-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DnGFrOZCuIxe+Th7X9kjzdaOzVDWuuMyLx+iiQroTRrS43Rvij2OhhaNN1o4an4B fEP2yELcyYEs4WGfnT9OgQ== 0000950152-02-005504.txt : 20020716 0000950152-02-005504.hdr.sgml : 20020716 20020716170712 ACCESSION NUMBER: 0000950152-02-005504 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020716 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: FILED AS OF DATE: 20020716 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYCORP /NEW/ CENTRAL INDEX KEY: 0000091576 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 346542451 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11302 FILM NUMBER: 02704183 BUSINESS ADDRESS: STREET 1: 127 PUBLIC SQ CITY: CLEVELAND STATE: OH ZIP: 44114-1306 BUSINESS PHONE: 2166896300 MAIL ADDRESS: STREET 1: 127 PUBLIC SQ CITY: CLEVELAND STATE: OH ZIP: 44114-1306 FORMER COMPANY: FORMER CONFORMED NAME: SOCIETY CORP DATE OF NAME CHANGE: 19920703 8-K 1 l95385ae8vk.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): July 16, 2002 [KEYCORP LOGO] KEYCORP -------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 0-850 34-6542451 - ---------------------------- ---------------------- ------------------- (State or other jurisdiction Commission File Number (I.R.S. Employer of incorporation or 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 July 16, 2002, the Registrant issued a press release announcing its earnings results for the three- and six-month period ended June 30, 2002. This press release, dated July 16, 2002, is attached as Exhibit 99.1 to this report. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS --------------------------------- (c) Exhibits -------- 99.1 The Registrant's July 16, 2002, press release announcing its earnings results for the three- and six-month period ended June 30, 2002. ITEM 9. REGULATION FD DISCLOSURE ------------------------ On July 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 SECOND QUARTER 2002 REVIEW JULY 16, 2002 [KEYCORP 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 third 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; 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. [KEYCORP LOGO] 3 SECOND QUARTER REVIEW - - INTRODUCTION B. SOMERS - - OVERVIEW H. MEYER - - FINANCIAL REVIEW L. IRVING - - ASSET QUALITY K. BLAKELY - - OUTLOOK / Q&A B. SOMERS [KEYCORP LOGO] 4 OVERVIEW - - CONTINUED PROGRESS ON STRATEGIC INITIATIVES - REDUCED AUTO LOAN/ LEASES BY $1.8 BILLION - RUN-OFF PORTFOLIO REDUCED BY $887 MILLION - REFOCUSED ON CORE RELATIONSHIP BUSINESSES - - STRONG EXPENSE CULTURE [KEYCORP LOGO] 5 FINANCIAL HIGHLIGHTS - 2Q02 - - EPS OF $0.57 MEETS CONSENSUS ESTIMATE - - SOLID, CLEAN QUARTER - - REVENUE UP 3% FROM 1Q02 - - STRONG EXPENSE MANAGEMENT - - NONPERFORMING LOANS DOWN [KEYCORP LOGO] 6 NET INTEREST INCOME & MARGIN (TE) $ in millions [GRAPH] 2Q01 3Q01 4Q01 1Q02 2Q02 NET INTEREST $719 $730 $726 $702 $721 INCOME NET INTEREST 3.77% 3.85% 3.98% 3.93% 3.98% MARGIN AVG. EARNING $76,546 $75,687 $72,706 $71,981 $72,579 ASSETS [KEYCORP LOGO] 7 NET INTEREST MARGIN (TE) 2Q02 VS. 1Q02 NET INTEREST MARGIN 1Q02 3.93% Deposit Related 5 Loan Fees (2) Other 2 --- Total 5 b.p. NET INTEREST MARGIN 2Q02 3.98% [KEYCORP LOGO] 8 NONINTEREST INCOME 2Q02 VS. 1Q02 IN MILLIONS NONINTEREST INCOME 1Q02 $ 443 Investment Banking Fees 13 Service Charges 4 Trust & Investment Services 2 Trading/Derivative Income (11) All other-net (3) ---- Total 5 NONINTEREST INCOME 2Q02 $ 448 [KEYCORP LOGO] 9 NONINTEREST EXPENSE 2Q02 VS. 1Q02 IN MILLIONS NONINTEREST EXPENSE 1Q02 $ 661 Salaries & Incentives 6 Marketing 4 Computer Processing (6) --- Total 4 NONINTEREST EXPENSE 2Q02 $ 665 [KEYCORP LOGO] 10 KEY CONSUMER BANKING in millions [BAR GRAPH] Revenue (TE) Net Income 2Q01 2Q02 2Q01 2Q02 Retail Banking $327 $327 $ 62 $ 68 Small Business 98 98 29 30 Indirect Lending 99 94 16 13 National Home Equity 45 60 -- 4 ---- ---- ---- ---- TOTAL KEY CONSUMER BANKING $569 $579 $107* $115 ==== ==== ==== ==== *Excludes one-time charge for retained interests in securitized assets [KEYCORP LOGO] 11 KEY CORPORATE FINANCE in millions [BAR GRAPH] Revenue (TE) Net Income 2Q01 2Q02 2Q01 2Q02 Corporate Banking $201 $177 $ 62 $ 50 National Commercial R/E 95 86 36 29 National Equipment Finance 44 62 7 21 ---- ---- ---- ---- TOTAL KEY CORPORATE FINANCE $340 $325 $105 $100 ==== ==== ==== ==== [KEYCORP LOGO] 12 KEY CAPITAL PARTNERS in millions [BAR GRAPH] Revenue (TE) Net Income 2Q01 2Q02 2Q01 2Q02 Victory Capital Management $ 60 $ 57 $ 12 $ 12 High Net Worth 149 148 9 17 Capital Markets 83 83 11 13 ---- ---- ---- ---- TOTAL KEY CAPITAL PARTNERS $292 $288 $ 32 $ 42 ==== ==== ==== ==== [KEYCORP LOGO] 13 NET CHARGE-OFFS BY LOAN TYPE in millions 2Q01 3Q01 4Q01 1Q02 2Q02 ---- ---- ---- ---- ---- CONTINUING PORTFOLIO Commercial $39.9 $47.8 $62.3 $69.2 $75.8 Consumer 59.6 68.1 70.4 66.9 58.9 ------ ----- ----- ----- ----- 99.5 115.9 132.7 136.1 134.7 RUN-OFF PORTFOLIO & LOAN SALES 71.3 57.0 87.2 70.2 67.8 ------ ----- ----- ----- ----- TOTAL NET C/O $170.8 $172.9 $219.9 $206.3 $202.5 [KEYCORP LOGO] 14 ASSET QUALITY INDICATORS TOTAL TOTAL CONTINUING CONTINUING PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO $ IN MILLIONS 1Q02 2Q02 1Q02 2Q02 --------- --------- ---------- ---------- Nonperforming Loans $973 $957 $765 $825 to EOP Loans 1.52% 1.50% 1.21% 1.31% Nonperforming Assets $1,012 $995 $804 $863 to EOP Loans + OREO 1.58% 1.56% 1.28% 1.37% Net C/O $206 $203 $136 $135 to Average Loans 1.32% 1.27% 0.88% 0.86% Allowance $1,607 $1,539 $1,402 $1,402 to Total Loans 2.51% 2.41% 2.22% 2.22% to Nonperforming Loans 165% 161% 183% 170% [KEYCORP LOGO] 15 RUN-OFF PORTFOLIO & NONREPLENISHING RESERVES IN MILLIONS 6/30/01 9/30/01 12/31/01 3/31/02 6/30/02 ------- ------- -------- ------- ------- COMMITMENTS $2,393 $2,019 $1,694 $1,532 $1,143 OUTSTANDINGS 1,423 1,176 1,023 941 724 ALLOWANCE FOR LOAN LOSSES 229 172 275 205 137 NPLs 242 233 231 208 132 [KEYCORP LOGO] 16 ASSET QUALITY OUTLOOK 2002 SECOND HALF NPL FLAT TO DOWN MODESTLY NET C/O DOWN MODESTLY WATCH LIST MODEST FLUCTUATIONS CONSUMER TRENDS STABLE RESERVE LEVEL ADEQUATE [KEYCORP LOGO] 17 THIRD QUARTER 2002 OUTLOOK (COMPARED WITH 2Q02) REVENUE SLIGHT INCREASE - SLIGHTLY HIGHER LOANS - RELATIVELY STABLE NIM (mid 3.90% range) - MODEST FEE GROWTH EXPENSE SLIGHT INCREASE TE TAX RATE APPROXIMATELY 33% [KEYCORP LOGO] 18 APPENDIX [KEYCORP LOGO] 19 NONINTEREST INCOME IN MILLIONS 2Q01 3Q01 4Q01 1Q02 2Q02 ---- ---- ---- ---- ---- RECURRING ITEMS 1. Trust & Invest Services Inc. $132 $140 $137 $135 $137 2. Inv. Banking & Cap. Mkts. Inc. 72 46 6 72 68 3. Service Charges on Deposits 90 107 106 100 104 4. COLI Income 27 28 32 26 26 5. L/C & Loan Fees 30 27 38 28 29 6. Electronic Banking Fees 18 20 19 18 20 7. Other Income 29 86 80 64 64 ---- ---- ---- ---- ---- CORE NONINTEREST INCOME 398 454 418 443 448 NON-CORE ITEMS - - - - - ---- ---- ---- ---- ---- TOTAL NONINTEREST INCOME $398 $454 $418 $443 $448 [KEYCORP LOGO] 20 NONINTEREST EXPENSE IN MILLIONS 2Q01 3Q01 4Q01 1Q02 2Q02 ---- ---- ---- ---- ---- RECURRING ITEMS 1. Personnel $345 $334 $335 $363 $361 2. Net Occupancy & Equipment 96 97 96 91 92 3. Computer Processing 63 62 65 54 48 4. Marketing 29 31 25 26 30 5. Amortization of Intangibles 24 22 23 3 2 6. Professional Fees 19 26 25 21 21 7 Postage & Delivery 16 16 14 15 14 8. Telecommunications 12 10 11 8 9 9. Other Expense 82 85 108 80 88 ---- ---- ---- ---- ---- CORE NONINTEREST EXPENSE 686 683 702 661 665 NON-CORE ITEMS 172 - - - - ---- ---- ---- ---- ---- TOTAL NONINTEREST EXPENSE $858 $683 $702 $661 $665 [KEYCORP LOGO] 21 STATEMENT OF INCOME-REPORTED -------- $ IN MILLIONS, EXCEPT PER SHARE DATA 2Q01 3Q01 4Q01 1Q02 2Q02 ---- ---- ---- ---- ---- Net Interest Income (TE) $719 $730 $726 $702 $721 Loan Loss Provision 401 116 723 136 135 Noninterest Income 398 454 418 443 448 Noninterest Expense 858 683 702 661 665 ------ ----- ------ ----- ----- (142) 385 (281) 348 369 Income Taxes & TE adj (6) 136 (107) 108 123 Accounting Change, Net of Tax (24) - - - - ------ ----- ------ ----- ----- Net Income (Loss) $(160) $249 $(174) $240 $246 Avg. Common Shares O/S Assuming Dilution 429.8 430.3 428.3 430.0 431.9 EPS - Assuming Dilution $(0.38) $0.58 $(0.41) $0.56 $0.57 [KEYCORP LOGO] 22 SIGNIFICANT NON-CORE ITEMS IN MILLIONS 2Q01 3Q01 4Q01 1Q02 2Q02 ---- ---- ---- ---- ---- Net Interest Income (TE) - - - - - Loan Loss Provision - - - - - Noninterest Income - - - - - Noninterest Expense $172 - - - - ----- (172) - - - - Income Taxes and TE adj (8) - - - - Acct. Change, Net of Tax (24) - - - - ----- Net Loss $(188) - - - - 2Q01 Goodwill write-down, additional litigation reserves, restructuring and other one-time net charges, accounting change for retained interests [KEYCORP LOGO] 23 STATEMENT OF INCOME-CORE ---- $ IN MILLIONS, EXCEPT PER SHARE DATA 2Q01 3Q01 4Q01 1Q02 2Q02 ---- ---- ---- ---- ---- Net Interest Income (TE) $719 $730 $726 $702 $721 Loan Loss Provision 401 116 723 136 135 Noninterest Income 398 454 418 443 448 Noninterest Expense 686 683 702 661 665 ----- ----- ----- ----- ----- 30 385 (281) 348 369 Income Taxes & TE adj 2 136 (107) 108 123 Accounting Change, Net of Tax - - - - - ----- ----- ----- ----- ----- Net Income $28 $249 $(174) $240 $246 Avg. Common Shares O/S Assuming Dilution 429.8 430.3 428.3 430.0 431.9 EPS - Core $0.07 $0.58 $(0.41) $0.56 $0.57 [KEYCORP LOGO] 24 ASSET QUALITY INDICATORS CP: CONTINUING PORTFOLIO TP: TOTAL PORTFOLIO CP TP $ IN MILLIONS 2Q01 3Q01 4Q01 1Q02 2Q02 2Q02 ---- ---- ---- ---- ---- ---- Nonperforming Loans $797 $885 $910 $973 $825 $957 to EOP Loans 1.20% 1.37% 1.44% 1.52% 1.31% 1.50% Nonperforming Assets $823 $913 $947 $1,012 $863 $995 to EOP Loans + OREO 1.23% 1.41% 1.49% 1.58% 1.37% 1.56% Net C/O $171 $173 $220 $206 $135 $203 to Average Loans 1.02% 1.04% 1.37% 1.32% 0.86% 1.27% Allowance $1,231 $1,174 $1,677 $1,607 $1,402 $1,539 to Total Loans 1.85% 1.82% 2.65% 2.51% 2.22% 2.41% to Nonperforming Loans 154% 133% 184% 165% 170% 161% [KEYCORP LOGO] 25 NONPERFORMING LOANS: 2Q02 2Q02 DECREASE IN NPL: ($ 16MM) or (2%) LARGEST NPL: $ 27MM (STRUCTURED FINANCE-CP) 10TH LARGEST: $ 14MM (MEDIA FINANCE-ROP) 20TH LARGEST: $ 9MM (MIDDLE MARKET-CP) CP: CONTINUING PORTFOLIO ROP: RUN-OFF PORTFOLIO [KEYCORP 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: July 16, 2002 /s/ Lee Irving -------------------------------------- By: Lee Irving Executive Vice President and Chief Accounting Officer EX-99.1 3 l95385aexv99w1.txt EXHIBIT 99.1 Exhibit 99.1 MEDIA CONTACT: JOHN FULLER ANALYST CONTACT: VERNON L. PATTERSON 216.689.8140 216.689.0520 KEY MEDIA INVESTOR RELATIONS NEWSROOM: www.Key.com/newsroom INFORMATION: www.Key.com/ir FOR IMMEDIATE RELEASE KEYCORP REPORTS SECOND QUARTER 2002 EARNINGS -------------------------------------------- - - EPS OF $0.57 - - REVENUE UP, EXPENSES STABLE - - NONPERFORMING LOANS DOWN - - STRATEGIC ACTIONS PRODUCING FAVORABLE RESULTS CLEVELAND, July 16, 2002 - KeyCorp (NYSE: KEY) today announced second quarter net income of $246 million, or $0.57 per diluted common share, compared with first quarter net income of $240 million, or $0.56 per diluted common share. "Just like the first quarter's results, our second quarter results were solid," said Chairman and Chief Executive Officer Henry L. Meyer III. "Positive revenue, expense control and asset quality performance during the quarter demonstrate that the strategic actions we took in last year's second and fourth quarters are paying off." During the second quarter of last year, Key reported a net loss of $160 million, or $0.38 per common share. The loss reflects charges associated with the company's implementation of several strategic actions, including exiting the automobile leasing business, de-emphasizing indirect automobile lending, discontinuing certain credit-only relationships and bolstering the loan loss reserve. At that time, Key announced that it would return to its relationship banking roots and conservative credit culture. "Revenue increased by $34 million from last quarter and expense growth was kept to a minimum," said Meyer. "In addition, nonperforming loans decreased slightly and net loan charge-offs were essentially unchanged from the prior quarter. Moreover, we are comfortable with the level of loan loss reserves in both our continuing and run-off portfolios." SUMMARY OF CONSOLIDATED RESULTS Taxable-equivalent net interest income grew to $721 million for the second quarter of 2002 from $702 million in the previous quarter. This improvement was attributable to a 5 basis point rise in Key's net interest margin to 3.98% and to an increase of nearly $600 million in average earning assets. The increase in earning assets was due primarily to continued growth in home equity lending and a higher level of securities. Compared with the second quarter of 2001, taxable-equivalent net interest income rose by $2 million, reflecting a higher net interest margin, which more than offset the effect of a 5% decrease in average earning assets. The decrease in earning assets was attributable primarily to the impact of strategic actions, loan sales and weaker loan demand. KEYCORP REPORTS SECOND QUARTER EARNINGS JULY 16, 2002 PAGE 2 Key's noninterest income was $448 million for the second quarter of 2002, up from $443 million in the prior quarter. Higher income from investment banking activities (up $13 million) and service charges on deposit accounts (up $4 million) drove the increase. These positive results were offset in part by an $11 million decrease in income from dealer trading and derivatives. Compared with the year-ago quarter, noninterest income rose by $50 million. Included in last year's results is a $40 million charge taken to create a reserve for losses incurred on the residual values of leased vehicles. Noninterest expense of $665 million for the second quarter of 2002 was up slightly from $661 million for the first three months of this year. Compared with the second quarter of 2001, noninterest expense was down by $193 million. Results for the year-ago quarter include nonrecurring charges of $172 million, most of which were associated with the strategic actions implemented in that quarter. In addition, the January 1, 2002, adoption of new accounting guidance for goodwill resulted in an expense reduction of approximately $20 million. ASSET QUALITY Key's provision for loan losses was $135 million for the second quarter of 2002, essentially unchanged from the amount for the previous quarter and down significantly from $401 million for the second quarter of 2001. Net loan charge-offs totaled $203 million for the quarter, compared with $206 million for the previous quarter and $171 million for the year-ago quarter. Included in second quarter 2002 net charge-offs is $68 million of losses charged to the nonreplenishable allowance. In 2001, management set apart $490 million ($300 million of which was recorded in the second quarter) of Key's provision for loan losses as part of its decision to eliminate nonrelationship lending in the leveraged financing and nationally syndicated lending businesses and for the sales of distressed loans in other portfolios. The resulting segregated allowance is being used to exit approximately $2.7 billion in related commitments (which were moved to the run-off portfolio in May 2001) and for losses incurred in connection with loan sales. As losses are charged to this segregated allowance, Key does not intend to replenish it. Within the run-off portfolio, approximately $1.1 billion of commitments (including $724 million of loans outstanding) remained as of June 30, 2002. The following table summarizes certain asset quality indicators, segregated between Key's continuing and run-off loan portfolios. ASSET QUALITY INDICATORS
Run-off Loan Portfolio and Continuing Loan Portfolio Nonreplenishable Allowance Total Loan Portfolio --------------------------- --------------------------- ----------------------- dollars in millions 2Q02 1Q02 2Q02 1Q02 2Q02 1Q02 - ---------------------------------------------------------------------------------------------------------------------------------- Loans outstanding $63,157 $63,015 $724 $941 $63,881 $63,956 Nonperforming loans at period end 825 765 132 208 957 973 Net loan charge-offs 135 136 68(a) 70(a) 203 206 Net loan charge-offs to average loans .86% .88% N/M N/M 1.27% 1.32% Allowance for loan losses $1,402 $1,402 $137 $205 $1,539 $1,607 Allowance for loan losses to period-end loans 2.22% 2.22% 18.91% 21.79% 2.41% 2.51% - ----------------------------------------------------------------------------------------------------------------------------------
(a) Includes activity related to the run-off loan portfolio and to the sales of distressed loans. N/M = Not Meaningful KEYCORP REPORTS SECOND QUARTER EARNINGS JULY 16, 2002 PAGE 3 The level of Key's nonperforming loans decreased by $16 million during the second quarter, reflecting a significant reduction in nonperforming loans related to the health care industry. This improvement was offset in part by a higher level of nonperforming loans in the middle market portfolio. As shown in the preceding table, nonperforming loans in the run-off portfolio totaled $132 million at June 30, 2002, compared with $208 million at March 31, 2002. CAPITAL Key's capital ratios continued to exceed all "well-capitalized" benchmarks at June 30, 2002. During the second quarter, Key did not repurchase any of its common shares under an authorization that allows for the repurchase of up to 25 million shares. There were 16.8 million shares remaining for repurchase under this authorization as of June 30, 2002. LINE OF BUSINESS RESULTS The table below summarizes the contribution made by each major business group to Key's taxable-equivalent revenue and net income (loss) for the periods presented. The specific lines of business that comprise each of the major business groups are shown in the related discussions that follow and are described under the heading "Line of Business Descriptions." MAJOR BUSINESS GROUPS
PERCENT CHANGE 2Q02 VS. ------------------------------- dollars in millions 2Q02 1Q02 2Q01 1Q02 2Q01 - --------------------------------------------------------------------------------------------------------- Revenue (taxable equivalent) - ----------------------------------- Key Consumer Banking $579 $561 $569 3.2% 1.8% Key Corporate Finance 325 340 340 (4.4) (4.4) Key Capital Partners 288 277 292 4.0 (1.4) Other Segments (20) (23) (15) (13.0) 33.3 ----------- ---------- ---------- -------------- -------------- Total segments 1,172 1,155 1,186 1.5 (1.2) Reconciling items(b) (3) (10) (69) (70.0) (95.7) ----------- ---------- ---------- -------------- -------------- Total $1,169 $1,145 $1,117 2.1 4.7 =========== ========== ========== Net income (loss) - ----------------------------------- Key Consumer Banking(a) $115 $104 $107 10.6% 7.5% Key Corporate Finance 100 109 105 (8.3) (4.8) Key Capital Partners 42 37 32 13.5 31.3 Other Segments (8) (8) (4) -- 100.0 ----------- ---------- ---------- -------------- -------------- Total segments 249 242 240 2.9 3.8 Reconciling items(b) (3) (2) (400) 50.0 (99.3) ----------- ---------- ---------- -------------- -------------- Total $246 $240 $(160) 2.5 N/M =========== ========== ========== - ---------------------------------------------------------------------------------------------------------
(a) Second quarter 2001 results exclude a one-time cumulative charge of $39 million ($24 million after tax) resulting from a prescribed change, applicable to all companies, in the accounting for retained interests in securitized assets (See note (b) below). (b) Reconciling items in the second quarter of 2001 include an additional provision for loan losses of $300 million ($189 million after tax) recorded in connection with Key's decision to eliminate nonrelationship credit-only transactions, a goodwill write-down of $150 million associated with Key's decision to downsize its automobile finance business, a $40 million ($25 million after tax) loss recorded in connection with declines in leased vehicle residual values, a $20 million ($13 million after tax) increase in litigation reserves and other nonrecurring charges of $2 million ($1 million after tax). Also included are charges related to unallocated nonearning assets of corporate support functions and the effect of the accounting change described in note (a) above. N/M = Not Meaningful KEYCORP REPORTS SECOND QUARTER EARNINGS JULY 16, 2002 PAGE 4 KEY CONSUMER BANKING GROUP
PERCENT CHANGE 2Q02 VS. ------------------------------- dollars in millions 2Q02 1Q02 2Q01 1Q02 2Q01 - ----------------------------------------------------------------------------------------------------------- Revenue (taxable equivalent) - ------------------------------------- Retail Banking $327 $314 $327 4.1% --% Small Business 98 96 98 2.1 -- Indirect Lending 94 91 99 3.3 (5.1) National Home Equity 60 60 45 -- 33.3 ----------- ---------- ---------- -------------- -------------- Total $579 $561 $569 3.2 1.8 =========== ========== ========== Net income(a) - ------------------------------------- Retail Banking $ 68 $ 64 $ 62 6.3% 9.7% Small Business 30 29 29 3.4 3.4 Indirect Lending 13 10 16 30.0 (18.8) National Home Equity 4 1 -- 300.0 N/M ----------- ---------- ---------- -------------- -------------- Total $115 $104 $107 10.6 7.5 =========== ========== ========== - -----------------------------------------------------------------------------------------------------------
(a) Second quarter 2001 results exclude a one-time cumulative charge of $39 million ($24 million after tax) resulting from a prescribed change, applicable to all companies, in the accounting for retained interests in securitized assets. N/M= Not Meaningful Additional Key Consumer Banking Data
dollars in billions 2Q02 1Q02 - -------------------------------------------------------------------------------------- Average consumer loans-- direct $1.3 $1.3 Average consumer loans-- indirect 7.0 7.5 Average core deposits 30.9 31.2 On-line clients/percent penetration 489,632/28% 450,762/26% National Home Equity average loan-to-value ratio 76 77 National Home Equity-- percent first lien positions 83 83 KeyCenters 905 911 Automated Teller Machines 2,284 2,329 Full-time equivalent employees 8,434 8,458 - --------------------------------------------------------------------------------------
Net income for Key Consumer Banking was $115 million for the second quarter of 2002, representing an $8 million increase from the year-ago quarter. The improvement is attributable to an increase in noninterest income and a reduction in noninterest expense, offset in part by a decrease in taxable-equivalent net interest income and a higher provision for loan losses. Taxable-equivalent net interest income decreased by $5 million, or 1%, from the second quarter of 2001 due to a less favorable interest rate spread on deposits and a decline in average deposits outstanding. The adverse effect of these factors was partially offset by a more favorable spread on earning assets. Noninterest income grew by $15 million, or 14%, due primarily to a $9 million increase in income from service charges on deposit accounts contributed by the Retail Banking and Small Business lines of business. This growth resulted from new pricing implemented in mid-2001 in connection with PEG (Perform, Excel, Grow), Key's competitiveness improvement initiative. Also contributing to the growth in noninterest income are lower losses from retained interests in previously securitized assets and from trading activities. Noninterest expense was down $5 million, or 1%, from the second quarter of 2001. This improvement reflects KEYCORP REPORTS SECOND QUARTER EARNINGS JULY 16, 2002 PAGE 5 an approximate $9 million reduction in goodwill amortization, which resulted from the adoption of new accounting guidance on January 1, as well as lower costs for software amortization. These reductions were partially offset by higher costs related to personnel, marketing and activities associated with a higher volume of home equity lending. The $8 million, or 15%, increase in the provision for loan losses reflects the growth in lending in the National Home Equity line of business. KEY CORPORATE FINANCE GROUP
PERCENT CHANGE 2Q02 VS. ------------------------------ dollars in millions 2Q02 1Q02 2Q01 1Q02 2Q01 - --------------------------------------------------------------------------------------------------------- Revenue (taxable equivalent) - ----------------------------------- Corporate Banking $177 $187 $201 (5.3)% (11.9)% National Commercial Real Estate 86 91 95 (5.5) (9.5) National Equipment Finance 62 62 44 -- 40.9 ----------- ---------- ----------- ------------- ------------- Total $325 $340 $340 (4.4) (4.4) =========== ========== =========== Net income - ----------------------------------- Corporate Banking $50 $56 $62 (10.7)% (19.4)% National Commercial Real Estate 29 32 36 (9.4) (19.4) National Equipment Finance 21 21 7 -- 200.0 ----------- ---------- ----------- ------------- ------------- Total $100 $109 $105 (8.3) (4.8) =========== ========== =========== - ---------------------------------------------------------------------------------------------------------
Additional Key Corporate Finance Data dollars in billions 2Q02 1Q02 - ---------------------------------------------------------------- Average loans and leases $29.6 $29.8 Average deposits 3.1 3.1 Full-time equivalent employees 1,728 1,750 - ---------------------------------------------------------------- Net income for Key Corporate Finance was $100 million for the second quarter of 2002, compared with $105 million for the same period last year. The decrease is due to a reduction in noninterest income, partially offset by an increase in taxable-equivalent net interest income and lower noninterest expense. Taxable-equivalent net interest income grew by $5 million, or 2%, due primarily to a more favorable interest rate spread on earning assets and an increase in the taxable-equivalent adjustment related to income derived from the equipment leasing portfolio. At the same time, noninterest income decreased by $20 million, or 30%. In the Corporate Banking line of business, additional income from a significant increase in service charges on deposit accounts was more than offset by lower income from trading activities. The overall reduction in noninterest income also reflects declines in gains from loan sales in the National Commercial Real Estate line and from the residual values of leased equipment in the National Equipment Finance line. A $6 million, or 5%, decrease in noninterest expense was driven by an approximate $4 million reduction in goodwill amortization resulting from the January 1 adoption of new accounting guidance. KEYCORP REPORTS SECOND QUARTER EARNINGS JULY 16, 2002 PAGE 6 KEY CAPITAL PARTNERS GROUP
PERCENT CHANGE 2Q02 VS. ------------------------------- dollars in millions 2Q02 1Q02 2Q01 1Q02 2Q01 - -------------------------------------------------------------------------------------------------------------- Revenue (taxable equivalent) - ------------------------------------- Victory Capital Management $57 $53 $60 7.5% (5.0)% High Net Worth 148 146 149 1.4 (.7) Capital Markets 83 78 83 6.4 -- ----------- ---------- ----------- -------------- -------------- Total $288 $277 $292 4.0 (1.4) =========== ========== =========== Net income - ----------------------------------- Victory Capital Management $12 $9 $12 33.3% -- % High Net Worth 17 14 9 21.4 88.9 Capital Markets 13 14 11 (7.1) 18.2 ----------- ---------- ----------- -------------- -------------- Total $42 $37 $32 13.5 31.3 =========== ========== =========== - --------------------------------------------------------------------------------------------------------------
Additional Key Capital Partners Data dollars in billions 2Q02 1Q02 - ---------------------------------------------------------------- Assets under management $70.7 $72.4 Nonmanaged and brokerage assets 72.0 77.8 High Net Worth sales personnel 815 831 Full-time equivalent employees 3,669 3,711 - ---------------------------------------------------------------- Net income for Key Capital Partners was $42 million for the second quarter of 2002, up from $32 million in the second quarter of last year. The improvement is attributable to a substantial decrease in noninterest expense and growth in taxable-equivalent net interest income. These positive results more than offset a decline in noninterest income. Taxable-equivalent net interest income increased by $2 million, or 4%, from the second quarter of 2001, despite the reduction in average loans outstanding that resulted from the 2001 sale of residential mortgage loans associated with the High Net Worth line of business. The increase is due primarily to the lower cost of short-term borrowings and strong growth in home equity lending. A $6 million, or 3%, decrease in noninterest income is attributable mainly to lower income from derivatives and from foreign exchange in the Capital Markets line and a decrease in income from trading activities in the High Net Worth line. These decreases were offset in part by a $3 million gain from the divestiture of the 401(k) business in the second quarter of 2002. Noninterest expense decreased by $15 million, or 6%, from the year-ago quarter, due primarily to an approximate $6 million reduction that resulted from the change in accounting for goodwill, and to reduced software amortization. KEYCORP REPORTS SECOND QUARTER EARNINGS JULY 16, 2002 PAGE 7 LINE OF BUSINESS DESCRIPTIONS Key Consumer Banking Group - -------------------------- RETAIL BANKING provides individuals with branch-based deposit, investment and credit products and personal finance services. SMALL BUSINESS provides small businesses with deposit, investment and credit products and business advisory services. INDIRECT LENDING offers automobile, marine and recreational vehicle (RV) loans to consumers through dealers, and finances inventory for automobile, marine and RV dealers. For students and their parents, it also provides education loans, insurance and interest-free payment plans. NATIONAL HOME EQUITY provides prime and near-prime mortgage and home equity loan products to individuals. It originates these products outside of Key's retail branch system. It also works with mortgage brokers and home improvement contractors to provide home equity and home improvement solutions. Key Corporate Finance Group - --------------------------- CORPORATE BANKING provides financing, cash and investment management and business advisory services to middle-market companies and large corporations. NATIONAL COMMERCIAL REAL ESTATE provides construction and interim lending, permanent debt placements and servicing, and equity and investment banking services to developers, brokers and owner-investors. NATIONAL EQUIPMENT FINANCE meets the equipment leasing needs of companies worldwide and provides equipment manufacturers, distributors and resellers with equipment financing options for their clients. Lease financing receivables and related revenues are assigned to Corporate Banking or National Commercial Real Estate if one of those businesses is principally responsible for maintaining the relationship with the client. Key Capital Partners Group - -------------------------- VICTORY CAPITAL MANAGEMENT manages or advises investment portfolios, nationally, for corporations, labor unions, not-for-profit organizations, governments and individuals. These portfolios may be managed in separate accounts, commingled funds or the Victory family of mutual funds. It also provides administrative services for retirement plans. HIGH NET WORTH provides financial, estate and retirement planning and asset management services. It offers clients financial solutions through services including banking, brokerage, trust, portfolio management, insurance and charitable giving. CAPITAL MARKETS offers investment banking, capital raising, hedging strategies, trading and financial strategies to public and privately held companies, institutions and government organizations. In addition to its three major business groups, Key has "Other Segments" consisting of Treasury, Principal Investing and the net effect of funds transfer pricing. KEYCORP REPORTS SECOND QUARTER EARNINGS JULY 16, 2002 PAGE 8 Cleveland-based KeyCorp is one of the nation's largest bank-based financial services companies, with assets of approximately $83 billion. Key companies provide investment management, retail and commercial banking, retirement, consumer finance, and investment banking products and services to individuals and companies throughout the United States and, for certain businesses, internationally. The company's businesses deliver their products and services through KeyCenters and offices; a network of nearly 2,300 ATMs; telephone banking centers (1.800.KEY2YOU); and a Web site, Key.com(R), that provides account access and financial products 24 hours a day.) NOTES TO EDITORS: A live Internet broadcast of KeyCorp's conference call to discuss quarterly earnings and currently anticipated earnings trends and to answer analysts' questions can be accessed through the Investor Relations section at www.Key.com/ir at 10:00 a.m. ET, on Tuesday, July 16, 2002. A tape of the call will be available until Tuesday, July 23. For up-to-date company information, media contacts and facts and figures about Key's lines of business visit our Media Newsroom at www.Key.com/newsroom. - -------------------------------------------------------------------------------- This news release contains forward-looking statements that 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; new legal obligations or restrictions or unfavorable resolution of litigation; further disruption in the economy and the general business climate as a result of terrorist activities or military actions; and changes in accounting, tax or regulatory practices or requirements. - -------------------------------------------------------------------------------- ### KEYCORP REPORTS SECOND QUARTER 2002 EARNINGS JULY 16, 2002 PAGE 8 FINANCIAL HIGHLIGHTS (dollars in millions, except per share amounts)
THREE MONTHS ENDED ---------------------------------- 6-30-02 3-31-02 6-30-01 -------- -------- -------- Summary of operations Net interest income (taxable equivalent) $ 721 $ 702 $ 719 Noninterest income 448 443 398 -------- -------- -------- Total revenue (taxable equivalent) 1,169 1,145 1,117 Provision for loan losses 135 136 401 Noninterest expense 665 661 858 Net income (loss) 246 240 (160) Net income - core 246 240 28 PER COMMON SHARE Net income (loss) $ .58 $ .56 $ (.38) Net income - core .58 .56 .07 Net income (loss) - assuming dilution .57 .56 (.38) Net income - assuming dilution - core .57 .56 .07 Cash dividends paid .30 .30 .295 Book value at period end 15.46 15.05 15.22 Market price at period end 27.30 26.65 26.05 AT PERIOD END Full-time equivalent employees 20,929 21,076 21,742 KeyCenters 905 911 926 PERFORMANCE RATIOS Return on average total assets 1.21% 1.20% (.75)% Return on average total assets - core 1.21 1.20 .13 Return on average equity 15.16 15.53 (9.67) Return on average equity - core 15.16 15.53 1.69 Net interest margin (taxable equivalent) 3.98 3.93 3.77 CAPITAL RATIOS AT PERIOD END Equity to assets 7.96% 7.87% 7.53% Tangible equity to tangible assets 6.69 6.57 6.25 Tier 1 risk-based capital(a) 8.05 7.92 7.71 Total risk-based capital(a) 12.07 12.02 11.81 Leverage(a) 8.17 8.13 7.68 ASSET QUALITY Net loan charge-offs $ 203 $ 206 $ 171 Net loan charge-offs to average loans 1.27% 1.32% 1.02% Allowance for loan losses $ 1,539 $ 1,607 $ 1,231 Allowance for loan losses to period-end loans 2.41% 2.51% 1.85% Allowance for loan losses to nonperforming loans 160.82 165.16 154.45 Nonperforming loans at period end $ 957 $ 973 $ 797 Nonperforming assets at period end 995 1,012 823 Nonperforming loans to period-end loans 1.50% 1.52% 1.20% Nonperforming assets to period-end loans plus OREO and other nonperforming assets 1.56 1.58 1.23 Taxable-equivalent adjustment $ 38 $ 48 $ 6
(a) 6-30-02 ratio is estimated. KEYCORP REPORTS SECOND QUARTER 2002 EARNINGS JULY 16, 2002 PAGE 10 FINANCIAL HIGHLIGHTS (dollars in millions, except per share amounts) SIX MONTHS ENDED ------------------------ 6-30-02 6-30-01 --------- --------- SUMMARY OF OPERATIONS Net interest income (taxable equivalent) $ 1,423 $ 1,414 Noninterest income 891 853 --------- --------- Total revenue (taxable equivalent) 2,314 2,267 Provision for loan losses 271 511 Noninterest expense 1,326 1,556 Net income 486 57 Net income - core 486 245 PER COMMON SHARE Net income $ 1.14 $ .14 Net income - core 1.14 .58 Net income - assuming dilution 1.13 .13 Net income - assuming dilution - core 1.13 .57 Cash dividends paid .60 .59 PERFORMANCE RATIOS Return on average total assets 1.21% .13% Return on average total assets - core 1.21 .57 Return on average equity 15.34 1.73 Return on average equity - core 15.34 7.45 Net interest margin (taxable equivalent) 3.96 3.70 ASSET QUALITY Net loan charge-offs $ 409 $ 280 Net loan charge-offs to average loans 1.29% .84% Taxable-equivalent adjustment $ 86 $ 13 KEYCORP REPORTS SECOND QUARTER 2002 EARNINGS JULY 16, 2002 PAGE 11 CONSOLIDATED BALANCE SHEETS (dollars in millions)
6-30-02 3-31-02 6-30-01 --------- --------- --------- Assets Loans $ 63,881 $ 63,956 $ 66,693 Investment securities 1,119 1,144 1,171 Securities available for sale 6,349 5,795 6,706 Short-term investments 1,471 1,487 1,961 --------- --------- --------- Total earning assets 72,820 72,382 76,531 Allowance for loan losses (1,539) (1,607) (1,231) Cash and due from banks 2,929 2,483 2,781 Premises and equipment 659 663 694 Goodwill 1,105 1,101 1,141 Other intangible assets 26 28 36 Corporate-owned life insurance 2,359 2,334 2,265 Accrued income and other assets 4,419 3,975 3,621 --------- --------- --------- TOTAL ASSETS $ 82,778 $ 81,359 $ 85,838 ========= ========= ========= LIABILITIES Deposits in domestic offices: Noninterest-bearing $ 9,095 $ 8,688 $ 8,376 Interest-bearing 33,132 33,284 33,986 Deposits in foreign office-- interest-bearing 2,578 1,261 3,381 --------- --------- --------- Total deposits 44,805 43,233 45,743 Federal funds purchased and securities sold under repurchase agreements 5,110 7,338 5,919 Bank notes and other short-term borrowings 3,390 3,174 7,128 Accrued expense and other liabilities 4,742 4,683 4,627 Long-term debt 16,895 15,256 14,675 Capital securities of subsidiary trusts 1,244 1,273 1,279 --------- --------- --------- TOTAL LIABILITIES 76,186 74,957 79,371 SHAREHOLDERS' EQUITY 6,592 6,402 6,467 --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 82,778 $ 81,359 $ 85,838 ========= ========= ========= Common shares outstanding (000) 426,347 425,454 424,958
KEYCORP REPORTS SECOND QUARTER 2002 EARNINGS JULY 16, 2002 PAGE 12 CONSOLIDATED STATEMENTS OF INCOME (dollars in millions, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------------- ----------------------- 6-30-02 3-31-02 6-30-01 6-30-02 6-30-01 --------- --------- --------- --------- --------- INTEREST INCOME $ 1,102 $ 1,092 $ 1,467 $ 2,194 $ 3,037 INTEREST EXPENSE 419 438 754 857 1,636 --------- --------- --------- --------- --------- NET INTEREST INCOME 683 654 713 1,337 1,401 Provision for loan losses 135 136 401 271 511 --------- --------- --------- --------- --------- 548 518 312 1,066 890 NONINTEREST INCOME Trust and investment services income 137 135 132 272 273 Investment banking and capital markets income 68 72 72 140 137 Service charges on deposit accounts 104 100 90 204 174 Corporate-owned life insurance income 26 26 27 52 54 Letter of credit and loan fees 29 28 30 57 59 Net securities gains 1 -- 8 1 34 Other income 83 82 39 165 122 --------- --------- --------- --------- --------- Total noninterest income 448 443 398 891 853 NONINTEREST EXPENSE Personnel 361 363 345 724 709 Net occupancy 56 57 56 113 113 Computer processing 48 54 63 102 125 Equipment 36 34 40 70 78 Marketing 30 26 29 56 56 Amortization of intangibles 2 3 174 5 200 Professional fees 21 21 19 42 37 Other expense 111 103 132 214 238 --------- --------- --------- --------- --------- Total noninterest expense 665 661 858 1,326 1,556 --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 331 300 (148) 631 187 Income taxes 85 60 (12) 145 105 --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 246 240 (136) 486 82 Cumulative effect of accounting changes, net of tax -- -- (24) -- (25) --------- --------- --------- --------- --------- NET INCOME (LOSS) $ 246 $ 240 $ (160) $ 486 $ 57 ========= ========= ========= ========= ========= Per common share Income (loss) before cumulative effect of accounting changes $ .58 $ .56 $ (.32) $ 1.14 $ .19 Net income (loss) .58 .56 (.38) 1.14 .14 Per common share-assuming dilution Income (loss) before cumulative effect of accounting changes $ .57 $ .56 $ (.32) $ 1.13 $ .19 Net income (loss) .57 .56 (.38) 1.13 .13 Weighted average common shares outstanding (000) 426,092 424,855 424,675 425,477 424,352 Weighted average common shares and potential common shares outstanding (000) 431,935 430,019 429,760 430,983 429,838 Taxable-equivalent adjustment $ 38 $ 48 $ 6 $ 86 $ 13
KEYCORP REPORTS SECOND QUARTER 2002 EARNINGS JULY 16, 2002 PAGE 13 CONSOLIDATED AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND YIELDS/RATES (dollars in millions)
SECOND QUARTER 2002 FIRST QUARTER 2002 ----------------------------------- ---------------------------------- AVERAGE AVERAGE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE ----------------------------------- ----------------------------------- Assets Loans:(a,b) Commercial, financial and agricultural $18,213 $ 244 5.37% $18,016 $ 242 5.44% Real estate--commercial mortgage 6,414 91 5.70 6,598 93 5.74 Real estate--construction 5,870 72 4.93 5,856 72 5.01 Commercial lease financing 7,206 126 6.96 7,275 132 7.25 ---------- --------- ------------ --------- --------- ----------- Total commercial loans 37,703 533 5.66 37,745 539 5.77 Real estate--residential 2,148 38 7.04 2,241 41 7.21 Home equity 13,072 229 7.03 11,863 212 7.26 Consumer--direct 2,210 45 8.21 2,289 46 8.14 Consumer--indirect lease financing 1,514 33 8.84 1,852 41 8.74 Consumer--indirect other 5,131 118 9.19 5,231 120 9.21 ---------- --------- ------------ --------- --------- ----------- Total consumer loans 24,075 463 7.71 23,476 460 7.89 Loans held for sale 2,150 30 5.58 2,267 32 5.70 ---------- --------- ------------ --------- --------- ----------- Total loans 63,928 1,026 6.43 63,488 1,031 6.55 Taxable investment securities 934 7 3.20 916 6 2.43 Tax-exempt investment securities(a) 205 4 8.31 219 5 8.52 ---------- --------- ------------ --------- --------- ----------- Total investment securities 1,139 11 4.12 1,135 11 3.61 Securities available for sale(a,c) 5,951 95 6.45 5,317 89 6.76 Short-term investments 1,561 8 1.97 2,041 9 1.76 ---------- --------- ------------ --------- --------- ----------- Total earning assets 72,579 1,140 6.30 71,981 1,140 6.38 Allowance for loan losses (1,579) (1,657) Accrued income and other assets 10,560 10,547 ---------- --------- TOTAL ASSETS $81,560 $80,871 ========== ========= Liabilities Money market deposit accounts $12,535 27 .87 $12,659 30 .95 Savings deposits 2,014 3 .67 1,947 3 .71 NOW accounts 697 2 1.02 715 2 1.03 Certificates of deposit ($100,000 or more)(d) 4,816 56 4.69 4,516 57 5.10 Other time deposits 13,085 131 4.02 13,443 149 4.51 Deposits in foreign office 2,638 12 1.76 2,136 9 1.69 ---------- --------- ------------ --------- --------- ----------- Total interest-bearing deposits 35,785 231 2.59 35,416 250 2.86 Federal funds purchased and securities sold under repurchase agreements 5,541 24 1.71 5,584 23 1.70 Bank notes and other short-term borrowings(d) 2,995 20 2.73 4,028 27 2.68 Long-term debt, including capital securities(d,e) 17,230 144 3.37 16,103 138 3.46 ---------- --------- ------------ --------- --------- ----------- Total interest-bearing liabilities 61,551 419 2.73 61,131 438 2.90 ---------- --------- ------------ --------- --------- ----------- Noninterest-bearing deposits 8,719 8,553 Accrued expense and other liabilities 4,783 4,918 ---------- --------- Total liabilities 75,053 74,602 Shareholders' equity 6,507 6,269 ---------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $81,560 $80,871 ========== ========= Interest rate spread (TE) 3.57% 3.48% =========== =========== Net interest income (TE) and net interest margin (TE) $ 721 3.98% $ 702 3.93% ========= ============ ========= =========== Capital securities $ 1,236 $ 20 $ 1,298 $ 21 Taxable-equivalent adjustment(a) 38 48 SECOND QUARTER 2001 ------------------------------------------- AVERAGE BALANCE INTEREST YIELD/RATE ------------------------------------------- Assets Loans:(a,b) Commercial, financial and agricultural $20,030 $ 361 7.24% Real estate-- commercial mortgage 6,837 135 7.91 Real estate-- construction 5,504 108 7.81 Commercial lease financing 6,990 120 6.86 ------------- ------------ -------------- Total commercial loans 39,361 724 7.37 Real estate-- residential 4,065 79 7.81 Home equity 10,459 228 8.74 Consumer-- direct 2,458 60 9.74 Consumer-- indirect lease financing 2,778 57 8.27 Consumer-- indirect other 5,593 134 9.61 ------------- ------------ -------------- Total consumer loans 25,353 558 8.83 Loans held for sale 2,240 43 7.69 ------------- ------------ -------------- Total loans 66,954 1,325 7.93 Taxable investment securities 911 8 3.41 Tax-exempt investment securities(a) 297 6 8.79 ------------- ------------ -------------- Total investment securities 1,208 14 4.74 Securities available for sale(a,c) 6,572 115 6.99 Short-term investments 1,812 19 4.19 ------------- ------------ -------------- Total earning assets 76,546 1,473 7.71 Allowance for loan losses (988) Accrued income and other assets 10,429 ------------- TOTAL ASSETS $85,987 ============= Liabilities Money market deposit accounts $12,296 67 2.22 Savings deposits 1,969 5 1.06 NOW accounts 610 3 1.50 Certificates of deposit ($100,000 or more)(d) 5,571 81 5.85 Other time deposits 14,479 209 5.77 Deposits in foreign office 2,173 23 4.27 ------------- ------------ -------------- Total interest-bearing deposits 37,098 388 4.20 Federal funds purchased and securities sold under repurchase agreements 5,177 52 4.06 Bank notes and other short-term borrowings(d) 8,016 94 4.67 Long-term debt, including capital securities(d,e) 16,068 220 5.49 ------------- ------------ -------------- Total interest-bearing liabilities 66,359 754 4.56 ------------- ------------ -------------- Noninterest-bearing deposits 8,213 Accrued expense and other liabilities 4,779 ------------- Total liabilities 79,351 Shareholders' equity 6,636 ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $85,987 ============= Interest rate spread (TE) 3.15% ============== Net interest income (TE) and net interest margin (TE) $ 719 3.77% ============ ============== Capital securities $ 1,292 $23 Taxable-equivalent adjustment(a) 6
(a) Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory Federal income tax rate of 35%. (b) For purposes of these computations, nonaccrual loans are included in average loan balances. (c) Yield is calculated on the basis of amortized cost. (d) Rate calculation excludes basis adjustments related to fair value hedges. (e) Rate calculation excludes ESOP debt. TE = Taxable Equivalent KEYCORP REPORTS SECOND QUARTER 2002 EARNINGS JULY 16, 2002 PAGE 14 LINE OF BUSINESS RESULTS (dollars in millions)
KEY CONSUMER BANKING GROUP PERCENT CHANGE 2Q02 VS. ----------------------- 2Q02 1Q02 2Q01 1Q02 2Q01 -------- -------- -------- ----- ----- SUMMARY OF OPERATIONS Net interest income (TE) $ 454 $ 445 $ 459 2.0% (1.1)% Noninterest income 125 116 110 7.8 13.6 -------- -------- -------- ----- ----- Total revenue (TE) 579 561 569 3.2 1.8 Provision for loan losses(a) 63 62 55 1.6 14.5 Noninterest expense 332 333 337 (.3) (1.5) -------- -------- -------- ----- ----- Income before income taxes (TE) and accounting change 184 166 177 10.8 4.0 Allocated income taxes and taxable-equivalent adjustments 69 62 70 11.3 (1.4) -------- -------- -------- ----- ----- Income before accounting change 115 104 107 10.6 7.5 Cumulative effect of accounting change, net of tax -- -- (24) -- (100.0) -------- -------- -------- ----- ----- Net income $ 115 $ 104 $ 83 10.6 38.6 ======== ======== ======== Percent of consolidated net income 47% 43% N/M N/A N/A AVERAGE BALANCES Loans $ 27,935 $ 27,318 $ 27,992 2.3% (.2)% Total assets 30,094 29,493 30,781 2.0 (2.2) Deposits 33,979 34,312 35,597 (1.0) (4.5) OTHER FINANCIAL DATA Net loan charge-offs(a) $ 69 $ 78 $ 84 (11.5)% (17.9)% Return on average allocated equity 23.33% 21.47% 14.34% N/A N/A SUPPLEMENTARY INFORMATION (LINES OF BUSINESS) Retail Banking Total revenue (TE) $ 327 $ 314 $ 327 4.1% --% Provision for loan losses(a) 14 13 12 7.7 16.7 Noninterest expense 204 199 213 2.5 (4.2) Net income 68 64 62 6.3 9.7 Net loan charge-offs(a) 13 14 16 (7.1) (18.8) Return on average allocated equity 49.73% 49.60% 41.08% N/A N/A Full-time equivalent employees 6,016 6,038 6,320 (.4) (4.8) Small Business Total revenue (TE) $ 98 $ 96 $ 98 2.1% --% Provision for loan losses(a) 9 9 9 -- -- Noninterest expense 42 41 43 2.4 (2.3) Net income 30 29 29 3.4 3.4 Net loan charge-offs(a) 15 15 11 -- 36.4 Return on average allocated equity 37.86% 38.62% 33.49% N/A N/A Full-time equivalent employees 269 264 267 1.9 .7 Indirect Lending Total revenue (TE) $ 94 $ 91 $ 99 3.3% (5.1)% Provision for loan losses(a) 28 28 28 -- -- Noninterest expense 45 47 43 (4.3) 4.7 Net income (loss) 13 10 (7) 30.0 N/M Net loan charge-offs(a) 32 38 32 (15.8) -- Return on average allocated equity 7.67% 5.74% (2.45)% N/A N/A Full-time equivalent employees 760 753 807 .9 (5.8) National Home Equity Total revenue (TE) $ 60 $ 60 $ 45 --% 33.3% Provision for loan losses(a) 12 12 6 -- 100.0 Noninterest expense 41 46 38 (10.9) 7.9 Net income (loss) 4 1 (1) 300.0 N/M Net loan charge-offs (a) 9 11 25 (18.2) (64.0) Return on average allocated equity 3.97% 1.21% (1.77)% N/A N/A Full-time equivalent employees 1,389 1,408 1,268 (1.3) 9.5
KEYCORP REPORTS SECOND QUARTER 2002 EARNINGS JULY 16, 2002 PAGE 15 LINE OF BUSINESS RESULTS (CONTINUED) (dollars in millions) KEY CORPORATE FINANCE GROUP
PERCENT CHANGE 2Q02 VS. ----------------------- 2Q02 1Q02 2Q01 1Q02 2Q01 ------- ------- ------- ----- ----- SUMMARY OF OPERATIONS Net interest income (TE) $ 279 $ 283 $ 274 (1.4)% 1.8% Noninterest income 46 57 66 (19.3) (30.3) ------- ------- ------- ----- ----- Total revenue (TE) 325 340 340 (4.4) (4.4) Provision for loan losses(a) 44 45 43 (2.2) 2.3 Noninterest expense 121 121 127 -- (4.7) ------- ------- ------- ----- ----- Income before income taxes (TE) 160 174 170 (8.0) (5.9) Allocated income taxes and taxable-equivalent adjustments 60 65 65 (7.7) (7.7) ------- ------- ------- ----- ----- Net income $ 100 $ 109 $ 105 (8.3) (4.8) ======= ======= ======= Percent of consolidated net income 41% 45% N/M N/A N/A AVERAGE BALANCES Loans $29,582 $29,760 $31,437 (.6)% (5.9)% Total assets 30,785 30,994 32,907 (.7) (6.4) Deposits 3,094 3,130 3,024 (1.2) 2.3 OTHER FINANCIAL DATA Net loan charge-offs(a) $ 124 $ 121 $ 76 2.5% 63.2% Return on average allocated equity 14.25% 15.74% 15.07% N/A N/A SUPPLEMENTARY INFORMATION (LINES OF BUSINESS) Corporate Banking Total revenue (TE) $ 177 $ 187 $ 201 (5.3)% (11.9)% Provision for loan losses(a) 24 25 24 (4.0) -- Noninterest expense 72 72 76 -- (5.3) Net income 50 56 62 (10.7) (19.4) Net loan charge-offs(a) 117 104 68 12.5 72.1 Return on average allocated equity 11.90% 13.60% 14.96% N/A N/A Full-time equivalent employees 605 633 713 (4.4) (15.1) National Commercial Real Estate Total revenue (TE) $ 86 $ 91 $ 95 (5.5)% (9.5)% Provision for loan losses(a) 11 11 11 -- -- Noninterest expense 29 29 27 -- 7.4 Net income 29 32 36 (9.4) (19.4) Net loan charge-offs(a) -- 3 1 (100.0) (100.0) Return on average allocated equity 16.61% 17.85% 20.16% N/A N/A Full-time equivalent employees 517 503 458 2.8 12.9 National Equipment Finance Total revenue (TE) $ 62 $ 62 $ 44 --% 40.9% Provision for loan losses(a) 9 9 8 -- 12.5 Noninterest expense 20 20 24 -- (16.7) Net income 21 21 7 -- 200.0 Net loan charge-offs(a) 7 14 7 (50.0) -- Return on average allocated equity 19.97% 20.76% 6.80% N/A N/A Full-time equivalent employees 606 609 697 (.5) (13.1)
KEYCORP REPORTS SECOND QUARTER 2002 EARNINGS JULY 16, 2002 PAGE 16 LINE OF BUSINESS RESULTS (CONTINUED) (dollars in millions) KEY CAPITAL PARTNERS GROUP
PERCENT CHANGE 2Q02 VS. ----------------------- 2Q02 1Q02 2Q01 1Q02 2Q01 ------ ------ ------ ----- ----- SUMMARY OF OPERATIONS Net interest income (TE) $ 57 $ 53 $ 55 7.5% 3.6% Noninterest income 231 224 237 3.1 (2.5) ------ ------ ------ ----- ----- Total revenue (TE) 288 277 292 4.0 (1.4) Provision for loan losses(a) 2 2 3 -- (33.3) Noninterest expense 219 216 234 1.4 (6.4) ------ ------ ------ ----- ----- Income before income taxes (TE) 67 59 55 13.6 21.8 Allocated income taxes and taxable-equivalent adjustments 25 22 23 13.6 8.7 ------ ------ ------ ----- ----- Net income $ 42 $ 37 $ 32 13.5 31.3 ====== ====== ====== Percent of consolidated net income 17% 15% N/M N/A N/A AVERAGE BALANCES Loans $4,970 $4,780 $5,486 4.0% (9.4)% Total assets 8,325 8,087 9,197 2.9 (9.5) Deposits 3,590 3,673 3,803 (2.3) (5.6) OTHER FINANCIAL DATA Net loan charge-offs(a) $ 6 $ 3 $ 7 100.0% (14.3)% Return on average allocated equity 17.62% 15.63% 11.97% N/A N/A SUPPLEMENTARY INFORMATION (LINES OF BUSINESS) Victory Capital Management Total revenue (TE) $ 57 $ 53 $ 60 7.5% (5.0)% Provision for loan losses(a) -- -- -- -- -- Noninterest expense 38 39 40 (2.6) (5.0) Net income 12 9 12 33.3 -- Net loan charge-offs(a) -- -- -- -- -- Return on average allocated equity 38.15% 27.95% 34.26% N/A N/A Full-time equivalent employees 539 545 540 (1.1) (.2) High Net Worth Total revenue (TE) $ 148 $ 146 $ 149 1.4% (.7)% Provision for loan losses(a) 2 2 3 -- (33.3) Noninterest expense 119 122 130 (2.5) (8.5) Net income 17 14 9 21.4 88.9 Net loan charge-offs(a) 6 3 7 100.0 (14.3) Return on average allocated equity 13.80% 11.01% 6.95% N/A N/A Full-time equivalent employees 2,514 2,533 2,695 (.8) (6.7) Capital Markets Total revenue (TE) $ 83 $ 78 $ 83 6.4% --% Provision for loan losses(a) -- -- -- -- -- Noninterest expense 62 55 64 12.7 (3.1) Net income 13 14 11 (7.1) 18.2 Net loan charge-offs(a) -- -- -- -- -- Return on average allocated equity 12.61% 13.83% 10.68% N/A N/A Full-time equivalent employees 616 633 638 (2.7) (3.4)
(a) Key's management accounting system utilizes a methodology for loan loss provisioning by line of business that reflects credit quality expectations within each line of business over a normal business cycle. The "normalized provision for loan losses" assigned to each line as a result of this methodology does not necessarily coincide with net loan charge-offs at any given point in the cycle. N/M = Not Meaningful N/A = Not Applicable TE = Taxable Equivalent -----END PRIVACY-ENHANCED MESSAGE-----