In KeyCorp's fourth quarter 2024 earnings conference call, Brian Mauney, Director of Investor Relations, introduced key executives Chris Gorman and Clark Khayat. Chris Gorman discussed the company's results, highlighting a reported EPS loss of $0.28 per share, which, when adjusted for a strategic securities repositioning, turned into a positive $0.38. The company faced approximately $50 million in non-recurring elevated expenses but demonstrated significant revenue growth. After adjustments, revenue increased by 11% sequentially and 16% year-over-year, with both net interest income and adjusted fees showing double-digit growth.

The paragraph discusses the company's financial performance, highlighting strong client deposit growth despite soft loan demand and progress in executing a disciplined deposit repricing plan. Deposit betas exceeded expectations, and credit performance improved with reduced criticized loans and net charge-offs. Nonperforming assets are peaking, and if the macro environment remains favorable, nonperforming loans are expected to decline by midyear. The company met or exceeded its financial targets for the year, achieving positive operating leverage and fee growth that offset expenses. Consumer relationships grew, particularly in Western markets, with increased assets under management reaching a record $61.4 billion.

In the fourth quarter, the platform enrolled 5,000 new clients and added over $500 million. Over the past two years, the mass affluent segment contributed nearly 40,000 households with $2 billion in AUM and $4.5 billion in assets. The company hired 170 wealth professionals and plans to hire 60 more in 2025. Commercial payments revenue grew mid-single-digits, and deposits were up 3% year-over-year. The company continues to invest in embedded banking and expand in Chicago and Southern California, with improved loan volumes. Investment banking had strong results, with $221 million in fourth-quarter fees and significant capital raised, indicating a solid start for 2025.

The paragraph outlines the company's positive developments and future plans. It highlights successful recruitment of senior bankers, technological advancements including significant progress in cloud migration and modernization projects, and plans to increase tech investment by 10% in 2025. The author expresses optimism for the investment banking business and commends the team for successful transactions and new Board appointments. Additionally, a new Chief Risk Officer has been welcomed. The company is celebrating its 200th anniversary, attributing its success to the dedication of its employees and their commitment to clients, communities, and shareholders.

The paragraph discusses the company's strong financial position entering 2025, highlighting its high common equity Tier 1 ratios and favorable conditions in its net interest income and fee-based businesses. Despite planned targeted investments, the company intends to maintain discipline in expense management, anticipating low to mid-single-digit growth in expenses and aiming for significant operating leverage. Additionally, there is a focus on achieving strong growth in 2025 to set the stage for further growth in 2026. Clark Khayat then reviews the financial results and outlook, mentioning a fourth-quarter EPS loss that, when adjusted, shows a gain, and details a securities sale and reinvestment strategy that improved yield and liquidity, partly utilizing a capital injection from a previous transaction with Scotiabank.

The paragraph discusses the financial performance of a company, highlighting several key aspects. Actions taken added $54 million to the 2024 and $270 million to the 2025 net interest income, though revenue trends were impacted by securities sale losses. On an adjusted basis, revenue increased by 11% sequentially and 16% year-over-year, driven by net interest income and fees. Operating expenses reached $1.2 billion due to strong fees and preparatory charges for 2025. The company achieved 400 basis points of positive operating leverage year-over-year. Credit costs were $39 million, comprising $114 million in net charge-offs with a $75 million loan loss reserve release. The CET1 ratio rose to 12%, and tangible book value per share increased by 17% year-over-year. The full-year 2024 EPS was impacted by securities portfolio repositioning but adjusted EPS was $1.16. Net interest income fell by about 3.5%, but investment-related benefits helped offset loan balance declines and rate cuts. Fourth-quarter net interest income met the $1 billion-plus target after adjustments. Adjusted fees increased by 7%, surpassing the initial guidance, with strong results in investment banking, commercial mortgage servicing, wealth, and commercial payments.

In the reported period, expenses rose by almost 3%, exceeding the initial forecast due to a strong fee environment and extra expenses. Credit costs improved with net charge-offs at the upper end of the expected range, partly due to a lower loan base. Average loans decreased by 1.4% to over $104 billion, reflecting tepid demand and a strategic runoff of low-yield loans. The business raised $54 billion in capital, but only 12% went onto the balance sheet. Deposits grew by 1.3% to nearly $150 billion, with client deposits up 4% year-over-year. Deposit costs declined by 21 basis points, and betas surpassed expectations. The net interest income rose by 10%, and the net interest margin increased by 24 basis points from the previous quarter.

The paragraph discusses financial performance, highlighting that Scotiabank investment and securities repositioning helped mitigate the impact of Federal Reserve rate cuts. Interest-bearing liabilities decreased by 35 basis points, while adjusted noninterest income rose by 18% year-over-year, driven by increases in investment banking, debt placement fees, commercial mortgage servicing, and wealth management fees. The company serviced over $700 billion in commercial mortgages, and wealth management assets reached a record $61.4 billion. Noninterest expenses were $1.2 billion, up 12% sequentially and year-over-year, due to higher compensation and investment spending amidst strong capital markets activity. Unusual expenses also contributed roughly $50 million to the cost increase.

The paragraph discusses financial expectations and performance metrics for 2025. The company anticipates not having elevated expenses and plans to manage expenses strictly. Credit quality is improving, with a reduction in net charge-offs and a slight increase in nonperforming assets, which are expected to peak and then decline by mid-2025. Criticized loans have decreased, indicating better credit migration. The company's CET1 and tangible common equity ratios have improved, positioning them strongly among peers. For 2025, the company forecasts a 2% to 5% decrease in average loans, with consumer loans expected to decline by $3 billion, offset by growth in commercial loans.

The paragraph outlines financial expectations for the upcoming years, predicting a 20% increase in net interest income for 2025 and over 10% growth from the fourth quarter to the fourth quarter. The net interest margin (NIM) is projected to reach at least 2.7% by Q4, and noninterest income is expected to rise by a minimum of 5%. Expenses may increase by 3% to 5% based on the current $4.5 billion, with a focus on achieving fee-based operating leverage. The net charge-off ratio is anticipated to be between 40 and 45 basis points, with improvements in nonperforming assets (NPAs) and criticized loans. The tax rate is expected to range from 21% to 24%. Much of the growth is attributed to actions related to Scotiabank and the amortization of terminated swaps. Conservative assumptions are made regarding potential interest rate cuts in 2025. The primary factors influencing these projections include the ability to drive commercial loan growth and manage deposit betas amidst yield curve variations.

The paragraph is part of a financial call in which John Pancari from Evercore ISI asks for more detail on the 20% Net Interest Income (NII) outlook, despite the Bank of Nova Scotia stake acquisition and a steeper yield curve. Clark Khayat provides clarification, explaining the components contributing to this outlook. He points out factors like the securities repositioning of Scotiabank investment, termination of cash flow swaps from October 2023, and impacts from US Treasury maturities and other financial instruments slated for this year. These elements collectively sustain the 20% NII outlook.

The paragraph discusses the financial strategy of a company focusing on optimizing its investment and loan portfolios. It highlights reinvestment opportunities at potentially higher rates and a shift from consumer fixed-rate loans to quality commercial loans. The company aims to grow customer deposits, manage deposit costs, and optimize other liabilities. Deposit costs decreased in the fourth quarter, contributing to financial maneuvers. The resilient balance sheet allows the company to be neutral to varying interest rates. Although initial loan balances decreased unexpectedly by $1.5 billion, the overall strategy remains focused on enhancing the loan portfolio, deposit growth, and managing rate impacts effectively.

The paragraph discusses the company's outlook on managing interest rate scenarios and supporting client loan demand. The goal is to grow commercial loans to meet a target net interest margin of 2.8% by year-end, contingent on stronger loan demand. Despite recent improvements in client optimism, the environment remains uncertain, especially with a new administration taking office. The company is cautious yet confident in its guidance and approach to the market. John Pancari asks for more details on loan growth assumptions, noting the company’s conservative stance due to uncertain loan demand. Clark Khayat responds by mentioning a stabilization and slight increase in commercial loans at the end of the fourth quarter and defers to Chris for further client feedback.

The paragraph discusses the state of loan growth, noting a stagnant overall loan volume due to a $3 billion runoff in consumer loans and a modest 2% to 4% increase in commercial loans. Despite robust pipelines, investments in property, plant, and equipment have not yet materialized, although 80% of surveyed middle-market clients are confident in their growth prospects. Chris Gorman highlights that utilization rates are below typical levels, suggesting room for growth, and notes potential economic acceleration and inflation concerns. He also mentions that their M&A backlog is significant, indicating potential for future loan growth.

In the discussion, Chris Gorman highlights that although Key has outgrown reliance on H.8 data for commercial loans, they are engaged with more clients than ever. He expresses confidence that opportunities will arise as they have more discussions with clients. Ebrahim Poonawala from Bank of America Merrill Lynch inquires about the relationship between M&A activity and lending demand, considering current large transactions despite policy uncertainties. Chris suggests that while some deals are stock for stock, the private equity market's large cash reserves will eventually lead to increased leverage. He believes that a robust M&A market is beneficial for lending, as large deals often lead to smaller transactions, enhancing the lending ecosystem.

In the paragraph, Ebrahim Poonawala asks Clark Khayat about deposit growth and funding strategies. Clark explains that they are doing well in terms of customer deposits and expect stability or slight growth in client deposits. They are continuing to shift away from brokered deposits, depending on loan book performance and overall balance sheet size. Clark emphasizes their focus on customer engagement and deposit pricing. When asked about average earning assets, Clark expects them to remain relatively flat throughout the year. The conversation then shifts to Bill Carcache, who asks Chris Gorman about Key's strategy of taking on less balance sheet risk and focusing on fee income.

In the paragraph, Chris Gorman discusses the company's income mix, which is 60% net interest income and 40% noninterest income. He expresses satisfaction with this balance but notes the need to grow both components. Depending on the market cycle, the company may prioritize one over the other, with current favorable market conditions allowing for capital raising elsewhere. He also highlights optimism about the impact of a new, pro-growth administration, particularly in terms of a more favorable regulatory environment for mergers and acquisitions (M&A), which could facilitate faster and more extensive deal approvals. Bill Carcache acknowledges this response as helpful.

In the paragraph, Clark Khayat emphasizes Key's client-centered approach to funding, deciding between their own balance sheet and capital markets for the best client outcomes, especially in times of tight credit spreads. Even if loans are pursued less in favor of capital markets, Key continues to benefit through deposits and payments. Khayat acknowledges that while they are capable of growing quality commercial loans, their business model prioritizes what's best for clients, including using capital markets if more beneficial. Chris Gorman adds that banks retain an advantage due to their flexibility compared to private and public debt markets.

The paragraph is part of a financial discussion during a conference call, where Manan Gosalia from Morgan Stanley is asking Chris Gorman about the company's strategy regarding securities repositioning. Given that their CET1 ratio, including the impact of AOCI, is close to 10% and capital accumulation is expected, Gosalia inquires why the company isn't more aggressively repositioning securities. Chris Gorman explains that while they continuously evaluate market opportunities and have made some adjustments, they don't plan to undertake major securities repositioning like they did previously in the third or fourth quarters. Gorman adds that there isn't a specific CET1 ratio target yet as capital rules are not finalized, but they will set new targets once those rules are established. Gosalia follows up on the securities topic, noting that the company has already sold about 50% of long-dated securities that were yielding less than 2%.

In the discussion, Clark Khayat mentions that a portion of the remaining 50% of an unspecified entity or investment will take more than two years to mature, although he doesn't have exact numbers. Matthew O’Connor from Deutsche Bank seeks clarification about the projected net interest margin (NIM) for the fourth quarter, referencing a potential 2.8% NIM. Khayat clarifies that they aim to approach 2.8%, consistent with a 2.7% plus expectation, contingent on loan growth. O’Connor also asks about strategies for Key to transition from being capital-constrained to leveraging its strong capital position to resume growth and rekindle relationships. Chris Gorman responds that efforts to reposition the company are already in progress.

The paragraph discusses a company's strategy of reducing Risk-Weighted Assets (RWAs) while investing in asset-light businesses such as deposits, payments, wealth management, and investment banking. The company has been categorically able to shed some RWAs without affecting relationships, focusing on non-relationship clients. They've expanded their teams by hiring in Chicago and Southern California, emphasizing strong communication and engagement with their teams to ensure market success. When asked about their projected commercial loan growth compared to the H.8 data, Chris Gorman expressed that their company has historically outperformed the H.8, with the exception of 2023 due to the focus on shrinking RWAs, and aims to continue this trend moving forward.

The paragraph is a discussion between Mike Mayo, Chris Gorman, and Clark Khayat regarding their financial strategy and expectations for their client services and net interest income (NII). Chris Gorman emphasizes their flexibility in serving clients through either capital markets or lending. He mentions that about 20-25% of their middle market clients access capital markets annually. Clark Khayat notes that a single rate cut instead of two won't significantly impact their NII growth forecast for the year, as the second cut would occur in December. He reaffirms their confidence in achieving 20% NII growth over the previous year but clarifies that there's a potential for slight variations in NII and investment banking performance.

The paragraph is a discussion from a conference call where Mike Mayo questions Chris Gorman about a special performance award granted to the named executive officers by Scotiabank’s Board to increase stock ownership and help with retention. Mayo points out a trend among banks like Goldman Sachs, Truist, and Scotiabank in awarding what he calls "double bonuses" to retain talent amidst competition. Gorman clarifies that his compensation is handled by the compensation committee of independent directors and emphasizes the importance of retention as the bank has strategic plans for 2025 and 2026. He mentions the upcoming release of the bank's proxy, offering further details then. The exchange ends with Erika Najarian from UBS asking a question about the assumptions behind a 20% NII (Net Interest Income) guidance.

In the paragraph, Erika Najarian asks Chris Gorman about the company's strategy for using its capital, given its strong CET1 ratio and the past management's balance sheet decisions. She inquires if there's an appetite for aggressively adding talent, particularly commercial bankers, to drive growth. Chris responds by expressing pride in their continued investments during challenging times and confirms plans to keep investing. They have hired many wealth advisors and aim to expand their investment banking platform by 10%. Additionally, they've heavily invested in technology, notably migrating to the cloud and replacing core systems.

The company will continue investing in its business through hiring and strategic acquisitions, focusing on industry-specific opportunities. Chris Gorman and Erika Najarian conclude their discussion, and Brian Foran from Truist asks about future net interest margin (NIM) projections. Clark Khayat responds that they expect NIM to reach around 3% or better by 2026, depending on market conditions and factors like the yield curve. Brian Foran also inquires about loan growth, and Khayat explains that the consumer segment, largely consisting of first lien mortgages and some student loans, will be influenced by interest rates, with potential for refinancing as rates decrease.

The paragraph is part of a financial discussion involving Clark Khayat, Brian Foran, and Thomas Leddy, wherein they address topics related to consumer lending, credit metrics, and corporate and industrial (C&I) loans. Khayat notes that while consumer lending will become more important over time, the focus is currently on relationship lending. He anticipates that credit metrics have peaked, expecting stability or improvement in 2025, although not significant reserve releases. Regarding C&I loans, Khayat mentions a slight increase at the end of the quarter, highlighting strong client pipelines and ongoing discussions, although this trend has persisted for a few quarters.

The paragraph summarizes the end of a conference call where Chris Gorman acknowledges the low levels of activity and utilization but remains optimistic about future growth. Thomas Leddy thanks the speakers for their responses, and Chris Gorman offers availability for follow-up questions through the Investor Relations team. The call is then concluded by the operator, who thanks participants and instructs them to disconnect.

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