Slide 1: KeyCorp Second Quarter 2016 Earnings Review
KeyCorp Second Quarter 2016 Earnings Review July 26, 2016 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 communication contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to, KeyCorp’s and First Niagara’s expectations or predictions of future financ
Slide 3: Investor Highlights – 2Q16
Investor Highlights – 2Q16 Generated positive operating leverage and grew pre-provision net revenue (a) from 2Q15, excluding merger-related expense of $45 MM (b) Revenue stable with prior year and up 3% from prior quarter Positive Total average loans up 5% from prior year; CF&A loans up 12% Operatin
Slide 4: First Niagara: Positioned to Complete Acquisition
First Niagara: Positioned to Complete Acquisition Acquisition Attractive Financial Significant Revenue Complementary More Balanced Drives Value Returns Opportunities Business Model Franchise 2Q16 Updates Continued confidence in value attainment, financial targets and cultural compatibility Transacti
Slide 5: Financial Review
Financial Review 5
Slide 6: Financial Highlights
Financial Highlights Metrics 2Q16 1Q16 4Q15 3Q15 2Q15 EPS – assuming dilution $ .23 $ .22 $ .27 $ .26 $ .27 EPS –excl. merger-related expense (e), (f) .27 .24 .27 Financial Cash efficiency ratio (e) 69.0 % 66.6 % 66.4 % 66.9 % 65.1 % Performance (a) Cash efficiency –excl. merger-related expense (e),
Slide 7: Loans
Loans Total Average Loans Highlights $ in billions Total average loans up 5% Average Loans $60 Average total loans up 5% in 2Q16 from 2Q15, driven by CF&A loans up 12% $40 – Broad-based growth across Key’s commercial lines of business $20 – Consumer loan decline related to paydowns in the home equit
Slide 8: Deposits
Deposits Average Deposits (a) Highlights $ in billions Total average deposits up 5% vs. Prior Year $75 .50% Deposit growth of 5% from 2Q15 related to: $65 .40% – Core deposit growth in retail banking $55 .30% – Growth in escrow deposits from the commercial mortgage servicing business $45 .20% .19% –
Slide 9: Net Interest Income and Margin
Net Interest Income and Margin Net Interest Income & Net Interest Margin Trend (TE) Highlights $ in millions; continuing operations vs. Prior Year Net interest income up $14 MM, or 2%, from 2Q15 $620 4.00% $605 – Higher earning asset balances and yields $591 3.50% – Lower reinvestment yields in the
Slide 10: Noninterest Income
Noninterest Income Noninterest Income Highlights $ in millions Up / (Down) 2Q16 vs. 2Q15 vs. 1Q16 vs. Prior Year Trust and investment services income $ 110 $ (1) $ 1 Noninterest income down 3% from 2Q15 Investment banking and debt 98 (43) 27 placement fees ‒ Investment banking and debt placement Ser
Slide 11: Noninterest Expense
Noninterest Expense Noninterest Expense Highlights Expense comparisons reflect merger-related expense $ in millions Up / (Down) 2Q16 vs. 2Q15 vs. 1Q16 of $45 MM in 2Q16, compared to $24 MM in 1Q16 (no Personnel $ 427 $ 19 $ 23 merger-related expense in 2Q15) Net occupancy 59 (7) (2) vs. Prior Year C
Slide 12: Credit Quality
Credit Quality Net Charge-offs & Provision for Credit Losses Highlights $ in millions Net loan charge-offs remain below targeted range, $120 .60% at 28 basis points of average loans $90 Nonperforming loans decreased $57 MM .40% from 1Q16 and represented 1.00% of period-end .28% $60 .25% $52 loans $4
Slide 13: Capital
Capital Common Equity Tier 1 (a), (b) Highlights 12.00% 11.12% Maintained strong capital position 10.71% Common Equity Tier 1 ratio of 11.12% (b) 10.00% at 6/30/16 Increased quarterly common share dividend by 8.00% 13% in 2Q16 to $.085 per share No objection to 2016 capital plan from Federal 6.00% 1
Slide 14: Outlook and Expectations
Outlook and Expectations FY 2016: Key Stand-alone (a) Average Loans • Mid-single digit growth vs. FY 2015 • Up low to mid-single digit percentage without the benefit from higher interest rates Net Interest Income • Mid-single digit growth with the benefit of higher interest rates Noninterest Income
Slide 15: Appendix
Appendix 15
Slide 16: Progress on Targets for Success: Key Stand-alone
Progress on Targets for Success: Key Stand-alone Metrics (a) Targets 2Q16 1Q16 Balance Sheet Loan to deposit ratio (b) 90% -100% 85% 86% Efficiency NCOs to average loans .28% .31% Moderate Risk Profile 40 - 60 bps Provision for credit losses .34% .60% to average loans Net interest margin 3.00% -3.25
Slide 17: FNFG Merger-related Expense
FNFG Merger-related Expense Expenses related to the acquisition and integration of First Niagara Financial Group $ in millions Increase / (Decrease) 2Q16 1Q16 4Q15 Personnel expense (a) $ 35 $ 16 - Business services and professional fees $ 5 $ 7 $ 5 Marketing 3 1 - All other nonpersonnel 2 - 1 Total
Slide 18: Investment Portfolio
Investment Portfolio Average Total Investment Securities Highlights $ in billions $20.0 $19.2 5.00% Portfolio composed primarily of GNMA and GSE- $18.3 backed MBS and CMOs 4.00% $15.0 Continue to position portfolio for regulatory 3.00% $10.0 liquidity requirements: 2.00% 2.10% 2.06% – Reinvesting ca
Slide 19: Interest Rate Risk Management
Interest Rate Risk Management Naturally Asset Sensitive Balance Sheet Actively Managing Rate Risk • Maintained moderate asset sensitive position of ~2% (a) Loan Portfolio Deposits - Assumes 200 basis point increase in short-term rates over a 2Q16 2Q16 12-month period CDs: • Utilize swaps for debt he
Slide 20: Credit Quality Trends
Credit Quality Trends Delinquencies to Period-end Total Loans Criticized Outstandings (a) to Period-end Total Loans Continuing operations Continuing operations .75% 6.0% .50% 4.0% 3.6% 3.0% .33% .25% .31% 2.0% .11% .11% .00% .0% 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1
Slide 21: Credit Quality by Portfolio
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 (%) 6/30/16 2Q16 2Q16 2Q16 6/30/16 6/30/16 6/
Slide 22: Oil & Gas
Oil & Gas Longstanding history, expertise and relationships Total commitments of $3.1 B, including upstream Portfolio performing in-line with expectations commitments of $1.6 B Reserve coverage: 8% of outstanding oil and gas loans Upstream portfolio is primarily secured by proven, at period-end deve
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: 98% of total portfolio; branch- principal and interest payments; $6.1 billion are lines originated $0.9 billion in lines outstanding (9% of th
Slide 24: Exit Loan Portfolio
Exit Loan Portfolio Exit Loan Portfolio Balance on $ in millions Balance Outstanding Change Net Loan Charge-offs Nonperforming Status 6-30-16 vs. 6-30-16 3-31-16 2Q16 1Q16 6-30-16 3-31-16 3-31-16 Residential properties – homebuilder - - - - - $ 4 $ 3 Commercial lease financing (a) $ 731 $ 743 $ (12)
Slide 25: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation Three m onths ended $ in millions 6-30-2016 3-31-16 12-31-15 9-30-15 6-30-15 Tangible com m on equity to tangible assets at period end Key shareholders' equity (GAAP) $ 11,313 $ 11,066 $ 10,746 $ 10,705 $ 10,590 Less: Intangible assets (a) 1,074 1,077 1,080 1,084 1,08
Slide 26: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Three months ended $ in millions 6-30-16 3-31-16 12-31-15 9-30-15 6-30-15 Pre-provision net revenue excluding m erger-related expense Net interest income (GAAP) $ 597 $ 604 $ 602 $ 591 $ 584 Plus: Taxable-equivalent adjustment 8 8 8 7 6 Noninterest income
Slide 27: Common Equity Tier 1 Under the Regulatory Capital Rules (RCR) (estimated)
Common Equity Tier 1 Under the Regulatory Capital Rules (RCR) (estimated) (a) KeyCorp & Subsidiaries Quarter ended $ in billions June 30, 2016 Common Equity Tier 1 under current RCR $ 10.1 Adjustments from current RCR to the fully phased-in RCR: Deferred tax assets and other intangible assets (b) -