KeyCorp (KEY)

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KeyCorp (KEY)

Q4 2011 Earnings Call

January 24, 2012 9:00 am ET

Executives

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

William R. Koehler - President of Key Community Bank

Beth E. Mooney - Chairman, Chief Executive Officer, President, Chief Operating Officer and Member of Executive Council

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

Charles S. Hyle - Chief Risk Officer, Executive Vice President and Member of Executive Council

Analysts

David J. Long - Raymond James & Associates, Inc., Research Division

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

Jeff K. Davis - Guggenheim Securities, LLC, Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Stephen Scinicariello - UBS Investment Bank, Research Division

Kenneth M. Usdin - BofA Merrill Lynch, Research Division

Christopher M. Mutascio - Stifel, Nicolaus & Co., Inc., Research Division

Leanne Erika Penala - BofA Merrill Lynch, Research Division

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

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

Michael Turner

Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division

Kevin Barker - FBR Capital Markets & Co., Research Division

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

Brian Foran - Nomura Securities Co. Ltd., Research Division

Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division

Presentation

Operator

Good morning, and welcome to the KeyCorp's 2011 Fourth Quarter Earnings Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to the Chairman and Chief Executive Officer, Ms. Beth Mooney. Ms. Mooney, please go head, ma'am.

Beth E. Mooney

Thank you, operator. And good morning, and welcome to KeyCorp's Fourth Quarter 2011 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 are our Chief Risk Officer, Chuck Hyle; and our Treasurer, Joe Vayda.

Slide 2 is our forward-looking disclosure statement. It covers our presentation materials and comments, as well as the question-and-answer segment of our call today.

Now if you would turn to Slide 3. This morning, we announced fourth quarter net income of continuing operations attributable to common shareholders of $201 million, or $0.21 per common share. Our fourth quarter results reflect continued improvement in credit quality, solid loan growth and further evidenced that we're gaining traction in leveraging the alignment of our franchise across business lines to support the needs of our clients. There were also some unusual items in the quarter that impacted our revenue and expense levels that Jeff will cover in his remarks. Key's dramatic improvement and credit quality this year continued in the fourth quarter with net charge-offs declining for the eighth consecutive quarter to 86 basis points of average loans. Nonperforming assets and the level of criticized loans also continued to show meaningful improvement.

Our progress reflects the actions taken to improve our risk profile and strengthen our credit culture, which can be seen in our credit metrics, as well as in the quality of our new loan originations. We were also encouraged by the second consecutive quarter of period-end loan growth with average balances increasing for the first time since the fourth quarter of 2008. Driving the loan growth was a 5.4% increase in average commercial, financial and agricultural loans, marking the third consecutive quarter of growth for this portfolio. This confirmed our belief that we've reached an inflection point in loan balances in the third quarter of 2011 and that we have created a business model that is distinctive and positions us to win in the marketplace.

Before Jeff discusses our quarterly results, I want to step back and review the progress we made in 2011 and share some thoughts on our priorities for 2012. In 2011, we benefited from the actions taken to strengthen our balance sheet, reduce risk, reposition our business and rebuild capital. As you can see in our full year results, we have returned to solid and sustainable profitability, reached an inflection point in our loan portfolio and established peer-leading capital levels. For the full year 2011, net income from continuing operations attributable to common shareholders was $857 million or $0.92 per common share, which was a significant increase from the $413 million or $0.47 per common share in the prior year. The year-over-year increase was largely driven by the dramatic improvement in credit quality, good expense control and our success in growing our business.

In 2011, we also continued to focus on customer service. I was pleased with the recognition we received over the course of the year that affirms our relationship strategy and validates our customers' belief they receive value from Key's products and services. Recent recognition includes a survey by American Customer Satisfaction Index showing that Key is one of only 2 large banks that improved its overall customer satisfaction score for 2 consecutive years. And Key scored significantly more positive than the banking industry overall. Additionally, Key ranked fifth nationwide in overall customer satisfaction in the J.D. Power and Associates 2011 Small Business Banking Satisfaction Survey and achieved the highest score in the industry for in-person account activities.

The final item on this slide focuses on maintaining a strong balance sheet and remaining disciplined in our approach to capital management. Our strong capital position provides us with the flexibility to support our clients and our business needs and evaluate other appropriate capital deployment opportunities.

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