Core Viewpoint - KeyCorp reported steady performance in Q2 2025, with earnings per share matching analyst forecasts, but faced challenges with rising credit loss provisions and cost growth [1][5][9] Financial Performance - GAAP earnings per share for Q2 2025 were $0.35, aligning with analyst expectations, while GAAP revenue was $1.80 billion, slightly below consensus [1][2] - Year-over-year net income attributable to shareholders increased by 63%, and return on average tangible common equity rose to 11.09% from 10.39% [5][12] - Net interest income climbed 27.9% year-over-year, reflecting improved loan and deposit dynamics [5][14] Loan and Deposit Trends - Average loans totaled $105.7 billion, a decline of 3.0% from the previous year, with commercial loans increasing by 5.5% and consumer loans decreasing by 7.1% [6][10] - Total deposits reached $146.9 billion, showing less than 1% growth from Q2 2024, with a total deposit cost decreasing to 1.99% [11][12] Noninterest Income and Expenses - Noninterest income grew by 10.0%, driven by a 41.3% increase in investment banking and debt placement fees [7][8] - Total noninterest expense rose 7.0% year-over-year to $1.15 billion, primarily due to higher personnel and technology investments [8][9] Credit Quality - Net loan charge-offs increased to $102 million, up 12.1% year-over-year, while nonperforming loans represented 0.65% of total loans [9][10] - Management added $36 million to reserves as a precautionary measure in response to economic conditions [9] Business Segments - Consumer Bank revenue increased by 20.3% year-over-year, with net income more than doubling, while the Commercial Bank segment saw a 26.8% revenue increase and a 69.4% rise in net income [10][11] Regulatory and Capital Position - Common Equity Tier 1 ratio stood at 11.7%, well above required minimums, with tangible common equity as a share of total assets rising to 7.8% [12][15] - Book value per share increased by 17.0% year-over-year, indicating a solid capital position [12] Strategic Focus - KeyCorp is prioritizing regulatory compliance, competitive positioning, digital banking investments, and personnel growth to enhance client relationships [4][13] - The bank aims to increase front-line bankers by 10% in 2025 to support business growth [13] Outlook - Net interest income is projected to grow by around 20% for 2025, with adjusted fee income expected to increase by 5% or more [14][15] - Share repurchases of up to $1 billion are authorized, contingent on economic conditions [15]

Investment Rating - The report indicates a significant impact of tariffs on the economy, with a focus on the retail sector and credit market dynamics, suggesting a cautious approach to investments in these areas. Core Insights - Tariff revenues exceeded 26 billion USD in June, annualized at about 1% of GDP, marking a significant increase compared to three months prior, indicating that the effects of tariffs are becoming more pronounced [1][2] - The retail sector is particularly vulnerable due to preemptive inventory purchases made in anticipation of high tariffs, which have now been sold out, leading to higher costs for new orders expected in the third quarter of 2025 [3][4] - Core inflation data is rising, reflecting increased cost pressures across industries affected by tariffs, with the retail sector expected to feel the impact more acutely in the third quarter of 2025 [3][4] Summary by Sections Tariff Impact - The rapid increase in tariff rates, now reaching historical highs of 9%, with potential future increases to 15-20%, is a key factor in the delayed impact of tariffs on the market [2] - Companies had stocked up on inventory before tariffs took effect, but by the third quarter, these inventories will be depleted, leading to higher costs for new products [2] Retail Sector - The retail industry is especially affected as it faces higher costs for new goods after selling off pre-purchased inventory, with core inflation pressures compounding the situation [3] Credit Market - The credit market is advised to focus on quality, particularly in August and September, as the retail sector's challenges may lead to increased scrutiny on credit quality due to rising costs and inflation [4]

Financial Data and Key Metrics Changes - The company originated approximately $1.3 billion in loans during the first quarter, with a tangible book value per common share increasing to $13.42 from $13.15 in the prior quarter [3][4] - Net income for the first quarter was $3.2 million, or $0.23 per diluted common share, with net interest income declining to $14.3 million from $15.5 million in the prior quarter [10][11] - The net interest margin (NIM) decreased to 8.27% from 10% in the prior quarter, primarily due to a change in the mix of loan originations and lower rates on variable rate loans [11][12] Business Line Data and Key Metrics Changes - The largest student lending program had strong originations but is expected to decelerate in the second quarter due to school calendars [6] - SBA seven loan originations decreased slightly quarter over quarter, driven by a lower average loan size, while equipment leasing and owner-occupied commercial real estate lines showed solid growth [7][8] - The provision for credit losses was $3.3 million in Q1, down from $3.9 million in the prior quarter, with non-performing asset (NPA) balances reduced to $29.9 million from $36.5 million [9] Market Data and Key Metrics Changes - Average loan balances increased to $565 million from $522 million in the prior quarter, with average interest-bearing deposits rising to $430 million from $355 million [10][11] - The company expects gradual growth driven by existing programs and new partnerships, with loan originations tracking at a quarterly rate of $1.2 billion in early April [5][6] Company Strategy and Development Direction - The company announced a new strategic program agreement with Fintech partner BACT to provide business installment loans to small and medium-sized businesses [4] - The focus remains on migrating the loan portfolio to a lower risk profile while maintaining profitability and increasing tangible book value [3][5] - The company anticipates that the credit enhanced balance sheet program will significantly contribute to earnings in 2025, particularly in the second half of the year [5][15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term outlook for the business, despite a more uncertain macro environment [5] - The company is closely monitoring economic conditions but remains comfortable with the guidance for gradual growth from new partners throughout 2025 [36] - Concerns about potential macro risks, such as a slowdown in consumer spending, were acknowledged, but no immediate issues were reported [36] Other Important Information - The efficiency ratio remained relatively flat at 64.8%, with expectations for future decreases as revenue from new programs materializes [14] - The effective tax rate for the first quarter was 28.1%, with an expected rate of approximately 27.5% for 2025 [15] Q&A Session Summary Question: What is the current expense run rate and expectations for future expenses? - Management indicated that the efficiency ratio is around 64.8%, with expenses expected to remain flat and increase as revenues grow [19][21] Question: What is the outlook for net interest income (NII) growth given margin pressures? - Management expects NII growth to come from a return to normal origination levels and growth in traditional banking products, despite a continued decline in NIM [22][24] Question: What are the current credit enhanced loan balances and the timeline for growth? - The credit enhanced portfolio balance was slightly under $2 million at the end of the quarter, with expectations to reach $50 million to $100 million by year-end with existing partners [31][30] Question: How does the company view the health of its strategic partners in the current market? - Management reported no concerns about strategic partners, with origination levels remaining healthy and a gradual pickup expected from newer partners [36] Question: What is the yield on owner-occupied commercial real estate loans? - The gross yield on owner-occupied commercial real estate loans is expected to be around prime minus 100 basis points [63]

Core Viewpoint - The financial services companies reported positive results despite economic uncertainties, highlighting customer resilience and strong balance sheets [1][12]. Group 1: Deposit Growth and Credit Quality - Deposit bases expanded or remained stable in a competitive rate environment, with KeyCorp showing mid-single-digit growth year over year and Truist increasing balances while reducing deposit costs by 10 basis points [2] - Credit quality remained robust, with KeyCorp's nonperforming assets decreasing nearly 10% from the prior quarter and Truist's provision for credit losses declining sequentially [3] Group 2: Consumer Spending Trends - American Express reported a 6% year-over-year increase in card member spending, with significant growth among Gen Z and millennials, indicating a focus on experiences [4] - Truist's mobile app saw a 31% increase in consumer loans, with Gen Z volumes rising by 47%, reflecting strong demand among younger consumers [5] Group 3: Investment and Capital Plans - Management teams are pursuing capital plans despite macroeconomic uncertainties, with Truist launching real-time payments and achieving double-digit growth in treasury-management revenue [7] - KeyCorp is actively reviewing clients for tariff exposure while maintaining existing capital expenditure projects, and Fifth Third is investing in Southeast branches and national loan-origination platforms [8] Group 4: Contingency Planning - Each institution has contingency plans in place, with KeyCorp setting aside an additional $8 million in loan-loss reserves and Truist trimming certain expenses while continuing to invest in risk management and digital initiatives [9][10] - The common strategy includes maintaining liquidity, tight credit underwriting, and targeted technology investments to either cut costs or expand fee income [10] Group 5: Market Confidence and Preparedness - Confidence among these institutions is bolstered by low unemployment and stable delinquency metrics, alongside a shift towards higher-quality borrowers and fee-based products [11] - American Express noted that 70% of new accounts carry annual fees, while KeyCorp and Truist emphasized the growth of wealth management and treasury businesses [12] Group 6: Overall Sentiment - Despite acknowledging geopolitical and policy risks, the companies expressed optimism about their preparedness and ability to navigate economic uncertainties [12][13]

Financial Data and Key Metrics Changes - The company reported a net income of $131 million, with a return on assets of 19.1% and a return on equity of 18.8%, which compares favorably with peers and industry averages [6][7] - The net income was impacted by a non-recurring rental expense adjustment of $810,000, which equated to approximately $0.42 on an after-tax basis [7] - Loan growth for the year was 7%, while deposit growth was 3.6%, both moderate compared to previous years but in line with industry averages [7][8] - Non-performing loans decreased from $20 million to $10 million, representing a 50% improvement [9] - The leverage capital ratio improved from 10.85% at the beginning of the year to 11.33% at year-end [11] - Tangible book value per common share increased from $50.54 to $57.86 [11] Business Line Data and Key Metrics Changes - The company experienced a reduction in criticized loans by 33% during the year [9] - The company repurchased 460,000 shares of common stock for a total consideration of $34 million [11] Market Data and Key Metrics Changes - The company noted that the banking industry is experiencing slow growth, with no significant increases in activity anticipated in the near term [7][8] - The company is facing competition from local banks offering special rates, particularly in the Asian community [22] Company Strategy and Development Direction - The company plans to remain flexible in its pricing strategy to compete effectively in the market [22] - The management indicated that buybacks will depend on loan growth prospects, stock pricing, and capital ratios [23] - The company is establishing a new branch in Manhattan, expected to open in March 2025, which will increase occupancy and personnel expenses [47] Management's Comments on Operating Environment and Future Outlook - Management expressed a cautious outlook for the banking industry, expecting moderate growth [7][45] - The management highlighted that while there is still activity, payoff activity has been higher, indicating a lack of sustainable increases in loan activity [46] - The management noted that clients are currently hesitant to invest due to perceived risks, despite having capital available [62] Other Important Information - The company plans to make a significant donation to local wildfire relief efforts, which will increase donation expenses [30] - The company is actively purchasing treasuries to take advantage of favorable rates, with $60 million in ten-year treasury purchases made recently [50] Q&A Session Summary Question: Inquiry about margin stability - Management indicated that they do not foresee major effects on margins and expect them to remain relatively stable [16][17] Question: Capital repatriation and buyback plans - Management stated that buyback decisions will depend on loan growth prospects and stock pricing, with a possibility of continued buybacks if stock remains undervalued [23] Question: Spot rate on deposits - The spot rate on deposits was reported at 3.63% for December [28] Question: Expense run rate expectations - Management projected non-interest expenses at about $23 million for the upcoming year, including increased charitable contributions and elevated payroll taxes [30][31] Question: Loan growth and competitive landscape - Management noted elevated payoff activity and a lack of sustainable increases in loan activity, indicating a cautious outlook for future growth [42][45] Question: Health of borrowers and credit trends - Management reported that borrowers are generally healthy, with strong sponsors willing to support loans during challenging times [66][70]

Financial Data and Key Metrics Changes - The company reported earnings of $1.28 per diluted share for Q4 2024, compared to $1.32 in the previous quarter and $1.16 in Q4 2023 [4] - Adjusted return on assets was 1.31% and pre-provision return on assets was 1.80% [4] - Net interest income expanded while net interest margin remained flat above 4% [5][6] - The tangible common equity to tangible assets ratio was 9.05% at quarter-end, with an adjusted return on tangible common equity of 14.05% for Q4 [11][12] Business Line Data and Key Metrics Changes - Overall loan growth was around 3% for the year, with Q4 growth of $140 million or 5% annualized [18] - Life insurance premium finance grew by $158 million or 16.5% for the year, showing consistent growth [19] - The SBA segment posted a strong quarter with a growth of $25 million or 7.9% annualized [20] - The agricultural portfolio declined by $27 million as it continues to wind down [8] Market Data and Key Metrics Changes - Client deposits increased by $677 million in Q4, marking the fifth quarter of growth in six [9] - The cost of deposits declined to 2%, with DDA to total deposits increasing to over 34% [10] - The Midwest region saw modest growth, while the Southwestern markets experienced strong growth of $104 million in Q4 [21][22] Company Strategy and Development Direction - The company focuses on diversification, aiming for revenue growth from various markets and business lines [6] - The strategy emphasizes a client-centric approach, providing holistic solutions to clients [7] - The company plans to continue leveraging market disruptions and talent acquisitions to enhance growth and profitability [15][17] Management's Comments on Operating Environment and Future Outlook - Management noted a shift in client sentiment post-presidential election, with expectations for slight increases in loan demand [7][16] - The company anticipates sound growth in C and I sectors in 2025, supported by client investments in infrastructure and reshoring [16] - Management expressed confidence in maintaining a mid to high single-digit growth rate for the balance sheet in 2025 [10][18] Other Important Information - The company increased its dividend by $0.01 per share for Q1 2025 to $0.29 per share [12] - The allowance for credit losses was 1.34% of unguaranteed total loans, reflecting strong credit quality [12][40] - Non-performing assets increased slightly but remained at modest levels [12][39] Q&A Session Summary Question: Margin outlook and impact of rate cuts - Management indicated that the margin could hold above 4% even with potential rate cuts, depending on the shape of the yield curve and deposit cost management [49][52] Question: Non-interest bearing deposits sustainability - Management noted that the increase in non-interest bearing deposits is typically seasonal but expressed confidence in maintaining a strong deposit mix [57] Question: Credit quality concerns - Management reassured that credit quality remains strong, with net charge-offs at 16 basis points and non-performing assets at 30 basis points [58][59] Question: Loan growth outlook - Management believes mid-single-digit loan growth is achievable, supported by ongoing market opportunities and a selective approach to lending [64] Question: Capital management and M&A interest - Management confirmed a focus on organic growth rather than M&A, while remaining open to opportunities that align with strategic goals [76]