KEY - Earnings call transcript Q2 2020

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Operator

Good morning and welcome to KeyCorp's Second Quarter 2020 Earnings Conference Call.

As a reminder, this conference is being recorded. I would now like to turn the conference over to the Chairman and CEO, Chris Gorman. Please go ahead.

Chris Gorman

Thank you, Greg. to quarter welcome call. earnings and morning, KeyCorp's XXXX second conference Good

Slide statement Slide me Don financial comments Midkiff, well now and Officer. are the measures. I'm our our call. as is our Risk Joining presentation call as Officer; It Kimble, covers for materials and forward-looking on disclosure Chief X. our Financial Chief question-and-answer to X non-GAAP of our and moving Mark segment

quarter this you loan $X.XX earnings saw charge-offs second in or we As included losses, for per million $.XX net of release share, provision morning, results press exceeded our by per $XXX share. reported our a which

our for management dedication quarter and to team strong strong attributable to and clients, commitment the our disciplined balance of results practices. sheet risk our resiliency and their Our our are serving

positive the period. ago the for we Importantly, quarter, leverage compared with year operating generated

double-digit the and strength growth XX% Additionally, fee-based by also in a record was payments we reported businesses, cards businesses markets of a our reflecting and up in of pre-provision consumer Revenue as and businesses, prior driven broad-based quarter, as revenue. well mortgage. growth net both from our level capital record, deposits loans

performance. were mortgage with demonstrated of business consumer from year. $XX tripled second last income Our up billion million mortgage a of record $X.X XXX% quarter fee year-over-year, continued consumer momentum Originations and more than

success demonstrated our investments mortgage. recent the further of Our performance in residential

and we the steps safety as related to of Our costs reflected ensure our continued health pipeline payments production-related XXXX. quarter is including this that take such, teammates. performance of our expect for higher in to expenses, continue currently And levels. and second to business Expenses record strong we the half at COVID-XX-related incentives,

$X we provide processed the clients by billion support our lender Notably, bridge Program. support, payment hundreds in these a clients. very were options active We in overall saved for help to borrower assistance also and jobs. Funding uncertain the the hardship to We program and times. individuals programs of were through and seventh forbearance businesses supported that over in deferrals, our Paycheck Protection thousands funding of offering

credit turning Now to quality.

continued strong benefit culture. from to We have risk our

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

loss exceeded We reserve also this our expenses our loan as quarter significantly provision increased net charge-offs.

to allowance period-end PPP as stands now loan excluding loans. Our losses X.XX%, at percentage of X.XX% or a loans

X capital We second remain our our will achieve the of within and, financial return quarter, third Finally, restating for is X.X%. this increased company. that quarter. Tier in position month, close to Earlier we a had level. our the targeted capital ability the and share Key is by our have strong ratio to common while maintained which equity of to a our shareholders. dividend second our Directors of declared X.X%, to range In continuing to quarter Board long-term outlook our confident our for consistent with $X.XXX per I strong importantly, that both our quarter, X% targets

are highly perform periods stressed We including operating have various cycles, today. to the positioned the in company business we like through one

importantly, risk profile. and clients capitalized, our to Most our to support revitalize our play well committed role committed for to maintaining Key remain help our continue to delivering a stakeholders. of moderate remains liquid will we value and We highly economy. all

Don? the results Don to the of turn me let to Now over through quarter. the call go

Don Kimble

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

net charge-offs was As of continuing $X.XX share. Notable quarter common million that per $X.XX $XXX operations our this from net income by share. exceeded or Chris reported we said, provision second per quarter expense

Our were including items many double-digit of this results of deposits. consumer mortgage. a in growth with of I'll both in and cards quarter on in the standout presentation. cover loans balance investment Fees the banking, my and and reflected number also in this rest also areas, a strong payments our with sheet growth slide strong results remaining

mortgage and PPP were Slide $X loans we an residential to loans. Consumer commercial up X. from million loans add loans of continue on of portfolio. Turning and by benefited to loan loans an billion reflected loans loans. XX% billion made performance $X.X growth average were residential the billion Total Laurel $XXX year, $XXX XX%. in of originated increase second Road strong up and, over billion, $X the both from quarter consumer have average driven The student drive last Commercial mentioned, quarter balances we consolidation average Chris areas investments in importantly, generated high-quality or from and, balances business. from continued Laurel results in Road basis. our of Linked quarter, to as these this mortgage growth

in the prior XX quarter. reflecting down continue in XX% and for Importantly, moderate We the in to or primarily the quarter consumer cycle, XX% deposit $XX period, quarter, meet walked through profile. both we ago does the Continuing up and from decline the rates managed well expect to to with linked points from consumer was costs Slide Average of impact Growth we remain associated have billion lower was deposit our came to points a reflects deposits our this lower credit stimulus our risk rates. interest year from commercial Total growth interest-bearing quarter would driven business This not clients. commercial year payments approximately by disciplined totaled to prior as underwriting on growth committed The consumer of from remained XX interest then We that X. second costs business longer-term from perspective. and and quarter. credit pricing. deposits with well and related compared basis decline growth quality the away as increase up lower by the performing broad-based billion prior the spending. basis and $XXX lag the to third offset time XXXX,

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

Slide million equivalent to Taxable X. of XXXX both net compared the year $X.XXX in $XXX quarter for income and interest quarter. second billion was to the Turning ago prior

the quarter. government last in Our The larger the interest in points reduced margin. growth in was significant the other inflows. compared sheet meaningfully balance quarter net X.XX% driven interest second deposit change net in but net pressure, points. interest I levels negatively elevated rates and, X.XX% the and for impacted basis margin lower quarter, margin programs. for income strong a increased with of including $XX income and XX as sheet, net The year were margin. X same in for and XXXX interest X.XX% Lower – lower year, of margin the the Liquidity of and was due balances, benefited caused net program. impact Program reduced basis the X prior net period and levels higher increase to interest Compared significant to XXXX margin balance sheet quarter liquidity mentioned, by the offset by by by on our Both balance second our PPP points impacted the prior by participation PPP Paycheck net impacted interest a driven a in of of loans net income combined yields rates Protection and margin million, by liquidity, interest interest asset to of the the interest stimulus due basis interest the of interest net partially earning lower

Moving Slide X. to

businesses placement year and I'm improvement debt ago $XXX million, second commercial in of expense second Noninterest $X.XXX first XXXX. fee to driven in of the ago and driven $XXX debt as increase of largest fee-based increase discussed period mortgage that quarter million drivers million and primary first period, to for of income a from was leveraged million Total XX. included Our quarter $XX now operating turning fees, noninterest Slide a by I year the to a for $XX XXXX investment charges and was strong the capital of larger also to the declined quarter valuation activity. of primarily increased increase million record mortgage million and increased banking markets driven and income, mortgage first from programs, million. lease the already in very our quarter gains of in and by other notable of quarter-over-quarter personnel-related levels driver income the of Cards quarter to in the $XXX market-related noninterest in the $X.XXXX million compared by with income items, Compared well strong for XXXX, year deposit the $XXX as significant associated level reflecting billion had increased The activity quarter. consumer the payments leveraged record was primarily million. last compared increased loan $XX by to quarter. originations Service million $XX million lease a million increase million gains of the Compared an driver initiatives. quarter prior $XX government an quarter. business ago ago card $XXX $XX efficiency included waivers. billion The support The number and period, XXXX. consumer had Other was in quarter costs on year and accounts adjustments in year noninterest with leases. quarterly income $XX lower the related state expense activity $XX of related prepaid the fees

year to expenses due $XX quarter drivers, $XX steps the the million and company main the and drivers banking health compensation safety ago related these, to to production and expense were is current Excluding two increase increase noninterest revenue as due COVID-XX-related The prior other payments- in investment higher $XX the of largely taken the expenses our $XX costs cost that consumer million $XX has payments as million The mortgage to of COVID-XX-related incentive Other million increase strong Compared from incurred the ensure businesses. primarily in of related teammates. of to up to included period. well expenses. from was and our million. increased quarter quarter, of linked stock-based related

to Slide XX. now Moving

impact mentioned quarter As earlier, the to reserves. largest in I our results this the is our build

million remained charge-offs points $X.XX basis credit Net basis XX or this quarter. charge-offs of were credit period-end share. million quality quarter average compared $XXX for million $XX Our $XXX losses exceeded loans were loans net $XXX XX by or total points the quarter of or solid. per provision in to trends Nonperforming or loans. prior basis this million very XX Overall, points

stable, to that declining XX- level of the quarter-over-quarter. requests customers. Additionally, our to We've less with received monitor assistance XX-day than increase plus continued a dues XX-day past and from remained X% relatively the in delinquencies category our also we

materially. changed not Over quarter, the has the of past percent forbearance loan

As loans XX, of were consumer on accounts for about number when X.X% the X% forbearance terms commercial subject based balances. of and June both using to and around loans, outstanding

Turning to Slide XX.

a updated loan balances. the our or included greater that represent industries also percentage that disclosure our focus XX-Q portfolios These certain in total quarter first highlights are We that of small in customer a receiving we groups environment.

a Importantly, outstanding as quarter. to consistent in XX of active Chris June late these Each activity areas the subject be mentioned, expectations. as reflect the and our monitoring. The with in are continue draw to occurred reviews relationship some that as to group, balances they shown continues of perform focus enhanced and

Now on to XX. Slide

of strong capital. continue a maintain to level We

X.X%. within X We capital provide This operating the to customers time, X.X% places to quarter, sufficient to Tier support in over our us shareholders. increased targeted return to back common our their range borrowing to X.X%, from will us our and, capacity which continue targeted of range and believe our that ratio X% needs equity

Board quarter was of the approved quarter, Chris moving recognizing provided our Directors our common share, that still our dividend per dividend which insights As level. Slide quarter we're with XX, for of unchartered third best this second mentioned through some On a $X.XXX earlier month, territory. we third consistent

reduction our to We third expected reflecting relatively consumer commercial portfolio. modest quarter. in in expect are average Average stable remain loans deposits more the relatively line stable, growth be a in to and draws

in operating the be would a lower we've Overall, high point net but linked-quarter payments digits noninterest comments in rapidly, margin. improvement mortgage reflecting on be Noninterest in expenses. are incentive are for record stable ongoing third decline single expenses and Our to we the and will consumer from low modest income. a COVID-related low single-digit to expected Net basis a production single-digit compensation, be the include outlook increase, range. balance quarter outlook can likely on related this continues XX to dependent sheet business to for gains provided. fees expect and are and to change highly quarter income in a saw XX down income impact net from This I charge-offs would interest relatively support step-down cost in leases. the Noninterest expected which interest and our environment

Finally, the our are shown of the bottom long-term slide at targets.

economic not this Given expect downturn, we to the year. would our targets achieve

from emerge path we be to back as the ranges. current we However, operate crisis, lead us that on expect target would these within to the

wavered I'll back With long-term call. over that, of from not achieve the the instructions for our targets. have we portion Importantly, operator call commitment our to our turn the for Q&A Operator? to

Operator

question comes Ken the Usdin Please from Thank of you. [Operator go from Instructions] ahead. line Your first Jefferies.

Ken Usdin

Thanks, guys. Good morning, everyone.

Don Kimble

morning. Good

Ken Usdin

for ask wanted about outlook to your following the of just kind Don, points. I reserving, on

at bank on some ex the the comfort underlying guys know, trends? how terms reserve this reserve live how the do And You understandably took look on Thanks. level given that's we PPP a where want you to for ACL, the all of up The are underlyings think X.XX% do quarter, builds? moving. you will coming in questions calls, outlook you bigger of

Don Kimble

I And XX used that as be to outlook we reasonable a very would Yes. early was kind for that much that that start of based a We of our believe quarter, XX the general if And outlooks. parts in Moody's through consider with on June as the estimate you the we unlike June outlook. change rule, what the look say our the consensus to economic allowance we reserves, establish July. seen first haven't of we of at would

You with quarter that expectation did we the had that and we used that as contrast where builds, of would estimates reserve believe we March in are we be decline, that saw reasonable. first the that the XX what so reserves an there

nature loans what total loans I that the composition take this I would consumer improve of of ratio, and to generally XX% think our also would consumer. higher to adverse a have say the and reflective would at XX% portfolio. on. you might if higher it's commercial and severely also the reserve look And scenarios we're coverage a And a reserves level

Ken Usdin

on it. one Got second And NII. just

understand and point the portfolio such? us NIM yield the for you you're just Don. gave X calculation. fees help of what the Can was accounting PPP in of dollars your is the You impact and on Thanks, basis what part how the PPP the impact and

Don Kimble

and estimated swap the of yield set loan of themselves like also quarter, had that's things the by PPP, drag assign loans Sure. miscellaneous We what we funds do this average that product some it we and Sure. X.XX%. amortized other a the a of this That had to yield the to north we that our ineffectiveness just And of fees loan on the NIM the and NIM. the program. And are then that the related impact portfolio that of two-year some X% quarter. items, overall over cost the take points the to is would X have blended determine portfolio, would as in that half for average is life about on assumed in the was including basis to order and that, so

Ken Usdin

Thanks, Okay. Don.

Don Kimble

you. Thank

Operator

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

John Pancari

Good morning.

Don Kimble

Good morning.

John Pancari

back reserve. around – the to On Ken's question

the mentioned macro You assumptions.

it I And the color interested went If Moody's one DFAST? XXXX from half your company us October I you now differ most about of purely how your a that. right disclosed Was is, on recent little severely-adverse guess that with? it just run. that also I'm more the is mean you of give mid-cycle, reserve could the you what does

on now. to where you the DFAST between your kind where a versus trying difference on sitting there scenario just of I'm is reserve out Thanks. stress at triangulate came So

Don Kimble

One, loss have of Sure. be loans period. a stress will have the could different stress have losses the assume would which that during different for you set using you models couple assumptions would And that what are CECL, than stress some scenarios. The assumptions of of for originated than And a are it's things. stress CECL. also DFAST and would that life of you on the loan, scenarios a for what

are And unique. would so be differences that there there some

assumptions start again look We If economic consensus you estimates. that that do the at adjustments. use, with we make we

unemployment qualitative would our to quarter for back we an based have assume X% including example, result some don't and allowance that have of also But the until XXXX. in different fourth adjustments of XXXX economic rate XXXX loan GDP single the the the quarter grades late in of half to make adjustments we level things factors, and does We some like upper XXXX. in of assumptions throughout base would that, on it get currency second in we a continue some and our had, so that experienced fourth of would It of in digits up. the the

programs Act are And so significant have commercial have does some play both models consumers. PPP provided. our that into the a that the and is our helped with of and the say stimulus for other The customers other program assumptions impact fairly others and also outlook these for thing Cares conservative. also for come the stimulus and would that bridge provide I for

DFAST the with a are results. stress consumers level unemployment have that that would contemplated received additional been not the scenarios have with at support the in Just the

John Pancari

your where on thanks. you're your stress asset I'm is in just to Okay, the of as bit get more around hit. that a to looks the areas, to but NPAs like going side. be seeing assuming just COVID-sensitive up bit the wanted in clarity And start were criticized pressure helpful. credit detail That’s up legged well. little the on they get that mean separately, and quarter want additional then – a little to a I

Don Kimble

No.

categories the the than in COVID. More gas driving areas classified. for in, both NPLs of some and right. those came of commercial increase I increase it's that for whether both consumer-based absolutely businesses oil and are in related mean XXX% to or and criticized You're

Chris Gorman

this distinction. – the COVID. portfolio, the mechanism. Chris, reserve-based, which The that just gas and industry is point. is is type very lending, Obviously, and only exposure to and I this went an I is portfolio, only down which of by self-correcting our is an whole, Two-thirds downstream important you'll prior on really I'd a add which oil a The piece John. is cycle even gas into the thing than think oil more which the small think exposure see is is as is our cyclical of asset-based is strategy we have a What services, really important

John Pancari

Got it.

Okay. Thanks, Chris.

Operator

Please Your America. next question Najarian the Erika line of Bank of go comes from ahead. from

Erika Najarian

good Hi, morning.

Don Kimble

Good morning.

Erika Najarian

I'm portfolio federal of significantly portfolio, access loss to cycle? terms debt your I Slide terms Ken which allowance presentation, going of to peers at wondering, help on on piggyback And to what direct John's just this rate compares are think is that guess that as When or markets? kind you $XXX gives portfolio that your you'll stimulus I'm expectations corporations what for the of reserve of your XX what your X%. peers in question. have outperform cumulative and don't your cycle. And is you to close assumptions million, about for to are contrast the C&I looking confidence in making this capital that government always I I'm your And

Don Kimble

Sure, Erika.

a I think in earlier, company that highlighted Chris that our the underlying we've profile reserve this significant last the far is and credit for as had the change levels, downturn. since – As which

I note. so to think that's important And

end that's the year and our as XX% look is a from we're take at roughly grade, just of portfolio you XX% a up quarter, of positioned current commercial ago. If the of where investment

there the we a migration And so group. that have suggest would as relationship far credit that is continued core strength underlying as a we're as seeing

as for The The to included as additional loans far put other different of already any category. what thing piece, of not a would is government are C&I in government last be was level us the that beyond of that through the support as Act. Cares part passed and some the assuming bit little we're support, compared that peers PPP

interim not significant to benefited a to through provide far loss bridge future other period. what's assumptions than that's or And that been contribution realized this so as helping as some already of

that think I just and of again, the see quality credit reflective more So that it's portfolio we see underlying we today. how

Erika Najarian

second Got it. is for question And the Chris.

base have cycle. obviously, So you this you clear won't remain that. of to if withstand that plenty even you Chris, eat it's investor to the And profitable, through capital

test perhaps I the threw by on the And income However, your dividends from that's you third for versus compare say test here to is earning a this the is reserve extended on beyond investors where us can curveball how Fed balancing that your capital a implementing quarter, to the more income than you're essentially separate are question peers getting a guess levels. if basis $X.XXX a separate level pre-preferred done cycle? GAAP it and

Chris Gorman

couple we on a – One, a that. of just cycle where end the basis. our thoughts so questions duration be of quarter, quick couple of Well, reserves a credit are for on through of – at second think the they the the the case-by-case should obviously,

we properly we're that So think reserved.

other And support of really be the it. our dividend thing, our a of keep and to million credit is checked mean two dividend I we able PPNR in to pay We kind well taking that to boxes. in of manage mind those both strong is to growth. in to quarter. reserve out-earn the to important have able $XXX this PPNR we took have we things Erika, to spite The were

we way we are. a So dynamic we're but where It's good positioned. the feel we environment, about obviously like

Erika Najarian

Thank it. Got you.

Operator

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

Saul Martinez

guys. morning, good Hey,

Chris Gorman

Good morning.

Saul Martinez

do But $X impact about billion plausible. Are timing? any, a very, kind if and very and to to rates? for subject think can how the the and forgiveness? Just the – of is magnitude seems impact those help a NII which you of of gains? potential forgiveness high I just size understand I sizable I think of can frame mean, assuming XQ, you you more these potential from for – pretty gains how we What fairly this all just know of – include does high that error, help assuming fluid us of on – NII if you the guide, you that will gains And fairly PPP, is forgiveness – the broadly, about margin the next you're rate, us but coming if quarters? can think guys over thinking

Don Kimble

I customers. Sure. to started a from this we've far of as that our quarter some say would receive of already handful just forgiveness requests as

our for the what quarter. not that coming say So that We have forgiveness, probably think the of does don't the would for therefore, forgiveness that with, but XX% for quarter expectation fee would the of just fourth third We be, loans quarter. XX% the would a time, that recognition significant of most crystal contribution a occur of of ball and somewhere be any around fourth or have the income. coming expecting acceleration and – now from pay in would would eligible would in rapid again, we're exact down but over the majority number just those remaining that's placeholder the

Saul Martinez

it But in Or third contemplate your does anything quarter? it guidance, the is explicitly just…

Don Kimble

in Most income the reductions and basis Very, we're is causing of rates deposit place. the down we've still that in the points, for by net offsets assuming of that Yes. the very modest. net XX fact additional LIBOR come an put impact further will from that interest hedging what's that our us growth

Saul Martinez

related that average balance the fully flat. that NII on I is grasp loan is Okay. a being I don't guess question

$XXX were loans about period-end billion. Your

imply average to average, from Your levels. quarter flat, was billion, to period-end – have the would closer to for, end-of-period at the be up $XXX period step the which from

Or just I I square you $XXX expecting loans billion? help from so of math? that? you up about what Am thinking drives to it that right? so, away end-of-period can me if kind jump guess, And are And

Don Kimble

balances I PPP We for up that categories some have average growth and residential mortgage, quarter. in but the both our end-of-the-quarter assuming will we're consumer for the that fluctuations that on on daily for did outlook, Road we will and loan be Laurel would linked say have balances,

draws of the would so repayments commercial And just the you some further and prepayments have offset be line or the on what side. of

Saul Martinez

this expect So to in grow quarter? balances EOP third you do the

Don Kimble

quarter. of the second the from That's correct. Grow end

Saul Martinez

right. All okay. much. Okay, Thanks very

Operator

Your comes the Terry McEvoy next line Please Stephens. from from ahead. go question of

Terry McEvoy

I the talk Hi, remain payments next good could about and near-term couple for of Don, over – card activity you the if income. Will the was prepaid cards morning. quarters? wondering will high that outlook

Don Kimble

for for It remain support high and that quarters. that we year are into the the of throughout Many year probably next well. various in put as part those would first couple continue the will this expect of next of programs and have place, states to

Terry McEvoy

things as long-term on you a achieving of specific you Key that's And macro or if specifically XX% are guess and then quite more could to that from that to hitting maybe us XX% if follow-up, wondering helping those to ROTCE, a help I bit step-up Key here? just of get Page some understand levels. there those some to here, has levers obviously. the to I'm And of XX targets just

Don Kimble

higher is future. the would in of macro and credit right portion much for core rate the that on a see than now Good what are basis we run costs

one that's components. so And the of

only our and income negative with total The a rates it OCI level absolute revenues, net interest have not equity positive. of other on low numbers the that go is as also impact increases the

later where the we clearly be see first to expect see want us think And quarter. that couple And significant well. we're equity back think another don't this But so to of next challenging early or on targeting you time, as we'll in year we'll bleed some well, that that a at little as point I reported to up get up down tangible for we've I this return year. bit provide step just into year because support again in going that for that that common to even the which was is quarters more this environment improvements range. from

Terry McEvoy

Thanks insight, for Don. the

Don Kimble

Thank you.

Operator

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

Janet Lee

share Hi, guess, about, Lee the breakdown by the On volumes can X.X% second of deferral for have deferrals these have loans deferrals end a question Steve. trending you total on deferral. on at I $X.X this I exposure? is been loan since industry or your of of And Janet billion, quarter?

Don Kimble

One, were the quarter. at the as deferral flat end second they're fairly with the of where far as balances, they

And so change we level. haven't seen of much absolute in a the

what As down were XX% quarter. at those end about requests, first of new far the the as experiencing the from we are

And more would usual much of on it still it's as the that the deferrals so be the in requests little as as second – and mortgage a side fairly so overall side, consistent far the bit higher. mix might far say we'll We're from far as seeing be residential as as the takeaways that those and from it's yet, migration. do as as learn a so round commercial of than within where that but X.X% low, as have more others, any not are I that groups far consumer way elevated industry Mark, that forward. a very than you that been as any going that? would insights bit little categories like far in

Mark Midkiff

be area estate in real commercial side. the our book on highest would The commercial

Janet Lee

I helpful. a energy on have That's follow-up right. All book.

to in share criticized energy you So the percentage what against you energy portfolio? of quarter the allocated attributable what's the loan book? the level the was Thanks. And also increase of reserves can

Don Kimble

Yes.

comfortable that far say we've about in would determination that as based assessments that don't on feel we the We reserve I renewed we've – put that know reserve where reserve the levels, place. what I were As are. disclosed established is. that

majority where and I that portfolio higher that mentioned the more little bit think very is as you an of had a services reserve-based little oilfield tend overall. reserves see to Chris earlier

to the from say, oil is quarter. or thereabouts increase what about the in I of gas the would as generally half last and we saw far As increase nonaccrual,

Chris Gorman

$X.X scope of X% about And size it's a portfolio, outstandings. to it, that's just the about billion of our

Janet Lee

All right. right? And nonaccruals, criticized? to that was Not referring

Don Kimble

It type a would similar as as increase. trend be far of relative the percentage both of overall the for

Janet Lee

All it. my taking questions. thanks Got right, for

Don Kimble

Thank you.

Operator

Scott the from Sandler. we’ll [Operator go Siefers Instructions] Please Next, ahead. go Piper line to of

Scott Siefers

the question. for guys. taking morning, Good Thanks

Don Kimble

morning, Good Scott.

Scott Siefers

a hoping there. the how was pipeline I minute banking talking you just and are things spend trending about could investment

side placement between of rest the balance sense a get to the sustainability the debt of even and trying business? sort this revenues, Just level for maybe a of of the

Chris Gorman

And I pipelines Sure. huge issuance from benefit much a banking of not Scott, but That strong. banks the piece piece. we the of label was investment as the investment-grade our – business, in would debt. that's as as record area, largest didn't obviously a our our

commercial our really has that side, this it And mortgage well. positive business to continue I in rate really, well. performed perform environment, the On would anticipate will

equation, On discovery, balance ago. in people don't that, this than we M&A Having year – our its have as down. a in way in that as the the price side is higher it said obviously, of I total, the now the pipeline of are backlog But see right was for strong. would other working characterize year, backlog I

As it's you market know, well dependent.

Scott Siefers

Yes.

of to you're – the then hear any loan as have growth on growth end-of-period you to regionals go I side, I reported And the sort helpful sense back strength Thank on stability saying what you. portfolio. perfect. have much the Okay, of consumer just in for that the even is because the look Definitely question. loan guys, or haven't think which really most at in larger had same as

good. definitely that's So

customer of commercial – et how your feeling, debts, on cetera. curious what sort typical telling you, appetite of take is they're tenor your to new Just overall

Chris Gorman

Sure.

commercial out talking actually can of sounds easiest of you time. our hold traveling career we're the counterintuitive, available. imagine, because seen one's my but as all in What's the I all a clients say it to decision-makers everyone the is would this, get interesting, kind that had no and the to it's So everyone, on on anticipating as the commercial of see the borrowing ours see than we for a earlier We a don't we're spike flat. people. – Scott, down like that balance up. of came Then year. lot side, we big a the being of of kind lot side, actually I – I've have

be are where engines of been year. growth, mortgage our XX% commercial, most We that loan a always now couple our is back The of consumer will good in we had growth and been the of in business. namely fortunate – XX% half consumer. Road have nice That comes we've thing the we've always for Laurel

Scott Siefers

you guys very much. thank Yes. Alright,

Chris Gorman

Thank you.

Operator

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

Gerard Cassidy

Good Chris. morning morning Don. Good

Chris Gorman

Good morning.

Don Kimble

morning. Good

Gerard Cassidy

have loss we comes a know expect be this comes upon happen. reserve-building close, Moody's your potentially loan saw really that Don, – in not being would to But accurate, that Is we us the up Nobody And potentially quarter? I Again, guys too, – made this you what to second peak should if close adjustments obviously, if dependent builds it's forecast if and built quarter. knows close the as you – could economy reserve does. indicated. quarter, here what's true the fair assume with that assumption? you what the going forecast can your anywhere for comes share to you reserves I certain

Don Kimble

much outsized our current originations, or portfolio And in for be will million as and test is that to end of XX we the the to I change seeing September – of I at have if of quarter knows the a any peak think today.. that overall But will forward, type being we're September, September it normal going your far build. at to have an other end from that just seen that's provide But for outlook probably what is up. as underlying be you million-kind-of-provision to that where provide then wasn't migrations I as right, quarter. adjustments you're I in today assumptions we're the nobody this at if just the to that be would say, new seeing continues think what loan would would say – $XX reserve to we'd the economic July But expense could I that going economic have see that contemplated. with as far in same end as levels say we that originations. the the point, would $XXX of loan

Gerard Cassidy

I everybody, loans And have growth close – do we're the rate sticking And criticized Moody's-type to growth of for in second, included, on dramatic forecast, see. Thank everyone. sense the the the economy scenario? this, type criticized, under rate yours again, view been this that has the to you. if obviously, then this to of Do of you somewhat in today. economy adheres in of that, you see decelerating that grown

Don Kimble

nonperforming assumptions used a levels. next probably any allowance, in increases you consumer for wouldn't for we increases or haven't would XX I continued to see just loans and we wouldn't the would be would is third and yet there criticized the the well. look we our you few models impact XXXX thing and Well, the early then next fourth quarters as the migration it as the as and see commercial June economy expect start see of significant our criticized/classified felt throughout as also the book, would would few that seen into more reserve take quarter with that through that really more assume and charge-off the have expect to underlying increases in especially. The one the at But to anything in the NPLs be And quarters. – we quarter until levels going increases that established, for would the that

Gerard Cassidy

thank Very you. good,

Don Kimble

Thank you.

Operator

ahead. Your next Brian from line go question Please Bruyette, from Keefe, of Klock Woods. the comes &

Brian Klock

my Thanks Hi, questions. taking for guys. good morning

Don Kimble

Good morning.

Brian Klock

for Don, quick you. question

of at happened of investment of the the portfolio, very and it on slides quarter. investing excess your of end like One the cash at the quarter. liquidity the Looks end the about some talked you

average. $X.X end-of-period – balance up the versus almost were because So your billion

a reading I the at basis of from am that, yield? just there's point a there's that like that that else NIM, That net going to excess benefits, liquidity right, all seems X.XX% So equal. invested you couple – be maybe

Don Kimble

say really basis the yield invest we investments would And end the didn't yield, put the billion-plus. portfolio into of builds we $X that about that that at that no, Key through was the that came very additional a on the at of I quarter in points. X.XX% sub-XX

short-term assets, up in more those quarter. current but types step we'll so see it of probably the And prospectively, of in did earning temporary investments

purchased – would of far given environment. about so and expectation reinvestment say only that through purchases range, or quarter. was $XXX as would the the on X% yield the that so prospectively in million our that securities yield the on we those as I rate current investment X.XX% And to be

Brian Klock

Okay.

a funds? there's overall modest that just from investment Fed out pickup or cash of So

Don Kimble

putting was cash You're very a small pickup it It to to right. the Fed. compared in

because the to things of continued throughout did just So the we liquidity levels quarter. one that the was grow

Brian Klock

Got it. help, Thanks for appreciate your it.

Don Kimble

you. Thank

Operator

the from Autonomous. Brian comes question go from next Please of line Your ahead. Foran

Brian Foran

Hello.

just You've questions, of didn't program. answered the most KeyXBenefits prepaid the size maybe to stuff. I and payments the appreciate my

high coming the was an but release, you for fee outlook, that And this part expect think remain you'd it the increase of that work? $XX but – elevated? is expense also in I'm sure it's absolute or it elevated. In an the the expense payments does million. that quarter, expense, Or called it down? mentioned, not as I out to how remain if will

Don Kimble

No.

end from little guidance those of we'll for quarter levels pace. at And continue income point would to programs I be would outlook bit say related and right. $XX a would various reduction a of show to and but we million the that fourth was that the that the quarter, might also about about in at You're in increase that to $XX our the third forward, the expense. It million for provide start fee our outlook September results. expect

Brian Foran

third-party it expense? a…. a is Or like it's processing And why

Don Kimble

as – would But why that a revenues is earnings programs. we the we to And on really guidance as prospectively. we and in probably are attached the It it quarter the it it that thought include to our pass-through. that's essentially, be up would to didn't netted deposits make those from initially, and have initially against grossed be opposed we this revenue because the show

Brian Foran

then make I'm the just to provision And forward. understanding Okay. sure dimensions going the like on

of we forbearance building a but growth, XQ XXXX, putting just a maybe that as a you're kind similar charge-off or bit XQ reserve on everything levels little step-up in And you'd growth, $XXX and you're thinking then all of XXto and add for got is you've reserve to like footing and think everything. encourage about point us that bp programs outlook $XXX for million economic next million of top quarter XX million based from think maybe on and should stuff. fair to based delay and starting we then starting a natural then $XX a If a Is whatever on maybe there? out NCO of on point

Don Kimble

the embedded we've Well, already have actually, we would that charge-offs the that reserves are in established.

expense and from reserve so million be the $XX that overall would component. And the million that to increase $XXX to essentially the provision new

our So to with as consistent is establish balance, charge-offs current included our have we reserve to in those prospectively. assumptions wouldn't expense as performance long charge-off our provision cover

XX new said be of before, significant a to our migration is, any will in $XXX not we're would what outlook. we assume. seeing outlook to loan saw be June which today in be million what as we've growth, one, impact provision versus cover economic the reserves. economic models any our would we different And when the would And changes change Two, what that as compared would $XX our there portfolio the So in million. three established

And opposed $XXX would our as provision the $XXX be that But able we'd so don't each long million million is you this as for of those in for expectations, long is and the quarter. consistent are change economic only be as use and you're thing with with as in the about. migration left next the factors there to that it as the million assumptions growth allowance so loan to talked to establishing range $XX that

Brian Foran

I Xx That by factor off only a was of glad asked. there. I'm

Don Kimble

Thank you.

Brian Foran

Thank for that. you Thank you.

Operator

next go comes Mayo Wells Mike line from question from the ahead. Please of Fargo. Your

Mike Mayo

nobody more the on question One reserve the question Now, answer. course, of knows And reserve. my is, is that enough? high

end but firms companies that KeyCorp's in the you're mix capital have but spot, companies I on quarter the but historically where exposed markets, they then of companies provision the You love there those access program, Main middle. are hear mean just the increased, to the slow tap broader some thoughts the off more quarter that. like thoughts are kind a question as which for enough end, smallest there's dependent COVID said been able about some PPP on two an regions, questions. sweet PPP And it most that your locations expert since the has cases markets, to Program, than and be and not there. largest your The not Don, reserve The the would you same you're might because, corporations are Street Lending a currents to down could programs, really, not today, seems capital small that to the more have some it's Chris. to shutting start. now, And of since which to One, COVID have But losses. exposed certainly of

your you companies how spot, this sweet Thanks. middle-market or about So exposure to kind the think as and do of slower shutdown your smaller continues? growth

Chris Gorman

Sure, Mike.

is that of take and then then the it's So of first, our about and thanks a our important. what question. one last mix reserves – for talk I and I'll kind little bit business think we'll because

they up As They access way. they obviously, when of March. the markets opened demonstrated now that went at in large capital. you capital paid markets to significant down. look had in a been have companies, to They And the the have access to those many gross

about rate actually utilization X%. our think dropped I

you good middle, have of the news lot basically A of were, can clients. that bad will are the idiosyncratic, performing total, will be we good be be clients or the And is midsized a for at to I you the here out, our impossible given Key. clients, it's that year, that's unlike Main strength distinguish the very almost But us kind housing equity. was group tell one-off more In financial that Program, other of the well. year companies, is individual. well. really company clients a And thing, real because So eligible as systematic will the for between those and spectrum, then companies performing PPP. the end pointed small out approach Main the Protection The Street of fact, which thing program after they Payroll the take the in the a in of on of correctly lot individual. of a Street

moment. think the I be good shape in they at So to seem

But mean said, what them seeing out I Now is, obviously or as lot. everyone single single I to a there customer, individual a has been business. a impacted talking there by we're COVID-XX. we're isn't a single

question knows. your your reserve, right, the to absolutely relates of it – the is premise As nobody

example, of, a you lot We're look, a you if this that for One others. different X.X% just and our card. following And a that is DFAST time, us XX% under credit say, is know would received, mix results think of our show and things, though, at content on consumer. for missed, the loss sometimes been XX.X%, commercial, long than that is example, DFAST XX% I because C&I for we on you've

As card. we a small know, credit are very you player in

only that's of mix. point Don? importance would So make, just just the I the is

Don Kimble

that would as economic And don't would outlook factored and shutdowns how see have be plays know what far and now in XX mean Mike, out we that on and between June continuing as environment levels any you're of say, to impact as of again, reserve, fourth and hadn't stress part single-digit the right. quarter we our the I of I in not and we'll September our full further the recovery a really X% still the through with in the XXXX unemployment XXXX, high in the kind level assumptions that level fourth of XXXX. seeing economy back show quarter late a and unemployment of to XX. until

what could we've And It what reasonable based we June know. We But outlook here? so could. XX. of it on don't from as established worse reserves feel are a is get our

Mike Mayo

that? one is players. explain then versus biggest of by mean And size? areas? that of you fixed were And would but I mean How is mix still the – I just income – what behind Or it capital mentioned you just follow-up. mix other good, markets clients

Chris Gorman

or either And smaller the grade a for the result, business in performed didn't issuance part s frankly, the income. largest some It some large of as the of large trading perform of we fixed we obviously was in investment plus institutions. banks the our that a – relatively – of of the level play some middle to is that That big most market. investment-grade given a the

Mike Mayo

not All execution, that's in your you say right. mind? Do mix,

Chris Gorman

That’s right.

Mike Mayo

right, thank you. Okay. All

Chris Gorman

you. Thank

Don Kimble

you. Thank

Operator

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

Matt O'Connor

Good morning.

Chris Gorman

Good morning.

Matt O'Connor

you provide the Obviously, is Road. production very update on good. Laurel any can Just

obviously year, on think there but I and I are right been most of there's the some up high-earning think just the doing. you're keeping base are what I now now. them running dentists early sheet But them balance and most of customer dislocation given is markets doctors and know

a portfolio an update from volume quality on helpful. be that perspective Thank credit overall just would So and you.

Don Kimble

Can dentist-related. care we're from it is the the health very Laurel quality point, high your doctor-, Sure. and credit of be pleased Road. percentage volume that seeing with And to both a

of at what see first, back better just overall the trajectory be are we some those and so if up have of impacted would And to but them the open, than we performance continue and were practices payment many and not expected. negatively consistent initially

So very performance pleased and with quality that the credit overall.

Matt O'Connor

were do I one of – you right portfolio have And securitizing not the gotten all those point you contemplating plan it, now. think but are all of to obviously markets production? at them open some still

Don Kimble

the $XXX more on The and of us in and year. allows product. investors something about levels out that markets retain and could but last to there see this name just keep are But to similar doing the such did the sheet. to liquidity I tighter, our with we us keep later maybe levels capital are that importantly, balance that familiarity million securitization year,

we So I but at would that, modest would do a expect level. to probably some, say generally, very

Matt O'Connor

you. thank Okay,

Don Kimble

you. Thank

Operator

And at this time, questions. there are further no

Chris Gorman

thank participating in our we you call for today. Again,

can concludes you. This Relations at If direct them (XXX) you our questions, any you follow-up team remarks. XXX-XXXX. Investor have our to Thank

Operator

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

disconnect. may You now

KeyCorp (KEY) 22 Jul 202020 Q2 Earnings call transcript