KeyCorp (KEY)

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KeyCorp (KEY)

Q4 2013 Earnings Call

January 23, 2014 09:00 am ET

Executives

Beth Mooney - Chairman and Chief Executive Officer, KeyCorp

Don Kimble - Chief Financial Officer, KeyCorp

Chris Gorman - President, Key Corporate Bank

Bill Koehler - Chief Risk Officer, KeyCorp

Analysts

Erika Najarian - Bank of America Merrill

Ryan Nash - Goldman Sachs

Josh Levin - Citi

Steven Alexopoulos - JPMorgan

Ron Placid - Deutsche Bank

Craig Siegenthaler - Credit Suisse

Mike Mayo - CLSA

Bob Ramsey - FBR Capital Markets

Steve Scinicariello - UBS

Alan Strauss - Schroders

Gerard Cassidy - RBC

Jennifer Demba - SunTrust

Nancy Bush - NAB Research

Terry McEvoy - Oppenheimer

Marty Mosby - Guggenheim

Andrew Marquardt - Evercore Partners

Brian Foran - Autonomous

Presentation

Operator

Good morning and welcome to the KeyCorp's Fourth 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, ma'am.

Beth Mooney

Thank you, operator, and good morning, and welcome to KeyCorp's fourth quarter 2013 earnings conference call. Joining me for today's presentation is Don Kimble, 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 are our Chief Risk Officer, Bill Hartmann, and our Treasurer, Joe Vayda.

On 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.

Turning now to Slide 3, I'll start with some comments on the year and then turn it over to Don, who will discuss our quarterly results. 2013 was a good year for our company. We acquired and expanded relationships in our targeted client segments, invested in our businesses, improved efficiency and return Tier-leading capital to our shareholders, and all of this was reflected in the performance of our stock last year.

On the left-hand side of the slide are three focus areas that we identified at the beginning of the year, optimizing, growing revenue, improving efficiency and effectively managing capital. We made meaningful progress in each of these areas.

First, I'll begin with revenue. Despite the continued low interest rate environment and slow economic recovery, core revenue trends remained relatively stable in 2013. Excluding the gain from the redemption of our trust preferred securities in 2012, revenue was up 1% for the year. Importantly, we grew both, consumer and commercial loans. Total average balance is up 5% in 2013. The primary driver was commercial, financial and agricultural loans, which were up 12% for the year and continued to outpace industry.

Net interest income was up 3% from the prior year and we had positive momentum in a number of our fee-based businesses. One example is investment banking and debt placement fees, which grew for the fifth consecutive year. We also benefited from the investments we have been making in our businesses. For example, cards and payments income was up 20% from 2012, reflecting the successful acquisition of our KeyBank branded credit card portfolio and mortgage servicing revenue more than doubled from 2012, as we built scale from our acquisition of servicing portfolio and special servicing business.

The second focus area was efficiency. In June of 2012, we committed to reduce annual expenses by $150 million $200 million by the first quarter of 2014. In the third quarter of last year, we reported that we had exceeded the high end of this range one quarter head of our original goal. Through the end of the year, we implemented $241 million in annualized savings. Our actions included reducing and realigning our staff, consolidating branch locations as we optimize our distribution channel. And in total, we consolidated 81 locations, or approximately 8% of our franchise since the launch of our (Inaudible) and just as important the achievement of our cost savings, the cultural change that have taken place within our company.

Efficiency and positive operating leverage are becoming part of the fabric of Key. Leaders and employees throughout Key are focused every day by continuing to perform against these important objectives. We are committed to maintaining this type of discipline going forward without the need for named program into future.

Finally, capital management. We remain disciplined in managing our peer-leading capital. Adhering to our capital priorities, we continue to invest organically, increase our dividend by 10% and repurchased $474 million in common shares during 2013. The result of the payout ratio 76% for the ,year which we believe places us among the top companies in our peer group while maintaining some of the strongest capital levels in the industry.

Overall, it was a very meaningful year for Key, including the successful execution of a number of strategic imperatives. We continue to invest in our business to drive organic growth as well as adding commercial mortgage servicing, fully integrating our credit card in payment platform. We continue to sharpen our strategic focus by divesting parts of business that did not fit such as Victory Capital Management and we met the commitments we made through our efficiency initiative to reduce expenses and lower our efficiency ratio. I am proud of our team and I am proud of our performance.

In of 2014, we will sustain our momentum and drive performance by continuing to focus on three priorities. The first is driving positive operating leverage by acquiring and expanding client relationships, investing in our businesses and continuing to improve efficiency and productivity.

The next is maintaining a moderate risk profile and a balanced approach to risk and rewards, and the final priority is remaining disciplined in the way we manage capital and executing on our stated capital priorities.

Now, I'll turn it over to Don who will comment on our fourth quarter results and outlook for 2014. Don?

Don Kimble

Thanks, Beth. Slide 5 provides highlights for the company's fourth quarter 2013 results. This morning, we reported net income from continuing operations of $0.26 per common share for the fourth quarter as compared to $0.25 for the third quarter of 2013.

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