensitivity on behalf of many investors with respect to tangible book value dilution. But I think I've been pretty clear, our focus from a strategic perspective is to drive our return on tangible common equity.

That's helpful, Chris. And just as a follow-up question to Clark. As you think about the potential for further balance sheet restructuring, what conditions would you be looking for in terms of the rate backdrop or if any other preconditions when thinking about that decision tree? .

Yes. Thanks for the question, Erika. So I mean, probably not different than what we've said, which is our first goal is to really support clients. I think realistically, given the amount of capital we have over time, it's going to be hard to deploy all of that in further in of organic client growth. So we will look at the right opportunistic moments potentially to either use capital for share repurchase or to do whether it's the CMOs or the mortgage loans, think about how to monetize those differently.

But I mean, it's not -- again, it's not something we've spent an enormous amount of time to this point, just given where our ratios were and our desire to get to the top end of that range. and to get our earnings back to our dividend payout ratio. But I think now that we're sort of getting to that area, you'll see us -- well, you won't see us. You should know we will be working harder on thinking through these scenarios and just understanding what are opportunities -- what our best opportunities are to deploy that capital. I do think it all assumes a good constructive macro environment because, obviously, if that changes, we would have a different view on capital use.