KeyCorp Reports First Quarter 2016 Net Income Of $182 Million, Or $.22 Per Common Share; Earnings Per Common Share Of $.24, Excluding $.02 Of Merger-Related Expense

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Positive operating leverage from prior year, excluding merger-related expense Revenue growth of 3% from prior year Average loans up 5% from prior year, driven by a 12% increase in commercial, financial and agricultural loans Continued progress on First Niagara Financial Group acquisition

April 21, 2016 6:31 AM EDT

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CLEVELAND, April 21, 2016 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced first quarter net income from continuing operations attributable to Key common shareholders of $182 million, or $.22 per common share, compared to $224 million, or $.27 per common share, for the fourth quarter of 2015, and $222 million, or $.26 per common share, for the first quarter of 2015. During the first quarter of 2016, Key incurred merger-related expense totaling $24 million, or $.02 per common share, compared to $6 million in the fourth quarter of 2015. Excluding merger-related expense, earnings per common share were $.24 for the first quarter of 2016.

"While the operating environment remains challenging, our results reflect continued momentum in our core businesses and progress on our strategic initiatives," said Chairman and Chief Executive Officer Beth Mooney. "Excluding merger-related expense, we generated positive operating leverage relative to the same period last year, driven by a 3% increase in revenue and well-controlled expenses. Net interest income was up 6% from last year, benefiting from growth in average loans of 5%. Noninterest income reflects positive trends in several of our core fee-based businesses where we have continued to make investments, such as consumer and commercial payments. Our market sensitive businesses were impacted this quarter by the industry-wide slowdown in capital markets activity. Expenses also reflect the lower level of market-related activity and our ongoing efforts to improve efficiency."

"Credit quality measures this quarter were impacted by credit migration in our oil and gas portfolio, reflecting current market conditions. Net charge-offs remained below our targeted range," added Mooney.

"We also continue to make progress on our First Niagara Financial Group acquisition, including reaching an important milestone of shareholders from both companies approving the merger," Mooney continued. "We are excited about the opportunity we have as we prepare to bring these two companies together, and we remain confident in our ability to deliver on our commitments and financial targets."

FIRST QUARTER 2016 FINANCIAL RESULTS, from continuing operations

Compared to First Quarter of 2015

Average loans up 5%, driven by 12% growth in commercial, financial and agricultural loans
Average deposits, excluding deposits in foreign office, up 4% reflecting growth in Key's commercial mortgage servicing business and inflows from commercial and consumer clients
Net interest income (taxable-equivalent) up $35 million, as higher earning asset balances and yields were partially offset by higher levels of liquidity
Noninterest income down $6 million due to lower net gains from principal investing, partially offset by an increase in other income and growth in core fee-based businesses
Noninterest expense, excluding merger-related expense of $24 million, increased $10 million, primarily attributable to slight increases across various nonpersonnel areas
Net loan charge-offs to average loans of .31%, up from .20% in the year-ago quarter

Compared to Fourth Quarter of 2015

Average loans up 1%, primarily driven by a 2% increase in commercial, financial and agricultural loans
Average deposits, excluding deposits in foreign office, relatively stable due to increases in certificates of deposit and other time deposits, largely offset by a decline in the seasonal and short-term deposit inflows from commercial clients
Net interest income (taxable-equivalent) up $2 million driven by higher earning asset balances and yields
Noninterest income down $54 million, primarily due to lower investment banking and debt placement fees related to weaker capital markets activity
Noninterest expense, excluding merger-related expense, decreased $51 million, primarily driven by a reduction in personnel expense related to lower performance-based compensation
Net loan charge-offs to average loans of .31%, up from .25% in the prior quarter

Selected Financial Highlights

dollars in millions, except per share data										Change 1Q16 vs.
		1Q16			4Q15			1Q15		4Q15		1Q15
Income (loss) from continuing operations attributable to Key common shareholders	$	182		$	224		$	222		(18.8)	%	(18.0)	%
Income (loss) from continuing operations attributable to Key common shareholders per common share — assuming dilution		.22			.27			.26		(18.5)		(15.4)
Return on average total assets from continuing operations		.80	%		.97	%		1.03	%	N/A		N/A
Common Equity Tier 1 (a), (b)		11.11			10.94			10.64		N/A		N/A
Book value at period end	$	12.79		$	12.51		$	12.12		2.2	%	5.5	%
Net interest margin (TE) from continuing operations		2.89	%		2.87	%		2.91	%	N/A		N/A

(a)

The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "Common Equity Tier 1." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the Regulatory Capital Rules, see the "Capital" section of this release.

(b)

3-31-16 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable


INCOME STATEMENT HIGHLIGHTS

Revenue

dollars in millions							Change 1Q16 vs.
		1Q16		4Q15		1Q15	4Q15		1Q15
Net interest income (TE)	$	612	$	610	$	577	.3	%	6.1	%
Noninterest income		431		485		437	(11.1)		(1.4)
Total revenue	$	1,043	$	1,095	$	1,014	(4.7)	%	2.9	%


TE = Taxable Equivalent

Taxable-equivalent net interest income was $612 million for the first quarter of 2016, and the net interest margin was 2.89%. These results compare to taxable-equivalent net interest income of $577 million and a net interest margin of 2.91% for the first quarter of 2015. The $35 million increase in net interest income reflects higher earning asset balances and an increase in earning asset yields, largely the result of Key's loan portfolio re-pricing to the higher short-term interest rates that resulted from the Federal Reserve's decision to raise the target range for the federal funds rate in mid-December of 2015. The net interest margin remained relatively stable, benefitting from higher earning asset yields, which were offset by higher levels of liquidity.

Compared to the fourth quarter of 2015, taxable-equivalent net interest income increased by $2 million, and the net interest margin increased by two basis points. The increases in net interest income and the net interest margin were primarily attributable to higher earning asset balances and yields.

Noninterest Income

dollars in millions								Change 1Q16 vs.
			1Q16		4Q15		1Q15	4Q15		1Q15
Trust and investment services income		$	109	$	105	$	109	3.8	%	—
Investment banking and debt placement fees			71		127		68	(44.1)		4.4	%
Service charges on deposit accounts			65		64		61	1.6		6.6
Operating lease income and other leasing gains			17		15		19	13.3		(10.5)
Corporate services income			50		55		43	(9.1)		16.3
Cards and payments income			46		47		42	(2.1)		9.5
Corporate-owned life insurance income			28		36		31	(22.2)		(9.7)
Consumer mortgage income			2		2		3	—		(33.3)
Mortgage servicing fees			12		15		13	(20.0)		(7.7)
Net gains (losses) from principal investing			—		—		29	N/M		N/M
Other income			31		19		19	63.2		63.2
	Total noninterest income	$	431	$	485	$	437	(11.1)	%	(1.4)	%


N/M = Not Meaningful

Key's noninterest income was $431 million for the first quarter of 2016, compared to $437 million for the year-ago quarter. The decrease from the prior year was largely attributable to lower net gains from principal investing of $29 million, reflecting market weakness. This decline was offset by an increase in other income of $12 million primarily related to gains from certain real estate investments, along with continued growth in some of Key's core fee-based businesses, including corporate services and cards and payments.

Compared to the fourth quarter of 2015, noninterest income decreased by $54 million. The primary cause for the decline was $56 million of lower investment banking and debt placement fees, reflecting weaker capital markets activity, along with $8 million in lower corporate-owned life insurance income, which is seasonally higher in the fourth quarter. Partially offsetting these decreases were $12 million of increased other income primarily related to gains from certain real estate investments and $4 million of higher trust and investment services income.

Noninterest Expense

dollars in millions								Change 1Q16 vs.
			1Q16		4Q15		1Q15	4Q15		1Q15
Personnel expense		$	404	$	429	$	389	(5.8)	%	3.9	%
Nonpersonnel expense			299		307		280	(2.6)		6.8
	Total noninterest expense	$	703	$	736	$	669	(4.5)	%	5.1	%

Key's noninterest expense was $703 million for the first quarter of 2016. Noninterest expense included $24 million of merger-related expense, primarily made up of $16 million in personnel expense related to technology development for systems conversions and fully-dedicated personnel for merger and integration efforts. The remaining $8 million of merger-related expense was nonpersonnel expense, largely recognized in business services and professional fees. In the fourth quarter of 2015, Key incurred $6 million of merger-related expenses, primarily in nonpersonnel expense.

Excluding merger-related expense, noninterest expense was $10 million higher than the first quarter of last year. The growth was primarily attributable to slight increases across various nonpersonnel areas. Personnel expenses, adjusting for merger-related expense, declined $1 million from the first quarter of 2015, due to lower employee benefits and severance expense offsetting higher salaries and performance-based compensation.

Compared to the fourth quarter of 2015, excluding merger-related expense, noninterest expense decreased by $51 million. The largest driver of this reduction was a $41 million decrease in personnel expense due to lower performance-based compensation costs. Non-merger related marketing and business services and professional fees also each declined by $5 million.

BALANCE SHEET HIGHLIGHTS

In the first quarter of 2016, Key had average assets of $96.3 billion compared to $91.9 billion in the first quarter of 2015 and $96.1 billion in the fourth quarter of 2015.

Average Loans

dollars in millions								Change 1Q16 vs.
		1Q16		4Q15		1Q15		4Q15			1Q15
Commercial, financial and agricultural (a)		$	31,590	$	30,884	$	28,321		2.3	%		11.5	%
Other commercial loans			13,111		12,996		13,304		.9			(1.5)
Home equity loans			10,240		10,418		10,576		(1.7)			(3.2)
Other consumer loans			5,215		5,278		5,311		(1.2)			(1.8)
	Total loans	$	60,156	$	59,576	$	57,512		1.0	%		4.6	%


(a)	Commercial, financial and agricultural average loan balances include $85 million, $87 million, and $87 million of assets from commercial credit cards at March 31, 2016, December 31, 2015, and March 31, 2015, respectively.

Average loans were $60.2 billion for the first quarter of 2016, an increase of $2.6 billion compared to the first quarter of 2015. The loan growth occurred in the commercial, financial and agricultural portfolio, which increased $3.3 billion and was spread across Key's commercial lines of business. Consumer loans declined by $432 million mostly due to paydowns on Key's prime-based home equity lines of credit and continued run-off in Key's consumer exit portfolios.

Compared to the fourth quarter of 2015, average loans increased by $580 million, driven by commercial, financial and agricultural loans, which grew $706 million. Consumer loans declined $241 million, largely the result of a decline in home equity loans.

Average Deposits

dollars in millions											Change 1Q16 vs.
		1Q16			4Q15			1Q15			4Q15			1Q15
Non-time deposits (a)		$	65,637		$	66,270		$	63,606			(1.0)	%		3.2	%
Certificates of deposit ($100,000 or more)			2,761			2,150			2,017			28.4			36.9
Other time deposits			3,200			3,047			3,217			5.0			(.5)
	Total deposits	$	71,598		$	71,467		$	68,840			.2	%		4.0	%

Cost of total deposits (a)			.17	%		.15	%		.15	%		N/A			N/A


(a)	Excludes deposits in foreign office.

N/A = Not Applicable

Average deposits, excluding deposits in foreign office, totaled $71.6 billion for the first quarter of 2016, an increase of $2.8 billion compared to the year-ago quarter. Interest-bearing deposits increased $3.4 billion driven by a $2.8 billion increase in NOW and money market deposit accounts and a $727 million increase in certificates of deposit and other time deposits. The increase in NOW and money market deposit accounts reflects growth in the commercial mortgage servicing business and inflows from commercial and consumer clients. These increases were partially offset by a $689 million decline in noninterest-bearing deposits.

Compared to the fourth quarter of 2015, average deposits, excluding deposits in foreign office, were relatively stable. Growth in certificates of deposit and other time deposits was largely offset by a decline in the seasonal and short-term deposit inflows from commercial clients that Key experienced during the fourth quarter of 2015.

ASSET QUALITY

dollars in millions										Change 1Q16 vs.
		1Q16			4Q15			1Q15		4Q15		1Q15
Net loan charge-offs	$	46		$	37		$	28		24.3	%	64.3	%
Net loan charge-offs to average total loans		.31	%		.25	%		.20	%	N/A		N/A
Nonperforming loans at period end (a)	$	676		$	387		$	437		74.7	%	54.7	%
Nonperforming assets at period end		692			403			457		71.7		51.4
Allowance for loan and lease losses		826			796			794		3.8		4.0
Allowance for loan and lease losses to nonperforming loans		122.2	%		205.7	%		181.7	%	N/A		N/A
Provision for credit losses	$	89		$	45		$	35		97.8		154.3	%


(a)	Loan balances exclude $11 million, $11 million, and $12 million of purchased credit impaired loans at March 31, 2016, December 31, 2015, and March 31, 2015, respectively.

N/A = Not Applicable

Asset quality measures in the first quarter of 2016 were impacted by credit migration, primarily in the oil and gas portfolio. Key's provision for credit losses was $89 million for the first quarter of 2016, compared to $35 million for the first quarter of 2015 and $45 million for the fourth quarter of 2015. Key's allowance for loan and lease losses was $826 million, or 1.37% of total period-end loans, at March 31, 2016, compared to 1.37% at March 31, 2015, and 1.33% at December 31, 2015.

Net loan charge-offs for the first quarter of 2016 totaled $46 million, or .31% of average total loans. These results compare to $28 million, or .20%, for the first quarter of 2015, and $37 million, or .25%, for the fourth quarter of 2015.

At March 31, 2016, Key's nonperforming loans totaled $676 million and represented 1.12% of period-end portfolio loans, compared to .75% at March 31, 2015, and .65% at December 31, 2015. The increase in nonperforming loans in the first quarter of 2016 was primarily related to Key's oil and gas portfolio. Nonperforming assets at March 31, 2016 totaled $692 million and represented 1.14% of period-end portfolio loans and OREO and other nonperforming assets, compared to .79% at March 31, 2015, and .67% at December 31, 2015.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2016.

Capital Ratios

	3-31-16		12-31-15		3-31-15
Common Equity Tier 1 (a), (b)	11.11	%	10.94	%	10.64
Tier 1 risk-based capital (a)	11.42		11.35		11.04
Total risk based capital (a)	13.17		12.97		12.79
Tangible common equity to tangible assets (b)	9.97		9.98		9.92
Leverage (a)	10.73		10.72		10.91


(a)	3-31-16 ratio is estimated.

(b)	The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "tangible common equity" and "Common Equity Tier 1." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. See below for further information on the Regulatory Capital Rules.

As shown in the preceding table, at March 31, 2016, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 11.11% and 11.42%, respectively. In addition, the tangible common equity ratio was 9.97% at March 31, 2016.

In October 2013, federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules"). The mandatory compliance date for Key as a "standardized approach" banking organization began on January 1, 2015, subject to transitional provisions extending to January 1, 2019. Key's estimated Common Equity Tier 1 ratio as calculated under the fully phased-in Regulatory Capital Rules was 11.05% at March 31, 2016. This estimate exceeds the fully phased-in required minimum Common Equity Tier 1 and Capital Conservation Buffer of 7.00%.

Summary of Changes in Common Shares Outstanding

in thousands					Change 1Q16 vs.
		1Q16	4Q15	1Q15	4Q15		1Q15
Shares outstanding at beginning of period		835,751	835,285	859,403	.1	%	(2.8)	%
Common shares repurchased		—	—	(14,087)	N/M		N/M
Shares reissued (returned) under employee benefit plans		6,539	466	5,571	N/M		17.4
Common shares exchanged for Series A Preferred Stock		—	—	33	N/M		N/M
	Shares outstanding at end of period	842,290	835,751	850,920	.8	%	(1.0)	%


N/M = Not Meaningful

As previously reported, Key's existing share repurchase program is suspended through the second quarter of 2016. Share repurchases were included in Key's 2016 Comprehensive Capital Analysis and Review submission.

LINE OF BUSINESS RESULTS

The following table shows the contribution made by each major business segment to Key's taxable-equivalent revenue from continuing operations and income (loss) from continuing operations attributable to Key for the periods presented. For more detailed financial information pertaining to each business segment, see the tables at the end of this release.

Major Business Segments

dollars in millions							Change 1Q16 vs.
		1Q16		4Q15		1Q15	4Q15		1Q15
Revenue from continuing operations (TE)
Key Community Bank	$	595	$	588	$	549	1.2	%	8.4	%
Key Corporate Bank		426		479		402	(11.1)		6.0
Other Segments		21		31		66	(32.3)		(68.2)
Total segments		1,042		1,098		1,017	(5.1)		2.5
Reconciling Items		1		(3)		(3)	N/M		N/M
Total	$	1,043	$	1,095	$	1,014	(4.7)	%	2.9	%

Income (loss) from continuing operations attributable to Key
Key Community Bank	$	74	$	70	$	51	5.7	%	45.1	%
Key Corporate Bank		118		142		127	(16.9)		(7.1)
Other Segments		14		25		43	(44.0)		(67.4)
Total segments		206		237		221	(13.1)		(6.8)
Reconciling Items		(19)		(7)		7	N/M		N/M
Total	$	187	$	230	$	228	(18.7)	%	(18.0)	%


TE = Taxable Equivalent, N/M = Not Meaningful

Key Community Bank


dollars in millions								Change 1Q16 vs.
			1Q16		4Q15		1Q15	4Q15		1Q15
Summary of operations
Net interest income (TE)		$	399	$	388	$	358	2.8	%	11.5	%
Noninterest income			196		200		191	(2.0)		2.6
	Total revenue (TE)		595		588		549	1.2		8.4
Provision for credit losses			42		20		30	110.0		40.0
Noninterest expense			436		456		438	(4.4)		(.5)
	Income (loss) before income taxes (TE)		117		112		81	4.5		44.4
Allocated income taxes (benefit) and TE adjustments			43		42		30	2.4		43.3
	Net income (loss) attributable to Key	$	74	$	70	$	51	5.7	%	45.1	%

Average balances
Loans and leases		$	30,789	$	30,925	$	30,662	(.4)	%	.4	%
Total assets			32,856		33,056		32,768	(.6)		.3
Deposits			52,803		52,219		50,415	1.1		4.7

Assets under management at period end		$	34,107	$	33,983	$	39,281	.4	%	(13.2)	%


TE = Taxable Equivalent

Additional Key Community Bank Data

dollars in millions											Change 1Q16 vs.
			1Q16			4Q15			1Q15		4Q15		1Q15
Noninterest income
Trust and investment services income		$	73		$	73		$	74		—		(1.4)	%
Service charges on deposit accounts			54			54			51		—		5.9
Cards and payments income			43			44			38		(2.3)	%	13.2
Other noninterest income			26			29			28		(10.3)		(7.1)
	Total noninterest income	$	196		$	200		$	191		(2.0)	%	2.6	%

Average deposit balances
NOW and money market deposit accounts		$	29,432		$	28,862		$	27,873		2.0	%	5.6	%
Savings deposits			2,340			2,330			2,377		.4		(1.6)
Certificates of deposit ($100,000 or more)			2,120			1,686			1,558		25.7		36.1
Other time deposits			3,197			3,045			3,211		5.0		(.4)
Deposits in foreign office			—			208			333		N/M		N/M
Noninterest-bearing deposits			15,714			16,088			15,063		(2.3)		4.3
	Total deposits	$	52,803		$	52,219		$	50,415		1.1	%	4.7	%

Home equity loans
Average balance		$	10,037		$	10,203		$	10,316
Weighted-average loan-to-value ratio (at date of origination)			71	%		71	%		71	%
Percent first lien positions			61			61			60

Other data
Branches			961			966			992
Automated teller machines			1,249			1,256			1,287


N/M = Not Meaningful

Key Community Bank Summary of Operations

Positive operating leverage from prior year
Net income increased to $74 million, 45.1% growth from prior year
Commercial, financial, and agricultural loan growth of $529 million, or 4.3% from prior year
Average deposits up $2.4 billion, or 4.7% from the prior year

Key Community Bank recorded net income attributable to Key of $74 million for the first quarter of 2016, compared to net income attributable to Key of $51 million for the year-ago quarter.

Taxable-equivalent net interest income increased by $41 million, or 11.5%, from the first quarter of 2015 due to favorable deposit rates and volume with increases in average deposits of $2.4 billion, or 4.7%, from one year ago, as well as growth in average loans and leases of $127 million, or .4%. Commercial, financial and agricultural loans grew by $529 million, or 4.3%, from the prior year.

Noninterest income increased $5 million, or 2.6%, from the year-ago quarter. Core fee-based businesses continue to show positive trends, as cards and payments income increased $5 million and service charges on deposit accounts increased $3 million. These increases were partially offset by market weakness affecting Key's Private Bank as well as lower foreign exchange revenue.

The provision for credit losses increased by $12 million, or 40%, from the first quarter of 2015, primarily due to credit migration reflecting current market conditions, along with additional reserves for continued growth. Additionally, net loan charge-offs decreased $5 million from the same period one year ago.

Noninterest expense decreased by $2 million, or .5 %, from the year-ago quarter, driven by a decrease in personnel costs related to lower salary and employee benefits expenses.

Key Corporate Bank


dollars in millions								Change 1Q16 vs.
			1Q16		4Q15		1Q15	4Q15		1Q15
Summary of operations
Net interest income (TE)		$	218	$	224	$	214	(2.7)	%	1.9	%
Noninterest income			208		255		188	(18.4)		10.6
	Total revenue (TE)		426		479		402	(11.1)		6.0
Provision for credit losses			43		26		6	65.4		616.7
Noninterest expense			237		257		219	(7.8)		8.2
	Income (loss) before income taxes (TE)		146		196		177	(25.5)		(17.5)
Allocated income taxes and TE adjustments			28		51		49	(45.1)		(42.9)
	Net income (loss)		118		145		128	(18.6)		(7.8)
Less: Net income (loss) attributable to noncontrolling interests			—		3		1	N/M		N/M
	Net income (loss) attributable to Key	$	118	$	142	$	127	(16.9)	%	(7.1)	%

Average balances
Loans and leases		$	27,722	$	26,981	$	24,722	2.7	%	12.1	%
Loans held for sale			811		820		775	(1.1)		4.6
Total assets			33,413		32,639		30,240	2.4		10.5
Deposits			18,074		19,080		18,569	(5.3)		(2.7)


TE = Taxable Equivalent, N/M = Not Meaningful


Additional Key Corporate Bank Data

dollars in millions								Change 1Q16 vs.
			1Q16		4Q15		1Q15	4Q15		1Q15
Noninterest income
Trust and investment services income		$	36	$	32	$	35	12.5	%	2.9	%
Investment banking and debt placement fees			70		125		68	(44.0)		2.9
Operating lease income and other leasing gains			13		13		14	—		(7.1)

Corporate services income			38		44		32	(13.6)		18.8
Service charges on deposit accounts			11		10		10	10.0		10.0
Cards and payments income			3		3		4	—		(25.0)
	Payments and services income		52		57		46	(8.8)		13.0

Mortgage servicing fees			12		15		13	(20.0)		(7.7)
Other noninterest income			25		13		12	92.3		108.3
	Total noninterest income	$	208	$	255	$	188	(18.4)	%	10.6	%

Key Corporate Bank Summary of Operations

Average loan and lease balances up 12.1% from the prior year
Revenue up 6.0% from the prior year
Noninterest income up 10.6% from the prior year

Key Corporate Bank recorded net income attributable to Key of $118 million for the first quarter of 2016, compared to $127 million for the same period one year ago.

Taxable-equivalent net interest income increased by $4 million, or 1.9%, compared to the first quarter of 2015. Average loan and lease balances increased $3 billion, or 12.1%, from the year-ago quarter, primarily driven by growth in commercial, financial and agricultural loans. This growth in loan and lease balances drove an increase of $5 million in earning asset spread. Average deposit balances decreased $495 million, or 2.7%, from the year-ago quarter, driven by lower public deposits. Although deposit balances decreased, there was a higher mix of transactional deposit balances that drove an increase of $2 million in deposit and borrowing spread. The earning asset and deposit and borrowing spread increases were partially offset by slight decreases across various other items.

Noninterest income was up $20 million, or 10.6%, from the prior year. Other noninterest income increased $13 million from the year-ago quarter mostly due to gains from certain real estate investments. Corporate services income was up $6 million due to growth in commitment fees, derivatives, and foreign exchange. Investment banking and debt placement fees increased by $2 million due to higher loan syndication and merger and acquisition fees. Partially offsetting these increases were slight declines in operating lease income and other leasing gains and cards and payments income of $1 million each.

The provision for credit losses increased $37 million, or 616.7%, compared to the first quarter of 2015 due to $22 million of higher net loan charge-offs and credit migration in the oil and gas portfolio.

Noninterest expense increased by $18 million, or 8.2%, from the first quarter of 2015. Increased personnel costs and higher operating leases expenses were the primary drivers.

Other Segments

Other Segments consist of Corporate Treasury, Key's Principal Investing unit and various exit portfolios. Other Segments generated net income attributable to Key of $14 million for the first quarter of 2016, compared to $43 million for the same period last year. This decline was largely attributable to lower net gains from principal investing of $29 million.

*****

KeyCorp was organized more than 160 years ago and is headquartered in Cleveland, Ohio. One of the nation's largest bank-based financial services companies, Key had assets of approximately $98.4 billion at March 31, 2016.

Key provides deposit, lending, cash management and investment services to individuals and small and mid-sized businesses in 12 states under the name KeyBank National Association. Key also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets trade name. For more information, visit https://www.key.com/. KeyBank is Member FDIC.

This earnings release 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 usually can be identified by the use of words such as "goal," "objective," "plan," "expect," "assume," "anticipate," "intend," "project," "believe," "estimate," or other words of similar meaning. Forward-looking statements provide our current expectations or forecasts of future events, circumstances, results, or aspirations. Forward-looking statements, by their nature, are subject to assumptions, risks and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements. There is no assurance that any list of risks and uncertainties or risk factors is complete. Factors that could cause Key's actual results to differ from those described in the forward-looking statements can be found in KeyCorp's Form 10-K for the year ended December 31, 2015, as well as in KeyCorp's subsequent SEC filings, all of which have been filed with the Securities and Exchange Commission (the "SEC") and are available on Key's website (www.key.com/ir) and on the SEC's website (www.sec.gov). These factors may include, among others: deterioration of commercial real estate market fundamentals, adverse changes in credit quality trends, declining asset prices, a reversal of the U.S. economic recovery due to financial, political, or other shocks, and the extensive and increasing regulation of the U.S. financial services industry. Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.

Notes to Editors:A live Internet broadcast of KeyCorp's conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts' questions can be accessed through the Investor Relations section at https://www.key.com/ir at 10:00 a.m. ET, on Thursday, April 21, 2016. An audio replay of the call will be available through April 28, 2016.

*****

Financial Highlights
(dollars in millions, except per share amounts)

		Three months ended
		3-31-16			12-31-15			3-31-15
Summary of operations
	Net interest income (TE)	$	612		$	610		$	577
	Noninterest income		431			485			437
	Total revenue (TE)		1,043			1,095			1,014
	Provision for credit losses		89			45			35
	Noninterest expense		703			736			669
	Income (loss) from continuing operations attributable to Key		187			230			228
	Income (loss) from discontinued operations, net of taxes (a)		1			(4)			5
	Net income (loss) attributable to Key		188			226			233

	Income (loss) from continuing operations attributable to Key common shareholders		182			224			222
	Income (loss) from discontinued operations, net of taxes (a)		1			(4)			5
	Net income (loss) attributable to Key common shareholders		183			220			227

Per common share
	Income (loss) from continuing operations attributable to Key common shareholders	$	.22		$	.27		$	.26
	Income (loss) from discontinued operations, net of taxes (a)		—			(.01)			.01
	Net income (loss) attributable to Key common shareholders (b)		.22			.27			.27

	Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution		.22			.27			.26
	Income (loss) from discontinued operations, net of taxes — assuming dilution (a)		—			(.01)			.01
	Net income (loss) attributable to Key common shareholders — assuming dilution (b)		.22			.26			.26

	Cash dividends paid		.075			.075			.065
	Book value at period end		12.79			12.51			12.12
	Tangible book value at period end		11.52			11.22			10.84
	Market price at period end		11.04			13.19			14.16

Performance ratios
	From continuing operations:
	Return on average total assets		.80	%		.97	%		1.03	%
	Return on average common equity		6.86			8.51			8.76
	Return on average tangible common equity (c)		7.64			9.50			9.80
	Net interest margin (TE)		2.89			2.87			2.91
	Cash efficiency ratio (c)		66.6			66.4			65.1

	From consolidated operations:
	Return on average total assets		.79	%		.93	%		1.03	%
	Return on average common equity		6.90			8.36			8.96
	Return on average tangible common equity (c)		7.68			9.33			10.02
	Net interest margin (TE)		2.83			2.84			2.88
	Loan to deposit (d)		85.7			87.8			86.9

Capital ratios at period end
	Key shareholders' equity to assets		11.25	%		11.30	%		11.26	%
	Key common shareholders' equity to assets		10.95			10.99			10.95
	Tangible common equity to tangible assets (c)		9.97			9.98			9.92
	Common Equity Tier 1 (c), (e)		11.11			10.94			10.64
	Tier 1 risk-based capital (e)		11.42			11.35			11.04
	Total risk-based capital (e)		13.17			12.97			12.79
	Leverage (e)		10.73			10.72			10.91

Financial Highlights (continued)
(dollars in millions)

		Three months ended
		3-31-16			12-31-15			3-31-15
Asset quality — from continuing operations
	Net loan charge-offs	$	46		$	37		$	28
	Net loan charge-offs to average total loans		.31	%		.25	%		.20	%
	Allowance for loan and lease losses	$	826		$	796		$	794
	Allowance for credit losses		895			852			835
	Allowance for loan and lease losses to period-end loans		1.37	%		1.33	%		1.37	%
	Allowance for credit losses to period-end loans		1.48			1.42			1.44
	Allowance for loan and lease losses to nonperforming loans		122.2			205.7			181.7
	Allowance for credit losses to nonperforming loans		132.4			220.2			191.1
	Nonperforming loans at period end (f)	$	676		$	387		$	437
	Nonperforming assets at period end		692			403			457
	Nonperforming loans to period-end portfolio loans		1.12	%		.65	%		.75	%
	Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets		1.14			.67			.79

Trust and brokerage assets — from continuing operations
	Assets under management	$	34,107		$	33,983		$	39,281
	Nonmanaged and brokerage assets		49,474			47,681			49,508

Other data
	Average full-time equivalent employees		13,403			13,359			13,591
	Branches		961			966			992

Taxable-equivalent adjustment		$	8		$	8		$	6



(a)	In April 2009, management decided to wind down the operations of Austin Capital Management, Ltd., a subsidiary that specialized in managing hedge fund investments for institutional customers. In September 2009, management decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank National Association. In February 2013, Key decided to sell its investment subsidiary, Victory Capital Management, and its broker-dealer affiliate, Victory Capital Advisors, to a private equity fund. As a result of these decisions, Key has accounted for these businesses as discontinued operations.

(b)	Earnings per share may not foot due to rounding.

(c)	The following table entitled "GAAP to Non-GAAP Reconciliations" presents the computations of certain financial measures related to "tangible common equity," "Common Equity Tier 1," and "cash efficiency." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the Regulatory Capital Rules, see the "Capital" section of this release.

(d)	Represents period-end consolidated total loans and loans held for sale divided by period-end consolidated total deposits (excluding deposits in foreign office).

(e)	3-31-16 ratio is estimated.

(f)	Loan balances exclude $11 million, $11 million, and $12 million of purchased credit impaired loans at March 31, 2016, December 31, 2015, and March 31, 2015, respectively.

TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles

GAAP to Non-GAAP Reconciliations
(dollars in millions)

The table below presents certain non-GAAP financial measures related to "tangible common equity," "return on tangible common equity," "Common Equity Tier 1," "pre-provision net revenue," certain financial measures excluding merger-related expense, and "cash efficiency ratio."

The tangible common equity ratio and the return on tangible common equity ratio have been a focus for some investors, and management believes these ratios may assist investors in analyzing Key's capital position without regard to the effects of intangible assets and preferred stock. Traditionally, the banking regulators have assessed bank and bank holding company capital adequacy based on both the amount and the composition of capital, the calculation of which is prescribed in federal banking regulations. In October 2013, the federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules"). The Regulatory Capital Rules require higher and better-quality capital and introduced a new capital measure, "Common Equity Tier 1," a non-GAAP financial measure. The mandatory compliance date for Key as a "standardized approach" banking organization began on January 1, 2015, subject to transitional provisions extending to January 1, 2019.

Common Equity Tier 1 is not formally defined by GAAP and is considered to be a non-GAAP financial measure. Since analysts and banking regulators may assess Key's capital adequacy using tangible common equity and Common Equity Tier 1, management believes it is useful to enable investors to assess Key's capital adequacy on these same bases. The table also reconciles the GAAP performance measures to the corresponding non-GAAP measures.

The table also shows the computation for pre-provision net revenue, which is not formally defined by GAAP. Management believes that eliminating the effects of the provision for loan and lease losses makes it easier to analyze the results by presenting them on a more comparable basis.

On October 30, 2015, Key announced that it entered into a definitive agreement and plan of merger to acquire First Niagara Financial Group. As a result of this pending transaction, Key has recognized merger-related expense. The table below shows the computation for noninterest expense excluding merger-related expense and earnings per common share excluding merger-related expense. Management believes that eliminating the effects of the merger-related expense makes it easier to analyze the results by presenting them on a more comparable basis.

The cash efficiency ratio is a ratio of two non-GAAP performance measures. As such, there is no directly comparable GAAP performance measure. The cash efficiency ratio performance measure removes the impact of Key's intangible asset amortization from the calculation. The table below also shows the computation for the cash efficiency ratio excluding merger-related expense. Management believes these ratios provide greater consistency and comparability between Key's results and those of its peer banks. Additionally, these ratios are used by analysts and investors as they develop earnings forecasts and peer bank analysis.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.

				Three months ended
				3-31-16			12-31-15			3-31-15
Tangible common equity to tangible assets at period end
	Key shareholders' equity (GAAP)			$	11,066		$	10,746		$	10,603
	Less:	Intangible assets (a)			1,077			1,080			1,088
		Preferred Stock, Series A (b)			281			281			281
		Tangible common equity (non-GAAP)		$	9,708		$	9,385		$	9,234

	Total assets (GAAP)			$	98,402		$	95,133		$	94,206
	Less:	Intangible assets (a)			1,077			1,080			1,088
		Tangible assets (non-GAAP)		$	97,325		$	94,053		$	93,118

	Tangible common equity to tangible assets ratio (non-GAAP)				9.97	%		9.98	%		9.92	%

Common Equity Tier 1 at period end
	Key shareholders' equity (GAAP)			$	11,066		$	10,746			10,603
	Less:	Preferred Stock, Series A (b)			281			281			281
		Common Equity Tier 1 capital before adjustments and deductions			10,785			10,465			10,322
	Less:	Goodwill, net of deferred taxes			1,034			1,034			1,036
		Intangible assets, net of deferred taxes			35			26			36
		Deferred tax assets			1			1			1
		Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes			70			(58)			52
		Accumulated gains (losses) on cash flow hedges, net of deferred taxes			47			(20)			(8)
		Amounts in accumulated other comprehensive income (loss) attributed to
			pension and postretirement benefit costs, net of deferred taxes		(365)			(365)			(364)
		Total Common Equity Tier 1 capital (c)		$	9,963		$	9,847			9,569

	Net risk-weighted assets (regulatory) (c)			$	89,712		$	89,980			89,967

	Common Equity Tier 1 ratio (non-GAAP) (c)				11.11	%		10.94	%		10.64

Noninterest expense excluding merger-related expense
	Noninterest expense (GAAP)			$	703		$	736		$	669
	Less:	Merger-related expense			24			6			—
		Noninterest expense excluding merger-related expense (non-GAAP)		$	679		$	730		$	669

Earnings per common share (EPS) excluding merger-related expense
	EPS from continuing operations attributable to Key common shareholders ─
		assuming dilution		$	.22		$	.27		$	.26
	Add:	EPS impact of merger-related expense			.02			—			—
		EPS from continuing operations attributable to Key common shareholders
			excluding merger-related expense (non-GAAP)	$	.24		$	.27		$	.26

GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)

			Three months ended
			3-31-16			12-31-15			3-31-15
Pre-provision net revenue
	Net interest income (GAAP)		$	604		$	602		$	571
	Plus:	Taxable-equivalent adjustment		8			8			6
		Noninterest income		431			485			437
	Less:	Noninterest expense		703			736			669
	Pre-provision net revenue from continuing operations (non-GAAP)		$	340		$	359		$	345

Average tangible common equity
	Average Key shareholders' equity (GAAP)		$	10,953		$	10,731		$	10,570
	Less:	Intangible assets (average) (d)		1,079			1,082			1,089
		Preferred Stock, Series A (average)		290			290			290
		Average tangible common equity (non-GAAP)	$	9,584		$	9,359		$	9,191

Return on average tangible common equity from continuing operations
	Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)		$	182		$	224		$	222
	Average tangible common equity (non-GAAP)			9,584			9,359			9,191

	Return on average tangible common equity from continuing operations (non-GAAP)			7.64	%		9.50	%		9.80	%

Return on average tangible common equity consolidated
	Net income (loss) attributable to Key common shareholders (GAAP)		$	183		$	220		$	227
	Average tangible common equity (non-GAAP)			9,584			9,359			9,191

	Return on average tangible common equity consolidated (non-GAAP)			7.68	%		9.33	%		10.02	%

Cash efficiency ratio
	Noninterest expense (GAAP)		$	703		$	736		$	669
	Less:	Intangible asset amortization		8			9			9
		Adjusted noninterest expense (non-GAAP)		695			727			660
	Less:	Merger-related expense		24			6			—
		Adjusted noninterest expense excluding merger-related expense (non-GAAP)	$	671		$	721		$	660

	Net interest income (GAAP)		$	604		$	602		$	571
	Plus:	Taxable-equivalent adjustment		8			8			6
		Noninterest income		431			485			437
		Total taxable-equivalent revenue (non-GAAP)	$	1,043		$	1,095		$	1,014

	Cash efficiency ratio (non-GAAP)			66.6	%		66.4	%		65.1	%

	Cash efficiency ratio excluding merger-related expense (non-GAAP)			64.3	%		65.8	%		65.1	%

			Three months ended
			3-31-16
Common Equity Tier 1 under the Regulatory Capital Rules ("RCR") (estimates)
	Common Equity Tier 1 under current RCR		$	9,963
	Adjustments from current RCR to the fully phased-in RCR:
		Deferred tax assets and other intangible assets (e)		(24)
		Common Equity Tier 1 anticipated under the fully phased-in RCR (f)	$	9,939

	Net risk-weighted assets under current RCR		$	89,712
	Adjustments from current RCR to the fully phased-in RCR:
		Mortgage servicing assets (g)		477
		Volcker funds		(290)
		All other assets		18
		Total risk-weighted assets anticipated under the fully phased-in RCR (f)	$	89,917

	Common Equity Tier 1 ratio under the fully phased-in RCR (f)			11.05	%



(a)	For the three months ended March 31, 2016, December 31, 2015, and March 31, 2015, intangible assets exclude $40 million, $45 million, and $61 million, respectively, of period-end purchased credit card receivables.

(b)	Net of capital surplus.

(c)	3-31-16 amount is estimated.

(d)	For the three months ended March 31, 2016, December 31, 2015, and March 31, 2015, average intangible assets exclude $42 million, $47 million, and $64 million, respectively, of average purchased credit card receivables.

(e)	Includes the deferred tax assets subject to future taxable income for realization, primarily tax credit carryforwards, as well as intangible assets (other than goodwill and mortgage servicing assets) subject to the transition provisions of the final rule.

(f)	The anticipated amount of regulatory capital and risk-weighted assets is based upon the federal banking agencies' Regulatory Capital Rules (as fully phased-in on January 1, 2019); Key is subject to the Regulatory Capital Rules under the "standardized approach."

(g)	Item is included in the 10%/15% exceptions bucket calculation and is risk-weighted at 250%.

GAAP = U.S. generally accepted accounting principles

Consolidated Balance Sheets
(dollars in millions)

			3-31-16		12-31-15		3-31-15
Assets
	Loans		$	60,438	$	59,876	$	57,953
	Loans held for sale			684		639		1,649
	Securities available for sale			14,304		14,218		13,120
	Held-to-maturity securities			5,003		4,897		5,005
	Trading account assets			765		788		789
	Short-term investments			5,436		2,707		3,378
	Other investments			643		655		730
		Total earning assets		87,273		83,780		82,624
	Allowance for loan and lease losses			(826)		(796)		(794)
	Cash and due from banks			474		607		506
	Premises and equipment			750		779		806
	Operating lease assets			362		340		306
	Goodwill			1,060		1,060		1,057
	Other intangible assets			57		65		92
	Corporate-owned life insurance			3,557		3,541		3,488
	Derivative assets			1,065		619		731
	Accrued income and other assets			2,849		3,290		3,142
	Discontinued assets			1,781		1,846		2,246
		Total assets	$	98,402	$	95,131	$	94,204

Liabilities
	Deposits in domestic offices:
		NOW and money market deposit accounts	$	38,946	$	37,089	$	35,623
		Savings deposits		2,385		2,341		2,413
		Certificates of deposit ($100,000 or more)		3,095		2,392		1,982
		Other time deposits		3,259		3,127		3,182
		Total interest-bearing deposits		47,685		44,949		43,200
		Noninterest-bearing deposits		25,697		26,097		27,948
	Deposits in foreign office — interest-bearing			—		—		474
		Total deposits		73,382		71,046		71,622
	Federal funds purchased and securities sold under repurchase agreements			374		372		517
	Bank notes and other short-term borrowings			615		533		608
	Derivative liabilities			790		632		825
	Accrued expense and other liabilities			1,410		1,605		1,308
	Long-term debt			10,760		10,184		8,711
		Total liabilities		87,331		84,372		83,591

Equity
	Preferred stock, Series A			290		290		290
	Common shares			1,017		1,017		1,017
	Capital surplus			3,818		3,922		3,910
	Retained earnings			9,042		8,922		8,445
	Treasury stock, at cost			(2,888)		(3,000)		(2,780)
	Accumulated other comprehensive income (loss)			(213)		(405)		(279)
		Key shareholders' equity		11,066		10,746		10,603
	Noncontrolling interests			5		13		10
		Total equity		11,071		10,759		10,613
Total liabilities and equity			$	98,402	$	95,131	$	94,204

Common shares outstanding (000)				842,290		835,751		850,920

Consolidated Statements of Income
(dollars in millions, except per share amounts)

			Three months ended
			3-31-16		12-31-15		3-31-15
Interest income
	Loans		$	562	$	552	$	523
	Loans held for sale			8		8		7
	Securities available for sale			75		76		70
	Held-to-maturity securities			24		24		24
	Trading account assets			7		6		5
	Short-term investments			4		3		2
	Other investments			3		4		5
		Total interest income		683		673		636

Interest expense
	Deposits			31		26		26
	Bank notes and other short-term borrowings			2		3		2
	Long-term debt			46		42		37
		Total interest expense		79		71		65

Net interest income				604		602		571
Provision for credit losses				89		45		35
Net interest income after provision for credit losses				515		557		536

Noninterest income
	Trust and investment services income			109		105		109
	Investment banking and debt placement fees			71		127		68
	Service charges on deposit accounts			65		64		61
	Operating lease income and other leasing gains			17		15		19
	Corporate services income			50		55		43
	Cards and payments income			46		47		42
	Corporate-owned life insurance income			28		36		31
	Consumer mortgage income			2		2		3
	Mortgage servicing fees			12		15		13
	Net gains (losses) from principal investing			—		—		29
	Other income (a), (b)			31		19		19
		Total noninterest income		431		485		437

Noninterest expense
	Personnel			404		429		389
	Net occupancy			61		64		65
	Computer processing			43		43		38
	Business services and professional fees			41		44		33
	Equipment			21		22		22
	Operating lease expense			13		13		11
	Marketing			12		17		8
	FDIC assessment			9		8		8
	Intangible asset amortization			8		9		9
	OREO expense, net			1		1		2
	Other expense			90		86		84
		Total noninterest expense		703		736		669
Income (loss) from continuing operations before income taxes				243		306		304
	Income taxes			56		73		74
Income (loss) from continuing operations				187		233		230
	Income (loss) from discontinued operations, net of taxes			1		(4)		5
Net income (loss)				188		229		235
	Less: Net income (loss) attributable to noncontrolling interests			—		3		2
Net income (loss) attributable to Key			$	188	$	226	$	233

Income (loss) from continuing operations attributable to Key common shareholders			$	182	$	224	$	222
Net income (loss) attributable to Key common shareholders				183		220		227

Per common share
Income (loss) from continuing operations attributable to Key common shareholders			$	.22	$	.27	$	.26
Income (loss) from discontinued operations, net of taxes				—		(.01)		.01
Net income (loss) attributable to Key common shareholders (b)				.22		.27		.27

Per common share — assuming dilution
Income (loss) from continuing operations attributable to Key common shareholders			$	.22	$	.27	$	.26
Income (loss) from discontinued operations, net of taxes				—		(.01)		.01
Net income (loss) attributable to Key common shareholders (b)				.22		.26		.26

Cash dividends declared per common share			$	.075	$	.075	$	.065

Weighted-average common shares outstanding (000)				826,447		828,206		848,580
	Effect of common share options and other stock awards			7,594		7,733		8,542
Weighted-average common shares and potential common shares outstanding (000) (c)				834,041		835,939		857,122

(a)	For the three months ended March 31, 2016, and March 31, 2015, net securities gains (losses) totaled less than $1 million. For the three months ended December 31, 2015, net securities gains (losses) totaled $1 million. For the three months ended March 31, 2016, and December 31, 2015, Key did not have any impairment losses related to securities. For the three months ended March 31, 2015, impaired losses related to securities totaled less than $1 million.

(b)	Earnings per share may not foot due to rounding.

(c)	Assumes conversion of common share options and other stock awards and/or convertible preferred stock, as applicable.

Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations
(dollars in millions)

			First Quarter 2016								Fourth Quarter 2015								First Quarter 2015
			Average								Average								Average
			Balance		Interest		(a)	Yield/Rate		(a)	Balance		Interest		(a)	Yield/Rate		(a)	Balance		Interest		(a)	Yield/Rate		(a)
Assets
	Loans: (b), (c)
	Commercial, financial and agricultural (d)		$	31,590	$	263			3.35	%	$	30,884	$	253			3.25	%	$	28,321	$	223			3.18	%
	Real estate — commercial mortgage			8,138		77			3.78			8,019		75			3.70			8,095		73			3.67
	Real estate — construction			1,016		10			4.11			1,067		10			3.65			1,139		11			3.90
	Commercial lease financing			3,957		36			3.65			3,910		36			3.68			4,070		36			3.57
		Total commercial loans		44,701		386			3.47			43,880		374			3.38			41,625		343			3.33
	Real estate — residential mortgage			2,236		24			4.18			2,252		24			4.18			2,229		24			4.26
	Home equity loans			10,240		103			4.06			10,418		105			3.97			10,576		104			3.99
	Consumer direct loans			1,593		26			6.53			1,605		26			6.50			1,546		25			6.63
	Credit cards			784		21			10.72			780		21			10.66			732		20			11.01
	Consumer indirect loans			602		10			6.44			641		10			6.45			804		13			6.41
		Total consumer loans		15,455		184			4.76			15,696		186			4.69			15,887		186			4.73
		Total loans		60,156		570			3.80			59,576		560			3.72			57,512		529			3.72
	Loans held for sale			826		8			4.02			841		8			4.13			795		7			3.33
	Securities available for sale (b), (e)			14,207		75			2.12			14,168		76			2.13			13,087		70			2.17
	Held-to-maturity securities (b)			4,817		24			2.01			4,908		24			1.99			4,947		24			1.93
	Trading account assets			817		7			3.50			822		6			3.31			717		5			2.80
	Short-term investments			3,432		4			.46			3,483		3			.28			2,399		2			.27
	Other investments (e)			647		3			1.73			674		4			2.71			742		5			2.79
		Total earning assets		84,902		691			3.27			84,472		681			3.21			80,199		642			3.23
	Allowance for loan and lease losses			(803)								(790)								(793)
	Accrued income and other assets			10,378								10,435								10,221
	Discontinued assets			1,804								1,947								2,271
		Total assets	$	96,281							$	96,064							$	91,898

Liabilities
	NOW and money market deposit accounts		$	37,708		15			.16		$	37,640		14			.15		$	34,952		13			.15
	Savings deposits			2,349		—			.02			2,338		—			.02			2,385		—			.02
	Certificates of deposit ($100,000 or more) (f)			2,761		10			1.37			2,150		7			1.31			2,017		7			1.30
	Other time deposits			3,200		6			.79			3,047		5			.72			3,217		6			.72
	Deposits in foreign office			—		—			—			354		—			.24			529		—			.22
		Total interest-bearing deposits		46,018		31			.27			45,529		26			.24			43,100		26			.24
	Federal funds purchased and securities sold under repurchase agreements			437		—			.07			392		—			.02			720		—			.03
	Bank notes and other short-term borrowings			591		2			1.63			556		3			1.65			506		2			1.56
	Long-term debt (f), (g)			8,566		46			2.19			8,316		42			2.05			6,124		37			2.52
		Total interest-bearing liabilities		55,612		79			.57			54,793		71			.52			50,450		65			.52
	Noninterest-bearing deposits			25,580								26,292								26,269
	Accrued expense and other liabilities			2,322								2,289								2,327
	Discontinued liabilities (g)			1,804								1,947								2,271
		Total liabilities		85,318								85,321								81,317

Equity
	Key shareholders' equity			10,953								10,731								10,570
	Noncontrolling interests			10								12								11
		Total equity		10,963								10,743								10,581

		Total liabilities and equity	$	96,281							$	96,064							$	91,898

Interest rate spread (TE)									2.70	%							2.69	%							2.71	%

Net interest income (TE) and net interest margin (TE)						612			2.89	%				610			2.87	%				577			2.91	%
TE adjustment (b)						8								8								6
	Net interest income, GAAP basis				$	604							$	602							$	571



(a)	Results are from continuing operations. Interest excludes the interest associated with the liabilities referred to in (g) below, calculated using a matched funds transfer pricing methodology.

(b)	Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%.

(c)	For purposes of these computations, nonaccrual loans are included in average loan balances.

(d)	Commercial, financial and agricultural average balances include $85 million, $87 million, and $87 million of assets from commercial credit cards for the three months ended March 31, 2016, December 31, 2015, and March 31, 2015, respectively.

(e)	Yield is calculated on the basis of amortized cost.

(f)	Rate calculation excludes basis adjustments related to fair value hedges.

(g)	A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying Key's matched funds transfer pricing methodology to discontinued operations.

TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles

Noninterest Expense
(dollars in millions)

	Three months ended
	3-31-16		12-31-15		3-31-15
Personnel (a)	$	404	$	429	$	389
Net occupancy		61		64		65
Computer processing		43		43		38
Business services and professional fees		41		44		33
Equipment		21		22		22
Operating lease expense		13		13		11
Marketing		12		17		8
FDIC assessment		9		8		8
Intangible asset amortization		8		9		9
OREO expense, net		1		1		2
Other expense		90		86		84
Total noninterest expense	$	703	$	736	$	669

Merger-related expense		24		6		—
Total noninterest expense excluding merger-related expense (b)	$	679	$	730	$	669

Average full-time equivalent employees (c)		13,403		13,359		13,591

(a) Additional detail provided in table below.

(b) Non-GAAP measure. See the table entitled "GAAP to Non-GAAP Reconciliations" in this financial supplement.

(c) The number of average full-time equivalent employees has not been adjusted for discontinued operations.


Personnel Expense
(in millions)

	Three months ended
	3-31-16		12-31-15		3-31-15
Salaries and contract labor	$	244	$	244	$	228
Incentive and stock-based compensation		89		115		83
Employee benefits		68		64		72
Severance		3		6		6
Total personnel expense	$	404	$	429	$	389

Loan Composition
(dollars in millions)

								Percent change 3-31-16 vs.
		3-31-16		12-31-15		3-31-15		12-31-15			3-31-15
Commercial, financial and agricultural (a)		$	31,976	$	31,240	$	28,783		2.4	%		11.1	%
Commercial real estate:
	Commercial mortgage		8,364		7,959		8,162		5.1			2.5
	Construction		841		1,053		1,142		(20.1)			(26.4)
	Total commercial real estate loans		9,205		9,012		9,304		2.1			(1.1)
Commercial lease financing (b)			3,934		4,020		4,064		(2.1)			(3.2)
	Total commercial loans		45,115		44,272		42,151		1.9			7.0
Residential — prime loans:
	Real estate — residential mortgage		2,234		2,242		2,231		(.4)			.1
	Home equity loans		10,149		10,335		10,523		(1.8)			(3.6)
Total residential — prime loans			12,383		12,577		12,754		(1.5)			(2.9)
Consumer direct loans			1,579		1,600		1,547		(1.3)			2.1
Credit cards			782		806		727		(3.0)			7.6
Consumer indirect loans			579		621		774		(6.8)			(25.2)
	Total consumer loans		15,323		15,604		15,802		(1.8)			(3.0)
	Total loans (c), (d)	$	60,438	$	59,876	$	57,953		.9	%		4.3	%



Loans Held for Sale Composition
(dollars in millions)

								Percent change 3-31-16 vs.
		3-31-16		12-31-15		3-31-15		12-31-15			3-31-15
Commercial, financial and agricultural		$	103	$	76	$	183		35.5	%		(43.7)	%
Real estate — commercial mortgage			562		532		1,408		5.6			(60.1)
Commercial lease financing			19		14		14		35.7			35.7
Real estate — residential mortgage			—		17		44		N/M			N/M
	Total loans held for sale (e)	$	684	$	639	$	1,649		7.0	%		(58.5)	%



Summary of Changes in Loans Held for Sale
(in millions)

		1Q16		4Q15		3Q15		2Q15			1Q15
Balance at beginning of period		$	639	$	916	$	835	$	1,649		$	734
	New originations		1,114		1,655		1,673		1,650			2,130
	Transfers from (to) held to maturity, net		—		22		24		6			10
	Loan sales		(1,108)		(1,943)		(1,616)		(2,466)			(1,204)
	Loan draws (payments), net		39		(11)		—		(4)			(21)
Balance at end of period (e)		$	684	$	639	$	916	$	835		$	1,649



(a)	Loan balances include $85 million, $85 million, and $87 million of commercial credit card balances at March 31, 2016, December 31, 2015, and March 31, 2015, respectively.

(b)	Commercial lease financing includes receivables held as collateral for a secured borrowing of $115 million, $134 million, and $230 million at March 31, 2016, December 31, 2015, and March 31, 2015, respectively. Principal reductions are based on the cash payments received from these related receivables.

(c)	At March 31, 2016, total loans include purchased loans of $109 million, of which $11 million were purchased credit impaired. At December 31, 2015, total loans include purchased loans of $114 million, of which $11 million were purchased credit impaired. At March 31, 2015, total loans include purchased loans of $130 million, of which $12 million were purchased credit impaired.

(d)	Total loans exclude loans of $1.8 billion at March 31, 2016, and at December 31, 2015, and $2.2 billion at March 31, 2015, related to the discontinued operations of the education lending business.

(e)	Total loans held for sale exclude loans held for sale of $169 million at September 30, 2015, and $179 million at June 30, 2015, related to the discontinued operations of the education lending business.

N/M = Not Meaningful

Exit Loan Portfolio From Continuing Operations
(in millions)

	Balance				Change		Net Loan				Balance on
	Outstanding				3-31-16 vs.		Charge-offs				Nonperforming Status
	3-31-16		12-31-15		12-31-15		1Q16		4Q15		3-31-16		12-31-15
Residential properties — homebuilder		—	$	6	$	(6)		—		—	$	3	$	8
Marine and RV floor plan		—		1		(1)		—		—		—		—
Commercial lease financing (a)	$	743		765		(22)	$	1		—		—		1
Total commercial loans		743		772		(29)		1		—		3		9
Home equity — Other		195		208		(13)		1	$	2		7		8
Marine		544		583		(39)		2		1		4		6
RV and other consumer		39		41		(2)		—		—		—		—
Total consumer loans		778		832		(54)		3		3		11		14
Total exit loans in loan portfolio	$	1,521	$	1,604	$	(83)	$	4	$	3	$	14	$	23

Discontinued operations — education lending business (not included in exit loans above)	$	1,760	$	1,828	$	(68)	$	6	$	7	$	6	$	7


(a)	Includes (1) the business aviation, commercial vehicle, office products, construction, and industrial leases; (2) Canadian lease financing portfolios; (3) European lease financing portfolios; and (4) all remaining balances related to lease in, lease out; sale in, lease out; service contract leases; and qualified technological equipment leases.

Asset Quality Statistics From Continuing Operations
(dollars in millions)

		1Q16			4Q15			3Q15			2Q15			1Q15
Net loan charge-offs	$	46		$	37		$	41		$	36		$	28
Net loan charge-offs to average total loans		.31	%		.25	%		.27	%		.25	%		.20	%
Allowance for loan and lease losses	$	826		$	796		$	790		$	796		$	794
Allowance for credit losses (a)		895			852			844			841			835
Allowance for loan and lease losses to period-end loans		1.37	%		1.33	%		1.31	%		1.37	%		1.37	%
Allowance for credit losses to period-end loans		1.48			1.42			1.40			1.44			1.44
Allowance for loan and lease losses to nonperforming loans		122.2			205.7			197.5			190.0			181.7
Allowance for credit losses to nonperforming loans		132.4			220.2			211.0			200.7			191.1
Nonperforming loans at period end (b)	$	676		$	387		$	400		$	419		$	437
Nonperforming assets at period end		692			403			417			440			457
Nonperforming loans to period-end portfolio loans		1.12	%		.65	%		.67	%		.72	%		.75	%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets		1.14			.67			.69			.75			.79

(a)

Includes the allowance for loan and lease losses plus the liability for credit losses on lending-related unfunded commitments.

(b)

Loan balances exclude $11 million, $11 million, $12 million, $12 million, and $12 million of purchased credit impaired loans at March 31, 2016, December 31, 2015, September 30, 2015, June 30, 2015, and March 31, 2015, respectively.

Summary of Loan and Lease Loss Experience From Continuing Operations
(dollars in millions)

	Three months ended
	3-31-16			12-31-15			3-31-15
Average loans outstanding	$	60,156		$	59,576		$	57,512

Allowance for loan and lease losses at beginning of period	$	796		$	790		$	794
Loans charged off:
Commercial, financial and agricultural		26			18			12

Real estate — commercial mortgage		1			2			2
Real estate — construction		—			—			1
Total commercial real estate loans		1			2			3
Commercial lease financing		3			6			2
Total commercial loans		30			26			17

Real estate — residential mortgage		2			2			2
Home equity loans		10			7			8
Consumer direct loans		6			6			6
Credit cards		8			7			8
Consumer indirect loans		4			3			6
Total consumer loans		30			25			30
Total loans charged off		60			51			47
Recoveries:
Commercial, financial and agricultural		3			3			5

Real estate — commercial mortgage		2			4			2
Real estate — construction		1			—			—
Total commercial real estate loans		3			4			2
Commercial lease financing		—			—			4
Total commercial loans		6			7			11

Real estate — residential mortgage		2			2			—
Home equity loans		3			2			3
Consumer direct loans		1			1			2
Credit cards		1			—			—
Consumer indirect loans		1			2			3
Total consumer loans		8			7			8
Total recoveries		14			14			19
Net loan charge-offs		(46)			(37)			(28)
Provision (credit) for loan and lease losses		76			43			29
Foreign currency translation adjustment		—			—			(1)
Allowance for loan and lease losses at end of period	$	826		$	796		$	794

Liability for credit losses on lending-related commitments at beginning of period	$	56		$	54		$	35
Provision (credit) for losses on lending-related commitments		13			2			6
Liability for credit losses on lending-related commitments at end of period (a)	$	69		$	56		$	41

Total allowance for credit losses at end of period	$	895		$	852		$	835

Net loan charge-offs to average total loans		.31	%		.25	%		.20	%
Allowance for loan and lease losses to period-end loans		1.37			1.33			1.37
Allowance for credit losses to period-end loans		1.48			1.42			1.44
Allowance for loan and lease losses to nonperforming loans		122.2			205.7			181.7
Allowance for credit losses to nonperforming loans		132.4			220.2			191.1

Discontinued operations — education lending business:
Loans charged off	$	9		$	10		$	10
Recoveries		3			3			4
Net loan charge-offs	$	(6)		$	(7)		$	(6)

(a) Included in "accrued expense and other liabilities" on the balance sheet.

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations
(dollars in millions)

	3-31-16			12-31-15			9-30-15			6-30-15			3-31-15
Commercial, financial and agricultural	$	380		$	82		$	89		$	100		$	98

Real estate — commercial mortgage		16			19			23			26			30
Real estate — construction		12			9			9			12			12
Total commercial real estate loans		28			28			32			38			42
Commercial lease financing		11			13			21			18			20
Total commercial loans		419			123			142			156			160

Real estate — residential mortgage		59			64			67			67			72
Home equity loans		191			190			181			184			191
Consumer direct loans		1			2			1			1			2
Credit cards		2			2			2			2			2
Consumer indirect loans		4			6			7			9			10
Total consumer loans		257			264			258			263			277
Total nonperforming loans (a)		676			387			400			419			437
OREO		14			14			17			20			20
Other nonperforming assets		2			2			—			1			—
Total nonperforming assets	$	692		$	403		$	417		$	440		$	457

Accruing loans past due 90 days or more	$	70		$	72		$	54		$	66		$	111
Accruing loans past due 30 through 89 days		237			208			271			181			216
Restructured loans — accruing and nonaccruing (b)		283			280			287			300			268
Restructured loans included in nonperforming loans (b)		151			159			160			170			141
Nonperforming assets from discontinued operations — education lending business		6			7			8			6			8
Nonperforming loans to period-end portfolio loans		1.12	%		.65	%		.67	%		.72	%		.75	%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets		1.14			.67			.69			.75			.79



(a)	Loan balances exclude $11 million, $11 million, $12 million, $12 million, and $12 million of purchased credit impaired loans at March 31, 2016, December 31, 2015, September 30, 2015, June 30, 2015, and March 31, 2015, respectively.

(b)	Restructured loans (i.e., troubled debt restructurings) are those for which Key, for reasons related to a borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider. These concessions are made to improve the collectability of the loan and generally take the form of a reduction of the interest rate, extension of the maturity date or reduction in the principal balance.

Summary of Changes in Nonperforming Loans From Continuing Operations
(in millions)

	1Q16		4Q15		3Q15		2Q15		1Q15
Balance at beginning of period	$	387	$	400	$	419	$	437	$	418
Loans placed on nonaccrual status		406		81		81		92		123
Charge-offs		(60)		(51)		(53)		(52)		(47)
Loans sold		(11)		—		(2)		—		—
Payments		(8)		(21)		(16)		(25)		(9)
Transfers to OREO		(4)		(4)		(4)		(5)		(7)
Transfers to other nonperforming assets		—		(1)		—		—		—
Loans returned to accrual status		(34)		(17)		(25)		(28)		(41)
Balance at end of period (a)	$	676	$	387	$	400	$	419	$	437

(a) Loan balances exclude $11 million, $11 million, $12 million, $12 million, and $12 million of purchased credit impaired loans at March 31, 2016, December 31, 2015,
September 30, 2015, June 30, 2015, and March 31, 2015, respectively.


Summary of Changes in Other Real Estate Owned, Net of Allowance, From Continuing Operations
(in millions)

	1Q16		4Q15		3Q15		2Q15		1Q15
Balance at beginning of period	$	14	$	17	$	20	$	20	$	18
Properties acquired — nonperforming loans		4		4		4		5		7
Valuation adjustments		(1)		(2)		(2)		(1)		(1)
Properties sold		(3)		(5)		(5)		(4)		(4)
Balance at end of period	$	14	$	14	$	17	$	20	$	20

Line of Business Results
(dollars in millions)

																Percent change 1Q16 vs.
	1Q16			4Q15			3Q15			2Q15			1Q15			4Q15			1Q15
Key Community Bank
Summary of operations
Total revenue (TE)	$	595		$	588		$	579		$	560		$	549			1.2	%		8.4	%
Provision for credit losses		42			20			18			3			30			110.0			40.0
Noninterest expense		436			456			444			447			438			(4.4)			(.5)
Net income (loss) attributable to Key		74			70			74			69			51			5.7			45.1
Average loans and leases		30,789			30,925			31,039			30,707			30,662			(.4)			.4
Average deposits		52,803			52,219			51,234			50,765			50,415			1.1			4.7
Net loan charge-offs		23			23			21			20			28			—			(17.9)
Net loan charge-offs to average total loans		.30	%		.30	%		.27	%		.26	%		.37	%		N/A			N/A
Nonperforming assets at period end	$	303		$	303		$	306		$	305		$	328			—			(7.6)
Return on average allocated equity		11.09	%		10.39	%		10.92	%		10.34	%		7.56	%		N/A			N/A
Average full-time equivalent employees		7,376			7,390			7,476			7,574			7,642			(.2)			(3.5)


Key Corporate Bank
Summary of operations
Total revenue (TE)	$	426		$	479		$	454		$	478		$	402			(11.1)	%		6.0	%
Provision for credit losses		43			26			30			41			6			65.4			616.7
Noninterest expense		237			257			250			256			219			(7.8)			8.2
Net income (loss) attributable to Key		118			142			136			131			127			(16.9)			(7.1)
Average loans and leases		27,722			26,981			26,425			25,298			24,722			2.7			12.1
Average loans held for sale		811			820			918			1,234			775			(1.1)			4.6
Average deposits		18,074			19,080			18,809			19,709			18,569			(5.3)			(2.7)
Net loan charge-offs		18			12			20			12			(4)			50.0			N/M
Net loan charge-offs to average total loans		.26	%		.18	%		.30	%		.19	%		(.07)	%		N/A			N/A
Nonperforming assets at period end	$	372		$	74		$	85		$	105		$	93			402.7			300.0
Return on average allocated equity		23.15	%		29.05	%		28.29	%		29.24	%		27.68	%		N/A			N/A
Average full-time equivalent employees		2,126			2,113			2,173			2,058			2,057			.6			3.4

TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/keycorp-reports-first-quarter-2016-net-income-of-182-million-or-22-per-common-share-earnings-per-common-share-of-24-excluding-02-of-merger-related-expense-300255269.html

SOURCE KeyCorp

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