Attached files
| file | filename |
|---|---|
| EX-99.3 - EXHIBIT 99.3 - KEYCORP /NEW/ | a4q17erex993.htm |
| EX-99.1 - EXHIBIT 99.1 - KEYCORP /NEW/ | a4q17earningsrelease.htm |
| 8-K - 8-K - KEYCORP /NEW/ | a4q17er8-k.htm |
KeyCorp
Fourth Quarter 2017 Earnings Review
January 18, 2018
Beth E. Mooney
Chairman and
Chief Executive Officer
Don Kimble
Chief Financial Officer
FORWARD-LOOKING STATEMENTS AND ADDITIONAL
INFORMATION
2
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 18 of our Form 10-Q dated September 30, 2017.
GAAP: Generally Accepted Accounting Principles
3
2017 – A Step Change in Performance
Driving
Stronger
Returns
Strong Risk
Management
Disciplined
Capital
Management
Maintained strong capital position
− CET1 ratio of 10.1%(b)
Two common share dividend increases in 2017 (up 24% from year-end 2016)
$730MM(c) of common share repurchases in 2017
Maintained credit discipline, strong asset quality
− Net charge-offs to average loans of .24%; portfolios continue to perform well
− Nonperforming loans to period-end loans of .58%
Achieved significant milestones with Key and First Niagara value attainment objectives
− Annual run-rate cost savings of over $400 million
− Cash efficiency ratio declined by 410 bps, to 60.2%(a) FY2017
− Revenue synergies generated through new and expanded relationships
− Return on tangible common equity increased by 282 bps, to 13.1%(a) FY2017
5th consecutive year of positive operating leverage
Continued momentum in fee-based businesses, with investments accelerating growth
− Record quarter and year for investment banking & debt placement fees ($603 MM in FY2017)
− Record level of cards and payments income (+23% from 2016)
Strategic investments strengthen franchise and position company for future growth
− Cain Brothers, HelloWallet, merchant services, residential mortgage
(a) Non-GAAP measure and excludes notable items; see Appendix for detail and reconciliations
(b) 12/31/17 ratio is estimated
(c) Common share repurchase amount includes repurchases to offset issuances of common shares under our employee compensation plans
Long-term Targets
4
FY 2017 New LT TargetsFY 2015 Previous LT Targets
Positive operating
leverage (YoY)
Drive YoY
positive
operating
leverage
Drive YoY
positive
operating
leverage
Maintain moderate
risk profile
Net charge-offs
to avg. loans
targeted range of
40-60 bps
24 bps 24 bps
Net charge-offs
to avg. loans
targeted range of
40-60 bps
Return on average
tangible common
equity(a)
13.1%(b) 15 - 18%9.6% 13 - 15%
Cash efficiency
ratio(a) 54% - 56%65.9% 60.2%
(b) < 60%
(a) Non-GAAP measure; see Appendix and 2015 Form 10-K for reconciliations
(b) Excludes notable items; see Appendix for detail and reconciliations
5
Financial Review
63.3%
60.4%
59.4% 59.7%
61.3%
4Q16 1Q17 2Q17 3Q17 4Q17
6
Financial Highlights
EOP = End of Period
(a) Non-GAAP measure: see Appendix for reconciliation
(b) Notable items include merger-related charges (all periods); impact of tax
reform and related actions in 4Q17; merchant services gain adj. in 3Q17;
merchant services gain, purchase accounting finalization, and charitable
contribution in 2Q17; see Appendix for detail on merger-related charges
EPS – assuming dilution .17 $ .32 .20 (47) % (15) %
EPS – excl. notable items(a), (b) .36 .35 .31 3 16
Cash efficiency ratio(a) 66.7 % 62.2 % 76.2 % 450 bps (950) bps
Cash efficiency –excl. notable items(a), (b) 61.3 59.7 63.3 160 (200)
Return on average tangible common equity(a) 6.4 12.2 7.9 (580) (150)
ROTCE – excl. notable items(a), (b) 13.6 13.2 12.5 40 110
Common Equity Tier 1(d) 10.08 % 10.26 % 9.54 % (18) bps 54 bps
Tier 1 risk-based capital(d) 10.93 11.11 10.89 (18) 4
Tangible common equity to tangible assets(a) 8.23 8.49 8.09 (26) 14
NCOs to average loans .24 % .15 % .34 % 9 bps (10) bps
NPLs to EOP portfolio loans(e) .58 .60 .73 (2) (15)
Allowance for loan and lease losses to EOP loans 1.01 1.02 1.00 (1) 1
Asset
Quality
Profitability
Continuing operations, unless otherwise noted 4Q17 3Q17 4Q16 LQ ∆ Y/Y ∆
(c) From consolidated operations
(d) 12/31/17 ratios are estimated
(e) Nonperforming loan balances exclude $738 million, $783 million, and $865 million of
purchased credit impaired loans at December 31, 2017, September 30, 2017, and
December 31, 2016, respectively
Cash Efficiency Ratio(a)
excl. notable items(b)
12.5% 12.9% 12.9%
13.2% 13.6%
4Q16 1Q17 2Q17 3Q17 4Q17
ROTCE(a)
excl. notable items(b)
0.34%
0.27%
0.31%
0.15%
0.24%
4Q16 1Q17 2Q17 3Q17 4Q17
NCOs to Avg. Loans
Capital(c)
$0
$30
$60
$90
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
$10
$20
$30
$40
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
7
Loans
$ in billions
Average Commercial & Industrial Loans
$ in billions
ConsumerCommercial
vs. Prior Year
Total Average Loans Highlights
Average loans up 1% from 4Q16
– Broad-based C&I growth
– Strength in indirect auto lending
– Partially offset by higher levels of paydowns,
primarily in CRE, and continued decline in
home equity
$86$85
$39 $41
vs. Prior Quarter
Average loans down 1% from 3Q17
– CRE was negatively impacted by significantly
higher debt placements and paydowns
– Commercial balances declined $500 MM
related to lower line utilization
– Home equity continues to decline, consistent
with overall market trends
Deposit cost up 3 bps from 3Q17
– Cumulative beta of 21% since December 2015
(contractual commercial rates and relationship rates)
– Continued migration of portfolio into time deposits
Deposit mix: 31% noninterest-bearing (+$762 MM
vs. 3Q17)
Average deposit balances up 1% from 3Q17
– Noninterest bearing deposits up 2%,
reflecting seasonal deposit inflows
– Growth in certificates of deposit from core
retail clients
$32.3
$53.6
$6.4
$11.5
.00%
.10%
.20%
.30%
.40%
.50%
.60%
.70%
$25
$45
$65
$85
$105
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
8
4Q17 Average Deposit Mix
Average deposit down 1% from 4Q16
– Decline reflects lower escrow deposits and
short-term commercial deposits partially
offset by core retail and commercial deposit
growth
(a) Consumer includes retail banking, small business, and private banking
Cost of total deposits
CDs and other time deposits
Savings
Noninterest-bearing
NOW and MMDA
Total average deposits
Deposits
$ in billions
$ in billions
vs. Prior Year
vs. Prior Quarter
$104
60%
40%
Commercial and corporate
Consumer(a)
$105
.22%
.31%
Average Deposits Highlights
3.12% 3.09%
2.82%
2.97%
2.0%
2.5%
3.0%
3.5%
4.0%
$0
$200
$400
$600
$800
$1,000
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
NIM Change vs. Prior Quarter 3Q17: 3.15%
PAA (4Q vs. 3Q) (.04)
Increased liquidity (.03)
Interest rate benefit .01
Total change (.06)
4Q17: 3.09%
Net interest income stable from 3Q17, excl. PAA
– Reflects decline in loan balances from higher
paydowns; partially offset by higher interest rates
9TE = Taxable equivalent PAA = Purchase accounting accretion(a) 3Q16 Net interest income included $6 million of merger-related charges; see Appendix for detail on merger-related charges
(b) 4Q17 purchase accounting accretion of $38 MM is made up of $26 MM related to contractual maturities and $12 MM related to prepayments
Net interest income (TE), excl. PAA
Reported NIM (TE)
Excluding impact of PAA, 4Q17 net interest income
was $914 MM and net interest margin was 2.97%
Net interest income up $58 MM from 4Q16, excl. PAA
– Largely driven by higher interest rates and low
deposit betas
Net Interest Income and Margin
$ in millions; continuing operations
vs. Prior Year
vs. Prior Quarter
Purchase accounting accretion (PAA)
$948 $952
(a)
NIM (TE); excl. PAAx
$38
$92
4Q16 1Q17 2Q17 3Q17 4Q17
NIM – reported 3.12% 3.13% 3.30% 3.15% 3.09%
PAA .19 .18 .19 .16 .12
PAA refinement/ finalization .11 - .14 - -
NIM – excl. PAA 2.82 2.95 2.97 2.99 2.97
NII – reported ($MM) $ 948 $ 929 $ 987 $ 962 $ 952
PAA 58 53 58 48 38
PAA refinement/ finalization 34 - 42 - -
NII – excl. PAA $856 $876 $877 $914 $914
FNFG loan mark at 12/31/17: $266MM ($208 MM purchased
performing, $58 MM purchased credit impaired)
Purchased credit impaired accretable yield at 12/31/17: $131 MM
Net Interest Income & Net Interest Margin Trend (TE) Highlights
(b)
10
Noninterest Income
Noninterest Income
$ in millions Up / (Down) 4Q17 vs. 4Q16 vs. 3Q17
Trust and investment services income $ 131 $ 8 $ (4)
Investment banking and debt
placement fees
200 43 59
Service charges on deposit accounts 89 5 (2)
Operating lease income and other
leasing gains
27 6 11
Corporate services income 56 (5) 2
Cards and payments income 77 8 2
Corporate-owned life insurance 37 (3) 6
Consumer mortgage income 7 1 -
Mortgage servicing fees 17 (3) (4)
Net gains (losses) from principal
investing
3 (1) -
Other income 12 (21) (6)
Total noninterest income $ 656 $ 38 $ 64
Notable items(a) - (9) 5
Total noninterest income, excluding
notable items(b)
$ 656 $ 47 $ 59
Noninterest income up $47 MM from 4Q16, excl.
notable items(a),(b)
‒ Continued momentum in many fee-based
businesses:
Record investment banking and debt
placement fees (+$43 MM)
Trust and investment services income
(+$8 MM)
Cards and payments income (+$8 MM)
Noninterest income up $59 MM from 3Q17, excl.
notable items(a),(b)
‒ Record quarter for investment banking and
debt placement fees (+$59 MM) related to
broad-based growth, as well as the
acquisition of Cain Brothers
‒ Partially offset by a decline in other income
related to the impairment of certain tax-
advantaged assets ($7 MM)
(a) Notable items in 3Q17 include $(5) MM merchant services gain adjustment; notable items in 4Q16 include $9 MM of merger-related charges
(b) Non-GAAP measure
vs. Prior Year
vs. Prior Quarter
Highlights
$ in millions Up / (Down) 4Q17 vs. 4Q16 vs. 3Q17
Personnel $ 608 $ (40) $ 50
Net occupancy 92 (20) 18
Computer processing 54 (43) (2)
Business services, professional fees 52 (26) 3
Equipment 31 1 2
Operating lease expense 28 11 4
Marketing 35 - 1
FDIC assessment 20 (3) (1)
Intangible asset amortization 26 (1) 1
OREO expense, net 3 - -
Other expense 149 (1) 30
Total noninterest expense $ 1,098 $ (122) $ 106
Merger-related charges 56 (151) 20
Tax-related impact 29 29 29
Total noninterest expense, excluding
notable items(a),(b) $ 1,013 $ - $ 57
11
Noninterest Expense
(a) Notable items of $85 MM in 4Q17 (merger-related charges and impact of tax reform and related actions), $207 MM in 4Q16 (merger-related charges) and
$36 MM in 3Q17 (merger-related charges); see Appendix for detail on merger-related charges and estimated impact of tax reform and related actions
(b) Non-GAAP measure
Noninterest expense stable, excl. notable
items(a),(b)
– Reflects recent acquisitions: Cain Brothers,
HelloWallet, merchant services, and
investments in residential mortgage platform
– Higher operating lease expense
– Offset by the realization of merger cost
savings
vs. Prior Year
vs. Prior Quarter
Notable items:
Noninterest expense up $57 MM, excl. notable
items(a),(b)
– Reflects Cain Brothers acquisition ($36 MM)
early in fourth quarter
– Higher incentive compensation related to
strong capital markets performance
$ in millions 4Q17 4Q16 3Q17
Merger-related charges $56 $207 $36
Impact of tax reform and related actions 29 - -
$85 $207 $36
Notable items(a):
Noninterest Expense Highlights
12
$ in millions
Credit Quality
$ in millions
$72
$52
$66
$49
.34%
.24%
.00%
.20%
.40%
.60%
.80%
1.00%
$0
$25
$50
$75
$100
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
NCOs Provision for credit
losses
NCOs to average loans
$625
$503
.73%
.58%
.00%
.40%
.80%
1.20%
1.60%
2.00%
$0
$200
$400
$600
$800
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
NPLs NPLs to period-end loans
NCO = Net charge-off
(a) Nonperforming loan balances exclude $738 million and $865 million of purchased credit impaired loans at December 31, 2017, and December 31, 2016,
respectively
$858 $877
137%
174%
0%
50%
100%
150%
200%
250%
$600
$700
$800
$900
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
Allowance for loan and
lease losses to NPLs
Allowance for loan
and lease losses
Nonperforming Loans(a) Acquired Loans
4Q17 allowance for loan losses to
period-end loans of 1.01%
$36 $38
$50
$72 $72
.17%
.18%
.25%
.40%
.45%
.00%
.20%
.40%
.60%
$0
$20
$40
$60
$80
4Q16 1Q17 2Q17 3Q17 4Q17
$ in millions
Allowance for
acquired loans
Acquired loan allowance to
period-end acquired loans
Allowance for Loan and Lease LossesNet Charge-offs & Provision for Credit Losses
Common Equity Tier 1(a)
13
Strong capital position with Common Equity
Tier 1 ratio of 10.08%(a) at 12/31/17
Repurchased $199 MM(c) in common shares
during 4Q17
Increased common share dividend to $.105 per
common share in 4Q17; 11% increase from PQ
and 24% increase for FY17
The impact of tax reform reduced Key’s Common
Equity Tier 1 ratio by 14 bps
− This does not change any of Key’s
previously announced planned capital
actions
Tangible Common Equity to Tangible Assets(b)
(a) 12/31/17 ratios are estimated
(b) Non-GAAP measure: see Appendix for reconciliation
(c) Common share repurchase amount includes repurchases to offset issuances of common shares under our employee compensation plans
9.54%
10.08%
6.00%
8.00%
10.00%
12.00%
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
8.09% 8.23%
0.00%
2.50%
5.00%
7.50%
10.00%
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
Capital
Highlights
Outlook and Expectations
Average Balance
Sheet
• Loans: average balances in the range of $88.5 B - $89.5 B
• Deposits: average balances in the range of $104.5 B - $105.5 B
Net Interest Income • Net interest income expected to be in the range of $3.9 B - $4.0 B
• Outlook includes one rate increase in June 2018
Noninterest Income • Expected to be in the range of $2.5 B - $2.6 B
Noninterest
Expense
• Expected to be in the range of $3.85 B - $3.95 B
− Includes remaining First Niagara cost savings of $50 million in early 2018
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 18% - 19%
14
FY 2018
Long-term Targets
Positive operating
leverage
Cash efficiency ratio:
54%-56%
Moderate risk profile:
Net charge-offs to avg. loans
targeted range of 40-60 bps
ROTCE:
15-18%
15
Appendix
Total Loans Commercial Loans
Agriculture
Automotive
Business Products
Business Services
Construction
Consumer
Discretionary
Consumer
Services
Equipment
Finance
HealthcareMaterials/
ExtractionMedia
Oil & Gas
Other
Public Sector
Real Estate
Technology
Transportation
Utilities
16
Loan Portfolio Detail, at 12/31/17
C&I
$40
CRE
$18
Outstanding
Balances
Average
Loan Size
Average
FICO
2008/
prior
vintage
First lien $ 7,140 59 % $ 72,266 771 20 %
Second lien 4,888 41 46,627 768 35
Total home equity $ 12,028
Fixed
45%Variable55%
Combined weighted-average LTV at
origination: 70%
$653 million in lines outstanding (5% 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)
12/31/2007 12/31/2017
Commercial mortgage
Construction
54% 88%
Home Equity
$ in billions 12/31/17 % of total
loans
Commercial and industrial $ 41.9 48
Commercial real estate 16.0 19
Commercial lease financing 4.8 6
Total Commercial $ 62.7 73
Residential mortgage $ 5.5 6
Home equity 12.0 14
Consumer direct 1.8 2
Credit card 1.1 1
Consumer indirect 3.3 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
Average Total Investment Securities
17
Average AFS securities
Investment Portfolio
(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
1.87%
1.00%
1.50%
2.00%
2.50%
3.00%
$0.0
$10.0
$20.0
$30.0
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
$29.6
$ in billions
Securities to Total Assets(b)
22% 22%
10%
15%
20%
25%
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
$29.3
2.06%
Portfolio composed primarily of GNMA and GSE-
backed MBS and CMOs
‒ Primarily fixed rate
‒ GNMA 45% of 4Q17 average balances
Portfolio used for funding and liquidity
management:
‒ Securities cash flows of $1.4 billion in 4Q17
‒ $525 million growth in average balance
– Reinvesting cash flows into High Quality
Liquid Assets
Replaced cash flows at higher yields during 4Q17
− New investments yield 2.89% vs. 4Q17 cash
flows at 2.11%
Portfolio average life of 4.5 years and duration of
4.0 years at 12/31/17
Highlights
18
Interest Rate Risk Management
The strength and diversity of our franchise positions Key to benefit from economic
growth and a rising rate environment
Business and Balance Sheet Highlights Net Interest Income Sensitivities (FY18) ($MM)
• Strong, low-cost deposit base
– $72B interest-bearing deposits at 45 bps
– $32B noninterest-bearing deposits
– ~65% stable retail and low-cost escrow
– > 85% from markets where Key maintains top-5 deposit or
branch share
– $88MM deposits per branch, up 20% vs. pre-FNFG
– Payments investments drive commercial deposit growth
• Relationship-oriented lending franchise
– Distinctive commercial capabilities drive C&I loan growth and
~70% floating-rate loan mix
– Recent investments in residential mortgage and auto lending
enhance Key’s growth trajectory and balance our ALM
position
• Disciplined balance sheet management with
recurring re-investment opportunities
– $30B securities portfolio is >99% government-guaranteed and
generates ~$500MM cash flows per month
– Discretionary hedge activities (~$16B) help moderate interest
rate risk exposure while providing near-term earnings upside
($5.4B swaps mature through 4Q18 at weighted-average
receive rate of .98%)
• Modestly asset sensitive positioning(b)
– NII impact of 3%-5% for a 200 bps increase over 12 months
Reflects a deposit repricing beta that ramps from ~25%
to 50%
– Assumes replacement of swaps and securities cash flows
– Each 25 bps increase in the Fed Funds rate is equivalent to
an additional $12 MM of net interest income per quarter
(change vs. FY 2018 outlook)(a)
$24
$24
$12
$12
$24
$36
No June Fed Funds rate hike
$1B less loan growth
5% higher beta
5% lower beta
$1B additional loan growth
One additional Fed Funds rate
hike (March)
(a) Outlook and Expectations for FY 2018 is as described on page 14 of this presentation and assumes market forward interest rates as of December 2017 and
deposit betas increasing modestly from recent levels.
(b) Simulation analysis for net interest income is described in Figure 34 of Key’s 2016 Form 10-K
Criticized Outstandings(a) to Period-end Total LoansDelinquencies to Period-end Total Loans
19
Credit Quality Trends
(a) Loan and lease outstandings; excludes purchase credit impaired loans from the First Niagara acquisition
(b) From continuing operations
(c) Nonperforming loan balances exclude $738 million, $783 million, $835 million, $812 million, and $865 million of purchased credit impaired loans at December 31,
2017, September 30, 2017, June 30, 2017, March 31, 2017, and December 31, 2016, respectively
30 – 89 days delinquent 90+ days delinquent
.47%
.42%
.10% .10%
.00%
.25%
.50%
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
3.2% 3.4%
.0%
2.0%
4.0%
6.0%
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
Metric(b) 4Q17 3Q17 2Q17 1Q17 4Q16
Delinquencies to EOP total loans: 30-89 days .42 .38 .39 .36 .47 %
Delinquencies to EOP total loans: 90+ days .10 .10 .10 .09 .10
NPLs to EOP portfolio loans(c) .58 .60 .59 .67 .73
NPAs to EOP portfolio loans + OREO + Other NPAs(c) .62 .64 .64 .72 .79
Allowance for loan losses to period-end loans 1.01 1.02 1.01 1.01 1.00
Allowance for loan losses to NPLs 174.4 170.2 171.6 151.8 137.3
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
(%)
12/31/17 4Q17 4Q17 4Q17 12/31/17 12/31/17 12/31/17 12/31/17
Commercial and industrial(a) $ 41,859 $ 41,289 $ 24 .23% $ 153 $ 529 1.26% 345.75%
Commercial real estate:
Commercial Mortgage 14,088 14,386 1 .03 30 133 .94 443.33
Construction 1,960 1,967 - - 2 30 1.53 N/M
Commercial lease financing(e) 4,826 4,687 4 .34 6 43 .89 716.67
Real estate – residential mortgage 5,483 5,474 1 .07 58 7 .13 12.07
Home equity 12,028 12,128 4 .13 229 43 .36 18.78
Credit cards 1,106 1,061 9 3.37 2 44 3.98 N/M
Consumer direct loans 1,794 1,782 6 1.34 4 28 1.56 700.00
Consumer indirect loans 3,261 3,232 3 .37 19 20 .61 105.26
Continuing total(f) $ 86,405 $ 86,006 $ 52 .24% $ 503 $ 877 1.01% 174.35%
Discontinued operations 1,314 1,337 4 1.19 7 16 1.22 228.57
Consolidated total $ 87,719 $ 87,343 $ 56 .25% $ 510 $ 893 1.02% 175.10%
Credit Quality by Portfolio
Credit Quality
$ in millions
20
(a) 12/31/17 ending loan balance includes $119 million of commercial credit card balances; average loan balance includes $119 million of assets from commercial
credit cards
(b) Net loan charge-off amounts are annualized in calculation
(c) 12/31/17 NPL amount excludes $738 million of purchased credit impaired loans
(d) 12/31/17 allowance by portfolio is estimated
(e) Commercial lease financing includes receivables held as collateral for a secured borrowing of $24 million at December 31, 2017. Principal reductions are based on
the cash payments received from these related receivables.
(f) 12/31/17 ending loan balance includes purchased loans of $15.4 billion, of which $738 million were purchased credit impaired
N/M = Not meaningful
4Q17 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 $ 26 $ 25 $ 31 $ 30 $ 80 $ 97 $ 35 $ 16 -
Net Occupancy $ 12 $ (2) $ (1) $ 5 $ - - - -
Business services and professional fees 3 2 6 5 22 $ 32 $ 5 $ 7 $ 5
Computer processing 1 4 2 5 38 15 - - -
Marketing 5 5 6 6 13 9 3 1 -
All other non-personnel 9 2 - 30 25 36 2 - 1
Total non-personnel expense $ 30 $ 11 $ 13 $ 51 $ 127 $ 92 $ 10 $ 8 $ 6
Total merger-related charges $ 56 $ 36 $ 44 $ 81 $ 198 $ 207 $ 45 $ 24 $ 6
EPS impact $ (.03) $ (.02) $ (.03) $ (.05) $ (.11) $ (.14) $ (.04) $ (.02) -
21
FNFG Merger-related Charges
$ in millions
Increase / (Decrease)
22
Estimated Impact of Tax Reform and Related Actions
Estimated Federal
Tax Reform Impact
Tax Reform
Related Actions
Total Estimated
Tax Reform Impact
Net interest income (TE) - - -
Noninterest income $ (1) - $ (1)
Noninterest expense 29
Personnel expense - $ 16 16
Nonpersonnel expense 13 - 13
Provision - - -
Pre-tax Income (14) (16) (30)
Income tax expense $ 147 $ (6) $ 141
Net Income $ (161) $ (10) $ (171)
EPS Impact $ (.15) $ (.01) $ (.16)
$ in millions
Key’s GAAP tax rate for 2018 is expected to be in the range of 18-19%
(a) Estimated expense related to the impairment of certain tax-advantaged assets resulting from recent tax reform
(b) Estimated incremental income tax expense related to the revaluation of deferred tax assets and liabilities
(c) Discretionary employee retirement contribution made by Key
(c)
(a)
(b)
(a)
Three months ended
12/31/2017 9/30/2017 12/31/2016 12/31/2017 12/31/2016
Notable Items
Merger-related charges (56)$ (36)$ (198)$ (217)$ (474)$
Impacts of tax reform and related actions (30) - - (30) -
Merchant services gain - (5) - 59 -
Purchase accounting finalization, net - - - 43 -
Charitable contribution - - - (20) -
Total notable items (86)$ (41)$ (198)$ (165)$ (474)$
Income taxes (26) (13) (74) (53) (175)
Revaluation of certain tax related assets 147 - - 147 -
Total notable items after tax (207)$ (28)$ (124)$ (259)$ (299)$
Earnings per common share (EPS) excluding notable items
EPS from continuing operations attributable to Key common shareholders
─ assuming dilution .17$ .32$ .20$
Add: EPS impact of notable items .19 .03 .11
EPS from continuing operations attributable to Key common shareholders
excluding notable items (non-GAAP) .36$ .35$ .31$
Tangible common equity to tangible assets at period end
Key shareholders' equity (GAAP) 15,023$ 15,249$ 15,240$
Less: Intangible assets (a) 2,928 2,870 2,788
Preferred Stock (b) 1,009 1,009 1,640
Tangible common equity (non-GAAP) 11,086$ 11,370$ 10,812$
Total assets (GAAP) 137,698$ 136,733$ 136,453$
Less: Intangible assets (a) 2,928 2,870 2,788
Tangible common equity to tangible assets ratio (non-GAAP) 134,770$ 133,863$ 133,665$
Tangible common equity to tangible assets ratio (non-GAAP) 8.23% 8.49% 8.09%
Twelve months ended
GAAP to Non-GAAP Reconciliation
23
(a) For the three months ended December 31, 2017, September 30,2017, and December 31, 2016, intangible assets exclude $26 million, $30 million, and $42
million, respectively, of period-end purchased credit card receivables
(b) Net of capital surplus
$ in millions
Three months ended
12/31/2017 9/30/17 6/30/17 3/31/17 12/31/16 12/31/2017 12/31/2016
Average tangible common equity
Average Key shareholders' equity (GAAP) 15,268$ 15,241$ 15,200$ 15,184$ 14,901$ 15,224$ 12,647$
Less: Intangible assets (average) (a) 2,939 2,878 2,756 2,772 2,874 2,837 1,825
Preferred Stock (average) 1,025 1,025 1,025 1,480 1,274 1,137 627
Average tangible common equity (non-GAAP) 11,304$ 11,338$ 11,419$ 10,932$ 10,753$ 11,250$ 10,195$
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP) 181$ 349$ 393$ 296$ 213$ 1,219$ 753$
Plus: Notable items, after tax 207 28 (27) 51 124 259 299
Net income (loss) from continuing operations attributable to Key common shareholders excl. notable items 388$ 377$ 366$ 347$ 337$ 1,478$ 1,052$
Average tangible common equity (non-GAAP) 11,304 11,338 11,419 10,932 10,753 11,250 10,195
Return on average tangible common equity from continuing operations (non- GAAP) 6.35% 12.21% 13.80% 10.98% 7.88% 10.84% 7.39%
Return on average tangible common equity from continuing operations excl. notable items (non- GAAP) 13.62% 13.19% 12.86% 12.87% 12.47% 13.14% 10.32%
Cash efficiency ratio
Noninterest expense (GAAP) 1,098$ 992$ 995$ 1,013$ 1,220$ 4,098$ 3,756$
Less: Intangible asset amortization 26 25 22 22 27 95 55
Adjusted noninterest expense (non-GAAP) 1,072$ 967$ 973$ 991$ 1,193$ 4,003$ 3,701$
Less: Notable items (b) 85 36 60 81 207 262 465
Adjusted noninterest expense excluding notable items (non-GAAP) 987$ 931$ 913$ 910$ 986$ 3,741$ 3,236$
Net interest income (GAAP) 938$ 948$ 973$ 918$ 938$ 3,777$ 2,919$
Plus: Taxable-equivalent adjustment 14 14 14 11 10 53 34
Noninterest income 656 592 653 577 618 2,478 2,071
Total taxable-equivalent revenue (non-GAAP) 1,608$ 1,554$ 1,640$ 1,506$ 1,566$ 6,308$ 5,024$
Plus: Notable items (c) 1 5 (103) - (9) (97) 9
Adjusted total taxable-equivalent revenue excl. notable items (non-GAAP) 1,609$ 1,559$ 1,537$ 1,506$ 1,557$ 6,211$ 5,033$
Cash efficiency ratio (non-GAAP) 66.7% 62.2% 59.3% 65.8% 76.2% 63.5% 73.7%0.602
Cash efficiency ratio excluding notable items (non-GAAP) 61.3% 59.7% 59.4% 60.4% 63.3% 60.2% 64.3%
Twelve months ended
GAAP to Non-GAAP Reconciliation (continued)
24
(a) For the three months ended December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017, and December 31, 2016, average intangible assets
exclude $28 million, $32 million, $36 million, $40 million, and $46 million, respectively, of average purchased credit card receivables. For the twelve months
ended December 31, 2017, and December 31, 2016, average intangible assets exclude $34 million and $43 million, respectively, of average purchased credit
card receivables
(b) Notable items for the three months ended December 31, 2017, includes $56 million of merger-related charges and $29 million of impact of tax reform and
related actions; see slide 22 for detail on estimated impact of tax reform and related actions
(c) Notable items for the three months ended December 31, 2017, includes $1 million of impact of tax reform and related action; see slide 22 for detail on estimated
impact of tax reform and related actions
$ in millions