KeyCorp Reports Fourth Quarter 2015 Net Income Of $224 Million, Or $.27 Per Common Share And Full-Year Net Income Of $892 Million, Or $1.05 Per Common Share

Positive operating leverage for 2015, with pre-provision net revenue up 5%

Revenue growth for the quarter and full year

Full-year average loans up 5% from 2014, driven by a 12% increase in commercial, financial and agricultural loans

Credit quality remains strong, with net charge-offs to average loans of .25%

Announced acquisition of First Niagara Financial Group earlier in the quarter

Merger-related costs and pension settlement charge total $10 million, or $.01 per common share, for the quarter

Jan 21, 2016, 06:30 ET from KeyCorp

CLEVELAND, Jan. 21, 2016 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced fourth quarter net income from continuing operations attributable to Key common shareholders of $224 million, or $.27 per common share, compared to $216 million, or $.26 per common share, for the third quarter of 2015, and $246 million, or $.28 per common share, for the fourth quarter of 2014. During the fourth quarter of 2015, Key incurred merger-related costs and a pension settlement charge totaling $10 million, or $.01 per common share. Key incurred pension settlement charges of $19 million, or $.01 per common share, during the third quarter of 2015, and $3 million during the fourth quarter of 2014.

For the year ended December 31, 2015, net income from continuing operations attributable to Key common shareholders was $892 million, or $1.05 per common share, compared to $917 million, or $1.04 per common share, for the same period one year ago.

"We were pleased with our fourth quarter and full-year results," said Chairman and Chief Executive Officer Beth Mooney. "Our fourth quarter results reflect continued revenue growth, well-managed expenses, and strong credit quality."

"Full-year results reflect positive operating leverage, driven by a 3% increase in revenue, benefiting from continued loan growth and ongoing momentum in our fee-based businesses. Investment banking and debt placement fees had another record year, and our cards and payments income was up 10%. Expenses reflect the ongoing investments we have made in our businesses to drive revenue growth, including the addition of client-facing personnel across our franchise," continued Mooney. "Capital ratios also remain strong, and reflect $460 million of common share repurchases and a 16% increase in our common share dividend for the year."

"Additionally, we continue to make good progress on our announced acquisition of First Niagara Financial Group. Integration teams, including some of the top talent at both Key and First Niagara, are focused on the approval process and ensuring a smooth transition and sustained momentum," added Mooney.

FOURTH QUARTER 2015 FINANCIAL RESULTS, from continuing operations

Compared to Fourth Quarter of 2014

  • Average loans up 5%, driven by 14% growth in commercial, financial and agricultural loans
  • Average deposits, excluding deposits in foreign office, up 3%, due to strength in the commercial mortgage servicing business and inflows from commercial and consumer clients
  • Net interest income (taxable-equivalent) up $22 million, attributable to higher earning asset balances partially offset by lower earning asset yields
  • Noninterest income down $5 million, due to lower net gains from principal investing and trust and investment services income, partially offset by increases in cards and payments income, mortgage servicing fees, and other income
  • Noninterest expense up $32 million, primarily attributable to an increase in personnel expense related to investments made across the business and higher employee benefits expense, along with merger-related costs
  • Credit quality remained strong, with net loan charge-offs to average loans of .25%

Compared to Third Quarter of 2015

  • Average loans up .5%, driven by a 2% increase in commercial, financial and agricultural loans
  • Average deposits, excluding deposits in foreign office, up 2%, due to seasonal and short-term deposit inflows from commercial clients, along with growth in NOW and money market deposit accounts and certificates of deposit
  • Net interest income (taxable-equivalent) up $12 million, driven by higher earning asset yields and loan fees
  • Noninterest income up $15 million, primarily due to higher investment banking and debt placement fees
  • Noninterest expense up $12 million, primarily driven by higher incentive and stock-based compensation, merger-related costs, and increased costs associated with Key's continuous improvement and efficiency efforts, partially offset by lower employee benefits expense
  • Strong credit quality, with net loan charge-offs to average loans remaining below our targeted range of 40-60 basis points

 

Selected Financial Highlights

dollars in millions, except per share data

Change 4Q15 vs.

4Q15

3Q15

4Q14

3Q15

4Q14

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

$

224

$

216

$

246

3.7

%

(8.9)

%

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

.27

.26

.28

3.8

(3.6)

Return on average total assets from continuing operations

.97

%

.95

%

1.12

%

N/A

N/A

Common Equity Tier 1 (a), (b)

10.95

10.47

N/A

N/A

N/A

Tier 1 common equity (a)

N/A

N/A

11.17

%

N/A

N/A

Book value at period end

$

12.51

$

12.47

$

11.91

.3

%

5.0

%

Net interest margin (TE) from continuing operations

2.87

%

2.87

%

2.94

%

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 "Common Equity Tier 1" (compliance date of January 1, 2015, under the Regulatory Capital Rules) and "Tier 1 common equity" (prior to January 1, 2015).  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.

 (b)

12-31-15 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

INCOME STATEMENT HIGHLIGHTS

Revenue

dollars in millions

Change 4Q15 vs.

4Q15

3Q15

4Q14

3Q15

4Q14

Net interest income (TE)

$

610

$

598

$

588

2.0

%

3.7

%

Noninterest income

485

470

490

3.2

(1.0)

Total revenue

$

1,095

$

1,068

$

1,078

2.5

%

1.6

%

TE = Taxable Equivalent

Taxable-equivalent net interest income was $610 million for the fourth quarter of 2015, and the net interest margin was 2.87%.  These results compare to taxable-equivalent net interest income of $588 million and a net interest margin of 2.94% for the fourth quarter of 2014.  The $22 million increase in net interest income reflects higher earning asset balances, partially offset by lower earning asset yields, which also drove the decline in the net interest margin.

Compared to the third quarter of 2015, taxable-equivalent net interest income increased by $12 million, and the net interest margin was unchanged. The increase in net interest income was primarily attributable to higher earning asset yields and loan fees.  The net interest margin was stable as the impact of higher earning asset yields and loan fees was offset by higher levels of excess liquidity driven by short-term commercial deposit growth.

Noninterest Income

dollars in millions

Change 4Q15 vs.

4Q15 

3Q15 

4Q14 

3Q15 

4Q14 

Trust and investment services income

$

105

$

108

$

112

(2.8)

%

(6.3)

%

Investment banking and debt placement fees

127

109

126

16.5

.8

Service charges on deposit accounts

64

68

64

(5.9)

Operating lease income and other leasing gains

15

15

15

Corporate services income

55

57

53

(3.5)

3.8

Cards and payments income

47

47

43

9.3

Corporate-owned life insurance income

36

30

38

20.0

(5.3)

Consumer mortgage income

2

3

3

(33.3)

(33.3)

Mortgage servicing fees

15

11

11

36.4

36.4

Net gains (losses) from principal investing

11

18

N/M

N/M

Other income

19

11

7

72.7

171.4

Total noninterest income

$

485

$

470

$

490

3.2

%

(1.0)

%

N/M = Not Meaningful

Key's noninterest income was $485 million for the fourth quarter of 2015, compared to $490 million for the year-ago quarter.  The slight decrease from the prior year was predominantly attributable to a decline in net gains from principal investing of $18 million and $7 million of lower trust and investment services income reflecting market variability. These decreases were partially offset by a $12 million increase in other income and growth in some of Key's other core fee-based businesses, including $4 million of higher cards and payments income due to higher credit card and merchant fees and a $4 million increase in mortgage servicing fees.

Compared to the third quarter of 2015, noninterest income increased by $15 million.  The primary driver was $18 million in higher investment banking and debt placement fees, marking a strong finish to a record year. Additionally, there was an $8 million increase in other income and a $6 million increase in corporate-owned life insurance, reflecting normal seasonality. Partially offsetting these increases were a decrease of $11 million in net gains from principal investing and a decline of $4 million in service charges on deposit accounts.

Noninterest Expense

dollars in millions

Change 4Q15 vs.

4Q15

3Q15

4Q14

3Q15

4Q14

Personnel expense

$

429

$

426

$

409

.7

%

4.9

%

Nonpersonnel expense

307

298

295

3.0

4.1

Total noninterest expense

$

736

$

724

$

704

1.7

%

4.5

%

Key's noninterest expense was $736 million for the fourth quarter of 2015. During the quarter, Key incurred merger-related costs of $6 million, a pension settlement charge of $4 million, and costs associated with continuous improvement and efficiency efforts of $10 million. These costs impacted both personnel and nonpersonnel expense.

Compared to $704 million for the fourth quarter of last year, the increase in noninterest expense was primarily attributable to a $20 million increase in personnel expense related to investments made across the business, along with an increase in employee benefits expense. Nonpersonnel expense increased $12 million, most notably from higher business services and professional fees, partially due to merger-related costs.

Compared to the third quarter of 2015, noninterest expense increased by $12 million. This increase was primarily attributable to higher incentive and stock-based compensation expense as a result of a strong capital markets performance, partially offset by a decrease in employee benefits expense due to a lower pension settlement charge. Additionally, $6 million in merger-related costs contributed to the increase, largely attributable to higher business services and professional fees. Costs associated with Key's continuous improvement and efficiency efforts also increased $6 million.

BALANCE SHEET HIGHLIGHTS

In the fourth quarter of 2015, Key had average assets of $96.1 billion compared to $91.1 billion in the fourth quarter of 2014 and $94.8 billion in the third quarter of 2015.  Compared to the third quarter of 2015, Key experienced more short-term commercial deposit inflows, which contributed to higher levels of liquidity and drove the increase in average earning assets in the fourth quarter of 2015.

Average Loans

dollars in millions

Change 12-31-15 vs.

12-31-15

9-30-15

12-31-14

9-30-15

12-31-14

Commercial, financial and agricultural (a)

$

30,884

$

30,374

$

27,188

1.7

%

13.6

%

Other commercial loans

12,996

13,098

13,357

(.8)

(2.7)

Total home equity loans

10,418

10,510

10,639

(.9)

(2.1)

Other consumer loans

5,278

5,299

5,357

(.4)

(1.5)

Total loans

$

59,576

$

59,281

$

56,541

.5

%

5.4

%

(a)

Commercial, financial and agricultural average loan balances include $87 million, $88 million, and $90 million of assets from commercial credit cards at December 31, 2015, September 30, 2015, and December 31, 2014, respectively.

Average loans were $59.6 billion for the fourth quarter of 2015, an increase of $3 billion compared to the fourth quarter of 2014.  The loan growth occurred in the commercial, financial and agricultural portfolio, which increased $3.7 billion and was broad-based across Key's commercial lines of business.  Consumer loans declined $300 million as a result of the run-off in Key's consumer exit portfolios.  

Compared to the third quarter of 2015, average loans increased by $295 million, driven by commercial, financial and agricultural loans, which grew $510 million.

Average Deposits

dollars in millions

Change 12-31-15 vs.

12-31-15

9-30-15

12-31-14

9-30-15

12-31-14

Non-time deposits (a)

$

66,270

$

64,928

$

63,541

2.1

%

4.3

%

Certificates of deposit ($100,000 or more)

2,150

1,985

2,277

8.3

(5.6)

Other time deposits

3,047

3,064

3,306

(.6)

(7.8)

Total deposits

$

71,467

$

69,977

$

69,124

2.1

%

3.4

%

Cost of total deposits (a)

.15

%

.15

%

.15

%

N/A

N/A

(a)

Excludes deposits in foreign office.

N/A = Not Applicable

Average deposits, excluding deposits in foreign office, totaled $71.5 billion for the fourth quarter of 2015, an increase of $2.3 billion compared to the year-ago quarter.  NOW and money market deposit accounts increased by $2.8 billion, reflecting growth in the commercial mortgage servicing business and inflows from commercial and consumer clients.  This increase was partially offset by declines in certificates of deposit and other time deposits.

Compared to the third quarter of 2015, average deposits, excluding deposits in foreign office, increased by $1.5 billion.  This increase was driven by both seasonal and short-term deposit inflows from commercial clients, along with growth in NOW and money market deposit accounts and certificates of deposit.

ASSET QUALITY

dollars in millions

Change 4Q15 vs.

4Q15

3Q15

4Q14

3Q15

4Q14

Net loan charge-offs

$

37

$

41

$

32

(9.8)

%

15.6

%

Net loan charge-offs to average total loans

.25

%

.27

%

.22

%

N/A

N/A

Nonperforming loans at period end (a)

$

387

$

400

$

418

(3.3)

%

(7.4)

%

Nonperforming assets at period end

403

417

436

(3.4)

(7.6)

Allowance for loan and lease losses

796

790

794

.8

.3

Allowance for loan and lease losses to nonperforming loans

205.7

%

197.5

%

190.0

%

N/A

N/A

Provision for credit losses

$

45

$

45

$

22

104.5

%

(a) 

Loan balances exclude $11 million, $12 million, and $13 million of purchased credit impaired loans at December 31, 2015, September 30, 2015, and December 31, 2014, respectively.

N/A = Not Applicable

Key's provision for credit losses was $45 million for the fourth quarter of 2015, compared to $22 million for the fourth quarter of 2014 and $45 million for the third quarter of 2015.  Key's allowance for loan and lease losses was $796 million, or 1.33% of total period-end loans, at December 31, 2015, compared to 1.38% at December 31, 2014, and 1.31% at September 30, 2015. 

Net loan charge-offs for the fourth quarter of 2015 totaled $37 million, or .25% of average total loans.  These results compare to $32 million, or .22%, for the fourth quarter of 2014, and $41 million, or .27%, for the third quarter of 2015.  

At December 31, 2015, Key's nonperforming loans totaled $387 million and represented .65% of period-end portfolio loans, compared to .73% at December 31, 2014, and .67% at September 30, 2015.  Nonperforming assets at December 31, 2015 totaled $403 million and represented .67% of period-end portfolio loans and OREO and other nonperforming assets, compared to .76% at December 31, 2014, and .69% at September 30, 2015.  

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at December 31, 2015.

Capital Ratios

12-31-15

9-30-15

12-31-14

Common Equity Tier 1 (a), (b)

10.95

%

10.47

%

N/A

Tier 1 common equity (b)

N/A

N/A

11.17

%

Tier 1 risk-based capital (a)

11.36

%

10.87

%

11.90

Total risk based capital (a)

12.98

12.47

13.89

Tangible common equity to tangible assets (b)

9.98

9.90

9.88

Leverage (a)

10.71

10.68

11.26

(a)

12-31-15 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 "Common Equity Tier 1" (compliance date of January 1, 2015, under the Regulatory Capital Rules) and "Tier 1 common equity" (prior to January 1, 2015). 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.

As shown in the preceding table, at December 31, 2015, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 10.95% and 11.36%, respectively.  In addition, the tangible common equity ratio was 9.98% at December 31, 2015.

In October 2013, federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules").  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.  Key's estimated Common Equity Tier 1 ratio as calculated under the fully phased-in Regulatory Capital Rules was 10.85% at December 31, 2015.  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 4Q15 vs.

4Q15

3Q15

4Q14

3Q15

4Q14

Shares outstanding at beginning of period

835,285

843,608

868,477

(1.0)

%

(3.8)

%

Common shares repurchased

(8,386)

(9,786)

N/M

N/M

Shares reissued (returned) under employee benefit plans

466

63

712

639.7

(34.6)

Shares outstanding at end of period

835,751

835,285

859,403

.1

%

(2.8)

%

N/M = Not Meaningful

During 2015, Key repurchased $460 million of common shares and increased its quarterly common share dividend by 15% in the second quarter.

As previously reported, Key's existing share repurchase program is suspended through the second quarter of 2016. Share repurchases are expected to be included in the upcoming 2016 Comprehensive Capital Analysis and Review submission.

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. 

As previously reported, in the third quarter of 2015, Key enhanced the approach used to determine the commercial reserve factors used in estimating the quantitative component of the commercial allowance for loan and lease losses. In addition, Key began utilizing an enhanced framework to quantify commercial allowance for loan and lease loss adjustments resulting from qualitative factors not fully captured within the statistical analysis of incurred loss. These methodology enhancements did not create a significant difference in provisioning between segments.

Major Business Segments

dollars in millions

Change 4Q15 vs.

4Q15

3Q15

4Q14

3Q15

4Q14

Revenue from continuing operations (TE)

Key Community Bank

$

588

$

579

$

558

1.6

%

5.4

%

Key Corporate Bank

479

454

460

5.5

4.1

Other Segments

32

35

62

(8.6)

(48.4)

Total segments

1,099

1,068

1,080

2.9

1.8

Reconciling Items

(4)

(2)

N/M

N/M

Total

$

1,095

$

1,068

$

1,078

2.5

%

1.6

%

Income (loss) from continuing operations attributable to Key

Key Community Bank

$

68

$

71

$

62

(4.2)

%

9.7

%

Key Corporate Bank

145

138

149

5.1

(2.7)

Other Segments

23

26

38

(11.5)

(39.5)

Total segments

236

235

249

.4

(5.2)

Reconciling Items

(6)

(13)

2

N/M

N/M

Total

$

230

$

222

$

251

3.6

%

(8.4)

%

TE = Taxable Equivalent, N/M = Not Meaningful

 

Key Community Bank

dollars in millions

Change 4Q15 vs.

4Q15

3Q15

4Q14

3Q15

4Q14

Summary of operations

Net interest income (TE)

$

388

$

379

$

362

2.4

%

7.2

%

Noninterest income

200

200

196

2.0

Total revenue (TE)

588

579

558

1.6

5.4

Provision for credit losses

20

18

11

11.1

81.8

Noninterest expense

459

448

449

2.5

2.2

Income (loss) before income taxes (TE)

109

113

98

(3.5)

11.2

Allocated income taxes (benefit) and TE adjustments

41

42

36

(2.4)

13.9

Net income (loss) attributable to Key

$

68

$

71

$

62

(4.2)

%

9.7

%

Average balances

Loans and leases

$

30,925

$

31,039

$

30,478

(.4)

%

1.5

%

Total assets

32,997

33,090

32,558

(.3)

1.3

Deposits

52,219

51,234

50,851

1.9

2.7

Assets under management at period end

$

33,983

$

35,158

$

39,157

(3.3)

%

(13.2)

%

TE = Taxable Equivalent

 

Additional Key Community Bank Data

dollars in millions

Change 4Q15 vs.

4Q15

3Q15

4Q14

3Q15

4Q14

Noninterest income 

Trust and investment services income 

$

73

$

73

$

75

(2.7)

%

Service charges on deposit accounts 

54

56

54

(3.6)

%

Cards and payments income 

44

43

40

2.3

10.0

Other noninterest income 

29

28

27

3.6

7.4

Total noninterest income 

$

200

$

200

$

196

2.0

%

Average deposit balances

NOW and money market deposit accounts

$

28,861

$

28,568

$

27,691

1.0

%

4.2

%

Savings deposits

2,330

2,362

2,378

(1.4)

(2.0)

Certificates of deposit ($100,000 or more)

1,687

1,560

1,793

8.1

(5.9)

Other time deposits

3,045

3,060

3,301

(.5)

(7.8)

Deposits in foreign office

208

271

332

(23.2)

(37.3)

Noninterest-bearing deposits

16,088

15,413

15,356

4.4

4.8

Total deposits 

$

52,219

$

51,234

$

50,851

1.9

%

2.7

%

Home equity loans 

Average balance

$

10,203

$

10,281

$

10,365

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

71

%

71

%

71

%

Percent first lien positions

61

60

60

Other data

Branches

966

972

994

Automated teller machines

1,256

1,259

1,287

 

Key Community Bank Summary of Operations

  • Positive operating leverage from prior year
  • Net income increased to $68 million, up 9.7% from prior year
  • Commercial, financial and agricultural loan growth of $672 million, or 5.6% from prior year
  • Average deposits up $1.4 billion, or 2.7% from the prior year

Key Community Bank recorded net income attributable to Key of $68 million for the fourth quarter of 2015, compared to net income attributable to Key of $62 million for the year-ago quarter.

Taxable-equivalent net interest income increased by $26 million, or 7.2%, from the fourth quarter of 2014 due to increases in average loans and leases of 1.5% and average deposits of 2.7% from one year ago.  Commercial, financial and agricultural loans grew by $672 million, or 5.6%, from the prior year.

Noninterest income increased $4 million, or 2.0%, from the year-ago quarter.  This growth was driven by increases in cards and payments income of $4 million and strong investment banking and debt placement fees, which increased $4 million from one year ago. These increases were partially offset by lower trust and investment services income due to weaker market trends.

The provision for credit losses increased by $9 million, or 82%, from the fourth quarter of 2014.  Net loan charge-offs decreased $5 million from the same period one year ago. 

Noninterest expense increased by $10 million, or 2.2%, from the year-ago quarter.  Personnel expense increased by $8 million, driven by hiring across the franchise as well as higher performance-based compensation, while nonpersonnel expense increased by $2 million.

Key Corporate Bank

dollars in millions

Change 4Q15 vs.

4Q15

3Q15

4Q14

3Q15

4Q14

Summary of operations

Net interest income (TE)

$

224

$

220

$

219

1.8

%

2.3

%

Noninterest income

255

234

241

9.0

5.8

Total revenue (TE)

479

454

460

5.5

4.1

Provision for credit losses

26

30

7

(13.3)

271.4

Noninterest expense

254

246

244

3.3

4.1

Income (loss) before income taxes (TE)

199

178

209

11.8

(4.8)

Allocated income taxes and TE adjustments

52

42

60

23.8

(13.3)

Net income (loss)

147

136

149

8.1

(1.3)

Less: Net income (loss) attributable to noncontrolling interests

2

(2)

N/M

N/M

Net income (loss) attributable to Key

$

145

$

138

$

149

5.1

%

(2.7)

%

Average balances

Loans and leases   

$

26,981

$

26,425

$

23,798

2.1

%

13.4

%

Loans held for sale   

820

918

855

(10.7)

(4.1)

Total assets

32,718

32,163

28,997

1.7

12.8

Deposits

19,081

18,809

18,355

1.4

4.0

TE = Taxable Equivalent, N/M = Not Meaningful

 

Additional Key Corporate Bank Data

dollars in millions

Change 4Q15 vs.

4Q15

3Q15

4Q14

3Q15

4Q14

Noninterest income

Trust and investment services income

$

32

$

35

$

37

(8.6)

%

(13.5)

%

Investment banking and debt placement fees

125

107

125

16.8

Operating lease income and other leasing gains

13

16

17

(18.8)

(23.5)

Corporate services income

44

46

43

(4.3)

2.3

Service charges on deposit accounts

10

11

10

(9.1)

Cards and payments income

3

4

3

(25.0)

Payments and services income

57

61

56

(6.6)

1.8

Mortgage servicing fees

15

11

11

36.4

36.4

Other noninterest income

13

4

(5)

225.0

N/M

Total noninterest income

$

255

$

234

$

241

9.0

%

5.8

%

N/M = Not Meaningful

 

Key Corporate Bank Summary of Operations

  • Record year for investment banking and debt placement fees
  • Revenue up 4.1% from the prior year
  • Average loan and lease balances up 13.4% from the prior year

Key Corporate Bank recorded net income attributable to Key of $145 million for the fourth quarter of 2015, a decrease of $4 million, or 2.7%, from the same period one year ago.

Taxable-equivalent net interest income increased by $5 million, or 2.3%, compared to the fourth quarter of 2014.  Average earning assets increased $3.1 billion, or 12.1%, from the year-ago quarter, primarily driven by growth in commercial, financial and agricultural loans. Average deposit balances increased $726 million, or 4.0%, from the year-ago quarter, driven by commercial mortgage servicing deposits.

Noninterest income was up $14 million, or 5.8% from the prior year.  Other noninterest income increased $18 million mostly driven by gains related to the disposition of certain investments held by the Real Estate Capital line of business. Mortgage servicing fees increased $4 million, or 36.4%, due to higher transaction volumes.  Partially offsetting these increases were declines in trust and investment services income of $5 million and operating lease income and other leasing gains of $4 million.

The provision for credit losses increased $19 million, or 271.4%,  from the same period one year ago, primarily due to higher net loan charge-offs, as well as a 13.4% increase in average loan and lease balances.

Noninterest expense increased by $10 million, or 4.1%, from the fourth quarter of 2014.  This increase was primarily driven by higher personnel expense due to new hires across the platform and an increase in business services and professional fees.

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 $23 million for the fourth quarter of 2015, compared to $38 million for the same period last year.  This decline was primarily attributable to lower net gains from principal investing.

*****

KeyCorp was organized more than 160 years ago and is headquartered in Cleveland, Ohio.  One of the nation's largest bank-based financial services companies, Key had assets of approximately $95.1 billion at December 31, 2015.

Key provides deposit, lending, cash management and investment services to individuals and small and mid-sized businesses in 12 states under the name KeyBank National Association.  Key also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets trade name.  For more information, visit https://www.key.com/.  KeyBank is Member FDIC.

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do not relate strictly to historical or current facts. Forward-looking statements usually can be identified by the use of words such as "goal," "objective," "plan," "expect," "assume," "anticipate," "intend," "project," "believe," "estimate," or other words of similar meaning. Forward-looking statements provide our current expectations or forecasts of future events, circumstances, results, or aspirations. Forward-looking statements, by their nature, are subject to assumptions, risks and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements. There is no assurance that any list of risks and uncertainties or risk factors is complete.  Factors that could cause Key's actual results to differ from those described in the forward-looking statements can be found in KeyCorp's Form 10-K for the year ended December 31, 2014, 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 and increasing regulation of the U.S. financial services industry.  Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.

Notes to Editors: A live Internet broadcast of KeyCorp's conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts' questions can be accessed through the Investor Relations section at https://www.key.com/ir at 10:00 a.m. ET, on Thursday, January 21, 2016.  An audio replay of the call will be available through January 28, 2016.

*****

 

Financial Highlights 

(dollars in millions, except per share amounts)

Three months ended

12-31-15

9-30-15

12-31-14

Summary of operations 

Net interest income (TE)

$

610

$

598

$

588

Noninterest income

485

470

490

Total revenue (TE) 

1,095

1,068

1,078

Provision for credit losses

45

45

22

Noninterest expense

736

724

704

Income (loss) from continuing operations attributable to Key

230

222

251

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

(4)

(3)

2

Net income (loss) attributable to Key 

226

219

253

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

$

224

$

216

$

246

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

(4)

(3)

2

Net income (loss) attributable to Key common shareholders

220

213

248

Per common share 

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

$

.27

$

.26

$

.29

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

(.01)

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

.27

.26

.29

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

.27

.26

.28

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

(.01)

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

.26

.25

.28

Cash dividends paid 

.075

.075

.065

Book value at period end 

12.51

12.47

11.91

Tangible book value at period end 

11.22

11.17

10.65

Market price at period end 

13.19

13.01

13.90

Performance ratios 

From continuing operations: 

Return on average total assets 

.97

%

.95

%

1.12

%

Return on average common equity 

8.51

8.30

9.50

Return on average tangible common equity  (c)

9.50

9.27

10.64

Net interest margin (TE) 

2.87

2.87

2.94

Cash efficiency ratio  (c)

66.4

66.9

64.4

From consolidated operations: 

Return on average total assets 

.93

%

.92

%

1.10

%

Return on average common equity 

8.36

8.19

9.58

Return on average tangible common equity  (c)

9.33

9.14

10.72

Net interest margin (TE) 

2.84

2.84

2.93

Loan to deposit  (d)

87.8

89.3

84.6

Capital ratios at period end 

Key shareholders' equity to assets  

11.30

%

11.22

%

11.22

%

Key common shareholders' equity to assets 

10.99

10.91

10.91

Tangible common equity to tangible assets  (c)

9.98

9.90

9.88

Common Equity Tier 1  (c), (e)

10.95

10.47

N/A 

Tier 1 common equity  (c)

N/A 

N/A 

11.17

Tier 1 risk-based capital  (e)

11.36

10.87

11.90

Total risk-based capital  (e)

12.98

12.47

13.89

Leverage  (e)

10.71

10.68

11.26

Asset quality — from continuing operations 

Net loan charge-offs 

$

37

$

41

$

32

Net loan charge-offs to average loans  

.25

%

.27

%

.22

%

Allowance for loan and lease losses 

$

796

$

790

$

794

Allowance for credit losses

852

844

829

Allowance for loan and lease losses to period-end loans 

1.33

%

1.31

%

1.38

%

Allowance for credit losses to period-end loans 

1.42

1.40

1.44

Allowance for loan and lease losses to nonperforming loans 

205.7

197.5

190.0

Allowance for credit losses to nonperforming loans  

220.2

211.0

198.3

Nonperforming loans at period end  (f)

$

387

$

400

$

418

Nonperforming assets at period end 

403

417

436

Nonperforming loans to period-end portfolio loans 

.65

%

.67

%

.73

%

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

.67

.69

.76

Trust and brokerage assets 

Assets under management 

$

33,983

$

35,158

$

39,157

Nonmanaged and brokerage assets  

47,681

46,796

49,147

Other data 

Average full-time equivalent employees 

13,359

13,555

13,590

Branches 

966

972

994

Taxable-equivalent adjustment 

$

8

$

7

$

6

 

Financial Highlights (continued) 

(dollars in millions, except per share amounts) 

Twelve months ended

12-31-15

12-31-14

Summary of operations 

Net interest income (TE) 

$

2,376

$

2,317

Noninterest income 

1,880

1,797

Total revenue (TE) 

4,256

4,114

Provision for credit losses 

166

57

Noninterest expense 

2,840

2,761

Income (loss) from continuing operations attributable to Key 

915

939

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

1

(39)

Net income (loss) attributable to Key   

916

900

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

$

892

$

917

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

1

(39)

Net income (loss) attributable to Key common shareholders 

893

878

Per common share 

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

$

1.06

$

1.05

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

(.04)

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

1.06

1.01

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

1.05

1.04

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

(.04)

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

1.05

.99

Cash dividends paid 

.29

.25

Performance ratios  

From continuing operations:  

Return on average total assets  

.99

%

1.08

%

Return on average common equity  

8.63

9.01

Return on average tangible common equity   (c)

9.64

10.04

Net interest margin (TE)  

2.88

2.97

Cash efficiency ratio  (c)

65.9

66.2

From consolidated operations: 

Return on average total assets 

.97

%

.99

%

Return on average common equity 

8.64

8.63

Return on average tangible common equity   (c)

9.65

9.61

Net interest margin (TE) 

2.85

2.94

Asset quality — from continuing operations 

Net loan charge-offs 

$

142

$

113

Net loan charge-offs to average total loans  

.24

%

.20

%

Other data 

Average full-time equivalent employees 

13,483

13,853

Taxable-equivalent adjustment 

$

28

$

24

(a)

In April 2009, management decided to wind down the operations of Austin Capital Management, Ltd., a subsidiary that specialized in managing hedge fund investments for institutional customers.  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.  In February 2013, Key decided to sell its investment subsidiary, Victory Capital Management, and its broker-dealer affiliate, Victory Capital Advisors, to a private equity fund.  As a result of these decisions, Key has accounted for these businesses as discontinued operations.

(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,"  "Common Equity Tier 1" (compliance date of January 1, 2015, under the Regulatory Capital Rules) "Tier 1 common equity" (prior to January 1, 2015), 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 (excluding deposits in foreign office).

(e) 

12-31-15 ratio is estimated.

(f) 

Loan balances exclude $11 million, $12 million, and $13 million of purchased credit impaired loans at December 31, 2015, September 30, 2015, and December 31, 2014, respectively.

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

 

GAAP to Non-GAAP Reconciliations

(dollars in millions)

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

The tangible common equity ratio and the return on 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 introduces 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.  Prior to January 1, 2015, the Federal Reserve focused its assessment of capital adequacy on a component of Tier 1 risk-based capital known as Tier 1 common equity, also a non-GAAP financial measure. 

Common Equity Tier 1 is not formally defined by GAAP and is considered to be a non-GAAP financial measure.  Since analysts and banking regulators may assess Key's capital adequacy using tangible common equity and Common Equity Tier 1, management believes it is useful to enable investors to assess Key's capital adequacy on these same bases.  The table also reconciles the GAAP performance measures to the corresponding non-GAAP measures.

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 loan and lease 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 provides 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  

12-31-15

9-30-15

12-31-14

Tangible common equity to tangible assets at period end 

Key shareholders' equity (GAAP) 

$

10,746

$

10,705

$

10,530

Less:

Intangible assets  (a)

1,080

1,084

1,090

Preferred Stock, Series A  (b)

281

281

282

Tangible common equity (non-GAAP)   

$

9,385

$

9,340

$

9,158

Total assets (GAAP) 

$

95,133

$

95,422

$

93,821

Less:

Intangible assets  (a)

1,080

1,084

1,090

Tangible assets (non-GAAP) 

$

94,053

$

94,338

$

92,731

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

9.98

%

9.90

%

9.88

%

Common Equity Tier 1 at period end 

Key shareholders' equity (GAAP) 

$

10,746

$

10,705

Less: 

Preferred Stock, Series A  (b)

281

281

Common Equity Tier 1 capital before adjustments and deductions 

10,465

10,424

Less: 

Goodwill, net of deferred taxes 

1,036

1,036

Intangible assets, net of deferred taxes 

26

29

Deferred tax assets 

1

1

Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes 

(58)

54

Accumulated gains (losses) on cash flow hedges, net of deferred taxes 

(20)

21

Amounts in accumulated other comprehensive income (loss) attributed to 

pension and postretirement benefit costs, net of deferred taxes 

(365)

(385)

Total Common Equity Tier 1 capital  (c)

$

9,845

$

9,668

Net risk-weighted assets (regulatory)  (c)

$

89,889

$

92,307

Common Equity Tier 1 ratio (non-GAAP)  (c)

10.95

%

10.47

%

Tier 1 common equity at period end 

Key shareholders' equity (GAAP)  

$

10,530

Qualifying capital securities  

339

Less: 

Goodwill  

1,057

Accumulated other comprehensive income (loss)  (d)

(395)

Other assets  (e)

83

Total Tier 1 capital (regulatory) 

10,124

Less:

Qualifying capital securities  

339

Preferred Stock, Series A  (b)

282

Total Tier 1 common equity (non-GAAP)   

$

9,503

Net risk-weighted assets (regulatory) 

$

85,100

Tier 1 common equity ratio (non-GAAP) 

11.17

%

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)

Three months ended

12-31-15

9-30-15

12-31-14

Pre-provision net revenue 

Net interest income (GAAP) 

$

602

$

591

$

582

Plus: 

Taxable-equivalent adjustment 

8

7

6

Noninterest income (GAAP) 

485

470

490

Less: 

Noninterest expense (GAAP) 

736

724

704

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

$

359

$

344

$

374

Average tangible common equity

Average Key shareholders' equity (GAAP)

$

10,731

$

10,614

$

10,562

Less:

Intangible assets (average) (f)

1,082

1,083

1,096

Preferred Stock, Series A (average)

290

290

291

Average tangible common equity (non-GAAP)

$

9,359

$

9,241

$

9,175

Return on average tangible common equity from continuing operations

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

$

224

$

216

$

246

Average tangible common equity (non-GAAP)

9,359

9,241

9,175

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

9.50

%

9.27

%

10.64

%

Return on average tangible common equity consolidated

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

$

220

$

213

$

248

Average tangible common equity (non-GAAP)

9,359

9,241

9,175

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

9.33

%

9.14

%

10.72

%

Cash efficiency ratio

Noninterest expense (GAAP)

$

736

$

724

$

704

Less:

Intangible asset amortization (GAAP)

9

9

10

Adjusted noninterest expense (non-GAAP)

$

727

$

715

$

694

Net interest income (GAAP)

$

602

$

591

$

582

Plus:

Taxable-equivalent adjustment

8

7

6

Noninterest income (GAAP)

485

470

490

Total taxable-equivalent revenue (non-GAAP)

$

1,095

$

1,068

$

1,078

Cash efficiency ratio (non-GAAP)

66.4

%

66.9

%

64.4

%

Three months ended

12-31-15

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

Common Equity Tier 1 under current RCR

$

9,845

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

Deferred tax assets and other intangible assets (g)

(41)

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

$

9,804

Net risk-weighted assets under current RCR

$

89,889

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

Mortgage servicing assets (i)

479

All other assets (j)

6

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

$

90,374

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

10.85

%

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)

Twelve months ended

12-31-15

12-31-14

Pre-provision net revenue

Net interest income (GAAP)

$

2,348

$

2,293

Plus:

Taxable-equivalent adjustment

28

24

Noninterest income (GAAP)

1,880

1,797

Less:

Noninterest expense (GAAP)

2,840

2,761

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

$

1,416

$

1,353

Average tangible common equity

Average Key shareholders' equity (GAAP)

$

10,626

$

10,467

Less:

Intangible assets (average) (k)

1,085

1,039

Preferred Stock, Series A (average)

290

291

Average tangible common equity (non-GAAP)

$

9,251

$

9,137

Return on average tangible common equity from continuing operations

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

$

892

$

917

Average tangible common equity (non-GAAP)

9,251

9,137

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

9.64

%

10.04

%

Return on average tangible common equity consolidated

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

$

893

$

878

Average tangible common equity (non-GAAP)

9,251

9,137

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

9.65

%

9.61

%

Cash efficiency ratio

Noninterest expense (GAAP)

$

2,840

$

2,761

Less:

Intangible asset amortization (GAAP)

36

39

Adjusted noninterest expense (non-GAAP)

$

2,804

$

2,722

Net interest income (GAAP)

$

2,348

$

2,293

Plus:

Taxable-equivalent adjustment

28

24

Noninterest income (GAAP)

1,880

1,797

Total taxable-equivalent revenue (non-GAAP)

$

4,256

$

4,114

Cash efficiency ratio (non-GAAP)

65.9

%

66.2

%

(a)

For the three months ended December 31, 2015, September 30, 2015, and December 31, 2014, intangible assets exclude $45 million, $50 million, and $68 million, respectively, of period-end purchased credit card receivables. 

(b) 

Net of capital surplus.

(c) 

12-31-15 amount is estimated.

(d) 

Includes net unrealized gains or losses on securities available for sale (except for net unrealized losses on marketable equity securities), net gains or losses on cash flow hedges, and amounts resulting from the application of the applicable accounting guidance for defined benefit and other postretirement plans.  

(e) 

Other assets deducted from Tier 1 capital and net risk-weighted assets consist of disallowed intangible assets (excluding goodwill) and deductible portions of nonfinancial equity investments.  There were no disallowed deferred tax assets at December 31, 2014.

(f) 

For the three months ended December 31, 2015, September 30, 2015, and December 31, 2014, average intangible assets exclude $47 million, $52 million, and $69 million, respectively, of average purchased credit card receivables. 

(g) 

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.

(h) 

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."

(i) 

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

(j) 

Includes the phase-in of deferred tax assets arising from temporary differences at 250% risk-weight. Additionally, under the fully implemented rule, certain deferred tax assets and intangible assets subject to the transition provision are no longer required to be risk-weighted because they are deducted directly from capital.

(k) 

For the twelve months ended December 31, 2015, and December 31, 2014, average intangible assets exclude $55 million and $79 million, respectively, of average purchased credit card receivables.

GAAP = U.S. generally accepted accounting principles

 

Consolidated Balance Sheets 

(dollars in millions) 

12-31-15

9-30-15

12-31-14

Assets 

Loans 

$

59,876

$

60,085

$

57,381

Loans held for sale 

639

916

734

Securities available for sale 

14,218

14,376

13,360

Held-to-maturity securities  

4,897

4,936

5,015

Trading account assets 

788

811

750

Short-term investments 

2,707

1,964

4,269

Other investments 

655

691

760

Total earning assets 

83,780

83,779

82,269

Allowance for loan and lease losses 

(796)

(790)

(794)

Cash and due from banks 

607

470

653

Premises and equipment 

779

771

841

Operating lease assets 

340

315

330

Goodwill 

1,060

1,060

1,057

Other intangible assets 

65

74

101

Corporate-owned life insurance 

3,541

3,516

3,479

Derivative assets 

619

793

609

Accrued income and other assets 

3,292

3,348

2,952

Discontinued assets 

1,846

2,086

2,324

Total assets 

$

95,133

$

95,422

$

93,821

Liabilities 

Deposits in domestic offices: 

NOW and money market deposit accounts 

$

37,089

$

37,301

$

34,536

Savings deposits 

2,341

2,338

2,371

Certificates of deposit ($100,000 or more) 

2,392

2,001

2,040

Other time deposits 

3,127

3,020

3,259

     Total interest-bearing deposits 

44,949

44,660

42,206

Noninterest-bearing deposits 

26,097

25,985

29,228

Deposits in foreign office — interest-bearing 

428

564

     Total deposits 

71,046

71,073

71,998

Federal funds purchased and securities

       sold under repurchase agreements 

372

407

575

Bank notes and other short-term borrowings 

533

677

423

Derivative liabilities 

632

676

784

Accrued expense and other liabilities 

1,605

1,562

1,621

Long-term debt 

10,186

10,310

7,875

Discontinued liabilities  

3

Total liabilities 

84,374

84,705

83,279

Equity 

Preferred stock, Series A 

290

290

291

Common shares 

1,017

1,017

1,017

Capital surplus 

3,922

3,914

3,986

Retained earnings 

8,922

8,764

8,273

Treasury stock, at cost 

(3,000)

(3,008)

(2,681)

Accumulated other comprehensive income (loss) 

(405)

(272)

(356)

Key shareholders' equity 

10,746

10,705

10,530

Noncontrolling interests 

13

12

12

Total equity 

10,759

10,717

10,542

Total liabilities and equity 

$

95,133

$

95,422

$

93,821

Common shares outstanding (000) 

835,751

835,285

859,403

 

Consolidated Statements of Income   

(dollars in millions, except per share amounts) 

Three months ended 

Twelve months ended 

12-31-15

9-30-15

12-31-14

12-31-15

12-31-14

Interest income 

Loans 

$

552

$

542

$

534

$

2,149

$

2,110

Loans held for sale 

8

10

8

37

21

Securities available for sale 

76

75

67

293

277

Held-to-maturity securities  

24

24

23

96

93

Trading account assets 

6

5

6

21

25

Short-term investments 

3

1

2

8

6

Other investments 

4

4

6

18

22

Total interest income 

673

661

646

2,622

2,554

Interest expense 

Deposits 

26

27

26

105

117

Federal funds purchased and securities sold under repurchase agreements 

2

Bank notes and other short-term borrowings 

3

2

3

9

9

Long-term debt 

42

41

35

160

133

Total interest expense 

71

70

64

274

261

Net interest income 

602

591

582

2,348

2,293

Provision for credit losses 

45

45

22

166

57

Net interest income after provision for credit losses 

557

546

560

2,182

2,236

Noninterest income 

Trust and investment services income  

105

108

112

433

403

Investment banking and debt placement fees 

127

109

126

445

397

Service charges on deposit accounts 

64

68

64

256

261

Operating lease income and other leasing gains 

15

15

15

73

96

Corporate services income 

55

57

53

198

178

Cards and payments income 

47

47

43

183

166

Corporate-owned life insurance income 

36

30

38

127

118

Consumer mortgage income 

2

3

3

12

10

Mortgage servicing fees 

15

11

11

48

46

Net gains (losses) from principal investing 

11

18

51

78

Other income  (a), (b)

19

11

7

54

44

Total noninterest income 

485

470

490

1,880

1,797

Noninterest expense 

Personnel 

429

426

409

1,652

1,591

Net occupancy 

64

60

63

255

261

Computer processing 

43

41

40

164

158

Business services and professional fees 

44

40

38

159

156

Equipment 

22

22

23

88

96

Operating lease expense 

13

11

11

47

42

Marketing 

17

17

16

57

49

FDIC assessment 

8

8

9

32

30

Intangible asset amortization 

9

9

10

36

39

OREO expense, net

1

2

2

6

5

Other expense 

86

88

83

344

334

Total noninterest expense 

736

724

704

2,840

2,761

Income (loss) from continuing operations before income taxes

306

292

346

1,222

1,272

Income taxes 

73

72

94

303

326

Income (loss) from continuing operations

233

220

252

919

946

Income (loss) from discontinued operations, net of taxes

(4)

(3)

2

1

(39)

Net income (loss)

229

217

254

920

907

Less:  Net income (loss) attributable to noncontrolling interests   

3

(2)

1

4

7

Net income (loss) attributable to Key

$

226

$

219

$

253

$

916

$

900

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

$

224

$

216

$

246

$

892

$

917

Net income (loss) attributable to Key common shareholders 

220

213

248

893

878

Per common share 

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

$

.27

$

.26

$

.29

$

1.06

$

1.05

Income (loss) from discontinued operations, net of taxes 

(.01)

(.04)

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

.27

.26

.29

1.06

1.01

Per common share — assuming dilution 

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

$

.27

$

.26

$

.28

$

1.05

$

1.04

Income (loss) from discontinued operations, net of taxes 

(.01)

(.04)

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

.26

.25

.28

1.05

.99

Cash dividends declared per common share 

$

.075

$

.075

$

.065

$

.29

$

.25

Weighted-average common shares outstanding (000) 

828,206

831,430

858,811

836,846

871,464

Effect of convertible preferred stock 

20,602

Effect of common share options and other stock awards

7,733

7,450

6,773

7,643

6,735

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

835,939

838,880

886,186

844,489

878,199

(a) 

For the three months ended December 31, 2015, net securities gains (losses) totaled $1 million.  For the three months ended September 30, 2015, and December 31, 2014, net securities gains (losses) totaled less than $1 million.  For the three months ended December 31, 2015, September 30, 2015, and December 31, 2014, Key did not have any impairment losses related to securities. 

(b) 

For the twelve months ended December 31, 2015, and December 31, 2014, net securities gains (losses) totaled less than $1 million. For the twelve months ended December 31, 2015, and December 31, 2014, Key did not have any impairment losses related to securities.  

(c) 

Earnings per share may not foot due to rounding. 

(d) 

Assumes conversion of common share options and other stock awards and/or convertible preferred stock, as applicable. 

 

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

(dollars in millions)

Fourth Quarter 2015

Third Quarter 2015

Fourth Quarter 2014

Average

Average

Average

Balance

Interest

(a) 

Yield/Rate

(a)

Balance

Interest

(a) 

Yield/Rate

(a)

Balance

Interest

(a) 

Yield/Rate

(a)

Assets

Loans: (b), (c)

Commercial, financial and agricultural (d)

$

30,884

$

253

3.25

 %

$

30,374

$

244

3.19

 %

$

27,188

$

223

3.24

 %

Real estate — commercial mortgage

8,019

75

3.70

7,988

73

3.65

8,161

77

3.73

Real estate — construction

1,067

10

3.65

1,164

11

3.78

1,077

10

3.90

Commercial lease financing

3,910

36

3.68

3,946

35

3.57

4,119

38

3.67

    Total commercial loans

43,880

374

3.38

43,472

363

3.32

40,545

348

3.40

Real estate — residential mortgage

2,252

24

4.18

2,258

24

4.19

2,223

24

4.28

Home equity:

Key Community Bank

10,203

100

3.89

10,281

101

3.88

10,365

103

3.91

Other

215

5

7.87

229

4

7.87

274

5

7.84

    Total home equity loans

10,418

105

3.97

10,510

105

3.96

10,639

108

4.01

Consumer other — Key Community Bank

1,605

26

6.48

1,597

26

6.51

1,552

27

6.78

Credit cards

780

21

10.66

759

21

10.74

728

20

11.02

Consumer other:

Marine

600

10

6.40

645

10

6.38

802

13

6.29

Other

41

7.16

40

1

8.00

52

7.52

    Total consumer other 

641

10

6.45

685

11

6.47

854

13

6.36

    Total consumer loans

15,696

186

4.69

15,809

187

4.69

15,996

192

4.76

    Total loans

59,576

560

3.72

59,281

550

3.69

56,541

540

3.79

Loans held for sale

841

8

4.13

939

10

3.96

871

8

3.72

Securities available for sale (b), (e)

14,168

76

2.13

14,247

74

2.11

12,153

67

2.20

Held-to-maturity securities (b)

4,908

24

1.99

4,923

24

1.95

4,947

23

1.91

Trading account assets

822

6

3.31

699

5

2.50

868

6

2.84

Short-term investments

3,483

3

.28

2,257

1

.26

3,520

2

.27

Other investments (e)

674

4

2.71

696

4

2.52

792

6

2.77

    Total earning assets

84,472

681

3.21

83,042

668

3.21

79,692

652

3.27

Allowance for loan and lease losses

(790)

(790)

(798)

Accrued income and other assets

10,437

10,399

9,868

Discontinued assets

1,947

2,118

2,359

    Total assets

$

96,066

$

94,769

$

91,121

Liabilities

NOW and money market deposit accounts

$

37,640

14

.15

$

36,289

15

.16

$

34,811

13

.14

Savings deposits

2,338

.02

2,371

.02

2,388

.02

Certificates of deposit ($100,000 or more) (f)

2,150

7

1.31

1,985

6

1.27

2,277

7

1.25

Other time deposits

3,047

5

.72

3,064

6

.70

3,306

6

.76

Deposits in foreign office

354

.24

492

.23

543

.24

    Total interest-bearing deposits

45,529

26

.24

44,201

27

.24

43,325

26

.24

Federal funds purchased and securities

        sold under repurchase agreements

392

.02

859

.08

621

.02

Bank notes and other short-term borrowings

556

3

1.65

567

2

1.51

772

3

1.17

Long-term debt (f), (g)

8,318

42

2.05

7,895

41

2.19

5,135

35

2.80

    Total interest-bearing liabilities

54,795

71

.52

53,522

70

.53

49,853

64

.51

Noninterest-bearing deposits

26,292

26,268

26,342

Accrued expense and other liabilities

2,289

2,236

1,989

Discontinued liabilities (g)

1,947

2,118

2,359

    Total liabilities

85,323

84,144

80,543

Equity

Key shareholders' equity

10,731

10,614

10,562

Noncontrolling interests

12

11

16

    Total equity

10,743

10,625

10,578

    Total liabilities and equity

$

96,066

$

94,769

$

91,121

Interest rate spread (TE)

2.69

 %

2.68

 %

2.76

 %

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

610

2.87

 %

598

2.87

 %

588

2.94

 %

TE adjustment (b)

8

7

6

Net interest income, GAAP basis

$

602

$

591

$

582

(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 35%.  

(c) 

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

(d) 

Commercial, financial and agricultural average balances include $87 million, $88 million, and $90 million of assets from commercial credit cards for the three months ended December 31, 2015, September 30, 2015, and December 31, 2014, respectively.

(e) 

Yield is calculated on the basis of amortized cost.

(f) 

Rate calculation excludes basis adjustments related to fair value hedges. 

(g) 

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

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

 

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

(dollars in millions)

Twelve months ended December 31, 2015

Twelve months ended December 31, 2014

Average

Average

Balance

Interest

 (a)

Yield/Rate

 (a) 

Balance

Interest

 (a) 

Yield/ Rate

 (a) 

Assets

Loans: (b), (c)

Commercial, financial and agricultural  (d)

$

29,658

$

953

3.21

 %

$

26,375

$

866

3.28

 %

Real estate — commercial mortgage

8,020

295

3.68

7,999

303

3.79

Real estate — construction

1,143

43

3.73

1,061

43

4.07

Commercial lease financing

3,976

143

3.60

4,239

156

3.67

    Total commercial loans

42,797

1,434

3.35

39,674

1,368

3.45

Real estate — residential mortgage

2,244

95

4.21

2,201

96

4.37

Home equity:

Key Community Bank

10,266

399

3.89

10,340

405

3.91

Other

237

19

7.85

299

23

7.80

         Total home equity loans

10,503

418

3.98

10,639

428

4.02

Consumer other — Key Community Bank

1,580

103

6.54

1,501

104

6.92

Credit cards

752

81

10.76

712

78

10.95

Consumer other:

Marine

675

43

6.36

894

56

6.22

Other

43

3

7.56

58

4

7.70

         Total consumer other 

718

46

6.43

952

60

6.31

         Total consumer loans

15,797

743

4.70

16,005

766

4.79

         Total loans

58,594

2,177

3.71

55,679

2,134

3.83

Loans held for sale

959

37

3.85

570

21

3.76

Securities available for sale (b), (e) 

13,720

293

2.14

12,210

277

2.27

Held-to-maturity securities (b) 

4,936

96

1.95

4,949

93

1.88

Trading account assets

761

21

2.80

932

25

2.70

Short-term investments

2,843

8

.27

2,886

6

.21

Other investments (e) 

706

18

2.63

865

22

2.53

         Total earning assets

82,519

2,650

3.21

78,091

2,578

3.30

Allowance for loan and lease losses

(791)

(818)

Accrued income and other assets

10,300

9,806

Discontinued assets

2,132

3,828

         Total assets

$

94,160

$

90,907

Liabilities

NOW and money market deposit accounts

$

36,258

56

.15

$

34,283

48

.14

Savings deposits

2,372

.02

2,446

1

.02

Certificates of deposit ($100,000 or more) (f) 

2,041

26

1.28

2,616

35

1.35

Other time deposits

3,115

22

.71

3,495

32

.91

Deposits in foreign office

489

1

.23

615

1

.23

    Total interest-bearing deposits

44,275

105

.24

43,455

117

.27

Federal funds purchased and securities

     sold under repurchase agreements

632

.04

1,182

2

.16

Bank notes and other short-term borrowings

572

9

1.52

597

9

1.49

Long-term debt (f), (g) 

7,334

160

2.24

5,161

133

2.68

    Total interest-bearing liabilities

52,813

274

.52

50,395

261

.52

Noninterest-bearing deposits

26,355

24,410

Accrued expense and other liabilities

2,222

1,791

Discontinued liabilities (g) 

2,132

3,828

         Total liabilities

83,522

80,424

Equity

Key shareholders' equity

10,626

10,467

Noncontrolling interests

12

16

         Total equity

10,638

10,483

         Total liabilities and equity

$

94,160

$

90,907

Interest rate spread (TE)

2.69

 %

2.78

 %

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

2,376

2.88

 %

2,317

2.97

 %

TE adjustment (b) 

28

24

Net interest income, GAAP basis

$

2,348

$

2,293

(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 35%.  

(c) 

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

(d) 

Commercial, financial and agricultural average balances include $88 million and $93 million of assets from commercial credit cards for the twelve months ended December 31, 2015, and December 31, 2014, respectively.

(e) 

Yield is calculated on the basis of amortized cost.

(f) 

Rate calculation excludes basis adjustments related to fair value hedges.  

(g) 

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

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

 

Noninterest Expense 

(dollars in millions) 

Three months ended

Twelve months ended

12-31-15

9-30-15

12-31-14

12-31-15

12-31-14

Personnel  (a)

$

429

$

426

$

409

$

1,652

$

1,591

Net occupancy 

64

60

63

255

261

Computer processing 

43

41

40

164

158

Business services and professional fees 

44

40

38

159

156

Equipment 

22

22

23

88

96

Operating lease expense 

13

11

11

47

42

Marketing 

17

17

16

57

49

FDIC assessment 

8

8

9

32

30

Intangible asset amortization 

9

9

10

36

39

OREO expense, net 

1

2

2

6

5

Other expense 

86

88

83

344

334

     Total noninterest expense 

$

736

$

724

$

704

$

2,840

$

2,761

Average full-time equivalent employees  (b)

13,359

13,555

13,590

13,483

13,853

(a)  Additional detail provided in table below.

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

Personnel Expense 

(in millions) 

Three months ended

Twelve months ended

12-31-15

9-30-15

12-31-14

12-31-15

12-31-14

Salaries

$

231

$

234

$

224

$

912

$

891

Technology contract labor, net

13

13

13

46

56

Incentive and stock-based compensation 

115

103

117

410

380

Employee benefits

64

75

53

266

240

Severance

6

1

2

18

24

     Total personnel expense

$

429

$

426

$

409

$

1,652

$

1,591

 

Loan Composition 

(dollars in millions)

Percent change 12-31-15 vs.

12-31-15

9-30-15

12-31-14

9-30-15

12-31-14

Commercial, financial and agricultural  (a)

$

31,240

$

31,095

$

27,982

.5

%

11.6

%

Commercial real estate:

Commercial mortgage

7,959

8,180

8,047

(2.7)

(1.1)

Construction

1,053

1,070

1,100

(1.6)

(4.3)

     Total commercial real estate loans

9,012

9,250

9,147

(2.6)

(1.5)

Commercial lease financing  (b)

4,020

3,929

4,252

2.3

(5.5)

     Total commercial loans

44,272

44,274

41,381

7.0

Residential — prime loans:

Real estate — residential mortgage

2,242

2,267

2,225

(1.1)

.8

Home equity:

Key Community Bank

10,127

10,282

10,366

(1.5)

(2.3)

Other

208

222

267

(6.3)

(22.1)

Total home equity loans

10,335

10,504

10,633

(1.6)

(2.8)

Total residential — prime loans

12,577

12,771

12,858

(1.5)

(2.2)

Consumer other — Key Community Bank

1,600

1,612

1,560

(.7)

2.6

Credit cards

806

770

754

4.7

6.9

Consumer other:

Marine

583

620

779

(6.0)

(25.2)

Other

38

38

49

(22.4)

     Total consumer other

621

658

828

(5.6)

(25.0)

     Total consumer loans

15,604

15,811

16,000

(1.3)

(2.5)

Total loans (c), (d)

$

59,876

$

60,085

$

57,381

(.3)

%

4.3

%

Loans Held for Sale Composition

(dollars in millions)

Percent change 12-31-15 vs.

12-31-15

9-30-15

12-31-14

9-30-15

12-31-14

Commercial, financial and agricultural

$

76

$

74

$

63

2.7

%

20.6

%

Real estate — commercial mortgage

532

806

638

(34.0)

(16.6)

Commercial lease financing

14

10

15

40.0

(6.7)

Real estate — residential mortgage

17

26

18

(34.6)

(5.6)

Total loans held for sale (e)

$

639

$

916

$

734

(30.2)

%

(12.9)

%

Summary of Changes in Loans Held for Sale

(in millions)

4Q15

3Q15

2Q15

1Q15

4Q14

Balance at beginning of period

$

916

$

835

$

1,649

$

734

$

784

New originations

1,655

1,673

1,650

2,130

2,465

Transfers from (to) held to maturity, net

22

24

6

10

2

Loan sales

(1,943)

(1,616)

(2,466)

(1,204)

(2,516)

Loan draws (payments), net

(11)

(4)

(21)

(1)

Balance at end of period (e)

$

639

$

916

$

835

$

1,649

$

734

(a)

Loan balances include $85 million, $88 million, and $88 million of commercial credit card balances at December 31, 2015, September 30, 2015, and December 31, 2014, respectively.

(b) 

Commercial lease financing includes receivables held as collateral for a secured borrowing of $134 million, $162 million, and $302 million at December 31, 2015, September 30, 2015, and December 31, 2014, respectively. Principal reductions are based on the cash payments received from these related receivables.

(c) 

At December 31, 2015, total loans include purchased loans of $114 million, of which $11 million were purchased credit impaired. At September 30, 2015, total loans include purchased loans of $119 million, of which $12 million were purchased credit impaired. At December 31, 2014, total loans include purchased loans of $138 million, of which $13 million were purchased credit impaired.

(d) 

Total loans exclude loans of $1.8 billion at December 31, 2015, $1.9 billion at September 30, 2015, and $2.3 billion at December 31, 2014, related to the discontinued operations of the education lending business.

(e) 

Total loans held for sale exclude loans held for sale of $169 million at September 30, 2015, and $179 million at June 30, 2015, related to the discontinued operations of the education lending business.

 

Exit Loan Portfolio From Continuing Operations

(in millions)

Balance

Change

Net Loan

Balance on

Outstanding

12-31-15 vs.

Charge-offs

Nonperforming Status

12-31-15

9-30-15

9-30-15

4Q15

3Q15

  (c)

12-31-15

9-30-15

Residential properties — homebuilder

$

6

$

6

$

8

$

5

Marine and RV floor plan

1

1