KeyCorp. (NYSE:KEY) Q2 2019 Earnings Conference Call Transcript

Jul 23, 2019 • 10:00 am ET

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KeyCorp. (NYSE:KEY) Q2 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning, and welcome to the KeyCorp Second Quarter 2019 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to the Chairman and CEO, Beth Mooney. Please go ahead.

Executive
Beth E. Mooney

Thank you, operator. Good morning and welcome to KeyCorp's Second Quarter 2019 Earnings Conference Call. Joining me for the call is Don Kimble, our Chief Financial Officer; Chris Gorman, President of Banking; and Mark Midkiff, our Chief Risk Officer.

Slide 2 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 am now moving to Slide 3. This morning, we reported earnings per common share of $0.40, which included $0.04 of notable items, consisting primarily of efficiency related expenses, adjusting for notable items, our results were $0.44 per share, the same as the year-ago period, and up 10% from our first quarter results.

To provide a consistent view of our financial trends and prior period comparisons, my remarks this morning will focus on the adjusted numbers, which exclude notable items in all periods.

Our results this quarter highlight the momentum we continue to see across our Company. And highlight for the quarter included solid revenue trends, reflecting balance sheet growth, and momentum in our fee-based businesses; focused expense management, including the realization of substantially all of our $200 million in cost savings by the end of the quarter; continued strong credit quality, with net charge-offs well below our over the cycle range and disciplined capital management, which includes retaining a significant -- returning a significant amount of our net income to our shareholders through dividends and share repurchases.

Turning to the balance sheet. We saw continued growth in both loans and deposits. Loan growth continues to be driven by commercial and industrial loans with average balances up 5% from the year-ago period and 3% from the first quarter. Our growth is broad based and focused on high quality credit. Our outlook remains positive as client sentiment remains constructive and our pipelines continue to be strong.

We also benefited from growth on the consumer side, including our residential mortgage business, which generated $1 billion of loan originations in the second quarter, 60% of which we held on our balance sheet. This is double the volume from the prior quarter and last year, and resulted in a 6% year-over-year increase in residential mortgage loans.

Also adding to our consumer loan growth was Laurel Road with over $400 million in loan originations in the second quarter. We remain very excited about our Laurel Road acquisition, which bolsters our digital capabilities and the production from Laurel Road has exceeded our initial expectations.

In total, our direct consumer loans were up 33% year-over-year. Average deposits from both commercial and consumer clients grew 5% from the year-ago period. Our growth reflects the success of our business model and focus on relationship clients.

Non-interest income this quarter, adjusted for