The paragraph is an introduction to KeyCorp's third quarter 2024 earnings call. Brian Mauney, the Director of Investor Relations, introduces the call and mentions the company executives present. He references the earnings presentation slides available on their website and notes the inclusion of forward-looking statements and non-GAAP measures. Chris Gorman, the Chairman and CEO, begins by discussing significant progress for the company, including an initial $821 million minority investment from Scotiabank, which was used to reposition their securities portfolio. This move is described as well-timed.

In the article's second paragraph, the company reports selling over $7 billion in long-dated securities amidst high bond market conditions, investing the proceeds into shorter-duration assets to boost yields. This move is expected to increase fourth-quarter net interest income by over $40 million. They are also awaiting regulatory approval for a Scotiabank minority investment by early 2025. The company reported a 7% increase in net interest income quarter-over-quarter, driven by maturing low-yield instruments and effective management of funding costs, despite a recent Federal Reserve rate cut. Client deposits grew by 4% year-over-year, facilitated by an active deposit repricing strategy. Investment banking fees reached $171 million, with strong performance in loan syndications and debt and equity originations, maintaining high activity levels.

The article highlights strong performance across various business segments. Pipelines and M&A backlogs are significantly up, boosting confidence in achieving the high end of the investment banking fee target of $600 million to $650 million. Commercial payments and deposits have increased, with a high percentage tied to operating accounts, while treasury service activities show strong growth. The commercial mortgage servicing business achieved a record quarter due to a portfolio acquisition, with special servicing balances at $7.5 billion, offering insights into the real estate market. Wealth management assets hit a record $61 billion, led by notable growth in the mass affluent segment with the addition of 5,000 households and $620 million in assets. Overall, all segments are performing well with potential for record achievements if market conditions remain favorable.

In the past 18 months, Key has added over 36,000 households and $3.6 billion in new household assets, highlighting growth potential in the mass affluent segment as only 10% of over 1 million affluent households currently have investment relations with the company. Key maintains a conservative credit profile with flat nonperforming assets and provision for credit losses, while net charge-offs increased due to specific known credits. The firm saw a $132 million decline in criticized loans and improvements in credit trends, suggesting a peak in nonperforming loans. Key closed a strategic investment from Scotiabank and completed part of its securities portfolio restructuring, enhancing net interest income and preparing for rate cuts. Despite restructuring impacts, Key improved its CET1 ratio by 35 basis points to 10.8%, and further details are to be provided by Clark H. I.

In the third quarter, Khayat reported a negative earnings per share of $0.47 due to a $0.77 impact from a securities portfolio repositioning. Excluding this repositioning, EPS was $0.30. In September, the company sold approximately $7 billion worth of CMOs and CMBS, reinvesting the proceeds in October, resulting in a 260 basis point yield increase for these securities in the fourth quarter. They plan a similar repositioning after the second tranche of the Scotiabank investment, pending Federal Reserve approval. Reported revenue dropped 55% sequentially and year-over-year due to the repositioning, but without it, revenue rose 6% sequentially and 3% year-over-year, driven by increased net interest income and fees. Expenses decreased by 1% from the previous year, leading to roughly 400 basis points of positive operating leverage, excluding the repositioning. Credit costs were stable with a $60 million release from credit loss allowances, and the common equity Tier 1 ratio improved to 10.8%, as tangible book value rose 16% sequentially.

In the quarter, average loans slightly decreased to $106 billion, primarily due to low client demand, stable utilization rates, and strategic management of the balance sheet. The company facilitated $28 billion in client capital raises and saw robust investment banking fees. Approximately $600 million in loans were warehoused for commercial clients, and $300 million of CRE loans were refinanced through capital markets. Loan pipelines are growing, suggesting future activity. On the deposit side, average deposits grew 2.5% to nearly $148 billion, with a 4% year-over-year increase in client deposits, alongside a reduction in broker deposits. Noninterest-bearing deposits slightly declined but remained stable when adjusted for hybrid accounts. Deposit costs rose modestly, partly due to a strategic shift from higher-cost FHLB funding to cheaper client deposits, with overall interest-bearing costs increasing minimally by 1 basis point.

The paragraph discusses the proactive measures taken by a financial institution in response to an anticipated Federal Reserve interest rate cut. Before the rate cut, they adjusted their deposit strategies and indexed commercial deposits. After the cut, they reduced rates further, expecting a low to mid-30s deposit beta, which would benefit their net interest income in the fourth quarter. Their tax equivalent net interest income rose by $65 million to $964 million, and their net interest margin increased by 13 basis points due to low yielding swaps and treasuries maturing. They also repositioned their securities portfolio, adding $12 million and 2 basis points to the third-quarter net interest income and margin. Noninterest income was negatively impacted by a $918 million securities repositioning loss and a $14 million Visa charge, but adjusted noninterest income grew 3% year-over-year. Investment banking and debt placement fees rose significantly, and commercial mortgage servicing had a record quarter with increased assets serviced.

The paragraph discusses financial performance and metrics related to a company's commercial mortgage servicing fees, trust and investment services, noninterest expenses, credit quality, and capital position. It notes an expected stabilization in servicing fees, an 8% growth in trust and investment service fees due to record asset levels, and changes in noninterest expenses driven by personnel costs and incentive compensation. Credit quality is solid despite some charge-offs and delinquencies, with stable nonperforming loans and a decline in criticized loans. The company has improved its Common Equity Tier 1 (CET1) ratio and adjusted for unrealized losses, reflecting strong capital management and response to lower interest rates.

The company anticipates improvements in AOCI by the end of 2025 and 2026, driven in part by a strategic securities portfolio repositioning linked to an investment from Scotiabank. For 2024, net interest income is forecasted to decline by 2% to 5%, with a net interest margin around 2.4% for Q4. Loan forecasts are adjusted down by 1%, while deposit growth expectations are increased. Fees are expected to grow by 6% or more, expenses are projected to rise by 2%, and provision for credit losses remains at $400 million. The company also mentions completing the sale of treasuries, anticipating benefits in Q4.

The paragraph discusses the company's financial performance and projections. The cumulative annualized opportunity amounts to about $830 million, with 80% achieved so far. The path from $964 million in net interest income (NII) in the third quarter to the targeted fourth-quarter exit rate is outlined. Despite potential Federal Reserve rate cuts, fourth-quarter NII is expected to be at least 10% higher year-over-year, potentially reaching $1.20 million or more. Anticipated benefits include $40 million from a September portfolio restructuring and initial investment from Scotiabank, $50 million from fixed-rate asset repricing, and some commercial loan growth. While Fed rate cuts might have a short-term negative impact, they could eventually benefit other business areas like client transactions, credit demand, and capital improvements. The paragraph ends with the transition to the Q&A session, where Scott Siefers from Piper Sandler asks a question.

In the paragraph, Clark H. I. Khayat discusses recent changes in the company's balance sheet, particularly focusing on the rate sensitivity over a 12-month period. He mentions that the company has taken more actions with deposits than initially planned, achieving low-30s betas, and expects to return to standard beta paths by 2025. Khayat highlights that the best-case scenario for the company's rate profile would be a steepening curve, suggesting a potential soft landing with term rates around 4% and the front end decreasing. He also points out that the company has reduced higher-cost wholesale funding in favor of lower-cost deposits, enhancing their deposit base and improving their ability to manage pricing and rate sensitivity as swaps positions diminish.

The paragraph discusses a financial strategy involving the repositioning of cash due to concerns about holding it for an extended period. The cash, being asset-sensitive, was impacted by decreasing rates. However, the repositioning allowed the cash to be invested in the market at better-than-expected value, improving the rate sensitivity position for the future. The invested cash was placed in a range of 490 to 495, with a duration of under four years, leading to a positive outlook. Scott Siefers inquires about an anticipated net interest income (NII) improvement of over 20% for the next year, speculating it might be better due to the actual investment performance. Christopher Gorman responds with a cautious outlook, mentioning ongoing future planning and noting that about half of the expected NII improvement is attributed to the repositioning's impact.

The paragraph discusses a financial strategy aiming for growth by early 2025, contingent on approval of key initiatives. About half of the anticipated financial improvement will come from a complete repositioning, with additional benefits from repricing fixed-rate assets and favorable swaps. It notes expectations for stable loan levels, shifting from consumer to commercial loans, and emphasizes the importance of managing interest rate betas, especially in commercial deposits. The text highlights confidence in using hybrid accounts and treasury services to achieve desired financial outcomes throughout 2025.

In this paragraph, Christopher Gorman discusses the increase in M&A backlogs, attributing it to the private equity sector becoming more active in transactions as interest rates stabilize around 4%. He notes that there is a rising trend in capital markets activity, which is partially displacing traditional bank lending. Gorman highlights that KeyCorp is actively involved in this space, having raised $28 billion last quarter and distributing paper across various markets, including private capital and credit markets.

In the given paragraph, Christopher Gorman and Clark H. I. Khayat discuss their business model and the role of private equity in their operations. Khayat mentions the firm's strategy of handling loans, stating they've put $0.5 billion into a warehouse and refinanced $300 million into the market, with a focus on client-appropriate decisions. Mike Mayo inquiries about the private equity sector's activity, highlighting the abundance of "dry powder" (capital available for investment) and its influence on business. Gorman replies that private equity constitutes about a third of investment banking fees and notes that current market participation by private equity firms involves processes with longer timelines, like launching new products. He also acknowledges an accelerated resolution in special servicing, which Gerard Cassidy probes further, although specific details are not provided in the excerpt.

In the discussion, Christopher Gorman highlights the current state of the real estate market, noting significant discounts in the office sector due to a lack of new capital and necessary capitulation. In contrast, multifamily projects, particularly in the Southeast, are attracting new capital for restructuring, despite being financed aggressively. Gerard Cassidy then inquires about the outlook for commercial and industrial loans, to which Gorman responds that while they are successfully growing their client base, there's frustration over existing clients not borrowing more. Nonetheless, there is some positive transaction activity in the finance sector.

The paragraph discusses supply and demand dynamics, highlighting that supply currently exceeds demand. For demand growth, investment in capital expenditures (CapEx), utilization adjustments, and effective working capital management are needed. During the pandemic, companies stockpiled inventory due to inflation and supply chain issues, but they're now adjusting to focus on cash management, partially influenced by rising interest rates. Growth is expected to return via transaction resurgence, CapEx engagement, and eventual utilization increases. Additionally, in response to a question about student lending, it's noted that lower interest rates could revive this sector, but challenges remain due to ongoing interest rate changes and the lifting of a moratorium.

The paragraph is part of an earnings call transcript featuring a Q&A session with financial analysts. It touches on several topics, including the impact of resuming student loan payments on consumers, technical difficulties during the call, and questions about specific business operations. Notably, Nathan Stein, representing Deutsche Bank, asks about a rise in commercial and industrial (C&I) net charge-offs due to three specific credits. Christopher Gorman explains that two credits were in consumer products and one in equipment manufacturing, each with unique issues, and does not expect this to indicate a broader industry trend. Nathan also inquires about net interest margin (NIM) projections for the fourth quarter, which were noted at a 2.40 level amidst various moving parts.

In the paragraph, Christopher Gorman discusses Key's long-term net interest margin (NIM) expectations, stating that they are comfortable with a target range of 2.8% to 3% by the end of 2025, despite fluctuations in interest rates. Zach Westerlind from UBS inquires about the company's approach to deposit betas and their recent increase in interest-bearing deposit costs. Clark H. I. Khayat explains that while deposit costs rose by 11 basis points, this was partly due to a strategic shift to higher-cost deposits that are still cheaper than wholesale funding. They paid off $4.5 billion in Federal Home Loan Bank (FHLB) advances, keeping overall funding costs nearly stable. Khayat notes that while they initially expected deposit betas to be in the low to mid-20s, they now anticipate them to be closer to the low to mid-30s.

The paragraph discusses the impact of interest rate cuts on financial strategies and deposit pricing. The speaker notes that they were able to pursue more aggressive portfolio strategies due to understanding the dynamics involved and benefitting from a 50 basis point interest rate cut in September. This cut allowed for more flexibility in deposit pricing, although it may create some drag in 2024. Regarding noninterest-bearing deposits, the discussion highlights that the reported decrease is partly due to hybrid accounts used by commercial clients. When adjusting for these accounts, the levels remain stable. The speaker expects deposit levels to stabilize and potentially start growing if rate cuts continue, suggesting that current levels might be near the bottom.

In the paragraph, Manan Gosalia asks about expense projections for 2025, noting the availability of more capital and expectation for growth. Christopher Gorman responds by stating that they aim to maintain discipline with low to mid-single-digit expenses despite the increased capital, mentioning some unique fourth-quarter investments tied to advantageous market conditions and balance sheet improvements. Clark H. I. Khayat adds that the fourth-quarter spending should not be annualized for 2025, as it includes specific opportunities to boost fee growth and prepare for 2025. Both emphasize that increased earnings and investments won't lead to lax expense discipline.

The paragraph involves a discussion between Clark H. I. Khayat and Manan Gosalia about deposit betas and their behavior through economic cycles. Khayat explains that predicting deposit betas is complex due to various factors like funding needs, interest rate levels, and movements in rates. He notes that deposit betas reached around 56% on the way up due to substantial rate increases from near-zero. On the way down, he anticipates similar but slightly lower betas, potentially around 50%, as rates are unlikely to return to zero. He emphasizes considering loan growth and required funding balances. The conversation then shifts to Mike Mayo from Wells Fargo, who asks about the increase in non-performing loans (NPLs) and whether it's a trend or related to specific credits.

In this exchange, Christopher Gorman and Clark H. I. Khayat discuss financial expectations and outcomes with Mike Mayo. Gorman mentions that non-performing loans (NPLs) are expected to remain flat in future quarters, while non-core operations (NCOs) are not anticipated to recur. Khayat clarifies that their projected 20% increase in net interest income (NII) for next year already accounted for repositioning securities, so while they benefited from favorable market timing, this only provided a slight additional gain rather than a significant increase beyond the anticipated 20%.

The paragraph is a transcript from a discussion involving John Pancari from Evercore ISI and Christopher Gorman, where John asks about expectations for capital markets revenue in 2025. Christopher expresses confidence in the revenue trajectory, suggesting a positive outlook if the current stable environment continues. He mentions guidance for 2024 implies another increase and hints at strong momentum going into 2025 due to long-term pipelines. John also inquires about loan growth, referencing expected stability from trends showing declining consumer loans but increasing commercial loans, seeking more details on expected growth.

The paragraph discusses strategies to offset consumer loan pressure by focusing on areas of commercial loan growth. Clark Khayat mentions a decrease in consumer loans by $2-3 billion annually due to natural maturity and paydown, with potential changes depending on rate levels and mortgage markets. He identifies opportunities for growth in commercial loans, particularly in affordable housing and renewables, which involve large project transactions that take time to mature. Christopher Gorman adds that transaction businesses will likely generate more loans, and highlights the importance of watching client investment in capital expenditures and utilization. Additionally, John Pancari notes a slight reduction in the loan loss reserve this quarter.

In the paragraph, Clark H. I. Khayat discusses the stability of the Allowance for Credit Losses (ACL), noting a slight decrease of 3 basis points and emphasizing cautiousness due to economic uncertainties and late-cycle economic effects. He suggests that if interest rates continue to decline and the economic environment remains favorable, there could be potential for incremental credit releases. Christopher Gorman adds that three factors drive credit decisions: macroeconomic views, idiosyncratic factors, and the size of the loan book, all of which influence reserve levels. John Pancari acknowledges Chris's input. Peter Winter from D.A. Davidson then inquires about loan growth expectations for the fourth quarter, noting that full-year guidance remains unchanged, suggesting anticipated growth.

In the paragraph, Khayat discusses the expectation for stability in the loan sector, with only modest growth anticipated, which does not significantly impact their view on net interest income (NII) for the quarter. The focus shifts to Christopher Gorman, who, in response to Peter Winter, outlines that they have accumulated $2.8 billion in capital, of which $1.4 billion has been used for restructuring. Gorman states that they have $1.5 billion in additional capital, translating to a high capital level that could be used for market opportunities, especially if there is market dislocation. He suggests that although the bank is not currently focused on mergers and acquisitions (M&A), the increased capital positions them well for potential industry consolidation in the future, which historically occurs in waves.

In the paragraph, Scott Siefers from Piper Sandler asks about the anticipated increase in expenses for the fourth quarter, particularly concerning potential transient versus ongoing costs. Clark H. I. Khayat responds by emphasizing not to annualize the anticipated expense growth, explaining that some business expenses are variable and performance-driven, and thus, depend on revenues. He mentions potential unique investment opportunities that are non-recurring in nature and clarifies that not the entire increase in expenses should be seen as recurring. He notes that further work is needed to accurately determine how much of the expense will become part of the regular expense run rate, emphasizing its relationship with supporting revenue.

In the paragraph, a speaker suggests that mid-to-single-digit guidance is appropriate for the next year, with more detailed information promised by year-end. After a brief exchange, the operator announces no further questions, and Chris Gorman expresses gratitude for the participation and directs any follow-up questions to Brian and the Investor Relations team. The call concludes with well-wishes and a formal close.

This summary was generated with AI and may contain some inaccuracies.