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

Jul 23, 2019 • 10:00 am ET


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


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Beth E. Mooney

notable items, reflected broad based momentum. In our first quarter call, we guided to a linked quarter double-digit increase in fees, driven by stronger investment banking and debt placement. And adjusting for notable items, non-interest income was up $86 million or 16% compared with the first quarter. And we reached a record second quarter level of investment banking and debt placement fees, which were up $53 million or 48% from the prior quarter.

Our pipelines remain strong and client engagement is high, which should position us well for the remainder of the year. We also saw linked quarter, double-digit increases in areas where we have been investing, including cards and payments, and our residential mortgage business.

Expenses were also a positive story this quarter, reflecting our success in achieving our cost saving targets and positioning the Company to reach its targeted cash efficiency ratio of 54% to 56% in the second half of the year. And strong expense management will continue to be our priority.

Moving to credit quality. We had another very strong quarter with stable credit metrics and a net charge-off ratio of 29 basis points, well below our over the cycle range. We remain committed to disciplined underwriting and maintaining our moderate risk profile.

The final item on this slide is capital, where we have remained focused on maintaining our strong position, while returning a large portion of our earnings to our shareholders through dividends and share repurchases. And just last week, our Board of Directors approved a 9% increase in our common share dividend to $0.185 beginning in the third quarter of this year.

Before I turn the call over to Don, let me comment on the disclosure that we made last week concerning fraudulent activity by one of our long-standing business clients. Since this is part of an ongoing investigation, we are limited in what we can say, but we are pursuing all available sources to mitigate the potential loss that could be up to $90 million, net of taxes. The potential loss will be recognized as a third quarter event. Importantly, I want to underscore that we believe this is an isolated occurrence. This was a fraud perpetrated by a single long-standing business customer and we will provide appropriate updates in our public filings.

Now, I'll shift back to today's news and conclude my remarks by restating that it was a good quarter with broad-based growth across our franchise. We added and grew relationships, driving growth in both our consumer and commercial businesses. We grew loans, including 5% year-over-year growth in C&I, and experienced growth in consumer loans from residential mortgage and Laurel Road. We grew fees with a record second quarter for investment banking and debt placement fees. We managed expenses, reaching our $200 million cost savings target, which keeps us on a path to reach our targeted cash efficiency ratio in the second half of this year.

We maintained credit quality, underpinned by our disciplined loan underwriting and we continued to return