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Section 1: 10-Q (3Q17 10-Q)

Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549 
 
 
FORM 10-Q
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2017

Commission File Number 001-11302
 
 
 
390897553_keycorplogocmykpage001a05.jpg
Exact name of registrant as specified in its charter:
 
 
Ohio
34-6542451
State or other jurisdiction of incorporation or organization:
I.R.S. Employer Identification Number:
127 Public Square, Cleveland, Ohio
44114-1306
Address of principal executive offices:
Zip Code:
(216) 689-3000
Registrant’s telephone number, including area code:
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
☐  (Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Shares with a par value of $1 each
1,075,399,655 shares
Title of class
Outstanding at October 30, 2017


Table of Contents

KEYCORP
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
 
 
Page Number
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

Item 2.
 
 
 
Forward-looking statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
Item 4.
 
PART II. OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 6.
 


3

Table of Contents

PART I. FINANCIAL INFORMATION

Item 2. Management’s Discussion & Analysis of Financial Condition & Results of Operations

Introduction

This section reviews the financial condition and results of operations of KeyCorp and its subsidiaries for the quarterly periods ended September 30, 2017, and September 30, 2016. Some tables may include additional periods to comply with disclosure requirements or to illustrate trends in greater depth. When you read this discussion, you should also refer to the consolidated financial statements and related notes in this report. The page locations of specific sections and notes that we refer to are presented in the Table of Contents.

References to our “2016 Form 10-K” refer to our Form 10-K for the year ended December 31, 2016, which has been filed with the SEC and is available on its website (www.sec.gov) and on our website (www.key.com/ir).

Terminology

Throughout this discussion, references to “Key,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of KeyCorp and its subsidiaries. “KeyCorp” refers solely to the parent holding company, and “KeyBank” refers to KeyCorp’s subsidiary bank, KeyBank National Association.

Throughout the following discussion, industry-specific terms are used as defined below:
 
We use the phrase continuing operations in this document to mean all of our businesses other than the education lending business and Austin. The education lending business and Austin have been accounted for as discontinued operations since 2009.
Our exit loan portfolios are separate from our discontinued operations. These portfolios, which are in a run-off mode, stem from product lines we decided to cease because they no longer fit with our corporate strategy. These exit loan portfolios are included in Other Segments.
We engage in capital markets activities primarily through business conducted by our Key Corporate Bank segment. These activities encompass a variety of products and services. Among other things, we trade securities as a dealer, enter into derivative contracts (both to accommodate clients’ financing needs and to mitigate certain risks), and conduct transactions in foreign currencies (both to accommodate clients’ needs and to benefit from fluctuations in exchange rates).
For regulatory purposes, capital is divided into two classes. Federal regulations currently prescribe that at least one-half of a bank or BHC’s total risk-based capital must qualify as Tier 1 capital. Both total and Tier 1 capital serve as bases for several measures of capital adequacy, which is an important indicator of financial stability and condition. As described under the heading “Regulatory capital requirements – Capital planning and stress testing” in the section entitled “Supervision and Regulation” that begins on page 8 of our 2016 Form 10-K, the regulators are required to conduct a supervisory capital assessment of all BHCs with assets of at least $50 billion, including KeyCorp. As part of this capital adequacy review, banking regulators evaluate a component of Tier 1 capital, known as Common Equity Tier 1, under the Regulatory Capital Rules. The “Capital” section of this report under the heading “Capital adequacy” provides more information on total capital, Tier 1 capital, and the Regulatory Capital Rules, including Common Equity Tier 1, and describes how these measures are calculated.


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Table of Contents

The acronyms and abbreviations identified below are used in the Management’s Discussion & Analysis of Financial Condition & Results of Operations as well as in the Notes to Consolidated Financial Statements (Unaudited). You may find it helpful to refer back to this page as you read this report.
AICPA: American Institute of Certified Public Accountants.
KCC: Key Capital Corporation.
ALCO: Asset/Liability Management Committee.
KCDC: Key Community Development Corporation.
ALLL: Allowance for loan and lease losses.
KEF: Key Equipment Finance.
A/LM: Asset/liability management.
KPP: Key Principal Partners.
AOCI: Accumulated other comprehensive income (loss).
KREEC: Key Real Estate Equity Capital, Inc.
APBO: Accumulated postretirement benefit obligation.
LCR: Liquidity coverage ratio.
Austin: Austin Capital Management, Ltd.
LIBOR: London Interbank Offered Rate.
BHCs: Bank holding companies.
LIHTC: Low-income housing tax credit.
Board: KeyCorp Board of Directors.
LTV: Loan-to-value.
CCAR: Comprehensive Capital Analysis and Review.
Moody’s: Moody’s Investor Services, Inc.
CMBS: Commercial mortgage-backed securities.
MRM: Market Risk Management group.
CME: Chicago Mercantile Exchange.
N/A: Not applicable.
CMO: Collateralized mortgage obligation.
NASDAQ: The NASDAQ Stock Market LLC.
Common Shares: KeyCorp common shares, $1 par value.
NAV: Net asset value.
DIF: Deposit Insurance Fund of the FDIC.
N/M: Not meaningful.
Dodd-Frank Act: Dodd-Frank Wall Street Reform and
NOW: Negotiable Order of Withdrawal.
Consumer Protection Act of 2010.
NPR: Notice of proposed rulemaking.
EBITDA: Earnings before interest, taxes, depreciation, and
NYSE: New York Stock Exchange.
amortization.
OCC: Office of the Comptroller of the Currency.
EPS: Earnings per share.
OCI: Other comprehensive income (loss).
ERISA: Employee Retirement Income Security Act of 1974.
OREO: Other real estate owned.
ERM: Enterprise risk management.
OTTI: Other-than-temporary impairment.
EVE: Economic value of equity.
PBO: Projected benefit obligation.
FASB: Financial Accounting Standards Board.
PCI: Purchased credit impaired.
FDIC: Federal Deposit Insurance Corporation.
S&P: Standard and Poor’s Ratings Services,
Federal Reserve: Board of Governors of the Federal
 a Division of The McGraw-Hill Companies, Inc.
Reserve System.
SEC: U.S. Securities and Exchange Commission.
FHLB: Federal Home Loan Bank of Cincinnati.
Series A Preferred Stock: KeyCorp’s 7.750%
FHLMC: Federal Home Loan Mortgage Corporation.
Noncumulative Perpetual Convertible Preferred
FICO: Fair Isaac Corporation
Stock, Series A.
First Niagara: First Niagara Financial Group, Inc.
SIFIs: Systemically important financial institutions
(NASDAQ: FNFG).
including BHCs with total consolidated assets of
FNMA: Federal National Mortgage Association, or Fannie
at least $50 billion and nonbank financial companies
Mae.
designated by FSOC for supervision by the
FSOC: Financial Stability Oversight Council.
Federal Reserve.
GAAP: U.S. generally accepted accounting principles.
TDR: Troubled debt restructuring.
GNMA: Government National Mortgage Association, or
TE: Taxable-equivalent.
Ginnie Mae.
U.S. Treasury: United States Department of the
HelloWallet: HelloWallet, LLC.
Treasury.
ISDA: International Swaps and Derivatives Association.
VaR: Value at risk.
KAHC: Key Affordable Housing Corporation.
VEBA: Voluntary Employee Beneficiary Association.
KBCM: KeyBanc Capital Markets, Inc.
VIE: Variable interest entity.


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Table of Contents

Forward-looking statements

From time to time, we have made or will make 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. Our disclosures in this report contain forward-looking statements. We may also make forward-looking statements in other documents filed with or furnished to the SEC. In addition, we may make forward-looking statements orally to analysts, investors, representatives of the media, and others.

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 our actual results to differ from those described in forward-looking statements include, but are not limited to:
 

deterioration of commercial real estate market fundamentals;
defaults by our loan counterparties or clients;
adverse changes in credit quality trends;
declining asset prices;
our concentrated credit exposure in commercial and industrial loans;
the extensive and increasing regulation of the U.S. financial services industry;
operational or risk management failures by us or critical third parties;
changes in accounting policies, standards, and interpretations;
breaches of security or failures of our technology systems due to technological or other factors and cybersecurity threats;
negative outcomes from claims or litigation;
the occurrence of natural or man-made disasters, conflicts, or terrorist attacks, or other adverse external events;
evolving capital and liquidity standards under applicable regulatory rules;
unanticipated changes in our liquidity position, including but not limited to, changes in our access to or the cost of funding and our ability to secure alternative funding sources;
downgrades in our credit ratings or those of KeyBank;
a reversal of the U.S. economic recovery due to financial, political, or other shocks;
our ability to anticipate interest rate changes and manage interest rate risk;
deterioration of economic conditions in the geographic regions where we operate;
the soundness of other financial institutions;
tax reform and other changes in tax laws;
our ability to attract and retain talented executives and employees and to manage our reputational risks;
our ability to timely and effectively implement our strategic initiatives;
increased competitive pressure due to industry consolidation;
our ability to adapt our products and services to industry standards and consumer preferences;
unanticipated adverse effects of strategic partnerships or acquisitions and dispositions of assets or businesses;
our ability to realize the anticipated benefits of the First Niagara merger; and
our ability to develop and effectively use the quantitative models we rely upon in our business planning.

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. Before making an investment decision, you should carefully consider all risks and uncertainties disclosed in our SEC filings, including this report on Form 10-Q and our subsequent reports on Forms 8-K, 10-Q, and 10-K, and our registration statements under the Securities Act of 1933, as amended, all of which are or will upon filing be accessible on the SEC’s website at www.sec.gov and on our website at www.key.com/ir.


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Table of Contents

Selected financial data          
      
Our financial performance for each of the last five quarters is summarized in Figure 1.

Figure 1. Selected Financial Data
 
2017
 
2016
 
Nine months ended September 30,
dollars in millions, except per share amounts
Third

Second

First

 
Fourth

Third

 
2017

2016

FOR THE PERIOD
 
 
 
 
 
 
 
 
 
Interest income
$
1,109

$
1,117

$
1,050

 
$
1,062

$
890

 
$
3,276

$
2,257

Interest expense
161

144

132

 
124

110

 
437

276

Net interest income
948

973

918

 
938

780

 
2,839

1,981

Provision for credit losses
51

66

63

 
66

59

 
180

200

Noninterest income
592

653

577

 
618

549

 
1,822

1,453

Noninterest expense
992

995

1,013

 
1,220

1,082

 
3,000

2,536

Income (loss) from continuing operations before income taxes
497

565

419

 
270

188

 
1,481

698

Income (loss) from continuing operations attributable to Key
363

407

324

 
233

171

 
1,094

557

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

5


 
(4
)
1

 
6

5

Net income (loss) attributable to Key
364

412

324

 
229

172

 
1,100

562

Income (loss) from continuing operations attributable to Key common shareholders
349

393

296

 
213

165

 
1,038

540

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

5


 
(4
)
1

 
6

5

Net income (loss) attributable to Key common shareholders
350

398

296

 
209

166

 
1,044

545

PER COMMON SHARE
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
$
.32

$
.36

$
.28

 
$
.20

$
.17

 
$
.96

$
.61

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



 


 
.01

.01

Net income (loss) attributable to Key common shareholders (b)
.32

.37

.28

 
.20

.17

 
.97

.62

Income (loss) from continuing operations attributable to Key common shareholders —
assuming dilution
.32

.36

.27

 
.20

.16

 
.95

.60

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



 


 
.01

.01

Net income (loss) attributable to Key common shareholders — assuming dilution (b)
.32

.36

.27

 
.19

.17

 
.96

.61

Cash dividends paid
.095

.095

.085

 
.085

.085

 
.275

.245

Book value at period end
13.18

13.02

12.71

 
12.58

12.78

 
13.18

12.78

Tangible book value at period end
10.52

10.40

10.21

 
9.99

10.14

 
10.52

10.14

Market price:
 
 
 
 
 
 
 
 
 
High
19.37

19.10

19.53

 
18.62

12.64

 
19.37

13.37

Low
16.47

16.91

16.54

 
12.00

10.38

 
16.47

9.88

Close
18.82

18.74

17.78

 
18.27

12.17

 
18.82

12.17

Weighted-average common shares outstanding (000)
1,073,390

1,076,203

1,068,609

 
1,067,771

982,080

 
1,075,296

880,824

Weighted-average common shares and potential common shares outstanding (000) (c)
1,088,841

1,093,039

1,086,540

 
1,083,717

994,660

 
1,091,655

889,789

AT PERIOD END
 
 
 
 
 
 
 
 
 
Loans
$
86,492

$
86,503

$
86,125

 
$
86,038

$
85,528

 
$
86,492

$
85,528

Earning assets
122,625

121,243

120,261

 
121,966

121,089

 
122,625

121,089

Total assets
136,733

135,824

134,476

 
136,453

135,805

 
136,733

135,805

Deposits
103,446

102,821

103,982

 
104,087

104,185

 
103,446

104,185

Long-term debt
15,100

13,261

12,324

 
12,384

12,622

 
15,100

12,622

Key common shareholders’ equity
14,224

14,228

13,951

 
13,575

13,831

 
14,224

13,831

Key shareholders’ equity
15,249

15,253

14,976

 
15,240

14,996

 
15,249

14,996

PERFORMANCE RATIOS — FROM CONTINUING OPERATIONS
 
 
 
 
 
 
 
 
 
Return on average total assets
1.07
%
1.23
%
.99
%
 
.69
%
.55
%
 
1.10
%
.71
%
Return on average common equity
9.74

11.12

8.76

 
6.22

5.09

 
9.89

6.28

Return on average tangible common equity (d)
12.21

13.80

10.98

 
7.88

6.16

 
12.36

7.21

Net interest margin (TE)
3.15

3.30

3.13

 
3.12

2.85

 
3.19

2.84

Cash efficiency ratio (d)
62.2

59.3

65.8

 
76.2

80.0

 
62.4

72.5

PERFORMANCE RATIOS — FROM CONSOLIDATED OPERATIONS
 
 
 
 
 
 
 
 
 
Return on average total assets
1.06
%
1.23
%
.98
%
 
.67
%
.55
%
 
1.09
%
.70
%
Return on average common equity
9.77

11.26

8.76

 
6.10

5.12

 
9.95

6.34

Return on average tangible common equity (d)
12.25

13.98

10.98

 
7.73

6.20

 
12.43

7.27

Net interest margin (TE)
3.13

3.28

3.11

 
3.09

2.83

 
3.17

2.81

Loan-to-deposit (e)
86.2

87.2

85.6

 
85.2

84.7

 
86.2

84.7

CAPITAL RATIOS AT PERIOD END
 
 
 
 
 
 
 
 
 
Key shareholders’ equity to assets
11.15
%
11.23
%
11.14
%
 
11.17
%
11.04
%
 
11.15
%
11.04
%
Key common shareholders’ equity to assets
10.40

10.48

10.37

 
9.95

10.18

 
10.40

10.18

Tangible common equity to tangible assets (d)
8.49

8.56

8.51

 
8.09

8.27

 
8.49

8.27

Common Equity Tier 1
10.26

9.91

9.91

 
9.54

9.56

 
10.26

9.56

Tier 1 risk-based capital
11.11

10.73

10.74

 
10.89

10.53

 
11.11

10.53

Total risk-based capital
13.09

12.64

12.69

 
12.85

12.63

 
13.09

12.63

Leverage
9.83

9.95

9.81

 
9.90

10.22

 
9.83

10.22

TRUST ASSETS
 
 
 
 
 
 
 
 
 
Assets under management
$
38,660

$
37,613

$
37,417

 
$
36,592

$
36,752

 
$
38,660

$
36,752

OTHER DATA
 
 
 
 
 
 
 
 
 
Average full-time-equivalent employees
18,548

18,344

18,386

 
18,849

17,079

 
18,427

14,642

Branches
1,208

1,210

1,216

 
1,217

1,322

 
1,208

1,322

(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

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Resources, the education payment and financing unit of KeyBank. As a result of this decision, we have accounted for this business as a discontinued operation. For further discussion regarding the income (loss) from discontinued operations, see Note 12 (“Acquisition, Divestiture, and Discontinued Operations”).
(b)
EPS may not foot due to rounding.
(c)
Assumes conversion of Common Share options and other stock awards and/or convertible preferred stock, as applicable.
(d)
See Figure 6 entitled “GAAP to Non-GAAP Reconciliations,” which 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.
(e)
Represents period-end consolidated total loans and loans held for sale divided by period-end consolidated total deposits.

Economic Overview

The initial estimate of third quarter 2017 GDP came in at 3.0%, building on the strong growth experienced during the second quarter of 2017 of 3.1%. Personal consumption expenditures, the economy’s largest component, contributed 1.6% to growth in the third quarter, somewhat behind 2.2% contributed in the second quarter of 2017 but still ahead of the1.3% contributed in the first quarter of 2017. Inventories had a sizable impact on third quarter 2017 growth, accounting for .7%, possibly indicating that businesses are anticipating increased demand in the near future. A shrinking trade deficit also helped to lift the third quarter 2017 figure, adding .4% to the total. Unfortunately, many forecasts are expecting this third quarter 2017 GDP figure to be revised lower in coming months, once economists are able to more accurately assess the economic damage caused by hurricanes Harvey, Irma, and Maria.

The International Monetary Fund estimates that global growth is expected to rise from 3.1% in 2016 to 3.6% in 2017 and 3.7% in 2018 with broad-based upward revisions in the European area, Japan, emerging markets in Asia, emerging markets in Europe, and Russia more than offsetting downward revisions for the United States and the United Kingdom.

Oil prices have fallen since the beginning of the year to $52 per barrel, but are well above the lows in early 2016 when prices dropped to $25 per barrel. Although inventories remain elevated, recent declines may help clear the way for stronger appreciation in the coming quarters and help support America’s struggling energy industry.

The stock market continues to reach new records, with the S&P 500 equity index up 12.5% since the end of 2016. A general rally has occurred following the November 2016 elections, and based on expectations for growth-friendly economic policies from the new U.S. presidential administration.

274,000 new jobs were added in the U.S. during the third quarter of 2017. This was down from the second quarter of 2017, which saw gains of 562,000. Hurricanes Harvey and Irma distorted the employment situation in September when payroll employment declined by 33,000 jobs. Leisure and hospitality created most of the drag, declining by 111,000 jobs. The unemployment rate declined to 4.2%, but this was likely because of the inability to access all of the sample households in storm affected areas. Based on the experience of previous hurricanes, the September 2017 numbers are likely to undergo dramatic revisions. Still, the participation rate increased to 63.1%, a welcome development. This was the first time it rose above 63% since early 2014. The number of unemployed declined, the employment-to-population ratio increased, the number of discouraged workers fell, and fewer workers were employed part time involuntarily. Year-over-year earnings growth came in at 2.9%, above the recent range of around 2.5%. However, the boost may be attributed in part to an outsized decline in the lowest-paying jobs.

Headline inflation was up by 2.2% year over year at the end of the third quarter of 2017, slightly above the Federal Reserve’s target of 2.0%. However core inflation, excluding food and energy, was subdued year over year, at 1.7%.

Thanks to the solid economy and still low interest rates, the housing market generally benefited in the third quarter of 2017. New home sales were down 2.1% compared to the third quarter of 2016, while existing home sales were slightly up .4% compared to third quarter 2016 levels. However, prices are up uniformly, with average new home prices up 3.4% from year ago levels, and existing home prices up 5.1%. Single family housing starts also posted respectable gains in the third quarter of 2017, up 12.7%, from the third quarter of 2016. Multi-family construction was down 5.2%.

The Federal Open Market Committee left the federal funds rate unchanged in September 2017 at 1% to 1.25%. The minutes from the September meeting showed a debate on the weakness in inflation, and whether it can be attributed to transitory or more persistent factors. The Federal Reserve (like many economists) is unsure why inflationary pressures haven’t developed as slack in the broader economy has diminished. This uncertainty suggests that a December 2017 rate hike is not a sure thing, but most believe it is still likely. The minutes also discussed the economic cost of the recent hurricanes and how it will likely distort the incoming data on growth and

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inflation. However, the Federal Reserve doesn’t expect the hurricanes to alter the course of the economy over the medium term. The 10-year U.S. Treasury yield stood at 2.33% at the end of the third quarter of 2017, which was only two basis points below the prior quarter.
Long-term financial targets

Our long-term financial targets are as follows:

Generate positive operating leverage and a cash efficiency ratio of less than 60%;
Maintain a moderate risk profile by targeting a net loan charge-offs to average loans ratio in the range of .40% to .60%; and
Achieve a return on tangible common equity ratio in the range of 13% to 15%.

Figure 2 shows the evaluation of our long-term financial targets for the three months and nine months ended September 30, 2017.

Figure 2. Evaluation of Our Long-Term Targets
 
Key Metrics (a)
3Q17

YTD 2017

Targets
Positive operating leverage
Cash efficiency ratio (b)
62.2
%
62.4
%
< 60%
Cash efficiency ratio excluding notable items (b)
59.7
%
59.8
%
Moderate Risk Profile
Net loan charge-offs to average loans
.15
%
.24
%
.40 - .60%
Financial Returns
Return on average tangible common equity (b)
12.21
%
12.36
%
13.00 - 15.00%
Return on average tangible common equity excluding notable items (b)
13.19
%
12.98
%
(a)
Calculated from continuing operations, unless otherwise noted.
(b)
Non-GAAP measure; see Figure 6 entitled “GAAP to Non-GAAP Reconciliations” for reconciliation.

Strategic developments

Our actions and results during the first nine months of 2017 supported our corporate strategy described in the “Introduction” section under the “Corporate strategy” heading on page 35 of our 2016 Form 10-K.
 
We continued to generate positive operating leverage versus the prior year and our cash efficiency ratio improved to 62.4%, or 59.8%, excluding notable items. Revenue growth was driven by net interest income and fee-based businesses. Cards and payments had a record quarter, up 13.6% from the year-ago quarter, reflecting the investments we have made in the businesses, our recent merchant services acquisition and some of our early successes with First Niagara clients. Expenses remain well managed, with our quarterly results reflecting our recent acquisitions of HelloWallet and Key Merchant Services, LLC, as well as seasonal trends.
Early in the fourth quarter of 2017, we completed the acquisition of Cain Brothers, a leading healthcare-focused merger and acquisitions investment bank. The move will significantly expand our existing healthcare vertical and further enhances our ability to serve our clients with distinctive expertise and capabilities.
Net loan charge-offs were .24% of average loans for the first nine months of 2017, down from .27% for the same period one-year ago and below our targeted range. Total net loan charge-offs increased during the first nine months of 2017 compared to the year-ago period. Total loans charged off increased in our commercial and industrial loan portfolio and our auto loan portfolio which is included in our consumer indirect loan portfolio. Partially offsetting these increases in loan charge-offs were increases in recoveries in our commercial and industrial loan portfolio, driven by a large recovery that occurred during the third quarter of 2017.
Capital management remains a priority for 2017. As previously reported, share repurchases of up to $800 million were included in the 2017 capital plan, which is effective through the second quarter of 2018. We completed $277 million of Common Share repurchases, including $271 million of Common Share repurchases in the open market and $6 million of Common Share repurchases related to employee equity compensation programs in the third quarter of 2017 under this authorization. Over the past five years, we have repurchased over $2 billion in common shares.
Consistent with our 2016 capital plan, the Board declared a quarterly dividend of $.095 per Common Share for the third quarter of 2017. Potential dividend increases were also included in our 2017 capital plan. In the fourth quarter of 2017, the Board plans to consider a potential increase in our quarterly common share dividend, up to $.105 per share, consistent with the 2017 capital plan. An additional potential increase in the quarterly common share dividend, up to $.12 per share, is expected to be considered by the Board for the second quarter of 2018.


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Demographics

We have two major business segments: Key Community Bank and Key Corporate Bank. Key Community Bank serves individuals and small to mid-sized businesses by offering a variety of deposit and investment, lending, credit card, and personalized wealth management products and business advisory services. Key Community Bank offers personal property and casualty insurance, such as home, auto, renters, watercraft, and umbrella policies. Key Community Bank also purchases motor vehicle retail installment sales contracts relating to new or used automobiles and light and medium-duty trucks via a network of dealers who regularly originate these third party installment sales contracts. These products and services are provided primarily through our relationship managers and specialists working in our 15-state branch network, which is organized into ten internally defined geographic regions: Washington, Oregon/Alaska, Rocky Mountains, Indiana/Northwest Ohio/Michigan, Central/Southwest Ohio, East Ohio/Western Pennsylvania, Atlantic, Western New York, Eastern New York, and New England. In addition, some of these product capabilities are delivered by Key Corporate Bank to clients of Key Community Bank.

Key Corporate Bank is a full-service corporate and investment bank focused principally on serving the needs of middle market clients in seven industry sectors: consumer, energy, healthcare, industrial, public sector, real estate, and technology. Key Corporate Bank delivers a broad suite of banking and capital markets products to its clients, including syndicated finance, debt and equity capital markets, commercial payments, equipment finance, commercial mortgage banking, derivatives, foreign exchange, financial advisory, and public finance. Key Corporate Bank is also a significant servicer of commercial mortgage loans and a significant special servicer of CMBS. Key Corporate Bank delivers many of its product capabilities to clients of Key Community Bank.

Further information regarding the products and services offered by our Key Community Bank and Key Corporate Bank segments is included in this report in Note 19 (“Line of Business Results”).

Supervision and regulation

The following discussion provides a summary of recent regulatory developments and should be read in conjunction with the disclosure included in our 2016 Form 10-K under the heading “Supervision and Regulation” in Item 1. Business and under the heading “II. Compliance Risk” in Item 1A. Risk Factors.

Regulatory capital requirements

In July 2013, the U.S. banking agencies adopted a final rule to implement the Basel III international capital framework (“Basel III”) with an effective date of January 1, 2015, and a multi-year transition period ending on December 31, 2018 (“Regulatory Capital Rules”). Consistent with Basel III, the Regulatory Capital Rules further restrict the type of instruments that may be recognized in Tier 1 and Tier 2 capital (including the phase out of trust preferred securities from Tier 1 capital for BHCs above a certain asset threshold, like KeyCorp), establish a minimum Tier 1 Common Equity Capital ratio requirement of 4.5% and capital buffers to address procyclicality concerns and absorb losses during periods of financial stress, and refine several of the methodologies used for determining risk-weighted assets. The Regulatory Capital Rules provide additional requirements for large banking organizations with over $250 billion in total consolidated assets or $10 billion in foreign exposure, but those additional requirements do not apply to KeyCorp nor to KeyBank. Accordingly, for purposes of the Regulatory Capital Rules, KeyCorp and KeyBank are treated as “standardized approach” banking organizations.

The Basel III capital framework and the U.S. implementation of the Basel III capital framework are discussed in more detail in Item 1. Business of our 2016 Form 10-K under the heading “Supervision and Regulation - Regulatory capital requirements.”

Under the Regulatory Capital Rules, standardized approach banking organizations are required to meet the minimum capital and leverage ratios set forth in Figure 3 below. At September 30, 2017, Key had an estimated Common Equity Tier 1 Capital Ratio of 10.15% under the fully phased-in Regulatory Capital Rules. Also at September 30, 2017, based on the fully phased-in Regulatory Capital Rules, Key estimates that its capital and leverage ratios, after adjustment for market risk, would be as set forth in Figure 3.


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Figure 3. Pro Forma Ratios vs. Minimum Capital Ratios Calculated Under the Fully Phased-In Regulatory Capital Rules
 
Ratios (including capital conservation buffer)
Key
September 30, 2017
Pro forma
Minimum
January 1, 2017
Phase-in
Period
Minimum
January 1,  2019
Common Equity Tier 1 (a)
10.15
%
4.5
%
None
4.5
%
Capital conservation buffer (b)
 

1/1/16-1/1/19
2.5

Common Equity Tier 1 + Capital conservation buffer
 
4.5

1/1/16-1/1/19
7.0

Tier 1 Capital
11.00
%
6.0

None
6.0

Tier 1 Capital + Capital conservation buffer
 
6.0

1/1/16-1/1/19
8.5

Total Capital
13.00
%
8.0

None
8.0

Total Capital + Capital conservation buffer
 
8.0

1/1/16-1/1/19
10.5

Leverage (c)
9.79
%
4.0

None
4.0

(a)
See Figure 6 entitled “GAAP to Non-GAAP Reconciliations,” which presents the computation of Common Equity Tier 1 under the fully phased-in regulatory capital rules.
(b)
Capital conservation buffer must consist of Common Equity Tier 1 capital. As a standardized approach banking organization, KeyCorp is not subject to the countercyclical capital buffer of up to 2.5% imposed upon an advanced approaches banking organization under the Regulatory Capital Rules.
(c)
As a standardized approach banking organization, KeyCorp is not subject to the 3% supplemental leverage ratio requirement, which becomes effective January 1, 2018.

Revised prompt corrective action framework

The federal prompt corrective action (“PCA”) framework under the FDIA groups FDIC-insured depository institutions into one of five capital categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized,” for purposes of determining whether a bank should be required to establish a capital restoration plan and become subject to limitations on the bank’s activities, capital actions, and payment of management fees.

In addition to implementing Basel III in the United States, the Regulatory Capital Rules also revised the capital category thresholds under the PCA framework for FDIC-insured depository institutions such as KeyBank. The revised PCA framework table in Figure 4 identifies the capital category thresholds for a “well capitalized” and an “adequately capitalized” institution under the Regulatory Capital Rules.

Figure 4. "Well Capitalized" and "Adequately Capitalized" Capital Category Ratios under Revised PCA Framework
Prompt Corrective Action
 
Capital Category
 
Ratio
 
Well Capitalized (a)
 
Adequately Capitalized
 
Common Equity Tier 1 Risk-Based
 
6.5
%
4.5
%
Tier 1 Risk-Based
 
8.0
 
6.0
 
Total Risk-Based
 
10.0
 
8.0
 
Tier 1 Leverage (b)
 
5.0
 
4.0
 
(a)
A “well capitalized” institution also must not be subject to any written agreement, order, or directive to meet and maintain a specific capital level for any capital measure.

(b)
As a “standardized approach” banking organization, KeyBank is not subject to the 3% supplemental leverage ratio requirement, which becomes effective January 1, 2018.

We believe that, as of September 30, 2017, KeyBank (consolidated) satisfied the risk-based and leverage capital requirements to be considered “well capitalized” for purposes of the revised PCA framework. However, investors should not regard this determination as a representation of the overall financial condition or prospects of KeyBank because the PCA framework is intended to serve a limited supervisory function. Moreover, it is important to note that the PCA framework does not apply to BHCs, like KeyCorp.

Recent developments

On September 27, 2017, the federal banking agencies issued a joint proposal to simplify the Regulatory Capital Rules for standardized approach banking organizations (the “Simplification Proposal”), including Key. In anticipation of the Simplification Proposal, on August 22, 2017, the agencies issued a proposal to extend the current capital treatment for certain items that are subject to the multi-year transition period for the Regulatory Capital Rules, which ends on December 31, 2018. That proposal would alleviate the burden that could result from the

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continued phase-in of those capital requirements as the agencies seek public comment on and work to finalize the Simplification Proposal.

The Simplification Proposal would amend the standardized approach for credit risk under the Regulatory Capital Rules by:

Replacing the definition for high volatility commercial real estate exposures with a simpler definition called “high volatility acquisition, development, or construction” (“HVADC”) exposures. The Simplification Proposal would require a banking organization to assign a 130 percent risk weight to HVADC exposures.
Simplifying the threshold deductions for mortgage servicing assets, temporary difference deferred tax assets that are not realizable through carryback, and investments in the capital of unconsolidated financial institutions. The Simplification Proposal also would revise the risk-weight treatment for investments in the capital of unconsolidated financial institutions.
Simplifying the limitations on the amount of a third-party minority interest in a consolidated subsidiary that is includable in regulatory capital.

The Simplification Proposal also sets forth clarifying revisions to miscellaneous sections of the Regulatory Capital Rules. If the Simplification Proposal is adopted in its current form as final, it would likely have a neutral-to-low impact on Key’s capital requirements, but it would meaningfully alleviate the compliance burden associated with the Regulatory Capital Rules. Comments on the Simplification Proposal are due December 26, 2017.

Capital planning and stress testing

On January 30, 2017, the Federal Reserve released a final rule to revise the capital plan and stress test rules as they apply to large, noncomplex BHCs and U.S. intermediaries of foreign banks. Under the final rule, a large noncomplex BHC is one with total consolidated assets of more than $50 billion but less than $250 billion, and nonbank assets of less than $75 billion (“covered BHCs”). This includes KeyCorp.

The final rule provides relief from the compliance requirements associated with the Federal Reserve’s capital plan and stress test rules. Specifically, the final rule relieves covered BHCs from the qualitative assessment portion of the Federal Reserve’s CCAR program and modifies the reporting requirements for these organizations by reducing the reporting requirements applicable to covered BHCs under the FR Y-14A and by raising the materiality thresholds for specific portfolio reporting requirements.

The final rule also limits the amount of capital a covered BHC is authorized to distribute in excess of the amount set forth in its capital plan without Federal Reserve approval (the “de minimis exception”), and establishes a one-quarter blackout period during which a BHC is not permitted to submit a notice to use the de minimis exception or seek prior approval to make a capital distribution in an amount that exceeds the de minimis exception level. If exigent circumstances arise during the blackout period that require a capital distribution, a covered BHC may resubmit its capital plan and request expedited review from the Federal Reserve; however, the Federal Reserve is not required to expedite the review process.

The final rule also requires covered BHCs to measure nonbank assets on a monthly basis and report the monthly average to the Federal Reserve on a quarterly basis beginning March 31, 2017.

The final rule became effective 30 days after publication in the Federal Register, and therefore, the relief provided under the final rule from the qualitative assessment portion of the CCAR program is effective for the 2017 CCAR cycle.

On June 9, 2017, the Federal Reserve released a proposal and request for comment on certain information collection activities conducted under the series FR Y-14 schedules and reports that are used in connection with the CCAR program. As they would pertain to Key, the proposed revisions to the FR Y-14A and FR Y-14Q generally consist of modifications to reported items and instructions that would clarify the intended reporting of those items, and seek to further align reported items with the methodology, standards, and treatment in other regulatory reports or with the FR Y-14 schedules. In addition, the Federal Reserve has proposed to eliminate two schedules from the FR Y-14A to reduce the burden, but also to add a new sub-schedule to supplement the existing information collection around business plan change information. Other aspects of the proposal that do not pertain to Key would require the U.S. intermediate holding companies of foreign banks to apply the global market shock adjustment to certain reporting schedules under the FR Y-14A and FR Y-14Q.

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The comment period for the proposed rule ended on August 8, 2017. If the proposal is adopted in its final form, it is expected to have a neutral-to-low impact on Key’s reporting and compliance obligations.

Liquidity requirements

In October 2014, the federal banking agencies published a final rule to implement the Basel III liquidity coverage ratio (“Basel III LCR”) for U.S. banking organizations (the “Liquidity Coverage Rules”) that establishes a minimum LCR for certain internationally active bank and nonbank financial companies (excluding KeyCorp) and a modified version of the LCR (“Modified LCR”) for BHCs and other depository institution holding companies with over $50 billion in consolidated assets that are not internationally active (including KeyCorp). KeyBank will not be subject to the LCR or the Modified LCR under the Liquidity Coverage Rules unless the OCC affirmatively determines that application to KeyBank is appropriate in light of KeyBank’s asset size, level of complexity, risk profile, scope of operations, affiliation with foreign or domestic covered entities, or risk to the financial system.

Under the Liquidity Coverage Rules, KeyCorp must calculate a Modified LCR on a monthly basis, and was required to satisfy a minimum Modified LCR requirement of 100% by January 1, 2017. At September 30, 2017, Key’s Modified LCR was above 100%. In the future, KeyCorp may change the composition of our investment portfolio, increase the size of the overall investment portfolio, and modify product offerings to enhance or optimize our liquidity position.

Net stable funding ratio

The federal banking agencies commenced the U.S. implementation of the Basel III net stable funding ratio (“NSFR”) in April and May 2016, with the release of a proposed rule to implement a NSFR requirement for certain internationally active banking organizations (excluding KeyCorp) and a modified version of the minimum NSFR requirement (“Modified NSFR”) for BHCs and other depository institution holding companies with over $50 billion in consolidated assets that are not internationally active (including KeyCorp), together with quarterly public disclosure requirements. The proposed rule would require banking organizations to satisfy a minimum NSFR requirement of 1.0 on an ongoing basis. However, banking organizations subject to the Modified NSFR (like KeyCorp) would be required to maintain a lower minimum amount of available stable funding, equal to 70% of the required stable funding under the NSFR. The proposed rule would be effective on January 1, 2018. The comment period for the NPR expired on August 5, 2016. If the proposed NSFR requirement is adopted as a final rule, then similar to actions taken in connection with the implementation of the Liquidity Coverage Rules, KeyCorp may adjust its balance sheet or modify product offerings to enhance its liquidity position.

Resolution and recovery planning

BHCs with at least $50 billion in total consolidated assets, like KeyCorp, are required to periodically submit to the Federal Reserve and FDIC a plan discussing how the company could be rapidly and efficiently resolved if the company failed or experienced material financial distress. Insured depository institutions with at least $50 billion in total consolidated assets, like KeyBank, are also required to submit a resolution plan to the FDIC. These plans are due annually. KeyCorp and KeyBank were not required to submit resolution plans for 2016 because the FDIC and Federal Reserve deferred such requirement until December 2017. By letter dated March 24, 2017, KeyCorp received guidance from the Federal Reserve and the FDIC regarding the information requirements for certain aspects of KeyCorp’s December 2017 resolution plan submission. That letter is publicly available on the Federal Reserve’s website, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20170324a.htm.

The Federal Reserve and FDIC make available on their websites the public sections of resolution plans for the companies, including KeyCorp and KeyBank, that submitted plans. The public section of the resolution plans of KeyCorp and KeyBank is available at http://www.federalreserve.gov/bankinforeg/resolution-plans.htm and https://www.fdic.gov/regulations/reform/resplans/.

On September 28, 2016, the OCC released final guidelines that establish standards for recovery planning by certain large OCC-regulated institutions, including KeyBank. The guidelines require such institutions to establish a comprehensive framework for evaluating the financial effects of severe stress events, and recovery actions an institution may pursue to remain a viable, going concern during a period of severe financial stress. Under the final guidelines, an institution’s recovery plan must include triggers to alert the institution of severe stress events, escalation procedures, recovery options, and a process for periodic review and approval by senior management

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and the board of directors. The recovery plan should be tailored to the complexity, scope of operations, and risk profile of the institution.

Because KeyBank had average total consolidated assets of greater than $100 billion but less than $750 billion as reported on KeyBank’s Consolidated Reports of Condition and Income for the four most recent consecutive quarters prior to January 1, 2017, it must be in compliance with the guidelines not later than January 1, 2018.

Deposit insurance and assessments

As required under the Dodd-Frank Act, in March 2015, the FDIC approved a final rule to impose a surcharge on the quarterly deposit insurance assessments of insured depository institutions having total consolidated assets of at least $10 billion (like KeyBank). The surcharge is 4.5 cents per $100 of the institution’s assessment base (after making certain adjustments). The final rule became effective on July 1, 2016. As of July 1, 2016, KeyBank must pay a surcharge to assist in bringing the reserve ratio to the statutory minimum of 1.35%. Surcharges will continue through the quarter that the DIF reserve ratio reaches or exceeds 1.35%, but not later than December 31, 2018. If the reserve ratio does not reach 1.35% by December 31, 2018 (provided it is at least 1.15%), the FDIC will impose a shortfall assessment on March 31, 2019, on insured depository institutions with total consolidated assets of $10 billion or more (like KeyBank). At June 30, 2017, the DIF reserve ratio was 1.24%.

In December 2016, the FDIC issued a final rule that imposes recordkeeping requirements on insured depository institutions with two million or more deposit accounts (including KeyBank) in order to facilitate rapid payment of insured deposits to customers if the institutions were to fail. The rule requires those insured depository institutions to: (i) maintain complete and accurate data on each depositor’s ownership interest by right and capacity for all of the institution’s deposit accounts; and (ii) develop the capability to calculate the insured and uninsured amounts for each deposit owner within 24 hours of failure. The FDIC will conduct periodic testing of compliance with these requirements, and institutions subject to the rule must submit to the FDIC a certification of compliance, signed by the KeyBank chief executive officer, and deposit insurance coverage summary report on or before the mandatory compliance date and annually thereafter. The final rule became effective on April 1, 2017, with a mandatory compliance date of April 1, 2020.

Single counterparty credit limits

In March 2016, the Federal Reserve issued an NPR proposing to establish single counterparty credit limits for BHCs with total consolidated assets of $50 billion or more. This proposal would implement a provision in the Dodd-Frank Act and replaces proposals on this subject issued by the Federal Reserve in 2011 and 2012. Under the proposal, a covered BHC (including KeyCorp) would not be allowed to have an aggregate net credit exposure to any unaffiliated counterparty that exceeds 25% of the consolidated capital stock and surplus of the covered BHC. Globally, systemically important banks and certain other large BHCs (excluding KeyCorp) would be subject to stricter limits under the proposal. A covered BHC such as KeyCorp would be required to comply with the proposed limits and quarterly reporting to show such compliance starting two years after the effective date of a final rule. The comment period for the NPR expired on June 3, 2016.

Supervision and governance

On August 3, 2017, the Federal Reserve released a proposal to establish guidance regarding supervisory expectations for the boards of directors of banking organizations with total consolidated assets of $50 billion or more, including KeyCorp. The proposal identifies the attributes of effective boards of directors that would be used for examiner evaluation of an organization’s governance and controls. The proposal also clarifies that for all organizations supervised by the Federal Reserve, most supervisory findings should be communicated to the organization’s senior management for corrective action and not its board of directors. In addition, the proposal identifies existing supervisory expectations for boards of directors set forth in Federal Reserve SR Letters that could be eliminated or revised. Comments on the proposal are due November 30, 2017.

In a separate release, the Federal Reserve published a notice of proposed rulemaking to align its supervisory rating system for large financial institutions (including KeyCorp) with the post-crisis supervisory programs for these firms. The proposed rating system would only apply to large financial institutions, including KeyCorp, and would evaluate and assign ratings to large financial institutions based on three components: capital planning and positions, liquidity risk management and positions, and governance and controls. It is difficult to estimate the potential impact of the proposal on Key because the extent of the impact depends on the finalization of the proposal regarding supervisory

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expectations for boards of directors, and a forthcoming proposal regarding supervisory expectations relating to a firm’s management of core business lines and independent risk management and controls. Moreover, implementation of the proposed rating system could involve considerable examiner discretion. Comments are due on the proposed rule by November 30, 2017.

ERISA fiduciary standard

In April 2016, the Department of Labor published final rules and amendments to certain prohibited transaction exemptions regarding which service providers would be regarded as fiduciaries under ERISA for making investment advice recommendations to: (i) certain retirement plan fiduciaries, participants, or beneficiaries; and (ii) owners or beneficiaries of individual retirement accounts and health savings accounts, among other retirement plans. The purpose of the rules is to place fiduciary obligations, rather than the lesser legal obligations that currently apply, on these service providers. Accordingly, the rules subject any financial institution making recommendations for either the purchase or sale of investments in or rollover of the respective retirement plan to certain fiduciary obligations under ERISA such as an impartial conduct standard and not selling certain investment products whose compensation may raise a conflict of interest for the advisor without entering into a contract providing certain disclosures and legal remedies to the customer. Under the Department of Labor’s original rules, the impartial standard requirement for financial institutions and their advisors was to become effective April 10, 2017. However, in response to a Presidential Order, the Department of Labor extended the effective date to June 9, 2017. The contract provisions must be in place by January 1, 2018, although on August 31, 2017, the Department of Labor requested comments on a proposal to delay this date until July 1, 2019. The Department of Labor also requested comments on and will continue to review whether to modify, further delay, or rescind these rules in whole or in part.

Highlights of Our Performance

Financial performance

For the third quarter of 2017, we announced net income from continuing operations attributable to Key common shareholders of $349 million, or $.32 per common share. Our third quarter of 2017 results compare to net income from continuing operations attributable to Key common shareholders of $165 million, or .16 per common share, for the third quarter of 2016. During the third quarter of 2017, our results included $36 million of merger-related charges and a $5 million merchant services gain adjustment, resulting in a pre-tax net impact of $41 million, or $.03 per common share.

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

Our TE net interest income was $962 million for the third quarter of 2017, and the net interest margin was 3.15%, compared to TE net interest income of $788 million and a net interest margin of 2.85% for the third quarter of 2016, reflecting the benefit from the First Niagara acquisition, including purchase accounting accretion, as well as higher earning asset yields and balances. Excluding purchase accounting accretion, taxable-equivalent net interest income increased $145 million from the third quarter of 2016. For the full year of 2017, we expect net interest income to be in the range of $3.8 billion to $3.9 billion. Our outlook does not include any additional rate increases in 2017.

Our noninterest income was $592 million for the third quarter of 2017, compared to $549 million for the year-ago quarter. Growth was largely driven by a full-quarter impact of the First Niagara acquisition, as well as ongoing momentum in our core businesses. Broad-based growth across many fee income categories more than offset a decline in investment banking and debt placement fees, related to strong market conditions in the year-ago period. For the full year of 2017, we expect noninterest income to be in the range of $2.35 billion to $2.45 billion.

Our noninterest expense was $992 million for the third quarter of 2017, which included $36 million of merger-related charges. Merger-related charges for the quarter were made up of $25 million of personnel expense and $11 million of non-personnel expense, mostly reflected in marketing and computer processing expense. During the third quarter of 2016, we incurred $189 million of merger-related charges.

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

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While our recent acquisitions of HelloWallet and Key Merchant Services, LLC will be accretive over time, together they added $8 million of expense for the third quarter of 2017. For the full year of 2017, we expect noninterest expense excluding merger-related charges to be in the range of $3.7 billion to $3.8 billion. Included within this range is approximately $20 million in added expense from Cain Brothers, which closed early in the fourth quarter of 2017, as well as expenses related to HelloWallet and Key Merchant Services, LLC.

Average loans were $86.8 billion for the third quarter of 2017, an increase of $9.1 billion compared to the third quarter of 2016, primarily reflecting a full-quarter impact of the First Niagara acquisition, as well as growth in commercial and industrial loans, which was broad-based and spread across Key's commercial lines of business. We anticipate average loans to be in the range of $87 billion to $87.5 billion for the fourth quarter of 2017.

Average deposits totaled $103.1 billion for the third quarter of 2017, an increase of $8.2 billion compared to the year-ago quarter, primarily reflecting a full-quarter impact of the First Niagara acquisition, and core retail and commercial deposit growth. Our consolidated loan-to-deposit ratio was 86.2% at September 30, 2017, compared to 84.7% at September 30, 2016. We anticipate average deposits to be in the range of $102.5 billion to $103 billion for the fiscal year 2017.

Our provision for credit losses was $51 million for the third quarter of 2017, compared to $59 million for the third quarter of 2016. The third quarter 2017 provision reflects a large recovery in the commercial and industrial portfolio.
Our allowance for loan and lease losses was $880 million, or 1.02% of total period-end loans, at September 30, 2017, compared to 1.01% at September 30, 2016. For the remainder of 2017, we expect the provision for credit losses to slightly exceed net loan charge-offs to provide for loan growth.

Net loan charge-offs for the third quarter of 2017 totaled $32 million, or .15% of average total loans, compared to $44 million, or .23%, for the third quarter of 2016. For the remainder of 2017, we expect net loan charge-offs to average loans to remain below our targeted range of 40 to 60 basis points.

At September 30, 2017, our nonperforming loans totaled $517 million, which represented .60% of period-end portfolio loans, compared to $723 million, or 0.85% of period-end portfolio loans, at September 30, 2016. Nonperforming assets at September 30, 2017, totaled $556 million and represented .64% of period-end portfolio loans and OREO and other nonperforming assets, compared to $760 million, or .89% of period-end portfolio loans and OREO and other nonperforming assets, at September 30, 2016.

Our capital ratios remain strong. Our tangible common equity and Tier 1 risk-based capital ratios at September 30, 2017, are 8.49% and 11.11%, respectively, compared to 8.27% and 10.53%, respectively, at September 30, 2016. In addition, our Common Equity Tier 1 ratio is 10.26% at September 30, 2017, compared to 9.56% at September 30, 2016. Capital levels in the third quarter of 2017 benefited from a change in our methodology related to risk weightings for multipurpose facilities, specifically commitments that can also be used for letters of credit.

We continue to return capital to our shareholders by repurchasing Common Shares and through our quarterly common share dividend. In the third quarter of 2017, we completed $277 million of Common Share repurchases, including $271 million of common share repurchases in the open market and $6 million of Common Share repurchases related to employee equity compensation programs, and paid a cash dividend of $.095 per Common Share, under our 2017 capital plan authorization.

Figure 5 shows our continuing and discontinued operating results for the current, past, and year-ago quarters. Our financial performance for each of the past five quarters is summarized in Figure 1.


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Figure 5. Results of Operations
 
Three months ended
 
Nine months ended
in millions, except per share amounts
9/30/2017
6/30/2017
9/30/2016
 
9/30/2017
9/30/2016
Summary of operations
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key
$
363

$
407

$
171

 
$
1,094

$
557

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

5

1

 
6

5

Net income (loss) attributable to Key
$
364

$
412

$
172

 
$
1,100

$
562

Income (loss) from continuing operations attributable to Key
$
363

$
407

$
171

 
$
1,094

$
557

Less: Dividends on Preferred Stock
14

14

6

 
56

17

Income (loss) from continuing operations attributable to Key common shareholders
349

393

165

 
1,038

540

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

5

1

 
6

5

Net income (loss) attributable to Key common shareholders
$
350

$
398

$
166

 
$
1,044

$
545

Per common share — assuming dilution
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Key common shareholders
$
.32

$
.36

$
.16

 
$
.95

$
.60

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



 
.01

.01

Net income (loss) attributable to Key common shareholders (b)
$
.32

$
.36

$
.17

 
$
.96

$
.61

 
 
 
 
 
 
 
(a)
In September 2009, we decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank. As a result of this decision, we have accounted for these businesses as a discontinued operation. For further discussion regarding the income (loss) from discontinued operations, see Note 12 (“Acquisition, Divestiture, and Discontinued Operations”).
(b)
EPS may not foot due to rounding.

Figure 6 presents certain non-GAAP financial measures related to “tangible common equity,” “return on tangible common equity,” “cash efficiency ratio,” certain financial measures excluding notable items, and “Common Equity Tier 1 under the Regulatory Capital Rules (estimates).”

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

The tangible common equity ratio and the return on tangible common equity ratio have been a focus for some investors, and management believes that these ratios may assist investors in analyzing Key’s capital position without regard to the effects of intangible assets and preferred stock. Since analysts and banking regulators may assess our capital adequacy using tangible common equity, we believe it is useful to enable investors to assess our capital adequacy on these same bases. Figure 6 reconciles the GAAP performance measures to the corresponding non-GAAP measures.

As disclosed in Note 2 (“Business Combination”) and Note 12 (“Acquisition, Divestiture, and Discontinued Operations”), KeyCorp 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, we’ve recognized merger-related charges. For the second and third quarters of 2017, merger-related charges are included in the total for "notable items." The table below shows the computation of return on average tangible common equity excluding notable items, pre-provision net revenue excluding notable items, cash efficiency ratio excluding notable items, and return on average assets from continuing operations excluding notable items. Management believes that eliminating the effects of the merger-related charges and other notable items makes it easier to analyze the results by presenting them on a more comparable basis.

The cash efficiency ratio is a ratio of two non-GAAP performance measures. Accordingly, there is no directly comparable GAAP performance measure. The cash efficiency ratio excludes the impact of our intangible asset amortization from the calculation. We also disclose the cash efficiency ratio excluding notable items. We believe these ratios provide greater consistency and comparability between our results and those of our 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, nor as a substitute for analyses of results as reported under GAAP.


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Figure 6. GAAP to Non-GAAP Reconciliations
 
 
Three months ended
 
Nine months ended
dollars in millions
9/30/2017
6/30/2017
3/31/2017
12/31/2016
9/30/2016
 
9/30/2017
9/30/2016
Tangible common equity to tangible assets at period-end
 
 
 
 
 
 
 
 
Key shareholders’ equity (GAAP)
$
15,249

$
15,253

$
14,976

$
15,240

$
14,996

 
 
 
Less:
Intangible assets (a)
2,870

2,866

2,751

2,788

2,855

 
 
 
 
Preferred Stock (b)
1,009

1,009

1,009

1,640

1,150

 
 
 
 
Tangible common equity (non-GAAP)
$
11,370

$
11,378

$
11,216

$
10,812

$
10,991

 
 
 
Total assets (GAAP)
$
136,733

$
135,824

$
134,476

$
136,453

$
135,805

 
 
 
Less:
Intangible assets (a)
2,870

2,866

2,751

2,788

2,855

 
 
 
 
Tangible assets (non-GAAP)
$
133,863

$
132,958

$
131,725

$
133,665

$
132,950

 
 
 
 
Tangible common equity to tangible assets ratio (non-GAAP)
8.49
%
8.56
%
8.51
%
8.09
%
8.27
%
 
 
 
Notable items
 
 
 
 
 
 
 
 
Merger-related charges
$
(36
)
$
(44
)
$
(81
)
$
(198
)
(207
)
 
$
(161
)
$
(276
)
Merchant services gain
(5
)
64




 
59


Purchase accounting finalization, net

43




 
43


Charitable contribution

(20
)



 
(20
)

Total notable items
$
(41
)
$
43

$
(81
)
$
(198
)
(207
)
 
$
(79
)
$
(276
)
Income taxes
(13
)
16

(30
)
(74
)
(75
)
 
(27
)
(101
)
Total notable items after tax
$
(28
)
$
27

$
(51
)
$
(124
)
(132
)
 
$
(52
)
$
(175
)
Average tangible common equity
 
 
 
 
 
 
 
 
Average Key shareholders’ equity (GAAP)
$
15,241

$
15,200

$
15,184

$
14,901

$
13,552

 
$
15,208

$
11,890

Less:
Intangible assets (average) (c)
2,878

2,756

2,772

2,874

2,255

 
2,802

1,473

 
Preferred Stock (average)
1,025

1,025

1,480

1,274

648

 
1,175

410

 
Average tangible common equity (non-GAAP)
$
11,338

$
11,419

$
10,932

$
10,753

$
10,649

 
$
11,231

$
10,007

Return on average tangible common equity from continuing operations
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)
$
349

$
393

$
296

$
213

$
165

 
$
1,038

$
540

Plus:
Notable items, after tax
28

(27
)
51

124

132

 
52

175

 
Net income (loss) from continuing operations attributable to Key common shareholders after notable items (non-GAAP)
$
377

$
366

$
347

$
337

$
297

 
$
1,090

$
715

Average tangible common equity (non-GAAP)
11,338

11,419

10,932

10,753

10,649

 
11,231

10,007

Return on average tangible common equity from continuing operations (non-GAAP)
12.21
%
13.80
%
10.98
%
7.88
%
6.16
%
 
12.36
%
7.21
%
Return on average tangible common equity from continuing operations excluding notable items (non-GAAP)
13.19

12.86

12.87

12.47

11.10

 
12.98

9.54

Return on average tangible common equity consolidated
 
 
 
 
 
 
 
 
Net income (loss) attributable to Key common shareholders (GAAP)
$
350

$
398

$
296

$
209

$
166

 
$
1,044

$
545

Average tangible common equity (non-GAAP)
11,338

11,419

10,932

10,753

10,649

 
11,231

10,007

Return on average tangible common equity consolidated (non-GAAP)
12.25
%
13.98
%
10.98
%
7.73
%
6.20
%
 
12.43
%
7.27
%
Pre-provision net revenue
 
 
 
 
 
 
 
 
Net interest income (GAAP)
$
948

$
973

$
918

$
938

$
780

 
$
2,839

$
1,981

Plus:
Taxable-equivalent adjustment
14

14

11

10

8

 
39

24

 
Noninterest income (GAAP)
592

653

577

618

549

 
1,822

1,453

Less:
Noninterest expense (GAAP)
992

995

1,013

1,220

1,082

 
3,000

2,536

 
Pre-provision net revenue from continuing operations (non-GAAP)
$
562

$
645

$
493

$
346

$
255

 
$
1,700

$
922

Plus:
Notable items
36

(43
)
81

198

207

 
79

276

 
Pre-provision net revenue from continuing operations excluding notable items (non-GAAP)
603

602

574

544

462

 
1,779

1,198

Cash efficiency ratio
 
 
 
 
 
 
 
 
Noninterest expense (GAAP)
$
992

$
995

$
1,013

$
1,220

$
1,082

 
$
3,000

$
2,536

Less:
Intangible asset amortization
25

22

22

27

13

 
69

28

Adjusted noninterest expense (non-GAAP)
$
967

$
973

$
991

$
1,193

$
1,069

 
$
2,931

$
2,508

Less:
Notable items (d)
36

60

81

207

189

 
177

258

Adjusted noninterest expense excluding notable items (non-GAAP)
$
931

$
913

$
910

$
986

$
880

 
$
2,754

$
2,250

Net interest income (GAAP)
$
948

$
973

$
918

$
938

$
780

 
$
2,839

$
1,981

Plus:
Taxable-equivalent adjustment
14

14

11

10

8

 
39

24

 
Noninterest income (GAAP)
592

653

577

618

549

 
1,822

1,453

Total taxable-equivalent revenue (non-GAAP)
$
1,554

$
1,640

$
1,506

$
1,566

$
1,337

 
$
4,700

$
3,458

Plus:
Notable items (e)
5

(103
)

(9
)
18

 
(98
)
18

 
Adjusted noninterest income excluding notable items (non-GAAP)
$
1,559

$
1,537

$
1,506

$
1,557

$
1,355

 
$
4,602

$
3,476

Cash efficiency ratio (non-GAAP)
62.2
%
59.3
%
65.8
%
76.2
%
80.0
%
 
62.4
%
72.5
%
Cash efficiency ratio excluding notable items (non-GAAP)
59.7

59.4

60.4

63.3

64.9

 
59.8

64.7

Return on average total assets from continuing operations excluding notable items
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Key (GAAP)
$
363

$
407

$
324

$
233

$
171

 
$
1,094

$
557

Plus:
Notable items, after tax
28

(27
)
51

124

132

 
52

175

 
Income from continuing operations attributable to Key excluding notable items, after tax (non-GAAP)
$
391

$
380

$
375

$
357

$
303

 
$
1,146

$
732

Average total assets from continuing operations (GAAP)
$
134,356

$
132,491

$
132,741

$
134,428

$
123,469

 
$
133,202

$
105,187

Return on average total assets from continuing operations excluding notable items (non-GAAP)
1.15
%
1.15
%
1.15
%
1.06
%
.98
%
 
1.15
%
.93
%
 

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Figure 6. GAAP to Non-GAAP Reconciliations, continued
dollars in millions
Three months ended September 30, 2017
Common Equity Tier 1 under the Regulatory Capital Rules (estimates)
 
Common Equity Tier 1 under current Regulatory Capital Rules
$
12,129

Adjustments from current Regulatory Capital Rules to the fully phased-in Regulatory Capital Rules:
 
Deferred tax assets and other intangible assets (f)
(57
)
Common Equity Tier 1 anticipated under the fully phased-in Regulatory Capital Rules (g)
$
12,072

 
 
Net risk-weighted assets under current Regulatory Capital Rules
$
118,233

Adjustments from current Regulatory Capital Rules to the fully phased-in Regulatory Capital Rules:
 
Mortgage servicing assets (h)
623

Volcker Funds

All other assets
49

Total risk-weighted assets anticipated under the fully phased-in Regulatory Capital Rules (g)
$
118,905

 
 
Common Equity Tier 1 ratio under the fully phased-in Regulatory Capital Rules (g)
10.15
%
 
 
(a)
For the three months ended September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016, and September 30, 2016, intangible assets exclude $30 million, $33 million, $38 million, $42 million, and $51 million, respectively, of period-end purchased credit card relationships.
(b)
Net of capital surplus.
(c)
For the three months ended September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016, and September 30, 2016, average intangible assets exclude $32 million, $36 million, $40 million, $46 million, and $47 million, respectively, of average purchased credit card relationships. For the nine months ended September 30, 2017, and September 30, 2016, average intangible assets exclude $36 million and $42 million, respectively, of average purchased credit card receivables.
(d)
Notable items for the three months ended September 30, 2017, include $36 million of merger-related expense.
(e)
Notable items for the three months ended September 30, 2017, include $5 million adjustment related to the merchant services acquisition gain.
(f)
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.
(g)
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); we are subject to the Regulatory Capital Rules under the “standardized approach.”
(h)
Item is included in the 10%/15% exceptions bucket calculation and is risk-weighted at 250%.

Results of Operations

Net interest income

One of our principal sources of revenue is net interest income. Net interest income is the difference between interest income received on earning assets (such as loans and securities) and loan-related fee income, and interest expense paid on deposits and borrowings. There are several factors that affect net interest income, including:
 
the volume, pricing, mix, and maturity of earning assets and interest-bearing liabilities;
the volume and value of net free funds, such as noninterest-bearing deposits and equity capital;
the use of derivative instruments to manage interest rate risk;
interest rate fluctuations and competitive conditions within the marketplace;
asset quality; and
fair value accounting of acquired earning assets and interest-bearing liabilities.

To make it easier to compare both the results across several periods and the yields on various types of earning assets (some taxable, some not), we present net interest income in this discussion on a “TE basis” (i.e., as if all income were taxable and at the same rate). For example, $100 of tax-exempt income would be presented as $154, an amount that, if taxed at the statutory federal income tax rate of 35%, would yield $100.

Figure 7 shows the various components of our balance sheet that affect interest income and expense, and their respective yields or rates over the past five quarters. This figure also presents a reconciliation of TE net interest income to net interest income reported in accordance with GAAP for each of those quarters. The net interest margin, which is an indicator of the profitability of the earning assets portfolio less cost of funding, is calculated by dividing annualized TE net interest income by average earning assets.

Third quarter 2017 TE net interest income included $48 million of purchase accounting accretion related to the acquisition of First Niagara, compared to $19 million in the third quarter of 2016, and $100 million in the second quarter of 2017.

TE net interest income was $962 million for the third quarter of 2017, and the net interest margin was 3.15%, compared to TE net interest income of $788 million and a net interest margin of 2.85% for the third quarter of 2016,

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reflecting the full quarter benefit from the First Niagara acquisition, including purchase accounting accretion, as well as higher earning asset yields and balances.

For the nine months ended September 30, 2017, TE net interest income was $2.9 billion and the net interest margin was 3.19%, compared to TE net interest income of $2.0 billion and a net interest margin of 2.84% for the prior year, reflecting the full year-to-date benefit from the First Niagara acquisition, growth in our core earning asset balances, higher interest rates, and managed deposit costs.

Average loans were $86.8 billion for the third quarter of 2017, an increase of $9.1 billion compared to the third quarter of 2016, primarily reflecting a full-quarter impact of the First Niagara acquisition, as well as growth in commercial and industrial loans, which was broad-based and spread across Key's commercial lines of business. At September 30, 2017, the remaining fair value discount on the First Niagara acquired loan portfolio was $302 million, compared to $345 million at June 30, 2017.

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

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Table of Contents

Figure 7. Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates from Continuing Operations 
 
Third Quarter 2017
 
Second Quarter 2017
dollars in millions
Average
Balance
Interest (a)
Yield/
Rate (a)
 
Average
Balance
Interest (a)
Yield/
Rate (a)
ASSETS
 
 
 
 
 
 
 
Loans (b), (c)
 
 
 
 
 
 
 
Commercial and industrial (d)
$
41,416

$
414

3.97
%
 
$
40,666

$
409

4.04
%
Real estate — commercial mortgage
14,850

169

4.51

 
15,096

187

4.97

Real estate — construction
2,054

23

4.51

 
2,204

31

5.51

Commercial lease financing
4,694

46

3.89

 
4,690

50

4.33

Total commercial loans
63,014

652

4.11

 
62,656

677

4.34

Real estate — residential mortgage
5,493

54

3.92

 
5,509

52

3.77

Home equity loans
12,314

136

4.41

 
12,473

135

4.31

Consumer direct loans
1,774

33

7.26

 
1,743

31

7.07

Credit cards
1,049

30

11.34

 
1,044

29

11.04

Consumer indirect loans
3,170

37

4.64

 
3,077

38

5.02

Total consumer loans
23,800

290

4.85

 
23,846

285

4.77

Total loans
86,814

942

4.31

 
86,502

962

4.46

Loans held for sale
1,607

17

4.13

 
1,082

9

3.58

Securities available for sale (b), (e)
18,574

91

1.96

 
17,997

90

1.97

Held-to-maturity securities (b)
10,469

55

2.12

 
10,469

55

2.09

Trading account assets
889

7

2.74

 
1,042

7

3.00

Short-term investments
2,166

6

1.21

 
1,970

5

.96

Other investments (e)
728

5

2.46

 
687

3

1.87

Total earning assets
121,247

1,123

3.68

 
119,749

1,131

3.78

Allowance for loan and lease losses
(868
)
 
 
 
(864
)
 
 
Accrued income and other assets
13,977

 
 
 
13,606

 
 
Discontinued assets
1,417

 
 
 
1,477

 
 
Total assets
$
135,773

 
 
 
$
133,968

 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
NOW and money market deposit accounts
$
53,826

37

.27

 
$
54,416

34

.25

Savings deposits
6,697

5

.25

 
6,854

4

.21

Certificates of deposit ($100,000 or more)
6,402

21

1.31

 
6,111

19

1.23

Other time deposits
4,664

9

.81

 
4,650

9

.77

Total interest-bearing deposits
71,589

72

.40

 
72,031

66

.36

Federal funds purchased and securities sold under repurchase
agreements
456


.23

 
466


.23

Bank notes and other short-term borrowings
865

3

1.49

 
1,216

4

1.43

Long-term debt (f), (g)
12,631

86

2.75

 
11,046

74

2.68

Total interest-bearing liabilities
85,541

161

.75

 
84,759

144

.68

Noninterest-bearing deposits
31,516

 
 
 
30,748

 
 
Accrued expense and other liabilities
2,057

 
 
 
1,782

 
 
Discontinued liabilities (g)
1,417

 
 
 
1,477

 
 
Total liabilities
120,531

 
 
 
118,766

 
 
EQUITY
 
 
 
 
 
 
 
Key shareholders’ equity
15,241

 
 
 
15,200

 
 
Noncontrolling interests
1

 
 
 
2

 
 
Total equity
15,242

 
 
 
15,202

 
 
Total liabilities and equity
$
135,773

 
 
 
$
133,968

 
 
 
 
 
 
 
 
 
 
Interest rate spread (TE)
 
 
2.93
%
 
 
 
3.10
%
Net interest income (TE) and net interest margin (TE)
 
962

3.15
%
 
 
987

3.30
%
TE adjustment (b)
 
14

 
 
 
14

 
Net interest income, GAAP basis
 
$
948

 
 
 
$
973

 
 
 
 
 
 
 
 
 
(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 TE basis using the statutory federal income tax rate of 35%.

(c)
For purposes of these computations, nonaccrual loans are included in average loan balances.

(d)
Commercial and industrial average balances include $117 million, $117 million, $114 million, $119 million, and $107 million of assets from commercial credit cards for the three months ended September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016, and September 30, 2016, respectively.


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Table of Contents

Figure 7. Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates from Continuing Operations
First Quarter 2017
 
Fourth Quarter 2016
 
Third Quarter 2016
Average
Balance
Interest (a)
Yield/
Rate (a)
 
Average
Balance
Interest (a)
Yield/
Rate (a)
 
Average
Balance
Interest (a)
Yield/
Rate (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
40,002

$
373

3.77
%
 
$
39,495

$
365

3.68
%
 
$
37,318

$
317

3.38
%
15,187

164