Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - KEYCORP /NEW/ | keycorp2q17earningsrelease.htm |
| 8-K - 8-K - KEYCORP /NEW/ | keycorp2q17er8-k.htm |
| EX-99.3 - EXHIBIT 99.3 - KEYCORP /NEW/ | keycorp2q17erex993.htm |
KeyCorp
Second Quarter 2017 Earnings Review
July 20, 2017
Beth E. Mooney
Chairman and
Chief Executive Officer
Don Kimble
Chief Financial Officer
FORWARD-LOOKING STATEMENTS AND ADDITIONAL
INFORMATION
This communication contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not
limited to, KeyCorp’s expectations or predictions of future financial or business performance or conditions. Forward-looking statements are typically
identified by words such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “plan,” “predict,” “project,” “forecast,”
“guidance,” “goal,” “objective,” “prospects,” “possible” or “potential,” by future conditional verbs such as “assume,” “will,” “would,” “should,” “could” or
“may”, or by variations of such words or by similar expressions. These forward-looking statements are subject to numerous assumptions, risks and
uncertainties, which change over time. Forward-looking statements speak only as of the date they are made and we assume no duty to update
forward-looking statements. Actual results may differ materially from current projections.
In addition to factors previously disclosed in KeyCorp’s reports filed with the SEC and those identified elsewhere in this communication, the following
factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: difficulties and delays
in integrating the First Niagara business or fully realizing cost savings and other benefits; changes in asset quality and credit risk; the inability to
sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer acceptance of KeyCorp’s products and
services; customer borrowing, repayment, investment and deposit practices; customer disintermediation; the introduction, withdrawal, success and
timing of business initiatives; competitive conditions; the inability to realize cost savings or revenues or to implement integration plans and other
consequences associated with mergers, acquisitions and divestitures; economic conditions; and the impact, extent and timing of technological
changes, capital management activities, and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms.
Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.
This presentation also includes certain non-GAAP financial measures related to “tangible common equity,” “Common Equity Tier 1,” “pre-provision net
revenue,” “cash efficiency ratio,” and certain financial measures excluding notable items, including merger-related charges. Management believes
these measures may assist investors, analysts and regulators in analyzing Key’s financials. Although Key has procedures in place to ensure that
these measures are calculated using the appropriate GAAP or regulatory components, they have limitations as analytical tools and should not be
considered in isolation, or as a substitute for analysis of results under GAAP. For more information on these calculations and to view the
reconciliations to the most comparable GAAP measures, please refer to the appendix of this presentation or page 89 of our Form 10-Q dated March
31, 2017.
GAAP: Generally Accepted Accounting Principles
2
3
Investor Highlights – 2Q17
Positive
Operating
Leverage
Strong Risk
Management
Disciplined
Capital
Management
Increased common dividend by 12%
Repurchased $94 MM in common shares(c)
No objection from the Federal Reserve on 2017
capital plan, which includes:
− Two common share dividend increases (up 11% in
4Q17 and an additional 14% in 2Q18, to $.12), subject
to Board approval
− Common share repurchase program of up to $800 MM
Maintained credit discipline, strong asset quality
NCOs to average loans of .31%
Nonperforming loans down 12% from 1Q17;
.59% of PE loans
Positive operating leverage vs. PY (+10%)(a) and
PQ (+2%)(a)
Revenue growth reflects core business
momentum and value from the First Niagara
acquisition
Achieved $400 MM in cost savings
Cash efficiency ratio improved to 59%(a); ROTCE
of 13%(a)
(a) Non-GAAP measure and excludes notable items (one-time gain in merchant services, purchase accounting finalization, merger-related charges and charitable
contribution in 2Q17; merger-related charges in prior periods); see Appendix for detail on merger-related charges and reconciliations
(b) Non-GAAP measure: see Appendix for reconciliation
(c) Common share repurchase amount includes repurchases to offset issuances of common shares under our employee compensation plans
59.4%
12.9%
2Q17 Notable Items
$ millions Pre-tax Impact
Merchant services gain $ 64
Purchase accounting finalization 43
Merger-related charges (44)
Charitable contribution (20)
Net impact of $43 MM, or $0.02 per share
59.3%
13.8%
Reported(b) Adjusted for Notable Items(a)
Y
o
Y
O
p
e
r
a
t
i
n
g
L
e
v
e
r
a
g
e
C
a
s
h
E
f
f
i
c
i
e
n
c
y
R
O
T
C
E
+10%+20%
First Niagara
Drivers of 2Q Results and Recent Investments
4
• Strong client retention and deposit growth
• Achieved $400 MM in cost savings
− Plans to achieve incremental $50 MM by early 2018
• Progress on revenue synergies
− Commercial mortgage banking, payments,
residential mortgage
Fee-based Businesses
• Investment banking and debt placement fees: record
$575 MM (TTM)
• Cards and payments income: record $270 MM (TTM)
Merchant Services
• Repositioned merchant services business
− Acquired remaining ownership from joint venture
− Expands and deepens client base
− Improves client experience
Financial Wellness: HelloWallet
• Acquired industry-leading personal finance software
platform, a core component of Key’s financial
wellness offering
− Promotes and strengthens ability to support clients’
financial wellness
− Provides enhanced client insights and an improved
ability to tailor recommendations
$353
$575
2Q14 2Q15 2Q16 2Q17
Investment Banking & Debt Placement Fees
(TTM)
TTM = Trailing twelve months
$400
million
First Niagara
cost savings
achieved
$164
$270
2Q14 2Q15 2Q16 2Q17
Cards & Payments Income
(TTM)
3-yr. CAGR: +18%
Investments in talent, products and capabilities driving growth
3-yr. CAGR: +18%
5
Financial Review
64.8% 64.9%
63.3%
60.4% 59.4%
2Q16 3Q16 4Q16 1Q17 2Q17
6
Financial Highlights
EOP = End of Period
(a) Non-GAAP measure: see Appendix for reconciliation
(b) Notable items include one-time gain in merchant services, purchase
accounting finalization, merger-related charges and charitable
contribution in 2Q17 and merger-related charges in prior periods; see
Appendix for detail on merger-related charges
EPS – assuming dilution $ .36 $ .27 $ .23 33 % 57 %
Impact of notable items(a),(b) on EPS .02 (.05) (.04)
Cash efficiency ratio(a) 59.3 % 65.8 % 69.0 % (650) bps (970) bps
Cash efficiency –excl. notable items(a), (b) 59.4 60.4 64.8 (100) (540)
Return on average tangible common equity 13.80 10.98 7.94 282 586
ROTCE – excl. notable items(a), (b) 12.86 12.87 9.09 (1) 377
Common Equity Tier 1(a), (d) 9.97 % 9.91 % 11.10 % 6 bps (113) bps
Tier 1 risk-based capital(d) 10.79 10.74 11.41 5 (62)
Tangible common equity to tangible assets(a) 8.56 8.51 9.95 5 (139)
NCOs to average loans .31 % .27 % .28 % 4 bps 3 bps
NPLs to EOP portfolio loans(e) .59 .67 1.00 (8) (41)
Allowance for loan and lease losses to EOP loans 1.01 1.01 1.38 - (37)
Capital(c)
Asset
Quality
Profitability
Continuing operations, unless otherwise noted 2Q17 1Q17 2Q16 LQ ∆ Y/Y ∆
(c) From consolidated operations
(d) 6-30-17 ratios are estimated
(e) Nonperforming loan balances exclude $835 million, $812 million, and $11 million of
purchased credit impaired loans at June 30, 2017, March 31, 2017, and June 30,
2016, respectively
Cash Efficiency Ratio(a)
excl. notable items(b)
9.1%
11.1%
12.5% 12.9% 12.9%
2Q16 3Q16 4Q16 1Q17 2Q17
ROTCE(a)
excl. notable items(b)
0.28%
0.23%
0.34%
0.27% 0.31%
2Q16 3Q16 4Q16 1Q17 2Q17
NCOs to Avg. Loans
$0
$30
$60
$90
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
$10
$20
$30
$40
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
7
Loans
$ in billions
Average Commercial & Industrial Loans
Total Average Loans
ConsumerCommercial
$ in billions
vs. Prior Year
Highlights
Average loans up 41% from 2Q16
– Growth primarily reflects impact of FNFG
– C&I continues to be a driver
$87
$61
$33
$41
vs. Prior Quarter
Average loans up .4% from 1Q17
C&I growth (+2%) more than offset lower
consumer loan balances
– Strength in middle market lending
– Consumer loans primarily reflect continued
decline in the home equity portfolio
Average deposit balances up .7% from 1Q17
– Core deposit growth in CDs, NOW and
MMDA, partially offset by a decline in
escrow deposits
$30.7
$54.4
$6.9
$10.8
.00%
.10%
.20%
.30%
.40%
.50%
.60%
.70%
$25
$45
$65
$85
$105
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
8
2Q17 Average Deposit Mix
Average deposit growth of 39% from 2Q16
– Growth primarily reflects impact of FNFG
– Core retail and commercial deposit growth
Average Deposits(a)
(a) Excludes deposits in foreign office
(b) Consumer includes retail banking, small business, and private banking
Cost of total deposits(a)
CDs and other time deposits
Savings
Noninterest-bearing
NOW and MMDA
Total average deposits(a)
Highlights
Deposits
$ in billions
$ in billions
vs. Prior Year
vs. Prior Quarter
$103
60%
40%
Commercial and corporate
Consumer(b)
$74
.19%
.26%
Deposit cost up 3 bps from 1Q17
– Contractual commercial rate increases
– Growth in higher-yielding deposit products
$92
2.76%
3.30%
2.97%
2.0%
2.5%
3.0%
3.5%
4.0%
$0
$200
$400
$600
$800
$1,000
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
NIM Change vs. Prior Quarter 1Q17: 3.13%
PAA finalization .14
Higher earning asset yields .06
PAA (2Q vs. 1Q) .01
Funding cost (.03)
Loan fees (.01)
Total change .17
2Q17: 3.30%
Net interest income up $11 MM from 1Q17, excl. PAA
– Reflects higher earning asset yields, offset by
funding cost and loan fees
9TE = Taxable equivalentPAA = Purchase accounting accretion
(a) 3Q16 Net interest income included $6 million of merger-related charges; see Appendix for detail on merger-related charges
Net interest income (TE), excl. PAA NIM (TE)
2Q17 net interest income includes $42 MM, or 14 bps,
related to purchase accounting finalization
Excluding impact of PAA, 2Q17 net interest income
was $887 MM and net interest margin was 2.97%
Net interest income up $282 MM from 2Q16, excl. PAA
– Largely driven by the impact of FNFG, and higher
earnings asset yields and balances
Net Interest Income and Margin
Net Interest Income & Net Interest Margin Trend (TE) Highlights
$ in millions; continuing operations
vs. Prior Year
vs. Prior Quarter
Purchase accounting accretion (PAA)
$605
$987
(a)
NIM (TE); excl. PAAx
$53 $100
$19
2Q16 3Q16 4Q16 1Q17 2Q17
NIM – reported 2.76% 2.85% 3.12% 3.13% 3.30%
PAA - .06 .19 .18 .19
PAA refinement/ finalization - - .11 - .14
NIM – excl. PAA 2.76 2.79 2.82 2.95 2.97
NII – reported ($MM) $ 605 $ 788 $ 948 $ 929 $ 987
PAA - 19 58 53 58
PAA refinement/ finalization - - 34 - 42
$37 MM related to contractual maturities;
$21 MM related to prepayments
FNFG loan mark at 6/30/17: $345 MM ($274 MM purchased
performing, $71 MM purchased credit impaired)
Purchased credit impaired accretable yield at 6/30/17: $137 MM
10
Noninterest Income
Noninterest Income
$ in millions Up / (Down) 2Q17 vs. 2Q16 vs. 1Q17
Trust and investment services income $ 134 $ 24 $ (1)
Investment banking and debt
placement fees
135 37 8
Service charges on deposit accounts 90 22 3
Operating lease income and other
leasing gains
30 12 7
Corporate services income 55 2 1
Cards and payments income 70 18 5
Corporate-owned life insurance 33 5 3
Consumer mortgage income 6 3 -
Mortgage servicing fees 15 5 (3)
Net gains (losses) from principal
investing
- (11) (1)
Other income 85 63 54
Total noninterest income $ 653 $ 180 $ 76
Notable items(a) 61 61 61
Total noninterest income, excluding
notable items(b)
$ 592 $ 119 $ 15
Highlights
Noninterest income up $119 MM from 2Q16, excl.
notable items(a),(b)
‒ Reflects the impact of FNFG, as well as
business momentum
‒ Strength in investment banking and debt
placement fees from higher commercial
mortgage banking, underwriting and
advisory fees
Noninterest income up $15 MM from 1Q17, excl.
notable items(a),(b)
‒ Continued growth in fee-based businesses,
including investment banking and debt
placement fees and cards and payments
income
‒ Higher operating lease income and other
leasing gains
(a) Notable items include $64 MM one-time gain in merchant services and $(3) MM associated with purchase accounting finalization
(b) Non-GAAP measure
vs. Prior Year
vs. Prior Quarter
2Q17 notable items of $61 MM include: $64 MM
one-time gain in merchant services and $(3) MM
associated with purchase accounting finalization
$ in millions Up / (Down) 2Q17 vs. 2Q16 vs. 1Q17
Personnel $ 551 $ 124 $ (5)
Net occupancy 78 19 (9)
Computer processing 55 10 (5)
Business services, professional fees 45 5 (1)
Equipment 27 6 -
Operating lease expense 21 7 2
Marketing 30 8 9
FDIC assessment 21 13 1
Intangible asset amortization 22 15 -
OREO expense, net 3 1 1
Other expense 142 36 (11)
Total noninterest expense $ 995 $ 244 $ (18)
Merger-related charges(a) 44 (1) (37)
Other notable items(a) 16 16 16
Total noninterest expense, excluding
notable items(a),(c) $ 935 $ 229 $ 3
11
Noninterest Expense
Noninterest Expense
(a) Notable items of $60 MM in 2Q17 (merger-related charges, charitable contribution and purchase accounting finalization), $45 MM in 2Q16
(merger-related charges) and $81 MM in 1Q17 (merger-related charges); see Appendix for detail on merger-related charges
(b) Charitable contribution and the impact from finalization of purchase accounting in other expense
(c) Non-GAAP measure
Highlights
Noninterest expense up $229 MM, excl. notable
items(a),(c)
– Primarily reflects impact of FNFG
– Higher incentive compensation (stronger capital
markets performance)
vs. Prior Year
vs. Prior Quarter
Notable items:
Achieved $400 MM of annual run rate cost savings
Noninterest expense up $3 MM, excl. notable
items(a),(c)
– Reflects normal seasonal trends, including
increased marketing
$ in millions 2Q17 2Q16 1Q17
Merger-related charges $44 $45 $81
Charitable contribution(b) 20
Purchase accounting finalization(b) (4)
$60 $45 $81
$43
$66
$52
$66
.28% .31%
.00%
.20%
.40%
.60%
.80%
1.00%
$0
$30
$60
$90
$120
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
$619
$507
1.00% .59%
.00%
.40%
.80%
1.20%
1.60%
2.00%
$0
$200
$400
$600
$800
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
12
Nonperforming Loans(a)
Net Charge-offs & Provision for Credit Losses
NPLs NPLs to period-end loans
NCOs Provision for credit
losses
NCOs to average loans
$ in millions
Credit Quality
Highlights
Portfolios continue to perform well
Net loan charge-offs of $66 MM
– 31 basis points of average loans, below
targeted range
Nonperforming loans down 12% from 1Q17 and
represent 59 bps of period-end loans
Allowance for Loan and Lease Losses
Allowance for loan and
lease losses to NPLs
Allowance for loan
and lease losses
$ in millions
$854 $870
138%
172%
0%
50%
100%
150%
200%
250%
$600
$700
$800
$900
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
$ in millions
(a) Nonperforming loan balances exclude $835 million, $812 million, and $11 million of purchased credit impaired loans at June 30, 2017, March 31, 2017, and June
30, 2016, respectively
13
Strong capital position with Common Equity
Tier 1 ratio of 9.97%(b) at 6/30/17
Increased common dividend 12% in 2Q17
Repurchased $94 MM(c) in common shares during
2Q17
No objection from the Federal Reserve on 2017
capital plan, which includes:
− Two common share dividend increases (4Q17 and
2Q18), subject to Board approval
− Common share repurchase program of up to $800 MM
Tangible Common Equity to Tangible Assets(a)
Highlights
(a) Non-GAAP measure: see Appendix for reconciliation
(b) 6-30-17 figures are estimated
(c) Common share repurchase amount includes repurchases to offset issuances of common shares under our employee compensation plans
11.10%
9.97%
6.00%
8.00%
10.00%
12.00%
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
9.95%
8.56%
0.00%
2.50%
5.00%
7.50%
10.00%
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
Common Equity Tier 1(a), (b)
Capital
Outlook and Expectations
Average Balance
Sheet
• Loans: low-end of $87.0 B - $88.0 B range for FY17 average balances
• Deposits: FY17 average balances in the range of $102.5 B - $103.0 B
Net Interest Income
• Net interest income expected to be in the range of $3.8 B - $3.9 B
– Reflects consistent decline in purchase accounting accretion (approx. $100 MM remaining in 2H17)
• Outlook includes no additional rate increases in 2017
Noninterest Income • Expected to be in the range of $2.35 B - $2.45 B
Noninterest
Expense
• Expected to be in the range of $3.7 B - $3.8 B
– Includes impact of merchant services and HelloWallet
Credit Quality • Net charge-offs to average loans below targeted range of 40 – 60 bps
• Provision expected to slightly exceed net charge-offs to provide for loan growth
Taxes • GAAP tax rate in the range of 26% - 28%
14(a) Guidance provided does not include merger-related charges
FY 2017(a)
Positive operating
leverage
Long-term Targets
Cash efficiency ratio:
<60%
Moderate risk profile:
Net charge-offs to avg. loans
targeted range of 40-60 bps
ROTCE:
13-15%
15
Appendix
2Q17 1Q17 4Q16 3Q16 2Q16 1Q16 4Q15
Net interest income - - - $ (6) - - -
Operating lease income and other leasing
gains
- - - $ (2) - - -
Other income - - $ 9 (10) - - -
Noninterest income - - $ 9 $ (12) - - -
Personnel expense $ 31 $ 30 $ 80 $ 97 $ 35 $ 16 -
Net Occupancy $ (1) $ 5 $ 29 - - - -
Business services and professional fees 6 5 22 $ 32 $ 5 $ 7 $ 5
Computer processing 2 5 38 15 - - -
Marketing 6 6 13 9 3 1 -
All other non-personnel - 30 25 36 2 - 1
Total non-personnel expense $ 13 $ 51 $ 127 $ 92 $ 10 $ 8 $ 6
Total merger-related charges $ 44 $ 81 $ 198 $ 207 $ 45 $ 24 $ 6
EPS impact $ (.03) $ (.05) $ (.11) $ (.14) $ (.04) $ (.02) -
16
FNFG Merger-related Charges
$ in millions
Increase / (Decrease)
Agriculture Automotive
Business Products
Business Services
Construction
Consumer
Discretionary
Consumer
Services
Equipment
Finance
Healthcare
Materials/
ExtractionMedia
Oil & Gas
Other
Public Sector
Real Estate
Technology
Transportation
Utilities
17
Loan Portfolio Detail, at 6/30/17
Commercial LoansTotal Loans
C&I
$40
CRE
$18
Outstanding
Balances
Average
Loan Size
Average
FICO
2008/
prior
vintage
First lien $ 7,356 59 % $ 72,576 773 22 %
Second lien 5,049 41 46,407 769 38
Total home equity $ 12,405
Fixed
44%Variable56%
Combined weighted-average LTV at
origination: 71%
$875 million in lines outstanding (7% of the
total portfolio) come to end of draw period
by 4Q19
Commercial Real Estate
Diversified Portfolio by Industry
Focused on relationships with CRE
owners
Aligned with targeted industry verticals
Primarily commercial mortgage;
selective approach to construction
Criticized non-accruals: 0.2% of period-
end balances(a)
6/30/2007 6/30/2017
Commercial mortgage
Construction
51% 87%
Home Equity
$ in billions 6/30/17 % of total
loans
Commercial and industrial $ 40.9 47
Commercial real estate 17.0 20
Commercial lease financing 4.7 5
Total Commercial $ 62.6 72
Residential mortgage $ 5.5 6
Home equity 12.4 14
Consumer direct 1.8 2
Credit card 1.0 1
Consumer indirect 3.1 4
Total Consumer $ 23.9 28
Total commercial loans:
Tables may not foot due to rounding
(a) Loan and lease outstandings; excludes purchase credit impaired loans from the First Niagara acquisition
18
Average Total Investment Securities Highlights
Average AFS securities
Investment Portfolio
Portfolio composed primarily of GNMA and GSE-
backed MBS and CMOs; primarily fixed rate
Continue to position portfolio for regulatory
liquidity requirements:
– Reinvesting cash flows into High Quality
Liquid Assets, including GNMA securities
(49% of 2Q17 average balances)
Portfolio used for funding and liquidity
management
– Securities cash flows of $1.4 billion in
2Q17 and $1.5 billion in 1Q17
– Reinvested all of 2Q17 cash flows
Average portfolio life at 6/30/17 of 4.2 years
(4.3 years at 3/31/17)
(a) Yield is calculated on the basis of amortized cost
(b) Includes end-of-period held-to-maturity and available-for-sale securities
Average yield(a)
Average HTM securities
2.06%
.00%
1.00%
2.00%
3.00%
4.00%
5.00%
$0.0
$10.0
$20.0
$30.0
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
$28.5
$ in billions
Securities to Total Assets(b)
19%
21%
10%
15%
20%
25%
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
$19.2
2.02%
Interest Rate Risk Management
Naturally Asset Sensitive Balance Sheet
with Relatively Short Duration(a)
Actively Managing Rate Risk
$15.8
$19.2$9.2
$9.2
Size of swap
portfolio:
Modeled asset
sensitivity : 1-3%
(b) 0%6-8%(b)
$9.2
Loans
1-mo.
Libor: 44%
Fixed:
31%
Deposits
Flexibility to adjust rate sensitivity for changes in balance sheet
growth/mix as well as interest rate outlook
Debt
hedges
A/LM
hedges
Noninterest-
bearing: 31%
Interest-bearing,
non-time: 59%
CDs:
11%
• Key manages interest rate risk through security purchases,
debt issuance, and the use of swaps
• Swaps modify the rate characteristics of assets and liabilities
- $15.8 B of swaps for A/L management with 1.8 year WAM
- $9.2 B of debt hedges
• Modestly asset sensitive(b)
- NII impact of 1%-3% for a 200 bps increase over 12 months
Reflects a beta of 0% - 55% for deposit repricing for the
first 25 bps change in rates and ~55% for the next 175 bps
Assumes replacement of swaps and securities cash flows
6/30/17
Swaps
($ in B)
6/30/17
Notional
Amt.
Wtd. Avg.
Maturity
(Yrs.)
Receive
Rate
Pay
Rate
A/L Management (receive
fixed / pay variable)
$ 15.8 1.8 1.1% 1.1%
Debt 9.2 2.9 1.6 1.1
$ 25 2.2 1.3% 1.1%
$25 B
19
(a) Loan, deposit and investment portfolio balances reflect 6-30-17 period-end balances
(b) Simulation analysis for net interest income is described in Figure 34 of Key’s 2016 Form 10-K
3-mo.
Libor:
6%
Prime:
15%
Other
variable:
4%
Utilize Swaps to Achieve and
Adjust Modest Asset Sensitivity
• A/LM hedges aligned to floating rate LIBOR-based loans
• Short weighted average maturity of A/LM swaps
- Provides flexibility to reprice and adjust overall sensitivity
- Fairly even pace of maturities ($2.8 B remaining in 2017)
• Replacement swaps reflect forward curve at time of origination
Investment
Portfolio
Primarily fixed rate
Average life: 4.2 yrs
2Q17 cash flows: $1.4 B
AFS: 63%
HTM: 37%
$29 B
$87 B $103 B
$9.2 B
$28.4 B
20
Credit Quality Trends
Criticized Outstandings(a) to Period-end Total LoansDelinquencies to Period-end Total Loans
(a) Loan and lease outstandings; excludes purchase credit impaired loans from the First Niagara acquisition
(b) From continuing operations
(c) Nonperforming loan balances exclude $835 million, $812 million, $865 million, $959 million, and $11 million of purchased credit impaired loans
at June 30, 2017, March 31, 2017, December 31, 2016, September 30, 2016, and June 30, 2016, respectively
30 – 89 days delinquent 90+ days delinquent
.33%
.39%
.11%
.10%
.00%
.25%
.50%
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
3.6%
3.1%
.0%
2.0%
4.0%
6.0%
3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17
Metric(b) 2Q17 1Q17 4Q16 3Q16 2Q16
Delinquencies to EOP total loans: 30-89 days .39 % .36 % .47 % .37 % .33 %
Delinquencies to EOP total loans: 90+ days .10 .09 .10 .06 .11
NPLs to EOP portfolio loans(c) .59 .67 .73 .85 1.00
NPAs to EOP portfolio loans + OREO + Other NPAs(c) .64 .72 .79 .89 1.03
Allowance for loan losses to period-end loans 1.01 1.01 1.00 1.01 1.38
Allowance for loan losses to NPLs 171.6 151.8 137.3 119.6 138.0
Continuing operations Continuing operations
Period-
end loans
Average
loans
Net loan
charge-
offs
Net loan
charge-offs(b) /
average loans
(%)
Nonperforming
loans(c)
Ending
allowance(d)
Allowance /
period-end
loans(d) (%)
Allowance /
NPLs
(%)
6/30/17 2Q17 2Q17 2Q17 6/30/17 6/30/17 6/30/17 6/30/17
Commercial and industrial(a) $ 40,914 $ 40,666 $ 38 .37% $ 178 $ 528 1.29% 296.63%
Commercial real estate:
Commercial Mortgage 14,813 15,096 3 .08 34 144 .97 423.53
Construction 2,168 2,204 - - 4 28 1.29 700.00
Commercial lease financing(e) 4,737 4,690 1 .09 11 40 .84 363.64
Real estate – residential mortgage 5,517 5,509 3 .22 58 9 .16 15.52
Home equity 12,405 12,473 4 .13 208 42 .34 20.19
Credit cards 1,049 1,044 10 3.84 2 44 4.19 N/M
Consumer direct loans 1,755 1,743 6 1.38 2 25 1.42 N/M
Consumer indirect loans 3,145 3,077 1 .13 10 10 .32 100.00
Continuing total(f) $ 86,503 $ 86,502 $ 66 .31% $ 507 $ 870 1.01% 171.60%
Discontinued operations 1,436 1,459 2 .55 5 21 1.46 420.00
Consolidated total $ 87,939 $ 87,961 $ 68 .31% $ 512 $ 891 1.01% 174.02%
Credit Quality by Portfolio
Credit Quality
$ in millions
21
(a) 6-30-17 ending loan balance includes $118 million of commercial credit card balances; average loan balance includes $117 million of assets from
commercial credit cards
(b) Net loan charge-off amounts are annualized in calculation
(c) 6-30-17 NPL amount excludes $835 million of purchased credit impaired loans
(d) 6-30-17 allowance by portfolio is estimated
(e) Commercial lease financing includes receivables held as collateral for a secured borrowing of $47 million at June 30, 2017. Principal reductions are
based on the cash payments received from these related receivables.
(f) 6-30-17 ending loan balance includes purchased loans of $17.8 billion, of which $835 million were purchased credit impaired
N/M = Not meaningful
GAAP to Non-GAAP Reconciliation
22
(a) For the three months ended June 30, 2017, March 31, 2017, and June 30, 2016, intangible assets exclude $33 million, $38 million, and $36 million, respectively,
of period-end purchased credit card receivables
(b) Net of capital surplus.
(c) June 30, 2017, amount is estimated.
Three months ended
6-31-17 3-31-17 6-30-16
Tangible common equity to tangible assets at period end
Key shareholders' equity (GAAP) $15,253 $14,976 11,313$
Less: Intangible assets (a) 2,866 2,751 1,074
Preferred Stock (b) 1,009 1,009 281
Tangible common equity (non-GAAP) $11,378 $11,216 9,958$
Total assets (GAAP) $135,824 $134,476 101,150$
Less: Intangible assets (a) 2,866 2,751 1,074
Tangible common equity to tangible assets ratio (non-GAAP) $132,958 $131,725 100,076$
Tangible common equity to tangible assets ratio (non-GAAP) 8.56% 8.51% 9.95%
Common Equity Tier 1 at period end
Key shareholders' equity (GAAP) $15,253 $14,976 11,313$
Less: Preferred Stock (b) 1,009 1,009 281
Common Equity Tier 1 capital before adjustments and deductions 14,244 13,967 11,032
Less: Goodwill, net of deferred taxes 2,417 2,379 1,031
Intangible assets, net of deferred taxes 252 194 30
Deferred tax assets 11 11 1
Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes (144) (179) 129
Accumulated gains (losses) on cash flow hedges, net of deferred taxes (64) (76) 77
Amounts in accumulated other comprehensive income (loss) attributed to pension and
postretirement benefit costs, net of deferred taxes (334) (335) (362)
Total Common Equity Tier 1 capital (c) 12,106$ 11,973$ 10,126$
Net risk-weighted assets (regulatory) (c) 121,484$ 120,852$ 91,195$
Common Equity Tier 1 ratio (non-GAAP) (c) 9.97% 9.91% 11.10%
Notable Items
Merger-related charges (44)$ (81)$ (45)$
Unwind of merchant services joint venture 64 - -
Purchase accounting refinement, net 43 - -
Charitable contribution (20) - -
Total notable items 43$ (81)$ (45)$
Income taxes 16 (30) (17)
Total notable items after tax 27$ (51)$ (28)$
Pre-provision net revenue excluding notable items
Net interest income (GAAP) 973$ 918$ 597$
Plus: Taxable-equivalent adjustment 14 11 8
Noninterest income 653 577 473
Less: Noninterest expense 995 1,013 751
Pre-provision net revenue from continuing operations 645$ 493$ 327$
Plus: Notable items (43) 81 45
Pre-provision net revenue from continuing operations excluding notable items (non-GAAP) 602$ 574$ 372$
$ in millions
Three months ended
6-30-17 3-31-17 12-31-16 9-30-16 6-30-16
Average tangible common equity
Average Key shareholders' equity (GAAP) 15,200$ 15,184$ 14,901$ 13,552$ 11,147$
Less: Intangible assets (average) (a) 2,756 2,772 2,874 2,255 1,076
Preferred Stock (average) 1,025 1,480 1,274 648 290
Average tangible common equity (non-GAAP) 11,419$ 10,932$ 10,753$ 10,649$ 9,781$
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP) 393$ 296$ 213$ 165$ 193$
Plus: Notable items, after tax (27) 51 124 132 28
Net income (loss) from continuing operations attributable to Key common shareholders excl. notable items 366$ 347$ 337$ 297$ 221$
Average tangible common equity (non-GAAP) 11,419 10,932 10,753 10,649 9,781
Return on average tangible common equity from continuing operations (non- GAAP) 13.80% 10.98% 7.88% 6.16% 7.94%
Return on average tangible common equity from continuing operations excl. notable items (non- GAAP) 12.86% 12.87% 12.47% 11.22% 9.09%
Cash efficiency ratio
Noninterest expense (GAAP) 995$ 1,013$ 1,220$ 1,082$ 751$
Less: Intangible asset amortization 22 22 27 13 7
Adjusted noninterest expense (non-GAAP) 973$ 991$ 1,193$ 1,069$ 744$
Less: Notable items (b) 60 81 207 189 45
Adjusted noninterest expense excluding notable items (non-GAAP) 913$ 910$ 986$ 880$ 699$
Net interest income (GAAP) 973$ 918$ 938$ 780$ 597$
Plus: Taxable-equivalent adjustment 14 11 10 8 8
Noninterest income 653 577 618 549 473
Total taxable-equivalent revenue (non-GAAP) 1,640$ 1,506$ 1,566$ 1,337$ 1,078$
Plus: Notable items (c) (103) - (9) 18 -
Adjusted total taxable-equivalent revenue excl. notable items (non-GAAP) 1,537$ 1,506$ 1,557$ 1,355$ 1,078$
Cash efficiency ratio (non-GAAP) 59.3% 65.8% 76.2% 80.0% 69.0%
Cash efficiency ratio excluding notable items (non-GAAP) 59.4% 60.4% 63.3% 64.9% 64.8%
Change 2Q17 vs.
Operating Leverage excluding notable items 2Q17 1Q17 2Q16 1Q17 2Q16
Total revenue (TE) 1,640$ 1,506$ 1,078$
Less: Notable items (c) 103 - -
Total revenue (TE) excluding notable items 1,537 1,506$ 1,078$ 2.1% 42.6%
Noninterest expense 995$ 1,013$ 751$
Less: Notable items (b) 60 81 45
Noninterest expense excluding notable items 935$ 932$ 706$ .3% 32.4%
Operating leverage excluding notable items (non-GAAP) (d) 1.8% 10.2%
Three months ended
GAAP to Non-GAAP Reconciliation (continued)
23
(a) For the three months ended June 30, 2017, March 31, 2017, and June 30, 2016, average intangible assets exclude $36 million, $40 million, and $38 million, respectively, of average
purchased credit card receivables
(b) Notable items for the three months ended June 30, 2017, includes $44 million of merger-related expense, $20 million charitable contribution, and a credit of $4 million related to
purchase accounting finalization; notable items in prior periods are comprised of merger-related charges
(c) Notable items for the three months ended June 30, 2017, includes $64 million related to the merchant services gain and $39 million related to purchase accounting finalization; notable
items in prior periods are comprised of merger-related charges
(d) Operating leverage excluding notable items is calculated as the difference in the change in total revenue (TE) excluding notable items from the change in noninterest expense excluding
notable items
$ in millions