KEY
$18.78
Keycorp
($.20)
(1.05%)
Earnings Details
4th Quarter December 2016
Thursday, January 19, 2017 6:30:00 AM
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Summary

Keycorp Beats

Keycorp (KEY) reported 4th Quarter December 2016 earnings of $0.31 per share on revenue of $1.7 billion. The consensus earnings estimate was $0.29 per share on revenue of $1.5 billion. The Earnings Whisper number was $0.30 per share. Revenue grew 45.1% 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
$0.31
Earnings Whisper
$0.30
Consensus Estimate
$0.29
Reported Revenue
$1.68 Bil
Revenue Estimate
$1.45 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

KeyCorp Reports Fourth Quarter 2016 Net Income Of $213 Million, Or $.20 Per Common Share; Earnings Per Common Share Of $.31, Excluding $.11 Of Merger-Related Charges

KeyCorp (KEY) today announced fourth quarter net income from continuing operations attributable to Key common shareholders of $213 million, or $.20 per common share, compared to $165 million, or $.16 per common share, for the third quarter of 2016, and $224 million, or $.27 per common share, for the fourth quarter of 2015. During the fourth quarter of 2016, Key incurred merger-related charges totaling $198 million, or $.11 per common share, compared to $207 million, or $.14 per common share, in the third quarter of 2016. Excluding merger-related charges, earnings per common share were $.31 for the fourth quarter of 2016 and $.30 for the third quarter of 2016. Merger-related charges were $6 million in the fourth quarter of 2015.

"Key’s fourth quarter results reflect continued momentum in our core businesses and the successful integration of the largest acquisition in our company’s history," said Chairman and Chief Executive Officer Beth Mooney. "Excluding merger-related charges, we generated positive operating leverage for the quarter, our return on tangible common equity was 12.5%, and our cash efficiency ratio declined to 63.3%, reflecting solid performance across Key’s businesses and early progress on merger synergies."

"We continued to see positive trends in the Community Bank and Corporate Bank this quarter, with both segments contributing to our overall revenue growth. Noninterest income increased as we continued to do more with our clients and see results from our investments," Mooney continued. "We had our strongest quarter ever in investment banking and debt placement fees, and for the full year generated $482 million in fees, marking another record year, with results up 8% from last year."

"The contribution from our First Niagara acquisition and quality of our new team members continue to exceed our expectations," added Mooney. "As we continue to realize cost savings and begin to see traction on revenue opportunities, we remain confident in reaching our financial targets."

Selected Financial Highlights
dollars in millions, except per share data
Change 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Income (loss) from continuing operations attributable to Key common shareholders
$
213
$
165
$
224
29.1
%
(4.9)%
Income (loss) from continuing operations attributable to Key common shareholders per common share -- assuming dilution .20
.16
.27
25.0
(25.9)
Return on average total assets from continuing operations
.69
% .55
% .97
%
N/A
N/A
Common Equity Tier 1 ratio (non-GAAP) (a), (b)
9.59
9.56
10.94
N/A
N/A
Book value at period end
$
12.58
$
12.78
$
12.51
(1.6) %
.6
%
Net interest margin (TE) from continuing operations
3.12
% 2.85
% 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) 12-31-16 ratio is estimated.
TE = Taxable Equivalent, N/A = Not Applicable
INCOME STATEMENT HIGHLIGHTS
Net interest income
dollars in millions
Change 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Net interest income (TE)
$ 948
$ 788
$ 610
20.3 %
55.4 %
Merger-related charges
--
(6)
--
N/M
N/M
Total net interest income excluding merger-related charges $ 948
$ 794
$ 610
19.4 %
55.4 %
TE = Taxable Equivalent

Fourth quarter 2016 net interest income included $92 million of purchase accounting accretion related to the acquisition of First Niagara, including $34 million related to refinement of third quarter 2016 purchase accounting estimates.

Taxable-equivalent net interest income was $948 million for the fourth quarter of 2016, and the net interest margin was 3.12%, compared to taxable-equivalent net interest income of $610 million and a net interest margin of 2.87% for the fourth quarter of 2015, reflecting the benefit from the First Niagara acquisition and ongoing business activity.

Compared to the third quarter of 2016, taxable-equivalent net interest income increased by $160 million, and the net interest margin increased by 27 basis points. The increases in both net interest income and the net interest margin reflect the benefit from a full-quarter impact of the First Niagara acquisition and refinement of third quarter 2016 purchase accounting estimates. The net interest margin also benefited from the redeployment of excess liquidity into investment securities.

Noninterest Income
dollars in millions
Change 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Trust and investment services income
$ 123
$
122
$ 105
.8
%
17.1
%
Investment banking and debt placement fees
157
156
127
.6
23.6
Service charges on deposit accounts
84
85
64
(1.2)
31.3
Operating lease income and other leasing gains
21
6
15
250.0
40.0
Corporate services income
61
51
55
19.6
10.9
Cards and payments income
69
66
47
4.5
46.8
Corporate-owned life insurance income
40
29
36
37.9
11.1
Consumer mortgage income
6
6
2
--
200.0
Mortgage servicing fees
20
15
15
33.3
33.3
Net gains (losses) from principal investing
4
5
--
(20.0)
N/M
Other income
33
8
19
312.5
73.7
Total noninterest income
$ 618
$
549
$ 485
12.6
%
27.4
%
Merger-related charges
9
(12)
--
N/M
N/M
Total noninterest income excluding merger-related charges $ 609
$
561
$ 485
8.6
%
25.6
%
N/M = Not Meaningful

Fourth quarter 2016 reported noninterest income includes a benefit of $9 million associated with merger-related charges that includes adjustments to purchase accounting, compared to charges of $12 million in the third quarter of 2016.

Key’s noninterest income was $618 million for the fourth quarter of 2016, compared to $485 million for the year-ago quarter. The increase was driven by the acquisition of First Niagara, as well as continued positive momentum in Key’s core businesses. Investment banking and debt placement fees, cards and payments income, service charges on deposit accounts, and other income all contributed to the growth.

Compared to the third quarter of 2016, noninterest income increased by $69 million. The increase included a full-quarter impact of the First Niagara acquisition as well as adjustments to purchase accounting that have been recorded as merger-related charges. Operating lease income and other leasing gains increased $15 million, with prior quarter results impacted by lease residual losses. Additionally, corporate-owned life insurance income increased $11 million, reflecting normal seasonality. Other income was impacted by merger-related charges, which contributed $19 million to the linked quarter increase.

Noninterest Expense
dollars in millions
Change 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Personnel expense
$ 648
$ 594
$ 429
9.1
%
51.0 %
Nonpersonnel expense
572
488
307
17.2
86.3
Total noninterest expense
$ 1,220
$ 1,082
$ 736
12.8
65.8
Merger-related charges
207
189
6
9.5
N/M
Total noninterest expense excluding merger-related charges $ 1,013
$ 893
$ 730
13.4 %
38.8 %
N/M = Not Meaningful

Key’s noninterest expense was $1.2 billion for the fourth quarter of 2016, which included $207 million of merger-related charges, as well as a pension settlement charge of $18 million. The merger-related charges were primarily made up of $80 million in personnel expense related to systems conversions, as well as fully-dedicated personnel for merger and integration efforts. The remaining $127 million of merger-related charges were nonpersonnel expense, largely recognized in net occupancy, computer processing, business services and professional fees, and marketing expense. In the third quarter of 2016, noninterest expense included $189 million of merger-related charges, while $6 million of merger-related charges were incurred in the fourth quarter of 2015.

Excluding merger-related charges, noninterest expense was $283 million higher than the fourth quarter of last year. The increase from the prior year, reflected in both personnel and nonpersonnel expense, was largely driven by the acquisition of First Niagara, as well as higher incentive and stock-based compensation. Additionally, Key incurred $14 million in an increased pension settlement charge, and intangible asset amortization increased $18 million.

Compared to the third quarter of 2016, excluding merger-related charges, noninterest expense increased by $120 million. The increase, reflected in both personnel and nonpersonnel expense, was largely driven by an extra month of impact from First Niagara, as well as a pension settlement charge of $18 million during the fourth quarter. Incentive and stock-based compensation also increased, primarily related to stock-based compensation plans, reflecting the impact of Key’s higher share price. In the fourth quarter of 2016, intangible asset amortization increased $14 million.

BALANCE SHEET HIGHLIGHTS

In the fourth quarter of 2016, Key had average assets of $136 billion compared to $96.1 billion in the fourth quarter of 2015 and $125.1 billion in the third quarter of 2016, primarily reflecting the acquisition of First Niagara.

Average securities available-for-sale and held-to-maturity securities totaled $29.3 billion in the fourth quarter of 2016, compared to $19.1 billion in the fourth quarter of 2015 and $24.2 billion in the third quarter of 2016. The increase compared to both the year-ago quarter and prior quarter primarily reflects the impact of the First Niagara acquisition and the redeployment of excess liquidity into the investment portfolio.

Average Loans
dollars in millions
Change 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Commercial, financial and agricultural (a) $
39,495
$
37,318
$
30,884
5.8
%
27.9
%
Other commercial loans
21,617
19,110
12,996
13.1
66.3
Home equity loans
12,812
11,968
10,418
7.1
23.0
Other consumer loans
11,436
9,301
5,278
23.0
116.7
Total loans
$
85,360
$
77,697
$
59,576
9.9
%
43.3
%
(a) Commercial, financial and agricultural average loan balances include $119 million, $107 million, and $87 million of assets from commercial credit cards at December 31, 2016, September 30, 2016, and December 31, 2015, respectively.

During the fourth quarter, Key adjusted the fair value mark on the First Niagara acquired loan portfolio from $686 million to $548 million.

Average loans were $85.4 billion for the fourth quarter of 2016, an increase of $25.8 billion compared to the fourth quarter of 2015, primarily reflecting the impact of the First Niagara acquisition and growth in commercial, financial and agricultural loans.

Compared to the third quarter of 2016, average loans increased by $7.7 billion, with the change reflecting the full-quarter impact of the First Niagara acquisition, September branch divestitures, and the exit of acquired non-relationship commercial loans. On a period-end basis, Key’s loan portfolio increased $510 million, driven by growth in commercial, financial and agricultural loans and improvement in the fair value mark on the acquired portfolio.

Average Deposits
dollars in millions
Change 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Non-time deposits (a)
$
94,414
$
85,683
$
66,270
10.2
%
42.5
%
Certificates of deposit ($100,000 or more)
5,428
4,204
2,150
29.1
152.5
Other time deposits
4,849
5,031
3,047
(3.6)
59.1
Total deposits
$
104,691
$
94,918
$
71,467
10.3
%
46.5
%
Cost of total deposits (a)
.22
% .21
% .15
%
N/A
N/A
(a)Excludes deposits in foreign office.
N/A = Not Applicable

Average deposits, excluding deposits in foreign office, totaled $104.7 billion for the fourth quarter of 2016, an increase of $33.2 billion compared to the year-ago quarter, primarily reflecting the acquisition of First Niagara and higher interest-bearing deposits resulting from core deposit growth in Key’s retail banking franchise and growth in escrow deposits from the commercial mortgage servicing business.

Compared to the third quarter of 2016, average deposits increased by $9.8 billion, reflecting the full-quarter impact of the First Niagara acquisition, core deposit growth in Key’s retail banking franchise, and deposit inflows from Key’s commercial clients.

ASSET QUALITY
dollars in millions
Change 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Net loan charge-offs
$
72
$
44
$
37
63.6
%
94.6 %
Net loan charge-offs to average total loans
.34
% .23
% .25
%
N/A
N/A
Nonperforming loans at period end (a)
$
625
$
723
$
387
(13.6)
61.5
Nonperforming assets at period end (a)
676
760
403
(11.1)
67.7
Allowance for loan and lease losses
858
865
796
(.8)
7.8
Allowance for loan and lease losses to nonperforming loans (a) 137.3
% 119.6
% 205.7
%
N/A
N/A
Provision for credit losses
$
66
$
59
$
45
11.9
%
46.7 %
(a) Nonperforming loan balances exclude $865 million, $959 million, and $11 million of purchased credit impaired loans at December 31, 2016, September 30, 2016, and December 31, 2015, respectively.
N/A = Not Applicable

Key’s provision for credit losses was $66 million for the fourth quarter of 2016, compared to $45 million for the fourth quarter of 2015 and $59 million for the third quarter of 2016. Key’s allowance for loan and lease losses was $858 million, or 1.00% of total period-end loans, at December 31, 2016, compared to 1.33% at December 31, 2015, and 1.01% at September 30, 2016.

Net loan charge-offs for the fourth quarter of 2016 totaled $72 million, or .34% of average total loans, reflecting regulatory guidance on consumer bankruptcies and conforming First Niagara charge-off policies to Key. These results compare to $37 million, or .25%, for the fourth quarter of 2015, and $44 million, or .23%, for the third quarter of 2016.

At December 31, 2016, Key’s nonperforming loans totaled $625 million, which represented .73% of period-end portfolio loans. These results compare to .65% at December 31, 2015, and .85% at September 30, 2016. Nonperforming assets at December 31, 2016, totaled $676 million, and represented .79% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .67% at December 31, 2015, and .89% at September 30, 2016.

CAPITAL

Key’s estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at December 31, 2016.

Capital Ratios
12/31/2016 9/30/2016
12/31/2015
Common Equity Tier 1 (a), (b)
9.59
%
9.56
%
10.94 %
Tier 1 risk-based capital (a)
10.95
10.53
11.35
Total risk based capital (a)
12.92
12.63
12.97
Tangible common equity to tangible assets (b) 8.09
8.27
9.98
Leverage (a)
9.89
10.22
10.72
(a) 12/31/2016 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 December 31, 2016, Key’s estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.59% and 10.95%, respectively. In addition, the tangible common equity ratio was 8.09% at December 31, 2016.

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 9.47% at December 31, 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 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Shares outstanding at beginning of period
1,082,055
842,703
835,285
28.4
%
29.5 %
Common shares repurchased
(4,380)
(5,240)
--
(16.4)
N/M
Shares reissued (returned) under employee benefit plans
1,642
4,857
466
(66.2)
252.4
Common shares issued to acquire First Niagara
(3)
239,735
--
N/M
N/M
Shares outstanding at end of period 1,079,314
1,082,055
835,751
(.3)%
29.1 %
N/M = Not Meaningful

During the fourth quarter of 2016, Key completed $68 million of common share repurchases, including repurchases to offset issuances of common shares under our employee compensation plans, in accordance with Key’s 2016 Capital Plan.

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 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Revenue from continuing operations (TE)
Key Community Bank
$
901
$
779
$
588
15.7
% 53.2
%
Key Corporate Bank
630
554
479
13.7
31.5
Other Segments
40
17
31
135.3
29.0
Total segments
1,571
1,350
1,098
16.4
43.1
Reconciling Items
(5)
(13)
(3)
N/M
N/M
Total
$
1,566
$
1,337
$
1,095
17.1
% 43.0
%
Income (loss) from continuing operations attributable to Key
Key Community Bank
$
115
$
104
$
70
10.6
% 64.3
%
Key Corporate Bank
221
159
142
39.0
55.6
Other Segments
29
16
25
81.3
16.0
Total segments
365
279
237
30.8
54.0
Reconciling Items (a)
(132)
(108)
(7)
N/M
N/M
Total
$
233
$
171
$
230
36.3
% 1.3
%
(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
Key Community Bank
dollars in millions
Change 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Summary of operations
Net interest income (TE)
$
628
$
530
$
388
18.5 %
61.9
%
Noninterest income
273
249
200
9.6
36.5
Total revenue (TE)
901
779
588
15.7
53.2
Provision for credit losses
44
37
20
18.9
120.0
Noninterest expense
673
577
456
16.6
47.6
Income (loss) before income taxes (TE) 184
165
112
11.5
64.3
Allocated income taxes (benefit) and TE adjustments
69
61
42
13.1
64.3
Net income (loss) attributable to Key
$
115
$
104
$
70
10.6 %
64.3
%
Average balances
Loans and leases
$
47,032
$
41,548
$
30,925
13.2 %
52.1
%
Total assets
50,940
44,219
33,056
15.2
54.1
Deposits
79,357
69,397
52,219
14.4
52.0
Assets under management at period end
$
36,592
$
36,752
$
33,983
(.4) %
7.7
%
TE = Taxable Equivalent
Additional Key Community Bank Data
dollars in millions
Change 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Noninterest income
Trust and investment services income
$
88
$
86
$
73
2.3
%
20.5
%
Service charges on deposit accounts
71
70
54
1.4
31.5
Cards and payments income
59
55
44
7.3
34.1
Other noninterest income
55
38
29
44.7
89.7
Total noninterest income
$
273
$
249
$
200
9.6
%
36.5
%
Average deposit balances
NOW and money market deposit accounts
$
44,368
$
38,417
$
28,862
15.5
%
53.7
%
Savings deposits
5,326
4,369
2,330
21.9
128.6
Certificates of deposit ($100,000 or more)
3,658
2,607
1,686
40.3
117.0
Other time deposits
4,836
4,943
3,045
(2.2)
58.8
Deposits in foreign office
--
--
208
N/M
N/M
Noninterest-bearing deposits
21,169
19,061
16,088
11.1
31.6
Total deposits
$
79,357
$
69,397
$
52,219
14.4
%
52.0
%
Home equity loans
Average balance
$
12,560
$
11,703
$
10,203
Combined weighted-average loan-to-value ratio (at date of origination)
71
% 70
% 71
%
Percent first lien positions
57
55
61
Other data
Branches
1,217
1,322
966
Automated teller machines
1,593
1,701
1,256
N/M = Not Meaningful

Key Community Bank Summary of Operations (4Q16 vs. 4Q15)

-- Positive operating leverage from prior year

-- Net income increased $45 million, or 64.3% from prior year

Average commercial, financial, and agricultural loans increased $4.9 billion, or 38.6% from the prior year

-- Average deposits increased $27.1 billion, or 52% from the prior year

Key Community Bank recorded net income attributable to Key of $115 million for the fourth quarter of 2016, compared to $70 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 $240 million, or 61.9%, from the fourth quarter of 2015. The increase is primarily attributable to the acquisition of First Niagara. Average loans and leases increased $16.1 billion, or 52.1%, largely driven by a $4.9 billion, or 38.6% increase in commercial, financial, and agricultural loans. Additionally, average deposits increased $27.1 billion, or 52% from one year ago.

Noninterest income increased $73 million, or 36.5%, from the year-ago quarter, with positive trends in cards and payments income and service charges on deposit accounts.

The provision for credit losses increased by $24 million, or 120%, from the fourth quarter of 2015, primarily related to the acquisition of First Niagara, which was partially offset by enhancements to the approach utilized to determine the consumer allowance for loan and lease losses in the fourth quarter of 2016. Net loan charge-offs increased $19 million, primarily related to the acquisition of First Niagara.

Noninterest expense increased by $217 million, or 47.6%, from the year-ago quarter, largely driven by the acquisition of First Niagara, as well as core business activity and investments. Personnel expense increased $73 million while non-personnel expense increased by $144 million, including higher intangible amortization expense and higher FDIC assessment expense.

Key Corporate Bank
dollars in millions
Change 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Summary of operations
Net interest income (TE)
$
332
$
276
$
224
20.3
%
48.2
%
Noninterest income
298
278
255
7.2
16.9
Total revenue (TE)
630
554
479
13.7
31.5
Provision for credit losses
21
25
26
(16.0)
(19.2)
Noninterest expense
325
307
257
5.9
26.5
Income (loss) before income taxes (TE) 284
222
196
27.9
44.9
Allocated income taxes and TE adjustments
63
63
51
--
23.5
Net income (loss)
221
159
145
39.0
52.4
Less: Net income (loss) attributable to noncontrolling interests
--
--
3
N/M
N/M
Net income (loss) attributable to Key
$
221
$
159
$
142
39.0
%
55.6
%
Average balances
Loans and leases
$
36,769
$
34,561
$
26,981
6.4
%
36.3
%
Loans held for sale
1,223
1,103
820
10.9
49.1
Total assets
43,209
40,581
32,639
6.5
32.4
Deposits
23,173
22,708
19,080
2.0
%
21.5
%
TE = Taxable Equivalent, N/M = Not Meaningful
Additional Key Corporate Bank Data
dollars in millions
Change 4Q16 vs.
4Q16
3Q16
4Q15
3Q16
4Q15
Noninterest income
Trust and investment services income
$ 35
$ 36
$ 32
(2.8)
%
9.4
%
Investment banking and debt placement fees
154
153
125
.7
23.2
Operating lease income and other leasing gains
19
10
13
90.0
46.2
Corporate services income
43
36
44
19.4
(2.3)
Service charges on deposit accounts
13
15
10
(13.3)
30.0
Cards and payments income
10
11
3
(9.1)
233.3
Payments and services income 66
62
57
6.5
15.8
Mortgage servicing fees
18
13
15
38.5
20.0
Other noninterest income
6
4
13
50.0
(53.8)
Total noninterest income
$ 298
$ 278
$ 255
7.2
%
16.9
%

Key Corporate Bank Summary of Operations (4Q16 vs. 4Q15)

-- Record quarter and year for investment banking and debt placement fees

-- Net income increased $79 million, or 55.6% from the prior year

-- Average loans and leases increased $9.8 billion, or 36.3% from the prior year

-- Average deposits increased $4.1 billion, or 21.5% from the prior year

Key Corporate Bank recorded net income attributable to Key of $221 million for the fourth quarter of 2016, compared to $142 million for the same period one year ago, reflecting the impact of the First Niagara acquisition as well as positive trends in Key’s core businesses.

Taxable-equivalent net interest income increased by $108 million, or 48.2%, compared to the fourth quarter of 2015. Average loan and lease balances increased $9.8 billion, or 36.3%, from the year-ago quarter, primarily driven by the First Niagara acquisition as well as growth in commercial, financial and agricultural loans. Average deposit balances increased $4.1 billion, or 21.5%, from the year-ago quarter, mostly driven by the First Niagara acquisition, as well as growth in commercial escrow deposits.

Noninterest income increased $43 million, or 16.9%, from the prior year. This growth was mostly due to investment banking and debt placement fees, which increased $29 million, or 23.2%, cards and payments income which increased $7 million, and operating lease income and other leasing gains which increased $6 million.

The provision for credit losses decreased $5 million, or 19.2%, compared to the fourth quarter of 2015.

Noninterest expense increased by $68 million, or 26.5%, from the fourth quarter of 2015. 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.

Key Corporate Bank also continued to benefit from a higher volume of low income housing and energy tax credits.

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 $29 million for the fourth quarter of 2016, compared to $25 million for the same period last year, largely due to higher net gains from principal investing.

*****

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 $136.5 billion at December 31, 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 Thursday, January 19, 2017. An audio replay of the call will be available through January 29, 2017.

Financial Highlights
(dollars in millions, except per share amounts)
Three months ended
12/31/2016
9/30/2016
12/31/2015
Summary of operations
Net interest income (TE)
$
948
$
788
$
610
Noninterest income
618
549
485
Total revenue (TE)
1,566
1,337
1,095
Provision for credit losses
66
59
45
Noninterest expense
1,220
1,082
736
Income (loss) from continuing operations attributable to Key
233
171
230
Income (loss) from discontinued operations, net of taxes (a)
(4)
1
(4)
Net income (loss) attributable to Key
229
172
226
Income (loss) from continuing operations attributable to Key common shareholders
213
165
224
Income (loss) from discontinued operations, net of taxes (a)
(4)
1
(4)
Net income (loss) attributable to Key common shareholders
209
166
220
Per common share
Income (loss) from continuing operations attributable to Key common shareholders
$
.20
$
.17
$
.27
Income (loss) from discontinued operations, net of taxes (a)
--
--
(.01)
Net income (loss) attributable to Key common shareholders (b)
.20
.17
.27
Income (loss) from continuing operations attributable to Key common shareholders -- assuming dilution .20
.16
.27
Income (loss) from discontinued operations, net of taxes -- assuming dilution (a)
--
--
(.01)
Net income (loss) attributable to Key common shareholders -- assuming dilution (b)
.19
.17
.26
Cash dividends declared per common share
.085
.085
.075
Book value at period end
12.58
12.78
12.51
Tangible book value at period end
9.99
10.14
11.22
Market price at period end
18.27
12.17
13.19
Performance ratios
From continuing operations:
Return on average total assets
.69
%
.55
%
.97
%
Return on average common equity
6.22
5.09
8.51
Return on average tangible common equity (c)
7.88
6.16
9.50
Net interest margin (TE)
3.12
2.85
2.87
Cash efficiency ratio (c)
76.2
80.0
66.4
From consolidated operations:
Return on average total assets
.67
%
.55
%
.93
%
Return on average common equity
6.10
5.12
8.36
Return on average tangible common equity (c)
7.73
6.20
9.33
Net interest margin (TE)
3.09
2.83
2.84
Loan to deposit (d)
85.2
84.7
87.8
Capital ratios at period end
Key shareholders’ equity to assets
11.17
%
11.04
%
11.30
%
Key common shareholders’ equity to assets
9.95
10.18
10.99
Tangible common equity to tangible assets (c)
8.09
8.27
9.98
Common Equity Tier 1 (c), (e)
9.59
9.56
10.94
Tier 1 risk-based capital (e)
10.95
10.53
11.35
Total risk-based capital (e)
12.92
12.63
12.97
Leverage (e)
9.89
10.22
10.72
Asset quality -- from continuing operations
Net loan charge-offs
$
72
$
44
$
37
Net loan charge-offs to average loans
.34
%
.23
%
.25
%
Allowance for loan and lease losses
$
858
$
865
$
796
Allowance for credit losses
913
918
852
Allowance for loan and lease losses to period-end loans
1.00
%
1.01
%
1.33
%
Allowance for credit losses to period-end loans
1.06
1.07
1.42
Allowance for loan and lease losses to nonperforming loans (f)
137.3
119.6
205.7
Allowance for credit losses to nonperforming loans (f)
146.1
127.0
220.2
Nonperforming loans at period end (f)
$
625
$
723
$
387
Nonperforming assets at period end (f)
676
760
403
Nonperforming loans to period-end portfolio loans (f)
.73
%
.85
%
.65
%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (f)
.79
.89
.67
Trust and brokerage assets
Assets under management
$
36,592
$
36,752
$
33,983
Nonmanaged and brokerage assets
45,358
45,338
47,681
Other data
Average full-time equivalent employees
18,849
17,079
13,359
Branches
1,217
1,322
966
Taxable-equivalent adjustment
$
10
$
8
$
8
Financial Highlights (continued)
(dollars in millions, except per share amounts)
Twelve months ended
12/31/2016
12/31/2015
Summary of operations
Net interest income (TE)
$
2,953
$
2,348
Noninterest income
2,071
1,880
Total revenue (TE)
5,024
4,256
Provision for credit losses
266
166
Noninterest expense
3,756
2,840
Income (loss) from continuing operations attributable to Key
790
915
Income (loss) from discontinued operations, net of taxes (a)
1
1
Net income (loss) attributable to Key
791
916
Income (loss) from continuing operations attributable to Key common shareholders
$
753
$
892
Income (loss) from discontinued operations, net of taxes (a)
1
1
Net income (loss) attributable to Key common shareholders
754
893
Per common share
Income (loss) from continuing operations attributable to Key common shareholders
$
.81
$
1.06
Income (loss) from discontinued operations, net of taxes (a)
--
--
Net income (loss) attributable to Key common shareholders (b)
.81
1.06
Income (loss) from continuing operations attributable to Key common shareholders -- assuming dilution .80
1.05
Income (loss) from discontinued operations, net of taxes -- assuming dilution (a)
--
--
Net income (loss) attributable to Key common shareholders -- assuming dilution (b)
.80
1.05
Cash dividends paid
.330
.290
Performance ratios
From continuing operations:
Return on average total assets
.70
%
.99
%
Return on average common equity
6.26
8.63
Return on average tangible common equity (c)
7.39
9.64
Net interest margin (TE)
2.92
2.88
Cash efficiency ratio (c)
73.7
65.9
From consolidated operations:
Return on average total assets
.69
%
.97
%
Return on average common equity
6.27
8.64
Return on average tangible common equity(c)
7.40
9.65
Net interest margin (TE)
2.91
2.85
Asset quality -- from continuing operations
Net loan charge-offs
205
142
Net loan charge-offs to average total loans
.29
%
.24
%
Other data
Average full-time equivalent employees
15,700
13,483
Taxable-equivalent adjustment
34
28
(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)
12/31/2016 ratio is estimated.
(f)
Nonperforming loan balances exclude, $865 million, $959 million, and $11 million of purchased credit impaired loans at December 31, 2016, September 30, 2016, and December 31, 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 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 merger-related charges, 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, 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.

Three months ended
12/31/2016
9/30/2016
12/31/2015
Tangible common equity to tangible assets at period end
Key shareholders’ equity (GAAP)
$
15,240
$
14,996
$
10,746
Less:
Intangible assets
(a)
2,788
2,855
1,080
Preferred Stock
(b)
1,640
1,150
281
Tangible common equity (non-GAAP)
$
10,812
$
10,991
$
9,385
Total assets (GAAP)
$
136,453
$
135,805
$
95,131
Less:
Intangible assets
(a)
2,788
2,855
1,080
Tangible assets (non-GAAP)
$
133,665
$
132,950
$
94,051
Tangible common equity to tangible assets ratio (non-GAAP)
8.09
%
8.27
%
9.98
%
Common Equity Tier 1 at period end
Key shareholders’ equity (GAAP)
$
15,240
$
14,996
$
10,746
Less:
Preferred Stock (b)
1,640
1,150
281
Common Equity Tier 1 capital before adjustments and deductions
13,600
13,846
10,465
Less:
Goodwill, net of deferred taxes
2,416
2,450
1,034
Intangible assets, net of deferred taxes
159
216
26
Deferred tax assets
6
6
1
Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes
(185)
101
(58)
Accumulated gains (losses) on cash flow hedges, net of deferred taxes
(53)
39
(20)
Amounts in accumulated other comprehensive income (loss) attributed to
pension and postretirement benefit costs, net of deferred taxes (339)
(359)
(365)
Total Common Equity Tier 1 capital
(c)
$
11,596
$
11,393
$
9,847
Net risk-weighted assets (regulatory)
(c)
$
120,887
$
119,120
$
89,980
Common Equity Tier 1 ratio (non-GAAP)
(c)
9.59
%
9.56
%
10.94
%
Pre-provision net revenue
Net interest income (GAAP)
$
938
$
780
$
602
Plus:
Taxable-equivalent adjustment
10
8
8
Noninterest income
618
549
485
Less:
Noninterest expense
1,220
1,082
736
Pre-provision net revenue from continuing operations (non-GAAP)
$
346
$
255
$
359
GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
Three months ended
12/31/2016
9/30/2016
12/31/2015
Average tangible common equity
Average Key shareholders’ equity (GAAP)
$
14,901
$
13,552
$
10,731
Less:
Intangible assets (average) (d)
2,874
2,255
1,082
Preferred Stock (average)
1,274
648
290
Average tangible common equity (non-GAAP)
$
10,753
$
10,649
$
9,359
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)
$
213
$
165
$
224
Average tangible common equity (non-GAAP)
10,753
10,649
9,359
Return on average tangible common equity from continuing operations (non-GAAP)
7.88
%
6.16
%
9.50
%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP)
$
209
$
166
$
220
Average tangible common equity (non-GAAP)
10,753
10,649
9,359
Return on average tangible common equity consolidated (non-GAAP)
7.73
%
6.20
%
9.33
%
Return on average tangible common equity from continuing operations excluding merger-related charges
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)
$
213
$
165
$
224
Merger-related charges, after tax
124
132
4
Net income (loss) from continuing operations attributable to Key common shareholders excluding
merger-related charges (non-GAAP)
$
337
$
297
$
228
Average tangible common equity (non-GAAP)
$
10,753
$
10,649
$
9,359
Return on average tangible common equity from continuing operations excluding merger-related
charges (non-GAAP)
12.47
%
11.10
%
9.67
%
Return on average tangible common equity consolidated excluding merger-related charges
Net income (loss) attributable to Key common shareholders (GAAP)
$
209
$
166
$
220
Merger-related charges, after tax
124
132
4
Net income (loss) attributable to Key common shareholders excluding merger-related charges (non-GAAP)
$
333
$
298
$
224
Average tangible common equity (non-GAAP)
$
10,753
$
10,649
$
9,359
Return on average tangible common equity consolidated excluding merger-related charges (non-GAAP)
12.32
%
11.13
%
9.50
%
Noninterest expense excluding merger-related charges
Noninterest expense (GAAP)
$
1,220
$
1,082
$
736
Less:
Merger-related charges
207
189
6
Noninterest expense excluding merger-related charges (non-GAAP)
$
1,013
$
893
$
730
Earnings per common share (EPS) excluding merger-related charges
EPS from continuing operations attributable to Key common shareholders
-- assuming dilution
$
.20
$
.16
$
.27
Add:
EPS impact of merger-related charges
.11
.14
--
EPS from continuing operations attributable to Key common shareholders
excluding merger-related charges (non-GAAP)
$
.31
$
.30
$
.27
Cash efficiency ratio
Noninterest expense (GAAP)
$
1,220
$
1,082
$
736
Less:
Intangible asset amortization
27
13
9
Adjusted noninterest expense (non-GAAP)
1,193
1,069
727
Less:
Merger-related charges
207
189
6
Adjusted noninterest expense excluding merger-related charges (non-GAAP)
$
986
$
880
$
721
Net interest income (GAAP)
$
938
$
780
$
602
Plus:
Taxable-equivalent adjustment
10
8
8
Noninterest income
618
549
485
Total taxable-equivalent revenue (non-GAAP)
1,566
1,337
1,095
Add:
Merger-related charges
(9)
18
--
Adjusted noninterest income excluding merger-related charges (non-GAAP)
$
1,557
$
1,355
$
1,095
Cash efficiency ratio (non-GAAP)
76.2
%
80.0
%
66.4
%
Cash efficiency ratio excluding merger-related charges (non-GAAP)
63.3
%
64.9
%
65.8
%
GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
Three months ended
12/31/2016
9/30/2016
12/31/2015
Return on average total assets from continuing operations excluding merger-related charges
Income from continuing operations attributable to Key (GAAP)
$
233
$
171
$
230
Add:
Merger-related charges, after tax
124
132
4
Income from continuing operations attributable to Key excluding merger-related
charges, after tax (non-GAAP)
$
357
$
303
$
234
Average total assets from continuing operations (GAAP)
$
134,428
$
123,469
$
94,117
Return on average total assets from continuing operations excluding merger-related
charges (non-GAAP)
1.06
%
.98
%
.99
%
Three months ended
12/31/2016
Common Equity Tier 1 under the Regulatory Capital Rules ("RCR") (estimates)
Common Equity Tier 1 under current RCR
$
11,596
Adjustments from current RCR to the fully phased-in RCR:
Deferred tax assets and other intangible assets (e)
(110)
Common Equity Tier 1 anticipated under the fully phased-in RCR (f)
$
11,486
Net risk-weighted assets under current RCR
$
120,887
Adjustments from current RCR to the fully phased-in RCR:
Mortgage servicing assets (g)
576
Volcker funds
(185)
All other assets
(2)
Total risk-weighted assets anticipated under the fully phased-in RCR (f)
$
121,276
Common Equity Tier 1 ratio under the fully phased-in RCR (f)
9.47
%
GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
Twelve months ended
12/31/2016
12/31/2015
Pre-provision net revenue excluding merger-related charges
Net interest income (GAAP)
$
2,919
$
2,348
Plus:
Taxable-equivalent adjustment
34
28
Noninterest income (GAAP)
2,071
1,880
Less:
Noninterest expense (GAAP)
3,756
2,840
Pre-provision net revenue from continuing operations (non-GAAP)
$
1,268
$
1,416
Less:
Merger-related charges
474
6
Pre-provision net revenue from continuing operations excluding merger-related charges (non-GAAP)
$
1,742
$
1,422
Average tangible common equity
Average Key shareholders’ equity (GAAP)
$
12,647
$
10,626
Less:
Intangible assets (average) (h)
1,825
1,085
Preferred Stock (average)
627
290
Average tangible common equity (non-GAAP)
$
10,195
$
9,251
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)
$
753
$
892
Average tangible common equity (non-GAAP)
10,195
9,251
Return on average tangible common equity from continuing operations (non-GAAP)
7.39
%
9.64
%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP)
$
754
$
893
Average tangible common equity (non-GAAP)
10,195
9,251
Return on average tangible common equity consolidated (non-GAAP)
7.40
%
9.65
%
Cash efficiency ratio
Noninterest expense (GAAP)
$
3,756
$
2,840
Less:
Intangible asset amortization (GAAP)
55
36
Adjusted noninterest expense (non-GAAP)
3,701
2,804
Less:
Merger-related charges
465
6
Adjusted noninterest expense excluding merger-related charges (non-GAAP)
$
3,236
$
2,798
Net interest income (GAAP)
$
2,919
$
2,348
Plus:
Taxable-equivalent adjustment
34
28
Noninterest income (GAAP)
2,071
1,880
Total taxable-equivalent revenue (non-GAAP)
5,024
4,256
Plus:
Merger-related charges
9
--
Adjusted noninterest income excluding merger-related charges (non-GAAP)
$
5,033
$
4,256
Cash efficiency ratio (non-GAAP)
73.7
%
65.9
%
Cash efficiency ratio excluding merger-related charges (non-GAAP)
64.3
%
65.9
%
Return on average total assets from continuing operations excluding merger-related charges
Income from continuing operations attributable to Key (GAAP)
$
790
$
915
Plus:
Merger-related charges, after tax
299
4
Income from continuing operations attributable to Key excluding merger-related
charges, after tax (non-GAAP)
$
1,089
$
919
Average total assets from continuing operations (GAAP)
$
112,537
$
94,117
Return on average total assets from continuing operations excluding merger-related
charges (non-GAAP)
.97
%
.98
%
(a)
For the three months ended December 31, 2016, September 30, 2016, and December 31, 2015, intangible assets exclude $42 million, $51 million, and $45 million, respectively, of period-end purchased credit card receivables.
(b)
Net of capital surplus.
(c)
12/31/16 amount is estimated.
(d)
For the three months ended December 31, 2016, September 30, 2016, and December 31, 2015, average intangible assets exclude $46 million, $47 million, and $47 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 twelve months ended December 31, 2016, and December 31, 2015, average intangible assets exclude $43 million and $55 million, respectively, of average purchased credit card receivables.
GAAP = U.S. generally accepted accounting principles
Consolidated Balance Sheets
(dollars in millions)
12/31/2016
9/30/2016
12/31/2015
Assets
Loans
$
86,038
$
85,528
$
59,876
Loans held for sale
1,104
1,137
639
Securities available for sale
20,212
20,540
14,218
Held-to-maturity securities
10,232
8,995
4,897
Trading account assets
867
926
788
Short-term investments
2,775
3,216
2,707
Other investments
738
747
655
Total earning assets
121,966
121,089
83,780
Allowance for loan and lease losses
(858)
(865)
(796)
Cash and due from banks
677
749
607
Premises and equipment
978
1,023
779
Operating lease assets
540
430
340
Goodwill
2,446
2,480
1,060
Other intangible assets
384
426
65
Corporate-owned life insurance
4,068
4,035
3,541
Derivative assets
803
1,304
619
Accrued income and other assets
3,864
3,480
3,290
Discontinued assets
1,585
1,654
1,846
Total assets
$
136,453
$
135,805
$
95,131
Liabilities
Deposits in domestic offices:
NOW and money market deposit accounts
$
54,590
$
56,432
$
37,089
Savings deposits
6,491
5,335
2,341
Certificates of deposit ($100,000 or more) 5,483
4,601
2,392
Other time deposits
4,698
5,793
3,127
Total interest-bearing deposits
71,262
72,161
44,949
Noninterest-bearing deposits
32,825
32,024
26,097
Deposits in foreign office -- interest-bearing
--
--
--
Total deposits
104,087
104,185
71,046
Federal funds purchased and securities sold under repurchase agreements
1,502
602
372
Bank notes and other short-term borrowings
808
809
533
Derivative liabilities
636
850
632
Accrued expense and other liabilities
1,796
1,739
1,605
Long-term debt
12,384
12,622
10,184
Total liabilities
121,213
120,807
84,372
Equity
Preferred stock
1,665
1,165
290
Common shares
1,257
1,257
1,017
Capital surplus
6,385
6,359
3,922
Retained earnings
9,378
9,260
8,922
Treasury stock, at cost
(2,904)
(2,863)
(3,000)
Accumulated other comprehensive income (loss)
(541)
(182)
(405)
Key shareholders’ equity
15,240
14,996
10,746
Noncontrolling interests
--
2
13
Total equity
15,240
14,998
10,759
Total liabilities and equity
$
136,453
$
135,805
$
95,131
Common shares outstanding (000)
1,079,314
1,082,055
835,751
Consolidated Statements of Income
(dollars in millions, except per share amounts)
Three months ended
Twelve months ended
12/31/2016
9/30/2016
12/31/2015
12/31/2016
12/31/2015
Interest income
Loans
$
898
$
746
$
552
$
2,773
$
2,149
Loans held for sale
11
10
8
34
37
Securities available for sale
92
88
76
329
293
Held-to-maturity securities
44
30
24
122
96
Trading account assets
6
4
6
23
21
Short-term investments
5
7
3
22
8
Other investments
6
5
4
16
18
Total interest income
1,062
890
673
3,319
2,622
Interest expense
Deposits
57
49
26
171
105
Federal funds purchased and securities sold under repurchase agreements 1
--
--
1
--
Bank notes and other short-term borrowings
3
2
3
10
9
Long-term debt
63
59
42
218
160
Total interest expense
124
110
71
400
274
Net interest income
938
780
602
2,919
2,348
Provision for credit losses
66
59
45
266
166
Net interest income after provision for credit losses
872
721
557
2,653
2,182
Noninterest income
Trust and investment services income
123
122
105
464
433
Investment banking and debt placement fees
157
156
127
482
445
Service charges on deposit accounts
84
85
64
302
256
Operating lease income and other leasing gains
21
6
15
62
73
Corporate services income
61
51
55
215
198
Cards and payments income
69
66
47
233
183
Corporate-owned life insurance income
40
29
36
125
127
Consumer mortgage income
6
6
2
17
12
Mortgage servicing fees
20
15
15
57
48
Net gains (losses) from principal investing
4
5
--
20
51
Other income
(a), (b)
33
8
19
94
54
Total noninterest income
618
549
485
2,071
1,880
Noninterest expense
Personnel
648
594
429
2,073
1,652
Net occupancy
112
73
64
305
255
Computer processing
97
70
43
255
164
Business services and professional fees
78
76
44
235
159
Equipment
30
26
22
98
88
Operating lease expense
17
15
13
59
47
Marketing
35
32
17
101
57
FDIC assessment
23
21
8
61
32
Intangible asset amortization
27
13
9
55
36
OREO expense, net
3
3
1
9
6
Other expense
150
159
86
505
344
Total noninterest expense
1,220
1,082
736
3,756
2,840
Income (loss) from continuing operations before income taxes
270
188
306
968
1,222
Income taxes
38
16
73
179
303
Income (loss) from continuing operations
232
172
233
789
919
Income (loss) from discontinued operations, net of taxes
(4)
1
(4)
1
1
Net income (loss)
228
173
229
790
920
Less:
Net income (loss) attributable to noncontrolling interests
(1)
1
3
(1)
4
Net income (loss) attributable to Key
$
229
$
172
$
226
$
791
$
916
Income (loss) from continuing operations attributable to Key common shareholders
$
213
$
165
$
224
$
753
$
892
Net income (loss) attributable to Key common shareholders
209
166
220
754
893
Per common share
Income (loss) from continuing operations attributable to Key common shareholders
$
.20
$
.17
$
.27
$
.81
$
1.06
Income (loss) from discontinued operations, net of taxes
--
--
(.01)
--
--
Net income (loss) attributable to Key common shareholders
(c)
.20
.17
.27
.81
1.06
Per common share -- assuming dilution
Income (loss) from continuing operations attributable to Key common shareholders
$
.20
$
.16
$
.27
$
.80
$
1.05
Income (loss) from discontinued operations, net of taxes
--
--
(.01)
--
--
Net income (loss) attributable to Key common shareholders
(c)
.19
.17
.26
.80
1.05
Cash dividends declared per common share
$
.085
$
.085
$
.075
$
.33
$
.29
Weighted-average common shares outstanding (000)
1,067,771
982,080
828,206
927,816
836,846
Effect of common share options and other stock awards
15,946
12,580
7,733
10,720
7,643
Weighted-average common shares and potential common shares outstanding (000)
(d)
1,083,717
994,660
835,939
938,536
844,489
(a)
For the three months ended December 31, 2016, net securities gains totaled $6 million. For the three months ended September 30, 2016, net securities losses totaled $6 million. For the three months ended December 31, 2015, net securities gains totaled less than $1 million. For the three months ended December 31, 2016, September 30, 2016, and December 31,2015, Key did not have any impairment losses related to securities.
(b)
For the twelve months ended December 31, 2016 and December 31, 2015, net securities gains (losses) totaled less than $1 million. For the twelve months ended December 31, 2016, and December 31,2015, Key did not have any impairment losses related to securities.
(c)
Earnings per share may not foot due to rounding.
(d)
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)
Fourth Quarter 2016
Third Quarter 2016
Fourth 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)
$
39,495
$
365
3.68
%
$
37,318
$
317
3.38
%
%
$
30,884
$
253
3.25
%
Real estate -- commercial mortgage
14,771
168
4.50
12,879
126
3.91
8,019
75
3.70
Real estate -- construction
2,222
37
6.72
1,723
21
4.67
1,067
10
3.65
Commercial lease financing
4,624
50
4.34
4,508
38
3.33
3,910
36
3.68
Total commercial loans
61,112
620
4.04
56,428
502
3.54
43,880
374
3.38
Real estate -- residential mortgage
5,554
57
4.17
4,453
45
3.96
2,252
24
4.18
Home equity loans
12,812
129
3.99
11,968
122
4.07
10,418
105
3.97
Consumer direct loans
1,785
31
6.84
1,666
30
7.20
1,605
26
6.50
Credit cards
1,088
29
10.78
996
27
10.80
780
21
10.66
Consumer indirect loans
3,009
42
5.50
2,186
28
5.23
641
10
6.45
Total consumer loans
24,248
288
4.73
21,269
252
4.73
15,696
186
4.69
Total loans
85,360
908
4.24
77,697
754
3.86
59,576
560
3.72
Loans held for sale
1,323
11
3.39
1,152
10
3.48
841
8
4.13
Securities available for sale (b), (e)
20,145
92
1.82
17,972
88
1.99
14,168
76
2.13
Held-to-maturity securities (b)
9,121
44
1.95
6,250
30
1.86
4,908
24
1.99
Trading account assets
892
6
2.54
860
4
2.12
822
6
3.31
Short-term investments
3,717
5
.49
5,911
7
.48
3,483
3
.28
Other investments (e)
741
6
3.23
717
5
2.74
674
4
2.71
Total earning assets
121,299
1,072
3.52
110,559
898
3.24
84,472
681
3.21
Allowance for loan and lease losses
(855)
(847)
(790)
Accrued income and other assets
13,984
13,757
10,435
Discontinued assets
1,610
1,676
1,947
Total assets
$
136,038
$
125,145
$
96,064
Liabilities
NOW and money market deposit accounts
$
55,444
31
.22
$
51,318
25
.20
$
37,640
14
.15
Savings deposits
6,546
2
.10
4,521
1
.07
2,338
--
.02
Certificates of deposit ($100,000 or more) (f)
5,428
15
1.11
4,204
12
1.15
2,150
7
1.31
Other time deposits
4,849
9
.77
5,031
11
.85
3,047
5
.72
Deposits in foreign office
--
--
--
--
--
--
354
--
.24
Total interest-bearing deposits
72,267
57
.32
65,074
49
.30
45,529
26
.24
Federal funds purchased and securities
592
1
.11
578
--
.16
392
--
.02
sold under repurchase agreements
Bank notes and other short-term borrowings
934
3
1.11
1,186
2
.91
556
3
1.65
Long-term debt (f), (g)
10,914
63
2.38
10,415
59
2.31
8,316
42
2.05
Total interest-bearing liabilities 84,707
124
.58
77,253
110
.57
54,793
71
.52
Noninterest-bearing deposits
32,424
29,844
26,292
Accrued expense and other liabilities
2,394
2,818
2,289
Discontinued liabilities (g)
1,610
1,676
1,947
Total liabilities
121,135
111,591
85,321
Equity
Key shareholders’ equity
14,901
13,552
10,731
Noncontrolling interests
2
2
12
Total equity
14,903
13,554
10,743
Total liabilities and equity
$
136,038
$
125,145
$
96,064
Interest rate spread (TE)
2.94
%
2.67
%
2.69
%
Net interest income (TE) and net interest margin (TE)
948
3.12
%
788
2.85
%
610
2.87
%
TE adjustment (b)
10
8
8
Net interest income, GAAP basis
$
938
$
780
$
602
(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 $119 million, $107 million, and $87 million of assets from commercial credit cards for the three months ended December 31, 2016, September 30, 2016, and December 31, 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)
Twelve months ended December 31, 2016
Twelve months ended December 31, 2015
Average
Average
Balance
Interest (a) Yield/Rate (a)
Balance
Interest (a) Yield/ Rate (a)
Assets
Loans: (b), (c)
Commercial, financial and agricultural
(d)
$
35,276
$
1,215
3.45
%
$
29,658
$
953
3.21
%
Real estate -- commercial mortgage
11,063
451
4.07
8,020
295
3.68
Real estate -- construction
1,460
76
5.22
1,143
43
3.73
Commercial lease financing
4,261
161
3.78
3,976
143
3.60
Total commercial loans
52,060
1,903
3.66
42,797
1,434
3.35
Real estate -- residential mortgage
3,632
148
4.09
2,244
95
4.21
Home equity loans
11,286
456
4.04
10,503
418
3.98
Consumer direct loans
1,661
113
6.79
1,580
103
6.54
Credit cards
916
98
10.73
752
81
10.76
Consumer indirect loans
1,593
89
5.58
718
46
6.43
Total consumer loans
19,088
904
4.74
15,797
743
4.70
Total loans
71,148
2,807
3.95
58,594
2,177
3.71
Loans held for sale
979
34
3.51
959
37
3.85
Securities available for sale (b), (e)
16,661
329
1.98
13,720
293
2.14
Held-to-maturity securities (b)
6,275
122
1.94
4,936
96
1.95
Trading account assets
884
23
2.59
761
21
2.80
Short-term investments
4,656
22
.47
2,843
8
.27
Other investments (e)
679
16
2.37
706
18
2.63
Total earning assets
101,282
3,353
3.31
82,519
2,650
3.21
Allowance for loan and lease losses
(835)
(791)
Accrued income and other assets
12,090
10,298
Discontinued assets
1,707
2,132
Total assets
$
114,244
$
94,158
Liabilities
NOW and money market deposit accounts
$
46,079
87
.19
$
36,258
56
.15
Savings deposits
3,957
3
.07
2,372
--
.02
Certificates of deposit ($100,000 or more) (f)
3,911
48
1.22
2,041
26
1.28
Other time deposits
4,088
33
.81
3,115
22
.71
Deposits in foreign office
--
--
--
489
1
.23
Total interest-bearing deposits
58,035
171
.30
44,275
105
.24
Federal funds purchased and securities
487
1
.10
632
--
.04
sold under repurchase agreements
Bank notes and other short-term borrowings
852
10
1.18
572
9
1.52
Long-term debt (f), (g)
9,802
218
2.29
7,332
160
2.24
Total interest-bearing liabilities 69,176
400
.58
52,811
274
.52
Noninterest-bearing deposits
28,317
26,355
Accrued expense and other liabilities
2,393
2,222
Discontinued liabilities (g)
1,706
2,132
Total liabilities
101,592
83,520
Equity
Key shareholders’ equity
12,647
10,626
Noncontrolling interests
5
12
Total equity
12,652
10,638
Total liabilities and equity
$
114,244
$
94,158
Interest rate spread (TE)
2.73
%
2.69
%
Net interest income (TE) and net interest margin (TE)
2,953
2.92
%
2,376
2.88
%
TE adjustment (b)
34
28
Net interest income, GAAP basis
$
2,919
$
2,348
(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 $99 million and $88 million of assets from commercial credit cards for the twelve months ended December 31, 2016, and December 31, 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
Twelve months ended
12/31/2016
9/30/2016
12/31/2015
12/31/2016
12/31/2015
Personnel(a)
$
648
$
594
$
429
$
2,073
$
1,652
Net occupancy
112
73
64
305
255
Computer processing
97
70
43
255
164
Business services and professional fees
78
76
44
235
159
Equipment
30
26
22
98
88
Operating lease expense
17
15
13
59
47
Marketing
35
32
17
101
57
FDIC assessment
23
21
8
61
32
Intangible asset amortization
27
13
9
55
36
OREO expense, net
3
3
1
9
6
Other expense
150
159
86
505
344
Total noninterest expense
$
1,220
$
1,082
$
736
$
3,756
$
2,840
Merger-related charges(b)
207
189
6
465
6
Total noninterest expense excluding merger-related charges $
1,013
$
893
$
730
$
3,291
$
2,834
Average full-time equivalent employees(c)
18,849
17,079
13,359
15,700
13,483
(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.
Personnel Expense
(in millions)
Three months ended
Twelve months ended
12/31/2016
9/30/2016 12/31/2015
12/31/2016
12/31/2015
Salaries and contract labor
$
352
$
329
$
244
$
1,191
$
958
Incentive and stock-based compensation
185
162
115
537
410
Employee benefits
98
73
64
297
266
Severance
13
30
6
48
18
Total personnel expense
$
648
$
594
$
429
$
2,073
$
1,652
Merger-related charges
80
97
--
228
--
Total personnel expense excluding merger-related charges $
568
$
497
$
429
$
1,845
$
1,652
Merger-Related Charges
(in millions)
Three months ended
Twelve months ended
12/31/2016
9/30/2016 12/31/2015
12/31/2016
12/31/2015
Net interest income
--
$
(6)
--
$
(6)
--
Operating lease income and other leasing gains
--
(2)
--
(2)
--
Other income
$
9
(10)
--
(1)
--
Noninterest income
9
(12)
--
(3)
--
Personnel (a)
80
97
--
228
--
Net occupancy
29
--
--
29
--
Business services and professional fees
22
32
$
5
66
$
5
Computer processing
38
15
--
53
--
Marketing
13
9
--
26
--
Other nonpersonnel expense
25
36
1
63
1
Noninterest expense
207
189
6
465
6
Total merger-related charges
$
198
$
207
$
6
$
474
$
6
(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 12/31/16 vs.
12/31/2016
9/30/2016
12/31/2015
9/30/201612/31/2015
Commercial, financial and agricultural
(a)
$
39,768
$
39,433
$
31,240
.8
% 27.3
%
Commercial real estate:
Commercial mortgage
15,111
14,979
7,959
.9
89.9
Construction
2,345
2,189
1,053
7.1
122.7
Total commercial real estate loans 17,456
17,168
9,012
1.7
93.7
Commercial lease financing
(b)
4,685
4,783
4,020
(2.0)
16.5
Total commercial loans
61,909
61,384
44,272
.9
39.8
Residential -- prime loans:
Real estate -- residential mortgage5,547
5,509
2,242
.7
147.4
Home equity loans
12,674
12,757
10,335
(.7)
22.6
Total residential -- prime loans
18,221
18,266
12,577
(.2)
44.9
Consumer direct loans
1,788
1,764
1,600
1.4
11.8
Credit cards
1,111
1,084
806
2.5
37.8
Consumer indirect loans
3,009
3,030
621
(.7)
384.5
Total consumer loans
24,129
24,144
15,604
(.1)
54.6
Total loans (c), (d)
$
86,038
$
85,528
$
59,876
.6
% 43.7
%
(a) Loan balances include $116 million, $117 million, and $85 million of commercial credit card balances at December 31, 2016, September 30, 2016, and December 31, 2015, respectively.
(b) Commercial lease financing includes receivables held as collateral for a secured borrowing of $68 million, $76 million, and $134 million at December 31, 2016, September 30, 2016, and December 31, 2015, respectively. Principal reductions are based on the cash payments received from these related receivables.
(c) At December 31, 2016, total loans include purchased loans of $21.0 billion, of which $865 million were purchased credit impaired. At September 30, 2016, total loans include purchased loans of $22.4 billion, of which $959 million were purchased credit impaired. At December 31, 2015, total loans include purchased loans of $114 million, of which $11 million were purchased credit impaired.
(d) Total loans exclude loans of $1.6 billion at December 31, 2016, $1.6 billion at September 30, 2016, and $1.8 billion at December 31, 2015, related to the discontinued operations of the education lending business.
Loans Held for Sale Composition
(dollars in millions)
Percent change 12/31/16 vs.
12/31/2016 9/30/2016
12/31/2015
9/30/201612/31/2015
Commercial, financial and agricultural
$
19
$
56
$
76
(66.1)%
(75.0)%
Real estate -- commercial mortgage
1,022
1,016
532
.6
92.1
Commercial lease financing
--
3
14
N/M
N/M
Real estate -- residential mortgage
62
62
17
--
264.7
Real estate -- construction
1
--
--
N/M
N/M
Total loans held for sale (a) $
1,104
$
1,137
$
639
(2.9)%
72.8
%
(a)
Total loans held for sale include Real estate - residential mortgage loans held for sale at fair value of $62 million at December 31, 2016 and September 30, 2016.
N/M = Not Meaningful
Summary of Changes in Loans Held for Sale
(in millions)
4Q16
3Q16
2Q16
1Q16
4Q15
Balance at beginning of period
$
1,137
$
442
$
684
$
639
$
916
Purchases
--
48
--
--
--
New originations
2,846
2,857
1,539
1,114
1,655
Transfers from (to) held to maturity, net 11
2
22
--
22
Loan sales
(2,889)
(2,180)
(1,802)
(1,108)
(1,943)
Loan draws (payments), net
(1)
(32)
(1)
39
(11)
Balance at end of period (a)
$
1,104
$
1,137
$
442
$
684
$
639
(a) Total loans held for sale include Real estate -- residential mortgage loans held for sale at fair value of $62 million at December 31, 2016 and September 30, 2016.
Asset Quality Statistics From Continuing Operations
(dollars in millions)
4Q16
3Q16
2Q16
1Q16
4Q15
Net loan charge-offs
$
72
$
44
$
43
$
46
$
37
Net loan charge-offs to average total loans
.34
%
.23
%
.28
%
.31
%
.25
%
Allowance for loan and lease losses
$
858
$
865
$
854
$
826
$
796
Allowance for credit losses (a)
913
918
904
895
852
Allowance for loan and lease losses to period-end loans
1.00
%
1.01
%
1.38
%
1.37
%
1.33
%
Allowance for credit losses to period-end loans
1.06
1.07
1.46
1.48
1.42
Allowance for loan and lease losses to nonperforming loans (b) 137.3
119.6
138.0
122.2
205.7
Allowance for credit losses to nonperforming loans
(b)
146.1
127.0
146.0
132.4
220.2
Nonperforming loans at period end (b)
$
625
$
723
$
619
$
676
$
387
Nonperforming assets at period end (b)
676
760
637
692
403
Nonperforming loans to period-end portfolio loans (b)
.73
%
.85
%
1.00
%
1.12
%
.65
%
Nonperforming assets to period-end portfolio loans plus
.79
.89
1.03
1.14
.67
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 $865 million, $959 million, $11 million, $11 million, and $11 million of purchased credit impaired loans at December 31, 2016, September 30, 2016, June 30, 2016,
March 31, 2016 , and December 31, 2015, respectively.
Summary of Loan and Lease Loss Experience From Continuing Operations
(dollars in millions)
Three months ended
Twelve months ended
12/31/2016
9/30/2016
12/31/2015
12/31/2016
12/31/2015
Average loans outstanding
$
85,360
$
77,697
$
59,576
$
71,148
$
58,594
Allowance for loan and lease losses at beginning of period
$
865
$
854
$
790
$
796
$
794
Loans charged off:
Commercial, financial and agricultural
40
17
18
118
77
Real estate -- commercial mortgage
2
--
2
5
4
Real estate -- construction
--
9
--
9
1
Total commercial real estate loans
2
9
2
14
5
Commercial lease financing
1
5
6
12
11
Total commercial loans
43
31
26
144
93
Real estate -- residential mortgage
--
1
2
4
6
Home equity loans
8
5
7
30
32
Consumer direct loans
9
6
6
27
24
Credit cards
10
9
7
35
30
Consumer indirect loans
12
3
3
21
18
Total consumer loans
39
24
25
117
110
Total loans charged off
82
55
51
261
203
Recoveries:
Commercial, financial and agricultural
3
2
3
11
16
Real estate -- commercial mortgage
--
1
4
9
6
Real estate -- construction
--
1
--
2
1
Total commercial real estate loans
--
2
4
11
7
Commercial lease financing
1
--
--
3
7
Total commercial loans
4
4
7
25
30
Real estate -- residential mortgage
(2)
1
2
1
3
Home equity loans
4
3
2
14
11
Consumer direct loans
1
1
1
5
6
Credit cards
1
1
--
4
2
Consumer indirect loans
2
1
2
7
9
Total consumer loans
6
7
7
31
31
Total recoveries
10
11
14
56
61
Net loan charge-offs
(72)
(44)
(37)
(205)
(142)
Provision (credit) for loan and lease losses
64
56
43
267
145
Foreign currency translation adjustment
1
(1)
--
--
(1)
Allowance for loan and lease losses at end of period
$
858
$
865
$
796
$
858
$
796
Liability for credit losses on lending-related commitments at beginning of period $
53
$
50
$
54
$
56
$
35
Provision (credit) for losses on lending-related commitments
2
3
2
(1)
21
Liability for credit losses on lending-related commitments at end of period (a)
$
55
$
53
$
56
$
55
$
56
Total allowance for credit losses at end of period
$
913
$
918
$
852
$
913
$
852
Net loan charge-offs to average total loans
.34
%
.23
%
.25
%
.29
%
.24
%
Allowance for loan and lease losses to period-end loans
1.00
1.01
1.33
1.00
1.33
Allowance for credit losses to period-end loans
1.06
1.07
1.42
1.06
1.42
Allowance for loan and lease losses to nonperforming loans
137.3
119.6
205.7
137.3
205.7
Allowance for credit losses to nonperforming loans
146.1
127.0
220.2
146.1
220.2
Discontinued operations -- education lending business:
Loans charged off
$
7
$
6
$
10
$
28
$
35
Recoveries
3
3
3
11
13
Net loan charge-offs
$
(4)
$
(3)
$
(7)
$
(17)
$
(22)
(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)
12/31/2016
9/30/2016
6/30/2016
3/31/2016
12/31/2015
Commercial, financial and agricultural
$
297
$
335
$
321
$
380
$
82
Real estate -- commercial mortgage
26
32
14
16
19
Real estate -- construction
3
17
25
12
9
Total commercial real estate loans
29
49
39
28
28
Commercial lease financing
8
13
10
11
13
Total commercial loans
334
397
370
419
123
Real estate -- residential mortgage
56
72
54
59
64
Home equity loans
223
225
189
191
190
Consumer direct loans
6
2
1
1
2
Credit cards
2
3
2
2
2
Consumer indirect loans
4
24
3
4
6
Total consumer loans
291
326
249
257
264
Total nonperforming loans (a)
625
723
619
676
387
OREO
51
35
15
14
14
Other nonperforming assets
--
2
3
2
2
Total nonperforming assets (a)
$
676
$
760
$
637
$
692
$
403
Accruing loans past due 90 days or more
$
87
$
49
$
70
$
70
$
72
Accruing loans past due 30 through 89 days
404
317
203
237
208
Restructured loans -- accruing and nonaccruing (b)
280
304
277
283
280
Restructured loans included in nonperforming loans (b) 141
149
133
151
159
Nonperforming assets from discontinued operations --
5
5
5
6
7
education lending business
Nonperforming loans to period-end portfolio loans
(a) .73
%
.85
%
1.00
%
1.12
%
.65
%
Nonperforming assets to period-end portfolio loans
.79
.89
1.03
1.14
.67
plus OREO and other nonperforming assets (a)
(a) Nonperforming loan balances exclude $865 million, $959 million, $11 million, $11 million, and $11 million, of purchased credit impaired loans at December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 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)
4Q16
3Q16
2Q16
1Q16
4Q15
Balance at beginning of period
$
723
$
619
$
676
$
387
$
400
Loans placed on nonaccrual status
170
78
124
406
81
Nonperforming loans acquired from First Niagara (a) (31)
150
--
--
--
Charge-offs
(81)
(53)
(64)
(60)
(51)
Loans sold
(9)
--
--
(11)
--
Payments
(30)
(32)
(75)
(8)
(21)
Transfers to OREO
(21)
(5)
(6)
(4)
(4)
Transfers to other nonperforming assets
--
--
--
--
(1)
Loans returned to accrual status
(96)
(34)
(36)
(34)
(17)
Balance at end of period (b)
$
625
$
723
$
619
$
676
$
387
(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 $865 million, $959 million, $11 million, $11 million, and $11 million of purchased credit impaired loans at December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 2015, respectively.
Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations
(in millions)
4Q16
3Q16
2Q16
1Q16
4Q15
Balance at beginning of period
$
35
$
15
$
14
$
14
$
17
Properties acquired -- First Niagara
--
19
--
--
--
Properties acquired -- nonperforming loans 21
5
6
4
4
Valuation adjustments
(2)
(2)
(2)
(1)
(2)
Properties sold
(3)
(2)
(3)
(3)
(5)
Balance at end of period
$
51
$
35
$
15
$
14
$
14
Line of Business Results
(dollars in millions)
Percent change 4Q16 vs.
4Q16
3Q16
2Q16
1Q16
4Q15
3Q16
4Q15
Key Community Bank
Summary of operations
Total revenue (TE)
$
901
$
779
$
598
$
595
$
588
15.7
% 53.2
%
Provision for credit losses
44
37
25
42
20
18.9
120.0
Noninterest expense
673
577
444
436
456
16.6
47.6
Net income (loss) attributable to Key
115
104
81
74
70
10.6
64.3
Average loans and leases
47,032
41,548
30,936
30,789
30,925
13.2
52.1
Average deposits
79,357
69,397
53,794
52,803
52,219
14.4
52.0
Net loan charge-offs
42
31
17
23
23
35.5
82.6
Net loan charge-offs to average total loans .36
%
.30
%
.22
%
.30
%
.30
%
N/A
N/A
Nonperforming assets at period end
$
394
$
430
$
300
$
303
$
303
(8.4)
30.0
Return on average allocated equity
9.70
%
11.52
%
11.99
%
11.09
%
10.39
%
N/A
N/A
Average full-time equivalent employees
11,173
9,796
7,331
7,376
7,390
14.1
51.2
Key Corporate Bank
Summary of operations
Total revenue (TE)
$
630
$
554
$
452
$
426
$
479
13.7
% 31.5
%
Provision for credit losses
21
25
30
43
26
(16.0)
(19.2)
Noninterest expense
325
307
259
237
257
5.9
26.5
Net income (loss) attributable to Key
221
159
135
118
142
39.0
55.6
Average loans and leases
36,769
34,561
28,607
27,722
26,981
6.4
36.3
Average loans held for sale
1,223
1,103
591
811
820
10.9
49.1
Average deposits
23,173
22,708
19,129
18,074
19,080
2.0
21.5
Net loan charge-offs
26
12
27
18
12
116.7
116.7
Net loan charge-offs to average total loans .28
%
.14
%
.38
%
.26
%
.18
%
N/A
N/A
Nonperforming assets at period end
$
241
$
313
$
319
$
372
$
74
(23.0)
225.7
Return on average allocated equity
30.62
%
25.86
%
26.23
%
23.15
%
29.05
%
N/A
N/A
Average full-time equivalent employees
2,394
2,331
2,138
2,126
2,113
2.7
13.3
TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful

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SOURCE KeyCorp

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