With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

The 300 companies on this year’s list brought in over $12.5 trillion in revenue for the latest 12 months, with the median revenue figure at $24 billion.

America's Most Innovative Companies

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

The 300 companies on this list are transforming industries from the inside out.

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

This year’s Fortune 500 marks the 68th running of the list.

This year’s Fortune 500 marks the 67th running of the list.

F500-2021-396-Keycorp

Owner of KeyBank, the only major bank based in Cleveland, the financial services company has more than 1,000 branches in 15 states, and corporate banking offices in another 10. KeyCorp CEO Beth Mooney, the first woman to be named a CEO of a Top 20 U.S. bank, retired from the post in May 2020, and was succeeded by Chris Gorman.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-411-KeyCorp

This financial services company, headquartered in Cleveland, Ohio, provides banking and other services to individuals and businesses in 15 states.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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KeyCorp, the holding company for KeyBank National Association, is a leading financial institution with a history dating back to 1849. The company operates across two main divisions: consumer banking and commercial banking. KeyCorp offers a wide range of services including checking and savings accounts, personal and business loans, mortgages, credit cards, and student loan refinancing. It also provides investment management, financial planning, and wealth management services, catering to both individuals and institutions, including nonprofits and high-net-worth clients.

Q2 2026

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KeyCorp (KEY): Company Profile, Stock Price, News, Rankings

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KeyCorp

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Good morning. Welcome to KeyCorp'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 one 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, KeyCorp's Director of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. I'd like to thank you for joining KeyCorp'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 Ramani, 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. 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. 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 $0.44 per share, up 26% year-over-year. Revenue grew 7% year-over-year. Pre-provision net revenue grew 9%. Net interest margin expanded sequentially to 2.89%. 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 2 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. Our year-to-date charge-offs remain at the low end of our 40-45 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%-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 U.K. 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. In commercial payments, total gross payment fees increased 12% compared to the prior year as investments we continue to make in bankers and scaling embedded banking build momentum. In wealth, assets under management reached another record, $74 billion.

Since the launch of our Mass Affluent strategy in 2023, we've added 59,000 households, over $4 billion of AUM, and nearly $8 billion of total client assets to Key. Wealth remains a significant opportunity for us as we are less than 10% penetrated with respect to our base of currently existing mass affluent households. Overall, we are encouraged by our second quarter performance and the sustained momentum across the business. As a result of our continued favorable loan momentum, we have increased our full year guidance with respect to net interest income, revenue, and loan growth. Our guidance implies substantial positive operating leverage as we expect to grow revenues twice as fast as expenses in 2026. As always, our guidance reflects a range of potential interest rate scenarios and assumes markets remain constructive. We enter the second half of the year from a position of strength.

The underlying trends across Key remain favorable. We will continue to drive disciplined execution across our franchise. With that, I'll turn it over to Clark. Clark?

Thanks, Chris. Starting on slide four. We reported second quarter earnings per share of $0.44. Revenue was up 7% year-over-year, while expenses increased by 5%. Tax equivalent net interest income increased 9% year-over-year and 2% sequentially, primarily driven by commercial loan growth and portfolio repricing. Non-interest income increased 2% year-over-year. Loan loss provision of $92 million included $115 million or 42 basis points of net charge-offs, and a reserve release of $23 million. The net release was driven by improvement in Moody's economic scenarios and a continued remix to higher credit quality relationships, partially offset by a qualitative build to account for increased economic uncertainty. We grew tangible book value per share 6% year-over-year. Moving to the balance sheet on slide five. Average loans were up $2.3 billion sequentially.

Period end loans increased by $1.2 billion, driven by C&I growth of $2.1 billion or 3%, partly offset by the ongoing planned runoff of low yielding consumer loans. Growth was largely from new relationships and broad-based across industries and regions. The largest industry contributors were utilities, power and renewables, real estate and technology. The C&I line utilization decreased 50 basis points sequentially to 31%, driven by higher commitments. Turning to slide six. Average deposit balances were relatively flat sequentially and year-over-year, consistent with historical seasonal trends. Average non-interest bearing deposits increased 2.3% sequentially, representing 19% of total deposits or 24% when adjusted for our hybrid accounts. As expected, the average deposits for the quarter were consistent with Q1, and we saw end of period deposits up versus prior quarter after dropping in May.

At the end of June, deposit balances, which closed the quarter at $153 billion, were temporarily elevated by about $4 billion due to the timing of transaction activity among our relationship clients. Total deposit costs declined 2 basis points sequentially to 1.63%. Our cumulative interest-bearing deposit beta held steady at 56%. To support our continued strong commercial loan growth, we supplemented funding with short-term borrowings. Given our expectations that client deposits will grow in the second half, we used wholesale funds in the second quarter rather than repricing existing deposit relationships. As a result, total funding costs increased by 1 basis point. We continue to pay close attention to deposit dynamics and will take proactive and strategic actions to manage funding effectively to achieve our goals. We expect to increase average client deposits by more than 2% through year-end. Slide seven provides drivers of NII and NIM this quarter.

Taxable equivalent NII was up 2% and net interest margin increased 2 basis points from the prior quarter to 2.89%. The increase was driven by commercial loan growth, fixed rate asset repricing, and an additional day in the quarter. We continue to manage our balance sheet to a fairly neutral interest rate risk position as we move through the remainder of 2026. On slide eight, non-interest income increased 2% year-over-year. Investment banking and debt placement fees were $169 million for the quarter. In the first half of 2026, investment banking fees were $366 million, an increase of 4% compared to the same year-ago period. As Chris mentioned, our pipelines are at historically elevated levels. Compared to the prior quarter, overall pipelines are up 9% and M&A pipelines are up 7% to a new record.

We expect third quarter investment banking fees to be up 20%+ quarter-over-quarter and remain confident in delivering mid-single-digit investment banking fee growth for the year. Trust and investment services income grew 9% year-over-year, reflecting higher market values and assets under management reached a new record high of $74 billion. Service charges on deposit accounts and corporate services fees each increased by 5% year-over-year. The increase in service charges were driven by growth in commercial payments, while corporate services income was driven by higher loan commitment fees. Commercial mortgage servicing fees were $49 million, down $21 million year-over-year, largely driven by lower deposit placement fees and special servicing fees. At quarter end, we were named primary or special servicer on approximately $735 billion of commercial real estate loans, of which about $270 billion is special servicing.

Active special servicing third-party assets were flat sequentially at $10 billion, about half of which is office. We continue to expect commercial mortgage servicing fees to run about $50 million-$60 million per quarter the remainder of the year. On slide nine, second quarter non-interest expenses were $1.2 billion, an increase of 3% sequentially and 5% compared to the year ago quarter. The increase was driven by higher personnel expenses related to the investments in frontline bankers, impact of Key's higher stock price on incentive compensation, as well as higher benefits costs. Sequentially, expenses increased due to higher incentive compensation, professional fees, and marketing expenses, as well as an additional day in the quarter. Expenses are expected to modestly pick up through the second half of the year, reflecting our ongoing investments in people and technology and incentive compensation associated with expected seasonally higher fees.

We continue to expect to be within our full-year expense growth guide of 3%-4%. Turning to credit. Net charge-offs were $115 million, or an annualized 42 basis points of average loans. Criticized loans were relatively stable at an annualized 4.9%. Non-performing assets increased by $126 million sequentially to an annualized 74 basis points of loans. The increase was largely driven by three credits in the real estate, consumer goods, and agriculture industries. Based on our current assessment, we do not expect these credits to result in meaningful incremental losses, and they do not alter our outlook for net charge-offs. Moving forward, we expect several sizable non-performing loans to resolve through the rest of the year. Overall, our portfolio remains healthy, fundamental performance of our borrowers remains resilient and is tracking in line with expectations. Moving to slide 11.

Our CET1 ratio was 11.2% and our marked CET1 ratio was 9.8% at quarter end. As Chris mentioned, we continue to expect to repurchase at least $1.3 billion of our shares for the year. Moving to slide 12. We are increasing our 2026 guidance to reflect our loan growth outperformance. We now expect revenue to grow 7%-8%, compared to approximately 7% that was previously communicated. We also now expect full year net interest income to increase 9%-11%, compared to the prior guide of 9%-10%. This guidance holds under a fairly broad range of interest rate scenarios, including a Fed hike scenario. We now expect to exit the year with a net interest margin in the range of 3%-3.05%, with average earning assets increasing between $1 billion-$2 billion from the second quarter.

This outlook assumes continued loan growth in a stable competitive deposit environment. While incremental balance sheet growth may be modestly margin dilutive, we are willing to trade NIM to a degree to add quality relationship clients with a strong return profile. Additionally, we continue to expect the benefits of over $9 billion of low-yielding fixed asset repricing through year-end and disciplined deposit management to more than offset that impact. We now expect average loans to increase 4%-5% compared to our previous guidance of 2%-4%, and average commercial loans are now expected to increase 8%-10% this year. The higher outlook reflects strong loan growth through the first half of the year, continued success in adding and expanding client relationships, and healthy commercial loan pipelines that continue to support growth in the second half of 2026. All other guidance remains unchanged.

In summary, subject to the usual macro caveats and a constructive environment that remains broadly consistent with today, we expect to maintain our strong momentum through the second half of the year and deliver a solid return on and return of capital to shareholders. With that, I would like to now turn the call back to the operator to provide instructions for the Q&A session. Operator?

Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove your question, please press star followed by two. Again, to ask a question, please press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. The first question will go to the line of Ryan Nash with Goldman Sachs. Ryan, your line is open.

Clark, maybe to start on the net interest margin.

Hey, Ryan, it's Chris. We can't hear you.

You started to talk about NIM, then you faded out.

Sorry about that. I was saying, what drove the, main pieces that drove the NIM miss? I know you talked about the decision to use some wholesale funding and some lower loan yields. Maybe just talk about what's embedded in reaching the 3%-3.05%, including deposit costs, fixed-rate asset repricing, and any other impacts you think we could see that happened this quarter that may not repeat. Thank you, and I have a follow-up.

Yeah. Ryan, first of all, thanks for the question. Let me just make a brief comment. NIM is clearly an important metric for us, but as you can imagine, what we're most intensely focused on is our long-term return targets, by the way, both of which are still intact. Clark, you can maybe step us through the detail?

Sure. Thanks for the question, Ryan. Maybe first, just to remind everyone, NIM was up in the quarter, just not up maybe as much as we would have expected. Maybe just a couple of factors in Q2. Stronger loan growth than we expected through the quarter. We obviously covered that. I think the loans we put on came in at a higher credit quality and therefore a little bit tighter spread. Bigger balance sheet, a little bit tighter spread.

Overnight SOFR was down about 4 basis points in the quarter. Put all those together. Again, a little bit bigger balance sheet, a little thinner margin. We had a known seasonal low in deposits. As we told you, dropping in late May, that happened sort of as expected. With the timing of that loan growth created a little bit larger funding need in the period, and we chose to fill that with wholesale funds rather than reprice the client deposit base because the expectation is we're going to see some good deposit growth here in the second half. As you transition then, what gets us confident that we'll go from where we are to 3%? You hit most of the elements there, Ryan, but about $9 billion of fixed asset repricing coming in the back half with a pickup of about 1.25%.

As I mentioned, solid client deposit growth, about 2% or $3 billion in the second half, largely from core operating deposits. Should be very solid growth with good relative pricing. Because that's coming, as I noted, that's why we chose to bridge with short-term wholesale funds. While we do expect loan growth, we would expect it to moderate off the first half pace, and some of that is just not that client activity will be down, but it'll be a mix between the balance sheet and the market. Put all those together, and I think what we see is a path to 3% plus with what we think is relatively low execution risk based on what's in front of us today.

The last piece I'd say just on deposit cost is if rates are stable, we would expect deposit costs through the period to be pretty stable. If we see a hike as is sort of becoming more probable, I guess, from the market standpoint, we would see deposit costs start to drift up a little bit, but we'll get the offset in loan yields. Frankly, don't think that'll be really impactful in the back half of 2026.

Got it. Maybe as my follow-up, Chris, seems that results on investment banking fell a little bit shy of expectations. We're obviously seeing strong results across the industry. I know 1Q was a record, but maybe just talk about what drove the miss. When you look at pipelines, you mentioned you expect to be up 20% in 3Q. Maybe just talk about expectations that are embedded for the back half of the year. Thank you.

Sure. Well, thanks for the question. We did come up short of what we had anticipated in the quarter. We obviously came off a great first quarter, and we're coming off strong comps in 2025. Having said that, we remain confident that we'll have the ability to grow mid-single-digit. In the first half, we completed about $366 million, and so we're up about 4%. As we mentioned, the pipelines are very, very strong. We're up 9% linked quarter, up 31% year-over-year. As you know, Ryan, there tends to be some seasonality in this business in that particularly in these middle-market deals, a lot of people want to get them closed by year-end. That's just a natural thing. Over time, we always see a step-up in the back half of the year.

When you mentioned that people were having great quarters, and indeed they are, what's interesting is year-to-date, there's been a real bifurcation between large deals and the middle-market deals. Transaction volume is actually down 24% year-to-date. However, the value, believe it or not, is up 83%. As you can see, a real skew sort of to larger deals. I feel good about how we're positioned. It's not as though any of these deals fell apart. They got pushed out, which often happens in due diligence, et cetera. When I speak about pipelines, these are engaged deals that people are spending valuable time and money on. People are invested in these deals. I think we'll see them come out in the back half of the year. The last comment I would make, and this sounds kind of counterintuitive.

Clark just commented on the interest rate environment. I think in a higher for longer environment, when people think that rates are either going to be higher for longer or potentially even go up, today the 10-year is obviously around 4.6. I think that's actually a better climate to get deals done than a climate where people are anticipating a bunch of rate cuts and tend to kind of sit on the sidelines. That might be more than you're looking for, but that's how I'm thinking about the business.

Thank you, Ryan. Our next question will go to the line of Ebrahim Poonawala with Bank of America. Ebrahim, your line is open.

I guess maybe on this whole NIM versus NII debate, Chris and Clark, you said something, willing to trade NIM to add clients with a strong return profile. Maybe unpack that for us in that if loan growth is stronger, my read is there's pressure on, incrementally pressure on the NIM. As a management team, how do you think about that in the framework of the 16%-18% growth, say that you want to hit over the medium term? Just contextualize how long does it take to make up for that NIM that you give up to drive growth on the fee side or how we should think about the timeline there? Thanks.

It's a great question. I don't think our target of 15+ by 12/31/2027 is in conflict with growing the business, generating more NII, generating more EPS. We are very targeted on who we want to do business with, and we're fortunate enough to bring a lot of these new to client customers onto the balance sheet. To put it in perspective, about 58% of our C&I loans are investment grade. Obviously, and I've said this many times, you usually start by providing some capital, but in order to get the kind of returns that we have to get, we've got to do a lot more things for them. Usually that takes a bit of time. I don't think it's a trade that's in conflict.

I actually think growing the business with our targeted customers is actually helpful on our long-term path to achieve the kind of returns on tangible common equity that we're looking for.

Got it. I guess maybe just to follow up, you mentioned the 2% deposit growth in the back half. Looks like you have a pretty decent line of sight in terms of what's coming through. How should we then think about, one, if there's any more color on that deposit growth, drivers of that. Then just, Chris, to your point about the 15% ROTCE by fourth quarter 2027, do we still feel good about the margin being the 3.25+ that you've talked about in the past? Thank you.

Yeah. Ebrahim, it's Clark. Thanks for the question. We do have, we think very good visibility on that deposit growth. It will be largely commercial in nature and connected to relationship clients with whom we have very tight interactions. As we see that there is a seasonal build in the commercial book, I think that's pretty broadly known. Again, we have very good line of sight again on what we think is a rich pool of operating deposits coming through. Again, appropriately priced, we think some of that won't all be non-interest-bearing, for example. Some of that'll be interest-bearing, some of that'll be in our hybrid accounts, et cetera. We sort of like the profile of that for sure.

As it relates to the 15% return in fourth quarter 2027 and the related NIM target, what I'd say is just to reiterate Chris's point, at the end of the day, returns really are the most important thing we're looking at over time and making them sustainable. That is not to say NIM is not an important factor and something that we keep track of. At this point, there's nothing that would tell us we have concerns about hitting either of those targets in Q4 of 2027.

Thank you, Ebrahim. Our next question will go to the line of Chris McGratty with KBW. Chris, your line is open.

Clark or Chris, the operating leverage comment, obviously it's very wide this year. I'm interested in, I guess, sustainability and, again, what's factored into the medium term in terms of operating leverage. Can you continue to generate operating leverage into next year?

Yeah. Hey, Chris, it's Clark. Look, again, assuming a constructive macro environment, we feel very good about that. I think we have demonstrated over time we can manage expenses very effectively. As Chris has noted a few times here, we like the pipelines, the current status of the business, and the momentum going forward. If you put those two together, we do feel comfortable that we can drive operating leverage going forward. We have talked before about kind of long-term expense growth. We think we were a little bit higher last year. We're still going to be kind of above that long-term target, but gliding to that over time. That's a combination of continuous improvement efforts and finding opportunities to reinvest in the business, understanding that you got to cover inflation and people and some of the other costs.

There's nothing, again, in our crystal ball, as good or bad as it may be, that tells us we're concerned about not being able to deliver that sustainably.

while we're investing significantly in the business, whether it's hiring or the $1 billion we're going to spend this year on tech and ops.

Got it. Okay. Wonderful. Then, Chris, on the buyback, you reiterated the $1.3 billion at least this year. Obviously, we have the Basel proposals that'll be a tailwind, but I'm interested in just your views of the toggle between what appears to be strengthening growth and returning capital. I know you had a comment in the release about return on and return of capital. Thanks.

Sure. Our capital priorities remain unchanged, Chris. The first is to support our clients and our prospects. That's where we're going to focus. Secondly, what I just mentioned, we're going to continue to invest heavily in the business because we think there's a great opportunity. Third would be our dividend. Lastly would be share repurchases. Obviously, we have an abundance of capital right now. We think if Basel III plays out the way it's currently described, we'll be the beneficiary under some timeline of another 100 basis points. We haven't given any guidance yet with respect to 2027.

The only thing I'd add there is, as you noted, Chris, on track for the $1.3 billion, we're a little bit ahead of schedule. I would just sort of assume kind of $300 million a quarter in the back half, which gets us just north of that number. I think maybe the takeaway there is less about the number and more about just a methodical, thoughtful kind of quarter-by-quarter approach, which may not get us exactly to the place we want to be quickly, but I think gives us maximum flexibility to support clients as that evolves and obviously to absorb any macro deterioration that might happen.

The other thing I would add to the discussion is we basically have reaffirmed the target of 9.5-10 on a marked basis. We think that's the right amount of capital. Having said that, we wouldn't be adverse to going below that from time to time if we needed to because we're generating a lot of capital.

Thank you, Chris. Our next question will go to the line of Erika Najarian with UBS. Erika, your line is open.

Hi. My first question is for you, Clark. Clearly, the stock is opening lower, and I'm wondering if it's just a lower exit rate. As we think about that path to 3.25, and obviously, fully hear everybody loud and clear that client growth is way more important than just NIM. How much of the path from, let's call it 3.02 in 4Q of 2026 to 3.25 is "baked" relative to the balance sheet dynamics that you see? I guess what the market is trying to figure out in terms of the initial reaction is how safe is consensus EPS for 2027 relative to the NIM outlook?

Yeah. Great question, Erika. One, and I'm not being flip at all, I think the difference between 3.05 and 3-3.05 isn't significant enough to get people, or shouldn't be significant enough to get people concerned about the full year 2027. Obviously we haven't provided full guidance for 2027, which we'll do as we get through the year. I think to your question, and just start sort of broadly on the structural piece, between now and 12/31 of 2027, we're looking at about $30 billion of fixed rate asset repricing across the swap book, securities, and consumer mortgages. Again, that's pretty well baked as you can imagine. Assuming the rate environment is what it is today, the returns on that are pretty solid.

We continue starting in the second half here to see good paths to operating deposit growth, which obviously helps on the funding optimization side going forward. We'll see where loan growth goes from here, but obviously, it has been strong and we will continue to play in that as it makes sense. I think just all around, we feel very good about that path. Our view, I think, would be rates are probably relatively flat in the back half year but certainly if there are hikes, we are prepared to manage those as well and think that the 3.25 will remain intact.

Thanks. I'll follow up offline to unpack that a little bit more. Chris, my second question is where are we in the middle market investment banking cycle? I think there has been hope that this capital markets renaissance, which is starting with large cap and strategics, is going to be multi-year. I guess as we think about middle market activity, how much is Key tied to sponsors versus how much is just tied to maybe sort of a lag in sentiment and proactiveness in terms of middle market activity?

A great question, Erika. I think the middle market activity is lagging the large activity. I think what I mentioned earlier about interest rates I think has been a factor. I think what's been going on, frankly, in the private credit market has been a factor. For us, 40% of our fees are driven by private equity. As you know, it's pretty well-documented that the exits have been fewer and a lot more stretched out. So I think we are in the early innings of, to use your words, the renaissance of middle market M&A. I'm very encouraged by what I see. As you know, as long as there's an inverse relationship between hold period and cash-on-cash return, eventually those transactions will come out.

Thank you, Erika. Our next question will go to the line of Manan Gosalia with Morgan Stanley. Manan, your line is open.

Hi, good morning. Clark, you made the point that lower loan spreads are coming from pivoting to higher quality clients. I guess a number of banks have made that comment this quarter. The question is, what do you see that is driving that? Is it more demand related to CapEx and AI related investment spend from larger clients, or is it something else?

Yeah, it's a great question, Manan. I think it is consistent with the industries we're in and the clients we target. Frankly, our book historically has been a little bit more investment grade just given our capital markets platform because those are the clients that tend to need those capabilities. I don't know if, you've heard that across the industry, I don't know if it's a broad or sustained trend, but at least for us, those are the deals that we saw in the quarter that were very consistent with our targeted approach. We're happy to serve those clients more broadly than just the lending, obviously. It helps the credit profile turnover as well.

For example, a lot of the credit that's being provided is for the build-out of the electrical infrastructure in this country. One of the things that AI has made abundantly clear is that there's a massive shortage both of power generation and distribution. As you can well imagine, we are a significant player in that. Specifically, the people that are market leaders in that are very significant companies, for example.

Yeah. I guess maybe the other element I might raise is we had some growth in our REIT portfolio, which was almost entirely investment-grade in nature. Again, it is tied to Chris's point and the REIT point to pockets of real targeted scale for us.

Got it. Maybe as a related question, Chris, in your response to Ebrahim's question, you spoke about it taking some time for the fees and other higher returning businesses coming through from some of the new clients. What's your level of conviction that you can bring in that business over the next year or so? I guess the reason I'm asking that question is, a couple of years ago, we just went through a round across the industry for writing off some of the lower returning lending-only relationships. Maybe if you can unpack on why you have more conviction on bringing in those fee-based businesses this time around.

Sure. I guess the easy part of that question are with our existing customers, where every six months we go through a deep dive on all of our significant exposure. What are we getting in addition to the credit exposure? What are we pitching? This is a discipline that we've had for a long time. You've probably heard me speak before that a properly graded commercial loan can't return its cost to capital. That's why we're so committed to this targeted scale approach by industry. With respect to the new clients, we expect to hit our return hurdles, and we expect to hit them within 12-18 months. We're looking at those every six months. It's a lot of discipline but it's something that, as you know, we've been at for a long time. We don't bat 1,000.

There'll be some that we don't get the kind of returns that we expect to, and we will exit those. We have a pretty good track record, particularly with our focus by industry group, where we can do a lot more for these companies with respect to payments, hedging, advisory, et cetera.

Thank you, Manan. Our next question will go to the line of John Pancari with Evercore ISI. John, your line is open.

Back to the loan growth that towards higher quality but lower yielding again. The answer to Manan's question is there at all an intentional shift on your part, focusing on these borrowers? Or is it more of a market shift where you're seeing this? Related to that, are you avoiding any pockets of lending, whether it be MDFI related or areas like that? Just given the backdrop, then maybe can you just talk about loan pricing competition? Is there outright intensification around new loan yields that you're seeing impact this? Thanks.

Yeah. First of all, where we focus-- it's easier to talk about where we're focused and where we don't focus because we're really focused on seven industry verticals. Within those verticals, we feel like we understand kind of who the winners are, who the losers are, who's gaining share, who's losing share, et cetera. We're very focused on those industry verticals. Because we're focused on those industry verticals, as those companies grow, a greater percentage of them become investment-grade companies, and we continue to serve them. It's all about our industry focus, which is a bit unique to us. With respect to a similarly graded credit, if you look at kind of spreads over SOFR from a year ago to present, there's some degradation, but it's not that significant, John, candidly.

It still goes back to my basic premise that if you're going to provide capital, you better be able to do a lot of other things because you're never going to get your returns based on the spreads today or last year.

Maybe just two additions, John. One, on MDFI, we noted we're up about $600 million in the quarter. We don't really avoid that. We don't actually think about it as a thing other than when we report it and answer questions on it. We did grow our REIT business in the quarter. That is in the MDFI category. We grew our specialty finance lending business a little bit, call it $100 million or so. Not hugely significant. We're not shying away from those for the purposes of avoiding the MDFI designation. We are not doing deals that don't make sense for us. Specialty finance lending in particular over the past few years, we have walked away from a handful of things that just didn't make sense to us. It's not a function of the categorization at all.

We're trying to make good, thoughtful underwriting decisions in those cases.

Just one other thing. A lot of times people conflate MDFI with private credit. Our MDFI numbers are more than twice what our private credit numbers are. Within private credit, there's SFL, but we have Unitranche, we have our real estate lenders, and we also have some other things like insurance companies. Just some background.

Got it. Okay. Thanks for that. Separately, back to the margin. I just want to get a little bit more color. You cited the confidence in that 4Q exit rate, you cited that you see low execution risk. What about the second quarter margin performance that surprised you negatively is now less likely to surprise you again? Was it the type of growth that you saw or the spreads or the rate backdrop? If you could just talk to us like, why should we not worry about that as you cited the low execution risk on that exit NIM? Thanks.

Yeah. Fair question. I think it's really the mismatch in timing between the asset growth and the deposit levels in the quarter. You trough in mid-May, and again, we troughed sort of at the time and at the levels we expected. We just had larger client balances on the loan side at that time. To the extent loan growth does slow a bit, and again, just to be clear, I don't mean client activity is slowing, just loan growth we think will be a little lighter as the capital markets activity picks up. Given that we believe we can fill the funding stack with quality deposits here, that's really the biggest difference. If the loan growth that we expect to see for the year had come in uniformly, I think you would see a smoother kind of movement in NIM.

Thank you, John. Our next question will go to the line of Matthew O'Connor with Deutsche Bank. Matthew, your line is open.

KeyCorp (KEY) Q2 2026 Earnings Call Transcript

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