KeyCorp (KEY)

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KeyCorp (KEY)

Q4 2010 Earnings Call

January 25, 2011 9:00 am ET

Executives

William Koehler - President of Key Community Bank

Unknown Speaker -

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

Beth Mooney - Vice Chairman, President, Chief Operating Officer, 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

Christopher Gorman - President of Key Corporate Bank and Vice Chairman of Keybank National Association

Charles Hyle - Chief Risk Officer, Executive Vice President, Member of Executive Council and Member of Management Committee

Analysts

Michael Mayo - Deutsche Bank

Matthew Burnell - Wells Fargo Securities, LLC

Betsy Graseck - Morgan Stanley

Kenneth Usdin - Jefferies & Company, Inc.

Brian Foran - Goldman Sachs

Gerard Cassidy - RBC Capital Markets, LLC

Steven Alexopoulos - JP Morgan Chase & Co

Matthew O'Connor - Deutsche Bank AG

David Konrad - Keefe, Bruyette, & Woods, Inc.

Jeff Davis - Guggenheim Securities, LLC

Presentation

Operator

Good morning, and welcome to the KeyCorp's 2010 Fourth Quarter Earnings Results Conference Call. [Operator Instructions] 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 Meyer

Thank you, operator. Good morning, and welcome to KeyCorp's Fourth Quarter 2010 Earnings Conference Call. Joining me for today's presentation is Jeff Weeden, our CFO. Available for the Q&A portion of the call are Key's President and Chief Operating Officer, Beth Mooney; and the leader of Key Corporate Bank, Chris Gorman; and Key Community Bank, Bill Koehler. Also joining us for the q&a discussion are our Chief Risk Officer, Chuck Hyle; and our Treasurer, Joe Vayda.

Now if you turn to Slide 2. Slide 2 is our forward-looking disclosure statement. It covers our presentation materials and comments, as well as the Q&A segment of our call today.

Now if you turn to Slide 3. This morning, we announced fourth quarter net income from continuing operations of $292 million or $0.33 per common share. For the full year 2010, Key's net income from continuing operations was $413 million or $0.47 per common share. Our fourth quarter performance represents a strong finish to the year. Especially noteworthy was the continued improvement in credit quality and the progress we've made in growing our pre-provision net revenue.

Credit quality continued to improve across a majority of loan portfolios in both Key Community Bank and Key Corporate Bank. In the fourth quarter of 2010, nonperforming assets were down $463 million and net charge-offs declined to $256 million. Key's net charge-offs declined each quarter in 2010 and are at their lowest level since the first quarter of 2008. Nonperforming assets declined for the fifth consecutive quarter and now stand at their lowest level since the third quarter of 2008. In addition to the continuing improvement in credit quality, pre-provision net revenue increased in the fourth quarter, in both the Community Bank and Corporate Bank. Both major business groups have benefited from the strategic actions taken to focus on profitable client segments, reduce risk and rationalize our expense structure.

Investing in our businesses has also remained an important part of our strategy. Over the past two years, we have opened 77 new branches and renovated approximately 145 others. Key has also continued to receive recognition from a number of third parties for its services and customer satisfaction. The most recent was from Greenwich Associates, which recognized Key for excellence in both small business and middle market banking.

Our improvement in Key Corporate Bank was largely driven by improving credit trends and by sharpening our focus on targeted industry segments, particularly in our noncapital-intensive businesses. During 2010, Key helped clients raise more than $1 billion through the successful execution of nearly 300 capital market transactions. This was achieved through increased levels of activity and elevated role serving clients in these financings and resulted in record fee income for KeyBanc Capital Markets in our equity and debt capital markets and Loan Syndications area.

Key ended the year on a strong position in terms of capital, liquidity and reserves. Our Tier 1 common equity ratio at December 31 was 9.31% and our Tier 1 risk-based capital ratio was 15.1%. We're confident that these numbers position us well for the transition to Basel III.

Our loan loss allowance at the end of the fourth quarter was approximately $1.6 billion, which represented 3.2% of total loans and 150% coverage of non-performing loans. We expect that both of these ratios should maintain our position near the top of our peer group.

As I commented in this morning's earnings release, we're aware that certain of our peer banks have recently repaid TARP. The Comprehensive Capital Assessment Plan we submitted on January 7, 2011, included our proposal for repaying the TARP preferred stock in a manner that we believe makes sense for Key and our shareholders. The repayment of TARP is a top priority for Key, but our patience has been appropriate because it has allowed us to demonstrate improved financial performance and an increased stock price. Moreover, given the strength of our capital and our improved risk profile and profitability, it is our goal to repay TARP in a less dilutive manner than would have been achievable if we had repaid prior to undergoing the Federal Reserve's Comprehensive Capital Assessment.

The final item on our strategic update slide focuses on the management changes that we've announced in the fourth quarter. As most of you know, Beth Mooney was elected President and Chief Operating Officer of KeyCorp and a member of our Board of Directors and will assume the role of Chairman and CEO when I retire on May 1 of this year. We also announced the elections of Bill Koehler to President of Key Community Bank; and Chris Gorman to President of Key Corporate Bank. I'm extremely confident in our new leadership team and their ability to execute on our strategic plan that will drive Key's future growth and success. With three consecutive profitable quarters and continued signs of increased economic activity on the part of our clients, I'm increasingly confident that Key has turned the corner and is positioned well for 2011 and beyond. Now I'll turn the call over to Jeff for a review of our financial results. Jeff?

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