Beth Mooney - Chairman, Chief Executive Officer Don Kimble - Chief Financial Officer Chris Gorman - President, Corporate Banking E.J. Burke - Co-President, Community Banking Dennis Devine - Co-President, Community Banking Bill Hartmann - Chief Risk Officer

Scott Siefers - Sandler O’Neill John Pancari - Evercore ISI Steven Alexopoulos - JP Morgan Ken Zerbe - Morgan Stanley Ken Usdin - Jefferies Rob Placet - Deutsche Bank Bill Carcache - Nomura David Eads - UBS Bob Ramsey - FBR Gerard Cassidy - RBC Geoffrey Elliott - Autonomous Erika Najarian - Bank of America Mike Mayo - CLSA Kevin Barker - Compass Point

Thank you, Operator, and good morning and welcome to KeyCorp’s second quarter 2015 earnings conference call. Joining me for today’s presentation is Don Kimble, our Chief Financial Officer, and available for the Q&A portion of the call is Chris Gorman, President of our Corporate Bank; E.J.

Burke and Dennis Devine, Co-Presidents of our Community Bank; and 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’m now turning to Slide 3.

We had a good second quarter. Our results show positive operating leverage and momentum across our company.

Revenue was up 4% from last year, benefiting from strength in our core fee-based businesses and solid loan growth. On the fee side, investment banking and debt placement had a record quarter of $141 million, which was up 42% from the prior year.

Stronger financial advisory fees and loan syndications drove the improvement this quarter. We also saw good trends in trust and investment services, as well as in cards and payments income.

Both businesses benefited from the investments we have made over the past few years in our people, products and capabilities. Average loans increased in both the community bank and the corporate bank, and loan growth continued to be driven by commercial, financial and agricultural loans, which were up 10% higher than the year ago period.

In second quarter, our expense levels reflect higher performance-based compensation from stronger revenue trends in the quarter, as well as the cost from Pacific Crest Securities and seasonal factors. Don will provide more detail on expenses in his remarks.

We remain focused on generating positive operating leverage by growing revenues while holding expenses relatively stable, which over time will continue to drive further improvement in our efficiency ratio. Credit quality remains strong this quarter with a net charge-off ratio of 25 basis points, well below our targeted range.

We continue to be disciplined with structure and staying true to our relationship focus. Capital remains a strength of our company with a common equity Tier 1 ratio of 10.7%.

In the second quarter, our board approved a 15% increase in our common stock dividend and we repurchased $129 million in common shares. Overall, we are pleased with the quarter and believe that we are well positioned for the second half of the year.

Our results continue to demonstrate the successful execution of our business model, which has allowed us to continue to add and expand client relationships and grow revenue. Now I’ll turn the call over to Don to discuss the details of our second quarter results.

Thanks, and I’m on Slide 5. As Beth said, we had a good quarter with net income from continuing operations of $0.27 per common share, the same as the year-ago period and up from the $0.26 we reported in the first quarter.

This quarter, our results were driven by poor business activity across our company, which resulted in our 4% year-over-year revenue growth. Expenses also reflect our stronger business trends with higher performance-based compensation.

Worthy of note, in the second quarter of last year, we benefited from a leverage lease termination gain, higher principal investing gain, and a lower provision for credit losses. These items contributed $62 million more in pre-tax net income last year relative to the current quarter.

I’ll provide more detail on revenue and expense trends throughout the remainder of my presentation. I’m now turning to Slide 6.

Average total loan growth continued in the second quarter with balances up $2.4 billion, or 4% compared to the year-ago quarter, and up $466 million from the first quarter. Our year-over-year growth was once again driven primarily by commercial, financial and agricultural loans, and was broad-based across key business lending segments.

Average CF&A loans were up $2.6 billion or 10% compared to the prior year, and were up $696 million or 2% unannualized from the first quarter. Continuing on to Slide 7, on the liability side of the balance sheet average deposits were up $3.8 billion from one year ago and up $1.4 billion from the first quarter.

Deposit growth of 6% from the prior year and 2% from the prior quarter was driven by strength in our commercial mortgage servicing business and inflows from both our commercial and consumer clients. The cost of our total deposits remained low at 15 basis points compared to 18 basis points one year ago, reflecting our more favorable deposit mix.

Turning to Slide 8, taxable equivalent net interest income was $591 million for the second quarter compared to $579 million in the second quarter of 2014 and $577 million in the first quarter of this year. Net interest income was up $12 million or 2% from the year-ago quarter as higher earning asset balances were offset by lower earning asset yields.

Compared to the first quarter, net interest income was up $14 million or 2% primarily as a result of earning asset growth and more days in the second quarter of this year. Our net interest margin was 2.88%, which was down 3 basis points from the prior quarter, reflecting higher levels of excess liquidity driven by commercial deposit growth and lower earning asset yields.

Our net interest margin also reflects our June debt issuance, which benefited our liquidity coverage ratio and credit ratings profile. As we move into the third quarter, we’re projecting higher levels of liquidity.

While we don’t expect this to impact our net interest income, we could experience some near term pressure on our margin, with our third quarter outlook reflecting a mid-single digit basis point decline. We anticipate our full-year margin will be relatively stable with the reported level of second quarter.

Our full-year net interest income guidance has not changed. We also expect to maintain our modest asset sensitivity, and the duration and characteristics of Key’s loan and investment portfolios continue to position us to realize more benefit from a rise in the shorter end of the yield curve.

Slide 9 shows a summary of non-interest income, which accounts for 45% of total revenue. Non-interest income in the second quarter was $488 million, up $33 million or 7% from the prior year and up $51 million or 12% from the prior quarter.

As Beth mentioned, we saw strong growth in several of our fee-based businesses. We had a record quarter for investment banking and debt placement fees with $141 million in fees, an increase of $42 million or 42% from prior year.

We continue to expect full-year 2015 investment banking and debt placement fees to exceed full-year 2014. We expect this area to be one of the key drivers of our mid-single digit growth in fee income.

Additionally, trust and investment services was up 18% from the prior year, driven by the acquisition of Pacific Crest Securities and the strength in our retail and private banking businesses. Cards and payments income was up 9% from the prior year, a result of growth in both our credit card and debit card products.

Our strong second quarter fee income results reflect the variability in some of our businesses that we’ve previously discussed, like investment banking and debt placement. Importantly, our results this quarter were driven by core business activity, reflecting the success of our business model and the investments we have made.

In the second quarter of last year, we had a leverage lease termination gain of $17 million. We also had higher principal investing gains in both the prior quarter and prior year.

Turning to Slide 10, our non-interest expense for the second quarter was $711 million, up $24 million from the year-ago period and up $42 million from the first quarter. Second quarter non-interest expense was 3% higher than the prior year.

Expenses continue to be well managed as growth was driven by higher performance-based compensation and the Pacific Crest acquisition. Compared to the first quarter, expenses were up 6%, reflecting higher personnel costs tied to performance-based compensation and normal seasonal trends, including higher salaries from increased day count, higher marketing expense, and lower employee benefit costs.

Additionally, professional fees grew as a result of in-flight third party programs and outsourced activities. In the second quarter, our cash efficiency ratio was 65%.

Efficiency ratio remains an important measure for us, and we remain committed to generating cost savings through our continuous improvement efforts, which are enabling us to make investments and offset normal expense growth. The size and timing of our business investments will impact quarterly expense levels and efficiency.

Recent investments include our third quarter 2014 Pacific Crest Securities acquisition, adding bankers in both the community and corporate bank, and the enhancements we have made to our payments capabilities. We believe these investments are additive to our business model and expect to see good return as they position us to continue to drive long-term growth.

Additionally, seasonality and production levels impact expense and efficiency measures from quarter to quarter. Our expense guidance remains unchanged.

We continue to anticipate full-year expenses to be relatively stable with reported level in 2014. Turning to Slide 11, our net charge-offs were $36 million or 25 basis points of average total loans in the second quarter, which continues to be well below our targeted range.

In the second quarter, provision for credit losses of $41 million was $29 million higher than the year-ago period. Additionally, this quarter’s provision expense exceeded net charge-offs.

Our provision and allowance reflects the most recent syndicated credit review, which did not have a material impact on our overall allowance. At June 30, 2015, our reserve for loan losses represented 1.37% of period end loans and 190% coverage of our non-performing loans.

Turning to Slide 12, our common equity Tier 1 ratio was strong at June 30 at 10.7%. As Beth mentioned, we repurchased $129 million in common shares in the second quarter as part of our 2015 capital plan.

We also increased our quarterly common share dividend by 15% to $0.075 per share. Importantly, our capital plans reflect our commitment to remaining disciplined in managing our strong capital position.

Moving on to Slide 13, as we look ahead for the remainder of 2015, we remain on track and are committed to meeting our full-year outlook. Average loans should grow in the mid-single digit range as we benefit from strength in our commercial businesses.

Consistent with prior comments, we anticipate our full-year net interest income growth in the low single digit range compared to 2014. This does not include any benefit from higher interest rates.

We expect our full-year net interest margin to be down from 2014 and relatively stable with the second quarter of 2015 reported level. Non-interest income is expected to be up in the mid-single digit percentage range for the year, and full-year reported expenses should be relatively stable with 2014.

Credit quality should remain a good story with net charge-offs below our targeted range of 40 to 60 basis points, and we also expect provision to approximate net charge-offs. Finally, we expect to continue to execute our share repurchase authorization consistent with our capital plan.

With that, I’ll close and turn the call back over to the operator for instructions for the Q&A portion of our call. Operator?

Morning guys.

Morning Scott.

Don, I was hoping you could just walk through that margin guidance once again. I just want to make sure I interpret it correctly.

It sounds like for the third quarter it’s a mid-single digit decline, but is it the full year that you’re expecting to come in around, I guess, 288, in other words stable with the 2Q number? And I guess assuming that’s right, what in your mind changed versus the prior?

Is it just the timing of liquidity build, maybe a little more a little sooner than you thought, or what are the dynamics as you see them?

Yes Scott, you interpret that right. We would expect the full year of 2015 to be relatively stable with the 288 we reported this quarter.

That’s down about 3 basis points from last quarter. Our level of liquidity is higher, and we also now expect it to stay with us longer than what we expected before.

So net interest income guidance hasn’t changed. We had noted before that we expected net interest income to be up low single digits without the benefit of rates, and our forecast now reflects our assumption that there may be a rate increase later in the year, but we shouldn’t see much benefit from it.

So even when rates do go up, or when rates do go up, we should see lift in net interest income and margin as well.

Okay, and I think that answers what would have been the second part. I noticed you took out the distinction between NII will be up X without rates and up Y with rates, so maybe you answered the second question there as well.

All right, I think that’s good for me. I appreciate the color.

Thanks Scott.

Good morning.

Good morning.

Good morning.

Just wanted to get a little bit of color on the business services and professional fee line again. I know you referred to it, Don, in your comment about what drove it.

Can you give us a little bit more color on what drove that number higher, and is that likely to stay at that level or is it going to pull back next quarter?

Yes, we talked about professional fees being up linked quarter - I think they were up about $9 million. About half of that is from outsourcing activities where we’ve seen expense reductions in other categories, and that will continue at that higher level.

The other half is what we referred to as in-flight third party programs. It’s both related to revenue initiatives as well as risk management efforts.

We do expect to see that continue into the third quarter but should drop down after that, so some of that is temporary in nature but we should see it continue into the third quarter.

Okay, all right. Lastly on the efficiency ratio, I know long term you’d indicated you’d like to target a below 60% efficiency ratio.

Can you update us on that? Do you still stand by that number, and how do you get there?

Currently, you’re at 65, 66%. How much does rate help you get there, and then timing of when you could see that?

Yes, what we’ve talked about is without the benefit of rate, so over the next two to three years we expect our efficiency ratio to drop to the low 60’s, so coming from the 65% down into the low 60’s. With the benefit of rates, we would expect that to be in the high 50’s.

Now, where we see that occurring is basically consistent with our guidance, which is that we expect to continue to be able to grow revenues and hold expenses relatively stable, and that’s consistent with what our guidance is for this year. This past quarter, I think sometimes it’s difficult to see the real picture, because if you look at the comparison from second quarter of last year to second quarter of this year, we’ve talked about revenue growth of 4.3%, and if you back out those couple of items that we talked about with the leverage lease termination gain and also bag down the principal investing gains, our revenue growth was close to 7.5% and expense growth at 3.5% provides the operating leverage for us to continue to drive down that efficiency ratio.

That’s consistent with how we think that we’ll be able to achieve that, is this continued maturation of the investments we’ve been making and seeing those translate to positive operating leverage for us going forward.

Okay, thank you.

Thank you.

Hey, good morning everyone.

Good morning.

Good morning.

Before I ask my question, Don, I didn’t follow your reasoning behind where you took out on the outlook slide the expected increase in net interest income, including the benefit of rates. It wasn’t clear to me if you no longer expect the benefit from rates, or if you’re just more dovish in your own outlook for rates.

It’s more the latter, Steve. We really do not expect to see much of a rate increase this year, and our guidance was set at the end of last year and we felt that we would see a pick-up in the second half of the year.

We still think that there could be a rate increase, but we think it could be very late in the year and have very little impact on our overall net interest income. We do believe that when rates do go up, we will see an increase in our net interest income and also our margin, so it’s just more of an impact of our outlook would not suggest much of a rate increase this year, and therefore not much of a benefit from rate increases this year.

Okay, that makes sense. Don, I wanted to ask you - when we look at the investment banking fees, the relatively extreme volatility thus far in 2015, is this a two quarter event or is there something else going on there that we should think about, or do we just get back to a more normal trend line?

I know it’s a volatile item, but it’s relatively extreme if you look at the last two quarters. Thanks.

I’m going to pass that one over to Chris since he’s in the room here with us as well.

Good morning, Steve. We always look at that line item on a trailing 12 basis, and while we have great underlying growth if you look on a trailing 12 basis, we don’t get too worried about either the first quarter being down or the second quarter being significantly above where the first quarter was.

So over time, we think this is a business that we continue to grow and grow significantly, and we think we can do that; but we really think the right way to look at it is on a trailing 12 basis.

So Chris, in your mind nothing has changed?

No. It hasn’t changed.

We’re out there every day talking to our clients, bringing them ideas. Our discussions with clients have frankly never been better.

It’s interesting - these middle market companies, and as you know, we go to market in a very focused way based on industry, is they think about growth and they look around at what the opportunities are for organic growth, and they look around at what the opportunities are for inorganic growth. The discussions that we’ve had with our clients, as I said, have really never been better, and to the extent that we’re involved in M&A-type discussions, we think that has sort of a multiplier effect, because if you can break into these clients with a strategic idea and you’re hired as their advisor, loans, deposits, hedging, a lot of those things come with it.

Thanks for the color.

Steve, I would just add one thing, that when we talked about this line item in the first quarter, we did acknowledge that it was an outlier relative to what we would consider a normal performance on any quarterly basis, but did emphasize it does have quarterly variability. But I do think we looked at the first quarter as being relatively light relative to what we think this business will generate, but we do think it’s very important to recognize it does have characteristics that will always make it variable, and the trailing 12 really does give you a better trajectory of the growth of the business, which has been really solid.

The other thing that we acknowledged in the first quarter was if you looked at our loans held for sale, there was a significant spike up, which was an indicator that some piece of the activity was positioned to be realized in the second quarter.

Okay, thanks for the color and thanks for taking my questions.

Thanks Steve.

Great, thanks. Good morning.

Just wanted to dive in a little bit more in the margin compression that you expect because of the liquidity. Can you just give us a little more detail - are you seeing meaningful, or what types of commercial deposit growth that you’re seeing that is driving that lower?

Is it temporary? I mean, do you only expect this to be for a few quarters?

I’m just trying to get an understanding of the underlying driver of the liquidity and if that’s sustainable or not.

What we’re seeing is a lot of temporary deposits coming through from our commercial customers, and we’re seeing some additional inflows which will continue to put that under pressure as being higher levels of liquidity. So that’s one of the reasons why we expected it to have some pressure in the near term as far as margin.

Keep in mind that we would have been projecting all along that we expected our loan growth to exceed deposit growth, but because of the growth in these temporary deposit balances, deposit growth has actually exceeded loan growth. Our short term earning assets are up over $800 million linked quarter, which puts pressure on that.

The other thing I’d keep in mind is that we did have $1.7 billion debt issuance at the end of the second quarter, and the full quarter impact of that will also affect the overall margin for the third quarter. So it’s really those two pieces that are driving that temporary mid-single digit reduction in net interest margin.

Got it. Are you actually able to make any meaningful amount of money on those temporary deposits, or is it really just a wash from an NII perspective?

It really is close to a wash. We put it in our fed account and earn about 25 basis points on it, so far from meaningful but it is additive.

Great. All right, thank you.

Thank you.

Thanks, good morning. Hey Don, on the loan side, you saw pretty good growth on the commercial and, as important, we finally saw those yields go up.

I’m wondering if you could give us any color in terms of has there been a change in either the type of production you’re seeing or the competitive and spreads angle, and if this is kind of a good inflection that we’re finally seeing on the yield side.

On the yield side, we’ve benefited this quarter from a couple of things. One is that loan fees were stronger in the second quarter than they were in the first quarter, and also we had some additional increase in contribution from our swap income.

From an accounting perspective, that gets mapped up against commercial loans because we use that to hedge the LIBOR-base loans. So if you back that out, we’re still seeing a little bit of pressure, but it’s muted compared to where it has been as far as the incremental quarter over quarter.

So I’d say we haven’t seen the market change significantly, but to your point, I think we’re getting to a level closer to stability than where we have been in the past couple of years.

Okay, got it. Great.

Then secondly, just as far as the expenses are concerned, you talked about adding a little bit more of the restructuring-related expenses. Are you still on track for about 30 for the year, or is there any change in the trajectory of how you’re expecting to spend underneath the normal cost base?

Yes, for the first six months of this year, we’ve incurred about $17 million. I’d say that we’re still on the same general course as to where we had expected coming into the year.

Keep in mind that in the first half of this year, we only had five branch consolidations. We’ve talked about a number of 20 to 30%--excuse me, 2 to 3%.

Twenty to 30% would be way out of line! But 2 to 3% consolidation for this year, which would imply plus or minus an additional 20 branches of consolidation in the second half of the year.

So with that, we still expect to be in that same general range.

Okay, and just as a follow-up on expenses then, too, you did have, I’m assuming, some of the personnel step-up was related to the really strong IB line. Do you anticipate there being a reversion of some of that if in fact the IB was a little peak-y, per Beth’s point about some of the lingering stuff from the first quarter that kind of got pushed into the second?

Great question, and I would say that that is a variable line item in our income statement and it does reflect the production that we do have. If you look at our total compensation expense, it really had three impacts this current quarter.

One was our benefit cost did come down, and it’s seasonally consistent with what we’ve seen in the past. Salary dollars were up about $10 million, and if you take a look at that, about half of it is because of day count.

We had two more days in the current quarter than what we did in the last quarter from a business perspective, and we also had our merit increase, which was about 2% year-over-year. The last piece is increase in incentive compensation, which was up $26 million, and between the first quarter and the second quarter we had $3 million to $5 million of impact from accruals adjustments and true-ups from quarter to quarter.

So really, the core increase was closer to the $22 million range, so if you look at that as a variable component to the growth that we would have seen in our corporate banking activities, it gives you a ballpark of what kind of variability there might be prospectively. Keep in mind, it’s not just investment banking income, though.

It also includes the other areas of revenues because Chris’ corporate bank is truly focused on relationships, and that includes both balance sheet and fee income as part of the calculation of the value that they’re contributing, and that’s what the incentives are based on as well.

Okay, thanks Don.

Thank you.

Hi, good morning. This is Rob Placet on behalf of Matt.

On a period end basis, it looks like you added to the securities portfolio this quarter. I was curious if you could just update us on your thinking in terms of deployment of liquidity in the current environment beyond the liquidity builds on the commercial deposits you highlighted earlier, and should we expect continued growth in your securities book from here?

The billion dollar growth period to period really was driven by the $1.7 billion debt issuance that we had during the quarter, and that occurred in June as far as when it closed. So that’s really what drove it, more so than any planned additions, that we would expect generally going forward the investment securities portfolio would remain relatively stable.

We’re comfortable with that assumption, given that our LCR estimate for the second quarter was just north of 100%, so we think that we’re well positioned going into next year where the requirement is at 90%.

Okay. Secondly, commercial loan yields were up 5 BPs, I think, this quarter.

Was curious what drove the increase there.

The two components that really drove that was that we saw some stronger loan fees in the current quarter compared to the first quarter, and we also saw an increased benefit from our swap book, that some of the swaps rolled off and we had some reinvestment or rebooking of new swaps, and then they came through with a higher yield. So both of those helped benefit the commercial loan yields on a linked quarter basis.

Okay, thank you.

Thank you.

Thanks, good morning. Don, I had a follow up on your comments about the growth in temporary deposits.

I was hoping that you could comment on the overall quality of the deposit growth that you’re seeing from an LCR perspective. I was curious - now that we’ve seen some larger banks take on initiatives to focus on operating deposits, whether you’ve seen any kind of change in the quality of the deposits that are coming your way.

We’re still seeing growth in our core operating accounts. We’ve talked about the overall payments area being a key strategic initiative for us, and that’s helping us drive for deeper relationships and enhancing that management of liquidity for our customers.

So we are seeing that growth come through. I’d say that the growth that I was talking about was isolated to a handful of accounts where we’re seeing some funds come into our customers that need to have a temporary home for.

It’s not an indication of lack of quality of not picking up additional operating accounts, but we view that as more of a temporary impact. Chris, do you have anything else you’d add?

Yes. Don, the only thing I would add to that is our third party commercial loan servicing business is really a good engine for us to grow quality deposits.

If you look at that business, our deposits total about $6.4 billion, and that’s up 15% on a linked quarter and 63% on a year-over-year basis, so that’s one of the vehicles that we’re focusing on, Bill, under the new construct to really grow quality receivables.

Okay, so you haven’t seen any notable increase in the amount of non-operating deposits coming your way post-some of the initiatives that the larger banks have undertaken to de-emphasize those?

No, we have not.

Okay, excellent. Thank you.

Thank you.

Hello. Thanks for taking the call.

A couple of the banks that we’ve reported, we’ve heard some discussion about middle market C&I looking especially competitive, and I’m just curious if you guys have seen any shifting in the competitive environment there on the middle market side.

Sure David, this is Chris. Let me start and then I’ll have E.J.

Burke address it from the community bank side as well. There is no question that there are a lot of competitors in the middle market, if you think about the very large banks, the regional banks, the smaller banks, the non-banks, the variety of institutional investors, so we are seeing a lot of competition in the area.

One of the ways, though, that we compete as a company is the fact that loans are just a piece of what we offer people, so it really gives us the opportunity to really differentiate ourselves. It is competitive.

There still are good loans to be had, but one of the advantages that we have, of course, is that working together, both the corporate bank and the community bank, we can tap into various pools of capital as agent as opposed to principal. So as we look back over the first, say, half of the year, we only put about 18% of the capital that we raised onto our balance sheet, so that’s just another way that we have, another that I think is really differentiated from a lot of our competitive set.

E.J.?

Yes Chris, I would echo most of what you said, but I would also add to that that in terms of our strategy, because we have a lot of products and we focus on relationship, we don’t get as wound up around pricing as we do around structure and maintaining credit discipline. So if we believe we have a client who wants a broad relationship and the credit metrics look good for us, we know that over time we can generate a profitable relationship even if we are pressured a bit on the loan pricing.

Just to reinforce a little bit of what Chris said, in our community bank we focus primarily on commercial clients, call it $50 million in sales up to $250 million in sales. When we can bring a good capital markets idea to a client in that size range, it clearly makes Key look a little different than the typical community bank that we’re competing against, and that is a competitive advantage that we drive consistently across the franchise.

Great. Thanks for that.

I think last quarter you guys talked about creating an initiative to and some incentives to grow the HELOC business a little bit through the summer. It looks like loan balances were pretty much dead flat sequentially.

Just curious if you had any update on how that’s going.

This is Dennis Devine in the Community Bank. You’ve seen the earnings release - modest increases in the core consumer loan portfolio offset by some runoff in the exits.

The consumer loan book is largely shaped at Key by our home equity portfolio. We’re not in a lot of other consumer loan categories that you might see, indirect auto, for example.

So sales and new relationship numbers were solid in the second quarter. You actually see ending balances up slightly versus the first quarter.

You also see growth in other consumer categories where we compete - credit card and some other direct lending. Those are just small relative to the HELOC book.

So you see it across the industry - home equity portfolio pay downs are occurring. There’s not as much growth in that category, so at Key we’ve got a stable, high quality book with a bit of growth in the second quarter but--in fact, a bit fast within the industry but very consistent with what you’re seeing across the rest of the industry.

All right, thanks.

Thank you.

Hey, good morning. Thanks for taking the question.

Just wanted to be sure that I’m thinking about the expense outlook in the right way. I know you guys said that for the full year, you expect something in the same ballpark, and I guess that implies that in the back half this year the quarterly run rate actually should be lower than either of the first two quarters.

Obviously, I get there’s some variability around the incentive comp, but otherwise, is that the right way to think about it?

Yes, what we’ve talked about for the entire year is that we expect expenses to be relatively stable, and in that we say that that could mean plus or minus 2%. So if you use that as a guidance and take a look at the second half of the year, that would imply a quarterly expense run rate of between $665 million and $715 million of expense.

Now again, that’s equal to the first quarter and equal to the second quarter as far as the high and the low in that range, so we would expect to be within that overall guidance range, and some of that is variable based on the level of growth that we see throughout the portfolio.

Okay, that’s helpful. Thank you.

Then one other question around the net interest income outlook. I know you all have sort of said that you’re pushing out and expecting less of a rate increase this year, just given where we are today.

I’m curious if you could tell us how Key is impacted by maybe that first rate increase, whenever it does happen. Is there much lift from a 25 basis point move, or to what extent do floors kind of limit the initial move?

We don’t have a huge impact from floors, so that really doesn’t limit it a whole lot; but just in a 25 basis point move, that doesn’t drive a lot of incremental net interest income. Our balance sheet is positioned so that we do benefit when we do see that shorter end of the curve move up, but I would think of it more proportionate to what we’ve talked about as far as a 200 basis point increase would have about a 3% lift in net interest income, so the first 25 basis points would drive about an eighth of that.

So again, it’s helpful, but just doesn’t move the dial a lot.

Okay, that’s helpful. Thank you.

Thank you.

Thank you. Good morning Don, good morning Beth.

Question for you - you guys have had good success in the credit cards, in the revenues generating that fee revenue from payments and such. Don, you talked about there was good growth in the usage of the credit card and debit card products.

Can you share with us any more color on how you’re getting that growth; and second, as part of that, though I know your net charge-offs nominally are very small in this area for credit cards, the net charge-off ratio, though, is quite a bit above the trust data that just came out yesterday - it’s less than 2.5%, and you guys are well over 3%. Is there any potential of improvement in that credit card charge-off number as we go forward as well?

This is Dennis Devine. I’ll start and hand it to Don.

The growth in the card line is coming from the focus and the investments that you’ve seen us speak to around as we brought that product in and as a core part of our relationship strategy, it’s center to how we look to grow with our clients around all aspects of payments. So you see in growth in cards and payments in the community bank - 13% year-over-year that’s driven by credit card, that’s driven by debit card, just a substantial number of additional cards in our clients’ hands.

Even as we’ve seen declines in spending in some categories, the volume of activity with our client base is strong and it’s growing. On the charge-off side, you see the continuing decline in the charge-offs since we brought that portfolio back in.

We feel really good about the quality of originations that are occurring, so you see that in the strength of consumer credit line items. No doubt we feel good about the quality of the new originations as they grow and the quality of the credit that you see there.

Dennis stole my thunder there, but I would just say that those charge-offs really are related to the portfolio that we did acquire. It was a legacy portfolio, and as we add new relationships, we should see the overall credit quality picture continue to improve.

Have you guys seen any pick-up in competition? Some of the bigger credit card companies - I’m thinking Citigroup in particular, it seemed to have now been reinvigorated to try to grow their portfolios.

Have you guys seen any of that impact on what you’re trying to do with your portfolio?

We have a very different model. It’s not really targeting those national cards, and what we’re really focused on is deepening the relationship with our existing retail customers, so we haven’t seen that have a big impact on us.

We do value the relationships and our customers do benefit from that expanded relationship, so we’ll continue to drive that model.

My final question - maybe Beth, you can handle this one. You’ve talked in the past about looking at the residential mortgage business, possibly changing the way you have it structured today.

Where is your thinking on what you guys may want to do with that business as you go forward?

Gerard, it is true that we have looked at what has been our traditional model, has been an outsourced model, and we are in the process of--we have hired a new president for a mortgage business at Key, which will be a product that we will offer to our clients. We don’t view it as a standalone business, but yet an important relationship product that our clients value.

We are in the process of undertaking the ability to stand up the ability to offer mortgages directly and have them be originated through Key, so that is an important strategic initiative for us and we are already investing in some of those capabilities. We expect to be in a position to underwrite and offer mortgages in 2016 directly.

Thank you.

Hello there. Thank you for taking the question.

I’d like to ask a couple of things on credit. Could you just explain the uptick in the provisions, especially in the context of most of the credit indicators appearing to look pretty good?

Hi, this is Bill Hartmann. You kind of trailed off at the end, but it sounded like you were asking about the uptick in provision?

Yes, most of the credit indicators seemed to show a bit of an improvement, so I guess I was curious on why the provisions were higher this quarter.

Sure. So where we have been operating over the last several quarters is really kind of at a low point in the cycle, if you will, around charge-offs, non-performing loans, et cetera.

So small numbers tend to move things around a little bit, so the increase in provision reflects our focus on really having provision kind of equal net charge-offs, and then we’ve had some movement in various sectors of the portfolio, broad-based, that are really reflected in the provision. We continue to see it operating at a very low level, though.

And then the criticized assets were up again this quarter. Can you give a bit of detail on what was behind the increase?

Yes, the increase in the criticized was across primarily our corporate and community bank, so commercial portfolios, and it’s very broad-based. It does reflect the results of the shared national credit exam, but that was a small part of what was actually contained in it.

We see no particular concentrations in the additions. You’ll also notice that we’re not being impacted in our non-performing loans or our delinquencies.

Those continue to improve.

Great, thank you very much.

Thank you.

Thank you.

Hi, good morning.

Good morning.

Beth, my question for you is particularly given your concentration in retail deposits, there’s been a lot of talk so far this earning season on what deposit betas are going to be in a rising rate environment, with some banks saying they’ll be much higher because regulation has essentially made retail deposits more precious, and others saying they might not be as bad because we’re coming from zero. I’m wondering what your thoughts are on this topic.

Erika, this is Don. I’ll take a first crack at that.

I would say near term that we think it would probably play out consistent with what we saw in the last rate increase, which is about a 55% beta. But I think you’re exactly right, that long term those consumer deposits are going to be much more valuable, and I think we’re going to see increased competition for those consumer deposits and therefore we think the beta will be at a little bit higher level than what we had seen historically.

Now, helping to offset that a little bit is that banks’ balance sheets are much better positioned today than they were during the last cycle, so you have a much lower loan to deposit ratio today than when we did back in the early 2000’s. The second thing is that money market mutual funds should not be quite as competitive as what they once were because of the break of the buck type of situation does cause some of the treasurers of our customers to reassess whether or not they want to have a bank deposit or a money market mutual fund deposit.

Erika, I would add that it is interesting, because we have been in such an extended low interest rate environment that the competitive dynamics of how the industry will respond is a chapter that is yet to be written. I would echo what Don said, that that is our sentiment, that maybe the first couple rate moves will correlate deposit betas in the past, and then it will be a function of, I think, general liquidity within the industry to see if it intensifies competition.

But one other thing I would tell you, though, is also the mix of our deposit base is far stronger than it has ever been, as over the last several years our strategies have been to drive core retail and commercial deposit accounts and a less rate-sensitive mix of business than we’ve ever had and more core transactional accounts, so we also feel well positioned that our relationship strategy has given us a nice deposit base for the upcoming rate increases, when and if they occur.

Got it. Thank you so much.

Thank you.

Thank you.

Hi. Just a clarification, and then my main question.

Your cash efficiency ratio remained at 65.1% in the second quarter, same as the first quarter, worse than the fourth quarter. So with all the guidance that you’ve given on this call or direction, do you expect that 65.1% number to go lower in the second half of the year?

What we’ve talked about, Mike, is driving that down through the next two to three years in the low 60’s, and I would say that over the second half of this year, while we continue to expect to drive positive operating leverage, I don’t think you’re going to see a material change in the overall efficiency ratio, mainly driven by some of the additional costs we talked about as far as having additional branch consolidations in the third and fourth quarter, which will put some pressure on seeing that further improvement.

Okay, so when people call me up this morning and say, wow, that efficiency ratio doesn’t look very good, the mitigating factors would be what?

Mike, I would say that I continue and we continue to be confident that we are on the path to reduce our efficiency ratio. It is a very important measure to us, and what I see is the combination of two things, both in terms of revenue as well as expense.

I do believe, as Don indicated, that expenses have been well controlled, and we continue to invest in our businesses. So some piece of this is we are driving revenue, we are driving positive operating leverage, and many of those investments are not yet mature, so I continue to see the momentum in our core businesses as being a company that will be able to grow revenue, and Don did a little of the math about the year-over-year, if you back out lease termination gains and some other things, could be at 7% revenue growth, so I think that’s an incredibly important focus for us, always coupled with expense discipline.

We had some things in this quarter that we have outlined that created that top line number around $711 million in expenses, but underneath it all we have really reduced the core operating expenses of this company and continue to have levers and discipline to do that. So I see us on the path to move into the low 60’s without the benefit of rates, and I’m confident that we are doing the right things to drive our business, grow our business, as well as create a more efficient company.

Well since you’re investing for growth on the revenue side, then, it seems like capital markets is the biggest delta. If we could just get some more color - a, what does your capital markets backlog look like at the end of the second quarter; and b, can you give us more color, we get one line item, investment banking and debt placement fees, so $141 million in the second quarter, and now that’s 29% of your fee revenues.

Can you just give us more of a breakdown, some of the parts that are moving within that line item?

Sure Mike, it’s Chris. Good morning.

A couple things - with respect to our backlog, our backlogs are strong. Obviously it’s all market dependent, but as I mentioned earlier in the call, we’re out there having quality discussions with clients and prospects, and they have a bias for action right now as they think about how to grow their business.

So we feel pretty good about where the business is positioned. A big part of that are the investments that we’ve made, and if you think about it, of our most senior calling people, we’ve grown that universe, that sales force by 36% since mid-2013.

We also, as Beth and Don both mentioned earlier, have invested in our payments business, which augments not our investment banking and debt placement lines but it augments our entire business, and it’s kind of the holistic approach to how we go to the market. Now specifically some areas that were particularly good, we were up across the board, but some areas were in the equity business, both real estate and technology had a good quarter.

In the M&A business, both industrial and technology had a good quarter, so when we think about our business, we first go to which of our seven industry verticals is it, and that’s kind of how we look at the business.

And just lastly, any more breakdown you can give us on your investment banking and debt placement fees? If we were to break it down between, I don’t know, underwriting equity, underwriting mergers, FIC trading and equity trading, any even rough sizing?

We do not in fact break it out, Mike, but it is a fairly balanced approach because our whole strategy is go out to our clients and really figure out what is most advantageous for them at any particular time. As I’m looking at these numbers, there is growth in all categories and it’s pretty well balanced.

All right, thank you.

Thank you.

Thank you.

Thank you for taking my questions. I just wanted to go over the use of your commercial swap portfolio and some of the comments you made in past quarters.

I know you’ve mentioned that you always have some type of swap portfolio in place, but could you talk about if we do see some rise in rates, how much of that do you expect to continue to hold, or do you feel like you’d be more aggressive with letting the swap portfolio mature in a rising rate environment?

What we’ve talked about before is without the use of our swap book, that we have had about an 8% asset sensitive balance sheet. So we try to use the swap to help minimize that over time, that each time that we meet as a team to assess where we are from a rate sensitivity perspective, we evaluate how we want to be positioned, what we’re seeing from the forward curve, and whether or not we need to make adjustments to that.

But I do not want to give the impression that we would ever take that swap book to zero, or that we would double it and take significant rate bets, but that we use that position us to lean in heavier one way or the other as to what our outlook would be. So right now, we continue to be asset sensitive and we’re very comfortable with that, and we’ll continue to reassess that each time we take a look at this, which is at least on a monthly basis.

Do you see it as a risk-reward regarding the potential returns on the swaps, or it something along the lines of we’re changing our outlook on the rate environment?

What we do is we use this as more of a way to position the overall balance sheet to benefit from rate increases or changes, so it truly is a hedge book, because we don’t want to be overly asset sensitive. It allows us to manage on the margin as to whether we want to be slightly asset sensitive or slightly liability sensitive.

Thank you for taking my questions.

Thank you.

Thank you, Operator. Again, we thank you for taking time from your schedule to participate in our call today.

If you have follow-up questions, you can direct them to our Investor Relations team at 216-689-4221. That concludes our remarks.

Have a good day. Thank you.