KEY - Earnings call transcript Q3 2017

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Operator

Good morning and welcome to KeyCorp's Third Quarter 2017 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.

Beth Mooney

Thank you, Operator. to quarter welcome call. earnings and morning KeyCorp's XXXX third conference Good Hartmann, Officer. the Don President Chris Bill are with of Chief our and In me Officer; Kimble, room Chief Financial Banking; our Risk Gorman, financial Slide X on statement is measures. and forward-looking disclosure our non-GAAP It comments well question-and-answer materials as and call. of our presentation covers the our as segment I moving Slide X. to now am items. excluding of an adjusted or morning, This merger-related and per charges $X.XX we announced third share other notable per quarter share earnings $X.XX the adjusted My which morning comments focus on this to comparable periods. results prior will are was of XX% This of average year-over-year operating leverage consistent just our equity over is target common long-term to on return XX%. positive with seventh consecutive our which XX% quarter and tangible was a

interest notably that commercial our non-interest remarks. Our through that accounting line points. impacted largely a and Average was core income. which X.X% recovery were increasing you these X% results residual in loans basis net X income the up quarter parts. pleased driven items large Don by by linked-quarter excluding unannualized. a interest this loan losses provision with were up included that accretion from $XX loans from number offset quarter purchase industrial his lease of walk in will net margin last Most million We moving commercial was grew

take fee. model and and resulted which share, in and continue to loan growth clients balances business Our both add middle market us focus to in C&I enabled

our take placement banking portfolio. attractive relatively impacted real this investment markets were growth advantage debt trends estate loan average higher to consumer and fees. contribute which especially helped capital clients September total reflects Commercial continuing of by to alternatives stable Our strong paydowns in in our quarter and balances

the and new trends. have with market to disciplined project of some deals loans and remain which is also countered financing construction reduced We

and our impact excluding growth the growth and but we in we risk fee-based around with quarter pipeline. X% average based Other expect consistent trends loan our profile. expect of We First to of lower seasonal than Niagara. the businesses. of strong strong the the the at the for be originally the year, stronger expected moderate included That's quarter across income on fourth for And full-year, loan beginning environment reflective of positive

of merchant the As a banking fees the are which year, is and prior and head well and investment acquisition of we both I Cards the category liked mentioned have some to successes of record good into the growth with one investments earlier, up First clients. other grow Niagara services businesses made placement X% our as showed final quarter, continue period. quarter, debt fee Payments our positioned had year-over-year quarter. our and from quarter reflecting early we of and recent in strongest the the Most we historically

efficiency under believe our higher points which rates. cash Our quality that well net can move reflecting strong without basis I acquisitions ratio results before large Expenses lower ratio of we we XX% some as HelloWallet with Services C&I as benefit loan trends. as or managed from and remains interest of well a with and recovery. seasonal said included our a charge-off remained quarterly Credit with XX Merchant recent remain the

including We our returning in have capital to managing strong our also remained position significant disciplined shareholders. a portion

our and was share. per strategic of Overall, shares quarter and priorities, our commitments. repurchased dividend repurchased reflects we quarter, success five In the paid has for compound $X.XXX] $X common [$X.XX the XX%. business, delivering growing and it annual over our solid billion which million Over in been we our a in in executing a dividend the growth have years, and common past rate on on $XXX shares our third

in confident targeted cost savings we we ahead, revenue Niagara expect complete synergies. to As and the remain early our First achieving look XXXX by

our see investments and The focused merger call to made and enhances and in Brothers, healthcare to healthcare move continue some will expand additional our turn quarter, will the people, ability strength we and of Don? completed further serve We significantly support most acquisitions drive our to products, clients future on existing our have leading and and capabilities capabilities. with acquisition I momentum the color provide across we and strategies to early Don the fourth relationship Cain the growth Company investment recently, now a And verticals in organic over quarter. bank. our to expertise our the of growth.

Donald Kimble

net the on $X.XX am income quarter X. from in on the period per $X.XX and Slide reported common of Beth. share. third ago operations per second a share Thanks continuing now $X.XX We quarter. I compares This year

quarter results adjustment this $X.XX impact an a gain. merger-related from charges included merchant the services Our to in

Excluding and the to year on compared merger-related per share $X.XX earnings common prior a charges up notable was XX% up linked-quarter basis. items, and X%

cash return quarter items and our a below ratio had of like earlier, XX%. XX% tangible specific efficiency over As up will mentioned common on impacted Beth our highlight results. I remain we notable number a items equity that also excluding to

over which thought leases to First, net items quarter be several added professional also for to share. matured These were fees had current in and loan earnings prudent impairment will I Services remaining items some elevated third on in in it income, while in not our many reduced did as as of time. of of acquisitions $X were conditions. lower non-interest rest we core reflect slide was expense the losses and $X.XX quarter. this on two provision. loss a our impact and due per cover most They HelloWallet recognized initiatives the essentially resulted offsetting Also such and a we we XXXX market of presentation. recent equipment my later of million short-term large and our charge-offs In will C&I recovery of accretive the Merchant which

as loan year balances or the a First of quarter billion period, we $XX ago X.X% and on and was commercial Sequential be growth up targeted. or and areas quarter. the average commercial loans to now the average driver. loans $X from annualized were well average quarter up continue to Compared the Niagara million industrial billion driven and growth primarily Total up $XXX the loan by I with which ongoing of as compared reflects on take as impact industrial will balances turn activity business the continuing X. the year second we have So to to were Slide in acquisition share annualized ago XX% X% to

the originations. reduction of loans. the estate paydowns. experience exceeded Our levels loans elevated Home C&I portfolio also certain and loan of loans continue this to of end quarter quarter levels equity planned acquired of our despite real grew due Commercial declined which loan payoffs higher to paydowns toward

of September. see loan would decline in During balances growth September, a the during the paydowns resulting period-end typically in of during $XXX increased month month. We the million

the deposits The in paydowns or compared month average XXXX, to quarter of on an in $XX $XXX as our by and period, for was the the billion range X.X% mix. the last billion from quarter, driven as quarter. up the costs quarter the to up now Given pipelines expect basis $XXX a to year-ago deposit the total we've average guidance activity, fourth quarter the of increase deposits X, or Slide and third expected $XX.X second from well contractual, Continue $X of totaled balances our and updated of rate un-annualized commercial deposits the overall X million increases points change X% compared to billion second billion. and

third exit primarily we deposit levels by commercial First change are as non-interest average retail quarter escrow and was deposit quarter XX% the bearing continues below basis, Our to CDs deposits maintaining to in by third also commercial beta in discipline balances. as was historic remain in helped Compared prior deposits. Growth Niagara, our deposit of growth year, a our core quarter driven well driven as offset balances deposit certain markets. of balances. On sector the inflows linked public in short-term the in managed from pricing

of accretion equivalent results. the points of have income and XX Slide second million X.XX%. net $XX million for the base total strong third or deposit the $XXX deposit interest continue deposit mix. was with contributed quarter interest a accounting consumer million to We was XX taxable XXXX, X, quarter quarter with in Purchase through to quarter. accounting compares basis Turn points $XX net XX% This for third basis margin the or

The decline lower level million million second quarter quarter benefit resulting the third $XX by of driven from was $X prepayment. from primarily

purchase The an also quarter accounting. due the $XX from of finalization million second to additional benefited

further benefit per ahead, million $XX approximately the into year we quarter to to fourth of this approximately the XXXX. range continue reducing down quarter trend to by from the expect Looking of in XX% in and accretion

driven resulted largely higher higher asset loan yields impact Growth million was costs offset by accretion, prior to of by accounting $XXX First lower fees. increase purchase the balances. net from Niagara Excluding earning from which year, million the funding income yields, partially in and of higher interest asset prior quarter and $XX earning and the

for the quarter rates. the benefit accounting of X saw linked was net higher basis third the Excluding our from X.XX% on interest we the purchase net points margin impact interest a quarter of fee basis accretion, as -

net stable For XX our the as will the stable, new from fourth relatively expect to points expected purchases while continue we be XX anticipate points expected the costs basis the be our purchase to yields margin to yields core are higher benefit increase. deposit maturity. to quarter, accretion loan be interest to We approximately do portfolio the quarter on excluding basis in fourth accounting investment

$XXX non-interest Moving million. X, in on was third to Slide the quarter income

recent had income another debt businesses, quarter, Growth merchant During fees, reflects as Merchant mentioned income payments to and Beth business. record residual reflects lease investments and in from items, the relative fees losses we an Continue record another making, is up million, pace continue quarter. investment $X our $XX year the from million, largely of third in placement lower the prior quarter. well to million $XXX and continued Services year. in placement in acquisition. was to fees from in including broad-based First quarter, our to prior prior of items during success are million level the banking growth notable helped level investment debt acquisition $XX banking to second up and which our $X year be this income, Niagara a increase services by from which offset reflecting of notable including organic debt growth, million benefit non-interest quarter gain the fee the growth for Momentum the of as investment cards included adjustment the offset a year we've excluding the non-interest last on the business our placement we quarter impact growing banking as in Compared reached strong

next this the a in As of we reflect had said extend prudent conditions. couple I typically these maturities equipment the to leases have common was loss typical line recognize we - as gains it years, in Last earlier, quarter to more item. market however, primarily thought is current

As third have or lease of the losses XX.X%. in cash efficiency the ratio quarter improved to quarter would third residual

well quarter primarily Growth to third investments other related related the merger $XXX million, were Services. Slide First Niagara for million. as quarter a notable like $XX Linked items impact related merger includes up reported Merchant year for and full charges. non-interest HelloWallet as and acquisitions was and after adjusted which the the recent Compared quarter $XX expense the last of expense was ongoing reflects of charges business $XX merger quarter million. for expenses Turning charges, third non-interest up XX, million, and acquisition adjusting to

million. levels and expense marketing in which reflect HelloWallet added Services personnel, well which million, and Merchant the $XX seasonal as acquisitions, collectively recent quarter as mostly added trends Third $X

services going $X would professional to business We million to and forward. fees short-term that expect also had continue initiatives of we related not

million items, by Excluding savings also down interact XXXX. early linked-quarter $XX realize of remaining basis. a these on were We'll to merger-related expenses

Looking Cain $XX add and will revenue the expense acquisition quarter levels. Brothers to the forward, million approximately fourth

credit Net losses Turning continues targeted loans the quarter below to charge-offs basis third which in $XX our million average of was to be provision $XX Slide were quarter, million. points range, total second XX. for or XX

perform mentioned I the million. X.XX% to C&I benefited range. from quarter which quarter, our charge-offs during were below we or As charge-offs up well Non-performing a targeted loans. about reserves recovery period-end XXXX of provision by from continues loans basis the and net total and our remain earlier, and loan loans. of stable, recovery, Despite million of coverage representing the XX, loans and for September points non-performing our our At represented had our $XX large relatively losses period-end portfolio prior X% $XX XX XXX%

portfolio. loan allowance quarter, This up for broken the we've acquired

can in you and grown the of acquired this loan provision as down this to associated losses. the loan on see with the As turnover we slide, wind portfolio build coincide allowance the has

Slide Turning XX. to

XX.XX%. common Tier for can in the Our for related our levels equity in weightings commitments letters benefited of third the end methodology that risk ratio was credit. a the at quarter Capital quarter of X multipurpose specifically also from change third be used facilities, to

As mentioned, expectations. XX million $XXX you remain repurchased operating the We positive and shares provides committed Beth we quarter. outlook common our Slide of to during with leverage. generating

However, guidance remains loans same of third the quarter. results with exception the the reflecting the through

loans guidance As the now to for full-year the of to we I average $XX.X earlier, be range in remaining fourth $XX unchanged. mentioned has the billion Again expect quarter billion. remained

expected of And $XXX balances range be deposit still billion. interest for year We the expect is in to the billion. of to continue billion $X.X in to $X.X to income be to range the billion $XXX.X net average

additional to and betas their increases of low rate that Our year this from will no well outlook historic continues remain benefit below assume levels.

XX% earlier, accretion quarter time mentioned trend of decline a should down I then purchase over approximately XXXX. rate in per at reaching accounting will impact $XX quarter. in fourth As the Quarterly million approximately

be will Cain anticipate is billion in fourth billion $X.XX the $XX Brothers should $X.X continue in this of be range range in non-interest approximately the Included to which $X.XX billion. non-interest added and $X.X to that within early from We of billion expense to the closed income million quarter. range in expense

as and Merchant In acquisitions well. expenses related addition, to HelloWallet Services

charge-offs to loan lower. In growth. net continue XXXX included be We points guidance basis continue XX to below of and slightly in of range to our exceed charges our which targeted net our charge-offs should provide to are to trend XX provision expect not for merger-related level

the long-term rate Our including generate remain maintaining our XX% cash profile, and ratio a the slide, XX%. year of in portion producing tax turn XX% than a our be stated at the efficiency bottom back to call. of return over for financial call leverage, common on Q&A to the committed XX%, range is continuing to for less targets GAAP expected tangible on moderate and at the the positive operator instructions to operating now of XX% risk Operator? operating equity to the to the I'll

Operator

Thank First from O'Connor you. with Bank. of [Operator ahead. the Deutsche Matt line Instructions] go Please

Matt O'Connor

Good morning.

Donald Kimble

Good morning.

Beth Mooney

Good morning.

Matt O'Connor

target. circle the cash back to to efficiency I want ratio

line and XX% the below with on just adjusted quarter You're this basis that's in year-to-date.

deals the fourth got thoughts drag early As million a Any couple obviously on we and still that ratio, XXXX? think these are to the sales a beyond on coming you've $XX expect of you quarter in efficiency in. what got the

Donald Kimble

would to down the from we drive Matt, here. efficiency expect ratio to continue

do leverage drive from the XXXX. be acquisition remaining efficiency XXXX. highlighted, in early positive ratio not down but Niagara, you we recent achieving that growth opportunities to most realize where operating believe case, continue that are we'll between the from that in the million synergies just to in $XX The are expenses help have additional to we that helpful As transactions we and of the that expect we savings organic revenue there which First drive additional

Matt O'Connor

quickly accounting accretion. XXX $XX million just of getting that the for and for that quarter quarter the XX% the to guess then for next and per And fourth kind to on full-year? XXX year, I purchase I guess the ranges you're shrink take

Donald Kimble

that sense makes in yes. range, That

Matt O'Connor

much. Okay. Thank very you

Donald Kimble

Thank you.

Operator

Scott ahead. Please with Siefers to go go Next will we Sandler O'Neill.

Scott Siefers

Good morning, guys.

Donald Kimble

Good morning.

Scott Siefers

ticky-tack First just one sort on one a is of that PAA.

a and change what expectation expectation, while. for had there? that a seems for It just like think in a the curious before $XX drove thinking like large I a change the fairly quest been million quarter

Donald Kimble

purchase year point year expectation, after to the any what lower continue all. expected. came continue lower because I will than to have future current we than now. far purchase as four from at to in expectations $XX as think get the that the say far down in million be benefit we as accounting years would that would and wind number prepayments would as accretion benefit It I five, expected the quarter that not our accounting adding the came from

our continue that's only our reflect perspective will that new difference that so to just the point. start and outlook from And as

Scott Siefers

guidance, And core that the fourth you the be the you've it stable. Don, core PAA? margin Was margin Okay. be you PAAs the the stable way expect to we quarter think would when I then given the that they used including in or would about think reported without

Donald Kimble

ranges we to points that still a kind impact. offsetting when the plus What or expect was in in accounting minus had with general an or the even that of That the basis said say same script the we have and couple purchase without stable PAA the core we we PAA. because would be that say

Scott Siefers

perfect. Okay,

have I and portfolio, just in we've then - strong incorporated difficult, on point apologies. extent can growth that, kind And or guess know growth the think paydowns. what the got be but the so you looks some just extent I I commercial updated of of I to have phenomenon particularly loan like but visibility ongoing these to then miss what such into it takes then do sort heard guidance. got you unexpected pretty final the to it in and puts paydowns question you the is into continuing the the more

Donald Kimble

updated the to $XX.X we showing the higher be prepayments typical. loan us would or that have we're guidance, paydown quarter. $XX And than billion assumed to growth In fourth that's our getting for why billion

continuation reflect would paydowns. that higher would - that some than we our a updated and is higher as the would than level September, As expectations were came paydowns that I it a we I clearer our in in those so by what saw of say some see surprised of guidance crystal our now, is wish little of but right levels far of insights, we're we little so ball

Scott Siefers

Thank appreciate color. right, you. All the I Okay.

Donald Kimble

you. Thank

Operator

Zerbe Next go Morgan will go Please we ahead. to Ken Stanley. with

Ken Zerbe

Is just Great, $X.X I kind to I'm range. this get thanks. get quarter the at I the your - first of to and that billion using that the those HelloWallet terms this quarter, whatever out the Should the expense or high where question If helpful. is similar expenses. et dollars it make I fourth or - billion numbers than is guess end put instead or of quarter, here how $X.X did all I you're items I $XX of see total thinking you into we fourth in that very clarity numbers expenses mentioned Services million there so guidance. lower Merchant back sure; Any something cetera? number to it would now. be in dollars just $XX in million want those right million of would million the about of be

Donald Kimble

Good comment.

As far were so HelloWallet any included impact Brothers, the we're the the of Cain backing out in of as not or outlook, our those impact from numbers.

the the level, Brothers So quarter would if that quarter third levels of end of little for would level that Brothers, higher similar when but probably XXX. the a expense the of right, impact the be third core add you're bit and below higher in Cain the would range. this fourth than guidance say for a would in outlook Cain assume it Cain Brothers an be would you and you add would that quarter quarter we be number at I

Ken Zerbe

it. Got Understood.

can this what on an continue in just the you And actually loan you lines? continue those is guess basis at at percent in average or look just prepayments are balances, down the a a more, CRE quick level. construction I Okay. lot and back terms past But due a a payoffs growth point to if then that at like going I this the to half like of drive particular point if question expecting the down

Donald Kimble

bit. in expect good book. show we've been that decline that look be some decline, on not would I level CRE have counting to to continue continuing that portfolio in seen construction of this to the see an to as show construction would would more a is, little to did say ongoing of stable would expect would and quarter. to down I our trend one decline that portfolio of and our That especially the say continue that C&I future. we growth expect portfolio in we We that and

Ken Zerbe

right. All Great, thank you.

Donald Kimble

you. Thank

Operator

Please America question Najarian Erika Bank from of Next ahead. Lynch. with Merrill go is

Erika Najarian

morning. good Hi,

Donald Kimble

morning. Good

Christopher Gorman

Good morning.

Erika Najarian

expenses. know I focuses If efficiency conversation on the the on - you the appreciate always with but as both ratio, a fully sometimes investors guidance lot dollar

do of of of half some as the relative on So, the about cost that core expect on the next from that next growth Ken's second year for trend quarterly sort expenses the comments, absolute in of to year savings how go expect to Niagara? you First think we line you versus back first half? the the Don,

Donald Kimble

first But calls of about And quarter million clarity would I years. realized. more the part be first as we'll provide said million that XXXX support realized say expense of the about $XXX XXXX. have generally million would would two synergies $XXX million that remaining would our we or in that that at outlook. the also see Also $XXX next $XX think be revenue over We'll three to tune in We've growth. to to added that

to of is we positive kind throughout help few so revenue leverage. to leverage the which those tried by operating trends offset the level do growth, relatively be increases and expense revenue adjusted would grow we've to allow next expenses, would the years of some absent that drive acquisitions investment positive these continuing see the core recent I to to additional drive and cost those of expect what operating stable, would an I of savings achieving that kind And for levels. to generates proportionate

Erika Najarian

an Key? sense about back how and big front of us capital for audience thinking on of you, your this your and for if lot you're I'm - a purposely wondering for ended may management next recall could Beth. comments consternation of Beth, the a give in as in misconstrued part question is you in open that call this with have XXXX could strategy last quarter's about that was about you you and I'm And been there way. XXXX some asking it, Got

Beth Mooney

on I to appreciate clear the opportunity point. be and Yes,

our As at priorities think beyond, Management for are I XXXX Capital and look clear. very we

to our support growth continue is more fully First are repurchase extent - summit of we the top and dividend yet payout to ability in year as our yet XX% ability dividend strategically our next range attractive to as our return our our be submission not to First for organic that That share priority is talked From we we to our and do outlined be the value foremost, would have our our are shareholders increases feel they not as capital was priority M&A. shareholders. and and to a expected use complete about continue on capital CCAR shareholders. Niagara that capital our we like The there not to realizing and then our migrating a for priority been continue of priority. front,

have our So we strategy important extent, well that to our our we there benefit. growth. enhance our capability. and that people things would capabilities be we would Services full where to as as and HelloWallet relationship the first of the then product credibly complete feel Merchant and the investment, strategy and enhance in shareholders and other the example foremost, be and make of to we within Brothers recent for second Cain the support purchasing examples investment customers. a our our we business like job the continue quarter Those areas done believe our And that realize are sure look that

Erika Najarian

you. thank Great,

Operator

go Peter Our from is next Wedbush Winter Securities. with ahead. Please question

Peter Winter

Good morning.

Donald Kimble

morning. Good

Peter Winter

support that there $XXX just about come Erika's million or that expect expense is question expenses XXXX type on the synergies added and of in revenue could synergies, that the above I through be delay? follow-up in to some would you revenue to the If

Donald Kimble

a say And a to $XXX intend to million be a proportionate would and as XXXX expect far incremental realization. that building XXXX to revenue year, of net expenses proportionally little it's revenue as I we synergies, would our the and total throughout XXXX bit.

the two any So that expect early build build will continue next we period. so we and see don't to net to benefit expenses be three further throughout year to think out those of there would time

Peter Winter

just and follow-up. Okay quick a

You mostly Is forward? added the loans. going went like pace for new it quarter, expect which we that acquired to looks $XX reserves the it a million that in this should -

Donald Kimble

the $XX newly million million a exceed commitments. $XX expect included at Yes, new I charge-offs quarter. a both - acquired that do know pace bit by to that the loans the for was we unfunded don't $XX that's for reserve as The and I build far provision about little higher allowance continue this loan signal allowance basis per to X us million for quarter. a having that would as point the

you provision to for increased that. see So will some account

Peter Winter

you. Thank

Operator

we'll go Please with UBS. ahead. go to Saul Next Martinez

Saul Martinez

commentary about million how net that's those and what that revenue Hi, bit get time? from good to you talk little on take morning. and you you a over filter Appreciate the there you're the is $XXX it clients. the like and playing results out rate talk bit and little run seem doing synergies it more just something how But really value that a the to through can extract penetrate benefits and can you there. does But about start progressing does it free time see

Christopher Gorman

it's Good a Gorman. residential areas It's we doing areas have we're It's about few come business back a a really we're Saul. mortgage focused principally penetrating. of - are the payments where that I'm repayments that morning. minute, and our made couple residential portfolio of good to pretty pretty those broad trajectory to going a a Chris Hi, mortgage and job comments in where

banking. private is Next

wealth penetrating and private that. lot think the at is can a Niagara footprint, in we look there and you banking First footprint that If our business do key legacy of of a job good

in me the way areas activity in the people, of fun kind for in to of kind lot banking a new really capital legacy area. got you commercial we've going area. we're can't the with It's market the in Next the I'm of calling market differentiate markets as out

taking think a making get in clients, mortgages. importantly, we're share didn't progress a the it's you that can residential sales a lot X MLO think residential XX% for - we significant that pretty we've Niagara just just lastly be force. are fair business we had business and building of that in really think - count our that's million I the point there. We we last then we're And we've have our that that business So on we mentioned if look and quarter, that that I If added and added opportunity. First of growth out Key that's a have at significant a mortgage

So the where little a of bit of gives kind of that focused. maybe we're you flavor

Saul Martinez

terms the a this? in of and helpful long-term in results of This That's process. up sounds we when to show like actually start it's

guys and a you and XXXX? talked topline kind filtering about a what we have just it framework XXXX story? think in of But momentum? tackling You in this is there's should in lot and it through resulted said a terms blocking this being obviously. of about actually a Is How of multi-year

Donald Kimble

would XXXX. in I build that think you that start to see

see said, as payment As to benefits out building some far and mortgage - we'll capital the the been show Chris start related that business there. the as sprouts benefits activities. residential the to we've start some and business of already markets We're seeing

in going doing so continue to forward will those for pickup And to build annuities and XXXX. us start those

Saul Martinez

and gears That's little helpful. a could on capital. If I bit ask change about

above is XX%. Your now CETX

you if I'm think correct I me wrong.

an would your optimal relation rationalize to also and comment think have would have how a talked about threshold you capital, that X.X% SIFI changes of and you if biggest it about many is influence ratio. could Any thinking updated on capital guys like You in to X% there? lot room just in seems thoughts CETX

Donald Kimble

X.X% the be would we impact CCAR highlight up right. some down impact is our about We you're to that how it - long-term punitive be toward as to to math has acquisition our that expectation to that Sure. that help works, step should which and CETX X% X% and to in target talked to submission so as year dividend X.X% able levels share capital range. to that that range. targeted the far continue have repurchases that for our Past manage of reflected And

even couldn't level XXX% change objective respectively. of that could benefit next designation so range we that bit constraints might far submission. a And the and even that of think SIFI year, those as payout have and if would type To had have. restrictions very exceed of what earnings, well that X% before started we so in we in of that X.X% CCAR payouts the SIFI those and But loosen here we can position us the further. far to some total to a relaxing take your and Last that steps believe continues a little optimistic capital the of levels we strong as point our to designation see would we're as that of as

Saul Martinez

helpful. very you That's Thank much.

Operator

next from Cassidy RBC. is ahead. Our with question go Please Gerard

Gerard Cassidy

guys. Thank you. morning, Good

Donald Kimble

morning. Good

Gerard Cassidy

Don us they your can the share that in from you with and loans in dropped asset really X.XX particular, XXXX about portfolio, to of What you commercial see at particularly the down construction dropped as seeing the like quarter yields in as guys X.XX market earning that? commercial loan to come for well are you in real estate. that the looking yields second

Donald Kimble

$XX accounting noise what unfortunately purchase about is up of some had about. you're And most was Gerard related talked which in to hit quarter. there million the we categories in seeing that second that you those that that true really

And basis linked were so if points XX for of you the that, up increased for our impact yields loan the the LIBOR quarter. quarter, commercial would reflects which adjust

for a a on And see it so more just to we're it it seeing you difficult basis, reported all on basis. core makes

Gerard Cassidy

you maintained something guys chance? businesses being that do are And by the of underwriting changes standards find in you those are seeing or lines there

Christopher Gorman

Chris. it's Gerard,

was since expect that open though about I the will changing open. with say would cycle, XX-year capital Life question are think as Freddie, dramatically. I'm thinking customers - sort the markets paper, are what is underwriting company's, in seeing lot real your FHA/HUD, you're more our as what has you're look is they to being you wide so seeing Fannie, recourse, no been point at about of taking at CMBS I XX-year as a market you what the opportunity don't the think this have So specifically standards and of estate,

putting there seen we people customers, sheet, terms huge So on for their our clearly haven't balance but opportunities what of are a change. are in

Gerard Cassidy

second debt capture Niagara then Very number. business of of break out banking to $XXX the good. line, fee any investment estate, are you from And between fees it pure you just quarter? the the the good Can customers placement - part real placement and able And million debt in is investment banking? First and obviously then Chris as speaking that

Christopher Gorman

product So breakout provided we've in by never terms of the a breakout, Gerard with to number. that respect

We that each last it continuing it's the several big it million, of that for grow to years. business grown has about number a year. We've So this a - trailing run $XXX XX it's anticipate rate us. obviously of

we a into us specifically really As penetration some some to relates successes frankly comfort. Niagara, it have gives of had lot which First

the of areas One is commercial in success mortgage. of

first better about the of the things a serve placed because that client we deal it's commercial and foremost clients. on fee; we a were far So for make that We $XXX our books mortgages better type complete area. is engaged de-risk to straight like of also those. our financial balance terms We've sheet, have in work that's so been some early one wins up which pretty had advisory in things million already

trajectory. feel we about pretty good that So

Gerard Cassidy

Great. Thank you, guys.

Donald Kimble

Thank you.

Christopher Gorman

Gerard. you, Thank

Operator

D.A. will with go Davidson. Please ahead. Kevin to Next go Reevey we

Kevin Reevey

to Yes, is I quarter? Don, in if good auto color give as of book morning. of how attention, versus of loans, that your key I this know the wondering but small some overall percentage loan kind maybe you a us investors' book credit last focus the quarter a perform can was

Christopher Gorman

so prime that would mind I paper, be focused continues very score super on a on FICO XXX there in strong average. that we say no issuing credit Keep portfolio. deterioration to and that in it's

continue the to we with pleased we very positioned we're and be well performance for So that that believe business.

Kevin Reevey

your earlier on the then discussion Don, on moving kind NIM. wanted the parts of And just understand to I

rolling loan basis to investment off that the You'd accretion cost. some XX of to you in mentioned did runoff XX in expect points securities increased the and increase well you should the about see the yield, so something offset as say as deposit

to understand parts? of moving want the just I kind So

Donald Kimble

Sure.

flow far portfolio, a investment as about coming billion have quarter the As cash a portfolio. that $X.X we off as

as we the that pick on XX and up quarter. be off we get point that run would quarter, portfolio basis for expect a to to about that back gains portion relatively as far NIM see the so of fourth add-in core the stable of will a For an the the that, $X.X billion so to compared

Kevin Reevey

That's you. Thank helpful. Great.

Donald Kimble

Thank you.

Operator

Next go Please we Vining with Sparks. to will go Marty Mosby ahead.

Marty Mosby

kind There's said kept off of have higher me Thanks. in like better PAA a accounting those two those kind that were September really led track a this of to sense purchase from bit things quarter. the all doing you you in paydowns little paydowns had accretion. really these And as should one of was

disconnect, that think work mean of you at it that off kind reason When mentioned that I you the was what you was work. So didn't it looked quarter? I earlier the were surprised huff the didn't what this it,

Donald Kimble

on didn't the I loan that for that we correspond time to categories the pressure portfolio that acquisition. had our would've that benefit accounting type would some the purchase of same the the say quarter throughout at saw paydowns recorded put seen of a necessarily discount higher we

And so portfolios quarter discount didn't quarters. in previous this credit what much those they higher deteriorated had as as

paydowns down to absolute of to paydowns as at And balance more really cause of level was so slower opposed the pace. mix those of that come it a a

Marty Mosby

impaired were the Maybe borrowers. credit better sense. able to do that makes That barrowers versus

looking on, debt delay else and transactions investment country still just the I out just that end was up was is the It while down that was moved curious the at that going back and from I a business there thing destructions and quarter? were because and that does other banking placement hurricanes any of with saw the that the disruptions your at of thought some going at everything you the across was of possibly somehow if level. sequentially last higher year, we on possibly was The of

Christopher Gorman

is timing a had Marty, have think lead when of time, don't the on these the influence some where pipeline feel of it's Having A the of to and a lot transactions good I per a exactly we Chris. hurricanes that, weather think material long said whole and happen deals. that an impact. is. se the We pretty had don't these disruptions impact specifically they about the but things, do of other

Beth Mooney

levels look year the functioning well, of half banking that level so coming with quarter actually third of first and open the those flow And our you the out XXXX the is a and would so performance the expected. Marty, the last have saw record would we first slow In and not demands at that the I were if you year year lot fess of really markets debt consistent of where the through, a third markets last half. was investment add not were placement of pipeline up and quarter year reflects quarter depressed pent-up

Marty Mosby

Thanks.

Operator

go Pancari ahead. Next Please from is John question ISI. Evercore with

John Pancari

Thanks questions. morning. Good taking for my

little the loan and loan front the On little know you've bit. that your the just constructive demand side, commentary the the of about you been a in end front growth talk talking terms but pipeline. impact about around in a end sounded want to in paydowns more of everything, I terms the of bit

Thanks. a color strengthening around you're you bit little more line why of a utilization? pipeline also seeing So us and where the little around don't give

Christopher Gorman

John, pipelines and few the Chris in there's our working quarter, the really look advantage are its things A into Gorman. couple strong things, as there. a fourth we forward

have leasing that is is we a a business. typically business first that quarter The fourth

like we're loans, the be estate grow just flows business. we thing business growing Second areas real Even continue our is didn't good. to where clearly

good have relates the for So specifically flat. us, as we pretty really it utilization,

you So back that the if utilization quarter year, go a you been around is flat. right go back a has

along feel is potential heretofore of sort that seen. inventory, we if the So haven't upside to people which impetus go on

John Pancari

then number seeing in to apprehensive Washington? uncertainty to And of the terms sentiment Okay. mid borrower are the of the in you borrowers drawdown online still

Christopher Gorman

It it cost labor is our optimistic. it's sort interesting of clients building as as unskilled in places But say, sentiment that out the remained increase. as like like starting one diverse talking tight. little been. the sudden of seems seems - is We're to all as seen time. things are think all Elkhart, Boise, to the I and bit would cautiously Indiana Idaho of I has the a it describe we've No, materials

in doing general to people seeing aggressive. more cautiously we've So as I of clients bit bit we're But sort out that shoots is what of of those a a you well, optimistic. would hold a our as back a sort which getting continuation of of green what are think they're little being is little seen, but sort about

Beth Mooney

to would level I of to reform that tendency this way around here - there tax into relates that And what do uncertainty some and more some is John to policy in related with tax point I think for. constructive do particularly environment. I an there might that see is come add that that translate there dialog demand think physical is at the

John Pancari

X% much expense, performance X.X% of comp one then Okay, then or - in the the on the to and Thanks. bank be drivers linked the relate thanks I'd to was of that? the that related Beth. impacted quarter investment And own how pickup basis, their

Donald Kimble

the Sure, bank, we comp XX% tend investment correlation that fees. a investment changes debt about expense as as related and the far between to placement banking the see revenues

over the couple And years. fairly last consistent so that's been of

drives healthcare a and so. One drivers medical we on an quarter this far see personal increases as of - around as costs do that this the in our basis linked also quarter a $X increase total cost, is seasonal or million and

John Pancari

the Okay expenses, does trend level or expense fourth and the $XX pare million you How think that and the out the of in The bit me. quarter? how do a further revenue profitability more expect back then about we from Cain in acquirement? one

Donald Kimble

the our Chris? opportunities say see as a expenses a come of bit would a And with for that, a strong I do lot us there We little add well we as and great franchise. revenue Cain. world see from contribution coming down do synergies banking you

Christopher Gorman

No, just been keenly interested have Cain that we housing, in an have enterprise, exposure time. skilled say hospital, nursing. like that I seniors some billion we places an $XX would in for is of organization as about

senior we have in that very very, that business relationships XXX the really well XX that tie So people, built. with good we're about adding bankers

you our about when the debt business will fit. the core a looking at great test we're if we offerings is in think payments, have we have think into terms of Cain equity, can and any integrate this we So like that first it be always acquisition we

John Pancari

thank you. Great,

Donald Kimble

you. Thank

Operator

Fargo from Wells is go question next with Securities. Our ahead. Mayo Mike Please

Mike Mayo

expect a but bit are are ahead, and next missed? have I Where of said by better? lot look a that here. think there in there I and our guidance might line That other and is worse some out in little Hi, it efficiency out year, you your you is you where

Donald Kimble

piece came so change driver. and as on outlook see as lower for the quarter was far those a light one in for compared did we that's the expected primary third so and we Yes, expectations, our and that fourth little it loans our a the level previously guidance than do the at we the quarter

in guidance that previously still that the really provide. and And reflect made in an is previously little Brothers well say continue and that there guidance As we're in only a the we're a far and growth expected capital expense interest seeing as think result of little we're opportunities fee adjustment I'd that, year. income, still That's strong we the line be a kept space that the that as what range that We've see of the guidance range could even that our in before. beginning quarter we perspective. than been markets, seeing at lower for overall the fee positioned of than think so we challenge had we've pace. income and in income we accounting again we also net the strong we position we a The to an is area to had less accretion - better established Cain where previously think in from but to come is is with we've purchasing there wasn't at that the we fourth growing

so think has don't I that the it's know materially little changed moved as just bit. So a pieces well three really and that I have

Mike Mayo

bank simplistic, accessing revenues from capital I paydown disintermediation the markets KeyCorp maybe to borrowers it and lending, of capture more a the words, able the being capital too there? on markets - more this you've other those Got is traditional seen more the but think with the loans in

Christopher Gorman

we've is agree and capital be well access to to that model We suited clients think most was. able to built the first that Mike, foremost its our advantageous Chris. we whatever the

there, clients are there And on so grow to and wide our that business. our think well serve sheet loans, grow the might extent open But any to line. we our to be It not continue pockets business. positioned pockets markets of out opportunity their the are can balance pretty in quarter, our to we we're of on continue given the in

Mike Mayo

right, All thank you.

Donald Kimble

Thank you.

Operator

FBR. Steve Our next question is Moss from go ahead. Please with

Kyle Peterson

on quarter bit talk Hey, on guys. Peterson the to more Wondering the this of today. for guys front, the a Steve nice kind could you capital CETX reclassification. guys so boost It's actually methodology got you Kyle little

combined there try managing are to or there get X% is is X.X% guess propound it kind where dividend a I to that or cycles in level in and a guys terms more you is particular and forward Moving looking payout about of CETX more you want range? of that at ratio payout future

Donald Kimble

I do be step that believe we will target down to guess over and to for help reflect a we see CCAR there those. actions, manage capital us more to that's to the where think periods other the future range we get adjust that XX% buybacks up latter want of into able continue to dividend range to then and our that capital share in that payout so should nice of and time up be step level we

Kyle Peterson

total to and little the there early numbers. I paydowns, they so fourth think and is and it's construction the bit then the more looks are C&I quarter? commentary continuing like were correctly were little in and kind of over far total on heard more trends Okay, I guess - it say toward those fair a I CRE looking if It a

Donald Kimble

there a real The in and current that estate road a longer-term, maybe more we commercial opportunity think little the of the a expect the show growth disproportionate here to from little fourth of that that stability down. continue see also But and level paydowns, be on portfolio there's quarter. expect portion down in down elevated the commercial to we to do portion bit estate the real we paydowns line that so bit continue and expect an you're right, probably the to construction wind impact We would would levels had construction. and continue to

Kyle Peterson

All all from me. right, great. Thanks. That's

Donald Kimble

you. Thank

Operator

ahead. Steven JPMorgan. next Please to Alexopoulos And with go go

Steven Alexopoulos

Hey, everybody. good morning

Beth Mooney

morning. Good

Donald Kimble

morning. Good

Steven Alexopoulos

your better resilient, on job are you follow-up growth? many more share? just particular to you're of I'm better finding trying It a driving markets to a earlier that doing market C&I wanted are I John's understand question. seeing. is seeing slowdown not there in Is why Thanks. your of market taking peers the

Donald Kimble

back we in you always I been step we've as know at as and look strong think it, C&I.

credits as around go we that built capture any to So a we're not have out and more though the look we of continuing it, business we're it's because real at share really holding it's underwriting. as

So linked to enough to that marketplace. there to we annualized fortunate quarter be really out the win be in growth really on and X% attribute able

Donald Kimble

and C&I One Corporate to two help rely and real we been us like the the drive the as year on more half Community add far the of thing generating have we've it. commercial the to to opposed just lending as additive well that Bank is as say portion that I'd the for last one years, that a Bank portion to over historically be also helping as seen we entire to that's growth of I and so activity organization and

Steven Alexopoulos

to or point is And is the they would story here? one be market there growth the broad-based really heated

Christopher Gorman

getting of just broad-based, our of course Lake, in we're board going Boise, growth. really growth really that the places, and I a mentioned to was and business in It's as across that the week good is last that's Salt had last Don Bank in quarter C&I I Community lot was double-digit

broad-based. it's So really

Beth Mooney

you the perhaps which add last that bankers continues on Niagara contribute focused more the their that to to are relationship first and Steve growth, transitioning see First we about now they think would and quarter markets new is starting just couple this are is quarter starting it to quarters And it gratifying. of also the or about I if and in books it into that overlap also also part talked

Steven Alexopoulos

this, new maybe one missed Helpful, going XX% purchase down I sorry guidance in quarter-over-quarter one accounting final just Don, XXXX. the if

How expected think you we Should around of that? new that XX%. decline level XXXX should for about we were XX% I XXXX? originally to said decline think you

Donald Kimble

longer to good just this all, of XX% assume mind First goes estimate a the in continue would it lot per - quarter say foreseeable but I than time. for future decline point that be continue to at a

Steven Alexopoulos

thanks Perfect, color. the for all

Donald Kimble

you. Thank

Beth Mooney

End Steve. Q&A of Thanks

Operator

back to I'll And Mooney, turn no with that, further questions. it you. Ms.

Beth Mooney

our taking Again, time your you call participate in for from we thank today. to schedule

our questions, Have remarks. that you day. If at can direct you them our have follow-up any to great XXX-XXX-XXXX. And team concludes Investor Relations a

Operator

participation. that Ladies your you Thank your does and conference. gentlemen, conclude for

disconnect. now may You

KeyCorp (KEY) 19 Oct 172017 Q3 Earnings call transcript