KeyCorp. (NYSE:KEY) Q2 2020 Earnings Conference Call - Final Transcript

Jul 22, 2020 • 09:00 am ET

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KeyCorp. (NYSE:KEY) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good morning and welcome to KeyCorp's Second Quarter 2020 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, Chris Gorman. Please go ahead.

Executive
Christopher Marrott Gorman

Thank you, Greg. Good morning, and welcome to KeyCorp's Second Quarter 2020 Earnings Conference Call. Joining me for the call are Don Kimble, our Chief Financial Officer; 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 question-and-answer segment of our call. I'm now moving to Slide 3. As you saw in our press release this morning, we reported second quarter earnings of $0.16 per share, our results included a provision for loan losses, which exceeded net charge-offs by $386 million or $0.34 per share. Our strong results for the quarter are attributable to resiliency and dedication of our team and their commitment to serving our clients, our strong balance sheet and our disciplined risk management practices.

Importantly, for the quarter, we generated positive operating leverage compared with the year ago period. Additionally, we reported a record level of pre-provision net revenue. Revenue was up 17% from the prior quarter, also a record, reflecting double-digit growth in both loans and deposits as well as broad-based growth of our fee-based businesses, driven by strength in our capital markets businesses, cards and payments businesses and consumer mortgage.

Our consumer mortgage business demonstrated continued momentum with a record second quarter performance. Originations of $2.2 billion were up 100% year-over-year, and consumer mortgage fee income of $62 million more than tripled from last year. Our performance further demonstrated the success of our recent investments in residential mortgage. Our pipeline is currently at record levels. And as such, we expect continued strong performance in the second half of 2020.

Expenses for this quarter reflected higher production-related incentives, costs related to our payments business and COVID-19-related expenses, including steps that we continue to take to ensure the health and safety of our teammates. We also supported our clients by offering payment deferrals, hardship support, borrower assistance programs and forbearance options to help provide a bridge for individuals and businesses through these uncertain times.

Notably, we were very active in the Paycheck Protection Program. We were the seventh overall lender in the program and processed over $8 billion in funding to support our clients. Funding that saved hundreds of thousands of jobs.

Now turning to credit quality. We have continued to benefit from our strong risk culture. Our moderate risk profile informs all of our credit decisions. Net charge-offs for the third quarter were 36 basis points. In our deck, we have highlighted several commercial portfolios that continue to receive heightened monitoring in this environment. Don will cover these focus areas in his comments. These portfolios have generally been performing consistent with our expectations given the environment in which we are operating.

We also increased our loan loss reserve this