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The 300 companies on this year’s list brought in over $12.5 trillion in revenue for the latest 12 months, with the median revenue figure at $24 billion.

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F500-2021-396-Keycorp

Owner of KeyBank, the only major bank based in Cleveland, the financial services company has more than 1,000 branches in 15 states, and corporate banking offices in another 10. KeyCorp CEO Beth Mooney, the first woman to be named a CEO of a Top 20 U.S. bank, retired from the post in May 2020, and was succeeded by Chris Gorman.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-411-KeyCorp

This financial services company, headquartered in Cleveland, Ohio, provides banking and other services to individuals and businesses in 15 states.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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KeyCorp, the holding company for KeyBank National Association, is a leading financial institution with a history dating back to 1849. The company operates across two main divisions: consumer banking and commercial banking. KeyCorp offers a wide range of services including checking and savings accounts, personal and business loans, mortgages, credit cards, and student loan refinancing. It also provides investment management, financial planning, and wealth management services, catering to both individuals and institutions, including nonprofits and high-net-worth clients.

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KeyCorp (KEY): Company Profile, Stock Price, News, Rankings

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KeyCorp

keycorp

Morning, and welcome to KeyCorp's Second Quarter twenty twenty five Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to Brian Monney, 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 second quarter twenty twenty five earnings conference call. I'm here with Chris Gorman, our Chairman and Chief Executive Officer and Clark Kayet, our Chief Financial Officer. As usual, we will reference our earnings presentation slides, which can be found in the Investor Relations section ofthekey.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, 07/22/2025, and will not be updated. With that, I will turn it over to you, Chris.

Thank you, Brian, and good morning, everyone. Today, we reported strong second quarter results in what can be described as a dynamic and complex macro environment. Earnings per share were 35¢ even while we added $36,000,000 to our loan loss reserves and elected to prefund our charitable foundation this quarter. Revenues were up 21% from a year ago, while expenses were up about 6% excluding the charitable contribution. Our pre provision net revenue increased by $44,000,000 sequentially, marking the fifth straight quarter that our PPNR has increased.

In the aggregate, our PPNR has grown over 60% since the first quarter of twenty twenty four. We continue to demonstrate strong commercial loan growth. As of June 30, we had already achieved our full year plan to grow commercial loans by about $3,000,000,000 in 2025, and our backlogs in both institutional and middle market continue to build as we look to the second half of the year. We also continue to drive incremental value from our high quality deposit franchise, Entering the year with a historically low loan to deposit ratio of 70%, combined with the runoff of low yielding consumer mortgages, has afforded us the flexibility to prioritize beta management in the first half of the year. As a result, we have been able to manage down our deposit costs, which are now below 2%.

Additionally, our cumulative down beta has reached the mid 50% range, which matches our terminal beta from the rising rate cycle. With respect to fees, which grew 10% from a year ago, our priority fee based businesses all continued to perform very well. Investment banking had its second best first half of the of the year in history as debt and equity issuance normalized after pausing in April, particularly as we approach the end of the quarter. We raised over $30,000,000,000 of capital for our clients in the quarter, retaining 22% on our balance sheet. Commercial payments fee equivalent revenue grew high single digits year over year.

Assets under management reached a record $64,000,000,000. Additionally, sales production in our mass affluent segment was a record in the first half of the year. Finally, commercial mortgage servicing continued its strong performance as named special servicing balances reached record levels, and active special servicing balances remained near record levels. While top line momentum remains robust, concurrently, all of our credit metrics continue to migrate in the right direction. Net charge offs, criticized loans, and delinquencies all declined from the first quarter, while NPAs were essentially stable.

Our overall credit migration improved for the sixth consecutive quarter with commercial upgrades exceeding downgrades this quarter. Our strong first half results, combined with our healthy pipelines and active client engagement, drive our optimism that we will meet or exceed all of the full year and exit rate financial targets that we detailed for you at the beginning of the year. As Clark will discuss in more depth shortly, we are increasing our net interest income and loan growth guidance. Based on the rebound in client activity, we continue to feel good about our ability to deliver 5% or better fee growth this year. Investment banking pipelines remain at historically elevated levels, essentially flat on a linked quarter basis.

Concurrently, we remain committed to holding expense growth in the low to mid single digit range even while investing meaningfully in our frontline bankers and increasing our tech spend by nearly a $100,000,000 this year. On the hiring front, we are on track to increase our frontline bankers and client advisers by roughly 10% this year. We have successfully recruited highly skilled investment bankers, middle market relationship managers, wealth managers, and payments advisers to our platform, and our active recruiting pipelines remain strong. I'm also encouraged by our strong retention rates, which are reflective of our highly engaged sales force. As a reminder, we accelerated investments in people and technology late last year, and we are already seeing returns on those investments.

For example, in the case of our middle market banking, the teams that we onboarded in Chicago and Southern California this last November have already driven new client growth, loan volumes, payments, and investment banking business. Our platform is very attractive to bankers with specific expert expertise that aligns to our industry verticals. Our new teammates can join the key team and be more impactful to both their clients and their prospects. To wrap up, we had a solid first half of the year. We remain vigilant in a dynamic environment and are well positioned for a wide range of scenarios.

We are operating from a position of strength. We have a leading capital position among our peers and ample liquidity that gives us flexibility to take advantage of the inevitable market dislocations. Our clearly defined structural net interest income tailwind is materializing as expected. We are enjoying significant success in the marketplace while concurrently making investments in people and technology that will drive our future growth. With that, I'd like to turn it over to Clark. Clark?

Thanks, Chris. Starting on slide four. We reported second quarter earnings per share of $0.35 Revenue was up 21% year over year, while expenses increased 7% or 6% adjusting for a charitable foundation contribution that we've historically done later in the year. Tax equivalent net interest income was up 4% sequentially and 28% year over year. Noninterest income increased 10% year over year, reflecting continued momentum across investment banking, commercial mortgage servicing, commercial payments and wealth.

We achieved approximately fourteen hundred and three hundred basis points of total and fee based operating leverage, respectively, year over year. Provision for credit losses of $138,000,000 included a $102,000,000 of net charge offs and a $36,000,000 reserve build. Roughly half of the build is driven by loan growth and mix shift and the remainder from the net impact deterioration in the Moody's macroeconomic scenario. Recall, last quarter, we made a qualitative adjustment to account for the heightened uncertainty at the time. We reversed some of that build this quarter as the uncertainty is now reflected in the Moody's scenario.

Tangible book value per share increased 3% sequentially and 27% year over year. Moving to the balance sheet on Slide five. Average loans were up $1,400,000,000 sequentially and increased $1,600,000,000 on a period end basis. On a spot basis, C and I loans grew $1,700,000,000 and CRE loan loans grew $05,000,000,000 partially offset by the intentional runoff of low yielding consumer loans, namely residential mortgages. Within C and I, the growth continues to be broad based across industries and regions with both large institutions and middle market clients.

Most of the growth was from new clients to key. T and I line utilization ticked up approximately 50 basis points to 32%. The CRE growth was primarily driven by project based deals in affordable housing, traditional multifamily, and data centers. On slide six, average deposits declined by less than 1% from last quarter as we prioritize data management in the first half of the year and primarily reflected a reduction in higher cost commercial client balances and retail fees. Compared to the prior year, total deposits and client deposits both increased by 2%, reflecting growth in consumer balances.

95% of commercial balances are with clients that have an operating account with Key. Noninterest bearing deposits were 19% of total deposits or 23% when adjusted for the noninterest bearing deposits in our hybrid accounts, stable to the first quarter. Interest bearing deposit costs decreased by nine basis points during the quarter, and total deposit costs were managed below 2%. Cumulative deposit betas to the Fed rate cuts continue to perform better than expectations, reaching 55% in the second quarter. Overall, interest bearing funding costs declined by six basis points, and our cumulative interest bearing funding beta was 69% through the second quarter.

Slide seven provides drivers of net interest income and NIM this quarter. Tax equivalent net interest income was up 4% sequentially and net interest margin increased by eight basis points to 2.66%. The increase was largely driven by proactive deposit beta management, fixed rate asset repricing, swap maturities and commercial loan growth. NII also benefited from an additional day in the quarter. While client sentiment has improved compared to where it was on our last earnings call in mid April, the environment remains dynamic.

Given the macro uncertainty, we continue to hold roughly $4,000,000,000 to 5,000,000,000 more cash and other short term liquidity than we anticipate needing over the medium term. This excess cash position had a four to five basis points impact on NIM, but a de minimis impact to NII. Turning to slide eight. Noninterest income was $690,000,000 up 10% year over year with all of our priority fee based businesses growing mid single digits or better. Investment banking and debt placement fees were $178,000,000 an increase of 41% year over year.

For the first half of twenty twenty five, investment banking fees were $353,000,000, the second best first half in our company's history. This quarter's growth was driven by syndication, commercial real estate and equity issuance activity. Several clients accelerated their transactions into the end of the quarter to take advantage of lower yields and tighter spreads. While this does pull forward some activity from the third quarter, we have since backfilled a good majority of that pipeline. And so if current conditions hold, we're optimistic that third quarter investment banking fees could look similar to 2Q levels.

Elsewhere, commercial mortgage servicing fees continue to perform well, growing approximately 15% year over year. As of June 30, we were the named primary or special servicer in approximately $710,000,000,000 of CRE loans, of which about $260,000,000,000 is special servicing. Active special servicing balances remain elevated at approximately $11,000,000,000 up 59% compared to the prior year. Our service charges and corporate services fees increased roughly eleven percent and twelve percent, respectively. The increase in service charges was largely driven by continued momentum in commercial payments, while corporate services income was driven by loan derivative and ex FX client activity.

Despite market volatility earlier in April and a one month lag in how we book our fees, trust and investment services income grew 5% and assets under management reached a record high of $64,000,000,000 On Slide nine, second quarter noninterest expenses of $1,150,000,000 increased 2% from the prior quarter and 7% year over year on a recorded basis. Year over year expense growth was driven by higher personnel expense related to the strong fee generation, continued investments in people and technology, as well as higher other business services and professional fees. During the quarter, we made a $10,000,000 contribution to our charitable foundation. Consistent with prior guidance, we expect expenses to increase through the remainder of the year, reflecting continued hiring and technology investments, anticipated growth in noninterest income and client activity, day count, and other seasonality factors. As shown on Slide 10, credit quality is broadly stable to improving.

On a linked quarter basis, net charge offs were $102,000,000 down 7% or an annualized 39 basis points of average loans. Nonperforming asset trends were stable. Dollars increased by 1%, but NPAs to loans and OREO declined by one basis point to 66 basis points. Criticized loans declined by about $200,000,000 or 3%. Turning to Slide 11.

Our CET1 ratio was 11.7% quarter end as loan growth and a change in loan mix offset net earnings generation. Our marked CET1 ratio, which includes unrealized AFS and pension losses, rose slightly to 10%. We believe both ratios continue to be at or near the top of the peer group. Moving to Slide 12, we are positively revising our 2025 guidance given the strong first half of the year and encouraging pipelines we see heading into the back half. This guidance continues to incorporate a range of potential scenarios anywhere from zero to four cuts as we move through the balance of the year.

We now expect full year net interest income growth of 20% to 22% compared to prior guidance of approximately 20%. As a reminder, roughly 8% of our NII growth this year is due to the Scotiabank investment and related securities portfolio repositionings that we executed late in 2024, implying organic NII growth in the low teens this year. We also now expect our fourth quarter exit rate NII to grow 11% or better compared to the 2024 and fourth quarter NIM to be approximately 2.75%. We've also improved our loan guidance for the year. As a reminder, our previous guidance for average loans was down 2% to 5% with loans flat on a period end basis, including commercial loans up 2% to 4%.

We now expect average loans for the full year to be down 1% to 3%. On a period end basis, loans are now expected to be up approximately two percent with commercial loans growing about 5%. Other p and l guidance remains broadly unchanged. We continue to expect adjusted fees will grow 5% or a little better with the upside primarily dependent on IB pipelines pulling through the second half. Expenses up 3% to 5%, and note that we are currently planning to be at the midpoint of this range given client activity levels and pipelines to date.

Net charge offs as a percent of loans in the 40 to 45 basis point range. With respect to capital, we continue to target marked CET1 ratio of 9.5% to 10% over time. But as the macro outlook remains dynamic, it's our intention to manage to the high end of this range in the near term. With that, I will now turn the call back to the operator to provide instructions for the Q and A session. Operator?

Thank you. Please press 1. The first question comes from Ryan Nash with Goldman Sachs. You may proceed.

So, you know, you guys had better than expected investment banking fees, and you also had stronger loan growth in the quarter. It sounds like pipelines are still pretty healthy coming into the back half. Clark, you made some comments about 3Q investment banking, sounded pretty upbeat. Maybe just to start off, Chris, can you maybe just talk about what you're hearing from clients in terms of their sentiment and their eagerness to borrow and transact? And maybe, Clark, can you just talk about how all of this translated into your financial outlook in terms of the higher NII and loan growth? Thank you. And I have a follow-up.

Sure. Well, let me start. From a client sentiment, I would say that our clients are cautiously optimistic. I'm out, as you know, talking to our clients all the time, and it's interesting. They go through all the macro concerns, geopolitical, tariffs, trade.

And then you ask them about their business, and they say they feel pretty good about their business. So let me start with the consumer, Ryan. Our consumer is just fine. Just as a reminder, our at at Funding, our consumers have a FICO score of about seven sixty seven. And so as you look at how the credits are performing, if you look at how spending volumes are performing, our clients are in good shape.

I think one of the things that the models really fail to pick up is the wealth effect and the fact that household wealth in The United States over the last fifteen years has increased by about a $100,000,000,000,000, and, that is, that's not inconsequential. And I think, you know, when people start looking at hours worked and they start looking at the labor participation rate, I think sometimes that's missed. For example, we're a main street bank, and we have perfect information. And a million of our 2,500,000 customers have between a half a million and $2,000,000 to invest. So that's the consumer.

The consumer's in good shape. Let's talk about commercial for a second. I think balance sheets are healthy. Their liquidity is in good shape. I think the companies are a lot more agile, Ryan, than they were even going into the pandemic.

If you look at their supply chains, if you look at their ability to just make changes on the fly, it's interesting. We perform a very detailed survey on 850 customers that borrowed $10,000,000 or more. 50% of them think that the current environment is an opportunity for growth. As it relates to tariffs, because that's always a topic for everyone, 30% of our customers are impacted by tariffs. But here's the interesting thing.

Of the 56,000,000,000 that we have outstanding in C and I, only 3% are significantly impacted in a direct way by tariffs. So, that's just a little bit of a rundown there. The one thing I would add, I guess, that I don't think people are talking about enough, it's not that pertinent to publicly traded companies. But for private companies, this 100% bonus depreciation, I think that's very significant. And none of that is in any of the plans that we're sharing with you today in any of our updated guidance.

I think in the back half of the year, for the first time in a long time, you're gonna see a significant ramp up in CapEx. And I'll just close by just giving a couple watch points, as I always do. I think, you know, while we at Key, our criticized loans are down 13% year over year, the areas that we're watching very, very closely are any place there's leverage. One of my view is we could very well be in a higher for longer scenario. And if that's the case, we gotta really watch these leverage companies.

Only two to 3% of our loans are leveraged. The other place we're watching is any place that's dependent on Medicare funding. So that's hospitals and other places. We're watching those. And then we have a little bit of an outside in perspective from our third party commercial loan servicing business.

As you know, we're named special servicer on 267,000,000,000 of loans. And when they go into active, we're basically the workout agent. And it won't surprise you, but, you know, what's in active special, servicing right now is office multifamily, principally in the Sunbelt. And then what's new is there's been a little bit of a surge in lodging, which I thought was interesting. But that's kind of a, that's kind of a round robin on kind of how we see the customers. Clark, what would you add to that?

So, you know, let's maybe start with NII since I think that's been in focus most of the year and, you know, another good quarter for us up 4% first quarter to second quarter. And that's led to the kind of revised guidance here. So just as a reminder and for avoidance of doubt, we went from approximately 20% NII up year over year to 20% to 22%. And fourth quarter exit rate from 10% plus to 11% plus, and we picked up the NIM there as well. I think important to note that we have the equivalent level of confidence in the revised guidance we did in the previous, which means we believe we can deliver this across a range of conditions, inclusive kind of no cuts to poor cuts and barring any significant macro or event driven shifts.

Built on strong first half performance, so more C and I growth than planned, better deposit performance, so down nine basis points on interest bearing deposits in the quarter. So really good performance on both there. We expect that to continue, but not likely at the same rate in the second half as competition begins to pick up a little bit on the deposit side. I think it's also important to note that the potential upside that Chris referenced and things like bonus depreciation and CapEx spend is not part of that guide. So if that materializes in any significant way, that could be a potential upside there.

I would say achieving the middle of the improved guidance range of the 20% to 22% does imply a pretty healthy 2% to 3% quarterly organic growth rate off second quarter levels. So we don't think it's a layup to be sure. On fees, we had a very good second quarter across all the priority fee categories and again aided by a late rally the last few weeks of June in investment banking. I think back in early June, I noted the April pause was making the 5% plus guide on fees a little tighter. Since then, obviously, activity has picked up considerably.

I think that's reflective of clients' willingness and ability to act quickly and a significant amount of investor capital that's on the sidelines waiting to get into the market. I think if we see that level of capital markets activity continue in the second half, we feel like we can deliver on the plus component of that fee guide. As for expenses, we continue to invest as we've shared. We'll see an uptick in the second half based on continued hiring and investments in technology. I'd remind you, we accelerated the same types of investments in the fourth quarter last year, and we've seen those benefits already in 2025.

Very confident on this expense guide And to the extent the market turned and we saw some softness, we have ways to address fee growth through the back half of the year, but we don't plan to do that at the expense of sound investments for future profitable growth. And then lastly, credit metrics, stable to improving across the board. We're quite comfortable with our reserve at the moment and the direction of travel there, as it always does, will obviously depend on how the economy unfolds in the second half.

Got it. I appreciate the in-depth response. So maybe just as my quick follow-up sort of where you left off, Clark. Results in the first half coming in better than expected, and this should set you up well for 2026 revenue growth. And when you think about expenses, talked about the midpoint of the range for this year.

Can you maybe just talk about how you're thinking about the pacing of investments over the short to medium term? It feels like you're playing more offense now in terms of hiring and technology investing. And maybe just as we look ahead, what is the right way to think about the pacing of positive operating leverage over the medium term? Thank you.

Hey, Ryan. So a couple of things. Obviously, positive operating leverage for us is a fait accompli this year. We focused on really generating positive operating leverage from a fee perspective, and we'll continue to focus on that. We've also continued to invest probably at the current rates.

We're growing our we mentioned in our prepared remarks that we're growing bankers, middle market relationship managers, wealth managers, payment advisers. We're gonna continue to invest there. We frankly have been investing in technology the whole time. You know, every year, we've replaced core systems. We've actually migrated half of our apps now to the cloud.

Our systems are in the cloud. We'll continue, you know, we'll continue along that investment. But I'm a big believer that you've gotta continually through you you know, through continuous improvement, we we have to be able to take out costs and serve our clients better. And, you know, we were an early adopter when you think about, you know, robotic process automation. We've been an early adopter on machine learning.

You'll get we've that goes as far back as our performance in PPP, you'll remember. And, you know, we're very focused on using technology to take not only take out expense, but have it be a better experience for both our teammates and our employees.

Thank you. Thank you. The next question comes from Scott Siefers with Piper Sandler. You may proceed.

Good morning, guys. Thanks for taking the question.

Clark was hoping you could expand a little on some of the deposit comments you made in response to the last question. Just basically sort of deposit pricing strategy given the nine basis points improvement sequentially and expectations that will continue maybe more, I guess, broadly sort of the pricing versus growth balance. I know you're in an excess liquidity position, but would just be curious to hear your thoughts there.

Sure. So just to maybe put a finer point on your last comment there. We came in at kind of loan to deposit ratios at the low end of the peer group 70. So I think that affords us a little bit of flexibility there. I think our deposit costs slightly higher, so some room there and a lot of CDs and MMDA promotional rates rolling over kind of month to month.

That will continue in the second half. And then the last piece that hasn't played out exactly the way we thought at the beginning of the year, but continues to be beneficial on the liquidity side. It's just the trade of residential real estate pay downs and then the the movement of those dollars into C and I loans. So it didn't happen as much as we had thought going in, which is, you know, the benefit of of faster loan growth, but that is still a benefit, you know, on the liquidity side. So we saw some positive pricing in the quarter.

We did, on two fronts, kind of make it an active decision to let some deposits roll off in two places in particular, kinda high end commercial where we did see some relatively competitive pricing happening and we didn't feel the need to to match those offers. Those remain clients, and we could go back to those dollars if we needed them. And then on the retail CD side, we let about a billion 4 roll off that were, you know, not not turning over at the same rates. I will say, while our front book production on CDs and promotional and MDAs is a little bit lower given some of our market rates. Our retention client retention rates in those pockets are better than expected.

So, again, we're seeing you know, I think I'd argue maybe consumers aren't chasing 25 basis points at these levels. And then maybe one other point on deposits, which are you know, in the quarter, we did see CRE clients use cash to do acquisitions instead of pay down. Those pay downs would have been deposits. So you're using cash to buy new properties that would also exist in our servicing book. So in both cases, we saw a little bit lower deposits on those sides.

We'll see how that transpires in the second half. But normally, our low point in deposits would be mid to late April after tax season. That really rolled a bit into May, but we've seen a nice rebound, particularly on the commercial side going into the end of the quarter. We have good commercial deposit pipelines, and we'd expect to see that grow going into the second half. But we are very much watching some of the deposit actions of competitors given some of the comments we've heard across the industry in the quarter.

Gotcha. Perfect. Thank you. And then let's switch to capital for just a second. So I think you're now at the high end of the mark common equity tier one target.

Just maybe a a thought on where we are sort of with resuming repurchase and sort of order of magnitude in terms of appetite as we look into the second half of the year.

So Scott, kind of our thought on capital is, one, yes, we are at the high end of our targeted marked CET1 right at 10%. Having said that, we've said that in this environment, we think it's good to carry a little additional capital and and preserve optionality. There's a few things going on. One, our underlying organic business is very strong right now, and we want to make sure we have capital to support our clients, first and foremost, in the marketplace. Secondly, I think there's gonna be an opportunity out there for kind of for us to continue to invest in people.

And if they may come in groups, invest in technology, which I just talked about, that's high on our list. The next thing that I think you'll see us kinda continuing that we always look at is kinda niche or tuck in acquisitions. I think we're pretty good at buying these entrepreneurial groups and plugging them into our platform. Obviously, the dividend is important. And then that gives you kind of at the bottom of the stack that gives you two things that we could do with the excess capital.

One is we could do tweaking of our balance sheet, which we're constantly looking at, or we could resume our share repurchases. I think we'll do that, but it'll be kind of a crawl, walk, run approach. I would say that in the third quarter, you can assume that we would have modest share repurchases and then probably stepping up later in the fourth quarter. That's how we're thinking about it now based on the opportunities that we have in front of us.

Got it. All right. Perfect. Thank you, Thanks, Scott.

Thank you. The following question comes from Ebrahim Goonwala with Bank of America. You may proceed.

Hey. Good morning. Guess maybe just, Clark, following up with you on the NII and the margin outlook. I think in the past, you've talked about the margin potentially hitting 3% as you think about normalized level for the margin. So if you don't mind, if you think about the February 5 exit run rate in the fourth quarter, one, do you think we can get to 3% by next year?

And in that world, I know you talked about the loan to deposit ratio. Like, is the balance sheet larger or smaller before you get to the 3% NIM?

Yeah. So, look, I think one note, you know, we're at $2.66 in the quarter. And as we noted, we are carrying a little bit extra cash that probably cost us four or five basis points on NIM. So I think there's continued strong performance there. We still feel confident that by end of twenty six, we can be at 3% at the current course and speed.

You know, in terms of balance sheet size, I'd say there's, you know, probably a couple ways to think about it. One, in our business model, and this is not a an NII specific answer, but we don't feel that we necessarily need to grow the balance sheet to grow the business given some of our capital markets distribution capabilities. That said, we will continue to see residential real estate runoff, you know, something like about 600,000,000 a quarter is what we've seen this year, maybe another 2,000,000,000 or so next year that affords us some liquidity to invest in C and I growth on an ongoing basis. And at this point, given our liquidity position, we could take down cash and or reduce the securities book a little bit if we wanted to. So I think there's ways to actually grow NII and reflect that in a better NIM over time without necessarily a significantly larger balance sheet.

But again, we'll operate based on, to some degree, where the environment is and we've carried additional cash in the quarter just given the April pause and some of the uncertainty we've seen out there.

Got it. And I guess maybe just going back, so I think it's my takeaway based on your responses was momentum both on lending and capital market seems to be strengthening as we look into the back half of the year. And I think, Chris, you mentioned about hiring of bankers. Just remind us the I'm not I'm not sure if you spelled out the number of bankers you plan to hire. And are these within your existing verticals?

Kind of what's the focus when you think about incremental banker hiring?

Yeah. So what we what we said is we were gonna increase our frontline people by 10%. And specifically, we talked about investment bankers. So we're really building those are clearly being built out within our verticals. We talked about middle market relationship managers, and those folks, as you know, are typically in a in a a given geography, but they obviously point to many of our industry verticals because that's where we have the greatest leverage in the marketplace.

We've talked about wealth managers, and our wealth managers are a little bit different than some because we're often for when it comes to mass affluent mining, the huge opportunity that we have within our existing business, We've only penetrated to the tune of about 10%, in our mass affluent, area. So our our our hiring there is a little bit different. Also, our payment advisers, Ebrahim, are typically really software folks because it's all about implementation of our complex and important embedded banking, for example. So those are the kind of people we're hiring. And as we mentioned in our opening remarks, there's a there's a lot of people available right now.

Thank you. The next question comes from Chris McGratty with Keefe, Breyer and Woods. You may proceed.

Chris, on the deregulatory question, I think you addressed the kind of uses of capital. But if we think about where Key is spending spending money, you talked about the increase in tech spend. If we do get broader deregulatory reform, is there a reallocation of where you're allocating dollars maybe towards more productive revenue producers versus, you know, more just back office regulatory costs? Thanks.

Well, the interesting thing, Chris, is we've really even though Basel III endgame hasn't been finalized and there's liquidity rules out there, we have basically adopted all of the proposals as they've come out. So we really feel like the the, you know, the investment that we've needed to make in terms of sort of the plumbing has been made. And so we feel like we have the opportunity to really lean in on hiring more frontline people because we think we have a unique business model and also on technology. So I think you'd see us, really no matter where I mean, the right clearly, the regulatory environment is gonna do nothing but get more favorable. And we feel like from a starting point of where we are, we're in good stead there.

The next question comes from Ben Rizbeck with Autonomous. It's Ken Usdin.

Chris, you mentioned in your prepared remarks that you kept about 20% of the $30,000,000,000 you originated for clients. It's a little higher of a keep rate than you had in the past. I'm just wondering how much more you're willing to push that in terms of both seeing the improved potential originations out there and and your comfort with, like, your hold levels of that origination capacity.

Yeah. Well, it's a great observation. Typically, over over time, we've typically held about 18%. And as you point out, we were above 20. We were 22% this last quarter.

And it really, Ken, is all driven on what's in the client's best interest. And when the markets dislocated a bit for three weeks in April, it gave us the opportunity to structure things and put them on our balance sheet in a manner that we'd be very satisfied to have them on our balance sheet. So, you know, if if I've I've said this before. Actually, if everything's flashing green, it's really hard. Given our platform, if we get a little bit of dislocation in the market, that's actually good for us. And, it was certainly good for us last quarter.

Okay. And and just a little bit of a dig on the dig in on the line. You you had talked mid quarter about line you being up, and it looks like it was only up about a point 5% in in the quarter itself. Can you just talk about the dynamics that you're seeing there in terms of unfunded growth and also just clients' willingness to draw down their lines?

Yeah. That's a great question, and it's one that, frankly, has confounded us. I would have thought that people would have been aggressively forward buying all the tariffs. It's interesting. In the middle of the quarter, we were actually up more like a percent, and we ended up the quarter of up about half a percent.

It continues to be something that we're watching. Obviously, that's the easiest way for us to grow loans. You know, I think as we get into an environment where, there's probably more certainty, We may see people forward buying the tariffs, but we have not seen a lot of that in our book, and we're pretty close to our to our customers. I've been surprised.

Got it. Thank you. One other slight point on that utilization rate, Ken, is the denominator grew a little bit in the quarter as well. So that wouldn't offset the entire half a percent, but would certainly bring it down a little bit.

Thank you. We have a question from Manon Gosalia with Morgan Stanley. You may proceed.

Hey. Good morning. Can you talk about just pricing competition on both the loan and deposit side? You know, I think some of your peers have noted some pressure on spreads, and you also called out tighter spreads in the capital markets. So as you think about your forward loan growth, can you talk about how you expect spreads to trend?

And maybe also on the deposit side, I think you called out that you you expect more competition there. So if you can talk a little bit more about that.

Sure. So let's let's start with loans because we've touched a little bit on deposits this morning. So on the loans, if you look at the pricing of our loans, we're basically flat year over year. We are seeing, additional competition, additional market participants, and that sometimes manifests itself in people taking larger hold levels. It manifests itself in people stretching maybe a bit on structure.

We clearly aren't doing that. But as I've said many times, a properly graded commercial loan can't return its cost of capital, and that's why our business model is so important, Manon, in that we can do so many other things for these clients. So our pricing has actually stayed flat. But I think pricing on quality loans will continue to be a challenge just based on, what I see as excess capacity out there. Having said that, as you can see, we are able to monetize these relationships in a variety of ways.

KeyCorp (KEY) Q2 2025 Earnings Call Transcript

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