How did KeyCorp perform in 2000 compared with 1999?

Reported net income fell 9.5% to $1.002 billion from $1.107 billion, and diluted earnings per share were $2.30 versus $2.45. The decline reflects the sale of the credit card business and branch divestitures, the decision to retain home equity loans rather than securitize them, and higher loan loss provisions. Management says that excluding divested businesses and securitization gains, core earnings per diluted share rose 10% to $2.30 from $2.10.

What drove the increase in credit costs?

The provision for loan losses rose to $490 million from $348 million. The filing attributes this to a higher level of net charge-offs, the slowing economy, $21 million of shared national credit charge-offs in the third quarter, and an additional $121 million provision in the first quarter from an enhanced credit risk methodology. Nonperforming assets rose to $672 million, and the allowance for loan losses was 1.50% of loans at year end.

Is KeyCorp's capital position sound, and how is it returning capital to shareholders?

The filing states that all insured subsidiaries were well capitalized at December 31, 2000, with a Tier 1 risk-adjusted capital ratio of 7.72% and a leverage ratio of 7.71%. Shareholders' equity was $6.6 billion. During 2000 Key repurchased 22,652,800 shares at an average price of $20.37, and dividends paid totaled $1.12 per share for the year, with the quarterly dividend raised to $.295 in January 2001.

What is management's outlook for 2001?

Management expects a challenging economic environment in 2001, with industry-wide credit quality issues as a key concern. The company plans to continue its three-year competitiveness initiative, targeting an annual savings rate of about $360 million by the end of 2002, and to reduce its workforce by roughly 2,300 positions by the end of 2001. Management also expects its diversified revenue streams and noninterest income focus to help offset the slowdown.

Are there material legal proceedings disclosed?

McDonald Investments Inc., a KeyCorp subsidiary, is defending eight lawsuits brought by purchasers of securities issued by Nakornthai Strip Mill Public Company Ltd. of Thailand. The plaintiffs allege at least $257 million of securities were purchased, and one New Jersey action alleges damages of approximately $54 million before treble damages. McDonald is vigorously defending the actions, and management does not believe any legal action against KeyCorp or its subsidiaries will have a material adverse effect on its financial condition.

KeyCorp 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 22, 2001. Cited figures are marked; the original filing is the authoritative source.

KeyCorp, headquartered in Cleveland, Ohio, reported consolidated total assets of $87 billion^a at December 31, 2000, operating 922 full-service branches in 13 states and 22,142 full-time equivalent employees.

Net income was $1.002 billion^b, or $2.30 per diluted common share, compared with $1.107 billion, or $2.45, in 1999. Core net income was $1.009 billion, or $2.32 per common share, and management estimates that excluding divested businesses and securitization gains, core earnings per diluted share rose 10% to $2.30 from $2.10. The results include a $332 million gain from the January 2000 sale of the credit card portfolio, $127 million of restructuring and other special charges tied to a three-year competitiveness initiative, and a $490 million provision for loan losses, up from $348 million in 1999.

Net charge-offs were $414 million^c, or .63% of average loans, and nonperforming assets rose to $672 million from $473 million. The company's capital position is described as strong, with a Tier 1 risk-adjusted capital ratio of 7.72% and a total risk-adjusted capital ratio of 11.48% at year end. Key repurchased 22,652,800 common shares during 2000 and increased its quarterly dividend 5.4% to $.295 in January 2001.

Management says the 2001 business climate is more challenging than 2000, citing industry-wide credit quality issues tied to a slowing U.S. economy. The Form 10-K incorporates most financial detail by reference to the 2000 Annual Report to Shareholders, which is included as Exhibit 13. Leadership transitioned in February 2001 when Robert W.

Gillespie retired as chief executive officer and Henry L. Meyer III succeeded him. The filing also discloses a pending legal matter in which McDonald Investments Inc. is defending eight lawsuits by purchasers of Nakornthai Strip Mill Public Company securities, with at least $257 million^d of securities alleged to have been purchased.

02—Key points

Key Highlights

Net income of $1.002 billion, or $2.30 per diluted share, in 2000, versus $1.107 billion, or $2.45, in 1999; core net income was $1.009 billion, or $2.32 per share.
A $332 million gain from the January 31, 2000 sale of the $1.3 billion credit card portfolio boosted reported results; net securities losses of $50 million partly offset it.
Provision for loan losses rose to $490 million from $348 million; net loan charge-offs were .63% of average loans, and nonperforming assets reached $672 million versus $473 million a year earlier.
Total assets were $87.27 billion and deposits were $48.65 billion at December 31, 2000; shareholders' equity was $6.62 billion.
Tier 1 risk-adjusted capital ratio of 7.72% and total risk-adjusted capital ratio of 11.48%, with each insured bank subsidiary rated well capitalized.
Competitiveness initiative (PEG) targets annual savings of about $360 million by the end of 2002, with a workforce reduction of approximately 4,000 positions; 2000 restructuring charges were $127 million.
Quarterly dividend increased 5.4% to $.295 per share in January 2001, marking the 36th consecutive annual dividend increase; more than 20 million shares were repurchased in 2000.

03—Questions

Frequently Asked Questions

How did KeyCorp perform in 2000 compared with 1999?
Reported net income fell 9.5% to $1.002 billion from $1.107 billion, and diluted earnings per share were $2.30 versus $2.45. The decline reflects the sale of the credit card business and branch divestitures, the decision to retain home equity loans rather than securitize them, and higher loan loss provisions. Management says that excluding divested businesses and securitization gains, core earnings per diluted share rose 10% to $2.30 from $2.10.
What drove the increase in credit costs?
The provision for loan losses rose to $490 million from $348 million. The filing attributes this to a higher level of net charge-offs, the slowing economy, $21 million of shared national credit charge-offs in the third quarter, and an additional $121 million provision in the first quarter from an enhanced credit risk methodology. Nonperforming assets rose to $672 million, and the allowance for loan losses was 1.50% of loans at year end.
Is KeyCorp's capital position sound, and how is it returning capital to shareholders?
The filing states that all insured subsidiaries were well capitalized at December 31, 2000, with a Tier 1 risk-adjusted capital ratio of 7.72% and a leverage ratio of 7.71%. Shareholders' equity was $6.6 billion. During 2000 Key repurchased 22,652,800 shares at an average price of $20.37, and dividends paid totaled $1.12 per share for the year, with the quarterly dividend raised to $.295 in January 2001.
What is management's outlook for 2001?
Management expects a challenging economic environment in 2001, with industry-wide credit quality issues as a key concern. The company plans to continue its three-year competitiveness initiative, targeting an annual savings rate of about $360 million by the end of 2002, and to reduce its workforce by roughly 2,300 positions by the end of 2001. Management also expects its diversified revenue streams and noninterest income focus to help offset the slowdown.
Are there material legal proceedings disclosed?
McDonald Investments Inc., a KeyCorp subsidiary, is defending eight lawsuits brought by purchasers of securities issued by Nakornthai Strip Mill Public Company Ltd. of Thailand. The plaintiffs allege at least $257 million of securities were purchased, and one New Jersey action alleges damages of approximately $54 million before treble damages. McDonald is vigorously defending the actions, and management does not believe any legal action against KeyCorp or its subsidiaries will have a material adverse effect on its financial condition.

04—Continue

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