Press Release

Email page PDF view Print view Email Alert Social media sharing

KeyCorp Reports Fourth Quarter 2016 Net Income Of $213 Million, Or $.20 Per Common Share; Earnings Per Common Share Of $.31, Excluding $.11 Of Merger-Related Charges

4Q16 earnings per common share up 15% from the year-ago quarter, excluding merger-related charges

Successful integration of First Niagara with systems conversion completed during the quarter; on track to realize financial targets

Positive operating leverage for 4Q16 and full-year 2016, excluding merger-related charges, with pre-provision net revenue up 23% from 2015

Solid loan growth in 2016, driven by commercial loans and the First Niagara acquisition

Strong fee income, with another record quarter and year for investment banking and debt placement fees

Return on average tangible common equity, excluding merger-related charges, of 12.5% for the fourth quarter

Company Release - 1/19/2017 6:30 AM ET

CLEVELAND, Jan. 19, 2017 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced fourth quarter net income from continuing operations attributable to Key common shareholders of $213 million, or $.20 per common share, compared to $165 million, or $.16 per common share, for the third quarter of 2016, and $224 million, or $.27 per common share, for the fourth quarter of 2015. During the fourth quarter of 2016, Key incurred merger-related charges totaling $198 million, or $.11 per common share, compared to $207 million, or $.14 per common share, in the third quarter of 2016. Excluding merger-related charges, earnings per common share were $.31 for the fourth quarter of 2016 and $.30 for the third quarter of 2016. Merger-related charges were $6 million in the fourth quarter of 2015.

"Key's fourth quarter results reflect continued momentum in our core businesses and the successful integration of the largest acquisition in our company's history," said Chairman and Chief Executive Officer Beth Mooney. "Excluding merger-related charges, we generated positive operating leverage for the quarter, our return on tangible common equity was 12.5%, and our cash efficiency ratio declined to 63.3%, reflecting solid performance across Key's businesses and early progress on merger synergies."

"We continued to see positive trends in the Community Bank and Corporate Bank this quarter, with both segments contributing to our overall revenue growth. Noninterest income increased as we continued to do more with our clients and see results from our investments," Mooney continued. "We had our strongest quarter ever in investment banking and debt placement fees, and for the full year generated $482 million in fees, marking another record year, with results up 8% from last year."

"The contribution from our First Niagara acquisition and quality of our new team members continue to exceed our expectations," added Mooney. "As we continue to realize cost savings and begin to see traction on revenue opportunities, we remain confident in reaching our financial targets."

 



Selected Financial Highlights















dollars in millions, except per share data





Change 4Q16 vs.



4Q16

3Q16

4Q15


3Q16

4Q15

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

$

213


$

165


$

224



29.1

%

(4.9)%


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

.20


.16


.27



25.0


(25.9)


Return on average total assets from continuing operations

.69

%

.55

%

.97

%


N/A


N/A


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

9.59


9.56


10.94



N/A


N/A


Book value at period end

$

12.58


$

12.78


$

12.51



(1.6)

%

.6

%

Net interest margin (TE) from continuing operations

3.12

%

2.85

%

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)

12-31-16 ratio is estimated.



TE = Taxable Equivalent, N/A = Not Applicable

 

 

INCOME STATEMENT HIGHLIGHTS














Net interest income














dollars in millions





Change 4Q16 vs.


4Q16

3Q16

4Q15


3Q16

4Q15

Net interest income (TE)

$

948


$

788


$

610



20.3

%

55.4

%

Merger-related charges


(6)




N/M


N/M


Total net interest income excluding merger-related charges

$

948


$

794


$

610



19.4

%

55.4

%








TE = Taxable Equivalent

 

Fourth quarter 2016 net interest income included $92 million of purchase accounting accretion related to the acquisition of First Niagara, including $34 million related to refinement of third quarter 2016 purchase accounting estimates.

Taxable-equivalent net interest income was $948 million for the fourth quarter of 2016, and the net interest margin was 3.12%, compared to taxable-equivalent net interest income of $610 million and a net interest margin of 2.87% for the fourth quarter of 2015, reflecting the benefit from the First Niagara acquisition and ongoing business activity.

Compared to the third quarter of 2016, taxable-equivalent net interest income increased by $160 million, and the net interest margin increased by 27 basis points. The increases in both net interest income and the net interest margin reflect the benefit from a full-quarter impact of the First Niagara acquisition and refinement of third quarter 2016 purchase accounting estimates. The net interest margin also benefited from the redeployment of excess liquidity into investment securities.

 


Noninterest Income














dollars in millions





Change 4Q16 vs.


4Q16

3Q16

4Q15


3Q16

4Q15

Trust and investment services income

$

123


$

122


$

105



.8

%

17.1

%

Investment banking and debt placement fees

157


156


127



.6


23.6


Service charges on deposit accounts

84


85


64



(1.2)


31.3


Operating lease income and other leasing gains

21


6


15



250.0


40.0


Corporate services income

61


51


55



19.6


10.9


Cards and payments income

69


66


47



4.5


46.8


Corporate-owned life insurance income

40


29


36



37.9


11.1


Consumer mortgage income

6


6


2




200.0


Mortgage servicing fees

20


15


15



33.3


33.3


Net gains (losses) from principal investing

4


5




(20.0)


N/M


Other income

33


8


19



312.5


73.7


Total noninterest income

$

618


$

549


$

485



12.6

%

27.4

%

Merger-related charges

9


(12)




N/M


N/M


Total noninterest income excluding merger-related charges

$

609


$

561


$

485



8.6

%

25.6

%








N/M = Not Meaningful

 

Fourth quarter 2016 reported noninterest income includes a benefit of $9 million associated with merger-related charges that includes adjustments to purchase accounting, compared to charges of $12 million in the third quarter of 2016.

Key's noninterest income was $618 million for the fourth quarter of 2016, compared to $485 million for the year-ago quarter. The increase was driven by the acquisition of First Niagara, as well as continued positive momentum in Key's core businesses. Investment banking and debt placement fees, cards and payments income, service charges on deposit accounts, and other income all contributed to the growth.

Compared to the third quarter of 2016, noninterest income increased by $69 million. The increase included a full-quarter impact of the First Niagara acquisition as well as adjustments to purchase accounting that have been recorded as merger-related charges. Operating lease income and other leasing gains increased $15 million, with prior quarter results impacted by lease residual losses. Additionally, corporate-owned life insurance income increased $11 million, reflecting normal seasonality. Other income was impacted by merger-related charges, which contributed $19 million to the linked quarter increase.

 


Noninterest Expense














dollars in millions





Change 4Q16 vs.


4Q16

3Q16

4Q15


3Q16

4Q15

Personnel expense

$

648


$

594


$

429



9.1

%

51.0

%

Nonpersonnel expense

572


488


307



17.2


86.3


     Total noninterest expense

$

1,220


$

1,082


$

736



12.8


65.8









Merger-related charges

207


189


6



9.5


N/M


     Total noninterest expense excluding merger-related charges

$

1,013


$

893


$

730



13.4

%

38.8

%








N/M = Not Meaningful

 

Key's noninterest expense was $1.2 billion for the fourth quarter of 2016, which included $207 million of merger-related charges, as well as a pension settlement charge of $18 million. The merger-related charges were primarily made up of $80 million in personnel expense related to systems conversions, as well as fully-dedicated personnel for merger and integration efforts. The remaining $127 million of merger-related charges were nonpersonnel expense, largely recognized in net occupancy, computer processing, business services and professional fees, and marketing expense. In the third quarter of 2016, noninterest expense included $189 million of merger-related charges, while $6 million of merger-related charges were incurred in the fourth quarter of 2015.

Excluding merger-related charges, noninterest expense was $283 million higher than the fourth quarter of last year. The increase from the prior year, reflected in both personnel and nonpersonnel expense, was largely driven by the acquisition of First Niagara, as well as higher incentive and stock-based compensation. Additionally, Key incurred $14 million in an increased pension settlement charge, and intangible asset amortization increased $18 million.

Compared to the third quarter of 2016, excluding merger-related charges, noninterest expense increased by $120 million. The increase, reflected in both personnel and nonpersonnel expense, was largely driven by an extra month of impact from First Niagara, as well as a pension settlement charge of $18 million during the fourth quarter. Incentive and stock-based compensation also increased, primarily related to stock-based compensation plans, reflecting the impact of Key's higher share price. In the fourth quarter of 2016, intangible asset amortization increased $14 million.

BALANCE SHEET HIGHLIGHTS

In the fourth quarter of 2016, Key had average assets of $136 billion compared to $96.1 billion in the fourth quarter of 2015 and $125.1 billion in the third quarter of 2016, primarily reflecting the acquisition of First Niagara.

Average securities available-for-sale and held-to-maturity securities totaled $29.3 billion in the fourth quarter of 2016, compared to $19.1 billion in the fourth quarter of 2015 and $24.2 billion in the third quarter of 2016.  The increase compared to both the year-ago quarter and prior quarter primarily reflects the impact of the First Niagara acquisition and the redeployment of excess liquidity into the investment portfolio.

 



Average Loans














dollars in millions





Change 4Q16 vs.


4Q16

3Q16

4Q15


3Q16

4Q15

Commercial, financial and agricultural (a)

$

39,495


$

37,318


$

30,884



5.8

%

27.9

%

Other commercial loans

21,617


19,110


12,996



13.1


66.3


Home equity loans

12,812


11,968


10,418



7.1


23.0


Other consumer loans

11,436


9,301


5,278



23.0


116.7


Total loans

$

85,360


$

77,697


$

59,576



9.9

%

43.3

%








(a)

Commercial, financial and agricultural average loan balances include $119 million, $107 million, and $87 million of assets from commercial credit cards at December 31, 2016, September 30, 2016, and December 31, 2015, respectively.

 

During the fourth quarter, Key adjusted the fair value mark on the First Niagara acquired loan portfolio from $686 million to $548 million.

Average loans were $85.4 billion for the fourth quarter of 2016, an increase of $25.8 billion compared to the fourth quarter of 2015, primarily reflecting the impact of the First Niagara acquisition and growth in commercial, financial and agricultural loans.

Compared to the third quarter of 2016, average loans increased by $7.7 billion, with the change reflecting the full-quarter impact of the First Niagara acquisition, September branch divestitures, and the exit of acquired non-relationship commercial loans. On a period-end basis, Key's loan portfolio increased $510 million, driven by growth in commercial, financial and agricultural loans and improvement in the fair value mark on the acquired portfolio.

 



Average Deposits















dollars in millions





Change 4Q16 vs.



4Q16

3Q16

4Q15


3Q16

4Q15

Non-time deposits (a)

$

94,414


$

85,683


$

66,270



10.2

%

42.5

%

Certificates of deposit ($100,000 or more)

5,428


4,204


2,150



29.1


152.5


Other time deposits

4,849


5,031


3,047



(3.6)


59.1



Total deposits

$

104,691


$

94,918


$

71,467



10.3

%

46.5

%









Cost of total deposits (a)

.22

%

.21

%

.15

%


N/A


N/A










(a)

Excludes deposits in foreign office.


N/A = Not Applicable

 

Average deposits, excluding deposits in foreign office, totaled $104.7 billion for the fourth quarter of 2016, an increase of $33.2 billion compared to the year-ago quarter, primarily reflecting the acquisition of First Niagara and higher interest-bearing deposits resulting from core deposit growth in Key's retail banking franchise and growth in escrow deposits from the commercial mortgage servicing business. 

Compared to the third quarter of 2016, average deposits increased by $9.8 billion, reflecting the full-quarter impact of the First Niagara acquisition, core deposit growth in Key's retail banking franchise, and deposit inflows from Key's commercial clients.

 



ASSET QUALITY














dollars in millions





Change 4Q16 vs.


4Q16

3Q16

4Q15


3Q16

4Q15

Net loan charge-offs

$

72


$

44


$

37



63.6

%

94.6

%

Net loan charge-offs to average total loans

.34

%

.23

%

.25

%


N/A


N/A


Nonperforming loans at period end (a)

$

625


$

723


$

387



(13.6)


61.5


Nonperforming assets at period end (a)

676


760


403



(11.1)


67.7


Allowance for loan and lease losses

858


865


796



(.8)


7.8


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

137.3

%

119.6

%

205.7

%


N/A


N/A


Provision for credit losses

$

66


$

59


$

45



11.9

%

46.7

%








(a)

Nonperforming loan balances exclude $865 million, $959 million, and $11 million of purchased credit impaired loans at December 31, 2016, September 30, 2016, and December 31, 2015, respectively.



N/A = Not Applicable

 

Key's provision for credit losses was $66 million for the fourth quarter of 2016, compared to $45 million for the fourth quarter of 2015 and $59 million for the third quarter of 2016.  Key's allowance for loan and lease losses was $858 million, or 1.00% of total period-end loans, at December 31, 2016, compared to 1.33% at December 31, 2015, and 1.01% at September 30, 2016.

Net loan charge-offs for the fourth quarter of 2016 totaled $72 million, or .34% of average total loans, reflecting regulatory guidance on consumer bankruptcies and conforming First Niagara charge-off policies to Key. These results compare to $37 million, or .25%, for the fourth quarter of 2015, and $44 million, or .23%, for the third quarter of 2016.

At December 31, 2016, Key's nonperforming loans totaled $625 million, which represented .73% of period-end portfolio loans. These results compare to .65% at December 31, 2015, and .85% at September 30, 2016. Nonperforming assets at December 31, 2016, totaled $676 million, and represented .79% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .67% at December 31, 2015, and .89% at September 30, 2016.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at December 31, 2016.

 


Capital Ratios









12/31/2016

9/30/2016

12/31/2015

Common Equity Tier 1 (a), (b)

9.59

%

9.56

%

10.94

%

Tier 1 risk-based capital (a)

10.95


10.53


11.35


Total risk based capital (a)

12.92


12.63


12.97


Tangible common equity to tangible assets (b)

8.09


8.27


9.98


Leverage (a)

9.89


10.22


10.72






(a)

12/31/2016 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 December 31, 2016, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.59% and 10.95%, respectively.  In addition, the tangible common equity ratio was 8.09% at December 31, 2016.

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 9.47% at December 31, 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 4Q16 vs.



4Q16

3Q16

4Q15


3Q16

4Q15

Shares outstanding at beginning of period

1,082,055


842,703


835,285



28.4

%

29.5

%

Common shares repurchased

(4,380)


(5,240)




(16.4)


N/M


Shares reissued (returned) under employee benefit plans

1,642


4,857


466



(66.2)


252.4


Common shares issued to acquire First Niagara

(3)


239,735




N/M


N/M



Shares outstanding at end of period

1,079,314


1,082,055


835,751



(.3)%


29.1

%









N/M = Not Meaningful

 


During the fourth quarter of 2016, Key completed $68 million of common share repurchases, including repurchases to offset issuances of common shares under our employee compensation plans, in accordance with Key's 2016 Capital Plan.

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 4Q16 vs.



4Q16

3Q16

4Q15


3Q16

4Q15

Revenue from continuing operations (TE)







Key Community Bank

$

901


$

779


$

588



15.7

%

53.2

%

Key Corporate Bank

630


554


479



13.7


31.5


Other Segments

40


17


31



135.3


29.0



Total segments

1,571


1,350


1,098



16.4


43.1


Reconciling Items

(5)


(13)


(3)



N/M


N/M



Total

$

1,566


$

1,337


$

1,095



17.1

%

43.0

%









Income (loss) from continuing operations attributable to Key







Key Community Bank

$

115


$

104


$

70



10.6

%

64.3

%

Key Corporate Bank

221


159


142



39.0


55.6


Other Segments

29


16


25



81.3


16.0



Total segments

365


279


237



30.8


54.0


Reconciling Items (a)

(132)


(108)


(7)



N/M


N/M



Total

$

233


$

171


$

230



36.3

%

1.3

%









(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 4Q16 vs.



4Q16

3Q16

4Q15


3Q16

4Q15

Summary of operations







Net interest income (TE)

$

628


$

530


$

388



18.5

%

61.9

%

Noninterest income

273


249


200



9.6


36.5



Total revenue (TE)

901


779


588



15.7


53.2


Provision for credit losses

44


37


20



18.9


120.0


Noninterest expense

673


577


456



16.6


47.6



Income (loss) before income taxes (TE)

184


165


112



11.5


64.3


Allocated income taxes (benefit) and TE adjustments

69


61


42



13.1


64.3



Net income (loss) attributable to Key

$

115


$

104


$

70



10.6

%

64.3

%









Average balances







Loans and leases

$

47,032


$

41,548


$

30,925



13.2

%

52.1

%

Total assets

50,940


44,219


33,056



15.2


54.1


Deposits

79,357


69,397


52,219



14.4


52.0










Assets under management at period end

$

36,592


$

36,752


$

33,983



(.4)

%

7.7

%









TE = Taxable Equivalent

 

 


Additional Key Community Bank Data















dollars in millions





Change 4Q16 vs.



4Q16

3Q16

4Q15


3Q16

4Q15

Noninterest income







Trust and investment services income

$

88


$

86


$

73



2.3

%

20.5

%

Service charges on deposit accounts

71


70


54



1.4


31.5


Cards and payments income

59


55


44



7.3


34.1


Other noninterest income

55


38


29



44.7


89.7



Total noninterest income

$

273


$

249


$

200



9.6

%

36.5

%









Average deposit balances







NOW and money market deposit accounts

$

44,368


$

38,417


$

28,862



15.5

%

53.7

%

Savings deposits

5,326


4,369


2,330



21.9


128.6


Certificates of deposit ($100,000 or more)

3,658


2,607


1,686



40.3


117.0


Other time deposits

4,836


4,943


3,045



(2.2)


58.8


Deposits in foreign office



208



N/M


N/M


Noninterest-bearing deposits

21,169


19,061


16,088



11.1


31.6



Total deposits

$

79,357


$

69,397


$

52,219



14.4

%

52.0

%









Home equity loans







Average balance

$

12,560


$

11,703


$

10,203





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

71

%

70

%

71

%




Percent first lien positions

57


55


61













Other data







Branches

1,217


1,322


966





Automated teller machines

1,593


1,701


1,256













N/M = Not Meaningful

 

Key Community Bank Summary of Operations (4Q16 vs. 4Q15)

  • Positive operating leverage from prior year
  • Net income increased $45 million, or 64.3% from prior year
  • Average commercial, financial, and agricultural loans increased $4.9 billion, or 38.6% from the prior year
  • Average deposits increased $27.1 billion, or 52% from the prior year

Key Community Bank recorded net income attributable to Key of $115 million for the fourth quarter of 2016, compared to $70 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 $240 million, or 61.9%, from the fourth quarter of 2015. The increase is primarily attributable to the acquisition of First Niagara. Average loans and leases increased $16.1 billion, or 52.1%, largely driven by a $4.9 billion, or 38.6% increase in commercial, financial, and agricultural loans. Additionally, average deposits increased $27.1 billion, or 52% from one year ago.

Noninterest income increased $73 million, or 36.5%, from the year-ago quarter, with positive trends in cards and payments income and service charges on deposit accounts.

The provision for credit losses increased by $24 million, or 120%, from the fourth quarter of 2015,  primarily related to the acquisition of First Niagara, which was partially offset by enhancements to the approach utilized to determine the consumer allowance for loan and lease losses in the fourth quarter of 2016. Net loan charge-offs increased $19 million, primarily related to the acquisition of First Niagara.

Noninterest expense increased by $217 million, or 47.6%, from the year-ago quarter, largely driven by the acquisition of First Niagara, as well as core business activity and investments. Personnel expense increased $73 million while non-personnel expense increased by $144 million, including higher intangible amortization expense and higher FDIC assessment expense.

 


Key Corporate Bank























dollars in millions





Change 4Q16 vs.



4Q16

3Q16

4Q15


3Q16

4Q15

Summary of operations







Net interest income (TE)

$

332


$

276


$

224



20.3

%

48.2

%

Noninterest income

298


278


255



7.2


16.9



Total revenue (TE)

630


554


479



13.7


31.5


Provision for credit losses

21


25


26



(16.0)