Transcript Driving for Top-Tier Performance

D.A. Davidson & Co.
Financial Services Conference
Lee Irving
KeyCorp
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 second 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
Built Loan
Loss
Reserve
Hired
Hired
Conning
Tom Bunn
New CFO
Corporate Banking Acquisition Jeff Weeden
2002
Completed PEG
$250 mill. savings
Integrated
Investment &
Commercial
Banking
2003
Union Bankshares
Acquisition
T.D. Leasing
Portfolio
Acquisition
NewBridge
Acquisition
Strategic Priorities
 Profitably grow revenue
 Improve credit quality
 Maintain expense discipline
 Improve shareholder returns
3
4
Net Income by Line of Business
Net Income – 1Q04
• Corporate Banking
• KeyBank Real Estate Capital
• Key Equipment Finance
Investment
Management Services
Corporate &
Investment Bkg.
45%
12%
Consumer
Banking
43%
• Retail Banking
• Small Business
• Consumer Finance
5
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
3.86% 3.85%
$800
$703
$710
3.73% 3.78% 3.74%
$690
$693
$73,424
$73,934
$73,623
$73,113
$73,381
1Q03
2Q03
3Q03
4Q03
1Q04
4.0%
$685
50,000
3.0%
$600
$400
2.0%
25,000
$200
1.0%
0
1Q03
2Q03
3Q03
4Q03
1Q04
6
Net Interest Margin (TE)
4.50%
4.25%
3.98%
4.00%
3.85%
3.77%
3.75%
3.71%
3.68% 3.68% 3.68%
3.63%
3.98% 3.99% 3.98%
3.93%
3.86% 3.85%
3.78%
3.73%
3.74%
3.69%
3.50%
3.25%
3.00%
1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04
KEY
Peer M edian S&P Regional & Diversified Bank Indices
7
Average Loans
$ in billions
$63.5
$63.9
$63.5
$62.7
$62.8
$63.0
$63.1
$62.6
$62.8
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
1Q04
% change *
1Q04 vs. 4Q03
$37.1
24.0
$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
2%
4%
2.0
0.8
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
NM
NM
Commercial $37.1
Consumer
22.9
Exit Portfolios
2.5
Auto
1.0
Commercial
* Annualized
Commercial Portfolio – Geography
Northwest
27%
Rocky
Mountain
11%
Northeast
20%
Great
Lakes
42%
8
9
Average Core Deposit Growth
$ in billions
$39.2
$40.4
$41.3
$42.2
$42.8
$42.6
$37.3
$37.0
$37.2
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
1Q04
% change *
1Q04 vs. 4Q03
Now/MMDA $13.4
Savings
1.9
CD’s
13.4
DDA
8.6
TOTAL
$37.3
$13.2
2.0
13.1
8.7
$37.0
$13.3
2.0
12.7
9.2
$37.2
$15.1
2.0
12.2
9.9
$39.2
$16.8
2.0
11.8
9.8
$40.4
$17.7
2.1
11.4
10.1
$41.3
$18.4
2.1
11.1
10.6
$42.2
$18.8
2.1
11.0
10.9
$42.8
$18.9
2.0
11.0
10.7
$42.6
3%
(3)
(2)
(9)
(2)%
* Annualized
10
Asset Quality
$ in millions
1Q04
4Q03
1Q03
Change 1Q04 vs.
4Q03
1Q03
Net C/O
to Average Loans
$ 111
.71%
$ 123
.78%
$ 161
1.04%
$ (12)
-
$ (50)
-
Nonperforming Loans
to EOP Loans
$ 587
.94%
$ 694
1.11%
$ 904
1.44%
$ (107)
-
$ (317)
-
Nonperforming Assets
to EOP Loans + OREO
$ 670
1.07%
$ 753
1.20%
$ 968
1.54%
$ (83)
-
$ (298)
-
Allowance
to Total Loans
to Nonperforming Loans
$1,306
2.09%
222%
$1,406
2.24%
203%
$ (100)
$1,421
2.27%
157%
$ (115)
-
Commercial Portfolio – Credit Size
$ in millions
120%
97.9%
100%
80%
60%
40%
59.0%
38.3%
24.9%
23.8% 22.1%
20%
14.7%
10.2%
1.4%
0%
<$5
Outstanding
$5 to $15
7.0%
0.4%
$15 to $25
Commitments
0.3%
> $25
# of Obligations
11
12
Maintain Expense Discipline
$ in millions
Noninterest Expense
$858
$698
$683 $702
$661 $665
$688 $699 $698
$659 $668 $657
$659
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04
364
Personnel
Non-Personnel 334
345
513
334
349
335
367
363
298
361
304
358
301
354
314
363
294
371
317
380
319
379
319
373
286
13
Capital
Tang. Equity/Tang. Assets
1Q03
2Q03
3Q03
4Q03
1Q04
6.71%
6.90%
6.94%
6.94%
6.98%
Tier 1 Risk-Based Capital
7.86%
7.94%
8.23%
8.35%
7.97% *
Cash dividends paid
(per share)
$.305
$.305
$.305
$.305
$.31
2.0
3.0
2.5
4.0
8.0
Shares Repurchased
(millions)
* Estimated
Focus on Shareholder Value
 Disciplined capital management
– Invest in growth businesses
– Share repurchase
– Strong dividend record
 Focused on Economic Profit Added (EPA)
 Alignment of management and shareholder
interests
– Insider ownership: 7%
– Stock ownership guidelines
– Incentive compensation tied to EPA
14
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
Question and Answer