8-K 1 l90749ae8-k.txt KEYCORP 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15d of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): October 17, 2001 [KEYCORP LOGO] -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 0-850 34-6542451 ------------------------------- ---------------------- ------------------------------------- (State or other jurisdiction of Commission File Number (I.R.S. Employer Identification No.) incorporation or organization) 127 Public Square, Cleveland, Ohio 44114-1306 ---------------------------------------- -------------------------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 689-6300 ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE On October 17, 2001, the Registrant issued a press release announcing its earnings results for the three- and nine-month period ended September 30, 2001. This press release, dated October 17, 2001, is attached as Exhibit 99.1 to this report. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits -------- 99.1 The Registrant's October 17, 2001, press release announcing its earnings results for the three- and nine-month period ended September 30, 2001. ITEM 9. REGULATION FD DISCLOSURE On October 17, 2001, the Registrant conducted a conference call/webcast to discuss its quarterly earnings and currently anticipated earnings trends. The slide presentation reviewed by the Registrant in the conference call/webcast follows as Annex A to this Item 9. Annex A THIRD QUARTER 2001 REVIEW [LOGO] OCTOBER 17, 2001 2 PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 FORWARD-LOOKING STATEMENT DISCLOSURE The conference call and discussion, including related questions and answers, and presentation materials, contain forward-looking statements about issues like anticipated fourth quarter and full-year 2001 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; changes in law imposing new legal obligations or restrictions or unfavorable resolution of litigation; disruption in the economy or business operations or activities as a result of terrorist activities or military actions; and changes in accounting, tax or regulatory practices or requirements. [LOGO] 3 THIRD QUARTER REVIEW - INTRODUCTION B. SOMERS - OVERVIEW H. MEYER - FINANCIAL REVIEW L. IRVING - ASSET QUALITY K. BLAKELY - WRAP UP / Q&A B. SOMERS [LOGO] 4 UPDATE ON STRATEGIC INITIATIVES - ACCELERATED DOWNSIZING OF AUTO BUSINESS - EXIT NON-RELATIONSHIP CORPORATE LENDING - DELIVER ON PEG COMMITMENTS [LOGO] 5 DOWNSIZING AUTO BUSINESS - DISCONTINUED NEW LEASE ORIGINATIONS - PORTFOLIO REDUCED FROM $2.8 TO $2.4 BILL. - INDIRECT PRIME LENDING FOCUSED ON FOOTPRINT - PORTFOLIO REDUCED FROM $2.6 TO $2.3 BILL. - MAINTAINED NONPRIME AUTO PORTFOLIO AT LESS THAN $500 MILLION (LESS THAN 1% OF TOTAL LOAN PORTFOLIO) [LOGO] 6 DELIVERING ON PEG COMMITMENTS FTE REDUCTIONS --------------------------- FTE NET REDUCTION: 18% IN THOUSANDS --------------------------- [GRAPH] 1998 1999 2000 MAR-01 JUN-01 SEP-01 ---- ---- ---- ------ ------ ------ 25.9 24.6 22.1 21.9 21.7 21.3 [LOGO] 7 DELIVERING ON PEG COMMITMENTS PEG Savings- Annual Run Rate IN MILLIONS [GRAPH] 1Q01 2Q01 3Q01 ---- ---- ---- $40 - $50 $70 - $80 $100 - $110 [LOGO] 8 FINANCIAL HIGHLIGHTS - 3Q01 - $0.58 EPS MEETS CONSENSUS - NET INTEREST MARGIN INCREASES 8BP - RECORD NET INTEREST INCOME-UP $11 MM - CONTINUED WEAKNESS IN MARKET SENSITIVE REVENUE - STRONG GROWTH IN DEPOSIT SERVICE CHARGES - CONTINUED EXPENSE REDUCTION [LOGO] 9 NET INTEREST INCOME & MARGIN (TE) IN MILLIONS [GRAPH] 3Q00 4Q00 1Q01 2Q01 3Q01 ---- ---- ---- ---- ---- NET INTEREST $691 $709 $695 $719 $730 INCOME NET INTEREST 3.68% 3.71% 3.63% 3.77% 3.85% MARGIN AVG. EARNING $74,709 $76,036 $76,872 $76,546 $75,687 ASSETS [LOGO] 10 CORE NONINTEREST INCOME 2Q01 VS. 3Q01 IN MILLIONS Noninterest Income 2Q01 $398 2Q auto lease residual charge not repeated 40 Increase in deposit service charges 17 Increase in net loan sale gains 10 Lower trading/derivative income (11) Lower investment banking fees ( 7) All other-net 7 ------- Noninterest Income 3Q01 $454 [LOGO] 11 CORE NONINTEREST EXPENSE 2Q01 VS. 3Q01 IN MILLIONS Noninterest Expense 2Q01 $686 Lower Personnel Expense (11) All other-net 8 Noninterest Expense 3Q01 $683 [LOGO] 12 NET CHARGE-OFFS BY LOAN TYPE ----------- IN MILLIONS 3Q00 4Q00 1Q01 2Q01 3Q01 ---- ---- ---- ---- ---- CONTINUING PORTFOLIO Commercial $60.6 $43.0 $51.0 $39.9 $47.8 Consumer 43.8 64.8 58.2 59.6 68.1 ---- ---- ---- ---- ---- 104.4 107.8 109.2 99.5 115.9 RUN-OFF PORTFOLIO 71.3 57.0 ---- ---- TOTAL NET C/O $104.4 $107.8 $109.2 $170.8 $172.9 ----------- [LOGO] 13 ASSET QUALITY INDICATORS TOTAL TOTAL CONTINUING CONTINUING PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO 2Q01 3Q01 2Q01 3Q01 ---- ---- ---- ---- IN MILLIONS Nonperforming Loans $797 $885 $555 $652 to EOP Loans 1.20% 1.37% 0.85% 1.03% Nonperforming Assets $823 $913 $581 $680 to EOP Loans + OREO 1.23% 1.41% 0.89% 1.07% Net C/O $171 $173 $100 $116 to Average Loans 1.02% 1.04% 0.61% 0.71% Allowance $1,231 $1,174 $1,002 $1,002 to Total Loans 1.85% 1.82% 1.54% 1.58% to Nonperforming Loans 154% 133% 181% 154% [LOGO] 14 RUN-OFF PORTFOLIO IN MILLIONS 5/17/01 6/30/01 9/30/01 ------- ------- ------- LOANS OUTSTANDING $1,611 $1,423 $1,176 LOAN COMMITMENTS 2,648 2,393 2,019 ALLOWANCE FOR LOAN LOSSES 300 229 172 NONPERFORMING LOANS 257 242 233 [LOGO] 15 NONPERFORMING LOANS: 3Q01 3Q01 INCREASE IN NPL: $88MM OR 11% LARGEST NPL: $32MM (HEALTHCARE-CP) NEW 10TH LARGEST: $13MM (KEY CAPITAL PARTNERS- CP) 20TH LARGEST: $ 9MM (STRUCTURED FINANCE-ROP) CP: CONTINUING PORTFOLIO ROP: RUN-OFF PORTFOLIO [LOGO] 16 NONPERFORMING LOANS: 3Q01 Composition of Top 20 NPLs: in millions CP ROP TP -- --- -- Healthcare $100 - $100 Structured Finance 14 $67 81 Middle Market 10 40 50 Commercial Real Estate 19 - 19 Leasing - 15 15 Key Capital Partners 13 - 13 Large Corporate - 10 10 CP: Continuing Portfolio $156M ROP: Run-off Portfolio 132M ------ TP: Total Portfolio $288M Top 20 Average Size $14.4M [LOGO] 17 FOURTH QUARTER 2001 OUTLOOK (COMPARED WITH 3Q01) ASSUMPTIONS GDP: DECLINE OF 1-2% SHORT-TERM INTEREST RATES: DECLINE OF 25- 50 BP REVENUE FLAT - DEPENDENT UPON GROWTH IN FEE INCOME - LOAN GROWTH: FLAT TO SLIGHTLY DOWN - NIM (PLUS OR MINUS) 3.85% - MODEST FEE GROWTH- DEPENDENT ON MARKET SENSITIVE REVENUES EXPENSE FLAT - DEPENDENT UPON GROWTH IN FEE INCOME CREDIT QUALITY NONPERFORMING ASSETS ARE EXPECTED TO INCREASE AS ECONOMY WEAKENS. MODEST INCREASE IN NET CHARGE-OFFS AND LOAN LOSS PROVISION. EARNINGS EPS RANGE: $0.54 TO $0.60 [LOGO] 18 APPENDIX [LOGO] 19 LINE OF BUSINESS PERFORMANCE [GRAPH] RETAIL BANKING (A DIVISION OF KEY CONSUMER BANKING) in millions 3Q00 4Q00 1Q01 2Q01 3Q01 ---- ---- ---- ---- ---- REVENUE $356 $341 $339 $341 $361 NET INCOME $79 $72 $74 $73 $88 NONINTEREST INCOME AND EXPENSE ATTRIBUTABLE TO KEY CAPITAL PARTNERS IS ASSIGNED TO RETAIL BANKING, HOME EQUITY AND CONSUMER FINANCE OR KEY CORPORATE FINANCE IF ONE OF THOSE BUSINESSES IS PRINCIPALLY RESPONSIBLE FOR MAINTAINING THE RELATIONSHIP WITH THE CLIENT THAT USED KEY CAPITAL PARTNERS' PRODUCTS AND SERVICES. [LOGO] 20 LINE OF BUSINESS PERFORMANCE HOME EQUITY & CONSUMER FINANCE (A DIVISION OF KEY CONSUMER BANKING) [GRAPH] in millions 3Q00 4Q00 1Q01 2Q01 3Q01 ---- ---- ---- ---- ---- REVENUE $136 $146 $147 $146 $154 NET INCOME $16 $17 $19 $17* $19 *EXCLUDES ONE-TIME CHARGE FOR RETAINED INTERESTS IN SECURITIZED ASSETS NONINTEREST INCOME AND EXPENSE ATTRIBUTABLE TO KEY CAPITAL PARTNERS IS ASSIGNED TO RETAIL BANKING, HOME EQUITY AND CONSUMER FINANCE OR KEY CORPORATE FINANCE IF ONE OF THOSE BUSINESSES IS PRINCIPALLY RESPONSIBLE FOR MAINTAINING THE RELATIONSHIP WITH THE CLIENT THAT USED KEY CAPITAL PARTNERS' PRODUCTS AND SERVICES. [LOGO] 21 LINE OF BUSINESS PERFORMANCE [GRAPH] KEY CORPORATE FINANCE in millions 3Q00 4Q00 1Q01 2Q01 3Q01 ---- ---- ---- ---- ---- REVENUE $435 $480 $442 $474 $459 NET INCOME $114 $141 $109 $130 $127 NONINTEREST INCOME AND EXPENSE ATTRIBUTABLE TO KEY CAPITAL PARTNERS IS ASSIGNED TO RETAIL BANKING, HOME EQUITY AND CONSUMER FINANCE OR KEY CORPORATE FINANCE IF ONE OF THOSE BUSINESSES IS PRINCIPALLY RESPONSIBLE FOR MAINTAINING THE RELATIONSHIP WITH THE CLIENT THAT USED KEY CAPITAL PARTNERS' PRODUCTS AND SERVICES. [LOGO] 22 LINE OF BUSINESS PERFORMANCE [GRAPH] KEY CAPITAL PARTNERS in millions 3Q00 4Q00 1Q01 2Q01 3Q01 ---- ---- ---- ---- ---- REVENUE $238 $252 $244 $240 $242 NET INCOME $26 $25 $13 $12 $18 NONINTEREST INCOME AND EXPENSE ATTRIBUTABLE TO KEY CAPITAL PARTNERS IS ASSIGNED TO RETAIL BANKING, HOME EQUITY AND CONSUMER FINANCE OR KEY CORPORATE FINANCE IF ONE OF THOSE BUSINESSES IS PRINCIPALLY RESPONSIBLE FOR MAINTAINING THE RELATIONSHIP WITH THE CLIENT THAT USED KEY CAPITAL PARTNERS' PRODUCTS AND SERVICES. [LOGO] 23 NONINTEREST INCOME --------- IN MILLIONS 3Q00 4Q00 1Q01 2Q01 3Q01 ---- ---- ---- ---- ---- RECURRING ITEMS 1. Trust & Invest Services Inc. $148 $150 $141 $132 $140 2. Inv. Banking & Cap. Mkts. Inc. 91 94 65 72 46 3. Service Charges on Deposits 85 85 84 90 107 4. COLI Income 28 31 27 27 28 5. L/C & Loan Fees 26 34 29 30 27 6. Electronic Banking Fees 18 18 17 18 20 7. Other Income 64 96 92 29 86 -- -- -- -- -- CORE NONINTEREST INCOME 460 508 455 398 454 NON-CORE ITEMS (55) - - - - ------ ---- ---- ---- ---- TOTAL NONINTEREST INCOME $405 $508 $455 $398 $454 --------- [LOGO] 24 NONINTEREST EXPENSE --------- IN MILLIONS 3Q00 4Q00 1Q01 2Q01 3Q01 ---- ---- ---- ---- ---- RECURRING ITEMS 1. Personnel $342 $360 $364 $345 $334 2. Net Occupancy & Equipment 96 97 95 96 97 3. Computer Processing 59 62 62 63 62 4. Marketing 29 28 27 29 31 5. Amortization of Intangibles 26 25 26 24 22 6. Professional Fees 18 19 18 19 26 7. Postage & Delivery 15 16 17 16 16 8. Telecommunications 12 12 11 12 10 9. Other Expense 75 89 78 82 85 -- -- -- -- -- -- CORE NONINTEREST EXPENSE 672 708 698 686 683 NON-CORE ITEMS 115 (3) - 172 - --- -- --- --- --- TOTAL NONINTEREST EXPENSE $787 $705 $698 $858 $683 --------- [LOGO] 25 STATEMENT OF INCOME-REPORTED -------- ---------- IN MILLIONS, EXCEPT PER SHARE DATA 3Q00 4Q00 1Q01 2Q01 3Q01 ---- ---- ---- ---- ---- Net Interest Income (TE) $691 $709 $695 $719 $730 Loan Loss Provision 131 108 110 401 116 Noninterest Income 405 508 455 398 454 Noninterest Expense 787 705 698 858 683 ---- ---- ---- ----- ---- 178 404 342 (142) 385 Income Taxes & TE adj. 57 138 124 (6) 136 Accounting Change, Net of Tax - - (1) (24) - ---- ---- ---- ----- ---- Net Income $121 $266 $217 $(160) $249 EPS - Assuming Dilution $0.28 $0.62 $0.51 $(0.38) $0.58 Avg. Common Shares O/S Assuming Dilution 432.0 430.6 429.9 424.7 430.3 ---------- [LOGO] 26 SIGNIFICANT NON-CORE ITEMS ---------- IN MILLIONS, EXCEPT PER SHARE DATA 3Q00 4Q00 1Q01 2Q01 3Q01 ---- ---- ---- ---- ---- Net Interest Income (TE) - - - - - Loan Loss Provision $27 $13 - - - Noninterest Income (55) - - - - Noninterest Expense 115 (3) - $172 - --- --- ---- (197) (10) - (172) - Income Taxes and TE adj. (73) (4) - (8) - Acct. Change, Net of Tax - - - (24) - ---- ---- ----- ------ ----- Net Loss $(124) $(6) - $(188) - ---------- 3Q00 Investment portfolio reconfiguration, additional loan loss provision, restructuring and other one-time charges 4Q00 Adjustment to loan loss provision (FFIEC), restructuring credit and other one-time charges 2Q01 Goodwill write-down, additional litigation reserves, restructuring and other one-time net charges, accounting change for retained interests [LOGO] 27 STATEMENT OF INCOME-CORE ---- --------- IN MILLIONS, EXCEPT PER SHARE DATA 3Q00 4Q00 1Q01 2Q01 3Q01 ---- ---- ---- ---- ---- Net Interest Income (TE) $691 $709 $695 $719 $730 Loan Loss Provision 104 95 110 401 116 Noninterest Income 460 508 455 398 454 Noninterest Expense 672 708 698 686 683 --- --- --- --- --- 375 414 342 30 385 Income Taxes & TE adj. 130 142 124 2 136 Accounting Change, Net of Tax - - (1) - - --- --- --- --- --- Net Income $245 $272 $217 $ 28 $249 Avg. Common Shares O/S Assuming Dilution 432.0 430.6 429.9 424.7 430.3 EPS - Core $0.57 $0.63 $0.51 $0.07 $0.58 --------- [LOGO] 28 ASSET QUALITY INDICATORS CP: CONTINUING PORTFOLIO TP: TOTAL PORTFOLIO CP TP IN MILLIONS 3Q00 4Q00 1Q01 2Q01 3Q01 3Q01 ---- ---- ---- ---- ---- ---- Nonperforming Loans $592 $650 $713 $797 $652 $885 to EOP Loans 0.89% 0.97% 1.06% 1.20% 1.03% 1.37% Nonperforming Assets $617 $672 $740 $823 $680 $913 to EOP Loans + OREO 0.93% 1.00% 1.10% 1.23% 1.07% 1.41% Net C/O $104 $95* $109 $171 $116 $173 to Average Loans 0.63% 0.57%* 0.66% 1.02% 0.71% 1.04% Allowance $1,001 $1,001 $1,001 $1,231 $1,002 $1,174 to Total Loans 1.51% 1.50% 1.49% 1.85% 1.58% 1.82% to Nonperforming Loans 169% 154% 140% 154% 154% 133% * EXCLUDES FFIEC AND ONE-TIME ITEMS [LOGO] SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KEYCORP ------------------------------------------- (Registrant) Date: October 17, 2001 /s/ Lee Irving ------------------------------------------- By: Lee Irving Executive Vice President and Chief Accounting Officer