Keycorp · NYSE:KEY
Keycorp — Morgan Stanley Financials Conference 2014
39 slides from Keycorp's conference presentation, Jun 10, 2014
Slide 1: Morgan Stanley Financials Conference
Morgan Stanley Financials Conference June 10, 2014 KeyCorp Don Kimble Chris Gorman Chief Financial Officer President, Key Corporate Bank
Slide 2: Forward-Looking Statements and Additional Information Disclosure
FORWARD-LOOKING STATEMENTS AND ADDITIONAL INFORMATION DISCLOSURE This presentation contains forward-looking statements, including statements about our financial condition, results of operations, asset quality trends, capital levels and profitability. Forward-looking statements can often be identifie
Slide 3: Key – Who We Are
Key – Who We Are Key is relationship-focused with distinctive capabilities Loans Deposits • 15th largest U.S. bank-based financial services 1% company 6% Assets: $90B 24% Deposits: $66B 39% 55% 75% Market capitalization: $13B • Relationship-based strategy and value proposition Revenue (TE) Nonintere
Slide 4: Distinctive Business Model
Distinctive Business Model Key Community Bank Key Corporate Bank Local leadership & Strategic advice & community presence insights Brand awareness Targeted Industry expertise Client Relationships Convenience Seamless delivery Local capabilities Financial market expertise 4
Slide 5: Business Model: Aligned and Targeted
Business Model: Aligned and Targeted Local delivery of broad product set and industry expertise Traditional Bank Products Capital Markets Capabilities Commercial mortgage Derivatives & foreign Loans Deposits & payments Equity capital markets Equity research banking exchange M&A / Equipment Wealth ma
Slide 6: Strong Commercial Real Estate Capabilities
Strong Commercial Real Estate Capabilities A leading national commercial real estate franchise with a targeted strategic focus, broad product set and seamless delivery Income Property Group & Institutional Real Estate Commercial Servicing Healthcare Real Estate • Targets mid-cap REITs and other • Ta
Slide 7: Commercial Real Estate Strategic Repositioning
Commercial Real Estate Strategic Repositioning Dramatically repositioned and reduced risk since the financial crisis • Narrowed strategic focus to areas where Key is relevant and can generate attractive risk-adjusted returns Pre-Crisis (FY06) FY13 ∆ Commitments $22B $14B (36%) Construction $13B $2B
Slide 8: Delivering the Distinctive Platform
Delivering the Distinctive Platform Ability to lead transactions across markets allows us to match client needs and market conditions, and deliver best execution • Key Corporate Bank raised $58B in capital with >900 transactions, less than 15% of which went to our balance sheet (LTM 1Q14) Industry V
Slide 9: Executing on Our Business Model
Executing on Our Business Model Strengthened our ability to acquire and expand targeted relationships the result is greater transaction activity and enhanced roles • Capital placements and the number of transactions increased by 152% and 89%, respectively, from FY10 Capital Placement ($B) 922 876
Slide 10: Consistent Progress
Consistent Progress Solid progress in growing both loans and investment banking & debt placement fees -- demonstrating the power of our model • Since 1Q09, investment banking and debt placement fees have increased substantially as we focused on a more targeted client base • Loan balances up $5.9B (+
Slide 11: Strong Relative Performance
Strong Relative Performance Results compare favorably to external benchmarks we are gaining loan share with higher asset productivity Loan Growth Asset Productivity Since our portfolio troughed in 2Q11, Key Corporate Bank has taken …while our broad product capabilities generate peer-leading asset
Slide 12: Continuing to Invest in Senior Bankers
Continuing to Invest in Senior Bankers Investing in client-facing senior professionals with existing relationships to broaden our industry expertise, expand our product capabilities and leverage our unique platform • 100+ senior professionals hired since January 2010 Area of Strategic Senior Hire Fi
Slide 13: Growing with Relationship Clients
Growing with Relationship Clients Peer-leading loan growth in 1Q14 -- in our industry verticals with relationship clients • Overall risk rating of portfolio improved during 1Q14 (vs. year-end levels) Corporate Bank Avg. Loan Growth (1Q14 v. 4Q13) Corporate Bank New & Expanded Credits (1Q14) Credit O
Slide 14: Focused Forward
Focused Forward Committed to improving returns through positive operating leverage and disciplined risk and capital management I • Improve productivity Positive Operating • Deliver solid organic revenue growth Leverage • Drive continuous improvement culture II • Execute relationship strategy with fo
Slide 15: Driving Positive Operating Leverage
Driving Positive Operating Leverage Revenue Growth Expense Savings Improving sales productivity with Optimizing branch channel existing and new bankers Community Driving greater efficiencies through back Bank Expanding relationships through and middle-office processes targeted products Enh
Slide 16: Focused Expense Management
Focused Expense Management Continued cost savings enable investments and offset normal expense growth Low to mid- single digit $2.82 B $117 MM decline year- over-year 1 % - 2% $2.70 B (4) % – (6) % 1 % – 2.5 % 2 % – 2.5 % 2013 Reported 2013 Efficiency 2013 NIE Excl. Expense Operating Cost Investment
Slide 17: Improving Efficiency
Improving Efficiency Driving progress toward the low end of our targeted range 65% Current Target: 60% - 65% 60% 55% 50% 1Q14 Business Growth, Expense Savings 2-3 Year Outlook Net of Investments Cash Efficiency Ratio (a) Rising interest rates present an opportunity for additional improvement, with l
Slide 18: Effective Risk Management
Effective Risk Management Enterprise-wide Risk Management Approach Improved Loan Portfolio • Execute rigorous and disciplined sales approach Targeted areas for strategic growth; reducing non-core assets 100% 5% (61)% Exit – Relationship-oriented model 13% – Clearly defined prospect pools 80% 27% 13%
Slide 19: Disciplined Capital Management
Disciplined Capital Management Executing on Capital Priorities Stress Test and CCAR Process No objection from Federal Reserve on 2014 1. Organic Growth capital plan, enabling the continued return of capital to shareholders 2014 capital plan includes: 2. Dividends – 18% increase in quarterly comm
Slide 20: Well-positioned to Grow and Improve Returns
Well-positioned to Grow and Improve Returns Executing on distinctive capabilities and relationship strategy Driving positive operating leverage Investing in franchise to enhance growth Managing risk effectively Remaining disciplined with capital management 20
Slide 21: Appendix
Appendix 21
Slide 22: 2014 Outlook and Expectations
2014 Outlook and Expectations Loans • Mid-single digit average balance growth Net Interest • Relatively stable from 2013, with slight downward pressure from Income competitive environment Noninterest • Low single-digit growth compared to prior year Income Expense • Low to mid-single digit percentage
Slide 23: Progress on Targets for Success
Progress on Targets for Success Metrics (a) 1Q14 4Q13 Targets Focus areas Improving balance Loan to deposit ratio (b) 88% 84% 90-100% sheet efficiency Maintaining NCOs to average loans .15% .27% moderate risk 40-60 bps profile Provision to average loans .04% .14% Net interest margin 3.00% 3.01% >3.5
Slide 24: Financial Highlights
Financial Highlights Metrics 1Q14 4Q13 3Q13 2Q13 1Q13 EPS – assuming dilution $ .26 $ .26 $ .25 $ .21 $ .21 Financial Cash efficiency ratio (d) 64.9 % 67.4 % 67.5 % 69.1 % 66.0 % Performance (a) Net interest margin (TE) 3.00 3.01 3.11 3.13 3.24 Return on average total assets 1.13 1.08 1.12 .95 .99 T
Slide 25: Loan Growth
Loan Growth 1Q14 Highlights Average Commercial, Financial & Agricultural Loans $ in billions Solid loan growth: average total loans up 4% from prior year – Driven by 9% increase in CF&A $28.0 $25.4 $23.3 Period-end loans up 2% from 12/31/13 $21.0 Total commitments up from 4Q13 with slight $14.
Slide 26: Improving Deposit Mix
Improving Deposit Mix 1Q14 Highlights Funding Cost Overall funding cost continues to improve 1.25% Transaction deposit balances up 6% from 1Q13 1.00% .70% Deposits down from prior quarter primarily due to .75% expected reduction in commercial mortgage .54% servicing escrow balances .50% .29% .
Slide 27: Net Interest Income and Margin
Net Interest Income and Margin 1Q14 Highlights Net Interest Income (TE) & Net Interest Margin (TE) Trend $ in millions Net interest income down from prior quarter, due to: Continuing Operations – Competitive environment and asset repricing $620 4.00% – Fewer days in the quarter $589 – Lower loan f
Slide 28: Noninterest Income
Noninterest Income 1Q14 Highlights Noninterest Income Continuing Operations Noninterest income up 2% from prior year, reflecting $ in millions investments and execution of business model $525 – Investment banking & debt placement (+6%) $435 $450 $425 – Cards & payments (+3%) $375 – Mortgage servic
Slide 29: Focused Expense Management
Focused Expense Management 1Q14 Highlights Noninterest Expense $ in millions Expenses down 3% from prior year and 7% from $800 prior quarter $681 $700 $662 Achieved cash efficiency ratio target of 60% - 65% $600 Focused on continued improvement in efficiency $500 and driving further into targe
Slide 30: Continued Improvement in Asset Quality
Continued Improvement in Asset Quality 1Q14 Highlights Net Charge-offs & Provision for Loan and Lease Losses $ in millions Net loan charge-offs decreased 59% from 1Q13 to $120 3.00% $20MM, or 15 bps of average loans 2.00% Total gross charge-offs down 14% from prior $80 quarter with recoveries up
Slide 31: Strong Capital
Strong Capital 1Q14 Highlights Tangible Common Equity to Tangible Assets (a) Disciplined execution of capital plan 12.00% – 1Q14: repurchased $141MM in common shares 10.24% 10.14% No objection from Federal Reserve on 2014 capital 10.00% plan, including: – Share repurchase program of up to $542MM
Slide 32: High Quality Investment Portfolio
High Quality Investment Portfolio 1Q14 Highlights Average Total Investment Securities $ in billions Portfolio composed of Agency-backed CMOs: $20.0 5.00% $17.1 Fannie, Freddie & GNMA $15.9 $15.0 4.00% – No private label MBS or financial paper 3.00% $10.0 Average portfolio life at 3/31/14 of 3.6
Slide 33: Asset Quality Trends
Asset Quality Trends Delinquencies to Period-end Total Loans Quarterly Change in Criticized Outstandings (a) Continuing Operations Continuing Operations 0% 1.00% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 (2)% .75% .70% (4)% .48% (6)% (6)% (5)% .50% (8)% .25% .16% (10)% .16% (12)% .00% (14)% 2Q12 3Q12
Slide 34: Credit Quality
Credit Quality Credit Quality by Portfolio Net loan Net loan Allowance / Allowance / Period- Average charge-offs (b) / Nonperforming Ending charge- period-end NPLs end loans loans average loans loans (c) allowance (d) offs loans (d) (%) (%) $ in millions (%) 3/31/14 1Q14 1Q14 1Q14 3/31/14 3/31/14 3/
Slide 35: Home Equity Portfolio
Home Equity Portfolio 1Q14 Highlights High quality portfolio $3.9B of the total portfolio are fixed rate loans that require Community bank loans and lines: 97% of total portfolio; branch- principal and interest payments; $6.7B are lines originated $1.4B in lines outstanding (13% of the total
Slide 36: Exit Loan Portfolio
Exit Loan Portfolio Exit Loan Portfolio Balance on Balance Outstanding Change Net Loan Charge-offs $ in millions Nonperforming Status 3-31-14 vs. 3-31-14 12-31-13 1Q14 (c) 4Q13 (c) 3-31-14 12-31-13 12-31-13 Residential properties – homebuilder $ 20 $ 20 - $ (1) - $ 7 $ 7 Marine and RV floor plan 23
Slide 37: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation(a) $ in millions Three months ended 3-31-14 12-31-13 9-30-13 6-30-13 3-31-13 Tangible common equity to tangible assets at period end Key shareholders’ equity (GAAP) $ 10,403 $ 10,303 $ 10,206 $ 10,229 $ 10,340 Less: Intangible assets (b) 1,012 1,014 1,017 1,021 1,024
Slide 38: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation(a) (continued) $ in millions Three months ended 3-31-14 12-31-13 9-30-13 6-30-13 3-31-13 Average tangible common equity Average Key shareholders’ equity (GAAP) $ 10,371 $ 10,272 $ 10,237 $ 10,314 $ 10,279 Less: Intangible assets (average) (b) 1,013 1,016 1,019 1,023 1
Slide 39: Common Equity Tier 1 Under the Regulatory Capital Rules (estimated)
Common Equity Tier 1 Under the Regulatory Capital Rules (estimated) (a) KeyCorp & Subsidiaries Quarter ended $ in billions Mar. 31, 2014 Tier 1 common equity under current regulatory rules $ 9.4 Adjustments from current regulatory rules to the Regulatory Capital Rules: Deferred tax assets and PCCRs