Exhibit 99.1

 

				NEWS
				FOR IMMEDIATE RELEASE

KEYCORP REPORTS FOURTH QUARTER 2014

NET INCOME OF $246 MILLION, OR $.28 PER COMMON SHARE

Earnings per share up 22% from prior quarter, 12% for the full year

Positive operating leverage for the quarter and full year

Average loans up 5% from prior year, driven by a

12% increase in commercial, financial and agricultural loans

Credit quality remains strong, with net loan charge-offs to average loans of .22%

Disciplined capital management, returning 82% of net income to shareholders in 2014

CLEVELAND, January 22, 2015 – KeyCorp (NYSE: KEY) today announced fourth quarter net income from continuing operations attributable to Key common shareholders of $246 million, or $.28 per common share, compared to $197 million, or $.23 per common share, for the third quarter of 2014, and $229 million, or $.26 per common share, for the fourth quarter of 2013.

For the twelve months ended December 31, 2014, net income from continuing operations attributable to Key common shareholders was $917 million, or $1.04 per common share, compared to $847 million, or $.93 per common share, for the same period one year ago.

“Fourth quarter was a strong finish to the year,” said Chairman and Chief Executive Officer Beth Mooney. “Our results reflect positive operating leverage, with both revenue growth and well-controlled expenses. Revenue benefited from solid loan growth, driven by a 12% increase from the prior year in commercial, financial and agricultural loans. Core expense levels continued to decline, and our net charge-offs remained well below our historical average.”

“Our full-year results reflect the successful execution of our strategy to grow and expand relationships, invest in our businesses, and return peer-leading capital to our shareholders,” continued Mooney. “We had a record year for investment banking and debt placement fees and remain on track with our successful integration of Pacific Crest Securities. A 2% decrease in expenses drove positive operating leverage for the year, and we expect further improvement in efficiency and productivity.”

“Capital remains a strength of our company. We ended the year with a Tier 1 common equity ratio above 11%, while we continued to execute on our commitment to return capital to our shareholders through dividends and share repurchases. During the year, we announced an 18% increase in the common share dividend and repurchased $496 million of common shares. In total, we paid out 82% of 2014 net income to our shareholders,” added Mooney.

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 2

 

FOURTH QUARTER 2014 FINANCIAL RESULTS, from continuing operations

Compared to Fourth Quarter of 2013

 

•

Average loans up 5.5%, driven by a 12.3% growth in commercial, financial and agricultural loans

 

•

Average deposits up 2% due to growth in commercial mortgage servicing and commercial deposits offsetting a decline in certificates of deposit

 

•

Net interest income (taxable-equivalent) relatively stable, as growth in earning assets offset lower earning asset yields

 

•

Noninterest income up $37 million, reflecting higher investment banking and debt placement fees, trust and investment services income, and corporate services income, offsetting declines in other income, mortgage servicing fees, and operating lease income and other leasing gains

 

•

Noninterest expense down $8 million, reflecting lower efficiency- and pension-related charges and other expense, slightly offset by higher incentive compensation expense

 

•

Efficiency initiative and pension settlement charges of $11 million, or $.01 per common share, incurred during the fourth quarter of 2014, compared to $24 million, or $.02 per common share, during the fourth quarter of 2013

 

•

Asset quality improved, with net loan charge-offs to average loans declining from .27% to .22%

 

•

Disciplined capital management, repurchasing $128 million of common shares during the fourth quarter of 2014 and maintaining top tier capital position with Tier 1 common equity of 11.18%

Compared to Third Quarter of 2014

 

•

Average loans up 1.3%, primarily driven by an increase in commercial, financial and agricultural loans

 

•

Average deposits up 2% due to the growth in commercial mortgage servicing and commercial deposits offsetting a decline in certificates of deposit

 

•

Net interest income (taxable-equivalent) up $7 million due to an increase in earning asset levels and higher loan fees, offsetting lower earning asset yields

 

•

Noninterest income up $73 million, primarily due to higher investment banking and debt placement fees, trust and investment services income, corporate services income, and corporate-owned life insurance income, slightly offset by declines in other income

 

•

Noninterest expense stable, with lower efficiency- and pension-related charges and other expense offsetting higher incentive compensation expense

 

•

Efficiency initiative and pension settlement charges of $35 million, or $.03 per common share, incurred during the third quarter of 2014

 

•

Asset quality remains strong, with net loan charge-offs to average loans flat to prior quarter and remaining well below the targeted range

Selected Financial Highlights

 

dollars in millions, except per share data														Change 4Q14 vs.
		4Q14				3Q14				4Q13				3Q14				4Q13
Income (loss) from continuing operations attributable to Key common shareholders		$	246			$	197			$	229				24.9	%			7.4	%
Income (loss) from continuing operations attributable to Key common shareholders per common share — assuming dilution			.28				.23				.26				21.7				7.7
Return on average total assets from continuing operations			1.12	%			.92	%			1.08	%			N/A				N/A
Tier 1 common equity (a)			11.18				11.26				11.22				N/A				N/A
Book value at period end		$	11.91			$	11.74			$	11.25				1.4	%			5.9	%
Net interest margin (TE) from continuing operations			2.94	%			2.96	%			3.01	%			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 Fourth Quarter 2014 Profit

January 22, 2015

Page 3

 

INCOME STATEMENT HIGHLIGHTS

Revenue

 

dollars in millions														Change 4Q14 vs.
		4Q14				3Q14				4Q13				3Q14				4Q13
Net interest income (TE)		$	588			$	581			$	589				1.2	%			(.2	)%
Noninterest income			490				417				453				17.5				8.2
Total revenue		$	1,078			$	998			$	1,042				8.0	%			3.5	%

TE = Taxable Equivalent

Taxable-equivalent net interest income was $588 million for the fourth quarter of 2014, and the net interest margin was 2.94%. These results compare to taxable-equivalent net interest income of $589 million and a net interest margin of 3.01% for the fourth quarter of 2013. The decrease in net interest margin was largely attributable to lower earning asset yields and higher levels of excess liquidity driven by commercial deposit growth.

Compared to the third quarter of 2014, taxable-equivalent net interest income increased by $7 million, and the net interest margin declined by two basis points. The increase in net interest income was primarily due to higher earning asset levels and loan fees and a lower cost of funds as higher-rate certificates of deposit matured. These increases were partially offset by the impact of lower earning asset yields. The net interest margin was negatively impacted by higher levels of excess liquidity and lower earning asset yields partially offset by an increase in commercial loans and held-for-sale volume.

Noninterest Income

 

dollars in millions														Change 4Q14 vs.
		4Q14				3Q14				4Q13				3Q14				4Q13
Trust and investment services income		$	112			$	99			$	98				13.1	%			14.3	%
Investment banking and debt placement fees			126				88				84				43.2				50.0
Service charges on deposit accounts			64				68				68				(5.9	)			(5.9	)
Operating lease income and other leasing gains			15				17				26				(11.8	)			(42.3	)
Corporate services income			53				42				40				26.2				32.5
Cards and payments income			43				42				40				2.4				7.5
Corporate-owned life insurance income			38				26				33				46.2				15.2
Consumer mortgage income			3				3				3				—				—
Mortgage servicing fees			11				9				22				22.2				(50.0	)
Net gains (losses) from principal investing			18				9				20				100.0				(10.0	)
Other income			7				14				19				(50.0	)			(63.2	)
Total noninterest income		$	490			$	417			$	453				17.5	%			8.2	%

Key’s noninterest income was $490 million for the fourth quarter of 2014, compared to $453 million for the year-ago quarter. The fourth quarter reflects a record high quarter for investment banking and debt placement fees, which increased $42 million, benefiting from Key’s business model. Trust and investment services income increased $14 million, mostly due to a full-quarter impact of the recently-acquired Pacific Crest Securities. Corporate services income also increased $13 million, driven by higher derivatives income and non-yield loan fees. These increases were partially offset by declines in other income of $12 million, mortgage servicing fees of $11 million, and operating lease income and other leasing gains of $11 million.

Compared to the third quarter of 2014, noninterest income increased by $73 million. Investment banking and debt placement fees and trust and investment services income increased $38 million and $13 million, respectively, benefitting from Key’s business model. Corporate-owned life insurance income had a seasonal increase of $12 million, and corporate services income increased $11 million due to higher derivatives income and non-yield loan fees.

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 4

 

Noninterest Expense

 

dollars in millions														Change 4Q14 vs.
		4Q14				3Q14				4Q13				3Q14				4Q13
Personnel expense		$	409			$	405			$	398				1.0	%			2.8	%
Nonpersonnel expense			295				299				314				(1.3	)			(6.1	)
Total noninterest expense		$	704			$	704			$	712				—				(1.1	)%

Key’s noninterest expense was $704 million for the fourth quarter of 2014, compared to $712 million for the same period last year. This decline reflects lower efficiency- and pension-related charges and other expense. These decreases were slightly offset by higher incentive compensation expense related to the performance of our business and a full-quarter impact of the recently-acquired Pacific Crest Securities.

Compared to the third quarter of 2014, noninterest expense remained flat. Lower expenses related to Key’s efficiency initiative and pension settlement charges were offset by higher incentive compensation expense related to the performance of our business and a full-quarter impact of the recently-acquired Pacific Crest Securities.

BALANCE SHEET HIGHLIGHTS

As of December 31, 2014, Key had total assets of $93.8 billion compared to $89.8 billion at September 30, 2014, and $92.9 billion at December 31, 2013.

Average Loans

 

dollars in millions														Change 12-31-14 vs.
		12-31-14				9-30-14				12-31-13				9-30-14				12-31-13
Commercial, financial and agricultural (a)		$	27,188			$	26,456			$	24,218				2.8	%			12.3	%
Other commercial loans			13,357				13,317				13,266				.3				.7
Total home equity loans			10,639				10,658				10,653				(.2	)			(.1	)
Other consumer loans			5,357				5,365				5,471				(.1	)			(2.1	)
Total loans		$	56,541			$	55,796			$	53,608				1.3	%			5.5	%

 

(a)	Commercial, financial and agricultural average loan balances include $90 million, $92 million, and $97 million of assets from commercial credit cards at December 31, 2014, September 30, 2014, and December 31, 2013, respectively.

Average loans were $56.5 billion for the fourth quarter of 2014, an increase of $2.9 billion compared to the fourth quarter of 2013. The loan growth occurred primarily in the commercial, financial and agricultural portfolio, which increased $3 billion and was broad-based across Key’s commercial lines of business. Consumer loans declined slightly as modest increases across Key’s core consumer loan portfolio were more than offset by run-off in Key’s designated consumer exit portfolio.

Compared to the third quarter of 2014, average loans increased by $745 million. Commercial, financial and agricultural loans increased by $732 million, accounting for the majority of the loan growth. On a period-end basis, commercial, financial and agricultural loans increased $1.3 billion over the linked quarter as most of the balance growth occurred towards the latter part of the fourth quarter. Consumer loans were relatively unchanged from the linked quarter as modest growth in the core consumer loan portfolio during the fourth quarter was substantially offset by run-off in Key’s consumer exit portfolio.

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 5

 

Average Deposits

 

dollars in millions														Change 12-31-14 vs.
		12-31-14				9-30-14				12-31-13				9-30-14				12-31-13
Non-time deposits (a)		$	63,541			$	61,699			$	61,394				3.0	%			3.5	%
Certificates of deposit ($100,000 or more)			2,277				2,629				2,649				(13.4	)			(14.0	)
Other time deposits			3,306				3,413				3,736				(3.1	)			(11.5	)
Total deposits		$	69,124			$	67,741			$	67,779				2.0	%			2.0	%
Cost of total deposits (a)			.15	%			.16	%			.20	%			N/A				N/A

 

(a)	Excludes deposits in foreign office.

N/A = Not Applicable

Average deposits, excluding deposits in foreign office, totaled $69.1 billion for the fourth quarter of 2014, an increase of $1.3 billion compared to the year-ago quarter. Demand deposits increased by $1.3 billion, and NOW and money market deposit accounts increased $977 million, mostly due to growth related to commercial client inflows as well as increases related to the commercial mortgage servicing business. These increases were partially offset by run-off in certificates of deposit.

Compared to the third quarter of 2014, average deposits, excluding deposits in foreign office, increased by $1.4 billion. Demand deposits were up $1 billion, driven by large commercial client inflows. Interest-bearing deposits increased $343 million as increases in NOW and money market deposits accounts more than offset the run-off in certificates of deposits.

ASSET QUALITY

 

dollars in millions														Change 4Q14 vs.
		4Q14				3Q14				4Q13				3Q14				4Q13
Net loan charge-offs		$	32			$	31			$	37				3.2	%			(13.5	)%
Net loan charge-offs to average total loans			.22	%			.22	%			.27	%			N/A				N/A
Nonperforming loans at period end (a)		$	418			$	401			$	508				4.2				(17.7	)
Nonperforming assets at period end			436				418				531				4.3				(17.9	)
Allowance for loan and lease losses			794				804				848				(1.2	)			(6.4	)
Allowance for loan and lease losses to nonperforming loans			190.0	%			200.5	%			166.9	%			N/A				N/A
Provision (credit) for loan and lease losses		$	22			$	21			$	19				4.8	%			15.8	%

 

(a)	Loan balances exclude $13 million, $14 million, and $16 million of purchased credit impaired loans at December 31, 2014, September 30, 2014, and December 31, 2013, respectively.

N/A = Not Applicable

Key’s provision for loan and lease losses was $22 million for the fourth quarter of 2014, compared to $21 million for the third quarter of 2014 and $19 million for the year-ago quarter. Key’s allowance for loan and lease losses was $794 million, or 1.38% of total period-end loans, at December 31, 2014, compared to 1.43% at September 30, 2014, and 1.56% at December 31, 2013.

Net loan charge-offs for the fourth quarter of 2014 totaled $32 million, or .22% of average total loans. These results compare to $31 million, or .22%, for the third quarter of 2014, and $37 million, or .27%, for the same period last year.

At December 31, 2014, Key’s nonperforming loans totaled $418 million and represented .73% of period-end portfolio loans, compared to .71% at September 30, 2014, and .93% at December 31, 2013. Nonperforming assets at December 31, 2014, totaled $436 million and represented .76% of period-end portfolio loans and OREO and other nonperforming assets, compared to .74% at September 30, 2014, and .97% at December 31, 2013.

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 6

 

CAPITAL

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

Capital Ratios

 

		12-31-14				9-30-14				12-31-13
Tier 1 common equity (a), (b)			11.18	%			11.26	%			11.22	%
Tier 1 risk-based capital (a)			11.91				12.01				11.96
Total risk based capital (a)			13.91				14.10				14.33
Tangible common equity to tangible assets (b)			9.88				10.26				9.80
Leverage (a)			11.27				11.15				11.11

 

(a)	12-31-14 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 December 31, 2014, Key’s estimated Tier 1 common equity and Tier 1 risk-based capital ratios stood at 11.18% and 11.91%, respectively. In addition, the tangible common equity ratio was 9.88% at December 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 10.69% at December 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 4Q14 vs.
		4Q14				3Q14				4Q13				3Q14				4Q13
Shares outstanding at beginning of period			868,477				876,823				897,821				(1.0	)%			(3.3	)%
Common shares repurchased			(9,786	)			(8,830	)			(7,659	)			10.8				27.8
Shares reissued (returned) under employee benefit plans			712				484				562				47.1				26.7
Shares outstanding at end of period			859,403				868,477				890,724				(1.0	)%			(3.5	)%

As previously reported, Key’s 2014 CCAR capital plan includes common share repurchases of up to $542 million, which include open market repurchases plus repurchases to offset issuances of common shares under our employee compensation plans, and are expected to be executed through the first quarter of 2015. During the fourth quarter of 2014, Key completed $128 million of common share repurchases.

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

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 4Q14 vs.
		4Q14				3Q14				4Q13				3Q14				4Q13
Revenue from continuing operations (TE)
Key Community Bank		$	558			$	559			$	567				(.2	)%			(1.6	)%
Key Corporate Bank			458				395				405				15.9				13.1
Other Segments			63				47				73				34.0				(13.7	)
Total segments			1,079				1,001				1,045				7.8				3.3
Reconciling Items			(1	)			(3	)			(3	)			N/M				N/M
Total		$	1,078			$	998			$	1,042				8.0	%			3.5	%
Income (loss) from continuing operations attributable to Key
Key Community Bank		$	62			$	57			$	42				8.8	%			47.6	%
Key Corporate Bank			137				119				133				15.1				3.0
Other Segments			51				48				62				6.3				(17.7	)
Total segments			250				224				237				11.6				5.5
Reconciling Items			1				(21	)			(2	)			N/M				N/M
Total		$	251			$	203			$	235				23.6	%			6.8	%

TE = Taxable equivalent, N/M = Not Meaningful

Key Community Bank

 

dollars in millions														Change 4Q14 vs.
		4Q14				3Q14				4Q13				3Q14				4Q13
Summary of operations
Net interest income (TE)		$	363			$	360			$	377				.8	%			(3.7	)%
Noninterest income			195				199				190				(2.0	)			2.6
Total revenue (TE)			558				559				567				(.2	)			(1.6	)
Provision (credit) for loan and lease losses			11				31				32				(64.5	)			(65.6	)
Noninterest expense			449				437				468				2.7				(4.1	)
Income (loss) before income taxes (TE)			98				91				67				7.7				46.3
Allocated income taxes (benefit) and TE adjustments			36				34				25				5.9				44.0
Net income (loss) attributable to Key		$	62			$	57			$	42				8.8	%			47.6	%
Average balances
Loans and leases		$	30,478			$	30,103			$	29,597				1.2	%			3.0	%
Total assets			32,598				32,209				31,790				1.2				2.5
Deposits			50,850				50,302				50,493				1.1				.7
Assets under management at period end		$	39,157			$	39,249			$	36,815				(.2	)%			6.4	%

TE = Taxable Equivalent

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 8

 

Additional Key Community Bank Data

 

dollars in millions														Change 4Q14 vs.
		4Q14				3Q14				4Q13				3Q14				4Q13
Noninterest income
Trust and investment services income		$	75			$	73			$	70				2.7	%			7.1	%
Service charges on deposit accounts			54				57				58				(5.3	)			(6.9	)
Cards and payments income			40				39				37				2.6				8.1
Other noninterest income			26				30				25				(13.3	)			4.0
Total noninterest income		$	195			$	199			$	190				(2.0	)%			2.6	%
Average deposit balances
NOW and money market deposit accounts		$	27,690			$	27,403			$	27,442				1.0	%			.9	%
Savings deposits			2,378				2,418				2,472				(1.7	)			(3.8	)
Certificates of deposit ($100,000 or more)			1,793				2,072				2,124				(13.5	)			(15.6	)
Other time deposits			3,301				3,406				3,731				(3.1	)			(11.5	)
Deposits in foreign office			332				320				285				3.8				16.5
Noninterest-bearing deposits			15,356				14,683				14,439				4.6				6.4
Total deposits		$	50,850			$	50,302			$	50,493				1.1	%			.7	%
Home equity loans
Average balance		$	10,365			$	10,368			$	10,310
Weighted-average loan-to-value ratio (at date of origination)			71	%			71	%			71	%
Percent first lien positions			60				59				58
Other data
Branches			994				997				1,028
Automated teller machines			1,287				1,290				1,335

Key Community Bank Summary of Operations

 

•

Average loan and lease balances up 3% from prior year

 

•

Average core deposits up 1.3% from prior year

 

•

Net income attributable to Key Community Bank up 47.6% from the prior year

Key Community Bank recorded net income attributable to Key of $62 million for the fourth quarter of 2014, compared to net income attributable to Key of $42 million for the year-ago quarter.

Taxable-equivalent net interest income decreased by $14 million, or 3.7%, from the fourth quarter of 2013. Average loans and leases grew 3% while average core deposits increased 1.3% 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 increased $5 million, or 2.6%, from the year-ago quarter. This increase was due to growth in trust and investment services income of $5 million, cards and payments of $3 million, and other noninterest income of $1 million. Slightly offsetting these increases was a decline in service charges on deposit accounts of $4 million due to lower maintenance fees and overdraft charges.

The provision for loan and lease losses decreased by $21 million, or 65.6%, from the fourth quarter of 2013. Net loan charge-offs declined $3 million from the same period one year ago.

Noninterest expense declined by $19 million, or 4.1%, from the year-ago quarter as a result of Key’s efficiency initiative. Personnel expense declined $2 million compared to the fourth quarter of 2013. Nonpersonnel expense decreased $17 million primarily due to internally-allocated costs.

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 9

 

Key Corporate Bank

 

dollars in millions														Change 4Q14 vs.
		4Q14				3Q14				4Q13				3Q14				4Q13
Summary of operations
Net interest income (TE)		$	217			$	212			$	198				2.4	%			9.6	%
Noninterest income			241				183				207				31.7				16.4
Total revenue (TE)			458				395				405				15.9				13.1
Provision (credit) for loan and lease losses			4				(5	)			(10	)			N/M				N/M
Noninterest expense			239				212				210				12.7				13.8
Income (loss) before income taxes (TE)			215				188				205				14.4				4.9
Allocated income taxes and TE adjustments			78				69				72				13.0				8.3
Net income (loss) attributable to Key		$	137			$	119			$	133				15.1				3.0	%
Average balances
Loans and leases		$	23,293			$	22,700			$	20,334				2.6	%			14.6	%
Loans held for sale			855				481				668				77.8				28.0
Total assets			27,227				26,460				24,339				2.9				11.9
Deposits			18,074				17,310				17,286				4.4				4.6
Assets under management at period end			—			$	34			$	90				N/M				N/M

TE = Taxable Equivalent, N/M = Not Meaningful

Additional Key Corporate Bank Data

 

dollars in millions														Change 4Q14 vs.
		4Q14				3Q14				4Q13				3Q14				4Q13
Noninterest income
Trust and investment services income		$	37			$	26			$	28				42.3	%			32.1	%
Investment banking and debt placement fees			125				86				84				45.3				48.8
Operating lease income and other leasing gains			17				14				20				21.4				(15.0	)
Corporate services income			43				30				29				43.3				48.3
Service charges on deposit accounts			10				11				10				(9.1	)			—
Cards and payments income			3				3				3				—				—
Payments and services income			56				44				42				27.3				33.3
Mortgage servicing fees			11				9				22				22.2	%			(50.0	)%
Other noninterest income			(5	)			4				11				N/M				N/M
Total noninterest income		$	241			$	183			$	207				31.7				16.4

N/M = Not Meaningful

Key Corporate Bank Summary of Operations

 

•

Record high quarter and year for investment banking and debt placement fees

 

•

Average loan and lease balances up 14.6% from the prior year

 

•

Average deposits up 4.6% from the prior year

Key Corporate Bank recorded net income attributable to Key of $137 million for the fourth quarter of 2014, compared to $133 million for the same period one year ago.

Taxable-equivalent net interest income increased by $19 million, or 9.6%, compared to the fourth quarter of 2013. Average earning assets increased $2.7 billion, or 12.2%, from the year-ago quarter, primarily driven by loan growth in commercial, financial and agricultural and real estate commercial mortgage. This growth in earning assets drove an increase of $9 million in earning asset spread. Average deposit balances increased $788 million, or 4.6%, from the year-ago quarter, driven by commercial mortgage servicing deposits and other commercial client inflows. This growth in deposit balances drove an increase of $8 million in deposit and borrowing spread.

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 10

 

Noninterest income was up $34 million, or 16.4% from the prior year. This growth was primarily due to a record high quarter for investment banking and debt placement fees, which increased $41 million or 48.8%, driven by Key’s business model. Corporate services income increased $14 million due to higher derivatives income and non-yield loan fees. Trust and investment services income increased $9 million, mostly due to a full-quarter impact of the recently-acquired Pacific Crest Securities. Partially offsetting these increases were declines in mortgage servicing fees due to lower special servicing fees, and other income.

The provision for loan and lease losses increased $14 million compared to the fourth quarter of 2013 related to loan growth.

Noninterest expense increased by $29 million, or 13.8%, from the fourth quarter of 2013. This increase was due to higher incentive compensation expense related to the performance of the business and a full-quarter impact of the recently-acquired Pacific Crest Securities.

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 $51 million for the fourth quarter of 2014, compared to net income attributable to Key of $62 million for the same period last year. These results were primarily attributable to decreases of $7 million in operating lease income and other leasing gains and $5 million in net interest income from the prior year.

*****

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 $93.8 billion at December 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.

---

KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

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
Melanie Misconish
216.689.4545
Melanie_Misconish@KeyBank.com
INVESTOR		KEY MEDIA
RELATIONS: www.key.com/ir		NEWSROOM: www.key.com/newsroom

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about Key’s financial condition, results of operations, and profitability. Forward-looking statements can be identified by words such as “outlook,” “goal,” “objective,” “plan,” “expect,” “anticipate,” “intend,” “project,” “believe,” or “estimate.” Forward-looking statements represent management’s current expectations and forecasts regarding future events. If underlying assumptions prove to be inaccurate or unknown risks or uncertainties arise, actual results could vary materially from these projections or expectations. 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, 2013, which has been filed with the Securities and Exchange Commission and is available on Key’s website (www.key.com/ir) and on the Securities and Exchange Commission’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, changes in local, regional and international business, economic or political conditions, and the extensive and increasing regulation of the U.S. financial services industry. Forward looking statements speak only as of the date they are made and Key does not undertake any obligation to update the forward-looking statements to reflect new information or future events.

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, January 22, 2015. An audio replay of the call will be available through January 29, 2015.

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 Fourth Quarter 2014 Profit

January 22, 2015

Page 12

 

KeyCorp

Fourth Quarter 2014

Financial Supplement

 

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

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 13

 

Financial Highlights

(dollars in millions, except per share amounts)

 

		Three months ended
		12-31-14				9-30-14				12-31-13
Summary of operations
Net interest income (TE)		$	588			$	581			$	589
Noninterest income			490				417				453
Total revenue (TE)			1,078				998				1,042
Provision (credit) for loan and lease losses			22				21				19
Noninterest expense			704				704				712
Income (loss) from continuing operations attributable to Key			251				203				235
Income (loss) from discontinued operations, net of taxes (a)			2				(17	)			(5	)
Net income (loss) attributable to Key			253				186				230
Income (loss) from continuing operations attributable to Key common shareholders		$	246			$	197			$	229
Income (loss) from discontinued operations, net of taxes (a)			2				(17	)			(5	)
Net income (loss) attributable to Key common shareholders			248				180				224
Per common share
Income (loss) from continuing operations attributable to Key common shareholders		$	.29			$	.23			$	.26
Income (loss) from discontinued operations, net of taxes (a)			—				(.02	)			(.01	)
Net income (loss) attributable to Key common shareholders (b)			.29				.21				.25
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution			.28				.23				.26
Income (loss) from discontinued operations, net of taxes — assuming dilution (a)			—				(.02	)			(.01	)
Net income (loss) attributable to Key common shareholders — assuming dilution (b)			.28				.21				.25
Cash dividends paid			.065				.065				.055
Book value at period end			11.91				11.74				11.25
Tangible book value at period end			10.65				10.47				10.11
Market price at period end			13.90				13.33				13.42
Performance ratios
From continuing operations:
Return on average total assets			1.12	%			.92	%			1.08	%
Return on average common equity			9.50				7.68				9.10
Return on average tangible common equity (c)			10.64				8.55				10.13
Net interest margin (TE)			2.94				2.96				3.01
Cash efficiency ratio (c)			64.4				69.5				67.4
From consolidated operations:
Return on average total assets			1.10	%			.81	%			1.00	%
Return on average common equity			9.58				7.01				8.90
Return on average tangible common equity (c)			10.72				7.81				9.91
Net interest margin (TE)			2.93				2.94				2.91
Loan to deposit (d)			84.6				87.4				83.8
Capital ratios at period end
Key shareholders’ equity to assets			11.22	%			11.68	%			11.09	%
Key common shareholders’ equity to assets			10.91				11.36				10.78
Tangible common equity to tangible assets (c)			9.88				10.26				9.80
Tier 1 common equity (c), (e)			11.18				11.26				11.22
Tier 1 risk-based capital (e)			11.91				12.01				11.96
Total risk-based capital (e)			13.91				14.10				14.33
Leverage (e)			11.27				11.15				11.11
Asset quality — from continuing operations
Net loan charge-offs		$	32			$	31			$	37
Net loan charge-offs to average loans			.22	%			.22	%			.27	%
Allowance for loan and lease losses		$	794			$	804			$	848
Allowance for credit losses			830				839				885
Allowance for loan and lease losses to period-end loans			1.38	%			1.43	%			1.56	%
Allowance for credit losses to period-end loans			1.45				1.49				1.63
Allowance for loan and lease losses to nonperforming loans			190.0				200.5				166.9
Allowance for credit losses to nonperforming loans			198.6				209.2				174.2
Nonperforming loans at period end (f)		$	418			$	401			$	508
Nonperforming assets at period end			436				418				531
Nonperforming loans to period-end portfolio loans			.73	%			.71	%			.93	%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets			.76				.74				.97
Trust and brokerage assets
Assets under management		$	39,157			$	39,283			$	36,905
Nonmanaged and brokerage assets			49,147				48,273				47,418
Other data
Average full-time equivalent employees			13,590				13,905				14,197
Branches			994				997				1,028
Taxable-equivalent adjustment		$	6			$	6			$	6

---

KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 14

 

Financial Highlights (continued)

(dollars in millions, except per share amounts)

 

		Twelve months ended
		12-31-14				12-31-13
Summary of operations
Net interest income (TE)		$	2,317			$	2,348
Noninterest income			1,797				1,766
Total revenue (TE)			4,114				4,114
Provision (credit) for loan and lease losses			59				130
Noninterest expense			2,759				2,820
Income (loss) from continuing operations attributable to Key			939				870
Income (loss) from discontinued operations, net of taxes (a)			(39	)			40
Net income (loss) attributable to Key			900				910
Income (loss) from continuing operations attributable to Key common shareholders		$	917			$	847
Income (loss) from discontinued operations, net of taxes (a)			(39	)			40
Net income (loss) attributable to Key common shareholders			878				887
Per common share
Income (loss) from continuing operations attributable to Key common shareholders		$	1.05			$	.93
Income (loss) from discontinued operations, net of taxes (a)			(.04	)			.04
Net income (loss) attributable to Key common shareholders (b)			1.01				.98
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution			1.04				.93
Income (loss) from discontinued operations, net of taxes — assuming dilution (a)			(.04	)			.04
Net income (loss) attributable to Key common shareholders — assuming dilution (b)			.99				.97
Cash dividends paid			.25				.215
Performance ratios
From continuing operations:
Return on average total assets			1.08	%			1.03	%
Return on average common equity			9.01				8.48
Return on average tangible common equity (c)			10.04				9.45
Net interest margin (TE)			2.97				3.12
Cash efficiency ratio (c)			66.1				67.5
From consolidated operations:
Return on average total assets			.99	%			1.02	%
Return on average common equity			8.63				8.88
Return on average tangible common equity (c)			9.61				9.90
Net interest margin (TE)			2.94				3.02
Asset quality — from continuing operations
Net loan charge-offs		$	113			$	168
Net loan charge-offs to average total loans			.20	%			.32	%
Other data
Average full-time equivalent employees			13,853				14,783
Taxable-equivalent adjustment		$	24			$	23

 

(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 for periods prior to September 30, 2014) divided by period-end consolidated total deposits (excluding deposits in foreign office).

(e)	12-31-14 ratio is estimated.

(f)	Loan balances exclude $13 million, $14 million, and $16 million of purchased credit impaired loans at December 31, 2014, September 30, 2014, and December 31, 2013, respectively.

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

---

KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

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
		12-31-14				9-30-14				12-31-13
Tangible common equity to tangible assets at period end
Key shareholders’ equity (GAAP)		$	10,530			$	10,486			$	10,303
Less:    Intangible assets (a)			1,090				1,105				1,014
Preferred Stock, Series A (b)			282				282				282
Tangible common equity (non-GAAP)		$	9,158			$	9,099			$	9,007
Total assets (GAAP)		$	93,821			$	89,784			$	92,934
Less:    Intangible assets (a)			1,090				1,105				1,014
Tangible assets (non-GAAP)		$	92,731			$	88,679			$	91,920
Tangible common equity to tangible assets ratio (non-GAAP)			9.88	%			10.26	%			9.80	%
Tier 1 common equity at period end
Key shareholders’ equity (GAAP)		$	10,530			$	10,486			$	10,303
Qualifying capital securities			340				340				339
Less:    Goodwill			1,057				1,051				979
Accumulated other comprehensive income (loss) (c)			(395	)			(366	)			(394	)
Other assets (d)			89				110				89
Total Tier 1 capital (regulatory)			10,119				10,031				9,968
Less:    Qualifying capital securities			340				340				339
Preferred Stock, Series A (b)			282				282				282
Total Tier 1 common equity (non-GAAP)		$	9,497			$	9,409			$	9,347
Net risk-weighted assets (regulatory) (e)		$	84,976			$	83,547			$	83,328
Tier 1 common equity ratio (non-GAAP) (e)			11.18	%			11.26	%			11.22	%
Pre-provision net revenue
Net interest income (GAAP)		$	582			$	575			$	583
Plus:    Taxable-equivalent adjustment			6				6				6
Noninterest income (GAAP)			490				417				453
Less:    Noninterest expense (GAAP)			704				704				712
Pre-provision net revenue from continuing operations (non-GAAP)		$	374			$	294			$	330

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 16

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)

 

		Three months ended
		12-31-14				9-30-14				12-31-13
Average tangible common equity
Average Key shareholders’ equity (GAAP)		$	10,562			$	10,473			$	10,272
Less:    Intangible assets (average) (f)			1,096				1,037				1,016
Preferred Stock, Series A (average)			291				291				291
Average tangible common equity (non-GAAP)		$	9,175			$	9,145			$	8,965
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)		$	246			$	197			$	229
Average tangible common equity (non-GAAP)			9,175				9,145				8,965
Return on average tangible common equity from continuing operations (non-GAAP)			10.64	%			8.55	%			10.13	%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP)		$	248			$	180			$	224
Average tangible common equity (non-GAAP)			9,175				9,145				8,965
Return on average tangible common equity consolidated (non-GAAP)			10.72	%			7.81	%			9.91	%
Cash efficiency ratio
Noninterest expense (GAAP)		$	704			$	704			$	712
Less:    Intangible asset amortization (GAAP)			10				10				10
Adjusted noninterest expense (non-GAAP)		$	694			$	694			$	702
Net interest income (GAAP)		$	582			$	575			$	583
Plus:    Taxable-equivalent adjustment			6				6				6
Noninterest income (GAAP)			490				417				453
Total taxable-equivalent revenue (non-GAAP)		$	1,078			$	998			$	1,042
Cash efficiency ratio (non-GAAP)			64.4	%			69.5	%			67.4	%

 

		Three months ended
		12-31-14				9-30-14
Common Equity Tier 1 under the Regulatory Capital Rules (estimates)
Tier 1 common equity under current regulatory rules		$	9,497			$	9,409
Adjustments from current regulatory rules to the Regulatory Capital Rules:
Deferred tax assets and other (g)			(86	)			(93	)
Common Equity Tier 1 anticipated under the Regulatory Capital Rules (h)		$	9,411			$	9,316
Net risk-weighted assets under current regulatory rules		$	84,976			$	83,547
Adjustments from current regulatory rules to the Regulatory Capital Rules:
Loan commitments less than one year			1,077				1,039
Past due loans			103				114
Mortgage servicing assets (i)			472				462
Deferred tax assets (i)			226				201
Other			1,211				1,172
Total risk-weighted assets anticipated under the Regulatory Capital Rules (h)		$	88,065			$	86,535
Common Equity Tier 1 ratio under the Regulatory Capital Rules			10.69	%			10.77	%

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 17

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)

 

		Twelve months ended
		12-31-14				12-31-13
Pre-provision net revenue
Net interest income (GAAP)		$	2,293			$	2,325
Plus:    Taxable-equivalent adjustment			24				23
Noninterest income (GAAP)			1,797				1,766
Less:    Noninterest expense (GAAP)			2,759				2,820
Pre-provision net revenue from continuing operations (non-GAAP)		$	1,355			$	1,294
Average tangible common equity
Average Key shareholders’ equity (GAAP)		$	10,467			$	10,276
Less:    Intangible assets (average) (j)			1,039				1,021
Preferred Stock, Series A (average)			291				291
Average tangible common equity (non-GAAP)		$	9,137			$	8,964
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)		$	917			$	847
Average tangible common equity (non-GAAP)			9,137				8,964
Return on average tangible common equity from continuing operations (non-GAAP)			10.04	%			9.45	%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP)		$	878			$	887
Average tangible common equity (non-GAAP)			9,137				8,964
Return on average tangible common equity consolidated (non-GAAP)			9.61	%			9.90	%
Cash efficiency ratio
Noninterest expense (GAAP)		$	2,759			$	2,820
Less:    Intangible asset amortization (GAAP)			39				44
Adjusted noninterest expense (non-GAAP)		$	2,720			$	2,776
Net interest income (GAAP)		$	2,293			$	2,325
Plus:    Taxable-equivalent adjustment			24				23
Noninterest income (GAAP)			1,797				1,766
Total taxable-equivalent revenue (non-GAAP)		$	4,114			$	4,114
Cash efficiency ratio (non-GAAP)			66.1	%			67.5	%

 

(a)	For the three months ended December 31, 2014, September 30, 2014, and December 31, 2013, intangible assets exclude $68 million, $72 million, and $92 million, respectively, of period-end purchased credit card receivables.

(b)	Net of capital surplus.

(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 December 31, 2014, September 30, 2014, and December 31, 2013.

(e)	12-31-14 amount is estimated.

(f)	For the three months ended December 31, 2014, September 30, 2014, and December 31, 2013, average intangible assets exclude $69 million, $76 million, and $96 million, respectively, of average purchased credit card receivables.

(g)	Includes the deferred tax asset subject to future taxable income for realization, primarily tax credit carryforwards, as well as the deductible portion 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%.

(j)	For the twelve months ended December 31, 2014, and December 31, 2013, average intangible assets exclude $79 million and $107 million, respectively, of average purchased credit card receivables.

GAAP = U.S. generally accepted accounting principles

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 18

 

Consolidated Balance Sheets

(dollars in millions)

 

		12-31-14				9-30-14				12-31-13
Assets
Loans		$	57,381			$	56,155			$	54,457
Loans held for sale			734				784				611
Securities available for sale			13,360				12,245				12,346
Held-to-maturity securities			5,015				4,997				4,756
Trading account assets			750				965				738
Short-term investments			4,269				2,342				5,590
Other investments			760				822				969
Total earning assets			82,269				78,310				79,467
Allowance for loan and lease losses			(794	)			(804	)			(848	)
Cash and due from banks			653				651				617
Premises and equipment			841				832				885
Operating lease assets			330				304				305
Goodwill			1,057				1,051				979
Other intangible assets			101				126				127
Corporate-owned life insurance			3,479				3,456				3,408
Derivative assets			609				413				407
Accrued income and other assets			2,952				3,024				3,015
Discontinued assets			2,324				2,421				4,572
Total assets		$	93,821			$	89,784			$	92,934
Liabilities
Deposits in domestic offices:
NOW and money market deposit accounts		$	34,536			$	33,941			$	33,952
Savings deposits			2,371				2,390				2,472
Certificates of deposit ($100,000 or more)			2,040				2,533				2,631
Other time deposits			3,259				3,338				3,648
Total interest-bearing deposits			42,206				42,202				42,703
Noninterest-bearing deposits			29,228				25,697				26,001
Deposits in foreign office — interest-bearing			564				557				558
Total deposits			71,998				68,456				69,262
Federal funds purchased and securities sold under repurchase agreements			575				657				1,534
Bank notes and other short-term borrowings			423				996				343
Derivative liabilities			784				384				414
Accrued expense and other liabilities			1,621				1,613				1,557
Long-term debt			7,875				7,172				7,650
Discontinued liabilities			3				3				1,854
Total liabilities			83,279				79,281				82,614
Equity
Preferred stock, Series A			291				291				291
Common shares			1,017				1,017				1,017
Capital surplus			3,986				3,984				4,022
Retained earnings			8,273				8,082				7,606
Treasury stock, at cost			(2,681	)			(2,563	)			(2,281	)
Accumulated other comprehensive income (loss)			(356	)			(325	)			(352	)
Key shareholders’ equity			10,530				10,486				10,303
Noncontrolling interests			12				17				17
Total equity			10,542				10,503				10,320
Total liabilities and equity		$	93,821			$	89,784			$	92,934
Common shares outstanding (000)			859,403				868,477				890,724

---

KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 19

 

Consolidated Statements of Income

(dollars in millions, except per share amounts)

 

		Three months ended												Twelve months ended
		12-31-14				9-30-14				12-31-13				12-31-14				12-31-13
Interest income
Loans		$	534			$	531			$	532			$	2,110			$	2,151
Loans held for sale			8				4				6				21				20
Securities available for sale			67				67				75				277				311
Held-to-maturity securities			23				25				22				93				82
Trading account assets			6				6				6				25				21
Short-term investments			2				2				2				6				6
Other investments			6				4				6				22				29
Total interest income			646				639				649				2,554				2,620
Interest expense
Deposits			26				28				34				117				158
Federal funds purchased and securities sold under repurchase agreements			—				1				—				2				2
Bank notes and other short-term borrowings			3				2				3				9				8
Long-term debt			35				33				29				133				127
Total interest expense			64				64				66				261				295
Net interest income			582				575				583				2,293				2,325
Provision (credit) for loan and lease losses			22				21				19				59				130
Net interest income (expense) after provision for loan and lease losses			560				554				564				2,234				2,195
Noninterest income
Trust and investment services income			112				99				98				403				393
Investment banking and debt placement fees			126				88				84				397				333
Service charges on deposit accounts			64				68				68				261				281
Operating lease income and other leasing gains			15				17				26				96				117
Corporate services income			53				42				40				178				172
Cards and payments income			43				42				40				166				162
Corporate-owned life insurance income			38				26				33				118				120
Consumer mortgage income			3				3				3				10				19
Mortgage servicing fees			11				9				22				46				58
Net gains (losses) from principal investing			18				9				20				78				52
Other income (a), (b)			7				14				19				44				59
Total noninterest income			490				417				453				1,797				1,766
Noninterest expense
Personnel			409				405				398				1,591				1,609
Net occupancy			63				66				73				261				275
Computer processing			40				39				40				158				156
Business services and professional fees			38				36				42				156				151
Equipment			23				25				26				96				104
Operating lease expense			11				11				10				42				47
Marketing			16				15				18				49				51
FDIC assessment			9				9				7				30				30
Intangible asset amortization			10				10				10				39				44
Provision (credit) for losses on lending-related commitments			—				(2	)			(3	)			(2	)			8
OREO expense, net			2				1				2				5				7
Other expense			83				89				89				334				338
Total noninterest expense			704				704				712				2,759				2,820
Income (loss) from continuing operations before income taxes			346				267				305				1,272				1,141
Income taxes			94				64				70				326				271
Income (loss) from continuing operations			252				203				235				946				870
Income (loss) from discontinued operations, net of taxes			2				(17	)			(5	)			(39	)			40
Net income (loss)			254				186				230				907				910
Less: Net income (loss) attributable to noncontrolling interests			1				—				—				7				—
Net income (loss) attributable to Key		$	253			$	186			$	230			$	900			$	910
Income (loss) from continuing operations attributable to Key common shareholders		$	246			$	197			$	229			$	917			$	847
Net income (loss) attributable to Key common shareholders			248				180				224				878				887
Per common share
Income (loss) from continuing operations attributable to Key common shareholders		$	.29			$	.23			$	.26			$	1.05			$	.93
Income (loss) from discontinued operations, net of taxes			—				(.02	)			(.01	)			(.04	)			.04
Net income (loss) attributable to Key common shareholders (c)			.29				.21				.25				1.01				.98
Per common share — assuming dilution
Income (loss) from continuing operations attributable to Key common shareholders		$	.28			$	.23			$	.26			$	1.04			$	.93
Income (loss) from discontinued operations, net of taxes			—				(.02	)			(.01	)			(.04	)			.04
Net income (loss) attributable to Key common shareholders (c)			.28				.21				.25				.99				.97
Cash dividends declared per common share		$	.065			$	.065			$	.055			$	.25			$	.215
Weighted-average common shares outstanding (000)			858,811				867,350				890,516				871,464				906,524
Effect of convertible preferred stock			20,602				—				—				—				—
Effect of common share options and other stock awards			6,773				6,772				7,196				6,735				6,047
Weighted-average common shares and potential common shares outstanding (000) (d)			886,186				874,122				897,712				878,199				912,571

 

(a)

For the three months ended December 31, 2014, September 30, 2014, and December 31, 2013, net securities gains (losses) totaled less than $1 million, less than $1 million, and $1 million, respectively. For the three months ended December 31, 2014, September 30, 2014, and December 31, 2013, Key did not have any impairment losses related to securities.

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

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

(d)	Assumes conversion of common share options and other stock awards and/or convertible preferred stock, as applicable.

---

KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 20

 

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

(dollars in millions)

 

		Fourth Quarter 2014												Third Quarter 2014												Fourth 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)		$	27,188			$	223				3.24	%		$	26,456			$	218				3.28	%		$	24,218			$	212				3.47	%
Real estate — commercial mortgage			8,161				77				3.73				8,142				78				3.79				7,678				78				4.01
Real estate — construction			1,077				10				3.90				1,030				10				3.78				1,075				11				4.21
Commercial lease financing			4,119				38				3.67				4,145				38				3.66				4,513				41				3.62
Total commercial loans			40,545				348				3.40				39,773				344				3.44				37,484				342				3.62
Real estate — residential mortgage			2,223				24				4.28				2,204				24				4.35				2,199				24				4.43
Home equity:
Key Community Bank			10,365				103				3.91				10,368				102				3.91				10,310				102				3.92
Other			274				5				7.84				290				6				7.80				343				7				7.72
Total home equity loans			10,639				108				4.01				10,658				108				4.01				10,653				109				4.04
Consumer other — Key Community Bank			1,552				27				6.78				1,534				26				6.87				1,446				26				7.18
Credit cards			728				20				11.02				716				20				11.12				701				20				11.17
Consumer other:
Marine			802				13				6.29				856				13				6.23				1,056				17				6.24
Other			52				—				7.52				55				2				7.63				69				1				8.03
Total consumer other			854				13				6.36				911				15				6.32				1,125				18				6.35
Total consumer loans			15,996				192				4.76				16,023				193				4.78				16,124				197				4.88
Total loans			56,541				540				3.79				55,796				537				3.82				53,608				539				3.98
Loans held for sale			871				8				3.72				502				4				3.87				688				6				3.65
Securities available for sale (b), (e)			12,153				67				2.20				11,939				67				2.25				12,464				74				2.40
Held-to-maturity securities (b)			4,947				23				1.91				5,108				25				1.90				4,775				22				1.85
Trading account assets			868				6				2.84				893				6				2.68				819				6				2.90
Short-term investments			3,520				2				.27				3,048				2				.19				4,455				2				.18
Other investments (e)			792				6				2.77				847				4				2.12				983				6				2.47
Total earning assets			79,692				652				3.27				78,133				645				3.30				77,792				655				3.37
Allowance for loan and lease losses			(798	)											(809	)											(859	)
Accrued income and other assets			9,868												9,799												9,467
Discontinued assets			2,359												4,138												4,777
Total assets		$	91,121											$	91,261											$	91,177
Liabilities
NOW and money market deposit accounts		$	34,811				13				.14			$	33,969				12				.14			$	33,834				12				.15
Savings deposits			2,388				—				.02				2,428				1				.02				2,483				—				.03
Certificates of deposit ($100,000 or more) (f)			2,277				7				1.25				2,629				8				1.23				2,649				11				1.57
Other time deposits			3,306				6				.76				3,413				7				.83				3,736				11				1.16
Deposits in foreign office			543				—				.24				595				—				.23				615				—				.21
Total interest-bearing deposits			43,325				26				.24				43,034				28				.26				43,317				34				.32
Federal funds purchased and securities sold under repurchase agreements			621				—				.02				1,176				1				.19				1,618				—				.15
Bank notes and other short-term borrowings			772				3				1.17				484				2				1.79				438				3				1.96
Long-term debt (f), (g)			5,135				35				2.80				4,868				33				2.88				4,174				29				2.94
Total interest-bearing liabilities			49,853				64				.51				49,562				64				.52				49,547				66				.53
Noninterest-bearing deposits			26,342												25,302												25,077
Accrued expense and other liabilities			1,989												1,768												1,548
Discontinued liabilities (g)			2,359												4,138												4,717
Total liabilities			80,543												80,770												80,889
Equity
Key shareholders’ equity			10,562												10,473												10,272
Noncontrolling interests			16												18												16
Total equity			10,578												10,491												10,288
Total liabilities and equity		$	91,121											$	91,261											$	91,177
Interest rate spread (TE)											2.76	%											2.78	%											2.84	%
Net interest income (TE) and net interest margin (TE)							588				2.94	%							581				2.96	%							589				3.01	%
TE adjustment (b)							6												6												6
Net interest income, GAAP basis						$	582											$	575											$	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 $90 million, $92 million, and $97 million of assets from commercial credit cards for the three months ended December 31, 2014, September 30, 2014, and December 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

---

KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 21

 

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

(dollars in millions)

 

		Twelve months ended December 31, 2014												Twelve months ended December 31, 2013
		Average Balance				Interest (a)				Yield/Rate (a)				Average Balance				Interest (a)				Yield/Rate (a)
Assets
Loans: (b), (c)
Commercial, financial and agricultural (d)		$	26,375			$	866				3.28	%		$	23,723			$	855				3.60	%
Real estate — commercial mortgage			7,999				303				3.79				7,591				312				4.11
Real estate — construction			1,061				43				4.07				1,058				45				4.25
Commercial lease financing			4,239				156				3.67				4,683				172				3.67
Total commercial loans			39,674				1,368				3.45				37,055				1,384				3.73
Real estate — residential mortgage			2,201				96				4.37				2,185				98				4.49
Home equity:
Key Community Bank			10,340				405				3.91				10,086				397				3.93
Other			299				23				7.80				377				29				7.70
Total home equity loans			10,639				428				4.02				10,463				426				4.07
Consumer other — Key Community Bank			1,501				104				6.92				1,404				103				7.33
Credit cards			712				78				10.95				701				83				11.86
Consumer other:
Marine			894				56				6.22				1,172				74				6.26
Other			58				4				7.70				74				6				8.32
Total consumer other			952				60				6.31				1,246				80				6.38
Total consumer loans			16,005				766				4.79				15,999				790				4.94
Total loans			55,679				2,134				3.83				53,054				2,174				4.10
Loans held for sale			570				21				3.76				532				20				3.72
Securities available for sale (b), (e)			12,210				277				2.27				12,689				311				2.49
Held-to-maturity securities (b)			4,949				93				1.88				4,387				82				1.87
Trading account assets			932				25				2.70				756				21				2.78
Short-term investments			2,886				6				.21				2,948				6				.20
Other investments (e)			865				22				2.53				1,028				29				2.84
Total earning assets			78,091				2,578				3.30				75,394				2,643				3.51
Allowance for loan and lease losses			(818	)											(879	)
Accrued income and other assets			9,806												9,662
Discontinued assets			3,828												5,036
Total assets		$	90,907											$	89,213
Liabilities
NOW and money market deposit accounts		$	34,283				48				.14			$	32,846				53				.16
Savings deposits			2,446				1				.02				2,505				1				.04
Certificates of deposit ($100,000 or more) (f)			2,616				35				1.35				2,829				50				1.76
Other time deposits			3,495				32				.91				4,084				53				1.30
Deposits in foreign office			615				1				.23				567				1				.23
Total interest-bearing deposits			43,455				117				.27				42,831				158				.37
Federal funds purchased and securities sold under repurchase agreements			1,182				2				.16				1,802				2				.13
Bank notes and other short-term borrowings			597				9				1.49				394				8				1.89
Long-term debt (f), (g)			5,161				133				2.68				4,184				127				3.28
Total interest-bearing liabilities			50,395				261				.52				49,211				295				.60
Noninterest-bearing deposits			24,410												23,046
Accrued expense and other liabilities			1,791												1,656
Discontinued liabilities (g)			3,828												4,995
Total liabilities			80,424												78,908
Equity
Key shareholders’ equity			10,467												10,276
Noncontrolling interests			16												29
Total equity			10,483												10,305
Total liabilities and equity		$	90,907											$	89,213
Interest rate spread (TE)											2.78	%											2.91	%
Net interest income (TE) and net interest margin (TE)							2,317				2.97	%							2,348				3.12	%
TE adjustment (b)							24												23
Net interest income, GAAP basis						$	2,293											$	2,325

 

(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 $93 million and $95 million of assets from commercial credit cards for the twelve months ended December 31, 2014, and December 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

---

KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 22

 

Noninterest Expense

(dollars in millions)

 

		Three months ended												Twelve months ended
		12-31-14				9-30-14				12-31-13				12-31-14				12-31-13
Personnel (a)		$	409			$	405			$	398			$	1,591			$	1,609
Net occupancy			63				66				73				261				275
Computer processing			40				39				40				158				156
Business services and professional fees			38				36				42				156				151
Equipment			23				25				26				96				104
Operating lease expense			11				11				10				42				47
Marketing			16				15				18				49				51
FDIC assessment			9				9				7				30				30
Intangible asset amortization			10				10				10				39				44
Provision (credit) for losses on lending-related commitments			—				(2	)			(3	)			(2	)			8
OREO expense, net			2				1				2				5				7
Other expense			83				89				89				334				338
Total noninterest expense		$	704			$	704			$	712			$	2,759			$	2,820
Average full-time equivalent employees (b)			13,590				13,905				14,197				13,853				14,783

 

(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												Twelve months ended
		12-31-14				9-30-14				12-31-13				12-31-14				12-31-13
Salaries		$	224			$	226			$	226			$	894			$	897
Technology contract labor, net			12				12				16				55				72
Incentive compensation			105				79				87				337				318
Employee benefits			53				71				56				237				249
Stock-based compensation			13				10				8				44				35
Severance			2				7				5				24				38
Total personnel expense		$	409			$	405			$	398			$	1,591			$	1,609

---

KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 23

 

Loan Composition

(dollars in millions)

 

														Percent change 12-31-14 vs.
		12-31-14				9-30-14				12-31-13				9-30-14				12-31-13
Commercial, financial and agricultural (a)		$	27,982			$	26,683			$	24,963				4.9	%			12.1	%
Commercial real estate:
Commercial mortgage			8,047				8,276				7,720				(2.8	)			4.2
Construction			1,100				1,036				1,093				6.2				.6
Total commercial real estate loans			9,147				9,312				8,813				(1.8	)			3.8
Commercial lease financing (b)			4,252				4,135				4,551				2.8				(6.6	)
Total commercial loans			41,381				40,130				38,327				3.1				8.0
Residential — prime loans:
Real estate — residential mortgage			2,225				2,213				2,187				.5				1.7
Home equity:
Key Community Bank			10,366				10,380				10,340				(.1	)			.3
Other			267				283				334				(5.7	)			(20.1	)
Total home equity loans			10,633				10,663				10,674				(.3	)			(.4	)
Total residential — prime loans			12,858				12,876				12,861				(.1	)			—
Consumer other — Key Community Bank			1,560				1,546				1,449				.9				7.7
Credit cards			754				724				722				4.1				4.4
Consumer other:
Marine			779				828				1,028				(5.9	)			(24.2	)
Other			49				51				70				(3.9	)			(30.0	)
Total consumer other			828				879				1,098				(5.8	)			(24.6	)
Total consumer loans			16,000				16,025				16,130				(.2	)			(.8	)
Total loans (c), (d)		$	57,381			$	56,155			$	54,457				2.2	%			5.4	%

Loans Held for Sale Composition

(dollars in millions)

 

														Percent change 12-31-14 vs.
		12-31-14				9-30-14				12-31-13				9-30-14				12-31-13
Commercial, financial and agricultural		$	63			$	30			$	278				110.0	%			(77.3	)%
Real estate — commercial mortgage			638				725				307				(12.0	)			107.8
Commercial lease financing			15				10				9				50.0				66.7
Real estate — residential mortgage			18				19				17				(5.3	)			5.9
Total loans held for sale		$	734			$	784			$	611				(6.4	)%			20.1	%

Summary of Changes in Loans Held for Sale

(in millions)

 

		4Q14				3Q14				2Q14				1Q14				4Q13
Balance at beginning of period		$	784			$	435			$	401			$	611			$	699
New originations			2,465				1,593				978				645				1,669
Transfers from (to) held to maturity, net			2				—				(8	)			3				1
Loan sales			(2,516	)			(1,243	)			(934	)			(596	)			(1,750	)
Loan draws (payments), net			(1	)			(1	)			(2	)			(262	)			(8	)
Balance at end of period		$	734			$	784			$	435			$	401			$	611

 

(a)	Loan balances include $88 million, $90 million, and $94 million of commercial credit card balances at December 31, 2014, September 30, 2014, and December 31, 2013, respectively.

(b)

Commercial lease financing includes receivables of $302 million, $367 million, and $58 million held as collateral for a secured borrowing at December 31, 2014, September 30, 2014, and December 31, 2013, respectively. Principal reductions are based on the cash payments received from these related receivables.

(c)

At December 31, 2014, total loans include purchased loans of $138 million, of which $13 million were purchased credit impaired. At September 30, 2014, total loans include purchased loans of $143 million, of which $14 million were purchased credit impaired. At December 31, 2013, total loans include purchased loans of $166 million, of which $16 million were purchased credit impaired.

(d)	Total loans exclude loans of $2.3 billion at December 31, 2014, $2.4 billion at September 30, 2014, and $4.5 billion at December 31, 2013, related to the discontinued operations of the education lending business.

N/M = Not Meaningful

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 24

 

Exit Loan Portfolio From Continuing Operations

(in millions)

 

		Balance Outstanding								Change 12-31-14 vs. 9-30-14				Net Loan Charge-offs								Balance on Nonperforming Status
		12-31-14				9-30-14								4Q14 (b)				3Q14 (b)				12-31-14				9-30-14
Residential properties — homebuilder		$	10			$	11			$	(1	)			—			$	1			$	9			$	10
Marine and RV floor plan			7				7				—				—				—				5				5
Commercial lease financing (a)			967				1,046				(79	)		$	3				(1	)			1				1
Total commercial loans			984				1,064				(80	)			3				—				15				16
Home equity — Other			267				283				(16	)			—				1				10				10
Marine			779				828				(49	)			3				2				15				16
RV and other consumer			54				57				(3	)			(1	)			1				1				1
Total consumer loans			1,100				1,168				(68	)			2				4				26				27
Total exit loans in loan portfolio		$	2,084			$	2,232			$	(148	)		$	5			$	4			$	41			$	43
Discontinued operations — education lending business (not included in exit loans above)		$	2,295			$	2,375			$	(80	)		$	8			$	7			$	11			$	9

 

(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)	Credit amounts indicate recoveries exceeded charge-offs.

Asset Quality Statistics From Continuing Operations

(dollars in millions)

 

		4Q14				3Q14				2Q14				1Q14				4Q13
Net loan charge-offs		$	32			$	31			$	30			$	20			$	37
Net loan charge-offs to average total loans			.22	%			.22	%			.22	%			.15	%			.27	%
Allowance for loan and lease losses		$	794			$	804			$	814			$	834			$	848
Allowance for credit losses (a)			830				839				851				869				885
Allowance for loan and lease losses to period-end loans			1.38	%			1.43	%			1.46	%			1.50	%			1.56	%
Allowance for credit losses to period-end loans			1.45				1.49				1.53				1.57				1.63
Allowance for loan and lease losses to nonperforming loans			190.0				200.5				205.6				185.7				166.9
Allowance for credit losses to nonperforming loans			198.6				209.2				214.9				193.5				174.2
Nonperforming loans at period end (b)		$	418			$	401			$	396			$	449			$	508
Nonperforming assets at period end			436				418				410				469				531
Nonperforming loans to period-end portfolio loans			.73	%			.71	%			.71	%			.81	%			.93	%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets			.76				.74				.74				.85				.97

 

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

(b)	Loan balances exclude $13 million, $14 million, $15 million, $16 million, and $16 million of purchased credit impaired loans at December 31, 2014, September 30, 2014, June 30, 2014, March 31, 2014, and December 31, 2013, respectively.

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 25

 

Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)

 

		Three months ended												Twelve months ended
		12-31-14				9-30-14				12-31-13				12-31-14				12-31-13
Average loans outstanding		$	56,541			$	55,796			$	53,608			$	55,679			$	53,054
Allowance for loan and lease losses at beginning of period		$	804			$	814			$	868			$	848			$	888
Loans charged off:
Commercial, financial and agricultural			10				12				18				45				62
Real estate — commercial mortgage			3				—				2				6				20
Real estate — construction			1				2				1				5				3
Total commercial real estate loans			4				2				3				11				23
Commercial lease financing			4				1				2				10				27
Total commercial loans			18				15				23				66				112
Real estate — residential mortgage			3				2				7				10				20
Home equity:
Key Community Bank			8				9				12				37				62
Other			1				2				4				9				20
Total home equity loans			9				11				16				46				82
Consumer other — Key Community Bank			7				7				7				30				31
Credit cards			7				9				5				34				30
Consumer other:
Marine			5				4				7				23				29
Other			—				1				1				2				4
Total consumer other			5				5				8				25				33
Total consumer loans			31				34				43				145				196
Total loans charged off			49				49				66				211				308
Recoveries:
Commercial, financial and agricultural			6				6				9				33				39
Real estate — commercial mortgage			—				2				7				4				27
Real estate — construction			1				1				—				17				14
Total commercial real estate loans			1				3				7				21				41
Commercial lease financing			2				2				5				10				15
Total commercial loans			9				11				21				64				95
Real estate — residential mortgage			—				—				1				2				2
Home equity:
Key Community Bank			2				3				2				9				10
Other			1				1				1				5				6
Total home equity loans			3				4				3				14				16
Consumer other — Key Community Bank			2				1				2				6				7
Credit cards			—				—				—				1				3
Consumer other:
Marine			2				2				2				9				15
Other			1				—				—				2				2
Total consumer other			3				2				2				11				17
Total consumer loans			8				7				8				34				45
Total recoveries			17				18				29				98				140
Net loan charge-offs			(32	)			(31	)			(37	)			(113	)			(168	)
Provision (credit) for loan and lease losses			22				21				19				59				130
Foreign currency translation adjustment			—				—				(2	)			—				(2	)
Allowance for loan and lease losses at end of period		$	794			$	804			$	848			$	794			$	848
Liability for credit losses on lending-related commitments at beginning of period		$	35			$	37			$	40			$	37			$	29
Provision (credit) for losses on lending-related commitments			1				(2	)			(3	)			(1	)			8
Liability for credit losses on lending-related commitments at end of period (a)		$	36			$	35			$	37			$	36			$	37
Total allowance for credit losses at end of period		$	830			$	839			$	885			$	830			$	885
Net loan charge-offs to average total loans			.22	%			.22	%			.27	%			.20	%			.32	%
Allowance for loan and lease losses to period-end loans			1.38				1.43				1.56				1.38				1.56
Allowance for credit losses to period-end loans			1.45				1.49				1.63				1.45				1.63
Allowance for loan and lease losses to nonperforming loans			190.0				200.5				166.9				190.0				166.9
Allowance for credit losses to nonperforming loans			198.6				209.2				174.2				198.6				174.2
Discontinued operations — education lending business:
Loans charged off		$	11			$	10			$	13			$	45			$	55
Recoveries			3				3				4				14				18
Net loan charge-offs		$	(8	)		$	(7	)		$	(9	)		$	(31	)		$	(37	)

 

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

 

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 26

 

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(dollars in millions)

 

		12-31-14				9-30-14				6-30-14				3-31-14				12-31-13
Commercial, financial and agricultural		$	59			$	47			$	37			$	60			$	77
Real estate — commercial mortgage			34				41				38				37				37
Real estate — construction			13				14				9				11				14
Total commercial real estate loans			47				55				47				48				51
Commercial lease financing			18				14				15				18				19
Total commercial loans			124				116				99				126				147
Real estate — residential mortgage			79				81				89				105				107
Home equity:
Key Community Bank			185				174				178				188				205
Other			10				10				11				11				15
Total home equity loans			195				184				189				199				220
Consumer other — Key Community Bank			2				2				2				2				3
Credit cards			2				1				1				1				4
Consumer other:
Marine			15				16				15				15				26
Other			1				1				1				1				1
Total consumer other			16				17				16				16				27
Total consumer loans			294				285				297				323				361
Total nonperforming loans (a)			418				401				396				449				508
Nonperforming loans held for sale			—				—				1				1				1
OREO			18				16				12				12				15
Other nonperforming assets			—				1				1				7				7
Total nonperforming assets		$	436			$	418			$	410			$	469			$	531
Accruing loans past due 90 days or more		$	96			$	71			$	83			$	89			$	71
Accruing loans past due 30 through 89 days			235				340				274				267				318
Restructured loans — accruing and nonaccruing (b)			270				264				266				294				338
Restructured loans included in nonperforming loans (b)			157				137				142				178				214
Nonperforming assets from discontinued operations — education lending business			11				9				19				20				25
Nonperforming loans to period-end portfolio loans			.73	%			.71	%			.71	%			.81	%			.93	%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets			.76				.74				.74				.85				.97

 

(a)	Loan balances exclude $13 million, $14 million, $15 million, $16 million, and $16 million of purchased credit impaired loans at December 31, 2014, September 30, 2014, June 30, 2014, March 31, 2014, and December 31, 2013, 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 Fourth Quarter 2014 Profit

January 22, 2015

Page 27

 

Summary of Changes in Nonperforming Loans From Continuing Operations

(in millions)

 

		4Q14				3Q14				2Q14				1Q14				4Q13
Balance at beginning of period		$	401			$	396			$	449			$	508			$	541
Loans placed on nonaccrual status			103				109				79				98				129
Charge-offs			(49	)			(49	)			(56	)			(57	)			(66	)
Loans sold			(2	)			—				(21	)			(3	)			(19	)
Payments			(17	)			(13	)			(17	)			(21	)			(46	)
Transfers to OREO			(6	)			(7	)			(4	)			(3	)			(5	)
Loans returned to accrual status			(12	)			(35	)			(34	)			(73	)			(26	)
Balance at end of period (a)		$	418			$	401			$	396			$	449			$	508

 

(a)	Loan balances exclude $13 million, $14 million, $15 million, $16 million, and $16 million of purchased credit impaired loans at December 31, 2014, September 30, 2014, June 30, 2014, March 31, 2014, and December 31, 2013, respectively.

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

(in millions)

 

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

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

(in millions)

 

		4Q14				3Q14				2Q14				1Q14				4Q13
Balance at beginning of period		$	16			$	12			$	12			$	15			$	15
Properties acquired — nonperforming loans			6				7				4				3				5
Valuation adjustments			(2	)			(1	)			(1	)			(1	)			—
Properties sold			(2	)			(2	)			(3	)			(5	)			(5	)
Balance at end of period		$	18			$	16			$	12			$	12			$	15

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KeyCorp Reports Fourth Quarter 2014 Profit

January 22, 2015

Page 28

 

Line of Business Results

(dollars in millions)

 

																						Percent change 4Q14 vs.
		4Q14				3Q14				2Q14				1Q14				4Q13				3Q14				4Q13
Key Community Bank
Summary of operations
Total revenue (TE)		$	558			$	559			$	554			$	546			$	567				(.2	)%			(1.6	)%
Provision (credit) for loan and lease losses			11				31				23				9				32				(64.5	)			(65.6	)
Noninterest expense			449				437				445				440				468				2.7				(4.1	)
Net income (loss) attributable to Key			62				57				54				61				42				8.8				47.6
Average loans and leases			30,478				30,103				30,034				29,797				29,597				1.2				3.0
Average deposits			50,850				50,302				50,230				49,910				50,493				1.1				.7
Net loan charge-offs			28				28				33				28				31				—				(9.7	)
Net loan charge-offs to average total loans			.36	%			.37	%			.44	%			.38	%			.42	%			N/A				N/A
Nonperforming assets at period end		$	340			$	338			$	331			$	357			$	396				.6				(14.1	)
Return on average allocated equity			9.14	%			8.45	%			7.97	%			8.83	%			5.78	%			N/A				N/A
Average full-time equivalent employees			7,414				7,573				7,569				7,698				7,845				(2.1	)			(5.5	)
Key Corporate Bank
Summary of operations
Total revenue (TE)		$	458			$	395			$	390			$	386			$	405				15.9	%			13.1	%
Provision (credit) for loan and lease losses			4				(5	)			—				(1	)			(10	)			N/M				N/M
Noninterest expense			239				212				203				194				210				12.7				13.8
Net income (loss) attributable to Key			137				119				119				122				133				15.1				3.0
Average loans and leases			23,293				22,700				22,353				21,440				20,334				2.6				14.6
Average loans held for sale			855				481				429				429				668				77.8				28.0
Average deposits			18,074				17,310				16,042				15,714				17,286				4.4				4.6
Net loan charge-offs			(2	)			—				(2	)			(14	)			2				N/M				N/M
Net loan charge-offs to average total loans			(.03	)%			—				(.04	)%			(.26	)%			.04	%			N/A				N/A
Nonperforming assets at period end		$	41			$	20			$	22			$	53			$	55				105.0				(25.5	)
Return on average allocated equity			32.66	%			29.71	%			33.45	%			34.12	%			34.15	%			N/A				N/A
Average full-time equivalent employees			1,991				1,945				1,888				1,866				1,842				2.4				8.1

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