KeyCorp (KEY) Earnings Call Transcript & Summary

All right. I think we're ready to start. Welcome back from the break. Thanks, everyone. We have KeyCorp up next. Key is a large regional bank with $187 billion of assets based in Cleveland, Ohio. So today, presenting for Key, we have Clark Khayat, and we have Victor Alexander. Clark has been with the organization since 2012 and prior to becoming a CFO was Chief Strategy Officer, responsible for corporate strategy, M&A, corporate and strategic investments. We also have Victor. Victor Alexander has been with the bank since he was an intern. So congratulations on that.

Thank you.

He's Head of Consumer Banking. Consumer Banking serves more than 3 million customers across 15 states. Prior to this role, you were doing home lending, Head of Home Lending, and you've also had roles at the bank doing treasury and I think probably many other roles. So thank you very much for coming to our conference. And I know you're going to make a brief presentation, and then we'll get into Q&A.

I'm, yes. Thanks, [ Ruth ]. And good to see everyone, and thanks for your interest in Key in the conference today. So as Ruth mentioned, I'm Victor Alexander, and I lead the consumer bank at Key. I spent 25 years with the bank starting as that summer intern. First 1/3 of my career was in our excellent corporate investment banking business, moved through finance, and I've had the privilege of leading our consumer business and now just wrapping up my sixth year. Before I start, I want to reference our forward-looking statements on Slide 9. These will cover my remarks as well as the question-and-answer portion of the presentation for both Clark and me. Let's see. Moving to Slide 2. Very high level overview. I wanted to start with a high-level overview of our consumer bank, our businesses and our markets. Our retail and business banking teams serve more than 2 million households and 0.25 million small business clients who reward us with $80 billion of very attractive deposits. And our growing wealth business now manages a record $68 billion on behalf of our clients. Our footprint always attracts attention and comments, but we like the balance and the growth that it provides. Our Eastern markets are a little more affluent. 75% of that $68 billion in wealth that we manage actually comes from the eastern part of our franchise. We also really like the growth tailwinds that are occurring in our Western markets, places like Utah, Idaho, Colorado and the Pacific Northwest. It's an advantage to have 1/3 of your branches in such high-growth markets, and we've benefited as our relationship household growth rate is about double in the West, what we see in the East. Slide 3 shows the role of the consumer bank within Key. Most importantly, we are the major source of raw material for the bank. $88 billion of deposits, the most granular, highest liquidity value, lowest cost deposits that we have. The cost of this $88 billion well inside of our overall company average. Our excellent commercial businesses can take this material and transform it into very high-quality, very high-returning middle market client relationships. But this business is an important component of their success. In addition, while we're certainly not the largest contributor to fee income at Key, as you all know, consumer generates roughly $1 billion annually. And because most of this is in categories like cards and payments, wealth management, these fees are very stable quarter in and quarter out. Lastly, our consumer business is additive to Key's strong credit profile. We're a super prime lender. We don't participate in any indirect businesses. The average FICO of our consumer portfolio today is 790 and in our largest asset class, residential mortgage, is north of 800. That formula, sizable low-cost deposits, stable fees and solid credit performance positions the consumer bank to deliver strong returns through the cycle. Moving to Slide 4. Chris and I both assumed our current roles in 2020, and he's always pushing us to stay focused. Focus propels growth is something that we repeat often around Key. We really tried to incorporate this into our everyday execution in our consumer business over the last 5.5 years. And since 2020, we've had a more consistent focus on what I think are the most core activities of our consumer bank, growing relationship households, growing our wealth business and taking the best care of our clients that we can day in and day out. This consistent focus has helped us execute better than we did historically, and we still believe we have headroom in every one of these areas. But we're also pleased with the progress we've made. We have a better consumer business today than we've had historically. We're growing relationship households faster. On an annual basis, we've more than doubled our wealth sales, which has resulted in solid net flows and enabled our assets under management to rise meaningfully along with rising markets in recent years. We'll talk more about wealth in a few minutes. We're also taking better care of our clients today than historically. Internal measures of their satisfaction with our branch, digital and contact center channels are all up double digits over the last few years. Our clients are also telling J.D. Power and Apple that we're doing better as well. Now let me be clear, we are not high fiving each other in Cleveland about being # 11. But the reality is it takes a lot of hard work to gain ground. It takes work across people, across systems, across culture, and we're pleased with our trajectory. No one wants to give up their spot to us, but we intend to keep climbing. We've also driven efficiencies while taking this ground. Our branch is 40% bigger on average, and we have 1,000 fewer people working in the business today than we did just a few years ago. On Slide 5, we've talked about being a relationship bank for the entire time I worked at Key since I was that 20-year-old intern. But the reality of that was in our consumer business, we never really aligned our products and services offering to back that up. Today, we do. For us, it all starts with an active checking account. This is the anchor of a relationship household at Key. Relationship households have an active checking account and one additional product. It could be a savings or investment account, credit card, home equity line of credit or other lending solution, and they are the most valuable component of our retail client base. You see the differences depicted on this page. Significantly greater deposit balances drive higher revenue, and these households also stay with Key longer and outperform from a credit perspective. In 2022, we more closely aligned our value proposition, services, rates, other benefits to reward our clients for our relationship with Key. This has helped us grow and strengthen our client base. Today, 80% of our consumer deposits are from a relationship household, up from approximately 70% pre-COVID. And these households are more engaged with Key than ever before as measured by debit and digital activity. I'm also encouraged by the growth trends within our relationship household base. We're 200 years old as a bank. We celebrated that in April this year, but nearly 1/4, 22% of our relationship households have joined Key since 2020. And relative to our longer tenured client base, these new clients are younger and also more likely to reside in the Western United States, the western part of our footprint I talked about earlier. They're also continuing our trend of outsized value from relationship households. While not yet as valuable as our longer tenured and older clients, our new relationship households have twice the balances at Key today as non-relationship households from the same vintage. So we're encouraged by the curves that we're seeing early in our new household acquisition. I'd now like to focus on Slide 6 on our wealth business for the remainder of my presentation this morning. We're fortunate at Key to have a really nice wealth business, and wealth is the second largest component of our fee income after investment banking. Our roots in wealth are deep, and we have the capabilities to serve clients across the wealth continuum from our recently launched mass affluent initiative, which targets clients with $250,000 to $2 million of investable assets, up through our private banking business, which serves thousands of families and institutions with wealth that can be measured in the billions at the highest end. On a relative per branch basis, we are the second largest wealth business among our peers with the largest having done a significant wealth acquisition more than a decade ago. On [indiscernible], while we've had a capable wealth business for a long time, we haven't always had a strong organic growth trajectory in this business. And in the spirit of focus propels growth under Chris' leadership, in 2020, wealth was an area we specifically selected as a distinctive growth opportunity for the consumer bank and Key. We sharpened our focus and began to execute in a more purposeful manner. Over the past few years, we've added significant talent throughout the business from senior leadership to field sales leaders to relationship managers at the tip of the spear across both our high net worth and mass affluent businesses. We built and launched a holistic mass affluent offering covering both banking and investments. We call this Key private client. This has been a significant deepening opportunity for us. 50,000 mass affluent households have brought $6 billion of additional assets to Key, split roughly evenly between deposits and investments. That works out to $125,000 per family. It's been meaningful for us. Like the rest of consumer, we increased our efforts to improve the client experience within our wealth business, which includes everything from how often our clients hear from us and what's the intellectual content we're providing to them on a regular basis to the depth and breadth of our planning capabilities to their servicing experience across our digital and physical channels. Lastly, we leaned into our franchise and redoubled our partnership efforts with our retail business as well as our commercial and institutional teammates. Key's branch business is the #1 feeder into wealth and has been critical to the success and growth of Key private client, but it's also the #1 referral partner into our private bank. And while we've had phenomenal wins with our commercial partners, these are too episodic in [indiscernible] judgment. And along with Ken and Randy, our consumer teams are working on ways to be more consistent in our execution and better capitalize on the opportunity we know exists within our commercial client base. Much like in the rest of our business, we feel like we're just getting started and have plenty of headroom in wealth. We'll start 2026 with 100 more sales professionals, tip of the spear producers than we had in January 2025. Our mass affluent business continues to scale. Our new client wins, I talked about that $125,000 number on average with the first 50,000. Well, this year, that number is closer to $175,000. So we're being more impactful with every client that we're winning. We just had a record quarter of managed money production within the mass affluent space. And in fact, third quarter was a record quarter. July was a record month. We beat that in August. We beat that in September. So a record quarter with 3 consecutive record months. This business is still accelerating. Every month, we talk to more clients and do more plans. That sounds really simple, but that's a significant leading indicator of organic growth and happy clients. This is going to be the second consecutive year where the number of plans we do with our clients approximately doubles. Taken together, we think this is the recipe for consistent organic growth in Wealth Management. And with constructive markets, we've set a goal of $100 billion in assets under management by 2030 for Key's wealth business. To wrap on the final page, thank you for your time and interest in Key and our consumer bank. We're a valuable contributor of stable, low-cost deposits, the raw material for Key's excellent commercial businesses, generate roughly $1 billion of fee income annually, have a disciplined approach to credit. Together, this combination results in solid returns on capital. And as we look ahead, our relationship strategy, combined with good execution, will enable consumer to deliver consistent growth at attractive returns. We will continue to organically grow relationship households, which will further the attractive funding we provide to Key. We will continue to organically grow in wealth and expect to approach $100 billion in assets under management by 2030. And we will continue to make our business better for our clients and shareholders, building off the steady progress we've made over the last 5 years. I'm excited for the future of Key and our consumer franchise. Thanks for joining us and look forward to your questions.

Great. Thank you, Victor. That was a great update. It sounds like he's made a lot of progress in consumer bank and moving up in performance metrics. And I just would like to get a sense of the competition has invested a lot in consumer banking and no one is standing still. So how confident are you that you can continue to close the gap?

Yes. I would say we're more confident today than we've been at any time in my tenure. Funny thing about life, I think like sometimes the inertia is a powerful thing and the hardest part about getting momentum is kind of taking those first couple of steps and establishing that. I think we've done that. I think there's no question this is a very attractive part of the banking space, the low-cost stable. Everyone sees the same -- the value of the raw materials that come from a consumer franchise, but that's not new. People have been investing in it. And we've been able to accelerate our progress kind of through that over the last 5 years. And as we look forward, we see no reason why that can't continue.

So if you think about these new households that are coming in, kind of what's the value proposition that you think is drawing new customers?

Sure. So we are proud of the relationship value proposition that we built that I referenced in my comments. If you have that active checking account with Key, it all starts with that. You're going to get better rewards on our credit card products. You're going to get better deposit rates on our savings products. You're going to get lower interest rates on our lending products. You're going to get priority routing in our contact center. So we've tried to enable both kind of hard financial as well as soft service benefits. That's made a big difference. And the other thing that's made a big difference that we don't underestimate is the client experience, right? If clients walk into our branches, they're served by our teammates. They are consistently really satisfied with that experience. They're increasingly satisfied with the experience they get on our digital properties. We've got a number of investments queued up to make sure that, that continues. And I just think as we continue to provide value to clients, as we continue to give them a great service experience, they stay with Key, they tell their friends and families, and we've been able to really grow our business consistently through that.

Okay. So I guess the next question is really around the density because you are in 15 states. You have a lot of branches. I think you've got like 942 branches. Yes. So it's -- but the question is really around that branch density. And do you need to be top 5 in a market to really be able to get that conversion for the community.

Yes. We like the density of our footprint. We like the markets that we have. We're in 25 markets as we think about it from -- in the states I showed on the picture. In every single one of those markets, we're growing relationship households this year. In every single one of those markets, we grew relationship households last year. I do think it's an advantage that we have 300 of our branches, plus or minus. I actually don't know the number exactly, but around 1/3 in the high-growth Western part of our franchise, right? We don't need to build 50 new ones or 100 new ones to be able to participate in some of the fastest-growing economic growth areas of the country. We already have them, right? We just need to continue to perform better. The other thing that I think sometimes is underappreciated is that of our deposit franchise, 70% of it is in a market where we start with the top 5 branch position. So we like the balance of our footprint, the diversity it provides, the growth that it provides, and we've been able to see growth kind of from West to East with really outsized growth coming from our Western markets.

Okay. Clark, I'm going to pivot over to you. I wanted to touch on M&A. And I think at the conference call, Chris made some comments about being sensitive to any sort of tangible book value dilution and that the focus is really on organic growth. But I guess the question is really around M&A is picking up. The industry, there's been more consolidation. Is there a scenario where you would consider buying a depository institution?

Yes. I mean maybe just to double down on the comment you made, we feel very good about the organic path. Our capital priorities haven't changed, right? And very, very low down on that list is depository M&A. If I just quickly remind folks, it's supporting our clients inorganic growth. We've had great C&I growth in particular this year. We see that continuing. We obviously want to participate in that. I do think you'll see us do some potential acquisitions, but in what we call the bolt-on or add-on spaces, things like Cain Brothers and Pacific Crest that we've done in the past. We'll continue to do those. I tend to think about those as kind of organic extensions or pseudo-organic because they're just part and parcel to the way we run our businesses, and we're quite good at integrating those. Our dividends is our dividend. And I might remind folks that 2 years ago, I was here and asked directly if we're going to keep paying our dividend. So it's a different place to be today. So I'm sure we'll talk about that in a minute. But we'll keep our dividend where it is. And then we've gotten back into share repurchase. We said on the call, we do $100 million. I think we're going to comfortably get above that here in the fourth quarter. And I think people can feel comfortable that whatever as we do this quarter, as we go into 2026, we'll exceed that kind of throughout 2026 on a quarterly basis. There are other things we can do with the capital we have, and we are very lucky today to have a lot of excess capital. We will consider more buybacks faster. We'll consider potentially doing some things on the balance sheet. And look, given the market we're in with M&A, it's the right question to ask. But candidly, the bar strategically is very high. if we get through that, the bar financially is exceptionally high given Chris' comments about tangible book value dilution. And frankly, unless we can extract some unique value out of a property, given where our multiple is, we're not likely to win any sort of auction. So candidly, we're just not spending a lot of time on that right now. And we're just really focused on -- I think Victor's story is a microcosm of what we're doing, which is let's just run the bank better, let's take the opportunities that are in front of us and let's continue to do the best work we can to build the best bank we can, and we feel really good about that.

Okay. That's great. So you mentioned this just now, but you have $100 million that you've kind of committed for buyback in the fourth quarter. But again, kind of given the excess capital, given the valuation of the stock, I mean, really, could you do more?

Yes. And so again, I think we do -- we will do more in the quarter than the $100 million. I'm pretty confident about that given what we've done quarter-to-date. I think the bigger question is how much more and when. We're sitting at 11.8% CET1. We're sitting at 10.3% marked capital. We really talked much more about marked capital. And we've said, look, we think our kind of long-term targets are 9.5% to 10%. So we've got clear room to get down to that kind of 9.5%. And then I think our closest peers at the end of the third quarter were kind of 9.1%, 9.2%. So we're well above that, and we will lean into share buybacks. I can't say sitting here today exactly how much we're going to do or some big wave of that, but I think people can feel confident that we're going to -- they're going to see more of that.

Okay. Great. Victor, I'm going to pivot back to you. You gave a really good update on the wealth business and really good to hear about the successes that you're having there. Can you kind of give us some of the KPIs that you have around the relation growing households and AUM? And what are some of the kind of primary metrics that we should be looking at?

Sure. So in wealth, what I really sweat the teams on a bunch of things, and they sweat themselves on stuff a lot that they don't necessarily need me. But what we really look at is we look at the number of people that we have, both new to the platform as well as the existing base of more tenured producers. We look at their productivity. So on the new hires, how are they ramping? Are they ramping according to our expectations on our kind of legacy book, how are they performing? And where we need to make changes, we do. But so far, we've been really pleased with both the performance of our teammates that have been on the platform for a while as well as the ramping of our new hires, and that would be in both the private banking business as well as the mass affluent business. We look at, as I mentioned, the number of plans. We look at how often we're talking to our clients and how often we're doing planning activities. And again, I know it just sounds incredibly simple. But one of the things we've seen over the last few years, we've significantly increased how often our bankers are in front of our clients. We've increased how often they're doing financial planning with them, and we've increased the quality of the content that our Chief Investment Office does within the private banking business, quality and the frequency of that content, especially down to the mass affluent sector. So we never -- historically, it's going to sound silly. We never were generating all we've got this legacy private banking business. It's been a strong business for decades, very sophisticated. Until a couple of years ago, we never took their intellectual content down to the mass affluent space. Today, we do. It makes our advisers better, and it makes our clients think more highly of Key. That's what we're focused on.

So I mean, wealth is a very desirable area and lots of competition. Many regional banks want to grow this business. What do you think is the differentiation for Key and the wealth platform versus other regional banks?

Sure. I think 2 things. I think number one, it gets back a little bit to the footprint where we started. We do have, by virtue of especially the eastern part of our franchise, we've got an older, more affluent client base. Like we would say we've got 1 million households that we think are qualified for Key private client today. I talked about the 50,000 that we've been able to convert. That's great. But a small -- and that we've gotten $125,000 per family from each one of those [ 50 ]. So as we accelerate and as we grow into this opportunity, it can be very meaningful for Key, but we still think we are kind of in the early innings of the opportunity, I would say. I think the other thing that we've done is I was just in one of our markets yesterday. I was talking to our private client team, there was an adviser that joined us from another regional bank. And I asked him, I said, "Hey, what's something that they did better than us and what's something that we did better than them? And I'll answer both sides of that in case you're curious. So they had some better kind of middle office tech that really makes the kind of banker experience better. It's actually tech that we're going to deploy in the first quarter of next year. So we'll have that gap closed in the next 3, 4 months. We feel very good about that. But what he said in terms of like, hey, has been great about Key is the partnership between the mass affluent business and the branches. We built Key Private Client from scratch. It took us 1.5 years to do it, and it was a bunch of us, both from the retail business as well as the wealth business, really sweating every detail of that experience. How are we going to incent people? How are we going to staff, how are we going to align roles? What are the expectations of our branch teammates, and it was built jointly. And we have an incredibly strong partnership between both those organizations. And that was his perspective to us was, hey, I'm not competing internally. Referrals are flowing naturally. We are getting our clients in front of the right people at the right time better than he had seen previously. And I think that's been an important component of how we've been able to kind of accelerate into this opportunity. We've gotten focus propels growth. We've got our retail business and our wealth business incredibly focused on the mass affluent opportunity.

So you have hired a lot of bankers, I think, about 10% growth this year. I mean where are you sourcing? Where are you -- you mentioned someone from another regional bank. So where are you sourcing these?

Yes, all the above, and I'll let Clark comment more broadly on bankers across the rest of the franchise. In our wealth business, actually, one of the top areas is our retail business. So again, back to this, we've created a lot of focus on wealth and some of our best, and we've got some kind of developmental roles, but some of our best new hires are actually folks that were already productive on our platform. They know Key, they know our branches, they know our clients, they know our teammates, they're trusted. They can come right in. We can train them up on wealth, and they've been able to really be additive to the platform. But I would say beyond that, we've been successful hiring from other regionals, from RIAs, from kind of a who's who across the board. And again, a lot of focus. Every month, we look at every new hire, how they're ramping. And so far, so good. We feel like they've been able to come to Key and be very productive.

Okay. I'm going to go to the audience and take a couple of questions and then move on and get back to some questions with Clark. But I want to go ahead. I think the microphone is coming, just a second.

So a question for Victor and then a follow-up question for Clark. Victor, my question is around the $35 billion or so of loans in the consumer bank. I know a large chunk of those are on the mortgage side, which are running off. But can you talk a little bit more about the opportunity set to grow the other parts of the consumer loan book? And then my follow-up question for Clark is you just mentioned that in addition to buybacks, there could be other things that you're considering on the balance sheet. Can you talk about what those are and what the time frame for that could be?

Sure. Sure. Thanks for your question. So just to give you a perspective on how we think about lending in general. Number one, first and foremost, we want to be able to support our relationship clients with lending products. And so today, we have a pretty full suite of lending products, everything from student lending, credit card, personal lending, mortgage, as you talked about. So that's important for us to support our clients. And while the overall residential portfolio is shrinking for those key private clients that still have $250,000 with the of bank, if they have a home lending opportunity, we want that to be done through Key, and we are really confident that we can give them a great client experience. As we think about lending overall, I would say we prioritize return on equity above all else. And one of the reasons we do that is, Ken and Randy aren't here, but we have really strong commercial businesses that have a proven ability to take capital and monetize that very effectively into high-returning commercial relationships. And so that just raises the bar for us from a consumer lending perspective. And so that's the biggest reason we don't do any indirect businesses, right? For some people, they work, but the ROE on an indirect business or I'm not going to get any cross-sell at all is just simply not as good as what we know we can get in commercial. The same holds true for resi mortgage, candidly, right? It's a lower returning product. If you have $250,000 with the bank, well, and there's enough deposits and investments there that, that ROE is reasonably competitive, what we can do on the commercial side. If not, it's a little different, right? And so we're really content to, hey, let's have a very strong credit focus -- let's make sure we're generating high returns on the capital that we provide. And then let's make sure if we don't need it, that Randy and Ken can use it to help us grow the business on that side of the house. We still do see opportunities to the second part of your question on growth. I would say the HELOC business, in particular, home equity line of credit is an area that we feel good about going forward. There's -- as you all know, right, home equity in America is at an all-time high. Again, our client base back to the comments I was making earlier, SKUs in some of our markets, a little bit older, a little bit more affluent, more likely to be a homeowner. Many of those homeowners might have a low rate first that they don't want to touch. We think there's meaningful opportunity in the coming years, multiyear play to kind of get a little bigger in the line of credit space than we are today.

I think the only thing I'd add to that before I answer your second question, Manan, is we've told Victor like we want them to lend money to relationships, right? Resi mortgage is a hard relationship product, and it's very hard to try to acquire somebody with a mortgage and then make them a relationship. We tried that. We frankly didn't do it as well as we wanted to. So it's just not where we're going to spend time when we've identified the places where we think we can actually create a lot more value. So you'll likely see us break out kind of what we think that runoff portfolio will be over time, and then we can talk about the growth on the platform that we want. To your question about other things, I'd first say we are in a position today where I'm not contemplating do something on the balance sheet in lieu of doing buybacks. I think we have the opportunity to do both. And the question is, is it -- does it make sense and when might it make sense to do something either to move maybe some of those residential mortgages we don't want off the balance sheet faster or address the remaining component of our investment portfolio that just isn't where it needs to be. We don't have to do either of those, but it is an opportunity we have to, again, sort of pull that 15% ROTCE up and sooner. So we'll contemplate both of those, but it won't be restructuring the balance sheet in lieu of doing buybacks. I think it's an opportunity to do both.

I will take one more question in the back.

Clark, can you give a capital markets update? And then on the consumer side, I guess you have 2 million households. And yesterday, Bank of America said they've grown 3 million new customers this decade. JPMorgan has grown 10 million new customers this decade. So looking out 5 to 10 years, do you really have the scale to compete?

Sure. So capital markets off, I think, look, we're 1/3 of the way through the quarter, off to a solid start. I think debt issuance continues to be very strong just given the markets, although a little bit of spread widening here in the last kind of week to 10 days. We are starting to see a little bit of the uptick we're expecting in middle market M&A. We obviously -- that's a very important business for us. It's been slow this year. So on the one side, I'd say we are very happy with our capital markets results year-to-date when the M&A component is running kind of about half of its normal contribution. We have seen that start to pick up. If that continues, we'll feel very good about the quarter and going into 2026.

And I would say on the second part of that question, I guess my perspective is that I think both can be true. I mean there's banks out there that have done a nice job growing their consumer franchise. But the stats that I talked about at the beginning are real, right? The last 5 years, we're growing faster than we have historically. We're winning in wealth more than we have historically. Our branches are more efficient and more productive. And our clients are happier with us today than they were really at any point in the history of Key. And so we feel like we can, to Clark's point, just keep grinding forward. I talked about kind of 4 or 5 yards at a time in our businesses. That's what we're really focused on, and I see no reason for that not to be able to continue regardless of what else is happening around us.

So Clark, I wanted to ask you about some topics that are kind of front and center right now, and one of that is -- one is on NDFI. I know you haven't been caught up in any of the issues around the fraud or bankruptcy, but you do screen as having a high concentration to NDFI. So can you just kind of talk about the -- or do an overview of the portfolio, how fast it's grown and the quality you have of the book?

Sure. So one, I just -- I think everybody knows this, but worth a public reminder that we did not grow NDFI's $12-plus billion last year. That was a reg reporting change where we tried our best to comply with the spirit of an expansion of those disclosures. Historically, it would have been $5.5 billion. It shows up now around $18 billion. So we are absolutely in NDFI as it is defined today. And I would tell you, we are really happy to be in those businesses. And I'll tell you why here. I mean, one, we don't think of it as NDFI. We don't think of it in the reg reporting categories. So there are many categories. We get a lot of questions about what's in this bucket. And the short answer is if you ask me, I will say, I don't know what's in that specific bucket, but I'll tell you what's in the $18 billion. And we really think about it as very dedicated examples of targeted scale for us at Key, where we have deep expertise. We've been in these businesses a long time. We think we're really good at them, and they are hard core relationship businesses. So of the $18 billion, think about $7 billion as being what we call our specialty finance lending business. That is what I think is most in scope in these NDFI questions. So it's lending to lenders. I'll remind you that this is a business we've been in close to 2 decades. We've had literally one loss in that time frame. This is where we got SSFA treatment, 20% risk weighting in late '23. This is where we did our deal with Blackstone, right? So this is a portfolio that has been scrubbed a bunch of different ways, highly structured, highly profitable. We have deposits, payments and capital markets business with these clients. I will continue to grow that business as long as it's available. It's a great business for us. I think we do it exceptionally well. There's $6 billion of REITs. We think we're an outstanding commercial real estate platform. REITs is an extension of that, that is 97% investment grade. It is 40% loan-to-value. It is 3x fixed cost coverage. And we are top of the heap in terms of equity capital markets for REITs, which is just one other example of having dedicated targeted scale there. So we're going to keep doing that business. We have about $3 billion of insurance and finance company business that is super high-quality borrowers where we have deposits. In many cases, we are running their payment operations or claims operations. So again, very deep client relationships, very profitable book, very high quality. And the last piece is about $1 billion of what we refer to as our unitranche fund. This is for the benefit of our own clients and prospects. This is a way for us to compete with direct lenders. It's an off-balance sheet JV with a third party who's put in 87.5% equity. We put in 12.5%. We're the senior lender to that facility. And we are going to expand that because it's gone very well, and it's a very good tool in our bankers' toolkit to retain great clients and win new relationships. So -- when I talk about that book, like that is 4 examples of what we think is outstanding excellent business where we excel, and we're going to continue to grow that. Now we have not grown it exceptionally $700 million of growth in the first 3 quarters of this year, just below kind of our overall C&I growth, but that's not because we're backing off, right? It's just because we are being selective and continuing to do deals that we think makes sense. And if the head of our Specialty Finance lending business were here today, he would say he turned down more deals this year than he's done -- than he's ever turned down in the time he's been doing this, and it's largely because he has seen the competition loosen standards, tighten spreads and be more aggressive on deals in a way that he doesn't think makes sense for the bank. So we're going to do the deals that make sense for us. We're going to continue to lean into this business.

So another question or a topic that's been in the news is the U.S. government shutdown. Has there been any impact that you can comment on whether it's consumer, commercial or corporate area from the government shutdown?

Yes. So maybe I'll hit the capital markets piece and then Victor can talk about his consumer client base. Really, the places we look when we get the government shutdown are IPOs because the SEC needs to review things and our commercial mortgage business because Fannie and Freddie need to be open for business at FHA. There is a little bit of risk and the longer this goes on, we will likely see some deterioration in those numbers. To date, we're not expecting it. We really haven't seen it. It's sort of a marginal number, but those are the pockets where we would be concerned. And then I think just the broader comment, which is part of your question, Ruth, which is the longer this goes on, how much more kind of expansive effect does it have just on the economy.

With respect to consumer, I would say, very little impact. I think just given the nature of our footprint, there's federal government employees across the country, obviously, but not -- has not been a significant impact. We do have kind of the standard forbearance programs available that we make -- that we bring out when things like this happen, we would -- but little impact so far.

Okay. Great. I think we have time for one more question. Yes, can you just wait for the microphone? Or if you say it, I can repeat it.

[indiscernible].

Yes. So the question is around our relationship with Bank of Nova Scotia as an almost 15% owner and our business relationship there flows. So one, I would say we've talked about this for some period of time, like we are scoping out what we think the opportunities are. And I've equated this because this might be another question, I've equated this sort of how we're thinking about AI. And the reason I use those as comparisons is you start by saying, what's even the possibility of opportunity there? And frankly, and coincidentally, in both cases, we've sort of identified kind of 40 to 50 things we could do. And now the work is how do you whittle that down to 2 or 3 things that actually matter. We're not going to do 50 things in AI. We're not going to try to do 50 different things with Bank of Nova Scotia. I will say to date, and Victor can comment on this also, it's not been a top 2 or 3 priority. We've got a lot of opportunity in front of us, and we continue to sort of chop the wood on the stuff that is right in front of us sitting in the -- in the halls of our branches and buildings. So we are way more focused on that than we are on what the Nova Scotia opportunities are. We do think there are probably 2 or 3 things that are meaningful over time, and they continue to look like us supporting their clients in the U.S. and vice versa and potentially porting some product capability that we have that maybe they don't have as much of or vice versa, right? And for us, it would probably be payments supporting them. For them, it would be some of the wealth stuff that they do in Canada, maybe porting down to the U.S. But more to come there. I would say I couldn't give you a number that was material today on what that has happened because not much has happened. And I can't give you a scoping of what it could be. We do, again, think there's something material, but we'll talk about it as we move further.

Clark and Victor, thank you so much for coming to BAAB. We appreciate the update, and thank you so much.

Thank you, [ Ruth ]. Thank you all.