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KeyCorp Reports First Quarter 2014 Net Income of $232 Million, or $.26 Per Common Share

Positive operating leverage from prior year

Strong risk management results with continued improvement in credit quality: net loan charge-offs to average loans declined to .15%

Disciplined capital management with plans to continue returning peer-leading capital to shareholders

Company Release - 4/17/2014 6:30 AM ET

CLEVELAND, April 17, 2014 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced first quarter net income from continuing operations attributable to Key common shareholders of $232 million, or $.26 per common share, compared to $229 million, or $.26 per common share, for the fourth quarter of 2013, and $196 million, or $.21 per common share, for the first quarter of 2013.     

"This was a solid quarter for Key, delivering on our commitments to generate positive operating leverage, maintain our strong risk management practices, and remain disciplined in the way we manage capital," said Chairman and Chief Executive Officer Beth Mooney.  "Revenue trends benefited from solid loan growth, driven by commercial, financial and agricultural loans, and the investments we made in our fee-based businesses.  Our results also demonstrate our continued focus on improving productivity and efficiency, with expenses declining from the year-ago period and prior quarter.  Our cash efficiency ratio was 65%, within our targeted range of 60% to 65%, and we remain committed to further improvement."

"Credit quality trends and our provision for loan losses continued to reflect our strong risk management practices, with both nonperforming loans and net charge-offs declining," added Mooney.

"Capital management also remains a priority for Key," continued Mooney.  "We expect to return a significant amount of our net income to shareholders over the next four quarters through the planned capital actions we announced last month at the conclusion of the CCAR review.  Our plan included a share repurchase program of up to $542 million, and, subject to approval by our Board of Directors, an increase of the quarterly common share dividend to $.065 per share.  We expect these actions will lead to an estimated payout ratio that is among the highest in our peer group for the second consecutive year."

FIRST QUARTER 2014 FINANCIAL RESULTS, from continuing operations

Compared with First Quarter of 2013

  • Average loans up 4.0% (5.5% excluding impact of exit portfolios), driven by an 8.9% growth in commercial, financial and agricultural loans; period ending loans up 5.5%
  • Average deposits up 3.9% due to commercial mortgage servicing acquisition and growth in commercial and public deposits offsetting declines in certificates of deposits
  • Positive operating leverage as the decline in expense more than offset the decline in revenue
  • Net interest income (taxable-equivalent) down $20 million, primarily due to lower asset yields and loan fees 
  • Noninterest income up $10 million, reflecting higher principal investing gains, growth in investment banking and debt placement fees, and benefits from investments in commercial mortgage servicing
  • Noninterest expense down $19 million, reflecting $5 million in lower efficiency-related charges, and the successful execution of our efficiency initiative
  • Asset quality improved, with net loan charge-offs to average loans declining from .38% to .15%
  • Disciplined capital management, with the announcement of new planned capital actions including a share repurchase program of up to $542 million, and, subject to approval by Key's Board of Directors, an increase of the quarterly common share dividend to $.065 per share

Compared with Fourth Quarter of 2013

  • Average loans up 2.1%, driven by a 4.8% growth in commercial, financial and agricultural loans; period ending loans up 1.8%
  • Average deposits down 3.2% due to the expected reduction of escrow deposits in the commercial mortgage servicing business
  • Net interest income (taxable-equivalent) down $20 million due to lower asset yields as well as fewer days in the quarter
  • Noninterest income down $18 million, reflecting a decline in corporate-owned life insurance income and lower commercial mortgage special servicing fees
  • Noninterest expense down $50 million due to a decline of $12 million related to efficiency charges, and lower expenses for marketing, incentive compensation, and salaries
  • Asset quality remains strong, with a 12 basis point improvement in net loan charge-offs to average loans
  • Disciplined capital management, repurchasing $141 million of common shares during the first quarter of 2014 and maintaining a top tier capital position with Tier 1 common equity of 11.22%

 

Selected Financial Highlights























dollars in millions, except per share data











Change 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


Income (loss) from continuing operations attributable to Key common shareholders

$

232


$

229


$

196



1.3

%


18.4

%

Income (loss) from continuing operations attributable to Key common shareholders per common share — assuming dilution


.26



.26



.21





23.8


Return on average total assets from continuing operations


1.13

%


1.08

%


.99

%


N/A



N/A


Tier 1 common equity (a)


11.22



11.22



11.40



N/A



N/A


Book value at period end

$

11.43


$

11.25


$

10.89



1.6

%


5.0

%

Net interest margin (TE) from continuing operations


3.00

%


3.01

%


3.24

%


N/A



N/A




































 (a) The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the

       computations of certain financial measures related to "Tier 1 common equity."  The table reconciles the

       GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for

       period-to-period comparisons.



















TE = Taxable Equivalent, N/A = Not Applicable



























INCOME STATEMENT HIGHLIGHTS
































Revenue

































dollars in millions











Change 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


Net interest income (TE)

$

569


$

589


$

589



(3.4)

%


(3.4)

%

Noninterest income


435



453



425



(4.0)



2.4



Total revenue

$

1,004


$

1,042


$

1,014



(3.6)

%


(1.0)

%



































TE = Taxable Equivalent















Taxable-equivalent net interest income was $569 million for the first quarter of 2014, and the net interest margin was 3.00%.  These results compare to taxable-equivalent net interest income of $589 million and a net interest margin of 3.24% for the first quarter of 2013.  The decrease in net interest income and net interest margin is attributable to lower asset yields and loan fees, offsetting the impact of loan growth.  The decreases were also partially offset by the maturity of higher-rate certificates of deposits and a more favorable mix of lower-cost deposits. 

Compared to the fourth quarter of 2013, taxable-equivalent net interest income decreased by $20 million, and the net interest margin declined by one basis point.  The decrease in net interest income was primarily due to lower asset yields as well as fewer days in the first quarter of 2014.  The decrease was partially offset by increased loan growth and a lower cost of funds as higher-rate certificates of deposits matured.  

Noninterest Income






























dollars in millions











Change 1Q14 vs.





1Q14 



4Q13 



1Q13 



4Q13 



1Q13 


Trust and investment services income

$

98


$

98


$

95





3.2

%

Investment banking and debt placement fees


84



84



79





6.3


Service charges on deposit accounts


63



68



69



(7.4)

%


(8.7)


Operating lease income and other leasing gains


29



26



25



11.5



16.0


Corporate services income


42



40



45



5.0



(6.7)


Cards and payments income


38



40



37



(5.0)



2.7


Corporate-owned life insurance income


26



33



30



(21.2)



(13.3)


Consumer mortgage income


2



3



7



(33.3)



(71.4)


Mortgage servicing fees


15



22



8



(31.8)



87.5


Net gains (losses) from principal investing


24



20



8



20.0



200.0


Other income


14



19



22



(26.3)



(36.4)



Total noninterest income

$

435


$

453


$

425



(4.0)

%


2.4

%



































Key's noninterest income was $435 million for the first quarter of 2014, compared to $425 million for the year-ago quarter.  Key continued to see benefits from recent investments, with mortgage servicing fees increasing $7 million and card and payments income increasing $1 million.  Reflecting the benefits of Key's focus on targeted industries, investment banking and debt placement fees increased $5 million from the prior year.  In addition, net gains from principal investing increased $16 million.  These increases were partially offset by decreases of $8 million in other income mostly related to lower fixed income sales and trading income, a decline in service charges on deposit accounts of $6 million due to lower non-sufficient funds and overdraft charges, and a $5 million decrease in consumer mortgage income.   

Compared to the fourth quarter of 2013, noninterest income decreased by $18 million.  Mortgage servicing fees decreased $7 million as the fourth quarter of 2013 had higher commercial mortgage special servicing fees, and service charges on deposit accounts decreased $5 million due to lower non-sufficient funds and overdraft charges.  Corporate-owned life insurance income also declined $7 million due to seasonality of annual dividend payments in the fourth quarter. 

Noninterest Expense































dollars in millions












Change 1Q14 vs.






1Q14



4Q13



1Q13



4Q13



1Q13


Personnel expense


$

388


$

398


$

391



(2.5)

%


(.8)

%

Nonpersonnel expense



274



314



290



(12.7)



(5.5)



Total noninterest expense


$

662


$

712


$

681



(7.0)

%


(2.8)

%





































Key's noninterest expense was $662 million for the first quarter of 2014, compared to $681 million for the same period last year.  Excluding efficiency charges of $10 million in the first quarter of 2014 and $15 million in the first quarter of 2013, noninterest expense was down $14 million from the prior year.  The provision (credit) for losses on lending-related commitments decreased $5 million, which was a credit of $2 million in the current quarter compared to an expense of $3 million the prior year.  Additionally, there were declines in various other miscellaneous expenses.     

Compared to the fourth quarter of 2013, noninterest expense decreased by $50 million.  The reduction in expenses reflected $12 million in lower efficiency-related charges.  Marketing decreased $13 million from the prior quarter.  Personnel expense decreased $10 million due to lower incentive compensation and salary expense.  In addition, other expense decreased $12 million from the prior quarter. 

BALANCE SHEET HIGHLIGHTS

As of March 31, 2014, Key had total assets of $90.8 billion compared to $92.9 billion at December 31, 2013, and $89.2 billion at March 31, 2013.

Average Loans






























dollars in millions











Change 3-31-14 vs.





3-31-14


12-31-13


3-31-13


12-31-13


3-31-13


Commercial, financial and agricultural (a)


$

25,390


$

24,218


$

23,317



4.8

%


8.9

%

Other commercial loans



13,337



13,266



13,493



.5



(1.2)


Total home equity loans



10,630



10,653



10,200



(.2)



4.2


Other consumer loans



5,389



5,471



5,616



(1.5)



(4.0)



Total loans


$

54,746


$

53,608


$

52,626



2.1

%


4.0

%





















(a)   

Commercial, financial and agricultural average balances for the three months ended March 31, 2014, December 31, 2013, and March 31, 2013, include $94 million, $97 million, and $91 million of assets from commercial credit cards, respectively.

Average loans were $54.7 billion for the first quarter of 2014, an increase of $2.1 billion compared to the first quarter of 2013.  The loan growth occurred primarily in the commercial, financial and agricultural portfolio, and was broad-based across Key's commercial lines of business.  Consumer loans increased $203 million, as the $430 million increase in home equity loans was partially offset by the $227 million decrease in other consumer loans.  The growth in home equity loans was balanced across Key's geographic footprint.    

Compared to the fourth quarter of 2013, average loans increased by $1.1 billion.  Commercial, financial and agricultural loans increased $1.2 billion.  Consumer loans declined $105 million, with $82 million of the decrease related to exit portfolios.

Average Deposits
























dollars in millions










Change 3-31-14 vs.




3-31-14


12-31-13


3-31-13


12-31-13


3-31-13


Non-time deposits (a)

$

59,197


$

61,394


$

55,819



(3.6)

%


6.1

%

Certificates of deposits ($100,000 or more)


2,758



2,649



2,911



4.1



(5.3)


Other time deposits


3,679



3,736



4,451



(1.5)



(17.3)



Total deposits

$

65,634


$

67,779


$

63,181



(3.2)

%


3.9

%


















Cost of total deposits (a)


.20

%


.20

%


.29

%


N/A



N/A




































(a)

Excludes deposits in foreign office.























N/A = Not Applicable






Average deposits, excluding deposits in foreign office, totaled $65.6 billion for the first quarter of 2014, an increase of $2.5 billion compared to the year-ago quarter.  Demand deposits increased by $1.3 billion and NOW and money market deposit accounts increased $2.1 billion, mostly due to growth related to commercial and public sector client inflows as well as increases related to the commercial mortgage servicing acquisition.  This growth was partially offset by run-off in certificates of deposit. 

Compared to the fourth quarter of 2013, average deposits, excluding deposits in foreign office, decreased by $2.1 billion.  Demand deposits were down $2.4 billion, driven by the expected reduction of escrow deposits in the commercial mortgage servicing business as well as seasonal outflows related to other commercial clients.  This decrease was partially offset by increases in NOW and money market deposit accounts.

ASSET QUALITY



























dollars in millions











Change 1Q14 vs.




1Q14



4Q13



1Q13



4Q13



1Q13


Net loan charge-offs

$

20


$

37


$

49



(45.9)

%


(59.2)

%

Net loan charge-offs to average total loans


.15

%


.27

%


.38

%


N/A



N/A


Nonperforming loans at period end (a)

$

449


$

508


$

650



(11.6)



(30.9)


Nonperforming assets at period end


469



531



705



(11.7)



(33.5)


Allowance for loan and lease losses


834



848



893



(1.7)



(6.6)


Allowance for loan and lease losses to nonperforming loans


185.7

%


166.9

%


137.4

%


N/A



N/A


Provision (credit) for loan and lease losses

$

6


$

19


$

55



(68.4)

%


(89.1)

%

































(a)  March 31, 2014, December 31, 2013, and March 31, 2013, loan balances exclude $16 million, $16 million, and $22 million of purchased credit impaired loans, respectively.

















N/A = Not Applicable













Key's provision for loan and lease losses was $6 million for the first quarter of 2014, compared to $19 million for the fourth quarter of 2013 and $55 million for the year-ago quarter.  Key's allowance for loan and lease losses was $834 million, or 1.50%, of total period-end loans at March 31, 2014, compared to 1.56% at December 31, 2013, and 1.70% at March 31, 2013. 

Net loan charge-offs for the first quarter of 2014 totaled $20 million, or .15%, of average total loans.  These results compare to $37 million, or .27%, for the fourth quarter of 2013, and $49 million, or .38%, for the same period last year.  

At March 31, 2014, Key's nonperforming loans totaled $449 million and represented .81% of period-end portfolio loans, compared to .93% at December 31, 2013, and 1.24% at March 31, 2013.  Nonperforming assets at March 31, 2014, totaled $469 million and represented .85% of period-end portfolio loans and OREO and other nonperforming assets, compared to .97% at December 31, 2013, and 1.34% at March 31, 2013.  

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2014.

Capital Ratios






















3-31-14



12-31-13



3-31-13


Tier 1 common equity (a), (b)


11.22

%


11.22

%


11.40

%

Tier 1 risk-based capital (a)


11.96



11.96



12.19


Total risk based capital (a)


14.17



14.33



15.02


Tangible common equity to tangible assets (b)


10.14



9.80



10.24


Leverage (a)


11.32



11.11



11.36














(a)   

3-31-14 ratio is estimated.



(b)   

The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "tangible common equity" and "Tier 1 common equity."  The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.

As shown in the preceding table, at March 31, 2014, Key's estimated Tier 1 common equity and Tier 1 risk-based capital ratios stood at 11.22% and 11.96%, respectively.  In addition, the tangible common equity ratio was 10.14% at March 31, 2014.

In October 2013, federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules").  While the Regulatory Capital Rules became effective January 1, 2014, the mandatory compliance date for Key as a "standardized approach" banking organization begins on January 1, 2015, subject to transitional provisions extending to January 1, 2019.  Key's estimated Common Equity Tier 1 as calculated under the Regulatory Capital Rules was 10.67% at March 31, 2014.  This estimate exceeds the fully phased-in required minimum Common Equity Tier 1 and Capital Conservation Buffer of 7.00%.

Summary of Changes in Common Shares Outstanding




















in thousands










Change 1Q14 vs.




1Q14



4Q13



1Q13



4Q13



1Q13


Shares outstanding at beginning of period

890,724



897,821



925,769



(.8)

%


(3.8)

%

Common shares repurchased

(9,845)



(7,659)



(6,790)



28.5



45.0


Shares reissued (returned) under employee benefit plans

3,990



562



3,602



610.0



10.8



Shares outstanding at end of period

884,869



890,724



922,581



(.7)

%


(4.1)

%

































Key completed its 2013 CCAR capital plan, including common share repurchases of $141 million, in the first quarter of 2014.  Key's 2014 CCAR capital plan includes common share repurchases of up to $542 million, which are expected to be executed through the first quarter of 2015.

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 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


Revenue from continuing operations (TE)
















Key Community Bank

$

541


$

561


$

575



(3.6)

%


(5.9)

%

Key Corporate Bank


391



411



383



(4.9)



2.1


Other Segments


70



73



54



(4.1)



29.6



Total segments


1,002



1,045



1,012



(4.1)



(1.0)


Reconciling Items


2



(3)



2



N/M





Total

$

1,004


$

1,042


$

1,014



(3.6)

%


(1.0)

%


















Income (loss) from continuing operations attributable to Key
















Key Community Bank

$

63


$

43


$

47



46.5

%


34.0

%

Key Corporate Bank


122



133



113



(8.3)



8.0


Other Segments


53



61



43



(13.1)



23.3



Total segments


238



237



203



.4



17.2


Reconciling Items




(2)



(2)



N/M



N/M



Total

$

238


$

235


$

201



1.3

%


18.4

%



































TE = Taxable equivalent, N/M = Not Meaningful








































Key Community Bank














































dollars in millions











Change 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


Summary of operations
















Net interest income (TE)

$

363


$

377


$

387



(3.7)

%


(6.2)

%

Noninterest income


178



184



188



(3.3)



(5.3)



Total revenue (TE)


541



561



575



(3.6)



(5.9)


Provision (credit) for loan and lease losses


9



32



59



(71.9)



(84.7)


Noninterest expense


432



460



441



(6.1)



(2.0)



Income (loss) before income taxes (TE)


100



69



75



44.9



33.3


Allocated income taxes (benefit) and TE adjustments


37



26



28



42.3



32.1



Net income (loss) attributable to Key

$

63


$

43


$

47



46.5

%


34.0

%


















Average balances
















Loans and leases

$

29,793


$

29,596


$

28,977



.7

%


2.8

%

Total assets


31,943



31,785



31,474



.5



1.5


Deposits


49,824



50,409



49,349



(1.2)



1.0



















Assets under management at period end

$

26,549


$

26,664


$

25,101



(.4)

%


5.8

%



































TE = Taxable Equivalent














 

 

Additional Key Community Bank Data



























dollars in millions











Change 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


Noninterest income 
















Trust and investment services income 

$

67


$

66


$

65



1.5

%


3.1

%

Service charges on deposit accounts 


52



58



58



(10.3)



(10.3)


Cards and payments income 


35



37



33



(5.4)



6.1


Other noninterest income 


24



23



32



4.3



(25.0)



Total noninterest income 

$

178


$

184


$

188



(3.3)

%


(5.3)

%


















Average deposit balances
















NOW and money market deposit accounts

$

27,428


$

27,438


$

26,109





5.1

%

Savings deposits


2,465



2,472



2,463



(.3)

%


.1


Certificates of deposit ($100,000 or more)


2,163



2,124



2,498



1.8



(13.4)


Other time deposits


3,673



3,731



4,445



(1.6)



(17.4)


Deposits in foreign office


309



285



270



8.4



14.4


Noninterest-bearing deposits


13,786



14,359



13,564



(4.0)



1.6



Total deposits 

$

49,824


$

50,409


$

49,349



(1.2)

%


1.0

%


















Home equity loans 
















Average balance

$

10,305


$

10,310


$

9,787








Weighted-average loan-to-value ratio (at date of origination)


71

%


71

%


70

%







Percent first lien positions


58



58



55

























Other data
















Branches


1,027



1,028



1,084








Automated teller machines


1,330



1,335



1,482

























Key Community Bank Summary of Operations

  • Average loan balances up 2.8% from prior year
  • Average core deposits up 3.7% from prior year
  • Net income attributable to Key Community Bank up 34% from the prior year

Key Community Bank recorded net income attributable to Key of $63 million for the first quarter of 2014, compared to net income attributable to Key of $47 million for the year-ago quarter.

Taxable-equivalent net interest income decreased by $24 million, or 6.2%, from the first quarter of 2013.  Average loans and leases grew 2.8% while average deposits increased 1% from one year ago.  However, these volume-related increases were offset by declines in the deposit spread as a result of the continued low-rate environment.    

Noninterest income declined by $10 million, or 5.3%, from the year-ago quarter.  Consumer mortgage income decreased $5 million, and service charges on deposit accounts declined $6 million due to lower non-sufficient funds and overdraft charges.  These decreases were partially offset by increases in cards and payments income and trust and investment services income of $2 million each.

The provision for loan and lease losses decreased by $50 million, or 84.7%, from the first quarter of 2013.  Net loan charge-offs decreased $19 million from the same period one year ago.

Noninterest expense declined by $9 million, or 2%, from the year-ago quarter as a result of Key's efficiency initiative.  Personnel expense decreased $18 million primarily due to declines in salaries, incentive compensation, and employee benefits.  This decrease was partially offset by a $9 million increase in nonpersonnel expense primarily due to increases in the provision for losses on lending-related commitments, miscellaneous expense, and other support costs.

Key Corporate Bank















































dollars in millions











Change 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


Summary of operations
















Net interest income (TE)

$

194


$

199


$

195



(2.5)

%


(.5)

%

Noninterest income


197



212



188



(7.1)



4.8



Total revenue (TE)


391



411



383



(4.9)



2.1


Provision (credit) for loan and lease losses


(1)



(10)



2



N/M



N/M


Noninterest expense


199



216



203



(7.9)



(2.0)



Income (loss) before income taxes (TE)


193



205



178



(5.9)



8.4


Allocated income taxes and TE adjustments


71



72



65



(1.4)



9.2



Net income (loss) attributable to Key

$

122


$

133


$

113



(8.3)

%


8.0