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): January 16, 2002
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KEYCORP
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(Exact name of registrant as specified in its charter)
Ohio 0-850 34-6542451
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(State or other jurisdiction Commission (I.R.S. Employer
of incorporation or File Number Identification No.)
organization)
127 Public Square, Cleveland, Ohio 44114-1306
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(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 January 16, 2002, the Registrant issued a press release announcing its
earnings results for the three- and twelve-month period ended December 31, 2001.
This press release, dated January 16, 2002, is attached as Exhibit 99.1 to this
report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS
99.1 The Registrant's January 16, 2002, press release announcing its
earnings results for the three- and twelve-month period ended
December 31, 2001.
ITEM 9. REGULATION FD DISCLOSURE
On January 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
FOURTH QUARTER 2001 REVIEW
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January 16, 2002
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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 first 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; changes in law imposing new
legal obligations or restrictions or unfavorable resolution of litigation;
disruption in the economy or business operations or activities as a result of
terrorist activities or military actions; and changes in accounting, tax or
regulatory practices or requirements.
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3
FOURTH QUARTER REVIEW
- INTRODUCTION B. SOMERS
- OVERVIEW 2001 H. MEYER
- FINANCIAL REVIEW L. IRVING
- ASSET QUALITY K. BLAKELY
- OUTLOOK / Q&A B. SOMERS
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OVERVIEW- 2001
- SHARPENED STRATEGIC FOCUS AND SIMPLIFIED ORGANIZATION
- STRENGTHENED ACCOUNTABILITY
- DELIVERED ON PEG COMMITMENTS
- INCREASED LOAN LOSS RESERVE
- ACCELERATED DOWNSIZING OF AUTO AND OTHER LOW SPREAD BUSINESSES
- EXIT NON-RELATIONSHIP CORPORATE LENDING
- INCREASED DIVIDEND
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5
FINANCIAL HIGHLIGHTS - 4Q01
- EPS MEETS CONSENSUS $(0.41)
- ADDITIONAL LOAN LOSS PROVISION: $590MM
- SPECIAL CHARGES: $60 MILLION
- NET INTEREST MARGIN INCREASED 13 B.P.
- FAVORABLE TRENDS IN FEE INCOME
- CONTINUED FOCUS ON EXPENSES
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NET INTEREST INCOME & Margin (TE)
in millions
[GRAPH]
4Q00 1Q01 2Q01 3Q01 4Q01
NET INTEREST $709 $695 $719 $730 $726
INCOME
NET INTEREST 3.71% 3.63% 3.77% 3.85% 3.98%
MARGIN
AVG. EARNING $ 76,036 $ 76,872 $ 76,546 $ 75,687 $ 72,706
ASSETS
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NET INTEREST MARGIN (TE)
3Q01 vs. 4Q01
Net Interest Margin 3Q01 3.85%
Loan Mix & Spreads .08
Deposit Mix & Spreads (.08)
Lease Yields .06
Seasonal Factors .04
Balance Sheet Management .03
-------
Total 13bp
Net Interest Margin 4Q01 3.98%
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CORE NONINTEREST INCOME
3Q01 vs. 4Q01
in millions
Noninterest Income 3Q01 $454
Higher letter of credit & loan fees 11
Income from demutualization 10
All other-net (10)
Principal investing write-downs (37)
Reserve for customer derivatives (10)
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Noninterest Income 4Q01 $418
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CORE NONINTEREST EXPENSE
3Q01 vs. 4Q01
in millions
Noninterest Expense 3Q01 $683
Demutualization contribution 10
Higher IC tied to revenue 7
All other-net 2
-------
Noninterest Expense 4Q01 $702
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10
PEG COST SAVINGS
NONINTEREST EXPENSE: ACTUAL vs. INFLATIONARY GROWTH
(in millions)
[GRAPH]
1999 2000 2001 2002
Noninterest expense adjusted
for inflation $2,776(b) $2,869(c) $2,949(d) $3,010(e)
Noninterest expense (a) 2,776 2,789 2,769 2,770T
------ ------ ------ -------
Savings $ -- $ 80 $ 180 $ 240
====== ====== ====== =======
(a) Total noninterest expense less significant nonrecurring items, adjusted for
divested operations
(b) CPI base
(c) CPI + 3.4% (Bureau of Labor Statistics Jan-Dec 2000)
(d) CPI + 2.8% (Bureau of Labor Statistics Jan-Nov 2001)
(e) CPI + 2.0% (Estimate of 2% for 2002)
T - Target for 2002
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NET CHARGE-OFFS BY LOAN TYPE
IN MILLIONS 4Q00 1Q01 2Q01 3Q01 4Q01
---- ---- ---- ---- ----
CONTINUING PORTFOLIO
Commercial $ 43.0 $ 51.0 $ 39.9 $ 47.8 $ 62.3
Consumer 64.8 58.2 59.6 68.1 70.4
---- ---- ---- ---- ----
107.8 109.2 99.5 115.9 132.7
RUN-OFF PORTFOLIO & LOAN SALES 71.3 57.0 87.2
---- ---- ----
TOTAL NET C/O $ 107.8 $ 109.2 $ 170.8 $ 172.9 $ 219.9
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ASSET QUALITY INDICATORS
TOTAL TOTAL CONTINUING CONTINUING
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
IN MILLIONS 3Q01 4Q01 3Q01 4Q01
---- ---- ---- ----
Nonperforming Loans $ 885 $ 910 $ 652 $ 679
to EOP Loans 1.37% 1.44% 1.03% 1.09%
Nonperforming Assets $ 913 $ 947 $ 680 $ 716
to EOP Loans + OREO 1.41% 1.49% 1.07% 1.15%
Net C/O $ 173 $ 220 $ 116 $ 133
to Average Loans 1.04% 1.37% 0.71% 0.84%
Allowance $1,174 $1,677 $1,002 $1,402
to Total Loans 1.82% 2.65% 1.58% 2.25%
to Nonperforming Loans 133% 184% 154% 206%
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RUN-OFF PORTFOLIO &
NONREPLENISHING RESERVES
IN MILLIONS
5/17/01 6/30/01 9/30/01 12/31/01
------- ------- ------- --------
COMMITMENTS $2,648 $2,393 $2,019 $1,694
OUTSTANDINGS 1,611 1,423 1,176 1,023
ALLOWANCE FOR
LOAN LOSSES 300 229 172 275
NPLs 257 242 233 231
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NONPERFORMING LOANS: 4Q01
4Q01 INCREASE IN NPL: $ 25MM OR 3%
LARGEST NPL: $ 32MM (HEALTHCARE-CP)
10TH LARGEST: $ 12MM (STRUCTURED FINANCE- ROP)
20TH LARGEST: $ 9MM (STRUCTURED FINANCE-ROP)
CP: CONTINUING PORTFOLIO
ROP: RUN-OFF PORTFOLIO
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NONPERFORMING LOANS: 4Q01
Composition of Top 20 NPLs:
in millions
CP ROP TP
-- --- --
Healthcare $120 -- $120
Structured Finance -- $ 75 75
Middle Market 10 21 31
Large Corporate 10 20 30
Leasing 14 -- 14
Key Capital Partners 13 -- 13
Commercial Real Estate -- -- --
CP: Continuing Portfolio $167M
ROP: Run-off Portfolio 116M
------
TP: Total Portfolio $283M
Top 20 Average Size $14.2M
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SUMMARY OF SIGNIFICANT ACTIONS - 2001
- Accelerated downsizing of auto business
- Reduced auto leases and indirect loans by $1.2 billion
- Exit non-relationship corporate lending
- Runoff portfolio reduced by $588 million
- Sold $4.4 billion of loans
- Reduced dependence on wholesale funding by $4.1 billion
- Added $676 million to loan loss reserve
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FIRST QUARTER 2002 OUTLOOK
(COMPARED WITH 4Q01)
REVENUE SLIGHT INCREASE (4Q INCLUDES SPECIAL CHARGES OF $60 MILL.)
- FLAT TO SLIGHTLY LOWER LOANS
- SEASONAL DECLINE IN NIM
- MODEST FEE GROWTH
EXPENSE MODEST DECREASE
CREDIT QUALITY NPAs ARE EXPECTED TO INCREASE
SLIGHT INCREASE IN CORE NET CHARGE-OFFS
EARNINGS EPS RANGE: $0.54 TO $0.57
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APPENDIX
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[B
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LINE OF BUSINESS PERFORMANCE
RETAIL BANKING
(A DIVISION OF KEY CONSUMER BANKING)
IN MILLIONS
[GRAPH]
4Q00 1Q01 2Q01 3Q01 4Q01
REVENUE $341 $339 $341 $361 $343
NET INCOME $ 73 $ 74 $ 73 $ 88 $ 80
NONINTEREST INCOME AND EXPENSE ATTRIBUTABLE TO KEY CAPITAL PARTNERS IS ASSIGNED
TO RETAIL BANKING, HOME EQUITY AND CONSUMER FINANCE OR KEY CORPORATE FINANCE IF
ONE OF THOSE BUSINESSES IS PRINCIPALLY RESPONSIBLE FOR MAINTAINING THE
RELATIONSHIP WITH THE CLIENT THAT USED KEY CAPITAL PARTNERS' PRODUCTS AND
SERVICES.
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LINE OF BUSINESS PERFORMANCE
HOME EQUITY & CONSUMER FINANCE
(A DIVISION OF KEY CONSUMER BANKING)
[GRAPH]
IN MILLIONS
4Q00 1Q01 2Q01 3Q01 4Q01
REVENUE $146 $147 $146 $154 $144
NET INCOME $ 17 $ 19 $ 17* $ 19 $ 12
* EXCLUDES ONE-TIME CHARGE FOR RETAINED INTERESTS IN SECURITIZED ASSETS
NONINTEREST INCOME AND EXPENSE ATTRIBUTABLE TO KEY CAPITAL PARTNERS IS ASSIGNED
TO RETAIL BANKING, HOME EQUITY AND CONSUMER FINANCE OR KEY CORPORATE FINANCE IF
ONE OF THOSE BUSINESSES IS PRINCIPALLY RESPONSIBLE FOR MAINTAINING THE
RELATIONSHIP WITH THE CLIENT THAT USED KEY CAPITAL PARTNERS' PRODUCTS AND
SERVICES.
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LINE OF BUSINESS PERFORMANCE
KEY CORPORATE FINANCE
[GRAPH]
IN MILLIONS
4Q00 1Q01 2Q01 3Q01 4Q01
REVENUE $480 $442 $474 $459 $498
NET INCOME $141 $109 $130 $127 $150
NONINTEREST INCOME AND EXPENSE ATTRIBUTABLE TO KEY CAPITAL PARTNERS IS ASSIGNED
TO RETAIL BANKING, HOME EQUITY AND CONSUMER FINANCE OR KEY CORPORATE FINANCE IF
ONE OF THOSE BUSINESSES IS PRINCIPALLY RESPONSIBLE FOR MAINTAINING THE
RELATIONSHIP WITH THE CLIENT THAT USED KEY CAPITAL PARTNERS' PRODUCTS AND
SERVICES.
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LINE OF BUSINESS PERFORMANCE
KEY CAPITAL PARTNERS
[GRAPH]
IN MILLIONS
4Q00 1Q01 2Q01 3Q01 4Q01
REVENUE $250 $244 $240 $243 $241
NET INCOME $ 24 $ 13 $ 13 $ 19 $ 20
NONINTEREST INCOME AND EXPENSE ATTRIBUTABLE TO KEY CAPITAL PARTNERS IS ASSIGNED
TO RETAIL BANKING, HOME EQUITY AND CONSUMER FINANCE OR KEY CORPORATE FINANCE IF
ONE OF THOSE BUSINESSES IS PRINCIPALLY RESPONSIBLE FOR MAINTAINING THE
RELATIONSHIP WITH THE CLIENT THAT USED KEY CAPITAL PARTNERS' PRODUCTS AND
SERVICES.
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NONINTEREST INCOME
IN MILLIONS 4Q00 1Q01 2Q01 3Q01 4Q01
---- ---- ---- ---- ----
RECURRING ITEMS
1. Trust & Invest Services Inc. $150 $141 $132 $140 $137
2. Inv. Banking & Cap. Mkts. Inc. 94 65 72 46 6
3. Service Charges on Deposits 85 84 90 107 106
4. COLI Income 31 27 27 28 32
5. L/C & Loan Fees 34 29 30 27 38
6. Electronic Banking Fees 18 17 18 20 19
7. Other Income 96 92 29 86 80
---- ---- ---- ---- ----
CORE NONINTEREST INCOME 508 455 398 454 418
NON-CORE ITEMS - - - - -
---- ---- ---- ---- ----
TOTAL NONINTEREST INCOME $508 $455 $398 $454 $418
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NONINTEREST EXPENSE
IN MILLIONS 4Q00 1Q01 2Q01 3Q01 4Q01
----- ----- ----- ----- -----
RECURRING ITEMS
1. Personnel $ 360 $ 364 $ 345 $ 334 $ 335
2. Net Occupancy & Equipment 97 95 96 97 96
3. Computer Processing 62 62 63 62 65
4. Marketing 28 27 29 31 25
5. Amortization of Intangibles 25 26 24 22 23
6. Professional Fees 19 18 19 26 25
7. Postage & Delivery 16 17 16 16 14
8. Telecommunications 12 11 12 10 11
9. Other Expense 89 78 82 85 108
----- ----- ----- ----- -----
CORE NONINTEREST EXPENSE 708 698 686 683 702
NON-CORE ITEMS (3) - 172 - -
----- ----- ----- ----- -----
TOTAL NONINTEREST EXPENSE $ 705 $ 698 $ 858 $ 683 $ 702
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STATEMENT OF INCOME-REPORTED
IN MILLIONS, EXCEPT PER SHARE DATA 4Q00 1Q01 2Q01 3Q01 4Q01
---- ---- ---- ---- ----
Net Interest Income (TE) $ 709 $ 695 $ 719 $ 730 $ 726
Loan Loss Provision 108 110 401 116 723
Noninterest Income 508 455 398 454 418
Noninterest Expense 705 698 858 683 702
----- ----- ----- ----- -----
404 342 (142) 385 (281)
Income Taxes & TE adj. 138 124 (6) 136 (107)
Accounting Change, Net of Tax - (1) (24) - -
----- ----- ----- ----- -----
Net Income (Loss) $266 $217 $(160) $ 249 $ (174)
Avg. Common Shares O/S
Assuming Dilution 430.6 429.9 424.7 430.3 423.6
EPS - Assuming Dilution $0.62 $0.51 $(0.38) $0.58 $(0.41)
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SIGNIFICANT NON-CORE ITEMS
IN MILLIONS, EXCEPT PER SHARE DATA 4Q00 1Q01 2Q01 3Q01 4Q01
---- ---- ---- ---- ----
Net Interest Income (TE) - - - - -
Loan Loss Provision $ 13 - - - -
Noninterest Income - - - - -
Noninterest Expense (3) - $ 172 - -
------ ------
(10) - (172) - -
Income Taxes and TE adj. (4) - (8) - -
Acct. Change, Net of Tax - - (24) - -
------ ----- ------ ----- -----
Net Loss $ (6) - $(188) - -
4Q00 Adjustment to loan loss provision (FFIEC), restructuring credit and other
one-time charges
2Q01 Goodwill write-down, additional litigation reserves, restructuring and
other one-time net charges, accounting change for retained interests
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STATEMENT OF INCOME-CORE
IN MILLIONS, EXCEPT PER SHARE DATA 4Q00 1Q01 2Q01 3Q01 4Q01
---- ---- ---- ---- ----
Net Interest Income (TE) $ 709 $ 695 $ 719 $ 730 $ 726
Loan Loss Provision 95 110 401 116 723
Noninterest Income 508 455 398 454 418
Noninterest Expense 708 698 686 683 702
----- ----- ----- ----- ------
414 342 30 385 (281)
Income Taxes & TE adj. 142 124 2 136 (107)
Accounting Change, Net of Tax - (1) - - -
----- ----- ----- ----- ------
Net Income $ 272 $ 217 $ 28 $ 249 $ (174)
Avg. Common Shares O/S
Assuming Dilution 430.6 429.9 424.7 430.3 423.6
EPS - Core $0.63 $0.51 $0.07 $0.58 $(0.41)
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ASSET QUALITY INDICATORS
CP: CONTINUING PORTFOLIO
TP: TOTAL PORTFOLIO
CP TP
IN MILLIONS 4Q00 1Q01 2Q01 3Q01 4Q01 4Q01
---- ---- ---- ---- ---- ----
Nonperforming Loans $ 650 $ 713 $ 797 $ 885 $ 679 $ 910
to EOP Loans 0.97% 1.06% 1.20% 1.37% 1.09% 1.44%
Nonperforming Assets $ 672 $ 740 $ 823 $ 913 $ 716 $ 947
to EOP Loans + OREO 1.00% 1.10% 1.23% 1.41% 1.15% 1.49%
Net C/O $ 95* $ 109 $ 171 $ 173 $ 133 $ 220
to Average Loans 0.57%* 0.66% 1.02% 1.04% 0.84% 1.37%
Allowance $1,001 $1,001 $1,231 $1,174 $1,402 $1,677
to Total Loans 1.50% 1.49% 1.85% 1.82% 2.25% 2.65%
to Nonperforming Loans 154% 140% 154% 133% 206% 184%
* EXCLUDES FFIEC AND ONE-TIME ITEMS
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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
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(Registrant)
Date: January 16, 2002 /s/ Lee Irving
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By: Lee Irving
Executive Vice President
and Chief Accounting Officer