KeyCorp (KEY)

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KeyCorp (KEY)

Q3 2009 Earnings Call

October 21, 2009 9:00 am ET

Executives

Henry L. Meyer III - Chairman of the Board, President, Chief Executive Officer

Jeffrey B. Weeden - Chief Financial Officer, Senior Executive Vice President

Beth E. Mooney - Vice Chairman

Peter D. Hancock - Vice Chairman

Charles S. Hyle - Executive Vice President, Chief Risk Officer

Joseph M. Vayda - Executive Vice President and Treasurer

Analysts

Craig Siegenthaler – Credit Suisse

Brian Foran - Goldman Sachs

Todd Hagerman - Collins Stewart

Anand Krishnan - Fore Research & Management

Paul Miller - FBR Capital Markets

David George - Robert W. Baird

Gerard Cassidy - RBC Capital

Aaron Foley - Bank of America-Merrill Lynch

Mike Holton - The Boston Company

Matthew Burnell - Wells Fargo

Bob Patten - Morgan Keegan

Presentation

Operator

Good morning and welcome to KeyCorp's 2009 third quarter earnings results conference call. This call is being recorded. At this time I would like to turn the call over to the Chairman and Chief Executive Officer, Mr. Henry Meyer. Mr. Meyer, please go ahead, sir.

Henry L. Meyer III

Thank you, operator. Good morning and welcome to KeyCorp's third quarter 2009 earnings conference call. Joining me in today's presentation is our CFO Jeff Weeden, and available for the Q&A portion of our call, our Vice Chairs Beth Mooney and Peter Hancock, Chief Risk Officer Chuck Hyle, and our Treasurer Joe Vayda.

Slide two is our forward looking disclosure statement. It covers our presentation materials and comments, as well as the question and answer segment of our call today.

Now if you turn to slide three, today we announced a net loss from continuing operations attributable to key commons shareholders of $422 million of $0.50 per common share. While our results continue to be impacted by the difficult operating environment we believe the aggressive actions we've taken to address credit quality, strengthen capital and liquidity, and reshape our business mix, position us to meet the challenges posed by the current environment and to emerge as a more competitive company as the economy rebounds.

We are encouraged that the pace of deterioration in the economy appears to have slowed, however, we remain conservative on our outlook and expect conditions to remain challenging into next year.

One of our primary areas of focus has been on building and maintaining a strong balance sheet. In August we completed a series of capital raises and exchanges that in total have generated approximately $2.4 billion of new Tier 1 common equity. At September 30th, 2009, our Tier 1 common equity ratio was a strong 7.63%, and our Tier 1 risk based capital ratio was also a strong 12.61%.

During the third quarter we continue to build our loan loss reserve by taking a $733 million loan loss provision which exceeded our net charge-offs by $146 million. At the end of the quarter, our allowance for loan losses was $2.5 billion and represent 4% of total loans. We have strengthened our liquidity and funding positions over the past year by reducing our reliance on wholesale funding and increasing the portion of earning assets invested in highly liquid securities. Average deposits were up 6% from the year ago period with growth in both community banking and the national banking group.

Proactively addressing credit quality continues as one of our top priorities. In the third quarter we saw an increase in nonperforming assets, but at as lower pace than in recent quarters, and most of that increase was attributable to the commercial real estate portfolio.

In the third quarter we continue to take aggressive steps to reduce exposure to our commercial real estate and institutional portfolios through the sale of selected assets. Jeff will discuss the actions taken in his remarks and comment on the marks taken on the various assets during the third quarter.

While we continue to make progress on reducing exposures in targeted portfolios, we expect that credit quality trends will likely remain under pressure until we see meaningful improvement in the economy.

Another priority has been continuing to sharpen our focus on our relationship businesses by investing in those areas where we can be most competitive and exiting businesses that have not generated appropriate risk-adjusted returns.

In community banking we have installed new technology to improve the client experience and we have continued our multiyear investment in our 14 state branch network. We've opened 32 branches in eight markets in 2009 and will have completed approximately 160 branch renovations by the end of the year.

These investments have further enhanced our competitive position and improved service quality. As I mentioned before, Business Week recognized Key as the top rated bank, 11th overall, in its customer service champ survey for 2009. I'm also very pleased that last month KeyBank was awarded an outstanding rating for the Community Reinvestment Act for serving the needs of low and moderate income communities . Key is the only national bank among the 50 larges to be rated outstanding by the OCC seven review periods in a row dating back to when the act was created in the mid-1970s.

Executing on our relationship strategies has also required us to make some difficult decisions to exit certain businesses. Earlier this month we announced that we were exiting the government guaranteed education lending business. This followed our earlier actions to exit private student lending. Key will continue to serve the education segment by leveraging our strength and payment processing and liquidity management.

In our equipment leasing business re have realigned our resources with our most profitable business segments and will cease conducting business in both the commercial vehicle and office equipment leasing markets. And we continue to make progress on Key-Volution, which is our corporate-wide initiative designed to simplify internal processes and improve both client service and speed to market.

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