Transcript Driving for Top-Tier Performance

UBS Warburg
Financial Services Conference
April 29, 2003
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
FORWARD-LOOKING STATEMENT DISCLOSURE
The presentation and discussion, including related questions and answers,
and presentation materials, contain forward-looking statements about issues
like anticipated second quarter and full-year 2003 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; continued weakness in the economy, 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.
Progress on Initiatives
• Strengthened management team
– 4 of 8 senior positions changed since 5/01
• Improved expense discipline
– Total PEG saves of $250 million
– Relatively flat expenses for past 4 years
• Refocused on relationship businesses
– Reduced nonrelationship loans by approximately
$3.7 billion since 5/01
Strategic Priorities
• Grow revenue
–
–
–
–
Increase commercial loans
Focus on profitable deposit growth
Improve cross-sell
Align capital market businesses
• Maintain expense discipline
• Improve credit quality
Consumer Banking Initiatives
• Deposit growth
– Rolled out Free Checking
– Offering competitive deposit rates
• Increase cross-sell
– Licensing RMs to sell investments
• New client acquisition
– Added 125 new RMs
– Adding new KeyCenters
– Identifying acquisition opportunities
Retail Banking Markets
Map Legend
KeyCorp
WA
MT
ME
ND
MN
OR
VT NH
ID
WI
NY
SD
MI
WY
PA
IA
NE
NJ
DC DE
MD
OH
NV
UT
IL
CA
IN
CO
WV
KS
MO
VA
KY
NC
TN
AZ
OK
AR
SC
NM
MS
AK
AL
MA
RI
CT
GA
TX
LA
FL
Retail – Focus on Cross-sell
Retail Services per Household
2.92
2.86
2.81
2.63
2.59
1999
2000
2001
2002
1Q03
Corporate Finance Initiatives
• Revenue Growth
– Align commercial and investment banking
– Focus on obtaining appropriate returns for Key’s capital
• Deposit Growth
– Cross-sell loans and deposits
– Focus on client specific segments
• Improve Credit Quality
– Align incentives with credit quality
– Maximize Key-led transactions
Investment Management Services
• Expand cross-sell teams in High Net Worth
• Expand distribution for Victory
– Distribute mutual funds through KeyCenters
– Focus on cross-sell opportunities with brokerage and
corporate customers
– Leverage existing WRAP relationships
– Focus on consultants and retirement programs
Financial Review
Financial Overview
 Revenue challenges in weak economy
 Strong expense management
 Growth in core deposits
 Continued focus on asset quality
 Strong capital position
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
3.93% 3.98% 3.99% 3.98% 3.86%
$71,981
$72,579
$72,083
$72,554
$73,424
1Q02
2Q02
3Q02
4Q02
1Q03
4.0%
$800
$722 $724
$702 $721
$703
$50,000
3.0%
$600
$25,000
$400
2.0%
$200
1.0%
1Q02
2Q02
3Q02
4Q02
1Q03
$0
Average Loans
$ in millions
Commercial
Consumer
Exit Portfolios
Auto
Commercial
$63,488
$63,928
$63,486
$62,677
1Q02
2Q02
3Q02
4Q02
$37,140
22,908
$37,088
23,967
$36,497
24,591
$36,367
24,308
2,499
941
2,041
832
1,705
693
1,371
631
$62,845
% Change
1Q03 vs. 1Q02
$36,463
(1.8)%
24,683
7.7
1Q03
1,135
564
(54.6)
(40.1)
Average Core Deposit Growth
$ in billions
% Change 1Q03 vs.
1Q02
4Q02*
1Q02
4Q02
1Q03
Noninterest Bearing
$8.6
$9.9
$9.8
14%
(6)%
NOW & MMDA
13.4
15.2
16.8
25
43
1.9
2.0
2.0
5
13
13.4
12.2
11.8
(12)
(14)
$37.3
$39.3
$40.4
Savings Deposits
CDs Under 100k
Total Core Deposits
*Annualized
8%
12%
Commercial Portfolio - Geography
Northwest
27%
Rocky
Mountain
10%
Northeast
20%
Great
Lakes
43%
Commercial Portfolio- Credit Size
120%
Outstanding
Commitments
# of Obligations
98.1%
100%
80%
60%
59.7%
44.6%
40%
24.3% 22.7%
20%
1.3%
0%
<$5
$5 to $15
14.3%
10.1%
0.4%
$15 to $25
in millions
18.4%
5.9%
0.2%
> $25
Commercial Portfolio- Utilization Rate
50%
47.3%
45.9%
46.5%
46.1% 45.9%
45%
45.2%
44.3% 44.0%
44.0%
42.0%
42.5%
41.1%
40%
38.8%
35%
30%
1Q00
3Q00
1Q01
3Q01
* Excludes Real Estate, Leasing and Commercial Run-off portfolios
1Q02
3Q02
1Q03
Net Charge Offs/ Loans
1.60%
1.37%
1.32%
1.27%
1.16%
1.20%
1.02%
1.04%
2Q01
3Q01
1.18%
1.04%
0.84%
0.80%
0.63%
0.64%
0.66%
3Q00
4Q00
1Q01
0.42%
0.40%
0.00%
1Q00
2Q00
KEY
4Q01
1Q02
Peer Median S&P Banks Index
2Q02
3Q02
4Q02
1Q03
NPA / Loans and OREO
2.00%
1.60%
1.58%
1.56%
1Q02
2Q02
1.61%
1.59%
1.50%
1.54%
1.41%
1.23%
1.20%
1.10%
1.00%
0.88%
0.80%
0.93%
0.78%
0.40%
0.00%
1Q00
2Q00
3Q00
4Q00
1Q01
Key
2Q01
3Q01
4Q01
Peer Median S&P Banks Index
3Q02
4Q02
1Q03
Allowance to Total Loans
3.00%
2.65%
2.51%
2.41%
2.50%
2.00%
1.53%
1.49%
1.51%
1.50%
1.49%
1Q00
2Q00
3Q00
4Q00
1Q01
1.85%
1.82%
2Q01
3Q01
2.37%
2.32%
2.27%
1.50%
1.00%
0.50%
0.00%
KEY
4Q01
1Q02
Peer Median S&P Banks Index
2Q02
3Q02
4Q02
1Q03
Allowance to NPL
300.00%
250.00%
206.98%
200.00%
184.29%
179.63%
169.09%
154.00%
150.00%
165.16% 160.82%
154.45%
140.39%
157.19%
150.86% 153.98%
132.66%
100.00%
50.00%
0.00%
1Q00
2Q00
3Q00
4Q00
1Q01
KEY
2Q01
3Q01
4Q01
1Q02
Peer Median S&P Banks Index
2Q02
3Q02
4Q02
1Q03
Net Income by Line of Business
$ in millions
1Q02
1Q03
Investment
Mgmt Services
11%
Corporate &
Consumer
Investment
Banking
Banking
37%
52%
Investment
Mgmt Services
9%
Corporate &
Consumer
Investment
Banking
Banking
43%
48%
Change
1Q02
Retail Banking
$ 54
Small Business
21
Consumer Finance
6
Corporate Banking
59
Real Estate Capital
36
Equipment Finance
19
Investment Mgmt Services 23
1Q03
$ 62
22
12
51
30
25
20
$
$ 8
1
6
(8)
(6)
6
(3)
%
15%
5
100
(14)
(17)
32
(13)
Tangible Equity to Tangible Assets
6.58%
6.57%
1Q02
6.69% 6.65%
6.73%
6.71%
6.47%
2Q02
3Q02
6.50%
4Q02
KEY
Peer M edian - S& P 500 Banks Index
6.71%
6.55%
1Q03
Dividend Record
38 Consecutive Years of Increases
1.18
1.20
1.22
2001
2002
2003T
1.12
1.04
.94
.84
.72
.76
.64
.56
1993
1994
1995
1996
1997
1998
1999
2000
Thinking Like An Owner

Total insider ownership: 7%
– 77% of employees own Key shares
– 69% of employees have stock options

Stock ownership guidelines
– CEO: 6 x salary
– CEO direct reports: 4 x salary
– Executive Council: 2 x salary
Summary
• New management team focused on
improving performance:
–
–
–
–
Growing revenue
Managing expenses
Increasing deposits
Improving asset quality
• Alignment of management and shareholder
interests
• Strong dividend record
Question and Answer