KeyCorp Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Scott Siefers - Pieper Sandler Companies - Analyst : Thank you. Good morning, everybody. Thanks for taking the question. I think you might have touched on this a bit towards the end of your remarks. But you know, there's been so much movement in your balance sheet over the last 90 days. You know, not only the new capital and the repositioning, but now it looks like the funding profile starting to look a little different with the improved deposit outlook as well. Maybe just some thoughts on the updated rate sensitivity of the company as a whole. And as you look at things, what would be sort of best and worst that you would like just in terms of what happens with the rate path?

Question: Scott Siefers - Pieper Sandler Companies - Analyst : Yeah, perfect. Thank you for that color and then sort of related one, I think last month you all had discussed NII improvement next year in kind of the 20%-plus range. I think that was before you were fully invested because if I'm recalling the timing correctly, that was when you just announced the repositioning. So you know, the actual investment probably a little better than you thought, which presumably should be helpful. But I guess the thrust of the question is just we're still thinking 20%-plus NII improvement next year and maybe just if you could expand a little on the sort of the main puts and takes to get there in your mind. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2024 / 1:00PM, KEY.N - Q3 2024 KeyCorp Earnings Call

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Chris, you talked about, we're saying M&A backlogs are up 10% quarter over quarter and what's the change now? Why? And we've seen this at the big players. And also we've heard there's a little debate, is the [cash markets] activity taking away from long growth or are they separate? Are you seeing some disintermediation from lending to capital markets as it relates to KeyCorp? Thanks.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : And just to follow-up on the private equity comment, you said the private equity universe is starting to transact. I got the sense there deploying some of the dry powder, but honestly monetizing the investments. But you get different stories depending on who you ask, how much of your business is driven by private equity and how do you see the private equity factor playing out because you've never had this much dry powder in a cycle like this? Thanks.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Chris you mentioned in your opening remarks about the special servicing. I was curious, what perked my interest you mentioned how there seems to be an accelerated resolution to the inflows that may have come in six months ago or three months ago. Can you give us any color on how that resolution is going? Is it big price discounts and then being refinanced or what are you guys seeing on the resolution side to move these properties out?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Very good. And then you guys talked about the outlook for loans or what you're experiencing in loans. And we're seeing from the H8 data that comes out on Friday is that it seems like commercial and industrial loans have hit a bottom and are starting to creep up a bit. Any sense that you might be seeing that soon as well or is it just some of your -- where you're physically located and your customers is still going to be flat for or flat to down, I should say over the near term.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : No, it does. It's good, Chris. And just one real quick. You guys in the past have always had a comment or two on student lending. Any changes here with rates coming down a bit on your student lending platform?

Question: John Pancari - Evercore ISI - Analyst : (technical difficulty)

Question: Nathan Stein - Deutsche Bank - Analyst : Hey, everyone, this is Nathan Stein on behalf of Matt O'Connor. So you talked about the rise in C&I net charge offs this quarter, which were from the three credits that had been previously reserved for. I wanted to ask what industries were these loans in? And we saw the updated charge off guidance for full year '24, but are you expecting other similarly sized losses in the coming quarters?

Question: Nathan Stein - Deutsche Bank - Analyst : Okay. Thank you. And then if I could just ask a question on the NIM, you flagged a [2.40] level in 4Q, just given all the moving pieces. I think in September, you guys have flagged a 3% NIM with just assuming a steeper yield curve down the road, not necessarily next year, but could you provide your updated thoughts on the long-term NIM just given the moving rates over the past few weeks and everything else going on at Key? Thanks.

Question: Zach Westerlind - UBS - Analyst : Hi, good morning, this is Zach on for Erika. My question is just around deposit betas. We saw a decent uptick in the cost of interest bearing deposits this quarter. Just kind of wanted to get your thoughts on how you're thinking about the trajectory for that deposit beta going forward. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2024 / 1:00PM, KEY.N - Q3 2024 KeyCorp Earnings Call

Question: Zach Westerlind - UBS - Analyst : Helpful. Thank you. And just as a follow-up to that on the non-interest bearing deposit front, any color that you can share on that in terms of when you think that we'll reach a bottom there or pivot to growth. Any thoughts there would be helpful. Thanks.

Question: Manan Gosalia - Morgan Stanley - Analyst : Hey, good morning. Hey, I apologize if this has already been covered. But can you talk about expenses for 2025? Just given that you have a lot more capital to work with now, growth should be accelerating next year. You have some investment spend to make plus you have been pretty good with managing expenses over the past few years. So just given all of that, how should we think about expenses in 2025? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2024 / 1:00PM, KEY.N - Q3 2024 KeyCorp Earnings Call

Question: Manan Gosalia - Morgan Stanley - Analyst : Perfect. And then I appreciate the comments on the near term deposit betas, but wanted to get your thoughts on just longer term as you think through the cycle should deposit betas on the way down match deposit betas on the way up or given that loan growth will be stronger this time than it was when deposit -- when rates were going up, will deposit betas likely be a little bit slower through the cycle?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Hey, can you comment on the increase in NPLs a little bit more? Is that -- like how many credits is that? Is that a trend? Is that something that you guys are worried about? Was that unexpected? Thanks.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : So next quarter, we shouldn't expect anything like that is what you're saying.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : And then one last cleanup question. So you had already thought that NII would be 20% higher next year. And then you sold $7 billion of the securities near high. So I assume you got a nice yield pickup. So better lucky than smart or maybe you have some great timing there. But -- so why wouldn't that 20% number for the increase in NII in 2025 versus 2024 go higher because of that fortuitous investing of those securities?

Question: John Pancari - Evercore ISI - Analyst : Good morning. I'm sorry about the technical problems earlier.

Question: John Pancari - Evercore ISI - Analyst : Good morning. A couple of real quick questions. On the capital markets, revenue side, I know you flagged some very solid pipelines and building pipelines there and your expectation to hit the high end of the $600 million to $650 million guide, Chris, I know when you've had this type of confidence in the past, you actually called out the likelihood of a of a record year the following year as well. I believe you did that last year. Could you maybe provide your thoughts on 2025 here? Just given the progression you're seeing, maybe how we see that playing out in terms of your capital markets as you look at heading into '25?

Question: John Pancari - Evercore ISI - Analyst : That's helpful. Thanks Chris. And just two more quick ones on the loan growth front, I believe you mentioned relative stability as you look into 2025 given the trends you're seeing, given consumer likely declining, but commercial increases, are you able to give us a better idea of the piece of growth that you think is reasonable? And what type of growth more specifically on the commercial side do you think that can help offset consumer pressure?

Question: John Pancari - Evercore ISI - Analyst : Got it. Thanks, Chris. I do have one last one, sorry about that. On the loan loss reserve, you did on a loan to -- on reserve ratio basis, you did bleed the reserve modestly this quarter, perhaps provide us a little bit of thoughts around the potential for incremental releases here as you see credit playing out, given the economic outlook.

Question: Peter Winter - D.A. Davidson & Company - Analyst : Good morning. I wanted to follow up on John's questions on the loans just for the fourth quarter. You didn't change the full year guidance for the average, which would imply that there's going to be some decent growth in the fourth quarter. And I was just wondering if you could talk about maybe just the what you're expecting for fourth quarter loan trends.

Question: Peter Winter - D.A. Davidson & Company - Analyst : Okay. And then Chris if I could just ask one big picture question, obviously, you're getting the second tranche of the investment from Scotia, the focus would be the securities restructuring along with organic growth. But just with now that you've built up your capital levels, just can I ask how you think about bank M&A going forward?

Question: Scott Siefers - Pieper Sandler Companies - Analyst : Thank you for taking the follow-up. Clark if possible, wanted to just revisit the expense outlook, particularly in the fourth quarter. It seems to be generating a lot of traffic this morning. I know you said higher stock price will impact incentive comp. And then I think you said some kind of proactive investments as well. But at a point, I think I might have heard the foundation contribution as well. Are you able to sort of parse if we're going to see maybe $100 million of total expense left in the fourth quarter? How much of that is ongoing stuff versus what people might sort of pull out as transitory? And then also appreciate that you suggested already not to annualize that, but just hoping for a little more deep dive in there if possible.