Slide 1: KeyCorp First Quarter 2015 Earnings Review
KeyCorp First Quarter 2015 Earnings Review April 16, 2015 Beth E. Mooney Don Kimble Chairman and Chief Financial Officer Chief Executive Officer
Slide 2: Forward-Looking Statements and Additional Information Disclosure
FORWARD-LOOKING STATEMENTS AND ADDITIONAL INFORMATION DISCLOSURE This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do not relate strictly to historical or current facts. Forward-looking statements usuall
Slide 3: Investor Highlights – 1Q15
Investor Highlights – 1Q15 Revenue benefitted from growth in loans and certain core businesses Positive - Total average loans up 5% from prior year; CF&A balances up 12% Operating Expenses well-managed, reflecting focus on continuous improvement Leverage Reaffirming full-year guidance Asset quality
Slide 4: Financial Review
Financial Review 4
Slide 5: Financial Highlights
Financial Highlights Metrics 1Q15 4Q14 3Q14 2Q14 1Q14 EPS – assuming dilution $ .26 $ .28 $ .23 $ .27 $ .26 Cash efficiency ratio (e) 65.1 % 64.4 % 69.7 % 65.6 % 65.1 % Financial excl. continuous improvement and 64.4 63.4 66.2 63.2 64.1 Performance (a) efficiency costs Net interest margin (TE) 2.91
Slide 6: Loan Growth
Loan Growth Highlights Average Commercial, Financial & Agricultural Loans $ in billions Average total loans up 5% in 1Q15 from prior year, driven by CF&A up 12% $29.0 $28.3 – Average total loans up for 14 consecutive quarters; CF&A up for 17 $27.0 Loan growth from prior quarter driven primarily $25.
Slide 7: Improving Deposit Mix
Improving Deposit Mix Highlights Funding Cost Funding cost continues to improve compared to .80% prior year .60% .54% .52% Transaction deposit balances up 8% from 1Q14, partially offset by lower CD balances .40% Deposit growth from prior year reflects strength in .20% noninterest-bearing balances an
Slide 8: Net Interest Income and Margin
Net Interest Income and Margin Highlights Net Interest Income & Net Interest Margin Trend (TE) $ in millions; continuing operations Net interest income up $8 MM from the prior year, reflecting higher loan balances offset by lower earning asset yields $620 4.00% NII down $11 MM from the prior quarter
Slide 9: Noninterest Income
Noninterest Income Highlights Noninterest Income Noninterest income up slightly from prior year, $ in millions; continuing operations driven by: $525 – Trust and investment services 11% higher $435 $437 $450 – Cards and payments up 11% – Higher principal investing gains and $375 corporate-owned life
Slide 10: Focused Expense Management
Focused Expense Management Highlights Noninterest Expense $ in millions Noninterest expense up 1% in 1Q15 from prior year – Growth related to the 3Q14 Pacific Crest $800 acquisition and higher employee benefits cost more than offset savings from continuous $700 $664 $669 improvement efforts $600 1Q1
Slide 11: Strong Asset Quality
Strong Asset Quality Highlights Net Charge-offs & Provision for Credit Losses $ in millions Net loan charge-offs remain below targeted range, $50 .60% at 20 basis points of average loans $40 $35 Total gross charge-offs down 18% from the .40% prior year $30 $28 $20 Higher provision for credit losses
Slide 12: Strong Capital
Strong Capital Highlights Tangible Common Equity to Tangible Assets (a) Disciplined capital management 11.00% – Repurchased $208 MM of common shares in 1Q15 10.14% 9.92% 10.00% No objection from Federal Reserve on 2015 capital plan, including: 9.00% – Share repurchase program of up to $725 MM 8.00%
Slide 13: Outlook and Expectations
Outlook and Expectations FY 2015 Average Loans • Mid-single digit growth vs. FY 2014 • Up low-to-mid single digit percentage vs. FY 2014 (low single-digits without the Net Interest Income benefit of higher rates) • NIM stable-to-slightly higher later in the year Noninterest Income • Mid-single digit
Slide 14: Appendix
Appendix 14
Slide 15: Progress on Targets for Success
Progress on Targets for Success Metrics (a) 1Q15 4Q14 Targets Balance Sheet Loan to deposit ratio (b) 90% -100% 87% 85% Efficiency NCOs to average loans .20% .22% Moderate Risk 40 - 60 bps Profile Provision for credit losses .25% .15% to average loans High Quality, Net interest margin 2.91% 2.94% LT
Slide 16: Efficiency Ratio: Driving to 60% and Below
Efficiency Ratio: Driving to 60% and Below Business plans and macroeconomic environment provide path to an efficiency ratio below 60% Cash Efficiency Ratio(a) Outlook 70% 65% 2-3 year outlook: 60% 60% 55% 50% (b) 1Q15 Business Growth, Expense Savings Rising Rate Benefit Long-term Target: <60% Net of
Slide 17: Oil & Gas
Oil & Gas Longstanding history, expertise and relationships Strong Portfolio Characteristics >10 years of experience in energy lending with >20 >40% of clients’ 2015 production is hedged specialists dedicated to oil & gas Relationships contribute to noninterest income; ~5% of Focused on middle marke
Slide 18: High Quality Investment Portfolio
High Quality Investment Portfolio Highlights Average Total Investment Securities $ in billions Portfolio composed primarily of GNMA and GSE- $20.0 $18.0 5.00% $17.1 backed MBS and CMOs $15.0 4.00% Continue to position portfolio for upcoming 3.00% $10.0 regulatory liquidity requirements: 2.00% 2.19%
Slide 19: Interest Rate Risk Management
Interest Rate Risk Management Actively managing a naturally asset sensitive balance sheet Naturally Asset Sensitive Balance Sheet Actively Managing Rate Risk • Maintaining moderate asset sensitive position of ~3% (b) Loan Portfolio Deposits (a) - Assumes 200 basis point increase in short-term rates
Slide 20: Asset Quality Trends
Asset Quality Trends Delinquencies to Period-end Total Loans Criticized Outstandings(a) to Period-end Total Loans Continuing operations Continuing operations .75% 4.0% 3.0% 2.8% .50% .48% 2.6% .37% 2.0% .25% .19% .16% 1.0% .00% 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 0.0% 30 – 89 days delinquent 90+
Slide 21: Credit Quality
Credit Quality Credit Quality by Portfolio Net loan Net loan Allowance / Allowance / Period- Average charge-offs (b) / Nonperforming Ending charge- period-end NPLs end loans loans average loans loans (c) allowance (d) offs loans (d) (%) (%) $ in millions (%) 3/31/15 1Q15 1Q15 1Q15 3/31/15 3/31/15 3/
Slide 22: Home Equity Portfolio
Home Equity Portfolio Highlights High quality portfolio $4.0 billion of the total portfolio are fixed rate loans that require Community bank loans and lines: 98% of total portfolio; branch- principal and interest payments; $6.5 billion are lines originated $1.4 billion in lines outstanding (13% of t
Slide 23: Exit Loan Portfolio
Exit Loan Portfolio Exit Loan Portfolio Balance on Balance Outstanding Change Net Loan Charge-offs $ in millions Nonperforming Status 3-31-15 vs. 3-31-15 12-31-14 1Q15 (b) 4Q14 (b) 3-31-15 12-31-14 12-31-14 Residential properties – homebuilder $ 6 $ 10 $ (4) $ 1 - $ 8 $ 9 Marine and RV floor plan 6
Slide 24: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation Three months ended $ in millions 3-31-15 12-31-14 9-30-14 6-30-14 3-31-14 Tangible common equity to tangible assets at period end Key shareholders’ equity (GAAP) $ 10,603 $ 10,530 $ 10,486 $ 10,504 $ 10,403 Less: Intangible assets (a) 1,088 1,090 1,105 1,008 1,012 Pre
Slide 25: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) $ in millions Three months ended 3-31-15 12-31-14 9-30-14 6-30-14 3-31-14 Pre-provision net revenue Net interest income (GAAP) $ 571 $ 582 $ 575 $ 573 $ 563 Plus: Taxable-equivalent adjustment 6 6 6 6 6 Noninterest income (GAAP) 437 490 417 455 435 Less: N
Slide 26: Common Equity Tier 1 Under the Regulatory Capital Rules (estimated)
Common Equity Tier 1 Under the Regulatory Capital Rules (estimated) (a) KeyCorp & Subsidiaries Quarter ended $ in billions March 31, 2015 Common Equity Tier 1 under current regulatory rules $ 9.5 Adjustments from current regulatory rules to the Regulatory Capital Rules: Deferred tax assets and other