KeyCorp Reports Second Quarter 2015 Net Income of $230 Million, or $.27 Per Common Share

Positive operating leverage

Revenue up 4% from prior year, reflecting growth in fee income and loans

Continued growth in commercial loans and record investment banking and debt placement fees affirms strength of business model

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

Disciplined capital management: quarterly common share dividend increased 15% and continued share repurchases

Jul 16, 2015, 06:30 ET from KeyCorp

CLEVELAND, July 16, 2015 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced second quarter net income from continuing operations attributable to Key common shareholders of $230 million, or $.27 per common share, compared to $222 million, or $.26 per common share, for the first quarter of 2015, and $242 million, or $.27 per common share, for the second quarter of 2014.  

For the six months ended June 30, 2015, net income from continuing operations attributable to Key common shareholders was $452 million, or $.52 per common share, compared to $474 million, or $.53 per common share, for the same period one year ago.

"Second quarter results reflect our continued success in executing our strategy and driving growth across our company," said Chairman and Chief Executive Officer Beth Mooney. "We generated positive operating leverage and added new and expanded relationships in both our Community Bank and Corporate Bank."

"Revenue benefited from positive trends in our core fee-based businesses, including investment banking and debt placement fees, which had a record quarter and was up 42% from the prior year. We also had momentum in trust and investment services and cards and payments income. Average loans continued to grow, driven by commercial, financial and agricultural loans, which were up 10% from one year ago," continued Mooney.

"Credit quality remained strong, with a net charge-offs to average loans ratio of .25%, well below our targeted range," said Mooney.

"We continue to be disciplined in the way we manage our capital.  In the second quarter, our Board of Directors increased our quarterly common share dividend by 15% and we repurchased $129 million of common shares," added Mooney. "We expect our 2015 estimated payout ratio to remain among the highest in our peer group."

SECOND QUARTER 2015 FINANCIAL RESULTS, from continuing operations

Compared to Second Quarter of 2014

  • Average loans up 4.3%, driven by 9.7% growth in commercial, financial and agricultural loans
  • Average deposits, excluding deposits in foreign office, up 5.7% due to strength in commercial mortgage servicing and inflows from commercial and consumer clients
  • Net interest income (taxable-equivalent) up $12 million, as higher earning asset balances offset lower earning asset yields
  • Noninterest income up $33 million due to a record quarter for investment banking and debt placement fees and growth in other core fee-based businesses
  • Noninterest expense up $24 million primarily attributable to performance-based compensation and the third quarter 2014 acquisition of Pacific Crest Securities
  • The provision for credit losses was $41 million in the second quarter of 2015, compared to $12 million in the year-ago quarter
  • Asset quality remained strong, with net loan charge-offs to average loans of .25%, up from .22% in the year-ago quarter and remaining well below our targeted range of .40% to .60%
  • Disciplined capital management, repurchasing $129 million of common shares during the second quarter of 2015

Compared to First Quarter of 2015

  • Average loans up .8%, primarily driven by a 2.5% increase in commercial, financial and agricultural loans
  • Average deposits, excluding deposits in foreign office, up 2.1% primarily attributable to strength in commercial mortgage servicing and inflows from commercial and consumer clients
  • Net interest income (taxable-equivalent) up $14 million due to higher earning asset balances and day count
  • Noninterest income up $51 million, primarily due to a record quarter for investment banking and debt placement fees and growth in other core fee-based businesses
  • Noninterest expense up $42 million, primarily driven by performance-based compensation, seasonal trends, and higher business services and professional fees
  • The provision for credit losses was $41 million in the second quarter of 2015, compared to $35 million in the prior quarter
  • Strong asset quality, with net loan charge-offs to average loans  of .25%, compared to .20% in the first quarter of 2015 and remaining well below our targeted range of .40% to .60%
  • Disciplined capital management, maintaining a solid capital position with a Common Equity Tier 1 ratio of 10.69% compared to 10.64% in the prior quarter

 

Selected Financial Highlights

dollars in millions, except per share data

Change 2Q15 vs.

2Q15

1Q15

2Q14

1Q15

2Q14

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

$

230

$

222

$

242

3.6

%

(5.0)

%

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

.27

.26

.27

3.8

Return on average total assets from continuing operations

1.03

%

1.03

%

1.14

%

N/A

N/A

Common Equity Tier 1 (a)

10.69

10.64

N/A

N/A

N/A

Tier 1 common equity (a)

N/A

N/A

11.25

%

N/A

N/A

Book value at period end

$

12.21

$

12.12

$

11.65

.7

%

4.8

%

Net interest margin (TE) from continuing operations

2.88

%

2.91

%

2.98

%

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.

TE = Taxable Equivalent, N/A = Not Applicable

 

INCOME STATEMENT HIGHLIGHTS

Revenue

dollars in millions

Change 2Q15 vs.

2Q15

1Q15

2Q14

1Q15

2Q14

Net interest income (TE)

$

591

$

577

$

579

2.4

%

2.1

%

Noninterest income

488

437

455

11.7

7.3

Total revenue

$

1,079

$

1,014

$

1,034

6.4

%

4.4

%

TE = Taxable Equivalent

 

Taxable-equivalent net interest income was $591 million for the second quarter of 2015, and the net interest margin was 2.88%.  These results compare to taxable-equivalent net interest income of $579 million and a net interest margin of 2.98% for the second quarter of 2014.  The increase in net interest income reflects higher earning asset balances mitigated by lower earning asset yields, which also drove the decline in the net interest margin. 

Compared to the first quarter of 2015, taxable-equivalent net interest income increased by $14 million, and the net interest margin declined by three basis points. The increase in net interest income was primarily attributable to higher earning asset balances and day count in the second quarter of 2015.  The decline in the net interest margin reflects higher levels of excess liquidity driven by commercial deposit growth and slightly lower earning asset yields.

 

Noninterest Income

dollars in millions

Change 2Q15 vs.

2Q15 

1Q15 

2Q14 

1Q15 

2Q14 

Trust and investment services income

$

111

$

109

$

94

1.8

%

18.1

%

Investment banking and debt placement fees

141

68

99

107.4

42.4

Service charges on deposit accounts

63

61

66

3.3

(4.5)

Operating lease income and other leasing gains

24

19

35

26.3

(31.4)

Corporate services income

43

43

41

4.9

Cards and payments income

47

42

43

11.9

9.3

Corporate-owned life insurance income

30

31

28

(3.2)

7.1

Consumer mortgage income

4

3

2

33.3

100.0

Mortgage servicing fees

9

13

11

(30.8)

(18.2)

Net gains (losses) from principal investing

11

29

27

(62.1)

(59.3)

Other income

5

19

9

(73.7)

(44.4)

Total noninterest income

$

488

$

437

$

455

11.7

%

7.3

%

 

Key's noninterest income was $488 million for the second quarter of 2015, compared to $455 million for the year-ago quarter.  Results for the second quarter of 2015 reflect a record quarter for investment banking and debt placement fees, which increased $42 million year-over-year. This increase was primarily driven by strength in financial advisory fees and loan syndications. Investment banking and debt placement fees also benefited from the third quarter 2014 acquisition of Pacific Crest Securities. Trust and investment services income increased $17 million, primarily due to the impact of the Pacific Crest Securities acquisition as well as strength in Key's Retail and Private Banking businesses. Additionally, cards and payments income increased $4 million. Partially offsetting these increases was a $16 million decrease in net gains from principal investing and lower operating lease income and other leasing gains, which benefited from a $17 million gain from the early termination of a leveraged lease in the second quarter of 2014.

Compared to the first quarter of 2015, noninterest income increased by $51 million.  The largest driver of this increase was the growth in investment banking and debt placement fees, which increased by $73 million due to strength in financial advisory fees and loan syndications. Additionally, cards and payments income increased $5 million predominantly due to credit and debit card growth. Compared to the first quarter of 2015, the growth in the second quarter of 2015 was partially offset by $18 million of lower net gains from principal investing and a $14 million decline in other income.

Noninterest Expense

dollars in millions

Change 2Q15 vs.

2Q15

1Q15

2Q14

1Q15

2Q14

Personnel expense

$

408

$

389

$

389

4.9

%

4.9

%

Nonpersonnel expense

303

280

298

8.2

1.7

Total noninterest expense

$

711

$

669

$

687

6.3

%

3.5

%

 

Key's noninterest expense was $711 million for the second quarter of 2015, compared to $687 million in the second quarter of last year. This increase was primarily due to higher performance-based compensation and the third quarter 2014 acquisition of Pacific Crest Securities.

Compared to the first quarter of 2015, noninterest expense increased by $42 million. This increase was primarily driven by performance-based compensation, normal seasonal trends, and higher business services and professional fees.

BALANCE SHEET HIGHLIGHTS

In the second quarter of 2015, Key had average assets of $93.9 billion compared to $91.1 billion in the second quarter of 2014 and $91.9 billion in the first quarter of 2015.  Growth in Key's securities available for sale portfolio during the second quarter of 2015 resulted from higher levels of liquidity, driven by deposit growth and long-term debt issuance. In the second quarter of 2015, Key issued $1.75 billion in bank-level long-term debt, which benefited its liquidity coverage ratio and credit ratings profile. 

Average Loans

dollars in millions

Change 6-30-15 vs.

6-30-15

3-31-15

6-30-14

3-31-15

6-30-14

Commercial, financial and agricultural (a)

$

29,017

$

28,321

$

26,444

2.5

%

9.7

%

Other commercial loans

13,161

13,304

13,186

(1.1)

(.2)

Total home equity loans

10,510

10,576

10,627

(.6)

(1.1)

Other consumer loans

5,290

5,311

5,354

(.4)

(1.2)

Total loans

$

57,978

$

57,512

$

55,611

.8

%

4.3

%

(a)

Commercial, financial and agricultural average loan balances include $88 million, $87 million, and $95 million of assets from commercial credit cards at June 30, 2015, March 31, 2015, and June 30, 2014, respectively.

Average loans were $58.0 billion for the second quarter of 2015, an increase of $2.4 billion compared to the second quarter of 2014.  The loan growth occurred primarily in the commercial, financial and agricultural portfolio, which increased $2.6 billion and was broad-based across Key's commercial lines of business.  Consumer loans remained relatively stable as modest increases across Key's core consumer loan portfolio were offset by run-off in Key's consumer exit portfolios.  

Compared to the first quarter of 2015, average loans increased by $466 million, driven by commercial, financial and agricultural loans, which increased by $696 million.

Average Deposits

dollars in millions

Change 6-30-15 vs.

6-30-15

3-31-15

6-30-14

3-31-15

6-30-14

Non-time deposits (a)

$

65,109

$

63,606

$

60,066

2.4

%

8.4

%

Certificates of deposit ($100,000 or more)

2,010

2,017

2,808

(.3)

(28.4)

Other time deposits

3,136

3,217

3,587

(2.5)

(12.6)

Total deposits

$

70,255

$

68,840

$

66,461

2.1

%

5.7

%

Cost of total deposits (a)

.15

%

.15

%

.18

%

N/A

N/A

(a)

Excludes deposits in foreign office.

N/A = Not Applicable

 

Average deposits, excluding deposits in foreign office, totaled $70.3 billion for the second quarter of 2015, an increase of $3.8 billion compared to the year-ago quarter.  Noninterest-bearing deposits increased by $3.3 billion, and NOW and money market deposit accounts increased by $1.8 billion, reflecting continued growth in the commercial mortgage servicing business and inflows from commercial and consumer clients.  These increases were partially offset by a decline in certificates of deposit.

Compared to the first quarter of 2015, average deposits, excluding deposits in foreign office, increased by $1.4 billion.  The increase was driven by NOW and money market deposit accounts which increased $1.2 billion, and noninterest-bearing deposits which increased $325 million.  Higher escrow deposits from Key's commercial mortgage servicing business and inflows related to both commercial and consumer clients drove the linked-quarter increase.

ASSET QUALITY

dollars in millions

Change 2Q15 vs.

2Q15

1Q15

2Q14

1Q15

2Q14

Net loan charge-offs

$

36

$

28

$

30

28.6

%

20.0

%

Net loan charge-offs to average total loans

.25

%

.20

%

.22

%

N/A

N/A

Nonperforming loans at period end (a)

$

419

$

437

$

396

(4.1)

%

5.8

%

Nonperforming assets at period end

440

457

410

(3.7)

7.3

Allowance for loan and lease losses

796

794

814

.3

(2.2)

Allowance for loan and lease losses to nonperforming loans

190.0

%

181.7

%

205.6

%

N/A

N/A

Provision for credit losses

41

35

12

17.1

%

241.7

%

(a)  Loan balances exclude $12 million, $12 million, and $15 million of purchased credit impaired loans at June 30, 2015, March 31, 2015, and June 30, 2014,

       respectively.

N/A = Not Applicable

 

Key's provision for credit losses was $41 million for the second quarter of 2015, compared to $12 million for the second quarter of 2014 and $35 million for the first quarter of 2015.  Key's allowance for loan and lease losses was $796 million, or 1.37% of total period-end loans, at June 30, 2015, compared to 1.46% at June 30, 2014, and 1.37% at March 31, 2015. 

Net loan charge-offs for the second quarter of 2015 totaled $36 million, or .25% of average total loans.  These results compare to $30 million, or .22%, for the second quarter of 2014, and $28 million, or .20%, for the first quarter of 2015.  

At June 30, 2015, Key's nonperforming loans totaled $419 million and represented .72% of period-end portfolio loans, compared to .71% at June 30, 2014, and .75% at March 31, 2015.  Nonperforming assets at June 30, 2015 totaled $440 million and represented .75% of period-end portfolio loans and OREO and other nonperforming assets, compared to .74% at June 30, 2014, and .79% at March 31, 2015.  

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at June 30, 2015.

Capital Ratios

6-30-15

3-31-15

6-30-14

Common Equity Tier 1 (a), (b)

10.69

%

10.64

%

N/A

Tier 1 common equity (b)

N/A

N/A

11.25

%

Tier 1 risk-based capital (a)

11.10

%

11.04

%

11.99

Total risk based capital (a)

12.63

12.79

14.14

Tangible common equity to tangible assets (b)

9.86

9.92

10.15

Leverage (a)

10.73

10.91

11.24

(a)   

6-30-15 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 June 30, 2015, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 10.69% and 11.10%, respectively.  In addition, the tangible common equity ratio was 9.86% at June 30, 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 as calculated under the fully phased-in Regulatory Capital Rules was 10.58% at June 30, 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 2Q15 vs.

2Q15

1Q15

2Q14

1Q15

2Q14

Shares outstanding at beginning of period

850,920

859,403

884,869

(1.0)

%

(3.8)

%

Common shares repurchased

(8,794)

(14,087)

(7,824)

(37.6)

12.4

Shares reissued (returned) under employee benefit plans

1,482

5,571

(222)

(73.4)

N/M

Common shares exchanged for Series A Preferred Stock

33

N/M

N/M

Shares outstanding at end of period

843,608

850,920

876,823

(.9)

%

(3.8)

%

 

As previously reported, Key's 2015 capital plan includes common share repurchases of up to $725 million, which are expected to be executed through the second quarter of 2016. During the second quarter of 2015, Key completed $129 million of common share repurchases, including repurchases to offset issuances of common shares under employee compensation plans.

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 2Q15 vs.

2Q15

1Q15

2Q14

1Q15

2Q14

Revenue from continuing operations (TE)

Key Community Bank

$

559

$

549

$

553

1.8

%

1.1

%

Key Corporate Bank

477

401

395

19.0

20.8

Other Segments

44

66

87

(33.3)

(49.4)

Total segments

1,080

1,016

1,035

6.3

4.3

Reconciling Items

(1)

(2)

(1)

N/M

N/M

Total

$

1,079

$

1,014

$

1,034

6.4

%

4.4

%

Income (loss) from continuing operations attributable to Key

Key Community Bank

$

65

$

50

$

53

30.0

%

22.6

%

Key Corporate Bank

135

127

135

6.3

Other Segments

31

44

54

(29.5)

(42.6)

Total segments

231

221

242

4.5

(4.5)

Reconciling Items

4

7

5

(42.9)

(20.0)

Total

$

235

$

228

$

247

3.1

%

(4.9)

%

TE = Taxable Equivalent, N/M = Not Meaningful

 

 

Key Community Bank

dollars in millions

Change 2Q15 vs.

2Q15

1Q15

2Q14

1Q15

2Q14

Summary of operations

Net interest income (TE)

$

362

$

358

$

361

1.1

%

.3

%

Noninterest income

197

191

192

3.1

2.6

Total revenue (TE)

559

549

553

1.8

1.1

Provision for credit losses

7

29

25

(75.9)

(72.0)

Noninterest expense

449

441

443

1.8

1.4

Income (loss) before income taxes (TE)

103

79

85

30.4

21.2

Allocated income taxes (benefit) and TE adjustments

38

29

32

31.0

18.8

Net income (loss) attributable to Key

$

65

$

50

$

53

30.0

%

22.6

%

Average balances

Loans and leases

$

30,707

$

30,662

$

30,034

.1

%

2.2

%

Total assets

32,758

32,716

32,132

.1

1.9

Deposits

50,766

50,417

50,232

.7

1.1

Assets under management at period end

$

38,399

$

39,281

$

39,632

(2.2)

%

(3.1)

%

TE = Taxable Equivalent

 

Additional Key Community Bank Data

dollars in millions

Change 2Q15 vs.

2Q15

1Q15

2Q14

1Q15

2Q14

Noninterest income 

Trust and investment services income 

$

76

$

75

$

71

1.3

%

7.0

%

Service charges on deposit accounts 

52

51

55

2.0

(5.5)

Cards and payments income 

43

38

38

13.2

13.2

Other noninterest income 

26

27

28

(3.7)

(7.1)

Total noninterest income 

$

197

$

191

$

192

3.1

%

2.6

%

Average deposit balances

NOW and money market deposit accounts

$

28,284

$

27,873

$

27,578

1.5

%

2.6

%

Savings deposits

2,385

2,377

2,483

.3

(3.9)

Certificates of deposit ($100,000 or more)

1,547

1,558

2,169

(.7)

(28.7)

Other time deposits

3,132

3,211

3,580

(2.5)

(12.5)

Deposits in foreign office

299

333

294

(10.2)

1.7

Noninterest-bearing deposits

15,119

15,065

14,128

.4

7.0

Total deposits 

$

50,766

$

50,417

$

50,232

.7

%

1.1

%

Home equity loans 

Average balance

$

10,266

$

10,316

$

10,321

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

71

%

71

%

71

%

Percent first lien positions

60

60

59

Other data

Branches

989

992

1,009

Automated teller machines

1,280

1,287

1,311

 

Key Community Bank Summary of Operations

  • Net income increased to $65 million, up 22.6% from prior year
  • Commercial, financial, and agricultural loan growth of $692 million, or 5.9% from prior year
  • Average deposits (excluding certificates of deposit and other time deposits) up $1.6 billion, or 3.6% from the prior year

Key Community Bank recorded net income attributable to Key of $65 million for the second quarter of 2015, compared to net income attributable to Key of $53 million for the year-ago quarter.

Taxable-equivalent net interest income increased by $1 million, or .3%, from the second quarter of 2014.  Average loans and leases increased 2.2% due to commercial, financial, and agricultural loan growth of $692 million, or 5.9%, while average deposits increased 1.1% from one year ago.

Noninterest income increased by $5 million, or 2.6%, from the year-ago quarter.  Year-over-year improvement reflected core business growth, including trust and investment services income and cards and payments income, which each increased $5 million, partially offset by a $3 million decrease in service charges on deposit accounts.

The provision for credit losses was $7 million in the second quarter of 2015, compared to $25 million for the same period one year ago.

Noninterest expense increased by $6 million, or 1.4%, from the year-ago quarter, including increases in personnel expense of $2 million and nonpersonnel expense of $4 million, driven by higher marketing and sales-related expenses. 

Key Corporate Bank

dollars in millions

Change 2Q15 vs.

2Q15

1Q15

2Q14

1Q15

2Q14

Summary of operations

Net interest income (TE)

$

227

$

213

$

210

6.6

%

8.1

%

Noninterest income

250

188

185

33.0

35.1

Total revenue (TE)

477

401

395

19.0

20.8

Provision for credit losses

38

8

(4)

375.0

N/M

Noninterest expense

252

216

207

16.7

21.7

Income (loss) before income taxes (TE)

187

177

192

5.6

(2.6)

Allocated income taxes and TE adjustments

52

50

54

4.0

(3.7)

Net income (loss)

135

127

138

6.3

(2.2)

%

Less: Net income (loss) attributable to noncontrolling interests

3

N/M

N/M

Net income (loss) attributable to Key

$

135

$

127

$

135

6.3

%

Average balances

Loans and leases   

$

25,298

$

24,722

$

22,886

2.3

%

10.5

%

Loans held for sale   

1,234

775

429

59.2

187.6

Total assets

31,228

30,297

28,007

3.1

11.5

Deposits

19,708

18,567

16,357

6.1

20.5

Assets under management at period end

$

37

N/M 

N/M 

TE = Taxable Equivalent, N/M = Not Meaningful

 

 

Additional Key Corporate Bank Data

dollars in millions

Change 2Q15 vs.

2Q15

1Q15

2Q14

1Q15

2Q14

Noninterest income

Trust and investment services income

$

35

$

34

$

23

2.9

%

52.2

%

Investment banking and debt placement fees

139

68

97

104.4

43.3

Operating lease income and other leasing gains

18

14

11

28.6

63.6

Corporate services income

33

32

30

3.1

10.0

Service charges on deposit accounts

11

10

11

10.0

Cards and payments income

4

4

3

33.3

Payments and services income

48

46

44

4.3

9.1

Mortgage servicing fees

9

13

11

(30.8)

(18.2)

Other noninterest income

1

13

(1)

(92.3)

N/M

Total noninterest income

$

250

$

188

$

185

33.0

%

35.1

%

N/M = Not Meaningful

 

Key Corporate Bank Summary of Operations

  • Record high quarter for investment banking and debt placement fees
  • Revenue up 20.8% from the prior year
  • Average loan and lease balances up 10.5% from the prior year
  • Average deposits up 20.5% from the prior year

Key Corporate Bank recorded net income attributable to Key of $135 million for the second quarter of 2015, unchanged from the same period one year ago. 

Taxable-equivalent net interest income increased by $17 million, or 8.1%, compared to the second quarter of 2014.  Average earning assets increased $2.6 billion, or 10.3%, from the year-ago quarter, primarily driven by loan growth in commercial, financial and agricultural and real estate commercial mortgage loans.  This growth in earning assets drove an increase of $10 million in earning asset spread.  Average deposit balances increased $3.4 billion, or 20.5%, from the year-ago quarter, driven by commercial mortgage servicing deposits and other commercial client inflows.  This growth in deposit balances drove an increase of $13 million in deposit and borrowing spread.         

Noninterest income was up $65 million, or 35.1% from the prior year.  This growth was primarily due to a record high quarter for investment banking and debt placement fees, which increased $42 million or 43.3%, driven by strength in financial advisory fees and loan syndications.  Trust and investment services income increased $12 million, mostly due to the Pacific Crest Securities acquisition.  Operating lease income and other leasing gains also increased $7 million, or 63.6%.     

The provision for credit losses was an expense of $38 million for the second quarter of 2015, compared to a credit of $4 million for the same period one year ago.

Noninterest expense increased by $45 million, or 21.7%, from the second quarter of 2014.  This increase was due to performance-based compensation and expenses related to the third quarter 2014 acquisition of Pacific Crest Securities.

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 $31 million for the second quarter of 2015, compared to net income attributable to Key of $54 million for the same period last year.  These results were primarily due to $16 million in lower net gains on principal investing and $19 million in lower operating lease income and other leasing gains, partially offset by a $3 million increase in corporate-owned life insurance income and lower personnel expense. 

*****

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 $94.6 billion at June 30, 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, which has been filed with the Securities and Exchange Commission (the "SEC") and is 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 9:00 a.m. ET, on Thursday, July 16, 2015.  An audio replay of the call will be available through July 23, 2015.

 

Financial Highlights 

(dollars in millions, except per share amounts)

Three months ended

6-30-15

3-31-15

6-30-14

Summary of operations 

Net interest income (TE)

$

591

$

577

$

579

Noninterest income

488

437

455

Total revenue (TE) 

1,079

1,014

1,034

Provision for credit losses

41

35

12

Noninterest expense

711

669

687

Income (loss) from continuing operations attributable to Key

235

228

247

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

3

5

(28)

Net income (loss) attributable to Key 

238

233

219

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

$

230

$

222

$

242

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

3

5

(28)

Net income (loss) attributable to Key common shareholders

233

227

214

Per common share 

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

$

.27

$

.26

$

.28

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

.01

(.03)

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

.28

.27

.24

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

.27

.26

.27

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

.01

(.03)

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

.27

.26

.24

Cash dividends paid 

.075

.065

.065

Book value at period end 

12.21

12.12

11.65

Tangible book value at period end 

10.92

10.84

10.50

Market price at period end 

15.02

14.16

14.33

Performance ratios 

From continuing operations: 

Return on average total assets 

1.03

%

1.03

%

1.14

%

Return on average common equity 

8.96

8.76

9.55

Return on average tangible common equity  (c)

10.01

9.80

10.60

Net interest margin (TE) 

2.88

2.91

2.98

Cash efficiency ratio  (c)

65.1

65.1

65.6

From consolidated operations: 

Return on average total assets 

1.02

%

1.03

%

.96

%

Return on average common equity 

9.07

8.96

8.44

Return on average tangible common equity  (c)

10.14

10.02

9.37

Net interest margin (TE) 

2.85

2.88

2.94

Loan to deposit  (d)

87.3

86.9

87.1

Capital ratios at period end 

Key shareholders' equity to assets  

11.19

%

11.26

%

11.44

%

Key common shareholders' equity to assets 

10.89

10.95

11.13

Tangible common equity to tangible assets  (c)

9.86

9.92

10.15

Common Equity Tier 1  (c), (e)

10.69

10.64

N/A 

Tier 1 common equity  (c)

N/A 

N/A 

11.25

Tier 1 risk-based capital  (e)

11.10

11.04

11.99

Total risk-based capital  (e)

12.63

12.79

14.14

Leverage  (e)

10.73

10.91

11.24

Asset quality — from continuing operations 

Net loan charge-offs 

$

36

$

28

$

30

Net loan charge-offs to average loans  

.25

%

.20

%

.22

%

Allowance for loan and lease losses 

$

796

$

794

$

814

Allowance for credit losses

841

835

851

Allowance for loan and lease losses to period-end loans 

1.37

%

1.37

%

1.46

%

Allowance for credit losses to period-end loans 

1.44

1.44

1.53

Allowance for loan and lease losses to nonperforming loans 

190.0

181.7

205.6

Allowance for credit losses to nonperforming loans  

200.7

191.1

214.9

Nonperforming loans at period end  (f)

$

419

$

437

$

396

Nonperforming assets at period end 

440

457

410

Nonperforming loans to period-end portfolio loans 

.72

%

.75

%

.71

%

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

.75

.79

.74

Trust and brokerage assets 

Assets under management 

$

38,399

$

39,281

$

39,669

Nonmanaged and brokerage assets  

48,789

49,508

48,728

Other data 

Average full-time equivalent employees 

13,455

13,591

13,867

Branches 

989

992

1,009

Taxable-equivalent adjustment 

$

7

$

6

$

6

 

Financial Highlights (continued) 

(dollars in millions, except per share amounts) 

Six months ended

6-30-15

6-30-14

Summary of operations 

Net interest income (TE) 

$

1,168

$

1,148

Noninterest income 

925

890

Total revenue (TE) 

2,093

2,038

Provision for credit losses 

76

16

Noninterest expense 

1,380

1,351

Income (loss) from continuing operations attributable to Key 

463

485

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

8

(24)

Net income (loss) attributable to Key   

471

461

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

$

452

$

474

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

8

(24)

Net income (loss) attributable to Key common shareholders 

460

450

Per common share 

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

$

.53

$

.54

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

.01

(.03)

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

.54

.51

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

.52

.53

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

.01

(.03)

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

.53

.51

Cash dividends paid 

.14

.12

Performance ratios  

From continuing operations:  

Return on average total assets  

1.03

%

1.13

%

Return on average common equity  

8.86

9.44

Return on average tangible common equity   (c)

9.91

10.49

Net interest margin (TE)  

2.89

2.99

Cash efficiency ratio  (c)

65.1

65.4

From consolidated operations: 

Return on average total assets 

1.02

%

1.03

%

Return on average common equity 

9.01

8.96

Return on average tangible common equity   (c)

10.08

9.96

Net interest margin (TE) 

2.86

2.95

Asset quality — from continuing operations 

Net loan charge-offs 

$

64

$

50

Net loan charge-offs to average total loans  

.22

%

.18

%

Other data 

Average full-time equivalent employees 

13,512

13,961

Taxable-equivalent adjustment 

$

13

$

12

(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 (excluding education loans in the securitization trusts for periods prior to September 30, 2014) divided by period-end consolidated total deposits (excluding deposits in foreign office).

(e)     

6-30-15 ratio is estimated.

(f)       

Loan balances exclude $12 million, $12 million, and $15 million of purchased credit impaired loans at June 30, 2015, March 31, 2015, and June 30, 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  

6-30-15

3-31-15

6-30-14

Tangible common equity to tangible assets at period end 

Key shareholders' equity (GAAP) 

$

10,590

$

10,603

$

10,504

Less:  

Intangible assets  (a)

1,085

1,088

1,008

Preferred Stock, Series A  (b)

281

281

282

Tangible common equity (non-GAAP)   

$

9,224

$

9,234

$

9,214

Total assets (GAAP) 

$

94,606

$

94,206

$

91,798

Less:  

Intangible assets  (a)

1,085

1,088

1,008

Tangible assets (non-GAAP) 

$

93,521

$

93,118

$

90,790

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

9.86

%

9.92

%

10.15

%

Common Equity Tier 1 at period end 

Key shareholders' equity (GAAP) 

$

10,590

$

10,603

Less: 

Preferred Stock, Series A  (b)

281

281

Common Equity Tier 1 capital before adjustments and deductions 

10,309

10,322

Less: 

Goodwill, net of deferred taxes 

1,036

1,036

Intangible assets, net of deferred taxes 

33

36

Deferred tax assets 

1

1

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

1

52

Accumulated gain (loss) on cash flow hedges, net of deferred taxes 

(21)

(8)

Amounts recorded in accumulated other comprehensive income (loss), net of 

deferred taxes 

(362)

(364)

Total Common Equity Tier 1 capital  (c)

$

9,621

$

9,569

Net risk-weighted assets (regulatory)  (c)

$

89,995

$

89,967

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

10.69

%

10.64

%

Tier 1 common equity at period end 

Key shareholders' equity (GAAP)  

$

10,504

Qualifying capital securities  

339

Less: 

Goodwill  

979

Accumulated other comprehensive income (loss)  (d)

(328)

Other assets  (e)

86

Total Tier 1 capital (regulatory) 

10,106

Less:  

Qualifying capital securities  

339

Preferred Stock, Series A  (b)

282

Total Tier 1 common equity (non-GAAP)   

$

9,485

Net risk-weighted assets (regulatory) 

$

84,287

Tier 1 common equity ratio (non-GAAP) 

11.25

%

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)

Three months ended

6-30-15

3-31-15

6-30-14

Pre-provision net revenue 

Net interest income (GAAP) 

$

584

$

571

$

573

Plus: 

Taxable-equivalent adjustment 

7

6

6

Noninterest income (GAAP) 

488

437

455

Less: 

Noninterest expense (GAAP) 

711

669

687

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

$

368

$

345

$

347

Average tangible common equity

Average Key shareholders' equity (GAAP)

$

10,590

$

10,570

$

10,459

Less:

Intangible assets (average) (f)

1,086

1,089

1,010

Preferred Stock, Series A (average)

290

290

291

Average tangible common equity (non-GAAP)

$

9,214

$

9,191

$

9,158

Return on average tangible common equity from continuing operations

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

$

230

$

222

$

242

Average tangible common equity (non-GAAP)

9,214

9,191

9,158

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

10.01

%

9.80

%

10.60

%

Return on average tangible common equity consolidated

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

$

233

$

227

$

214

Average tangible common equity (non-GAAP)

9,214

9,191

9,158

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

10.14

%

10.02

%

9.37

%

Cash efficiency ratio

Noninterest expense (GAAP)

$

711

$

669

$

687

Less:

Intangible asset amortization (GAAP)

9

9

9

Adjusted noninterest expense (non-GAAP)

$

702

$

660

$

678

Net interest income (GAAP)

$

584

$

571

$

573

Plus:

Taxable-equivalent adjustment

7

6

6

Noninterest income (GAAP)

488

437

455

Total taxable-equivalent revenue (non-GAAP)

$

1,079

$

1,014

$

1,034

Cash efficiency ratio (non-GAAP)

65.1

%

65.1

%

65.6

%

Three months

 ended

6-30-15

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

Common Equity Tier 1 under current regulatory rules

$

9,621

Adjustments from current regulatory rules to the Regulatory Capital Rules:

Deferred tax assets and other assets (g)

(51)

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

$

9,570

Net risk-weighted assets under current regulatory rules

$

89,995

Adjustments from current regulatory rules to the Regulatory Capital Rules:

Mortgage servicing assets (i)

494

Deferred tax assets (i)

22

Significant investments (i)

Other assets (j)

(51)

Total risk-weighted assets anticipated under the Regulatory Capital Rules (h)

$

90,460

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

10.58

%

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)

Six months ended

6-30-15

6-30-14

Pre-provision net revenue

Net interest income (GAAP)

$

1,155

$

1,136

Plus:

Taxable-equivalent adjustment

13

12

Noninterest income (GAAP)

925

890

Less:

Noninterest expense (GAAP)

1,380

1,351

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

$

713

$

687

Average tangible common equity

Average Key shareholders' equity (GAAP)

$

10,580

$

10,415

Less:

Intangible assets (average) (k)

1,088

1,011

Preferred Stock, Series A (average)

290

291

Average tangible common equity (non-GAAP)

$

9,202

$

9,113

Return on average tangible common equity from continuing operations

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

$

452

$

474

Average tangible common equity (non-GAAP)

9,202

9,113

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

9.91

%

10.49

%

Return on average tangible common equity consolidated

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

$

460

$

450

Average tangible common equity (non-GAAP)

9,202

9,113

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

10.08

%

9.96

%

Cash efficiency ratio

Noninterest expense (GAAP)

$

1,380

$

1,351

Less:

Intangible asset amortization (GAAP)

18

19

Adjusted noninterest expense (non-GAAP)

$

1,362

$

1,332

Net interest income (GAAP)

$

1,155

$

1,136

Plus:

Taxable-equivalent adjustment

13

12

Noninterest income (GAAP)

925

890

Total taxable-equivalent revenue (non-GAAP)

$

2,093

$

2,038

Cash efficiency ratio (non-GAAP)

65.1

%

65.4

%

 

(a)   

For the three months ended June 30, 2015, March 31, 2015, and June 30, 2014, intangible assets exclude $55 million, $61 million, and $79 million, respectively, of period-end purchased credit card receivables. 

(b)    

Net of capital surplus.

(c)  

6-30-15 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 June 30, 2014.

(f)   

For the three months ended June 30, 2015, March 31, 2015, and June 30, 2014, average intangible assets exclude $58 million, $64 million, and $82 million, respectively, of average purchased credit card receivables. 

(g)   

Includes the deferred tax asset subject to future taxable income for realization, primarily tax credit carryforwards, as well as the deductible portion 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%.

(j)    

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 six months ended June 30, 2015, and June 30, 2014, average intangible assets exclude $61 million, and $85 million, respectively, of average purchased credit card receivables.

GAAP = U.S. generally accepted accounting principles

 

 

 

Consolidated Balance Sheets 

(dollars in millions) 

6-30-15

3-31-15

6-30-14

Assets 

Loans 

$

58,264

$

57,953

$

55,600

Loans held for sale 

835

1,649

435

Securities available for sale 

14,244

13,120

12,224

Held-to-maturity securities  

5,022

5,005

5,233

Trading account assets 

674

789

890

Short-term investments 

3,222

3,378

3,176

Other investments 

703

730

899

Total earning assets 

82,964

82,624

78,457

Allowance for loan and lease losses 

(796)

(794)

(814)

Cash and due from banks 

693

506

604

Premises and equipment 

788

806

844

Operating lease assets 

296

306

306

Goodwill 

1,057

1,057

979

Other intangible assets 

83

92

108

Corporate-owned life insurance 

3,502

3,488

3,438

Derivative assets 

536

731

549

Accrued income and other assets 

3,314

3,144

3,090

Discontinued assets 

2,169

2,246

4,237

Total assets 

$

94,606

$

94,206

$

91,798

Liabilities 

Deposits in domestic offices: 

NOW and money market deposit accounts 

$

36,024

$

35,623

$

33,637

Savings deposits 

2,370

2,413

2,450

Certificates of deposit ($100,000 or more) 

2,032

1,982

2,743

Other time deposits 

3,105

3,182

3,505

     Total interest-bearing deposits 

43,531

43,200

42,335

Noninterest-bearing deposits 

26,640

27,948

24,781

Deposits in foreign office — interest-bearing 

498

474

683

     Total deposits 

70,669

71,622

67,799

Federal funds purchased and securities

       sold under repurchase agreements 

444

517

1,213

Bank notes and other short-term borrowings 

528

608

521

Derivative liabilities 

560

825

451

Accrued expense and other liabilities 

1,537

1,308

1,400

Long-term debt 

10,267

8,713

8,213

Discontinued liabilities  

1,680

Total liabilities 

84,005

83,593

81,277

Equity 

Preferred stock, Series A 

290

290

291

Common shares 

1,017

1,017

1,017

Capital surplus 

3,898

3,910

3,987

Retained earnings 

8,614

8,445

7,950

Treasury stock, at cost 

(2,884)

(2,780)

(2,452)

Accumulated other comprehensive income (loss) 

(345)

(279)

(289)

Key shareholders' equity 

10,590

10,603

10,504

Noncontrolling interests 

11

10

17

Total equity 

10,601

10,613

10,521

Total liabilities and equity 

$

94,606

$

94,206

$

91,798

Common shares outstanding (000) 

843,608

850,920

876,823

 

Consolidated Statements of Income   

(dollars in millions, except per share amounts) 

Three months ended 

Six months ended 

6-30-15

3-31-15

6-30-14

6-30-15

6-30-14

Interest income 

Loans 

$

532

$

523

$

526

$

1,055

$

1,045

Loans held for sale 

12

7

5

19

9

Securities available for sale 

72

70

71

142

143

Held-to-maturity securities  

24

24

23

48

45

Trading account assets 

5

5

7

10

13

Short-term investments 

2

2

1

4

2

Other investments 

5

5

6

10

12

Total interest income 

652

636

639

1,288

1,269

Interest expense 

Deposits 

26

26

31

52

63

Federal funds purchased and securities

 sold under repurchase agreements 

1

Bank notes and other short-term borrowings 

2

2

2

4

4

Long-term debt 

40

37

33

77

65

Total interest expense 

68

65

66

133

133

Net interest income 

584

571

573

1,155

1,136

Provision for credit losses 

41

35

12

76

16

Net interest income after provision for credit losses 

543

536

561

1,079

1,120

Noninterest income 

Trust and investment services income  

111

109

94

220

192

Investment banking and debt placement fees 

141

68

99

209

183

Service charges on deposit accounts 

63

61

66

124

129

Operating lease income and other leasing gains 

24

19

35

43

64

Corporate services income 

43

43

41

86

83

Cards and payments income 

47

42

43

89

81

Corporate-owned life insurance income 

30

31

28

61

54

Consumer mortgage income 

4

3

2

7

4

Mortgage servicing fees 

9

13

11

22

26

Net gains (losses) from principal investing 

11

29

27

40

51

Other income  (a)

5

19

9

24

23

Total noninterest income 

488

437

455

925

890

Noninterest expense 

Personnel 

408

389

389

797

777

Net occupancy 

66

65

68

131

132

Computer processing 

42

38

41

80

79

Business services and professional fees 

42

33

41

75

82

Equipment 

22

22

24

44

48

Operating lease expense 

12

11

10

23

20

Marketing 

15

8

13

23

18

FDIC assessment 

8

8

6

16

12

Intangible asset amortization 

9

9

9

18

19

OREO expense, net

1

2

1

3

2

Other expense 

86

84

85

170

162

Total noninterest expense 

711

669

687

1,380

1,351

Income (loss) from continuing operations before income taxes

320

304

329

624

659

Income taxes 

84

74

76

158

168

Income (loss) from continuing operations

236

230

253

466

491

Income (loss) from discontinued operations, net of taxes

3

5

(28)

8

(24)

Net income (loss)

239

235

225

474

467

Less:  Net income (loss) attributable to noncontrolling interests   

1

2

6

3

6

Net income (loss) attributable to Key

$

238

$

233

$

219

$

471

$

461

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

$

230

$

222

$

242

$

452

$

474

Net income (loss) attributable to Key common shareholders 

233

227

214

460

450

Per common share 

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

$

.27

$

.26

$

.28

$

.53

$

.54

Income (loss) from discontinued operations, net of taxes 

.01

(.03)

.01

(.03)

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

.28

.27

.24

.54

.51

Per common share — assuming dilution 

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

$

.27

$

.26

$

.27

$

.52

$

.53

Income (loss) from discontinued operations, net of taxes 

.01

(.03)

.01

(.03)

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

.27

.26

.24

.53

.51

Cash dividends declared per common share 

$

.075

$

.065

$

.065

$

.14

$

.12

Weighted-average common shares outstanding (000) 

839,454

848,580

875,298

843,992

879,986

Effect of convertible preferred stock 

20,602

Effect of common share options and other stock awards

6,858

8,542

6,237

7,695

6,698

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

846,312

857,122

902,137

851,687

886,684

(a) 

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

(b) 

Earnings per share may not foot due to rounding. 

(c) 

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)

Second Quarter 2015

First Quarter 2015

Second 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)

$

29,017

$

233

3.23

 %

$

28,321

$

223

3.18

 %

$

26,444

$

219

3.31

 %

Real estate — commercial mortgage

7,981

74

3.70

8,095

73

3.67

7,880

74

3.79

Real estate — construction

1,199

11

3.60

1,139

11

3.90

1,049

11

4.03

Commercial lease financing

3,981

36

3.58

4,070

36

3.57

4,257

38

3.54

    Total commercial loans

42,178

354

3.36

41,625

343

3.33

39,630

342

3.45

Real estate — residential mortgage

2,237

23

4.22

2,229

24

4.26

2,189

24

4.41

Home equity:

Key Community Bank

10,266

99

3.89

10,316

99

3.89

10,321

100

3.92

Other

244

5

7.86

260

5

7.82

306

6

7.80

    Total home equity loans

10,510

104

3.98

10,576

104

3.99

10,627

106

4.03

Consumer other — Key Community Bank

1,571

26

6.52

1,546

25

6.66

1,479

26

6.97

Credit cards

737

19

10.57

732

20

11.01

702

18

10.39

Consumer other:

Marine

702

11

6.30

755

12

6.35

926

15

6.18

Other

43

1

7.77

49

1

7.32

58

1

8.09

    Total consumer other 

745

12

6.38

804

13

6.41

984

16

6.29

    Total consumer loans

15,800

184

4.69

15,887

186

4.74

15,981

190

4.77

    Total loans

57,978

538

3.72

57,512

529

3.72

55,611

532

3.83

Loans held for sale

1,263

12

3.91

795

7

3.33

458

5

4.14

Securities available for sale (b), (e)

13,360

73

2.17

13,087

70

2.17

12,408

71

2.30

Held-to-maturity securities (b)

4,965

24

1.91

4,947

24

1.93

4,973

23

1.87

Trading account assets

805

5

2.55

717

5

2.80

985

7

2.80

Short-term investments

3,228

2

.26

2,399

2

.27

2,475

1

.17

Other investments (e)

713

5

2.48

742

5

2.79

888

6

2.64

    Total earning assets

82,312

659

3.21

80,199

642

3.23

77,798

645

3.31

Allowance for loan and lease losses

(793)

(793)

(824)

Accrued income and other assets

10,140

10,223

9,767

Discontinued assets

2,194

2,271

4,341

    Total assets

$

93,853

$

91,900

$

91,082

Liabilities

NOW and money market deposit accounts

$

36,122

14

.16

$

34,952

13

.15

$

34,283

11

.14

Savings deposits

2,393

.02

2,385

.02

2,493

.03

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

2,010

6

1.25

2,017

7

1.30

2,808

10

1.39

Other time deposits

3,136

5

.70

3,217

6

.72

3,587

9

.98

Deposits in foreign office

583

1

.23

529

.22

662

1

.23

    Total interest-bearing deposits

44,244

26

.24

43,100

26

.24

43,833

31

.28

Federal funds purchased and securities

        sold under repurchase agreements

557

.02

720

.03

1,470

.19

Bank notes and other short-term borrowings

657

2

1.39

506

2

1.56

545

2

1.54

Long-term debt (f), (g)

6,968

40

2.30

6,126

37

2.52

5,476

33

2.51

    Total interest-bearing liabilities

52,426

68

.52

50,452

65

.52

51,324

66

.52

Noninterest-bearing deposits

26,594

26,269

23,290

Accrued expense and other liabilities

2,039

2,327

1,654

Discontinued liabilities (g)

2,194

2,271

4,341

    Total liabilities

83,253

81,319

80,609

Equity

Key shareholders' equity

10,590

10,570

10,459

Noncontrolling interests

10

11

14

    Total equity

10,600

10,581

10,473

    Total liabilities and equity

$

93,853

$

91,900

$

91,082

Interest rate spread (TE)

2.69

 %

2.71

 %

2.79

 %

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

591

2.88

 %

577

2.91

 %

579

2.98

 %

TE adjustment (b)

7

6

6

Net interest income, GAAP basis

$

584

$

571

$

573

 

(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, $87 million, and $95 million of assets from commercial credit cards for the three months ended June 30, 2015, March 31, 2015, and June 30, 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 our 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)

Six months ended June 30, 2015

Six months ended June 30, 2014

Average

Average

Balance

Interest

 (a)

Yield/Rate

 (a) 

Balance

Interest

 (a) 

Yield/ Rate

 (a) 

Assets

Loans: (b), (c)

Commercial, financial and agricultural  (d)

$

28,671

$

456

3.21

 %

$

25,920

$

425

3.30

 %

Real estate — commercial mortgage

8,038

147

3.68

7,844

148

3.82

Real estate — construction

1,169

22

3.75

1,069

23

4.29

Commercial lease financing

4,025

72

3.57

4,348

80

3.67

    Total commercial loans

41,903

697

3.35

39,181

676

3.47

Real estate — residential mortgage

2,233

47

4.24

2,188

48

4.42

Home equity:

Key Community Bank

10,291

198

3.89

10,313

200

3.92

Other

252

10

7.84

315

12

7.79

         Total home equity loans

10,543

208

3.99

10,628

212

4.03

Consumer other — Key Community Bank

1,558

51

6.59

1,459

51

7.01

Credit cards

735

39

10.79

702

38

10.83

Consumer other:

Marine

728

23

6.32

961

30

6.18

Other

46

2

7.54

62

2

7.80

   Total consumer other 

774

25

6.40

1,023

32

6.28

         Total consumer loans

15,843

370

4.71

16,000

381

4.80

         Total loans

57,746

1,067

3.72

55,181

1,057

3.86

Loans held for sale

1,030

19

3.68

452

9

3.75

Securities available for sale (b), (e) 

13,225

143

2.17

12,378

143

2.31

Held-to-maturity securities (b) 

4,956

48

1.92

4,870

45

1.86

Trading account assets

762

10

2.67

983

13

2.66

Short-term investments

2,816

4

.26

2,480

2

.17

Other investments (e) 

727

10

2.64

912

12

2.61

         Total earning assets

81,262

1,301

3.22

77,256

1,281

3.32

Allowance for loan and lease losses

(793)

(833)

Accrued income and other assets

10,181

9,779

Discontinued assets

2,232

4,417

         Total assets

$

92,882

$

90,619

Liabilities

NOW and money market deposit accounts

$

35,540

27

.15

$

34,174

23

.14

Savings deposits

2,389

.02

2,484

.03

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

2,014

13

1.28

2,783

20

1.45

Other time deposits

3,176

11

.71

3,633

19

1.02

Deposits in foreign office

556

1

.23

661

1

.22

    Total interest-bearing deposits

43,675

52

.24

43,735

63

.29

Federal funds purchased and securities

     sold under repurchase agreements

638

.03

1,470

1

.18

Bank notes and other short-term borrowings

582

4

1.46

565

4

1.59

Long-term debt (f), (g) 

6,550

77

2.40

5,323

65

2.54

    Total interest-bearing liabilities

51,445

133

.52

51,093

133

.53

Noninterest-bearing deposits

26,432

22,976

Accrued expense and other liabilities

2,182

1,702

Discontinued liabilities (g) 

2,232

4,417

         Total liabilities

82,291

80,188

Equity

Key shareholders' equity

10,580

10,415

Noncontrolling interests

11

16

         Total equity

10,591

10,431

         Total liabilities and equity

$

92,882

$

90,619

Interest rate spread (TE)

2.70

 %

2.79

 %

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

1,168

2.89

 %

1,148

2.99

 %

TE adjustment (b) 

13

12

Net interest income, GAAP basis

$

1,155

$

1,136

 

(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 $95 million of assets from commercial credit cards for the six months ended June 30, 2015, and June 30, 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 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

Six months ended

6-30-15

3-31-15

6-30-14

6-30-15

6-30-14

Personnel  (a)

$

408

$

389

$

389

$

797

$

777

Net occupancy 

66

65

68

131

132

Computer processing 

42

38

41

80

79

Business services and professional fees 

42

33

41

75

82

Equipment 

22

22

24

44

48

Operating lease expense 

12

11

10

23

20

Marketing 

15

8

13

23

18

FDIC assessment 

8

8

6

16

12

Intangible asset amortization 

9

9

9

18

19

OREO expense, net 

1

2

1

3

2

Other expense 

86

84

85

170

162

     Total noninterest expense 

$

711

$

669

$

687

$

1,380

$

1,351

Average full-time equivalent employees  (b)

13,455

13,591

13,867

13,512

13,961

(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

Six months ended

6-30-15

3-31-15

6-30-14

6-30-15

6-30-14

Salaries

$

229

$

218

$

224

$

447

$

444

Technology contract labor, net

10

10

14

20

31

Incentive and stock-based compensation 

109

83

91

192

174

Employee benefits

55

72

50

127

113

Severance

5

6

10

11

15

     Total personnel expense

$

408

$

389

$

389

$

797

$

777

 

Loan Composition 

(dollars in millions)

Percent change 6-30-15 vs.

6-30-15

3-31-15

6-30-14

3-31-15

6-30-14

Commercial, financial and agricultural  (a)

$

29,285

$

28,783

$

26,327

1.7

%

11.2

%

Commercial real estate:

Commercial mortgage

7,874

8,162

7,946

(3.5)

(.9)

Construction

1,254

1,142

1,047

9.8

19.8

     Total commercial real estate loans

9,128

9,304

8,993

(1.9)

1.5

Commercial lease financing  (b)

4,010

4,064

4,241

(1.3)

(5.4)

     Total commercial loans

42,423

42,151

39,561

.6

7.2

Residential — prime loans:

Real estate — residential mortgage

2,252

2,231

2,189

.9

2.9

Home equity:

Key Community Bank

10,296

10,270

10,379

.3

(.8)

Other

236

253

300

(6.7)

(21.3)

Total home equity loans

10,532

10,523

10,679

.1

(1.4)

Total residential — prime loans

12,784

12,754

12,868

.2

(.7)

Consumer other — Key Community Bank

1,595

1,547

1,514

3.1

5.4

Credit cards

753

727

718

3.6

4.9

Consumer other:

Marine

673

730

888

(7.8)

(24.2)

Other

36

44

51

(18.2)

(29.4)

     Total consumer other

709

774

939

(8.4)

(24.5)

     Total consumer loans

15,841

15,802

16,039

.2

(1.2)

Total loans (c), (d)

$

58,264

$

57,953

$

55,600

.5

%

4.8

%

Loans Held for Sale Composition

(dollars in millions)

Percent change 6-30-15 vs.

6-30-15

3-31-15

6-30-14

3-31-15

6-30-14

Commercial, financial and agricultural

$

217

$

183

$

181

18.6

%

19.9

%

Real estate — commercial mortgage

576

1,408

221

(59.1)

160.6

Commercial lease financing

7

14

10

(50.0)

(30.0)

Real estate — residential mortgage

35

44

23

(20.5)

52.2

Total loans held for sale (e)

$

835

$

1,649

$

435

(49.4)

%

92.0

%

Summary of Changes in Loans Held for Sale

(in millions)

2Q15

1Q15

4Q14

3Q14

2Q14

Balance at beginning of period

$

1,649

$

734

$

784

$

435

$

401

New originations

1,650

2,130

2,465

1,593

978

Transfers from (to) held to maturity, net

6

10

2

(8)

Loan sales

(2,466)

(1,204)

(2,516)

(1,243)

(934)

Loan draws (payments), net

(4)

(21)

(1)

(1)

(2)

Balance at end of period (e)

$

835

$