Ryan Nash (Goldman Sachs) asked what drove the NIM shortfall and what underpins the 3%-3.05% exit target, then why IB fees missed and back-half expectations.
Clark Khayat cited stronger but higher-credit-quality (tighter-spread) loan growth, a bigger balance sheet, a ~4 bps SOFR decline, and bridging a seasonal deposit trough with wholesale funds; the path to 3%+ rests on ~$9B of fixed-asset repricing (+1.25%), ~2% operating-deposit growth, and moderating loan growth; Chris Gorman said IB came up short off a record Q1 with deals pushed out in diligence, but pipelines are up 9% sequentially/31% YoY and mid-single-digit growth remains expected.
Ebrahim Poonawala (Bank of America) asked how trading NIM for client growth fits the 16%-18% ROTCE framework and about deposit-growth drivers and the 3.25% NIM target.
Gorman said adding targeted, often-investment-grade clients is not in conflict with the >15% ROTCE-by-2027 goal since deeper relationships drive the returns over time; Khayat expressed good visibility on largely commercial, relationship-based operating-deposit growth and said nothing signals concern about hitting the return or NIM targets.
Chris McGratty (KBW) asked about the sustainability of operating leverage and the toggle between strengthening growth and capital return.
Khayat said assuming a constructive macro, KeyCorp can sustain operating leverage via disciplined expense management while gliding expense growth toward its long-term target; Gorman reaffirmed capital priorities (clients, franchise investment including ~$1B on tech/ops, dividend, then buybacks) with an abundance of capital and a potential ~100 bps Basel III benefit.
Erika Najarian (UBS) asked how much of the path from ~3.05% to 3.25% NIM is baked, and where middle-market IB sits in the cycle.
Khayat said the ~3.05% vs 3%-3.05% difference should not worry investors about 2027, pointing to ~$30B of fixed-rate repricing through 2027 as well-baked with solid returns; Gorman said middle-market M&A lags large-cap (40% of fees from private equity, with fewer, more-stretched exits), placing KeyCorp in the early innings of a middle-market recovery.
Manan Gosalia (Morgan Stanley) asked what is driving the pivot to higher-quality (lower-spread) clients and the conviction on converting new clients to fee business.
Khayat tied it to KeyCorp's targeted industries and capital-markets-oriented client base (including investment-grade REIT growth), and Gorman cited electrical-infrastructure/power build-out lending; on conviction, Gorman pointed to a long-standing discipline of semi-annual relationship deep-dives, expecting new clients to hit return hurdles within 12-18 months (and exiting those that do not).
John Pancari (Evercore ISI) asked whether the shift to higher-quality lending is intentional, about MDFI/pocket avoidance and loan-pricing competition, and why the NIM miss should not recur.
Gorman said it reflects KeyCorp's focus on seven industry verticals where growing clients become investment grade, with only modest spread degradation year-over-year; Khayat said KeyCorp does not avoid MDFI (up ~$600M, mostly investment-grade REIT) but walks away from deals that do not make sense, and framed the Q2 NIM issue as a timing mismatch between asset growth and the deposit trough.
Matthew O'Connor (Deutsche Bank) asked for detail on the Clearwater U.K. acquisition and whether KeyCorp should diversify beyond middle-market capital markets.
Gorman said Clearwater is an M&A boutique KeyCorp had a six-year JV with, adding U.K./continental distribution to serve cross-border M&A clients (offense and defense) as a buttress to its leading practice; he said KeyCorp continually evaluates adjacent verticals and new-city expansion where large fee pools and win opportunities exist.
Mike Mayo (Wells Fargo) pushed back on the 2% deposit-growth-with-flat-rates assumption and on private-equity-driven IB fees finally translating (yours down ~5% while big banks were up ~50%).
Gorman cited KeyCorp's 82% commercial deposit primacy (knowing where clients' other deposits are and their cost) as backing the deposit confidence, and reaffirmed that engaged, record IB pipelines and a strong long-term CAGR support back-half delivery; Khayat clarified the flat-pricing assumption holds only absent Fed hikes, which KeyCorp could largely insulate NII/NIM from through Q4.
Ken Usdin (Autonomous) asked about non-interest-bearing deposit mix, consumer deposit dynamics, and confidence in low loss content on the larger NPAs.
Khayat expects non-interest-bearing to be roughly flat as a percentage in the back half with strong-quality operating deposits (some interest-bearing/hybrid), a modest CD/MMDA pickup in select markets, and continued ~3% household growth; Khayat and Mo Ramani said the reserve release (despite higher NPAs) reflects an improving portfolio, with specific reserves and expected resolutions keeping loss content low.
Gerard Cassidy (RBC) asked how KeyCorp is mapping second-derivative AI credit risk, and for detail on the consumer and agriculture NPAs.
Gorman said the multi-year power/distribution electron shortage supports continued infrastructure lending, while KeyCorp is watching software exposure (<$300M) and professional-services (lawyers, consultants, accountants) as LLM-exposed; Ramani detailed the NPAs as a tariff-hit consumer name in bankruptcy (idiosyncratic) and a Western Washington agriculture credit pressured mainly by worker shortages, with quick resolutions expected.