EX-99.1 2 a3q18earningsrelease.htm EXHIBIT 99.1 Exhibit


keylogoicononlyrgba01.jpg


KEYCORP REPORTS THIRD QUARTER 2018 NET INCOME OF $468 MILLION,
OR $.45 PER COMMON SHARE
Cash efficiency ratio of 58.7%
Return on average tangible common equity of 16.8%

CLEVELAND, October 18, 2018 - KeyCorp (NYSE: 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.

a3q18bemquotea06.jpg
Selected Financial Highlights
 
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions, except per share data
 
 
 
 
Change 3Q18 vs.
 
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Income (loss) from continuing operations attributable to Key common shareholders
$
468

$
464

$
349

 
.9
%
34.1
%
Income (loss) from continuing operations attributable to Key common shareholders per common share — assuming dilution
.45

.44

.32

 
2.3

40.6

Return on average tangible common equity from continuing operations (a)
16.81
%
16.73
%
12.21
%
 
N/A

N/A

Return on average total assets from continuing operations
1.40

1.41

1.07

 
N/A

N/A

Common Equity Tier 1 ratio (b)
9.93

10.13

10.26

 
N/A

N/A

Book value at period end
$
13.33

$
13.29

$
13.18

 
.3
%
1.1
%
Net interest margin (TE) from continuing operations
3.18
%
3.19
%
3.15
%
 
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)
9/30/2018 ratio is estimated.
TE = Taxable Equivalent, N/A = Not Applicable




KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 2


INCOME STATEMENT HIGHLIGHTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 3Q18 vs.
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Net interest income (TE)
$
993

$
987

$
962

 
.6
 %
3.2
%
Noninterest income
609

660

592

 
(7.7
)
2.9

Total revenue
$
1,602

$
1,647

$
1,554

 
(2.7
)%
3.1
%
 
 
 
 
 
 
 
TE = Taxable Equivalent
    
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.

Noninterest Income
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 3Q18 vs.
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Trust and investment services income
$
117

$
128

$
135

 
(8.6
)%
(13.3
)%
Investment banking and debt placement fees
166

155

141

 
7.1

17.7

Service charges on deposit accounts
85

91

91

 
(6.6
)
(6.6
)
Operating lease income and other leasing gains
35

(6
)
16

 
N/M

118.8

Corporate services income
52

61

54

 
(14.8
)
(3.7
)
Cards and payments income
69

71

75

 
(2.8
)
(8.0
)
Corporate-owned life insurance income
34

32

31

 
6.3

9.7

Consumer mortgage income
9

7

7

 
28.6

28.6

Mortgage servicing fees
19

22

21

 
(13.6
)
(9.5
)
Other income
23

99

21

 
(76.8
)
9.5

Total noninterest income
$
609

$
660

$
592

 
(7.7
)%
2.9
 %
 
 
 
 
 
 
 
N/M = Not meaningful

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,



KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 3


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.

Noninterest Expense
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 3Q18 vs.
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Personnel expense
$
553

$
586

$
559

 
(5.6
)%
(1.1
)%
Nonpersonnel expense
411

407

433

 
1.0

(5.1
)
Total noninterest expense
$
964

$
993

$
992

 
(2.9
)%
(2.8
)%
 
 
 
 
 
 
 
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 3Q18 vs.
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Commercial and industrial (a)
$
44,749

$
45,030

$
41,416

 
(.6
)%
8.0
 %
Other commercial loans
20,471

20,394

21,598

 
.4

(5.2
)
Home equity loans
11,415

11,601

12,314

 
(1.6
)
(7.3
)
Other consumer loans
11,832

11,619

11,486

 
1.8

3.0

Total loans
$
88,467

$
88,644

$
86,814

 
(.2
)%
1.9
 %
 
 
 
 
 
 
 
(a)
Commercial and industrial average loan balances include $128 million, $126 million, and $117 million of assets from commercial credit cards at September 30, 2018, June 30, 2018, and September 30, 2017, respectively.
    
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.




KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 4


Average Deposits
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 3Q18 vs.
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Non-time deposits
$
92,414

$
91,538

$
92,039

 
1.0
%
.4
%
Certificates of deposit ($100,000 or more)
8,186

7,516

6,402

 
8.9

27.9

Other time deposits
5,026

4,949

4,664

 
1.6

7.8

Total deposits
$
105,626

$
104,003

$
103,105

 
1.6
%
2.4
%
 
 
 
 
 
 
 
Cost of total deposits
.53
%
.43
%
.28
%
 
N/A

N/A

 
 
 
 
 
 
 
N/A = Not Applicable

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.

ASSET QUALITY
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 3Q18 vs.
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Net loan charge-offs
$
60

$
60

$
32

 

87.5
%
Net loan charge-offs to average total loans
.27
%
.27
%
.15
%
 
N/A

N/A

Nonperforming loans at period end (a)
$
645

$
545

$
517

 
18.3
 %
24.8

Nonperforming assets at period end (a)
674

571

556

 
18.0

21.2

Allowance for loan and lease losses
887

887

880

 

.8

Allowance for loan and lease losses to nonperforming loans (a)
137.5
%
162.8
%
170.2
%
 
N/A

N/A

Provision for credit losses
$
62

$
64

$
51

 
(3.1
)%
21.6
%
 
 
 
 
 
 
 
(a)
Nonperforming loan balances exclude $606 million, $629 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, and September 30, 2017, respectively.
N/A = Not Applicable

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.
 



KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 5


Capital Ratios
 
 
 
 
 
 
 
 
9/30/2018
6/30/2018
9/30/2017
Common Equity Tier 1 (a)
9.93
%
10.13
%
10.26
%
Tier 1 risk-based capital (a)
11.09

10.95

11.11

Total risk based capital (a)
12.97

12.83

13.09

Tangible common equity to tangible assets (b)
8.05

8.32

8.49

Leverage (a)
10.05

9.87

9.83

 
 
 
 
(a)
9/30/2018 ratio is estimated.
(b)
The table entitled “GAAP to Non-GAAP Reconciliations” in the attached financial supplement presents the computations of certain financial measures related to “tangible common equity.” The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. See below for further information on the Regulatory Capital Rules.

Key's capital position remained strong in the 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%.

Summary of Changes in Common Shares Outstanding
 
 
 
 
 
 
 
 
 
 
 
 
in thousands
 
 
 
 
Change 3Q18 vs.
 
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Shares outstanding at beginning of period
1,058,944

1,064,939

1,092,739

 
(.6
)%
(3.1
)%
Open market repurchases and return of shares under employee compensation plans
(25,418
)
(6,259
)
(15,298
)
 
306.1

66.2

Shares issued under employee compensation plans (net of cancellations)
761

264

1,598

 
188.3

(52.4
)
 
Shares outstanding at end of period
1,034,287

1,058,944

1,079,039

 
(2.3
)%
(4.1
)%
 
 
 
 
 
 
 
 
N/M = Not Meaningful

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.
  



KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 6


Major Business Segments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 3Q18 vs.
 
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Revenue from continuing operations (TE)
 
 
 
 
 
 
Key Community Bank
$
994

$
997

$
945

 
(.3
)%
5.2
 %
Key Corporate Bank
574

542

561

 
5.9

2.3

Other Segments
24

37

42

 
(35.1
)
(42.9
)
 
Total segments
1,592

1,576

1,548


1.0

2.8

Reconciling Items (a)
10

71

6

 
(85.9
)
66.7

 
Total
$
1,602

$
1,647

$
1,554

 
(2.7
)%
3.1
 %
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key
 
 
 
 
 
 
Key Community Bank
$
241

$
243

$
163

 
(.8
)%
47.9
 %
Key Corporate Bank
199

167

190

 
19.2

4.7

Other Segments
22

25

21

 
(12.0
)
4.8

 
Total segments
462

435

374

 
6.2

23.5

Reconciling Items (b)
20

44

(11
)
 
(54.5
)
N/M

 
Total
$
482

$
479

$
363

 
.6
 %
32.8
 %
 
 
 
 
 
 
 
 
(a)
Reconciling items consists primarily of the gain on the sale of Key Insurance and Benefits Services for the second quarter of 2018.
(b)
Reconciling items consists primarily of the gain on the sale of Key Insurance and Benefits Services for the second quarter of 2018, the unallocated portion of merger-related charges for the third quarter of 2017, and items not allocated to the business segments because they do not reflect their normal operations.
TE = Taxable Equivalent, N/M = Not Meaningful


Key Community Bank
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 3Q18 vs.
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Summary of operations
 
 
 
 
 
 
Net interest income (TE)
$
726

$
715

$
673

 
1.5
 %
7.9
 %
Noninterest income
268

282

272

 
(5.0
)
(1.5
)
Total revenue (TE)
994

997

945

 
(.3
)
5.2

Provision for credit losses
43

38

59

 
13.2

(27.1
)
Noninterest expense
635

640

626

 
(.8
)
1.4

Income (loss) before income taxes (TE)
316

319

260

 
(.9
)
21.5

Allocated income taxes (benefit) and TE adjustments
75

76

97

 
(1.3
)
(22.7
)
Net income (loss) attributable to Key
$
241

$
243

$
163

 
(.8
)%
47.9
 %
 
 
 
 
 
 
 
Average balances
 
 
 
 
 
 
Loans and leases
$
47,862

$
47,985

$
47,614

 
(.3
)%
.5
 %
Total assets
51,740

51,867

51,642

 
(.2
)
.2

Deposits
82,259

80,930

79,563

 
1.6

3.4

 
 
 
 
 




Assets under management at period end
$
40,575

$
39,663

$
38,660

 
2.3
 %
5.0
 %
 
 
 
 
 
 
 
TE = Taxable Equivalent





KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 7


Additional Key Community Bank Data
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 3Q18 vs.
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Noninterest income
 
 
 
 
 
 
Trust and investment services income
$
90

$
92

$
85

 
(2.2
)%
5.9
 %
Service charges on deposit accounts
72

77

78

 
(6.5
)
(7.7
)
Cards and payments income
59

59

65

 

(9.2
)
Other noninterest income
47

54

44

 
(13.0
)
6.8

Total noninterest income
$
268

$
282

$
272

 
(5.0
)%
(1.5
)%
 
 
 
 
 




Average deposit balances
 
 
 
 




NOW and money market deposit accounts
$
45,967

$
45,112

$
44,481

 
1.9
 %
3.3
 %
Savings deposits
4,923

5,078

5,165

 
(3.1
)
(4.7
)
Certificates of deposit ($100,000 or more)
5,608

5,232

4,195

 
7.2

33.7

Other time deposits
5,019

4,934

4,657

 
1.7

7.8

Noninterest-bearing deposits
20,742

20,574

21,065

 
.8

(1.5
)
Total deposits
$
82,259

$
80,930

$
79,563

 
1.6
 %
3.4
 %
 
 
 
 
 
 
 
Home equity loans
 
 
 
 
 
 
Average balance
$
11,317

$
11,496

$
12,182

 
 
 
Combined weighted-average loan-to-value ratio (at date of origination)
70
%
70
%
69
%
 
 
 
Percent first lien positions
60

60

60

 
 
 
 
 
 
 
 
 
 
Other data
 
 
 
 
 
 
Branches
1,166

1,177

1,208

 
 
 
Automated teller machines
1,518

1,537

1,588

 
 
 
 
 
 
 
 
 
 

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.




KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 8



Key Corporate Bank
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 3Q18 vs.
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Summary of operations
 
 
 
 
 
 
Net interest income (TE)
$
273

$
277

$
292

 
(1.4
)%
(6.5
)%
Noninterest income
301

265

269

 
13.6

11.9

Total revenue (TE)
574

542

561

 
5.9

2.3

Provision for credit losses
20

28

(11
)
 
(28.6
)
N/M

Noninterest expense
316

325

303

 
(2.8
)
4.3

Income (loss) before income taxes (TE)
238

189

269

 
25.9

(11.5
)
Allocated income taxes and TE adjustments
39

22

79

 
77.3

(50.6
)
Net income (loss) attributable to Key
$
199

$
167

$
190

 
19.2
 %
4.7
 %
 
 
 
 
 
 
 
Average balances
 
 
 
 
 
 
Loans and leases
$
39,714

$
39,709

$
38,021

 

4.5
 %
Loans held for sale
1,042

1,299

1,521

 
(19.8
)%
(31.5
)
Total assets
46,860

47,212

45,257

 
(.7
)
3.5

Deposits
21,056

21,057

21,559

 

(2.3
)
 
 
 
 
 
 
 
TE = Taxable Equivalent, N/M = Not Meaningful

Additional Key Corporate Bank Data
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 3Q18 vs.
 
3Q18
2Q18
3Q17
 
2Q18
3Q17
Noninterest income
 
 
 
 
 
 
Trust and investment services income
$
27

$
29

$
34

 
(6.9
)%
(20.6
)%
Investment banking and debt placement fees
162

153

137

 
5.9

18.2

Operating lease income and other leasing gains
34

(10
)
13

 
N/M

161.5

 
 
 
 
 
 
 
Corporate services income
37

44

40

 
(15.9
)
(7.5
)
Service charges on deposit accounts
13

13

13

 


Cards and payments income
10

12

10

 
(16.7
)

Payments and services income
60

69

63

 
(13.0
)
(4.8
)
 
 
 
 
 
 
 
Mortgage servicing fees
15

19

18

 
(21.1
)
(16.7
)
Other noninterest income
3

5

4

 
(40.0
)
(25.0
)
Total noninterest income
$
301

$
265

$
269

 
13.6
 %
11.9
 %
 
 
 
 
 
 
 
N/M = Not Meaningful

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.




KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 9


            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.

*****

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.



KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 10



CONTACTS:
 
 
 
ANALYSTS
MEDIA
Vernon L. Patterson
Susan Donlan
216.689.0520
216.471.3133
Vernon_Patterson@KeyBank.com
Susan_E_Donlan@KeyBank.com
 
 Twitter: @keybank_news
Kelly L. Dillon
 
216.689.3133
 
Kelly_L_Dillon@KeyBank.com
 
 
 
Melanie S. Kaiser
 
216.689.4545
 
Melanie_S_Kaiser@KeyBank.com
 
 
 
INVESTOR
KEY MEDIA
RELATIONS: www.key.com/ir
NEWSROOM: www.key.com/newsroom
  
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, October 18, 2018. An audio replay of the call will be available through October 28, 2018.
 
For up-to-date company information, media contacts, and facts and figures about Key’s lines of business, visit our Media Newsroom at https://www.key.com/newsroom.

*****




KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 11





KeyCorp
Third Quarter 2018
Financial Supplement


    
Page
 
Financial Highlights
GAAP to Non-GAAP Reconciliation
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
Noninterest Expense
Personnel Expense
Loan Composition
Loans Held for Sale Composition
Summary of Changes in Loans Held for Sale
Summary of Loan and Lease Loss Experience From Continuing Operations
Asset Quality Statistics From Continuing Operations
Summary of Nonperforming Assets and Past Due Loans From Continuing Operations
Summary of Changes in Nonperforming Loans From Continuing Operations
Line of Business Results



KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 12


Financial Highlights
(dollars in millions, except per share amounts)
 
 
 
Three months ended
 
 
 
9/30/2018
6/30/2018
9/30/2017
Summary of operations
 
 
 
 
Net interest income (TE)
$
993

$
987

$
962

 
Noninterest income
609

660

592

 
 
Total revenue (TE)
1,602

1,647

1,554

 
Provision for credit losses
62

64

51

 
Noninterest expense
964

993

992

 
Income (loss) from continuing operations attributable to Key
482

479

363

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

3

1

 
Net income (loss) attributable to Key
482

482

364

 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
468

464

349

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

3

1

 
Net income (loss) attributable to Key common shareholders
468

467

350

 
 
 
 
 
 
Per common share
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
$
.45

$
.44

$
.32

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



 
Net income (loss) attributable to Key common shareholders (b)
.45

.44

.32

 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution
.45

.44

.32

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



 
Net income (loss) attributable to Key common shareholders — assuming dilution (b)
.45

.44

.32

 
 
 
 
 
 
 
Cash dividends declared
.17

.12

.095

 
Book value at period end
13.33

13.29

13.18

 
Tangible book value at period end
10.59

10.59

10.52

 
Market price at period end
19.89

19.54

18.82

 
 
 
 
 
 
Performance ratios
 
 
 
 
From continuing operations:
 
 
 
 
Return on average total assets
1.40
%
1.41
%
1.07
%
 
Return on average common equity
13.36

13.29

9.74

 
Return on average tangible common equity (c)
16.81

16.73

12.21

 
Net interest margin (TE)
3.18

3.19

3.15

 
Cash efficiency ratio (c)
58.7

58.8

62.2

 
 
 
 
 
 
 
From consolidated operations:
 
 
 
 
Return on average total assets
1.39
%
1.40
%
1.06
%
 
Return on average common equity
13.36

13.37

9.77

 
Return on average tangible common equity (c)
16.81

16.84

12.25

 
Net interest margin (TE)
3.16

3.17

3.13

 
Loan to deposit (d)
87.0

86.9

86.2

 
 
 
 
 
 
Capital ratios at period end
 
 
 
 
Key shareholders’ equity to assets
10.96
%
10.96
%
11.15
%
 
Key common shareholders’ equity to assets
9.93

10.21

10.40

 
Tangible common equity to tangible assets (c)
8.05

8.32

8.49

 
Common Equity Tier 1 (e)
9.93

10.13

10.26

 
Tier 1 risk-based capital (e)
11.09

10.95

11.11

 
Total risk-based capital (e)
12.97

12.83

13.09

 
Leverage (e)
10.05

9.87

9.83

 
 
 
 
 
 
Asset quality — from continuing operations
 
 
 
 
Net loan charge-offs
$
60

$
60

$
32

 
Net loan charge-offs to average loans
.27
%
.27
%
.15
%
 
Allowance for loan and lease losses
$
887

$
887

$
880

 
Allowance for credit losses
947

945

937

 
Allowance for loan and lease losses to period-end loans
.99
%
1.01
%
1.02
%
 
Allowance for credit losses to period-end loans
1.06

1.07

1.08

 
Allowance for loan and lease losses to nonperforming loans (f)
137.5

162.8

170.2

 
Allowance for credit losses to nonperforming loans (f)
146.8

173.4

181.2

 
Nonperforming loans at period-end (f)
$
645

$
545

$
517

 
Nonperforming assets at period-end (f)
674

571

556

 
Nonperforming loans to period-end portfolio loans (f)
.72
%
.62
%
.60
%
 
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (f)
.75

.65

.64

 
 
 
 
 
 
Trust assets
 
 
 
 
Assets under management
$
40,575

$
39,663

$
38,660

 
 
 
 
 
 
Other data
 
 
 
 
Average full-time equivalent employees
18,150

18,376

18,548

 
Branches
1,166

1,177

1,208

 
 
 
 
 
 
Taxable-equivalent adjustment
$
7

$
8

$
14





KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 13


Financial Highlights (continued)
(dollars in millions, except per share amounts)
 
 
Nine months ended
 
 
9/30/2018
 
9/30/2017
Summary of operations
 
 
 
 
Net interest income (TE)
$
2,932

 
$
2,878

 
Noninterest income
1,870

 
1,822

 
Total revenue (TE)
4,802

 
4,700

 
Provision for credit losses
187

 
180

 
Noninterest expense
2,963

 
3,000

 
Income (loss) from continuing operations attributable to Key
1,377

 
1,094

 
Income (loss) from discontinued operations, net of taxes (a)
5

 
6

 
Net income (loss) attributable to Key
1,382

 
1,100

 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
$
1,334

 
$
1,038

 
Income (loss) from discontinued operations, net of taxes (a)
5

 
6

 
Net income (loss) attributable to Key common shareholders
1,339

 
1,044

 
 
 
 
 
Per common share
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
$
1.28

 
$
.96

 
Income (loss) from discontinued operations, net of taxes (a)
.01

 
.01

 
Net income (loss) attributable to Key common shareholders (b)
1.27

 
.97

 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution
1.26

 
.95

 
Income (loss) from discontinued operations, net of taxes — assuming dilution (a)
.01

 
.01

 
Net income (loss) attributable to Key common shareholders — assuming dilution (b)
1.26

 
.96

 
 
 
 
 
 
Cash dividends paid
.395

 
.275

 
 
 
 
 
Performance ratios
 
 
 
 
From continuing operations:
 
 
 
 
Return on average total assets
1.35
%
 
1.10
%
 
Return on average common equity
12.81

 
9.89

 
Return on average tangible common equity (c)
16.16

 
12.36

 
Net interest margin (TE)
3.17

 
3.19

 
Cash efficiency ratio (c)
60.1

 
62.4

 
 
 
 
 
 
From consolidated operations:
 
 
 
 
Return on average total assets
1.35
%
 
1.09
%
 
Return on average common equity
12.86

 
9.95

 
Return on average tangible common equity (c)
16.22

 
12.43

 
Net interest margin (TE)
3.15

 
3.17

 
 
 
 
 
Asset quality — from continuing operations
 
 
 
 
Net loan charge-offs
$
174

 
$
156

 
Net loan charge-offs to average total loans
.26
%
 
.24
%
 
 
 
 
 
Other data
 
 
 
 
Average full-time equivalent employees
18,354

 
18,427

 
 
 
 
 
Taxable-equivalent adjustment
23

 
39

(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)
September 30, 2018, ratio is estimated.
(f)
Nonperforming loan balances exclude $606 million, $629 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, and September 30, 2017, respectively.
 
 
 
 
 
 




KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 14


GAAP to Non-GAAP Reconciliations
(dollars in millions)

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

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

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

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

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.
 
Three months ended
 
Nine months ended
 
9/30/2018
6/30/2018
9/30/2017
 
9/30/2018
9/30/2017
Tangible common equity to tangible assets at period-end
 
 
 
 
 
 
Key shareholders’ equity (GAAP)
$
15,208

$
15,100

$
15,249

 
 
 
Less: Intangible assets (a)
2,838

2,858

2,870

 
 
 
Preferred Stock (b)
1,421

1,009

1,009

 
 
 
Tangible common equity (non-GAAP)
$
10,949

$
11,233

$
11,370

 
 
 
Total assets (GAAP)
$
138,805

$
137,792

$
136,733

 
 
 
Less: Intangible assets (a)
2,838

2,858

2,870

 
 
 
Tangible assets (non-GAAP)
$
135,967

$
134,934

$
133,863

 
 
 
Tangible common equity to tangible assets ratio (non-GAAP)
8.05
%
8.32
%
8.49
%
 
 
 
Pre-provision net revenue
 
 
 
 
 
 
Net interest income (GAAP)
$
986

$
979

$
948

 
$
2,909

$
2,839

Plus: Taxable-equivalent adjustment
7

8

14

 
23

39

Noninterest income
609

660

592

 
1,870

1,822

Less: Noninterest expense
964

993

992

 
2,963

3,000

Pre-provision new revenue from continuing operations (non-GAAP)
$
638

$
654

$
562

 
$
1,839

$
1,700

Average tangible common equity
 
 
 
 
 
 
Average Key shareholders' equity (GAAP)
$
15,210

$
15,032

$
15,241

 
$
15,045

$
15,208

Less: Intangible assets (average) (c)
2,848

2,883

2,878

 
2,882

2,802

Preferred stock (average)
1,316

1,025

1,025

 
1,123

1,175

Average tangible common equity (non-GAAP)
$
11,046

$
11,124

$
11,338

 
$
11,040

$
11,231

Return on average tangible common equity from continuing operations
 
 
 
 
 
 
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)
$
468

$
464

$
349

 
$
1,334

$
1,038

Average tangible common equity (non-GAAP)
11,046

11,124

11,338

 
11,040

11,231

 
 
 
 
 
 
 
Return on average tangible common equity from continuing operations (non-GAAP)
16.81
%
16.73
%
12.21
%
 
16.16
%
12.36
%
Return on average tangible common equity consolidated
 
 
 
 
 
 
Net income (loss) attributable to Key common shareholders (GAAP)
$
468

$
467

$
350

 
$
1,339

$
1,044

Average tangible common equity (non-GAAP)
11,046

11,124

11,338

 
11,040

11,231

 
 
 
 
 
 
 
Return on average tangible common equity consolidated (non-GAAP)
16.81
%
16.84
%
12.25
%
 
16.22
%
12.43
%
Cash efficiency ratio
 
 
 
 
 
 
Noninterest expense (GAAP)
$
964

$
993

$
992

 
$
2,963

$
3,000

Less: Intangible asset amortization
23

25

25

 
77

69

Adjusted noninterest expense (non-GAAP)
$
941

$
968

$
967

 
$
2,886

$
2,931

 
 
 
 
 
 
 
Net interest income (GAAP)
$
986

$
979

$
948

 
$
2,909

$
2,839

Plus: Taxable-equivalent adjustment
7

8

14

 
23

39

Noninterest income
609

660

592

 
1,870

1,822

Total taxable-equivalent revenue (non-GAAP)
$
1,602

$
1,647

$
1,554

 
$
4,802

$
4,700

 
 
 
 
 
 
 
Cash efficiency ratio (non-GAAP)
58.7
%
58.8
%
62.2
%
 
60.1
%
62.4
%

 
 
 
 
 
 
 
 
 



KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 15


GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
 
 
 
Three months ended
 
 
 
9/30/2018
Common Equity Tier 1 under the Regulatory Capital Rules (“RCR”) (estimates)
 
 
Common Equity Tier 1 under current RCR
$
12,197

 
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)
$
12,197

 
 
 
 
 
Net risk-weighted assets under current RCR
$
122,781

 
Adjustments from current RCR to the fully phased-in RCR:
 
 
 
Mortgage servicing assets (f)
755

 
 
Deferred tax assets
345

 
 
All other assets

 
 
Total risk-weighted assets anticipated under the fully phased-in RCR (e)
$
123,881

 
 
 
 
 
Common Equity Tier 1 ratio under the fully phased-in RCR (e)
9.85
%

(a)
For the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, intangible assets exclude $17 million, $20 million, and $30 million, respectively, of period-end purchased credit card receivables.
(b)
Net of capital surplus.
(c)
For the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, average intangible assets exclude $18 million, $21 million, and $32 million, respectively, of average purchased credit card receivables. For the nine months ended September 30, 2018, and September 30, 2017, average intangible assets exclude $21 million and $36 million, respectively, of average purchased credit card receivables.
(d)
Includes the deferred tax assets subject to future taxable income for realization, primarily tax credit carryforwards, as well as intangible assets (other than goodwill and mortgage servicing assets) subject to the transition provisions of the final rule.
(e)
The anticipated amount of regulatory capital and risk-weighted assets is based upon the federal banking agencies’ Regulatory Capital Rules (as fully phased-in on January 1, 2019); Key is subject to the Regulatory Capital Rules under the “standardized approach.”
(f)
Item is included in the 10%/15% exceptions bucket calculation and is risk-weighted at 250%.
GAAP = U.S. generally accepted accounting principles
 
 
 
 
 
 
 
 
 




KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 16


Consolidated Balance Sheets
(dollars in millions)
 
 
 
 
 
 
 
 
 
9/30/2018

6/30/2018

9/30/2017

Assets
 
 
 
 
Loans
$
89,268

$
88,222

$
86,492

 
Loans held for sale
1,618

1,418

1,341

 
Securities available for sale
18,341

17,367

19,012

 
Held-to-maturity securities
11,869

12,277

10,276

 
Trading account assets
958

833

783

 
Short-term investments
2,272

2,646

3,993

 
Other investments
681

709

728

 
 
Total earning assets
125,007

123,472

122,625

 
Allowance for loan and lease losses
(887
)
(887
)
(880
)
 
Cash and due from banks
319

784

562

 
Premises and equipment
891

892

916

 
Operating lease assets
930

903

736

 
Goodwill
2,516

2,516

2,487

 
Other intangible assets
338

361

412

 
Corporate-owned life insurance
4,156

4,147

4,113

 
Accrued income and other assets
4,378

4,382

4,366

 
Discontinued assets
1,157

1,222

1,396

 
 
Total assets
$
138,805

$
137,792

$
136,733

 
 
 
 
 
 
Liabilities
 
 
 
 
Deposits in domestic offices:
 
 
 
 
 
NOW and money market deposit accounts
$
57,219

$
55,059

$
53,734

 
 
Savings deposits
4,948

6,199

6,366

 
 
Certificates of deposit ($100,000 or more)
8,453

7,547

6,519

 
 
Other time deposits
5,130

4,943

4,720

 
 
Total interest-bearing deposits
75,750

73,748

71,339

 
 
Noninterest-bearing deposits
30,030

30,800

32,107

 
 
Total deposits
105,780

104,548

103,446

 
Federal funds purchased and securities sold under repurchase agreements 
1,285

1,667

372

 
Bank notes and other short-term borrowings
637

639

616

 
Accrued expense and other liabilities
2,044

1,983

1,949

 
Long-term debt
13,849

13,853

15,100

 
 
Total liabilities
123,595

122,690

121,483

 
 
 
 
 
 
Equity
 
 
 
 
Preferred stock
1,450

1,025

1,025

 
Common shares
1,257

1,257

1,257

 
Capital surplus
6,315

6,315

6,310

 
Retained earnings
11,262

10,970

10,125

 
Treasury stock, at cost
(3,910
)
(3,382
)
(2,962
)
 
Accumulated other comprehensive income (loss)
(1,166
)
(1,085
)
(506
)
 
 
Key shareholders’ equity
15,208

15,100

15,249

 
Noncontrolling interests
2

2

1

 
 
Total equity
15,210

15,102

15,250

Total liabilities and equity
$
138,805

$
137,792

$
136,733

 
 
 
 
 
 
Common shares outstanding (000)
1,034,287

1,058,944

1,079,039







KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 17


Consolidated Statements of Income
(dollars in millions, except per share amounts)
 
 
 
Three months ended
 
Nine months ended
 
 
 
9/30/2018
6/30/2018
9/30/2017
 
9/30/2018
9/30/2017
Interest income
 
 
 
 
 
 
 
Loans
$
1,025

$
1,000

$
928

 
$
2,965

$
2,753

 
Loans held for sale
12

16

17

 
40

39

 
Securities available for sale
102

97

91

 
294

276

 
Held-to-maturity securities
72

72

55

 
213

161

 
Trading account assets
7

7

7

 
21

21

 
Short-term investments
15

8

6

 
31

14

 
Other investments
6

5

5

 
17

12

 
 
Total interest income
1,239

1,205

1,109

 
3,581

3,276

Interest expense
 
 
 
 
 
 
 
Deposits
140

112

72

 
343

196

 
Federal funds purchased and securities sold under repurchase agreements
1

5


 
10

1

 
Bank notes and other short-term borrowings
4

7

3

 
17

12

 
Long-term debt
108

102

86

 
302

228

 
 
Total interest expense
253

226

161

 
672

437

Net interest income
986

979

948

 
2,909

2,839

Provision for credit losses
62

64

51

 
187

180

Net interest income after provision for credit losses
924

915

897

 
2,722

2,659

Noninterest income
 
 
 
 
 
 
 
Trust and investment services income
117

128

135

 
378

404

 
Investment banking and debt placement fees
166

155

141

 
464

403

 
Service charges on deposit accounts
85

91

91

 
265

268

 
Operating lease income and other leasing gains
35

(6
)
16

 
61

69

 
Corporate services income
52

61

54

 
175

163

 
Cards and payments income
69

71

75

 
202

210

 
Corporate-owned life insurance income
34

32

31

 
98

94

 
Consumer mortgage income
9

7

7

 
23

19

 
Mortgage servicing fees
19

22

21

 
61

54

 
Other income (a)
23

99

21

 
143

138

 
 
Total noninterest income
609

660

592

 
1,870

1,822

Noninterest expense
 
 
 
 
 
 
 
Personnel
553

586

559

 
1,733

1,669

 
Net occupancy
76

79

74

 
233

239

 
Computer processing
52

51

56

 
155

171

 
Business services and professional fees
43

51

49

 
135

140

 
Equipment
27

26

29

 
79

83

 
Operating lease expense
31

30

24

 
88

64

 
Marketing
26

26

34

 
77

85

 
FDIC assessment
21

21

21

 
63

62

 
Intangible asset amortization
23

25

25

 
77

69

 
OREO expense, net
3


3

 
5

8

 
Other expense
109

98

118

 
318

410

 
 
Total noninterest expense
964

993

992

 
2,963

3,000

Income (loss) from continuing operations before income taxes
569

582

497

 
1,629

1,481

 
Income taxes
87

103

134

 
252

386

Income (loss) from continuing operations
482

479

363

 
1,377

1,095

 
Income (loss) from discontinued operations, net of taxes

3

1

 
5

6

Net income (loss)
482

482

364

 
1,382

1,101

 
Less: Net income (loss) attributable to noncontrolling interests



 

1

Net income (loss) attributable to Key
$
482

$
482

$
364

 
$
1,382

$
1,100

 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
$
468

$
464

$
349

 
$
1,334

$
1,038

Net income (loss) attributable to Key common shareholders
468

467

350

 
1,339

1,044

Per common share
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
$
.45

$
.44

$
.32

 
$
1.28

$
.96

Income (loss) from discontinued operations, net of taxes



 
.01

.01

Net income (loss) attributable to Key common shareholders (b)
.45

.44

.32

 
1.27

.97

Per common share — assuming dilution
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
$
.45

$
.44

$
.32

 
$
1.26

$
.95

Income (loss) from discontinued operations, net of taxes



 
.01

.01

Net income (loss) attributable to Key common shareholders (b)
.45

.44

.32

 
1.26

.96

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
.17

$
.12

$
.095

 
$
.395

$
.275

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding (000)
1,036,479

1,052,652

1,073,390

 
1,048,397

1,075,296

 
Effect of common share options and other stock awards
13,497

13,141

15,451

 
14,419

16,359

Weighted-average common shares and potential common shares outstanding (000) (c)
1,049,976

1,065,793

1,088,841

 
1,062,816

1,091,655

 
 
 
 
 
 
 
 
 
(a)
For the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, net securities gains (losses) totaled less than $1 million. For the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, Key did not have any impairment losses related to securities.
(b)
Earnings per share may not foot due to rounding.
(c)
Assumes conversion of common share options and other stock awards, as applicable.



KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 18


Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Third Quarter 2018
 
Second Quarter 2018
 
Third 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)
$
44,749

$
495

4.39
%

$
45,030

$
485

4.32
%

$
41,416

$
414

3.97
%
 
Real estate — commercial mortgage
14,268

176

4.89

 
14,055

172

4.89

 
14,850

169

4.51

 
Real estate — construction
1,759

22

5.05

 
1,789

23

4.97

 
2,054

23

4.51

 
Commercial lease financing
4,444

43

3.88

 
4,550

41

3.61

 
4,694

46

3.89

 
Total commercial loans
65,220

736

4.49

 
65,424

721

4.41

 
63,014

652

4.11

 
Real estate — residential mortgage
5,466

55

3.99

 
5,451

54

3.97

 
5,493

54

3.92

 
Home equity loans
11,415

137

4.80

 
11,601

135

4.67

 
12,314

136

4.41

 
Consumer direct loans
1,789

35

7.71

 
1,768

33

7.54

 
1,774

33

7.26

 
Credit cards
1,095

32

11.43

 
1,080

30

11.21

 
1,049

30

11.34

 
Consumer indirect loans
3,482

37

4.25

 
3,320

35

4.26

 
3,170

37

4.64

 
Total consumer loans
23,247

296

5.06

 
23,220

287

4.97

 
23,800

290

4.85

 
Total loans
88,467

1,032

4.64

 
88,644

1,008

4.56

 
86,814

942

4.31

 
Loans held for sale
1,117

12

4.59

 
1,375

16

4.50

 
1,607

17

4.13

 
Securities available for sale (b), (e)
17,631

102

2.22

 
17,443

97

2.13

 
18,574

91

1.96

 
Held-to-maturity securities (b)
12,065

72

2.40

 
12,226

72

2.36

 
10,469

55

2.12

 
Trading account assets
787

7

3.37

 
943

7

3.21

 
889

7

2.74

 
Short-term investments
2,928

15

1.93

 
2,015

8

1.76

 
2,166

6

1.21

 
Other investments (e)
685

6

3.27

 
710

5

3.08

 
728

5

2.46

 
Total earning assets
123,680

1,246

3.98

 
123,356

1,213

3.92

 
121,247

1,123

3.68

 
Allowance for loan and lease losses
(886
)
 
 
 
(875
)
 
 
 
(868
)
 
 
 
Accrued income and other assets
13,935

 
 
 
13,897

 
 
 
13,977

 
 
 
Discontinued assets
1,186

 
 
 
1,241

 
 
 
1,417

 
 
 
Total assets
$
137,915

 
 
 
$
137,619

 
 
 
$
135,773

 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
NOW and money market deposit accounts
$
56,391

82

.58

 
$
54,749

59

.44

 
$
53,826

37

.27

 
Savings deposits
5,413

3

.20

 
6,276

5

.35

 
6,697

5

.25

 
Certificates of deposit ($100,000 or more)
8,186

38

1.86

 
7,516

32

1.70

 
6,402

21

1.31

 
Other time deposits
5,026

17

1.40

 
4,949

16

1.22

 
4,664

9

.81

 
Total interest-bearing deposits
75,016

140

.74

 
73,490

112

.61

 
71,589

72

.40

 
Federal funds purchased and securities
sold under repurchase agreements
552

1

1.00

 
1,475

5

1.41

 
456


.23

 
Bank notes and other short-term borrowings
596

4

2.76

 
1,116

7

2.27

 
865

3

1.49

 
Long-term debt (f), (g)
12,678

108

3.34

 
12,748

102

3.20

 
12,631

86

2.75

 
Total interest-bearing liabilities
88,842

253

1.13

 
88,829

226

1.02

 
85,541

161

.75

 
Noninterest-bearing deposits
30,610

 
 
 
30,513

 
 
 
31,516

 
 
 
Accrued expense and other liabilities
2,065

 
 
 
2,002

 
 
 
2,057

 
 
 
Discontinued liabilities (g)
1,186

 
 
 
1,241

 
 
 
1,417

 
 
 
Total liabilities
122,703

 
 
 
122,585

 
 
 
120,531

 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
Key shareholders’ equity
15,210

 
 
 
15,032

 
 
 
15,241

 
 
 
Noncontrolling interests
2

 
 
 
2

 
 
 
1

 
 
 
Total equity
15,212

 
 
 
15,034

 
 
 
15,242

 
 
 
Total liabilities and equity
$
137,915

 
 
 
$
137,619

 
 
 
$
135,773

 
 
Interest rate spread (TE)
 
 
2.85
%

 
 
2.90
%

 
 
2.93
%
Net interest income (TE) and net interest margin (TE)
 
993

3.18
%

 
987

3.19
%

 
962

3.15
%
TE adjustment (b)
 
7

 
 
 
8

 
 
 
14

 
 
Net interest income, GAAP basis
 
$
986

 
 
 
$
979

 
 
 
$
948

 
(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 September 30, 2018, and June 30, 2018, and 35% for the three months ended September 30, 2017.
(c)
For purposes of these computations, nonaccrual loans are included in average loan balances.
(d)
Commercial and industrial average balances include $128 million, $126 million, and $117 million of assets from commercial credit cards for the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, respectively.
(e)
Yield is calculated on the basis of amortized cost.
(f)
Rate calculation excludes basis adjustments related to fair value hedges.
(g)
A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying Key’s matched funds transfer pricing methodology to discontinued operations.
TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles



KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 19


 
 
 
 
 
 
 
 
 
Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2018
 
Nine months ended September 30, 2017
 
 
Average
 
 
 
Average
 
 
 
 
Balance
Interest (a)
Yield/Rate (a)
 
Balance
Interest (a)
Yield/ Rate (a)
Assets
 
 
 
 
 
 
 
 
Loans: (b), (c)
 
 
 
 
 
 
 
 
Commercial and industrial (d)
$
44,178

$
1,414

4.28
%
 
$
40,700

$
1,196

3.93
%
 
Real estate — commercial mortgage
14,137

513

4.85

 
15,043

520

4.62

 
Real estate — construction
1,834

67

4.88

 
2,203

80

4.86

 
Commercial lease financing
4,552

125

3.67

 
4,673

140

3.99

 
Total commercial loans
64,701

2,119

4.38

 
62,619

1,936

4.13

 
Real estate — residential mortgage
5,466

163

3.97

 
5,507

160

3.88

 
Home equity loans
11,629

406

4.67

 
12,465

402

4.32

 
Consumer direct loans
1,774

101

7.59

 
1,760

94

7.10

 
Credit cards
1,085

92

11.32

 
1,053

88

11.15

 
Consumer indirect loans
3,363

107

4.27

 
3,081

112

4.85

 
Total consumer loans
23,317

869

4.98

 
23,866

856

4.79

 
Total loans
88,018

2,988

4.54

 
86,485

2,792

4.31

 
Loans held for sale
1,226

40

4.40

 
1,293

39

4.01

 
Securities available for sale (b), (e) 
17,653

294

2.14

 
18,582

276

1.96

 
Held-to-maturity securities (b) 
12,111

213

2.35

 
10,311

161

2.08

 
Trading account assets
879

21

3.19

 
966

21

2.84

 
Short-term investments
2,334

31

1.76

 
1,918

14

1.00

 
Other investments (e) 
706

17

3.10

 
708

12

2.20

 
Total earning assets
122,927

3,604

3.90

 
120,263

3,315

3.68

 
Allowance for loan and lease losses
(879
)
 
 
 
(862
)
 
 
 
Accrued income and other assets
13,966

 
 
 
13,801

 
 
 
Discontinued assets
1,243

 
 
 
1,477

 
 
 
Total assets
$
137,257

 
 
 
$
134,679

 
 
Liabilities
 
 
 
 
 
 
 
 
NOW and money market deposit accounts
$
54,891

187

.46

 
$
54,178

103

.25

 
Savings deposits
5,971

13

.28

 
6,635

10

.19

 
Certificates of deposit ($100,000 or more)
7,563

97

1.72

 
6,050

56

1.24

 
Other time deposits
4,947

46

1.25

 
4,673

27

.78

 
Total interest-bearing deposits
73,372

343

.63

 
71,536

196

.37

 
Federal funds purchased and securities sold under repurchase agreements
1,146

10

1.22

 
570

1

.27

 
Bank notes and other short-term borrowings
1,015

17

2.19

 
1,291

12

1.27

 
Long-term debt (f), (g) 
12,631

302

3.17

 
11,510

228

2.66

 
Total interest-bearing liabilities
88,164

672

1.02

 
84,907

437

.69

 
Noninterest-bearing deposits
30,701

 
 
 
31,123

 
 
 
Accrued expense and other liabilities
2,102

 
 
 
1,962

 
 
 
Discontinued liabilities (g) 
1,243

 
 
 
1,478

 
 
 
Total liabilities
122,210

 
 
 
119,470

 
 
Equity
 
 
 
 
 
 
 
 
Key shareholders’ equity
15,045

 
 
 
15,208

 
 
 
Noncontrolling interests
2

 
 
 
1

 
 
 
Total equity
15,047

 
 
 
15,209

 
 
 
Total liabilities and equity
$
137,257

 
 
 
$
134,679

 
 
Interest rate spread (TE)
 
 
2.88
%
 
 
 
2.99
%
Net interest income (TE) and net interest margin (TE)
 
2,932

3.17
%
 
 
2,878

3.19
%
TE adjustment (b) 
 
23

 
 
 
39

 
 
Net interest income, GAAP basis
 
$
2,909

 
 
 
$
2,839

 
(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 nine months ended September 30, 2018, and September 30, 2017, respectively.
(c)
For purposes of these computations, nonaccrual loans are included in average loan balances.
(d)
Commercial and industrial average balances include $125 million and $116 million of assets from commercial credit cards for the nine months ended September 30, 2018, and September 30, 2017, respectively.
(e)
Yield is calculated on the basis of amortized cost.
(f)
Rate calculation excludes basis adjustments related to fair value hedges.
(g)
A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying Key’s matched funds transfer pricing methodology to discontinued operations.
TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles



KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 20


Noninterest Expense
(dollars in millions)
 
 
 
 
 
 
 
 
Three months ended
 
Nine months ended
 
9/30/2018
6/30/2018
9/30/2017
 
9/30/2018
9/30/2017
Personnel (a)
$
553

$
586

$
559

 
$
1,733

$
1,669

Net occupancy
76

79

74

 
233

239

Computer processing
52

51

56

 
155

171

Business services and professional fees
43

51

49

 
135

140

Equipment
27

26

29

 
79

83

Operating lease expense
31

30

24

 
88

64

Marketing
26

26

34

 
77

85

FDIC assessment
21

21

21

 
63

62

Intangible asset amortization
23

25

25

 
77

69

OREO expense, net
3


3

 
5

8

Other expense
109

98

118

 
318

410

Total noninterest expense
$
964

$
993

$
992

 
$
2,963

$
3,000

Average full-time equivalent employees (b)
18,150

18,376

18,548

 
18,354

18,427

(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
 
Nine months ended
 
9/30/2018
6/30/2018
9/30/2017
 
9/30/2018
9/30/2017
Salaries and contract labor
$
335

$
341

$
339

 
$
1,015

$
995

Incentive and stock-based compensation
138

147

134

 
430

398

Employee benefits
79

82

81

 
266

256

Severance
1

16

5

 
22

20

Total personnel expense
$
553

$
586

$
559

 
$
1,733

$
1,669


Merger-Related Charges
(in millions)
 
 
 
 
 
 
 
 
Three months ended
 
Nine months ended
 
9/30/2018
6/30/2018
9/30/2017
 
9/30/2018
9/30/2017
Personnel


$
25

 

$
86

Net occupancy


(2
)
 

2

Business services and professional fees


2

 

13

Computer processing


4

 

11

Marketing


5

 

17

Other nonpersonnel expense


2

 

32

Total merger-related charges


$
36

 

$
161





KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 21


Loan Composition
(dollars in millions)
 
 
 
 
 
 
 
 
 
 
Percent change 9/30/2018 vs.
 
9/30/2018
6/30/2018
9/30/2017
 
6/30/2018
9/30/2017
Commercial and industrial (a)
$
45,023

$
44,569

$
41,147

 
1.0
 %
9.4
 %
Commercial real estate:
 
 
 
 




Commercial mortgage
14,716

14,162

14,929

 
3.9

(1.4
)
Construction
1,763

1,736

1,954

 
1.6

(9.8
)
Total commercial real estate loans
16,479

15,898

16,883

 
3.7

(2.4
)
Commercial lease financing (b)
4,470

4,509

4,716

 
(.9
)
(5.2
)
Total commercial loans
65,972

64,976

62,746

 
1.5

5.1

Residential — prime loans:
 
 
 
 




Real estate — residential mortgage
5,497

5,452

5,476

 
.8

.4

Home equity loans
11,339

11,519

12,238

 
(1.6
)
(7.3
)
Total residential — prime loans
16,836

16,971

17,714

 
(.8
)
(5.0
)
Consumer direct loans
1,807

1,785

1,789

 
1.2

1.0

Credit cards
1,098

1,094

1,045

 
.4

5.1

Consumer indirect loans
3,555

3,396

3,198

 
4.7

11.2

Total consumer loans
23,296

23,246

23,746

 
.2

(1.9
)
Total loans (c)
$
89,268

$
88,222

$
86,492

 
1.2
 %
3.2
 %
(a)
Loan balances include $129 million, $128 million, and $118 million of commercial credit card balances at September 30, 2018, June 30, 2018, and September 30, 2017, respectively.
(b)
Commercial lease financing includes receivables held as collateral for a secured borrowing of $12 million, $16 million, and $31 million at September 30, 2018, June 30, 2018, and September 30, 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 September 30, 2018, $1.2 billion at June 30, 2018, and $1.4 billion at September 30, 2017, related to the discontinued operations of the education lending business.
Loans Held for Sale Composition
(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
Percent change 9/30/2018 vs.
 
9/30/2018
6/30/2018
9/30/2017
 
6/30/2018
9/30/2017
Commercial and industrial
$
97

$
217

$
34

 
(55.3
)%
185.3
%
Real estate — commercial mortgage
1,433

1,139

1,246

 
25.8

15.0

Commercial lease financing
1

4

1

 
(75.0
)

Real estate — residential mortgage
87

58

60

 
50.0

45.0

Total loans held for sale (a)
$
1,618

$
1,418

$
1,341

 
14.1
 %
20.7
%
(a)
Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $87 million at September 30, 2018, $58 million at June 30, 2018, and $60 million at September 30, 2017.
N/M = Not Meaningful
Summary of Changes in Loans Held for Sale
(in millions)
 
 
 
 
 
 
 
3Q18
2Q18
1Q18
4Q17
3Q17
Balance at beginning of period
$
1,418

$
1,667

$
1,107

$
1,341

$
1,743

New originations
2,976

2,665

3,280

3,566

2,855

Transfers from (to) held to maturity, net
4

(4
)
(14
)
(10
)
(63
)
Loan sales
(2,491
)
(2,909
)
(2,705
)
(3,783
)
(3,191
)
Loan draws (payments), net
(289
)
(1
)
(1
)
(7
)
(3
)
Balance at end of period (a)
$
1,618

$
1,418

$
1,667

$
1,107

$
1,341

(a)
Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $87 million at September 30, 2018, $58 million at June 30, 2018, $47 million at March 31, 2018, $71 million at December 31, 2017, and $60 million at September 30, 2017.







KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 22


Summary of Loan and Lease Loss Experience From Continuing Operations
(dollars in millions)
 
 
 
 
 
 
 
 
Three months ended
 
Nine months ended
 
9/30/2018
6/30/2018
9/30/2017
 
9/30/2018
9/30/2017
Average loans outstanding
$
88,467

$
88,644

$
86,814

 
$
88,018

$
86,485

Allowance for loan and lease losses at beginning of period
$
887

$
881

$
870

 
$
877

$
858

Loans charged off:
 
 
 
 
 
 
Commercial and industrial
38

39

29

 
114

101

 
 
 
 
 
 
 
Real estate — commercial mortgage
6

2

6

 
9

9

Real estate — construction


2

 

2

Total commercial real estate loans
6

2

8

 
9

11

Commercial lease financing
4

4

1

 
9

9

Total commercial loans
48

45

38

 
132

121

Real estate — residential mortgage
2



 
3

2

Home equity loans
4

6

6

 
14

23

Consumer direct loans
10

9

8

 
27

26

Credit cards
10

12

11

 
34

34

Consumer indirect loans
7

7

8

 
22

24

Total consumer loans
33

34

33

 
100

109

Total loans charged off
81

79

71

 
232

230

Recoveries:
 
 
 
 
 
 
Commercial and industrial
5

7

25

 
18

32

 
 
 
 
 
 
 
Real estate — commercial mortgage
1

1

1

 
2

1

Real estate — construction



 
1

1

Total commercial real estate loans
1

1

1

 
3

2

Commercial lease financing
3


3

 
4

5

Total commercial loans
9

8

29

 
25

39

Real estate — residential mortgage
2


1

 
2

4

Home equity loans
3

3

4

 
9

12

Consumer direct loans
1

2

1

 
5

4

Credit cards
2

2

1

 
5

4

Consumer indirect loans
4

4

3

 
12

11

Total consumer loans
12

11

10

 
33

35

Total recoveries
21

19

39

 
58

74

Net loan charge-offs
(60
)
(60
)
(32
)
 
(174
)
(156
)
Provision (credit) for loan and lease losses
60

66

42

 
184

178

Allowance for loan and lease losses at end of period
$
887

$
887

$
880

 
$
887

$
880

 
 
 
 
 
 
 
Liability for credit losses on lending-related commitments at beginning of period
$
58

$
60

$
48

 
$
57

$
55

Provision (credit) for losses on lending-related commitments
2

(2
)
9

 
3

2

Liability for credit losses on lending-related commitments at end of period (a)
$
60

$
58

$
57

 
$
60

$
57

 
 
 
 
 
 
 
Total allowance for credit losses at end of period
$
947

$
945

$
937

 
$
947

$
937

 
 
 
 
 
 
 
Net loan charge-offs to average total loans
.27
%
.27
%
.15
%
 
.26
%
.24
%
Allowance for loan and lease losses to period-end loans
.99

1.01

1.02

 
.99

1.02

Allowance for credit losses to period-end loans
1.06

1.07

1.08

 
1.06

1.08

Allowance for loan and lease losses to nonperforming loans
137.5

162.8

170.2

 
137.5

170.2

Allowance for credit losses to nonperforming loans
146.8

173.4

181.2

 
146.8

181.2

 
 
 
 
 
 
 
Discontinued operations — education lending business:
 
 
 
 
 
 
Loans charged off
$
4

$
3

$
10

 
$
11

$
20

Recoveries
1

1

2

 
4

6

Net loan charge-offs
$
(3
)
$
(2
)
$
(8
)
 
$
(7
)
$
(14
)
(a)
Included in "Accrued expense and other liabilities" on the balance sheet.



KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 23


Asset Quality Statistics From Continuing Operations
(dollars in millions)
 
3Q18
2Q18
1Q18
4Q17
3Q17
Net loan charge-offs
$
60

$
60

$
54

$
52

$
32

Net loan charge-offs to average total loans
.27
%
.27
%
.25
%
.24
%
.15
%
Allowance for loan and lease losses
$
887

$
887

$
881

$
877

$
880

Allowance for credit losses (a)
947

945

941

934

937

Allowance for loan and lease losses to period-end loans
.99
%
1.01
%
1.00
%
1.01
%
1.02
%
Allowance for credit losses to period-end loans
1.06

1.07

1.07

1.08

1.08

Allowance for loan and lease losses to nonperforming loans (b)
137.5

162.8

162.8

174.4

170.2

Allowance for credit losses to nonperforming loans (b)
146.8

173.4

173.9

185.7

181.2

Nonperforming loans at period end (b)
$
645

$
545

$
541

$
503

$
517

Nonperforming assets at period end (b)
674

571

569

534

556

Nonperforming loans to period-end portfolio loans (b)
.72
%
.62
%
.61
%
.58
%
.60
%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (b)
.75

.65

.65

.62

.64

(a)
Includes the allowance for loan and lease losses plus the liability for credit losses on lending-related unfunded commitments.
(b)
Nonperforming loan balances exclude $606 million, $629 million, $690 million, $738 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively.
 
Summary of Nonperforming Assets and Past Due Loans From Continuing Operations
(dollars in millions)
 
9/30/2018
6/30/2018
3/31/2018
12/31/2017
9/30/2017
Commercial and industrial
$
227

$
178

$
189

$
153

$
169

 
 
 
 
 
 
Real estate — commercial mortgage
98

42

33

30

30

Real estate — construction
2

2

2

2

2

Total commercial real estate loans
100

44

35

32

32

Commercial lease financing
10

21

5

6

11

Total commercial loans
337

243

229

191

212

Real estate — residential mortgage
62

55

59

58

57

Home equity loans
221

222

229

229

227

Consumer direct loans
4

4

4

4

3

Credit cards
2

2

2

2

2

Consumer indirect loans
19

19

18

19

16

Total consumer loans
308

302

312

312

305

Total nonperforming loans (a)
645

545

541

503

517

OREO
28

26

28

31

39

Other nonperforming assets
1





Total nonperforming assets (a)
$
674

$
571

$
569

$
534

$
556

Accruing loans past due 90 days or more
$
87

$
103

$
82

$
89

$
86

Accruing loans past due 30 through 89 days
368

429

305

359

329

Restructured loans — accruing and nonaccruing (b)
366

347

317

317

315

Restructured loans included in nonperforming loans (b)
211

184

179

189

187

Nonperforming assets from discontinued operations — education lending business 
6

6

6

7

8

Nonperforming loans to period-end portfolio loans (a)
.72
%
.62
%
.61
%
.58
%
.60
%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (a)
.75

.65

.65

.62

.64

(a)
Nonperforming loan balances exclude $606 million, $629 million, $690 million, $738 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively.    
(b)
Restructured loans (i.e., troubled debt restructuring) are those for which Key, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. These concessions are made to improve the collectability of the loan and generally take the form of a reduction of the interest rate, extension of the maturity date or reduction in the principal balance.
 
Summary of Changes in Nonperforming Loans From Continuing Operations
(in millions)
 
3Q18
2Q18
1Q18
4Q17
3Q17
Balance at beginning of period
$
545

$
541

$
503

$
517

$
507

Loans placed on nonaccrual status
263

175

182

137

181

Charge-offs
(81
)
(78
)
(70
)
(67
)
(71
)
Loans sold

(1
)


(1
)
Payments
(57
)
(33
)
(29
)
(52
)
(32
)
Transfers to OREO
(5
)
(5
)
(4
)
(8
)
(10
)
Loans returned to accrual status
(20
)
(54
)
(41
)
(24
)
(57
)
Balance at end of period (a)
$
645

$
545

$
541

$
503

$
517

(a)
Nonperforming loan balances exclude $606 million, $629 million, $690 million, $738 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively.



KeyCorp Reports Third Quarter 2018 Profit     
October 18, 2018
Page 24


Line of Business Results
(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percent change 3Q18 vs.
 
3Q18
2Q18
1Q18
4Q17
3Q17
 
2Q18
3Q17
Key Community Bank
 
 
 
 
 
 
 
 
Summary of operations
 
 
 
 
 
 
 
 
Total revenue (TE)
$
994

$
997

$
959

$
961

$
945

 
(.3
)%
5.2
 %
Provision for credit losses
43

38

48

57

59

 
13.2

(27.1
)
Noninterest expense
635

640

653

665

626

 
(.8
)
1.4

Net income (loss) attributable to Key
241

243

197

152

163

 
(.8
)
47.9

Average loans and leases
47,862

47,985

47,683

47,408

47,614

 
(.3
)
.5

Average deposits
82,259

80,930

79,945

80,352

79,563

 
1.6

3.4

Net loan charge-offs
43

34

42

35

41

 
26.5

4.9

Net loan charge-offs to average total loans
.36
%
.28
%
.36
%
.29
%
.34
 %
 
N/A

N/A

Nonperforming assets at period end
$
467

$
468

$
425

$
405

$
427

 
(.2
)
9.4

Return on average allocated equity
19.80
%
20.05
%
16.51
%
12.46
%
13.39
 %
 
N/A

N/A

Average full-time equivalent employees
10,529

10,619

10,666

10,629

10,696

 
(.8
)
(1.6
)
 
 
 
 
 
 
 
 
 
Key Corporate Bank
 
 
 
 
 
 
 
 
Summary of operations
 
 
 
 
 
 
 
 
Total revenue (TE)
$
574

$
542

$
558

$
605

$
561

 
5.9
 %
2.3
 %
Provision for credit losses
20

28

14

(6
)
(11
)
 
(28.6
)
N/M

Noninterest expense
316

325

312

352

303

 
(2.8
)
4.3

Net income (loss) attributable to Key
199

167

208

223

190

 
19.2

4.7

Average loans and leases
39,714

39,709

38,257

37,457

38,021

 

4.5

Average loans held for sale
1,042

1,299

1,118

1,345

1,521

 
(19.8
)
(31.5
)
Average deposits
21,056

21,057

20,815

21,558

21,559

 

(2.3
)
Net loan charge-offs
19

26

11

16

(9
)
 
(26.9
)
N/M

Net loan charge-offs to average total loans
.19
%
.26
%
.12
%
.17
%
(.09
)%
 
N/A

N/A

Nonperforming assets at period end
$
196

$
91

$
127

$
109

$
106

 
115.4

84.9

Return on average allocated equity
26.91
%
22.80
%
29.49
%
31.51
%
27.08
 %
 
N/A

N/A

Average full-time equivalent employees
2,546

2,537

2,543

2,418

2,460

 
.4

3.5

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