Attached files
| file | filename |
|---|---|
| EX-99.3 - EXHIBIT 99.3 - KEYCORP /NEW/ | keycorp3q17erex993.htm |
| EX-99.1 - EXHIBIT 99.1 - KEYCORP /NEW/ | keycorp3q17earningsrelease.htm |
| 8-K - 8-K - KEYCORP /NEW/ | keycorp3q17er8-k.htm |
KeyCorp
Third Quarter 2017 Earnings Review
October 19, 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,” “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 17 of our Form 10-Q dated June 30, 2017.
GAAP: Generally Accepted Accounting Principles
2
3
Investor Highlights – 3Q17
Positive
Operating
Leverage
Strong Risk
Management
Disciplined
Capital
Management
Maintained strong capital position
− CET1 ratio of 10.3%(b)
Repurchased $277 MM in common shares(c)
Maintained credit discipline, strong asset quality
NCOs to average loans of .15% reflecting overall
portfolio strength and an increase in recoveries
Nonperforming loans to period-end loans of .60%
YoY positive operating leverage (7th consecutive qtr.)(a)
Momentum in fee-based businesses
− Record cards and payments income
− Continued strength in investment banking & debt
placement fees
Expense levels reflect recent acquisitions, business
investments and seasonal trends
Efficiency and returns remain strong
(a) Excludes notable items; see Appendix for detail
(b) 9/30/17 ratio is estimated
(c) Common share repurchase amount includes repurchases to offset issuances of common shares under our employee compensation plans
(d) Non-GAAP measure; see Appendix for reconciliation
(e) Non-GAAP measure and excludes notable items; see Appendix for detail and reconciliations
+17%
59.7%
3Q17
Adjustments
$ millions Pre-tax Impact
Merger-related charges (36)
Merchant services gain adjustment (5)
Net impact of $(41) MM, or $(0.03) per share
+100%
62.2%
Reported Adjusted / Non-GAAP(e)
R
O
T
C
E
(
d
)
Y
o
Y
E
P
S
C
a
s
h
E
f
f
i
c
i
e
n
c
y
(
d
)
13.2%12.2%
4
Financial Review
64.9%
63.3%
60.4% 59.4% 59.7%
3Q16 4Q16 1Q17 2Q17 3Q17
5
Financial Highlights
EOP = End of Period
(a) Non-GAAP measure: see Appendix for reconciliation
(b) Notable items include merger-related charges (all periods), the 2Q17
merchant services gain and 3Q17 adjustment, 2Q17 purchase
accounting finalization, and the 2Q17 charitable contribution; see
Appendix for detail on merger-related charges
EPS – assuming dilution $ .32 $ .36 $ .16 (11) % 100 %
EPS – excl. notable items(a), (b) .35 .34 .30 3 17
Cash efficiency ratio(a) 62.2 % 59.3 % 80.0 % 290 bps (1,773) bps
Cash efficiency –excl. notable items(a), (b) 59.7 59.4 64.9 32 (522)
Return on average tangible common equity(a) 12.21 13.80 6.16 (159) 605
ROTCE – excl. notable items(a), (b) 13.19 12.86 11.10 33 209
Common Equity Tier 1(d) 10.26 % 9.91 % 9.56 % 35 bps 70 bps
Tier 1 risk-based capital(d) 11.11 10.73 10.53 38 58
Tangible common equity to tangible assets(a) 8.49 8.56 8.27 (7) 22
NCOs to average loans .15 % .31 % .23 % (16) bps (8) bps
NPLs to EOP portfolio loans(e) .60 .59 .85 1 (25)
Allowance for loan and lease losses to EOP loans 1.02 1.01 1.01 1 1
Asset
Quality
Profitability
Continuing operations, unless otherwise noted 3Q17 2Q17 3Q16 LQ ∆ Y/Y ∆
(c) From consolidated operations
(d) 9/30/17 ratios are estimated
(e) Nonperforming loan balances exclude $783 million, $835 million, and $959 million of
purchased credit impaired loans at September 30, 2017, June 30, 2017, and
September 30, 2016, respectively
Cash Efficiency Ratio(a)
excl. notable items(b)
11.1%
12.5% 12.9% 12.9% 13.2%
3Q16 4Q16 1Q17 2Q17 3Q17
ROTCE(a)
excl. notable items(b)
0.23%
0.34%
0.27% 0.31%
0.15%
3Q16 4Q16 1Q17 2Q17 3Q17
NCOs to Avg. Loans
Capital(c)
$0
$30
$60
$90
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
$10
$20
$30
$40
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
6
Loans
$ in billions
Average Commercial & Industrial Loans
Total Average Loans
ConsumerCommercial
$ in billions
vs. Prior Year
Highlights
Average loans up 12% from 3Q16
– Growth reflects a full-quarter impact of FNFG
(vs. 2 months in 3Q16)
– Broad-based C&I growth
$87
$78
$37
$41
vs. Prior Quarter
Average loans up .4% from 2Q17
– Strength in C&I up 2% linked-quarter
unannualized
– Higher levels of late-quarter paydowns,
primarily in C&I and CRE
– Home equity continues to decline, consistent
with overall market trends
Average deposit balances up .3% from 2Q17
– Noninterest bearing deposits up 2.5%
(commercial deposit inflows and short-term
escrow balances)
– Growth in certificates of deposit also helped
offset managed exit of certain public sector
deposits
$31.5
$53.8
$6.7
$11.1
.00%
.10%
.20%
.30%
.40%
.50%
.60%
.70%
$25
$45
$65
$85
$105
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
7
3Q17 Average Deposit Mix
Average deposit growth of 9% from 3Q16
– Growth primarily reflects a full-quarter
impact of FNFG (vs. 2 months in 3Q16)
– 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)
$95
.21%
.28%
Deposit cost up 2 bps from 2Q17
– Largely driven by contractual commercial
rate increases and deposit mix
3Q17 beta of 17% (total interest-bearing deposits)
2.85%
3.15%
2.79%
2.99%
2.0%
2.5%
3.0%
3.5%
4.0%
$0
$200
$400
$600
$800
$1,000
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
NIM Change vs. Prior Quarter 2Q17: 3.30%
PAA finalization (.14)
PAA (3Q vs. 2Q) (.03)
Net interest rate benefit .03
Loan fees (.01)
Total change (.15)
3Q17: 3.15%
Net interest income up $27 MM from 2Q17, excl. PAA
– Reflects higher earning asset yields and balances
8TE = 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 Reported NIM (TE)
Excluding impact of PAA, 3Q17 net interest income
was $914 MM and net interest margin was 2.99%
Net interest income up $145 MM from 3Q16, excl. PAA
– Largely driven by the First Niagara acquisition
and higher earning 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)
$788
$962
(a)
NIM (TE); excl. PAAx
$100 $48
$19
3Q16 4Q16 1Q17 2Q17 3Q17
NIM – reported 2.85% 3.12% 3.13% 3.30% 3.15%
PAA .06 .19 .18 .19 .16
PAA refinement/ finalization - .11 - .14 -
NIM – excl. PAA 2.79 2.82 2.95 2.97 2.99
NII – reported ($MM) $ 788 $ 948 $ 929 $ 987 $ 962
PAA 19 58 53 58 48
PAA refinement/ finalization - 34 - 42 -
$34 MM related to contractual maturities;
$14 MM related to prepayments
FNFG loan mark at 9/30/17: $302 MM ($238 MM purchased
performing, $64 MM purchased credit impaired)
Purchased credit impaired accretable yield at 9/30/17: $150 MM
9
Noninterest Income
Noninterest Income
$ in millions Up / (Down) 3Q17 vs. 3Q16 vs. 2Q17
Trust and investment services income $ 135 $ 13 $ 1
Investment banking and debt
placement fees
141 (15) 6
Service charges on deposit accounts 91 6 1
Operating lease income and other
leasing gains
16 10 (14)
Corporate services income 54 3 (1)
Cards and payments income 75 9 5
Corporate-owned life insurance 31 2 (2)
Consumer mortgage income 7 1 1
Mortgage servicing fees 21 6 6
Net gains (losses) from principal
investing
3 (2) 3
Other income 18 10 (67)
Total noninterest income $ 592 $ 43 $ (61)
Notable items(a) (5) 7 (66)
Total noninterest income, excluding
notable items(b)
$ 597 $ 36 $ 5
Highlights
Noninterest income up $36 MM from 3Q16, excl.
notable items(a),(b)
‒ Reflects a full-quarter impact of FNFG (vs. 2
months in 3Q16)
‒ Broad-based growth offset decline in
investment banking and debt placement
fees (strong market conditions in prior
year)
Noninterest income up $5MM from 2Q17, excl.
notable items(a),(b)
‒ Growth in fee-based businesses, including
investment banking and debt placement
fees, mortgage servicing fees, and cards
and payments income
‒ Lower operating lease income and other
leasing gains (lease residual losses of
$13 MM in 3Q17)
(a) Notable items include 3Q17 include $(5) MM merchant services gain adjustment; notable items in 3Q16 include $(12) of merger-related charges; notable items
in 2Q17 include merchant services gain of $64 MM and $(3) MM associated with purchase accounting finalization
(b) Non-GAAP measure
vs. Prior Year
vs. Prior Quarter
$ in millions Up / (Down) 3Q17 vs. 3Q16 vs. 2Q17
Personnel $ 558 $ (36) $ 7
Net occupancy 74 1 (4)
Computer processing 56 (14) 1
Business services, professional fees 49 (27) 4
Equipment 29 3 2
Operating lease expense 24 9 3
Marketing 34 2 4
FDIC assessment 21 - -
Intangible asset amortization 25 12 3
OREO expense, net 3 - -
Other expense 119 (40) (23)
Total noninterest expense $ 992 $ (90) $ (3)
Merger-related charges(a) 36 (153) (8)
Other notable items(a) - - (16)
Total noninterest expense, excluding
notable items(a),(c) $ 956 $ 63 $ 21
10
Noninterest Expense
Noninterest Expense
(a) Notable items of $36 MM in 3Q17 (merger-related charges), $189 MM in 3Q16 (merger-related charges) and $60 MM in 2Q17 (merger-related charges,
charitable contribution and purchase accounting finalization); 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 $63 MM, excl. notable
items(a),(c)
– Reflects full-quarter impact of FNFG, recent
acquisitions and business investments
vs. Prior Year
vs. Prior Quarter
Notable items:
Noninterest expense up $21 MM, excl. notable
items(a),(c)
– Reflects recent acquisitions: HelloWallet and
merchant services (totaling $8 MM)
– Seasonal trends in marketing ($5 MM) and
personnel ($5 MM)
– Higher business services and professional
fees related to short-term initiatives ($3 MM)
$ in millions 3Q17 3Q16 2Q17
Merger-related charges $36 $189 $44
Charitable contribution(b) - - 20
Purchase accounting finalization(b) - - (4)
$36 $189 $60
11
Nonperforming Loans(a)
Net Charge-offs & Provision for Credit Losses
$ in millions
Credit Quality
Allowance for Loan and Lease Losses
$ in millions
$44
$32
$59
$51
.23%
.15%
.00%
.20%
.40%
.60%
.80%
1.00%
$0
$25
$50
$75
$100
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
NCOs Provision for credit
losses
NCOs to average loans
$723
$517
.85%
.60%
.00%
.40%
.80%
1.20%
1.60%
2.00%
$0
$200
$400
$600
$800
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
NPLs NPLs to period-end loans
NCO = Net charge-off
(a) Nonperforming loan balances exclude $783 million and $959 million of purchased credit impaired loans at September 30, 2017 and September 30, 2016,
respectively
$865 $880
120%
170%
0%
50%
100%
150%
200%
250%
$600
$700
$800
$900
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Allowance for loan and
lease losses to NPLs
Allowance for loan
and lease losses
Acquired Loans
3Q17 allowance for loan losses
to period-end loans of 1.02%
3Q17 NCOs reflect continued portfolio
strength and large C&I recovery
$12
$36 $38
$50
$72
.05%
.17% .18%
.25%
.40%
.00%
.20%
.40%
.60%
$0
$20
$40
$60
$80
3Q16 4Q16 1Q17 2Q17 3Q17
$ in millions
Allowance for
acquired loans
Acquired loan allowance to
period-end acquired loans
12
Strong capital position with Common Equity
Tier 1 ratio of 10.26%(a) at 9/30/17
− Increase in 9/30/17 capital measures
primarily reflects a change in methodology
for multipurpose facilities(c)
Repurchased $277 MM(d) in common shares
during 3Q17
Tangible Common Equity to Tangible Assets(b)
Highlights
(a) 9/30/17 ratios are estimated
(b) Non-GAAP measure: see Appendix for reconciliation
(c) Increase in 9/30/17 capital measures primarily reflects implementation of methodology for commitments to issue standby letters of credit that were issued under
multipurpose facilities; these multipurpose facilities are now presented as commitments to extend credit
(d) Common share repurchase amount includes repurchases to offset issuances of common shares under our employee compensation plans
9.56%
10.26%
6.00%
8.00%
10.00%
12.00%
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
8.27% 8.49%
0.00%
2.50%
5.00%
7.50%
10.00%
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Common Equity Tier 1(a)
Capital
Outlook and Expectations
Average Balance
Sheet
• Loans: 4Q17 average balances in the range of $87.0 B - $87.5 B
• 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
• 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, HelloWallet and Cain Brothers acquisitions
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%
13(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%
14
Appendix
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
15
Loan Portfolio Detail, at 9/30/17
Commercial LoansTotal Loans
C&I
$40
CRE
$18
Outstanding
Balances
Average
Loan Size
Average
FICO
2008/
prior
vintage
First lien $ 7,264 59 % $ 72,531 771 21 %
Second lien 4,973 41 46,417 767 37
Total home equity $ 12,238
Fixed
44%Variable56%
Combined weighted-average LTV at
origination: 70%
$775 million in lines outstanding (6% 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)
9/30/2007 9/30/2017
Commercial mortgage
Construction
53% 88%
Home Equity
$ in billions 9/30/17 % of total
loans
Commercial and industrial $ 41.1 48
Commercial real estate 16.9 20
Commercial lease financing 4.7 5
Total Commercial $ 62.7 73
Residential mortgage $ 5.5 6
Home equity 12.2 14
Consumer direct 1.8 2
Credit card 1.0 1
Consumer indirect 3.2 4
Total Consumer $ 23.7 27
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
16
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
(47% of 3Q17 average balances)
Portfolio used for funding and liquidity
management
– Securities cash flows of $1.5 billion in
3Q17 and $1.4 billion in 2Q17
– $560 million growth in average balance
Average portfolio life at 9/30/17 of 4.2 years
(unchanged from 6/30/17)
(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
1.96%
.00%
1.00%
2.00%
3.00%
4.00%
5.00%
$0.0
$10.0
$20.0
$30.0
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
$29
$ in billions
Securities to Total Assets(b)
22%
21%
10%
15%
20%
25%
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
$24.2
2.02%
Interest Rate Risk Management
Naturally Asset Sensitive Balance Sheet
with Relatively Short Duration(a)
Actively Managing Rate Risk
$15.4
$20.4$9.9
$9.9
Size of swap
portfolio:
Modeled asset
sensitivity : 1-3%
(b) 0%6-8%(b)
$9.9
Loans
1-mo.
Libor: 43%
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: 58%
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
- $15.4 B of swaps for A/L management with 1.9 year WAM
- $9.9 B of debt hedges
• Modestly asset sensitive(b)
- NII impact of 1%-3% for a 200 bps increase over 12 months
Reflects a beta of 0%-55% for deposit repricing for the first
25 bps change in rates and ~55% for the next 175 bps
Assumes replacement of swaps and securities cash flows
9/30/17
Swaps
($ in B)
9/30/17
Notional
Amt.
Wtd. Avg.
Maturity
(Yrs.)
Receive
Rate
Pay
Rate
A/L Management (receive
fixed / pay variable)
$ 15.4 1.9 1.2% 1.2%
Debt 9.9 2.7 1.6 1.2
$ 25.3 2.3 1.4% 1.2%
$25.3 B
17
(a) Loan, deposit and investment portfolio balances reflect 9/30/17 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:
7%
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 ($1-1.5 B maturities /per quarter
remaining in 2018 & 2019)
• Replacement swaps reflect forward curve at time of origination
Investment
Portfolio
Primarily fixed rate
Average life: 4.2 yrs
3Q17 cash flows: $1.5 B
AFS: 65%
HTM: 35%
$29 B
$88 B $103 B
$9.9 B
$30.3 B
18
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 $783 million, $835 million, $812 million, $865 million, and $959 million of purchased credit impaired loans at September
30, 2017, June 30, 2017, March 31, 2017, December 31, 2016, and September 30, 2016, respectively
30 – 89 days delinquent 90+ days delinquent
.37% .38%
.06%
.10%
.00%
.25%
.50%
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
3.3% 3.3%
.0%
2.0%
4.0%
6.0%
4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Metric(b) 3Q17 2Q17 1Q17 4Q16 3Q16
Delinquencies to EOP total loans: 30-89 days .38 % .39 % .36 % .47 % .37 %
Delinquencies to EOP total loans: 90+ days .10 .10 .09 .10 .06
NPLs to EOP portfolio loans(c) .60 .59 .67 .73 .85
NPAs to EOP portfolio loans + OREO + Other NPAs(c) .64 .64 .72 .79 .89
Allowance for loan losses to period-end loans 1.02 1.01 1.01 1.00 1.01
Allowance for loan losses to NPLs 170.2 171.6 151.8 137.3 119.6
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
(%)
9/30/17 3Q17 3Q17 3Q17 9/30/17 9/30/17 9/30/17 9/30/17
Commercial and industrial(a) $ 41,147 $ 41,416 $ 4 .04% $ 169 $ 532 1.29% 314.79%
Commercial real estate:
Commercial Mortgage 14,929 14,850 5 .13 30 138 .92 460.00
Construction 1,954 2,054 2 .39 2 29 1.48 N/M
Commercial lease financing(e) 4,716 4,694 (2) (.17) 11 43 .91 390.91
Real estate – residential mortgage 5,476 5,493 (1) (.07) 57 8 .15 14.04
Home equity 12,238 12,314 2 .06 227 39 .32 17.18
Credit cards 1,045 1,049 10 3.78 2 44 4.21 N/M
Consumer direct loans 1,789 1,774 7 1.57 3 28 1.57 933.33
Consumer indirect loans 3,198 3,170 5 .63 16 19 .59 118.75
Continuing total(f) $ 86,492 $ 86,814 $ 32 .15% $ 517 $ 880 1.02% 170.21%
Discontinued operations 1,372 1,397 8 2.27 8 18 1.31 225.00
Consolidated total $ 87,864 $ 88,211 $ 40 .18% $ 525 $ 898 1.02% 171.05%
Credit Quality by Portfolio
Credit Quality
$ in millions
19
(a) 9/30/17 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) 9/30/17 NPL amount excludes $783 million of purchased credit impaired loans
(d) 9/30/17 allowance by portfolio is estimated
(e) Commercial lease financing includes receivables held as collateral for a secured borrowing of $31 million at September 30, 2017. Principal reductions are based on
the cash payments received from these related receivables.
(f) 9/30/17 ending loan balance includes purchased loans of $16.7 billion, of which $783 million were purchased credit impaired
N/M = Not meaningful
3Q17 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 $ 25 $ 31 $ 30 $ 80 $ 97 $ 35 $ 16 -
Net Occupancy $ (2) $ (1) $ 5 $ 29 - - - -
Business services and professional fees 2 6 5 22 $ 32 $ 5 $ 7 $ 5
Computer processing 4 2 5 38 15 - - -
Marketing 5 6 6 13 9 3 1 -
All other non-personnel 2 - 30 25 36 2 - 1
Total non-personnel expense $ 11 $ 13 $ 51 $ 127 $ 92 $ 10 $ 8 $ 6
Total merger-related charges $ 36 $ 44 $ 81 $ 198 $ 207 $ 45 $ 24 $ 6
EPS impact $ (.02) $ (.03) $ (.05) $ (.11) $ (.14) $ (.04) $ (.02) -
20
FNFG Merger-related Charges
$ in millions
Increase / (Decrease)
Three months ended
9/30/17 6/30/17 9/30/16
Tangible common equity to tangible assets at period end
Key shareholders' equity (GAAP) $15,249 $15,253 14,996$
Less: Intangible assets (a) 2,870 2,866 2,855
Preferred Stock (b) 1,009 1,009 1,150
Tangible common equity (non-GAAP) $11,370 $11,378 10,991$
Total assets (GAAP) $136,733 $135,824 135,805$
Less: Intangible assets (a) 2,870 2,866 2,855
Tangible common equity to tangible assets ratio (non-GAAP) $133,863 $132,958 132,950$
Tangible common equity to tangible assets ratio (non-GAAP) 8.49% 8.56% 8.27%
Notable Items
Merger-related charges (36)$ (44)$ (207)$
Merchant services gain (5) 64 -
Purchase accounting finalization, net - 43 -
Charitable contribution - (20) -
Total notable items (41)$ 43$ (207)$
Income taxes (13) 16 (75)
Total notable items after tax (28)$ 27$ (132)$
Earnings per common share (EPS) excluding notable items
EPS from continuing operations attributable to Key common shareholders
─ assuming dilution .32$ .36$ .16$
Add: EPS impact of notable items .03 (.02) .14
EPS from continuing operations attributable to Key common shareholders
excluding notable items (non-GAAP) .35$ .34$ .30$
Pre-provision net revenue excluding notable items
Net interest income (GAAP) 948$ 973$ 780$
Plus: Taxable-equivalent adjustment 14 14 8
Noninterest income 592 653 549
Less: Noninterest expense 992 995 1,082
Pre-provision net revenue from continuing operations 562$ 645$ 255$
Plus: Notable items 41 (43) 207
Pre-provision net revenue from continuing operations excluding notable items (non-GAAP) 603$ 602$ 462$
GAAP to Non-GAAP Reconciliation
21
(a) For the three months ended September 30, 2017, June 30, 2017, and September 30, 2016, intangible assets exclude $30 million, $33 million, and $51 million,
respectively, of period-end purchased credit card receivables
(b) Net of capital surplus
$ in millions
Three months ended
9/30/17 6/30/17 3/31/17 12/31/16 9/30/16
Average tangible common equity
Average Key shareholders' equity (GAAP) 15,241$ 15,200$ 15,184$ 14,901$ 13,552$
Less: Intangible assets (average) (a) 2,878 2,756 2,772 2,874 2,255
Preferred Stock (average) 1,025 1,025 1,480 1,274 648
Average tangible common equity (non-GAAP) 11,338$ 11,419$ 10,932$ 10,753$ 10,649$
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP) 349$ 393$ 296$ 213$ 165$
Plus: Notable items, after tax 28 (27) 51 124 132
Net income (loss) from continuing operations attributable to Key common shareholders excl. notable items 377$ 366$ 347$ 337$ 297$
Average tangible common equity (non-GAAP) 11,338 11,419 10,932 10,753 10,649
Return on average tangible common equity from continuing operations (non- GAAP) 12.21% 13.80% 10.98% 7.88% 6.16%
Return on average tangible common equity from continuing operations excl. notable items (non- GAAP) 13.19% 12.86% 12.87% 12.47% 11.10%
Cash efficiency ratio
Noninterest expense (GAAP) 992$ 995$ 1,013$ 1,220$ 1,082$
Less: Intangible asset amortization 25 22 22 27 13
Adjusted noninterest expense (non-GAAP) 967$ 973$ 991$ 1,193$ 1,069$
Less: Notable items (b) 36 60 81 207 189
Adjusted noninterest expense excluding notable items (non-GAAP) 931$ 913$ 910$ 986$ 880$
Net interest income (GAAP) 948$ 973$ 918$ 938$ 780$
Plus: Taxable-equivalent adjustment 14 14 11 10 8
Noninterest income 592 653 577 618 549
Total taxable-equivalent revenue (non-GAAP) 1,554$ 1,640$ 1,506$ 1,566$ 1,337$
Plus: Notable items (c) 5 (103) - (9) 18
Adjusted total taxable-equivalent revenue excl. notable items (non-GAAP) 1,559$ 1,537$ 1,506$ 1,557$ 1,355$
Cash efficiency ratio (non-GAAP) 62.2% 59.3% 65.8% 76.2% 80.0%
Cash efficiency ratio excluding notable items (non-GAAP) 59.7% 59.4% 60.4% 63.3% 64.9%
GAAP to Non-GAAP Reconciliation (continued)
22
(a) For the three months ended September 30, 2017, June 30, 2017, March 30, 2017, December 31, 2016, and September 30, 2016, average intangible assets
exclude $32 million, $36 million, $40 million, $46 million, and $47 million, respectively, of average purchased credit card receivables
(b) Notable items for the three months ended September 30, 2017, includes $36 million of merger-related charges
(c) Notable items for the three months ended September 30, 2017, includes a $5 million adjustment related to the merchant services acquisition gain
$ in millions