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KeyCorp Reports First Quarter 2014 Net Income of $232 Million, or $.26 Per Common Share

Positive operating leverage from prior year

Strong risk management results with continued improvement in credit quality: net loan charge-offs to average loans declined to .15%

Disciplined capital management with plans to continue returning peer-leading capital to shareholders


News provided by

KeyCorp

17 Apr, 2014, 06:30 ET

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CLEVELAND, April 17, 2014 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced first quarter net income from continuing operations attributable to Key common shareholders of $232 million, or $.26 per common share, compared to $229 million, or $.26 per common share, for the fourth quarter of 2013, and $196 million, or $.21 per common share, for the first quarter of 2013.     

"This was a solid quarter for Key, delivering on our commitments to generate positive operating leverage, maintain our strong risk management practices, and remain disciplined in the way we manage capital," said Chairman and Chief Executive Officer Beth Mooney.  "Revenue trends benefited from solid loan growth, driven by commercial, financial and agricultural loans, and the investments we made in our fee-based businesses.  Our results also demonstrate our continued focus on improving productivity and efficiency, with expenses declining from the year-ago period and prior quarter.  Our cash efficiency ratio was 65%, within our targeted range of 60% to 65%, and we remain committed to further improvement."

"Credit quality trends and our provision for loan losses continued to reflect our strong risk management practices, with both nonperforming loans and net charge-offs declining," added Mooney.

"Capital management also remains a priority for Key," continued Mooney.  "We expect to return a significant amount of our net income to shareholders over the next four quarters through the planned capital actions we announced last month at the conclusion of the CCAR review.  Our plan included a share repurchase program of up to $542 million, and, subject to approval by our Board of Directors, an increase of the quarterly common share dividend to $.065 per share.  We expect these actions will lead to an estimated payout ratio that is among the highest in our peer group for the second consecutive year."

FIRST QUARTER 2014 FINANCIAL RESULTS, from continuing operations

Compared with First Quarter of 2013

  • Average loans up 4.0% (5.5% excluding impact of exit portfolios), driven by an 8.9% growth in commercial, financial and agricultural loans; period ending loans up 5.5%
  • Average deposits up 3.9% due to commercial mortgage servicing acquisition and growth in commercial and public deposits offsetting declines in certificates of deposits
  • Positive operating leverage as the decline in expense more than offset the decline in revenue
  • Net interest income (taxable-equivalent) down $20 million, primarily due to lower asset yields and loan fees 
  • Noninterest income up $10 million, reflecting higher principal investing gains, growth in investment banking and debt placement fees, and benefits from investments in commercial mortgage servicing
  • Noninterest expense down $19 million, reflecting $5 million in lower efficiency-related charges, and the successful execution of our efficiency initiative
  • Asset quality improved, with net loan charge-offs to average loans declining from .38% to .15%
  • Disciplined capital management, with the announcement of new planned capital actions including a share repurchase program of up to $542 million, and, subject to approval by Key's Board of Directors, an increase of the quarterly common share dividend to $.065 per share

Compared with Fourth Quarter of 2013

  • Average loans up 2.1%, driven by a 4.8% growth in commercial, financial and agricultural loans; period ending loans up 1.8%
  • Average deposits down 3.2% due to the expected reduction of escrow deposits in the commercial mortgage servicing business
  • Net interest income (taxable-equivalent) down $20 million due to lower asset yields as well as fewer days in the quarter
  • Noninterest income down $18 million, reflecting a decline in corporate-owned life insurance income and lower commercial mortgage special servicing fees
  • Noninterest expense down $50 million due to a decline of $12 million related to efficiency charges, and lower expenses for marketing, incentive compensation, and salaries
  • Asset quality remains strong, with a 12 basis point improvement in net loan charge-offs to average loans
  • Disciplined capital management, repurchasing $141 million of common shares during the first quarter of 2014 and maintaining a top tier capital position with Tier 1 common equity of 11.22%

Selected Financial Highlights























dollars in millions, except per share data











Change 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


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

$

232


$

229


$

196



1.3

%


18.4

%

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


.26



.26



.21



—



23.8


Return on average total assets from continuing operations


1.13

%


1.08

%


.99

%


N/A



N/A


Tier 1 common equity (a)


11.22



11.22



11.40



N/A



N/A


Book value at period end

$

11.43


$

11.25


$

10.89



1.6

%


5.0

%

Net interest margin (TE) from continuing operations


3.00

%


3.01

%


3.24

%


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 "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.



















TE = Taxable Equivalent, N/A = Not Applicable



























INCOME STATEMENT HIGHLIGHTS
































Revenue

































dollars in millions











Change 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


Net interest income (TE)

$

569


$

589


$

589



(3.4)

%


(3.4)

%

Noninterest income


435



453



425



(4.0)



2.4



Total revenue

$

1,004


$

1,042


$

1,014



(3.6)

%


(1.0)

%



































TE = Taxable Equivalent















Taxable-equivalent net interest income was $569 million for the first quarter of 2014, and the net interest margin was 3.00%.  These results compare to taxable-equivalent net interest income of $589 million and a net interest margin of 3.24% for the first quarter of 2013.  The decrease in net interest income and net interest margin is attributable to lower asset yields and loan fees, offsetting the impact of loan growth.  The decreases were also partially offset by the maturity of higher-rate certificates of deposits and a more favorable mix of lower-cost deposits. 

Compared to the fourth quarter of 2013, taxable-equivalent net interest income decreased by $20 million, and the net interest margin declined by one basis point.  The decrease in net interest income was primarily due to lower asset yields as well as fewer days in the first quarter of 2014.  The decrease was partially offset by increased loan growth and a lower cost of funds as higher-rate certificates of deposits matured.  

Noninterest Income






























dollars in millions











Change 1Q14 vs.





1Q14 



4Q13 



1Q13 



4Q13 



1Q13 


Trust and investment services income

$

98


$

98


$

95



—



3.2

%

Investment banking and debt placement fees


84



84



79



—



6.3


Service charges on deposit accounts


63



68



69



(7.4)

%


(8.7)


Operating lease income and other leasing gains


29



26



25



11.5



16.0


Corporate services income


42



40



45



5.0



(6.7)


Cards and payments income


38



40



37



(5.0)



2.7


Corporate-owned life insurance income


26



33



30



(21.2)



(13.3)


Consumer mortgage income


2



3



7



(33.3)



(71.4)


Mortgage servicing fees


15



22



8



(31.8)



87.5


Net gains (losses) from principal investing


24



20



8



20.0



200.0


Other income


14



19



22



(26.3)



(36.4)



Total noninterest income

$

435


$

453


$

425



(4.0)

%


2.4

%



































Key's noninterest income was $435 million for the first quarter of 2014, compared to $425 million for the year-ago quarter.  Key continued to see benefits from recent investments, with mortgage servicing fees increasing $7 million and card and payments income increasing $1 million.  Reflecting the benefits of Key's focus on targeted industries, investment banking and debt placement fees increased $5 million from the prior year.  In addition, net gains from principal investing increased $16 million.  These increases were partially offset by decreases of $8 million in other income mostly related to lower fixed income sales and trading income, a decline in service charges on deposit accounts of $6 million due to lower non-sufficient funds and overdraft charges, and a $5 million decrease in consumer mortgage income.   

Compared to the fourth quarter of 2013, noninterest income decreased by $18 million.  Mortgage servicing fees decreased $7 million as the fourth quarter of 2013 had higher commercial mortgage special servicing fees, and service charges on deposit accounts decreased $5 million due to lower non-sufficient funds and overdraft charges.  Corporate-owned life insurance income also declined $7 million due to seasonality of annual dividend payments in the fourth quarter. 

Noninterest Expense































dollars in millions












Change 1Q14 vs.






1Q14



4Q13



1Q13



4Q13



1Q13


Personnel expense


$

388


$

398


$

391



(2.5)

%


(.8)

%

Nonpersonnel expense



274



314



290



(12.7)



(5.5)



Total noninterest expense


$

662


$

712


$

681



(7.0)

%


(2.8)

%





































Key's noninterest expense was $662 million for the first quarter of 2014, compared to $681 million for the same period last year.  Excluding efficiency charges of $10 million in the first quarter of 2014 and $15 million in the first quarter of 2013, noninterest expense was down $14 million from the prior year.  The provision (credit) for losses on lending-related commitments decreased $5 million, which was a credit of $2 million in the current quarter compared to an expense of $3 million the prior year.  Additionally, there were declines in various other miscellaneous expenses.     

Compared to the fourth quarter of 2013, noninterest expense decreased by $50 million.  The reduction in expenses reflected $12 million in lower efficiency-related charges.  Marketing decreased $13 million from the prior quarter.  Personnel expense decreased $10 million due to lower incentive compensation and salary expense.  In addition, other expense decreased $12 million from the prior quarter. 

BALANCE SHEET HIGHLIGHTS

As of March 31, 2014, Key had total assets of $90.8 billion compared to $92.9 billion at December 31, 2013, and $89.2 billion at March 31, 2013.

Average Loans






























dollars in millions











Change 3-31-14 vs.





3-31-14


12-31-13


3-31-13


12-31-13


3-31-13


Commercial, financial and agricultural (a)


$

25,390


$

24,218


$

23,317



4.8

%


8.9

%

Other commercial loans



13,337



13,266



13,493



.5



(1.2)


Total home equity loans



10,630



10,653



10,200



(.2)



4.2


Other consumer loans



5,389



5,471



5,616



(1.5)



(4.0)



Total loans


$

54,746


$

53,608


$

52,626



2.1

%


4.0

%





















(a)   

Commercial, financial and agricultural average balances for the three months ended March 31, 2014, December 31, 2013, and March 31, 2013, include $94 million, $97 million, and $91 million of assets from commercial credit cards, respectively.

Average loans were $54.7 billion for the first quarter of 2014, an increase of $2.1 billion compared to the first quarter of 2013.  The loan growth occurred primarily in the commercial, financial and agricultural portfolio, and was broad-based across Key's commercial lines of business.  Consumer loans increased $203 million, as the $430 million increase in home equity loans was partially offset by the $227 million decrease in other consumer loans.  The growth in home equity loans was balanced across Key's geographic footprint.    

Compared to the fourth quarter of 2013, average loans increased by $1.1 billion.  Commercial, financial and agricultural loans increased $1.2 billion.  Consumer loans declined $105 million, with $82 million of the decrease related to exit portfolios.

Average Deposits
























dollars in millions










Change 3-31-14 vs.




3-31-14


12-31-13


3-31-13


12-31-13


3-31-13


Non-time deposits (a)

$

59,197


$

61,394


$

55,819



(3.6)

%


6.1

%

Certificates of deposits ($100,000 or more)


2,758



2,649



2,911



4.1



(5.3)


Other time deposits


3,679



3,736



4,451



(1.5)



(17.3)



Total deposits

$

65,634


$

67,779


$

63,181



(3.2)

%


3.9

%


















Cost of total deposits (a)


.20

%


.20

%


.29

%


N/A



N/A




































(a)

Excludes deposits in foreign office.























N/A = Not Applicable






Average deposits, excluding deposits in foreign office, totaled $65.6 billion for the first quarter of 2014, an increase of $2.5 billion compared to the year-ago quarter.  Demand deposits increased by $1.3 billion and NOW and money market deposit accounts increased $2.1 billion, mostly due to growth related to commercial and public sector client inflows as well as increases related to the commercial mortgage servicing acquisition.  This growth was partially offset by run-off in certificates of deposit. 

Compared to the fourth quarter of 2013, average deposits, excluding deposits in foreign office, decreased by $2.1 billion.  Demand deposits were down $2.4 billion, driven by the expected reduction of escrow deposits in the commercial mortgage servicing business as well as seasonal outflows related to other commercial clients.  This decrease was partially offset by increases in NOW and money market deposit accounts.

ASSET QUALITY



























dollars in millions











Change 1Q14 vs.




1Q14



4Q13



1Q13



4Q13



1Q13


Net loan charge-offs

$

20


$

37


$

49



(45.9)

%


(59.2)

%

Net loan charge-offs to average total loans


.15

%


.27

%


.38

%


N/A



N/A


Nonperforming loans at period end (a)

$

449


$

508


$

650



(11.6)



(30.9)


Nonperforming assets at period end


469



531



705



(11.7)



(33.5)


Allowance for loan and lease losses


834



848



893



(1.7)



(6.6)


Allowance for loan and lease losses to nonperforming loans


185.7

%


166.9

%


137.4

%


N/A



N/A


Provision (credit) for loan and lease losses

$

6


$

19


$

55



(68.4)

%


(89.1)

%

































(a)  March 31, 2014, December 31, 2013, and March 31, 2013, loan balances exclude $16 million, $16 million, and $22 million of purchased credit impaired loans, respectively.

















N/A = Not Applicable













Key's provision for loan and lease losses was $6 million for the first quarter of 2014, compared to $19 million for the fourth quarter of 2013 and $55 million for the year-ago quarter.  Key's allowance for loan and lease losses was $834 million, or 1.50%, of total period-end loans at March 31, 2014, compared to 1.56% at December 31, 2013, and 1.70% at March 31, 2013. 

Net loan charge-offs for the first quarter of 2014 totaled $20 million, or .15%, of average total loans.  These results compare to $37 million, or .27%, for the fourth quarter of 2013, and $49 million, or .38%, for the same period last year.  

At March 31, 2014, Key's nonperforming loans totaled $449 million and represented .81% of period-end portfolio loans, compared to .93% at December 31, 2013, and 1.24% at March 31, 2013.  Nonperforming assets at March 31, 2014, totaled $469 million and represented .85% of period-end portfolio loans and OREO and other nonperforming assets, compared to .97% at December 31, 2013, and 1.34% 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, 2014.

Capital Ratios






















3-31-14



12-31-13



3-31-13


Tier 1 common equity (a), (b)


11.22

%


11.22

%


11.40

%

Tier 1 risk-based capital (a)


11.96



11.96



12.19


Total risk based capital (a)


14.17



14.33



15.02


Tangible common equity to tangible assets (b)


10.14



9.80



10.24


Leverage (a)


11.32



11.11



11.36














(a)   

3-31-14 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.

As shown in the preceding table, at March 31, 2014, Key's estimated Tier 1 common equity and Tier 1 risk-based capital ratios stood at 11.22% and 11.96%, respectively.  In addition, the tangible common equity ratio was 10.14% at March 31, 2014.

In October 2013, federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules").  While the Regulatory Capital Rules became effective January 1, 2014, the mandatory compliance date for Key as a "standardized approach" banking organization begins on January 1, 2015, subject to transitional provisions extending to January 1, 2019.  Key's estimated Common Equity Tier 1 as calculated under the Regulatory Capital Rules was 10.67% at March 31, 2014.  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 1Q14 vs.




1Q14



4Q13



1Q13



4Q13



1Q13


Shares outstanding at beginning of period

890,724



897,821



925,769



(.8)

%


(3.8)

%

Common shares repurchased

(9,845)



(7,659)



(6,790)



28.5



45.0


Shares reissued (returned) under employee benefit plans

3,990



562



3,602



610.0



10.8



Shares outstanding at end of period

884,869



890,724



922,581



(.7)

%


(4.1)

%

































Key completed its 2013 CCAR capital plan, including common share repurchases of $141 million, in the first quarter of 2014.  Key's 2014 CCAR capital plan includes common share repurchases of up to $542 million, which are expected to be executed through the first quarter of 2015.

LINE OF BUSINESS RESULTS

The following table shows the contribution made by each major business segment to Key's taxable-equivalent revenue from continuing operations and income (loss) from continuing operations attributable to Key for the periods presented.  For more detailed financial information pertaining to each business segment, see the tables at the end of this release. 

Major Business Segments
























dollars in millions











Change 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


Revenue from continuing operations (TE)
















Key Community Bank

$

541


$

561


$

575



(3.6)

%


(5.9)

%

Key Corporate Bank


391



411



383



(4.9)



2.1


Other Segments


70



73



54



(4.1)



29.6



Total segments


1,002



1,045



1,012



(4.1)



(1.0)


Reconciling Items


2



(3)



2



N/M



—



Total

$

1,004


$

1,042


$

1,014



(3.6)

%


(1.0)

%


















Income (loss) from continuing operations attributable to Key
















Key Community Bank

$

63


$

43


$

47



46.5

%


34.0

%

Key Corporate Bank


122



133



113



(8.3)



8.0


Other Segments


53



61



43



(13.1)



23.3



Total segments


238



237



203



.4



17.2


Reconciling Items


—



(2)



(2)



N/M



N/M



Total

$

238


$

235


$

201



1.3

%


18.4

%



































TE = Taxable equivalent, N/M = Not Meaningful








































Key Community Bank














































dollars in millions











Change 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


Summary of operations
















Net interest income (TE)

$

363


$

377


$

387



(3.7)

%


(6.2)

%

Noninterest income


178



184



188



(3.3)



(5.3)



Total revenue (TE)


541



561



575



(3.6)



(5.9)


Provision (credit) for loan and lease losses


9



32



59



(71.9)



(84.7)


Noninterest expense


432



460



441



(6.1)



(2.0)



Income (loss) before income taxes (TE)


100



69



75



44.9



33.3


Allocated income taxes (benefit) and TE adjustments


37



26



28



42.3



32.1



Net income (loss) attributable to Key

$

63


$

43


$

47



46.5

%


34.0

%


















Average balances
















Loans and leases

$

29,793


$

29,596


$

28,977



.7

%


2.8

%

Total assets


31,943



31,785



31,474



.5



1.5


Deposits


49,824



50,409



49,349



(1.2)



1.0



















Assets under management at period end

$

26,549


$

26,664


$

25,101



(.4)

%


5.8

%



































TE = Taxable Equivalent














Additional Key Community Bank Data



























dollars in millions











Change 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


Noninterest income 
















Trust and investment services income 

$

67


$

66


$

65



1.5

%


3.1

%

Service charges on deposit accounts 


52



58



58



(10.3)



(10.3)


Cards and payments income 


35



37



33



(5.4)



6.1


Other noninterest income 


24



23



32



4.3



(25.0)



Total noninterest income 

$

178


$

184


$

188



(3.3)

%


(5.3)

%


















Average deposit balances
















NOW and money market deposit accounts

$

27,428


$

27,438


$

26,109



—



5.1

%

Savings deposits


2,465



2,472



2,463



(.3)

%


.1


Certificates of deposit ($100,000 or more)


2,163



2,124



2,498



1.8



(13.4)


Other time deposits


3,673



3,731



4,445



(1.6)



(17.4)


Deposits in foreign office


309



285



270



8.4



14.4


Noninterest-bearing deposits


13,786



14,359



13,564



(4.0)



1.6



Total deposits 

$

49,824


$

50,409


$

49,349



(1.2)

%


1.0

%


















Home equity loans 
















Average balance

$

10,305


$

10,310


$

9,787








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


71

%


71

%


70

%







Percent first lien positions


58



58



55

























Other data
















Branches


1,027



1,028



1,084








Automated teller machines


1,330



1,335



1,482

























Key Community Bank Summary of Operations

  • Average loan balances up 2.8% from prior year
  • Average core deposits up 3.7% from prior year
  • Net income attributable to Key Community Bank up 34% from the prior year

Key Community Bank recorded net income attributable to Key of $63 million for the first quarter of 2014, compared to net income attributable to Key of $47 million for the year-ago quarter.

Taxable-equivalent net interest income decreased by $24 million, or 6.2%, from the first quarter of 2013.  Average loans and leases grew 2.8% while average deposits increased 1% from one year ago.  However, these volume-related increases were offset by declines in the deposit spread as a result of the continued low-rate environment.    

Noninterest income declined by $10 million, or 5.3%, from the year-ago quarter.  Consumer mortgage income decreased $5 million, and service charges on deposit accounts declined $6 million due to lower non-sufficient funds and overdraft charges.  These decreases were partially offset by increases in cards and payments income and trust and investment services income of $2 million each.

The provision for loan and lease losses decreased by $50 million, or 84.7%, from the first quarter of 2013.  Net loan charge-offs decreased $19 million from the same period one year ago.

Noninterest expense declined by $9 million, or 2%, from the year-ago quarter as a result of Key's efficiency initiative.  Personnel expense decreased $18 million primarily due to declines in salaries, incentive compensation, and employee benefits.  This decrease was partially offset by a $9 million increase in nonpersonnel expense primarily due to increases in the provision for losses on lending-related commitments, miscellaneous expense, and other support costs.

Key Corporate Bank















































dollars in millions











Change 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


Summary of operations
















Net interest income (TE)

$

194


$

199


$

195



(2.5)

%


(.5)

%

Noninterest income


197



212



188



(7.1)



4.8



Total revenue (TE)


391



411



383



(4.9)



2.1


Provision (credit) for loan and lease losses


(1)



(10)



2



N/M



N/M


Noninterest expense


199



216



203



(7.9)



(2.0)



Income (loss) before income taxes (TE)


193



205



178



(5.9)



8.4


Allocated income taxes and TE adjustments


71



72



65



(1.4)



9.2



Net income (loss) attributable to Key

$

122


$

133


$

113



(8.3)

%


8.0

%


















Average balances
















Loans and leases  

$

21,445


$

20,336


$

19,466



5.5

%


10.2

%

Loans held for sale   


429



668



409



(35.8)



4.9


Total assets


25,363



24,344



23,181



4.2



9.4


Deposits


15,800



17,370



13,966



(9.0)



13.1



















Assets under management at period end

$

12,344


$

10,241


$

10,613



20.5

%


16.3

%



































TE = Taxable Equivalent, N/M = Not Meaningful

























































Additional Key Corporate Bank Data


























dollars in millions











Change 1Q14 vs.





1Q14



4Q13



1Q13



4Q13



1Q13


Noninterest income
















Trust and investment services income

$

31


$

32


$

30



(3.1)

%


3.3

%

Investment banking and debt placement fees


84



84



79



—



6.3


Operating lease income and other leasing gains


21



20



15



5.0



40.0



















Corporate services income


28



29



29



(3.4)



(3.4)


Service charges on deposit accounts


11



10



11



10.0



—


Cards and payments income


3



3



4



—



(25.0)



Payments and services income


42



42



44



—



(4.5)



















Mortgage servicing fees


15



22



8



(31.8)



87.5


Other noninterest income


4



12



12



(66.7)



(66.7)



Total noninterest income

$

197


$

212


$

188



(7.1)

%


4.8

%



































N/M = Not Meaningful










Key Corporate Bank Summary of Operations

  • Average loan balances up 10.2% from the prior year
  • Average deposits up 13.1% from the prior year
  • Total revenue increased 2.1% from prior year
  • Investment banking and debt placement fees increased 6.3% from the prior year

Key Corporate Bank recorded net income attributable to Key of $122 million for the first quarter of 2014, compared to $113 million for the same period one year ago. 

Taxable-equivalent net interest income decreased by $1 million, or .5%, compared to the first quarter of 2013.  Average earning assets increased $2.3 billion, or 11.1%, from the year-ago quarter, primarily driven by loan growth in commercial, financial and agricultural and real estate commercial mortgage. This growth was broad-based across the Corporate Bank lines of business.  The increase in earning assets was offset by declines from loan spread compression.  Average deposit balances increased $1.8 billion, or 13.1%, from the year-ago quarter, driven by increases in Public Sector as well as increases related to the commercial mortgage servicing acquisition.  This increase in deposit balances was more than offset by declines in the deposit spread as a result of the continued low-rate environment.

Noninterest income increased by $9 million, or 4.8%, from the first quarter of 2013.  This increase was driven by higher mortgage servicing fees of $7 million, operating lease income and other leasing gains of $6 million, and investment banking and debt placement fees of $5 million from the year-ago quarter.   Offsetting these increases was an $8 million decrease in other income primarily due to declines in fixed income sales and trading. 

The provision for loan and lease losses decreased $3 million compared to the first quarter of 2013.   Net loan charge-offs decreased $13 million from the same period one year ago primarily due to a sizable recovery.

Noninterest expense decreased by $4 million, or 2%, from the first quarter of 2013.  A lower provision for losses on lending-related commitments and reduced miscellaneous expenses offset increases in personnel expense.    

Other Segments

Other Segments consist of Corporate Treasury, Community Development, Key's Principal Investing unit, and various exit portfolios.  Other Segments generated net income attributable to Key of $53 million for the first quarter of 2014, compared to net income attributable to Key of $43 million for the same period last year.  These results were primarily attributable to an increase in net gains (losses) from principal investing of $16 million. 

*****

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 $90.8 billion at March 31, 2014.

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.

INVESTOR RELATIONS: www.key.com/ir                        

KEY MEDIA  NEWSROOM: www.key.com/newsroom

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about Key's financial condition, results of operations, and profitability.  Forward-looking statements can be identified by words such as "outlook," "goal," "objective," "plan," "expect," "anticipate," "intend," "project," "believe," or "estimate."  Forward-looking statements represent management's current expectations and forecasts regarding future events. If underlying assumptions prove to be inaccurate or unknown risks or uncertainties arise, actual results could vary materially from these projections or expectations.  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, 2013, which has been filed with the Securities and Exchange Commission and is available on Key's website (www.key.com/ir) and on the Securities and Exchange Commission'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, changes in local, regional and international business, economic or political conditions, and the extensive and increasing regulation of the U.S. financial services industry.  Forward looking statements speak only as of the date they are made and Key does not undertake any obligation to update the forward-looking statements to reflect new information or future events.

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, April 17, 2014.  An audio replay of the call will be available through April 24, 2014.

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

First Quarter 2014

Financial Supplement





Page    


13

Financial Highlights

15

GAAP to Non-GAAP Reconciliation

17

Consolidated Balance Sheets

18

Consolidated Statements of Income

19

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

20

Noninterest Expense

20

Personnel Expense

21

Loan Composition

21

Loans Held for Sale Composition

21

Summary of Changes in Loans Held for Sale

22

Exit Loan Portfolio From Continuing Operations

22

Asset Quality Statistics From Continuing Operations

23

Summary of Loan and Lease Loss Experience From Continuing Operations

24

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

25

Summary of Changes in Nonperforming Loans From Continuing Operations

25

Summary of Changes in Nonperforming Loans Held for Sale From Continuing Operations

25

Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations

26

Line of Business Results

Financial Highlights 


(dollars in millions, except per share amounts)



















Three months ended





3-31-14



12-31-13



3-31-13


Summary of operations 













Net interest income (TE)

$

569



$

589



$

589



Noninterest income


435




453




425




Total revenue (TE) 


1,004




1,042




1,014



Provision (credit) for loan and lease losses


6




19




55



Noninterest expense


662




712




681



Income (loss) from continuing operations attributable to Key


238




235




201



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


4




(5)




3



Net income (loss) attributable to Key 


242




230




204

















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

$

232



$

229



$

196



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


4




(5)




3



Net income (loss) attributable to Key common shareholders


236




224




199
















Per common share 













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

$

.26



$

.26



$

.21



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


—




(.01)




—



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


.27




.25




.22

















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


.26




.26




.21



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




.21

















Cash dividends paid 


.055




.055




.05



Book value at period end 


11.43




11.25




10.89



Tangible book value at period end 


10.28




10.11




9.78



Market price at period end 


14.24




13.42




9.96
















Performance ratios 













From continuing operations: 













Return on average total assets 


1.13

%



1.08

%



.99

%


Return on average common equity 


9.33




9.10




7.96



Return on average tangible common equity  (c)


10.38




10.13




8.87



Net interest margin (TE) 


3.00




3.01




3.24



Cash efficiency ratio  (c)


64.9




67.4




66.0

















From consolidated operations: 













Return on average total assets 


1.09

%



1.00

%



.94

%


Return on average common equity 


9.50




8.90




8.08



Return on average tangible common equity  (c)


10.56




9.91




9.01



Net interest margin (TE) 


2.95




2.91




3.16



Loan to deposit  (d)


87.5




83.8




86.9
















Capital ratios at period end 













Key shareholders' equity to assets  


11.46

%



11.09

%



11.59

%


Key common shareholders' equity to assets 


11.14




10.78




11.27



Tangible common equity to tangible assets  (c)


10.14




9.80




10.24



Tier 1 common equity  (c), (e)


11.22




11.22




11.40



Tier 1 risk-based capital  (e)


11.96




11.96




12.19



Total risk-based capital  (e)


14.17




14.33




15.02



Leverage  (e)


11.32




11.11




11.36


Financial Highlights (continued) 


(dollars in millions)



















Three months ended





3-31-14



12-31-13



3-31-13


Asset quality — from continuing operations 













Net loan charge-offs 

$

20



$

37



$

49



Net loan charge-offs to average total loans  


.15

%



.27

%



.38

%


Allowance for loan and lease losses 

$

834



$

848



$

893



Allowance for credit losses


869




885




925



Allowance for loan and lease losses to period-end loans 


1.50

%



1.56

%



1.70

%


Allowance for credit losses to period-end loans 


1.57




1.63




1.76



Allowance for loan and lease losses to nonperforming loans 


185.7




166.9




137.4



Allowance for credit losses to nonperforming loans  


193.5




174.2




142.3



Nonperforming loans at period end  (f)

$

449



$

508



$

650



Nonperforming assets at period end 


469




531




705



Nonperforming loans to period-end portfolio loans 


.81

%



.93

%



1.24

%


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


.85




.97




1.34
















Trust and brokerage assets — from continuing operations 













Assets under management 

$

38,893



$

36,905



$

35,714



Nonmanaged and brokerage assets  


47,396




47,418




37,115
















Other data 













Average full-time equivalent employees 


14,055




14,197




15,396



Branches 


1,027




1,028




1,084
















Taxable-equivalent adjustment 

$

6



$

6



$

6




(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,"  "Tier 1 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.



(d)     

Represents period-end consolidated total loans and loans held for sale (excluding education loans in the securitization trusts) divided by period-end consolidated total deposits (excluding deposits in foreign office).



(e)     

3-31-14 ratio is estimated.



(f)     

March 31, 2014, December 31, 2013, and March 31, 2013, loan balances exclude $16 million, $16 million, and $22 million of purchased credit impaired loans, 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," "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.  Since the commencement of the Comprehensive Capital Analysis and Review process in early 2009, the Federal Reserve has focused its assessment of capital adequacy on a component of Tier 1 risk-based capital known as Tier 1 common equity, a non-GAAP financial measure.  Because the Federal Reserve has long indicated that voting common shareholders' equity (essentially Tier 1 risk-based capital less preferred stock, qualifying capital securities, and noncontrolling interests in subsidiaries) generally should be the dominant element in Tier 1 risk-based capital, this focus on Tier 1 common equity is consistent with existing capital adequacy categories. 

Tier 1 common equity is neither formally defined by GAAP nor prescribed in amount by federal banking regulations; this measure 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 Tier 1 common equity, 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  





3-31-14



12-31-13



3-31-13


Tangible common equity to tangible assets at period end 













Key shareholders' equity (GAAP) 

$

10,403



$

10,303



$

10,340



Less: 

Intangible assets  (a)


1,012




1,014




1,024




Preferred Stock, Series A  (b)


282




282




291




Tangible common equity (non-GAAP)   

$

9,109



$

9,007



$

9,025

















Total assets (GAAP) 

$

90,802



$

92,934



$

89,198



Less:

Intangible assets  (a)


1,012




1,014




1,024




Tangible assets (non-GAAP) 

$

89,790



$

91,920



$

88,174

















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


10.14

%



9.80

%



10.24

%















Tier 1 common equity at period end 













Key shareholders' equity (GAAP)  

$

10,403



$

10,303



$

10,340



Qualifying capital securities  


339




339




339



Less: 

Goodwill  


979




979




979




Accumulated other comprehensive income (loss)  (c)


(367)




(394)




(204)




Other assets  (d)


86




89




106




Total Tier 1 capital (regulatory) 


10,044




9,968




9,798



Less:

Qualifying capital securities  


339




339




339




Preferred Stock, Series A  (b)


282




282




291




Total Tier 1 common equity (non-GAAP)   

$

9,423



$

9,347



$

9,168

















Net risk-weighted assets (regulatory)  (e)

$

83,951



$

83,328



$

80,400

















Tier 1 common equity ratio (non-GAAP)  (e)


11.22

%



11.22

%



11.40

%















Pre-provision net revenue 













Net interest income (GAAP) 

$

563



$

583



$

583



Plus: 

Taxable-equivalent adjustment 


6




6




6




Noninterest income (GAAP) 


435




453




425



Less: 

Noninterest expense (GAAP) 


662




712




681



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

$

342



$

330



$

333


GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)


















Three months ended





3-31-14



12-31-13



3-31-13


Average tangible common equity













Average Key shareholders' equity (GAAP)

$

10,371



$

10,272



$

10,279



Less:

Intangible assets (average) (f)


1,013




1,016




1,027




Preferred Stock, Series A (average)


291




291




291




Average tangible common equity (non-GAAP)

$

9,067



$

8,965



$

8,961
















Return on average tangible common equity from continuing operations













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

$

232



$

229



$

196



Average tangible common equity (non-GAAP)


9,067




8,965




8,961

















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


10.38

%



10.13

%



8.87

%















Return on average tangible common equity consolidated













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

$

236



$

224



$

199



Average tangible common equity (non-GAAP)


9,067




8,965




8,961

















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


10.56

%



9.91

%



9.01

%















Cash efficiency ratio













Noninterest expense (GAAP)

$

662



$

712



$

681



Less:

Intangible asset amortization (GAAP)


10




10




12




Adjusted noninterest expense (non-GAAP)

$

652



$

702



$

669

















Net interest income (GAAP)

$

563



$

583



$

583



Plus:

Taxable-equivalent adjustment


6




6




6




Noninterest income (GAAP)


435




453




425




Total taxable-equivalent revenue (non-GAAP)

$

1,004



$

1,042



$

1,014

















Cash efficiency ratio (non-GAAP)


64.9

%



67.4

%



66.0

%


















Three months ended









3-31-14



12-31-13






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













Tier 1 common equity under current regulatory rules

$

9,423



$

9,347







Adjustments from current regulatory rules to the Regulatory Capital Rules:














Deferred tax assets and other (g)


(113)




(129)








Common Equity Tier 1 anticipated under the Regulatory Capital Rules (h)

$

9,310



$

9,218





















Net risk-weighted assets under current regulatory rules

$

83,951



$

83,328







Adjustments from current regulatory rules to the Regulatory Capital Rules:














Loan commitments less than one year


1,029




784








Past due loans


164




164








Mortgage servicing assets (i)


497




497








Deferred tax assets (i)


163




182








Other


1,431




1,413








Total risk-weighted assets anticipated under the Regulatory Capital Rules

$

87,235



$

86,368





















Common Equity Tier 1 ratio under the Regulatory Capital Rules (h)


10.67

%



10.67

%







(a)    

Three months ended March 31, 2014, December 31, 2013, and March 31, 2013, exclude $84 million, $92 million, and $114 million of period-end purchased credit card receivable intangible assets, respectively. 



(b)   

Net of capital surplus for the three months ended March 31, 2014, and December 31, 2013.



(c)    

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.  



(d)   

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 March 31, 2014, December 31, 2013, and March 31, 2013.



(e)    

3-31-14 amount is estimated.



(f)     

Three months ended March 31, 2014, December 31, 2013, and March 31, 2013, exclude $89 million, $96 million, and $118 million of average purchased credit card receivable intangible assets, respectively. 



(g)    

Includes the deferred tax asset subject to future taxable income for realization, primarily tax credit carryforwards, as well as the deductible potion of purchased credit card receivables.



(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%.



GAAP = U.S. generally accepted accounting principles

Consolidated Balance Sheets 

(dollars in millions) 



















3-31-14



12-31-13



3-31-13

Assets 













Loans 


$

55,445



$

54,457



$

52,574


Loans held for sale 



401




611




434


Securities available for sale 



12,359




12,346




13,496


Held-to-maturity securities  



4,826




4,756




3,721


Trading account assets 



840




738




701


Short-term investments 



2,922




5,590




3,081


Other investments 



899




969




1,059



Total earning assets 



77,692




79,467




75,066


Allowance for loan and lease losses 



(834)




(848)




(893)


Cash and due from banks 



409




617




621


Premises and equipment 



862




885




930


Operating lease assets 



294




305




309


Goodwill 



979




979




979


Other intangible assets 



117




127




159


Corporate-owned life insurance 



3,425




3,408




3,352


Derivative assets 



427




407




609


Accrued income and other assets 



3,004




3,015




2,884


Discontinued assets 



4,427




4,572




5,182



Total assets 


$

90,802



$

92,934



$

89,198















Liabilities 













Deposits in domestic offices: 














NOW and money market deposit accounts 


$

34,373



$

33,952



$

32,700



Savings deposits 



2,513




2,472




2,546



Certificates of deposit ($100,000 or more) 



2,849




2,631




2,998



Other time deposits 



3,682




3,648




4,324



     Total interest-bearing deposits 



43,417




42,703




42,568



Noninterest-bearing deposits 



23,244




26,001




21,564


Deposits in foreign office — interest-bearing 



605




558




522



     Total deposits 



67,266




69,262




64,654


Federal funds purchased and securities

       sold under repurchase agreements 



1,417




1,534




1,950


Bank notes and other short-term borrowings 



464




343




378


Derivative liabilities 



408




414




524


Accrued expense and other liabilities 



1,297




1,557




1,352


Long-term debt 



7,712




7,650




7,785


Discontinued liabilities  



1,819




1,854




2,176



Total liabilities 



80,383




82,614




78,819















Equity 













Preferred stock, Series A 



291




291




291


Common shares 



1,017




1,017




1,017


Capital surplus 



3,961




4,022




4,059


Retained earnings 



7,793




7,606




7,065


Treasury stock, at cost 



(2,335)




(2,281)




(1,930)


Accumulated other comprehensive income (loss) 



(324)




(352)




(162)



Key shareholders' equity 



10,403




10,303




10,340


Noncontrolling interests 



16




17




39



Total equity 



10,419




10,320




10,379

Total liabilities and equity 


$

90,802



$

92,934



$

89,198















Common shares outstanding (000) 



884,869




890,724




922,581

Consolidated Statements of Income   

(dollars in millions, except per share amounts) 















Three months ended 




3-31-14


12-31-13


3-31-13

Interest income 










Loans 

$

519


$

532


$

548


Loans held for sale 


4



6



4


Securities available for sale 


72



75



80


Held-to-maturity securities  


22



22



18


Trading account assets 


6



6



6


Short-term investments 


1



2



2


Other investments 


6



6



9



Total interest income 


630



649



667












Interest expense 










Deposits 


32



34



45


Federal funds purchased and securities sold under repurchase agreements 


1



—



1


Bank notes and other short-term borrowings 


2



3



1


Long-term debt 


32



29



37



Total interest expense 


67



66



84












Net interest income 


563



583



583

Provision (credit) for loan and lease losses 


6



19



55

Net interest income (expense) after provision for loan and lease losses 


557



564



528












Noninterest income 










Trust and investment services income  


98



98



95


Investment banking and debt placement fees 


84



84



79


Service charges on deposit accounts 


63



68



69


Operating lease income and other leasing gains 


29



26



25


Corporate services income 


42



40



45


Cards and payments income 


38



40



37


Corporate-owned life insurance income 


26



33



30


Consumer mortgage income 


2



3



7


Mortgage servicing fees 


15



22



8


Net gains (losses) from principal investing 


24



20



8


Other income  (a)


14



19



22



Total noninterest income 


435



453



425












Noninterest expense 










Personnel 


388



398



391


Net occupancy 


64



73



64


Computer processing 


38



40



39


Business services and professional fees 


41



42



35


Equipment 


24



26



26


Operating lease expense 


10



10



12


Marketing 


5



18



6


FDIC assessment 


6



7



8


Intangible asset amortization 


10



10



12


Provision (credit) for losses on lending-related commitments 


(2)



(3)



3


OREO expense, net


1



2



3


Other expense 


77



89



82



Total noninterest expense 


662



712



681

Income (loss) from continuing operations before income taxes


330



305



272


Income taxes 


92



70



70

Income (loss) from continuing operations


238



235



202


Income (loss) from discontinued operations, net of taxes


4



(5)



3

Net income (loss)


242



230



205


Less:  Net income (loss) attributable to noncontrolling interests   


—



—



1

Net income (loss) attributable to Key

$

242


$

230


$

204












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

$

232


$

229


$

196

Net income (loss) attributable to Key common shareholders 


236



224



199












Per common share 









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

$

.26


$

.26


$

.21

Income (loss) from discontinued operations, net of taxes 


—



(.01)



—

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


.27



.25



.22












Per common share — assuming dilution 









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

$

.26


$

.26


$

.21

Income (loss) from discontinued operations, net of taxes 


—



(.01)



—

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


.26



.25



.21












Cash dividends declared per common share 

$

.055


$

.055


$

.05












Weighted-average common shares outstanding (000) 


884,727



890,516



920,316










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


891,890



897,712



926,051























(a) 

For the three months ended March 31, 2014, December 31, 2013, and March 31, 2013, net securities gains (losses) totaled less than $1 million, $1 million, and less than $1 million, respectively.  For the three months ended March 31, 2014, December 31, 2013, and March 31, 2013, Key did not have any impairment losses related to securities. 












(b) 

Earnings per share may not foot due to rounding. 












(c) 

Assumes conversion of stock options and/or Preferred Series A shares, as applicable. 

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

(dollars in millions)




































First Quarter 2014



Fourth Quarter 2013



First Quarter 2013





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)

$

25,390


$

206



3.29

 %


$

24,218


$

212



3.47

 %


$

23,317


$

218



3.78

 %


Real estate — commercial mortgage


7,807



74



3.84




7,678



78



4.01




7,616



79



4.24



Real estate — construction


1,091



12



4.55




1,075



11



4.21




1,034



11



4.27



Commercial lease financing


4,439



42



3.78




4,513



41



3.62




4,843



47



3.92




    Total commercial loans


38,727



334



3.49




37,484



342



3.62




36,810



355



3.92



Real estate — residential mortgage


2,187



24



4.44




2,199



24



4.43




2,173



25



4.58



Home equity:
































Key Community Bank


10,305



100



3.92




10,310



102



3.92




9,787



96



3.97




Other


325



6



7.77




343



7



7.72




413



8



7.70




    Total home equity loans


10,630



106



4.04




10,653



109



4.04




10,200



104



4.12



Consumer other — Key Community Bank


1,438



25



7.06




1,446



26



7.18




1,343



25



7.58



Credit cards


701



20



11.28




701



20



11.17




704



22



12.61



Consumer other:
































Marine


996



15



6.18




1,056



17



6.24




1,311



20



6.29




Other


67



1



7.55




69



1



8.03




85



2



7.98




    Total consumer other 


1,063



16



6.26




1,125



18



6.35




1,396



22



6.39




    Total consumer loans


16,019



191



4.83




16,124



197



4.88




15,816



198



5.00




    Total loans


54,746



525



3.88




53,608



539



3.98




52,626



553



4.26



Loans held for sale


446



4



3.34




688



6



3.65




469



4



3.27



Securities available for sale (b), (e)


12,346



72



2.33




12,464



74



2.40




12,065



81



2.74



Held-to-maturity securities (b)


4,767



22



1.84




4,775



22



1.85




3,816



18



1.94



Trading account assets


981



6



2.51




819



6



2.90




710



6



3.44



Short-term investments


2,486



1



.17




4,455



2



.18




2,999



2



.22



Other investments (e)


936



6



2.57




983



6



2.47




1,059



9



3.59




    Total earning assets


76,708



636



3.32




77,792



655



3.37




73,744



673



3.67



Allowance for loan and lease losses


(842)










(859)










(896)









Accrued income and other assets


9,791










9,467










9,867









Discontinued assets


4,493










4,777










5,216










    Total assets

$

90,150









$

91,177









$

87,931








































Liabilities































NOW and money market deposit accounts

$

34,064



12



.14



$

33,834



12



.15



$

31,946



14



.18



Savings deposits


2,475



—



.03




2,483



—



.03




2,473



1



.05



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


2,758



10



1.50




2,649



11



1.57




2,911



14



1.99



Other time deposits


3,679



10



1.07




3,736



11



1.16




4,451



16



1.42



Deposits in foreign office


660



—



.22




615



—



.21




454



—



.25




    Total interest-bearing deposits


43,636



32



.30




43,317



34



.32




42,235



45



.43



Federal funds purchased and securities

        sold under repurchase agreements


1,469



1



.17




1,618



—



.15




1,913



1



.15



Bank notes and other short-term borrowings


587



2



1.63




438



3



1.96




387



1



1.75



Long-term debt (f), (g)


5,169



32



2.57




4,174



29



2.94




4,671



37



3.51




    Total interest-bearing liabilities


50,861



67



.54




49,547



66



.53




49,206



84



.70



Noninterest-bearing deposits


22,658










25,077










21,400









Accrued expense and other liabilities


1,750










1,548










1,799









Discontinued liabilities (g)


4,493










4,717










5,213










    Total liabilities


79,762










80,889










77,618








































Equity































Key shareholders' equity


10,371










10,272










10,279









Noncontrolling interests


17










16










34










    Total equity


10,388










10,288










10,313










































    Total liabilities and equity

$

90,150









$

91,177









$

87,931








































Interest rate spread (TE)








2.78

 %









2.84

 %









2.97

 %

































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





569



3.00

 %






589



3.01

 %






589



3.24

 %

TE adjustment (b)





6










6










6






Net interest income, GAAP basis




$

563









$

583









$

583







(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 $94 million, $97 million, and $91 million of assets from commercial credit cards for the three months ended March 31, 2014, December 31, 2013, and March 31, 2013, 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 our 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


3-31-14


12-31-13


3-31-13

Personnel  (a)

$

388


$

398


$

391

Net occupancy 


64



73



64

Computer processing 


38



40



39

Business services and professional fees 


41



42



35

Equipment 


24



26



26

Operating lease expense 


10



10



12

Marketing 


5



18



6

FDIC assessment 


6



7



8

Intangible asset amortization 


10



10



12

Provision (credit) for losses on lending-related commitments 


(2)



(3)



3

OREO expense, net 


1



2



3

Other expense 


77



89



82

     Total noninterest expense 

$

662


$

712


$

681










Average full-time equivalent employees  (b)


14,055



14,197



15,396










(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


3-31-14


12-31-13


3-31-13

Salaries

$

220


$

226


$

222

Technology contract labor, net


17



16



18

Incentive compensation 


72



87



73

Employee benefits


63



56



59

Stock-based compensation 


11



8



10

Severance


5



5



9

     Total personnel expense

$

388


$

398


$

391

Loan Composition 


(dollars in millions)


































Percent change 3-31-14 vs.






3-31-14


12-31-13


3-31-13


12-31-13


3-31-13


Commercial, financial and agricultural  (a)

$

26,224


$

24,963


$

23,412



5.1

%


12.0

%

Commercial real estate:

















Commercial mortgage


7,877



7,720



7,544



2.0



4.4



Construction


1,007



1,093



1,057



(7.9)



(4.7)



     Total commercial real estate loans


8,884



8,813



8,601



.8



3.3


Commercial lease financing  (b)


4,396



4,551



4,796



(3.4)



(8.3)



     Total commercial loans


39,504



38,327



36,809



3.1



7.3


Residential — prime loans:

















Real estate — residential mortgage


2,183



2,187



2,176



(.2)



.3



Home equity:


















Key Community Bank


10,281



10,340



9,809



(.6)



4.8




Other


315



334



401



(5.7)



(21.4)



Total home equity loans


10,596



10,674



10,210



(.7)



3.8


Total residential — prime loans


12,779



12,861



12,386



(.6)



3.2


Consumer other — Key Community Bank


1,436



1,449



1,353



(.9)



6.1


Credit cards


698



722



693



(3.3)



.7


Consumer other:

















Marine


965



1,028



1,254



(6.1)



(23.0)



Other


63



70



79



(10.0)



(20.3)



     Total consumer other


1,028



1,098



1,333



(6.4)



(22.9)



     Total consumer loans


15,941



16,130



15,765



(1.2)



1.1



Total loans (c), (d)

$

55,445


$

54,457


$

52,574



1.8

%


5.5

%


























































Loans Held for Sale Composition


(dollars in millions)


































Percent change 3-31-14 vs.






3-31-14


12-31-13


3-31-13


12-31-13


3-31-13


Commercial, financial and agricultural

$

44


$

278


$

180



(84.2)

%


(75.6)

%

Real estate — commercial mortgage


333



307



196



8.5



69.9


Commercial lease financing


8



9



9



(11.1)



(11.1)


Real estate — residential mortgage


16



17



49



(5.9)



(67.3)



Total loans held for sale

$

401


$

611


$

434



(34.4)

%


(7.6)

%


























































Summary of Changes in Loans Held for Sale


(dollars in millions)

























1Q14


4Q13


3Q13


2Q13


1Q13


Balance at beginning of period

$

611


$

699


$

402


$

434


$

599



New originations


645



1,669



1,467



1,241



1,075



Transfers from held to maturity, net


3



1



15



17



19



Loan sales


(596)



(1,750)



(1,181)



(1,292)



(1,257)



Loan draws (payments), net


(262)



(8)



(4)



—



—



Transfers to OREO / valuation adjustments


—



—



—



2



(2)


Balance at end of period

$

401


$

611


$

699


$

402


$

434




(a)   

March 31, 2014, December 31, 2013, and March 31, 2013, loan balances include $95 million, $94 million, and $93 million of commercial credit card balances, respectively.



(b)   

March 31, 2014, and December 31, 2013, commercial lease financing includes receivables of $124 million and $58 million, respectively, held as collateral for a secured borrowing.



(c)    

Excludes loans in the amount of $4.4 billion at March 31, 2014, $4.5 billion at December 31, 2013, and $5.1 billion at March 31, 2013, related to the discontinued operations of the education lending business.



(d)   

March 31, 2014, total loans include purchased loans of $159 million, of which $16 million were purchased credit impaired.  December 31, 2013, total loans include purchased loans of $166 million, of which $16 million were purchased credit impaired.  March 31, 2013, total loans include purchased loans of $204 million, of which $22 million were purchased credit impaired.



N/M = Not Meaningful

Exit Loan Portfolio From Continuing Operations

(dollars in millions)























Balance


Change


Net Loan


Balance on


Outstanding


3-31-14 vs.


Charge-offs


Nonperforming Status


3-31-14


12-31-13


12-31-13


1Q14  (c)


4Q13 (c)


3-31-14


12-31-13

Residential properties — homebuilder

$

20


$

20



—


$

(1)



—


$

7


$

7

Marine and RV floor plan


23



24


$

(1)



—



—



6



6

Commercial lease financing (a)


1,381



782



599



(2)


$

(2)



3



—

     Total commercial loans


1,424



826



598



(3)



(2)



16



13

Home equity — Other


315



334



(19)



2



3



11



16

Marine


965



1,028



(63)



4



5



15



26

RV and other consumer


63



70



(7)



1



1



1



1

     Total consumer loans


1,343



1,432



(89)



7



9



27



43

     Total exit loans in loan portfolio

$

2,767


$

2,258


$

509


$

4


$

7


$

43


$

56






















Discontinued operations — education

   lending business (not included in exit loans above) (b)

$

4,354


$

4,497


$

(143)


$

9


$

9


$

20


$

25
























(a)   

Includes (1) the business aviation, commercial vehicle, office products, construction and industrial leases; (2) Canadian lease financing portfolios; (3) European lease financing portfolios; and (4) all remaining balances related to lease in, lease out; sale in, lease out; service contract leases; and qualified technological equipment leases.



(b)  

Includes loans in Key's consolidated education loan securitization trusts.



(c)   

Credit amounts indicate recoveries exceeded charge-offs.

Asset Quality Statistics From Continuing Operations


(dollars in millions)






















1Q14 



4Q13 



3Q13 



2Q13 



1Q13 


Net loan charge-offs

$

20


$

37


$

37


$

45


$

49


Net loan charge-offs to average total loans


.15

%


.27

%


.28

%


.34

%


.38

%

Allowance for loan and lease losses

$

834


$

848


$

868


$

876


$

893


Allowance for credit losses (a)


869



885



908



913



925


Allowance for loan and lease losses to period-end loans


1.50

%


1.56

%


1.62

%


1.65

%


1.70

%

Allowance for credit losses to period-end loans


1.57



1.63



1.69



1.72



1.76


Allowance for loan and lease losses to nonperforming loans


185.7



166.9



160.4



134.4



137.4


Allowance for credit losses to nonperforming loans


193.5



174.2



167.8



140.0



142.3


Nonperforming loans at period end (b)

$

449


$

508


$

541


$

652


$

650


Nonperforming assets at period end


469



531



579



693



705


Nonperforming loans to period-end portfolio loans


.81

%


.93

%


1.01

%


1.23

%


1.24

%

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


.85



.97



1.08



1.30



1.34



















(a)

Includes the allowance for loan and lease losses plus the liability for credit losses on lending-related commitments.


















(b)

March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013, and March 31, 2013, loan balances exclude $16 million, $16 million, $18 million, $19 million, and $22 million of purchased credit impaired loans, respectively.

Summary of Loan and Lease Loss Experience From Continuing Operations 

(dollars in millions) 












Three months ended



3-31-14


12-31-13


3-31-13


Average loans outstanding

$

54,746


$

53,608


$

52,626












Allowance for loan and lease losses at beginning of period 

$

848


$

868


$

888


Loans charged off: 










     Commercial, financial and agricultural 


12



18



14












     Real estate — commercial mortgage 


2



2



13


     Real estate — construction  


2



1



1


              Total commercial real estate loans


4



3



14


     Commercial lease financing 


3



2



6


              Total commercial loans 


19



23



34


     Real estate — residential mortgage 


3



7



6


     Home equity:










          Key Community Bank


10



12



18


          Other


3



4



6


              Total home equity loans


13



16



24


     Consumer other — Key Community Bank


8



7



9


     Credit cards


6



5



8


     Consumer other:










          Marine


7



7



8


          Other


1



1



1


              Total consumer other 


8



8



9


              Total consumer loans 


38



43



56


              Total loans charged off


57



66



90


Recoveries: 










     Commercial, financial and agricultural 


10



9



12












     Real estate — commercial mortgage 


1



7



5


     Real estate — construction


14



—



8


              Total commercial real estate loans 


15



7



13


     Commercial lease financing


2



5



4


              Total commercial loans 


27



21



29


     Real estate — residential mortgage


1



1



—


     Home equity:










          Key Community Bank


3



2



2


          Other


1



1



2


              Total home equity loans


4



3



4


     Consumer other — Key Community Bank


2



2



2


     Credit cards


—



—



—


     Consumer other:










          Marine


3



2



5


          Other


—



—



1


              Total consumer other  


3



2



6


              Total consumer loans 


10



8



12


              Total recoveries 


37



29



41


Net loan charge-offs


(20)



(37)



(49)


Provision (credit) for loan and lease losses


6



19



55


Foreign currency translation adjustment


—



(2)



(1)


Allowance for loan and lease losses at end of period

$

834


$

848


$

893












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

$

37


$

40


$

29


Provision (credit) for losses on lending-related commitments