KeyCorp (NYSE: KEY) Q4 2019 Earnings Call Transcript

KeyCorp  (NYSE: KEY) Q4 2019 Earnings Conference Call

January 23, 2020

Corporate Participants:

Beth Mooney — Chairman & Chief Executive Officer

Don Kimble — Vice-Chairman & Chief Financial Officer

Chris Gorman — President & Chief Operating Officer

Analysts:

Gerard Cassidy — RBC — Analyst

Ken Houston — Jefferies — Analyst

Scott Siefers — Piper Sandler — Analyst

Peter Winter — Wedbush Securities — Analyst

John Pancari — Evercore — Analyst

Erika Najarian — Bank of America, Merrill Lynch — Analyst

Presentation:

Operator

Ladies and gentlemen, good morning and welcome to KeyCorp’s Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to the Chairman and CEO, Beth Mooney. Please go ahead.

Beth Mooney — Chairman & Chief Executive Officer

Thank you, operator. Good morning and welcome to KeyCorp’s fourth quarter 2019 earnings conference call. Joining me for the call are Chris Gorman, President and Chief Operating Officer. Don Kimble, our Chief Financial Officer and Mark Midkiff, our Chief Risk Officer.

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.

I am now moving to Slide 3. I will provide some overview comments on the quarter and full year results and then Don will provide a more detailed look at our results and outlook. And then, Chris will discuss Key’s priorities for 2020 and beyond. As you’ve seen with our headlines this morning. Key had a good quarter which finishes what has been another successful year for our Company as we continue to grow invest for the future and deliver on our commitments.

For the fourth quarter, we reported GAAP earnings per share of $0.45 and our EPS results for the quarter were $0.48 excluding $0.03 from notable items related to a previously disclosed fraud loss and a pension settlement charge. To provide a consistent view of our financial trends and prior period comparisons, my remarks, this morning, will focus on results that exclude notable items in all periods. Importantly, we delivered positive operating leverage for both the quarter and the year, and this was our seventh consecutive year of positive operating leverage, which places us among a select group of peers.

We continue to see strong balance sheet growth this quarter with both loans and deposits up over 4% relative to the year-ago period. Our relationship-based business model continues to position us well with our targeted clients, which results in more clients and expanded relationships.

Total revenue was up, linked quarter, but down slightly for the year, reflecting the impact of lower interest rates. Don will discuss our revenue outlook in his remarks, but we believe, we are well positioned for the rate environment and have opportunities to grow both our spread income and fee revenue.

Expense management has been a real bright spot this year. Full year expenses are down 3% from the prior year, as we completed our $200 million cost reduction program and drove further savings through our continuous improvement efforts. This helped improve our cash efficiency ratio by 140 basis points year-over-year.

And although we have been focused on reducing expenses, we have continued to invest a portion of our cost savings back in the business to drive future growth. And let me touch briefly on two of those investments, Laurel Road and our residential mortgage business. We acquired Laurel Road in April of last year and our loan originations during the year totaled $1.8 billion, well above our original expectations. And these are high-quality loans largely focused on medical professional that provide us an opportunity to build broader digital relationships with these clients over time.

Our residential mortgage business is another area where we’re seeing strong return on our investments. Originations for 2019 were $4.3 billion, up over 120% from 2018 with $1.5 billion being originated this last quarter. We are seeing record activity and pipelines are poised for continued growth into 2020.

Now turning to credit quality. Our trends remain solid this quarter with net charge-off of 31 basis points for the year, excluding the fraud loss, which remains below our long-term over-the-cycle range. Our nonperforming loans declined slightly from the prior quarter and our other credit metrics, including criticized and classified loans remained relatively stable. We believe that our steadfast commitment to maintaining our moderate-risk profile and strong credit underwriting will continue to serve us well. And we have continued to maintain a strong capital position while returning a significant amount of our capital to our shareholders through dividends and share repurchases.

During the quarter, we repurchased $240 million of common shares and declared a $18.50 quarterly dividend, up 9% from last year.

And before I turn the call over to Don, let me just say again that this was a good quarter for Key and clearly demonstrates the strength and resiliency of our business model. Across the Company, we continue to add and expand relationships, which drove growth in loans, deposits and fees.

Our business model and interest rate hedging also position us well as we move through different business cycles and rate environment. And expense management remains a priority, as we continue to identify opportunities to improve efficiency.

And finally, our CEO transition continues to proceed smoothly, with Chris assuming the CEO role, May 1. I’m confident in Chris and the leadership team who are fully engaged and committed to deliver on our long-term targets, maintain our moderate-risk profile and ultimately deliver value for our shareholders and our results and our bright future would not be possible without our talented and diverse team across our Company. I want to thank all of them and share with you how proud I am of the entire team.

With that, I will close and turn the call over to Don.

Don Kimble — Vice-Chairman & Chief Financial Officer

Thanks, Beth. I’m now on Slide 5. This morning, we reported fourth quarter net income from continuing operations of $0.45 per common share. Adjusting for notable items, including a pension settlement charge and additional costs related to a previously disclosed fraud loss in July of 2019, earnings per share was $0.08. Our adjusted results compared to $0.48 per share in both the year-ago period and the prior quarter.This quarter, we recognized an additional charge of $16 million in our provision related to the previously disclosed fraud incident. Importantly, we do not expect material losses from this incident in future periods. I would also point out that no collections have been applied against our loss. But we do expect recoveries to be realized later this year.I’ll cover many of the remaining items on this slide in the rest of my presentation.

So, now turning to Slide 6. Total average loans of $93.6 billion, up 5% from the fourth quarter of last year, driven by growth in both commercial and consumer loans. Consumer loans benefited from strong growth from Laurel Road, our residential mortgage business and indirect auto.

Laurel Road originated over $800 million of student loan consolidation loans this quarter and we generated $1.5 billion of residential mortgage loans. The investments we have made in these areas are clearly driving results and importantly adding high quality loans to our portfolio. Linked-quarter average loan balances were up 2% and were primarily driven by momentum in our consumer business.

C&I loans in the fourth quarter were relatively flat reflecting the timing of various bridge loan repayments, which are consistent with our business model. Importantly, we have remained disciplined with our credit underwriting and we have walked away from business that does not meet our moderate-risk profile. We remain committed to performing well through the business cycle and we manage our credit quality with this longer-term perspective.

Continuing on the Slide 7. Average deposits totaled $113 billion for the fourth quarter, up $5 billion or 4% compared to the year-ago period and up 2% from the prior quarter. Growth from the prior year and prior quarter was driven by both consumer and commercial clients as well as additional short-term deposits in our current quarter.

Total interest bearing deposit costs came down 13 basis points from the prior quarter, reflecting the impact of lower interest rates and the associated lag in pricing. We would expect deposit costs to continue to decline further throughout 2020. We continue to have a strong, stable core deposit base with consumer deposits accounting for 65% of our deposit mix.

Turning to Slide 8. Taxable equivalent net interest income was $987 million for the fourth quarter of 2019 compared to just over $1 billion in the fourth quarter $2018 and $980 million in the prior quarter. Our net interest margin was 2.98% for the fourth quarter of 2019 compared with 3.6% in the fourth quarter 2018% and 3% for the third quarter.

The decrease in net interest income from the fourth quarter of 2018 reflects lower interest rates and higher interest bearing deposit costs as well as a decline in purchase accounting accretion. These declines were partially offset by higher earning asset balances.

Compared to the third quarter, net interest income increased $7 million or 1% driven by an increase in average earning assets and a relatively stable net interest margin. Our net interest margin this quarter reflects both lower earning asset yields and the benefit from lower deposit costs, with our interest bearing deposit costs down 13 basis points from the prior quarter.

In the appendix of our slide deck, you can find additional information on our asset liability positioning. We’ve continued to actively hedge to reduce our exposure to declining rates, executing approximately $3.5 billion in interest rate swaps and floors in the fourth quarter. Since the third quarter of 2018, we had entered into total swaps and floors of $21 billion. Today, our net interest income impact for 100 basis point parallel decrease from the current levels is approximately 1%.

Moving on to Slide 9. Key’s noninterest income was $651 million for the fourth quarter 2019, compared to $645 million for the year-ago quarter and $650 million in the third quarter. The increase from the year-ago period reflects higher operating lease income, consumer mortgage fees and corporate services income. Other income, this quarter, reflected a $22 million reduction related to the market related credit valuation adjustments tied to customer derivatives. This reduction was partially offset by various gains.

Compared to the prior quarter, non-interest income was relatively stable. A seasonal increase in corporate-owned life insurance and a solid finish to the year in investment banking business was largely offset by the decline in other income. Our investment banking revenues came in slightly below our expectation, as certain transactions were delayed into the first quarter of 2020, setting up a strong pipeline going into this year.

I’ll now turn to Slide 10. Expense management continues to be a very positive story, as we’ve delivered on our expense and efficiency commitments. Fourth quarter reported noninterest expense was $980 million, which included $22 million of notable items and $18 million pension settlement charge reported in other expense and $4 million of professional fees related to the previously reported fraud loss.

The year-ago period, also, included notable items totaling $41 million related to a pension settlement charge and efficiency related costs. No notable items were reported in the third quarter. Adjusting for notable items, compared with the year ago period, noninterest expense declined $13 million, reflecting the successful implementation of Key’s expense initiatives across the franchise, partially offset by the addition of Laurel Road in April 2019.

Compared to the prior quarter, adjusting for notable items, noninterest expense increased $19 million. Business services and professional fees were seasonally higher this quarter and we had an increase in incentive compensation, in part, attributed to the quarterly increase in our stock-based compensation by $8 million. These increases were partially offset by lower intangible amortization.

Moving on to Slide 11. Our credit quality remains strong and we continue to be consistent and disciplined in our underwriting. As I said earlier, our provision and net charge-offs, this quarter, included $16 million from a previously disclosed fraud loss. The charge was a result of payroll related payments for employees of clients of the fraudulent company. Again, we do not expect any further material losses related to this previously disclosed fraud event to be recognized in future periods and we do expect recoveries to be realized. Later this year.

Excluding the fraud loss, net charge-offs were $83 million or 35 basis points of average total loans in the fourth quarter, which continues to be below our over-the-cycle range of 40 basis points to 60 basis points. On a similar basis, again excluding the fraud loss, the provision for credit losses was $93 million for the quarter, which exceeded net charge-offs, reflecting continued loan growth. Nonperforming loans were $577 million this quarter, down $8 million from the prior quarter. Nonperforming loans represent 61 basis points of period-end loans compared to 63 basis points last quarter. Criticized loans also declined this quarter.

Overall, credit quality remains strong. Our new loan originations in both our commercial and consumer books continue to be up high quality and [Phonetic] relationship businesses.

Turning to Slide 12. Capital ratios remain relatively stable this quarter with the common equity Tier 1 ratio of 9.43% at the end of the fourth quarter. As Beth mentioned earlier, we remain committed to our capital priorities including returning a significant amount to our shareholders. In the fourth quarter, we declared a common dividend of $18.50 per share. We also continued to repurchase common shares with $241 million repurchased in this quarter.

On Slide 13, we’ve provided our outlook for the full year 2020. This builds on our performance in 2019 and reflects our expectation for another year of positive operating leverage and continued momentum across the Company. Guidance range definitions are provided at the bottom of slide.

Average loans should be up in the mid-single digit range driven by growth in both commercial and consumer balances. We’ll continue to benefit from our distinctive commercial platform in the recent investments we’ve made in our consumer businesses, including Laurel Road and our consumer mortgage business.

Average deposits should be up in the low-single digit range. Net interest income should be up in the low-single digits. This assumes a solid balance sheet growth, lower deposit rates and continued benefit from our asset liability positioning. Non-interest income should be up mid-single digits, reflecting growth in most of our core fee-based businesses.

We would expect to hold noninterest expense relatively stable in 2020, excluding notable items, reflecting our culture of continuous improvement in our focus on efficiency while allowing us to continue to make investments for future growth.

Using the midpoints of our revenue and expense guidance ranges for 2020, this would result in our eighth consecutive year of positive operating leverage, placing us in a select group of our peers. For our cash efficiency ratio, it would show continued progress that would place us just slightly above our targeted range of 54% to 56% for the year.

Proficiency outlook reflects the meaningful decline we have seen in both short-term rate as well as the long end of the curve. What has not changed is our focus on expenses. And as I said, we expect to hold expenses relatively stable, which includes additional cost savings that will allow us to invest back in our business.

Moving to credit quality. We see nothing on the horizon that changes our outlook. Net charge-offs to average loans should remain relatively stable with the second half of 2019 and below our through the cycle targeted range of 40 basis points to 60 basis points. And we expect our loan loss provision will exceed net charge-offs with reflecting continued loan growth. The adoption of CECL will impact — will result in an increase to our provision for loan growth. Our assumption is the economy is relatively stable throughout the year, not requiring any further adjustments to the ending allowance.

Our guidance for our GAAP tax rate would be in the range of 17% to 18%. One more item not included in our guidance is our share count. From 2018 to 2019, our average shares declined by 50 million shares. The decline would be slightly less for 2020, given the higher share price and the impact of our 2019 capital plan.

Our guidance also assumes some variability over the course of the year. First quarter will reflect normal seasonality, including a lower day count and an increase in personnel expense driven by heightened employee benefit costs. And finally, we will remain confident in our ability to achieve our long-term targets listed at the bottom of slide, which we believe will translate into greater shareholder value.

Before I turn the call back over to the operator, Chris will provide some comments on our results this morning in our outlook and priorities. Chris?

Chris Gorman — President & Chief Operating Officer

Thank you, Don. I would agree with Beth and Don that this was a good quarter and a very successful 2019 for Key. This is especially notable given the challenging rate environment. Our performance, clearly demonstrated the strength and resiliency of our strategy and our business model.

Importantly, we continued to make investments to drive long-term growth, sometimes at the expense of near-term earnings and efficiency. A great example is Laurel Road, not only has this acquisition exceeded our initial expectations, but we believe we have only begun to realize the potential of Laurel Road in building long-term digital relationships. It’s a great example of strengthening our franchise by building scale in a very targeted way.

As we look forward, our priorities will guide our decision-making in 2020 and beyond. First, we will continue to invest in order to build targeted scale in our distinctive and proven business model. Technology and digitizing are business that will remain high on our list of priorities.

Secondly, we will continue on our journey to improve productivity and efficiency, which will drive positive operating leverage. Third, there is nothing more important than maintaining our moderate-risk profile. This is an area where we underperformed through the last downturn and we are committed to outperform through the next business cycle.

And finally, we will be disciplined with our capital. As you’ve probably heard me say, we are focused on the return on and the return of capital.

I will close by saying that I’m very excited about Key’s future. As Beth mentioned, our leadership transition continues to go very smoothly. We have a great leadership team and we are well positioned to achieve our long-term targets. We believe our valuation does not yet reflect the strength of our Company and the progress that we have made. A am committed to delivering on our commitments and building value for our shareholders.

With that, let me turn the call over to the operator for instructions for the Q&A portion of the call. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] And we’ll go to Gerard Cassidy with RBC. Please go ahead.

Gerard Cassidy — RBC — Analyst

Good morning, everyone. How are you?

Chris Gorman — President & Chief Operating Officer

Good morning.

Beth Mooney — Chairman & Chief Executive Officer

Good morning.

Gerard Cassidy — RBC — Analyst

Beth, can you share us and maybe Chris as well, what are you hearing from your business customers. We’ve heard some of your peers talk about a change of sentiment amongst commercial customers in the fourth quarter. And I was wondering if you guys or any of that in your fourth quarter numbers?

Beth Mooney — Chairman & Chief Executive Officer

Yes. I will briefly address that and then I’ll turn it over to Chris to further augment. But I do think, as we go back and look at the summer when there were so much anxiety for [Indecipherable] in the economy and sentiment was impacted by what we’re going to be various trends around trade, interest rates, global growth. We saw a strengthening of sentiment in the fourth quarter as a number of these things both got clarified, specifically relative around trade and then just the impact of the cumulative months of the economy continuing to perform well.

So, sentiment has strengthened as we went through the end of the year and obviously consumer sentiment are with the strength of the employment and labor markets end of the year strong as well. Chris?

Chris Gorman — President & Chief Operating Officer

Yes, Beth, the only thing I would add to that the consumer is very strong and we see that in our mortgage business, we see that in our Laurel Road business as we look at FICO scores 760, 770, very solid on the consumer side. On the commercial side, Gerard, to your point and best point, we did see what I think is a pivot to more constructive kind of mindset and discussions in the last 45 days to 60 days.

The challenges still remain in that area. We’re not seeing a lot of capital investment, yet. I would anticipate that we would at some point and also the biggest challenge is continuing to be able to go out and hire people. Those are kind of the two challenges. But, I do agree with the premise of your question that it’s gotten better as we got through Brexit and also the — some trade discussions.

Gerard Cassidy — RBC — Analyst

Very well. And then, Don, you touched a couple of times in your prepared remarks about the losses associated with the fraud. Two-part question. One is, in the post-op now it’s about six months from that discovery, what have you guys learned from that issue. And then second, you talked about recoveries. I don’t know if you can give us a guide on how much you think you might recover.

Don Kimble — Vice-Chairman & Chief Financial Officer

Yes. That — couple of things. What we have learned — and maybe to provide a little bit of additional clarity of what happened as far as losses this quarter that we have made the decision as we entered into this discovery that we were going to honor payments that are going to employees or employee benefits related to employees of customers of the frontline company. And so we wanted to make sure we had good money for good people.

And so, we had some outsized payments occur after that July 9 time period that got reflected in this additional $16 million charge this quarter and so we think it’s the right decision for us as a company, but did translate to that. We do not expect to see any further material charges going forward from this and continue to work with the bankruptcy courts, the restructuring agent that’s on site and also the forensic accountants as well.

And as far as the recoveries going forward, we’re still subjected to the legal process. So, we are not in a position yet to start to realize some of the benefits for those recoveries. But, as I highlighted briefly that we do believe that the loss we recognize this quarter is temporary and the future recovery should more than offset that they probably don’t expect much until the second half of this year as far as the flow from that.

Gerard Cassidy — RBC — Analyst

Very good. Thank you.

Don Kimble — Vice-Chairman & Chief Financial Officer

Thank you.

Operator

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

Ken Houston — Jefferies — Analyst

Hi, thanks. Good morning. Hi, Don, you mentioned in your comments you had a bit of the excess liquidity, and you mentioned you’re lingering exposure rate changes. I’m just wondering, as you’re growing the consumer book and fixed rate product at it, how do you expect that liquidity to get ploughed back into earning assets and do you expect to grow the securities book anymore. Is that our reasonable size? Thanks.

Don Kimble — Vice-Chairman & Chief Financial Officer

I would say that we would expect as we highlighted to see mid-single digit kind of loan growth and it’s going to have a bigger contribution from consumer loan growth and so we’re very excited about that. We’ve also highlighted that we expect to see deposits up low-single digits. And so, you’ll start to see a remixing of the overall balance sheet.

Long term, we target our loan deposit ratio to be in the 90% to 95% range and we’re well south of that today. So we’ve got a lot of room to move that liquidity position down and remix into more loans. And so, that’s why we feel comfortable with our guidance as far as relatively stable margin and could have some potential upside of that liquidity level that gets absorbed quicker than what our forecast would suggest.

Ken Houston — Jefferies — Analyst

Okay. And then one question on the efficiency ratio. You mentioned that you expect to be a little bit above the top end of the 54%, 56%. If rates stay flat from here, what would need to happen to get back inside that range and to — on an annual basis.

Don Kimble — Vice-Chairman & Chief Financial Officer

And what we talked about was that with our midpoint of our guidance ranges that we’ve established, it does show positive operating leverage. And with our positive operating leverage, I can say that very well, with our positive operating leverage, it will help drive that efficiency ratio down. And so that’s part of our guidance. And so we do think that we’ll make progress toward that in 2020 and that’s what’s needed to continue to achieve that from here that.

If you would just look at the rate environment that was in place in October of 2018 when we initially set this goal and also when we reaffirmed in January of last year, we’re seeing a bigger impact as far as rates on our net interest income and if we would have had that rate environment in place throughout the year, we would have been inside that range here in the fourth quarter and also our outlook for 2020 would be inside that range. So that’s really the sole contributor that.

We are achieving our expense targets and we are making progress as far as growing the overall core business, but realizing the near-term impact of the lower rate environment.

Ken Houston — Jefferies — Analyst

Got it. Thank you, Don.

Don Kimble — Vice-Chairman & Chief Financial Officer

Thank you.

Operator

Next, we’ll go to Scott Siefers with Piper Sandler. Please go ahead.

Scott Siefers — Piper Sandler — Analyst

Good morning, guys. Thanks for taking the question. Just a quick question, you mentioned earlier in a sense reason most of, or I guess the preponderance of growth will continue to come from the consumer side. Just as you guys look at things at what point would we anticipate seeing heavier lift on the provision just due to the complexion of growth?

Don Kimble — Vice-Chairman & Chief Financial Officer

That. Well, this year will be an interesting year for all banks because of CECL. And I would say that the provision for loan growth should be higher on a relative basis compared to what wasn’t the incurred loss method because the reserves were quite higher.

That being said, the categories that we’re expecting to continue to grow are very high FICO scores. So whether it’s residential mortgage or the Laurel Road loans or even our indirect auto, even the CECL reserves are not that significant. And so, we think that there will be some pressure there, but not as much as you might initially assumed.

Chris Gorman — President & Chief Operating Officer

Got it. Chris. The only thing I would add to that is our starting point. Obviously we’ve been working really hard to be a more balanced bank between commercial and consumer and our starting point is such that we think those are asset classes we can really grow.

Scott Siefers — Piper Sandler — Analyst

Yes. Okay. Perfect. Thank you. And then maybe Chris, if you could just give kind of an updated thought on the outlook for the investment banking business. I know Don had mentioned that a couple deals might have gotten pushed into the first quarter from the fourth quarter. So presumably, the pipeline is very strong, but just your overall thoughts on how 2020 might play out?

Chris Gorman — President & Chief Operating Officer

Yes. We feel good about where that businesses is. As Don mentioned in his comments, we did have some slippage from things into the fourth quarter into the first quarter, but obviously the trade-off for that as we go into the first quarter with strong pipelines. We feel good about the business, Scott.

Scott Siefers — Piper Sandler — Analyst

Okay. Perfect. Thank you guys very much.

Don Kimble — Vice-Chairman & Chief Financial Officer

Thank you.

Operator

Our next question is from Peter Winter with Wedbush Securities. Please go ahead.

Peter Winter — Wedbush Securities — Analyst

Hi. Good morning.

Don Kimble — Vice-Chairman & Chief Financial Officer

Good morning

Beth Mooney — Chairman & Chief Executive Officer

Good morning.

Peter Winter — Wedbush Securities — Analyst

I wanted to ask about the fee income. It was flat in 2019 and what some of the drivers are to get to the mid-single digit growth rate for 2020?

Don Kimble — Vice-Chairman & Chief Financial Officer

Yes. Sure. A couple of things there. One, in 2019, as you recall in the first quarter of 2019, we had a government shutdown, which really impacted on a negative way. The investment banking debt placement fees, we only had $110 million in that quarter. Up until that in the first quarter tends to run around $130 million or so in IB&D revenues and so that was a direct impact.

Also linked-year that in 2018, we sold-off our insurance business, which also had about a $20 million drag as far as the year-over-year fee income growth and so that also had a negative impact from that perspective. Going forward, we think that the fee income will see some strong growth from investment banking debt placement fees, not only because of the pipeline, but because we have an outlook that doesn’t include a government shutdown and so we think first quarter should be off to a good start on a relative basis.

We also expect to see continued growth in residential mortgage fees. We’ve seen some very good growth this year. We had $4.3 billion in originations and that’s more than double of what it was a year ago. And so we expect to see continued trajectory there as far as growing that business.

In the third category, which had some noise in it in 2019 as well was our cards and payments related revenues that. We launched a new cashback card, which had some negative impacts as far as the first year start-up of that product along with the wind down of a previous joint venture we had there. And so, our expectation for 2020, which show growth in that category, is opposed to a relatively stable level there as well. So, we’re excited about the momentum in our fee-based businesses and that’s why we show an outlook that has mid-single digit kind of growth for the year.

Peter Winter — Wedbush Securities — Analyst

Thanks. Very helpful. And then, Chris, if I can ask about Laurel Road. Obviously, the origination activity is much better than even you guys were expecting. Can you talk about some of the opportunities that you have to deepen those relationships on the digital side and when we would start to see some type of impact?

Chris Gorman — President & Chief Operating Officer

Sure. So, there’s kind of three phases to it. One is to make sure we’re doing a really good job in the student loan refinance business. And obviously that’s hitting on all cylinders. So that’s working.

The next phase is the notion of having — mortgages. And so we are in the pilot process and we’ll be rolling out throughout 2020. The opportunity for people complete online experience to go out and get a mortgage. The nice thing about that, Peter, is we’re also going to — we’re going to actually transport that across Key. So that will have a benefit for the rest of our Company.

And then lastly, we’re in the very early stages of this. But we believe, as I mentioned in my remarks that we have the opportunity to realize holistic digital relationships with these more than 1 million health care professionals that are out there isn’t available market.

Peter Winter — Wedbush Securities — Analyst

Right. If I could just squeeze in one more housekeeping. How much was the pay downs on the commercial side from the bridge loans this quarter?

Don Kimble — Vice-Chairman & Chief Financial Officer

Total pay downs for bridge loans were approximately $1 billion this quarter. So, they were outsized compared to the normal levels. But as we highlighted, that’s part of our core ongoing business and so we will expect some timing differences throughout the various periods [Indecipherable] those events occurring.

Peter Winter — Wedbush Securities — Analyst

Okay. Thanks for taking my questions.

Operator

[Operator Instructions]. And next we’ll go to line of John Pancari with Evercore. Please go ahead.

John Pancari — Evercore — Analyst

Good morning.

Don Kimble — Vice-Chairman & Chief Financial Officer

Good morning.

Beth Mooney — Chairman & Chief Executive Officer

Good morning.

John Pancari — Evercore — Analyst

On the efficiency ratio expectation and the 54% to 56%. I understand that you expect to be just above it for 2020. Can you talk about the attainability of that range in terms of timing, if we don’t get rates. I know you answered to Ken that you had originally expected a better rate environment to what we’ve seen. So, if we assume that we don’t get any change on the rate front, what is the timing around that range? What’s the reality about when do you really see that is achievable?

Don Kimble — Vice-Chairman & Chief Financial Officer

John are you talking about for the full year or by quarters or because we don’t provide quarterly guidance. I would say that we would expect to see ongoing improvement this year compared to 2019 and further improvement in 2020 that. If you use the midpoint of the guidance range, we still have a 56% handle to that efficiency ratio number. And so I think we’re making sizable progress toward that and we continue to focus on that generation of the positive operating leverage to drive [Indecipherable] level. So I think we’re good there.

John Pancari — Evercore — Analyst

Okay. All right. Thanks. And then separately, on the CECL front, could you just talk about how your CECL may have impacted your appetite to grow on the consumer side. Is there any difference in how you’re going to be treating some of the exposure that you put on the books in terms of longer-dated consumer loans? Thanks.

Don Kimble — Vice-Chairman & Chief Financial Officer

Yes. Sure. That we continue to look at that, I would say that the good thing about the consumer loan products that we’re focused on, we’re focused on very high FICO scores and so very low default factors associated with those customers and through any type of economic scenario. And so, we do believe that it still is appropriate risk profile for us. It really hasn’t impacted our origination strategy that it does have a little bit higher upfront costs when you book the loan compared to the incurred loss method but economically, we still feel that it’s the right move and excited about the returns and the growth that we’re seeing from those areas.

John Pancari — Evercore — Analyst

Okay. Thanks. If I could just ask one more on the margin side. I know you had indicated that you do expect some incremental declines in deposit costs. So for the margin outlook of relatively stable versus the fourth quarter level, so does that imply that you expect some decline on the loan yield side or is it a mixed factor that can help keep the — or that will not — or do you see some form of earning asset decline there in yields?

Don Kimble — Vice-Chairman & Chief Financial Officer

Yes. We could see some slight resetting of the loan yields at some of the fixed-rate loans, the current go-to rates are slightly below what the portfolio is. So, we should see some migration there in the investment portfolio that overall rate came down by about 2 basis points this quarter and that will see some continued slight pressure there that our current purchase yield is slightly below where the overall portfolio is. And so, that will put some pressure.

But with all that consider, we do expect to see the margin relatively stable and deposit costs should come down to help offset that other pressure.

John Pancari — Evercore — Analyst

Got it. All right. Thanks, Don.

Don Kimble — Vice-Chairman & Chief Financial Officer

Thank you.

Operator

Our next question is from Erika Najarian with Bank of America Merrill Lynch. Please go ahead.

Erika Najarian — Bank of America, Merrill Lynch — Analyst

Hi. Good morning.

Don Kimble — Vice-Chairman & Chief Financial Officer

Good morning.

Beth Mooney — Chairman & Chief Executive Officer

Good morning.

Erika Najarian — Bank of America, Merrill Lynch — Analyst

And wanted to follow up on Ken’s question. The market is feeling good about some sort of revenue stability and growth going forward. But if the revenue outlook disappoints, particularly if it falls outside of your range, is there room to take expenses down in order to generate positive operating leverage or does the stable expense outlook have pretty firm plans in place for 2020?

Don Kimble — Vice-Chairman & Chief Financial Officer

Well, a couple of things. We’ve always talked about if the growth prospects from an organic business perspective aren’t there, we can’t pull that lever to pull back on the investments to pull or reduce the expenses over time. And so, part of the challenges is that we don’t have that same flexibility if some of those are rate related like we experienced in 2019. But we do have levers there. And then the second thing is that those revenues that we’re forecasting growth rates too, many of them have some variable expense component to it. And so if the revenues aren’t delivered, we won’t see the increase in incentive compensation that we’re forecasting in other areas like that.

Chris, any other thoughts there?

Chris Gorman — President & Chief Operating Officer

Well, the only thing I would add to that, Erika, is we have a lot of plans that involve investment, and so as we look at this plan to the extent that the revenues don’t show up as we would anticipate, we have the opportunity to either defer investment or reevaluate investment.

So, we are committed to providing positive operating leverage and we’ll pull the levers that we need to.

Erika Najarian — Bank of America, Merrill Lynch — Analyst

Great. And just as a follow-up question to John’s line of questioning earlier, how much more room do you think there is to lower deposit costs from here?

Don Kimble — Vice-Chairman & Chief Financial Officer

Yes. I would say, near-term either in the stable rate environment for the next few quarters we could see a 4 basis point to 6 basis point kind of linked quarter decline in deposit rates. And some of that is related to what we talked about last quarter that we have some promotional rate money market deposits that will reset after either a six-month window or 12-month window and that’s about $7 billion and as those reset, that will help provide some benefit as far as driving those deposit costs down.

Erika Najarian — Bank of America, Merrill Lynch — Analyst

Got it. Thank you.

Don Kimble — Vice-Chairman & Chief Financial Officer

Thank you.

Operator

And with no further questions, Miss. Mooney, I’ll turn it back to you, if you have any closing comments.

Beth Mooney — Chairman & Chief Executive Officer

Again, we thank you for participating in our call today and if you have any follow-up questions, you can direct them to our Investor Relations team at 216-689-4221.

That concludes our remarks. And thank you again.

Operator

[Operator Closing Remarks]