KeyCorp

Good morning and welcome to Key Corp's second quarter 2026 earnings conference call. My name is Megan and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question during that time, simply press star 1 on your telephone keypad. As a reminder, this conference is being recorded and I would now like to turn the conference over to Troy Gates, Key Corp's Director of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. I'd like to thank you for joining Key Corp's second quarter 2026 earnings conference call. I'm here with Chris Gorman, our chairman and chief executive officer, Clark Khayat, our chief financial officer, and Mo Rahmani, 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 materials, 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, July 21st, 2026, and will not be updated. With that, I will turn it over to Chris.

Thank you, Troy, and good morning, everyone. Our second quarter results reflect strong business momentum and continued progress against our strategic and financial commitments. We reported second quarter earnings of 44 cents per share, up 26% year over year. Revenue grew 7% year over year and pre-provision net revenue grew 9%. Net interest margin expanded sequentially to 2.89% and we are on track to meet or exceed 3% by year end. supported by several tailwinds that we expect will contribute to accelerated margin expansion in the second half of the year. Commercial loan growth remains strong. Period end C&I loans increased $2.1 billion, or 3% sequentially, reflecting continued success in attracting new clients across our markets while concurrently deepening existing relationships. Our deposit franchise continues to perform well in a competitive environment, with total deposit costs declining two basis points during the quarter. Asset quality remains strong, while non-performing loans increased modestly during the quarter, reflecting idiosyncratic items. Broader portfolio performance remains stable, tightly managed, and consistent with our expectations. Our net charge off ratio was 42 basis points during the quarter, and our year to date charge offs remain at the low end of our 40 to 45 basis point full year outlook. Given our stronger than expected business performance, I have even greater confidence in our ability to generate a return on tangible common equity exceeding 15% by the end of 2027 on our path to achieving our 16 to 19% long term target. Importantly, We continue to deploy capital in a disciplined manner, supporting client growth, investing in the franchise, and returning capital to shareholders through ongoing share repurchases. During the quarter, we repurchased more than $340 million of common stock, putting us on pace to achieve our full-year share repurchase target of at least $1.3 billion. As we continue to repurchase our shares, our strong capital position enables us to concurrently drive organic growth and invest in our business. As an example, during the quarter, we announced an agreement to acquire Clearwater UK. This transaction represents a strategic extension of our leading middle market advisory franchise and expands our ability to serve M&A clients and prospects internationally. We expect this transaction to close in the second half of 2026. While the macroeconomic environment remains uncertain, our momentum continues to be strong. We are seeing healthy client engagement, solid activity levels across our businesses, and remain well positioned to perform through a range of potential economic scenarios. We continue to grow clients. In the second quarter, relationship households increased 3% and commercial clients increased 2% from the prior year. Commercial loan pipelines remain strong, up 6% from the prior year. Our priority fee-based businesses, investment banking, commercial payments and wealth continue to perform exceptionally well. In the first half of the year, these businesses collectively grew 8% when compared to the first half of 2025. Investment banking pipelines are up 9% sequentially and remain at historically elevated levels, supported by record M&A and DCM pipelines. While middle market M&A activity has yet to normalize, we continue to see significant client engagement and remain confident in our expectation for mid-single-digit investment banking fee growth this year.