The paragraph is a transcript from KeyCorp's First Quarter 2025 Earnings Conference Call. Brian Mauney, KeyCorp's Director of Investor Relations, begins by introducing the call and key participants, including the CEO, Chris Gorman, and CFO, Clark Khayat. The earnings presentation slides are available on the company's website. The call mentions that actual results may differ from forward-looking statements. Chris Gorman then reports strong first-quarter results, with revenues up 16% year-over-year and expenses remaining flat. The pre-provision net revenue increased by over $90 million from the previous quarter. Additionally, credit costs, non-performing assets (NPAs), and criticized loans show positive trends, with NPAs declining by nearly 10% sequentially.

The paragraph discusses how the company, Key, is navigating an uncertain economic and geopolitical environment that is affecting markets and client sentiment. Despite challenges like inflation and market fluctuations, Key is adapting by broadening its forecasting and staying prepared for various scenarios. The company focuses on being present for clients and communities by providing strategic advice, maintaining a strong balance sheet, and investing in community initiatives. Key is leveraging this situation as an opportunity to engage with clients and communities, with employees also contributing through volunteer work. The company approaches the current environment from a position of strength.

The strategic minority investment by Scotiabank at the end of last year has allowed the company to enhance its capital and earnings growth while maintaining strategic flexibility in the current market environment. The company boasts a strong capital position with a CET1 ratio above peers and ample liquidity, holding over 30% of its balance sheet in cash and equivalents. Its low to moderate risk profile provides protection against unexpected events. The company is reviewing its largest clients to assess tariff exposure, expecting limited direct impact. With strong momentum and defined growth drivers, particularly in net interest income and commercial loans, the company anticipates continued project loan funding and deposit growth.

The paragraph discusses the company's performance and outlook. Household relationships grew by 2%, and the commercial payments business showed strong momentum with disciplined rate management. Investment banking fees reached a record for the second consecutive year, and pipelines remained stable. The company is cautiously optimistic about mid to high single-digit growth in 2025, despite rising risks. Asset quality indicators have improved, leading to better credit migration for the fifth straight quarter. An adjustment exceeding $100 million was made to account for potential economic weaknesses. A $1 billion share repurchase plan was announced, expected to start in the latter half of the year, contingent on macroeconomic conditions. The company remains well-positioned with strong capital, liquidity, and reserves, and is confident in meeting its 2025 financial goals.

In the first quarter, the company reported earnings per share of $0.33, with a 16% year-over-year increase in revenue and a 1% rise in expenses, excluding a past FDIC assessment. Tax equivalent net interest income rose 4% sequentially and 25% year-over-year. Non-interest income grew by 3%, driven by improvements in various sectors. The company achieved significant fee-based operating leverage, with a credit loss provision of $118 million, including $110 million in net charge-offs and an $8 million reserve build. The CET1 ratio stood at 11.8%, and tangible book value per share increased by 26%. Average loans decreased slightly sequentially, but increased by $0.5 billion year-over-year, reaching $105 billion. C&I loans grew by $1.5 billion, offset by reductions in consumer loans and some commercial real estate paydowns. The company raised $25 billion in capital for clients, using 17% internally, while maintaining flexibility to support clients amid ongoing market uncertainty.

In the past quarter, the financial institution saw a slight decline in average deposits, but total client deposits grew by 4% year-over-year. Noninterest-bearing deposits remained stable, while interest-bearing deposit costs and overall funding costs decreased. Deposit betas were stronger than anticipated and reliance on market funds was reduced, leading to a decline in wholesale borrowings. Net interest income increased by 4% and the net interest margin rose to 2.58%, driven by securities repositioning and strategic asset management. Noninterest income grew by 3% year-over-year, with strong commercial mortgage servicing fees contributing significantly to this growth.

As of March 31, the company is responsible for servicing approximately $710 billion in commercial real estate loans, with $250 billion in special servicing, and active special servicing assets reaching a record high of $12 billion. The company expects its special servicing business to perform well due to its targeted scale strategy. Investment banking and debt placement fees hit a first-quarter record of $175 million, with growth driven by syndication and debt capital markets, while M&A remained strong. Service charges rose by 10% due to momentum in commercial payments, and wealth management fees increased by 2%, with assets under management steady at $61 billion. Noninterest expenses for the first quarter were $1.13 billion, an 8% decrease from the prior quarter but a 1% increase year-over-year, mainly due to higher personnel and technology-related investments. Quarter-over-quarter personnel expenses declined owing to lower incentive compensation and benefits, while other expenses decreased due to seasonality and non-recurring elevated expenses from the previous quarter.

The company anticipates expenses to rise throughout the year, driven by increased investments, salary hikes effective in March, personnel costs, and seasonal factors. Credit quality is improving with net charge-offs and nonperforming loans decreasing. The CET1 ratio is strong at 11.8%, signaling a solid capital position amid uncertainty. Their 2025 guidance remains unchanged, expecting 20% net interest income growth, supported by actions taken in 2024, including a strategic investment with Scotiabank. The company maintains a rate-neutral balance sheet and aims for a fourth-quarter net interest income growth of 10% or more compared to the previous year.

The paragraph discusses the financial outlook and expectations for a company as it transitions from the first to the fourth quarter. It mentions potential benefits from maturing low-yield investment securities, loans, and swaps, along with strong business momentum, which could boost net interest income (NII). The company is optimistic that the US will avoid a recession in 2025 and expects adjusted fees to grow by 5% or more, driven by growth in investment banking, wealth, and commercial payments. Even if economic conditions worsen, the company believes it can manage expenses to maintain fee-based operating leverage. Asset quality indicators are currently positive, but future charge-offs will depend on economic trends. During the Q&A, Mike Mayo from Wells Fargo questions the optimistic outlook in light of increased macro risks and uncertainties, including market losses and geopolitical challenges, yet the company maintains its guidance.

In this discussion, Chris Gorman addresses the apparent contradiction between market instability and their steady growth expectations. Despite a challenging economic environment marked by tariffs and inflation, their credit and business operations remain strong. Their primary scenario does not predict a recession, although they consider various possibilities, including stagflation. Gorman explains that many companies have adjusted by relocating supply chains closer to home, reducing potential trade war impacts. Clients remain cautiously optimistic, indicating less concern than market trends suggest.

In this paragraph, Chris Gorman and Clark Khayat discuss their financial outlook and guidance. They express confidence in a 20% year-over-year increase in Net Interest Income (NII), attributed to actions taken the previous year. They also note that despite ongoing uncertainty, client engagement remains strong, although this uncertainty has caused a temporary pause in activity. They anticipate a quick recovery if the situation improves, leading to robust activity in the second half of the year. However, if the pause persists, it may affect Q2 performance. They do not expect a recession but acknowledge that prolonged downturns would negatively impact investment banking and wealth management. Their base case remains optimistic, viewing the current situation as a temporary pause rather than a deeper economic issue.

The paragraph discusses how lower interest rates in an economic downturn could impact various financial areas such as syndications and commercial mortgage options. The speaker notes that their fee-based business is diversified beyond banking and wealth management, which may mitigate fee pressures during a downturn. They emphasize maintaining positive fee-based operating leverage without sacrificing long-term growth opportunities. Despite the uncertainty about a potential recession, previous actions have fortified their balance sheet, offering potential opportunities amid market dislocations. Additionally, Mike Mayo inquires about the progress of assessing the risk associated with tariffs, and Chris Gorman acknowledges that while they have made initial evaluations, further analysis on the broader impacts is still needed.

The paragraph discusses a financial analysis context where Clark Khayat mentions adding $8 million to reserves, reflecting a response to recent uncertainties with an incorporated probability of a severe downturn at 20%. If conditions worsen, the probability and reserves will be adjusted accordingly. Mike Mayo transitions to Manan Gosalia from Morgan Stanley, who asks about the impact of uncertainties on client sentiment and C&I loan growth. Chris Gorman responds, noting strong broad-based C&I loan growth, driven by new teams in regions like Chicago and Southern California, and sectors such as affordable housing and renewables.

The paragraph discusses project-based deals, noting an increase in utilization by 92 basis points, which was anticipated to happen earlier. The speaker expects further increases due to a 90-day reprieve. They highlight the importance of understanding the business model, mentioning that capital on the balance sheet increased from 15%-16% to 17%, and that market dislocations offer growth opportunities. Manan Gosalia asks about maintaining a 20% Net Interest Income (NII) guide amid potential market changes. Clark Khayat responds that the 20% target is largely based on previous restructurings and their opportunistic approach at the time.

In the paragraph, the speaker reflects on the positive impact of recent restructurings and the closure of a deal late in the previous year's fourth quarter, which has bolstered loan growth and deposit performance. They express strong confidence in achieving a 20% target unless significant negative events occur, such as a major decline in the commercial and industrial (C&I) loan book or adverse economic conditions. While a lower and flatter interest rate curve could pose challenges, the balance sheet's current neutrality and the option to optimize funding provide some flexibility. Even as the C&I book grows, the speaker notes that trading out of consumer loans helps manage the funding need, though certain scenarios might still prevent reaching the 20% goal.

The paragraph is a discussion between Ebrahim Poonawala from Bank of America and Chris Gorman, probably a company executive. Ebrahim raises concerns about uncertainty affecting CapEx projects due to tariff negotiations and the current economic environment. Chris Gorman responds by stating that existing CapEx projects are progressing as planned despite recent uncertainties, as they were committed to well in advance. However, he acknowledges that new project launches might be delayed until there is more clarity. Ebrahim then asks about the company's $1 billion buyback authorization and the CET1 targets, seeking guidance on how this might impact earnings forecasts starting from the third quarter.

The paragraph discusses the company's capital strategy, highlighting a target range of 9.5% to 10% CET1. The primary focus is to support clients and prospects, followed by investing in the business through technology and hiring, as well as considering niche acquisitions. There's also a mention of potential balance sheet restructuring and share repurchases. The company is awaiting clarity on economic conditions and Basel III regulations before proceeding, likely in the latter half of the year, while maintaining flexibility regarding the pace and timing.

In this paragraph, Clark Khayat discusses the factors influencing the goal of increasing the margin to over 3% from the current 2.58%. The main drivers include strong commercial loan growth and the rundown of lower-yielding consumer mortgages, allowing for better returns on commercial loans. The shape of the yield curve and reinvestment rates will also impact this target, with steepening being beneficial. Managing deposit pricing strategically and remixing the loan portfolio without needing additional liquidity will also play a role. These strategies aim to improve yields and mitigate risks associated with market fluctuations.

The paragraph discusses the company's approach to capital management and balance sheet adjustments. Chris Gorman expresses caution about repositioning the securities portfolio or repurchasing shares due to a lack of clarity on the economy's trajectory and necessary capital levels. He mentions being satisfied with previous repositioning actions that improved their bond holdings. Clark Khayat emphasizes the importance of understanding the economic outlook before moving capital and highlights their priority of supporting clients, noting differences in risk weighting between commercial and consumer loans.

The paragraph involves a discussion on potential business strategies and market conditions. Clark Khayat mentions that for significant restructuring efforts to take place, they need a stable economy and low loan growth, conditions not currently met. Peter Winter prompts Nathan Stein from Deutsche Bank, who inquires about opportunities to gain market share during market dislocations. Chris Gorman explains that dislocation, such as a volatile CMBS market, provides opportunities to finance real estate transactions for reliable clients. Nathan Stein also asks about elevated commercial real estate charge-offs in the first quarter. Clark Khayat responds that they will need to provide more details later, noting there has been positive movement regarding paydowns in that sector.

In the paragraph, several individuals discuss the health of a portfolio, noting that a decline in the critical number was largely due to CRE, with specific charge-offs attributed to just two names rather than being widespread across the portfolio. Clark Khayat mentions the portfolio's overall health is improving despite these charge-offs affecting the ratio. Chris Gorman then thanks participants for their interest in Key, concludes the first quarter earnings call, and invites further questions to be directed to the investor relations team. The call is then officially closed by the operator.

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