Slide 1: KeyCorp Fourth Quarter 2014 Earnings Review
KeyCorp Fourth Quarter 2014 Earnings Review January 22, 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, 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 – 4Q14 vs. prior year
Investor Highlights – 4Q14 vs. prior year EPS up 8% reflecting successful business model and investments to grow Positive operating leverage, with revenue growth of 4% and expenses down 1% Positive - Cash efficiency ratio of 64.4% Operating Leverage Total average loans up 5%, driven by CF&A balances
Slide 4: Investor Highlights – 2014
Investor Highlights – 2014 EPS up 12%; generated positive operating leverage Business model and strategic investments drove core business activity Total average loans up 5% from prior year Positive - Grew both commercial and consumer loan balances Operating Leverage Noninterest income up 2% with pos
Slide 5: Financial Review
Financial Review 5
Slide 6: Financial Highlights
Financial Highlights Metrics 4Q14 3Q14 2Q14 1Q14 4Q13 EPS – assuming dilution $ .28 $ .23 $ .27 $ .26 $ .26 Cash efficiency ratio (e) 64.4 % 69.5 % 65.8 % 64.9 % 67.4 % Financial Performance (a) excl. efficiency and pension charges 63.4 66.0 63.4 63.9 65.1 Net interest margin (TE) 2.94 2.96 2.98 3.0
Slide 7: Loan Growth
Loan Growth Highlights Average Commercial, Financial & Agricultural Loans $ in billions Average total loans up 5% in 4Q14 from prior year, driven by CF&A up 12% $28.0 $27.2 Achieved guidance with FY 2014 average loan $24.2 balances up 5% $21.0 – Both commercial and consumer loans up $14.0 Total comm
Slide 8: Improving Deposit Mix
Improving Deposit Mix Highlights Funding Cost Funding cost continues to improve .80% Transaction deposit balances up 4% from 4Q13 .60% .53% .51% Deposit growth from prior year (+2%) reflects inflows from commercial clients as well as .40% commercial mortgage servicing .20% .20% .15% Large commercial
Slide 9: 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 relatively stable with prior year, as loan growth and a more favorable mix of lower- cost deposits mostly offset lower earning asset $620 4.00% yiel
Slide 10: Noninterest Income
Noninterest Income Highlights Noninterest Income Noninterest income up 8% from prior year and up $ in millions; continuing operations 18% from prior quarter, benefitting from: $525 $490 – Momentum in core businesses $453 $450 – Record quarter and year for investment banking and debt placement fees $
Slide 11: Focused Expense Management
Focused Expense Management Highlights Noninterest Expense $ in millions 4Q expenses down 1% from prior year, with benefit from continuous improvement efforts and lower $800 efficiency charges offsetting growth related to $712 $704 Pacific Crest acquisition $700 Expenses down 2% from 2013, achieving
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 14% from 4Q13 to $60 .60% $32 MM, or 22 bps of average loans Total gross charge-offs down 26% from 4Q13 and $40 $37 .40% flat with 3Q14 $32 .27% $22 No
Slide 13: Strong Capital
Strong Capital Highlights Tangible Common Equity to Tangible Assets (a) Disciplined capital management 11.00% – Repurchased $128 MM of common shares 9.80% 9.88% 10.00% in 4Q14 9.00% Total common share repurchases of $496 MM in 2014, contributing to shareholder payout of 82% 8.00% including the impac
Slide 14: Outlook and Expectations
Outlook and Expectations FY 2014 FY 2015 Average Loans Mid-single digit growth vs. FY 2013 • Mid-single digit growth vs. FY 2014 Relatively stable from 2013, with • Up low-to-mid single digit percentage vs. FY 2014 Net Interest Income slight downward pressure from (low single-digits without the bene
Slide 15: Appendix
Appendix 15
Slide 16: Progress on Targets for Success
Progress on Targets for Success Metrics (a) 4Q14 3Q14 Targets Balance Sheet Loan to deposit ratio (b) 90% -100% 85% 87% Efficiency NCOs to average loans .22% .22% Moderate Risk 40 - 60 bps Profile Provision to average loans .15% .15% High Quality, Net interest margin 2.94% 2.96% LT: >3.50% Diverse R
Slide 17: 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) 4Q14 Business Growth, Expense Savings Rising Rate Benefit Long-term Target: <60% Net of
Slide 18: 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 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% $17.2 $17.1 backed MBS and CMOs $15.0 4.00% Currently reinvesting cash flows into GNMA 3.00% $10.0 securities in preparation for upcoming 2.00% reg
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% (b) Loan Portfolio Deposits (a) - Assumes 200 basis point increase in short-term rates
Slide 21: Asset Quality Trends
Asset Quality Trends Delinquencies to Period-end Total Loans Quarterly Change in Criticized Outstandings (a) Continuing operations Continuing operations .75% 0% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 .58% (2)% .50% (3)% .41% (4)% (6)% .25% .17% .13% (8)% .00% (10)% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q1
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 (%) 12/31/14 4Q14 4Q14 4Q14 12/31/14 12/31/14
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; $6.5 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 12-31-14 vs. 12-31-14 9-30-14 4Q14 (b) 3Q14 (b) 12-31-14 9-30-14 9-30-14 Residential properties – homebuilder $ 10 $ 11 $ (1) - $ 1 $ 9 $ 10 Marine and RV floor plan
Slide 25: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation $ in millions Three months ended 12-31-14 9-30-14 6-30-14 3-31-14 12-31-13 Tangible common equity to tangible assets at period end Key shareholders’ equity (GAAP) $ 10,530 $ 10,486 $ 10,504 $ 10,403 $ 10,303 Less: Intangible assets (a) 1,090 1,105 1,008 1,012 1,014 Pr
Slide 26: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) $ in millions Three months ended 12-31-14 9-30-14 6-30-14 3-31-14 12-31-13 Average tangible common equity Average Key shareholders’ equity (GAAP) $ 10,562 $ 10,473 $ 10,459 $ 10,371 $ 10,272 Less: Intangible assets (average) (a) 1,096 1,037 1,010 1,013 1,0
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 December 31, 2014 Tier 1 common equity under current regulatory rules $ 9.5 Adjustments from current regulatory rules to the Regulatory Capital Rules: Deferred tax assets and PC