KeyCorp's CEO Discusses Q1 2012 Results - Earnings Call Transcript

KeyCorp (KEY)

Q1 2012 Earnings Call

April 19, 2012 9:00 am ET

Executives

Beth E. Mooney - Chairman, Chief Executive Officer, President, Chief Operating Officer and Member of Executive Council

Jeffrey B. Weeden - Chief Financial Officer, Senior Executive Vice President and Member of Executive Council

Christopher Marrott Gorman - President of Key Corporate Bank and Vice Chairman of Keybank National Association

William R. Koehler - President of Key Community Bank

Charles S. Hyle - Chief Risk Officer, Executive Vice President and Member of Executive Council

Joseph M. Vayda - Executive Vice President, Treasurer and Member of Executive Council

Analysts

Robert Placet - Deutsche Bank AG, Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division

Josh Levin - Citigroup Inc, Research Division

Stephen Scinicariello - UBS Investment Bank, Research Division

Adam G. Hurwich - Ulysses Management LLC

Michael Turner - Compass Point Research & Trading, LLC, Research Division

Presentation

Operator

Good morning, and welcome to KeyCorp's 2012 First Quarter Earnings Conference Call. This call is being recorded. At this time, I would like to turn the call over to Chairman and Chief Executive Officer, Ms. Beth Mooney. Ms. Mooney, please go ahead.

Beth E. Mooney

Thank you, operator. And good morning, and welcome to KeyCorp's First Quarter 2012 Earnings Conference Call. Joining me for today's presentation is Jeff Weeden, our Chief Financial Officer. And available for the Q&A portion of the call are the leaders of Key Corporate Bank and Key Community Bank, Chris Gorman and Bill Koehler. Also joining us for the Q&A discussion are our Chief Risk Officer, Chuck Hyle; and our Treasurer, Joe Vayda.

Now if you would turn to Slide 3. This morning, we announced first quarter net income from continuing operations attributable to common shareholders of $199 million, or $0.21 per common share. Our first quarter results demonstrate continued momentum as we execute on our relationship strategy, strengthen our balance sheet and maintain disciplined expense control. Credit quality also improved in the first quarter, which is a continuation of the trend that we have seen over the past 2 years. Net charge-offs declined to 82 basis points, continuing its migration toward our long-term target of 40 to 50 basis points. Nonperforming assets and criticized loans also showed improvement in the quarter.

We were encouraged to see continued growth in our commercial, financial and agricultural loans as we continue to acquire and deepen relationships and meet customer needs for credit. Average CF&A loans were up 7.2% compared with the prior quarter, making the fourth consecutive quarter of growth for this portfolio. The growth in our CF&A loan balances continues to be broad-based across our franchise, as well as in targeted client segments in our Corporate Bank, such as industrial and manufacturing, energy and utilities and health care.

Also contributing to loan growth has been our progress on the commitment we made last year to lend $5 billion to small businesses. Since this program was launched in September of 2011, Key has made over $2.4 billion in lending commitments to small business owners, who remain critical to our economic recovery and job creation. Importantly, in both the Community and Corporate Banks, we continue to add new clients and increase the level of engagement with our existing relationships.

Our success in executing on our relationship strategy was affirmed through several industry honors and recognitions in the first quarter. They included a top 5 ranking for overall customer satisfaction in J.D. Power's 2011 Small Business Satisfaction survey, excellence award from Greenwich Associates for small business and middle-market banking, awards for our online banking capability from Corporate Insights Bank Monitor and top scores for treasury management services from Phoenix-Hecht. We have also continued to make investments that enhance our ability to serve our clients and grow our business. These include modernizing our branch network, enhancing our online and mobile capabilities and adding more client-facing positions. And we remain on track for an early third quarter closing of our branch acquisition in Western New York. This acquisition will strengthen our franchise and benefit our local communities, clients and our shareholders.

The final item on this slide focuses on maintaining a strong balance sheet and remaining disciplined in our approach to capital management. As previously announced, we received no objection from the Federal Reserve to our 2012 capital plan and subsequently authorized a common stock repurchase program of up to $344 million. The program is expected to begin in the second quarter of this year and will run through the first quarter of 2013. Our capital plan also included an increase in our common stock dividend from $0.03 a share to $0.05 per share. The board will consider the potential dividend increase when it meets next month. These actions represent opportunities for Key to return capital to our shareholders while still maintaining our peer-leading capital position.

On Slide 4, you can see that we have made significant progress on our long-term goals and our return on average assets for the first quarter continues to be within our targeted range. We believe that we can continue to build on our momentum by leveraging our strong balance sheet and executing our relationship model. Our clients continue to tell us that Key's business model and strategy is distinctive and this is allowing us to win in the marketplace and grow.

We're also focused on managing expenses and improving our operating leverage, which remain critical in the current operating environment. And finally, we will remain disciplined in the way we manage our capital, consistent with the priorities that we have previously outlined: maintaining strong capital for organic growth; increasing our common stock dividend; using the authority we have from the board to return capital to our shareholders through share repurchases over the next 4 quarters; and to be disciplined around opportunities to invest in our business model and our franchise.

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