KeyCorp (KEY) Earnings Call Transcript & Summary

We'll kick things off with KeyCorp, as most know, roots go back 190 years to Albany, New York. Today, Key is based in Cleveland with about $187 billion of assets, makes them the 13th largest bank in the country, operate at 1,000 branches across 15 states with corporate banking offices in many, many other markets. And in March of this year, Key rolled out Laurel Road for Doctors, which is a digital bank focused on physicians and dentists. With us today on my far left, we've got Victor Alexander, EVP and Head of Consumer Banking. Victor is responsible for Key's retail, consumer, lending and deposits, business banking, wealth management and home lending lines of business nationally. His consumer banking team serves more than 3 million clients. Victor has been with Key throughout his career, most recently as Head of Home Lending, where he was responsible for developing and growing Key's residential real estate portfolio. And before that, he served as Key's Corporate Treasurer. To my left, Jamie Warder, an EVP and Head of Digital Banking. Jamie currently serves as lead Digital Officer for Key, with responsibility for the company's digital properties. Previously Jamie led Business Banking and Investment Services at Key. And prior to that, he served as President of USA Bank in San Antonio, Texas. And then to my right, Don Kimble, Chief Financial Officer, Chief Administrative Officer. Don joined as CFO in June of 2013. He oversees Key's finance, legal and human resources operations. And prior to joining Key Don was the CFO of Huntington Bank. And before that, held various Chief Financial Officer roles at AmSouth and Bank One Corporation. And all 3 gentlemen are members of the Executive Leadership Committee and members of the Executive Council at KeyCorp. So with that, I think Victor is going to start us off with a presentation, and then we'll open it up to Q&A.

Sure. Thanks, Terry, and good morning, everyone, and thanks, in particular, to the Board for putting together the in person this year. We're happy to be joining you in this room live. As Terry mentioned, I'm joined by Don Kimble and Jamie Warder this morning. And before we get started, I have to flip to Jamie, the forward-looking disclosure statement and non-GAAP financial measures. You can find these on Page 2. They'll cover my remarks as well as Jamie's as well as the Q&A portion of the presentation today. Moving to Slide 3. The consumer business is an important part of our franchise and will be a meaningful component of our growth going forward as a business. Our consumer bank foundation is strong. We have 3 million clients. We have 1,000 branches in great markets, more on that to come. We have more than 6,500 bankers who care for clients every day. We have broad product capabilities, including highly valuable subscription-like revenue streams and payments and wealth management. And we pair all of the above with rapidly advancing digital and analytics capabilities, which Jamie will cover later in the presentation. He'll also discuss our unique targeted scale opportunity in healthcare. We've reoriented the business over the last number of years, and our strategy is tightly aligned with Key's enterprise focus on 4 strategic pillars: Client primacy, growing our team, investing in digital and growing in the healthcare business. And we're executing well, driving targeted relationship-based growth and, in turn, generating solid results in many core business areas. Our progress is depicted on Slide 4, where we show our year-to-date performance in several core business areas versus the similar period in 2019. We picked 2019 for this to exclude pandemic-related comparisons that, in many cases, would have actually resulted in easier year-over-year comps. I think this is the picture of a healthy, growing franchise. Solid checking sales are leading to strong levels of new client acquisition. Our strongest growth is coming from younger clients and our western franchise. We're also deepening these relationships successfully with stronger sales of savings accounts, credit cards and home loans than Key's historic performance. Our deposits per branch have increased 45%, and we've moved from lagging to outperforming our peers over -- outperforming the peer median over a span of 2 years. This includes our recent branch optimization efforts in which we've consolidated 7% of our branch network this year, a little over 70 branches, while experiencing very minimal incremental attrition. Our wealth management business, which manages approximately $50 billion for our clients has generated more new sales in the first 3 quarters of 2021 than in any previous annual period. And our client satisfaction scores as we measure them internally and as are measured externally are also trending up, though we're not where we want to be here just yet. While these results are encouraging, we're still scratching the surface of our potential and can continue to drive growth in these core categories. One reason I feel that way is shown on Slide 5. I really like our franchise. We serve 3 million clients, as I mentioned, from Maine to Alaska. We have a top 5 market share in 24 markets. And our Western franchise has 5 of the top 10 fastest-growing states in the U.S. We benefit from the balance of our franchise as different markets present different growth opportunities, and we've evolved our strategy to execute on these distinctive growth opportunities. As you all know, our historic strength has been in the Midwest and the East being headquartered in Cleveland and especially with our acquisition of First Niagara, we gained and have since retained a top market share along the I-90 corridor from Toledo to Albany. These markets are made up of mature clients with established wealth, great clients, perfect opportunity for us to deepen relationships by offering additional products, wealth management, credit cards, home loans. In short, we have lots of clients in the East, and I think we can do more with most of them. We have a bit of a different opportunity and one we're very excited about in our Western franchise. The West presents an outsized growth opportunity for Key. I mentioned earlier, the 5 states we're in or 5 of the top 10 fastest growers in the U.S. and some of the best markets in the country are in our Western geography. We have a significant investment in the West, roughly 1/3 of our branches. And I think it's a great advantage prospectively that we have such a sizable presence in places like Washington state. We have 100-ish branches in Seattle and Tacoma, 30 in Utah, 60 in Colorado, another 100 in Oregon and Idaho. We're investing in a differentiated manner in our Western markets, and we're seeing results. Our Western franchise is growing at a rate of over 2x the rest of our footprint and younger clients continue to be our fastest-growing segment. This view of our franchise leaning into our higher-growth Western markets is relatively new and will drive sustained growth in future periods. Our Home Lending business profiled on Slide 6 illustrates the potential of the West for Key. Although acquired in 2016 through the First Niagara acquisition, we spent a few years standing up the business, investing in talent, service and capabilities. We brought a clear focus and strategy to the business including an emphasis on our Western markets in 2019 and it's clearly delivered results. We have grown twice as fast in our Western markets versus the East. Since 2018, our home lending unit volume in our Western states has increased by 4x and even more by dollars. The mortgage business, a perfect opportunity for us to gain new clients. Roughly 1/3 of our home lending households are new to Key. It's also an opportunity for us to deepen relationships with our existing clients, as half of home lending clients are now full relationship clients, which we define as banking, savings and investing and borrowing. And we know, on average, a full relationship is almost 3x more profitable than a single product household. The home lending business is focused on driving sustainable growth. These are attractive clients, strong FICO scores north of 760. Half our production is purchased business, which we expect to continue to grow even with potential changes in interest rates, and we do not believe we have our fair share yet with our current clients in home lending, and we have a positive growth outlook on this business going forward. Moving to Slide 7. Although mortgage has been a large growth driver for Key over the past couple of years, we continue to have other broader opportunities for continued growth in alignment with our relationship strategy and targeted approach. We believe a growth opportunity exists today in small business, where we have more than 250,000 clients today. We're adding bankers and investing in digital capabilities to make it easier for small business clients to bank with Key. We're also investing in the wealth business, where we have scale and can generate very attractive returns. Many of those 250,000 business owners would be great wealth clients, and we're going to get better at serving the personal needs of our commercial clients. Like small business, we'll also continue to invest in both bankers and digital capabilities to support our clients and grow. And finally, we have a differentiated opportunity as it relates to healthcare and our targeted scale strategy. Partnering across our organization from consumer through commercial in alignment with our enterprise strategic pillar of healthcare, we're expanding our focus and collaboration in an industry where Key has extensive expertise. We're creating a leading health care bank with a differentiated value proposition. And although most prominently shown through our Laurel Road business, this is truly a collaborative effort across the company. With that, I'll turn it over to Jamie to give some detail around where we currently are with Laurel Road and what the growth prospects are.

Thanks, Vic. And I'd also like to say welcome, and thank you, Gerard, for hosting this year, and it is nice to be back in person. So I'll pick up here on Slide 8. And as Victor mentioned, our focus on health care spans our full bank from consumer through institutional. We collaborate across our teams and have built expertise at multiple levels to serve this industry segment, which is 20% of the U.S. economy and as you all know, growing rapidly. We offer a full set of solutions, strategic advisory, debt and equity capital solutions, payments, wealth management and personal banking. On the commercial side, we are one of the top advisers to facilities-based healthcare providers, and we accelerated our growth with the acquisition of Cain Brothers, a healthcare-focused M&A boutique. On the consumer side, we doubled down in the healthcare sector with our acquisition of Laurel Road, a digitally native fintech company. Laurel Road joined Key formally in April of 2019 and has since originated over $5.5 billion of consumer loans. These originations are to super prime members, primarily healthcare professionals, mostly doctors and dentists, very high FICO, impressive earnings and great future potential. In late March of this year, we took the next step in our journey and officially launched Laurel Road for Doctors. Using a unique digital-first and relationship-based business model, leveraging partnerships with dozens of the medical associations nationally, Laurel Road for Doctors has expanded Key's consumer franchise. 100% of Laurel Road originations are digital-first and importantly, 75% of the production is outside of Key's traditional retail footprint. This national digital bank offers a comprehensive suite of products moving beyond a monoline. Student loan refinance, mortgage, a patent pending checking and savings bundle, specialized credit cards, personal loans, targeted insights, advisories and perks that are built specifically for the healthcare sector. The digital servicing experiences and premium care teams deliver an impressive NPS over 70 to these members. We've been adding thousands of new members every month, and many of those are relationship clients. Since launch, nearly half of the 4,800 doctors and advanced healthcare members we have added are enjoying multiple products. Soon, as Chris has alluded -- recently alluded to, we plan to broaden Laurel Road for Doctors to Laurel Road for Healthcare a leading bank for healthcare professionals. In early 2022, we plan to extend products and services to the country's 4.4 million nurses and continue to build on our unique ability to serve healthcare employers like hospitals. Let's move to Slide 9. Laurel Road is just part of a much broader enterprise focus on accelerating our digital and analytics capabilities. We have an unabashed focus on digitally transforming our company from front to back. As the left side of the slide covers our digital strategic -- the left side of our -- the slide covers our digital strategic priorities as well as some of the tangible metrics we're using to monitor and track our progress. We believe that digital transformation is a catalyst to drive value through growth, through efficiency, through better client experiences and getting to market faster. We've invested in advanced digital marketing, new self-service capabilities that span shopping, originations, onboarding and servicing. We have more advanced tools for our sales and service teams, and we're investing in process automation for much of our middle and back offices. We've embraced an agile operating model, which has increased both the speed and quality of our delivery and have also built out several of the crucial enablers that make a digital company digital, a robust API service layer, a large and growing full stack engineering team and an in-house design studio. Key is rapidly maturing our data and analytics capabilities as well. Earlier this year, we acquired AQN Strategies. They're a leading customer-focused analytics firm that uses a data-driven approach to understand and deepen relationships. We're leveraging advanced analytics, AI and machine learning in areas like marketing, credit, pricing and fraud prevention. In partnership with Google, we're embracing cloud technology. We're using it for storage, advanced analytics and now application development. I'll also mention we have a 3-pronged strategy to partner with the fintech community. First, we have commercial relationships with dozens of fintechs who offer products and services for our clients and who help us on the infrastructure side. We also directly invest in several fintechs. We've made investments in over 10, and we not only bring their products to our clients, but also can help shape their road maps. And then finally, where it makes sense for Key, we've acquired HelloWallet, Bolstr, Laurel Road. We take great pride in our ability to integrate and maintain that start-up speed and culture within our scaled company. So I'll conclude by saying our digital transformation is making material progress and we're starting to see some of the results. 80% of our clients who are calling Key their primary bank are digitally active, they're visiting our app on average of once every 48 hours. Our digital sales are up 30% year-over-year. Digital self-service is up 20% year-over-year. It's meaningful progress, but we still feel we have a long ways to go. So let me close on Slide 10. And in summary. I just want to underscore Key's consumer business is driving relationship-based targeted growth. Whether we're looking at the solid foundation and the momentum we're seeing, our strong market share with attractive markets, our comprehensive product offering, the targeted scale opportunity we're taking advantage around healthcare and our ongoing focus on digitizing this enterprise. We're positioned to grow. We think we can win for our clients and our teammates. And with that, Terry, I'll turn it over to you for Q&A.

Maybe I'll just get things started. Jamie, could you maybe compare and contrast digital usage, acceptance among the Eastern markets, the Toledo to Albany versus your fast-growing Western markets. So there are differences in usage and any comments there?

Yes. Great question. We see slight differences, Terry, in age demographics. In the West, we tend to be growing a little faster with the younger demographic. This isn't going to be lost on this team. Digital is pretty ubiquitous across the spectrum, depending on segments. So because of a slightly different younger mix in the West, there's a slightly different digital activation rate, but almost not noteworthy. Where we see the biggest difference is when we have primary clients when they're doing their banking with Key, they are active with us digitally.

Any questions? Okay.

Can you elaborate a little bit more on the next stage of Laurel Road and -- sorry -- can you elaborate a little more on the next stages of the Laurel Road and contrast [Indiscernible] can you elaborate a little more on the next stages of the Laurel Road and just how you could kind of measure the quality of where you started with the original? And then as you expand into other parts of the vertical across the healthcare industry, like how are you going to make sure that you're keeping as tight as you originally started in terms of credit and how you look at the customer?

Yes, it's a great question, and I was asked to repeat it. The question is, as we expand Laurel Road, how do we keep an eye on credit and make sure we're maintaining the great credit quality that we're maintaining today. I think it's a terrific question. Right now, Laurel Road has a very real focus on the 1.1 million doctors and dentists. Our wedge product is that student loan refinance. We have doctors and dentists coming to us because they see opportunity and refinancing those loans with us and saving a little bit of money month-to-month. We will continue to focus on that sector. And there, we really like the credit profile. As we expand more broadly into nurses, we think actually we'll be serving different needs for them. Nurses, for instance, have a little less of a need for student loan refinance. They generally aren't carrying as a population nearly the size. And because of some of the federal loan forgiveness programs, it might not make sense for them to refinance. That said, we can offer them value. We can offer them insights, even help them with their forgiveness programs. We can offer them caregiver rewards, checking accounts, for instance, that would really recognize them for what they're doing, and our research would say they'd be interested in a lot of the non-lending products. Now certainly, part of their financial lives, they will need credit. We will provide them credit the same way we do at KeyBank with a thoughtful credit box that we think manages the risk-weighted returns.

I think you mentioned it -- you mentioned earlier that you're getting a higher growth from younger clients [indiscernible] source of client acquisition. Talk to us when we talk to this emphasis like the millennials are the harder part of incumbent banks to bring in. Just talk to us in terms of are the acquisition channels different. What you're doing differently? And is your primary competitor there the big banks? Or are you seeing a lot more head-to-head competition with fintechs when you're going after that client segment?

Sure. So question is on client demographics at the point of acquisition, competition, fintechs versus the big banks. Look, we see all comers, right? But what's undeniable is that the fastest-growing part of our population today, our client base are people under age 25. And the second fastest-growing client segment is 25 to 35. And the third fastest-growing client segment is 35 to 50. So we're winning more than we have with younger segments in the past. I think that's because we are leaning in more to our Western franchise where there's just more dynamism and a little bit more absolute growth happening in migration, people are moving, and they're oftentimes choosing to open an account with Key. The competitive nature of our markets does differ in terms of who's in the market east versus west. But that would be what we see. We've also done a few different things in our marketing. So we're increasingly being able to -- we're more confident back to the analytical capabilities that we can -- in a more rigorous way than we would have been able to historically target people who we think would have a propensity to establish a relationship with us, and we're being more successful at that than we were just a few years ago.

Just to take a follow-up on that, and when you apply, are these coming digitally? Are they coming from college campuses? Like what's -- what are big areas?

Sure. Question is where they're coming from? They are coming digitally. Our digital sales are up meaningfully year-over-year. They're also walking into our branches. Still the largest single source of client acquisition for us remains the branch channel. It's up year-over-year, continues to be strong. It's not growing anywhere near as fast as digital, but I wouldn't underestimate the fact that we have a few hundred branches in great growing markets serves to our benefit.

I was wondering, if you could elaborate a little bit on the mortgage business. If I understood what you were saying correctly, you sort of seem to be suggesting that it was sort of becoming a bit of a pillar products for building the relationship more broadly with a lot of clients. I was wondering, if you could just maybe go into a little bit more detail about what that sort of person looks like? And the reason I guess what I'm thinking is, in a lot of ways, the mortgage since it's big, but it's infrequent and the price matters so much. I think a lot of people seem to choose their mortgage separate from everything else that's going on in their financial lives. And I'm wondering, if there's sort of a niche type of person that, that applies to and sort of how you think about that? And maybe as a tie-in, I'm curious if your -- are you including in sort of mortgage generally home equity lines? And is that a product -- at least just conceptually, that's a product to me that seems like it should tie into a full relationship. And is that where you're sort of pushing and sort of building that sort of broader relationship? Or are you really talking about just plain vanilla sort of conforming mortgages?

So taking those in order. We've built our mortgage business purposefully a few years ago, when we talked about refining the strategy. One of the things we really got focused on is we're a relationship-based bank at our strategy at the highest level, trying to take that approach into the home lending business. And so getting really focused on making sure we're taking great care of Key's clients who are going to get a mortgage somewhere on the planet, making sure it happens with us. And that's still 2/3 of our business today is with an existing Key client. And we still think we have first-time home buyers all the way up through our private banking and small business client base. We want to make sure we take care of those needs. A third of our business, though, is with new to Key households, and we think it's a great opportunity to deliver a pretty high-quality client experience. Our Net Promoter Scores in our home lending business are pretty strong today. And we think that when we give clients good value and they meet with the good banker, that there's opportunity to deepen the relationships and we found that. So the average deposits of a new to Key home lending client would be higher than our average, just new to key household in general. It's a high-quality client base. It's a homeowner, right? Someone who can make a down payment, et cetera. When I was speaking to the business earlier, the statistics were giving you were really just about the first mortgage part of the business. We would -- I believe home equity lines of credit are an opportunity. It's obviously been given the liquidity in the market for several years now that's just been a product -- an asset class kind of industry-wide that's been running down. But we think kind of midterm, I would be -- I'm optimistic that I think it's a logical product. It complements the first mortgage well, especially for clients who onboard at lower loan to value to be able to piggyback a home equity line of credit. I think that's doing the right thing for our clients and our business, and we're certainly trying to do more of that.

I have 2 questions. First, do you feel like there's a good solid competitor for Laurel Road or for parts of Laurel Road? And second, could it make sense to replicate Laurel Road for other industry verticals?

Yes, those are great questions. And is there a competitor for Laurel Road was the first question? And would we replicate the affinity program into other industries, if I understood it right. So let me take those in order. Although, I think there's lots of competitors for Laurel Road, it tends to be the piece parts. Certainly, we know [ SOFR ] does student loan refinance, and there's many banks in the land that will do mortgages and still others that will do checking and savings accounts. We think right now when you put together that we're working with all of the national medical and dental associations. We're working with the specialty associations; we've created products that are built specifically for doctors and dentists. We've created discount programs, partnerships with large hospitals. We've created financial insights that really help you understand if you are a podiatrist in Louisiana, how does your salary compare? How does your student loans? How much should you be saving? When the whole -- when you put the sum of the parts together, we don't think right now there is a competitor out there that's as focused. We think there's other industries. I came from USA. I think we mentioned that who have that same focus on the military segment. You might argue that Key is focused on the teaching segment. Right now, we think we're pretty distinct in our positioning. It wouldn't surprise me if others follow, and that's fine, too. We are thinking about at the product level, trying to do some things that are pretty unique and more difficult to replicate if you don't have the type of wedge product capability and engineering capability that we have. So we certainly will look to maintain what we think is a somewhat differentiated position. On the second, I do get asked this quite often. And I think my take is, yes, we are learning. We talk about 2 restaurants, 1 kitchen, leveraging the true power of Key, the core banking systems, the risk infrastructure, just a lot of the systems that you wouldn't want to replicate, but then being able to create customized product services and experiences at the industry level. So I think we could do it, but I view healthcare segment just as having such a structural advantage. It's growing. It's going to grow for the next couple of decades. When I think about 1.1 million doctors, when I think about 4.4 million nurses, when I think about then the next ring, which would be 7 million occupational therapists and physical therapists, that 11 million prospect market growing rapidly. I just think there's a lot of opportunity there. But certainly, we view it as a strategic option, probably just not in the nearest or medium term.

This might be a question for Don. But Don, when do you think you'd be in a position to size up the overall contribution of the healthcare effort at KeyCorp? Including Laurel Road, we know you got Cain Brothers, you've got the efforts just on the ground with Cleveland Clinic and all your other types of relationships on that front. So when would you be in a position where you can size up the expected contribution of this effort over time because it clearly is beginning to differentiate you?

Well, it has been, and to your point, we've seen tremendous growth, not only through Laurel Road, but also through our commercial business. And Cain Brothers is significantly exceeded what our expectations were when we brought them on board, and they're contributing in ways beyond just the M&A advisory to expanding additional relationships. We'll put a pitch in from March 1 as far as our Investor Day. So that's right around the corner, and we'll provide a little bit more clarity then, but this is critical for us. And I think it just really reinforces the strategy that we've had, which is -- it's really have a targeted scale is what we talk about. And it's just that targeted focus on specific verticals. And so in addition to healthcare, which we're seeing across the board with both commercial and retail, we're also very focused on renewable energy, affordable housing and some other areas that we see as growth engines. And we'll be able to provide a little bit more clarity on each of those and how we're investing in that to make sure that we can continue to capture the growth available to the scrip for those important areas.

First of all, congratulations on all the success for -- during the pandemic. This has been a great performance. One question in healthcare and then one in just at a more macro level. You first commented on the tremendous success out West. I don't want to draw any conclusions about what happened out East. So could you offer a little more color about the relative performance there?

Sure. Yes. Good question. Question was we talked a lot about the West, what happened in the East? Let's talk about that, too. We're growing households faster this year than we have really at any point in the last, 10 or 11 years is kind of the good data we have at Key. And we're growing in both the East and the West. And so we're growing twice as fast in the West, but we're still growing in the East. And what I would say is the growth that we've achieved in kind of the non-western parts of our franchise would still be better than it would have been historically for Key. So we're pleased with both, but we're leaning in a little harder to the west, and we're glad to see the results show up there.

Just the question in the healthcare segment is when you think about Laurel Road, what sort of benchmarks and KPIs are you tracking inside the organization? And where do you kind of see yourself on those benchmarks to date?

Yes. We're very clear about our 5 benchmarks and 3 of them, and these are what we're talking about internally, and I think we'll consider whether -- or how much we share in March. But right now, you could almost guess it's pure households, which is just getting the doctor in the door, multiproduct household because, of course, what we're really trying to do is move those doctors from monoline into a relationship. And then finally, we really believe, and it's one of the strategic pillars that primacy matters. So we want to be those doctors primary bank. Those are our 3 measures. There's 2 other floors that we really pay attention to. Don makes us pay attention to an earnings floor, of course, because this is an investment growth business. So we live up to a PPNR number and then NPS, which we fundamentally believe maintaining a Disney like NPS will help us build these relationships as doctors consider doing more business with us. So those are the 5 measures we're working toward. Where are we at right now? They're all so nascent. We launched our National Doctors Day March 30. We marched -- or we launched in the face of once-in-a-century headwind being the student loan refinance holiday. That will expire here on January 30. So it's really tough to tell. We do have some internal goals. They're lofty goals. They're fintech-like growth goals, and we have those goals. But it's tough. We don't -- I feel like we don't have our baseline because we launched in the middle of this large headwind. So more to come on that. Great question.

Victor, maybe as a follow-up of the first question. When you think about growth across the franchise, and you talked about the West growing twice as fast. I think about you guys did a big branch reorganization earlier in the year. Is there a broader effort across the bank to redeploy resources into the western part of the franchise and maybe out of the East Coast? And could we see that accelerate in the coming years on an organic basis?

Yes, question is, are we thinking about redeploying resources west to east? The answer of that, yes. We've already started that. We were going to build a few branches in the West tier upcoming, but we are thinking we also are changing our incentive plans. They look a little different. If you sit in the West versus in the East, what you show up every day, thinking about a little bit more of a growth orientation versus a client deepening orientation. And so yes, when I think about investing in people, thinking about the IC plans, investing in marketing, investing in our physical infrastructure. We're bringing a new differentiated, more growth-oriented mindset to the West than we would have done historically. And we're pleased with the results early on. I think we're going to keep thinking like this.

Recognizing that it's early days. I wonder if you could help us think about the profitability of a digital-only relationship or household versus the traditional branch-based one. Presumably, the costs are less, but you probably have to pay more for the deposits and get less on the loans. I mean, how does it all shake out? And both now and, say, 5 years from now when it's had time to mature?

Yes. So the question was, how do we think about the difference between our digitally originated and are more traditional branch-based originated business? It does look different. It's not going to surprise anyone in this room. Younger clients and prospects tend to have a higher mix of digitally originated, although, it does span the spectrum. The profitability is a little closer. It's just the profitability comes in slightly different ways. Balances are higher in our traditionally branch-based originations. Some of the fee income lines are a little higher for our digitally originated. We really do believe that we're looking for primacy in both of those originations. And over time, they actually start to look the same. And we see that in our data. When we're looking back at our vintages of digitally originated 5 years ago, there's not a lot different between those who originated and branch 5 years ago, and those who originated digitally. If we look at that same cohort a year -- the 1-year vintage, there's more of a difference. We think that has a lot to do with just the age-based mix difference. We think we have to be there for our clients. We think there's clients who want to do things from their mobile phone and want it to be done in 3 minutes. We think there's other clients who want to come in and talk to a banker about potentially adding other products and services and our strategies to offer both of those.

And the other thing I'd say is our best clients do both. So a lot of our clients, I'm an active user. I walk into the branches sometimes I use the mobile phone a lot. Am I digital, am I branch? I don't know, but I'm a good client of Key, and we have many, many like me. And so I thought your question initially was more kind of Laurel Road. But I think over time, we want our clients to increasingly use our digital services when they're convenient, but we also want them to be able to walk into a branch in Salt Lake City and talk to a great banker who can help them with give them great advice or take care of service needs that they might have.

And maybe I'll just add on. If you were talking about Laurel Road, we do think there is a structural cost advantage there in a couple of ways. One, obviously, it's a digital-first, but not digital-only model. We do have live bankers available, premium care team available extended hours that a doctor and dentist might need but we don't maintain branches in the Laurel Road franchise. And when you think about a big portion of our marketing coming through associations and partnerships, it lowers the cost of acquisition. So it's something we're paying attention to, but we think maintaining that structural acquisition cost advantage is important.

Victor, can you share with us, you guys are talking a lot about the digital area of the bank on the consumer side. And what this is doing to your brand's consolidation strategy? Key has been successful, like many banks are reducing their physical footprints. And where do you see that going? And then second, maybe for both you and Jamie or even Don, can you guys give us your views on buy now, pay later and what that might be doing to the consumer lending area?

Sure. Thanks, Gerard. Digital on brand strategy, I'll let Don comment on buy now, pay later. Look, we're following our clients. We think about branches and what matters and where they matter. What we do know is the branch matters. Like one of the reasons, we're able to grow faster in the markets and we still get largest percentage of our sales and our highest quality sales still today come in from the branches. So the branch absolutely matters. And the branch and digital channels, I think, can complement each other really, really well. But what we also see is our clients are willing to do more and more things digitally than they've ever been than they've ever done before, which is great for them and great for us. And they're also more willing to drive a couple of extra miles to go to a branch when they need that advice or service. And so the combination of that has led us to over time, reduced pretty meaningfully the number of branches, 7% last year and several hundred on the order of kind of 500-plus, I believe, from kind of what would have been if you would have looked at peak Key plus peak First Niagara versus where we have today about 1,000 branches. And I think that trend in general will continue how fast we'll have to continue to follow our clients.

Yes. As far as buy now pay layer, that we see a lot of similarities to that to the indirect business as far as many banks are involved in that. We exited indirect because we're very focused on relationship. That's part of our core foundation to our strategy whether it's commercial, retail, Laurel Road or other avenues are businesses within Key. And so we don't see the connection there is easy. We had a tough time trying to figure out how to capture additional products, relationships with the indirect customers. And I think you're going to see some challenges with that -- with buy now pay later type of structure as well. I think it will impact consumer transactions and activity. We're working on our payment side to see how we can partner with other fintechs to capture that payment vehicle as well, but not focused primarily on other acquisition opportunities or engaging in that buy now pay later business at this point.

And with that, I'd like to thank KeyCorp for their participation this year. Thank you.

Thank you.