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Q2 2014 Results Conference Call
July 17, 2014 / 9:00 A.M. E.T.
Beth Mooney – Chairman & CEO
Don Kimble – CFO
Bill Hartmann – Chief Risk Officer
Chris Gorman – President, Corporate Bank
EJ Burke – Co-President, Community Bank
Marty Mosby – Vining Sparks
Gerard Cassidy – RBC Capital Markets
Ken Usdin – Jefferies & Company
Erika Najarian – Bank of America
Scott Siefers – Sandler O'Neill & Partners
Keith Murray – ISI Group
Ken Zerbe – Morgan Stanley
Bob Ramsey – FBR & Co.
Nancy Bush – NAB Research
Geoffrey Elliott – Autonomous
Mike Mayo – CLSA Limited
Sameer Gokhale – Janney Capital Markets
Ming Zhao – SIG
Previous Statements by KEY
» KeyCorp. Management Discusses Q1 2014 Results - Earnings Call Transcript
» KeyCorp's CEO Discusses Q4 2013 Results - Earnings Call Transcript
» KeyCorp CEO Presents at Goldman Sachs Financial Services Conference (Transcript)
Thank you, operator. Good morning and welcome to KeyCorp's second-quarter 2014 earnings conference call. Joining me for today's presentation is Don Kimball, our Chief Financial Officer. Available for the Q&A portion of the call are Chris Gorman, President of our Corporate Bank; EJ Burke, Co-President of our Community Bank; and Bill Hartmann, our Chief Risk Officer.
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. This was a good quarter for Key with solid financial results that reflect the successful execution of our strategy and continued progress on our commitment to one, drive positive operating leverage. Second, to maintain strong risk management practices. Third, to remain disciplined in the way we manage our capital. Our positive operating leverage from the prior year, reflects the work we have done to capitalize on the strength of our business model and improve efficiency by both growing revenue and reducing expenses.
Compared to the year-ago period, pre-provision net revenue was up 13%. Positive revenue trends for both the prior year and previous quarter reflect solid loan growth, driven by our commercial, financial, and agricultural loans. CF&A loans were up $3 billion or 13% from the second quarter of last year. We have been pleased with the quality of our new loan originations, but we continue to see loan yields impacted by the competitive pricing environment.
Non interest income benefited from the strength in our investment banking and debt placement fees, which were up 18% from both the prior year and the prior quarter. Coupled with our solid loan growth, these results reaffirm the strength of our business model and our success in growing market share.
Expenses were down $22 million, or 3% from the prior year, and in line with our guidance. Our second-quarter results reflect normal seasonal trends and the acceleration of charges related to our continuous improvement effort. We remain committed to further improvement on expenses and efficiency, and Don will discuss more on our path forward in his remarks.
Our strong risk management practices resulted in another quarter of very good credit-quality trends. Net charge offs to average loans were 22 basis points, well below our targeted range. Nonperforming assets declined 41% from the year-ago period. Our NPA ratio is down to 74 basis points.
Importantly, we continue to originate new business that has better overall risk rating than our existing portfolio. While the environment remains competitive, we are remaining disciplined with structure and staying true to our relationship strategy.
Capital management also remains one of our top priorities. In the second quarter, we began executing on our 2014 capital plan by repurchasing $108 million in common shares and increasing our quarterly dividend by 18% to $0.065 per common share. These actions put us on a path to remain among the highest in our peer group for total shareholder payout, the second consecutive year.
Over the past few years, we have also used our capital to drive opportunistic growth through acquisitions of commercial mortgage servicing, credit card, and branches. Today, we announced another strategically important investment, which is highlighted on the next slide.
Moving now to slide 4. Pacific Crest Securities is a leading technology-focused investment bank and capital markets firm. This acquisition underscores our commitment to be a leading corporate and investment bank serving middle-market companies. The comprehensive platform aligns with our industry expertise and gives us another important industry vertical.
Adding technology expertise accelerates our momentum and will provide us the opportunity to add and expand client relationships. Clients will benefit from our broad capabilities as well as the expertise we will now bring to the market around technology trend that are intersecting and impacting our other industry verticals.
We anticipate the transaction will close in the third quarter of this year, subject to standard regulatory approvals. I am very excited about this acquisition and pleased with our overall financial results for the quarter. We have good momentum in our core businesses and our strategy and business model continue to provide a competitive advantage in the marketplace.
Now, I will turn it over to Don, who will comment further on our second-quarter results. Don?
Thanks, Beth. Slide 5 provides highlights from the Company's second-quarter 2014 results. This morning we reported net income from continuing operations of $0.27 per common share for the second quarter, compared to $0.21 for the second quarter of 2013 and $0.26 from the first quarter of this year. I will cover many of this in my remarks, so I will now turn slide 7.