citigroup smith barney financial services conference january 27, 2004 henry l. meyer iii chairman...
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Citigroup Smith BarneyFinancial Services ConferenceJanuary 27, 2004
Henry L. Meyer IIIChairman & Chief Executive Officer
Jeffrey B. WeedenSenior Executive Vice President &Chief Financial Officer
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PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995FORWARD-LOOKING STATEMENT DISCLOSURE
The presentation, including related questions and answers, contain forward-looking 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.
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Reshaping Key: A Different Company
Exit Auto LeaseEst. Runoff Portfolio
2001 2002 2003
Henry Meyer Elected Chairman
Built Loan Loss
Reserve
HiredTom Bunn
Corporate Banking
Completed PEG $250 mill. savings
Hired New CFO
Jeff Weeden
Union Bankshares Acquisition
Integrated Investment & Commercial
Banking
T.D. Leasing Portfolio
Acquisition
Focused on product
Higher credit risk tolerance
Unfocused expense culture
Inconsistent financial measures
Focused on deepening relationships
Re-established conservative credit culture
PEG expense culture
Economic Profit Added (EPA)
NewBridge Acquisition
ConningAcquisition
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Strategic Priorities
Profitably grow revenue• Focus on relationship businesses• Increase deposits• Improve cross-sell
Improve credit quality
Maintain expense discipline
Improve shareholder returns
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Net Income by Line of Business
Corporate & Investment Bkg.
43%
ConsumerBanking
46%
InvestmentManagement Services
Net Income – 2003
• Retail Banking• Small Business• Consumer Finance
• Corporate Banking• KeyBank Real Estate Capital• Key Equipment Finance
11%
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Profitably Grow Revenue
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
• Retail Banking• Small Business• Consumer
Finance
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Profitably Grow Revenue
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
• Corporate Banking• KeyBank R/E Capital• Key Equipment
Finance
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Profitably Grow Revenue
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
• Victory Capital Mgmt
• McDonald Financial Group
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Financial Review
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Financial Objectives
Achieve long term targets • ROE: 16 – 18%
• EPS Growth: 7 – 8%
Improve asset quality
Continue expense discipline
Maintain strong capital position
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Net Interest Income Net Interest Income
$693$690$710$703
$724
3.98%3.86% 3.85%
3.73% 3.78%
$200
$400
$600
$800
4Q02 1Q03 2Q03 3Q03 4Q03
1.0%
2.0%
3.0%
4.0%
$0
$25,000
$50,000
$75,000
4Q02 1Q03 2Q03 3Q03 4Q03
Net Interest Income (TE)Net Interest Margin (TE)
Net Interest Income (TE) Average Earning Assets
InvestmentsConsumer LoansCommercial Loans
$72,554 $73,424 $73,934 $73,623 $73,113
$ in millions
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$37.7 $37.1 $37.1 $36.5 $36.4 $36.5 $36.5 $36.4 $36.1 (4)% 22.0 22.9 24.0 24.6 24.3 24.7 25.2 25.7 25.7 -
3.0 2.5 2.0 1.7 1.4 1.1 0.9 0.8 0.6 NM 1.1 1.0 0.8 0.7 0.6 0.5 0.4 0.2 0.2 NM
$63.5$63.8 $62.6$63.1$63.0$62.8$62.7$63.5$63.9
4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03
Average Loans$ in billions
% change *4Q03 vs. 3Q03
* Annualized
CommercialConsumer
AutoCommercial
Exit Portfolios
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Commercial Portfolio - Utilization Rate
* Excludes Real Estate, Leasing and Commercial Run-off portfolios
39.9%
35.1%
37.2%
38.5%
41.1%
44.0%
45.2%
42.5%42.0%
44.0%44.3%
45.9%
47.3%
45.9%46.5%46.1%
30%
35%
40%
45%
50%
1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03
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$ in billions
Average Core Deposit Growth
* Annualized
$37.0 $37.2$39.2
$40.4 $41.3 $42.2 $42.8
$37.4 $37.3
4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03
Now/MMDA$13.0 $13.4 $13.2 $13.3 $15.1 $16.8 $17.7 18.4 18.8 8% Savings 1.9 1.9 2.0 2.0 2.0 2.0 2.1 2.1 2.1 (4) CD’s 13.7 13.4 13.1 12.7 12.2 11.8 11.4 11.1 11.0 (2) DDA 8.8 8.6 8.7 9.2 9.9 9.8 10.1 10.6 10.9 10
TOTAL $37.4$37.3 $37.0 $37.2 $39.2 $40.4 $41.3 $42.2 $42.8 5%
% change *4Q03 vs. 3Q03
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Asset Quality
4Q02 1Q03 2Q03 3Q03 4Q03
Net C/O $186 $161 $141 $123 $123 to Average Loans 1.18% 1.04% .90% .77% .78%
Nonperforming Loans $943 $904 $837 $795 $694 to EOP Loans 1.51% 1.44% 1.32% 1.27% 1.11%
Nonperforming Assets $993 $968 $897 $862 $753 to EOP Loans + OREO 1.59% 1.54% 1.42% 1.37% 1.20%
Allowance $1,452 $1,421 $1,405 $1,405 $1,406 to Total Loans 2.32% 2.27% 2.22% 2.24% 2.24% to Nonperforming Loans 154% 157% 168% 177% 203%
$ in millions
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$ in millions
$699 $698$688$657 $668$659 $665$661
$702$683
$858
$698
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03
PersonnelNon-Personnel
364 345 334 335 363 361 358 354 363 371 380 379334 513 349 367 298 304 301 314 294 317 319 319
Noninterest Expense
Maintain Expense Discipline
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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%*
Cash dividends paid $.300 $.305 $.305 $.305 $.305 (per share)
Shares Repurchased 1.2 2.0 3.0 2.5 4.0 (millions)
* Estimated
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Improving climate for fee-based businesses
Stable to improving asset quality
Modest loan growth
Continued focus on expenses
EPS Range: 1Q04 $0.52 to $0.55 2004 F.Y. $2.25 to $2.35
2004 Outlook
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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
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Strong Dividend Record
$1.24$1.22$1.20$1.18
$1.12$1.04
$0.94
$0.64$0.72 $0.76
$0.84
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004T
Dividend increased 39 consecutive years
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Summary
Profitably grow revenue
Improve credit quality
Maintain expense discipline
Improve shareholder returns
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Question and AnswerQuestion and Answer