BANCANALYSTS ASSOCIATION OF BOSTON’S ANNUAL BANK CONFERENCE - KEYCORP

Financial Performance:

• Commercial loan-to-deposit ratio is strong at 80% loans to 60% deposits overall; Institutional Banking specifically holds 60 billion in loans against 40 billion in deposits.
• Fee-based businesses grew 12% year-over-year in the third quarter.
• Investment banking fees are up 15% year-to-date, offsetting broader market headwinds in M&A activity.
• Institutional banking revenue is approximately $3.4 billion, with the revenue model heavily reliant on fee income (two-thirds of revenue) compared to credit revenue.
• The commercial mortgage servicing business manages $750 billion AUM, generating roughly $10 billion in low-cost deposits and maintaining a stable $10 billion in active special servicing.

Guidance and Future Outlook:

• Clearwater acquisition is projected to contribute $20–$25 million in investment banking fees to Key in 2026, with $10 million already captured in Q3.
• Management targets a long-term goal of $1 billion in combined investment banking and direct placement fees, viewing the current "not very good" M&A environment as temporary.
• Expectations for commercial mortgage banking fee revenue suggest a minor decline in Q4 due to rate volatility, potentially resulting in loans remaining on the balance sheet longer.
• Data center demand remains robust with lease rates growing 9% annually through 2030, though management prefers a slower, extended build-out over a potential bubble scenario.

Business Segments and Product Lines:

• Institutional Bank: Comprises three main pillars: Equipment Finance, Real Estate Franchise, and Corporate Investment Bank (covering eight industry verticals).
• Acquisitions: Announced acquisition of Atlantic Pacific Capital (APC), a 31-year private capital advisor specializing in continuation vehicles; completed acquisition of Clearwater UK (150 employees, 4 offices) in early August.
• Product Expansion: Recent capability additions include Unitron's lending, ABS capabilities, tax equity syndication for affordable housing, renewable energy M&A, and private capital advising.
• Talent Growth: Successfully integrated new banker teams with a 12–18 month ramp-up period; internal development programs continue with an analyst class of 80.

Market and Competitive Landscape:

• Differentiation strategy involves "industry group" P&Ls that integrate lending, payments, and investment banking, contrasting with peers who often market geographically.
• Middle market M&A activity is down 11% in 2026 (following two years of decline), though Key's specific M&A fees have risen 15% YTD.
• Private credit market is described as "frenemies"; while competition exists, Key has not observed credit cracks, noting only redemption issues in the industry.
• Special servicing hotspots remain urban BNO office and overbuilt multifamily pockets, though portfolio quality is deemed manageable.

Risks and Challenges:

• M&A Environment: Current headwinds in middle market M&A activity pose a challenge to reaching the $1 billion fee target sooner, though management is confident in the long-term path.
• Real Estate Rates: Further rate volatility could impact commercial mortgage banking fees and extend loan retention on the balance sheet.
  AI Adoption: While 35 AI use cases are in development, no major productivity uplift has been realized yet, and the timeline for significant gains remains undefined.
• Data Center Valuation: Management acknowledges potential risks if AI-driven data center spending slows or fails to materialize as projected, though current contracts are viewed as secure.

Management Commentary and Tone:

• Tone is optimistic and confident, emphasizing the "relationship bank" model where lending and capital markets capabilities are interwoven to provide seamless client service.
• Management highlights a disciplined acquisition strategy ("one plus one equals more than two"), noting they are "not four for four" but filter deals rigorously for cultural fit and client capability enhancement.
• Leadership expresses strong belief in the underappreciated nature of their fee revenue stream, which has compounded at over 7% annually for 16 years.
• Clark Hyatt (CFO) and Randy Payne (President, Institutional Bank) emphasize the durability of the business model and the focus on high-quality, repeat client relationships.

Analyst Questions and Answers:

• Q: Impact of a slowdown in the AI/Data Center trade?
  • A: Direct exposure is minimal (<1% of loans); management views a slower build-out as beneficial to avoid bubble risks, with demand for capacity (99%+) remaining strong.
• Q: Productivity and AI implementation?
  • A: Approach includes both "bottoms-up" use cases and major platform initiatives (underwriting, onboarding) to reduce manual friction; productivity is flat-to-up despite new hire ramp times.
• Q: Private credit competition and liquidity?
  • A: Key competes in syndicated loans but sees no credit deterioration; private credit pullback benefits on-balance sheet and syndicated lending, with no immediate signs of a crisis.
• Q: Election impacts on M&A?
  • A: Management advises against timing deals solely around the 2028 election; stability in rates and tariffs is the primary catalyst needed to unlock more activity.
• Q: Commercial Real Estate special servicing trends?
  • A: Driven primarily by payment defaults or maturity defaults; special servicing numbers are stable at ~$10 billion with manageable hotspots.

Other Key Points:

• Key Corp is a regional bank with nearly $200 billion in total assets, headquartered in Cleveland.
• The Institutional Bank's "industry vertical" approach allows for integrated P&L management across lending, payments, and capital markets, removing internal conflicts common in geographic structures.
• APC (Atlantic Pacific Capital) acquisition targets the 10% of PE exits now occurring via continuation vehicles, aligning with Key's existing 40% PE fee exposure.
• The bank has maintained its campus analyst program continuously for over a decade, viewing internal talent development as critical to a "destination platform" strategy.