KeyCorp (KEY)

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KeyCorp (KEY)

Q1 2013 Earnings Call

April 18, 2013 9:00 am ET


Beth E. Mooney - Chairman, Chief Executive Officer, President, Chairman of Executive Committee, Chairman of Enterprise Risk Management Committee and Member of Executive Council

Jeffrey B. Weeden - Chief Financial Officer, Senior Executive Vice President and Member of Executive Council

Christopher Marrott Gorman - President of Key Corporate Bank and Vice Chairman of Keybank National Association

William R. Koehler - President of Key Community Bank

William L. Hartmann - Chief Risk Officer, Senior Executive Vice President, Member of Enterprise Risk Management Committee and Member Executive Council


Matthew D. O'Connor - Deutsche Bank AG, Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Keith Murray - Nomura Securities Co. Ltd., Research Division

Nicholas Karzon - Crédit Suisse AG, Research Division

R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Jessica Ribner - FBR Capital Markets & Co., Research Division

Josh Levin - Citigroup Inc, Research Division

Erika Penala - BofA Merrill Lynch, Research Division

Stephen Scinicariello - UBS Investment Bank, Research Division

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Michael Turner - Compass Point Research & Trading, LLC, Research Division

Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division

John V. Moran - Macquarie Research



Good morning, and welcome to KeyCorp's First Quarter 2013 Earnings Conference Call. This call is being recorded. At this time, I would like to turn the call over to Ms. Beth Mooney, Chairman and CEO. Please go ahead.

Beth E. Mooney

Thank you, operator, and good morning, and let me add my welcome to KeyCorp's First Quarter 2013 Earnings Conference Call. Joining me for today's presentation is Jeff Weeden, our Chief Financial Officer. And available for the Q&A portion of the call are the leaders of Key Corporate Bank and Key Community Bank, Chris Gorman and Bill Koehler. Also joining us for the Q&A discussion, our Chief Risk Officer, Bill Hartmann; and our Treasurer, Joe Vayda.

Slide 2 is 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 today.

Slide 3 shows some of the highlights of our first quarter results. There are 3 important takeaways this quarter.

First, our business model is producing results and positions us well in the current environment and beyond.

Second, we are becoming a more efficient company, and our expense initiative continues to show traction and gain momentum.

And third, our shareholders are benefiting from our disciplined approach to capital management.

Let me start with our business model. In the current environment of economic uncertainty and excess liquidity, we are seeing more competition for lending opportunities. In some cases, this is leading to more aggressive behavior from competitors, be it on price, terms or other structural considerations. At Key, we have remained disciplined, and we are relying on our value-added, relationship-based approach to win new business, expand relationships with existing clients and generate robust fee income to go with our strong C&I performance. We are confident that we are well positioned to grow and take share in our targeted markets.

In the first quarter, average loan balances were up 6% from the same quarter last year. And within that, the exit portfolio continued to run off and average C&I loans grew 16%.

While our loan growth has been a positive story, we did see clients remain cautious in regards to the overall strength of the economy, particularly towards the end of the quarter.

Second, on efficiency. We continue to deliver on our commitment to reduce expenses and move our efficiency ratio to the 60% to 65% range. Through the first quarter, we have realized annualized run rate savings of $105 million against our targeted goal of $200 million in expense savings. It is our expectation that we will continue to incur costs related to our initiative, especially in the first half of the year, and we would expect this to impact our second quarter expense levels. Overall, our plans to deliver these savings are right on track, and by the first quarter of next year, we expect to be within our targeted efficiency range.

And it's important to note that this is not an endpoint, but an important milestone for Key. We are already working hard to identify new revenue and expense opportunities that can improve our efficiency ratio even further and deliver positive operating leverage.

And third, as we have said before, how we deploy our capital will be one of the most important decisions we make. As part of our disciplined approach to capital management, we have continued to actively manage our businesses to focus on our best growth opportunities. We also identify businesses that do not fit our relationship-based strategy and would not be the best place to continue to make ongoing investments.

And as an example, in the first quarter, we announced the sale of Victory Capital Management, and we are requesting a no objection from our regulators to return the net after-tax gain to our shareholders through share repurchase.

In addition to actively managing our business portfolio, we repurchased $65 million in common shares in the first quarter. And over the next 4 quarters, we expect to return a significant portion of our net income to shareholders through the capital actions we announced last month at the conclusion of the CCAR process. Our plan, which received no objection from the Federal Reserve, included a stock repurchase program of up to $426 million, which our board has approved, and a 10% increase in the quarterly common stock dividend, which the board will consider at its regular May meeting.

Slide 4 highlights our 2013 priorities, which have been consistent areas of focus. They include continuing to leverage our business model, taking advantage of our competitive position in the market, improving our efficiency and remaining disciplined in the way we manage our capital. We believe that by executing on these priorities, we can continue to grow, take share and deliver long-term value to our shareholders.

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