KEY KeyCorp

CLEVELAND, Oct. 19, 2017 /PRNewswire/ --

 

KeyCorp (NYSE: KEY) today announced third quarter net income from continuing operations attributable to Key common shareholders of $349 million, or $.32 per common share, compared to $393 million or $.36 per common share, for the second quarter of 2017 and $165 million, or $.16 per common share, for the third quarter of 2016. During the third quarter of 2017, Key's results included $36 million of merger-related charges and a $5 million merchant services gain adjustment, resulting in a pre-tax net impact of $41 million, or $.03 per common share.

"Third quarter results reflect strong returns and the seventh consecutive quarter of positive operating leverage compared to the prior year, as we continue to execute on our strategic priorities, grow our businesses, and deliver on the commitments we have made. Key's return on average tangible common equity, excluding notable items, was 13.2% for the quarter."

"We continue to have momentum in our fee-based businesses, including investment banking and debt placement fees, which were up 4% from the second quarter, and cards and payments income, which grew 7% on a linked-quarter basis. The cash efficiency ratio for the third quarter, excluding notable items, was 59.7%."

"We continue to invest for growth in support of our relationship strategy, including the recent HelloWallet and merchant services acquisitions, as well as Cain Brothers, which closed early in the fourth quarter. These investments enhance our focus on organic growth by investing in our people, products and capabilities to continue to drive positive operating leverage and future growth."

- Beth Mooney, Chairman and CEO

 

 

Third quarter 2017 net interest income included $48 million of purchase accounting accretion related to the acquisition of First Niagara.

Taxable-equivalent net interest income was $962 million for the third quarter of 2017, and the net interest margin was 3.15%, compared to taxable-equivalent net interest income of $788 million and a net interest margin of 2.85% for the third quarter of 2016, reflecting the benefit from the First Niagara acquisition, including purchase accounting accretion, as well as higher earning asset yields and balances.

Compared to the second quarter of 2017, taxable-equivalent net interest income decreased by $25 million, and the net interest margin decreased by 15 basis points. The decrease in net interest income and the net interest margin reflects a decline in purchase accounting accretion of $52 million, including $42 million from the finalization of previous estimates recognized in the second quarter. Lower purchase accounting accretion was partially offset by higher earning asset yields and balances.

Excluding purchase accounting accretion, taxable-equivalent net interest income increased $145 million from the third quarter of 2016 and $27 million from the second quarter of 2017.

Key's noninterest income was $592 million for the third quarter of 2017, compared to $549 million for the year-ago quarter. Growth was largely driven by a full-quarter impact of the First Niagara acquisition, as well as ongoing momentum in Key's core businesses. Broad-based growth across many fee income categories more than offset a decline in investment banking and debt placement fees, related to strong market conditions in the year-ago period.

Compared to the second quarter of 2017, noninterest income decreased by $61 million. The largest driver of this decrease was a $64 million one-time gain related to Key's merchant services business in the second quarter of 2017, recognized in other income.  Excluding the one-time merchant services gain, noninterest income grew on a linked-quarter basis, driven by momentum in fee-based businesses, including growth in investment banking and debt placement fees, mortgage servicing fees, and cards and payments income, which also benefited from the recent merchant services acquisition. Operating lease income and other leasing gains decreased $14 million, related to lease residual losses in the third quarter of 2017.

Key's noninterest expense was $992 million for the third quarter of 2017, and included $36 million of merger-related charges. Merger-related charges for the quarter were made up of $25 million of personnel expense and $11 million of non-personnel expense, mostly reflected in marketing and computer processing expense.

Excluding merger-related charges, noninterest expense was $63 million higher than the third quarter of last year. The increase from the prior year, reflected in both personnel and non-personnel expense, was primarily driven by a full-quarter impact of the First Niagara acquisition, as well as ongoing business investments and recent acquisitions, partially offset by merger cost savings.

Excluding merger-related charges, noninterest expense increased $5 million from the second quarter of 2017. Key incurred a number of notable items in the second quarter of 2017, including a $20 million charitable contribution and a $4 million credit related to purchase accounting finalization. Excluding these notable items as well as merger-related charges, noninterest expense increased $21 million from the second quarter of 2017. The increase represents recent business acquisitions, including HelloWallet and merchant services, as well as seasonal trends in marketing and personnel. Business services and professional fees were also higher in the third quarter, related to short-term initiatives.

 BALANCE SHEET HIGHLIGHTS

Average loans were $86.8 billion for the third quarter of 2017, an increase of $9.1 billion compared to the third quarter of 2016, primarily reflecting a full-quarter impact of the First Niagara acquisition, as well as growth in commercial and industrial loans, which was broad-based and spread across Key's commercial lines of business.

Compared to the second quarter of 2017, average loans increased by $312 million, driven primarily by growth in commercial and industrial loans. Commercial real estate loans declined as a result of paydowns and clients taking advantage of attractive capital markets alternatives. Consumer loans were relatively stable, as the home equity portfolio continued to decline, largely the result of paydowns.

At September 30, 2017, the remaining fair value discount on the First Niagara acquired loan portfolio was $302 million, compared to $345 million at June 30, 2017.

Average deposits totaled $103.1 billion for the third quarter of 2017, an increase of $8.2 billion compared to the year-ago quarter, primarily reflecting a full-quarter impact of the First Niagara acquisition, and core retail and commercial deposit growth.

Compared to the second quarter of 2017, average deposits increased by $326 million, driven by growth in noninterest-bearing deposits from commercial deposit inflows and short-term escrows. Certificates of deposit balances also grew and helped offset the managed exit of certain public sector relationships.

Key's provision for credit losses was $51 million for the third quarter of 2017, compared to $59 million for the third quarter of 2016 and $66 million for the second quarter of 2017. The third quarter 2017 provision reflects a large recovery in the commercial and industrial portfolio. Key's allowance for loan and lease losses was $880 million, or 1.02% of total period-end loans, at September 30, 2017, compared to 1.01% at September 30, 2016, and 1.01% at June 30, 2017.

Net loan charge-offs for the third quarter of 2017 totaled $32 million, or .15% of average total loans, reflecting a large recovery in the commercial and industrial portfolio. These results compare to $44 million, or .23%, for the third quarter of 2016, and $66 million, or .31%, for the second quarter of 2017.

At September 30, 2017, Key's nonperforming loans totaled $517 million, which represented .60% of period-end portfolio loans. These results compare to .85% at September 30, 2016, and .59% at June 30, 2017. Nonperforming assets at September 30, 2017, totaled $556 million, and represented .64% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .89% at September 30, 2016, and .64% at June 30, 2017.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at September 30, 2017.

Key's capital position remained strong throughout the third quarter. As shown in the preceding table, at September 30, 2017, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 10.26% and 11.11%, respectively. The increase in these ratios was primarily driven by a change in methodology for multipurpose facilities. Key's tangible common equity ratio was 8.49% at September 30, 2017.

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 extending to January 1, 2019. Key's estimated Common Equity Tier 1 ratio as calculated under the fully phased-in Regulatory Capital Rules was 10.15% at September 30, 2017.  This estimate exceeds the fully phased-in required minimum Common Equity Tier 1 and Capital Conservation Buffer of 7.00%.

Consistent with Key's 2017 Capital Plan, during the third quarter of 2017, Key declared a dividend of $.095 per common share. Key also completed $277 million of common share repurchases during the quarter, including $271 million of common share repurchases in the open market and $6 million of share repurchases related to employee equity compensation programs.

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.

 

 

 

 

Key Community Bank Summary of Operations (3Q17 vs. 3Q16)

• Positive operating leverage compared to prior year
• Net income increased $64 million, or 66%, from prior year
• Average commercial and industrial loans increased $2.7 billion, or 17.2%, from the prior year
• Average deposits increased $10.2 billion, or 14.6%, from the prior year

Key Community Bank recorded net income attributable to Key of $161 million for the third quarter of 2017, compared to $97 million for the year-ago quarter, benefiting from momentum in Key's core businesses, as well as the full-quarter impact of the First Niagara acquisition.

Taxable-equivalent net interest income increased by $137 million, or 25.7%, from the third quarter of 2016. The increase was primarily attributable to the full-quarter impact of the First Niagara acquisition, as well as the benefit from higher interest rates. Average loans and leases increased $6 billion, or 14.6%, largely driven by a $2.7 billion, or 17.2%, increase in commercial and industrial loans. Additionally, average deposits increased $10.2 billion, or 14.6%, from one year ago.

Noninterest income was up $39 million, or 15.6%, from the year-ago quarter, driven by the full quarter impact of the First Niagara acquisition, including the addition of Key Insurance and Benefits Services. Strength in cards and payments, which includes the full-quarter impact of Key's merchant services acquisition in the second quarter of 2017, and higher assets under management from market growth also contributed to the increase.

The provision for credit losses increased by $20 million, or 51.3%, and net loan charge-offs increased $10 million from the third quarter of 2016, primarily related to the acquisition of First Niagara.

Noninterest expense increased by $53 million, or 9%, from the year-ago quarter, largely driven by the full-quarter impact of the First Niagara acquisition, as well as core business activity, ongoing investments, recent acquisitions and seasonal trends. Personnel expense increased $29 million, while non-personnel expense increased by $24 million, including higher marketing expense and higher intangible amortization expense.

 

Key Corporate Bank Summary of Operations (3Q17 vs. 3Q16)

• Positive operating leverage compared to prior year
• Net income up $30 million, or 18.8%, from prior year
• Average loan and lease balances up $3.5 billion, or 10.1%, from the prior year

Key Corporate Bank recorded net income attributable to Key of $190 million for the third quarter of 2017, compared to $160 million for the same period one year ago.

Taxable-equivalent net interest income increased by $13 million, or 4.7%, compared to the third quarter of 2016.  Average loan and lease balances increased $3.5 billion, or 10.1%, from the year-ago quarter, driven by growth in commercial and industrial and commercial mortgage loans. Average deposit balances decreased $1.1 billion, or 5.1%, from the year-ago quarter, driven by the managed exit of higher cost corporate and public sector deposits.

Noninterest income was down $9 million, or 3.2%, from the prior year. This decline was mostly due to lower investment banking and debt placement fees, resulting from strong market conditions and activity in the third quarter of 2016. This decrease was partially offset by growth in mortgage servicing fees and corporate services income compared to the prior year.

During the third quarter of 2017, Key Corporate Bank benefited from a large recovery in the commercial and industrial portfolio, as well as improving credit quality in the overall portfolio. Accordingly, the provision for credit losses decreased $34 million, or 147.8%, compared to the third quarter of 2016, with $21 million less of net loan charge-offs.

Noninterest expense decreased by $7 million, or 2.3%, from the third quarter of 2016. The decrease from the prior year was largely driven by lower performance-based compensation. Slightly offsetting this decrease were higher levels of operating lease expense, business services and professional fees, and cards and payments expense.

Other Segments

Other Segments consist of Corporate Treasury, Key's Principal Investing unit, and various exit portfolios. Other Segments generated net income attributable to Key of $23 million for the third quarter of 2017, compared to $16 million for the same period last year, driven by increases in operating lease income and other leasing gains and corporate-owned life insurance income.

*****

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 $136.7 billion at September 30, 2017.

Key provides deposit, lending, cash management, insurance, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of more than 1,200 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.

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 19, 2017.  An audio replay of the call will be available through October 29, 2017.

For up-to-date company information, media contacts, and facts and figures about Key's lines of business, visit our Media Newsroom at https://www.key.com/newsroom.  

*****

 

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," certain financial measures excluding merger-related charges and/or other notable items, and "cash efficiency ratio."

Notable items include certain revenue or expense items that may occur in a reporting period which management does not consider indicative of ongoing financial performance. Management believes it is useful to consider certain financial metrics with and without merger-related charges and/or other notable items in order to enable a better understanding of Company results, increase comparability of period-to-period results, and to evaluate and forecast those results.

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 extending to January 1, 2019.

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.

As previously disclosed, Key completed its purchase of First Niagara on August 1, 2016. The definitive agreement and plan of merger to acquire First Niagara was originally announced on October 30, 2015. As a result of this transaction, Key has recognized merger-related charges. For the second and third quarters of 2017, merger-related charges are included in the total for "notable items." The table below shows the computation of earnings per share excluding notable items, return on average tangible common equity excluding notable items, return on average assets from continuing operations excluding notable items, cash efficiency ratio excluding notable items, and pre-provision net revenue excluding notable items. Management believes that eliminating the effects of the merger-related charges and other notable items 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. The table below also shows the computation for the cash efficiency ratio excluding merger-related charges. Management believes these ratios provide greater consistency and comparability between Key's results and those of its peer banks. Additionally, these ratios are 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

View original content with multimedia:http://www.prnewswire.com/news-releases/keycorp-reports-third-quarter-2017-net-income-of-349-million-or-32-per-common-share-300539671.html

SOURCE KeyCorp