Slide 1: KeyCorp Third Quarter 2014 Earnings Review
KeyCorp Third Quarter 2014 Earnings Review October 15, 2014 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, including statements about our financial condition, results of operations, asset quality trends, capital levels and profitability. Forward-looking statements can often be identifie
Slide 3: Investor Highlights – 3Q14
Investor Highlights – 3Q14 Core revenue trends stable - Lower gains from principal investing and leveraged lease terminations Positive Total average loans up 5% from prior year Operating - Linked quarter average impacted by seasonality, capital markets and strategic exits Leverage Positive trends in
Slide 4: Financial Review
Financial Review 4
Slide 5: Financial Highlights
Financial Highlights Metrics 3Q14 2Q14 1Q14 4Q13 3Q13 EPS – assuming dilution $ .23 $ .27 $ .26 $ .26 $ .25 Cash efficiency ratio (e) 69.5 % 65.8 % 64.9 % 67.4 % 67.5 % Financial Performance (a) excl. efficiency and pension charges 66.0 63.4 63.9 65.1 63.6 Net interest margin (TE) 2.96 2.98 3.00 3.0
Slide 6: Loan Growth
Loan Growth Highlights Average Commercial, Financial & Agricultural Loans $ in billions Average total loans up 5% from prior year, driven by CF&A up 11% $28.0 $26.5 Linked quarter average balances impacted by $23.9 seasonality, capital markets and strategic exits $21.0 Total commitments continue to
Slide 7: Improving Deposit Mix
Improving Deposit Mix Highlights Funding Cost Funding cost continues to improve .80% Transaction deposit balances up 6% from 3Q13 .56% .60% .52% Growth from prior year reflects inflows from commercial clients as well as commercial .40% mortgage servicing .22% .16% .20% Total CD maturities and averag
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 down 1% from prior year, primarily due to lower asset yields $620 4.00% Modest growth from prior quarter reflects asset growth, higher loan fees, im
Slide 9: Noninterest Income
Noninterest Income Highlights Noninterest Income Noninterest income down $42 MM from prior year: $ in millions; continuing operations – Gains from leveraged lease termination and $525 principal investing $31 MM higher in 3Q13 $459 $450 $417 – Special servicing fees $6 MM lower $375 – Posting order c
Slide 10: Focused Expense Management
Focused Expense Management Highlights Noninterest Expense $ in millions Expenses down 2% from prior year, benefitting from continuous improvement efforts $800 $716 $704 Increase from prior quarter reflects: $700 – Pension settlement charge and expenses related to Pacific Crest Securities $600 FY 201
Slide 11: 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) 3Q14 YTD Business Growth, Expense Savings Rising Rate Benefit Long-term Target: <60% Ne
Slide 12: Continued Improvement in Asset Quality
Continued Improvement in Asset Quality Highlights Net Charge-offs & Provision for Loan and Lease Losses $ in millions Net loan charge-offs decreased 16% from 3Q13 to $60 .60% $31 MM, or 22 bps of average loans Total gross charge-offs down 37% from 3Q13 and $40 .40% $37 down 13% from 2Q14 $31 $28 .28
Slide 13: Strong Capital
Strong Capital Highlights Tangible Common Equity to Tangible Assets (a) Disciplined capital management 11.00% – Continuing to invest in and grow 10.29% 9.93% businesses 10.00% – Repurchased $119 MM in common shares 9.00% Ratios reflect the acquisition of Pacific Crest 8.00% Securities and the sale o
Slide 14: 2014 Outlook and Expectations
2014 Outlook and Expectations 4Q14 FY 2014 • LQA: mid-single digit growth, driven by Average Loans commercial loans • Mid-single digit growth vs. FY 2013 • Relatively stable from 2013, with slight Net Interest Income • Relatively stable with 3Q14 downward pressure from competitive environment • Low
Slide 15: Appendix
Appendix 15
Slide 16: Progress on Targets for Success
Progress on Targets for Success Metrics (a) 3Q14 2Q14 Targets Balance Sheet Loan to deposit ratio (b) 90% -100% 87% 87% Efficiency NCOs to average loans .22% .22% Moderate Risk 40 - 60 bps Profile Provision to average loans .15% .07% High Quality, Net interest margin 2.96% 2.98% LT: >3.50% Diverse R
Slide 17: Focused on Driving Positive Operating Leverage
Focused on Driving Positive Operating Leverage Executing action plans across our organization Revenue Growth Expense Savings • Improving sales productivity Driving consumer sales • Optimizing branch channel Community • Strengthening product offering: per FTE per day: up >30% from prior year • Drivin
Slide 18: Focused Expense Management
Focused Expense Management Continued cost savings enable investments and offset normal expense growth Low to mid- single digit $2.82 B $117 MM decline year- over-year 1 % - 2% $2.70 B (4) % – (6) % 1 % – 2.5 % 2 % – 2.5 % 2013 Reported 2013 Efficiency 2013 NIE Excl. Expense Operating Cost Investment
Slide 19: High Quality Investment Portfolio
High Quality Investment Portfolio Highlights Average Total Investment Securities $ in billions Portfolio composed primarily of GNMA and GSE- $20.0 5.00% $17.7 $17.0 backed MBS and CMOs $15.0 4.00% – No private label MBS or financial paper 3.00% $10.0 Currently reinvesting cash flows into GNMA 2.23%
Slide 20: 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% (a) Loan Portfolio Deposits - Assumes 200 basis point increase in short-term rates over
Slide 21: Asset Quality Trends
Asset Quality Trends Delinquencies to Period-end Total Loans Quarterly Change in Criticized Outstandings (a) Continuing operations Continuing operations 1.00% 0% 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 (2)% .75% (2)% .61% .54% (4)% .50% (6)% .25% .17% (7)% .13% (8)% .00% (10)% 4Q12 1Q13 2Q13 3Q13 4Q
Slide 22: 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 (%) 9/30/14 3Q14 3Q14 3Q14 9/30/14 9/30/14 9/
Slide 23: 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: 97% of total portfolio; branch- principal and interest payments; $6.7 billion are lines originated $1.5 billion in lines outstanding (14% of t
Slide 24: Exit Loan Portfolio
Exit Loan Portfolio Exit Loan Portfolio Balance on Balance Outstanding Change Net Loan Charge-offs $ in millions Nonperforming Status 9-30-14 vs. 9-30-14 6-30-14 3Q14 (c) 2Q14 (c) 9-30-14 6-30-14 6-30-14 Residential properties – homebuilder $ 11 $ 19 $ (8) $ 1 - $ 10 $ 7 Marine and RV floor plan 7 2
Slide 25: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation $ in millions Three months ended 9-30-14 6-30-14 3-31-14 12-31-13 9-30-13 Tangible common equity to tangible assets at period end Key shareholders’ equity (GAAP) $ 10,509 $ 10,504 $ 10,403 $ 10,303 $ 10,206 Less: Intangible assets (a) 1,105 1,008 1,012 1,014 1,017 Pre
Slide 26: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) $ in millions Three months ended 9-30-14 6-30-14 3-31-14 12-31-13 9-30-13 Average tangible common equity Average Key shareholders’ equity (GAAP) $ 10,473 $ 10,459 $ 10,371 $ 10,272 $ 10,237 Less: Intangible assets (average) (a) 1,037 1,010 1,013 1,016 1,01
Slide 27: 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 September 30, 2014 Tier 1 common equity under current regulatory rules $ 9.4 Adjustments from current regulatory rules to the Regulatory Capital Rules: Deferred tax assets and P