KeyCorp Reports Third Quarter 2015 Net Income Of $216 Million, Or $.26 Per Common Share

Positive operating leverage from prior year

Revenue up 7% from prior year, reflecting growth in net interest income and noninterest income

Average loans up 6% from prior year, driven by a 15% increase in commercial, financial and agricultural loans

Expenses include a $19 million pension settlement charge

Credit quality remains strong, with net charge-offs to average loans of .27%

Disciplined capital management with common share repurchases of $123 million

News provided by

KeyCorp

Oct 15, 2015, 06:30 ET

CLEVELAND, Oct. 15, 2015 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced third quarter net income from continuing operations attributable to Key common shareholders of $216 million, or $.26 per common share, compared to $230 million, or $.27 per common share, for the second quarter of 2015, and $197 million, or $.23 per common share, for the third quarter of 2014. During the third quarter of 2015, Key incurred $19 million, or $.01 per common share, of costs related to a pension settlement charge, compared to $20 million, or $.01 per common share, during the third quarter of 2014.

For the nine months ended September 30, 2015, net income from continuing operations attributable to Key common shareholders was $668 million, or $.78 per common share, compared to $671 million, or $.76 per common share, for the same period one year ago.

"Key's third quarter results reflect our continued success in growing our business, managing expenses and maintaining strong credit quality," said Chairman and Chief Executive Officer Beth Mooney.

"We generated positive operating leverage relative to the same period last year, driven by a 7% increase in revenue along with well-managed expenses. Revenue trends reflect growth in new and expanded relationships across our company, which drove higher net interest income, as well as continued momentum in our fee-based businesses," continued Mooney. "We saw good loan growth again this quarter, with average balances up 6% from the prior year, driven by a 15% increase in commercial, financial and agricultural loans. Loan balances increased in both the Community Bank and Corporate Bank."

"Results compared with the prior quarter reflect higher net interest income and variability in capital markets revenues, which declined relative to our record second quarter," said Mooney. "Expenses, excluding the pension settlement charge, were lower than the previous quarter."

"Additionally, credit quality remains strong, with net charge-offs to average loans of .27%, which is below our targeted range," added Mooney.

THIRD QUARTER 2015 FINANCIAL RESULTS, from continuing operations

Compared to Third Quarter of 2014

  • Average loans up 6%, driven by 15% growth in commercial, financial and agricultural loans
  • Average deposits, excluding deposits in foreign office, up 3% due to continued growth in commercial mortgage servicing and inflows from commercial and consumer clients
  • Net interest income (taxable-equivalent) up $17 million, as higher earning asset balances offset lower earning asset yields
  • Noninterest income up $53 million due to strength in Key's core fee-based businesses, which included a full-quarter impact of the September 2014 Pacific Crest Securities acquisition
  • Noninterest expense up $18 million primarily attributable to higher performance-based compensation and a full-quarter impact of the September 2014 Pacific Crest Securities acquisition
  • Asset quality remained strong, with net loan charge-offs to average loans of .27%
  • Disciplined capital management, repurchasing $123 million of common shares during the third quarter of 2015 and maintaining a solid capital position with an estimated Common Equity Tier 1 ratio of 10.51%

Compared to Second Quarter of 2015

  • Average loans up 2%, primarily driven by a 5% increase in commercial, financial and agricultural loans
  • Average deposits, excluding deposits in foreign office, down slightly reflecting a decline in short-term noninterest-bearing deposit balances from commercial clients and lower certificates of deposit
  • Net interest income (taxable-equivalent) up $7 million attributable to improvement in the earning asset mix, partly offset by slightly lower earning asset yields and loan fees
  • Noninterest income down $18 million, primarily due to lower investment banking and debt placement fees partially offset by growth in other fee-based businesses
  • Noninterest expense up $13 million, driven by a $19 million pension settlement charge in the third quarter
  • Strong asset quality, with net loan charge-offs to average loans remaining below our targeted range of 40-60 basis points

Selected Financial Highlights






























dollars in millions, except per share data









Change 3Q15 vs.



3Q15

2Q15

3Q14

2Q15

3Q14

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

$

216

$

230

$

197

(6.1)

%

9.6

%

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

.26

.27

.23

(3.7)

13.0

Return on average total assets from continuing operations

.95

%

1.03

%

.92

%

N/A

N/A

Common Equity Tier 1 (a), (b)

10.51

10.71

N/A

N/A

N/A

Tier 1 common equity (a)

N/A

N/A

11.26

%

N/A

N/A

Book value at period end

$

12.47

$

12.21

$

11.74

2.1

%

6.2

%

Net interest margin (TE) from continuing operations

2.87

%

2.88

%

2.96

%

N/A

N/A


































 (a)

The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "Common Equity Tier 1" (compliance date of January 1, 2015, under the Regulatory Capital Rules) and "Tier 1 common equity" (prior to January 1, 2015).  The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the Regulatory Capital Rules, see the "Capital" section of this release.

















 (b)

9-30-15 ratio is estimated.































TE = Taxable Equivalent, N/A = Not Applicable































INCOME STATEMENT HIGHLIGHTS































Revenue































dollars in millions









Change 3Q15 vs.



3Q15

2Q15

3Q14

2Q15

3Q14

Net interest income (TE)

$

598

$

591

$

581

1.2

%

2.9

%

Noninterest income

470

488

417

(3.7)

12.7

Total revenue

$

1,068

$

1,079

$

998

(1.0)

%

7.0

%


































TE = Taxable Equivalent














Taxable-equivalent net interest income was $598 million for the third quarter of 2015, and the net interest margin was 2.87%.  These results compare to taxable-equivalent net interest income of $581 million and a net interest margin of 2.96% for the third quarter of 2014.  The increase in net interest income reflects higher earning asset balances moderated by lower earning asset yields, which also drove the decline in the net interest margin.

Compared to the second quarter of 2015, taxable-equivalent net interest income increased by $7 million, and the net interest margin was essentially unchanged. The increase in net interest income and the relatively stable net interest margin were primarily attributable to improvement in the earning asset mix, partly offset by slightly lower earning asset yields and loan fees.  One additional day in the third quarter of 2015 also contributed to the increase in net interest income compared to the prior quarter.

Noninterest Income

































dollars in millions










Change 3Q15 vs.




3Q15 

2Q15 

3Q14 

2Q15 

3Q14 

Trust and investment services income

$

108

$

111

$

99

(2.7)

%

9.1

%

Investment banking and debt placement fees

109

141

88

(22.7)

23.9

Service charges on deposit accounts

68

63

68

7.9

—

Operating lease income and other leasing gains

15

24

17

(37.5)

(11.8)

Corporate services income

57

43

42

32.6

35.7

Cards and payments income

47

47

42

—

11.9

Corporate-owned life insurance income

30

30

26

—

15.4

Consumer mortgage income

3

4

3

(25.0)

—

Mortgage servicing fees

11

9

9

22.2

22.2

Net gains (losses) from principal investing

11

11

9

—

22.2

Other income

11

5

14

120.0

(21.4)

Total noninterest income

$

470

$

488

$

417

(3.7)

%

12.7

%




































Key's noninterest income was $470 million for the third quarter of 2015, compared to $417 million for the year-ago quarter.  The increase from the prior year was primarily attributable to strength in Key's core fee-based businesses, which included a full-quarter impact of the September 2014 acquisition of Pacific Crest Securities. The third quarter of 2015 included $21 million of higher investment banking and debt placement fees, $15 million of increased corporate services income, and $9 million of higher trust and investment services income. Additionally, cards and payments income increased $5 million due to higher revenue from credit card and merchant fees.

Compared to the second quarter of 2015, noninterest income decreased by $18 million.  The primary cause for the decline was $32 million in lower investment banking and debt placement fees, reflecting the variability of the business. Additionally, operating lease income and other leasing gains decreased $9 million. These decreases were partially offset by $14 million in higher corporate services income due to increased derivative income and loan commitment fees, a $6 million increase in other income and $5 million of higher service charges on deposit accounts.

Noninterest Expense

































dollars in millions










Change 3Q15 vs.




3Q15

2Q15

3Q14

2Q15

3Q14

Personnel expense

$

426

$

408

$

405

4.4

%

5.2

%

Nonpersonnel expense

298

303

301

(1.7)

(1.0)

Total noninterest expense

$

724

$

711

$

706

1.8

%

2.5

%




































Key's noninterest expense was $724 million for the third quarter of 2015, compared to $706 million in the third quarter of last year. Personnel costs increased $21 million year-over-year primarily due to increased performance-based compensation related to a strong capital markets business performance, along with a full-quarter impact of the September 2014 acquisition of Pacific Crest Securities. Nonpersonnel expense remained relatively stable as lower occupancy costs offset an increase in business services and professional fees. 

Compared to the second quarter of 2015, noninterest expense increased by $13 million. This increase was primarily driven by a pension settlement charge of $19 million and partially offset by $5 million in lower nonpersonnel expense, largely related to lower occupancy costs.

BALANCE SHEET HIGHLIGHTS

In the third quarter of 2015, Key had average assets of $94.8 billion compared to $91.3 billion in the third quarter of 2014 and $93.9 billion in the second quarter of 2015. 

Average Loans

































dollars in millions









Change 9-30-15 vs.



9-30-15

6-30-15

9-30-14

6-30-15

9-30-14

Commercial, financial and agricultural (a)

$

30,374

$

29,017

$

26,456

4.7

%

14.8

%

Other commercial loans

13,098

13,161

13,317

(.5)

(1.6)

Total home equity loans

10,510

10,510

10,658

—

(1.4)

Other consumer loans

5,299

5,290

5,365

.2

(1.2)

Total loans

$

59,281

$

57,978

$

55,796

2.2

%

6.2

%




















(a)

Commercial, financial and agricultural average loan balances include $88 million, $88 million, and $92 million of assets from commercial credit cards at September 30, 2015, June 30, 2015, and September 30, 2014, respectively.

Average loans were $59.3 billion for the third quarter of 2015, an increase of $3.5 billion compared to the third quarter of 2014.  The loan growth occurred primarily in the commercial, financial and agricultural portfolio, which increased $3.9 billion and was broad-based across Key's commercial lines of business. Consumer loans declined $214 million as a result of the run-off in Key's consumer exit portfolios.  Key's core consumer loan portfolio remained relatively stable to the year-ago quarter.

Compared to the second quarter of 2015, average loans increased by $1.3 billion, driven by commercial, financial and agricultural loans, which grew $1.8 billion on a period-end basis.

Average Deposits

































dollars in millions









Change 9-30-15 vs.



9-30-15

6-30-15

9-30-14

6-30-15

9-30-14

Non-time deposits (a)

$

64,928

$

65,109

$

61,699

(.3)

%

5.2

%

Certificates of deposit ($100,000 or more)

1,985

2,010

2,629

(1.2)

(24.5)

Other time deposits

3,064

3,136

3,413

(2.3)

(10.2)

Total deposits

$

69,977

$

70,255

$

67,741

(.4)

%

3.3

%


















Cost of total deposits (a)

.15

%

.15

%

.16

%

N/A

N/A




































(a)

Excludes deposits in foreign office.

































N/A = Not Applicable















Average deposits, excluding deposits in foreign office, totaled $70 billion for the third quarter of 2015, an increase of $2.2 billion compared to the year-ago quarter.  NOW and money market deposit accounts increased by $2.3 billion, and noninterest-bearing deposits increased by $966 million, 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 second quarter of 2015, average deposits, excluding deposits in foreign office, decreased by $278 million. The decrease was driven by a decline in short-term noninterest-bearing deposit balances from commercial clients and lower certificates of deposit.  These decreases were partly offset by increases in NOW and money market deposit accounts.

ASSET QUALITY
































dollars in millions










Change 3Q15 vs.



3Q15

2Q15

3Q14

2Q15

3Q14

Net loan charge-offs

$

41

$

36

$

31

13.9

%

32.3

%

Net loan charge-offs to average total loans

.27

%

.25

%

.22

%

N/A

N/A

Nonperforming loans at period end (a)

$

400

$

419

$

401

(4.5)

%

(.2)

%

Nonperforming assets at period end

417

440

418

(5.2)

(.2)

Allowance for loan and lease losses

790

796

804

(.8)

(1.7)

Allowance for loan and lease losses to nonperforming loans

197.5

%

190.0

%

200.5

%

N/A

N/A

Provision for credit losses

$

45

$

41

$

19

9.8

%

136.8

%


































(a)

Loan balances exclude $12 million, $12 million, and $14 million of purchased credit impaired loans at September 30, 2015, June 30, 2015, and September 30, 2014, respectively.


















N/A = Not Applicable










Key's provision for credit losses was $45 million for the third quarter of 2015, compared to $19 million for the third quarter of 2014 and $41 million for the second quarter of 2015.  Key's allowance for loan and lease losses was $790 million, or 1.31% of total period-end loans, at September 30, 2015, compared to 1.43% at September 30, 2014, and 1.37% at June 30, 2015. 

Net loan charge-offs for the third quarter of 2015 totaled $41 million, or .27% of average total loans.  These results compare to $31 million, or .22%, for the third quarter of 2014, and $36 million, or .25%, for the second quarter of 2015.  

At September 30, 2015, Key's nonperforming loans totaled $400 million and represented .67% of period-end portfolio loans, compared to .71% at September 30, 2014, and .72% at June 30, 2015.  Nonperforming assets at September 30, 2015 totaled $417 million and represented .69% of period-end portfolio loans and OREO and other nonperforming assets, compared to .74% at September 30, 2014, and .75% at June 30, 2015.  

CAPITAL

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

Capital Ratios




















9-30-15

6-30-15

9-30-14

Common Equity Tier 1 (a), (b)

10.51

%

10.71

%

N/A

Tier 1 common equity (b)

N/A

N/A

11.26

%

Tier 1 risk-based capital (a)

10.90

%

11.11

%

12.01

Total risk based capital (a)

12.51

12.66

14.10

Tangible common equity to tangible assets (b)

9.90

9.86

10.26

Leverage (a)

10.67

10.74

11.15












(a)

9-30-15 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 September 30, 2015, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 10.51% and 10.90%, respectively.  In addition, the tangible common equity ratio was 9.90% at September 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 ratio as calculated under the fully phased-in Regulatory Capital Rules was 10.41% at September 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 3Q15 vs.




3Q15

2Q15

3Q14

2Q15

3Q14

Shares outstanding at beginning of period

843,608

850,920

876,823

(.9)

%

(3.8)

%

Common shares repurchased

(8,386)

(8,794)

(8,830)

(4.6)

(5.0)

Shares reissued (returned) under employee benefit plans

63

1,482

484

(95.7)

(87.0)

Shares outstanding at end of period

835,285

843,608

868,477

(1.0)

%

(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 third quarter of 2015, Key completed $123 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. 

In the third quarter of 2015, Key enhanced the approach used to determine the commercial reserve factors used in estimating the quantitative component of the commercial allowance for loan and lease losses. In addition, Key began utilizing an enhanced framework to quantify commercial allowance for loan and lease loss adjustments resulting from qualitative factors not fully captured within the statistical analysis of expected loss. The impact of these changes was largely neutral to the total allowance for loan and lease losses at September 30, 2015. However, because the quantitative reserve is allocated to the business segments at a loan level, while the qualitative portion is allocated at the portfolio level, the impact of the methodology enhancements on the allowance for each business segment and each portfolio caused the business segment and commercial portfolio reserves to increase or decrease accordingly. While the impact of the increases and decreases on the business segment and commercial portfolio reserves was not significant, the current quarter provision for credit losses within each business segment is not comparable to prior period amounts as a result of these methodology enhancements.

Major Business Segments

































dollars in millions










Change 3Q15 vs.




3Q15

2Q15

3Q14

2Q15

3Q14

Revenue from continuing operations (TE)















Key Community Bank

$

579

$

560

$

558

3.4

%

3.8

%

Key Corporate Bank

454

477

400

(4.8)

13.5

Other Segments

35

44

44

(20.5)

(20.5)

Total segments

1,068

1,081

1,002

(1.2)

6.6

Reconciling Items

—

(2)

(4)

N/M

N/M

Total

$

1,068

$

1,079

$

998

(1.0)

%

7.0

%


















Income (loss) from continuing operations attributable to Key















Key Community Bank

$

71

$

67

$

60

6.0

%

18.3

%

Key Corporate Bank

138

133

134

3.8

3.0

Other Segments

26

31

27

(16.1)

(3.7)

Total segments

235

231

221

1.7

6.3

Reconciling Items

(13)

4

(18)

N/M

N/M

Total

$

222

$

235

$

203

(5.5)

%

9.4

%




































TE = Taxable Equivalent, N/M = Not Meaningful

















































Key Community Bank



















































dollars in millions










Change 3Q15 vs.




3Q15

2Q15

3Q14

2Q15

3Q14

Summary of operations















Net interest income (TE)

$

379

$

362

$

359

4.7

%

5.6

%

Noninterest income

200

198

199

1.0

.5

Total revenue (TE)

579

560

558

3.4

3.8

Provision for credit losses

18

3

21

500.0

(14.3)

Noninterest expense

448

450

441

(.4)

1.6

Income (loss) before income taxes (TE)



113

107

96

5.6

17.7

Allocated income taxes (benefit) and TE adjustments

42

40

36

5.0

16.7

Net income (loss) attributable to Key

$

71

$

67

$

60

6.0

%

18.3

%


















Average balances















Loans and leases

$

31,039

$

30,707

$

30,103

1.1

%

3.1

%

Total assets

33,090

32,753

32,173

1.0

2.9

Deposits

51,234

50,766

50,303

.9

1.9


















Assets under management at period end

$

35,158

$

38,399

$

39,249

(8.4)

%

(10.4)

%




































TE = Taxable Equivalent

















































Additional Key Community Bank Data

































dollars in millions










Change 3Q15 vs.




3Q15

2Q15

3Q14

2Q15

3Q14

Noninterest income 















Trust and investment services income 

$

73

$

76

$

73

(3.9)

%

—

Service charges on deposit accounts 

56

52

57

7.7

(1.8)

%

Cards and payments income 

43

43

39

—

10.3

Other noninterest income 

28

27

30

3.7

(6.7)

Total noninterest income 

$

200

$

198

$

199

1.0

%

.5

%


















Average deposit balances















NOW and money market deposit accounts

$

28,568

$

28,284

$

27,403

1.0

%

4.3

%

Savings deposits

2,362

2,385

2,419

(1.0)

(2.4)

Certificates of deposit ($100,000 or more)



1,560

1,547

2,072

.8

(24.7)

Other time deposits

3,061

3,132

3,406

(2.3)

(10.1)

Deposits in foreign office

271

299

320

(9.4)

(15.3)

Noninterest-bearing deposits

15,412

15,119

14,683

1.9

5.0

Total deposits 

$

51,234

$

50,766

$

50,303

.9

%

1.9

%


















Home equity loans 















Average balance

$

10,281

$

10,266

$

10,368






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

71

%

71

%

71

%





Percent first lien positions

60

60

59
























Other data















Branches

972

989

997






Automated teller machines

1,259

1,280

1,290
























Key Community Bank Summary of Operations

  • Positive operating leverage from prior year
  • Net income increased to $71 million, up 18.3% from prior year
  • Commercial, financial and agricultural loan growth of $1 billion, or 8.7% from prior year
  • Average deposits up $931 million, or 1.9% from the prior year

Key Community Bank recorded net income attributable to Key of $71 million for the third quarter of 2015, compared to net income attributable to Key of $60 million for the year-ago quarter.

Taxable-equivalent net interest income increased by $20 million, or 5.6%, from the third quarter of 2014 due to an increase in average loans and leases of 3.1%, including commercial, financial and agricultural loans, which grew by $1 billion, or 8.7%, from the prior year. Average deposits increased 1.9% from one year ago. 

Noninterest income remained relatively stable from the year-ago quarter.  Core revenue continues to improve, driven by growth in cards and payments income of $4 million, mostly offset by lower service charges on deposit accounts and a decrease in other income.

The provision for credit losses decreased by $3 million, or 14.3%, from the third quarter of 2014, due to the enhancements to the approach utilized to determine the allowance for loan and lease losses discussed above.

Noninterest expense increased by $7 million, or 1.6%, from the year-ago quarter. Personnel expense increased $1 million while nonpersonnel expense increased by $6 million.

Key Corporate Bank



















































dollars in millions










Change 3Q15 vs.




3Q15

2Q15

3Q14

2Q15

3Q14

Summary of operations















Net interest income (TE)

$

220

$

227

$

215

(3.1)

%

2.3

%

Noninterest income

234

250

185

(6.4)

26.5

Total revenue (TE)

454

477

400

(4.8)

13.5

Provision for credit losses

30

41

2

(26.8)

N/M

Noninterest expense

246

252

213

(2.4)

15.5

Income (loss) before income taxes (TE)

178

184

185

(3.3)

(3.8)

Allocated income taxes and TE adjustments

42

51

51

(17.6)

(17.6)

Net income (loss)

136

133

134

2.3

1.5

Less: Net income (loss) attributable to noncontrolling interests

(2)

—

—

N/M

N/M

Net income (loss) attributable to Key

$

138

$

133

$

134

3.8

%

3.0

%


















Average balances















Loans and leases   

$

26,425

$

25,298

$

23,215

4.5

%

13.8

%

Loans held for sale   

918

1,234

481

(25.6)

90.9

Total assets

32,163

31,228

28,268

3.0

13.8

Deposits

18,809

19,708

17,599

(4.6)

6.9


















Assets under management at period end

—

—

$

34

N/M 

N/M 




































TE = Taxable Equivalent, N/M = Not Meaningful

















































Additional Key Corporate Bank Data

































dollars in millions










Change 3Q15 vs.




3Q15

2Q15

3Q14

2Q15

3Q14

Noninterest income















Trust and investment services income

$

35

$

35

$

26

—

34.6

%

Investment banking and debt placement fees

108

139

86

(22.3)

%

25.6

Operating lease income and other leasing gains

16

18

14

(11.1)

14.3


















Corporate services income

46

33

30

39.4

53.3

Service charges on deposit accounts

11

11

11

—

—

Cards and payments income

4

4

3

—

33.3

Payments and services income

61

48

44

27.1

38.6


















Mortgage servicing fees

11

9

9

22.2

22.2

Other noninterest income

3

1

6

200.0

(50.0)

Total noninterest income

$

234

$

250

$

185

(6.4)

%

26.5

%




































N/M = Not Meaningful















Key Corporate Bank Summary of Operations

  • Investment banking and debt placement fees up 25.6% from the prior year
  • Revenue up 13.5% from the prior year
  • Average loan and lease balances up 13.8% from the prior year

Key Corporate Bank recorded net income attributable to Key of $138 million for the third quarter of 2015, an increase of $4 million, or 3%, from the same period one year ago.

Taxable-equivalent net interest income increased by $5 million, or 2.3%, compared to the third quarter of 2014.  Average earning assets increased $3 billion, or 12.2%, from the year-ago quarter, primarily driven by growth in commercial, financial and agricultural loans. Average deposit balances increased $1.2 billion, or 6.9%, from the year-ago quarter, driven by commercial mortgage servicing deposits and other commercial client inflows. 

Noninterest income was up $49 million, or 26.5% from the prior year.  Investment banking and debt placement fees increased $22 million, or 25.6%, driven by strength in syndications, debt underwriting, and financial advisory fees.  Corporate services income increased $16 million, or 53.3%, due to higher derivatives income and loan commitment fees.  Trust and investment services income increased $9 million, or 34.6%, primarily due to the September 2014 acquisition of Pacific Crest Securities.     

The provision for credit losses increased $28 million from the same period one year ago, primarily due to the enhancements to the approach utilized to determine the allowance for loan and lease losses discussed above, as well as a 13.8% increase in average loan balances.

Noninterest expense increased by $33 million, or 15.5%, from the third quarter of 2014.  This increase was driven primarily by higher personnel expense, from increased performance-based compensation related to a strong capital markets business performance, along with a full quarter impact of the September 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 $26 million for the third quarter of 2015, essentially unchanged compared to net income attributable to Key of $27 million for the same period last year. 

*****

KeyCorp was organized more than 160 years ago and is headquartered in Cleveland, Ohio.  One of the nation's largest bank-based financial services companies, Key had assets of approximately $95.4 billion at September 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, as well as in KeyCorp's subsequent SEC filings, all of which have been filed with the Securities and Exchange Commission (the "SEC") and are available on Key's website (www.key.com/ir) and on the SEC's website (www.sec.gov).  These factors may include, among others: deterioration of commercial real estate market fundamentals, adverse changes in credit quality trends, declining asset prices, a reversal of the U.S. economic recovery due to financial, political, or other shocks, and the extensive and increasing regulation of the U.S. financial services industry.  Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.

Notes to Editors:
A live Internet broadcast of KeyCorp's conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts' questions can be accessed through the Investor Relations section at https://www.key.com/ir at 9:00 a.m. ET, on Thursday, October 15, 2015.  An audio replay of the call will be available through October 22, 2015.

*****

Financial Highlights 

(dollars in millions, except per share amounts)

















Three months ended



9-30-15

6-30-15

9-30-14

Summary of operations 











Net interest income (TE)

$

598

$

591

$

581

Noninterest income

470


488


417


Total revenue (TE) 

1,068


1,079


998

Provision for credit losses

45


41


19

Noninterest expense

724


711


706

Income (loss) from continuing operations attributable to Key

222


235


203

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

(3)


3


(17)

Net income (loss) attributable to Key 


219


238


186















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

$

216

$

230

$

197

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

(3)


3


(17)

Net income (loss) attributable to Key common shareholders

213


233


180














Per common share 











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

$

.26

$

.27

$

.23

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

—


—


(.02)

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

.26


.28


.21















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

.26


.27


.23

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

—


—


(.02)

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

.25


.27


.21















Cash dividends paid 

.075


.075


.065

Book value at period end 

12.47


12.21


11.74

Tangible book value at period end 

11.17


10.92


10.47

Market price at period end 

13.01


15.02


13.33














Performance ratios 











From continuing operations: 











Return on average total assets 

.95

%

1.03

%

.92

%

Return on average common equity 

8.30


8.96


7.68

Return on average tangible common equity  (c)

9.27


10.01


8.55

Net interest margin (TE) 

2.87


2.88


2.96

Cash efficiency ratio  (c)

66.9


65.1


69.7















From consolidated operations: 











Return on average total assets 

.92

%

1.02

%

.81

%

Return on average common equity 

8.19


9.07


7.01

Return on average tangible common equity  (c)

9.14


10.14


7.81

Net interest margin (TE) 

2.84


2.85


2.94

Loan to deposit  (d)

89.3


87.3


87.4














Capital ratios at period end 











Key shareholders' equity to assets  

11.22

%

11.19

%

11.68

%

Key common shareholders' equity to assets 

10.91


10.89


11.36

Tangible common equity to tangible assets  (c)

9.90


9.86


10.26

Common Equity Tier 1  (c), (e)

10.51


10.71


N/A 

Tier 1 common equity  (c)

N/A 


N/A 


11.26

Tier 1 risk-based capital  (e)

10.90


11.11


12.01

Total risk-based capital  (e)

12.51


12.66


14.10

Leverage  (e)

10.67


10.74


11.15














Asset quality — from continuing operations 











Net loan charge-offs 

$

41

$

36

$

31

Net loan charge-offs to average loans  

.27

%

.25

%

.22

%

Allowance for loan and lease losses 

$

790

$

796

$

804

Allowance for credit losses

844


841


839

Allowance for loan and lease losses to period-end loans 

1.31

%

1.37

%

1.43

%

Allowance for credit losses to period-end loans 

1.40


1.44


1.49

Allowance for loan and lease losses to nonperforming loans 

197.5


190.0


200.5

Allowance for credit losses to nonperforming loans  

211.0


200.7


209.2

Nonperforming loans at period end  (f)

$

400

$

419

$

401

Nonperforming assets at period end 

417


440


418

Nonperforming loans to period-end portfolio loans 

.67

%

.72

%

.71

%

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

.69


.75


.74














Trust and brokerage assets 











Assets under management 

$

35,158

$

38,399

$

39,283

Nonmanaged and brokerage assets


46,796


48,789


48,273














Other data 











Average full-time equivalent employees 

13,555


13,455


13,905

Branches 

972


989


997














Taxable-equivalent adjustment 

$

7

$

7

$

6




































Financial Highlights (continued) 

(dollars in millions, except per share amounts) 













Nine months ended



9-30-15

9-30-14

Summary of operations 







Net interest income (TE) 

$

1,766

$

1,729

Noninterest income 

1,395


1,307


Total revenue (TE) 

3,161


3,036

Provision for credit losses 

121


35

Noninterest expense 

2,104


2,057

Income (loss) from continuing operations attributable to Key 

685


688

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

5


(41)

Net income (loss) attributable to Key   

690


647











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

$

668

$

671

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

5


(41)

Net income (loss) attributable to Key common shareholders 

673


630










Per common share 







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

$

.79

$

.77

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

.01


(.05)

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

.80


.72











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

.78


.76

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

.01


(.05)

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

.79


.71











Cash dividends paid 

.215


.185










Performance ratios  







From continuing operations:  







Return on average total assets  

1.00

%

1.06

%

Return on average common equity  

8.67


8.84

Return on average tangible common equity   (c)

9.69


9.83

Net interest margin (TE)  

2.88


2.98

Cash efficiency ratio  (c)

65.7


66.7











From consolidated operations: 







Return on average total assets 

.99

%

.95

%

Return on average common equity 

8.74


8.30

Return on average tangible common equity   (c)

9.76


9.23

Net interest margin (TE) 

2.85


2.94










Asset quality — from continuing operations 







Net loan charge-offs 

$

105

$

81

Net loan charge-offs to average total loans  

.24

%

.20

%










Other data 







Average full-time equivalent employees 

13,525


13,942










Taxable-equivalent adjustment 

$

20

$

18


(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)

9-30-15 ratio is estimated.

(f)

Loan balances exclude $12 million, $12 million, and $14 million of purchased credit impaired loans at September 30, 2015, June 30, 2015, and September 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  




9-30-15

6-30-15

9-30-14

Tangible common equity to tangible assets at period end 











Key shareholders' equity (GAAP) 

$

10,705

$

10,590

$

10,486

Less:  

Intangible assets  (a)

1,084


1,085


1,105


Preferred Stock, Series A  (b)

281


281


282


Tangible common equity (non-GAAP)   

$

9,340

$

9,224

$

9,099
















Total assets (GAAP) 

$

95,422

$

94,606

$

89,784

Less:  

Intangible assets  (a)

1,084


1,085


1,105


Tangible assets (non-GAAP) 

$

94,338

$

93,521

$

88,679
















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

9.90

%

9.86

%

10.26

%















Common Equity Tier 1 at period end 











Key shareholders' equity (GAAP) 

$

10,705

$

10,590


—

Less: 

Preferred Stock, Series A  (b)

281


281


—


Common Equity Tier 1 capital before adjustments and deductions 

10,424


10,309


—

Less: 

Goodwill, net of deferred taxes 

1,037


1,034


—


Intangible assets, net of deferred taxes 

30


33


—


Deferred tax assets 

1


1


—


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

55


—


—


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

20


(20)


—


Amounts in accumulated other comprehensive income (loss) attributed to 













pension and postretirement benefit costs, net of deferred taxes 

(386)


(361)


—


Total Common Equity Tier 1 capital  (c)

$

9,667

$

9,622


—
















Net risk-weighted assets (regulatory)  (c)

$

91,998

$

89,851


—
















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

10.51

%

10.71

%

—















Tier 1 common equity at period end 











Key shareholders' equity (GAAP)  

—


—

$

10,486

Qualifying capital securities  

—


—


340

Less: 

Goodwill  

—


—


1,051


Accumulated other comprehensive income (loss)  (d)

—


—


(366)


Other assets  (e)

—


—


110


Total Tier 1 capital (regulatory) 

—


—


10,031

Less:  

Qualifying capital securities  

—


—


340


Preferred Stock, Series A  (b)

—


—


282


Total Tier 1 common equity (non-GAAP)   

—


—

$

9,409
















Net risk-weighted assets (regulatory) 

—


—

$

83,547
















Tier 1 common equity ratio (non-GAAP) 

—


—


11.26

%







































GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)

















Three months ended



9-30-15

6-30-15

9-30-14

Pre-provision net revenue 











Net interest income (GAAP) 

$

591

$

584

$

575

Plus: 

Taxable-equivalent adjustment 

7


7


6


Noninterest income (GAAP) 

470


488


417

Less: 

Noninterest expense (GAAP) 

724


711


706

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

$

344

$

368

$

292














Average tangible common equity











Average Key shareholders' equity (GAAP)

$

10,614

$

10,590

$

10,473

Less:

Intangible assets (average) (f)

1,083


1,086


1,037


Preferred Stock, Series A (average)

290


290


291


Average tangible common equity (non-GAAP)

$

9,241

$

9,214

$

9,145














Return on average tangible common equity from continuing operations











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

$

216

$

230

$

197

Average tangible common equity (non-GAAP)

9,241


9,214


9,145















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

9.27

%

10.01

%

8.55

%














Return on average tangible common equity consolidated











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

$

213

$

233

$

180

Average tangible common equity (non-GAAP)

9,241


9,214


9,145















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

9.14

%

10.14

%

7.81

%














Cash efficiency ratio











Noninterest expense (GAAP)

$

724

$

711

$

706

Less:

Intangible asset amortization (GAAP)

9


9


10


Adjusted noninterest expense (non-GAAP)

$

715

$

702

$

696















Net interest income (GAAP)

$

591

$

584

$

575

Plus:

Taxable-equivalent adjustment

7


7


6


Noninterest income (GAAP)

470


488


417


Total taxable-equivalent revenue (non-GAAP)

$

1,068

$

1,079

$

998















Cash efficiency ratio (non-GAAP)

66.9

%

65.1

%

69.7

%

















Three months ended











9-30-15







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











Common Equity Tier 1 under current RCR

$

9,667









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












Deferred tax assets and other intangible assets (g)

(45)










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

$

9,622























Net risk-weighted assets under current RCR

$

91,998









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












Mortgage servicing assets (i)

479










All other assets (j)

(10)










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

$

92,467























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

10.41

%














































GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)





















Nine months ended







9-30-15

9-30-14

Pre-provision net revenue











Net interest income (GAAP)



$

1,746

$

1,711

Plus:

Taxable-equivalent adjustment




20


18


Noninterest income (GAAP)




1,395


1,307

Less:

Noninterest expense (GAAP)




2,104


2,057

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



$

1,057

$

979














Average tangible common equity











Average Key shareholders' equity (GAAP)



$

10,591

$

10,435

Less:

Intangible assets (average) (k)




1,086


1,020


Preferred Stock, Series A (average)




290


291


Average tangible common equity (non-GAAP)



$

9,215

$

9,124














Return on average tangible common equity from continuing operations











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



$

668

$

671

Average tangible common equity (non-GAAP)




9,215


9,124















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




9.69

%

9.83

%














Return on average tangible common equity consolidated











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



$

673

$

630

Average tangible common equity (non-GAAP)




9,215


9,124















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




9.76

%

9.23

%














Cash efficiency ratio











Noninterest expense (GAAP)



$

2,104

$

2,057

Less:

Intangible asset amortization (GAAP)




27


29


Adjusted noninterest expense (non-GAAP)



$

2,077

$

2,028















Net interest income (GAAP)



$

1,746

$

1,711

Plus:

Taxable-equivalent adjustment




20


18


Noninterest income (GAAP)




1,395


1,307


Total taxable-equivalent revenue (non-GAAP)



$

3,161

$

3,036















Cash efficiency ratio (non-GAAP)




65.7

%

66.8

%


(a)

For the three months ended September 30, 2015, June 30, 2015, and September 30, 2014, intangible assets exclude $50 million, $55 million, and $72 million, respectively, of period-end purchased credit card receivables. 

(b)

Net of capital surplus.

(c)

9-30-15 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 September 30, 2014.

(f)

For the three months ended September 30, 2015, June 30, 2015, and September 30, 2014, average intangible assets exclude $52 million, $58 million, and $76 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 intangible assets (other than goodwill and mortgage servicing assets) subject to the transition provisions of the final rule.

(h)

The anticipated amount of regulatory capital and risk-weighted assets is based upon the federal banking agencies' Regulatory Capital Rules (as fully phased-in on January 1, 2019); Key is subject to the Regulatory Capital Rules under the "standardized approach."

(i)

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

(j)

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 nine months ended September 30, 2015, and September 30, 2014, average intangible assets exclude $58 million and $82 million, respectively, of average purchased credit card receivables.

GAAP = U.S. generally accepted accounting principles

Consolidated Balance Sheets 

(dollars in millions) 


















9-30-15

6-30-15

9-30-14

Assets 











Loans 

$

60,085

$

58,264

$

56,155

Loans held for sale 

916


835


784

Securities available for sale 

14,376


14,244


12,245

Held-to-maturity securities  

4,936


5,022


4,997

Trading account assets 

811


674


965

Short-term investments 

1,964


3,222


2,342

Other investments 

691


703


822


Total earning assets 

83,779


82,964


78,310

Allowance for loan and lease losses 

(790)


(796)


(804)

Cash and due from banks 

470


693


651

Premises and equipment 

771


788


832

Operating lease assets 

315


296


304

Goodwill 

1,060


1,057


1,051

Other intangible assets 

74


83


126

Corporate-owned life insurance 

3,516


3,502


3,456

Derivative assets 

793


536


413

Accrued income and other assets 

3,348


3,314


3,024

Discontinued assets 

2,086


2,169


2,421


Total assets 

$

95,422

$

94,606

$

89,784














Liabilities 











Deposits in domestic offices: 












NOW and money market deposit accounts 

$

37,301

$

36,024

$

33,941


Savings deposits 

2,338


2,370


2,390


Certificates of deposit ($100,000 or more) 

2,001


2,032


2,533


Other time deposits 

3,020


3,105


3,338


     Total interest-bearing deposits 

44,660


43,531


42,202


Noninterest-bearing deposits 

25,985


26,640


25,697

Deposits in foreign office — interest-bearing 

428


498


557


     Total deposits 

71,073


70,669


68,456

Federal funds purchased and securities sold under repurchase agreements 

407


444


657

Bank notes and other short-term borrowings 

677


528


996

Derivative liabilities 

676


560


384

Accrued expense and other liabilities 

1,562


1,537


1,613

Long-term debt 

10,310


10,267


7,172

Discontinued liabilities  

—


—


3


Total liabilities 

84,705


84,005


79,281














Equity 











Preferred stock, Series A 

290


290


291

Common shares 

1,017


1,017


1,017

Capital surplus 

3,914


3,898


3,984

Retained earnings 

8,764


8,614


8,082

Treasury stock, at cost 

(3,008)


(2,884)


(2,563)

Accumulated other comprehensive income (loss) 

(272)


(345)


(325)


Key shareholders' equity 

10,705


10,590


10,486

Noncontrolling interests 

12


11


17


Total equity 

10,717


10,601


10,503

Total liabilities and equity 

$

95,422

$

94,606

$

89,784














Common shares outstanding (000) 

835,285


843,608


868,477




































Consolidated Statements of Income   

(dollars in millions, except per share amounts) 






















Three months ended 

Nine months ended 



9-30-15

6-30-15

9-30-14

9-30-15

9-30-14

Interest income 
















Loans 

$

542

$

532

$

531

$

1,597

$

1,576

Loans held for sale 

10

12

4


29


13

Securities available for sale 

75

72

67


217


210

Held-to-maturity securities  

24

24

25


72


70

Trading account assets 

5

5

6


15


19

Short-term investments 

1

2

2


5


4

Other investments 

4

5

4


14


16


Total interest income 

661

652

639


1,949


1,908



















Interest expense 
















Deposits 

27

26

28


79


91

Federal funds purchased and securities sold under repurchase agreements 

—

—

1


—


2

Bank notes and other short-term borrowings 

2

2

2


6


6

Long-term debt 

41

40

33


118


98


Total interest expense 

70

68

64


203


197



















Net interest income 

591

584

575


1,746


1,711

Provision for credit losses 

45

41

19


121


35

Net interest income after provision for credit losses 

546

543

556


1,625


1,676



















Noninterest income 
















Trust and investment services income  

108

111

99


328


291

Investment banking and debt placement fees 

109

141

88


318


271

Service charges on deposit accounts 

68

63

68


192


197

Operating lease income and other leasing gains 

15

24

17


58


81

Corporate services income 

57

43

42


143


125

Cards and payments income 

47

47

42


136


123

Corporate-owned life insurance income 

30

30

26


91


80

Consumer mortgage income 

3

4

3


10


7

Mortgage servicing fees 

11

9

9


33


35

Net gains (losses) from principal investing 

11

11

9


51


60

Other income  (a)

11

5

14


35


37


Total noninterest income 

470

488

417


1,395


1,307



















Noninterest expense 
















Personnel 

426

408

405


1,223


1,182

Net occupancy 

60

66

66


191


198

Computer processing 

41

42

39


121


118

Business services and professional fees 

40

42

36


115


118

Equipment 

22

22

25


66


73

Operating lease expense 

11

12

11


34


31

Marketing 

17

15

15


40


33

FDIC assessment 

8

8

9


24


21

Intangible asset amortization 

9

9

10


27


29

OREO expense, net

2

1

1


5


3

Other expense 

88

86

89


258


251


Total noninterest expense 

724

711

706


2,104


2,057

Income (loss) from continuing operations before income taxes

292

320

267


916


926

Income taxes 

72

84

64


230


232

Income (loss) from continuing operations

220

236

203


686


694

Income (loss) from discontinued operations, net of taxes

(3)

3

(17)


5


(41)

Net income (loss)

217

239

186


691


653

Less:  Net income (loss) attributable to noncontrolling interests   

(2)

1

—


1


6

Net income (loss) attributable to Key

$

219

$

238

$

186

$

690

$

647



















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

$

216

$

230

$

197

$

668

$

671

Net income (loss) attributable to Key common shareholders 


213

233

180


673


630



















Per common share 















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

$

.26

$

.27

$

.23

$

.79

$

.77

Income (loss) from discontinued operations, net of taxes 

—

—

(.02)


.01


(.05)

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

.26

.28

.21


.80


.72



















Per common share — assuming dilution 















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

$

.26

$

.27

$

.23

$

.78

$

.76

Income (loss) from discontinued operations, net of taxes 

—

—

(.02)


.01


(.05)

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

.25

.27

.21


.79


.71



















Cash dividends declared per common share 

$

.075

$

.075

$

.065

$

.215

$

.185



















Weighted-average common shares outstanding (000) 

831,430

839,454

867,350


839,758


875,728

Effect of common share options and other stock awards

7,450

6,858

6,772


7,613


6,723

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

838,880

846,312

874,122


847,371


882,451






































(a) 

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



















(b) 

Earnings per share may not foot due to rounding. 



















(c) 

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






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

(dollars in millions)





































Third Quarter 2015

Second Quarter 2015

Third Quarter 2014




Average







Average







Average










Balance

Interest

(a) 

Yield/Rate

(a)


Balance

Interest

(a) 

Yield/Rate

(a)


Balance

Interest

(a) 

Yield/Rate

(a)

Assets






























Loans: (b), (c)






























Commercial, financial and agricultural (d)

$

30,374

$

244

3.19

 %

$

29,017

$

233

3.23

 %

$

26,456

$

218

3.28

 %

Real estate — commercial mortgage

7,988

73

3.65


7,981

74

3.70


8,142

78

3.79

Real estate — construction

1,164

11

3.78


1,199

11

3.60


1,030

10

3.78

Commercial lease financing

3,946

35

3.57


3,981

36

3.58


4,145

38

3.66


    Total commercial loans

43,472

363

3.32


42,178

354

3.36


39,773

344

3.44

Real estate — residential mortgage

2,258

24

4.19


2,237

23

4.22


2,204

24

4.35

Home equity:































Key Community Bank

10,281

101

3.88


10,266

99

3.89


10,368

102

3.91


Other

229

4

7.87


244

5

7.86


290

6

7.80


    Total home equity loans

10,510

105

3.96


10,510

104

3.98


10,658

108

4.01

Consumer other — Key Community Bank

1,597

26

6.51


1,571

26

6.52


1,534

26

6.87

Credit cards

759

21

10.74


737

19

10.57


716

20

11.12

Consumer other:































Marine

645

10

6.38


702

11

6.30


856

13

6.23


Other

40

1

8.00


43

1

7.77


55

2

7.63


    Total consumer other 



685

11

6.47


745

12

6.38


911

15

6.32


    Total consumer loans

15,809

187

4.69


15,800

184

4.69


16,023

193

4.78


    Total loans

59,281

550

3.69


57,978

538

3.72


55,796

537

3.82

Loans held for sale



939

10

3.96


1,263

12

3.91


502

4

3.87

Securities available for sale (b), (e)

14,247

74

2.11


13,360

73

2.17


11,939

67

2.25

Held-to-maturity securities (b)

4,923

24

1.95


4,965

24

1.91


5,108

25

1.90

Trading account assets

699

5

2.50


805

5

2.55


893

6

2.68

Short-term investments

2,257

1

.26


3,228

2

.26


3,048

2

.19

Other investments (e)

696

4

2.52


713

5

2.48


847

4

2.12


    Total earning assets

83,042

668

3.21


82,312

659

3.21


78,133

645

3.30

Allowance for loan and lease losses

(790)








(793)








(809)







Accrued income and other assets

10,399








10,140








9,799







Discontinued assets

2,118








2,194








4,138








    Total assets

$

94,769







$

93,853







$

91,261







































Liabilities
































NOW and money market deposit accounts

$

36,289

15

.16

$

36,122

14

.16

$

33,969

12

.14

Savings deposits

2,371

—

.02


2,393

—

.02


2,428

1

.02

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

1,985

6

1.27


2,010

6

1.25


2,629

8

1.23

Other time deposits

3,064

6

.70


3,136

5

.70


3,413

7

.83

Deposits in foreign office



492

—

.23


583

1

.23


595

—

.23


    Total interest-bearing deposits

44,201

27

.24


44,244

26

.24


43,034

28

.26

Federal funds purchased and securities

        sold under repurchase agreements



859

—

.08


557

—

.02


1,176

1

.19

Bank notes and other short-term borrowings



567

2

1.51


657

2

1.39


484

2

1.79

Long-term debt (f), (g)

7,895

41

2.19


6,968

40

2.30


4,868

33

2.88


    Total interest-bearing liabilities



53,522

70

.53


52,426

68

.52


49,562

64

.52

Noninterest-bearing deposits

26,268








26,594








25,302







Accrued expense and other liabilities

2,236








2,039








1,768







Discontinued liabilities (g)

2,118








2,194








4,138








    Total liabilities

84,144








83,253








80,770







































Equity






























Key shareholders' equity

10,614








10,590








10,473







Noncontrolling interests

11








10








18








    Total equity

10,625








10,600








10,491









































    Total liabilities and equity

$

94,769







$

93,853







$

91,261







































Interest rate spread (TE)







2.68

 %







2.69

 %







2.78

 %

































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






598

2.87

 %




591

2.88

 %




581

2.96

 %

TE adjustment (b)




7








7








6




Net interest income, GAAP basis



$

591







$

584







$

575





(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, $88 million, and $92 million of assets from commercial credit cards for the three months ended September 30, 2015, June 30, 2015, and September 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 Key's matched funds transfer pricing methodology to discontinued operations.

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

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

(dollars in millions)















































Nine months ended September 30, 2015

Nine months ended September 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)

$

29,244

$

700

3.20

 %

$

26,100

$

643

3.29

 %

Real estate — commercial mortgage

8,021

220

3.67


7,944

226

3.81

Real estate — construction

1,168

33

3.76


1,056

33

4.13

Commercial lease financing

3,998

107

3.57


4,280

118

3.67


    Total commercial loans

42,431

1,060

3.34


39,380

1,020

3.46

Real estate — residential mortgage

2,241

71

4.22


2,193

72

4.40

Home equity:




















Key Community Bank

10,287

299

3.89


10,332

302

3.92


Other

244

14

7.85


307

18

7.79

         Total home equity loans

10,531

313

3.98


10,639

320

4.03

Consumer other — Key Community Bank

1,572

77

6.56


1,484

77

6.96

Credit cards

743

60

10.80


706

58

10.93

Consumer other:




















Marine

701

33

6.34


926

43

6.20


Other

44

3

7.68


60

4

7.75


    Total consumer other 


745

36

6.42


986

47

6.29


    Total consumer loans

15,832

557

4.71


16,008

574

4.79


    Total loans

58,263

1,617

3.71


55,388

1,594

3.85

Loans held for sale


1,000

29

3.77


469

13

3.79

Securities available for sale (b), (e) 

13,569

217

2.15


12,229

210

2.29

Held-to-maturity securities (b) 

4,945

72

1.93


4,950

70

1.87

Trading account assets

740

15

2.62


953

19

2.66

Short-term investments

2,627

5

.26


2,672

4

.18

Other investments (e) 

717

14

2.60


890

16

2.45

         Total earning assets

81,861

1,969

3.22


77,551

1,926

3.31

Allowance for loan and lease losses

(792)








(825)







Accrued income and other assets

10,255








9,786







Discontinued assets

2,194








4,323







         Total assets

$

93,518







$

90,835




























Liabilities





















NOW and money market deposit accounts

$

35,793

42

.15

$

34,105

35

.14

Savings deposits

2,383

—

.02


2,466

1

.03

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

2,004

19

1.27


2,731

28

1.38

Other time deposits

3,138

17

.71


3,558

26

.96

Deposits in foreign office


534

1

.23


639

1

.23


    Total interest-bearing deposits

43,852

79

.24


43,499

91

.28






















Federal funds purchased and securities

     sold under repurchase agreements


713

—

.05


1,371

2

.18

Bank notes and other short-term borrowings


577

6

1.48


538

6

1.65

Long-term debt (f), (g) 

7,003

118

2.32


5,169

98

2.65


    Total interest-bearing liabilities


52,145

203

.52


50,577

197

.52

Noninterest-bearing deposits

26,377








23,760







Accrued expense and other liabilities

2,200








1,724







Discontinued liabilities (g) 

2,194








4,323







         Total liabilities

82,916








80,384




























Equity



















Key shareholders' equity

10,591








10,435







Noncontrolling interests

11








16







         Total equity

10,602








10,451





























         Total liabilities and equity

$

93,518







$

90,835