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

Jul 23, 2019 • 10:00 am ET

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

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Presentation
Executive
Don Kimble

the second quarter of 2020. The plan includes a 9% increase in our common stock dividend to $0.185 per share in the third quarter, which was approved last week by our Board of Directors. We also plan to repurchase up to $1 billion in common shares over the four quarter period. Our strong capital position supports our organic growth, along with our planned capital actions.

On Slide 13, we've provided our outlook for 2019. Our guidance excludes the impact of the fraud loss that was disclosed in an 8-K filing on July 16. Excluding this singular occurrence, our outlook has not changed from what we provided earlier this year. This reflects our performance through the first six months and expectations for the remainder of the year.

We continue to expect another year of strong positive operating leverage with an improved efficiency. Average loans should be in the range of $90 billion to $91 billion. Once again driven by our commercial businesses, but also benefiting from growth in our consumer loans, including Laurel Road and residential mortgage. With the contribution for mortgage origination and Laurel Road, we would expect to be toward the higher end of our guidance range.

Average deposits should remain relatively stable as our continued account growth will offset by declines in the temporary deposit balances, reaching the $108 billion to $109 billion range. Despite a more challenging interest rate environment and assuming one more 25 basis point rate cut, we still expect net interest income to be in the range of $4 billion to $4.1 billion.

As a result of projected rate decrease and the shape of the yield curve, we would expect to be at the lower end of this range. The lift we saw this quarter in non-interest income keeps us on a path to reach our full year range of $2.5 billion to $2.6 billion. We expect growth in most of our fee-based businesses, including investment banking and debt placement fees.

Our current outlook would place us toward the lower side of our guidance range. Although we may operate at the lower end of our revenue range, we also believe that we are likely to outperform on expenses. We have achieved our $200 million cost savings target and we continue to identify opportunities for further expense reduction.

At this point, we have not changed our expense outlook of $3.85 billion to $3.95 billion, but based on the first half results, the completion of our expense initiatives, and our focus on continuous improvement, we believe that we can come in at or slightly below the lower end of the range. And we also expect to reach our targeted cash efficiency ratio of 54% to 56% in the second half of the year.

Our credit quality -- on credit quality, we see nothing on the horizon that changes our outlook with net charge-offs and provision expense remaining below our over the cycle range of 40 basis points to 60 basis points. Our loan loss provision should