KEYCORP 
By CLEVELAND, April 19, 2012 /PRNewswire/ --
-- Net income from continuing operations of $199 million, or $.21 per
common share for the first quarter of 2012
-- Net interest margin of 3.16%, up three basis points from the fourth
quarter of 2011
-- Average total loans increased $766 million, or 6% annualized from the
fourth quarter of 2011
-- Net charge-offs declined to $101 million, or .82% of average loan
balances for the first quarter of 2012
-- Nonperforming loans declined to $666 million, or 1.35% of period-end
loans, and nonperforming assets decreased to $767 million at March 31,
2012
-- Loan loss reserve at 1.92% of total period-end loans and 141.7% of
nonperforming loans at March 31, 2012
-- Received no objection from the Federal Reserve to Key's capital plan,
which included a common stock repurchase program and a plan to evaluate
a dividend increase
-- Tier 1 common equity and Tier 1 risk-based capital ratios estimated at
11.5% and 13.3%, respectively, at March 31, 2012
KeyCorp (NYSE: KEY) today announced first quarter net income from continuing operations attributable to Key common shareholders of $199 million, or $.21 per common share. This result compares to $184 million, or $.21 per common share for the first quarter of 2011, which included a deemed dividend of $49 million, or $.06 per diluted common share related to the accelerated amortization of the discount on the repurchased preferred shares from the U.S. Treasury. First quarter 2012 net income attributable to Key common shareholders was $194 million compared to net income attributable to Key common shareholders of $173 million for the same quarter one year ago.
During the first quarter of 2012, the Company continued to benefit from improved asset quality. Nonperforming loans decreased by $219 million and nonperforming assets declined by $322 million from the year-ago quarter to $666 million and $767 million, respectively. Net charge-offs declined to $101 million, or .82% of average loan balances for the first quarter of 2012, compared to $193 million, or 1.59% of average loan balances for the same period one year ago.
"Key's first quarter results demonstrate continued positive momentum as we execute on our relationship strategy, strengthen our balance sheet and maintain disciplined expense control," said Chairman and Chief Executive Officer Beth Mooney. "Asset quality improved again this quarter, and we were pleased to see growth in our commercial, financial and agricultural loan portfolio. Key remains committed to meeting the credit needs of its customers and communities."
Key originated approximately $8.3 billion in new or renewed lending commitments to consumers and businesses during the first quarter of 2012, which is up from $6.9 billion for the same period one year ago.
Mooney added that she was particularly pleased that Key received several industry honors and recognition in the first quarter. Corporate Insight's Bank Monitor commended Key for service excellence in categories including online bill pay, online account opening, alerts and fund transfers. Greenwich Associates' 2011 national banking survey recognized Key as a national and regional winner of three excellence awards for its small business banking and middle market banking.
At March 31, 2012, Key's estimated Tier 1 common equity and Tier 1 risk-based capital ratios were 11.5% and 13.3%, compared to 11.3% and 13.0%, respectively, at December 31, 2011.
Mooney continued: "As previously announced, our Board of Directors has authorized a common stock repurchase program of up to $344 million to begin in the second quarter of this year through the first quarter of 2013. Our Board will also evaluate an increase in our quarterly common stock dividend from $.03 per share up to $.05 per share next month at its regular meeting. These actions, which are a part of our 2012 capital plan submitted to the Federal Reserve and to which the Federal Reserve had no objection, represent an opportunity for Key to return capital to our shareholders while still maintaining our peer leading capital to support organic growth."
As previously reported, on January 11, 2012, Key signed a purchase and assumption agreement to acquire 37 retail banking branches in Buffalo and Rochester, NY. The deposits associated with these branches total approximately $2.4 billion, while loans total approximately $400 million. The transaction is expected to close early third quarter of 2012, subject to customary closing conditions, including regulatory approval of the acquisition.
The following table shows Key's continuing and discontinued operating results for the three-month periods ended March 31, 2012, December 31, 2011 and March 31, 2011.
Results of Operations
Three months ended
------------------
in millions, except per share
amounts 3-31-12 12-31-11 3-31-11
----------------------------- ------- -------- -------
Summary of operations
---------------------
Income (loss) from continuing
operations attributable to Key $205 $207 $274
Income (loss) from discontinued
operations, net of taxes (a) (5) (7) (11)
--- --- ---
Net income (loss) attributable to
Key $200 $200 $263
==== ==== ====
Income (loss) from continuing
operations attributable to Key $205 $207 $274
Less: Dividends on Series A Preferred
Stock 6 6 6
Cash dividends on Series B
Preferred Stock - - 31
Amortization of discount on
Series B Preferred Stock (b) - - 53
Income (loss) from continuing
operations attributable to Key
common shareholders 199 201 184
Income (loss) from discontinued
operations, net of taxes (a) (5) (7) (11)
--- --- ---
Net income (loss) attributable to
Key common shareholders $194 $194 $173
==== ==== ====
Per common share -assuming
dilution
--------------------------
Income (loss) from continuing
operations attributable to Key
common shareholders $.21 $.21 $.21
Income (loss) from discontinued
operations, net of taxes (a) (.01) (.01) (.01)
---- ---- ----
Net income (loss) attributable to
Key common shareholders (c) $.20 $.20 $.19
==== ==== ====
(a) In April 2009, management decided
to wind down the operations of
Austin Capital Management, Ltd.,
a subsidiary that specialized in
managing hedge fund investments
for institutional customers. In
September 2009, management
decided to discontinue the
education lending business
conducted through Key Education
Resources, the education payment
and financing unit of KeyBank
National Association. As a
result of these decisions, Key
has accounted for these
businesses as discontinued
operations. The loss from
discontinued operations for the
three-months ended March 31,
2012, was primarily attributable
to fair value adjustments
related to the education lending
securitization trusts.
(b) March 31, 2011 includes a $49
million deemed dividend related
to the repurchase of the $2.5
billion Fixed-Rate Perpetual
Preferred Stock, Series B
("Series B Preferred Stock").
(c) Earnings per share may not foot
due to rounding.
SUMMARY OF CONTINUING OPERATIONS
Taxable-equivalent net interest income was $559 million for the first quarter of 2012, and the net interest margin was 3.16%. These results compare to taxable-equivalent net interest income of $604 million and a net interest margin of 3.25% for the first quarter of 2011. The decrease in net interest income is attributed to a decline in both the net interest margin and earning assets. The net interest margin has been under pressure as a result of the continuation of the low-rate environment contracting the spread between lending rates and funding costs.
Compared to the fourth quarter of 2011, taxable-equivalent net interest income decreased by $4 million, and the net interest margin improved by three basis points. The slight decrease in net interest income is primarily due to the write-off of $6 million of capitalized loan origination costs resulting from the early termination of a leveraged lease in the first quarter of 2012. The improvement in the net interest margin resulted from a decrease in the balance of lower yielding short-term investments during the first quarter of 2012 and a continued decline in funding costs.
Key's noninterest income was $472 million for the first quarter of 2012, compared to $457 million for the year-ago quarter. Gains on leased equipment increased $23 million, primarily due to a $20 million gain related to the early termination of a leveraged lease, compared to the same period one year ago. Other income also increased $16 million from the year-ago quarter. These increases in noninterest income were partially offset by a $13 million decrease in operating lease income and a $13 million decline in electronic banking fees as a result of new government pricing controls on debit transactions that went into effect October 1, 2011.
The major components of Key's noninterest income for the past five quarters are shown in the following table.
Noninterest Income - Major Components
in
millions 1Q12 4Q11 3Q11 2Q11 1Q11
--------- ---- ---- ---- ---- ----
Trust and
investment
services
income $109 $104 $107 $113 $110
Service
charges
on
deposit
accounts 68 70 74 69 68
Operating
lease
income 22 25 30 32 35
Letter of
credit
and loan
fees 54 56 55 47 55
Corporate-
owned
life
insurance
income 30 35 31 28 27
Electronic
banking
fees 17 18 33 33 30
Gains on
leased
equipment 27 9 7 5 4
Insurance
income 12 11 13 14 15
Net gains
(losses)
from
loan
sales 22 27 18 11 19
Net gains
(losses)
from
principal
investing 35 (8) 34 17 35
Investment
banking
and
capital
markets
income
(loss) 43 24 25 42 43
Compared to the fourth quarter of 2011, noninterest income increased by $58 million. Net gains (losses) from principal investing (including results attributable to noncontrolling interests) increased $43 million, and investment banking and capital markets income increased $19 million compared to the fourth quarter of 2011. Key's fourth quarter investment banking and capital markets income included a $24 million charge related to funding Visa's litigation escrow liability account. Gains on leased equipment increased $18 million resulting from the early termination of a leveraged lease in the first quarter of 2012. These increases in noninterest income were partially offset by declines in corporate-owned life insurance of $5 million, net gains (losses) from loan sales of $5 million and other income of $10 million.
Key's noninterest expense was $703 million for the first quarter of 2012, compared to $701 million for the same period last year. Personnel expense increased $14 million due to increased salaries and stock-based compensation expenses, partially offset by a decrease in incentive compensation. Nonpersonnel expense decreased $12 million compared to the same period one year ago with declines in operating lease expense, FDIC assessments and other real estate owned ("OREO") expense being offset by increases in marketing, the provision (credit) for losses on lending-related commitments and other expense.
Compared to the fourth quarter of 2011, noninterest expense decreased by $14 million. Business services and professional fees decreased $19 million and marketing expense declined $11 million. These decreases in noninterest expense from the fourth quarter of 2011 were partially offset by increases of $11 million in the provision (credit) for losses on lending-related commitments and $8 million in other expenses.
ASSET QUALITY
Key's provision for loan and lease losses was a charge of $42 million for the first quarter of 2012, compared to a credit of $40 million for the year-ago quarter and a credit of $22 million for the fourth quarter of 2011. Key's allowance for loan and lease losses was $944 million, or 1.92% of total period-end loans at March 31, 2012, compared to 2.03% at December 31, 2011, and 2.83% at March 31, 2011.
Selected asset quality statistics for Key for each of the past five quarters are presented in the following table.
Selected Asset Quality Statistics from Continuing Operations
dollars in millions 1Q12 4Q11 3Q11 2Q11 1Q11
------------------- ---- ---- ---- ---- ----
Net loan charge-offs $101 $105 $109 $134 $193
Net loan charge-offs to average loans .82% .86% .90% 1.11% 1.59%
Allowance for loan and lease losses to annualized net loan charge-offs 232.39 241.01 261.54 228.85 175.29
Allowance for loan and lease losses $944 $1,004 $1,131 $1,230 $1,372
Allowance for credit losses (a) 989 1,049 1,187 1,287 1,441
Allowance for loan and lease losses to period-end loans 1.92% 2.03% 2.35% 2.57% 2.83%
Allowance for credit losses to period-end loans 2.01 2.12 2.46 2.69 2.97
Allowance for loan and lease losses to nonperforming loans 141.74 138.10 143.53 146.08 155.03
Allowance for credit losses to nonperforming loans 148.50 144.29 150.63 152.85 162.82
Nonperforming loans at period end $666 $727 $788 $842 $885
Nonperforming assets at period end 767 859 914 950 1,089
Nonperforming loans to period-end portfolio loans 1.35% 1.47% 1.64% 1.76% 1.82%
Nonperforming assets to period-end portfolio loans plus OREO and 1.55 1.73 1.89 1.98 2.23
other nonperforming assets
(a) Includes the allowance for loan
and lease losses plus the
liability for credit losses on
lending-related commitments.
Net loan charge-offs for the first quarter of 2012 totaled $101 million, or .82% of average loans. These results compare to $193 million, or 1.59% for the same period last year and $105 million, or .86% for the fourth quarter of 2011.
Key's net loan charge-offs by loan type for each of the past five quarters are shown in the following table.
Net Loan Charge-offs from Continuing Operations
dollars in millions 1Q12 4Q11 3Q11 2Q11 1Q11
------------------- ---- ---- ---- ---- ----
Commercial, financial and agricultural $15 $28 $23 $36 $32
Real estate - commercial mortgage 21 23 25 12 43
Real estate - construction (a) 10 (6) 8 24 30
Commercial lease financing - - 2 4 11
--- --- --- --- ---
Total commercial loans 46 45 58 76 116
Home equity - Key Community Bank 23 20 18 27 24
Home equity - Other 7 9 8 10 14
Marine 10 14 11 4 19
Other 15 17 14 17 20
--- --- --- --- ---
Total consumer loans 55 60 51 58 77
--- --- --- --- ---
Total net loan charge-offs $101 $105 $109 $134 $193
==== ==== ==== ==== ====
Net loan charge-offs to average loans from continuing operations .82% .86% .90% 1.11% 1.59%
Net loan charge-offs from discontinued operations - education $19 $25 $31 $32 $35
lending business
(a) Credit amount indicates
recoveries exceeded charge-
offs.
Compared to the fourth quarter of 2011, net loan charge-offs in the commercial loan portfolio increased by $1 million and net loan charge-offs in the consumer loan portfolio decreased by $5 million. As shown in the table on page 6, Key's exit loan portfolio accounted for $26 million, or 25.74% of Key's total net loan charge-offs for the first quarter of 2012. Net loan charge-offs in the exit loan portfolio increased by $4 million from the fourth quarter of 2011 due to increases in net loan charge-offs in the commercial loan portfolios.
At March 31, 2012, Key's nonperforming loans totaled $666 million and represented 1.35% of period-end portfolio loans, compared to 1.47% at December 31, 2011, and 1.82% at March 31, 2011. Nonperforming assets at March 31, 2012, totaled $767 million and represented 1.55% of portfolio loans and OREO and other nonperforming assets, compared to 1.73% at December 31, 2011, and 2.23% at March 31, 2011. The following table illustrates the trend in Key's nonperforming assets by loan type over the past five quarters.
Nonperforming Assets from Continuing Operations
dollars in millions 1Q12 4Q11 3Q11 2Q11 1Q11
------------------- ---- ---- ---- ---- ----
Commercial, financial and agricultural $168 $188 $188 $213 $221
Real estate - commercial mortgage 175 218 237 230 245
Real estate - construction 66 54 93 131 146
Commercial lease financing 22 27 31 41 42
Total consumer loans 235 240 239 227 231
--- --- --- --- ---
Total nonperforming loans 666 727 788 842 885
Nonperforming loans held for sale 24 46 42 42 86
OREO and other nonperforming assets 77 86 84 66 118
--- --- --- --- ---
Total nonperforming assets $767 $859 $914 $950 $1,089
==== ==== ==== ==== ======
Restructured loans - accruing and nonaccruing (a) $293 $276 $277 $252 $242
Restructured loans included in nonperforming loans (a) 184 191 178 144 136
Nonperforming assets from discontinued operations - education 19 23 22 21 22
lending business
Nonperforming loans to period-end portfolio loans 1.35% 1.47% 1.64% 1.76% 1.82%
Nonperforming assets to period-end portfolio loans plus OREO and 1.55 1.73 1.89 1.98 2.23
other nonperforming assets
(a) Restructured loans (i.e. troubled
debt restructurings) are those for
which Key, for reasons related to a
borrower's financial difficulties,
grants a concession to the borrower
that it would not otherwise
consider. These concessions are
made to improve the collectability
of the loan and generally take the
form of a reduction of the interest
rate, extension of the maturity
date or reduction in the principal
balance.
Nonperforming assets continued to decrease during the first quarter of 2012, representing the tenth consecutive quarterly decline. As shown in the following table, Key's exit loan portfolio accounted for $103 million, or 13.43% of Key's total nonperforming assets at March 31, 2012.
The following table shows the composition of Key's exit loan portfolio at March 31, 2012, and December 31, 2011, the net charge-offs recorded on this portfolio for the first quarter of 2012 and fourth quarter of 2011, and the nonperforming status of these loans at March 31, 2012, and December 31, 2011.
Exit Loan Portfolio from Continuing Operations
Balance Change Net Loan Balance on
Outstanding 3-31-12 vs. Charge-offs Nonperforming Status
----------- ----------- --------------------
in millions 3-31-12 12-31-11 12-31-11 1Q12 (c) 4Q11 (c) 3-31-12 12-31-11
----------- ------- -------- -------- ---- --- ---- --- ------- --------
Residential properties - homebuilder $34 $41 $(7) $2 $(2) $17 $23
Marine and RV floor plan 59 81 (22) 7 2 32 45
Commercial lease financing (a) 1,534 1,669 (135) (1) (2) 11 7
----- ----- ---- --- --- --- ---
Total commercial loans 1,627 1,791 (164) 8 (2) 60 75
Home equity - Other 507 535 (28) 7 9 12 12
Marine 1,654 1,766 (112) 10 14 31 31
RV and other consumer 111 125 (14) 1 1 - 1
--- --- --- --- --- --- ---
Total consumer loans 2,272 2,426 (154) 18 24 43 44
----- ----- ---- --- --- --- ---
Total exit loans in loan portfolio $3,899 $4,217 $(318) $26 $22 $103 $119
====== ====== ===== === === ==== ====
Discontinued operations - education lending business (not $5,715 $5,812 $(97) $19 $25 $19 $23
included in exit loans above) (b)
(a) Includes the business aviation,
commercial vehicle, office
products, construction and
industrial leases, and Canadian
lease financing portfolios; and
all remaining balances related
to lease in, lease out; sale in,
sale out; service contract
leases; and qualified
technological equipment leases.
(b) Includes loans in Key's
consolidated education loan
securitization trusts.
(c) Credit amounts indicate
recoveries exceeded charge-
offs.
CAPITAL
Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2012.
Capital
Ratios
3-31-12 12-31-11 9-30-11 6-30-11 3-31-11
------- -------- ------- ------- -------
Tier 1 common equity
(a), (b) 11.55% 11.26% 11.28% 11.14% 10.74%
Tier 1 risk-based
capital (a) 13.29 12.99 13.49 13.93 13.48
Total risk-based
capital (a) 16.68 16.51 17.05 17.88 17.38
Tangible common equity
to tangible assets (b) 10.26 9.88 9.82 9.67 9.16
(a) 3-31-12 ratio is estimated.
(b) The table entitled "GAAP to Non-GAAP
Reconciliations" presents the
computations of certain financial
measures related to "tangible common
equity" and "Tier 1 common equity."
The table reconciles the GAAP
performance measures to the
corresponding non-GAAP measures,
which provides a basis for period-
to-period comparisons.
As shown in the preceding table, at March 31, 2012, Key's estimated Tier 1 common equity and Tier 1 risk-based capital ratios stood at 11.5% and 13.3%, respectively. In addition, the tangible common equity ratio was 10.3% at March 31, 2012.
The changes in Key's outstanding common shares over the past five quarters are summarized in the following table.
Summary of Changes in Common Shares Outstanding
in thousands 1Q12 4Q11 3Q11 2Q11 1Q11
------------ ---- ---- ---- ---- ----
Shares
outstanding
at beginning
of period 953,008 952,808 953,822 953,926 880,608
Common shares
issued - - - - 70,621
Shares
reissued
(returned)
under
employee
benefit plans 3,094 200 (1,014) (104) 2,697
----- --- ------ ---- -----
Shares
outstanding
at end of
period 956,102 953,008 952,808 953,822 953,926
======= ======= ======= ======= =======
During the first quarter of 2011, Key successfully completed a $625 million common equity offering and a $1 billion debt offering. The proceeds from these offerings, along with other available funds, were used to repurchase the $2.5 billion of Series B Preferred Stock issued to the U.S. Treasury Department as a result of Key's participation in the U.S. Treasury's Capital Purchase Program.
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. Each of the major business lines is described under the heading "Line of Business Descriptions." For more detailed financial information pertaining to each business segment, see the tables at the end of this release.
Major Business Segments
Percent change 1Q12 vs.
dollars in millions 1Q12 4Q11 1Q11 4Q11 1Q11
------------------- ---- ---- ---- ---- ----
Revenue from continuing
operations (TE)
-----------------------
Key Community
Bank $528 $546 $565 (3.3)% (6.5)%
Key Corporate Bank 401 413 406 (2.9) (1.2)
Other Segments 105 44 93 138.6 12.9
--- --- --- ----- ----
Total Segments 1,034 1,003 1,064 3.1 (2.8)
Reconciling Items (3) (26) (3) N/M -
--- --- --- --- ---
Total $1,031 $977 $1,061 5.5% (2.8)%
====== ==== ======
Income (loss) from
continuing operations
----------------------
attributable to Key
-------------------
Key Community
Bank $57 $40 $81 42.5% (29.6)%
Key Corporate Bank 100 157 126 (36.3) (20.6)
Other Segments 45 22 58 104.5 (22.4)
--- --- --- ----- -----
Total Segments 202 219 265 (7.8) (23.8)
Reconciling Items 3 (12) 9 N/M (66.7)
--- --- --- --- -----
Total $205 $207 $274 (1.0)% (25.2)%
==== ==== ====
TE = Taxable Equivalent, N/M = Not Meaningful
---------------------------------------------
Key Community Bank
Percent change 1Q12 vs.
dollars in millions 1Q12 4Q11 1Q11 4Q11 1Q11
------------------- ---- ---- ---- ---- ----
Summary of operations
Net interest income
(TE) $353 $365 $378 (3.3)% (6.6)%
Noninterest income 175 181 187 (3.3) (6.4)
--- --- --- ---- ----
Total revenue (TE) 528 546 565 (3.3) (6.5)
Provision (credit) for
loan and lease losses 2 30 11 (93.3) (81.8)
Noninterest expense 456 477 447 (4.4) 2.0
--- --- --- ---- ---
Income (loss) before
income taxes (TE) 70 39 107 79.5 (34.6)
Allocated income taxes
and TE adjustments 13 (1) 26 N/M (50.0)
--- --- --- --- -----
Net income (loss)
attributable to Key $57 $40 $81 42.5% (29.6)%
=== === ===
Average balances
Loans and leases $26,617 $26,406 $26,312 .8% 1.2%
Total assets 30,194 29,867 29,739 1.1 1.5
Deposits 47,768 48,076 48,108 (.6) (.7)
Assets under
management at period
end $21,939 $17,938 $20,057 22.3% 9.4%
TE = Taxable
Equivalent, N/M =
Not Meaningful
Additional Key Community Bank Data Percent change 1Q12 vs.
dollars in millions 1Q12 4Q11 1Q11 4Q11 1Q11
------------------- ---- ---- ---- ---- ----
Noninterest income
Trust and investment services income $48 $45 $46 6.7% 4.3%
Service charges on deposit accounts 56 59 55 (5.1) 1.8
Electronic banking fees 17 18 30 (5.6) (43.3)
Other noninterest income 54 59 56 (8.5) (3.6)
--- --- --- ---- ----
Total noninterest income $175 $181 $187 (3.3)% (6.4)%
==== ==== ====
Average deposit balances
NOW and money market deposit accounts $23,161 $22,524 $21,482 2.8% 7.8%
Savings deposits 1,992 1,959 1,901 1.7 4.8
Certificates of deposit ($100,000 or more) 3,447 3,639 4,513 (5.3) (23.6)
Other time deposits 6,023 6,491 7,959 (7.2) (24.3)
Deposits in foreign office 370 393 398 (5.9) (7.0)
Noninterest-bearing deposits 12,775 13,070 11,855 (2.3) 7.8
------ ------ ------ ---- ---
Total deposits $47,768 $48,076 $48,108 (.6)% (.7)%
======= ======= =======
Home equity loans
Average balance $9,173 $9,280 $9,454
Weighted-average loan-to-value ratio (at date of origination) 70% 70% 70%
Percent first lien positions 53 53 53
---------------------------- --- --- ---
Other data
Branches 1,059 1,058 1,040
Automated teller machines 1,572 1,579 1,547
------------------------- ----- ----- -----
Key Community Bank Summary of Operations
Key Community Bank recorded net income attributable to Key of $57 million for the first quarter of 2012, compared to net income attributable to Key of $81 million for the year-ago quarter.
Taxable-equivalent net interest income declined by $25 million, or 7% from the first quarter of 2011. Average loans and leases grew 1% while average deposits declined 1% from one year ago. Given the continued low-rate environment, the value derived from deposits was less in the current period.
Noninterest income decreased by $12 million, or 6% from the year-ago quarter, primarily due to a $13 million decline in electronic banking fees resulting from new government pricing controls on debit transactions that went into effect October 1, 2011.
The provision for loan and lease losses declined by $9 million, or 82% compared to the first quarter of 2011 due to lower net loan charge-offs from the same period one year ago. Net loan charge-offs were $49 million for the first quarter of 2012, down $27 million from the $76 million incurred in the same period one year ago.
Noninterest expense increased by $9 million, or 2% from the year-ago quarter. An increase in internally allocated costs and the provision (credit) for losses on lending-related commitments was partially offset by a reduction in FDIC deposit insurance assessments and a decline in personnel expense from one year ago.
Key Corporate Bank
Percent change 1Q12 vs.
dollars in millions 1Q12 4Q11 1Q11 4Q11 1Q11
------------------- ---- ---- ---- ---- ----
Summary of operations
Net interest income (TE) $187 $177 $187 5.6% -
Noninterest income 214 236 219 (9.3) (2.3)%
--- --- --- ---- -----
Total revenue (TE) 401 413 406 (2.9) (1.2)
Provision (credit) for loan and lease losses 13 (61) (21) N/M N/M
Noninterest expense 231 228 228 1.3 1.3
--- --- --- --- ---
Income (loss) before income taxes (TE) 157 246 199 (36.2) (21.1)
Allocated income taxes and TE adjustments 57 90 73 (36.7) (21.9)
--- --- --- ----- -----
Net income (loss) 100 156 126 (35.9) (20.6)
Less: Net income (loss) attributable to noncontrolling interests - (1) - N/M N/M
--- --- --- --- ---
Net income (loss) attributable to Key $100 $157 $126 (36.3)% (20.6)%
==== ==== ====
Average balances
Loans and leases $18,584 $17,783 $17,677 4.5% 5.1%
Loans held for sale 509 356 275 43.0 85.1
Total assets 22,863 21,811 21,747 4.8 5.1
Deposits 11,556 11,162 11,282 3.5 2.4
Assets under management at period end $30,694 $33,794 $41,461 (9.2)% (26.0)%
------------------------------------- ------- ------- ------- ----- ------
TE = Taxable Equivalent, N/M = Not Meaningful
---------------------------------------------
Key Corporate Bank Summary of Operations
Key Corporate Bank recorded net income attributable to Key of $100 million for the first quarter of 2012, compared to net income attributable to Key of $126 million for the same period one year ago.
Taxable-equivalent net interest income was flat compared to the first quarter of 2011 as the decreased value derived from deposits was offset by an increase in average earning assets. Although average deposits increased $274 million, or 2%, the deposit spread decreased $11 million due to the prolonged low-rate environment. Average earning assets increased $869 million, or 4% from the year-ago quarter, and combined with lower levels of nonperforming assets, led to a $12 million increase in earning asset spread.
Noninterest income declined by $5 million, or 2% from the first quarter of 2011. A decrease in operating lease income and trust and investment services income was partially offset by an increase in net gains (losses) from loan sales compared to the year-ago quarter.
The provision for loan and lease losses in the first quarter of 2012 was a charge of $13 million compared to a credit of $21 million for the same period one year ago. The charge in the first quarter of 2012 related to the increase in loans and leases, partially offset by continued improvement in the portfolio's asset quality for the tenth consecutive quarter. Net loan charge-offs in the first quarter of 2012 were $25 million compared to $75 million for the same period one year ago.
Noninterest expense increased by $3 million, or 1% from the first quarter of 2011. A decrease in operating lease expense was partially offset by increases in other operating expenses.
Other Segments
Other Segments consist of Corporate Treasury, Key's Principal Investing unit and various exit portfolios. Other Segments generated net income attributable to Key of $45 million for the first quarter of 2012, compared to net income attributable to Key of $58 million for the same period last year. These results were primarily attributable to an increase in the provision for loan and lease losses of $52 million in the exit portfolio. This increase was partially offset by a $14 million net gain resulting from the early termination of a leveraged lease in the first quarter of 2012 ($20 million gain on leased equipment less a $6 million charge for the write-off of capitalized loan origination costs).
Line of Business Descriptions
Key Community Bank
Key Community Bank serves individuals and small to mid-sized businesses through its 14-state branch network.
Individuals are provided branch-based deposit and investment products, personal finance services and loans, including residential mortgages, home equity and various types of installment loans. In addition, financial, estate and retirement planning, and asset management services are offered to assist high-net-worth clients with their banking, trust, portfolio management, insurance, charitable giving and related needs.
Small businesses are provided deposit, investment and credit products, and business advisory services. Mid-sized businesses are provided products and services that include commercial lending, cash management, equipment leasing, investment and employee benefit programs, succession planning, access to capital markets, derivatives and foreign exchange.
Key Corporate Bank
Real Estate Capital and Corporate Banking Services consists of two business units, Real Estate Capital and Corporate Banking Services.
Real Estate Capital is a national business that provides construction and interim lending, permanent debt placements and servicing, equity and investment banking, and other commercial banking products and services to developers, brokers and owner-investors. This unit deals primarily with nonowner-occupied properties (i.e., generally properties in which at least 50% of the debt service is provided by rental income from nonaffiliated third parties). Real Estate Capital emphasizes providing clients with finance solutions through access to the capital markets.
Corporate Banking Services provides cash management, interest rate derivatives, and foreign exchange products and services to clients served by both the Key Community Bank and Key Corporate Bank groups. Through its Public Sector and Financial Institutions businesses, Corporate Banking Services also provides a full array of commercial banking products and services to government and not-for-profit entities and community banks. A variety of commercial payment products are provided through the Enterprise Commercial Payments Group.
Equipment Finance meets the equipment leasing needs of companies worldwide and provides equipment manufacturers, distributors and resellers with financing options for their clients. Lease financing receivables and related revenues are assigned to other lines of business (primarily Institutional and Capital Markets and Commercial Banking) if those businesses are principally responsible for maintaining the relationship with the client.
Institutional and Capital Markets, through its KeyBanc Capital Markets unit, provides commercial lending, treasury management, investment banking, derivatives, foreign exchange, equity and debt underwriting and trading, and syndicated finance products and services to large corporations and middle-market companies.
Institutional and Capital Markets, through its Victory Capital Management unit, also manages or offers advice regarding investment portfolios for a national client base, including corporations, labor unions, not-for-profit organizations, governments and individuals. These portfolios may be managed in separate accounts, common funds or the Victory family of mutual funds.
Key traces its history back more than 160 years and is headquartered in Cleveland, Ohio. One of the nation's largest bank-based financial services companies, Key has assets of approximately $87 billion at March 31, 2012.
Key provides deposit, lending, cash management and investment services to individuals and small businesses through its 14-state branch network under the name KeyBank National Association. 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.
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Notes to Editors:
A live Internet broadcast of KeyCorp's conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts' questions can be accessed through the Investor Relations section at https://www.key.com/ir at 9:00 a.m. ET, on Thursday, April 19, 2012. An audio replay of the call will be available through April 26, 2012.
For up-to-date company information, media contacts and facts and figures about Key's lines of business, visit our Media Newsroom at https://www.key.com/newsroom.
*****
Financial Highlights
(dollars in millions, except per share amounts)
Three months ended
------------------
3-31-12 12-31-11 3-31-11
------- -------- -------
Summary of operations
Net interest income (TE) $559 $563 $604
Noninterest income 472 414 457
Total revenue (TE) 1,031 977 1,061
Provision (credit) for loan and lease losses 42 (22) (40)
Noninterest expense 703 717 701
Income (loss) from continuing operations attributable to Key 205 207 274
Income (loss) from discontinued operations, net of taxes (b) (5) (7) (11)
Net income (loss) attributable to Key 200 200 263
Income (loss) from continuing operations attributable to Key common shareholders $199 $201 $184
Income (loss) from discontinued operations, net of taxes (b) (5) (7) (11)
Net income (loss) attributable to Key common shareholders 194 194 173
Per common share
Income (loss) from continuing operations attributable to Key common shareholders $.21 $.21 $.21
Income (loss) from discontinued operations, net of taxes (b) (.01) (.01) (.01)
Net income (loss) attributable to Key common shareholders .20 .20 .20
Income (loss) from continuing operations attributable to Key common shareholders -
assuming dilution .21 .21 .21
Income (loss) from discontinued operations, net of taxes - assuming dilution (b) (.01) (.01) (.01)
Net income (loss) attributable to Key common shareholders - assuming dilution (e) .20 .20 .19
Cash dividends paid .03 .03 .01
Book value at period end 10.26 10.09 9.58
Tangible book value at period end 9.28 9.11 8.59
Market price at period end 8.50 7.69 8.88
Performance ratios
From continuing operations:
Return on average total assets 1.02% 1.01% 1.32%
Return on average common equity 8.25 8.26 8.75
Net interest margin (TE) 3.16 3.13 3.25
From consolidated operations:
Return on average total assets .93% .91% 1.18%
Return on average common equity 8.04 7.97 8.23
Net interest margin (TE) 3.08 3.04 3.16
Loan to deposit (d) 86.97 87.00 90.76
Capital ratios at period end
Key shareholders' equity to assets 11.55% 11.16% 10.42%
Tangible Key shareholders' equity to tangible assets 10.60 10.21 9.48
Tangible common equity to tangible assets (a) 10.26 9.88 9.16
Tier 1 common equity (a), (c) 11.55 11.26 10.74
Tier 1 risk-based capital (c) 13.29 12.99 13.48
Total risk-based capital (c) 16.68 16.51 17.38
Leverage (c) 12.09 11.79 11.56
Asset quality - from continuing operations
Net loan charge-offs $101 $105 $193
Net loan charge-offs to average loans .82% .86% 1.59%
Allowance for loan and lease losses to annualized net loan charge-offs 232.39 241.01 175.29
Allowance for loan and lease losses $944 $1,004 $1,372
Allowance for credit losses 989 1,049 1,441
Allowance for loan and lease losses to period-end loans 1.92% 2.03% 2.83%
Allowance for credit losses to period-end loans 2.01 2.12 2.97
Allowance for loan and lease losses to nonperforming loans 141.74 138.10 155.03
Allowance for credit losses to nonperforming loans 148.50 144.29 162.82
Nonperforming loans at period end $666 $727 $885
Nonperforming assets at period end 767 859 1,089
Nonperforming loans to period-end portfolio loans 1.35% 1.47% 1.82%
Nonperforming assets to period-end portfolio loans plus OREO and other
nonperforming assets 1.55 1.73 2.23
Trust and brokerage assets
Assets under management $52,633 $51,732 $61,518
Nonmanaged and brokerage assets 33,021 30,639 29,024
Other data
Average full-time equivalent employees 15,404 15,381 15,301
Branches 1,059 1,058 1,040
Taxable-equivalent adjustment $6 $6 $7
(a) The following table entitled "GAAP to
Non-GAAP Reconciliations" presents
the computations of certain financial
measures related to "tangible common
equity" and "Tier 1 common equity."
The table reconciles the GAAP
performance measures to the
corresponding non-GAAP measures,
which provides a basis for period-
to-period comparisons.
(b) In April 2009, management decided to
wind down the operations of Austin
Capital Management, Ltd., a
subsidiary that specialized in
managing hedge fund investments for
institutional customers. In September
2009, management decided to
discontinue the education lending
business conducted through Key
Education Resources, the education
payment and financing unit of KeyBank
National Association. As a result of
these decisions, Key has accounted
for these businesses as discontinued
operations.
(c) 3-31-12 ratio is estimated.
(d) Represents period-end consolidated
total loans and loans held for sale
(excluding education loans in the
securitization trusts) divided by
period-end consolidated total
deposits (excluding deposits in
foreign office).
(e) Earnings per share may not foot due to
rounding.
TE = Taxable Equivalent, GAAP = U.S. generally
accepted accounting principles
GAAP to Non-GAAP Reconciliations
(dollars in millions, except per share amounts)
The table below presents certain non-GAAP financial measures related to "tangible common equity," "Tier 1 common equity" and "pre-provision net revenue."
The tangible common equity ratio has been a focus for some investors, and management believes this ratio 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. Since the commencement of the Comprehensive Capital Analysis and Review process in early 2009, the Federal Reserve has focused its assessment of capital adequacy on a component of Tier 1 risk-based capital known as Tier 1 common equity, a non-GAAP financial measure. Because the Federal Reserve has long indicated that voting common shareholders' equity (essentially Tier 1 risk-based capital less preferred stock, qualifying capital securities and noncontrolling interests in subsidiaries) generally should be the dominant element in Tier 1 risk-based capital, this focus on Tier 1 common equity is consistent with existing capital adequacy categories.
Tier 1 common equity is neither formally defined by GAAP nor prescribed in amount by federal banking regulations; this measure is considered to be a non-GAAP financial measure. Since analysts and banking regulators may assess Key's capital adequacy using tangible common equity and Tier 1 common equity, management believes it is useful to enable investors to assess Key's capital adequacy on these same bases. The table also reconciles the GAAP performance measures to the corresponding non-GAAP measures.
The table also shows the computation for pre-provision net revenue, which is not formally defined by GAAP. Management believes that eliminating the effects of the provision for loan and lease losses makes it easier to analyze the results by presenting them on a more comparable basis.
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.
Three months ended
------------------
3-31-12 12-31-11 3-31-11
------- -------- -------
Tangible common equity to tangible assets at
period end
Key shareholders'
equity (GAAP) $10,099 $9,905 $9,425
Less: Intangible assets 932 934 937
Preferred Stock, Series A 291 291 291
--- --- ---
Tangible common equity (non-GAAP) $8,876 $8,680 $8,197
====== ====== ======
Total assets (GAAP) $87,431 $88,785 $90,438
Less: Intangible assets 932 934 937
Tangible assets (non-GAAP) $86,499 $87,851 $89,501
======= ======= =======
Tangible common equity
to tangible assets
ratio (non-GAAP) 10.26% 9.88% 9.16%
Tier 1 common equity at period end
Key shareholders'
equity (GAAP) $10,099 $9,905 $9,425
Qualifying capital
securities 1,046 1,046 1,791
Less: Goodwill 917 917 917
Accumulated other comprehensive
income (loss) (a) (70) (72) (93)
Other assets (b) 69 72 130
--- --- ---
Total Tier 1 capital (regulatory) 10,229 10,034 10,262
Less: Qualifying capital securities 1,046 1,046 1,791
Preferred Stock, Series A 291 291 291
--- --- ---
Total Tier 1 common equity (non-GAAP) $8,892 $8,697 $8,180
====== ====== ======
Net risk-weighted
assets (regulatory)
(b), (c) $76,979 $77,214 $76,129
Tier 1 common equity
ratio (non-GAAP) (c) 11.55% 11.26% 10.74%
Pre-provision net revenue
Net interest income
(GAAP) $553 $557 $597
Plus: Taxable-equivalent adjustment 6 6 7
Noninterest income 472 414 457
Less: Noninterest expense 703 717 701
Pre-provision net
revenue from
continuing operations
(non-GAAP) $328 $260 $360
===
(a) Includes net unrealized gains or
losses on securities available for
sale (except for net unrealized
losses on marketable equity
securities), net gains or losses
on cash flow hedges, and amounts
resulting from the December 31,
2006, adoption and subsequent
application of the applicable
accounting guidance for defined
benefit and other postretirement
plans.
(b) Other assets deducted from Tier 1
capital and net risk-weighted
assets consist of disallowed
deferred tax assets of $47 million
at March 31, 2011, disallowed
intangible assets (excluding
goodwill) and deductible portions
of nonfinancial equity
investments. There were no
disallowed deferred tax assets at
March 31, 2012 and December 31,
2011.
(c) 3-31-12 amount is estimated.
GAAP = U.S. generally accepted accounting
principles
Consolidated Balance Sheets
(dollars in millions)
3-31-12 12-31-11 3-31-11
------- -------- -------
Assets
Loans $49,226 $49,575 $48,552
Loans held for
sale 511 728 426
Securities
available for
sale 14,633 16,012 19,448
Held-to-
maturity
securities 3,019 2,109 19
Trading account
assets 614 623 1,041
Short-term
investments 3,605 3,519 3,705
Other investments 1,188 1,163 1,402
Total earning assets 72,796 73,729 74,593
Allowance for
loan and lease
losses (944) (1,004) (1,372)
Cash and due from
banks 416 694 540
Premises and
equipment 937 944 906
Operating lease
assets 335 350 491
Goodwill 917 917 917
Other intangible
assets 15 17 20
Corporate-owned
life insurance 3,270 3,256 3,187
Derivative assets 830 945 1,005
Accrued income
and other assets 3,091 3,077 3,758
Discontinued
assets 5,768 5,860 6,393
Total assets $87,431 $88,785 $90,438
======= ======= =======
Liabilities
Deposits in
domestic
offices:
NOW and money market deposit
accounts $29,124 $27,954 $26,177
Savings deposits 2,075 1,962 1,964
Certificates of deposit ($100,000
or more) 3,984 4,111 5,314
Other time deposits 5,848 6,243 7,597
----- ----- -----
Total interest-bearing deposits 41,031 40,270 41,052
Noninterest-bearing deposits 19,606 21,098 16,495
Deposits in
foreign office -
interest-
bearing 857 588 3,263
Total deposits 61,494 61,956 60,810
Federal funds
purchased and
securities sold
under repurchase 1,846 1,711 2,232
agreements
Bank notes and
other short-
term borrowings 324 337 685
Derivative
liabilities 754 1,026 1,106
Accrued expense
and other
liabilities 1,450 1,763 1,931
Long-term debt 8,898 9,520 11,048
Discontinued
liabilities 2,549 2,550 2,929
Total liabilities 77,315 78,863 80,741
Equity
Preferred stock,
Series A 291 291 291
Common shares 1,017 1,017 1,017
Common stock
warrant - - 87
Capital surplus 4,116 4,194 4,167
Retained earnings 6,411 6,246 5,721
Treasury stock,
at cost (1,717) (1,815) (1,823)
Accumulated other
comprehensive
income (loss) (19) (28) (35)
Key shareholders' equity 10,099 9,905 9,425
Noncontrolling
interests 17 17 272
Total equity 10,116 9,922 9,697
------ ----- -----
Total liabilities and equity $87,431 $88,785 $90,438
======= ======= =======
Common shares outstanding (000) 956,102 953,008 953,926
Consolidated Statements of Income
(dollars in millions, except per share amounts)
Three months ended
------------------
3-31-12 12-31-11 3-31-11
------- -------- -------
Interest income
Loans $536 $542 $570
Loans held for
sale 5 4 4
Securities
available for
sale 116 128 166
Held-to-
maturity
securities 12 9 -
Trading account
assets 6 5 7
Short-term
investments 1 1 1
Other
investments 8 9 12
Total interest income 684 698 760
Interest expense
Deposits 77 85 110
Federal funds
purchased and
securities
sold under
repurchase
agreements 1 1 1
Bank notes and
other short-
term
borrowings 2 2 3
Long-term debt 51 53 49
Total interest expense 131 141 163
Net interest income 553 557 597
Provision (credit) for loan and lease losses 42 (22) (40)
--- --- ---
Net interest income (expense) after provision for
loan and lease losses 511 579 637
Noninterest income
Trust and
investment
services
income 109 104 110
Service charges
on deposit
accounts 68 70 68
Operating lease
income 22 25 35
Letter of
credit and
loan fees 54 56 55
Corporate-
owned life
insurance
income 30 35 27
Net securities
gains (losses)
(a) - - (1)
Electronic
banking fees 17 18 30
Gains on leased
equipment 27 9 4
Insurance
income 12 11 15
Net gains
(losses) from
loan sales 22 27 19
Net gains
(losses) from
principal
investing 35 (8) 35
Investment
banking and
capital
markets income
(loss) 43 24 43
Other income 33 43 17
Total noninterest income 472 414 457
Noninterest expense
Personnel 385 387 371
Net occupancy 64 66 65
Operating lease
expense 17 18 28
Computer
processing 41 42 42
Business
services and
professional
fees 38 57 38
FDIC assessment 8 7 29
OREO expense,
net 6 5 10
Equipment 26 25 26
Marketing 13 24 10
Provision
(credit) for
losses on
lending-
related
commitments - (11) (4)
Other expense 105 97 86
Total noninterest expense 703 717 701
--- --- ---
Income (loss) from continuing operations before
income taxes 280 276 393
Income taxes 75 69 111
Income (loss) from continuing operations 205 207 282
Income (loss)
from
discontinued
operations,
net of taxes (5) (7) (11)
Net income (loss) 200 200 271
---
Less: Net
income (loss)
attributable
to
noncontrolling
interests - - 8
Net income (loss) attributable to Key $200 $200 $263
==== ==== ====
Income (loss) from continuing operations
attributable to Key common shareholders $199 $201 $184
Net income (loss) attributable to Key common
shareholders 194 194 173
Per common share
----------------
Income (loss) from continuing operations
attributable to Key common shareholders $.21 $.21 $.21
Income (loss) from discontinued operations, net of
taxes (.01) (.01) (.01)
Net income (loss) attributable to Key common
shareholders .20 .20 .20
Per common share - assuming dilution
------------------------------------
Income (loss) from continuing operations
attributable to Key common shareholders $.21 $.21 $.21
Income (loss) from discontinued operations, net of
taxes (.01) (.01) (.01)
Net income (loss) attributable to Key common
shareholders (c) .20 .20 .19
Cash dividends declared per common share $.03 $.03 $.01
Weighted-average common shares outstanding (000) 949,342 948,658 881,894
Weighted-average common shares and potential
common shares outstanding (000) (b) 953,971 951,684 887,836
(a) For the three months ended March 31, 2012, December 31, 2011,
and March 31, 2011, Key did not have any impairment losses
related to securities.
(b) Assumes conversion of stock options and/or Preferred Series A
shares, as applicable.
(c) Earnings per share may not foot due to rounding.
Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
(dollars in millions)
First Quarter 2012 Fourth Quarter 2011 First Quarter 2011
------------------ ------------------- ------------------
Average Average Average
Balance Interest (a) Yield/Rate (a) Balance Interest (a) Yield/Rate (a) Balance Interest (a) Yield/Rate (a)
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
Assets
Loans: (b), (c)
Commercial, financial and agricultural $19,638 $194 3.98% $18,323 $179 3.88% $16,311 $174 4.33%
Real estate - commercial mortgage 7,993 89 4.48 8,090 92 4.48 9,238 104 4.58
Real estate - construction 1,284 16 4.86 1,380 16 4.68 2,031 20 3.99
Commercial lease financing 5,846 58 3.97 5,982 69 4.62 6,335 80 5.03
Total commercial loans 34,761 357 4.12 33,775 356 4.19 33,915 378 4.51
Real estate - residential mortgage 1,950 25 5.04 1,918 24 5.15 1,810 24 5.32
Home equity:
Key Community Bank 9,173 93 4.08 9,280 96 4.10 9,453 97 4.14
Other 521 10 7.68 553 11 7.68 647 12 7.60
--- --- ---- --- --- ---- --- --- ----
Total home equity loans 9,694 103 4.27 9,833 107 4.30 10,100 109 4.36
Consumer other - Key Community Bank 1,193 28 9.61 1,191 30 9.62 1,157 28 9.89
Consumer other:
Marine 1,714 27 6.28 1,820 29 6.35 2,174 34 6.26
Other 118 2 7.79 127 2 7.87 156 3 7.91
--- --- ---- --- --- ---- --- --- ----
Total consumer other 1,832 29 6.38 1,947 31 6.44 2,330 37 6.37
----- --- ---- ----- --- ---- ----- --- ----
Total consumer loans 14,669 185 5.07 14,889 192 5.12 15,397 198 5.20
------ --- ---- ------ --- ---- ------ --- ----
Total loans 49,430 542 4.41 48,664 548 4.47 49,312 576 4.72
Loans held for sale 581 5 3.62 440 4 3.36 390 4 3.52
Securities available for sale (b), (e) 15,259 116 3.15 16,790 128 3.16 21,159 166 3.18
Held-to-maturity securities (b) 2,251 12 2.08 1,648 9 2.12 19 1 11.54
Trading account assets 808 6 2.72 736 5 2.72 1,018 7 2.75
Short-term investments 1,898 1 .29 2,929 1 .26 1,963 1 .24
Other investments (e) 1,169 8 2.78 1,181 9 2.98 1,360 12 3.33
Total earning assets 71,396 690 3.91 72,388 704 3.90 75,221 767 4.12
Allowance for loan and lease losses (968) (1,057) (1,494)
Accrued income and other assets 10,038 9,942 10,568
Discontinued assets - education lending business 5,757 5,912 6,479
Total assets $86,223 $87,185 $90,774
======= ======= =======
Liabilities
NOW and money market deposit accounts $28,328 15 .21 $27,722 15 .22 $27,004 19 .29
Savings deposits 1,997 - .06 1,964 - .06 1,907 - .06
Certificates of deposit ($100,000 or more) (f) 4,036 29 2.91 4,275 32 2.97 5,628 43 3.05
Other time deposits 6,035 33 2.19 6,505 37 2.24 7,982 47 2.39
Deposits in foreign office 769 - .25 650 1 .25 1,040 1 .31
Total interest-bearing deposits 41,165 77 .76 41,116 85 .82 43,561 110 1.02
Federal funds purchased and securities sold under
repurchase agreements 1,850 1 .21 1,747 1 .25 2,375 1 .27
Bank notes and other short-term borrowings 490 2 1.53 471 2 1.87 738 3 1.71
Long-term debt (f), (g) 6,161 51 3.61 7,020 53 3.21 6,792 49 3.09
Total interest-bearing liabilities 49,666 131 1.07 50,354 141 1.12 53,466 163 1.24
------ --- ---- ------ --- ---- ------ --- ----
Noninterest-bearing deposits 18,466 18,464 16,479
Accrued expense and other liabilities 2,325 2,496 2,878
Discontinued liabilities -education lending
business (d), (g) 5,757 5,912 6,479
Total liabilities 76,214 77,226 79,302
Equity
Key shareholders' equity 9,992 9,943 11,214
Noncontrolling interests 17 16 258
Total equity 10,009 9,959 11,472
Total liabilities and equity $86,223 $87,185 $90,774
======= ======= =======
Interest rate spread (TE) 2.84% 2.78% 2.88%
==== ==== ====
Net interest income (TE) and net interest margin (TE) 559 3.16% 563 3.13% 604 3.25%
==== ==== ====
TE adjustment (b) 6 6 7
--- --- ---
Net interest income, GAAP basis $553 $557 $597
(a) Results are from continuing
operations. Interest excludes the
interest associated with the
liabilities referred to in (d)
below, calculated using a matched
funds transfer pricing
methodology.
(b) Interest income on tax-exempt
securities and loans has been
adjusted to a taxable-equivalent
basis using the statutory federal
income tax rate of 35%.
(c) For purposes of these
computations, nonaccrual loans
are included in average loan
balances.
(d) Discontinued liabilities include
the liabilities of the education
lending business and the dollar
amount of any additional
liabilities assumed necessary to
support the assets associated
with this business.
(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 our matched funds
transfer pricing methodology to
discontinued operations.
TE = Taxable Equivalent, GAAP = U.S. generally
accepted accounting principles
Noninterest Income
(in millions)
Three months ended
------------------
3-31-12 12-31-11 3-31-11
------- -------- -------
Trust and investment
services income (a) $109 $104 $110
Service charges on deposit accounts 68 70 68
Operating lease income 22 25 35
Letter of credit and loan fees 54 56 55
Corporate-owned life insurance income 30 35 27
Net securities gains (losses) - - (1)
Electronic banking fees 17 18 30
Gains on leased equipment 27 9 4
Insurance income 12 11 15
Net gains (losses) from loan sales 22 27 19
Net gains (losses) from principal
investing 35 (8) 35
Investment banking and capital
markets income (loss) (a) 43 24 43
Other income 33 43 17
--- --- ---
Total noninterest income $472 $414 $457
===
(a) Additional detail provided in
tables below.
Trust and Investment Services Income
(in millions)
Three months ended
------------------
3-31-12 12-31-11 3-31-11
------- -------- -------
Brokerage commissions and
fee income $36 $33 $32
Personal asset management and custody
fees 39 38 38
Institutional asset management and
custody fees 34 33 40
--- --- ---
Total trust and investment
services income $109 $104 $110
===
Investment Banking and Capital Markets Income (Loss)
(in millions)
Three months ended
------------------
3-31-12 12-31-11 3-31-11
------- -------- -------
Investment banking income $20 $25 $26
Income (loss) from other investments 5 3 2
Dealer trading and derivatives income
(loss), proprietary (a), (b) (3) (6) (2)
Dealer trading and derivatives income
(loss), non-proprietary (b) 12 (9) 6
--- --- ---
Total dealer trading and
derivatives income (loss) 9 (15) 4
Foreign exchange income 9 11 11
--- --- ---
Total investment banking and
capital markets income
(loss) $43 $24 $43
===
(a) For the quarters ended March 31, 2012, December
31, 2011 and March 31, 2011, fixed income and
equity securities trading comprised the vast
majority of this amount. In these quarters,
income related to foreign exchange and interest
rate derivative trading was less than $1 million
and was offset by losses from Key's credit
portfolio management activities.
(b) The allocation between proprietary and non-
proprietary is made based upon whether the trade
is conducted for the benefit of Key or Key's
clients rather than based upon the proposed
rulemakings under the Volcker Rule. The
prohibitions and restrictions on proprietary
trading activities contemplated by the Volcker
Rule and the rules proposed thereunder are not
yet final. Therefore, the ultimate impact of the
rules proposed under the Volcker Rule is not yet
known.
Noninterest Expense
(dollars in millions)
Three months ended
------------------
3-31-12 12-31-11 3-31-11
------- -------- -------
Personnel (a) $385 $387 $371
Net occupancy 64 66 65
Operating lease expense 17 18 28
Computer processing 41 42 42
Business services and
professional fees 38 57 38
FDIC assessment 8 7 29
OREO expense, net 6 5 10
Equipment 26 25 26
Marketing 13 24 10
Provision (credit) for losses
on lending-related
commitments - (11) (4)
Other expense 105 97 86
--- --- ---
Total noninterest
expense $703 $717 $701
==== ==== ====
Average full-time equivalent
employees (b) 15,404 15,381 15,301
(a) Additional detail provided
in 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
------------------
3-31-12 12-31-11 3-31-11
------- -------- -------
Salaries $236 $234 $224
Incentive compensation 66 82 73
Employee benefits 65 55 62
Stock-based compensation 14 13 5
Severance 4 3 7
--- --- ---
Total personnel
expense $385 $387 $371
==== ==== ====
Loan Composition
(dollars in millions)
Percent change 3-31-12 vs.
3-31-12 12-31-11 3-31-11 12-31-11 3-31-11
------- -------- ------- -------- -------
Commercial, financial and agricultural $19,787 $19,378 $16,440 2.1% 20.4%
Commercial real estate:
Commercial
mortgage 7,807 8,037 8,806 (2.9) (11.3)
Construction 1,273 1,312 1,845 (3.0) (31.0)
Total
commercial
real estate
loans 9,080 9,349 10,651 (2.9) (14.7)
Commercial lease financing 5,755 6,055 6,207 (5.0) (7.3)
----- ----- ----- ---- ----
Total
commercial
loans 34,622 34,782 33,298 (.5) 4.0
Residential - prime loans:
Real estate -
residential
mortgage 1,967 1,946 1,803 1.1 9.1
Home equity:
Key Community
Bank 9,153 9,229 9,421 (.8) (2.8)
Other 507 535 627 (5.2) (19.1)
Total home
equity loans 9,660 9,764 10,048 (1.1) (3.9)
Total residential - prime loans 11,627 11,710 11,851 (.7) (1.9)
Consumer other - Key Community Bank 1,212 1,192 1,141 1.7 6.2
Consumer other:
Marine 1,654 1,766 2,112 (6.3) (21.7)
Other 111 125 150 (11.2) (26.0)
Total
consumer -
indirect
loans 1,765 1,891 2,262 (6.7) (22.0)
Total
consumer
loans 14,604 14,793 15,254 (1.3) (4.3)
Total loans
(a) $49,226 $49,575 $48,552 (.7)% 1.4%
==========
Loans Held for Sale Composition
(dollars in millions)
Percent change 3-31-12 vs.
3-31-12 12-31-11 3-31-11 12-31-11 3-31-11
------- -------- ------- -------- -------
Commercial, financial and agricultural $28 $19 $19 47.4% 47.4%
Real estate - commercial mortgage 362 567 287 (36.2) 26.1
Real estate - construction 15 35 61 (57.1) (75.4)
Commercial lease financing 30 12 7 150.0 328.6
Real estate - residential mortgage 76 95 52 (20.0) 46.2
--- --- --- ----- ----
Total loans
held for
sale (b) $511 $728 $426 (29.8)% 20.0%
==========
Summary of Changes in Loans Held for Sale
(dollars in millions)
1Q12 4Q11 3Q11 2Q11 1Q11
---- ---- ---- ---- ----
Balance at beginning of period $728 $479 $381 $426 $467
New
originations 935 1,235 853 914 980
Transfers
from held to
maturity,
net 19 19 23 16 32
Loan sales (1,168) (932) (759) (1,039) (991)
Loan draws
(payments),
net (3) (72) 1 73 (62)
Transfers to
OREO /
valuation
adjustments - (1) (20) (9) -
Balance at end of period $511 $728 $479 $381 $426
==== ==== ==== ==== ====
(a) Excluded at March 31, 2012,
December 31, 2011, and March
31, 2011, are loans in the
amount of $5.7 billion, $5.8
billion, and $6.3 billion,
respectively, related to the
discontinued operations of the
education lending business.
(b) Excluded at March 31, 2011, are
loans held for sale in the
amount of $14 million related
to the discontinued operations
of the education lending
business. There were no loans
held for sale in the
discontinued operations of the
education lending business at
March 31, 2012, and December
31, 2011.
Summary of Loan and Lease Loss Experience from Continuing Operations
(dollars in millions)
Three months ended
------------------
3-31-12 12-31-11 3-31-11
------- -------- -------
Average loans
outstanding $49,430 $48,664 $49,312
======= ======= =======
Allowance for loan
and lease losses at
beginning of period $1,004 $1,131 $1,604
Loans charged off:
Commercial,
financial and
agricultural 26 45 42
Real estate -
commercial mortgage 23 24 46
Real estate -
construction 11 2 35
--- --- ---
Total commercial
real estate loans 34 26 81
Commercial lease
financing 4 6 17
--- --- ---
Total commercial
loans 64 77 140
Real estate -
residential
mortgage 6 7 10
Home equity:
Key Community Bank 25 22 25
Other 8 10 15
--- --- ---
Total home equity
loans 33 32 40
Consumer other -Key
Community Bank 10 11 12
Consumer other:
Marine 17 20 27
Other 2 2 3
--- --- ---
Total consumer other 19 22 30
--- --- ---
Total consumer loans 68 72 92
--- --- ---
Total loans charged
off 132 149 232
Recoveries:
Commercial,
financial and
agricultural 11 17 10
Real estate -
commercial mortgage 2 1 3
Real estate -
construction 1 8 5
--- --- ---
Total commercial
real estate loans 3 9 8
Commercial lease
financing 4 6 6
--- --- ---
Total commercial
loans 18 32 24
Real estate -
residential
mortgage 1 - 1
Home equity:
Key Community Bank 2 2 1
Other 1 1 1
--- --- ---
Total home equity
loans 3 3 2
Consumer other -Key
Community Bank 1 2 2
Consumer other:
Marine 7 6 8
Other 1 1 2
--- --- ---
Total consumer other 8 7 10
--- --- ---
Total consumer loans 13 12 15
--- --- ---
Total recoveries 31 44 39
--- --- ---
Net loan charge-offs (101) (105) (193)
Provision (credit)
for loan and lease
losses 42 (22) (40)
Foreign currency
translation
adjustment (1) - 1
--- --- ---
Allowance for loan
and lease losses at
end of period $944 $1,004 $1,372
==== ====== ======
Liability for credit
losses on lending-
related commitments
at beginning of
period $45 $56 $73
Provision (credit)
for losses on
lending-related
commitments - (11) (4)
--- --- ---
Liability for credit
losses on lending-
related commitments
at end of period
(a) $45 $45 $69
=== === ===
Total allowance for
credit losses at
end of period $989 $1,049 $1,441
==== ====== ======
Net loan charge-
offs to average
loans .82% .86% 1.59%
Allowance for loan
and lease losses to
annualized net loan
charge-offs 232.39 241.01 175.29
Allowance for loan
and lease losses to
period-end loans 1.92 2.03 2.83
Allowance for credit
losses to period-
end loans 2.01 2.12 2.97
Allowance for loan
and lease losses to
nonperforming loans 141.74 138.10 155.03
Allowance for credit
losses to
nonperforming loans 148.50 144.29 162.82
Discontinued
operations -
education lending
business:
Loans charged off $23 $31 $38
Recoveries 4 6 3
--- --- ---
Net loan charge-
offs $(19) $(25) $(35)
==== ==== ====
(a) Included in
"accrued expense
and other
liabilities" on the
balance sheet.
Summary of Nonperforming Assets and Past Due Loans From Continuing Operations
(dollars in millions)
3-31-12 12-31-11 9-30-11 6-30-11 3-31-11
------- -------- ------- ------- -------
Commercial, financial and agricultural $168 $188 $188 $213 $221
Real estate - commercial mortgage 175 218 237 230 245
Real estate - construction 66 54 93 131 146
--- --- --- --- ---
Total commercial real estate loans 241 272 330 361 391
Commercial lease financing 22 27 31 41 42
--- --- --- --- ---
Total commercial loans 431 487 549 615 654
Real estate - residential mortgage 82 87 88 79 84
Home equity:
Key Community Bank 109 108 102 101 99
Other 12 12 12 11 13
--- --- --- --- ---
Total home equity loans 121 120 114 112 112
Consumer other - Key Community Bank 1 1 4 3 3
Consumer other:
Marine 30 31 32 32 31
Other 1 1 1 1 1
--- --- --- --- ---
Total consumer other 31 32 33 33 32
--- --- --- --- ---
Total consumer loans 235 240 239 227 231
--- --- --- --- ---
Total nonperforming loans 666 727 788 842 885
Nonperforming loans held for sale 24 46 42 42 86
OREO 61 65 63 52 97
Other nonperforming assets 16 21 21 14 21
--- --- --- --- ---
Total nonperforming assets $767 $859 $914 $950 $1,089
==== ==== ==== ==== ======
Accruing loans past due 90 days or more $169 $164 $118 $118 $153
Accruing loans past due 30 through 89 days 420 441 478 465 474
Restructured loans - accruing and nonaccruing (a) 293 276 277 252 242
Restructured loans included in nonperforming loans (a) 184 191 178 144 136
Nonperforming assets from discontinued operations - 19 23 22 21 22
education lending business
Nonperforming loans to period-end portfolio loans 1.35% 1.47% 1.64% 1.76% 1.82%
Nonperforming assets to period-end portfolio loans plus 1.55 1.73 1.89 1.98 2.23
OREO and other nonperforming assets
(a) Restructured loans (i.e. troubled
debt restructurings) are those for
which Key, for reasons related to a
borrower's financial difficulties,
grants a concession to the borrower
that it would not otherwise
consider. These concessions are
made to improve the collectability
of the loan and generally take the
form of a reduction of the interest
rate, extension of the maturity
date or reduction in the principal
balance.
Summary of Changes in Nonperforming Loans From Continuing Operations
(in millions)
1Q12 4Q11 3Q11 2Q11 1Q11
---- ---- ---- ---- ----
Balance at beginning of period $727 $788 $842 $885 $1,068
Loans placed on nonaccrual
status 214 230 292 410 335
Charge-offs (132) (149) (157) (177) (232)
Loans sold (27) (28) (16) (11) (74)
Payments (65) (70) (125) (156) (114)
Transfers to OREO (15) (12) (11) (6) (12)
Transfers to nonperforming
loans held for sale - (19) (24) (15) (39)
Transfers to other
nonperforming assets - (4) (3) - (2)
Loans returned to accrual
status (36) (9) (10) (88) (45)
--- --- --- --- ---
Balance at end of period $666 $727 $788 $842 $885
==== ==== ==== ==== ====
Summary of Changes in Nonperforming Loans Held For Sale From Continuing Operations
(in millions)
1Q12 4Q11 3Q11 2Q11 1Q11
---- ---- ---- ---- ----
Balance at beginning of period $46 $42 $42 $86 $106
Transfers in - 19 24 15 39
Net advances /(payments) (1) (3) (5) (13) (20)
Loans sold (1) (11) (5) (37) (38)
Transfers to OREO - (1) (19) (5) -
Valuation adjustments (1) - (1) (4) (1)
Loans returned to accrual
status /other (19) - 6 - -
--- --- --- --- ---
Balance at end of period $24 $46 $42 $42 $86
=== === === === ===
Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations
(in millions)
1Q12 4Q11 3Q11 2Q11 1Q11
---- ---- ---- ---- ----
Balance at beginning of period $65 $63 $52 $97 $129
Properties acquired -
nonperforming loans 15 13 30 11 12
Valuation adjustments (7) (4) (3) (7) (11)
Properties sold (12) (7) (16) (49) (33)
--- --- --- --- ---
Balance at end of period $61 $65 $63 $52 $97
=== === === === ===
Line of Business Results
(dollars in millions)
Percent change 1Q12 vs.
1Q12 4Q11 3Q11 2Q11 1Q11 4Q11 1Q11
---- ---- ---- ---- ---- ---- ----
Key Community Bank
Summary of operations
Total revenue (TE) $528 $546 $565 $559 $565 (3.3)% (6.5)%
Provision (credit) for loan and lease losses 2 30 39 79 11 (93.3) (81.8)
Noninterest expense 456 477 457 447 447 (4.4) 2.0
Net income (loss) attributable to Key 57 40 57 34 81 42.5 (29.6)
Average loans and leases 26,617 26,406 26,270 26,242 26,312 .8 1.2
Average deposits 47,768 48,076 47,672 47,719 48,108 (.6) (.7)
Net loan charge-offs 49 71 60 79 76 (31.0) (35.5)
Net loan charge-offs to average loans .74% 1.07% .91% 1.21% 1.17% N/A N/A
Nonperforming assets at period end $402 $415 $439 $455 $475 (3.1) (15.4)
Return on average allocated equity 7.74% 5.07% 7.19% 4.22% 9.97% N/A N/A
Average full-time equivalent employees 8,719 8,633 8,641 8,504 8,378 1.0 4.1
Key Corporate Bank
Summary of operations
Total revenue (TE) $401 $413 $370 $391 $406 (2.9)% (1.2)%
Provision (credit) for loan and lease losses 13 (61) (40) (76) (21) N/M N/M
Noninterest expense 231 228 216 207 228 1.3 1.3
Net income (loss) attributable to Key 100 157 123 164 126 (36.3) (20.6)
Average loans and leases 18,584 17,783 16,985 17,168 17,677 4.5 5.1
Average loans held for sale 509 356 273 302 275 43.0 85.1
Average deposits 11,556 11,162 10,544 10,195 11,282 3.5 2.4
Net loan charge-offs 25 12 22 29 75 108.3 (66.7)
Net loan charge-offs to average loans .54% .27% .51% .68% 1.72% N/A N/A
Nonperforming assets at period end $237 $294 $326 $339 $427 (19.4) (44.5)
Return on average allocated equity 21.07% 30.02% 22.52% 28.26% 19.71% N/A N/A
Average full-time equivalent employees 2,254 2,286 2,288 2,191 2,155 (1.4) 4.6
Key Corporate Bank supplementary information (lines of business)
Real Estate Capital and Corporate Banking Services
Total revenue (TE) $161 $176 $147 $156 $168 (8.5)% (4.2)%
Provision (credit) for loan and lease losses - (31) (38) (49) 9 N/M N/M
Noninterest expense 59 62 65 50 69 (4.8) (14.5)
Net income (loss) attributable to Key 64 92 76 97 57 (30.4) 12.3
Average loans and leases 7,699 7,445 7,088 7,713 8,583 3.4 (10.3)
Average loans held for sale 291 216 173 229 140 34.7 107.9
Average deposits 8,221 7,643 7,286 7,371 8,611 7.6 (4.5)
Net loan charge-offs 16 10 19 26 65 60.0 (75.4)
Net loan charge-offs to average loans .84% .53% 1.06% 1.35% 3.07% N/A N/A
Nonperforming assets at period end $173 $209 $240 $245 $334 (17.2) (48.2)
Return on average allocated equity 27.56% 35.13% 26.83% 31.13% 15.56% N/A N/A
Average full-time equivalent employees 951 953 942 902 882 (.2) 7.8
Equipment Finance
Total revenue (TE) $64 $62 $68 $63 $63 3.2% 1.6%
Provision (credit) for loan and lease losses (2) (15) (8) (30) (26) N/M N/M
Noninterest expense 37 48 45 45 52 (22.9) (28.8)
Net income (loss) attributable to Key 18 18 19 30 23 - (21.7)
Average loans and leases 4,779 4,680 4,619 4,545 4,621 2.1 3.4
Average loans held for sale 24 10 7 - 4 140.0 500.0
Average deposits 8 9 11 12 6 (11.1) 33.3
Net loan charge-offs 5 (1) (1) 2 10 N/M (50.0)
Net loan charge-offs to average loans .42% (.08)% (.09)% .18% .88% N/A N/A
Nonperforming assets at period end $28 $41 $31 $39 $44 (31.7) (36.4)
Return on average allocated equity 26.71% 23.19% 23.05% 35.81% 27.04% N/A N/A
Average full-time equivalent employees 469 517 511 511 521 (9.3) (10.0)
Institutional and Capital Markets
Total revenue (TE) $176 $175 $155 $172 $175 .6% .6%
Provision (credit) for loan and lease losses 15 (15) 6 3 (4) N/M N/M
Noninterest expense 135 118 106 112 107 14.4 26.2
Net income (loss) attributable to Key 18 47 28 37 46 (61.7) (60.9)
Average loans and leases 6,106 5,658 5,278 4,910 4,473 7.9 36.5
Average loans held for sale 194 130 93 73 131 49.2 48.1
Average deposits 3,327 3,510 3,247 2,812 2,665 (5.2) 24.8
Net loan charge-offs 4 3 4 1 - 33.3 N/M
Net loan charge-offs to average loans .26% .21% .30% .08% - N/A N/A
Nonperforming assets at period end $36 $44 $55 $55 $49 (18.2) (26.5)
Return on average allocated equity 10.28% 25.61% 15.51% 20.00% 24.51% N/A N/A
Average full-time equivalent employees 834 816 835 778 752 2.2 10.9
TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful
SOURCE KeyCorp
