Attached files
| file | filename |
|---|---|
| 8-K - 8-K - KEYCORP /NEW/ | keycorp3q16er8-k.htm |
| EX-99.3 - EXHIBIT 99.3 - KEYCORP /NEW/ | keycorp3q16erex993.htm |
| EX-99.1 - EXHIBIT 99.1 - KEYCORP /NEW/ | keycorp3q16earningsrelease.htm |
KeyCorp
Third Quarter 2016 Earnings Review
October 25, 2016
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; business disruption following the First Niagara merger;
changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation;
customer acceptance of KeyCorp’s products and services; customer borrowing, repayment, investment and deposit practices; customer
disintermediation; the introduction, withdrawal, success and timing of business initiatives; competitive conditions; the inability to realize cost savings or
revenues or to implement integration plans and other consequences associated with mergers, acquisitions and divestitures; economic conditions; and
the impact, extent and timing of technological changes, capital management activities, and other actions of the Federal Reserve Board and legislative
and regulatory actions and reforms.
Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.
This presentation also includes certain non-GAAP financial measures related to “tangible common equity,” “Common Equity Tier 1,” “pre-provision net
revenue,” “cash efficiency ratio,” and certain financial measures excluding merger-related expenses. 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, page 99 of our Form 10-Q dated June 30, 2016, and our third quarter
2016 earnings release.
2
Key’s 3Q16 results reflect the impact of the First Niagara (FNFG) acquisition, which became effective on August 1, 2016.
Successful closing and conversion of First Niagara
3
3Q16: Significant Progress, Momentum and
Commitment
Strong momentum: Key and First Niagara
I
II
Achieving financial targets
III
4
3Q16: Strong Momentum
Key (excluding First Niagara)
Core business momentum drives results
Loans and Deposits
Revenue and
Expense
Generated positive operating leverage
‒ 9 of the past 11 quarters
Total revenue grew 6% from 3Q15
Net interest income up 4% compared to prior year
Noninterest income increased 8% from 3Q15
‒ Record quarter for investment banking and debt placement fees ($156 MM in 3Q16)
‒ Cards and payments: double-digit YoY growth, reflecting continued
investments
Expenses well-managed; reflect growth from performance-based compensation
Average loans up 5% in 3Q16 from prior year, driven by CF&A up 11%
‒ 18 of the past 20 quarters: double-digit CF&A growth (YoY)
Average deposits grew 9% in 3Q16 from prior year
First Niagara: Performance since acquisition announcement has exceeded initial projections
First Niagara: Significant Progress
5
Successful closing and conversion; focused on execution
Closed transaction
Completed branch divestitures
Completed client and systems conversion
August 1, 2016
September 9, 2016
October 11, 2016
Received all required approvals
Conducted cultural and leadership integration sessions
Performed high value client outreach; delivery of tailored welcome packages
6
First Niagara Conversion
Highly coordinated efforts drove successful conversion
Created leading market share in
Upstate New York
Transitioned 1 million new clients
Converted >300 branches
Consolidated 70 former FNFG
branches
‒ Additional 36 KEY consolidations
planned for 4Q16
Added >400 ATMs to network
Successfully executed by KEY and
First Niagara team members
‒ Increased contact center staffing: 40%
‒ Utilized >1,000 “branch buddies”
0
7
First Niagara: Executing on Targets
Continued Confidence in Value Attainment and Financial Targets
Cost savings of $400 MM
ROTCE ~20 bps higher
Cash efficiency improves ~300 bps
EPS accretion of ~5%
IRR of ~15%; ROIC >10%
Value attainment and financial targets based upon full realization
of cost savings (FY 2018); no revenue synergies assumed
Technology &
Third Party
Vendors: ~40%
Branch
Consolidation:
~15%
Corporate Functions &
Related Occupancy: ~30%
Executing on Cost
Savings of $400 MM
Acquisition
Drives Value
Attractive Financial
Returns
Significant Revenue
Opportunities
Complementary
Business Model
More Balanced
Franchise
Other: ~15%
Incremental opportunity from approximately $300 MM in revenue synergies
8
Financial Review
9
Financial Highlights
TE = Taxable equivalent; EOP = End of Period
(a) From continuing operations
(b) Year-over-year average balance growth
(c) From consolidated operations
(d) 9-30-16 ratios are estimated
(e) Non-GAAP measure: see Appendix for reconciliation
(f) Merger-related charges detail available in Appendix, on slide 20
(g) Nonperforming loan balances exclude $959 million, $11 million, $11 million, $11 million, and $12 million of purchased credit impaired loans at September 30,
2016, June 30, 2016, March 31, 2016, December 31, 2015, and September 30, 2015, respectively.
EPS – assuming dilution $ .16 $ .23 $ .22 $ .27 $ .26
EPS –excl. merger-related charges (e), (f) .30 .27 .24 .27
Cash efficiency ratio (e) 80.0 % 69.0 % 66.6 % 66.4 % 66.9 %
Cash efficiency –excl. merger-related charges (e), (f) 64.9 64.8 64.3 65.8
Return on average total assets .55 .82 .80 .97 .95
ROAA –excl. merger-related charges (e), (f) .98 .94 .86 .99
Total loans and leases 31 % 5 % 5 % 5 % 6 %
CF&A loans 23 12 12 14 15
Deposits (excl. foreign deposits) 36 5 4 3 3
Common Equity Tier 1 (d), (e) 9.6 % 11.1 % 11.1 % 10.9 % 10.5 %
Tier 1 risk-based capital (d) 10.5 11.4 11.4 11.4 10.9
Tangible common equity to tangible assets (e) 8.3 10.0 10.0 10.0 9.9
NCOs to average loans .23 % .28 % .31 % .25 % .27 %
NPLs to EOP portfolio loans (g) .85 1.00 1.12 .65 .67
Allowance for loan losses to EOP loans 1.01 1.38 1.37 1.33 1.31
Balance
Sheet
Growth (a), (b)
Capital (c)
Asset
Quality (a)
Financial
Performance (a)
Metrics 3Q16 2Q16 1Q16 4Q15 3Q15
3Q16 results reflect the impact of the FNFG acquisition, which became effective on 8/1/2016
$0
$20
$40
$60
$80
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 3Q16
$10
$18
$26
$34
$42
3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
10
Loans
$ in billions
Average Commercial, Financial & Agricultural Loans
Total Average Loans
ConsumerCommercial
$ in billions
vs. Prior Year
Highlights
Average loans up 31% (up 5% excl. FNFG) from
3Q15
– Growth primarily reflects FNFG acquisition
– CF&A growth of 11% excluding FNFG driven
by broad-based growth across commercial
lines of business
– Consumer loans, excluding the impact of the
FNFG acquisition, reflect home equity
paydowns
FNFG
Total average loans
up 5%, excl. FNFG
Loan growth showed continued momentum
3Q16 impact to average loans from the FNFG
portfolio: $15 B (increase of $23 B on a period-end
basis)
Estimated fair value adjustment on acquired FNFG
loan portfolio at 8/1/16: 2.8%, or $686 MM
Branch divestitures on 9/9/16 resulted in a
reduction of $439 MM in loansKEY
only
KEY +
FNFG
$78
$62$59
$30
$37
Excl. FNFG: + 11%
Average deposit balances up 28% from 2Q16 (up
3% excl. FNFG), reflecting:
– FNFG acquisition
– Higher escrow deposits from commercial
mortgage servicing
– Core retail deposit growth
– Inflows from commercial clients
$29.9
$51.3
$4.5
$9.2
$70
.15% .20%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
$25
$35
$45
$55
$65
$75
$85
$95
$105
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
11
3Q16 Average Deposit Mix
Average deposit growth of 36% from 3Q15 (up 9%
excl. FNFG) related to:
– FNFG acquisition
– Core retail deposit growth
– Escrow deposit growth from commercial
mortgage servicing
Average Deposits (a)
(a) Excludes deposits in foreign office
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
FNFG
Relationship deposits continue to grow
3Q16 impact to average deposits from the FNFG
portfolio: $19 B (increase of $27 B on a period-end
basis)
Branch divestitures on 9/9/16 resulted in a
reduction of $1.6 B in deposits
$95
Up 9% excl. FNFG
$19.4
$29.5
19% 22%
0%
25%
50%
75%
100%
$-
$10
$20
$30
$40
6/30/2016 9/30/2016
12
Average Total Investment Securities Highlights
Average AFS securities
Investment Portfolio
Portfolio composed primarily of GNMA and GSE-
backed MBS and CMOs
Continue to position portfolio for regulatory
liquidity requirements:
– Reinvesting cash flows into High Quality
Liquid Assets, including GNMA securities
(44% of 3Q16 ending balances)
Securities cash flows of $1.7 billion in 3Q16 and
$1.2 billion in 2Q16
Average portfolio life at 9/30/16 of 3.7 years
(3.6 years at 6/30/16)Total Investment Securities (Period-end)
(a) Yield is calculated on the basis of amortized cost
Average yield (a)
Average HTM securities
2.07% 1.94%
.00%
1.00%
2.00%
3.00%
4.00%
5.00%
$0.0
$10.0
$20.0
$30.0
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
$19.2
$24.2
$ in billions
$ in billions
First Niagara Portfolio Sales
Completed sales and repositioning of First
Niagara portfolio
‒ Included CLOs, high yield and investment
grade corporate bonds, non-agency CMBS,
ABS and municipal bonds
‒ Proceeds used to pay down FHLB
advances
Investment securities (period-end) % of total assets
$156
2.87% 2.85%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
($50)
$150
$350
$550
$750
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
NIM Change vs. Prior Quarter:
2Q16: 2.76%
Purchase accounting accretion .06
All other .03
Total change .09
3Q16: 2.85%
Net interest income up $183 MM, or 30%, from
2Q16 (up 2% excl. FNFG (a))
– Largely driven by the FNFG acquisition and
impact of purchase accounting
– Higher earning asset balances also
contributed to growth
13TE = Taxable equivalent
Net interest income (TE), excl. PAA NIM (TE)
FNFG contributed $175 MM to 3Q16 net interest
income, including $19 MM from purchase
accounting accretion
Reported results include $6 MM of merger-
related charges
Maintained moderate asset sensitivity
Net interest income up $190 MM, or 32%, from
3Q15 (up 4% excl. FNFG (a))
– Largely driven by the FNFG acquisition and
impact of purchase accounting
– Higher earning asset balances also
contributed to increase
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)
$598
$788
FNFG
$19 MM from PAA
(a) Calculation excludes FNFG contribution to net interest income (including purchase accounting accretion) and merger-related charges of $6 MM
Up 4% excl.
FNFG, PAA
and merger-
related charges
Merger-related charges
14
Noninterest Income
Noninterest Income
$ in millions Up / (Down) 3Q16 vs. 3Q15 vs. 2Q16
Trust and investment services income $ 122 $ 14 $ 12
Investment banking and debt
placement fees
156 47 58
Service charges on deposit accounts 85 17 17
Operating lease income and other
leasing gains
6 (9) (12)
Corporate services income 51 (6) (2)
Cards and payments income 66 19 14
Corporate-owned life insurance 29 (1) 1
Consumer mortgage income 6 3 3
Mortgage servicing fees 15 4 5
Net gains (losses) from principal
investing
5 (6) (6)
Other income 8 (3) (14)
Total noninterest income $ 549 $ 79 $ 76
Merger-related charges (a) (12) (12) (12)
Impact of First Niagara 53 53 53
Total noninterest income, excluding
merger-related charges (b) and First
Niagara
$ 508 $ 38 $ 35
Highlights
Noninterest income up 17% from 3Q15 (up 8%
excl. FNFG and merger-related charges)
‒ Record quarter for investment banking and
debt placement fees
‒ Impact from the FNFG acquisition
Noninterest income up 16% from 2Q16 (up 7%
excl. FNFG and merger-related charges)
‒ Record quarter for investment banking and
debt placement fees
‒ Impact from the FNFG acquisition
(a) Merger-related charges detail provided on slide 20
(b) Non-GAAP measure: see slides 27-28 for reconciliation
vs. Prior Year
vs. Prior Quarter
Record quarter for investment banking and debt
placement fees
– Reflects relationship revenue; strength in
commercial mortgage banking, equity
capital markets, and M&A advisory fees
3Q16 noninterest income included $53 MM from
FNFG, primarily in: service charges on deposit
accounts, trust and investment services, and
cards and payments
Noninterest income also included $12 MM of
merger-related charges, including losses from
investment portfolio repositioning
$ in millions Up / (Down) 3Q16 vs. 3Q15 vs. 2Q16
Personnel $ 594 $ 168 $ 167
Net occupancy 73 13 14
Computer processing 70 29 25
Business services, professional fees 76 36 36
Equipment 26 4 5
Operating lease expense 15 4 1
Marketing 32 15 10
FDIC assessment 21 13 13
Intangible asset amortization 13 4 6
OREO expense, net 3 1 1
Other expense 159 71 53
Total noninterest expense $ 1,082 $ 358 $ 331
Merger-related charges (a) 189 189 144
Impact of First Niagara 140 140 140
Total noninterest expense, excluding
merger-related charges (b) and First
Niagara $ 753 $ 29 $ 47
15
Noninterest Expense
Noninterest Expense
(a) Merger-related charges detail provided on slide 20
(b) Non-GAAP measure: see slides 27-28 for reconciliation
Highlights
Cash efficiency ratio, excluding merger-related charges (b)
Noninterest expense up 49%, or $358 MM (up 4% excl.
FNFG and merger-related charges)
– Growth largely reflects FNFG acquisition
– Higher performance-based compensation
– Increased FDIC assessment
Merger-related charges (a)
vs. Prior Year
vs. Prior Quarter
Total Noninterest Expense
$ in millions
67% 65% 65%
50%
55%
60%
65%
70%
75%
80%
85%
90%
0
200
400
600
800
1000
$1,082
$751
$45
$189
$724
2Q16 3Q163Q15
3Q16 noninterest expense of $1.1 B included $140 MM
from FNFG as well as $189 MM of merger-related
charges
Intangible asset amortization expense of $6 MM
associated with FNFG acquisition
Noninterest expense up 44%, or $331 MM (up 7%
excl. FNFG and merger-related charges)
– Growth largely reflects FNFG acquisition
– Higher performance-based compensation
– Increased FDIC assessment
Expense comparisons reflect merger-related charges of $189
MM in 3Q16, compared to $45 MM in 2Q16 (no merger-related
charges in 3Q15)
FNFG
$140
$41 $44 $45
$59
.27%
.23%
.00%
.20%
.40%
.60%
.80%
1.00%
$0
$30
$60
$90
$120
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
$400
.67%
.85%
.00%
.40%
.80%
1.20%
1.60%
2.00%
$0
$200
$400
$600
$800
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
16
Nonperforming Loans
Net Charge-offs & Provision for Credit Losses
NPLs NPLs to period-end loans
NCOs Provision for credit
losses
NCOs to average loans
$ in millions
Credit Quality
Highlights
Net loan charge-offs of $44 MM (including $2 MM
from FNFG)
– 23 basis points of average loans: below
targeted range
FNFG contributed $150 MM to 3Q16 NPLs
Excluding FNFG, nonperforming loans decreased
$46 MM, or 7%, from 2Q16
3Q16 provision expense includes $18 MM of
impact from FNFG, $12 MM of which is related to
the purchased credit card portfolio
Allowance for Loan and Lease Losses
Allowance for loan and
lease losses to NPLs
Allowance for loan
and lease losses
$ in millions
$790
$865
198%
120%
0%
50%
100%
150%
200%
250%
$600
$700
$800
$900
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
$ in millions
3Q16 FNFG impact to provision: $18 MM,
which includes $12 MM related to the
purchased credit card portfolio
FNFG
$723
$150
17
Strong capital position with Common Equity
Tier 1 ratio of 9.55% (b) at 9/30/16
Resumed share repurchases following
completion of the First Niagara acquisition
‒ Repurchased $65 MM in common shares
during 3Q16
Common Equity Tier 1 ratio under fully phased-
in Regulatory Capital Rules (c): 9.39% at 9/30/16
Tangible Common Equity to Tangible Assets (a)
Highlights
(a) Non-GAAP measure: see slides 27-28 for reconciliation
(b) 9-30-16 figures estimated
(c) 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.”
10.47%
9.55%
6.00%
8.00%
10.00%
12.00%
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
9.90%
8.26%
0.00%
2.50%
5.00%
7.50%
10.00%
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Common Equity Tier 1 (a), (b)
Capital
Outlook and Expectations
18(a) Outlook provided as of October 25, 2016, includes the impact of First Niagara
Average Earning
Assets
• Average loans reflect one additional month of First Niagara and continued core portfolio growth
• Investment portfolio relatively stable from 3Q16 period-end
Net Interest Income • One additional month of impact from First Niagara
• Further refinement of purchase accounting marks and resulting accretion expected
Noninterest Income • One additional month of impact from First Niagara
• Investment banking and debt placement fees: FY 2016 stable-to-slightly higher than FY 2015
Noninterest Expense • One additional month of First Niagara and amortization expense
• Elevated levels of merger-related charges to continue
Credit Quality • Net charge-offs relatively stable with 3Q16
• Provision expected to slightly exceed net charge-offs
4Q16 KEY Outlook (a)
Guidance range: Relatively stable: + /- 2%
19
Appendix
3Q16 2Q16 1Q16 4Q15
Net interest income $ (6) - - -
Operating lease income and other
leasing gains
$ (2) - - -
Other income (10) - - -
Noninterest income $ (12) - - -
Personnel expense (a) $ 97 $ 35 $ 16 -
Business services and professional fees $ 32 $ 5 $ 7 $ 5
Computer processing 15 - - -
Marketing 9 3 1 -
All other nonpersonnel 36 2 - 1
Total nonpersonnel expense $ 92 $ 10 $ 8 $ 6
Total merger-related charges $ 207 $ 45 $ 24 $ 6
EPS impact $ (.14) $ (.04) $ (.02) -
20
FNFG Merger-related Charges
$ in millions
Increase / (Decrease)
(a) Personnel expense includes severance, technology development related to systems conversions, and fully-dedicated personnel for merger
and integration efforts
First Niagara: Additional Transaction Detail
21
Impacts reflected within Key’s 3Q16 results
Consideration
Cash consideration paid for First Niagara common shares $ 811
Key common shares issued, in dollars, and cash paid in-lieu of fractional shares (a) 2,831
Exchange of First Niagara preferred stock for KeyCorp preferred stock 350
Total consideration paid $ 3,992
Common shares issued (outstanding) 240 MM
Purchase Accounting (Estimated)
Fair value adjustments to loans acquired, net of unearned income $ 686
Fair value adjustment to interest-bearing deposits acquired 59
Intangible assets related to the merger 383
Core deposit intangible 356
Fair value of net assets acquired $ 2,572
Goodwill recorded 1,420
Branch Divestiture Adjustments
Loans associated with branch divestitures 439
Deposits associated with branch divestitures $ 1,645
(a) Based on a KeyCorp stock price of $11.70 on 7/29/2016
$ in millions
Interest Rate Risk Management
Naturally Asset Sensitive Balance Sheet Actively Managing Rate Risk
• High quality
• Fixed rate agency MBS and CMOs
• Average maturity: 3.7 years
• GNMAs total 44% of portfolio
• Reinvesting cash flows into HQLAs,
including GNMAs
$14.3
$20.3$8.5
$8.5
Size of swap
portfolio
Modeled asset
sensitivity ~2% 0%8%
$8.5
Flexibility to Adjust Rate
Sensitivity with Swaps
Loan Portfolio
Variable:
66%
Fixed:
34%
Deposits
Flexibility to adjust rate sensitivity for changes in balance
sheet growth/mix as well as interest rate outlook
Debt
hedges
A/LM
hedges
Investment Portfolio
Noninterest-
bearing: 31%
Interest-
bearing, non-
time: 59%
CDs:
10%
• Maintained moderate asset sensitive position of ~2% (a)
- Assumes 200 basis point increase in short and intermediate-
term rates over a 12-month period
• Utilize swaps for debt hedging and asset liability management
- Fairly even pace of A/LM swap maturities
- $0.7 B A/LM swaps scheduled to mature by year end 2016
9/30/16
Swaps
($ in B)
9/30/16
Notional Amt.
Wtd. Avg.
Maturity (Yrs.)
Receive
Rate
Pay
Rate
A/L Management $ 14.3 2.0 1.0% .5%
Debt 8.5 3.3 1.6 .5
$ 22.8 2.5 1.2% .5%
9/30/16
$29.5 B
AFS: $20.5 B
HTM: $9.0 B
Balance sheet has relatively short duration and is
impacted by both short and intermediate-term interest rates
$22.8 B
22
9/30/169/30/16
Note: Loan, deposit and investment portfolio balances reflect period-end balances
Reflects the impact of the First Niagara acquisition, which became effective on 8/1/2016
(a) Preliminary estimate
23
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
30 – 89 days delinquent 90+ days delinquent
.45%
.37%
.09%
.06%
.00%
.25%
.50%
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
3.0%
3.4%
.0%
2.0%
4.0%
6.0%
4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Metric (b) 3Q16 2Q16 1Q16 4Q15 3Q15
Delinquencies to EOP total loans: 30-89 days .37 % .33 % .39 % .35 % .45 %
Delinquencies to EOP total loans: 90+ days .06 .11 .12 .12 .09
NPLs to EOP portfolio loans .85 1.00 1.12 .65 .67
NPAs to EOP portfolio loans + OREO + Other NPAs .89 1.03 1.14 .67 .69
Allowance for loan losses to period-end loans 1.01 1.38 1.37 1.33 1.31
Allowance for loan losses to NPLs 119.6 138.0 122.2 205.7 197.5
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
(%)
9/30/16 3Q16 3Q16 3Q16 9/30/16 9/30/16 9/30/16 9/30/16
Commercial, financial and agricultural (a) $ 39,433 $ 37,318 $ 15 .16% $ 335 $ 517 1.31% 154.33%
Commercial real estate:
Commercial Mortgage 14,979 12,879 (1) .03 32 139 .93 434.38
Construction 2,189 1,723 8 1.85 17 17 .78 100.00
Commercial lease financing 4,783 4,508 5 .44 13 45 .94 346.15
Real estate – residential mortgage 5,509 4,453 - - 72 15 .27 20.83
Home equity 12,757 11,968 2 .07 225 64 .50 28.44
Credit cards 1,084 996 8 3.20 3 39 3.60 N/M
Consumer direct loans 1,764 1,666 5 1.19 2 18 1.02 900.00
Consumer indirect loans 3,030 2,186 2 .36 24 11 .36 45.83
Continuing total (e) $ 85,528 $ 77,697 $ 44 .23% $ 723 $ 865 1.01 119.64%
Discontinued operations 1,628 1,653 3 .72 5 18 1.11 360.00
Consolidated total $ 87,156 $ 79,350 $ 47 .24% $ 728 $ 883 1.01 121.29%
Credit Quality by Portfolio
Credit Quality
$ in millions
24
(a) 9-30-16 ending loan balance includes $117 million of commercial credit card balances; 9-30-16 average loan balance includes $107 million of
assets from commercial credit cards
(b) Net loan charge-off amounts are annualized in calculation
(c) 9-30-16 NPL amount excludes $959 million of purchased credit impaired loans
(d) 9-30-16 allowance by portfolio is estimated
(e) 9-30-16 ending loan balance includes purchased loans of $22.4 billion, of which $959 million were purchased credit impaired
N/M = Not meaningful
Vintage (% of Loans)
Loan
Balances
Average
Loan Size ($)
Average
FICO
Average
CLTV (a)
% of
Loans
CLTV>90%
2012 and
later 2011 2010 2009
2008 and
prior
Loans and lines
First lien $ 6,909 $ 67,147 771 67 % .5 % 65 % 4 % 3 % 2 % 26 %
Second lien 5,848 41,765 764 75 3.2 49 4 3 3 41
Total home equity portfolio $ 12,757
Nonaccrual loans and lines
First lien $ 114 $ 60,904 720 72 % 2.2 % 19 % 5 % 4 % 5 % 67 %
Second lien 111 43,741 705 78 2.9 12 3 4 4 77
Total home equity nonaccruals $ 225
Third quarter net charge-offs (NCOs)
Total home equity portfolio $ 2
% of average loans .07 %
(a) Average CLTVs are at origination; current average CLTVs for Community Bank total home equity loans and lines is approximately 64%,
which compares to 65% at the end of the second quarter of 2016
Home Equity Portfolio – 9/30/16
$ in millions, except average loan size
Home Equity Portfolio
Highlights
High quality portfolio
54% first lien position
Average FICO score of 768
Average CLTV at origination: 70%
$5.3 billion of the total portfolio are fixed rate loans that require
principal and interest payments; $7.4 billion are lines
$1.4 billion in lines outstanding (11% of the total portfolio)
come to end of draw period in the next three years
25
CLTV = Combined weighted-average loan-to-value ratio
Oil & Gas
26
Longstanding history, expertise and relationships
Total commitments of $3.1 B, including upstream
commitments of $1.7 B
Upstream portfolio is primarily secured by proven,
developed and producing reserves
Total Loans Outstanding, 9/30/16
Portfolio performing in-line with expectations
Reserve coverage: 8% of outstanding oil and gas loans
at period-end
Oil & Gas: 1%
Other: 99%
Oil & Gas Outstanding Balances, 9/30/16
Oilfield Services
Upstream: 56%,
$0.7 B
Midstream: 32%,
$0.4 B
Downstream: 12%,
$0.1 B
$44 MM
Oil & Gas
$1.2 B
No material change in composition or
size from the acquisition of First
Niagara
Three months ended
9-30-16 6-30-16 3-31-16 12-31-15 9-30-15
Tangible common equity to tangible assets at period end
Key shareholders' equity (GAAP) 14,996$ 11,313$ 11,066$ 10,746$ 10,705$
Less: Intangible assets (a) 2,855 1,074 1,077 1,080 1,084
Preferred Stock, Series A (b) 1,156 281 281 281 281
Tangible common equity (non-GAAP) 10,985$ 9,958$ 9,708$ 9,385$ 9,340$
Total assets (GAAP) 135,805$ 101,150$ 98,402$ 95,133$ 95,422$
Less: Intangible assets (a) 2,855 1,074 1,077 1,080 1,084
Tangible common equity to tangible assets ratio (non-GAAP) 132,950$ 100,076$ 97,325$ 94,053$ 94,338$
Tangible common equity to tangible assets ratio (non-GAAP) 8.26% 9.95% 9.97% 9.98% 9.90%
Common Equity Tier 1 at period end
Key shareholders' equity (GAAP) 14,996$ 11,313$ 11,066$ 10,746$ 10,705$
Less: Preferred Stock, Series A (b) 1,156 281 281 281 281
Common Equity Tier 1 capital before adjustments and deductions 13,840 11,032 10,785 10,465 10,424
Less: Goodw ill, net of deferred taxes 2,451 1,031 1,033 1,034 1,036
Intangible assets, net of deferred taxes 256 30 35 26 29
Deferred tax assets 1 1 1 1 1
Net unrealized gains (losses) on available-for-sale securities, net of
deferred taxes 99 129 70 (58) 54
Accumulated gains (losses) on cash f low hedges, net of deferred taxes 39 77 46 (20) 21
Amounts in accumulated other comprehensive income (loss) attributed
to pension and postretirement benefit costs, net of deferred taxes (359) (362) (365) (365) (385)
Total Common Equity Tier 1 capital (c) 11,353$ 10,126$ 9,965$ 9,847$ 9,668$
Net risk-w eighted assets (regulatory) (c) 118,922$ 91,195$ 90,014$ 89,980$ 92,307$
Common Equity Tier 1 ratio (non-GAAP) (c) 9.55% 11.10% 11.07% 10.94% 10.47%
Noninterest expense excluding merger-related charges
Noninterest expense (GAAP) 1,082$ 751$ 703$ 736$ 724$
Less: Merger-related charges 189 45 24 6 -
Noninterest expense excluding merger-related charges (non-GAAP) 893$ 706$ 679$ 730$ 724$
Earnings per common share (EPS) excluding merger-related charges
EPS from continuing operations attributable to Key common shareholders
─ assuming dilution .16$ .23$ .22$ .27$ .26$
Add: EPS impact of merger-related chrges .14 .04 .02 - -
EPS from continuing operations attributable to Key common shareholders
excluding merger-related charges (non-GAAP) .30$ .27$ .24$ .27$ .26$
GAAP to Non-GAAP Reconciliation
27
$ in millions
(a) Three months ended 9/30/16, 6/30/16, 3/31/16, 12/31/15, and 9/30/15, exclude $51 million, $36 million, $40 million, $45 million, and $50 million, respectively, of
period-end purchased credit card receivables
(b) Net of capital surplus
(c) 9/30/16 amount is estimated
GAAP to Non-GAAP Reconciliation (continued)
28(a) The months ended 9/30/16, 6/30/16, 3/31/16, 12/31/15, and 9/30/15, exclude $47 million, $38 million, $42 million, $47 million, and $52 million, respectively, of
average purchased credit card receivables
Three months ended
9-30-16 6-30-16 3-31-16 12-31-15 9-30-15
Pre-provision net revenue excluding merger-related charges
Net interest income (GAAP) 780$ 597$ 604$ 602$ 591$
Plus: Taxable-equivalent adjustment 8 8 8 8 7
Noninterest income 549 473 431 485 470
Less: Noninterest expense excluding merger-related charges (non-GAAP) 893 706 679 730 724
Pre-provision net revenue from continuing operations
excluding merger-related charges (non-GAAP) 444$ 372$ 364$ 365$ 344$
Return on average assets excluding merger-related charges
Net income (loss) from continuing operations attributable to Key (GAAP) 171$ 199$ 187$ 230$ 222$
Add: Merger-related charges after tax 132 28 15 4 -
Net income (loss) from continuing operations attributable to Key
excluding merger-related charges after tax (non-GAAP) 303$ 227$ 202$ 234$ 222$
Average total assets from continuing operations 123,469$ 97,413$ 94,477$ 94,117$ 92,649$
Return on average assets excluding merger-related charges (non-GAAP) .98% .94% .86% .99% .95%
Cash efficiency ratio
Noninterest expense (GAAP) 1,082$ 751$ 703$ 736$ 724$
Less: Intangible asset amortization 13 7 8 9 9
Adjusted noninterest expense (non-GAAP) 1,069$ 744$ 695$ 727$ 715$
Less: Merger-related charges 189 45 24 6 -
Adjusted noninterest expense excluding merger-related charges (non-GAAP) 880$ 699$ 671$ 721$ 715$
Net interest income (GAAP) 780$ 597$ 604$ 602$ 591$
Plus: Taxable-equivalent adjustment 8 8 8 8 7
Noninterest income 549 473 431 485 470
Total taxable-equivalent revenue (non-GAAP) 1,337$ 1,078$ 1,043$ 1,095$ 1,068$
Plus: Merger-related charges 18 - - - -
Adjusted noninterest income excl. merger-related charges (non-GAAP) 1,355$ 1,078$ 1,043$ 1,095$ 1,068$
Cash eff iciency ratio (non-GAAP) 80.0% 69.0% 66.6% 66.4% 66.9%
Cash eff iciency ratio excluding merger-related charges (non-GAAP) 64.9% 64.8% 64.3% 65.8% 66.9%
$ in millions