KeyCorp Reports First Quarter 2013 Net Income of $196 Million, or $.21 per Common Share Net interest income was $583 million, up $30 million, or 5.4% from first quarter of 2012

Average total loans increased to $52.6 billion, up 6.5% from first quarter of 2012 led by 16.4% growth in commercial and industrial loans

Average total deposits increased to $63.6 billion, up 6.7% from first quarter of 2012

Net loan charge-offs declined 51% from one year ago to $49 million representing 38 basis points of average total loans

First quarter expenses were $681 million including $15 million of charges for efficiency initiative

Cash efficiency ratio improved to 66.0% from 67.7% one year ago

CLEVELAND, April 18, 2013 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced first quarter net income from continuing operations attributable to Key common shareholders of $196 million, or $.21 per common share, compared to $190 million, or $.20 per common share for the fourth quarter of 2012, and $195 million, or $.20 per common share for the first quarter of 2012.   During the first quarter Key incurred $15 million, or $.01 per common share of costs associated with its previously announced efficiency initiative.

SIGNIFICANT EVENTS

Agreement to sell Victory Capital Management and Victory Capital Advisors

  • Victory results moved to discontinued operations for all periods presented
  • Sale expected to close during the third quarter of 2013
  • Estimated after-tax gain to be in the range of $145-$155 million

Continued progress on efficiency initiative

  • Cash efficiency ratio improved to 66.0%
  • Noninterest expense of $15 million, or $.01 per share associated with efficiency initiative during the first quarter of 2013
  • Run rate savings of approximately $105 million annualized

Executing on capital management priorities

  • Key's capital plan received no objection from the Federal Reserve
  • Board authorized a common share repurchase program of up to $426 million
  • Board will consider an increase to the quarterly common share dividend to $.055 per share at May meeting
  • Key seeking no objection from the Federal Reserve to use the gain realized from the sale of Victory to repurchase common shares

"Our first quarter results highlight the strength of our business model and the progress we are making to ensure that Key is well-positioned for future growth," said Chairman and Chief Executive Officer Beth E. Mooney.  "We continued to experience growth in average loans; however, our customers remained cautious regarding the overall strength of the economy and were somewhat restrained in their borrowing during the quarter following a very strong fourth quarter.  Credit quality improved once again and we showed good progress controlling our expenses and improving our cash efficiency ratio to 66% during the quarter."

"Through the first quarter, we have realized $105 million in annualized expense savings, significant progress toward our $200 million goal by the end of 2013," continued Mooney.  "During the second quarter we expect to make further progress on our efficiency efforts as we consolidate branch locations and continue to work toward creating a variable cost base."

Mooney added:  "Capital management also remains a priority for Key.  In the first quarter, we repurchased 6.8 million shares and over the next four quarters, we expect to return a significant amount of our net income to shareholders through our planned capital actions we announced last month at the conclusion of the CCAR review.  Our plan included a share repurchase program of up to $426 million, which the Board approved last month, and an opportunity to increase the quarterly common share dividend by 10% to $.055 per share, which the Board will evaluate at their May meeting."

FIRST QUARTER 2013 FINANCIAL RESULTS

  • Net interest income of $583 million, up $30 million from one year ago
  • Net interest margin of 3.24%, up eight (8) basis points from the first quarter of 2012
  • Continued average loan growth driven by 16.4% increase in commercial, financial and agricultural loans from one year ago
  • Average deposits increased 6.7% from the first quarter of 2012
  • Noninterest expense included $15 million associated with the efficiency initiative
  • Cash efficiency ratio improved to 66.0%, down from 67.7% one year ago
  • Net loan charge-offs decreased 51% from the first quarter of 2012 to .38% of average total loans
  • Maintained solid balance sheet with Tier 1 common equity of 11.39%

 

Selected Financial Highlights




dollars in millions, except per share data

Change 1Q13 vs.





1Q13



4Q12



1Q12



4Q12



1Q12


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

$

196


$

190


$

195



3.2

%


.5

%

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

common share — assuming dilution


.21



.20



.20



5.0



5.0


Return on average total assets from continuing operations


.99

%


.96

%


1.01

%


N/A



N/A


Tier 1 common equity


11.39



11.36



11.55



N/A



N/A


Book value at period end

$

10.89


$

10.78


$

10.26



1.0

%


6.1

%

Net interest margin (TE) from continuing operations


3.24

%


3.37

%


3.16

%


N/A



N/A




















TE = Taxable Equivalent, N/A = Not Applicable

































INCOME STATEMENT HIGHLIGHTS

































Revenue

































dollars in millions











Change 1Q13 vs.





1Q13



4Q12



1Q12



4Q12



1Q12


Net interest income (TE)

$

589


$

607


$

559



(3.0)

%


5.4

%

Noninterest income


425



439



442



(3.2)



(3.8)



Total revenue

$

1,014


$

1,046


$

1,001



(3.1)

%


1.3

%



































TE = Taxable Equivalent
















Taxable-equivalent net interest income was $589 million for the first quarter of 2013, and the net interest margin was 3.24%.  These results compare to taxable-equivalent net interest income of $559 million and a net interest margin of 3.16% for the first quarter of 2012.  The increase in net interest income and the net interest margin was primarily a result of a change in funding mix from the redemption of certain trust preferred securities, maturity of long-term debt, and maturity of higher-costing certificates of deposit during 2012.

Compared to the fourth quarter of 2012, taxable-equivalent net interest income decreased by $18 million, and the net interest margin declined by 13 basis points.  The decrease in net interest income was primarily due to a lower day count and a decline in the net interest margin, which was partially offset by an increase in average earning asset balances.  The decline in the net interest margin was largely attributable to lower yields on loans and investment securities and an increase in short-term investments.

Noninterest Income (a)



dollars in millions












Change 1Q13 vs.






1Q13



4Q12



1Q12



4Q12



1Q12


Trust and investment services income


$

95


$

95


$

96



-



(1.0)

%

Investment banking and debt placement fees



79



110



61



(28.2)

%


29.5


Service charges on deposit accounts



69



75



68



(8.0)



1.5


Operating lease income and other leasing gains



23



19



52



21.1



(55.8)


Corporate services income



45



41



44



9.8



2.3


Cards and payments income



37



38



29



(2.6)



27.6


Corporate-owned life insurance income



30



36



30



(16.7)




Consumer mortgage income



7



11



9



(36.4)



(22.2)


Net gains (losses) from principal investing



8



2



35



300.0



(77.1)


Other income



32



12



18



166.7



77.8



Total noninterest income


$

425


$

439


$

442



(3.2)

%


(3.8)

%




(a) The noninterest income line items in the table above have been changed for the current quarter and all prior quarters to reflect Key's current business mix.


Key's noninterest income was $425 million for the first quarter of 2013, compared to $442 million for the year-ago quarter.  Operating lease income and other leasing gains decreased $29 million primarily due to a $20 million gain on the early termination of a leveraged lease one year ago, and net gains (losses) from principal investing decreased by $27 million.  These decreases were partially offset by an $18 million increase in investment banking and debt placement fees and a $14 million increase in other income.

Compared to the fourth quarter of 2012, noninterest income decreased by $14 million.  Investment banking and debt placement fees declined $31 million.  Service charges on deposit accounts and corporate-owned life insurance income each decreased $6 million.  These declines in noninterest income were partially offset by a $6 million increase in net gains (losses) from principal investing and a $20 million increase in other income.

 

Noninterest Expense



dollars in millions












Change 1Q13 vs.






1Q13



4Q12



1Q12



4Q12



1Q12


Personnel expense


$

391


$

422


$

372



(7.3)

%


5.1

%

Nonpersonnel expense



290



312



307



(7.1)



(5.5)



Total noninterest expense


$

681


$

734


$

679



(7.2)

%


.3

%





N/M = Not Meaningful

Key's noninterest expense was $681 million for the first quarter of 2013, compared to $679 million for the same period last year.  Personnel expense increased $19 million due to several factors – an increase in technology contract labor; higher incentive compensation expense accruals; and severance expense associated with Key's efficiency initiative.  Nonpersonnel expense decreased $17 million from one year ago.  Marketing expense, operating lease expense and various other miscellaneous expenses decreased from the year ago quarter.  These declines were partially offset by an increase of $11 million related to the amortization of the intangible assets associated with the third quarter 2012 acquisitions of the previously announced credit card portfolio as well as the branches in Western New York.

Compared to the fourth quarter of 2012, noninterest expense decreased by $53 million.  Personnel expense declined $31 million as salaries, technology contract labor, incentive compensation, employee benefits, stock-based compensation and severance expenses were all down from the fourth quarter of 2012.  Nonpersonnel expense decreased $22 million from the fourth quarter of 2012.  Business services and professional fees declined $19 million, and marketing expense decreased $14 million. These decreases were partially offset by an increase in the provision (credit) for losses on lending-related commitments, which was an expense of $3 million for the current quarter compared to a credit of $14 million for the prior quarter.

BALANCE SHEET HIGHLIGHTS

As of March 31, 2013 and December 31, 2012, Key had total assets of $89.2 billion compared to $87.4 billion at March 31, 2012.

Average Loans
























dollars in millions











Change 3-31-13 vs.





3-31-13


12-31-12


3-31-12


12-31-12


3-31-12


Commercial, financial and agricultural (a)


$

23,317


$

22,436


$

20,031



3.9

%


16.4

%

Other commercial loans



13,493 



13,494



14,730



N/M



(8.4)


Total home equity loans



10,200 



10,218



9,694



(.2)



5.2


Other consumer loans



5,616 



5,711



4,975



(1.7)



12.9



Total loans


$

52,626


$

51,859


$

49,430



1.5

%


6.5

%





















(a) Commercial, financial and agricultural average balance for the three months ended March 31, 2013 and December 31, 2012 includes $91 million and $90 million of assets from commercial credit cards, respectively.


Average loans were $52.6 billion for the first quarter of 2013, an increase of $3.2 billion compared to the first quarter of 2012.  Commercial, financial and agricultural loans grew by $3.3 billion over the year-ago quarter, with strong growth across Key's corporate and middle market segments.  In addition, the third quarter 2012 credit card portfolio and Western New York branch acquisitions added $1 billion of mostly consumer loans.  This growth was partially offset by managed declines in the commercial real estate portfolio, the equipment lease portfolio, which included the early termination of certain leveraged leases in the exit portfolio in 2012, and run-off of consumer loans in the designated exit portfolio. 

Compared to the fourth quarter of 2012, average loans increased by $767 million.  This average loan growth was attributable to an increase in commercial, financial and agricultural loans, partially offset by a decrease in home equity and other consumer loans.

Key originated approximately $8.5 billion in new or renewed lending commitments to consumers and businesses during the first quarter of 2013, compared to $10.2 billion during the fourth quarter of 2012 and $8.3 billion during the first quarter of 2012.

Average Deposits



































dollars in millions












Change 3-31-13 vs.





3-31-13


12-31-12


3-31-12


12-31-12


3-31-12


Non-time deposits


$

56,273


$

56,229


$

49,560



.1

%


13.5

%

Certificates of deposits ($100,000 or more)



2,911



2,992



4,036



(2.7)



(27.9)


Other time deposits



4,451



4,714



6,035



(5.6)



(26.2)



Total deposits


$

63,635


$

63,935


$

59,631



(.5)

%


6.7

%



















Cost of interest-bearing deposits



.43

%


.47

%


.76

%


N/A



N/A






































N/A = Not Applicable

















Average deposits totaled $63.6 billion for the first quarter of 2013, an increase of $4 billion compared to the year-ago quarter.  The growth reflects an increase in demand deposits of $2.9 billion and interest-bearing non-time deposits of $4.1 billion (including the impact of Key's third quarter 2012 Western New York branch acquisition, which added $2 billion of mostly interest-bearing non-time deposits).  This deposit growth was partially offset by $3 billion of run-off from one year ago in certificates of deposit and other time deposits.

Compared to the fourth quarter of 2012, average deposits decreased by $300 million.  This decline was primarily due to a decrease in deposits in foreign office.

ASSET QUALITY


































dollars in millions












Change 1Q13 vs.





1Q13



4Q12



1Q12



4Q12



1Q12


Net loan charge-offs


$

49


$

58


$

101



(15.5)

%


(51.5)

%

Net loan charge-offs to average total loans



.38 

%


.44

%


.82

%


N/A



N/A


Nonperforming loans at period end (a)


$

650


$

674


$

666



(3.6)



(2.4)


Nonperforming assets at period end



705 



735



767



(4.1)



(8.1)


Allowance for loan and lease losses



893 



888



944



.6



(5.4)


Allowance for loan and lease losses to nonperforming loans



137 

%


132

%


142

%


N/A



N/A


Provision (credit) for loan and lease losses


$

55


$

57


$

42



(3.5)

%


31.0

%



































(a)  March 31, 2013 and December 31, 2012 amounts exclude $22 million and $23 million, respectively, of purchased credit impaired loans acquired in July 2012.


















N/A = Not Applicable, N/M = Not Meaningful

















Key's provision for loan and lease losses was $55 million for the first quarter of 2013, compared to $57 million for the fourth quarter of 2012 and $42 million for the year-ago quarter.  Key's allowance for loan and lease losses was $893 million, or 1.70% of total period-end loans at March 31, 2013, compared to 1.68% at December 31, 2012, and 1.92% at March 31, 2012.

Net loan charge-offs for the first quarter of 2013 totaled $49 million, or .38% of average total loans.  These results compare to $58 million, or .44% for the fourth quarter of 2012, and $101 million, or .82% for the same period last year. 

At March 31, 2013, Key's nonperforming loans totaled $650 million and represented 1.24% of period-end portfolio loans, compared to 1.28% at December 31, 2012 and 1.35% at March 31, 2012.  Nonperforming loans at December 31, 2012 included $46 million of loans related to the regulatory guidance issued in the second and third quarters of 2012.  Nonperforming assets at March 31, 2013, totaled $705 million and represented 1.34% of period-end portfolio loans and OREO and other nonperforming assets, compared to 1.39% at December 31, 2012, and 1.55% at March 31, 2012.  OREO balances declined $40 million from one year ago to $21 million at March 31, 2013.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2013.

Capital Ratios






















3-31-13



12-31-12



3-31-12


Tier 1 common equity (a), (b)


11.39 

%


11.36

%


11.55

%

Tier 1 risk-based capital (a)


12.18 



12.15



13.29


Total risk based capital (a)


15.01 



15.13



16.68


Tangible common equity to tangible assets (b)


10.24 



10.15



10.26













(a)      3-31-13 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" and "Tier 1 common equity."  The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.