KeyCorp (KEY)

KEY 
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KeyCorp (KEY)

Q1 2010 Earnings Call

April 21, 2010 9:00 am ET

Executives

Henry Meyer – Chairman, Chief Executive Officer

Jeffrey Weeden – Chief Financial Officer

Chris Gorman – Chief Credit Officer

Beth Mooney – Vice Chairman

Joe Vayda – Treasurer

Chuck Hyle – Chief Risk Officer

Analysts

Brian Foran – Goldman Sachs

Gerard Cassidy – RBC Capital Markets

Terry McEvoy – Oppenheimer

Craig Siegenthaler – Credit Suisse

Kenneth Usdin – Bank of America

Jessica for Paul Miller – FBR Capital Markets

Presentation

Operator

Welcome to KeyCorp’s 2010 first quarter earnings results conference call. Today’s call is being recorded. At this time, I’d like to turn the call over to the Chairman and Chief Executive Officer, Mr. Henry Meyer.

Henry Meyer

Good morning and welcome to KeyCorp’s first quarter 2010 earnings conference call. Joining me for today’s presentation is our CFO Jeff Weeden and available for the Q&A portion of our call, are our leaders of Community Banking and National Banking, Beth Mooney and Chris Gorman, our Chief Credit Officer Chuck Hyle and our Treasurer Joe Vayda.

Now if you turn to the next slide. Slide 2 is our forward-looking disclosure statement. It covers presentation materials and comments as well as the question and answer segment of our call today.

Turning to Slide 3, this morning we announced a net loss from continuing operations of $98 million or $0.11 per common share. A stronger net interest margin, lower loan loss provision and continued expense control resulted in a narrowing of KeyCorp’s first quarter loss when compared to both the fourth quarter and the year ago period.

Our net interest margin increased 15 basis points from the prior quarter, primarily due to lower funding costs and improved yields on loans. Expenses declined as a result of lower personnel expense, our efficiency initiative and a decrease in the provision for losses on lending related commitments.

We also saw improvements in our key credit metrics, including net charge offs, which declined $186 million and non-performing loans, which were down $122 million from the prior quarter. Both benefited from continued stabilization in the commercial loan portfolio. This was the second consecutive quarterly decrease in non-performing loans.

Our balance sheet continues to reflect strong capital with liquidity and reserve levels. At March 31, our tier one common equity ratio was a strong 7.53% and our tier one risk based capital ratio was 12.96%. Both measures are up significantly from the year ago period.

At the end of the first quarter, our loan loss allowance was $2.4 billion and represented 4.34% of total loss and 117% of non-performing loans. Both of these ratios should maintain our position at or near the top quartile of our peer group.

As Jeff will discuss shortly, we have continued to maintain a strong liquidity and funding profile. Also, good progress was made on several other strategic fronts during the quarter. First, we filled a key role in our management team. Chris Gorman was promoted to head our National Banking business.

Chris has been with the company for 19 years and was previously President of KeyBank Capital Markets where he was instrumental in innovating Key’s corporate and investment banking businesses. His breadth of experience, business acumen and leadership ability make him ideally suited for this role.

And we continue to invest in our core relationship businesses including our 14 state branch network. We opened eight new branches in the quarter and expect to open an additional 32 branches during the remainder of 2010.

We also have plans to renovate approximately 85 existing branches this year, which is in addition to the 160 completed over the past two years. The new and modernized branches support Key’s relationship strategy by leveraging the branch network to offer the full breadth of solutions, expertise, products and services that Key has to offer.

We’ve also been transforming our operations for programs and technology designed to enhance the client experience and operate more effectively. One measure of success that we’ve seen in our customer satisfaction scores including being named customer service champ by Business Week last year, and the recent results from the American Customer Service Index, a customer satisfaction survey conducted by the University of Michigan.

Key also received recognition from Corporate Insight’s 2009 Bank Monitor, which highlights firms that excel in online banking.

During the past year, we also created 157 business intensive branches, which are staffed to serve our small business clients. Key’s focus on the small business segment has resulted in our moving to number 15 in 2009 from 21 the previous year among the country’s major lenders in the SBA 7A Small Business Financing program.

This means that we have contributed to job creation in our communities and are well positioned to serve our small business clients as the economy improves.

In National Banking, we have continued to concentrate on reducing risk and sharpening our focus on specific segments and clients where we can be relevant. In our Institutional business, we’ve aligned around four specific planned segments and continue to invest in the people that can leverage our capabilities.

We reduced our exposure to commercial real estate and continue to look for opportunities to leverage our commercial real estate servicing capabilities. And, we are emphasizing areas that have synergy with the clients segments in the Community Bank such as equipment leasing, and certain products offered through KeyBank Capital Markets.

In our equipment leasing business, we are leveraging our scale and expertise to meet the needs of our clients across the organization from small business all the way up to our large corporate clients.

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