EX-99.1 3 l98260aexv99w1.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 FOURTH QUARTER AND 2002 EARNINGS - EPS OF $0.57 FOR THE FOURTH QUARTER AND $2.27 FOR THE FULL YEAR - REVENUE UP; EXPENSES STABLE - NONPERFORMING LOANS DOWN - DEPOSIT TREND FAVORABLE CLEVELAND, January 15, 2003 - KeyCorp (NYSE: KEY) today announced fourth quarter net income of $245 million, or $0.57 per diluted common share. These results compare with third quarter net income of $245 million, or $0.57 per share, and a net loss of $174 million, or $0.41 per share for the fourth quarter of 2001. Key's 2002 net income was $976 million, or $2.27 per diluted common share. Net income in 2001 totaled $132 million, or $0.31 per share. Last year's results reflect charges to earnings taken in connection with initiatives designed to strengthen the company's future financial performance by emphasizing core relationship businesses and a more conservative risk management culture. "Key delivered consistent quarterly earnings all year long despite continued weakness in the economy and financial markets," said Chairman and Chief Executive Officer Henry L. Meyer III. "I believe this consistency demonstrates that the difficult steps we took in 2001 are having their desired effect on our performance. In this respect: - Revenue growth was $26 million in the fourth quarter, driven by increases in both net interest income and noninterest income. Average core deposits rose by an annualized 22 percent. - Expenses were at their lowest level for any year since 1998. - Nonperforming loans decreased. "The economy's weakness is clearly carrying into 2003 and continues to affect financial markets and the performance of financial institutions, such as Key. Given today's abundant uncertainties, it is prudent to limit comments on the outlook for Key's performance to the first quarter. In that regard, I would expect normal seasonal factors to lead to a decline in first quarter earnings compared to the fourth quarter." SUMMARY OF CONSOLIDATED RESULTS Taxable-equivalent net interest income improved modestly to $724 million for the fourth quarter of 2002 from $722 million in the previous quarter. Key's net interest margin of 3.98% was essentially unchanged, while average earning assets grew by $471 million. Growth in a moderate size securities portfolio and small increases in both commercial lease financing and home equity lending offset declines in the loan portfolios we are KEYCORP REPORTS FOURTH QUARTER EARNINGS JANUARY 15, 2003 PAGE 2 strategically downsizing. Compared with the fourth quarter of 2001, taxable-equivalent net interest income decreased by $2 million, reflecting a stable net interest margin and a small reduction in average earning assets. Key's noninterest income was $446 million for the fourth quarter of 2002, up from $432 million in the prior quarter. An $8 million increase in income from investment banking and capital markets activities was a primary driver of the improvement. Noninterest income also benefited from increases in nonyield-related loan fees and net gains from sales of securities. These positive results were offset in part by a $9 million decrease in income from trust and investment services, which was adversely affected by market conditions. In addition, service charges on deposit accounts were down $3 million, as we continue to roll out our free checking products to additional markets. Compared with the year-ago quarter, noninterest income rose by $28 million, reflecting a $33 million decrease in losses from principal investing. Noninterest expense of $668 million for the fourth quarter of 2002 was up from $659 million for the third quarter, due primarily to an $8 million increase in fees for professional services. Compared with the fourth quarter of 2001, noninterest expense improved by $34 million. The largest declines occurred in software amortization and the amortization of goodwill. The January 1, 2002, adoption of new accounting guidance for goodwill resulted in an expense reduction of approximately $20 million for the quarter. ASSET QUALITY Key's provision for loan losses was $147 million for the fourth quarter of 2002, compared with $135 million for the previous quarter and $723 million for the fourth quarter of 2001. Included in last year's amount is a provision of $400 million, which was used to increase the allowance for loan losses for Key's continuing loan portfolio. Another $190 million provision was added last year to the portion of the allowance segregated in the second quarter of 2001 in connection with Key's decision to eliminate nonrelationship lending in the leveraged financing and nationally syndicated lending businesses and to facilitate sales of distressed loans in other portfolios. The segregated portion of the 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 distressed loan sales. As losses are charged to this segregated allowance, Key does not intend to replenish it. Within the run-off portfolio, approximately $940 million of commitments (including $599 million of loans outstanding) remained as of December 31, 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 Nonreplenished Allowance Total Loan Portfolio ------------------------- -------------------------- -------------------- in millions 4Q02 3Q02 4Q02 3Q02 4Q02 3Q02 -------------------------------------------------------------------------------------------------------------------- Loans outstanding $61,858 $62,289 $ 599 $ 662 $62,457 $62,951 Nonperforming loans at period end 858 896 85 91 943 987 Net loan charge-offs 147 135 39(a) 50(a) 186 185 Allowance for loan losses 1,404 1,402 48 87 1,452 1,489 --------------------------------------------------------------------------------------------------------------------
(a) Includes activity related to the run-off loan portfolio and to the sales of distressed loans. Net loan charge-offs totaled $186 million for the quarter, compared with $185 million for the previous quarter and $220 million for the year-ago quarter. Included in fourth quarter 2002 net charge-offs are $39 million of losses charged to the nonreplenished (and segregated) allowance, compared with $50 million for the previous quarter and $87 million for the year-ago quarter. KEYCORP REPORTS FOURTH QUARTER EARNINGS JANUARY 15, 2003 PAGE 3 During the fourth quarter, Key's nonperforming loans decreased by $44 million, primarily in the continuing loan portfolio. This improvement reflects reductions in the healthcare and large corporate portfolios, which were offset in part by a $21 million increase in nonperforming home equity loans. CAPITAL Key's capital ratios continued to exceed all "well-capitalized" regulatory benchmarks at December 31, 2002. During the fourth quarter, Key repurchased 1.2 million of its common shares under an authorization that allows for the repurchase of up to 25 million shares. There were 13.8 million shares remaining for repurchase under this authorization as of December 31, 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 for the periods presented. The specific lines of business that comprise each of the major business groups are described under the heading "Line of Business Descriptions." For more detailed financial information pertaining to each business group and its respective lines of business, see the last three pages of this release. MAJOR BUSINESS GROUPS
PERCENT CHANGE 4Q02 VS. ----------------------- dollars in millions 4Q02 3Q02 4Q01 3Q02 4Q01 ---------------------------------------------------------------------------------------- Revenue (taxable equivalent) ---------------------------- Key Consumer Banking $ 577 $ 584 $ 572 (1.2)% .9% Key Corporate Finance 358 335 370 6.9 (3.2) Key Capital Partners 278 265 285 4.9 (2.5) Other Segments (22) (13) (66) (69.2) 66.7 ------- ------- ------- ------- ------- Total segments 1,191 1,171 1,161 1.7 2.6 Reconciling Items(a) (21) (17) (17) (23.5) (23.5) ------- ------- ------- ------- ------- Total $ 1,170 $ 1,154 $ 1,144 1.4 2.3 ======= ======= ======= Net income (loss) ---------------------------- Key Consumer Banking $ 103 $ 119 $ 87 (13.4)% 18.4% Key Corporate Finance 103 92 118 12.0 (12.7) Key Capital Partners 41 39 35 5.1 17.1 Other Segments (6) (1) (33) (500.0) 81.8 ------- ------- ------- ------- ------- Total segments 241 249 207 (3.2) 16.4 Reconciling Items(a) 4 (4) (381) N/M N/M ------- ------- ------- ------- ------- Total $ 245 $ 245 $ (174) -- N/M ======= ======= ======= ----------------------------------------------------------------------------------------
(a) In the fourth quarter of 2001, Reconciling Items include an additional provision for loan losses of $400 million ($252 million after tax) taken to increase the allowance for loan losses for Key's continuing loan portfolio and an additional $190 million ($120 million after tax) provision recorded primarily in connection with Key's decision to discontinue certain credit-only commercial relationships. Reconciling Items in the year-ago quarter also include a $15 million ($9 million after tax) increase in the reserve for customer derivative losses. For all periods presented, Reconciling Items include charges related to unallocated nonearning assets of corporate support functions. N/M = Not Meaningful KEYCORP REPORTS FOURTH QUARTER EARNINGS JANUARY 15, 2003 PAGE 4 KEY CONSUMER BANKING GROUP
PERCENT CHANGE 4Q02 VS. ----------------------- dollars in millions 4Q02 3Q02 4Q01 3Q02 4Q01 ------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Net interest income (TE) $ 457 $ 448 $ 459 2.0% (.4)% Noninterest income 120 136 113 (11.8) 6.2 ------- ------- ------- ------- ------- Total revenue (TE) 577 584 572 (1.2) .9 Provision for loan losses 80 68 82 17.6 (2.4) Noninterest expense 332 326 346 1.8 (4.0) ------- ------- ------- ------- ------- Income before income taxes (TE) 165 190 144 (13.2) 14.6 Allocated income taxes and TE adjustments 62 71 57 (12.7) 8.8 ------- ------- ------- ------- ------- Net income $ 103 $ 119 $ 87 (13.4) 18.4 ======= ======= ======= Percent of consolidated net income 42% 49% N/M N/A N/A AVERAGE BALANCES Loans $27,799 $28,174 $26,881 (1.3)% 3.4% Total assets 29,963 30,353 29,545 (1.3) 1.4 Deposits 33,912 33,580 34,545 1.0 (1.8) -------------------------------------------------------------------------------------------------------
TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful Additional Key Consumer Banking Data
dollars in billions 4Q02 3Q02 ------------------------------------------------------------------------- Retail Banking (Home Equity Loans) ----------------------------------------- Average balance $ 7.1 $ 7.0 Average loan-to-value ratio 71% 72% Percent first lien positions 51 49 National Home Equity (Home Equity Loans) ----------------------------------------- Average balance $ 4.9 $ 5.0 Average loan-to-value ratio 80% 77% Percent first lien positions 79 77 On-line clients / percent penetration 575,894/32% 534,385/30% KeyCenters 910 903 Automated teller machines 2,165 2,249 -------------------------------------------------------------------------
Net income for the Key Consumer Banking Group was $103 million for the fourth quarter of 2002, representing a $16 million increase from the year-ago quarter. The improvement is attributable to a rise in noninterest income, a reduction in noninterest expense and a lower provision for loan losses. These positive results were partially offset by a slight decrease in taxable-equivalent net interest income. Taxable-equivalent net interest income decreased by $2 million from the fourth quarter of 2001 due to a less favorable interest rate spread on deposits and a decline in yield-related loan fees in the Indirect Lending line of business. Noninterest income grew by $7 million, or 6%, due primarily to a decrease in net losses from derivatives in the National Home Equity line of business. Also contributing to the growth were higher fees from electronic banking services and mortgage loan processing. These positive results were partially offset by an aggregate $6 million decline in income from service charges on deposit accounts contributed by the Retail Banking and Small Business lines. Noninterest expense was down $14 million, or 4%, from the fourth quarter of 2001. The improvement reflects an approximate $9 million reduction in goodwill amortization, which resulted from the adoption of new accounting guidance, as well as lower costs for software amortization and a decline in fraud losses. These reductions were partially offset by higher personnel expense. KEYCORP REPORTS FOURTH QUARTER EARNINGS JANUARY 15, 2003 PAGE 5 KEY CORPORATE FINANCE GROUP
PERCENT CHANGE 4Q02 VS. ----------------------- dollars in millions 4Q02 3Q02 4Q01 3Q02 4Q01 -------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Net interest income (TE) $ 276 $ 281 $ 286 (1.8)% (3.5)% Noninterest income 82 54 84 51.9 (2.4) ------- ------- ------- ------- ------- Total revenue (TE) 358 335 370 6.9 (3.2) Provision for loan losses 64 65 49 (1.5) 30.6 Noninterest expense 130 123 130 5.7 -- ------- ------- ------- ------- ------- Income before income taxes (TE) 164 147 191 11.6 (14.1) Allocated income taxes and TE adjustments 61 55 73 10.9 (16.4) ------- ------- ------- ------- ------- Net income $ 103 $ 92 $ 118 12.0 (12.7) ======= ======= ======= Percent of consolidated net income 42% 38% N/M N/A N/A AVERAGE BALANCES Loans $28,655 $29,117 $30,596 (1.6)% (6.3)% Total assets 30,107 30,448 32,205 (1.1) (6.5) Deposits 3,920 3,380 3,241 16.0 21.0 --------------------------------------------------------------------------------------------------------
TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful Net income for the Key Corporate Finance Group was $103 million for the fourth quarter of 2002, compared with $118 million for the same period last year. The decrease was due to reductions in taxable equivalent net interest income and noninterest income, as well as a higher provision for loan losses. Noninterest expense was unchanged from the year-ago quarter. Taxable-equivalent net interest income decreased by $10 million, or 4%, from the fourth quarter of 2001 as the adverse effect of a decrease in average loans outstanding more than offset the positive effect of an increase in average deposits. At the same time, noninterest income decreased by $2 million, or 2%. Losses from residual values of leased equipment in the National Equipment Finance line of business in the current year and lower fees generated by Corporate Banking more than offset increases in nonyield-related loan fees and loan sale gains in the National Commercial Real Estate line. Noninterest expense was unchanged as an approximate $4 million reduction in goodwill amortization resulting from the adoption of a new accounting standard was offset by an increase in personnel expense. The provision for loan losses rose by $15 million, or 31%, reflecting a higher level of net charge-offs in the National Equipment Finance line. KEYCORP REPORTS FOURTH QUARTER EARNINGS JANUARY 15, 2003 PAGE 6 KEY CAPITAL PARTNERS GROUP
PERCENT CHANGE 4Q02 VS. ----------------------- dollars in millions 4Q02 3Q02 4Q01 3Q02 4Q01 -------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Net interest income (TE) $ 65 $ 59 $ 56 10.2% 16.1% Noninterest income 213 206 229 3.4 (7.0) ------- ------- ------- ------- ------- Total revenue (TE) 278 265 285 4.9 (2.5) Provision for loan losses 3 2 1 50.0 200.0 Noninterest expense 210 202 225 4.0 (6.7) ------- ------- ------- ------- ------- Income before income taxes (TE) 65 61 59 6.6 10.2 Allocated income taxes and TE adjustments 24 22 24 9.1 -- ------- ------- ------- ------- ------- Net income $ 41 $ 39 $ 35 5.1 17.1 ======= ======= ======= Percent of consolidated net income 17% 16% N/M N/A N/A AVERAGE BALANCES Loans $ 4,964 $ 4,900 $ 4,573 1.3% 8.6% Total assets 8,722 8,388 8,422 4.0 3.6 Deposits 4,726 3,699 3,647 27.8 29.6 --------------------------------------------------------------------------------------------------------
TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful Additional Key Capital Partners Data
dollars in billions 4Q02 3Q02 ---------------------------------------------------------- Assets under management $61.6 $62.4 Nonmanaged and brokerage assets 65.6 67.2 High Net Worth sales personnel 807 809 ----------------------------------------------------------
Net income for the Key Capital Partners Group was $41 million for the fourth quarter of 2002, up from $35 million in the fourth quarter of last year. The improvement was 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 and a higher provision for loan losses. Taxable-equivalent net interest income increased by $9 million, or 16%, from the fourth quarter of 2001. The growth was primarily due to a lower cost of short-term borrowings, as well as a more favorable interest rate spread on earning assets. Noninterest income decreased by $16 million, or 7%, as market-sensitive businesses were adversely affected by the weak economy. The reduction is attributable mainly to an aggregate decline of $19 million in trust and investment services income in the High Net Worth and Victory Capital Management lines and lower income from trading activities and derivatives in the Capital Markets line. These reductions more than offset a $12 million increase in investment banking income. Noninterest expense decreased by $15 million, or 7%, from the year-ago quarter, due primarily to an approximate $6 million reduction that resulted from the change in accounting for goodwill, lower variable compensation expense associated with revenue generation and reduced software amortization. OTHER SEGMENTS Other segments consist primarily of Treasury, Principal Investing and the net effect of funds transfer pricing. This segment generated a net loss of $6 million for the fourth quarter of 2002, compared with a net loss of $33 million for the same period last year. The improvement reflects a $33 million ($21 million after tax) decrease in net losses from principal investing. KEYCORP REPORTS FOURTH QUARTER EARNINGS JANUARY 15, 2003 PAGE 7 LINE OF BUSINESS DESCRIPTIONS Key Consumer Banking Group RETAIL BANKING provides individuals with branch-based deposit and investment products, personal finance services and loans, including residential mortgages, home equity and various types of installment loans. 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. This line of business also provides education loans, insurance and interest-free payment plans for students and their parents. NATIONAL HOME EQUITY provides primarily prime and near-prime mortgage and home equity loan products to individuals. Unlike the loans extended by Retail Banking, these products originate outside of Key's retail branch system. This line of business 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. This line of business deals exclusively with nonowner-occupied properties. NATIONAL EQUIPMENT FINANCE meets the equipment leasing needs of companies worldwide and provides equipment manufacturers, distributors and resellers with 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 on investment portfolios for a national client base, including 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. This line of business also provides administrative services for retirement plans. HIGH NET WORTH offers financial, estate and retirement planning and asset management services to assist high net worth clients with their banking, brokerage, trust, portfolio management, insurance, charitable giving and related needs. CAPITAL MARKETS offers investment banking, capital raising, hedging strategies, trading and financial strategies to public and privately held companies, institutions and government organizations. KEYCORP REPORTS FOURTH QUARTER EARNINGS JANUARY 15, 2003 PAGE 8 Cleveland-based KeyCorp is one of the nation's largest bank-based financial services companies, with assets of approximately $85 billion. Key companies provide investment management, retail and commercial banking, 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 2,165 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 Wednesday, January 15, 2003. A tape of the call will be available through January 22. 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 FOURTH QUARTER 2002 EARNINGS JANUARY 15, 2003 PAGE 9 FINANCIAL HIGHLIGHTS (dollars in millions, except per share amounts)
THREE MONTHS ENDED ---------------------------------- 12-31-02 9-30-02 12-31-01 -------- -------- -------- SUMMARY OF OPERATIONS Net interest income (TE) $ 724 $ 722 $ 726 Noninterest income 446 432 418 -------- -------- -------- Total revenue (TE) 1,170 1,154 1,144 Provision for loan losses 147 135 723 Noninterest expense 668 659 702 Net income (loss) 245 245 (174) PER COMMON SHARE Net income (loss) $ .58 $ .57 $ (.41) Net income (loss) -- assuming dilution .57 .57 (.41) Cash dividends paid .30 .30 .295 Book value at period end 16.12 15.66 14.52 Market price at period end 25.14 24.97 24.34 AT PERIOD END Full-time equivalent employees 20,437 20,522 21,230 KeyCenters 910 903 911 PERFORMANCE RATIOS Return on average total assets 1.17% 1.19% (.84)% Return on average equity 14.46 14.74 (10.57) Net interest margin (TE) 3.98 3.99 3.98 CAPITAL RATIOS AT PERIOD END Equity to assets 8.02% 7.97% 7.60% Tangible equity to tangible assets 6.73 6.71 6.29 Tier 1 risk-based capital(a) 8.33 8.34 7.43 Total risk-based capital(a) 12.86 12.69 11.41 Leverage(a) 8.21 8.15 7.65 ASSET QUALITY Net loan charge-offs $ 186 $ 185 $ 220 Net loan charge-offs to average loans 1.18% 1.16% 1.37% Allowance for loan losses $ 1,452 $ 1,489 $ 1,677 Allowance for loan losses to period-end loans 2.32% 2.37% 2.65% Allowance for loan losses to nonperforming loans 153.98 150.86 184.29 Nonperforming loans at period end $ 943 $ 987 $ 910 Nonperforming assets at period end 993 1,017 947 Nonperforming loans to period-end loans 1.51% 1.57% 1.44% Nonperforming assets to period-end loans plus OREO and other nonperforming assets 1.59 1.61 1.49 Taxable-equivalent adjustment $ 12 $ 22 $ 26
(a) 12-31-02 ratio is estimated. TE = Taxable Equivalent KEYCORP REPORTS FOURTH QUARTER 2002 EARNINGS JANUARY 15, 2003 PAGE 10 FINANCIAL HIGHLIGHTS (dollars in millions, except per share amounts)
TWELVE MONTHS ENDED --------------------- 12-31-02 12-31-01 -------- -------- SUMMARY OF OPERATIONS Net interest income (TE) $ 2,869 $ 2,870 Noninterest income 1,769 1,725 -------- -------- Total revenue (TE) 4,638 4,595 Provision for loan losses 553 1,350 Noninterest expense 2,653 2,941 Net income 976 132 PER COMMON SHARE Net income $ 2.29 $ .31 Net income -- assuming dilution 2.27 .31 Cash dividends paid 1.20 1.18 PERFORMANCE RATIOS Return on average total assets 1.19% .16% Return on average equity 14.96 2.01 Net interest margin (TE) 3.97 3.81 ASSET QUALITY Net loan charge-offs $ 780 $ 673 Net loan charge-offs to average loans 1.23% 1.02% Taxable-equivalent adjustment $ 120 $ 45
TE = Taxable Equivalent KEYCORP REPORTS FOURTH QUARTER 2002 EARNINGS JANUARY 15, 2003 PAGE 11 CONSOLIDATED BALANCE SHEETS (dollars in millions)
12-31-02 9-30-02 12-31-01 --------- --------- --------- ASSETS Loans $ 62,457 $ 62,951 $ 63,309 Investment securities 1,039 1,058 1,119 Securities available for sale 8,507 7,349 5,346 Short-term investments 1,632 1,190 1,898 --------- --------- --------- Total earning assets 73,635 72,548 71,672 Allowance for loan losses (1,452) (1,489) (1,677) Cash and due from banks 3,364 3,039 2,891 Premises and equipment 644 651 687 Goodwill 1,142 1,105 1,101 Other intangible assets 35 23 31 Corporate-owned life insurance 2,414 2,384 2,313 Accrued income and other assets 5,420 5,257 3,920 --------- --------- --------- TOTAL ASSETS $ 85,202 $ 83,518 $ 80,938 ========= ========= ========= LIABILITIES Deposits in domestic offices: Noninterest-bearing $ 10,630 $ 10,063 $ 9,667 Interest-bearing 34,973 33,301 33,529 Deposits in foreign office -- interest-bearing 3,743 1,246 1,599 --------- --------- --------- Total deposits 49,346 44,610 44,795 Federal funds purchased and securities sold under repurchase agreements 3,862 6,350 3,735 Bank notes and other short-term borrowings 2,823 2,908 5,549 Accrued expense and other liabilities 5,471 5,438 4,862 Long-term debt 15,605 16,276 14,554 Capital securities of subsidiary trusts 1,260 1,282 1,288 --------- --------- --------- TOTAL LIABILITIES 78,367 76,864 74,783 SHAREHOLDERS' EQUITY 6,835 6,654 6,155 --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 85,202 $ 83,518 $ 80,938 ========= ========= ========= Common shares outstanding (000) 423,944 424,864 424,005
KEYCORP REPORTS FOURTH QUARTER 2002 EARNINGS JANUARY 15, 2003 PAGE 12 CONSOLIDATED STATEMENTS OF INCOME (dollars in millions, except per share amounts)
THREE MONTHS ENDED TWELVE MONTHS ENDED ------------------------------------ ---------------------- 12-31-02 9-30-02 12-31-01 12-31-02 12-31-01 --------- --------- --------- --------- --------- INTEREST INCOME $ 1,077 $ 1,095 $ 1,210 $ 4,366 $ 5,627 INTEREST EXPENSE 365 395 510 1,617 2,802 --------- --------- --------- --------- --------- NET INTEREST INCOME 712 700 700 2,749 2,825 Provision for loan losses 147 135 723 553 1,350 --------- --------- --------- --------- --------- 565 565 (23) 2,196 1,475 NONINTEREST INCOME Trust and investment services income 142 151 160 609 651 Investment banking and capital markets income (loss) 42 34 (17) 172 88 Service charges on deposit accounts 99 102 106 405 387 Corporate-owned life insurance income 31 25 32 108 114 Letter of credit and loan fees 41 36 38 134 124 Net securities gains (losses) 5 -- (1) 6 35 Other income 86 84 100 335 326 --------- --------- --------- --------- --------- Total noninterest income 446 432 418 1,769 1,725 NONINTEREST EXPENSE Personnel 354 358 335 1,436 1,378 Net occupancy 56 57 59 226 232 Computer processing 45 45 65 192 252 Equipment 33 33 37 136 152 Marketing 33 33 25 122 112 Amortization of intangibles 3 3 23 11 245 Professional fees 29 21 25 92 88 Other expense 115 109 133 438 482 --------- --------- --------- --------- --------- Total noninterest expense 668 659 702 2,653 2,941 --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 343 338 (307) 1,312 259 Income taxes 98 93 (133) 336 102 --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 245 245 (174) 976 157 Cumulative effect of accounting changes, net of tax -- -- -- -- (25) --------- --------- --------- --------- --------- NET INCOME (LOSS) $ 245 $ 245 $ (174) $ 976 $ 132 ========= ========= ========= ========= ========= Per common share Income (loss) before cumulative effect of accounting changes $ .58 $ .57 $ (.41) $ 2.29 $ .37 Net income (loss) .58 .57 (.41) 2.29 .31 Per common share -- assuming dilution Income (loss) before cumulative effect of accounting changes $ .57 $ .57 $ (.41) $ 2.27 $ .37 Net income (loss) .57 .57 (.41) 2.27 .31 Weighted average common shares outstanding (000) 424,578 426,274 423,596 425,451 424,275 Weighted average common shares and potential common shares outstanding (000) 429,531 431,326 428,280 430,703 429,573 Taxable-equivalent adjustment $ 12 $ 22 $ 26 $ 120 $ 45
KEYCORP REPORTS FOURTH QUARTER 2002 EARNINGS JANUARY 15, 2003 PAGE 13 CONSOLIDATED AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND YIELDS/RATES (dollars in millions)
FOURTH QUARTER 2002 THIRD QUARTER 2002 ----------------------------------- ---------------------------------- AVERAGE AVERAGE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE --------- -------- ---------- --------- -------- ---------- ASSETS Loans:(a,b) Commercial, financial and agricultural $ 17,362 $ 220 5.01% $ 17,485 $ 225 5.11% Real estate -- commercial mortgage 6,168 88 5.66 6,207 93 5.92 Real estate -- construction 5,856 78 5.27 5,822 79 5.37 Commercial lease financing 7,356 112 6.13 7,215 121 6.72 --------- -------- --------- --------- -------- --------- Total commercial loans 36,742 498 5.39 36,729 518 5.60 Real estate -- residential 2,029 33 6.72 2,089 37 7.00 Home equity 13,649 226 6.55 13,505 222 6.52 Consumer -- direct 2,153 44 8.17 2,172 46 8.32 Consumer -- indirect lease financing 1,001 24 9.42 1,264 28 8.98 Consumer -- indirect other 5,117 116 9.05 5,143 117 9.13 --------- -------- --------- --------- -------- --------- Total consumer loans 23,949 443 7.36 24,173 450 7.41 Loans held for sale 1,986 26 5.28 2,584 35 5.48 --------- -------- --------- --------- -------- --------- Total loans 62,677 967 6.14 63,486 1,003 6.29 Taxable investment securities 907 5 2.35 918 6 2.51 Tax-exempt investment securities(a) 132 3 9.32 166 4 8.76 --------- -------- --------- --------- -------- --------- Total investment securities 1,039 8 3.23 1,084 10 3.47 Securities available for sale(a,c) 7,598 107 5.63 6,362 98 6.17 Short-term investments 1,240 7 2.12 1,151 6 2.28 --------- -------- --------- --------- -------- --------- Total earning assets 72,554 1,089 5.97 72,083 1,117 6.17 Allowance for loan losses (1,471) (1,509) Accrued income and other assets 11,652 11,361 --------- --------- TOTAL ASSETS $ 82,735 $ 81,935 ========= ========= LIABILITIES Money market deposit accounts $ 14,842 39 1.03 $ 12,733 29 .91 Savings deposits 1,981 4 .63 2,002 3 .67 NOW accounts 289 1 1.16 560 1 .95 Certificates of deposit ($100,000 or more)(d) 4,741 51 4.29 4,886 54 4.45 Other time deposits 12,213 101 3.29 12,713 115 3.57 Deposits in foreign office 1,974 6 1.43 2,593 12 1.76 --------- -------- --------- --------- -------- --------- Total interest-bearing deposits 36,040 202 2.22 35,487 214 2.40 Federal funds purchased and securities sold under repurchase agreements 5,502 20 1.44 5,483 23 1.69 Bank notes and other short-term borrowings(d) 2,192 14 2.53 2,581 18 2.73 Long-term debt, including capital securities(d) 17,040 129 3.09 17,455 140 3.25 --------- -------- --------- --------- -------- --------- Total interest-bearing liabilities 60,774 365 2.40 61,006 395 2.59 --------- -------- --------- --------- -------- --------- Noninterest-bearing deposits 9,926 9,177 Accrued expense and other liabilities 5,314 5,159 --------- --------- Total liabilities 76,014 75,342 SHAREHOLDERS' EQUITY 6,721 6,593 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 82,735 $ 81,935 ========= ========= Interest rate spread (TE) 3.57% 3.58% ========= ========= Net interest income (TE) and net interest margin (TE) $ 724 3.98% $ 722 3.99% ======== ========= ======== ========= Capital securities $ 1,233 $ 18 $ 1,249 $ 19 Taxable-equivalent adjustment(a) 12 22
FOURTH QUARTER 2001 --------------------------------- AVERAGE BALANCE INTEREST YIELD/RATE --------- -------- ---------- ASSETS Loans:(a,b) Commercial, financial and agricultural $ 18,462 $ 271 5.83% Real estate -- commercial mortgage 6,737 106 6.23 Real estate -- construction 5,971 85 5.65 Commercial lease financing 7,109 128 7.18 --------- -------- --------- Total commercial loans 38,279 590 6.12 Real estate -- residential 2,384 44 7.46 Home equity 11,046 217 7.82 Consumer -- direct 2,361 52 8.66 Consumer -- indirect lease financing 2,210 47 8.55 Consumer -- indirect other 5,359 128 9.51 --------- -------- --------- Total consumer loans 23,360 488 8.32 Loans held for sale 2,113 34 6.48 --------- -------- --------- Total loans 63,752 1,112 6.94 Taxable investment securities 904 4 1.86 Tax-exempt investment securities(a) 241 6 8.69 --------- -------- --------- Total investment securities 1,145 10 3.30 Securities available for sale(a,c) 6,120 103 6.78 Short-term investments 1,689 11 2.55 --------- -------- --------- Total earning assets 72,706 1,236 6.76 Allowance for loan losses (1,159) Accrued income and other assets 10,920 --------- TOTAL ASSETS $ 82,467 ========= LIABILITIES Money market deposit accounts $ 12,396 37 1.20 Savings deposits 1,911 4 .79 NOW accounts 653 2 1.26 Certificates of deposit ($100,000 or more)(d) 4,788 61 5.08 Other time deposits 13,659 169 4.91 Deposits in foreign office 2,418 14 2.21 --------- -------- --------- Total interest-bearing deposits 35,825 287 3.18 Federal funds purchased and securities sold under repurchase agreements 4,272 24 2.20 Bank notes and other short-term borrowings(d) 5,563 42 2.99 Long-term debt, including capital securities(d) 16,167 157 3.88 --------- -------- --------- Total interest-bearing liabilities 61,827 510 3.28 --------- -------- --------- Noninterest-bearing deposits 8,750 Accrued expense and other liabilities 5,359 --------- Total liabilities 75,936 SHAREHOLDERS' EQUITY 6,531 --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 82,467 ========= Interest rate spread (TE) 3.48% ========= Net interest income (TE) and net interest margin (TE) $ 726 3.98% ======== ========= Capital securities $ 1,333 $ 21 Taxable-equivalent adjustment(a) 26
(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. TE = Taxable Equivalent KEYCORP REPORTS FOURTH QUARTER 2002 EARNINGS JANUARY 15, 2003 PAGE 14 LINE OF BUSINESS RESULTS (dollars in millions) KEY CONSUMER BANKING GROUP
PERCENT CHANGE 4Q02 VS. ---------------------- 4Q02 3Q02 4Q01 3Q02 4Q01 -------- -------- -------- -------- -------- SUMMARY OF OPERATIONS Total revenue (TE) $ 577 $ 584 $ 572 (1.2)% .9% Provision for loan losses 80 68 82 17.6 (2.4) Noninterest expense 332 326 346 1.8 (4.0) Net income 103 119 87 (13.4) 18.4 Average loans 27,799 28,174 26,881 (1.3) 3.4 Average deposits 33,912 33,580 34,545 1.0 (1.8) Net loan charge-offs 80 68 117 17.6 (31.6) Return on average allocated equity 20.10% 23.65% 16.63% N/A N/A Full-time equivalent employees 8,299 8,259 8,523 .5 (2.6) SUPPLEMENTARY INFORMATION (LINES OF BUSINESS) Retail Banking Total revenue (TE) $ 326 $ 334 $ 327 (2.4)% (.3)% Provision for loan losses 21 15 14 40.0 50.0 Noninterest expense 203 202 212 .5 (4.2) Net income 64 73 62 (12.3) 3.2 Average loans 9,378 9,123 7,378 2.8 27.1 Average deposits 29,554 29,451 30,616 .3 (3.5) Net loan charge-offs 21 15 14 40.0 50.0 Return on average allocated equity 44.31% 51.08% 44.56% N/A N/A Full-time equivalent employees 6,053 6,066 6,191 (.2) (2.2) Small Business Total revenue (TE) $ 100 $ 103 $ 101 (2.9)% (1.0)% Provision for loan losses 15 16 12 (6.3) 25.0 Noninterest expense 43 42 45 2.4 (4.4) Net income 26 28 27 (7.1) (3.7) Average loans 4,230 4,274 4,353 (1.0) (2.8) Average deposits 4,002 3,797 3,697 5.4 8.2 Net loan charge-offs 15 16 12 (6.3) 25.0 Return on average allocated equity 31.64% 34.18% 32.56% N/A N/A Full-time equivalent employees 295 272 258 8.5 14.3 Indirect Lending Total revenue (TE) $ 84 $ 86 $ 94 (2.3)% (10.6)% Provision for loan losses 34 28 45 21.4 (24.4) Noninterest expense 44 41 49 7.3 (10.2) Net income 4 11 -- (63.6) N/M Average loans 9,066 9,619 10,141 (5.7) (10.6) Average deposits 345 318 223 8.5 54.7 Net loan charge-offs 34 28 45 21.4 (24.4) Return on average allocated equity 2.46% 6.68% --% N/A N/A Full-time equivalent employees 747 751 776 (.5) (3.7) National Home Equity Total revenue (TE) $ 67 $ 61 $ 50 9.8% 34.0% Provision for loan losses 10 9 11 11.1 (9.1) Noninterest expense 42 41 40 2.4 5.0 Net income (loss) 9 7 (2) 28.6 N/M Average loans 5,125 5,158 5,009 (.6) 2.3 Average deposits 11 14 9 (21.4) 22.2 Net loan charge-offs 10 9 46 11.1 (78.3) Return on average allocated equity 7.30% 6.16% (1.77)% N/A N/A Full-time equivalent employees 1,204 1,170 1,298 2.9 (7.2)
KEYCORP REPORTS FOURTH QUARTER 2002 EARNINGS JANUARY 15, 2003 PAGE 15 LINE OF BUSINESS RESULTS (CONTINUED) (dollars in millions) KEY CORPORATE FINANCE GROUP
PERCENT CHANGE 4Q02 VS. ---------------------- 4Q02 3Q02 4Q01 3Q02 4Q01 -------- -------- -------- -------- -------- SUMMARY OF OPERATIONS Total revenue (TE) $ 358 $ 335 $ 370 6.9% (3.2)% Provision for loan losses 64 65 49 (1.5) 30.6 Noninterest expense 130 123 130 5.7 -- Net income 103 92 118 12.0 (12.7) Average loans 28,655 29,117 30,596 (1.6) (6.3) Average deposits 3,920 3,380 3,241 16.0 21.0 Net loan charge-offs 103 115 101 (10.4) 2.0 Return on average allocated equity 14.74% 13.13% 16.86% N/A N/A Full-time equivalent employees 1,789 1,743 1,770 2.6 1.1 SUPPLEMENTARY INFORMATION (LINES OF BUSINESS) Corporate Banking Total revenue (TE) $ 185 $ 183 $ 202 1.1% (8.4)% Provision for loan losses 37 48 31 (22.9) 19.4 Noninterest expense 71 71 79 -- (10.1) Net income 49 40 57 22.5 (14.0) Average loans 14,824 15,414 16,993 (3.8) (12.8) Average deposits 3,201 2,781 2,666 15.1 20.1 Net loan charge-offs 76 98 68 (22.4) 11.8 Return on average allocated equity 12.19% 9.71% 14.29% N/A N/A Full-time equivalent employees 569 572 650 (.5) (12.5) National Commercial Real Estate Total revenue (TE) $ 119 $ 96 $ 113 24.0% 5.3% Provision for loan losses 1 2 5 (50.0) (80.0) Noninterest expense 40 32 34 25.0 17.6 Net income 49 39 46 25.6 6.5 Average loans 7,753 7,833 8,216 (1.0) (5.6) Average deposits 710 590 569 20.3 24.8 Net loan charge-offs 1 2 5 (50.0) (80.0) Return on average allocated equity 26.31% 21.52% 23.34% N/A N/A Full-time equivalent employees 614 574 499 7.0 23.0 National Equipment Finance Total revenue (TE) $ 54 $ 56 $ 55 (3.6)% (1.8)% Provision for loan losses 26 15 13 73.3 100.0 Noninterest expense 19 20 17 (5.0) 11.8 Net income 5 13 15 (61.5) (66.7) Average loans 6,078 5,870 5,387 3.5 12.8 Average deposits 9 9 6 -- 50.0 Net loan charge-offs 26 15 28 73.3 (7.1) Return on average allocated equity 4.53% 12.14% 14.44% N/A N/A Full-time equivalent employees 606 597 621 1.5 (2.4)
KEYCORP REPORTS FOURTH QUARTER 2002 EARNINGS JANUARY 15, 2003 PAGE 16 LINE OF BUSINESS RESULTS (CONTINUED) (dollars in millions) KEY CAPITAL PARTNERS GROUP
PERCENT CHANGE 4Q02 VS. ---------------------- 4Q02 3Q02 4Q01 3Q02 4Q01 -------- -------- -------- -------- -------- SUMMARY OF OPERATIONS Total revenue (TE) $ 278 $ 265 $ 285 4.9% (2.5)% Provision for loan losses 3 2 1 50.0 200.0 Noninterest expense 210 202 225 4.0 (6.7) Net income 41 39 35 5.1 17.1 Average loans 4,964 4,900 4,573 1.3 8.6 Average deposits 4,726 3,699 3,647 27.8 29.6 Net loan charge-offs 3 2 1 50.0 200.0 Return on average allocated equity 16.80% 16.15% 13.91% N/A N/A Full-time equivalent employees 3,474 3,546 3,749 (2.0) (7.3) SUPPLEMENTARY INFORMATION (LINES OF BUSINESS) Victory Capital Management Total revenue (TE) $ 44 $ 50 $ 52 (12.0)% (15.4)% Provision for loan losses -- -- -- -- -- Noninterest expense 34 34 39 -- (12.8) Net income 6 10 8 (40.0) (25.0) Average loans 11 14 22 (21.4) (50.0) Average deposits 60 57 71 5.3 (15.5) Net loan charge-offs -- -- -- -- -- Return on average allocated equity 21.64% 34.20% 24.60% N/A N/A Full-time equivalent employees 429 450 572 (4.7) (25.0) High Net Worth Total revenue (TE) $ 149 $ 140 $ 160 6.4% (6.9)% Provision for loan losses 3 2 1 50.0 200.0 Noninterest expense 115 116 129 (.9) (10.9) Net income 20 15 18 33.3 11.1 Average loans 4,256 4,239 3,921 .4 8.5 Average deposits 2,745 2,149 2,080 27.7 32.0 Net loan charge-offs 3 2 1 50.0 200.0 Return on average allocated equity 17.21% 13.02% 15.16% N/A N/A Full-time equivalent employees 2,347 2,385 2,499 (1.6) (6.1) Capital Markets Total revenue (TE) $ 85 $ 75 $ 73 13.3% 16.4% Provision for loan losses -- -- -- -- -- Noninterest expense 61 52 57 17.3 7.0 Net income 15 14 9 7.1 66.7 Average loans 697 647 630 7.7 10.6 Average deposits 1,921 1,493 1,496 28.7 28.4 Net loan charge-offs -- -- -- -- -- Return on average allocated equity 14.99% 14.43% 8.97% N/A N/A Full-time equivalent employees 698 711 678 (1.8) 2.9
N/A = Not Applicable N/M = Not Meaningful TE = Taxable Equivalent