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

Jan 17, 2019 • 09:00 am ET


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


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Beth Mooney

past year, we improved our cash efficiency ratio by over 300 basis points and we remain on a path to achieve our $200 million of cost savings target in 2019, which represents approximately 5% of our total expenses. We expect to reach our targeted cash efficiency ratio range of 54% to 56%, by the second half of 2019.

Our credit quality has remained strong with net charge-off to average loans remaining below are over the cycle range of 40 basis points to 60 basis points throughout the year and 27 basis points for the fourth quarter. Our non-performing loans declined by over $100 million from the prior quarter and represented 61 basis points at period end loans. The linked quarter improvement was consistent with our prior comments that the increase in our third quarter NPL level was temporary, and was not indicative of a trend. Other credit metrics including criticized and classified loans, which we look to is leading indicators, improved again during the fourth quarter.

As noted at our recent Investor Day, during my time as CEO, we have dramatically enhanced our risk practices and improved our risk profile. We continue to remain consistent and disciplined in our credit underwriting and portfolio management, and we are committed to outperform through the business cycle. We believe that our steadfast commitment to maintaining our moderate risk profile will continue to serve us well. In terms of capital management, we have consistently delivered on our stated priorities of supporting organic growth, growing dividends and prudently using share repurchases. And consistent with our 2018 capital plans, we increased our common stock dividend by 62% in 2018 and our dividend yield now stands at over 4%. We also repurchased over $1.1 billion of common shares throughout the year. Key's common equity Tier 1 ratio ended the quarter at 9.92%. Again, it was a strong finish to the year. We had broad based growth across our franchise with record annual revenue and well managed expenses that drove meaningful improvement in both efficiency and returns and we maintained our moderate risk profile and continued to return capital to our shareholders.

Now let me turn to the announcement that we made yesterday, and I am now moving to slide four. From a transactional standpoint, we have acquired the digital lending business from Laurel Road Bank. This business operates under the name Laurel Road and is a leading digital-first consumer lending platform focused on student lending refinancing, primarily targeted at advanced degree in medical professional. To be more specific, approximately 70% of the clients are doctors and dentists with another 20% being lawyers and MBAs. And the overall demographics of this target client base is extremely attractive. An average age of 33, average FICOs of 760 and income of approximately $185,000.

Strategically, this is a strong compliment to Key's approach of building targeted scale against specific client segments. Moreover, it closely aligns to our enterprise healthcare focus. And while this distinctive platform is on a -- the path