Slide 1: First Quarter 2014 Earnings Review
KeyCorp First Quarter 2014 Earnings Review April 17, 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 – 1Q14
Investor Highlights – 1Q14 Total average loans up 4% from prior year, driven by CF&A up 9% Continued investment in fee-based businesses; noninterest income up 2% Positive from prior year Operating Disciplined expense management; expenses down 7% from 4Q13 and 3% Leverage from prior year Focused on c
Slide 4: Driving Growth and Efficiency
Driving Growth and Efficiency First Quarter 2014 Actions Realigned leadership to accelerate momentum Leadership Community Bank Commercial payments Launched purchase and prepaid cards Investments Continued development of online and mobile Strategic Improved sales productivity Initiatives Announced ex
Slide 5: Financial Review
Financial Review 5
Slide 6: Financial Highlights
Financial Highlights Metrics 1Q14 4Q13 3Q13 2Q13 1Q13 EPS – assuming dilution $ .26 $ .26 $ .25 $ .21 $ .21 Financial Cash efficiency ratio (e) 64.9 % 67.4 % 67.5 % 69.1 % 66.0 % Performance (a) Net interest margin (TE) 3.00 3.01 3.11 3.13 3.24 Return on average total assets 1.13 1.08 1.12 .95 .99 T
Slide 7: Loan Growth
Loan Growth Highlights Average Commercial, Financial & Agricultural Loans $ in billions Solid loan growth: average total loans up 4% from prior year – Driven by 9% increase in CF&A $28.0 $25.4 $23.3 Period-end loans up 2% from 12/31/13 $21.0 Total commitments up from 4Q13 with slight $14.0 increase
Slide 8: Improving Deposit Mix
Improving Deposit Mix Highlights Funding Cost Overall funding cost continues to improve 1.25% Transaction deposit balances up 6% from 1Q13 1.00% .70% Deposits down from prior quarter primarily due to .75% expected reduction in commercial mortgage .54% servicing escrow balances .50% .29% .20% Total C
Slide 9: Net Interest Income and Margin
Net Interest Income and Margin Highlights Net Interest Income (TE) & Net Interest Margin (TE) Trend $ in millions Net interest income down from prior quarter, due to: Continuing Operations – Competitive environment and asset repricing $620 4.00% – Fewer days in the quarter $589 – Lower loan fees 3.5
Slide 10: Noninterest Income
Noninterest Income Highlights Noninterest Income Continuing Operations Noninterest income up 2% from prior year, reflecting $ in millions investments and execution of business model $525 – Investment banking & debt placement (+6%) $425 $435 $450 – Cards & payments (+3%) $375 – Mortgage servicing (+8
Slide 11: Focused Expense Management
Focused Expense Management Highlights Noninterest Expense $ in millions Expenses down 3% from prior year and 7% from $800 prior quarter $681 $700 $662 Achieved cash efficiency ratio target of 60% - 65% $600 Focused on continued improvement in efficiency $500 and driving further into targeted range $
Slide 12: 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 13: Improving Efficiency
Improving Efficiency Driving productivity and continuous improvement 65% Current target: 60% - 65% 60% 55% 50% 1Q14 Business Growth, Expense Savings 2-3 Year Outlook Net of Investments Cash Efficiency Ratio (a) Rising interest rates present an opportunity for additional improvement, with long-term g
Slide 14: 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 59% from 1Q13 to $120 3.00% $20 MM, or 15 bps of average loans 2.00% Total gross charge-offs down 14% from prior $80 quarter with recoveries up 28% $55
Slide 15: Strong Capital
Strong Capital Highlights Tangible Common Equity to Tangible Assets (a) Disciplined execution of capital plan 12.00% – 1Q14: repurchased $141 MM in common shares 10.24% 10.14% No objection from Federal Reserve on 2014 capital 10.00% plan, including: – Share repurchase program of up to $542 MM 8.00%
Slide 16: 2014 Outlook and Expectations
2014 Outlook and Expectations Loans • Mid-single digit average balance growth Net Interest • Relatively stable from 2013, with slight downward pressure from Income competitive environment Noninterest • Low single-digit growth compared to prior year Income Expense • Low to mid-single digit percentage
Slide 17: Appendix
Appendix 17
Slide 18: Progress on Targets for Success
Progress on Targets for Success Metrics (a) 1Q14 4Q13 Targets Focus areas Improving balance Loan to deposit ratio (b) 88% 84% 90-100% sheet efficiency Maintaining NCOs to average loans .15% .27% moderate risk 40-60 bps profile Provision to average loans .04% .14% Net interest margin 3.00% 3.01% >3.5
Slide 19: Driving Productivity and Efficiency
Driving Productivity and Efficiency Revenue Growth Expense Savings Improving sales productivity Optimizing branch channel Community Adding commercial and private bankers Driving greater efficiencies through back Bank in target markets and middle-office processes Enhancing online and mobile channels
Slide 20: High Quality Investment Portfolio
High Quality Investment Portfolio Highlights Average Total Investment Securities $ in billions Portfolio composed of Agency-backed CMOs: $20.0 5.00% $17.1 Fannie, Freddie & GNMA $15.9 $15.0 4.00% – No private label MBS or financial paper 3.00% $10.0 Average portfolio life at 3/31/14 of 3.6 years, 2.
Slide 21: Asset Quality Trends
Asset Quality Trends Delinquencies to Period-end Total Loans Quarterly Change in Criticized Outstandings (a) Continuing Operations Continuing Operations 0% 1.00% 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 (2)% .75% .70% (4)% .48% (6)% (6)% (5)% .50% (8)% .25% .16% (10)% .16% (12)% .00% (14)% 2Q12 3Q12
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 (%) 3/31/14 1Q14 1Q14 1Q14 3/31/14 3/31/14 3/
Slide 23: 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: 97% of total portfolio; branch- principal and interest payments; $6.7 billion are lines originated $1.4 billion in lines outstanding (13% 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 3-31-14 vs. 3-31-14 12-31-13 1Q14 (c) 4Q13 (c) 3-31-14 12-31-13 12-31-13 Residential properties – homebuilder $ 20 $ 20 - $ (1) - $ 7 $ 7 Marine and RV floor plan 23
Slide 25: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation(a) $ in millions Three months ended 3-31-14 12-31-13 9-30-13 6-30-13 3-31-13 Tangible common equity to tangible assets at period end Key shareholders’ equity (GAAP) $ 10,403 $ 10,303 $ 10,206 $ 10,229 $ 10,340 Less: Intangible assets (b) 1,012 1,014 1,017 1,021 1,024
Slide 26: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation(a) (continued) $ in millions Three months ended 3-31-14 12-31-13 9-30-13 6-30-13 3-31-13 Average tangible common equity Average Key shareholders’ equity (GAAP) $ 10,371 $ 10,272 $ 10,237 $ 10,314 $ 10,279 Less: Intangible assets (average) (b) 1,013 1,016 1,019 1,023 1
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 Mar. 31, 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 PCCRs