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Press release from PR Newswire

KeyCorp Reports First Quarter 2013 Net Income of $196 Million, or $.21 per Common Share

Thursday, April 18, 2013

KeyCorp Reports First Quarter 2013 Net Income of $196 Million, or $.21 per Common Share

06:30 EDT Thursday, April 18, 2013

Net interest income was $583 million, up $30 million, or 5.4% from first quarter of 2012
Average total loans increased to $52.6 billion, up 6.5% from first quarter of 2012 led by 16.4% growth in commercial and industrial loans
Average total deposits increased to $63.6 billion, up 6.7% from first quarter of 2012
Net loan charge-offs declined 51% from one year ago to $49 million representing 38 basis points of average total loans
First quarter expenses were $681 million including $15 million of charges for efficiency initiative
Cash efficiency ratio improved to 66.0% from 67.7% one year ago

CLEVELAND, April 18, 2013 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced first quarter net income from continuing operations attributable to Key common shareholders of $196 million, or $.21 per common share, compared to $190 million, or $.20 per common share for the fourth quarter of 2012, and $195 million, or $.20 per common share for the first quarter of 2012.   During the first quarter Key incurred $15 million, or $.01 per common share of costs associated with its previously announced efficiency initiative.

SIGNIFICANT EVENTS

Agreement to sell Victory Capital Management and Victory Capital Advisors

  • Victory results moved to discontinued operations for all periods presented
  • Sale expected to close during the third quarter of 2013
  • Estimated after-tax gain to be in the range of $145-$155 million

Continued progress on efficiency initiative

  • Cash efficiency ratio improved to 66.0%
  • Noninterest expense of $15 million, or $.01 per share associated with efficiency initiative during the first quarter of 2013
  • Run rate savings of approximately $105 million annualized

Executing on capital management priorities

  • Key's capital plan received no objection from the Federal Reserve
  • Board authorized a common share repurchase program of up to $426 million
  • Board will consider an increase to the quarterly common share dividend to $.055 per share at May meeting
  • Key seeking no objection from the Federal Reserve to use the gain realized from the sale of Victory to repurchase common shares

"Our first quarter results highlight the strength of our business model and the progress we are making to ensure that Key is well-positioned for future growth," said Chairman and Chief Executive Officer Beth E. Mooney.  "We continued to experience growth in average loans; however, our customers remained cautious regarding the overall strength of the economy and were somewhat restrained in their borrowing during the quarter following a very strong fourth quarter.  Credit quality improved once again and we showed good progress controlling our expenses and improving our cash efficiency ratio to 66% during the quarter."

"Through the first quarter, we have realized $105 million in annualized expense savings, significant progress toward our $200 million goal by the end of 2013," continued Mooney.  "During the second quarter we expect to make further progress on our efficiency efforts as we consolidate branch locations and continue to work toward creating a variable cost base."

Mooney added:  "Capital management also remains a priority for Key.  In the first quarter, we repurchased 6.8 million shares and over the next four quarters, we expect to return a significant amount of our net income to shareholders through our planned capital actions we announced last month at the conclusion of the CCAR review.  Our plan included a share repurchase program of up to $426 million, which the Board approved last month, and an opportunity to increase the quarterly common share dividend by 10% to $.055 per share, which the Board will evaluate at their May meeting."

FIRST QUARTER 2013 FINANCIAL RESULTS

  • Net interest income of $583 million, up $30 million from one year ago
  • Net interest margin of 3.24%, up eight (8) basis points from the first quarter of 2012
  • Continued average loan growth driven by 16.4% increase in commercial, financial and agricultural loans from one year ago
  • Average deposits increased 6.7% from the first quarter of 2012
  • Noninterest expense included $15 million associated with the efficiency initiative
  • Cash efficiency ratio improved to 66.0%, down from 67.7% one year ago
  • Net loan charge-offs decreased 51% from the first quarter of 2012 to .38% of average total loans
  • Maintained solid balance sheet with Tier 1 common equity of 11.39%

 

Selected Financial Highlights

dollars in millions, except per share data

Change 1Q13 vs.

1Q13

4Q12

1Q12

4Q12

1Q12

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

$

196

$

190

$

195

3.2

%

.5

%

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

common share ? assuming dilution

.21

.20

.20

5.0

5.0

Return on average total assets from continuing operations

.99

%

.96

%

1.01

%

N/A

N/A

Tier 1 common equity

11.39

11.36

11.55

N/A

N/A

Book value at period end

$

10.89

$

10.78

$

10.26

1.0

%

6.1

%

Net interest margin (TE) from continuing operations

3.24

%

3.37

%

3.16

%

N/A

N/A

TE = Taxable Equivalent, N/A = Not Applicable

INCOME STATEMENT HIGHLIGHTS

Revenue

dollars in millions

Change 1Q13 vs.

1Q13

4Q12

1Q12

4Q12

1Q12

Net interest income (TE)

$

589

$

607

$

559

(3.0)

%

5.4

%

Noninterest income

425

439

442

(3.2)

(3.8)

Total revenue

$

1,014

$

1,046

$

1,001

(3.1)

%

1.3

%

TE = Taxable Equivalent

Taxable-equivalent net interest income was $589 million for the first quarter of 2013, and the net interest margin was 3.24%.  These results compare to taxable-equivalent net interest income of $559 million and a net interest margin of 3.16% for the first quarter of 2012.  The increase in net interest income and the net interest margin was primarily a result of a change in funding mix from the redemption of certain trust preferred securities, maturity of long-term debt, and maturity of higher-costing certificates of deposit during 2012.

Compared to the fourth quarter of 2012, taxable-equivalent net interest income decreased by $18 million, and the net interest margin declined by 13 basis points.  The decrease in net interest income was primarily due to a lower day count and a decline in the net interest margin, which was partially offset by an increase in average earning asset balances.  The decline in the net interest margin was largely attributable to lower yields on loans and investment securities and an increase in short-term investments.

Noninterest Income (a)

dollars in millions

Change 1Q13 vs.

1Q13

4Q12

1Q12

4Q12

1Q12

Trust and investment services income

$

95

$

95

$

96

-

(1.0)

%

Investment banking and debt placement fees

79

110

61

(28.2)

%

29.5

Service charges on deposit accounts

69

75

68

(8.0)

1.5

Operating lease income and other leasing gains

23

19

52

21.1

(55.8)

Corporate services income

45

41

44

9.8

2.3

Cards and payments income

37

38

29

(2.6)

27.6

Corporate-owned life insurance income

30

36

30

(16.7)

?

Consumer mortgage income

7

11

9

(36.4)

(22.2)

Net gains (losses) from principal investing

8

2

35

300.0

(77.1)

Other income

32

12

18

166.7

77.8

Total noninterest income

$

425

$

439

$

442

(3.2)

%

(3.8)

%

(a) The noninterest income line items in the table above have been changed for the current quarter and all prior quarters to reflect Key's current business mix.

Key's noninterest income was $425 million for the first quarter of 2013, compared to $442 million for the year-ago quarter.  Operating lease income and other leasing gains decreased $29 million primarily due to a $20 million gain on the early termination of a leveraged lease one year ago, and net gains (losses) from principal investing decreased by $27 million.  These decreases were partially offset by an $18 million increase in investment banking and debt placement fees and a $14 million increase in other income.

Compared to the fourth quarter of 2012, noninterest income decreased by $14 million.  Investment banking and debt placement fees declined $31 million.  Service charges on deposit accounts and corporate-owned life insurance income each decreased $6 million.  These declines in noninterest income were partially offset by a $6 million increase in net gains (losses) from principal investing and a $20 million increase in other income.

 

Noninterest Expense

dollars in millions

Change 1Q13 vs.

1Q13

4Q12

1Q12

4Q12

1Q12

Personnel expense

$

391

$

422

$

372

(7.3)

%

5.1

%

Nonpersonnel expense

290

312

307

(7.1)

(5.5)

Total noninterest expense

$

681

$

734

$

679

(7.2)

%

.3

%

N/M = Not Meaningful

Key's noninterest expense was $681 million for the first quarter of 2013, compared to $679 million for the same period last year.  Personnel expense increased $19 million due to several factors ? an increase in technology contract labor; higher incentive compensation expense accruals; and severance expense associated with Key's efficiency initiative.  Nonpersonnel expense decreased $17 million from one year ago.  Marketing expense, operating lease expense and various other miscellaneous expenses decreased from the year ago quarter.  These declines were partially offset by an increase of $11 million related to the amortization of the intangible assets associated with the third quarter 2012 acquisitions of the previously announced credit card portfolio as well as the branches in Western New York.

Compared to the fourth quarter of 2012, noninterest expense decreased by $53 million.  Personnel expense declined $31 million as salaries, technology contract labor, incentive compensation, employee benefits, stock-based compensation and severance expenses were all down from the fourth quarter of 2012.  Nonpersonnel expense decreased $22 million from the fourth quarter of 2012.  Business services and professional fees declined $19 million, and marketing expense decreased $14 million. These decreases were partially offset by an increase in the provision (credit) for losses on lending-related commitments, which was an expense of $3 million for the current quarter compared to a credit of $14 million for the prior quarter.

BALANCE SHEET HIGHLIGHTS

As of March 31, 2013 and December 31, 2012, Key had total assets of $89.2 billion compared to $87.4 billion at March 31, 2012.

Average Loans

dollars in millions

Change 3-31-13 vs.

3-31-13

12-31-12

3-31-12

12-31-12

3-31-12

Commercial, financial and agricultural (a)

$

23,317

$

22,436

$

20,031

3.9

%

16.4

%

Other commercial loans

13,493 

13,494

14,730

N/M

(8.4)

Total home equity loans

10,200 

10,218

9,694

(.2)

5.2

Other consumer loans

5,616 

5,711

4,975

(1.7)

12.9

Total loans

$

52,626

$

51,859

$

49,430

1.5

%

6.5

%

(a) Commercial, financial and agricultural average balance for the three months ended March 31, 2013 and December 31, 2012 includes $91 million and $90 million of assets from commercial credit cards, respectively.

Average loans were $52.6 billion for the first quarter of 2013, an increase of $3.2 billion compared to the first quarter of 2012.  Commercial, financial and agricultural loans grew by $3.3 billion over the year-ago quarter, with strong growth across Key's corporate and middle market segments.  In addition, the third quarter 2012 credit card portfolio and Western New York branch acquisitions added $1 billion of mostly consumer loans.  This growth was partially offset by managed declines in the commercial real estate portfolio, the equipment lease portfolio, which included the early termination of certain leveraged leases in the exit portfolio in 2012, and run-off of consumer loans in the designated exit portfolio. 

Compared to the fourth quarter of 2012, average loans increased by $767 million.  This average loan growth was attributable to an increase in commercial, financial and agricultural loans, partially offset by a decrease in home equity and other consumer loans.

Key originated approximately $8.5 billion in new or renewed lending commitments to consumers and businesses during the first quarter of 2013, compared to $10.2 billion during the fourth quarter of 2012 and $8.3 billion during the first quarter of 2012.

Average Deposits

dollars in millions

Change 3-31-13 vs.

3-31-13

12-31-12

3-31-12

12-31-12

3-31-12

Non-time deposits

$

56,273

$

56,229

$

49,560

.1

%

13.5

%

Certificates of deposits ($100,000 or more)

2,911

2,992

4,036

(2.7)

(27.9)

Other time deposits

4,451

4,714

6,035

(5.6)

(26.2)

Total deposits

$

63,635

$

63,935

$

59,631

(.5)

%

6.7

%

Cost of interest-bearing deposits

.43

%

.47

%

.76

%

N/A

N/A

N/A = Not Applicable

Average deposits totaled $63.6 billion for the first quarter of 2013, an increase of $4 billion compared to the year-ago quarter.  The growth reflects an increase in demand deposits of $2.9 billion and interest-bearing non-time deposits of $4.1 billion (including the impact of Key's third quarter 2012 Western New York branch acquisition, which added $2 billion of mostly interest-bearing non-time deposits).  This deposit growth was partially offset by $3 billion of run-off from one year ago in certificates of deposit and other time deposits.

Compared to the fourth quarter of 2012, average deposits decreased by $300 million.  This decline was primarily due to a decrease in deposits in foreign office.

ASSET QUALITY

dollars in millions

Change 1Q13 vs.

1Q13

4Q12

1Q12

4Q12

1Q12

Net loan charge-offs

$

49

$

58

$

101

(15.5)

%

(51.5)

%

Net loan charge-offs to average total loans

.38 

%

.44

%

.82

%

N/A

N/A

Nonperforming loans at period end (a)

$

650

$

674

$

666

(3.6)

(2.4)

Nonperforming assets at period end

705 

735

767

(4.1)

(8.1)

Allowance for loan and lease losses

893 

888

944

.6

(5.4)

Allowance for loan and lease losses to nonperforming loans

137 

%

132

%

142

%

N/A

N/A

Provision (credit) for loan and lease losses

$

55

$

57

$

42

(3.5)

%

31.0

%

(a)  March 31, 2013 and December 31, 2012 amounts exclude $22 million and $23 million, respectively, of purchased credit impaired loans acquired in July 2012.

N/A = Not Applicable, N/M = Not Meaningful

Key's provision for loan and lease losses was $55 million for the first quarter of 2013, compared to $57 million for the fourth quarter of 2012 and $42 million for the year-ago quarter.  Key's allowance for loan and lease losses was $893 million, or 1.70% of total period-end loans at March 31, 2013, compared to 1.68% at December 31, 2012, and 1.92% at March 31, 2012.

Net loan charge-offs for the first quarter of 2013 totaled $49 million, or .38% of average total loans.  These results compare to $58 million, or .44% for the fourth quarter of 2012, and $101 million, or .82% for the same period last year. 

At March 31, 2013, Key's nonperforming loans totaled $650 million and represented 1.24% of period-end portfolio loans, compared to 1.28% at December 31, 2012 and 1.35% at March 31, 2012.  Nonperforming loans at December 31, 2012 included $46 million of loans related to the regulatory guidance issued in the second and third quarters of 2012.  Nonperforming assets at March 31, 2013, totaled $705 million and represented 1.34% of period-end portfolio loans and OREO and other nonperforming assets, compared to 1.39% at December 31, 2012, and 1.55% at March 31, 2012.  OREO balances declined $40 million from one year ago to $21 million at March 31, 2013.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2013.

Capital Ratios

3-31-13

12-31-12

3-31-12

Tier 1 common equity (a), (b)

11.39 

%

11.36

%

11.55

%

Tier 1 risk-based capital (a)

12.18 

12.15

13.29

Total risk based capital (a)

15.01 

15.13

16.68

Tangible common equity to tangible assets (b)

10.24 

10.15

10.26

(a)      3-31-13 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 "Tier 1 common equity."  The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.

As shown in the preceding table, at March 31, 2013, Key's estimated Tier 1 common equity and Tier 1 risk-based capital ratios stood at 11.39% and 12.18%, respectively.  In addition, the tangible common equity ratio was 10.24% at March 31, 2013.

Summary of Changes in Common Shares Outstanding

in thousands

Change 1Q13 vs.

1Q13

4Q12

1Q12

4Q12

1Q12

Shares outstanding at beginning of period

925,769

936,195

953,008

(1.1)

%

(2.9)

%

Common shares repurchased

(6,790)

(10,530)

?

N/M

N/M

Shares reissued (returned) under employee benefit plans

3,602

104

3,094

N/M

16.4

Shares outstanding at end of period

922,581

925,769

956,102

(.3)

%

(3.5)

%

N/M = Not Meaningful

During the first quarter of 2013, Key completed $65 million of Common Share repurchases on the open market under Key's share repurchase program.  Key's authority to repurchase Common Shares under the 2012 capital plan expired on March 31, 2013.

Key's Board of Directors has authorized management, pursuant to the 2013 capital plan submitted to the Federal Reserve and not objected to by the Federal Reserve, to repurchase up to $426 million of Key's Common Shares.  Common Share repurchases under the new 2013 capital plan authorization are expected to be executed from the second quarter of 2013 through the first quarter of 2014.  

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 1Q13 vs.

1Q13

4Q12

1Q12

4Q12

1Q12

Revenue from continuing operations (TE)

Key Community Bank

$

549

$

580

$

532

(5.3)

%

3.2

%

Key Corporate Bank

379

403

378

(6.0)

.3

Other segments

83

69

94

20.3

(11.7)

Total segments

1,011

1,052

1,004

(3.9)

.7

Reconciling items

3

(6)

(3)

N/M

N/M

Total

$

1,014

$

1,046

$

1,001

(3.1)

%

1.3

%

Income (loss) from continuing operations attributable to Key

Key Community Bank

$

31

$

33

$

58

(6.1)

%

(46.6)

%

Key Corporate Bank

105

116

91

(9.5)

15.4

Other segments

68

52

50

30.8

36.0

Total segments

204

201

199

1.5

2.5

%

Reconciling items

(3)

(5)

2

N/M

N/M

Total

$

201

$

196

$

201

2.6

%

?

TE = Taxable equivalent, N/M = Not Meaningful

 

Key Community Bank

dollars in millions

Change 1Q13 vs.

1Q13

4Q12

1Q12

4Q12

1Q12

Summary of operations

Net interest income (TE)

$

361

$

383

$

357

(5.7)

%

1.1

%

Noninterest income

188

197

175

(4.6)

7.4

Total revenue (TE)

549

580

532

(5.3)

3.2

Provision (credit) for loan and lease losses

59

26

4

126.9

N/M

Noninterest expense

440

502

436

(12.4)

.9

Income (loss) before income taxes (TE)

50

52

92

(3.8)

(45.7)

Allocated income taxes (benefit) and TE adjustments

19

19

34

?

(44.1)

Net income (loss) attributable to Key

$

31

$

33

$

58

(6.1)

%

(46.6)

%

Average balances

Loans and leases

$

28,982

$

28,633

$

25,981

1.2

%

11.6

%

Total assets

31,478

31,229

28,223

.8

11.5

Deposits

49,359

49,848

47,506

(1.0)

3.9

Assets under management at period end

$

23,867

$

22,334

$

21,940

6.9

%

8.8

%

TE = Taxable Equivalent, N/M = Not Meaningful

 

 

Additional Key Community Bank Data

dollars in millions

Change 1Q13 vs.

1Q13

4Q12

1Q12

4Q12

1Q12

Noninterest income

Trust and investment services income

$

65

$

65

$

60

?

8.3

%

Service charges on deposit accounts

58

61

56

(4.9)

%

3.6

Cards and payments income

33

34

25

(2.9)

32.0

Other noninterest income

32

37

34

(13.5)

(5.9)

Total noninterest income

$

188

$

197

$

175

(4.6)

%

7.4

%

Average deposit balances

NOW and money market deposit accounts

$

26,110

$

25,698

$

23,067

1.6

%

13.2

%

Savings deposits

2,463

2,399

1,988

2.7

23.9

Certificates of deposit ($100,000 or more)

2,498

2,619

3,441

(4.6)

(27.4)

Other time deposits

4,445

4,702

6,022

(5.5)

(26.2)

Deposits in foreign office

270

287

313

(5.9)

(13.7)

Noninterest-bearing deposits

13,573

14,143

12,675

(4.0)

7.1

Total deposits

$

49,359

$

49,848

$

47,506

(1.0)

%

3.9

%

Home equity loans

Average balance

$

9,787

$

9,807

$

9,173

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

70

%

70

%

70

%

Percent first lien positions

55

55

53

Other data

Branches

1,084

1,088

1,059

Automated teller machines

1,482

1,611

1,572

 

Key Community Bank Summary of Operations

  • Seven consecutive quarters of average loan growth
  • Core deposits up $4.4 billion, or 11.7% from the prior year

Key Community Bank recorded net income attributable to Key of $31 million for the first quarter of 2013, compared to $58 million for the year-ago quarter.

Taxable-equivalent net interest income increased by $4 million, or 1.1% from the first quarter of 2012.  Average loans and leases grew 11.6% while average deposits increased 3.9% from one year ago.  The Western New York branch and credit card portfolio acquisitions contributed $31 million to net interest income, $1 billion to average loans and leases, and $2 billion to deposits.  The positive contribution to net interest income from the acquisitions was partially offset by a lower earnings credit applied to deposits in the current period compared to the same period one year ago as a result of the continued low-rate environment.

Noninterest income increased by $13 million, or 7.4% from the year-ago quarter.  Cards and payments income increased $8 million as a result of the third quarter 2012 credit card portfolio acquisition.  Trust and investment services income increased $5 million, primarily due to an increase in assets under management resulting from strong market performance and increased production.

The provision for loan and lease losses increased by $55 million compared to the first quarter of 2012.  Net loan charge-offs, including the 2012 credit card acquisition, of $47 million were flat compared to the same period one year ago.

Noninterest expense increased by $4 million, or .9% from the year-ago quarter.  Expense reductions resulting from Key's efficiency initiative substantially offset the increase in expenses associated with Key's third quarter 2012 Western New York branch and credit card portfolio acquisitions.

 

Key Corporate Bank

dollars in millions

Change 1Q13 vs.

1Q13

4Q12

1Q12

4Q12

1Q12

Summary of operations

Net interest income (TE)

$

187

$

195

$

196

(4.1)

%

(4.6)

%

Noninterest income

192

208

182

(7.7)

5.5

Total revenue (TE)

379

403

378

(6.0)

.3

Provision (credit) for loan and lease losses

4

11

13

(63.6)

(69.2)

Noninterest expense

209

207

222

1.0

(5.9)

Income (loss) before income taxes (TE)

166

185

143

(10.3)

16.1

Allocated income taxes and TE adjustments

61

69

52

(11.6)

17.3

Net income (loss) attributable to Key

$

105

$

116

$

91

(9.5)

%

15.4

%

Average balances

Loans and leases 

$

20,039

$

19,477

$

18,584

2.9

%

7.8

%

Loans held for sale 

409

538

509

(24.0)

(19.6)

Total assets

23,860

23,446

22,847

1.8

4.4

Deposits

13,957

13,672

11,556

2.1

20.8

Assets under management at period end

$

11,847

$

12,410

$

13,922

(4.5)

%

(14.9)

%

TE = Taxable Equivalent, N/M = Not Meaningful

 

Additional Key Corporate Bank Data

dollars in millions

Change 1Q13 vs.

1Q13

4Q12

1Q12

4Q12

1Q12

Noninterest income

Trust and investment services income

$

31

$

30

$

36

3.3

%

(13.9)

%

Investment banking and debt placement fees

78

109

59

(28.4)

32.2

Operating lease income and other leasing gains

17

18

24

(5.6)

(29.2)

Corporate services income

30

31

33

(3.2)

(9.1)

Other noninterest income

36

20

30

80.0

20.0

Total noninterest income

$

192

$

208

$

182

(7.7)

%

5.5

%

N/M = Not Meaningful

Key Corporate Bank Summary of Operations

  • Investment banking and debt placement fees were up $19 million, or 32.2% from the prior year
  • Average loan balances up 7.8% from the prior year
  • Average deposits up 20.8% from the prior year

Key Corporate Bank recorded net income attributable to Key of $105 million for the first quarter of 2013, compared to $91 million for the same period one year ago. 

Taxable-equivalent net interest income decreased by $9 million, or 4.6% compared to the first quarter of 2012.  Average earning assets increased $1.2 billion, or 5.7% from the year-ago quarter.  The benefit from the increase in average earning assets was offset by a decrease in earning asset spread driven by a change in the mix of new business volume and the run-off of higher yielding loans.   Average deposit balances increased $2.4 billion, or 20.8% from the year-ago quarter; however, the deposit spread decreased as a result of the continued low-rate environment.    

Noninterest income increased by $10 million, or 5.5 % from the first quarter of 2012.  Investment banking and debt placement fees increased $19 million, partially offset by a $7 million decrease in operating lease income and other leasing gains compared to the year-ago quarter. 

The provision for loan and lease losses decreased by $9 million compared to the first quarter of 2012.  There was a net loan recovery of $1 million for the first quarter of 2013 compared to net loan charge-offs of $25 million for the same period one year ago.

Noninterest expense decreased by $13 million, or 5.9% from the first quarter of 2012.  This decline was driven by a reduction in other operating expenses compared to the first quarter of 2012. 

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 $68 million for the first quarter of 2013, compared to net income attributable to Key of $50 million for the same period last year.  These results were primarily attributable to an increase in net interest income of $36 million and a decrease in the provision for loan and lease losses of $32 million.  These improvements were partially offset by a decline in noninterest income of $48 million primarily due to decreases in operating lease income and other leasing gains of $22 million and net gains (losses) from principal investing of $27 million.

*****

KeyCorp was organized more than 160 years ago and is headquartered in Cleveland, Ohio.  One of the nation's largest bank-based financial services companies, Key had assets of approximately $89.2 billion at March 31, 2013.

Key provides deposit, lending, cash management and investment services to individuals and small and mid-sized businesses in 14 states under the name KeyBank National Association.  Key also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets trade name.  For more information, visit https://www.key.com/.  KeyBank is Member FDIC.

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about Key's financial condition, results of operations, and profitability.  Forward-looking statements can be identified by words such as "expect," "believe," and "anticipate," and other similar references to future periods.  Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which, by their nature, are inherently uncertain and outside of Key's control.  Key's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements.  Factors that could cause Key's actual results to differ materially from those described in the forward-looking statements can be found in KeyCorp's Form 10-K for the year ended December 31, 2012, which has been filed with the Securities and Exchange Commission and is available on Key's website (www.key.com/ir) and on the Securities and Exchange Commission's website (www.sec.gov).  These factors may include, among others: continued strain on the global financial markets as a result of economic slowdowns and concerns; current regulatory initiatives in the U.S., including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended, subjecting us to a variety of new and more stringent legal and regulatory requirements and increased scrutiny from our regulators; adverse behaviors in securities, public debt, and capital markets, including changes in market liquidity and volatility; and our ability to timely and effectively implement our strategic initiatives.  Forward-looking statements are not guarantees of future performance and should not be relied upon as representing management's views as of any subsequent date.  Key does not undertake any obligation to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.

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, April 18, 2013.  An audio replay of the call will be available through April 25, 2013.

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.

*****

 

 

Financial Highlights

(dollars in millions, except per share amounts)

Three months ended

3-31-13

12-31-12

3-31-12

Summary of operations

Net interest income (TE)

$

589

$

607

$

559

Noninterest income

425 

439

442

Total revenue (TE)

1,014 

1,046

1,001

Provision (credit) for loan and lease losses

55 

57

42

Noninterest expense

681 

734

679

Income (loss) from continuing operations attributable to Key

201 

196

201

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

7

(1)

Net income (loss) attributable to Key 

204 

203

200

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

$

196

$

190

$

195

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

7

(1)

Net income (loss) attributable to Key common shareholders

199 

197

194

Per common share

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

$

.21

$

.21

$

.21

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

.01

?

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

.22 

.21

.20

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

.21 

.20

.20

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

.01

?

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

.21 

.21

.20

Cash dividends paid

.05 

.05

.03

Book value at period end

 10.89 

10.78

10.26

Tangible book value at period end

 9.78 

9.67

9.28

Market price at period end

 9.96 

8.42

8.50

Performance ratios

From continuing operations:

Return on average total assets

 .99 

%

.96

%

1.01

%

Return on average common equity

 7.96 

7.58

8.08

Return on average tangible common equity (c)

 8.87 

8.45

8.94

Net interest margin (TE)

 3.24 

3.37

3.16

Cash efficiency ratio (c)

 65.98 

69.02

67.73

From consolidated operations:

Return on average total assets

 .94 

%

.93

%

.93

%

Return on average common equity

 8.08 

7.86

8.04

Return on average tangible common equity (c)

 9.01 

8.77

8.90

Net interest margin (TE)

 3.16 

3.29

3.08

Loan to deposit (d)

 86.95 

85.77

86.97

Capital ratios at period end

Key shareholders' equity to assets

 11.59 

%

11.51

%

11.55

%

Tangible Key shareholders' equity to tangible assets

 10.57 

11.18

11.22

Tangible common equity to tangible assets (c)

 10.24 

10.15

10.26

Tier 1 common equity (c), (e)

 11.39 

11.36

11.55

Tier 1 risk-based capital (e)

 12.18 

12.15

13.29

Total risk-based capital (e)

 15.01 

15.13

16.68

Leverage (e)

 11.31 

11.41

12.12

 

Financial Highlights (continued)

(dollars in millions)

Three months ended

3-31-13

12-31-12

3-31-12

Asset quality ? from continuing operations

Net loan charge-offs

$

49

$

58

$

101

Net loan charge-offs to average total loans

.38 

%

.44

%

.82

%

Allowance for loan and lease losses to annualized net loan charge-offs

449.37 

384.85

232.39

Allowance for loan and lease losses

$

893

$

888

$

944

Allowance for credit losses

925 

917

989

Allowance for loan and lease losses to period-end loans

1.70 

%

1.68

%

1.92

%

Allowance for credit losses to period-end loans

1.76 

1.74

2.01

Allowance for loan and lease losses to nonperforming loans

137.38 

131.75

141.74

Allowance for credit losses to nonperforming loans

142.31 

136.05

148.50

Nonperforming loans at period end (f)

$

650

$

674

$

666

Nonperforming assets at period end

705 

735

767

Nonperforming loans to period-end portfolio loans

1.24 

%

1.28

%

1.35

%

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

1.34 

1.39

1.55

Trust and brokerage assets ? from continuing operations

Assets under management

$

35,714

$

34,744

$

35,862

Nonmanaged and brokerage assets

 26,272 

25,197

33,021

Other data

Average full-time equivalent employees

 15,396 

15,589

15,404

Branches

 1,084 

1,088

1,059

Taxable-equivalent adjustment

$

6

$

6

$

6

(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 announced that it has agreed 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,"  "Tier 1 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.

(d) Represents period-end consolidated total loans and loans held for sale (excluding education loans in the securitization trusts) divided by period-end consolidated total deposits (excluding deposits in foreign office).

(e) 3-31-13 ratio is estimated.

(f) March 31, 2013 and December 31, 2012 amounts exclude $22 million and $23 million, respectively, of purchased credit impaired loans acquired in July 2012.

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

 

GAAP to Non-GAAP Reconciliations(dollars in millions)

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

The tangible common equity ratio and the return on 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.  Since the commencement of the Comprehensive Capital Analysis and Review process in early 2009, the Federal Reserve has focused its assessment of capital adequacy on a component of Tier 1 risk-based capital known as Tier 1 common equity, a non-GAAP financial measure.  Because the Federal Reserve has long indicated that voting common shareholders' equity (essentially Tier 1 risk-based capital less preferred stock, qualifying capital securities and noncontrolling interests in subsidiaries) generally should be the dominant element in Tier 1 risk-based capital, this focus on Tier 1 common equity is consistent with existing capital adequacy categories. 

Tier 1 common equity is neither formally defined by GAAP nor prescribed in amount by federal banking regulations; this measure 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 Tier 1 common equity, 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 loan and lease losses makes it easier to analyze the results by presenting them on a more comparable basis.

Cash efficiency ratio is a ratio of two non-GAAP performance measures. As such, there is no directly comparable GAAP performance measure.  The cash efficiency ratio performance measure removes the impact of Key's intangible asset amortization from the calculation.  Management believes this ratio provides greater consistency and comparability between Key's results and those of its peer banks.  Additionally, this ratio is used by analysts and investors to assist in the development of their earnings forecasts and peer bank analysis.

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

 

Three months ended

3-31-13

12-31-12

3-31-12

Tangible common equity to tangible assets at period end

Key shareholders' equity (GAAP)

$

10,340

$

10,271

$

10,099

Less:

Intangible assets  (a)

1,024 

1,027

932

Preferred Stock, Series A

291 

291

291

Tangible common equity (non-GAAP) 

$

9,025

$

8,953

$

8,876

Total assets (GAAP)

$

89,198

$

89,236

$

87,431

Less:

Intangible assets  (a)

1,024 

1,027

932

Tangible assets (non-GAAP)

$

88,174

$

88,209

$

86,499

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

10.24 

%

10.15

%

10.26

%

Tier 1 common equity at period end

Key shareholders' equity (GAAP)

$

10,340

$

10,271

$

10,099

Qualifying capital securities

339 

339

1,046

Less:

Goodwill

979 

979

917

Accumulated other comprehensive income (loss) (b)

(204)

(172)

(70)

Other assets (c)

108 

114

69

Total Tier 1 capital (regulatory)

9,796 

9,689

10,229

Less:

Qualifying capital securities

339 

339

1,046

Preferred Stock, Series A

291 

291

291

Total Tier 1 common equity (non-GAAP) 

$

9,166

$

9,059

$

8,892

Net risk-weighted assets (regulatory) (c), (d)

$

80,446

$

79,734

$

76,956

Tier 1 common equity ratio (non-GAAP) (d)

11.39 

%

11.36

%

11.55

%

Pre-provision net revenue

Net interest income (GAAP)

$

583

$

601

$

553

Plus:

Taxable-equivalent adjustment

6

6

Noninterest income

425 

439

442

Less:

Noninterest expense

681 

734

679

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

$

333

$

312

$

322

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)

Three months ended

3-31-13

12-31-12

3-31-12

Average tangible common equity

Average Key shareholders' equity (GAAP)

$

10,279

$

10,261

$

9,992

Less:

Intangible assets (average) (a)

1,027 

1,030

932

Preferred Stock, Series A (average)

291 

291

291

Average tangible common equity (non-GAAP)

$

8,961

$

8,940

$

8,769

Return on average tangible common equity from continuing operations

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

$

196

$

190

$

195

Average tangible common equity (non-GAAP)

8,961 

8,940

8,769

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

8.87 

%

8.45

%

8.94

%

Return on average tangible common equity consolidated

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

$

199

$

197

$

194

Average tangible common equity (non-GAAP)

8,961 

8,940

8,769

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

9.01 

%

8.77

%

8.90

%

Cash efficiency ratio

Noninterest expense (GAAP)

$

681

$

734

$

679

Less:

Intangible asset amortization on credit cards

8

?

Other intangible asset amortization

4

1

Adjusted noninterest expense (non-GAAP)

$

669

$

722

$

678

Net interest income (GAAP)

$

583

$

601

$

553

Plus:

Taxable-equivalent adjustment

6

6

Noninterest income (GAAP)

425 

439

442

Total taxable-equivalent revenue (non-GAAP)

$

1,014

$

1,046

$

1,001

Cash efficiency ratio (non-GAAP)

65.98 

%

69.02

%

67.73

%

Three months ended

3-31-13

12-31-12

Tier 1 common equity under Basel III (estimates)

Tier 1 common equity under current regulatory rules

$

9,166

$

9,059

Adjustments from current regulatory rules to Basel III:

Cumulative other comprehensive income (e)

(219)

(197)

Deferred tax assets and other (f)

(94)

(80)

Tier 1 common equity anticipated under Basel III

$

8,853

$

8,782

Net risk-weighted assets under current regulatory rules

$

80,446

$

79,734

Adjustments from current regulatory rules to Basel III:

Loan commitments less than one year

813 

951

Residential mortgage and home equity loans

3,144 

1,855

Other

1,695 

2,080

Total risk-weighted assets under Basel III (g)

$

86,098

$

84,620

Tier 1 common equity ratio under Basel III

10.28 

%

10.38

%

(a) Three months ended March 31, 2013 and December 31, 2012 exclude $114 million and $123 million, respectively, of period end purchased credit card receivable intangible assets.  Three months ended March 31, 2013 and December 31, 2012 exclude $118 million and $126 million, respectively, of average ending purchased credit card receivable intangible assets.

(b) Includes net unrealized gains or losses on securities available for sale (except for net unrealized losses on marketable equity securities), net gains or losses on cash flow hedges, and amounts resulting from the application of the applicable accounting guidance for defined benefit and other postretirement plans.  

(c) Other assets deducted from Tier 1 capital and net risk-weighted assets consist of disallowed intangible assets (excluding goodwill) and deductible portions of nonfinancial equity investments.  There were no disallowed deferred tax assets at March 31, 2013, December 31, 2012, and March 31, 2012.

(d) 3-31-13 amount is estimated.

(e) Includes AFS mark-to-market, cash flow hedges on items recognized at fair value on the balance sheet, and defined benefit pension liability.

(f) Deferred tax asset subject to future taxable income for realization, primarily tax credit carryforwards, and the deductible portion of mortgage servicing assets.

(g) The amount of regulatory capital and risk-weighted assets estimated under Basel III (as fully phased-in on January 1, 2019) is based upon the federal banking agencies' notice of proposed rulemaking, which implement Basel III and the Standardized Approach.

GAAP = U.S. generally accepted accounting principles

 

 

Consolidated Balance Sheets

(dollars in millions)

3-31-13

12-31-12

3-31-12

Assets

Loans

$

52,574

$

52,822

$

49,226

Loans held for sale

434

599

511

Securities available for sale

13,496

12,094

14,633

Held-to-maturity securities

3,721

3,931

3,019

Trading account assets

701

605

614

Short-term investments

3,081

3,940

3,605

Other investments

1,059

1,064

1,188

Total earning assets

75,066

75,055

72,796

Allowance for loan and lease losses

(893)

(888)

(944)

Cash and due from banks

621

584

415

Premises and equipment

930

965

937

Operating lease assets

309

288

335

Goodwill

979

979

917

Other intangible assets

159

171

15

Corporate-owned life insurance

3,352

3,333

3,270

Derivative assets

609

693

830

Accrued income and other assets

2,884

2,774

3,070

Discontinued assets

5,182

5,282

5,790

Total assets

$

89,198

$

89,236

$

87,431

Liabilities

Deposits in domestic offices:

NOW and money market deposit accounts

$

32,700

$

32,380

$

29,124

Savings deposits

2,546

2,433

2,075

Certificates of deposit ($100,000 or more)

2,998

2,879

3,984

Other time deposits

4,324

4,575

5,848

     Total interest-bearing deposits

42,568

42,267

41,031

Noninterest-bearing deposits

21,564

23,319

19,606

Deposits in foreign office ? interest-bearing

522

407

857

     Total deposits

64,654

65,993

61,494

Federal funds purchased and securities

       sold under repurchase agreements

1,950

1,609

1,846

Bank notes and other short-term borrowings

378

287

324

Derivative liabilities

524

584

754

Accrued expense and other liabilities

1,352

1,387

1,424

Long-term debt

7,785

6,847

8,898

Discontinued liabilities

2,176

2,220

2,575

Total liabilities

78,819

78,927

77,315

Equity

Preferred stock, Series A

291

291

291

Common shares

1,017

1,017

1,017

Capital surplus

4,059

4,126

4,116

Retained earnings

7,065

6,913

6,411

Treasury stock, at cost

(1,930)

(1,952)

(1,717)

Accumulated other comprehensive income (loss)

(162)

(124)

(19)

Key shareholders' equity

10,340

10,271

10,099

Noncontrolling interests

39

38

17

Total equity

10,379

10,309

10,116

Total liabilities and equity

$

89,198

$

89,236

$

87,431

Common shares outstanding (000)

922,581

925,769

956,102

 

Consolidated Statements of Income 

(dollars in millions, except per share amounts)

Three months ended

3-31-13

12-31-12

3-31-12

Interest income

Loans

$

548

$

563

$

536

Loans held for sale

5

5

Securities available for sale

80 

85

116

Held-to-maturity securities

18 

19

12

Trading account assets

3

6

Short-term investments

2

1

Other investments

11

8

Total interest income

667 

688

684

Interest expense

Deposits

45 

49

77

Federal funds purchased and securities sold under repurchase agreements

1

1

Bank notes and other short-term borrowings

2

2

Long-term debt

37 

35

51

Total interest expense

84 

87

131

Net interest income

583 

601

553

Provision (credit) for loan and lease losses

55 

57

42

Net interest income (expense) after provision for loan and lease losses

528 

544

511

Noninterest income (a)

Trust and investment services income

95 

95

96

Investment banking and debt placement fees

79 

110

61

Service charges on deposit accounts

69 

75

68

Operating lease income and other leasing gains

23 

19

52

Corporate services income

45 

41

44

Cards and payments income

37 

38

29

Corporate-owned life insurance income

30 

36

30

Consumer mortgage income

11

9

Net gains (losses) from principal investing

2

35

Other income (b)

32 

12

18

Total noninterest income

425 

439

442

Noninterest expense

Personnel

391 

422

372

Net occupancy

64 

69

64

Computer processing

39 

38

41

Business services and professional fees

35 

54

37

Equipment

26 

27

26

Operating lease expense

12 

12

17

Marketing

20

13

FDIC assessment

8

8

Intangible asset amortization on credit cards

8

?

Other intangible asset amortization

4

1

Provision (credit) for losses on lending-related commitments

(14)

?

OREO expense, net

1

6

Other expense

82 

85

94

Total noninterest expense

681 

734

679

Income (loss) from continuing operations before income taxes

272 

249

274

Income taxes

70 

53

73

Income (loss) from continuing operations

202 

196

201

Income (loss) from discontinued operations, net of taxes

7

(1)

Net income (loss)

205 

203

200

Less:  Net income (loss) attributable to noncontrolling interests 

?

?

Net income (loss) attributable to Key

$

204

$

203

$

200

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

$

196

$

190

$

195

Net income (loss) attributable to Key common shareholders 

199 

197

194

Per common share

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

$

.21

$

.21

$

.21

Income (loss) from discontinued operations, net of taxes

.01

?

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

.22 

.21

.20

Per common share ? assuming dilution

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

$

.21

$

.20

$

.20

Income (loss) from discontinued operations, net of taxes

.01

?

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

.21 

.21

.20

Cash dividends declared per common share

$

.05

$

.05

$

.03

Weighted-average common shares outstanding (000)

920,316 

925,725

949,342

Weighted-average common shares and potential  common shares outstanding (000) (d)

926,051 

930,382

953,971

(a)

The noninterest income line items have been changed for the current quarter and all prior quarters to reflect Key's current business mix.

(b)

For the three months ended March 31, 2013, December 31, 2012, and March 31, 2012, Key did not have any impairment losses related to securities.

(c)

Earnings per share may not foot due to rounding.

(d)

Assumes conversion of stock options and/or Preferred Series A shares, as applicable.

 

Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations

(dollars in millions)

First Quarter 2013

Fourth Quarter 2012

First Quarter 2012

Average

Average

Average

Balance

Interest

(a)

Yield/Rate

(a)

Balance

Interest

(a)

Yield/Rate

(a)

Balance

Interest

(a)

Yield/Rate

(a)

Assets

Loans: (b), (c)

Commercial, financial and agricultural

$

23,317

(d)

$

218

3.78 

%

$

22,436

(d)

$

213

3.77 

%

$

20,031

$

198

3.99 

%

Real estate ? commercial mortgage

7,616 

79 

4.24 

7,555 

82 

4.35 

7,993 

89

4.48 

Real estate ? construction

1,034 

11 

4.27 

1,070 

14 

4.94 

1,284 

16

4.86 

Commercial lease financing

4,843 

47 

3.92 

4,869 

49 

4.01 

5,453 

54

3.94 

    Total commercial loans

36,810 

355 

3.92 

35,930 

358 

3.96 

34,761 

357

4.12 

Real estate ? residential mortgage

2,173 

25 

4.58 

2,164 

26 

4.70 

1,950 

25

5.04 

Home equity:

Key Community Bank

9,787 

96 

3.97 

9,807 

98 

3.99 

9,173 

93

4.08 

Other

413 

7.70 

411 

8.23 

521 

10

7.68 

    Total home equity loans

10,200 

104 

4.12 

10,218 

107 

4.16 

9,694 

103

4.27 

Consumer other ? Key Community Bank

1,343 

25 

7.58 

1,339 

32 

9.63 

1,193 

28

9.61 

Credit cards

704 

22 

12.61 

714 

23 

13.15 

?

Consumer other:

Marine

1,311 

20 

6.29 

1,403 

22 

6.16 

1,714 

27

6.28 

Other

85 

7.98 

91 

8.25 

118 

2

7.79 

    Total consumer other 

1,396 

22 

6.39 

1,494 

23 

6.29 

1,832 

29

6.38 

    Total consumer loans

15,816 

198 

5.00 

15,929 

211 

5.30 

14,669 

185

5.07 

    Total loans

52,626 

553 

4.26 

51,859 

569 

4.37 

49,430 

542

4.41 

Loans held for sale

469 

3.27 

618 

3.47 

581 

5

3.62 

Securities available for sale (b), (e)

12,065 

81 

2.74 

11,980 

84 

2.95 

15,259 

116

3.15 

Held-to-maturity securities (b)

3,816 

18 

1.94 

4,036 

19 

1.94 

2,251 

12

2.08 

Trading account assets

710 

3.44 

606 

1.91 

808 

6

2.72 

Short-term investments

2,999 

.22 

2,090 

.27 

1,898 

1

.29 

Other investments (e)

1,059 

3.59 

1,088 

12 

4.05 

1,169 

8

2.78 

    Total earning assets

73,744 

673 

3.67 

72,277 

694 

3.85 

71,396 

690

3.91 

Allowance for loan and lease losses

(896)

(898)

(968)

Accrued income and other assets

9,867 

9,878 

9,996 

Discontinued assets

5,216 

5,350 

5,799 

    Total assets

$

87,931

$

86,607

$

86,223

Liabilities

NOW and money market deposit accounts

$

31,946

14 

.18 

$

31,058

14 

.18 

$

28,328

15

.21 

Savings deposits

2,473 

.05 

2,408 

.06 

1,997 

?

.06 

Certificates of deposit ($100,000 or more) (f)

2,911 

14 

1.99 

2,992 

16 

2.15 

4,036 

29

2.91 

Other time deposits

4,451 

16 

1.42 

4,714 

18 

1.52 

6,035 

33

2.19 

Deposits in foreign office

454 

.25 

874 

.21 

769 

?

.25 

    Total interest-bearing deposits

42,235 

45 

.43 

42,046 

49 

.47 

41,165 

77

.76 

Federal funds purchased and securities

        sold under repurchase agreements

1,913 

.15 

1,702 

.16 

1,850 

1

.21 

Bank notes and other short-term borrowings

387 

1.75 

306 

1.97 

490 

2

1.53 

Long-term debt (f), (g)

4,671 

37 

3.51 

3,301 

35 

4.84 

6,161 

51

3.61 

    Total interest-bearing liabilities

49,206 

84 

.70 

47,355 

87 

.73 

49,666 

131

1.07 

Noninterest-bearing deposits

21,400 

21,889 

18,466 

Accrued expense and other liabilities

1,799 

1,747 

2,289 

Discontinued liabilities (g)

5,213 

5,321 

5,793 

    Total liabilities

77,618 

76,312 

76,214 

Equity

Key shareholders' equity

10,279 

10,261 

9,992 

Noncontrolling interests

34 

34 

17 

    Total equity

10,313 

10,295 

10,009 

    Total liabilities and equity

$

87,931

$

86,607

$

86,223

Interest rate spread (TE)

2.97 

%

3.12 

%

2.84 

%

Net interest income (TE) and net interest margin (TE)

589 

3.24 

%

607 

3.37 

%

559

3.16 

%

TE adjustment (b)

Net interest income, GAAP basis

$

583

$

601

$

553

(a) Results are from continuing operations.  Interest excludes the interest associated with the liabilities referred to in (g) below, calculated using a matched funds transfer pricing methodology.

(b) Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%.  

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

(d) Commercial, financial and agricultural average balance for the three months ended March 31, 2013 and December 31, 2012 includes $91 million and $90 million, respectively, of assets from commercial credit cards.

(e) Yield is calculated on the basis of amortized cost.

(f) Rate calculation excludes basis adjustments related to fair value hedges. 

(g) A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying our matched funds transfer pricing methodology to discontinued operations.

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

 

Noninterest Expense

(dollars in millions)

Three months ended

3-31-13

12-31-12

3-31-12

Personnel (a)

$

391

$

422

$

372

Net occupancy

64 

69

64

Computer processing

39 

38

41

Business services and professional fees

35 

54

37

Equipment

26 

27

26

Operating lease expense

12 

12

17

Marketing

20

13

FDIC assessment

8

8

Intangible asset amortization on credit cards

8

?

Other intangible asset amortization

4

1

Provision (credit) for losses on lending-related commitments

(14)

?

OREO expense, net

1

6

Other expense

82 

85

94

     Total noninterest expense

$

681

$

734

$

679

Average full-time equivalent employees (b)

15,396 

15,589

15,404

(a)  Additional detail provided in table below.

(b)  The number of average full-time equivalent employees has not been adjusted for discontinued operations.

Personnel Expense

(in millions)

Three months ended

3-31-13

12-31-12

3-31-12

Salaries

$

222

$

228

$

219

Technology contract labor, net

18 

25

12

Incentive compensation

73 

82

60

Employee benefits

59 

65

64

Stock-based compensation

10 

12

13

Severance

10

4

     Total personnel expense

$

391

$

422

$

372

 

Loan Composition

(dollars in millions)

Percent change 3-31-13 vs.

3-31-13

12-31-12

3-31-12

12-31-12

3-31-12

Commercial, financial and agricultural  (a)

$

23,412

$

23,242

$

20,217

.7

%

15.8

%

Commercial real estate:

Commercial mortgage

7,544 

7,720

7,807 

(2.3)

(3.4)

Construction

1,057 

1,003

1,273 

5.4

(17.0)

     Total commercial real estate loans

8,601 

8,723

9,080 

(1.4)

(5.3)

Commercial lease financing

4,796 

4,915

5,325 

(2.4)

(9.9)

     Total commercial loans

36,809 

36,880

34,622 

(.2)

6.3

Residential ? prime loans:

Real estate ? residential mortgage

2,176 

2,174

1,967 

.1

10.6

Home equity:

Key Community Bank

9,809 

9,816

9,153 

(.1)

7.2

Other

401 

423

507 

(5.2)

(20.9)

Total home equity loans

10,210 

10,239

9,660 

(.3)

5.7

Total residential ? prime loans

12,386 

12,413

11,627 

(.2)

6.5

Consumer other ? Key Community Bank

1,353 

1,349

1,212 

.3

11.6

Credit cards

693 

729

(4.9)

N/M

Consumer other:

Marine

1,254 

1,358

1,654 

(7.7)

(24.2)

Other

79 

93

111 

(15.1)

(28.8)

     Total consumer ? indirect loans

1,333 

1,451

1,765 

(8.1)

(24.5)

     Total consumer loans

15,765 

15,942

14,604 

(1.1)

7.9

Total loans (b), (c)

$

52,574

$

52,822

$

49,226

(.5)

%

6.8

%

Loans Held for Sale Composition

(dollars in millions)

Percent change 3-31-13 vs.

3-31-13

12-31-12

3-31-12

12-31-12

3-31-12

Commercial, financial and agricultural

$

180

$

29

$

28

520.7

%

542.9

%

Real estate ? commercial mortgage

196 

477

362 

(58.9)

(45.9)

Real estate ? construction

?

15 

N/M

N/M

Commercial lease financing

8

30 

12.5

(70.0)

Real estate ? residential mortgage

49 

85

76 

(42.4)

(35.5)

Total loans held for sale

$

434

$

599

$

511

(27.5)

%

(15.1)

%

Summary of Changes in Loans Held for Sale

(dollars in millions)

1Q13

4Q12

3Q12

2Q12

1Q12

Balance at beginning of period

$

599

$

628

$

656

$

511

$

728

New originations

1,075 

1,686

1,280 

1,308

935

Transfers from held to maturity, net

19 

38

13 

7

19

Loan sales

(1,257)

(1,747)

(1,311)

(1,165)

(1,168)

Loan draws (payments), net

(4)

(9)

(4)

(3)

Transfers to OREO / valuation adjustments

(2)

(2)

(1)

(1)

?

Balance at end of period

$

434

$

599

$

628

$

656

$

511

(a) March 31, 2013 and December 31, 2012 loan balances include $93 million and $90 million of commercial credit card balances, respectively.

(b) Excluded at March 31, 2013, December 31, 2012, and March 31, 2011 are loans in the amount of $5.1 billion, $5.2 billion, and $5.7 billion, respectively, related to the discontinued operations of the education lending business.

(c) March 31, 2013 includes purchased loans of $204 million of which $22 million were purchased credit impaired.  December 31, 2012 includes purchased loans of $217 million of which $23 million were purchased credit impaired.

N/M = Not Meaningful

 

Exit Loan Portfolio From Continuing Operations

(dollars in millions)

Balance

Change

Net Loan

Balance on

Outstanding

3-31-13 vs.

Charge-offs

Nonperforming Status

3-31-13

12-31-12

12-31-12

1Q13

 (c)

4Q12

3-31-13

12-31-12

Residential properties ? homebuilder

$

29

$

29

?

?

$

1

$

10

$

10

Marine and RV floor plan

29 

33

$

(4)

$

(3)

6

10

Commercial lease financing (a)

966 

997

(31)

(5)

6

6

     Total commercial loans

1,024 

1,059

(35)

(8)

22

26

Home equity ? Other

401 

423

(22)

4

11 

18

21

Marine

1,254 

1,358

(104)

3

14 

26

34

RV and other consumer

79 

93

(14)

?

?

2

     Total consumer loans

1,734 

1,874

(140)

7

26 

44

57

     Total exit loans in loan portfolio

$

2,758

$

2,933

$

(175)

$

(1)

$

27

$

66

$

83

Discontinued operations ? education

   lending business (not included in exit loans above) (b)

$

5,086

$

5,201

$

(115)

$

12

$

15

$

15

$

20

(a) Includes (1) the business aviation, commercial vehicle, office products, construction and industrial leases; (2) Canadian lease financing portfolios; and (3) all remaining balances related to lease in, lease out; sale in, lease out; service contract leases; and qualified technological equipment leases.

(b) Includes loans in Key's consolidated education loan securitization trusts.

(c) Credit amounts indicate recoveries exceeded charge-offs.

 

Asset Quality Statistics From Continuing Operations

(dollars in millions)

1Q13

4Q12

3Q12

2Q12

1Q12

Net loan charge-offs

$

49

$

58

$

109

$

77

$

101

Net loan charge-offs to average total loans

 .38 

%

.44

%

.86

%

.63

%

.82

%

Allowance for loan and lease losses to annualized net loan charge-offs

 449.37 

384.85

204.78

286.74

232.39

Allowance for loan and lease losses

$

893

$

888

$

888

$

888

$

944

Allowance for credit losses (a)

 925 

917

931

939

989

Allowance for loan and lease losses to period-end loans

 1.70 

%

1.68

%

1.73

%

1.79

%

1.92

%

Allowance for credit losses to period-end loans

 1.76 

1.74

1.81

1.89

2.01

Allowance for loan and lease losses to nonperforming loans

 137.38 

131.75

135.99

135.16

141.74

Allowance for credit losses to nonperforming loans

 142.31 

136.05

142.57

142.92

148.50

Nonperforming loans at period end (b)

$

650

$

674

$

653

$

657

$

666

Nonperforming assets at period end

 705 

735

718

751

767

Nonperforming loans to period-end portfolio loans

 1.24 

%

1.28

%

1.27

%

1.32

%

1.35

%

Nonperforming assets to period-end portfolio loans plus

       OREO and other nonperforming assets

 1.34 

1.39

1.39

1.51

1.55

(a) Includes the allowance for loan and lease losses plus the liability for credit losses on lending-related commitments.

(b) March 31, 2013, December 31, 2012, and September 30, 2012 amounts exclude $22 million, $23 million, and $25 million, respectively, of purchased credit impaired loans acquired in July 2012.

 

Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)

Three months ended

3-31-13

12-31-12

3-31-12

Average loans outstanding

$

52,626

$

51,859

$

49,430

Allowance for loan and lease losses at beginning of period 

$

888

$

888

$

1,004

Loans charged off: 

     Commercial, financial and agricultural 

14 

15

26

     Real estate ? commercial mortgage 

13 

33

23

     Real estate ? construction  

5

11

              Total commercial real estate loans

14 

38

34

     Commercial lease financing 

7

4

              Total commercial loans 

34 

60

64

     Real estate ? residential mortgage   (a)

8

6

     Home equity:

          Key Community Bank (a)

18 

(14)

25

          Other (a)

12

8

              Total home equity loans

24 

(2)

33

     Consumer other ? Key Community Bank

9

10

     Credit cards

9

?

     Consumer other:

          Marine (a)

18

17

          Other (a)

2

2

              Total consumer other 

20

19

              Total consumer loans 

56 

44

68

              Total loans charged off

90 

104

132

Recoveries: 

     Commercial, financial and agricultural 

12 

23

11

     Real estate ? commercial mortgage 

5

2

     Real estate ? construction

2

1

              Total commercial real estate loans 

13 

7

3

     Commercial lease financing

4

4

              Total commercial loans 

29 

34

18

     Real estate ? residential mortgage

1

1

     Home equity:

          Key Community Bank

4

2

          Other

1

1

              Total home equity loans

5

3

     Consumer other ? Key Community Bank

1

1

     Consumer other:

          Marine

4

7

          Other

1

1

              Total consumer other  

5

8

              Total consumer loans 

12 

12

13

              Total recoveries 

41 

46

31

Net loan charge-offs

(49)

(58)

(101)

Provision (credit) for loan and lease losses

55 

57

42

Foreign currency translation adjustment

(1)

1

(1)

Allowance for loan and lease losses at end of period

$

893

$

888

$

944

Liability for credit losses on lending-related commitments at beginning of period

$

29

$

43

$

45

Provision (credit) for losses on lending-related commitments

(14)

?

Liability for credit losses on lending-related commitments at end of period (b)

$

32

$

29

$

45

Total allowance for credit losses at end of period

$

925

$

917

$

989

Net loan charge-offs to average total loans

.38 

%

.44

%

.82

%

Allowance for loan and lease losses to annualized net loan charge-offs

449.37 

384.85

232.39

Allowance for loan and lease losses to period-end loans

1.70 

1.68

1.92

Allowance for credit losses to period-end loans

1.76 

1.74

2.01

Allowance for loan and lease losses to nonperforming loans

137.38 

131.75

141.74

Allowance for credit losses to nonperforming loans

142.31 

136.05

148.50

Discontinued operations ? education lending business:

     Loans charged off

$

16

$

19

$

23

     Recoveries

4

4

     Net loan charge-offs

$

(12)

$

(15)

$

(19)

(a)  Further review of the loans subject to updated regulatory guidance in the third quarter of 2012 was performed during the fourth quarter of 2012.  This review resulted in a partial home equity loan charge-off reversal and reallocation of the updated charge-off amounts to other consumer loan portfolios.  Home equity ? Key Community Bank charge-offs were $18 million prior to adjustments made from this review.  Prior to reallocation, Real estate ? residential mortgage, Home equity ? Other, Consumer other ? Marine, and Consumer other ? Other charge-offs were $3 million, $6 million, $11 million, and $1 million, respectively.

(b)  Included in "accrued expense and other liabilities" on the balance sheet.

 

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(dollars in millions)

3-31-13

12-31-12

9-30-12

6-30-12

3-31-12

Commercial, financial and agricultural

$

142

$

99

$

132

$

141

$

168

Real estate ? commercial mortgage

114 

120

134

172

175

Real estate ? construction

27 

56

53

68

66

         Total commercial real estate loans

141 

176

187

240

241

Commercial lease financing

12 

16

18

18

22

         Total commercial loans

295 

291

337

399

431

Real estate ? residential mortgage (a)

96 

103

83

78

82

Home equity:

     Key Community Bank

199 

210

171

141

109

     Other

18 

21

18

17

12

         Total home equity loans (a)

217 

231

189

158

121

Consumer other ? Key Community Bank

2

3

2

1

Credit cards

13 

11

8

?

?

Consumer other:

     Marine

25 

34

31

19

30

     Other

2

2

1

1

         Total consumer other

26 

36

33

20

31

         Total consumer loans

355 

383

316

258

235

         Total nonperforming loans (b)

650 

674

653

657

666

Nonperforming loans held for sale

23 

25

19

38

24

OREO

21 

22

29

28

61

Other nonperforming assets

11 

14

17

28

16

     Total nonperforming assets

$

705

$

735

$

718

$

751

$

767

Accruing loans past due 90 days or more

$

83

$

78

$

89

$

131

$

169

Accruing loans past due 30 through 89 days

368 

424

354

362

420

Restructured loans ? accruing and nonaccruing (c)

294 

320

323

274

293

Restructured loans included in nonperforming loans (c)

178 

249

217

163

184

Nonperforming assets from discontinued operations ?

      education lending business

15 

20

22

18

19

Nonperforming loans to period-end portfolio loans

1.24 

%

1.28

%

1.27

%

1.32

%

1.35

%

Nonperforming assets to period-end portfolio loans

      plus OREO and other nonperforming assets

1.34 

1.39

1.39

1.51

1.55

(a) All of the increase in Real estate ? residential mortgage and $26 million of the increase in Total home equity loans from September 30, 2012 to December 31, 2012 was related to regulatory guidance issued in the second and third quarters of 2012.

(b) March 31, 2013, December 31, 2012, and September 30, 2012 amounts exclude $22 million, $23 million, and $25 million, respectively, of purchased credit impaired loans acquired in July 2012.

(c) Restructured loans (i.e., troubled debt restructurings) are those for which Key, for reasons related to a borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider.  These concessions are made to improve the collectability of the loan and generally take the form of a reduction of the interest rate, extension of the maturity date or reduction in the principal balance.  The majority of the increase in restructured loans included in nonperforming loans during the second half of 2012 was a result of updated regulatory guidance in the third quarter of 2012.

 

Summary of Changes in Nonperforming Loans From Continuing Operations

(in millions)

1Q13

4Q12

3Q12

2Q12

1Q12

Balance at beginning of period

$

674

$

653

$

657

$

666

$

727

     Loans placed on nonaccrual status

278 

288

276

350

214

     Charge-offs

(91)

(104)

(141)

(131)

(132)

     Loans sold

(42)

(44)

(43)

(49)

(27)

     Payments

(83)

(78)

(74)

(110)

(65)

     Transfers to OREO

(7)

(7)

(10)

(6)

(15)

     Transfers to nonperforming loans held for sale

(8)

?

(16)

?

     Transfers to other nonperforming assets

(1)

?

(14)

?

     Loans returned to accrual status

(79)

(25)

(12)

(33)

(36)

Balance at end of period (a)

$

650

$

674

$

653

$

657

$

666

(a)  March 31, 2013, December 31, 2012, and September 30, 2012 amounts exclude $22 million, $23 million, and $25 million, respectively, of purchased credit impaired loans acquired in July 2012.

Summary of Changes in Nonperforming Loans Held For Sale From Continuing Operations

(in millions)

1Q13

4Q12

3Q12

2Q12

1Q12

Balance at beginning of period

$

25

$

19

$

38

$

24

$

46

     Transfers in

8

?

16

?

     Net advances / (payments)

(1)

(1)

?

(1)

     Loans sold

(1)

(17)

(1)

(1)

     Transfers to OREO

?

(1)

?

?

     Valuation adjustments

(2)

?

?

(1)

(1)

     Loans returned to accrual status / other

?

?

?

(19)

Balance at end of period

$

23

$

25

$

19

$

38

$

24

Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations

(in millions)

1Q13

4Q12

3Q12

2Q12

1Q12

Balance at beginning of period

$

22

$

29

$

28

$

61

$

65

     Properties acquired ? nonperforming loans 

7

11

6

15

     Valuation adjustments

(3)

(2)

(2)

(7)

(7)

     Properties sold

(5)

(12)

(8)

(32)

(12)

Balance at end of period

$

21

$

22

$

29

$

28

$

61

 

Line of Business Results

(dollars in millions)

Percent change 1Q13 vs.

1Q13

4Q12

3Q12

2Q12

1Q12

4Q12

1Q12

Key Community Bank

Summary of operations

     Total revenue (TE)

$

549

$

580

$

575

$

537

$

532

(5.3)

%

3.2

%

     Provision (credit) for loan and lease losses

59

26

123

(4)

4

126.9

N/M

     Noninterest expense

440

502

478

455

436

(12.4)

.9

     Net income (loss) attributable to Key

31

33

(17)

54

58

(6.1)

(46.6)

     Average loans and leases

28,982

28,633

27,771

26,420

25,981

1.2

11.6

     Average deposits

49,359

49,848

49,276

47,952

47,506

(1.0)

3.9

     Net loan charge-offs

47

12

91

46

47

291.7

?

     Net loan charge-offs to average total loans

.66

%

.17

%

1.30

%

.70

%

.73

%

N/A

N/A

     Nonperforming assets at period end

$

495

$

459

$

422

$

401

$

402

7.8

23.1

     Return on average allocated equity

4.38

%

4.55

%

(2.39)

%

7.82

%

8.18

%

N/A

N/A

     Average full-time equivalent employees

8,830

8,998

9,193

8,742

8,707

(1.9)

1.4

Key Corporate Bank

Summary of operations

     Total revenue (TE)

$

379

$

403

$

369

$

371

$

378

(6.0)

%

.3

%

     Provision (credit) for loan and lease losses

4

11

(3)

4

13

(63.6)

(69.2)

     Noninterest expense

209

207

200

213

222

1.0

(5.9)

     Net income (loss) attributable to Key

105

116

109

95

91

(9.5)

15.4

     Average loans and leases

20,039

19,477

18,886

18,532

18,584

2.9

7.8

     Average loans held for sale

409

538

441

514

509

(24.0)

(19.6)

     Average deposits 

13,957

13,672

12,872

12,408

11,556

2.1

20.8

     Net loan charge-offs

(1)

21

8

9

25

N/M

N/M

     Net loan charge-offs to average total loans

(.02)

%

.43

%

.17

%

.20

%

.54

%

N/A

N/A

     Nonperforming assets at period end 

$

136

$

175

$

197

$

248

$

237

(22.3)

(42.6)

     Return on average allocated equity

26.35

%

28.26

%

26.06

%

22.00

%

19.89

%

N/A

N/A

     Average full-time equivalent employees

1,924

1,912

2,001

2,026

2,020

.6

(4.8)

    TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful

SOURCE KeyCorp

For further information: ANALYSTS, Vernon L. Patterson, 216.689.0520, Vernon_Patterson@KeyBank.com or Kelly L. Dillon, 216.689.3133, Kelly_L_Dillon@KeyBank.com; MEDIA, Jack Sparks, 720.904.4554, Jack_Sparks@KeyBank.com, Twitter: @keybank_news; INVESTOR RELATIONS: www.key.com/ir, KEY MEDIA NEWSROOM: www.key.com/newsroom

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