KEYCORP CLEVELAND, April 20, 2017 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced first quarter net income from continuing operations attributable to Key common shareholders of $296 million, or $.27 per common share, compared to $213 million or $.20 per common share, for the fourth quarter of 2016, and $182 million, or $.22 per common share, for the first quarter of 2016. During the first quarter of 2017, Key incurred merger-related charges totaling $81 million, or $.05 per common share, compared to $198 million, or $.11 per common share, in the fourth quarter of 2016, and $24 million, or $.02 per common share, in the first quarter of 2016. Excluding merger-related charges, earnings per common share were $.32 for the first quarter of 2017, $.31 for the fourth quarter of 2016, and $.24 for the first quarter of 2016.
"Key's strong first quarter results reflect continued business momentum and our success in realizing value from our First Niagara acquisition," said Chairman and Chief Executive Officer Beth Mooney. "We generated positive operating leverage compared to both the prior year and previous quarter. Revenue relative to the year-ago period benefited from higher net interest income, positive momentum in our fee-based businesses and the addition of over one million newly acquired consumer and business clients. We have been successfully growing and expanding client relationships in both our Community Bank and Corporate Bank, and we remain on a path to deliver revenue synergies from our acquisition."
"Expenses reflect our continued focus on managing costs throughout the Key franchise, as well as realizing the targeted savings from First Niagara," Mooney continued. "We remain on track to achieve our initial $400 million cost savings target by the end of the second quarter and expect to reach $450 million by early 2018. In the first quarter, our cash efficiency ratio, excluding merger-related charges, improved to 60.4%."
"Our capital position remains strong, and this quarter, we generated a return on average tangible common equity of 12.9%, excluding merger-related charges," Mooney added.
Selected Financial Highlights
dollars in millions, except per share data Change 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Income (loss) from continuing operations attributable to Key common shareholders $296 $213 $182 39.0% 62.6%
Income (loss) from continuing operations attributable to Key common shareholders per common
share -assuming dilution .27 .20 .22 35.0 22.7
Return on average total assets from continuing operations .99% .69% .80% N/A N/A
Common Equity Tier 1 ratio (non-GAAP) (a), (b) 9.87 9.54 11.07 N/A N/A
Book value at period end $12.71 $12.58 $12.79 1.0%% (.6)%
Net interest margin (TE) from continuing operations 3.13% 3.12% 2.89% 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." 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.
(b) 3/31/2017 ratio
is estimated.
TE = Taxable Equivalent, N/A = Not Applicable
INCOME STATEMENT HIGHLIGHTS
Revenue
dollars in millions Change 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Net interest income (TE) $929 $948 $612 (2.0)% 51.8%
Noninterest income 577 618 431 (6.6)% 33.9%
--- --- --- ----- ----
Total revenue $1,506 $1,566 $1,043 (3.8)% 44.4%
====== ====== ======
TE = Taxable Equivalent
First quarter 2017 net interest income included $53 million of purchase accounting accretion related to the acquisition of First Niagara. This compares to $92 million of purchase accounting accretion in the fourth quarter of 2016, which included $34 million related to the refinement of third quarter 2016 purchase accounting estimates.
Taxable-equivalent net interest income was $929 million for the first quarter of 2017, and the net interest margin was 3.13%, compared to taxable-equivalent net interest income of $612 million and a net interest margin of 2.89% for the first quarter of 2016, reflecting the benefit from the First Niagara acquisition, including purchase accounting accretion, as well as higher earning asset yields and balances.
Compared to the fourth quarter of 2016, taxable-equivalent net interest income decreased by $19 million, and the net interest margin increased by one basis point. The decline in net interest income reflects a decline in purchase accounting accretion and two fewer days in the quarter, partly offset by higher earning asset yields. The net interest margin benefited from higher earning asset yields and lower levels of liquidity, offset by a decline in purchase accounting accretion.
Excluding purchase accounting accretion, taxable-equivalent net interest income increased $20 million from the fourth quarter of 2016 and $264 million from the first quarter of 2016.
Noninterest Income
dollars in millions Change 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Trust and investment services income $135 $123 $109 9.8% 23.9%
Investment banking and debt placement fees 127 157 71 (19.1) 78.9
Service charges on deposit accounts 87 84 65 3.6 33.8
Operating lease income and other leasing gains 23 21 17 9.5 35.3
Corporate services income 54 61 50 (11.5) 8.0
Cards and payments income 65 69 46 (5.8) 41.3
Corporate-owned life insurance income 30 40 28 (25.0) 7.1
Consumer mortgage income 6 6 2 - 200.0
Mortgage servicing fees 18 20 12 (10.0) 50.0
Net gains (losses) from principal investing 1 4 - (75.0) N/M
Other income 31 33 31 (6.1) -
--- --- ---
Total noninterest income $577 $618 $431 (6.6)% 33.9%
==== ==== ====
Merger-related charges - 9 - N/M N/M
Total noninterest income excluding merger-related charges $577 $609 $431 (5.3)% 33.9%
==== ==== ====
N/M = Not Meaningful
Key's noninterest income was $577 million for the first quarter of 2017, compared to $431 million for the year-ago quarter. The most notable increase was in investment banking and debt placement fees, which increased $56 million, related to improved capital markets conditions and activity from the year-ago period. Trust and investment services income, cards and payments income, and service charges on deposit accounts also contributed to the growth, largely related to the First Niagara acquisition.
Compared to the fourth quarter of 2016, noninterest income decreased by $41 million. The decrease was primarily attributable to lower investment banking and debt placement fees, as well as a decline in corporate-owned life insurance income, which is seasonally lower in the first quarter. Corporate services income also decreased $7 million related to lower loan and derivative trading income. An increase of $12 million in trust and investment services income related to higher insurance revenue and fixed income trading volume slightly offset these declines.
Noninterest Expense
dollars in millions Change 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Personnel expense $556 $648 $404 (14.2)% 37.6%
Nonpersonnel expense 457 572 299 (20.1) 52.8
--- --- --- ----- ----
Total noninterest expense $1,013 $1,220 $703 (17.0) 44.1
====== ====== ====
Merger-related charges 81 207 24 (60.9) 237.5
Total noninterest expense excluding merger-related charges $932 $1,013 $679 (8.0)% 37.3%
==== ====== ====
N/M = Not Meaningful
Key's noninterest expense was $1.0 billion for the first quarter of 2017, which included $81 million of merger-related charges. The merger-related charges were primarily made up of $51 million of nonpersonnel expense, largely recognized in marketing, net occupancy, business services and professional fees, and other expense reflecting a $20 million philanthropic contribution related to First Niagara. The remaining $30 million was personnel expense, related to ongoing integration activities. In the fourth quarter of 2016, noninterest expense included $207 million of merger-related charges, while $24 million of merger-related charges were incurred in the first quarter of 2016.
Excluding merger-related charges, noninterest expense was $253 million higher than the first quarter of last year. The increase from the prior year, reflected in both personnel and nonpersonnel expense, was primarily driven by the acquisition of First Niagara. Higher incentive compensation related to stronger capital markets performance also contributed to the year-over-year increase.
Compared to the fourth quarter of 2016, noninterest expense, excluding merger-related charges, decreased by $81 million. The decrease primarily reflects cost savings related to the First Niagara acquisition, reflected in both personnel and nonpersonnel expense. Lower incentive and stock-based compensation and the absence of a pension settlement charge also contributed to the decline. These decreases were partially offset by seasonally higher employee benefits expenses.
BALANCE SHEET HIGHLIGHTS
Average Loans
dollars in millions Change 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Commercial and industrial (a) $40,002 $39,495 $31,590 1.3% 26.6%
Other commercial loans 22,175 21,617 13,111 2.6 69.1
Home equity loans 12,611 12,812 10,240 (1.6) 23.2
Other consumer loans 11,345 11,436 5,215 (.8) 117.5
------ ------ -----
Total loans $86,133 $85,360 $60,156 .9% 43.2%
======= ======= =======
(a) Commercial and industrial average
loan balances include $114
million, $119 million, and $85
million of assets from commercial
credit cards at March 31, 2017,
December 31, 2016, and March 31,
2016, respectively.
Average loans were $86.1 billion for the first quarter of 2017, an increase of $26 billion compared to the first quarter of 2016, primarily reflecting the impact of the First Niagara acquisition and growth in commercial and industrial loans.
Compared to the fourth quarter of 2016, average loans increased by $773 million, driven by a $507 million increase in commercial and industrial loans, and a $416 million increase in commercial mortgage loans. The growth reflects overall business activity and lower payoffs in Key's Commercial Real Estate line of business. Consumer loans decreased $292 million, mostly related to continued decline in the home equity loan portfolio, largely the result of paydowns on home equity lines of credit.
Average Deposits
dollars in millions Change 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Non-time deposits $91,745 $94,414 $65,637 (2.8)% 39.8%
Certificates of deposit ($100,000 or more) 5,627 5,428 2,761 3.7 103.8
Other time deposits 4,706 4,849 3,200 (2.9) 47.1
----- ----- ----- ---- ----
Total deposits $102,078 $104,691 $71,598 (2.5)% 42.6%
===
Cost of total deposits .23% .22% .17% N/A N/A
N/A = Not Applicable
Average deposits totaled $102.1 billion for the first quarter of 2017, an increase of $30.5 billion compared to the year-ago quarter, primarily reflecting the acquisition of First Niagara and core deposit growth in Key's retail banking franchise.
Compared to the fourth quarter of 2016, average deposits decreased by $2.6 billion, largely driven by a decline in escrow deposits and a targeted reduction in certain short-term commercial deposits. On a period-end basis, total deposits decreased $105 million compared to the linked-quarter, as core deposit growth in Key's retail banking franchise largely offset the decline in escrow deposits.
ASSET QUALITY
dollars in millions Change 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Net loan charge-offs $58 $72 $46 (19.4)% 26.1%
Net loan charge-offs to average total loans .27% .34% .31% N/A N/A
Nonperforming loans at period end (a) $573 $625 $676 (8.3) (15.2)
Nonperforming assets at period end (a) 623 676 692 (7.8) (10.0)
Allowance for loan and lease losses 870 858 826 1.4 5.3
Allowance for loan and lease losses to nonperforming loans (a) 151.8% 137.3% 122.2% N/A N/A
Provision for credit losses $63 $66 $89 (4.5)% (29.2)%
(a) Nonperforming loan balances exclude
$812 million, $865 million, and $11
million of purchased credit
impaired loans at March 31, 2017,
December 31, 2016, and March 31,
2016, respectively.
N/A = Not Applicable
Key's provision for credit losses was $63 million for the first quarter of 2017, compared to $89 million for the first quarter of 2016 and $66 million for the fourth quarter of 2016. Key's allowance for loan and lease losses was $870 million, or 1.01% of total period-end loans, at March 31, 2017, compared to 1.37% at March 31, 2016, and 1.00% at December 31, 2016.
Net loan charge-offs for the first quarter of 2017 totaled $58 million, or .27% of average total loans. These results compare to $46 million, or .31%, for the first quarter of 2016, and $72 million, or .34%, for the fourth quarter of 2016.
At March 31, 2017, Key's nonperforming loans totaled $573 million, which represented .67% of period-end portfolio loans. These results compare to 1.12% at March 31, 2016, and .73% at December 31, 2016. Nonperforming assets at March 31, 2017, totaled $623 million, and represented .72% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to 1.14% at March 31, 2016, and .79% at December 31, 2016.
CAPITAL
Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2017.
Capital Ratios
3/31/2017 12/31/2016 3/31/2016
--------- ---------- ---------
Common Equity Tier 1 (a),
(b) 9.87% 9.54% 11.07%
Tier 1 risk-based
capital (a) 10.70 10.89 11.38
Total risk based capital
(a) 12.64 12.85 13.12
Tangible common equity to
tangible assets (b) 8.51 8.09 9.97
Leverage (a) 9.81 9.90 10.73
(a) 3/31/2017 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 "Common Equity Tier 1."
The table reconciles the GAAP
performance measures to the
corresponding non-GAAP measures,
which provides a basis for period-
to-period comparisons. See below for
further information on the Regulatory
Capital Rules.
Key's capital position remained strong throughout the first quarter. As shown in the preceding table, at March 31, 2017, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.87% and 10.70%, respectively. In addition, the tangible common equity ratio was 8.51% at March 31, 2017.
As a "standardized approach" banking organization, Key's mandatory compliance with the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules") began on January 1, 2015, subject to transitional provisions extending to January 1, 2019. Key's estimated Common Equity Tier 1 ratio as calculated under the fully phased-in Regulatory Capital Rules was 9.80% at March 31, 2017. 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 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Shares outstanding at beginning of period 1,079,314 1,082,055 835,751 (.3)% 29.1%
Open market repurchases and return of shares under employee compensation
plans (8,673) (4,380) - 98.0 N/M
Shares issued under employee compensation plans (net of cancellations) 6,270 1,642 6,539 281.9 (4.1)
Common shares exchanged for Series A Preferred Stock 20,568 - - N/M N/M
Common shares issued to acquire First Niagara - (3) - N/M N/M
--- --- --- --- ---
Shares outstanding at end of period 1,097,479 1,079,314 842,290 1.7% 30.3%
=========
N/M = Not Meaningful
On March 20, 2017, Key converted all outstanding shares of its outstanding 7.75% Non-Cumulative Perpetual Convertible Preferred Stock, Series A (NYSE: KEY.G) shares into common shares, adding approximately 21 million common shares outstanding.
Consistent with Key's 2016 Capital Plan, during the first quarter of 2017, Key declared a dividend of $.085 per common share and completed $160 million of common share repurchases, including $107 million of common share repurchases in the open market and $53 million of share repurchases related to employee equity compensation programs.
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 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Revenue from continuing operations (TE)
--------------------------------------
Key Community Bank $908 $902 $595 .7% 52.6%
Key Corporate Bank 579 630 425 (8.1) 36.2
Other Segments 28 38 21 (26.3) 33.3
--- --- --- ----- ----
Total segments 1,515 1,570 1,041 (3.5) 45.5
Reconciling Items (9) (4) 2 N/M N/M
--- --- --- --- ---
Total $1,506 $1,566 $1,043 (3.8)% 44.4%
===
Income (loss) from continuing operations attributable to Key
------------------------------------------------------------
Key Community Bank $147 $108 $74 36.1% 98.6%
Key Corporate Bank 181 222 118 (18.5) 53.4
Other Segments 21 34 15 (38.2) 40.0
--- --- --- ----- ----
Total segments 349 364 207 (4.1) 68.6
Reconciling Items (a) (25) (131) (20) N/M N/M
--- ---- --- --- ---
Total $324 $233 $187 39.1% 73.3%
===
(a) Reconciling items consists
primarily of the unallocated
portion of merger-related
charges and items not
allocated to the business
segments because they do not
reflect their normal
operations.
TE = Taxable Equivalent, N/M = Not Meaningful
Key Community Bank
dollars in millions Change 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Summary of operations
Net interest income (TE) $631 $629 $399 .3% 58.1%
Noninterest income 277 273 196 1.5 41.3
--- --- --- --- ----
Total revenue (TE) 908 902 595 .7 52.6
Provision for credit losses 47 48 42 (2.1) 11.9
Noninterest expense 627 682 436 (8.1) 43.8
--- --- --- ---- ----
Income (loss) before income taxes (TE) 234 172 117 36.0 100.0
Allocated income taxes (benefit) and TE adjustments 87 64 43 35.9 102.3
--- --- --- ---- -----
Net income (loss) attributable to Key $147 $108 $74 36.1% 98.6%
=== === ===
Average balances
Loans and leases $47,036 $47,031 $30,789 - 52.8%
Total assets 50,962 50,939 32,856 - 55.1
Deposits 79,393 79,358 52,803 - 50.4
Assets under management at period end $37,417 $36,592 $34,107 2.3%% 9.7%
TE = Taxable Equivalent
Additional Key Community Bank Data
dollars in millions Change 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Noninterest income
Trust and investment services income $98 $88 $73 11.4% 34.2%
Service charges on deposit accounts 75 71 54 5.6 38.9
Cards and payments income 55 59 43 (6.8) 27.9
Other noninterest income 49 55 26 (10.9) 88.5
--- --- --- ----- ----
Total noninterest income $277 $273 $196 1.5% 41.3%
===
Average deposit balances
NOW and money market deposit accounts $45,027 $44,368 $29,432 1.5% 53.0%
Savings deposits 5,268 5,326 2,340 (1.1) 125.1
Certificates of deposit ($100,000 or more) 3,878 3,659 2,120 6.0 82.9
Other time deposits 4,692 4,836 3,197 (3.0) 46.8
Noninterest-bearing deposits 20,528 21,169 15,714 (3.0)% 30.6
------ ------ ------ ----- ----
Total deposits $79,393 $79,358 $52,803 - 50.4%
============
Home equity loans
Average balance $12,456 $12,560 $10,037
Combined weighted-average loan-to-value ratio (at date of origination) 70% 71% 71%
Percent first lien positions 60 57 61
Other data
Branches 1,216 1,217 961
Automated teller machines 1,594 1,593 1,249
Key Community Bank Summary of Operations (1Q17 vs. 1Q16)
-- Positive operating leverage compared to prior year
-- Net income increased $73 million, or 98.6%, from prior year
-- Average commercial and industrial loans increased $5.1 billion, or
39.3%, from the prior year
-- Average deposits increased $26.6 billion, or 50.4%, from the prior year
Key Community Bank recorded net income attributable to Key of $147 million for the first quarter of 2017, compared to $74 million for the year-ago quarter, benefiting from momentum in Key's core businesses, as well as the impact of the First Niagara acquisition.
Taxable-equivalent net interest income increased by $232 million, or 58.1%, from the first quarter of 2016. The increase was primarily attributable to the acquisition of First Niagara, as well as the benefit from the Federal Reserve rate increase. Average loans and leases increased $16.2 billion, or 52.8%, largely driven by a $5.1 billion, or 39.3%, increase in commercial and industrial loans. Additionally, average deposits increased $26.6 billion, or 50.4% from one year ago.
Noninterest income was up $81 million, or 41.3%, from the year-ago quarter, driven by the acquisition of First Niagara, including the addition of Key Insurance and Benefits Services. Strength in derivatives and higher assets under management balances from market growth also contributed to the increase.
The provision for credit losses increased by $5 million, or 11.9%, and net loan charge-offs increased $20 million, from the first quarter of 2016, primarily related to the acquisition of First Niagara.
Noninterest expense increased by $191 million, or 43.8%, from the year-ago quarter, largely driven by the acquisition of First Niagara, as well as core business activity and investments. Personnel expense increased $75 million, while non-personnel expense increased by $116 million, including higher intangible amortization expense and higher FDIC assessment expense.
Key Corporate Bank
dollars in millions Change 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Summary of operations
Net interest income (TE) $304 $333 $218 (8.7)% 39.4%
Noninterest income 275 297 207 (7.4) 32.9
--- --- --- ---- ----
Total revenue (TE) 579 630 425 (8.1) 36.2
Provision for credit losses 17 20 43 (15.0) (60.5)
Noninterest expense 303 326 237 (7.1) 27.8
--- --- --- ---- ----
Income (loss) before income taxes (TE) 259 284 145 (8.8) 78.6
Allocated income taxes and TE adjustments 78 63 27 23.8 188.9
--- --- --- ---- -----
Net income (loss) 181 221 118 (18.1) 53.4
Less: Net income (loss) attributable to noncontrolling interests - (1) - N/M N/M
--- --- --- --- ---
Net income (loss) attributable to Key $181 $222 $118 (18.5)% 53.4%
===
Average balances
Loans and leases $37,737 $36,770 $27,722 2.6% 36.1%
Loans held for sale 1,097 1,223 811 (10.3) 35.3
Total assets 44,167 43,210 33,413 2.2 32.2
Deposits 21,003 23,172 18,074 (9.4)% 16.2%
TE = Taxable Equivalent, N/M = Not Meaningful
Additional Key Corporate Bank Data
dollars in millions Change 1Q17 vs.
1Q17 4Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ----
Noninterest income
Trust and investment services income $37 $35 $36 5.7% 2.8%
Investment banking and debt placement fees 124 154 70 (19.5) 77.1
Operating lease income and other leasing gains 21 18 13 16.7 61.5
Corporate services income 38 43 38 (11.6) -
Service charges on deposit accounts 12 12 11 - 9.1
Cards and payments income 10 9 3 11.1 233.3
--- --- --- -----
Payments and services income 60 64 52 (6.3) 15.4
Mortgage servicing fees 16 18 12 (11.1) 33.3
Other noninterest income 17 8 24 112.5 (29.2)
--- --- --- -----
Total noninterest income $275 $297 $207 (7.4)% 32.9%
===
Key Corporate Bank Summary of Operations (1Q17 vs. 1Q16)
-- Average loan and lease balances up $10 billion, or 36.1%, from the prior
year
-- Revenue up $154 million, or 36.2%, from the prior year
-- Noninterest income up $68 million, or 32.9%, from the prior year
Key Corporate Bank recorded net income attributable to Key of $181 million for the first quarter of 2017, compared to $118 million for the same period one year ago.
Taxable-equivalent net interest income increased by $86 million, or 39.4%, compared to the first quarter of 2016. Average loan and lease balances increased $10 billion, or 36.1%, from the year-ago quarter, primarily driven by the First Niagara acquisition as well as growth in commercial and industrial loans. Average deposit balances increased $2.9 billion, or 16.2%, from the year-ago quarter, mostly driven by the First Niagara acquisition.
Noninterest income was up $68 million, or 32.9%, from the prior year. This growth was mostly due to $54 million of higher investment banking and debt placement fees related to improved capital markets conditions and activity from the year-ago period, as well as an increase of $8 million in operating lease income and other leasing gains related to higher originations. Additional increases of $7 million in cards and payments income and $4 million in mortgage servicing fees were partially offset by a $7 million decrease in other noninterest income.
The provision for credit losses decreased $26 million, or 60.5%, compared to the first quarter of 2016 due to $4 million of lower net loan charge-offs and improvement in the oil and gas portfolio.
Noninterest expense increased by $66 million, or 27.8%, from the first quarter of 2016. The increase from the prior year, reflected in both personnel and nonpersonnel expense, was largely driven by the acquisition of First Niagara, higher performance-based compensation and various other items, including operating lease and cards and payments expenses.
Other Segments
Other Segments consist of Corporate Treasury, Key's Principal Investing unit, and various exit portfolios. Other Segments generated net income attributable to Key of $21 million for the first quarter of 2017, compared to $15 million for the same period last year, driven by increases in corporate-owned life insurance income, net gains on principal investing, and other income.
*****
KeyCorp's roots trace back 190 years to Albany, New York. Headquartered in Cleveland, Ohio, Key is one of the nation's largest bank-based financial services companies, with assets of approximately $134.5 billion at March 31, 2017.
Key provides deposit, lending, cash management, insurance, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of more than 1,200 branches and more than 1,500 ATMs. Key also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets trade name. For more information, visit https://www.key.com/. KeyBank is Member FDIC.
This earnings release contains forward-
looking statements within the meaning of
the Private Securities Litigation Reform
Act of 1995. These statements do not relate
strictly to historical or current facts.
Forward-looking statements usually can be
identified by the use of words such as
"goal," "objective," "plan," "expect,"
"assume," "anticipate," "intend,"
"project," "believe," "estimate," or other
words of similar meaning. Forward-looking
statements provide our current expectations
or forecasts of future events,
circumstances, results, or aspirations.
Forward-looking statements, by their
nature, are subject to assumptions, risks
and uncertainties, many of which are
outside of our control. Our actual results
may differ materially from those set forth
in our forward-looking statements. There
is no assurance that any list of risks and
uncertainties or risk factors is complete.
Factors that could cause Key's actual
results to differ from those described in
the forward-looking statements can be
found in KeyCorp's Form 10-K for the year
ended December 31, 2016, as well as in
KeyCorp's subsequent SEC filings, all of
which have been filed with the Securities
and Exchange Commission (the "SEC") and are
available on Key's website (www.key.com/
ir) and on the SEC's website (www.sec.gov).
These factors may include, among others:
deterioration of commercial real estate
market fundamentals, adverse changes in
credit quality trends, declining asset
prices, a reversal of the U.S. economic
recovery due to financial, political, or
other shocks, and the extensive 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 20, 2017. An audio replay of the call will be available through April 30, 2017.
For up-to-date company information, media contacts, and facts and figures about Key's lines of business, visit our Media Newsroom at https://www.key.com/newsroom.
Financial Highlights
(dollars in millions, except per share amounts)
Three months ended
3/31/2017 12/31/2016 3/31/2016
--------- ---------- ---------
Summary of operations
Net interest
income (TE) $929 $948 $612
Noninterest
income 577 618 431
---
Total revenue (TE) 1,506 1,566 1,043
Provision for
credit losses 63 66 89
Noninterest
expense 1,013 1,220 703
Income (loss)
from
continuing
operations
attributable
to Key 324 233 187
Income (loss)
from
discontinued
operations,
net of taxes
(a) - (4) 1
Net income
(loss)
attributable
to Key 324 229 188
Income (loss)
from
continuing
operations
attributable
to Key common
shareholders 296 213 182
Income (loss)
from
discontinued
operations,
net of taxes
(a) - (4) 1
Net income
(loss)
attributable
to Key common
shareholders 296 209 183
Per common share
Income (loss)
from
continuing
operations
attributable
to Key common
shareholders $.28 $.20 $.22
Income (loss)
from
discontinued
operations,
net of taxes
(a) - - -
Net income
(loss)
attributable
to Key common
shareholders
(b) .28 .20 .22
Income (loss)
from
continuing
operations
attributable
to Key common
shareholders
-assuming
dilution .27 .20 .22
Income (loss)
from
discontinued
operations,
net of taxes
-assuming
dilution (a) - - -
Net income
(loss)
attributable
to Key common
shareholders
-assuming
dilution (b) .27 .19 .22
Cash dividends
declared per
common share .085 .085 .075
Book value at
period end 12.71 12.58 12.79
Tangible book
value at
period end 10.21 9.99 11.52
Market price
at period end 17.78 18.27 11.04
Performance ratios
From
continuing
operations:
Return on
average total
assets .99% .69% .80%
Return on
average
common equity 8.76 6.22 6.86
Return on
average
tangible
common equity
(c) 10.98 7.88 7.64
Net interest
margin (TE) 3.13 3.12 2.89
Cash
efficiency
ratio (c) 65.8 76.2 66.6
From
consolidated
operations:
Return on
average total
assets .98% .67% .79%
Return on
average
common equity 8.76 6.10 6.90
Return on
average
tangible
common equity
(c) 10.98 7.73 7.68
Net interest
margin (TE) 3.11 3.09 2.83
Loan to
deposit (d) 85.6 85.2 85.7
Capital ratios at period end
Key
shareholders'
equity to
assets 11.14% 11.17% 11.25%
Key common
shareholders'
equity to
assets 10.37 9.95 10.95
Tangible
common equity
to tangible
assets (c) 8.51 8.09 9.97
Common Equity
Tier 1 (c),
(e) 9.87 9.54 11.07
Tier 1 risk-
based capital
(e) 10.70 10.89 11.38
Total risk-
based capital
(e) 12.64 12.85 13.12
Leverage (e) 9.81 9.90 10.73
Financial Highlights (continued)
(dollars in millions)
Three months ended
3/31/2017 12/31/2016 3/31/2016
--------- ---------- ---------
Asset quality - from continuing operations
Net loan charge-offs $58 $72 $46
Net loan charge-offs to
average loans .27% .34% .31%
Allowance for loan and lease
losses $870 $858 $826
Allowance for credit losses 918 913 895
Allowance for loan and lease
losses to period-end loans 1.01% 1.00% 1.37%
Allowance for credit losses
to period-end loans 1.07 1.06 1.48
Allowance for loan and lease
losses to nonperforming
loans (f) 151.8 137.3 122.2
Allowance for credit losses
to nonperforming loans (f) 160.2 146.1 132.4
Nonperforming loans at
period end (f) $573 $625 $676
Nonperforming assets at
period end (f) 623 676 692
Nonperforming loans to
period-end portfolio loans
(f) .67% .73% 1.12%
Nonperforming assets to
period-end portfolio loans
plus OREO and other
nonperforming assets (f) .72 .79 1.14
Trust assets
Assets under management $37,417 $36,592 $34,107
Other data
Average full-time
equivalent employees 18,386 18,849 13,403
Branches 1,216 1,217 961
Taxable-equivalent adjustment $11 $10 $8
(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.
(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," and
"cash efficiency." The table
reconciles the GAAP performance
measures to the corresponding non-
GAAP measures, which provides a basis
for period-to-period comparisons.
For further information on the
Regulatory Capital Rules, see the
"Capital" section of this release.
(d) Represents period-end consolidated
total loans and loans held for sale
divided by period-end consolidated
total deposits (excluding deposits in
foreign office).
(e) 3/31/2017 ratio is estimated.
(f) Nonperforming loan balances exclude
$812 million, $865 million, and $11
million of purchased credit impaired
loans at March 31, 2017, December 31,
2016, and March 31, 2016,
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 average tangible common equity," "Common Equity Tier 1," "pre-provision net revenue," certain financial measures excluding merger-related charges, and "cash efficiency ratio."
The tangible common equity ratio and the return on average tangible common equity ratio have been a focus for some investors, and management believes these ratios may assist investors in analyzing Key's capital position without regard to the effects of intangible assets and preferred stock. Traditionally, the banking regulators have assessed bank and bank holding company capital adequacy based on both the amount and the composition of capital, the calculation of which is prescribed in federal banking regulations. In October 2013, the federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules"). The Regulatory Capital Rules require higher and better-quality capital and introduced a new capital measure, "Common Equity Tier 1," a non-GAAP financial measure. The mandatory compliance date for Key as a "standardized approach" banking organization began on January 1, 2015, subject to transitional provisions extending to January 1, 2019.
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 credit losses makes it easier to analyze the results by presenting them on a more comparable basis.
As previously disclosed, Key completed its purchase of First Niagara on August 1, 2016. The definitive agreement and plan of merger to acquire First Niagara was originally announced on October 30, 2015. As a result of this transaction, Key has recognized merger-related charges. The table below shows the computation of noninterest expense excluding merger-related charges, earnings per common share excluding merger-related charges, return on average tangible common equity excluding merger-related charges, return on average assets from continuing operations excluding merger-related charges, cash efficiency ratio excluding merger-related charges, and pre-provision net revenue excluding merger-related charges. Management believes that eliminating the effects of the merger-related charges 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. The table below also shows the computation for the cash efficiency ratio excluding merger-related charges. Management believes these ratios provide greater consistency and comparability between Key's results and those of its peer banks. Additionally, these ratios are 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
3/31/2017 12/31/2016 3/31/2016
--------- ---------- ---------
Tangible common equity to tangible assets at period end
Key shareholders' equity
(GAAP) $14,976 $15,240 $11,066
Less: Intangible assets
(a) 2,751 2,788 1,077
Preferred Stock
(b) 1,009 1,640 281
----- ----- ---
Tangible common
equity (non-
GAAP) $11,216 $10,812 $9,708
======= ======= ======
Total assets (GAAP) $134,476 $136,453 $98,402
Less: Intangible assets
(a) 2,751 2,788 1,077
-------------
Tangible assets
(non-GAAP) $131,725 $133,665 $97,325
======== ======== =======
Tangible common equity to
tangible assets ratio
(non-GAAP) 8.51% 8.09% 9.97%
Common Equity Tier 1 at period end
Key shareholders' equity
(GAAP) $14,976 $15,240 $11,066
Less: Preferred Stock
(b) 1,009 1,640 281
-------------
Common Equity
Tier 1 capital
before
adjustments and
deductions 13,967 13,600 10,785
Less: Goodwill, net of
deferred taxes 2,386 2,405 1,033
Intangible
assets, net of
deferred taxes 189 155 35
Deferred tax
assets 6 4 1
Net unrealized
gains (losses)
on available-
for-sale
securities, net
of deferred
taxes (179) (185) 70
Accumulated gains
(losses) on cash
flow hedges, net
of deferred
taxes (75) (52) 46
Amounts in
accumulated
other
comprehensive
income (loss)
attributed to
pension and postretirement benefit
costs, net of deferred taxes (336) (339) (365)
---- ---- ----
Total Common
Equity Tier 1
capital (c) $11,976 $11,612 $9,965
======= ======= ======
Net risk-weighted assets
(regulatory) (c) $121,305 $121,671 $90,014
Common Equity Tier 1
ratio (non-GAAP) (c) 9.87% 9.54% 11.07%
Pre-provision net revenue
Net interest income
(GAAP) $918 $938 $604
Plus: Taxable-
equivalent
adjustment 11 10 8
Noninterest
income 577 618 431
Less: Noninterest
expense 1,013 1,220 703
Pre-provision
net revenue from
continuing
operations (non-
GAAP) $493 $346 $340
==== ==== ====
Plus: Merger-related
charges 81 198 24
-------------
Pre-provision
net revenue from
continuing
operations
excluding
merger-related
charges (non-
GAAP) $574 $544 $364
==== ==== ====
GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
Three months ended
3/31/2017 12/31/2016 3/31/2016
--------- ---------- ---------
Average tangible common equity
Average Key shareholders' equity (GAAP) $15,184 $14,901 $10,953
Less: Intangible assets (average) (d) 2,772 2,874 1,079
Preferred Stock (average) 1,480 1,274 290
----- ----- ---
Average tangible common equity (non-GAAP) $10,932 $10,753 $9,584
======= ======= ======
Return on average tangible common equity from continuing operations
Net income (loss) from continuing
operations attributable to Key common
shareholders (GAAP) $296 $213 $182
Add: Merger-related charges, after tax 51 124 15
Net income (loss) from continuing
operations attributable to Key common
shareholders excluding
merger-related charges (non-GAAP) $347 $337 $197
==== ==== ====
Average tangible common equity (non-
GAAP) 10,932 10,753 9,584
Return on average tangible common
equity from continuing operations
(non-GAAP) 10.98% 7.88% 7.64%
Return on average tangible common
equity from continuing operations
excluding merger-related charges
(non-GAAP) 12.87% 12.47% 8.27%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key
common shareholders (GAAP) $296 $209 $183
Average tangible common equity (non-
GAAP) 10,932 10,753 9,584
Return on average tangible common
equity consolidated (non-GAAP) 10.98% 7.73% 7.68%
Noninterest expense excluding merger-related charges
Noninterest expense (GAAP) $1,013 $1,220 $703
Less: Merger-related charges 81 207 24
---
Noninterest expense excluding merger-related charges (non-GAAP) $932 $1,013 $679
==== ====== ====
Earnings per common share (EPS) excluding merger-related charges
EPS from continuing operations
attributable to Key common
shareholders -assuming dilution $.27 $.20 $.22
Add: EPS impact of merger-related charges .05 .11 .02
---
EPS from continuing operations attributable to Key common shareholders
excluding merger-related charges (non-GAAP) $.32 $.31 $.24
==== ==== ====
Cash efficiency ratio
Noninterest expense (GAAP) $1,013 $1,220 $703
Less: Intangible asset amortization 22 27 8
---
Adjusted noninterest expense (non-GAAP) 991 1,193 695
Less: Merger-related charges 81 207 24
---
Adjusted noninterest expense excluding merger-related charges (non-GAAP) $910 $986 $671
==== ==== ====
Net interest income (GAAP) $918 $938 $604
Plus: Taxable-equivalent adjustment 11 10 8
Noninterest income 577 618 431
--- --- ---
Total taxable-equivalent revenue (non-GAAP) 1,506 1,566 1,043
Add: Merger-related charges - (9) -
Adjusted total taxable-equivalent revenue excluding merger-related charges
(non-GAAP) $1,506 $1,557 $1,043
====== ====== ======
Cash efficiency ratio (non-GAAP) 65.8% 76.2% 66.6%
Cash efficiency ratio excluding merger-
related charges (non-GAAP) 60.4% 63.3% 64.3%
Return on average total assets from continuing operations excluding merger-related charges
Income from continuing operations
attributable to Key (GAAP) $324 $233 $187
Add: Merger-related charges, after tax 51 124 15
Income from continuing operations attributable to Key excluding merger-related
charges, after tax (non-GAAP) $375 $357 $202
==== ==== ====
Average total assets from continuing
operations (GAAP) $132,741 $134,428 $94,477
===
Return on average total assets from
continuing operations excluding
merger-related charges (non-GAAP) 1.15% 1.06% .86%
GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
Three months ended
------------------
3/31/2017
---------
Common Equity Tier 1 under the
Regulatory Capital Rules ("RCR")
(estimates)
Common Equity
Tier 1 under
current RCR $11,976
Adjustments
from current
RCR to the
fully phased-
in RCR:
Deferred tax assets and
other intangible assets (e) (50)
---
Common Equity Tier 1
anticipated under the fully
phased-in RCR (f) $11,926
=======
Net risk-
weighted
assets under
current RCR $121,305
Adjustments
from current
RCR to the
fully phased-
in RCR:
Mortgage servicing assets
(g) 597
Deferred tax assets 92
Volcker funds (172)
All other assets (72)
Total risk-weighted assets
anticipated under the fully
phased-in RCR (f) $121,750
========
Common Equity
Tier 1 ratio
under the
fully phased-
in RCR (f) 9.80%
(a) For the three months ended March 31,
2017, December 31, 2016, and March
31, 2016, intangible assets exclude
$38 million, $42 million, and $40
million, respectively, of period-
end purchased credit card
receivables.
(b) Net of capital surplus.
(c) 3/31/17 amount is estimated.
(d) For the three months ended March 31,
2017, December 31, 2016, and March
31, 2016, average intangible assets
exclude $40 million, $46 million,
and $42 million, respectively, of
average purchased credit card
receivables.
(e) Includes the deferred tax assets
subject to future taxable income for
realization, primarily tax credit
carryforwards, as well as intangible
assets (other than goodwill and
mortgage servicing assets) subject
to the transition provisions of the
final rule.
(f) 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."
(g) 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)
3/31/2017 12/31/2016 3/31/2016
--------- ---------- ---------
Assets
Loans $86,125 $86,038 $60,438
Loans held for
sale 1,384 1,104 684
Securities
available for
sale 18,431 20,212 14,304
Held-to-
maturity
securities 10,186 10,232 5,003
Trading account
assets 921 867 765
Short-term
investments 2,525 2,775 5,436
Other investments 689 738 643
---
Total earning assets 120,261 121,966 87,273
Allowance for
loan and lease
losses (870) (858) (826)
Cash and due from
banks 549 677 474
Premises and
equipment 935 978 750
Operating lease
assets 563 540 362
Goodwill 2,427 2,446 1,060
Other intangible
assets 362 384 57
Corporate-owned
life insurance 4,087 4,068 3,557
Derivative assets 578 803 1,065
Accrued income
and other assets 4,064 3,864 2,849
Discontinued
assets 1,520 1,585 1,781
-----
Total assets $134,476 $136,453 $98,402
======== ======== =======
Liabilities
Deposits in
domestic
offices:
NOW and money market deposit
accounts $55,095 $54,590 $38,946
Savings deposits 6,306 6,491 2,385
Certificates of deposit ($100,000
or more) 5,859 5,483 3,095
Other time deposits 4,694 4,698 3,259
----- ----- -----
Total interest-bearing deposits 71,954 71,262 47,685
Noninterest-bearing deposits 32,028 32,825 25,697
Total deposits 103,982 104,087 73,382
Federal funds
purchased and
securities sold
under repurchase
agreements 442 1,502 374
Bank notes and
other short-
term borrowings 943 808 615
Derivative
liabilities 255 636 790
Accrued expense
and other
liabilities 1,552 1,796 1,410
Long-term debt 12,324 12,384 10,760
Total liabilities 119,498 121,213 87,331
Equity
Preferred stock 1,025 1,665 290
Common shares 1,257 1,257 1,017
Capital surplus 6,287 6,385 3,818
Retained earnings 9,584 9,378 9,042
Treasury stock,
at cost (2,623) (2,904) (2,888)
Accumulated other
comprehensive
income (loss) (554) (541) (213)
Key shareholders' equity 14,976 15,240 11,066
Noncontrolling
interests 2 - 5
---
Total equity 14,978 15,240 11,071
------ ------ ------
Total liabilities and equity $134,476 $136,453 $98,402
======== ======== =======
Common shares outstanding (000) 1,097,479 1,079,314 842,290
Consolidated Statements of Income
(dollars in millions, except per share amounts)
Three months ended
3/31/2017 12/31/2016 3/31/2016
--------- ---------- ---------
Interest income
Loans $877 $898 $562
Loans held for sale 13 11 8
Securities available for sale 95 92 75
Held-to-maturity securities 51 44 24
Trading account assets 7 6 7
Short-term investments 3 5 4
Other investments 4 6 3
---
Total interest income 1,050 1,062 683
Interest expense
Deposits 58 57 31
Federal funds purchased and securities
sold under repurchase agreements 1 1 -
Bank notes and other short-term
borrowings 5 3 2
Long-term debt 68 63 46
---
Total interest expense 132 124 79
Net interest income 918 938 604
Provision for credit losses 63 66 89
--- --- ---
Net interest income after provision for credit losses 855 872 515
Noninterest income
Trust and investment services income 135 123 109
Investment banking and debt placement
fees 127 157 71
Service charges on deposit accounts 87 84 65
Operating lease income and other leasing
gains 23 21 17
Corporate services income 54 61 50
Cards and payments income 65 69 46
Corporate-owned life insurance income 30 40 28
Consumer mortgage income 6 6 2
Mortgage servicing fees 18 20 12
Net gains (losses) from principal
investing 1 4 -
Other income (a) 31 33 31
---
Total noninterest income 577 618 431
Noninterest expense
Personnel 556 648 404
Net occupancy 87 112 61
Computer processing 60 97 43
Business services and professional fees 46 78 41
Equipment 27 30 21
Operating lease expense 19 17 13
Marketing 21 35 12
FDIC assessment 20 23 9
Intangible asset amortization 22 27 8
OREO expense, net 2 3 1
Other expense 153 150 90
---
Total noninterest expense 1,013 1,220 703
----- ----- ---
Income (loss) from continuing operations before income taxes 419 270 243
Income taxes 94 38 56
---
Income (loss) from continuing operations 325 232 187
Income (loss) from discontinued
operations, net of taxes - (4) 1
---
Net income (loss) 325 228 188
Less: Net income (loss) attributable to
noncontrolling interests 1 (1) -
---
Net income (loss) attributable to Key $324 $229 $188
==== ==== ====
Income (loss) from continuing operations attributable to Key common shareholders $296 $213 $182
Net income (loss) attributable to Key common shareholders 296 209 183
Per common share
Income (loss) from continuing operations attributable to Key common shareholders $.28 $.20 $.22
Income (loss) from discontinued operations, net of taxes - - -
Net income (loss) attributable to Key common shareholders (b) .28 .20 .22
Per common share - assuming dilution
Income (loss) from continuing operations attributable to Key common shareholders $.27 $.20 $.22
Income (loss) from discontinued operations, net of taxes - - -
Net income (loss) attributable to Key common shareholders (b) .27 .19 .22
Cash dividends declared per common share $.085 $.085 $.075
Weighted-average common shares outstanding (000) 1,068,609 1,067,771 827,381
Effect of common share options and other
stock awards 17,931 15,946 7,679
------
Weighted-average common shares and potential common shares outstanding (000) (c) 1,086,540 1,083,717 835,060
========= ========= =======
(a) For the three months ended March 31, 2017, net securities gains (losses) totaled $1
million. For the three months ended December 31, 2016, net securities gains
(losses) totaled $6 million. For the three months ended March 31, 2016, net
securities gains (losses) totaled less than $1 million. For the three months ended
March 31, 2017, December 31, 2016, and March 31, 2016, 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 2017 Fourth Quarter 2016 First Quarter 2016
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 and industrial (d) $40,002 $373 3.77% $39,495 $365 3.68% $31,590 $263 3.35%
Real estate - commercial mortgage 15,187 164 4.39 14,771 168 4.50 8,138 77 3.78
Real estate - construction 2,353 26 4.54 2,222 37 6.72 1,016 10 4.11
Commercial lease financing 4,635 44 3.76 4,624 50 4.34 3,957 36 3.65
-----
Total commercial loans 62,177 607 3.95 61,112 620 4.04 44,701 386 3.47
Real estate - residential mortgage 5,520 54 3.94 5,554 57 4.17 2,236 24 4.18
Home equity loans 12,611 131 4.22 12,812 129 3.99 10,240 103 4.06
Consumer direct loans 1,762 30 6.97 1,785 31 6.84 1,593 26 6.53
Credit cards 1,067 29 11.06 1,088 29 10.78 784 21 10.72
Consumer indirect loans 2,996 37 4.91 3,009 42 5.50 602 10 6.44
-----
Total consumer loans 23,956 281 4.75 24,248 288 4.73 15,455 184 4.76
------ --- ---- ------ --- ---- ------ --- ----
Total loans 86,133 888 4.17 85,360 908 4.24 60,156 570 3.80
Loans held for sale 1,188 13 4.28 1,323 11 3.39 826 8 4.02
Securities available for sale (b), (e) 19,181 95 1.95 20,145 92 1.82 14,207 75 2.12
Held-to-maturity securities (b) 9,988 51 2.04 9,121 44 1.95 4,817 24 2.01
Trading account assets 968 7 2.75 892 6 2.54 817 7 3.50
Short-term investments 1,610 3 .79 3,717 5 .49 3,432 4 .46
Other investments (e) 709 4 2.26 741 6 3.23 647 3 1.73
---
Total earning assets 119,777 1,061 3.57 121,299 1,072 3.52 84,902 691 3.27
Allowance for loan and lease losses (855) (855) (803)
Accrued income and other assets 13,819 13,984 10,378
Discontinued assets 1,540 1,610 1,804
-----
Total assets $134,281 $136,038 $96,281
======== ======== =======
Liabilities
NOW and money market deposit accounts $54,295 32 .24 $55,444 31 .22 $37,708 15 .16
Savings deposits 6,351 1 .10 6,546 2 .10 2,349 - .02
Certificates of deposit ($100,000 or
more) (f) 5,627 16 1.16 5,428 15 1.11 2,761 10 1.37
Other time deposits 4,706 9 .76 4,849 9 .77 3,200 6 .79
Total interest-bearing deposits 70,979 58 .33 72,267 57 .32 46,018 31 .27
Federal funds purchased and securities 795 1 .32 592 1 .11 437 - .07
sold under repurchase agreements
Bank notes and other short-term
borrowings 1,802 5 1.06 934 3 1.11 591 2 1.63
Long-term debt (f), (g) 10,833 68 2.54 10,914 63 2.38 8,566 46 2.19
------
Total interest-bearing liabilities 84,409 132 .63 84,707 124 .58 55,612 79 .57
------ --- --- ------ --- --- ------ --- ---
Noninterest-bearing deposits 31,099 32,424 25,580
Accrued expense and other liabilities 2,048 2,394 2,322
Discontinued liabilities (g) 1,540 1,610 1,804
-----
Total liabilities 119,096 121,135 85,318
Equity
Key shareholders' equity 15,184 14,901 10,953
Noncontrolling interests 1 2 10
---
Total equity 15,185 14,903 10,963
Total liabilities and equity $134,281 $136,038 $96,281
======== ======== =======
Interest rate spread (TE) 2.94% 2.94% 2.70%
==== ==== ====
Net interest income (TE) and net interest margin (TE) 929 3.13% 948 3.12% 612 2.89%
==== ==== ====
TE adjustment (b) 11 10 8
--- --- ---
Net interest income, GAAP basis $918 $938 $604
(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 and industrial average
balances include $114 million,
$119 million, and $85 million of
assets from commercial credit
cards for the three months ended
March 31, 2017, December 31,
2016, and March 31, 2016,
respectively.
(e) Yield is calculated on the basis
of amortized cost.
(f) Rate calculation excludes basis
adjustments related to fair value
hedges.
(g) A portion of long-term debt and
the related interest expense is
allocated to discontinued
liabilities as a result of
applying Key's matched funds
transfer pricing methodology to
discontinued operations.
TE = Taxable Equivalent, GAAP = U.S. generally
accepted accounting principles
Noninterest Expense
(dollars in millions)
Three months ended
3/31/2017 12/31/2016 3/31/2016
--------- ---------- ---------
Personnel (a) $556 $648 $404
Net occupancy 87 112 61
Computer processing 60 97 43
Business services and professional fees 46 78 41
Equipment 27 30 21
Operating lease expense 19 17 13
Marketing 21 35 12
FDIC assessment 20 23 9
Intangible asset amortization 22 27 8
OREO expense, net 2 3 1
Other expense 153 150 90
--- --- ---
Total noninterest expense $1,013 $1,220 $703
====== ====== ====
Merger-related charges (b) 81 207 24
Total noninterest expense excluding merger-related charges $932 $1,013 $679
==== ====== ====
Average full-time equivalent employees (c) 18,386 18,849 13,403
(a) Additional detail provided in
Personnel Expense table below.
(b) Additional detail provide in
Merger-Related Charges table
below.
(c) The number of average full-time
equivalent employees has not
been adjusted for discontinued
operations.
Personnel Expense
(in millions)
Three months ended
3/31/2017 12/31/2016 3/31/2016
--------- ---------- ---------
Salaries and
contract labor $324 $352 $244
Incentive and stock-
based compensation 127 185 89
Employee benefits 96 98 68
Severance 9 13 3
--- --- ---
Total personnel
expense $556 $648 $404
==== ==== ====
Merger-related
charges 30 80 16
Total personnel
expense excluding
merger-related
charges $526 $568 $388
==== ==== ====
Merger-Related Charges
(in millions)
Three months ended
3/31/2017 12/31/2016 3/31/2016
--------- ---------- ---------
Other income - $9 -
--- --- ---
Noninterest income - 9 -
Personnel $30 80 $16
Net occupancy 5 29 -
Business services
and professional
fees 5 22 7
Computer processing 5 38 -
Marketing 6 13 1
Other nonpersonnel
expense 30 25 -
--- --- ---
Noninterest expense 81 207 24
--- --- ---
Total merger-
related charges $81 $198 $24
=== ==== ===
Loan Composition
(dollars in millions)
Percent change 3/31/2017
vs.
3/31/2017 12/31/2016 3/31/2016 12/31/2016 3/31/2016
--------- ---------- --------- ---------- ---------
Commercial and industrial (a), (b) $40,112 $39,768 $31,976 .9% 25.4%
Commercial real estate:
Commercial mortgage 15,260 15,111 8,364 1.0 82.4
Construction 2,270 2,345 841 (3.2) 169.9
----- ----- --- ---- -----
Total commercial real estate loans 17,530 17,456 9,205 .4 90.4
Commercial lease financing (c) 4,665 4,685 3,934 (.4) 18.6
----- ----- ----- --- ----
Total commercial loans 62,307 61,909 45,115 .6 38.1
Residential - prime loans:
Real estate - residential mortgage 5,507 5,547 2,234 (.7) 146.5
Home equity loans 12,541 12,674 10,149 (1.0) 23.6
------ ------ ------ ---- ----
Total residential - prime loans 18,048 18,221 12,383 (.9) 45.7
Consumer direct loans 1,735 1,788 1,579 (3.0) 9.9
Credit cards 1,037 1,111 782 (6.7) 32.6
Consumer indirect loans 2,998 3,009 579 (.4) 417.8
----- ----- --- --- -----
Total consumer loans 23,818 24,129 15,323 (1.3) 55.4
------ ------ ------ ---- ----
Total loans (d), (e) $86,125 $86,038 $60,438 .1% 42.5%
======= ======= ======= === ====
(a) Loan balances include $114 million,
$116 million, and $85 million of
commercial credit card balances at
March 31, 2017, December 31, 2016,
and March 31, 2016, respectively.
(b) "Commercial, financial and
agricultural" was renamed to
"Commercial and industrial" in the
first quarter of 2017 to better
reflect the composition of our loan
portfolios. There was no
reclassification of previously
reported balances.
(c) Commercial lease financing includes
receivables held as collateral for a
secured borrowing of $55 million,
$68 million, and $115 million at
March 31, 2017, December 31, 2016,
and March 31, 2016, respectively.
Principal reductions are based on
the cash payments received from
these related receivables.
(d) At March 31, 2017, total loans
include purchased loans of $19.0
billion, of which $812 million were
purchased credit impaired. At
December 31, 2016, total loans
include purchased loans of $21.0
billion, of which $865 million were
purchased credit impaired. At March
31, 2016, total loans include
purchased loans of $109 million, of
which $11 million were purchased
credit impaired.
(e) Total loans exclude loans of $1.5
billion at March 31, 2017, $1.6
billion at December 31, 2016, and
$1.8 billion at March 31, 2016,
related to the discontinued
operations of the education lending
business.
Loans Held for Sale Composition
(dollars in millions)
Percent change
3/31/2017 vs.
3/31/2017 12/31/2016 3/31/2016 12/31/2016 3/31/2016
--------- ---------- --------- ---------- ---------
Commercial and industrial $171 $19 $103 800.0% 66.0%
Real estate - commercial mortgage 1,150 1,022 562 12.5 104.6
Commercial lease financing 1 - - N/M N/M
Real estate - residential mortgage 62 62 19 - 226.3
Real estate - construction - 1 - N/M N/M
--- --- --- --- ---
Total loans held for sale (a) $1,384 $1,104 $684 25.4% 102.3%
====== ====== ====
(a) Total loans held for sale include
Real estate -residential
mortgage loans held for sale at
fair value of $62 million at
March 31, 2017 and December 31,
2016.
N/M = Not Meaningful
Summary of Changes in Loans Held for Sale
(in millions)
1Q17 4Q16 3Q16 2Q16 1Q16
---- ---- ---- ---- ----
Balance at beginning of period $1,104 $1,137 $442 $684 $639
Purchases - - 48 - -
New originations 2,563 2,846 2,857 1,539 1,114
Transfers from (to) held to maturity, net 17 11 2 22 -
Loan sales (2,299) (2,889) (2,180) (1,802) (1,108)
Loan draws (payments), net (1) (1) (32) (1) 39
Balance at end of period (a) $1,384 $1,104 $1,137 $442 $684
====== ====== ====== ==== ====
(a) Total loans held for sale include
Real estate -residential mortgage
loans held for sale at fair value
of $62 million at March 31, 2017,
December 31, 2016, and September
30, 2016.
Asset Quality Statistics From Continuing Operations
(dollars in millions)
1Q17 4Q16 3Q16 2Q16 1Q16
---- ---- ---- ---- ----
Net loan charge-offs $58 $72 $44 $43 $46
Net loan charge-offs to average total loans .27% .34% .23% .28% .31%
Allowance for loan and lease losses $870 $858 $865 $854 $826
Allowance for credit losses (a) 918 913 918 904 895
Allowance for loan and lease losses to period-end loans 1.01% 1.00% 1.01% 1.38% 1.37%
Allowance for credit losses to period-end loans 1.07 1.06 1.07 1.46 1.48
Allowance for loan and lease losses to nonperforming loans (b) 151.8 137.3 119.6 138.0 122.2
Allowance for credit losses to nonperforming loans (b) 160.2 146.1 127.0 146.0 132.4
Nonperforming loans at period end (b) $573 $625 $723 $619 $676
Nonperforming assets at period end (b) 623 676 760 637 692
Nonperforming loans to period-end portfolio loans (b) .67% .73% .85% 1.00% 1.12%
Nonperforming assets to period-end portfolio loans plus .72 .79 .89 1.03 1.14
OREO and other nonperforming assets (b)
(a) Includes the allowance for loan and
lease losses plus the liability for
credit losses on lending-related
unfunded commitments.
(b) Nonperforming loan balances exclude
$812 million, $865 million, $959
million, $11 million, and $11
million of purchased credit
impaired loans at March 31, 2017,
December 31, 2016, September 30,
2016, June 30, 2016, and March 31,
2016, respectively.
Summary of Loan and Lease Loss Experience From Continuing Operations
(dollars in millions)
Three months ended
3/31/2017 12/31/2016 3/31/2016
--------- ---------- ---------
Average loans
outstanding $86,133 $85,360 $60,156
======= ======= =======
Allowance for loan
and lease losses at
beginning of period $858 $865 $796
Loans charged off:
Commercial and
industrial 32 40 26
Real estate -
commercial mortgage - 2 1
Real estate -
construction - - -
--- --- ---
Total commercial real
estate loans - 2 1
Commercial lease
financing 7 1 3
--- --- ---
Total commercial
loans 39 43 30
Real estate -
residential mortgage (2) - 2
Home equity loans 8 8 10
Consumer direct loans 10 9 6
Credit cards 11 10 8
Consumer indirect
loans 11 12 4
--- --- ---
Total consumer loans 38 39 30
--- --- ---
Total loans charged
off 77 82 60
Recoveries:
Commercial and
industrial 5 3 3
Real estate -
commercial mortgage - - 2
Real estate -
construction 1 - 1
--- --- ---
Total commercial real
estate loans 1 - 3
Commercial lease
financing 2 1 -
--- --- ---
Total commercial
loans 8 4 6
Real estate -
residential mortgage 2 (2) 2
Home equity loans 3 4 3
Consumer direct loans 1 1 1
Credit cards 1 1 1
Consumer indirect
loans 4 2 1
--- --- ---
Total consumer loans 11 6 8
--- --- ---
Total recoveries 19 10 14
--- --- ---
Net loan charge-offs (58) (72) (46)
Provision (credit)
for loan and lease
losses 70 64 76
Foreign currency
translation
adjustment - 1 -
--- --- ---
Allowance for loan
and lease losses at
end of period $870 $858 $826
==== ==== ====
Liability for credit
losses on lending-
related commitments
at beginning of
period $55 $53 $56
Provision (credit)
for losses on
lending-related
commitments (7) 2 13
--- --- ---
Liability for credit
losses on lending-
related commitments
at end of period (a) $48 $55 $69
=== === ===
Total allowance for
credit losses at end
of period $918 $913 $895
==== ==== ====
Net loan charge-offs
to average total
loans .27% .34% .31%
Allowance for loan
and lease losses to
period-end loans 1.01 1.00 1.37
Allowance for credit
losses to period-
end loans 1.07 1.06 1.48
Allowance for loan
and lease losses to
nonperforming loans 151.8 137.3 122.2
Allowance for credit
losses to
nonperforming loans 160.2 146.1 132.4
Discontinued operations -education
lending business:
Loans charged off $6 $7 $9
Recoveries 2 3 3
--- --- ---
Net loan charge-offs $(4) $(4) $(6)
=== === ===
(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)
3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016
--------- ---------- --------- --------- ---------
Commercial and industrial $258 $297 $335 $321 $380
Real estate - commercial mortgage 32 26 32 14 16
Real estate - construction 2 3 17 25 12
--- --- --- --- ---
Total commercial real estate loans 34 29 49 39 28
Commercial lease financing 5 8 13 10 11
--- --- --- --- ---
Total commercial loans 297 334 397 370 419
Real estate - residential mortgage 54 56 72 54 59
Home equity loans 207 223 225 189 191
Consumer direct loans 3 6 2 1 1
Credit cards 3 2 3 2 2
Consumer indirect loans 9 4 24 3 4
--- --- --- --- ---
Total consumer loans 276 291 326 249 257
--- --- --- --- ---
Total nonperforming loans (a) 573 625 723 619 676
OREO 49 51 35 15 14
Other nonperforming assets 1 - 2 3 2
--- --- --- --- ---
Total nonperforming assets (a) $623 $676 $760 $637 $692
==== ==== ==== ==== ====
Accruing loans past due 90 days or more $79 $87 $49 $70 $70
Accruing loans past due 30 through 89 days 312 404 317 203 237
Restructured loans - accruing and nonaccruing (b) 302 280 304 277 283
Restructured loans included in nonperforming loans (b) 161 141 149 133 151
Nonperforming assets from discontinued operations - 4 5 5 5 6
education lending business
Nonperforming loans to period-end portfolio loans (a) .67% .73% .85% 1.00% 1.12%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (a) .72 .79 .89 1.03 1.14
(a) Nonperforming loan balances exclude $812
million, $865 million, $959 million, $11
million, and $11 million, of purchased
credit impaired loans at March 31, 2017,
December 31, 2016, September 30, 2016,
June 30, 2016, and March 31, 2016,
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)
1Q17 4Q16 3Q16 2Q16 1Q16
---- ---- ---- ---- ----
Balance at beginning of
period $625 $723 $619 $676 $387
Loans placed on
nonaccrual status 218 170 78 124 406
Nonperforming loans
acquired from First
Niagara (a) - (31) 150 - -
Charge-offs (77) (81) (53) (64) (60)
Loans sold (8) (9) - - (11)
Payments (59) (30) (32) (75) (8)
Transfers to OREO (11) (21) (5) (6) (4)
Transfers to other
nonperforming assets - - - - -
Loans returned to
accrual status (115) (96) (34) (36) (34)
---- --- --- --- ---
Balance at end of
period (b) $573 $625 $723 $619 $676
==== ==== ==== ==== ====
(a) During the fourth quarter of 2016,
Key adjusted the estimated fair
value of the First Niagara acquired
loan portfolio recorded during the
third quarter of 2016, resulting in
a $31 million decrease in the
balance of acquired nonperforming
loans.
(b) Nonperforming loan balances exclude
$812 million, 865 million, $959
million, $11 million, and $11
million of purchased credit
impaired loans at March 31, 2017,
December 31, 2016, September 30,
2016, June 30, 2016, and March 31,
2016, respectively.
Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations
(in millions)
1Q17 4Q16 3Q16 2Q16 1Q16
---- ---- ---- ---- ----
Balance at beginning of
period $51 $35 $15 $14 $14
Properties acquired -
First Niagara - - 19 - -
Properties acquired -
nonperforming loans 11 21 5 6 4
Valuation adjustments (2) (2) (2) (2) (1)
Properties sold (11) (3) (2) (3) (3)
--- --- --- --- ---
Balance at end of
period $49 $51 $35 $15 $14
=== === === === ===
Line of Business Results
(dollars in millions)
Percent change 1Q17 vs.
1Q17 4Q16 3Q16 2Q16 1Q16 4Q16 1Q16
---- ---- ---- ---- ---- ---- ----
Key Community Bank
Summary of operations
Total revenue (TE) $908 $902 $783 $598 $595 .7% 52.6%
Provision for credit losses 47 48 37 25 42 (2.1) 11.9
Noninterest expense 627 682 589 445 436 (8.1) 43.8
Net income (loss) attributable to Key 147 108 98 80 74 36.1 98.6
Average loans and leases 47,036 47,031 41,548 30,936 30,789 - 52.8
Average deposits 79,393 79,358 69,397 53,794 52,803 - 50.4
Net loan charge-offs 43 42 31 17 23 2.4 87.0
Net loan charge-offs to average total
loans .37% .36% .30% .22% .30% N/A N/A
Nonperforming assets at period end $395 $412 $428 $300 $303 (4.1) 30.4
Return on average allocated equity 12.60% 9.07% 10.95% 11.76% 11.10% N/A N/A
Average full-time equivalent employees 10,804 11,198 9,805 7,331 7,376 (3.5) 46.5
Key Corporate Bank
Summary of operations
Total revenue (TE) $579 $630 $556 $451 $425 (8.1)% 36.2%
Provision for credit losses 17 20 25 30 43 (15.0) (60.5)
Noninterest expense 303 326 310 259 237 (7.1) 27.8
Net income (loss) attributable to Key 181 222 159 135 118 (18.5) 53.4
Average loans and leases 37,737 36,770 34,561 28,607 27,722 2.6 36.1
Average loans held for sale 1,097 1,223 1,103 591 811 (10.3) 35.3
Average deposits 21,003 23,172 22,708 19,129 18,074 (9.4) 16.2
Net loan charge-offs 14 26 12 27 18 (46.2) (22.2)
Net loan charge-offs to average total
loans .15% .28% .14% .38% .26% N/A N/A
Nonperforming assets at period end $197 $244 $318 $323 $375 (19.3) (47.5)
Return on average allocated equity 24.86% 31.09% 26.72% 26.23% 22.92% N/A N/A
Average full-time equivalent employees 2,384 2,380 2,330 2,138 2,126 .2 12.1
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-2017-net-income-of-296-million-or-27-per-common-share-earnings-per-common-share-of-32-excluding-05-of-merger-related-charges-300442587.html
SOURCE KeyCorp
