Earnings Release
KeyCorp Reports First Quarter 2017 Net Income of $296 Million, or $.27 per Common Share; Earnings per Common Share of $.32, Excluding $.05 of Merger-Related Charges
KeyCorp (KEY) today announced first quarter net income from continuing operations attributable to Key common shareholders of $296 million, or $.27 per common share, compared to $213 million or $.20 per common share, for the fourth quarter of 2016, and $182 million, or $.22 per common share, for the first quarter of 2016. During the first quarter of 2017, Key incurred merger-related charges totaling $81 million, or $.05 per common share, compared to $198 million, or $.11 per common share, in the fourth quarter of 2016, and $24 million, or $.02 per common share, in the first quarter of 2016. Excluding merger-related charges, earnings per common share were $.32 for the first quarter of 2017, $.31 for the fourth quarter of 2016, and $.24 for the first quarter of 2016.
"Key’s strong first quarter results reflect continued business momentum and our success in realizing value from our First Niagara acquisition," said Chairman and Chief Executive Officer Beth Mooney. "We generated positive operating leverage compared to both the prior year and previous quarter. Revenue relative to the year-ago period benefited from higher net interest income, positive momentum in our fee-based businesses and the addition of over one million newly acquired consumer and business clients. We have been successfully growing and expanding client relationships in both our Community Bank and Corporate Bank, and we remain on a path to deliver revenue synergies from our acquisition."
"Expenses reflect our continued focus on managing costs throughout the Key franchise, as well as realizing the targeted savings from First Niagara," Mooney continued. "We remain on track to achieve our initial $400 million cost savings target by the end of the second quarter and expect to reach $450 million by early 2018. In the first quarter, our cash efficiency ratio, excluding merger-related charges, improved to 60.4%."
"Our capital position remains strong, and this quarter, we generated a return on average tangible common equity of 12.9%, excluding merger-related charges," Mooney added.
Selected Financial Highlights
dollars in millions, except per share data
Change 1Q17 vs.
Income (loss) from continuing operations attributable to Key common shareholders
$
296
$
213
$
182
39.0%
62.6%
Income (loss) from continuing operations attributable to Key common shareholders per common share -- assuming dilution .27
.20
.22
35.0
22.7
Return on average total assets from continuing operations
.99%
.69%
.80%
N/A
N/A
Common Equity Tier 1 ratio (non-GAAP) (a), (b)
9.87
9.54
11.07
N/A
N/A
Book value at period end
$
12.71
$
12.58
$
12.79
1.0%
%
(.6)%
Net interest margin (TE) from continuing operations
3.13%
3.12%
2.89%
N/A
N/A
(a)
The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "Common Equity Tier 1."
The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the Regulatory Capital Rules, see the "Capital" section of this release.
(b)
3/31/2017 ratio is
estimated.
TE = Taxable Equivalent, N/A = Not Applicable
INCOME STATEMENT HIGHLIGHTS
dollars in millions
Change 1Q17 vs.
Net interest income (TE)
$ 929
$ 948
$ 612
(2.0)%
51.8%
Noninterest income
577
618
431
(6.6)%
33.9%
Total revenue
$ 1,506
$ 1,566
$ 1,043
(3.8)%
44.4%
First quarter 2017 net interest income included $53 million of purchase accounting accretion related to the acquisition of First Niagara. This compares to $92 million of purchase accounting accretion in the fourth quarter of 2016, which included $34 million related to the refinement of third quarter 2016 purchase accounting estimates.
Taxable-equivalent net interest income was $929 million for the first quarter of 2017, and the net interest margin was 3.13%, compared to taxable-equivalent net interest income of $612 million and a net interest margin of 2.89% for the first quarter of 2016, reflecting the benefit from the First Niagara acquisition, including purchase accounting accretion, as well as higher earning asset yields and balances.
Compared to the fourth quarter of 2016, taxable-equivalent net interest income decreased by $19 million, and the net interest margin increased by one basis point. The decline in net interest income reflects a decline in purchase accounting accretion and two fewer days in the quarter, partly offset by higher earning asset yields. The net interest margin benefited from higher earning asset yields and lower levels of liquidity, offset by a decline in purchase accounting accretion.
Excluding purchase accounting accretion, taxable-equivalent net interest income increased $20 million from the fourth quarter of 2016 and $264 million from the first quarter of 2016.
dollars in millions
Change 1Q17 vs.
Trust and investment services income
$ 135
$ 123
$ 109
9.8%
23.9%
Investment banking and debt placement fees
127
157
71
(19.1)
78.9
Service charges on deposit accounts
87
84
65
3.6
33.8
Operating lease income and other leasing gains
23
21
17
9.5
35.3
Corporate services income
54
61
50
(11.5)
8.0
Cards and payments income
65
69
46
(5.8)
41.3
Corporate-owned life insurance income
30
40
28
(25.0)
7.1
Consumer mortgage income
6
6
2
--
200.0
Mortgage servicing fees
18
20
12
(10.0)
50.0
Net gains (losses) from principal investing
1
4
--
(75.0)
N/M
Other income
31
33
31
(6.1)
--
Total noninterest income
$ 577
$ 618
$ 431
(6.6)%
33.9%
Merger-related charges
--
9
--
N/M
N/M
Total noninterest income excluding merger-related charges $ 577
$ 609
$ 431
(5.3)%
33.9%
Key’s noninterest income was $577 million for the first quarter of 2017, compared to $431 million for the year-ago quarter. The most notable increase was in investment banking and debt placement fees, which increased $56 million, related to improved capital markets conditions and activity from the year-ago period. Trust and investment services income, cards and payments income, and service charges on deposit accounts also contributed to the growth, largely related to the First Niagara acquisition.
Compared to the fourth quarter of 2016, noninterest income decreased by $41 million. The decrease was primarily attributable to lower investment banking and debt placement fees, as well as a decline in corporate-owned life insurance income, which is seasonally lower in the first quarter. Corporate services income also decreased $7 million related to lower loan and derivative trading income. An increase of $12 million in trust and investment services income related to higher insurance revenue and fixed income trading volume slightly offset these declines.
dollars in millions
Change 1Q17 vs.
Personnel expense
$ 556
$ 648
$ 404
(14.2)%
37.6%
Nonpersonnel expense
457
572
299
(20.1)
52.8
Total noninterest expense
$ 1,013
$ 1,220
$ 703
(17.0)
44.1
Merger-related charges
81
207
24
(60.9)
237.5
Total noninterest expense excluding merger-related charges $ 932
$ 1,013
$ 679
(8.0)%
37.3%
Key’s noninterest expense was $1.0 billion for the first quarter of 2017, which included $81 million of merger-related charges. The merger-related charges were primarily made up of $51 million of nonpersonnel expense, largely recognized in marketing, net occupancy, business services and professional fees, and other expense reflecting a $20 million philanthropic contribution related to First Niagara. The remaining $30 million was personnel expense, related to ongoing integration activities. In the fourth quarter of 2016, noninterest expense included $207 million of merger-related charges, while $24 million of merger-related charges were incurred in the first quarter of 2016.
Excluding merger-related charges, noninterest expense was $253 million higher than the first quarter of last year. The increase from the prior year, reflected in both personnel and nonpersonnel expense, was primarily driven by the acquisition of First Niagara. Higher incentive compensation related to stronger capital markets performance also contributed to the year-over-year increase.
Compared to the fourth quarter of 2016, noninterest expense, excluding merger-related charges, decreased by $81 million. The decrease primarily reflects cost savings related to the First Niagara acquisition, reflected in both personnel and nonpersonnel expense. Lower incentive and stock-based compensation and the absence of a pension settlement charge also contributed to the decline. These decreases were partially offset by seasonally higher employee benefits expenses.
BALANCE SHEET HIGHLIGHTS
dollars in millions
Change 1Q17 vs.
Commercial and industrial (a) $
40,002
$
39,495
$
31,590
1.3%
26.6%
Other commercial loans
22,175
21,617
13,111
2.6
69.1
Home equity loans
12,611
12,812
10,240
(1.6)
23.2
Other consumer loans
11,345
11,436
5,215
(.8)
117.5
Total loans
$
86,133
$
85,360
$
60,156
.9%
43.2%
(a) Commercial and industrial average loan balances include $114 million, $119 million, and $85 million of assets from commercial credit cards at March 31, 2017, December 31, 2016, and March 31, 2016, respectively.
Average loans were $86.1 billion for the first quarter of 2017, an increase of $26 billion compared to the first quarter of 2016, primarily reflecting the impact of the First Niagara acquisition and growth in commercial and industrial loans.
Compared to the fourth quarter of 2016, average loans increased by $773 million, driven by a $507 million increase in commercial and industrial loans, and a $416 million increase in commercial mortgage loans. The growth reflects overall business activity and lower payoffs in Key’s Commercial Real Estate line of business. Consumer loans decreased $292 million, mostly related to continued decline in the home equity loan portfolio, largely the result of paydowns on home equity lines of credit.
dollars in millions
Change 1Q17 vs.
Non-time deposits
$
91,745
$
94,414
$
65,637
(2.8)%
39.8%
Certificates of deposit ($100,000 or more)
5,627
5,428
2,761
3.7
103.8
Other time deposits
4,706
4,849
3,200
(2.9)
47.1
Total deposits
$
102,078
$
104,691
$
71,598
(2.5)%
42.6%
Cost of total deposits
.23%
.22%
.17%
N/A
N/A
Average deposits totaled $102.1 billion for the first quarter of 2017, an increase of $30.5 billion compared to the year-ago quarter, primarily reflecting the acquisition of First Niagara and core deposit growth in Key’s retail banking franchise.
Compared to the fourth quarter of 2016, average deposits decreased by $2.6 billion, largely driven by a decline in escrow deposits and a targeted reduction in certain short-term commercial deposits. On a period-end basis, total deposits decreased $105 million compared to the linked-quarter, as core deposit growth in Key’s retail banking franchise largely offset the decline in escrow deposits.
dollars in millions
Change 1Q17 vs.
Net loan charge-offs
$
58
$
72
$
46
(19.4)%
26.1%
Net loan charge-offs to average total loans
.27%
.34%
.31%
N/A
N/A
Nonperforming loans at period end (a)
$
573
$
625
$
676
(8.3)
(15.2)
Nonperforming assets at period end (a)
623
676
692
(7.8)
(10.0)
Allowance for loan and lease losses
870
858
826
1.4
5.3
Allowance for loan and lease losses to nonperforming loans (a) 151.8%
137.3%
122.2%
N/A
N/A
Provision for credit losses
$
63
$
66
$
89
(4.5)%
(29.2)%
(a)
Nonperforming loan balances exclude $812 million, $865 million, and $11 million of purchased credit impaired loans at March 31, 2017, December 31, 2016, and March 31, 2016, respectively.
Key’s provision for credit losses was $63 million for the first quarter of 2017, compared to $89 million for the first quarter of 2016 and $66 million for the fourth quarter of 2016. Key’s allowance for loan and lease losses was $870 million, or 1.01% of total period-end loans, at March 31, 2017, compared to 1.37% at March 31, 2016, and 1.00% at December 31, 2016.
Net loan charge-offs for the first quarter of 2017 totaled $58 million, or .27% of average total loans. These results compare to $46 million, or .31%, for the first quarter of 2016, and $72 million, or .34%, for the fourth quarter of 2016.
At March 31, 2017, Key’s nonperforming loans totaled $573 million, which represented .67% of period-end portfolio loans. These results compare to 1.12% at March 31, 2016, and .73% at December 31, 2016. Nonperforming assets at March 31, 2017, totaled $623 million, and represented .72% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to 1.14% at March 31, 2016, and .79% at December 31, 2016.
CAPITAL
Key’s estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2017.
3/31/2017 12/31/2016 3/31/2016
Common Equity Tier 1 (a), (b)
9.87%
9.54%
11.07%
Tier 1 risk-based capital (a)
10.70
10.89
11.38
Total risk based capital (a)
12.64
12.85
13.12
Tangible common equity to tangible assets (b) 8.51
8.09
9.97
Leverage (a)
9.81
9.90
10.73
(a) 3/31/2017 ratio is estimated.
(b) The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "tangible common equity" and "Common Equity Tier 1." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. See below for further information on the Regulatory Capital Rules.
Key’s capital position remained strong throughout the first quarter. As shown in the preceding table, at March 31, 2017, Key’s estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.87% and 10.70%, respectively. In addition, the tangible common equity ratio was 8.51% at March 31, 2017.
As a "standardized approach" banking organization, Key’s mandatory compliance with the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules") began on January 1, 2015, subject to transitional provisions extending to January 1, 2019. Key’s estimated Common Equity Tier 1 ratio as calculated under the fully phased-in Regulatory Capital Rules was 9.80% at March 31, 2017. This estimate exceeds the fully phased-in required minimum Common Equity Tier 1 and Capital Conservation Buffer of 7.00%.
Summary of Changes in Common Shares Outstanding
in thousands
Change 1Q17 vs.
Shares outstanding at beginning of period
1,079,314
1,082,055
835,751
(.3)%
29.1%
Open market repurchases and return of shares under employee compensation plans
(8,673)
(4,380)
--
98.0
N/M
Shares issued under employee compensation plans (net of cancellations)
6,270
1,642
6,539
281.9
(4.1)
Common shares exchanged for Series A Preferred Stock
20,568
--
--
N/M
N/M
Common shares issued to acquire First Niagara
--
(3)
--
N/M
N/M
Shares outstanding at end of period
1,097,479
1,079,314
842,290
1.7%
30.3%
On March 20, 2017, Key converted all outstanding shares of its outstanding 7.75% Non-Cumulative Perpetual Convertible Preferred Stock, Series A (KEY.G) shares into common shares, adding approximately 21 million common shares outstanding.
Consistent with Key’s 2016 Capital Plan, during the first quarter of 2017, Key declared a dividend of $.085 per common share and completed $160 million of common share repurchases, including $107 million of common share repurchases in the open market and $53 million of share repurchases related to employee equity compensation programs.
LINE OF BUSINESS RESULTS
The following table shows the contribution made by each major business segment to Key’s taxable-equivalent revenue from continuing operations and income (loss) from continuing operations attributable to Key for the periods presented. For more detailed financial information pertaining to each business segment, see the tables at the end of this release.
dollars in millions
Change 1Q17 vs.
Revenue from continuing operations (TE)
Key Community Bank
$
908
$
902
$
595
.7%
52.6%
Key Corporate Bank
579
630
425
(8.1)
36.2
Other Segments
28
38
21
(26.3)
33.3
Total segments
1,515
1,570
1,041
(3.5)
45.5
Reconciling Items
(9)
(4)
2
N/M
N/M
Total
$
1,506
$
1,566
$
1,043
(3.8)%
44.4%
Income (loss) from continuing operations attributable to Key
Key Community Bank
$
147
$
108
$
74
36.1%
98.6%
Key Corporate Bank
181
222
118
(18.5)
53.4
Other Segments
21
34
15
(38.2)
40.0
Total segments
349
364
207
(4.1)
68.6
Reconciling Items (a)
(25)
(131)
(20)
N/M
N/M
Total
$
324
$
233
$
187
39.1%
73.3%
(a)
Reconciling items consists primarily of the unallocated portion of merger-related charges and items not allocated to the business segments because they do not reflect their normal operations.
TE = Taxable Equivalent, N/M = Not Meaningful
dollars in millions
Change 1Q17 vs.
Net interest income (TE)
$
631
$
629
$
399
.3%
58.1%
Noninterest income
277
273
196
1.5
41.3
Total revenue (TE)
908
902
595
.7
52.6
Provision for credit losses
47
48
42
(2.1)
11.9
Noninterest expense
627
682
436
(8.1)
43.8
Income (loss) before income taxes (TE) 234
172
117
36.0
100.0
Allocated income taxes (benefit) and TE adjustments
87
64
43
35.9
102.3
Net income (loss) attributable to Key
$
147
$
108
$
74
36.1%
98.6%
Loans and leases
$
47,036 $
47,031 $
30,789
--
52.8%
Total assets
50,962
50,939
32,856
--
55.1
Deposits
79,393
79,358
52,803
--
50.4
Assets under management at period end
$
37,417 $
36,592 $
34,107
2.3%
%
9.7%
Additional Key Community Bank Data
dollars in millions
Change 1Q17 vs.
Trust and investment services income
$
98
$
88
$
73
11.4%
34.2%
Service charges on deposit accounts
75
71
54
5.6
38.9
Cards and payments income
55
59
43
(6.8)
27.9
Other noninterest income
49
55
26
(10.9)
88.5
Total noninterest income
$
277
$
273
$
196
1.5%
41.3%
NOW and money market deposit accounts
$
45,027
$
44,368
$
29,432
1.5%
53.0%
Savings deposits
5,268
5,326
2,340
(1.1)
125.1
Certificates of deposit ($100,000 or more)
3,878
3,659
2,120
6.0
82.9
Other time deposits
4,692
4,836
3,197
(3.0)
46.8
Noninterest-bearing deposits
20,528
21,169
15,714
(3.0)%
30.6
Total deposits
$
79,393
$
79,358
$
52,803
--
50.4%
Average balance
$
12,456
$
12,560
$
10,037
Combined weighted-average loan-to-value ratio (at date of origination)
70%
71%
71%
Percent first lien positions
60
57
61
Automated teller machines
1,594
1,593
1,249
Key Community Bank Summary of Operations (1Q17 vs. 1Q16)
-- Positive operating leverage compared to prior year
-- Net income increased $73 million, or 98.6%, from prior year
• Average commercial and industrial loans increased $5.1 billion, or 39.3%, from the prior year
-- Average deposits increased $26.6 billion, or 50.4%, from the prior year
Key Community Bank recorded net income attributable to Key of $147 million for the first quarter of 2017, compared to $74 million for the year-ago quarter, benefiting from momentum in Key’s core businesses, as well as the impact of the First Niagara acquisition.
Taxable-equivalent net interest income increased by $232 million, or 58.1%, from the first quarter of 2016. The increase was primarily attributable to the acquisition of First Niagara, as well as the benefit from the Federal Reserve rate increase. Average loans and leases increased $16.2 billion, or 52.8%, largely driven by a $5.1 billion, or 39.3%, increase in commercial and industrial loans. Additionally, average deposits increased $26.6 billion, or 50.4% from one year ago.
Noninterest income was up $81 million, or 41.3%, from the year-ago quarter, driven by the acquisition of First Niagara, including the addition of Key Insurance and Benefits Services. Strength in derivatives and higher assets under management balances from market growth also contributed to the increase.
The provision for credit losses increased by $5 million, or 11.9%, and net loan charge-offs increased $20 million, from the first quarter of 2016, primarily related to the acquisition of First Niagara.
Noninterest expense increased by $191 million, or 43.8%, from the year-ago quarter, largely driven by the acquisition of First Niagara, as well as core business activity and investments. Personnel expense increased $75 million, while non-personnel expense increased by $116 million, including higher intangible amortization expense and higher FDIC assessment expense.
dollars in millions
Change 1Q17 vs.
Net interest income (TE)
$
304
$
333
$
218
(8.7)%
39.4%
Noninterest income
275
297
207
(7.4)
32.9
Total revenue (TE)
579
630
425
(8.1)
36.2
Provision for credit losses
17
20
43
(15.0)
(60.5)
Noninterest expense
303
326
237
(7.1)
27.8
Income (loss) before income taxes (TE) 259
284
145
(8.8)
78.6
Allocated income taxes and TE adjustments
78
63
27
23.8
188.9
Net income (loss)
181
221
118
(18.1)
53.4
Less: Net income (loss) attributable to noncontrolling interests
--
(1)
--
N/M
N/M
Net income (loss) attributable to Key
$
181
$
222
$
118
(18.5)%
53.4%
Loans and leases
$
37,737
$
36,770
$
27,722
2.6%
36.1%
Loans held for sale
1,097
1,223
811
(10.3)
35.3
Total assets
44,167
43,210
33,413
2.2
32.2
Deposits
21,003
23,172
18,074
(9.4)%
16.2%
TE = Taxable Equivalent, N/M = Not Meaningful
Additional Key Corporate Bank Data
dollars in millions
Change 1Q17 vs.
Trust and investment services income
$ 37
$ 35
$ 36
5.7%
2.8%
Investment banking and debt placement fees
124
154
70
(19.5)
77.1
Operating lease income and other leasing gains
21
18
13
16.7
61.5
Corporate services income
38
43
38
(11.6)
--
Service charges on deposit accounts
12
12
11
--
9.1
Cards and payments income
10
9
3
11.1
233.3
Payments and services income 60
64
52
(6.3)
15.4
Mortgage servicing fees
16
18
12
(11.1)
33.3
Other noninterest income
17
8
24
112.5
(29.2)
Total noninterest income
$ 275
$ 297
$ 207
(7.4)%
32.9%
Key Corporate Bank Summary of Operations (1Q17 vs. 1Q16)
-- Average loan and lease balances up $10 billion, or 36.1%, from the prior year
-- Revenue up $154 million, or 36.2%, from the prior year
-- Noninterest income up $68 million, or 32.9%, from the prior year
Key Corporate Bank recorded net income attributable to Key of $181 million for the first quarter of 2017, compared to $118 million for the same period one year ago.
Taxable-equivalent net interest income increased by $86 million, or 39.4%, compared to the first quarter of 2016. Average loan and lease balances increased $10 billion, or 36.1%, from the year-ago quarter, primarily driven by the First Niagara acquisition as well as growth in commercial and industrial loans. Average deposit balances increased $2.9 billion, or 16.2%, from the year-ago quarter, mostly driven by the First Niagara acquisition.
Noninterest income was up $68 million, or 32.9%, from the prior year. This growth was mostly due to $54 million of higher investment banking and debt placement fees related to improved capital markets conditions and activity from the year-ago period, as well as an increase of $8 million in operating lease income and other leasing gains related to higher originations. Additional increases of $7 million in cards and payments income and $4 million in mortgage servicing fees were partially offset by a $7 million decrease in other noninterest income.
The provision for credit losses decreased $26 million, or 60.5%, compared to the first quarter of 2016 due to $4 million of lower net loan charge-offs and improvement in the oil and gas portfolio.
Noninterest expense increased by $66 million, or 27.8%, from the first quarter of 2016. The increase from the prior year, reflected in both personnel and nonpersonnel expense, was largely driven by the acquisition of First Niagara, higher performance-based compensation and various other items, including operating lease and cards and payments expenses.
Other Segments
Other Segments consist of Corporate Treasury, Key’s Principal Investing unit, and various exit portfolios. Other Segments generated net income attributable to Key of $21 million for the first quarter of 2017, compared to $15 million for the same period last year, driven by increases in corporate-owned life insurance income, net gains on principal investing, and other income.
*****
KeyCorp’s roots trace back 190 years to Albany, New York. Headquartered in Cleveland, Ohio, Key is one of the nation’s largest bank-based financial services companies, with assets of approximately $134.5 billion at March 31, 2017.
Key provides deposit, lending, cash management, insurance, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of more than 1,200 branches and more than 1,500 ATMs. Key also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets trade name. For more information, visit https://www.key.com/. KeyBank is Member FDIC.
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do not relate strictly to historical or current facts.
Forward-looking statements usually can be identified by the use of words such as "goal," "objective," "plan," "expect," "assume," "anticipate," "intend," "project," "believe," "estimate," or other words of similar meaning. Forward-looking statements provide our current expectations or forecasts of future events, circumstances, results, or aspirations. Forward-looking statements, by their nature, are subject to assumptions, risks and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements. There is no assurance that any list of risks and uncertainties or risk factors is complete.
Factors that could cause Key’s actual results to differ from those described in the forward-looking statements can be found in KeyCorp’s Form 10-K for the year ended December 31, 2016, as well as in KeyCorp’s subsequent SEC filings, all of which have been filed with the Securities and Exchange Commission (the "SEC") and are available on Key’s website (www.key.com/ir) and on the SEC’s website (www.sec.gov).
These factors may include, among others: deterioration of commercial real estate market fundamentals, adverse changes in credit quality trends, declining asset prices, a reversal of the U.S. economic recovery due to financial, political, or other shocks, and the extensive and increasing regulation of the U.S. financial services industry. Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.
Notes to Editors:
A live Internet broadcast of KeyCorp’s conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts’ questions can be accessed through the Investor Relations section at https://www.key.com/ir at 9:00 a.m. ET, on Thursday, April 20, 2017. An audio replay of the call will be available through April 30, 2017.
For up-to-date company information, media contacts, and facts and figures about Key’s lines of business, visit our Media Newsroom at https://www.key.com/newsroom.
(dollars in millions, except per share amounts)
3/31/2017
12/31/2016
3/31/2016
Net interest income (TE)
$
929
$
948
$
612
Noninterest income
577
618
431
Total revenue (TE)
1,506
1,566
1,043
Provision for credit losses
63
66
89
Noninterest expense
1,013
1,220
703
Income (loss) from continuing operations attributable to Key
324
233
187
Income (loss) from discontinued operations, net of taxes (a)
--
(4)
1
Net income (loss) attributable to Key
324
229
188
Income (loss) from continuing operations attributable to Key common shareholders
296
213
182
Income (loss) from discontinued operations, net of taxes (a)
--
(4)
1
Net income (loss) attributable to Key common shareholders
296
209
183
Income (loss) from continuing operations attributable to Key common shareholders
$
.28
$
.20
$
.22
Income (loss) from discontinued operations, net of taxes (a)
--
--
--
Net income (loss) attributable to Key common shareholders (b)
.28
.20
.22
Income (loss) from continuing operations attributable to Key common shareholders -- assuming dilution .27
.20
.22
Income (loss) from discontinued operations, net of taxes -- assuming dilution (a)
--
--
--
Net income (loss) attributable to Key common shareholders -- assuming dilution (b)
.27
.19
.22
Cash dividends declared per common share
.085
.085
.075
Book value at period end
12.71
12.58
12.79
Tangible book value at period end
10.21
9.99
11.52
Market price at period end
17.78
18.27
11.04
From continuing operations:
Return on average total assets
.99
%
.69
%
.80
%
Return on average common equity
8.76
6.22
6.86
Return on average tangible common equity (c)
10.98
7.88
7.64
Net interest margin (TE)
3.13
3.12
2.89
Cash efficiency ratio (c)
65.8
76.2
66.6
From consolidated operations:
Return on average total assets
.98
%
.67
%
.79
%
Return on average common equity
8.76
6.10
6.90
Return on average tangible common equity (c)
10.98
7.73
7.68
Net interest margin (TE)
3.11
3.09
2.83
Loan to deposit (d)
85.6
85.2
85.7
Capital ratios at period end
Key shareholders’ equity to assets
11.14
%
11.17
%
11.25
%
Key common shareholders’ equity to assets
10.37
9.95
10.95
Tangible common equity to tangible assets (c)
8.51
8.09
9.97
Common Equity Tier 1 (c), (e)
9.87
9.54
11.07
Tier 1 risk-based capital (e)
10.70
10.89
11.38
Total risk-based capital (e)
12.64
12.85
13.12
Leverage (e)
9.81
9.90
10.73
Financial Highlights (continued)
3/31/2017
12/31/2016
3/31/2016
Asset quality -- from continuing operations
Net loan charge-offs
$
58
$
72
$
46
Net loan charge-offs to average loans
.27
%
.34
%
.31
%
Allowance for loan and lease losses
$
870
$
858
$
826
Allowance for credit losses
918
913
895
Allowance for loan and lease losses to period-end loans
1.01
%
1.00
%
1.37
%
Allowance for credit losses to period-end loans
1.07
1.06
1.48
Allowance for loan and lease losses to nonperforming loans (f)
151.8
137.3
122.2
Allowance for credit losses to nonperforming loans (f)
160.2
146.1
132.4
Nonperforming loans at period end (f)
$
573
$
625
$
676
Nonperforming assets at period end (f)
623
676
692
Nonperforming loans to period-end portfolio loans (f)
.67
%
.73
%
1.12
%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (f) .72
.79
1.14
Assets under management
$
37,417
$
36,592
$
34,107
Average full-time equivalent employees
18,386
18,849
13,403
Taxable-equivalent adjustment
$
11
$
10
$
8
(a)
In April 2009, management decided to wind down the operations of Austin Capital Management, Ltd., a subsidiary that specialized in managing hedge fund investments for institutional customers. In September 2009, management decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank National Association.
(b)
Earnings per share may not foot due to rounding.
(c)
The following table entitled "GAAP to Non-GAAP Reconciliations" presents the computations of certain financial measures related to "tangible common equity,"
"Common Equity Tier 1," and "cash efficiency." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the Regulatory Capital Rules, see the "Capital" section of this release.
(d)
Represents period-end consolidated total loans and loans held for sale divided by period-end consolidated total deposits (excluding deposits in foreign office).
(e)
3/31/2017 ratio is estimated.
(f)
Nonperforming loan balances exclude $812 million, $865 million, and $11 million of purchased credit impaired loans at March 31, 2017, December 31, 2016, and March 31, 2016, respectively.
TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles
GAAP to Non-GAAP Reconciliations (dollars in millions)
The table below presents certain non-GAAP financial measures related to "tangible common equity," "return on average tangible common equity," "Common Equity Tier 1," "pre-provision net revenue," certain financial measures excluding merger-related charges, and "cash efficiency ratio."
The tangible common equity ratio and the return on average tangible common equity ratio have been a focus for some investors, and management believes these ratios may assist investors in analyzing Key’s capital position without regard to the effects of intangible assets and preferred stock. Traditionally, the banking regulators have assessed bank and bank holding company capital adequacy based on both the amount and the composition of capital, the calculation of which is prescribed in federal banking regulations. In October 2013, the federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules"). The Regulatory Capital Rules require higher and better-quality capital and introduced a new capital measure, "Common Equity Tier 1," a non-GAAP financial measure. The mandatory compliance date for Key as a "standardized approach" banking organization began on January 1, 2015, subject to transitional provisions extending to January 1, 2019.
Common Equity Tier 1 is not formally defined by GAAP and is considered to be a non-GAAP financial measure. Since analysts and banking regulators may assess Key’s capital adequacy using tangible common equity and Common Equity Tier 1, management believes it is useful to enable investors to assess Key’s capital adequacy on these same bases. The table also reconciles the GAAP performance measures to the corresponding non-GAAP measures.
The table also shows the computation for pre-provision net revenue, which is not formally defined by GAAP. Management believes that eliminating the effects of the provision for credit losses makes it easier to analyze the results by presenting them on a more comparable basis.
As previously disclosed, Key completed its purchase of First Niagara on August 1, 2016. The definitive agreement and plan of merger to acquire First Niagara was originally announced on October 30, 2015. As a result of this transaction, Key has recognized merger-related charges. The table below shows the computation of noninterest expense excluding merger-related charges, earnings per common share excluding merger-related charges, return on average tangible common equity excluding merger-related charges, return on average assets from continuing operations excluding merger-related charges, cash efficiency ratio excluding merger-related charges, and pre-provision net revenue excluding merger-related charges. Management believes that eliminating the effects of the merger-related charges makes it easier to analyze the results by presenting them on a more comparable basis.
The cash efficiency ratio is a ratio of two non-GAAP performance measures. As such, there is no directly comparable GAAP performance measure. The cash efficiency ratio performance measure removes the impact of Key’s intangible asset amortization from the calculation. The table below also shows the computation for the cash efficiency ratio excluding merger-related charges. Management believes these ratios provide greater consistency and comparability between Key’s results and those of its peer banks. Additionally, these ratios are used by analysts and investors as they develop earnings forecasts and peer bank analysis.
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.
3/31/2017
12/31/2016
3/31/2016
Tangible common equity to tangible assets at period end
Key shareholders’ equity (GAAP)
$
14,976
$
15,240
$
11,066
Less:
Intangible assets (a)
2,751
2,788
1,077
Preferred Stock (b)
1,009
1,640
281
Tangible common equity (non-GAAP)
$
11,216
$
10,812
$
9,708
Total assets (GAAP)
$
134,476
$
136,453
$
98,402
Less:
Intangible assets (a)
2,751
2,788
1,077
Tangible assets (non-GAAP)
$
131,725
$
133,665
$
97,325
Tangible common equity to tangible assets ratio (non-GAAP)
8.51
%
8.09
%
9.97
%
Common Equity Tier 1 at period end
Key shareholders’ equity (GAAP)
$
14,976
$
15,240
$
11,066
Less:
Preferred Stock (b)
1,009
1,640
281
Common Equity Tier 1 capital before adjustments and deductions
13,967
13,600
10,785
Less:
Goodwill, net of deferred taxes
2,386
2,405
1,033
Intangible assets, net of deferred taxes
189
155
35
Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes
(179)
(185)
70
Accumulated gains (losses) on cash flow hedges, net of deferred taxes
(75)
(52)
46
Amounts in accumulated other comprehensive income (loss) attributed to
pension and postretirement benefit costs, net of deferred taxes (336)
(339)
(365)
Total Common Equity Tier 1 capital (c)
$
11,976
$
11,612
$
9,965
Net risk-weighted assets (regulatory) (c)
$
121,305
$
121,671
$
90,014
Common Equity Tier 1 ratio (non-GAAP) (c)
9.87
%
9.54
%
11.07
%
Pre-provision net revenue
Net interest income (GAAP)
$
918
$
938
$
604
Plus:
Taxable-equivalent adjustment
11
10
8
Noninterest income
577
618
431
Less:
Noninterest expense
1,013
1,220
703
Pre-provision net revenue from continuing operations (non-GAAP)
$
493
$
346
$
340
Plus:
Merger-related charges
81
198
24
Pre-provision net revenue from continuing operations excluding merger-related charges (non-GAAP)
$
574
$
544
$
364
GAAP to Non-GAAP Reconciliations (continued)
3/31/2017
12/31/2016
3/31/2016
Average tangible common equity
Average Key shareholders’ equity (GAAP)
$
15,184
$
14,901
$
10,953
Less:
Intangible assets (average) (d)
2,772
2,874
1,079
Preferred Stock (average)
1,480
1,274
290
Average tangible common equity (non-GAAP)
$
10,932
$
10,753
$
9,584
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)
$
296
$
213
$
182
Add:
Merger-related charges, after tax
51
124
15
Net income (loss) from continuing operations attributable to Key common shareholders excluding
merger-related charges (non-GAAP)
$
347
$
337
$
197
Average tangible common equity (non-GAAP)
10,932
10,753
9,584
Return on average tangible common equity from continuing operations (non-GAAP)
10.98
%
7.88
%
7.64
%
Return on average tangible common equity from continuing operations excluding merger-related charges (non-GAAP)
12.87
%
12.47
%
8.27
%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP)
$
296
$
209
$
183
Average tangible common equity (non-GAAP)
10,932
10,753
9,584
Return on average tangible common equity consolidated (non-GAAP)
10.98
%
7.73
%
7.68
%
Noninterest expense excluding merger-related charges
Noninterest expense (GAAP)
$
1,013
$
1,220
$
703
Less:
Merger-related charges
81
207
24
Noninterest expense excluding merger-related charges (non-GAAP)
$
932
$
1,013
$
679
Earnings per common share (EPS) excluding merger-related charges
EPS from continuing operations attributable to Key common shareholders
-- assuming dilution
$
.27
$
.20
$
.22
Add:
EPS impact of merger-related charges
.05
.11
.02
EPS from continuing operations attributable to Key common shareholders
excluding merger-related charges (non-GAAP)
$
.32
$
.31
$
.24
Noninterest expense (GAAP)
$
1,013
$
1,220
$
703
Less:
Intangible asset amortization
22
27
8
Adjusted noninterest expense (non-GAAP)
991
1,193
695
Less:
Merger-related charges
81
207
24
Adjusted noninterest expense excluding merger-related charges (non-GAAP)
$
910
$
986
$
671
Net interest income (GAAP)
$
918
$
938
$
604
Plus:
Taxable-equivalent adjustment
11
10
8
Noninterest income
577
618
431
Total taxable-equivalent revenue (non-GAAP)
1,506
1,566
1,043
Add:
Merger-related charges
--
(9)
--
Adjusted total taxable-equivalent revenue excluding merger-related charges (non-GAAP) $
1,506
$
1,557
$
1,043
Cash efficiency ratio (non-GAAP)
65.8
%
76.2
%
66.6
%
Cash efficiency ratio excluding merger-related charges (non-GAAP)
60.4
%
63.3
%
64.3
%
Return on average total assets from continuing operations excluding merger-related charges
Income from continuing operations attributable to Key (GAAP)
$
324
$
233
$
187
Add:
Merger-related charges, after tax
51
124
15
Income from continuing operations attributable to Key excluding merger-related
charges, after tax (non-GAAP)
$
375
$
357
$
202
Average total assets from continuing operations (GAAP)
$
132,741
$
134,428
$
94,477
Return on average total assets from continuing operations excluding merger-related charges (non-GAAP)
1.15
%
1.06
%
.86
%
GAAP to Non-GAAP Reconciliations (continued)
Common Equity Tier 1 under the Regulatory Capital Rules ("RCR") (estimates)
Common Equity Tier 1 under current RCR
$
11,976
Adjustments from current RCR to the fully phased-in RCR:
Deferred tax assets and other intangible assets (e)
(50)
Common Equity Tier 1 anticipated under the fully phased-in RCR (f)
$
11,926
Net risk-weighted assets under current RCR
$
121,305
Adjustments from current RCR to the fully phased-in RCR:
Mortgage servicing assets (g)
597
Total risk-weighted assets anticipated under the fully phased-in RCR (f) $
121,750
Common Equity Tier 1 ratio under the fully phased-in RCR (f)
9.80
%
(a)
For the three months ended March 31, 2017, December 31, 2016, and March 31, 2016, intangible assets exclude $38 million, $42 million, and $40 million, respectively, of period-end purchased credit card receivables.
(b)
Net of capital surplus.
(c)
3/31/17 amount is estimated.
(d)
For the three months ended March 31, 2017, December 31, 2016, and March 31, 2016, average intangible assets exclude $40 million, $46 million, and $42 million, respectively, of average purchased credit card receivables.
(e)
Includes the deferred tax assets subject to future taxable income for realization, primarily tax credit carryforwards, as well as intangible assets (other than goodwill and mortgage servicing assets) subject to the transition provisions of the final rule.
(f)
The anticipated amount of regulatory capital and risk-weighted assets is based upon the federal banking agencies’ Regulatory Capital Rules (as fully phased-in on January 1, 2019); Key is subject to the Regulatory Capital Rules under the "standardized approach."
(g)
Item is included in the 10%/15% exceptions bucket calculation and is risk-weighted at 250%.
GAAP = U.S. generally accepted accounting principles
Consolidated Balance Sheets
3/31/2017
12/31/2016
3/31/2016
Loans
$
86,125
$
86,038
$
60,438
Loans held for sale
1,384
1,104
684
Securities available for sale
18,431
20,212
14,304
Held-to-maturity securities
10,186
10,232
5,003
Trading account assets
921
867
765
Short-term investments
2,525
2,775
5,436
Other investments
689
738
643
Total earning assets
120,261
121,966
87,273
Allowance for loan and lease losses
(870)
(858)
(826)
Cash and due from banks
549
677
474
Premises and equipment
935
978
750
Operating lease assets
563
540
362
Other intangible assets
362
384
57
Corporate-owned life insurance
4,087
4,068
3,557
Derivative assets
578
803
1,065
Accrued income and other assets
4,064
3,864
2,849
Discontinued assets
1,520
1,585
1,781
Total assets
$
134,476
$
136,453
$
98,402
Deposits in domestic offices:
NOW and money market deposit accounts
$
55,095
$
54,590
$
38,946
Savings deposits
6,306
6,491
2,385
Certificates of deposit ($100,000 or more) 5,859
5,483
3,095
Other time deposits
4,694
4,698
3,259
Total interest-bearing deposits
71,954
71,262
47,685
Noninterest-bearing deposits
32,028
32,825
25,697
Total deposits
103,982
104,087
73,382
Federal funds purchased and securities sold under repurchase agreements
442
1,502
374
Bank notes and other short-term borrowings
943
808
615
Derivative liabilities
255
636
790
Accrued expense and other liabilities
1,552
1,796
1,410
Long-term debt
12,324
12,384
10,760
Total liabilities
119,498
121,213
87,331
Preferred stock
1,025
1,665
290
Common shares
1,257
1,257
1,017
Capital surplus
6,287
6,385
3,818
Retained earnings
9,584
9,378
9,042
Treasury stock, at cost
(2,623)
(2,904)
(2,888)
Accumulated other comprehensive income (loss)
(554)
(541)
(213)
Key shareholders’ equity
14,976
15,240
11,066
Noncontrolling interests
2
--
5
Total equity
14,978
15,240
11,071
Total liabilities and equity
$
134,476
$
136,453
$
98,402
Common shares outstanding (000)
1,097,479
1,079,314
842,290
Consolidated Statements of Income
(dollars in millions, except per share amounts)
3/31/2017
12/31/2016
3/31/2016
Securities available for sale
95
92
75
Held-to-maturity securities
51
44
24
Trading account assets
7
6
7
Short-term investments
3
5
4
Total interest income
1,050
1,062
683
Federal funds purchased and securities sold under repurchase agreements
1
1
--
Bank notes and other short-term borrowings
5
3
2
Total interest expense
132
124
79
Net interest income
918
938
604
Provision for credit losses
63
66
89
Net interest income after provision for credit losses
855
872
515
Trust and investment services income
135
123
109
Investment banking and debt placement fees
127
157
71
Service charges on deposit accounts
87
84
65
Operating lease income and other leasing gains
23
21
17
Corporate services income
54
61
50
Cards and payments income
65
69
46
Corporate-owned life insurance income
30
40
28
Consumer mortgage income
6
6
2
Mortgage servicing fees
18
20
12
Net gains (losses) from principal investing
1
4
--
Total noninterest income
577
618
431
Computer processing
60
97
43
Business services and professional fees
46
78
41
Operating lease expense
19
17
13
Intangible asset amortization
22
27
8
Total noninterest expense
1,013
1,220
703
Income (loss) from continuing operations before income taxes
419
270
243
Income (loss) from continuing operations
325
232
187
Income (loss) from discontinued operations, net of taxes
--
(4)
1
Net income (loss)
325
228
188
Less:
Net income (loss) attributable to noncontrolling interests
1
(1)
--
Net income (loss) attributable to Key
$
324
$
229
$
188
Income (loss) from continuing operations attributable to Key common shareholders
$
296
$
213
$
182
Net income (loss) attributable to Key common shareholders
296
209
183
Income (loss) from continuing operations attributable to Key common shareholders
$
.28
$
.20
$
.22
Income (loss) from discontinued operations, net of taxes
--
--
--
Net income (loss) attributable to Key common shareholders (b)
.28
.20
.22
Per common share -- assuming dilution
Income (loss) from continuing operations attributable to Key common shareholders
$
.27
$
.20
$
.22
Income (loss) from discontinued operations, net of taxes
--
--
--
Net income (loss) attributable to Key common shareholders (b)
.27
.19
.22
Cash dividends declared per common share
$
.085
$
.085
$
.075
Weighted-average common shares outstanding (000)
1,068,609
1,067,771
827,381
Effect of common share options and other stock awards
17,931
15,946
7,679
Weighted-average common shares and potential common shares outstanding (000) (c)
1,086,540
1,083,717
835,060
(a)
For the three months ended March 31, 2017, net securities gains (losses) totaled $1 million. For the three months ended December 31, 2016, net securities gains (losses) totaled $6 million. For the three months ended March 31, 2016, net securities gains (losses) totaled less than $1 million. For the three months ended March 31, 2017, December 31, 2016, and March 31, 2016, Key did not have any impairment losses related to securities.
(b)
Earnings per share may not foot due to rounding.
(c)
Assumes conversion of common share options and other stock awards and/or convertible preferred stock, as applicable.
Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
First Quarter 2017
Fourth Quarter 2016
First Quarter 2016
Balance
Interest (a) Yield/Rate (a)
Balance
Interest (a) Yield/Rate (a)
Balance
Interest (a) Yield/Rate (a)
Commercial and industrial (d)
$
40,002
$
373
3.77
%
$
39,495
$
365
3.68
%
$
31,590
$
263
3.35
%
Real estate -- commercial mortgage
15,187
164
4.39
14,771
168
4.50
8,138
77
3.78
Real estate -- construction
2,353
26
4.54
2,222
37
6.72
1,016
10
4.11
Commercial lease financing
4,635
44
3.76
4,624
50
4.34
3,957
36
3.65
Total commercial loans
62,177
607
3.95
61,112
620
4.04
44,701
386
3.47
Real estate -- residential mortgage
5,520
54
3.94
5,554
57
4.17
2,236
24
4.18
Home equity loans
12,611
131
4.22
12,812
129
3.99
10,240
103
4.06
Consumer direct loans
1,762
30
6.97
1,785
31
6.84
1,593
26
6.53
Credit cards
1,067
29
11.06
1,088
29
10.78
784
21
10.72
Consumer indirect loans
2,996
37
4.91
3,009
42
5.50
602
10
6.44
Total consumer loans
23,956
281
4.75
24,248
288
4.73
15,455
184
4.76
Total loans
86,133
888
4.17
85,360
908
4.24
60,156
570
3.80
Loans held for sale
1,188
13
4.28
1,323
11
3.39
826
8
4.02
Securities available for sale (b), (e)
19,181
95
1.95
20,145
92
1.82
14,207
75
2.12
Held-to-maturity securities (b)
9,988
51
2.04
9,121
44
1.95
4,817
24
2.01
Trading account assets
968
7
2.75
892
6
2.54
817
7
3.50
Short-term investments
1,610
3
.79
3,717
5
.49
3,432
4
.46
Other investments (e)
709
4
2.26
741
6
3.23
647
3
1.73
Total earning assets
119,777
1,061
3.57
121,299
1,072
3.52
84,902
691
3.27
Allowance for loan and lease losses
(855)
(855)
(803)
Accrued income and other assets
13,819
13,984
10,378
Discontinued assets
1,540
1,610
1,804
Total assets
$
134,281
$
136,038
$
96,281
NOW and money market deposit accounts
$
54,295
32
.24
$
55,444
31
.22
$
37,708
15
.16
Savings deposits
6,351
1
.10
6,546
2
.10
2,349
--
.02
Certificates of deposit ($100,000 or more) (f)
5,627
16
1.16
5,428
15
1.11
2,761
10
1.37
Other time deposits
4,706
9
.76
4,849
9
.77
3,200
6
.79
Total interest-bearing deposits
70,979
58
.33
72,267
57
.32
46,018
31
.27
Federal funds purchased and securities
795
1
.32
592
1
.11
437
--
.07
sold under repurchase agreements
Bank notes and other short-term borrowings
1,802
5
1.06
934
3
1.11
591
2
1.63
Long-term debt (f), (g)
10,833
68
2.54
10,914
63
2.38
8,566
46
2.19
Total interest-bearing liabilities 84,409
132
.63
84,707
124
.58
55,612
79
.57
Noninterest-bearing deposits
31,099
32,424
25,580
Accrued expense and other liabilities
2,048
2,394
2,322
Discontinued liabilities (g)
1,540
1,610
1,804
Total liabilities
119,096
121,135
85,318
Key shareholders’ equity
15,184
14,901
10,953
Noncontrolling interests
1
2
10
Total equity
15,185
14,903
10,963
Total liabilities and equity
$
134,281
$
136,038
$
96,281
Interest rate spread (TE)
2.94
%
2.94
%
2.70
%
Net interest income (TE) and net interest margin (TE)
929
3.13
%
948
3.12
%
612
2.89
%
Net interest income, GAAP basis
$
918
$
938
$
604
(a)
Results are from continuing operations.
Interest excludes the interest associated with the liabilities referred to in (g) below, calculated using a matched funds transfer pricing methodology.
(b)
Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%.
(c)
For purposes of these computations, nonaccrual loans are included in average loan balances.
(d)
Commercial and industrial average balances include $114 million, $119 million, and $85 million of assets from commercial credit cards for the three months ended March 31, 2017, December 31, 2016, and March 31, 2016, respectively.
(e)
Yield is calculated on the basis of amortized cost.
(f)
Rate calculation excludes basis adjustments related to fair value hedges.
(g)
A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying Key’s matched funds transfer pricing methodology to discontinued operations.
TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles
3/31/2017
12/31/2016
3/31/2016
Personnel (a)
$
556
$
648
$
404
Computer processing
60
97
43
Business services and professional fees
46
78
41
Operating lease expense
19
17
13
Intangible asset amortization
22
27
8
Total noninterest expense
$
1,013
$
1,220
$
703
Merger-related charges (b)
81
207
24
Total noninterest expense excluding merger-related charges $
932
$
1,013
$
679
Average full-time equivalent employees (c)
18,386
18,849
13,403
(a) Additional detail provided in Personnel Expense table below.
(b) Additional detail provide in Merger-Related Charges table below.
(c) The number of average full-time equivalent employees has not been adjusted for discontinued operations.
3/31/2017 12/31/2016
3/31/2016
Salaries and contract labor
$
324
$
352
$
244
Incentive and stock-based compensation
127
185
89
Total personnel expense
$
556
$
648
$
404
Merger-related charges
30
80
16
Total personnel expense excluding merger-related charges $
526
$
568
$
388
3/31/2017 12/31/2016
3/31/2016
Business services and professional fees
5
22
7
Other nonpersonnel expense
30
25
--
Noninterest expense
81
207
24
Total merger-related charges
$
81
$
198
$
24
Percent change 3/31/2017 vs.
3/31/2017
12/31/2016
3/31/2016
12/31/20163/31/2016
Commercial and industrial (a), (b)
$
40,112
$
39,768
$
31,976
.9
% 25.4
%
Commercial mortgage
15,260
15,111
8,364
1.0
82.4
Construction
2,270
2,345
841
(3.2)
169.9
Total commercial real estate loans
17,530
17,456
9,205
.4
90.4
Commercial lease financing (c)
4,665
4,685
3,934
(.4)
18.6
Total commercial loans
62,307
61,909
45,115
.6
38.1
Residential -- prime loans:
Real estate -- residential mortgage 5,507
5,547
2,234
(.7)
146.5
Home equity loans
12,541
12,674
10,149
(1.0)
23.6
Total residential -- prime loans
18,048
18,221
12,383
(.9)
45.7
Consumer direct loans
1,735
1,788
1,579
(3.0)
9.9
Credit cards
1,037
1,111
782
(6.7)
32.6
Consumer indirect loans
2,998
3,009
579
(.4)
417.8
Total consumer loans
23,818
24,129
15,323
(1.3)
55.4
Total loans (d), (e)
$
86,125
$
86,038
$
60,438
.1
% 42.5
%
(a) Loan balances include $114 million, $116 million, and $85 million of commercial credit card balances at March 31, 2017, December 31, 2016, and March 31, 2016, respectively.
(b) "Commercial, financial and agricultural" was renamed to "Commercial and industrial" in the first quarter of 2017 to better reflect the composition of our loan portfolios. There was no reclassification of previously reported balances.
(c) Commercial lease financing includes receivables held as collateral for a secured borrowing of $55 million, $68 million, and $115 million at March 31, 2017, December 31, 2016, and March 31, 2016, respectively. Principal reductions are based on the cash payments received from these related receivables.
(d) At March 31, 2017, total loans include purchased loans of $19.0 billion, of which $812 million were purchased credit impaired. At December 31, 2016, total loans include purchased loans of $21.0 billion, of which $865 million were purchased credit impaired. At March 31, 2016, total loans include purchased loans of $109 million, of which $11 million were purchased credit impaired.
(e) Total loans exclude loans of $1.5 billion at March 31, 2017, $1.6 billion at December 31, 2016, and $1.8 billion at March 31, 2016, related to the discontinued operations of the education lending business.
Loans Held for Sale Composition
Percent change 3/31/2017 vs.
3/31/2017
12/31/2016 3/31/2016 12/31/20163/31/2016
Commercial and industrial
$
171
$
19
$
103
800.0
% 66.0
%
Real estate -- commercial mortgage
1,150
1,022
562
12.5
104.6
Commercial lease financing
1
--
--
N/M
N/M
Real estate -- residential mortgage 62
62
19
--
226.3
Real estate -- construction
--
1
--
N/M
N/M
Total loans held for sale (a)
$
1,384
$
1,104
$
684
25.4
% 102.3
%
(a)
Total loans held for sale include Real estate -- residential mortgage loans held for sale at fair value of $62 million at March 31, 2017 and December 31, 2016.
Summary of Changes in Loans Held for Sale
Balance at beginning of period
$
1,104
$
1,137
$
442
$
684
$
639
New originations
2,563
2,846
2,857
1,539
1,114
Transfers from (to) held to maturity, net 17
11
2
22
--
Loan sales
(2,299)
(2,889)
(2,180)
(1,802)
(1,108)
Loan draws (payments), net
(1)
(1)
(32)
(1)
39
Balance at end of period (a)
$
1,384
$
1,104
$
1,137
$
442
$
684
(a) Total loans held for sale include Real estate -- residential mortgage loans held for sale at fair value of $62 million at March 31, 2017, December 31, 2016, and September 30, 2016.
Asset Quality Statistics From Continuing Operations
Net loan charge-offs
$
58
$
72
$
44
$
43
$
46
Net loan charge-offs to average total loans
.27
%
.34
%
.23
%
.28
%
.31
%
Allowance for loan and lease losses
$
870
$
858
$
865
$
854
$
826
Allowance for credit losses (a)
918
913
918
904
895
Allowance for loan and lease losses to period-end loans
1.01
%
1.00
%
1.01
%
1.38
%
1.37
%
Allowance for credit losses to period-end loans
1.07
1.06
1.07
1.46
1.48
Allowance for loan and lease losses to nonperforming loans (b) 151.8
137.3
119.6
138.0
122.2
Allowance for credit losses to nonperforming loans (b)
160.2
146.1
127.0
146.0
132.4
Nonperforming loans at period end (b)
$
573
$
625
$
723
$
619
$
676
Nonperforming assets at period end (b)
623
676
760
637
692
Nonperforming loans to period-end portfolio loans (b)
.67
%
.73
%
.85
%
1.00
%
1.12
%
Nonperforming assets to period-end portfolio loans plus
.72
.79
.89
1.03
1.14
OREO and other nonperforming assets (b)
(a) Includes the allowance for loan and lease losses plus the liability for credit losses on lending-related unfunded commitments.
(b) Nonperforming loan balances exclude $812 million, $865 million, $959 million, $11 million, and $11 million of purchased credit impaired loans at March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016, and March 31, 2016, respectively.
Summary of Loan and Lease Loss Experience From Continuing Operations
3/31/2017
12/31/2016
3/31/2016
Average loans outstanding
$
86,133
$
85,360
$
60,156
Allowance for loan and lease losses at beginning of period
$
858
$
865
$
796
Commercial and industrial
32
40
26
Real estate -- commercial mortgage
--
2
1
Real estate -- construction
--
--
--
Total commercial real estate loans
--
2
1
Commercial lease financing
7
1
3
Total commercial loans
39
43
30
Real estate -- residential mortgage
(2)
--
2
Consumer direct loans
10
9
6
Consumer indirect loans
11
12
4
Total consumer loans
38
39
30
Total loans charged off
77
82
60
Commercial and industrial
5
3
3
Real estate -- commercial mortgage
--
--
2
Real estate -- construction
1
--
1
Total commercial real estate loans
1
--
3
Commercial lease financing
2
1
--
Total commercial loans
8
4
6
Real estate -- residential mortgage
2
(2)
2
Consumer indirect loans
4
2
1
Net loan charge-offs
(58)
(72)
(46)
Provision (credit) for loan and lease losses
70
64
76
Foreign currency translation adjustment
--
1
--
Allowance for loan and lease losses at end of period
$
870
$
858
$
826
Liability for credit losses on lending-related commitments at beginning of period $
55
$
53
$
56
Provision (credit) for losses on lending-related commitments
(7)
2
13
Liability for credit losses on lending-related commitments at end of period (a)
$
48
$
55
$
69
Total allowance for credit losses at end of period
$
918
$
913
$
895
Net loan charge-offs to average total loans
.27
% .34
% .31
%
Allowance for loan and lease losses to period-end loans
1.01
1.00
1.37
Allowance for credit losses to period-end loans
1.07
1.06
1.48
Allowance for loan and lease losses to nonperforming loans
151.8
137.3
122.2
Allowance for credit losses to nonperforming loans
160.2
146.1
132.4
Discontinued operations -- education lending business:
Net loan charge-offs
$
(4)
$
(4)
$
(6)
(a) Included in "Accrued expense and other liabilities" on the balance sheet.
Summary of Nonperforming Assets and Past Due Loans From Continuing Operations
3/31/2017
12/31/2016
9/30/2016
6/30/2016
3/31/2016
Commercial and industrial
$
258
$
297
$
335
$
321
$
380
Real estate -- commercial mortgage
32
26
32
14
16
Real estate -- construction
2
3
17
25
12
Total commercial real estate loans
34
29
49
39
28
Commercial lease financing
5
8
13
10
11
Total commercial loans
297
334
397
370
419
Real estate -- residential mortgage
54
56
72
54
59
Home equity loans
207
223
225
189
191
Consumer direct loans
3
6
2
1
1
Consumer indirect loans
9
4
24
3
4
Total consumer loans
276
291
326
249
257
Total nonperforming loans (a)
573
625
723
619
676
Other nonperforming assets
1
--
2
3
2
Total nonperforming assets (a)
$
623
$
676
$
760
$
637
$
692
Accruing loans past due 90 days or more
$
79
$
87
$
49
$
70
$
70
Accruing loans past due 30 through 89 days
312
404
317
203
237
Restructured loans -- accruing and nonaccruing (b)
302
280
304
277
283
Restructured loans included in nonperforming loans (b)
161
141
149
133
151
Nonperforming assets from discontinued operations --
4
5
5
5
6
education lending business
Nonperforming loans to period-end portfolio loans
(a)
.67
%
.73
%
.85
%
1.00
%
1.12
%
Nonperforming assets to period-end portfolio loans
plus OREO and other nonperforming assets (a) .72
.79
.89
1.03
1.14
(a) Nonperforming loan balances exclude $812 million, $865 million, $959 million, $11 million, and $11 million, of purchased credit impaired loans at March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016, and March 31, 2016, respectively.
(b) Restructured loans (i.e., troubled debt restructurings) are those for which Key, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider.
These concessions are made to improve the collectability of the loan and generally take the form of a reduction of the interest rate, extension of the maturity date or reduction in the principal balance.
Summary of Changes in Nonperforming Loans From Continuing Operations
Balance at beginning of period
$
625
$
723
$
619
$
676
$
387
Loans placed on nonaccrual status
218
170
78
124
406
Nonperforming loans acquired from First Niagara (a) --
(31)
150
--
--
Charge-offs
(77)
(81)
(53)
(64)
(60)
Payments
(59)
(30)
(32)
(75)
(8)
Transfers to OREO
(11)
(21)
(5)
(6)
(4)
Transfers to other nonperforming assets
--
--
--
--
--
Loans returned to accrual status
(115)
(96)
(34)
(36)
(34)
Balance at end of period (b)
$
573
$
625
$
723
$
619
$
676
(a) During the fourth quarter of 2016, Key adjusted the estimated fair value of the First Niagara acquired loan portfolio recorded during the third quarter of 2016, resulting in a $31 million decrease in the balance of acquired nonperforming loans.
(b) Nonperforming loan balances exclude $812 million, 865 million, $959 million, $11 million, and $11 million of purchased credit impaired loans at March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016, and March 31, 2016, respectively.
Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations
Balance at beginning of period
$
51
$
35
$
15
$
14
$
14
Properties acquired -- First Niagara
--
--
19
--
--
Properties acquired -- nonperforming loans 11
21
5
6
4
Valuation adjustments
(2)
(2)
(2)
(2)
(1)
Properties sold
(11)
(3)
(2)
(3)
(3)
Balance at end of period
$
49
$
51
$
35
$
15
$
14
1Q17
4Q16
3Q16
2Q16
1Q16
4Q16
1Q16
Total revenue (TE)
$
908
$
902
$
783
$
598
$
595
.7
% 52.6
%
Provision for credit losses
47
48
37
25
42
(2.1)
11.9
Noninterest expense
627
682
589
445
436
(8.1)
43.8
Net income (loss) attributable to Key
147
108
98
80
74
36.1
98.6
Average loans and leases
47,036
47,031
41,548
30,936
30,789
--
52.8
Average deposits
79,393
79,358
69,397
53,794
52,803
--
50.4
Net loan charge-offs
43
42
31
17
23
2.4
87.0
Net loan charge-offs to average total loans .37
%
.36
%
.30
%
.22
%
.30
%
N/A
N/A
Nonperforming assets at period end
$
395
$
412
$
428
$
300
$
303
(4.1)
30.4
Return on average allocated equity
12.60
%
9.07
%
10.95
%
11.76
%
11.10
%
N/A
N/A
Average full-time equivalent employees
10,804
11,198
9,805
7,331
7,376
(3.5)
46.5
Total revenue (TE)
$
579
$
630
$
556
$
451
$
425
(8.1)
% 36.2
%
Provision for credit losses
17
20
25
30
43
(15.0)
(60.5)
Noninterest expense
303
326
310
259
237
(7.1)
27.8
Net income (loss) attributable to Key
181
222
159
135
118
(18.5)
53.4
Average loans and leases
37,737
36,770
34,561
28,607
27,722
2.6
36.1
Average loans held for sale
1,097
1,223
1,103
591
811
(10.3)
35.3
Average deposits
21,003
23,172
22,708
19,129
18,074
(9.4)
16.2
Net loan charge-offs
14
26
12
27
18
(46.2)
(22.2)
Net loan charge-offs to average total loans .15
%
.28
%
.14
%
.38
%
.26
%
N/A
N/A
Nonperforming assets at period end
$
197
$
244
$
318
$
323
$
375
(19.3)
(47.5)
Return on average allocated equity
24.86
%
31.09
%
26.72
%
26.23
%
22.92
%
N/A
N/A
Average full-time equivalent employees
2,384
2,380
2,330
2,138
2,126
.2
12.1
TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/keycorp-reports-first-quarter-2017-net-income-of-296-million-or-27-per-common-share-earnings-per-common-share-of-32-excluding-05-of-merger-related-charges-300442587.html
SOURCE KeyCorp
https://rt.prnewswire.com/rt.gif?NewsItemId=CL65106&Transmission_Id=201704200630PR_NEWS_USPR_____CL65106&DateId=20170420
