KeyCorp Reports Third Quarter 2018 Net Income Of $468 Million, Or $.45 Per Common Share

CLEVELAND, Oct. 18, 2018 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced third quarter net income from continuing operations attributable to Key common shareholders of $468 million, or $.45 per common share, compared to $464 million, or $.44 per common share, for the second quarter of 2018 and $349 million, or $.32 per common share, for the third quarter of 2017.

"Our solid third quarter results reflect our success in growing and expanding client relationships, driving efficiency across the organization, and staying true to our moderate risk profile. This quarter, our return on tangible common equity ratio was 16.8%, and our cash efficiency ratio was 58.7%, both an improvement of over 300 basis points from last year.

"Our Community Bank and Corporate Bank both contributed to our year-over-year revenue growth of 3%, which demonstrates our competitive positioning and the success of our distinctive relationship-based business model. Expense management remains a priority, as we continue to execute on our cost initiatives, which allows us to reinvest into our businesses.

"Credit quality and capital remain strengths, with solid credit trends this quarter and disciplined capital management. Importantly, we increased our common share dividend 42% during the third quarter – from $.12 to $.17. We remain dedicated to delivering results for our shareholders, as we focus on maintaining our moderate risk profile, and staying diligent in managing credit quality as we move through different parts of the business cycle."

- Beth Mooney, Chairman and CEO

Selected Financial Highlights

dollars in millions, except per share data										Change 3Q18 vs.
	3Q18			2Q18			3Q17			2Q18		3Q17
Income (loss) from continuing operations attributable to Key common shareholders	$	468		$	464		$	349		.9	%	34.1	%
Income (loss) from continuing operations attributable to Key common shareholders per common share — assuming dilution	.45			.44			.32			2.3		40.6
Return on average tangible common equity from continuing operations ^(a)	16.81		%	16.73		%	12.21		%	N/A		N/A
Return on average total assets from continuing operations	1.40			1.41			1.07			N/A		N/A
Common Equity Tier 1 ratio ^(b)	9.93			10.13			10.26			N/A		N/A
Book value at period end	$	13.33		$	13.29		$	13.18		.3	%	1.1	%
Net interest margin (TE) from continuing operations	3.18		%	3.19		%	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)	9/30/2018 ratio is estimated.
TE = Taxable Equivalent, N/A = Not Applicable

INCOME STATEMENT HIGHLIGHTS

Revenue

dollars in millions							Change 3Q18 vs.
	3Q18		2Q18		3Q17		2Q18		3Q17
Net interest income (TE)	$	993	$	987	$	962	.6	%	3.2	%
Noninterest income	609		660		592		(7.7)		2.9
Total revenue	$	1,602	$	1,647	$	1,554	(2.7)	%	3.1	%

TE = Taxable Equivalent

Taxable-equivalent net interest income was $993 million for the third quarter of 2018, and the net interest margin was 3.18%, compared to taxable-equivalent net interest income of $962 million and a net interest margin of 3.15% for the third quarter of 2017, reflecting the benefit from higher interest rates and higher earning asset balances. Third quarter 2018 net interest income included $26 million of purchase accounting accretion, a decline of $22 million from the third quarter of 2017.

Compared to the second quarter of 2018, taxable-equivalent net interest income increased by $6 million, and the net interest margin declined by one basis point. Both net interest income and the net interest margin benefited from higher interest rates. One additional day in the third quarter further benefited net interest income. These benefits were offset by lower loan fees, an expected decline in purchase accounting accretion, and an elevated level of liquidity, reflecting higher short-term and seasonal deposits, as well as commercial loan paydowns.

Noninterest Income

dollars in millions							Change 3Q18 vs.
	3Q18		2Q18		3Q17		2Q18		3Q17
Trust and investment services income	$	117	$	128	$	135	(8.6)	%	(13.3)	%
Investment banking and debt placement fees	166		155		141		7.1		17.7
Service charges on deposit accounts	85		91		91		(6.6)		(6.6)
Operating lease income and other leasing gains	35		(6)		16		N/M		118.8
Corporate services income	52		61		54		(14.8)		(3.7)
Cards and payments income	69		71		75		(2.8)		(8.0)
Corporate-owned life insurance income	34		32		31		6.3		9.7
Consumer mortgage income	9		7		7		28.6		28.6
Mortgage servicing fees	19		22		21		(13.6)		(9.5)
Other income	23		99		21		(76.8)		9.5
Total noninterest income	$	609	$	660	$	592	(7.7)	%	2.9	%

N/M = Not meaningful

Key's noninterest income was $609 million for the third quarter of 2018, compared to $592 million for the year-ago quarter. Growth was primarily driven by a $25 million increase in investment banking and debt placement fees, related to strength in advisory fees, including benefit from the acquisition of Cain Brothers, as well as organic growth. Operating lease and other leasing gains increased $19 million related to higher volume and lease residual losses in the year-ago period. A decline in trust and investment services income, impacted by the sale of Key Insurance and Benefits Services in the second quarter of 2018, partially offset the increases. Cards and payments income and service charges on deposit accounts both declined $6 million, driven by the 2018 adoption of the revenue recognition accounting standard.

Compared to the second quarter of 2018, noninterest income decreased by $51 million. The decline was primarily related to a $78 million gain from the sale of Key Insurance and Benefits Services in the prior quarter, reported in other income. Trust and investment services income declined $11 million, primarily impacted by the sale of Key Insurance and Benefits Services, and corporate services income declined $9 million from lower derivative income. Partially offsetting these items was a $41 million increase in operating lease income and other leasing gains, related to a lease residual loss in the prior quarter. Additionally, investment banking and debt placement fees continue to show momentum, as fees increased $11 million, largely related to strength in advisory and loan syndication fees.

Noninterest Expense

dollars in millions							Change 3Q18 vs.
	3Q18		2Q18		3Q17		2Q18		3Q17
Personnel expense	$	553	$	586	$	559	(5.6)	%	(1.1)	%
Nonpersonnel expense	411		407		433		1.0		(5.1)
Total noninterest expense	$	964	$	993	$	992	(2.9)	%	(2.8)	%

Key's noninterest expense was $964 million for the third quarter of 2018, compared to $992 million in the year-ago quarter. The third quarter of 2017 included $36 million of merger-related charges. Excluding these charges, the increase in expenses from the year-ago period was largely related to growth from the Cain Brothers acquisition and other investments throughout the year. This growth offset the realization of cost savings efforts across the franchise.

Key's noninterest expense was $964 million for the third quarter of 2018, compared to $993 million in the prior quarter. The decrease was largely driven by a $33 million decline in personnel expense, including lower severance and incentive compensation expense. Additionally, business services and professional fees declined by $8 million, partially offset by an increase in other expense.

BALANCE SHEET HIGHLIGHTS

Average Loans

dollars in millions							Change 3Q18 vs.
	3Q18		2Q18		3Q17		2Q18		3Q17
Commercial and industrial ^(a)	$	44,749	$	45,030	$	41,416	(.6)	%	8.0	%
Other commercial loans	20,471		20,394		21,598		.4		(5.2)
Home equity loans	11,415		11,601		12,314		(1.6)		(7.3)
Other consumer loans	11,832		11,619		11,486		1.8		3.0
Total loans	$	88,467	$	88,644	$	86,814	(.2)	%	1.9	%

(a)	Commercial and industrial average loan balances include $128 million, $126 million, and $117 million of assets from commercial credit cards at September 30, 2018, June 30, 2018, and September 30, 2017, respectively.

Average loans were $88.5 billion for the third quarter of 2018, an increase of $1.7 billion compared to the third quarter of 2017, reflecting broad-based growth in commercial and industrial loans, partially offset by higher paydowns in commercial real estate balances and home equity lines of credit.

Compared to the second quarter of 2018, average loans decreased by $177 million, driven by continued levels of lower utilization and elevated paydowns. Period-end loan balances grew $1.0 billion compared to the prior quarter, reflecting increased momentum, as growth in commercial and industrial loans and commercial real estate balances increased near the end of the third quarter.

Average Deposits

dollars in millions										Change 3Q18 vs.
	3Q18			2Q18			3Q17			2Q18		3Q17
Non-time deposits	$	92,414		$	91,538		$	92,039		1.0	%	.4	%
Certificates of deposit ($100,000 or more)	8,186			7,516			6,402			8.9		27.9
Other time deposits	5,026			4,949			4,664			1.6		7.8
Total deposits	$	105,626		$	104,003		$	103,105		1.6	%	2.4	%

Cost of total deposits	.53		%	.43		%	.28		%	N/A		N/A

N/A = Not Applicable

Average deposits totaled $105.6 billion for the third quarter of 2018, an increase of $2.5 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 second quarter of 2018, average deposits increased by $1.6 billion, reflecting growth from retail and commercial relationships, as well as short-term and seasonal deposit inflows.

ASSET QUALITY

dollars in millions										Change 3Q18 vs.
	3Q18			2Q18			3Q17			2Q18		3Q17
Net loan charge-offs	$	60		$	60		$	32		—		87.5	%
Net loan charge-offs to average total loans	.27		%	.27		%	.15		%	N/A		N/A
Nonperforming loans at period end ^(a)	$	645		$	545		$	517		18.3	%	24.8
Nonperforming assets at period end ^(a)	674			571			556			18.0		21.2
Allowance for loan and lease losses	887			887			880			—		.8
Allowance for loan and lease losses to nonperforming loans ^(a)	137.5		%	162.8		%	170.2		%	N/A		N/A
Provision for credit losses	$	62		$	64		$	51		(3.1)	%	21.6	%

(a)	Nonperforming loan balances exclude $606 million, $629 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, and September 30, 2017, respectively.
N/A = Not Applicable

Key's provision for credit losses was $62 million for the third quarter of 2018, compared to $51 million for the third quarter of 2017 and $64 million for the second quarter of 2018. Key's allowance for loan and lease losses was $887 million, or .99% of total period-end loans at September 30, 2018, compared to 1.02% at September 30, 2017, and 1.01% at June 30, 2018.

Net loan charge-offs for the third quarter of 2018 totaled $60 million, or .27% of average total loans. These results compare to $32 million, or .15%, for the third quarter of 2017, and $60 million, or .27%, for the second quarter of 2018.

At September 30, 2018, Key's nonperforming loans totaled $645 million, which represented .72% of period-end portfolio loans. These results compare to .60% at September 30, 2017, and .62% at June 30, 2018. Nonperforming assets at September 30, 2018, totaled $674 million, and represented .75% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .64% at September 30, 2017, and .65% at June 30, 2018.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at September 30, 2018.

Capital Ratios

	9/30/2018		6/30/2018		9/30/2017
Common Equity Tier 1 ^(a)	9.93	%	10.13	%	10.26	%
Tier 1 risk-based capital ^(a)	11.09		10.95		11.11
Total risk based capital ^(a)	12.97		12.83		13.09
Tangible common equity to tangible assets ^(b)	8.05		8.32		8.49
Leverage ^(a)	10.05		9.87		9.83

(a)	9/30/2018 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 third quarter. As shown in the preceding table, at September 30, 2018, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.93% and 11.09%, respectively. Key's tangible common equity ratio was 8.05% at September 30, 2018.

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 9.85% at September 30, 2018. 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 3Q18 vs.
	3Q18	2Q18	3Q17	2Q18		3Q17
Shares outstanding at beginning of period	1,058,944	1,064,939	1,092,739	(.6)	%	(3.1)	%
Open market repurchases and return of shares under employee compensation plans	(25,418)	(6,259)	(15,298)	306.1		66.2
Shares issued under employee compensation plans (net of cancellations)	761	264	1,598	188.3		(52.4)
Shares outstanding at end of period	1,034,287	1,058,944	1,079,039	(2.3)	%	(4.1)	%

N/M = Not Meaningful

Consistent with Key's 2018 Capital Plan, during the third quarter of 2018, Key declared a dividend of $.17 per common share, reflecting a 42% increase from the prior quarter. Key also completed $542 million of common share repurchases during the quarter.

LINE OF BUSINESS RESULTS

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

Major Business Segments

dollars in millions								Change 3Q18 vs.
		3Q18		2Q18		3Q17		2Q18		3Q17
Revenue from continuing operations (TE)
Key Community Bank		$	994	$	997	$	945	(.3)	%	5.2	%
Key Corporate Bank		574		542		561		5.9		2.3
Other Segments		24		37		42		(35.1)		(42.9)
	Total segments	1,592		1,576		1,548		1.0		2.8
Reconciling Items ^(a)		10		71		6		(85.9)		66.7
	Total	$	1,602	$	1,647	$	1,554	(2.7)	%	3.1	%

Income (loss) from continuing operations attributable to Key
Key Community Bank		$	241	$	243	$	163	(.8)	%	47.9	%
Key Corporate Bank		199		167		190		19.2		4.7
Other Segments		22		25		21		(12.0)		4.8
	Total segments	462		435		374		6.2		23.5
Reconciling Items ^(b)		20		44		(11)		(54.5)		N/M
	Total	$	482	$	479	$	363	.6	%	32.8	%

(a)	Reconciling items consists primarily of the gain on the sale of Key Insurance and Benefits Services for the second quarter of 2018.
(b)	Reconciling items consists primarily of the gain on the sale of Key Insurance and Benefits Services for the second quarter of 2018, the unallocated portion of merger-related charges for the third quarter of 2017, and items not allocated to the business segments because they do not reflect their normal operations.
TE = Taxable Equivalent, N/M = Not Meaningful

Key Community Bank


dollars in millions							Change 3Q18 vs.
	3Q18		2Q18		3Q17		2Q18		3Q17
Summary of operations
Net interest income (TE)	$	726	$	715	$	673	1.5	%	7.9	%
Noninterest income	268		282		272		(5.0)		(1.5)
Total revenue (TE)	994		997		945		(.3)		5.2
Provision for credit losses	43		38		59		13.2		(27.1)
Noninterest expense	635		640		626		(.8)		1.4
Income (loss) before income taxes (TE)	316		319		260		(.9)		21.5
Allocated income taxes (benefit) and TE adjustments	75		76		97		(1.3)		(22.7)
Net income (loss) attributable to Key	$	241	$	243	$	163	(.8)	%	47.9	%

Average balances
Loans and leases	$	47,862	$	47,985	$	47,614	(.3)	%	.5	%
Total assets	51,740		51,867		51,642		(.2)		.2
Deposits	82,259		80,930		79,563		1.6		3.4

Assets under management at period end	$	40,575	$	39,663	$	38,660	2.3	%	5.0	%

TE = Taxable Equivalent

Additional Key Community Bank Data

dollars in millions										Change 3Q18 vs.
	3Q18			2Q18			3Q17			2Q18		3Q17
Noninterest income
Trust and investment services income	$	90		$	92		$	85		(2.2)	%	5.9	%
Service charges on deposit accounts	72			77			78			(6.5)		(7.7)
Cards and payments income	59			59			65			—		(9.2)
Other noninterest income	47			54			44			(13.0)		6.8
Total noninterest income	$	268		$	282		$	272		(5.0)	%	(1.5)	%

Average deposit balances
NOW and money market deposit accounts	$	45,967		$	45,112		$	44,481		1.9	%	3.3	%
Savings deposits	4,923			5,078			5,165			(3.1)		(4.7)
Certificates of deposit ($100,000 or more)	5,608			5,232			4,195			7.2		33.7
Other time deposits	5,019			4,934			4,657			1.7		7.8
Noninterest-bearing deposits	20,742			20,574			21,065			.8		(1.5)
Total deposits	$	82,259		$	80,930		$	79,563		1.6	%	3.4	%

Home equity loans
Average balance	$	11,317		$	11,496		$	12,182
Combined weighted-average loan-to-value ratio (at date of origination)	70		%	70		%	69		%
Percent first lien positions	60			60			60

Other data
Branches	1,166			1,177			1,208
Automated teller machines	1,518			1,537			1,588

Key Community Bank Summary of Operations (3Q18 vs. 3Q17)

Positive operating leverage compared to the prior year
Net income increased $78 million, or 47.9%, from the prior year
Average commercial and industrial loans increased $831 million, or 4.4%, from the prior year

Key Community Bank recorded net income attributable to Key of $241 million for the third quarter of 2018, compared to $163 million for the year-ago quarter, benefiting from momentum in Key's core businesses and a lower tax rate as a result of tax reform.

Taxable-equivalent net interest income increased by $53 million, or 7.9%, from the third quarter of 2017. The increase in net interest income was primarily attributable to the benefit from higher interest rates and balance sheet growth, partially offset by lower purchase accounting accretion. Average loans and leases increased $248 million, or .5%, largely driven by a $831 million, or 4.4%, increase in commercial and industrial loans, partially offset by a continued decline in home equity, in line with industry trends. Additionally, average deposits increased $2.7 billion, or 3.4%, driven by growth across multiple businesses, from the third quarter of 2017.

Noninterest income decreased $4 million, or 1.5%, from the year-ago quarter driven by lower service charges on deposit accounts and cards and payments income, which were impacted by revenue recognition changes. This was partially offset by higher trust and investment services income, which increased primarily due to higher assets under management from market growth.

The provision for credit losses decreased by $16 million, or 27.1%, from the third quarter of 2017. Net loan charge-offs increased $2 million, or 4.9%, from the third quarter of 2017, as overall credit quality remained stable.

Noninterest expense increased $9 million, or 1.4%, from the year-ago quarter. Personnel expense increased, primarily driven by higher production related incentive compensation and ongoing investments, including residential mortgage.

Key Corporate Bank


dollars in millions							Change 3Q18 vs.
	3Q18		2Q18		3Q17		2Q18		3Q17
Summary of operations
Net interest income (TE)	$	273	$	277	$	292	(1.4)	%	(6.5)	%
Noninterest income	301		265		269		13.6		11.9
Total revenue (TE)	574		542		561		5.9		2.3
Provision for credit losses	20		28		(11)		(28.6)		N/M
Noninterest expense	316		325		303		(2.8)		4.3
Income (loss) before income taxes (TE)	238		189		269		25.9		(11.5)
Allocated income taxes and TE adjustments	39		22		79		77.3		(50.6)
Net income (loss) attributable to Key	$	199	$	167	$	190	19.2	%	4.7	%

Average balances
Loans and leases	$	39,714	$	39,709	$	38,021	—		4.5	%
Loans held for sale	1,042		1,299		1,521		(19.8)	%	(31.5)
Total assets	46,860		47,212		45,257		(.7)		3.5
Deposits	21,056		21,057		21,559		—		(2.3)

TE = Taxable Equivalent, N/M = Not Meaningful

Additional Key Corporate Bank Data

dollars in millions							Change 3Q18 vs.
	3Q18		2Q18		3Q17		2Q18		3Q17
Noninterest income
Trust and investment services income	$	27	$	29	$	34	(6.9)	%	(20.6)	%
Investment banking and debt placement fees	162		153		137		5.9		18.2
Operating lease income and other leasing gains	34		(10)		13		N/M		161.5

Corporate services income	37		44		40		(15.9)		(7.5)
Service charges on deposit accounts	13		13		13		—		—
Cards and payments income	10		12		10		(16.7)		—
Payments and services income	60		69		63		(13.0)		(4.8)

Mortgage servicing fees	15		19		18		(21.1)		(16.7)
Other noninterest income	3		5		4		(40.0)		(25.0)
Total noninterest income	$	301	$	265	$	269	13.6	%	11.9	%

N/M = Not Meaningful

Key Corporate Bank Summary of Operations (3Q18 vs. 3Q17)

Commercial and industrial loans up $2.6 billion, or 11.4%, from prior year
Investment banking and debt placement fees up $25 million, or 18.2%, from prior year

Key Corporate Bank recorded net income attributable to Key of $199 million for the third quarter of 2018, compared to $190 million for the year-ago quarter.

Taxable-equivalent net interest income decreased by $19 million, or 6.5%, compared to the third quarter of 2017. This decline is primarily related to $7 million of lower purchase accounting accretion, as well as loan spread compression. Average loan and lease balances increased $1.7 billion, or 4.5%, from the year-ago quarter, driven by broad-based growth in commercial and industrial loans, partially offset by a continued decline in home equity. Average deposit balances decreased $503 million, or 2.3%, from the year-ago quarter, driven by the managed exit of higher cost corporate and public sector deposits offsetting growth in core deposits.

Noninterest income was up $32 million, or 11.9%, from the prior year. Investment banking and debt placement fees increased $25 million related to the acquisition of Cain Brothers and organic growth. Operating lease income and other leasing gains increased $21 million due to higher volumes, as well as lease residual losses in the year-ago period. These increases were slightly offset by lower trust and investment services income of $7 million, as well as $3 million declines in both mortgage fees due to lower transactional fees and corporate services income due to lower derivatives income.

During the third quarter of 2018, the provision for credit losses increased $31 million, compared to the third quarter of 2017, mostly due to higher net loan charge-offs.

Noninterest expense increased by $13 million, or 4.3%, from the third quarter of 2017. The increase from the prior year was largely related to acquisitions and investments made throughout the year driving increases in personnel expense and intangible amortization, as well as higher operating lease expense, driven by increased volume.

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 $22 million for the third quarter of 2018, compared to $21 million for the same period last year.

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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 $138.8 billion at September 30, 2018.

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, 2017, 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 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 18, 2018. An audio replay of the call will be available through October 28, 2018.

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KeyCorp
Third Quarter 2018
Financial Supplement

Financial Highlights
(dollars in millions, except per share amounts)
			Three months ended
			9/30/2018			6/30/2018			9/30/2017
Summary of operations
	Net interest income (TE)		$	993		$	987		$	962
	Noninterest income		609			660			592
		Total revenue (TE)	1,602			1,647			1,554
	Provision for credit losses		62			64			51
	Noninterest expense		964			993			992
	Income (loss) from continuing operations attributable to Key		482			479			363
	Income (loss) from discontinued operations, net of taxes ^(a)		—			3			1
	Net income (loss) attributable to Key		482			482			364

	Income (loss) from continuing operations attributable to Key common shareholders		468			464			349
	Income (loss) from discontinued operations, net of taxes ^(a)		—			3			1
	Net income (loss) attributable to Key common shareholders		468			467			350

Per common share
	Income (loss) from continuing operations attributable to Key common shareholders		$	.45		$	.44		$	.32
	Income (loss) from discontinued operations, net of taxes ^(a)		—			—			—
	Net income (loss) attributable to Key common shareholders ^(b)		.45			.44			.32

	Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution		.45			.44			.32
	Income (loss) from discontinued operations, net of taxes — assuming dilution ^(a)		—			—			—
	Net income (loss) attributable to Key common shareholders — assuming dilution ^(b)		.45			.44			.32

	Cash dividends declared		.17			.12			.095
	Book value at period end		13.33			13.29			13.18
	Tangible book value at period end		10.59			10.59			10.52
	Market price at period end		19.89			19.54			18.82

Performance ratios
	From continuing operations:
	Return on average total assets		1.40		%	1.41		%	1.07		%
	Return on average common equity		13.36			13.29			9.74
	Return on average tangible common equity ^(c)		16.81			16.73			12.21
	Net interest margin (TE)		3.18			3.19			3.15
	Cash efficiency ratio ^(c)		58.7			58.8			62.2

	From consolidated operations:
	Return on average total assets		1.39		%	1.40		%	1.06		%
	Return on average common equity		13.36			13.37			9.77
	Return on average tangible common equity ^(c)		16.81			16.84			12.25
	Net interest margin (TE)		3.16			3.17			3.13
	Loan to deposit ^(d)		87.0			86.9			86.2

Capital ratios at period end
	Key shareholders' equity to assets		10.96		%	10.96		%	11.15		%
	Key common shareholders' equity to assets		9.93			10.21			10.40
	Tangible common equity to tangible assets ^(c)		8.05			8.32			8.49
	Common Equity Tier 1^(e)		9.93			10.13			10.26
	Tier 1 risk-based capital ^(e)		11.09			10.95			11.11
	Total risk-based capital ^(e)		12.97			12.83			13.09
	Leverage ^(e)		10.05			9.87			9.83

Asset quality — from continuing operations
	Net loan charge-offs		$	60		$	60		$	32
	Net loan charge-offs to average loans		.27		%	.27		%	.15		%
	Allowance for loan and lease losses		$	887		$	887		$	880
	Allowance for credit losses		947			945			937
	Allowance for loan and lease losses to period-end loans		.99		%	1.01		%	1.02		%
	Allowance for credit losses to period-end loans		1.06			1.07			1.08
	Allowance for loan and lease losses to nonperforming loans ^(f)		137.5			162.8			170.2
	Allowance for credit losses to nonperforming loans ^(f)		146.8			173.4			181.2
	Nonperforming loans at period-end ^(f)		$	645		$	545		$	517
	Nonperforming assets at period-end ^(f)		674			571			556
	Nonperforming loans to period-end portfolio loans ^(f)		.72		%	.62		%	.60		%
	Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets ^(f)		.75			.65			.64

Trust assets
	Assets under management		$	40,575		$	39,663		$	38,660

Other data
	Average full-time equivalent employees		18,150			18,376			18,548
	Branches		1,166			1,177			1,208

Taxable-equivalent adjustment			$	7		$	8		$	14

Financial Highlights (continued)
(dollars in millions, except per share amounts)
		Nine months ended
		9/30/2018			9/30/2017
Summary of operations
	Net interest income (TE)	$	2,932		$	2,878
	Noninterest income	1,870			1,822
	Total revenue (TE)	4,802			4,700
	Provision for credit losses	187			180
	Noninterest expense	2,963			3,000
	Income (loss) from continuing operations attributable to Key	1,377			1,094
	Income (loss) from discontinued operations, net of taxes ^(a)	5			6
	Net income (loss) attributable to Key	1,382			1,100

	Income (loss) from continuing operations attributable to Key common shareholders	$	1,334		$	1,038
	Income (loss) from discontinued operations, net of taxes ^(a)	5			6
	Net income (loss) attributable to Key common shareholders	1,339			1,044

Per common share
	Income (loss) from continuing operations attributable to Key common shareholders	$	1.28		$	.96
	Income (loss) from discontinued operations, net of taxes ^(a)	.01			.01
	Net income (loss) attributable to Key common shareholders ^(b)	1.27			.97

	Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution	1.26			.95
	Income (loss) from discontinued operations, net of taxes — assuming dilution ^(a)	.01			.01
	Net income (loss) attributable to Key common shareholders — assuming dilution ^(b)	1.26			.96

	Cash dividends paid	.395			.275

Performance ratios
	From continuing operations:
	Return on average total assets	1.35		%	1.10		%
	Return on average common equity	12.81			9.89
	Return on average tangible common equity ^(c)	16.16			12.36
	Net interest margin (TE)	3.17			3.19
	Cash efficiency ratio ^(c)	60.1			62.4

	From consolidated operations:
	Return on average total assets	1.35		%	1.09		%
	Return on average common equity	12.86			9.95
	Return on average tangible common equity ^(c)	16.22			12.43
	Net interest margin (TE)	3.15			3.17

Asset quality — from continuing operations
	Net loan charge-offs	$	174		$	156
	Net loan charge-offs to average total loans	.26		%	.24		%

Other data
	Average full-time equivalent employees	18,354			18,427

Taxable-equivalent adjustment		23			39


(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)	September 30, 2018, ratio is estimated.
(f)	Nonperforming loan balances exclude $606 million, $629 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, and September 30, 2017, 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 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.

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									Nine months ended
	9/30/2018			6/30/2018			9/30/2017			9/30/2018			9/30/2017
Tangible common equity to tangible assets at period-end
Key shareholders' equity (GAAP)	$	15,208		$	15,100		$	15,249
Less: Intangible assets ^(a)	2,838			2,858			2,870
Preferred Stock ^(b)	1,421			1,009			1,009
Tangible common equity (non-GAAP)	$	10,949		$	11,233		$	11,370
Total assets (GAAP)	$	138,805		$	137,792		$	136,733
Less: Intangible assets ^(a)	2,838			2,858			2,870
Tangible assets (non-GAAP)	$	135,967		$	134,934		$	133,863
Tangible common equity to tangible assets ratio (non-GAAP)	8.05		%	8.32		%	8.49		%
Pre-provision net revenue
Net interest income (GAAP)	$	986		$	979		$	948		$	2,909		$	2,839
Plus: Taxable-equivalent adjustment	7			8			14			23			39
Noninterest income	609			660			592			1,870			1,822
Less: Noninterest expense	964			993			992			2,963			3,000
Pre-provision new revenue from continuing operations (non-GAAP)	$	638		$	654		$	562		$	1,839		$	1,700
Average tangible common equity
Average Key shareholders' equity (GAAP)	$	15,210		$	15,032		$	15,241		$	15,045		$	15,208
Less: Intangible assets (average) ^(c)	2,848			2,883			2,878			2,882			2,802
Preferred stock (average)	1,316			1,025			1,025			1,123			1,175
Average tangible common equity (non-GAAP)	$	11,046		$	11,124		$	11,338		$	11,040		$	11,231
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)	$	468		$	464		$	349		$	1,334		$	1,038
Average tangible common equity (non-GAAP)	11,046			11,124			11,338			11,040			11,231

Return on average tangible common equity from continuing operations (non-GAAP)	16.81		%	16.73		%	12.21		%	16.16		%	12.36		%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP)	$	468		$	467		$	350		$	1,339		$	1,044
Average tangible common equity (non-GAAP)	11,046			11,124			11,338			11,040			11,231

Return on average tangible common equity consolidated (non-GAAP)	16.81		%	16.84		%	12.25		%	16.22		%	12.43		%
Cash efficiency ratio
Noninterest expense (GAAP)	$	964		$	993		$	992		$	2,963		$	3,000
Less: Intangible asset amortization	23			25			25			77			69
Adjusted noninterest expense (non-GAAP)	$	941		$	968		$	967		$	2,886		$	2,931

Net interest income (GAAP)	$	986		$	979		$	948		$	2,909		$	2,839
Plus: Taxable-equivalent adjustment	7			8			14			23			39
Noninterest income	609			660			592			1,870			1,822
Total taxable-equivalent revenue (non-GAAP)	$	1,602		$	1,647		$	1,554		$	4,802		$	4,700

Cash efficiency ratio (non-GAAP)	58.7		%	58.8		%	62.2		%	60.1		%	62.4		%

GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
			Three months ended
			9/30/2018
Common Equity Tier 1 under the Regulatory Capital Rules ("RCR") (estimates)
	Common Equity Tier 1 under current RCR		$	12,197
	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)	$	12,197

	Net risk-weighted assets under current RCR		$	122,781
	Adjustments from current RCR to the fully phased-in RCR:
		Mortgage servicing assets ^(f)	755
		Deferred tax assets	345
		All other assets	—
		Total risk-weighted assets anticipated under the fully phased-in RCR ^(e)	$	123,881

	Common Equity Tier 1 ratio under the fully phased-in RCR ^(e)		9.85		%


(a)	For the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, intangible assets exclude $17 million, $20 million, and $30 million, respectively, of period-end purchased credit card receivables.
(b)	Net of capital surplus.
(c)	For the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, average intangible assets exclude $18 million, $21 million, and $32 million, respectively, of average purchased credit card receivables. For the nine months ended September 30, 2018, and September 30, 2017, average intangible assets exclude $21 million and $36 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 (as fully phased-in on January 1, 2019); 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)

			9/30/2018		6/30/2018		9/30/2017
Assets
	Loans		$	89,268	$	88,222	$	86,492
	Loans held for sale		1,618		1,418		1,341
	Securities available for sale		18,341		17,367		19,012
	Held-to-maturity securities		11,869		12,277		10,276
	Trading account assets		958		833		783
	Short-term investments		2,272		2,646		3,993
	Other investments		681		709		728
		Total earning assets	125,007		123,472		122,625
	Allowance for loan and lease losses		(887)		(887)		(880)
	Cash and due from banks		319		784		562
	Premises and equipment		891		892		916
	Operating lease assets		930		903		736
	Goodwill		2,516		2,516		2,487
	Other intangible assets		338		361		412
	Corporate-owned life insurance		4,156		4,147		4,113
	Accrued income and other assets		4,378		4,382		4,366
	Discontinued assets		1,157		1,222		1,396
		Total assets	$	138,805	$	137,792	$	136,733

Liabilities
	Deposits in domestic offices:
		NOW and money market deposit accounts	$	57,219	$	55,059	$	53,734
		Savings deposits	4,948		6,199		6,366
		Certificates of deposit ($100,000 or more)	8,453		7,547		6,519
		Other time deposits	5,130		4,943		4,720
		Total interest-bearing deposits	75,750		73,748		71,339
		Noninterest-bearing deposits	30,030		30,800		32,107
		Total deposits	105,780		104,548		103,446
	Federal funds purchased and securities sold under repurchase agreements		1,285		1,667		372
	Bank notes and other short-term borrowings		637		639		616
	Accrued expense and other liabilities		2,044		1,983		1,949
	Long-term debt		13,849		13,853		15,100
		Total liabilities	123,595		122,690		121,483

Equity
	Preferred stock		1,450		1,025		1,025
	Common shares		1,257		1,257		1,257
	Capital surplus		6,315		6,315		6,310
	Retained earnings		11,262		10,970		10,125
	Treasury stock, at cost		(3,910)		(3,382)		(2,962)
	Accumulated other comprehensive income (loss)		(1,166)		(1,085)		(506)
		Key shareholders' equity	15,208		15,100		15,249
	Noncontrolling interests		2		2		1
		Total equity	15,210		15,102		15,250
Total liabilities and equity			$	138,805	$	137,792	$	136,733

Common shares outstanding (000)			1,034,287		1,058,944		1,079,039

Consolidated Statements of Income
(dollars in millions, except per share amounts)
			Three months ended						Nine months ended
			9/30/2018		6/30/2018		9/30/2017		9/30/2018		9/30/2017
Interest income
	Loans		$	1,025	$	1,000	$	928	$	2,965	$	2,753
	Loans held for sale		12		16		17		40		39
	Securities available for sale		102		97		91		294		276
	Held-to-maturity securities		72		72		55		213		161
	Trading account assets		7		7		7		21		21
	Short-term investments		15		8		6		31		14
	Other investments		6		5		5		17		12
		Total interest income	1,239		1,205		1,109		3,581		3,276
Interest expense
	Deposits		140		112		72		343		196
	Federal funds purchased and securities sold under repurchase agreements		1		5		—		10		1
	Bank notes and other short-term borrowings		4		7		3		17		12
	Long-term debt		108		102		86		302		228
		Total interest expense	253		226		161		672		437
Net interest income			986		979		948		2,909		2,839
Provision for credit losses			62		64		51		187		180
Net interest income after provision for credit losses			924		915		897		2,722		2,659
Noninterest income
	Trust and investment services income		117		128		135		378		404
	Investment banking and debt placement fees		166		155		141		464		403
	Service charges on deposit accounts		85		91		91		265		268
	Operating lease income and other leasing gains		35		(6)		16		61		69
	Corporate services income		52		61		54		175		163
	Cards and payments income		69		71		75		202		210
	Corporate-owned life insurance income		34		32		31		98		94
	Consumer mortgage income		9		7		7		23		19
	Mortgage servicing fees		19		22		21		61		54
	Other income ^(a)		23		99		21		143		138
		Total noninterest income	609		660		592		1,870		1,822
Noninterest expense
	Personnel		553		586		559		1,733		1,669
	Net occupancy		76		79		74		233		239
	Computer processing		52		51		56		155		171
	Business services and professional fees		43		51		49		135		140
	Equipment		27		26		29		79		83
	Operating lease expense		31		30		24		88		64
	Marketing		26		26		34		77		85
	FDIC assessment		21		21		21		63		62
	Intangible asset amortization		23		25		25		77		69
	OREO expense, net		3		—		3		5		8
	Other expense		109		98		118		318		410
		Total noninterest expense	964		993		992		2,963		3,000
Income (loss) from continuing operations before income taxes			569		582		497		1,629		1,481
	Income taxes		87		103		134		252		386
Income (loss) from continuing operations			482		479		363		1,377		1,095
	Income (loss) from discontinued operations, net of taxes		—		3		1		5		6
Net income (loss)			482		482		364		1,382		1,101
	Less: Net income (loss) attributable to noncontrolling interests		—		—		—		—		1
Net income (loss) attributable to Key			$	482	$	482	$	364	$	1,382	$	1,100

Income (loss) from continuing operations attributable to Key common shareholders			$	468	$	464	$	349	$	1,334	$	1,038
Net income (loss) attributable to Key common shareholders			468		467		350		1,339		1,044
Per common share
Income (loss) from continuing operations attributable to Key common shareholders			$	.45	$	.44	$	.32	$	1.28	$	.96
Income (loss) from discontinued operations, net of taxes			—		—		—		.01		.01
Net income (loss) attributable to Key common shareholders ^(b)			.45		.44		.32		1.27		.97
Per common share — assuming dilution
Income (loss) from continuing operations attributable to Key common shareholders			$	.45	$	.44	$	.32	$	1.26	$	.95
Income (loss) from discontinued operations, net of taxes			—		—		—		.01		.01
Net income (loss) attributable to Key common shareholders ^(b)			.45		.44		.32		1.26		.96

Cash dividends declared per common share			$	.17	$	.12	$	.095	$	.395	$	.275

Weighted-average common shares outstanding (000)			1,036,479		1,052,652		1,073,390		1,048,397		1,075,296
	Effect of common share options and other stock awards		13,497		13,141		15,451		14,419		16,359
Weighted-average common shares and potential common shares outstanding (000) ^(c)			1,049,976		1,065,793		1,088,841		1,062,816		1,091,655

(a)	For the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, net securities gains (losses) totaled less than $1 million. For the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, 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, as applicable.

Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
(dollars in millions)

		Third Quarter 2018						Second Quarter 2018						Third Quarter 2017
		Average				Yield/		Average				Yield/		Average				Yield/
		Balance		Interest ^(a)		Rate ^(a)		Balance		Interest ^(a)		Rate ^(a)		Balance		Interest ^(a)		Rate ^(a)
Assets
	Loans: ^(b), (c)
	Commercial and industrial ^(d)	$	44,749	$	495	4.39	%	$	45,030	$	485	4.32	%	$	41,416	$	414	3.97	%
	Real estate — commercial mortgage	14,268		176		4.89		14,055		172		4.89		14,850		169		4.51
	Real estate — construction	1,759		22		5.05		1,789		23		4.97		2,054		23		4.51
	Commercial lease financing	4,444		43		3.88		4,550		41		3.61		4,694		46		3.89
	Total commercial loans	65,220		736		4.49		65,424		721		4.41		63,014		652		4.11
	Real estate — residential mortgage	5,466		55		3.99		5,451		54		3.97		5,493		54		3.92
	Home equity loans	11,415		137		4.80		11,601		135		4.67		12,314		136		4.41
	Consumer direct loans	1,789		35		7.71		1,768		33		7.54		1,774		33		7.26
	Credit cards	1,095		32		11.43		1,080		30		11.21		1,049		30		11.34
	Consumer indirect loans	3,482		37		4.25		3,320		35		4.26		3,170		37		4.64
	Total consumer loans	23,247		296		5.06		23,220		287		4.97		23,800		290		4.85
	Total loans	88,467		1,032		4.64		88,644		1,008		4.56		86,814		942		4.31
	Loans held for sale	1,117		12		4.59		1,375		16		4.50		1,607		17		4.13
	Securities available for sale ^{(b), (e)}	17,631		102		2.22		17,443		97		2.13		18,574		91		1.96
	Held-to-maturity securities ^(b)	12,065		72		2.40		12,226		72		2.36		10,469		55		2.12
	Trading account assets	787		7		3.37		943		7		3.21		889		7		2.74
	Short-term investments	2,928		15		1.93		2,015		8		1.76		2,166		6		1.21
	Other investments ^(e)	685		6		3.27		710		5		3.08		728		5		2.46
	Total earning assets	123,680		1,246		3.98		123,356		1,213		3.92		121,247		1,123		3.68
	Allowance for loan and lease losses	(886)						(875)						(868)
	Accrued income and other assets	13,935						13,897						13,977
	Discontinued assets	1,186						1,241						1,417
	Total assets	$	137,915					$	137,619					$	135,773
Liabilities
	NOW and money market deposit accounts	$	56,391	82		.58		$	54,749	59		.44		$	53,826	37		.27
	Savings deposits	5,413		3		.20		6,276		5		.35		6,697		5		.25
	Certificates of deposit ($100,000 or more)	8,186		38		1.86		7,516		32		1.70		6,402		21		1.31
	Other time deposits	5,026		17		1.40		4,949		16		1.22		4,664		9		.81
	Total interest-bearing deposits	75,016		140		.74		73,490		112		.61		71,589		72		.40
	Federal funds purchased and securities sold under repurchase agreements	552		1		1.00		1,475		5		1.41		456		—		.23
	Bank notes and other short-term borrowings	596		4		2.76		1,116		7		2.27		865		3		1.49
	Long-term debt ^{(f), (g)}	12,678		108		3.34		12,748		102		3.20		12,631		86		2.75
	Total interest-bearing liabilities	88,842		253		1.13		88,829		226		1.02		85,541		161		.75
	Noninterest-bearing deposits	30,610						30,513						31,516
	Accrued expense and other liabilities	2,065						2,002						2,057
	Discontinued liabilities ^(g)	1,186						1,241						1,417
	Total liabilities	122,703						122,585						120,531
Equity
	Key shareholders' equity	15,210						15,032						15,241
	Noncontrolling interests	2						2						1
	Total equity	15,212						15,034						15,242
	Total liabilities and equity	$	137,915					$	137,619					$	135,773
Interest rate spread (TE)						2.85	%					2.90	%					2.93	%
Net interest income (TE) and net interest margin (TE)				993		3.18	%			987		3.19	%			962		3.15	%
TE adjustment ^(b)				7						8						14
	Net interest income, GAAP basis			$	986					$	979					$	948

(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 21% for the three months ended September 30, 2018, and June 30, 2018, and 35% for the three months ended September 30, 2017.
(c)	For purposes of these computations, nonaccrual loans are included in average loan balances.
(d)	Commercial and industrial average balances include $128 million, $126 million, and $117 million of assets from commercial credit cards for the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, 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, 2018						Nine months ended September 30, 2017
		Average						Average
		Balance		Interest ^(a)		Yield/Rate ^(a)		Balance		Interest ^(a)		Yield/ Rate ^(a)
Assets
	Loans: ^(b), (c)
	Commercial and industrial ^(d)	$	44,178	$	1,414	4.28	%	$	40,700	$	1,196	3.93	%
	Real estate — commercial mortgage	14,137		513		4.85		15,043		520		4.62
	Real estate — construction	1,834		67		4.88		2,203		80		4.86
	Commercial lease financing	4,552		125		3.67		4,673		140		3.99
	Total commercial loans	64,701		2,119		4.38		62,619		1,936		4.13
	Real estate — residential mortgage	5,466		163		3.97		5,507		160		3.88
	Home equity loans	11,629		406		4.67		12,465		402		4.32
	Consumer direct loans	1,774		101		7.59		1,760		94		7.10
	Credit cards	1,085		92		11.32		1,053		88		11.15
	Consumer indirect loans	3,363		107		4.27		3,081		112		4.85
	Total consumer loans	23,317		869		4.98		23,866		856		4.79
	Total loans	88,018		2,988		4.54		86,485		2,792		4.31
	Loans held for sale	1,226		40		4.40		1,293		39		4.01
	Securities available for sale ^{(b), (e)}	17,653		294		2.14		18,582		276		1.96
	Held-to-maturity securities ^(b)	12,111		213		2.35		10,311		161		2.08
	Trading account assets	879		21		3.19		966		21		2.84
	Short-term investments	2,334		31		1.76		1,918		14		1.00
	Other investments ^(e)	706		17		3.10		708		12		2.20
	Total earning assets	122,927		3,604		3.90		120,263		3,315		3.68
	Allowance for loan and lease losses	(879)						(862)
	Accrued income and other assets	13,966						13,801
	Discontinued assets	1,243						1,477
	Total assets	$	137,257					$	134,679
Liabilities
	NOW and money market deposit accounts	$	54,891	187		.46		$	54,178	103		.25
	Savings deposits	5,971		13		.28		6,635		10		.19
	Certificates of deposit ($100,000 or more)	7,563		97		1.72		6,050		56		1.24
	Other time deposits	4,947		46		1.25		4,673		27		.78
	Total interest-bearing deposits	73,372		343		.63		71,536		196		.37
	Federal funds purchased and securities sold under repurchase agreements	1,146		10		1.22		570		1		.27
	Bank notes and other short-term borrowings	1,015		17		2.19		1,291		12		1.27
	Long-term debt ^{(f), (g)}	12,631		302		3.17		11,510		228		2.66
	Total interest-bearing liabilities	88,164		672		1.02		84,907		437		.69
	Noninterest-bearing deposits	30,701						31,123
	Accrued expense and other liabilities	2,102						1,962
	Discontinued liabilities ^(g)	1,243						1,478
	Total liabilities	122,210						119,470
Equity
	Key shareholders' equity	15,045						15,208
	Noncontrolling interests	2						1
	Total equity	15,047						15,209
	Total liabilities and equity	$	137,257					$	134,679
Interest rate spread (TE)						2.88	%					2.99	%
Net interest income (TE) and net interest margin (TE)				2,932		3.17	%			2,878		3.19	%
TE adjustment ^(b)				23						39
	Net interest income, GAAP basis			$	2,909					$	2,839

(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 21% and 35% for the nine months ended September 30, 2018, and September 30, 2017, respectively.
(c)	For purposes of these computations, nonaccrual loans are included in average loan balances.
(d)	Commercial and industrial average balances include $125 million and $116 million of assets from commercial credit cards for the nine months ended September 30, 2018, and September 30, 2017, 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

Noninterest Expense
(dollars in millions)

	Three months ended						Nine months ended
	9/30/2018		6/30/2018		9/30/2017		9/30/2018		9/30/2017
Personnel ^(a)	$	553	$	586	$	559	$	1,733	$	1,669
Net occupancy	76		79		74		233		239
Computer processing	52		51		56		155		171
Business services and professional fees	43		51		49		135		140
Equipment	27		26		29		79		83
Operating lease expense	31		30		24		88		64
Marketing	26		26		34		77		85
FDIC assessment	21		21		21		63		62
Intangible asset amortization	23		25		25		77		69
OREO expense, net	3		—		3		5		8
Other expense	109		98		118		318		410
Total noninterest expense	$	964	$	993	$	992	$	2,963	$	3,000
Average full-time equivalent employees ^(b)	18,150		18,376		18,548		18,354		18,427

(a)	Additional detail provided in Personnel Expense table below.
(b)	The number of average full-time equivalent employees has not been adjusted for discontinued operations.

Personnel Expense
(in millions)

	Three months ended						Nine months ended
	9/30/2018		6/30/2018		9/30/2017		9/30/2018		9/30/2017
Salaries and contract labor	$	335	$	341	$	339	$	1,015	$	995
Incentive and stock-based compensation	138		147		134		430		398
Employee benefits	79		82		81		266		256
Severance	1		16		5		22		20
Total personnel expense	$	553	$	586	$	559	$	1,733	$	1,669

Merger-Related Charges
(in millions)

	Three months ended				Nine months ended
	9/30/2018	6/30/2018	9/30/2017		9/30/2018	9/30/2017
Personnel	—	—	$	25	—	$	86
Net occupancy	—	—	(2)		—	2
Business services and professional fees	—	—	2		—	13
Computer processing	—	—	4		—	11
Marketing	—	—	5		—	17
Other nonpersonnel expense	—	—	2		—	32
Total merger-related charges	—	—	$	36	—	$	161

Loan Composition
(dollars in millions)

							Percent change 9/30/2018 vs.
	9/30/2018		6/30/2018		9/30/2017		6/30/2018		9/30/2017
Commercial and industrial ^(a)	$	45,023	$	44,569	$	41,147	1.0	%	9.4	%
Commercial real estate:
Commercial mortgage	14,716		14,162		14,929		3.9		(1.4)
Construction	1,763		1,736		1,954		1.6		(9.8)
Total commercial real estate loans	16,479		15,898		16,883		3.7		(2.4)
Commercial lease financing ^(b)	4,470		4,509		4,716		(.9)		(5.2)
Total commercial loans	65,972		64,976		62,746		1.5		5.1
Residential — prime loans:
Real estate — residential mortgage	5,497		5,452		5,476		.8		.4
Home equity loans	11,339		11,519		12,238		(1.6)		(7.3)
Total residential — prime loans	16,836		16,971		17,714		(.8)		(5.0)
Consumer direct loans	1,807		1,785		1,789		1.2		1.0
Credit cards	1,098		1,094		1,045		.4		5.1
Consumer indirect loans	3,555		3,396		3,198		4.7		11.2
Total consumer loans	23,296		23,246		23,746		.2		(1.9)
Total loans^(c)	$	89,268	$	88,222	$	86,492	1.2	%	3.2	%

(a)	Loan balances include $129 million, $128 million, and $118 million of commercial credit card balances at September 30, 2018, June 30, 2018, and September 30, 2017, respectively.
(b)	Commercial lease financing includes receivables held as collateral for a secured borrowing of $12 million, $16 million, and $31 million at September 30, 2018, June 30, 2018, and September 30, 2017, respectively. Principal reductions are based on the cash payments received from these related receivables.
(c)	Total loans exclude loans of $1.1 billion at September 30, 2018, $1.2 billion at June 30, 2018, and $1.4 billion at September 30, 2017, related to the discontinued operations of the education lending business.

Loans Held for Sale Composition
(dollars in millions)

							Percent change 9/30/2018 vs.
	9/30/2018		6/30/2018		9/30/2017		6/30/2018		9/30/2017
Commercial and industrial	$	97	$	217	$	34	(55.3)	%	185.3	%
Real estate — commercial mortgage	1,433		1,139		1,246		25.8		15.0
Commercial lease financing	1		4		1		(75.0)		—
Real estate — residential mortgage	87		58		60		50.0		45.0
Total loans held for sale ^(a)	$	1,618	$	1,418	$	1,341	14.1	%	20.7	%

(a)	Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $87 million at September 30, 2018, $58 million at June 30, 2018, and $60 million at September 30, 2017.
N/M = Not Meaningful

Summary of Changes in Loans Held for Sale
(in millions)

	3Q18		2Q18		1Q18		4Q17		3Q17
Balance at beginning of period	$	1,418	$	1,667	$	1,107	$	1,341	$	1,743
New originations	2,976		2,665		3,280		3,566		2,855
Transfers from (to) held to maturity, net	4		(4)		(14)		(10)		(63)
Loan sales	(2,491)		(2,909)		(2,705)		(3,783)		(3,191)
Loan draws (payments), net	(289)		(1)		(1)		(7)		(3)
Balance at end of period ^(a)	$	1,618	$	1,418	$	1,667	$	1,107	$	1,341

(a)	Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $87 million at September 30, 2018, $58 million at June 30, 2018, $47 million at March 31, 2018, $71 million at December 31, 2017, and $60 million at September 30, 2017.

Summary of Loan and Lease Loss Experience From Continuing Operations
(dollars in millions)

	Three months ended									Nine months ended
	9/30/2018			6/30/2018			9/30/2017			9/30/2018			9/30/2017
Average loans outstanding	$	88,467		$	88,644		$	86,814		$	88,018		$	86,485
Allowance for loan and lease losses at beginning of period	$	887		$	881		$	870		$	877		$	858
Loans charged off:
Commercial and industrial	38			39			29			114			101

Real estate — commercial mortgage	6			2			6			9			9
Real estate — construction	—			—			2			—			2
Total commercial real estate loans	6			2			8			9			11
Commercial lease financing	4			4			1			9			9
Total commercial loans	48			45			38			132			121
Real estate — residential mortgage	2			—			—			3			2
Home equity loans	4			6			6			14			23
Consumer direct loans	10			9			8			27			26
Credit cards	10			12			11			34			34
Consumer indirect loans	7			7			8			22			24
Total consumer loans	33			34			33			100			109
Total loans charged off	81			79			71			232			230
Recoveries:
Commercial and industrial	5			7			25			18			32

Real estate — commercial mortgage	1			1			1			2			1
Real estate — construction	—			—			—			1			1
Total commercial real estate loans	1			1			1			3			2
Commercial lease financing	3			—			3			4			5
Total commercial loans	9			8			29			25			39
Real estate — residential mortgage	2			—			1			2			4
Home equity loans	3			3			4			9			12
Consumer direct loans	1			2			1			5			4
Credit cards	2			2			1			5			4
Consumer indirect loans	4			4			3			12			11
Total consumer loans	12			11			10			33			35
Total recoveries	21			19			39			58			74
Net loan charge-offs	(60)			(60)			(32)			(174)			(156)
Provision (credit) for loan and lease losses	60			66			42			184			178
Allowance for loan and lease losses at end of period	$	887		$	887		$	880		$	887		$	880

Liability for credit losses on lending-related commitments at beginning of period	$	58		$	60		$	48		$	57		$	55
Provision (credit) for losses on lending-related commitments	2			(2)			9			3			2
Liability for credit losses on lending-related commitments at end of period ^(a)	$	60		$	58		$	57		$	60		$	57

Total allowance for credit losses at end of period	$	947		$	945		$	937		$	947		$	937

Net loan charge-offs to average total loans	.27		%	.27		%	.15		%	.26		%	.24		%
Allowance for loan and lease losses to period-end loans	.99			1.01			1.02			.99			1.02
Allowance for credit losses to period-end loans	1.06			1.07			1.08			1.06			1.08
Allowance for loan and lease losses to nonperforming loans	137.5			162.8			170.2			137.5			170.2
Allowance for credit losses to nonperforming loans	146.8			173.4			181.2			146.8			181.2

Discontinued operations — education lending business:
Loans charged off	$	4		$	3		$	10		$	11		$	20
Recoveries	1			1			2			4			6
Net loan charge-offs	$	(3)		$	(2)		$	(8)		$	(7)		$	(14)

(a) Included in "Accrued expense and other liabilities" on the balance sheet.

Asset Quality Statistics From Continuing Operations
(dollars in millions)
	3Q18			2Q18			1Q18			4Q17			3Q17
Net loan charge-offs	$	60		$	60		$	54		$	52		$	32
Net loan charge-offs to average total loans	.27		%	.27		%	.25		%	.24		%	.15		%
Allowance for loan and lease losses	$	887		$	887		$	881		$	877		$	880
Allowance for credit losses ^(a)	947			945			941			934			937
Allowance for loan and lease losses to period-end loans	.99		%	1.01		%	1.00		%	1.01		%	1.02		%
Allowance for credit losses to period-end loans	1.06			1.07			1.07			1.08			1.08
Allowance for loan and lease losses to nonperforming loans ^(b)	137.5			162.8			162.8			174.4			170.2
Allowance for credit losses to nonperforming loans ^(b)	146.8			173.4			173.9			185.7			181.2
Nonperforming loans at period end ^(b)	$	645		$	545		$	541		$	503		$	517
Nonperforming assets at period end ^(b)	674			571			569			534			556
Nonperforming loans to period-end portfolio loans ^(b)	.72		%	.62		%	.61		%	.58		%	.60		%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets ^(b)	.75			.65			.65			.62			.64

(a)	Includes the allowance for loan and lease losses plus the liability for credit losses on lending-related unfunded commitments.
(b)	Nonperforming loan balances exclude $606 million, $629 million, $690 million, $738 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively.

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations
(dollars in millions)
	9/30/2018			6/30/2018			3/31/2018			12/31/2017			9/30/2017
Commercial and industrial	$	227		$	178		$	189		$	153		$	169

Real estate — commercial mortgage	98			42			33			30			30
Real estate — construction	2			2			2			2			2
Total commercial real estate loans	100			44			35			32			32
Commercial lease financing	10			21			5			6			11
Total commercial loans	337			243			229			191			212
Real estate — residential mortgage	62			55			59			58			57
Home equity loans	221			222			229			229			227
Consumer direct loans	4			4			4			4			3
Credit cards	2			2			2			2			2
Consumer indirect loans	19			19			18			19			16
Total consumer loans	308			302			312			312			305
Total nonperforming loans ^(a)	645			545			541			503			517
OREO	28			26			28			31			39
Other nonperforming assets	1			—			—			—			—
Total nonperforming assets ^(a)	$	674		$	571		$	569		$	534		$	556
Accruing loans past due 90 days or more	$	87		$	103		$	82		$	89		$	86
Accruing loans past due 30 through 89 days	368			429			305			359			329
Restructured loans — accruing and nonaccruing ^(b)	366			347			317			317			315
Restructured loans included in nonperforming loans ^(b)	211			184			179			189			187
Nonperforming assets from discontinued operations — education lending business	6			6			6			7			8
Nonperforming loans to period-end portfolio loans ^(a)	.72		%	.62		%	.61		%	.58	%	.60		%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets ^(a)	.75			.65			.65			.62			.64

(a)

Nonperforming loan balances exclude $606 million, $629 million, $690 million, $738 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively.

(b)

Restructured loans (i.e., troubled debt restructuring) are those for which Key, for reasons related to a borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider. These concessions are made to improve the collectability of the loan and generally take the form of a reduction of the interest rate, extension of the maturity date or reduction in the principal balance.

Summary of Changes in Nonperforming Loans From Continuing Operations
(in millions)
	3Q18		2Q18		1Q18		4Q17		3Q17
Balance at beginning of period	$	545	$	541	$	503	$	517	$	507
Loans placed on nonaccrual status	263		175		182		137		181
Charge-offs	(81)		(78)		(70)		(67)		(71)
Loans sold	—		(1)		—		—		(1)
Payments	(57)		(33)		(29)		(52)		(32)
Transfers to OREO	(5)		(5)		(4)		(8)		(10)
Loans returned to accrual status	(20)		(54)		(41)		(24)		(57)
Balance at end of period ^(a)	$	645	$	545	$	541	$	503	$	517

(a)	Nonperforming loan balances exclude $606 million, $629 million, $690 million, $738 million, and $783 million of purchased credit impaired loans at September 30, 2018, June 30, 2018, March 31, 2018, December 31, 2017, and September 30, 2017, respectively.

Line of Business Results
(dollars in millions)

																Percent change 3Q18 vs.
	3Q18			2Q18			1Q18			4Q17			3Q17			2Q18		3Q17
Key Community Bank
Summary of operations
Total revenue (TE)	$	994		$	997		$	959		$	961		$	945		(.3)	%	5.2	%
Provision for credit losses	43			38			48			57			59			13.2		(27.1)
Noninterest expense	635			640			653			665			626			(.8)		1.4
Net income (loss) attributable to Key	241			243			197			152			163			(.8)		47.9
Average loans and leases	47,862			47,985			47,683			47,408			47,614			(.3)		.5
Average deposits	82,259			80,930			79,945			80,352			79,563			1.6		3.4
Net loan charge-offs	43			34			42			35			41			26.5		4.9
Net loan charge-offs to average total loans	.36		%	.28		%	.36		%	.29		%	.34		%	N/A		N/A
Nonperforming assets at period end	$	467		$	468		$	425		$	405		$	427		(.2)		9.4
Return on average allocated equity	19.80		%	20.05		%	16.51		%	12.46		%	13.39		%	N/A		N/A
Average full-time equivalent employees	10,529			10,619			10,666			10,629			10,696			(.8)		(1.6)

Key Corporate Bank
Summary of operations
Total revenue (TE)	$	574		$	542		$	558		$	605		$	561		5.9	%	2.3	%
Provision for credit losses	20			28			14			(6)			(11)			(28.6)		N/M
Noninterest expense	316			325			312			352			303			(2.8)		4.3
Net income (loss) attributable to Key	199			167			208			223			190			19.2		4.7
Average loans and leases	39,714			39,709			38,257			37,457			38,021			—		4.5
Average loans held for sale	1,042			1,299			1,118			1,345			1,521			(19.8)		(31.5)
Average deposits	21,056			21,057			20,815			21,558			21,559			—		(2.3)
Net loan charge-offs	19			26			11			16			(9)			(26.9)		N/M
Net loan charge-offs to average total loans	.19		%	.26		%	.12		%	.17		%	(.09)		%	N/A		N/A
Nonperforming assets at period end	$	196		$	91		$	127		$	109		$	106		115.4		84.9
Return on average allocated equity	26.91		%	22.80		%	29.49		%	31.51		%	27.08		%	N/A		N/A
Average full-time equivalent employees	2,546			2,537			2,543			2,418			2,460			.4		3.5
TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful

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