CLEVELAND, Oct. 18, 2018 /PRNewswire/ -- KeyCorp KEY today announced third quarter net income from continuing operations attributable to Key common shareholders of $468 million, or $.45 per common share, compared to $464 million, or $.44 per common share, for the second quarter of 2018 and $349 million, or $.32 per common share, for the third quarter of 2017.

"Our solid third quarter results reflect our success in growing and expanding client relationships, driving efficiency across the organization, and staying true to our moderate risk profile. This quarter, our return on tangible common equity ratio was 16.8%, and our cash efficiency ratio was 58.7%, both an improvement of over 300 basis points from last year.

"Our Community Bank and Corporate Bank both contributed to our year-over-year revenue growth of 3%, which demonstrates our competitive positioning and the success of our distinctive relationship-based business model. Expense management remains a priority, as we continue to execute on our cost initiatives, which allows us to reinvest into our businesses.

"Credit quality and capital remain strengths, with solid credit trends this quarter and disciplined capital management. Importantly, we increased our common share dividend 42% during the third quarter – from $.12 to $.17. We remain dedicated to delivering results for our shareholders, as we focus on maintaining our moderate risk profile, and staying diligent in managing credit quality as we move through different parts of the business cycle."

-       Beth Mooney, Chairman and CEO

 

Taxable-equivalent net interest income was $993 million for the third quarter of 2018, and the net interest margin was 3.18%, compared to taxable-equivalent net interest income of $962 million and a net interest margin of 3.15% for the third quarter of 2017, reflecting the benefit from higher interest rates and higher earning asset balances. Third quarter 2018 net interest income included $26 million of purchase accounting accretion, a decline of $22 million from the third quarter of 2017.

Compared to the second quarter of 2018, taxable-equivalent net interest income increased by $6 million, and the net interest margin declined by one basis point. Both net interest income and the net interest margin benefited from higher interest rates. One additional day in the third quarter further benefited net interest income. These benefits were offset by lower loan fees, an expected decline in purchase accounting accretion, and an elevated level of liquidity, reflecting higher short-term and seasonal deposits, as well as commercial loan paydowns.

Key's noninterest income was $609 million for the third quarter of 2018, compared to $592 million for the year-ago quarter. Growth was primarily driven by a $25 million increase in investment banking and debt placement fees, related to strength in advisory fees, including benefit from the acquisition of Cain Brothers, as well as organic growth. Operating lease and other leasing gains increased $19 million related to higher volume and lease residual losses in the year-ago period. A decline in trust and investment services income, impacted by the sale of Key Insurance and Benefits Services in the second quarter of 2018, partially offset the increases. Cards and payments income and service charges on deposit accounts both declined $6 million, driven by the 2018 adoption of the revenue recognition accounting standard.

Compared to the second quarter of 2018, noninterest income decreased by $51 million. The decline was primarily related to a $78 million gain from the sale of Key Insurance and Benefits Services in the prior quarter, reported in other income. Trust and investment services income declined $11 million, primarily impacted by the sale of Key Insurance and Benefits Services, and corporate services income declined $9 million from lower derivative income. Partially offsetting these items was a $41 million increase in operating lease income and other leasing gains, related to a lease residual loss in the prior quarter. Additionally, investment banking and debt placement fees continue to show momentum, as fees increased $11 million, largely related to strength in advisory and loan syndication fees.

Key's noninterest expense was $964 million for the third quarter of 2018, compared to $992 million in the year-ago quarter. The third quarter of 2017 included $36 million of merger-related charges. Excluding these charges, the increase in expenses from the year-ago period was largely related to growth from the Cain Brothers acquisition and other investments throughout the year. This growth offset the realization of cost savings efforts across the franchise.

Key's noninterest expense was $964 million for the third quarter of 2018, compared to $993 million in the prior quarter. The decrease was largely driven by a $33 million decline in personnel expense, including lower severance and incentive compensation expense. Additionally, business services and professional fees declined by $8 million, partially offset by an increase in other expense.

 BALANCE SHEET HIGHLIGHTS

Average loans were $88.5 billion for the third quarter of 2018, an increase of $1.7 billion compared to the third quarter of 2017, reflecting broad-based growth in commercial and industrial loans, partially offset by higher paydowns in commercial real estate balances and home equity lines of credit.

Compared to the second quarter of 2018, average loans decreased by $177 million, driven by continued levels of lower utilization and elevated paydowns. Period-end loan balances grew $1.0 billion compared to the prior quarter, reflecting increased momentum, as growth in commercial and industrial loans and commercial real estate balances increased near the end of the third quarter.

Average deposits totaled $105.6 billion for the third quarter of 2018, an increase of $2.5 billion compared to the year-ago quarter, reflecting growth in higher-yielding deposit products, as well as strength in Key's retail banking franchise and growth from commercial relationships.

Compared to the second quarter of 2018, average deposits increased by $1.6 billion, reflecting growth from retail and commercial relationships, as well as short-term and seasonal deposit inflows.

Key's provision for credit losses was $62 million for the third quarter of 2018, compared to $51 million for the third quarter of 2017 and $64 million for the second quarter of 2018. Key's allowance for loan and lease losses was $887 million, or .99% of total period-end loans at September 30, 2018, compared to 1.02% at September 30, 2017, and 1.01% at June 30, 2018.

Net loan charge-offs for the third quarter of 2018 totaled $60 million, or .27% of average total loans. These results compare to $32 million, or .15%, for the third quarter of 2017, and $60 million, or .27%, for the second quarter of 2018.

At September 30, 2018, Key's nonperforming loans totaled $645 million, which represented .72% of period-end portfolio loans. These results compare to .60% at September 30, 2017, and .62% at June 30, 2018. Nonperforming assets at September 30, 2018, totaled $674 million, and represented .75% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .64% at September 30, 2017, and .65% at June 30, 2018.

CAPITAL

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

Key's capital position remained strong in the third quarter. As shown in the preceding table, at September 30, 2018, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.93% and 11.09%, respectively. Key's tangible common equity ratio was 8.05% at September 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 9.85% at September 30, 2018.  This estimate exceeds the fully phased-in required minimum Common Equity Tier 1 and Capital Conservation Buffer of 7.00%.

Consistent with Key's 2018 Capital Plan, during the third quarter of 2018, Key declared a dividend of $.17 per common share, reflecting a 42% increase from the prior quarter. Key also completed $542 million of common share repurchases during the quarter.

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.

 

 

Key Community Bank Summary of Operations (3Q18 vs. 3Q17)

• Positive operating leverage compared to the prior year
• Net income increased $78 million, or 47.9%, from the prior year
• Average commercial and industrial loans increased $831 million, or 4.4%, from the prior year

Key Community Bank recorded net income attributable to Key of $241 million for the third quarter of 2018, compared to $163 million for the year-ago quarter, benefiting from momentum in Key's core businesses and a lower tax rate as a result of tax reform.

Taxable-equivalent net interest income increased by $53 million, or 7.9%, from the third quarter of 2017. The increase in net interest income was primarily attributable to the benefit from higher interest rates and balance sheet growth, partially offset by lower purchase accounting accretion. Average loans and leases increased $248 million, or .5%, largely driven by a $831 million, or 4.4%, increase in commercial and industrial loans, partially offset by a continued decline in home equity, in line with industry trends. Additionally, average deposits increased $2.7 billion, or 3.4%, driven by growth across multiple businesses, from the third quarter of 2017.

Noninterest income decreased $4 million, or 1.5%, from the year-ago quarter driven by lower service charges on deposit accounts and cards and payments income, which were impacted by revenue recognition changes. This was partially offset by higher trust and investment services income, which increased primarily due to higher assets under management from market growth.

The provision for credit losses decreased by $16 million, or 27.1%, from the third quarter of 2017. Net loan charge-offs increased $2 million, or 4.9%, from the third quarter of 2017, as overall credit quality remained stable.

Noninterest expense increased $9 million, or 1.4%, from the year-ago quarter. Personnel expense increased, primarily driven by higher production related incentive compensation and ongoing investments, including residential mortgage.

 

Key Corporate Bank Summary of Operations (3Q18 vs. 3Q17)

• Commercial and industrial loans up $2.6 billion, or 11.4%, from prior year
• Investment banking and debt placement fees up $25 million, or 18.2%, from prior year

Key Corporate Bank recorded net income attributable to Key of $199 million for the third quarter of 2018, compared to $190 million for the year-ago quarter.

Taxable-equivalent net interest income decreased by $19 million, or 6.5%, compared to the third quarter of 2017.  This decline is primarily related to $7 million of lower purchase accounting accretion, as well as loan spread compression.  Average loan and lease balances increased $1.7 billion, or 4.5%, from the year-ago quarter, driven by broad-based growth in commercial and industrial loans, partially offset by a continued decline in home equity. Average deposit balances decreased $503 million, or 2.3%, from the year-ago quarter, driven by the managed exit of higher cost corporate and public sector deposits offsetting growth in core deposits.

Noninterest income was up $32 million, or 11.9%, from the prior year.  Investment banking and debt placement fees increased $25 million related to the acquisition of Cain Brothers and organic growth. Operating lease income and other leasing gains increased $21 million due to higher volumes, as well as lease residual losses in the year-ago period.  These increases were slightly offset by lower trust and investment services income of $7 million, as well as $3 million declines in both mortgage fees due to lower transactional fees and corporate services income due to lower derivatives income.

During the third quarter of 2018, the provision for credit losses increased $31 million, compared to the third quarter of 2017, mostly due to higher net loan charge-offs.

Noninterest expense increased by $13 million, or 4.3%, from the third quarter of 2017. The increase from the prior year was largely related to acquisitions and investments made throughout the year driving increases in personnel expense and intangible amortization, as well as higher operating lease expense, driven by increased volume.

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 $22 million for the third quarter of 2018, compared to $21 million for the same period last year.

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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 $138.8 billion at September 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 over 1,100 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.

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 9:00 a.m. ET, on Thursday, October 18, 2018.  An audio replay of the call will be available through October 28, 2018.

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KeyCorp

Third Quarter 2018

Financial Supplement

 

 

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE KeyCorp