KEY — KeyCorp

Key Financial Results and Metrics

• Earnings Per Share (EPS): $0.44, up 26% year-over-year.
• Revenue: Grew 7% year-over-year, with pre-provision net revenue increasing by 9%.
• Net Interest Margin (NIM): Expanded to 2.89%, with expectations to exceed 3% by year-end.
• Commercial Loans: Period-end C&I loans increased by $2.1 billion (3% sequentially).
• Deposit Costs: Declined by 2 basis points to 1.63%.
• Net Charge-Off Ratio: 42 basis points, with year-to-date charge-offs at the low end of the 40-45 basis point full-year outlook.
• Tangible Book Value: Increased by 6% year-over-year.

Strategic Updates and Business Highlights

• Acquisition: Announced the acquisition of Clearwater UK to enhance the middle market advisory franchise.
• Client Growth: Relationship households increased by 3%, and commercial clients grew by 2% year-over-year.
• Investment Banking: Pipelines are historically elevated, with a 9% sequential increase in investment banking pipelines.
• Wealth Management: Assets Under Management reached a record $74 billion, with significant growth in fee-based income.
• Commercial Payments: Total gross payment fees increased by 12% year-over-year.

Forward Guidance and Outlook

• Revenue Growth: Increased full-year revenue growth guidance to 7-8% (previously 7%).
• Net Interest Income: Expected to grow by 9-11% (previously 9-10%).
• Loan Growth: Average loans expected to increase by 4-5% (previously 2-4%), with commercial loans projected to grow by 8-10%.
• Operating Leverage: Anticipated to grow revenues at twice the rate of expenses in 2026.

Bad News, Challenges, or Points of Concern

• NIM Performance: Although NIM increased, it did not rise as much as expected due to a larger balance sheet with tighter spreads and reliance on wholesale funding.
• Non-Performing Loans: Increased by $126 million sequentially, primarily due to idiosyncratic items in real estate, consumer goods, and agriculture.
• Investment Banking Fees: Fell short of expectations, with a noted bifurcation between large and middle-market deals. The firm is dependent on private equity activity, which has been slow to rebound.
• Economic Uncertainty: Acknowledgment of a challenging macroeconomic environment, which could impact future performance.

Notable Q&A Insights

• NIM Concerns: Analysts questioned the sustainability of NIM growth, especially with potential deposit rate increases. Management expressed confidence in reaching a 3% NIM by year-end through effective deposit management and asset repricing.
• Investment Banking Outlook: Management noted that while investment banking fees were down, they expect a significant rebound in the second half of the year, driven by strong pipelines.
• Deposit Growth: Management projected 2% growth in average client deposits for the second half, citing strong visibility into client flows and seasonal trends.
• Credit Quality: The firm remains confident in its credit portfolio, with proactive measures in place to manage risks, particularly in sectors facing challenges.

Overall, KeyCorp reported strong financial results and positive growth momentum, but faces challenges in maintaining NIM and navigating the investment banking landscape amid economic uncertainties.