KeyCorp. (NYSE:KEY) Q4 2015 Earnings Conference Call - Final Transcript

Jan 21, 2016 • 10:00 am ET

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KeyCorp. (NYSE:KEY) Q4 2015 Earnings Conference Call - Final Transcript

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Presentation
Executive
Don Kimble

in our Real Estate Capital line of business along with growth in some of Key's other core fee-based businesses including $4 million of higher cards and payments income and $4 million increase in mortgage servicing fees. Compared to last quarter, noninterest income improved by $15 million, most notably from higher investment banking and debt placement fees marking a strong finish to a record year.

Additionally, other income was higher once again related to gains in Real Estate Capital and corporate-owned life insurance increased reflecting normal seasonality. These items were offset by lower net gains in principal investing. Turning to slide 11. As you can see on this slide, expense levels were elevated and reflected a number of moving pieces. I'll start with the current quarter. Noninterest expense was $736 million, which included $20 million of charges consisting of $10 million of efficiency charges primarily related to branch closures and severance, $6 million of merger related costs, and $4 million of pension settlement expense. Next, compared to the fourth quarter of last year, our noninterest expense was up 5%. The increase was primarily attributed to $20 million of higher personnel costs reflecting $11 million increase in benefit costs, the investment in client facing personnel costs across the Company and higher severance expense.

We also had $6 million of merger related costs. And finally, linked quarter expenses were up 2% related to $12 million of higher incentive compensation related to strong capital markets performance and end of the year accruals, $6 million of merger related costs incurred in the fourth quarter, and $6 million of higher efficiency related charges. These were partially offset by the lower pension settlement charge. Once again the current quarter included elevated levels of expenses reflecting the costs noted above and normal seasonal trends. We would expect first quarter expense levels to be significantly lower than the fourth quarter. Also we would expect the full-year 2016 expenses to be relatively stable with 2015 adjusted for merger related costs.

Turning to slide 12. Net charge-offs were $37 million or 25 basis points of average total loans in the fourth quarter, which continues to be below our target range. In the fourth quarter, provision for credit losses were $45 million, slightly above the level of charge-offs reflecting current trends in our portfolio. Nonperforming loans and nonperforming assets were both down relative to the prior quarter and year-ago period. At December 31, 2015 our reserve for total loan losses represented 1.33% of period-end loans and 206% coverage of our nonperforming loans. It is also worth noting that our energy exposure is small representing 2% of our total portfolio and has performed in line with our expectations.

We have built reserves throughout the year, which currently represent 6% of outstanding loans. Turning to slide 13. Our Common Equity Tier 1 ratio was strong at December 31 of 2015 at 10.95%. There were no share repurchases in the fourth quarter. For the full year, we repurchased $460 million of common shares. We expect