Attached files
| file | filename |
|---|---|
| EX-99.3 - EX-99.3 - KEYCORP /NEW/ | d425043dex993.htm |
| EX-99.1 - EX-99.1 - KEYCORP /NEW/ | d425043dex991.htm |
| 8-K - 8-K - KEYCORP /NEW/ | d425043d8k.htm |
 KeyCorp
Third Quarter 2012 Earnings Review
October 18, 2012
Beth E. Mooney
Chairman and
Chief Executive Officer
Jeffrey B. Weeden
Chief Financial Officer
Exhibit 99.2 |
 2
FORWARD-LOOKING STATEMENTS AND ADDITIONAL
INFORMATION DISCLOSURE
This presentation contains and we may, from time to time, make forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including statements about Key’s financial condition, results of
operations, earnings outlook, asset quality trends, capital levels and profitability. Forward-
looking statements are not historical facts but instead represent only
management’s current expectations and forecasts regarding future events, many of which, by
their nature, are inherently uncertain and outside of Key’s control.
Forward-looking statements usually can be identified by the use of words
such as “goal,”
“objective,”
“plan,”
“expect,”
“anticipate,”
“intend,”
“project,”
“believe,”
“estimate”
or other words of similar meaning.
Our forward-looking statements are subject to the following principal risks and
uncertainties: the economic recovery may face challenges causing its momentum to
falter or a further recession; the Dodd-Frank Wall Street Reform and Consumer
Protection Act and other reforms will subject us to a variety of new and more
stringent
legal
and
regulatory
requirements,
including
increased
scrutiny
from
our
regulators;
changes
in
local,
regional
and
international
business,
economic
or
political conditions in the regions where we operate or have significant assets;
changes in trade, monetary and fiscal policies of various governmental bodies and
central banks could affect the economic environment in which we operate; our
ability to effectively deal with an economic slowdown or other economic or market
difficulty; adverse changes in credit quality trends; our ability to determine
accurate values of certain assets and liabilities; adverse behaviors in foreign exchange
rates, securities, public debt, and capital markets, including changes in market
liquidity and volatility; our ability to anticipate interest rate changes correctly and
manage
interest
rate
risk
presented
through
unanticipated
changes
in
our
interest
rate
risk
position
and/or
short-
and
long-term
interest
rates;
unanticipated
changes
in our liquidity position, including but not limited to our ability to enter the
financial markets to manage and respond to any changes to our liquidity position; adequacy
of our risk management program; reduction of the credit ratings assigned to KeyCorp
and KeyBank; increased competitive pressure due to industry consolidation;
unanticipated adverse affects of acquisitions and dispositions of assets, business
units or affiliates; and operational or risk management failures due to technological,
cybersecurity threats or other factors.
We
provide
greater
detail
regarding
some
of
these
factors
in
our
2011
Form
10-K,
including
in
Item
1A.
Risk
Factors
and
in
Item
7.
Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operation
under
the
heading
“Risk
Management,”
as
well
as
in
our
subsequent
SEC
filings,
all
of
which
are
accessible
on our website at www.key.com/ir and on the SEC’s website at
www.sec.gov. Key does not undertake any obligation to update the
forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the
forward-looking statements. Actual results or future events could differ,
possibly materially, from those anticipated in forward-looking statements, as well as from
historical performance.
This
presentation
also
includes
certain
Non-GAAP
financial
measures
related
to
“tangible
common
equity,
“Tier
1
common
equity,”
“pre-provision
net
revenue,”
and
“cash efficiency ratio.”
Management believes these ratios may assist investors, analysts and regulators in
analyzing Key’s financials. Although Key has procedures in
place
to
ensure
that
these
measures
are
calculated
using
the
appropriate
GAAP
or
regulatory
components,
they
have
limitations
as
analytical
tools
and
should
not
be considered in isolation, or as a substitute for analysis of results under
GAAP. For more information on these calculations and to view the reconciliations to the
most comparable GAAP measures, please refer to the Appendix to this presentation or
our most recent earnings press release, which is accessible at
www.key.com/ir.
Web addresses referenced in this slide are inactive textual references only.
Information on these websites is not part of this document. |
 3
Net interest income up 6% from prior quarter
Net interest margin up 17 bps from 2Q12 due to improved mix of earning
assets and lower funding cost
On track for expense reductions of $150 million to $200 million by
December 2013
Continued growth in average loans driven by C&I
Re-entered credit card business
Closed on western NY branch acquisition
Growing the
Franchise
Repurchased 9.6 million common shares
Redeemed $707 million of trust preferred securities
Maintained strong capital levels; positioned for Basel III
Execution of
Business Plan
Investor Highlights –
Third Quarter 2012
Execution of strategy and differentiated business model driving results
Disciplined
Capital
Management |
 Slow
growth economy Low rate environment
Regulatory change
4
Positioned for Growth
Industry Challenges
Key Focus Areas
Optimize and Grow
Revenue
Improve Efficiency
Disciplined Capital
Management
Key: Refocused and Realigned
Improved balance sheet mix and
risk profile
Distinctive business model
Targeted client segments
Focused on core competencies
Achieve Targets for Success |
 5
Financial Review
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
* |
 6
Financial Summary –
Third Quarter 2012
Capital
(b)
Asset Quality
(a)
Financial
Performance
(a)
TE = Taxable equivalent, EOP = End of Period
(a)
From continuing operations
(b)
From consolidated operations
(c)
9-30-12 ratios are estimated
(d)
Non-GAAP measure: see slide 20 of Appendix for reconciliation
Income from continuing operations attributable to Key
$.23
$.23
$.24
common shareholders
Net interest margin (TE)
3.23%
3.06%
3.09%
Return on average total assets
1.08
1.12
1.14
Tier 1 common equity
(c), (d)
11.4%
11.6%
11.3%
Tier 1 risk-based capital
(c)
12.2
12.5
13.5
Tangible common equity to tangible assets
(d)
10.4
10.4
9.8
Book value per common share
$10.64
$10.43
$10.09
Net loan charge-offs to average loans
.86%
.63%
.90%
NPLs to EOP portfolio loans
1.27
1.32
1.64
NPAs to EOP portfolio loans + OREO + Other NPAs
1.39
1.51
1.89
Allowance for loan losses to period-end loans
1.73
1.79
2.35
Allowance for loan losses to NPLs
136.0
135.2
143.5
Metrics
3Q12
2Q12 3Q11 |
 7
Average loan growth driven by C&I, while the exit
portfolio continues to run-off
Branch acquisition added $223 million in mostly
consumer loans to 3Q12
Acquired credit card portfolio Aug. 1; added $473
million to 3Q12 average loans
Originated $9 billion in new or renewed lending
commitments during 3Q12
Loan Growth
Highlights
Average Commercial & Industrial Loans
Average Loans
Exit Portfolios
Home Equity & Other
C&I & Leasing
Commercial Real Estate |
 1.46%
.64%
.38%
1.94%
1.21%
.83%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
8
Improving Deposit Mix
Highlights
Funding Cost
Overall funding cost continues to improve, with
total deposit cost declining 26 bps from 3Q11
Western NY branch acquisition added $1.6
billion of mostly non-time consumer deposits to
3Q12 average balances
Total CD maturities and average cost
–
2012 Q4: $2.1 billion at 1.50%
–
2013: $3.9 billion at 1.49%
–
2014 & beyond: $2.2 billion at 3.03%
Average
Deposits
(a)
(a)
Excludes deposits in foreign office
(b)
Transaction deposits include noninterest-bearing, NOW and MMDA
Cost of total deposits
(a)
Interest-bearing liability cost
CDs and other time deposits
Savings
Noninterest-bearing
NOW and MMDA |
 9
Total Revenue
TE = Taxable equivalent
Highlights
Net Interest Margin (TE) Trend
Net interest income improved, with net interest
margin up 17 bps from 2Q12 benefiting from:
–
Asset and funding mix improvement
–
Continued growth in C&I loans
–
Redemption of trust preferred securities
–
Maturities of higher cost CDs and debt
Higher noninterest income driven by leveraged
lease terminations and the redemption of trust
preferred securities
Total Revenue Mix
Noninterest income
$ in millions
$637
$555
$578
$469
$483
$544
$0
$400
$800
$1,200
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
Net interest income (TE)
$1,038
$1,122
$1,106 |
 10
$400
$411
$471
$323
$382
$310
$0
$300
$600
$900
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
Focused Expense Management
Noninterest Expense
Personnel expense
$ in millions
Highlights
Noninterest expense increased $20 million from
2Q12
–
Elevated expenses from the acquisition of
branches and the credit card portfolio
•
Onetime expenses of $8 million
•
Intangible asset amortization of $8 million
–
Hiring of client-facing personnel
Focused on improving operating leverage
–
Targeting $150 million to $200 million in
expense reductions by December 2013, with
full-year impact expected in 2014
•
16 branch closures in 3Q12; 3 additional
planned for 4Q12
•
Consolidation of KEF operations
•
Headcount reduction
•
Strategic sourcing
Non-personnel expense
$871
$692
$734
$714
$16
$10
$(6)
$734
$600
$650
$700
$750
$800
2Q12
Branch
Acquisition
Credit Card
Other
3Q12
Q-o-Q Change in Noninterest Expense
(a)
(a)
Includes ongoing, onetime and amortization expenses |
 11
Continued Improvement in Asset Quality
Highlights
Underlying credit trends continue to improve
Provision increased, primarily due to:
–
Acquisition of credit card portfolios and
branch loans (+$32 MM)
–
Updated regulatory guidance on
consumer loans (+$45 MM)
Net loan charge-offs increased $32 million from
prior quarter due to regulatory guidance
–
Impact on net charge-offs: $45 million or
35 bps of average loans
–
NCO ratio of 51 bps excluding impact of
regulatory guidance
Nonperforming assets continued to decline
including the impact of new guidance |
 12
Strong capital position supports growth
Disciplined capital management process
–
Repurchased 9.6 million common shares
in 3Q12
–
Redeemed $707 million in trust preferred
securities during 3Q12 with a $54 million
gain from early swap termination
Estimated Basel III tier 1 common equity ratio of
10.5%
(a)
Tier 1 Common Equity
(b), (c)
Tangible Common Equity to Tangible Assets
(b)
Strong Capital Ratios
Highlights
Book Value per Share
10.4%
9.8%
7.6%
0.0%
3.0%
6.0%
9.0%
12.0%
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
$10.64
$10.09
$9.04
$8.00
$9.00
$10.00
$11.00
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
11.4%
11.3%
7.5%
0.0%
3.0%
6.0%
9.0%
12.0%
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
(a)
Based upon September 30, 2012 pro forma analysis; see slide 22 of Appendix for
further detail (b)
Non-GAAP measure: see slide 20 of Appendix for reconciliation
(c)
9-30-12 ratio is estimated |
 13
Appendix
*
*
*
*
*
*
*
*
* |
 14
(a)
Continuing operations, unless otherwise noted
(b)
Represents period-end consolidated total loans and loans held for sale
(excluding education loans in the securitization trusts) divided by
period-end consolidated total deposits (excluding deposits in foreign office)
Progress on Targets for Success
KEY Business
Model
KEY Metrics
(a)
KEY
3Q12
KEY
2Q12
Targets
Action Plans
Core funded
Loan to deposit ratio
(b)
86%
86%
90-100%
Leverage integrated model to grow
relationships and loans
Improve deposit mix
Returning to a
moderate risk
profile
NCOs to average loans
.86%
.63%
40-50 bps
Focus on relationship clients
Exit noncore portfolios
Limit concentrations
Focus on risk-adjusted returns
Growing high
quality, diverse
revenue streams
Net interest margin
3.23%
3.06%
>3.50%
Improve funding mix
Focus on risk-adjusted returns
Grow client relationships
Leverage Key’s total client solutions and
cross-selling capabilities
Noninterest income
to total revenue
48%
47%
>40%
Creating positive
operating
leverage
Efficiency ratio
65%
69%
60-65%
Improve efficiency and effectiveness
Leverage technology
Change cost base to more variable from
fixed
Executing our
strategies
Return on average
assets
1.08%
1.12%
1.00-1.25%
Execute our client insight-driven
relationship model
Focus on operating leverage
Improved funding mix with lower cost core
deposits |
 15
$16.9
$18.5
$16.0
2.78%
3.15%
3.82%
$0
$5
$10
$15
$20
$25
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
Average Total Investment Securities
Highlights
Average AFS securities
$ in billions
High Quality Investment Portfolio
Portfolio composed of Agency or GSE backed:
GNMA, Fannie & Freddie
–
No private label MBS or financial paper
Average portfolio life at 9/30/12: 2.3 years
Unrealized net gain of $393 million on available-
for-sale securities portfolio at 9/30/12
Mortgage paydowns of $1.6 billion in 3Q12 and
$1.5 billion in 2Q12
Investment securities declined as paydowns were
reinvested for loan growth and acquired assets
Securities to Total Assets
(b)
(a) Yield is calculated on the basis of amortized cost
(b) Includes end of period held-to-maturity and
available-for-sale securities 19%
21%
18%
0%
5%
10%
15%
20%
25%
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
Average yield
(a)
Average HTM securities |
 16
N/M = Not Meaningful
(a) Ending
and
average
loans
for
third
quarter
2012
include
commercial
credit
card
balances
of
$88
million
and
$54
million,
respectively
(b)
Net loan charge-off amounts are annualized in calculation. NCO ratios for
discontinued operations and consolidated Key exclude education loans in the
securitization trusts since valued at fair-market value (c)
9-30-12 allowance by portfolio is estimated. Allowance/period loans ratios
for discontinued operations and consolidated Key exclude education loans in
the securitization trusts since valued at fair-market value Credit
Quality Credit Quality by Portfolio |
 Vintage (% of Loans)
Loan Balances
Average Loan
Size ($)
Average
FICO
Average
LTV
% of Loans
LTV>90%
2011 and
later
2010
2009
2008
2007 and
prior
Home equity loans and lines
First lien
5,293
$
62,873
$
757
66
%
.6
%
29
%
6
%
7
%
9
%
49
%
Second lien
4,475
46,561
755
75
3.0
19
5
6
16
54
Total home equity loans and lines
9,768
$
54,177
$
756
71
1.8
25
6
6
12
51
Nonaccrual loans
First lien
89
$
55,358
$
715
72
%
1.1
%
2
%
3
%
6
%
4
%
85
%
Second lien
82
36,397
709
79
2.9
1
1
3
16
79
Total home equity nonaccrual loans
171
$
44,338
$
712
75
1.9
2
2
5
9
82
Community Bank - Home Equity
Third quarter net charge-offs
62
$
1
%
1
%
2
%
21
%
75
%
Net loan charge-offs to average loans
2.53
%
17
(a)
Average LTVs are at origination. Current average LTVs for Community Bank total
home equity loans and lines is approximately 79%, which compares to 79% at
the end of the second quarter 2012. Community Bank –
Home Equity
Exit Portfolio –
Home Equity
$ in millions, except average loan size
$ in millions, except average loan size
(a)
(a)
Home Equity Loans –
9/30/12
Vintage (% of Loans)
Loan Balances
Average Loan
Size ($)
Average
FICO
Average
LTV
% of Loans
LTV>90%
2011 and
later
2010
2009
2008
2007 and
prior
Home equity loans and lines
First lien
18
$
22,571
$
745
34
%
.4
%
-
-
2
%
1
%
97
%
Second lien
391
23,782
730
82
32.3
-
-
-
2
98
Total home equity loans and lines
409
$
23,725
$
731
80
30.8
-
-
-
2
98
Nonaccrual loans
First lien
1
$
19,932
$
729
37
%
3
%
-
-
-
-
100
%
Second lien
17
19,259
704
83
36.1
-
-
-
2
%
98
Total home equity nonaccrual loans
18
$
19,288
$
705
82
34.7
-
-
-
2
98
Exit Portfolio - Home Equity
Third quarter net charge-offs
5
$
-
-
-
1
%
99
%
Net loan charge-offs to average loans
4.25
% |
 18
Exit Loan Portfolio Trend (Excluding Discontinued Operations)
Exit Loan Portfolio
(a)
Includes (1) the business aviation, commercial vehicle, office products,
construction and industrial leases; (2) Canadian lease financing
portfolios; and (3) all remaining balances related to lease in, lease out; sale
in, lease out; service contract leases; and qualified technological
equipment leases
(b)
Includes loans in Key’s consolidated education loan securitization
trusts (c)
Credit amounts indicate recoveries exceeded charge-offs
$ in millions
Exit Loan Portfolio
Change
9-30-12 vs.
9-30-12
6-30-12
6-30-12
3Q12
(c)
2Q12
9-30-12
6-30-12
Residential properties –
homebuilder
$31
$33
$(2)
-
-
$6
$14
Marine and RV floor plan
35
39
(4)
$(1)
$2
12
15
Commercial lease financing
(a)
1,035
1,237
(202)
(3)
1
8
9
Total commercial loans
1,101
1,309
(208)
(4)
3
26
38
Home equity –
Other
409
479
(70)
5
7
18
17
Marine
1,448
1,542
(94)
6
7
31
19
RV and other consumer
98
101
(3)
(1)
2
2
1
Total consumer loans
1,955
2,122
(167)
10
16
51
37
Total exit loans in loan portfolio
$3,056
$3,431
$(375)
$6
$19
$77
$75
Discontinued operations -
education
lending business (not included in exit loans above)
(b)
$5,328
$5,483
$(155)
$12
$12
$22
$18
Balance on
Nonperforming
Status
Balance
Outstanding
Charge-offs
Net Loan |
 19
Credit Quality Trends
Quarterly Change in Criticized Outstandings
(a)
Delinquencies to Period-end Total Loans
(a)
Loan and Lease Outstandings
.69%
.73%
.85%
.89%
.99%
.97%
.98%
.95%
1.29%
1.14%
1.14%
1.59%
.17%
.26%
.34%
.33%
.24%
.25%
.32%
.48%
.30%
.45%
.78%
.56%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
30 –
89 days delinquent
90+ days delinquent
(10.9)%
(14.4)%
(6.8)%
(13.6)%
(10.2)%
(12.3)%
(11.2)%
(16.7)%
(14.3)%
(12.8)%
(1.0)%
(8.1)%
-20%
-16%
-12%
-8%
-4%
0%
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12 |
 GAAP
to Non-GAAP Reconciliation 20
(a)
September 30, 2012 number excludes $130 million of purchased credit card receivable intangible assets
that are not fully excludable for capital purposes. (b)
Includes net unrealized gains or losses on securities available for sale (except for net unrealized
losses on marketable equity securities), net gains or losses on cash flow hedges, and amounts
resulting from the December 31, 2006, adoption and subsequent application of the applicable accounting guidance for defined benefit and other
postretirement plans.
(c)
Other assets deducted from Tier 1 capital and net risk-weighted assets consist of disallowed
intangible assets (excluding goodwill) and deductible portions of nonfinancial equity
investments. There were no disallowed deferred tax assets at September 30, 2012, June 30, 2012, and September 30, 2011.
(d)
9-30-12 amount is estimated. |
 GAAP
to Non-GAAP Reconciliation (continued) $ in millions
21
Three months ended
9-30-12
6-30-12
9-30-11
Return on tangible common equity from continuing operations Net income (loss) from continuing operations attributable to Key common shareholders
$
214
$
221
$
229
Tangible common equity (non-GAAP)
8,929
8,932
8,675
Return on tangible common equity from continuing operations (non-GAAP)
9.53
%
9.95
%
10.47
%
Return on tangible common equity consolidated Net income (loss) attributable to Key common shareholders
$
214
$
231
$
212
Tangible common equity (non-GAAP)
8,929
8,932
8,675
Return on tangible common equity consolidated (non-GAAP)
9.53
%
10.40
%
9.70
%
Cash efficiency ratio
Noninterest expense (GAAP)
$
734
$
714
$
692
Less:
Intangible asset amortization on credit cards
6
—
—
Other intangible asset amortization
3
1
1
Adjusted noninterest expense (non-GAAP)
$
725
$
713
$
691
Net interest income (GAAP)
$
572
$
538
$
549
Plus:
Taxable-equivalent adjustment
6
6
6
Noninterest income
544
485
483
Total taxable-equivalent revenue (non-GAAP)
$
1,122
$
1,029
$
1,038
Cash efficiency ratio (non-GAAP)
64.62
%
69.29
%
66.57
%
|
 (1) Tier 1
common equity is a non-generally accepted accounting principle (GAAP) financial measure that is used by investors,
analysis and bank regulatory agencies to assess the capital position of financial services
companies. Management reviews Tier 1 common equity along with other measures of capital
as part of its financial analyses. (2) Includes AFS mark-to-market, cash flow
hedges on items recognized at fair value on the balance sheet, and defined benefit pension
liability. (3) Deferred tax asset subject to future taxable income for realization,
primarily tax credit carryforwards. (4) The amount of regulatory capital and risk-weighted
assets estimated under Basel III (as fully phased-in on January 1, 2019) is based upon the
federal banking agencies' notices of proposed rulemaking, which implement Basel III and the Standardized
Approach.
Tier 1 Common Equity under Basel III (estimated)
KeyCorp & Subsidiaries
22
TIER 1 COMMON EQUTIY UNDER BASEL III (ESTIMATES)
(1)
Quarter ended
Sept 30,
($'s in billions)
2012
Tier 1 Common Equity under Basel I
$9.0
Adjustments from Basel I to Basel III:
(0.1)
(0.1)
$8.8
Total risk-weighted assets under Basel I
$78.4
Adjustments from Basel I to Basel III:
Market Risk Impact
0.6
Loan Commitments < 1 Year
1.1
Residential Mortgage Loans & Home Equity
1.9
Other
1.1
Total risk-weighted assets under Basel III
$83.1
Tier 1 common equity to total risk-weighted assets
anticipated under Basel III
10.5%
Deferred Tax Assets
(3)
Cumulative Other Comprehensive Income
(2)
Tier 1 common equity anticipated under Basel III
(4) |