KEY
$17.74
Keycorp
($.16)
(.89%)
Earnings Details
3rd Quarter September 2016
Tuesday, October 25, 2016 6:30:00 AM
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Summary

Keycorp Beats

Keycorp (KEY) reported 3rd Quarter September 2016 earnings of $0.30 per share on revenue of $1.4 billion. The consensus earnings estimate was $0.26 per share on revenue of $1.3 billion. The Earnings Whisper number was $0.27 per share. Revenue grew 27.2% on a year-over-year basis.

KeyCorp is a bank holding company. The Company through its subsidiaries, provides retail and commercial banking, commercial leasing, investment management, consumer finance and investment banking products and services to its clients.

Results
Reported Earnings
$0.30
Earnings Whisper
$0.27
Consensus Estimate
$0.26
Reported Revenue
$1.44 Bil
Revenue Estimate
$1.29 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

KeyCorp Reports Third Quarter 2016 Net Income Of $165 Million, Or $.16 Per Common Share; Earnings Per Common Share Of $.30, Excluding $.14 Of Merger-Related Charges

KeyCorp (KEY) today announced third quarter net income from continuing operations attributable to Key common shareholders of $165 million, or $.16 per common share, compared to $193 million, or $.23 per common share, for the second quarter of 2016, and $216 million, or $.26 per common share, for the third quarter of 2015. During the third quarter of 2016, Key incurred merger-related charges totaling $207 million, or $.14 per common share, compared to $45 million, or $.04 per common share, in the second quarter of 2016. Excluding merger-related charges, earnings per common share were $.30 for the third quarter of 2016 and $.27 for the second quarter of 2016. No merger-related charges were incurred in the third quarter of 2015.

"Third quarter results reflect strong momentum and performance in Key’s core businesses, and we achieved a significant milestone with the completion of our First Niagara acquisition," said Chairman and Chief Executive Officer Beth Mooney. "Excluding the impact from the acquisition and merger-related charges, Key’s revenue was up 6%, benefiting from solid loan growth and strong fee income, including a record quarter for investment banking and debt placement fees. Credit quality remained solid with net charge-offs as a percent of average loans remaining below our targeted range. Also, during the quarter, we leveraged Key’s strong capital position by reinitiating our share repurchase program."

"With the completion of our acquisition, we were pleased to welcome our new colleagues and one million new clients from First Niagara," Mooney continued. "We successfully converted branches, ATMs, systems and client accounts to Key earlier this month, and I continue to be encouraged and energized by the opportunity we have ahead. Our focus remains on achieving our financial targets and delivering on the commitments we have made to our shareholders."

First Niagara Financial Group Acquisition

KeyCorp’s third quarter results reflect its acquisition of First Niagara Financial Group ("First Niagara"), effective August 1, 2016, in exchange for total consideration paid of $4 billion, including the cash consideration of $811 million, the issuance of 240 million common shares valued at $2.8 billion, and the issuance of a new series of KeyCorp preferred stock to replace the First Niagara preferred stock valued at $350 million. Results of the operations acquired from First Niagara have been reflected in Key’s results since the acquisition date. Assets acquired in the transaction totaled approximately $35.6 billion, while liabilities assumed were $33 billion, not reflecting the impact of branch divestitures.

In connection with Key’s acquisition of First Niagara, third quarter 2016 results also include the divestiture of 18 branches on September 9, 2016. The impact of divested branches on Key’s third quarter 2016 results included $439 million of loans and $1.6 billion of deposits.

Selected Financial Highlights
dollars in millions, except per share data
Change 3Q16 vs.
3Q16
2Q16
3Q15
2Q16
3Q15
Income (loss) from continuing operations attributable to Key common shareholders
$
165
$
193
$
216
(14.5)
%
(23.6)
%
Income (loss) from continuing operations attributable to Key common shareholders per common share -- assuming dilution .16
.23
.26
(30.4)
(38.5)
Return on average total assets from continuing operations
.55
% .82
% .95
% N/A
N/A
Common Equity Tier 1 ratio (non-GAAP) (a), (b)
9.55
11.10
10.47
N/A
N/A
Book value at period end
$
12.78
$
13.08
$
12.47
(2.3)
%
2.5
%
Net interest margin (TE) from continuing operations
2.85
% 2.76
% 2.87
% 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) 9-30-16 ratio is estimated.
TE = Taxable Equivalent, N/A = Not Applicable
INCOME STATEMENT HIGHLIGHTS
Net interest income
dollars in millions
Change 3Q16 vs.
3Q16
2Q16
3Q15
2Q16
3Q15
Net interest income (TE)
$ 788
$ 605
$ 598
30.2
%
31.8
%
Merger-related charges
(6)
--
--
N/M
N/M
First Niagara impact (a)
175
--
--
N/M
N/M
Total net interest income excluding merger-related charges and First Niagara impact $ 619
$ 605
$ 598
2.3
%
3.5
%
(a)
Reflects two months of First Niagara activity during the third quarter of 2016.
TE = Taxable Equivalent

The acquisition of First Niagara contributed approximately $175 million of net interest income in the third quarter of 2016, which included $19 million of related purchase accounting accretion. Third quarter 2016 net interest income included an additional $6 million of one-time merger-related charges.

Taxable-equivalent net interest income was $788 million for the third quarter of 2016, and the net interest margin was 2.85%, compared to taxable-equivalent net interest income of $598 million and a net interest margin of 2.87% for the third quarter of 2015. The net interest margin declined two basis points, reflecting higher levels of liquidity, partially offset by the benefit from the First Niagara acquisition. Excluding the impact of First Niagara and merger-related charges, net interest income increased 4% compared to the year-ago quarter, driven by higher earning asset balances.

Compared to the second quarter of 2016, taxable-equivalent net interest income increased by $183 million, and the net interest margin increased by nine basis points. The net interest margin increased primarily due to the acquisition of First Niagara, partially offset by lower reinvestment yields in Key’s securities portfolio. Excluding the impact of First Niagara and merger-related charges, net interest income increased by $14 million, driven by higher earning asset balances.

Noninterest Income
dollars in millions
Change 3Q16 vs.
3Q16
2Q16
3Q15
2Q16
3Q15
Trust and investment services income
$
122
$ 110
$ 108
10.9
%
13.0
%
Investment banking and debt placement fees
156
98
109
59.2
43.1
Service charges on deposit accounts
85
68
68
25.0
25.0
Operating lease income and other leasing gains
6
18
15
(66.7)
(60.0)
Corporate services income
51
53
57
(3.8)
(10.5)
Cards and payments income
66
52
47
26.9
40.4
Corporate-owned life insurance income
29
28
30
3.6
(3.3)
Consumer mortgage income
6
3
3
100.0
100.0
Mortgage servicing fees
15
10
11
50.0
36.4
Net gains (losses) from principal investing
5
11
11
(54.5)
(54.5)
Other income
8
22
11
(63.6)
(27.3)
Total noninterest income
$
549
$ 473
$ 470
16.1
%
16.8
%
Merger-related charges
(12)
--
--
N/M
N/M
First Niagara impact (a)
53
--
--
N/M
N/M
Total noninterest income excluding merger-related charges and First Niagara impact $
508
$ 473
$ 470
7.4
%
8.1
%
(a) Reflects two months of First Niagara activity during the third quarter of 2016.

The acquisition of First Niagara contributed approximately $53 million of noninterest income in the third quarter of 2016, which primarily impacted service charges on deposit accounts, trust and investment services income, and cards and payments income. Additionally, third quarter 2016 reported noninterest income includes $12 million of merger-related charges, including losses from investment portfolio repositioning.

Key’s noninterest income was $549 million for the third quarter of 2016, compared to $470 million for the year-ago quarter. Excluding the impact of First Niagara and merger-related charges discussed above, noninterest income increased $38 million, or 8%, primarily driven by a record quarter in investment banking and debt placement fees. Also benefiting the quarter was continued growth in cards and payments income, as well as service charges on deposit accounts. These increases were partially offset by lower corporate services income, net gains on principal investing and operating lease income and other leasing gains.

Compared to the second quarter of 2016, noninterest income increased by $76 million. Excluding the impact of First Niagara and merger-related charges, noninterest income increased $35 million, or 7%, primarily related to the record quarter in investment banking and debt placement fees. Cards and payments income also increased. Partially offsetting the increases were lower operating lease income and other leasing gains, net gains on principal investing and corporate services income.

Noninterest Expense
dollars in millions
Change 3Q16 vs.
3Q16
2Q16
3Q15
2Q16
3Q15
Personnel expense
$ 594
$ 427
$ 426
39.1
%
39.4
%
Nonpersonnel expense
488
324
298
50.6
63.8
Total noninterest expense
$ 1,082
$ 751
$ 724
44.1
49.4
Merger-related charges
189
45
--
320.0
N/M
First Niagara impact (a)
140
--
--
N/M
N/M
Total noninterest expense excluding merger-related charges and First Niagara impact $ 753
$ 706
$ 724
6.7
%
4.0
%
(a)
Reflects two months of First Niagara activity during the third quarter of 2016.
N/M = Not Meaningful

Key’s noninterest expense was $1.1 billion for the third quarter of 2016, including $140 million related to the operations of First Niagara, which primarily impacted personnel expense, net occupancy, business services and professional fees and other expense.

Additionally, noninterest expense included $189 million of merger-related charges, primarily made up of $97 million in personnel expense related to severance and technology development for systems conversions, as well as fully-dedicated personnel for merger and integration efforts. The remaining $92 million of merger-related charges were nonpersonnel expense, largely recognized in business services and professional fees, computer processing and other expense. In the second quarter of 2016, Key incurred $45 million of merger-related charges, while no merger-related charges were incurred in the third quarter of 2015.

Excluding the $140 million impact of First Niagara and $189 million of merger-related charges, noninterest expense was $29 million higher than the third quarter of last year. The increase was primarily driven by higher performance-based compensation, along with slight increases across various nonpersonnel line items, including FDIC assessment expense. These increases were partially offset by lower employee benefits expense.

Compared to the second quarter of 2016, excluding the impact of First Niagara and merger-related charges, noninterest expense increased by $47 million. The increase was primarily related to higher personnel expense reflecting higher performance-based compensation, as well as an increased FDIC assessment expense.

BALANCE SHEET HIGHLIGHTS

In the third quarter of 2016, Key had average assets of $125.1 billion compared to $94.8 billion in the third quarter of 2015 and $99.2 billion in the second quarter of 2016, primarily reflecting the acquisition of First Niagara.

Key’s securities available-for-sale ($18 billion) and held-to-maturity securities ($6.2 billion) averaged $24.2 billion in the third quarter of 2016, compared to $19.2 billion in both the third quarter of 2015 and the second quarter of 2016. The increase compared to both the year-ago quarter and prior quarter primarily reflects the impact of the First Niagara acquisition, which added $4.7 billion of average investment securities, or $9 billion of securities at period-end. During the quarter, Key completed the planned sales and repositioning of First Niagara’s portfolio to more closely align with Key’s portfolio and investment philosophy.

Average Loans
dollars in millions
Change 3Q16 vs.
3Q16
2Q16
3Q15
2Q16
3Q15
Commercial, financial and agricultural (a) $
37,318
$
32,630
$
30,374
14.4
%
22.9
%
Other commercial loans
19,110
13,222
13,098
44.5
45.9
Home equity loans
11,968
10,098
10,510
18.5
13.9
Other consumer loans
9,301
5,198
5,299
78.9
75.5
Total loans
$
77,697
$
61,148
$
59,281
27.1
%
31.1
%
First Niagara impact (b)
15,420
--
--
N/M
N/M
Total loans excluding First Niagara impact $
62,277
$
61,148
$
59,281
1.8
%
5.1
%
(a)
Commercial, financial and agricultural average loan balances include $107 million, $87 million, and $88 million of assets from commercial credit cards at September 30, 2016, June 30, 2016, and September 30, 2015, respectively.
(b)
Balance includes two months of average First Niagara activity during the third quarter of 2016.
N/M = Not Meaningful

In the third quarter of 2016, the acquisition of First Niagara contributed approximately $15.4 billion of average loans, or $23 billion at period-end, impacting both the commercial and consumer loan portfolios. These results include the estimated fair value adjustment on the acquired portfolio of $686 million and the divestiture of $439 million of loans.

Average loans were $77.7 billion for the third quarter of 2016, an increase of $18.4 billion compared to the third quarter of 2015. Excluding the impact of the First Niagara acquisition, average loans were $62.3 billion for the third quarter of 2016, an increase of $3 billion compared to the third quarter of 2015. The loan growth occurred primarily in the commercial, financial and agricultural portfolio, which increased $3.3 billion. Consumer loans declined $537 million, largely due to paydowns in Key’s home equity loan portfolio.

Compared to the second quarter of 2016, average loans increased by $16.5 billion, or $1.1 billion excluding the impact of First Niagara. This increase was driven by growth in commercial, financial and agricultural loans, which increased $1 billion, and reflects broad based growth across Key’s commercial lines of business.

Average Deposits
dollars in millions
Change 3Q16 vs.
3Q16
2Q16
3Q15
2Q16
3Q15
Non-time deposits (a)
$
85,683
$
67,419
$
64,928
27.1
%
32.0
%
Certificates of deposit ($100,000 or more)
4,204
3,233
1,985
30.0
111.8
Other time deposits
5,031
3,252
3,064
54.7
64.2
Total deposits
$
94,918
$
73,904
$
69,977
28.4
%
35.6
%
First Niagara impact (b)
18,851
--
--
N/M
N/M
Total deposits excluding First Niagara impact $
76,067
$
73,904
$
69,977
2.9
%
8.7
%
Cost of total deposits (a)
.21
% .19
% .15
% N/A
N/A
(a)
Excludes deposits in foreign office.
(b)
Balance includes two months of average First Niagara activity during the third quarter of 2016.
N/M = Not Meaningful
N/A = Not Applicable

In the third quarter of 2016, the acquisition of First Niagara contributed approximately $18.9 billion of average deposits, or $27.3 billion at period-end, which are spread across deposit products and consist primarily of consumer deposits. During the quarter, $1.6 billion of deposits were divested.

Average deposits, excluding deposits in foreign office, totaled $94.9 billion for the third quarter of 2016, an increase of $24.9 billion compared to the year-ago quarter. Excluding the impact of First Niagara, average deposits increased $5.7 billion over the year-ago quarter. Interest-bearing deposits increased $5.9 billion driven by a $4.7 billion increase in NOW and money market deposit accounts and a $1.2 billion increase in certificates of deposits and other time deposits. The increase from the year-ago quarter reflects core deposit growth in Key’s retail banking franchise and growth in escrow deposits from our commercial mortgage servicing business.

Compared to the second quarter of 2016, average deposits increased by $21 billion. Excluding the impact of First Niagara, average deposits increased $2.2 billion driven by an increase in escrow deposits from Key’s commercial mortgage servicing business, core deposit growth in Key’s retail banking franchise, and deposit inflows from Key’s commercial clients.

ASSET QUALITY
dollars in millions
Change 3Q16 vs.
3Q16
2Q16
3Q15
2Q16
3Q15
Net loan charge-offs
$
44
$
43
$
41
2.3
%
7.3
%
Net loan charge-offs to average total loans
.23
% .28
% .27
% N/A
N/A
Nonperforming loans at period end (a)
$
723
$
619
$
400
16.8
%
80.8
%
Nonperforming assets at period end (a)
760
637
417
19.3
82.3
Allowance for loan and lease losses
865
854
790
1.3
9.5
Allowance for loan and lease losses to nonperforming loans (a) 119.6
% 138.0
% 197.5
% N/A
N/A
Provision for credit losses
$
59
$
52
$
45
13.5
%
31.1
%
(a)
Nonperforming loan balances exclude $959 million, $11 million, and $12 million of purchased credit impaired loans at September 30, 2016, June 30, 2016, and September 30, 2015, respectively.
N/A = Not Applicable

Key’s provision for credit losses was $59 million for the third quarter of 2016, compared to $45 million for the third quarter of 2015 and $52 million for the second quarter of 2016. Key’s provision for credit losses in the third quarter of 2016 included $12 million related to the acquired credit card portfolio from First Niagara. Key’s allowance for loan and lease losses was $865 million, or 1.01% of total period-end loans, at September 30, 2016, compared to 1.31% at September 30, 2015, and 1.38% at June 30, 2016.

Net loan charge-offs for the third quarter of 2016 totaled $44 million, or .23% of average total loans, including $2 million of net charge-offs related to First Niagara. These results compare to $41 million, or .27%, for the third quarter of 2015, and $43 million, or .28%, for the second quarter of 2016.

At September 30, 2016, Key’s nonperforming loans totaled $723 million, which represented .85% of period-end portfolio loans, and include $150 million of nonperforming loans related to First Niagara. These results compare to .67% at September 30, 2015, and 1.00% at June 30, 2016. Nonperforming assets at September 30, 2016, totaled $760 million, and represented .89% of period-end portfolio loans and OREO and other nonperforming assets, and include $167 million of nonperforming assets related to First Niagara. These results compare to .69% at September 30, 2015, and 1.03% at June 30, 2016.

CAPITAL

Key’s estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at September 30, 2016.

Capital Ratios
9/30/2016
6/30/2016
9/30/2015
Common Equity Tier 1 (a), (b)
9.55
%
11.10 %
10.47 %
Tier 1 risk-based capital (a)
10.52
11.41
10.87
Total risk based capital (a)
12.54
13.63
12.47
Tangible common equity to tangible assets (b) 8.26
9.95
9.90
Leverage (a)
10.17
10.59
10.68
(a) 9-30-16 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.

As shown in the preceding table, at September 30, 2016, Key’s estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.55% and 10.52%, respectively. In addition, the tangible common equity ratio was 8.26% at September 30, 2016. The declines from the prior quarter are primarily related to the acquisition of First Niagara.

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 9.39% at September 30, 2016. 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 3Q16 vs.
3Q16
2Q16
3Q15
2Q16
3Q15
Shares outstanding at beginning of period
842,703
842,290
843,608
--
(.1)
%
Common shares repurchased
(5,240)
--
(8,386)
N/M
(37.5)
Shares reissued (returned) under employee benefit plans
4,857
413
63
N/M
N/M
Common shares issued to acquire First Niagara
239,735
--
--
N/M
N/M
Shares outstanding at end of period 1,082,055
842,703
835,285
28.4
%
29.5
%
N/M = Not Meaningful

During the third quarter of 2016, Key issued 240 million common shares related to the acquisition of First Niagara. Key also resumed its share repurchase program under the 2016 Capital Plan following the close of the First Niagara acquisition. Accordingly, Key completed $65 million of common share repurchases in the third quarter of 2016, including repurchases to offset issuances of common shares under our employee compensation plans.

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.

Major Business Segments
dollars in millions
Change 3Q16 vs.
3Q16
2Q16
3Q15
2Q16
3Q15
Revenue from continuing operations (TE)
Key Community Bank
$
779
$
598
$
579
30.3
% 34.5
%
Key Corporate Bank
553
452
454
22.3
21.8
Other Segments
17
31
35
(45.2)
(51.4)
Total segments
1,349
1,081
1,068
24.8
26.3
Reconciling Items
(12)
(3)
--
N/M
N/M
Total
$
1,337
$
1,078
$
1,068
24.0
% 25.2
%
Income (loss) from continuing operations attributable to Key
Key Community Bank
$
103
$
81
$
74
27.2
% 39.2
%
Key Corporate Bank
159
135
136
17.8
16.9
Other Segments
16
24
26
(33.3)
(38.5)
Total segments
278
240
236
15.8
17.8
Reconciling Items (a)
(107)
(41)
(14)
N/M
N/M
Total
$
171
$
199
$
222
(14.1)
% (23.0)
%
(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
Key Community Bank
dollars in millions
Change 3Q16 vs.
3Q16
2Q16
3Q15
2Q16
3Q15
Summary of operations
Net interest income (TE)
$
530
$
391
$
379
35.5
%
39.8
%
Noninterest income
249
207
200
20.3
24.5
Total revenue (TE)
779
598
579
30.3
34.5
Provision for credit losses
37
25
18
48.0
105.6
Noninterest expense
578
444
444
30.2
30.2
Income (loss) before income taxes (TE) 164
129
117
27.1
40.2
Allocated income taxes (benefit) and TE adjustments
61
48
43
27.1
41.9
Net income (loss) attributable to Key
$
103
$
81
$
74
27.2
%
39.2
%
Average balances
Loans and leases
$
41,548
$
30,936
$
31,039
34.3
%
33.9
%
Total assets
44,219
32,963
33,155
34.1
33.4
Deposits
69,397
53,794
51,234
29.0
35.5
Assets under management at period end
$
36,752
$
34,535
$
35,158
6.4
%
4.5
%
TE = Taxable Equivalent
Additional Key Community Bank Data
dollars in millions
3Q15
3Q16
2Q16
3Q15
2Q16
3Q15
Noninterest income
Trust and investment services income
$
86
$
73
$
73
17.8
% 17.8
%
Service charges on deposit accounts
70
56
56
25.0
25.0
Cards and payments income
54
46
43
17.4
25.6
Other noninterest income
39
32
28
21.9
39.3
Total noninterest income
$
249
$
207
$
200
20.3
% 24.5
%
Average deposit balances
NOW and money market deposit accounts
$
38,417
$
30,144
$
28,568
27.4
% 34.5
%
Savings deposits
4,369
2,365
2,362
84.7
85.0
Certificates of deposit ($100,000 or more)
2,607
2,383
1,560
9.4
67.1
Other time deposits
4,943
3,245
3,061
52.3
61.5
Deposits in foreign office
--
--
271
N/M
N/M
Noninterest-bearing deposits
19,061
15,657
15,412
21.7
23.7
Total deposits
$
69,397
$
53,794
$
51,234
29.0
% 35.5
%
Home equity loans
Average balance
$
11,703
$
9,908
$
10,281
Combined weighted-average loan-to-value ratio (at date of origination)
70
%
71
%
71
%
Percent first lien positions
55
61
60
Other data
Branches
1,322
949
972
Automated teller machines
1,701
1,236
1,259
N/M = Not Meaningful

Key Community Bank Summary of Operations

Net income increased $29 million, or 39.2% from prior year (up $11 million, or 14.9% excluding the impact of First Niagara)

Average deposits increased $18.2 billion, or 35.5% from the prior year (up $3.8 billion, or 7.4% excluding the impact of First Niagara)

Average loans increased $10.5 billion, or 33.9% from the prior year (up $206 million, or .7% excluding the impact of First Niagara)

Key Community Bank recorded net income attributable to Key of $103 million for the third quarter of 2016, compared to $74 million for the year-ago quarter. First Niagara contributed $18 million of the growth year-over-year.

Taxable-equivalent net interest income increased by $151 million, or 39.8%, from the third quarter of 2015. Excluding the impact of First Niagara, taxable-equivalent net interest income increased $27 million, primarily driven by deposit growth and higher interest rates.

Noninterest income increased $49 million, or 24.5%, from the year-ago quarter. Excluding the impact of First Niagara, noninterest income increased $8 million, or 4%, related to positive trends in cards and payments income and service charges on deposit accounts. Investment banking and debt placement fees also increased from the year-ago period. These increases were partially offset by declines in trust and investment services and consumer mortgage income.

The provision for credit losses increased by $19 million, or 105.6%, from the third quarter of 2015, primarily related to the acquired credit card portfolio from First Niagara. Excluding the impact of First Niagara, the provision for credit losses increased $3 million, or 16.6%, related to an increase in net loan charge-offs of $9 million from the same period one year ago.

Noninterest expense increased by $134 million, or 30.2%, from the year-ago quarter. Excluding the impact of First Niagara, noninterest expense increased $14 million, or 3.1%, mostly driven by the implementation of an FDIC surcharge and increased marketing expense.

Key Corporate Bank
dollars in millions
Change 3Q16 vs.
3Q16
2Q16
3Q15
2Q16
3Q15
Summary of operations
Net interest income (TE)
$
276
$
222
$
221
24.3
%
24.9
%
Noninterest income
277
230
233
20.4
18.9
Total revenue (TE)
553
452
454
22.3
21.8
Provision for credit losses
25
30
30
(16.7)
(16.7)
Noninterest expense
307
259
250
18.5
22.8
Income (loss) before income taxes (TE) 221
163
174
35.6
27.0
Allocated income taxes and TE adjustments
62
29
41
113.8
51.2
Net income (loss)
159
134
133
18.7
19.5
Less: Net income (loss) attributable to noncontrolling interests
--
(1)
(3)
N/M
N/M
Net income (loss) attributable to Key
$
159
$
135
$
136
17.8
%
16.9
%
Average balances
Loans and leases
$
34,561
$
28,607
$
26,425
20.8
%
30.8
%
Loans held for sale
1,103
591
918
86.6
20.2
Total assets
40,581
33,909
32,099
19.7
26.4
Deposits
22,708
19,129
18,809
18.7
20.7
TE = Taxable Equivalent, N/M = Not Meaningful
Additional Key Corporate Bank Data
dollars in millions
Change 3Q16 vs.
3Q16
2Q16
3Q15
2Q16
3Q15
Noninterest income
Trust and investment services income
$ 36
$ 37
$ 35
(2.7)
%
2.9
%
Investment banking and debt placement fees
153
94
107
62.8
43.0
Operating lease income and other leasing gains
9
15
16
(40.0)
(43.8)
Corporate services income
36
40
46
(10.0)
(21.7)
Service charges on deposit accounts
15
12
11
25.0
36.4
Cards and payments income
10
6
4
66.7
150.0
Payments and services income 61
58
61
5.2
--
Mortgage servicing fees
13
10
11
30.0
18.2
Other noninterest income
5
16
3
(68.8)
66.7
Total noninterest income
$ 277
$ 230
$ 233
20.4
%
18.9
%

Key Corporate Bank Summary of Operations

Record quarter for investment banking and debt placement fees, up $46 million, or 43% from prior year (no impact from First Niagara)

Net income increased $23 million, or 16.9% from the prior year (up $9 million, or 6.6% excluding the impact of First Niagara)

Average loans and leases increased $8.1 billion, or 30.8% from the prior year (up $3.1 billion, or 11.7% excluding the impact of First Niagara)

Average deposits increased $3.9 billion, or 20.7% from the prior year (up $1.5 billion, or 7.9% excluding the impact of First Niagara)

Key Corporate Bank recorded net income attributable to Key of $159 million for the third quarter of 2016, compared to $136 million for the same period one year ago. First Niagara contributed $14 million of the growth year-over year.

Taxable-equivalent net interest income increased by $55 million, or 24.9%, compared to the third quarter of 2015. Excluding the impact of First Niagara, taxable-equivalent net interest income increased by $18 million, or 8%, compared to the third quarter of 2015. Average loan and lease balances increased $8.1 billion, or 30.8%, from the year-ago quarter, primarily driven by the First Niagara acquisition as well as growth in commercial, financial and agricultural loans. This loan growth was offset by spread compression due to higher funding costs. Average deposit balances increased $3.9 billion, or 20.7%, from the year-ago quarter, mostly driven by the First Niagara acquisition as well as growth in commercial escrow deposits.

Noninterest income increased $44 million, or 18.9%, from the prior year. Excluding the impact of First Niagara, noninterest income increased $40 million, or 17%. This growth was mostly due to a record quarter for investment banking and debt placement fees, which were up $46 million, or 43%, related to strength in commercial mortgage banking, equity capital markets and merger and acquisition advisory fees.

The provision for credit losses decreased $5 million, or 16.7%, compared to the third quarter of 2015. Excluding the impact of First Niagara, the provision for credit losses decreased $7 million, or 22.2%. The decrease was mostly due to lower net loan charge-offs.

Noninterest expense increased by $57 million, or 22.8%, from the third quarter of 2015. Excluding the impact of First Niagara, noninterest expense increased $39 million, or 15.4%. Personnel expense increased $32 million, or 26%, mostly due to increases in incentive compensation and salaries. Several other line items increased over the prior year, including operating lease, cards and payments, FDIC, and overhead 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 $16 million for the third quarter of 2016, compared to $26 million for the same period last year. This decline was largely attributable to spread compression.

*****

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 $135.8 billion at September 30, 2016.

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, 2015, 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 Tuesday, October 25, 2016. An audio replay of the call will be available through November 8, 2016.

Financial Highlights
(dollars in millions, except per share amounts)
Three months ended
9/30/2016
6/30/2016
9/30/2015
Summary of operations
Net interest income (TE)
$
788
$
605
$
598
Noninterest income
549
473
470
Total revenue (TE)
1,337
1,078
1,068
Provision for credit losses
59
52
45
Noninterest expense
1,082
751
724
Income (loss) from continuing operations attributable to Key
171
199
222
Income (loss) from discontinued operations, net of taxes (a)
1
3
(3)
Net income (loss) attributable to Key
172
202
219
Income (loss) from continuing operations attributable to Key common shareholders
165
193
216
Income (loss) from discontinued operations, net of taxes (a)
1
3
(3)
Net income (loss) attributable to Key common shareholders
166
196
213
Per common share
Income (loss) from continuing operations attributable to Key common shareholders
$
.17
.23
.26
Income (loss) from discontinued operations, net of taxes
(a)
--
--
--
Net income (loss) attributable to Key common shareholders
(b)
.17
.23
.26
Income (loss) from continuing operations attributable to Key common shareholders -- assuming dilution .16
.23
.26
Income (loss) from discontinued operations, net of taxes -- assuming dilution
(a)
--
--
--
Net income (loss) attributable to Key common shareholders -- assuming dilution
(b)
.17
.23
.25
Cash dividends paid
.085
.085
.075
Book value at period end
12.78
13.08
12.47
Tangible book value at period end
10.14
11.81
11.17
Market price at period end
12.17
11.05
13.01
Performance ratios
From continuing operations:
Return on average total assets
.55
%
.82
%
.95
%
Return on average common equity
5.09
7.15
8.30
Return on average tangible common equity
(c)
6.16
7.94
9.27
Net interest margin (TE)
2.85
2.76
2.87
Cash efficiency ratio
(c)
80.0
69.0
66.9
From consolidated operations:
Return on average total assets
.55
%
.82
%
.92
%
Return on average common equity
5.12
7.26
8.19
Return on average tangible common equity
(c)
6.20
8.06
9.14
Net interest margin (TE)
2.83
2.74
2.84
Loan to deposit
(d)
84.7
85.3
89.3
Capital ratios at period end
Key shareholders’ equity to assets
11.04
%
11.18
%
11.22
%
Key common shareholders’ equity to assets
10.18
10.90
10.91
Tangible common equity to tangible assets
(c)
8.26
9.95
9.90
Common Equity Tier 1
(c), (e)
9.55
11.10
10.47
Tier 1 risk-based capital
(e)
10.52
11.41
10.87
Total risk-based capital
(e)
12.54
13.63
12.47
Leverage
(e)
10.17
10.59
10.68
Asset quality -- from continuing operations
Net loan charge-offs
$
44
$
43
$
41
Net loan charge-offs to average loans
.23
%
.28
%
.27
%
Allowance for loan and lease losses
$
865
$
854
$
790
Allowance for credit losses
918
904
844
Allowance for loan and lease losses to period-end loans
1.01
%
1.38
%
1.31
%
Allowance for credit losses to period-end loans
1.07
1.46
1.40
Allowance for loan and lease losses to nonperforming loans
(f)
119.6
138.0
197.5
Allowance for credit losses to nonperforming loans
(f)
127.0
146.0
211.0
Nonperforming loans at period end
(f)
$
723
$
619
$
400
Nonperforming assets at period end
(f)
760
637
417
Nonperforming loans to period-end portfolio loans
(f)
.85
%
1.00
%
.67
%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets
(f)
.89
1.03
.69
Trust and brokerage assets
Assets under management
$
36,752
$
34,535
$
35,158
Nonmanaged and brokerage assets
45,338
52,102
46,796
Other data
Average full-time equivalent employees
17,079
13,419
13,555
Branches
1,322
949
972
Taxable-equivalent adjustment
$
8
8
7
Financial Highlights (continued)
(dollars in millions, except per share amounts)
Nine months ended
9/30/2016
9/30/2015
Summary of operations
Net interest income (TE)
$
2,005
$
1,766
Noninterest income
1,453
1,395
Total revenue (TE)
3,458
3,161
Provision for credit losses
200
121
Noninterest expense
2,536
2,104
Income (loss) from continuing operations attributable to Key
557
685
Income (loss) from discontinued operations, net of taxes
(a)
5
5
Net income (loss) attributable to Key
562
690
Income (loss) from continuing operations attributable to Key common shareholders
$
540
$
668
Income (loss) from discontinued operations, net of taxes
(a)
5
5
Net income (loss) attributable to Key common shareholders
545
673
Per common share
Income (loss) from continuing operations attributable to Key common shareholders
$
.61
$
.79
Income (loss) from discontinued operations, net of taxes
(a)
.01
.01
Net income (loss) attributable to Key common shareholders
(b)
.62
.80
Income (loss) from continuing operations attributable to Key common shareholders -- assuming dilution .60
.78
Income (loss) from discontinued operations, net of taxes -- assuming dilution
(a)
.01
.01
Net income (loss) attributable to Key common shareholders -- assuming dilution
(b)
.61
.79
Cash dividends paid
.245
.215
Performance ratios
From continuing operations:
Return on average total assets
.71
%
1.00
%
Return on average common equity
6.28
8.67
Return on average tangible common equity
(c)
7.21
9.69
Net interest margin (TE)
2.84
2.88
Cash efficiency ratio
(c)
72.5
65.7
From consolidated operations:
Return on average total assets
.70
%
.99
%
Return on average common equity
6.34
8.74
Return on average tangible common equity
(c)
7.27
9.76
Net interest margin (TE)
2.81
2.85
Asset quality -- from continuing operations
Net loan charge-offs
133
105
Net loan charge-offs to average total loans
.27
%
.24
%
Other data
Average full-time equivalent employees
14,642
13,525
Taxable-equivalent adjustment
24
20
(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.
In February 2013, Key decided to sell its investment subsidiary, Victory Capital Management, and its broker-dealer affiliate, Victory Capital Advisors, to a private equity fund.
As a result of these decisions, Key has accounted for these businesses as discontinued operations.
(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)
9-30-16 ratio is estimated.
(f)
Nonperforming loan balances exclude $959 million, $11 million, and $12 million of purchased credit impaired loans at September 30, 2016, June 30, 2016, and September 30, 2015, 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 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 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 merger-related charges, noninterest expense excluding merger-related charges, earnings per common share excluding merger-related charges, and return on average assets from continuing operations 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.

Three months ended
9/30/2016
6/30/2016
9/30/2015
Tangible common equity to tangible assets at period end
Key shareholders’ equity (GAAP)
$
14,996
$
11,313
$
10,705
Less:
Intangible assets
(a)
2,855
1,074
1,084
Preferred Stock, Series A
(b)
1,156
281
281
Tangible common equity (non-GAAP)
$
10,985
$
9,958
$
9,340
Total assets (GAAP)
$
135,805
$
101,150
$
95,420
Less:
Intangible assets
(a)
2,855
1,074
1,084
Tangible assets (non-GAAP)
$
132,950
$
100,076
$
94,336
Tangible common equity to tangible assets ratio (non-GAAP)
8.26
% 9.95
% 9.90
%
Common Equity Tier 1 at period end
Key shareholders’ equity (GAAP)
$
14,996
$
11,313
10,705
Less:
Preferred Stock, Series A
(b)
1,156
281
281
Common Equity Tier 1 capital before adjustments and deductions
13,840
11,032
10,424
Less:
Goodwill, net of deferred taxes
2,451
1,031
1,036
Intangible assets, net of deferred taxes
256
30
29
Deferred tax assets
1
1
1
Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes
99
129
54
Accumulated gains (losses) on cash flow hedges, net of deferred taxes
39
77
21
Amounts in accumulated other comprehensive income (loss) attributed to
pension and postretirement benefit costs, net of deferred taxes (359)
(362)
(385)
Total Common Equity Tier 1 capital
(c)
$
11,353
$
10,126
$
9,668
Net risk-weighted assets (regulatory)
(c)
$
118,922
$
91,195
92,307
Common Equity Tier 1 ratio (non-GAAP)
(c)
9.55
% 11.10
% 10.47
%
Pre-provision net revenue
Net interest income (GAAP)
$
780
$
597
$
591
Plus:
Taxable-equivalent adjustment
8
8
7
Noninterest income
549
473
470
Less:
Noninterest expense
1,082
751
724
Pre-provision net revenue from continuing operations (non-GAAP)
$
255
$
327
$
344
GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
Three months ended
9/30/2016
6/30/2016
9/30/2015
Average tangible common equity
Average Key shareholders’ equity (GAAP)
$
13,552
$
11,147
$
10,614
Less:
Intangible assets (average) (d)
2,255
1,076
1,083
Preferred Stock, Series A (average)
648
290
290
Average tangible common equity (non-GAAP)
$
10,649
$
9,781
$
9,241
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)
$
165
$
193
$
216
Average tangible common equity (non-GAAP)
10,649
9,781
9,241
Return on average tangible common equity from continuing operations (non-GAAP)
6.16
%
7.94
%
9.27
%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP)
$
166
$
196
$
213
Average tangible common equity (non-GAAP)
10,649
9,781
9,241
Return on average tangible common equity consolidated (non-GAAP)
6.20
%
8.06
%
9.14
%
Noninterest expense excluding merger-related charges
Noninterest expense (GAAP)
$
1,082
$
751
$
724
Less:
Merger-related charges
189
45
--
Noninterest expense excluding merger-related charges (non-GAAP)
$
893
$
706
$
724
Earnings per common share (EPS) excluding merger-related charges
EPS from continuing operations attributable to Key common shareholders
--
assuming dilution
$
.16
$
.23
$
.26
Add:
EPS impact of merger-related charges
.14
.04
--
EPS from continuing operations attributable to Key common shareholders
excluding merger-related charges (non-GAAP)
$
.30
$
.27
.26
Cash efficiency ratio
Noninterest expense (GAAP)
$
1,082
$
751
$
724
Less:
Intangible asset amortization
13
7
9
Adjusted noninterest expense (non-GAAP)
1,069
744
715
Less:
Merger-related charges
189
45
--
Adjusted noninterest expense excluding merger-related charges (non-GAAP)
$
880
$
699
$
715
Net interest income (GAAP)
$
780
$
597
$
591
Plus:
Taxable-equivalent adjustment
8
8
7
Noninterest income
549
473
470
Total taxable-equivalent revenue (non-GAAP)
1,337
1,078
1,068
Add:
Merger-related charges
18
--
--
Adjusted noninterest income excluding merger-related charges (non-GAAP)
1,355
$
1,078
1,068
Cash efficiency ratio (non-GAAP)
80.0
%
69.0
%
66.9
%
Cash efficiency ratio excluding merger-related charges (non-GAAP)
64.9
%
64.8
%
66.9
%
Return on average total assets from continuing operations excluding merger-related charges
Income from continuing operations attributable to Key (GAAP)
$
171
$
199
$
222
Add:
Merger-related charges, after tax
132
28
--
Income from continuing operations attributable to Key excluding merger-related
charges, after tax (non-GAAP)
$
303
$
227
$
222
Average total assets from continuing operations (GAAP)
$
123,469
$
97,413
$
92,649
Return on average total assets from continuing operations excluding merger-related
charges (non-GAAP)
.98
%
.94
%
.95
%
Three months ended
9/30/2016
Common Equity Tier 1 under the Regulatory Capital Rules ("RCR") (estimates)
Common Equity Tier 1 under current RCR
$
11,353
Adjustments from current RCR to the fully phased-in RCR:
Deferred tax assets and other intangible assets (e)
(170)
Common Equity Tier 1 anticipated under the fully phased-in RCR (f)
$
11,183
Net risk-weighted assets under current RCR
$
118,922
Adjustments from current RCR to the fully phased-in RCR:
Mortgage servicing assets (g)
547
Volcker funds
(199)
All other assets
(133)
Total risk-weighted assets anticipated under the fully phased-in RCR (f)
$
119,137
Common Equity Tier 1 ratio under the fully phased-in RCR (f)
9.39
%
GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
Nine months ended
9/30/2016
9/30/2015
Pre-provision net revenue
Net interest income (GAAP)
$
1,981
$
1,746
Plus:
Taxable-equivalent adjustment
24
20
Noninterest income (GAAP)
1,453
1,395
Less:
Noninterest expense (GAAP)
2,536
2,104
Pre-provision net revenue from continuing operations (non-GAAP)
$
922
$
1,057
Average tangible common equity
Average Key shareholders’ equity (GAAP)
$
11,890
$
10,591
Less:
Intangible assets (average) (h)
1,473
1,086
Preferred Stock, Series A (average)
410
290
Average tangible common equity (non-GAAP)
$
10,007
$
9,215
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)
$
540
$
668
Average tangible common equity (non-GAAP)
10,007
9,215
Return on average tangible common equity from continuing operations (non-GAAP)
7.21
%
9.69
%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP)
$
545
$
673
Average tangible common equity (non-GAAP)
10,007
9,215
Return on average tangible common equity consolidated (non-GAAP)
7.27
%
9.76
%
Cash efficiency ratio
Noninterest expense (GAAP)
$
2,536
$
2,104
Less:
Intangible asset amortization (GAAP)
28
27
Adjusted noninterest expense (non-GAAP)
2,508
2,077
Less:
Merger-related charges
258
--
Adjusted noninterest expense excluding merger-related charges (non-GAAP)
$
2,250
$
2,077
Net interest income (GAAP)
$
1,981
$
1,746
Plus:
Taxable-equivalent adjustment
24
20
Noninterest income (GAAP)
1,453
1,395
Total taxable-equivalent revenue (non-GAAP)
3,458
3,161
Add:
Merger-related charges
18
--
Adjusted noninterest income excluding merger-related charges (non-GAAP)
$
3,476
$
3,161
Cash efficiency ratio (non-GAAP)
72.5
%
65.7
%
Cash efficiency ratio excluding merger-related charges (non-GAAP)
64.7
%
65.7
%
Return on average total assets from continuing operations excluding merger-related charges
Income from continuing operations attributable to Key (GAAP)
$
557
$
685
Add:
Merger-related charges, after tax
175
--
Income from continuing operations attributable to Key excluding merger-related
charges, after tax (non-GAAP)
$
732
$
685
Average total assets from continuing operations (GAAP)
$
105,187
$
91,322
Return on average total assets from continuing operations excluding merger-related
charges (non-GAAP)
.93
%
1.00
%
(a)
For the three months ended September 30, 2016, June 30, 2016, and September 30, 2015, intangible assets exclude $51 million, $36 million, and $50 million, respectively, of period-end purchased credit card receivables.
(b)
Net of capital surplus.
(c)
9/30/16 amount is estimated.
(d)
For the three months ended September 30, 2016, June 30, 2016, and September 30, 2015, average intangible assets exclude $47 million, $38 million, and $52 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%.
(h)
For the nine months ended September 30, 2016, and September 30, 2015, average intangible assets exclude $42 million and $58 million, respectively, of average purchased credit card receivables.
GAAP = U.S. generally accepted accounting principles
Consolidated Balance Sheets
(dollars in millions)
9/30/2016
6/30/2016
9/30/2015
Assets
Loans
$
85,528
$
62,098
$
60,085
Loans held for sale
1,137
442
916
Securities available for sale
20,540
14,552
14,376
Held-to-maturity securities
8,995
4,832
4,936
Trading account assets
926
965
811
Short-term investments
3,216
6,599
1,964
Other investments
747
577
691
Total earning assets
121,089
90,065
83,779
Allowance for loan and lease losses
(865)
(854)
(790)
Cash and due from banks
749
496
470
Premises and equipment
1,023
742
771
Operating lease assets
430
399
315
Goodwill
2,480
1,060
1,060
Other intangible assets
426
50
74
Corporate-owned life insurance
4,035
3,568
3,516
Derivative assets
1,304
1,234
793
Accrued income and other assets
3,480
2,673
3,346
Discontinued assets
1,654
1,717
2,086
Total assets
$
135,805
$
101,150
$
95,420
Liabilities
Deposits in domestic offices:
NOW and money market deposit accounts
$
56,432
$
40,195
$
37,301
Savings deposits
5,335
2,355
2,338
Certificates of deposit ($100,000 or more) 4,601
3,381
2,001
Other time deposits
5,793
3,267
3,020
Total interest-bearing deposits
72,161
49,198
44,660
Noninterest-bearing deposits
32,024
26,127
25,985
Deposits in foreign office -- interest-bearing
--
--
428
Total deposits
104,185
75,325
71,073
Federal funds purchased and securities sold under repurchase agreements
602
360
407
Bank notes and other short-term borrowings
809
687
677
Derivative liabilities
850
746
676
Accrued expense and other liabilities
1,739
1,326
1,562
Long-term debt
12,622
11,388
10,308
Total liabilities
120,807
89,832
84,703
Equity
Preferred stock
1,165
290
290
Common shares
1,257
1,017
1,017
Capital surplus
6,359
3,835
3,914
Retained earnings
9,260
9,166
8,764
Treasury stock, at cost
(2,863)
(2,881)
(3,008)
Accumulated other comprehensive income (loss)
(182)
(114)
(272)
Key shareholders’ equity
14,996
11,313
10,705
Noncontrolling interests
2
5
12
Total equity
14,998
11,318
10,717
Total liabilities and equity
$
135,805
$
101,150
$
95,420
Common shares outstanding (000)
1,082,055
842,703
835,285
Consolidated Statements of Income
(dollars in millions, except per share amounts)
Three months ended
Nine months ended
9/30/2016
6/30/2016
9/30/2015
9/30/2016
9/30/2015
Interest income
Loans
$
746
$
567
$
542
$
1,875
$
1,597
Loans held for sale
10
5
10
23
29
Securities available for sale
88
74
75
237
217
Held-to-maturity securities
30
24
24
78
72
Trading account assets
4
6
5
17
15
Short-term investments
7
6
1
17
5
Other investments
5
2
4
10
14
Total interest income
890
684
661
2,257
1,949
Interest expense
Deposits
49
34
27
114
79
Bank notes and other short-term borrowings
2
3
2
7
6
Long-term debt
59
50
41
155
118
Total interest expense
110
87
70
276
203
Net interest income
780
597
591
1,981
1,746
Provision for credit losses
59
52
45
200
121
Net interest income after provision for credit losses
721
545
546
1,781
1,625
Noninterest income
Trust and investment services income
122
110
108
341
328
Investment banking and debt placement fees
156
98
109
325
318
Service charges on deposit accounts
85
68
68
218
192
Operating lease income and other leasing gains
6
18
15
41
58
Corporate services income
51
53
57
154
143
Cards and payments income
66
52
47
164
136
Corporate-owned life insurance income
29
28
30
85
91
Consumer mortgage income
6
3
3
11
10
Mortgage servicing fees
15
10
11
37
33
Net gains (losses) from principal investing
5
11
11
16
51
Other income
(a)
8
22
11
61
35
Total noninterest income
549
473
470
1.453
1,395
Noninterest expense
Personnel
594
427
426
1.425
1,223
Net occupancy
73
59
60
193
191
Computer processing
70
45
41
158
121
Business services and professional fees
76
40
40
157
115
Equipment
26
21
22
68
66
Operating lease expense
15
14
11
42
34
Marketing
32
22
17
66
40
FDIC assessment
21
8
8
38
24
Intangible asset amortization
13
7
9
28
27
OREO expense, net
3
2
2
6
5
Other expense
159
106
88
355
258
Total noninterest expense
1,082
751
724
2,536
2,104
Income (loss) from continuing operations before income taxes
188
267
292
698
916
Income taxes
16
69
72
141
230
Income (loss) from continuing operations
172
198
220
557
686
Income (loss) from discontinued operations, net of taxes
1
3
(3)
5
5
Net income (loss)
173
201
217
562
691
Less:
Net income (loss) attributable to noncontrolling interests
1
(1)
(2)
--
1
Net income (loss) attributable to Key
$
172
$
202
$
219
$
562
$
690
Income (loss) from continuing operations attributable to Key common shareholders
$
165
$
193
$
216
$
540
$
668
Net income (loss) attributable to Key common shareholders
166
196
213
545
673
Per common share
Income (loss) from continuing operations attributable to Key common shareholders
$
.17
$
.23
$
.26
$
.61
$
.79
Income (loss) from discontinued operations, net of taxes
--
--
--
.01
.01
Net income (loss) attributable to Key common shareholders
(b)
.17
.23
.26
.62
.80
Per common share -- assuming dilution
Income (loss) from continuing operations attributable to Key common shareholders
$
.16
$
.23
$
.26
$
.60
$
.78
Income (loss) from discontinued operations, net of taxes
--
--
--
.01
.01
Net income (loss) attributable to Key common shareholders
(b)
.17
.23
.25
.61
.79
Cash dividends declared per common share
$
.085
$
.085
$
.075
$
.245
$
.215
Weighted-average common shares outstanding (000)
982,080
831,899
831,430
880,824
839,758
Effect of common share options and other stock awards
12,580
6,597
7,450
8,965
7,613
Weighted-average common shares and potential common shares outstanding (000)
(c)
994,660
838,496
838,880
889,789
847,371
(a)
For the three months ended September 30, 2016, net securities losses totaled $6 million. For the three months ended June 30, 2016, and September 30, 2015, net securities gains (losses) totaled less than $1 million. For the three months ended September 30, 2016, June 30, 2016, and September 30, 2015, 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
(dollars in millions)
Third Quarter 2016
Second Quarter 2016
Third Quarter 2015
Average
Average
Average
Balance
Interest(a) Yield/Rate (a) Balance
Interest (a) Yield/Rate (a) Balance
Interest (a) Yield/Rate
(a)
Assets
Loans: (b), (c)
Commercial, financial and agricultural (d)
$
37,318
$
317
3.38
%
$
32,630
$
270
3.32
%
$
30,374
$
244
3.19
%
Real estate -- commercial mortgage
12,879
126
3.91
8,404
80
3.85
7,988
73
3.65
Real estate -- construction
1,723
21
4.67
869
8
3.78
1,164
11
3.78
Commercial lease financing
4,508
38
3.33
3,949
37
3.77
3,946
35
3.57
Total commercial loans
56,428
502
3.54
45,852
395
3.47
43,472
363
3.32
Real estate -- residential mortgage
4,453
45
3.96
2,253
22
4.11
2,258
24
4.19
Home equity loans
11,968
122
4.07
10,098
102
4.04
10,510
105
3.96
Consumer direct loans
1,666
30
7.20
1,599
26
6.53
1,597
26
6.53
Credit cards
996
27
10.80
792
21
10.58
759
21
10.74
Consumer indirect loans
2,186
28
5.23
554
9
6.56
685
11
6.47
Total consumer loans
21,269
252
4.73
15,296
180
4.74
15,809
187
4.69
Total loans
77,697
754
3.86
61,148
575
3.78
59,281
550
3.69
Loans held for sale
1,152
10
3.48
611
5
3.18
939
10
3.96
Securities available for sale (b), (e)
17,972
88
1.99
14,268
74
2.08
14,247
74
2.11
Held-to-maturity securities (b)
6,250
30
1.86
4,883
24
1.98
4,923
24
1.95
Trading account assets
860
4
2.12
967
6
2.28
699
5
2.50
Short-term investments
5,911
7
.48
5,559
6
.45
2,257
1
.26
Other investments (e)
717
5
2.74
610
2
1.54
696
4
2.52
Total earning assets
110,559
898
3.24
88,046
692
3.16
83,042
668
3.21
Allowance for loan and lease losses
(847)
(833)
(790)
Accrued income and other assets
13,757
10,200
10,397
Discontinued assets
1,676
1,738
2,118
Total assets
$
125,145
$
99,151
$
94,767
Liabilities
NOW and money market deposit accounts
$
51,318
25
.20
$
39,687
16
.17
$
36,289
15
.16
Savings deposits
4,521
1
.07
2,375
--
.02
2,371
--
.02
Certificates of deposit ($100,000 or more) (f)
4,204
12
1.15
3,233
11
1.39
1,985
6
1.27
Other time deposits
5,031
11
.85
3,252
7
.85
3,064
6
.70
Deposits in foreign office
--
--
--
--
--
--
492
--
.23
Total interest-bearing deposits
65,074
49
.30
48,547
34
.29
44,201
27
.24
Federal funds purchased and securities
578
--
.16
337
--
.01
859
--
.08
sold under repurchase agreements
Bank notes and other short-term borrowings
1,186
2
.91
694
3
1.39
567
2
1.51
Long-term debt (f), (g)
10,415
59
2.31
9,294
50
2.25
7,893
41
2.20
Total interest-bearing liabilities
77,253
110
.57
58,872
87
.60
53,520
70
.53
Noninterest-bearing deposits
29,844
25,357
26,268
Accrued expense and other liabilities
2,818
2,032
2,236
Discontinued liabilities (g)
1,676
1,738
2,118
Total liabilities
111,591
87,999
84,142
Equity
Key shareholders’ equity
13,552
11,147
10,614
Noncontrolling interests
2
5
11
Total equity
13,554
11,152
10,625
Total liabilities and equity
$
125,145
$
99,151
$
94,767
Interest rate spread (TE)
2.67
%
2.56
%
2.68
%
Net interest income (TE) and net interest margin (TE)
788
2.85
%
605
2.76
%
598
2.87
%
TE adjustment (b)
8
8
7
Net interest income, GAAP basis
$
780
$
597
$
591
(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, financial and agricultural average balances include $107 million, $87 million, and $88 million of assets from commercial credit cards for the three months ended September 30, 2016, June 30, 2016, and September 30, 2015, 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
Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
(dollars in millions)
Nine months ended September 30, 2016
Nine months ended September 30, 2015
Average
Average
Balance
Interest
(a)
Yield/Rate
(a)
Balance
Interest
(a)
Yield/ Rate (a)
Assets
Loans: (b), (c)
Commercial, financial and agricultural
(d)
$
33,859
$
850
3.35
%
$
29,244
$
700
3.20
%
Real estate -- commercial mortgage
9,818
283
3.85
8,021
220
3.67
Real estate -- construction
1,205
39
4.30
1,168
33
3.76
Commercial lease financing
4,139
111
3.57
3,998
107
3.57
Total commercial loans
49,021
1,283
3.50
42,431
1,060
3.34
Real estate -- residential mortgage
2,986
91
4.05
2,241
71
4.22
Home equity loans
10,773
327
4.06
10,531
313
3.98
Consumer direct loans
1,619
82
6.77
1,572
77
6.56
Credit cards
858
69
10.71
743
60
10.80
Consumer indirect loans
1,118
47
5.67
745
36
6.42
Total consumer loans
17,354
616
4.74
15,832
557
4.71
Total loans
66,375
1,899
3.82
58,263
1,617
3.71
Loans held for sale
864
23
3.58
1,000
29
3.77
Securities available for sale (b), (e)
15,492
237
2.06
13,569
217
2.15
Held-to-maturity securities (b)
5,320
78
1.94
4,945
72
1.93
Trading account assets
881
17
2.60
740
15
2.62
Short-term investments
4,971
17
.46
2,627
5
.26
Other investments (e)
658
10
2.05
717
14
2.60
Total earning assets
94,561
2,281
3.23
81,861
1,969
3.22
Allowance for loan and lease losses
(828)
(792)
Accrued income and other assets
11,454
10,253
Discontinued assets
1,739
2,194
Total assets
$
106,926
$
93,516
Liabilities
NOW and money market deposit accounts
$
42,935
56
.18
$
35,793
42
.15
Savings deposits
3,087
1
.04
2,383
--
.02
Certificates of deposit ($100,000 or more) (f)
3,402
33
1.28
2,004
19
1.27
Other time deposits
3,832
24
.83
3,138
17
.71
Deposits in foreign office
--
--
--
534
1
.23
Total interest-bearing deposits
53,256
114
.29
43,852
79
.24
Federal funds purchased and securities
451
--
.09
713
--
.05
sold under repurchase agreements
Bank notes and other short-term borrowings
825
7
1.21
577
6
1.48
Long-term debt (f), (g)
9,429
155
2.25
7,001
118
2.32
Total interest-bearing liabilities
63,961
276
.58
52,143
203
.52
Noninterest-bearing deposits
26,938
26,377
Accrued expense and other liabilities
2,392
2,200
Discontinued liabilities (g)
1,739
2,194
Total liabilities
95,030
82,914
Equity
Key shareholders’ equity
11,890
10,591
Noncontrolling interests
6
11
Total equity
11,896
10,602
Total liabilities and equity
$
106,926
$
93,516
Interest rate spread (TE)
2.65
%
2.70
%
Net interest income (TE) and net interest margin (TE)
2,005
2.84
%
1,766
2.88
%
TE adjustment (b)
24
20
Net interest income, GAAP basis
$
1,981
$
1,746
(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, financial and agricultural average balances include $93 million and $88 million of assets from commercial credit cards for the nine months ended September 30, 2016, and September 30, 2015, 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
Noninterest Expense
(dollars in millions)
Three months ended
Nine months ended
9/30/2016
6/30/2016
9/30/2015
9/30/2016
9/30/2015
Personnel
(a)
$
594
$
427
$
426
$
1,425
$
1,223
Net occupancy
73
59
60
193
191
Computer processing
70
45
41
158
121
Business services and professional fees
76
40
40
157
115
Equipment
26
21
22
68
66
Operating lease expense
15
14
11
42
34
Marketing
32
22
17
66
40
FDIC assessment
21
8
8
38
24
Intangible asset amortization
13
7
9
28
27
OREO expense, net
3
2
2
6
5
Other expense
159
106
88
355
258
Total noninterest expense
$
1,082
$
751
$
724
$
2,536
$
2,104
Merger-related charges
(b)
189
45
--
258
--
First Niagara impact (c)
140
--
--
140
--
Total noninterest expense excluding merger-related charges and $
753
$
706
$
724
$
2,138
$
2,104
First Niagara impact
Average full-time equivalent employees
(d)
17,079
13,419
13,555
14,642
13,525
(a) Additional detail provided in Personnel Expense table below.
(b) Additional detail provide in Merger-Related Charges table below.
(c) Reflects two months of First Niagara activity during the third quarter of 2016.
(d) The number of average full-time equivalent employees has not been adjusted for discontinued operations.
Personnel Expense
(in millions)
Three months ended
Nine months ended
9/30/2016
6/30/2016
9/30/2015
9/30/2016
9/30/2015
Salaries and contract labor
$
329
$
266
$
247
$
839
$
714
Incentive and stock-based compensation
162
101
103
352
295
Employee benefits
73
58
75
199
202
Severance
30
2
1
35
12
Total personnel expense
$
594
$
427
$
426
$
1,425
$
1,223
Merger-related charges
97
35
--
148
--
First Niagara impact (a)
72
--
--
72
--
Total personnel expense excluding merger-related charges and $
425
$
392
$
426
$
1,205
$
1,223
First Niagara impact
(a)
Reflects two months of First Niagara activity during the third quarter of 2016.
Merger-Related Charges
(in millions)
Three months ended
Nine months ended
9/30/2016
6/30/2016
9/30/2015
9/30/2016
9/30/2015
Net interest income
$
(6)
--
--
$
(6)
--
Operating lease income and other leasing gains
(2)
--
--
(2)
--
Other income
(10)
--
--
(10)
--
Noninterest income
(12)
--
--
(12)
--
Personnel (a)
97
$
35
--
148
--
Business services and professional fees
32
5
--
44
--
Computer processing
15
--
--
15
--
Marketing
9
3
--
13
--
Other nonpersonnel expense
36
2
--
38
--
Noninterest expense
189
45
--
258
--
Total merger-related charges
$
207
$
45
--
$
276
--
(a)
Personnel expense includes severance, technology development related to systems conversion, and fully-dedicated personnel for merger and integration efforts.
Loan Composition
(dollars in millions)
Percent change 9/30/16 vs.
9/30/2016
6/30/2016
9/30/2015
6/30/2016
9/30/2015
Commercial, financial and agricultural
(a)
$
39,433
33,376
$
31,095
18.1
% 26.8
%
Commercial real estate:
Commercial mortgage
14,979
8,582
8,180
74.5
83.1
Construction
2,189
881
1,070
148.5
104.6
Total commercial real estate loans 17,168
9,463
9,250
81.4
85.6
Commercial lease financing
(b)
4,783
3,988
3,929
19.9
21.7
Total commercial loans
61,384
46,827
44,274
31.1
38.6
Residential -- prime loans:
Real estate -- residential mortgage5,509
2,285
2,267
141.1
143.0
Home equity loans
12,757
10,062
10,504
26.8
21.4
Total residential -- prime loans
18,266
12,347
12,771
47.9
43.0
Consumer direct loans
1,764
1,584
1,612
11.4
9.4
Credit cards
1,084
813
770
33.3
40.8
Consumer indirect loans
3,030
527
658
475.0
360.5
Total consumer loans
24,144
15,271
15,811
58.1
52.7
Total loans (c), (d)
$
85,528
$
62,098
$
60,085
37.7
% 42.3
%
(a) Loan balances include $117 million, $88 million, and $88 million of commercial credit card balances at September 30, 2016, June 30, 2016, and September 30, 2015, respectively.
(b) Commercial lease financing includes receivables held as collateral for a secured borrowing of $76 million, $102 million, and $162 million at September 30, 2016, June 30, 2016, and September 30, 2015, respectively. Principal reductions are based on the cash payments received from these related receivables.
(c) At September 30, 2016, total loans include purchased loans of $22.4 billion, of which $959 million were purchased credit impaired. At June 30, 2016, total loans include purchased loans of $104 million, of which $11 million were purchased credit impaired. At September 30, 2015, total loans include purchased loans of $119 million, of which $12 million were purchased credit impaired.
(d) Total loans exclude loans of $1.6 billion at September 30, 2016, $1.7 billion at June 30, 2016, and $1.9 billion at September 30, 2015, related to the discontinued operations of the education lending business.
Loans Held for Sale Composition
(dollars in millions)
Percent change 9/30/16 vs.
9/30/2016
6/30/2016 9/30/2015 6/30/2016
9/30/2015
Commercial, financial and agricultural
$
56
$
150
$
74
(62.7)
% (24.3)
%
Real estate -- commercial mortgage
1,016
270
806
276.3
26.1
Commercial lease financing
3
3
10
--
(70.0)
Real estate -- residential mortgage (a)
62
19
26
226.3
138.5
Total loans held for sale (b) $
1,137
$
442
$
916
157.2
% 24.1
%
(a) Real estate -- residential mortgage loans held for sale at fair value.
(b) Total loans held for sale exclude loans held for sale of $169 million at September 30, 2015, related to the discontinued operations of the education lending business.
Summary of Changes in Loans Held for Sale
(in millions)
3Q16
2Q16
1Q16
4Q15
3Q15
Balance at beginning of period
$
442
$
684
$
639
$
916
$
835
Purchases
48
--
--
--
--
New originations
2,857
1,539
1,114
1,655
1,673
Transfers from (to) held to maturity, net 2
22
--
22
24
Loan sales
(2,180)
(1,802)
(1,108)
(1,943)
(1,616)
Loan draws (payments), net
(32)
(1)
39
(11)
--
Balance at end of period (a), (b)
$
1,137
$
442
$
684
$
639
$
916
(a) Total loans held for sale include Real estate -- residential mortgage loans held for sale at fair value of $62 million at September 30, 2016.
(b) Total loans held for sale exclude loans held for sale of $169 million at September 30, 2015, related to the discontinued operations of the education lending business.
Asset Quality Statistics From Continuing Operations
(dollars in millions)
3Q16
2Q16
1Q16
4Q15
3Q15
Net loan charge-offs
$
44
$
43
$
46
$
37
$
41
Net loan charge-offs to average total loans
.23
%
.28
%
.31
%
.25
%
.27
%
Allowance for loan and lease losses
$
865
$
854
$
826
$
796
$
790
Allowance for credit losses (a)
918
904
895
852
844
Allowance for loan and lease losses to period-end loans
1.01
%
1.38
%
1.37
%
1.33
%
1.31
%
Allowance for credit losses to period-end loans
1.07
1.46
1.48
1.42
1.40
Allowance for loan and lease losses to nonperforming loans (b) 119.6
138.0
122.2
205.7
197.5
Allowance for credit losses to nonperforming loans
(b)
127.0
146.0
132.4
220.2
211.0
Nonperforming loans at period end (b)
$
723
$
619
$
676
$
387
$
400
Nonperforming assets at period end (b)
760
637
692
403
417
Nonperforming loans to period-end portfolio loans (b)
.85
%
1.00
%
1.12
%
.65
%
.67
%
Nonperforming assets to period-end portfolio loans plus
.89
1.03
1.14
.67
.69
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 $959 million, $11 million, $11 million, $11 million, and $12 million of purchased credit impaired loans at September 30, 2016, June 30, 2016, March 31, 2016 , December 31, 2015, and September 30, 2015, respectively.
Summary of Loan and Lease Loss Experience From Continuing Operations
(dollars in millions)
Three months ended
Nine months ended
9/30/2016
6/30/2016
9/30/2015
9/30/2016
9/30/2015
Average loans outstanding
$
77,697
$
61,148
$
59,281
$
66,375
$
58,263
Allowance for loan and lease losses at beginning of period
854
826
796
796
794
Loans charged off:
Commercial, financial and agricultural
17
35
26
78
59
Real estate -- commercial mortgage
--
2
--
3
2
Real estate -- construction
9
--
--
9
1
Total commercial real estate loans
9
2
--
12
3
Commercial lease financing
5
3
2
11
5
Total commercial loans
31
40
28
101
67
Real estate -- residential mortgage
1
1
1
4
4
Home equity loans
5
7
7
22
25
Consumer direct loans
6
6
6
18
18
Credit cards
9
8
7
25
23
Consumer indirect loans
3
2
4
9
15
Total consumer loans
24
24
25
78
85
Total loans charged off
55
64
53
179
152
Recoveries:
Commercial, financial and agricultural
2
3
2
8
13
Real estate -- commercial mortgage
1
6
--
9
2
Real estate -- construction
1
--
--
2
1
Total commercial real estate loans
2
6
--
11
3
Commercial lease financing
--
2
2
2
7
Total commercial loans
4
11
4
21
23
Real estate -- residential mortgage
1
--
--
3
1
Home equity loans
3
4
4
10
9
Consumer direct loans
1
2
1
4
5
Credit cards
1
1
1
3
2
Consumer indirect loans
1
3
2
5
7
Total consumer loans
7
10
8
25
24
Total recoveries
11
21
12
46
47
Net loan charge-offs
(44)
(43)
(41)
(133)
(105)
Provision (credit) for loan and lease losses
56
71
36
203
102
Foreign currency translation adjustment
(1)
--
(1)
(1)
(1)
Allowance for loan and lease losses at end of period
$
865
$
854
$
790
$
865
$
790
Liability for credit losses on lending-related commitments at beginning of period $
50
$
69
$
45
$
56
$
35
Provision (credit) for losses on lending-related commitments
3
(19)
9
(3)
19
Liability for credit losses on lending-related commitments at end of period (a)
$
53
$
50
$
54
$
53
$
54
Total allowance for credit losses at end of period
$
918
$
904
$
844
$
918
$
844
Net loan charge-offs to average total loans
.23
%
.28
%
.27
%
.27
%
.24
%
Allowance for loan and lease losses to period-end loans
1.01
1.38
1.31
1.01
1.31
Allowance for credit losses to period-end loans
1.07
1.46
1.40
1.07
1.40
Allowance for loan and lease losses to nonperforming loans
119.6
138.0
197.5
119.6
197.5
Allowance for credit losses to nonperforming loans
127.0
146.0
211.0
127.0
211.0
Discontinued operations -- education lending business:
Loans charged off
$
6
$
6
$
9
$
21
$
25
Recoveries
3
2
2
8
10
Net loan charge-offs
$
(3)
$
(4)
$
(7)
$
(13)
$
(15)
(a) Included in "Accrued expense and other liabilities" on the balance sheet.
Summary of Nonperforming Assets and Past Due Loans From Continuing Operations
(dollars in millions)
9/30/2016
6/30/2016
3/31/2016
12/31/2015
9/30/2015
Commercial, financial and agricultural
$
335
$
321
$
380
$
82
$
89
Real estate -- commercial mortgage
32
14
16
19
23
Real estate -- construction
17
25
12
9
9
Total commercial real estate loans
49
39
28
28
32
Commercial lease financing
13
10
11
13
21
Total commercial loans
397
370
419
123
142
Real estate -- residential mortgage
72
54
59
64
67
Home equity loans
225
189
191
190
181
Consumer direct loans
2
1
1
2
1
Credit cards
3
2
2
2
2
Consumer indirect loans
24
3
4
6
7
Total consumer loans
326
249
257
264
258
Total nonperforming loans (a)
723
619
676
387
400
OREO
35
15
14
14
17
Other nonperforming assets
2
3
2
2
--
Total nonperforming assets (a)
$
760
$
637
$
692
$
403
$
417
Accruing loans past due 90 days or more
$
49
$
70
$
70
$
72
$
54
Accruing loans past due 30 through 89 days
317
203
237
208
271
Restructured loans -- accruing and nonaccruing (b)
304
277
283
280
287
Restructured loans included in nonperforming loans (b)
149
133
151
159
160
Nonperforming assets from discontinued operations --
5
5
6
7
8
education lending business
Nonperforming loans to period-end portfolio loans
(a)
.85
%
1.00 %
1.12 %
.65
%
.67
%
Nonperforming assets to period-end portfolio loans
.89
1.03
1.14
.67
.69
plus OREO and other nonperforming assets (a)
(a) Nonperforming loan balances exclude $959 million, $11 million, $11 million, $11 million, and $12 million of purchased credit impaired loans at
September 30, 2016, June 30, 2016, March 31, 2016, December 31, 2015, and September 30, 2015, 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
(in millions)
3Q16
2Q16
1Q16
4Q15
3Q15
Balance at beginning of period
$
619
$
676
$
387
$
400
$
419
Loans placed on nonaccrual status
78
124
406
81
81
Nonperforming loans acquired from First Niagara
150
--
--
--
--
Charge-offs
(53)
(64)
(60)
(51)
(53)
Loans sold
--
--
(11)
--
(2)
Payments
(32)
(75)
(8)
(21)
(16)
Transfers to OREO
(5)
(6)
(4)
(4)
(4)
Transfers to other nonperforming assets
--
--
--
(1)
--
Loans returned to accrual status
(34)
(36)
(34)
(17)
(25)
Balance at end of period (a)
$
723
$
619
$
676
$
387
$
400
(a) Nonperforming loan balances exclude $959 million, $11 million, $11 million, $11 million, and $12 million of purchased credit impaired loans at September 30, 2016, June 30, 2016, March 31, 2016, December 31, 2015, and September 30, 2015, respectively.
Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations
(in millions)
3Q16
2Q16
1Q16
4Q15
3Q15
Balance at beginning of period
$
15
$
14
$
14
$
17
$
20
Properties acquired -- First Niagara
19
--
--
--
--
Properties acquired -- nonperforming loans
5
6
4
4
4
Valuation adjustments
(2)
(2)
(1)
(2)
(2)
Properties sold
(2)
(3)
(3)
(5)
(5)
Balance at end of period
$
35
$
15
$
14
$
14
$
17
Line of Business Results
(dollars in millions)
Percent change 3Q16 vs.
3Q16
2Q16
1Q16
4Q15
3Q15
2Q16
3Q15
Key Community Bank
Summary of operations
Total revenue (TE)
$
779
$
598
$
595
$
588
$
579
30.3
%
34.5
%
Provision for credit losses
37
25
42
20
18
48.0
105.6
Noninterest expense
578
444
436
456
444
30.2
30.2
Net income (loss) attributable to Key
103
81
74
70
74
27.2
39.2
Average loans and leases
41,548
30,936
30,789
30,925
31,039
34.3
33.9
Average deposits
69,397
53,794
52,803
52,219
51,234
29.0
35.5
Net loan charge-offs
31
17
23
23
21
82.4
47.6
Net loan charge-offs to average total loans
.30
%
.22
%
.30
%
.30
%
.27
%
N/A
N/A
Nonperforming assets at period end
$
430
$
300
$
303
$
303
$
306
43.3
40.5
Return on average allocated equity
11.41
%
11.99
%
11.09
%
10.39
%
10.92
%
N/A
N/A
Average full-time equivalent employees
9,803
7,331
7,376
7,390
7,476
33.7
31.1
Key Corporate Bank
Summary of operations
Total revenue (TE)
$
553
$
452
$
426
$
479
$
454
22.3
%
21.8
%
Provision for credit losses
25
30
43
26
30
(16.7)
(16.7)
Noninterest expense
307
259
237
257
250
18.5
22.8
Net income (loss) attributable to Key
159
135
118
142
136
17.8
16.9
Average loans and leases
34,561
28,607
27,722
26,981
26,425
20.8
30.8
Average loans held for sale
1,103
591
811
820
918
86.6
20.2
Average deposits
22,708
19,129
18,074
19,080
18,809
18.7
20.7
Net loan charge-offs
12
27
18
12
20
(55.6)
(40.0)
Net loan charge-offs to average total loans
.14
%
.38
%
.26
%
.18
%
.30
%
N/A
N/A
Nonperforming assets at period end
$
313
$
319
$
372
$
74
$
85
(1.9)
268.2
Return on average allocated equity
25.86
%
26.23
%
23.15
%
29.05
%
28.29
%
N/A
N/A
Average full-time equivalent employees
2,331
2,138
2,126
2,113
2,173
9.0
7.3
TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful

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SOURCE KeyCorp

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