KeyCorp Q2 2010 Earnings Call Transcript

KeyCorp Q2 2010 Earnings Call Transcript
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KeyCorp (KEY)

Q2 2010 Earnings Call

July 22, 2010 9:00 am ET


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Previous Statements by KEY
» KeyCorp Q1 2010 Earnings Call Transcript
» KeyCorp Q4 2009 Earnings Call Transcript
» KeyCorp Q3 2009 Earnings Call Transcript

Henry Meyer - Chairman, Chief Executive Officer, President, Member of Executive Council, Chairman of Executive Committee and Member of Management Committee

Christopher Gorman - Senior Executive Vice President, Head of National Banking Business and Vice Chairman of Keybank National Association

Beth Mooney - Vice Chairman, Member of Executive Council and Member of Management Committee

Jeffrey Weeden - Chief Financial Officer, Senior Executive Vice President, Member of Executive Council and Member of Management Committee

Charles Hyle - Chief Risk Officer, Executive Vice President, Member of Executive Council and Member of Management Committee


Craig Siegenthaler - Crédit Suisse AG

Brian Foran - Goldman Sachs Group Inc.

Gerard Cassidy - RBC Capital Markets Corporation

Terence McEvoy - Oppenheimer & Co. Inc.

Jessica Halenda - FBR Capital Markets



Good morning, and welcome to KeyCorp's 2010 Second Quarter Earnings Results Conference Call. [Operator Instructions] At this time, I'd like to turn the call over to the Chairman and Chief Executive Officer, Mr. Henry Meyer. Please go ahead, sir.

Henry Meyer

Thank you, operator. Good morning, and welcome to KeyCorp's Second Quarter 2010 Earnings Conference Call. Joining me for today's presentation is our CFO, Jeff Weeden; and available for the Q&A portion of our call are our leaders of Community Banking and National Banking, Beth Mooney and Chris Gorman; our Chief Risk Officer, Chuck Hyle; and our Treasurer, Joe Vayda.

If you turn to Slide 2, this is our forward-looking disclosure statement. It covers our presentation materials and comments, as well as the question-and-answer segment of our call today.

Now if you turn to Slide 3. This morning we announced second quarter net income from continuing operations of $56 million or $0.06 per common share. The improvement over the prior quarter was due to a lower provision for loan losses, higher fee income and well-controlled expenses. Overall, the results are encouraging and the return to profitability represents an important step forward for our company.

Despite the challenges that our industry faces in terms of the pace of the recovery, and other environmental factors such as regulatory reform, I am confident that we are taking the necessary actions to position the company for better long-term performance.

I was especially pleased by the continued improvement in credit quality, which was the major contributor to our improved financial results for the second quarter. Credit quality improved across the majority of loan portfolios in Community Banking and National Banking, which contributed to the positive net income reported for both groups.

Net charge-offs declined by $87 million, and nonperforming loans decreased by $362 million from the previous quarter. This was the third consecutive quarterly decline in nonperforming loans. Delinquency trends and the inflow of new nonperforming loans were also favorable. Although net charge-offs will likely to remain elevated for the remainder of 2010, we expect to show further progress in the future quarters.

Our balance sheet continues to reflect strong capital liquidity and reserve levels. At June 30, our Tier 1 common equity ratio was a strong 8.01%, and our Tier 1 risk-based capital ratio was 13.55%. Both measures are up from the first quarter and the year-ago period.

At the end of the second quarter, our loan-loss allowance was $2.2 billion and represented 4.16% of total loans and 130% of nonperforming loans. Both of these ratios should maintain our position near the top quartile of our peer group --

Being a core-funded institution remains an important strategic imperative. And as Jeff Weeden will discuss in his remarks, we continue to operate from a position of strength. Our strong capital and liquidity positions enable the company to support the borrowing needs of our clients. Although loan demand remains weak, the company originated approximately $12.9 billion in new or renewed lending commitments to consumers and businesses during the first half of the year.

The final item on our strategic update slide, investing in our Core Relationship businesses, has been a consistent theme for Key. Having a strong balance sheet as a solid foundation, we are continuing to position the company to take advantage of the gradually improving economy. In the Community Bank, our largest investment is in our 14-state branch network. We opened 18 new branches in the first half of 2010 and expect to open an additional 22 branches during the remainder of the year. The deposit generation and overall profitability of our new branches have been in line with our expectations.

In addition, we continue to modernize our existing branches and align staffing with the needs of our communities that we serve. We have designated 225 business-intensive branches, which are staffed to serve our small business clients. We are also a significant participant in the SBA small business loan program.

In the first half of 2010, we also experienced good growth in Private Banking and Key Investment Services, our branch-based investment group. Both areas represent good opportunities for continued growth. Our improved performance in National Banking is largely driven by improving credit trends and the work we have done to reduce our risk profile. But we've also made significant progress in sharpening our focus on targeted client segments and investing in human capital and our noncapital-intensive businesses.

During the first half of the year, KeyBank Capital Markets participated in 30 equity transactions that generated over $25 million in fees. We have also seen improvement in the M&A Advisory business since the third quarter of 2009 as more liquidity has returned to the market. And we continue to emphasize areas that have synergy with client segments in the Community Bank, such as equipment leasing and certain products offered by the KeyBank Capital Markets.

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