Thank you operator, and good morning everyone. I'd like to thank you for joining KeyCorp's third quarter 2026 earnings conference call. I'm here with Chris Gorman, our Chairman and Chief Executive Officer, Clark Khayat, our Chief Financial Officer and Head of Technology, and Mo Ramani, our Chief Risk Officer. As usual, we will reference our earnings presentation slides, which can be found in the investor relations section of the key.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 material 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, October 20, 2026, and will not be updated. With that, I will turn it over to Chris.

Thanks, Chris. As Chris highlighted, continued execution of our relationship-based strategy drove strong performance in the quarter. For the third quarter, revenue exceeded $2 billion. PPNR reached a record level and improved returns inclusive of improving credit quality. Starting on slide 4. We reported third quarter earnings per share of $0.51. Revenue was up 8% year-over-year, while non-interest expenses increased by 5% when excluding the FDIC special assessment in the year-ago quarter.

Tax-equivalent NII increased 10% year-over-year and 4% sequentially. Non-interest income increased 6% year-over-year. Provision for credit losses was $61 million, including $89 million or 32 basis points of net charge-offs and a reserve release of $28 million. The net release reflected improved portfolio performance, scenario impacts, and continued remix to higher credit quality relationships, partially offset with some qualitative builds to reflect ongoing economic and geopolitical uncertainty.

We remain well reserved for a range of economic outcomes. Return on average tangible common equity increased 260 basis points year-over-year to 15.1%. Moving to the balance sheet on slide 5. Average loans were up $1.5 billion sequentially. Average C&I loans increased 4% or $2.3 billion, partly offset by the runoff of low-yielding consumer loans. On a period end basis, C&I loans increased by $3.3 billion or 5%. As Chris mentioned, growth came from a combination of broad-based new client acquisition and an increase in utilization.

Turning to slide 6. Average deposit balances increased $3.6 billion or 2.4% sequentially, exceeding loan growth and allowing us to reduce wholesale funding. Client deposits, which exclude growth from CDs, grew $2.8 billion or 1.9%, driven by growth in commercial operating balances. Last quarter, we communicated expectations for $3 billion or more of client deposit growth in the second half of 2026, and based on the growth in the third quarter, we have nearly achieved that.

While we continue to monitor deposit dynamics in a higher rate environment, we now expect incremental client deposit growth beyond the original $3 billion, and we expect our loan growth for the remainder of 2026 to be fully client deposit funded. Total deposit cost increased three basis points sequentially to 1.66%, and total funding cost rose just one basis point. If market expectations materialize as currently estimated, we expect beta in the rate hiking cycle to be roughly symmetrical to the rate easing cycle, reaching a mid-fifties cumulative beta over time with a beta lag in the first few quarters.

Turning to the drivers of NII and NIM on slide seven. Taxable equivalent NII was up 4% and net interest margin of 2.95% increased six basis points from the prior quarter. The increase was driven by commercial loan growth, funding optimization via strong client deposit growth, swaps and securities repricing at higher rates, as well as an additional day in the quarter. We continue to manage our balance sheet to a fairly neutral interest rate position over a 12-month horizon, which we view as prudent from a risk management perspective, given continued rate uncertainty and our focus on driving performance through the cycle.

On slide eight, non-interest income increased 6% year-over-year, including the negative impact of a $6 million Visa-related charge in the current quarter. Investment banking debt placement fees were $214 million, a 27% increase sequentially driven by M&A and syndication activity. Trust and investment services income grew 10% year-over-year, reflecting higher market values and positive net flows. Cards and payments and service charges on deposit accounts increased by 8% and 5% year-over-year respectively, both reflecting strong commercial payment activity.

Corporate services fees were stable compared to the year ago quarter, as higher loan commitment and client FX fees were offset by lower hedging activity. Commercial mortgage servicing fees were $53 million. At quarter end, we were named primary or special servicer on approximately $735 billion of commercial real estate loans, of which about $270 billion is in special servicing. Active special servicing third party assets were flat sequentially at $10 billion, about half of which is office.

We continue to expect $50 million-$60 million of commercial mortgage servicing fees for the fourth quarter. On slide nine, third quarter non-interest expenses were $1.2 billion, up 2% sequentially. The increase was driven by investments in people and technology, higher incentive compensation related to strong fee growth, and an additional day in the quarter. We continue to expect full year expense growth of 4%. A portion of our technology investment is focused on leveraging AI to create a more efficient and scalable operating model.

As Chris mentioned, in addition to broad-based adoption of AI tools, we've selected four end-to-end processes against which to apply these capabilities at scale. The confluence of well-understood processes with supporting data and an opportunity to reimagine client and employee experiences is proving to be a valuable recipe for AI tools. We are still early in the process but are optimistic that we can generate growth and efficiency while improving risk and controls.

In commercial onboarding and servicing, we're focused on delivering a faster client onboarding experience, which speeds our time to revenue generation while simplifying client support. In consumer servicing, we're deploying AI to automate high volume tasks, reduce fraud, and enable faster issue resolution. In commercial originations, we're streamlining the credit and collateral processes to improve client and banker experiences and accelerate cycle times.

In software engineering, we're transforming how we build, deliver, and support technology through AI to achieve greater speed, quality, resiliency, and efficiency. In summary, I'm energized by the opportunities ahead and what AI can unlock across Key. Turning to slide 10, credit quality is broadly improving as our focus on disciplined client selection, prudent underwriting standards, and deep domain expertise in helping clients navigate the uncertain environment was evident this quarter.

Net charge-offs were $89 million, or an annualized 32 basis points of average loans. As expected, non-performing assets decreased $191 million, or 19 basis points sequentially, and at 55 basis points is the lowest since late 2023. The decrease was driven by broad-based portfolio resolutions. The criticized loan ratio was stable at 4.9%. Moving to slide 11, our CET1 ratio was 11.1%, and our marked CET1 ratio was 9% at quarter end.

Since the start of the year, we've repurchased over $1 billion of shares and have approximately $250 million remaining to complete our targeted $1.3 billion of repurchases in 2026. Moving to slide 12, we are updating our 2026 guidance. We are tightening our full year net interest income growth outlook to approximately 10% compared to the prior guide of 9%-11%. We now expect average loan growth to increase approximately 5% compared to the prior guide of 4%-5%, and average commercial loan growth of approximately 10% compared to the prior guide of 8%-10%.

We see full year net charge-offs coming in in the range of 37-39 basis points compared to the previous guidance of 40-45 basis points. The outlook reflects the improving credit trends we've seen in our portfolio to date. We now expect to generate a net interest margin of approximately 3% in the fourth quarter of 2026, reflecting average earning asset growth of approximately $1.5 billion-$2 billion from the third quarter.

The updated guide is primarily a function of continued commercial loan growth and preferred capital optimization, actions that are accretive to EPS and returns but are slightly dilutive to NIM. Compared to our guidance in the second quarter, we now expect fourth quarter earning assets excluding AOCI to be approximately $2.5 billion higher. This increases NII and return but reduces NIM approximately two basis points.

We will continue to execute our relationship-based strategy to drive attractive returns from new and existing clients. With respect to preferred capital, we redeemed $525 million of Series D preferreds back in September, and we're planning to opportunistically issue new preferreds in the second half of the year. Based on prevailing market conditions, however, we've not yet made the decision to issue new preferreds. We'll continue to watch the market and act accordingly to optimize our capital structure.

As a result, we'll see lower preferred dividend payments in Q4, which from an earnings standpoint, will be partially offset by slightly lower NII. The net result is de minimis on EPS but will impact NIM by about one basis point. All other guidance remains unchanged. In summary, we continue to see strong momentum in our business through the fourth quarter and expect to deliver on our commitments while navigating a dynamic and evolving environment. With that, I'd like to now turn the call back to the operator to provide instructions for the Q&A session. Operator?

That view supported our guide at the time of $3 billion of client deposit growth in the second half. We obviously saw that and more in the third quarter alone, driven not just by the seasonal growth, but by deepening deposit relationships with the existing clients and adding deposits from new to bank customers, which would have come on with loans in the first half of the year. Overall, very pleased with the trajectory on the deposit side.

I'd say the trends we're seeing now continue to be encouraging, which gives us confidence that we can fund our 4Q loan growth with client deposits. Given the rate hike in September, we don't expect the same modest price increase of three basis points, but we do feel like we can effectively manage the cost along with the balance growth. Competition at this point is certainly intense, but it has been competitive all year, and we haven't really seen that intensity increase yet.

Increased industry loan demand could ratchet that up, although we expect some of the loan growth for us to moderate actually in 4Q. To be clear, I'd say we aren't taking a victory lap here, and we're definitely not getting complacent. The deposit gain requires consistent effort, so we're not going to let off the gas at all. I would say our focus on primacy, including deposits and commercial payments over the last decade plus, is serving us well.

Our visibility here is based on name-by-name, bottoms-up analysis, and that's really what's driving our confidence. To your point about deposit growth outpacing loan growth in the quarter, we mentioned we expect to fund that loan growth with deposits in the fourth quarter, and I think going forward through 2027 would expect to grow deposits at or better than loan growth.

Sure. Thanks, Scott, and welcome back to the call. First, maybe let me just-

zoom out a little bit and start with the broader objective of ROTCE. I would just remind you the most important target we have out there for the fourth quarter 2027 is delivering 15%+ ROTCE. Based on what we are seeing today and the performance we are delivering, we remain highly confident we are going to achieve that. We are also maintaining, as we said, and you noted, the 3.25%+ NIM for 4Q 2027, so that remains intact as well.

I would just note that when we first offered that target, the environment was quite different, and we did note at the time that we thought we had multiple paths to achieve that, and we still believe that to be true. As we build the bridge, I would say the most valuable opportunity for sure is the fixed asset repricing opportunity. Between now and the end of 2027, we have about $24 billion of security swaps and resi mortgages rolling off.

Given the current view of rates and our forward starting swap positions, we see a weighted average yield pickup of about 165 basis points there. If you consider that, say that alone drives roughly 70% of the NIM expansion required to hit that target. More mechanical than it was a quarter ago, and that is just a function of the rate environment. The second driver would be client deposit growth, which we just covered a little bit.

As we have discussed, we have seen great client deposit growth and attractive rates, and we feel we can fund our loan growth going forward with deposits. Third, and I would say probably more of an expansion of the second, we think we can actually grow deposits, client deposits, faster than loans here, which allows us to pay down wholesale funding, and again, would be accretive to that NIM expansion there. Those deposit benefits are going to be partially offset by rate hikes given our modest liability sensitivity on the short end of the curve.

Net net, we think those components get us there. I think it is important to remember we are managing the balance sheet to be fairly neutral in rate moves here, and the pressure on deposits from higher rates often carries with it better reinvestment rates on the fixed asset repricing. So there is a little bit of a trade in both directions there. As I noted, the move up in rates, particularly over the last month or so, has made achieving the target more mechanical than it was just a quarter ago. Hopefully that provides you a little bit of detail.

Chris, I think that is well said. Maybe a couple other points from a risk management perspective. One, we do have internal sector limits, so utilities would, of course, fall into that. These relationships typically span over three decades. Again, we have been very careful with clients that are tried and true. We are not really focused on merchant power generation. Again, we are looking for contracted power. Again, to Chris's point, really there is a need for electrons regardless of the AI build-out.

Things like our largest sponsors are less than 7% of our portfolio. Again, take or pay contracts and the like. Again, we feel good about the exposure. Again, just a reminder, there are internal limits. On the AI front, too, we did do a bit of an exercise relative to what sectors could be what I call adjacent. We did kind of carve out what could be higher impact, what could be kind of neutral, and then what are some areas to watch.

Again, in terms of high impact on what I call AI adjacency outside of the data center point that Chris made, that number is very small, less than $1 billion of potential disruption there in business services. So we are looking at it from multiple angles, and we do feel comfortable with the exposure.

And maybe just to respond to your question about investments, Ebrahim, just a reminder that we've added a fair amount of bankers over the last two years. Those could hit the ground running pretty well. And then obviously we closed Clearwater here in the quarter, so we're continuing to build capability by market and industry.

Yeah. Thanks, Chris. First of all, I'd say we feel very good about our current capital position and our ability to manage that. I think with mark capital, which we've been talking about now for several years, it's really half the equation, and we haven't been including the benefit of the Basel III changes, which I think we all feel are highly probable to arrive early in 2027, with implementation in 2028. As a reminder, when those come in on the risk-weighted asset reduction, we get roughly 100 basis points of additional benefit to the capital ratio.

That point puts us squarely back into our range. We'd expect not to be overly concerned about the current position. We've talked about being willing to be below that 9.5-10 range on a limited basis. I wouldn't describe that as kind of spending in advance of that Basel III, but I think we'd be short-sighted not to include it given the timing and probability of that materializing. I think that's sort of the broad base.

We did reiterate, as you noted, fourth quarter buybacks to get to the 1.3 for the year. I think we'll have more conversation in January about how to think about the go forward. But I would really consider buybacks as Chris went through the capital priority stack as managing sort of at the end of the discussion around capital ratios and capital return. I don't know that we'll give the same kind of clarity on expectations for buybacks going forward post 2026.

We are doing a few things, I think, in the AFS to HTM realm that will insulate us a bit from further moves up. Happy to unpack that as well, but I think you can expect us. We've been a low user of HTM historically for a variety of reasons. I think some of those are changing. You will see us move up the HTM percentage of our portfolio. But again, I think the capital priorities are pretty clear and the buybacks to us are sort of the last decision we're making in that process.

Yeah. I do think the one reminder is just the full year impact of Clearwater, which we talked a little bit about recently. That'll hit obviously for year-over-year. So it will look a little bit higher than otherwise would be planned, but we don't see any reason why post 2027 we couldn't be managing to sort of 3% annual expense growth.

But I think, Erika, you're picking up on something we've been talking about and the industry's been talking about, which is the trade-off between good quality loan growth and NIM. Obviously, we've made, as others have, some trade-offs to go into what we believe will be very accretive long-term client relationships at the expense of NIM, but not at the expense of returns, EPS or NII. I think your comment about asset growth slowdown is probably the right place to be focused, and that trade-off is something that likely continues to present itself. But with the visibility we have now, we think we can manage that combination.

Yeah, I think the way to consider that is when you make a loan to a client, we have a theory here that we have espoused for the last decade or so, which we refer to as kind of payments attachment. Which means when you make a loan, the expectation to the banker is you are going to get the deposit, you are going to get the payments with it. I think we do a very good job with that, but it does not necessarily happen on day one.

It takes a little bit of time to move accounts and to get things changed. Some of the third quarter growth you would have seen would have been off new clients in the first half. It is hard to predict exactly how long that timeframe takes, but even if we had a little bit of new loan slowdown in 2027, I think you would still see some pull through from the 2026 production in terms of commercial deposits.

Good morning.

John, we guided just to remind you of earning asset growth in the fourth quarter of about $1.5 billion to $2 billion, just relative to where we were in the third quarter. That's a little bit of a step down. And some of that, I think, to Chris's point, will get priced in the market.

Sure. I think, look, deposit competition or composition, sorry, on the commercial side, I think it is going to look more interest bearing than non-interest bearing from a reporting standpoint, just given our use of hybrids. We continue to use that as a vehicle to capture a full client relationship. I think we will see primary growth in operating accounts, which is allowing us to manage the overall expense. So I think that commercial loan growth will come on kind of consistent with the portfolio rate we see today, obviously subject to indexed changes from rate hikes.

So we feel like it will be a representative sample there broadly. On the consumer side, we have started to pick some places to raise some rates and do some targeted deposit raising, which we have had some early success on, and we are doing that to raise some balances, but not more broadly raise the overall consumer deposit rates. So we feel pretty good about our early returns there. Based on how that materializes, I think we will have the opportunity to do a little more of that.

But we also still really are not at the full offer to some of the competition, but we have picked up our MMDA promo and CD rates in certain markets in targeted ways in the last quarter. Again, we have seen some positive response to that. So I think it is not going to be all commercial, but we will start to see a little bit of consumer growth come on that we think will be valuable, and that commercial growth we think will be kind of representative of what it looks like today on a portfolio basis.

Sure. I think it's really loan growth and deposit growth and the cost of the deposit growth. I do think we'll see kind of low 40s beta here in the fourth quarter, and that'll over the next probably first or second quarter of 2027 would start to move up to mid-50s. Obviously depends on if there are or are not additional rate hikes in the year. But we'd expect over sort of two to three quarters to get to that 50 to mid-50s number.

If that were to be more loan growth or less deposit growth or more expensive deposit growth, I think that is the combination of things that we're watching really closely. But the visibility we have now makes us feel like we can fund that loan growth with deposits. We can potentially pay down some wholesale funding with deposits, and we can effectively manage the cost of those deposits within the scope of where rates are.

And there's that natural trade-off, as I mentioned, between higher rates on the front end delivering better reinvestment rates and the counter if rates go down. So we think there's a little bit of a natural hedge in that neutrality.

Yeah. If you think about particularly complex commercial relationships, there's a lot of decision making, interaction, and work that goes into that process. We just think there's opportunities to streamline that to make them more informed, to improve the borrower experience and the banker experience in something that historically has been maybe a little bit more analog in nature because they tend to be, to your point, person-to-person relationships.

We just think we can build a chassis underneath that that is AI enabled and streamlined. That is not at the expense of the relationship. It is to augment the relationship. I think it's to reduce paper and a lot of back and forth and make that process more streamlined.

Hey, Gerard.

Well, I think part of it is I'm sure there's some element of sort of bid-ask, what is the value, what's the exit strategy, what's the timing. I personally think one of the big constraints has been not only the volatility in interest rates, but the volatility in the forwards of interest rates. If you thought there were going to be five cuts, and in fact there were no cuts-

I might add one just data point, Gerard. If you go back to when I joined Key in 2012, I think our leverage book was about $2 billion. I think today it's $2 billion. We're obviously a much larger bank, so that's not where I think the banks broadly have seen the growth. That growth is happening. It's just not happening, I think, in some of the traditional banking spaces.

Hey, Gerard, great question. This is Mo. The only other thing I would add is I think, again, from a supervisory perspective, the financial risks continue to be a major focus for them. Tying our stress testing to our underwriting, to our portfolio limits and having that all be one ecosystem. We just continue to add that sophistication as well as, again, connecting the dots with data across the enterprise as well. We just continue to be expected to raise the bar, and we're also just continue to uplift these programs.

Yeah. Thanks, Matt. Generally, you would see corporate services increase with loan growth. What's in there would be FX fees, derivatives fees, and some loan fee categories. In the quarter, we saw derivatives or client hedging fees come down, and I think that's really just reflective of the rate volatility. We might see that come back. I think fourth quarter we'd expect it to be pretty flat to fourth quarter of 2025.

We did see a dip there in direct client activity off lending, and again, just driven by sort of an unwillingness of clients to lock in rates with the current volatility. I would say that's sort of flip side of our spot and forward starting swaps are coming on at pretty attractive rates, and clients aren't wanting to take the other side of that in some cases.

Sure. Yeah. So the short end rate sensitivity or liability sensitivity, really when we talk about that is if you think we're getting to the kind of mid-50s terminal betas that we talked about, the break even is kind of low to mid-40. So we're going to be a little bit liability sensitive on the front end of that deposit beta. As we noted, assuming no material change in the shape of the curve, we would assume we'd get some of that back on the reinvestment rate.

I think we feel, again, quite good about the neutral position we're in. I think the steeper the curve is, the better that is for us. The flatter it is obviously is the inverse. And we've effectively been replacing swaps at this point as they roll off and, as we noted, replacing them at much higher levels right now. And we've done a little bit of maintenance sort of out into 2028 and 2029 where we saw some portfolio gaps on the swap side. But generally speaking, I think we're pretty much in maintenance mode and feel good about maintaining that neutrality.