KeyCorp at Morgan Stanley Conference: Strategic Growth and Optimism

On Wednesday, 11 June 2025, KeyCorp (NYSE:KEY) participated in the Morgan Stanley US Financials, Payments & CRE Conference 2025. The discussion, led by Ken Gabbardy and Clark Hayat, emphasized KeyBank’s strategic initiatives in commercial banking and payments. While the company remains confident in its growth trajectory and financial targets, it also faces challenges in market competition and economic volatility.

Key Takeaways

• KeyBank’s Commercial Banking platform generated $2 billion in revenue in 2024, representing nearly one-third of the company’s total revenue.
• The bank’s middle market segment has shown significant growth, with a 25% increase in revenue over the past five years.
• KeyBank plans to increase its banker count by 10% this year, focusing on expanding its geographic reach.
• The company reiterated its full-year guidance for Net Interest Income (NII) and fee income, driven by strategic portfolio repositioning.
• Management expressed optimism about potential stock buybacks in the second half of the year, contingent on market conditions.

Financial Results

• Commercial Banking Revenue: $2 billion in 2024, accounting for slightly less than a third of KeyBank’s total revenue.
• Deposits: Approximately 40% of KeyBank’s total deposits come from the Commercial Banking platform.
• Middle Market Growth: Revenue up 25% over five years; deposits increased by $4 billion, with 88% being operating deposits.
• Commercial Payments: Annual revenue growth has exceeded 10% over the past decade.
• C&I Loan Growth: 2% to 3% growth in Q1 for the middle market, consistent with corporate and institutional growth.
• Capital Markets: Up 10% from the first half of last year.
• Expenses: Expected to rise by 3% to 4%.

Operational Updates

• Client Base: Serving 4,600 middle market customers, with 95% using at least one non-lending product.
• Payments Reach: Engaging over 8,000 commercial clients nationwide, with a focus on operating accounts.
• Banker Expansion: Aiming for a 10% increase in banker count, with expansions in Southern California and Chicago.
• Risk Management: Enhancing risk expertise in strategic areas, particularly in private capital.
• Technology and Partnerships: Focus on data foundation and embedded banking strategy, with 15 fintech partnerships and seven VC relationships.

Future Outlook

• Banker Expansion: Targeting a 10% increase in banker count in select regions.
• Loan Growth: Continued growth anticipated in Q2 following 2023’s balance sheet repositioning.
• NII and Fee Growth: Confidence in achieving the $3 billion NII target, with fees expected to perform well across most categories.
• Buybacks: Potential for stock buybacks in the second half of the year to manage capital ratios.

Q&A Highlights

• Client Sentiment: Generally optimistic, despite past market volatility.
• Tariffs: Minimal direct impact expected.
• Operating Efficiency: Costs may be partially transferred to customers.
• Market Segmentation: The CIB model is being applied to the middle market segment.
• Commercial Payments Growth: Acknowledged as a significant growth opportunity.

For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Morgan Stanley US Financials, Payments & CRE Conference 2025:

Manon, Morgan Stanley Sales Representative, Morgan Stanley: All right, we’re excited to have KeyBank next up. I’ll go through our disclosure. For important disclosure, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. The taking of photographs and use of recording devices is not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative.

With that out of the way, I’m delighted to have with us today Clerk Hayat, Chief Financial Officer of Key Bank and Ken Gabbardy, President of Commercial Banking. Thanks so much for joining us.

Ken Gabbardy, President of Commercial Banking, KeyBank: Yes. Thanks for having me, Manon. Pleased to be here, obviously. For those of you that haven’t had a chance to meet, I lead Key’s commercial banking business, which includes both our middle market segment covering companies with annual revenue size from $10,000,000 revenue all the way up to $1,000,000,000 in revenue as well as our commercial payments platform, which serves as a utility really across the business side of Key, serving customers all the way from our business bank. So think customers, million dollars in revenue, all the way up to our corporate and institutional bank that covers the investment banking platform.

Before I begin, I’ve been asked to read the following in the back of today’s presentation which you can find in the Investor Relations section of key.com’s website. You will find our statements on forward looking disclosures and these statements cover our presentation and related comments as well as the question and answer segment from today’s webcast. Statements speak only as of today, 06/11/2025. Okay. So I’m going start on slide two with an overview of our commercial banking platform which notably excludes our corporate investment bank run by my colleague Randy Payne.

As the top left side of the slide shows, the commercial banking platform is significant and growing portion of Key’s total revenue. In 2024, it contributed $2,000,000,000 of revenue, which is a little less than a of Key’s total revenue during that period. The platform is also a significant source of liquidity and low cost funding for Key accounting for roughly 40% of Key’s total deposits. We have strong in the commercial bank centered around relationships and primacy which you’ve heard us talk about for many years. And in our middle market business, we have presence in 27 markets which is broader than what you would see from us on the consumer side and roughly 4,600 customers, about 95% of which have at least one non lending product with Key.

Now the payment side, we have a scaled national business that touches over 8,000 commercial clients in all 50 states and a strong core deposit base with 95% of deposits coming from customers with an operating account. Payments has also been a significant source of new customer acquisition for us with about 1 of all new commercial clients coming to Key for our payments and deposit capabilities. Underpinning the strength of our business is our agile end to end operating model. We house everything from the product teams, the digital teams, to onboarding and servicing of those customers all under one roof. This is different than our peers and ensures that the customer remains at the center of our strategy.

And it recognizes the importance in this business of the execution model driving better product market fit, more connected client journeys and a better risk lens across the business. All in, the commercial banking platform is an efficient, high return growth business for Key. And you can see on the right hand side of the slide in front our middle market business has consistently generated 17% to 20% return on equity and our commercial payments business has grown revenue at two times the industry rate over the past five years. Moving to slide three, there’s a lot of interest in the middle market right now in the banking industry but it’s a unique space and one that we’ve been focused on for quite some time. We’ve intentionally and consistently invested in a platform tailored to meet the specific needs of a middle market client for decades.

Back in 1998, we acquired McDonald Investments to build out our middle market investment banking practice and bring together both strategic advice and commercial balance sheet capabilities and we were early to the game here. In 2014, more than a decade ago now, we saw the need to elevate our focus on financial operations for middle market companies. The growth in software and analytics aimed specifically at this space created very meaningful opportunities to add value for our customers. So over the next three years, we overhauled our payment strategy and our capabilities. We roughly doubled our product teams.

We established industry verticals with deep expertise around payments. We launched our FinTech strategy, which was focused on workflow automation, the end to end part of the working capital cycle. And more recently in 2022, the growing interest in middle market by both banks, private capital, software companies saw the proliferation of a number of products that were very specifically aimed at these customers but it created a very fragmented client experience. So we combined more than 10 separate departments across all of Key into a single integrated team focused on delivering the full platform through a seamless onboarding and servicing experience. This made it easy to do business with Key where customer feedback can be immediately incorporated into customer journeys.

Think self-service needs, how we set up customers, how we did reporting, how we thought about delivering analytics back to the customer. And it allowed us to carry industry depth from the front end business development model all the way to the back end servicing model. Finally, in late twenty twenty three, we combined our middle market team with our commercial payments team to bring together the primary needs of this customer bank all underneath one organization. We integrated lending, payments and deposit teams together with one set of priorities, a team based approach and fully aligned incentives across the team. It also created a single point of contact for the client, acting as a QB to deliver the entire platform.

This is an important point of differentiation versus our peers. And it allowed us to simplify the business, thinning out administrative layers across the organization and getting our best leaders closer to the customer. This has been a really energizing move for our teams and continues to make this one of the most attractive model in the industry for talented bankers and payment advisors, which is incredibly important. Overall, it’s been a multi decade journey with a relentless focus on building competitive moats around this targeted client segment. And I think we’re really well positioned to scale this business.

Middle market companies represented about 200,000 businesses across The US, a of private sector GDP, an incredibly important and growing part of the overall economy. And with this proven and differentiated model, we still have less than 5% penetration against this opportunity. So moving to slide four, we have all of the products or when you compare us to the industry, we have all the products that you would find at the large banks, but it’s tailored to this targeted customer segment with more scale and breadth than the majority of our regional peers, including $7,000,000,000,000 of payments volume, dollars 61,000,000,000 of wealth assets under management and raising more than $125,000,000,000 of capital on behalf of our clients. We also bring deep industry expertise across seven verticals that cover about 75% to 80% of U. S.

GDP, combining our local relationship model with industry depth across the capital markets and payments part of the platform. That drives more in-depth strategic conversation with the C suite, with the decision makers and allows us to show up in a way that feels different to our customer base. And ultimately, we deliver this to the differentiated servicing model that I already discussed. And it’s why the average tenure of our middle market client base is more than fifteen years. Because middle market clients want a primary advisor, they want somebody that knows them.

And when you deliver, it is a very loyal customer base and they want to bring you the full wallet share and they want you in front of them regularly with strategic ideas and advice. So you can see on the right hand side of the slide with examples, whether it’s the sixty year client relationship or a new customer on the bottom that we just recently onboarded, we have a meaningful opportunity to drive significant product penetration across this customer base. Turning to slide five. I mentioned earlier the catalyst more than a

Clark Hayat, Chief Financial Officer, KeyBank: decade ago to build out

Ken Gabbardy, President of Commercial Banking, KeyBank: our commercial payments business. Since then, I’ve been at multiple Investor Days talking about our scaled national platform with clients in all 50 states. It’s a robust set of capabilities that cover the very traditional products you would have seen from our peers like core treasury, liquidity, FX and card services. But it also includes the emerging capabilities such as embedded banking, automation, virtual ledgering, all of which are still at the very initial stages of industry adoption and our early mover advantage positions us well here. But the strength of our platform is about more than product capabilities.

It’s our industry expertise. It’s our delivery model that puts the payments team next to the bankers. And our ecosystem of partnerships we’ve built over a decade, including 15 fintech partnerships, seven VC relationships that are a critical part of our execution model. And this has been a real growth lever for us over the past decade with annual revenue growth north of 10% over that time, cutting across the P and L in NII, deposit service charges, cards and payments income and corporate services income. We believe that we have all the tools and capabilities that we need to continue to grow at the mid to high single digit rate across a variety of macro environments.

And we believe that for a few reasons. is that the industry as a whole has meaningful tailwinds behind it. Overall commercial spend is expected to increase north of GDP. There’s a significant ongoing shift to digital payments, the paper to electronic theme we’ve heard plenty about. And our recent middle market survey showing that customers in this space, 80% of those businesses focused on finding operational efficiencies and looking to their bank to help provide point of view.

despite meaningful progress, we still have significant penetration opportunities within our existing customer base and you can see that on the right hand side. We think top quartile performance is the right success metric for us given the strength of this business platform. And across each of our core product areas, can see the growth opportunity as we continue to take ground against those benchmarks. Finally, the embedded banking opportunity continues to be exactly what we expected. And whether it’s the exponential increase we already see in API usage by our existing clients or the aggregated spend and deposit availability by targeting existing customers in our technology vertical.

The growth opportunity is real. We are at the scaling stage of this journey and we are intently focused here. Okay, moving to slide six. This shows the recent growth in middle market and payments and why we believe our strategy is working and why we continue to invest to drive outsized growth in this area. In the middle market over the last five years, our revenues are up about 25%.

Deposits are up $4,000,000,000 while the quality of those deposits has increased with operating deposits now making up 88% of the total. And a reminder, that number is just for middle market. For total commercial segment end to end, that number is still 80%. Finally, we grew clients by 8% and expect some lift in that metric moving forward as we shift more of our focus to adding core customers to this platform. And in payments, can see the sustained double digit growth across NII and fees in a business that we love that drives core liquidity and sticky, recurring, high value income streams.

So as you look to move forward here on the next slide, our strategy remains the same. We’re going to add more bankers to the platform. We’re going to continue our focus on primacy clients And as always, we’re going to continue to elevate our risk management capabilities. So unpacking those a little bit on the banker side, we are on track to increase our banker count by 10% this year and we’re targeting select geographies based on market attractiveness and our ability to win in the market. We’re also targeting more team hiring, leveraging the recent success we had with expansion into both Southern California and Chicago.

Those teams which we hired at the end of twenty twenty four have already driven significant new customer growth, loan volumes and payments business. Our holistic platform is very attractive to bankers that want to be able to monetize delivering a full set of solutions to the client. And we like the pipeline of talent that we already have set up. as we maintain our primacy focus, we’re going to continue to invest across our product platforms and driving efficiency and scalability in our model, the ongoing focus of our data foundation, what we’ve been focused on for many years now, and scaling our embedded banking strategy. And then finally on the risk and analytics infrastructure, we continue to elevate our risk expertise in strategic areas to drive growth.

Examples of that include industry specific expertise, deeper levels of product expertise, and more focus on the defensive and offensive opportunities that we see in private capital. So lots of opportunity to continue to differentiate here, mitigate risk, ensure we have the right risk reward optimization across the portfolio. So in closing, our commercial bank model delivers real tangible value to our customers and strong sustainable returns for our shareholders. Our strategy has been consistent, put in place over many years and is very hard to replicate. And our priorities are very clear across the business, positioning us for outperformance and a meaningful opportunity to scale.

So with that, I’ll turn

Clark Hayat, Chief Financial Officer, KeyBank: it back to Manon.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: Thanks so much, Ken. Lots of detail there and lots for us to dig into. Maybe we’ll start with the environment overall. Ken, when you think about client sentiment currently, what are you hearing from different clients in different geographies and different industries as well as different sizes client type?

Clark Hayat, Chief Financial Officer, KeyBank: Yes, I don’t know if there’s a

Ken Gabbardy, President of Commercial Banking, KeyBank: lot of differentiation across industry and size at this point. What I would tell you is if we contextualize that question a little bit, if you go back to 2020 and 2021, this middle market segment in particular had a lot of stress on it. You obviously had a tremendous amount of inflation being put into the system. You had supply chains that were not only shocked, but it was an existential change to some degree. It was we had to find new suppliers very quickly.

And so you added on top of that one of the most dramatic rate increases in history. We all know these facts. But when you think about it for a middle market customer or a client over a very short period of time, those were significant stresses. But what it did was it allowed those companies and those management teams to truly understand their supply chain in a very different way than they ever had in the past. And it showed the nimbleness and adaptability of that customer base.

So when you then fast forward to say 2022 through 2024, over three years, this middle market segment, 10,000,000 in revenue to $1,000,000,000 in revenue, they’ve had 10% annualized revenue growth during that period of time. So you had a shock, you had the adaptability and then you saw very successful top line growth. Some of it certainly with the pass through of inflation, but it also showed their ability to be able to do that. When you look at margins, operating margins for that business, you saw really nice return to profitability over the last couple of years. So with that as the context, I think that’s really important to understand where we are today.

When you then think about really the broader macro concern that we all have on tariffs, you now have a middle market segment that has shown they can move incredibly quickly to respond to marketplace shocks, and you have a group that now understands their supply chain way better than they would have if they hadn’t gone through the pandemic. So, when you think about that as the backdrop, you actually have a still cautiously optimistic customer base right now. So leading into this year, it would have been all growth oriented. And what I would say at this point in time is we don’t hear any customers pulling back from that mindset. It’s much more of a focus on give me a better sense of where economic broader economic health is, and then I’ll put my foot on the pedal and accelerate a little bit more investment.

So we would have had a middle market sentiment survey just released, I think it was yesterday or maybe it was even this morning, where we were constantly taking a pulse of this part of the market and this is part of the differentiator. We just know this space. And north of 90%, I think it was 91% of the respondents said a top priority is managing the So not surprising, but when you see it that ubiquitous, what it tells you is what might have been oriented toward growth was around just making sure that the business was ready to adapt. And so I think that was taking a big piece of the mindshare. But the other really interesting part of that was half of them also said, this is a growth opportunity.

So they see the disruption in the marketplace to figure out, Okay, which one of my competitors aren’t going to move as fast? Or where will the big guys potentially be hurt? And is this an opportunity for me to take market share? So long answer, but I wanted to just provide a little

Manon, Morgan Stanley Sales Representative, Morgan Stanley: bit of context and perfect. And it feels like they feel confident in their ability to pass on at least some of the costs to the consumer?

Ken Gabbardy, President of Commercial Banking, KeyBank: Well, what you’d see in their answer very specifically is the top three areas are what you’d expect. They’re going to take some portion of it and be able to push it on to the customer. Historically, that would have been a lot more over the last couple of years. They’re less confident they can push all of it through. So you see in their answers that I’m going to push some to the customer.

I’m going to push some to my vendors, to my suppliers. And then there’s some portion of that they’re going to be able to, through efficiency, they believe that they can help offset. And that goes back to once you understand your supply chains, you know where the levers are. Got it.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: And Clark, anything else you’d call out from a large corporate or consumer perspective on tariff front?

Clark Hayat, Chief Financial Officer, KeyBank: I think Ken hit it right, which is broadly our businesses and clients came into this period I think in pretty good footing. I think they’ve been cautious as probably everyone has been and we saw that kind of play through April. But activity is starting to build back. Again, I think there’s a relatively small amount of our commercial clients that we’re watching very closely just given some of the dynamics. But I think broadly cautious optimism is the right statement.

And you do see people who are even a little bit more aggressive starting to lean in and take advantage of what they think are dislocation opportunities.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: And you were doing a name by name review as well. Is there anything you learned in any specific industries there?

Clark Hayat, Chief Financial Officer, KeyBank: Not so much. I mean the way I would think about that is we looked at eight fifty names or so, dollars 10,000,000 of exposure or greater. A relatively small percentage had kind of direct impact from tariffs. An even smaller percentage had that in combination with maybe some weak financial performance and those are the ones we’re really watching closely. But at the end of the day, the tariff the direct tariff impact is relatively contained.

And the issue really is if tariffs do come in as originally planned, that’s a bigger macroeconomic condition and then that obviously impacts broader groups. So we’re just to Ken’s point trying to understand at the client level what position are they in and how are they handling this, and it’s a very manageable number at this time. Got it.

Ken Gabbardy, President of Commercial Banking, KeyBank: Maybe just one other execution point that I would put there because I think this is important. If you would have gone back three, four years ago, the lower end of the book, so our middle market clients on down to our business bank, we would have looked at more at the aggregate level and done analytics on what we see in the portfolio. And I think what we’ve done in our investment over time, as I continue to highlight there, our elevation of risk management, is we brought the model that we have in our corporate and institutional bank of portfolio management down into the middle market. So we are highly focused name by name. We understand the quarterly financials that come in at a level of depth where we have a better forward looking view, let’s say, of the risk that’s doubling in the book or I’m sorry, the risk that could be bubbling in the book.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: Right. Got it. Maybe pivoting over to loan growth. Ken, Key has been an outlier so far this year in terms of C and I growth, about $1,000,000,000 in C and I growth in the first quarter. Think Chris noted that you guys have already done that so far this quarter as well.

How much of that growth is attributable to your middle market business?

Ken Gabbardy, President of Commercial Banking, KeyBank: Yes. I would say on the middle market side, we saw similar growth as what we saw in the corporate and institutional side. So we would have said in the first quarter, C and I growth was about 2% to 3%. That’s what we saw in the middle market as well. And consistent with what Chris has said, we continue to see really nice growth so far in the second quarter.

And so some of that is also contextual in the sense that if you go back to 2023, like a lot of banks, we were repositioning the balance sheet. And we looked across the middle market portfolio like we did everywhere else. And we figured out where do we have relationships that are lending only or there isn’t a relationship or we aren’t we don’t have the right connectivity to the top of the house. And those were places that we used to shrink the balance sheet while we continue to focus on our privacy customers. So it’s really in the second half of twenty twenty four that we start to lean into growth again, obviously, the balance sheet and liquidity in a really good place.

And as we take this model on the road, we feel really good about competing with others in the marketplace, whether that’s the trillionaires or any of the local banks that we compete against. So as we lean in, we always feel good about our ability to take share. And so I would say that’s part of it. And then the only other thing I would point to is I would have announced, as I said in the presentation, that in the fourth quarter of twenty twenty four, I picked up teams in Chicago and Southern California, two of the largest five clusters of middle market companies in the country. And so as we start thinking more and more about this team hire model, it’s a really attractive platform for bankers, as I said, because you’re really delivering a holistic offering, and we incent bankers to deliver the whole bank.

It sounds fairly straightforward, but the reality is that isn’t the case at all of our peers. It’s part of a scorecard, but not directly rewarded. Or for some of our regional peers and smaller, they just don’t have the holistic set of capabilities. So your most talented teams look at this as an opportunity to say, okay, I get to deliver that whole product platform to the customer. I get paid for it.

That’s really interesting to me. So we expect to continue to see growth from areas where we’re expanding.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: So it sounds like a lot of this is core growth as opposed to maybe your clients being a little bit nimble on the inventory side. Is that driving

Ken Gabbardy, President of Commercial Banking, KeyBank: There was a little bit of utilization pickup in the first quarter. We saw some in March trying to get ahead of April’s Liberation Day. And we saw it come right back down. So I think overall across the platform, we’ve seen a little bit of a tick up in utilization, but nothing that I link directly to the current environment that we’re in. I’ve seen that stabilize and normalize.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: And how do you think about competition overall? We’ve heard some banks talk a little bit about pricing competition. Some banks talk about competition for new customers. What are you seeing in your client base?

Ken Gabbardy, President of Commercial Banking, KeyBank: There’s no question that at every client pitch, there are more banks hanging around the hoop at this point in time. I think all banks have gotten much more interested in loan growth again. That said, I haven’t seen that pull all the way through to pricing competition. It’s held in really well so far. Forward looking with this much interest in loan growth, could we see a little bit more pressure there?

Absolutely. But to date, again, we think the strength of the value proposition has been allowed us to keep pricing keep it whole.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: So Clark, given this momentum in loan growth, I think you’ve previously guided to flat end of period loan growth for the year. Are you considering adjusting that forecast?

Clark Hayat, Chief Financial Officer, KeyBank: I think at this point, we are trending above on C and I. So we had expected about maybe $3,000,000,000 or so for the year. We’re kind of there now. So some of your questions, we’re trying to sort through how permanent is that, although a good chunk of that comes from project finance deals, whether it’s affordable, renewable, data centers that we did late twenty twenty four that are drawing down as expected. Some are from our specialty finance business, right?

So it’s not clearly not tariff oriented would be my point in each of those. Remember though that that end of period was sort of runoff versus consumer or build versus a runoff in consumer, which is not happening at exactly the pace we expected because of rates. And then prepayment and CRE, we had a lot in the first quarter, not as much in the second quarter. I think we’re trending to a little bit higher than we expected. I will take all high quality C and I growth that we can get.

We’d like the consumer to peel off again just given the rate differential. But we’ll continue to look at this through the quarter and we’ll have a point of view at the end of Q2 because there’s just still I think enough uncertainty that it’s

Manon, Morgan Stanley Sales Representative, Morgan Stanley: hard to call. Anything to update us on the broader full year guide?

Clark Hayat, Chief Financial Officer, KeyBank: At this point, we feel really good about where we are. We wouldn’t guide change any of the guide for the full year at this point.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: All right, perfect. So on that full year guide on the NII guide specifically, you’ve had that out there since, I think, the fall of last year. And it hasn’t changed even though the macro expectations and rates have moved around a lot. I guess what gives you the conviction in that growth rate as we get through this year?

Clark Hayat, Chief Financial Officer, KeyBank: Yes. So your point your point is a good one, which is things have been moving all over the place. So like plus or minus, we could have been changing it dynamically.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: More unusual.

Clark Hayat, Chief Financial Officer, KeyBank: Probably been up in the same place. But the confidence really comes from the structural nature of it, right? So the chunk of it is from the two repositionings we did in the portfolio last year. There’s the investment benefit from the Scotia dollars. There’s the treasury, the full year impact of treasury and swaps having rolled off and there’s the reinvestment rates, which have been up and down, but on par kind of in a range.

All of those are math and that math is pretty close to 20. So we’ve been able to speak I think with a lot of conviction there, but it also doesn’t say it’s likely to be 25 or I mean it does give us a little bit of a window and really the delta is what’s happening in the loan book and what’s happening on

Manon, Morgan Stanley Sales Representative, Morgan Stanley: the deposit side. Got it. And what about on fees front? Is there anything to call out in terms of capital markets or the wealth business?

Clark Hayat, Chief Financial Officer, KeyBank: Yes. So I’d just I’d reiterate Chris’ point recently that capital markets up about 10% first half to first half. So I view that as on par for our guidance for the year. And slow April just given what was going on, but a nice recovery in May and we see continued activity and engagement. So at this point, we feel good about that.

I would say fees broadly, most categories, we said five plus, we feel good about that, maybe a little tighter to five just given the kind of stall out in April and obviously sensitive to the half. But if you look at the main categories, payments, wealth, investment banking, commercial servicing, those are all performing very well like mid to high single digits, some of those low double digit low teens. You offset that with operating lease expense, which sort of brings that down, right? And so net net, you’re in that range and sort of progressing So we feel very good about that. The counter expenses, which we’ve said kind of 3% to 5%, we would go in most cases probably maybe even 3% to 4%.

And as there is pressure on fees, if there is pressure on fees, feel like we can bring that down and we’ll be able to produce the fee based operating leverage we’ve talked about.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: Perfect. All right, that’s great. Let’s dig in a little bit on fees. Ken, on the commercial payments side, just about every super regional bank has highlighted this is an area of one of their biggest growth opportunities. You spoke in the presentation about having a single point of contact, making sure you’re getting the full relationship.

Can you talk about what Key’s value proposition is here?

Ken Gabbardy, President of Commercial Banking, KeyBank: Yes, absolutely. I’ll cut it into two pieces. I’ll cut it into how we go to market in the middle market and then more broadly across the rest of the commercial payments platform because those are a little bit different. So on the middle market side, when we talk about this platform, what we say to our customer base is that we’re large enough to have every capability that you need, small enough to be able to deliver it through a singular team. That’s not just a good tagline.

It’s the practical reality of how you go to market. So if you compare that to JPMorgan or a BofA, certainly they have every capability set that we have on the payment side. But the reality of how to make that feel small to a $200,000,000 revenue company that doesn’t have a really big finance team, when they have Chase payment tech team, they’ve got a card team, they’ve a core treasury team, right? So it’s very difficult to deliver all of that to a CFO and make it feel very manageable. So when we come in and in the middle market, a lot of times, payments follows lending.

So if we come in and say, hey, we’re willing to extend the balance sheet here, our expectation is that we’re going to get the payments business as part of that. Now a lot of the other regional peers would say, yes, no, we do the same thing, too. And then it comes to but how do you deliver the rest of the platform? So they might be able to get the core treasury. But then when you look at, let’s say, our merchant capability, where we were very early to the game, it was 2017 when we unwound the joint venture that we had with one of the processors.

That was a very consistent model across the merchant landscape where it was really joint ventures, and the banks just threw a customer over the fence and said, Hey, we think there’s an opportunity. Throw it to their sales team, throw it their servicing model, their onboarding and servicing team. We unwound that joint venture. We have the product team, the onboarding team, the whole servicing model in house. So when we go in and payments follow that lending, we expect to get the core treasury.

We expect to get the merchant. We expect to get the card. And we built the apparatus around that and the operating rhythms and the operating rigor around making sure that we’re getting holistic payments attachment when we bring on a middle market customer. When you then pull that up to

Clark Hayat, Chief Financial Officer, KeyBank: corporate Maybe add one thing there, because a lot of those payment products are volume based. If the client’s not using them, you don’t get paid. The client doesn’t see value, we don’t see value, right? So one of the other things that a lot of the good companies do, and Ken’s built this now going on ten years, is these client success and optimization teams that make sure client understands when to use it, how to use it, and that they are actually getting volume through the pipe because then there’s benefit to the client if the value proposition is a good one. And that’s how we see value.

So you will see it’s not, hey, I made a loan and you get the money today. It’s you agreed to do this, we have to install and implement some technology and then there’s a ramp up period. So that’s part of why you see certain categories of growth that low teens are fee equivalent revenue, which is that kind of price times volume, right, continues to be strong because some of it is a new client, some of it is a new product and some of is just continued optimization on the existing portfolio.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: You naturally get the deposit as well, which is fairly Correct.

Ken Gabbardy, President of Commercial Banking, KeyBank: Yes, absolutely. And as I would have said in the presentation, the average customer, fifteen years, right? And you see that go as high. We have a big chunk of the customer base that’s twenty to fifty years. Just the last piece that I would just want to add before we leave that, which is and then as you get up into the corporate and institutional side, some of this is just a function of how Key was structured, the fact that we were very early to the game in putting our bankers in industry verticals.

We now have payment teams that are fully lined up against every single one of those verticals. So unlike other regionals, I have a real estate payments team, a health care payments team, an oil and gas payments team, a power and utilities energy payments team. So that brings a different level of expertise and that’s how you win out market versus the middle market.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: All right, perfect. I wanted to pivot over to private credit. Key has been front and center in partnering with the private credit space. There’s clearly been a lot of competition there. Can you talk a little bit more about your decision on where to compete versus partner there?

Ken Gabbardy, President of Commercial Banking, KeyBank: Yes. Well, I’ll start on what I see, and Clark can give the broader view. Look, I think what’s really important, I’ll cut this into two pieces, like what we see near term versus what we see long term. In the near term, I don’t run into private capital very often. So the deals that those groups typically are looking for, they’re not looking to do a revolver for a customer.

They want a term loan. They want something that’s funded immediately. They generally want something that’s got higher returns. So they’re much higher out on the leverage side than we are. So the deals that they’re winning in the marketplace is generally a deal that I’ve already passed on or I’m not interested in bidding on.

Longer term, clearly, there’s a lot of capital amassed in this space. So part of what we’re doing and what you would have mentioned in your question is we do a lot of strategic work with the private equity group, private capital providers already. So we’re looking to push relationships and say, as you’re finding these deals and getting deal flow, how do I help you provide a singular solution around payments and deposits, that same customer base? So I think there are opportunities around that for sure.

Clark Hayat, Chief Financial Officer, KeyBank: Yes. And I think if you just think about how we’ve operated in that market, which we’ve been part of for a long time given our distribution capabilities, we will put obviously client loans on the balance sheet. We also lend to our specialty finance business is lending to finance companies who are generally warehouse lenders. That’s a phenomenal business for us. And since 02/2006, not one dollar of loss, very efficient regulatory capital structures.

If you go up a tier, it’s that kind of relationship with a Blackstone where we’re kind of sharing some of those balance sheet items. Then you go to our own direct lending funds. We have a partner fund where we have a little bit of equity, but we’re the senior lender to basically a direct lender that Ken and Randy can use to compete. And then lastly, we obviously distribute a lot of paper. So we feel very well situated to operate in that private credit world or with them, in most cases, cooperating.

But as Ken said, as they start to become or if they become a more competitive threat in the core middle market, we’ll adapt to that, and we think we’re probably better positioned to do that.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: All right. Perfect. I want to end with one question for you, Ken, on investment spend and then, Clark, on capital. Ken, on the expense side, how are you thinking about the investment spend needed for the broader growth opportunities in your business?

Ken Gabbardy, President of Commercial Banking, KeyBank: Yes. I’d just point to the slide that’s still up and say, growing bankers on the front end of this platform is incredibly important. If you look specifically at the middle market, we haven’t necessarily been as disciplined in adding to that over time. And obviously, a lot of macro events will play into that. But we’re going to be on target to grow 10% this year in the front end.

We’re going to continue to focus on our team hiring strategy, which could plus or minus some opportunity on that number. And as you look across the other two areas, just the constant investment in our payments platform, there’s no set it and forget it type of strategy there. You have to layer in across these platforms year in, year out.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: But I have nothing new I need to add. Perfect. And then Clark, you have a $1,000,000,000 buyback authorization and you’ve spoken about starting buybacks back half of this year. Any thoughts on the pace of buybacks just given the volatility that we’ve seen in the ten year so far?

Clark Hayat, Chief Financial Officer, KeyBank: Yes. I mean, I think volatility in the ten year consistent with uncertainty in the market, right? So some of this is we’re happy to have the excess capital at the moment given uncertainty. The way I would think about it, which hopefully is the way we’ve talked about it consistently is we really will use that on the margin to manage the capital ratio. And the capital ratio we’re going to be focused on is marked capital.

So if we’re kind of 9.5% to 10% now, that’s not a bad kind of zip code to think about. We’re going to be making money each quarter, right, assuming not a significant macro event. And so we would start to use it again assuming it’s not way out of line, right, the high class problem of my stock price is too high. Then we’ll use it on the margin to manage that mark capital ratio.

Manon, Morgan Stanley Sales Representative, Morgan Stanley: Got it. Perfect. With that, we’re out of time. Thanks so much, Clarke and Ken, for joining us. Thank you.

Ken Gabbardy, President of Commercial Banking, KeyBank: Thanks for having us.

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