U.S. Markets close in 1 hr 35 mins

Edited Transcript of KEY earnings conference call or presentation 20-Apr-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 KeyCorp Earnings Call

CLEVELAND Aug 12, 2017 (Thomson StreetEvents) -- Edited Transcript of KeyCorp earnings conference call or presentation Thursday, April 20, 2017 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Beth E. Mooney

KeyCorp - Chairman, CEO and President

* Donald R. Kimble

KeyCorp - Vice Chairman and CFO

================================================================================

Conference Call Participants

================================================================================

* Geoffrey Elliott

Autonomous Research LLP - Partner, Regional and Trust Banks

* Gerard S. Cassidy

RBC Capital Markets, LLC, Research Division - Analyst

* Kenneth Allen Zerbe

Morgan Stanley, Research Division - Executive Director

* Kevin Kennedy Reevey

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Lana Chan

BMO Capital Markets Equity Research - MD and Senior Equity Analyst

* Marlin Lacey Mosby

Vining Sparks IBG, LP, Research Division - Director of Banking and Equity Strategies

* Matthew D. O'Connor

Deutsche Bank AG, Research Division - MD in Equity Research

* Peter J. Winter

Wedbush Securities Inc., Research Division - MD

* Robert Hutcheson Ramsey

FBR Capital Markets & Co., Research Division - VP & Analyst

* Robert Scott Siefers

Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research

* Samuel Ross

Evercore ISI, Research Division - Analyst

* Saul Martinez

UBS Investment Bank, Research Division - MD and Analyst

* Steven A. Alexopoulos

JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and welcome to the KeyCorp's First Quarter 2017 Earnings Conference Call. As a reminder, this conference is being recorded. I would like to turn the conference over to the Chairman and CEO, Beth Mooney. Please go ahead, ma'am.

--------------------------------------------------------------------------------

Beth E. Mooney, KeyCorp - Chairman, CEO and President [2]

--------------------------------------------------------------------------------

Thank you, operator. Good morning, and welcome to KeyCorp's First Quarter 2017 Earnings Conference Call. Joining me for today's presentation is Don Kimble, our Chief Financial Officer; and available for our Q&A portion of the call is Bill Hartmann, our Chief Risk Officer. Slide 2 is our statement on forward-looking disclosure and non-GAAP financial measures. It covers our presentation materials and comments as well as the question-and-answer segment of our call.

I am now turning to Slide 3. Key reported strong results for the first quarter, which reflect continued business momentum throughout our company and our success in realizing value from our First Niagara acquisition. My comments this morning will exclude merger-related charges, which were $81 million or $0.05 per share in the quarter. We generated positive operating leverage from both the year-ago period and prior quarter and our pre-provision net revenue was up 58% from last year and 6% from the fourth quarter.

Revenue trends reflect strong net interest income and another quarter of solid performance from our fee-based businesses, including our capital markets area. Both revenue and expenses reflect our acquisition of First Niagara last August, and the addition of over $1 million new consumer and commercial clients.

Our results this quarter also reflect significant progress on our cost-saving targets and efficiency goals. This has been accomplished by continuing to focus on legacy Key expense levels as well as executing our integration plans for First Niagara. At the end of the first quarter, we had achieved 85% of our targeted cost savings of $400 million from our acquisition. The remaining 15% will be realized by the end of next quarter. And we expect to exceed our initial savings target, and deliver $450 million of cost savings by early 2018.

Our cash efficiency ratio this quarter moved to 60.4%, and we are on a path to move that below 60%.

Credit quality remains strong this quarter with lower net charge-offs and a reduction in nonperforming assets and loans relative to the prior quarter. We also maintained our strong capital position with a Common Equity Tier 1 ratio of 9.9%. During the quarter, we repurchased $160 million of common shares and subject to board approval, we expect to increase our common stock dividend in May.

Moving now to Slide 4. During the quarter, we made significant progress with our First Niagara acquisition, and as I mentioned earlier, we expect to exceed our initial cost savings target. With the conversion of branches, systems and clients completed in the fourth quarter, our teams continue to execute our detailed merger plans as we moved in to 2017. In addition to the completion of our branch consolidation plans, we have now exited approximately half of the corporate real estate space that was identified, along with our work to decommission nearly all of the targeted applications and servers. From a strategic perspective, our combination with the First Niagara has truly transformed our market presence, particularly in upstate New York where our history dates back nearly 200 years. We now have leading market share in a number of important markets, and have improved our scale with deposits per branch up approximately 70%.

We have also made broad-based progress in strengthening the relationships with our 1 million new clients. Retail deposits have grown from the conversion date in every First Niagara market. We are also seeing strength in areas like commercial mortgage banking, payments and residential mortgage as we continue to build out that platform.

Critical to our success with First Niagara is our ability to deliver on our financial targets and the commitments we have made. As I said, we remain on track to achieve our initial $400 million in cost savings by the second quarter, and we expect to reach $450 million by early 2018. This would represent 46% of First Niagara's full year 2015 expense base. With our first quarter results, we are operating in a level consistent with or better than the financial targets we announced with the acquisition. And while not included in our financial targets, revenue synergies from our acquisition provides significant upside. We have been very pleased with our early wins, and remain confident in our ability to deliver a broad range of products and services to our new clients.

I will close my portion of the call by restating that it was a strong quarter for Key and also the third consecutive quarter that we have shown the value creation from our First Niagara acquisition. During each of these quarters, we have grown our business by expanding client relationships and delivered on our cost-saving commitments. And this is translating into enhanced operating results as evidenced by our 60% cash efficiency ratio and 13% return on tangible common equity, both of which improved by 400 basis points from the year-ago period. While we are reporting results that reflect the value of the acquisition, we believe they have not yet been fully recognized in our stock valuation.

With that, I will turn the call over to Don for a more detailed look at the quarter. Don?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [3]

--------------------------------------------------------------------------------

Thanks, Beth. I'm on Slide 6. First quarter net income from continuing operations was $0.32 per common share after excluding $0.05 of merger-related charges. This compares to $0.24 per share in the year-ago period and $0.31 in the fourth quarter, which excludes $0.11 of merger-related charges. As Beth mentioned, we generated positive operating leverage for the quarter. Excluding merger-related charges, our cash efficiency ratio was 60.4%, and we had a return on tangible common equity of 12.9%. I'll cover many of these items in this slide in the rest of my presentation, so I'm now turning to Slide 7.

Total average loan balances of $86 billion were up $26 billion or 43% compared to the year-ago quarter, and up $773 million or 1% unannualized from the fourth quarter. Compared to the year-ago period, average loan growth primarily reflects the impact of the acquisition as well as ongoing business activity with commercial and industrial loans continuing to be a driver.

Sequential quarter growth in average balances was driven by commercial loans, which were up 2% and reflecting ongoing business activity and lower payoffs in our real estate capital line of business. Consumer loans primarily reflected the continued decline in home equity loan portfolio in line with market trends.

As we previously communicated, we plan to finalize purchase accounting, including the fair value mark on the acquired loan portfolio in the second quarter.

Continuing to Slide 8. Average total deposits totaled $102 billion for the first quarter of 2017, an increase of $30 billion compared to the year-ago period and down $3 billion compared to the fourth quarter. The cost of our total deposits was relatively stable in the first quarter. With a beta of less than 10% for total interest-bearing deposits, we remained -- we maintained our deposit pricing discipline despite the increase in interest rates. Our guidance assumes the beta will remain low throughout this year. Compared to the first quarter -- excuse me, compared to the prior year, first quarter average deposit growth was driven by First Niagara as well as continued momentum in our retail banking franchise. It's important to note that retention of the First Niagara deposit base has exceeded expectations. As Beth mentioned, retail deposits have grown in every First Niagara markets since the conversion date, adding approximately $600 million in total balances.

Consumer deposits, which include our retail franchise as well as small business and private banking, now account for approximately 60% of our total deposit mix. On a linked-quarter basis, the change in deposit balances was primarily driven by escrow deposits, along with a target reduction in certain short-term commercial deposits. In the Corporate Bank, as expected, we saw a decline in deposits as we exited the low-value rate relationships and collateralized deposits. On a period-end basis, deposit balances were stable, with growth from our retail franchise offsetting lower escrow deposits.

Turning to Slide 9. Taxable equivalent net interest income was $929 million for the first quarter of 2017, and the net interest margin was 3.13%. These results compare to taxable equivalent net interest income of $612 million and a net interest margin of 2.89% for the first quarter of 2016 and $948 million and a net interest margin of 3.12% in the fourth quarter of 2016. Keep in mind, fourth quarter results included $34 million related to the third quarter refinement of purchase accounting.

Included in the first quarter net interest income is $53 million from purchase accounting accretion, which added 18 basis points to our net interest margin for the quarter. This compares with $58 million in the fourth quarter, which excluded the prior-year period refinement. Our outlook would assume that the impact of purchase accounting accretion will continue to decline at this same pace.

Excluding purchase accounting accretion, net interest income increased $264 million from the prior year, largely driven by the impact of First Niagara and higher earning asset yields and balances. Growth of $20 million from the prior quarter resulted from higher earning assets yields, which was partially offset by 2 fewer days in the quarter. On our slide, we've had a detail to show the trend in our net interest margin, excluding the impact of purchase accounting accretion, which was 2.95% for the first quarter, would benefit from higher interest rates and lower levels of liquidity.

Moving onto Slide 10. Noninterest income in the first quarter was $577 million, up $146 million from the prior year and down $32 million from the prior quarter, excluding the fourth quarter benefit from merger-related charges. Growth from the prior year was driven by higher investment banking and debt placement fees, a result of improved capital market conditions and activity. It was a record first quarter for this business. We also saw growth from the prior year in a number of our other businesses, like trust investment services, service charge on deposit accounts and cards and payments income, which benefited from the acquisition and ongoing business activity.

Compared to the fourth quarter, lower noninterest income largely reflects lower investment banking and debt placement fees, which had a very strong fourth quarter, along with corporate-owned life insurance, which is seasonally lower from the first quarter.

Turning to Slide 11. Reported noninterest expense for the first quarter was $1 billion, which includes $81 million of merger-related charges. A detailed breakout of merger-related charges is included in the appendix of our materials. As Beth mentioned, our expense levels this quarter reflect our commitments to reduce expenses and improve op efficiency. 85% of our targeted cost savings have been achieved and are reflected in our first quarter results. On the bottom right of the slide, you can see that our quarterly run rate, after adjusting for merger-related charges, pension settlement and intangible amortization refinement, was $58 million lower compared to the fourth quarter. We expect to achieve the remainder of the $400 million initial cost savings target in the second quarter. And as we look out to the remainder of 2017 and into early 2018, we will be executing on a revised target of $450 million and incremental $50 million from our initial target.

Moving back to recorded expenses, compared to the first quarter of last year and after adjusting for merger-related charges, noninterest expense was up $253 million. Growth primarily reflects the acquisition of First Niagara, as well as higher incentives and stock-based compensation.

Linked-quarter expenses adjusted for merger-related charges were down $81 million. Lower expense levels reflect the merger cost savings achieved as well as the lower pension expense due to the fourth quarter settlement charge. Additionally, lower incentive and stock-based compensation for the first quarter was offset by seasonally higher benefit expense.

Turning to Slide 12. Our net charge-offs were $58 million or 27 basis points average total loans in the first quarter, which continue to be below our targeted range. First quarter provision for credit losses was $63 million, which slightly exceeded the level of net charge-offs. Nonperforming loans decreased $52 million or 8% from the prior quarter. At March 31, 2017, our total reserve for loan losses represented 1% of period-end loans and 152% coverage of our nonperforming loans.

Turning on to Slide 13. Common Equity Tier 1 ratio at the end of the first quarter was 9.9%. In accordance with our 2016 capital plan, we repurchased $160 million of common shares during the first quarter. Also, we both redeemed and converted some of our preferred stock in the quarter. In February, we redeemed our preferred Series C, which totaled $350 million. And in March, we converted our 7.75% preferred stock Series A into common shares, which added approximately $21 million in common shares outstanding.

For the first quarter, our preferred stock dividend totaled $28 million. With the Series C's redemption and the Series A conversion, we would expect our quarterly run rate to move down to $14 million.

Slide 14 provides you with our outlook and expectations for recorded results in 2017. Merger-related charges are excluded. We remain committed to generating positive operating leverage and have updated our guidance to reflect our first quarter results; continue to expect average loans to increase in the mid-single digit percentage range, which translates to full year average balances of $87 billion to $88 billion. We expect loan growth to exceed deposit growth with full year average deposit balances in the range of $104 billion to $105 billion. Net interest income is expected to be in the range of $3.7 billion to $3.8 billion, a $100 million increase from our previous guidance, with our outlook assuming one additional rate increase late in the year, and that the beta will remain low for the remainder of the year. We continue to expect the quarterly impact from purchase accounting accretion to trend down over time, with the 2017 full year amount in the range of $180 million to $190 million, approximately 20% below the fourth quarter run rate. The quarterly impact will decline consistent with the pace that we experienced in the first quarter.

We anticipate that noninterest income will be in the range of $2.3 billion to $2.4 billion, as we continue to drive growth from ongoing business activity and the acquisition. Noninterest expense is expected to be in the range of $3.65 billion to $3.75 billion and, once again, does not include merger-related charges.

With the incremental cost savings we expect to achieve from the acquisition, we are also anticipating higher levels of merger-related charges. We expect charges to increase proportionally from the original $550 million estimate. In 2017, net charge-offs should include -- should continue to be below our targeted range of 40 to 60 basis points. And provision should slightly exceed our level of charge-offs to provide for loan growth.

To wrap up, this quarter was important to us. We've been committed to realizing the value of the acquisition, to achieve the improvement in our operating performance and to continue to drive core growth. And while we're not there yet, we're on the cusp of delivering performance within our long-term targeted range. We remain committed to our long term financial targets, as shown at the bottom of this slide, which include continuing to generate positive operating leverage, reducing our cash efficiency ratio to less than 60%, maintaining our moderate risk profile and producing a return on tangible common equity of 13% to 15%.

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

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

: (Operator Instructions) First from the line of Matt O'Connor with Deutsche Bank.

--------------------------------------------------------------------------------

Matthew D. O'Connor, Deutsche Bank AG, Research Division - MD in Equity Research [2]

--------------------------------------------------------------------------------

:

I was wondering if you could just elaborate on the trust line actually, that was quite positive, and just any more color in terms of what was driving that.

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [3]

--------------------------------------------------------------------------------

:

Yes. We're continuing to invest in this area. And that reflected the growth in our investment services business, along with the benefit of certain trading activity that occurred during the quarter as well. And so we view that as an area of ongoing focus for us.

--------------------------------------------------------------------------------

Matthew D. O'Connor, Deutsche Bank AG, Research Division - MD in Equity Research [4]

--------------------------------------------------------------------------------

:

Okay. And then -- sorry, it's been a very long and early day here. Just in terms of progression on the purchase accounting accretion, I don't know if you commented on that earlier, but how should we think about that kind of rest of this year, and then looking ahead in terms of how quickly it burns off?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [5]

--------------------------------------------------------------------------------

:

Sure. What we've talked about is that from fourth quarter to first quarter, we saw a decline from $58 million to $53 million. We would expect that same type of decline to occur on a quarterly basis going forward. So down about $5 million a quarter. And what we said for the full year is we expected the accretion to be in the $180 million to $190 million range. And just to give you a perspective, we would expect that same type of decline to occur prospectively in quarters after that, the remainder of 2017 as well.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

:

Next, we'll go to John Pancari with Evercore.

--------------------------------------------------------------------------------

Samuel Ross, Evercore ISI, Research Division - Analyst [7]

--------------------------------------------------------------------------------

:

This is actually Sam Ross on for John. Just had a couple of quick ones. The first is, I know you guys gave some color on your commercial portfolio based on the outstandings. And I'm just wondering if you can size up your exposure to the retail industry, specifically to the mall sector?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [8]

--------------------------------------------------------------------------------

:

Yes. One, it's a fairly small portfolio for us overall. And we've heard questions about regional malls, and also direct exposure to retail businesses. And I would say that our outstanding balances there are less than $1 billion on that combined portfolio. So fairly small for us overall. And we've been very pleased with the performance so far.

--------------------------------------------------------------------------------

Samuel Ross, Evercore ISI, Research Division - Analyst [9]

--------------------------------------------------------------------------------

:

Great. And then maybe just as a follow-up. I just wanted your general sense of both the line utilizations and maybe just borrower appetite. I know that some of your competitors talked about still borrowers being on the sidelines. I just wanted to get your updated thoughts on what you guys are seeing in the market.

--------------------------------------------------------------------------------

Beth E. Mooney, KeyCorp - Chairman, CEO and President [10]

--------------------------------------------------------------------------------

:

Sam, this is Beth Mooney. We have seen line utilization remain relatively consistent now for several quarters. And I would tell you that borrowers -- what I would tell you, the sentiment that we're hearing is a canting towards optimism, but not yet translating into different behaviors or activities as it relates to their borrowing and banking activity. But there is a level of emerging confidence, that I think if it is met with some level of fiscal stimulus as well as other legislative and tax reforms out of Washington, that could translate into increased and heightened activity.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

:

And next, we'll go to Scott Siefers with Sandler O'Neill.

--------------------------------------------------------------------------------

Robert Scott Siefers, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [12]

--------------------------------------------------------------------------------

:

Don, I was just hoping you could expand a little on your sort of -- your commentary on the margin. I mean, you gave the walk in the presentation, which I appreciate. But even within that backdrop, the core margin improvement was just a lot more substantial than I might have anticipated. So I wondered if you could spend just a second or so on how things came in relative to what you might've anticipated, and whether it was simply deposit betas being effectively 0 or you're just capturing so much of the asset side. How do things -- I mean, relative to what you would've thought? And then if you can just sort of expand on your outlook for the core margin more specifically as well?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [13]

--------------------------------------------------------------------------------

:

Good. And I would say that the core margin did come in stronger than what we would've expected back in January. I think it was driven by a number of different items. One, you mentioned the betas, and they were lower than what we had modeled. I would say that the impact of the December rate increase added about 6 basis points in margin to us just because the betas were lower than expected. We also picked up about 3 basis points in margin related to lower levels of liquidity. We've talked about some of the temporary or short-term deposits that left in the first quarter on an average basis. And we saw a corresponding reduction to our Fed cash account. And so that added about 3 basis points. And so that really represents 9 of the 13-basis point improvement. And so that really was for other core activity and growth that we saw on the balance sheet. We benefited a little bit from higher yields on some of the portfolio purchases that we made throughout the quarter. And so those were helpful as well. Now going forward, as we look at the margin, I would say that we're going to continue to see pressure as those purchase accounting accretion benefits amortize down. So by declining about $5 million a quarter. That caused about 2 basis points a quarter for us. And so going forward, we did say that we expected to see betas remain low for us. And so we would expect in general the margin to be relatively stable for the year and reflecting the impact of both those items.

--------------------------------------------------------------------------------

Robert Scott Siefers, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [14]

--------------------------------------------------------------------------------

:

Okay, that's perfect. And then separately, now that you've officially put out the quantification of the higher cost saves number, either Don or Beth, can you just spend a second talking about where those -- where you see the incremental potential for that additional $50 million?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [15]

--------------------------------------------------------------------------------

:

Sure. And as far as the additional part of the $50 million, in Beth's commentary, she talked about the progress we've made on certain systems conversions and space-related occupancy type of costs, and many of those are near completion. And so we would expect to see those realize throughout the end of this year and first part of next year. And so you'll see ongoing reductions in computer processing/vendor-related expenses associated with the technology, and then also lower occupancy costs from reducing some of our non-branch-related expense.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

:

And we'll go to Bob Ramsey with FBR.

--------------------------------------------------------------------------------

Robert Hutcheson Ramsey, FBR Capital Markets & Co., Research Division - VP & Analyst [17]

--------------------------------------------------------------------------------

:

Maybe just to circle off the conversation on the core margin piece, so we kind of exclude the purchase accounting, is it fair to think that given the March Fed increase that you guys could see something of a similar magnitude in terms of benefit from the higher yield on assets, something maybe 8 to 10 basis points of lift?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [18]

--------------------------------------------------------------------------------

:

I think that's probably overstating it a little bit. As you look at our core margin, as we talked about earlier, that about 3 basis points of that came from the benefit of lower liquidity. We don't expect to see that continue to drive that kind of incremental benefit. The other thing is we talked about some of the lift on the investment portfolio. And while we do believe that our new purchases will be at a higher rate than the roll-off of the cash flows from our existing portfolio, we're seeing rates today about 20 to 30 basis points below where they would've been before for new purchases. And so that lift would not be as significant. But we do expect to get additional benefit from that March rate increase, and do believe the betas will remain low for this next rate increase as well.

--------------------------------------------------------------------------------

Robert Hutcheson Ramsey, FBR Capital Markets & Co., Research Division - VP & Analyst [19]

--------------------------------------------------------------------------------

:

Okay. And I appreciate your guidance is predicated on only one more rate increase kind of at the end of the year. If that rate increase came sooner or if there was an incremental increase, how much of a benefit do you estimate that could provide to the margin?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [20]

--------------------------------------------------------------------------------

:

At some point in time, we're going to start to see betas start to pick up. And so I don't know when that is, and -- but as we talked about before, this last rate increase added about 6 basis points of margin. I think that the subsequent rate increase, I would expect to be slightly below what we're realizing from the past rate increases. And so you'll start to see that benefit get smaller in prospective rate moves.

--------------------------------------------------------------------------------

Robert Hutcheson Ramsey, FBR Capital Markets & Co., Research Division - VP & Analyst [21]

--------------------------------------------------------------------------------

:

Okay, fair enough. Shifting to, I guess, sort of a cleanup question. Can you give me what the preferred dividend expense was this quarter, and then what you expect it to be in the second quarter given the retirement of a couple classes of preferreds?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [22]

--------------------------------------------------------------------------------

:

That's a good question. It's $28 million for the first quarter, and we would expect the second quarter to be $14 million. And so each of those 2 preferred issuances add about a $7 million quarterly dividend.

--------------------------------------------------------------------------------

Robert Hutcheson Ramsey, FBR Capital Markets & Co., Research Division - VP & Analyst [23]

--------------------------------------------------------------------------------

:

Perfect. And do you also have handy the number of shares and price for share repurchase this quarter? I know you gave the dollar amount in total, but is it significant to break out?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [24]

--------------------------------------------------------------------------------

:

We talked about $160 million, and that was including net and growth shares. And the total shares that were bought back, I don't see that handy. Vern, do you have that in the table someplace? I don't believe that -- okay. Total share bought -- repurchased were 8,673,000 shares in the open market.

--------------------------------------------------------------------------------

Robert Hutcheson Ramsey, FBR Capital Markets & Co., Research Division - VP & Analyst [25]

--------------------------------------------------------------------------------

:

Okay, that's perfect. And last question, just sort of thinking about the expense run rate as we head into the second quarter. I know you said you expect for the remainder of the initial First Niagara cost savings to come in. So I guess, that takes us maybe about $15 million lower. And seasonality should be, I guess, another tailwind theoretically in the second quarter. Any sense of kind of putting all together where we should be thinking about expenses next quarter?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [26]

--------------------------------------------------------------------------------

:

I really haven't provided second quarter guidance, but I would say that we do expect to realize that remaining $15 million incremental per quarter. One thing to keep in mind is that we also have targeted $300 million in revenue synergies related to the acquisition. We've talked about the incremental costs associated with that of about $100 million a year. And so you will start to see some investments being made to achieve those kind of revenue synergies as well.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

:

Next question's from Steven Alexopoulos with JPMorgan.

--------------------------------------------------------------------------------

Steven A. Alexopoulos, JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks [28]

--------------------------------------------------------------------------------

:

I wanted to start on the expense saves. It's great to see you're already raising the expected cost saves on First Niagara. In fact, on prior calls, you have indicated that the cost save commitment to the board or internally was above the $400 million level. With cost saves now estimated at $450 million, is that the level that you committed internally? Or could there be upside to the $450 million?

--------------------------------------------------------------------------------

Beth E. Mooney, KeyCorp - Chairman, CEO and President [29]

--------------------------------------------------------------------------------

:

That is consistent with what we had committed internally and to our board as we undertook the acquisition.

--------------------------------------------------------------------------------

Steven A. Alexopoulos, JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks [30]

--------------------------------------------------------------------------------

:

Okay, that's helpful. And then, Beth, I wanted to follow up on your comments that business customers are more optimistic, but cautious, right, waiting to see what comes out of Washington. I don't know if you heard Huntington's call yesterday, but they were very bullish on loan growth, really pointing to the Midwest seeing an economic revival of this whole Buy American theme coming out of Washington. Are you seeing more activity today in your Midwest markets compared to the rest of the footprint?

--------------------------------------------------------------------------------

Beth E. Mooney, KeyCorp - Chairman, CEO and President [31]

--------------------------------------------------------------------------------

:

Yes, we are seeing relatively well-distributed activity. We do not see pockets that are either underperforming or over-performing. It has been a consistent level of activity across our franchise and markets. I will tell you, as we looked at our first quarter investment banking and debt placement fees, clearly, their debt capital markets piece of our business was incredibly strong. And so we do see some of our manufacturing base, which would be included in the Midwest, as being an auto related still being very strong. But with our model, we see dispersion of activity. And obviously, with our acquisition, we have more bankers on the street than we've ever had in our Eastern markets as well.

--------------------------------------------------------------------------------

Steven A. Alexopoulos, JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks [32]

--------------------------------------------------------------------------------

:

Okay. Maybe if I could squeeze one more in for Don. Relative to the $53 million of accretion reported, how much of that was scheduled? And when we think about the guidance you're giving us, the $180 million to $190 million, how is that split up between scheduled accretion and what you think will be accelerated?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [33]

--------------------------------------------------------------------------------

:

We really haven't broken that out. I would say that we estimate in our projections a level of prepayment to be consistent with what we're experiencing so far. So we can see if we can dig out a little bit more detail than just what the actual breakout of both the stated and expected.

--------------------------------------------------------------------------------

Steven A. Alexopoulos, JP Morgan Chase & Co, Research Division - MD and Head of Mid-Cap and Small-Cap Banks [34]

--------------------------------------------------------------------------------

:

Okay. I mean, what I'm trying to get a sense of, Don, is if there's a big cliff of that coming as we move into 2018 and 2019 on the scheduled?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [35]

--------------------------------------------------------------------------------

:

What we would expect is to see a continued trend as far as essentially about a 20% reduction per year. And so we're not forecasting any big drop-off in '18 compared to the '17 level of decline.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

:

And we'll go to Ken Zerbe with Morgan Stanley.

--------------------------------------------------------------------------------

Kenneth Allen Zerbe, Morgan Stanley, Research Division - Executive Director [37]

--------------------------------------------------------------------------------

:

Just a question on the investment banking business, obviously, a good quarter this quarter. When you think about going into the second quarter, have industry conditions changed, I mean, in terms of the outlook? Obviously, your fee guidance in total didn't really change that much, but just wondering if things were unique in first quarter and different in second quarter. Or it's just seasonality?

--------------------------------------------------------------------------------

Beth E. Mooney, KeyCorp - Chairman, CEO and President [38]

--------------------------------------------------------------------------------

:

No. Ken, typically, our first quarter on investment banking and debt placement fees is always a seasonally light quarter historically. It tends to end strong in the fourth quarter. So the fact that this was a record quarter for this business is a good indication of core momentum in that business. And as we go into the second quarter, again, assuming markets are as constructive as they have been, pipelines are definitely strong as we go into the second quarter.

--------------------------------------------------------------------------------

Kenneth Allen Zerbe, Morgan Stanley, Research Division - Executive Director [39]

--------------------------------------------------------------------------------

:

Gosh. I guess, does that imply that of your $2.3 billion to $2.4 billion of fee guidance that you may end up -- it's easier to hit the higher end of that range? Or are there other offsets?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [40]

--------------------------------------------------------------------------------

:

Well, I would say, Ken, if you take a look at our first quarter level of noninterest income, it's $577 million. So you annualize that, and it's the very low end of that $2.3 billion to $2.4 billion number. So we would expect growth in that line item, along with other fee categories, but I don't want to get too prescriptive as to where we would reside in that range at this point.

--------------------------------------------------------------------------------

Kenneth Allen Zerbe, Morgan Stanley, Research Division - Executive Director [41]

--------------------------------------------------------------------------------

:

Gosh, understood. And then just a question on capital. When we think about buybacks, and we think about going into the end of '17 and into '18, what's the right level of CE Tier 1 you're comfortable holding or that you would like to target at least?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [42]

--------------------------------------------------------------------------------

:

We talked before about, post the acquisition, our CET1 was 9.5%. And for banks that still go through the quantitative portion of the CCAR process, we don't see a lot past the quantitative portion without at least a 9% Common Equity Tier 1. And so I think that kind of gives a range of where you would expect. We were very pleased with the 9.5% level, and could see that still being a strong level of capital. But we'll provide more color after the '17 CCAR results are announced.

--------------------------------------------------------------------------------

Operator [43]

--------------------------------------------------------------------------------

:

Our next question's from Gerard Cassidy, RBC.

--------------------------------------------------------------------------------

Gerard S. Cassidy, RBC Capital Markets, LLC, Research Division - Analyst [44]

--------------------------------------------------------------------------------

:

Beth, you talked about the loan growth being kind of spread out across your different franchises around the country. Can you share with us what you're seeing from the acquired? And you've done a very good job in describing the cost savings from the First Niagara transaction. Can you give us some detail on what the loan growth has been in that new -- I know it's an existing market, but from those new customers that you've acquired?

--------------------------------------------------------------------------------

Beth E. Mooney, KeyCorp - Chairman, CEO and President [45]

--------------------------------------------------------------------------------

:

Yes, Gerard. At this point in time, we also did note that the deposit growth has been very strong, and the attrition of clients has been less than we would've expected. So we felt like we're off to a very good start. And I would tell you, pipelines are building across loans as well as payment opportunities. And specifically with the mix of the balance sheet with First Niagara with a relatively large commercial real estate book, we're also seeing a variety of activities that could lead into our commercial mortgage banking, which goes into our investment banking and debt placement fees. So as we look across the board on those new million consumer and commercial clients, we do see momentum building. And in the first quarter, you're still not even fully 6 months past the conversion date. And as you can well imagine, going into the beginning of the year, we were declaring ourselves back to BAU, and we see those pipelines and that momentum building.

--------------------------------------------------------------------------------

Gerard S. Cassidy, RBC Capital Markets, LLC, Research Division - Analyst [46]

--------------------------------------------------------------------------------

:

And then, Don, I think you talked about the revenue synergies from this transaction can total about $300 million, and the cost to get that will be about $100 million. Again, the expenses are very clear. You've shown us that very easily in the press release and stuff. Where would you say are you on these revenue synergies? Are you 25% into them? 10%? Where do you stand there?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [47]

--------------------------------------------------------------------------------

:

I would say we're still very early stages at this point in time, that some of the areas we've talked about are cash management, treasury management activities for our commercial customers. And while the pipelines are very strong, we really haven't seen the whole benefit kick in from those yet. Another area we talked about is residential mortgage. And we're starting to build out the commercial -- excuse me, the mortgage loan officers and other support areas for that business. So we really haven't seen the revenues kick in for that yet either. And we're early stages for that. And so I would say that with a few exceptions, we're just really starting off that process, and starting to see some of the early seeds as far as those opportunities.

--------------------------------------------------------------------------------

Gerard S. Cassidy, RBC Capital Markets, LLC, Research Division - Analyst [48]

--------------------------------------------------------------------------------

:

Great. And then on that number, have you guys done any analysis to say that, to achieve the $300 million, what percentage of it would be coming from your new customers that use some of those services from competitors of yours, so you'll have to steal that business versus new growth because you're into -- deeper into the markets that are in Upstate New York?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [49]

--------------------------------------------------------------------------------

:

For the most part, these aren't new products or services. And so what we're picking up is a greater market share of that existing customer relationship. Keep in mind, for some of the commercial products and services, First Niagara didn't have those capabilities to sell into their customers. And they were hiring people from other banks that were able to bring over the commercial loan relationship, but not necessarily the treasury management capabilities. And so we believe that we can have success in driving that additional account acquisition on the residential mortgage side that we really didn't have, this as a true product offering throughout the Key footprint. And each one of those Key customers probably have a mortgage loan, but we want to be top of mind for when they look out to buy the next house or when they want to refinance. And so this is really getting to a point where we're successful in getting our share of the market as opposed to creating a new product or offering.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

:

Our next question's from Lana Chan with BMO Capital Markets.

--------------------------------------------------------------------------------

Lana Chan, BMO Capital Markets Equity Research - MD and Senior Equity Analyst [51]

--------------------------------------------------------------------------------

:

Just one follow-up question, Don, on the incremental $50 million of cost savings. Just thinking about how that flows through, should we think about that being invested for some of these revenue synergy initiatives?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [52]

--------------------------------------------------------------------------------

:

We look at them separate and independently. And we want to drive those cost savings to the bottom line. And at the same time, we do want to make investments to get additional revenues. And so they're not dependent on one another. They're mutually exclusive, but we're continuing to hold our team accountable to driving that $450 million cost-saving target. Our board's holding us accountable to drive that. And we're also holding each other accountable to make sure that we can drive that $300 million of revenue growth, and recognize that there are some incremental costs associated with it.

--------------------------------------------------------------------------------

Lana Chan, BMO Capital Markets Equity Research - MD and Senior Equity Analyst [53]

--------------------------------------------------------------------------------

:

Okay. And just one quick follow-up also on the decline in sort of the excess cash and liquidity this quarter. Some of that was, you said, deliberate decline in some of the commercial deposits. How much of -- how should we think about that going forward in terms of some of the DDA growth that's obviously going to come back? So net-net for the margin going forward?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [54]

--------------------------------------------------------------------------------

:

I would say that our assumption is that equity levels remain consistent with where they're at today, and that you wouldn't see a lot of other changes in the deposit balances or the cash position prospectively.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

:

Next, we go to Marty Mosby with Vining Sparks.

--------------------------------------------------------------------------------

Marlin Lacey Mosby, Vining Sparks IBG, LP, Research Division - Director of Banking and Equity Strategies [56]

--------------------------------------------------------------------------------

:

Don, I want to ask you a little bit about trade-offs between building allowance and the purchase account accretion. When you're starting to convert these loans over, you have to kind of take the accounting. And it's just the way that they force us to do this is crazy. But you have to take it from netting against the loan to actually building the allowance. There was a pretty nice $40 million difference between the PAA and the build of the allowance this particular quarter. So I just wanted to kind of get your thoughts on how those 2 things should be balancing out.

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [57]

--------------------------------------------------------------------------------

:

That's a good question. I would say that purchase accounting does have some nuances to it. Essentially, what we do on a quarterly basis is look at our level of reserves that would be required on that purchase portfolio and see how that compares to the discount that remains. And so at some point in time, we'll have to start building reserves in connection with that. I would say that as those loans mature and are originated in a new form that we're required to book reserves on that. What we've talked about externally is that we think that the average loan life is about 4 years. And so over that 4 years, that allowance will be growing from the 1% to, say, to 1.20%, 1.25%. And so you will see a build in the reserve prospectively, but we don't expect it to be lumpy at this point in time.

--------------------------------------------------------------------------------

Marlin Lacey Mosby, Vining Sparks IBG, LP, Research Division - Director of Banking and Equity Strategies [58]

--------------------------------------------------------------------------------

:

And then to a degree that there was a net positive, I kind of just think of that as accelerating the benefit. And as that kind of rolls off on a $5 million per quarter, you're going to generate more synergies, more incremental revenues and that's really the offset. Is it -- you get this upfront benefit, but then you're really generating the business, core business to replace that and more as you move forward.

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [59]

--------------------------------------------------------------------------------

:

That's a good way to look at it.

--------------------------------------------------------------------------------

Operator [60]

--------------------------------------------------------------------------------

:

Our next question's from Saul Martinez with UBS.

--------------------------------------------------------------------------------

Saul Martinez, UBS Investment Bank, Research Division - MD and Analyst [61]

--------------------------------------------------------------------------------

:

Just, I guess, a follow-up on net interest income, net interest margins and thinking through the guidance. So the -- you have the guidance at $3.7 billion, $3.8 billion, given what you did in 1Q, kind of implies a run rate of, at the low end, $925 million; I think at the high end, $960 million. This quarter, obviously, you're at $929 million on the NII. So even considering the incremental purchase accounting accretion of $5 million per year, it seems like there's maybe a bit of conservatism built into that number. I guess, question, is it fair to say that? And is it fair to think that you'll likely be closer to the higher end of that range?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [62]

--------------------------------------------------------------------------------

:

I would say that if you take a look at our $929 million this quarter and multiply it times 4, you're still at the low end of that $3.7 billion to $3.8 billion range as far as our long-term -- or as our full-year guidance. We do say and expect that, that purchase accounting accretion will decrease by $5 million a quarter. And so that $180 million to $190 million level for the entire year is below that first quarter level of $53 million. And so it does create a hurdle for us to grow through. The question will be is what kind of betas will exist going forward for the March rate increase and for the rate increase that we would assume at the end of the year? And then beyond that, it's just making sure we continue to grow the asset base, and we would expect to have net interest income growth from that. So again, the variables on margin tend to be more the impact of the betas. And overall, liquidity positions variables on that net interest income tend to focus more on what we will see from changes in deposit rates with future rate increases.

--------------------------------------------------------------------------------

Saul Martinez, UBS Investment Bank, Research Division - MD and Analyst [63]

--------------------------------------------------------------------------------

:

Okay. No, that's helpful. And then, I guess, a more specific question, and I apologize if you addressed this. I got on late. But did you have any benefit at all from -- any tax benefit this quarter at all from restricted stock units or options?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [64]

--------------------------------------------------------------------------------

:

Yes. The tax benefit was there. So if you look at the tax rate absent the merger-related charges, I think it was 24.8%. We do guide for a range of 25% to 27% for the full year. And so there was a benefit in the current quarter from that.

--------------------------------------------------------------------------------

Saul Martinez, UBS Investment Bank, Research Division - MD and Analyst [65]

--------------------------------------------------------------------------------

:

Okay. So we can -- you'll just take the 24.8% to a more normalized rate, and that's kind of the benefit you got from it this quarter?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [66]

--------------------------------------------------------------------------------

:

That's correct, yes. Yes.

--------------------------------------------------------------------------------

Operator [67]

--------------------------------------------------------------------------------

:

Next, we'll go to Ken Usdin with Jefferies. And we will move on to Geoffrey Elliott with Autonomous Research.

--------------------------------------------------------------------------------

Geoffrey Elliott, Autonomous Research LLP - Partner, Regional and Trust Banks [68]

--------------------------------------------------------------------------------

:

I mean, it seems like on the First Niagara deal, it sounds that you're pretty happy with how things are going. You've increased the expense of target to be $450 million. Given that you're now quite a way through in integrating this one, how do you think about future M&A?

--------------------------------------------------------------------------------

Beth E. Mooney, KeyCorp - Chairman, CEO and President [69]

--------------------------------------------------------------------------------

:

This is Beth. And I would say that our work is not yet done. And I think our priorities are clear. There is additional work to realize and deliver all the cost savings. We've always said, while not in our initial projections that we shared with The Street when we announced the transaction that the revenue synergies were significant and a real opportunity for us. And so I would tell you that we do not believe our shareholders have realized the full value and benefit of this acquisition. And our priorities and our focus are very, very clear.

--------------------------------------------------------------------------------

Geoffrey Elliott, Autonomous Research LLP - Partner, Regional and Trust Banks [70]

--------------------------------------------------------------------------------

:

So as opportunities come up now, does that mean you have to kind of turn away from them and focus on this? Or how long does it take until you can start to look at something else?

--------------------------------------------------------------------------------

Beth E. Mooney, KeyCorp - Chairman, CEO and President [71]

--------------------------------------------------------------------------------

:

As we have said, we have everything we need to be successful between our business model, our geographies, our capabilities. So as we look at the prospects for Key and our commitments on our long term financial targets and our operating performance, we have what we need to be successful and meet the goals and objectives that we have outlined to the Street. First Niagara has been instrumental, as we said, in our ability to achieve some of the financial metrics and performance, particularly in return on tangible common equity and efficiency ratios. So it's been very beneficial. But as a company, Key is well positioned in the market to succeed.

--------------------------------------------------------------------------------

Operator [72]

--------------------------------------------------------------------------------

:

The next question's from Kevin Reevey with D. A. Davidson.

--------------------------------------------------------------------------------

Kevin Kennedy Reevey, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [73]

--------------------------------------------------------------------------------

:

I know that your loan book is a small percentage of your loan portfolio. Can you kind of talk about the credit trends you've seen in that book in the most recent quarter?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [74]

--------------------------------------------------------------------------------

:

I'm sorry. Which book did you...

--------------------------------------------------------------------------------

Kevin Kennedy Reevey, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [75]

--------------------------------------------------------------------------------

:

The auto loan book?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [76]

--------------------------------------------------------------------------------

:

Oh, I'm sorry. Yes, I would say that our auto loan has continued to perform well, and delinquency levels have maintained very well. And keep in mind that our auto loan book is what I refer to as super prime. And FICO scores are north of 750 on average. And we're focused on making sure that we extend credit to the borrowers that aren't reliant on the value of the collateral to get our money back, and are more focused on their capability to repay us. And that has continued to do well for us.

--------------------------------------------------------------------------------

Operator [77]

--------------------------------------------------------------------------------

:

And we have a question from Peter Winter with Wedbush Securities.

--------------------------------------------------------------------------------

Peter J. Winter, Wedbush Securities Inc., Research Division - MD [78]

--------------------------------------------------------------------------------

: I was just curious. You talked about how borrowers' sentiment was very positive, not translating into loan growth. But can you talk about what you're seeing in terms of the loan pipelines?

--------------------------------------------------------------------------------

Beth E. Mooney, KeyCorp - Chairman, CEO and President [79]

--------------------------------------------------------------------------------

:

Yes. Peter, this is Beth. I would tell you that we've always talked over the last couple of years about borrowers being cautiously optimistic. And I would say they have definitely canted towards -- to optimism. I do see our pipelines are up year-over-year, and they're very strong going into the second quarter. You add to that, that we have also increased our sales force and our client base with the First Niagara acquisition. So as we go into the balance of the year, we have not only improving sentiment that likely is going to translate into increased activity, but we also have another lever for growth in terms of the acquisition of First Niagara, those relationship managers in that client base. So prospectively, we feel good about loan growth.

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [80]

--------------------------------------------------------------------------------

:

Peter, this is Don. And one other thing to add, and Beth had highlighted this earlier as well, but keep in mind, too, for the first quarter, for us, that we had a record first quarter as far as investment banking debt placement fees. And the strength was really coming from our commercial real estate and loan syndication areas. And we were actually retaining a little bit less on our balance sheet than what we normally would, based on the availability of the markets supporting those areas. And so that results in a little bit slower loan growth for us, but still represents a strength as far as our ability to generate capital for our customers.

--------------------------------------------------------------------------------

Peter J. Winter, Wedbush Securities Inc., Research Division - MD [81]

--------------------------------------------------------------------------------

:

And just a quick follow-up. Just going back to the expense guidance with the additional $50 million expense saves. Would you think that it would come in more towards the lower end of the range? Or is it a function of what happens on the revenue front that maybe makes you come in more towards the middle, higher end just given the additional cost saves now?

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [82]

--------------------------------------------------------------------------------

:

Either you guys are just trying to pin me down to the actual number you will put in your models here, but I would say that...

--------------------------------------------------------------------------------

Peter J. Winter, Wedbush Securities Inc., Research Division - MD [83]

--------------------------------------------------------------------------------

:

I'll take the low end or high end of the range.

--------------------------------------------------------------------------------

Donald R. Kimble, KeyCorp - Vice Chairman and CFO [84]

--------------------------------------------------------------------------------

:

What I would offer up for that is if you look at the incremental $50 million, we talked about those synergies really being achieved later in '17 and early '18. And so the impact on the full year '17 won't be that significant for that incremental $50 million. And so while we do believe it's real, we're going to hold ourselves accountable to achieving that, but that really doesn't impact the outlook as much as you might expect.

--------------------------------------------------------------------------------

Operator [85]

--------------------------------------------------------------------------------

:

And with no further questions, I'll turn it back to you, Ms. Mooney, for any closing remarks.

--------------------------------------------------------------------------------

Beth E. Mooney, KeyCorp - Chairman, CEO and President [86]

--------------------------------------------------------------------------------

:

Again, we thank you for taking time from your schedule to participate in our call today. If you have any follow-up questions, you can direct them to our Investor Relations team at (216) 689-4221. And that concludes our remarks for today. Thank you very much.

--------------------------------------------------------------------------------

Operator [87]

--------------------------------------------------------------------------------

:

And ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.