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KeyCorp Reports Second Quarter 2018 Net Income Of $464 Million, Or $.44 Per Common Share

Strong results driven by loan growth, fee momentum, and expense discipline

Cash efficiency ratio of 58.8%

Return on average tangible common equity of 16.7%

Company Release - 7/19/2018 6:30 AM ET

CLEVELAND, July 19, 2018 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced second quarter net income from continuing operations attributable to Key common shareholders of $464 million, or $.44 per common share, compared to $402 million, or $.38 per common share, for the first quarter of 2018 and $393 million, or $.36 per common share, for the second quarter of 2017. Key's results in the second quarter of 2018 and the second quarter of 2017 included a number of notable items; additional detail can be found on page 24 of this release.

"Second quarter results were strong, driven by broad-based growth and momentum in our commercial and consumer businesses. Continued loan growth, higher fees, and expense discipline drove positive operating leverage for the quarter. Importantly, our cash efficiency ratio improved to 58.8% and our return on tangible common equity was 16.7%. Across our franchise, we are benefitting from efforts to do more for our new and existing clients, while also increasing the productivity and efficiency of our businesses. Key's improved profitability and returns in the second quarter mark meaningful progress as we deliver on our commitments and work to achieve our long-term targets.

During the quarter, we also announced a 42% increase in our common share dividend along with a $1.2 billion share repurchase program, as part of our 2018 capital plan. Our plan marks a significant increase in shareholder payout as we move toward targeted levels of capital and common dividend payout, all to maximize long-term shareholder value."

-       Beth Mooney, Chairman and CEO


Selected Financial Highlights















dollars in millions, except per share data





Change 2Q18 vs.



2Q18

1Q18

2Q17


1Q18

2Q17

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

$

464


$

402


$

393



15.4

%

18.1

%

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

.44


.38


.36



15.8


22.2


Return on average tangible common equity from continuing operations (a)

16.73

%

14.89

%

13.80

%


N/A


N/A


Return on average total assets from continuing operations

1.41


1.25


1.23



N/A


N/A


Common Equity Tier 1 ratio (b)

10.12


9.99


9.91



N/A


N/A


Book value at period end

$

13.29


$

13.07


$

13.02



1.7

%

2.1

%

Net interest margin (TE) from continuing operations

3.19

%

3.15

%

3.30

%


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 "Return on 
          average tangible common equity from continuing operations." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides 
          a basis for period-to-period comparisons.

(b)     6/30/2018 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 


INCOME STATEMENT HIGHLIGHTS














Revenue














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Net interest income (TE)

$

987


$

952


$

987



3.7

%


Noninterest income

660


601


653



9.8


1.1

%

Total revenue

$

1,647


$

1,553


$

1,640



6.1

%

.4

%








TE = Taxable Equivalent

Taxable-equivalent net interest income was $987 million for the second quarter of 2018, and the net interest margin was 3.19%, compared to taxable-equivalent net interest income of $987 million and a net interest margin of 3.30% for the second quarter of 2017. Second quarter 2018 net interest income included $28 million of purchase accounting accretion, a decline of $72 million from the second quarter of 2017.  Excluding purchase accounting accretion, taxable-equivalent net interest income increased $72 million from the second quarter of 2017, and the net interest margin increased 13 basis points, reflecting the benefit from higher interest rates and higher earning asset balances.

Compared to the first quarter of 2018, taxable-equivalent net interest income increased by $35 million, and the net interest margin increased by four basis points. Both net interest income and the net interest margin benefited from higher interest rates and strong commercial loan growth. One additional day in the quarter further benefited net interest income. These benefits were partially offset by continued expected declines in purchase accounting accretion.  Excluding purchase accounting accretion, taxable-equivalent net interest income increased $40 million from the first quarter of 2018 and the net interest margin increased six basis points.


Noninterest Income














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Trust and investment services income

$

128


$

133


$

134



(3.8)%


(4.5)%


Investment banking and debt placement fees

155


143


135



8.4


14.8


Service charges on deposit accounts

91


89


90



2.2


1.1


Operating lease income and other leasing gains

(6)


32


30



N/M


N/M


Corporate services income

61


62


55



(1.6)


10.9


Cards and payments income

71


62


70



14.5


1.4


Corporate-owned life insurance income

32


32


33




(3.0)


Consumer mortgage income

7


7


6




16.7


Mortgage servicing fees

22


20


15



10.0


46.7


Other income

99


21


85



371.4


16.5


Total noninterest income

$

660


$

601


$

653



9.8

%

1.1

%








N/M = Not meaningful

Key's noninterest income was $660 million for the second quarter of 2018, compared to $653 million for the year-ago quarter. Growth was driven by an increase in investment banking and debt placement fees, related to strength in advisory fees, including benefit from the acquisition of Cain Brothers. Mortgage servicing fees also increased, benefiting from portfolio growth and increases in special servicing fees. Other income increased compared to the year-ago quarter, largely due to a gain on the sale of Key Insurance and Benefits Services. These increases were partially offset by a decline in operating lease income and other leasing gains, driven by a $42 million lease residual loss in the second quarter of 2018. Trust and investment services income also declined, impacted by the sale of Key Insurance and Benefits Services.

Compared to the first quarter of 2018, noninterest income increased by $59 million. The primary driver of the quarter-over-quarter increase was a $78 million gain related to the sale of Key Insurance and Benefits Services, reported in other income. Additionally, investment banking and debt placement fees and cards and payments income, which increased $12 million and $9 million, respectively, benefited from ongoing investments and momentum across the franchise. These increases were partially offset by a decline in operating lease income related to a lease residual loss, as well as trust and investment services income, which was impacted by the sale of Key Insurance and Benefits Services.


Noninterest Expense














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Personnel expense

$

586


$

594


$

553



(1.3)%


6.0

%

Nonpersonnel expense

407


412


442



(1.2)


(7.9)


Total noninterest expense

$

993


$

1,006


$

995



(1.3)


(.2)









N/M = Not meaningful

Key's noninterest expense was $993 million for the second quarter of 2018, compared to $995 million in the year-ago quarter. Growth from acquisitions and investments, including Cain Brothers and HelloWallet, as well as the addition of client-facing bankers and continued investment in our residential mortgage business, contributed to both personnel and nonpersonnel expense in the second quarter of 2018. Efficiency-related expenses of $22 million (largely severance) and $5 million of costs related to the sale of Key Insurance and Benefits Services also impacted the current quarter's results. The current quarter also benefited from the realization of merger-related cost savings. In the second quarter of 2017, Key incurred $44 million of merger-related charges and a $20 million charitable contribution.

Key's noninterest expense was $993 million for the second quarter of 2018, compared to $1 billion in the prior quarter. This quarter's decrease was largely driven by expected seasonal trends, including lower employee benefits expense, which declined $23 million, and lower occupancy and intangible asset amortization. Partially offsetting these declines were $22 million related to efficiency efforts (largely severance) and $5 million related to the sale of Key Insurance and Benefits Services.

BALANCE SHEET HIGHLIGHTS


Average Loans














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Commercial and industrial (a)

$

45,030


$

42,733


$

40,666



5.4

%

10.7

%

Other commercial loans

20,394


20,705


21,990



(1.5)


(7.3)


Home equity loans

11,601


11,877


12,473



(2.3)


(7.0)


Other consumer loans

11,619


11,612


11,373



.1


2.2


Total loans

$

88,644


$

86,927


$

86,502



2.0

%

2.5

%








(a)     Commercial and industrial average loan balances include $126 million, $120 million, and $117 million of assets
          from commercial credit cards at June 30, 2018, March 31, 2018, and June 30, 2017, respectively.

Average loans were $88.6 billion for the second quarter of 2018, an increase of $2.1 billion compared to the second quarter of 2017, reflecting broad-based growth in commercial and industrial loans, partially offset by a decline in commercial real estate balances related to higher paydowns.

Compared to the first quarter of 2018, average loans increased by $1.7 billion, largely the result of growth in commercial and industrial loans. Key realized growth across commercial client segments, with commercial and industrial loans up 3% in the Community Bank and 7% in the Corporate Bank, unannualized.


Average Deposits














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Non-time deposits

$

91,538


$

90,719


$

92,018



.9

%

(.5)

%

Certificates of deposit ($100,000 or more)

7,516


6,972


6,111



7.8


23.0


Other time deposits

4,949


4,865


4,650



1.7


6.4


Total deposits

$

104,003


$

102,556


$

102,779



1.4

%

1.2

%








Cost of total deposits

.43

%

.36

%

.26

%


N/A

N/A








N/A = Not Applicable

Average deposits totaled $104 billion for the second quarter of 2018, an increase of $1.2 billion compared to the year-ago quarter, reflecting a shift to higher-yielding deposit products, as well as strength in Key's retail banking franchise and growth from commercial relationships. Growth was partially offset by the managed exit of certain higher cost corporate and public sector deposits.

Compared to the first quarter of 2018, average deposits increased by $1.4 billion. NOW and money market deposit accounts increased $1.2 billion and certificates of deposit and other time deposits increased $628 million, partly offset by a $471 million decline in noninterest-bearing deposits, as clients shift to higher-yielding deposit products. The linked quarter deposit growth continues to reflect strong retail deposit growth and growth from commercial relationships.


ASSET QUALITY














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Net loan charge-offs

$

60


$

54


$

66



11.1

%

(9.1)

%

Net loan charge-offs to average total loans

.27

%

.25

%

.31

%


N/A


N/A


Nonperforming loans at period end (a)

$

545


$

541


$

507



.7


7.5


Nonperforming assets at period end (a)

571


569


556



.4


2.7


Allowance for loan and lease losses

887


881


870



.7


2.0


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

162.8

%

162.8

%

171.6

%


N/A


N/A


Provision for credit losses

$

64


$

61


$

66



4.9

%

(3.0)

%








(a)       Nonperforming loan balances exclude $629 million, $690 million, and $835 million of purchased credit impaired loans at
           June 30, 2018, March 31, 2018, and June 30, 2017, respectively.

N/A = Not Applicable

Key's provision for credit losses was $64 million for the second quarter of 2018, compared to $66 million for the second quarter of 2017 and $61 million for the first quarter of 2018. Key's allowance for loan and lease losses was $887 million, or 1.01% of total period-end loans, at June 30, 2018, compared to 1.01% at June 30, 2017, and 1.00% at March 31, 2018.

Net loan charge-offs for the second quarter of 2018 totaled $60 million, or .27% of average total loans. These results compare to $66 million, or .31%, for the second quarter of 2017, and $54 million, or .25%, for the first quarter of 2018.

At June 30, 2018, Key's nonperforming loans totaled $545 million, which represented .62% of period-end portfolio loans. These results compare to .59% at June 30, 2017, and .61% at March 31, 2018. Nonperforming assets at June 30, 2018, totaled $571 million, and represented .65% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .64% at June 30, 2017, and .65% at March 31, 2018.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at June 30, 2018.

Capital Ratios









6/30/2018

3/31/2018

6/30/2017

Common Equity Tier 1 (a)

10.12

%

9.99

%

9.91

%

Tier 1 risk-based capital (a)

10.94


10.82


10.73


Total risk based capital (a)

12.83


12.73


12.64


Tangible common equity to tangible assets (b)

8.32


8.22


8.56


Leverage (a)

9.91


9.76


9.95






(a)       6/30/2018 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." 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 in the second quarter. As shown in the preceding table, at June 30, 2018, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 10.12% and 10.94%, respectively. Key's tangible common equity ratio was 8.32% at June 30, 2018.

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 10.03% at June 30, 2018.  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 2Q18 vs.



2Q18

1Q18

2Q17


1Q18

2Q17

Shares outstanding at beginning of period

1,064,939


1,069,084


1,097,479



(.4)

%

(3.0)

%

Open market repurchases and return of shares under employee 
     compensation plans

(6,259)


(9,399)


(5,072)



(33.4)


23.4


Shares issued under employee compensation plans (net of cancellations)

264


5,254


332



(95.0)


(20.5)


     Shares outstanding at end of period

1,058,944


1,064,939


1,092,739



(.6)

%

(3.1)

%









N/M = Not Meaningful

Consistent with Key's 2017 Capital Plan, during the second quarter of 2018, Key declared a dividend of $.12 per common share, and completed $126 million of common share repurchases during the quarter. These repurchases included $123 million of common share repurchases in the open market and $3 million of share repurchases related to employee equity compensation programs.

Key's 2018 Capital Plan received no objection from the Federal Reserve. The plan includes a 42% increase in the quarterly common share dividend from $0.12 per share to $0.17 per share, which is payable in the third quarter of 2018. Also included in the plan is a common share repurchase program of up to $1.225 billion. This authorization includes repurchases to offset issuances of common shares under our employee compensation plans. Repurchases are expected to be executed over the next four quarters.

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 2Q18 vs.



2Q18

1Q18

2Q17


1Q18

2Q17

Revenue from continuing operations (TE)







Key Community Bank

$

996


$

958


$

998



4.0

%

(.2)

%

Key Corporate Bank

542


559


597



(3.0)


(9.2)


Other Segments

38


37


46



2.7


(17.4)


     Total segments

1,576


1,554


1,641



1.4


(4.0)


Reconciling Items (a)

71


(1)


(1)



N/M


N/M


     Total

$

1,647


$

1,553


$

1,640



6.1

%

.4

%









Income (loss) from continuing operations attributable to Key







Key Community Bank

$

244


$

197


$

198



23.9

%

23.2

%

Key Corporate Bank

167


207


224



(19.3)


(25.4)


Other Segments

25


18


24



38.9


4.2


     Total segments

436


422


446



3.3


(2.2)


Reconciling Items (b)

43


(6)


(39)



N/M


N/M


     Total

$

479


$

416


$

407



15.1

%

17.7

%









(a)     Reconciling items consists primarily of the gain on the sale of Key Insurance and Benefits Services for the second quarter of
          2018.

(b)     Reconciling items consists primarily of the gain on the sale of Key Insurance and Benefits Services for the second quarter of
          2018, the unallocated portion of merger-related charges for the second quarter of 2017, 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 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Summary of operations







Net interest income (TE)

$

715


$

688


$

676



3.9

%

5.8

%

Noninterest income

281


270


322



4.1


(12.7)


Total revenue (TE)

996


958


998



4.0


(.2)


Provision for credit losses

38


48


47



(20.8)


(19.1)


Noninterest expense

639


652


635



(2.0)


.6


Income (loss) before income taxes (TE)

319


258


316



23.6


.9


Allocated income taxes (benefit) and TE adjustments

75


61


118



23.0


(36.4)


Net income (loss) attributable to Key

$

244


$

197


$

198



23.9

%

23.2

%








Average balances







Loans and leases

$

47,984


$

47,680


$

47,477



.6

%

1.1

%

Total assets

51,866


51,605


51,441



.5


.8


Deposits

80,930


79,945


79,601



1.2


1.7









Assets under management at period end

$

39,663


$

39,003


$

37,613



1.7

%

5.5

%








TE = Taxable Equivalent

 


Additional Key Community Bank Data














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Noninterest income







Trust and investment services income

$

92


$

89


$

86



3.4

%

7.0

%

Service charges on deposit accounts

77


76


77



1.3



Cards and payments income

59


51


60



15.7


(1.7)


Other noninterest income

53


54


99



(1.9)


(46.5)


Total noninterest income

$

281


$

270


$

322



4.1

%

(12.7)

%








Average deposit balances







NOW and money market deposit accounts

$

45,112


$

44,291


$

45,127



1.9

%


Savings deposits

5,078


5,056


5,293



.4


(4.1)

%

Certificates of deposit ($100,000 or more)

5,232


4,961


4,016



5.5


30.3


Other time deposits

4,934


4,856


4,640



1.6


6.3


Noninterest-bearing deposits

20,574


20,781


20,525



(1.0)


.2


Total deposits

$

80,930


$

79,945


$

79,601



1.2

%

1.7

%








Home equity loans







Average balance

$

11,496


$

11,763


$

12,330





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

70

%

70

%

71

%




Percent first lien positions

60


60


60












Other data







Branches

1,177


1,192


1,210





Automated teller machines

1,537


1,569


1,589












 

Key Community Bank Summary of Operations (2Q18 vs. 2Q17)

  • Net income increased $46 million, or 23.2%, from prior year
  • Average commercial and industrial loans increased $1.1 billion, or 5.8%, from the prior year

Key Community Bank recorded net income attributable to Key of $244 million for the second quarter of 2018, compared to $198 million for the year-ago quarter, benefiting from momentum across Key's businesses, as well as a lower tax rate as a result of tax reform.

Taxable-equivalent net interest income increased by $39 million, or 5.8%, from the second quarter of 2017. The increase in net interest income was primarily attributable to the benefit from higher interest rates and growth in loans, partially offset by lower purchase accounting accretion. Average loans and leases increased $507 million, or 1.1%, largely driven by a $1.1 billion, or 5.8%, increase in commercial and industrial loans. Additionally, average deposits increased $1.3 billion, or 1.7%, from one year ago.

Noninterest income decreased $41 million, or 12.7%, from the year-ago quarter driven by a merchant services gain in the second quarter of 2017. Noninterest income, excluding the merchant services gain in the year-ago period, increased primarily due to higher assets under management from market growth.

The provision for credit losses decreased by $9 million, or 19.1%, from the second quarter of 2017. Net loan charge-offs decreased $13 million, or 27.7%, from the second quarter of 2017, as overall credit quality remained favorable.

Noninterest expense increased $4 million, or 0.6%, from the year-ago quarter. Personnel expense increased $11 million, primarily driven by recent acquisitions and ongoing investments, including residential mortgage and HelloWallet. Nonpersonnel expense decreased by $7 million, driven by a charitable contribution in the second quarter of 2017, which was partially offset by higher technology development costs.


Key Corporate Bank


















dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Summary of operations







Net interest income (TE)

$

277

$

272

$

312



1.8

%

(11.2)

%

Noninterest income

265


287


285



(7.7)


(7.0)


Total revenue (TE)

542


559


597



(3.0)


(9.2)


Provision for credit losses

28


14


19



100.0


47.4


Noninterest expense

326


314


297



3.8


9.8


Income (loss) before income taxes (TE)

188


231


281



(18.6)


(33.1)


Allocated income taxes and TE adjustments

21


24


57



(12.5)


(63.2)


Net income (loss) attributable to Key

$

167

$

207

$

224


(19.3)

%

(25.4)

%








Average balances







Loans and leases

$

39,710

$

38,260

$

37,704


3.8

%

5.3

%

Loans held for sale

1,299


1,118


1,000



16.2


29.9


Total assets

47,213


45,549


44,131



3.7


7.0


Deposits

21,057

20,815

21,145


1.2


(.4)









TE = Taxable Equivalent, N/M = Not Meaningful

 


Additional Key Corporate Bank Data














dollars in millions





Change 2Q18 vs.


2Q18

1Q18

2Q17


1Q18

2Q17

Noninterest income







Trust and investment services income

$

29

$

29

$

35



(17.1)

%

Investment banking and debt placement fees

153

141

134


8.5

%

14.2


Operating lease income and other leasing gains

(10)

27

22


N/M


N/M









Corporate services income

44

44

38



15.8


Service charges on deposit accounts

13

13

13




Cards and payments income

12

11

10


9.1


20.0


Payments and services income

69

68

61


1.5


13.1









Mortgage servicing fees

19

17

12


11.8


58.3


Other noninterest income

5

5

21



(76.2)


Total noninterest income

$

265

$

287

$

285


(7.7)

%

(7.0)

%








N/M = Not Meaningful

 

Key Corporate Bank Summary of Operations (2Q18 vs. 2Q17)

  • Commercial and industrial loans up $3.3 billion, or 15%, from prior year
  • Investment banking and debt placement fees up $19 million, or 14.2%, from prior year

Key Corporate Bank recorded net income attributable to Key of $167 million for the second quarter of 2018, compared to $224 million for the same period one year ago.

Taxable-equivalent net interest income decreased by $35 million, or 11.2%, compared to the second quarter of 2017. The decline is primarily related to $33 million of lower purchase accounting accretion, as well as loan spread compression. Average loan and lease balances increased $2 billion, or 5.3%, from the year-ago quarter, driven by broad-based growth in commercial and industrial loans. Average deposit balances decreased $88 million, or 0.4%, from the year-ago quarter, due to the managed exit of higher cost corporate and public sector deposits offsetting growth in core deposits.

Noninterest income was down $20 million, or 7.0%, from the prior year. This decrease was largely due to a $32 million decline in operating lease income and other leasing gains, driven by a lease residual loss in the second quarter of 2018. Other declines included other noninterest income down $16 million, mostly due to a merchant services gain in the year-ago period.  These decreases were slightly offset by higher investment banking and debt placement fees of $19 million, related to strength in advisory fees, including benefit from the acquisition of Cain Brothers, as well as a $6 million increase in corporate services income from higher derivatives revenue.

During the second quarter of 2018, the provision for credit losses increased $9 million, or 47.8%, compared to the second quarter of 2017, mostly due to higher net loan charge-offs.

Noninterest expense increased by $29 million, or 9.8%, from the second quarter of 2017. The increase from the prior year was largely related to acquisitions and investments throughout the year, which drove an increase in personnel expense and intangible asset amortization. Operating lease expense also increased compared to the year-ago period.

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 $25 million for the second quarter of 2018, compared to $24 million for the same period last year.

*****

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 $137.8 billion at June 30, 2018.

Key provides deposit, lending, cash management, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of approximately 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, 2017, 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 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 10:00 a.m. ET, on Thursday, July 19, 2018.  An audio replay of the call will be available through July 29, 2018.

*****

 

Financial Highlights

(dollars in millions, except per share amounts)




Three months ended




6/30/2018

3/31/2018

6/30/2017

Summary of operations





Net interest income (TE)

$

987


$

952


$

987



Noninterest income

660


601


653



     Total revenue (TE)

1,647


1,553


1,640



Provision for credit losses

64


61


66



Noninterest expense

993


1,006


995



Income (loss) from continuing operations attributable to Key

479


416


407



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

3


2


5



Net income (loss) attributable to Key

482


418


412









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

464


402


393



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

3


2


5



Net income (loss) attributable to Key common shareholders

467


404


398








Per common share





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

$

.44


$

.38


$

.36



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





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

.44


.38


.37









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

.44


.38


.36



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





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

.44


.38


.36









Cash dividends declared

.12


.105


.095



Book value at period end

13.29


13.07


13.02



Tangible book value at period end

10.59


10.35


10.40



Market price at period end

19.54


19.55


18.74








Performance ratios





From continuing operations:





Return on average total assets

1.41

%

1.25

%

1.23

%


Return on average common equity

13.29


11.76


11.12



Return on average tangible common equity (c)

16.73


14.89


13.80



Net interest margin (TE)

3.19


3.15


3.30



Cash efficiency ratio (c)

58.8


62.9


59.3









From consolidated operations:





Return on average total assets

1.40

%

1.24

%

1.23

%


Return on average common equity

13.37


11.82


11.26



Return on average tangible common equity (c)

16.84


14.97


13.98



Net interest margin (TE)

3.17


3.13


3.28



Loan to deposit (d)

86.9


86.9


87.2








Capital ratios at period end





Key shareholders' equity to assets

10.96

%

10.90

%

11.23

%


Key common shareholders' equity to assets

10.21


10.16


10.48



Tangible common equity to tangible assets (c)

8.32


8.22


8.56



Common Equity Tier 1 (e)

10.12


9.99


9.91



Tier 1 risk-based capital (e)

10.94


10.82


10.73



Total risk-based capital (e)

12.83


12.73


12.64



Leverage (e)

9.91


9.76


9.95








Asset quality — from continuing operations





Net loan charge-offs

$

60


$

54


$

66



Net loan charge-offs to average loans

.27

%

.25

%

.31

%


Allowance for loan and lease losses

$

887


$

881


$

870



Allowance for credit losses

945


941


918



Allowance for loan and lease losses to period-end loans

1.01

%

1.00

%

1.01

%


Allowance for credit losses to period-end loans

1.07


1.07


1.06



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

162.8


162.8


171.6



Allowance for credit losses to nonperforming loans (f)

173.4


173.9


181.1



Nonperforming loans at period-end (f)

$

545


$

541


$

507



Nonperforming assets at period-end (f)

571


569


556



Nonperforming loans to period-end portfolio loans (f)

.62

%

.61

%

.59

%


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

.65


.65


.64








Trust assets





Assets under management

$

39,663


$

39,003


$

37,613








Other data





Average full-time equivalent employees

18,376


18,540


18,344



Branches

1,177


1,192


1,210








Taxable-equivalent adjustment

$

8


$

8


$

14


 

 

Financial Highlights (continued)

(dollars in millions, except per share amounts)



Six months ended



6/30/2018


6/30/2017

Summary of operations





Net interest income (TE)

$

1,939



$

1,916



Noninterest income

1,261



1,230



   Total revenue (TE)

3,200



3,146



Provision for credit losses

125



129



Noninterest expense

1,999



2,008



Income (loss) from continuing operations attributable to Key

895



731



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

5



5



Net income (loss) attributable to Key

900



736








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

$

866



$

689



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

5



5



Net income (loss) attributable to Key common shareholders

871



694







Per common share





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

$

.82



$

.64



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





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

.82



.64








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

.81



.63



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





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

.81



.63








Cash dividends paid

.225



.18







Performance ratios





From continuing operations:





Return on average total assets

1.33

%


1.11

%


Return on average common equity

12.53



9.97



Return on average tangible common equity (c)

15.82



12.43



Net interest margin (TE)

3.17



3.21



Cash efficiency ratio (c)

60.8



62.4








From consolidated operations:





Return on average total assets

1.33

%


1.11

%


Return on average common equity

12.60



10.04



Return on average tangible common equity (c)

15.91



12.52



Net interest margin (TE)

3.15



3.19







Asset quality — from continuing operations





Net loan charge-offs

114



124



Net loan charge-offs to average total loans

.26

%


.29

%






Other data





Average full-time equivalent employees

18,458



18,365







Taxable-equivalent adjustment

16



25



(a)      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" 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.

(e)      June 30, 2018, ratio is estimated.

(f)       Nonperforming loan balances exclude $629 million, $690 million, and $835 million of purchased credit impaired loans at June 
           30, 2018, March 31, 2018, and June 30, 2017, respectively.

 

 

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," 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.


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.


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. Management believes this ratio provide greater consistency and comparability between Key's results and those of its peer banks. Additionally, this ratio is 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


Six months ended


6/30/2018

3/31/2018

6/30/2017


6/30/2018

6/30/2017

Tangible common equity to tangible assets at period-end







Key shareholders' equity (GAAP)

$

15,100


$

14,944


$

15,253





Less: Intangible assets (a)

2,858


2,902


2,866





Preferred Stock (b)

1,009


1,009


1,009





Tangible common equity (non-GAAP)

$

11,233


$

11,033


$

11,378





Total assets (GAAP)

$

137,792


$

137,049


$

135,824





Less: Intangible assets (a)

2,858


2,902


2,866





Tangible assets (non-GAAP)

$

134,934


$

134,147


$

132,958





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

8.32

%

8.22

%

8.56

%




Pre-provision net revenue







Net interest income (GAAP)

$

979


$

944


$

973



$

1,923


$

1,891


Plus: Taxable-equivalent adjustment

8


8


14



16


25


Noninterest income

660


601


653



1,261


1,230


Less: Noninterest expense

993


1,006


995



1,999


2,008


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

$

654


$

547


$

645



$

1,201


$

1,138


Average tangible common equity







Average Key shareholders' equity (GAAP)

$

15,032


$

14,889


$

15,200



$

14,961


$

15,192


Less: Intangible assets (average) (c)

2,883


2,916


2,756



2,899


2,764


Preferred stock (average)

1,025


1,025


1,025



1,025


1,251


Average tangible common equity (non-GAAP)

$

11,124


$

10,948


$

11,419



$

11,037


$

11,177


Return on average tangible common equity from continuing operations







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

     shareholders (GAAP)

$

464


$

402


$

393



$

866


$

689


Average tangible common equity (non-GAAP)

11,124


10,948


11,419



11,037


11,177









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

16.73

%

14.89

%

13.80

%


15.82

%

12.43

%

Return on average tangible common equity consolidated







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

$

467


$

404


$

398



$

871


$

694


Average tangible common equity (non-GAAP)

11,124


10,948


11,419



11,037


11,177









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

16.84

%

14.97

%

13.98

%


15.91

%

12.52

%

Cash efficiency ratio







Noninterest expense (GAAP)

$

993


$

1,006


$

995



$

1,999


$

2,008


Less: Intangible asset amortization

25


29


22



54


44


Adjusted noninterest expense (non-GAAP)

$

968


$

977


$

973



$

1,945


$

1,964









Net interest income (GAAP)

$

979


$

944


$

973



$

1,923


$

1,891


Plus: Taxable-equivalent adjustment

8


8


14



16


25


Noninterest income

660


601


653