Keycorp · NYSE:KEY
Keycorp — Bank of America Merrill Lynch 2014 Banking and Financial Services Conference
34 slides from Keycorp's conference presentation, Nov 12, 2014
Slide 1: Bank of America Merrill Lynch 2014 Banking and Financial Services Conference
Bank of America Merrill Lynch 2014 Banking and Financial Services Conference 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 – Diverse Franchise
Key – Diverse Franchise Key is relationship-focused with distinctive capabilities • Top 20 U.S. bank-based financial services company Loans Deposits 1% - Assets: $91 B 5% - Deposits: $68 B 25% - Market capitalization: $12 B 41% 54% 74% - Strong footprint with approximately 1,000 branches and 1,300 A
Slide 4: Business Model: Aligned and Targeted
Business Model: Aligned and Targeted Local delivery of broad product set and industry expertise Differentiated platform with depth and maturity Traditional Bank Products Capital Markets Capabilities Commercial mortgage Derivatives & foreign Loans Deposits & payments Equity capital markets Equity res
Slide 5: Capabilities Comparison
Key Corporate Bank Our middle market focus, industry-driven operating model and broad corporate & investment banking capability set are unique…and drive results Capability / Model Boutiques Regional Banks Universal Banks Capabilities Comparison Operating Model & Investment Banking Commercial Banking
Slide 6: Trusted Advisor
Leveraging Our Platform to Drive Relationships Our specialty chemicals practice is able to acquire and expand client relationships by delivering the full breadth of Key’s advisory and execution capabilities Initial Client Example The Model in Action Key’s Role Today Status 2014 2012 • Producer of fi
Slide 7: Delivering the Distinctive Platform
Delivering the Distinctive Platform Our ability to lead transactions across markets allows us to match client needs with market conditions, and deliver best execution • Key Corporate Bank completed >850 transactions raising ~$50B in capital for our clients, ~20% of which went to our balance sheet (L
Slide 8: 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 $7B (+44
Slide 9: Strong Relative Performance
Strong Relative Performance Results compare favorably to external benchmarks we are gaining loan share with higher asset productivity Commercial and Industrial Loan Growth Asset Productivity Since our portfolio troughed in 2Q11, Key Corporate Bank has taken …while our broad product capabilities gene
Slide 10: Proprietary Industry Knowledge and Research
Proprietary Industry Knowledge and Research The depth and breadth of Key’s equity research coverage is a tangible indicator of the industry expertise we deliver to our clients and target prospects • Fully aligned with Key’s franchise -- middle market focused in specific industry verticals Equity Res
Slide 11: New Client Impact
New Client Impact Key Corporate Bank has acquired >200 new client relationships through the first three quarters of 2014, driving significant franchise value • 75% of our new clients use non-credit products, indicating the power of our model and targeted prospecting approach New Client Profile: Prod
Slide 12: Growing Deposit Franchise
Growing Deposit Franchise We have significantly strengthened our balance sheet post crisis via increased core deposit funding • Recent investments in commercial payments and commercial real estate loan servicing will continue to enhance Key’s deposit franchise Key Corporate Bank Average Loan & Depos
Slide 13: Financial Review
Financial Review 13
Slide 14: Progress on Financial Goals
Progress on Financial Goals Metrics (a) 3Q14 YTD 3Q13 YTD Targets Balance Sheet Loan to deposit ratio (b) 90% -100% 87% 84% Efficiency NCOs to average loans .20% .33% Moderate Risk 40 - 60 bps Profile Provision to average loans .09% .28% High Quality, Net interest margin 2.98% 3.16% LT: >3.50% Diver
Slide 15: High Quality and Diverse Revenue
High Quality and Diverse Revenue Noninterest income contributes >40% of total revenue Net Interest Income & Net Interest Margin Trend (TE) Noninterest Income $ in millions; continuing operations $ in millions; continuing operations $620 4.00% $500 $459 $417 $584 $581 3.50% $580 $400 3.00% 3.11% 2.96
Slide 16: Expenses: Culture of Continuous Improvement
Expenses: Culture of Continuous Improvement Reducing expenses while investing in our businesses for growth Noninterest Expense Outlook $ in millions Continued cost savings enable investments and offset $716 normal expense growth $720 $704 25 $689 6 Y-o-Y: low to mid- 16 20 Pacific Crest single digit
Slide 17: Efficiency Ratio: Driving to 60% and Below
Efficiency Ratio: Driving to 60% and Below Business plans and macroeconomic environment provide path to an efficiency ratio below 60% Cash Efficiency Ratio(a) Outlook 70% 65% 2-3 year outlook: 60% 60% 55% 50% (b) 3Q14 YTD Business growth, Expense savings Rising rate benefit Long-term target: <60% ne
Slide 18: Moderate Risk Profile
Moderate Risk Profile Enterprise-wide risk management approach drives quality Targeted, Relationship-based Approach • Target specific segments and sectors where we • Clearly defined and well understood risk appetite have expertise and tolerances • Execute rigorous and disciplined sales approach • Ri
Slide 19: Disciplined Capital Management
Disciplined Capital Management Disciplined in how we manage, invest, deploy and return our strong capital position Capital Organic Share Opportunistic Priorities Dividends Growth Repurchases Growth Strong Capital Position Peer-leading Return Tier 1 Common Equity (a) 2013 Total Shareholder Payout (b)
Slide 20: 2014 Outlook and Expectations
2014 Outlook and Expectations 4Q14 FY 2014 • LQA: mid-single digit growth, driven by Average Loans • Mid-single digit growth vs. FY 2013 commercial loans • Relatively stable from 2013, with slight Net Interest Income • Relatively stable with 3Q14 downward pressure from competitive environment • Low
Slide 21: Appendix
Appendix 21
Slide 22: Focused on Driving Positive Operating Leverage
Focused on Driving Positive Operating Leverage Executing action plans across our organization Revenue Growth Expense Savings • Improving sales productivity Driving consumer sales • Optimizing branch channel Community • Strengthening product offering: per FTE per day: up >30% from prior year • Drivin
Slide 23: Financial Highlights
Financial Highlights Metrics 3Q14 2Q14 1Q14 4Q13 3Q13 EPS – assuming dilution $ .23 $ .27 $ .26 $ .26 $ .25 Cash efficiency ratio (d) 69.5 % 65.8 % 64.9 % 67.4 % 67.5 % Financial Performance (a) excl. efficiency and pension charges 66.0 63.4 63.9 65.1 63.6 Net interest margin (TE) 2.96 2.98 3.00 3.0
Slide 24: Interest Rate Risk Management
Interest Rate Risk Management Actively managing a naturally asset sensitive balance sheet Naturally Asset Sensitive Balance Sheet Actively Managing Rate Risk • Maintaining moderate asset sensitive position of ~3% Loans Deposits - Assumes 200 basis point increase in short-term rates over a 12-month p
Slide 25: 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 savings Operating cost In
Slide 26: High Quality Investment Portfolio
High Quality Investment Portfolio Highlights Average Total Investment Securities $ in billions • Portfolio composed primarily of GNMA and GSE- $20.0 5.00% $17.7 $17.0 backed MBS and CMOs 4.00% $15.0 – No private label MBS or financial paper 3.00% $10.0 • Currently reinvesting cash flows into GNMA 2.
Slide 27: Continued Improvement in Asset Quality
Continued Improvement in Asset Quality Highlights Net Charge-offs & Provision for Loan and Lease Losses $ in millions • Net loan charge-offs decreased 16% from 3Q13 to $60 .60% $31 MM, or 22 bps of average loans • Total gross charge-offs down 37% from 3Q13 and $40 .40% $37 down 13% from 2Q14 $31 $28
Slide 28: Asset Quality Trends
Asset Quality Trends Delinquencies to Period-end Total Loans Quarterly Change in Criticized Outstandings (a) Continuing operations Continuing operations 1.00% 0% 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 (2)% .75% (2)% .61% .54% (4)% .50% (6)% .25% .17% (7)% .13% (8)% .00% (10)% 4Q12 1Q13 2Q13 3Q13 4Q
Slide 29: 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 offs loans (%) (%) $ in millions (%) 9/30/14 3Q14 3Q14 3Q14 9/30/14 9/30/14 9/30/14 9/
Slide 30: Home Equity Portfolio
Home Equity Portfolio Highlights • High quality portfolio • $4.0 billion of the total portfolio are fixed rate loans that require • Community bank loans and lines: 97% of total portfolio; branch- principal and interest payments; $6.7 billion are lines originated • $1.5 billion in lines outstanding (
Slide 31: Exit Loan Portfolio
Exit Loan Portfolio Exit Loan Portfolio Balance on Balance Outstanding Change Net Loan Charge-offs $ in millions Nonperforming Status 9-30-14 vs. 9-30-14 6-30-14 3Q14 (c) 2Q14 (c) 9-30-14 6-30-14 6-30-14 Residential properties – homebuilder $ 11 $ 19 $ (8) $ 1 - $ 10 $ 7 Marine and RV floor plan 7 2
Slide 32: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation $ in millions Three months ended 9-30-14 6-30-14 3-31-14 12-31-13 9-30-13 Tangible common equity to tangible assets at period end Key shareholders’ equity (GAAP) $ 10,486 $ 10,504 $ 10,403 $ 10,303 $ 10,206 Less: Intangible assets (a) 1,105 1,008 1,012 1,014 1,017 Pre
Slide 33: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) $ in millions Three months ended 9-30-14 6-30-14 3-31-14 12-31-13 9-30-13 Average tangible common equity Average Key shareholders’ equity (GAAP) $ 10,473 $ 10,459 $ 10,371 $ 10,272 $ 10,237 Less: Intangible assets (average) (a) 1,037 1,010 1,013 1,016 1,01
Slide 34: 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 September 30, 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 P
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