KEY
$20.04
Keycorp
($.28)
(1.38%)
Earnings Details
1st Quarter March 2018
Thursday, April 19, 2018 6:30:00 AM
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Summary

Keycorp Misses

Keycorp (KEY) reported 1st Quarter March 2018 earnings of $0.38 per share on revenue of $1.7 billion. The consensus earnings estimate was $0.38 per share on revenue of $1.6 billion. The Earnings Whisper number was $0.39 per share. Revenue grew 6.8% 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
$0.38
Earnings Whisper
$0.39
Consensus Estimate
$0.38
Reported Revenue
$1.74 Bil
Revenue Estimate
$1.56 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

KeyCorp Reports First Quarter 2018 Net Income Of $402 Million, Or $.38 Per Common Share

CLEVELAND, April 19, 2018 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced first quarter net income from continuing operations attributable to Key common shareholders of $402 million, or $.38 per common share, compared to $181 million, or $.17 per common share, for the fourth quarter of 2017 and $296 million, or $.27 per common share, for the first quarter of 2017. Key's reported results in the fourth quarter of 2017 included merger-related charges and the estimated impact of tax reform and related actions, resulting in a net impact of $.19 per common share. Key's results in the first quarter of 2017 included merger-related charges, resulting in an impact of $.05 per common share.

"First quarter was a good start to the year, with continuing momentum in our core businesses, as we grew and expanded relationships with our targeted clients. Revenue increased over 3% from the same period last year, driven by a higher net interest income, solid loan growth and stronger fee income. The growth in average loans this quarter was broad-based and primarily in commercial and industrial balances, which were up in excess of 3% linked quarter, as we continue to grow and expand our middle-market relationships. 

Our fee-based businesses continue to demonstrate our ability to offer a full range of solutions to our clients, including off-balance sheet financing alternatives that helped drive our investment banking and debt placement business to a record first quarter level. Expenses this quarter reflect expected seasonality, the acceleration of certain technology costs, and investments. Given our outlook for revenue growth and lower expenses for the rest of this year, we expect to make meaningful progress toward our long term efficiency ratio target of 54% to 56%."       

-       Beth Mooney, Chairman and CEO

 

Selected Financial Highlights















dollars in millions, except per share data





Change 1Q18 vs.



1Q18

4Q17

1Q17


4Q17

1Q17

Income (loss) from continuing operations attributable to Key common shareholders

$

402


$

181


$

296



122.1

%

35.8

%

Income (loss) from continuing operations attributable to Key common shareholders per 
     common share — assuming dilution

.38


.17


.27



123.5


40.7


Return on average tangible common equity from continuing operations (a)

14.89

%

6.35

%

10.98

%


N/A


N/A


Return on average total assets from continuing operations

1.25


.57


.99



N/A


N/A


Common Equity Tier 1 ratio (b)

10.03


10.16


9.91



N/A


N/A


Book value at period end

$

13.07


$

13.09


$

12.71



(.2)

%

2.8

%

Net interest margin (TE) from continuing operations

3.15

%

3.09

%

3.13

%


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 "Return on average tangible common equity from continuing operations." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.

(b)

3/31/2018 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 

INCOME STATEMENT HIGHLIGHTS














Revenue














dollars in millions





Change 1Q18 vs.


1Q18

4Q17

1Q17


4Q17

1Q17

Net interest income (TE)

$

952


$

952


$

929




2.5

%

Noninterest income

601


656


577



(8.4)

%

4.2


Total revenue

$

1,553


$

1,608


$

1,506



(3.4)

%

3.1

%








 TE = Taxable Equivalent

Taxable-equivalent net interest income was $952 million for the first quarter of 2018, and the net interest margin was 3.15%, compared to taxable-equivalent net interest income of $929 million and a net interest margin of 3.13% for the first quarter of 2017, reflecting the benefit from higher interest rates and low deposit betas. First quarter 2018 net interest income included $33 million of purchase accounting accretion, a decline of $20 million from the first quarter of 2017. 

Compared to the fourth quarter of 2017, taxable-equivalent net interest income was stable, and the net interest margin increased by six basis points. Both net interest income and the net interest margin benefited from higher interest rates and Key's asset sensitive balance sheet position, as well as an expected reduction from elevated liquidity levels in the fourth quarter. These benefits were offset by two fewer days in the first quarter of 2018, a lower taxable-equivalent adjustment resulting from the Tax Cuts and Jobs Act, and a decline in purchase accounting accretion.

Excluding purchase accounting accretion, taxable-equivalent net interest income increased $43 million from the first quarter of 2017 and increased $5 million compared to the fourth quarter of 2017.

Noninterest Income














dollars in millions





Change 1Q18 vs.


1Q18

4Q17

1Q17


4Q17

1Q17

Trust and investment services income

$

133


$

131


$

135



1.5

%

(1.5)

%

Investment banking and debt placement fees

143


200


127



(28.5)


12.6


Service charges on deposit accounts

89


89


87




2.3


Operating lease income and other leasing gains

32


27


23



18.5


39.1


Corporate services income

62


56


54



10.7


14.8


Cards and payments income

62


77


65



(19.5)


(4.6)


Corporate-owned life insurance income

32


37


30



(13.5)


6.7


Consumer mortgage income

7


7


6




16.7


Mortgage servicing fees

20


17


18



17.6


11.1


Other income

21


15


32



40.0


(34.4)


Total noninterest income

$

601


$

656


$

577



(8.4)

%

4.2

%








N/M = Not meaningful

Key's noninterest income was $601 million for the first quarter of 2018, compared to $577 million for the year-ago quarter. In the first quarter of 2018, Key benefited from investments in several fee-based businesses. The largest driver year-over-year was an increase in investment banking and debt placement fees, related to the Cain Brothers acquisition, as well as strength across the company's capital markets platform. In the first quarter of 2018, commercial mortgage banking and mergers and acquisitions advisory fees contributed to the strong performance. Operating lease income and other leasing gains also contributed to the increase, up $9 million from the year-ago period, driven by higher originations, and corporate services income grew $8 million related to higher loan and derivative trading income. These increases were partially offset by a decline in other income.

Compared to the fourth quarter of 2017, noninterest income decreased by $55 million. The decline was largely due to seasonal impacts in several fee income categories, including investment banking and debt placement fees, cards and payments income, and corporate-owned life insurance. Investment banking and debt placement fees declined from record results in the fourth quarter of 2017, though still reported a record first quarter for the business. These declines were partially offset by increases in other income, as well as operating lease income and other leasing gains related to higher originations.

Noninterest Expense














dollars in millions





Change 1Q18 vs.


1Q18

4Q17

1Q17


4Q17

1Q17

Personnel expense

$

594


$

608


$

556



(2.3)

%

6.8

%

Nonpersonnel expense

412


490


457



(15.9)


(9.8)


Total noninterest expense

$

1,006


$

1,098


$

1,013



(8.4)


(.7)









Notable items (a)


85


81



N/M

N/M

Total noninterest expense excluding notable items

$

1,006


$

1,013


$

932



(.7)

%

7.9

%








N/M = Not meaningful

(a)

Notable items for the fourth quarter of 2017 includes $56 million of merger-related charges and $29 million of estimated impacts of tax reform and related actions. Notable items for the first quarter of 2017 includes $81 million of merger-related charges. See the table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement which presents the computations of certain financial measures related to "notable items."

Key's noninterest expense was $1 billion for the first quarter of 2018, compared to $932 million, excluding notable items in the year-ago period. The year-over-year increase was primarily related to higher personnel costs, largely due to recent acquisitions, as well as accelerated technology investments and higher performance-based compensation. Higher marketing expense, operating lease expense, and intangible amortization expense drove the increase in nonpersonnel expense, but was partially offset by lower occupancy and other expense.

Noninterest expense decreased $7 million from the fourth quarter of 2017, excluding notable items in the prior period. Personnel expense reflected seasonally high employee benefits expense, as well as the aforementioned accelerated technology investments. These increases were more than offset by lower incentive compensation compared to the prior quarter, as well as lower nonpersonnel expense related to lower business services and professional fees, a seasonal decline in marketing expense, and a continued reduction in net occupancy expense.

 BALANCE SHEET HIGHLIGHTS

Average Loans














dollars in millions





Change 1Q18 vs.


1Q18

4Q17

1Q17


4Q17

1Q17

Commercial and industrial (a)

$

42,733


$

41,289


$

40,002



3.5

%

6.8

%

Other commercial loans

20,705


21,040


22,175



(1.6)


(6.6)


Home equity loans

11,877


12,128


12,611



(2.1)


(5.8)


Other consumer loans

11,612


11,549


11,345



.5


2.4


Total loans

$

86,927


$

86,006


$

86,133



1.1

%

.9

%








(a)

Commercial and industrial average loan balances include $120 million, $119 million, and $114 million of assets from commercial credit cards at March 31, 2018, December 31, 2017, and March 31, 2017, respectively.

Average loans were $86.9 billion for the first quarter of 2018, an increase of $794 million compared to the first quarter of 2017, reflecting broad-based growth in commercial and industrial loans with middle-market clients, as well as strength in auto lending, as the company expands into existing geographies and dealer relationships. In addition, reductions in commercial real estate loans over the past year reflect significantly higher debt placements and paydowns.

Compared to the fourth quarter of 2017, average loans increased by $921 million, largely the result of growth in commercial and industrial loans. Key realized growth across commercial client segments, with commercial and industrial loans up 2% in the Community Bank and 5% in the Corporate Bank, unannualized.

Average Deposits














dollars in millions





Change 1Q18 vs.


1Q18

4Q17

1Q17


4Q17

1Q17

Non-time deposits

$

90,719


$

92,251


$

91,745



(1.7)

%

(1.1)

%

Certificates of deposit ($100,000 or more)

6,972


6,776


5,627



2.9


23.9


Other time deposits

4,865


4,771


4,706



2.0


3.4


Total deposits

$

102,556


$

103,798


$

102,078



(1.2)

%

.5

%








Cost of total deposits

.36

%

.31

%

.23

%


N/A

N/A








N/A = Not Applicable

Average deposits totaled $102.6 billion for the first quarter of 2018, an increase of $478 million compared to the year-ago quarter. Certificates of deposits and other time deposits increased $1.5 billion, reflecting strength in Key's retail banking franchise and growth from commercial relationships. Additionally, consumer noninterest-bearing balances grew 10% from the prior year. NOW and money-market deposit accounts declined $792 million, partially driven by a shift to higher-yielding deposit products and the managed exit of certain higher cost corporate and public sector deposits.

Compared to the fourth quarter of 2018, average deposits decreased by $1.2 billion, driven by a decline in noninterest-bearing deposits, which were elevated during the fourth quarter of 2017 due to short-term escrows and seasonal deposit inflows. This decline was partially offset by growth in consumer noninterest-bearing deposits.

ASSET QUALITY














dollars in millions





Change 1Q18 vs.


1Q18

4Q17

1Q17


4Q17

1Q17

Net loan charge-offs

$

54


$

52


$

58



3.8

%

(6.9)

%

Net loan charge-offs to average total loans

.25

%

.24

%

.27

%


N/A

N/A

Nonperforming loans at period end (a)

$

541


$

503


$

573



7.6


(5.6)


Nonperforming assets at period end (a)

569


534


623



6.6


(8.7)


Allowance for loan and lease losses

881


877


870



.5


1.3


Allowance for loan and lease losses to nonperforming loans (a)

162.8

%

174.4

%

151.8

%


N/A

N/A

Provision for credit losses

$

61


$

49


$

63



24.5

%

(3.2)

%








(a)

Nonperforming loan balances exclude $690 million, $738 million, and $812 million of purchased credit impaired loans at March 31, 2018, December 31, 2017, and March 31, 2017, respectively.

N/A = Not Applicable

Key's provision for credit losses was $61 million for the first quarter of 2018, compared to $63 million for the first quarter of 2017 and $49 million for the fourth quarter of 2017. Key's allowance for loan and lease losses was $881 million, or 1.00% of total period-end loans, at March 31, 2018, compared to 1.01% at March 31, 2017, and 1.01% at December 31, 2017.

Net loan charge-offs for the first quarter of 2018 totaled $54 million, or .25% of average total loans. These results compare to $58 million, or .27%, for the first quarter of 2017, and $52 million, or .24%, for the fourth quarter of 2018.

At March 31, 2018, Key's nonperforming loans totaled $541 million, which represented .61% of period-end portfolio loans. These results compare to .67% at March 31, 2017, and .58% at December 31, 2017. Nonperforming assets at March 31, 2018, totaled $569 million, and represented .65% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .72% at March 31, 2017, and .62% at December 31, 2017.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2018.

Capital Ratios









3/31/2018


12/31/2017


3/31/2017


Common Equity Tier 1 (a)

10.03

%

10.16

%

9.91

%

Tier 1 risk-based capital (a)

10.84


11.01


10.74


Total risk based capital (a)

12.75


12.92


12.69


Tangible common equity to tangible assets (b)

8.22


8.23


8.51


Leverage (a)

9.84


9.73


9.81






(a)

3/31/2018 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." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. See below for further information on the Regulatory Capital Rules.

Key's capital position remained strong in the first quarter. As shown in the preceding table, at March 31, 2018, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 10.03% and 10.84%, respectively. Key's tangible common equity ratio was 8.22% at March 31, 2018.

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 9.88% at March 31, 2018.  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 1Q18 vs.



1Q18

4Q17

1Q17


4Q17

1Q17

Shares outstanding at beginning of period

1,069,084


1,079,039


1,079,314



(.9)

%

(.9)

%

Open market repurchases and return of shares under employee 
     compensation plans

(9,399)


(10,617)


(8,673)



(11.5)


8.4


Shares issued under employee compensation plans (net of cancellations)

5,254


662


6,270



693.7


(16.2)


Common Shares exchanged for Series A Preferred Stock



20,568



N/M


N/M



Shares outstanding at end of period

1,064,939


1,069,084


1,097,479



(.4)

%

(3.0)

%









N/M = Not Meaningful

Consistent with Key's 2017 Capital Plan, during the first quarter of 2018, Key declared a dividend of $.105 per common share, and completed $199 million of common share repurchases during the quarter. These repurchases included $156 million of common share repurchases in the open market and $43 million of share repurchases related to employee equity compensation programs.

LINE OF BUSINESS RESULTS

The following table shows the contribution made by each major business segment to Key's taxable-equivalent revenue from continuing operations and income (loss) from continuing operations attributable to Key for the periods presented. For more detailed financial information pertaining to each business segment, see the tables at the end of this release.

Major Business Segments















dollars in millions





Change 1Q18 vs.



1Q18

4Q17

1Q17


4Q17

1Q17

Revenue from continuing operations (TE)







Key Community Bank

$

973


$

972


$

905



.1

%

7.5

%

Key Corporate Bank

559


605


578



(7.6)


(3.3)


Other Segments

22


30


29



(26.7)


(24.1)



Total segments

1,554


1,607


1,512



(3.3)


2.8


Reconciling Items

(1)


1


(6)



N/M


N/M



Total

$

1,553


$

1,608


$

1,506



(3.4)

%

3.1

%









Income (loss) from continuing operations attributable to Key







Key Community Bank

$

196


$

151


$

147



29.8

%

33.3

%

Key Corporate Bank

207


222


180



(6.8)


15.0


Other Segments

19


50


21



(62.0)


(9.5)



Total segments

422


423


348



(.2)


21.3


Reconciling Items (a)

(6)


(228)


(24)



N/M


N/M



Total

$

416


$

195


$

324



113.3

%

28.4

%









(a)

Reconciling items consists primarily of the unallocated portion of merger-related charges, certain estimated impacts of tax reform, 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 1Q18 vs.


1Q18

4Q17

1Q17


4Q17

1Q17

Summary of operations







Net interest income (TE)

$

688


$

674


$

628



2.1

%

9.6

%

Noninterest income

285


298


277



(4.4)


2.9


Total revenue (TE)

973


972


905



.1


7.5


Provision for credit losses

48


57


46



(15.8)


4.3


Noninterest expense

668


677


625



(1.3)


6.9


Income (loss) before income taxes (TE)

257


238


234



8.0


9.8


Allocated income taxes (benefit) and TE adjustments

61


87


87



(29.9)


(29.9)


Net income (loss) attributable to Key

$

196


$

151


$

147



29.8

%

33.3

%








Average balances







Loans and leases

$

47,680


$

47,405


$

47,085



.6

%

1.3

%

Total assets

51,681


51,471


51,063



.4


1.2


Deposits

79,945


80,352


79,148



(.5)


1.0









Assets under management at period end

$

39,003


$

39,588


$

37,417



(1.5)

%

4.2

%








TE = Taxable Equivalent

 

 

Additional Key Community Bank Data














dollars in millions





Change 1Q18 vs.


1Q18

4Q17

1Q17


4Q17

1Q17

Noninterest income







Trust and investment services income

$

104


$

98


$

98



6.1

%

6.1

%

Service charges on deposit accounts

76


76


75




1.3


Cards and payments income

51


67


55



(23.9)


(7.3)


Other noninterest income

54


57


49



(5.3)


10.2


Total noninterest income

$

285


$

298


$

277



(4.4)

%

2.9

%








Average deposit balances







NOW and money market deposit accounts

$

44,291


$

44,415


$

44,780



(.3)

%

(1.1)

%

Savings deposits

5,056


5,090


5,268



(.7)


(4.0)


Certificates of deposit ($100,000 or more)

4,961


4,628


3,879



7.2


27.9


Other time deposits

4,856


4,765


4,692



1.9


3.5


Noninterest-bearing deposits

20,781


21,454


20,529



(3.1)


1.2


Total deposits

$

79,945


$

80,352


$

79,148



(.5)

%

1.0

%








Home equity loans







Average balance

$

11,763


$

12,005


$

12,456





Combined weighted-average loan-to-value ratio (at date of origination)

70

%

70

%

70

%




Percent first lien positions

60


60


60












Other data







Branches

1,192


1,197


1,216





Automated teller machines

1,569


1,572


1,594












 

Key Community Bank Summary of Operations (1Q18 vs. 1Q17)

  • Positive operating leverage compared to prior year
  • Net income increased $49 million, or 33.3%, from prior year
  • Average commercial and industrial loans increased $1.1 billion, or 6.1%, from the prior year

Key Community Bank recorded net income attributable to Key of $196 million for the first quarter of 2018, compared to $147 million for the year-ago quarter, benefiting from momentum in Key's core businesses, First Niagara related synergies, and a lower tax rate as a result of tax reform.

Taxable-equivalent net interest income increased by $60 million, or 9.6%, from the first quarter of 2017. The increase was primarily attributable to the benefit from higher interest rates and growth in loans. Average loans and leases increased $595 million, or 1.3%, largely driven by a $1.1 billion, or 6.1%, increase in commercial and industrial loans. Additionally, average deposits increased $797 million, or 1.0%, from one year ago.

Noninterest income increased $8 million, or 2.9%, from the year-ago quarter, driven by higher assets under management from market growth, as well as increases across several fee categories.

The provision for credit losses increased by $2 million, or 4.3%, from the first quarter of 2017. Net loan charge-offs were flat from the first quarter of 2017, as overall credit quality was stable.

Noninterest expense increased $43 million, or 6.9%, from the year-ago quarter. Personnel expense increased $17 million, primarily driven by recent acquisitions and ongoing investments, including residential mortgage and HelloWallet. Nonpersonnel expense increased by $26 million, driven by technology development costs, marketing expenses, higher volume-related expenses, and the impact of recent acquisitions, including HelloWallet and merchant services.

Key Corporate Bank





















dollars in millions





Change 1Q18 vs.


1Q18

4Q17

1Q17


4Q17

1Q17

Summary of operations







Net interest income (TE)

$

272


$

284


$

304



(4.2)

%

(10.5)

%

Noninterest income

287


321


274



(10.6)


4.7


Total revenue (TE)

559


605


578



(7.6)


(3.3)


Provision for credit losses

14


(6)


18



N/M

(22.2)


Noninterest expense

314


354


304



(11.3)


3.3


Income (loss) before income taxes (TE)

231


257


256



(10.1)


(9.8)


Allocated income taxes and TE adjustments

24


35


76



(31.4)


(68.4)


Net income (loss) attributable to Key

$

207


$

222


$

180



(6.8)

%

15.0

%








Average balances







Loans and leases

$

38,260


$

37,460


$

37,688



2.1

%

1.5

%

Loans held for sale

1,118


1,345


1,097



(16.9)


1.9


Total assets

45,549


44,504


44,124



2.3


3.2


Deposits

20,815


21,558


21,002



(3.4)


(.9)









TE = Taxable Equivalent, N/M = Not Meaningful

 

 

Additional Key Corporate Bank Data














dollars in millions





Change 1Q18 vs.


1Q18

4Q17

1Q17


4Q17

1Q17

Noninterest income







Trust and investment services income

$

29


$

33


$

37



(12.1)

%

(21.6)

%

Investment banking and debt placement fees

141


195


124



(27.7)


13.7


Operating lease income and other leasing gains

27


25


21



8.0


28.6









Corporate services income

43


40


38



7.5


13.2


Service charges on deposit accounts

13


13


12




8.3


Cards and payments income

11


10


9



10.0


22.2


Payments and services income

67


63


59



6.3


13.6









Mortgage servicing fees

17


14


16



21.4


6.3


Other noninterest income

6


(9)


17



N/M


(64.7)


Total noninterest income

$

287


$

321


$

274



(10.6)

%

4.7

%








N/M = Not Meaningful

 

Key Corporate Bank Summary of Operations (1Q18 vs. 1Q17)

  • Commercial and industrial loans up $1.7 billion, or 7.9%, from prior year
  • Investment banking and debt placement fees up $17 million, or 14%, from prior year
  • Net income up $27 million, or 15.0%, from prior year

Key Corporate Bank recorded net income attributable to Key of $207 million for the first quarter of 2018, compared to $180 million for the same period one year ago.

Taxable-equivalent net interest income decreased by $32 million, or 10.5%, compared to the first quarter of 2017, $7 million of which was related to lower purchase accounting accretion, with the remaining due to lower spreads on earning assets. Average loan and lease balances increased $572 million, or 1.5%, from the year-ago quarter, driven by growth in commercial and industrial loans. Average deposit balances decreased $187 million, or .9%, from the year-ago quarter, driven by the managed exit of higher cost corporate and public sector deposits.

Noninterest income was up $13 million, or 4.7%, from the prior year. This increase was largely due to higher investment banking and debt placement fees, which were up $17 million, related to the acquisition of Cain Brothers, as well as continued growth in the core Key franchise. Operating lease income and other leasing gains increased $6 million due higher originations, and corporate services income increased $5 million, mostly due to higher derivatives revenue. These increases were partially offset by a decline in other noninterest income of $11 million, related to lower gains from certain real estate investments.

During the first quarter of 2018, the provision for credit losses decreased $4 million, or 22.2%, and net loan charge-offs declined $3 million, compared to the first quarter of 2017, related to improving credit quality in the overall portfolio.

Noninterest expense increased by $10 million, or 3.3%, from the first quarter of 2017. The increase from the prior year was largely driven by higher operating lease expense and intangible asset amortization.

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 $19 million for the first quarter of 2018, compared to $21 million for the same period last year.

*****

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 $137.0 billion at March 31, 2018.

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 approximately 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, 2017, 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 regulation of the U.S. financial services industry. Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.

 

Notes to Editors:
A live Internet broadcast of KeyCorp's conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts' questions can be accessed through the Investor Relations section at https://www.key.com/ir at 9:00 a.m. ET, on Thursday, April 19, 2018.  An audio replay of the call will be available through April 29, 2018.

*****

 

Financial Highlights

(dollars in millions, except per share amounts)




Three months ended




3/31/2018

12/31/2017

3/31/2017

Summary of operations





Net interest income (TE)

$

952


$

952


$

929



Noninterest income

601


656


577




Total revenue (TE)

1,553


1,608


1,506



Provision for credit losses

61


49


63



Noninterest expense

1,006


1,098


1,013



Income (loss) from continuing operations attributable to Key

416


195


324



Income (loss) from discontinued operations, net of taxes (a)

2


1




Net income (loss) attributable to Key

418


196


324









Income (loss) from continuing operations attributable to Key common shareholders

402


181


296



Income (loss) from discontinued operations, net of taxes (a)

2


1




Net income (loss) attributable to Key common shareholders

404


182


296








Per common share





Income (loss) from continuing operations attributable to Key common shareholders

$

.38


$

.17


$

.28



Income (loss) from discontinued operations, net of taxes (a)





Net income (loss) attributable to Key common shareholders (b)

.38


.17


.28









Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution

.38


.17


.27



Income (loss) from discontinued operations, net of taxes — assuming dilution (a)





Net income (loss) attributable to Key common shareholders — assuming dilution (b)

.38


.17


.27









Cash dividends declared

.105


.105


.085



Book value at period end

13.07


13.09


12.71



Tangible book value at period end

10.35


10.35


10.21



Market price at period end

19.55


20.17


17.78








Performance ratios





From continuing operations:





Return on average total assets

1.25

%

.57

%

.99

%


Return on average common equity

11.76


5.04


8.76



Return on average tangible common equity (c)

14.89


6.35


10.98



Net interest margin (TE)

3.15


3.09


3.13



Cash efficiency ratio (c)

62.9


66.7


65.8









From consolidated operations:





Return on average total assets

1.24

%

.57

%

.98

%


Return on average common equity

11.82


5.07


8.76



Return on average tangible common equity (c)

14.97


6.39


10.98



Net interest margin (TE)

3.13


3.07


3.11



Loan to deposit (d)

86.9


84.4


85.6








Capital ratios at period end





Key shareholders' equity to assets

10.90

%

10.91

%

11.14

%


Key common shareholders' equity to assets

10.16


10.17


10.37



Tangible common equity to tangible assets (c)

8.22


8.23


8.51



Common Equity Tier 1 (e)

10.03


10.16


9.91



Tier 1 risk-based capital (e)

10.84


11.01


10.74



Total risk-based capital (e)

12.75


12.92


12.69



Leverage (e)

9.84


9.73


9.81








 

 







Financial Highlights (continued)

(dollars in millions)




Three months ended




3/31/2018

12/31/2017

3/31/2017

Asset quality — from continuing operations




     Net loan charge-offs

$

54


$

52


$

58


     Net loan charge-offs to average loans

.25

%

.24

%

.27

%

     Allowance for loan and lease losses

$

881


$

877


$

870


     Allowance for credit losses

941


934


918


     Allowance for loan and lease losses to period-end loans

1.00

%

1.01

%

1.01

%

     Allowance for credit losses to period-end loans

1.07


1.08


1.07


     Allowance for loan and lease losses to nonperforming loans (f)

162.8


174.4


151.8


     Allowance for credit losses to nonperforming loans (f)

173.9


185.7


160.2


     Nonperforming loans at period end (f)

$

541


$

503


$

573


     Nonperforming assets at period end (f)

569


534


623


     Nonperforming loans to period-end portfolio loans (f)

.61

%

.58

%

.67

%

     Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (f)

.65


.62


.72








Trust assets




     Assets under management

$

39,003


$

39,588


$

37,417








Other data




     Average full-time equivalent employees

18,540


18,379


18,386


     Branches

1,192


1,197


1,216








Taxable-equivalent adjustment

$

8


$

14


$

11




(a)

In April 2009, management decided to wind down the operations of Austin Capital Management, Ltd., a subsidiary that specialized in managing hedge fund investments for institutional customers. In September 2009, management decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank National Association.

(b)

Earnings per share may not foot due to rounding.

(c)

The following table entitled "GAAP to Non-GAAP Reconciliations" presents the computations of certain financial measures related to "tangible common equity" 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.

(e)

March 31, 2018, ratio is estimated.

(f)

Nonperforming loan balances exclude $690 million, $738 million, and $812 million of purchased credit impaired loans at March 31, 2018, December 31, 2017, and March 31, 2017, respectively.

 

 

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/or other notable items, and "cash efficiency ratio."

Notable items include certain revenue or expense items that may occur in a reporting period which management does not consider indicative of ongoing financial performance. Management believes it is useful to consider certain financial metrics with and without merger-related charges and/or other notable items, including the impact of tax reform and related actions, in order to enable a better understanding of company results, increase comparability of period-to-period results, and to evaluate and forecast those results.

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.

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, we no longer recognize merger-related charges beginning in the first quarter of 2018. Prior to that, Key recognized merger-related charges as a result of 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 had recognized merger-related charges. For the first and fourth quarters of 2017, merger-related charges were included in the total for "notable items." The table below shows the computation of earnings per share excluding notable items, pre-provision net revenue excluding notable items, return on average tangible common equity excluding notable items, cash efficiency ratio excluding notable items, and return on average assets from continuing operations excluding notable items. Management believes that eliminating the effects of the merger-related charges and other notable items 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


3/31/2018

12/31/2017

3/31/2017

Tangible common equity to tangible assets at period-end




Key shareholders' equity (GAAP)

$

14,944


$

15,023


$

14,976


Less: Intangible assets (a)

2,902


2,928


2,751


Preferred Stock (b)

1,009


1,009


1,009


Tangible common equity (non-GAAP)

$

11,033


$

11,086


$

11,216


Total assets (GAAP)

$

137,049


$

137,698


$

134,476


Less: Intangible assets (a)

2,902


2,928


2,751


Tangible assets (non-GAAP)

$

134,147


$

134,770


$

131,725


Tangible common equity to tangible assets ratio (non-GAAP)

8.22

%

8.23

%

8.51

%

Earnings per common share (EPS) excluding notable items




EPS from continuing operations attributable to Key common shareholders  — assuming dilution

$

.38


$

.17


$

.27


Plus: EPS impact of notable items


.19


.05


EPS from continuing operations attributable to Key common shareholders excluding notable items (non-
     GAAP)

$

.38


$

.36


$

.32


Notable items




Merger-related charges


$

(56)


$

(81)


Estimated impacts of tax reform and related actions


(30)



   Total notable items


$

(86)


$

(81)


Income taxes


(26)


(30)


Reevaluation of certain tax related assets


147



  Total notable items, after tax


$

(207)


$

(51)


 

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)




Three months ended




3/31/2018

12/31/2017

3/31/2017

Pre-provision net revenue




Net interest income (GAAP)

$

944


$

938


$

918



Plus:

Taxable-equivalent adjustment

8


14


11




Noninterest income

601


656


577



Less:

Noninterest expense

1,006


1,098


1,013




Pre-provision net revenue from continuing operations (non-GAAP)

$

547


$

510


$

493



Plus:

Notable items


86


81




Pre-provision net revenue from continuing operations excluding notable items (non-GAAP)

$

547


$

596


$

574


Average tangible common equity





Average Key shareholders' equity (GAAP)

$

14,889


$

15,268


$

15,184



Less:

Intangible assets (average) (c)

2,916


2,939


2,772




Preferred Stock (average)

1,025


1,025


1,480




Average tangible common equity (non-GAAP)

$

10,948


$

11,304


$

10,932


Return on average tangible common equity from continuing operations





Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)

$

402


$

181


$

296



Plus:

Notable items, after tax


207


51



Net income (loss) from continuing operations attributable to Key common shareholders excluding notable 
     items (non-GAAP)

$

402


$

388


$

347



Average tangible common equity (non-GAAP)

10,948


11,304


10,932









Return on average tangible common equity from continuing operations (non-GAAP)

14.89

%

6.35

%

10.98

%


Return on average tangible common equity from continuing operations excluding notable items (non-GAAP)

14.89


13.62


12.87


Return on average tangible common equity consolidated





Net income (loss) attributable to Key common shareholders (GAAP)

$

404


$

182


$

296



Average tangible common equity (non-GAAP)

10,948


11,304


10,932









Return on average tangible common equity consolidated (non-GAAP)

14.97

%

6.39

%

10.98

%

Cash efficiency ratio





Noninterest expense (GAAP)

$

1,006


$

1,098


$

1,013



Less:

Intangible asset amortization

29


26


22




Adjusted noninterest expense (non-GAAP)

977


1,072


991



Less:

Notable items


85


81




Adjusted noninterest expense excluding notable items (non-GAAP)

$

977


$

987


$

910



Net interest income (GAAP)

$

944


$

938


$

918



Plus:

Taxable-equivalent adjustment

8


14


11




Noninterest income

601


656


577




Total taxable-equivalent revenue (non-GAAP)

1,553


1,608


1,506



Plus:

Notable items


1





Adjusted total taxable-equivalent revenue excluding notable items (non-GAAP)

$

1,553


$

1,609


$

1,506









Cash efficiency ratio (non-GAAP)

62.9

%

66.7

%

65.8

%


Cash efficiency ratio excluding notable items (non-GAAP)

62.9


61.3


60.4


Return on average total assets from continuing operations excluding notable items





Income from continuing operations attributable to Key (GAAP)

$

416


$

195


$

324



Plus:

Notable items, after tax


207


51




Income from continuing operations attributable to Key excluding notable items, after tax (non-
     GAAP)

$

416


$

402


$

375









Average total assets from continuing operations (GAAP)

$

134,915


$

135,255


$

132,741









Return on average total assets from continuing operations excluding notable items (non-GAAP)

1.25

%

1.18

%

1.15

%

 

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)






Three
months
ended






3/31/2018

Common Equity Tier 1 under the Regulatory Capital Rules ("RCR") (estimates)



Common Equity Tier 1 under current RCR



$

12,165



Adjustments from current RCR to the fully phased-in RCR:






Deferred tax assets and other intangible assets (d)



(78)




Common Equity Tier 1 anticipated under the fully phased-in RCR (e)


$

12,087









Net risk-weighted assets under current RCR



$

121,343



Adjustments from current RCR to the fully phased-in RCR:






Mortgage servicing assets (f)



700




Deferred tax assets



318




All other assets



(77)




Total risk-weighted assets anticipated under the fully phased-in RCR (e)


$

122,284









Common Equity Tier 1 ratio under the fully phased-in RCR (e)



9.88

%



(a)

For the three months ended March 31, 2018, December 31, 2017, and March 31, 2017, intangible assets exclude $23 million, $26 million, and $38 million, respectively, of period-end purchased credit card receivables. 

(b)

Net of capital surplus.

(c)

For the three months ended March 31, 2018, December 31, 2017, and March 31, 2017, average intangible assets exclude $24 million, $28 million, and $40 million, respectively, of average purchased credit card receivables.

(d)

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.

(e)

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."

(f)

Item is included in the 10%/15% exceptions bucket calculation and is risk-weighted at 250%.

GAAP = U.S. generally accepted accounting principles

 

 


Consolidated Balance Sheets

(dollars in millions)










3/31/2018

12/31/2017

3/31/2017

Assets





Loans

$

88,089


$

86,405


$

86,125



Loans held for sale

1,667


1,107


1,384



Securities available for sale

17,888


18,139


18,431



Held-to-maturity securities

12,189


11,830


10,186



Trading account assets

769


836


921



Short-term investments

1,644


4,447


2,525



Other investments

715


726


689




Total earning assets

122,961


123,490


120,261



Allowance for loan and lease losses

(881)


(877)


(870)



Cash and due from banks

643


671


549



Premises and equipment

916


930


935



Operating lease assets

838


821


563



Goodwill

2,538


2,538


2,427



Other intangible assets

387


416


362



Corporate-owned life insurance

4,142


4,132


4,087



Accrued income and other assets

4,216


4,237


4,642



Discontinued assets

1,289


1,340


1,520




Total assets

$

137,049


$

137,698


$

134,476








Liabilities





Deposits in domestic offices:






NOW and money market deposit accounts

$

54,606


$

53,627


$

55,095




Savings deposits

6,321


6,296


6,306




Certificates of deposit ($100,000 or more)

7,295


6,849


5,859




Other time deposits

4,928


4,798


4,694




  Total interest-bearing deposits

73,150


71,570


71,954




Noninterest-bearing deposits

31,601


33,665


32,028




  Total deposits

104,751


105,235


103,982



Federal funds purchased and securities sold under repurchase agreements

616


377


442



Bank notes and other short-term borrowings

1,133


634


943



Accrued expense and other liabilities

1,854


2,094


1,807



Long-term debt

13,749


14,333


12,324




Total liabilities

122,103


122,673


119,498








Equity





Preferred stock

1,025


1,025


1,025



Common shares

1,257


1,257


1,257



Capital surplus

6,289


6,335


6,287



Retained earnings

10,624


10,335


9,584



Treasury stock, at cost

(3,260)


(3,150)


(2,623)



Accumulated other comprehensive income (loss)

(991)


(779)


(554)




Key shareholders' equity

14,944


15,023


14,976



Noncontrolling interests

2


2


2




Total equity

14,946


15,025


14,978


Total liabilities and equity

$

137,049


$

137,698


$

134,476








Common shares outstanding (000)

1,064,939


1,069,084


1,097,479


 

 


Consolidated Statements of Income

(dollars in millions, except per share amounts)




Three months ended




3/31/2018

12/31/2017

3/31/2017

Interest income





Loans

$

940


$

924


$

877



Loans held for sale

12


13


13



Securities available for sale

95


93


95



Held-to-maturity securities

69


61


51



Trading account assets

7


6


7



Short-term investments

8


12


3



Other investments

6


5


4




Total interest income

1,137


1,114


1,050


Interest expense





Deposits

91


82


58



Federal funds purchased and securities sold under repurchase agreements

4



1



Bank notes and other short-term borrowings

6


3


5



Long-term debt

92


91


68




Total interest expense

193


176


132


Net interest income

944


938


918


Provision for credit losses

61


49


63


Net interest income after provision for credit losses

883


889


855


Noninterest income





Trust and investment services income

133


131


135



Investment banking and debt placement fees

143


200


127



Service charges on deposit accounts

89


89


87



Operating lease income and other leasing gains

32


27


23



Corporate services income

62


56


54



Cards and payments income

62


77


65



Corporate-owned life insurance income

32


37


30



Consumer mortgage income

7


7


6



Mortgage servicing fees

20


17


18



Other income (a)

21


15


32




Total noninterest income

601


656


577


Noninterest expense





Personnel

594


608


556



Net occupancy

78


92


87



Computer processing

52


54


60



Business services and professional fees

41


52


46



Equipment

26


31


27



Operating lease expense

27


28


19



Marketing

25


35


21



FDIC assessment

21


20


20



Intangible asset amortization

29


26


22



OREO expense, net

2


3


2



Other expense

111


149


153




Total noninterest expense

1,006


1,098


1,013


Income (loss) from continuing operations before income taxes

478


447


419



Income taxes

62


251


94


Income (loss) from continuing operations

416


196


325



Income (loss) from discontinued operations, net of taxes

2


1



Net income (loss)

418


197


325



Less:  Net income (loss) attributable to noncontrolling interests


1


1


Net income (loss) attributable to Key

$

418


$

196


$

324








Income (loss) from continuing operations attributable to Key common shareholders

$

402


$

181


$

296


Net income (loss) attributable to Key common shareholders

404


182


296


Per common share




Income (loss) from continuing operations attributable to Key common shareholders

$

.38


$

.17


$

.28


Income (loss) from discontinued operations, net of taxes




Net income (loss) attributable to Key common shareholders (b)

.38


.17


.28


Per common share — assuming dilution




Income (loss) from continuing operations attributable to Key common shareholders

$

.38


$

.17


$

.27


Income (loss) from discontinued operations, net of taxes




Net income (loss) attributable to Key common shareholders (b)

.38


.17


.27








Cash dividends declared per common share

$

.105


$

.105


$

.085








Weighted-average common shares outstanding (000)


1,056,037



1,062,348



1,068,609



Effect of common share options and other stock awards

15,749


16,982


17,931


Weighted-average common shares and potential common shares outstanding (000) (c)

1,071,786


1,079,330


1,086,540








(a)

For the three months ended March 31, 2018, and December 31, 2017, net securities gains (losses) totaled less than $1 million. For the three months ended March 31, 2017, net securities gains totaled $1 million. For the three months ended March 31, 2018, December 31, 2017, and March 31, 2017, 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, as applicable.

 

 


Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations

(dollars in millions)
















First Quarter 2018


Fourth Quarter 2017


First Quarter 2017



Average


Yield/


Average


Yield/


Average


Yield/



Balance

Interest (a)

Rate (a)


Balance

Interest (a)

Rate (a)


Balance

Interest (a)

Rate (a)

Assets













Loans: (b), (c)













Commercial and industrial (d)

$

42,733


$

434


4.11

%


$

41,289


$

417


4.01

%


$

40,002


$

373


3.77

%


Real estate — commercial mortgage

14,085


165


4.76



14,386


167


4.60



15,187


164


4.39



Real estate — construction

1,957


22


4.64



1,967


23


4.55



2,353


26


4.54



Commercial lease financing

4,663


41


3.53



4,687


45


3.86



4,635


44


3.76



Total commercial loans

63,438


662


4.23



62,329


652


4.15



62,177


607


3.95



Real estate — residential mortgage

5,479


54


3.95



5,474


54


3.95



5,520


54


3.94



Home equity loans

11,877


134


4.56



12,128


134


4.39



12,611


131


4.22



Consumer direct loans

1,766


33


7.53



1,782


32


7.15



1,762


30


6.97



Credit cards

1,080


30


11.32



1,061


30


11.14



1,067


29


11.06



Consumer indirect loans

3,287


35


4.29



3,232


36


4.42



2,996


37


4.91



 Total consumer loans

23,489


286


4.91



23,677


286


4.80



23,956


281


4.75



  Total loans

86,927


948


4.41



86,006


938


4.33



86,133


888


4.17



Loans held for sale

1,187


12


4.10



1,420


13


3.81



1,188


13


4.28



Securities available for sale (b), (e)

17,889


95


2.06



18,447


93


1.97



19,181


95


1.95



Held-to-maturity securities (b)

12,041


69


2.30



11,121


61


2.20



9,988


51


2.04



Trading account assets

907


7


2.99



898


6


2.72



968


7


2.75



Short-term investments

2,048


8


1.51



3,684


12


1.29



1,610


3


.79



Other investments (e)

723


6


2.96



725


5


2.80



709


4


2.26



Total earning assets

121,722


1,145


3.78



122,301


1,128


3.66



119,777


1,061


3.57



Allowance for loan and lease losses

(875)





(871)





(855)





Accrued income and other assets

14,068





13,825





13,819





Discontinued assets

1,304





1,358





1,540





Total assets

$

136,219





$

136,613





$

134,281




Liabilities













NOW and money market deposit accounts

$

53,503


46


.34



$

53,601


40


.29



$

54,295


32


.24



Savings deposits

6,232


5


.29



6,372


3


.24



6,351


1


.10



Certificates of deposit ($100,000 or more)

6,972


27


1.58



6,776


26


1.50



5,627


16


1.16



Other time deposits

4,865


13


1.12



4,771


13


1.05



4,706


9


.76



Total interest-bearing deposits

71,572


91


.51



71,520


82


.45



70,979


58


.33



Federal funds purchased and securities
        sold under repurchase agreements

1,421


4


1.11



360



.08



795


1


.32



Bank notes and other short-term borrowings

1,342


6


1.87



693


3


1.72



1,802


5


1.06



Long-term debt (f), (g)

12,465


92


2.95



13,140


91


2.76



10,833


68


2.54



Total interest-bearing liabilities

86,800


193


.90



85,713


176


.81



84,409


132


.63



Noninterest-bearing deposits

30,984





32,278





31,099





Accrued expense and other liabilities

2,241





1,994





2,048





Discontinued liabilities (g)

1,304





1,359





1,540





Total liabilities

121,329





121,344





119,096




Equity













Key shareholders' equity

14,889





15,268





15,184





Noncontrolling interests

1





1





1





Total equity

14,890





15,269





15,185





Total liabilities and equity

$

136,219





$

136,613





$

134,281




Interest rate spread (TE)



2.88

%




2.85

%




2.94

%

Net interest income (TE) and net interest margin (TE)


952


3.15

%



952


3.09

%



929


3.13

%

TE adjustment (b)


8





14





11




Net interest income, GAAP basis


$

944





$

938





$

918





(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 in effect for that period.  

(c)

For purposes of these computations, nonaccrual loans are included in average loan balances.

(d)

Commercial and industrial average balances include $120 million, $119 million, and $114 million of assets from commercial credit cards for the three months ended March 31, 2018, December 31, 2017, and March 31, 2017, 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


3/31/2018

12/31/2017

3/31/2017

Personnel (a)

$

594


$

608


$

556


Net occupancy

78


92


87


Computer processing

52


54


60


Business services and professional fees

41


52


46


Equipment

26


31


27


Operating lease expense

27


28


19


Marketing

25


35


21


FDIC assessment

21


20


20


Intangible asset amortization

29


26


22


OREO expense, net

2


3


2


Other expense

111


149


153


 Total noninterest expense

$

1,006


$

1,098


$

1,013


Notable items (b)


85


81


 Total noninterest expense excluding notable items

$

1,006


$

1,013


$

932


Average full-time equivalent employees (c)

18,540


18,379


18,386




(a)

Additional detail provided in Personnel Expense table below.

(b)

Notable items for the fourth quarter of 2017 includes $56 million of merger-related charges and $29 million of estimated impacts of tax reform and related actions. Notable items for the first quarter of 2017 includes $81 million of merger-related charges. See the table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement which presents the computations of certain financial measures related to "notable items."

(c)

The number of average full-time equivalent employees has not been adjusted for discontinued operations.

 

 


Personnel Expense

(in millions)






Three months ended


3/31/2018

12/31/2017

3/31/2017

Salaries and contract labor

$

339


$

346


$

324


Incentive and stock-based compensation

145


168


127


Employee benefits

105


90


96


Severance

5


4


9


 Total personnel expense

$

594


$

608


$

556


Notable items (a)


42


30


 Total personnel expense excluding notable items

$

594


$

566


$

526




(a)

Notable items for the fourth quarter of 2017 includes $26 million of merger-related charges and $16 million of estimated impacts of tax reform related actions. Notable items for the first quarter of 2017 includes $30 million of merger-related charges.

 

 

Merger-Related Charges

(in millions)






Three months ended


3/31/2018


12/31/2017


3/31/2017


Personnel


$

26


$

30


Net occupancy


12


5


Business services and professional fees


3


5


Computer processing


1


5


Marketing


5


6


Other nonpersonnel expense


9


30


  Total merger-related charges


$

56


$

81











 

 


Loan Composition

(dollars in millions)











Percent change 3/31/2018 vs.


3/31/2018

12/31/2017

3/31/2017


12/31/2017

3/31/2017

Commercial and industrial (a)

$

44,313


$

41,859


$

40,112



5.9

%

10.5

%

Commercial real estate:







Commercial mortgage

13,997


14,088


15,260



(.6)


(8.3)


Construction

1,871


1,960


2,270



(4.5)


(17.6)


  Total commercial real estate loans

15,868


16,048


17,530



(1.1)


(9.5)


Commercial lease financing (b)

4,598


4,826


4,665



(4.7)


(1.4)


  Total commercial loans

64,779


62,733


62,307



3.3


4.0


Residential — prime loans:







Real estate — residential mortgage

5,473


5,483


5,507



(.2)


(.6)


Home equity loans

11,720


12,028


12,541



(2.6)


(6.5)


  Total residential — prime loans

17,193


17,511


18,048



(1.8)


(4.7)


Consumer direct loans

1,758


1,794


1,735



(2.0)


1.3


Credit cards

1,068


1,106


1,037



(3.4)


3.0


Consumer indirect loans

3,291


3,261


2,998



.9


9.8


  Total consumer loans

23,310


23,672


23,818



(1.5)


(2.1)


  Total loans (c)

$

88,089


$

86,405


$

86,125



1.9

%

2.3

%



(a)

Loan balances include $121 million, $119 million, and $114 million of commercial credit card balances at March 31, 2018, December 31, 2017, and March 31, 2017, respectively.

(b)

Commercial lease financing includes receivables held as collateral for a secured borrowing of $16 million, $24 million, and $55 million at March 31, 2018, December 31, 2017, and March 31, 2017, respectively. Principal reductions are based on the cash payments received from these related receivables.

(c)

Total loans exclude loans of $1.3 billion at March 31, 2018, $1.3 billion at December 31, 2017, and $1.5 billion at March 31, 2017, related to the discontinued operations of the education lending business.

 

 


Loans Held for Sale Composition

(dollars in millions)













Percent change 3/31/2018 vs.


3/31/2018

12/31/2017

3/31/2017


12/31/2017

3/31/2017

Commercial and industrial

$

194


$

139


$

171



39.6

%

13.5

%

Real estate — commercial mortgage

1,426


897


1,150



59.0


24.0


Commercial lease financing



1



N/M

N/M

Real estate — residential mortgage

47


71


62



(33.8)


(24.2)


 Total loans held for sale (a)

$

1,667


$

1,107


$

1,384



50.6

%

20.4

%



(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $47 million at March 31, 2018, $71 million at December 31, 2017, and $62 million at March 31, 2017.

N/M = Not Meaningful

 

 


Summary of Changes in Loans Held for Sale

(in millions)








1Q18

4Q17

3Q17

2Q17

1Q17

Balance at beginning of period

$

1,107


$

1,341


$

1,743


$

1,384


$

1,104


 New originations

3,280


3,566


2,855


2,876


2,563


 Transfers from (to) held to maturity, net

(14)


(10)


(63)


(7)


17


 Loan sales

(2,705)


(3,783)


(3,191)


(2,507)


(2,299)


 Loan draws (payments), net

(1)


(7)


(3)


(3)


(1)


Balance at end of period (a)

$

1,667


$

1,107


$

1,341


$

1,743


$

1,384




(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $47 million at March 31, 2018, $71 million at December 31, 2017, $60 million at September 30, 2017, $63 million at June 30, 2017, and $62 million at March 31, 2017.

 

 


Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)






Three months ended


3/31/2018

12/31/2017

3/31/2017

Average loans outstanding

$

86,927


$

86,006


$

86,133


Allowance for loan and lease losses at beginning of period

$

877


$

880


$

858


Loans charged off:




Commercial and industrial

37


32


32






Real estate — commercial mortgage

1


2



Real estate — construction




  Total commercial real estate loans

1


2



Commercial lease financing

1


5


7


  Total commercial loans

39


39


39


Real estate — residential mortgage

1


1


(2)


Home equity loans

4


7


8


Consumer direct loans

8


8


10


Credit cards

12


10


11


Consumer indirect loans

8


7


11


  Total consumer loans

33


33


38


  Total loans charged off

72


72


77


Recoveries:




Commercial and industrial

6


8


5






Real estate — commercial mortgage


1



Real estate — construction

1



1


  Total commercial real estate loans

1


1


1


Commercial lease financing

1


1


2


  Total commercial loans

8


10


8


Real estate — residential mortgage



2


Home equity loans

3


3


3


Consumer direct loans

2


2


1


Credit cards

1


1


1


Consumer indirect loans

4


4


4


  Total consumer loans

10


10


11


  Total recoveries

18


20


19


Net loan charge-offs

(54)


(52)


(58)


Provision (credit) for loan and lease losses

58


49


70


Foreign currency translation adjustment




Allowance for loan and lease losses at end of period

$

881


$

877


$

870






Liability for credit losses on lending-related commitments at beginning of period

$

57


$

57


$

55


Provision (credit) for losses on lending-related commitments

3



(7)


Liability for credit losses on lending-related commitments at end of period (a)

$

60


$

57


$

48






Total allowance for credit losses at end of period

$

941


$

934


$

918






Net loan charge-offs to average total loans

.25

%

.24

%

.27

%

Allowance for loan and lease losses to period-end loans

1.00


1.01


1.01


Allowance for credit losses to period-end loans

1.07


1.08


1.07


Allowance for loan and lease losses to nonperforming loans

162.8


174.4


151.8


Allowance for credit losses to nonperforming loans

173.9


185.7


160.2






Discontinued operations — education lending business:




Loans charged off

$

4


$

6


$

6


Recoveries

2


2


2


  Net loan charge-offs

$

(2)


$

(4)


$

(4)



(a)     Included in "Accrued expense and other liabilities" on the balance sheet.

 

 


Asset Quality Statistics From Continuing Operations

(dollars in millions)


1Q18

4Q17

3Q17

2Q17

1Q17

Net loan charge-offs

$

54


$

52


$

32


$

66


$

58


Net loan charge-offs to average total loans

.25

%

.24

%

.15

%

.31

%

.27

%

Allowance for loan and lease losses

$

881


$

877


$

880


$

870


$

870


Allowance for credit losses (a)

941


934


937


918


918


Allowance for loan and lease losses to period-end loans

1.00

%

1.01

%

1.02

%

1.01

%

1.01

%

Allowance for credit losses to period-end loans

1.07


1.08


1.08


1.06


1.07


Allowance for loan and lease losses to nonperforming loans (b)

162.8


174.4


170.2


171.6


151.8


Allowance for credit losses to nonperforming loans (b)

173.9


185.7


181.2


181.1


160.2


Nonperforming loans at period end (b)

$

541


$

503


$

517


$

507


$

573


Nonperforming assets at period end (b)

569


534


556


556


623


Nonperforming loans to period-end portfolio loans (b)

.61

%

.58

%

.60

%

.59

%

.67

%

Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming 
     assets (b)

.65


.62


.64


.64


.72




(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 $690 million, $738 million, $783 million, $835 million, and $812 million of purchased credit impaired loans at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017, and March 31, 2017, respectively.

 

 


Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(dollars in millions)


3/31/2018

12/31/2017

9/30/2017

6/30/2017

3/31/2017

Commercial and industrial

$

189


$

153


$

169


$

178


$

258








Real estate — commercial mortgage

33


30


30


34


32


Real estate — construction

2


2


2


4


2


Total commercial real estate loans

35


32


32


38


34


Commercial lease financing

5


6


11


11


5


Total commercial loans

229


191


212


227


297


Real estate — residential mortgage

59


58


57


58


54


Home equity loans

229


229


227


208


207


Consumer direct loans

4


4


3


2


3


Credit cards

2


2


2


2


3


Consumer indirect loans

18


19


16


10


9


Total consumer loans

312


312


305


280


276


Total nonperforming loans (a)

541


503


517


507


573


OREO

28


31


39


48


49


Other nonperforming assets




1


1


Total nonperforming assets (a)

$

569


$

534


$

556


$

556


$

623


Accruing loans past due 90 days or more

$

82


$

89


$

86


$

85


$

79


Accruing loans past due 30 through 89 days

305


359


329


340


312


Restructured loans — accruing and nonaccruing (b)

317


317


315


333


302


Restructured loans included in nonperforming loans (b)

179


189


187


193


161


Nonperforming assets from discontinued operations — education lending business

6


7


8


5


4


Nonperforming loans to period-end portfolio loans (a)

.61

%

.58

%

.60

%

.59

%

.67

%

Nonperforming assets to period-end portfolio loans plus OREO and other 
     nonperforming assets (a)

.65


.62


.64


.64


.72




(a)

Nonperforming loan balances exclude $690 million, $738 million, $783 million, $835 million, and $812 million of purchased credit impaired loans at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017, and March 31, 2017, respectively.                

(b)

Restructured loans (i.e., troubled debt restructuring) 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)


1Q18

4Q17

3Q17

2Q17

1Q17

Balance at beginning of period

$

503


$

517


$

507


$

573


$

625


Loans placed on nonaccrual status

182


137


181


143


218


Charge-offs

(70)


(67)


(71)


(82)


(77)


Loans sold



(1)



(8)


Payments

(29)


(52)


(32)


(84)


(59)


Transfers to OREO

(4)


(8)


(10)


(8)


(11)


Loans returned to accrual status

(41)


(24)


(57)


(35)


(115)


Balance at end of period (a)

$

541


$

503


$

517


$

507


$

573




(a)

Nonperforming loan balances exclude $690 million, $738 million, $783 million, $835 million, and $812 million of purchased credit impaired loans at March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017, and March 31, 2017, respectively.

 

 

Line of Business Results

(dollars in millions)

















Percent change 1Q18 vs.


1Q18

4Q17

3Q17

2Q17

1Q17


4Q17

1Q17

Key Community Bank









Summary of operations









Total revenue (TE)

$

973


$

972


$

961


$

1,012


$

905



.1

%

7.5

%

Provision for credit losses

48


57


59


47


46



(15.8)


4.3


Noninterest expense

668


677


641


654


625



(1.3)


6.9


Net income (loss) attributable to Key

196


151


164


195


147



29.8


33.3


Average loans and leases

47,680


47,405


47,611


47,477


47,085



.6


1.3


Average deposits

79,945


80,352


79,563


79,601


79,148



(.5)


1.0


Net loan charge-offs

42


35


41


47


43



20.0


(2.3)


Net loan charge-offs to average total loans

.36

%

.29

%

.34

%

.40

%

.37

%


N/A


N/A


Nonperforming assets at period end

$

425


$

405


$

427


$

406


$

395



4.9


7.6


Return on average allocated equity

16.48

%

12.35

%

13.44

%

16.30

%

12.56

%


N/A


N/A


Average full-time equivalent employees

10,988


10,957


11,032


10,899


10,804



.3


1.7











Key Corporate Bank









Summary of operations









Total revenue (TE)

$

559


$

605


$

561


$

597


$

578



(7.6)

%

(3.3)

%

Provision for credit losses

14


(6)


(11)


19


18



N/M


(22.2)


Noninterest expense

314


354


304


297


304



(11.3)


3.3


Net income (loss) attributable to Key

207


222


189


224


180



(6.8)


15.0


Average loans and leases

38,260


37,460


38,024


37,704


37,688



2.1


1.5


Average loans held for sale

1,118


1,345


1,521


1,000


1,097



(16.9)


1.9


Average deposits

20,815


21,558


21,559


21,145


21,002



(3.4)


(.9)


Net loan charge-offs

11


16


(9)


19


14



(31.3)


(21.4)


Net loan charge-offs to average total loans

.12

%

.17

%

(.09)

%

.20

%

.15

%


N/A


N/A


Nonperforming assets at period end

$

127


$

109


$

106


$

119


$

197



16.5


(35.5)


Return on average allocated equity

29.46

%

31.33

%

26.90

%

31.66

%

24.94

%


N/A


N/A


Average full-time equivalent employees

2,543


2,418


2,460


2,364


2,384



5.2


6.7


TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful
















 

 

Cision View original content:http://www.prnewswire.com/news-releases/keycorp-reports-first-quarter-2018-net-income-of-402-million-or-38-per-common-share-300632883.html

SOURCE KeyCorp