Transcript Driving for Top-Tier Performance

2004 Lehman Brothers
Financial Services
Conference
September 13, 2004
KeyCorp
Henry L. Meyer III
Chairman & Chief Executive Officer
Jeffrey B. Weeden
Senior Executive Vice President &
Chief Financial Officer
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
FORWARD-LOOKING STATEMENT DISCLOSURE
The presentation, including related questions and answers, contain forwardlooking statements about issues like anticipated third quarter and full-year
2004 earnings, anticipated level of net loan charge-offs and nonperforming
assets and anticipated improvement in profitability and competitiveness.
Forward-looking statements by their nature are subject to assumptions, risks
and uncertainties. Actual results could differ materially from those contained
in or implied by such forward-looking statements for a variety of factors
including: changes in interest rates; failure of the economy to continue to
recover, which could materially impact credit quality trends and the ability to
generate loans; failure of the capital markets to function consistent with
customary levels; delay in or inability to execute strategic initiatives designed
to grow revenues and/or manage expenses; consummation of significant
business combinations or divestitures; new legal obligations or restrictions or
unfavorable resolution of litigation; further disruption in the economy or the
general business climate as a result of terrorist activities or military actions;
and changes in accounting, tax or regulatory practices or requirements.
1
Reshaping Key: A Different Company
2
Focused on product
Focused on deepening relationships
Higher credit risk tolerance
Re-established conservative credit culture
Unfocused expense culture
PEG expense culture
Inconsistent financial measures
Economic Profit Added (EPA)
Exit Auto Lease
Est. Runoff Portfolio
2001
Henry Meyer
Elected Chairman
Hired
Hired
Conning
Tom Bunn
Jeff Weeden
Corporate Banking Acquisition
CFO
2002
Completed PEG
$250 mill. savings
Integrated
Investment &
Commercial
Banking
2003
Union Bankshares T.D. Leasing NewBridge
Acquisition
Portfolio
Acquisition
Acquisition
Acquisitions:
Sterling Branches
EverTrust
American Capital
2004
Mgmt Additions:
Tim King
Chuck Hyle
Bob Wagner
Steve Yates
Strategic Priorities
 Profitably grow revenue
 Improve credit quality
 Maintain expense discipline
 Improve shareholder returns
3
4
Net Income by Line of Business
Net Income – 2Q04
• Corporate Banking
• KeyBank Real Estate Capital
• Key Equipment Finance
Investment
Management Services
Corporate &
Investment Bkg.
46%
11%
Consumer
Banking
43%
• Retail Banking
• Small Business
• Consumer Finance
5
Profitably Grow Revenue
• Retail Banking
• Small Business
• Consumer Finance
Consumer Banking
– Tim King appointed President of Retail Banking
– Acquired 22 branches in high-growth markets
– New checking accounts opened up 31%
– Small Business deposit balances up 13%
– Accounts per customer have increased to 3.22
– Licensed 260 RMs to sell investment products
6
Profitably Grow Revenue
• Corporate Banking
• KeyBank R/E Capital
• Key Equipment Finance
Corporate and Investment Banking
– Aligned commercial and investment banking
– Focused on 8 industries – Institutional Bank
– Successful “Lead with Leasing” campaign
– Commercial mortgage servicing portfolio increased
to $28 billion
7
Profitably Grow Revenue
• Victory Capital Mgmt
• McDonald Financial
Group
Investment Management Services
– Increased AUM by $6.0 billion
– Bob Wagner appointed President of Victory
– Completed integration of Private Banking and
Private Client Group – 4.85 products per household
– Building brand awareness – Affluent Consumer
Confidence Index
8
Financial Review
9
Net Interest Income
$ in millions
Investments
Consumer Loans
Commercial Loans
Net Interest Income (TE)
Net Interest Margin (TE)
Average Earning Assets
Net Interest Income (TE)
$75,000
3.85%
$800
$73,934
$73,623
$73,113
$73,381
$73,874
2Q03
3Q03
4Q03
1Q04
2Q04
4.0%
3.73% 3.78% 3.74%
3.57%
$710
$690
$693
$685
$658
$50,000
3.0%
$600
$400
2.0%
$200
1.0%
2Q03
3Q03
4Q03
1Q04
2Q04
$25,000
$0
10
Average Loans
$ in billions
$63.9
$63.5
$62.7
$62.8
$63.0
$63.1
$62.6
$62.8
$63.1
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
1Q04
2Q04
Commercial $37.1
24.0
Consumer
Exit Portfolios
2.0
Auto
0.8
Commercial
$36.5
24.6
$36.4
24.3
$36.5
24.7
$36.5
25.2
$36.4
25.7
$36.1
25.7
$36.3
26.0
$37.3
25.5
1.7
0.7
1.4
0.6
1.1
0.5
0.9
0.4
0.8
0.2
0.6
0.2
0.4
0.1
0.3
* Annualized
-
11
Asset Quality
$ in millions
2Q03
3Q03
4Q03
1Q04
2Q04
Net C/O
to Average Loans
$ 141
.90%
$ 123
.77%
$ 123
.78%
$ 111
$ 104
.71%
.67%
Nonperforming Loans
to EOP Loans
$ 837
1.32%
$ 795
1.27%
$ 694
1.11%
$ 587
$ 454
.94%
. 71%
Nonperforming Assets
to EOP Loans + OREO
$ 897
1.42%
$ 862
1.37%
$ 753
1.20%
$ 670
$ 540
1.07%
.84%
Allowance
to Total Loans
to Nonperforming Loans
$1,405
$1,405
2.22%
2.24%
168%
177%
$1,406
2.24%
203%
$1,306 $1,276
2.09%
1.99%
222%
281%
12
Maintain Expense Discipline
$ in millions
$858
$698
Noninterest Expense
$683 $702
$661 $665
$659 $668
$657
$688 $699 $698
$659
$679
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04
364 345
Personnel
Non-Personnel 334 513
334 335
349 367
363
298
361 358
304 301
354 363
314 294
371
317
380 379
319 319
373
286
371
308
13
Capital
Tang. Equity/Tang. Assets
2Q03
3Q03
4Q03
1Q04
2Q04
6.90%
6.94%
6.94%
6.98%
6.64%
Tier 1 Risk-Based Capital
7.94%
8.23%
8.35%
8.10%
7.93%
Cash dividends paid
(per share)
$.305
$.305
$.305
$.31
$. 31
3.0
2.5
4.0
8.0
6.0
Shares Repurchased
(millions)
14
2004 Outlook
 Stable net interest margin
 Modest loan/earning assets growth
 Improving climate for fee-based businesses
 Improving asset quality
 Continued cost discipline
 EPS Range:
$0.61
3Q04
2004 F.Y.
$0.57 to
$2.35 to $2.45
15
Strong Dividend Record
Dividend increased 39 consecutive years
$1.12
$1.18
$1.20
$1.22
$1.24
2001
2002
2003
2004T
$1.04
$0.94
$0.84
$0.72
$0.76
$0.64
1994
1995
1996
1997
1998
1999
2000
Strategic Priorities
 Profitably grow revenue
 Improve credit quality
 Maintain expense discipline
 Improve shareholder returns
16
Question and Answer