KeyCorp. (NYSE:KEY) Q4 2018 Earnings Conference Call - Final Transcript

Jan 18, 2018 • 09:00 am ET


KeyCorp. (NYSE:KEY) Q4 2018 Earnings Conference Call - Final Transcript


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Beth E. Mooney

be found in our earnings materials and our remarks today will focus on our adjusted numbers, which are comparable to prior periods. Don will discuss the impact of the new tax law on our results. We view this as a very positive change that should benefit both Key and its clients by strengthening the competitive position of U.S. businesses, increasing take home pay for American workers and promoting stronger economic growth.

This was our eighth consecutive quarter of year-over-year positive operating leverage and our return on average common -- tangible common equity was over 13% for the quarter. Revenue grew 3.5% from the prior quarter, driven by continued growth in our fee-based businesses. The primary driver of the growth in noninterest income was investment banking and debt placement fees, which reached new record levels for both the quarter and the year.

In 2017, investment banking and debt placement fees were over $600 million with organic growth of almost 20%. Other fee-based businesses also contributed to our growth this quarter, including cards and payments which increased 12% from the prior year. Expenses this quarter were elevated and included merger-related charges and tax-related items. The quarter also reflects higher expenses related to acquisitions completed in 2017 as well as higher incentives that are tied to our strong capital markets production.

On our balance sheet, we continue to grow stable, low cost deposits. Average loans declined this quarter, which was not consistent with our expectation, driven primarily by our commercial real estate business, where we saw higher debt placements, which contributed to our record Investment banking fees as well as elevated loan paydowns. In the fourth quarter alone, our commercial real estate team placed $4 billion of commercial mortgage loans in the capital markets. C&I loans grew late in the quarter, which is reflected in our period end balances, but did not benefit the quarterly averages.

Overall, I am pleased with how our business model with our broad product offering continues to meet the financing needs of our clients through both on-and-off balance sheet alternatives. Key is distinctive among regional banks in the breadth of solutions we can provide to our clients, and in this environment, the capital markets have been very attractive.

Capital markets execution enables Key to meet our client's needs, drive fee income, manage portfolio risk and generate attractive returns on capital. Importantly, we continue to see strong business activity and pipelines, and our teams remained focused on finding the best solutions for our clients.

Turning to our full-year results, we made a meaningful step forward in 2017. Most noteworthy was the achievement of a number of significant milestones that we committed to for both Key and our First Niagara acquisition. In 2017, we reached $400 million in annual run rate cost savings from the merger with another $50 million expected to be realized early this year. Our cash efficiency ratio for the year was 60.2%, an improvement of 410 basis points compared to the prior year.

We generated revenue