KEY
$18.26
Keycorp
($.03)
(.16%)
Earnings Details
3rd Quarter September 2018
Thursday, October 18, 2018 6:30:00 AM
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Summary

Keycorp Reports In-line

Keycorp (KEY) reported 3rd Quarter September 2018 earnings of $0.45 per share on revenue of $1.8 billion. The consensus earnings estimate was $0.44 per share on revenue of $1.6 billion. The Earnings Whisper number was $0.45 per share. Revenue grew 8.6% 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
$0.45
Earnings Whisper
$0.45
Consensus Estimate
$0.44
Reported Revenue
$1.85 Bil
Revenue Estimate
$1.63 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

KeyCorp Reports Third Quarter 2018 Net Income Of $468 Million, Or $.45 Per Common Share

CLEVELAND, Oct. 18, 2018 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced third quarter net income from continuing operations attributable to Key common shareholders of $468 million, or $.45 per common share, compared to $464 million, or $.44 per common share, for the second quarter of 2018 and $349 million, or $.32 per common share, for the third quarter of 2017.

"Our solid third quarter results reflect our success in growing and expanding client relationships, driving efficiency across the organization, and staying true to our moderate risk profile. This quarter, our return on tangible common equity ratio was 16.8%, and our cash efficiency ratio was 58.7%, both an improvement of over 300 basis points from last year.

"Our Community Bank and Corporate Bank both contributed to our year-over-year revenue growth of 3%, which demonstrates our competitive positioning and the success of our distinctive relationship-based business model. Expense management remains a priority, as we continue to execute on our cost initiatives, which allows us to reinvest into our businesses.

"Credit quality and capital remain strengths, with solid credit trends this quarter and disciplined capital management. Importantly, we increased our common share dividend 42% during the third quarter – from $.12 to $.17. We remain dedicated to delivering results for our shareholders, as we focus on maintaining our moderate risk profile, and staying diligent in managing credit quality as we move through different parts of the business cycle."

-       Beth Mooney, Chairman and CEO

Selected Financial Highlights















dollars in millions, except per share data





Change 3Q18 vs.



3Q18

2Q18

3Q17


2Q18

3Q17

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

$

468


$

464


$

349



.9

%

34.1

%

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

.45


.44


.32



2.3


40.6


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

16.81

%

16.73

%

12.21

%


N/A


N/A


Return on average total assets from continuing operations

1.40


1.41


1.07



N/A


N/A


Common Equity Tier 1 ratio (b)

9.93


10.13


10.26



N/A


N/A


Book value at period end

$

13.33


$

13.29


$

13.18



.3

%

1.1

%

Net interest margin (TE) from continuing operations

3.18

%

3.19

%

3.15

%


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)

9/30/2018 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 

INCOME STATEMENT HIGHLIGHTS














Revenue














dollars in millions





Change 3Q18 vs.


3Q18

2Q18

3Q17


2Q18

3Q17

Net interest income (TE)

$

993


$

987


$

962



.6

%

3.2

%

Noninterest income

609


660


592



(7.7)


2.9


Total revenue

$

1,602


$

1,647


$

1,554



(2.7)

%

3.1

%








TE = Taxable Equivalent

Taxable-equivalent net interest income was $993 million for the third quarter of 2018, and the net interest margin was 3.18%, compared to taxable-equivalent net interest income of $962 million and a net interest margin of 3.15% for the third quarter of 2017, reflecting the benefit from higher interest rates and higher earning asset balances. Third quarter 2018 net interest income included $26 million of purchase accounting accretion, a decline of $22 million from the third quarter of 2017.

Compared to the second quarter of 2018, taxable-equivalent net interest income increased by $6 million, and the net interest margin declined by one basis point. Both net interest income and the net interest margin benefited from higher interest rates. One additional day in the third quarter further benefited net interest income. These benefits were offset by lower loan fees, an expected decline in purchase accounting accretion, and an elevated level of liquidity, reflecting higher short-term and seasonal deposits, as well as commercial loan paydowns.

Noninterest Income














dollars in millions





Change 3Q18 vs.


3Q18

2Q18

3Q17


2Q18

3Q17

Trust and investment services income

$

117


$

128


$

135



(8.6)

%

(13.3)

%

Investment banking and debt placement fees

166


155


141



7.1


17.7


Service charges on deposit accounts

85


91


91



(6.6)


(6.6)


Operating lease income and other leasing gains

35


(6)


16



N/M


118.8


Corporate services income

52


61


54



(14.8)


(3.7)


Cards and payments income

69


71


75



(2.8)


(8.0)


Corporate-owned life insurance income

34


32


31



6.3


9.7


Consumer mortgage income

9


7


7



28.6


28.6


Mortgage servicing fees

19


22


21



(13.6)


(9.5)


Other income

23


99


21



(76.8)


9.5


Total noninterest income

$

609


$

660


$

592



(7.7)

%

2.9

%








N/M = Not meaningful

Key's noninterest income was $609 million for the third quarter of 2018, compared to $592 million for the year-ago quarter. Growth was primarily driven by a $25 million increase in investment banking and debt placement fees, related to strength in advisory fees, including benefit from the acquisition of Cain Brothers, as well as organic growth. Operating lease and other leasing gains increased $19 million related to higher volume and lease residual losses in the year-ago period. A decline in trust and investment services income, impacted by the sale of Key Insurance and Benefits Services in the second quarter of 2018, partially offset the increases. Cards and payments income and service charges on deposit accounts both declined $6 million, driven by the 2018 adoption of the revenue recognition accounting standard.

Compared to the second quarter of 2018, noninterest income decreased by $51 million. The decline was primarily related to a $78 million gain from the sale of Key Insurance and Benefits Services in the prior quarter, reported in other income. Trust and investment services income declined $11 million, primarily impacted by the sale of Key Insurance and Benefits Services, and corporate services income declined $9 million from lower derivative income. Partially offsetting these items was a $41 million increase in operating lease income and other leasing gains, related to a lease residual loss in the prior quarter. Additionally, investment banking and debt placement fees continue to show momentum, as fees increased $11 million, largely related to strength in advisory and loan syndication fees.

Noninterest Expense














dollars in millions





Change 3Q18 vs.


3Q18

2Q18

3Q17


2Q18

3Q17

Personnel expense

$

553


$

586


$

559



(5.6)

%

(1.1)

%

Nonpersonnel expense

411


407


433



1.0


(5.1)


Total noninterest expense

$

964


$

993


$

992



(2.9)

%

(2.8)

%









Key's noninterest expense was $964 million for the third quarter of 2018, compared to $992 million in the year-ago quarter. The third quarter of 2017 included $36 million of merger-related charges. Excluding these charges, the increase in expenses from the year-ago period was largely related to growth from the Cain Brothers acquisition and other investments throughout the year. This growth offset the realization of cost savings efforts across the franchise.

Key's noninterest expense was $964 million for the third quarter of 2018, compared to $993 million in the prior quarter. The decrease was largely driven by a $33 million decline in personnel expense, including lower severance and incentive compensation expense. Additionally, business services and professional fees declined by $8 million, partially offset by an increase in other expense.

 BALANCE SHEET HIGHLIGHTS

Average Loans














dollars in millions





Change 3Q18 vs.


3Q18

2Q18

3Q17


2Q18

3Q17

Commercial and industrial (a)

$

44,749


$

45,030


$

41,416



(.6)

%

8.0

%

Other commercial loans

20,471


20,394


21,598



.4


(5.2)


Home equity loans

11,415


11,601


12,314



(1.6)


(7.3)


Other consumer loans

11,832


11,619


11,486



1.8


3.0


Total loans

$

88,467


$

88,644


$

86,814



(.2)

%

1.9

%








(a)

Commercial and industrial average loan balances include $128 million, $126 million, and $117 million of assets from commercial credit cards at September 30, 2018, June 30, 2018, and September 30, 2017, respectively.

Average loans were $88.5 billion for the third quarter of 2018, an increase of $1.7 billion compared to the third quarter of 2017, reflecting broad-based growth in commercial and industrial loans, partially offset by higher paydowns in commercial real estate balances and home equity lines of credit.

Compared to the second quarter of 2018, average loans decreased by $177 million, driven by continued levels of lower utilization and elevated paydowns. Period-end loan balances grew $1.0 billion compared to the prior quarter, reflecting increased momentum, as growth in commercial and industrial loans and commercial real estate balances increased near the end of the third quarter.

Average Deposits














dollars in millions





Change 3Q18 vs.


3Q18

2Q18

3Q17


2Q18

3Q17

Non-time deposits

$

92,414


$

91,538


$

92,039



1.0

%

.4

%

Certificates of deposit ($100,000 or more)

8,186


7,516


6,402



8.9


27.9


Other time deposits

5,026


4,949


4,664



1.6


7.8


Total deposits

$

105,626


$

104,003


$

103,105



1.6

%

2.4

%








Cost of total deposits

.53

%

.43

%

.28

%


N/A

N/A








N/A = Not Applicable

Average deposits totaled $105.6 billion for the third quarter of 2018, an increase of $2.5 billion compared to the year-ago quarter, reflecting growth in higher-yielding deposit products, as well as strength in Key's retail banking franchise and growth from commercial relationships.

Compared to the second quarter of 2018, average deposits increased by $1.6 billion, reflecting growth from retail and commercial relationships, as well as short-term and seasonal deposit inflows.

ASSET QUALITY














dollars in millions





Change 3Q18 vs.


3Q18

2Q18

3Q17


2Q18

3Q17

Net loan charge-offs

$

60


$

60


$

32




87.5

%

Net loan charge-offs to average total loans

.27

%

.27

%

.15

%


N/A


N/A


Nonperforming loans at period end (a)

$

645


$

545


$

517



18.3

%

24.8


Nonperforming assets at period end (a)

674


571


556



18.0


21.2


Allowance for loan and lease losses

887


887


880




.8


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

137.5

%

162.8

%

170.2

%


N/A


N/A


Provision for credit losses

$

62


$

64


$

51



(3.1)

%

21.6

%








(a)

Nonperforming loan balances exclude $606 million, $629 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, and September 30, 2017, respectively.

N/A = Not Applicable

Key's provision for credit losses was $62 million for the third quarter of 2018, compared to $51 million for the third quarter of 2017 and $64 million for the second quarter of 2018. Key's allowance for loan and lease losses was $887 million, or .99% of total period-end loans at September 30, 2018, compared to 1.02% at September 30, 2017, and 1.01% at June 30, 2018.

Net loan charge-offs for the third quarter of 2018 totaled $60 million, or .27% of average total loans. These results compare to $32 million, or .15%, for the third quarter of 2017, and $60 million, or .27%, for the second quarter of 2018.

At September 30, 2018, Key's nonperforming loans totaled $645 million, which represented .72% of period-end portfolio loans. These results compare to .60% at September 30, 2017, and .62% at June 30, 2018. Nonperforming assets at September 30, 2018, totaled $674 million, and represented .75% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .64% at September 30, 2017, and .65% at June 30, 2018.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at September 30, 2018.

Capital Ratios









9/30/2018


6/30/2018


9/30/2017


Common Equity Tier 1 (a)

9.93

%

10.13

%

10.26

%

Tier 1 risk-based capital (a)

11.09


10.95


11.11


Total risk based capital (a)

12.97


12.83


13.09


Tangible common equity to tangible assets (b)

8.05


8.32


8.49


Leverage (a)

10.05


9.87


9.83






(a)

9/30/2018 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 third quarter. As shown in the preceding table, at September 30, 2018, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.93% and 11.09%, respectively. Key's tangible common equity ratio was 8.05% at September 30, 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 9.85% at September 30, 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 3Q18 vs.



3Q18

2Q18

3Q17


2Q18

3Q17

Shares outstanding at beginning of period

1,058,944


1,064,939


1,092,739



(.6)

%

(3.1)

%

Open market repurchases and return of shares under employee 
     compensation plans

(25,418)


(6,259)


(15,298)



306.1


66.2


Shares issued under employee compensation plans (net of cancellations)

761


264


1,598



188.3


(52.4)


     Shares outstanding at end of period

1,034,287


1,058,944


1,079,039



(2.3)

%

(4.1)

%









N/M = Not Meaningful

Consistent with Key's 2018 Capital Plan, during the third quarter of 2018, Key declared a dividend of $.17 per common share, reflecting a 42% increase from the prior quarter. Key also completed $542 million of common share repurchases during the quarter.

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 3Q18 vs.



3Q18

2Q18

3Q17


2Q18

3Q17

Revenue from continuing operations (TE)







Key Community Bank

$

994


$

997


$

945



(.3)

%

5.2

%

Key Corporate Bank

574


542


561



5.9


2.3


Other Segments

24


37


42



(35.1)


(42.9)



Total segments

1,592


1,576


1,548



1.0


2.8


Reconciling Items (a)

10


71


6



(85.9)


66.7



Total

$

1,602


$

1,647


$

1,554



(2.7)

%

3.1

%









Income (loss) from continuing operations attributable to Key







Key Community Bank

$

241


$

243


$

163



(.8)

%

47.9

%

Key Corporate Bank

199


167


190



19.2


4.7


Other Segments

22


25


21



(12.0)


4.8



Total segments

462


435


374



6.2


23.5


Reconciling Items (b)

20


44


(11)



(54.5)


N/M



Total

$

482


$

479


$

363



.6

%

32.8

%









(a)

Reconciling items consists primarily of the gain on the sale of Key Insurance and Benefits Services for the second quarter of 2018.

(b)

Reconciling items consists primarily of the gain on the sale of Key Insurance and Benefits Services for the second quarter of 2018, the unallocated portion of merger-related charges for the third quarter of 2017, 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 3Q18 vs.


3Q18

2Q18

3Q17


2Q18

3Q17

Summary of operations







Net interest income (TE)

$

726


$

715


$

673



1.5

%

7.9

%

Noninterest income

268


282


272



(5.0)


(1.5)


Total revenue (TE)

994


997


945



(.3)


5.2


Provision for credit losses

43


38


59



13.2


(27.1)


Noninterest expense

635


640


626



(.8)


1.4


Income (loss) before income taxes (TE)

316


319


260



(.9)


21.5


Allocated income taxes (benefit) and TE adjustments

75


76


97



(1.3)


(22.7)


Net income (loss) attributable to Key

$

241


$

243


$

163



(.8)

%

47.9

%








Average balances







Loans and leases

$

47,862


$

47,985


$

47,614



(.3)

%

.5

%

Total assets

51,740


51,867


51,642



(.2)


.2


Deposits

82,259


80,930


79,563



1.6


3.4









Assets under management at period end

$

40,575


$

39,663


$

38,660



2.3

%

5.0

%








TE = Taxable Equivalent

 

Additional Key Community Bank Data














dollars in millions





Change 3Q18 vs.


3Q18

2Q18

3Q17


2Q18

3Q17

Noninterest income







Trust and investment services income

$

90


$

92


$

85



(2.2)

%

5.9

%

Service charges on deposit accounts

72


77


78



(6.5)


(7.7)


Cards and payments income

59


59


65




(9.2)


Other noninterest income

47


54


44



(13.0)


6.8


Total noninterest income

$

268


$

282


$

272



(5.0)

%

(1.5)

%








Average deposit balances







NOW and money market deposit accounts

$

45,967


$

45,112


$

44,481



1.9

%

3.3

%

Savings deposits

4,923


5,078


5,165



(3.1)


(4.7)


Certificates of deposit ($100,000 or more)

5,608


5,232


4,195



7.2


33.7


Other time deposits

5,019


4,934


4,657



1.7


7.8


Noninterest-bearing deposits

20,742


20,574


21,065



.8


(1.5)


Total deposits

$

82,259


$

80,930


$

79,563



1.6

%

3.4

%








Home equity loans







Average balance

$

11,317


$

11,496


$

12,182





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

70

%

70

%

69

%




Percent first lien positions

60


60


60












Other data







Branches

1,166


1,177


1,208





Automated teller machines

1,518


1,537


1,588












Key Community Bank Summary of Operations (3Q18 vs. 3Q17)

  • Positive operating leverage compared to the prior year
  • Net income increased $78 million, or 47.9%, from the prior year
  • Average commercial and industrial loans increased $831 million, or 4.4%, from the prior year

Key Community Bank recorded net income attributable to Key of $241 million for the third quarter of 2018, compared to $163 million for the year-ago quarter, benefiting from momentum in Key's core businesses and a lower tax rate as a result of tax reform.

Taxable-equivalent net interest income increased by $53 million, or 7.9%, from the third quarter of 2017. The increase in net interest income was primarily attributable to the benefit from higher interest rates and balance sheet growth, partially offset by lower purchase accounting accretion. Average loans and leases increased $248 million, or .5%, largely driven by a $831 million, or 4.4%, increase in commercial and industrial loans, partially offset by a continued decline in home equity, in line with industry trends. Additionally, average deposits increased $2.7 billion, or 3.4%, driven by growth across multiple businesses, from the third quarter of 2017.

Noninterest income decreased $4 million, or 1.5%, from the year-ago quarter driven by lower service charges on deposit accounts and cards and payments income, which were impacted by revenue recognition changes. This was partially offset by higher trust and investment services income, which increased primarily due to higher assets under management from market growth.

The provision for credit losses decreased by $16 million, or 27.1%, from the third quarter of 2017. Net loan charge-offs increased $2 million, or 4.9%, from the third quarter of 2017, as overall credit quality remained stable.

Noninterest expense increased $9 million, or 1.4%, from the year-ago quarter. Personnel expense increased, primarily driven by higher production related incentive compensation and ongoing investments, including residential mortgage.

Key Corporate Bank





















dollars in millions





Change 3Q18 vs.


3Q18

2Q18

3Q17


2Q18

3Q17

Summary of operations







Net interest income (TE)

$

273


$

277


$

292



(1.4)

%

(6.5)

%

Noninterest income

301


265


269



13.6


11.9


Total revenue (TE)

574


542


561



5.9


2.3


Provision for credit losses

20


28


(11)



(28.6)


N/M


Noninterest expense

316


325


303



(2.8)


4.3


Income (loss) before income taxes (TE)

238


189


269



25.9


(11.5)


Allocated income taxes and TE adjustments

39


22


79



77.3


(50.6)


Net income (loss) attributable to Key

$

199


$

167


$

190



19.2

%

4.7

%








Average balances







Loans and leases

$

39,714


$

39,709


$

38,021




4.5

%

Loans held for sale

1,042


1,299


1,521



(19.8)

%

(31.5)


Total assets

46,860


47,212


45,257



(.7)


3.5


Deposits

21,056


21,057


21,559




(2.3)









TE = Taxable Equivalent, N/M = Not Meaningful

 

Additional Key Corporate Bank Data














dollars in millions





Change 3Q18 vs.


3Q18

2Q18

3Q17


2Q18

3Q17

Noninterest income







Trust and investment services income

$

27


$

29


$

34



(6.9)

%

(20.6)

%

Investment banking and debt placement fees

162


153


137



5.9


18.2


Operating lease income and other leasing gains

34


(10)


13



N/M


161.5









Corporate services income

37


44


40



(15.9)


(7.5)


Service charges on deposit accounts

13


13


13





Cards and payments income

10


12


10



(16.7)



Payments and services income

60


69


63



(13.0)


(4.8)









Mortgage servicing fees

15


19


18



(21.1)


(16.7)


Other noninterest income

3


5


4



(40.0)


(25.0)


Total noninterest income

$

301


$

265


$

269



13.6

%

11.9

%








N/M = Not Meaningful

Key Corporate Bank Summary of Operations (3Q18 vs. 3Q17)

  • Commercial and industrial loans up $2.6 billion, or 11.4%, from prior year
  • Investment banking and debt placement fees up $25 million, or 18.2%, from prior year

Key Corporate Bank recorded net income attributable to Key of $199 million for the third quarter of 2018, compared to $190 million for the year-ago quarter.

Taxable-equivalent net interest income decreased by $19 million, or 6.5%, compared to the third quarter of 2017.  This decline is primarily related to $7 million of lower purchase accounting accretion, as well as loan spread compression.  Average loan and lease balances increased $1.7 billion, or 4.5%, from the year-ago quarter, driven by broad-based growth in commercial and industrial loans, partially offset by a continued decline in home equity. Average deposit balances decreased $503 million, or 2.3%, from the year-ago quarter, driven by the managed exit of higher cost corporate and public sector deposits offsetting growth in core deposits.

Noninterest income was up $32 million, or 11.9%, from the prior year.  Investment banking and debt placement fees increased $25 million related to the acquisition of Cain Brothers and organic growth. Operating lease income and other leasing gains increased $21 million due to higher volumes, as well as lease residual losses in the year-ago period.  These increases were slightly offset by lower trust and investment services income of $7 million, as well as $3 million declines in both mortgage fees due to lower transactional fees and corporate services income due to lower derivatives income.

During the third quarter of 2018, the provision for credit losses increased $31 million, compared to the third quarter of 2017, mostly due to higher net loan charge-offs.

Noninterest expense increased by $13 million, or 4.3%, from the third quarter of 2017. The increase from the prior year was largely related to acquisitions and investments made throughout the year driving increases in personnel expense and intangible amortization, as well as higher operating lease expense, driven by increased volume.

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 $22 million for the third 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 $138.8 billion at September 30, 2018.

Key provides deposit, lending, cash management, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of over 1,100 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, October 18, 2018.  An audio replay of the call will be available through October 28, 2018.

*****

KeyCorp
Third Quarter 2018
Financial Supplement

 

Financial Highlights

(dollars in millions, except per share amounts)




Three months ended




9/30/2018

6/30/2018

9/30/2017

Summary of operations





Net interest income (TE)

$

993


$

987


$

962



Noninterest income

609


660


592




Total revenue (TE)

1,602


1,647


1,554



Provision for credit losses

62


64


51



Noninterest expense

964


993


992



Income (loss) from continuing operations attributable to Key

482


479


363



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


3


1



Net income (loss) attributable to Key

482


482


364









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

468


464


349



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


3


1



Net income (loss) attributable to Key common shareholders

468


467


350








Per common share





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

$

.45


$

.44


$

.32



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





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

.45


.44


.32









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

.45


.44


.32



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





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

.45


.44


.32









Cash dividends declared

.17


.12


.095



Book value at period end

13.33


13.29


13.18



Tangible book value at period end

10.59


10.59


10.52



Market price at period end

19.89


19.54


18.82








Performance ratios





From continuing operations:





Return on average total assets

1.40

%

1.41

%

1.07

%


Return on average common equity

13.36


13.29


9.74



Return on average tangible common equity (c)

16.81


16.73


12.21



Net interest margin (TE)

3.18


3.19


3.15



Cash efficiency ratio (c)

58.7


58.8


62.2









From consolidated operations:





Return on average total assets

1.39

%

1.40

%

1.06

%


Return on average common equity

13.36


13.37


9.77



Return on average tangible common equity (c)

16.81


16.84


12.25



Net interest margin (TE)

3.16


3.17


3.13



Loan to deposit (d)

87.0


86.9


86.2








Capital ratios at period end





Key shareholders' equity to assets

10.96

%

10.96

%

11.15

%


Key common shareholders' equity to assets

9.93


10.21


10.40



Tangible common equity to tangible assets (c)

8.05


8.32


8.49



Common Equity Tier 1 (e)

9.93


10.13


10.26



Tier 1 risk-based capital (e)

11.09


10.95


11.11



Total risk-based capital (e)

12.97


12.83


13.09



Leverage (e)

10.05


9.87


9.83








Asset quality — from continuing operations





Net loan charge-offs

$

60


$

60


$

32



Net loan charge-offs to average loans

.27

%

.27

%

.15

%


Allowance for loan and lease losses

$

887


$

887


$

880



Allowance for credit losses

947


945


937



Allowance for loan and lease losses to period-end loans

.99

%

1.01

%

1.02

%


Allowance for credit losses to period-end loans

1.06


1.07


1.08



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

137.5


162.8


170.2



Allowance for credit losses to nonperforming loans (f)

146.8


173.4


181.2



Nonperforming loans at period-end (f)

$

645


$

545


$

517



Nonperforming assets at period-end (f)

674


571


556



Nonperforming loans to period-end portfolio loans (f)

.72

%

.62

%

.60

%


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

.75


.65


.64








Trust assets





Assets under management

$

40,575


$

39,663


$

38,660








Other data





Average full-time equivalent employees

18,150


18,376


18,548



Branches

1,166


1,177


1,208








Taxable-equivalent adjustment

$

7


$

8


$

14


 

Financial Highlights (continued)

(dollars in millions, except per share amounts)



Nine months ended



9/30/2018


9/30/2017

Summary of operations





Net interest income (TE)

$

2,932



$

2,878



Noninterest income

1,870



1,822



Total revenue (TE)

4,802



4,700



Provision for credit losses

187



180



Noninterest expense

2,963



3,000



Income (loss) from continuing operations attributable to Key

1,377



1,094



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

5



6



Net income (loss) attributable to Key

1,382



1,100








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

$

1,334



$

1,038



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

5



6



Net income (loss) attributable to Key common shareholders

1,339



1,044







Per common share





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

$

1.28



$

.96



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

.01



.01



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

1.27



.97








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

1.26



.95



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

.01



.01



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

1.26



.96








Cash dividends paid

.395



.275







Performance ratios





From continuing operations:





Return on average total assets

1.35

%


1.10

%


Return on average common equity

12.81



9.89



Return on average tangible common equity (c)

16.16



12.36



Net interest margin (TE)

3.17



3.19



Cash efficiency ratio (c)

60.1



62.4








From consolidated operations:





Return on average total assets

1.35

%


1.09

%


Return on average common equity

12.86



9.95



Return on average tangible common equity (c)

16.22



12.43



Net interest margin (TE)

3.15



3.17







Asset quality — from continuing operations





Net loan charge-offs

$

174



$

156



Net loan charge-offs to average total loans

.26

%


.24

%






Other data





Average full-time equivalent employees

18,354



18,427







Taxable-equivalent adjustment

23



39




(a)

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)

September 30, 2018, ratio is estimated.

(f)

Nonperforming loan balances exclude $606 million, $629 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, and September 30, 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," 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.

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.

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. Management believes this ratio provide greater consistency and comparability between Key's results and those of its peer banks. Additionally, this ratio is 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


Nine months ended


9/30/2018

6/30/2018

9/30/2017


9/30/2018

9/30/2017

Tangible common equity to tangible assets at period-end







Key shareholders' equity (GAAP)

$

15,208


$

15,100


$

15,249





Less: Intangible assets (a)

2,838


2,858


2,870





      Preferred Stock (b)

1,421


1,009


1,009





      Tangible common equity (non-GAAP)

$

10,949


$

11,233


$

11,370





Total assets (GAAP)

$

138,805


$

137,792


$

136,733





Less: Intangible assets (a)

2,838


2,858


2,870





      Tangible assets (non-GAAP)

$

135,967


$

134,934


$

133,863





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

8.05

%

8.32

%

8.49

%




Pre-provision net revenue







Net interest income (GAAP)

$

986


$

979


$

948



$

2,909


$

2,839


Plus: Taxable-equivalent adjustment

7


8


14



23


39


      Noninterest income

609


660


592



1,870


1,822


Less: Noninterest expense

964


993


992



2,963


3,000


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

$

638


$

654


$

562



$

1,839


$

1,700


Average tangible common equity







Average Key shareholders' equity (GAAP)

$

15,210


$

15,032


$

15,241



$

15,045


$

15,208


Less: Intangible assets (average) (c)

2,848


2,883


2,878



2,882


2,802


      Preferred stock (average)

1,316


1,025


1,025



1,123


1,175


      Average tangible common equity (non-GAAP)

$

11,046


$

11,124


$

11,338



$

11,040


$

11,231


Return on average tangible common equity from continuing operations







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

$

468


$

464


$

349



$

1,334


$

1,038


Average tangible common equity (non-GAAP)

11,046


11,124


11,338



11,040


11,231









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

16.81

%

16.73

%

12.21

%


16.16

%

12.36

%

Return on average tangible common equity consolidated







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

$

468


$

467


$

350



$

1,339


$

1,044


Average tangible common equity (non-GAAP)

11,046


11,124


11,338



11,040


11,231









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

16.81

%

16.84

%

12.25

%


16.22

%

12.43

%

Cash efficiency ratio







Noninterest expense (GAAP)

$

964


$

993


$

992



$

2,963


$

3,000


Less: Intangible asset amortization

23


25


25



77


69


      Adjusted noninterest expense (non-GAAP)

$

941


$

968


$

967



$

2,886


$

2,931









Net interest income (GAAP)

$

986


$

979


$

948



$

2,909


$

2,839


Plus: Taxable-equivalent adjustment

7


8


14



23


39


      Noninterest income

609


660


592



1,870


1,822


      Total taxable-equivalent revenue (non-GAAP)

$

1,602


$

1,647


$

1,554



$

4,802


$

4,700









Cash efficiency ratio (non-GAAP)

58.7

%

58.8

%

62.2

%


60.1

%

62.4

%

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)




Three
months
ended




9/30/2018

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



Common Equity Tier 1 under current RCR

$

12,197



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




Deferred tax assets and other intangible assets (d)




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

$

12,197







Net risk-weighted assets under current RCR

$

122,781



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




Mortgage servicing assets (f)

755




Deferred tax assets

345




All other assets




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

$

123,881







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

9.85

%



(a)

For the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, intangible assets exclude $17 million, $20 million, and $30 million, respectively, of period-end purchased credit card receivables.

(b)

Net of capital surplus.

(c)

For the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, average intangible assets exclude $18 million, $21 million, and $32 million, respectively, of average purchased credit card receivables. For the nine months ended September 30, 2018, and September 30, 2017, average intangible assets exclude $21 million and $36 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)










9/30/2018

6/30/2018

9/30/2017

Assets





Loans

$

89,268


$

88,222


$

86,492



Loans held for sale

1,618


1,418


1,341



Securities available for sale

18,341


17,367


19,012



Held-to-maturity securities

11,869


12,277


10,276



Trading account assets

958


833


783



Short-term investments

2,272


2,646


3,993



Other investments

681


709


728




Total earning assets

125,007


123,472


122,625



Allowance for loan and lease losses

(887)


(887)


(880)



Cash and due from banks

319


784


562



Premises and equipment

891


892


916



Operating lease assets

930


903


736



Goodwill

2,516


2,516


2,487



Other intangible assets

338


361


412



Corporate-owned life insurance

4,156


4,147


4,113



Accrued income and other assets

4,378


4,382


4,366



Discontinued assets

1,157


1,222


1,396




Total assets

$

138,805


$

137,792


$

136,733








Liabilities





Deposits in domestic offices:






NOW and money market deposit accounts

$

57,219


$

55,059


$

53,734




Savings deposits

4,948


6,199


6,366




Certificates of deposit ($100,000 or more)

8,453


7,547


6,519




Other time deposits

5,130


4,943


4,720




  Total interest-bearing deposits

75,750


73,748


71,339




Noninterest-bearing deposits

30,030


30,800


32,107




  Total deposits

105,780


104,548


103,446



Federal funds purchased and securities sold under repurchase agreements

1,285


1,667


372



Bank notes and other short-term borrowings

637


639


616



Accrued expense and other liabilities

2,044


1,983


1,949



Long-term debt

13,849


13,853


15,100




Total liabilities

123,595


122,690


121,483








Equity





Preferred stock

1,450


1,025


1,025



Common shares

1,257


1,257


1,257



Capital surplus

6,315


6,315


6,310



Retained earnings

11,262


10,970


10,125



Treasury stock, at cost

(3,910)


(3,382)


(2,962)



Accumulated other comprehensive income (loss)

(1,166)


(1,085)


(506)




Key shareholders' equity

15,208


15,100


15,249



Noncontrolling interests

2


2


1




Total equity

15,210


15,102


15,250


Total liabilities and equity

$

138,805


$

137,792


$

136,733








Common shares outstanding (000)

1,034,287


1,058,944


1,079,039


 

Consolidated Statements of Income

(dollars in millions, except per share amounts)




Three months ended


Nine months ended




9/30/2018

6/30/2018

9/30/2017


9/30/2018

9/30/2017

Interest income








Loans

$

1,025


$

1,000


$

928



$

2,965


$

2,753



Loans held for sale

12


16


17



40


39



Securities available for sale

102


97


91



294


276



Held-to-maturity securities

72


72


55



213


161



Trading account assets

7


7


7



21


21



Short-term investments

15


8


6



31


14



Other investments

6


5


5



17


12




Total interest income

1,239


1,205


1,109



3,581


3,276


Interest expense








Deposits

140


112


72



343


196



Federal funds purchased and securities sold under repurchase agreements

1


5




10


1



Bank notes and other short-term borrowings

4


7


3



17


12



Long-term debt

108


102


86



302


228




Total interest expense

253


226


161



672


437


Net interest income

986


979


948



2,909


2,839


Provision for credit losses

62


64


51



187


180


Net interest income after provision for credit losses

924


915


897



2,722


2,659


Noninterest income








Trust and investment services income

117


128


135



378


404



Investment banking and debt placement fees

166


155


141



464


403



Service charges on deposit accounts

85


91


91



265


268



Operating lease income and other leasing gains

35


(6)


16



61


69



Corporate services income

52


61


54



175


163



Cards and payments income

69


71


75



202


210



Corporate-owned life insurance income

34


32


31



98


94



Consumer mortgage income

9


7


7



23


19



Mortgage servicing fees

19


22


21



61


54



Other income (a)

23


99


21



143


138




Total noninterest income

609


660


592



1,870


1,822


Noninterest expense








Personnel

553


586


559



1,733


1,669



Net occupancy

76


79


74



233


239



Computer processing

52


51


56



155


171



Business services and professional fees

43


51


49



135


140



Equipment

27


26


29



79


83



Operating lease expense

31


30


24



88


64



Marketing

26


26


34



77


85



FDIC assessment

21


21


21



63


62



Intangible asset amortization

23


25


25



77


69



OREO expense, net

3



3



5


8



Other expense

109


98


118



318


410




Total noninterest expense

964


993


992



2,963


3,000


Income (loss) from continuing operations before income taxes

569


582


497



1,629


1,481



Income taxes

87


103


134



252


386


Income (loss) from continuing operations

482


479


363



1,377


1,095



Income (loss) from discontinued operations, net of taxes


3


1



5


6


Net income (loss)

482


482


364



1,382


1,101



Less:  Net income (loss) attributable to noncontrolling interests






1


Net income (loss) attributable to Key

$

482


$

482


$

364



$

1,382


$

1,100











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

$

468


$

464


$

349



$

1,334


$

1,038


Net income (loss) attributable to Key common shareholders

468


467


350



1,339


1,044


Per common share







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

$

.45


$

.44


$

.32



$

1.28


$

.96


Income (loss) from discontinued operations, net of taxes





.01


.01


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

.45


.44


.32



1.27


.97


Per common share — assuming dilution







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

$

.45


$

.44


$

.32



$

1.26


$

.95


Income (loss) from discontinued operations, net of taxes





.01


.01


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

.45


.44


.32



1.26


.96











Cash dividends declared per common share

$

.17


$

.12


$

.095



$

.395


$

.275











Weighted-average common shares outstanding (000)

1,036,479


1,052,652


1,073,390



1,048,397


1,075,296



Effect of common share options and other stock awards

13,497


13,141


15,451



14,419


16,359


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

1,049,976


1,065,793


1,088,841



1,062,816


1,091,655











(a)

For the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, net securities gains (losses) totaled less than $1 million. For the three months ended September 30, 2018, June 30, 2018, and September 30, 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)
















Third Quarter 2018


Second Quarter 2018


Third 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)

$

44,749


$

495


4.39

%


$

45,030


$

485


4.32

%


$

41,416


$

414


3.97

%


Real estate — commercial mortgage

14,268


176


4.89



14,055


172


4.89



14,850


169


4.51



Real estate — construction

1,759


22


5.05



1,789


23


4.97



2,054


23


4.51



Commercial lease financing

4,444


43


3.88



4,550


41


3.61



4,694


46


3.89



Total commercial loans

65,220


736


4.49



65,424


721


4.41



63,014


652


4.11



Real estate — residential mortgage

5,466


55


3.99



5,451


54


3.97



5,493


54


3.92



Home equity loans

11,415


137


4.80



11,601


135


4.67



12,314


136


4.41



Consumer direct loans

1,789


35


7.71



1,768


33


7.54



1,774


33


7.26



Credit cards

1,095


32


11.43



1,080


30


11.21



1,049


30


11.34



Consumer indirect loans

3,482


37


4.25



3,320


35


4.26



3,170


37


4.64



Total consumer loans

23,247


296


5.06



23,220


287


4.97



23,800


290


4.85



Total loans

88,467


1,032


4.64



88,644


1,008


4.56



86,814


942


4.31



Loans held for sale

1,117


12


4.59



1,375


16


4.50



1,607


17


4.13



Securities available for sale (b), (e)

17,631


102


2.22



17,443


97


2.13



18,574


91


1.96



Held-to-maturity securities (b)

12,065


72


2.40



12,226


72


2.36



10,469


55


2.12



Trading account assets

787


7


3.37



943


7


3.21



889


7


2.74



Short-term investments

2,928


15


1.93



2,015


8


1.76



2,166


6


1.21



Other investments (e)

685


6


3.27



710


5


3.08



728


5


2.46



Total earning assets

123,680


1,246


3.98



123,356


1,213


3.92



121,247


1,123


3.68



Allowance for loan and lease losses

(886)





(875)





(868)





Accrued income and other assets

13,935





13,897





13,977





Discontinued assets

1,186





1,241





1,417





Total assets

$

137,915





$

137,619





$

135,773




Liabilities













NOW and money market deposit accounts

$

56,391


82


.58



$

54,749


59


.44



$

53,826


37


.27



Savings deposits

5,413


3


.20



6,276


5


.35



6,697


5


.25



Certificates of deposit ($100,000 or more)

8,186


38


1.86



7,516


32


1.70



6,402


21


1.31



Other time deposits

5,026


17


1.40



4,949


16


1.22



4,664


9


.81



Total interest-bearing deposits

75,016


140


.74



73,490


112


.61



71,589


72


.40



Federal funds purchased and securities

        sold under repurchase agreements

552


1


1.00



1,475


5


1.41



456



.23



Bank notes and other short-term borrowings

596


4


2.76



1,116


7


2.27



865


3


1.49



Long-term debt (f), (g)

12,678


108


3.34



12,748


102


3.20



12,631


86


2.75



Total interest-bearing liabilities

88,842


253


1.13



88,829


226


1.02



85,541


161


.75



Noninterest-bearing deposits

30,610





30,513





31,516





Accrued expense and other liabilities

2,065





2,002





2,057





Discontinued liabilities (g)

1,186





1,241





1,417





Total liabilities

122,703





122,585





120,531




Equity













Key shareholders' equity

15,210





15,032





15,241





Noncontrolling interests

2





2





1





Total equity

15,212





15,034





15,242





Total liabilities and equity

$

137,915





$

137,619





$

135,773




Interest rate spread (TE)



2.85

%




2.90

%




2.93

%

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


993


3.18

%



987


3.19

%



962


3.15

%

TE adjustment (b)


7





8





14




Net interest income, GAAP basis


$

986





$

979





$

948



(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 21% for the three months ended September 30, 2018, and June 30, 2018, and 35% for the three months ended September 30, 2017.

(c)

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

(d)

Commercial and industrial average balances include $128 million, $126 million, and $117 million of assets from commercial credit cards for the three months ended September 30, 2018, June 30, 2018, and September 30, 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   

 










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

(dollars in millions)












Nine months ended September 30, 2018


Nine months ended September 30, 2017



Average




Average





Balance

Interest (a)

Yield/Rate (a)


Balance

Interest (a)

Yield/ Rate (a)

Assets









Loans: (b), (c)









Commercial and industrial (d)

$

44,178


$

1,414


4.28

%


$

40,700


$

1,196


3.93

%


Real estate — commercial mortgage

14,137


513


4.85



15,043


520

4.62



Real estate — construction

1,834


67


4.88



2,203


80


4.86



Commercial lease financing

4,552


125


3.67



4,673


140


3.99



Total commercial loans

64,701


2,119


4.38



62,619


1,936


4.13



Real estate — residential mortgage

5,466


163


3.97



5,507


160


3.88



Home equity loans

11,629


406


4.67



12,465


402


4.32



Consumer direct loans

1,774


101


7.59



1,760


94


7.10



Credit cards

1,085


92


11.32



1,053


88


11.15



Consumer indirect loans

3,363


107


4.27



3,081


112


4.85



Total consumer loans

23,317


869


4.98



23,866


856


4.79



Total loans

88,018


2,988


4.54



86,485


2,792


4.31



Loans held for sale

1,226


40


4.40



1,293


39


4.01



Securities available for sale (b), (e)

17,653


294


2.14



18,582


276


1.96



Held-to-maturity securities (b)

12,111


213


2.35



10,311


161


2.08



Trading account assets

879


21


3.19



966


21


2.84



Short-term investments

2,334


31


1.76



1,918


14


1.00



Other investments (e)

706


17


3.10



708


12


2.20



Total earning assets

122,927


3,604


3.90



120,263


3,315


3.68



Allowance for loan and lease losses

(879)





(862)





Accrued income and other assets

13,966





13,801





Discontinued assets

1,243





1,477





Total assets

$

137,257





$

134,679




Liabilities









NOW and money market deposit accounts

$

54,891


187


.46



$

54,178


103


.25



Savings deposits

5,971


13


.28



6,635


10


.19



Certificates of deposit ($100,000 or more)

7,563


97


1.72



6,050


56


1.24



Other time deposits

4,947


46


1.25



4,673


27


.78



Total interest-bearing deposits

73,372


343


.63



71,536


196


.37



Federal funds purchased and securities sold under repurchase agreements

1,146


10


1.22



570


1


.27



Bank notes and other short-term borrowings

1,015


17


2.19



1,291


12


1.27



Long-term debt (f), (g)

12,631


302


3.17



11,510


228


2.66



Total interest-bearing liabilities

88,164


672


1.02



84,907


437


.69



Noninterest-bearing deposits

30,701





31,123





Accrued expense and other liabilities

2,102





1,962





Discontinued liabilities (g)

1,243





1,478





Total liabilities

122,210





119,470




Equity









Key shareholders' equity

15,045





15,208





Noncontrolling interests

2





1





Total equity

15,047





15,209





Total liabilities and equity

$

137,257





$

134,679




Interest rate spread (TE)



2.88

%




2.99

%

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


2,932


3.17

%



2,878


3.19

%

TE adjustment (b)


23





39




Net interest income, GAAP basis


$

2,909





$

2,839



(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 21% and 35% for the nine months ended September 30, 2018, and September 30, 2017, respectively.

(c)

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

(d)

Commercial and industrial average balances include $125 million and $116 million of assets from commercial credit cards for the nine months ended September 30, 2018, and September 30, 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


Nine months ended


9/30/2018

6/30/2018

9/30/2017


9/30/2018

9/30/2017

Personnel (a)

$

553


$

586


$

559



$

1,733


$

1,669


Net occupancy

76


79


74



233


239


Computer processing

52


51


56



155


171


Business services and professional fees

43


51


49



135


140


Equipment

27


26


29



79


83


Operating lease expense

31


30


24



88


64


Marketing

26


26


34



77


85


FDIC assessment

21


21


21



63


62


Intangible asset amortization

23


25


25



77


69


OREO expense, net

3



3



5


8


Other expense

109


98


118



318


410


Total noninterest expense

$

964


$

993


$

992



$

2,963


$

3,000


Average full-time equivalent employees (b)

18,150


18,376


18,548



18,354


18,427


(a)

Additional detail provided in Personnel Expense table below.

(b)

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

 

Personnel Expense

(in millions)









Three months ended


Nine months ended


9/30/2018

6/30/2018

9/30/2017


9/30/2018

9/30/2017

Salaries and contract labor

$

335


$

341


$

339



$

1,015


$

995


Incentive and stock-based compensation

138


147


134



430


398


Employee benefits

79


82


81



266


256


Severance

1


16


5



22


20


Total personnel expense

$

553


$

586


$

559



$

1,733


$

1,669


 

Merger-Related Charges

(in millions)









Three months ended


Nine months ended


9/30/2018

6/30/2018

9/30/2017


9/30/2018

9/30/2017

Personnel



$

25




$

86


Net occupancy



(2)




2


Business services and professional fees



2




13


Computer processing



4




11


Marketing



5




17


Other nonpersonnel expense



2




32


Total merger-related charges



$

36




$

161


 

Loan Composition

(dollars in millions)











Percent change 9/30/2018 vs.


9/30/2018

6/30/2018

9/30/2017


6/30/2018

9/30/2017

Commercial and industrial (a)

$

45,023


$

44,569


$

41,147



1.0

%

9.4

%

Commercial real estate:







Commercial mortgage

14,716


14,162


14,929



3.9


(1.4)


Construction

1,763


1,736


1,954



1.6


(9.8)


Total commercial real estate loans

16,479


15,898


16,883



3.7


(2.4)


Commercial lease financing (b)

4,470


4,509


4,716



(.9)


(5.2)


Total commercial loans

65,972


64,976


62,746



1.5


5.1


Residential — prime loans:







Real estate — residential mortgage

5,497


5,452


5,476



.8


.4


Home equity loans

11,339


11,519


12,238



(1.6)


(7.3)


Total residential — prime loans

16,836


16,971


17,714



(.8)


(5.0)


Consumer direct loans

1,807


1,785


1,789



1.2


1.0


Credit cards

1,098


1,094


1,045



.4


5.1


Consumer indirect loans

3,555


3,396


3,198



4.7


11.2


Total consumer loans

23,296


23,246


23,746



.2


(1.9)


Total loans (c)

$

89,268


$

88,222


$

86,492



1.2

%

3.2

%

(a)

Loan balances include $129 million, $128 million, and $118 million of commercial credit card balances at September 30, 2018, June 30, 2018, and September 30, 2017, respectively.

(b)

Commercial lease financing includes receivables held as collateral for a secured borrowing of $12 million, $16 million, and $31 million at September 30, 2018, June 30, 2018, and September 30, 2017, respectively. Principal reductions are based on the cash payments received from these related receivables.

(c)

Total loans exclude loans of $1.1 billion at September 30, 2018, $1.2 billion at June 30, 2018, and $1.4 billion at September 30, 2017, related to the discontinued operations of the education lending business.

 

Loans Held for Sale Composition

(dollars in millions)













Percent change 9/30/2018 vs.


9/30/2018

6/30/2018

9/30/2017


6/30/2018

9/30/2017

Commercial and industrial

$

97


$

217


$

34



(55.3)

%

185.3

%

Real estate — commercial mortgage

1,433


1,139


1,246



25.8


15.0


Commercial lease financing

1


4


1



(75.0)



Real estate — residential mortgage

87


58


60



50.0


45.0


Total loans held for sale (a)

$

1,618


$

1,418


$

1,341



14.1

%

20.7

%

(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $87 million at September 30, 2018, $58 million at June 30, 2018, and $60 million at September 30, 2017.

N/M = Not Meaningful

 

Summary of Changes in Loans Held for Sale

(in millions)








3Q18

2Q18

1Q18

4Q17

3Q17

Balance at beginning of period

$

1,418


$

1,667


$

1,107


$

1,341


$

1,743


New originations

2,976


2,665


3,280


3,566


2,855


Transfers from (to) held to maturity, net

4


(4)


(14)


(10)


(63)


Loan sales

(2,491)


(2,909)


(2,705)


(3,783)


(3,191)


Loan draws (payments), net

(289)


(1)


(1)


(7)


(3)


Balance at end of period (a)

$

1,618


$

1,418


$

1,667


$

1,107


$

1,341


(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $87 million at September 30, 2018, $58 million at June 30, 2018, $47 million at March 31, 2018, $71 million at December 31, 2017, and $60 million at September 30, 2017.

 

Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)









Three months ended


Nine months ended


9/30/2018

6/30/2018

9/30/2017


9/30/2018

9/30/2017

Average loans outstanding

$

88,467


$

88,644


$

86,814



$

88,018


$

86,485


Allowance for loan and lease losses at beginning of period

$

887


$

881


$

870



$

877


$

858


Loans charged off:







Commercial and industrial

38


39


29



114


101









Real estate — commercial mortgage

6


2


6



9


9


Real estate — construction



2




2


Total commercial real estate loans

6


2


8



9


11


Commercial lease financing

4


4


1



9


9


Total commercial loans

48


45


38



132


121


Real estate — residential mortgage

2





3


2


Home equity loans

4


6


6



14


23


Consumer direct loans

10


9


8



27


26


Credit cards

10


12


11



34


34


Consumer indirect loans

7


7


8



22


24


Total consumer loans

33


34


33



100


109


Total loans charged off

81


79


71



232


230


Recoveries:







Commercial and industrial

5


7


25



18


32









Real estate — commercial mortgage

1


1


1



2


1


Real estate — construction





1


1


Total commercial real estate loans

1


1


1



3


2


Commercial lease financing

3



3



4


5


Total commercial loans

9


8


29



25


39


Real estate — residential mortgage

2



1



2


4


Home equity loans

3


3


4



9


12


Consumer direct loans

1


2


1



5


4


Credit cards

2


2


1



5


4


Consumer indirect loans

4


4


3



12


11


Total consumer loans

12


11


10



33


35


Total recoveries

21


19


39



58


74


Net loan charge-offs

(60)


(60)


(32)



(174)


(156)


Provision (credit) for loan and lease losses

60


66


42



184


178


Allowance for loan and lease losses at end of period

$

887


$

887


$

880



$

887


$

880









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

$

58


$

60


$

48



$

57


$

55


Provision (credit) for losses on lending-related commitments

2


(2)


9



3


2


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

$

60


$

58


$

57



$

60


$

57









Total allowance for credit losses at end of period

$

947


$

945


$

937



$

947


$

937









Net loan charge-offs to average total loans

.27

%

.27

%

.15

%


.26

%

.24

%

Allowance for loan and lease losses to period-end loans

.99


1.01


1.02



.99


1.02


Allowance for credit losses to period-end loans

1.06


1.07


1.08



1.06


1.08


Allowance for loan and lease losses to nonperforming loans

137.5


162.8


170.2



137.5


170.2


Allowance for credit losses to nonperforming loans

146.8


173.4


181.2



146.8


181.2









Discontinued operations — education lending business:







Loans charged off

$

4


$

3


$

10



$

11


$

20


Recoveries

1


1


2



4


6


Net loan charge-offs

$

(3)


$

(2)


$

(8)



$

(7)


$

(14)


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

 

Asset Quality Statistics From Continuing Operations

(dollars in millions)


3Q18

2Q18

1Q18

4Q17

3Q17

Net loan charge-offs

$

60


$

60


$

54


$

52


$

32


Net loan charge-offs to average total loans

.27

%

.27

%

.25

%

.24

%

.15

%

Allowance for loan and lease losses

$

887


$

887


$

881


$

877


$

880


Allowance for credit losses (a)

947


945


941


934


937


Allowance for loan and lease losses to period-end loans

.99

%

1.01

%

1.00

%

1.01

%

1.02

%

Allowance for credit losses to period-end loans

1.06


1.07


1.07


1.08


1.08


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

137.5


162.8


162.8


174.4


170.2


Allowance for credit losses to nonperforming loans (b)

146.8


173.4


173.9


185.7


181.2


Nonperforming loans at period end (b)

$

645


$

545


$

541


$

503


$

517


Nonperforming assets at period end (b)

674


571


569


534


556


Nonperforming loans to period-end portfolio loans (b)

.72

%

.62

%

.61

%

.58

%

.60

%

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

.75


.65


.65


.62


.64


(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 $606 million, $629 million, $690 million, $738 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively.

 

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(dollars in millions)


9/30/2018

6/30/2018

3/31/2018

12/31/2017

9/30/2017

Commercial and industrial

$

227


$

178


$

189


$

153


$

169








Real estate — commercial mortgage

98


42


33


30


30


Real estate — construction

2


2


2


2


2


Total commercial real estate loans

100


44


35


32


32


Commercial lease financing

10


21


5


6


11


Total commercial loans

337


243


229


191


212


Real estate — residential mortgage

62


55


59


58


57


Home equity loans

221


222


229


229


227


Consumer direct loans

4


4


4


4


3


Credit cards

2


2


2


2


2


Consumer indirect loans

19


19


18


19


16


Total consumer loans

308


302


312


312


305


Total nonperforming loans (a)

645


545


541


503


517


OREO

28


26


28


31


39


Other nonperforming assets

1






Total nonperforming assets (a)

$

674


$

571


$

569


$

534


$

556


Accruing loans past due 90 days or more

$

87


$

103


$

82


$

89


$

86


Accruing loans past due 30 through 89 days

368


429


305


359


329


Restructured loans — accruing and nonaccruing (b)

366


347


317


317


315


Restructured loans included in nonperforming loans (b)

211


184


179


189


187


Nonperforming assets from discontinued operations — education lending business

6


6


6


7


8


Nonperforming loans to period-end portfolio loans (a)

.72

%

.62

%

.61

%

.58

%

.60

%

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

.75


.65


.65


.62


.64


(a)

Nonperforming loan balances exclude $606 million, $629 million, $690 million, $738 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 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)


3Q18

2Q18

1Q18

4Q17

3Q17

Balance at beginning of period

$

545


$

541


$

503


$

517


$

507


Loans placed on nonaccrual status

263


175


182


137


181


Charge-offs

(81)


(78)


(70)


(67)


(71)


Loans sold


(1)




(1)


Payments

(57)


(33)


(29)


(52)


(32)


Transfers to OREO

(5)


(5)


(4)


(8)


(10)


Loans returned to accrual status

(20)


(54)


(41)


(24)


(57)


Balance at end of period (a)

$

645


$

545


$

541


$

503


$

517


(a)

Nonperforming loan balances exclude $606 million, $629 million, $690 million, $738 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively.

 

Line of Business Results

(dollars in millions)

















Percent change 3Q18 vs.


3Q18

2Q18

1Q18

4Q17

3Q17


2Q18

3Q17

Key Community Bank









Summary of operations









Total revenue (TE)

$

994


$

997


$

959


$

961


$

945



(.3)

%

5.2

%

Provision for credit losses

43


38


48


57


59



13.2


(27.1)


Noninterest expense

635


640


653


665


626



(.8)


1.4


Net income (loss) attributable to Key

241


243


197


152


163



(.8)


47.9


Average loans and leases

47,862


47,985


47,683


47,408


47,614



(.3)


.5


Average deposits

82,259


80,930


79,945


80,352


79,563



1.6


3.4


Net loan charge-offs

43


34


42


35


41



26.5


4.9


Net loan charge-offs to average total loans

.36

%

.28

%

.36

%

.29

%

.34

%


N/A


N/A


Nonperforming assets at period end

$

467


$

468


$

425


$

405


$

427



(.2)


9.4


Return on average allocated equity

19.80

%

20.05

%

16.51

%

12.46

%

13.39

%


N/A


N/A


Average full-time equivalent employees

10,529


10,619


10,666


10,629


10,696



(.8)


(1.6)











Key Corporate Bank









Summary of operations









Total revenue (TE)

$

574


$

542


$

558


$

605


$

561



5.9

%

2.3

%

Provision for credit losses

20


28


14


(6)


(11)



(28.6)


N/M


Noninterest expense

316


325


312


352


303



(2.8)


4.3


Net income (loss) attributable to Key

199


167


208


223


190



19.2


4.7


Average loans and leases

39,714


39,709


38,257


37,457


38,021




4.5


Average loans held for sale

1,042


1,299


1,118


1,345


1,521



(19.8)


(31.5)


Average deposits

21,056


21,057


20,815


21,558


21,559




(2.3)


Net loan charge-offs

19


26


11


16


(9)



(26.9)


N/M


Net loan charge-offs to average total loans

.19

%

.26

%

.12

%

.17

%

(.09)

%


N/A


N/A


Nonperforming assets at period end

$

196


$

91


$

127


$

109


$

106



115.4


84.9


Return on average allocated equity

26.91

%

22.80

%

29.49

%

31.51

%

27.08

%


N/A


N/A


Average full-time equivalent employees

2,546


2,537


2,543


2,418


2,460



.4


3.5


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
















 

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SOURCE KeyCorp