KeyCorp Reports Second Quarter 2018 Net Income Of $464 Million, Or $.44 Per Common Share

KeyCorp Reports Second Quarter 2018 Net Income Of $464 Million, Or $.44 Per Common Share

Strong results driven by loan growth, fee momentum, and expense discipline

Cash efficiency ratio of 58.8%

Return on average tangible common equity of 16.7%

PR Newswire

CLEVELAND, July 19, 2018 /PRNewswire/ -- KeyCorp KEY today announced second quarter net income from continuing operations attributable to Key common shareholders of $464 million, or $.44 per common share, compared to $402 million, or $.38 per common share, for the first quarter of 2018 and $393 million, or $.36 per common share, for the second quarter of 2017. Key's results in the second quarter of 2018 and the second quarter of 2017 included a number of notable items; additional detail can be found on page 24 of this release.

"Second quarter results were strong, driven by broad-based growth and momentum in our commercial and consumer businesses. Continued loan growth, higher fees, and expense discipline drove positive operating leverage for the quarter. Importantly, our cash efficiency ratio improved to 58.8% and our return on tangible common equity was 16.7%. Across our franchise, we are benefitting from efforts to do more for our new and existing clients, while also increasing the productivity and efficiency of our businesses. Key's improved profitability and returns in the second quarter mark meaningful progress as we deliver on our commitments and work to achieve our long-term targets.

During the quarter, we also announced a 42% increase in our common share dividend along with a $1.2 billion share repurchase program, as part of our 2018 capital plan. Our plan marks a significant increase in shareholder payout as we move toward targeted levels of capital and common dividend payout, all to maximize long-term shareholder value."

-       Beth Mooney, Chairman and CEO



Selected Financial Highlights





























dollars in millions, except per share data









Change 2Q18 vs.





2Q18

1Q18

2Q17



1Q18

2Q17

Income (loss) from continuing operations attributable to Key common shareholders

$

464



$

402



$

393





15.4

%

18.1

%

Income (loss) from continuing operations attributable to Key common shareholders per 

     common share — assuming dilution

.44



.38



.36





15.8



22.2



Return on average tangible common equity from continuing operations (a)

16.73

%

14.89

%

13.80

%



N/A



N/A



Return on average total assets from continuing operations

1.41



1.25



1.23





N/A



N/A



Common Equity Tier 1 ratio (b)

10.12



9.99



9.91





N/A



N/A



Book value at period end

$

13.29



$

13.07



$

13.02





1.7

%

2.1

%

Net interest margin (TE) from continuing operations

3.19

%

3.15

%

3.30

%



N/A



N/A



















(a)     The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "Return on 

          average tangible common equity from continuing operations." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides 

          a basis for period-to-period comparisons.

(b)     6/30/2018 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 



INCOME STATEMENT HIGHLIGHTS



























Revenue



























dollars in millions









Change 2Q18 vs.



2Q18

1Q18

2Q17



1Q18

2Q17

Net interest income (TE)

$

987



$

952



$

987





3.7

%



Noninterest income

660



601



653





9.8



1.1

%

Total revenue

$

1,647



$

1,553



$

1,640





6.1

%

.4

%















TE = Taxable Equivalent

Taxable-equivalent net interest income was $987 million for the second quarter of 2018, and the net interest margin was 3.19%, compared to taxable-equivalent net interest income of $987 million and a net interest margin of 3.30% for the second quarter of 2017. Second quarter 2018 net interest income included $28 million of purchase accounting accretion, a decline of $72 million from the second quarter of 2017.  Excluding purchase accounting accretion, taxable-equivalent net interest income increased $72 million from the second quarter of 2017, and the net interest margin increased 13 basis points, reflecting the benefit from higher interest rates and higher earning asset balances.

Compared to the first quarter of 2018, taxable-equivalent net interest income increased by $35 million, and the net interest margin increased by four basis points. Both net interest income and the net interest margin benefited from higher interest rates and strong commercial loan growth. One additional day in the quarter further benefited net interest income. These benefits were partially offset by continued expected declines in purchase accounting accretion.  Excluding purchase accounting accretion, taxable-equivalent net interest income increased $40 million from the first quarter of 2018 and the net interest margin increased six basis points.



Noninterest Income



























dollars in millions









Change 2Q18 vs.



2Q18

1Q18

2Q17



1Q18

2Q17

Trust and investment services income

$

128



$

133



$

134





(3.8)%



(4.5)%



Investment banking and debt placement fees

155



143



135





8.4



14.8



Service charges on deposit accounts

91



89



90





2.2



1.1



Operating lease income and other leasing gains

(6)



32



30





N/M



N/M



Corporate services income

61



62



55





(1.6)



10.9



Cards and payments income

71



62



70





14.5



1.4



Corporate-owned life insurance income

32



32



33







(3.0)



Consumer mortgage income

7



7



6







16.7



Mortgage servicing fees

22



20



15





10.0



46.7



Other income

99



21



85





371.4



16.5



Total noninterest income

$

660



$

601



$

653





9.8

%

1.1

%















N/M = Not meaningful

Key's noninterest income was $660 million for the second quarter of 2018, compared to $653 million for the year-ago quarter. Growth was driven by an increase in investment banking and debt placement fees, related to strength in advisory fees, including benefit from the acquisition of Cain Brothers. Mortgage servicing fees also increased, benefiting from portfolio growth and increases in special servicing fees. Other income increased compared to the year-ago quarter, largely due to a gain on the sale of Key Insurance and Benefits Services. These increases were partially offset by a decline in operating lease income and other leasing gains, driven by a $42 million lease residual loss in the second quarter of 2018. Trust and investment services income also declined, impacted by the sale of Key Insurance and Benefits Services.

Compared to the first quarter of 2018, noninterest income increased by $59 million. The primary driver of the quarter-over-quarter increase was a $78 million gain related to the sale of Key Insurance and Benefits Services, reported in other income. Additionally, investment banking and debt placement fees and cards and payments income, which increased $12 million and $9 million, respectively, benefited from ongoing investments and momentum across the franchise. These increases were partially offset by a decline in operating lease income related to a lease residual loss, as well as trust and investment services income, which was impacted by the sale of Key Insurance and Benefits Services.



Noninterest Expense



























dollars in millions









Change 2Q18 vs.



2Q18

1Q18

2Q17



1Q18

2Q17

Personnel expense

$

586



$

594



$

553





(1.3)%



6.0

%

Nonpersonnel expense

407



412



442





(1.2)



(7.9)



Total noninterest expense

$

993



$

1,006



$

995





(1.3)



(.2)

















N/M = Not meaningful

Key's noninterest expense was $993 million for the second quarter of 2018, compared to $995 million in the year-ago quarter. Growth from acquisitions and investments, including Cain Brothers and HelloWallet, as well as the addition of client-facing bankers and continued investment in our residential mortgage business, contributed to both personnel and nonpersonnel expense in the second quarter of 2018. Efficiency-related expenses of $22 million (largely severance) and $5 million of costs related to the sale of Key Insurance and Benefits Services also impacted the current quarter's results. The current quarter also benefited from the realization of merger-related cost savings. In the second quarter of 2017, Key incurred $44 million of merger-related charges and a $20 million charitable contribution.

Key's noninterest expense was $993 million for the second quarter of 2018, compared to $1 billion in the prior quarter. This quarter's decrease was largely driven by expected seasonal trends, including lower employee benefits expense, which declined $23 million, and lower occupancy and intangible asset amortization. Partially offsetting these declines were $22 million related to efficiency efforts (largely severance) and $5 million related to the sale of Key Insurance and Benefits Services.

BALANCE SHEET HIGHLIGHTS



Average Loans



























dollars in millions









Change 2Q18 vs.



2Q18

1Q18

2Q17



1Q18

2Q17

Commercial and industrial (a)

$

45,030



$

42,733



$

40,666





5.4

%

10.7

%

Other commercial loans

20,394



20,705



21,990





(1.5)



(7.3)



Home equity loans

11,601



11,877



12,473





(2.3)



(7.0)



Other consumer loans

11,619



11,612



11,373





.1



2.2



Total loans

$

88,644



$

86,927



$

86,502





2.0

%

2.5

%















(a)     Commercial and industrial average loan balances include $126 million, $120 million, and $117 million of assets

          from commercial credit cards at June 30, 2018, March 31, 2018, and June 30, 2017, respectively.

Average loans were $88.6 billion for the second quarter of 2018, an increase of $2.1 billion compared to the second quarter of 2017, reflecting broad-based growth in commercial and industrial loans, partially offset by a decline in commercial real estate balances related to higher paydowns.

Compared to the first quarter of 2018, average loans increased by $1.7 billion, largely the result of growth in commercial and industrial loans. Key realized growth across commercial client segments, with commercial and industrial loans up 3% in the Community Bank and 7% in the Corporate Bank, unannualized.



Average Deposits



























dollars in millions









Change 2Q18 vs.



2Q18

1Q18

2Q17



1Q18

2Q17

Non-time deposits

$

91,538



$

90,719



$

92,018





.9

%

(.5)

%

Certificates of deposit ($100,000 or more)

7,516



6,972



6,111





7.8



23.0



Other time deposits

4,949



4,865



4,650





1.7



6.4



Total deposits

$

104,003



$

102,556



$

102,779





1.4

%

1.2

%















Cost of total deposits

.43

%

.36

%

.26

%



N/A

N/A















N/A = Not Applicable

Average deposits totaled $104 billion for the second quarter of 2018, an increase of $1.2 billion compared to the year-ago quarter, reflecting a shift to higher-yielding deposit products, as well as strength in Key's retail banking franchise and growth from commercial relationships. Growth was partially offset by the managed exit of certain higher cost corporate and public sector deposits.

Compared to the first quarter of 2018, average deposits increased by $1.4 billion. NOW and money market deposit accounts increased $1.2 billion and certificates of deposit and other time deposits increased $628 million, partly offset by a $471 million decline in noninterest-bearing deposits, as clients shift to higher-yielding deposit products. The linked quarter deposit growth continues to reflect strong retail deposit growth and growth from commercial relationships.



ASSET QUALITY



























dollars in millions









Change 2Q18 vs.



2Q18

1Q18

2Q17



1Q18

2Q17

Net loan charge-offs

$

60



$

54



$

66





11.1

%

(9.1)

%

Net loan charge-offs to average total loans

.27

%

.25

%

.31

%



N/A



N/A



Nonperforming loans at period end (a)

$

545



$

541



$

507





.7



7.5



Nonperforming assets at period end (a)

571



569



556





.4



2.7



Allowance for loan and lease losses

887



881



870





.7



2.0



Allowance for loan and lease losses to nonperforming loans (a)

162.8

%

162.8

%

171.6

%



N/A



N/A



Provision for credit losses

$

64



$

61



$

66





4.9

%

(3.0)

%















(a)       Nonperforming loan balances exclude $629 million, $690 million, and $835 million of purchased credit impaired loans at

           June 30, 2018, March 31, 2018, and June 30, 2017, respectively.

N/A = Not Applicable

Key's provision for credit losses was $64 million for the second quarter of 2018, compared to $66 million for the second quarter of 2017 and $61 million for the first quarter of 2018. Key's allowance for loan and lease losses was $887 million, or 1.01% of total period-end loans, at June 30, 2018, compared to 1.01% at June 30, 2017, and 1.00% at March 31, 2018.

Net loan charge-offs for the second quarter of 2018 totaled $60 million, or .27% of average total loans. These results compare to $66 million, or .31%, for the second quarter of 2017, and $54 million, or .25%, for the first quarter of 2018.

At June 30, 2018, Key's nonperforming loans totaled $545 million, which represented .62% of period-end portfolio loans. These results compare to .59% at June 30, 2017, and .61% at March 31, 2018. Nonperforming assets at June 30, 2018, totaled $571 million, and represented .65% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .64% at June 30, 2017, and .65% at March 31, 2018.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at June 30, 2018.

Capital Ratios

















6/30/2018

3/31/2018

6/30/2017

Common Equity Tier 1 (a)

10.12

%

9.99

%

9.91

%

Tier 1 risk-based capital (a)

10.94



10.82



10.73



Total risk based capital (a)

12.83



12.73



12.64



Tangible common equity to tangible assets (b)

8.32



8.22



8.56



Leverage (a)

9.91



9.76



9.95











(a)       6/30/2018 ratio is estimated.

(b)       The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents

            the computations of certain financial measures related to "tangible common equity." The table reconciles

            the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for

            period-to-period comparisons. See below for further information on the Regulatory Capital Rules.

Key's capital position remained strong in the second quarter. As shown in the preceding table, at June 30, 2018, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 10.12% and 10.94%, respectively. Key's tangible common equity ratio was 8.32% at June 30, 2018.

As a "standardized approach" banking organization, Key's mandatory compliance with the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules") began on January 1, 2015, subject to transitional provisions extending to January 1, 2019. Key's estimated Common Equity Tier 1 ratio as calculated under the fully phased-in Regulatory Capital Rules was 10.03% at June 30, 2018.  This estimate exceeds the fully phased-in required minimum Common Equity Tier 1 and Capital Conservation Buffer of 7.00%.



Summary of Changes in Common Shares Outstanding

























in thousands









Change 2Q18 vs.





2Q18

1Q18

2Q17



1Q18

2Q17

Shares outstanding at beginning of period

1,064,939



1,069,084



1,097,479





(.4)

%

(3.0)

%

Open market repurchases and return of shares under employee 

     compensation plans

(6,259)



(9,399)



(5,072)





(33.4)



23.4



Shares issued under employee compensation plans (net of cancellations)

264



5,254



332





(95.0)



(20.5)



     Shares outstanding at end of period

1,058,944



1,064,939



1,092,739





(.6)

%

(3.1)

%

















N/M = Not Meaningful

Consistent with Key's 2017 Capital Plan, during the second quarter of 2018, Key declared a dividend of $.12 per common share, and completed $126 million of common share repurchases during the quarter. These repurchases included $123 million of common share repurchases in the open market and $3 million of share repurchases related to employee equity compensation programs.

Key's 2018 Capital Plan received no objection from the Federal Reserve. The plan includes a 42% increase in the quarterly common share dividend from $0.12 per share to $0.17 per share, which is payable in the third quarter of 2018. Also included in the plan is a common share repurchase program of up to $1.225 billion. This authorization includes repurchases to offset issuances of common shares under our employee compensation plans. Repurchases are expected to be executed over the next four quarters.

LINE OF BUSINESS RESULTS

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



Major Business Segments





























dollars in millions









Change 2Q18 vs.





2Q18

1Q18

2Q17



1Q18

2Q17

Revenue from continuing operations (TE)













Key Community Bank

$

996



$

958



$

998





4.0

%

(.2)

%

Key Corporate Bank

542



559



597





(3.0)



(9.2)



Other Segments

38



37



46





2.7



(17.4)



     Total segments

1,576



1,554



1,641





1.4



(4.0)



Reconciling Items (a)

71



(1)



(1)





N/M



N/M



     Total

$

1,647



$

1,553



$

1,640





6.1

%

.4

%

















Income (loss) from continuing operations attributable to Key













Key Community Bank

$

244



$

197



$

198





23.9

%

23.2

%

Key Corporate Bank

167



207



224





(19.3)



(25.4)



Other Segments

25



18



24





38.9



4.2



     Total segments

436



422



446





3.3



(2.2)



Reconciling Items (b)

43



(6)



(39)





N/M



N/M



     Total

$

479



$

416



$

407





15.1

%

17.7

%

















(a)     Reconciling items consists primarily of the gain on the sale of Key Insurance and Benefits Services for the second quarter of

          2018.

(b)     Reconciling items consists primarily of the gain on the sale of Key Insurance and Benefits Services for the second quarter of

          2018, the unallocated portion of merger-related charges for the second quarter of 2017, and items not allocated to the

          business segments because they do not reflect their 
normal operations.

TE = Taxable Equivalent, N/M = Not Meaningful

 



Key Community Bank









































dollars in millions









Change 2Q18 vs.



2Q18

1Q18

2Q17



1Q18

2Q17

Summary of operations













Net interest income (TE)

$

715



$

688



$

676





3.9

%

5.8

%

Noninterest income

281



270



322





4.1



(12.7)



Total revenue (TE)

996



958



998





4.0



(.2)



Provision for credit losses

38



48



47





(20.8)



(19.1)



Noninterest expense

639



652



635





(2.0)



.6



Income (loss) before income taxes (TE)

319



258



316





23.6



.9



Allocated income taxes (benefit) and TE adjustments

75



61



118





23.0



(36.4)



Net income (loss) attributable to Key

$

244



$

197



$

198





23.9

%

23.2

%















Average balances













Loans and leases

$

47,984



$

47,680



$

47,477





.6

%

1.1

%

Total assets

51,866



51,605



51,441





.5



.8



Deposits

80,930



79,945



79,601





1.2



1.7

















Assets under management at period end

$

39,663



$

39,003



$

37,613





1.7

%

5.5

%















TE = Taxable Equivalent

 



Additional Key Community Bank Data



























dollars in millions









Change 2Q18 vs.



2Q18

1Q18

2Q17



1Q18

2Q17

Noninterest income













Trust and investment services income

$

92



$

89



$

86





3.4

%

7.0

%

Service charges on deposit accounts

77



76



77





1.3





Cards and payments income

59



51



60





15.7



(1.7)



Other noninterest income

53



54



99





(1.9)



(46.5)



Total noninterest income

$

281



$

270



$

322





4.1

%

(12.7)

%















Average deposit balances













NOW and money market deposit accounts

$

45,112



$

44,291



$

45,127





1.9

%



Savings deposits

5,078



5,056



5,293





.4



(4.1)

%

Certificates of deposit ($100,000 or more)

5,232



4,961



4,016





5.5



30.3



Other time deposits

4,934



4,856



4,640





1.6



6.3



Noninterest-bearing deposits

20,574



20,781



20,525





(1.0)



.2



Total deposits

$

80,930



$

79,945



$

79,601





1.2

%

1.7

%















Home equity loans













Average balance

$

11,496



$

11,763



$

12,330









Combined weighted-average loan-to-value ratio (at date of origination)

70

%

70

%

71

%







Percent first lien positions

60



60



60























Other data













Branches

1,177



1,192



1,210









Automated teller machines

1,537



1,569



1,589























 

Key Community Bank Summary of Operations (2Q18 vs. 2Q17)

  • Net income increased $46 million, or 23.2%, from prior year
  • Average commercial and industrial loans increased $1.1 billion, or 5.8%, from the prior year

Key Community Bank recorded net income attributable to Key of $244 million for the second quarter of 2018, compared to $198 million for the year-ago quarter, benefiting from momentum across Key's businesses, as well as a lower tax rate as a result of tax reform.

Taxable-equivalent net interest income increased by $39 million, or 5.8%, from the second quarter of 2017. The increase in net interest income was primarily attributable to the benefit from higher interest rates and growth in loans, partially offset by lower purchase accounting accretion. Average loans and leases increased $507 million, or 1.1%, largely driven by a $1.1 billion, or 5.8%, increase in commercial and industrial loans. Additionally, average deposits increased $1.3 billion, or 1.7%, from one year ago.

Noninterest income decreased $41 million, or 12.7%, from the year-ago quarter driven by a merchant services gain in the second quarter of 2017. Noninterest income, excluding the merchant services gain in the year-ago period, increased primarily due to higher assets under management from market growth.

The provision for credit losses decreased by $9 million, or 19.1%, from the second quarter of 2017. Net loan charge-offs decreased $13 million, or 27.7%, from the second quarter of 2017, as overall credit quality remained favorable.

Noninterest expense increased $4 million, or 0.6%, from the year-ago quarter. Personnel expense increased $11 million, primarily driven by recent acquisitions and ongoing investments, including residential mortgage and HelloWallet. Nonpersonnel expense decreased by $7 million, driven by a charitable contribution in the second quarter of 2017, which was partially offset by higher technology development costs.



Key Corporate Bank



































dollars in millions









Change 2Q18 vs.



2Q18

1Q18

2Q17



1Q18

2Q17

Summary of operations













Net interest income (TE)

$

277

$

272

$

312





1.8

%

(11.2)

%

Noninterest income

265



287



285





(7.7)



(7.0)



Total revenue (TE)

542



559



597





(3.0)



(9.2)



Provision for credit losses

28



14



19





100.0



47.4



Noninterest expense

326



314



297





3.8



9.8



Income (loss) before income taxes (TE)

188



231



281





(18.6)



(33.1)



Allocated income taxes and TE adjustments

21



24



57





(12.5)



(63.2)



Net income (loss) attributable to Key

$

167

$

207

$

224



(19.3)

%

(25.4)

%















Average balances













Loans and leases

$

39,710

$

38,260

$

37,704



3.8

%

5.3

%

Loans held for sale

1,299



1,118



1,000





16.2



29.9



Total assets

47,213



45,549



44,131





3.7



7.0



Deposits

21,057

20,815

21,145



1.2



(.4)

















TE = Taxable Equivalent, N/M = Not Meaningful

 



Additional Key Corporate Bank Data



























dollars in millions









Change 2Q18 vs.



2Q18

1Q18

2Q17



1Q18

2Q17

Noninterest income













Trust and investment services income

$

29

$

29

$

35





(17.1)

%

Investment banking and debt placement fees

153

141

134



8.5

%

14.2



Operating lease income and other leasing gains

(10)

27

22



N/M



N/M

















Corporate services income

44

44

38





15.8



Service charges on deposit accounts

13

13

13







Cards and payments income

12

11

10



9.1



20.0



Payments and services income

69

68

61



1.5



13.1

















Mortgage servicing fees

19

17

12



11.8



58.3



Other noninterest income

5

5

21





(76.2)



Total noninterest income

$

265

$

287

$

285



(7.7)

%

(7.0)

%















N/M = Not Meaningful

 

Key Corporate Bank Summary of Operations (2Q18 vs. 2Q17)

  • Commercial and industrial loans up $3.3 billion, or 15%, from prior year
  • Investment banking and debt placement fees up $19 million, or 14.2%, from prior year

Key Corporate Bank recorded net income attributable to Key of $167 million for the second quarter of 2018, compared to $224 million for the same period one year ago.

Taxable-equivalent net interest income decreased by $35 million, or 11.2%, compared to the second quarter of 2017. The decline is primarily related to $33 million of lower purchase accounting accretion, as well as loan spread compression. Average loan and lease balances increased $2 billion, or 5.3%, from the year-ago quarter, driven by broad-based growth in commercial and industrial loans. Average deposit balances decreased $88 million, or 0.4%, from the year-ago quarter, due to the managed exit of higher cost corporate and public sector deposits offsetting growth in core deposits.

Noninterest income was down $20 million, or 7.0%, from the prior year. This decrease was largely due to a $32 million decline in operating lease income and other leasing gains, driven by a lease residual loss in the second quarter of 2018. Other declines included other noninterest income down $16 million, mostly due to a merchant services gain in the year-ago period.  These decreases were slightly offset by higher investment banking and debt placement fees of $19 million, related to strength in advisory fees, including benefit from the acquisition of Cain Brothers, as well as a $6 million increase in corporate services income from higher derivatives revenue.

During the second quarter of 2018, the provision for credit losses increased $9 million, or 47.8%, compared to the second quarter of 2017, mostly due to higher net loan charge-offs.

Noninterest expense increased by $29 million, or 9.8%, from the second quarter of 2017. The increase from the prior year was largely related to acquisitions and investments throughout the year, which drove an increase in personnel expense and intangible asset amortization. Operating lease expense also increased compared to the year-ago period.

Other Segments

Other Segments consist of Corporate Treasury, Key's Principal Investing unit, and various exit portfolios. Other Segments generated net income attributable to Key of $25 million for the second quarter of 2018, compared to $24 million for the same period last year.

*****

KeyCorp's roots trace back 190 years to Albany, New York. Headquartered in Cleveland, Ohio, Key is one of the nation's largest bank-based financial services companies, with assets of approximately $137.8 billion at June 30, 2018.

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









This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do not relate strictly to historical or current facts. Forward-looking statements usually can be identified by the use of words such as "goal," "objective," "plan," "expect," "assume," "anticipate," "intend," "project," "believe," "estimate," or other words of similar meaning. Forward-looking statements provide our current expectations or forecasts of future events, circumstances, results, or aspirations. Forward-looking statements, by their nature, are subject to assumptions, risks and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements. There is no assurance that any list of risks and uncertainties or risk factors is complete.  Factors that could cause Key's actual results to differ from those described in the forward-looking statements can be found in KeyCorp's Form 10-K for the year ended December 31, 2017, as well as in KeyCorp's subsequent SEC filings, all of which have been filed with the Securities and Exchange Commission (the "SEC") and are available on Key's website (www.key.com/ir) and on the SEC's website (www.sec.gov).  These factors may include, among others: deterioration of commercial real estate market fundamentals, adverse changes in credit quality trends, declining asset prices, a reversal of the U.S. economic recovery due to financial, political, or other shocks, and the extensive regulation of the U.S. financial services industry. Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.









Notes to Editors:

A live Internet broadcast of KeyCorp's conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts' questions can be accessed through the Investor Relations section at
https://www.key.com/ir at 10:00 a.m. ET, on Thursday, July 19, 2018.  An audio replay of the call will be available through July 29, 2018.

*****

 

Financial Highlights

(dollars in millions, except per share amounts)







Three months ended







6/30/2018

3/31/2018

6/30/2017

Summary of operations









Net interest income (TE)

$

987



$

952



$

987





Noninterest income

660



601



653





     Total revenue (TE)

1,647



1,553



1,640





Provision for credit losses

64



61



66





Noninterest expense

993



1,006



995





Income (loss) from continuing operations attributable to Key

479



416



407





Income (loss) from discontinued operations, net of taxes (a)

3



2



5





Net income (loss) attributable to Key

482



418



412

















Income (loss) from continuing operations attributable to Key common shareholders

464



402



393





Income (loss) from discontinued operations, net of taxes (a)

3



2



5





Net income (loss) attributable to Key common shareholders

467



404



398















Per common share









Income (loss) from continuing operations attributable to Key common shareholders

$

.44



$

.38



$

.36





Income (loss) from discontinued operations, net of taxes (a)









Net income (loss) attributable to Key common shareholders (b)

.44



.38



.37

















Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution

.44



.38



.36





Income (loss) from discontinued operations, net of taxes — assuming dilution (a)









Net income (loss) attributable to Key common shareholders — assuming dilution (b)

.44



.38



.36

















Cash dividends declared

.12



.105



.095





Book value at period end

13.29



13.07



13.02





Tangible book value at period end

10.59



10.35



10.40





Market price at period end

19.54



19.55



18.74















Performance ratios









From continuing operations:









Return on average total assets

1.41

%

1.25

%

1.23

%



Return on average common equity

13.29



11.76



11.12





Return on average tangible common equity (c)

16.73



14.89



13.80





Net interest margin (TE)

3.19



3.15



3.30





Cash efficiency ratio (c)

58.8



62.9



59.3

















From consolidated operations:









Return on average total assets

1.40

%

1.24

%

1.23

%



Return on average common equity

13.37



11.82



11.26





Return on average tangible common equity (c)

16.84



14.97



13.98





Net interest margin (TE)

3.17



3.13



3.28





Loan to deposit (d)

86.9



86.9



87.2















Capital ratios at period end









Key shareholders' equity to assets

10.96

%

10.90

%

11.23

%



Key common shareholders' equity to assets

10.21



10.16



10.48





Tangible common equity to tangible assets (c)

8.32



8.22



8.56





Common Equity Tier 1 (e)

10.12



9.99



9.91





Tier 1 risk-based capital (e)

10.94



10.82



10.73





Total risk-based capital (e)

12.83



12.73



12.64





Leverage (e)

9.91



9.76



9.95















Asset quality — from continuing operations









Net loan charge-offs

$

60



$

54



$

66





Net loan charge-offs to average loans

.27

%

.25

%

.31

%



Allowance for loan and lease losses

$

887



$

881



$

870





Allowance for credit losses

945



941



918





Allowance for loan and lease losses to period-end loans

1.01

%

1.00

%

1.01

%



Allowance for credit losses to period-end loans

1.07



1.07



1.06





Allowance for loan and lease losses to nonperforming loans (f)

162.8



162.8



171.6





Allowance for credit losses to nonperforming loans (f)

173.4



173.9



181.1





Nonperforming loans at period-end (f)

$

545



$

541



$

507





Nonperforming assets at period-end (f)

571



569



556





Nonperforming loans to period-end portfolio loans (f)

.62

%

.61

%

.59

%



Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (f)

.65



.65



.64















Trust assets









Assets under management

$

39,663



$

39,003



$

37,613















Other data









Average full-time equivalent employees

18,376



18,540



18,344





Branches

1,177



1,192



1,210















Taxable-equivalent adjustment

$

8



$

8



$

14



 

 

Financial Highlights (continued)

(dollars in millions, except per share amounts)





Six months ended





6/30/2018



6/30/2017

Summary of operations









Net interest income (TE)

$

1,939





$

1,916





Noninterest income

1,261





1,230





   Total revenue (TE)

3,200





3,146





Provision for credit losses

125





129





Noninterest expense

1,999





2,008





Income (loss) from continuing operations attributable to Key

895





731





Income (loss) from discontinued operations, net of taxes (a)

5





5





Net income (loss) attributable to Key

900





736















Income (loss) from continuing operations attributable to Key common shareholders

$

866





$

689





Income (loss) from discontinued operations, net of taxes (a)

5





5





Net income (loss) attributable to Key common shareholders

871





694













Per common share









Income (loss) from continuing operations attributable to Key common shareholders

$

.82





$

.64





Income (loss) from discontinued operations, net of taxes (a)









Net income (loss) attributable to Key common shareholders (b)

.82





.64















Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution

.81





.63





Income (loss) from discontinued operations, net of taxes — assuming dilution (a)









Net income (loss) attributable to Key common shareholders — assuming dilution (b)

.81





.63















Cash dividends paid

.225





.18













Performance ratios









From continuing operations:









Return on average total assets

1.33

%



1.11

%



Return on average common equity

12.53





9.97





Return on average tangible common equity (c)

15.82





12.43





Net interest margin (TE)

3.17





3.21





Cash efficiency ratio (c)

60.8





62.4















From consolidated operations:









Return on average total assets

1.33

%



1.11

%



Return on average common equity

12.60





10.04





Return on average tangible common equity (c)

15.91





12.52





Net interest margin (TE)

3.15





3.19













Asset quality — from continuing operations









Net loan charge-offs

114





124





Net loan charge-offs to average total loans

.26

%



.29

%











Other data









Average full-time equivalent employees

18,458





18,365













Taxable-equivalent adjustment

16





25





(a)      In September 2009, management decided to discontinue the education lending business conducted through Key Education 

           Resources, the education payment and financing unit of KeyBank National Association.

(b)      Earnings per share may not foot due to rounding.

(c)      The following table entitled "GAAP to Non-GAAP Reconciliations" presents the computations of certain financial measures 

           related to "tangible common equity" and "cash efficiency." The table reconciles the GAAP performance measures to the 

           corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the

           Regulatory Capital Rules, see the "Capital" section of this release.

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

(e)      June 30, 2018, ratio is estimated.

(f)       Nonperforming loan balances exclude $629 million, $690 million, and $835 million of purchased credit impaired loans at June 

           30, 2018, March 31, 2018, and June 30, 2017, respectively.

 

 

GAAP to Non-GAAP Reconciliations

(dollars in millions)



The table below presents certain non-GAAP financial measures related to "tangible common equity," "return on average tangible common equity," "Common Equity Tier 1," "pre-provision net revenue," and "cash efficiency ratio."



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



The table also shows the computation for pre-provision net revenue, which is not formally defined by GAAP. Management believes that eliminating the effects of the provision for credit losses makes it easier to analyze the results by presenting them on a more comparable basis.



The cash efficiency ratio is a ratio of two non-GAAP performance measures. As such, there is no directly comparable GAAP performance measure. The cash efficiency ratio performance measure removes the impact of Key's intangible asset amortization from the calculation. Management believes this ratio provide greater consistency and comparability between Key's results and those of its peer banks. Additionally, this ratio is used by analysts and investors as they develop earnings forecasts and peer bank analysis.



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





Three months ended



Six months ended



6/30/2018

3/31/2018

6/30/2017



6/30/2018

6/30/2017

Tangible common equity to tangible assets at period-end













Key shareholders' equity (GAAP)

$

15,100



$

14,944



$

15,253









Less: Intangible assets (a)

2,858



2,902



2,866









Preferred Stock (b)

1,009



1,009



1,009









Tangible common equity (non-GAAP)

$

11,233



$

11,033



$

11,378









Total assets (GAAP)

$

137,792



$

137,049



$

135,824









Less: Intangible assets (a)

2,858



2,902



2,866









Tangible assets (non-GAAP)

$

134,934



$

134,147



$

132,958









Tangible common equity to tangible assets ratio (non-GAAP)

8.32

%

8.22

%

8.56

%







Pre-provision net revenue













Net interest income (GAAP)

$

979



$

944



$

973





$

1,923



$

1,891



Plus: Taxable-equivalent adjustment

8



8



14





16



25



Noninterest income

660



601



653





1,261



1,230



Less: Noninterest expense

993



1,006



995





1,999



2,008



Pre-provision new revenue from continuing operations (non-GAAP)

$

654



$

547



$

645





$

1,201



$

1,138



Average tangible common equity













Average Key shareholders' equity (GAAP)

$

15,032



$

14,889



$

15,200





$

14,961



$

15,192



Less: Intangible assets (average) (c)

2,883



2,916



2,756





2,899



2,764



Preferred stock (average)

1,025



1,025



1,025





1,025



1,251



Average tangible common equity (non-GAAP)

$

11,124



$

10,948



$

11,419





$

11,037



$

11,177



Return on average tangible common equity from continuing operations













Net income (loss) from continuing operations attributable to Key common

     shareholders (GAAP)

$

464



$

402



$

393





$

866



$

689



Average tangible common equity (non-GAAP)

11,124



10,948



11,419





11,037



11,177

















Return on average tangible common equity from continuing operations (non-GAAP)

16.73

%

14.89

%

13.80

%



15.82

%

12.43

%

Return on average tangible common equity consolidated













Net income (loss) attributable to Key common shareholders (GAAP)

$

467



$

404



$

398





$

871



$

694



Average tangible common equity (non-GAAP)

11,124



10,948



11,419





11,037



11,177

















Return on average tangible common equity consolidated (non-GAAP)

16.84

%

14.97

%

13.98

%



15.91

%

12.52

%

Cash efficiency ratio













Noninterest expense (GAAP)

$

993



$

1,006



$

995





$

1,999



$

2,008



Less: Intangible asset amortization

25



29



22





54



44



Adjusted noninterest expense (non-GAAP)

$

968



$

977



$

973





$

1,945



$

1,964

















Net interest income (GAAP)

$

979



$

944



$

973





$

1,923



$

1,891



Plus: Taxable-equivalent adjustment

8



8



14





16



25



Noninterest income

660



601



653





1,261



1,230



Total taxable-equivalent revenue (non-GAAP)

$

1,647



$

1,553



$

1,640





$

3,200



$

3,146

















Cash efficiency ratio (non-GAAP)

58.8

%

62.9

%

59.3

%



60.8

%

62.4

%

 

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)







Three

months

ended







6/30/2018

Common Equity Tier 1 under the Regulatory Capital Rules ("RCR") (estimates)





Common Equity Tier 1 under current RCR

$

12,378





Adjustments from current RCR to the fully phased-in RCR:







Deferred tax assets and other intangible assets (d)







Common Equity Tier 1 anticipated under the fully phased-in RCR (e)

$

12,378













Net risk-weighted assets under current RCR

$

122,352





Adjustments from current RCR to the fully phased-in RCR:







Mortgage servicing assets (f)

727







Deferred tax assets

319







All other assets







Total risk-weighted assets anticipated under the fully phased-in RCR (e)

$

123,398













Common Equity Tier 1 ratio under the fully phased-in RCR (e)

10.03

%



(a)     For the three months ended June 30, 2018, March 31, 2018, and June 30, 2017, intangible assets

          exclude $20 million, $23 million, and $33 million, respectively, of period-end purchased credit card

          receivables.

(b)     Net of capital surplus.

(c)     For the three months ended June 30, 2018, March 31, 2018, and June 30, 2017, average intangible

          assets exclude $21 million, $24 million, and $36 million, respectively, of average purchased credit

          card receivables. For the six months ended June 30, 2018, and June 30, 2017, average intangible

          assets exclude $23 million and $38 million, respectively, of average purchased credit card

          receivables.

(d)     Includes the deferred tax assets subject to future taxable income for realization, primarily tax credit 

          carryforwards, as well as intangible assets (other than goodwill and mortgage servicing assets)

          subject to the transition provisions of the final rule.

(e)     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."

(f)      Item is included in the 10%/15% exceptions bucket calculation and is risk-weighted at 250%.

GAAP = U.S. generally accepted accounting principles

 

 

Consolidated Balance Sheets

(dollars in millions)



















6/30/2018

3/31/2018

6/30/2017

Assets









Loans

$

88,222



$

88,089



$

86,503





Loans held for sale

1,418



1,667



1,743





Securities available for sale

17,367



17,888



18,024





Held-to-maturity securities

12,277



12,189



10,638





Trading account assets

833



769



1,081





Short-term investments

2,646



1,644



2,522





Other investments

709



715



732







Total earning assets

123,472



122,961



121,243





Allowance for loan and lease losses

(887)



(881)



(870)





Cash and due from banks

784



643



601





Premises and equipment

892



916



919





Operating lease assets

903



838



691





Goodwill

2,516



2,538



2,464





Other intangible assets

361



387



435





Corporate-owned life insurance

4,147



4,142



4,100





Accrued income and other assets

4,382



4,216



4,783





Discontinued assets

1,222



1,289



1,458







Total assets

$

137,792



$

137,049



$

135,824















Liabilities









Deposits in domestic offices:











NOW and money market deposit accounts

$

55,059



$

54,606



$

53,342







Savings deposits

6,199



6,321



7,056







Certificates of deposit ($100,000 or more)

7,547



7,295



6,286







Other time deposits

4,943



4,928



4,605







Total interest-bearing deposits

73,748



73,150



71,289







Noninterest-bearing deposits

30,800



31,601



31,532







Total deposits

104,548



104,751



102,821





Federal funds purchased and securities sold under repurchase agreements

1,667



616



1,780





Bank notes and other short-term borrowings

639



1,133



924





Accrued expense and other liabilities

1,983



1,854



1,783





Long-term debt

13,853



13,749



13,261







Total liabilities

122,690



122,103



120,569















Equity









Preferred stock

1,025



1,025



1,025





Common shares

1,257



1,257



1,257





Capital surplus

6,315



6,289



6,310





Retained earnings

10,970



10,624



9,878





Treasury stock, at cost

(3,382)



(3,260)



(2,711)





Accumulated other comprehensive income (loss)

(1,085)



(991)



(506)







Key shareholders' equity

15,100



14,944



15,253





Noncontrolling interests

2



2



2







Total equity

15,102



14,946



15,255



Total liabilities and equity

$

137,792



$

137,049



$

135,824















Common shares outstanding (000)

1,058,944



1,064,939



1,092,739



 

 

Consolidated Statements of Income

(dollars in millions, except per share amounts)







Three months ended



Six months ended







6/30/2018

3/31/2018

6/30/2017



6/30/2018

6/30/2017

Interest income















Loans

$

1,000



$

940



$

948





$

1,940



$

1,825





Loans held for sale

16



12



9





28



22





Securities available for sale

97



95



90





192



185





Held-to-maturity securities

72



69



55





141



106





Trading account assets

7



7



7





14



14





Short-term investments

8



8



5





16



8





Other investments

5



6



3





11



7







Total interest income

1,205



1,137



1,117





2,342



2,167



Interest expense















Deposits

112



91



66





203



124





Federal funds purchased and securities sold under repurchase agreements

5



4







9



1





Bank notes and other short-term borrowings

7



6



4





13



9





Long-term debt

102



92



74





194



142







Total interest expense

226



193



144





419



276



Net interest income

979



944



973





1,923



1,891



Provision for credit losses

64



61



66





125



129



Net interest income after provision for credit losses

915



883



907





1,798



1,762



Noninterest income















Trust and investment services income

128



133



134





261



269





Investment banking and debt placement fees

155



143



135





298



262





Service charges on deposit accounts

91



89



90





180



177





Operating lease income and other leasing gains

(6)



32



30





26



53





Corporate services income

61



62



55





123



109





Cards and payments income

71



62



70





133



135





Corporate-owned life insurance income

32



32



33





64



63





Consumer mortgage income

7



7



6





14



12





Mortgage servicing fees

22



20



15





42



33





Other income (a)

99



21



85





120



117







Total noninterest income

660



601



653





1,261



1,230



Noninterest expense















Personnel

586



594



553





1,180



1,110





Net occupancy

79



78



78





157



165





Computer processing

51



52



55





103



115





Business services and professional fees

51



41



45





92



91





Equipment

26



26



27





52



54





Operating lease expense

30



27



21





57



40





Marketing

26



25



30





51



51





FDIC assessment

21



21



21





42



41





Intangible asset amortization

25



29



22





54



44





OREO expense, net



2



3





2



5





Other expense

98



111



140





209



292







Total noninterest expense

993



1,006



995





1,999



2,008



Income (loss) from continuing operations before income taxes

582



478



565





1,060



984





Income taxes

103



62



158





165



252



Income (loss) from continuing operations

479



416



407





895



732





Income (loss) from discontinued operations, net of taxes

3



2



5





5



5



Net income (loss)

482



418



412





900



737





Less:  Net income (loss) attributable to noncontrolling interests











1



Net income (loss) attributable to Key

$

482



$

418



$

412





$

900



$

736





















Income (loss) from continuing operations attributable to Key common shareholders

$

464



$

402



$

393





$

866



$

689



Net income (loss) attributable to Key common shareholders

467



404



398





871



694



Per common share













Income (loss) from continuing operations attributable to Key common shareholders

$

.44



$

.38



$

.36





$

.82



$

.64



Income (loss) from discontinued operations, net of taxes













Net income (loss) attributable to Key common shareholders (b)

.44



.38



.37





.82



.64



Per common share — assuming dilution













Income (loss) from continuing operations attributable to Key common shareholders

$

.44



$

.38



$

.36





$

.81



$

.63



Income (loss) from discontinued operations, net of taxes













Net income (loss) attributable to Key common shareholders (b)

.44



.38



.36





.81



.63





















Cash dividends declared per common share

$

.12



$

.105



$

.095





$

.225



$

.18





















Weighted-average common shares outstanding (000)

1,052,652



1,056,037



1,076,203





1,054,378



1,083,486





Effect of common share options and other stock awards

13,141



15,749



16,836





14,561



15,808



Weighted-average common shares and potential common shares outstanding (000) (c)

1,065,793



1,071,786



1,093,039





1,068,939



1,099,294





















(a)     For the three months ended June 30, 2018, and March 31, 2018, net securities gains (losses) totaled less than $1 million. For the three months ended

          June 30, 2017, net securities gains totaled $1 million. For the three months ended June 30, 2018, March 31, 2018, and June 30, 2017, Key did not

          have any impairment losses related to securities.

(b)     Earnings per share may not foot due to rounding.

(c)     Assumes conversion of common share options and other stock awards, as applicable.

 

 

Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations

(dollars in millions)































Second Quarter 2018



First Quarter 2018



Second Quarter 2017





Average



Yield/



Average



Yield/



Average



Yield/





Balance

Interest (a)

Rate (a)



Balance

Interest (a)

Rate (a)



Balance

Interest (a)

Rate (a)

Assets

























Loans: (b), (c)

























Commercial and industrial (d)

$

45,030



$

485



4.32

%



$

42,733



$

434



4.11

%



$

40,666



$

409



4.04

%



Real estate — commercial mortgage

14,055



172



4.89





14,085



165



4.76





15,096



187



4.97





Real estate — construction

1,789



23



4.97





1,957



22



4.64





2,204



31



5.51





Commercial lease financing

4,550



41



3.61





4,663



41



3.53





4,690



50



4.33





Total commercial loans

65,424



721



4.41





63,438



662



4.23





62,656



677



4.34





Real estate — residential mortgage

5,451



54



3.97





5,479



54



3.95





5,509



52



3.77





Home equity loans

11,601



135



4.67





11,877



134



4.56





12,473



135



4.31





Consumer direct loans

1,768



33



7.54





1,766



33



7.53





1,743



31



7.07





Credit cards

1,080



30



11.21





1,080



30



11.32





1,044



29



11.04





Consumer indirect loans

3,320



35



4.26





3,287



35



4.29





3,077



38



5.02





Total consumer loans

23,220



287



4.97





23,489



286



4.91





23,846



285



4.77





   Total loans

88,644



1,008



4.56





86,927



948



4.41





86,502



962



4.46





Loans held for sale

1,375



16



4.50





1,187



12



4.10





1,082



9



3.58





Securities available for sale (b), (e)

17,443



97



2.13





17,889



95



2.06





17,997



90



1.97





Held-to-maturity securities (b)

12,226



72



2.36





12,041



69



2.30





10,469



55



2.09





Trading account assets

943



7



3.21





907



7



2.99





1,042



7



3.00





Short-term investments

2,015



8



1.76





2,048



8



1.51





1,970



5



.96





Other investments (e)

710



5



3.08





723



6



2.96





687



3



1.87





Total earning assets

123,356



1,213



3.92





121,722



1,145



3.78





119,749



1,131



3.78





Allowance for loan and lease losses

(875)









(875)









(864)









Accrued income and other assets

13,897









14,068









13,606









Discontinued assets

1,241









1,304









1,477









Total assets

$

137,619









$

136,219









$

133,968







Liabilities

























NOW and money market deposit accounts

$

54,749



59



.44





$

53,503



46



.34





$

54,416



34



.25





Savings deposits

6,276



5



.35





6,232



5



.29





6,854



4



.21





Certificates of deposit ($100,000 or more)

7,516



32



1.70





6,972



27



1.58





6,111



19



1.23





Other time deposits

4,949



16



1.22





4,865



13



1.12





4,650



9



.77





Total interest-bearing deposits

73,490



112



.61





71,572



91



.51





72,031



66



.36





Federal funds purchased and securities

        sold under repurchase agreements

1,475



5



1.41





1,421



4



1.11





466





.23





Bank notes and other short-term borrowings

1,116



7



2.27





1,342



6



1.87





1,216



4



1.43





Long-term debt (f), (g)

12,748



102



3.20





12,465



92



2.95





11,046



74



2.68





Total interest-bearing liabilities

88,829



226



1.02





86,800



193



.90





84,759



144



.68





Noninterest-bearing deposits

30,513









30,984









30,748









Accrued expense and other liabilities

2,002









2,241









1,782









Discontinued liabilities (g)

1,241









1,304









1,477









Total liabilities

122,585









121,329









118,766







Equity

























Key shareholders' equity

15,032









14,889









15,200









Noncontrolling interests

2









1









2









Total equity

15,034









14,890









15,202









Total liabilities and equity

$

137,619









$

136,219









$

133,968







Interest rate spread (TE)





2.90

%







2.88

%







3.10

%

Net interest income (TE) and net interest margin (TE)



987



3.19

%





952



3.15

%





987



3.30

%

TE adjustment (b)



8









8









14







Net interest income, GAAP basis



$

979









$

944









$

973







(a)     Results are from continuing operations.  Interest excludes the interest associated with the liabilities referred to in (g) below, calculated using a matched funds transfer

          pricing methodology.

(b)     Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 21% for the three

          months ended June 30, 2018, and March 31, 2018, and 35% for the three months ended June 30, 2017.

(c)     For purposes of these computations, nonaccrual loans are included in average loan balances.

(d)     Commercial and industrial average balances include $126 million, $120 million, and $117 million of assets from commercial credit cards for the three months ended

          June 30, 2018, March 31, 2018, and June 30, 2017, respectively.

(e)     Yield is calculated on the basis of amortized cost.

(f)      Rate calculation excludes basis adjustments related to fair value hedges. 

(g)     A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying Key's matched funds transfer pricing

          methodology to discontinued operations.

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

 

 



















Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations

(dollars in millions)























Six months ended June 30, 2018



Six months ended June 30, 2017





Average







Average









Balance

Interest (a)

Yield/Rate (a)



Balance

Interest (a)

Yield/ Rate (a)

Assets

















Loans: (b), (c)

















Commercial and industrial (d)

$

43,888



$

919



4.22

%



$

40,336



$

782



3.90

%



Real estate — commercial mortgage

14,070



337



4.83





15,142



351



4.68





Real estate — construction

1,872



45



4.80





2,278



57



5.01





Commercial lease financing

4,607



82



3.57





4,662



94



4.04





Total commercial loans

64,437



1,383



4.32





62,418



1,284



4.14





Real estate — residential mortgage

5,465



108



3.96





5,514



106



3.85





Home equity loans

11,738



269



4.61





12,542



266



4.27





Consumer direct loans

1,767



66



7.53





1,752



61



7.02





Credit cards

1,080



60



11.27





1,055



58



11.05





Consumer indirect loans

3,303



70



4.28





3,037



75



4.97





Total consumer loans

23,353



573



4.94





23,900



566



4.76





   Total loans

87,790



1,956



4.49





86,318



1,850



4.31





Loans held for sale

1,282



28



4.31





1,135



22



3.95





Securities available for sale (b), (e)

17,665



192



2.09





18,586



185



1.96





Held-to-maturity securities (b)

12,134



141



2.33





10,230



106



2.07





Trading account assets

925



14



3.11





1,005



14



2.88





Short-term investments

2,032



16



1.64





1,791



8



.88





Other investments (e)

716



11



3.02





698



7



2.07





Total earning assets

122,544



2,358



3.85





119,763



2,192



3.67





Allowance for loan and lease losses

(875)









(860)









Accrued income and other assets

13,982









13,712









Discontinued assets

1,272









1,508









Total assets

$

136,923









$

134,123







Liabilities

















NOW and money market deposit accounts

$

54,129



105



.39





$

54,356



66



.24





Savings deposits

6,254



10



.32





6,604



5



.16





Certificates of deposit ($100,000 or more)

7,246



59



1.64





5,871



35



1.20





Other time deposits

4,907



29



1.17





4,677



18



.77





Total interest-bearing deposits

72,536



203



.56





71,508



124



.35





Federal funds purchased and securities sold under repurchase agreements

1,448



9



1.26





629



1



.28





Bank notes and other short-term borrowings

1,228



13



2.05





1,508



9



1.21





Long-term debt (f), (g)

12,608



194



3.08





10,940



142



2.61





Total interest-bearing liabilities

87,820



419



.96





84,585



276



.66





Noninterest-bearing deposits

30,747









30,922









Accrued expense and other liabilities

2,121









1,914









Discontinued liabilities (g)

1,272









1,509









Total liabilities

121,960









118,930







Equity

















Key shareholders' equity

14,961









15,192









Noncontrolling interests

2









1









Total equity

14,963









15,193









Total liabilities and equity

$

136,923









$

134,123







Interest rate spread (TE)





2.89

%







3.01

%

Net interest income (TE) and net interest margin (TE)



1,939



3.17

%





1,916



3.21

%

TE adjustment (b)



16









25







Net interest income, GAAP basis



$

1,923









$

1,891







(a)     Results are from continuing operations.  Interest excludes the interest associated with the liabilities referred to in (g) below, calculated using a matched funds transfer pricing 

          methodology.

(b)     Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 21% and 35% for the six 

          months ended June 30, 2018, and June 30, 2017, respectively.

(c)     For purposes of these computations, nonaccrual loans are included in average loan balances.

(d)     Commercial and industrial average balances include $123 million and $115 million of assets from commercial credit cards for the six months ended June 30, 2018, and June 30, 

          2017, respectively.

(e)     Yield is calculated on the basis of amortized cost.

(f)      Rate calculation excludes basis adjustments related to fair value hedges. 

(g)     A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying Key's matched funds transfer pricing methodology to

          discontinued operations.

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

 

 

Noninterest Expense

(dollars in millions)

















Three months ended



Six months ended



6/30/2018

3/31/2018

6/30/2017



6/30/2018

6/30/2017

Personnel (a)

$

586



$

594



$

553





$

1,180



$

1,110



Net occupancy

79



78



78





157



165



Computer processing

51



52



55





103



115



Business services and professional fees

51



41



45





92



91



Equipment

26



26



27





52



54



Operating lease expense

30



27



21





57



40



Marketing

26



25



30





51



51



FDIC assessment

21



21



21





42



41



Intangible asset amortization

25



29



22





54



44



OREO expense, net



2



3





2



5



Other expense

98



111



140





209



292



Total noninterest expense

$

993



$

1,006



$

995





$

1,999



$

2,008



Average full-time equivalent employees (b)

18,376



18,540



18,344





18,458



18,365





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

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

 

 

Personnel Expense

(in millions)

















Three months ended



Six months ended



6/30/2018

3/31/2018

6/30/2017



6/30/2018

6/30/2017

Salaries and contract labor

$

341



$

339



$

332





$

680



$

656



Incentive and stock-based compensation

147



145



137





292



264



Employee benefits

82



105



78





187



175



Severance

16



5



6





21



15



Total personnel expense

$

586



$

594



$

553





$

1,180



$

1,110



 

 

Merger-Related Charges

(in millions)

















Three months ended



Six months ended



6/30/2018

3/31/2018

6/30/2017



6/30/2018

6/30/2017

Personnel





$

31







$

61



Net occupancy





(1)







4



Business services and professional fees





6







11



Computer processing





2







7



Marketing





6







12



Other nonpersonnel expense











30



Total merger-related charges





$

44







$

125



 

 

Loan Composition

(dollars in millions)





















Percent change 6/30/2018 vs.



6/30/2018

3/31/2018

6/30/2017



3/31/2018

6/30/2017

Commercial and industrial (a)

$

44,569



$

44,313



$

40,914





.6

%

8.9

%

Commercial real estate:













Commercial mortgage

14,162



13,997



14,813





1.2



(4.4)



Construction

1,736



1,871



2,168





(7.2)



(19.9)



   Total commercial real estate loans

15,898



15,868



16,981





.2



(6.4)



Commercial lease financing (b)

4,509



4,598



4,737





(1.9)



(4.8)



   Total commercial loans

64,976



64,779



62,632





.3



3.7



Residential — prime loans:













Real estate — residential mortgage

5,452



5,473



5,517





(.4)



(1.2)



Home equity loans

11,519



11,720



12,405





(1.7)



(7.1)



   Total residential — prime loans

16,971



17,193



17,922





(1.3)



(5.3)



Consumer direct loans

1,785



1,758



1,755





1.5



1.7



Credit cards

1,094



1,068



1,049





2.4



4.3



Consumer indirect loans

3,396



3,291



3,145





3.2



8.0



   Total consumer loans

23,246



23,310



23,871





(.3)



(2.6)



   Total loans (c)

$

88,222



$

88,089



$

86,503





.2

%

2.0

%



(a)     Loan balances include $128 million, $121 million, and $118 million of commercial credit card balances at

          June 30, 2018, March 31, 2018, and June 30, 2017, respectively.

(b)     Commercial lease financing includes receivables held as collateral for a secured borrowing of $16 million,

          $16 million, and $47 million at June 30, 2018, March 31, 2018, and June 30, 2017, respectively. Principal

          reductions are based on the cash payments received from these related receivables.

(c)     Total loans exclude loans of $1.2 billion at June 30, 2018, $1.3 billion at March 31, 2018, and $1.4 billion

          at June 30, 2017, related to the discontinued operations of the education lending business.



 

 

Loans Held for Sale Composition

(dollars in millions)

























Percent change 6/30/2018 vs.



6/30/2018

3/31/2018

6/30/2017



3/31/2018

6/30/2017

Commercial and industrial

$

217



$

194



$

338





11.9

%

(35.8)

%

Real estate — commercial mortgage

1,139



1,426



1,332





(20.1)



(14.5)



Commercial lease financing

4





10





N/M



(60.0)



Real estate — residential mortgage

58



47



63





23.4



(7.9)



Total loans held for sale (a)

$

1,418



$

1,667



$

1,743





(14.9)

%

(18.6)

%



(a)     Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $58 million at

          June 30, 2018, $47 million at March 31, 2018, and $63 million at June 30, 2017.

N/M = Not Meaningful

 

 



Summary of Changes in Loans Held for Sale

(in millions)















2Q18

1Q18

4Q17

3Q17

2Q17

Balance at beginning of period

$

1,667



$

1,107



$

1,341



$

1,743



$

1,384



New originations

2,665



3,280



3,566



2,855



2,876



Transfers from (to) held to maturity, net

(4)



(14)



(10)



(63)



(7)



Loan sales

(2,909)



(2,705)



(3,783)



(3,191)



(2,507)



Loan draws (payments), net

(1)



(1)



(7)



(3)



(3)



Balance at end of period (a)

$

1,418



$

1,667



$

1,107



$

1,341



$

1,743





(a)     Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $58

          million at June 30, 2018, $47 million at March 31, 2018, $71 million at December 31, 2017, $60 million at

          September 30, 2017, and $63 million at June 30, 2017.

 

 

Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)

















Three months ended



Six months ended



6/30/2018

3/31/2018

6/30/2017



6/30/2018

6/30/2017

Average loans outstanding

$

88,644



$

86,927



$

86,502





$

87,790



$

86,318



Allowance for loan and lease losses at beginning of period

$

881



$

877



$

870





$

877



$

858



Loans charged off:













Commercial and industrial

39



37



40





76



72

















Real estate — commercial mortgage

2



1



3





3



3



Real estate — construction













   Total commercial real estate loans

2



1



3





3



3



Commercial lease financing

4



1



1





5



8



   Total commercial loans

45



39



44





84



83



Real estate — residential mortgage



1



4





1



2



Home equity loans

6



4



9





10



17



Consumer direct loans

9



8



8





17



18



Credit cards

12



12



12





24



23



Consumer indirect loans

7



8



5





15



16



   Total consumer loans

34



33



38





67



76



     Total loans charged off

79



72



82





151



159



Recoveries:













Commercial and industrial

7



6



2





13



7

















Real estate — commercial mortgage

1









1





Real estate — construction



1







1



1



   Total commercial real estate loans

1



1







2



1



Commercial lease financing



1







1



2



    Total commercial loans

8



8



2





16



10



Real estate — residential mortgage





1







3



Home equity loans

3



3



5





6



8



Consumer direct loans

2



2



2





4



3



Credit cards

2



1



2





3



3



Consumer indirect loans

4



4



4





8



8



   Total consumer loans

11



10



14





21



25



     Total recoveries

19



18



16





37



35



Net loan charge-offs

(60)



(54)



(66)





(114)



(124)



Provision (credit) for loan and lease losses

66



58



66





124



136



Allowance for loan and lease losses at end of period

$

887



$

881



$

870





$

887



$

870

















Liability for credit losses on lending-related commitments at beginning of period

$

60



$

57



$

48





$

57



$

55



Provision (credit) for losses on lending-related commitments

(2)



3







1



(7)



Liability for credit losses on lending-related commitments at end of period (a)

$

58



$

60



$

48





$

58



$

48

















Total allowance for credit losses at end of period

$

945



$

941



$

918





$

945



$

918

















Net loan charge-offs to average total loans

.27

%

.25

%

.31

%



.26

%

.29

%

Allowance for loan and lease losses to period-end loans

1.01



1.00



1.01





1.01



1.01



Allowance for credit losses to period-end loans

1.07



1.07



1.06





1.07



1.06



Allowance for loan and lease losses to nonperforming loans

162.8



162.8



171.6





162.8



171.6



Allowance for credit losses to nonperforming loans

173.4



173.9



181.1





173.4



181.1

















Discontinued operations — education lending business:













Loans charged off

$

3



$

4



$

4





$

7



$

10



Recoveries

1



2



2





3



4



   Net loan charge-offs

$

(2)



$

(2)



$

(2)





$

(4)



$

(6)





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

 

 



Asset Quality Statistics From Continuing Operations

(dollars in millions)



2Q18

1Q18

4Q17

3Q17

2Q17

Net loan charge-offs

$

60



$

54



$

52



$

32



$

66



Net loan charge-offs to average total loans

.27

%

.25

%

.24

%

.15

%

.31

%

Allowance for loan and lease losses

$

887



$

881



$

877



$

880



$

870



Allowance for credit losses (a)

945



941



934



937



918



Allowance for loan and lease losses to period-end loans

1.01

%

1.00

%

1.01

%

1.02

%

1.01

%

Allowance for credit losses to period-end loans

1.07



1.07



1.08



1.08



1.06



Allowance for loan and lease losses to nonperforming loans (b)

162.8



162.8



174.4



170.2



171.6



Allowance for credit losses to nonperforming loans (b)

173.4



173.9



185.7



181.2



181.1



Nonperforming loans at period end (b)

$

545



$

541



$

503



$

517



$

507



Nonperforming assets at period end (b)

571



569



534



556



556



Nonperforming loans to period-end portfolio loans (b)

.62

%

.61

%

.58

%

.60

%

.59

%

Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming 

     assets (b)

.65



.65



.62



.64



.64





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

(b)       Nonperforming loan balances exclude $629 million, $690 million, $738 million, $783 million, and $835 million of purchased credit impaired loans at 

            June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively.

 

 

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(dollars in millions)



6/30/2018

3/31/2018

12/31/2017

9/30/2017

6/30/2017

Commercial and industrial

$

178



$

189



$

153



$

169



$

178















Real estate — commercial mortgage

42



33



30



30



34



Real estate — construction

2



2



2



2



4



Total commercial real estate loans

44



35



32



32



38



Commercial lease financing

21



5



6



11



11



Total commercial loans

243



229



191



212



227



Real estate — residential mortgage

55



59



58



57



58



Home equity loans

222



229



229



227



208



Consumer direct loans

4



4



4



3



2



Credit cards

2



2



2



2



2



Consumer indirect loans

19



18



19



16



10



Total consumer loans

302



312



312



305



280



Total nonperforming loans (a)

545



541



503



517



507



OREO

26



28



31



39



48



Other nonperforming assets









1



Total nonperforming assets (a)

$

571



$

569



$

534



$

556



$

556



Accruing loans past due 90 days or more

$

103



$

82



$

89



$

86



$

85



Accruing loans past due 30 through 89 days

429



305



359



329



340



Restructured loans — accruing and nonaccruing (b)

347



317



317



315



333



Restructured loans included in nonperforming loans (b)

184



179



189



187



193



Nonperforming assets from discontinued operations — education lending business

6



6



7



8



5



Nonperforming loans to period-end portfolio loans (a)

.62

%

.61

%

.58

%

.60

%

.59

%

Nonperforming assets to period-end portfolio loans plus OREO and other 

     nonperforming assets (a)

.65



.65



.62



.64



.64





(a)     Nonperforming loan balances exclude $629 million, $690 million, $738 million, $783 million, and $835 million of purchased credit impaired loans at June 30,

          2018, March 31, 2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively.     

(b)     Restructured loans (i.e., troubled debt restructuring) are those for which Key, for reasons related to a borrower's financial difficulties, grants a concession to

          the borrower that it would not otherwise consider.  These concessions are made to improve the collectability of the loan and generally take the form of a

          reduction of the interest rate, extension of the maturity date or reduction in the principal balance.

 

 

Summary of Changes in Nonperforming Loans From Continuing Operations

(in millions)



2Q18

1Q18

4Q17

3Q17

2Q17

Balance at beginning of period

$

541



$

503



$

517



$

507



$

573



Loans placed on nonaccrual status

175



182



137



181



143



Charge-offs

(78)



(70)



(67)



(71)



(82)



Loans sold

(1)







(1)





Payments

(33)



(29)



(52)



(32)



(84)



Transfers to OREO

(5)



(4)



(8)



(10)



(8)



Transfers to other nonperforming assets











Loans returned to accrual status

(54)



(41)



(24)



(57)



(35)



Balance at end of period (a)

$

545



$

541



$

503



$

517



$

507





(a)     Nonperforming loan balances exclude $629 million, $690 million, $738 million, $783 million, and $835 million of purchased credit

          impaired loans at June 30, 2018, March 31, 
2018, December 31, 2017, September 30, 2017, and June 30, 2017, respectively.

 

 

Line of Business Results

(dollars in millions)

































Percent change 2Q18 vs.



2Q18

1Q18

4Q17

3Q17

2Q17



1Q18

2Q17

Key Community Bank

















Summary of operations

















Total revenue (TE)

$

996



$

958



$

961



$

945



$

998





4.0

%

(.2)

%

Provision for credit losses

38



48



57



59



47





(20.8)



(19.1)



Noninterest expense

639



652



661



623



635





(2.0)



.6



Net income (loss) attributable to Key

244



197



154



165



198





23.9



23.2



Average loans and leases

47,984



47,680



47,405



47,611



47,477





.6



1.1



Average deposits

80,930



79,945



80,352



79,563



79,601





1.2



1.7



Net loan charge-offs

34



42



35



41



47





(19.0)



(27.7)



Net loan charge-offs to average total loans

.28

%

.36

%

.29

%

.34

%

.40

%



N/A



N/A



Nonperforming assets at period end

$

468



$

425



$

405



$

427



$

406





10.1



15.3



Return on average allocated equity

20.22

%

16.61

%

12.62

%

13.55

%

16.59

%



N/A



N/A



Average full-time equivalent employees

10,619



10,666



10,629



10,696



10,558





(.4)



.6





















Key Corporate Bank

















Summary of operations

















Total revenue (TE)

$

542



$

559



$

605



$

561



$

597





(3.0)

%

(9.2)

%

Provision for credit losses

28



14



(6)



(11)



19





100.0



47.4



Noninterest expense

326



314



353



305



297





3.8



9.8



Net income (loss) attributable to Key

167



207



222



189



224





(19.3)



(25.4)



Average loans and leases

39,710



38,260



37,460



38,024



37,704





3.8



5.3



Average loans held for sale

1,299



1,118



1,345



1,521



1,000





16.2



29.9



Average deposits

21,057



20,815



21,558



21,559



21,145





1.2



(.4)



Net loan charge-offs

26



11



16



(9)



19





136.4



36.8



Net loan charge-offs to average total loans

.26

%

.12

%

.17

%

(.09)

%

.20

%



N/A



N/A



Nonperforming assets at period end

$

91



$

127



$

109



$

106



$

119





(28.3)



(23.5)



Return on average allocated equity

23.07

%

29.46

%

31.33

%

26.90

%

31.66

%



N/A



N/A



Average full-time equivalent employees

2,537



2,543



2,418



2,460



2,364





(.2)



7.3





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

 

 

Notable Items

(in millions)

















Three months ended



Six months ended



6/30/2018

3/31/2018

6/30/2017



6/30/2018

6/30/2017

Gain on sale of Key Insurance and Benefits Services

$

78









$

78





Expenses related to the sale of Key Insurance and Benefits Services

5









5





Net gain on sale of Key Insurance and Benefits Services

73









73



















Efficiency efforts

(22)









(22)





Lease residual loss

(42)









(42)





Merger-related charges





$

(44)







$

(125)



Merchant services gain





64







64



Purchase accounting finalization, net





43







43



Charitable contribution





(20)







(20)



Total notable items

9





$

43





9



$

(38)



Income taxes

7





16





7



(14)



Total notable items, after tax

$

2





$

27





$

2



$

(24)



 

 

 

Cision View original content:http://www.prnewswire.com/news-releases/keycorp-reports-second-quarter-2018-net-income-of-464-million-or-44-per-common-share-300683554.html

SOURCE KeyCorp

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