KEYCORP CLEVELAND, April 16, 2015 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced first quarter net income from continuing operations attributable to Key common shareholders of $222 million, or $.26 per common share, compared to $246 million, or $.28 per common share, for the fourth quarter of 2014, and $232 million, or $.26 per common share, for the first quarter of 2014.
"Our first quarter results were solid and reflect our continued focus on growing our businesses," said Chairman and Chief Executive Officer Beth Mooney. "Revenue was up from the prior year and expenses were well-managed as we generated positive operating leverage. Our asset quality continued to be strong, and we remain committed to improving productivity and efficiency."
"In the first quarter, we continued to benefit from solid loan growth, driven by our commercial businesses, as well as the traction we are gaining from investments in areas such as trust and investment services and cards and payments. While we saw growth in several of our other fee-based businesses, we experienced lower capital markets revenue in the quarter," added Mooney.
"Additionally, we were pleased to receive no objection to our 2015 capital plans. We expect to return a significant amount of our net income to our shareholders over the next five quarters, including a share repurchase program of up to $725 million and, subject to approval by our Board of Directors, an increase in the quarterly dividend," continued Mooney. "We anticipate these actions will lead to an estimated payout ratio that is among the highest in our peer group for the third consecutive year."
FIRST QUARTER 2015 FINANCIAL RESULTS, from continuing operations
Compared to First Quarter of 2014
-- Average loans up 5.1%, driven by a 11.5% growth in commercial, financial
and agricultural loans
-- Average deposits up 4.9%, due to growth in noninterest-bearing deposits
-- Net interest income (taxable-equivalent) up $8 million, driven by higher
loan balances partially offset by lower earning asset yields
-- Noninterest income up $2 million, reflecting increases in trust and
investment services income primarily from the third quarter 2014
acquisition of Pacific Crest Securities and various other line items,
partially offset by declines in investment banking and debt placement
fees and operating lease income and other leasing gains
-- Noninterest expense up $5 million primarily due to the acquisition of
Pacific Crest Securities and higher employee benefits expense
-- Solid asset quality, with net loan charge-offs to average loans
remaining well below our targeted range of 40-60 basis points
-- Disciplined capital management, with the announcement of new planned
capital actions including a share repurchase program of up to $725
million and, subject to approval by Key's Board of Directors, an
increase of the quarterly common share dividend to $.075 per share
Compared to Fourth Quarter of 2014
-- Average loans up 1.7%, primarily driven by an increase in commercial,
financial and agricultural loans
-- Average deposits declined slightly, reflecting lower certificates of
deposit balances
-- Net interest income (taxable-equivalent) down $11 million, primarily due
to fewer days in the first quarter
-- Noninterest income down $53 million, primarily due to lower investment
banking and debt placement fees
-- Noninterest expense down $35 million, reflecting lower personnel and
marketing expense, as well as a decline in business services and
professional fees
-- Asset quality remains strong, with net loan charge-offs to average loans
relatively flat to prior quarter and remaining well below the targeted
range
-- Disciplined capital management, repurchasing $208 million of common
shares during the first quarter of 2015 and maintaining a solid capital
position with Common Equity Tier 1 of 10.82%
Selected Financial Highlights
dollars in millions, except per share data Change 1Q15 vs.
1Q15 4Q14 1Q14 4Q14 1Q14
---- ---- ---- ---- ----
Income (loss) from continuing operations attributable to Key common shareholders $222 $246 $232 (9.8)% (4.3)%
Income (loss) from continuing operations attributable to Key common shareholders per .26 .28 .26 (7.1) -
common share - assuming dilution
Return on average total assets from continuing operations 1.03% 1.12% 1.13% N/A N/A
Common Equity Tier 1 (a) 10.82 N/A N/A N/A N/A
Tier 1 common equity (a) N/A 11.17 11.27 N/A N/A
Book value at period end $12.12 $11.91 $11.43 1.8% 6.0%
Net interest margin (TE) from continuing operations 2.91% 2.94% 3.00% N/A N/A
(a) The table entitled "GAAP to Non-GAAP
Reconciliations" in the attached
financial supplement presents the
computations of certain financial
measures related to "Common Equity Tier
1" (compliance date of January 1, 2015,
under the Regulatory Capital Rules) and
"Tier 1 common equity" (prior to
January 1, 2015). 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.
TE = Taxable Equivalent, N/A = Not Applicable
INCOME STATEMENT HIGHLIGHTS
Revenue
dollars in millions Change 1Q15 vs.
1Q15 4Q14 1Q14 4Q14 1Q14
---- ---- ---- ---- ----
Net interest income (TE) $577 $588 $569 (1.9)% 1.4%
Noninterest income 437 490 435 (10.8) .5
--- --- --- ----- ---
Total revenue $1,014 $1,078 $1,004 (5.9)% 1.0%
===
TE = Taxable Equivalent
Taxable-equivalent net interest income was $577 million for the first quarter of 2015, and the net interest margin was 2.91%. These results compare to taxable-equivalent net interest income of $569 million and a net interest margin of 3.00% for the first quarter of 2014. The increase in net interest income reflects higher loan balances mitigated by lower earning asset yields, which also drove the decline in the net interest margin.
Compared to the fourth quarter of 2014, taxable-equivalent net interest income decreased by $11 million, and the net interest margin declined by three basis points. The decrease in net interest income was primarily attributable to fewer days in the first quarter of 2015. The decline in net interest margin reflects lower earning asset yields.
Noninterest Income
dollars in millions Change 1Q15 vs.
1Q15 4Q14 1Q14 4Q14 1Q14
---- ---- ---- ---- ----
Trust and investment services income $109 $112 $98 (2.7)% 11.2%
Investment banking and debt placement fees 68 126 84 (46.0) (19.0)
Service charges on deposit accounts 61 64 63 (4.7) (3.2)
Operating lease income and other leasing gains 19 15 29 26.7 (34.5)
Corporate services income 43 53 42 (18.9) 2.4
Cards and payments income 42 43 38 (2.3) 10.5
Corporate-owned life insurance income 31 38 26 (18.4) 19.2
Consumer mortgage income 3 3 2 - 50.0
Mortgage servicing fees 13 11 15 18.2 (13.3)
Net gains (losses) from principal investing 29 18 24 61.1 20.8
Other income 19 7 14 171.4 35.7
--- --- --- ----- ----
Total noninterest income $437 $490 $435 (10.8)% .5%
Key's noninterest income was $437 million for the first quarter of 2015, compared to $435 million for the year-ago quarter. Trust and investment services income increased $11 million, primarily due to the impact of the third quarter 2014 Pacific Crest Securities acquisition. Increases in net gains from principal investing, corporate-owned life insurance income, cards and payments income, and other income also contributed to the growth in the quarter. These increases were partially offset by a $16 million decline in investment banking and debt placement fees as a result of lower financial advisory fees. Additionally, operating lease income and other leasing gains declined by $10 million primarily due to the termination of a leveraged lease in the prior year.
Compared to the fourth quarter of 2014, noninterest income decreased by $53 million. First quarter results reflect seasonality and variability in several fee categories. Growth in operating lease income and other leasing gains, net gains from principal investing, and other income was more than offset by a $58 million quarter-over-quarter decline in investment banking and debt placement fees. This decline was primarily caused by lower revenue from loan syndications and financial advisory fees.
Noninterest Expense
dollars in millions Change 1Q15 vs.
1Q15 4Q14 1Q14 4Q14 1Q14
---- ---- ---- ---- ----
Personnel expense $389 $409 $388 (4.9)% .3%
Nonpersonnel expense 280 295 276 (5.1) 1.4
--- --- --- ---- ---
Total noninterest expense $669 $704 $664 (5.0)% .8%
Key's noninterest expense was $669 million for the first quarter of 2015, compared to $664 million in the first quarter of last year. The increase was mainly related to the third quarter 2014 acquisition of Pacific Crest Securities and higher employee benefits costs. Partially offsetting the increase in expenses were $8 million in lower business services and professional fees, as well as continued cost savings across the organization. Additionally, expenses included $7 million in costs associated with Key's continuous improvement efforts to drive efficiency and productivity. These costs were primarily in personnel expense and were $3 million less than the year-ago quarter.
Compared to the fourth quarter of 2014, noninterest expense decreased by $35 million. The largest driver of this reduction was a $20 million decrease in personnel expense due to lower incentive compensation expense, partially offset by higher employee benefits costs. Other decreases included $8 million in marketing expense and $5 million in business services and professional fees.
BALANCE SHEET HIGHLIGHTS
In the first quarter of 2015, Key had average assets of $91.9 billion compared to $90.2 billion in the first quarter of 2014 and $91.1 billion in the fourth quarter of 2014. Compared to the first quarter of 2014, average loans grew 5.1% to $57.5 billion while average deposits grew 4.9% to $68.8 billion. In addition, Key's average total investment securities increased, with a higher percentage of Ginnie Mae securities, as Key continued to position the portfolio for upcoming regulatory liquidity requirements.
Average Loans
dollars in millions Change 3-31-15 vs.
3-31-15 12-31-14 3-31-14 12-31-14 3-31-14
------- -------- ------- -------- -------
Commercial, financial and agricultural (a) $28,321 $27,188 $25,390 4.2% 11.5%
Other commercial loans 13,304 13,357 13,337 (.4) (.2)
Total home equity loans 10,576 10,639 10,630 (.6) (.5)
Other consumer loans 5,311 5,357 5,389 (.9) (1.4)
----- ----- ----- --- ----
Total loans $57,512 $56,541 $54,746 1.7% 5.1%
(a) Commercial, financial and
agricultural average loan
balances include $87 million,
$90 million, and $94 million of
assets from commercial credit
cards at March 31, 2015,
December 31, 2014, and March
31, 2014, respectively.
Average loans were $57.5 billion for the first quarter of 2015, an increase of $2.8 billion compared to the first quarter of 2014. The loan growth occurred primarily in the commercial, financial and agricultural portfolio, which increased $2.9 billion and was broad-based across Key's commercial lines of business. Consumer loans remained relatively stable as modest increases across Key's core consumer loan portfolio were offset by run-off in Key's consumer exit portfolios.
Compared to the fourth quarter of 2014, average loans increased by $971 million, driven by commercial, financial and agricultural loans, which increased by $1.1 billion. On a period-end basis, commercial, financial and agricultural loans increased $801 million over the linked quarter driven by strong demand that carried over from the fourth quarter of 2014.
Average Deposits
dollars in millions Change 3-31-15 vs.
3-31-15 12-31-14 3-31-14 12-31-14 3-31-14
------- -------- ------- -------- -------
Non-time deposits (a) $63,606 $63,541 $59,197 .1% 7.4%
Certificates of deposit ($100,000 or more) 2,017 2,277 2,758 (11.4) (26.9)
Other time deposits 3,217 3,306 3,679 (2.7) (12.6)
----- ----- ----- ---- -----
Total deposits $68,840 $69,124 $65,634 (.4)% 4.9%
Cost of total deposits (a) .15% .15% .20% N/A N/A
(a) Excludes deposits in foreign office.
N/A = Not Applicable
Average deposits, excluding deposits in foreign office, totaled $68.8 billion for the first quarter of 2015, an increase of $3.2 billion compared to the year-ago quarter. Noninterest-bearing deposits increased by $3.6 billion, and NOW and money market deposit accounts increased $888 million, mostly due to the commercial mortgage servicing business. These increases were partially offset by a decline in certificates of deposit.
Compared to the fourth quarter of 2014, average deposits, excluding deposits in foreign office, decreased slightly primarily due to an expected decline in certificates of deposit.
ASSET QUALITY
dollars in millions Change 1Q15 vs.
1Q15 4Q14 1Q14 4Q14 1Q14
---- ---- ---- ---- ----
Net loan charge-offs $28 $32 $20 (12.5)% 40.0%
Net loan charge-offs to average total loans .20% .22% .15% N/A N/A
Nonperforming loans at period end (a) $437 $418 $449 4.5 (2.7)
Nonperforming assets at period end 457 436 469 4.8 (2.6)
Allowance for loan and lease losses 794 794 834 - (4.8)
Allowance for loan and lease losses to nonperforming loans 181.7% 190.0% 185.7% N/A N/A
Provision (credit) for loan and lease losses $29 $22 $6 31.8 383.3
Provision for credit losses 35 22 4 59.1% 775.0%
(a) Loan balances exclude $12
million, $13 million, and $16
million of purchased credit
impaired loans at March 31,
2015, December 31, 2014, and
March 31, 2014, respectively.
N/A = Not Applicable
Key's provision for loan and lease losses was $29 million for the first quarter of 2015, compared to $22 million for the fourth quarter of 2014 and $6 million for the year-ago quarter. Key's allowance for loan and lease losses was $794 million, or 1.37% of total period-end loans, at March 31, 2015, compared to 1.38% at December 31, 2014, and 1.50% at March 31, 2014.
Net loan charge-offs for the first quarter of 2015 totaled $28 million, or .20% of average total loans. These results compare to $32 million, or .22%, for the fourth quarter of 2014, and $20 million, or .15%, for the same period last year.
At March 31, 2015, Key's nonperforming loans totaled $437 million and represented .75% of period-end portfolio loans, compared to .73% at December 31, 2014, and .81% at March 31, 2014. Nonperforming assets at March 31, 2015 totaled $457 million and represented .79% of period-end portfolio loans and OREO and other nonperforming assets, compared to .76% at December 31, 2014, and .85% at March 31, 2014.
CAPITAL
Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2015.
Capital Ratios
3-31-15 12-31-14 3-31-14
------- -------- -------
Common Equity Tier 1 (a), (b) 10.82% N/A N/A
Tier 1 common equity (b) N/A 11.17% 11.27%
Tier 1 risk-based capital (a) 11.22 11.90 12.01
Total risk based capital (a) 13.01 13.89 14.23
Tangible common equity to tangible assets (b) 9.92 9.88 10.14
Leverage (a) 10.90 11.26 11.30
(a) 3-31-15 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 "Common Equity
Tier 1" (compliance date of January
1, 2015, under the Regulatory Capital
Rules) and "Tier 1 common equity"
(prior to January 1, 2015). The table
reconciles the GAAP performance
measures to the corresponding non-
GAAP measures, which provides a basis
for period-to-period comparisons.
See below for further information on
the Regulatory Capital Rules.
As shown in the preceding table, at March 31, 2015, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 10.82% and 11.22%, respectively. In addition, the tangible common equity ratio was 9.92% at March 31, 2015.
In October 2013, federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules"). While the Regulatory Capital Rules became effective January 1, 2014, 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. Key's estimated Common Equity Tier 1 as calculated under the fully phased-in Regulatory Capital Rules was 10.58% at March 31, 2015. 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 1Q15 vs.
1Q15 4Q14 1Q14 4Q14 1Q14
---- ---- ---- ---- ----
Shares outstanding at beginning of period 859,403 868,477 890,724 (1.0)% (3.5)%
Common shares repurchased (14,087) (9,786) (9,845) 44.0 43.1
Shares reissued (returned) under employee benefit plans 5,571 712 3,990 682.4 39.6
Common shares exchanged for Series A Preferred Stock 33 - - N/M N/M
--- --- --- --- ---
Shares outstanding at end of period 850,920 859,403 884,869 (1.0)% (3.8)%
During the first quarter of 2015, Key completed $208 million of common share repurchases pursuant to its 2014 capital plan, including repurchases to offset issuances of common shares under employee compensation plans.
As previously reported, Key's 2015 capital plan, which received no objection from the Federal Reserve during the Comprehensive Capital Analysis and Review process, includes common share repurchases of up to $725 million. This authorization includes repurchases to offset issuances of common shares under our employee compensation plans. Share repurchases are expected to be executed through the second quarter of 2016.
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 1Q15 vs.
1Q15 4Q14 1Q14 4Q14 1Q14
---- ---- ---- ---- ----
Revenue from continuing operations (TE)
--------------------------------------
Key Community Bank $549 $558 $546 (1.6)% .5%
Key Corporate Bank 401 460 392 (12.8) 2.3
Other Segments 67 62 65 8.1 3.1
--- --- --- --- ---
Total segments 1,017 1,080 1,003 (5.8) 1.4
Reconciling Items (3) (2) 1 N/M N/M
--- --- --- --- ---
Total $1,014 $1,078 $1,004 (5.9)% 1.0%
Income (loss) from continuing operations attributable to Key
------------------------------------------------------------
Key Community Bank $50 $62 $62 (19.4)% (19.4)%
Key Corporate Bank 126 150 136 (16.0) (7.4)
Other Segments 45 36 37 25.0 21.6
--- --- --- ---- ----
Total segments 221 248 235 (10.9) (6.0)
Reconciling Items 7 3 3 133.3 133.3
--- --- --- ----- -----
Total $228 $251 $238 (9.2)% (4.2)%
TE = Taxable equivalent, N/M = Not Meaningful
Key Community Bank
dollars in millions Change 1Q15 vs.
1Q15 4Q14 1Q14 4Q14 1Q14
---- ---- ---- ---- ----
Summary of operations
Net interest income (TE) $358 $362 $363 (1.1)% (1.4)%
Noninterest income 191 196 183 (2.6) 4.4
--- --- --- ---- ---
Total revenue (TE) 549 558 546 (1.6) .5
Provision for credit losses 29 12 11 141.7 163.6
Noninterest expense 440 447 436 (1.6) .9
--- --- --- ---- ---
Income (loss) before income taxes (TE) 80 99 99 (19.2) (19.2)
Allocated income taxes (benefit) and TE adjustments 30 37 37 (18.9) (18.9)
--- --- --- ----- -----
Net income (loss) attributable to Key $50 $62 $62 (19.4)% (19.4)%
Average balances
Loans and leases $30,662 $30,478 $29,797 .6% 2.9%
Total assets 32,716 32,564 31,918 .5 2.5
Deposits 50,417 50,850 49,910 (.9) 1.0
Assets under management at period end $39,281 $39,157 $38,814 .3% 1.2%
TE = Taxable Equivalent
Additional Key Community Bank Data
dollars in millions Change 1Q15 vs.
1Q15 4Q14 1Q14 4Q14 1Q14
---- ---- ---- ---- ----
Noninterest income
Trust and investment services income $74 $75 $71 (1.3)% 4.2%
Service charges on deposit accounts 51 54 52 (5.6) (1.9)
Cards and payments income 38 40 35 (5.0) 8.6
Other noninterest income 28 27 25 3.7 12.0
--- --- --- --- ----
Total noninterest income $191 $196 $183 (2.6)% 4.4%
Average deposit balances
NOW and money market deposit accounts $27,873 $27,690 $27,431 .7% 1.6%
Savings deposits 2,377 2,378 2,465 - (3.6)
Certificates of deposit ($100,000 or more) 1,558 1,793 2,163 (13.1) (28.0)
Other time deposits 3,211 3,301 3,673 (2.7) (12.6)
Deposits in foreign office 333 332 309 .3 7.8
Noninterest-bearing deposits 15,065 15,356 13,869 (1.9) 8.6
------ ------ ------ ---- ---
Total deposits $50,417 $50,850 $49,910 (.9)% 1.0%
Home equity loans
Average balance $10,316 $10,365 $10,305
Weighted-average loan-to-value ratio (at date of origination) 71% 71% 71%
Percent first lien positions 60 60 58
Other data
Branches 992 994 1,027
Automated teller machines 1,287 1,287 1,330
Key Community Bank Summary of Operations
-- Average loan growth of $865 million, or 2.9% from the prior year
-- Average noninterest-bearing deposits up $1.2 billion, or 8.6% from the
prior year
-- Noninterest income growth of 4.4% led by cards and payments and trust
and investment services income growth versus the prior year
Key Community Bank recorded net income attributable to Key of $50 million for the first quarter of 2015, compared to net income attributable to Key of $62 million for the year-ago quarter.
Taxable-equivalent net interest income decreased by $5 million, or 1.4%, from the first quarter of 2014 due to declines in the deposit spread in the current period as a result of the continued low-rate environment. Average loans and leases grew 2.9% while average deposits increased 1.0% from one year ago.
Noninterest income increased $8 million, or 4.4%, from the year-ago quarter. This growth was balanced across the business with trust and investment services income and cards and payments income each increasing by $3 million.
The provision for credit losses increased by $18 million from the first quarter of 2014 related to loan growth.
Noninterest expense increased by $4 million, or .9%, from the year-ago quarter. Personnel expense increased $8 million and was partially offset by reduced infrastructure and internally-allocated costs.
Key Corporate Bank
dollars in millions Change 1Q15 vs.
1Q15 4Q14 1Q14 4Q14 1Q14
---- ---- ---- ---- ----
Summary of operations
Net interest income (TE) $213 $219 $196 (2.7)% 8.7%
Noninterest income 188 241 196 (22.0) (4.1)
--- --- --- ----- ----
Total revenue (TE) 401 460 392 (12.8) 2.3
Provision for credit losses 8 4 (3) 100.0 N/M
Noninterest expense 217 246 202 (11.8) 7.4
--- --- --- ----- ---
Income (loss) before income taxes (TE) 176 210 193 (16.2) (8.8)
Allocated income taxes and TE adjustments 49 60 57 (18.3) (14.0)
--- --- --- ----- -----
Net income (loss) 127 150 136 (15.3) (6.6)
Less: Net income (loss) attributable to noncontrolling interests 1 - - N/M N/M
--- --- --- --- ---
Net income (loss) attributable to Key $126 $150 $136 (16.0)% (7.4)%
Average balances
Loans and leases $24,722 $23,798 $21,991 3.9% 12.4%
Loans held for sale 775 855 429 (9.4) 80.7
Total assets 30,297 28,996 27,171 4.5 11.5
Deposits 18,567 18,356 15,993 1.1 16.1
Assets under management at period end - - $79 N/M N/M
TE = Taxable Equivalent, N/M = Not Meaningful
Additional Key Corporate Bank Data
dollars in millions Change 1Q15 vs.
1Q15 4Q14 1Q14 4Q14 1Q14
---- ---- ---- ---- ----
Noninterest income
Trust and investment services income $35 $37 $27 (5.4)% 29.6%
Investment banking and debt placement fees 68 125 84 (45.6) (19.0)
Operating lease income and other leasing gains 14 17 21 (17.6) (33.3)
Corporate services income 32 43 29 (25.6) 10.3
Service charges on deposit accounts 10 10 11 - (9.1)
Cards and payments income 4 3 3 33.3 33.3
--- --- --- ---- ----
Payments and services income 46 56 43 (17.9) 7.0
Mortgage servicing fees 13 11 15 18.2 (13.3)
Other noninterest income 12 (5) 6 N/M 100.0
--- --- --- --- -----
Total noninterest income $188 $241 $196 (22.0)% (4.1)%
N/M = Not Meaningful
Key Corporate Bank Summary of Operations
-- Average loan and lease balances up 12.4% from the prior year
-- Average deposits up 16.1% from the prior year
-- Revenue up 2.3% from the prior year
Key Corporate Bank recorded net income attributable to Key of $126 million for the first quarter of 2015, compared to $136 million for the same period one year ago.
Taxable-equivalent net interest income increased by $17 million, or 8.7%, compared to the first quarter of 2014. Average earning assets increased $2.4 billion, or 9.9%, from the year-ago quarter, primarily driven by loan growth in commercial, financial and agricultural and real estate commercial mortgage. This growth in earning assets drove an increase of $7 million in earning asset spread. Average deposit balances increased $2.6 billion, or 16.1%, from the year-ago quarter, driven by commercial mortgage servicing deposits and other commercial client inflows. This growth in deposit balances drove an increase of $13 million in deposit and borrowing spread.
Noninterest income was down $8 million, or 4.1% from the prior year. The majority of this decline was related to investment banking and debt placement fees, which decreased $16 million from the prior year primarily due to lower financial advisory fees. Operating lease income and other leasing gains declined by $7 million due to the termination of a leveraged lease in the prior year. Partially offsetting these declines were increases in trust and investment services income of $8 million, primarily due to the third quarter 2014 acquisition of Pacific Crest Securities and an increase in other income of $6 million.
The provision for credit losses increased $11 million compared to the first quarter of 2014 related to loan growth.
Noninterest expense increased by $15 million, or 7.4%, from the first quarter of 2014. This increase was due to expenses related to the third quarter 2014 acquisition of Pacific Crest Securities.
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 2015, compared to net income attributable to Key of $37 million for the same period last year. These results were primarily due to increases of $5 million in net gains from principal investing and $4 million in corporate-owned life insurance from the prior year, partially offset by a $4 million increase in personnel expense.
*****
KeyCorp was organized more than 160 years ago and is headquartered in Cleveland, Ohio. One of the nation's largest bank-based financial services companies, Key had assets of approximately $94.2 billion at March 31, 2015.
Key provides deposit, lending, cash management and investment services to individuals and small and mid-sized businesses in 12 states 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.
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, 2014, which has been filed with the Securities and Exchange Commission (the "SEC") and is available on Key's website (www.key.com/ir) and on the SEC's website (www.sec.gov). These factors may include, among others: deterioration of commercial real estate market fundamentals, adverse changes in credit quality trends, declining asset prices, a reversal of the U.S. economic recovery due to financial, political, or other shocks, and the extensive and increasing regulation of the U.S. financial services industry. Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.
Notes to Editors:
A live Internet broadcast of KeyCorp's conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts' questions can be accessed through the Investor Relations section at https://www.key.com/ir at 9:00 a.m. ET, on Thursday, April 16, 2015. An audio replay of the call will be available through April 23, 2015.
*****
Financial Highlights
(dollars in millions, except per share amounts)
Three months ended
------------------
3-31-15 12-31-14 3-31-14
Summary of operations
Net interest income (TE) $577 $588 $569
Noninterest income 437 490 435
Total revenue (TE) 1,014 1,078 1,004
Provision for credit losses 35 22 4
Noninterest expense 669 704 664
Income (loss) from continuing operations
attributable to Key 228 251 238
Income (loss) from discontinued operations, net of
taxes (a) 5 2 4
Net income (loss) attributable to Key 233 253 242
Income (loss) from continuing operations
attributable to Key common shareholders $222 $246 $232
Income (loss) from discontinued operations, net of
taxes (a) 5 2 4
Net income (loss) attributable to Key common
shareholders 227 248 236
Per common share
Income (loss) from continuing operations
attributable to Key common shareholders $.26 $.29 $.26
Income (loss) from discontinued operations, net of
taxes (a) .01 - -
Net income (loss) attributable to Key common
shareholders (b) .27 .29 .27
Income (loss) from continuing operations
attributable to Key common shareholders -assuming
dilution .26 .28 .26
Income (loss) from discontinued operations, net of
taxes -assuming dilution (a) .01 - -
Net income (loss) attributable to Key common
shareholders -assuming dilution (b) .26 .28 .26
Cash dividends paid .065 .065 .055
Book value at period end 12.12 11.91 11.43
Tangible book value at period end 10.84 10.65 10.28
Market price at period end 14.16 13.90 14.24
Performance ratios
From continuing operations:
Return on average total assets 1.03% 1.12% 1.13%
Return on average common equity 8.76 9.50 9.33
Return on average tangible common equity (c) 9.80 10.64 10.38
Net interest margin (TE) 2.91 2.94 3.00
Cash efficiency ratio (c) 65.1 64.4 65.1
From consolidated operations:
Return on average total assets 1.03% 1.10% 1.09%
Return on average common equity 8.96 9.58 9.50
Return on average tangible common equity (c) 10.02 10.72 10.56
Net interest margin (TE) 2.88 2.93 2.95
Loan to deposit (d) 86.9 84.6 87.5
Capital ratios at period end
Key shareholders' equity to assets 11.26% 11.22% 11.46%
Key common shareholders' equity to assets 10.95 10.91 11.14
Tangible common equity to tangible assets (c) 9.92 9.88 10.14
Common Equity Tier 1 (c), (e) 10.82 N/A N/A
Tier 1 common equity (c) N/A 11.17 11.27
Tier 1 risk-based capital (e) 11.22 11.90 12.01
Total risk-based capital (e) 13.01 13.89 14.23
Leverage (e) 10.90 11.26 11.30
Financial Highlights (continued)
(dollars in millions)
Three months ended
------------------
3-31-15 12-31-14 3-31-14
------- -------- -------
Asset quality - from continuing operations
Net loan charge-offs $28 $32 $20
Net loan charge-offs to average total loans .20% .22% .15%
Allowance for loan and lease losses $794 $794 $834
Allowance for credit losses 835 829 869
Allowance for loan and lease losses to period-end
loans 1.37% 1.38% 1.50%
Allowance for credit losses to period-end loans 1.44 1.44 1.57
Allowance for loan and lease losses to nonperforming
loans 181.7 190.0 185.7
Allowance for credit losses to nonperforming loans 191.1 198.3 193.5
Nonperforming loans at period end (f) $437 $418 $449
Nonperforming assets at period end 457 436 469
Nonperforming loans to period-end portfolio loans .75% .73% .81%
Nonperforming assets to period-end portfolio loans
plus OREO and other nonperforming assets .79 .76 .85
Trust and brokerage assets - from continuing operations
Assets under management $39,281 $39,157 $38,893
Nonmanaged and brokerage assets 49,508 49,147 47,396
Other data
Average full-time equivalent employees 13,591 13,590 14,055
Branches 992 994 1,027
Taxable-equivalent adjustment $6 $6 $6
(a) In April 2009, management decided to
wind down the operations of Austin
Capital Management, Ltd., a
subsidiary that specialized in
managing hedge fund investments for
institutional customers. In
September 2009, management decided to
discontinue the education lending
business conducted through Key
Education Resources, the education
payment and financing unit of KeyBank
National Association. In February
2013, Key decided to sell its
investment subsidiary, Victory
Capital Management, and its broker-
dealer affiliate, Victory Capital
Advisors, to a private equity fund.
As a result of these decisions, Key
has accounted for these businesses as
discontinued operations.
(b) Earnings per share may not foot due to
rounding.
(c) The following table entitled "GAAP to
Non-GAAP Reconciliations" presents
the computations of certain financial
measures related to "tangible common
equity," "Common Equity Tier 1"
(compliance date of January 1, 2015,
under the Regulatory Capital Rules)
"Tier 1 common equity" (prior to
January 1, 2015), 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
document.
(d) Represents period-end consolidated
total loans and loans held for sale
(excluding education loans in the
securitization trusts for periods
prior to September 30, 2014) divided
by period-end consolidated total
deposits (excluding deposits in
foreign office).
(e) 3-31-15 ratio is estimated.
(f) Loan balances exclude $12 million, $13
million, and $16 million of purchased
credit impaired loans at March 31,
2015, December 31, 2014, and March
31, 2014, respectively.
TE = Taxable Equivalent, GAAP = U.S. generally
accepted accounting principles
GAAP to Non-GAAP Reconciliations
(dollars in millions)
The table below presents certain non-GAAP financial measures related to "tangible common equity," "return on tangible common equity," "Common Equity Tier 1," "Tier 1 common equity," "pre-provision net revenue," and "cash efficiency ratio."
The tangible common equity ratio and the return on 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 introduces 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. Prior to January 1, 2015, the Federal Reserve focused its assessment of capital adequacy on a component of Tier 1 risk-based capital known as Tier 1 common equity, also a non-GAAP financial measure.
Common Equity Tier 1 is not formally defined by GAAP and is considered to be a non-GAAP financial measure. Since analysts and banking regulators may assess Key's capital adequacy using tangible common equity and Common Equity Tier 1, management believes it is useful to enable investors to assess Key's
capital adequacy on these same bases. The table also reconciles the GAAP performance measures to the corresponding non-GAAP measures.
The table also shows the computation for pre-provision net revenue, which is not formally defined by GAAP. Management believes that eliminating the effects of the provision for loan and lease 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 provides
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
3-31-15 12-31-14 3-31-14
------- -------- -------
Tangible common equity to tangible assets at period end
Key shareholders' equity (GAAP) $10,603 $10,530 $10,403
Less: Intangible assets (a) 1,088 1,090 1,012
Preferred Stock, Series A (b) 281 282 282
--- --- ---
Tangible common equity (non-GAAP) $9,234 $9,158 $9,109
====== ====== ======
Total assets (GAAP) $94,206 $93,821 $90,802
Less: Intangible assets (a) 1,088 1,090 1,012
Tangible assets (non-GAAP) $93,118 $92,731 $89,790
======= ======= =======
Tangible common equity to tangible assets ratio (non-GAAP) 9.92% 9.88% 10.14%
Common Equity Tier 1 at period end
Key shareholders' equity (GAAP) $10,603 - -
Less: Preferred Stock, Series A (b) 281 - -
Common Equity Tier 1 capital before adjustments and
deductions 10,322 - -
Less: Goodwill 1,057 - -
Intangible assets, net of deferred tax liabilities 36 - -
Deferred tax assets 12 - -
Net unrealized gains (losses) on available-for-sale
securities 52 - -
Accumulated gain (loss) on cash flow hedges (8) - -
Amounts recorded in accumulated other comprehensive income
(loss)
related to pension and postretirements benefit costs (364) - -
---- --- ---
Total Common Equity Tier 1 capital (c) $9,537 - -
====== === ===
Net risk-weighted assets (regulatory) (c) $88,123 - -
Common Equity Tier 1 ratio (non-GAAP) (c) 10.82% - -
Tier 1 common equity at period end
Key shareholders' equity (GAAP) - $10,530 $10,403
Qualifying capital securities - 339 339
Less: Goodwill - 1,057 979
Accumulated other comprehensive income (loss) (d) - (395) (367)
Other assets (e) - 83 84
--- --- ---
Total Tier 1 capital (regulatory) - 10,124 10,046
Less: Qualifying capital securities - 339 339
Preferred Stock, Series A (b) - 282 282
--- --- ---
Total Tier 1 common equity (non-GAAP) - $9,503 $9,425
=== ====== ======
Net risk-weighted assets (regulatory) - $85,100 $83,637
Tier 1 common equity ratio (non-GAAP) - 11.17% 11.27%
GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
Three months ended
------------------
3-31-15 12-31-14 3-31-14
------- -------- -------
Pre-provision net revenue
Net interest income (GAAP) $571 $582 $563
Plus: Taxable-equivalent adjustment 6 6 6
Noninterest income (GAAP) 437 490 435
Less: Noninterest expense (GAAP) 669 704 664
Pre-provision net revenue from continuing operations (non-GAAP) $345 $374 $340
===
Average tangible common equity
Average Key shareholders' equity (GAAP) $10,570 $10,562 $10,371
Less: Intangible assets (average) (f) 1,089 1,096 1,013
Preferred Stock, Series A (average) 290 291 291
--- --- ---
Average tangible common equity (non-GAAP) $9,191 $9,175 $9,067
====== ====== ======
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common
shareholders (GAAP) $222 $246 $232
Average tangible common equity (non-GAAP) 9,191 9,175 9,067
Return on average tangible common equity from continuing operations
(non-GAAP) 9.80% 10.64% 10.38%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP) $227 $248 $236
Average tangible common equity (non-GAAP) 9,191 9,175 9,067
Return on average tangible common equity consolidated (non-GAAP) 10.02% 10.72% 10.56%
Cash efficiency ratio
Noninterest expense (GAAP) $669 $704 $664
Less: Intangible asset amortization (GAAP) 9 10 10
Adjusted noninterest expense (non-GAAP) $660 $694 $654
==== ==== ====
Net interest income (GAAP) $571 $582 $563
Plus: Taxable-equivalent adjustment 6 6 6
Noninterest income (GAAP) 437 490 435
--- --- ---
Total taxable-equivalent revenue (non-GAAP) $1,014 $1,078 $1,004
====== ====== ======
Cash efficiency ratio (non-GAAP) 65.1% 64.4% 65.1%
Three months
ended
-------------
3-31-15
-------
Common Equity Tier 1 under the Regulatory Capital Rules (estimates)
Common Equity Tier 1 under current regulatory rules $9,537
Adjustments from current regulatory rules to the Regulatory Capital
Rules:
Deferred tax assets and other assets (g) (73)
---
Common Equity Tier 1 anticipated under the Regulatory Capital Rules (h) $9,464
======
Net risk-weighted assets under current regulatory rules $88,123
Adjustments from current regulatory rules to the Regulatory Capital
Rules:
Mortgage servicing assets (i) 486
Deferred tax assets (i) 338
Significant investments (i) 535
---
Total risk-weighted assets anticipated under the Regulatory Capital Rules (h) $89,482
=======
Common Equity Tier 1 ratio under the Regulatory Capital Rules (h) 10.58%
(a) For the three months ended March 31,
2015, December 31, 2014, and March
31, 2014, intangible assets exclude
$61 million, $68 million, and $84
million, respectively, of period-
end purchased credit card
receivables.
(b) Net of capital surplus.
(c) 3-31-15 amount is estimated.
(d) 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 application of
the applicable accounting guidance
for defined benefit and other
postretirement plans.
(e) Other assets deducted from Tier 1
capital and net risk-weighted
assets consist of disallowed
intangible assets (excluding
goodwill) and deductible portions of
nonfinancial equity investments.
There were no disallowed deferred
tax assets at December 31, 2014, and
March 31, 2014.
(f) For the three months ended March 31,
2015, December 31, 2014, and March
31, 2014, average intangible assets
exclude $64 million, $69 million,
and $89 million, respectively, of
average purchased credit card
receivables.
(g) Includes the deferred tax asset
subject to future taxable income for
realization, primarily tax credit
carryforwards, as well as the
deductible portion of purchased
credit card receivables.
(h) 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."
(i) Item is included in the 10%/15%
exceptions bucket calculation and is
risk-weighted at 250%.
GAAP = U.S. generally accepted accounting
principles
Consolidated Balance Sheets
(dollars in millions)
3-31-15 12-31-14 3-31-14
------- -------- -------
Assets
Loans $57,953 $57,381 $55,445
Loans held for sale 1,649 734 401
Securities available for sale 13,120 13,360 12,359
Held-to-maturity securities 5,005 5,015 4,826
Trading account assets 789 750 840
Short-term investments 3,378 4,269 2,922
Other investments 730 760 899
Total earning assets 82,624 82,269 77,692
Allowance for loan and lease losses (794) (794) (834)
Cash and due from banks 506 653 409
Premises and equipment 806 841 862
Operating lease assets 306 330 294
Goodwill 1,057 1,057 979
Other intangible assets 92 101 117
Corporate-owned life insurance 3,488 3,479 3,425
Derivative assets 731 609 427
Accrued income and other assets 3,144 2,952 3,004
Discontinued assets 2,246 2,324 4,427
Total assets $94,206 $93,821 $90,802
======= ======= =======
Liabilities
Deposits in domestic offices:
NOW and money market deposit accounts $35,623 $34,536 $34,373
Savings deposits 2,413 2,371 2,513
Certificates of deposit ($100,000 or more) 1,982 2,040 2,849
Other time deposits 3,182 3,259 3,682
----- ----- -----
Total interest-bearing deposits 43,200 42,206 43,417
Noninterest-bearing deposits 27,948 29,228 23,244
Deposits in foreign office - interest-
bearing 474 564 605
Total deposits 71,622 71,998 67,266
Federal funds purchased and securities 517 575 1,417
sold under repurchase agreements
Bank notes and other short-term borrowings 608 423 464
Derivative liabilities 825 784 408
Accrued expense and other liabilities 1,308 1,621 1,297
Long-term debt 8,713 7,875 7,712
Discontinued liabilities - 3 1,819
Total liabilities 83,593 83,279 80,383
Equity
Preferred stock, Series A 290 291 291
Common shares 1,017 1,017 1,017
Capital surplus 3,910 3,986 3,961
Retained earnings 8,445 8,273 7,793
Treasury stock, at cost (2,780) (2,681) (2,335)
Accumulated other comprehensive income
(loss) (279) (356) (324)
Key shareholders' equity 10,603 10,530 10,403
Noncontrolling interests 10 12 16
Total equity 10,613 10,542 10,419
------ ------ ------
Total liabilities and equity $94,206 $93,821 $90,802
======= ======= =======
Common shares outstanding (000) 850,920 859,403 884,869
Consolidated Statements of Income
(dollars in millions, except per share amounts)
Three months ended
------------------
3-31-15 12-31-14 3-31-14
------- -------- -------
Interest income
Loans $523 $534 $519
Loans held for sale 7 8 4
Securities available for sale 70 67 72
Held-to-maturity securities 24 23 22
Trading account assets 5 6 6
Short-term investments 2 2 1
Other investments 5 6 6
Total interest income 636 646 630
Interest expense
Deposits 26 26 32
Federal funds purchased and securities sold under
repurchase agreements - - 1
Bank notes and other short-term borrowings 2 3 2
Long-term debt 37 35 32
Total interest expense 65 64 67
Net interest income 571 582 563
Provision for credit losses 35 22 4
--- --- ---
Net interest income after provision for credit losses 536 560 559
Noninterest income
Trust and investment services income 109 112 98
Investment banking and debt placement fees 68 126 84
Service charges on deposit accounts 61 64 63
Operating lease income and other leasing gains 19 15 29
Corporate services income 43 53 42
Cards and payments income 42 43 38
Corporate-owned life insurance income 31 38 26
Consumer mortgage income 3 3 2
Mortgage servicing fees 13 11 15
Net gains (losses) from principal investing 29 18 24
Other income (a) 19 7 14
Total noninterest income 437 490 435
Noninterest expense
Personnel 389 409 388
Net occupancy 65 63 64
Computer processing 38 40 38
Business services and professional fees 33 38 41
Equipment 22 23 24
Operating lease expense 11 11 10
Marketing 8 16 5
FDIC assessment 8 9 6
Intangible asset amortization 9 10 10
OREO expense, net 2 2 1
Other expense 84 83 77
Total noninterest expense 669 704 664
--- --- ---
Income (loss) from continuing operations before income taxes 304 346 330
Income taxes 74 94 92
Income (loss) from continuing operations 230 252 238
Income (loss) from discontinued operations, net of
taxes 5 2 4
Net income (loss) 235 254 242
Less: Net income (loss) attributable to noncontrolling
interests 2 1 -
Net income (loss) attributable to Key $233 $253 $242
==== ==== ====
Income (loss) from continuing operations attributable to Key common shareholders $222 $246 $232
Net income (loss) attributable to Key common shareholders 227 248 236
Per common share
----------------
Income (loss) from continuing operations attributable to Key common shareholders $.26 $.29 $.26
Income (loss) from discontinued operations, net of taxes .01 - -
Net income (loss) attributable to Key common shareholders (b) .27 .29 .27
Per common share - assuming dilution
------------------------------------
Income (loss) from continuing operations attributable to Key common shareholders $.26 $.28 $.26
Income (loss) from discontinued operations, net of taxes .01 - -
Net income (loss) attributable to Key common shareholders (b) .26 .28 .26
Cash dividends declared per common share $.065 $.065 $.055
Weighted-average common shares outstanding (000) 848,580 858,811 884,727
Effect of convertible preferred stock - 20,602 -
Effect of common share options and other stock awards 8,542 6,773 7,163
Weighted-average common shares and potential common shares outstanding (000) (c) 857,122 886,186 891,890
======= ======= =======
(a) For each of the three months ended March 31, 2015, December 31, 2014, and March 31, 2014, net
securities gains (losses) totaled less than $1 million. For the three months ended March 31, 2015,
impairment losses related to securities totaled less than $1 million. For the three months ended
December 31, 2014, and March 31, 2014, 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 and/or convertible preferred
stock, as applicable.
Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
(dollars in millions)
First Quarter 2015 Fourth Quarter 2014 First Quarter 2014
Average Average Average
Balance Interest (a) Yield/Rate (a) Balance Interest (a) Yield/Rate (a) Balance Interest (a) Yield/Rate (a)
Assets
Loans: (b), (c)
Commercial, financial and agricultural
(d) $28,321 $223 3.18% $27,188 $223 3.24% $25,390 $206 3.29%
Real estate - commercial mortgage 8,095 73 3.67 8,161 77 3.73 7,807 74 3.84
Real estate - construction 1,139 11 3.90 1,077 10 3.90 1,091 12 4.55
Commercial lease financing 4,070 36 3.57 4,119 38 3.67 4,439 42 3.78
Total commercial loans 41,625 343 3.33 40,545 348 3.40 38,727 334 3.49
Real estate - residential mortgage 2,229 24 4.26 2,223 24 4.28 2,187 24 4.44
Home equity:
Key Community Bank 10,316 99 3.89 10,365 103 3.91 10,305 100 3.92
Other 260 5 7.82 274 5 7.84 325 6 7.77
--- --- ---- --- --- ---- --- --- ----
Total home equity loans 10,576 104 3.99 10,639 108 4.01 10,630 106 4.04
Consumer other - Key Community Bank 1,546 25 6.66 1,552 27 6.78 1,438 25 7.06
Credit cards 732 20 11.01 728 20 11.02 701 20 11.28
Consumer other:
Marine 755 12 6.35 802 13 6.29 996 15 6.18
Other 49 1 7.32 52 - 7.52 67 1 7.55
--- --- ---- --- --- ---- --- --- ----
Total consumer other 804 13 6.41 854 13 6.36 1,063 16 6.26
--- --- ---- --- --- ---- ----- --- ----
Total consumer loans 15,887 186 4.74 15,996 192 4.76 16,019 191 4.83
------ --- ---- ------ --- ---- ------ --- ----
Total loans 57,512 529 3.72 56,541 540 3.79 54,746 525 3.88
Loans held for sale 795 7 3.33 871 8 3.72 446 4 3.34
Securities available for sale (b), (e) 13,087 70 2.17 12,153 67 2.20 12,346 72 2.33
Held-to-maturity securities (b) 4,947 24 1.93 4,947 23 1.91 4,767 22 1.84
Trading account assets 717 5 2.80 868 6 2.84 981 6 2.51
Short-term investments 2,399 2 .27 3,520 2 .27 2,486 1 .17
Other investments (e) 742 5 2.79 792 6 2.77 936 6 2.57
Total earning assets 80,199 642 3.20 79,692 652 3.27 76,708 636 3.32
Allowance for loan and lease losses (793) (798) (842)
Accrued income and other assets 10,223 9,868 9,791
Discontinued assets 2,271 2,359 4,493
Total assets $91,900 $91,121 $90,150
======= ======= =======
Liabilities
NOW and money market deposit accounts $34,952 13 .15 $34,811 13 .14 $34,064 12 .14
Savings deposits 2,385 - .02 2,388 - .02 2,475 - .03
Certificates of deposit ($100,000 or
more) (f) 2,017 7 1.30 2,277 7 1.25 2,758 10 1.50
Other time deposits 3,217 6 .72 3,306 6 .76 3,679 10 1.07
Deposits in foreign office 529 - .22 543 - .24 660 - .22
Total interest-bearing deposits 43,100 26 .24 43,325 26 .24 43,636 32 .30
Federal funds purchased and securities 720 - .03 621 - .02 1,469 1 .17
sold under repurchase agreements
Bank notes and other short-term
borrowings 506 2 1.56 772 3 1.17 587 2 1.63
Long-term debt (f), (g) 6,126 37 2.52 5,135 35 2.80 5,169 32 2.57
Total interest-bearing liabilities 50,452 65 .52 49,853 64 .51 50,861 67 .54
------ --- --- ------ --- --- ------ --- ---
Noninterest-bearing deposits 26,269 26,342 22,658
Accrued expense and other liabilities 2,327 1,989 1,750
Discontinued liabilities (g) 2,271 2,359 4,493
Total liabilities 81,319 80,543 79,762
Equity
Key shareholders' equity 10,570 10,562 10,371
Noncontrolling interests 11 16 17
Total equity 10,581 10,578 10,388
Total liabilities and equity $91,900 $91,121 $90,150
======= ======= =======
Interest rate spread (TE) 2.68% 2.76% 2.78%
==== ==== ====
Net interest income (TE) and net interest margin (TE) 577 2.91% 588 2.94% 569 3.00%
==== ==== ====
TE adjustment (b) 6 6 6
--- --- ---
Net interest income, GAAP basis $571 $582 $563
(a) Results are from continuing
operations. Interest excludes
the interest associated with the
liabilities referred to in (g)
below, calculated using a matched
funds transfer pricing
methodology.
(b) Interest income on tax-exempt
securities and loans has been
adjusted to a taxable-equivalent
basis using the statutory federal
income tax rate of 35%.
(c) For purposes of these
computations, nonaccrual loans
are included in average loan
balances.
(d) Commercial, financial and
agricultural average balances
include $87 million, $90 million,
and $94 million of assets from
commercial credit cards for the
three months ended March 31,
2015, December 31, 2014, and
March 31, 2014, 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 our matched funds
transfer pricing methodology to
discontinued operations.
TE = Taxable Equivalent, GAAP = U.S. generally
accepted accounting principles
Noninterest Expense
(dollars in millions)
Three months ended
3-31-15 12-31-14 3-31-14
Personnel (a) $389 $409 $388
Net occupancy 65 63 64
Computer processing 38 40 38
Business services and
professional fees 33 38 41
Equipment 22 23 24
Operating lease expense 11 11 10
Marketing 8 16 5
FDIC assessment 8 9 6
Intangible asset amortization 9 10 10
OREO expense, net 2 2 1
Other expense 84 83 77
--- --- ---
Total noninterest
expense $669 $704 $664
==== ==== ====
Average full-time equivalent
employees (b) 13,591 13,590 14,055
(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
3-31-15 12-31-14 3-31-14
Salaries $218 $224 $220
Technology contract labor, net 10 12 17
Incentive compensation 70 105 72
Employee benefits 72 53 63
Stock-based compensation 13 13 11
Severance 6 2 5
--- --- ---
Total personnel
expense $389 $409 $388
==== ==== ====
Loan Composition
(dollars in millions)
Percent change 3-31-15 vs.
3-31-15 12-31-14 3-31-14 12-31-14 3-31-14
------- -------- ------- -------- -------
Commercial, financial and agricultural (a) $28,783 $27,982 $26,224 2.9% 9.8%
Commercial real estate:
Commercial mortgage 8,162 8,047 7,877 1.4 3.6
Construction 1,142 1,100 1,007 3.8 13.4
Total commercial real estate loans 9,304 9,147 8,884 1.7 4.7
Commercial lease financing (b) 4,064 4,252 4,396 (4.4) (7.6)
----- ----- ----- ---- ----
Total commercial loans 42,151 41,381 39,504 1.9 6.7
Residential - prime loans:
Real estate - residential mortgage 2,231 2,225 2,183 .3 2.2
Home equity:
Key Community Bank 10,270 10,366 10,281 (.9) (.1)
Other 253 267 315 (5.2) (19.7)
--- --- --- ---- -----
Total home equity loans 10,523 10,633 10,596 (1.0) (.7)
Total residential - prime loans 12,754 12,858 12,779 (.8) (.2)
Consumer other - Key Community Bank 1,547 1,560 1,436 (.8) 7.7
Credit cards 727 754 698 (3.6) 4.2
Consumer other:
Marine 730 779 965 (6.3) (24.4)
Other 44 49 63 (10.2) (30.2)
Total consumer other 774 828 1,028 (6.5) (24.7)
Total consumer loans 15,802 16,000 15,941 (1.2) (.9)
Total loans (c), (d) $57,953 $57,381 $55,445 1.0% 4.5%
==========
Loans Held for Sale Composition
(dollars in millions)
Percent change 3-31-15 vs.
3-31-15 12-31-14 3-31-14 12-31-14 3-31-14
------- -------- ------- -------- -------
Commercial, financial and agricultural $183 $63 $44 190.5% 315.9%
Real estate - commercial mortgage 1,408 638 333 120.7 322.8
Commercial lease financing 14 15 8 (6.7) 75.0
Real estate - residential mortgage 44 18 16 144.4 175.0
--- --- --- ----- -----
Total loans held for sale $1,649 $734 $401 124.7% 311.2%
==========
Summary of Changes in Loans Held for Sale
(in millions)
1Q15 4Q14 3Q14 2Q14 1Q14
---- ---- ---- ---- ----
Balance at beginning of period $734 $784 $435 $401 $611
New originations 2,130 2,465 1,593 978 645
Transfers from (to) held to
maturity, net 10 2 - (8) 3
Loan sales (1,204) (2,516) (1,243) (934) (596)
Loan draws (payments), net (21) (1) (1) (2) (262)
Balance at end of period $1,649 $734 $784 $435 $401
====== ==== ==== ==== ====
(a) Loan balances include $87
million, $88 million, and $95
million of commercial credit
card balances at March 31,
2015, December 31, 2014, and
March 31, 2014, respectively.
(b) Commercial lease financing
includes receivables of $230
million, $302 million, and $124
million held as collateral for
a secured borrowing at March
31, 2015, December 31, 2014,
and March 31, 2014,
respectively. Principal
reductions are based on the
cash payments received from
these related receivables.
(c) At March 31, 2015, total loans
include purchased loans of $130
million, of which $12 million
were purchased credit impaired.
At December 31, 2014, total
loans include purchased loans
of $138 million, of which $13
million were purchased credit
impaired. At March 31, 2014,
total loans include purchased
loans of $159 million, of which
$16 million were purchased
credit impaired.
(d) Total loans exclude loans of
$2.2 billion at March 31, 2015,
$2.3 billion at December 31,
2014, and $4.4 billion at March
31, 2014, related to the
discontinued operations of the
education lending business.
N/M = Not Meaningful
Exit Loan Portfolio From Continuing Operations
(in millions)
Balance Change Net Loan Balance on
Outstanding 3-31-15 vs. Charge-offs Nonperforming Status
----------- ----------- --------------------
3-31-15 12-31-14 12-31-14 1Q15 (b) 4Q14 (b) 3-31-15 12-31-14
------- -------- -------- ---- --- ---- --- ------- --------
Residential properties - homebuilder $6 $10 $(4) $1 - $8 $9
Marine and RV floor plan 6 7 (1) - - 5 5
Commercial lease financing (a) 877 967 (90) (1) $3 - 1
--- --- --- --- --- --- ---
Total commercial loans 889 984 (95) - 3 13 15
Home equity - Other 253 267 (14) - - 9 10
Marine 730 779 (49) 2 3 9 15
RV and other consumer 50 54 (4) 1 (1) 1 1
--- --- --- --- --- --- ---
Total consumer loans 1,033 1,100 (67) 3 2 19 26
----- ----- --- --- --- --- ---
Total exit loans in loan portfolio $1,922 $2,084 $(162) $3 $5 $32 $41
====== ====== ===== === === === ===
Discontinued operations - education $2,219 $2,295 $(76) $6 $8 $8 $11
lending business (not included in exit loans above)
(a) Includes (1) the business
aviation, commercial vehicle,
office products, construction,
and industrial leases; (2)
Canadian lease financing
portfolios; (3) European lease
financing portfolios; and (4)
all remaining balances related
to lease in, lease out; sale
in, lease out; service contract
leases; and qualified
technological equipment leases.
(b) Credit amounts indicate
recoveries exceeded charge-
offs.
Asset Quality Statistics From Continuing Operations
(dollars in millions)
1Q15 4Q14 3Q14 2Q14 1Q14
---- ---- ---- ---- ----
Net loan charge-offs $28 $32 $31 $30 $20
Net loan charge-offs to average total loans .20% .22% .22% .22% .15%
Allowance for loan and lease losses $794 $794 $804 $814 $834
Allowance for credit losses (a) 835 829 839 851 869
Allowance for loan and lease losses to period-end loans 1.37% 1.38% 1.43% 1.46% 1.50%
Allowance for credit losses to period-end loans 1.44 1.44 1.49 1.53 1.57
Allowance for loan and lease losses to nonperforming loans 181.7 190.0 200.5 205.6 185.7
Allowance for credit losses to nonperforming loans 191.1 198.3 209.2 214.9 193.5
Nonperforming loans at period end (b) $437 $418 $401 $396 $449
Nonperforming assets at period end 457 436 418 410 469
Nonperforming loans to period-end portfolio loans .75% .73% .71% .71% .81%
Nonperforming assets to period-end portfolio loans plus .79 .76 .74 .74 .85
OREO and other nonperforming assets
(a) Includes the allowance for loan and lease
losses plus the liability for credit
losses on lending-related unfunded
commitments.
(b) Loan balances exclude $12 million, $13
million, $14 million, $15 million, and
$16 million of purchased credit impaired
loans at March 31, 2015, December 31,
2014, September 30, 2014, June 30, 2014,
and March 31, 2014, respectively.
Summary of Loan and Lease Loss Experience From Continuing Operations
(dollars in millions)
Three months ended
3-31-15 12-31-14 3-31-14
------- -------- -------
Average loans outstanding $57,512 $56,541 $54,746
======= ======= =======
Allowance for loan and lease losses at beginning of period $794 $804 $848
Loans charged off:
Commercial, financial and agricultural 12 10 12
Real estate - commercial mortgage 2 3 2
Real estate - construction 1 1 2
--- --- ---
Total commercial real estate loans 3 4 4
Commercial lease financing 2 4 3
--- --- ---
Total commercial loans 17 18 19
Real estate - residential mortgage 2 3 3
Home equity:
Key Community Bank 7 8 10
Other 1 1 3
--- --- ---
Total home equity loans 8 9 13
Consumer other - Key Community Bank 6 7 8
Credit cards 8 7 6
Consumer other:
Marine 5 5 7
Other 1 - 1
--- --- ---
Total consumer other 6 5 8
--- --- ---
Total consumer loans 30 31 38
--- --- ---
Total loans charged off 47 49 57
Recoveries:
Commercial, financial and agricultural 5 6 10
Real estate - commercial mortgage 2 - 1
Real estate - construction - 1 14
--- --- ---
Total commercial real estate loans 2 1 15
Commercial lease financing 4 2 2
--- --- ---
Total commercial loans 11 9 27
Real estate - residential mortgage - - 1
Home equity:
Key Community Bank 2 2 3
Other 1 1 1
--- --- ---
Total home equity loans 3 3 4
Consumer other - Key Community Bank 2 2 2
Credit cards - - -
Consumer other:
Marine 3 2 3
Other - 1 -
--- --- ---
Total consumer other 3 3 3
--- --- ---
Total consumer loans 8 8 10
--- --- ---
Total recoveries 19 17 37
--- --- ---
Net loan charge-offs (28) (32) (20)
Provision (credit) for loan and lease losses 29 22 6
Foreign currency translation adjustment (1) - -
--- --- ---
Allowance for loan and lease losses at end of period $794 $794 $834
==== ==== ====
Liability for credit losses on lending-related commitments at beginning of period $35 $35 $37
Provision (credit) for losses on lending-related commitments 6 - (2)
--- --- ---
Liability for credit losses on lending-related commitments at end of period (a) $41 $35 $35
=== === ===
Total allowance for credit losses at end of period $835 $829 $869
==== ==== ====
Net loan charge-offs to average total loans .20% .22% .15%
Allowance for loan and lease losses to period-end loans 1.37 1.38 1.50
Allowance for credit losses to period-end loans 1.44 1.44 1.57
Allowance for loan and lease losses to nonperforming loans 181.7 190.0 185.7
Allowance for credit losses to nonperforming loans 191.1 198.3 193.5
Discontinued operations - education lending business:
Loans charged off $10 $11 $13
Recoveries 4 3 4
--- --- ---
Net loan charge-offs $(6) $(8) $(9)
=== === ===
(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)
3-31-15 12-31-14 9-30-14 6-30-14 3-31-14
Commercial, financial and agricultural $98 $59 $47 $37 $60
Real estate - commercial mortgage 30 34 41 38 37
Real estate - construction 12 13 14 9 11
--- --- --- --- ---
Total commercial real estate loans 42 47 55 47 48
Commercial lease financing 20 18 14 15 18
--- --- --- --- ---
Total commercial loans 160 124 116 99 126
Real estate - residential mortgage 72 79 81 89 105
Home equity:
Key Community Bank 182 185 174 178 188
Other 9 10 10 11 11
--- --- --- --- ---
Total home equity loans 191 195 184 189 199
Consumer other - Key Community Bank 2 2 2 2 2
Credit cards 2 2 1 1 1
Consumer other:
Marine 9 15 16 15 15
Other 1 1 1 1 1
--- --- --- --- ---
Total consumer other 10 16 17 16 16
--- --- --- --- ---
Total consumer loans 277 294 285 297 323
--- --- --- --- ---
Total nonperforming loans (a) 437 418 401 396 449
Nonperforming loans held for sale - - - 1 1
OREO 20 18 16 12 12
Other nonperforming assets - - 1 1 7
--- --- --- --- ---
Total nonperforming assets $457 $436 $418 $410 $469
==== ==== ==== ==== ====
Accruing loans past due 90 days or more $111 $96 $71 $83 $89
Accruing loans past due 30 through 89 days 216 235 340 274 267
Restructured loans - accruing and nonaccruing (b) 268 270 264 266 294
Restructured loans included in nonperforming loans (b) 141 157 137 142 178
Nonperforming assets from discontinued operations - 8 11 9 19 20
education lending business
Nonperforming loans to period-end portfolio loans .75% .73% .71% .71% .81%
Nonperforming assets to period-end portfolio loans .79 .76 .74 .74 .85
plus OREO and other nonperforming assets
(a) Loan balances exclude $12 million, $13 million, $14
million, $15 million, and $16 million of purchased
credit impaired loans at March 31, 2015, December 31,
2014, September 30, 2014, June 30, 2014, and March 31,
2014, respectively.
(b) Restructured loans (i.e., troubled debt restructurings)
are those for which Key, for reasons related to a
borrower's financial difficulties, grants a concession
to the borrower that it would not otherwise consider.
These concessions are made to improve the
collectability of the loan and generally take the form
of a reduction of the interest rate, extension of the
maturity date or reduction in the principal balance.
Summary of Changes in Nonperforming Loans From Continuing Operations
(in millions)
1Q15 4Q14 3Q14 2Q14 1Q14
---- ---- ---- ---- ----
Balance at beginning of period $418 $401 $396 $449 $508
Loans placed on nonaccrual status 123 103 109 79 98
Charge-offs (47) (49) (49) (56) (57)
Loans sold - (2) - (21) (3)
Payments (9) (17) (13) (17) (21)
Transfers to OREO (7) (6) (7) (4) (3)
Loans returned to accrual status (41) (12) (35) (34) (73)
--- --- --- --- ---
Balance at end of period (a) $437 $418 $401 $396 $449
==== ==== ==== ==== ====
(a)
Loan balances exclude $12
million, $13 million, $14
million, $15 million, and $16
million of purchased credit
impaired loans at March 31,
2015, December 31, 2014,
September 30, 2014, June 30,
2014, and March 31, 2014,
respectively.
Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations
(in millions)
1Q15 4Q14 3Q14 2Q14 1Q14
---- ---- ---- ---- ----
Balance at beginning of period $18 $16 $12 $12 $15
Properties acquired - nonperforming loans 7 6 7 4 3
Valuation adjustments (1) (2) (1) (1) (1)
Properties sold (4) (2) (2) (3) (5)
--- --- --- --- ---
Balance at end of period $20 $18 $16 $12 $12
=== === === === ===
Line of Business Results
(dollars in millions)
Percent change 1Q15 vs.
1Q15 4Q14 3Q14 2Q14 1Q14 4Q14 1Q14
---- ---- ---- ---- ---- ---- ----
Key Community Bank
Summary of operations
Total revenue (TE) $549 $558 $558 $553 $546 (1.6)% .5%
Provision for credit losses 29 12 27 25 11 141.7 163.6
Noninterest expense 440 447 439 442 436 (1.6) .9
Net income (loss) attributable to Key 50 62 58 54 62 (19.4) (19.4)
Average loans and leases 30,662 30,478 30,103 30,034 29,797 .6 2.9
Average deposits 50,417 50,850 50,302 50,230 49,910 (.9) 1.0
Net loan charge-offs 28 28 28 33 28 - -
Net loan charge-offs to average total loans .37% .36% .37% .44% .38% N/A N/A
Nonperforming assets at period end $328 $340 $338 $331 $357 (3.5) (8.1)
Return on average allocated equity 7.38% 9.14% 8.60% 7.96% 8.97% N/A N/A
Average full-time equivalent employees 7,475 7,414 7,573 7,569 7,698 .8 (2.9)
Key Corporate Bank
Summary of operations
Total revenue (TE) $401 $460 $400 $395 $392 (12.8)% 2.3%
Provision for credit losses 8 4 (3) (4) (3) 100.0 N/M
Noninterest expense 217 246 215 208 202 (11.8) 7.4
Net income (loss) attributable to Key 126 150 136 135 136 (16.0) (7.4)
Average loans and leases 24,722 23,798 23,215 22,886 21,991 3.9 12.4
Average loans held for sale 775 855 481 429 429 (9.4) 80.7
Average deposits 18,567 18,356 17,600 16,359 15,993 1.1 16.1
Net loan charge-offs (4) (3) (1) (2) (12) N/M N/M
Net loan charge-offs to average total loans (.07)% (.05)% (.02)% (.04)% (.22)% N/A N/A
Nonperforming assets at period end $93 $41 $20 $22 $53 126.8 75.5
Return on average allocated equity 27.44% 33.89% 32.08% 35.65% 35.65% N/A N/A
Average full-time equivalent employees 2,064 2,043 1,998 1,940 1,916 1.0 7.7
TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/keycorp-reports-first-quarter-2015-net-income-of-222-million-or-26-per-common-share-300067012.html
SOURCE KeyCorp
