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KeyCorp Reports Second Quarter 2017 Net Income Of $393 Million, Or $.36 Per Common Share

2Q17 included a net benefit of $.02 per common share from notable items: merchant services gain, purchase accounting finalization, merger-related charges, and charitable contribution

Positive operating leverage of 10% compared to the prior year and 2% compared to the prior quarter, excluding notable items

Achieved annualized cost savings of $400 million; expect to reach $450 million by early 2018

Cash efficiency ratio improved to 59.3%, in 2Q17, or 59.4%, excluding notable items

Return on average tangible common equity of 13.8% for 2Q17, or 12.9%, excluding notable items

Company Release - 7/20/2017 6:30 AM ET

CLEVELAND, July 20, 2017 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced second quarter net income from continuing operations attributable to Key common shareholders of $393 million, or $.36 per common share, compared to $296 million or $.27 per common share, for the first quarter of 2017 and $193 million, or $.23 per common share, for the second quarter of 2016. During the second quarter of 2017, Key's results included a number of notable items, including a gain related to our merchant services business, the finalization of purchase accounting, merger-related charges, and a charitable contribution. These notable items had a pre-tax net benefit of $43 million, or $.02 per common share for the second quarter of 2017.

"We were pleased with the strength and quality of our second quarter results, which reflect Key's continued business momentum and realization of value from the First Niagara acquisition," said Chairman and Chief Executive Officer Beth Mooney. "We also made investments for growth across our franchise, including the repositioning of our merchant services business and the recent acquisition of HelloWallet."

"We continued to generate positive operating leverage versus the prior year and prior quarter, and our cash efficiency ratio improved to 59.3%, or 59.4%, excluding notable items," Mooney continued. "Revenue growth was driven by both net interest income and fee-based businesses, and importantly, we achieved $400 million in annualized cost savings from First Niagara. We remain on track to achieve an incremental $50 million in savings by early 2018, and remain confident in our ability to achieve our targets and continue to deliver value for our shareholders."

 "Our risk and capital positions remained strong in the second quarter," added Mooney. "We increased our common share dividend by 12% while also repurchasing $94 million of common shares. We were pleased to receive no objection from the Federal Reserve on our 2017 Capital Plan, which includes two additional dividend increases, subject to Board approval, and an increased common share repurchase authorization."


Selected Financial Highlights













dollars in millions, except per share data





Change 2Q17 vs.



2Q17

1Q17

2Q16


1Q17

2Q16

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

$

393


$

296


$

193




32.8%

103.6%

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

.36


.27


.23



33.3


56.5

Return on average total assets from continuing operations

1.23%


.99%


.82%



N/A

N/A

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

9.97


9.91


11.10



N/A

N/A

Book value at period end

$

13.02


$

12.71


$

13.08



2.4%


(.5)%

Net interest margin (TE) from continuing operations

3.30%


3.13%


2.76%



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)

6/30/2017 ratio is estimated.















TE = Taxable Equivalent, N/A = Not Applicable







 

 


INCOME STATEMENT HIGHLIGHTS












Revenue














dollars in millions





Change 2Q17 vs.


2Q17

1Q17

2Q16


1Q17

2Q16

Net interest income (TE)

$

987


$

929


$

605



6.2

%

63.1

%

Noninterest income

653


577


473



13.2

%

38.1

%

Total revenue

$

1,640


$

1,506


$

1,078



8.9

%

52.1

%








TE = Taxable Equivalent; N/M = Not Meaningful

 

Second quarter 2017 net interest income included $100 million of purchase accounting accretion related to the acquisition of First Niagara, including $42 million related to the finalization of previous purchase accounting estimates.  First quarter 2017 results included $53 million of purchase accounting accretion.

Taxable-equivalent net interest income was $987 million for the second quarter of 2017, and the net interest margin was 3.30%, compared to taxable-equivalent net interest income of $605 million and a net interest margin of 2.76% for the second quarter of 2016, reflecting benefit from the First Niagara acquisition, including purchase accounting accretion, as well as higher earning asset yields and balances.

Compared to the first quarter of 2017, taxable-equivalent net interest income increased by $58 million, and the net interest margin increased by 17 basis points. The increase in net interest income and the net interest margin reflects an increase in purchase accounting accretion and higher earning asset yields, partly offset by a decline in loan fees and higher interest-bearing deposit costs, largely the result of an increase in commercial deposit rates and growth in higher-yielding deposit products. Net interest income also benefited from one additional day in the second quarter of 2017.

Excluding purchase accounting accretion, taxable-equivalent net interest income increased $282 million from the second quarter of 2016 and $11 million from the first quarter of 2017.


Noninterest Income














dollars in millions





Change 2Q17 vs.


2Q17

1Q17

2Q16


1Q17

2Q16

Trust and investment services income

$

134


$

135


$