Exhibit 99.1

 

FOR IMMEDIATE RELEASE

KEYCORP REPORTS FIRST QUARTER 2014

NET INCOME OF $232 MILLION, OR $.26 PER COMMON SHARE

Positive operating leverage from prior year

Strong risk management results with continued improvement in credit quality:

net loan charge-offs to average loans declined to .15%

Disciplined capital management with plans to continue returning

peer-leading capital to shareholders

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

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

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

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

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 2

 

FIRST QUARTER 2014 FINANCIAL RESULTS, from continuing operations

Compared with First Quarter of 2013

 

•

Average loans up 4.0% (5.5% excluding impact of exit portfolios), driven by an 8.9% growth in commercial, financial and agricultural loans; period ending loans up 5.5%

 

•

Average deposits up 3.9% due to commercial mortgage servicing acquisition and growth in commercial and public deposits offsetting declines in certificates of deposits

 

•

Positive operating leverage as the decline in expense more than offset the decline in revenue

 

•

Net interest income (taxable-equivalent) down $20 million, primarily due to lower asset yields and loan fees

 

•

Noninterest income up $10 million, reflecting higher principal investing gains, growth in investment banking and debt placement fees, and benefits from investments in commercial mortgage servicing

 

•

Noninterest expense down $19 million, reflecting $5 million in lower efficiency-related charges, and the successful execution of our efficiency initiative

 

•

Asset quality improved, with net loan charge-offs to average loans declining from .38% to .15%

 

•

Disciplined capital management, with the announcement of new planned capital actions including a share repurchase program of up to $542 million, and, subject to approval by Key’s Board of Directors, an increase of the quarterly common share dividend to $.065 per share

Compared with Fourth Quarter of 2013

 

•

Average loans up 2.1%, driven by a 4.8% growth in commercial, financial and agricultural loans; period ending loans up 1.8%

 

•

Average deposits down 3.2% due to the expected reduction of escrow deposits in the commercial mortgage servicing business

 

•

Net interest income (taxable-equivalent) down $20 million due to lower asset yields as well as fewer days in the quarter

 

•

Noninterest income down $18 million, reflecting a decline in corporate-owned life insurance income and lower commercial mortgage special servicing fees

 

•

Noninterest expense down $50 million due to a decline of $12 million related to efficiency charges, and lower expenses for marketing, incentive compensation, and salaries

 

•

Asset quality remains strong, with a 12 basis point improvement in net loan charge-offs to average loans

 

•

Disciplined capital management, repurchasing $141 million of common shares during the first quarter of 2014 and maintaining a top tier capital position with Tier 1 common equity of 11.22%

Selected Financial Highlights

 

dollars in millions, except per share data														Change 1Q14 vs.
		1Q14				4Q13				1Q13				4Q13				1Q13
Income (loss) from continuing operations attributable to Key common shareholders		$	232			$	229			$	196				1.3	%			18.4	%
Income (loss) from continuing operations attributable to Key common shareholders per common share — assuming dilution			.26				.26				.21				—				23.8
Return on average total assets from continuing operations			1.13	%			1.08	%			.99	%			N/A				N/A
Tier 1 common equity (a)			11.22				11.22				11.40				N/A				N/A
Book value at period end		$	11.43			$	11.25			$	10.89				1.6	%			5.0	%
Net interest margin (TE) from continuing operations			3.00	%			3.01	%			3.24	%			N/A				N/A

 

(a)

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

TE = Taxable Equivalent, N/A = Not Applicable

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 3

 

INCOME STATEMENT HIGHLIGHTS

Revenue

 

dollars in millions														Change 1Q14 vs.
		1Q14				4Q13				1Q13				4Q13				1Q13
Net interest income (TE)		$	569			$	589			$	589				(3.4	)%			(3.4	)%
Noninterest income			435				453				425				(4.0	)			2.4
Total revenue		$	1,004			$	1,042			$	1,014				(3.6	)%			(1.0	)%

TE = Taxable Equivalent

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

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

Noninterest Income

 

dollars in millions														Change 1Q14 vs.
		1Q14				4Q13				1Q13				4Q13				1Q13
Trust and investment services income		$	98			$	98			$	95				—				3.2	%
Investment banking and debt placement fees			84				84				79				—				6.3
Service charges on deposit accounts			63				68				69				(7.4	)%			(8.7	)
Operating lease income and other leasing gains			29				26				25				11.5				16.0
Corporate services income			42				40				45				5.0				(6.7	)
Cards and payments income			38				40				37				(5.0	)			2.7
Corporate-owned life insurance income			26				33				30				(21.2	)			(13.3	)
Consumer mortgage income			2				3				7				(33.3	)			(71.4	)
Mortgage servicing fees			15				22				8				(31.8	)			87.5
Net gains (losses) from principal investing			24				20				8				20.0				200.0
Other income			14				19				22				(26.3	)			(36.4	)
Total noninterest income		$	435			$	453			$	425				(4.0	)%			2.4	%

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

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

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 4

 

Noninterest Expense

 

dollars in millions														Change 1Q14 vs.
		1Q14				4Q13				1Q13				4Q13				1Q13
Personnel expense		$	388			$	398			$	391				(2.5	)%			(.8	)%
Nonpersonnel expense			274				314				290				(12.7	)			(5.5	)
Total noninterest expense		$	662			$	712			$	681				(7.0	)%			(2.8	)%

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

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

BALANCE SHEET HIGHLIGHTS

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

Average Loans

 

dollars in millions														Change 3-31-14 vs.
		3-31-14				12-31-13				3-31-13				12-31-13				3-31-13
Commercial, financial and agricultural (a)		$	25,390			$	24,218			$	23,317				4.8	%			8.9	%
Other commercial loans			13,337				13,266				13,493				.5				(1.2	)
Total home equity loans			10,630				10,653				10,200				(.2	)			4.2
Other consumer loans			5,389				5,471				5,616				(1.5	)			(4.0	)
Total loans		$	54,746			$	53,608			$	52,626				2.1	%			4.0	%

 

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

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

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

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 5

 

Average Deposits

 

dollars in millions														Change 3-31-14 vs.
		3-31-14				12-31-13				3-31-13				12-31-13				3-31-13
Non-time deposits (a)		$	59,197			$	61,394			$	55,819				(3.6	)%			6.1	%
Certificates of deposits ($100,000 or more)			2,758				2,649				2,911				4.1				(5.3	)
Other time deposits			3,679				3,736				4,451				(1.5	)			(17.3	)
Total deposits		$	65,634			$	67,779			$	63,181				(3.2	)%			3.9	%
Cost of total deposits (a)			.20	%			.20	%			.29	%			N/A				N/A

 

(a)	Excludes deposits in foreign office.

N/A = Not Applicable

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

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

ASSET QUALITY

 

dollars in millions														Change 1Q14 vs.
		1Q14				4Q13				1Q13				4Q13				1Q13
Net loan charge-offs		$	20			$	37			$	49				(45.9	)%			(59.2	)%
Net loan charge-offs to average total loans			.15	%			.27	%			.38	%			N/A				N/A
Nonperforming loans at period end (a)		$	449			$	508			$	650				(11.6	)			(30.9	)
Nonperforming assets at period end			469				531				705				(11.7	)			(33.5	)
Allowance for loan and lease losses			834				848				893				(1.7	)			(6.6	)
Allowance for loan and lease losses to nonperforming loans			185.7	%			166.9	%			137.4	%			N/A				N/A
Provision (credit) for loan and lease losses		$	6			$	19			$	55				(68.4	)%			(89.1	)%

 

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

N/A = Not Applicable

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

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

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

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 6

 

CAPITAL

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

Capital Ratios

 

		3-31-14				12-31-13				3-31-13
Tier 1 common equity (a), (b)			11.22	%			11.22	%			11.40	%
Tier 1 risk-based capital (a)			11.96				11.96				12.19
Total risk based capital (a)			14.17				14.33				15.02
Tangible common equity to tangible assets (b)			10.14				9.80				10.24
Leverage (a)			11.32				11.11				11.36

 

(a)	3-31-14 ratio is estimated.

 

(b)

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

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

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

Summary of Changes in Common Shares Outstanding

 

in thousands														Change 1Q14 vs.
		1Q14				4Q13				1Q13				4Q13				1Q13
Shares outstanding at beginning of period			890,724				897,821				925,769				(.8	)%			(3.8	)%
Common shares repurchased			(9,845	)			(7,659	)			(6,790	)			28.5				45.0
Shares reissued (returned) under employee benefit plans			3,990				562				3,602				610.0				10.8
Shares outstanding at end of period			884,869				890,724				922,581				(.7	)%			(4.1	)%

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

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 7

 

LINE OF BUSINESS RESULTS

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

Major Business Segments

 

dollars in millions														Change 1Q14 vs.
		1Q14				4Q13				1Q13				4Q13				1Q13
Revenue from continuing operations (TE)
Key Community Bank		$	541			$	561			$	575				(3.6	)%			(5.9	)%
Key Corporate Bank			391				411				383				(4.9	)			2.1
Other Segments			70				73				54				(4.1	)			29.6
Total segments			1,002				1,045				1,012				(4.1	)			(1.0	)
Reconciling Items			2				(3	)			2				N/M				—
Total		$	1,004			$	1,042			$	1,014				(3.6	)%			(1.0	)%
Income (loss) from continuing operations attributable to Key
Key Community Bank		$	63			$	43			$	47				46.5	%			34.0	%
Key Corporate Bank			122				133				113				(8.3	)			8.0
Other Segments			53				61				43				(13.1	)			23.3
Total segments			238				237				203				.4				17.2
Reconciling Items			—				(2	)			(2	)			N/M				N/M
Total		$	238			$	235			$	201				1.3	%			18.4	%

TE = Taxable equivalent, N/M = Not Meaningful

Key Community Bank

 

dollars in millions														Change 1Q14 vs.
		1Q14				4Q13				1Q13				4Q13				1Q13
Summary of operations
Net interest income (TE)		$	363			$	377			$	387				(3.7	)%			(6.2	)%
Noninterest income			178				184				188				(3.3	)			(5.3	)
Total revenue (TE)			541				561				575				(3.6	)			(5.9	)
Provision (credit) for loan and lease losses			9				32				59				(71.9	)			(84.7	)
Noninterest expense			432				460				441				(6.1	)			(2.0	)
Income (loss) before income taxes (TE)			100				69				75				44.9				33.3
Allocated income taxes (benefit) and TE adjustments			37				26				28				42.3				32.1
Net income (loss) attributable to Key		$	63			$	43			$	47				46.5	%			34.0	%
Average balances
Loans and leases		$	29,793			$	29,596			$	28,977				.7	%			2.8	%
Total assets			31,943				31,785				31,474				.5				1.5
Deposits			49,824				50,409				49,349				(1.2	)			1.0
Assets under management at period end		$	26,549			$	26,664			$	25,101				(.4	)%			5.8	%

TE = Taxable Equivalent

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 8

 

Additional Key Community Bank Data

 

dollars in millions														Change 1Q14 vs.
		1Q14				4Q13				1Q13				4Q13				1Q13
Noninterest income
Trust and investment services income		$	67			$	66			$	65				1.5	%			3.1	%
Service charges on deposit accounts			52				58				58				(10.3	)			(10.3	)
Cards and payments income			35				37				33				(5.4	)			6.1
Other noninterest income			24				23				32				4.3				(25.0	)
Total noninterest income		$	178			$	184			$	188				(3.3	)%			(5.3	)%
Average deposit balances
NOW and money market deposit accounts		$	27,428			$	27,438			$	26,109				—				5.1	%
Savings deposits			2,465				2,472				2,463				(.3	)%			.1
Certificates of deposit ($100,000 or more)			2,163				2,124				2,498				1.8				(13.4	)
Other time deposits			3,673				3,731				4,445				(1.6	)			(17.4	)
Deposits in foreign office			309				285				270				8.4				14.4
Noninterest-bearing deposits			13,786				14,359				13,564				(4.0	)			1.6
Total deposits		$	49,824			$	50,409			$	49,349				(1.2	)%			1.0	%
Home equity loans
Average balance		$	10,305			$	10,310			$	9,787
Weighted-average loan-to-value ratio (at date of origination)			71	%			71	%			70	%
Percent first lien positions			58				58				55
Other data
Branches			1,027				1,028				1,084
Automated teller machines			1,330				1,335				1,482

Key Community Bank Summary of Operations

 

•

Average loan balances up 2.8% from prior year

 

•

Average core deposits up 3.7% from prior year

 

•

Net income attributable to Key Community Bank up 34% from the prior year

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

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

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

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

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

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 9

 

Key Corporate Bank

 

dollars in millions														Change 1Q14 vs.
		1Q14				4Q13				1Q13				4Q13				1Q13
Summary of operations
Net interest income (TE)		$	194			$	199			$	195				(2.5	)%			(.5	)%
Noninterest income			197				212				188				(7.1	)			4.8
Total revenue (TE)			391				411				383				(4.9	)			2.1
Provision (credit) for loan and lease losses			(1	)			(10	)			2				N/M				N/M
Noninterest expense			199				216				203				(7.9	)			(2.0	)
Income (loss) before income taxes (TE)			193				205				178				(5.9	)			8.4
Allocated income taxes and TE adjustments			71				72				65				(1.4	)			9.2
Net income (loss) attributable to Key		$	122			$	133			$	113				(8.3	)%			8.0	%
Average balances
Loans and leases		$	21,445			$	20,336			$	19,466				5.5	%			10.2	%
Loans held for sale			429				668				409				(35.8	)			4.9
Total assets			25,363				24,344				23,181				4.2				9.4
Deposits			15,800				17,370				13,966				(9.0	)			13.1
Assets under management at period end		$	12,344			$	10,241			$	10,613				20.5	%			16.3	%

TE = Taxable Equivalent, N/M = Not Meaningful

Additional Key Corporate Bank Data

 

dollars in millions														Change 1Q14 vs.
		1Q14				4Q13				1Q13				4Q13				1Q13
Noninterest income
Trust and investment services income		$	31			$	32			$	30				(3.1	)%			3.3	%
Investment banking and debt placement fees			84				84				79				—				6.3
Operating lease income and other leasing gains			21				20				15				5.0				40.0
Corporate services income			28				29				29				(3.4	)			(3.4	)
Service charges on deposit accounts			11				10				11				10.0				—
Cards and payments income			3				3				4				—				(25.0	)
Payments and services income			42				42				44				—				(4.5	)
Mortgage servicing fees			15				22				8				(31.8	)			87.5
Other noninterest income			4				12				12				(66.7	)			(66.7	)
Total noninterest income		$	197			$	212			$	188				(7.1	)%			4.8	%

N/M = Not Meaningful

Key Corporate Bank Summary of Operations

 

•

Average loan balances up 10.2% from the prior year

 

•

Average deposits up 13.1% from the prior year

 

•

Total revenue increased 2.1% from prior year

 

•

Investment banking and debt placement fees increased 6.3% from the prior year

Key Corporate Bank recorded net income attributable to Key of $122 million for the first quarter of 2014, compared to $113 million for the same period one year ago.

Taxable-equivalent net interest income decreased by $1 million, or .5%, compared to the first quarter of 2013. Average earning assets increased $2.3 billion, or 11.1%, from the year-ago quarter, primarily driven by loan growth in commercial, financial and agricultural and real estate commercial mortgage. This growth was broad-based across the Corporate Bank lines of business. The increase in earning assets was offset by declines from loan spread compression. Average deposit balances increased $1.8 billion, or 13.1%, from the year-ago quarter, driven by increases in Public Sector as well as increases related to the commercial mortgage servicing acquisition. This increase in deposit balances was more than offset by declines in the deposit spread as a result of the continued low-rate environment.

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 10

 

Noninterest income increased by $9 million, or 4.8%, from the first quarter of 2013. This increase was driven by higher mortgage servicing fees of $7 million, operating lease income and other leasing gains of $6 million, and investment banking and debt placement fees of $5 million from the year-ago quarter. Offsetting these increases was an $8 million decrease in other income primarily due to declines in fixed income sales and trading.

The provision for loan and lease losses decreased $3 million compared to the first quarter of 2013. Net loan charge-offs decreased $13 million from the same period one year ago primarily due to a sizable recovery.

Noninterest expense decreased by $4 million, or 2%, from the first quarter of 2013. A lower provision for losses on lending-related commitments and reduced miscellaneous expenses offset increases in personnel expense.

Other Segments

Other Segments consist of Corporate Treasury, Community Development, Key’s Principal Investing unit, and various exit portfolios. Other Segments generated net income attributable to Key of $53 million for the first quarter of 2014, compared to net income attributable to Key of $43 million for the same period last year. These results were primarily attributable to an increase in net gains (losses) from principal investing of $16 million.

*****

KeyCorp was organized more than 160 years ago and is headquartered in Cleveland, Ohio. One of the nation’s largest bank-based financial services companies, Key had assets of approximately $90.8 billion at March 31, 2014.

Key provides deposit, lending, cash management and investment services to individuals and small and mid-sized businesses in 12 states under the name KeyBank National Association. 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.

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 11

 

CONTACTS:
ANALYSTS		MEDIA
Vernon L. Patterson		Jack Sparks
216.689.0520		720.904.4554
Vernon_Patterson@KeyBank.com		Jack_Sparks@KeyBank.com
		Twitter: @keybank_news
Kelly L. Dillon
216.689.3133
Kelly_L_Dillon@KeyBank.com
Matt Gardner
216.689.8334
Matt_Gardner@KeyBank.com
INVESTOR		KEY MEDIA
RELATIONS: www.key.com/ir		NEWSROOM: www.key.com/newsroom

 

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 17, 2014. An audio replay of the call will be available through April 24, 2014.

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.

*****

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 12

 

KeyCorp

First Quarter 2014

Financial Supplement

 

Page
13		Financial Highlights
15		GAAP to Non-GAAP Reconciliation
17		Consolidated Balance Sheets
18		Consolidated Statements of Income
19		Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
20		Noninterest Expense
20		Personnel Expense
21		Loan Composition
21		Loans Held for Sale Composition
21		Summary of Changes in Loans Held for Sale
22		Exit Loan Portfolio From Continuing Operations
22		Asset Quality Statistics From Continuing Operations
23		Summary of Loan and Lease Loss Experience From Continuing Operations
24		Summary of Nonperforming Assets and Past Due Loans From Continuing Operations
25		Summary of Changes in Nonperforming Loans From Continuing Operations
25		Summary of Changes in Nonperforming Loans Held for Sale From Continuing Operations
25		Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations
26		Line of Business Results

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 13

 

Financial Highlights

(dollars in millions, except per share amounts)

 

		Three months ended
		3-31-14				12-31-13				3-31-13
Summary of operations
Net interest income (TE)		$	569			$	589			$	589
Noninterest income			435				453				425
Total revenue (TE)			1,004				1,042				1,014
Provision (credit) for loan and lease losses			6				19				55
Noninterest expense			662				712				681
Income (loss) from continuing operations attributable to Key			238				235				201
Income (loss) from discontinued operations, net of taxes (a)			4				(5	)			3
Net income (loss) attributable to Key			242				230				204
Income (loss) from continuing operations attributable to Key common shareholders		$	232			$	229			$	196
Income (loss) from discontinued operations, net of taxes (a)			4				(5	)			3
Net income (loss) attributable to Key common shareholders			236				224				199
Per common share
Income (loss) from continuing operations attributable to Key common shareholders		$	.26			$	.26			$	.21
Income (loss) from discontinued operations, net of taxes (a)			—				(.01	)			—
Net income (loss) attributable to Key common shareholders (b)			.27				.25				.22
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution			.26				.26				.21
Income (loss) from discontinued operations, net of taxes — assuming dilution (a)			—				(.01	)			—
Net income (loss) attributable to Key common shareholders — assuming dilution (b)			.26				.25				.21
Cash dividends paid			.055				.055				.05
Book value at period end			11.43				11.25				10.89
Tangible book value at period end			10.28				10.11				9.78
Market price at period end			14.24				13.42				9.96
Performance ratios
From continuing operations:
Return on average total assets			1.13	%			1.08	%			.99	%
Return on average common equity			9.33				9.10				7.96
Return on average tangible common equity (c)			10.38				10.13				8.87
Net interest margin (TE)			3.00				3.01				3.24
Cash efficiency ratio (c)			64.9				67.4				66.0
From consolidated operations:
Return on average total assets			1.09	%			1.00	%			.94	%
Return on average common equity			9.50				8.90				8.08
Return on average tangible common equity (c)			10.56				9.91				9.01
Net interest margin (TE)			2.95				2.91				3.16
Loan to deposit (d)			87.5				83.8				86.9
Capital ratios at period end
Key shareholders’ equity to assets			11.46	%			11.09	%			11.59	%
Key common shareholders’ equity to assets			11.14				10.78				11.27
Tangible common equity to tangible assets (c)			10.14				9.80				10.24
Tier 1 common equity (c), (e)			11.22				11.22				11.40
Tier 1 risk-based capital (e)			11.96				11.96				12.19
Total risk-based capital (e)			14.17				14.33				15.02
Leverage (e)			11.32				11.11				11.36

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 14

 

Financial Highlights (continued)

(dollars in millions)

 

		Three months ended
		3-31-14				12-31-13				3-31-13
Asset quality — from continuing operations
Net loan charge-offs		$	20			$	37			$	49
Net loan charge-offs to average total loans			.15	%			.27	%			.38	%
Allowance for loan and lease losses		$	834			$	848			$	893
Allowance for credit losses			869				885				925
Allowance for loan and lease losses to period-end loans			1.50	%			1.56	%			1.70	%
Allowance for credit losses to period-end loans			1.57				1.63				1.76
Allowance for loan and lease losses to nonperforming loans			185.7				166.9				137.4
Allowance for credit losses to nonperforming loans			193.5				174.2				142.3
Nonperforming loans at period end (f)		$	449			$	508			$	650
Nonperforming assets at period end			469				531				705
Nonperforming loans to period-end portfolio loans			.81	%			.93	%			1.24	%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets			.85				.97				1.34
Trust and brokerage assets — from continuing operations
Assets under management		$	38,893			$	36,905			$	35,714
Nonmanaged and brokerage assets			47,396				47,418				37,115
Other data
Average full-time equivalent employees			14,055				14,197				15,396
Branches			1,027				1,028				1,084
Taxable-equivalent adjustment		$	6			$	6			$	6

 

(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. In February 2013, Key decided to sell its investment subsidiary, Victory Capital Management, and its broker-dealer affiliate, Victory Capital Advisors, to a private equity fund. As a result of these decisions, Key has accounted for these businesses as discontinued operations.

(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,” “Tier 1 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.

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

(e)	3-31-14 ratio is estimated.

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

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

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 15

 

GAAP to Non-GAAP Reconciliations

(dollars in millions)

The table below presents certain non-GAAP financial measures related to “tangible common equity,” “return on tangible common equity,” “Tier 1 common equity,” “pre-provision net revenue,” and “cash efficiency ratio.”

The tangible common equity ratio and the return on 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. Since the commencement of the Comprehensive Capital Analysis and Review process in early 2009, the Federal Reserve has focused its assessment of capital adequacy on a component of Tier 1 risk-based capital known as Tier 1 common equity, a non-GAAP financial measure. Because the Federal Reserve has long indicated that voting common shareholders’ equity (essentially Tier 1 risk-based capital less preferred stock, qualifying capital securities, and noncontrolling interests in subsidiaries) generally should be the dominant element in Tier 1 risk-based capital, this focus on Tier 1 common equity is consistent with existing capital adequacy categories.

Tier 1 common equity is neither formally defined by GAAP nor prescribed in amount by federal banking regulations; this measure 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 Tier 1 common equity, 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 loan and lease 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 provides 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
		3-31-14				12-31-13				3-31-13
Tangible common equity to tangible assets at period end
Key shareholders’ equity (GAAP)		$	10,403			$	10,303			$	10,340
Less: Intangible assets (a)			1,012				1,014				1,024
Preferred Stock, Series A (b)			282				282				291
Tangible common equity (non-GAAP)		$	9,109			$	9,007			$	9,025
Total assets (GAAP)		$	90,802			$	92,934			$	89,198
Less: Intangible assets (a)			1,012				1,014				1,024
Tangible assets (non-GAAP)		$	89,790			$	91,920			$	88,174
Tangible common equity to tangible assets ratio (non-GAAP)			10.14	%			9.80	%			10.24	%
Tier 1 common equity at period end
Key shareholders’ equity (GAAP)		$	10,403			$	10,303			$	10,340
Qualifying capital securities			339				339				339
Less: Goodwill			979				979				979
Accumulated other comprehensive income (loss) (c)			(367	)			(394	)			(204	)
Other assets (d)			86				89				106
Total Tier 1 capital (regulatory)			10,044				9,968				9,798
Less: Qualifying capital securities			339				339				339
Preferred Stock, Series A (b)			282				282				291
Total Tier 1 common equity (non-GAAP)		$	9,423			$	9,347			$	9,168
Net risk-weighted assets (regulatory) (e)		$	83,951			$	83,328			$	80,400
Tier 1 common equity ratio (non-GAAP) (e)			11.22	%			11.22	%			11.40	%
Pre-provision net revenue
Net interest income (GAAP)		$	563			$	583			$	583
Plus: Taxable-equivalent adjustment			6				6				6
Noninterest income (GAAP)			435				453				425
Less: Noninterest expense (GAAP)			662				712				681
Pre-provision net revenue from continuing operations (non-GAAP)		$	342			$	330			$	333

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 16

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)

 

		Three months ended
		3-31-14				12-31-13				3-31-13
Average tangible common equity
Average Key shareholders’ equity (GAAP)		$	10,371			$	10,272			$	10,279
Less: Intangible assets (average) (f)			1,013				1,016				1,027
Preferred Stock, Series A (average)			291				291				291
Average tangible common equity (non-GAAP)		$	9,067			$	8,965			$	8,961
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)		$	232			$	229			$	196
Average tangible common equity (non-GAAP)			9,067				8,965				8,961
Return on average tangible common equity from continuing operations (non-GAAP)			10.38	%			10.13	%			8.87	%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP)		$	236			$	224			$	199
Average tangible common equity (non-GAAP)			9,067				8,965				8,961
Return on average tangible common equity consolidated (non-GAAP)			10.56	%			9.91	%			9.01	%
Cash efficiency ratio
Noninterest expense (GAAP)		$	662			$	712			$	681
Less: Intangible asset amortization (GAAP)			10				10				12
Adjusted noninterest expense (non-GAAP)		$	652			$	702			$	669
Net interest income (GAAP)		$	563			$	583			$	583
Plus: Taxable-equivalent adjustment			6				6				6
Noninterest income (GAAP)			435				453				425
Total taxable-equivalent revenue (non-GAAP)		$	1,004			$	1,042			$	1,014
Cash efficiency ratio (non-GAAP)			64.9	%			67.4	%			66.0	%

 

		Three months ended
		3-31-14				12-31-13
Common Equity Tier 1 under the Regulatory Capital Rules (estimates)
Tier 1 common equity under current regulatory rules		$	9,423			$	9,347
Adjustments from current regulatory rules to the Regulatory Capital Rules:
Deferred tax assets and other (g)			(113	)			(129	)
Common Equity Tier 1 anticipated under the Regulatory Capital Rules (h)		$	9,310			$	9,218
Net risk-weighted assets under current regulatory rules		$	83,951			$	83,328
Adjustments from current regulatory rules to the Regulatory Capital Rules:
Loan commitments less than one year			1,029				784
Past due loans			164				164
Mortgage servicing assets (i)			497				497
Deferred tax assets (i)			163				182
Other			1,431				1,413
Total risk-weighted assets anticipated under the Regulatory Capital Rules		$	87,235			$	86,368
Common Equity Tier 1 ratio under the Regulatory Capital Rules (h)			10.67	%			10.67	%

 

(a)	Three months ended March 31, 2014, December 31, 2013, and March 31, 2013, exclude $84 million, $92 million, and $114 million of period-end purchased credit card receivable intangible assets, respectively.

(b)	Net of capital surplus for the three months ended March 31, 2014, and December 31, 2013.

(c)

Includes net unrealized gains or losses on securities available for sale (except for net unrealized losses on marketable equity securities), net gains or losses on cash flow hedges, and amounts resulting from the application of the applicable accounting guidance for defined benefit and other postretirement plans.

(d)	Other assets deducted from Tier 1 capital and net risk-weighted assets consist of disallowed intangible assets (excluding goodwill) and deductible portions of nonfinancial equity investments. There were no disallowed deferred tax assets at March 31, 2014, December 31, 2013, and March 31, 2013.

(e)	3-31-14 amount is estimated.

(f)	Three months ended March 31, 2014, December 31, 2013, and March 31, 2013, exclude $89 million, $96 million, and $118 million of average purchased credit card receivable intangible assets, respectively.

(g)	Includes the deferred tax asset subject to future taxable income for realization, primarily tax credit carryforwards, as well as the deductible potion of purchased credit card receivables.

(h)	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.”

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

GAAP = U.S. generally accepted accounting principles

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 17

 

Consolidated Balance Sheets

(dollars in millions)

 

		3-31-14				12-31-13				3-31-13
Assets
Loans		$	55,445			$	54,457			$	52,574
Loans held for sale			401				611				434
Securities available for sale			12,359				12,346				13,496
Held-to-maturity securities			4,826				4,756				3,721
Trading account assets			840				738				701
Short-term investments			2,922				5,590				3,081
Other investments			899				969				1,059
Total earning assets			77,692				79,467				75,066
Allowance for loan and lease losses			(834	)			(848	)			(893	)
Cash and due from banks			409				617				621
Premises and equipment			862				885				930
Operating lease assets			294				305				309
Goodwill			979				979				979
Other intangible assets			117				127				159
Corporate-owned life insurance			3,425				3,408				3,352
Derivative assets			427				407				609
Accrued income and other assets			3,004				3,015				2,884
Discontinued assets			4,427				4,572				5,182
Total assets		$	90,802			$	92,934			$	89,198
Liabilities
Deposits in domestic offices:
NOW and money market deposit accounts		$	34,373			$	33,952			$	32,700
Savings deposits			2,513				2,472				2,546
Certificates of deposit ($100,000 or more)			2,849				2,631				2,998
Other time deposits			3,682				3,648				4,324
Total interest-bearing deposits			43,417				42,703				42,568
Noninterest-bearing deposits			23,244				26,001				21,564
Deposits in foreign office — interest-bearing			605				558				522
Total deposits			67,266				69,262				64,654
Federal funds purchased and securities sold under repurchase agreements			1,417				1,534				1,950
Bank notes and other short-term borrowings			464				343				378
Derivative liabilities			408				414				524
Accrued expense and other liabilities			1,297				1,557				1,352
Long-term debt			7,712				7,650				7,785
Discontinued liabilities			1,819				1,854				2,176
Total liabilities			80,383				82,614				78,819
Equity
Preferred stock, Series A			291				291				291
Common shares			1,017				1,017				1,017
Capital surplus			3,961				4,022				4,059
Retained earnings			7,793				7,606				7,065
Treasury stock, at cost			(2,335	)			(2,281	)			(1,930	)
Accumulated other comprehensive income (loss)			(324	)			(352	)			(162	)
Key shareholders’ equity			10,403				10,303				10,340
Noncontrolling interests			16				17				39
Total equity			10,419				10,320				10,379
Total liabilities and equity		$	90,802			$	92,934			$	89,198
Common shares outstanding (000)			884,869				890,724				922,581

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 18

 

Consolidated Statements of Income

(dollars in millions, except per share amounts)

 

		Three months ended
		3-31-14				12-31-13				3-31-13
Interest income
Loans		$	519			$	532			$	548
Loans held for sale			4				6				4
Securities available for sale			72				75				80
Held-to-maturity securities			22				22				18
Trading account assets			6				6				6
Short-term investments			1				2				2
Other investments			6				6				9
Total interest income			630				649				667
Interest expense
Deposits			32				34				45
Federal funds purchased and securities sold under repurchase agreements			1				—				1
Bank notes and other short-term borrowings			2				3				1
Long-term debt			32				29				37
Total interest expense			67				66				84
Net interest income			563				583				583
Provision (credit) for loan and lease losses			6				19				55
Net interest income (expense) after provision for loan and lease losses			557				564				528
Noninterest income
Trust and investment services income			98				98				95
Investment banking and debt placement fees			84				84				79
Service charges on deposit accounts			63				68				69
Operating lease income and other leasing gains			29				26				25
Corporate services income			42				40				45
Cards and payments income			38				40				37
Corporate-owned life insurance income			26				33				30
Consumer mortgage income			2				3				7
Mortgage servicing fees			15				22				8
Net gains (losses) from principal investing			24				20				8
Other income (a)			14				19				22
Total noninterest income			435				453				425
Noninterest expense
Personnel			388				398				391
Net occupancy			64				73				64
Computer processing			38				40				39
Business services and professional fees			41				42				35
Equipment			24				26				26
Operating lease expense			10				10				12
Marketing			5				18				6
FDIC assessment			6				7				8
Intangible asset amortization			10				10				12
Provision (credit) for losses on lending-related commitments			(2	)			(3	)			3
OREO expense, net			1				2				3
Other expense			77				89				82
Total noninterest expense			662				712				681
Income (loss) from continuing operations before income taxes			330				305				272
Income taxes			92				70				70
Income (loss) from continuing operations			238				235				202
Income (loss) from discontinued operations, net of taxes			4				(5	)			3
Net income (loss)			242				230				205
Less: Net income (loss) attributable to noncontrolling interests			—				—				1
Net income (loss) attributable to Key		$	242			$	230			$	204
Income (loss) from continuing operations attributable to Key common shareholders		$	232			$	229			$	196
Net income (loss) attributable to Key common shareholders			236				224				199
Per common share
Income (loss) from continuing operations attributable to Key common shareholders		$	.26			$	.26			$	.21
Income (loss) from discontinued operations, net of taxes			—				(.01	)			—
Net income (loss) attributable to Key common shareholders (b)			.27				.25				.22
Per common share — assuming dilution
Income (loss) from continuing operations attributable to Key common shareholders		$	.26			$	.26			$	.21
Income (loss) from discontinued operations, net of taxes			—				(.01	)			—
Net income (loss) attributable to Key common shareholders (b)			.26				.25				.21
Cash dividends declared per common share		$	.055			$	.055			$	.05
Weighted-average common shares outstanding (000)			884,727				890,516				920,316
Weighted-average common shares and potential common shares outstanding (000) (c)			891,890				897,712				926,051

 

(a)

For the three months ended March 31, 2014, December 31, 2013, and March 31, 2013, net securities gains (losses) totaled less than $1 million, $1 million, and less than $1 million, respectively. For the three months ended March 31, 2014, December 31, 2013, and March 31, 2013, Key did not have any impairment losses related to securities.

(b)	Earnings per share may not foot due to rounding.

(c)	Assumes conversion of stock options and/or Preferred Series A shares, as applicable.

---

KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 19

 

Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations

(dollars in millions)

 

		First Quarter 2014												Fourth Quarter 2013												First Quarter 2013
		Average Balance				Interest (a)				Yield/Rate (a)				Average Balance				Interest (a)				Yield/Rate (a)				Average Balance				Interest (a)				Yield/Rate (a)
Assets
Loans: (b), (c)
Commercial, financial and agricultural (d)		$	25,390			$	206				3.29	%		$	24,218			$	212				3.47	%		$	23,317			$	218				3.78	%
Real estate — commercial mortgage			7,807				74				3.84				7,678				78				4.01				7,616				79				4.24
Real estate — construction			1,091				12				4.55				1,075				11				4.21				1,034				11				4.27
Commercial lease financing			4,439				42				3.78				4,513				41				3.62				4,843				47				3.92
Total commercial loans			38,727				334				3.49				37,484				342				3.62				36,810				355				3.92
Real estate — residential mortgage			2,187				24				4.44				2,199				24				4.43				2,173				25				4.58
Home equity:
Key Community Bank			10,305				100				3.92				10,310				102				3.92				9,787				96				3.97
Other			325				6				7.77				343				7				7.72				413				8				7.70
Total home equity loans			10,630				106				4.04				10,653				109				4.04				10,200				104				4.12
Consumer other — Key Community Bank			1,438				25				7.06				1,446				26				7.18				1,343				25				7.58
Credit cards			701				20				11.28				701				20				11.17				704				22				12.61
Consumer other:
Marine			996				15				6.18				1,056				17				6.24				1,311				20				6.29
Other			67				1				7.55				69				1				8.03				85				2				7.98
Total consumer other			1,063				16				6.26				1,125				18				6.35				1,396				22				6.39
Total consumer loans			16,019				191				4.83				16,124				197				4.88				15,816				198				5.00
Total loans			54,746				525				3.88				53,608				539				3.98				52,626				553				4.26
Loans held for sale			446				4				3.34				688				6				3.65				469				4				3.27
Securities available for sale (b), (e)			12,346				72				2.33				12,464				74				2.40				12,065				81				2.74
Held-to-maturity securities (b)			4,767				22				1.84				4,775				22				1.85				3,816				18				1.94
Trading account assets			981				6				2.51				819				6				2.90				710				6				3.44
Short-term investments			2,486				1				.17				4,455				2				.18				2,999				2				.22
Other investments (e)			936				6				2.57				983				6				2.47				1,059				9				3.59
Total earning assets			76,708				636				3.32				77,792				655				3.37				73,744				673				3.67
Allowance for loan and lease losses			(842	)											(859	)											(896	)
Accrued income and other assets			9,791												9,467												9,867
Discontinued assets			4,493												4,777												5,216
Total assets		$	90,150											$	91,177											$	87,931
Liabilities
NOW and money market deposit accounts		$	34,064				12				.14			$	33,834				12				.15			$	31,946				14				.18
Savings deposits			2,475				—				.03				2,483				—				.03				2,473				1				.05
Certificates of deposit ($100,000 or more) (f)			2,758				10				1.50				2,649				11				1.57				2,911				14				1.99
Other time deposits			3,679				10				1.07				3,736				11				1.16				4,451				16				1.42
Deposits in foreign office			660				—				.22				615				—				.21				454				—				.25
Total interest-bearing deposits			43,636				32				.30				43,317				34				.32				42,235				45				.43
Federal funds purchased and securities sold under repurchase agreements			1,469				1				.17				1,618				—				.15				1,913				1				.15
Bank notes and other short-term borrowings			587				2				1.63				438				3				1.96				387				1				1.75
Long-term debt (f), (g)			5,169				32				2.57				4,174				29				2.94				4,671				37				3.51
Total interest-bearing liabilities			50,861				67				.54				49,547				66				.53				49,206				84				.70
Noninterest-bearing deposits			22,658												25,077												21,400
Accrued expense and other liabilities			1,750												1,548												1,799
Discontinued liabilities (g)			4,493												4,717												5,213
Total liabilities			79,762												80,889												77,618
Equity
Key shareholders’ equity			10,371												10,272												10,279
Noncontrolling interests			17												16												34
Total equity			10,388												10,288												10,313
Total liabilities and equity		$	90,150											$	91,177											$	87,931
Interest rate spread (TE)											2.78	%											2.84	%											2.97	%
Net interest income (TE) and net interest margin (TE)							569				3.00	%							589				3.01	%							589				3.24	%
TE adjustment (b)							6												6												6
Net interest income, GAAP basis						$	563											$	583											$	583

 

(a)	Results are from continuing operations. Interest excludes the interest associated with the liabilities referred to in (g) below, calculated using a matched funds transfer pricing methodology.

(b)	Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%.

(c)	For purposes of these computations, nonaccrual loans are included in average loan balances.

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

(e)	Yield is calculated on the basis of amortized cost.

(f)	Rate calculation excludes basis adjustments related to fair value hedges.

(g)	A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying our matched funds transfer pricing methodology to discontinued operations.

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

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 20

 

Noninterest Expense

(dollars in millions)

 

		Three months ended
		3-31-14				12-31-13				3-31-13
Personnel (a)		$	388			$	398			$	391
Net occupancy			64				73				64
Computer processing			38				40				39
Business services and professional fees			41				42				35
Equipment			24				26				26
Operating lease expense			10				10				12
Marketing			5				18				6
FDIC assessment			6				7				8
Intangible asset amortization			10				10				12
Provision (credit) for losses on lending-related commitments			(2	)			(3	)			3
OREO expense, net			1				2				3
Other expense			77				89				82
Total noninterest expense		$	662			$	712			$	681
Average full-time equivalent employees (b)			14,055				14,197				15,396

 

(a)	Additional detail provided in table below.

(b)	The number of average full-time equivalent employees has not been adjusted for discontinued operations.

Personnel Expense 

(in millions)

 

		Three months ended
		3-31-14				12-31-13				3-31-13
Salaries		$	220			$	226			$	222
Technology contract labor, net			17				16				18
Incentive compensation			72				87				73
Employee benefits			63				56				59
Stock-based compensation			11				8				10
Severance			5				5				9
Total personnel expense		$	388			$	398			$	391

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 21

 

Loan Composition

(dollars in millions)

 

														Percent change 3-31-14 vs.
		3-31-14				12-31-13				3-31-13				12-31-13				3-31-13
Commercial, financial and agricultural (a)		$	26,224			$	24,963			$	23,412				5.1	%			12.0	%
Commercial real estate:
Commercial mortgage			7,877				7,720				7,544				2.0				4.4
Construction			1,007				1,093				1,057				(7.9	)			(4.7	)
Total commercial real estate loans			8,884				8,813				8,601				.8				3.3
Commercial lease financing (b)			4,396				4,551				4,796				(3.4	)			(8.3	)
Total commercial loans			39,504				38,327				36,809				3.1				7.3
Residential — prime loans:
Real estate — residential mortgage			2,183				2,187				2,176				(.2	)			.3
Home equity:
Key Community Bank			10,281				10,340				9,809				(.6	)			4.8
Other			315				334				401				(5.7	)			(21.4	)
Total home equity loans			10,596				10,674				10,210				(.7	)			3.8
Total residential — prime loans			12,779				12,861				12,386				(.6	)			3.2
Consumer other — Key Community Bank			1,436				1,449				1,353				(.9	)			6.1
Credit cards			698				722				693				(3.3	)			.7
Consumer other:
Marine			965				1,028				1,254				(6.1	)			(23.0	)
Other			63				70				79				(10.0	)			(20.3	)
Total consumer other			1,028				1,098				1,333				(6.4	)			(22.9	)
Total consumer loans			15,941				16,130				15,765				(1.2	)			1.1
Total loans (c), (d)		$	55,445			$	54,457			$	52,574				1.8	%			5.5	%

Loans Held for Sale Composition

(dollars in millions)

 

														Percent change 3-31-14 vs.
		3-31-14				12-31-13				3-31-13				12-31-13				3-31-13
Commercial, financial and agricultural		$	44			$	278			$	180				(84.2	)%			(75.6	)%
Real estate — commercial mortgage			333				307				196				8.5				69.9
Commercial lease financing			8				9				9				(11.1	)			(11.1	)
Real estate — residential mortgage			16				17				49				(5.9	)			(67.3	)
Total loans held for sale		$	401			$	611			$	434				(34.4	)%			(7.6	)%

Summary of Changes in Loans Held for Sale

(dollars in millions)

 

		1Q14				4Q13				3Q13				2Q13				1Q13
Balance at beginning of period		$	611			$	699			$	402			$	434			$	599
New originations			645				1,669				1,467				1,241				1,075
Transfers from held to maturity, net			3				1				15				17				19
Loan sales			(596	)			(1,750	)			(1,181	)			(1,292	)			(1,257	)
Loan draws (payments), net			(262	)			(8	)			(4	)			—				—
Transfers to OREO / valuation adjustments			—				—				—				2				(2	)
Balance at end of period		$	401			$	611			$	699			$	402			$	434

 

(a)	March 31, 2014, December 31, 2013, and March 31, 2013, loan balances include $95 million, $94 million, and $93 million of commercial credit card balances, respectively.

(b)	March 31, 2014, and December 31, 2013, commercial lease financing includes receivables of $124 million and $58 million, respectively, held as collateral for a secured borrowing.

(c)	Excludes loans in the amount of $4.4 billion at March 31, 2014, $4.5 billion at December 31, 2013, and $5.1 billion at March 31, 2013, related to the discontinued operations of the education lending business.

(d)

March 31, 2014, total loans include purchased loans of $159 million, of which $16 million were purchased credit impaired. December 31, 2013, total loans include purchased loans of $166 million, of which $16 million were purchased credit impaired. March 31, 2013, total loans include purchased loans of $204 million, of which $22 million were purchased credit impaired.

N/M = Not Meaningful

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 22

 

Exit Loan Portfolio From Continuing Operations

(dollars in millions)

 

		Balance								Change				Net Loan								Balance on
		Outstanding								3-31-14 vs.				Charge-offs								Nonperforming Status
		3-31-14				12-31-13				12-31-13				1Q14(c)				4Q13(c)				3-31-14				12-31-13
Residential properties — homebuilder		$	20			$	20				—			$	(1	)			—			$	7			$	7
Marine and RV floor plan			23				24			$	(1	)			—				—				6				6
Commercial lease financing (a)			1,381				782				599				(2	)		$	(2	)			3				—
Total commercial loans			1,424				826				598				(3	)			(2	)			16				13
Home equity — Other			315				334				(19	)			2				3				11				16
Marine			965				1,028				(63	)			4				5				15				26
RV and other consumer			63				70				(7	)			1				1				1				1
Total consumer loans			1,343				1,432				(89	)			7				9				27				43
Total exit loans in loan portfolio		$	2,767			$	2,258			$	509			$	4			$	7			$	43			$	56
Discontinued operations — education lending business (not included in exit loans above) (b)		$	4,354			$	4,497			$	(143	)		$	9			$	9			$	20			$	25

 

(a)

Includes (1) the business aviation, commercial vehicle, office products, construction and industrial leases; (2) Canadian lease financing portfolios; (3) European lease financing portfolios; and (4) all remaining balances related to lease in, lease out; sale in, lease out; service contract leases; and qualified technological equipment leases.

(b)	Includes loans in Key’s consolidated education loan securitization trusts.

(c)	Credit amounts indicate recoveries exceeded charge-offs.

Asset Quality Statistics From Continuing Operations

(dollars in millions)

 

		1Q14				4Q13				3Q13				2Q13				1Q13
Net loan charge-offs		$	20			$	37			$	37			$	45			$	49
Net loan charge-offs to average total loans			.15	%			.27	%			.28	%			.34	%			.38	%
Allowance for loan and lease losses		$	834			$	848			$	868			$	876			$	893
Allowance for credit losses (a)			869				885				908				913				925
Allowance for loan and lease losses to period-end loans			1.50	%			1.56	%			1.62	%			1.65	%			1.70	%
Allowance for credit losses to period-end loans			1.57				1.63				1.69				1.72				1.76
Allowance for loan and lease losses to nonperforming loans			185.7				166.9				160.4				134.4				137.4
Allowance for credit losses to nonperforming loans			193.5				174.2				167.8				140.0				142.3
Nonperforming loans at period end (b)		$	449			$	508			$	541			$	652			$	650
Nonperforming assets at period end			469				531				579				693				705
Nonperforming loans to period-end portfolio loans			.81	%			.93	%			1.01	%			1.23	%			1.24	%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets			.85				.97				1.08				1.30				1.34

 

(a)	Includes the allowance for loan and lease losses plus the liability for credit losses on lending-related commitments.

(b)	March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013, and March 31, 2013, loan balances exclude $16 million, $16 million, $18 million, $19 million, and $22 million of purchased credit impaired loans, respectively.

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 23

 

Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)

 

		Three months ended
		3-31-14				12-31-13				3-31-13
Average loans outstanding		$	54,746			$	53,608			$	52,626
Allowance for loan and lease losses at beginning of period		$	848			$	868			$	888
Loans charged off:
Commercial, financial and agricultural			12				18				14
Real estate — commercial mortgage			2				2				13
Real estate — construction			2				1				1
Total commercial real estate loans			4				3				14
Commercial lease financing			3				2				6
Total commercial loans			19				23				34
Real estate — residential mortgage			3				7				6
Home equity:
Key Community Bank			10				12				18
Other			3				4				6
Total home equity loans			13				16				24
Consumer other — Key Community Bank			8				7				9
Credit cards			6				5				8
Consumer other:
Marine			7				7				8
Other			1				1				1
Total consumer other			8				8				9
Total consumer loans			38				43				56
Total loans charged off			57				66				90
Recoveries:
Commercial, financial and agricultural			10				9				12
Real estate — commercial mortgage			1				7				5
Real estate — construction			14				—				8
Total commercial real estate loans			15				7				13
Commercial lease financing			2				5				4
Total commercial loans			27				21				29
Real estate — residential mortgage			1				1				—
Home equity:
Key Community Bank			3				2				2
Other			1				1				2
Total home equity loans			4				3				4
Consumer other — Key Community Bank			2				2				2
Credit cards			—				—				—
Consumer other:
Marine			3				2				5
Other			—				—				1
Total consumer other			3				2				6
Total consumer loans			10				8				12
Total recoveries			37				29				41
Net loan charge-offs			(20	)			(37	)			(49	)
Provision (credit) for loan and lease losses			6				19				55
Foreign currency translation adjustment			—				(2	)			(1	)
Allowance for loan and lease losses at end of period		$	834			$	848			$	893
Liability for credit losses on lending-related commitments at beginning of period		$	37			$	40			$	29
Provision (credit) for losses on lending-related commitments			(2	)			(3	)			3
Liability for credit losses on lending-related commitments at end of period (a)		$	35			$	37			$	32
Total allowance for credit losses at end of period		$	869			$	885			$	925
Net loan charge-offs to average total loans			.15	%			.27	%			.38	%
Allowance for loan and lease losses to period-end loans			1.50				1.56				1.70
Allowance for credit losses to period-end loans			1.57				1.63				1.76
Allowance for loan and lease losses to nonperforming loans			185.7				166.9				137.4
Allowance for credit losses to nonperforming loans			193.5				174.2				142.3
Discontinued operations — education lending business:
Loans charged off		$	13			$	13			$	16
Recoveries			4				4				4
Net loan charge-offs		$	(9	)		$	(9	)		$	(12	)

 

(a)	Included in “accrued expense and other liabilities” on the balance sheet.

 

---

KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 24

 

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(dollars in millions)

 

		3-31-14				12-31-13				9-30-13				6-30-13				3-31-13
Commercial, financial and agricultural		$	60			$	77			$	102			$	146			$	142
Real estate — commercial mortgage			37				37				58				106				114
Real estate — construction			11				14				17				26				27
Total commercial real estate loans			48				51				75				132				141
Commercial lease financing			18				19				22				14				12
Total commercial loans			126				147				199				292				295
Real estate — residential mortgage			105				107				98				94				96
Home equity:
Key Community Bank			188				205				198				205				199
Other			11				15				13				16				18
Total home equity loans			199				220				211				221				217
Consumer other — Key Community Bank			2				3				2				3				3
Credit cards			1				4				4				11				13
Consumer other:
Marine			15				26				25				30				25
Other			1				1				2				1				1
Total consumer other			16				27				27				31				26
Total consumer loans			323				361				342				360				355
Total nonperforming loans (a)			449				508				541				652				650
Nonperforming loans held for sale			1				1				13				14				23
OREO			12				15				15				18				21
Other nonperforming assets			7				7				10				9				11
Total nonperforming assets		$	469			$	531			$	579			$	693			$	705
Accruing loans past due 90 days or more		$	89			$	71			$	90			$	80			$	83
Accruing loans past due 30 through 89 days			267				318				288				251				368
Restructured loans — accruing and nonaccruing (b)			294				338				349				311				294
Restructured loans included in nonperforming loans (b)			178				214				228				195				178
Nonperforming assets from discontinued operations — education lending business			20				25				23				19				15
Nonperforming loans to period-end portfolio loans			.81	%			.93	%			1.01	%			1.23	%			1.24	%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets			.85				.97				1.08				1.30				1.34

 

(a)	March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013, and March 31, 2013, loan balances exclude $16 million, $16 million, $18 million, $19 million, and $22 million of purchased credit impaired loans, respectively.

(b)

Restructured loans (i.e., troubled debt restructurings) are those for which Key, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. These concessions are made to improve the collectability of the loan and generally take the form of a reduction of the interest rate, extension of the maturity date or reduction in the principal balance.

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 25

 

Summary of Changes in Nonperforming Loans From Continuing Operations

(in millions)

 

		1Q14				4Q13				3Q13				2Q13				1Q13
Balance at beginning of period		$	508			$	541			$	652			$	650			$	674
Loans placed on nonaccrual status			98				129				161				160				278
Charge-offs			(57	)			(66	)			(78	)			(74	)			(91	)
Loans sold			(3	)			(19	)			(61	)			(5	)			(42	)
Payments			(21	)			(46	)			(43	)			(36	)			(83	)
Transfers to OREO			(3	)			(5	)			(2	)			(7	)			(7	)
Loans returned to accrual status			(73	)			(26	)			(88	)			(36	)			(79	)
Balance at end of period (a)		$	449			$	508			$	541			$	652			$	650

 

(a)	March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013, and March 31, 2013, loan balances exclude $16 million, $16 million, $18 million, $19 million, and $22 million of purchased credit impaired loans, respectively.

Summary of Changes in Nonperforming Loans Held For Sale From Continuing Operations

(in millions)

 

		1Q14				4Q13				3Q13				2Q13				1Q13
Balance at beginning of period		$	1			$	13			$	14			$	23			$	25
Net advances / (payments)			—				(1	)			(1	)			(1	)			—
Loans sold			—				(11	)			—				(8	)			—
Valuation adjustments			—				—				—				—				(2	)
Balance at end of period		$	1			$	1			$	13			$	14			$	23

Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations

(in millions)

 

		1Q14				4Q13				3Q13				2Q13				1Q13
Balance at beginning of period		$	15			$	15			$	18			$	21			$	22
Properties acquired — nonperforming loans			3				5				2				7				7
Valuation adjustments			(1	)			—				(1	)			(2	)			(3	)
Properties sold			(5	)			(5	)			(4	)			(8	)			(5	)
Balance at end of period		$	12			$	15			$	15			$	18			$	21

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KeyCorp Reports First Quarter 2014 Profit
April 17, 2014
Page 26

 

Line of Business Results

(dollars in millions)

 

																						Percent change 1Q14 vs.
		1Q14				4Q13				3Q13				2Q13				1Q13				4Q13				1Q13
Key Community Bank
Summary of operations
Total revenue (TE)		$	541			$	561			$	579			$	582			$	575				(3.6	)%			(5.9	)%
Provision (credit) for loan and lease losses			9				32				24				41				59				(71.9	)			(84.7	)
Noninterest expense			432				460				446				458				441				(6.1	)			(2.0	)
Net income (loss) attributable to Key			63				43				69				52				47				46.5				34.0
Average loans and leases			29,793				29,596				29,495				29,161				28,977				.7				2.8
Average deposits			49,824				50,409				49,652				49,473				49,349				(1.2	)			1.0
Net loan charge-offs			28				31				27				42				47				(9.7	)			(40.4	)
Net loan charge-offs to average total loans			.38	%			.42	%			.36	%			.58	%			.66	%			N/A				N/A
Nonperforming assets at period end		$	357			$	396			$	383			$	476			$	481				(9.8	)			(25.8	)
Return on average allocated equity			9.20	%			5.97	%			9.38	%			7.10	%			6.51	%			N/A				N/A
Average full-time equivalent employees			7,656				7,805				7,990				8,316				8,709				(1.9	)			(12.1	)
Key Corporate Bank
Summary of operations
Total revenue (TE)		$	391			$	411			$	383			$	379			$	383				(4.9	)%			2.1	%
Provision (credit) for loan and lease losses			(1	)			(10	)			12				(7	)			2				N/M				N/M
Noninterest expense			199				216				208				194				203				(7.9	)			(2.0	)
Net income (loss) attributable to Key			122				133				106				121				113				(8.3	)			8.0
Average loans and leases			21,445				20,336				19,949				19,536				19,466				5.5				10.2
Average loans held for sale			429				668				422				466				409				(35.8	)			4.9
Average deposits			15,800				17,370				16,123				15,606				13,966				(9.0	)			13.1
Net loan charge-offs			(14	)			2				6				(4	)			(1	)			N/M				N/M
Net loan charge-offs to average total loans			(.26	)%			.04	%			.12	%			(.08	)%			(.02	)%			N/A				N/A
Nonperforming assets at period end		$	53			$	55			$	111			$	125			$	126				(3.6	)			(57.9	)
Return on average allocated equity			33.52	%			33.61	%			26.42	%			30.58	%			29.06	%			N/A				N/A
Average full-time equivalent employees			1,926				1,901				1,951				1,886				1,861				1.3				3.5

TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful