KeyCorp (KEY)

KEY 
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KeyCorp (KEY)

Q3 2010 Earnings Call

October 22, 2010 9:00 a.m. ET

Executives

Henry Meyer - Chairman, Chief Executive Officer, President, Member of Executive Council, Chairman of Executive Committee and Member of Management Committee

Christopher Gorman - Senior Executive Vice President, Head of National Banking Business and Vice Chairman of KeyBank National Association

Beth Mooney - Vice Chairman, Member of Executive Council and Member of Management Committee

Jeffrey Weeden - Chief Financial Officer, Senior Executive Vice President, Member of Executive Council and Member of Management Committee

Joe Vayda - Treasurer

Analysts

Matt O’Connor – Deutsche Bank

Craig Siegenthaler - Crédit Suisse AG

Betsy Graseck – Morgan Stanley

Scott Siefers – Sandler O’Neill

Gerard Cassidy - RBC Capital Markets Corporation

Matt Burnell – Wells Fargo Securities

Terence McEvoy - Oppenheimer & Co. Inc.

Paul Miller – FBR Capital Markets

Jeff Davis – Guggenheim Partners

Carol Berger – Sojay

Chris Mutascio – Stifel Nicolaus

David Conrad – KBW

Steven Alexopolis – JP Morgan

Presentation

Operator

Good morning and welcome to KeyCorp’s 2010 Third Quarter Earnings Conference Call. This 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. Mr. Meyer, please go ahead sir.

Henry Meyer

Thank you, Operator. Good morning and welcome to our 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 the Community Banking and National Banking, Beth Mooney and Chris Gorman, and our Treasurer, Joe Vayda.

Slide 2 is our Forwarding-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 3; this morning we announced Third Quarter Net Income from Continuing Operations of $163 million or $0.19 per common share. Our positive earnings for the last two quarters resulted in return to profitability for year-to-date results. The net income from Continuing Operations for the nine-month period of $121 million or $0.14 per common share.

These third quarter earnings improvements compared to the second quarter was due to higher pre-provision net revenue and a lower provision for loan losses.

The growth in pre-provision net revenue was the result of a higher net interest margin, well-controlled expenses and improvements in several T-based businesses.

Credit quality continued to improve across the majority of loan portfolios in both Community Banking and National Banking, reflecting the work that has been done to lower our risk profile and proactively address credit issues.

Our positive credit trends included net charge offs, which were down for the third consecutive quarter and non-performing loans, which have declined for the last four quarters.

Our balance sheet continues to reflect strong capital, liquidity and reserve levels. Our estimated Tier 1 common equity ratio at September 30 was 8.59% and our Tier 1 risk based capital ratio was 14.26%.

Key loan-loss allowance at the end of the third quarter was approximately $2 billion, which represented 3.8% of total loans and 143% coverage of non-performing loans. Both of these rations should maintain our position near the top of our peer group.

As many of you who have followed our company know, our management team has moved aggressively over the last 18 months to significantly fortify our capital and reserves, lower our risk profile and improve liquidity in funding with a single-minded purpose of emerging from this challenging economic period strong and well positioned to compete and win in the marketplace.

I believe the trends that we reported today in our pre-provision net revenue demonstrates the progresses being made.

Our strong capital and liquidity position also enables the company to support the borrowing needs of our clients when the economy expands. The company originated approximately 8.1 billion in new or renewed lending commitments to consumers and businesses during the quarter and approximately 21 billion year to date through September 30.

The final item on our strategic update slide, investing in our core relationship business, has been a consistent theme for Key. Having a strong balance sheet as a solid foundation, we’re continuing to position the company to take advantage of the gradually improving economy.

In Community Banking, our largest investment is in our 14-state branch network. We opened 34 new branches in the first nine months of 2010 and expect to open an additional five branches during the fourth quarter, and we have plans to open another 35 to 40 branches in 2011.

The profitability of our new branches continues to be in line with our expectations. We have also continued to modernize our existing branches and align staffing with the needs of the segments and the communities that we serve.

One of the segments that continues to be an area of focus is Business Banking where we have designated 225 branches as business intensive, which are staffed to serve our small business clients. We are also a significant participant in the FDAs Small Business Loan Program.

In Retail Banking, we’re focused on deepening our existing relationships and new client acquisition. During the first nine months of this year we have experienced solid growth in your net new DDA accounts, and have generated a record level of revenue in our brand-based investment group.

We’re also pleased to receive additional recognition for Key’s online capabilities in a September Edition of Bank Monitor, which ranked us second among the 16 largest U.S. banks for our online account application features.

The investments in our new and modernized branches, along with the enhancements to the online banking position us to grow as the economy strengthens. Our improvement in the national banking group is largely driven by improving product trends and the work we have done to reduce our risk profile.

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