Attached files
| file | filename |
|---|---|
| 8-K - 8-K - KEYCORP /NEW/ | a1q18er8-k.htm |
| EX-99.3 - KEYCORP /NEW/ | a1q18erex993.htm |
| EX-99.1 - KEYCORP /NEW/ | a1q18earningsrelease.htm |
KeyCorp
First Quarter 2018 Earnings Review
April 19, 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 fully realizing cost savings and other benefits from 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,” “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 Figure 2 of our Form 10-K dated December 31, 2017.
GAAP: Generally Accepted Accounting Principles
3
1Q18 Investor Highlights
Driving
Returns
Strong Risk
Management
Disciplined
Capital
Management
Strong capital position
− CET1 ratio of 10%(c)
$199 MM(d) of common share repurchases in 1Q18
Planned common share dividend increase of 14% in 2Q18 (subject to Board approval)
Maintained credit discipline, strong asset quality
− Net charge-offs to average loans of .25%; portfolios continue to perform well
− Nonperforming loans to period-end loans of .61%
Revenue growth of 3% from prior year
− Reflects higher net interest income, solid loan growth and stronger fee income
Average loan growth of 1% (vs. PY and PQ) driven by commercial relationships
Fee momentum, reflecting ongoing investments
− Record first quarter for investment banking & debt placement fees
Expenses reflect seasonality and accelerated technology costs
− Lower quarterly run rate expected for the remainder of the year
Earnings per common share up 19%(a) from prior year
Return on tangible common equity of 15%(b)
(a) Non-GAAP measure and excludes notable items in prior periods; see Appendix for reconciliation and detail on notable items
(b) Non-GAAP measure; See Appendix for reconciliation
(c) 3/31/18 ratio is estimated
(d) Common share repurchase amount includes repurchases to offset issuances of common shares under our employee compensation plans
4
Financial Review
60.4% 59.4% 59.7%
61.3% 62.9%
1Q17 2Q17 3Q17 4Q17 1Q18
5
Financial Highlights
EOP = End of Period
(a) Non-GAAP measure: see Appendix for reconciliation
(b) Notable items include: merger-related charges (in all periods except
1Q18 - see Appendix for detail); impact of tax reform and related actions in
4Q17; merchant services gain adjustment in 3Q17; and merchant services
gain, purchase accounting finalization and charitable contribution in 2Q17
EPS – assuming dilution .38 .17 .27 124 % 41 %
EPS – excl. notable items(a), (b) .38 .36 .32 6 19
Cash efficiency ratio(a) 62.9 % 66.7 % 65.8 % (376) bps (289) bps
Cash efficiency –excl. notable items(a), (b) 62.9 61.3 60.4 157 249
Return on average tangible common equity(a) 14.9 6.4 11.0 854 391
ROTCE – excl. notable items(a), (b) 14.9 13.6 12.9 127 203
Common Equity Tier 1(d) 10.03 % 10.16 % 9.91 % (13) bps 12 bps
Tier 1 risk-based capital(d) 10.84 11.01 10.74 (17) 10
Tangible common equity to tangible assets(a) 8.22 8.23 8.51 (1) (29)
NCOs to average loans .25 % .24 % .27 % 1 bps (2) bps
NPLs to EOP portfolio loans(e) .61 .58 .67 3 (6)
Allowance for loan and lease losses to EOP loans 1.00 1.01 1.01 (1) (1)
Asset
Quality
Profitability
Continuing operations, unless otherwise noted 1Q18 4Q17 1Q17 LQ ∆ Y/Y ∆
(c) From consolidated operations
(d) 3/31/18 ratios are estimated
(e) Nonperforming loan balances exclude $690 million, $738 million, and $812 million,
of purchased credit impaired loans at March 31, 2018, December 31, 2017, and
March 31, 2017, respectively
Cash Efficiency Ratio(a)
excl. notable items(b)
12.9% 12.9% 13.2%
13.6%
14.9%
1Q17 2Q17 3Q17 4Q17 1Q18
ROTCE(a)
excl. notable items(b)
0.27%
0.31%
0.15%
0.24% 0.25%
1Q17 2Q17 3Q17 4Q17 1Q18
NCOs to Avg. Loans
Capital(c)
$0
$30
$60
$90
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
6
Loans
$ in billions
ConsumerCommercial
vs. Prior Year
Total Average Loans Highlights
Average loans up 1% from 1Q17
– Broad-based C&I growth with middle-market
clients
– Expansion of auto lending into existing
geographies and dealer relationships
$87$86
vs. Prior Quarter
Average loans up 1% from 4Q17
– C&I growth across client segments, including
both Community Bank and Corporate Bank
– Home equity continues to decline, consistent
with overall market trends
6%
8%
Community
Bank
Corporate
Bank
vs. Prior Year vs. Prior Quarter
2%
5%
Community
Bank
Corporate
Bank
C&I Loans
Deposit cost up 5 bps from 4Q17, reflecting:
– Higher interest rates
– Continued migration of portfolio into higher-
yielding products
Strong and stable deposit base
– 30% noninterest-bearing
– >85% from markets where Key maintains top-5
deposit or branch share
Average deposit balances down 1% from 4Q17
– Elevated 4Q17 balances due to seasonal and
short-term escrow deposit inflows
– Consumer noninterest-bearing balances up 6%
$31.0
$53.5
$6.2
$11.8
.00%
.10%
.20%
.30%
.40%
.50%
.60%
.70%
$25
$45
$65
$85
$105
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
7
1Q18 Average Deposit Mix
Average deposit up .5% from 1Q17
– Growth in CDs
– Consumer noninterest-bearing balances up 10%
Continued mix shift to higher-yielding deposit
products
Managed exit of certain higher cost corporate
and public sector deposits
(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
$103
61%
39%
Commercial and corporate
Consumer(a)
$102
.23%
.36%
Average Deposits Highlights
3.13% 3.15%
2.95%
3.04%
2.0%
2.5%
3.0%
3.5%
4.0%
$0
$200
$400
$600
$800
$1,000
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
NIM Change vs. Prior Quarter 4Q17: 3.09%
Higher interest rates .07
Lower short-term earning assets .03
PAA (1Q vs. 4Q) (.01)
Other (.03)
Total change .06
1Q18: 3.15%
Net interest income up $5 million from 4Q17, excl. PAA
– Reflects benefit from higher interest rates and lower
liquidity levels
– Growth offset by lower day count, reduced TE
adjustment and lower PAA
8TE = 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) 1Q18 purchase accounting accretion of $33 MM is made up of $24 MM related to contractual maturities and $9 MM related to prepayments
Net interest income (TE), excl. PAA Reported NIM (TE)
Excluding PAA, 1Q18 net interest income was $919 MM
and net interest margin was 3.04%
– NII up 5% from prior year and up 1% from prior quarter
TE adjustment decreased $6 MM from 4Q17, to $8 MM for
1Q18, as a result of tax law change
Net interest income up $43 MM from 1Q17, 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)
$929 $952
(a)
NIM (TE); excl. PAAx
$33
$53
1Q17 2Q17 3Q17 4Q17 1Q18
NIM – reported 3.13% 3.30% 3.15% 3.09% 3.15%
PAA .18 .19 .16 .12 .11
PAA refinement/ finalization - .14 - - -
NIM – excl. PAA 2.95 2.97 2.99 2.97 3.04
NII – reported ($MM) $ 929 $ 987 $ 962 $ 952 $ 952
PAA 53 58 48 38 33
PAA refinement/ finalization - 42 - - -
NII – excl. PAA $876 $877 $914 $914 $919
Net Interest Income & Net Interest Margin Trend (TE) Highlights
(b)
9
Noninterest Income
Noninterest Income
$ in millions Up / (Down) 1Q18 vs. 1Q17 vs. 4Q17
Trust and investment services income $ 133 $ (2) $ 2
Investment banking and debt
placement fees
143 16 (57)
Service charges on deposit accounts 89 2 -
Operating lease income and other
leasing gains
32 9 5
Corporate services income 62 8 6
Cards and payments income 62 (3) (15)
Corporate-owned life insurance 32 2 (5)
Consumer mortgage income 7 1 -
Mortgage servicing fees 20 2 3
Net gains (losses) from principal
investing
- (1) (3)
Other income 21 (10) 9
Total noninterest income $ 601 $ 24 $ (55)
Noninterest income up $24 MM from 1Q17
Continued momentum in many fee-based
businesses resulting from ongoing investments
− Record first quarter of investment banking and debt
placement fees (+$16 MM)
− Operating lease and other leasing gains income
(+$9 MM)
− Corporate services income (+$8 MM)
Noninterest income down $55 MM from 4Q17
Seasonal impacts in:
− Investment banking and debt placement fees
− Cards and payments income
− COLI income
vs. Prior Year
vs. Prior Quarter
Highlights
$ in millions Up / (Down) 1Q18 vs. 1Q17 vs. 4Q17
Personnel $ 594 $ 38 $ (14)
Net occupancy 78 (9) (14)
Computer processing 52 (8) (2)
Business services, professional fees 41 (5) (11)
Equipment 26 (1) (5)
Operating lease expense 27 8 (1)
Marketing 25 4 (10)
FDIC assessment 21 1 1
Intangible asset amortization 29 7 3
OREO expense, net 2 - (1)
Other expense 111 (42) (38)
Total noninterest expense $ 1,006 $ (7) $ (92)
Merger-related charges - (81) (56)
Tax-related impact - - (29)
Total noninterest expense, excluding
notable items(a),(b) $ 1,006 $ 74 $ (7)
10
Noninterest Expense
(a) No notable items in 1Q18; notable items of $81 MM in 1Q17 (merger-related charges) and $85 MM in 4Q17 (merger-related charges and impact of tax reform
and related actions); see Appendix for detail on merger-related charges
(b) Non-GAAP measure
Noninterest Expense Linked Quarter Change
Outlook
FY18 $3.85 B - $3.95 B
Quarterly run-rate expected to be lower than 1Q18
Ongoing cost savings initiatives, including: branch
consolidations, back and middle office rationalization, third party
contracts, business realignment and staffing model changes
Realization of First Niagara cost savings: run-rate achieved
by end of 1Q18
$ in millions; excludes notable items(a)
$1,013 $1,006
$31
1Q18 personnel expense reflects:
– Seasonal increase in benefits: employer taxes and
healthcare-related expense
– Accelerated technology spend: digital banking,
mortgage, consumer lending systems
– Lower performance-based compensation
– Higher severance
Seasonally lower marketing expense
Cost savings reflected in occupancy and other expense
$11
$(24) $10
$(35)
Personnel expense:
+$28 MM
Approaching high-end of 54% - 56% efficiency ratio
target by year-end
11
$ in millions
Credit Quality
$ in millions
$58 $54
$63 $61
.27%
.25%
.00%
.20%
.40%
.60%
.80%
1.00%
$0
$25
$50
$75
$100
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
NCOs Provision for credit
losses
NCOs to average loans
$573 $541
.67%
.61%
.00%
.40%
.80%
1.20%
1.60%
2.00%
$0
$200
$400
$600
$800
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
NPLs NPLs to period-end loans
NCO = Net charge-off
(a) Nonperforming loan balances exclude $690 million, $738 million, and $812 million of purchased credit impaired loans at March 31, 2018, December 31, 2017,
and March 31, 2017, respectively
$870 $881
152% 163%
0%
50%
100%
150%
200%
250%
$600
$700
$800
$900
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
Allowance for loan and
lease losses to NPLs
Allowance for loan
and lease losses
Nonperforming Loans(a) Acquired Loans
1Q18 allowance for loan losses to
period-end loans of 1.00%
$38
$50
$72 $72
$80
.18%
.25%
.40%
.45%
.50%
.00%
.20%
.40%
.60%
$0
$20
$40
$60
$80
$100
1Q17 2Q17 3Q17 4Q17 1Q18
$ 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)
12
Strong capital position with Common Equity
Tier 1 ratio of 10.03%(a) at 3/31/18
Repurchased $199 MM(c) in common shares
during 1Q18
Tangible Common Equity to Tangible Assets(b)
(a) 3/31/18 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
9.91% 10.03%
6.00%
8.00%
10.00%
12.00%
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
8.51% 8.22%
0.00%
2.50%
5.00%
7.50%
10.00%
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
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 (TE)
• Net interest income expected to be in the range of $3.95 B - $4.05 B
• Outlook includes rate increases in June and November 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 17% - 18%
13
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%
14
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
15
Loan Portfolio Detail, at 3/31/18
C&I
$40
CRE
$18
Outstanding
Balances
Average
Loan Size
Average
FICO
2008/
prior
vintage
First lien $ 6,993 60 % $ 71,996 771 19 %
Second lien 4,727 40 46,409 768 34
Total home equity $ 11,720
Fixed
45%Variable55%
Combined weighted-average LTV at
origination: 70%
$599 million in lines outstanding (7% of the
home equity lines) come to end of draw
period by 1Q20
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)
3/31/2008 3/31/2018
Commercial mortgage
Construction
55% 88%
Home Equity
$ in billions 3/31/18 % of total
loans
Commercial and industrial $ 44.3 50
Commercial real estate 15.9 18
Commercial lease financing 4.6 5
Total Commercial $ 64.8 74
Residential mortgage $ 5.5 6
Home equity 11.7 13
Consumer direct 1.8 2
Credit card 1.1 1
Consumer indirect 3.3 4
Total Consumer $ 23.3 26
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
16
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
1.98%
1.50%
1.75%
2.00%
2.25%
2.50%
$0.0
$10.0
$20.0
$30.0
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
$29.9
$ in billions
Securities to Total Assets(b)
22% 22%
10%
15%
20%
25%
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
$29.2
2.16%
Portfolio composed primarily of GNMA and GSE-
backed MBS and CMOs
‒ Primarily fixed rate
‒ GNMA 47% of 1Q18 average balances
Portfolio used for funding and liquidity
management:
‒ Securities cash flows of $1.2 billion in 1Q18
‒ $362 million growth in average balance
– Reinvesting cash flows into High Quality
Liquid Assets
Replaced cash flows at higher yields during 1Q18
− New investments yield 3.20% vs. 1Q18 cash
flows at 2.13%
Portfolio average life of 4.8 years and duration of
4.2 years at 3/31/18
Highlights
17
Interest Rate Risk Management
The strength and diversity of our franchise positions Key to benefit from economic
growth and a rising rate environment
Business and Balance Sheet Highlights Net Interest Income Sensitivities (FY18) ($MM)
• Strong, low-cost deposit base
– $72 B interest-bearing deposits at 51 bps
– $31 B noninterest-bearing deposits
– ~65% stable retail and low-cost escrow
– > 85% from markets where Key maintains top-5 deposit or
branch share
– $88 MM 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
– $30 B securities portfolio is >99% government-guaranteed
and generates ~$450 MM cash flows per month
– Discretionary hedge activities (~$18 B) help moderate interest
rate risk exposure while providing near-term earnings upside
($4.3 B swaps mature through 4Q18 at weighted-average
receive rate of 1.06%)
• 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
(a) Outlook and Expectations for FY 2018 is as described on page 13 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 31 of Key’s 2017 Form 10-K
(change vs. FY 2018 outlook)(a)
$24
$18
$11
$11
$18
No June Fed Funds rate hike
$1B less loan growth
5% higher beta
5% lower beta
$1B additional loan growth
$36March Rate Hike embedded in revised outlook
Criticized Outstandings(a) to Period-end Total LoansDelinquencies to Period-end Total Loans
18
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 $690 million, $738 million, $783 million, $835 million, and $812 million of purchased credit impaired loans at March 31,
2018, December 31, 2017, September 30, 2017, June 30, 2017, and March 31, 2017, respectively
30 – 89 days delinquent 90+ days delinquent
.36%
.35%
.09% .09%
.00%
.25%
.50%
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
3.0%
3.6%
.0%
2.0%
4.0%
6.0%
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
Metric(b) 1Q18 4Q17 3Q17 2Q17 1Q17
Delinquencies to EOP total loans: 30-89 days .35 .42 .38 .39 .36 %
Delinquencies to EOP total loans: 90+ days .09 .10 .10 .10 .09
NPLs to EOP portfolio loans(c) .61 .58 .60 .59 .67
NPAs to EOP portfolio loans + OREO + Other NPAs(c) .65 .62 .64 .64 .72
Allowance for loan losses to period-end loans 1.00 1.01 1.02 1.01 1.01
Allowance for loan losses to NPLs 162.8 174.4 170.2 171.6 151.8
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
(%)
3/31/18 1Q18 1Q18 1Q18 3/31/18 3/31/18 3/31/18 3/31/18
Commercial and industrial(a) $ 44,313 $ 42,733 $ 31 0.29% $ 189 $ 533 1.20% 282.01%
Commercial real estate:
Commercial Mortgage 13,997 14,085 1 .03 33 136 .97 412.12
Construction 1,871 1,957 (1) (.21) 2 33 1.76 N/M
Commercial lease financing(e) 4,598 4,663 - - 5 40 .87 800.00
Real estate – residential mortgage 5,473 5,479 1 .07 59 9 .16 15.25
Home equity 11,720 11,877 1 .03 229 38 .32 16.59
Credit cards 1,068 1,080 11 4.13 2 45 4.21 N/M
Consumer direct loans 1,758 1,766 6 1.38 4 27 1.54 675.00
Consumer indirect loans 3,291 3,287 4 .49 18 20 .61 111.11
Continuing total $ 88,089 $ 86,927 $ 54 .25% $ 541 $ 881 1.00% 162.85%
Discontinued operations 1,256 1,278 2 .63 6 16 1.27 266.67
Consolidated total $ 89,345 $ 88,205 $ 56 .26% $ 547 $ 897 1.00% 163.99%
Credit Quality by Portfolio
Credit Quality
$ in millions
19
N/M = Not meaningful
(a) 3/31/18 ending loan balance includes $121 million of commercial credit card balances; average loan balance includes $120 million of assets from commercial
credit cards
(b) Net loan charge-off amounts are annualized in calculation
(c) 3/31/18 NPL amount excludes $690 million of purchased credit impaired loans
(d) 3/31/18 allowance by portfolio is estimated
(e) Commercial lease financing includes receivables held as collateral for a secured borrowing of $16 million at March 31, 2018. Principal reductions are based on the
cash payments received from these related receivables
4Q17 3Q17 2Q17 1Q17
Net interest income - - - -
Operating lease income and other leasing gains - - - -
Other income - - - -
Noninterest income - - - -
Personnel expense $ 26 $ 25 $ 31 $ 30
Net Occupancy $ 12 $ (2) $ (1) $ 5
Business services and professional fees 3 2 6 5
Computer processing 1 4 2 5
Marketing 5 5 6 6
All other non-personnel 9 2 - 30
Total non-personnel expense $ 30 $ 11 $ 13 $ 51
Total merger-related charges $ 56 $ 36 $ 44 $ 81
EPS impact $ (.03) $ (.02) $ (.03) $ (.05)
20
2017 FNFG Merger-related Charges
$ in millions
Increase / (Decrease)
3/31/2018 12/31/2017 3/31/2017
Notable Items
Merger-related charges - (56)$ (81)$
Impacts of tax reform and related actions - (30)$ -
Total notable items - (86)$ (81)$
Income taxes - (26) (30)
Revaluation of certain tax related assets - 147 -
Total notable items after tax - (207)$ (51)$
Earnings per common share (EPS) excluding notable items
EPS from continuing operations attributable to Key common shareholders
─ assuming dilution .38$ .17$ .27$
Add: EPS impact of notable items - .19 .05
EPS from continuing operations attributable to Key common shareholders
excluding notable items (non-GAAP) .38$ .36$ .32$
Tangible common equity to tangible assets at period end
Key shareholders' equity (GAAP) 14,944$ 15,023$ 14,976$
Less: Intangible assets (a) 2,902 2,928 2,751
Preferred Stock (b) 1,009 1,009 1,009
Tangible common equity (non-GAAP) 11,033$ 11,086$ 11,216$
Total assets (GAAP) 137,049$ 137,698$ 134,476$
Less: Intangible assets (a) 2,902 2,928 2,751
Tangible common equity to tangible assets ratio (non-GAAP) 134,147$ 134,770$ 131,725$
Tangible common equity to tangible assets ratio (non-GAAP) 8.22% 8.23% 8.51%
Three months ended
GAAP to Non-GAAP Reconciliation
21
$ in millions
(a) For the three months ended March 31, 2018, December 31, 2017, and March 31, 2017, intangible assets exclude $23 million, $26 million, and $38 million,
respectively, of period-end purchased credit card receivables
(b) Net of capital surplus
3/31/2018 12/31/17 9/30/17 6/30/17 3/31/17
Average tangible common equity
Average Key shareholders' equity (GAAP) 14,889$ 15,268$ 15,241$ 15,200$ 15,184$
Less: Intangible assets (average) (a) 2,916 2,939 2,878 2,756 2,772
Preferred Stock (average) 1,025 1,025 1,025 1,025 1,480
Average tangible common equity (non-GAAP) 10,948$ 11,304$ 11,338$ 11,419$ 10,932$
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP) 402$ 181$ 349$ 393$ 296$
Plus: Notable items, after tax - 207 28 (27) 51
Net income (loss) from continuing operations attributable to Key common shareholders excl. notable items 402$ 388$ 377$ 366$ 347$
Average tangible common equity (non-GAAP) 10,948 11,304 11,338 11,419 10,932
Return on average tangible common equity from continuing operations (non- GAAP) 14.89% 6.35% 12.21% 13.80% 10.98%
Return on average tangible common equity from continuing operations excl. notable items (non- GAAP) 14.89% 13.62% 13.19% 12.86% 12.87%
Cash efficiency ratio
Noninterest expense (GAAP) 1,006$ 1,098$ 992$ 995$ 1,013$
Less: Intangible asset amortization 29 26 25 22 22
Adjusted noninterest expense (non-GAAP) 977$ 1,072$ 967$ 973$ 991$
Less: Notable items - 85 36 60 81
Adjusted noninterest expense excluding notable items (non-GAAP) 977$ 987$ 931$ 913$ 910$
Net interest income (GAAP) 944$ 938$ 948$ 973$ 918$
Plus: Taxable-equivalent adjustment 8 14 14 14 11
Noninterest income 601 656 592 653 577
Total taxable-equivalent revenue (non-GAAP) 1,553$ 1,608$ 1,554$ 1,640$ 1,506$
Plus: Notable items - 1 5 (103) -
Adjusted total taxable-equivalent revenue excl. notable items (non-GAAP) 1,553$ 1,609$ 1,559$ 1,537$ 1,506$
Cash efficiency ratio (non-GAAP) 62.9% 66.7% 62.2% 59.3% 65.8%
Cash efficiency ratio excluding notable items (non-GAAP) 62.9% 61.3% 59.7% 59.4% 60.4%
Three months ended
GAAP to Non-GAAP Reconciliation (continued)
22(a) For the three months ended March 31, 2018, December 31, 2017, September 30, 2017, June 30, 2017, and March 31, 2017, average intangible assets
exclude $24 million, $28 million, $32 million, $36 million, and $40 million, respectively, of average purchased credit card receivables.
$ in millions