Download Driving for Top-Tier Performance

Citigroup Smith Barney
Financial Services Conference
January 27, 2004
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 first 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.
Reshaping Key: A Different Company
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
• Focus on relationship businesses
• Increase deposits
• Improve cross-sell
 Improve credit quality
 Maintain expense discipline
 Improve shareholder returns
Net Income by Line of Business
Net Income – 2003
• Corporate Banking
• KeyBank Real Estate Capital
• Key Equipment Finance
Investment
Management Services
Corporate &
Investment Bkg.
43%
11%
Consumer
Banking
46%
• Retail Banking
• Small Business
• Consumer Finance
Profitably Grow Revenue
• Retail Banking
• Small Business
• Consumer Finance
Consumer Banking
– New DDA accounts opened up 36% in 2003
– Small Business deposit balances up 18% in 2003
– Hired 125 new RMs
– Opened 13 KeyCenters in 2003 / 15–20 in 2004
– Appointed Retail national sales manager
Profitably Grow Revenue
• Corporate Banking
• KeyBank R/E Capital
• Key Equipment Finance
Corporate and Investment Banking
– Aligned commercial and investment banking
– Investment banking activity improving
– “Lead with Leasing” campaign – balances up 11%
vs. a year ago
– Commercial mortgage servicing portfolio increased
to $25 billion
Profitably Grow Revenue
• Victory Capital Mgmt
• McDonald Financial
Group
Investment Management Services
– Increased AUM by $7.0 billion in 2003
– Appointed national sales leader for Victory
– Licensed 250 RMs to sell investment products
– Completed integration of Private Banking and
Private Client Group – 4.6 products per household
Financial Review
Financial Objectives
 Achieve long term targets
• ROE: 16 – 18%
• EPS Growth: 7 – 8%
 Improve asset quality
 Continue expense discipline
 Maintain 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)
3.98%
$75,000
3.86% 3.85%
$800
$724
$703
$710
3.73% 3.78%
$690
$72,554
$73,424
$73,934
$73,623
$73,113
4Q02
1Q03
2Q03
3Q03
4Q03
4.0%
$693
$50,000
3.0%
$600
2.0%
$25,000
$400
$200
1.0%
$0
4Q02
1Q03
2Q03
3Q03
4Q03
Average Loans
$ in billions
$63.8
$63.5
$63.9
$63.5
$62.7
$62.8
$63.0
$63.1
$62.6
4Q01
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
$37.1
22.9
$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
2.5
1.0
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
Commercial $37.7
Consumer
22.0
Exit Portfolios
3.0
Auto
Commercial 1.1
* Annualized
% change *
4Q03 vs. 3Q03
(4)%
NM
NM
Commercial Portfolio - Utilization Rate
50%
47.3%
45.9%
45%
46.5%
46.1% 45.9%
44.3%
45.2%
44.0%
44.0%
42.0%
42.5%
41.1%
39.9%
40%
38.5%
37.2%
35.1%
35%
30%
1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03
* Excludes Real Estate, Leasing and Commercial Run-off portfolios
Average Core Deposit Growth
$ in billions
$39.2
$40.4
$41.3
$42.2
$42.8
$37.4
$37.3
$37.0
$37.2
4Q01
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
$13.0
1.9
13.7
8.8
$37.4
$13.4
1.9
13.4
8.6
$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
Now/MMDA
Savings
CD’s
DDA
TOTAL
* Annualized
% change *
4Q03 vs. 3Q03
8%
(4)
(2)
10
5%
Asset Quality
$ in millions
4Q02
1Q03
2Q03
3Q03
4Q03
Net C/O
to Average Loans
$186
1.18%
$161
1.04%
$141
.90%
$123
.77%
$123
.78%
Nonperforming Loans
to EOP Loans
$943
1.51%
$904
1.44%
$837
1.32%
$795
1.27%
$694
1.11%
Nonperforming Assets
to EOP Loans + OREO
$993
1.59%
$968
1.54%
$897
1.42%
$862
1.37%
$753
1.20%
Allowance
to Total Loans
to Nonperforming Loans
$1,452
2.32%
154%
$1,421
2.27%
157%
$1,405
2.22%
168%
$1,405
2.24%
177%
$1,406
2.24%
203%
Maintain Expense Discipline
$ in millions
Noninterest Expense
$858
$698
$683
$702
$661
$665
$659 $668
$657
$688
$699
$698
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03
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
Capital
4Q02
1Q03
2Q03
3Q03
4Q03
Tang. Equity/Tang. Assets
6.73%
6.71%
6.90%
6.94%
6.94%
Tier 1 Risk-Based Capital
7.74%
7.86%
7.94%
8.23%
8.29% *
$.300
$.305
$.305
$.305
$.305
1.2
2.0
3.0
2.5
4.0
Cash dividends paid
(per share)
Shares Repurchased
(millions)
* Estimated
2004 Outlook
 Improving climate for fee-based businesses
 Stable to improving asset quality
 Modest loan growth
 Continued focus on expenses
 EPS Range: 1Q04
2004 F.Y.
$0.52 to $0.55
$2.25 to $2.35
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
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
Summary
 Profitably grow revenue
 Improve credit quality
 Maintain expense discipline
 Improve shareholder returns
Question and Answer