KEY - Earnings call transcript Q2 2019

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Operator

Good morning, and welcome to the KeyCorp’s 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.

Beth Mooney

Thank you, operator. to second welcome conference XXXX and call. morning Key quarter Corp's earnings Good

the Kimble, Midkiff, is Officer; me call Joining for Don Officer. President banking Risk Chris of our and Chief Mark our Gorman, Financial Chief

Slide X disclosure financial the comments It measures. question and on and our materials of well and our presentation call. non-GAAP covers as our is statement forward-looking as answer segment

comparisons, of reported notable now XX% results to the provide consisting notable focus which will Slide earnings remarks the we the year per of moving morning, this adjusted trends view $X.XX, for on common up notable exclude numbers, as periods. am same efficiency first I included periods quarter were financial all from of This $X.XX items primarily Adjusting a share, related of and items my consistent results. share X. in To $X.XX expenses. ago morning our period per our which prior our and items,

results all and highlight million the Our businesses; management, realization company trends, quarter fee solid included and in across the cost reflecting the substantially $XXX our including momentum to of revenue see by the expense momentum this of end based we sheet for of our growth continue our focused highlights balance in the quarter savings quarter.

amount cycle Continued dividends strong significant credit net our and our disciplined range below the share management, quality offs capital includes and over charge shareholders with a of net income our repurchases. which returning well through to

industrial be from sheet, period the of Loan and the driven balance year balances X% ago commercial continued loans and first X% deposits. with average Turning in continues we growth quarter. saw loans from to to both and by growth the

and based credits. on broad is quality growth high Our focused

to outlook strong. positive be continue and sentiment pipelines client constructive Our remains our remains as

balance was We Laurel adding on over generated of benefited and year-over-year in billion quarter. the we In digital direct resulted the excited our Road, Laurel in residential about business, quarter remain second loan our from in loan year production Also held quarter, X% acquisition, million exceeded also including the doubled loans. loan were XX% second residential XX% This up consumer which very on in capabilities expectations. originations consumer which has a bolsters our the originations sheet. initial from of side, our volume to mortgage Road $XXX the Road and the Laurel growth total, consumer our which loans prior our our $X has year-over-year. growth last from with We in increase and mortgage

and Average from deposits consumer the period. year from commercial both X% clients grew ago

million and or and And placement a for reflects banking debt digit clients. fees, to banking growth Noninterest $XX business our quarter reflected the guided quarter $XX of level broad first Our or adjusted based quarter were success driven our which income reached stronger increase with items notable call notable we noninterest relationship on up we a second XX% and adjusting investment model placement quarter. first in fees quarter. for focus XX% quarter from prior debt in items record this In income of momentum. compared double up the was by the linked investment million

should position and for of pipelines high, Our remain engagement client is remainder the strong which year. the as well

be and will to positioning second and targets a reach continue been strong story have management of in its ratio mortgage positive priority. a digit XX% Expenses were targeted our payments quarter our achieving the cash double saw of business. also increases to quarter, areas cost reflecting and investing, efficiency and including linked half residential cards the in our to year, XX% company saving We where in the we expense this success also

focused through $X.XXX have while net a directors strong returning underwriting and our very another And year. metrics, disciplined the earnings risk remained position our portion We on board well last and where of had share of the to basis our item below common committed large we our slide The maintaining on maintaining and to in third our XX share our quality, credit moderate range. the ratio to remain dividends a increase this X% over of with week, is just capital dividends strong we credit cycle a charge approved quarter repurchases. of our shareholders Moving off to quarter in points profile. stable final beginning

but last one disclosure I Since are Before concerning of a we loss the over our the call up is we're limited by we taxes. this to in fraudulent standing me as made week on investigation, comment clients. part long loss an be that that all million say, of turn quarter the activity net we let $XX potential third ongoing available mitigate of to Don, potential business to will recognized sources pursuing can what be event. The could

will that we this an occurrence. a This perpetrated in a business we underscore standing to want believe updates appropriate customer public I our Importantly, is provide long and was by fraud isolated single filings.

growth added shift Now, growth our restating both fees. with consumer today's and remarks loans grew X% mortgage news debt grew residential to placement and conclude C&I and year-over-year second We that my banking it and loans and broad Road. relationships, quarter record in growth was driving investment a for our experienced Laurel consumer franchise. good by across back quarter I based from grew and commercial with businesses. in in including growth We We a will fees

shareholders. in us last our underwriting. common for week efficiency committed on in this continue a achieving year. to and half target, of to of second to targets continue delivering our And by our We path disciplined finally, including targeted the ratio And by return directors. managed quality We we approved shareholders, to capital our X% expenses, underpinned maintain increase credit our dividend shared reaching to long-term value which board our remain loan million cash savings our reach our a $XXX we keeps cost

I over will the turn call close that, and to Don. With

Don Kimble

Beth. Slide now Thanks, I'm on X.

per share. earlier, for notable reported Adjusting second from items we $X.XX. continuing per mentioned $X.XX operations net share earnings common As was income quarter of

compared Our $X.XX the XXXX. of share per quarter ago in $X.XX adjusted first the in and to year period results

Notable largely of efficiency XX in of items Notable the included closing million severance, as $XX quarter for Road charges X estate million Laurel onetime items initiatives. our XX of personnel acquisition both April. well including to totaled to real million related our million, the expenses, related also of

we target, mentioned, the Beth cost quarter. million achieved to run next amount rate expected $XXX with As the full be in our savings

ratio year. I will reaching to half many second this in target on also remain we XX% of of our slide of the committed rest Importantly, to my in remaining cover the presentation. items cash the XX% efficiency this

now turning So to I'm Slide X.

to driven relationships in loans, and and well $XX loans Total last by up us billion, position commercial to continues model of were loan up industrial X% which from growth average quarter business year, grow balances. X%. the Our were second

Linked was loans quarter also industrial up commercial growth average and balances by X%. driven primarily and

growth elevated real a due Our our was footprint, industry estate well our broad to decline partially commercial offset across targeted to through balances as pay as downs. by in verticals. be based continues C&I growth

investments our this in quarter, forward. growth and as consumer both moving side we and strong saw to Importantly, Road this our Laurel on to to growth business quarter, benefit expect our continue contributed we residential mortgage from well.

we For over loans this $XXX quarter. million of originated Laurel Road,

we loans production, sheet. the a ago billion mortgage this residential the the volume quarter, second production in and last over double year originated a retained quarter. of approximately XX% balance $X from was from Of For on

of top loan continue We consistent grow to support end we as guidance the clients. balances expect our relationship with full year to XXXX our

remain our does we profile; not business our are risk walk meet with remain to sentiment That solid. The away tone we pipelines positive our our risk that and clients to and continue committed moderate from will parameters. said

Slide or year of up driven totaled the On average of certain from $XXX billion and X, as period is linked ago on prior by from X% was from up second basis, the short-term for consumer the the in X% customers. balances clients. consumer deposit prior clients, Continued and Growth the levels and billion compared deposits $X.X quarter. XXXX increase elevated driven year commercial quarter commercial quarter well deposits also both by as both a commercial to

was reflecting portfolio into of the yielding migration our products. our up deposits quarter, points of six higher basis The continued the from to first total cost

increased the As first expected, bringing deposit quarter data our our XX%. from cumulative to data

core with deposits We base our continue consumer stable strong deposit for XX% of a total have to accounting deposit mix.

These to million quarter and of in margin income income second a Turning interest $XXX first was the to net net was X, compared for X.XX% taxable the a interest X.XX% net results net $XXX Slide taxable of million quarter. the interest equivalent XXX and X.XX%. XXXX margin second of XXXX for interest million and and quarter equivalent

interest interest of driven quarter decline growth second this income the earning The partially rates, $XX and increase was from costs, benefit purchase and the fees margin higher net in in driven deposit interest and a with accounting higher million by lower bearing lower net loan asset interest from accretion. offsetting by XXXX

margin quarter were or net in the higher the earning income asset a day accounting liquidity by as bearing as the by from prior one levels interest interest interest driven $X Net benefits and in of increased accretion. cost, additional given These purchase million higher in decline balances by decline X.X% partially quarter. deposit elevated offset well

the the stable and with additional to can billion interest floors to rate in executing we on the remain income find our expect reduce to information swaps Going approximately our actively provided. relatively exposure In slide net guidance consistent declining in you with interest liability appendix of deck our we rates positioning, continue forward, $X have our and quarter. margin to net second grow interest asset

fours levels of a Today during less the swaps impact time. $XX This parallel interest back year quarter a total current is and than billion income in X%. net entering for began XXX move that points basis of increase last decrease was from this or our to we third

for with notable and of including from second a insurance Moving income to included year noninterest was $XX million a residual ago, a million, benefits the impact of ago compared Key a year quarter loss. least net X, services Key's and on XXXX to quarter sale XXX $XXX The items million from the quarter. gain Slide

down Excluding fee million income was year-over-year. these $X items total

mortgage The resulting debt our including growth business. change from in investments trends reflects businesses from fee in the as in Offsetting well period investment continued ongoing ago positive as based core momentum this placement XXXX fees, sale our impact year a year-over-year and million service changes reduction charges. growth mid the from trust services benefits in of investment income related classification the and services deposit Key revenue was insurance on a $X and to banking,

up Compared to record a quarter, million second placement to XX%. to noninterest change was fees, banking income a $XX level. investment largely quarter rebound or the million related debt $XX in was increased prior This which

both in We and as well services cards increase fee and businesses including continue to the trust based income $X see momentum from a investment in income first other payments related quarter. as million and

to Turning area remained Slide XX, us. management focus for has an expense

implemented As quarter. second we the expect our quarter, our end to next tied mentioned, million run continuous reflected the initiatives have at we improvement of fully expense which rate substantially all our target, be we in $XXX to of

expense $X million notable noninterest out the was excluding second on the notable efficiency excluding the XXX $XX left of compares in breaks related million the quarter, items. the The quarter and over XXX slide expenses. detail prior $XXX bottom Second of quarter table just our side of million or in items. billion the the both million This XXXX of

well acquisition relatively in notable company's initiatives. items. year-over-year comparison to year the the April period, ago again excluding of as Road our Expenses reflects compared The successful XXXX, implementation the expense are Laurel as flat

prior to capital expense as quarter employee well related as higher increase noninterest lower. increase million reflects benefits were increased the seasonally were impact items, notable in variable excluding second Road the also the the while markets Laurel quarter $XX to costs our costs of activity. expenses Compared Marketing higher in acquisition the the seasonally

to and our the to be over strong continues XX, XX below continue total disciplined we second cycle Net to of million credit range points. to our loans which points basis or XX and underwriting. consistent Slide basis in Moving quarter, in were quality the XX our $XX charge offs be average remains of

the credit losses ongoing the with XXX reflecting for provision loan Nonperforming quarter this quarter. growth. million represent XX were was basis consistent million of quarter, and points The period-end $XX for prior loans loans

ratio common Turning strength quarter our Slide X.X%. of the remains estimated XX, capital second at Tier company, an also of to end X a the with equity of

to Beth our remained true priorities, returning $X.XX the As second a our common amount a capital to have per dividend earlier, In we of share. we declared significant mentioned including shareholders. quarter,

also shares this to with million We continue repurchase $XXX repurchase quarter. common

in the second by for was directors. which in share approved was $X.XXX dividend XXXX to quarter of XXXX third April. of a This XXXX. quarter, last The We also increase common announced includes quarter per our plan X% the in capital through our board the third stock our plan week

$X over We common billion to period. also plan quarter shares up in to repurchase the four

Our strong capital with along our planned our capital supports action. growth position organic

On XXXX. our outlook for SlideXX, we provided

disclosed guidance XX. Our the that loss fraud X-K in excludes July impact Form was filing of on the

this has the expectations performance changed this through Excluding months we not for occurrence singular the year. reflects our earlier remainder six year. our This and what from outlook of the first provided

continue We year of with another improved leverage to positive operating strong expect efficiency.

again be the loans our but driven Road billion Laurel Average to once consumer also mortgage. should by lines $XX from including businesses, benefiting our growth and in of commercial $XX range billion, and residential

guidance of origination mortgage and Road, With to we Laurel our contribution end toward the would expect be higher the range. from

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

this the of would income expect result our path curve, this $X.X quarter the of billion. shape be to at a us the range. for projected rate billion on noninterest and of lower a and of reach decrease $X.X range the leverage we The As to to full year keeps yield end

placement banking our We fees. businesses expect of and based growth most including in fee debt investment

range. guidance the Our of lower our would side place us current toward outlook

the outperform Although at to of we lower operate that a we believe we're on also expenses. end revenue likely range, may

that We changed billion, we our our identify point, $X.XX $X.XX expense and of expense the can continuous to on initiatives in on half savings outlook range. cost further come improvement, billion At results, we have or but end the have our expense focus of target million achieved the believe $XXX for we slightly completion below our at first based to continue this of opportunities not the reductions. and we lower

ratio net XX% nothing to expense basis And of horizon our charge of range efficiency XX% that of in expect also On we reach we XX to quality, outlook year. credit cash provision the the below offs see remaining half cycle on points. with changes targeted our the the our second over to XX and

offs for to provision loan slightly exceed loss should net loan Our charge provide growth.

in on XX% in XXXX our and returns. remains for some risk opportunity guidance below or our clear slightly rate And GAAP another management, momentum with strong at discipline tax range. year XX% with focus the on Key, a we range our come to across our building good and of the businesses Overall, expense expect to be for

of toward I ability our reflect group. our of tier and and will the valuation targets, Continue are long-term bottom top improved the to the confident these achieve our our results. On slide market in to move remain time, over progress our targets. And peer believe

for the operator back the instructions with now Q&A the the call. Operator? I'll portion call to turn over of

Operator

Scott ahead. from [Operator question Please Sandler Instructions] first comes of Your O’Neill. go line Siefers you. the from Thank

Scott Siefers

Thanks morning, the Good everyone. question. taking for

Beth Mooney

Morning. Good

Scott Siefers

was hoping on little margin. through I with and Don, a walk thought the finer could points you the

if as you curious you bisect guess when Maybe sort the please. made XQ, that said a so I I margin that your that puts the in margin helps. out comments be the I'm stable, tends you see those comes can But think core then prepared or little think should in those as that liquidity regarding you the know and overall remarks you hold seasonal to of you and just had build I XQ the in talking and takes issue that them the presumably reported. well, are

Don Kimble

as in Scott seasonal some your trends have the especially and liquidity. we of the highlight, deposits, pressure did on cost, some the Sure,

And down so, from overall impact income, three an second on interest in points but by net any came the did that not basis margin. quarter, margin have on our liquidity impact the

with a accounting far at to we're quarter, our first here, quarter. we came accretion. $XX $XX would We as second expected saw having pressure also as from wasn't million, relatively of past slight that we the that kind that a purchase but quarter stable – we million, maybe Last saw not be at decline expect reduction in this quarter,

would expect stable. basis we be margin a forward, relatively Going on reported to

we to some come time. offset help that see And most recent could of so, point, decline. the that back your basis pressure And the liquidity over and rate should of expected our in some associated point XX with

prospectively. us that that positions And in so, margin more stability think we have to

Scott Siefers

Okay, And that that's that. on one perfect. to accounting the for the – then question appreciate sort just I fraud. just of keep

just XQ an reason now at because were a difficulty of Just potential event? of time the the that that in becomes closed or loss what accounting is dynamic? from curious Is the that about disclosure, that books the the just estimating standpoint

Don Kimble

fraud the timing resulted why quarter. third loss events here the third On as recognized took second in point, the in that opposed the quarter. place actually that the is of to the quarter in And the that's

Scott Siefers

Yeah.

Okay.

that. All I So, right, I much. more it. guess Thank guys, than that's perfect. very nothing you, appreciate

Don Kimble

Thank you.

Operator

Your the go Morgan from Zerbe next Stanley. from comes ahead. Please line Ken of question

Ken Zerbe

Great, morning. thanks. Good

Don Kimble

morning. Good

Ken Zerbe

I a guess first question. is or I have silly simple

You're a if your rate July your into actually and how NII cut guidance September? guidance, cut in change both at building get we in does one

Don Kimble

little near have our far impact what basis points. basis as we is rate If a lags impact current that that. a see of additional negative XX is, about as additional so get negative would term think from would deposit decrease and to bit near bit points, And two a a an that term causes pricing of the that we we market little of essentially would three

Ken Zerbe

in building the you are July September Got cut cut? you and or

Don Kimble

in building cut. July We are the

Ken Zerbe

question, quarter. growth them Road, I the maybe just growth term of you think years, okay. the as terms pace in about or obviously and guess, are growth putting Road? comfortable a you from of then two sheet balance you, on from year this kind Laurel like Laurel when follow what up of your next Understood Got longer good to

Don Kimble

customer we Laurel the originations. that there's savings think customers, with Well, the or know mortgage I can see we additional opportunities don't as other tremendous that of very growth to but we're provide we're Road. of that the going product, this building for the that approaching for that, We relationship with quality as pleased these from relationships love lot whether we're with residential credit base services it's far potential And just or expanding products customer base. a

expect at do not nice we growth loan on So, but to the student maybe product. see there, same the consolidation pace

Ken Zerbe

thank you. Okay,

Operator

Your next Please JPMorgan. question ahead. comes Alexopoulos from the of go line Steven from

Steven Alexopoulos

Hey, good morning, everybody.

Don Kimble

morning, Good Steven.

Beth Mooney

morning. Good

Steven Alexopoulos

on fee I'll It's start like income. the

walk to be you through you year-to-date range, the of low somewhere if I to guided to to ever that what you've the XXX maintain you end, of think the – So think X.X said billion. reported gives just do the And us to around single Can you And range? per look need I a even don't end million the you we done low know quarter. to end get confidence but range, I quarter. low

Don Kimble

Sure, think there, that I your math is right Steve.

is placement from strong the last activity that our and last second million. to in seeing here. what support, take rate we It's of I believe the look are a year would banking, that run offer growth levels fees, $XX debt So, we compare same of we all, half investment for our continued and increase year. quarter first what second of up And pipelines the we of that, of at an type reported

stronger number about the the we compared then to increases we growth that see million we second year application And in this quarter about half have other quarter, the about seen time million And volumes, addition including growth. which billion the in key we pipelines going million I mortgage past. through. into our the over that we say the adds $XX our first of and that's a have second COLI, quarter. increase even to are in And seasonal of also coming of But areas originated $XX we believe the we to quarter. might And is $X In not quarter. from would that production than third we the what as second much were our saw in really categories, would $XX come were they second see talked

there. positioned we're think we so, And

We categories there's growth. also think a lot we're seeing other where of

million increases the And for be roughly seasonal $XX kind so, for $XX the range million million believe would second of that further if the $XX XX half. additional for IBND achieve growth, million revenues, that kind we'll for about the you you're assume and to plus we to that needed that of growth talking about at

Steven Alexopoulos

then the basis about that of expect Okay, And follow up NIM basis points, additional math two per two your that's cut you about if the is what down helpful to to Don. response XX three to question the in going point cut, Ken's you three? that would get

Don Kimble

average go on would quarter. the about deposits, that we would will that second basis that paid initially, example, in points. five rates think for and rate Well, deposit our reduction rates basis be That so on quarter we down decrease, by points cumulative after XX about first

how three points that's initial will over so basis to go time. And hit two that away

Steven Alexopoulos

from the improve get range, that? further, XX% how just Beth, Okay, thank in do stay you. do think finally, you to go about we into ratio, we Still do cash efficiency the there? XX% once Then where you for

Beth Mooney

will Obviously, thoughts the January, with coming quarter for update we fourth in our our year. call

that And be about us business you the of will so, degree our improvement. have to on strategies piece think environment. I of the a And hear relative our predicated know I that we some model. confidence commitment a talk But and diversified expectation business do macro continuous with for targeted

that what the substance fourth like So, ability our future. of southern to we is call. quarter the our continue in to the drive looks But performance see

Steven Alexopoulos

Thanks questions. fair enough. taking for Okay, my

Don Kimble

you. Thank

Operator

Evercore. go line Pancari question John Please ahead. Your next of comes from from the

John Pancari

morning. Good

Don Kimble

Good morning.

Beth Mooney

morning. Good

John Pancari

modeled. talk the guess we revenue if then if challenging the ask you Steve's like example, have looking cut you the expectation talk addition on one impact way ratio I on what in outlook question If you dig we to this about are cut the would gets on that year, levers for to there leverage cut to more deeper Related and the other I'd you expenses. about efficiency, expense could another to on if Thanks. is just at get could the side efficiency are the another – is your

Don Kimble

we our to identified that steps allude in already and but Great improvement. the and did we've achieved further have efforts we're we for and million, comments, executing and still $XXX continuous other against

XX% delivering And so, committed we very are that range. XX% to to

And help so, believe provide will that we that some support for that.

So, continue it's ratio and to improvement that we're continuous focused further to critical that manage we on efforts to that generate manage leverage. be down operating always going efficiency positive

our I one to we and many us we rates. steps compared far be our the we've cost to as too noted quarters, the margin some a that's over is that pressure in think to comments last unique of given floors as prudent that and And especially current for against to our think we added did $XX that billion worth it for help level, that thing downward few outlook did that interest we but asset managing peers able overall see position. for that else us protect to as liability take of us rate the swaps was manage

John Pancari

there a as as expenses that an is your the much specifically. to isolated focus result and an All fraud of around it. controls increased got then continues speak But and and related know it's even separately, right you risk though investigation that about Okay, Thanks. this? the thing, risk I there is the any can't

Don Kimble

I'll we more our X-K that have a maybe Well, in look we what disclose in that's sure. I'm investigation lots because are litigation this our this. we given process. at take did note as Form of And current can comprehensive limited about people of and sure But up questions as issue,

So just things let few point. me are to that able at this share say a we

discovered an activity standing So we a incident isolated believe We was that client. single business relationship. fraudulent by a involving long this business earlier this month,

a as impact controls will as which is capital of believe to and of loss, loss dividends reported conducting and and this of event plans, all could breach and We're share data We recognized high would procedures importantly are assessment a all potential pursuing mitigating and incident third as a available be our And not be potential we've net law not we cyber recovery which $XX event. repurchases. comprehensive The this the enforcement. million the sources of or related taxes. to quarter include do both a means

that And core nature and also this expenses not target in materially track We to efficiency do the further firing litigation second remain believe ratio of of future. able forward investigation to not our we'll and impact and cash be year. will due provide we ongoing this to at filings the the in going half achieve point comment this on updates we'll appropriate in public the

John Pancari

Got thanks it. Alright, Don.

Don Kimble

Thank you.

Operator

ahead. question Your Peter next comes go Please from the of line Winter from Securities. Wedbush

Peter Winter

morning. Good

Don Kimble

morning. Good

Peter Winter

wondering seem come just growth. high momentum average continues, guys above the does if loan your of end like you that side. loan could I'm it for had in You on good And the very range

Don Kimble

Peter, the side Yeah, our consumer on production, especially with were we very pleased this quarter.

we're talking been about a for this that from we're years always the was us. and another of Laurel long as will also for our XX% production $XXX sheet starting originations $X that from clearly core as and first a that quarter perspective for can billion on help what couple that's to residential been commercial that us going growth and but of that over maintained, Our momentum that strength achieve we've Road the seeing far million doing strength mortgage that last quarter and I this balance of and we're really has for say side.

did billion growing $XX guidance in by our range. suggest put average slightly our that ending that loans, grow we and in continue be And quarter quarter, balance end think top the loans like just of each $X about so, billion, that pipelines if which will we second I would to above our us we'd

And I we're track that think so, as in seeing you're there far category. dynamics that on potential that as what for

Peter Winter

elevated could income, gains the I to relative little within income And lease if rate, last and housekeeping bit operating item, just ask was quarters. four one, Okay. the fee think run just I the a

there is anything Just was guys. run rate or new for wondering unusual this you a if

Don Kimble

had had value. declines two enough some could the be net interesting quarter we income. so essentially other just of current each in Yeah, on The in for high quarter a small and the residual lease will losses that a gain the operating we go and and the through those, that actually out, little provision expense actually

Peter Winter

much. thanks very Okay,

Operator

ahead. question next the go O'Connor Matt Your Bank. of from comes Deutsche from line Please

Matt O’Connor

Good morning.

Don Kimble

morning. Good

Beth Mooney

Hi.

Matt O’Connor

was in the of XXX the quarter much million savings of How second rate? run

Don Kimble

of there quarter, number end at of is that launch a expense had What would the June were programs of we've I XX. say the date a said we around really the

And so, future right third savings. into still the in about have $XX upwards we going for million of run quarter

Matt O’Connor

Okay, things I to what going about, kind be we the down XQ tends XQ XX. some cost as is that's are and There puts from some of takes driving and like know, think other to there. else guess then seasonality I

Don Kimble

beyond far But is between that for before, highlighted efforts Matt and we've markets have the really we biggest associated connection with The continuous that capital incentive variable expenses is revenue. as other also then the there we the improvement. as in direct slide And revenues. shown a as related that

we're XXX, So we've done not our even though achieved yet.

Matt O’Connor

or additional any beyond? then you the and expect efficiency repositioning second in half and charges do Okay,

Don Kimble

We charges. forward. those there incorporate going the would guidance think was Our don't material

Matt O’Connor

Thank perfect. Alright, Okay. you.

Don Kimble

Thank you.

Operator

Your of Martinez Saul UBS. next go Please line the comes from ahead. question from

Saul Martinez

morning. good Hey,

Road how you not which did of items, overall it. expense contribute off expenses mentioned level missed don't much quarter? I know if the to this, your and maybe the is one base this Laurel I Just But

Don Kimble

notable is quarter, Laurel And this the as reported $XX some that as items expenses of we related expenses. had Yeah, million. noted, far deal as we there Road the in

Saul Martinez

it the – was million core I'm was one I not terms mistaken. Right, time think if item but expenses, of to the X in

Don Kimble

correct. That's

a core but the less little XX, that was range. So, than in

Saul Martinez

Okay, contribution Road? material any from revenue Laurel yet

Don Kimble

The revenue contribution $XXX been growth really so originated we so over far million. that in loan has and

it time. So, be will over building

annuity didn't that that's the over that so be have impact dramatic building will but of second stream quarter, a And – really time.

Saul Martinez

retain? of the I that plus XX%, residential you did million in you XXX that it how much Got of and mortgages, mistaken I'm if you retained not XXX think million, but that mentioned some

Don Kimble

Road Laurel was we real XX% the of residential the That XXX% originations. for estate retained originations had. We've

have make we the into transaction for second of on just the stay a we in process sale do current working though forward. the markets we Laurel to sure and Road a on $XXX those what million that equity in of and quarter securitization we're production going potential then about the assets, held us for is have through transferred Now, avenues see

Saul Martinez

intention to is your retain majority forward but of that. going the vast Right,

Don Kimble

That's correct.

Saul Martinez

interest on pick what Can And give up to of of origination? a what of you the terms kind yield are of level just get we expect just us close if – could this something to you kind what maintain a income sense those? of sense

Don Kimble

points. as that about the yields we basis XX by quarter, X% the long Yeah, of down about the we has end of around ended second were up talking curve moved

very strong low So, on in range FICO XXX scores to on current as that the we're XXX tend years and content with. around life Average we're loans and it's probably the so to spread. far loss consumers yields very working those more again and as based that for be

Saul Martinez

Got it helpful. lot. Thanks that's a

Operator

comes Your go Sparks. of the Mosby next ahead. Please from line question Vining Marty from

Marty Mosby

Thanks.

Don Kimble

Good morning.

Beth Mooney

Good morning,

Marty Mosby

to into we I around good around actually It out at margin, we're XXX now NII XXX. at started X%. this the PAA. to exclude look drill want because if down you And morning. peaked Hey, almost margin core your if

of that So downside, what's as you XXX to how X% your earlier the the cost can – hedges going the from X% on to close to lock much actually much limit how is related the as to of forward. move you the mentioned cost because in as you

there this these hedges? basis to in So, quarter of XX costs related to points close particular is

Don Kimble

there, quarter come expecting see recovery loan we a this a actually loan In there and slight are we're couple on saw Marty. fees to the significantly. things fees down. down is that One No,

And so, are compared to fees about that peak three period, our loan basis margin. the points on us costing

talked net eight swaps at the quarter, that's look well. our basis and basis basis five about you the about that's to but XX six of If peak it was quarter, additional cost has as have or nine or that points compared second first there points in from would costs clearly period the in down there from around that you cost points a been

was hopefully of a cost positioning from margin for there those a a the we're to so that. and initially benefits But position for to both continuing impact see prospectively. had asset have us negative on more neutral establish And

is activity on front, the board as far the category. as to just once much pick seeing syndicated see start again that that being expect down that refinance we across of refinancing the to been products, year-over-year the seeing and pick we in would that And up start to what there we're see we're again up has On slower. some fee especially loan loan

Marty Mosby

that folks some just So, compression limits on to quarter. this that emphasize, related significant downside. in of also is seeing insurance amount wanted what margin this are A putting I the to of then

lower the if time lower, how in restructuring like and looking to are XXX. you you do range That it's in upper and that back gives somewhere confidence scenario, zero range done? land So, once the we did then we a three the But and worst all the get end much where to before, interest we the last of end or rates, between was said of we're sense cycle XXX. at of case X% that

Don Kimble

wish that predict accurately. could I I

I that and but our in we think is that continued position think as surprised yield take is neutral, the of we a things that liability changes curve plenty way one movement. to can we've the asset be

now are maintain sure our curve can we that in looking we better end over that expect you positioned we short is month. can. as and look done If very to the the days, as much peers, in end we the later XX approach margin But of to last prospectively points this than XX the of that basis that stability curve, we're coming and make we we've points longer think probably deliberate XX XX basis down at just whereas been

Marty Mosby

timing of any the loading And quarters then year? front get this the that what's lastly, just or to into more next share activities the over even repurchase four

Don Kimble

outside, period compensation that fairly different couple would of more, able for throughout consistent the generally four I would were, pretty assume throughout employee quarters we programs time the quarters that I where a where but buy say a little consistent might be but quarters. to have there's back that generally we're there issuance some are

Marty Mosby

Thanks.

Don Kimble

you. Thank

Operator

the comes ahead. Your from go of next Jefferies. question line Please Ken Usdin from

Ken Usdin

basis guys. this the XX heading about on you deck just morning, see that for over yield talk couple in forward? given Good you follow environment points can that the going the you Don, mentioned do roll had Thanks. right positive securities still quarter, ups, you portfolio? Where

Don Kimble

Yeah, first – to went it quarter point points, closer and you're it XXX right probably XX this the the basis range XX so we're to last was quarter, we basis had XX in today.

still a we have So, investment on low yield our fairly portfolio.

quarter. So pick have a we than would up there less markets it's there. seen is still what But last than today's

Ken Usdin

the Okay. that And at? that to then loans are the you're yields Laurel And yield book? does of loan the Road putting compare on how what average

Don Kimble

this a first moved Yeah, closer we were X% we when quarter, range, to that would started seeing end Today XXX – the yield because we're say. much. the I by yield of down curve XXX to the of about the down has

it's so on that really, focused of spread. And kind

it the neutral. that forward. category, it's overall to I out two fairly loan to the going And think should But I compared yields, compared think so, of be

Ken Usdin

first mentioned last Okay. to does you you was from I incrementally a how one had helper And part terminated much – continue swaps half from the of of think that quarter be that of the the burden lower lastly, of the in things year, here?

Don Kimble

X X in third second of It million quarter the the quarter. was in quarter. It's hit the fourth about about $X million and million in about

So, quarter. incremental there an basis each on some is slight hiccup

Ken Usdin

one And one, it. deposit got costs. just the last on Okay,

the which so, customer due the see over. index the what the the should with You costs of mentioned part, mostly behavior? deposit do to you pace Is if then happening part? And roll that non-index just

Don Kimble

with very move changes. coming rate overall down, rate the as far As the the index quickly parts

phase that administered time more And of some it's to in. rates so, take the

we And deposit so of to the only in basis points five up see then basis quarter. rates that first the XX would second benefit our in And that's expect quarter. why about be in to points

really through grades. it managing is administered so, those And more

Ken Usdin

Thanks a lot Don.

Don Kimble

Thank you.

Operator

line comes from the Your ahead. Foran from Research. next of Autonomous question Please go [ph] Brian

Unidentified Analyst

good Hi, morning.

Don Kimble

morning. Good

Unidentified Analyst

the Maybe full charge year guide? or housekeeping, one the do that expense put it's I just just the it And excluded from offline? fraud, through can confirm we

Don Kimble

believe a fraud guidance. year through full as the from excluded through loss going is And do that to we it an we expense offs. opposed Yeah, as charge as

Unidentified Analyst

said you'd or linked of revenue but Okay. in guide, on independent? the hit were And on another expenses came there the expenses revenue beat where expenses Is talking a the scenario outlook or the on beat it that end only at the your more below maybe or revenue end expenses like core little on if up is maybe mind low when the with being be guide full would year even a low is, you about range. way then or the Or you the short?

Don Kimble

or I higher was slightly cause our the expense consistent for revenues being come our going opportunity would side revenue guidance, further outlook. even forward, on we say there's would the with is And to if think associated through. that would to expenses our stronger at that expenses with – down. and would I the miss if corresponding come be coming number that below expenses What revenue if

Unidentified Analyst

very big I missed proven hedges quickly, obviously the this, are I it apologize differentiator. a then to and and Got if be

how term and say we the duration done, Did put long well in. is? So you or last what the have them they'll

Don Kimble

Yeah, an two some swaps two year and balance sure we've with as little making ones, And had, and that going recently in a entered sheet the interest been keep some improvements for the into they're on data the half consistent. the years, we longer about recent more the new of match over life that as we've average into place swaps, have of of and floors a some that full we've putting to average, more far here rate would years.

we it's we position. overall and try that closely that we how as So, manage to as be something far watch very conservative fairly

Unidentified Analyst

you. thank Great,

Don Kimble

you. Thank

Operator

from question ahead. Please Your next comes the RBC. Cassidy line Gerard of go from

Gerard Cassidy

Beth. Good Don. morning, Good morning

Beth Mooney

Morning. Good

Don Kimble

morning. Good

Gerard Cassidy

commercial your seems Can curve saying standpoint that customers, ground? you in customers from that you considering the year? environment and what guys the to a the on is share forward week. XXX customers your the forward think cuts what disconnect And between dramatic, curve our be doesn't are Is appear particular there macroeconomic rather are seeing expecting this with it three us

Chris Gorman

a we're them. Gerard, of I just be lot having remain been sentiment and read a hearing trade their to also about it's certainly feel clients, because away. positive. would continue labor staff There's areas the degree regularly. would flat, kind there the discussions with say our continue operations, talking could doesn't also to our doing doesn't Chris, it some as tension real it you to from to concerned we're clients. tone strategic I'd I We're at sentiment, say of as our workers give But same up there's uncertainty. it's It the feel bid it's and to and employees feel you The workers of of would the if help think of non-skilled the curve. quarter-over-quarter, on with say look I both a knowledge which very out to would doesn't hire clients forward some hard is. what very balance, of you kind

Gerard Cassidy

a they percentage weakening there strong your in leverage seeing if number as and is their giant of quarter. not have what area and one Very color credit, trends some some that loans any in but Can to you credits. private loan credit good curious to also and obviously on of number, smaller be see portfolio? guys know I some stable your concentrated fairly your give equity a But restaurant any off it's it's show then you're total peers regional or called announcements leverage It's this been for loans a – years. no, seem your had so quite of stable?

Chris Gorman

portfolio. a First that that is is Niagara. our we that's way portfolio even nothing portfolio it at at which closely in was its point a $X deterioration by what before the in of portfolio, Chris, very, that acquired very we Gerard, sign the in billion believe There obviously look It's is cycle. this we a

have a at very, are level. So, of of companies in market our at $X these can you consistent been are has focus. well It and we middle billion as staying lot very imagine that areas that velocity

good is portfolio, So, watch the feel it closely. but we very a we about portfolio

Gerard Cassidy

could for loans keeping to finally servicing assume. you just can then start you Laurel Don, selling, assume and it good I selling the Road base mortgage where heard sell some customer I I gain that and get maybe you're so correctly able of actually you their from if customers? – of to Very you off traction, speaking when some the these mentioned do cross that folks business into you think other cross about

Don Kimble

and Gerard, off a we we're mortgage hopefully And be so We're consolidation that has actually Laurel capabilities Road position we're they've continuing securitizing customers well. to your to before Yeah, small doing point a to launched in refine some those this the Road as something far as of to we just as already and avenues product. additional some And products, existing is offered and retail our had that Laurel to a offer loans. kept securitization open done student make want transaction. those sure

plans we'll see products there. to continuing to customer further offer services of so, can we're And and the base. some to types start on increase we work to traction that And

has think bright about So, and digital excited it us. for we're real capabilities the they bring I a future that

Gerard Cassidy

Thank you.

Operator

[Operator time, are no this questions. there And Instructions] at further

Beth Mooney

all of we thank and you for participating you, call our Alright, operator in well, today. thank

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

Operator

Thank you conference your Teleconference. using conclude does for the your for Executive that AT&T gentlemen, and and participation Ladies for today.

You may disconnect. now

KeyCorp (KEY) 23 Jul 192019 Q2 Earnings call transcript