KeyCorp (KEY)

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KeyCorp (KEY)

Citigroup US Financial Services Conference

March 05, 2013 2:50 pm ET

Executives

Beth E. Mooney - Chairman, Chief Executive Officer, President, Member of Executive Council, Chairman of Executive Committee and Chairman of Enterprise Risk Management Committee

Jeffrey B. Weeden - Chief Financial Officer, Senior Executive Vice President and Member of Executive Council

Analysts

William R. Katz - Citigroup Inc, Research Division

Josh Levin - Citigroup Inc, Research Division

Presentation

Beth E. Mooney

Thank you, Arjun [ph]. We appreciate the opportunity to be here today at Citi's conference here in Boston. As you said, I'm joined by Jeff Weeden, our Chief Financial Officer, and he will participate in the Q&A portion of our presentation today. And also in the audience is Vern Patterson, from our Investor Relations team.

On Slide 2 is our forward-looking disclosure and non-GAAP financial measures. It covers our presentation, as well as the Q&A session of our comments today.

Let's go ahead and start on Slide 3. Over the past several years, we have made significant progress in repositioning our businesses, de-risking our company and pursuing a strategy that not only differentiates us in the marketplace but also enables us to grow and increase shareholder value.

If you start with 2010, as we were coming out of the downturn, our focus was on restructuring the balance sheet and reducing our risk profile. We became a core-funded company and began to see significant improvement in our credit quality. At that same time, strategically, we were sharpening our focus around specific client segments, including industry verticals within our Corporate Bank, and we left 2010 a much stronger and more stable company.

I took over as our CEO in 2011 with a clear focus to drive relationship and client acquisition, shareholder value and loan growth. During that year, we not only saw the inflection point in our loan growth, but we also successfully exited TARP and we began to reduce our exit portfolios. Having addressed the balance sheet and risk profile, last year was about enhancing profitability and our growth trajectory.

We delivered on our commitment to grow revenue, with growth of 4% in 2012 versus 2011, and 10% in the fourth quarter compared to the prior year. We increased our net interest margins, grew loans, especially in our C&I loan book, and leveraged our fee-based businesses. Funding costs and credit quality also improved materially during the year.

And as you know, we made critical investments in our geographic footprint in Western New York and our payment product offerings, with credit card and merchant services. With all of these positive achievements, we recognized that there were still serious headwinds in front of us and launched an efficiency initiative to improve operating leverage and remove $150 million to $200 million from our cost structure.

We ended 2012, we achieved cost reductions of $60 million. And I am confident that we will deliver the remainder of the $200 million by the end of 2013. As we focus forward, we are committed to delivering on our efficiency ratio target of 60% to 65% by the first quarter of 2014. While not an endpoint, it is an important milestone. We will accomplish this by both growing our revenue and reducing and variablizing our cost structure, and we will continue to be strong stewards of our capital and our focus on maintaining our revenue momentum through executing on our relationship-based strategy.

Turning to Slide 4. In terms of footprint, I believe that the balance and diversity of our franchise has been and remains an important part of our growth strategy. And we are continually evaluating the success of our efforts and our market opportunities as we think about future investments as well as our efficiency initiatives. Our footprint provides us with meaningful advantage in terms of pricing, risk management and opportunities to expand and grow. In addition to being our primary source of stable low-cost funding, our branch franchise gives us a critical access point to our small business and middle-market banking clients, where market presence and branding are differentiating factors in fostering and serving these important relationships.

And now, I'm going to spend a few minutes on some of our market specifics. In our Eastern markets, we see an older, wealthier population and more established businesses. We are able to leverage not only our wealth management capabilities but also our denser footprint and our long-standing presence to continue to drive meaningful customer relationships in all of our businesses.

In the West, we have a younger, faster-growing population and a different set of corporate customers, and we are seeing success in terms of penetrating both. While the East offers us more deposits, the West has been a driver of strong lending and, historically, of less expensive deposits. The West generates about 1/3 of our deposits, but provides over 45% of the Community Bank loan balances. This is also an area where we have continued to invest, with 70 new branches out of the 400-plus in the Western markets, which gives us plenty of runway as these new locations mature.

In all our markets, our branches run off a common technology and operating platform, utilize many shared services and lever our image-enabled back-office. We feel we are poised to realize growth as both our community and Corporate Bank franchises gain meaningful headway in these markets. Our focus on serving business customers with the combination of local relationships and distinctive industry expertise is positioning us to win in both the Eastern and Western part of our franchises.

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