Good morning, ladies and gentlemen. And welcome to the KeyCorp’s First Quarter 2015 Earnings Conference Call. This call is being recorded. At this time, I’d like to turn the conference over to Beth Mooney, Chairman and CEO. Please go ahead.

Thank you, Operator. Good morning. And welcome to KeyCorp’s first quarter 2015 earnings conference call. Joining me for today’s presentation is Don Kimble, our Chief Financial Officer, and available for the Q&A portion of the call is Chris Gorman, President of our Corporate Bank; E.J. Burke and Dennis Devine, Co-Presidents of our Community Bank; and Bill Hartmann, our Chief Risk Officer. Slide two is our statement on forward-looking disclosure and non-GAAP financial measures. It covers our presentation materials and comments, as well as the question-and-answer segment of our call. I’m now turning to slide three. I’ll provide some overview comments on the first quarter and then I’ll turn it over to Don to give you more detail on our financial results. The first quarter was a solid start to the year. We produced bottomline results consistent with our expectations by managing expenses and growing revenue in many of our businesses, which helped offset the impacts of higher provision expense and lower revenue in investment banking and debt placement fees. Revenue was up from the prior year and expenses were well managed resulting in modest positive operating leverage for the quarter. We had solid loan growth with average balances up 5% from the prior year and as in prior quarters continued to be driven by an increase commercial, financial and agricultural loans which were up 12%. Most fee income categories were in line with our expectations and reflected growth from investments we have been making in areas such as trust investment services and cards and payments. And as I indicated, investment banking and debt placement fees were lower this quarter. The decline was due to lower revenue from loan syndications and financial advisory fees. Although, investment banking and debt placement fees can vary on a quarterly basis, we expect this business…

Thanks Beth. I’m on slide five. This morning we reported net income from continuing operations of $0.26 per common share for the first quarter compared to $0.26 for the year ago quarter and $0.28 for the fourth quarter. I will cover many of these items on this slide throughout my presentation. So I’ll now turn to slide six. Average total loan growth continued in the first quarter with balances up $3 billion or 5% compared to year ago quarter and up $971 million from the fourth quarter. Our year-over-year growth was once again driven primarily by commercial, financial and agricultural loans and it was broad based across Key’s business lending segments. Average commercial, financial, and agricultural loans were up $3 billion or 12% compared to the prior year and were up $1 billion or 4% on annualized compared to the fourth quarter. Continuing on the slide seven, on the liability side of the balance sheet average deposits were up $3 billion one year ago and down $284 million from the fourth quarter. Deposit growth of 5% from the prior year was driven by growth in non-interest bearing deposits and strength from our commercial mortgage servicing business. Compared to the prior quarter, balances decreased slightly primarily due to expected declines in our CD balances. And the cost of our total deposits remained low at 15 basis points compared to the 20 basis points one year ago reflecting our more favorable deposit mix. Turning to slide eight, taxable equivalent net interest income was $577 million for the first quarter compared to $569 million in the first quarter of 2014 and $588 million in the fourth quarter of this year. Net interest income was up $8 million from a year ago with a benefit from higher loan balances offset by lower earning asset…

Thank you. [Operator Instructions] And our first question is from the line of Steven Alexopoulos with J.P. Morgan. Please go ahead.

Hey. Good morning, everyone.

Good morning.

Good morning.

Maybe I will start. Looking at the pullback of the investment banking and debt placement fees, the drop was far more dramatic than what I was looking for. Even expected loan syndication and debt placement fees performed. Could you quantify how much of that decline actually came from those two items? Maybe talk about how the rest of the business performed in the quarter and then comment on the pipeline and where you expect this to rebound to?

Sure, Steve. It’s Chris Gorman. Good morning. So as we look at this business and we’ve always felt this way. If we really need to look at it on a trailing 12-month basis and as Beth mentioned in her opening comments, we still anticipate that we will grow our investment banking and debt placement fees in 2015, as we have in each of the last five years. Now the two areas that you point out where we had challenges were specifically isolated on our financial advisory and our syndications business and those to some extent are related. We do a lot of buy side work and as you know in the M&A business in general, there is a lot of variability and we ran into some issues seasonality’s part of it, timing as it relates to specific deals is part of it. And the other thing is in this kind of an environment. In some instances, our clients were not able to win the deals that we were advising them on just based on the climate. So those were a few of the things that impacted those specific areas. Now the areas that -- the other areas from a product perspective were impacted are things like our balance sheet. We are obviously able to grow our balance sheet well and we also saw strength in certain sector in our industrial and reclass. As it relates to the backlog, the backlog is strong. It’s up about 130% of what it was last year. One of the things that gives us a lot of comfort is you look at held for sale and as you look at what we have in terms of held for sale, that’s elevated two times what it was at year end and I’m looking at 331 ending numbers and maybe four times what it was a year ago. So if you look at all those things and I’m not with our clients a lot, the activity is -- there is not for lack of activity, a lot of activity, lot of good discussions. So in general that’s why we feel pretty good as we look forward.

So, Chris, if you look at that trailing average that you cite, you are anyway a net $80 million to $100 million range per quarter. Is that where you expect to -- at least it will move back to here in near term?

So, we don’t look on it. We don’t look at it on a per quarter basis. But as you think about if we are going to grow at year-over-year and last year, we did -- I don’t know 392 or so. Obviously that means on an average, we are going to have to have some pretty significant quarters in the last three quarters of the year.

Yes. Steven, this is Don. And you’re right that that would imply an average of about a $110 million a quarter for the rest of this year. So there would be a meaningful step-up from where we were in the first quarter.

Okay. And Don on, the margin guidance was unchanged, which is really full year guidance. But until we get higher short-term rates, should we think about NIM pressure somewhere to what we saw this quarter?

We would think generally they would be fairly stable with where it is. But I’ll tell you that this past quarter some of the impact was the issuance of the debt, which cost us about a basis point. We did have some loan fee that came through in the fourth quarter that wouldn’t be recurring in nature. And also, we’ve been expecting that our loan growth would exceed our deposit growth. And as strong as our loan growth has been, our deposits year-over-year were also up 5%. And so that efficiency of the balance sheet didn’t materialize as much as we would have expected in the first quarter this year compared to year ago. So that what helps keep that margin stable over for the remainder of the year is having a little bit more efficient balance sheet.

And just one final one on the EMP portfolio, are you seeing any surprises thus far in the spring with redetermination of borrowing basis? Thanks.

This is Bill Hartmann, Steve. We’ve seen exactly what we expected to see in that portfolio. No surprises.

Okay. Thanks, guys.

Thank you.

Our next question is from Ken Usdin with Jefferies. Please go ahead.

Hi. Good morning, everyone. Don, I was wondering if you can just provide a little more context in terms of the loan growth. There was really good more so at period end. And also, I saw that you moved a bunch over to held-for-sale. Can you talk about like the progression of growth throughout the quarter? And then also then just that color on the -- what’s moving to held-for-sale and when do you expect to get rid of that?

No, you’re right. As far as the loan growth, we had a strong finish to the fourth quarter, which set up the first quarter well, but we also saw period end loan growth from fourth quarter to first quarters. We’re very pleased with that. Now as far as the loans held for sale, those are designated at a time of origination to be placed into that category. And so it really reflects the timing of when transactions are closed. And that’s what also gives us confident as Chris mentioned earlier as far as the outlook for fee income going forward.

Okay. And my follow-up is, Don, underneath the surface, you’ve had the good expense control again underneath the line. And I’m wondering the $7 million of the continuous improvement and I think you’re still on track to do around the same amount that you had indicated before the 30. Are we kind of had a good level for expenses? Can you still expect that stable? Any drift as this investment bank revenue potentially comes up and we will see that naturally shift back up. It seems have been again a seasonally lower number given the pullback in the investment bank as well. So I just want to understand that trajectory.

You’re right. That first quarter has some seasonal impacts as far as the negative, the benefit costs and highest in the first quarter compared to the rest of the year. But that we also tend to have lower marketing expenses. And in this quarter as you highlighted our incentive expense was lower because of the lower investment banking and debt placement fees. And so as those revenues pick up that we will see an increase to the incentive line item as well, but that still would help us meet our positive operating leverage target for the full year with having that type of growth.

Okay. Great. Thanks, Don.

Our next question is from Scott Siefers with Sandler O'Neill. Please go ahead.

Good morning, guys. Just had a quick question on sort of the health of particularly the Midwest manufacturing base because as you have a couple cross-currents, on one hand energy is obviously kind of a tailwind for their cost, but by same token the strong dollar seemingly would be more of a headwind. I wonder if you can just sort of talk about what your customers are thinking and saying about health of their overall businesses?

Sure. Scott, it’s Chris. So as you can imagine, it sort of depends by vertical. I would say that our manufacturers -- obviously the dollar has made it more challenging for our industrial clients, so that’s one area. Areas that are particularly benefited in the current operating environment are specialty chemical business where natural gas is a feedstock. We’re doing a lot of business right now in specialty chemical. Conversely, obviously, our oil and gas business, which we talked about earlier, the pullback in terms of CapEx in most of the shale plays is 30% to 40% and I think you’ll see that triple through in the secondary and tertiary effect. And then lastly, one thing that really impacts the Midwest in the significant way is the automotive business and our analyst is looking for sales at retail this year to be $16.9 million units up from $16.4 million. And there is also a positive mix shift lot of SUV’s and pickup trucks which are higher margin. And then one thing that hasn’t been discussed a lot is the Class 8 Truck market which is also strong. So that’s kind of a walk through kind of what’s going on in the Midwest economy.

Okay. That’s perfect. And I think most of my others were already answered. So appreciate it.

Sure. Thank Scott.

Thanks Scott.

And we’ll go to Erika Najarian with Bank of America Merrill Lynch. Please go ahead.

Good morning.

Good morning.

Just a quick one for me as well, I am sorry Don, if I missed this in the prepared remarks? But could you give us an update on where you are on the LCR and also if your guidance for stable NIM if the fed doesn’t move this year contemplate any further LCR related balance sheet actions?

As far as LCR for the fourth quarter we are operating on a regular basis at high 80s, so we are in good shape as far as being able to achieve that 90% target for the first quarter of next year. We’ve also continued to migrate our investment portfolio to more Ginnie Mae that we are in at about 44% of the total portfolio and as we have cash flows from the existing portfolio we’ll continue to reinvest those in Ginnie Mae. And so we do not expect any significant impact on our margin going forward from any further actions and believe that that the guidance doesn’t contemplate us achieving that 90% plus coverage ratio by next year.

Thanks. Most of my questions have been answered.

Thank you.

And we’ll go to Kevin St. Pierre with Bernstein. Please go ahead.

Good morning. Thanks for taking my question. You had very solid growth in commercial loans, but the 6 basis point decline in the yield let to sort of flattish interest revenue from the commercial portfolio? Could you comment on how much of that is driven by the competitive environment? Don you mentioned some fees which may have not come through, can you talk about the decline in the yield?

The decline in the yield, we had about $2 million of higher fees that came through in the fourth quarter that didn’t reoccur in the first quarter and weren’t present for the first quarter of last year. And so if you take a look at the total loan yields over the last year it would have been an average rate of compression less than that 6 basis points that you saw a reference. So we don’t think it’ll continue at that same type of pace, but that there still is pressure on loan yields that we are seeing new originations still coming in about 25 basis points lower than where we were a year ago and not seeing that pressure come down much at all.

Okay. And maybe just a bigger NIM question or a broader question. We have seen about eight plus quarters of a steady lead down in the NIM and now you are guiding that, if rates don’t move up will still be sort of flattish? What from a big picture perspective has changed, why -- that we wouldn’t expect that continue to 3 to 5 basis points lead downward over the next few quarters?

Yeah. There are two components that would be driving that. One is that our yield on our investment portfolio is now down to 2.1%, so the further reduction there should not have as much of an impact as what it has had historically. And the second is that we still believe that our loan growth will exceed deposit growth and that will allow us to have a little bit more efficient balance sheet. And so, even though we would expect pressure to remain on loan yields, we think the mix of the balance sheet should offset that allowing us to maintain a more stable margin. Take a look at our overall cash position. It was about $2.5 billion again this past quarter, which is above where we would typically target of around a $1 billion. And so that’s continued to put pressure on the margin from that perspective as well.

Great. Thanks very much, Don.

Our next question is from Ken Zerbe with Morgan Stanley. Please go ahead.

Great. Thanks. Just in terms of your expense guidance have stabled, is -- how much is in incremental efficiency charges is in that number this year?

We’ve talked about our range consistent with where we are operating for the first quarter, which is in the $30 million plus or minus range and so we had $7 million of charges in Q1 and we’d expect that to be about that same range for the full year.

Got you. And does that drop-off in 2016 or is that just more of a stable ongoing number that we should expect?

We are going to be continued to focus on continues improvement throughout the organization. And so I don’t know its going to continue at $30 million, but we will have some level continue going forward, just because we believe that this ongoing opportunity is to right size our branch distribution of 2% to 3% a year, and we will also have other effort to look at end-to-end processing type of opportunities to get more efficiencies to help fund some of the investments going forward. So, we really look at this as more of a core component of our cost base for now.

Understood. Okay. And second question is just in terms of loan growth, obviously very strong C&I growth with some of the other categories other than construction, probably not as strong. I know your focus has been on C&I, but do you guys have any commentary on more of the weakness in some of the other categories? Thanks.

As far as the weakness, one thing it does impact to have, we still have about $2 billion of exit portfolios that are mainly in other categories, a lot in the consumer book and also some in the commercial leasing book. So as that continues to run down at about $150 million to $200 million a quarter that will put pressure on those portfolios. Then you look beyond that, we don’t have the typical consumer book of business that really is primarily focused on our home equity and our first mortgage position and doesn’t include an indirect auto portfolio where others are seeing much stronger growth than what we would experienced during the last year or so. So, I would say that it’s more demand focused as far as the weaker growth then also reflective of that exit portfolio I mentioned.

All right. Great. Thank you.

Next, we will go to John Pancari with Evercore ISI. Please go ahead.

Good morning.

Good morning.

Good morning.

How much of the $6 million linked quarter decline in comp expense was tied to the lower investment banking incentive accruals?

We do provide a little bit more of a breakout on that on page 20 of the earnings press release. You can see that our incentives were down from $105 million in the fourth quarter to $70 million in the first quarter this year that this comparable amount in the first quarter of 2014 would have been $72 million. So it’s a decline in both the year-over-year and also linked quarter information.

Okay. So should that be the extent of the snapback that we could see in the comp expense line, assuming we see the investment banking activity rebound?

The $35 million change is probably outside what you would see from taking the investment banking backup from the fourth quarter -- from the first quarter of this year to fourth quarter of last year. But we should see some increase in incentives when those revenues do come through at a stronger pace.

Okay. All right. And then also related to expenses, your long-term below 60% target for the efficiency ratio, can you just help us understand how much by way of higher rates is in that assumption for the fed funds target?

If you look at slide 16 of the deck, it does have to walk forward of that efficiency ratio and you can see based on that there is probably a range of that impact. We’ve talked about we would expect our efficiency ratio to be in the low 60s without the benefit of rates and in the high 50s with the benefit of rate. So we haven’t gotten more specific than that.

Okay. All right. Good. Thanks. And then lastly on the energy portfolio. Sorry, if you already said this. But did you take an energy related loan loss provision this quarter, or did you reallocate incremental reserves from unallocated to allocated for energy this quarter?

As we talked about last quarter, we did set aside a portion of our judgmental reserve for the oil and gas portfolio and we did see the portfolio moving in line with our expectations and so we did not have any adjustment or increase to our overall allowance this past quarter for that migration.

Okay. And you haven not quantified what your energy specific reserve is as of this time?

We have not, no.

Okay. All right. Thank you.

Thank you.

Our next question is from Matt Burnell with Wells Fargo. Please go ahead.

Yeah. Hi. Good morning. It’s Jason Harbes actually for Matthew.

Good morning.

Hey. Good morning. So nice strength in the trust and investment services line this quarter from I guess Pacific Crest. So just curios as to get your take on how sustainable you think that is this year and just to get a sense for your appetite to do additional acquisitions along those lines?

Jason, it is Chris. As it relates to Pacific Crest, we feel really good about where the business is positioned. We think we will continue to be able to generate revenues in trust and investment services. Just this Monday, we actually combined the two broker/dealers. So now Pacific Crest is a fully integrated vertical, technology vertical within our corporate and investment bank. As it relates to other acquisitions, there are clearly businesses out there that are very niche, very focused and that we think could fit into the platform that we built. So just as we a couple of years ago grew by adding things in our third party commercial loan servicing business and last year grew by acquiring Pacific Crest. There are other opportunities out there, but in the ordinary course we always are looking.

Okay. Thanks. And just as a follow-up or maybe switching over to credit. The credit costs came in a little higher and it looks like the NPAs in the commercial side picked up as well. I mean, was that a function of anything in particular or perhaps energy, or just want to get your take on kind of what’s driving the credit cost higher and to get maybe your outlook for credit cost going forward?

Jason, this is Bill Hartmann. If we look back over the last several quarters, what we have seen is a very strong asset quality being pretty consistent from quarter-to-quarter. So we think that we’ve actually kind of normalized at this level. And we have also indicated that because it’s -- the statistics are so low at this point any one or two smaller items could actually move the numbers around a little bit. And so we will expect to see some modest variation from quarter-to-quarter.

Okay. Thanks, guys.

Thank you.

Thank you.

Our next question is from Sameer Gokhale with Janney Montgomery Scott. Please go ahead.

Hi, thank you. Good morning.

Good morning.

Good morning.

I have few questions. Firstly, I was just curious if you could talk a little bit about C&I loan growth. You’ve been asked a few questions about that. But one other things I have been puzzling over is what is -- has been keeping C&I growth so high for so long. And it would be helpful to get your perspective on what you think is continuing to drive that, simply because at one point it was inventory builds than we heard about companies that were spending on infrastructure, especially technology infrastructure, but you continue to see C&I loan growth juggling along and pretty attractive rates and your results show the same thing. So at this point when you look at the drivers of C&I loan growth, what would you attribute those to?

Sameer, it’s Chris. It’s obviously situational company by company. But as we kind of step back and look at it, it is not an increase in utilization. Our utilization rates have been flat for the last four quarters. In certain instances, we do see people investing in property, plant, and equipment demands hiring a lot of people. We do see some transactional activity, which obviously helps growth. And in our instance, we believe we have been able with our unique model to take some share. We’ve added 142 clients in the first quarter and we think that’s a factor as well.

Okay. It’s just interesting within the context of the Fed data showing 10% growth in C&I loans for everybody across the industry so and it seems like everybody is doing similar things in generating growth, which led me to think maybe to some more underlying fundamentals driving that, but your perspective is helpful. The other thing I was curious about is, if you could just talk again or just remind us about your go-to-market strategy in your investment banking business. And the reason I asked that is because for quite some time now we have been hearing about the large cap banks and how from an investment banking standpoint, it used to be the case where they could more easily use their balance sheets to help their capital markets businesses, doing investment banking and then promising loans and packaging those deals and they have had a very difficult time from what we are hearing and doing that for quite sometime now. So I was wondering from where you said and as you managed that business, do you go to market using your balance sheet more readily perhaps to help support your investment banking business, or is that something that’s going to affect you as well, so your perspective there would also be helpful?

So our approach is a very focused relationship approach and we are very targeted and that we focused on certain sectors and specifically middle market companies within those sectors. As it would happen, as our businesses continue to evolve often we start a relationship with an advisory or transformative kind of transaction. But we do think there is huge value and we see it resonate with our clients to have an integrated corporate and investment bank where we can use our balance sheet or we can -- as principal or we can act as agent helping our clients access the markets and grow their business.

Okay. And then just a couple of other quick ones, GE Capital that’s selling a bunch of different businesses and assets, have you express an interest in acquiring any of those businesses or portfolios?

Sameer, this is Beth. As you would expect, we don’t typically comment on any specific transactions that might or might not in the market. And as a historical precedent, we haven’t bought portfolios for say just to supplement our balance sheet. But where we would see perhaps client opportunity fit with our business model and risk profile, I think as you’ve seen some of the puts and takes that we have done over the last couple of years, we have reviewed those types of opportunities in the past. GE, I would say has been a strong competitor in the market. We see them in many of our businesses. And we think these kinds of situation often create opportunities for our teams as markets get disrupted.

Okay. Thanks, Beth. And then just my last one was on the tax rate would seem to be a little below where you’ve been trending over the last few quarters, anything unusual going on there this quarter?

We did have a few credits come through this quarter that we talked about for the future quarters that we see an effective tax rate in the 26% to 28% range for those future quarter. So there was a slight benefit this quarter.

Okay, okay. Thank you.

Thank you.

And next go to Gerard Cassidy with RBC. Please go ahead.

Thank you. Good morning, everyone.

Good morning.

Don, can you share with us on your buyback? Are you permitted if you want to do more of it in the first or second quarters of the period which starts of course, second quarter of this year for the CCAR fiscal year? Can you do -- does that spread out evenly overall four or five quarters or can you frontloaded if you wanted to?

Great question. And as we submit our capital plans, the instructions are that we need to keep our capital actions consistent with our overall plan, which doesn’t necessarily allow for our frontend loading of those share buybacks. The other thing we do have is that when we issue shares for employee benefit-related plans and that we’re able to buy those back and those tend to happen in the first quarter of each calendar year. And that’s why you saw a higher level of share buybacks here in the first quarter of this year compared to what you’ve seen in the previous three quarters.

Thank you. And on your slide 9 -- 15 where you guys give us the progress on targets for success, some of them have obviously been met and you exceed some of them. What kind of interest rate environment, would you envision to have your net interest margin get to that target of 3.5% from where you are today at 2.91%?

We do have to see a much more normal rate environment which would be up to about 300 basis points from where it is today before we could start to get to that three-fifth margin. So it’s something that would be very difficult if not impossible for our balance sheet to achieve until we’ve start to see that rate environment change.

Sure. And coming back to your comments on about the efficiency of the balance sheet and seeing that deposit growth? Are there any plans, I know your CDs have been coming down, the higher cost deposits? Are there any other plans you could put in place to reduce some of the higher cost deposits quicker to make that balance sheet more efficient?

One area that we’ve been focused on as it is making sure that where we have collateralize deposits that we encourage those to be full relationships for us to support that kind of deposit to be on our balance sheet. And so we’ve seen some of those balances leave and we would expect to see a several more leave between now and the end of year. But as we look at our deposit mix we have been very aggressive as far as managing rates and making sure that we are focused on supporting more of the relationship in total. And so we are trying to make sure that we match up our higher rates with our best overall customers.

And then just finally, I want to make sure I heard you correctly you guys talked about that the loan growth at the end of the fourth quarter accelerated for the fourth quarter result? Did you see that gain at the end of March, there was an acceleration of loan growth as well?

We did -- that [period] [ph] balances are up at the end of the first quarter compared to the average. And so we had a nice close to the end of the quarter, which positioned as well in the second quarter as well.

Great. Thank you for your time. Thank you.

Thank you.

Thank you.

And we will go to Jeffrey Elliott with Autonomous. Please go ahead.

Hello, there. I wondered if you could discuss in a bit more detail what you can do to deliver on the long-term cash efficiency ratio target if rates don’t go up so going down into the low 60’s excluding rate rises, because I guess, if I look at 1Q ‘15 you were at 65.1% and 1Q ‘14 you were at 65.1%? It kind of feels like without rates, that’s being going side ways or I guess you’ve got some plans that you think should enable you to get it down?

As far as the year-over-year stability that we had some non-recurring type of revenues in the first quarter of last year, including the gain on the sale of the leverage lease transaction, which helped benefit the first quarter of last year. As you look at our long-term plans it’s focused on driving positive operating leverage. And so that starts with growing revenues and even with our full year guidance for 2015 we talk about showing year-over-year growth and net interest income even if rates are flat. And we experience that during the first quarter if you look at the year-over-year change in our net interest income its up $8 million despite the fact that rates are flat with the first quarter of last year. Other revenue initiatives would include the benefit of some of the investments we have been making. We’ve been adding to our frontline distribution capabilities for both the Corporate Bank and the Community Bank, and those aren’t all fully mature yet and so we will see additional benefits from those investments. We’ve been making investments in payments space and if you look at our cards and payments revenue it’s up 10% year-over-year, if that reflects the investments we’ve been making there and so our guidance for the full year of this year is mid single-digit growth in fee income. And so we believe that we can generate revenue growth and keep our expenses relatively flat. And the initiatives we are focused on on driving that expense level to be flat would include continued focused on reducing occupancy cost both through non-branch space where we’ve talked about reducing that by 15% between now and 2016. Earlier we mentioned that our branches are expect to go down by 2% to 3% per year as we make that infrastructure more efficient. And we are having on going efforts to take a look at our front and back office functions to see on an end-to-end basis like we make those efficient and that’s just could be part of the culture here and driving that continuous improvement. And so the combination of all those that revenue growth supporting -- supported by keeping the expenses flat from getting cost saves to -- save for the investments we are making give us confidence, so we can drive that efficiency ratio to that low 60% range even without the benefit rates.

And then just to follow-up on some of the earlier questions on credit and we are taking up criticized assets, I appreciate that your credit is pretty good and [want to see more rise which] [ph] can move things around a bit. But on the other hand it looks like it’s the end of a 23 quarter half of those criticized assets declining every quarter? So can you be little more specific on, what the areas well resulting in the uptick and how you think about things from here?

Yeah. This is Bill Hartmann, Jeffrey. So we track the portfolio very closely and we are not seeing any trend that might be suggesting that there has been any change in the environment for credit. Again kind of reiterating what I said earlier, we’re at such a low level across our loan books that one or two names that might occur are going to change the -- are going to change some of those statistics modestly. But we are not seeing that that’s going to have a significant move in our credit losses at all.

And could you say what industries or different kind of flavor of larger clients, smaller clients, geography, I mean anything at all to give us an idea where this is come from?

We really can’t say that because it didn’t in anyone industry or geography. We are not seeing any trend. It’s just -- we are operating with a lot of small numbers and any day you could have something that changes. And it’s just the way normal business environment is.

Right. Thank you very much.

Thank you.

Thank you.

And we’ll go to Jill Shea with Credit Suisse. Please go ahead.

Hi. Good morning. Thank you. You touched on this a little bit on the prior question just about the deposit mix and CDs and time deposits coming down, but could you just speak more generally about total funding cost and what you sort of factor in, in terms of your outlook for holding the NIM relatively stable from here?

Yes. Our outlook would assume that we basically continue to see funding costs remain relatively stable, but that show again a change in the mix overall as far as the balance sheet and see that the loan growth would exceed the deposit growth and allow us to come up with the more efficient balance sheet.

Okay. Great. Thanks.

And we will go to David Eads with UBS. Please go ahead.

Hello. Thanks for taking the call. Just quickly on expenses, we have a nice tick-down in the business services and professional fee line both on a sequential and year-over-year basis. It’s a little bit surprising just given -- we’ve heard about on pressures about regulatory and technology spending front of note. I was wondering if you could touch on kind of where you see the outlook for that expense line item.

Generally we would see -- this has been the new line baseline for us and not seeing significant changes one way or the other from that line item.

Great. And then just if you could touch a little bit more on kind of your energy vertical kind of because you have such a unique perspective there. Are you guys seeing the clients looking to tap capital market early and like how long do you think that is going to last and how much kind of appetite there is from investors? And then I guess what that kind of means for your -- the outlook for either putting more or less in terms of energy on the balance sheet?

David, it’s Chris. We have seen that our clients have been able to go to the markets. And so that one of the things that gives us confidence with respect to the portfolio. In our portfolio, less than 40% of the capital structure is typically senior debt and what we’ve seen is that our clients have been able to go to the high yield market. So it’s -- we feel that there will be a time when there is an opportunity to continue to grow the business, but I think right now we are in the mode of advising our clients as everybody works through what has been a very sudden price change.

Right. Thanks.

Thank you.

And we will go to Nancy Bush with [ANB] [ph]. Please go ahead.

Also note that’s NAB, but that’s okay.

Good morning, NAB

Good morning. Going back to your commentary on commercial line utilization, we heard yesterday from I think both USB and PNC that they were seeing an uptick or it was sounded like a very modest uptick in the utilization of commercial lines. And I guess I am just a bit mystified along with a lot of other people at this point. How we continue to see loan growth optimism about the economy etcetera, etcetera without seeing anything happen in utilization of commercial lines? Can you just tell me what your conversations with your customers tell you about what seems to be a phenomenon?

Nancy, you are right. I mean, as we sit down with clients, rate never having been this low for this long. I think some of the basic behaviors have changed, but you just described exactly what we’re seeing and that our deposits continue to grow. They continue to have cash. They are really not -- our clients are not really tapping their lines. I think to some degree, companies are going to just run with higher levels of cash going forward, but it is the unique phenomenon. E.J., do you have a perspective?

Well, Chris, I would agree with that. Our client’s outlook and leverage -- in the Community Bank our clients prefer to use their own. They are generating a lot of cash in their business. Our cash balances like in the Corporate Bank have been rising. We had a good growth in cash balances in the -- our first quarter or so. Our clients just don’t deal like they want to take on rental leverage right now. Their businesses are good. They generating the cash but they just don’t want to take on a lot of leverage right now.

With rates as low as they are, I guess my question is sort of what are they waiting for? I mean, do you think that if they became to see the prospects or more definite prospects of rates rising that maybe they are within the lines at that point or what the signal are they waiting for?

I think, they are still -- Nancy, I think most of them are generating a fair amount of cash. Most of them have had really improved the operating efficiency of their business.

Right.

And I think what they are waiting for is to really make that step change. And the step change would be to invest in the brand new plan to hire lot of people or to make an acquisition. Other than that they are really just generating enough cash that are -- frankly they don’t need to tap their lines.

And Nancy, I would add in my conversations with clients. I often get asked my view of interest rates. I would summarize it that they often say absent any sense that rates are about to make any compelling move. It doesn’t factor in. So it creates this no particular sense of urgency to think about debt and their capital stack or how they are operating their businesses?

Yeah. But that would deck the question or whether down the roads somewhere, we are going to get a surge in commercial line utilization, as everybody runs for the door at the same time. So hopefully that will happen. But I’m just -- like all other people having trouble putting all the pieces of this puzzle together and saying when things get dramatically better for the banking industry and demand?

Nancy, when you figure that out, let us know because....

Yeah, I will. I will be charging a lot more money then by the way. Thanks.

Thank you.

Thank you.

And we’ll go to Bill Carcache with Nomura. Please go ahead.

Thank you. Good morning.

Good morning.

Don, I wanted to follow up on some of the comments that you made on the non-commercial side after about 11 quarters of year-over-year growth. It looks like this was the first quarter where we saw a decrease in Key Community Bank home equity loans. Is that slow down a function of something happening on the demand side or did you say or is that something that you are doing and thus giving you commercial focus, can you talk about your strategic commitment to home equity and your growth outlook, it’s about 18% of your book? So just let me get a sense as we look forward, does that probably go up or down or kind or stay flat?

Bill, this is Beth. I’ll go ahead and say a commitment as you said with our commercial focus commitment to our equity book. I would tell you well our business model, as we’ve talked about is a heavy commercial focus. We are also very committed to our consumer clients in having a relative balance within our business mix is critical to our business model, our performance and [Technical Difficulty] the company. Our primary lending vehicle in our consumer arena is home equity. It does have seasonal attributes win demand typically surfaces and kind of the fourth -- the first quarter is not a you are aware are a period where we often see seasonal demand but it is a core product. We have grown that. If you look over the last couple of years that has been in an area where we have invested and grown and we considered it a core product of our consumer capability. And I would ask Dennis to add anything about what he sees as particular attribute of how it is trend over the last several quarters.

Thanks Beth. You look across the industry and you’re not seeing the growth in the home equity book. And so give the dominant position that we’ve been got from a consumer leading perspective there. You compare as just as Beth said first quarter the last year, you didn’t see a big pickup in that book either. So this seasonal demand, second quarter and third quarter you will see growth on the midst of a campaign from new volume perspective, from an origination perspective, we’re stronger that we have been at some time. And so it is a core part of our business. It has occurred again and again, a core part of the relationship strategy. This is through the branch and our focused effort of expanding relationship into our existing client base. Thus as you’ve seen a heavy first-lien position there. You see really stable credit quality within that book as well and it’s a core part of our offerings to our clients. So you’ll see stable and just what Don had shared earlier. Consumer loans have been stable since some offset run off in other parts of our exit portfolio as well.

Thank you.

You’re welcome.

Our final question will come from Kevin Barker with Compass Point. Please go ahead.

You’ve been conducting brand consolidation and other efficiency initiatives for last couple of years. And you’ve seen some incremental decline in overall expenses because of these initiatives. But I mean in order to really get the efficiency ratio below 60%, you would need either higher rates or a broader initiative. I mean, given your footprint, why not sell some of the branches and smaller footprints, where you don’t have scale and reinvest the proceeds, either in higher yielding assets or even buyback stock?

This is Don. And I’ll take the first crack at that and one is that we do believe we can get below 60s without those types of structural changes that we believe just by focusing on positive operating leverage consistent for our guidance for this year, we should show revenue growth and be able to keep expenses flat and that will help drive down the overall efficiency ratio. When you take a look at downsizing through sale of certain portions of our franchise, keep in mind what you lose from that is the revenue associated with that book and only the incremental cost associated with supporting that on a direct basis. But we do have an infrastructure here from a technology platform and other perspective that you really can’t reduce proportionately for the sale of those types of branches and geographies. We do take a look at the performance at a branch level and make sure that we are getting increased productivity from those branches in achieving the types of positive operating leverage and efficiency improvement that we would expect and think that we can get there organically without having a go-to other more strategic type of transactions. Beth?

And Kevin, I would add that if you look at our business model in any given market, it’s bigger and broader than just our retail network. It is foundational to what we call broader market presence which would include our business banking clients, our commercial middle market, our private banking clients. So in any given market, we are larger in generating more revenues than just our branch presence. And yet without the branch presence you lose critical mass with the ability to serve those clients. It is an integrated model within the community bank and I don’t think the branch density in any given market is necessarily indicative of what was a broader performance than any market would be.

What level of deposits per branch or loans per branch do you think you need in order to generate positive operating leverage off of that specific branch?

What we’re focused on right now within the retail space, I’ll let Dennis comment more on this, it’s really looking at sale per person per day. And by focusing on that, we could continue to drive up the loan balances and deposit performance at each of the branches. Dennis would add to that.

That’s right. The core focus on the community bank is positive operating leverage. And so every branch you find at a different place in terms of average deposits or average loan today. But you see two things going on. Year-over-year, if you look at any given period, growth in core deposits, you see that in the community bank, you see growth in the balance sheet and it is best described across the community bank and across the different asset categories while the branch count continues to come down. And so the growth you see in the balance sheet, the growth you see in year-over-year fee income, all occurred with 3% fewer FTE in substantially fewer branches that we had a year ago. That plays out in the trust and investment services category in particular that you see within the community bank. That’s a function of Key investment services. We’ve had one of the strongest quarters we’ve ever had as well as within the private bank. And so it’s bringing to life the entire relationship to our clients in those branches is what we are looking to do.

Okay. Thank you for taking my questions.

Thank you.

Thank you.

And Ms. Mooney, I’ll turn it back to you for any closing comments.

Again, we thank 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 at (216) 689-4221. That concludes our remarks. Again thank you and have a good day.