Slide 1: KeyCorp Second Quarter 2015 Earnings Review
KeyCorp Second Quarter 2015 Earnings Review July 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 – 2Q15
Investor Highlights – 2Q15 Generated positive operating leverage Revenue up 4% from 2Q14, benefitting from growth in fee income and loans Positive - Record quarter for investment banking and debt placement: $141 MM, up 42% Operating - Trust and investment services up 18% Leverage - Cards and pay
Slide 4: Financial Review
Financial Review 4
Slide 5: Financial Highlights
Financial Highlights Metrics 2Q15 1Q15 4Q14 3Q14 2Q14 EPS – assuming dilution $ .27 $ .26 $ .28 $ .23 $ .27 Financial Cash efficiency ratio (e) 65.1 % 65.1 % 64.4 % 69.7 % 65.6 % Performance (a) Net interest margin (TE) 2.88 2.91 2.94 2.96 2.98 Return on average total assets 1.03 1.03 1.12 .92 1.14
Slide 6: Loan Growth
Loan Growth Highlights Average Commercial, Financial & Agricultural Loans $ in billions Average total loans up 4% in 2Q15 from prior year, driven by CF&A up 10% $29.0 $29.0 – Average total loans up in both the Community Bank and the Corporate Bank $27.0 $26.4 Loan growth continues to be driven p
Slide 7: Improving Deposit Mix
Improving Deposit Mix Highlights Funding Cost Deposit cost continues to improve compared to .80% prior year Transaction deposit balances up 9% from 2Q14 .60% .52% .52% Deposit growth of 6% from 2Q14 and 2% from .40% 1Q15 reflects: .18% .15% – Strength in commercial mortgage servicing .20% – In
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 $12 MM, or 2%, from the prior year, reflecting higher earning asset balances mitigated by lower earning asset yields $620 4.00% $591 NII up $
Slide 9: Noninterest Income
Noninterest Income Highlights Noninterest Income Noninterest income up 7% from prior year, driven $ in millions; continuing operations by strength in core businesses: $525 $488 – Record quarter for investment banking and $455 debt placement fees; $141 MM, up 42% $450 – Trust and investment service
Slide 10: Focused Expense Management
Focused Expense Management Highlights Noninterest Expense $ in millions 2Q15 noninterest expense up 3% from prior year, primarily attributed to: $800 – Performance-based compensation $711 $687 – Costs associated with the 3Q14 acquisition of $700 Pacific Crest $600 2Q15 included $10 MM of costs a
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 25 basis points of average loans $41 $40 $36 Nonperforming loans represented 72 basis points .40% $30 of period-end loans $30 .22% $20 Allow
Slide 12: Strong Capital
Strong Capital Highlights Tangible Common Equity to Tangible Assets (a) Disciplined capital management 11.00% – Increased quarterly common share 10.15% 9.86% dividend by 15% 10.00% – Repurchased $129 MM of common shares 9.00% in 2Q15 8.00% 7.00% 6.00% 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 Common
Slide 13: Outlook and Expectations
Outlook and Expectations FY 2015 Average Loans • Mid-single digit growth vs. FY 2014 • Up low single-digits without the benefit of higher rates Net Interest Income • NIM: down from FY 2014, reflecting continued elevated levels of liquidity; relatively stable with 2Q15 reported level Noninterest Inco
Slide 14: Appendix
Appendix 14
Slide 15: Progress on Targets for Success
Progress on Targets for Success Metrics (a) 2Q15 1Q15 Targets Balance Sheet Loan to deposit ratio (b) 90% -100% 87% 87% Efficiency NCOs to average loans .25% .20% Moderate Risk 40 - 60 bps Profile Provision for credit losses .28% .25% to average loans High Quality, Net interest margin 2.88% 2.91% 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) 2Q15 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 midd
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 $18.3 5.00% $17.4 backed MBS and CMOs $15.0 4.00% Continue to position portfolio for upcoming 3.00% $10.0 regulatory liquidity requirements: 2.00% 2.
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% 3.1% .49% 3.0% 2.7% .50% .31% 2.0% .25% .15% .11% 1.0% .00% 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 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 (%) 6/30/15 2Q15 2Q15 2Q15 6/30/15 6/30/15 6/
Slide 22: Home Equity Portfolio
Home Equity Portfolio Highlights High quality portfolio $3.9 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; $6.6 billion are lines originated $1.3 billion in lines outstanding (
Slide 23: Exit Loan Portfolio
Exit Loan Portfolio Exit Loan Portfolio Balance on Balance Outstanding Change Net Loan Charge-offs $ in millions Nonperforming Status 6-30-15 vs. 6-30-15 3-31-15 2Q15 1Q15 (b) 6-30-15 3-31-15 3-31-15 Residential properties – homebuilder $ 6 $ 6 $ - - $ 1 $ 8 $ 8 Marine and RV floor plan 2 6 (4) - -
Slide 24: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation $ in millions Three months ended 6-30-15 3-31-15 12-31-14 9-30-14 6-30-14 Tangible common equity to tangible assets at period end Key shareholders’ equity (GAAP) $ 10,590 $ 10,603 $ 10,530 $ 10,486 $ 10,504 Less: Intangible assets (a) 1,085 1,088 1,090 1,105 1,008 Pre
Slide 25: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) $ in millions Three months ended 6-30-15 3-31-15 12-31-14 9-30-14 6-30-14 Pre-provision net revenue Net interest income (GAAP) $ 584 $ 571 $ 582 $ 575 $ 573 Plus: Taxable-equivalent adjustment 7 6 6 6 6 Noninterest income (GAAP) 488 437 490 417 455 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 June 30, 2015 Common Equity Tier 1 under current regulatory rules $ 9.6 Adjustments from current regulatory rules to the Regulatory Capital Rules: Deferred tax assets and other