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Section 1: 8-K (8-K)

Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549



FORM 8-K

CURRENT REPORT


Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): January 19, 2017
37578969_keylogoa01.jpg
 
(Exact name of registrant as specified in charter)
 
 
 
 
 
 
Ohio
 
001-11302
 
34-6542451
(State or other jurisdiction of incorporation)
 
Commission File Number
 
(I.R.S. Employer Identification No.)
 
 
 
127 Public Square, Cleveland, Ohio
 
44114-1306
(Address of principal executive offices)
 
(Zip Code)
 
(216) 689-3000
Registrant’s telephone number, including area code
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02
Results of Operations and Financial Condition.

On January 19, 2017, KeyCorp issued a press release announcing its financial results for the three and twelve-month periods ended December 31, 2016 (the “Press Release”), and posted on its website its fourth quarter 2016 Supplemental Information Package (the “Supplemental Information Package”). The Press Release and Supplemental Information Package are being furnished as Exhibit 99.1 and Exhibit 99.2, respectively.

The information in the preceding paragraph, as well as Exhibit 99.1 and Exhibit 99.2 referenced therein, shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”).

KeyCorp’s Consolidated Balance Sheets and Consolidated Statements of Income (collectively, the “Financial Statements”), included as part of the Press Release, are filed as Exhibit 99.3 to this report. Exhibit 99.3 is deemed “filed” for purposes of Section 18 of the Exchange Act and, therefore, may be incorporated by reference in filings under the Securities Act.

Item 9.01
Financial Statements and Exhibits.

(d)
Exhibits

The following exhibits are furnished, or filed in the case of Exhibit 99.3, herewith:

99.1
Press Release, dated January 19, 2017, announcing financial results for the three and twelve-month periods ended December 31, 2016.

99.2
Supplemental Information Package reviewed during the conference call and webcast.

99.3
Financial Statements.






SIGNATURE
 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
 
KEYCORP
 
 
(Registrant)
 
 
 
 
 
 
Date: January 19, 2017
 
/s/ Douglas M. Schosser
 
 
By: Douglas M. Schosser
 
 
Chief Accounting Officer
 
 
 



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
37578969_a2q16keycorper1a01.jpgNEWS
FOR IMMEDIATE RELEASE

KEYCORP REPORTS FOURTH QUARTER 2016
NET INCOME OF $213 MILLION, OR $.20 PER COMMON SHARE; EARNINGS PER COMMON SHARE OF $.31, EXCLUDING $.11 OF MERGER-RELATED CHARGES

4Q16 earnings per common share up 15% from the year-ago quarter, excluding merger-related charges

Successful integration of First Niagara with systems conversion completed during the quarter;
on track to realize financial targets

Positive operating leverage for 4Q16 and full-year 2016, excluding merger-related charges,
with pre-provision net revenue up 23% from 2015

Solid loan growth in 2016, driven by commercial loans and the First Niagara acquisition

Strong fee income, with another record quarter and year for investment banking
and debt placement fees

Return on average tangible common equity, excluding merger-related charges, of 12.5% for
the fourth quarter

CLEVELAND, January 19, 2017 – KeyCorp (NYSE: KEY) today announced fourth quarter net income from continuing operations attributable to Key common shareholders of $213 million, or $.20 per common share, compared to $165 million, or $.16 per common share, for the third quarter of 2016, and $224 million, or $.27 per common share, for the fourth quarter of 2015. During the fourth quarter of 2016, Key incurred merger-related charges totaling $198 million, or $.11 per common share, compared to $207 million, or $.14 per common share, in the third quarter of 2016. Excluding merger-related charges, earnings per common share were $.31 for the fourth quarter of 2016 and $.30 for the third quarter of 2016. Merger-related charges were $6 million in the fourth quarter of 2015.

"Key’s fourth quarter results reflect continued momentum in our core businesses and the successful integration of the largest acquisition in our company’s history,” said Chairman and Chief Executive Officer Beth Mooney. “Excluding merger-related charges, we generated positive operating leverage for the quarter, our return on tangible common equity was 12.5%, and our cash efficiency ratio declined to 63.3%, reflecting solid performance across Key’s businesses and early progress on merger synergies.”

“We continued to see positive trends in the Community Bank and Corporate Bank this quarter, with both segments contributing to our overall revenue growth. Noninterest income increased as we continued to do more with our clients and see results from our investments,” Mooney continued. "We had our strongest quarter ever in investment banking and debt placement fees, and for the full year generated $482 million in fees, marking another record year, with results up 8% from last year.”

“The contribution from our First Niagara acquisition and quality of our new team members continue to exceed our expectations,” added Mooney. “As we continue to realize cost savings and begin to see traction on revenue opportunities, we remain confident in reaching our financial targets.”



KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 2


Selected Financial Highlights
 
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions, except per share data
 
 
 
 
Change 4Q16 vs.
 
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Income (loss) from continuing operations attributable to Key common shareholders
$
213

$
165

$
224

 
29.1
 %
(4.9
)%
 Income (loss) from continuing operations attributable to Key common shareholders per
common share — assuming dilution
.20

.16

.27

 
25.0

(25.9
)
Return on average total assets from continuing operations
.69
%
.55
%
.97
%
 
N/A

N/A

 Common Equity Tier 1 ratio (non-GAAP) (a), (b)
9.59

9.56

10.94

 
N/A

N/A

Book value at period end
$
12.58

$
12.78

$
12.51

 
(1.6
)%
.6
 %
Net interest margin (TE) from continuing operations
3.12
%
2.85
%
2.87
%
 
N/A

N/A

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
The table entitled “GAAP to Non-GAAP Reconciliations” in the attached financial supplement presents the computations of certain financial measures related to “Common Equity Tier 1.” The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the Regulatory Capital Rules, see the “Capital” section of this release.
(b)
12-31-16 ratio is estimated.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TE = Taxable Equivalent, N/A = Not Applicable
 
 
 
 
 
 

INCOME STATEMENT HIGHLIGHTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 4Q16 vs.
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Net interest income (TE)
$
948

$
788

$
610

 
20.3
%
55.4
%
Merger-related charges

(6
)

 
N/M

N/M

Total net interest income excluding merger-related charges
$
948

$
794

$
610

 
19.4
%
55.4
%
 
 
 
 
 
 
 

TE = Taxable Equivalent

Fourth quarter 2016 net interest income included $92 million of purchase accounting accretion related to the acquisition of First Niagara, including $34 million related to refinement of third quarter 2016 purchase accounting estimates.

Taxable-equivalent net interest income was $948 million for the fourth quarter of 2016, and the net interest margin was 3.12%, compared to taxable-equivalent net interest income of $610 million and a net interest margin of 2.87% for the fourth quarter of 2015, reflecting the benefit from the First Niagara acquisition and ongoing business activity.

Compared to the third quarter of 2016, taxable-equivalent net interest income increased by $160 million, and the net interest margin increased by 27 basis points. The increases in both net interest income and the net interest margin reflect the benefit from a full-quarter impact of the First Niagara acquisition and refinement of third quarter 2016 purchase accounting estimates. The net interest margin also benefited from the redeployment of excess liquidity into investment securities.




KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 3


Noninterest Income
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 4Q16 vs.
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Trust and investment services income
$
123

$
122

$
105

 
.8
 %
17.1
%
Investment banking and debt placement fees
157

156

127

 
.6

23.6

Service charges on deposit accounts
84

85

64

 
(1.2
)
31.3

Operating lease income and other leasing gains
21

6

15

 
250.0

40.0

Corporate services income
61

51

55

 
19.6

10.9

Cards and payments income
69

66

47

 
4.5

46.8

Corporate-owned life insurance income
40

29

36

 
37.9

11.1

Consumer mortgage income
6

6

2

 

200.0

Mortgage servicing fees
20

15

15

 
33.3

33.3

Net gains (losses) from principal investing
4

5


 
(20.0
)
N/M

Other income
33

8

19

 
312.5

73.7

Total noninterest income
$
618

$
549

$
485

 
12.6
 %
27.4
%
Merger-related charges
9

(12
)

 
N/M

N/M

Total noninterest income excluding merger-related charges
$
609

$
561

$
485

 
8.6
 %
25.6
%
 
 
 
 
 
 
 

N/M = Not Meaningful

Fourth quarter 2016 reported noninterest income includes a benefit of $9 million associated with merger-related charges that includes adjustments to purchase accounting, compared to charges of $12 million in the third quarter of 2016.

Key’s noninterest income was $618 million for the fourth quarter of 2016, compared to $485 million for the year-ago quarter. The increase was driven by the acquisition of First Niagara, as well as continued positive momentum in Key’s core businesses. Investment banking and debt placement fees, cards and payments income, service charges on deposit accounts, and other income all contributed to the growth.

Compared to the third quarter of 2016, noninterest income increased by $69 million. The increase included a full-quarter impact of the First Niagara acquisition as well as adjustments to purchase accounting that have been recorded as merger-related charges. Operating lease income and other leasing gains increased $15 million, with prior quarter results impacted by lease residual losses. Additionally, corporate-owned life insurance income increased $11 million, reflecting normal seasonality. Other income was impacted by merger-related charges, which contributed $19 million to the linked quarter increase.

Noninterest Expense
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 4Q16 vs.
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Personnel expense
$
648

$
594

$
429

 
9.1
%
51.0
%
Nonpersonnel expense
572

488

307

 
17.2

86.3

     Total noninterest expense
$
1,220

$
1,082

$
736

 
12.8

65.8

 
 
 
 
 


 
Merger-related charges
207

189

6

 
9.5

N/M

     Total noninterest expense excluding merger-related charges
$
1,013

$
893

$
730

 
13.4
%
38.8
%
 
 
 
 
 
 
 

N/M = Not Meaningful


Key’s noninterest expense was $1.2 billion for the fourth quarter of 2016, which included $207 million of merger-related charges, as well as a pension settlement charge of $18 million. The merger-related charges were primarily made up of $80 million in personnel expense related to systems conversions, as well as fully-dedicated personnel for merger and integration efforts. The remaining $127 million of merger-related charges were nonpersonnel expense, largely recognized in net occupancy, computer processing, business



KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 4


services and professional fees, and marketing expense. In the third quarter of 2016, noninterest expense included $189 million of merger-related charges, while $6 million of merger-related charges were incurred in the fourth quarter of 2015.

Excluding merger-related charges, noninterest expense was $283 million higher than the fourth quarter of last year. The increase from the prior year, reflected in both personnel and nonpersonnel expense, was largely driven by the acquisition of First Niagara, as well as higher incentive and stock-based compensation. Additionally, Key incurred $14 million in an increased pension settlement charge, and intangible asset amortization increased $18 million.

Compared to the third quarter of 2016, excluding merger-related charges, noninterest expense increased by $120 million. The increase, reflected in both personnel and nonpersonnel expense, was largely driven by an extra month of impact from First Niagara, as well as a pension settlement charge of $18 million during the fourth quarter. Incentive and stock-based compensation also increased, primarily related to stock-based compensation plans, reflecting the impact of Key's higher share price. In the fourth quarter of 2016, intangible asset amortization increased $14 million.

BALANCE SHEET HIGHLIGHTS

In the fourth quarter of 2016, Key had average assets of $136 billion compared to $96.1 billion in the fourth quarter of 2015 and $125.1 billion in the third quarter of 2016, primarily reflecting the acquisition of First Niagara.

Average securities available-for-sale and held-to-maturity securities totaled $29.3 billion in the fourth quarter of 2016, compared to $19.1 billion in the fourth quarter of 2015 and $24.2 billion in the third quarter of 2016. The increase compared to both the year-ago quarter and prior quarter primarily reflects the impact of the First Niagara acquisition and the redeployment of excess liquidity into the investment portfolio.

Average Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 4Q16 vs.
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Commercial, financial and agricultural (a)
$
39,495

$
37,318

$
30,884

 
5.8
%
27.9
%
Other commercial loans
21,617

19,110

12,996

 
13.1

66.3

Home equity loans
12,812

11,968

10,418

 
7.1

23.0

Other consumer loans
11,436

9,301

5,278

 
23.0

116.7

Total loans
$
85,360

$
77,697

$
59,576

 
9.9
%
43.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(a)
Commercial, financial and agricultural average loan balances include $119 million, $107 million, and $87 million of assets from commercial credit cards at December 31, 2016, September 30, 2016, and December 31, 2015, respectively.

During the fourth quarter, Key adjusted the fair value mark on the First Niagara acquired loan portfolio from $686 million to $548 million.

Average loans were $85.4 billion for the fourth quarter of 2016, an increase of $25.8 billion compared to the fourth quarter of 2015, primarily reflecting the impact of the First Niagara acquisition and growth in commercial, financial and agricultural loans.

Compared to the third quarter of 2016, average loans increased by $7.7 billion, with the change reflecting the full-quarter impact of the First Niagara acquisition, September branch divestitures, and the exit of acquired non-relationship commercial loans. On a period-end basis, Key’s loan portfolio increased $510



KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 5


million, driven by growth in commercial, financial and agricultural loans and improvement in the fair value mark on the acquired portfolio.
 
Average Deposits
 
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 4Q16 vs.
 
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Non-time deposits (a)
$
94,414

$
85,683

$
66,270

 
10.2
 %
42.5
%
Certificates of deposit ($100,000 or more)
5,428

4,204

2,150

 
29.1

152.5

Other time deposits
4,849

5,031

3,047

 
(3.6
)
59.1

 
Total deposits
$
104,691

$
94,918

$
71,467

 
10.3
 %
46.5
%
 
 
 
 
 
 
 
 
Cost of total deposits (a)
.22
%
.21
%
.15
%
 
N/A

N/A

 
 
 
 
 
 
 
 
(a)
Excludes deposits in foreign office.

N/A = Not Applicable

Average deposits, excluding deposits in foreign office, totaled $104.7 billion for the fourth quarter of 2016, an increase of $33.2 billion compared to the year-ago quarter, primarily reflecting the acquisition of First Niagara and higher interest-bearing deposits resulting from core deposit growth in Key’s retail banking franchise and growth in escrow deposits from the commercial mortgage servicing business.

Compared to the third quarter of 2016, average deposits increased by $9.8 billion, reflecting the full-quarter impact of the First Niagara acquisition, core deposit growth in Key’s retail banking franchise, and deposit inflows from Key’s commercial clients.

ASSET QUALITY
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 4Q16 vs.
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Net loan charge-offs
$
73

$
44

$
37

 
65.9
 %
97.3
%
Net loan charge-offs to average total loans
.34
%
.23
%
.25
%
 
N/A

N/A

Nonperforming loans at period end (a)
$
625

$
723

$
387

 
(13.6
)
61.5

Nonperforming assets at period end (a)
676

760

403

 
(11.1
)
67.7

Allowance for loan and lease losses
858

865

796

 
(.8
)
7.8

Allowance for loan and lease losses to nonperforming loans (a)
137.3
%
119.6
%
205.7
%
 
N/A

N/A

Provision for credit losses
$
66

$
59

$
45

 
11.9
 %
46.7
%
 
 
 
 
 
 
 

(a)
Nonperforming loan balances exclude $865 million, $959 million, and $11 million of purchased credit impaired loans at December 31, 2016, September 30, 2016, and December 31, 2015, respectively.

N/A = Not Applicable

Key’s provision for credit losses was $66 million for the fourth quarter of 2016, compared to $45 million for the fourth quarter of 2015 and $59 million for the third quarter of 2016. Key’s allowance for loan and lease losses was $858 million, or 1.00% of total period-end loans, at December 31, 2016, compared to 1.33% at December 31, 2015, and 1.01% at September 30, 2016.

Net loan charge-offs for the fourth quarter of 2016 totaled $73 million, or .34% of average total loans, reflecting regulatory guidance on consumer bankruptcies and conforming First Niagara charge-off policies to Key. These results compare to $37 million, or .25%, for the fourth quarter of 2015, and $44 million, or .23%, for the third quarter of 2016.

At December 31, 2016, Key’s nonperforming loans totaled $625 million, which represented .73% of period-end portfolio loans. These results compare to .65% at December 31, 2015, and .85% at September 30,



KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 6


2016. Nonperforming assets at December 31, 2016, totaled $676 million, and represented .79% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .67% at December 31, 2015, and .89% at September 30, 2016.
 
CAPITAL

Key’s estimated risk-based capital ratios included in the following table continued to exceed all “well-capitalized” regulatory benchmarks at December 31, 2016.

Capital Ratios
 
 
 
 
 
 
 
 
12/31/2016
9/30/2016
12/31/2015
Common Equity Tier 1 (a), (b)
9.59
%
9.56
%
10.94
%
Tier 1 risk-based capital (a)
10.95

10.53

11.35

Total risk based capital (a)
12.92

12.63

12.97

Tangible common equity to tangible assets (b)
8.09

8.27

9.98

Leverage (a)
9.89

10.22

10.72

 
 
 
 
(a)
12/31/2016 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” and “Common Equity Tier 1.” The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. See below for further information on the Regulatory Capital Rules.


As shown in the preceding table, at December 31, 2016, Key’s estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.59% and 10.95%, respectively. In addition, the tangible common equity ratio was 8.09% at December 31, 2016.

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 9.47% at December 31, 2016. 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 4Q16 vs.
 
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Shares outstanding at beginning of period
1,082,055

842,703

835,285

 
28.4
 %
29.5
%
Common shares repurchased
(4,380
)
(5,240
)

 
(16.4
)
N/M

Shares reissued (returned) under employee benefit plans
1,642

4,857

466

 
(66.2
)
252.4

Common shares issued to acquire First Niagara
(3
)
239,735


 
N/M

N/M

 
Shares outstanding at end of period
1,079,314

1,082,055

835,751

 
(.3
)%
29.1
%
 
 
 
 
 
 
 
 
N/M = Not Meaningful

During the fourth quarter of 2016, Key completed $68 million of common share repurchases, including repurchases to offset issuances of common shares under our employee compensation plans, in accordance with Key's 2016 Capital Plan.




KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 7


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 4Q16 vs.
 
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Revenue from continuing operations (TE)
 
 
 
 
 
 
Key Community Bank
$
901

$
779

$
588

 
15.7
%
53.2
%
Key Corporate Bank
630

554

479

 
13.7

31.5

Other Segments
40

17

31

 
135.3

29.0

 
Total segments
1,571

1,350

1,098


16.4

43.1

Reconciling Items
(5
)
(13
)
(3
)
 
N/M

N/M

 
Total
$
1,566

$
1,337

$
1,095

 
17.1
%
43.0
%
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key
 
 
 
 
 
 
Key Community Bank
$
115

$
104

$
70

 
10.6
%
64.3
%
Key Corporate Bank
221

159

142

 
39.0

55.6

Other Segments
29

16

25

 
81.3

16.0

 
Total segments
365

279

237

 
30.8

54.0

Reconciling Items (a)
(132
)
(108
)
(7
)
 
N/M

N/M

 
Total
$
233

$
171

$
230

 
36.3
%
1.3
%
 
 
 
 
 
 
 
 
(a)
Reconciling items consists primarily of the unallocated portion of merger-related charges 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 4Q16 vs.
 
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Summary of operations
 
 
 
 
 
 
Net interest income (TE)
$
628

$
530

$
388

 
18.5
 %
61.9
%
Noninterest income
273

249

200

 
9.6

36.5

 
Total revenue (TE)
901

779

588

 
15.7

53.2

Provision for credit losses
44

37

20

 
18.9

120.0

Noninterest expense
673

577

456

 
16.6

47.6

 
Income (loss) before income taxes (TE)
184

165

112

 
11.5

64.3

Allocated income taxes (benefit) and TE adjustments
69

61

42

 
13.1

64.3

 
Net income (loss) attributable to Key
$
115

$
104

$
70

 
10.6
 %
64.3
%
 
 
 
 
 
 
 
 
Average balances
 
 
 
 
 
 
Loans and leases
$
47,032

$
41,548

$
30,925

 
13.2
 %
52.1
%
Total assets
50,940

44,219

33,056

 
15.2

54.1

Deposits
79,357

69,397

52,219

 
14.4

52.0

 
 
 
 
 
 




Assets under management at period end
$
36,592

$
36,752

$
33,983

 
(.4
)%
7.7
%
 
 
 
 
 
 
 
 
TE = Taxable Equivalent





KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 8


Additional Key Community Bank Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 4Q16 vs.
 
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Noninterest income
 
 
 
 
 
 
Trust and investment services income
$
88

$
86

$
73

 
2.3
 %
20.5
%
Service charges on deposit accounts
71

70

54

 
1.4

31.5

Cards and payments income
59

55

44

 
7.3

34.1

Other noninterest income
55

38

29

 
44.7

89.7

 
Total noninterest income
$
273

$
249

$
200

 
9.6
 %
36.5
%
 
 
 
 
 
 




Average deposit balances
 
 
 
 




NOW and money market deposit accounts
$
44,368

$
38,417

$
28,862

 
15.5
 %
53.7
%
Savings deposits
5,326

4,369

2,330

 
21.9

128.6

Certificates of deposit ($100,000 or more)
3,658

2,607

1,686

 
40.3

117.0

Other time deposits
4,836

4,943

3,045

 
(2.2
)
58.8

Deposits in foreign office


208

 
N/M

N/M

Noninterest-bearing deposits
21,169

19,061

16,088

 
11.1

31.6

 
Total deposits
$
79,357

$
69,397

$
52,219

 
14.4
 %
52.0
%
 
 
 
 
 
 
 
 
Home equity loans
 
 
 
 
 
 
Average balance
$
12,560

$
11,703

$
10,203

 
 
 
Combined weighted-average loan-to-value ratio (at date of origination)
71
%
70
%
71
%
 
 
 
Percent first lien positions
57

55

61

 
 
 
 
 
 
 
 
 
 
 
Other data
 
 
 
 
 
 
Branches
1,217

1,322

966

 
 
 
Automated teller machines
1,593

1,701

1,256

 
 
 
 
 
 
 
 
 
 
 
N/M = Not Meaningful

Key Community Bank Summary of Operations (4Q16 vs. 4Q15)

Positive operating leverage from prior year
Net income increased $45 million, or 64.3% from prior year
Average commercial, financial, and agricultural loans increased $4.9 billion, or 38.6% from the prior year
Average deposits increased $27.1 billion, or 52% from the prior year

Key Community Bank recorded net income attributable to Key of $115 million for the fourth quarter of 2016, compared to $70 million for the year-ago quarter, benefiting from momentum in Key's core businesses, as well as the impact of the First Niagara acquisition.
Taxable-equivalent net interest income increased by $240 million, or 61.9%, from the fourth quarter of 2015. The increase is primarily attributable to the acquisition of First Niagara. Average loans and leases increased $16.1 billion, or 52.1%, largely driven by a $4.9 billion, or 38.6% increase in commercial, financial, and agricultural loans. Additionally, average deposits increased $27.1 billion, or 52% from one year ago.
Noninterest income increased $73 million, or 36.5%, from the year-ago quarter, with positive trends in cards and payments income and service charges on deposit accounts.
The provision for credit losses increased by $24 million, or 120%, from the fourth quarter of 2015, primarily related to the acquisition of First Niagara, which was partially offset by enhancements to the approach utilized to determine the consumer allowance for loan and lease losses in the fourth quarter of 2016. Net loan charge-offs increased $19 million, primarily related to the acquisition of First Niagara.
Noninterest expense increased by $217 million, or 47.6%, from the year-ago quarter, largely driven by the acquisition of First Niagara, as well as core business activity and investments. Personnel expense increased $73 million while non-personnel expense increased by $144 million, including higher intangible amortization expense and higher FDIC assessment expense.



KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 9



Key Corporate Bank
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 4Q16 vs.
 
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Summary of operations
 
 
 
 
 
 
Net interest income (TE)
$
332

$
276

$
224

 
20.3
 %
48.2
 %
Noninterest income
298

278

255

 
7.2

16.9

 
Total revenue (TE)
630

554

479

 
13.7

31.5

Provision for credit losses
21

25

26

 
(16.0
)
(19.2
)
Noninterest expense
325

307

257

 
5.9

26.5

 
Income (loss) before income taxes (TE)
284

222

196

 
27.9

44.9

Allocated income taxes and TE adjustments
63

63

51

 

23.5

 
Net income (loss)
221

159

145

 
39.0

52.4

Less: Net income (loss) attributable to noncontrolling interests


3

 
N/M

N/M

 
Net income (loss) attributable to Key
$
221

$
159

$
142

 
39.0
 %
55.6
 %
 
 
 
 
 
 
 
 
Average balances
 
 
 
 
 
 
Loans and leases
$
36,769

$
34,561

$
26,981

 
6.4
 %
36.3
 %
Loans held for sale
1,223

1,103

820

 
10.9

49.1

Total assets
43,209

40,581

32,639

 
6.5

32.4

Deposits
23,173

22,708

19,080

 
2.0
 %
21.5
 %
 
 
 
 
 
 
 
 
TE = Taxable Equivalent, N/M = Not Meaningful

Additional Key Corporate Bank Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars in millions
 
 
 
 
Change 4Q16 vs.
 
 
4Q16
3Q16
4Q15
 
3Q16
4Q15
Noninterest income
 
 
 
 
 
 
Trust and investment services income
$
35

$
36

$
32

 
(2.8
)%
9.4
 %
Investment banking and debt placement fees
154

153

125

 
.7

23.2

Operating lease income and other leasing gains
19

10

13

 
90.0

46.2

 
 
 
 
 
 
 
 
Corporate services income
43

36

44

 
19.4

(2.3
)
Service charges on deposit accounts
13

15

10

 
(13.3
)
30.0

Cards and payments income
10

11

3

 
(9.1
)
233.3

 
Payments and services income
66

62

57

 
6.5

15.8

 
 
 
 
 
 
 
 
Mortgage servicing fees
18

13

15

 
38.5

20.0

Other noninterest income
6

4

13

 
50.0

(53.8
)
 
Total noninterest income
$
298

$
278

$
255

 
7.2
 %
16.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Key Corporate Bank Summary of Operations (4Q16 vs. 4Q15)

Record quarter and year for investment banking and debt placement fees
Net income increased $79 million, or 55.6% from the prior year
Average loans and leases increased $9.8 billion, or 36.3% from the prior year
Average deposits increased $4.1 billion, or 21.5% from the prior year

Key Corporate Bank recorded net income attributable to Key of $221 million for the fourth quarter of 2016, compared to $142 million for the same period one year ago, reflecting the impact of the First Niagara acquisition as well as positive trends in Key's core businesses.

Taxable-equivalent net interest income increased by $108 million, or 48.2%, compared to the fourth quarter of 2015. Average loan and lease balances increased $9.8 billion, or 36.3%, from the year-ago quarter,



KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 10


primarily driven by the First Niagara acquisition as well as growth in commercial, financial and agricultural loans. Average deposit balances increased $4.1 billion, or 21.5%, from the year-ago quarter, mostly driven by the First Niagara acquisition, as well as growth in commercial escrow deposits.

Noninterest income increased $43 million, or 16.9%, from the prior year. This growth was mostly due to investment banking and debt placement fees, which increased $29 million, or 23.2%, cards and payments income which increased $7 million, and operating lease income and other leasing gains which increased $6 million.

The provision for credit losses decreased $5 million, or 19.2%, compared to the fourth quarter of 2015.

Noninterest expense increased by $68 million, or 26.5%, from the fourth quarter of 2015. The increase from the prior year, reflected in both personnel and nonpersonnel expense, was largely driven by the acquisition of First Niagara, higher performance-based compensation and various other items, including operating lease and cards and payments expenses.

Key Corporate Bank also continued to benefit from a higher volume of low income housing and energy tax credits.

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 $29 million for the fourth quarter of 2016, compared to $25 million for the same period last year, largely due to higher net gains from principal investing.

*****

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 $136.5 billion at December 31, 2016.

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.




KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 11


CONTACTS:
 
 
 
ANALYSTS
MEDIA
Vernon L. Patterson
Jack Sparks
216.689.0520
720.904.4554
Vernon_Patterson@KeyBank.com
Jack_Sparks@KeyBank.com
 
 Twitter: @keybank_news
Kelly L. Dillon
 
216.689.3133
 
Kelly_L_Dillon@KeyBank.com
 
 
 
Melanie S. Misconish
 
216.689.4545
 
Melanie_S_Misconish@KeyBank.com
 
 
 
INVESTOR
KEY MEDIA
RELATIONS: www.key.com/ir
NEWSROOM: www.key.com/newsroom
  
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, 2015, as well as in KeyCorp’s subsequent SEC filings, all of which have been filed with the Securities and Exchange Commission (the “SEC”) and are available on Key’s website (www.key.com/ir) and on the SEC’s website (www.sec.gov). These factors may include, among others: deterioration of commercial real estate market fundamentals, adverse changes in credit quality trends, declining asset prices, a reversal of the U.S. economic recovery due to financial, political, or other shocks, and the extensive and increasing regulation of the U.S. financial services industry. Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.

Notes to Editors:
A live Internet broadcast of KeyCorp’s conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts’ questions can be accessed through the Investor Relations section at https://www.key.com/ir at 9:00 a.m. ET, on Thursday, January 19, 2017. An audio replay of the call will be available through January 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.

*****




KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 12





KeyCorp
Fourth Quarter 2016
Financial Supplement


    
Page
 
Financial Highlights
GAAP to Non-GAAP Reconciliation
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
Noninterest Expense
Personnel Expense
Loan Composition
Loans Held for Sale Composition
Summary of Changes in Loans Held for Sale
Asset Quality Statistics From Continuing Operations
Summary of Loan and Lease Loss Experience From Continuing Operations
Summary of Nonperforming Assets and Past Due Loans From Continuing Operations
Summary of Changes in Nonperforming Loans From Continuing Operations
Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations
Line of Business Results



KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 13


Financial Highlights
(dollars in millions, except per share amounts)
 
 
 
Three months ended
 
 
 
12/31/2016
 
9/30/2016
 
12/31/2015
Summary of operations
 
 
 
 
 
 
Net interest income (TE)
$
948

 
$
788

 
$
610

 
Noninterest income
618

 
549

 
485

 
 
Total revenue (TE)
1,566

 
1,337

 
1,095

 
Provision for credit losses
66

 
59

 
45

 
Noninterest expense
1,220

 
1,082

 
736

 
Income (loss) from continuing operations attributable to Key
233

 
171

 
230

 
Income (loss) from discontinued operations, net of taxes (a)
(4
)
 
1

 
(4
)
 
Net income (loss) attributable to Key
229

 
172

 
226

 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
213

 
165

 
224

 
Income (loss) from discontinued operations, net of taxes (a)
(4
)
 
1

 
(4
)
 
Net income (loss) attributable to Key common shareholders
209

 
166

 
220

 
 
 
 
 
 
 
 
Per common share
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
$
.20

 
$
.17

 
$
.27

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

 

 
(.01
)
 
Net income (loss) attributable to Key common shareholders (b)
.20

 
.17

 
.27

 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution
.20

 
.16

 
.27

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

 

 
(.01
)
 
Net income (loss) attributable to Key common shareholders — assuming dilution (b)
.19

 
.17

 
.26

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
.085

 
.085

 
.075

 
Book value at period end
12.58

 
12.78

 
12.51

 
Tangible book value at period end
9.99

 
10.14

 
11.22

 
Market price at period end
18.27

 
12.17

 
13.19

 
 
 
 
 
 
 
 
Performance ratios
 
 
 
 
 
 
From continuing operations:
 
 
 
 
 
 
Return on average total assets
.69
%
 
.55
%
 
.97
%
 
Return on average common equity
6.22

 
5.09

 
8.51

 
Return on average tangible common equity (c)
7.88

 
6.16

 
9.50

 
Net interest margin (TE)
3.12

 
2.85

 
2.87

 
Cash efficiency ratio (c)
76.2

 
80.0

 
66.4

 
 
 
 
 
 
 
 
 
From consolidated operations:
 
 
 
 
 
 
Return on average total assets
.67
%
 
.55
%
 
.93
%
 
Return on average common equity
6.10

 
5.12

 
8.36

 
Return on average tangible common equity (c)
7.73

 
6.20

 
9.33

 
Net interest margin (TE)
3.09

 
2.83

 
2.84

 
Loan to deposit (d)
85.2

 
84.7

 
87.8

 
 
 
 
 
 
 
 
Capital ratios at period end
 
 
 
 
 
 
Key shareholders’ equity to assets
11.17
%
 
11.04
%
 
11.30
%
 
Key common shareholders’ equity to assets
9.95

 
10.18

 
10.99

 
Tangible common equity to tangible assets (c)
8.09

 
8.27

 
9.98

 
Common Equity Tier 1 (c), (e)
9.59

 
9.56

 
10.94

 
Tier 1 risk-based capital (e)
10.95

 
10.53

 
11.35

 
Total risk-based capital (e)
12.92

 
12.63

 
12.97

 
Leverage (e)
9.89

 
10.22

 
10.72

 
 
 
 
 
 
 
 
Asset quality — from continuing operations
 
 
 
 
 
 
Net loan charge-offs
$
73

 
$
44

 
$
37

 
Net loan charge-offs to average loans
.34
%
 
.23
%
 
.25
%
 
Allowance for loan and lease losses
$
858

 
$
865

 
$
796

 
Allowance for credit losses
912

 
918

 
852

 
Allowance for loan and lease losses to period-end loans
1.00
%
 
1.01
%
 
1.33
%
 
Allowance for credit losses to period-end loans
1.06

 
1.07

 
1.42

 
Allowance for loan and lease losses to nonperforming loans (f)
137.3

 
119.6

 
205.7

 
Allowance for credit losses to nonperforming loans (f)
146.1

 
127.0

 
220.2

 
Nonperforming loans at period end (f)
$
625

 
$
723

 
$
387

 
Nonperforming assets at period end (f)
676

 
760

 
403

 
Nonperforming loans to period-end portfolio loans (f)
.73
%
 
.85
%
 
.65
%
 
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (f)
.79

 
.89

 
.67

 
 
 
 
 
 
 
 
Trust and brokerage assets
 
 
 
 
 
 
Assets under management
$
36,592

 
$
36,752

 
$
33,983

 
 Nonmanaged and brokerage assets
45,358

 
45,338

 
47,681

 
 
 
 
 
 
 
 
Other data
 
 
 
 
 
 
Average full-time equivalent employees
18,849

 
17,079

 
13,359

 
Branches
1,217

 
1,322

 
966

 
 
 
 
 
 
 
 
Taxable-equivalent adjustment
$
10

 
$
8

 
$
8




KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 14


Financial Highlights (continued)
(dollars in millions, except per share amounts)
 
 
 
Twelve months ended
 
 
 
12/31/2016
 
12/31/2015
Summary of operations
 
 
 
 
Net interest income (TE)
$
2,953

 
$
2,348

 
Noninterest income
2,071

 
1,880

 
 
Total revenue (TE)
5,024

 
4,256

 
Provision for credit losses
266

 
166

 
Noninterest expense
3,756

 
2,840

 
Income (loss) from continuing operations attributable to Key
790

 
915

 
Income (loss) from discontinued operations, net of taxes (a)
1

 
1

 
Net income (loss) attributable to Key
791

 
916

 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
$
753

 
$
892

 
Income (loss) from discontinued operations, net of taxes (a)
1

 
1

 
Net income (loss) attributable to Key common shareholders
754

 
893

 
 
 
 
 
 
Per common share
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
$
.81

 
$
1.06

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

 

 
Net income (loss) attributable to Key common shareholders (b)
.81

 
1.06

 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution
.80

 
1.05

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

 

 
Net income (loss) attributable to Key common shareholders — assuming dilution (b)
.80

 
1.05

 
 
 
 
 
 
 
Cash dividends paid
.330

 
.290

 
 
 
 
 
 
Performance ratios
 
 
 
 
From continuing operations:
 
 
 
 
Return on average total assets
.70
%
 
.99
%
 
Return on average common equity
6.26

 
8.63

 
Return on average tangible common equity (c)
7.39

 
9.64

 
Net interest margin (TE)
2.92

 
2.88

 
Cash efficiency ratio (c)
73.7

 
65.9

 
 
 
 
 
 
 
From consolidated operations:
 
 
 
 
Return on average total assets
.69
%
 
.97
%
 
Return on average common equity
6.27

 
8.64

 
Return on average tangible common equity(c)
7.40

 
9.65

 
Net interest margin (TE)
2.91

 
2.85

 
 
 
 
 
 
Asset quality — from continuing operations
 
 
 
 
Net loan charge-offs
206

 
142

 
Net loan charge-offs to average total loans
.29
%
 
.24
%
 
 
 
 
 
 
Other data
 
 
 
 
Average full-time equivalent employees
15,700

 
13,483

 
 
 
 
 
 
Taxable-equivalent adjustment
34

 
28


(a)
In April 2009, management decided to wind down the operations of Austin Capital Management, Ltd., a subsidiary that specialized in managing hedge fund investments for institutional customers. In September 2009, management decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank National Association. In February 2013, Key decided to sell its investment subsidiary, Victory Capital Management, and its broker-dealer affiliate, Victory Capital Advisors, to a private equity fund. As a result of these decisions, Key has accounted for these businesses as discontinued operations.

(b)
Earnings per share may not foot due to rounding.

(c)
The following table entitled “GAAP to Non-GAAP Reconciliations” presents the computations of certain financial measures related to “tangible common equity,” “Common Equity Tier 1,” 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 (excluding deposits in foreign office).

(e)
12/31/2016 ratio is estimated.

(f)
Nonperforming loan balances exclude, $865 million, $959 million, and $11 million of purchased credit impaired loans at December 31, 2016, September 30, 2016, and December 31, 2015, respectively.

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



KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 15


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 “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.

Common Equity Tier 1 is not formally defined by GAAP and is considered to be a non-GAAP financial measure. Since analysts and banking regulators may assess Key’s capital adequacy using tangible common equity and Common Equity Tier 1, management believes it is useful to enable investors to assess Key’s capital adequacy on these same bases. The table also reconciles the GAAP performance measures to the corresponding non-GAAP measures.

The table also shows the computation for pre-provision net revenue, which is not formally defined by GAAP. Management believes that eliminating the effects of the provision for 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. The table below shows the computation of merger-related charges, noninterest expense excluding merger-related charges, earnings per common share excluding merger-related charges, return on average tangible common equity excluding merger-related charges, return on average assets from continuing operations excluding merger-related charges, and pre-provision net revenue excluding merger-related charges. Management believes that eliminating the effects of the merger-related charges 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.
 
 
 
 
Three months ended
 
 
 
 
12/31/2016
9/30/2016
12/31/2015
Tangible common equity to tangible assets at period end
 
 
 
 
Key shareholders’ equity (GAAP)
$
15,240

$
14,996

$
10,746

 
Less:
Intangible assets  (a)
2,788

2,855

1,080

 
 
Preferred Stock  (b)
1,640

1,150

281

 
 
Tangible common equity (non-GAAP)
$
10,812

$
10,991

$
9,385

 
 
 
 
 
 
 
 
Total assets (GAAP)
$
136,453

$
135,805

$
95,131

 
Less:
Intangible assets  (a)
2,788

2,855

1,080

 
 
Tangible assets (non-GAAP)
$
133,665

$
132,950

$
94,051

 
 
 
 
 
 
 
 
Tangible common equity to tangible assets ratio (non-GAAP)
8.09
%
8.27
%
9.98
%
 
 
 
 
 
 
 
Common Equity Tier 1 at period end
 
 
 
 
Key shareholders’ equity (GAAP)
$
15,240

$
14,996

$
10,746

 
Less:
Preferred Stock (b)
1,640

1,150

281

 
 
Common Equity Tier 1 capital before adjustments and deductions
13,600

13,846

10,465

 
Less:
Goodwill, net of deferred taxes
2,416

2,450

1,034

 
 
Intangible assets, net of deferred taxes
159

216

26

 
 
Deferred tax assets
6

6

1

 
 
Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes
(185
)
101

(58
)
 
 
Accumulated gains (losses) on cash flow hedges, net of deferred taxes
(53
)
39

(20
)
 
 
Amounts in accumulated other comprehensive income (loss) attributed to
 
 
 
 
 
 
pension and postretirement benefit costs, net of deferred taxes
(339
)
(359
)
(365
)
 
 
Total Common Equity Tier 1 capital  (c)
$
11,596

$
11,393

$
9,847

 
 
 
 
 
 
 
 
Net risk-weighted assets (regulatory)  (c)
$
120,887

$
119,120

$
89,980

 
 
 
 
 
 
 
 
Common Equity Tier 1 ratio (non-GAAP)  (c)
9.59
%
9.56
%
10.94
%
 
 
 
 
 
 
 
Pre-provision net revenue
 
 
 
 
Net interest income (GAAP)
$
938

$
780

$
602

 
Plus:
Taxable-equivalent adjustment
10

8

8

 
 
Noninterest income
618

549

485

 
Less:
Noninterest expense
1,220

1,082

736

 
 
Pre-provision net revenue from continuing operations (non-GAAP)
$
346

$
255

$
359




KeyCorp Reports Fourth Quarter 2016 Profit     
January 19, 2017
Page 16


GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
 
 
 
Three months ended
 
 
 
12/31/2016
9/30/2016
12/31/2015
Average tangible common equity
 
 
 
 
Average Key shareholders’ equity (GAAP)
$
14,901

$
13,552

$
10,731

 
Less:
Intangible assets (average) (d)
2,874

2,255

1,082

 
 
Preferred Stock (average)
1,274

648

290

 
 
Average tangible common equity (non-GAAP)
$
10,753

$
10,649

$
9,359

 
 
 
 
 
 
Return on average tangible common equity from continuing operations
 
 
 
 
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)
$
213

$
165

$
224

 
Average tangible common equity (non-GAAP)
10,753

10,649

9,359

 
 
 
 
 
 
 
Return on average tangible common equity from continuing operations (non-GAAP)
7.88
%
6.16
%
9.50
%
 
 
 
 
 
 
Return on average tangible common equity consolidated
 
 
 
 
Net income (loss) attributable to Key common shareholders (GAAP)
$
209

$
166

$
220

 
Average tangible common equity (non-GAAP)
10,753

10,649

9,359

 
 
 
 
 
 
 
Return on average tangible common equity consolidated (non-GAAP)
7.73
%
6.20
%
9.33
%
 
 
 
 
 
 
Return on average tangible common equity from continuing operations excluding merger-related charges
 
 
 
 
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)
$
213

$
165

$
224

 
Merger-related charges, after tax
124

132

4

 
Net income (loss) from continuing operations attributable to Key common shareholders excluding
 
 
 
 
 
merger-related charges (non-GAAP)
$
337

$
297

$
228