KeyCorp. (NYSE:KEY.PRG) Q2 2016 Earnings Conference Call Transcript

Jul 26, 2016 • 09:00 am ET


KeyCorp. (NYSE:KEY.PRG) Q2 2016 Earnings Conference Call Transcript


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Good morning, and welcome to KeyCorp Second Quarter 2016 Earnings Conference Call. This call is being recorded. At this time, I'd like to turn the conference over to Beth Mooney, Chairman and CEO. Please go ahead, ma'am.

Beth Elaine Mooney

Thank you, operator. Good morning, and welcome to KeyCorp's second quarter 2016 earnings conference call. Joining me for today's presentation is Don Kimble, our Chief Financial Officer, and available for our Q&A portion of the call is Bill Hartmann, our Chief Risk Officer.

Slide two 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.

I'm now turning to slide three. Our second quarter results reflect continued momentum in our core businesses and the progress we have made to complete the acquisition of First Niagara on August 1. Excluding merger-related charges, we generated positive operating leverage and grew pre-provision net revenue relative to the year-ago period. Revenue was stable with the same period last year and up 3% from the last quarter, despite low interest rates and challenging market conditions.

Loan growth was solid again this quarter, driven by a 12% increase in average commercial, financial, and agricultural loans. Our core fee-based businesses continue to perform well with corporate services and cards and payments both posting double-digit year-over-year gains.

Market-sensitive businesses, including investment banking and debt placement fees, improved from last quarter, but are below the record pace of the year-ago period. Commercial mortgage banking continues to generate strong growth, while other areas are being impacted by challenging market conditions. Don will provide more detail and our outlook for our fee-based businesses in his comments.

Expenses have remained well controlled, and our ongoing efficiency efforts have allowed us to continue to invest to drive growth. Credit quality was a good story once again, with our net charge-offs to average loans remaining below our targeted level.

And capital management remains an area of focus. We increased our quarterly common dividend to $0.085 per share or 13% during the quarter and we were pleased to receive no objection from the Federal Reserve on our 2016 capital plan. We expect to resume common share repurchases after we complete our acquisition, and subject to board approval we plan to increase our common share dividend to $0.095 per share next year.

Now I'm turning to slide four. We're very excited to be on a path to close our First Niagara acquisition, which is expected on August 1. The merger of KeyBanc and First Niagara Bank is planned for the fourth quarter, subject to the approval by the OCC. We would also expect systems and client conversions to take place during the fourth quarter. Additionally, we recently announced the plans for our combined branch network, including the consolidation of over 100 existing First Niagara and Key branches.

We also plan to continue to invest and grow in New York, which will include in-sourcing some functions and our build-out of the First Niagara's residential