KeyCorp (KEY) Earnings Call Transcript & Summary

Hello and welcome to the Annual Meeting of Shareholders of KeyCorp. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Chris Gorman, Chairman and CEO of KeyCorp. The floor is yours.

Well, thank you and good morning, ladies and gentlemen. The meeting is now in session. Welcome to the 2021 Annual Meeting of Shareholders. I am Chris Gorman, Chairman and CEO of KeyCorp. We thank everyone for being with us today through our virtual meeting platform. With me today is d Carrie Benedict, the Assistant Secretary of KeyCorp. Carrie will explain the meeting formalities before we proceed. After the meeting, we will hold a shareholder convocation. During the convocation, I will comment on the state and direction of your company. [Operator Instructions] Carrie, I turn the meeting over to you.

Thank you, Chris. The list of the corporation's shareholders as of the close of business on Friday, March 19, 2021, the record date set for today's meeting, is available for inspection during this meeting by completing the form to request access within the virtual meeting platform. A notice of this meeting was duly and properly mailed to shareholders, and a certificate to that effect will be filed with the meeting records. Your Board of Directors has authorized a representative of Computershare Investor Services, our transfer agent, to act as the inspector for the meeting. Computershare is responsible for determining the number of shares represented at the meeting, confirming that we have a quorum, confirming the validity of all proxies, receiving and tabulating all votes cast and reporting the voting results. The inspector's oath will be filed with the meeting records. The inspector has reported that we have a quorum. This meeting has been duly convened to transact any business properly brought before it. The voting at this meeting will be done on the virtual meeting platform. Although voting is done primarily by proxy, if you wish to vote or change your vote during this meeting, please click on the link provided within the virtual meeting platform. Any shareholder who has already voted and does not want to change their vote need not take any further action. The order of business for today's meeting is: first, Chris will introduce the nominees for election as director followed by 4 other proposals presented for vote by management. Second, we will address questions that have been submitted by shareholders related to the proposals. Third, we will vote on the proposals. Finally, we will announce the preliminary voting results. After the formal meeting has concluded, Chris will host our shareholder convocation and present his views on KeyCorp and its business and will answer general questions that have been submitted by shareholders concerning our strategy, our performance and the financial services industry in general. At any time during the meeting or convocation, Chris or any person addressing the shareholders on behalf of Key may make forward-looking statements about Key's future performance. A notice regarding forward-looking statements appears within the virtual meeting platform. Please review the statement. I also call your attention to the rules of conduct set forth for this meeting. These are available to each shareholder within the virtual meeting platform. We ask that you please review and abide by those rules. [Operator Instructions] That concludes the meeting formalities.

Well, thank you, Carrie. The next order of business is to describe the proposals to be voted on in today's meeting. The first proposal concerns the election of Directors to serve a 1-year term expiring at the 2022 Annual Meeting of Shareholders. The size of KeyCorp's Board of Directors is currently set at 13 members. The nominees for election are: Sandy Cutler, retired Chairman and Chief Executive Officer, Eaton Corporation plc. Sandy is our Lead Director. Bruce Broussard, President and Chief Executive Officer, Humana Inc. James Dallas, Retired Senior Vice President of Quality and Operations, Medtronic, Inc. Betsy Gile, retired Managing Director, Deutsche Bank AG. Ruth Ann Gillis, retired Executive Vice President and Chief Administrative Officer, Exelon Corporation. Robin Hayes, Chief Executive Officer, JetBlue Airways Corporation. Carlton Highsmith, former President and Chief Executive Officer, The Specialized Packaging Group. Richard Hipple, former Executive Chairman, Materion Corporation. Devina Rankin, Executive Vice President and Chief Financial Officer, Waste Management, Inc. Barbara Snyder, President, Association of American Universities. Todd Vasos, Chief Executive Officer, Dollar General Corporation. David Wilson, retired Examiner in Charge at the Office of the Comptroller of the Currency. Additionally, I am honored to stand for election as your Board Chairman. The Board recommends a vote for each of the nominees. One of the long-standing strengths of Key has been the quality and dedication of the members of our Board of Directors. I would like to express my appreciation for the valuable service that our directors provide to Key and to you, our shareholders. I would also like to recognize and thank Gary Crosby and Kristen Manos, both of whom are retiring from the Board concurrent with this Annual Meeting. Gary and Kris have been outstanding directors, and we express our sincere gratitude for their leadership, insights and service. The next proposal to be voted on is the ratification of the Audit Committee's appointment of Ernst & Young as Key's independent auditor for 2021. Alex Schmitt, a representative of Ernst & Young, is present today and will be available to answer questions submitted through the virtual meeting platform. The Board of Directors recommends that the shareholders vote for this proposal. The next proposal is an advisory vote on KeyCorp's executive compensation program. The Board of Directors has placed this proposal before the shareholders as required by the Dodd-Frank Act and applicable securities laws. The Board is of the opinion that KeyCorp's executive compensation programs provide appropriate incentives to its executive officers and at the same time, does not encourage its executive officers to take unnecessary risks. For those reasons, the Board recommends that the shareholders vote for the proposal. The next proposal before the shareholders is a vote to approve the KeyCorp second amended and restated discounted stock purchase plan. A copy of the plan was included as Appendix A to the proxy statement. The purpose of this amendment is to increase the number of KeyCorp common shares available to be purchased by Key employees under the plan by 4 million shares. The plan is designed to provide employees of KeyCorp and its subsidiaries an opportunity to purchase KeyCorp common shares through payroll deductions at a 10% discount to the market. The Board believes the discounted stock purchase program aligns employee and shareholder interests by providing an incentive to a broad base of eligible employees to increase their ownership of KeyCorp common shares. For that reason, the Board recommends that shareholders vote for the proposal. The final proposal before the shareholders is a vote to approve an amended KeyCorp's third amended and restated regulations to change the threshold to call a special meeting from 25% to 15%. While the Board believes that 25% has been a reasonable and meaningful threshold that appropriately balances the shareholders' ability to call a special meeting with not forcing KeyCorp to expend significant time and money on a special meeting that only a small minority of shareholders want, the Board recognizes the support that a shareholder proposal received in 2018 and in 2020, which aim to reduce the threshold to 10%. The Board strives to be responsible to shareholder feedback and thus, has determined it is in the best interest of KeyCorp and the shareholders to amend the special meeting threshold from 25% to 15%. The Board has determined that 15% is an appropriate threshold that balances the feedback from shareholders supporting a threshold lower than 25% while not lowering the threshold to an unreasonably low level. For those reasons, the Board recommends that the shareholders vote for the proposal. We will now address any questions that have been submitted on the proposals being presented today. We have not received any questions regarding the proposals. If you are voting during the meeting through the virtual meeting platform, please make sure you have completed your voting at this time. [Voting]

The voting is now closed. Because we permit voting by telephone, by proxy cards, over the Internet and on the virtual meeting platform, we will take additional time to finalize the tabulation. The final tabulation will be filed with the SEC on a Form 8-K within 4 days of this meeting. However, we can announce preliminary voting results. First, the inspector has informed me that each of the nominees identified in the proxy statement has been elected to the Board of Directors by at least 84% of the votes cast. Second, the shareholders have ratified the appointment of Ernst & Young as the company's independent auditor for 2021. The issue received a favorable vote of 86% of the votes cast. Third, 93% of the votes cast were to provide advisory approval of the company's executive compensation program. Fourth, the shareholders have approved the KeyCorp's second amended and restated discount stock purchase plan. The plan received a favorable vote of 99% of the votes cast. Lastly, the shareholders have approved the management proposal to amend KeyCorp's regulation to change the threshold to call a special shareholder meeting from 25% to 15%. The proposal received a favorable vote of 99% of the votes cast. There being no other business, this meeting is adjourned. We will now begin the shareholder convocation, after which, we will answer questions that have been submitted. So as we pivot to the convocation, first, I want to thank each and every one of you for your participation today and your commitment to Key. We appreciate your support and ownership of our company. The events of 2020 were unprecedented and our dedication and commitment to you and all of our stakeholders never wavered. I'd like to spend some time today talking about how we are executing what I call the dual mandate, responding to the pandemic while continuing to position Key for both growth and success. Throughout the pandemic, we've taken countless steps to ensure that our clients, our colleagues and our communities are both safe and well served. We were there for our clients from individuals to businesses when they needed us most. A great example of this was our work as part of the Paycheck Protection Program or PPP, where we delivered for our clients and achieved record performance for our company. As a result of a highly coordinated team effort, we processed 66,000 applications on behalf of our clients, providing nearly $11 billion in critical funding. Importantly, 24% of those loans supported businesses in low and moderate-income communities. We also supported our teammates during the pandemic. We implemented premium pay and dozens of safety measures for 7,000 frontline teammates who served our clients throughout the pandemic. Our business resiliency efforts enabled 10,000 colleagues to work productively from home. We also invested $34 million in COVID-related support for our teammates. At the same time, we remained true to our purpose of helping our communities thrive. Since the onset of the pandemic, we have committed $18 million to programs designed to support our most vulnerable citizens. And in true Key tradition, our teammates have stepped up as well, donating more than $2 million in COVID relief and contributed their most precious resource, their time, as we volunteered over 50,000 hours across our footprint. Perhaps the greatest testament to our commitment to communities is that Key received its tenth consecutive outstanding rating from the Office of the Comptroller of the Currency for reaching the highest standards of the Community Reinvestment Act. The Community Reinvestment Act requires banks to meet the credit needs of low and moderate income communities across America, and Key is one of the only U.S. banks to be rated outstanding by the OCC for 10 consecutive review periods. I wanted to comment on our financial performance in 2020. We delivered an all-time high revenue of $6.7 billion in 2020. That's up 5% from 2019. We also delivered record household growth, adding more net new consumer households than we ever have. And this momentum has continued into 2021 with the first quarter setting another record with over 25,000 net new households. We have strong engines in our consumer business, most notably our mortgage business, which also reported a record year with $8 billion in originations. We also set records in several fee-based businesses, including investment banking, cards and payments and consumer mortgage. Foundational to our growth is a relentless focus on maintaining strong risk practices and remaining disciplined in the way we manage our capital. The investments that we continue to make in digital capabilities are critical to the success of both our consumer and our commercial businesses. The pandemic accelerated digital usage, and we believe that much of that adoption is permanent. Year-over-year, we saw a 76% increase in digital sales with many of our clients using our digital capabilities for the first time. Over 35% of our checking accounts are now opened digitally. Earlier in the year, we announced the acquisition of AQN Strategies, a leading consumer-focused analytics firm with deep expertise in the financial services industry. We believe AQN will be a catalyst for growth across our franchise. We are also very excited about the successful launch of our national digital affinity bank, Laurel Road for Doctors, on March 30. We acquired Laurel Road in 2019. The acquisition is consistent with our targeted scale approach and a great complement to our existing health care focus. Since our acquisition, Laurel Road has generated over $4.6 billion in high-quality loan originations and provided us with the opportunity to broaden our digital relationships with health care professionals nationally. We remain committed to scaling this business. We are still in the early innings, but we have already seen our website traffic increase 100%, and we have added over 400 new doctor and dentist households. As we focus on our business, we are also focusing on our communities. Earlier this year, we announced the extension and expansion of our National Community Benefits Plan to more than $40 billion. We will continue to focus on investments in affordable housing, home lending, small business and philanthropy. As part of the expansion, we've also made a series of new commitments that focus on social justice, racial equity, renewable energy and sustainability. I look forward to serving our communities through this expanded plan. To close, I want to reaffirm my confidence in the long-term outlook for our company. We are running our business to win for our teammates, our clients, our communities and for you, our shareholders. We have a distinctive and dynamic model and platform supported by targeted investments. We have strong growth engines across our consumer and commercial businesses, including investment banking, consumer mortgage and Laurel Road. Foundational to our success is a relentless focus on maintaining our credit quality and strong risk management practices. We have built a culture around serving our clients and continuous improvement. We are positioned to grow and deliver on all of our commitments to you, our shareholders and all of our stakeholders. In closing, I would like to thank all of you again for participation today and your commitment to Key. I would now be happy to address any questions you may have. Susan, are there any questions on the line?

Our first question is related to executive compensation. The company's executive compensation plan should be designed to drive the successful execution of the Board's long-term strategic business plan. Would you speak to whether KeyCorp might be better served by an executive compensation plan tailored specifically to Key's particular circumstances and its unique long-term strategic business plans?

Of course, thank you for the question. We have a disciplined process that's overseen by our Board's compensation and organization committee, which, by the way, is comprised exclusively of independent directors. We use performance metrics such as earnings per share, cash efficiency ratio, return on tangible common equity and total shareholder return. Also in terms of customization, we do have 20% of our compensation that's focused on operational excellence. And of course, in an environment like this, among other things that the committee will be looking at is how we handle the pandemic for the benefit of our clients, our communities and our teammates.

Thank you. Our next question is on stakeholder capitalism. The company's Community Benefits Plan reflects its commitment to the community as an important stakeholder. Could you discuss the Board's perspective on the concept of stakeholder capitalism and what principles the Board uses to balance the interest of various stakeholders as it develops long-term business strategy?

Well, thank you for the question, and that's an important one as we think about our strategy here at Key. For a very long time, we have adopted the perspective of looking at all of the stakeholders. So I think it was in late 2019 that the business roundtable came out with their proposal on stakeholder capitalism. And candidly, we at Key have been practicing that for many, many years. We're focused on balance -- the delicate balance between our customers, our shareholders, our teammates and our communities. It's frankly who we are and it's how we do business. Thank you for the question.

We have no further questions.

Well, with no more questions, our meeting is now concluded. Thank you.

This concludes the meeting. You may now disconnect.