Beth E. Mooney - Chairman, Chief Executive Officer, President, Chairman of Executive Committee, Chairman of Enterprise Risk Management Committee and Member of Executive Council Jeffrey B. Weeden - Chief Financial Officer, Senior Executive Vice President and Member of Executive Council Christopher Marrott Gorman - President of Key Corporate Bank and Vice Chairman of Keybank National Association William R. Koehler - President of Key Community Bank William L. Hartmann - Chief Risk Officer, Senior Executive Vice President, Member of Enterprise Risk Management Committee and Member Executive Council

Matthew D. O'Connor - Deutsche Bank AG, Research Division Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division Keith Murray - Nomura Securities Co. Ltd., Research Division Nicholas Karzon - Crédit Suisse AG, Research Division R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division Kenneth M. Usdin - Jefferies & Company, Inc., Research Division Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division Ken A. Zerbe - Morgan Stanley, Research Division Jessica Ribner - FBR Capital Markets & Co., Research Division Josh Levin - Citigroup Inc, Research Division Erika Penala - BofA Merrill Lynch, Research Division Stephen Scinicariello - UBS Investment Bank, Research Division Gerard S. Cassidy - RBC Capital Markets, LLC, Research Division Michael Turner - Compass Point Research & Trading, LLC, Research Division Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division John V. Moran - Macquarie Research

Good morning, and welcome to KeyCorp's First Quarter 2013 Earnings Conference Call. This call is being recorded. At this time, I would like to turn the call over to Ms. Beth Mooney, Chairman and CEO. Please go ahead.

Thank you, operator, and good morning, and let me add my welcome to KeyCorp's First Quarter 2013 Earnings Conference Call. Joining me for today's presentation is Jeff Weeden, our Chief Financial Officer. And available for the Q&A portion of the call are the leaders of Key Corporate Bank and Key Community Bank, Chris Gorman and Bill Koehler. Also joining us for the Q&A discussion, our Chief Risk Officer, Bill Hartmann; and our Treasurer, Joe Vayda. 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 today. Slide 3 shows some of the highlights of our first quarter results. There are 3 important takeaways this quarter. First, our business model is producing results and positions us well in the current environment and beyond. Second, we are becoming a more efficient company, and our expense initiative continues to show traction and gain momentum. And third, our shareholders are benefiting from our disciplined approach to capital management. Let me start with our business model. In the current environment of economic uncertainty and excess liquidity, we are seeing more competition for lending opportunities. In some cases, this is leading to more aggressive behavior from competitors, be it on price, terms or other structural considerations. At Key, we have remained disciplined, and we are relying on our value-added, relationship-based approach to win new business, expand relationships with existing clients and generate robust fee income to go with our strong C&I performance. We are confident that we are well positioned to grow and take share in our targeted markets. In the first quarter, average loan balances were up 6% from the same quarter last year. And within that, the exit portfolio continued to run off and average C&I…

Thank you, Beth. Slide 6 provides a summary of the company's first quarter 2013 results from continuing operations. During the first quarter, and for all periods presented, we moved Victory Capital Management to discontinued operations due to the pending sale, which is scheduled for the third quarter. As we reported this morning, the company earned a net profit from continuing operations of $0.21 per common share for the first quarter compared to $0.20 for both the fourth quarter and the first quarters of 2012. Before moving to the more detailed discussion surrounding the quarterly results on the following slides, I would note that seasonality does come into play when looking at our first quarter versus our fourth quarter, and as a result, we will also make reference, when appropriate, to the same period last year for comparison purposes. Now turning to Slide 7. Average total loans for the first quarter were up $767 million or 1.5% unannualized compared to the fourth quarter of 2012. And compared to the first quarter of 2012, average total loans were up $3.2 billion or 6.5%. During the first quarter of 2013, commercial clients were somewhat cautious following the very strong demand we experienced in the fourth quarter of last year. We also saw normal seasonal activity with respect to consumer lending in the first quarter as consumers paid down their debt they drew on last year, along with normal amortization of loans in our exit portfolios. As Chris Gorman and Bill Koehler can comment on later, our commercial loan pipeline still remains solid, and we are fully engaged in our spring borrowing campaign on the consumer side. Last quarter, we provided an outlook of the average total loan growth for 2013 in the mid to upper single-digit area. And today, we still anticipate average…

[Operator Instructions] Let's begin with Mr. Matt O'Connor with Deutsche Bank.

Just within the net interest margin, as we look at some of the moving pieces, the commercial loan yields actually seem to be holding up quite well versus some pressure elsewhere, and I'm just wondering if you can elaborate on that in terms of what you're seeing in the marketplace and how they're kind of relatively stable or even up a basis point quarter-to-quarter.

Matt, this is Jeff. I'll comment a little bit about some of the geography in the margin, and then Chris and Bill can comment more fully on what they're seeing in the overall marketplace. In the first quarter, we've redirected some of the interest rate swaps, and so that had a positive benefit on the commercial C&I loan yields. And so that added approximately 11 basis points to that particular yield. I think where you see it come out of is really down on the other consumer loans. That particular yield dropped. I think a better way to look at it is looking at it from a -- the overall yield perspective on total loans. Total loans were down about 11 basis points for the current quarter. And Bill and Chris, you want to talk on it?

Sure. Matt, it's Chris. You're correct. Our spreads, we've been very pleased that our spreads have really held in nicely. But make no mistake, as Beth mentioned in her initial remarks, there is a fair amount of pressure out there from a structural perspective and from a pricing perspective. And what's really going on is there's really an imbalance in kind of the supply-demand. If you look at -- the loan market has had record inflows of new money. There's been more CLO issuance in the first quarter than all year in 2012. There's been 3 mid-market CLOs that have been raised. So it's something we're watching very closely. We've been pleased that our relationship strategy has enabled us to continue to gain clients. And our strategy is going to be, going forward, what it's been, and we'll continue to do what we need to do to take share. Keep in mind, a lot of our business -- half of our business is non-interest income, so we have some other levers that we can pull. And on that front, if we choose to, we can act as agent instead of principal, which we think gives us a fair amount of flexibility. And the other thing we're focused on a lot here at Key is -- on this, very focused, who we want to do business with in terms of garnering new clients, but doing more with our existing clients. So we feel like we fared pretty well to date. But make no mistake, there is a -- there's a supply-demand imbalance out there.

And Matt, this is Bill. The only thing I would add to that is where we see the most competition are some of the strongest credits where -- that are likely to be fully funded, so people who are looking to put their excess deposits to work. Again, where we are -- where we can find opportunities like that, but within the context of a broader relationship strategy, we will compete as well as anyone. At the same time, if it's just an asset play, that's not the strategy we're trying to employ.

Okay. And then just separately, quickly, Jeff, the timing of when you would expect to hear back regarding the buybacks of the Victory relay gain?

The timing kind of remains open at this particular point in time. We may not hear back until the actual closing of the transaction, which is scheduled for the third quarter. So as soon as we hear something, Matt, we'll be sure to communicate that.

We'll take our next question from Steven Alexopoulos with JPMorgan. Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: So last quarter, you were looking for $150 million to $200 million of cost saves for this year, with most of that realized in the second half of the year. And now we're a quarter later and you've taken the range to the upper end and half the cost saves are already in the run rate. Can you help us think about what's driving this incremental cost save opportunity to the upper end so quickly? And the timing seems to be coming in a bit faster than expected.

This is Beth. I'll go ahead and answer that. And what I will tell you is we did, as we came into the quarter, firm up our expectations that we would reach the higher end of our range of -- at $200 million and announced that, within the quarter, that we had gone to the high end of the range. That was a combination of, as we announced at the end of the year, that we had realized $60 million worth of run rate savings and had a conscious effort to try and accelerate the timing of the benefits for improved performance. And within the first quarter, we garnered an additional $45 million worth of run rate savings, so we did get ourselves halfway to the goal as it were through the first quarter. A variety of things happened, one was just concerted effort to accelerate timing. We have had success in our vendor and spend management areas, both within contract renegotiations, as well as just generally recasting how we use them. I will tell you that we have gone heavily after process improvement and looking at more efficiently how we can support our growing business demand. We've talked about variabilizing our expense base and other things. And then I would tell you that is, in all things, just focused attention brings improvement across a multiple of areas. As we go through the balance of the year, we have, in the second quarter, accelerated for our branch closures, will be happening in the second quarter and several other big saving moves. So these are opportunities that we have realized and gave us more confidence on the upper end of our range and continue to position us for the 60% to 65% commitment by Q1 '14. Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division: Okay. That's helpful. And Beth, if I could ask a follow-up, was the sale of Victory part of a broad-based sale evaluation of all the business lines? Or was that just a one-off situation?

I would describe it as a asset within our company that we have questioned its strategic fit with our relationship strategy over the last several years. And as we looked at its client base, which is largely mandated institutional investors, it did not really fit with our client base and there was not a lot of linkage to what we are doing in terms of assets under management and our private bank. So we determined that we were not the best owner for that asset and not the best owner to continue to invest in that asset for its own growth. So we made a strategic decision, as we look at our mix of businesses, that Victory was a good one to sell, and with step one, announcing that, and then that, as we said, created an opportunity to request an additional return of that net after-tax gain to our shareholders.

We'll take our next question from Keith Murray with Nomura.

Can you just talk on the revenue opportunity side? I mean, you guys have plenty of capital. You're making progress on expenses. It just seems like, to get the returns in the place that you need them, are there revenue opportunities that we're not seeing?

Yes, Keith, this is Chris. We're seeing a lot of revenue opportunities, actually. Our business, as Beth pointed out, very, very relationship-focused. And whereas Victory, we couldn't leverage the relationships because consultants controlled it or our clients no longer had defined pension plans, there are a lot of adjacencies that we've, frankly, been looking at. And there's a fair amount of deal flow externally right now that we've been looking at. So that's sort of to augment our whole relationship strategy. The other areas where we've been investing heavily with a fair amount of success is people. We feel like we have a unique business model that's underleveraged. And we've been hiring senior-level people that can help us leverage our platform. And we've hired 85 or so such people since the beginning of 2010. And we do a lot of metrics around here, and those have been very accretive. The other 2 areas where we've been investing and will continue to invest, one is in our payments business, what we call enterprise commercial payments. As you know, that's a very sticky business. That's a business that enables us to talk to our clients all the time. Mid-market companies are very much looking for not just the ability to execute, but information about their working capital. We've made some significant investments in that area. And then lastly is health care. One of the things that we're really proud of is we've put together, along with the Community Bank, really a bank-wide industry group focused on facilities-based health care. And we've invested a lot. We have -- right now, we already have a lot of clients. We've rationalized those clients, and we've invested in some more talent and some specific product offerings around facilities-based health care.

And Keith, this is Bill. I would add a couple other items. Our past calls and comments about our investment in credit card, that's a new and emerging opportunity that we're really excited about. Client penetration is improving. New account growth is improving. We have opportunity to focus on the utilization and activation of those cards as we move forward. And we see a lot of opportunity to improve our penetration over time in the client base. And then we are very pleased with the momentum we're building in our private banking business. As we see our value proposition in working very actively with middle-market companies, not only within the Community Bank, but also privately held and publicly held companies in the corporate bank, we think there's an opportunity to cross-sell that product in a very impactful way. And our clients are telling us they like the combination of the ability to talk to them about their commercial needs as well as their personal investment needs "at the same time." And we think that's very relevant and very impactful, and we're -- that's what our clients are telling us.

Okay. And then just switching gears to the stress test process. One, was there any surprises in the process this year as you went through it? And then two, can you guys see a period where you can feel comfortable asking for more than 100% of net income as a capital return, given your high starting point?

Well, I think the -- Keith, this is Jeff. I think, in terms of the overall process, that both sides are learning and that I think we are getting better at our stress testing and our modeling capabilities and being able to really fully understand the balance sheet, the flows of the balance sheet, et cetera, under various stressed environments. So from a perspective, I wouldn't say there were any major surprises on our part as we went through 2013's stress test process. I think the other part of your question, I think the future is still something that we'll have to see play out over time, and I don't think we can make a representation at this point in time about future capital actions. That's something that we will discuss, obviously, with our Board of Directors and go through also with our regulators.

And Keith, this is Beth. I would just add that we were satisfied with our outcome of the submission of our CCAR this year. We have the opportunity to increase our dividends, 10%, share repurchase by 24%. We are making the request for the gain on Victory Capital. So this continues to be a priority of ours, to manage our capital in a way that includes a return to our shareholders.

[Operator Instructions] We'll take our next question from Craig Siegenthaler with Crédit Suisse. Nicholas Karzon - Crédit Suisse AG, Research Division: This is actually Nick Karzon standing in for Craig this morning. I guess, the first question, on the non-interest-bearing deposits, it looks like there was an 8% decline quarter-over-quarter. And I was wondering if there is some seasonal volatility there, or if tag or something else was in play?

Yes, there is definite seasonal volatility that -- in that particular line item. We had both plants that borrowed in the fourth quarter and left deposits with us and then deployed those deposits in the first quarter. So there's some of that particular activity that's in that -- both the spot balance can go up, but also in the average balances in the course of the quarter. So people are raising capital and then deploying that capital. Nicholas Karzon - Crédit Suisse AG, Research Division: Got it. And then as a follow-up, just a quick question. On the average total loan growth guidance, I guess, the previous guidance was mid to upper single digit. Is that coming down to mid single digit, if I heard correctly, or is it still mid to upper single digit?

Mid single digit is what we commented on this morning.

We'll take our next question from Scott Siefers with Sandler O'Neill. R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division: I wanted to just make sure I understand the -- kind of the expense commentary correctly. It sounds like, if I heard you correctly, it sounds like the range toward the end of the year is $680 million to $720 million a quarter. So I think that the first quarter then, once you remove the Fit for Growth cost, it sounds like that's going to be kind of the low watermark for the year. And even though things will be pretty well contained, the cost base will be -- kind of be higher than here on kind of a run rate basis going forward. I mean, does that mean all of the future savings are going to be kind of reinvested elsewhere? Or -- I mean, are there some additional opportunities to bring down that run rate cost base as we go forward? How are you guys thinking about that dynamic?

Well, Scott, I think in terms of looking at the expenses and how they progress, the fourth quarter still has Fit for Growth charges in it, so we still have other initiatives that are decked out for the fourth quarter. So the range we gave of $680 million to $700 million, that includes Fit for Growth charges that are in there. And I think the other thing that we always have to look at is there is seasonality associated with our overall activity. And generally, we have increased business activity, particularly on the commercial side, in the fourth quarter, and then that will drive additional activities. I think Chris talked about the other investments. We talk about investing, we're talking about people that we're investing into to drive more revenue growth for the company on a go-forward basis. So we won't really get to our full, what I'd call, run rate benefits until we get into the first quarter of 2014. So we're being very aggressive on moving through 2013 with getting our initiatives in place. There's a lot that's going to happen in the second quarter. During the call, we announced this in the -- at the end of the second quarter of last year. These initiatives do take time to go through and plan, and they -- we've been doing that aggressively. And I think we're in a pretty good place right now with all those particular things that are decked out to go. R. Scott Siefers - Sandler O'Neill + Partners, L.P., Research Division: Okay, that sounds good. I appreciate that color. And then separately, Beth, you gave some good color on just sort of the way some of your customers that are feeling it on the commercial side. I wonder if, Chris or Bill, if you might give some additional thoughts on sort of what you guys are seeing, either geographically or kind of by client size, where you see things particularly strong or weak, if there are any distinctions?

Scott, this is Bill. I would say, on the commercial side, we are seeing some leasing strengths in the Northeast in our pipelines. Now the first -- the fourth quarter, it was a little slower for them. We've seen consistent activity in the Great Lakes at nice, healthy levels for a number of quarters now. And the West has been a little softer, but still at pretty good levels relative to, certainly, a year or 2 ago. So that's on the commercial side. I would say, on the consumer side, it's continually improving tone, but I think -- I still think there's, in the overall context, some work to be done in terms of consumer confidence, still. Our home equity pipeline continues to build. Spring borrowing, early days in the pipeline, is building around what we expected. And I think that's a function of improving home values and general improving confidence. But I think it's at a moderate pace, is the way I would describe it.

And Scott, this is Chris. I would say -- so Bill covered it from a geographic perspective. As you know, our business is by industry sector, all domestic, I might add. So here's what we're seeing. I don't think there's a lot of consistency. I think it's spotty. I think the people that are doing well, most of the positive activity is domestic when you look at some of the factors out there. I think there's still a lot of excess capacity in the system. I don't see a lot of people out there hiring. What we do see is an extension of overtime. We see that fairly regularly. And I think the biggest challenge out there, from a business perspective, is there's no huge impetus to go long, so to speak. I mean, commodity prices are under pressure. Throughout the entire supply chain, there's availability. So while our clients are in great shape from a financial perspective, the profitability is there, they'd like to do something strategic. I just think that there's not a huge impetus to do so based on sort of the economic environment that we're operating in.

We'll take our next question from Ken Usdin with Jefferies. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Just a couple of quick questions on fees, if you don't mind. On the -- well, just first of all, if you could just give us some context of your overall outlook from here. I just -- and within that, I just wondered what your -- what the investment banking and debt pipeline looks like, and if there was anything in the other category to note.

So Ken, it's Chris. Let me speak a little bit to our investment and debt placement pipeline. We had a record first quarter on a trailing 12 basis. It's at a record $339 million. The pipeline is, on a year-over-year basis, is stronger than it was. So as we look into the pipeline really across the board, whether it's on balance sheet, off balance sheet, it's stronger. I would put the caveat out there, though, based on the discussion we just had, as you well know, it's subject to not only the economy, but also to market conditions. But we feel good about the forward momentum of the business. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: And Jeff, on the overall outlook just for fee growth and whether there was anything to note in the other line this quarter?

Well, I think, overall, on the fee growth, we typically have a momentum that we go through the course of the year. So we would typically see second, third, fourth quarters, that first quarter is typically the softest quarter that we have and that we usually build from that point on. In the other category, it really is a number of just items that, more or less, that were positive this quarter versus they were negative in the prior quarters. So if you look at it from a perspective, the miscellaneous items may have been $5 million positive this quarter in a couple of items where they were actually negative revenue in previous quarters. So that's a lot of the overall change that's there. I would expect that, that number will be somewhere in that other, other category, somewhere between $20 million and $30 million on a kind of a go-forward basis. Kenneth M. Usdin - Jefferies & Company, Inc., Research Division: Okay, great. And then just lastly, one on the expenses. I get all the commentary just around reinvesting and about run rate goes higher from here. But just against that backdrop of what you had originally been saying for the fourth quarter of this year and the fact that you've just achieved so much better in a positive way this quarter, I hear that you're saying that you feel more confident about getting into that 60% to 65% zone. But why, on an absolute level, wouldn't we be ending the year kind of better then you had originally had indicated?

Ken, this is Beth. There's a couple of things. I think, as Jeff outlined when he talked about some of his thoughts on the fourth quarter, it does still include a level of Fit for Growth charges, so $680 million to $700 million would include that. And then as you look at seasonality of expenses, there are a couple of things in the fourth quarter that will elevate historically in terms of professional fees and various kinds of expenses. And we -- and frankly, in the first quarter, had relatively low marketing expenses. So if you kind of sort through some of that, that still means that there is a continued improvement in our run rate as you go through the year. And the second thing I would observe is, as we currently sit here, we do have plans to invest in our business. That's something we have talked about, is that we have plans to grow our businesses, to grow our revenues. Those will be subject to our estimate of the business plan, the economic condition, the business case, our capability, our resources. But as we go through the year, we do want to continue to support what we see as the momentum with growth of our businesses as well. As we go through each quarter, I think our goal is to give you good clarity and transparency about how that works.

We'll take our next question from Mike Mayo with CLSA. Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division: My question is on efficiency, I guess, both capital and expense. But on the capital efficiency, why would you request to increase the dividend with your stock trading below tangible book? And how aggressive might you be in repurchasing shares? I mean, the shares are down, it's 0.5% in the first quarter. But your stock's at $9.49 and tangible book is $9.78. So how aggressive will you be, and what's the time frame?

Mike, this is Jeff. We have just a modest increase in the overall dividend. It's going up $0.005 per quarter, so it is -- it represents a 10% increase for the next 4 quarters. I think in terms of the overall return of capital, I believe that our numbers will rank one of the higher of the CCAR-related banks that went through the overall process. And we still have to go through a process. So it's not like you can go and buy back stock at any given point in time just because you have a desire to do so. It is a process that you have to work through each and every year with your board and with the regulators. I think we are returning capital, and we agree with your comment as to where we trade and with the desire to return capital. The dividend itself, in terms of the overall dollars, is not a significant dollar amount. Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division: And then on the operating efficiency. I know you've had several questions on this, but it looks like you all have $95 million of savings and these extra expenses this year could be potentially close to that number. So I'm not sure how to think about that. I mean, if you take in the extra potentially $50 million more in the second quarter, and maybe it's going to be $30 million after that, it could be $20 million after that, you literally could be an extra $95 million of expenses above your first quarter level in a year when you're getting $95 million of savings. So I guess, the question is, how much of these savings are really going to be sustainable? I guess one question is, what are the expenses in the first quarter of '14? Not that we have that specific number, but just so we know how you're thinking about things.

Yes. So Mike, I think in terms of the first quarter of 2014, the fourth quarter, we have Fit for Growth charges in there, so we already know certain things that are related to real estate, et cetera, that will happen towards the end of the year. Those particular charges will hit in '14. We'll get a -- or '13 and we'll get a benefit into 2014. The range that we've provided has, and I'll just say it in approximate terms because this can change, but it's about $20 million worth of Fit for Growth charges that are embedded in that $680 million to $700 million number that we provided in our guidance for the fourth quarter of this year. So I think we have to look at it in the sense of, as we roll into 2014, we will have -- we will be within our targeted range, and we will continue to work on other initiatives. So this isn't something that, what I'd call an initiative that it's, if we get this out of the way and we go on our merry path, what it really relates to is a cultural change within the overall organization of striving for continuous improvement, identifying ways that we can do better on end-to-end processes throughout the company and deliver positive operating leverage to our shareholders on a go-forward basis.

Mike, I would just add that a number of the initiatives that we are undertaking this year will also create benefits in '14. I think Jeff said that earlier, that we are doing a number of things for which the value will also be fully realized in 2014. So I think it's important to note that they are sustainable and that we, every day, think about the interplay of investing in revenue, becoming a more efficient company, and believe we need to do both in 2014. I think you'll see more clarity, and we will be within that targeted range of 60% to 65% as we start the year.

We'll go next to Ken Zerbe with Morgan Stanley.

Just a quick question on credit, actually. Was there anything unusual in terms of credit that led to the reserve build this quarter? I guess I'm just trying to figure out if the 1.7% reserve ratio is a stable number from here. And if I missed it, and if you can just repeat your guidance for provision and charge-offs, that would be great.

Okay. Ken, this is Jeff. Bill Hartmann can also provide some additional context to this, too. We go through and look at our methodology all the time and look at how we're reserving. And so as we go through that process, there are refinements that are made. I think in terms of how we want to look at the reserve and charge-offs and provisioning going forward, we provided guidance that we expect to be at or below the lower end of our range. So our targeted range is 40 to 60 basis points. We expect to be actually below that for the course of 2013 and that provision expense will probably be fairly close to net charge-offs. So this quarter, it was $6 million. I can't tell you exactly where it'll be for the next few quarters, but it won't be far off from where net charge-offs are.

So the 1.7% ratio is probably a stable number going forward?

Well, it could be...

Aside from loan growth, of course.

It could -- yes, besides from loan growth, it could be 1.65%, it could be 1.75%. I can't tell you specifically because you really do have to look at the credits each and every quarter as we build up the reserve.

[Operator Instructions] We'll take our next question from Paul Miller with FBR. Jessica Ribner - FBR Capital Markets & Co., Research Division: It's Jessica Ribner for Paul. We just had one question about your branch network and what your thought process might be surrounding it, especially as people's habits change vis-à-vis branches.

Jessica, this is Bill. We think about that a lot. I think we start from a fundamental belief that the branch will remain meaningful to many of our clients going forward. We -- clients across -- in all our segments transact in some way with the branch and the Community Bank, so middle-market companies, small businesses and consumers. What we also recognize is consumer behavior is changing and as -- and is changing as technology changes. So we have to find the right way to invest in our branch network in a way that complements the physical presence with a virtual presence in the context of our relationship strategy. And what we've done in the more recent period is pulled down the investment in our branch network over the last few years with now a focus on rationalizing and optimizing. And we've begun to layer in investments in the virtual space with some of our mobile applications and online banking and things of that nature. And as we move forward, that's where the primary focus of our investments will be.

We'll go next to Josh Levin with Citi.

You talked about the competitive environment and how lenders are competing on price and then term and now structure. And you say that Key is remaining disciplined, and I, by no means, am picking on Key with this question. But every bank says the environment is competitive, but they're remaining disciplined, but their competitors aren't. So who's making these loans? I mean, is it smaller banks? Is it larger banks? Who is the marginal lender who is being -- who lacks discipline in this environment?

So Josh, this is Bill. I would just say this. We're seeing competition in a number of places, and our focus has to be identifying those clients who value our relationship strategy and the broad capabilities we can bring to bear, be it our payments capabilities, our local expertise, our decision-making, the capabilities that Chris and his team have in the Corporate Bank around industry expertise and capital markets. That's where we're focused. So to the extent in an environment like this where we are going to stretch, so to speak, we're going to do it and we're doing it in the context of a relationship strategy and the ability to manage our risk appropriately and our returns because we can bring real value to the equation and we have really good access to management teams. We know what to do and we understand the business and we can bring value to the equation.

Yes. Josh, it's Chris. I would say the competition is across the board. As you look at the really high-quality middle market companies, there's just a supply-demand imbalance. There's a few kind of headline transactions that you read about. Those clearly aren't middle-market companies. There's just not a lot of activity. So you really see just a whole bunch of competitors chasing the same companies. The other thing, as I mentioned earlier, is there's a lot of fund activity, and with the cost of equity in these funds, they're able to refinance a lot of transactions. But I would say where I see it as most pronounced are transactions that maybe only take one provider of capital. Whereas in our syndicated finance business, we lead about 70% of all the deals we're in, so we get a pretty good insight. There is probably a better market discipline in syndicated finance than there is for these quality transactions that one source of financing can fund. That would be my observation.

Okay. And you talked quite a bit about your relationship approach. So when you're thinking about you might make a loan to a client at a certain price and that client also might park deposits with you or generate fee income, what metric or key metrics are you looking at to evaluate what that -- the true economic value that client relationship is worth to your bank?

So the first thing we look at, Josh, is each and every relationship that we have, we have relationship reviews. We talk about what our penetration is, what their share of wallet is, what we're getting out of that share of wallet. And we have a relationship ROE target of 22%. So that's as a start. Then the other thing we spend a lot of time doing is really evaluating what we call expanded relationships, and what we call an expanded relationship is someone we've done more than $100,000 with on a year-to-date basis than we did in -- at the trailing 12 period ended 12/31. And for example, we have in -- 56 such relationships that have generated about $28 million in the Corporate Bank this year. And when they're expanded, they're not expanded by $100,000 or so, they're expanded based on those numbers by, say, $5,000 or so -- $500,000 or so. So those are the real -- we spend a lot of time looking at metrics, a lot of time looking at market share, making sure we're targeting the right clients and prospects.

We'll take our next question from Erika Penala with Bank of America Merrill Lynch.

Most of my questions have been asked and answered except just one follow-up question to Keith on capital. Jeff, according to your guidance on average loan growth and average earning assets, it seems like you'll keep your securities to earning assets ratio relatively the same for the balance of the year. I guess, given that you're such a capital return story, have you thought about how to think about the portfolio size going into next year's CCAR as it seems like the Fed is more interested in starting to test for interest rate risk for future years?

Yes, Erica. In terms of our investment portfolio, we've stayed very disciplined with keeping the weighted average life of that particular portfolio. It's 2.8 years at the end of the first quarter. So it is something that we look at, we test, we shock. We look at it all the time. I think in terms of the overall size of the portfolio, we said about the minimal size of that portfolio is going to be around $16 billion. And of course, it will grow depending on the amount of liquidity that we have or we'll make other determinations, just like we may have more short-term liquidity or do other things in terms of managing our overall interest rate risk as a company. We're asset-sensitive at the end of the first quarter. We were asset-sensitive at the end of last year. Net asset sensitivity is about 1.4% to 1.5% to a 200 basis point movement in rates over the course of the next 12 months.

We'll take our next question from Steve Scinicariello with UBS.

Just a big picture strategy question for you guys. Just given the many levers you guys have to pull, whether it's expense leverage, capital leverage, credit leverage, franchise leverage, market share opportunities and revenue improvement opportunities as well, how do you go about kind of prioritizing each of those areas when you look at them? And then secondly, which of those do you feel provide you with the biggest near-term bang for the buck and the biggest longer-term bang for the buck?

Steve, this is Beth. I'll go ahead and tell you that we're in an environment where you've got 3 really strong revenue levers in terms of revenue expense and capital, and we grade each of our priorities against what it will do to enhance our revenue and grow our relationship clients, what it will do to make us -- how do we manage our cost base to be more variable, as well as more efficient. And then third, is it going to be good for our shareholders and our capital return, as well as return on capital over time? So I would tell you that in an environment like we're in, those are the things we look at every single day. And then within those, we prioritize which will be most impactful, which are most accretive to our strategies and which will, with our current resources and capabilities, provide the most benefit in our ability to execute. So that is the lens with which we have those discussions.

Great. And then just kind of getting a little more color about that. Do you feel like 2013, we're going to see more in terms of expense saves and then 2014 is more about revenue improvement? Or can we see kind of a mix of all of these things, even this year, in this tough environment?

I think the mix is going to be also subject to what the environment does produce. But obviously, we are focused on growing loans. We are focused on the ability to bring in quality relationships. And as Chris talked about, expanding relationships, we've invested in new product capabilities. We still have some incremental liability repricing, management expensing -- managing our expenses, investing where appropriate. So I think all of those, when you think of them as levers, could produce outcomes against all those, both the ability to be more profitable, to grow revenue, as well as grow clients.

We'll take our next question from Gerard Cassidy with RBC.

Beth, coming back to something you said about the Victory Asset Management sale. You indicated that you -- it wasn't a strong fit with the client-facing strategy that you have. Are there other businesses that fit that category that potentially could be sold in the future?

Gerard, as we looked at our portfolio of businesses as we made the decision to market Victory, it was unique in that regard in terms of how we had repositioned it after the financial downturn to be really an institutional money manager. And then the other businesses we have discussed, we've worked very hard and very purposely at making sure they do fit within our relationship strategy, that we bring our Corporate and Community Banks closer together, as well as the integration of those businesses. So our focus with our current business mix is to build them around that relationship strategy and our go-to-market point of view.

So is it fair to say, from our expectation standpoint, we should not anticipate further sales of businesses in the next 18 months or so?

I would say that Victory is -- we're looking forward to completing that transaction and developing and growing the businesses we have.

We'll take our next question from Mike Turner with Compass Point. Michael Turner - Compass Point Research & Trading, LLC, Research Division: As far as your, I guess, NII or NIM guidance, what level of competition does that assume? Meaning, are you assuming pricing will kind of remain where it is or additional pressures will come out?

Mike, this is Jeff Weeden. We're assuming that we're going to have continued pricing challenges out there in the marketplace, but I don't think it's going to be any greater than what it has been for the last few quarters. So we've actually seen relatively stability with respect to the spreads. Now where we're seeing the pricing come down or the yields pressure come down really relates more to the fact that we have some of the, what I'd call, term loans that we've had in the past are repricing down. And those are repricing down at much lower rates as they mature. LIBOR-based, we've been saying basically between LIBOR plus 200 to 275. Now that may be down 25 basis points from a year ago, but it is still hanging in there, and I think this relationship strategy and staying to targeted clients is where that pays off and benefits us. Michael Turner - Compass Point Research & Trading, LLC, Research Division: And Chris, I don't know if you could comment -- I don't know how many leveraged loans you guys do, but have you seen any impact -- or do you expect any impact from the recent guidance that came out? And then also, maybe not necessarily related to leveraged loans, but do you have a defined risk parameter in lending where, if competition gets too much, you'll just back off? Or is that something that's more dynamic?

Mike, this is Bill Hartmann. When we looked at a detailed analysis of the guidance that was provided -- the interagency guidance that was provided, we think that our business actually stacks up pretty fine to that guidance. There are some other people that are in the market that we see that have been on the more aggressive end, who may potentially be impacted by that, but we think our business model stacks up pretty well. And when the market turns overly aggressive, in the past, we have always held true to our convictions and let the market go where it has to go.

Yes. Mike, just -- this is Chris. Just to augment with some of the detail that Bill just mentioned, our leveraged loan book here, first of all, we look at our leveraged loan book throughout the entire company, which is one of -- part of the guidance, and that's how we do it. If you think about it, our leveraged loans are maybe, say, 3% of our total loans. So it's not a huge part of our business. The other thing is we have not grown that book of business since the end of '11. We've been just recycling the capital. So I agree with Bill. I think we're in pretty good stead under the new regs as we currently understand them.

We'll take our next question from Terry McEvoy with Oppenheimer. Terence J. McEvoy - Oppenheimer & Co. Inc., Research Division: Keith's talked a lot about growing the payments and technology, and it's right here on Page 3. Could you just talk a little bit about the investments that have made -- been made the expenses? Are you starting to breakeven? And then maybe more importantly, where will we see the results? If I look at the cards and payments numbers, 90% of it's out of the Community Bank. And will, over time, we start to see that in other lines of business at Key?

Okay, this is Jeff. I think in terms of where the revenue is coming through, you'll see it -- in the cards and payments side of the equation, you're right, a lot of that is going to be over in the Community Bank, but it's also a growing presence over in the Corporate Bank, too. And so it is across both of our major lines of business. It goes -- it's one of those businesses that -- it's the reason it's called enterprise commercial payments within the company, is it encompasses the entire enterprise. I think what you've seen really in some of the investments that we've made were with respect to cards that we had made last year, and I think that particular business is approximately breakeven. And it's approximately breakeven because you're still seeing some reserve build that's out there. So x that reserve build that you saw in the first quarter here in that particular line, it would have had a profitability that would have been quite acceptable, plus it has amortization expense associated with the purchase credit card receivable. I think the other area where we've made -- have made investments, and of course it's early in this particular process, is really in the merchant side of the equation, and Chris will talk about that for just a second.

Sure. So on the merchant side, having control of the merchant card is very important, very, very critical for a lot of Business Banking clients, very important going forward in health care because it's going to be part and parcel of that whole information loop between the provider, the insurance company and the patient. And we've brought that back in-house. We had used an outside provider, and we brought it back in-house so that we could control the client experience, we could control the pricing. And so that sales force has just hit the ground running. The other 2 areas where we're going to continue to invest are both on the prepaid side and the purchase card. And particularly within our public sector business, the prepaid card is very, very important as we go forward. So it will show up in a few revenue pools kind of across the enterprise. I would say merchant would be really skewed to small business and Business Banking. And the prepaid investments that we're making we think can give us a real lift on our public sector business.

And this is Bill. The other area that I wouldn't want us to lose sight of is debit, debit processing. We, about 18 months ago in the face of Durbin, undertook a project to enter into a partnership with MasterCard around debit processing. And we completed our full conversion in February to -- which dramatically reduces our cost of processing as we move forward.

And we'll take our last question from John Moran with Macquarie Capital.

Just we're a couple of quarters away, removed now from sort of the HSBC branch transaction in upstate. Obviously, that was -- it was kind of an opportunity on the funding side, probably more so than anything else. I was just wondering if you could provide a quick update on asset generation opportunities in that market. There's a lot of disruption, and maybe spend a second outlining the strategy up there.

Sure. This is Bill. We feel very good about the success we've had in integrating that business -- or the branches with our business there. Our client retention has been very good, especially relative to plans. The employee retention, very good relative to plans, and the tone in the market has been very positive for us. We -- one of the things we did like about the capabilities that we acquired was a focus on the mass affluent client. And there are some things we can learn from that team that we're building into our product offerings around investments, in particular, where we thought that we had an opportunity to up-tier some of our capabilities by leveraging some of their capabilities, and we're working around that as we go. So it's folded into our business very well, and we like the momentum we have.

That concludes our question-and-answer session. I would like to turn the call back over to Ms. Beth Mooney for any additional or closing remarks.

Thank you, operator, and we thank you all for taking time from your schedule to participate in our call today. If you have any follow-up questions, you can direct them to our Investor Relations team, Vern Patterson or Kelly Dillon, at (216) 689-3133. That concludes our remarks.

This does conclude today's conference. Thank you for your participation.