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