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KeyCorp Reports First Quarter 2017 Net Income of $296 Million, or $.27 per Common Share; Earnings per Common Share of $.32, Excluding $.05 of Merger-Related Charges

Positive operating leverage compared to the prior year and prior quarter

Noninterest expense, excluding merger-related charges, down 8% from 4Q16, resulting in a cash efficiency ratio of 60.4% in 1Q17

Significant progress on merger synergies; expect to achieve $450 million in acquisition cost savings by early 2018

Return on average tangible common equity, excluding merger-related charges, of 12.9% for 1Q17

Company Release - 4/20/2017 6:30 AM ET

CLEVELAND, April 20, 2017 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced first quarter net income from continuing operations attributable to Key common shareholders of $296 million, or $.27 per common share, compared to $213 million or $.20 per common share, for the fourth quarter of 2016, and $182 million, or $.22 per common share, for the first quarter of 2016. During the first quarter of 2017, Key incurred merger-related charges totaling $81 million, or $.05 per common share, compared to $198 million, or $.11 per common share, in the fourth quarter of 2016, and $24 million, or $.02 per common share, in the first quarter of 2016. Excluding merger-related charges, earnings per common share were $.32 for the first quarter of 2017, $.31 for the fourth quarter of 2016, and $.24 for the first quarter of 2016.

"Key's strong first quarter results reflect continued business momentum and our success in realizing value from our First Niagara acquisition," said Chairman and Chief Executive Officer Beth Mooney. "We generated positive operating leverage compared to both the prior year and previous quarter. Revenue relative to the year-ago period benefited from higher net interest income, positive momentum in our fee-based businesses and the addition of over one million newly acquired consumer and business clients. We have been successfully growing and expanding client relationships in both our Community Bank and Corporate Bank, and we remain on a path to deliver revenue synergies from our acquisition."

"Expenses reflect our continued focus on managing costs throughout the Key franchise, as well as realizing the targeted savings from First Niagara," Mooney continued. "We remain on track to achieve our initial $400 million cost savings target by the end of the second quarter and expect to reach $450 million by early 2018. In the first quarter, our cash efficiency ratio, excluding merger-related charges, improved to 60.4%."

"Our capital position remains strong, and this quarter, we generated a return on average tangible common equity of 12.9%, excluding merger-related charges," Mooney added.


Selected Financial Highlights














dollars in millions, except per share data





Change 1Q17 vs.


1Q17

4Q16

1Q16


4Q16

1Q16

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

$

296


$

213


$

182



39.0%


62.6%


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

.27


.20


.22



35.0


22.7


Return on average total assets from continuing operations

.99%


.69%


.80%



N/A


N/A


 Common Equity Tier 1 ratio (non-GAAP) (a), (b)

9.87


9.54


11.07



N/A


N/A


Book value at period end

$

12.71


$

12.58


$

12.79



1.0%

%

(.6)%


Net interest margin (TE) from continuing operations

3.13%


3.12%


2.89%



N/A


N/A










(a)

The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "Common Equity Tier 1."  The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the Regulatory Capital Rules, see the "Capital" section of this release.



(b)

3/31/2017 ratio is  estimated.













TE = Taxable Equivalent, N/A = Not Applicable




 


INCOME STATEMENT HIGHLIGHTS














Revenue














dollars in millions





Change 1Q17 vs.


1Q17

4Q16

1Q16


4Q16

1Q16

Net interest income (TE)

$

929


$

948


$

612



(2.0)%


51.8%


Noninterest income

577


618


431



(6.6)%


33.9%


Total revenue

$

1,506


$

1,566


$

1,043



(3.8)%


44.4%









 TE = Taxable Equivalent

 

First quarter 2017 net interest income included $53 million of purchase accounting accretion related to the acquisition of First Niagara. This compares to $92 million of purchase accounting accretion in the fourth quarter of 2016, which included $34 million related to the refinement of third quarter 2016 purchase accounting estimates.

Taxable-equivalent net interest income was $929 million for the first quarter of 2017, and the net interest margin was 3.13%, compared to taxable-equivalent net interest income of $612 million and a net interest margin of 2.89% for the first quarter of 2016, reflecting the benefit from the First Niagara acquisition, including purchase accounting accretion, as well as higher earning asset yields and balances.

Compared to the fourth quarter of 2016, taxable-equivalent net interest income decreased by $19 million, and the net interest margin increased by one basis point. The decline in net interest income reflects a decline in purchase accounting accretion and two fewer days in the quarter, partly offset by higher earning asset yields.  The net interest margin benefited from higher earning asset yields and lower levels of liquidity, offset by a decline in purchase accounting accretion.

Excluding purchase accounting accretion, taxable-equivalent net interest income increased $20 million from the fourth quarter of 2016 and $264 million from the first quarter of 2016.


Noninterest Income














dollars in millions





Change 1Q17 vs.


1Q17

4Q16

1Q16


4Q16

1Q16

Trust and investment services income

$

135


$

123


$

109



9.8%


23.9%


Investment banking and debt placement fees

127


157


71



(19.1)


78.9


Service charges on deposit accounts

87


84


65



3.6


33.8


Operating lease income and other leasing gains

23


21


17



9.5


35.3


Corporate services income

54


61


50



(11.5)


8.0


Cards and payments income

65


69


46



(5.8)


41.3


Corporate-owned life insurance income

30


40


28



(25.0)


7.1


Consumer mortgage income

6


6


2




200.0


Mortgage servicing fees

18


20


12



(10.0)


50.0


Net gains (losses) from principal investing

1


4




(75.0)


N/M


Other income

31


33


31



(6.1)



Total noninterest income

$

577


$

618


$

431



(6.6)%


33.9%


Merger-related charges


9




N/M


N/M


Total noninterest income excluding merger-related charges

$

577


$

609


$

431



(5.3)%


33.9%









N/M = Not Meaningful

 

Key's noninterest income was $577 million for the first quarter of 2017, compared to $431 million for the year-ago quarter. The most notable increase was in investment banking and debt placement fees, which increased $56 million, related to improved capital markets conditions and activity from the year-ago period. Trust and investment services income, cards and payments income, and service charges on deposit accounts also contributed to the growth, largely related to the First Niagara acquisition.

Compared to the fourth quarter of 2016, noninterest income decreased by $41 million. The decrease was primarily attributable to lower investment banking and debt placement fees, as well as a decline in corporate-owned life insurance income, which is seasonally lower in the first quarter. Corporate services income also decreased $7 million related to lower loan and derivative trading income. An increase of $12 million in trust and investment services income related to higher insurance revenue and fixed income trading volume slightly offset these declines.


Noninterest Expense














dollars in millions





Change 1Q17 vs.


1Q17

4Q16

1Q16


4Q16

1Q16

Personnel expense

$

556


$

648


$

404



(14.2)%


37.6%


Nonpersonnel expense

457


572


299



(20.1)


52.8


     Total noninterest expense

$

1,013


$

1,220


$

703



(17.0)


44.1









Merger-related charges

81


207


24



(60.9)


237.5


     Total noninterest expense excluding merger-related charges

$

932


$

1,013


$

679



(8.0)%


37.3%









N/M = Not Meaningful

Key's noninterest expense was $1.0 billion for the first quarter of 2017, which included $81 million of merger-related charges. The merger-related charges were primarily made up of $51 million of nonpersonnel expense, largely recognized in marketing, net occupancy, business services and professional fees, and other expense reflecting a $20 million philanthropic contribution related to First Niagara. The remaining $30 million was personnel expense, related to ongoing integration activities. In the fourth quarter of 2016, noninterest expense included $207 million of merger-related charges, while $24 million of merger-related charges were incurred in the first quarter of 2016.

Excluding merger-related charges, noninterest expense was $253 million higher than the first quarter of last year. The increase from the prior year, reflected in both personnel and nonpersonnel expense, was primarily driven by the acquisition of First Niagara. Higher incentive compensation related to stronger capital markets performance also contributed to the year-over-year increase.

Compared to the fourth quarter of 2016, noninterest expense, excluding merger-related charges, decreased by $81 million. The decrease primarily reflects cost savings related to the First Niagara acquisition, reflected in both personnel and nonpersonnel expense. Lower incentive and stock-based compensation and the absence of a pension settlement charge also contributed to the decline. These decreases were partially offset by seasonally higher employee benefits expenses.

BALANCE SHEET HIGHLIGHTS


Average Loans














dollars in millions





Change 1Q17 vs.


1Q17

4Q16

1Q16


4Q16

1Q16

Commercial and industrial (a)

$

40,002


$

39,495


$

31,590



1.3%


26.6%


Other commercial loans

22,175


21,617


13,111



2.6


69.1


Home equity loans

12,611


12,812


10,240



(1.6)


23.2


Other consumer loans

11,345


11,436


5,215



(.8)


117.5


Total loans

$

86,133


$

85,360


$

60,156



.9%


43.2%











(a)    

Commercial and industrial average loan balances include $114 million, $119 million, and $85 million of assets from commercial credit cards at March 31, 2017, December 31, 2016, and March 31, 2016, respectively.

Average loans were $86.1 billion for the first quarter of 2017, an increase of $26 billion compared to the first quarter of 2016, primarily reflecting the impact of the First Niagara acquisition and growth in commercial and industrial loans.

Compared to the fourth quarter of 2016, average loans increased by $773 million, driven by a $507 million increase in commercial and industrial loans, and a $416 million increase in commercial mortgage loans. The growth reflects overall business activity and lower payoffs in Key's Commercial Real Estate line of business. Consumer loans decreased $292 million, mostly related to continued decline in the home equity loan portfolio, largely the result of paydowns on home equity lines of credit.


Average Deposits















dollars in millions





Change 1Q17 vs.



1Q17

4Q16

1Q16


4Q16

1Q16

Non-time deposits

$

91,745


$

94,414


$

65,637



(2.8)%


39.8%


Certificates of deposit ($100,000 or more)

5,627


5,428


2,761



3.7


103.8


Other time deposits

4,706


4,849


3,200



(2.9)


47.1



Total deposits

$

102,078


$

104,691


$

71,598



(2.5)%


42.6%










Cost of total deposits

.23%


.22%


.17%



N/A


N/A










N/A = Not Applicable

 

Average deposits totaled $102.1 billion for the first quarter of 2017, an increase of $30.5 billion compared to the year-ago quarter, primarily reflecting the acquisition of First Niagara and core deposit growth in Key's retail banking franchise.

Compared to the fourth quarter of 2016, average deposits decreased by $2.6 billion, largely driven by a decline in escrow deposits and a targeted reduction in certain short-term commercial deposits. On a period-end basis, total deposits decreased $105 million compared to the linked-quarter, as core deposit growth in Key's retail banking franchise largely offset the decline in escrow deposits.


ASSET QUALITY














dollars in millions





Change 1Q17 vs.


1Q17

4Q16

1Q16


4Q16

1Q16

Net loan charge-offs

$

58


$

72


$

46



(19.4)%


26.1%


Net loan charge-offs to average total loans

.27%


.34%


.31%



N/A


N/A


Nonperforming loans at period end (a)

$

573


$

625


$

676



(8.3)


(15.2)


Nonperforming assets at period end (a)

623


676


692



(7.8)


(10.0)


Allowance for loan and lease losses

870


858


826



1.4


5.3


Allowance for loan and lease losses to nonperforming loans (a)

151.8%


137.3%


122.2%



N/A


N/A


Provision for credit losses

$

63


$

66


$

89



(4.5)%


(29.2)%









(a)  

Nonperforming loan balances exclude $812 million, $865 million, and $11 million of purchased credit impaired loans at March 31, 2017, December 31, 2016, and March 31, 2016, respectively.



N/A = Not Applicable

Key's provision for credit losses was $63 million for the first quarter of 2017, compared to $89 million for the first quarter of 2016 and $66 million for the fourth quarter of 2016. Key's allowance for loan and lease losses was $870 million, or 1.01% of total period-end loans, at March 31, 2017, compared to 1.37% at March 31, 2016, and 1.00% at December 31, 2016.

Net loan charge-offs for the first quarter of 2017 totaled $58 million, or .27% of average total loans. These results compare to $46 million, or .31%, for the first quarter of 2016, and $72 million, or .34%, for the fourth quarter of 2016.

At March 31, 2017, Key's nonperforming loans totaled $573 million, which represented .67% of period-end portfolio loans. These results compare to 1.12% at March 31, 2016, and .73% at December 31, 2016. Nonperforming assets at March 31, 2017, totaled $623 million, and represented .72% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to 1.14% at March 31, 2016, and .79% at December 31, 2016.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2017.

Capital Ratios









3/31/2017

12/31/2016

3/31/2016

Common Equity Tier 1 (a), (b)

9.87%


9.54%


11.07%


Tier 1 risk-based capital (a)

10.70


10.89


11.38


Total risk based capital (a)

12.64


12.85


13.12


Tangible common equity to tangible assets (b)

8.51


8.09


9.97


Leverage (a)

9.81


9.90


10.73






(a)  

3/31/2017 ratio is estimated.



(b)    

The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "tangible common equity" and "Common Equity Tier 1." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. See below for further information on the Regulatory Capital Rules.

Key's capital position remained strong throughout the first quarter. As shown in the preceding table, at March 31, 2017, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.87% and 10.70%, respectively. In addition, the tangible common equity ratio was 8.51% at March 31, 2017.

As a "standardized approach" banking organization, Key's mandatory compliance with the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules") began on January 1, 2015, subject to transitional provisions extending to January 1, 2019. Key's estimated Common Equity Tier 1 ratio as calculated under the fully phased-in Regulatory Capital Rules was 9.80% at March 31, 2017.  This estimate exceeds the fully phased-in required minimum Common Equity Tier 1 and Capital Conservation Buffer of 7.00%.


Summary of Changes in Common Shares Outstanding













in thousands





Change 1Q17 vs.



1Q17

4Q16

1Q16


4Q16

1Q16

Shares outstanding at beginning of period

1,079,314


1,082,055


835,751



(.3)%


29.1%


Open market repurchases and return of shares under employee compensation plans

(8,673)


(4,380)




98.0


N/M


Shares issued under employee compensation plans (net of cancellations)

6,270


1,642


6,539



281.9


(4.1)


Common shares exchanged for Series A Preferred Stock

20,568





N/M


N/M


Common shares issued to acquire First Niagara


(3)




N/M


N/M



Shares outstanding at end of period

1,097,479


1,079,314


842,290



1.7%


30.3%










N/M = Not Meaningful

On March 20, 2017, Key converted all outstanding shares of its outstanding 7.75% Non-Cumulative Perpetual Convertible Preferred Stock, Series A (NYSE: KEY.G) shares into common shares, adding approximately 21 million common shares outstanding.

Consistent with Key's 2016 Capital Plan, during the first quarter of 2017, Key declared a dividend of $.085 per common share and completed $160 million of common share repurchases, including $107 million of common share repurchases in the open market and $53 million of share repurchases related to employee equity compensation programs.

LINE OF BUSINESS RESULTS

The following table shows the contribution made by each major business segment to Key's taxable-equivalent revenue from continuing operations and income (loss) from continuing operations attributable to Key for the periods presented. For more detailed financial information pertaining to each business segment, see the tables at the end of this release.


Major Business Segments















dollars in millions





Change 1Q17 vs.



1Q17

4Q16

1Q16


4Q16

1Q16

Revenue from continuing operations (TE)







Key Community Bank

$

908


$

902


$

595



.7%


52.6%


Key Corporate Bank

579


630


425



(8.1)


36.2


Other Segments

28


38


21



(26.3)


33.3



Total segments

1,515


1,570


1,041



(3.5)


45.5


Reconciling Items

(9)


(4)


2



N/M


N/M



Total

$

1,506


$

1,566


$

1,043



(3.8)%


44.4%










Income (loss) from continuing operations attributable to Key







Key Community Bank

$

147


$

108


$

74



36.1%


98.6%


Key Corporate Bank

181


222


118



(18.5)


53.4


Other Segments

21


34


15



(38.2)


40.0



Total segments

349


364


207



(4.1)


68.6


Reconciling Items (a)

(25)


(131)


(20)



N/M


N/M



Total

$

324


$

233


$

187



39.1%


73.3%










(a)    

Reconciling items consists primarily of the unallocated portion of merger-related charges and items not allocated to the business segments because they do not reflect their normal operations.



TE = Taxable Equivalent, N/M = Not Meaningful

 


Key Community Bank























dollars in millions





Change 1Q17 vs.



1Q17

4Q16

1Q16


4Q16

1Q16

Summary of operations







Net interest income (TE)

$

631

$

629

$

399


.3%


58.1%


Noninterest income

277

273

196


1.5


41.3



Total revenue (TE)

908

902

595


.7


52.6


Provision for credit losses

47

48

42


(2.1)


11.9


Noninterest expense

627

682

436


(8.1)


43.8



Income (loss) before income taxes (TE)

234

172

117


36.0


100.0


Allocated income taxes (benefit) and TE adjustments

87

64

43


35.9


102.3



Net income (loss) attributable to Key

$

147

$

108

$

74


36.1%


98.6%










Average balances







Loans and leases

$

47,036

$

47,031

$

30,789



52.8%


Total assets

50,962

50,939

32,856



55.1


Deposits

79,393

79,358

52,803



50.4










Assets under management at period end

$

37,417

$

36,592

$

34,107


2.3%

%

9.7%










TE = Taxable Equivalent

 


Additional Key Community Bank Data















dollars in millions





Change 1Q17 vs.



1Q17

4Q16

1Q16


4Q16

1Q16

Noninterest income







Trust and investment services income

$

98


$

88


$

73



11.4%


34.2%


Service charges on deposit accounts

75


71


54



5.6


38.9


Cards and payments income

55


59


43



(6.8)


27.9


Other noninterest income

49


55


26



(10.9)


88.5



Total noninterest income

$

277


$

273


$

196



1.5%


41.3%










Average deposit balances







NOW and money market deposit accounts

$

45,027


$

44,368


$

29,432



1.5%


53.0%


Savings deposits

5,268


5,326


2,340



(1.1)


125.1


Certificates of deposit ($100,000 or more)

3,878


3,659


2,120



6.0


82.9


Other time deposits

4,692


4,836


3,197



(3.0)


46.8


Noninterest-bearing deposits

20,528


21,169


15,714



(3.0)%


30.6



Total deposits

$

79,393


$

79,358


$

52,803




50.4%










Home equity loans







Average balance

$

12,456


$

12,560


$

10,037





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

70%


71%


71%





Percent first lien positions

60


57


61













Other data







Branches

1,216


1,217


961





Automated teller machines

1,594


1,593


1,249













 

Key Community Bank Summary of Operations (1Q17 vs. 1Q16)

  • Positive operating leverage compared to prior year
  • Net income increased $73 million, or 98.6%, from prior year
  • Average commercial and industrial loans increased $5.1 billion, or 39.3%, from the prior year
  • Average deposits increased $26.6 billion, or 50.4%, from the prior year

Key Community Bank recorded net income attributable to Key of $147 million for the first quarter of 2017, compared to $74 million for the year-ago quarter, benefiting from momentum in Key's core businesses, as well as the impact of the First Niagara acquisition.

Taxable-equivalent net interest income increased by $232 million, or 58.1%, from the first quarter of 2016. The increase was primarily attributable to the acquisition of First Niagara, as well as the benefit from the Federal Reserve rate increase. Average loans and leases increased $16.2 billion, or 52.8%, largely driven by a $5.1 billion, or 39.3%, increase in commercial and industrial loans. Additionally, average deposits increased $26.6 billion, or 50.4% from one year ago.

Noninterest income was up $81 million, or 41.3%, from the year-ago quarter, driven by the acquisition of First Niagara, including the addition of Key Insurance and Benefits Services. Strength in derivatives and higher assets under management balances from market growth also contributed to the increase.

The provision for credit losses increased by $5 million, or 11.9%, and net loan charge-offs increased $20 million, from the first quarter of 2016, primarily related to the acquisition of First Niagara.

Noninterest expense increased by $191 million, or 43.8%, from the year-ago quarter, largely driven by the acquisition of First Niagara, as well as core business activity and investments. Personnel expense increased $75 million, while non-personnel expense increased by $116 million, including higher intangible amortization expense and higher FDIC assessment expense.


Key Corporate Bank























dollars in millions





Change 1Q17 vs.



1Q17

4Q16

1Q16


4Q16

1Q16

Summary of operations







Net interest income (TE)

$

304


$

333


$

218



(8.7)%


39.4%


Noninterest income

275


297


207



(7.4)


32.9



Total revenue (TE)

579


630


425



(8.1)


36.2


Provision for credit losses

17


20


43



(15.0)


(60.5)


Noninterest expense

303


326


237



(7.1)


27.8



Income (loss) before income taxes (TE)

259


284


145



(8.8)


78.6


Allocated income taxes and TE adjustments

78


63


27



23.8


188.9



Net income (loss)

181


221


118



(18.1)


53.4


Less: Net income (loss) attributable to noncontrolling interests


(1)




N/M


N/M



Net income (loss) attributable to Key

$

181


$

222


$

118



(18.5)%


53.4%










Average balances







Loans and leases

$

37,737


$

36,770


$

27,722



2.6%


36.1%


Loans held for sale

1,097


1,223


811



(10.3)


35.3


Total assets

44,167


43,210


33,413



2.2


32.2


Deposits

21,003


23,172


18,074



(9.4)%


16.2%










TE = Taxable Equivalent, N/M = Not Meaningful

 


Additional Key Corporate Bank Data















dollars in millions





Change 1Q17 vs.



1Q17

4Q16

1Q16


4Q16

1Q16

Noninterest income







Trust and investment services income

$

37


$

35


$

36



5.7%


2.8%


Investment banking and debt placement fees

124


154


70



(19.5)


77.1


Operating lease income and other leasing gains

21


18


13



16.7


61.5










Corporate services income

38


43


38



(11.6)



Service charges on deposit accounts

12


12


11




9.1


Cards and payments income

10


9


3



11.1


233.3



Payments and services income

60


64


52



(6.3)


15.4










Mortgage servicing fees

16


18


12



(11.1)


33.3


Other noninterest income

17


8


24



112.5


(29.2)



Total noninterest income

$

275


$

297


$

207



(7.4)%


32.9%


















Key Corporate Bank Summary of Operations (1Q17 vs. 1Q16)

  • Average loan and lease balances up $10 billion, or 36.1%, from the prior year
  • Revenue up $154 million, or 36.2%, from the prior year
  • Noninterest income up $68 million, or 32.9%, from the prior year

Key Corporate Bank recorded net income attributable to Key of $181 million for the first quarter of 2017, compared to $118 million for the same period one year ago.

Taxable-equivalent net interest income increased by $86 million, or 39.4%, compared to the first quarter of 2016.  Average loan and lease balances increased $10 billion, or 36.1%, from the year-ago quarter, primarily driven by the First Niagara acquisition as well as growth in commercial and industrial loans. Average deposit balances increased $2.9 billion, or 16.2%, from the year-ago quarter, mostly driven by the First Niagara acquisition.

Noninterest income was up $68 million, or 32.9%, from the prior year. This growth was mostly due to $54 million of higher investment banking and debt placement fees related to improved capital markets conditions and activity from the year-ago period, as well as an increase of $8 million in operating lease income and other leasing gains related to higher originations. Additional increases of $7 million in cards and payments income and $4 million in mortgage servicing fees were partially offset by a $7 million decrease in other noninterest income.

The provision for credit losses decreased $26 million, or 60.5%, compared to the first quarter of 2016 due to $4 million of lower net loan charge-offs and improvement in the oil and gas portfolio.

Noninterest expense increased by $66 million, or 27.8%, from the first quarter of 2016. The increase from the prior year, reflected in both personnel and nonpersonnel expense, was largely driven by the acquisition of First Niagara, higher performance-based compensation and various other items, including operating lease and cards and payments expenses.

Other Segments

Other Segments consist of Corporate Treasury, Key's Principal Investing unit, and various exit portfolios. Other Segments generated net income attributable to Key of $21 million for the first quarter of 2017, compared to $15 million for the same period last year, driven by increases in corporate-owned life insurance income, net gains on principal investing, and other income.

*****

KeyCorp's roots trace back 190 years to Albany, New York. Headquartered in Cleveland, Ohio, Key is one of the nation's largest bank-based financial services companies, with assets of approximately $134.5 billion at March 31, 2017.

Key provides deposit, lending, cash management, insurance, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of more than 1,200 branches and more than 1,500 ATMs. Key also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets trade name. For more information, visit https://www.key.com/. KeyBank is Member FDIC.

 

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do not relate strictly to historical or current facts.  Forward-looking statements usually can be identified by the use of words such as "goal," "objective," "plan," "expect," "assume," "anticipate," "intend," "project," "believe," "estimate," or other words of similar meaning. Forward-looking statements provide our current expectations or forecasts of future events, circumstances, results, or aspirations. Forward-looking statements, by their nature, are subject to assumptions, risks and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements. There is no assurance that any list of risks and uncertainties or risk factors is complete.  Factors that could cause Key's actual results to differ from those described in the forward-looking statements can be found in KeyCorp's Form 10-K for the year ended December 31, 2016, as well as in KeyCorp's subsequent SEC filings, all of which have been filed with the Securities and Exchange Commission (the "SEC") and are available on Key's website (www.key.com/ir) and on the SEC's website (www.sec.gov).  These factors may include, among others: deterioration of commercial real estate market fundamentals, adverse changes in credit quality trends, declining asset prices, a reversal of the U.S. economic recovery due to financial, political, or other shocks, and the extensive and increasing regulation of the U.S. financial services industry. Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.

 

Notes to Editors:

A live Internet broadcast of KeyCorp's conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts' questions can be accessed through the Investor Relations section at https://www.key.com/ir at 9:00 a.m. ET, on Thursday, April 20, 2017.  An audio replay of the call will be available through April 30, 2017.

For up-to-date company information, media contacts, and facts and figures about Key's lines of business, visit our Media Newsroom at https://www.key.com/newsroom.

 

Financial Highlights

(dollars in millions, except per share amounts)




Three months ended




3/31/2017


12/31/2016


3/31/2016

Summary of operations







Net interest income (TE)

$

929



$

948



$

612



Noninterest income

577



618



431




Total revenue (TE)

1,506



1,566



1,043



Provision for credit losses

63



66



89



Noninterest expense

1,013



1,220



703



Income (loss) from continuing operations attributable to Key

324



233



187



Income (loss) from discontinued operations, net of taxes (a)



(4)



1



Net income (loss) attributable to Key

324



229



188











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

296



213



182



Income (loss) from discontinued operations, net of taxes (a)



(4)



1



Net income (loss) attributable to Key common shareholders

296



209



183










Per common share







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

$

.28



$

.20



$

.22



Income (loss) from discontinued operations, net of taxes (a)







Net income (loss) attributable to Key common shareholders (b)

.28



.20



.22











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

.27



.20



.22



Income (loss) from discontinued operations, net of taxes — assuming dilution (a)







Net income (loss) attributable to Key common shareholders — assuming dilution (b)

.27



.19



.22











Cash dividends declared per common share

.085



.085



.075



Book value at period end

12.71



12.58



12.79



Tangible book value at period end

10.21



9.99



11.52



Market price at period end

17.78



18.27



11.04










Performance ratios







From continuing operations:







Return on average total assets

.99

%


.69

%


.80

%


Return on average common equity

8.76



6.22



6.86



Return on average tangible common equity (c)

10.98



7.88



7.64



Net interest margin (TE)

3.13



3.12



2.89



Cash efficiency ratio (c)

65.8



76.2



66.6











From consolidated operations:







Return on average total assets

.98

%


.67

%


.79

%


Return on average common equity

8.76



6.10



6.90



Return on average tangible common equity (c)

10.98



7.73



7.68



Net interest margin (TE)

3.11



3.09



2.83



Loan to deposit (d)

85.6



85.2



85.7










Capital ratios at period end







Key shareholders' equity to assets

11.14

%


11.17

%


11.25

%


Key common shareholders' equity to assets

10.37



9.95



10.95



Tangible common equity to tangible assets (c)

8.51



8.09



9.97



Common Equity Tier 1 (c), (e)

9.87



9.54



11.07



Tier 1 risk-based capital (e)

10.70



10.89



11.38



Total risk-based capital (e)

12.64



12.85



13.12



Leverage (e)

9.81



9.90



10.73










 

Financial Highlights (continued)

(dollars in millions)




Three months ended




3/31/2017


12/31/2016


3/31/2016

Asset quality — from continuing operations







Net loan charge-offs

$

58



$

72



$

46



Net loan charge-offs to average loans

.27

%


.34

%


.31

%


Allowance for loan and lease losses

$

870



$

858



$

826



Allowance for credit losses

918



913



895



Allowance for loan and lease losses to period-end loans

1.01

%


1.00

%


1.37

%


Allowance for credit losses to period-end loans

1.07



1.06



1.48



Allowance for loan and lease losses to nonperforming loans (f)

151.8



137.3



122.2



Allowance for credit losses to nonperforming loans (f)

160.2



146.1



132.4



Nonperforming loans at period end (f)

$

573



$

625



$

676



Nonperforming assets at period end (f)

623



676



692



Nonperforming loans to period-end portfolio loans (f)

.67

%


.73

%


1.12

%


Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (f)

.72



.79



1.14










Trust assets







Assets under management

$

37,417



$

36,592



$

34,107










Other data







Average full-time equivalent employees

18,386



18,849



13,403



Branches

1,216



1,217



961










Taxable-equivalent adjustment

$

11



$

10



$

8


 

(a)    

In April 2009, management decided to wind down the operations of Austin Capital Management, Ltd., a subsidiary that specialized in managing hedge fund investments for institutional customers. In September 2009, management decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank National Association.



(b)    

Earnings per share may not foot due to rounding.



(c)     

The following table entitled "GAAP to Non-GAAP Reconciliations" presents the computations of certain financial measures related to "tangible common equity,"  "Common Equity Tier 1," and "cash efficiency." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the Regulatory Capital Rules, see the "Capital" section of this release.



(d) 

Represents period-end consolidated total loans and loans held for sale divided by period-end consolidated total deposits (excluding deposits in foreign office).



(e)     

3/31/2017 ratio is estimated.



(f)     

Nonperforming loan balances exclude $812 million, $865 million, and $11 million of purchased credit impaired loans at March 31, 2017, December 31, 2016, and March 31, 2016, respectively.



TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles

 


GAAP to Non-GAAP Reconciliations
(dollars in millions)

The table below presents certain non-GAAP financial measures related to "tangible common equity," "return on average tangible common equity," "Common Equity Tier 1," "pre-provision net revenue," certain financial measures excluding merger-related charges, and "cash efficiency ratio."

The tangible common equity ratio and the return on average tangible common equity ratio have been a focus for some investors, and management believes these ratios may assist investors in analyzing Key's capital position without regard to the effects of intangible assets and preferred stock. Traditionally, the banking regulators have assessed bank and bank holding company capital adequacy based on both the amount and the composition of capital, the calculation of which is prescribed in federal banking regulations. In October 2013, the federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules"). The Regulatory Capital Rules require higher and better-quality capital and introduced a new capital measure, "Common Equity Tier 1," a non-GAAP financial measure. The mandatory compliance date for Key as a "standardized approach" banking organization began on January 1, 2015, subject to transitional provisions extending to January 1, 2019.

Common Equity Tier 1 is not formally defined by GAAP and is considered to be a non-GAAP financial measure. Since analysts and banking regulators may assess Key's capital adequacy using tangible common equity and Common Equity Tier 1, management believes it is useful to enable investors to assess Key's capital adequacy on these same bases. The table also reconciles the GAAP performance measures to the corresponding non-GAAP measures.

The table also shows the computation for pre-provision net revenue, which is not formally defined by GAAP. Management believes that eliminating the effects of the provision for credit losses makes it easier to analyze the results by presenting them on a more comparable basis.

As previously disclosed, Key completed its purchase of First Niagara on August 1, 2016. The definitive agreement and plan of merger to acquire First Niagara was originally announced on October 30, 2015. As a result of this transaction, Key has recognized merger-related charges. The table below shows the computation of noninterest expense excluding merger-related charges, earnings per common share excluding merger-related charges, return on average tangible common equity excluding merger-related charges, return on average assets from continuing operations excluding merger-related charges, cash efficiency ratio excluding merger-related charges, and pre-provision net revenue excluding merger-related charges. Management believes that eliminating the effects of the merger-related charges makes it easier to analyze the results by presenting them on a more comparable basis.

The cash efficiency ratio is a ratio of two non-GAAP performance measures. As such, there is no directly comparable GAAP performance measure. The cash efficiency ratio performance measure removes the impact of Key's intangible asset amortization from the calculation. The table below also shows the computation for the cash efficiency ratio excluding merger-related charges. Management believes these ratios provide greater consistency and comparability between Key's results and those of its peer banks. Additionally, these ratios are used by analysts and investors as they develop earnings forecasts and peer bank analysis.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.

 





Three months ended





3/31/2017

12/31/2016

3/31/2016

Tangible common equity to tangible assets at period end





Key shareholders' equity (GAAP)

$

14,976


$

15,240


$

11,066



Less:

Intangible assets (a)

2,751


2,788


1,077




Preferred Stock (b)

1,009


1,640


281




Tangible common equity (non-GAAP)

$

11,216


$

10,812


$

9,708










Total assets (GAAP)

$

134,476


$

136,453


$

98,402



Less:

Intangible assets (a)

2,751


2,788


1,077




Tangible assets (non-GAAP)

$

131,725


$

133,665


$

97,325










Tangible common equity to tangible assets ratio (non-GAAP)

8.51

%

8.09

%

9.97

%








Common Equity Tier 1 at period end





Key shareholders' equity (GAAP)

$

14,976


$

15,240


$

11,066



Less:

Preferred Stock (b)

1,009


1,640


281




Common Equity Tier 1 capital before adjustments and deductions

13,967


13,600


10,785



Less:

Goodwill, net of deferred taxes

2,386


2,405


1,033




Intangible assets, net of deferred taxes

189


155


35




Deferred tax assets

6


4


1




Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes

(179)


(185)


70




Accumulated gains (losses) on cash flow hedges, net of deferred taxes

(75)


(52)


46




Amounts in accumulated other comprehensive income (loss) attributed to







pension and postretirement benefit costs, net of deferred taxes

(336)


(339)


(365)




Total Common Equity Tier 1 capital (c)

$

11,976


$

11,612


$

9,965










Net risk-weighted assets (regulatory) (c)

$

121,305


$

121,671


$

90,014










Common Equity Tier 1 ratio (non-GAAP) (c)

9.87

%

9.54

%

11.07

%








Pre-provision net revenue





Net interest income (GAAP)

$

918


$

938


$

604



Plus:

Taxable-equivalent adjustment

11


10


8




Noninterest income

577


618


431



Less:

Noninterest expense

1,013


1,220


703




Pre-provision net revenue from continuing operations (non-GAAP)

$

493


$

346


$

340



Plus:

Merger-related charges

81


198


24




Pre-provision net revenue from continuing operations excluding merger-related charges (non-GAAP)

$

574


$

544


$

364


 

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)




Three months ended




3/31/2017

12/31/2016

3/31/2016

Average tangible common equity





Average Key shareholders' equity (GAAP)

$

15,184


$

14,901


$

10,953



Less:

Intangible assets (average) (d)

2,772


2,874


1,079




Preferred Stock (average)

1,480


1,274


290




Average tangible common equity (non-GAAP)

$

10,932


$

10,753


$

9,584








Return on average tangible common equity from continuing operations





Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)

$

296


$

213


$

182



Add:

Merger-related charges, after tax

51


124


15



Net income (loss) from continuing operations attributable to Key common shareholders excluding






merger-related charges (non-GAAP)

$

347


$

337


$

197









Average tangible common equity (non-GAAP)

10,932


10,753


9,584









Return on average tangible common equity from continuing operations (non-GAAP)

10.98

%

7.88

%

7.64

%








Return on average tangible common equity from continuing operations excluding merger-related charges (non-GAAP)

12.87

%

12.47

%

8.27

%







Return on average tangible common equity consolidated





Net income (loss) attributable to Key common shareholders (GAAP)

$

296


$

209


$

183



Average tangible common equity (non-GAAP)

10,932


10,753


9,584









Return on average tangible common equity consolidated (non-GAAP)

10.98

%

7.73

%

7.68

%







Noninterest expense excluding merger-related charges





Noninterest expense (GAAP)

$

1,013


$

1,220


$

703



Less:

Merger-related charges

81


207


24




Noninterest expense excluding merger-related charges (non-GAAP)

$

932


$

1,013


$

679








Earnings per common share (EPS) excluding merger-related charges





EPS from continuing operations attributable to Key common shareholders  — assuming dilution

$

.27


$

.20


$

.22



Add:

EPS impact of merger-related charges

.05


.11


.02




EPS from continuing operations attributable to Key common shareholders






excluding merger-related charges (non-GAAP)

$

.32


$

.31


$

.24








Cash efficiency ratio





Noninterest expense (GAAP)

$

1,013


$

1,220


$

703



Less:

Intangible asset amortization

22


27


8




Adjusted noninterest expense (non-GAAP)

991


1,193


695



Less:

Merger-related charges

81


207


24




Adjusted noninterest expense excluding merger-related charges (non-GAAP)

$

910


$

986


$

671









Net interest income (GAAP)

$

918


$

938


$

604



Plus:

Taxable-equivalent adjustment

11


10


8




Noninterest income

577


618


431




Total taxable-equivalent revenue (non-GAAP)

1,506


1,566


1,043



Add:

Merger-related charges


(9)





Adjusted total taxable-equivalent revenue excluding merger-related charges (non-GAAP)

$

1,506


$

1,557


$

1,043









Cash efficiency ratio (non-GAAP)

65.8

%

76.2

%

66.6

%








Cash efficiency ratio excluding merger-related charges (non-GAAP)

60.4

%

63.3

%

64.3

%







Return on average total assets from continuing operations excluding merger-related charges





Income from continuing operations attributable to Key (GAAP)

$

324


$

233


$

187



Add:

Merger-related charges, after tax

51


124


15




Income from continuing operations attributable to Key excluding merger-related






charges, after tax (non-GAAP)

$

375


$

357


$

202









Average total assets from continuing operations (GAAP)

$

132,741


$

134,428


$

94,477









Return on average total assets from continuing operations excluding merger-related charges (non-GAAP)

1.15

%

1.06

%

.86

%







 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)




Three months ended






3/31/2017



Common Equity Tier 1 under the Regulatory Capital Rules ("RCR") (estimates)





Common Equity Tier 1 under current RCR

$

11,976





Adjustments from current RCR to the fully phased-in RCR:






Deferred tax assets and other intangible assets (e)

(50)






Common Equity Tier 1 anticipated under the fully phased-in RCR (f)

$

11,926











Net risk-weighted assets under current RCR

$

121,305





Adjustments from current RCR to the fully phased-in RCR:






Mortgage servicing assets (g)

597






Deferred tax assets

92






Volcker funds

(172)






All other assets

(72)






Total risk-weighted assets anticipated under the fully phased-in RCR (f)

$

121,750











Common Equity Tier 1 ratio under the fully phased-in RCR (f)

9.80

%



 

(a)    

For the three months ended March 31, 2017, December 31, 2016, and March 31, 2016, intangible assets exclude $38 million, $42 million, and $40 million, respectively, of period-end purchased credit card receivables. 



(b)     

Net of capital surplus.



(c)      

3/31/17 amount is estimated.



(d)     

For the three months ended March 31, 2017, December 31, 2016, and March 31, 2016, average intangible assets exclude $40 million, $46 million, and $42 million, respectively, of average purchased credit card receivables. 



(e)    

Includes the deferred tax assets subject to future taxable income for realization, primarily tax credit carryforwards, as well as intangible assets (other than goodwill and mortgage servicing assets) subject to the transition provisions of the final rule.



(f)      

The anticipated amount of regulatory capital and risk-weighted assets is based upon the federal banking agencies' Regulatory Capital Rules (as fully phased-in on January 1, 2019); Key is subject to the Regulatory Capital Rules under the "standardized approach."



(g)      

Item is included in the 10%/15% exceptions bucket calculation and is risk-weighted at 250%.



GAAP = U.S. generally accepted accounting principles



 


Consolidated Balance Sheets

(dollars in millions)










3/31/2017

12/31/2016

3/31/2016

Assets





Loans

$

86,125


$

86,038


$

60,438



Loans held for sale

1,384


1,104


684



Securities available for sale

18,431


20,212


14,304



Held-to-maturity securities

10,186


10,232


5,003



Trading account assets

921


867


765



Short-term investments

2,525


2,775


5,436



Other investments

689


738


643




Total earning assets

120,261


121,966


87,273



Allowance for loan and lease losses

(870)


(858)


(826)



Cash and due from banks

549


677


474



Premises and equipment

935


978


750



Operating lease assets

563


540


362



Goodwill

2,427


2,446


1,060



Other intangible assets

362


384


57



Corporate-owned life insurance

4,087


4,068


3,557



Derivative assets

578


803


1,065



Accrued income and other assets

4,064


3,864


2,849



Discontinued assets

1,520


1,585


1,781




Total assets

$

134,476


$

136,453


$

98,402








Liabilities





Deposits in domestic offices:






NOW and money market deposit accounts

$

55,095


$

54,590


$

38,946




Savings deposits

6,306


6,491


2,385




Certificates of deposit ($100,000 or more)

5,859


5,483


3,095




Other time deposits

4,694


4,698


3,259




Total interest-bearing deposits

71,954


71,262


47,685




Noninterest-bearing deposits

32,028


32,825


25,697




Total deposits

103,982


104,087


73,382



Federal funds purchased and securities sold under repurchase agreements

442


1,502


374



Bank notes and other short-term borrowings

943


808


615



Derivative liabilities

255


636


790



Accrued expense and other liabilities

1,552


1,796


1,410



Long-term debt

12,324


12,384


10,760




Total liabilities

119,498


121,213


87,331








Equity





Preferred stock

1,025


1,665


290



Common shares

1,257


1,257


1,017



Capital surplus

6,287


6,385


3,818



Retained earnings

9,584


9,378


9,042



Treasury stock, at cost

(2,623)


(2,904)


(2,888)



Accumulated other comprehensive income (loss)

(554)


(541)


(213)




Key shareholders' equity

14,976


15,240


11,066



Noncontrolling interests

2



5




Total equity

14,978


15,240


11,071


Total liabilities and equity

$

134,476


$

136,453


$

98,402








Common shares outstanding (000)

1,097,479


1,079,314


842,290


 

 

Consolidated Statements of Income

(dollars in millions, except per share amounts)




Three months ended




3/31/2017

12/31/2016

3/31/2016

Interest income





Loans

$

877


$

898


$

562



Loans held for sale

13


11


8



Securities available for sale

95


92


75



Held-to-maturity securities

51


44


24



Trading account assets

7


6


7



Short-term investments

3


5


4



Other investments

4


6


3




Total interest income

1,050


1,062


683








Interest expense





Deposits

58


57


31



Federal funds purchased and securities sold under repurchase agreements

1


1