KEY
$20.58
Keycorp
($.05)
(.24%)
Earnings Details
2nd Quarter June 2018
Thursday, July 19, 2018 6:30:00 AM
Tweet Share Watch
Summary

Keycorp Beats

Keycorp (KEY) reported 2nd Quarter June 2018 earnings of $0.44 per share on revenue of $1.9 billion. The consensus earnings estimate was $0.42 per share on revenue of $1.6 billion. The Earnings Whisper number was $0.42 per share. Revenue grew 5.4% 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
$0.44
Earnings Whisper
$0.42
Consensus Estimate
$0.42
Reported Revenue
$1.87 Bil
Revenue Estimate
$1.60 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

KeyCorp Reports Second Quarter 2018 Net Income Of $464 Million, Or $.44 Per Common Share

CLEVELAND, July 19, 2018 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced second quarter net income from continuing operations attributable to Key common shareholders of $464 million, or $.44 per common share, compared to $402 million, or $.38 per common share, for the first quarter of 2018 and $393 million, or $.36 per common share, for the second quarter of 2017. Key's results in the second quarter of 2018 and the second quarter of 2017 included a number of notable items; additional detail can be found on page 24 of this release.

"Second quarter results were strong, driven by broad-based growth and momentum in our commercial and consumer businesses. Continued loan growth, higher fees, and expense discipline drove positive operating leverage for the quarter. Importantly, our cash efficiency ratio improved to 58.8% and our return on tangible common equity was 16.7%. Across our franchise, we are benefitting from efforts to do more for our new and existing clients, while also increasing the productivity and efficiency of our businesses. Key's improved profitability and returns in the second quarter mark meaningful progress as we deliver on our commitments and work to achieve our long-term targets.

During the quarter, we also announced a 42% increase in our common share dividend along with a $1.2 billion share repurchase program, as part of our 2018 capital plan. Our plan marks a significant increase in shareholder payout as we move toward targeted levels of capital and common dividend payout, all to maximize long-term shareholder value."

-       Beth Mooney, Chairman and CEO


Selected Financial Highlights















dollars in millions, except per share data





Change 2Q18 vs.



2Q18

1Q18

2Q17


1Q18

2Q17

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

$

464


$

402


$

393



15.4

%

18.1

%

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

.44


.38


.36



15.8


22.2


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

16.73

%

14.89

%

13.80

%


N/A


N/A


Return on average total assets from continuing operations

1.41


1.25


1.23



N/A


N/A


Common Equity Tier 1 ratio (b)

10.12


9.99


9.91



N/A


N/A


Book value at period end

$

13.29


$

13.07


$

13.02



1.7

%

2.1

%

Net interest margin (TE) from continuing operations

3.19

%

3.15

%

3.30

%


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)     6/30/2018 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 


INCOME STATEMENT HIGHLIGHTS














Revenue














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Net interest income (TE)

$

987


$

952


$

987



3.7

%


Noninterest income

660


601


653



9.8


1.1

%

Total revenue

$

1,647


$

1,553


$

1,640



6.1

%

.4

%








TE = Taxable Equivalent

Taxable-equivalent net interest income was $987 million for the second quarter of 2018, and the net interest margin was 3.19%, compared to taxable-equivalent net interest income of $987 million and a net interest margin of 3.30% for the second quarter of 2017. Second quarter 2018 net interest income included $28 million of purchase accounting accretion, a decline of $72 million from the second quarter of 2017.  Excluding purchase accounting accretion, taxable-equivalent net interest income increased $72 million from the second quarter of 2017, and the net interest margin increased 13 basis points, reflecting the benefit from higher interest rates and higher earning asset balances.

Compared to the first quarter of 2018, taxable-equivalent net interest income increased by $35 million, and the net interest margin increased by four basis points. Both net interest income and the net interest margin benefited from higher interest rates and strong commercial loan growth. One additional day in the quarter further benefited net interest income. These benefits were partially offset by continued expected declines in purchase accounting accretion.  Excluding purchase accounting accretion, taxable-equivalent net interest income increased $40 million from the first quarter of 2018 and the net interest margin increased six basis points.


Noninterest Income














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Trust and investment services income

$

128


$

133


$

134



(3.8)%


(4.5)%


Investment banking and debt placement fees

155


143


135



8.4


14.8


Service charges on deposit accounts

91


89


90



2.2


1.1


Operating lease income and other leasing gains

(6)


32


30



N/M


N/M


Corporate services income

61


62


55



(1.6)


10.9


Cards and payments income

71


62


70



14.5


1.4


Corporate-owned life insurance income

32


32


33




(3.0)


Consumer mortgage income

7


7


6




16.7


Mortgage servicing fees

22


20


15



10.0


46.7


Other income

99


21


85



371.4


16.5


Total noninterest income

$

660


$

601


$

653



9.8

%

1.1

%








N/M = Not meaningful

Key's noninterest income was $660 million for the second quarter of 2018, compared to $653 million for the year-ago quarter. Growth was driven by an increase in investment banking and debt placement fees, related to strength in advisory fees, including benefit from the acquisition of Cain Brothers. Mortgage servicing fees also increased, benefiting from portfolio growth and increases in special servicing fees. Other income increased compared to the year-ago quarter, largely due to a gain on the sale of Key Insurance and Benefits Services. These increases were partially offset by a decline in operating lease income and other leasing gains, driven by a $42 million lease residual loss in the second quarter of 2018. Trust and investment services income also declined, impacted by the sale of Key Insurance and Benefits Services.

Compared to the first quarter of 2018, noninterest income increased by $59 million. The primary driver of the quarter-over-quarter increase was a $78 million gain related to the sale of Key Insurance and Benefits Services, reported in other income. Additionally, investment banking and debt placement fees and cards and payments income, which increased $12 million and $9 million, respectively, benefited from ongoing investments and momentum across the franchise. These increases were partially offset by a decline in operating lease income related to a lease residual loss, as well as trust and investment services income, which was impacted by the sale of Key Insurance and Benefits Services.


Noninterest Expense














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Personnel expense

$

586


$

594


$

553



(1.3)%


6.0

%

Nonpersonnel expense

407


412


442



(1.2)


(7.9)


Total noninterest expense

$

993


$

1,006


$

995



(1.3)


(.2)









N/M = Not meaningful

Key's noninterest expense was $993 million for the second quarter of 2018, compared to $995 million in the year-ago quarter. Growth from acquisitions and investments, including Cain Brothers and HelloWallet, as well as the addition of client-facing bankers and continued investment in our residential mortgage business, contributed to both personnel and nonpersonnel expense in the second quarter of 2018. Efficiency-related expenses of $22 million (largely severance) and $5 million of costs related to the sale of Key Insurance and Benefits Services also impacted the current quarter's results. The current quarter also benefited from the realization of merger-related cost savings. In the second quarter of 2017, Key incurred $44 million of merger-related charges and a $20 million charitable contribution.

Key's noninterest expense was $993 million for the second quarter of 2018, compared to $1 billion in the prior quarter. This quarter's decrease was largely driven by expected seasonal trends, including lower employee benefits expense, which declined $23 million, and lower occupancy and intangible asset amortization. Partially offsetting these declines were $22 million related to efficiency efforts (largely severance) and $5 million related to the sale of Key Insurance and Benefits Services.

BALANCE SHEET HIGHLIGHTS


Average Loans














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Commercial and industrial (a)

$

45,030


$

42,733


$

40,666



5.4

%

10.7

%

Other commercial loans

20,394


20,705


21,990



(1.5)


(7.3)


Home equity loans

11,601


11,877


12,473



(2.3)


(7.0)


Other consumer loans

11,619


11,612


11,373



.1


2.2


Total loans

$

88,644


$

86,927


$

86,502



2.0

%

2.5

%








(a)     Commercial and industrial average loan balances include $126 million, $120 million, and $117 million of assets
          from commercial credit cards at June 30, 2018, March 31, 2018, and June 30, 2017, respectively.

Average loans were $88.6 billion for the second quarter of 2018, an increase of $2.1 billion compared to the second quarter of 2017, reflecting broad-based growth in commercial and industrial loans, partially offset by a decline in commercial real estate balances related to higher paydowns.

Compared to the first quarter of 2018, average loans increased by $1.7 billion, largely the result of growth in commercial and industrial loans. Key realized growth across commercial client segments, with commercial and industrial loans up 3% in the Community Bank and 7% in the Corporate Bank, unannualized.


Average Deposits














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Non-time deposits

$

91,538


$

90,719


$

92,018



.9

%

(.5)

%

Certificates of deposit ($100,000 or more)

7,516


6,972


6,111



7.8


23.0


Other time deposits

4,949


4,865


4,650



1.7


6.4


Total deposits

$

104,003


$

102,556


$

102,779



1.4

%

1.2

%








Cost of total deposits

.43

%

.36

%

.26

%


N/A

N/A








N/A = Not Applicable

Average deposits totaled $104 billion for the second quarter of 2018, an increase of $1.2 billion compared to the year-ago quarter, reflecting a shift to higher-yielding deposit products, as well as strength in Key's retail banking franchise and growth from commercial relationships. Growth was partially offset by the managed exit of certain higher cost corporate and public sector deposits.

Compared to the first quarter of 2018, average deposits increased by $1.4 billion. NOW and money market deposit accounts increased $1.2 billion and certificates of deposit and other time deposits increased $628 million, partly offset by a $471 million decline in noninterest-bearing deposits, as clients shift to higher-yielding deposit products. The linked quarter deposit growth continues to reflect strong retail deposit growth and growth from commercial relationships.


ASSET QUALITY














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Net loan charge-offs

$

60


$

54


$

66



11.1

%

(9.1)

%

Net loan charge-offs to average total loans

.27

%

.25

%

.31

%


N/A


N/A


Nonperforming loans at period end (a)

$

545


$

541


$

507



.7


7.5


Nonperforming assets at period end (a)

571


569


556



.4


2.7


Allowance for loan and lease losses

887


881


870



.7


2.0


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

162.8

%

162.8

%

171.6

%


N/A


N/A


Provision for credit losses

$

64


$

61


$

66



4.9

%

(3.0)

%








(a)       Nonperforming loan balances exclude $629 million, $690 million, and $835 million of purchased credit impaired loans at
           June 30, 2018, March 31, 2018, and June 30, 2017, respectively.

N/A = Not Applicable

Key's provision for credit losses was $64 million for the second quarter of 2018, compared to $66 million for the second quarter of 2017 and $61 million for the first quarter of 2018. Key's allowance for loan and lease losses was $887 million, or 1.01% of total period-end loans, at June 30, 2018, compared to 1.01% at June 30, 2017, and 1.00% at March 31, 2018.

Net loan charge-offs for the second quarter of 2018 totaled $60 million, or .27% of average total loans. These results compare to $66 million, or .31%, for the second quarter of 2017, and $54 million, or .25%, for the first quarter of 2018.

At June 30, 2018, Key's nonperforming loans totaled $545 million, which represented .62% of period-end portfolio loans. These results compare to .59% at June 30, 2017, and .61% at March 31, 2018. Nonperforming assets at June 30, 2018, totaled $571 million, and represented .65% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .64% at June 30, 2017, and .65% at March 31, 2018.

CAPITAL

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

Capital Ratios









6/30/2018

3/31/2018

6/30/2017

Common Equity Tier 1 (a)

10.12

%

9.99

%

9.91

%

Tier 1 risk-based capital (a)

10.94


10.82


10.73


Total risk based capital (a)

12.83


12.73


12.64


Tangible common equity to tangible assets (b)

8.32


8.22


8.56


Leverage (a)

9.91


9.76


9.95






(a)       6/30/2018 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 second quarter. As shown in the preceding table, at June 30, 2018, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 10.12% and 10.94%, respectively. Key's tangible common equity ratio was 8.32% at June 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 10.03% at June 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 2Q18 vs.



2Q18

1Q18

2Q17


1Q18

2Q17

Shares outstanding at beginning of period

1,064,939


1,069,084


1,097,479



(.4)

%

(3.0)

%

Open market repurchases and return of shares under employee 
     compensation plans

(6,259)


(9,399)


(5,072)



(33.4)


23.4


Shares issued under employee compensation plans (net of cancellations)

264


5,254


332



(95.0)


(20.5)


     Shares outstanding at end of period

1,058,944


1,064,939


1,092,739



(.6)

%

(3.1)

%









N/M = Not Meaningful

Consistent with Key's 2017 Capital Plan, during the second quarter of 2018, Key declared a dividend of $.12 per common share, and completed $126 million of common share repurchases during the quarter. These repurchases included $123 million of common share repurchases in the open market and $3 million of share repurchases related to employee equity compensation programs.

Key's 2018 Capital Plan received no objection from the Federal Reserve. The plan includes a 42% increase in the quarterly common share dividend from $0.12 per share to $0.17 per share, which is payable in the third quarter of 2018. Also included in the plan is a common share repurchase program of up to $1.225 billion. This authorization includes repurchases to offset issuances of common shares under our employee compensation plans. Repurchases are expected to be executed over the next four quarters.

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 2Q18 vs.



2Q18

1Q18

2Q17


1Q18

2Q17

Revenue from continuing operations (TE)







Key Community Bank

$

996


$

958


$

998



4.0

%

(.2)

%

Key Corporate Bank

542


559


597



(3.0)


(9.2)


Other Segments

38


37


46



2.7


(17.4)


     Total segments

1,576


1,554


1,641



1.4


(4.0)


Reconciling Items (a)

71


(1)


(1)



N/M


N/M


     Total

$

1,647


$

1,553


$

1,640



6.1

%

.4

%









Income (loss) from continuing operations attributable to Key







Key Community Bank

$

244


$

197


$

198



23.9

%

23.2

%

Key Corporate Bank

167


207


224



(19.3)


(25.4)


Other Segments

25


18


24



38.9


4.2


     Total segments

436


422


446



3.3


(2.2)


Reconciling Items (b)

43


(6)


(39)



N/M


N/M


     Total

$

479


$

416


$

407



15.1

%

17.7

%









(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 second 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 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Summary of operations







Net interest income (TE)

$

715


$

688


$

676



3.9

%

5.8

%

Noninterest income

281


270


322



4.1


(12.7)


Total revenue (TE)

996


958


998



4.0


(.2)


Provision for credit losses

38


48


47



(20.8)


(19.1)


Noninterest expense

639


652


635



(2.0)


.6


Income (loss) before income taxes (TE)

319


258


316



23.6


.9


Allocated income taxes (benefit) and TE adjustments

75


61


118



23.0


(36.4)


Net income (loss) attributable to Key

$

244


$

197


$

198



23.9

%

23.2

%








Average balances







Loans and leases

$

47,984


$

47,680


$

47,477



.6

%

1.1

%

Total assets

51,866


51,605


51,441



.5


.8


Deposits

80,930


79,945


79,601



1.2


1.7









Assets under management at period end

$

39,663


$

39,003


$

37,613



1.7

%

5.5

%








TE = Taxable Equivalent

 


Additional Key Community Bank Data














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Noninterest income







Trust and investment services income

$

92


$

89


$

86



3.4

%

7.0

%

Service charges on deposit accounts

77


76


77



1.3



Cards and payments income

59


51


60



15.7


(1.7)


Other noninterest income

53


54


99



(1.9)


(46.5)


Total noninterest income

$

281


$

270


$

322



4.1

%

(12.7)

%








Average deposit balances







NOW and money market deposit accounts

$

45,112


$

44,291


$

45,127



1.9

%


Savings deposits

5,078


5,056


5,293



.4


(4.1)

%

Certificates of deposit ($100,000 or more)

5,232


4,961


4,016



5.5


30.3


Other time deposits

4,934


4,856


4,640



1.6


6.3


Noninterest-bearing deposits

20,574


20,781


20,525



(1.0)


.2


Total deposits

$

80,930


$

79,945


$

79,601



1.2

%

1.7

%








Home equity loans







Average balance

$

11,496


$

11,763


$

12,330





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

70

%

70

%

71

%




Percent first lien positions

60


60


60












Other data







Branches

1,177


1,192


1,210





Automated teller machines

1,537


1,569


1,589












 

Key Community Bank Summary of Operations (2Q18 vs. 2Q17)

  • Net income increased $46 million, or 23.2%, from prior year
  • Average commercial and industrial loans increased $1.1 billion, or 5.8%, from the prior year

Key Community Bank recorded net income attributable to Key of $244 million for the second quarter of 2018, compared to $198 million for the year-ago quarter, benefiting from momentum across Key's businesses, as well as a lower tax rate as a result of tax reform.

Taxable-equivalent net interest income increased by $39 million, or 5.8%, from the second quarter of 2017. The increase in net interest income was primarily attributable to the benefit from higher interest rates and growth in loans, partially offset by lower purchase accounting accretion. Average loans and leases increased $507 million, or 1.1%, largely driven by a $1.1 billion, or 5.8%, increase in commercial and industrial loans. Additionally, average deposits increased $1.3 billion, or 1.7%, from one year ago.

Noninterest income decreased $41 million, or 12.7%, from the year-ago quarter driven by a merchant services gain in the second quarter of 2017. Noninterest income, excluding the merchant services gain in the year-ago period, increased primarily due to higher assets under management from market growth.

The provision for credit losses decreased by $9 million, or 19.1%, from the second quarter of 2017. Net loan charge-offs decreased $13 million, or 27.7%, from the second quarter of 2017, as overall credit quality remained favorable.

Noninterest expense increased $4 million, or 0.6%, from the year-ago quarter. Personnel expense increased $11 million, primarily driven by recent acquisitions and ongoing investments, including residential mortgage and HelloWallet. Nonpersonnel expense decreased by $7 million, driven by a charitable contribution in the second quarter of 2017, which was partially offset by higher technology development costs.


Key Corporate Bank


















dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Summary of operations







Net interest income (TE)

$

277

$

272

$

312



1.8

%

(11.2)

%

Noninterest income

265


287


285



(7.7)


(7.0)


Total revenue (TE)

542


559


597



(3.0)


(9.2)


Provision for credit losses

28


14


19



100.0


47.4


Noninterest expense

326


314


297



3.8


9.8


Income (loss) before income taxes (TE)

188


231


281



(18.6)


(33.1)


Allocated income taxes and TE adjustments

21


24


57



(12.5)


(63.2)


Net income (loss) attributable to Key

$

167

$

207

$

224


(19.3)

%

(25.4)

%








Average balances







Loans and leases

$

39,710

$

38,260

$

37,704


3.8

%

5.3

%

Loans held for sale

1,299


1,118


1,000



16.2


29.9


Total assets

47,213


45,549


44,131



3.7


7.0


Deposits

21,057

20,815

21,145


1.2


(.4)









TE = Taxable Equivalent, N/M = Not Meaningful

 


Additional Key Corporate Bank Data














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Noninterest income







Trust and investment services income

$

29

$

29

$

35



(17.1)

%

Investment banking and debt placement fees

153

141

134


8.5

%

14.2


Operating lease income and other leasing gains

(10)

27

22


N/M


N/M









Corporate services income

44

44

38



15.8


Service charges on deposit accounts

13

13

13




Cards and payments income

12

11

10


9.1


20.0


Payments and services income

69

68

61


1.5


13.1









Mortgage servicing fees

19

17

12


11.8


58.3


Other noninterest income

5

5

21



(76.2)


Total noninterest income

$

265

$

287

$

285


(7.7)

%

(7.0)

%








N/M = Not Meaningful

 

Key Corporate Bank Summary of Operations (2Q18 vs. 2Q17)

  • Commercial and industrial loans up $3.3 billion, or 15%, from prior year
  • Investment banking and debt placement fees up $19 million, or 14.2%, from prior year

Key Corporate Bank recorded net income attributable to Key of $167 million for the second quarter of 2018, compared to $224 million for the same period one year ago.

Taxable-equivalent net interest income decreased by $35 million, or 11.2%, compared to the second quarter of 2017. The decline is primarily related to $33 million of lower purchase accounting accretion, as well as loan spread compression. Average loan and lease balances increased $2 billion, or 5.3%, from the year-ago quarter, driven by broad-based growth in commercial and industrial loans. Average deposit balances decreased $88 million, or 0.4%, from the year-ago quarter, due to the managed exit of higher cost corporate and public sector deposits offsetting growth in core deposits.

Noninterest income was down $20 million, or 7.0%, from the prior year. This decrease was largely due to a $32 million decline in operating lease income and other leasing gains, driven by a lease residual loss in the second quarter of 2018. Other declines included other noninterest income down $16 million, mostly due to a merchant services gain in the year-ago period.  These decreases were slightly offset by higher investment banking and debt placement fees of $19 million, related to strength in advisory fees, including benefit from the acquisition of Cain Brothers, as well as a $6 million increase in corporate services income from higher derivatives revenue.

During the second quarter of 2018, the provision for credit losses increased $9 million, or 47.8%, compared to the second quarter of 2017, mostly due to higher net loan charge-offs.

Noninterest expense increased by $29 million, or 9.8%, from the second quarter of 2017. The increase from the prior year was largely related to acquisitions and investments throughout the year, which drove an increase in personnel expense and intangible asset amortization. Operating lease expense also increased compared to the year-ago period.

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 $25 million for the second quarter of 2018, compared to $24 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 $137.8 billion at June 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 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 10:00 a.m. ET, on Thursday, July 19, 2018.  An audio replay of the call will be available through July 29, 2018.

*****

 

Financial Highlights

(dollars in millions, except per share amounts)




Three months ended




6/30/2018

3/31/2018

6/30/2017

Summary of operations





Net interest income (TE)

$

987


$

952


$

987



Noninterest income

660


601


653



     Total revenue (TE)

1,647


1,553


1,640



Provision for credit losses

64


61


66



Noninterest expense

993


1,006


995



Income (loss) from continuing operations attributable to Key

479


416


407



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

3


2


5



Net income (loss) attributable to Key

482


418


412









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

464


402


393



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

3


2


5



Net income (loss) attributable to Key common shareholders

467


404


398








Per common share





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

$

.44


$

.38


$

.36



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





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

.44


.38


.37









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

.44


.38


.36



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





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

.44


.38


.36









Cash dividends declared

.12


.105


.095



Book value at period end

13.29


13.07


13.02



Tangible book value at period end

10.59


10.35


10.40



Market price at period end

19.54


19.55


18.74








Performance ratios





From continuing operations:





Return on average total assets

1.41

%

1.25

%

1.23

%


Return on average common equity

13.29


11.76


11.12



Return on average tangible common equity (c)

16.73


14.89


13.80



Net interest margin (TE)

3.19


3.15


3.30



Cash efficiency ratio (c)

58.8


62.9


59.3









From consolidated operations:





Return on average total assets

1.40

%

1.24

%

1.23

%


Return on average common equity

13.37


11.82


11.26



Return on average tangible common equity (c)

16.84


14.97


13.98



Net interest margin (TE)

3.17


3.13


3.28



Loan to deposit (d)

86.9


86.9


87.2








Capital ratios at period end





Key shareholders' equity to assets

10.96

%

10.90

%

11.23

%


Key common shareholders' equity to assets

10.21


10.16


10.48



Tangible common equity to tangible assets (c)

8.32


8.22


8.56



Common Equity Tier 1 (e)

10.12


9.99


9.91



Tier 1 risk-based capital (e)

10.94


10.82


10.73



Total risk-based capital (e)

12.83


12.73


12.64



Leverage (e)

9.91


9.76


9.95








Asset quality — from continuing operations





Net loan charge-offs

$

60


$

54


$

66



Net loan charge-offs to average loans

.27

%

.25

%

.31

%


Allowance for loan and lease losses

$

887


$

881


$

870



Allowance for credit losses

945


941


918



Allowance for loan and lease losses to period-end loans

1.01

%

1.00

%

1.01

%


Allowance for credit losses to period-end loans

1.07


1.07


1.06



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

162.8


162.8


171.6



Allowance for credit losses to nonperforming loans (f)

173.4


173.9


181.1



Nonperforming loans at period-end (f)

$

545


$

541


$

507



Nonperforming assets at period-end (f)

571


569


556



Nonperforming loans to period-end portfolio loans (f)

.62

%

.61

%

.59

%


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

.65


.65


.64








Trust assets





Assets under management

$

39,663


$

39,003


$

37,613








Other data





Average full-time equivalent employees

18,376


18,540


18,344



Branches

1,177


1,192


1,210








Taxable-equivalent adjustment

$

8


$

8


$

14


 

 

Financial Highlights (continued)

(dollars in millions, except per share amounts)



Six months ended



6/30/2018


6/30/2017

Summary of operations





Net interest income (TE)

$

1,939



$

1,916



Noninterest income

1,261



1,230



   Total revenue (TE)

3,200



3,146



Provision for credit losses

125



129



Noninterest expense

1,999



2,008



Income (loss) from continuing operations attributable to Key

895



731



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

5



5



Net income (loss) attributable to Key

900



736








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

$

866



$

689



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

5



5



Net income (loss) attributable to Key common shareholders

871



694







Per common share





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

$

.82



$

.64



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





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

.82



.64








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

.81



.63



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





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

.81



.63








Cash dividends paid

.225



.18







Performance ratios





From continuing operations:





Return on average total assets

1.33

%


1.11

%


Return on average common equity

12.53



9.97



Return on average tangible common equity (c)

15.82



12.43



Net interest margin (TE)

3.17



3.21



Cash efficiency ratio (c)

60.8



62.4








From consolidated operations:





Return on average total assets

1.33

%


1.11

%


Return on average common equity

12.60



10.04



Return on average tangible common equity (c)

15.91



12.52



Net interest margin (TE)

3.15



3.19







Asset quality — from continuing operations





Net loan charge-offs

114



124



Net loan charge-offs to average total loans

.26

%


.29

%






Other data





Average full-time equivalent employees

18,458



18,365







Taxable-equivalent adjustment

16



25



(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)      June 30, 2018, ratio is estimated.

(f)       Nonperforming loan balances exclude $629 million, $690 million, and $835 million of purchased credit impaired loans at June 
           30, 2018, March 31, 2018, and June 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


Six months ended


6/30/2018

3/31/2018

6/30/2017


6/30/2018

6/30/2017

Tangible common equity to tangible assets at period-end







Key shareholders' equity (GAAP)

$

15,100


$

14,944


$

15,253





Less: Intangible assets (a)

2,858


2,902


2,866





Preferred Stock (b)

1,009


1,009


1,009





Tangible common equity (non-GAAP)

$

11,233


$

11,033


$

11,378





Total assets (GAAP)

$

137,792


$

137,049


$

135,824





Less: Intangible assets (a)

2,858


2,902


2,866





Tangible assets (non-GAAP)

$

134,934


$

134,147


$

132,958





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

8.32

%

8.22

%

8.56

%




Pre-provision net revenue







Net interest income (GAAP)

$

979


$

944


$

973



$

1,923


$

1,891


Plus: Taxable-equivalent adjustment

8


8


14



16


25


Noninterest income

660


601


653



1,261


1,230


Less: Noninterest expense

993


1,006


995



1,999


2,008


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

$

654


$

547


$

645



$

1,201


$

1,138


Average tangible common equity







Average Key shareholders' equity (GAAP)

$

15,032


$

14,889


$

15,200



$

14,961


$

15,192


Less: Intangible assets (average) (c)

2,883


2,916


2,756



2,899


2,764


Preferred stock (average)

1,025


1,025


1,025



1,025


1,251


Average tangible common equity (non-GAAP)

$

11,124


$

10,948


$

11,419



$

11,037


$

11,177


Return on average tangible common equity from continuing operations







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

     shareholders (GAAP)

$

464


$

402


$

393



$

866


$

689


Average tangible common equity (non-GAAP)

11,124


10,948


11,419



11,037


11,177









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

16.73

%

14.89

%

13.80

%


15.82

%

12.43

%

Return on average tangible common equity consolidated







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

$

467


$

404


$

398



$

871


$

694


Average tangible common equity (non-GAAP)

11,124


10,948


11,419



11,037


11,177









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

16.84

%

14.97

%

13.98

%


15.91

%

12.52

%

Cash efficiency ratio







Noninterest expense (GAAP)

$

993


$

1,006


$

995



$

1,999


$

2,008


Less: Intangible asset amortization

25


29


22



54


44


Adjusted noninterest expense (non-GAAP)

$

968


$

977


$

973



$

1,945


$

1,964









Net interest income (GAAP)

$

979


$

944


$

973



$

1,923


$

1,891


Plus: Taxable-equivalent adjustment

8


8


14



16


25


Noninterest income

660


601


653



1,261


1,230


Total taxable-equivalent revenue (non-GAAP)

$

1,647


$

1,553


$

1,640



$

3,200


$

3,146









Cash efficiency ratio (non-GAAP)

58.8

%

62.9

%

59.3

%


60.8

%

62.4

%

 

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)




Three
months
ended




6/30/2018

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



Common Equity Tier 1 under current RCR

$

12,378



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)

$

12,378







Net risk-weighted assets under current RCR

$

122,352



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




Mortgage servicing assets (f)

727




Deferred tax assets

319




All other assets




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

$

123,398







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

10.03

%


(a)     For the three months ended June 30, 2018, March 31, 2018, and June 30, 2017, intangible assets
          exclude $20 million, $23 million, and $33 million, respectively, of period-end purchased credit card
          receivables.

(b)     Net of capital surplus.

(c)     For the three months ended June 30, 2018, March 31, 2018, and June 30, 2017, average intangible
          assets exclude $21 million, $24 million, and $36 million, respectively, of average purchased credit
          card receivables. For the six months ended June 30, 2018, and June 30, 2017, average intangible
          assets exclude $23 million and $38 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)










6/30/2018

3/31/2018

6/30/2017

Assets





Loans

$

88,222


$

88,089


$

86,503



Loans held for sale

1,418


1,667


1,743



Securities available for sale

17,367


17,888


18,024



Held-to-maturity securities

12,277


12,189


10,638



Trading account assets

833


769


1,081



Short-term investments

2,646


1,644


2,522



Other investments

709


715


732




Total earning assets

123,472


122,961


121,243



Allowance for loan and lease losses

(887)


(881)


(870)



Cash and due from banks

784


643


601



Premises and equipment

892


916


919



Operating lease assets

903


838


691



Goodwill

2,516


2,538


2,464



Other intangible assets

361


387


435



Corporate-owned life insurance

4,147


4,142


4,100



Accrued income and other assets

4,382


4,216


4,783



Discontinued assets

1,222


1,289


1,458




Total assets

$

137,792


$

137,049


$

135,824








Liabilities





Deposits in domestic offices:






NOW and money market deposit accounts

$

55,059


$

54,606


$

53,342




Savings deposits

6,199


6,321


7,056




Certificates of deposit ($100,000 or more)

7,547


7,295


6,286




Other time deposits

4,943


4,928


4,605




Total interest-bearing deposits

73,748


73,150


71,289




Noninterest-bearing deposits

30,800


31,601


31,532




Total deposits

104,548


104,751


102,821



Federal funds purchased and securities sold under repurchase agreements

1,667


616


1,780



Bank notes and other short-term borrowings

639


1,133


924



Accrued expense and other liabilities

1,983


1,854


1,783



Long-term debt

13,853


13,749


13,261




Total liabilities

122,690


122,103


120,569








Equity





Preferred stock

1,025


1,025


1,025



Common shares

1,257


1,257


1,257



Capital surplus

6,315


6,289


6,310



Retained earnings

10,970


10,624


9,878



Treasury stock, at cost

(3,382)


(3,260)


(2,711)



Accumulated other comprehensive income (loss)

(1,085)


(991)


(506)




Key shareholders' equity

15,100


14,944


15,253



Noncontrolling interests

2


2


2




Total equity

15,102


14,946


15,255


Total liabilities and equity

$

137,792


$

137,049


$

135,824








Common shares outstanding (000)

1,058,944


1,064,939


1,092,739


 

 

Consolidated Statements of Income

(dollars in millions, except per share amounts)




Three months ended


Six months ended




6/30/2018

3/31/2018

6/30/2017


6/30/2018

6/30/2017

Interest income








Loans

$

1,000


$

940


$

948



$

1,940


$

1,825



Loans held for sale

16


12


9



28


22



Securities available for sale

97


95


90



192


185



Held-to-maturity securities

72


69


55



141


106



Trading account assets

7


7


7



14


14



Short-term investments

8


8


5



16


8



Other investments

5


6


3



11


7




Total interest income

1,205


1,137


1,117



2,342


2,167


Interest expense








Deposits

112


91


66



203


124



Federal funds purchased and securities sold under repurchase agreements

5


4




9


1



Bank notes and other short-term borrowings

7


6


4



13


9



Long-term debt

102


92


74



194


142




Total interest expense

226


193


144



419


276


Net interest income

979


944


973



1,923


1,891


Provision for credit losses

64


61


66



125


129


Net interest income after provision for credit losses

915


883


907



1,798


1,762


Noninterest income








Trust and investment services income

128


133


134



261


269



Investment banking and debt placement fees

155


143


135



298


262



Service charges on deposit accounts

91


89


90



180


177



Operating lease income and other leasing gains

(6)


32


30



26


53



Corporate services income

61


62


55



123


109



Cards and payments income

71


62


70



133


135



Corporate-owned life insurance income

32


32


33



64


63



Consumer mortgage income

7


7


6



14


12



Mortgage servicing fees

22


20


15



42


33



Other income (a)

99


21


85



120


117




Total noninterest income

660


601


653



1,261


1,230


Noninterest expense








Personnel

586


594


553



1,180


1,110



Net occupancy

79


78


78



157


165



Computer processing

51


52


55



103


115



Business services and professional fees

51


41


45



92


91



Equipment

26


26


27



52


54



Operating lease expense

30


27


21



57


40



Marketing

26


25


30



51


51



FDIC assessment

21


21


21



42


41



Intangible asset amortization

25


29


22



54


44



OREO expense, net


2


3



2


5



Other expense

98


111


140



209


292




Total noninterest expense

993


1,006


995



1,999


2,008


Income (loss) from continuing operations before income taxes

582


478


565



1,060


984



Income taxes

103


62


158



165


252


Income (loss) from continuing operations

479


416


407



895


732



Income (loss) from discontinued operations, net of taxes

3


2


5



5


5


Net income (loss)

482


418


412



900


737



Less:  Net income (loss) attributable to noncontrolling interests






1


Net income (loss) attributable to Key

$

482


$

418


$

412



$

900


$

736











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

$

464


$

402


$

393



$

866


$

689


Net income (loss) attributable to Key common shareholders

467


404


398



871


694


Per common share







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

$

.44


$

.38


$

.36



$

.82


$

.64


Income (loss) from discontinued operations, net of taxes







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

.44


.38


.37



.82


.64


Per common share — assuming dilution







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

$

.44


$

.38


$

.36



$

.81


$

.63


Income (loss) from discontinued operations, net of taxes







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

.44


.38


.36



.81


.63











Cash dividends declared per common share

$

.12


$

.105


$

.095



$

.225


$

.18











Weighted-average common shares outstanding (000)

1,052,652


1,056,037


1,076,203



1,054,378


1,083,486



Effect of common share options and other stock awards

13,141


15,749


16,836



14,561


15,808


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

1,065,793


1,071,786


1,093,039



1,068,939


1,099,294











(a)     For the three months ended June 30, 2018, and March 31, 2018, net securities gains (losses) totaled less than $1 million. For the three months ended
          June 30, 2017, net securities gains totaled $1 million. For the three months ended June 30, 2018, March 31, 2018, and June 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)
















Second Quarter 2018


First Quarter 2018


Second 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)

$

45,030


$

485


4.32

%


$

42,733


$

434


4.11

%


$

40,666


$

409


4.04

%


Real estate — commercial mortgage

14,055


172


4.89



14,085


165


4.76



15,096


187


4.97



Real estate — construction

1,789


23


4.97



1,957


22


4.64



2,204


31


5.51



Commercial lease financing

4,550


41


3.61



4,663


41


3.53



4,690


50


4.33



Total commercial loans

65,424


721


4.41



63,438


662


4.23



62,656


677


4.34



Real estate — residential mortgage

5,451


54


3.97



5,479


54


3.95



5,509


52


3.77



Home equity loans

11,601


135


4.67



11,877


134


4.56



12,473


135


4.31



Consumer direct loans

1,768


33


7.54



1,766


33


7.53



1,743


31


7.07



Credit cards

1,080


30


11.21



1,080


30


11.32



1,044


29


11.04



Consumer indirect loans

3,320


35


4.26



3,287


35


4.29



3,077


38


5.02



Total consumer loans

23,220


287


4.97



23,489


286


4.91



23,846


285


4.77



   Total loans

88,644


1,008


4.56



86,927


948


4.41



86,502


962


4.46



Loans held for sale

1,375


16


4.50



1,187


12


4.10



1,082


9


3.58



Securities available for sale (b), (e)

17,443


97


2.13



17,889


95


2.06



17,997


90


1.97



Held-to-maturity securities (b)

12,226


72


2.36



12,041


69


2.30



10,469


55


2.09



Trading account assets

943


7


3.21



907


7


2.99



1,042


7


3.00



Short-term investments

2,015


8


1.76



2,048


8


1.51



1,970


5


.96



Other investments (e)

710


5


3.08



723


6


2.96



687


3


1.87



Total earning assets

123,356


1,213


3.92



121,722


1,145


3.78



119,749


1,131


3.78



Allowance for loan and lease losses

(875)





(875)





(864)





Accrued income and other assets

13,897





14,068





13,606





Discontinued assets

1,241





1,304





1,477





Total assets

$

137,619





$

136,219





$

133,968




Liabilities













NOW and money market deposit accounts

$

54,749


59


.44



$

53,503


46


.34



$

54,416


34


.25



Savings deposits

6,276


5


.35



6,232


5


.29



6,854


4


.21



Certificates of deposit ($100,000 or more)

7,516


32


1.70



6,972


27


1.58



6,111


19


1.23



Other time deposits

4,949


16


1.22



4,865


13


1.12



4,650


9


.77



Total interest-bearing deposits

73,490


112


.61



71,572


91


.51



72,031


66


.36



Federal funds purchased and securities
        sold under repurchase agreements

1,475


5


1.41



1,421


4


1.11



466



.23



Bank notes and other short-term borrowings

1,116


7


2.27



1,342


6


1.87



1,216


4


1.43



Long-term debt (f), (g)

12,748


102


3.20



12,465


92


2.95



11,046


74


2.68



Total interest-bearing liabilities

88,829


226


1.02



86,800


193


.90



84,759


144


.68



Noninterest-bearing deposits

30,513





30,984





30,748





Accrued expense and other liabilities

2,002





2,241





1,782





Discontinued liabilities (g)

1,241





1,304





1,477





Total liabilities

122,585





121,329





118,766




Equity













Key shareholders' equity

15,032





14,889





15,200





Noncontrolling interests

2





1





2





Total equity

15,034





14,890





15,202





Total liabilities and equity

$

137,619





$

136,219





$

133,968




Interest rate spread (TE)



2.90

%




2.88

%




3.10

%

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


987


3.19

%



952


3.15

%



987


3.30

%

TE adjustment (b)


8





8





14




Net interest income, GAAP basis


$

979





$

944





$

973




(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 June 30, 2018, and March 31, 2018, and 35% for the three months ended June 30, 2017.

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

(d)     Commercial and industrial average balances include $126 million, $120 million, and $117 million of assets from commercial credit cards for the three months ended
          June 30, 2018, March 31, 2018, and June 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)












Six months ended June 30, 2018


Six months ended June 30, 2017



Average




Average





Balance

Interest (a)

Yield/Rate (a)


Balance

Interest (a)

Yield/ Rate (a)

Assets









Loans: (b), (c)









Commercial and industrial (d)

$

43,888


$

919


4.22

%


$

40,336


$

782


3.90

%


Real estate — commercial mortgage

14,070


337


4.83



15,142


351


4.68



Real estate — construction

1,872


45


4.80



2,278


57


5.01



Commercial lease financing

4,607


82


3.57



4,662


94


4.04



Total commercial loans

64,437


1,383


4.32



62,418


1,284


4.14



Real estate — residential mortgage

5,465


108


3.96



5,514


106


3.85



Home equity loans

11,738


269


4.61



12,542


266


4.27



Consumer direct loans

1,767


66


7.53



1,752


61


7.02



Credit cards

1,080


60


11.27



1,055


58


11.05



Consumer indirect loans

3,303


70


4.28



3,037


75


4.97



Total consumer loans

23,353


573


4.94



23,900


566


4.76



   Total loans

87,790


1,956


4.49



86,318


1,850


4.31



Loans held for sale

1,282


28


4.31



1,135


22


3.95



Securities available for sale (b), (e)

17,665


192


2.09



18,586


185


1.96



Held-to-maturity securities (b)

12,134


141


2.33



10,230


106


2.07



Trading account assets

925


14


3.11



1,005


14


2.88



Short-term investments

2,032


16


1.64



1,791


8


.88



Other investments (e)

716


11


3.02



698


7


2.07



Total earning assets

122,544


2,358


3.85



119,763


2,192


3.67



Allowance for loan and lease losses

(875)





(860)





Accrued income and other assets

13,982





13,712





Discontinued assets

1,272





1,508





Total assets

$

136,923





$

134,123




Liabilities









NOW and money market deposit accounts

$

54,129


105


.39



$

54,356


66


.24



Savings deposits

6,254


10


.32



6,604


5


.16



Certificates of deposit ($100,000 or more)

7,246


59


1.64



5,871


35


1.20



Other time deposits

4,907


29


1.17



4,677


18


.77



Total interest-bearing deposits

72,536


203


.56



71,508


124


.35



Federal funds purchased and securities sold under repurchase agreements

1,448


9


1.26



629


1


.28



Bank notes and other short-term borrowings

1,228


13


2.05



1,508


9


1.21



Long-term debt (f), (g)

12,608


194


3.08



10,940


142


2.61



Total interest-bearing liabilities

87,820


419


.96



84,585


276


.66



Noninterest-bearing deposits

30,747





30,922





Accrued expense and other liabilities

2,121





1,914





Discontinued liabilities (g)

1,272





1,509





Total liabilities

121,960





118,930




Equity









Key shareholders' equity

14,961





15,192





Noncontrolling interests

2





1





Total equity

14,963





15,193





Total liabilities and equity

$

136,923





$

134,123




Interest rate spread (TE)



2.89

%




3.01

%

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


1,939


3.17

%



1,916


3.21

%

TE adjustment (b)


16





25




Net interest income, GAAP basis


$

1,923





$

1,891




(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 six 
          months ended June 30, 2018, and June 30, 2017, respectively.

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

(d)     Commercial and industrial average balances include $123 million and $115 million of assets from commercial credit cards for the six months ended June 30, 2018, and June 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


Six months ended


6/30/2018

3/31/2018

6/30/2017


6/30/2018

6/30/2017

Personnel (a)

$

586


$

594


$

553



$

1,180


$

1,110


Net occupancy

79


78


78



157


165


Computer processing

51


52


55



103


115


Business services and professional fees

51


41


45



92


91


Equipment

26


26


27



52


54


Operating lease expense

30


27


21



57


40


Marketing

26


25


30



51


51


FDIC assessment

21


21


21



42


41


Intangible asset amortization

25


29


22



54


44


OREO expense, net


2


3



2


5


Other expense

98


111


140



209


292


Total noninterest expense

$

993


$

1,006


$

995



$

1,999


$

2,008


Average full-time equivalent employees (b)

18,376


18,540


18,344



18,458


18,365



(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


Six months ended


6/30/2018

3/31/2018

6/30/2017


6/30/2018

6/30/2017

Salaries and contract labor

$

341


$

339


$

332



$

680


$

656


Incentive and stock-based compensation

147


145


137



292


264


Employee benefits

82


105


78



187


175


Severance

16


5


6



21


15


Total personnel expense

$

586


$

594


$

553



$

1,180


$

1,110


 

 

Merger-Related Charges

(in millions)









Three months ended


Six months ended


6/30/2018

3/31/2018

6/30/2017


6/30/2018

6/30/2017

Personnel



$

31




$

61


Net occupancy



(1)




4


Business services and professional fees



6




11


Computer processing



2




7


Marketing



6




12


Other nonpersonnel expense






30


Total merger-related charges



$

44




$

125


 

 

Loan Composition

(dollars in millions)











Percent change 6/30/2018 vs.


6/30/2018

3/31/2018

6/30/2017


3/31/2018

6/30/2017

Commercial and industrial (a)

$

44,569


$

44,313


$

40,914



.6

%

8.9

%

Commercial real estate:







Commercial mortgage

14,162


13,997


14,813



1.2


(4.4)


Construction

1,736


1,871


2,168



(7.2)


(19.9)


   Total commercial real estate loans

15,898


15,868


16,981



.2


(6.4)


Commercial lease financing (b)

4,509


4,598


4,737



(1.9)


(4.8)


   Total commercial loans

64,976


64,779


62,632



.3


3.7


Residential — prime loans:







Real estate — residential mortgage

5,452


5,473


5,517



(.4)


(1.2)


Home equity loans

11,519


11,720


12,405



(1.7)


(7.1)


   Total residential — prime loans

16,971


17,193


17,922



(1.3)


(5.3)


Consumer direct loans

1,785


1,758


1,755



1.5


1.7


Credit cards

1,094


1,068


1,049



2.4


4.3


Consumer indirect loans

3,396


3,291


3,145



3.2


8.0


   Total consumer loans

23,246


23,310


23,871



(.3)


(2.6)


   Total loans (c)

$

88,222


$

88,089


$

86,503



.2

%

2.0

%


(a)     Loan balances include $128 million, $121 million, and $118 million of commercial credit card balances at
          June 30, 2018, March 31, 2018, and June 30, 2017, respectively.

(b)     Commercial lease financing includes receivables held as collateral for a secured borrowing of $16 million,
          $16 million, and $47 million at June 30, 2018, March 31, 2018, and June 30, 2017, respectively. Principal
          reductions are based on the cash payments received from these related receivables.

(c)     Total loans exclude loans of $1.2 billion at June 30, 2018, $1.3 billion at March 31, 2018, and $1.4 billion
          at June 30, 2017, related to the discontinued operations of the education lending business.


 

 

Loans Held for Sale Composition

(dollars in millions)













Percent change 6/30/2018 vs.


6/30/2018

3/31/2018

6/30/2017


3/31/2018

6/30/2017

Commercial and industrial

$

217


$

194


$

338



11.9

%

(35.8)

%

Real estate — commercial mortgage

1,139


1,426


1,332



(20.1)


(14.5)


Commercial lease financing

4



10



N/M


(60.0)


Real estate — residential mortgage

58


47


63



23.4


(7.9)


Total loans held for sale (a)

$

1,418


$

1,667


$

1,743



(14.9)

%

(18.6)

%


(a)     Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $58 million at
          June 30, 2018, $47 million at March 31, 2018, and $63 million at June 30, 2017.

N/M = Not Meaningful

 

 


Summary of Changes in Loans Held for Sale

(in millions)








2Q18

1Q18

4Q17

3Q17

2Q17

Balance at beginning of period

$

1,667


$

1,107


$

1,341


$

1,743


$

1,384


New originations

2,665


3,280


3,566


2,855


2,876


Transfers from (to) held to maturity, net

(4)


(14)


(10)


(63)


(7)


Loan sales

(2,909)


(2,705)


(3,783)


(3,191)


(2,507)


Loan draws (payments), net

(1)


(1)


(7)


(3)


(3)


Balance at end of period (a)

$

1,418


$

1,667


$

1,107


$

1,341


$

1,743



(a)     Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $58
          million at June 30, 2018, $47 million at March 31, 2018, $71 million at December 31, 2017, $60 million at
          September 30, 2017, and $63 million at June 30, 2017.

 

 

Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)









Three months ended


Six months ended


6/30/2018

3/31/2018

6/30/2017


6/30/2018

6/30/2017

Average loans outstanding

$

88,644


$

86,927


$

86,502



$

87,790


$

86,318


Allowance for loan and lease losses at beginning of period

$

881


$

877


$

870



$

877


$

858


Loans charged off:







Commercial and industrial

39


37


40



76


72









Real estate — commercial mortgage

2


1


3



3


3


Real estate — construction







   Total commercial real estate loans

2


1


3



3


3


Commercial lease financing

4


1


1



5


8


   Total commercial loans

45


39


44



84


83


Real estate — residential mortgage


1


4



1


2


Home equity loans

6


4


9



10


17


Consumer direct loans

9


8


8



17


18


Credit cards

12


12


12



24


23


Consumer indirect loans

7


8


5



15


16


   Total consumer loans

34


33


38



67


76


     Total loans charged off

79


72


82



151


159


Recoveries:







Commercial and industrial

7


6


2



13


7









Real estate — commercial mortgage

1





1



Real estate — construction


1




1


1


   Total commercial real estate loans

1


1




2


1


Commercial lease financing


1




1


2


    Total commercial loans

8


8


2



16


10


Real estate — residential mortgage



1




3


Home equity loans

3


3


5



6


8


Consumer direct loans

2


2


2



4


3


Credit cards

2


1


2



3


3


Consumer indirect loans

4


4


4



8


8


   Total consumer loans

11


10


14



21


25


     Total recoveries

19


18


16



37


35


Net loan charge-offs

(60)


(54)


(66)



(114)


(124)


Provision (credit) for loan and lease losses

66


58


66



124


136


Allowance for loan and lease losses at end of period

$

887


$

881


$

870



$

887


$

870









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

$

60


$

57


$

48



$

57


$

55


Provision (credit) for losses on lending-related commitments

(2)


3




1


(7)


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

$

58


$

60


$

48



$

58


$

48









Total allowance for credit losses at end of period

$

945


$

941


$

918



$

945


$

918









Net loan charge-offs to average total loans

.27

%

.25

%

.31

%


.26

%

.29

%

Allowance for loan and lease losses to period-end loans

1.01


1.00


1.01



1.01


1.01


Allowance for credit losses to period-end loans

1.07


1.07


1.06



1.07


1.06


Allowance for loan and lease losses to nonperforming loans

162.8


162.8


171.6



162.8


171.6


Allowance for credit losses to nonperforming loans

173.4


173.9


181.1



173.4


181.1









Discontinued operations — education lending business:







Loans charged off

$

3


$

4


$

4



$

7


$

10


Recoveries

1


2


2



3


4


   Net loan charge-offs

$

(2)


$

(2)


$

(2)



$

(4)


$

(6)



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

 

 


Asset Quality Statistics From Continuing Operations

(dollars in millions)


2Q18

1Q18

4Q17

3Q17

2Q17

Net loan charge-offs

$

60


$

54


$

52


$

32


$

66


Net loan charge-offs to average total loans

.27

%

.25

%

.24

%

.15

%

.31

%

Allowance for loan and lease losses

$

887


$

881


$

877


$

880


$

870


Allowance for credit losses (a)

945


941


934


937


918


Allowance for loan and lease losses to period-end loans

1.01

%

1.00

%

1.01

%

1.02

%

1.01

%

Allowance for credit losses to period-end loans

1.07


1.07


1.08


1.08


1.06


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

162.8


162.8


174.4


170.2


171.6


Allowance for credit losses to nonperforming loans (b)

173.4


173.9


185.7


181.2


181.1


Nonperforming loans at period end (b)

$

545


$

541


$

503


$

517


$

507


Nonperforming assets at period end (b)

571


569


534


556


556


Nonperforming loans to period-end portfolio loans (b)

.62

%

.61

%

.58

%

.60

%

.59

%

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

.65


.65


.62


.64


.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 $629 million, $690 million, $738 million, $783 million, and $835 million of purchased credit impaired loans at 
            June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively.

 

 

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(dollars in millions)


6/30/2018

3/31/2018

12/31/2017

9/30/2017

6/30/2017

Commercial and industrial

$

178


$

189


$

153


$

169


$

178








Real estate — commercial mortgage

42


33


30


30


34


Real estate — construction

2


2


2


2


4


Total commercial real estate loans

44


35


32


32


38


Commercial lease financing

21


5


6


11


11


Total commercial loans

243


229


191


212


227


Real estate — residential mortgage

55


59


58


57


58


Home equity loans

222


229


229


227


208


Consumer direct loans

4


4


4


3


2


Credit cards

2


2


2


2


2


Consumer indirect loans

19


18


19


16


10


Total consumer loans

302


312


312


305


280


Total nonperforming loans (a)

545


541


503


517


507


OREO

26


28


31


39


48


Other nonperforming assets





1


Total nonperforming assets (a)

$

571


$

569


$

534


$

556


$

556


Accruing loans past due 90 days or more

$

103


$

82


$

89


$

86


$

85


Accruing loans past due 30 through 89 days

429


305


359


329


340


Restructured loans — accruing and nonaccruing (b)

347


317


317


315


333


Restructured loans included in nonperforming loans (b)

184


179


189


187


193


Nonperforming assets from discontinued operations — education lending business

6


6


7


8


5


Nonperforming loans to period-end portfolio loans (a)

.62

%

.61

%

.58

%

.60

%

.59

%

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

.65


.65


.62


.64


.64



(a)     Nonperforming loan balances exclude $629 million, $690 million, $738 million, $783 million, and $835 million of purchased credit impaired loans at June 30,
          2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 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)


2Q18

1Q18

4Q17

3Q17

2Q17

Balance at beginning of period

$

541


$

503


$

517


$

507


$

573


Loans placed on nonaccrual status

175


182


137


181


143


Charge-offs

(78)


(70)


(67)


(71)


(82)


Loans sold

(1)




(1)



Payments

(33)


(29)


(52)


(32)


(84)


Transfers to OREO

(5)


(4)


(8)


(10)


(8)


Transfers to other nonperforming assets






Loans returned to accrual status

(54)


(41)


(24)


(57)


(35)


Balance at end of period (a)

$

545


$

541


$

503


$

517


$

507



(a)     Nonperforming loan balances exclude $629 million, $690 million, $738 million, $783 million, and $835 million of purchased credit
          impaired loans at June 30, 2018, March 31
2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively.

 

 

Line of Business Results

(dollars in millions)

















Percent change 2Q18 vs.


2Q18

1Q18

4Q17

3Q17

2Q17


1Q18

2Q17

Key Community Bank









Summary of operations









Total revenue (TE)

$

996


$

958


$

961


$

945


$

998



4.0

%

(.2)

%

Provision for credit losses

38


48


57


59


47



(20.8)


(19.1)


Noninterest expense

639


652


661


623


635



(2.0)


.6


Net income (loss) attributable to Key

244


197


154


165


198



23.9


23.2


Average loans and leases

47,984


47,680


47,405


47,611


47,477



.6


1.1


Average deposits

80,930


79,945


80,352


79,563


79,601



1.2


1.7


Net loan charge-offs

34


42


35


41


47



(19.0)


(27.7)


Net loan charge-offs to average total loans

.28

%

.36

%

.29

%

.34

%

.40

%


N/A


N/A


Nonperforming assets at period end

$

468


$

425


$

405


$

427


$

406



10.1


15.3


Return on average allocated equity

20.22

%

16.61

%

12.62

%

13.55

%

16.59

%


N/A


N/A


Average full-time equivalent employees

10,619


10,666


10,629


10,696


10,558



(.4)


.6











Key Corporate Bank









Summary of operations









Total revenue (TE)

$

542


$

559


$

605


$

561


$

597



(3.0)

%

(9.2)

%

Provision for credit losses

28


14


(6)


(11)


19



100.0


47.4


Noninterest expense

326


314


353


305


297



3.8


9.8


Net income (loss) attributable to Key

167


207


222


189


224



(19.3)


(25.4)


Average loans and leases

39,710


38,260


37,460


38,024


37,704



3.8


5.3


Average loans held for sale

1,299


1,118


1,345


1,521


1,000



16.2


29.9


Average deposits

21,057


20,815


21,558


21,559


21,145



1.2


(.4)


Net loan charge-offs

26


11


16


(9)


19



136.4


36.8


Net loan charge-offs to average total loans

.26

%

.12

%

.17

%

(.09)

%

.20

%


N/A


N/A


Nonperforming assets at period end

$

91


$

127


$

109


$

106


$

119



(28.3)


(23.5)


Return on average allocated equity

23.07

%

29.46

%

31.33

%

26.90

%

31.66

%


N/A


N/A


Average full-time equivalent employees

2,537


2,543


2,418


2,460


2,364



(.2)


7.3



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

 

 

Notable Items

(in millions)









Three months ended


Six months ended


6/30/2018

3/31/2018

6/30/2017


6/30/2018

6/30/2017

Gain on sale of Key Insurance and Benefits Services

$

78





$

78



Expenses related to the sale of Key Insurance and Benefits Services

5





5



Net gain on sale of Key Insurance and Benefits Services

73





73










Efficiency efforts

(22)





(22)



Lease residual loss

(42)





(42)



Merger-related charges



$

(44)




$

(125)


Merchant services gain



64




64


Purchase accounting finalization, net



43




43


Charitable contribution



(20)




(20)


Total notable items

9



$

43



9


$

(38)


Income taxes

7



16



7


(14)


Total notable items, after tax

$

2



$

27



$

2


$

(24)


 

 

 

Cision View original content:http://www.prnewswire.com/news-releases/keycorp-reports-second-quarter-2018-net-income-of-464-million-or-44-per-common-share-300683554.html

SOURCE KeyCorp