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KeyCorp (KEY) Q4 2018 Earnings Conference Call Transcript

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KeyCorp  (NYSE: KEY)
Q4 2018 Earnings Conference Call
Jan. 17, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to KeyCorp's Fourth Quarter 2018 Earnings Conference Call. As a reminder, this conference is being recorded.

I would now like to turn the conference over to the Chairman and CEO, Beth Mooney. Please go ahead.

Beth Mooney -- Chairman and Chief Executive Officer

Thank you, operator. Good morning and welcome to KeyCorp's fourth quarter 2018 earnings conference call. In the room with me is Don Kimble, our Chief Financial Officer; Chris Gorman, President of Banking; and Mark Midkiff, our Chief Risk Officer.

Slide two 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.

Now I'm moving to slide three. As you have seen with our headlines this morning, Key reported strong results for the fourth quarter and this finishes what has been a very successful year for our company, as we continue to grow, invest for the future and deliver on our financial commitment. For the fourth quarter, we reported GAAP earnings per share of $0.45. Our EPS results included $0.03 from a pension settlement charge and costs associated with our efficiency initiative which we refer to as notable items in our materials. Adjusting for this $0.03 of notable items, it brings our core earnings per share to $0.48 for the quarter. To provide a consistent view of our financial trends and prior periods comparisons, my remarks this morning will focus on the adjusted core numbers which exclude notable items in all periods.

Ore strong fourth quarter builds on the momentum we continue to see across our company. Highlights for the quarter included solid revenue growth, well managed expenses, strong credit quality with a meaningful decline in non-performing loans and further improvement in criticized and classified loans, improved efficiency and return measures with both up almost 400 basis points from the year ago quarter and disciplined capital management, which includes returning a significant amount to our shareholders through dividends and share repurchases.

Don will spend more time on the fourth quarter details. So I will focus most of my comments on our full year performance. 2018 was our sixth consecutive year of positive operating leverage. Our return on average tangible common equity increased each quarter during the year, reaching 17.5% in the fourth quarter. For the year, we reached a record level of revenue of $6.4 billion, reflecting continued growth in loans and deposits, as well as achieving all-time highs in several of our fee-based businesses, including investment banking and debt placement fees. The growth in both spread and fee income reflects the breadth and depth of our business model and our ability to acquire and expand relationships with our targeted clients.

Expenses remained well controlled, as we drove efficiencies across our company, while continuing to make investments in areas where we have targeted scale and reach. Yesterday, we announced an exciting new opportunity to build out our digital consumer lending platform with the acquisition of Laurel Road, which I will discuss later in my remarks. Over the past year, we improved our cash efficiency ratio by over 300 basis points and we remain on a path to achieve our $200 million of cost savings target in 2019, which represents approximately 5% of our total expenses. We expect to reach our targeted cash efficiency ratio range of 54% to 56%, by the second half of 2019.

Our credit quality has remained strong with net charge-off to average loans remaining below are over the cycle range of 40 basis points to 60 basis points throughout the year and 27 basis points for the fourth quarter. Our non-performing loans declined by over $100 million from the prior quarter and represented 61 basis points at period end loans. The linked quarter improvement was consistent with our prior comments that the increase in our third quarter NPL level was temporary, and was not indicative of a trend. Other credit metrics including criticized and classified loans, which we look to is leading indicators, improved again during the fourth quarter.

As noted at our recent Investor Day, during my time as CEO, we have dramatically enhanced our risk practices and improved our risk profile. We continue to remain consistent and disciplined in our credit underwriting and portfolio management, and we are committed to outperform through the business cycle. We believe that our steadfast commitment to maintaining our moderate risk profile will continue to serve us well. In terms of capital management, we have consistently delivered on our stated priorities of supporting organic growth, growing dividends and prudently using share repurchases. And consistent with our 2018 capital plans, we increased our common stock dividend by 62% in 2018 and our dividend yield now stands at over 4%. We also repurchased over $1.1 billion of common shares throughout the year. Key's common equity Tier 1 ratio ended the quarter at 9.92%. Again, it was a strong finish to the year. We had broad based growth across our franchise with record annual revenue and well managed expenses that drove meaningful improvement in both efficiency and returns and we maintained our moderate risk profile and continued to return capital to our shareholders.

Now let me turn to the announcement that we made yesterday, and I am now moving to slide four. From a transactional standpoint, we have acquired the digital lending business from Laurel Road Bank. This business operates under the name Laurel Road and is a leading digital-first consumer lending platform focused on student lending refinancing, primarily targeted at advanced degree in medical professional. To be more specific, approximately 70% of the clients are doctors and dentists with another 20% being lawyers and MBAs. And the overall demographics of this target client base is extremely attractive. An average age of 33, average FICOs of 760 and income of approximately $185,000.

Strategically, this is a strong compliment to Key's approach of building targeted scale against specific client segments. Moreover, it closely aligns to our enterprise healthcare focus. And while this distinctive platform is on a -- the path to having scale in a business with the student lending is also a concept we shared at our Investor Day. The Laurel Road team has been proactively expanding its product set to build broad based relationships with these targeted clients and prospects. In the last year alone, the team has developed and launched personal and secured loans, mortgage and deposits, all delivered digitally on their industry leading platform.

In October, we also shared our views on the power of strategic partnerships to execute our strategy. Laurel Road believes this as well and has constructed a network of over 150 affinity partners with whom they are the preferred provider to these targeted client segments. The winning formula for clients, partners in Laurel Road matches our model and our clients the way we at Key approach this business. Over the past several years, we have spent significant time developing a distinctive partner capability. In that process, we have interacted with many different fintech teams and other potential partners. And to-date, we have not yet found a business model or a management team with whom we are this closely aligned, which was a critical factor in our desire to engage in this transaction, as well as the alignment with our relationship strategy targeted in an attractive and complimentary client segments.

And with that, let me turn the call over to Don.

Donald Kimble -- Chief Financial Officer

Thank you, Beth. And I'm now on slide six. As Beth said, we reported fourth quarter net income from continuing operations of $0.45 per common share. Adjusting for two notable items, a pension settlement charge and costs related to our efficiency initiative primarily severance, earnings per share was $0.48. Our adjusted results compared to the $0.36 per share in the year ago period, and $0.45 in the third quarter. The severance cost this quarter, which totaled $24 million was due to early actions taken to achieve our $200 million cost savings target, and reach our cash efficiency ratio goal of 54% to 56% by the second half of 2019. I will cover many of the remaining items on this slide in the rest of my presentation. So I'm now turning to slide seven.

Total average loans of $89 billion were up 4% from the fourth quarter of last year, driven by growth in commercial and industrial loans which were up 9%. Linked quarter growth in average balances was primarily from commercial industrial loans as well as commercial real estate. Importantly, our growth continues to be driven by building and expanding core middle market relationships in our targeted areas. Our business model positions us to offer our clients a wide range of financing alternatives both on and off balance sheet. In this 2018, approximately 16% of the total capital we raised for our clients went on to Key's balance sheet. Our C&I lending continues to be broad based, done through our footprint as well as our targeted industry verticals. Commercial real estate, where we saw some balance sheet growth is quarter is primarily an originate to distribute model, that drives fee income and strong returns, while providing flexibility and managing portfolio risk. In the fourth quarter, we placed $5 billion of commercial mortgage loans in the market and a total of over $13 billion for the full year 2018.

In 2019, we expect to continue to grow loan balances, as we support our relationship clients. The tone and sentiment with our clients remained positive and our pipelines remain solid. That said, we remain committed to our moderate risk profile and we will continue to walk away from business that does not meet our risk parameters.

Continuing on the slide eight. Average deposits totaled $108 billion for the fourth quarter 2018, up $2.3 billion or 2% on annualized compared to the third quarter, and up 4% from the same period one year prior. The cost of our total deposits was up 11 basis points from the third quarter, reflecting higher interest rates as well as the continued migration of our portfolio in the higher yielding products. Growing deposits and being core funded remains foundational to the way that we run our business. We experienced strong deposit growth this quarter both consumer and commercial but consciously using market rates in a very targeted way to retain and deepen existing relationships with our best clients. As important, we're not acquiring new rate sensitive deposits only business. As expected, our deposit betas continued to move higher. The incremental beta in the fourth quarter was 60%, bringing our cumulative beta to 33%. On a linked quarter basis, deposit growth was primarily driven by the penetration of our existing retail and commercial relationships as well as short term and seasonal deposit inflows. We continue to have a strong stable core deposit base with consumer deposits accounting for 61% of our total deposit mix.

Turn to slide nine. Taxable equivalent net interest income was just over $1 billion for the fourth quarter 2018 and net interest margin was 3.16%. These results compare to taxable equivalent net interest income of $952 million and a net interest margin of 3.09% for the fourth quarter 2017 and $993 million and 3.18% in the third quarter. Purchase accounting accretion contributed $23 million or 7 basis points to our fourth quarter results. This compares with $26 million or 9 basis points in the third quarter and $38 million or 12 basis points in the fourth quarter of 2017. Excluding purchase accounting accretion, net interest income was up $71 million or 8% from the fourth quarter 2017. The increase was largely driven by earning asset growth and our positioning to benefit from higher interest rates.

Net interest income excluding purchase accounting accretion increased $18 million or 2% from the prior quarter. But if any from earning asset growth in higher loan fees partially offset by higher deposit betas. The net interest margin was negatively impacted by deposit growth exceeding loan growth for the quarter and the excess funds were deployed into the investment portfolio.

Moving on to slide 10. Key's non-interest income was $645 million for the fourth quarter 2018 compared to $656 million for the year ago quarter and $609 million from the prior period. The comparison from a year ago period reflects our record results for investment banking and debt placement fees in the fourth quarter of 2017 and the sale of our insurance business in the second quarter of 2018. We continue to see positive momentum in many of our fee based businesses with linked quarter increases in trust and investment services, investment banking debt placement fees and corporate services. As Beth said, investment banking debt placement fees achieved a new record level in 2018 as we continue to experience strong growth across our capital markets platform. In the fourth quarter, our results were then benefited from strength in our commercial mortgage and M&A advisory. Corporate services income increased as well reflecting higher derivatives in trading income and trust and investment services income grew, largely due to stronger brokerage commissions.

Turning to slide 11. Fourth quarter non-interest expense was $1.012 billion or $971 million, excluding notable items consisting of a $17 million pension settlement charge and $24 million of efficiency related expenses. This compared with $1.098 billion in the fourth quarter of 2017, which included $85 million of notable items and $964 million in the prior quarter. The table on the bottom left side of the slide, breaks out the notable items incurred in both the current and year ago periods. Compared to the prior quarter, non-interest expense increased $48 million on a repeated basis or $7 million excluding notable item. The $7 million increase reflects higher business services and professional fees and higher other expense, partially offset by the elimination of a quarterly FDIC surcharge.

Business services and professional fees reflects a number of corporate initiatives related to CECL, our payments business and technology enhancements, over half of the increase in other expense related to the pension settlement. Other expense in the fourth quarter also included higher operational losses, insurance reserves and additional investments in our payments business, along with other seasonally elevated expenses. That said, we remain committed to our $200 million cost savings target this year, and we're reducing reported expenses by low single digit range. We expect to reach our cash efficiency ratio target of 54% to 56% by the second half of the year.

Moving onto slide 12. Our credit quality remains strong and we continue to be consistent and disciplined in our underwriting. Net charge-offs were $60 million or 27 basis points of average total loans in the fourth quarter, which continues to be below our over the cycle range of 40 basis points to 60 basis points. The provision for credit losses was $59 million for the quarter. As expected, non-performing loans were down this quarter, with NPLs declining by $103 million from the prior quarter and now represents 61 basis points of period end loans. Other leading indicators such as criticized loans and delinquencies all showed improvement this quarter.

I'm turning to slide 13. Capital also remains a strength of our company with a common equity Tier 1 ratio at the end of the fourth quarter of 9.92%. As Beth mentioned earlier, we have remained true to our capital priorities, including returning a significant amount to our shareholders. Our quarterly common share dividend increased by 62% over the past year, from $0.105 to $0.17 per share, and we continue to repurchase common shares, with which total $278 million this quarter and over $1.1 billion for the full year 2018.

On slide 14, we've provided our outlook for 2019. This builds on our performance in 2018 and reflects our expectation for another year of strong positive operating leverage and continued momentum across our company. Average loan balances were expected to increase to the $90 billion to $91 billion range once again driven by our commercial businesses. Average deposits should continue to grow reaching the $108 billion to $109 billion range. Net interest income should be in the $4.0 billion to $4.1 billion range and our outlook assumes no interest rate increases in 2019. We expect that non interest income will be in the range of $2.5 billion to $2.6 billion with growth in most of our core fee based businesses. We also look for another year of growth in our investment banking and debt placement business.

Additionally, we expect non-interest expense to be down low single digits from the reported 2018 level in the range of $3.85 billion to $3.95 billion. This range includes a realization of the $200 million in run rate cost savings and reaching our target cash efficiency ratio of 54% to 56% in the second half of the year. Keep in mind, the outlook includes the impact of our Laurel Road acquisition which adds approximately $50 million to the range. We see nothing on the horizon that changes our expectations on credit quality with net charge-offs and provision expense remaining below our targeted range of 40 basis points to 60 basis points. Our loan loss provision should slightly exceed our level of net charge-offs to provide for loan growth.

And our GAAP tax rate should increase slightly to the range of 18% to 19%. Our guidance also assume some variability over the course of the year. First quarter will reflect an expected decline related to seasonality including a lower day count and customary step down in capital markets activity from strong fourth quarter levels. Additionally, first quarter carries an increase to employee benefit cost which will elevate personnel expense by about $30 million.

Our guidance also includes the impact from Laurel Road acquisition, as Beth discussed. Laurel Road, as mentioned earlier, will add less than $50 million, both income and expense in 2019, and will be dilutive by approximately $0.02 for the year and accreted thereafter. The near term dilution reflects a change from their gain on sale model to our plans to place these attractive loans on our balance sheet.

With the expected mid year closing and the gradual build up of our loan balances in the second half, it will also have a very modest impact on our full year loan growth, while adding slightly to our efficiency ratio in the first year, it does not change our commitment to reach our cash efficiency ratio targeted at the 54% to 56% in the second half of 2019. Overall, 2019 should be another good year for Key, building on our momentum with strong operating leverage, focused risk management and continuing EPS growth.

On the bottom of the slide are our long term targets. We are already operating within the range of three of the four measures and believe we will reach our efficiency ratio during the year. That said, we have significant upside remaining to improve returns and deliver value to our shareholders. I remain confident in our ability to continue to move toward the top tier of our peer group and believe over time, the market will recognize our progress and improved results.

I'll now turn the presentation back over to Beth.

Beth Mooney -- Chairman and Chief Executive Officer

Thanks, Don. And before moving to the Q&A, I'll make a few closing comments. Despite the volatility that was experienced late in the year, I am pleased with our results and the momentum we have and share Don's confidence in our outlook. Over the past several years, we have made incredible progress across our company and we have delivered a step change in our financial performance, and we are now approaching peer leading levels of return, while remaining disciplined with risk and capital.

In the fourth quarter, we increased our return on tangible common equity targets to 16% to 19%, and as Don pointed out, we remain on a path to achieve our long term target. Our stock valuation, however does not reflect our stronger performance, competitive positioning and improved risk profile. We continue to believe that Key offers a compelling investment opportunity, given our track record and focused on sound, profitable growth supported by a dividend yield of over 4%. I remain optimistic about Key's future, and I'm proud of the momentum and accomplishments of our team in 2018. And as we look forward, we are well positioned to grow revenue, to control and reduce expenses, manage risk, drive further efficiency improvement, and ultimately drive higher returns for our shareholders.

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

Questions and Answers:

Beth Mooney -- Chairman and Chief Executive Officer

Thank you. (Operator Instructions) And first to the line of Scott Siefers with Sandler O'Neill. Please go ahead.

Scott Siefers -- Sandler O'Neill -- Analyst

Good morning, everyone.

Beth Mooney -- Chairman and Chief Executive Officer

Good morning.

Donald Kimble -- Chief Financial Officer

Good morning.

Scott Siefers -- Sandler O'Neill -- Analyst

Hi. Don, quick question just on the cost outlook, you have lot of moving parts this year, you guys typically have, I guess, more seasonality in the quarterly cost base just to begin with given the investment banking component, then we're layering in the acquisition, but then you have the cost savings. So just hoping you could maybe give a little more color on how you would expect the quarterly base to kind of traject or flow throughout the year? In other words, is there a quarter like the 2Q that represents the high watermark and then we start to come down or with the fourth quarter be the low watermark for the year, in that we get the run rate cost savings in there, how do you see that all panning out?

Donald Kimble -- Chief Financial Officer

Great. And like you said, there are number of moving parts there. When we did highlight the first quarter, we do expect to see a tick up in expenses reflecting the $30 million of higher benefit costs. Now, that would be offset slightly by the impact that we expect investment banking debt placement fees to be lower in the first quarter compared to the fourth quarter, which tends to be high point, but those two items will impact the first quarter. Whereas our continuous improvement or efficiency improvements we're making, we should see some small amounts come through in the first quarter, start to build in the second quarter. And really for the second half of next year, majority of those $200 million in run rate should be reflected in our expense levels. And so we would expect to see the improvements come through there.

Laurel Road, we talked about having an acquisition in mid year of '19 and that really is what drives that roughly $50 million in expenses and so you would see that in the second half of the year. So that would minimize some of the bottom line reduction as far as expenses that we would be achieving on the expense savings. But still in my mind show probably the low point in expenses, be it in the third quarter and fourth quarter being up a little bit just to reflect the seasonality we typically see in our capital markets related revenues where it would typically be stronger. But again, I think those all combined still get us to that 54% to 56% efficiency ratio range in the second half of the year.

Scott Siefers -- Sandler O'Neill -- Analyst

Okay, that's perfect. Thank you for that. And then just quick question on the margin outlook. So you had a little liquidity build that you discussed, in the slide presentation, you note that some of the deposit inflows were kind of short term or and/or seasonal? So, one, how does that all play out? I imagine some of that securities portfolio that comes down if the deposits are indeed seasonal, but that would allow the margin maybe to see a little lift here in the near term as an offset?

Donald Kimble -- Chief Financial Officer

We would say that our margin outlook for '19 would be relatively stable with what we're seeing for '18. And I think '18, we were 3.17% for the full year and 3.16% for the fourth quarter and so they're both pretty tight already. But we do think that that there could be a little bit of improvement in the overall liquidity position. But right now, our guidance would suggest that deposit growth would about equal loan growth. And so we don't see a significant change in the overall liquidity position. And we're not also including any assumed rate increases for '19. And so we wouldn't see a lot of lift from that either.

Scott Siefers -- Sandler O'Neill -- Analyst

Okay. All right. Thank you very much.

Donald Kimble -- Chief Financial Officer

Thanks, Scott.

Operator

Next, we'll go to Peter Winter with Wedbush. Please go ahead.

Peter Winter -- Wedbush Securities -- Analyst

Good morning.

Beth Mooney -- Chairman and Chief Executive Officer

Good morning.

Peter Winter -- Wedbush Securities -- Analyst

I was just wondering, when I look at the loan growth in the fourth quarter, it was more of broad based than what we've seen in the past which -- where it's more reliant on C&I. I'm just wondering if you can give some color behind the change and do you think that's sustainable going forward?

Donald Kimble -- Chief Financial Officer

I think if you're looking at an average balances, Peter, that you would see a growth in commercial real estate. And what you would have seen is some of the $1 billion of the portfolio in the third quarter, going into the fourth quarter for some of the loan sales we typically have and we talked about. For the quarter, we sold about $5 billion worth of commercial real estate balances. And on slide 21 or page 21 of the earnings press release, you can see for the quarter, our total loan sales were $5.5 billion, and that's quite a statement given the challenge in the markets and what we're able to accomplish for our customers. And so it was more of a timing issue for that commercial real estate balance. But we continue to see some growth in consumer categories, mainly the indirect auto and our expectation as we integrate with the Laurel Road, we'll start to see some other components of loan growth there as well, and later '19 also.

Peter Winter -- Wedbush Securities -- Analyst

And just a follow-up. Can you talk about maybe some potential flexibility, you might have to fund loan growth? The loan to deposit ratio has been steady. I'm just wondering if you would let that kind of trend upward or maybe use securities and excess liquidity to maybe fund some of the loan growth and putting some less pressure on deposit costs?

Donald Kimble -- Chief Financial Officer

Good question. And I would say that, we're very focused on having our balance sheet core funded. And we're doing that through growth in our deposits with our existing customers. And so we're not out there trying to get wholesale deposits that -- in more of a digital channel basis, we're growing those with our existing customers and adding to those relationships, deepening those relationships on the deposit side and we'll continue to do that. And our outlook, as I mentioned, would suggest that loan deposit -- loan growth and deposit growth are about equal from next year and we would like it that way. Now, my preference longer term is to have a little bit higher loan to deposit ratio and have less liquidity on the balance sheet, but the near term we're not seeing that in our outlook.

Peter Winter -- Wedbush Securities -- Analyst

Thanks.

Operator

Our next question is from John Pancari with Evercore ISI. Please go ahead.

John Pancari -- Evercore ISI -- Analyst

Good morning.

Donald Kimble -- Chief Financial Officer

Good morning.

Beth Mooney -- Chairman and Chief Executive Officer

Good morning.

John Pancari -- Evercore ISI -- Analyst

On the loan growth, just looking at the commercial trends, end of period versus average, it doesn't appear that you saw lot of a benefit at all from the capital market seizing up in December. Some of the other regionals have seen some benefit from that. Did you -- can you just talk about it, if you saw that at all, if that could impact the outlook at all? Thanks.

Christopher Gorman -- Vice Chairman and President of Banking

John, it's Chris. We actually did not get the benefit of that impact. As we look across our book, our clients are doing very well. Some of our clients actually at the end of the year paid down part of their loans. And as Don mentioned, we had a really, really strong quarter as we moved $5.5 billion of financings of our balance sheet. So we did not see a pickup in loan balances based on what was going on in the capital markets.

John Pancari -- Evercore ISI -- Analyst

Okay. All right, that's helpful. And then just to confirm one thing on the expense side. I'm pretty much sure I know the answer, but the midpoint of your expense guidance of about -- for 2019 about $3.9 billion, that's up a bit from the midpoint of what you implied of your range that you gave coming out of your Investor Day about $3.85 billion. And that changes mainly the Laurel Road, incorporating the Laurel Road, is that correct?

Donald Kimble -- Chief Financial Officer

100% of the gap, yes. So, Laurel Road adds about $50 million to our expensed base outlook for 2019.

John Pancari -- Evercore ISI -- Analyst

On an annual basis?

Donald Kimble -- Chief Financial Officer

It's for the full year impact of '19. If you looked at Laurel Road for an entire year, it will be north of that $50 million number.

John Pancari -- Evercore ISI -- Analyst

Got it. But your cash efficiency ratio range remains intact, because you are also dialing in the revenue impact from Laurel Road, correct?

Donald Kimble -- Chief Financial Officer

That's correct.

John Pancari -- Evercore ISI -- Analyst

And what is that? How much is the revenue?

Donald Kimble -- Chief Financial Officer

Well, what we said is that we expect Laurel Road to be about $0.02 dilutive and so for that $50 million in revenue, excuse me -- expenses, it would imply about a $20 million revenue number for the year. And the reason for that gap is we're converting it from a sale model, a loan sale model to retain a type of model.

John Pancari -- Evercore ISI -- Analyst

Got it. Okay, thank you. Then lastly, on the credit side, your charge-off guidance still well below the 40 basis point to 60 basis point through cycle basis point range for charge-offs. Can you give us little more color, I mean, how long do you think it'll trend below that when you look at the portfolio? And why not get more specific at this point in the cycle in terms of your charge-off guidance?

Donald Kimble -- Chief Financial Officer

I would say that as we look at our portfolio today that -- it's still very, very good, very solid. And in this last quarter, we talked about our non-performing loans being down, our criticized and classified loans were down $300 million to $400 million as well. And so we're seeing continued improvement in the trends there. And so we don't see anything that would change significantly from where we're at now. I'd say as far as looking down the road multiple years, Mark, do you have any insights or thoughts you would add to that?

Mark Midkiff -- Chief Risk Officer

Only, I would add that we're obviously at a very low level and continue to be at a low level as we kind of move into '19.

Donald Kimble -- Chief Financial Officer

And we're just not seeing early indicators, we would suggest that's going to change anytime soon. So I'd be reluctant to put a timeline out there.

John Pancari -- Evercore ISI -- Analyst

Okay, got it. Thanks, Don.

Donald Kimble -- Chief Financial Officer

Thank you.

Operator

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

Ken Zerbe -- Morgan Stanley -- Analyst

Hey, thanks. I guess, just kind of follow up on the Laurel Road acquisition. I just want to make sure I fully understand this. So as they're no longer doing gain on sales, so everything that they originate, presumably, I mean, let's say 100% student lending that goes on to your balance sheet. And that I guess new balance sheet growth drives this $20 million this year revenues. And then does it just continue to layer on as you grow that, and then kind of what size or target balances would you expect over the next year or two or three?

Donald Kimble -- Chief Financial Officer

Things in perspective they're a little bit that -- Laurel Road originated about $1.2 billion in total loans this past year. And I would say that the credit quality and the nature of those loans and more importantly the nature of those relationships, we think are consistent with our targeted customer base and we're excited about that. And it goes beyond just the student loans as well that they've already implemented a mortgage lending capability and they've looked at other products they can add to that offering as well. And so it really is more of a relationship strategy for us than just a student loan origination. So we do believe that we'll continue to have the opportunity to put those on balance sheet and we'll see that annuity continue to build as that portfolio continues to mature and develop over the next couple of years.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. Okay. And do you -- would you anticipate continuing any part of the gain on sale model or is --

Donald Kimble -- Chief Financial Officer

I think that's an option for us. And I would say that where we see that there's a good quality relationship, we'll probably retain it, but one thing we talk about is their ability to originate mortgage loans and if it's a conforming mortgage loan, that we will probably sell that in the secondary market, like we do with our existing portfolio. So I think that's more of our approach going forward.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. And in terms of the yields that you would get on these new originations, like how do they compare versus your current portfolio yields and where are they at generally?

Donald Kimble -- Chief Financial Officer

I would say, generally, they're a little stronger than some of our consumer loan yields today, and I think it provides a nice upside for us.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. Okay. And then just really last question. In terms of the tax rate, looks like it jumped up about -- sorry, for your guidance, looks like it's about 2 percentage points higher than where it was this year. Any reason for that?

Donald Kimble -- Chief Financial Officer

I would say that the primary driver there as an outlook for a lower tax credits from some of the business models we've deployed in the past. And so it's just a slower rate of that. And also with the higher level of earnings, the incremental earnings growth is really taxed at the marginal rate, and that helps drive that tax rate up as well.

Ken Zerbe -- Morgan Stanley -- Analyst

All right, great. Thank you very much.

Donald Kimble -- Chief Financial Officer

Thank you.

Operator

Our next question is from Matt O'Connor with Deutsche Bank. Please go ahead.

Matt O'Connor -- Deutsche Bank -- Analyst

Good morning. I guess I thought -- I would have thought the expense outlook, at least a high end might have been a little bit lower, because if we look at it, versus this year, it implies relatively flat costs. I know you've got the acquisition that adds $50 million. but you also have about $70 million of one-timers this year that you called out. So it just seems like if you kind of adjust all those things, the high end of your expense outlook is for relatively flat costs and I can appreciate that some of the initiatives are faded in or phased in kind of throughout the year, but -- just from an Investor Day, it seemed like there is real effort to shrink the cost base on a full year basis.

Donald Kimble -- Chief Financial Officer

There clearly is that effort and outlook and we'll go back and look at the math on that. But my math would have shown that even on the high end we've been down about 1% and at the low end we would be done about 3%. So we think that's right in a zip code of what we talked at Investor Day, but, we'll go back and confirm that math.

Matt O'Connor -- Deutsche Bank -- Analyst

Okay. And then just a swing factor of that $100 million, is this just on depending on what revenues are? Or do you have a scenario where you're at the high end of your revenue range and the low end of your expense range, if you can realize all your cost savings?

Donald Kimble -- Chief Financial Officer

I would say the primary driver of movement within that range is tied to the revenue growth and what we're seeing from movement in the markets and also from our core business models. So what we talked about in the past is that, we can adjust that expense based on what we're seeing as far as the economic outlook and what we see as the revenue growth. And part of that expense base does assume a reinvestment back in the business, and that's one of the levers that we can pull just to slow that investment if we don't see the kind of upside from benefits from those investments.

Matt O'Connor -- Deutsche Bank -- Analyst

Okay, thank you.

Donald Kimble -- Chief Financial Officer

Thanks, Matt.

Operator

Next we'll go to Steven Alexopoulos with JPMorgan. Please go ahead.

Steven Alexopoulos -- JPMorgan -- Analyst

Hey, good morning, everybody.

Donald Kimble -- Chief Financial Officer

Good morning.

Beth Mooney -- Chairman and Chief Executive Officer

Good morning.

Steven Alexopoulos -- JPMorgan -- Analyst

Just start on deposits, if we look at the $108 billion, $109 billion guidance for deposits, Don, what's the underlying assumption for non-interest bearing deposits in that guidance?

Donald Kimble -- Chief Financial Officer

The assumption there is we would continue to see some slight reduction in those balances throughout the next year, and that's primarily on the commercial side, where we continue to see those customers migrating more the deposit mix over the interest bearing as opposed in non-interest bearing. I think this year we saw 1% to 2% kind of decline and I would say something along those lines will probably be consistent with our outlook for next year.

Steven Alexopoulos -- JPMorgan -- Analyst

Okay, that's helpful. Then, when we look at the expense guidance, are there any additional efficiency related charges such as severance included in this guidance, or this operated guidance?

Donald Kimble -- Chief Financial Officer

This is the operating guidance but we wouldn't expect those efficiencies, charges to be significant for next year, we would probably see something continual about the same level of the notable items we have this quarter, throughout the first half of next year.

Steven Alexopoulos -- JPMorgan -- Analyst

Okay. And then finally, so you guys have been cutting expenses obviously for many years. How much longer do you think you can run or expected in this flat to down pattern, right. Once we get past the $200 million, is there any wood left to chop or do expenses start drifting higher at that point?

Donald Kimble -- Chief Financial Officer

You must have been talking to some of our line manager try to push back on some of the targets, but I would say that generally many of these savings are really to taking a look at how we can make our existing processes and workflows more efficient. And going from the customer back to the back office and seeing how we can either use technology to help achieve those or just process redesign. And this $200 million will pull out a chunk of those, but we still believe there's still ammunition left to use for that. The other thing is that even though this $200 million does include some acceleration, as far as some of the branch consolidations, just because of the changes in our consumer behaviors, that we still think that there will be on (Technical Difficulty) continue to provide some efficiencies from rightsizing their branch distribution as well.

Steven Alexopoulos -- JPMorgan -- Analyst

Okay. And that sounds (ph) looking for 2020 guidance, but it sounds like even beyond the second half, there is still a role for you guys to keep pretty significant downward pressure on expenses. Is that right?

Donald Kimble -- Chief Financial Officer

We can manage those, so we can continue to generate nice positive operating leverage in the future. You're right.

Beth Mooney -- Chairman and Chief Executive Officer

And Steve, we talk about it, and have talked about it publicly on a journey of continuous improvement. And as you think about how we're aligned, how we go to market, technology, digitization of the enterprise, process improvement, all these are things that will be continually part of our focus. This is not a one and done.

Steven Alexopoulos -- JPMorgan -- Analyst

Okay, great. Thanks for all the color.

Operator

The next question is from Erika Najarian with Bank of America Merrill Lynch. Please go ahead.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Hi. Good morning.

Donald Kimble -- Chief Financial Officer

Good morning.

Beth Mooney -- Chairman and Chief Executive Officer

Good morning.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

I'm sorry to reask Matt's question in other way, I'm just trying to figure out why the stock gap down when the market opened. So in terms of your outlook, it seems like consensus is at the lower end of your net interest income range at the midpoint of your fee income range and at the low end of your expense range. And I guess I just wanted to confirm that that's fair and is there any move up in the range on expenses will have to do with better revenues?

Donald Kimble -- Chief Financial Officer

I would say that as far as our outlook, one thing the consensus would not have reflective is Laurel Road. And we talked about there will be a slight dilution from that of $0.02 a share. And our expense guidance, again, that the range is more tied to what we would see from a revenue perspective. And so if revenues are up, we would expect to probably be at the higher end of the range given some of the cost of supports.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Got it. And regarding Laurel Road, I think if you get the question, is really now the time to layer in consumer risk on your balance sheet, given that we're late cycle. Beth, you write-off some of the statistics in terms of income in FICO that were quite compelling. I'm wondering sort of what additional layers in terms of underwriting do you plan to do to enhance the process that Laurel Road has today, especially as you're going to go to a retention model rather than originate and sell?

Mark Midkiff -- Chief Risk Officer

I would offer -- this is Mark Midkiff. I would just offer that we do think that what we've seen at the underwriting is very sound and very complimentary, but obviously we'll be under our limbs in our buy box. And I think that will be very focused around relationship where we get just better overall credit performance than when you're working at a transactional level. So that will be an enhancement. And of course we've looked at this on a stress basis and feel very comfortable overall relative to our risk appetite as well as just kind of a normal ongoing outlook for losses in that business.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Got it. And just one more question if I can. Beth, you noted the strong dividend growth of 62%, given where your stock price is trading relative to your return potential. I'm wondering if your CCAR ask for 2018 -- sorry, 2019 would perhaps be more focused on buyback than dividend growth?

Beth Mooney -- Chairman and Chief Executive Officer

Erika, obviously we are in the early days of starting to look at CCAR 2019. And we have always been talking over the last couple of years of supporting dividend growth and this year we were approaching that 40% dividend target payout ratio. But we will definitely look at the mix and make sure that whatever we choose for this year's capital returns, that we are really optimizing our use of capital for our shareholders and that would be a consideration.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Got it. And one more if I can. As we think about first quarter trust and investment management income fees rather, Don, I'm wondering, there's like a 9% step down in AUM. I'm wondering what the step down would be in the first quarter to reflect that step down in AUM?

Donald Kimble -- Chief Financial Officer

We could see some very modest pressure on that line item for first quarter but that generally in line with what we shown in the fourth quarter levels.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Got it. Thanks so much.

Donald Kimble -- Chief Financial Officer

Thank you.

Operator

Next we'll go to Geoffrey Elliott with Autonomous Research. Please go ahead.

Geoffrey Elliott -- Autonomous Research -- Analyst

Hello. Good morning. Thanks for taking the question. Could you give us some thoughts on the investment banking and debt placements line? How do you think that could evolve across in a range of scenarios, one way, we kind of stay in tough markets like we encountered in December? And then another way we get something more again to what we've experienced over the last few years?

Christopher Gorman -- Vice Chairman and President of Banking

This is Chris Gorman speaking. So that's a line that we're really proud of the fact that we've been able to consistently grow over the last decade. Obviously it's market dependent. As we see the markets right now and as the markets are currently functioning, we believe we will continue to grow that business in 2019 as well. That's a business that we grew -- we grew that top line this year 8% in a down market. If you go back to 2015, we've grown that line 46%. So it's a business that is based on client relationships. It's based on serving clients, it's based on serving many of the same clients many times. So we feel good about where we're positioned with respect to our investment banking and debt placement line. The interesting thing, if the markets seize up a bit, that's when it could get more interesting for us in terms of opportunities to put things on the balance sheet and serve our clients. As Don mentioned in his comments, we only put about 16% of the capital we raised last year on our balance sheet.

Beth Mooney -- Chairman and Chief Executive Officer

And I would just add that part of what I have always felt is a strength of our platform and some piece of how we looked at our outlook against investment banking and debt placement fees. Our market sensitive fees obviously is the breadth and depth of our platform. Again, we have a broad range of capabilities and we are not dependent on a certain area of the markets and given that it's relationship based mid market, we do have the option to balance sheet but we also can do a variety of things across advisory fees for M&A, these loan syndications, debt placements, equity raises, sponsors, we do in our commercial mortgage business. We have such a breadth in that platform that we really do have confidence that we can generally produce those kinds of results.

Geoffrey Elliott -- Autonomous Research -- Analyst

Thanks. And then, if I could squeeze in a quick one on Laurel Road. I guess, there's quite a few banks who've got similar sorts of businesses and Citizens has got something, First Republic has something, so far isn't a bank, but I think it's active in that space. What is it that makes Laurel Road different from those other platforms out there that are at high level that kind of feels like their customer bases is the same 33-year old doctor or dentist with a good FICO?

Beth Mooney -- Chairman and Chief Executive Officer

We anticipated that we might have an opportunity to speak more holistically about the strategic fit as well as the strength of this platform and why we found it attractive. So I have asked Clark Khayat who is in the room and really spearheaded this transaction for us and spoke to this at our Investor Day. And I'm going to ask Clark to share that we are very excited and think this is a highly attractive not only demographic, but relationship based and differentiated platform. And with that, I'm going to identify that Clark is in the room and ask him to take that question.

Clark Khayat -- Executive Vice President and Chief Strategy Officer

Thanks, Beth. So, I guess I'd answer it in a couple of ways. One, as we talked about in October, we hit on a couple themes, two of which were distinctive platforms, the other was targeted scale. So on the distinctive platform front, this is a very compelling end-to-end digital platform. So, contrary to many others, it's not just the digital entry point, it is legitimately end-to-end highly efficient, highly customer-oriented. And just as a side note, they enjoy NPS scores on the consumer side that are high 60s, low 70s, which are numbers that frankly, most banks just do not enjoy. And that is a function of the process and flow and experience they've built on this end-to-end platform.

So we do think that is quite distinctive relative to others. You noted the customer focus and we've talked targeted scale by identifying client segments with whom we want to do business. This one we do think is different than most, even though others may reflect those sort of demographics. And I think a fair bit of this is driven by a very extensive partner network they've built, that positions them as sort of partners with these trade associations, member entities, other groups to talk directly to those end users in a way that we think is quite distinctive to the way a broad mass market business might work. So, there's more to that. But I think, to your question, those two points in particular, I think were the most compelling to us and give us confidence that we not only like this customer base, but that we have the opportunity to continue to grow it intelligently, leverage the partnership network they've built.

And then as Beth noted, they have begun to build an extension of products for these clients, based largely on the clients asking for them. So the opportunity to not only be a compelling single product provider, but then to build a sustainable, durable and long term relationships that are more broad based across product sets with this attractive client basis is another thing that's very consistent with our relationship strategy. So we just think that compliment to the way Key thinks about its businesses and the way Laurel Road has built this platform, we just haven't seen ones that are as consistent and compelling is this for us.

Geoffrey Elliott -- Autonomous Research -- Analyst

Thank you.

Operator

Our next question is from Saul Martinez with UBS. Please go ahead.

Saul Martinez -- UBS -- Analyst

Hey, good morning. Look, I hate to beat a dead horse with the expenses. But I think the communication on the guidance is really important. So, Don, when you say low single-digit decline, I assume you're basing that off the GAAP reported number of $3,975 million. Is that correct?

Donald Kimble -- Chief Financial Officer

That's correct. Yes.

Saul Martinez -- UBS -- Analyst

Okay. So, during the course of the year, you called out about $75 million of non-core items. You have next year about $36 million by my calculation or $35 million, something like that. FDIC expense charges that are not going to be there. So those two things alone gets you to about $110 million. Obviously, you have the Laurel Road of $50 million. But net-net, it looks like on an operating basis, the core number is closer to like $3.91 billion which kind of suggest that your guidance isn't really, doesn't imply any reduction in expenses. So if you use the midpoint of the range, so I guess my question is, what am I missing in terms of the moving parts? Because, like I said, if you kind of make these adjustments, it doesn't seem like there's any real reduction on a nominal dollar basis, on an operating basis.

Donald Kimble -- Chief Financial Officer

The $3.975 billion for the full year and backup the one-time charges and then add to that the $50 million for Laurel Road, that gets you to $3.925 billion. I'd say that the midpoint of our range and would be about 2% below that. So I think that we are showing reductions in the non-interest expense. And as we highlighted at the Investor Day that, that one is the low single digit decline also reflected the benefit of the FDIC special assessment reduction.

Saul Martinez -- UBS -- Analyst

Okay. It just -- I mean it just doesn't seem like it's all that impressive, the midpoint versus kind of a core number, but fine. I guess just second question, the -- just to change gears a little bit, obviously a lot of attention in the market on leverage loans. And can you just remind us, how much of your exposure is here, how you manage risk, how do you manage your exposures either -- both as a lender and any indirect exposures you may have through other -- through CLOs or BDCs or anything like that?

Christopher Gorman -- Vice Chairman and President of Banking

Sure. This is Chris, let me address kind of how we approach the leverage finance business. First of all, we are focused exclusively on the industries in which we play. So we know exactly who we want to do business with. In terms of that portfolio, it's about 1.8% of our assets in it's a portfolio that has a lot of visibility and a lot of velocity. We feel really good about that portfolio based on all the metrics and frankly, all the time we spend looking at it. So it's a portfolio that has been flat literally, since before we grew our asset base by 40% when we bought First Niagara. Mark, would you add anything?

Beth Mooney -- Chairman and Chief Executive Officer

And I would just add, it is client based, it's obviously is our capital markets business, we manage it to be a fixed amount, we do not allow it to grow, we recycle capital within that. Mark will talk about some of the credit attributes, but it is therefore a) client relationships where we are leading activities and on behalf of our capital markets and b) manage it very rigorously. And it is a very small portfolio relative to our balance sheet.

Donald Kimble -- Chief Financial Officer

Yes, and it's -- I would only add, consistent in terms of fundings, it hasn't moved around a lot. We haven't changed market, it is relationship based, as Chris said. And then, as Beth said, recycle capital but also very consistent in terms of leverage returns, debt to EBITDA, leverage has been very consistent, stable for a long time.

Beth Mooney -- Chairman and Chief Executive Officer

And we've said that portfolio is $2 billion or less at any given time.

Saul Martinez -- UBS -- Analyst

Okay, great. That's helpful. Thanks a lot.

Operator

Next question is from Terry McEvoy with Stephens. Please go ahead.

Terry McEvoy -- Stephens Inc. -- Analyst

Good morning, everyone. A question on Laurel Road. If that business does a $1.2 billion originations like it did last year and all of it's held on the balance sheet. Does it swing from 2% dilutive to something accretive at that point? Or maybe as another way, what's the breakeven size in terms of balance sheet size for that business to contribute to the bottom line?

Donald Kimble -- Chief Financial Officer

What we've said -- I think just with the assumption that we acquired at mid year, that we'd only have a half year's worth of production next year, and we would expect it to be accretive in 2020 and beyond. So it's a fairly short window as far as the dilution impact to the acquisition.

Terry McEvoy -- Stephens Inc. -- Analyst

And then how does Laurel Road potentially change your tax spending budget, which I think from your Investor Day was $700 million, $800 million. Were you investing in the student platform and is that platform scalable or something with their technology that can be utilized to Key to offset some of the tax spending expected this year?

Donald Kimble -- Chief Financial Officer

Part of the $50 million in expenses that we're assuming as far as the increases is really continuing to have Laurel Road maintain the same kind of pace, investments they have been making from a digital platform. And we'll continue to include that in our assumptions going forward.

Terry McEvoy -- Stephens Inc. -- Analyst

Okay. Thanks, Don.

Donald Kimble -- Chief Financial Officer

Thank you.

Operator

And we'll go to David Long with Raymond James. Please go ahead.

David Long -- Raymond James -- Analyst

Good morning, everyone. Maybe my first question for Chris. Just the discussions that you're having with your larger corporate customers related to using Key's balance sheet versus the capital markets? Has there been a change in tone in those conversations over the last few months?

Christopher Gorman -- Vice Chairman and President of Banking

No, David, there really haven't been, I mean, when we're out talking to our clients in our prospects, we're constantly figuring out what is the optimal approach for them to take. And those discussions really haven't changed markedly in the last several months. Obviously, there were periods of time in December where markets were dislocated and people were putting off deals. But the strategic discussions that we're having with our clients are ongoing and they're constructive.

David Long -- Raymond James -- Analyst

Got it. Thanks for that color. And then, Don, not to beat a dead horse again on the expenses, but the guidance that you've given with the efficiency, that the cash efficiency ratio target, is that's based on an operating or core basis, not on a GAAP basis. Is that accurate?

Donald Kimble -- Chief Financial Officer

We would say that for the second half of the year that we shouldn't have a lot of notable items. So our expectation is that they should be one in the same for the second half of the year as far as the efficiency ratio.

David Long -- Raymond James -- Analyst

Got it. Thank you.

Donald Kimble -- Chief Financial Officer

Thank you.

Operator

Next question is from Mike Mayo with Wells Fargo. Please go ahead.

Mike Mayo -- Wells Fargo -- Analyst

Hi.

Donald Kimble -- Chief Financial Officer

Hi, Mike.

Mike Mayo -- Wells Fargo -- Analyst

So, help me with my thinking, I almost see a contrast. So most of the largest banks are expanding digital consumer banking outside of their footprint, right, Citigroup, JPMorgan, Bank of America, PNC, US Bancorp. And just remind us where you are in expanding with digital banking outside your footprint? And on the other hand, now you have Laurel Road, which is leading with consumer lending, I'm looking to go from a single product to a multiple product relationship. So on the one hand, you have gathering deposits out of footprint by a lot of your competitors. And now you're going to be trying to leverage lending outside of your footprint, perhaps to get more deposits, or just help me with that thinking.

Clark Khayat -- Executive Vice President and Chief Strategy Officer

Hey, Mike, it's Clark Khayat. So, as Don said earlier, and I think this is the most critical point to add. We are really focused on being core funded. So we are not looking to use this platform or frankly, any other platform at this time to drive out of footprint deposits for the sake of deposit. So we would, as you noted, sort of use the Laurel Road platform out of footprint to drive consumer relationships and lending and where it makes sense, continue to expand that relationship with the deposit. But we'd want the deposit in a case where we have a broader relationship with that client. So that we continue to think about supporting client relationships with deposits, we did that, we think very effectively in the fourth quarter. And as we move forward, whether it's in footprint or out of footprint, and we do have lots of commercial clients outside of the footprint today, the branch footprint. We would continue to look to raise deposits as long as those clients have broader relationships.

Mike Mayo -- Wells Fargo -- Analyst

And then, I guess, Don or Beth, what is the impact that you're seeing in your markets from the other large banks, expanding into your MSAs with digital banking? I guess, you're not really seeing anything yet. But there's that threat you'll see more competition say over the next five years. Are you worried about that? Are you preparing for that? Are you looking to strike back with more efforts of your own?

Beth Mooney -- Chairman and Chief Executive Officer

Well, clearly we are developing our own digital banking capabilities for our own clients. So this is not where we would gap relative to the offerings that we see of other banks coming into the market, who come in on a digital-only platform and we would certainly have every product and capability for our own clients, in addition to a branch network as well, in addition to our brand that we have in our markets. So we feel well positioned and we will continue to invest in our digital capabilities, this being Laurel Road is an example of where we do believe that accelerates our platforms, both from lending as well as the potential for deposit taking. And that we do believe in the near term we see adequate core funding in our markets to support our strategies. And we compete very well because we certainly have the capabilities, we certainly have the ability to more broadly serve those clients, and so we do not feel gapped in our capabilities.

Mike Mayo -- Wells Fargo -- Analyst

All right, thank you.

Operator

And we'll go to Kevin Reevey with D.A. Davidson. Please go ahead.

Kevin Reevey -- D.A. Davidson -- Analyst

Good morning.

Donald Kimble -- Chief Financial Officer

Good morning.

Kevin Reevey -- D.A. Davidson -- Analyst

So, Beth, to follow up on the last question related to mobile and digital, what kind of adoption rates are you seeing with your existing client base? I know you guys have made a lot of investments in that area.

Beth Mooney -- Chairman and Chief Executive Officer

And Kevin, I don't have those numbers off the top of my head. So I'll apologize for that. But I do know that we've had very strong adoption and transactionally as everyone has reported years ago what happens in a branch versus what happens mobile and digitally, those lines crossed and there's no going back. It is clearly a customer preference to be able to transact their business. And you may recall several years ago with First Niagara, in advance of that integration, we deployed all new customer portals across every from commercial to consumer to our private banking clients, a new digital platform that enables fast and it is a very, very robust platform.

Additionally, we have our financial wellness which is a digital-led experience as well, that we have consciously made sure interacts with our branch experience. But that platform was a digital -- and you may recall several years ago we purchased HelloWallet to really help facilitate that. So we have looked at this as how do we create not only the ability to transact in a mobile and digital world, but also how can you have relationship attributes including advice and planning through our HelloWallet. So it is an area where we are canting and following and making sure we support our customers -- preferences in that regard.

Donald Kimble -- Chief Financial Officer

We've even expanded it into business banking. So, as we think about digital, as we think about digital origination, as we think about wellness, we've taken the technology and the capabilities and expanded that and obviously into our business banking arena as well.

Kevin Reevey -- D.A. Davidson -- Analyst

And then, with that said, how are you thinking about looking at your branching network and rationalizing your brick and mortar footprint?

Christopher Gorman -- Vice Chairman and President of Banking

So, this is Chris. Last year, we took out 38 branches, I think this year 2019 (sic) you can expect us to really ramp up in that regard. We feel like we're pretty good at it as we went through First Niagara, and we rationalized the fleet. We think with the technology, with the digital capabilities that we have, we have the capability to keep our clients and thin out some of the branches, and you'll see us actually step that up this year over last year.

Kevin Reevey -- D.A. Davidson -- Analyst

And then one last question related to the government shutdown. Are you seeing any of the effects of that in your local markets at all?

Beth Mooney -- Chairman and Chief Executive Officer

At this point in time, we are not seeing the impacts broadly in our markets. But we have done a variety of measures to be able to make sure that we can both reactively and proactively support customers of ours who are impacted directly by the partial government shutdown. And we have targeted programs for a special assistance for those who have various types of loans with us. We're aggressively waiving fees and have introduced a loan product with a very low rate to help create liquidity for those who may be impacted by disruption in their income. So we are making sure that we too are in the banking landscape to be responsible to help support the employees that are impacted by the partial shutdown. But from a loan perspective from disruptions in markets, but more broadly, we are not yet seen that.

Kevin Reevey -- D.A. Davidson -- Analyst

Thank you.

Operator

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

Beth Mooney -- Chairman and Chief Executive Officer

Again, we thank you for taking your time from your schedule to participate in our call today. And 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. Thank you and have a good day.

Operator

Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect.

Duration: 65 minutes

Call participants:

Beth Mooney -- Chairman and Chief Executive Officer

Donald Kimble -- Chief Financial Officer

Scott Siefers -- Sandler O'Neill -- Analyst

Peter Winter -- Wedbush Securities -- Analyst

John Pancari -- Evercore ISI -- Analyst

Christopher Gorman -- Vice Chairman and President of Banking

Mark Midkiff -- Chief Risk Officer

Ken Zerbe -- Morgan Stanley -- Analyst

Matt O'Connor -- Deutsche Bank -- Analyst

Steven Alexopoulos -- JPMorgan -- Analyst

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Geoffrey Elliott -- Autonomous Research -- Analyst

Clark Khayat -- Executive Vice President and Chief Strategy Officer

Saul Martinez -- UBS -- Analyst

Terry McEvoy -- Stephens Inc. -- Analyst

David Long -- Raymond James -- Analyst

Mike Mayo -- Wells Fargo -- Analyst

Kevin Reevey -- D.A. Davidson -- Analyst

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