CLEVELAND, Jan. 17, 2019 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced net income from continuing operations attributable to Key common shareholders of $459 million, or $.45 per common share for the fourth quarter of 2018, compared to $468 million, or $.45 per common share, for the third quarter of 2018 and $181 million, or $.17 per common share, for the fourth quarter of 2017. During the fourth quarter of 2018, Key's results included notable items resulting in a net impact of $.03 per common share, consisting of a pension settlement charge and efficiency initiative expenses. No notable items were reported in the third quarter of 2018, however, notable items resulting in a net impact of $.19 per common share were reported in the fourth quarter of 2017.

For the year ended December 31, 2018, net income from continuing operations attributable to Key common shareholders was $1.8 billion, or $1.70 per common share, compared to $1.2 billion, or $1.12 per common share, for the same period one year ago.

"Key's fourth quarter results marked a strong finish to a successful year for our company, as we continued to grow, invest for our future, and deliver on our financial commitments. We achieved our sixth consecutive year of positive operating leverage, with a record $6.4 billion of total revenue and all-time highs in several of our fee-based businesses, including investment banking and debt placement fees. Our expenses remain well-managed, as we maintain our focus on efficiency, while continuing to invest in our businesses. We remain committed to reducing expenses in 2019 and achieving our $200 million cost savings target.

"Importantly, our credit quality remains strong, driven by our commitment to maintain a moderate risk profile and disciplined underwriting standards. In the fourth quarter, net charge-offs to average loans were .27%, below our targeted range, and nonperforming loans declined over $100 million from the prior quarter.

"We have also delivered on our capital priorities, including returning capital to our shareholders. Throughout 2018, we increased our common share dividend 62%, and repurchased over $1.1 billion of common shares. Despite the decline in the market and continued volatility, we remain focused on delivering profitable growth and driving improved returns."  

-       Beth Mooney, Chairman and CEO

Selected Financial Highlights















dollars in millions, except per share data





Change 4Q18 vs.



4Q18

3Q18

4Q17


3Q18

4Q17

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

$

459


$

468


$

181



(1.9)

%

153.6

%

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

.45


.45


.17




164.7


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

16.40

%

16.81

%

6.35

%


N/A


N/A


Return on average total assets from continuing operations

1.37


1.40


.57



N/A


N/A


Common Equity Tier 1 ratio (b)

9.92


9.95


10.16



N/A


N/A


Book value at period end

$

13.90


$

13.33


$

13.09



4.3

%

6.2

%

Net interest margin (TE) from continuing operations

3.16

%

3.18

%

3.09

%


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)

12/31/18 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 

 

INCOME STATEMENT HIGHLIGHTS














Revenue














dollars in millions





Change 4Q18 vs.


4Q18

3Q18

4Q17


3Q18

4Q17

Net interest income (TE)

$

1,008


$

993


$

952



1.5

%

5.9

%

Noninterest income

645


609


656



5.9


(1.7)


Total revenue

$

1,653


$

1,602


$

1,608



3.2

%

2.8

%









TE = Taxable Equivalent


 

Taxable-equivalent net interest income was $1.0 billion for the fourth quarter of 2018, and the net interest margin was 3.16%, compared to taxable-equivalent net interest income of $952 million and a net interest margin of 3.09% for the fourth quarter of 2017, reflecting the benefit from higher interest rates and higher earning asset balances. Fourth quarter 2018 net interest income included $23 million of purchase accounting accretion, a decline of $15 million from the fourth quarter of 2017.

Compared to the third quarter of 2018, taxable-equivalent net interest income increased by $15 million, and the net interest margin declined by two basis points. Net interest income benefited from higher earning asset balances, while the overall decline in the net interest margin reflects the impact of lower purchase accounting accretion.

Noninterest Income














dollars in millions





Change 4Q18 vs.


4Q18

3Q18

4Q17


3Q18

4Q17

Trust and investment services income

$

121


$

117


$

131



3.4

%

(7.6)

%

Investment banking and debt placement fees

186


166


200



12.0


(7.0)


Service charges on deposit accounts

84


85


89



(1.2)


(5.6)


Operating lease income and other leasing gains

28


35


27



(20.0)


3.7


Corporate services income

58


52


56



11.5


3.6


Cards and payments income

68


69


77



(1.4)


(11.7)


Corporate-owned life insurance income

39


34


37



14.7


5.4


Consumer mortgage income

7


9


7



(22.2)



Mortgage servicing fees

21


19


17



10.5


23.5


Other income

33


23


15



43.5


120.0


Total noninterest income

$

645


$

609


$

656



5.9

%

(1.7)

%








 

Key's noninterest income was $645 million for the fourth quarter of 2018, compared to $656 million for the year-ago quarter. Trust and investment services income declined $10 million, related to the sale of Key Insurance and Benefits Services in the second quarter of 2018. Cards and payments income and service charges on deposit accounts were impacted by the 2018 adoption of the revenue recognition accounting standard. Excluding the revenue recognition changes, both of these line items grew from the prior year. Investment banking and debt placement fees were lower, following a record fourth quarter in 2017. Partially offsetting these declines were increases in other income and mortgage servicing fees.

Compared to the third quarter of 2018, noninterest income increased by $36 million, driven by momentum in many of Key's core fee-based businesses. Investment banking and debt placement fees increased $20 million, largely related to strength in commercial mortgage banking and advisory fees. Corporate services income reflected higher derivatives and trading income, and trust and investment services income grew, largely due to stronger brokerage commissions.

Noninterest Expense














dollars in millions





Change 4Q18 vs.


4Q18

3Q18

4Q17


3Q18

4Q17

Personnel expense

$

576


$

553


$

609



4.2

%

(5.4)

%

Nonpersonnel expense

436


411


489



6.1


(10.8)


Total noninterest expense

$

1,012


$

964


$

1,098



5.0

%

(7.8)

%









 

Key's noninterest expense was $1.0 billion for the fourth quarter of 2018, compared to $1.1 billion in the year-ago quarter. Personnel expense declined year-over-year, driven by lower incentive compensation and employee benefits costs, partially offset by increased severance expense related to Key's efficiency initiative. Net occupancy and marketing expenses also declined, largely related to merger-related charges in the fourth quarter of 2017. In the fourth quarter of 2018, Key's FDIC assessment costs decreased, due to the elimination of the FDIC quarterly surcharge.

Compared to the third quarter of 2018, noninterest expense increased by $48 million. The increase was primarily driven by notable items in the quarter - efficiency initiative expenses of $24 million and a $17 million pension settlement charge (reported in other expense). Business services and professional fees and other expense increased, but were partially offset by the benefit from the FDIC surcharge elimination.

 BALANCE SHEET HIGHLIGHTS

Average Loans














dollars in millions





Change 4Q18 vs.


4Q18

3Q18

4Q17


3Q18

4Q17

Commercial and industrial (a)

$

45,129


$

44,749


$

41,289



.8

%

9.3

%

Other commercial loans

20,899


20,471


21,040



2.1


(.7)


Home equity loans

11,234


11,415


12,128



(1.6)


(7.4)


Other consumer loans

12,026


11,832


11,549



1.6


4.1


Total loans

$

89,288


$

88,467


$

86,006



.9

%

3.8

%










(a)

Commercial and industrial average loan balances include $132 million,  $128 million, and $119 million of assets from commercial credit cards at December 31, 2018, September 30, 2018, and December 31, 2017, respectively.


           

Average loans were $89.3 billion for the fourth quarter of 2018, an increase of $3.3 billion compared to the fourth quarter of 2017, reflecting broad-based growth in commercial and industrial loans, partially offset by higher paydowns in home equity lines of credit.

Compared to the third quarter of 2018, average loans increased by $821 million, driven by growth in commercial real estate and commercial and industrial loans.

Average Deposits














dollars in millions





Change 4Q18 vs.


4Q18

3Q18

4Q17


3Q18

4Q17

Non-time deposits

$

94,480


$

92,414


$

92,251



2.2

%

2.4

%

Certificates of deposit ($100,000 or more)

8,217


8,186


6,776



.4


21.3


Other time deposits

5,255


5,026


4,771



4.6


10.1


Total deposits

$

107,952


$

105,626


$

103,798



2.2

%

4.0

%








Cost of total deposits

.64

%

.53

%

.31

%


N/A


N/A










N/A = Not Applicable

 

Average deposits totaled $108.0 billion for the fourth quarter of 2018, an increase of $4.2 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 third quarter of 2018, average deposits increased by $2.3 billion, driven primarily by the penetration of existing retail and commercial relationships, as well as short-term and seasonal deposit inflows.

ASSET QUALITY














dollars in millions





Change 4Q18 vs.


4Q18

3Q18

4Q17


3Q18

4Q17

Net loan charge-offs

$

60


$

60


$

52




15.4

%

Net loan charge-offs to average total loans

.27

%

.27

%

.24

%


N/A


N/A


Nonperforming loans at period end (a)

$

542


$

645


$

503



(16.0)

%

7.8


Nonperforming assets at period end (a)

577


674


534



(14.4)


8.1


Allowance for loan and lease losses

883


887


877



(.5)


.7


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

162.9

%

137.5

%

174.4

%


N/A


N/A


Provision for credit losses

$

59


$

62


$

49



(4.8)

%

20.4

%










(a)

Nonperforming loan balances exclude $575 million, $606 million, and $738 million of purchased credit impaired loans at December 31, 2018, September 30, 2018, and December 31, 2017, respectively.

N/A = Not Applicable

 

Key's provision for credit losses was $59 million for the fourth quarter of 2018, compared to $49 million for the fourth quarter of 2017 and $62 million for the third quarter of 2018. Key's allowance for loan and lease losses was $883 million, or .99% of total period-end loans at December 31, 2018, compared to 1.01% at December 31, 2017, and .99% at September 30, 2018.

Net loan charge-offs for the fourth quarter of 2018 totaled $60 million, or .27% of average total loans. These results compare to $52 million, or .24%, for the fourth quarter of 2017, and $60 million, or .27%, for the third quarter of 2018.

At December 31, 2018, Key's nonperforming loans totaled $542 million, a decline of $103 million from the prior quarter, which represented .61% of period-end portfolio loans. These results compare to .58% at December 31, 2017, and .72% at September 30, 2018. Nonperforming assets at December 31, 2018, totaled $577 million, and represented .64% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .62% at December 31, 2017, and .75% at September 30, 2018.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at December 31, 2018.

Capital Ratios









12/31/2018

9/30/2018

12/31/2017

Common Equity Tier 1 (a)

9.92

%

9.95

%

10.16

%

Tier 1 risk-based capital (a)

11.07


11.11


11.01


Total risk based capital (a)

12.88


12.99


12.92


Tangible common equity to tangible assets (b)

8.30


8.05


8.23


Leverage (a)

9.93


10.03


9.73








(a)

12/31/2018 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 fourth quarter of 2018. As shown in the preceding table, at December 31, 2018, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.92% and 11.07%, respectively. Key's tangible common equity ratio was 8.30% at December 31, 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. Key's estimated Common Equity Tier 1 ratio as calculated under the fully phased-in Regulatory Capital Rules was 9.83% at December 31, 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 4Q18 vs.



4Q18

3Q18

4Q17


3Q18

4Q17

Shares outstanding at beginning of period

1,034,287


1,058,944


1,079,039



(2.3)

%

(4.1)

%

Open market repurchases and return of shares under employee 
     compensation plans

(15,216)


(25,418)


(10,617)



(40.1)


43.3


Shares issued under employee compensation plans (net of cancellations)

432


761


662



(43.2)


(34.7)



Shares outstanding at end of period

1,019,503


1,034,287


1,069,084



(1.4)

%

(4.6)

%









 

Consistent with Key's 2018 Capital Plan, during the fourth quarter of 2018, Key declared a dividend of $.17 per common share and completed $278 million of common share repurchases. Key's remaining share repurchase authorization consistent with the 2018 Capital Plan (which continues through the second quarter of 2019) is $405 million.

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 4Q18 vs.



4Q18

3Q18

4Q17


3Q18

4Q17

Revenue from continuing operations (TE)







Key Community Bank

$

1,022


$

994


$

961



2.8

%

6.3

%

Key Corporate Bank

581


574


605



1.2


(4.0)


Other Segments

53


24


41



120.8


29.3



Total segments

1,656


1,592


1,607



4.0


3.0


Reconciling Items

(3)


10


1



N/M


N/M



Total

$

1,653


$

1,602


$

1,608



3.2

%

2.8

%









Income (loss) from continuing operations attributable to Key







Key Community Bank

$

261


$

241


$

152



8.3

%

71.7

%

Key Corporate Bank

215


199


223



8.0


(3.6)


Other Segments

45


22


48



104.5


(6.3)



Total segments

521


462


423



12.8

%

23.2


Reconciling Items

(39)


20


(228)



N/M


N/M



Total

$

482


$

482


$

195




147.2

%










TE = Taxable Equivalent, N/M = Not Meaningful

 

 

Key Community Bank





















dollars in millions





Change 4Q18 vs.


4Q18

3Q18

4Q17


3Q18

4Q17

Summary of operations







Net interest income (TE)

$

744


$

726


$

674



2.5

%

10.4

%

Noninterest income

278


268


287



3.7


(3.1)


Total revenue (TE)

1,022


994


961



2.8


6.3


Provision for credit losses

48


43


57



11.6


(15.8)


Noninterest expense

633


635


665



(.3)


(4.8)


Income (loss) before income taxes (TE)

341


316


239



7.9


42.7


Allocated income taxes (benefit) and TE adjustments

80


75


87



6.7


(8.0)


Net income (loss) attributable to Key

$

261


$

241


$

152



8.3

%

71.7

%








Average balances







Loans and leases

$

47,976


$

47,862


$

47,408



.2

%

1.2

%

Total assets

51,881


51,740


51,398



.3


.9


Deposits

84,288


82,259


80,352



2.5


4.9









Assets under management at period end

$

36,775


$

40,575


$

39,588



(9.4)

%

(7.1)

%









TE = Taxable Equivalent

 

 

Additional Key Community Bank Data














dollars in millions





Change 4Q18 vs.


4Q18

3Q18

4Q17


3Q18

4Q17

Noninterest income







Trust and investment services income

$

90


$

90


$

87




3.4

%

Service charges on deposit accounts

72


72


77




(6.5)


Cards and payments income

61


59


67



3.4

%

(9.0)


Other noninterest income

55


47


56



17.0


(1.8)


Total noninterest income

$

278


$

268


$

287



3.7

%

(3.1)

%








Average deposit balances







NOW and money market deposit accounts

$

47,310


$

45,967


$

44,415



2.9

%

6.5

%

Savings deposits

4,777


4,923


5,090



(3.0)


(6.1)


Certificates of deposit ($100,000 or more)

6,169


5,608


4,628



10.0


33.3


Other time deposits

5,244


5,019


4,765



4.5


10.1


Noninterest-bearing deposits

20,788


20,742


21,454



.2


(3.1)


Total deposits

$

84,288


$

82,259


$

80,352



2.5

%

4.9

%








Home equity loans







Average balance

$

11,144


$

11,317


$

12,005





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

70

%

70

%

70

%




Percent first lien positions

60


60


60












Other data







Branches

1,159


1,166


1,197





Automated teller machines

1,505


1,518


1,572












 

Key Community Bank Summary of Operations (4Q18 vs. 4Q17)

  • Positive operating leverage compared to the prior year
  • Net income increased $109 million, or 71.7%, from the prior year
  • Average commercial and industrial loans increased $1.0 billion, or 5.6%, from the prior year

Key Community Bank recorded net income attributable to Key of $261 million for the fourth quarter of 2018, compared to $152 million for the year-ago quarter, benefiting from momentum in Key's core businesses, expense discipline, and a lower tax rate as a result of tax reform.

Taxable-equivalent net interest income increased by $70 million, or 10.4%, from the fourth quarter of 2017. The increase in net interest income was primarily attributable to the benefit from higher interest rates and loan growth, partially offset by lower purchase accounting accretion. Average loans and leases increased $568 million, or 1.2%, largely driven by a $1.0 billion, or 5.6%, increase in commercial and industrial loans. Additionally, average deposits increased $3.9 billion, or 4.9%, from the fourth quarter of 2017 due to strength in our relationship strategy.

Noninterest income decreased $9 million, or 3.1%, 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.  Excluding the impact of the accounting change, both businesses grew from the prior period, related to continued household growth.

The provision for credit losses decreased by $9 million, or 15.8%, from the fourth quarter of 2017. Net loan charge-offs increased $7 million from the fourth quarter of 2017 driven by a larger balance sheet.

Noninterest expense decreased by $32 million, or 4.8%, from the year-ago quarter. Both personnel and nonpersonnel expense declined, driven by strong expense discipline across the businesses while continuing to invest strategically for growth.

Key Corporate Bank





















dollars in millions





Change 4Q18 vs.


4Q18

3Q18

4Q17


3Q18

4Q17

Summary of operations







Net interest income (TE)

$

272


$

273


$

284



(.4)

%

(4.2)

%

Noninterest income

309


301


321



2.7


(3.7)


Total revenue (TE)

581


574


605



1.2


(4.0)


Provision for credit losses

12


20


(6)



(40.0)


N/M


Noninterest expense

329


316


352



4.1


(6.5)


Income (loss) before income taxes (TE)

240


238


259



.8


(7.3)


Allocated income taxes and TE adjustments

25


39


36



(35.9)


(30.6)


Net income (loss) attributable to Key

$

215


$

199


$

223



8.0

%

(3.6)

%








Average balances







Loans and leases

$

40,438


$

39,714


$

37,457



1.8

%

8.0

%

Loans held for sale

2,249


1,042


1,345



115.8


67.2


Total assets

48,853


46,860


44,501



4.3


9.8


Deposits

21,793


21,056


21,558



3.5

%

1.1

%









TE = Taxable Equivalent, N/M = Not Meaningful

 

 

Additional Key Corporate Bank Data














dollars in millions





Change 4Q18 vs.


4Q18

3Q18

4Q17


3Q18

4Q17

Noninterest income







Trust and investment services income

$

30


$

27


$

33



11.1

%

(9.1)

%

Investment banking and debt placement fees

178


162


195



9.9


(8.7)


Operating lease income and other leasing gains

24


34


25



(29.4)


(4.0)









Corporate services income

43


37


40



16.2


7.5


Service charges on deposit accounts

12


13


12



(7.7)



Cards and payments income

7


10


10



(30.0)


(30.0)


Payments and services income

62


60


62



3.3










Mortgage servicing fees

18


15


15



20.0


20.0


Other noninterest income

(3)


3


(9)



N/M


N/M


Total noninterest income

$

309


$

301


$

321



2.7

%

(3.7)

%









N/M = Not Meaningful


 

Key Corporate Bank Summary of Operations (4Q18 vs. 4Q17)

  • Record year for investment banking and debt placement fees
  • Commercial and industrial loans up $2.8 billion, or 12.7%, from prior year

Key Corporate Bank recorded net income attributable to Key of $215 million for the fourth quarter of 2018, compared to $223 million for the year-ago quarter.

Taxable-equivalent net interest income decreased by $12 million, or 4.2%, compared to the fourth quarter of 2017.  This decline is related to lower purchase accounting accretion, as well as loan spread compression.  Average loan and lease balances increased $3 billion, or 8%, from the year-ago quarter, driven by broad-based growth in commercial and industrial loans. Average deposit balances increased $235 million, or 1.1%, from the year-ago quarter, driven by growth in core deposits.

Noninterest income was down $12 million, or 3.7%, from the prior year.  Investment banking and debt placement fees decreased $17 million, or 8.7%, from a record quarter in the year-ago period.  This decrease was partially offset by increases in other noninterest income of $6 million related to higher gains on certain tax-advantaged assets, as well as higher mortgage servicing fees of $3 million.

During the fourth quarter of 2018, the provision for credit losses increased $18 million compared to the fourth quarter of 2017, mostly related to loan growth.

Noninterest expense decreased by $23 million, or 6.5%, from the fourth quarter of 2017. The decrease from the prior year was largely driven by lower personnel expense. The prior year also had higher impairments on certain tax-advantaged assets related to tax reform. These decreases are slightly offset by higher volumes driving increased operating lease expense.

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 $45 million for the fourth quarter of 2018, compared to $48 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 $139.6 billion at December 31, 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.

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 9:00 a.m. ET, on Thursday, January 17, 2019.  An audio replay of the call will be available through January 27, 2019.

*****

KeyCorp
Fourth Quarter 2018
Financial Supplement

 

Financial Highlights

(dollars in millions, except per share amounts)




Three months ended




12/31/2018

9/30/2018

12/31/2017

Summary of operations





Net interest income (TE)

$

1,008


$

993


$

952



Noninterest income

645


609


656




Total revenue (TE)

1,653


1,602


1,608



Provision for credit losses

59


62


49



Noninterest expense

1,012


964


1,098



Income (loss) from continuing operations attributable to Key

482


482


195



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

2



1



Net income (loss) attributable to Key

484


482


196









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

459


468


181



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

2



1



Net income (loss) attributable to Key common shareholders

461


468


182








Per common share





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

$

.45


$

.45


$

.17



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





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

.45


.45


.17









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

.45


.45


.17



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





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

.45


.45


.17









Cash dividends declared

.17


.17


.105



Book value at period end

13.90


13.33


13.09



Tangible book value at period end

11.14


10.59


10.35



Market price at period end

14.78


19.89


20.17








Performance ratios





From continuing operations:





Return on average total assets

1.37

%

1.40

%

.57

%


Return on average common equity

13.07


13.36


5.04



Return on average tangible common equity (c)

16.40


16.81


6.35



Net interest margin (TE)

3.16


3.18


3.09



Cash efficiency ratio (c)

59.9


58.7


66.7









From consolidated operations:





Return on average total assets

1.37

%

1.39

%

.57

%


Return on average common equity

13.13


13.36


5.07



Return on average tangible common equity (c)

16.47


16.81


6.39



Net interest margin (TE)

3.14


3.16


3.07



Loan to deposit (d)

85.6


87.0


84.4








Capital ratios at period end





Key shareholders' equity to assets

11.17

%

10.96

%

10.91

%


Key common shareholders' equity to assets

10.15


9.93


10.17



Tangible common equity to tangible assets (c)

8.30


8.05


8.23



Common Equity Tier 1 (e)

9.92


9.95


10.16



Tier 1 risk-based capital (e)

11.07


11.11


11.01



Total risk-based capital (e)

12.88


12.99


12.92



Leverage (e)

9.93


10.03


9.73








Asset quality — from continuing operations





Net loan charge-offs

$

60


$

60


$

52



Net loan charge-offs to average loans

.27

%

.27

%

.24

%


Allowance for loan and lease losses

$

883


$

887


$

877



Allowance for credit losses

946


947


934



Allowance for loan and lease losses to period-end loans

.99

%

.99

%

1.01

%


Allowance for credit losses to period-end loans

1.06


1.06


1.08



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

162.9


137.5


174.4



Allowance for credit losses to nonperforming loans (f)

174.5


146.8


185.7



Nonperforming loans at period-end (f)

$

542


$

645


$

503



Nonperforming assets at period-end (f)

577


674


534



Nonperforming loans to period-end portfolio loans (f)

.61

%

.72

%

.58

%


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

.64


.75


.62








Trust assets





Assets under management

$

36,775


$

40,575


$

39,588








Other data





Average full-time equivalent employees

17,664


18,150


18,379



Branches

1,159


1,166


1,197








Taxable-equivalent adjustment

$

8


$

7


$

14


 

 

Financial Highlights (continued)

(dollars in millions, except per share amounts)



Twelve months ended



12/31/2018

12/31/2017

Summary of operations




Net interest income (TE)

$

3,940


$

3,830



Noninterest income

2,515


2,478



Total revenue (TE)

6,455


6,308



Provision for credit losses

246


229



Noninterest expense

3,975


4,098



Income (loss) from continuing operations attributable to Key

1,859


1,289



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

7


7



Net income (loss) attributable to Key

1,866


1,296







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

$

1,793


$

1,219



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

7


7



Net income (loss) attributable to Key common shareholders

1,800


1,226






Per common share




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

$

1.72


$

1.13



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

.01


.01



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

1.73


1.14







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

1.70


1.12



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

.01


.01



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

1.71


1.13







Cash dividends paid

.565


.38






Performance ratios




From continuing operations:




Return on average total assets

1.36

%

.96

%


Return on average common equity

12.88


8.65



Return on average tangible common equity (c)

16.22


10.84



Net interest margin (TE)

3.17


3.17



Cash efficiency ratio (c)

60.0


63.5







From consolidated operations:




Return on average total assets

1.35

%

.96

%


Return on average common equity

12.93


8.70



Return on average tangible common equity (c)

16.28


10.90



Net interest margin (TE)

3.15


3.15






Asset quality — from continuing operations




Net loan charge-offs

$

234


$

208



Net loan charge-offs to average total loans

.26

%

.24

%





Other data




Average full-time equivalent employees

18,180


18,415






Taxable-equivalent adjustment

31


53




(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)

December 31, 2018, ratio is estimated.

(f)

Nonperforming loan balances exclude $575 million, $606 million, and $738 million of purchased credit impaired loans at December 31, 2018, September 30, 2018, and December 31, 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.

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


Twelve months ended


12/31/2018

9/30/2018

12/31/2017


12/31/2018

12/31/2017

Tangible common equity to tangible assets at period-end







Key shareholders' equity (GAAP)

$

15,595


$

15,208


$

15,023





Less: Intangible assets (a)

2,818


2,838


2,928





Preferred Stock (b)

1,421


1,421


1,009





Tangible common equity (non-GAAP)

$

11,356


$

10,949


$

11,086





Total assets (GAAP)

$

139,613


$

138,805


$

137,698





Less: Intangible assets (a)

2,818


2,838


2,928





Tangible assets (non-GAAP)

$

136,795


$

135,967


$

134,770





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

8.30

%

8.05

%

8.23

%




Pre-provision net revenue







Net interest income (GAAP)

$

1,000


$

986


$

938



$

3,909


$

3,777


Plus: Taxable-equivalent adjustment

8


7


14



31


53


Noninterest income

645


609


656



2,515


2,478


Less: Noninterest expense

1,012


964


1,098



3,975


4,098


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

$

641


$

638


$

510



$

2,480


$

2,210


Average tangible common equity







Average Key shareholders' equity (GAAP)

$

15,384


$

15,210


$

15,268



$

15,131


$

15,224


Less: Intangible assets (average) (c)

2,828


2,848


2,939



2,869


2,837


Preferred stock (average)

1,450


1,316


1,025



1,205


1,137


Average tangible common equity (non-GAAP)

$

11,106


$

11,046


$

11,304



$

11,057


$

11,250


Return on average tangible common equity from continuing operations







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

$

459


$

468


$

181



$

1,793


$

1,219


Average tangible common equity (non-GAAP)

11,106


11,046


11,304



11,057


11,250









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

16.40

%

16.81

%

6.35

%


16.22

%

10.84

%

Return on average tangible common equity consolidated







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

$

461


$

468


$

182



$

1,800


$

1,226


Average tangible common equity (non-GAAP)

11,106


11,046


11,304



11,057


11,250









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

16.47

%

16.81

%

6.39

%


16.28

%

10.90

%

Cash efficiency ratio







Noninterest expense (GAAP)

$

1,012


$

964


$

1,098



$

3,975


$

4,098


Less: Intangible asset amortization

22


23


26



99


95


Adjusted noninterest expense (non-GAAP)

$

990


$

941


$

1,072



$

3,876


$

4,003









Net interest income (GAAP)

$

1,000


$

986


$

938



$

3,909


$

3,777


Plus: Taxable-equivalent adjustment

8


7


14



31


53


Noninterest income

645


609


656



2,515


2,478


Total taxable-equivalent revenue (non-GAAP)

$

1,653


$

1,602


$

1,608



$

6,455


$

6,308









Cash efficiency ratio (non-GAAP)

59.9

%

58.7

%

66.7

%


60.0

%

63.5

%

 

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)




Three
months
ended




12/31/2018

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



Common Equity Tier 1 under current RCR

$

12,273



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)

$

12,273







Net risk-weighted assets under current RCR

$

123,719



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




Mortgage servicing assets (f)

809




Deferred tax assets

276




All other assets




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

$

124,804







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

9.83

%



(a)

For the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, intangible assets exclude $14 million, $17 million, and $26 million, respectively, of period-end purchased credit card receivables.

(b)

Net of capital surplus.

(c)

For the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, average intangible assets exclude $15 million, $18 million, and $28 million, respectively, of average purchased credit card receivables. For the twelve months ended December 31, 2018, and December 31, 2017, average intangible assets exclude $20 million and $34 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 (fully phased-in); 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)










12/31/2018

9/30/2018

12/31/2017

Assets





Loans

$

89,552


$

89,268


$

86,405



Loans held for sale

1,227


1,618


1,107



Securities available for sale

19,428


18,341


18,139



Held-to-maturity securities

11,519


11,869


11,830



Trading account assets

849


958


836



Short-term investments

2,562


2,272


4,447



Other investments

666


681


726




Total earning assets

125,803


125,007


123,490



Allowance for loan and lease losses

(883)


(887)


(877)



Cash and due from banks

678


319


671



Premises and equipment

882


891


930



Operating lease assets

993


930


821



Goodwill

2,516


2,516


2,538



Other intangible assets

316


338


416



Corporate-owned life insurance

4,171


4,156


4,132



Accrued income and other assets

4,037


4,378


4,237



Discontinued assets

1,100


1,157


1,340




Total assets

$

139,613


138,805


137,698








Liabilities





Deposits in domestic offices:






NOW and money market deposit accounts

$

59,918


$

57,219


$

53,627




Savings deposits

4,854


4,948


6,296




Certificates of deposit ($100,000 or more)

7,913


8,453


6,849




Other time deposits

5,332


5,130


4,798




Total interest-bearing deposits

78,017


75,750


71,570




Noninterest-bearing deposits

29,292


30,030


33,665




Total deposits

107,309


105,780


105,235



Federal funds purchased and securities sold under repurchase agreements

319


1,285


377



Bank notes and other short-term borrowings

544


637


634



Accrued expense and other liabilities

2,113


2,044


2,094



Long-term debt

13,732


13,849


14,333




Total liabilities

124,017


123,595


122,673








Equity





Preferred stock

1,450


1,450


1,025



Common shares

1,257


1,257


1,257



Capital surplus

6,331


6,315


6,335



Retained earnings

11,556


11,262


10,335



Treasury stock, at cost

(4,181)


(3,910)


(3,150)



Accumulated other comprehensive income (loss)

(818)


(1,166)


(779)




Key shareholders' equity

15,595


15,208


15,023



Noncontrolling interests

1


2


2




Total equity

15,596


15,210


15,025


Total liabilities and equity

$

139,613


$

138,805


$

137,698








Common shares outstanding (000)

1,019,503


1,034,287


1,069,084


 

 

Consolidated Statements of Income

(dollars in millions, except per share amounts)




Three months ended


Twelve months ended




12/31/2018

9/30/2018

12/31/2017


12/31/2018

12/31/2017

Interest income








Loans

$

1,058


$

1,025


$

924



$

4,023


$

3,677



Loans held for sale

26


12


13



66


52



Securities available for sale

115


102


93



409


369



Held-to-maturity securities

71


72


61



284


222



Trading account assets

8


7


6



29


27



Short-term investments

15


15


12



46


26



Other investments

4


6


5



21


17




Total interest income

1,297


1,239


1,114



4,878


4,390


Interest expense








Deposits

174


140


82



517


278



Federal funds purchased and securities sold under repurchase agreements

1


1




11


1



Bank notes and other short-term borrowings

4


4


3



21


15



Long-term debt

118


108


91



420


319




Total interest expense

297


253


176



969


613


Net interest income

1,000


986


938



3,909


3,777


Provision for credit losses

59


62


49



246


229


Net interest income after provision for credit losses

941


924


889



3,663


3,548


Noninterest income








Trust and investment services income

121


117


131



499


535



Investment banking and debt placement fees

186


166


200



650


603



Service charges on deposit accounts

84


85


89



349


357



Operating lease income and other leasing gains

28


35


27



89


96



Corporate services income

58


52


56



233


219



Cards and payments income

68


69


77



270


287



Corporate-owned life insurance income

39


34


37



137


131



Consumer mortgage income

7


9


7



30


26



Mortgage servicing fees

21


19


17



82


71



Other income (a)

33


23


15



176


153




Total noninterest income

645


609


656



2,515


2,478


Noninterest expense








Personnel

576


553


609



2,309


2,278



Net occupancy

75


76


92



308


331



Computer processing

55


52


54



210


225



Business services and professional fees

49


43


52



184


192



Equipment

26


27


31



105


114



Operating lease expense

32


31


28



120


92



Marketing

25


26


35



102


120



FDIC assessment

9


21


20



72


82



Intangible asset amortization

22


23


26



99


95



OREO expense, net

1


3


3



6


11



Other expense

142


109


148



460


558




Total noninterest expense

1,012


964


1,098



3,975


4,098


Income (loss) from continuing operations before income taxes

574


569


447



2,203


1,928



Income taxes

92


87


251



344


637


Income (loss) from continuing operations

482


482


196



1,859


1,291



Income (loss) from discontinued operations, net of taxes

2



1



7


7


Net income (loss)

484


482


197



1,866


1,298



Less:  Net income (loss) attributable to noncontrolling interests



1




2


Net income (loss) attributable to Key

$

484


$

482


$

196



$

1,866


$

1,296











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

$

459


$

468


$

181



$

1,793


$

1,219


Net income (loss) attributable to Key common shareholders

461


468


182



1,800


1,226


Per common share







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

$

.45


$

.45


$

.17



$

1.72


$

1.13


Income (loss) from discontinued operations, net of taxes





.01


.01


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

.45


.45


.17



1.73


1.14


Per common share — assuming dilution







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

$

.45


$

.45


$

.17



$

1.70


$

1.12


Income (loss) from discontinued operations, net of taxes





.01


.01


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

.45


.45


.17



1.71


1.13











Cash dividends declared per common share

$

.17


$

.17


$

.105



$

.565


$

.38











Weighted-average common shares outstanding (000)

1,018,614


1,036,480


1,062,348



1,040,890


1,072,077



Effect of common share options and other stock awards

11,803


13,497


16,982



13,792


16,515


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

1,030,417


1,049,976


1,079,330



1,054,682


1,088,593













(a)

For the three months ended December 31, 2018, September 30, 2018, and  December 31, 2017, net securities gains (losses) totaled less than $1 million. For the three months ended December 31, 2018, September 30, 2018, and December 31, 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)



Fourth Quarter 2018


Third Quarter 2018


Fourth 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)

$

45,129


512


4.51

%


$

44,749


495


4.39

%


$

41,289


417


4.01

%


Real estate — commercial mortgage

14,656


185


5.03



14,268


176


4.89



14,386


167


4.60



Real estate — construction

1,761


23


5.26



1,759


22


5.05



1,967


23


4.55



Commercial lease financing

4,482


43


3.79



4,444


43


3.88



4,687


45


3.86



Total commercial loans

66,028


763


4.59



65,220


736


4.49



62,329


652


4.15



Real estate — residential mortgage

5,496


54


3.97



5,466


55


3.99



5,474


54


3.95



Home equity loans

11,234


141


4.96



11,415


137


4.80



12,128


134


4.39



Consumer direct loans

1,806


36


7.87



1,789


35


7.71



1,782


32


7.15



Credit cards

1,112


33


11.61



1,095


32


11.43



1,061


30


11.14



Consumer indirect loans

3,612


39


4.28



3,482


37


4.25



3,232


36


4.42



Total consumer loans

23,260


303


5.16



23,247


296


5.06



23,677


286


4.80



Total loans

89,288


1,066


4.74



88,467


1,032


4.64



86,006


938


4.33



Loans held for sale

2,319


26


4.50



1,117


12


4.59



1,420


13


3.81



Securities available for sale (b), (e)

18,626


115


2.38



17,631


102


2.22



18,447


93


1.97



Held-to-maturity securities (b)

11,683


71


2.42



12,065


72


2.40



11,121


61


2.20



Trading account assets

934


8


3.42



787


7


3.37



898


6


2.72



Short-term investments

2,795


15


2.12



2,928


15


1.93



3,684


12


1.29



Other investments (e)

671


4


2.86



685


6


3.27



725


5


2.80



Total earning assets

126,316


1,305


4.09



123,680


1,246


3.98



122,301


1,128


3.66



Allowance for loan and lease losses

(878)





(886)





(871)





Accrued income and other assets

13,743





13,935





13,825





Discontinued assets

1,120





1,186





1,358





Total assets

$

140,301





$

137,915





$

136,613




Liabilities













NOW and money market deposit accounts

$

59,292


110


.74



$

56,391


82


.58



$

53,601


40


.29



Savings deposits

4,915


1


.08



5,413


3


.20



6,372


3


.24



Certificates of deposit ($100,000 or more)

8,217


42


2.02



8,186


38


1.86



6,776


26


1.50



Other time deposits

5,255


21


1.59



5,026


17


1.40



4,771


13


1.05



Total interest-bearing deposits

77,679


174


.89



75,016


140


.74



71,520


82


.45



Federal funds purchased and securities sold 
     under repurchase agreements

281


1


.12



552


1


1.00



360



.08



Bank notes and other short-term borrowings

618


4


3.05



596


4


2.76



693


3


1.72



Long-term debt (f), (g)

12,963


118


3.58



12,678


108


3.34



13,140


91


2.76



Total interest-bearing liabilities

91,541


297


1.28



88,842


253


1.13



85,713


176


.81



Noninterest-bearing deposits

30,273





30,610





32,278





Accrued expense and other liabilities

1,981





2,065





1,994





Discontinued liabilities (g)

1,120





1,186





1,359





Total liabilities

124,915





122,703





121,344




Equity













Key shareholders' equity

15,384





15,210





15,268





Noncontrolling interests

2





2





1





Total equity

15,386





15,212





15,269





Total liabilities and equity

$

140,301





$

137,915





$

136,613




Interest rate spread (TE)



2.81

%




2.85

%




2.85

%

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


1,008


3.16

%



993


3.18

%



952


3.09

%

TE adjustment (b)


8





7





14




Net interest income, GAAP basis


1,000





986





938





(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 December 31, 2018, and September 30, 2018, and 35% for the three months ended December 31, 2017.

(c)

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

(d)

Commercial and industrial average balances include $132 million, $128 million, and $119 million of assets from commercial credit cards for the three months ended December 31, 2018, September 30, 2018, and December 31, 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)












Twelve months ended December 31, 2018


Twelve months ended December 31, 2017



Average


Yield/


Average


Yield/



Balance

Interest (a)

Rate (a)


Balance

Interest (a)

Rate (a)

Assets









Loans: (b), (c)









Commercial and industrial (d)

$

44,418


$

1,926


4.34

%


$

40,848


$

1,613


3.95

%


Real estate — commercial mortgage

14,267


698


4.90



14,878


687


4.62



Real estate — construction

1,816


90


4.97



2,143


103


4.78



Commercial lease financing

4,534


168


3.70



4,677


185


3.96



Total commercial loans

65,035


2,882


4.43



62,546


2,588


4.14



Real estate — residential mortgage

5,473


217


3.97



5,499


214


3.89



Home equity loans

11,530


547


4.74



12,380


536


4.33



Consumer direct loans

1,782


137


7.66



1,765


126


7.12



Credit cards

1,092


125


11.40



1,055


118


11.15



Consumer indirect loans

3,426


146


4.27



3,120


148


4.75



Total consumer loans

23,303


1,172


5.03



23,819


1,142


4.79



Total loans

88,338


4,054


4.59



86,365


3,730


4.32



Loans held for sale

1,501


66


4.43



1,325


52


3.96



Securities available for sale (b), (e)

17,898


409


2.20



18,548


369


1.96



Held-to-maturity securities (b)

12,003


284


2.37



10,515


222


2.11



Trading account assets

893


29


3.25



949


27


2.81



Short-term investments

2,450


46


1.86



2,363


26


1.11



Other investments (e)

697


21


3.04



712


17


2.35



Total earning assets

123,780


4,909


3.94



120,777


4,443


3.67



Allowance for loan and lease losses

(878)





(865)





Accrued income and other assets

13,910





13,807





Discontinued assets

1,212





1,448





Total assets

$

138,024





$

135,167




Liabilities









NOW and money market deposit accounts

$

56,001


297


.53



$

54,032


143


.26



Savings deposits

5,704


14


.24



6,569


13


.20



Certificates of deposit ($100,000 or more)

7,728


139


1.80



6,233


82


1.31



Other time deposits

5,025


67


1.34



4,698


40


.85



Total interest-bearing deposits

74,458


517


.69



71,532


278


.39



Federal funds purchased and securities sold under repurchase agreements

928


11


1.14



517


1


.24



Bank notes and other short-term borrowings

915


21


2.34



1,140


15


1.34



Long-term debt (f), (g)

12,715


420


3.27



11,921


319


2.69



Total interest-bearing liabilities

89,016


969


1.09



85,110


613


.72



Noninterest-bearing deposits

30,593





31,414





Accrued expense and other liabilities

2,071





1,970





Discontinued liabilities (g)

1,212





1,448





Total liabilities

122,892





119,942




Equity









Key shareholders' equity

15,131





15,224





Noncontrolling interests

1





1





Total equity

15,132





15,225





Total liabilities and equity

$

138,024





$

135,167




Interest rate spread (TE)



2.85

%




2.95

%

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


3,940


3.17

%



3,830


3.17

%

TE adjustment (b)


31





53




Net interest income, GAAP basis


$

3,909





$

3,777





(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 twelve months ended December 31, 2018, and December 31, 2017, respectively.

(c)

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

(d)

Commercial and industrial average balances include $126 million and $117 million of assets from commercial credit cards for the twelve months ended December 31, 2018, and December 31, 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


Twelve months ended


12/31/2018

9/30/2018

12/31/2017


12/31/2018

12/31/2017

Personnel

$

576


$

553


$

609



$

2,309


$

2,278


Net occupancy

75


76


92



308


331


Computer processing

55


52


54



210


225


Business services and professional fees

49


43


52



184


192


Equipment

26


27


31



105


114


Operating lease expense

32


31


28



120


92


Marketing

25


26


35



102


120


FDIC assessment

9


21


20



72


82


Intangible asset amortization

22


23


26



99


95


OREO expense, net

1


3


3



6


11


Other expense

142


109


148



460


558


Total noninterest expense

$

1,012


$

964


$

1,098



$

3,975


$

4,098


Average full-time equivalent employees (b)

17,664


18,150


18,379



18,180


18,415




(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


Twelve months ended


12/31/2018

9/30/2018

12/31/2017


12/31/2018

12/31/2017

Salaries and contract labor

$

336


$

335


$

346



$

1,351


$

1,341


Incentive and stock-based compensation

139


138


168



569


566


Employee benefits

77


79


91



343


347


Severance

24


1


4



46


24


Total personnel expense

$

576


$

553


$

609



$

2,309


$

2,278


 

 

Merger-Related Charges

(in millions)









Three months ended


Twelve months ended


12/31/2018

9/30/2018

12/31/2017


12/31/2018

12/31/2017

Personnel



$

26




$

112


Net occupancy



12




14


Business services and professional fees



3




16


Computer processing



1




12


Marketing



5




22


Other nonpersonnel expense



9




41


Total merger-related charges



$

56




$

217


 

 

Loan Composition

(dollars in millions)











Percent change 12/31/2018 vs


12/31/2018

9/30/2018

12/31/2017


9/30/2018

12/31/2017

Commercial and industrial (a)

$

45,753


$

45,023


$

41,859



1.6

%

9.3

%

Commercial real estate:







Commercial mortgage

14,285


14,716


14,088



(2.9)


1.4


Construction

1,666


1,763


1,960



(5.5)


(15.0)


Total commercial real estate loans

15,951


16,479


16,048



(3.2)


(.6)


Commercial lease financing (b)

4,606


4,470


4,826



3.0


(4.6)


Total commercial loans

66,310


65,972


62,733



.5


5.7


Residential — prime loans:







Real estate — residential mortgage

5,513


5,497


5,483



.3


.5


Home equity loans

11,142


11,339


12,028



(1.7)


(7.4)


Total residential — prime loans

16,655


16,836


17,511



(1.1)


(4.9)


Consumer direct loans

1,809


1,807


1,794



.1


.8


Credit cards

1,144


1,098


1,106



4.2


3.4


Consumer indirect loans

3,634


3,555


3,261



2.2


11.4


Total consumer loans

23,242


23,296


23,672



(.2)


(1.8)


Total loans (c)

$

89,552


$

89,268


$

86,405



.3

%

3.6

%



(a)

Loan balances include $132 million, $129 million, and $119 million of commercial credit card balances at December 31, 2018, September 30, 2018, and December 31, 2017, respectively.

(b)

Commercial lease financing includes receivables held as collateral for a secured borrowing of $10 million, $12 million, and $24 million at December 31, 2018, September 30, 2018, and December 31, 2017, respectively. Principal reductions are based on the cash payments received from these related receivables.

(c)

Total loans exclude loans of $1.1 billion at December 31, 2018, $1.1 billion at September 30, 2018, and $1.3 billion at December 31, 2017, related to the discontinued operations of the education lending business.

 

 

Loans Held for Sale Composition

(dollars in millions)













Percent change 12/31/2018 vs


12/31/2018

9/30/2018

12/31/2017


9/30/2018

12/31/2017

Commercial and industrial

$

279


$

97


$

139



187.6

%

100.7

%

Real estate — commercial mortgage

894


1,433


897



(37.6)


(0.3)


Commercial lease financing


1




N/M


N/M


Real estate — residential mortgage

54


87


71



(37.9)


(23.9)


Total loans held for sale (a)

$

1,227


$

1,618


$

1,107



(24.2)

%

10.8

%



(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $54 million at December 31, 2018, $87 million at September 30, 2018, and $71 million at December 31, 2017.

N/M = Not Meaningful

 

 

Summary of Changes in Loans Held for Sale

(in millions)








4Q18

3Q18

2Q18

1Q18

4Q17

Balance at beginning of period

$

1,618


$

1,418


$

1,667


$

1,107


$

1,341


New originations

5,057


2,976


2,665


3,280


3,566


Transfers from (to) held to maturity, net

24


4


(4)


(14)


(10)


Loan sales

(5,448)


(2,491)


(2,909)


(2,705)


(3,783)


Loan draws (payments), net

(24)


(289)


(1)


(1)


(7)


Balance at end of period (a)

$

1,227


$

1,618


$

1,418


$

1,667


$

1,107




(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $54 million at December 31, 2018, $87 million at September 30, 2018, $58 million at June 30, 2018, $47 million at March 31, 2018, and $71 million at December 31, 2017.

 

 

Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)









Three months ended


Twelve months ended


12/31/2018

9/30/2018

12/31/2017


12/31/2018

12/31/2017

Average loans outstanding

$

89,288


$

88,467


$

86,006



$

88,338


$

86,365


Allowance for loan and lease losses at beginning of period

$

887


$

887


$

880



$

877


$

858


Loans charged off:







Commercial and industrial

45


38


32



159


133









Real estate — commercial mortgage

12


6


2



21


11


Real estate — construction






2


Total commercial real estate loans

12


6


2



21


13


Commercial lease financing

1


4


5



10


14


Total commercial loans

58


48


39



190


160


Real estate — residential mortgage


2


1



3


3


Home equity loans

7


4


7



21


30


Consumer direct loans

9


10


8



36


34


Credit cards

10


10


10



44


44


Consumer indirect loans

8


7


7



30


31


Total consumer loans

34


33


33



134


142


Total loans charged off

92


81


72



324


302


Recoveries:







Commercial and industrial

19


5


8



37


40









Real estate — commercial mortgage

1


1


1



3


2


Real estate — construction

1





2


1


Total commercial real estate loans

2


1


1



5


3


Commercial lease financing

1


3


1



5


6


Total commercial loans

22


9


10



47


49


Real estate — residential mortgage


2




2


4


Home equity loans

2


3


3



11


15


Consumer direct loans

2


1


2



7


6


Credit cards

2


2


1



7


5


Consumer indirect loans

4


4


4



16


15


Total consumer loans

10


12


10



43


45


Total recoveries

32


21


20



90


94


Net loan charge-offs

(60)


(60)


(52)



(234)


(208)


Provision (credit) for loan and lease losses

56


60


49



240


227


Allowance for loan and lease losses at end of period

$

883


$

887


$

877



$

883


$

877









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

$

60


$

58


$

57



$

57


$

55


Provision (credit) for losses on lending-related commitments

3


2




6


2


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

$

63


$

60


$

57



$

63


$

57









Total allowance for credit losses at end of period

$

946


$

947


$

934



$

946


$

934









Net loan charge-offs to average total loans

.27

%

.27

%

.24

%


.26

%

.24

%

Allowance for loan and lease losses to period-end loans

.99


.99


1.01



.99


1.01


Allowance for credit losses to period-end loans

1.06


1.06


1.08



1.06


1.08


Allowance for loan and lease losses to nonperforming loans

162.9


137.5


174.4



162.9


174.4


Allowance for credit losses to nonperforming loans

174.5


146.8


185.7



174.5


185.7









Discontinued operations — education lending business:







Loans charged off

$

4


$

4


$

6



$

15


$

26


Recoveries

1


1


2



5


8


Net loan charge-offs

$

(3)


$

(3)


$

(4)



$

(10)


$

(18)




(a)

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

 

 

Asset Quality Statistics From Continuing Operations

(dollars in millions)


4Q18

3Q18

2Q18

1Q18

4Q17

Net loan charge-offs

$

60


$

60


$

60


$

54


$

52


Net loan charge-offs to average total loans

.27

%

.27

%

.27

%

.25

%

.24

%

Allowance for loan and lease losses

$

883


$

887


$

887


$

881


$

877


Allowance for credit losses (a)

946


947


945


941


934


Allowance for loan and lease losses to period-end loans

.99

%

.99

%

1.01

%

1.00

%

1.01

%

Allowance for credit losses to period-end loans

1.06


1.06


1.07


1.07


1.08


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

162.9


137.5


162.8


162.8


174.4


Allowance for credit losses to nonperforming loans (b)

174.5


146.8


173.4


173.9


185.7


Nonperforming loans at period end (b)

$

542


$

645


$

545


$

541


$

503


Nonperforming assets at period end (b)

577


674


571


569


534


Nonperforming loans to period-end portfolio loans (b)

.61

%

.72

%

.62

%

.61

%

.58

%

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

.64


.75


.65


.65


.62




(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 $575 million, $606 million, $629 million, $690 million, and $738 million of purchased credit impaired loans at December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018, and December 31, 2017, respectively.

 

 

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(dollars in millions)


12/31/2018

9/30/2018

6/30/2018

3/31/2018

12/31/2017

Commercial and industrial

$

152


$

227


$

178


$

189


$

153








Real estate — commercial mortgage

81


98


42


33


30


Real estate — construction

2


2


2


2


2


Total commercial real estate loans

83


100


44


35


32


Commercial lease financing

9


10


21


5


6


Total commercial loans

244


337


243


229


191


Real estate — residential mortgage

62


62


55


59


58


Home equity loans

210


221


222


229


229


Consumer direct loans

4


4


4


4


4


Credit cards

2


2


2


2


2


Consumer indirect loans

20


19


19


18


19


Total consumer loans

298


308


302


312


312


Total nonperforming loans (a)

542


645


545


541


503


OREO

35


28


26


28


31


Other nonperforming assets


1





Total nonperforming assets (a)

$

577


$

674


$

571


$

569


$

534


Accruing loans past due 90 days or more

112


87


103


82


89


Accruing loans past due 30 through 89 days

312


368


429


305


359


Restructured loans — accruing and nonaccruing (b)

399


366


347


317


317


Restructured loans included in nonperforming loans (b)

247


211


184


179


189


Nonperforming assets from discontinued operations — education lending business

8


6


6


6


7


Nonperforming loans to period-end portfolio loans (a)

.61

%

.72

%

.62

%

.61

%

.58

%

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

.64


.75


.65


.65


.62




(a)

Nonperforming loan balances exclude $575 million, $606 million, $629 million, $690 million, and $738 million of purchased credit impaired loans at December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018, and December 31, 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)


4Q18

3Q18

2Q18

1Q18

4Q17

Balance at beginning of period

$

645


$

545


$

541


$

503


$

517


Loans placed on nonaccrual status

103


263


175


182


137


Charge-offs

(92)


(81)


(78)


(70)


(67)


Loans sold

(16)



(1)




Payments

(53)


(57)


(33)


(29)


(52)


Transfers to OREO

(10)


(5)


(5)


(4)


(8)


Loans returned to accrual status

(35)


(20)


(54)


(41)


(24)


Balance at end of period (a)

$

542


$

645


$

545


$

541


$

503




(a)

Nonperforming loan balances exclude $575 million, $606 million, $629 million, $690 million, and $738 million of purchased credit impaired loans at December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018, and December 31, 2017, respectively.

 

 

Line of Business Results

(dollars in millions)

















Percentage change 4Q18

vs.


4Q18

3Q18

2Q18

1Q18

4Q17


3Q18

4Q17

Key Community Bank









Summary of operations









Total revenue (TE)

$

1,022


$

994


$

997


$

959


$

961



2.8

%

6.3

%

Provision for credit losses

48


43


38


48


57



11.6


(15.8)


Noninterest expense

633


635


640


653


665



(.3)


(4.8)


Net income (loss) attributable to Key

261


241


243


197


152



8.3


71.7


Average loans and leases

47,976


47,862


47,985


47,683


47,408



.2


1.2


Average deposits

84,288


82,259


80,930


79,945


80,352



2.5


4.9


Net loan charge-offs

42


43


34


42


35



(2.3)


20.0


Net loan charge-offs to average total loans

.35

%

.36

%

.28

%

.36

%

.29

%


N/A


N/A


Nonperforming assets at period end

$

408


$

467


$

468


$

425


$

405



(12.6)


.7


Return on average allocated equity

21.55

%

19.80

%

20.05

%

16.51

%

12.46

%


N/A


N/A


Average full-time equivalent employees

10,195


10,529


10,619


10,666


10,629



(3.2)


(4.1)











Key Corporate Bank









Summary of operations









Total revenue (TE)

$

581


$

574


$

542


$

558


$

605



1.2

%

(4.0)

%

Provision for credit losses

12


20


28


14


(6)



(40.0)


N/M


Noninterest expense

329


316


325


312


352



4.1


(6.5)


Net income (loss) attributable to Key

215


199


167


208


223



8.0


(3.6)


Average loans and leases

40,438


39,714


39,709


38,257


37,457



1.8


8.0


Average loans held for sale

2,249


1,042


1,299


1,118


1,345



115.8


67.2


Average deposits

21,793


21,056


21,057


20,815


21,558



3.5


1.1


Net loan charge-offs

16


19


26


11


16



(15.8)



Net loan charge-offs to average total loans

.16

%

.19

%

.26

%

.12

%

.17

%


N/A


N/A


Nonperforming assets at period end

$

161


$

196


$

91


$

127


$

109



(17.9)


47.7


Return on average allocated equity

28.91

%

26.91

%

22.80

%

29.49

%

31.51

%


N/A


N/A


Average full-time equivalent employees

2,486


2,546


2,537


2,543


2,418



(2.4)


2.8



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

 

 

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SOURCE KeyCorp


Source: KeyCorp