KEYCORP CLEVELAND, Oct. 25, 2016 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced third quarter net income from continuing operations attributable to Key common shareholders of $165 million, or $.16 per common share, compared to $193 million, or $.23 per common share, for the second quarter of 2016, and $216 million, or $.26 per common share, for the third quarter of 2015. During the third quarter of 2016, Key incurred merger-related charges totaling $207 million, or $.14 per common share, compared to $45 million, or $.04 per common share, in the second quarter of 2016. Excluding merger-related charges, earnings per common share were $.30 for the third quarter of 2016 and $.27 for the second quarter of 2016. No merger-related charges were incurred in the third quarter of 2015.
"Third quarter results reflect strong momentum and performance in Key's core businesses, and we achieved a significant milestone with the completion of our First Niagara acquisition," said Chairman and Chief Executive Officer Beth Mooney. "Excluding the impact from the acquisition and merger-related charges, Key's revenue was up 6%, benefiting from solid loan growth and strong fee income, including a record quarter for investment banking and debt placement fees. Credit quality remained solid with net charge-offs as a percent of average loans remaining below our targeted range. Also, during the quarter, we leveraged Key's strong capital position by reinitiating our share repurchase program."
"With the completion of our acquisition, we were pleased to welcome our new colleagues and one million new clients from First Niagara," Mooney continued. "We successfully converted branches, ATMs, systems and client accounts to Key earlier this month, and I continue to be encouraged and energized by the opportunity we have ahead. Our focus remains on achieving our financial targets and delivering on the commitments we have made to our shareholders."
First Niagara Financial Group Acquisition
KeyCorp's third quarter results reflect its acquisition of First Niagara Financial Group ("First Niagara"), effective August 1, 2016, in exchange for total consideration paid of $4 billion, including the cash consideration of $811 million, the issuance of 240 million common shares valued at $2.8 billion, and the issuance of a new series of KeyCorp preferred stock to replace the First Niagara preferred stock valued at $350 million. Results of the operations acquired from First Niagara have been reflected in Key's results since the acquisition date. Assets acquired in the transaction totaled approximately $35.6 billion, while liabilities assumed were $33 billion, not reflecting the impact of branch divestitures.
In connection with Key's acquisition of First Niagara, third quarter 2016 results also include the divestiture of 18 branches on September 9, 2016. The impact of divested branches on Key's third quarter 2016 results included $439 million of loans and $1.6 billion of deposits.
Selected Financial Highlights
dollars in millions, except per share data Change 3Q16 vs.
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Income (loss) from continuing operations attributable to
Key common shareholders $165 $193 $216 (14.5) % (23.6) %
Income (loss) from continuing operations attributable to
Key common shareholders per common share -assuming
dilution .16 .23 .26 (30.4) (38.5)
Return on average total assets from continuing operations .55 % .82 % .95 % N/A N/A
Common Equity Tier 1 ratio (non-GAAP) (a), (b) 9.55 11.10 10.47 N/A N/A
Book value at period end $12.78 $13.08 $12.47 (2.3) % 2.5 %
Net interest margin (TE) from continuing operations 2.85 % 2.76 % 2.87 % 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) 9-30-16 ratio
is estimated.
TE = Taxable Equivalent, N/A = Not Applicable
INCOME STATEMENT HIGHLIGHTS
Net interest income
dollars in millions Change 3Q16 vs.
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Net interest income (TE) $788 $605 $598 30.2 % 31.8 %
Merger-related charges (6) - - N/M N/M
First Niagara impact (a) 175 - - N/M N/M
--- --- --- --- ---
Total net interest income excluding merger-related charges and
First Niagara impact $619 $605 $598 2.3 % 3.5 %
==== ==== ====
(a) Reflects two months of
First Niagara activity
during the third
quarter of 2016.
TE = Taxable Equivalent
The acquisition of First Niagara contributed approximately $175 million of net interest income in the third quarter of 2016, which included $19 million of related purchase accounting accretion. Third quarter 2016 net interest income included an additional $6 million of one-time merger-related charges.
Taxable-equivalent net interest income was $788 million for the third quarter of 2016, and the net interest margin was 2.85%, compared to taxable-equivalent net interest income of $598 million and a net interest margin of 2.87% for the third quarter of 2015. The net interest margin declined two basis points, reflecting higher levels of liquidity, partially offset by the benefit from the First Niagara acquisition. Excluding the impact of First Niagara and merger-related charges, net interest income increased 4% compared to the year-ago quarter, driven by higher earning asset balances.
Compared to the second quarter of 2016, taxable-equivalent net interest income increased by $183 million, and the net interest margin increased by nine basis points. The net interest margin increased primarily due to the acquisition of First Niagara, partially offset by lower reinvestment yields in Key's securities portfolio. Excluding the impact of First Niagara and merger-related charges, net interest income increased by $14 million, driven by higher earning asset balances.
Noninterest Income
dollars in millions Change 3Q16 vs.
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Trust and investment services income $122 $110 $108 10.9 % 13.0 %
Investment banking and debt placement
fees 156 98 109 59.2 43.1
Service charges on deposit accounts 85 68 68 25.0 25.0
Operating lease income and other
leasing gains 6 18 15 (66.7) (60.0)
Corporate services income 51 53 57 (3.8) (10.5)
Cards and payments income 66 52 47 26.9 40.4
Corporate-owned life insurance income 29 28 30 3.6 (3.3)
Consumer mortgage income 6 3 3 100.0 100.0
Mortgage servicing fees 15 10 11 50.0 36.4
Net gains (losses) from principal
investing 5 11 11 (54.5) (54.5)
Other income 8 22 11 (63.6) (27.3)
--- --- ---
Total noninterest income $549 $473 $470 16.1 % 16.8 %
==== ====
Merger-related charges (12) - - N/M N/M
First Niagara impact (a) 53 - - N/M N/M
--- ---
Total noninterest income excluding
merger-related charges and First
Niagara impact $508 $473 $470 7.4 % 8.1 %
==== ==== ====
(a) Reflects two months of
First Niagara activity
during the third
quarter of 2016.
The acquisition of First Niagara contributed approximately $53 million of noninterest income in the third quarter of 2016, which primarily impacted service charges on deposit accounts, trust and investment services income, and cards and payments income. Additionally, third quarter 2016 reported noninterest income includes $12 million of merger-related charges, including losses from investment portfolio repositioning.
Key's noninterest income was $549 million for the third quarter of 2016, compared to $470 million for the year-ago quarter. Excluding the impact of First Niagara and merger-related charges discussed above, noninterest income increased $38 million, or 8%, primarily driven by a record quarter in investment banking and debt placement fees. Also benefiting the quarter was continued growth in cards and payments income, as well as service charges on deposit accounts. These increases were partially offset by lower corporate services income, net gains on principal investing and operating lease income and other leasing gains.
Compared to the second quarter of 2016, noninterest income increased by $76 million. Excluding the impact of First Niagara and merger-related charges, noninterest income increased $35 million, or 7%, primarily related to the record quarter in investment banking and debt placement fees. Cards and payments income also increased. Partially offsetting the increases were lower operating lease income and other leasing gains, net gains on principal investing and corporate services income.
Noninterest Expense
dollars in millions Change 3Q16 vs.
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Personnel expense $594 $427 $426 39.1 % 39.4 %
Nonpersonnel expense 488 324 298 50.6 63.8
--- --- --- ---- ----
Total noninterest expense $1,082 $751 $724 44.1 49.4
====== ==== ====
Merger-related charges 189 45 - 320.0 N/M
First Niagara impact (a) 140 - - N/M N/M
--- --- --- ---
Total noninterest expense excluding
merger-related charges and First
Niagara impact $753 $706 $724 6.7 % 4.0 %
==== ==== ====
(a) Reflects two months of
First Niagara activity
during the third
quarter of 2016.
N/M = Not Meaningful
Key's noninterest expense was $1.1 billion for the third quarter of 2016, including $140 million related to the operations of First Niagara, which primarily impacted personnel expense, net occupancy, business services and professional fees and other expense.
Additionally, noninterest expense included $189 million of merger-related charges, primarily made up of $97 million in personnel expense related to severance and technology development for systems conversions, as well as fully-dedicated personnel for merger and integration efforts. The remaining $92 million of merger-related charges were nonpersonnel expense, largely recognized in business services and professional fees, computer processing and other expense. In the second quarter of 2016, Key incurred $45 million of merger-related charges, while no merger-related charges were incurred in the third quarter of 2015.
Excluding the $140 million impact of First Niagara and $189 million of merger-related charges, noninterest expense was $29 million higher than the third quarter of last year. The increase was primarily driven by higher performance-based compensation, along with slight increases across various nonpersonnel line items, including FDIC assessment expense. These increases were partially offset by lower employee benefits expense.
Compared to the second quarter of 2016, excluding the impact of First Niagara and merger-related charges, noninterest expense increased by $47 million. The increase was primarily related to higher personnel expense reflecting higher performance-based compensation, as well as an increased FDIC assessment expense.
BALANCE SHEET HIGHLIGHTS
In the third quarter of 2016, Key had average assets of $125.1 billion compared to $94.8 billion in the third quarter of 2015 and $99.2 billion in the second quarter of 2016, primarily reflecting the acquisition of First Niagara.
Key's securities available-for-sale ($18 billion) and held-to-maturity securities ($6.2 billion) averaged $24.2 billion in the third quarter of 2016, compared to $19.2 billion in both the third quarter of 2015 and the second quarter of 2016. The increase compared to both the year-ago quarter and prior quarter primarily reflects the impact of the First Niagara acquisition, which added $4.7 billion of average investment securities, or $9 billion of securities at period-end. During the quarter, Key completed the planned sales and repositioning of First Niagara's portfolio to more closely align with Key's portfolio and investment philosophy.
Average Loans
dollars in millions Change 3Q16 vs.
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Commercial, financial and
agricultural (a) $37,318 $32,630 $30,374 14.4 % 22.9 %
Other commercial loans 19,110 13,222 13,098 44.5 45.9
Home equity loans 11,968 10,098 10,510 18.5 13.9
Other consumer loans 9,301 5,198 5,299 78.9 75.5
----- ----- -----
Total loans $77,697 $61,148 $59,281 27.1 % 31.1 %
======= ======= =======
First Niagara impact (b) 15,420 - - N/M N/M
Total loans excluding First
Niagara impact $62,277 $61,148 $59,281 1.8 % 5.1 %
======= ======= =======
(a) Commercial, financial and
agricultural average loan balances
include $107 million, $87 million,
and $88 million of assets from
commercial credit cards at
September 30, 2016, June 30, 2016,
and September 30, 2015,
respectively.
(b) Balance includes two months of
average First Niagara activity
during the third quarter of 2016.
N/M = Not Meaningful
In the third quarter of 2016, the acquisition of First Niagara contributed approximately $15.4 billion of average loans, or $23 billion at period-end, impacting both the commercial and consumer loan portfolios. These results include the estimated fair value adjustment on the acquired portfolio of $686 million and the divestiture of $439 million of loans.
Average loans were $77.7 billion for the third quarter of 2016, an increase of $18.4 billion compared to the third quarter of 2015. Excluding the impact of the First Niagara acquisition, average loans were $62.3 billion for the third quarter of 2016, an increase of $3 billion compared to the third quarter of 2015. The loan growth occurred primarily in the commercial, financial and agricultural portfolio, which increased $3.3 billion. Consumer loans declined $537 million, largely due to paydowns in Key's home equity loan portfolio.
Compared to the second quarter of 2016, average loans increased by $16.5 billion, or $1.1 billion excluding the impact of First Niagara. This increase was driven by growth in commercial, financial and agricultural loans, which increased $1 billion, and reflects broad based growth across Key's commercial lines of business.
Average Deposits
dollars in millions Change 3Q16 vs.
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Non-time deposits (a) $85,683 $67,419 $64,928 27.1 % 32.0 %
Certificates of deposit ($100,000
or more) 4,204 3,233 1,985 30.0 111.8
Other time deposits 5,031 3,252 3,064 54.7 64.2
----- ----- ----- ---- ----
Total deposits $94,918 $73,904 $69,977 28.4 % 35.6 %
===
First Niagara impact (b) 18,851 - - N/M N/M
------ --- ---
Total deposits excluding First Niagara
impact $76,067 $73,904 $69,977 2.9 % 8.7 %
Cost of total deposits (a) .21 % .19 % .15 % N/A N/A
(a) Excludes deposits in
foreign office.
Balance includes two
months of average First
Niagara activity during
the third quarter of
(b) 2016.
N/M = Not Meaningful
N/A = Not Applicable
In the third quarter of 2016, the acquisition of First Niagara contributed approximately $18.9 billion of average deposits, or $27.3 billion at period-end, which are spread across deposit products and consist primarily of consumer deposits. During the quarter, $1.6 billion of deposits were divested.
Average deposits, excluding deposits in foreign office, totaled $94.9 billion for the third quarter of 2016, an increase of $24.9 billion compared to the year-ago quarter. Excluding the impact of First Niagara, average deposits increased $5.7 billion over the year-ago quarter. Interest-bearing deposits increased $5.9 billion driven by a $4.7 billion increase in NOW and money market deposit accounts and a $1.2 billion increase in certificates of deposits and other time deposits. The increase from the year-ago quarter reflects core deposit growth in Key's retail banking franchise and growth in escrow deposits from our commercial mortgage servicing business.
Compared to the second quarter of 2016, average deposits increased by $21 billion. Excluding the impact of First Niagara, average deposits increased $2.2 billion driven by an increase in escrow deposits from Key's commercial mortgage servicing business, core deposit growth in Key's retail banking franchise, and deposit inflows from Key's commercial clients.
ASSET QUALITY
dollars in millions Change 3Q16 vs.
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Net loan charge-offs $44 $43 $41 2.3 % 7.3 %
Net loan charge-offs
to average total
loans .23 % .28 % .27 % N/A N/A
Nonperforming loans at
period end (a) $723 $619 $400 16.8 % 80.8 %
Nonperforming assets
at period end (a) 760 637 417 19.3 82.3
Allowance for loan and
lease losses 865 854 790 1.3 9.5
Allowance for loan and
lease losses to
nonperforming loans
(a) 119.6 % 138.0 % 197.5 % N/A N/A
Provision for credit
losses $59 $52 $45 13.5 % 31.1 %
(a) Nonperforming loan balances exclude
$959 million, $11 million, and $12
million of purchased credit
impaired loans at September 30,
2016, June 30, 2016, and September
30, 2015, respectively.
N/A = Not Applicable
Key's provision for credit losses was $59 million for the third quarter of 2016, compared to $45 million for the third quarter of 2015 and $52 million for the second quarter of 2016. Key's provision for credit losses in the third quarter of 2016 included $12 million related to the acquired credit card portfolio from First Niagara. Key's allowance for loan and lease losses was $865 million, or 1.01% of total period-end loans, at September 30, 2016, compared to 1.31% at September 30, 2015, and 1.38% at June 30, 2016.
Net loan charge-offs for the third quarter of 2016 totaled $44 million, or .23% of average total loans, including $2 million of net charge-offs related to First Niagara. These results compare to $41 million, or .27%, for the third quarter of 2015, and $43 million, or .28%, for the second quarter of 2016.
At September 30, 2016, Key's nonperforming loans totaled $723 million, which represented .85% of period-end portfolio loans, and include $150 million of nonperforming loans related to First Niagara. These results compare to .67% at September 30, 2015, and 1.00% at June 30, 2016. Nonperforming assets at September 30, 2016, totaled $760 million, and represented .89% of period-end portfolio loans and OREO and other nonperforming assets, and include $167 million of nonperforming assets related to First Niagara. These results compare to .69% at September 30, 2015, and 1.03% at June 30, 2016.
CAPITAL
Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at September 30, 2016.
Capital Ratios
9/30/2016 6/30/2016 9/30/2015
--------- --------- ---------
Common Equity Tier 1 (a),
(b) 9.55% 11.10% 10.47%
Tier 1 risk-based capital
(a) 10.52 11.41 10.87
Total risk based capital
(a) 12.54 13.63 12.47
Tangible common equity to
tangible assets (b) 8.26 9.95 9.90
Leverage (a) 10.17 10.59 10.68
(a) 9-30-16 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.
As shown in the preceding table, at September 30, 2016, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.55% and 10.52%, respectively. In addition, the tangible common equity ratio was 8.26% at September 30, 2016. The declines from the prior quarter are primarily related to the acquisition of First Niagara.
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 9.39% at September 30, 2016. 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 3Q16 vs.
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Shares outstanding at
beginning of period 842,703 842,290 843,608 - (.1) %
Common shares repurchased (5,240) - (8,386) N/M (37.5)
Shares reissued
(returned) under
employee benefit plans 4,857 413 63 N/M N/M
Common shares issued to
acquire First Niagara 239,735 - - N/M N/M
------- --- --- --- ---
Shares outstanding at end of
period 1,082,055 842,703 835,285 28.4 % 29.5 %
=========
N/M = Not Meaningful
During the third quarter of 2016, Key issued 240 million common shares related to the acquisition of First Niagara. Key also resumed its share repurchase program under the 2016 Capital Plan following the close of the First Niagara acquisition. Accordingly, Key completed $65 million of common share repurchases in the third quarter of 2016, including repurchases to offset issuances of common shares under our employee compensation plans.
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 3Q16 vs.
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Revenue from continuing operations (TE)
--------------------------------------
Key Community Bank $779 $598 $579 30.3 % 34.5 %
Key Corporate Bank 553 452 454 22.3 21.8
Other Segments 17 31 35 (45.2) (51.4)
--- --- --- ----- -----
Total segments 1,349 1,081 1,068 24.8 26.3
Reconciling Items (12) (3) - N/M N/M
--- --- --- --- ---
Total $1,337 $1,078 $1,068 24.0 % 25.2 %
===
Income (loss) from continuing operations attributable to Key
------------------------------------------------------------
Key Community Bank $103 $81 $74 27.2 % 39.2 %
Key Corporate Bank 159 135 136 17.8 16.9
Other Segments 16 24 26 (33.3) (38.5)
--- --- --- ----- -----
Total segments 278 240 236 15.8 17.8
Reconciling Items (a) (107) (41) (14) N/M N/M
---- --- --- --- ---
Total $171 $199 $222 (14.1) % (23.0) %
===
(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 3Q16 vs.
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Summary of operations
Net interest income (TE) $530 $391 $379 35.5 % 39.8 %
Noninterest income 249 207 200 20.3 24.5
--- --- --- ---- ----
Total revenue (TE) 779 598 579 30.3 34.5
Provision for credit losses 37 25 18 48.0 105.6
Noninterest expense 578 444 444 30.2 30.2
--- --- --- ---- ----
Income (loss) before income taxes (TE) 164 129 117 27.1 40.2
Allocated income taxes (benefit) and TE
adjustments 61 48 43 27.1 41.9
--- --- --- ---- ----
Net income (loss) attributable to Key $103 $81 $74 27.2 % 39.2 %
===
Average balances
Loans and leases $41,548 $30,936 $31,039 34.3 % 33.9 %
Total assets 44,219 32,963 33,155 34.1 33.4
Deposits 69,397 53,794 51,234 29.0 35.5
Assets under management at period end $36,752 $34,535 $35,158 6.4 % 4.5 %
TE = Taxable Equivalent
Additional Key Community Bank Data
dollars in millions 3Q15
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Noninterest income
Trust and investment services income $86 $73 $73 17.8 % 17.8 %
Service charges on deposit accounts 70 56 56 25.0 25.0
Cards and payments income 54 46 43 17.4 25.6
Other noninterest income 39 32 28 21.9 39.3
--- --- --- ---- ----
Total noninterest income $249 $207 $200 20.3 % 24.5 %
===
Average deposit balances
NOW and money market deposit accounts $38,417 $30,144 $28,568 27.4 % 34.5 %
Savings deposits 4,369 2,365 2,362 84.7 85.0
Certificates of deposit ($100,000 or more) 2,607 2,383 1,560 9.4 67.1
Other time deposits 4,943 3,245 3,061 52.3 61.5
Deposits in foreign office - - 271 N/M N/M
Noninterest-bearing deposits 19,061 15,657 15,412 21.7 23.7
------ ------ ------ ---- ----
Total deposits $69,397 $53,794 $51,234 29.0 % 35.5 %
===
Home equity loans
Average balance $11,703 $9,908 $10,281
Combined weighted-average loan-to-value ratio (at date of origination) 70% 71% 71%
Percent first lien positions 55 61 60
Other data
Branches 1,322 949 972
Automated teller machines 1,701 1,236 1,259
N/M = Not Meaningful
Key Community Bank Summary of Operations
-- Net income increased $29 million, or 39.2% from prior year (up $11
million, or 14.9% excluding the impact of First Niagara)
-- Average deposits increased $18.2 billion, or 35.5% from the prior year
(up $3.8 billion, or 7.4% excluding the impact of First Niagara)
-- Average loans increased $10.5 billion, or 33.9% from the prior year (up
$206 million, or .7% excluding the impact of First Niagara)
Key Community Bank recorded net income attributable to Key of $103 million for the third quarter of 2016, compared to $74 million for the year-ago quarter. First Niagara contributed $18 million of the growth year-over-year.
Taxable-equivalent net interest income increased by $151 million, or 39.8%, from the third quarter of 2015. Excluding the impact of First Niagara, taxable-equivalent net interest income increased $27 million, primarily driven by deposit growth and higher interest rates.
Noninterest income increased $49 million, or 24.5%, from the year-ago quarter. Excluding the impact of First Niagara, noninterest income increased $8 million, or 4%, related to positive trends in cards and payments income and service charges on deposit accounts. Investment banking and debt placement fees also increased from the year-ago period. These increases were partially offset by declines in trust and investment services and consumer mortgage income.
The provision for credit losses increased by $19 million, or 105.6%, from the third quarter of 2015, primarily related to the acquired credit card portfolio from First Niagara. Excluding the impact of First Niagara, the provision for credit losses increased $3 million, or 16.6%, related to an increase in net loan charge-offs of $9 million from the same period one year ago.
Noninterest expense increased by $134 million, or 30.2%, from the year-ago quarter. Excluding the impact of First Niagara, noninterest expense increased $14 million, or 3.1%, mostly driven by the implementation of an FDIC surcharge and increased marketing expense.
Key Corporate Bank
dollars in millions Change 3Q16 vs.
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Summary of operations
Net interest income (TE) $276 $222 $221 24.3 % 24.9 %
Noninterest income 277 230 233 20.4 18.9
--- --- --- ---- ----
Total revenue (TE) 553 452 454 22.3 21.8
Provision for credit losses 25 30 30 (16.7) (16.7)
Noninterest expense 307 259 250 18.5 22.8
--- --- --- ---- ----
Income (loss) before income taxes (TE) 221 163 174 35.6 27.0
Allocated income taxes and TE
adjustments 62 29 41 113.8 51.2
--- --- --- ----- ----
Net income (loss) 159 134 133 18.7 19.5
Less: Net income (loss) attributable
to noncontrolling interests - (1) (3) N/M N/M
--- --- --- --- ---
Net income (loss) attributable to Key $159 $135 $136 17.8 % 16.9 %
===
Average balances
Loans and leases $34,561 $28,607 $26,425 20.8 % 30.8 %
Loans held for sale 1,103 591 918 86.6 20.2
Total assets 40,581 33,909 32,099 19.7 26.4
Deposits 22,708 19,129 18,809 18.7 20.7
TE = Taxable Equivalent, N/M = Not Meaningful
Additional Key Corporate Bank Data
dollars in millions Change 3Q16 vs.
3Q16 2Q16 3Q15 2Q16 3Q15
---- ---- ---- ---- ----
Noninterest income
Trust and investment services income $36 $37 $35 (2.7) % 2.9 %
Investment banking and debt placement fees 153 94 107 62.8 43.0
Operating lease income and other leasing gains 9 15 16 (40.0) (43.8)
Corporate services income 36 40 46 (10.0) (21.7)
Service charges on deposit accounts 15 12 11 25.0 36.4
Cards and payments income 10 6 4 66.7 150.0
--- --- --- -----
Payments and services income 61 58 61 5.2 -
Mortgage servicing fees 13 10 11 30.0 18.2
Other noninterest income 5 16 3 (68.8) 66.7
--- --- --- -----
Total noninterest income $277 $230 $233 20.4 % 18.9 %
===
Key Corporate Bank Summary of Operations
-- Record quarter for investment banking and debt placement fees, up $46
million, or 43% from prior year (no impact from First Niagara)
-- Net income increased $23 million, or 16.9% from the prior year (up $9
million, or 6.6% excluding the impact of First Niagara)
-- Average loans and leases increased $8.1 billion, or 30.8% from the prior
year (up $3.1 billion, or 11.7% excluding the impact of First Niagara)
-- Average deposits increased $3.9 billion, or 20.7% from the prior year
(up $1.5 billion, or 7.9% excluding the impact of First Niagara)
Key Corporate Bank recorded net income attributable to Key of $159 million for the third quarter of 2016, compared to $136 million for the same period one year ago. First Niagara contributed $14 million of the growth year-over year.
Taxable-equivalent net interest income increased by $55 million, or 24.9%, compared to the third quarter of 2015. Excluding the impact of First Niagara, taxable-equivalent net interest income increased by $18 million, or 8%, compared to the third quarter of 2015. Average loan and lease balances increased $8.1 billion, or 30.8%, from the year-ago quarter, primarily driven by the First Niagara acquisition as well as growth in commercial, financial and agricultural loans. This loan growth was offset by spread compression due to higher funding costs. Average deposit balances increased $3.9 billion, or 20.7%, from the year-ago quarter, mostly driven by the First Niagara acquisition as well as growth in commercial escrow deposits.
Noninterest income increased $44 million, or 18.9%, from the prior year. Excluding the impact of First Niagara, noninterest income increased $40 million, or 17%. This growth was mostly due to a record quarter for investment banking and debt placement fees, which were up $46 million, or 43%, related to strength in commercial mortgage banking, equity capital markets and merger and acquisition advisory fees.
The provision for credit losses decreased $5 million, or 16.7%, compared to the third quarter of 2015. Excluding the impact of First Niagara, the provision for credit losses decreased $7 million, or 22.2%. The decrease was mostly due to lower net loan charge-offs.
Noninterest expense increased by $57 million, or 22.8%, from the third quarter of 2015. Excluding the impact of First Niagara, noninterest expense increased $39 million, or 15.4%. Personnel expense increased $32 million, or 26%, mostly due to increases in incentive compensation and salaries. Several other line items increased over the prior year, including operating lease, cards and payments, FDIC, and overhead 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 $16 million for the third quarter of 2016, compared to $26 million for the same period last year. This decline was largely attributable to spread compression.
*****
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 $135.8 billion at September 30, 2016.
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, 2015, 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 Tuesday, October 25, 2016. An audio replay of the call will be available through November 8, 2016.
Financial Highlights
(dollars in millions, except per share amounts)
Three months ended
9/30/2016 6/30/2016 9/30/2015
--------- --------- ---------
Summary of operations
Net interest
income (TE) $788 $605 $598
Noninterest
income 549 473 470
---
Total revenue (TE) 1,337 1,078 1,068
Provision for
credit losses 59 52 45
Noninterest
expense 1,082 751 724
Income (loss)
from
continuing
operations
attributable
to Key 171 199 222
Income (loss)
from
discontinued
operations,
net of taxes
(a) 1 3 (3)
Net income
(loss)
attributable
to Key 172 202 219
Income (loss)
from
continuing
operations
attributable
to Key common
shareholders 165 193 216
Income (loss)
from
discontinued
operations,
net of taxes
(a) 1 3 (3)
Net income
(loss)
attributable
to Key common
shareholders 166 196 213
Per common share
Income (loss)
from
continuing
operations
attributable
to Key common
shareholders $.17 .23 .26
Income (loss)
from
discontinued
operations,
net of taxes
(a) - - -
Net income
(loss)
attributable
to Key common
shareholders
(b) .17 .23 .26
Income (loss)
from
continuing
operations
attributable
to Key common
shareholders
-assuming
dilution .16 .23 .26
Income (loss)
from
discontinued
operations,
net of taxes
-assuming
dilution (a) - - -
Net income
(loss)
attributable
to Key common
shareholders
-assuming
dilution
(b) .17 .23 .25
Cash dividends
paid .085 .085 .075
Book value at
period end 12.78 13.08 12.47
Tangible book
value at
period end 10.14 11.81 11.17
Market price
at period end 12.17 11.05 13.01
Performance ratios
From
continuing
operations:
Return on
average total
assets .55 % .82% .95%
Return on
average
common equity 5.09 7.15 8.30
Return on
average
tangible
common equity
(c) 6.16 7.94 9.27
Net interest
margin (TE) 2.85 2.76 2.87
Cash
efficiency
ratio (c) 80.0 69.0 66.9
From
consolidated
operations:
Return on
average total
assets .55 % .82% .92%
Return on
average
common equity 5.12 7.26 8.19
Return on
average
tangible
common equity
(c) 6.20 8.06 9.14
Net interest
margin (TE) 2.83 2.74 2.84
Loan to
deposit (d) 84.7 85.3 89.3
Capital ratios at period end
Key
shareholders'
equity to
assets 11.04 % 11.18% 11.22%
Key common
shareholders'
equity to
assets 10.18 10.90 10.91
Tangible
common equity
to tangible
assets (c) 8.26 9.95 9.90
Common Equity
Tier 1 (c),
(e) 9.55 11.10 10.47
Tier 1 risk-
based capital
(e) 10.52 11.41 10.87
Total risk-
based capital
(e) 12.54 13.63 12.47
Leverage (e) 10.17 10.59 10.68
Asset quality -from continuing
operations
Net loan
charge-offs $44 $43 $41
Net loan
charge-offs
to average
loans .23 % .28 % .27 %
Allowance for
loan and
lease losses $865 $854 $790
Allowance for
credit losses 918 904 844
Allowance for
loan and
lease losses
to period-
end loans 1.01 % 1.38 % 1.31 %
Allowance for
credit losses
to period-
end loans 1.07 1.46 1.40
Allowance for
loan and
lease losses
to
nonperforming
loans (f) 119.6 138.0 197.5
Allowance for
credit losses
to
nonperforming
loans (f) 127.0 146.0 211.0
Nonperforming
loans at
period end
(f) $723 $619 $400
Nonperforming
assets at
period end
(f) 760 637 417
Nonperforming
loans to
period-end
portfolio
loans (f) .85 % 1.00 % .67 %
Nonperforming
assets to
period-end
portfolio
loans plus
OREO and
other
nonperforming
assets (f) .89 1.03 .69
Trust and brokerage assets
Assets under
management $36,752 $34,535 $35,158
Nonmanaged and
brokerage
assets 45,338 52,102 46,796
Other data
Average full-
time
equivalent
employees 17,079 13,419 13,555
Branches 1,322 949 972
Taxable-equivalent adjustment $8 8 7
Financial Highlights (continued)
(dollars in millions, except per share amounts)
Nine months ended
-----------------
9/30/2016 9/30/2015
--------- ---------
Summary of operations
Net interest
income (TE) $2,005 $1,766
Noninterest
income 1,453 1,395
-----
Total revenue (TE) 3,458 3,161
Provision for
credit losses 200 121
Noninterest
expense 2,536 2,104
Income (loss)
from
continuing
operations
attributable
to Key 557 685
Income (loss)
from
discontinued
operations,
net of taxes
(a) 5 5
Net income
(loss)
attributable
to Key 562 690
Income (loss)
from
continuing
operations
attributable
to Key common
shareholders $540 $668
Income (loss)
from
discontinued
operations,
net of taxes
(a) 5 5
Net income
(loss)
attributable
to Key common
shareholders 545 673
Per common share
Income (loss)
from
continuing
operations
attributable
to Key common
shareholders $.61 $.79
Income (loss)
from
discontinued
operations,
net of taxes
(a) .01 .01
Net income
(loss)
attributable
to Key common
shareholders
(b) .62 .80
Income (loss)
from
continuing
operations
attributable
to Key common
shareholders
-assuming
dilution .60 .78
Income (loss)
from
discontinued
operations,
net of taxes
-assuming
dilution (a) .01 .01
Net income
(loss)
attributable
to Key common
shareholders
-assuming
dilution
(b) .61 .79
Cash dividends
paid .245 .215
Performance ratios
From
continuing
operations:
Return on
average total
assets .71 % 1.00 %
Return on
average
common equity 6.28 8.67
Return on
average
tangible
common equity
(c) 7.21 9.69
Net interest
margin (TE) 2.84 2.88
Cash
efficiency
ratio (c) 72.5 65.7
From
consolidated
operations:
Return on
average total
assets .70 % .99 %
Return on
average
common equity 6.34 8.74
Return on
average
tangible
common equity
(c) 7.27 9.76
Net interest
margin (TE) 2.81 2.85
Asset quality -from
continuing operations
Net loan
charge-offs 133 105
Net loan
charge-offs
to average
total loans .27 % .24 %
Other data
Average full-
time
equivalent
employees 14,642 13,525
Taxable-equivalent adjustment 24 20
(a) In April 2009, management decided to
wind down the operations of Austin
Capital Management, Ltd., a
subsidiary that specialized in
managing hedge fund investments for
institutional customers. In
September 2009, management decided to
discontinue the education lending
business conducted through Key
Education Resources, the education
payment and financing unit of KeyBank
National Association. In February
2013, Key decided to sell its
investment subsidiary, Victory
Capital Management, and its broker-
dealer affiliate, Victory Capital
Advisors, to a private equity fund.
As a result of these decisions, Key
has accounted for these businesses as
discontinued operations.
(b) Earnings per share may not foot due to
rounding.
(c) The following table entitled "GAAP to
Non-GAAP Reconciliations" presents
the computations of certain financial
measures related to "tangible common
equity," "Common Equity Tier 1," 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) 9-30-16 ratio is estimated.
(f) Nonperforming loan balances exclude
$959 million, $11 million, and $12
million of purchased credit impaired
loans at September 30, 2016, June 30,
2016, and September 30, 2015,
respectively.
TE = Taxable Equivalent, GAAP = U.S. generally
accepted accounting principles
GAAP to Non-GAAP Reconciliations
(dollars in millions)
The table below presents certain non-GAAP financial measures related to "tangible common equity," "return on tangible common equity," "Common Equity Tier 1," "pre-provision net revenue," certain financial measures excluding merger-related charges, and "cash efficiency ratio."
The tangible common equity ratio and the return on tangible common equity ratio have been a focus for some investors, and management believes these ratios may assist investors in analyzing Key's capital position without regard to the effects of intangible assets and preferred stock. Traditionally, the banking regulators have assessed bank and bank holding company capital adequacy based on both the amount and the composition of capital, the calculation of which is prescribed in federal banking regulations. In October 2013, the federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules"). The Regulatory Capital Rules require higher and better-quality capital and 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 merger-related charges, noninterest expense excluding merger-related charges, earnings per common share excluding merger-related charges, and return on average assets from continuing operations 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
------------------
9/30/2016 6/30/2016 9/30/2015
--------- --------- ---------
Tangible common equity to tangible assets at period end
Key shareholders' equity (GAAP) $14,996 $11,313 $10,705
Less: Intangible assets (a) 2,855 1,074 1,084
Preferred Stock, Series A
(b) 1,156 281 281
----- --- ---
Tangible common equity
(non-GAAP) $10,985 $9,958 $9,340
======= ====== ======
Total assets (GAAP) $135,805 $101,150 $95,420
Less: Intangible assets (a) 2,855 1,074 1,084
--------------
Tangible assets (non-GAAP) $132,950 $100,076 $94,336
======== ======== =======
Tangible common equity to tangible
assets ratio (non-GAAP) 8.26 % 9.95 % 9.90 %
Common Equity Tier 1 at period end
Key shareholders' equity (GAAP) $14,996 $11,313 10,705
Less: Preferred Stock, Series A
(b) 1,156 281 281
--------------
Common Equity Tier 1
capital before
adjustments and
deductions 13,840 11,032 10,424
Less: Goodwill, net of deferred
taxes 2,451 1,031 1,036
Intangible assets, net of
deferred taxes 256 30 29
Deferred tax assets 1 1 1
Net unrealized gains
(losses) on available-
for-sale securities, net
of deferred taxes 99 129 54
Accumulated gains (losses)
on cash flow hedges, net
of deferred taxes 39 77 21
Amounts in accumulated
other comprehensive
income (loss) attributed
to
pension and postretirement benefit costs, net of deferred
taxes (359) (362) (385)
---- ---- ----
Total Common Equity Tier 1
capital (c) $11,353 $10,126 $9,668
======= ======= ======
Net risk-weighted assets
(regulatory) (c) $118,922 $91,195 92,307
Common Equity Tier 1 ratio (non-
GAAP) (c) 9.55 % 11.10 % 10.47 %
Pre-provision net revenue
Net interest income (GAAP) $780 $597 $591
Plus: Taxable-equivalent
adjustment 8 8 7
Noninterest income 549 473 470
Less: Noninterest expense 1,082 751 724
--------------
Pre-provision net revenue
from continuing
operations (non-GAAP) $255 $327 $344
==== ==== ====
GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
Three months ended
------------------
9/30/2016 6/30/2016 9/30/2015
--------- --------- ---------
Average tangible common equity
Average Key shareholders' equity (GAAP) $13,552 $11,147 $10,614
Less: Intangible assets (average) (d) 2,255 1,076 1,083
Preferred Stock, Series A (average) 648 290 290
--- --- ---
Average tangible common equity (non-GAAP) $10,649 $9,781 $9,241
======= ====== ======
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key
common shareholders (GAAP) $165 $193 $216
Average tangible common equity (non-GAAP) 10,649 9,781 9,241
Return on average tangible common equity from continuing operations
(non-GAAP) 6.16 % 7.94 % 9.27 %
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP) $166 $196 $213
Average tangible common equity (non-GAAP) 10,649 9,781 9,241
Return on average tangible common equity consolidated (non-GAAP) 6.20 % 8.06 % 9.14 %
Noninterest expense excluding merger-related charges
Noninterest expense (GAAP) $1,082 $751 $724
Less: Merger-related charges 189 45 -
---------------
Noninterest expense excluding merger-related charges (non-GAAP) $893 $706 $724
==== ==== ====
Earnings per common share (EPS) excluding merger-related charges
EPS from continuing operations attributable to Key common
shareholders -
assuming dilution $.16 $.23 $.26
Add: EPS impact of merger-related charges .14 .04 -
---------------
EPS from continuing operations attributable to Key common shareholders
excluding merger-related charges (non-GAAP) $.30 $.27 .26
==== ==== ===
Cash efficiency ratio
Noninterest expense (GAAP) $1,082 $751 $724
Less: Intangible asset amortization 13 7 9
---------------
Adjusted noninterest expense (non-GAAP) 1,069 744 715
Less: Merger-related charges 189 45 -
---------------
Adjusted noninterest expense excluding merger-related charges (non-GAAP) $880 $699 $715
==== ==== ====
Net interest income (GAAP) $780 $597 $591
Plus: Taxable-equivalent adjustment 8 8 7
Noninterest income 549 473 470
--- --- ---
Total taxable-equivalent revenue (non-GAAP) 1,337 1,078 1,068
Add: Merger-related charges 18 - -
Adjusted noninterest income excluding merger-related charges (non-GAAP) 1,355 $1,078 1,068
===== ====== =====
Cash efficiency ratio (non-GAAP) 80.0 % 69.0 % 66.9 %
Cash efficiency ratio excluding merger-related charges (non-GAAP) 64.9 % 64.8 % 66.9 %
Return on average total assets from continuing operations excluding merger-related charges
Income from continuing operations attributable to Key (GAAP) $171 $199 $222
Add: Merger-related charges, after tax 132 28 -
Income from continuing operations attributable to Key excluding merger-related
charges, after tax (non-GAAP) $303 $227 $222
==== ==== ====
Average total assets from continuing operations (GAAP) $123,469 $97,413 $92,649
===
Return on average total assets from continuing operations excluding
merger-related
charges (non-GAAP) .98 % .94 % .95 %
Three months ended
------------------
9/30/2016
---------
Common Equity Tier 1 under the Regulatory Capital Rules ("RCR") (estimates)
Common Equity Tier 1 under current RCR $11,353
Adjustments from current RCR to the fully phased-in RCR:
Deferred tax assets and other intangible assets (e) (170)
----
Common Equity Tier 1 anticipated under the fully phased-in RCR (f) $11,183
=======
Net risk-weighted assets under current RCR $118,922
Adjustments from current RCR to the fully phased-in RCR:
Mortgage servicing assets (g) 547
Volcker funds (199)
All other assets (133)
Total risk-weighted assets anticipated under the fully phased-in RCR (f) $119,137
========
Common Equity Tier 1 ratio under the fully phased-in RCR (f) 9.39 %
GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
Nine months ended
-----------------
9/30/2016 9/30/2015
--------- ---------
Pre-provision net revenue
Net interest income
(GAAP) $1,981 $1,746
Plus: Taxable-equivalent adjustment 24 20
Noninterest income (GAAP) 1,453 1,395
Less: Noninterest expense (GAAP) 2,536 2,104
-----
Pre-provision net
revenue from
continuing
operations (non-
GAAP) $922 $1,057
===
Average tangible common equity
Average Key
shareholders'
equity (GAAP) $11,890 $10,591
Less: Intangible assets (average) (h) 1,473 1,086
Preferred Stock, Series A
(average) 410 290
--- ---
Average tangible common equity
(non-GAAP) $10,007 $9,215
======= ======
Return on average tangible common equity
from continuing operations
Net income (loss)
from continuing
operations
attributable to Key
common shareholders
(GAAP) $540 $668
Average tangible
common equity (non-
GAAP) 10,007 9,215
Return on average
tangible common
equity from
continuing
operations (non-
GAAP) 7.21 % 9.69 %
Return on average tangible common equity
consolidated
Net income (loss)
attributable to Key
common shareholders
(GAAP) $545 $673
Average tangible
common equity (non-
GAAP) 10,007 9,215
Return on average
tangible common
equity consolidated
(non-GAAP) 7.27 % 9.76 %
Cash efficiency ratio
Noninterest expense
(GAAP) $2,536 $2,104
Less: Intangible asset amortization
(GAAP) 28 27
---
Adjusted noninterest expense
(non-GAAP) 2,508 2,077
Less: Merger-related charges 258 -
---
Adjusted noninterest expense
excluding merger-related
charges (non-GAAP) $2,250 $2,077
====== ======
Net interest income
(GAAP) $1,981 $1,746
Plus: Taxable-equivalent adjustment 24 20
Noninterest income (GAAP) 1,453 1,395
----- -----
Total taxable-equivalent
revenue (non-GAAP) 3,458 3,161
Add: Merger-related charges 18 -
---
Adjusted noninterest income
excluding merger-related
charges (non-GAAP) $3,476 $3,161
Cash efficiency
ratio (non-GAAP) 72.5 % 65.7 %
Cash efficiency
ratio excluding
merger-related
charges (non-GAAP) 64.7 % 65.7 %
Return on average total assets from
continuing operations excluding merger-
related charges
Income from
continuing
operations
attributable to Key
(GAAP) $557 $685
Add: Merger-related charges, after
tax 175 -
---
Income from continuing
operations attributable to Key
excluding merger-related
charges, after tax (non-GAAP) $732 $685
==== ====
Average total assets
from continuing
operations (GAAP) $105,187 $91,322
===
Return on average
total assets from
continuing
operations
excluding merger-
related
charges (non-GAAP) .93 % 1.00%
(a) For the three months ended September
30, 2016, June 30, 2016, and
September 30, 2015, intangible
assets exclude $51 million, $36
million, and $50 million,
respectively, of period-end
purchased credit card receivables.
(b) Net of capital surplus.
(c) 9/30/16 amount is estimated.
(d) For the three months ended September
30, 2016, June 30, 2016, and
September 30, 2015, average
intangible assets exclude $47
million, $38 million, and $52
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%.
(h) For the nine months ended September
30, 2016, and September 30, 2015,
average intangible assets exclude
$42 million and $58 million,
respectively, of average purchased
credit card receivables.
GAAP = U.S. generally accepted accounting
principles
Consolidated Balance Sheets
(dollars in millions)
9/30/2016 6/30/2016 9/30/2015
--------- --------- ---------
Assets
Loans $85,528 $62,098 $60,085
Loans held for
sale 1,137 442 916
Securities
available for
sale 20,540 14,552 14,376
Held-to-
maturity
securities 8,995 4,832 4,936
Trading account
assets 926 965 811
Short-term
investments 3,216 6,599 1,964
Other investments 747 577 691
---
Total earning assets 121,089 90,065 83,779
Allowance for
loan and lease
losses (865) (854) (790)
Cash and due from
banks 749 496 470
Premises and
equipment 1,023 742 771
Operating lease
assets 430 399 315
Goodwill 2,480 1,060 1,060
Other intangible
assets 426 50 74
Corporate-owned
life insurance 4,035 3,568 3,516
Derivative assets 1,304 1,234 793
Accrued income
and other assets 3,480 2,673 3,346
Discontinued
assets 1,654 1,717 2,086
-----
Total assets $135,805 $101,150 $95,420
======== ======== =======
Liabilities
Deposits in
domestic
offices:
NOW and money market deposit
accounts $56,432 $40,195 $37,301
Savings deposits 5,335 2,355 2,338
Certificates of deposit ($100,000
or more) 4,601 3,381 2,001
Other time deposits 5,793 3,267 3,020
----- ----- -----
Total interest-bearing deposits 72,161 49,198 44,660
Noninterest-bearing deposits 32,024 26,127 25,985
Deposits in
foreign office -
interest-
bearing - - 428
---
Total deposits 104,185 75,325 71,073
Federal funds
purchased and
securities sold
under repurchase
agreements 602 360 407
Bank notes and
other short-
term borrowings 809 687 677
Derivative
liabilities 850 746 676
Accrued expense
and other
liabilities 1,739 1,326 1,562
Long-term debt 12,622 11,388 10,308
Total liabilities 120,807 89,832 84,703
Equity
Preferred stock 1,165 290 290
Common shares 1,257 1,017 1,017
Capital surplus 6,359 3,835 3,914
Retained earnings 9,260 9,166 8,764
Treasury stock,
at cost (2,863) (2,881) (3,008)
Accumulated other
comprehensive
income (loss) (182) (114) (272)
Key shareholders' equity 14,996 11,313 10,705
Noncontrolling
interests 2 5 12
---
Total equity 14,998 11,318 10,717
------ ------ ------
Total liabilities and equity $135,805 $101,150 $95,420
======== ======== =======
Common shares outstanding (000) 1,082,055 842,703 835,285
Consolidated Statements of Income
(dollars in millions, except per share amounts)
Three months ended Nine months ended
------------------ -----------------
9/30/2016 6/30/2016 9/30/2015 9/30/2016 9/30/2015
--------- --------- --------- --------- ---------
Interest income
Loans $746 $567 $542 $1,875 $1,597
Loans held for
sale 10 5 10 23 29
Securities
available for
sale 88 74 75 237 217
Held-to-
maturity
securities 30 24 24 78 72
Trading account
assets 4 6 5 17 15
Short-term
investments 7 6 1 17 5
Other
investments 5 2 4 10 14
Total interest income 890 684 661 2,257 1,949
Interest expense
Deposits 49 34 27 114 79
Bank notes and
other short-
term
borrowings 2 3 2 7 6
Long-term debt 59 50 41 155 118
Total interest expense 110 87 70 276 203
Net interest income 780 597 591 1,981 1,746
Provision for credit losses 59 52 45 200 121
--- --- --- --- ---
Net interest income after provision
for credit losses 721 545 546 1,781 1,625
Noninterest income
Trust and
investment
services
income 122 110 108 341 328
Investment
banking and
debt placement
fees 156 98 109 325 318
Service charges
on deposit
accounts 85 68 68 218 192
Operating lease
income and
other leasing
gains 6 18 15 41 58
Corporate
services
income 51 53 57 154 143
Cards and
payments
income 66 52 47 164 136
Corporate-
owned life
insurance
income 29 28 30 85 91
Consumer
mortgage
income 6 3 3 11 10
Mortgage
servicing fees 15 10 11 37 33
Net gains
(losses) from
principal
investing 5 11 11 16 51
Other income
(a) 8 22 11 61 35
Total noninterest income 549 473 470 1.453 1,395
Noninterest expense
Personnel 594 427 426 1.425 1,223
Net occupancy 73 59 60 193 191
Computer
processing 70 45 41 158 121
Business
services and
professional
fees 76 40 40 157 115
Equipment 26 21 22 68 66
Operating lease
expense 15 14 11 42 34
Marketing 32 22 17 66 40
FDIC assessment 21 8 8 38 24
Intangible
asset
amortization 13 7 9 28 27
OREO expense,
net 3 2 2 6 5
Other expense 159 106 88 355 258
Total noninterest expense 1,082 751 724 2,536 2,104
----- --- --- ----- -----
Income (loss) from continuing
operations before income taxes 188 267 292 698 916
Income taxes 16 69 72 141 230
Income (loss) from continuing
operations 172 198 220 557 686
Income (loss)
from
discontinued
operations,
net of taxes 1 3 (3) 5 5
Net income (loss) 173 201 217 562 691
Less: Net
income (loss)
attributable
to
noncontrolling
interests 1 (1) (2) - 1
Net income (loss) attributable to
Key $172 $202 $219 $562 $690
==== ==== ==== ==== ====
Income (loss) from continuing
operations attributable to Key
common shareholders $165 $193 $216 $540 $668
Net income (loss) attributable to
Key common shareholders 166 196 213 545 673
Per common share
----------------
Income (loss) from continuing
operations attributable to Key
common shareholders $.17 $.23 $.26 $.61 $.79
Income (loss) from discontinued
operations, net of taxes - - - .01 .01
Net income (loss) attributable to
Key common shareholders (b) .17 .23 .26 .62 .80
Per common share - assuming dilution
------------------------------------
Income (loss) from continuing
operations attributable to Key
common shareholders $.16 $.23 $.26 $.60 $.78
Income (loss) from discontinued
operations, net of taxes - - - .01 .01
Net income (loss) attributable to
Key common shareholders (b) .17 .23 .25 .61 .79
Cash dividends declared per common
share $.085 $.085 $.075 $.245 $.215
Weighted-average common shares
outstanding (000) 982,080 831,899 831,430 880,824 839,758
Effect of
common share
options and
other stock
awards 12,580 6,597 7,450 8,965 7,613
Weighted-average common shares and
potential common shares outstanding
(000) (c) 994,660 838,496 838,880 889,789 847,371
======= ======= ======= ======= =======
(a) For the three months ended September 30, 2016, net securities losses totaled $6 million. For the three months ended
June 30, 2016, and September 30, 2015, net securities gains (losses) totaled less than $1 million. For the three
months ended September 30, 2016, June 30, 2016, and September 30, 2015, 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)
Third Quarter 2016 Second Quarter 2016 Third Quarter 2015
-------------------
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) $37,318 $317 3.38 % $32,630 $270 3.32% $30,374 $244 3.19%
Real estate -
commercial
mortgage 12,879 126 3.91 8,404 80 3.85 7,988 73 3.65
Real estate -
construction 1,723 21 4.67 869 8 3.78 1,164 11 3.78
Commercial
lease
financing 4,508 38 3.33 3,949 37 3.77 3,946 35 3.57
Total commercial loans 56,428 502 3.54 45,852 395 3.47 43,472 363 3.32
Real estate -
residential
mortgage 4,453 45 3.96 2,253 22 4.11 2,258 24 4.19
Home equity
loans 11,968 122 4.07 10,098 102 4.04 10,510 105 3.96
Consumer direct
loans 1,666 30 7.20 1,599 26 6.53 1,597 26 6.53
Credit cards 996 27 10.80 792 21 10.58 759 21 10.74
Consumer
indirect loans 2,186 28 5.23 554 9 6.56 685 11 6.47
Total consumer loans 21,269 252 4.73 15,296 180 4.74 15,809 187 4.69
------ --- ---- ------ --- ---- ------ --- ----
Total loans 77,697 754 3.86 61,148 575 3.78 59,281 550 3.69
Loans held for
sale 1,152 10 3.48 611 5 3.18 939 10 3.96
Securities
available for
sale (b), (e) 17,972 88 1.99 14,268 74 2.08 14,247 74 2.11
Held-to-
maturity
securities (b) 6,250 30 1.86 4,883 24 1.98 4,923 24 1.95
Trading account
assets 860 4 2.12 967 6 2.28 699 5 2.50
Short-term
investments 5,911 7 .48 5,559 6 .45 2,257 1 .26
Other
investments
(e) 717 5 2.74 610 2 1.54 696 4 2.52
Total earning assets 110,559 898 3.24 88,046 692 3.16 83,042 668 3.21
Allowance for
loan and lease
losses (847) (833) (790)
Accrued income
and other
assets 13,757 10,200 10,397
Discontinued
assets 1,676 1,738 2,118
Total assets $125,145 $99,151 $94,767
======== ======= =======
Liabilities
NOW and money
market deposit
accounts $51,318 25 .20 $39,687 16 .17 $36,289 15 .16
Savings
deposits 4,521 1 .07 2,375 - .02 2,371 - .02
Certificates of
deposit
($100,000 or
more) (f) 4,204 12 1.15 3,233 11 1.39 1,985 6 1.27
Other time
deposits 5,031 11 .85 3,252 7 .85 3,064 6 .70
Deposits in
foreign office - - - - - - 492 - .23
Total interest-bearing
deposits 65,074 49 .30 48,547 34 .29 44,201 27 .24
Federal funds
purchased and
securities 578 - .16 337 - .01 859 - .08
sold under
repurchase
agreements
Bank notes and
other short-
term
borrowings 1,186 2 .91 694 3 1.39 567 2 1.51
Long-term debt
(f), (g) 10,415 59 2.31 9,294 50 2.25 7,893 41 2.20
Total interest-bearing
liabilities 77,253 110 .57 58,872 87 .60 53,520 70 .53
------ --- --- ------ --- --- ------ --- ---
Noninterest-
bearing
deposits 29,844 25,357 26,268
Accrued expense
and other
liabilities 2,818 2,032 2,236
Discontinued
liabilities
(g) 1,676 1,738 2,118
Total liabilities 111,591 87,999 84,142
Equity
Key
shareholders'
equity 13,552 11,147 10,614
Noncontrolling
interests 2 5 11
Total equity 13,554 11,152 10,625
Total liabilities and equity $125,145 $99,151 $94,767
======== ======= =======
Interest rate spread (TE) 2.67 % 2.56% 2.68%
==== ==== ====
Net interest income (TE) and net
interest margin (TE) 788 2.85 % 605 2.76% 598 2.87%
==== ==== ====
TE adjustment (b) 8 8 7
--- --- ---
Net interest
income, GAAP
basis $780 $597 $591
(a) Results are from continuing
operations. Interest excludes
the interest associated with the
liabilities referred to in (g)
below, calculated using a matched
funds transfer pricing
methodology.
(b) Interest income on tax-exempt
securities and loans has been
adjusted to a taxable-equivalent
basis using the statutory federal
income tax rate of 35%.
(c) For purposes of these
computations, nonaccrual loans
are included in average loan
balances.
(d) Commercial, financial and
agricultural average balances
include $107 million, $87
million, and $88 million of
assets from commercial credit
cards for the three months ended
September 30, 2016, June 30,
2016, and September 30, 2015,
respectively.
(e) Yield is calculated on the basis
of amortized cost.
(f) Rate calculation excludes basis
adjustments related to fair value
hedges.
(g) A portion of long-term debt and
the related interest expense is
allocated to discontinued
liabilities as a result of
applying Key's matched funds
transfer pricing methodology to
discontinued operations.
TE = Taxable Equivalent, GAAP = U.S. generally
accepted accounting principles
Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
(dollars in millions)
Nine months ended September 30, 2016 Nine months ended September 30, 2015
------------------------------------ ------------------------------------
Average Average
Balance Interest (a) Yield/Rate (a) Balance Interest (a) Yield/ Rate (a)
------- -------- ---------- ------- -------- -----------
Assets
Loans: (b), (c)
Commercial,
financial and
agricultural
(d) $33,859 $850 3.35 % $29,244 $700 3.20%
Real estate -
commercial
mortgage 9,818 283 3.85 8,021 220 3.67
Real estate -
construction 1,205 39 4.30 1,168 33 3.76
Commercial
lease
financing 4,139 111 3.57 3,998 107 3.57
Total commercial loans 49,021 1,283 3.50 42,431 1,060 3.34
Real estate -
residential
mortgage 2,986 91 4.05 2,241 71 4.22
Home equity
loans 10,773 327 4.06 10,531 313 3.98
Consumer direct
loans 1,619 82 6.77 1,572 77 6.56
Credit cards 858 69 10.71 743 60 10.80
Consumer
indirect loans 1,118 47 5.67 745 36 6.42
Total consumer
loans 17,354 616 4.74 15,832 557 4.71
Total loans 66,375 1,899 3.82 58,263 1,617 3.71
Loans held for
sale 864 23 3.58 1,000 29 3.77
Securities
available for
sale (b), (e) 15,492 237 2.06 13,569 217 2.15
Held-to-
maturity
securities (b) 5,320 78 1.94 4,945 72 1.93
Trading account
assets 881 17 2.60 740 15 2.62
Short-term
investments 4,971 17 .46 2,627 5 .26
Other
investments
(e) 658 10 2.05 717 14 2.60
Total earning
assets 94,561 2,281 3.23 81,861 1,969 3.22
Allowance for
loan and lease
losses (828) (792)
Accrued income
and other
assets 11,454 10,253
Discontinued
assets 1,739 2,194
Total assets $106,926 $93,516
===
Liabilities
NOW and money
market deposit
accounts $42,935 56 .18 $35,793 42 .15
Savings
deposits 3,087 1 .04 2,383 - .02
Certificates of
deposit
($100,000 or
more) (f) 3,402 33 1.28 2,004 19 1.27
Other time
deposits 3,832 24 .83 3,138 17 .71
Deposits in
foreign office - - - 534 1 .23
Total interest-bearing
deposits 53,256 114 .29 43,852 79 .24
Federal funds
purchased and
securities 451 - .09 713 - .05
sold under
repurchase
agreements
Bank notes and
other short-
term
borrowings 825 7 1.21 577 6 1.48
Long-term debt
(f), (g) 9,429 155 2.25 7,001 118 2.32
Total interest-bearing
liabilities 63,961 276 .58 52,143 203 .52
------ --- --- ------ --- ---
Noninterest-
bearing
deposits 26,938 26,377
Accrued expense
and other
liabilities 2,392 2,200
Discontinued
liabilities
(g) 1,739 2,194
Total
liabilities 95,030 82,914
Equity
Key
shareholders'
equity 11,890 10,591
Noncontrolling
interests 6 11
Total equity 11,896 10,602
Total
liabilities
and equity $106,926 $93,516
===
Interest rate spread (TE) 2.65 % 2.70%
==== ====
Net interest income (TE) and net
interest margin (TE) 2,005 2.84% 1,766 2.88%
==== ====
TE adjustment (b) 24 20
--- ---
Net interest
income, GAAP
basis $1,981 $1,746
(a) Results are from continuing
operations. Interest excludes
the interest associated with the
liabilities referred to in (g)
below, calculated using a matched
funds transfer pricing
methodology.
(b) Interest income on tax-exempt
securities and loans has been
adjusted to a taxable-equivalent
basis using the statutory federal
income tax rate of 35%.
(c) For purposes of these
computations, nonaccrual loans
are included in average loan
balances.
(d) Commercial, financial and
agricultural average balances
include $93 million and $88
million of assets from commercial
credit cards for the nine months
ended September 30, 2016, and
September 30, 2015, 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 Nine months ended
-----------------
9/30/2016 6/30/2016 9/30/2015 9/30/2016 9/30/2015
--------- --------- --------- --------- ---------
Personnel (a) $594 $427 $426 $1,425 $1,223
Net occupancy 73 59 60 193 191
Computer processing 70 45 41 158 121
Business services and professional fees 76 40 40 157 115
Equipment 26 21 22 68 66
Operating lease expense 15 14 11 42 34
Marketing 32 22 17 66 40
FDIC assessment 21 8 8 38 24
Intangible asset amortization 13 7 9 28 27
OREO expense, net 3 2 2 6 5
Other expense 159 106 88 355 258
--- --- --- --- ---
Total noninterest expense $1,082 $751 $724 $2,536 $2,104
====== ==== ==== ====== ======
Merger-related charges (b) 189 45 - 258 -
First Niagara impact (c) 140 - - 140 -
--- --- --- --- ---
Total noninterest expense excluding merger-
related charges and $753 $706 $724 $2,138 $2,104
First Niagara impact
Average full-time equivalent employees (d) 17,079 13,419 13,555 14,642 13,525
(a) Additional detail provided in
Personnel Expense table below.
(b) Additional detail provide in
Merger-Related Charges table
below.
(c) Reflects two months of First
Niagara activity during the
third quarter of 2016.
(d) The number of average full-time
equivalent employees has not
been adjusted for discontinued
operations.
Personnel Expense
(in millions)
Three months ended Nine months ended
9/30/2016 6/30/2016 9/30/2015 9/30/2016 9/30/2015
--------- --------- --------- --------- ---------
Salaries and contract labor $329 $266 $247 $839 $714
Incentive and stock-based compensation 162 101 103 352 295
Employee benefits 73 58 75 199 202
Severance 30 2 1 35 12
--- --- --- --- ---
Total personnel expense $594 $427 $426 $1,425 $1,223
==== ==== ==== ====== ======
Merger-related charges 97 35 - 148 -
First Niagara impact (a) 72 - - 72 -
Total personnel expense excluding merger-related charges and $425 $392 $426 $1,205 $1,223
First Niagara impact
(a) Reflects two months of First Niagara activity during the third quarter of 2016.
Merger-Related Charges
(in millions)
Three months ended Nine months ended
9/30/2016 6/30/2016 9/30/2015 9/30/2016 9/30/2015
--------- --------- --------- --------- ---------
Net interest income $(6) - - $(6) -
Operating lease income and other leasing gains (2) - - (2) -
Other income (10) - - (10) -
--- --- --- --- ---
Noninterest income (12) - - (12) -
Personnel (a) 97 $35 - 148 -
Business services and professional fees 32 5 - 44 -
Computer processing 15 - - 15 -
Marketing 9 3 - 13 -
Other nonpersonnel expense 36 2 - 38 -
--- --- --- --- ---
Noninterest expense 189 45 - 258 -
--- --- --- --- ---
Total merger-related charges $207 $45 - $276 -
==== === === ==== ===
(a) Personnel expense includes severance, technology development related to systems conversion, and fully-dedicated personnel for merger and integration efforts.
Loan Composition
(dollars in millions)
Percent change 9/30/16 vs.
9/30/2016 6/30/2016 9/30/2015 6/30/2016 9/30/2015
--------- --------- --------- --------- ---------
Commercial, financial and
agricultural (a) $39,433 33,376 $31,095 18.1 % 26.8 %
Commercial real estate:
Commercial
mortgage 14,979 8,582 8,180 74.5 83.1
Construction 2,189 881 1,070 148.5 104.6
-----
Total
commercial
real estate
loans 17,168 9,463 9,250 81.4 85.6
Commercial lease financing
(b) 4,783 3,988 3,929 19.9 21.7
----- ----- ----- ---- ----
Total
commercial
loans 61,384 46,827 44,274 31.1 38.6
Residential - prime loans:
Real estate -
residential
mortgage 5,509 2,285 2,267 141.1 143.0
Home equity
loans 12,757 10,062 10,504 26.8 21.4
------
Total residential -prime
loans 18,266 12,347 12,771 47.9 43.0
Consumer direct loans 1,764 1,584 1,612 11.4 9.4
Credit cards 1,084 813 770 33.3 40.8
Consumer indirect loans 3,030 527 658 475.0 360.5
----- --- --- ----- -----
Total
consumer
loans 24,144 15,271 15,811 58.1 52.7
------
Total loans
(c), (d) $85,528 $62,098 $60,085 37.7 % 42.3 %
=== ===
(a) Loan balances include $117 million,
$88 million, and $88 million of
commercial credit card balances at
September 30, 2016, June 30, 2016,
and September 30, 2015,
respectively.
(b) Commercial lease financing includes
receivables held as collateral for
a secured borrowing of $76
million, $102 million, and $162
million at September 30, 2016,
June 30, 2016, and September 30,
2015, respectively. Principal
reductions are based on the cash
payments received from these
related receivables.
(c) At September 30, 2016, total loans
include purchased loans of $22.4
billion, of which $959 million
were purchased credit impaired. At
June 30, 2016, total loans include
purchased loans of $104 million,
of which $11 million were
purchased credit impaired. At
September 30, 2015, total loans
include purchased loans of $119
million, of which $12 million were
purchased credit impaired.
(d) Total loans exclude loans of $1.6
billion at September 30, 2016,
$1.7 billion at June 30, 2016, and
$1.9 billion at September 30,
2015, related to the discontinued
operations of the education
lending business.
Loans Held for Sale Composition
(dollars in millions)
Percent change 9/30/16 vs.
9/30/2016 6/30/2016 9/30/2015 6/30/2016 9/30/2015
--------- --------- --------- --------- ---------
Commercial,
financial and
agricultural $56 $150 $74 (62.7) % (24.3) %
Real estate -
commercial
mortgage 1,016 270 806 276.3 26.1
Commercial lease
financing 3 3 10 - (70.0)
Real estate -
residential
mortgage (a) 62 19 26 226.3 138.5
--- --- --- ----- -----
Total
loans
held
for
sale
(b) $1,137 $442 $916 157.2 % 24.1 %
===
(a) Real estate -residential mortgage
loans held for sale at fair value.
(b) Total loans held for sale exclude
loans held for sale of $169
million at September 30, 2015,
related to the discontinued
operations of the education
lending business.
Summary of Changes in Loans Held for Sale
(in millions)
3Q16 2Q16 1Q16 4Q15 3Q15
---- ---- ---- ---- ----
Balance at beginning of
period $442 $684 $639 $916 $835
Purchases 48 - - - -
New
originations 2,857 1,539 1,114 1,655 1,673
Transfers
from (to)
held to
maturity,
net 2 22 - 22 24
Loan sales (2,180) (1,802) (1,108) (1,943) (1,616)
Loan draws
(payments),
net (32) (1) 39 (11) -
Balance at end of period
(a), (b) $1,137 $442 $684 $639 $916
====== ==== ==== ==== ====
(a) Total loans held for sale include
Real estate -residential mortgage
loans held for sale at fair value
of $62 million at September 30,
2016.
(b) Total loans held for sale exclude
loans held for sale of $169
million at September 30, 2015,
related to the discontinued
operations of the education
lending business.
Asset Quality Statistics From Continuing Operations
(dollars in millions)
3Q16 2Q16 1Q16 4Q15 3Q15
---- ---- ---- ---- ----
Net loan charge-offs $44 $43 $46 $37 $41
Net loan charge-offs
to average total
loans .23 % .28 % .31 % .25 % .27 %
Allowance for loan and
lease losses $865 $854 $826 $796 $790
Allowance for credit
losses (a) 918 904 895 852 844
Allowance for loan and
lease losses to
period-end loans 1.01 % 1.38 % 1.37 % 1.33 % 1.31 %
Allowance for credit
losses to period-end
loans 1.07 1.46 1.48 1.42 1.40
Allowance for loan and
lease losses to
nonperforming loans
(b) 119.6 138.0 122.2 205.7 197.5
Allowance for credit
losses to
nonperforming loans
(b) 127.0 146.0 132.4 220.2 211.0
Nonperforming loans at
period end (b) $723 $619 $676 $387 $400
Nonperforming assets
at period end (b) 760 637 692 403 417
Nonperforming loans to
period-end portfolio
loans (b) .85 % 1.00 % 1.12 % .65 % .67 %
Nonperforming assets
to period-end
portfolio loans plus .89 1.03 1.14 .67 .69
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
$959 million, $11 million, $11
million, $11 million, and $12
million of purchased credit
impaired loans at September 30,
2016, June 30, 2016, March 31, 2016
, December 31, 2015, and September
30, 2015, respectively.
Summary of Loan and Lease Loss Experience From Continuing Operations
(dollars in millions)
Three months ended Nine months ended
-----------------
9/30/2016 6/30/2016 9/30/2015 9/30/2016 9/30/2015
--------- --------- --------- --------- ---------
Average loans
outstanding $77,697 $61,148 $59,281 $66,375 $58,263
======= ======= ======= ======= =======
Allowance for loan and
lease losses at
beginning of period 854 826 796 796 794
Loans charged off:
Commercial, financial
and agricultural 17 35 26 78 59
Real estate -
commercial mortgage - 2 - 3 2
Real estate -
construction 9 - - 9 1
--- --- --- --- ---
Total commercial real
estate loans 9 2 - 12 3
Commercial lease
financing 5 3 2 11 5
--- --- --- --- ---
Total commercial loans 31 40 28 101 67
Real estate -
residential mortgage 1 1 1 4 4
Home equity loans 5 7 7 22 25
Consumer direct loans 6 6 6 18 18
Credit cards 9 8 7 25 23
Consumer indirect loans 3 2 4 9 15
--- --- --- --- ---
Total consumer loans 24 24 25 78 85
--- --- --- --- ---
Total loans charged off 55 64 53 179 152
Recoveries:
Commercial, financial
and agricultural 2 3 2 8 13
Real estate -
commercial mortgage 1 6 - 9 2
Real estate -
construction 1 - - 2 1
--- --- --- --- ---
Total commercial real
estate loans 2 6 - 11 3
Commercial lease
financing - 2 2 2 7
--- --- --- --- ---
Total commercial loans 4 11 4 21 23
Real estate -
residential mortgage 1 - - 3 1
Home equity loans 3 4 4 10 9
Consumer direct loans 1 2 1 4 5
Credit cards 1 1 1 3 2
Consumer indirect loans 1 3 2 5 7
--- --- --- --- ---
Total consumer loans 7 10 8 25 24
--- --- --- --- ---
Total recoveries 11 21 12 46 47
--- --- --- --- ---
Net loan charge-offs (44) (43) (41) (133) (105)
Provision (credit) for
loan and lease losses 56 71 36 203 102
Foreign currency
translation adjustment (1) - (1) (1) (1)
--- --- --- --- ---
Allowance for loan and
lease losses at end of
period $865 $854 $790 $865 $790
==== ==== ==== ==== ====
Liability for credit
losses on lending-
related commitments at
beginning of period $50 $69 $45 $56 $35
Provision (credit) for
losses on lending-
related commitments 3 (19) 9 (3) 19
--- --- --- --- ---
Liability for credit
losses on lending-
related commitments at
end of period (a) $53 $50 $54 $53 $54
=== === === === ===
Total allowance for
credit losses at end
of period $918 $904 $844 $918 $844
==== ==== ==== ==== ====
Net loan charge-offs
to average total loans .23 % .28% .27% .27 % .24%
Allowance for loan and
lease losses to
period-end loans 1.01 1.38 1.31 1.01 1.31
Allowance for credit
losses to period-end
loans 1.07 1.46 1.40 1.07 1.40
Allowance for loan and
lease losses to
nonperforming loans 119.6 138.0 197.5 119.6 197.5
Allowance for credit
losses to
nonperforming loans 127.0 146.0 211.0 127.0 211.0
Discontinued operations
-education lending
business:
Loans charged off $6 $6 $9 $21 $25
Recoveries 3 2 2 8 10
--- --- --- --- ---
Net loan charge-offs $(3) $(4) $(7) $(13) $(15)
=== === === ==== ====
(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)
9/30/2016 6/30/2016 3/31/2016 12/31/2015 9/30/2015
--------- --------- ---------- ---------
Commercial, financial
and agricultural $335 $321 $380 $82 $89
Real estate -
commercial mortgage 32 14 16 19 23
Real estate -
construction 17 25 12 9 9
--- --- --- --- ---
Total commercial real
estate loans 49 39 28 28 32
Commercial lease
financing 13 10 11 13 21
--- --- --- --- ---
Total commercial loans 397 370 419 123 142
Real estate -
residential mortgage 72 54 59 64 67
Home equity loans 225 189 191 190 181
Consumer direct loans 2 1 1 2 1
Credit cards 3 2 2 2 2
Consumer indirect
loans 24 3 4 6 7
--- --- --- --- ---
Total consumer loans 326 249 257 264 258
--- --- --- --- ---
Total nonperforming
loans (a) 723 619 676 387 400
OREO 35 15 14 14 17
Other nonperforming
assets 2 3 2 2 -
--- --- --- --- ---
Total nonperforming
assets (a) $760 $637 $692 $403 $417
==== ==== ==== ==== ====
Accruing loans past
due 90 days or more $49 $70 $70 $72 $54
Accruing loans past
due 30 through 89
days 317 203 237 208 271
Restructured loans -
accruing and
nonaccruing (b) 304 277 283 280 287
Restructured loans
included in
nonperforming loans
(b) 149 133 151 159 160
Nonperforming assets
from discontinued
operations - 5 5 6 7 8
education lending
business
Nonperforming loans to
period-end portfolio
loans (a) .85% 1.00% 1.12% .65% .67%
Nonperforming assets
to period-end
portfolio loans .89 1.03 1.14 .67 .69
plus OREO and other
nonperforming assets
(a)
(a) Nonperforming loan balances exclude
$959 million, $11 million, $11
million, $11 million, and $12
million of purchased credit
impaired loans at September 30,
2016, June 30, 2016, March 31,
2016, December 31, 2015, and
September 30, 2015, 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)
3Q16 2Q16 1Q16 4Q15 3Q15
---- ---- ---- ---- ----
Balance at beginning
of period $619 $676 $387 $400 $419
Loans placed on
nonaccrual status 78 124 406 81 81
Nonperforming loans
acquired from First
Niagara 150 - - - -
Charge-offs (53) (64) (60) (51) (53)
Loans sold - - (11) - (2)
Payments (32) (75) (8) (21) (16)
Transfers to OREO (5) (6) (4) (4) (4)
Transfers to other
nonperforming assets - - - (1) -
Loans returned to
accrual status (34) (36) (34) (17) (25)
--- --- --- --- ---
Balance at end of
period (a) $723 $619 $676 $387 $400
==== ==== ==== ==== ====
(a) Nonperforming loan balances exclude
$959 million, $11 million, $11
million, $11 million, and $12
million of purchased credit
impaired loans at September 30,
2016, June 30, 2016, March 31,
2016, December 31, 2015, and
September 30, 2015, respectively.
Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations
(in millions)
3Q16 2Q16 1Q16 4Q15 3Q15
---- ---- ---- ---- ----
Balance at beginning
of period $15 $14 $14 $17 $20
Properties acquired -
First Niagara 19 - - - -
Properties acquired -
nonperforming loans 5 6 4 4 4
Valuation adjustments (2) (2) (1) (2) (2)
Properties sold (2) (3) (3) (5) (5)
--- --- --- --- ---
Balance at end of
period $35 $15 $14 $14 $17
=== === === === ===
Line of Business Results
(dollars in millions)
Percent change 3Q16 vs.
3Q16 2Q16 1Q16 4Q15 3Q15 2Q16 3Q15
---- ---- ---- ---- ---- ---- ----
Key Community Bank
Summary of operations
Total revenue (TE) $779 $598 $595 $588 $579 30.3 % 34.5 %
Provision for credit losses 37 25 42 20 18 48.0 105.6
Noninterest expense 578 444 436 456 444 30.2 30.2
Net income (loss) attributable to
Key 103 81 74 70 74 27.2 39.2
Average loans and leases 41,548 30,936 30,789 30,925 31,039 34.3 33.9
Average deposits 69,397 53,794 52,803 52,219 51,234 29.0 35.5
Net loan charge-offs 31 17 23 23 21 82.4 47.6
Net loan charge-offs to average
total loans .30% .22% .30% .30% .27% N/A N/A
Nonperforming assets
at period end $430 $300 $303 $303 $306 43.3 40.5
Return on average allocated
equity 11.41% 11.99% 11.09% 10.39% 10.92% N/A N/A
Average full-time equivalent
employees 9,803 7,331 7,376 7,390 7,476 33.7 31.1
Key Corporate Bank
Summary of operations
Total revenue (TE) $553 $452 $426 $479 $454 22.3 % 21.8 %
Provision for credit losses 25 30 43 26 30 (16.7) (16.7)
Noninterest expense 307 259 237 257 250 18.5 22.8
Net income (loss) attributable to
Key 159 135 118 142 136 17.8 16.9
Average loans and leases 34,561 28,607 27,722 26,981 26,425 20.8 30.8
Average loans held for sale 1,103 591 811 820 918 86.6 20.2
Average deposits 22,708 19,129 18,074 19,080 18,809 18.7 20.7
Net loan charge-offs 12 27 18 12 20 (55.6) (40.0)
Net loan charge-offs to average
total loans .14% .38% .26% .18% .30% N/A N/A
Nonperforming assets
at period end $313 $319 $372 $74 $85 (1.9) 268.2
Return on average allocated
equity 25.86% 26.23% 23.15% 29.05% 28.29% N/A N/A
Average full-time equivalent
employees 2,331 2,138 2,126 2,113 2,173 9.0 7.3
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-third-quarter-2016-net-income-of-165-million-or-16-per-common-share-earnings-per-common-share-of-30-excluding-14-of-merger-related-charges-300350499.html
SOURCE KeyCorp
