KEYCORP /NEW/ - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - 8-K - KEYCORP /NEW/	keycorp2q17er8-k.htm
EX-99.3 - EXHIBIT 99.3 - KEYCORP /NEW/	keycorp2q17erex993.htm
EX-99.2 - EXHIBIT 99.2 - KEYCORP /NEW/	key2q17confcallslidesvf.htm

NEWS

FOR IMMEDIATE RELEASE

KEYCORP REPORTS SECOND QUARTER 2017 NET INCOME OF $393 MILLION,

OR $.36 PER COMMON SHARE

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

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

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

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

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

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

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

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

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

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July 20, 2017

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Selected Financial Highlights

dollars in millions, except per share data											Change 2Q17 vs.
		2Q17			1Q17			2Q16			1Q17		2Q16
Income (loss) from continuing operations attributable to Key common shareholders		$	393		$	296		$	193		32.8	%	103.6	%
Income (loss) from continuing operations attributable to Key common shareholders per common share — assuming dilution		.36			.27			.23			33.3		56.5
Return on average total assets from continuing operations		1.23		%	.99		%	.82		%	N/A		N/A
Common Equity Tier 1 ratio (non-GAAP)^{(a), (b)}		9.97			9.91			11.10			N/A		N/A
Book value at period end		$	13.02		$	12.71		$	13.08		2.4	%	(.5	)%
Net interest margin (TE) from continuing operations		3.30		%	3.13		%	2.76		%	N/A		N/A


(a)	The table entitled “GAAP to Non-GAAP Reconciliations” in the attached financial supplement presents the computations of certain financial measures related to “Common Equity Tier 1.” The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the Regulatory Capital Rules, see the “Capital” section of this release.
(b)	6/30/2017 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable



INCOME STATEMENT HIGHLIGHTS

Revenue

dollars in millions							Change 2Q17 vs.
	2Q17		1Q17		2Q16		1Q17		2Q16
Net interest income (TE)	$	987	$	929	$	605	6.2	%	63.1	%
Noninterest income	653		577		473		13.2	%	38.1	%
Total revenue	$	1,640	$	1,506	$	1,078	8.9	%	52.1	%

TE = Taxable Equivalent; N/M = Not Meaningful

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

Taxable-equivalent net interest income was $987 million for the second quarter of 2017, and the net interest margin was 3.30%, compared to taxable-equivalent net interest income of $605 million and a net interest margin of 2.76% for the second quarter of 2016, reflecting benefit from the First Niagara

acquisition, including purchase accounting accretion, as well as higher earning asset yields and balances.

Compared to the first quarter of 2017, taxable-equivalent net interest income increased by $58

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

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

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July 20, 2017

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Noninterest Income

dollars in millions							Change 2Q17 vs.
	2Q17		1Q17		2Q16		1Q17		2Q16
Trust and investment services income	$	134	$	135	$	110	(.7	)%	21.8	%
Investment banking and debt placement fees	135		127		98		6.3		37.8
Service charges on deposit accounts	90		87		68		3.4		32.4
Operating lease income and other leasing gains	30		23		18		30.4		66.7
Corporate services income	55		54		53		1.9		3.8
Cards and payments income	70		65		52		7.7		34.6
Corporate-owned life insurance income	33		30		28		10.0		17.9
Consumer mortgage income	6		6		3		—		100.0
Mortgage servicing fees	15		18		10		(16.7	)	50.0
Net gains (losses) from principal investing	—		1		11		N/M		N/M
Other income	85		31		22		174.2		286.4
Total noninterest income	$	653	$	577	$	473	13.2	%	38.1	%

N/M = Not Meaningful

Key’s noninterest income was $653 million for the second quarter of 2017, compared to $473 million for the year-ago quarter. Growth was largely driven by the acquisition of First Niagara, as well as core business momentum and a $64 million one-time gain from acquiring the remaining ownership interest in a merchant services joint venture. Investment banking and debt placement fees grew $37 million, related to strong commercial mortgage banking, underwriting, and advisory fees.

Compared to the first quarter of 2017, noninterest income increased by $76 million. The largest driver of the increase was a $64 million one-time gain related to Key’s merchant services business, realized in other income. Investment banking and debt placement fees continue to be a source of growth, up $8 million from the prior quarter, related to strong advisory fees. Operating lease income and other leasing gains grew $7 million, and cards and payments income increased $5 million.



Noninterest Expense

dollars in millions							Change 2Q17 vs.
	2Q17		1Q17		2Q16		1Q17		2Q16
Personnel expense	$	551	$	556	$	427	(.9	)%	29.0	%
Non-personnel expense	444		457		324		(2.8	)	37.0
Total noninterest expense	$	995	$	1,013	$	751	(1.8	)	32.5

Merger-related charges	44		81		45		(45.7	)	(2.2	)
Total noninterest expense excluding merger-related charges	$	951	$	932	$	706	2.0	%	34.7	%

Key’s noninterest expense was $995 million for the second quarter of 2017, and included $44 million of merger-related charges. Merger-related charges for the quarter were made up of $31 million of personnel expense and $13 million of non-personnel expense, largely reflected in business services and professional fees and marketing expense.

Excluding merger-related charges, noninterest expense was $245 million higher than the second quarter of last year. The increase from the prior year, reflected in both personnel and non-personnel expense, was primarily driven by the acquisition of First Niagara. Higher incentive compensation related to stronger capital markets performance also contributed to the year-over-year increase.

Excluding merger-related charges, noninterest expense was $19 million higher than the first quarter of 2017, mostly related to seasonal trends, including higher marketing expense. Incentive and stock-based

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compensation and salaries expense increased but were more than offset by lower employee benefits expense. Other notable items which impacted the second quarter included a $20 million charitable contribution and $4 million benefit from purchase accounting finalization, both of which are reflected in other expense.

BALANCE SHEET HIGHLIGHTS



Average Loans

dollars in millions							Change 2Q17 vs.
	2Q17		1Q17		2Q16		1Q17		2Q16
Commercial and industrial ^(a)	$	40,666	$	40,002	$	32,630	1.7	%	24.6	%
Other commercial loans	21,990		22,175		13,222		(.8	)	66.3
Home equity loans	12,473		12,611		10,098		(1.1	)	23.5
Other consumer loans	11,373		11,345		5,198		.2		118.8
Total loans	$	86,502	$	86,133	$	61,148	.4	%	41.5	%


(a)	Commercial and industrial average loan balances include $117 million, $114 million, and $87 million of assets from commercial credit cards at June 30, 2017, March 31, 2017, and June 30, 2016, respectively.

During the second quarter of 2017, Key finalized the fair value of the First Niagara acquired loan portfolio, adjusting the discount from $548 million to $603 million. At June 30, 2017, $345 million of the fair value discount remained.

Average loans were $86.5 billion for the second quarter of 2017, an increase of $25.4 billion compared to the second quarter of 2016, primarily reflecting the impact of the First Niagara acquisition, as well as growth in commercial and industrial loans which was broad-based and spread across Key's commercial lines of business.

Compared to the first quarter of 2017, average loans increased by $369 million. Commercial and industrial loans increased $664 million, with strength in middle market lending. Consumer loans decreased $110 million, mostly from continued declines in the home equity loan portfolio, largely the result of paydowns on home equity lines of credit.



Average Deposits

dollars in millions											Change 2Q17 vs.
		2Q17			1Q17			2Q16			1Q17		2Q16
Non-time deposits		$	92,018		$	91,745		$	67,419		.3	%	36.5	%
Certificates of deposit ($100,000 or more)		6,111			5,627			3,233			8.6		89.0
Other time deposits		4,650			4,706			3,252			(1.2	)	43.0
	Total deposits	$	102,779		$	102,078		$	73,904		.7	%	39.1	%

Cost of total deposits		.26		%	.23		%	.19		%	N/A		N/A

N/A = Not Applicable

Average deposits totaled $102.8 billion for the second quarter of 2017, an increase of $28.9 billion compared to the year-ago quarter, primarily reflecting the acquisition of First Niagara and core retail and commercial deposit growth.

Compared to the first quarter of 2017, average deposits increased by $701 million, driven by growth in certificates of deposits and NOW and money market deposit accounts, partly offset by a decline in escrow deposits. During the quarter, Key also experienced a shift in deposit mix from noninterest-bearing and low-cost interest-bearing deposits to higher-yielding deposit products. On a period-end basis, total deposits

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decreased $1.1 billion compared to the linked-quarter, largely the result of seasonal deposit growth that occurred in the first quarter of 2017.



ASSET QUALITY

dollars in millions										Change 2Q17 vs.
	2Q17			1Q17			2Q16			1Q17		2Q16
Net loan charge-offs	$	66		$	58		$	43		13.8	%	53.5	%
Net loan charge-offs to average total loans	.31		%	.27		%	.28		%	N/A		N/A
Nonperforming loans at period end ^(a)	$	507		$	573		$	619		(11.5	)	(18.1	)
Nonperforming assets at period end ^(a)	556			623			637			(10.8	)	(12.7	)
Allowance for loan and lease losses	870			870			854			.0		1.9
Allowance for loan and lease losses to nonperforming loans ^(a)	171.6		%	151.8		%	138.0		%	N/A		N/A
Provision for credit losses	$	66		$	63		$	52		4.8	%	26.9	%


(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.

N/A = Not Applicable

Key’s provision for credit losses was $66 million for the second quarter of 2017, compared to $52 million for the second quarter of 2016 and $63 million for the first quarter of 2017. Key’s allowance for loan and lease losses was $870 million, or 1.01% of total period-end loans, at June 30, 2017, compared to 1.38% at June 30, 2016, and 1.01% at March 31, 2017.

Net loan charge-offs for the second quarter of 2017 totaled $66 million, or .31% of average total loans. These results compare to $43 million, or .28%, for the second quarter of 2016, and $58 million, or .27%, for the first quarter of 2017.

At June 30, 2017, Key’s nonperforming loans totaled $507 million, which represented .59% of period-end portfolio loans. These results compare to 1.00% at June 30, 2016, and .67% at March 31, 2017. Nonperforming assets at June 30, 2017, totaled $556 million, and represented .64% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to 1.03% at June 30, 2016, and .72% at March 31, 2017.

CAPITAL

Key’s estimated risk-based capital ratios included in the following table continued to exceed all “well-capitalized” regulatory benchmarks at June 30, 2017.



Capital Ratios

	6/30/2017		3/31/2017		6/30/2016
Common Equity Tier 1 ^{(a), (b)}	9.97	%	9.91	%	11.10	%
Tier 1 risk-based capital ^(a)	10.79		10.74		11.41
Total risk based capital ^(a)	12.71		12.69		13.63
Tangible common equity to tangible assets ^(b)	8.56		8.51		9.95
Leverage ^(a)	9.96		9.81		10.59


(a)	6/30/2017 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 “Common Equity Tier 1.” The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. See below for further information on the Regulatory Capital Rules.

Key's capital position remained strong throughout the first quarter. As shown in the preceding table, at June 30, 2017, Key’s estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.97% and 10.79%, respectively. In addition, the tangible common equity ratio was 8.56% at June 30, 2017.

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As a “standardized approach” banking organization, Key’s mandatory compliance with the final Basel III capital framework for U.S. banking organizations (the “Regulatory Capital Rules”) began on January 1, 2015, subject to transitional provisions extending to January 1, 2019. Key’s estimated Common Equity Tier 1 ratio as calculated under the fully phased-in Regulatory Capital Rules was 9.87% at June 30, 2017. 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 2Q17 vs.
		2Q17		1Q17		2Q16	1Q17		2Q16
Shares outstanding at beginning of period		1,097,479		1,079,314		842,290	1.7	%	30.3	%
Open market repurchases and return of shares under employee compensation plans		(5,072	)	(8,673	)	—	(41.5	)	N/M
Shares issued under employee compensation plans (net of cancellations)		332		6,270		413	(94.7	)	(19.6	)
Common shares exchanged for Series A Preferred Stock		—		20,568		—	N/M		N/M
	Shares outstanding at end of period	1,092,739		1,097,479		842,703	(.4	)%	29.7	%

N/M = Not Meaningful

Consistent with Key's 2016 Capital Plan, during the second quarter of 2017, Key declared an increased dividend of $.095 per common share, representing a 12% increase compared to the first quarter of 2017. Key also completed $94 million of common share repurchases during the quarter, including $88 million of common share repurchases in the open market and $6 million of share repurchases related to employee equity compensation programs.

Key's 2017 Capital Plan, which received no objection from the Federal Reserve, includes two common share dividend increases (subject to Board approval), as well as a common share repurchase program of up to $800 million. This authorization includes repurchases to offset issuances of common shares under our employee compensation plans. Repurchases are expected to be executed over the next four quarters.

LINE OF BUSINESS RESULTS

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

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Major Business Segments

dollars in millions											Change 2Q17 vs.
		2Q17			1Q17			2Q16			1Q17		2Q16
Revenue from continuing operations (TE)
Key Community Bank		$	1,012		$	907		$	598		11.6	%	69.2	%
Key Corporate Bank		596			579			451			2.9		32.2
Other Segments		35			29			31			20.7		12.9
	Total segments	1,643			1,515			1,080			8.4		52.1
Reconciling Items		(3		)	(9		)	(2		)	N/M		N/M
	Total	$	1,640		$	1,506		$	1,078		8.9	%	52.1	%

Income (loss) from continuing operations attributable to Key
Key Community Bank		$	197		$	146		$	80		34.9	%	146.3	%
Key Corporate Bank		222			182			135			22.0		64.4
Other Segments		28			21			25			33.3		12.0
	Total segments	447			349			240			28.1		86.3
Reconciling Items ^(a)		(40		)	(25		)	(41		)	N/M		N/M
	Total	$	407		$	324		$	199		25.6	%	104.5	%


(a)	Reconciling items consists primarily of the unallocated portion of merger-related charges and items not allocated to the business segments because they do not reflect their normal operations.

TE = Taxable Equivalent, N/M = Not Meaningful



Key Community Bank


dollars in millions								Change 2Q17 vs.
		2Q17		1Q17		2Q16		1Q17		2Q16
Summary of operations
Net interest income (TE)		$	676	$	630	$	392	7.3	%	72.4	%
Noninterest income		336		277		206		21.3		63.1
	Total revenue (TE)	1,012		907		598		11.6		69.2
Provision for credit losses		47		47		25		—		88.0
Noninterest expense		652		628		445		3.8		46.5
	Income (loss) before income taxes (TE)	313		232		128		34.9		144.5
Allocated income taxes (benefit) and TE adjustments		116		86		48		34.9		141.7
	Net income (loss) attributable to Key	$	197	$	146	$	80	34.9	%	146.3	%

Average balances
Loans and leases		$	47,431	$	47,036	$	30,936	.8	%	53.3	%
Total assets		51,419		50,963		32,963		.9		56.0
Deposits		79,716		79,393		53,794		.4		48.2

Assets under management at period end		$	37,613	$	37,417	$	34,535	.5	%	8.9	%

TE = Taxable Equivalent

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Additional Key Community Bank Data

dollars in millions											Change 2Q17 vs.
		2Q17			1Q17			2Q16			1Q17		2Q16
Noninterest income
Trust and investment services income		$	99		$	98		$	73		1.0	%	35.6	%
Service charges on deposit accounts		77			75			56			2.7		37.5
Cards and payments income		60			55			46			9.1		30.4
Other noninterest income		100			49			31			104.1		222.6
	Total noninterest income	$	336		$	277		$	206		21.3	%	63.1	%

Average deposit balances
NOW and money market deposit accounts		$	45,243		$	45,027		$	30,144		.5	%	50.1	%
Savings deposits		5,293			5,268			2,365			.5		123.8
Certificates of deposit ($100,000 or more)		4,016			3,878			2,383			3.6		68.5
Other time deposits		4,640			4,692			3,245			(1.1	)	43.0
Noninterest-bearing deposits		20,524			20,528			15,657			—		31.1
	Total deposits	$	79,716		$	79,393		$	53,794		.4	%	48.2	%

Home equity loans
Average balance		$	12,330		$	12,456		$	9,908
Combined weighted-average loan-to-value ratio (at date of origination)		71		%	70		%	71		%
Percent first lien positions		60			60			61

Other data
Branches		1,210			1,216			949
Automated teller machines		1,589			1,594			1,236

Key Community Bank Summary of Operations (2Q17 vs. 2Q16)


•	Positive operating leverage compared to prior year


•	Net income increased $117 million, or 146.3%, from prior year


•	Average commercial and industrial loans increased $5.4 billion, or 41.2%, from the prior year


•	Average deposits increased $25.9 billion, or 48.2%, from the prior year

Key Community Bank recorded net income attributable to Key of $197 million for the second quarter of 2017, compared to $80 million for the year-ago quarter, benefiting from momentum in Key's core businesses, as well as the impact of the First Niagara acquisition.

Taxable-equivalent net interest income increased by $284 million, or 72.4%, from the second quarter of 2016. The increase was primarily attributable to the acquisition of First Niagara, as well as the benefit from higher interest rates. Average loans and leases increased $16.5 billion, or 53.3%, largely driven by a $5.4 billion, or 41.2%, increase in commercial and industrial loans. Additionally, average deposits increased $25.9 billion, or 48.2%, from one year ago.

Noninterest income was up $130 million, or 63.1%, from the year-ago quarter, driven by the acquisition of First Niagara, including the addition of Key Insurance and Benefits Services. Strength in cards and payments and higher assets under management from market growth also contributed to the increase. The increase in other noninterest income was largely driven by the one-time gain related to Key’s merchant services business.

The provision for credit losses increased by $22 million, or 88.0%, and net loan charge-offs increased $30 million from the second quarter of 2016, primarily related to the acquisition of First Niagara.

Noninterest expense increased by $207 million, or 46.5%, from the year-ago quarter, largely driven by the acquisition of First Niagara, as well as core business activity and investments. Personnel expense

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increased $76 million, while non-personnel expense increased by $131 million, including higher intangible amortization expense and higher FDIC assessment expense.



Key Corporate Bank


dollars in millions									Change 2Q17 vs.
		2Q17		1Q17		2Q16			1Q17		2Q16
Summary of operations
Net interest income (TE)		$	312	$	304	$	221		2.6	%	41.2	%
Noninterest income		284		275		230			3.3		23.5
	Total revenue (TE)	596		579		451			2.9		32.2
Provision for credit losses		19		17		30			11.8		(36.7	)
Noninterest expense		299		303		259			(1.3	)	15.4
	Income (loss) before income taxes (TE)	278		259		162			7.3		71.6
Allocated income taxes and TE adjustments		56		77		29			(27.3	)	93.1
	Net income (loss)	222		182		133			22.0		66.9
Less: Net income (loss) attributable to noncontrolling interests		—		—		(2		)	N/M		N/M
	Net income (loss) attributable to Key	$	222	$	182	$	135		22.0	%	64.4	%

Average balances
Loans and leases		$	37,750	$	37,737	$	28,607		—		32.0	%
Loans held for sale		1,000		1,097		591			(8.8	)%	69.2
Total assets		44,177		44,173		33,908			—		30.3
Deposits		21,146		21,003		19,129			.7	%	10.5	%

TE = Taxable Equivalent, N/M = Not Meaningful



Additional Key Corporate Bank Data

dollars in millions								Change 2Q17 vs.
		2Q17		1Q17		2Q16		1Q17		2Q16
Noninterest income
Trust and investment services income		$	35	$	37	$	37	(5.4	)%	(5.4	)%
Investment banking and debt placement fees		134		124		94		8.1		42.6
Operating lease income and other leasing gains		22		21		15		4.8		46.7

Corporate services income		38		38		40		—		(5.0	)
Service charges on deposit accounts		13		12		12		8.3		8.3
Cards and payments income		10		10		6		—		66.7
	Payments and services income	61		60		58		1.7		5.2

Mortgage servicing fees		12		16		10		(25.0	)	20.0
Other noninterest income		20		17		16		17.6		25.0
	Total noninterest income	$	284	$	275	$	230	3.3	%	23.5	%

Key Corporate Bank Summary of Operations (2Q17 vs. 2Q16)


•	Positive operating leverage compared to prior year


•	Average loan and lease balances up $9.1 billion, or 32%, from the prior year


•	Revenue up $145 million, or 32.2%, from the prior year


•	Investment banking and debt placement fees up $40 million, or 42.6%, from the prior year

Key Corporate Bank recorded net income attributable to Key of $222 million for the second quarter of 2017, compared to $135 million for the same period one year ago.

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July 20, 2017

Page 10

Taxable-equivalent net interest income increased by $91 million, or 41.2%, compared to the second quarter of 2016 driven by higher earning asset yields and balances. Average loan and lease balances increased $9.1 billion, or 32%, from the year-ago quarter, primarily driven by the First Niagara acquisition as well as growth in commercial and industrial loans. Average deposit balances increased $2 billion, or 10.5%, from the year-ago quarter, mostly driven by the First Niagara acquisition.

Noninterest income was up $54 million, or 23.5%, from the prior year. This growth was mostly due to

$40 million of higher investment banking and debt placement fees related to stronger commercial mortgage banking, underwriting, and advisory fees, as well as an increase of $7 million in operating lease income and other leasing gains related to higher originations. Additional increases of $4 million in both cards and payments income and other noninterest income were partially offset by a $2 million decrease in trust and investment services income.

The provision for credit losses decreased $11 million, or 36.7%, compared to the second quarter of 2016 due to $8 million of lower net loan charge-offs and improvement in the oil and gas portfolio.

Noninterest expense increased by $40 million, or 15.4%, from the second quarter of 2016. The increase from the prior year, reflected in both personnel and non-personnel expense, was largely driven by the acquisition of First Niagara, higher performance-based compensation and various other items, including operating lease, FDIC, and cards and payments expenses.

Other Segments

Other Segments consist of Corporate Treasury, Key’s Principal Investing unit, and various exit portfolios. Other Segments generated net income attributable to Key of $28 million for the second quarter of 2017, compared to $25 million for the same period last year, driven by increases in operating lease income and other leasing gains and corporate-owned life insurance income.

*****

KeyCorp's roots trace back 190 years to Albany, New York. Headquartered in Cleveland, Ohio, Key is one of the nation’s largest bank-based financial services companies, with assets of approximately $135.8 billion at June 30, 2017.

Key provides deposit, lending, cash management, insurance, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of more than 1,200 branches and more than 1,500 ATMs. Key also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets trade name. For more information, visit https://www.key.com/. KeyBank is Member FDIC.

KeyCorp Reports Second Quarter 2017 Profit

July 20, 2017

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 S. Misconish
216.689.4545
Melanie_S_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. These statements do not relate strictly to historical or current facts. Forward-looking statements usually can be identified by the use of words such as “goal,” “objective,” “plan,” “expect,” “assume,” “anticipate,” “intend,” “project,” “believe,” “estimate,” or other words of similar meaning. Forward-looking statements provide our current expectations or forecasts of future events, circumstances, results, or aspirations. Forward-looking statements, by their nature, are subject to assumptions, risks and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements. There is no assurance that any list of risks and uncertainties or risk factors is complete. Factors that could cause Key’s actual results to differ from those described in the forward-looking statements can be found in KeyCorp’s Form 10-K for the year ended December 31, 2016, as well as in KeyCorp’s subsequent SEC filings, all of which have been filed with the Securities and Exchange Commission (the “SEC”) and are available on Key’s website (www.key.com/ir) and on the SEC’s website (www.sec.gov). These factors may include, among others: deterioration of commercial real estate market fundamentals, adverse changes in credit quality trends, declining asset prices, a reversal of the U.S. economic recovery due to financial, political, or other shocks, and the extensive and increasing regulation of the U.S. financial services industry. Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.

Notes to Editors:

A live Internet broadcast of KeyCorp’s conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts’ questions can be accessed through the Investor Relations section at https://www.key.com/ir at 9:00 a.m. ET, on Thursday, July 20, 2017. An audio replay of the call will be available through July 30, 2017.

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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Page 12

KeyCorp

Second Quarter 2017

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	Summary of Loan and Lease Loss Experience From Continuing Operations
25	Asset Quality Statistics From Continuing Operations
25	Summary of Nonperforming Assets and Past Due Loans From Continuing Operations
25	Summary of Changes in Nonperforming Loans From Continuing Operations
26	Line of Business Results

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Page 13



Financial Highlights
(dollars in millions, except per share amounts)
			Three months ended
			6/30/2017			3/31/2017			6/30/2016
Summary of operations
	Net interest income (TE)		$	987		$	929		$	605
	Noninterest income		653			577			473
		Total revenue (TE)	1,640			1,506			1,078
	Provision for credit losses		66			63			52
	Noninterest expense		995			1,013			751
	Income (loss) from continuing operations attributable to Key		407			324			199
	Income (loss) from discontinued operations, net of taxes ^(a)		5			—			3
	Net income (loss) attributable to Key		412			324			202

	Income (loss) from continuing operations attributable to Key common shareholders		393			296			193
	Income (loss) from discontinued operations, net of taxes ^(a)		5			—			3
	Net income (loss) attributable to Key common shareholders		398			296			196

Per common share
	Income (loss) from continuing operations attributable to Key common shareholders		$	.36		$	.28		$	.23
	Income (loss) from discontinued operations, net of taxes ^(a)		—			—			—
	Net income (loss) attributable to Key common shareholders ^(b)		.37			.28			.23

	Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution		.36			.27			.23
	Income (loss) from discontinued operations, net of taxes — assuming dilution ^(a)		—			—			—
	Net income (loss) attributable to Key common shareholders — assuming dilution ^(b)		.36			.27			.23

	Cash dividends declared		.095			.085			.085
	Book value at period end		13.02			12.71			13.08
	Tangible book value at period end		10.40			10.21			11.81
	Market price at period end		18.74			17.78			11.05

Performance ratios
	From continuing operations:
	Return on average total assets		1.23		%	.99		%	.82		%
	Return on average common equity		11.12			8.76			7.15
	Return on average tangible common equity ^(c)		13.80			10.98			7.94
	Net interest margin (TE)		3.30			3.13			2.76
	Cash efficiency ratio ^(c)		59.3			65.8			69.0

	From consolidated operations:
	Return on average total assets		1.23		%	.98		%	.82		%
	Return on average common equity		11.26			8.76			7.26
	Return on average tangible common equity ^(c)		13.98			10.98			8.06
	Net interest margin (TE)		3.28			3.11			2.74
	Loan to deposit ^(d)		87.2			85.6			85.3

Capital ratios at period end
	Key shareholders’ equity to assets		11.23		%	11.14		%	11.18		%
	Key common shareholders’ equity to assets		10.48			10.37			10.90
	Tangible common equity to tangible assets ^(c)		8.56			8.51			9.95
	Common Equity Tier 1 ^{(c), (e)}		9.97			9.91			11.10
	Tier 1 risk-based capital ^(e)		10.79			10.74			11.41
	Total risk-based capital ^(e)		12.71			12.69			13.63
	Leverage ^(e)		9.96			9.81			10.59

Asset quality — from continuing operations
	Net loan charge-offs		$	66		$	58		$	43
	Net loan charge-offs to average loans		.31		%	.27		%	.28		%
	Allowance for loan and lease losses		$	870		$	870		$	854
	Allowance for credit losses		918			918			904
	Allowance for loan and lease losses to period-end loans		1.01		%	1.01		%	1.38		%
	Allowance for credit losses to period-end loans		1.06			1.07			1.46
	Allowance for loan and lease losses to nonperforming loans ^(f)		171.6			151.8			138.0
	Allowance for credit losses to nonperforming loans ^(f)		181.1			160.2			146.0
	Nonperforming loans at period-end ^(f)		$	507		$	573		$	619
	Nonperforming assets at period-end ^(f)		556			623			637
	Nonperforming loans to period-end portfolio loans ^(f)		.59		%	.67		%	1.00		%
	Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets ^(f)		.64			.72			1.03

Trust assets
	Assets under management		$	37,613		$	37,417		$	34,535

Other data
	Average full-time equivalent employees		18,344			18,386			13,419
	Branches		1,210			1,216			949

Taxable-equivalent adjustment			$	14		$	11		$	8

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July 20, 2017

Page 14




Financial Highlights (continued)
(dollars in millions, except per share amounts)
		Six months ended
		6/30/2017			6/30/2016
Summary of operations
	Net interest income (TE)	$	1,916		$	1,217
	Noninterest income	1,230			904
	Total revenue (TE)	3,146			2,121
	Provision for credit losses	129			141
	Noninterest expense	2,008			1,454
	Income (loss) from continuing operations attributable to Key	731			386
	Income (loss) from discontinued operations, net of taxes ^(a)	5			4
	Net income (loss) attributable to Key	736			390

	Income (loss) from continuing operations attributable to Key common shareholders	$	689		$	375
	Income (loss) from discontinued operations, net of taxes ^(a)	5			4
	Net income (loss) attributable to Key common shareholders	694			379

Per common share
	Income (loss) from continuing operations attributable to Key common shareholders	$	.64		$	.45
	Income (loss) from discontinued operations, net of taxes ^(a)	—			—
	Net income (loss) attributable to Key common shareholders ^(b)	.64			.45

	Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution	.63			.44
	Income (loss) from discontinued operations, net of taxes — assuming dilution ^(a)	—			—
	Net income (loss) attributable to Key common shareholders — assuming dilution ^(b)	.63			.45

	Cash dividends paid	.18			.16

Performance ratios
	From continuing operations:
	Return on average total assets	1.11		%	.81		%
	Return on average common equity	9.97			7.01
	Return on average tangible common equity ^(c)	12.43			7.79
	Net interest margin (TE)	3.21			2.83
	Cash efficiency ratio ^(c)	62.4			67.8

	From consolidated operations:
	Return on average total assets	1.11		%	.80		%
	Return on average common equity	10.04			7.08
	Return on average tangible common equity ^(c)	12.52			7.87
	Net interest margin (TE)	3.19			2.80

Asset quality — from continuing operations
	Net loan charge-offs	124			89
	Net loan charge-offs to average total loans	.29		%	.30		%

Other data
	Average full-time equivalent employees	18,365			13,411

Taxable-equivalent adjustment		25			16


(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.


(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,” “Common Equity Tier 1,” and “cash efficiency.” The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the Regulatory Capital Rules, see the “Capital” section of this release.


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


(e)	June 30, 2017, ratio is estimated.


(f)	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.

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

KeyCorp Reports Second Quarter 2017 Profit

July 20, 2017

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 average tangible common equity,” “Common Equity Tier 1,” “pre-provision net revenue,” certain financial measures excluding merger-related charges and/or other notable items, and “cash efficiency ratio.”

Notable items include certain revenue or expense items that may occur in a reporting period which management does not consider indicative of ongoing financial performance. Management believes it is useful to consider certain financial metrics with and without merger-related charges and/or other notable items in order to enable a better understanding of Company results, increase comparability of period-to-period results, and to evaluate and forecast those results.

The tangible common equity ratio and the return on average tangible common equity ratio have been a focus for some investors, and management believes these ratios may assist investors in analyzing Key’s capital position without regard to the effects of intangible assets and preferred stock. Traditionally, the banking regulators have assessed bank and bank holding company capital adequacy based on both the amount and the composition of capital, the calculation of which is prescribed in federal banking regulations. In October 2013, the federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the “Regulatory Capital Rules”). The Regulatory Capital Rules require higher and better-quality capital and introduced a new capital measure, “Common Equity Tier 1,” a non-GAAP financial measure. The mandatory compliance date for Key as a “standardized approach” banking organization began on January 1, 2015, subject to transitional provisions extending to January 1, 2019.

Common Equity Tier 1 is not formally defined by GAAP and 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 Common Equity Tier 1, 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 credit losses makes it easier to analyze the results by presenting them on a more comparable basis.

As previously disclosed, Key completed its purchase of First Niagara on August 1, 2016. The definitive agreement and plan of merger to acquire First Niagara was originally announced on October 30, 2015. As a result of this transaction, Key has recognized merger-related charges. The table below shows the computation of noninterest expense excluding merger-related charges, return on average tangible common equity excluding merger-related charges, return on average assets from continuing operations excluding merger-related charges, cash efficiency ratio excluding merger-related charges, and pre-provision net revenue excluding merger-related charges. For the second quarter of 2017, merger-related charges are included in the total for "notable items," the detail of which is provided below. Management believes that eliminating the effects of the merger-related charges and other notable items 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. The table below also shows the computation for the cash efficiency ratio excluding merger-related charges. Management believes these ratios provide greater consistency and comparability between Key’s results and those of its peer banks. Additionally, these ratios are used by analysts and investors as they develop earnings forecasts and peer bank analysis.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.



				Three months ended									Six months ended
				6/30/2017			3/31/2017			6/30/2016			6/30/2017			6/30/2016
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 assets (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	)	$	(125	)	$	(69	)
	Merchant services gain			64			—			—			64			—
	Purchase accounting finalization, net			43			—			—			43			—
	Charitable contribution			(20		)	—			—			(20		)	—
		Total notable items		$	43		$	(81	)	$	(45	)	$	(38	)	$	(69	)
	Income taxes			16			(30		)	(17		)	(14		)	(26		)
		Total notable items after tax		$	27		$	(51	)	$	(28	)	$	(24	)	$	(43	)

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July 20, 2017

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GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
			Three months ended									Six months ended
			6/30/2017			3/31/2017			6/30/2016			6/30/2017			6/30/2016
Pre-provision net revenue
	Net interest income (GAAP)		$	973		$	918		$	597		$	1,891		$	1,201
	Plus:	Taxable-equivalent adjustment	14			11			8			25			16
		Noninterest income	653			577			473			1,230			904
	Less:	Noninterest expense	995			1,013			751			2,008			1,454
		Pre-provision net revenue from continuing operations (non-GAAP)	$	645		$	493		$	327		$	1,138		$	667
	Plus:	Notable items	(43		)	81			45			38			69
		Pre-provision net revenue from continuing operations excluding notable items (non-GAAP)	$	602		$	574		$	372		$	1,176		$	736
Average tangible common equity
	Average Key shareholders’ equity (GAAP)		$	15,200		$	15,184		$	11,147		$	15,192		$	11,050
	Less:	Intangible assets (average) ^(d)	2,756			2,772			1,076			2,764			1,077
		Preferred Stock (average)	1,025			1,480			290			1,251			290
		Average tangible common equity (non-GAAP)	$	11,419		$	10,932		$	9,781		$	11,177		$	9,683
Return on average tangible common equity from continuing operations
	Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)		$	393		$	296		$	193		$	689		$	375
	Plus:	Notable items, after tax	(27		)	51			28			24			43
	Net income (loss) from continuing operations attributable to Key common shareholders
		excluding notable items (non-GAAP)	$	366		$	347		$	221		$	713		$	418
	Average tangible common equity (non-GAAP)		11,419			10,932			9,781			11,177			9,683

	Return on average tangible common equity from continuing operations (non-GAAP)		13.80		%	10.98		%	7.94		%	12.43		%	7.79		%
	Return on average tangible common equity from continuing operations excluding notable items (non-GAAP)		12.86			12.87			9.09			12.86			8.68
Return on average tangible common equity consolidated
	Net income (loss) attributable to Key common shareholders (GAAP)		$	398		$	296		$	196		$	694		$	379
	Average tangible common equity (non-GAAP)		11,419			10,932			9,781			11,177			9,683

	Return on average tangible common equity consolidated (non-GAAP)		13.98		%	10.98		%	8.06		%	12.52		%	7.87		%
Cash efficiency ratio
	Noninterest expense (GAAP)		$	995		$	1,013		$	751		$	2,008		$	1,454
	Less:	Intangible asset amortization	22			22			7			44			15
		Adjusted noninterest expense (non-GAAP)	973			991			744			1,964			1,439
	Less:	Notable items ^(e)	60			81			45			141			69
		Adjusted noninterest expense excluding notable items (non-GAAP)	$	913		$	910		$	699		$	1,823		$	1,370
	Net interest income (GAAP)		$	973		$	918		$	597		$	1,891		$	1,201
	Plus:	Taxable-equivalent adjustment	14			11			8			25			16
		Noninterest income	653			577			473			1,230			904
		Total taxable-equivalent revenue (non-GAAP)	1,640			1,506			1,078			3,146			2,121
	Plus:	Notable items ^(f)	(103		)	—			—			(103		)	—
		Adjusted total taxable-equivalent revenue excluding notable items (non-GAAP)	$	1,537		$	1,506		$	1,078		$	3,043		$	2,121

	Cash efficiency ratio (non-GAAP)		59.3		%	65.8		%	69.0		%	62.4		%	67.8		%
	Cash efficiency ratio excluding notable items (non-GAAP)		59.4			60.4			64.8			59.9			64.6
Return on average total assets from continuing operations excluding notable items
	Income from continuing operations attributable to Key (GAAP)		$	407		$	324		$	199		$	731		$	386
	Plus:	Notable items, after tax	(27		)	51			28			24			43
		Income from continuing operations attributable to Key excluding notable items, after tax (non-GAAP)	$	380		$	375		$	227		$	755		$	429

	Average total assets from continuing operations (GAAP)		$	132,491		$	132,741		$	97,413		$	132,615		$	95,945

	Return on average total assets from continuing operations excluding notable items (non-GAAP)		1.15		%	1.15		%	.94		%	1.15		%	.90		%

KeyCorp Reports Second Quarter 2017 Profit

July 20, 2017

Page 17



GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
			Three months ended
			6/30/2017
Common Equity Tier 1 under the Regulatory Capital Rules (“RCR”) (estimates)
	Common Equity Tier 1 under current RCR		$	12,106
	Adjustments from current RCR to the fully phased-in RCR:
		Deferred tax assets and other intangible assets ^(g)	(66		)
		Common Equity Tier 1 anticipated under the fully phased-in RCR ^(h)	$	12,040

	Net risk-weighted assets under current RCR		$	121,484
	Adjustments from current RCR to the fully phased-in RCR:
		Mortgage servicing assets ⁽ⁱ⁾	603
		Volcker funds	(140		)
		All other assets	46
		Total risk-weighted assets anticipated under the fully phased-in RCR ^(h)	$	121,993

	Common Equity Tier 1 ratio under the fully phased-in RCR ^(h)		9.87		%



							Change 2Q17 vs.
	2Q17		1Q17		2Q16		1Q17		2Q16
Operating leverage excluding notable items
Total revenue (TE)	$	1,640	$	1,506	$	1,078
Less: Notable items ^(f)	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 ^(e)	60		81		45
Noninterest expense excluding notable items	$	935	$	932	$	706	.3	%	32.4	%

Operating leverage excluding notable items (non-GAAP) ^(j)							1.8	%	10.2	%


(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.


(d)	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. For the six months ended June 30, 2017, and June 30, 2016, average intangible assets exclude $38 million and $40 million, respectively, of average purchased credit card receivables.


(e)	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.


(f)	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.


(g)	Includes the deferred tax assets subject to future taxable income for realization, primarily tax credit carryforwards, as well as intangible assets (other than goodwill and mortgage servicing assets) subject to the transition provisions of the final rule.


(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)	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.

GAAP = U.S. generally accepted accounting principles

KeyCorp Reports Second Quarter 2017 Profit

July 20, 2017

Page 18



Consolidated Balance Sheets
(dollars in millions)

			6/30/2017			3/31/2017			6/30/2016
Assets
	Loans		$	86,503		$	86,125		$	62,098
	Loans held for sale		1,743			1,384			442
	Securities available for sale		18,024			18,431			14,552
	Held-to-maturity securities		10,638			10,186			4,832
	Trading account assets		1,081			921			965
	Short-term investments		2,522			2,525			6,599
	Other investments		732			689			577
		Total earning assets	121,243			120,261			90,065
	Allowance for loan and lease losses		(870		)	(870		)	(854		)
	Cash and due from banks		601			549			496
	Premises and equipment		919			935			742
	Operating lease assets		691			563			399
	Goodwill		2,464			2,427			1,060
	Other intangible assets		435			362			50
	Corporate-owned life insurance		4,100			4,087			3,568
	Derivative assets		636			578			1,234
	Accrued income and other assets		4,147			4,064			2,673
	Discontinued assets		1,458			1,520			1,717
		Total assets	$	135,824		$	134,476		$	101,150

Liabilities
	Deposits in domestic offices:
		NOW and money market deposit accounts	$	53,342		$	55,095		$	40,195
		Savings deposits	7,056			6,306			2,355
		Certificates of deposit ($100,000 or more)	6,286			5,859			3,381
		Other time deposits	4,605			4,694			3,267
		Total interest-bearing deposits	71,289			71,954			49,198
		Noninterest-bearing deposits	31,532			32,028			26,127
		Total deposits	102,821			103,982			75,325
	Federal funds purchased and securities sold under repurchase agreements		1,780			442			360
	Bank notes and other short-term borrowings		924			943			687
	Derivative liabilities		308			255			746
	Accrued expense and other liabilities		1,475			1,552			1,326
	Long-term debt		13,261			12,324			11,388
		Total liabilities	120,569			119,498			89,832

Equity
	Preferred stock		1,025			1,025			290
	Common shares		1,257			1,257			1,017
	Capital surplus		6,310			6,287			3,835
	Retained earnings		9,878			9,584			9,166
	Treasury stock, at cost		(2,711		)	(2,623		)	(2,881		)
	Accumulated other comprehensive income (loss)		(506		)	(554		)	(114		)
		Key shareholders’ equity	15,253			14,976			11,313
	Noncontrolling interests		2			2			5
		Total equity	15,255			14,978			11,318
Total liabilities and equity			$	135,824		$	134,476		$	101,150

Common shares outstanding (000)			1,092,739			1,097,479			842,703

KeyCorp Reports Second Quarter 2017 Profit

July 20, 2017

Page 19



Consolidated Statements of Income
(dollars in millions, except per share amounts)
			Three months ended							Six months ended
			6/30/2017		3/31/2017		6/30/2016			6/30/2017		6/30/2016
Interest income
	Loans		$	948	$	877	$	567		$	1,825	$	1,129
	Loans held for sale		9		13		5			22		13
	Securities available for sale		90		95		74			185		149
	Held-to-maturity securities		55		51		24			106		48
	Trading account assets		7		7		6			14		13
	Short-term investments		5		3		6			8		10
	Other investments		3		4		2			7		5
		Total interest income	1,117		1,050		684			2,167		1,367

Interest expense
	Deposits		66		58		34			124		65
	Federal funds purchased and securities sold under repurchase agreements		—		1		—			1		—
	Bank notes and other short-term borrowings		4		5		3			9		5
	Long-term debt		74		68		50			142		96
		Total interest expense	144		132		87			276		166

Net interest income			973		918		597			1,891		1,201
Provision for credit losses			66		63		52			129		141
Net interest income after provision for credit losses			907		855		545			1,762		1,060

Noninterest income
	Trust and investment services income		134		135		110			269		219
	Investment banking and debt placement fees		135		127		98			262		169
	Service charges on deposit accounts		90		87		68			177		133
	Operating lease income and other leasing gains		30		23		18			53		35
	Corporate services income		55		54		53			109		103
	Cards and payments income		70		65		52			135		98
	Corporate-owned life insurance income		33		30		28			63		56
	Consumer mortgage income		6		6		3			12		5
	Mortgage servicing fees		15		18		10			33		22
	Net gains (losses) from principal investing		—		1		11			1		11
	Other income ^(a)		85		31		22			116		53
		Total noninterest income	653		577		473			1,230		904

Noninterest expense
	Personnel		551		556		427			1,107		831
	Net occupancy		78		87		59			165		120
	Computer processing		55		60		45			115		88
	Business services and professional fees		45		46		40			91		81
	Equipment		27		27		21			54		42
	Operating lease expense		21		19		14			40		27
	Marketing		30		21		22			51		34
	FDIC assessment		21		20		8			41		17
	Intangible asset amortization		22		22		7			44		15
	OREO expense, net		3		2		2			5		3
	Other expense		142		153		106			295		196
		Total noninterest expense	995		1,013		751			2,008		1,454
Income (loss) from continuing operations before income taxes			565		419		267			984		510
	Income taxes		158		94		69			252		125
Income (loss) from continuing operations			407		325		198			732		385
	Income (loss) from discontinued operations, net of taxes		5		—		3			5		4
Net income (loss)			412		325		201			737		389
	Less: Net income (loss) attributable to noncontrolling interests		—		1		(1		)	1		(1		)
Net income (loss) attributable to Key			$	412	$	324	$	202		$	736	$	390

Income (loss) from continuing operations attributable to Key common shareholders			$	393	$	296	$	193		$	689	$	375
Net income (loss) attributable to Key common shareholders			398		296		196			694		379

Per common share
Income (loss) from continuing operations attributable to Key common shareholders			$	.36	$	.28	$	.23		$	.64	$	.45
Income (loss) from discontinued operations, net of taxes			—		—		—			—		—
Net income (loss) attributable to Key common shareholders ^(b)			.37		.28		.23			.64		.45

Per common share — assuming dilution
Income (loss) from continuing operations attributable to Key common shareholders			$	.36	$	.27	$	.23		$	.63	$	.44
Income (loss) from discontinued operations, net of taxes			—		—		—			—		—
Net income (loss) attributable to Key common shareholders ^(b)			.36		.27		.23			.63		.45

Cash dividends declared per common share			$	.095	$	.085	$	.085		$	.18	$	.16

Weighted-average common shares outstanding (000)			1,076,203		1,068,609		831,899			1,083,486		829,640
	Effect of common share options and other stock awards		16,836		17,931		6,597			15,808		7,138
Weighted-average common shares and potential common shares outstanding (000) ^(c)			1,093,039		1,086,540		838,496			1,099,294		836,778

(a)	For the three months ended June 30, 2017, net securities gains (losses) totaled $1 million. For the three months ended March 31, 2017, net securities gains (losses) totaled $1 million. For the three months ended June 30, 2016, net securities gains (losses) totaled less than $1 million. For the three months ended June 30, 2017, March 31, 2017, and June 30, 2016, Key did not have any impairment losses related to securities.
(b)	Earnings per share may not foot due to rounding.
(c)	Assumes conversion of common share options and other stock awards and/or convertible preferred stock, as applicable.

KeyCorp Reports Second Quarter 2017 Profit

July 20, 2017

Page 20



Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
(dollars in millions)

		Second Quarter 2017							First Quarter 2017							Second Quarter 2016
		Average							Average							Average
		Balance			Interest ^(a)		Yield/Rate ^(a)		Balance			Interest ^(a)		Yield/Rate ^(a)		Balance			Interest ^(a)		Yield/Rate ^(a)
Assets
	Loans: ^{(b), (c)}
	Commercial and industrial ^(d)	$	40,666		$	409	4.04	%	$	40,002		$	373	3.77	%	$	32,630		$	270	3.32	%
	Real estate — commercial mortgage	15,096			187		4.97		15,187			164		4.39		8,404			80		3.85
	Real estate — construction	2,204			31		5.51		2,353			26		4.54		869			8		3.78
	Commercial lease financing	4,690			50		4.33		4,635			44		3.76		3,949			37		3.77
	Total commercial loans	62,656			677		4.34		62,177			607		3.95		45,852			395		3.47
	Real estate — residential mortgage	5,509			52		3.77		5,520			54		3.94		2,253			22		4.11
	Home equity loans	12,473			135		4.31		12,611			131		4.22		10,098			102		4.04
	Consumer direct loans	1,743			31		7.07		1,762			30		6.97		1,599			26		6.53
	Credit cards	1,044			29		11.04		1,067			29		11.06		792			21		10.58
	Consumer indirect loans	3,077			38		5.02		2,996			37		4.91		554			9		6.56
	Total consumer loans	23,846			285		4.77		23,956			281		4.75		15,296			180		4.74
	Total loans	86,502			962		4.46		86,133			888		4.17		61,148			575		3.78
	Loans held for sale	1,082			9		3.58		1,188			13		4.28		611			5		3.18
	Securities available for sale ^{(b), (e)}	17,997			90		1.97		19,181			95		1.95		14,268			74		2.08
	Held-to-maturity securities ^(b)	10,469			55		2.09		9,988			51		2.04		4,883			24		1.98
	Trading account assets	1,042			7		3.00		968			7		2.75		967			6		2.28
	Short-term investments	1,970			5		.96		1,610			3		.79		5,559			6		.45
	Other investments ^(e)	687			3		1.87		709			4		2.26		610			2		1.54
	Total earning assets	119,749			1,131		3.78		119,777			1,061		3.57		88,046			692		3.16
	Allowance for loan and lease losses	(864		)					(855		)					(833		)
	Accrued income and other assets	13,606							13,819							10,200
	Discontinued assets	1,477							1,540							1,738
	Total assets	$	133,968						$	134,281						$	99,151

Liabilities
	NOW and money market deposit accounts	$	54,416		34		.25		$	54,295		32		.24		$	39,687		16		.17
	Savings deposits	6,854			4		.21		6,351			1		.10		2,375			—		.02
	Certificates of deposit ($100,000 or more)	6,111			19		1.23		5,627			16		1.16		3,233			11		1.39
	Other time deposits	4,650			9		.77		4,706			9		.76		3,252			7		.85
	Total interest-bearing deposits	72,031			66		.36		70,979			58		.33		48,547			34		.29
	Federal funds purchased and securities sold under repurchase agreements	466			—		.23		795			1		.32		337			—		.01
	Bank notes and other short-term borrowings	1,216			4		1.43		1,802			5		1.06		694			3		1.39
	Long-term debt ^{(f), (g)}	11,046			74		2.68		10,833			68		2.54		9,294			50		2.25
	Total interest-bearing liabilities	84,759			144		.68		84,409			132		.63		58,872			87		.60
	Noninterest-bearing deposits	30,748							31,099							25,357
	Accrued expense and other liabilities	1,782							2,048							2,032
	Discontinued liabilities ^(g)	1,477							1,540							1,738
	Total liabilities	118,766							119,096							87,999
Equity
	Key shareholders’ equity	15,200							15,184							11,147
	Noncontrolling interests	2							1							5
	Total equity	15,202							15,185							11,152
	Total liabilities and equity	$	133,968						$	134,281						$	99,151
Interest rate spread (TE)							3.10	%						2.94	%						2.56	%
Net interest income (TE) and net interest margin (TE)					987		3.30	%				929		3.13	%				605		2.76	%
TE adjustment ^(b)					14							11							8
	Net interest income, GAAP basis				$	973						$	918						$	597


(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 and industrial average balances include $117 million, $114 million, and $87 million of assets from commercial credit cards for the three months ended June 30, 2017, March 31, 2017, and June 30, 2016, 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 Key’s matched funds transfer pricing methodology to discontinued operations.

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

KeyCorp Reports Second Quarter 2017 Profit

July 20, 2017

Page 21




Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
(dollars in millions)

		Six months ended June 30, 2017							Six months ended June 30, 2016
		Average							Average
		Balance			Interest ^(a)		Yield/Rate ^(a)		Balance			Interest ^(a)		Yield/ Rate ^(a)
Assets
	Loans: ^{(b), (c)}
	Commercial and industrial ^(d)	$	40,336		$	782	3.90	%	$	32,110		$	533	3.33	%
	Real estate — commercial mortgage	15,142			351		4.68		8,271			157		3.81
	Real estate — construction	2,278			57		5.01		942			18		3.96
	Commercial lease financing	4,662			94		4.04		3,953			73		3.71
	Total commercial loans	62,418			1,284		4.14		45,276			781		3.47
	Real estate — residential mortgage	5,514			106		3.85		2,245			46		4.15
	Home equity loans	12,542			266		4.27		10,169			205		4.05
	Consumer direct loans	1,752			61		7.02		1,596			52		6.53
	Credit cards	1,055			58		11.05		788			42		10.65
	Consumer indirect loans	3,037			75		4.97		578			19		6.50
	Total consumer loans	23,900			566		4.76		15,376			364		4.75
	Total loans	86,318			1,850		4.31		60,652			1,145		3.79
	Loans held for sale	1,135			22		3.95		718			13		3.66
	Securities available for sale ^{(b), (e)}	18,586			185		1.96		14,238			149		2.10
	Held-to-maturity securities ^(b)	10,230			106		2.07		4,850			48		2.00
	Trading account assets	1,005			14		2.88		892			13		2.83
	Short-term investments	1,791			8		.88		4,495			10		.45
	Other investments ^(e)	698			7		2.07		629			5		1.64
	Total earning assets	119,763			2,192		3.67		86,474			1,383		3.21
	Allowance for loan and lease losses	(860		)					(818		)
	Accrued income and other assets	13,712							10,289
	Discontinued assets	1,508							1,771
	Total assets	$	134,123						$	97,716
Liabilities
	NOW and money market deposit accounts	$	54,356		66		.24		$	38,698		31		.16
	Savings deposits	6,604			5		.16		2,362			—		.02
	Certificates of deposit ($100,000 or more)	5,871			35		1.20		2,997			21		1.38
	Other time deposits	4,677			18		.77		3,226			13		.82
	Total interest-bearing deposits	71,508			124		.35		47,283			65		.28
	Federal funds purchased and securities sold under repurchase agreements	629			1		.28		387			—		.04
	Bank notes and other short-term borrowings	1,508			9		1.21		643			5		1.50
	Long-term debt ^{(f), (g)}	10,940			142		2.61		8,930			96		2.22
	Total interest-bearing liabilities	84,585			276		.66		57,243			166		.59
	Noninterest-bearing deposits	30,922							25,468
	Accrued expense and other liabilities	1,914							2,177
	Discontinued liabilities ^(g)	1,509							1,771
	Total liabilities	118,930							86,659
Equity
	Key shareholders’ equity	15,192							11,050
	Noncontrolling interests	1							7
	Total equity	15,193							11,057
	Total liabilities and equity	$	134,123						$	97,716
Interest rate spread (TE)							3.01	%						2.62	%
Net interest income (TE) and net interest margin (TE)					1,916		3.21	%				1,217		2.83	%
TE adjustment ^(b)					25							16
	Net interest income, GAAP basis				$	1,891						$	1,201


(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 and industrial average balances include $115 million and $86 million of assets from commercial credit cards for the six months ended June 30, 2017, and June 30, 2016, 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 Key’s matched funds transfer pricing methodology to discontinued operations.

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

KeyCorp Reports Second Quarter 2017 Profit

July 20, 2017

Page 22




Noninterest Expense
(dollars in millions)

	Three months ended						Six months ended
	6/30/2017		3/31/2017		6/30/2016		6/30/2017		6/30/2016
Personnel ^(a)	$	551	$	556	$	427	$	1,107	$	831
Net occupancy	78		87		59		165		120
Computer processing	55		60		45		115		88
Business services and professional fees	45		46		40		91		81
Equipment	27		27		21		54		42
Operating lease expense	21		19		14		40		27
Marketing	30		21		22		51		34
FDIC assessment	21		20		8		41		17
Intangible asset amortization	22		22		7		44		15
OREO expense, net	3		2		2		5		3
Other expense	142		153		106		295		196
Total noninterest expense	$	995	$	1,013	$	751	$	2,008	$	1,454
Merger-related charges ^(b)	44		81		45		125		69
Total noninterest expense excluding merger-related charges	$	951	$	932	$	706	$	1,883	$	1,385
Average full-time equivalent employees ^(c)	18,344		18,386		13,419		18,365		13,411


(a)	Additional detail provided in Personnel Expense table below.


(b)	Additional detail provide in Merger-Related Charges table below.


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



Personnel Expense
(in millions)

	Three months ended							Six months ended
	6/30/2017			3/31/2017		6/30/2016		6/30/2017		6/30/2016
Salaries and contract labor	$	332		$	324	$	266	$	656	$	510
Incentive and stock-based compensation	137			127		101		264		190
Employee benefits	76			96		58		172		126
Severance	6			9		2		15		5
Total personnel expense	$	551		$	556	$	427	$	1,107	$	831
Merger-related charges	31			30		35		61		51
Total personnel expense excluding merger-related charges	$	520		$	526	$	392	$	1,046	$	780

Merger-Related Charges
(in millions)

	Three months ended							Six months ended
	6/30/2017			3/31/2017		6/30/2016		6/30/2017		6/30/2016
Personnel	$	31		$	30	$	35	61		$	51
Net occupancy	(1		)	5		—		4		—
Business services and professional fees	6			5		5		11		12
Computer processing	2			5		—		7		—
Marketing	6			6		3		12		4
Other non-personnel expense	—			30		2		30		2
Noninterest expense	44			81		45		125		69
Total merger-related charges	$	44		$	81	$	45	$	125	$	69

KeyCorp Reports Second Quarter 2017 Profit

July 20, 2017

Page 23



Loan Composition
(dollars in millions)

							Percent change 6/30/2017 vs.
	6/30/2017		3/31/2017		6/30/2016		3/31/2017		6/30/2016
Commercial and industrial ^(a)	$	40,914	$	40,112	$	33,376	2.0	%	22.6	%
Commercial real estate:
Commercial mortgage	14,813		15,260		8,582		(2.9	)	72.6
Construction	2,168		2,270		881		(4.5	)	146.1
Total commercial real estate loans	16,981		17,530		9,463		(3.1	)	79.4
Commercial lease financing ^(b)	4,737		4,665		3,988		1.5		18.8
Total commercial loans	62,632		62,307		46,827		.5		33.8
Residential — prime loans:
Real estate — residential mortgage	5,517		5,507		2,285		.2		141.4
Home equity loans	12,405		12,541		10,062		(1.1	)	23.3
Total residential — prime loans	17,922		18,048		12,347		(.7	)	45.2
Consumer direct loans	1,755		1,735		1,584		1.2		10.8
Credit cards	1,049		1,037		813		1.2		29.0
Consumer indirect loans	3,145		2,998		527		4.9		496.8
Total consumer loans	23,871		23,818		15,271		.2		56.3
Total loans^{(c), (d)}	$	86,503	$	86,125	$	62,098	.4	%	39.3	%


(a)	Loan balances include $118 million, $114 million, and $88 million of commercial credit card balances at June 30, 2017, March 31, 2017, and June 30, 2016, respectively.


(b)	Commercial lease financing includes receivables held as collateral for a secured borrowing of $47 million, $55 million, and $102 million at June 30, 2017, March 31, 2017, and June 30, 2016, respectively. Principal reductions are based on the cash payments received from these related receivables.


(c)	At June 30, 2017, total loans include purchased loans of $17.8 billion, of which $835 million were purchased credit impaired. At March 31, 2017, total loans include purchased loans of $19.0 billion, of which $812 million were purchased credit impaired. At June 30, 2016, total loans include purchased loans of $104 million, of which $11 million were purchased credit impaired.


(d)	Total loans exclude loans of $1.4 billion at June 30, 2017, $1.5 billion at March 31, 2017, and $1.7 billion at June 30, 2016, related to the discontinued operations of the education lending business.



Loans Held for Sale Composition
(dollars in millions)

							Percent change 6/30/2017 vs.
	6/30/2017		3/31/2017		6/30/2016		3/31/2017		6/30/2016
Commercial and industrial	$	338	$	171	$	150	97.7	%	125.3	%
Real estate — commercial mortgage	1,332		1,150		270		15.8		393.3
Commercial lease financing	10		1		3		900.0		233.3
Real estate — residential mortgage	63		62		19		1.6		231.6
Total loans held for sale ^(a)	$	1,743	$	1,384	$	442	25.9	%	294.3	%


(a)	Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $63 million at June 30, 2017, and $62 million at March 31, 2017.

N/M = Not Meaningful



Summary of Changes in Loans Held for Sale
(in millions)

	2Q17			1Q17			4Q16			3Q16			2Q16
Balance at beginning of period	$	1,384		$	1,104		$	1,137		$	442		$	684
Purchases	—			—			—			48			—
New originations	2,876			2,563			2,846			2,857			1,539
Transfers from (to) held to maturity, net	(7		)	17			11			2			22
Loan sales	(2,507		)	(2,299		)	(2,889		)	(2,180		)	(1,802		)
Loan draws (payments), net	(3		)	(1		)	(1		)	(32		)	(1		)
Balance at end of period ^(a)	$	1,743		$	1,384		$	1,104		$	1,137		$	442


(a)	Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $63 million at June 30, 2017, and $62 million at March 31, 2017, December 31, 2016, and September 30, 2016.

KeyCorp Reports Second Quarter 2017 Profit

July 20, 2017

Page 24



Summary of Loan and Lease Loss Experience From Continuing Operations
(dollars in millions)

	Three months ended									Six months ended
	6/30/2017			3/31/2017			6/30/2016			6/30/2017			6/30/2016
Average loans outstanding	$	86,502		$	86,133		$	61,148		$	86,318		$	60,652
Allowance for loan and lease losses at beginning of period	$	870		$	858		$	826		$	858		$	796
Loans charged off:
Commercial and industrial	40			32			35			72			61

Real estate — commercial mortgage	3			—			2			3			3
Real estate — construction	—			—			—			—			—
Total commercial real estate loans	3			—			2			3			3
Commercial lease financing	1			7			3			8			6
Total commercial loans	44			39			40			83			70
Real estate — residential mortgage	4			(2		)	1			2			3
Home equity loans	9			8			7			17			17
Consumer direct loans	8			10			6			18			12
Credit cards	12			11			8			23			16
Consumer indirect loans	5			11			2			16			6
Total consumer loans	38			38			24			76			54
Total loans charged off	82			77			64			159			124
Recoveries:
Commercial and industrial	2			5			3			7			6

Real estate — commercial mortgage	—			—			6			—			8
Real estate — construction	—			1			—			1			1
Total commercial real estate loans	—			1			6			1			9
Commercial lease financing	—			2			2			2			2
Total commercial loans	2			8			11			10			17
Real estate — residential mortgage	1			2			—			3			2
Home equity loans	5			3			4			8			7
Consumer direct loans	2			1			2			3			3
Credit cards	2			1			1			3			2
Consumer indirect loans	4			4			3			8			4
Total consumer loans	14			11			10			25			18
Total recoveries	16			19			21			35			35
Net loan charge-offs	(66		)	(58		)	(43		)	(124		)	(89		)
Provision (credit) for loan and lease losses	66			70			71			136			147
Foreign currency translation adjustment	—			—			—			—			—
Allowance for loan and lease losses at end of period	$	870		$	870		$	854		$	870		$	854

Liability for credit losses on lending-related commitments at beginning of period	$	48		$	55		$	69		$	55		$	56
Provision (credit) for losses on lending-related commitments	—			(7		)	(19		)	(7		)	(6		)
Liability for credit losses on lending-related commitments at end of period ^(a)	$	48		$	48		$	50		$	48		$	50

Total allowance for credit losses at end of period	$	918		$	918		$	904		$	918		$	904

Net loan charge-offs to average total loans	.31		%	.27		%	.28		%	.29		%	.30		%
Allowance for loan and lease losses to period-end loans	1.01			1.01			1.38			1.01			1.38
Allowance for credit losses to period-end loans	1.06			1.07			1.46			1.06			1.46
Allowance for loan and lease losses to nonperforming loans	171.6			151.8			138.0			171.6			138.0
Allowance for credit losses to nonperforming loans	181.1			160.2			146.0			181.1			146.0

Discontinued operations — education lending business:
Loans charged off	$	4		$	6		$	6		$	10		$	15
Recoveries	2			2			2			4			5
Net loan charge-offs	$	(2	)	$	(4	)	$	(4	)	$	(6	)	$	(10	)


(a)	Included in "Accrued expense and other liabilities" on the balance sheet.

KeyCorp Reports Second Quarter 2017 Profit

July 20, 2017

Page 25



Asset Quality Statistics From Continuing Operations
(dollars in millions)

	2Q17			1Q17			4Q16			3Q16			2Q16
Net loan charge-offs	$	66		$	58		$	72		$	44		$	43
Net loan charge-offs to average total loans	.31		%	.27		%	.34		%	.23		%	.28		%
Allowance for loan and lease losses	$	870		$	870		$	858		$	865		$	854
Allowance for credit losses ^(a)	918			918			913			918			904
Allowance for loan and lease losses to period-end loans	1.01		%	1.01		%	1.00		%	1.01		%	1.38		%
Allowance for credit losses to period-end loans	1.06			1.07			1.06			1.07			1.46
Allowance for loan and lease losses to nonperforming loans ^(b)	171.6			151.8			137.3			119.6			138.0
Allowance for credit losses to nonperforming loans ^(b)	181.1			160.2			146.1			127.0			146.0
Nonperforming loans at period end ^(b)	$	507		$	573		$	625		$	723		$	619
Nonperforming assets at period end ^(b)	556			623			676			760			637
Nonperforming loans to period-end portfolio loans ^(b)	.59		%	.67		%	.73		%	.85		%	1.00		%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets ^(b)	.64			.72			.79			.89			1.03


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


(b)	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.



Summary of Nonperforming Assets and Past Due Loans From Continuing Operations
(dollars in millions)
	6/30/2017			3/31/2017			12/31/2016			9/30/2016			6/30/2016
Commercial and industrial	$	178		$	258		$	297		$	335		$	321

Real estate — commercial mortgage	34			32			26			32			14
Real estate — construction	4			2			3			17			25
Total commercial real estate loans	38			34			29			49			39
Commercial lease financing	11			5			8			13			10
Total commercial loans	227			297			334			397			370
Real estate — residential mortgage	58			54			56			72			54
Home equity loans	208			207			223			225			189
Consumer direct loans	2			3			6			2			1
Credit cards	2			3			2			3			2
Consumer indirect loans	10			9			4			24			3
Total consumer loans	280			276			291			326			249
Total nonperforming loans ^(a)	507			573			625			723			619
OREO	48			49			51			35			15
Other nonperforming assets	1			1			0			2			3
Total nonperforming assets ^(a)	$	556		$	623		$	676		$	760		$	637
Accruing loans past due 90 days or more	$	85		$	79		$	87		$	49		$	70
Accruing loans past due 30 through 89 days	340			312			404			317			203
Restructured loans — accruing and nonaccruing ^(b)	333			302			280			304			277
Restructured loans included in nonperforming loans ^(b)	193			161			141			149			133
Nonperforming assets from discontinued operations — education lending business	5			4			5			5			5
Nonperforming loans to period-end portfolio loans ^(a)	.59		%	.67		%	.73		%	.85		%	1.00		%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets ^(a)	.64			.72			.79			.89			1.03


(a)	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.

(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.



Summary of Changes in Nonperforming Loans From Continuing Operations
(in millions)
	2Q17			1Q17			4Q16			3Q16			2Q16
Balance at beginning of period	$	573		$	625		$	723		$	619		$	676
Loans placed on nonaccrual status	143			218			170			78			124
Nonperforming loans acquired from First Niagara ^(a)	—			—			(31		)	150			—
Charge-offs	(82		)	(77		)	(81		)	(53		)	(64		)
Loans sold	—			(8		)	(9		)	—			—
Payments	(84		)	(59		)	(30		)	(32		)	(75		)
Transfers to OREO	(8		)	(11		)	(21		)	(5		)	(6		)
Transfers to other nonperforming assets	—			—			—			—			—
Loans returned to accrual status	(35		)	(115		)	(96		)	(34		)	(36		)
Balance at end of period^(b)	$	507		$	573		$	625		$	723		$	619


(a)	During the fourth quarter of 2016, Key adjusted the estimated fair value of the First Niagara acquired loan portfolio recorded during the third quarter of 2016, resulting in a $31 million decrease in the balance of acquired nonperforming loans.


(b)	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.

KeyCorp Reports Second Quarter 2017 Profit

July 20, 2017

Page 26



Line of Business Results
(dollars in millions)

																Percent change 2Q17 vs.
	2Q17			1Q17			4Q16			3Q16			2Q16			1Q17		2Q16
Key Community Bank
Summary of operations
Total revenue (TE)	$	1,012		$	907		$	902		$	783		$	598		11.6	%	69.2	%
Provision for credit losses	47			47			48			37			25			—		88.0
Noninterest expense	652			628			682			589			445			3.8		46.5
Net income (loss) attributable to Key	197			146			108			98			80			34.9		146.3
Average loans and leases	47,431			47,036			47,031			41,548			30,936			.8		53.3
Average deposits	79,716			79,393			79,358			69,397			53,794			.4		48.2
Net loan charge-offs	47			43			42			31			17			9.3		176.5
Net loan charge-offs to average total loans	.40		%	.37		%	.36		%	.30		%	.22		%	N/A		N/A
Nonperforming assets at period end	$	406		$	395		$	412		$	428		$	651		2.8		(37.6	)
Return on average allocated equity	16.62		%	12.61		%	9.05		%	10.95		%	11.76		%	N/A		N/A
Average full-time equivalent employees	10,899			10,804			11,198			9,805			7,331			.9		48.7

Key Corporate Bank
Summary of operations
Total revenue (TE)	$	596		$	579		$	630		$	556		$	451		2.9	%	32.2	%
Provision for credit losses	19			17			20			25			30			11.8		(36.7	)
Noninterest expense	299			303			326			310			259			(1.3	)	15.4
Net income (loss) attributable to Key	222			182			222			159			135			22.0		64.4
Average loans and leases	37,750			37,737			36,773			34,561			28,607			—		32.0
Average loans held for sale	1,000			1,097			1,223			1,103			591			(8.8	)	69.2
Average deposits	21,146			21,003			23,172			22,708			19,129			.7		10.5
Net loan charge-offs	19			14			26			12			27			35.7		(29.6	)
Net loan charge-offs to average total loans	.20		%	.15		%	.28		%	.14		%	.38		%	N/A		N/A
Nonperforming assets at period end	$	119		$	197		$	244		$	318		$	355		(39.6	)	(66.5	)
Return on average allocated equity	31.29		%	25.06		%	30.89		%	26.72		%	26.23		%	N/A		N/A
Average full-time equivalent employees	2,364			2,384			2,380			2,330			2,138			(.8	)	10.6

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

KEYCORP /NEW/ - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - July 20, 2017

Attached files

KEYCORP /NEW/ Reports