8-K 1 l92309ae8-k.txt KEYCORP FORM 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): January 16, 2002 [LOGO] KEYCORP -------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 0-850 34-6542451 ---------------------------- -------------------- ----------------------- (State or other jurisdiction Commission (I.R.S. Employer of incorporation or File Number Identification No.) organization) 127 Public Square, Cleveland, Ohio 44114-1306 ---------------------------------- ------------------------ (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (216) 689-6300 ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE On January 16, 2002, the Registrant issued a press release announcing its earnings results for the three- and twelve-month period ended December 31, 2001. This press release, dated January 16, 2002, is attached as Exhibit 99.1 to this report. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) EXHIBITS 99.1 The Registrant's January 16, 2002, press release announcing its earnings results for the three- and twelve-month period ended December 31, 2001. ITEM 9. REGULATION FD DISCLOSURE On January 16, 2002, 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. 1 Annex A FOURTH QUARTER 2001 REVIEW [LOGO] January 16, 2002 [LOGO] 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 first quarter and full-year 2002 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 FOURTH QUARTER REVIEW - INTRODUCTION B. SOMERS - OVERVIEW 2001 H. MEYER - FINANCIAL REVIEW L. IRVING - ASSET QUALITY K. BLAKELY - OUTLOOK / Q&A B. SOMERS [LOGO] 4 OVERVIEW- 2001 - SHARPENED STRATEGIC FOCUS AND SIMPLIFIED ORGANIZATION - STRENGTHENED ACCOUNTABILITY - DELIVERED ON PEG COMMITMENTS - INCREASED LOAN LOSS RESERVE - ACCELERATED DOWNSIZING OF AUTO AND OTHER LOW SPREAD BUSINESSES - EXIT NON-RELATIONSHIP CORPORATE LENDING - INCREASED DIVIDEND [LOGO] 5 FINANCIAL HIGHLIGHTS - 4Q01 - EPS MEETS CONSENSUS $(0.41) - ADDITIONAL LOAN LOSS PROVISION: $590MM - SPECIAL CHARGES: $60 MILLION - NET INTEREST MARGIN INCREASED 13 B.P. - FAVORABLE TRENDS IN FEE INCOME - CONTINUED FOCUS ON EXPENSES [LOGO] 6 NET INTEREST INCOME & Margin (TE) in millions [GRAPH] 4Q00 1Q01 2Q01 3Q01 4Q01 NET INTEREST $709 $695 $719 $730 $726 INCOME NET INTEREST 3.71% 3.63% 3.77% 3.85% 3.98% MARGIN AVG. EARNING $ 76,036 $ 76,872 $ 76,546 $ 75,687 $ 72,706 ASSETS [LOGO] 7 NET INTEREST MARGIN (TE) 3Q01 vs. 4Q01 Net Interest Margin 3Q01 3.85% Loan Mix & Spreads .08 Deposit Mix & Spreads (.08) Lease Yields .06 Seasonal Factors .04 Balance Sheet Management .03 ------- Total 13bp Net Interest Margin 4Q01 3.98% [LOGO] 8 CORE NONINTEREST INCOME 3Q01 vs. 4Q01 in millions Noninterest Income 3Q01 $454 Higher letter of credit & loan fees 11 Income from demutualization 10 All other-net (10) Principal investing write-downs (37) Reserve for customer derivatives (10) ------- Noninterest Income 4Q01 $418 [LOGO] 9 CORE NONINTEREST EXPENSE 3Q01 vs. 4Q01 in millions Noninterest Expense 3Q01 $683 Demutualization contribution 10 Higher IC tied to revenue 7 All other-net 2 ------- Noninterest Expense 4Q01 $702 [LOGO] 10 PEG COST SAVINGS NONINTEREST EXPENSE: ACTUAL vs. INFLATIONARY GROWTH (in millions) [GRAPH]
1999 2000 2001 2002 Noninterest expense adjusted for inflation $2,776(b) $2,869(c) $2,949(d) $3,010(e) Noninterest expense (a) 2,776 2,789 2,769 2,770T ------ ------ ------ ------- Savings $ -- $ 80 $ 180 $ 240 ====== ====== ====== =======
(a) Total noninterest expense less significant nonrecurring items, adjusted for divested operations (b) CPI base (c) CPI + 3.4% (Bureau of Labor Statistics Jan-Dec 2000) (d) CPI + 2.8% (Bureau of Labor Statistics Jan-Nov 2001) (e) CPI + 2.0% (Estimate of 2% for 2002) T - Target for 2002 [LOGO] 11 NET CHARGE-OFFS BY LOAN TYPE IN MILLIONS 4Q00 1Q01 2Q01 3Q01 4Q01 ---- ---- ---- ---- ---- CONTINUING PORTFOLIO Commercial $ 43.0 $ 51.0 $ 39.9 $ 47.8 $ 62.3 Consumer 64.8 58.2 59.6 68.1 70.4 ---- ---- ---- ---- ---- 107.8 109.2 99.5 115.9 132.7 RUN-OFF PORTFOLIO & LOAN SALES 71.3 57.0 87.2 ---- ---- ---- TOTAL NET C/O $ 107.8 $ 109.2 $ 170.8 $ 172.9 $ 219.9 [LOGO] 12 ASSET QUALITY INDICATORS TOTAL TOTAL CONTINUING CONTINUING PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO IN MILLIONS 3Q01 4Q01 3Q01 4Q01 ---- ---- ---- ---- Nonperforming Loans $ 885 $ 910 $ 652 $ 679 to EOP Loans 1.37% 1.44% 1.03% 1.09% Nonperforming Assets $ 913 $ 947 $ 680 $ 716 to EOP Loans + OREO 1.41% 1.49% 1.07% 1.15% Net C/O $ 173 $ 220 $ 116 $ 133 to Average Loans 1.04% 1.37% 0.71% 0.84% Allowance $1,174 $1,677 $1,002 $1,402 to Total Loans 1.82% 2.65% 1.58% 2.25% to Nonperforming Loans 133% 184% 154% 206% [LOGO] 13 RUN-OFF PORTFOLIO & NONREPLENISHING RESERVES IN MILLIONS 5/17/01 6/30/01 9/30/01 12/31/01 ------- ------- ------- -------- COMMITMENTS $2,648 $2,393 $2,019 $1,694 OUTSTANDINGS 1,611 1,423 1,176 1,023 ALLOWANCE FOR LOAN LOSSES 300 229 172 275 NPLs 257 242 233 231 [LOGO] 14 NONPERFORMING LOANS: 4Q01 4Q01 INCREASE IN NPL: $ 25MM OR 3% LARGEST NPL: $ 32MM (HEALTHCARE-CP) 10TH LARGEST: $ 12MM (STRUCTURED FINANCE- ROP) 20TH LARGEST: $ 9MM (STRUCTURED FINANCE-ROP) CP: CONTINUING PORTFOLIO ROP: RUN-OFF PORTFOLIO [LOGO] 15 NONPERFORMING LOANS: 4Q01 Composition of Top 20 NPLs: in millions CP ROP TP -- --- -- Healthcare $120 -- $120 Structured Finance -- $ 75 75 Middle Market 10 21 31 Large Corporate 10 20 30 Leasing 14 -- 14 Key Capital Partners 13 -- 13 Commercial Real Estate -- -- -- CP: Continuing Portfolio $167M ROP: Run-off Portfolio 116M ------ TP: Total Portfolio $283M Top 20 Average Size $14.2M [LOGO] 16 SUMMARY OF SIGNIFICANT ACTIONS - 2001 - Accelerated downsizing of auto business - Reduced auto leases and indirect loans by $1.2 billion - Exit non-relationship corporate lending - Runoff portfolio reduced by $588 million - Sold $4.4 billion of loans - Reduced dependence on wholesale funding by $4.1 billion - Added $676 million to loan loss reserve [LOGO] 17 FIRST QUARTER 2002 OUTLOOK (COMPARED WITH 4Q01) REVENUE SLIGHT INCREASE (4Q INCLUDES SPECIAL CHARGES OF $60 MILL.) - FLAT TO SLIGHTLY LOWER LOANS - SEASONAL DECLINE IN NIM - MODEST FEE GROWTH EXPENSE MODEST DECREASE CREDIT QUALITY NPAs ARE EXPECTED TO INCREASE SLIGHT INCREASE IN CORE NET CHARGE-OFFS EARNINGS EPS RANGE: $0.54 TO $0.57 [LOGO] 18 APPENDIX [LOGO] [B 19 LINE OF BUSINESS PERFORMANCE RETAIL BANKING (A DIVISION OF KEY CONSUMER BANKING) IN MILLIONS [GRAPH] 4Q00 1Q01 2Q01 3Q01 4Q01 REVENUE $341 $339 $341 $361 $343 NET INCOME $ 73 $ 74 $ 73 $ 88 $ 80 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 4Q00 1Q01 2Q01 3Q01 4Q01 REVENUE $146 $147 $146 $154 $144 NET INCOME $ 17 $ 19 $ 17* $ 19 $ 12 * 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 KEY CORPORATE FINANCE [GRAPH] IN MILLIONS 4Q00 1Q01 2Q01 3Q01 4Q01 REVENUE $480 $442 $474 $459 $498 NET INCOME $141 $109 $130 $127 $150 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 KEY CAPITAL PARTNERS [GRAPH] IN MILLIONS 4Q00 1Q01 2Q01 3Q01 4Q01 REVENUE $250 $244 $240 $243 $241 NET INCOME $ 24 $ 13 $ 13 $ 19 $ 20 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 4Q00 1Q01 2Q01 3Q01 4Q01 ---- ---- ---- ---- ---- RECURRING ITEMS 1. Trust & Invest Services Inc. $150 $141 $132 $140 $137 2. Inv. Banking & Cap. Mkts. Inc. 94 65 72 46 6 3. Service Charges on Deposits 85 84 90 107 106 4. COLI Income 31 27 27 28 32 5. L/C & Loan Fees 34 29 30 27 38 6. Electronic Banking Fees 18 17 18 20 19 7. Other Income 96 92 29 86 80 ---- ---- ---- ---- ---- CORE NONINTEREST INCOME 508 455 398 454 418 NON-CORE ITEMS - - - - - ---- ---- ---- ---- ---- TOTAL NONINTEREST INCOME $508 $455 $398 $454 $418 [LOGO] 24 NONINTEREST EXPENSE IN MILLIONS 4Q00 1Q01 2Q01 3Q01 4Q01 ----- ----- ----- ----- ----- RECURRING ITEMS 1. Personnel $ 360 $ 364 $ 345 $ 334 $ 335 2. Net Occupancy & Equipment 97 95 96 97 96 3. Computer Processing 62 62 63 62 65 4. Marketing 28 27 29 31 25 5. Amortization of Intangibles 25 26 24 22 23 6. Professional Fees 19 18 19 26 25 7. Postage & Delivery 16 17 16 16 14 8. Telecommunications 12 11 12 10 11 9. Other Expense 89 78 82 85 108 ----- ----- ----- ----- ----- CORE NONINTEREST EXPENSE 708 698 686 683 702 NON-CORE ITEMS (3) - 172 - - ----- ----- ----- ----- ----- TOTAL NONINTEREST EXPENSE $ 705 $ 698 $ 858 $ 683 $ 702 [LOGO] 25 STATEMENT OF INCOME-REPORTED IN MILLIONS, EXCEPT PER SHARE DATA 4Q00 1Q01 2Q01 3Q01 4Q01 ---- ---- ---- ---- ---- Net Interest Income (TE) $ 709 $ 695 $ 719 $ 730 $ 726 Loan Loss Provision 108 110 401 116 723 Noninterest Income 508 455 398 454 418 Noninterest Expense 705 698 858 683 702 ----- ----- ----- ----- ----- 404 342 (142) 385 (281) Income Taxes & TE adj. 138 124 (6) 136 (107) Accounting Change, Net of Tax - (1) (24) - - ----- ----- ----- ----- ----- Net Income (Loss) $266 $217 $(160) $ 249 $ (174) Avg. Common Shares O/S Assuming Dilution 430.6 429.9 424.7 430.3 423.6 EPS - Assuming Dilution $0.62 $0.51 $(0.38) $0.58 $(0.41) [LOGO] 26 SIGNIFICANT NON-CORE ITEMS IN MILLIONS, EXCEPT PER SHARE DATA 4Q00 1Q01 2Q01 3Q01 4Q01 ---- ---- ---- ---- ---- Net Interest Income (TE) - - - - - Loan Loss Provision $ 13 - - - - Noninterest Income - - - - - Noninterest Expense (3) - $ 172 - - ------ ------ (10) - (172) - - Income Taxes and TE adj. (4) - (8) - - Acct. Change, Net of Tax - - (24) - - ------ ----- ------ ----- ----- Net Loss $ (6) - $(188) - - 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 4Q00 1Q01 2Q01 3Q01 4Q01 ---- ---- ---- ---- ---- Net Interest Income (TE) $ 709 $ 695 $ 719 $ 730 $ 726 Loan Loss Provision 95 110 401 116 723 Noninterest Income 508 455 398 454 418 Noninterest Expense 708 698 686 683 702 ----- ----- ----- ----- ------ 414 342 30 385 (281) Income Taxes & TE adj. 142 124 2 136 (107) Accounting Change, Net of Tax - (1) - - - ----- ----- ----- ----- ------ Net Income $ 272 $ 217 $ 28 $ 249 $ (174) Avg. Common Shares O/S Assuming Dilution 430.6 429.9 424.7 430.3 423.6 EPS - Core $0.63 $0.51 $0.07 $0.58 $(0.41) [LOGO] 28 ASSET QUALITY INDICATORS CP: CONTINUING PORTFOLIO TP: TOTAL PORTFOLIO CP TP IN MILLIONS 4Q00 1Q01 2Q01 3Q01 4Q01 4Q01 ---- ---- ---- ---- ---- ---- Nonperforming Loans $ 650 $ 713 $ 797 $ 885 $ 679 $ 910 to EOP Loans 0.97% 1.06% 1.20% 1.37% 1.09% 1.44% Nonperforming Assets $ 672 $ 740 $ 823 $ 913 $ 716 $ 947 to EOP Loans + OREO 1.00% 1.10% 1.23% 1.41% 1.15% 1.49% Net C/O $ 95* $ 109 $ 171 $ 173 $ 133 $ 220 to Average Loans 0.57%* 0.66% 1.02% 1.04% 0.84% 1.37% Allowance $1,001 $1,001 $1,231 $1,174 $1,402 $1,677 to Total Loans 1.50% 1.49% 1.85% 1.82% 2.25% 2.65% to Nonperforming Loans 154% 140% 154% 133% 206% 184% * 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: January 16, 2002 /s/ Lee Irving -------------------------------------- By: Lee Irving Executive Vice President and Chief Accounting Officer