KEYCORP CLEVELAND, July 17, 2014 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced second quarter net income from continuing operations attributable to Key common shareholders of $242 million, or $.27 per common share, compared to $232 million, or $.26 per common share, for the first quarter of 2014, and $193 million, or $.21 per common share, for the second quarter of 2013.
For the six months ended June 30, 2014, net income from continuing operations attributable to Key common shareholders was $474 million, or $.53 per common share, compared to $389 million, or $.42 per common share, for the same period one year ago.
"Second quarter results demonstrate the successful execution of our strategy and continued efforts across our company to drive growth," said Chairman and Chief Executive Officer Beth Mooney. "We delivered positive operating leverage by growing revenue and reducing expense from one year ago. Further, we maintained strong risk management practices, as evidenced by a continued low net charge-offs to average loans ratio of .22% and declining nonperforming asset and loan levels. We continue to execute on our commitment to return capital to our shareholders by repurchasing $108 million in common shares and increasing our dividend by 18%."
"Total average loans continued to grow at a solid pace, driven by commercial, financial and agricultural loan growth of 13% from the prior year. Investment banking and debt placement fees were also strong, up 18% from one year ago. The growth of these two items reflects the strength of our distinctive business model and our ability to capitalize on revenue opportunities either through on-balance sheet or capital markets alternatives," added Mooney.
"We also continue to invest in growth opportunities that are consistent with our business model and strategy," said Mooney. "Today, we announced that we have entered into an agreement to acquire Pacific Crest Securities, a leading technology-focused investment bank and capital markets firm. Adding technology expertise to our Corporate Bank will enhance our model and capabilities to accelerate growth while also underscoring our commitment to be the leading corporate and investment bank serving middle market companies. This transaction is subject to regulatory approval and is expected to close in the third quarter of 2014."
SECOND QUARTER 2014 FINANCIAL RESULTS, from continuing operations
Compared to Second Quarter of 2013
-- Average loans up 5.5%, driven by a 12.6% growth in commercial, financial
and agricultural loans
-- Average deposits up 2.5% due to commercial mortgage servicing
acquisitions and growth in commercial deposits offsetting declines in
certificates of deposit
-- Positive operating leverage with growth in revenues and decline in
expenses
-- Net interest income (taxable-equivalent) down $7 million, primarily due
to lower asset yields and lower loan fees caused by an early termination
of a leveraged lease
-- Noninterest income up $26 million, reflecting growth in investment
banking and debt placement fees, higher principal investing gains, and
an increase in operating lease income and other leasing gains mostly due
to an early termination of a leveraged lease
-- Noninterest expense down $22 million, reflecting $13 million in lower
efficiency-related charges, and continued focus on expense management
-- Asset quality improved, with net loan charge-offs to average loans
declining from .34% to .22%
-- Disciplined capital management, repurchasing $108 million of common
shares during the second quarter of 2014 and maintaining a top tier
capital position with Tier 1 common equity of 11.33%
Compared to First Quarter of 2014
-- Average loans up 1.6%, driven by a 4.2% growth in commercial, financial
and agricultural loans
-- Average deposits up 1.3% due to the growth in commercial mortgage
servicing and commercial and consumer client inflows
-- Net interest income (taxable-equivalent) up $10 million due to an
increase in asset levels, higher loan fees, and more days in the quarter
-- Noninterest income up $20 million, with higher investment banking and
debt placement fees and an increase in operating lease income and other
leasing gains mostly due to the early termination of a leveraged lease
-- Noninterest expense up $27 million due to increased marketing expense
and $14 million in higher efficiency-related charges
-- Asset quality remains strong, with net loan charge-offs to average loans
remaining well below targeted range and improving levels of
nonperforming assets and loans
Selected Financial Highlights
dollars in millions, except per share data Change 2Q14 vs.
2Q14 1Q14 2Q13 1Q14 2Q13
---- ---- ---- ---- ----
Income (loss) from continuing operations attributable to Key common shareholders $242 $232 $193 4.3% 25.4%
Income (loss) from continuing operations attributable to Key common shareholders per .27 .26 .21 3.8 28.6
common share - assuming dilution
Return on average total assets from continuing operations 1.14% 1.13% .95% N/A N/A
Tier 1 common equity (a) 11.33 11.27 11.18 N/A N/A
Book value at period end $11.65 $11.43 $10.89 1.9% 7.0%
Net interest margin (TE) from continuing operations 2.98% 3.00% 3.13% N/A N/A
(a) The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "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.
TE = Taxable Equivalent, N/A = Not Applicable
INCOME STATEMENT HIGHLIGHTS
Revenue
dollars in millions Change 2Q14 vs.
2Q14 1Q14 2Q13 1Q14 2Q13
---- ---- ---- ---- ----
Net interest income (TE) $579 $569 $586 1.8% (1.2)%
Noninterest income 455 435 429 4.6 6.1
--- --- --- --- ---
Total revenue $1,034 $1,004 $1,015 3.0% 1.9%
===
TE = Taxable Equivalent
Taxable-equivalent net interest income was $579 million for the second quarter of 2014, and the net interest margin was 2.98%. These results compare to taxable-equivalent net interest income of $586 million and a net interest margin of 3.13% for the second quarter of 2013. These decreases in net interest income and net interest margin were attributable to lower asset yields and a decrease in loan fees mostly due to the early termination of a leveraged lease. These decreases were partially offset by loan growth, the maturity of higher-rate certificates of deposit, and a more favorable mix of lower-cost deposits.
Compared to the first quarter of 2014, taxable-equivalent net interest income increased by $10 million, and the net interest margin declined by two basis points. The increase in net interest income was primarily due to higher asset levels and loan fees, a lower cost of funds as higher-rate certificates of deposit matured, and more days in the second quarter. The net interest margin was negatively impacted by the early termination of a leveraged lease.
Noninterest Income
dollars in millions Change 2Q14 vs.
2Q14 1Q14 2Q13 1Q14 2Q13
---- ---- ---- ---- ----
Trust and investment services income $94 $98 $100 (4.1)% (6.0)%
Investment banking and debt placement fees 99 84 84 17.9 17.9
Service charges on deposit accounts 66 63 71 4.8 (7.0)
Operating lease income and other leasing gains 35 29 22 20.7 59.1
Corporate services income 41 42 43 (2.4) (4.7)
Cards and payments income 43 38 42 13.2 2.4
Corporate-owned life insurance income 28 26 31 7.7 (9.7)
Consumer mortgage income 2 2 6 - (66.7)
Mortgage servicing fees 11 15 13 (26.7) (15.4)
Net gains (losses) from principal investing 27 24 7 12.5 285.7
Other income 9 14 10 (35.7) (10.0)
--- --- --- ----- -----
Total noninterest income $455 $435 $429 4.6% 6.1%
Key's noninterest income was $455 million for the second quarter of 2014, compared to $429 million for the year-ago quarter. Key continued to see the benefits of its business model - focusing on targeted industries - with investment banking and debt placement fees increasing $15 million from the prior year. In addition, net gains from principal investing increased $20 million. Operating lease income and other leasing gains increased $13 million, due to a $17 million gain from the early termination of a leveraged lease. These increases were partially offset by a decrease of $6 million in trust and investment services income, a decline in service charges on deposit accounts of $5 million due to lower non-sufficient funds and overdraft charges, and decreases in various other items.
Compared to the first quarter of 2014, noninterest income increased by $20 million. Investment banking and debt placement fees increased $15 million from prior quarter. Operating lease income and other leasing gains increased $6 million, due to a $17 million gain from the early termination of a leveraged lease. Key also benefitted from seasonal pickup in activity levels, with cards and payments income up $5 million and service charges on deposit accounts up $3 million. These increases were partially offset by a $5 million decrease in other income related to lower trading income.
Noninterest Expense
dollars in millions Change 2Q14 vs.
2Q14 1Q14 2Q13 1Q14 2Q13
---- ---- ---- ---- ----
Personnel expense $389 $388 $406 .3% (4.2)%
Nonpersonnel expense 300 274 305 9.5 (1.6)
--- --- --- --- ----
Total noninterest expense $689 $662 $711 4.1% (3.1)%
Key's noninterest expense was $689 million for the second quarter of 2014, compared to $711 million for the same period last year. This decline reflects lower efficiency charges of $13 million. Excluding the impact of efficiency charges, the $9 million decrease in expenses was mostly due to a decline in salaries and employee benefits.
Compared to the first quarter of 2014, noninterest expense increased by $27 million. The increase in expenses reflected $14 million in higher efficiency-related charges. Marketing expense increased $8 million from the prior quarter related to normal seasonal increases in spend. In addition, the provision (credit) for losses on lending-related commitments increased $4 million from the prior quarter.
BALANCE SHEET HIGHLIGHTS
As of June 30, 2014, Key had total assets of $91.8 billion compared to $90.8 billion at March 31, 2014, and $90.6 billion at June 30, 2013.
Average Loans
dollars in millions Change 6-30-14 vs.
6-30-14 3-31-14 6-30-13 3-31-14 6-30-13
------- ------- ------- ------- -------
Commercial, financial and agricultural (a) $26,444 $25,390 $23,480 4.2% 12.6%
Other commercial loans 13,186 13,337 13,290 (1.1) (.8)
Total home equity loans 10,627 10,630 10,381 - 2.4
Other consumer loans 5,354 5,389 5,545 (.6) (3.4)
----- ----- ----- --- ----
Total loans $55,611 $54,746 $52,696 1.6% 5.5%
(a) Commercial, financial and agricultural average loan balances include $95 million, $94 million, and $96 million of assets from commercial credit cards at June 30, 2014, March 31, 2014, and June 30, 2013, respectively.
Average loans were $55.6 billion for the second quarter of 2014, an increase of $2.9 billion compared to the second quarter of 2013. The loan growth occurred primarily in the commercial, financial and agricultural portfolio, which increased $3 billion and was broad-based across Key's commercial lines of business. Consumer loans remained stable, as increases in home equity loans and direct term loans were mostly offset by run-off in Key's designated consumer exit portfolio. The growth in home equity and direct term loans was balanced across Key's geographic footprint.
Compared to the first quarter of 2014, average loans increased by $865 million. Commercial, financial and agricultural loans increased $1.1 billion, mostly within Key Corporate Bank. Consumer loans reflected a decrease in Key's consumer exit portfolio, which offset core consumer loan growth during the second quarter.
Average Deposits
dollars in millions Change 6-30-14 vs.
6-30-14 3-31-14 6-30-13 3-31-14 6-30-13
------- ------- ------- ------- -------
Non-time deposits (a) $60,066 $59,197 $57,691 1.5% 4.1%
Certificates of deposit ($100,000 or more) 2,808 2,758 2,975 1.8 (5.6)
Other time deposits 3,587 3,679 4,202 (2.5) (14.6)
----- ----- ----- ---- -----
Total deposits $66,461 $65,634 $64,868 1.3% 2.5%
Cost of total deposits (a) .18% .20% .26% N/A N/A
(a) Excludes deposits in foreign office.
N/A = Not Applicable
Average deposits, excluding deposits in foreign office, totaled $66.5 billion for the second quarter of 2014, an increase of $1.6 billion compared to the year-ago quarter. Demand deposits increased by $993 million, and NOW and money market deposit accounts increased $1.4 billion, mostly due to growth related to commercial client inflows as well as increases related to the commercial mortgage servicing business. These increases were partially offset by run-off in certificates of deposit.
Compared to the first quarter of 2014, average deposits, excluding deposits in foreign office, increased by $827 million. Demand deposits were up $632 million, driven by increases of escrow deposits in the commercial mortgage servicing business and inflows related to both commercial and consumer clients. NOW and money market deposit accounts increased $219 million mostly due to higher interest-bearing demand deposits with inflows across Key's commercial lines of business. These increases were partially offset by decreases in other interest-bearing deposit accounts.
ASSET QUALITY
dollars in millions Change 2Q14 vs.
2Q14 1Q14 2Q13 1Q14 2Q13
---- ---- ---- ---- ----
Net loan charge-offs $30 $20 $45 50.0% (33.3)%
Net loan charge-offs to average total loans .22% .15% .34% N/A N/A
Nonperforming loans at period end (a) $396 $449 $652 (11.8) (39.3)
Nonperforming assets at period end 410 469 693 (12.6) (40.8)
Allowance for loan and lease losses 814 834 876 (2.4) (7.1)
Allowance for loan and lease losses to nonperforming loans 205.6% 185.7% 134.4% N/A N/A
Provision (credit) for loan and lease losses $10 $6 $28 66.7% (64.3)%
(a) Loan balances exclude $15 million, $16 million, and $19 million of purchased credit impaired loans at June 30, 2014, March 31, 2014, and June 30, 2013, respectively.
N/A = Not Applicable
Key's provision for loan and lease losses was $10 million for the second quarter of 2014, compared to $6 million for the first quarter of 2014 and $28 million for the year-ago quarter. Key's allowance for loan and lease losses was $814 million, or 1.46%, of total period-end loans at June 30, 2014, compared to 1.50% at March 31, 2014, and 1.65% at June 30, 2013.
Net loan charge-offs for the second quarter of 2014 totaled $30 million, or .22%, of average total loans. These results compare to $20 million, or .15%, for the first quarter of 2014, and $45 million, or .34%, for the same period last year.
At June 30, 2014, Key's nonperforming loans totaled $396 million and represented .71% of period-end portfolio loans, compared to .81% at March 31, 2014, and 1.23% at June 30, 2013. Nonperforming assets at June 30, 2014, totaled $410 million and represented .74% of period-end portfolio loans and OREO and other nonperforming assets, compared to .85% at March 31, 2014, and 1.30% at June 30, 2013.
CAPITAL
Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at June 30, 2014.
Capital Ratios
6-30-14 3-31-14 6-30-13
------- ------- -------
Tier 1 common equity (a), (b) 11.33% 11.27% 11.18%
Tier 1 risk-based capital (a) 12.07 12.01 11.93
Total risk based capital (a) 14.24 14.23 14.65
Tangible common equity to tangible assets (b) 10.15 10.14 9.96
Leverage (a) 11.25 11.30 11.25
(a) 6-30-14 ratio is estimated.
(b) The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "tangible common equity" 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 June 30, 2014, Key's estimated Tier 1 common equity and Tier 1 risk-based capital ratios stood at 11.33% and 12.07%, respectively. In addition, the tangible common equity ratio was 10.15% at June 30, 2014.
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 begins on January 1, 2015, subject to transitional provisions extending to January 1, 2019. Key's estimated Common Equity Tier 1 as calculated under the Regulatory Capital Rules was 10.77% at June 30, 2014. 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 2Q14 vs.
2Q14 1Q14 2Q13 1Q14 2Q13
---- ---- ---- ---- ----
Shares outstanding at beginning of period 884,869 890,724 922,581 (.7)% (4.1)%
Common shares repurchased (7,824) (9,845) (10,786) (20.5) (27.5)
Shares reissued (returned) under employee benefit plans (222) 3,990 1,088 N/M N/M
---- ----- ----- --- ---
Shares outstanding at end of period 876,823 884,869 912,883 (.9)% (4.0)%
As previously reported, Key's 2014 CCAR capital plan includes common share repurchases of up to $542 million, which are expected to be executed through the first quarter of 2015. During the second quarter of 2014, Key completed $108 million of common share repurchases.
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 2Q14 vs.
2Q14 1Q14 2Q13 1Q14 2Q13
---- ---- ---- ---- ----
Revenue from continuing operations (TE)
--------------------------------------
Key Community Bank $550 $541 $583 1.7% (5.7)%
Key Corporate Bank 394 391 378 .8 4.2
Other Segments 91 70 56 30.0 62.5
--- --- --- ---- ----
Total segments 1,035 1,002 1,017 3.3 1.8
Reconciling Items (1) 2 (2) N/M N/M
--- --- --- --- ---
Total $1,034 $1,004 $1,015 3.0% 1.9%
Income (loss) from continuing operations attributable to Key
------------------------------------------------------------
Key Community Bank $55 $62 $52 (11.3)% 5.8%
Key Corporate Bank 118 121 121 (2.5) (2.5)
Other Segments 72 55 49 30.9 46.9
--- --- --- ---- ----
Total segments 245 238 222 2.9 10.4
Reconciling Items 2 - (23) N/M N/M
--- --- --- --- ---
Total $247 $238 $199 3.8% 24.1%
TE = Taxable equivalent, N/M = Not Meaningful
Key Community Bank
dollars in millions Change 2Q14 vs.
2Q14 1Q14 2Q13 1Q14 2Q13
---- ---- ---- ---- ----
Summary of operations
Net interest income (TE) $362 $363 $383 (.3)% (5.5)%
Noninterest income 188 178 200 5.6 (6.0)
--- --- --- --- ----
Total revenue (TE) 550 541 583 1.7 (5.7)
Provision (credit) for loan and lease losses 23 9 41 155.6 (43.9)
Noninterest expense 440 433 459 1.6 (4.1)
--- --- --- --- ----
Income (loss) before income taxes (TE) 87 99 83 (12.1) 4.8
Allocated income taxes (benefit) and TE adjustments 32 37 31 (13.5) 3.2
--- --- --- ----- ---
Net income (loss) attributable to Key $55 $62 $52 (11.3)% 5.8%
Average balances
Loans and leases $30,025 $29,793 $29,161 .8% 3.0%
Total assets 32,145 31,943 31,571 .6 1.8
Deposits 50,146 49,824 49,473 .6 1.4
Assets under management at period end $27,319 $26,549 $23,213 2.9% 17.7%
TE = Taxable Equivalent
Additional Key Community Bank Data
dollars in millions Change 2Q14 vs.
2Q14 1Q14 2Q13 1Q14 2Q13
---- ---- ---- ---- ----
Noninterest income
Trust and investment services income $67 $67 $68 - (1.5)%
Service charges on deposit accounts 55 52 60 5.8% (8.3)
Cards and payments income 38 35 38 8.6 -
Other noninterest income 28 24 34 16.7 (17.6)
--- --- --- ---- -----
Total noninterest income $188 $178 $200 5.6% (6.0)%
Average deposit balances
NOW and money market deposit accounts $27,574 $27,428 $26,341 .5% 4.7%
Savings deposits 2,483 2,465 2,536 .7 (2.1)
Certificates of deposit ($100,000 or more) 2,169 2,163 2,443 .3 (11.2)
Other time deposits 3,580 3,673 4,195 (2.5) (14.7)
Deposits in foreign office 294 309 284 (4.9) 3.5
Noninterest-bearing deposits 14,046 13,786 13,674 1.9 2.7
------ ------ ------ --- ---
Total deposits $50,146 $49,824 $49,473 .6% 1.4%
Home equity loans
Average balance $10,321 $10,305 $9,992
Weighted-average loan-to-value ratio (at date of origination) 71% 71% 71%
Percent first lien positions 59 58 57
Other data
Branches 1,009 1,027 1,052
Automated teller machines 1,311 1,330 1,359
Key Community Bank Summary of Operations
-- Average loan balances up 3.0% from prior year
-- Average core deposits up 3.6% from prior year
-- Net income attributable to Key Community Bank up 5.8% from the prior
year
Key Community Bank recorded net income attributable to Key of $55 million for the second quarter of 2014, compared to net income attributable to Key of $52 million for the year-ago quarter.
Taxable-equivalent net interest income decreased by $21 million, or 5.5%, from the second quarter of 2013. Average loans and leases grew 3.0% driven by increases in commercial, financial and agricultural loans, while average deposits increased 1.4% from one year ago. However, these volume-related increases were offset by declines in the deposit spread as a result of the continued low-rate environment.
Noninterest income declined by $12 million, or 6%, from the year-ago quarter. Other noninterest income decreased $6 million from prior year primarily due to declines in consumer mortgage income, corporate services income, and trading income. Service charges on deposit accounts declined $5 million due to lower non-sufficient funds and overdraft charges.
The provision for loan and lease losses decreased by $18 million, or 43.9%, from the second quarter of 2013. Net loan charge-offs decreased $9 million from the same period one year ago.
Noninterest expense declined by $19 million, or 4.1%, from the year-ago quarter as a result of Key's continued focus on expense management. Personnel expense decreased $6 million primarily due to declines in salaries and employee benefits. Nonpersonnel expense decreased $13 million primarily due to decreases in outside loan servicing, and computer processing, equipment, and other miscellaneous costs related to branch closures.
Key Corporate Bank
dollars in millions Change 2Q14 vs.
2Q14 1Q14 2Q13 1Q14 2Q13
---- ---- ---- ---- ----
Summary of operations
Net interest income (TE) $207 $194 $196 6.7% 5.6%
Noninterest income 187 197 182 (5.1) 2.7
--- --- --- ---- ---
Total revenue (TE) 394 391 378 .8 4.2
Provision (credit) for loan and lease losses - (1) (7) N/M N/M
Noninterest expense 208 200 194 4.0 7.2
--- --- --- --- ---
Income (loss) before income taxes (TE) 186 192 191 (3.1) (2.6)
Allocated income taxes and TE adjustments 66 71 70 (7.0) (5.7)
--- --- --- ---- ----
Net income (loss) 120 121 121 (.8) (.8)
Less: Net income (loss) attributable to noncontrolling interests 2 - - N/M N/M
--- --- --- --- ---
Net income (loss) attributable to Key $118 $121 $121 (2.5)% (2.5)%
Average balances
Loans and leases $22,361 $21,445 $19,536 4.3% 14.5%
Loans held for sale 429 429 466 - (7.9)
Total assets 26,194 25,363 23,251 3.3 12.7
Deposits 16,127 15,800 15,606 2.1 3.3
Assets under management at period end $12,350 $12,344 $12,331 - .2%
TE = Taxable Equivalent, N/M = Not Meaningful
Additional Key Corporate Bank Data
dollars in millions Change 2Q14 vs.
2Q14 1Q14 2Q13 1Q14 2Q13
---- ---- ---- ---- ----
Noninterest income
Trust and investment services income $28 $31 $33 (9.7)% (15.2)%
Investment banking and debt placement fees 97 84 82 15.5 18.3
Operating lease income and other leasing gains 11 21 13 (47.6) (15.4)
Corporate services income 30 28 30 7.1 -
Service charges on deposit accounts 11 11 11 - -
Cards and payments income 4 3 4 33.3 -
--- --- --- ---- ---
Payments and services income 45 42 45 7.1 -
Mortgage servicing fees 11 15 13 (26.7) (15.4)
Other noninterest income (5) 4 (4) N/M N/M
--- --- --- --- ---
Total noninterest income $187 $197 $182 (5.1)% 2.7%
N/M = Not Meaningful
Key Corporate Bank Summary of Operations
-- Average loan balances up 14.5% from the prior year
-- Average deposits up 3.3% from the prior year
-- Investment banking and debt placement fees increased 18.3% from the
prior year
Key Corporate Bank recorded net income attributable to Key of $118 million for the second quarter of 2014, compared to $121 million for the same period one year ago.
Taxable-equivalent net interest income increased by $11 million, or 5.6%, compared to the second quarter of 2013. Average earning assets increased $3.1 billion, or 14.6%, 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 and a $2 million increase in loan fees. Average deposit balances increased $521 million, or 3.3%, from the year-ago quarter, driven by increases in Public Sector as well as increases related to the commercial mortgage servicing acquisition.
Noninterest income increased by $5 million, or 2.7%, from the second quarter of 2013. The increase in investment banking and debt placement fees of $15 million was partially offset by declines in trust and investment services income, mortgage servicing fees, and other miscellaneous fees from the year-ago quarter.
The provision for loan and lease losses increased $7 million compared to the second quarter of 2013. There were net recoveries of $2 million for the second quarter of 2014 compared to net recoveries of $4 million for the same period one year ago.
Noninterest expense increased by $14 million, or 7.2%, from the second quarter of 2013. Increased personnel costs and higher expenses related to low-income housing tax credit investments were the primary drivers.
Other Segments
Other Segments consist of Corporate Treasury, Community Development, Key's Principal Investing unit, and various exit portfolios. Other Segments generated net income attributable to Key of $72 million for the second quarter of 2014, compared to net income attributable to Key of $49 million for the same period last year. These results were primarily attributable to an increase in net gains (losses) from principal investing of $20 million and higher operating lease income and other leasing gains of $17 million due to the early termination of a leveraged lease.
Discontinued Operations
Discontinued Operations consists of Education Lending, Victory Capital Management and Victory Capital Advisors, and Austin Capital Management, Ltd. During the second quarter of 2014, Key recognized a net after-tax loss of $22 million related to the fair value of the loans and securities in Key's ten education loan securitization trusts. Certain assumptions related to the valuing of the loans in these securitization trusts were adjusted based on market information and Key's related internal analysis resulting in this net after-tax loss.
*****
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 $91.8 billion at June 30, 2014.
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.
INVESTOR RELATIONS: www.key.com/ir
KEY MEDIA NEWSROOM: www.key.com/newsroom
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about Key's financial condition, results of operations, and profitability. Forward-looking statements can be identified by words such as "outlook," "goal," "objective," "plan," "expect," "anticipate," "intend," "project," "believe," or "estimate." Forward-looking statements represent management's current expectations and forecasts regarding future events. If underlying assumptions prove to be inaccurate or unknown risks or uncertainties arise, actual results could vary materially from these projections or expectations. 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, 2013, which has been filed with the Securities and Exchange Commission and is available on Key's website (www.key.com/ir) and on the Securities and Exchange Commission'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, changes in local, regional and international business, economic or political conditions, and the extensive and increasing regulation of the U.S. financial services industry. Forward looking statements speak only as of the date they are made and Key does not undertake any obligation to update the forward-looking statements to reflect new information or future events.
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, July 17, 2014. An audio replay of the call will be available through July 24, 2014.
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
------------------
6-30-14 3-31-14 6-30-13
Summary of operations
Net interest income (TE) $579 $569 $586
Noninterest income 455 435 429
Total revenue (TE) 1,034 1,004 1,015
Provision (credit) for loan and lease losses 10 6 28
Noninterest expense 689 662 711
Income (loss) from continuing operations attributable to Key 247 238 199
Income (loss) from discontinued operations, net of taxes (a) (28) 4 5
Net income (loss) attributable to Key 219 242 204
Income (loss) from continuing operations attributable to Key common shareholders $242 $232 $193
Income (loss) from discontinued operations, net of taxes (a) (28) 4 5
Net income (loss) attributable to Key common shareholders 214 236 198
Per common share
Income (loss) from continuing operations attributable to Key common shareholders $.28 $.26 $.21
Income (loss) from discontinued operations, net of taxes (a) (.03) - .01
Net income (loss) attributable to Key common shareholders (b) .24 .27 .22
Income (loss) from continuing operations attributable to Key common shareholders -
assuming dilution .27 .26 .21
Income (loss) from discontinued operations, net of taxes - assuming dilution (a) (.03) - .01
Net income (loss) attributable to Key common shareholders - assuming dilution (b) .24 .26 .22
Cash dividends paid .065 .055 .055
Book value at period end 11.65 11.43 10.89
Tangible book value at period end 10.50 10.28 9.77
Market price at period end 14.33 14.24 11.04
Performance ratios
From continuing operations:
Return on average total assets 1.14% 1.13% .95%
Return on average common equity 9.55 9.33 7.72
Return on average tangible common equity (c) 10.60 10.38 8.60
Net interest margin (TE) 2.98 3.00 3.13
Cash efficiency ratio (c) 65.8 64.9 69.1
From consolidated operations:
Return on average total assets .96% 1.09% .92%
Return on average common equity 8.44 9.50 7.92
Return on average tangible common equity (c) 9.37 10.56 8.82
Net interest margin (TE) 2.94 2.95 3.07
Loan to deposit (d) 87.1 87.5 83.6
Capital ratios at period end
Key shareholders' equity to assets 11.44% 11.46% 11.29%
Key common shareholders' equity to assets 11.13 11.14 10.96
Tangible common equity to tangible assets (c) 10.15 10.14 9.96
Tier 1 common equity (c), (e) 11.33 11.27 11.18
Tier 1 risk-based capital (e) 12.07 12.01 11.93
Total risk-based capital (e) 14.24 14.23 14.65
Leverage (e) 11.25 11.30 11.25
Asset quality - from continuing operations
Net loan charge-offs $30 $20 $45
Net loan charge-offs to average loans .22% .15% .34%
Allowance for loan and lease losses $814 $834 $876
Allowance for credit losses 851 869 913
Allowance for loan and lease losses to period-end loans 1.46% 1.50% 1.65%
Allowance for credit losses to period-end loans 1.53 1.57 1.72
Allowance for loan and lease losses to nonperforming loans 205.6 185.7 134.4
Allowance for credit losses to nonperforming loans 214.9 193.5 140.0
Nonperforming loans at period end (f) $396 $449 $652
Nonperforming assets at period end 410 469 693
Nonperforming loans to period-end portfolio loans .71% .81% 1.23%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming
assets .74 .85 1.30
Trust and brokerage assets
Assets under management $39,669 $38,893 $35,544
Nonmanaged and brokerage assets 48,728 47,396 37,759
Other data
Average full-time equivalent employees 13,867 14,055 14,999
Branches 1,009 1,027 1,052
Taxable-equivalent adjustment $6 $6 $5
Financial Highlights (continued)
(dollars in millions, except per share amounts)
Six months ended
6-30-14 6-30-13
------- -------
Summary of operations
Net interest
income (TE) $1,148 $1,175
Noninterest
income 890 854
Total revenue (TE) 2,038 2,029
Provision
(credit) for
loan and
lease losses 16 83
Noninterest
expense 1,351 1,392
Income (loss)
from
continuing
operations
attributable
to Key 485 400
Income (loss)
from
discontinued
operations,
net of taxes
(a) (24) 8
Net income
(loss)
attributable
to Key 461 408
Income (loss)
from
continuing
operations
attributable
to Key common
shareholders $474 $389
Income (loss)
from
discontinued
operations,
net of taxes
(a) (24) 8
Net income
(loss)
attributable
to Key common
shareholders 450 397
Per common share
Income (loss)
from
continuing
operations
attributable
to Key common
shareholders $.54 $.42
Income (loss)
from
discontinued
operations,
net of taxes
(a) (.03) .01
Net income
(loss)
attributable
to Key common
shareholders
(b) .51 .43
Income (loss)
from
continuing
operations
attributable
to Key common
shareholders
-assuming
dilution .53 .42
Income (loss)
from
discontinued
operations,
net of taxes
-assuming
dilution (a) (.03) .01
Net income
(loss)
attributable
to Key common
shareholders
-assuming
dilution
(b) .51 .43
Cash dividends
paid .12 .105
Performance ratios
From
continuing
operations:
Return on
average total
assets 1.13% .97%
Return on
average
common equity 9.44 7.84
Return on
average
tangible
common equity
(c) 10.49 8.73
Net interest
margin (TE) 2.99 3.18
Cash
efficiency
ratio (c) 65.4 67.5
From
consolidated
operations:
Return on
average total
assets 1.03% .93%
Return on
average
common equity 8.96 8.00
Return on
average
tangible
common equity
(c) 9.96 8.91
Net interest
margin (TE) 2.95 3.12
Asset quality -from
continuing operations
Net loan
charge-offs $50 $94
Net loan
charge-offs
to average
total loans .18% .36%
Other data
Average full-
time
equivalent
employees 13,961 15,197
Taxable-equivalent adjustment $12 $11
(a) In April 2009, management decided
to wind down the operations of Austin
Capital Management, Ltd., a
subsidiary that specialized in
managing hedge fund investments for
institutional customers. In
September 2009, management decided to
discontinue the education lending
business conducted through Key
Education Resources, the education
payment and financing unit of KeyBank
National Association. 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," "Tier 1
common equity," and "cash
efficiency." The table reconciles
the GAAP performance measures to the
corresponding non-GAAP measures,
which provides a basis for period-
to-period comparisons.
(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) 6-30-14 ratio is estimated.
(f) Loan balances exclude $15
million, $16 million, and $19 million
of purchased credit impaired loans at
June 30, 2014, March 31, 2014, and
June 30, 2013, 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," "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. 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.
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
6-30-14 3-31-14 6-30-13
------- ------- -------
Tangible common equity to tangible assets at period end
Key shareholders' equity (GAAP) $10,504 $10,403 $10,229
Less: Intangible assets (a) 1,008 1,012 1,021
Preferred Stock, Series A (b) 282 282 282
--- --- ---
Tangible common equity (non-GAAP) $9,214 $9,109 $8,926
====== ====== ======
Total assets (GAAP) $91,798 $90,802 $90,639
Less: Intangible assets (a) 1,008 1,012 1,021
Tangible assets (non-GAAP) $90,790 $89,790 $89,618
======= ======= =======
Tangible common equity to tangible assets ratio (non-
GAAP) 10.15% 10.14% 9.96%
Tier 1 common equity at period end
Key shareholders' equity (GAAP) $10,504 $10,403 $10,229
Qualifying capital securities 339 339 339
Less: Goodwill 979 979 979
Accumulated other comprehensive income (loss) (c) (325) (367) (359)
Other assets (d) 81 84 101
--- --- ---
Total Tier 1 capital (regulatory) 10,108 10,046 9,847
Less: Qualifying capital securities 339 339 339
Preferred Stock, Series A (b) 282 282 282
--- --- ---
Total Tier 1 common equity (non-GAAP) $9,487 $9,425 $9,226
====== ====== ======
Net risk-weighted assets (regulatory) (e) $83,729 $83,637 $82,528
Tier 1 common equity ratio (non-GAAP) (e) 11.33% 11.27% 11.18%
Pre-provision net revenue
Net interest income (GAAP) $573 $563 $581
Plus: Taxable-equivalent adjustment 6 6 5
Noninterest income (GAAP) 455 435 429
Less: Noninterest expense (GAAP) 689 662 711
Pre-provision net revenue from continuing operations
(non-GAAP) $345 $342 $304
===
GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
Three months ended
------------------
6-30-14 3-31-14 6-30-13
------- ------- -------
Average tangible common equity
Average Key shareholders' equity (GAAP) $10,459 $10,371 $10,314
Less: Intangible assets (average) (f) 1,010 1,013 1,023
Preferred Stock, Series A (average) 291 291 291
--- --- ---
Average tangible common equity (non-GAAP) $9,158 $9,067 $9,000
====== ====== ======
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common
shareholders (GAAP) $242 $232 $193
Average tangible common equity (non-GAAP) 9,158 9,067 9,000
Return on average tangible common equity from continuing operations (non-GAAP) 10.60% 10.38% 8.60%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP) $214 $236 $198
Average tangible common equity (non-GAAP) 9,158 9,067 9,000
Return on average tangible common equity consolidated (non-GAAP) 9.37% 10.56% 8.82%
Cash efficiency ratio
Noninterest expense (GAAP) $689 $662 $711
Less: Intangible asset amortization (GAAP) 9 10 10
Adjusted noninterest expense (non-GAAP) $680 $652 $701
==== ==== ====
Net interest income (GAAP) $573 $563 $581
Plus: Taxable-equivalent adjustment 6 6 5
Noninterest income (GAAP) 455 435 429
--- --- ---
Total taxable-equivalent revenue (non-GAAP) $1,034 $1,004 $1,015
====== ====== ======
Cash efficiency ratio (non-GAAP) 65.8% 64.9% 69.1%
Three months ended
------------------
6-30-14 3-31-14
------- -------
Common Equity Tier 1 under the Regulatory Capital Rules (estimates)
Tier 1 common equity under current regulatory rules $9,487 $9,425
Adjustments from current regulatory rules to the Regulatory Capital Rules:
Deferred tax assets and other (g) (106) (114)
---- ----
Common Equity Tier 1 anticipated under the Regulatory Capital Rules (h) $9,381 $9,311
====== ======
Net risk-weighted assets under current regulatory rules $83,729 $83,637
Adjustments from current regulatory rules to the Regulatory Capital Rules:
Loan commitments less than one year 1,037 1,023
Past due loans 155 154
Mortgage servicing assets (i) 484 480
Deferred tax assets (i) 215 139
Other 1,457 1,466
----- -----
Total risk-weighted assets anticipated under the Regulatory Capital Rules $87,077 $86,899
======= =======
Common Equity Tier 1 ratio under the Regulatory Capital Rules (h) 10.77% 10.71%
GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
Six months ended
----------------
6-30-14 6-30-13
------- -------
Pre-provision net revenue
Net interest income (GAAP) $1,136 $1,164
Plus: Taxable-equivalent adjustment 12 11
Noninterest income (GAAP) 890 854
Less: Noninterest expense (GAAP) 1,351 1,392
Pre-provision net revenue from continuing operations (non-GAAP) $687 $637
Average tangible common equity
Average Key shareholders' equity (GAAP) $10,415 $10,297
Less: Intangible assets (average) (j) 1,011 1,025
Preferred Stock, Series A (average) 291 291
--- ---
Average tangible common equity (non-GAAP) $9,113 $8,981
====== ======
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common
shareholders (GAAP) $474 $389
Average tangible common equity (non-GAAP) 9,113 8,981
Return on average tangible common equity from continuing operations (non-GAAP) 10.49% 8.73%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP) $450 $397
Average tangible common equity (non-GAAP) 9,113 8,981
Return on average tangible common equity consolidated (non-GAAP) 9.96% 8.91%
Cash efficiency ratio
Noninterest expense (GAAP) $1,351 $1,392
Less: Intangible asset amortization (GAAP) 19 22
Adjusted noninterest expense (non-GAAP) $1,332 $1,370
====== ======
Net interest income (GAAP) $1,136 $1,164
Plus: Taxable-equivalent adjustment 12 11
Noninterest income (GAAP) 890 854
--- ---
Total taxable-equivalent revenue (non-GAAP) $2,038 $2,029
====== ======
Cash efficiency ratio (non-GAAP) 65.4% 67.5%
(a) For the three months ended June
30, 2014, March 31, 2014, and June
30, 2013, intangible assets exclude
$79 million, $84 million, and $107
million, respectively, of period-
end purchased credit card
receivables.
(b) Net of capital surplus for the
three months ended June 30, 2014,
March 31, 2014, and June 30, 2013.
(c) 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.
(d) 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 June 30, 2014, March
31, 2014, and June 30, 2013.
(e) 6-30-14 amount is estimated.
(f) For the three months ended June
30, 2014, March 31, 2014, and June
30, 2013, average intangible assets
exclude $82 million, $89 million,
and $110 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%.
(j) For the six months ended June
30, 2014, and June 30, 2013, average
intangible assets exclude $85
million and $114 million,
respectively, of average ending
purchased credit card receivables.
GAAP = U.S. generally accepted
accounting principles
Consolidated Balance Sheets
(dollars in millions)
6-30-14 3-31-14 6-30-13
------- ------- -------
Assets
Loans $55,600 $55,445 $53,101
Loans held for sale 435 401 402
Securities available for sale 12,224 12,359 13,253
Held-to-maturity securities 5,233 4,826 4,750
Trading account assets 890 840 592
Short-term investments 3,176 2,922 3,582
Other investments 899 899 1,037
Total earning assets 78,457 77,692 76,717
Allowance for loan and lease losses (814) (834) (876)
Cash and due from banks 604 409 696
Premises and equipment 844 862 900
Operating lease assets 306 294 303
Goodwill 979 979 979
Other intangible assets 108 117 149
Corporate-owned life insurance 3,438 3,425 3,362
Derivative assets 549 427 461
Accrued income and other assets 3,090 3,004 2,864
Discontinued assets 4,237 4,427 5,084
Total assets $91,798 $90,802 $90,639
======= ======= =======
Liabilities
Deposits in domestic offices:
NOW and money market deposit accounts $33,637 $34,373 $32,689
Savings deposits 2,450 2,513 2,542
Certificates of deposit ($100,000 or more) 2,743 2,849 2,918
Other time deposits 3,505 3,682 4,089
----- ----- -----
Total interest-bearing deposits 42,335 43,417 42,238
Noninterest-bearing deposits 24,781 23,244 24,939
Deposits in foreign office - interest-
bearing 683 605 544
Total deposits 67,799 67,266 67,721
Federal funds purchased and securities 1,213 1,417 1,647
sold under repurchase agreements
Bank notes and other short-term borrowings 521 464 298
Derivative liabilities 451 408 456
Accrued expense and other liabilities 1,400 1,297 1,421
Long-term debt 8,213 7,712 6,666
Discontinued liabilities 1,680 1,819 2,169
Total liabilities 81,277 80,383 80,378
Equity
Preferred stock, Series A 291 291 291
Common shares 1,017 1,017 1,017
Capital surplus 3,987 3,961 4,045
Retained earnings 7,950 7,793 7,214
Treasury stock, at cost (2,452) (2,335) (2,020)
Accumulated other comprehensive income
(loss) (289) (324) (318)
Key shareholders' equity 10,504 10,403 10,229
Noncontrolling interests 17 16 32
Total equity 10,521 10,419 10,261
------ ------ ------
Total liabilities and equity $91,798 $90,802 $90,639
======= ======= =======
Common shares outstanding (000) 876,823 884,869 912,883
Consolidated Statements of Income
(dollars in millions, except per share amounts)
Three months ended Six months ended
------------------ ----------------
6-30-14 3-31-14 6-30-13 6-30-14 6-30-13
------- ------- ------- ------- -------
Interest income
Loans $526 $519 $539 $1,045 $1,087
Loans held for sale 5 4 5 9 9
Securities available for sale 71 72 80 143 160
Held-to-maturity securities 23 22 20 45 38
Trading account assets 7 6 4 13 10
Short-term investments 1 1 1 2 3
Other investments 6 6 8 12 17
Total interest income 639 630 657 1,269 1,324
Interest expense
Deposits 31 32 42 63 87
Federal funds purchased and securities sold under repurchase
agreements - 1 - 1 1
Bank notes and other short-term borrowings 2 2 2 4 3
Long-term debt 33 32 32 65 69
Total interest expense 66 67 76 133 160
Net interest income 573 563 581 1,136 1,164
Provision (credit) for loan and lease losses 10 6 28 16 83
--- --- --- --- ---
Net interest income (expense) after provision for loan and lease losses 563 557 553 1,120 1,081
Noninterest income
Trust and investment services income 94 98 100 192 195
Investment banking and debt placement fees 99 84 84 183 163
Service charges on deposit accounts 66 63 71 129 140
Operating lease income and other leasing gains 35 29 22 64 47
Corporate services income 41 42 43 83 88
Cards and payments income 43 38 42 81 79
Corporate-owned life insurance income 28 26 31 54 61
Consumer mortgage income 2 2 6 4 13
Mortgage servicing fees 11 15 13 26 21
Net gains (losses) from principal investing 27 24 7 51 15
Other income (a) 9 14 10 23 32
Total noninterest income 455 435 429 890 854
Noninterest expense
Personnel 389 388 406 777 797
Net occupancy 68 64 72 132 136
Computer processing 41 38 39 79 78
Business services and professional fees 41 41 37 82 72
Equipment 24 24 27 48 53
Operating lease expense 10 10 11 20 23
Marketing 13 5 11 18 17
FDIC assessment 6 6 8 12 16
Intangible asset amortization 9 10 10 19 22
Provision (credit) for losses on lending-related commitments 2 (2) 5 - 8
OREO expense, net 1 1 1 2 4
Other expense 85 77 84 162 166
Total noninterest expense 689 662 711 1,351 1,392
--- --- --- ----- -----
Income (loss) from continuing operations before income taxes 329 330 271 659 543
Income taxes 76 92 72 168 142
Income (loss) from continuing operations 253 238 199 491 401
Income (loss) from discontinued operations, net of taxes (28) 4 5 (24) 8
Net income (loss) 225 242 204 467 409
Less: Net income (loss) attributable to noncontrolling interests 6 - - 6 1
Net income (loss) attributable to Key $219 $242 $204 $461 $408
==== ==== ==== ==== ====
Income (loss) from continuing operations attributable to Key common shareholders $242 $232 $193 $474 $389
Net income (loss) attributable to Key common shareholders 214 236 198 450 397
Per common share
----------------
Income (loss) from continuing operations attributable to Key common shareholders $.28 $.26 $.21 $.54 $.42
Income (loss) from discontinued operations, net of taxes (.03) - .01 (.03) .01
Net income (loss) attributable to Key common shareholders (b) .24 .27 .22 .51 .43
Per common share - assuming dilution
------------------------------------
Income (loss) from continuing operations attributable to Key common shareholders $.27 $.26 $.21 $.53 $.42
Income (loss) from discontinued operations, net of taxes (.03) - .01 (.03) .01
Net income (loss) attributable to Key common shareholders (b) .24 .26 .22 .51 .43
Cash dividends declared per common share $.065 $.055 $.055 $.12 $.105
Weighted-average common shares outstanding (000) 875,298 884,727 913,736 879,986 917,008
Weighted-average common shares and potential common shares outstanding (000) (c) 902,137 891,890 918,628 886,684 922,319
(a) For each of the three months ended June 30, 2014, March 31, 2014, and June 30, 2013, net securities gains (losses) totaled less than $1 million. For the three months ended June 30, 2014, March 31, 2014, and June 30, 2013, Key did not have any impairment losses related to securities.
(b) Earnings per share may not foot due to rounding.
(c) Assumes conversion of stock options and/or Preferred Series A shares, as applicable.
Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
(dollars in millions)
Second Quarter 2014 First Quarter 2014 Second Quarter 2013
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) $26,444 $219 3.31% $25,390 $206 3.29% $23,480 $212 3.63%
Real estate - commercial mortgage 7,880 74 3.79 7,807 74 3.84 7,494 78 4.14
Real estate - construction 1,049 11 4.03 1,091 12 4.55 1,049 11 4.30
Commercial lease financing 4,257 38 3.54 4,439 42 3.78 4,747 48 3.96
Total commercial loans 39,630 342 3.45 38,727 334 3.49 36,770 349 3.80
Real estate - residential mortgage 2,189 24 4.41 2,187 24 4.44 2,176 24 4.53
Home equity:
Key Community Bank 10,321 100 3.92 10,305 100 3.92 9,992 98 3.93
Other 306 6 7.80 325 6 7.77 389 7 7.66
--- --- ---- --- --- ---- --- --- ----
Total home equity loans 10,627 106 4.03 10,630 106 4.04 10,381 105 4.07
Consumer other - Key Community Bank 1,479 26 6.97 1,438 25 7.06 1,392 26 7.35
Credit cards 702 18 10.39 701 20 11.28 697 20 11.91
Consumer other:
Marine 926 15 6.18 996 15 6.18 1,206 20 6.24
Other 58 1 8.09 67 1 7.55 74 1 8.58
--- --- ---- --- --- ---- --- --- ----
Total consumer other 984 16 6.29 1,063 16 6.26 1,280 21 6.37
--- --- ---- ----- --- ---- ----- --- ----
Total consumer loans 15,981 190 4.77 16,019 191 4.83 15,926 196 4.94
------ --- ---- ------ --- ---- ------ --- ----
Total loans 55,611 532 3.83 54,746 525 3.88 52,696 545 4.15
Loans held for sale 458 5 4.14 446 4 3.34 513 5 3.93
Securities available for sale (b), (e) 12,408 71 2.30 12,346 72 2.33 13,296 79 2.47
Held-to-maturity securities (b) 4,973 23 1.87 4,767 22 1.84 4,144 20 1.87
Trading account assets 985 7 2.80 981 6 2.51 749 4 2.31
Short-term investments 2,475 1 .17 2,486 1 .17 2,722 1 .23
Other investments (e) 888 6 2.64 936 6 2.57 1,048 8 2.61
Total earning assets 77,798 645 3.31 76,708 636 3.32 75,168 662 3.54
Allowance for loan and lease losses (824) (842) (890)
Accrued income and other assets 9,767 9,791 9,770
Discontinued assets 4,341 4,493 5,096
Total assets $91,082 $90,150 $89,144
======= ======= =======
Liabilities
NOW and money market deposit accounts $34,283 11 .14 $34,064 12 .14 $32,849 14 .17
Savings deposits 2,493 - .03 2,475 - .03 2,545 - .04
Certificates of deposit ($100,000 or
more) (f) 2,808 10 1.39 2,758 10 1.50 2,975 13 1.79
Other time deposits 3,587 9 .98 3,679 10 1.07 4,202 14 1.35
Deposits in foreign office 662 1 .23 660 - .22 573 1 .24
Total interest-bearing deposits 43,833 31 .28 43,636 32 .30 43,144 42 .39
Federal funds purchased and securities 1,470 - .19 1,469 1 .17 1,845 - .14
sold under repurchase agreements
Bank notes and other short-term
borrowings 545 2 1.54 587 2 1.63 367 2 1.84
Long-term debt (f), (g) 5,476 33 2.51 5,169 32 2.57 4,401 32 3.25
Total interest-bearing liabilities 51,324 66 .52 50,861 67 .54 49,757 76 .62
------ --- --- ------ --- --- ------ --- ---
Noninterest-bearing deposits 23,290 22,658 22,297
Accrued expense and other liabilities 1,654 1,750 1,653
Discontinued liabilities (g) 4,341 4,493 5,089
Total liabilities 80,609 79,762 78,796
Equity
Key shareholders' equity 10,459 10,371 10,314
Noncontrolling interests 14 17 34
Total equity 10,473 10,388 10,348
Total liabilities and equity $91,082 $90,150 $89,144
======= ======= =======
Interest rate spread (TE) 2.79% 2.78% 2.92%
==== ==== ====
Net interest income (TE) and net interest margin (TE) 579 2.98% 569 3.00% 586 3.13%
==== ==== ====
TE adjustment (b) 6 6 5
--- --- ---
Net interest income, GAAP basis $573 $563 $581
(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 for
the three months ended June 30,
2014, March 31, 2014, and June
30, 2013, include $95 million,
$94 million, and $96 million of
assets from commercial credit
cards, 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
Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
(dollars in millions)
Six months ended June 30, 2014 Six months ended June 30, 2013
------------------------------ ------------------------------
Average Average
Balance Interest (a) Yield/Rate (a) Balance Interest (a) Yield/ Rate (a)
------- -------- ---------- ------- -------- -----------
Assets
Loans: (b), (c)
Commercial, financial and agricultural
(d) $25,920 $425 3.30% $23,399 $430 3.71%
Real estate - commercial mortgage 7,844 148 3.82 7,554 157 4.19
Real estate - construction 1,069 23 4.29 1,042 22 4.28
Commercial lease financing 4,348 80 3.67 4,795 95 3.94
Total commercial loans 39,181 676 3.47 36,790 704 3.86
Real estate - residential mortgage 2,188 48 4.42 2,174 49 4.55
Home equity:
Key Community Bank 10,313 200 3.92 9,890 194 3.95
Other 315 12 7.79 401 15 7.68
--- --- ---- --- --- ----
Total home equity loans 10,628 212 4.03 10,291 209 4.10
Consumer other - Key Community Bank 1,459 51 7.01 1,368 51 7.46
Credit cards 702 38 10.83 700 42 12.26
Consumer other:
Marine 961 30 6.18 1,258 40 6.27
Other 62 2 7.80 80 3 8.26
--- --- ---- --- --- ----
Total consumer other 1,023 32 6.28 1,338 43 6.38
----- --- ---- ----- --- ----
Total consumer loans 16,000 381 4.80 15,871 394 4.97
Total loans 55,181 1,057 3.86 52,661 1,098 4.21
Loans held for sale 452 9 3.75 491 9 3.61
Securities available for sale (b), (e) 12,378 143 2.31 12,684 160 2.59
Held-to-maturity securities (b) 4,870 45 1.86 3,981 38 1.90
Trading account assets 983 13 2.66 729 10 2.86
Short-term investments 2,480 2 .17 2,860 3 .22
Other investments (e) 912 12 2.61 1,054 17 3.10
Total earning assets 77,256 1,281 3.32 74,460 1,335 3.60
Allowance for loan and lease losses (833) (893)
Accrued income and other assets 9,779 9,818
Discontinued assets 4,417 5,156
Total assets $90,619 $88,541
==========
Liabilities
NOW and money market deposit accounts $34,174 23 .14 $32,400 28 .17
Savings deposits 2,484 - .03 2,509 1 .05
Certificates of deposit ($100,000 or
more) (f) 2,783 20 1.45 2,943 27 1.89
Other time deposits 3,633 19 1.02 4,326 30 1.39
Deposits in foreign office 661 1 .22 514 1 .25
Total interest-bearing deposits 43,735 63 .29 42,692 87 .41
Federal funds purchased and securities 1,470 1 .18 1,879 1 .15
sold under repurchase agreements
Bank notes and other short-term
borrowings 565 4 1.59 377 3 1.80
Long-term debt (f), (g) 5,323 65 2.54 4,535 69 3.38
Total interest-bearing liabilities 51,093 133 .53 49,483 160 .66
------ --- --- ------ --- ---
Noninterest-bearing deposits 22,976 21,851
Accrued expense and other liabilities 1,702 1,725
Discontinued liabilities (g) 4,417 5,151
Total liabilities 80,188 78,210
Equity
Key shareholders' equity 10,415 10,297
Noncontrolling interests 16 34
Total equity 10,431 10,331
Total liabilities and equity $90,619 $88,541
==========
Interest rate spread (TE) 2.79% 2.94%
==== ====
Net interest income (TE) and net interest margin (TE) 1,148 2.99% 1,175 3.18%
==== ====
TE adjustment (b) 12 11
--- ---
Net interest income, GAAP basis $1,136 $1,164
(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 for
the six months ended June 30,
2014, and June 30, 2013, include
$95 million and $94 million of
assets from commercial credit
cards, 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 Six months ended
6-30-14 3-31-14 6-30-13 6-30-14 6-30-13
Personnel (a) $389 $388 $406 $777 $797
Net occupancy 68 64 72 132 136
Computer processing 41 38 39 79 78
Business services and professional fees 41 41 37 82 72
Equipment 24 24 27 48 53
Operating lease expense 10 10 11 20 23
Marketing 13 5 11 18 17
FDIC assessment 6 6 8 12 16
Intangible asset amortization 9 10 10 19 22
Provision (credit) for losses on lending-related commitments 2 (2) 5 - 8
OREO expense, net 1 1 1 2 4
Other expense 85 77 84 162 166
--- --- --- --- ---
Total noninterest expense $689 $662 $711 $1,351 $1,392
==== ==== ==== ====== ======
Average full-time equivalent employees (b) 13,867 14,055 14,999 13,961 15,197
(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 Six months ended
6-30-14 3-31-14 6-30-13 6-30-14 6-30-13
Salaries $224 $220 $227 $444 $449
Technology contract labor, net 14 17 19 31 37
Incentive compensation 81 72 77 153 150
Employee benefits 50 63 56 113 115
Stock-based compensation 10 11 9 21 19
Severance 10 5 18 15 27
--- --- --- --- ---
Total personnel expense $389 $388 $406 $777 $797
==== ==== ==== ==== ====
Loan Composition
(dollars in millions)
Percent change 6-30-14 vs.
6-30-14 3-31-14 6-30-13 3-31-14 6-30-13
------- ------- ------- ------- -------
Commercial, financial and agricultural (a) $26,327 $26,224 $23,715 .4% 11.0%
Commercial real estate:
Commercial mortgage 7,946 7,877 7,474 .9 6.3
Construction 1,047 1,007 1,060 4.0 (1.2)
Total commercial real estate loans 8,993 8,884 8,534 1.2 5.4
Commercial lease financing (b) 4,241 4,396 4,774 (3.5) (11.2)
----- ----- ----- ---- -----
Total commercial loans 39,561 39,504 37,023 .1 6.9
Residential - prime loans:
Real estate - residential mortgage 2,189 2,183 2,176 .3 .6
Home equity:
Key Community Bank 10,379 10,281 10,173 1.0 2.0
Other 300 315 375 (4.8) (20.0)
--- --- --- ---- -----
Total home equity loans 10,679 10,596 10,548 .8 1.2
Total residential - prime loans 12,868 12,779 12,724 .7 1.1
Consumer other - Key Community Bank 1,514 1,436 1,424 5.4 6.3
Credit cards 718 698 701 2.9 2.4
Consumer other:
Marine 888 965 1,160 (8.0) (23.4)
Other 51 63 69 (19.0) (26.1)
Total consumer other 939 1,028 1,229 (8.7) (23.6)
Total consumer loans 16,039 15,941 16,078 .6 (.2)
Total loans (c), (d) $55,600 $55,445 $53,101 .3% 4.7%
==========
Loans Held for Sale Composition
(dollars in millions)
Percent change 6-30-14 vs.
6-30-14 3-31-14 6-30-13 3-31-14 6-30-13
------- ------- ------- ------- -------
Commercial, financial and agricultural $181 $44 $22 311.4% 722.7%
Real estate - commercial mortgage 221 333 318 (33.6) (30.5)
Commercial lease financing 10 8 14 25.0 (28.6)
Real estate - residential mortgage 23 16 48 43.8 (52.1)
--- --- --- ---- -----
Total loans held for sale $435 $401 $402 8.5% 8.2%
==========
Summary of Changes in Loans Held for Sale
(in millions)
2Q14 1Q14 4Q13 3Q13 2Q13
---- ---- ---- ---- ----
Balance at beginning of period $401 $611 $699 $402 $434
New originations 978 645 1,669 1,467 1,241
Transfers from (to) held to
maturity, net (8) 3 1 15 17
Loan sales (934) (596) (1,750) (1,181) (1,292)
Loan draws (payments), net (2) (262) (8) (4) -
Transfers to OREO /valuation
adjustments - - - - 2
Balance at end of period $435 $401 $611 $699 $402
==== ==== ==== ==== ====
(a) Loan balances include $94
million, $95 million, and $96
million of commercial credit
card balances at June 30, 2014,
March 31, 2014, and June 30,
2013, respectively.
(b) Commercial lease financing
includes receivables of $375
million and $124 million held
as collateral for a secured
borrowing at June 30, 2014, and
March 31, 2014, respectively.
Principal reductions are based
on the cash payments received
from these related receivables.
(c) At June 30, 2014, total
loans include purchased loans
of $151 million, of which $15
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. At June 30,
2013, total loans include
purchased loans of $187
million, of which $19 million
were purchased credit impaired.
(d) Total loans exclude loans
of $4.2 billion at June 30,
2014, $4.4 billion at March 31,
2014, and $5.0 billion at June
30, 2013, 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 6-30-14 vs. Charge-offs Nonperforming Status
----------- ----------- --------------------
6-30-14 3-31-14 3-31-14 2Q14 (c) 1Q14 (c) 6-30-14 3-31-14
------- ------- ------- ---- --- ---- --- ------- -------
Residential properties - homebuilder $19 $20 $(1) - $(1) $7 $7
Marine and RV floor plan 23 23 - - - 6 6
Commercial lease financing (a) 1,154 1,381 (227) $(5) (2) 3 3
----- ----- ---- --- --- --- ---
Total commercial loans 1,196 1,424 (228) (5) (3) 16 16
Home equity - Other 300 315 (15) 1 2 11 11
Marine 888 965 (77) 5 4 15 15
RV and other consumer 61 66 (5) (1) 1 1 1
--- --- --- --- --- --- ---
Total consumer loans 1,249 1,346 (97) $5 7 27 27
----- ----- --- --- --- --- ---
Total exit loans in loan portfolio $2,445 $2,770 $(325) - $4 $43 $43
====== ====== ===== === === === ===
Discontinued operations - education $4,162 $4,354 $(192) $7 $9 $19 $20
lending business (not included in exit loans above) (b)
(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) Includes loans in Key's consolidated education loan securitization trusts.
(c) Credit amounts indicate recoveries exceeded charge-offs.
Asset Quality Statistics From Continuing Operations
(dollars in millions)
2Q14 1Q14 4Q13 3Q13 2Q13
---- ---- ---- ---- ----
Net loan charge-offs $30 $20 $37 $37 $45
Net loan charge-offs to average total loans .22% .15% .27% .28% .34%
Allowance for loan and lease losses $814 $834 $848 $868 $876
Allowance for credit losses (a) 851 869 885 908 913
Allowance for loan and lease losses to period-end loans 1.46% 1.50% 1.56% 1.62% 1.65%
Allowance for credit losses to period-end loans 1.53 1.57 1.63 1.69 1.72
Allowance for loan and lease losses to nonperforming loans 205.6 185.7 166.9 160.4 134.4
Allowance for credit losses to nonperforming loans 214.9 193.5 174.2 167.8 140.0
Nonperforming loans at period end (b) $396 $449 $508 $541 $652
Nonperforming assets at period end 410 469 531 579 693
Nonperforming loans to period-end portfolio loans .71% .81% .93% 1.01% 1.23%
Nonperforming assets to period-end portfolio loans plus .74 .85 .97 1.08 1.30
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 $15 million, $16 million, $16 million, $18 million, and $19 million of purchased credit impaired loans at June 30, 2014, March 31, 2014, December 31, 2013, September 30, 2013, and June 30, 2013, respectively.
Summary of Loan and Lease Loss Experience From Continuing Operations
(dollars in millions)
Three months ended Six months ended
----------------
6-30-14 3-31-14 6-30-13 6-30-14 6-30-13
------- ------- ------- ------- -------
Average loans outstanding $55,611 $54,746 $52,696 $55,181 $52,661
======= ======= ======= ======= =======
Allowance for loan and lease losses at beginning of period $834 $848 $893 $848 $888
Loans charged off:
Commercial, financial and agricultural 11 12 15 23 29
Real estate - commercial mortgage 1 2 3 3 16
Real estate - construction - 2 1 2 2
--- --- --- --- ---
Total commercial real estate loans 1 4 4 5 18
Commercial lease financing 2 3 2 5 8
--- --- --- --- ---
Total commercial loans 14 19 21 33 55
Real estate - residential mortgage 2 3 4 5 10
Home equity:
Key Community Bank 10 10 18 20 36
Other 3 3 6 6 12
--- --- --- --- ---
Total home equity loans 13 13 24 26 48
Consumer other - Key Community Bank 8 8 7 16 16
Credit cards 12 6 8 18 16
Consumer other:
Marine 7 7 9 14 17
Other - 1 1 1 2
--- --- --- --- ---
Total consumer other 7 8 10 15 19
--- --- --- --- ---
Total consumer loans 42 38 53 80 109
--- --- --- --- ---
Total loans charged off 56 57 74 113 164
Recoveries:
Commercial, financial and agricultural 11 10 7 21 19
Real estate - commercial mortgage 1 1 5 2 10
Real estate - construction 1 14 - 15 8
--- --- --- --- ---
Total commercial real estate loans 2 15 5 17 18
Commercial lease financing 4 2 4 6 8
--- --- --- --- ---
Total commercial loans 17 27 16 44 45
Real estate - residential mortgage 1 1 - 2 -
Home equity:
Key Community Bank 1 3 4 4 6
Other 2 1 1 3 3
--- --- --- --- ---
Total home equity loans 3 4 5 7 9
Consumer other - Key Community Bank 1 2 2 3 4
Credit cards 1 - 2 1 2
Consumer other:
Marine 2 3 4 5 9
Other 1 - - 1 1
--- --- --- --- ---
Total consumer other 3 3 4 6 10
--- --- --- --- ---
Total consumer loans 9 10 13 19 25
--- --- --- --- ---
Total recoveries 26 37 29 63 70
--- --- --- --- ---
Net loan charge-offs (30) (20) (45) (50) (94)
Provision (credit) for loan and lease losses 10 6 28 16 83
Foreign currency translation adjustment - - - - (1)
--- --- --- --- ---
Allowance for loan and lease losses at end of period $814 $834 $876 $814 $876
==== ==== ==== ==== ====
Liability for credit losses on lending-related commitments at beginning of period $35 $37 $32 $37 $29
Provision (credit) for losses on lending-related commitments 2 (2) 5 - 8
--- --- --- --- ---
Liability for credit losses on lending-related commitments at end of period (a) $37 $35 $37 $37 $37
=== === === === ===
Total allowance for credit losses at end of period $851 $869 $913 $851 $913
==== ==== ==== ==== ====
Net loan charge-offs to average total loans .22% .15% .34% .18% .36%
Allowance for loan and lease losses to period-end loans 1.46 1.50 1.65 1.46 1.65
Allowance for credit losses to period-end loans 1.53 1.57 1.72 1.53 1.72
Allowance for loan and lease losses to nonperforming loans 205.6 185.7 134.4 205.6 134.4
Allowance for credit losses to nonperforming loans 214.9 193.5 140.0 214.9 140.0
Discontinued operations - education lending business:
Loans charged off $11 $13 $12 $24 $28
Recoveries 4 4 5 8 9
--- --- --- --- ---
Net loan charge-offs $(7) $(9) $(7) $(16) $(19)
=== === === ==== ====
(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)
6-30-14 3-31-14 12-31-13 9-30-13 6-30-13
Commercial, financial and agricultural $37 $60 $77 $102 $146
Real estate - commercial mortgage 38 37 37 58 106
Real estate - construction 9 11 14 17 26
--- --- --- --- ---
Total commercial real estate loans 47 48 51 75 132
Commercial lease financing 15 18 19 22 14
--- --- --- --- ---
Total commercial loans 99 126 147 199 292
Real estate - residential mortgage 89 105 107 98 94
Home equity:
Key Community Bank 178 188 205 198 205
Other 11 11 15 13 16
--- --- --- --- ---
Total home equity loans 189 199 220 211 221
Consumer other - Key Community Bank 2 2 3 2 3
Credit cards 1 1 4 4 11
Consumer other:
Marine 15 15 26 25 30
Other 1 1 1 2 1
--- --- --- --- ---
Total consumer other 16 16 27 27 31
--- --- --- --- ---
Total consumer loans 297 323 361 342 360
--- --- --- --- ---
Total nonperforming loans (a) 396 449 508 541 652
Nonperforming loans held for sale 1 1 1 13 14
OREO 12 12 15 15 18
Other nonperforming assets 1 7 7 10 9
--- --- --- --- ---
Total nonperforming assets $410 $469 $531 $579 $693
==== ==== ==== ==== ====
Accruing loans past due 90 days or more $83 $89 $71 $90 $80
Accruing loans past due 30 through 89 days 274 267 318 288 251
Restructured loans - accruing and nonaccruing (b) 266 294 338 349 311
Restructured loans included in nonperforming loans (b) 142 178 214 228 195
Nonperforming assets from discontinued operations - 19 20 25 23 19
education lending business
Nonperforming loans to period-end portfolio loans .71% .81% .93% 1.01% 1.23%
Nonperforming assets to period-end portfolio loans .74 .85 .97 1.08 1.30
plus OREO and other nonperforming assets
(a) Loan balances exclude $15 million, $16 million, $16 million, $18 million, and $19 million of purchased credit impaired loans at June 30, 2014, March 31, 2014, December 31, 2013, September 30, 2013, and June 30, 2013, 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)
2Q14 1Q14 4Q13 3Q13 2Q13
---- ---- ---- ---- ----
Balance at beginning of period $449 $508 $541 $652 $650
Loans placed on nonaccrual status 79 98 129 161 160
Charge-offs (56) (57) (66) (78) (74)
Loans sold (21) (3) (19) (61) (5)
Payments (17) (21) (46) (43) (36)
Transfers to OREO (4) (3) (5) (2) (7)
Loans returned to accrual status (34) (73) (26) (88) (36)
--- --- --- --- ---
Balance at end of period (a) $396 $449 $508 $541 $652
==== ==== ==== ==== ====
(a) Loan balances exclude $15 million, $16 million, $16 million, $18 million, and $19 million of purchased credit impaired loans at June 30, 2014, March 31, 2014, December 31, 2013, September 30, 2013, and June 30, 2013, respectively.
Summary of Changes in Nonperforming Loans Held For Sale From Continuing Operations
(in millions)
2Q14 1Q14 4Q13 3Q13 2Q13
---- ---- ---- ---- ----
Balance at beginning of period $1 $1 $13 $14 $23
Net advances / (payments) - - (1) (1) (1)
Loans sold - - (11) - (8)
Balance at end of period $1 $1 $1 $13 $14
=== === === === ===
Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations
(in millions)
2Q14 1Q14 4Q13 3Q13 2Q13
---- ---- ---- ---- ----
Balance at beginning of period $12 $15 $15 $18 $21
Properties acquired - nonperforming loans 4 3 5 2 7
Valuation adjustments (1) (1) - (1) (2)
Properties sold (3) (5) (5) (4) (8)
--- --- --- --- ---
Balance at end of period $12 $12 $15 $15 $18
=== === === === ===
Line of Business Results
(dollars in millions)
Percent change 2Q14 vs.
2Q14 1Q14 4Q13 3Q13 2Q13 1Q14 2Q13
---- ---- ---- ---- ---- ---- ----
Key Community Bank
Summary of operations
Total revenue (TE) $550 $541 $561 $579 $583 1.7% (5.7)%
Provision (credit) for loan and lease losses 23 9 32 24 41 155.6 (43.9)
Noninterest expense 440 433 461 447 459 1.6 (4.1)
Net income (loss) attributable to Key 55 62 43 68 52 (11.3) 5.8
Average loans and leases 30,025 29,793 29,596 29,495 29,161 .8 3.0
Average deposits 50,146 49,824 50,409 49,652 49,473 .6 1.4
Net loan charge-offs 33 28 31 27 42 17.9 (21.4)
Net loan charge-offs to average total loans .44% .38% .42% .36% .58% N/A N/A
Nonperforming assets at period end $331 $357 $396 $383 $476 (7.3) (30.5)
Return on average allocated equity 8.19% 9.05% 5.97% 9.24% 7.10% N/A N/A
Average full-time equivalent employees 7,529 7,656 7,805 7,990 8,316 (1.7) (9.5)
Key Corporate Bank
Summary of operations
Total revenue (TE) $394 $391 $411 $384 $378 .8% 4.2%
Provision (credit) for loan and lease losses - (1) (10) 12 (7) N/M N/M
Noninterest expense 208 200 216 210 194 4.0 7.2
Net income (loss) attributable to Key 118 121 133 105 121 (2.5) (2.5)
Average loans and leases 22,361 21,445 20,336 19,949 19,536 4.3 14.5
Average loans held for sale 429 429 668 422 466 - (7.9)
Average deposits 16,127 15,800 17,370 16,123 15,606 2.1 3.3
Net loan charge-offs (2) (14) 2 6 (4) N/M N/M
Net loan charge-offs to average total loans (.04)% (.26)% .04% .12% (.08)% N/A N/A
Nonperforming assets at period end $22 $53 $55 $111 $125 (58.5) (82.4)
Return on average allocated equity 32.62% 33.25% 33.61% 26.17% 30.58% N/A N/A
Average full-time equivalent employees 1,943 1,926 1,901 1,951 1,886 .9 3.0
TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful
SOURCE KeyCorp
