Good morning and welcome to the KeyCorp's Fourth 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, ma'am.

Thank you, operator, and good morning, and welcome to KeyCorp's fourth quarter 2013 earnings conference call. Joining me for today's presentation is Don Kimble, our Chief Financial Officer, and available for the Q&A portion of the call are the leaders of Key Corporate Bank and Key Community Bank, Chris Gorman and Bill Koehler. Also, joining us for the Q&A discussion are our Chief Risk Officer, Bill Hartmann, and our Treasurer, Joe Vayda. On 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. Turning now to Slide 3, I'll start with some comments on the year and then turn it over to Don, who will discuss our quarterly results. 2013 was a good year for our company. We acquired and expanded relationships in our targeted client segments, invested in our businesses, improved efficiency and returned peer leading capital to our shareholders, and all of this was reflected in the performance of our stock last year. On the left-hand side of the slide are three focus areas that we identified at the beginning of the year, optimizing and growing revenue, improving efficiency, and effectively managing capital. We made meaningful progress in each of these areas. First, I'll begin with revenue. Despite the continued low interest rate environment and slow economic recovery, core revenue trends remained relatively stable in 2013. Excluding the gain from the redemption of our trust preferred securities in 2012, revenue was up 1% for the year. Importantly, we grew both, consumer and commercial loans. Total average balance is up 5% in 2013. The primary driver was commercial, financial and agricultural loans, which were up 12% for the year and continued to outpace the industry growth rate. Net interest income was…

Thanks, Beth. Slide 5 provides highlights for the company's fourth quarter 2013 results. This morning, we reported net income from continuing operations of $0.26 per common share for the fourth quarter. This compared to $0.25 for the third quarter of 2013. Our results include charges related to our previously announced efficiency initiative and pension settlement of $0.02 in the fourth quarter, compared to $0.03 for the third quarter. I'll cover many of these results in my remarks when I'll turn to Slide 6. Loan growth has remained a very positive story and reflects our distinctive business model and more targeted approach. Average total loans for the fourth quarter were up of $337 million or an annualized 3% compared to third quarter of 2013, and up $1.7 billion or 3% compared to year ago quarter. Our growth was driven primarily by commercial, financial and agricultural loans across Key's business segments. Much of the activity occurred towards the end of the quarter, resulting in larger increases in period end than average loan balances. In the fourth quarter, period end balances grew 2% from the prior quarter or 6% annualized, which outpaced the industry growth. In the fourth quarter total commitments were up while utilization was relatively stable. Our outlook for loan growth in 2014 remained consistent with our prior guidance of mid-single-digit, full year growth driven by CF&A. A change in the pace of the economic recovery could impact client demand and loan growth relative to our current expectations. Continuing to Slide 7, on the liability side of the balance sheet, average deposits excluding foreign branch balances were up $2.4 billion from the third quarter and up $4.7 billion from one year ago. Deposit growth from both, the prior quarter and the year ago quarter, was primarily due to the higher escrow…

Thank you. (Operator Instructions) Let's begin with Erika Najarian at Bank of America Merrill Lynch.

Yes. Good morning.

Good morning.

Good morning.

My first question is clarity on the expense guidance for 2013. I was wondering whether or not the base under which we should take the single-digit decline would be the GAAP base or the adjusted base, excluding the efficiency charges?

Guidance should reflect the actual reported expense base of $2.820 billion and we would expect to see a low single-digit kind of reduction from that level for the full year of 2014. Keep in mind though that guidance also does reflect the impact of investments as well as the other costs expenses to be incurred in connection with further expense reductions.

Got it. My follow-up question is on the net interest income guidance. Could you give us a sense on where Key is positioned with the LCR proposals as you understand it? If you do need to continue to build liquidity from here, whether or not that's already fully embedded in your net interest income outlook for the year?

Great. As far as the LCR as currently drafted, we haven't provided what our estimated calculations would be as there are a couple pieces of that proposal that do cause some challenges for us. One is the treatment of collateralized deposits which we [inaudible] as an unintended consequence of the current draft and also some of the handling associated with agency securities that once the rules are finalized and we believe that there should be some positive, hopefully, changes from those issues. We should be in good standing without any significant changes to the overall balance sheet.

Okay. Thank you.

Thank you.

We'll go next to Ryan Nash at Goldman Sachs.

Great. Good morning, guys.

Hi, Ryan

Good morning.

On the efficiency guidance of the 60 to 65, I used the midpoint of each piece of your guidance and I think it implies an adjusted efficiency ratio around 65%. I know, Beth, you talked about getting to the middle-end of that range without the higher rates. Is it fair to say that this can be achieved over the next four to six quarters or is this more likely to take a multi-year process?

I'll start with that answer and then I'll let Don add some color. As we go into 2014, I think everybody is continuing to see [inaudible] effective pressure in [loan] [ph] interest rate. As we look at it, we look to the growth in our balance sheet that we have seen in loan and deposits, we got some of the businesses where you have seen us invest in cards, mortgage servicing, so our goal is to clearly talk about positive operating leverage where our revenues will exceed our expense growth. And embedded in that is continued expense discipline and opportunities for further reductions and the opportunity to pace our investments, make sure that we are pairing them indeed with the revenue that we expect. It supports our strategy. I think the company definitely has the right focus, and I believe you will see progress within the range in 2014. With that, I let Don add his comments.

I think you are absolutely right, Beth. We are very focused on driving positive operating leverage, and with that we do believe that will translate to improvements in our efficiency ratio and I wouldn't want to suggest that it could be at the same pace that we saw from the second quarter of '12. We were at 69% to the current quarter we are about 65%, but we do believe that it will be a measured improvement on a year-over-year basis.

Got it. Then just a follow-up question on your mid-single-digit loan growth guidance, a couple of pieces of the question. I think you highlighted CF&A as an area that you expect to see growth, but given the improvement we have seen in CRE and construction, what are your expectations for those portfolios? Can we see those picking up at an accelerating pace? Then just also related to overall loan growth you noted that there was an acceleration towards the end of the quarter. Is any of that seasonally you are seeing corporate is paying that down early in the year and just one last piece of the question. You noted that your economic outlook is muted. Can you just give us somewhat of an outlook in terms of what you are actually expecting for a broader macro picture?

Ryan, let me start. This is Chris Gorman. Let me start with the CRE question. Then, Beth, I'll ask you then to come back on our view on macro perspective. As it relates to CRE, Ryan, we do think we can continue to grow that portfolio. Our real estate business is an interesting one in that only about 15% of the capital we raised that we put on our balance sheet. Having said that, as we look at our jumping off point for '14, we had a lot of growth in the fourth quarter in CRE, so we have a very good jumping off point and the business has a fair amount of momentum. With that I would caveat it. We are watching certain multi-family markets very, very carefully and we are tightening our screens. Having said that, we believe we can continue to grow our CRE business and the pipeline looks strong. As it relates to kind of our macro view…

Yes. Ryan, I would just tell you that, clearly, our guidance is reflective of the momentum of our view of interest rates, our view of the economy as we go into 2014, but I think as you will see or kind of across the board as you look at the conference calls, banks as well as just the general tone in the market, 2014 is the year that is beginning with more economic strength and optimism than we have seen in past years, so the tone, the market performance of last year, the fact that there was the beginning of tapering in December, but we have a budget deal, we have always talked about our clients as being cautious or cautiously optimistic, but we have also said that our commercial, middle market and corporate clients are well-positioned. They are profitable, they have good balance sheet, and they are carrying high liquidity. We saw signs last year of consumer showing recovery, particularly as housing prices began to firm up, so could this play out to be an opportunity in 2014, I think is a big question that we will all be watching as the year goes on. If these things do indeed translate into greater confidence and business and consumers, will we see increased activity from what we are projecting. I would tell you that it is too soon to see if that would cause any changes. I think our guidance is solid. I think it reflects what we [inaudible] we can deliver, but I will also tell you that our business model is well-positioned should the economy improve, demand increase as the year unfolds, we feel very good about how we have positioned ourselves in the market.

Ryan you had one of the sub-question there as far as the year-end growth and I would suggest that it was led by commercial real estate as Chris had alluded to and also equipment finance, so this wasn't some of the typical window-dressing you might see from some commercial borrowers at the end of the year. This was a core business that we believe will start as a good launching point for us in 2014.

Great, guys. Thank you for taking my questions.

Thank you.

We'll go next to Josh Levin at Citi.

Good morning. You have closed some branches over the past year or so, and I was wondering what's the process you are using to evaluate potential future branch closings?

Josh, this is Bill Koehler here. It is the same process we used for the 81 others. We take a look at individual branch productivity as well as we call it branch of share, which is looking at the broader impact of the way all our clients, middle-market clients, business banking clients and consumers engage in that branch and the revenue that is derived from it. As we look at the footprint and the productivity of the branches we have, we do see opportunities as we move forward to continue to optimize our branch network. We do think we are at a position where we can optimize our network in what would be a more normal pace that you would typically see from any retail company and part of it is dependent on the pace at which we can generate more revenue from the investments in our digital channels. We feel good about some of the progress we are making there, but there is more work to be done.

Okay. My second question is about capital. We don't yet know what your minimum regulatory capital requirements will be, but it's pretty clear that you have excess capital. How should investors think about that excess capital? Does it ultimately get distributed to shareholders, should we assume at some point not in 2014, but at some point your pet ratio exceeds 100% or is that excess capital now a permanent part of your capitalization?

Josh, I'll paint some color on our capital priorities and then I'll let Don add some of his thoughts. I think we have been pretty clear all along on our capital priorities and been consistent that - that to have a strong capital base that supports our ability to invest and grow our company organically that we are committed to our dividend, we are committed to share repurchase, and with that strong capital we feel like we have a competitive advantage to opportunistically grow our company, but that does indeed create future opportunities for us to continue to invest and grow. In terms of, as you said, there will some capital ratios left. We continue to participate obviously in the annual CCAR process, we believe we are well positioned as a company, strong foundation which to go into the CCAR process and are looking to build a very consistent track record with our shareholders for how we manage, invest and deploy our capital. At this point, I'll let Don talk about relative level of capital, but I think it's premature to indicate a capital level, because of our final investment.

I agree. I think, Josh, as far as our capital levels, I think used to be dictated based on the results of stress test, prospectively than it will be on any type of reasonable buffer, but then even with that, we do believe that we have very strong levels of capital and more than what our business model would suggest we would need to have to maintain a very profitable strong balance sheet and we do have the current constraints as far as the capital planning process and I would not want to project when those rules or guidelines might change. I will tell you as I stated that our priorities are to support organic growth to continue to have a strong common dividend to return shareholders in a form of share buyback and to make it available for any other strategic opportunities, but we that we are going to be very prudent in how we manage our capital prospective.

Thank you very much.

We'll go next to Steven Alexopoulos at JPMorgan.

Good morning, everyone.

Good morning.

On the expenses, on last quarter's earnings call you guys guided to, I think expenses were $680 million to $700 million, including one-time items in the quarter. One-timers came out at, it was $2 million above the upper end of the $15 million to $20 million range, but total expenses are $12 million above the upper end of the range and that was only a few months ago. Can you walk us through what drove expenses coming in so much higher than the upper end of guidance?

Sure, and I think you started some of the walk-forward there, Steven. Essentially, the one-time costs were $24 million which was the expense initiative and the pension settlement cost is $24 million, so that was roughly $4 million higher than our guidance. We also had expenses associated with operating loss, we also had some higher technology costs than were expected and we also had some increased costs associated with compensation plans that have a component tied to our share price and three of those areas cost us around $12 million, so if you would adjust for those areas that I think the core expense base for the current quarter is just shy of the $680 million range which would put us within that guidance range that we would have projected at the end of the third quarter. We acknowledge that it was higher, we would suggest that the nature of those expenses that caused us to be higher would be more one-time in nature or non-recurring, which gives us some confidence in our expense guidance going into 2014.

Don, maybe I could follow-up on that guidance. I mean, the way I am looking at it basing it off of a base that includes one-time items doesn't give us really much transparency at all and Don how are you planning on managing expenses in the New Year, so you are looking at core expense levels, right? Which I think was $2.7 billion for the year or so. We know you need to make investments next year. Can you offset those and at least hold core expenses flat for the year?

Well, our expense guidance was down low single-digits and we have defined low-single-digits as less than 5%, so if you take that $2.8 billion reported expense base and reduce it more in that range I think it would imply a fairly flat to maybe slightly down expenses from that core level you had cited, so we have committed to the $241 million in expense savings. That has been implemented. We would expect to see and realize the full benefit of that in the first quarter of 2014, prospectively. Our guidance does include the additional investments we are planning on making along with an estimate of what we think will be one-time costs associated with further expense reductions that we have planned going into 2014.

Great. I appreciate the follow-up color. Thanks.

Thank you.

We'll take our next question from Matt O'Connor at Deutsche Bank.

Good morning. This is Ron Placid from Matt's team. How are you guys doing?

Good.

Good morning.

First question. As it relates to your fee income guidance of low single-digit growth versus 2013, I guess first what categories you expect to drive growth in 2014 and will it be a continuation of what you've seen in 2013? Then secondly if we look at the implied full year 2014 fee income number, just comparing that to the 4Q annualized level. How should we think about kind of growth versus the 4Q, annualized level in fee income…

Yes. As far as the guidance for 2014, a couple of areas that we think will be strong contributors to us in the 2014 results for fee income growth. One is, investment banking and debt placement fee. We are expecting that to outpace the rest of the fee income categories. The second would be in cards and payments-related income. We have made some investments there and we really launched our proprietary card here in late third, early fourth quarter and so we are expecting to see lots of benefit from those two areas. If you take a look at the fourth quarter of $453 million, there are some items in there that are more seasonal in nature, including our corporate-owned life insurance income. We tend to have a pick up in the fourth quarter there and some of the other categories will show some normal seasonal trends too. For instance, in the first quarter with the day count being two days smaller or less, but it does create some pressure on some of the fee income categories in the first quarter compared to the full year run rate.

Okay. Great. Then, just as it relates to your net interest income guidance for 2014, of flat year-over-year, I guess, what does this imply for the net interest margin and can you just talk about kind of the trajectory of the NIM as we go through 2014? Then may be your ability to deploy some of the liquidity build you have seen in..

Good question. I would have suggested that we would have seen more utilization of our excess liquidity earlier in the year throughout 2013, and we continue to see it build, but our guidance is on net interest income and not necessarily on the margin because of that. Because, we would expect to see higher levels of liquidity continuing into the first part of 2013, which would imply initially maintaining a margin that's really close to the current level, because those excess liquidity levels would continue. On a normal basis throughout 2014, we would expect to see the lower rate environment still have a one to two-basis point negative impact on a linked quarter basis and that will put pressure on the margin that will be offset by some of the benefit from utilization of that excess liquidity throughout the year.

Okay. Thanks.

We'll go next to Craig Siegenthaler with Credit Suisse.

Thanks. Good morning.

Good morning.

Good morning.

First, I just want to hit on expenses one more time here and I am wondering, Don, may be if you could provide some additional detail behind what specifically drove the operating loss and also the IT trend in the fourth quarter results?

Yes. As far as the operating loss, it was an individual issue that would be non-recurring. It was less than $4 million, so it wasn't a large dollar amount. It did result in a negative variance and we did recognize that later in the quarter. As far as the IT costs, but we had a lot less capitalized IT and more expensed IT in the current quarter based on the nature of some of the projects and that worked out to be about a $4 million negative variance there as well and so those are the two primary areas associated with that variance.

Okay. Then just on our commercial real estate. You had really nice momentum here in the fourth quarter on both, the loan generation and also the fee income side. Can you update us in terms of what you have seen over the last few months and also how the joint venture with Berkadia has played into it and also what are you seeing on the construction front and also the permanent financing segment, because it seems like some banks have talked about competition easing little bit on that back part?

Craig, this is Chris. What we are seeing from a competitive landscape is, really not a big change. Compete really in all the segments between on balance sheet, CMBS, Fannie and Freddie, FHA with the institutional market which is primarily insurance companies, so we don't see a huge change in the competitive landscape. What we do see, and I think I alluded to it earlier is, we see some markets where there has been a lot of buildings, specifically in multi-family, specifically in certain markets. Having said that, there are plenty of opportunities outside of those markets and even in those markets we see opportunities with our really great customers and people that we require them to put in more equity, so we feel good about the real estate market but probably the bright spot has been multifamily. As you look at the cap rates, it manifest itself in that. Multi-family cap rates right now are somewhere between 5.5 and 7.5 and they didn't really change after the tenure went up 110 basis points. As it relates to our third-party commercial loan servicing business, we continue to have a lot of momentum in that business. The CMBS market this year was about an $80 billion market, up from around $60 billion, but what's really interesting for that business is we are now at a point where a lot of the CMBS that we service are maturing and so that gives us an opportunity to garner more servicing. It also gives us a unique opportunity to look into those and see what pieces and parts we might want to finance. Then the last piece, and that actually impacted us positively in the fourth quarter, is the special servicing business that we have really grown and then picked up in two additional pieces. We are named special servicer now on about 50 billion, up from kind of mid-teens just a couple of years ago and that's a countercyclical business. You are basically the workout agent and by definition you are not a lender into that deal. That's an area that really hasn't kicked in yet, but when the market gets softer, as it inevitably will, there will be an opportunity for us.

Just one follow-up, as those loans mature within the servicing portfolio, when do you think your servicing portfolio will actually start to drive stronger commercial real estate loan growth? Will it be in 2014 or is it more a 2015 and later event?

As you look at the refinancing cliff, I would say that there will be some in '14, but it should accelerate in '15.

All right. Great, guys. Thanks for taking my questions.

Thank you.

(Operator Instructions) We'll go next to Mike Mayo at CLSA.

Hi. Can you reassure more on efficiency? I guess there's three parts to my question. I guess it's been about five or six questions on efficiency. Your stock is down 4% in the opening minutes and with all the questions on expenses and efficiency, I'm guessing it has to do with that, but first the 2014 guidance for a positive operating leverage, but having the efficiency charges included in the base for 2013, I think that's probably the biggest concern. On Slide 10, you showed the efficiency ratio without those charges. Then when you guide forward, you include those back in, so just any more comfort on 2014? I guess you said flat-to-down, but I'm not sure what else you can do but it would be helpful. The second part of that would be the efficiency target. At the annual meeting Beth, you said 60% to 65% is not an ending point and the target range of 60% to 65% is still worse than where the company was 20 years ago and I guess the third point what this is leading to is just more details. Don, I appreciate you saying a lot more to improve efficiency, but we don't have any numbers, so anything else you give us. I guess, are you going to start reporting the $241 million annualized savings? Do you have a new number? Branch closings? FTE, which business areas because 65% is still a really lousy efficiency ratio. Beth you've made tremendous progress over the past couple of years not to take anything away from that, but just as stocks go up they can go back down if that progress is stalled as it looks like it stalled in the fourth quarter. Thanks.

All right, Mike, there were many parts to that question. If I could, I will address the target and then I do think we have some very specific questions on certain slides and certain numbers that I am going to ask Don to fill in, and I would reiterate that 60% to 65% is not the end of where we see the path for Key as we've become a more efficient company and as we looked at 2014, we are reaffirming 60% to 65% as the range for 2014. That's driven by a couple of factors. I alluded to one of them earlier, which is the continued low interest rate environment, the pressure everyone is seeing on their net interest income as a result. Strong balance sheet growth isn't necessarily translating into top line revenue growth in this particular environment, so I think our goal this year and what you should watch and what was accountable to is our ability to move within the range both, by every single day our ability as we talk about positive operating leverage is to grow our businesses, to grow our revenue, to become more efficient, continue our journey of reducing our cost base, but at the same time as you've heard us talk about some of the investments we have made are bearing fruit, specifically in the commercial mortgage servicing business, in our cards and our payments, so we are going to continue to invest, because we believe it is benefitting our business mix, the vitality of our company and fits within our profile from a risk point of view, so 60% to 65% is not an end but it is the right rage for 2014, and as I said earlier our goal is to move within that range during the year. Then I think you had some more detailed questions that I am going to turn over to Don.

Sure, Mike, and as far as the expense guidance that we always want to baseline that with our reported numbers and so the $2.820 billion is our total expenses for 2013. The low-single-digit kind of decline year-over-year is translating to something that would be flattish with the core expense levels in 2013. Absent the $117 million, the one-time charges, keep in mind that our guidance for 2014 does include roughly $30 million or so of one-time cost estimates for 2014 and also it does include investments that we are making in a number of our strategic areas, so we believe that the guidance is appropriate. We do believe that it does reflect ongoing expense initiatives and we are very focused on driving positive operating leverage and we think that this guidance does accomplish that and we think it's been consistent with our overall operating plan outlook.

Just as one follow-up, Don, if you could just give some insight with your limited time in the position some areas where you see additional efficiency benefits and I keep harping on this issue as someone who has covered the company 20 years, I know its new management and everything else, but 65% efficiency versus a peer group average closer to 60%, yes there should be a lot of room to improve efficiency. Just in which areas? Point us in some direction, which business lines? Anything else that we can sink our teeth into? Thanks.

Well, as far as areas, what we need to continue to improve is our overall productivity across all of our segments and each of our businesses are keenly focused on that, we needed to enhance that over time. Just a more specific area is, if you look at our occupancy cost compared to revenue and size the organization, it is outsized and we have taken a number of initiatives and steps to address that. We have talked about the reduction in the commitment to space here in our corporate center and we are going to free up about 200,000 square feet and have a net savings of $4 million to $5 million a year coming from that and much of that doesn't kick off until '15 as these leases expire, but we have got similar efforts throughout our franchise that have addressed other regional headquarter space and trying to gain additional efficiency improvements there as well, so we are making a lot of progress, we do have a number of areas to continue to focus on and we are addressing it just like we have with some of the branch consolidation efforts as well. There are long list of initiatives and areas of focus and more of that will be driven prospectively by some of the change in the culture and focus on continuous improvements throughout the company.

One area, Mike, that we have invested in and that I have talked about recently at one of our conferences is Lean Six Sigma. I think, our end-to-end processes in this company are right opportunities to improve not only the efficiency of the process, but the ultimate end client experience and we have a list of those that we have prioritized as a team where we are really going to look at some of our underlying processes, because I think there will be opportunities and targets would be put around that that we are expecting from that group. That is something that many other companies may have already done, but that's the journey where I think this is the year where we are really well organized to do that work. There continue to be opportunities within vendors and sourcing as well, so as you look at the underlying infrastructure, what cost deliver at Key, there are still continuing opportunities.

Thank you.

We will go next to Bob Ramsey at FBR Capital Markets.

Thank you. My question has already been asked.

All right. Thanks, Bob.

We'll move next to Steve Scinicariello at UBS.

Good morning, everyone.

Morning.

Just wanted to focus on the other driver of the efficiency ratio, the revenue side of the equation, I know you mentioned a couple of drivers on the fee income side whether it's the mortgage servicing, the cards and also on the investment banking side, but just kind of curious where you might see kind of the greatest revenue opportunities as you look out to 2014 and just kind of give us a little color on some of the key drivers there?

Sure, Steve. It's Chris Gorman here. Our biggest key driver is to continue to be able to take our unique business model that connects with these middle market customers and convert them into customers, so if you look last year, we literally brought on hundreds of new customers, we enhanced hundreds more. We have this broad product offering. As you look at our ability to bring new people on to our platform, we had a lot of success in doing that, so really as we think about revenue, we don't necessarily think about any particular product; loans, deposits, fees, we have been fortunate enough to grow all those. What we really focused on is in a very targeted way growing the clients that we have. Empirically, last year we brought on 648 new clients, we also brought on some new senior bankers. We've talked about the fact we are going to continue to go out and hire people and leverage the platform, so that is what we see is our biggest driver of revenue in the past year and frankly going forward as we looked to '14.

This is Bill Koehler. In the Community Bank, in particular, as it relates to the consumer, I think most people would say the consumer is getting steadily stronger and we have seen that materialize in our home equity book and we have also seen some growth in our credit card portfolio from the levels when we originally bought it. We think there's more opportunity there. As the consumer gets stronger, you can envision more investment. Revenue you can certainly envision more net interest income from improving our consumer loan book, so there are plenty of opportunities there as we go forward too.

Perfect, so that's the other part of the equation. When you are talking about increasing productivity, it sounds like you have a lot of targeted opportunities both, on the middle market side and on the consumer side as well then?

This is Bill again. I would say two things. It's not just productivity, but we see an opportunity to leverage our model to take share in both, the Corporate Bank and the Community Bank. We intend to hire some bankers in very targeted ways where we see opportunity to enhance our presence in either industry groups or any specific geography.

Steve, I would just underscore, because Don mentioned it that it is indeed a focus of our management team that productivity is an opportunity as well and it's something concerning metrics and we will be reviewing regularly with our team to capture opportunities for more productive sales force, as well as adding to our sales force with high quality people who can help generate business.

Perfect. Thank you so much.

Thank you.

(Operator Instructions) We'll go next to Alan Strauss at Schroders.

Yes. Could you maybe give us a little insight into the one-time or the repositioning charges that you expect in 2014? At the same time what the incremental cost saves you expect? I guess, we would see in 2015 from those charges?

As far as the estimated one-time cost that's for programs similar to what we have implemented this year, and I would say generally it's about a year-and-a-half to maybe a two-year payback on some of the costs that generally has a fairly quick turnaround.

Could you refresh me what was it this past year, the one-times that you put through?

The one-time…

Well, not really one-time, but for the year the repositioning costs?

The total costs associated with the expense initiative were in the $90 million range for the current year. On top of that, we had roughly $27 million on the pension settlement, so total of $117 million and we are expecting to have about $30 million of one-time costs in 2014.

Then in 2015, the run rate should go down by at least maybe another $90 million, with these cost saves?

I would suggest that the $30 million has a one-and-a-half year type of payback period that would imply somewhere around $20 million type of annual expense reduction for those initiatives.

Okay. Thanks.

Thank you.

We will move next to Gerard Cassidy at RBC.

Thank you. Good morning. Don, can you come back to the capital questions that you heard today? I think you pointed out that the stress test maybe the driver of what kind of capital you and your peers will have to keep on your balance sheet. Everyone recognizes as you did that your Tier 1 common ratio under Basel III is very, very high. If I recall correctly the stress test is calling that all the banks have to exceed a Tier 1 common ratio of 5%., so if 5% is the bogie in the stress test, what does that equate into a regular Basel III Tier 1 common ratio based on your balance sheet today?

I think that what you would see typically is the stress of about 300 basis points in most banks compared to what the capital levels would be on a starting basis versus what goes through the stress test, so I think that gives you one benchmark for that.

Thank you.

We'll move next to Jennifer Demba at SunTrust.

Thank you. I think that all the questions have been asked, but I'll call it on the multi-family caution, just curious which markets you are relatively more cautious on right now Chris?

Jennifer, we're constantly screening these markets. I think some of the markets that we really, have our eye on are markets like Washington D.C. like Raleigh, like Denver, like Seattle. Those are some of the markets we are watching cautiously.

Okay. Thank you very much.

We'll go next to Nancy Bush at NAB Research.

Good morning. Beth, if I could ask you is there some part of this sort of chronically high efficiency ratio that's structural? I mean, is there something about the configuration of the company that leads to this and part of that being markets where you don't have as much scale as you'd like to have and how do you address this over the long-term?

Yes, Nancy. I'd be glad to talk about that, because I do think it is a question that does come up from time-to-time, and I would tell you it is, my belief, and I think it's something we have evaluated pretty thoroughly. It is not a structural cost related to our footprint, particularly in era of image enabled technology, digital. There is no particular cost burden to our geographic footprint that I think is burdensome to the company I think as we look at it, I think it is a matter of a couple of things. When you look at kind of our expense ratios and then our revenue for FTE a piece of it is embedded in the productivity and the revenue side of this company, so you've heard us I think continued and purposely talk about this as positive operating leverage as an efficiency ratio initiative. I think we should get more productivity out of our franchise. I think we have benefited from our geographic dispersion with our particular business model, because it plays into our vertical; it plays into our ability to be a strong middle-market lender, a private banking presence. We were talking many times what we are in a market is so much more than just whatever our branch density is, so I do think it is a journey for Key that does every single day have us thinking about what can we do to enhance revenue, add to our capabilities, add to our sales professionals, add to our productivity, and constantly reduce our expenses, and I think the broader structural opportunity is the one I mentioned, which is in some of our processes that we've really never gone on an end-to-end look. And I think that is a bigger opportunity for us this year and something I'm really going to focus on.

If I might just ask as an add on to that? I mean what part will acquisitions play and your thought process?

I would tell you that for a lot of reasons the acquisition market has not been simply robust for the last couple of years. As you have seen more has happened and we have participated in one of those in terms of acquisition of branches as opposed to whole franchises. We did the Western New York transaction from HSBC in 2012, and I will tell you, that has gone very well for us. I think I think as we look at it, and look at where we would invest opportunistically, I think we would always look at something that could complement a market where we already have presence and by building density or brining in the right customer base that that would be additive. I think we are looking at how can we use investments in technology, mobile and digital to augment our franchise. I view that as something where we have a unique opportunity, I think, to leverage that against our footprint, because I think that's going to broaden our ability to create a consumer and client experience. Then frankly, we have shown where we will look at specialty businesses that are very much on point and within strategies that yet add to our business platform or our product platform, so that's how I'm thinking as. Acquisitions, I look at them more broadly in terms of what can they do for our business models to grow revenue and increase our capability.

Thank you.

We'll move next to Terry McEvoy of Oppenheimer.

Thanks. Don, you said the first quarter expenses would come down meaningfully. Should we look at $680 million as a good starting point for the first quarter and how should we think about the $39 million of one-time expenses in '14? Will that be relatively spread out or are there any quarters that you see those costs being a little bit elevated?

As far as the first quarter, I think our baseline for the fourth quarter is a good start point to make adjustments from. Keep in mind that there are certain seasonal type of expense trends that do occur in the first quarter, so you will see some variance in a few line items like employer taxes and marketing tends to be a little lower for us, so you will see some positives and negatives there. As far as the $30 million of expected onetime cost, right now, we are not showing any significant volatility throughout the year, but that can change based on the timing of different announcements and plans.

Thank you.

We'll go next to Marty Mosby at Guggenheim.

Hi. I wanted to follow-up or kind of talk about net interest margin and asset sensitivity. Just curious about how asset sensitive you think you are when rates eventually do climb and you have been kind of letting swaps roll off, so how much would you like to increase that, let's say, over the next year, year-and-a-half before short-term rates begin to increase?

Marty, this is Don. Right now our estimated asset sensitivity is around a 3% position for a 200 rate environment. We have accomplished that from as you've suggested, the runoff of some of the swaps that have been matured, that did have a negative impact in the current quarter about 2 basis points to our margins as far as linked quarter change in our swap benefit. We would probably continue to manage in a relative similar range to where we are now. I wouldn't want to suggest that we would see a lot of variability in that over the next year. We have about $1 billion of swaps that mature throughout 2014, which will allow us the opportunity to adjust that position over time.

At this point, no further plans on the 2 basis points loss this quarter deterioration because of the swaps rolling off and not getting the benefit?

No plans to make any adjustments there. Again, I think just beyond the swaps that the nature of our balance sheet allows us benefit from rates we think pretty quickly. If you look our investment portfolio, it tend to be a shorter duration. It was 3.6 as of the end of the fourth quarter and that would allow us to benefit from increasing rates fairly quickly.

We'll take our next question from Andrew Marquardt at Evercore.

I just wanted to drill down a little bit onto fees. Then just to be clear, I guess first off on the guidance. Just to be clear, it's off of a reported number. It sounds like across the board. Is that correct?

That's correct.

Then for this quarter, it looks like other had and hedging benefit in it from certain sale gains in the Real Estate Capital group, and also appreciate the breaking out rather the mortgage servicing fees this quarter. How should we think about those two line items on kind of a go-forward basis? Thanks.

As far as the other, you are right that we did have about $4 billion linked-quarter improvement coming from some of the gains as you referenced and the mortgage servicing fee income did benefit this quarter a little bit from some specialty servicing fees, and those may be a little more episodic as far as their occurrence and so you might see a little fluctuation there, but those types of changes were considered as part of our overall guidance for the growth year-over-year.

When I look at, I guess, the Corporate Bank business line segment, it looked like the other- other kind of gains were maybe greater than that, or are there other things in there? Maybe I'm getting too lost into each year in terms of $15 million gain this quarter, fees this quarter versus last quarter versus last quarter $8 million drag and the year ago $6 million drag?

In the fourth quarter of '12, we really benefited from a very strong commercial real estate market, both in the volume and also rates on some of the sales that we had, so that's some of the drag that you referenced compared to the fourth quarter of '12. As far as other unusual items in the Corporate Bank for the fourth quarter, there really weren't other items of any size, and so that $4 million change that we talked about before really was the largest individual change within those categories.

Great. Thank you.

We'll go next to Ken Usdin at Jefferies.

Yes. Hi. This is Tom from Ken's team. I just had a quick question on taxes. The 4Q rate looked a little light, how should we be thinking about that for 2014?

Sure. The fourth quarter rate did reflect the impact of the leverage lease transaction that was referenced as well. What we've provided for our guidance for 2014 will be an effective rate of somewhere between 26% and 28% and that assumes no further leverage lease transactions.

Okay. Great. Thanks.

Thank you.

We have time for one more question. We'll go next to Brian Foran of Autonomous.

Hi. I have a seven-part question.

Hi, Brian.

Just on the fees. Two numbers you mentioned 15%, I think, 15% of total CRE capital raised going off the balance sheet securitization debt and equity placements et cetera, and 648 early subscribers down. New middle market customers who you are attempting to further penetrate and cross-sell, can you just remind us on both of those metrics? How does that compare versus history and any expectation for how that will look going forward?

Brian, its Chris Gorman. As it relates to the question you asked specifically on real estate, so it's actually the inverse of what you described. We raised in the real estate business a total of $44.3 billion in '13. Of that in terms of commitments 6.4 billion or slightly less than 15% went on our balance sheet and the other 85% was placed elsewhere. As you look at those metrics, it would compare to a total of $34.7 billion raised in '12, and as you look at what's on balance sheet in terms of commitments, it would be $6.4 billion, up from $5.5 in '12. As it relates to our new clients, we spend a lot of time really focusing on new clients and expanded relationships and the reason we do that is, we think this platform we built is unique for the middle market, but we think there is an opportunity to leverage it, so the 648 new clients, really, was across the entire Corporate Bank. They generated about $108 million worth of revenue, and what's even more interesting is our expanded relationships, those which were doing significantly more business than we did last year, 428 of those generated another $259 million in revenue. As you can see, it's a pretty dynamic client base as we continue to get more and more focused and really go deep into these six verticals that we are focused on. That answers your question?

That's very helpful. Thank you for the detail.

You are welcome.

That does conclude today's question-and-answer session. At this time, I would like to turn the conference back over to Ms. Mooney for any closing and additional remarks.

All right. Thank you, operator, and we thank all of you 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 216-689-4221. That concludes our remarks. Thank you and have a great day.

Again, that does conclude today's conference. Thank you for your participation.