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KeyCorp Reports First Quarter 2019 Net Income Of $386 Million, Or $.38 Per Common Share

1Q19 results included a net impact of $.02 per common share from notable items related to efficiency initiative expenses

Positive momentum in core businesses: solid growth in loans and deposits from the prior year

Focused expense management: noninterest expense down 4% (down 7% excluding notable items), from the year-ago period

Strong credit quality: maintaining disciplined underwriting standards

Closed Laurel Road acquisition: adds attractive client segments and enhances digital capabilities

CLEVELAND, April 18, 2019 /PRNewswire/ -- KeyCorp (KEY) today announced net income from continuing operations attributable to Key common shareholders of $386 million, or $.38 per common share for the first quarter of 2019, compared to $459 million, or $.45 per common share, for the fourth quarter of 2018 and $402 million, or $.38 per common share, for the first quarter of 2018. Key's first quarter of 2019 results included a net impact of $.02 per common share relating to efficiency initiative expenses. Notable items resulting in a net impact of $.03 per common share were reported in the fourth quarter of 2018, and no notable items were reported in the first quarter of 2018.

"Our results this quarter reflect solid underlying trends in our core businesses, strong expense management and continued strength in credit quality. Revenue benefitted from continued balance sheet growth, including an 8% increase in commercial and industrial loans from the same period last year, and a 5% increase in average deposits. Fee income this quarter declined, primarily due to lower capital markets income, driven by both seasonality and the timing in closing certain transactions. We continued to execute against our continuous improvement plans across the company, driving a meaningful reduction in our expenses, down 7%, excluding notable items, from the year-ago period. Importantly, we remain confident in reaching our targeted cash efficiency ratio of 54% to 56% in the second half of 2019.

We have also continued to use our strong capital position to support organic growth and return capital to our shareholders. This morning, we announced our capital plans, beginning in third quarter of 2019. These plans include a 9% increase in our common share dividend, from $.17 to $.185, in the third quarter of this year, subject to approval of our Board of Directors. We plan to repurchase up to $1 billion in common shares over the same period.

Additionally, we completed our acquisition of Laurel Road Bank's digital business earlier this month. Laurel Road's platform enhances our digital capabilities and aligns well with our relationship strategy, to build broad-based relationships with targeted clients and prospects. We are excited to have found a firm that so clearly matches our business and cultural approach to serving clients."

-       Beth Mooney, Chairman and CEO


 

Selected Financial Highlights















dollars in millions, except per share data





Change 1Q19 vs.



1Q19

4Q18

1Q18


4Q18

1Q18

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

$

386


$

459


$

402



(15.9)

%

(4.0)

%

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

.38


.45


.38



(15.6)



Return on average tangible common equity from continuing operations (a)

13.69

%

16.40

%

14.89

%


N/A


N/A


Return on average total assets from continuing operations

1.18


1.37


1.25



N/A


N/A


Common Equity Tier 1 ratio (b)

9.84


9.93


9.99



N/A


N/A


Book value at period end

$

14.31


$

13.90


$

13.07



2.9

%

9.5

%

Net interest margin (TE) from continuing operations

3.13

%

3.16

%

3.15

%


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 "Return on average tangible common equity from continuing operations." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.

(b)

3/31/19 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 

 

INCOME STATEMENT HIGHLIGHTS














Revenue














dollars in millions





Change 1Q19 vs.


1Q19

4Q18

1Q18


4Q18

1Q18

Net interest income (TE)

$

985


$

1,008


$

952



(2.3)

%

3.5

%

Noninterest income

536


645


601



(16.9)


(10.8)


Total revenue

$

1,521


$

1,653


$

1,553



(8.0)

%

(2.1)

%









TE = Taxable Equivalent


 

Taxable-equivalent net interest income was $985 million for the first quarter of 2019, compared to taxable-equivalent net interest income of $952 million for the first quarter of 2018. The increase in net interest income reflects the benefit from higher interest rates and higher earning asset balances, partially offset by a decline in purchase accounting accretion and lower loan fees. First quarter 2019 net interest income included $22 million of purchase accounting accretion, a decline of $11 million from the first quarter of 2018.

Compared to the fourth quarter of 2018, taxable-equivalent net interest income decreased by $23 million. The decline was driven by two fewer days in the first quarter of 2019 and a decline in loan fees.

Noninterest Income














dollars in millions





Change 1Q19 vs.


1Q19

4Q18

1Q18


4Q18

1Q18

Trust and investment services income

$

115


$

121


$

133



(5.0)

%

(13.5)

%

Investment banking and debt placement fees

110


186


143



(40.9)


(23.1)


Service charges on deposit accounts

82


84


89



(2.4)


(7.9)


Operating lease income and other leasing gains

37


28


32



32.1


15.6


Corporate services income

55


58


62



(5.2)


(11.3)


Cards and payments income

66


68


62



(2.9)


6.5


Corporate-owned life insurance income

32


39


32



(17.9)



Consumer mortgage income

8


7


7



14.3


14.3


Mortgage servicing fees

21


21


20




5.0


Other income

10


33


21



(69.7)


(52.4)


Total noninterest income

$

536


$

645


$

601



(16.9)

%

(10.8)

%









 

Key's noninterest income was $536 million for the first quarter of 2019, compared to $601 million for the year-ago quarter. The decline was largely due to lower investment banking and debt placement fees of $33 million, reflecting market disruption from the government shutdown early in the quarter, as well as the timing of closing certain transactions. Trust and investment services income declined, primarily related to the sale of Key Insurance and Benefits Services in May of 2018, which contributed $15 million in the first quarter of 2018. Partially offsetting these declines were increases in cards and payments income and operating lease income and other leasing gains.

Compared to the fourth quarter of 2018, noninterest income decreased by $109 million, largely due to expected seasonality, as well as the timing of closing certain transactions. Both of these factors primarily impacted investment banking and debt placement fees, which declined $76 million from the prior quarter. Other income decreased $23 million, primarily related to market-related gains in the prior period, compared to market-related losses in the current quarter. Seasonal factors drove declines in corporate-owned life insurance and cards and payments income. Partially offsetting these declines was an increase of $9 million in operating lease income and other leasing gains.

Noninterest Expense














dollars in millions





Change 1Q19 vs.


1Q19

4Q18

1Q18


4Q18

1Q18

Personnel expense

$

563


$

576


$

594



(2.3)

%

(5.2)

%

Nonpersonnel expense

400


436


412



(8.3)


(2.9)


Total noninterest expense

$

963


$

1,012


$

1,006



(4.8)

%

(4.3)

%









 

Key's noninterest expense was $963 million for the first quarter of 2019, compared to $1.0 billion in the year-ago quarter. The decline was largely the result of Key's efficiency initiative efforts across the franchise. Personnel expense declined $31 million compared to the year-ago period, driven by lower salaries expense, incentive compensation, and employee benefits costs, and was partially offset by higher severance expense related to efficiency initiative actions taken during the quarter. Nonpersonnel expense declined, largely related to lower FDIC assessment expense, which reflected the elimination of the FDIC quarterly surcharge.

Compared to the fourth quarter of 2018, noninterest expense decreased by $49 million. Lower personnel expense reflected declines in salaries expense and incentive compensation, partially offset by a seasonal increase in employee benefits expense. Lower nonpersonnel expense was driven by a $13 million decline in other expense, as well as lower operating lease expense and seasonally lower marketing costs. Both reporting periods included notable items impacting noninterest expense. The fourth quarter of 2018 included efficiency initiative expenses of $24 million and a $17 million pension settlement charge (reported in other expense), while notable items for the first quarter of 2019 included $26 million of efficiency initiative expenses.

BALANCE SHEET HIGHLIGHTS














Average Loans














dollars in millions





Change 1Q19 vs.


1Q19

4Q18

1Q18


4Q18

1Q18

Commercial and industrial (a)

$

45,998


$

45,129


$

42,733



1.9

%

7.6

%

Other commercial loans

20,383


20,899


20,705



(2.5)


(1.6)


Home equity loans

10,995


11,234


11,877



(2.1)


(7.4)


Other consumer loans

12,273


12,026


11,612



2.1


5.7


Total loans

$

89,649


$

89,288


$

86,927



.4

%

3.1

%










(a)

Commercial and industrial average loan balances include $133 million, $132 million, and $120 million of assets from commercial credit cards at March 31, 2019, December 31, 2018, and March 31, 2018, respectively.


           

Average loans were $89.6 billion for the first quarter of 2019, an increase of $2.7 billion compared to the first quarter of 2018, reflecting broad-based growth in commercial and industrial loans and growth in indirect auto lending, partially offset by continued paydowns in home equity lines of credit.

Compared to the fourth quarter of 2018, average loans increased by $361 million, driven by growth in commercial and industrial loans, partly offset by declines in commercial mortgage and construction loans.  Consumer loans were relatively stable from the prior quarter, as growth in auto lending offset the decline in home equity lines of credit.

Average Deposits














dollars in millions





Change 1Q19 vs.


1Q19

4Q18

1Q18


4Q18

1Q18

Non-time deposits

$

93,699


$

94,480


$

90,719



(.8)

%

3.3

%

Certificates of deposit ($100,000 or more)

8,376


8,217


6,972



1.9


20.1


Other time deposits

5,501


5,255


4,865



4.7


13.1


Total deposits

$

107,576


$

107,952


$

102,556



(.3)

%

4.9

%








Cost of total deposits

.76

%

.64

%

.36

%


N/A


N/A










N/A = Not Applicable

 

Average deposits totaled $107.6 billion for the first quarter of 2019, an increase of $5 billion compared to the year-ago quarter, reflecting growth in higher-yielding deposit products, as well as strength in Key's retail banking franchise and growth from commercial relationships.

Compared to the fourth quarter of 2018, average deposits decreased by $376 million, primarily driven by short-term and seasonal deposit outflows, which more than offset growth from the penetration of existing retail and commercial relationships.

ASSET QUALITY














dollars in millions





Change 1Q19 vs.


1Q19

4Q18

1Q18


4Q18

1Q18

Net loan charge-offs

$

64


$

60


$

54



6.7

%

18.5

%

Net loan charge-offs to average total loans

.29

%

.27

%

.25

%


N/A


N/A


Nonperforming loans at period end (a)

$

548


$

542


$

541



1.1


1.3


Nonperforming assets at period end (a)

597


577


569



3.5


4.9


Allowance for loan and lease losses

883


883


881




.2


Allowance for loan and lease losses to nonperforming loans (a)

161.1

%

162.9

%

162.8

%


N/A


N/A


Provision for credit losses

$

62


$

59


$

61



5.1

%

1.6

%










(a)

Nonperforming loan balances exclude $551 million, $575 million, and $690 million of purchased credit impaired loans at March 31, 2019, December 31, 2018, and March 31, 2018, respectively.

N/A = Not Applicable

 

Key's provision for credit losses was $62 million for the first quarter of 2019, compared to $61 million for the first quarter of 2018 and $59 million for the fourth quarter of 2018. Key's allowance for loan and lease losses was $883 million, or .98% of total period-end loans at March 31, 2019, compared to 1.00% at March 31, 2018, and .99% at December 31, 2018.

Net loan charge-offs for the first quarter of 2019 totaled $64 million, or .29% of average total loans. These results compare to $54 million, or .25%, for the first quarter of 2018, and $60 million, or .27%, for the fourth quarter of 2018.

At March 31, 2019, Key's nonperforming loans totaled $548 million, which represented .61% of period-end portfolio loans. These results compare to .61% at March 31, 2018, and .61% at December 31, 2018. Nonperforming assets at March 31, 2019, totaled $597 million, and represented .66% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .65% at March 31, 2018, and .64% at December 31, 2018.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2019.

Capital Ratios









3/31/2019

12/31/2018

3/31/2018

Common Equity Tier 1 (a)

9.84

%

9.93

%

9.99

%

Tier 1 risk-based capital (a)

10.97


11.08


10.82


Total risk based capital (a)

13.01


12.89


12.73


Tangible common equity to tangible assets (b)

8.43


8.30


8.22


Leverage (a)

9.92


9.89


9.76








(a)

3/31/2019 ratio is estimated.

(b)

The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "tangible common equity." 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.

 

Key's capital position remained strong in the first quarter of 2019. As shown in the preceding table, at March 31, 2019, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.84% and 10.97%, respectively. Key's tangible common equity ratio was 8.43% at March 31, 2019.

As a "standardized approach" banking organization, Key's mandatory compliance with the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules") began on January 1, 2015, subject to transitional provisions. Key's estimated Common Equity Tier 1 ratio as calculated under the fully phased-in Regulatory Capital Rules was 9.75% at March 31, 2019.  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 1Q19 vs.



1Q19

4Q18

1Q18


4Q18

1Q18

Shares outstanding at beginning of period

1,019,503


1,034,287


1,069,084



(1.4)

%

(4.6)

%

Open market repurchases and return of shares under employee 
            compensation plans

(11,791)


(15,216)


(9,399)



(22.5)


25.4


Shares issued under employee compensation plans (net of cancellations)

5,474


432


5,254



N/M


4.2



Shares outstanding at end of period

1,013,186


1,019,503


1,064,939



(.6)

%

(4.9)

%










N/M = not meaningful


 

Consistent with Key's 2018 Capital Plan, during the first quarter of 2019, Key declared a dividend of $.17 per common share and completed $199 million of common share repurchases. Key's remaining share repurchase authorization consistent with the 2018 Capital Plan (which continues through the second quarter of 2019) is $206 million.

Key also announced 2019 planned capital actions (3Q19-2Q20). Plans include a common share repurchase program of up to $1 billion, as well as a 9% increase in the common share dividend, from $.17 to $.185 per common share, in the third quarter of 2019, subject to Board approval.

LINE OF BUSINESS RESULTS

In early 2019, Key underwent a company-wide organizational change, resulting in the realignment of its businesses into Consumer and Commercial segments (which were historically reported as Key Community Bank and Key Corporate Bank segments). The business realignment has now been reflected in segment reporting as of the first quarter of 2019, and prior periods presented have been restated to conform to this realignment. The Consumer Bank includes Key's Retail, Home Lending, Business Banking, and Private Banking businesses and primarily serves clients in Key's 15-state branch footprint. The Commercial Bank includes footprint-based middle market clients (previously reported in Key Community Bank), Real Estate Capital, Institutional Bank and Key Equipment Finance business. These businesses primarily focus on serving the needs of middle market clients in Key's geographies, as well as seven industry sectors: consumer, energy, healthcare, industrial, public sector, real estate, and technology. For more information, a detailed discussion of the business segments will be included in Key's forthcoming First Quarter 2019 Form 10-Q.

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 1Q19 vs.



1Q19

4Q18

1Q18


4Q18

1Q18

Revenue from continuing operations (TE)







Consumer Bank

$

808


$

830


$

782



(2.7)

%

3.3

%

Commercial Bank

699


770


730



(9.2)


(4.2)


Other (a)

14


53


41



(73.6)


(65.9)

%

     Total

$

1,521


$

1,653


$

1,553



(8.0)

%

(2.1)

%









Income (loss) from continuing operations attributable to Key







Consumer Bank

$

164


$

175


$

131



(6.3)

%

25.2

%

Commercial Bank

253


304


276



(16.8)


(8.3)


Other (a)

(10)


5


11



(300.0)


(190.9)


     Total

$

407


$

484


$

418



(15.9)

%

(2.6)

%











(a)

Other includes other segments that consists of corporate treasury, our principal investing unit, and various exit portfolios as well as reconciling items which primarily represents the unallocated portion of nonearning assets of corporate support functions. Charges related to the funding of these assets are part of net interest income and are allocated to the business segments through noninterest expense. Reconciling items also includes intercompany eliminations and certain items that are not allocated to the business segments because they do not reflect their normal operations.

TE = Taxable Equivalent, N/M = Not Meaningful

 

 

Consumer Bank





















dollars in millions





Change 1Q19 vs.


1Q19

4Q18

1Q18


4Q18

1Q18

Summary of operations







Net interest income (TE)

$

594


$

599


$

553



(.8)

%

7.4

%

Noninterest income

214


231


229



(7.4)


(6.6)


Total revenue (TE)

808


830


782



(2.7)


3.3


Provision for credit losses

45


43


34



4.7


32.4


Noninterest expense

547


558


576



(2.0)


(5.0)


Income (loss) before income taxes (TE)

216


229


172



(5.7)


25.6


Allocated income taxes (benefit) and TE adjustments

52


54


41



(3.7)


26.8


Net income (loss) attributable to Key

$

164


$

175


$

131



(6.3)

%

25.2

%








Average balances







Loans and leases

$

31,403


$

31,313


$

31,647



.3

%

(.8)

%

Total assets

34,814


34,438


34,802



1.1


-


Deposits

71,289


70,427


67,421



1.2


5.7









Assets under management at period end

$

38,742


$

36,775


$

39,003



5.3

%

(.7)

%









TE = Taxable Equivalent

 

 

Additional Consumer Bank Data














dollars in millions





Change 1Q19 vs.


1Q19

4Q18

1Q18


4Q18

1Q18

Noninterest income







Trust and investment services income

$

85


$

89


$

87



(4.5)

%

(2.3)

%

Service charges on deposit accounts

53


57


60



(7.0)


(11.7)


Cards and payments income

48


51


45



(5.9)


6.7


Other noninterest income

28


34


37



(17.6)


(24.3)


Total noninterest income

$

214


$

231


$

229



(7.4)

%

(6.6)

%








Average deposit balances







NOW and money market deposit accounts

$

42,262


$

41,189


$

39,814



2.6

%

6.1

%

Savings deposits

4,524


4,579


4,851



(1.2)


(6.7)


Certificates of deposit ($100,000 or more)

6,393


5,863


4,758



9.0


34.4


Other time deposits

5,484


5,239


4,850



4.7


13.1


Noninterest-bearing deposits

12,626


13,557


13,148



(6.9)


(4.0)


Total deposits

$

71,289


$

70,427


$

67,421



1.2

%

5.7

%








Home equity loans







Average balance

$

10,905


$

11,144


$

11,763





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

70

%

70

%

70

%




Percent first lien positions

60


60


60












Other data







Branches

1,158


1,159


1,192





Automated teller machines

1,502


1,505


1,569












 

Consumer Bank Summary of Operations (1Q19 vs. 1Q18)

  • Net income of $164 million for the first quarter of 2019 is an increase of $33 million, or 25.2%, from the year-ago quarter
  • Taxable-equivalent net interest income increased by $41 million, or 7.4%, from the first quarter of 2018. The increase in net interest income was primarily driven by strong growth in deposits
  • Average loans and leases decreased $244 million, or 0.8%. This is largely driven by a $854 million, or 7.3%, decline in home equity balances, which is in line with industry trends. This decline in home equity balances was partially offset by growth in indirect auto loans
  • Average deposits increased $3.9 billion, or 5.7%, driven by growth in money market and certificates of deposit, reflecting strength in Key's relationship strategy
  • Net loan charge-offs decreased $1 million, or 2.9%, from the first quarter of 2018, as overall credit quality remained stable
  • Noninterest income decreased $15 million, or 6.6%, from the year-ago quarter driven by lower service charges on deposit accounts
  • Noninterest expense decreased $29 million, or 5.0%, from the year-ago quarter demonstrating strong expense management and the elimination of the FDIC quarterly surcharge

 

Commercial Bank





















dollars in millions





Change 1Q19 vs.


1Q19

4Q18

1Q18


4Q18

1Q18

Summary of operations







Net interest income (TE)

$

399


$

416


$

405



(4.1)

%

(1.5)

%

Noninterest income

300


354


325



(15.3)


(7.7)


Total revenue (TE)

699


770


730



(9.2)


(4.2)


Provision for credit losses

15


17


28



(11.8)


(46.4)


Noninterest expense

367


398


381



(7.8)


(3.7)


Income (loss) before income taxes (TE)

317


355


321



(10.7)


(1.2)


Allocated income taxes and TE adjustments

64


51


45



25.5


42.2


Net income (loss) attributable to Key

$

253


$

304


$

276



(16.8)

%

(8.3)

%








Average balances







Loans and leases

$

57,210


$

56,843


$

54,131



.6

%

5.7

%

Loans held for sale

1,066


2,250


1,124



(52.6)


(5.2)


Total assets

64,817


65,647


61,750



(1.3)


5.0


Deposits

34,418


35,113


32,794



(2.0)

%

5.0

%









TE = Taxable Equivalent, N/M = Not Meaningful

 

 

Additional Commercial Bank Data














dollars in millions





Change 1Q19 vs.


1Q19

4Q18

1Q18


4Q18

1Q18

Noninterest income







Trust and investment services income

$

30


$

32


$

31



(6.3)

%

(3.2)

%

Investment banking and debt placement fees

110


186


143



(40.9)


(23.1)


Operating lease income and other leasing gains

37


27


29



37.0


27.6









Corporate services income

48


51


53



(5.9)


(9.4)


Service charges on deposit accounts

27


26


28



3.8


(3.6)


Cards and payments income

18


17


17



5.9


5.9


Payments and services income

93


94


98



(1.1)


(5.1)









Mortgage servicing fees

17


18


17



(5.6)



Other noninterest income

13


(3)


7



N/M


85.7


Total noninterest income

$

300


$

354


$

325



(15.3)

%

(7.7)

%









N/M = Not Meaningful

 

Commercial Bank Summary of Operations (1Q19 vs. 1Q18)

  • Net income attributable to Key of $253 million for the first quarter of 2019, compared to $276 million for the year-ago quarter
  • Taxable-equivalent net interest income decreased by $6 million, or 1.5%, compared to the first quarter of 2018, driven by lower purchase accounting accretion and loan spread compression
  • Average loan and lease balances increased $3.1 billion, or 5.7%, compared to the first quarter of 2018 driven by broad-based growth in commercial and industrial loans
  • Average deposit balances increased $1.6 billion, or 5.0%, compared to the first quarter of 2018, driven by growth in core deposits
  • Noninterest income decreased $25 million, or 7.7%, from the prior year. The decline was largely due to lower investment banking and debt placement fees and corporate services income, which reflected less favorable market conditions. This decrease was partially offset by higher core business growth
  • Provision for credit losses decreased $13 million compared to the first quarter of 2018, as credit quality remained stable
  • Noninterest expense decreased by $14 million, or 3.7%, from the first quarter of 2019. The decline reflects the benefit of efficiency initiatives, strong expense discipline, and the elimination of the FDIC quarterly surcharge

KeyCorp's roots trace back 190 years to Albany, New York. Headquartered in Cleveland, Ohio, Key is one of the nation's largest bank-based financial services companies, with assets of approximately $141.5 billion at March 31, 2019.

Key provides deposit, lending, cash management, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of over 1,100 branches and more than 1,500 ATMs. 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, 2018, as well as in KeyCorp's subsequent SEC filings, all of which have been or will be filed with the Securities and Exchange Commission (the "SEC") and are or will be 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 regulation of the U.S. financial services industry. Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.

Notes to Editors:
A live Internet broadcast of KeyCorp's conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts' questions can be accessed through the Investor Relations section at https://www.key.com/ir at 10:00 a.m. ET, on Thursday, April 18, 2019.  An audio replay of the call will be available through April 28, 2019.

KeyCorp
First Quarter 2019
Financial Supplement

           

Financial Highlights

(dollars in millions, except per share amounts)




Three months ended




3/31/2019

12/31/2018

3/31/2018

Summary of operations





Net interest income (TE)

$

985


$

1,008


$

952



Noninterest income

536


645


601




Total revenue (TE)

1,521


1,653


1,553



Provision for credit losses

62


59


61



Noninterest expense

963


1,012


1,006



Income (loss) from continuing operations attributable to Key

406


482


416



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

1


2


2



Net income (loss) attributable to Key

407


484


418









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

386


459


402



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

1


2


2



Net income (loss) attributable to Key common shareholders

387


461


404








Per common share





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

$

.38


$

.45


$

.38



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





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

.38


.45


.38









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

.38


.45


.38



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





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

.38


.45


.38









Cash dividends declared

.17


.17


.105



Book value at period end

14.31


13.90


13.07



Tangible book value at period end

11.55


11.14


10.35



Market price at period end

15.75


14.78


19.55








Performance ratios





From continuing operations:





Return on average total assets

1.18

%

1.37

%

1.25

%


Return on average common equity

10.98


13.07


11.76



Return on average tangible common equity (c)

13.69


16.40


14.89



Net interest margin (TE)

3.13


3.16


3.15



Cash efficiency ratio (c)

61.9


59.9


62.9









From consolidated operations:





Return on average total assets

1.17

%

1.37

%

1.24

%


Return on average common equity

11.01


13.13


11.82



Return on average tangible common equity (c)

13.72


16.47


14.97



Net interest margin (TE)

3.12


3.14


3.13



Loan to deposit (d)

85.1


85.6


86.9








Capital ratios at period end





Key shareholders' equity to assets

11.25

%

11.17

%

10.90

%


Key common shareholders' equity to assets

10.25


10.15


10.16



Tangible common equity to tangible assets (c)

8.43


8.30


8.22



Common Equity Tier 1 (e)

9.84


9.93


9.99



Tier 1 risk-based capital (e)

10.97


11.08


10.82



Total risk-based capital (e)

13.01


12.89


12.73



Leverage (e)

9.92


9.89


9.76








 

 







Financial Highlights (continued)

(dollars in millions)




Three months ended




3/31/2019

12/31/2018

3/31/2018

Asset quality — from continuing operations




     Net loan charge-offs

$

64


$

60


$

54


     Net loan charge-offs to average loans

.29

%

.27

%

.25

%

     Allowance for loan and lease losses

$

883


$

883


$

881


     Allowance for credit losses

945


946


941


     Allowance for loan and lease losses to period-end loans

.98

%

.99

%

1.00

%

     Allowance for credit losses to period-end loans

1.05


1.06


1.07


     Allowance for loan and lease losses to nonperforming loans (f)

161.1


162.9


162.8


     Allowance for credit losses to nonperforming loans (f)

172.4


174.5


173.9


     Nonperforming loans at period end (f)

$

548


$

542


$

541


     Nonperforming assets at period end (f)

597


577


569


     Nonperforming loans to period-end portfolio loans (f)

.61

%

.61

%

.61

%

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

.66


.64


.65








Trust assets




     Assets under management

$

38,742


$

36,775


$

39,003








Other data




     Average full-time equivalent employees

17,554


17,664


18,540


     Branches

1,158


1,159


1,192








Taxable-equivalent adjustment

$

8


$

8


$

8




(a)

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.

(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" and "cash efficiency." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the Regulatory Capital Rules, see the "Capital" section of this release.

(d)

Represents period-end consolidated total loans and loans held for sale divided by period-end consolidated total deposits.

(e)

March 31, 2019, ratio is estimated.

(f)

Nonperforming loan balances exclude $551 million, $575 million, and $690 million of purchased credit impaired loans at March 31, 2019, December 31, 2018, and March 31, 2018, respectively.

 

GAAP to Non-GAAP Reconciliations
(dollars in millions)

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

The tangible common equity ratio and the return on average 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 introduced 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.

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 credit 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 provide greater consistency and comparability between Key's results and those of its peer banks. Additionally, this ratio is used by analysts and investors as they develop earnings forecasts and peer bank analysis.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.


Three months ended


3/31/2019

12/31/2018

3/31/2018

Tangible common equity to tangible assets at period-end




Key shareholders' equity (GAAP)

$

15,924


$

15,595


$

14,944


Less: Intangible assets (a)

2,804


2,818


2,902


Preferred Stock (b)

1,421


1,421


1,009


Tangible common equity (non-GAAP)

$

11,699


$

11,356


$

11,033


Total assets (GAAP)

$

141,515


$

139,613


$

137,049


Less: Intangible assets (a)

2,804


2,818


2,902


Tangible assets (non-GAAP)

$

138,711


$

136,795


$

134,147


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

8.43

%

8.30

%

8.22

%

Pre-provision net revenue




Net interest income (GAAP)

$

977


$

1,000


$

944


Plus: Taxable-equivalent adjustment

8


8


8


Noninterest income

536


645


601


Less: Noninterest expense

963


1,012


1,006


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

$

558


$

641


$

547


Average tangible common equity




Average Key shareholders' equity (GAAP)

$

15,702


$

15,384


$

14,889


Less: Intangible assets (average) (c)

2,813


2,828


2,916


Preferred stock (average)

1,450


1,450


1,025


Average tangible common equity (non-GAAP)

$

11,439


$

11,106


$

10,948


Return on average tangible common equity from continuing operations




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

$

386


$

459


$

402


Average tangible common equity (non-GAAP)

11,439


11,106


10,948






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

13.69

%

16.40

%

14.89

%

Return on average tangible common equity consolidated




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

$

387


$

461


$

404


Average tangible common equity (non-GAAP)

11,439


11,106


10,948






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

13.72

%

16.47

%

14.97

%

Cash efficiency ratio




Noninterest expense (GAAP)

$

963


$

1,012


$

1,006


Less: Intangible asset amortization

22


22


29


Adjusted noninterest expense (non-GAAP)

$

941


$

990


$

977






Net interest income (GAAP)

$

977


$

1,000


$

944


Plus: Taxable-equivalent adjustment

8


8


8


Noninterest income

536


645


601


Total taxable-equivalent revenue (non-GAAP)

$

1,521


$

1,653


$

1,553






Cash efficiency ratio (non-GAAP)

61.9

%

59.9

%

62.9

%

Noninterest expense excluding notable items




Noninterest expense (GAAP)

$

963


$

1,012


$

1,006


Less: Notable items

26


41



Noninterest expense excluding notable items (non-GAAP)

$

937


$

971


$

1,006


 

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)




Three
months
ended




3/31/2019

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



Common Equity Tier 1 under current RCR

$

12,349



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




Deferred tax assets and other intangible assets (d)




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

$

12,349







Net risk-weighted assets under current RCR

$

125,540



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




Mortgage servicing assets (f)

803




Deferred tax assets

312




All other assets




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

$

126,655







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

9.75

%



(a)

For the three months ended March 31, 2019, December 31, 2018, and March 31, 2018, intangible assets exclude $12 million, $14 million, and $23 million, respectively, of period-end purchased credit card receivables.

(b)

Net of capital surplus.

(c)

For the three months ended March 31, 2019, December 31, 2018, and March 31, 2018, average intangible assets exclude $13 million, $15 million, and $24 million, respectively, of average purchased credit card receivables.

(d)

Includes the deferred tax assets subject to future taxable income for realization, primarily tax credit carryforwards, as well as intangible assets (other than goodwill and mortgage servicing assets) subject to the transition provisions of the final rule.

(e)

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

(f)

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

GAAP = U.S. generally accepted accounting principles

 

 

...

Consolidated Balance Sheets

(dollars in millions)










3/31/2019

12/31/2018

3/31/2018

Assets





Loans

$

90,178


$

89,552


$

88,089



Loans held for sale

894


1,227


1,667



Securities available for sale

20,854


19,428


17,888



Held-to-maturity securities

11,234


11,519


12,189



Trading account assets

979


849


769



Short-term investments

2,511


2,562


1,644



Other investments

646


666


715




Total earning assets

127,296


125,803


122,961



Allowance for loan and lease losses

(883)


(883)


(881)



Cash and due from banks

611


678


643



Premises and equipment

849


882


916



Goodwill

2,516


2,516


2,538



Other intangible assets

300


316


387



Corporate-owned life insurance

4,184


4,171


4,142



Accrued income and other assets

5,596


5,030


5,054



Discontinued assets

1,046


1,100


1,289




Total assets

$

141,515


139,613


137,049








Liabilities





Deposits in domestic offices:






NOW and money market deposit accounts

$

61,380


$

59,918


$

54,606




Savings deposits

4,839


4,854


6,321




Certificates of deposit ($100,000 or more)

8,396


7,913


7,295




Other time deposits

5,573


5,332


4,928




Total interest-bearing deposits

80,188


78,017


73,150




Noninterest-bearing deposits

27,987


29,292


31,601




Total deposits

108,175


107,309


104,751



Federal funds purchased and securities sold under repurchase agreements

266


319


616



Bank notes and other short-term borrowings

679


544


1,133



Accrued expense and other liabilities

2,301


2,113


1,854



Long-term debt

14,168


13,732


13,749




Total liabilities

125,589


124,017


122,103








Equity





Preferred stock

1,450


1,450


1,025



Common shares

1,257


1,257


1,257



Capital surplus

6,259


6,331


6,289



Retained earnings

11,771


11,556


10,624



Treasury stock, at cost

(4,283)