Mark Midkiff, our Chief Risk Officer. On Slide 2, you will find our statement on forward-looking disclosure and non-GAAP financial measures. It covers our presentation materials and comments as well as the question-and-answer segment of our call. I'm now moving to Slide 3. This morning, we reported another strong quarter with net income of $616 million or $0.65 a share. We delivered positive operating leverage and expect to generate positive operating leverage for the full year. We delivered record third quarter revenue, which was up 8% from the year-ago period. Our results were driven by growth in both net interest income and noninterest income. Noninterest income reached a record third quarter level, up 17% from the same period last year. The increase was driven by broad-based growth across our fee-based businesses, including investment banking, which was up 61%. I am especially proud of the way our teammates continue to serve our communities and clients, creating new and deeper relationships across our franchise. In our consumer business, we experienced record growth in net new households in the first 9 months of the year. Our Western franchise is growing at more than double the rate of the rest of our footprint, and younger clients continue to be our fastest-growing segment. Additionally, our consumer business generated a record $4.2 billion in loan originations for the quarter, reflecting growth from our consumer mortgage business and Laurel Road. Through the first 9 months of the year, our consumer mortgage originations have exceeded 2020's full-year record level of $8.3 billion. Laurel Road had another strong quarter as we continue to establish high-quality relationships through our national digital bank. Importantly, what really sets Laurel Road apart is our targeted client approach, leading to high-value digital relationships nationally. Currently, 75% of our volume comes from outside our footprint. Laurel Road is part of a broader healthcare initiative across our company that has positioned Key as one of the leading healthcare banks. Moving on to our commercial businesses, we had another strong quarter. Our Investment Banking business generated fees of $235 million, a record third quarter level and the second highest quarterly level in our history. We experienced growth across the entire platform. Our broad and comprehensive platform has enabled consistent growth for this business over the past decade, achieving an 11% compound annual growth rate over the last 10 years. We are on track to generate double-digit growth again in 2021. Expenses this quarter reflect higher production-related incentives and ongoing investments in our franchise in digital, analytics, and in our teammates. Year-to-date, we consolidated 73 branches or about 7% of our branch network. These consolidations will drive future cost savings and support ongoing investments. We will continue to seek opportunities to right-size our footprint. Regarding credit quality, our trends remained very strong this quarter. Nonperforming loans and criticized loans decreased from the prior quarter, and net charge-offs to average loans were 11 basis points. We continue to support our clients while keeping a moderate risk profile, which has positioned the company to perform well through all business cycles. Finally, we have maintained a strong capital position while returning capital to our shareholders. Our common equity Tier 1 ratio ended the quarter at 9.6%, above our targeted range of 9% to 9.5%. In the third quarter, we entered into an accelerated share repurchase program facilitated by the capital relief from the sale of our indirect auto portfolio. This program is part of our previously disclosed $1.5 billion share authorization. In total, we repurchased $593 million of common stock in the third quarter. Dividends also remain a priority, with our dividend above 3%. Our Board of Directors will consider a dividend increase at our meeting next month. I will conclude by reemphasizing that it was another strong quarter. We achieved positive operating leverage by growing our top line and managing expenses while making ongoing investments for our future. As always, we remain committed to our disciplined approach to risk management and returning capital to shareholders through both dividends and share repurchases. I will now turn the call over to Don, who will provide more details on the results of the quarter. Don?

Thanks, Chris. I'm now on Slide 5. For the third quarter, net income from continuing operations was $0.65 per common share. Our results reflected a net benefit from our provision for credit losses, which was largely driven by our strong credit metrics and positive economic outlook. Importantly, we delivered positive operating leverage this quarter. And as Chris said, we expect to deliver positive operating leverage for the year. Total revenues were up 8% compared to the same period last year. We had year-over-year growth in both net interest income and noninterest income. Our return on tangible common equity for the quarter was 18.6%. I'll cover the other items on this slide later in my presentation. Turning to Slide 6. There were 2 major items that impacted loan growth this quarter, PPP loans and the sale of our indirect auto portfolio. Average PPP loans declined $3.3 billion this quarter as we helped clients take advantage of loan forgiveness. We also sold our indirect auto portfolio last month. The sale impacted our third quarter average results by approximately $800 million and $3.3 billion on an ending basis. Average loans were down from the year-ago period, reflecting the reduction in PPP balances and lower commercial line utilization. Compared to the prior quarter, average loans were down 0.7%. Adjusting for the sale of the indirect auto portfolio, our loans were up approximately $100 million on average and up over $1 billion on an ending basis. Adding to the comments on our core loan growth, adjusting for both the indirect auto loan sale and PPP loans our linked quarter total loan growth would have been 4.3%. We continued to see strong consumer loan growth driven by Laurel Road and consumer mortgage. On the commercial side, we were pleased to see a slight uptick in utilization. Continuing on to Slide 7. Average deposits totaled $147 billion for the third quarter of 2021, up $12 billion or 9% compared to the year-ago period and up 2% from the prior quarter. The linked quarter and year-ago comparisons reflect growth in both commercial and consumer balances. The growth was partially offset by continued and expected decline in time deposits. Total interest-bearing deposit costs came down 1 basis point from the second quarter, following a 2 basis point decline last quarter. We continue to have a strong, stable core deposit base with consumer deposits accounting for approximately 60% of our total deposit mix. Turning to Slide 8. Taxable equivalent net interest income was $1.025 billion for the third quarter of 2021 compared to $1.006 billion a year ago and $1.023 billion from the prior quarter. Our net interest margin was 2.47% for the third quarter '21 compared to 2.62% for the same period last year and 2.52% for the prior quarter. Both net interest income and net interest margin were meaningfully impacted by the significant growth in our balance sheet compared to a year-ago period. The larger balance sheet benefited net interest income but reduced net interest margin due to the significant increase in liquidity driven by strong deposit inflows. Compared to the prior quarter, net interest income increased $2 million and the margin declined 5 basis points. Lower interest-bearing deposit costs and the benefit of the day count were partially offset by lower earning asset yields and continued elevated liquidity levels. For the quarter, total loan fees from PPP loans were $45 million compared to $50 million last quarter. We've also included in the appendix additional detail on our investment portfolio and our asset liability positioning. In the third quarter, our sensitivity to rising rates moved higher and we ended the period with over $25 billion in cash and short-term investments. Moving on to Slide 9. We continue to see strong growth in our fee-based businesses, which have benefited from our ongoing investments. Noninterest income was $797 million for the third quarter of 2021 compared to $681 million for the year-ago period and $750 million in the second quarter. Compared to the year-ago period, noninterest income increased 17%. We had a record third quarter for investment banking and debt placement fees, which reached $235 million, driven by broad-based growth across the platform, including strong M&A fees. Additionally, corporate services income increased $18 million and commercial mortgage fees increased $16 million. Offsetting this growth was lower consumer mortgage fees due to a lower gain on sale margin. Compared to the second quarter, noninterest income increased by $47 million. The largest driver of this quarterly increase was the record third quarter investment banking and debt placement fees. I'm now on Slide 10. Total noninterest expense for the quarter was $1.112 billion compared to $1.037 billion last year and $1.076 billion in the prior quarter. Our expense levels reflect higher production-related incentives and the investments we have made to drive future growth. The increase from the year-ago period primarily reflects higher incentive and stock-based compensation attributed to our higher fee production and Key’s increased stock price. The quarter-over-quarter increase in expenses was primarily driven by 2 areas: the first, personnel expense related to 1 additional day of salary expense in the quarter and slightly higher employee benefits; the second was an increase in other expense of $18 million, largely related to pension settlement charge and higher charitable contributions. Now moving to Slide 11. Overall, credit quality continues to outperform expectations. For the third quarter, net charge-offs were $29 million or 11 basis points of average loans. Net charge-offs in the current quarter included $22 million related to the sale of the indirect auto loan portfolio. Our provision for credit losses was a net benefit of $107 million. This was determined based on our continued strong credit metrics as well as our outlook for the overall economy and loan production. Nonperforming loans were $554 million this quarter or 56 basis points of period-end loans, a decline of $140 million or 20% from the prior quarter. Now on to Slide 12. We ended the third quarter with a common equity Tier 1 ratio of 9.6%, which places us above our targeted range of 9% to 9.5%. This provides us with sufficient capacity to continue to support our customers and their borrowing needs and return capital to our shareholders. Importantly, we continue to return capital to our shareholders in accordance with our capital priorities. We repurchased $593 million of common shares during the quarter and our Board of Directors approved a third quarter dividend at $0.185 per common share. Of the $593 million in common share repurchases, $468 million were related to the initial settlement of our accelerated share repurchase program, representing 80% of the $585 million authorization. The remaining $125 million were purchased in the open market. The remaining 20% of the ASR will be settled in the fourth quarter. On Slide 13, similar to prior years, we provided guidance for the fourth quarter relative to our third quarter results. Guidance ranges are listed at the bottom of the slide. Importantly, using midpoints of this outlook would buy our PPNR at or above our full-year 2021 outlook provided last quarter. We have adjusted our guidance to reflect our strong third quarter performance especially in our fee-based businesses as well as the continued strength in our credit quality. Average loans will be up low single digits, excluding the impact of the sale of our indirect auto portfolio. We expect continued growth in both our core commercial and consumer balances. Average deposits should remain relatively stable in the fourth quarter. Net interest income is expected to be down low single digits, reflecting lower PPP forgiveness in the fourth quarter and the impact of the auto loan sale. Noninterest income should be relatively stable off our record third quarter performance with momentum in most of our fee-based businesses through year-end. We will also benefit from what we expect to be another record year for our investment banking business. We expect noninterest expense to be down low single digits in the fourth quarter. Moving on to credit quality, we expect our net charge-offs to be below 20 basis points for the fourth quarter. Credit trends were strong in the third quarter, and we expect a strong finish to the year. And our guidance for our GAAP tax rate has remained unchanged at 20%. Finally, shown at the bottom of the slide are our long-term targets, which remain unchanged. We expect to continue to make progress on these targets by maintaining our moderate risk profile in improving our productivity and efficiency, which will drive returns. Overall, it was another strong quarter, and we remain confident in our ability to deliver on our commitments to all of our stakeholders.

And first, we will take a question from Steven Alexopoulos at JPMorgan.

I wanted to start. So on the IB and debt placement fees, right, this has moved from, I think, you were $160 million per quarter pre-pandemic. Now you're running consistently over $200 million per quarter. And we know this is an unusual year for debt issuance. How should we think about this line over the intermediate term? And do we eventually just go back to $160 million?

So Steve, it's Chris. As we look at this line, we always look at it kind of on a trailing 12 basis. I don't think we're going back to $160 million. In the last decade, we've grown this, as I mentioned, at a compound annual growth rate of 11%. We continue to add bankers. We continue to further penetrate these niches that we're in. It's a unique business, 7 industry verticals serving the middle market. It is the deal business. But having said that, we feel really good about the long-term trajectory of the business. I'll give you 1 statistic you might find interesting. This year, we added 5% in terms of incremental bankers and the call activity is up 20%. So I think we're in the right sectors. I think we continue to invest in the business, and I think it's a unique business. I don't think it's going back to $160 million. I do think, over time, it will continue to be a double-digit grower.

Okay. So we should consider this current run rate as a baseline, Chris, is that right?

I don't know if I would consider it as a baseline. I mean we always look at it on a trailing 12 basis. But I do think we can continue to grow it, Steve. As you know, you guys are in the deal business, too. You can't sort of annualize 1 quarter, but I do think you can look at long-term trends, and we'll continue to grow it.

Yes, can you provide the fees recognized in the quarter for the PPP? Also, Don, do you have the end of period balances on PPP?

Sure, can. The total loan fees realized this quarter were $45 million. That was down from $50 million last quarter. The average balance for our PPP loans was $4.2 billion, and the ending was at $3.1 billion.

Okay. That's helpful. If I could squeeze 1 more in for you, Chris. There's been quite a bit of activity in M&A this year. It's actually a record year. Have you been active at all in exploring M&A opportunities either bank or nonbank?

We are always engaging with people, especially in the nonbank sector. We have a solid history of acquiring entrepreneurial businesses and effectively integrating them. This year, we acquired AQN, an analytics firm. We have consistently invested in and collaborated with fintech companies. Our focus will remain on niche businesses, including boutique investment banking. We are continually active in the marketplace, seeking opportunities that could generate significant value, particularly within these niche markets.

And next, we'll go to Ebrahim Poonawala with Bank of America.

I guess, if you could just follow up a little bit on the outlook. You've talked about positive operating leverage this year. As we look beyond 2021 you mentioned an opportunity to right-size the branch footprint. Give us some perspective on how big that is. And as we look forward, some of the PPP revenues tail off, how do you think about maintaining that positive operating leverage you heard other banks talk about inflationary pressures impacting expenses? So would love your perspective on that.

Sure. Well, thank you for the question. First of all, operating leverage is very important to us. We're really proud of the fact that we have positive operating leverage on a year-to-date basis. We will have positive operating leverage for the year 2021. We have not yet pulled together our plans for 2022. We will share that guidance with everybody in our January call. But I can tell you, positive operating leverage is a very important part of how we run the business. It's a huge area of focus when we have all of our business leaders in, we're investing heavily in these businesses, but we have to be able to get the growth for the investment. And to date, obviously, we're getting that, but we'll continue to focus on positive operating leverage. You mentioned inflationary pressures. I don't think there's any question that there's inflationary pressures in the financial services industry. And within our customer base, we clearly are seeing those. And those will be a challenge, I think, for everyone in the economy.

And I guess 1 for you. So looking at your ALM slide disclosure at the end, just talk to us how you're managing the balance sheet as we think about cash deployment given the steepening in the curve we've seen? And where do you want the bank set up 12 months from now in terms of NII sensitivity to 100 basis points higher interest rates?

It's a great question. And that's something we challenge all the time that you might see from the materials that this quarter, we had some activity in our bond portfolio with purchases of traditional core investments of about $3.7 billion compared to runoff of $2.1 billion that we saw from the cash flows off the existing portfolio. In addition to that, we bought some short-term treasuries of about $4 billion and also the auto securitization transaction ended up increasing our overall bond portfolio by $2.8 billion as well. And so we ended the quarter at about $49 billion of total investments, which is up from the average of $43 billion. What I would say is that we've seen a nice tick up in rates that the purchases we made in the third quarter had an average yield of 135. Those same types of investments at the start of the fourth quarter in the 150 to 160 range. So that would probably give us some opportunity to lean a little heavier into portfolio purchases in the fourth quarter and beyond, and we'll continue to assess that. We're sitting right now on $25 billion of excess liquidity compared with cash positions and short-term treasuries, and we do plan to put that to work over time. And probably see a clip of something in that $4 billion to $5 billion range near term instead of the $3.7 billion that we purchased in the third quarter and maybe moving that up as we get more and more comfortable with where rates are positioned for the long term.

That's helpful. And any changes, Don, on Slide 19, I think you lay out $36 billion in portfolio hedges. Is that what's rolling off? Is that number expected to stay steady state over the next year?

Of those hedges, $22 billion are true asset liability hedges. The rest includes debt hedges and specific security hedges for maturities over the next 12 months, totaling $4.6 billion in swaps. To provide some context, the average fixed rate received for the $22 billion in swaps is 1.2%, while our current rate is around 1.1%. We are observing that rates are beginning to rise, which is closing the gap related to our rollover risk.

And next, we'll go to Scott Siefers with Piper Sandler.

I was hoping you talk about loan growth for just a second, you're certainly starting to see more of a recovery. I'd say the magnitude of yours once you sort of wait through all the noise has maybe been a little bigger than some others out there. To a degree, things like Laurel Road and mortgage, which you guys have talked about quite a bit, offers you some flexibility. But I was hoping you could speak to the commercial side and what's differentiating you guys there. And maybe some comments about what you're seeing in terms of pricing structure, those kinds of things, please.

Sure. Let me start, and then Don, I'm sure you'll have some comments on this as well. We are pleased with the trajectory of our loan growth, Scott. You mentioned on the consumer side, our 2 growth engines. Those will both continue. So we feel good about those. As it relates specifically to the commercial side, we've seen a lot of activity around energy, around affordable housing. We're significant players in healthcare and technology. All of those sectors have been active, and the pipelines look strong. As it relates to pricing and structure, we are not giving on structure at all. And I would say there's been sort of a continued erosion of pricing. Think about sort of from pre-pandemic to current sort of a BBB credit and erosion of maybe 25 basis points, that would be kind of a good benchmark.

I would agree, Chris. And as far as the commercial loans linked quarter absent PPP, we're seeing those balances up over $1.5 billion. I would say of that, about $0.5 billion is coming from increased utilization rates that we saw up about 50 basis points. We saw a little bit of growth in our commercial real estate portfolio, and that really is aided by our focus on affordable housing and some other areas there that have been paying dividends for us. Then the core commercial portfolio itself grew by about $0.5 billion. And I'd say that a good chunk of that is coming from customer growth. And we're seeing the benefit of the additional calling efforts that Chris mentioned and the addition of more bankers on the street to help us drive that growth.

Okay. Perfect. And then maybe, Don, just a question on the indirect portfolio sale. Does that have any bearing on what you think about sort of the steady-state reserve level? I can't imagine it will be huge just given the starting size of that portfolio, but just would be curious to hear any of your thoughts?

It really doesn't have a huge impact on it at all. If you look at the reserve levels we had there, they were a little bit less than the average for the overall loan book, but generally in line. So not much of a change there. The 1 thing we continue to watch is that our credit metrics continue to improve and exceed our expectations as far as the relative performance there. And so that's been the main driver as far as some of the adjustments we've seen down as far as our overall reserve levels.

Next, we'll go to Bill Carcache with Wolfe Research.

Wanted to follow up on the operating leverage dynamics, specifically in the investment banking fee income line item. Clearly, there's a relationship between that fee income and how you compensate your producers, but how does the rate of growth in revenues in that line item compare to the corresponding expenses over time? How accretive is it to your consolidated operating leverage?

I would say that historically, we've seen that operating margin held in fairly well for that business, even though we're investing in it. As we see variances from quarter to quarter, we typically see an increase in incentive compensation to about 30% of the change in revenues. And while it's not a strict formula, it tends to work out to be about that range. And I would say as far as the efficiency ratio for this business, it's a little higher than what the core would be overall, but isn't too dilutive to the entire company.

Got it. That's helpful. And then separately, can you give a little bit of color on how you'd expect Laurel Road's mortgage volumes and mix to evolve in a higher mortgage rate environment?

Yes. So Bill, thanks for your question. So just as you step back and you look at our mortgage business broadly, right now, about 20% of our volume is to doctors. So it's not an inconsequential piece across all of Key. Additionally, our purchase volume right now is about 50%. We're up 60% year-over-year. I think the market would say those are relatively flat. So I would expect that we'll continue to grow fairly aggressively on the purchase side as it relates to Laurel Road. And obviously, as interest rates go up, the refinance piece of it will obviously be impacted by that.

And also keep in mind, our target customer for the Laurel Road business. It really is those doctors that are coming off the residency and locating to their permanent assignment. And so step 1 typically is to consolidate their student loans and step 2 would be to buy a house and establish more of a permanent residence. And so even though if rates are going up, we would expect to see some strong purchase volume coming from that targeted customer base as well.

Got it. If I may squeeze in 1 last one. Was the strategic rationale behind the exiting of indirect auto lending business, simply a result of your desire to focus on direct relationships with your customers? And with that sale, have you now fully exited indirect consumer lending?

Yes. So Bill, there's no question, you're correct there. I mean we are a relationship bank. And specifically, we believe in targeted scale. And if you think about that being really focused on who you do business with and being a relationship bank, clearly, the indirect auto business just is not a relationship business. And so we made the decision to exit the business and then the transaction that we completed just recently with the accelerated share repurchase, just made a whole lot of sense for us because it freed up capital, had a great IRR and frankly, enabled us to eliminate the tail risk at a time when the value of used automobiles was quite high. So that was kind of the strategic logic between exiting the business and executing the transaction we did recently.

Our next question is from Ken Usdin with Jefferies.

Don, I wanted to follow up on your comment about the swap. You mentioned the 4.6 number, and I would like to understand the overall strategy regarding the swap book. Considering the 22 now and that 4.6, how are you planning to approach replacing some of those? Also, could you remind us of the benefits from hedge income and swap income this quarter and how you expect that to progress?

Sounds good. The overall idea regarding the size of the swap book is to align with our goal of increasing asset sensitivity, which we have adjusted to be significantly higher than usual. Currently, we are positioned at a 6% asset-sensitive position, which exceeds our traditional levels. Additionally, in the upcoming year, we plan to redeploy some liquidity by replacing our cash position, a low-yielding variable rate asset, with long-term investment securities that generally have around a 4-year average life. We will need to consider whether to continue this approach or make further adjustments to our swaps. At this time, we have not been replacing any swap maturities and will evaluate that going forward. This outlines how we manage the company's overall asset sensitivity. In terms of the swaps in the third quarter, we saw approximately $76 million in net interest income from them, though we anticipate that figure may decrease slightly in the next couple of quarters. A key factor moving forward will be the behavior of interest rates. If short-term rates rise, we may see a decline in that number, although we expect to benefit from higher rates on commercial loans. This is a summary of our current position and potential future impacts.

Yes. And as a follow-up, if you were to assume that all of the 4.6 goes and is not replaced, do you have an idea of where that 6% asset sensitivity would result in?

I would say that, that would probably take us up as far as asset sensitivity, but I don't have the exact rate there. And 1 of the things we'll be monitoring is just what our outlook would be for rates overall and what's the other changes in the balance sheet. So since those swaps are fairly short in duration, it wouldn't have a huge impact in overall asset sensitivity, but just something prospectively that we'd have to evaluate.

Understood. And if I could just ask a last clarifying one, Don. Can you just give us what the total PPP income was this quarter versus last?

The total, which will include the interest on the individual loans was $56 million, including the $45 million in fees last quarter, that was $69 million, including $50 million of fees. And so, that’s just the relative change from quarter-to-quarter.

Next, we'll go to Matt O'Connor with Deutsche Bank.

I have a couple of follow-up questions regarding specific fee categories. Service charges for you and others are recovering well. Do you believe that, while there is some seasonality and a natural rebound, it could also indicate that some consumers are using their extra liquidity and may begin borrowing more? What are your thoughts on this?

One, if we look at the individual balances of our retail customers, we're seeing balances maintained, if not growing across the Board, even though the smallest customers as far as average deposit balances. And so we're not seeing a lot of change there that I would say that, to your point, some seasonality, some activity level, we're seeing activity levels pick up, and that's driving service charges up. And more importantly for us is we're seeing household and customer growth. And we've had record growth for the first 9 months of this year that exceeds what we had previously originated as far as net new households in a full year. And so we're seeing strong growth there, which also does translate to increased fee activity for us as well.

Matt, just to give you some numbers from the first quarter of 2020, our merchant business, up 49%; purchase cards up 39%; retail payments in general are up 28%. So to Don's point, there's a lot of velocity.

Okay. And then separately, the trust fees were down a little bit and flat linked quarter and flat year-over-year. Obviously, a good backdrop in markets. What's going on there? And then remind us how much money market waivers are embedded in those results as well for when rates rise and you recover that.

Yes. The main contributor to the trust fee income was commercial brokerage activity, which declined compared to the previous quarter and year-over-year. However, core private banking revenues increased in both periods, while retail investment sales saw a slight decrease from the previous quarter due to seasonality, but showed an increase year-over-year. Those are the key factors. I apologize, Matt, I forgot your last question.

Any money market waivers that are embedded in that line that when rates rise, you'll recover?

I really don't have any money market waivers there at all. We don't manage any money market funds, and so that really doesn't trip our revenues there.

Next question is from Peter Winter with Wedbush Securities.

Chris, I wanted to ask on capital. I'm just wondering with the improved credit risk profile, the outlook for the economy is getting better. Would you consider moving the capital target maybe to the low end of 9 to 9.5 or even take it below the low end?

Peter, we still believe that 9 to 9.5 is the right number as we think about our business. There's obviously a lot of variables. Could we be in the lower portion of 9 to 9.5? Depending on the scenario we could, but we do not intend to lower the target of 9 to 9.5 of CET1.

Sure, could. But as far as the average loan growth that we've talked about up low single digits, up 1% to 3%, excluding the impact of the indirect auto. If we added on the impact of the PPP forgiveness and loan balance expectations there, that would add another $1.8 billion to the overall loan growth. So almost 2%, so that would take it from a low single digit to a mid-single-digit kind of growth expectation on a linked quarter basis. And so something similar to what we reported essentially this quarter. As far as the NII outlook, I would say that there's 2 things that are impacting NII outlook for the fourth quarter, you hit on one, which is PPP. And we would expect probably in the neighborhood of a $10 million or so type of decline in PPP revenues. The other is the indirect auto loan sale that as a result of the sale, our net interest income will be down, but our fee income will be up. We essentially received 75 basis points for servicing those loans. And so you will see a decline in NII of about $10 million and an increase of fee income in the range of $5 million to help offset that. And those are kind of the moving parts and pieces.

Next, we'll go to Eric Chan with Wells Fargo Securities.

I have a question that relates to tech. So as you guys have retold the bank, I was just wondering if you could speak a little bit about how the role of fintech partnerships have changed for Key? And if possible, perhaps you could give us the number of fintech partners that you guys currently work with?

Sure, Eric. Thanks for your question. Our relationship with fintech partners has been both important and beneficial for us. We got involved early, which has helped us successfully implement our targeted scale strategy. It has also enhanced our client service and sales strategies, and it has contributed to our technology roadmap development. We are well integrated into the entire fintech ecosystem, and our unique strategy is recognized and understood by the fintech community, which is advantageous. In response to your question about the number of relationships we have, I would estimate that we currently have approximately 10 client-facing relationships. Additionally, we have numerous infrastructure relationships with fintechs, as we are well-regarded within the ecosystem. Each month, we evaluate about 15 to 20 opportunities. From a strategic standpoint, our targeted scale strategy positions us as an excellent partner due to our diverse client groups. This is particularly beneficial as we develop software. At Key, through our Laurel Road initiative, we have established a national digital affinity bank that adopts a relationship-based approach to digital banking. Fintechs excel at addressing specific pain points effectively. This partnership has been mutually beneficial, and I believe it has been a positive experience for both us and the fintechs.

Yes, that's helpful. And then just kind of a follow-up on to that. So how do you guys determine which strategy to follow when it comes to actually building in-house or partnering with fintechs, so to say, just kind of like on a high level, what are your thoughts there?

It starts with the client out. We are a relationship-driven bank. And so we have these distinct client groups that we're pursuing. And to the extent we can partner, invest with a fintech that can make us more impactful in the market serving that specific client set. We will enter into some partnership. We'll invest in them. To the extent it doesn't help us compete and win in the marketplace and solve a specific pain point for our targeted customers, we take a pass. Now as I mentioned, that's on the client-facing stuff. In the infrastructure space, we have dozens and dozens. And obviously, the criteria there is it cheaper and faster to buy it versus build it.

Next question is from Gerard Cassidy with RBC.

Can you guys give us some color? Credit obviously has been great for you and your peers. You've already given us guidance for the second quarter net charge-off number, which is lower than your long-term numbers that you have 40 basis points to 60 basis points through the cycle. When do you think we start creeping up for a normality? And I'm not talking about a recession, but do you think you stay at this lower level for another quarter or 2, and then we start creeping up later in '22 or into '23?

Let me address that, Gerard. The truth is, we don't know. We have a clear understanding as we approach the fourth quarter and have provided guidance of 20 basis points. Notably, our results this quarter show 11 basis points, but when removing the $22 million related to indirect auto, it's actually closer to 2. Speaking for Key, the derisking efforts we've undertaken over the past decade will be very beneficial for us. We won't remain at this low level indefinitely, but as we look into 2022, we expect to stay below our target range of 40 to 60 basis points.

Gerard, I would agree with Chris' comments there. A couple of things to think about. One is as far as our overall credit quality position, for many of the metrics today, we're actually better than what we were pre-pandemic. So if you look at nonperforming loans, nonperforming assets, the delinquency stats for consumer and commercial loans are all better than where they were pre-pandemic. Our criticized and classified are a little higher than what they were before the pandemic, but coming down dramatically. And we've seen incremental improvements this quarter that are outpacing what we've seen before that. And so that would suggest that things are going to be good for some time. But at the same time, I would think that you're probably going to see the consumers start to turn a little sooner. They've been the beneficiary of so much stimulus. And if that starts to slow and go away like we would expect it to, you would start to see some of that start to return to more normal levels over time as well. And then the commercial customer, while it's still flushed with liquidity, but we just aren't seeing the early signs of that there's going to be some challenges down the road. And so I think that we're going to be in a period for some time where we're going to see charge-offs below the low end of guidance ranges across the industry.

I think, Gerard, one of the first things you'll see is in the small business sector, the inability to pass through what are some pretty significant price and wage increases. And I think that will be the beginning of a bit of a pressure on the commercial side, particularly with smaller customers that have less pricing power.

Very good. And then as a follow-up, Chris, 2 things. One, when you look at your investment banking numbers, which, of course, were very strong, record levels, $235 million, can you give us a flavor for how does that break out M&A advisory versus DCM, et cetera, and compare that to first quarter last year? But then second, in your prepared bullets, it looked like you pointed out that you retained 20% of the business on the loans. And I thought that seemed high because normally, I thought you sold 90% of it are more off, but if any of those 2 questions.

Sure. So Gerard, we've never broken out each of the different components, our investment banking fees. I can tell you that our M&A business was extremely strong. And you can imagine the equity business was very strong, given that we have a focus on technology. So those were a couple just bright spots broadly. As it relates to our mix of what's distributed and what we put on our balance sheet, it's actually been very consistent over a long period of time. We've always basically held of the credits that we take on. We've always held about 20% on our balance sheet. So we really haven't dialed that up at all. We've been just maintaining our moderate risk profile and taking advantage of what are some pretty attractive markets out there.

And next, we'll go to John Pancari with Evercore ISI.

I appreciate the color you've given around the loan growth activity that you're seeing. I'm curious how you're thinking that interprets into 2022 in terms of the type of on-balance sheet loan growth that you could see. Just wondering if you can give us a little bit of color on how you're thinking about that and curious how that could play into the full year?

Thank you for your question, John. We will share our perspective on 2022 in January. Our model contains many variables, and depending on market conditions, we might consider increasing our balance sheet if certain markets change, as they are currently performing very well. We will provide a detailed view when we report in January.

Got it. All right, Chris, thanks. And then separately, on the expense side, I know you’ve talked about wage inflation. And how are you thinking about what it could add to expense levels as you look at full year expectations? I know you're not giving 2022 guidance, but around the wage inflation topic specifically. Just curious about annualized expense impact, how do you think about that?

Yes. The most significant impact for us so far has been the variable structures in investment banking and our mortgage business, which are influenced by business flows and growth in those areas. Your question is valid, as we have indeed had to increase wages, particularly at the entry level and among junior bankers. Don, could you provide us with some specific details on the annualized impact of those increases?

Our total salary expense each year is about $1.3 billion. And I would say that those 2 components probably have cost us somewhere in the range of about $15 million to $20 million a year. So it's a little over 1% cost as far as the impact there overall. But it's something we'll continue to evaluate. And as Chris highlighted, we're seeing that in the entry-level type of positions. And we're also starting to see some of that in other more specialty areas as well. And so we'll have to assess as we go into next year, what kind of targets we'll have as far as salary expense overall.

Got it. But that $15 million to $20 million per year, that's mainly on the lower end wages in the junior banker areas?

You got it. Yes.

Okay. And then lastly, I have a question regarding your technology aspect. Can you provide an update on the size of your technology budget and how it has been growing each year? Additionally, how much of it is allocated to expanding the bank versus maintaining its operations?

Sure. So broadly, our spend is about $800 million a year. Of that, about $200 million is spent on development. Of the $200 million, about half of it is client facing. The other half is core. One of the great things is we've been updating our technology over a long period of time, and we actually have to spend a little less in that category, which frees up more dollars for some of the development on the front end. The other thing that we also have been doing is we've been buying a lot of niche businesses that have actually brought a lot of technology to us. Obviously, Laurel Road would be an example of that, AQN would be an example of that. And that's really tech investment that is outside of what we would think about in terms of our tech budget.

And with no further questions, I'll turn the call over to you, Mr. Gorman for any closing comments.

Again, we thank you for participating in our call today. If you have any follow-up questions, you can direct them to our Investor Relations team, 216-689-4221. This concludes our remarks, and we appreciate everybody's time. Thank you. Goodbye.