KeyCorp Reports Third Quarter 2016 Net Income Of $165 Million, Or $.16 Per Common Share; Earnings Per Common Share Of $.30, Excluding $.14 Of Merger-Related Charges

Key completes acquisition of First Niagara Financial Group; reflected in 3Q16 results

Positive operating leverage compared to the prior year, driven by 6% increase in revenue, excluding the impact of First Niagara and merger-related charges

Average loans up 5% from prior year, driven by an 11% increase in commercial, financial and agricultural loans, excluding the impact of First Niagara

Strong fee income, excluding the impact of First Niagara: record quarter for investment banking and debt placement fees

Resumed common share repurchases, with $65 million of repurchases during 3Q16

News provided by

KeyCorp

Oct 25, 2016, 06:30 ET

CLEVELAND, Oct. 25, 2016 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced third quarter net income from continuing operations attributable to Key common shareholders of $165 million, or $.16 per common share, compared to $193 million, or $.23 per common share, for the second quarter of 2016, and $216 million, or $.26 per common share, for the third quarter of 2015. During the third quarter of 2016, Key incurred merger-related charges totaling $207 million, or $.14 per common share, compared to $45 million, or $.04 per common share, in the second quarter of 2016. Excluding merger-related charges, earnings per common share were $.30 for the third quarter of 2016 and $.27 for the second quarter of 2016. No merger-related charges were incurred in the third quarter of 2015.

"Third quarter results reflect strong momentum and performance in Key's core businesses, and we achieved a significant milestone with the completion of our First Niagara acquisition," said Chairman and Chief Executive Officer Beth Mooney. "Excluding the impact from the acquisition and merger-related charges, Key's revenue was up 6%, benefiting from solid loan growth and strong fee income, including a record quarter for investment banking and debt placement fees. Credit quality remained solid with net charge-offs as a percent of average loans remaining below our targeted range. Also, during the quarter, we leveraged Key's strong capital position by reinitiating our share repurchase program."

"With the completion of our acquisition, we were pleased to welcome our new colleagues and one million new clients from First Niagara," Mooney continued. "We successfully converted branches, ATMs, systems and client accounts to Key earlier this month, and I continue to be encouraged and energized by the opportunity we have ahead. Our focus remains on achieving our financial targets and delivering on the commitments we have made to our shareholders."

First Niagara Financial Group Acquisition

KeyCorp's third quarter results reflect its acquisition of First Niagara Financial Group ("First Niagara"), effective August 1, 2016, in exchange for total consideration paid of $4 billion, including the cash consideration of $811 million, the issuance of 240 million common shares valued at $2.8 billion, and the issuance of a new series of KeyCorp preferred stock to replace the First Niagara preferred stock valued at $350 million. Results of the operations acquired from First Niagara have been reflected in Key's results since the acquisition date. Assets acquired in the transaction totaled approximately $35.6 billion, while liabilities assumed were $33 billion, not reflecting the impact of branch divestitures.

In connection with Key's acquisition of First Niagara, third quarter 2016 results also include the divestiture of 18 branches on September 9, 2016. The impact of divested branches on Key's third quarter 2016 results included $439 million of loans and $1.6 billion of deposits.

Selected Financial Highlights

dollars in millions, except per share data										Change 3Q16 vs.
	3Q16			2Q16			3Q15			2Q16		3Q15
Income (loss) from continuing operations attributable to Key common shareholders	$	165		$	193		$	216		(14.5)	%	(23.6)	%
Income (loss) from continuing operations attributable to Key common shareholders per common share — assuming dilution	.16			.23			.26			(30.4)		(38.5)
Return on average total assets from continuing operations	.55		%	.82		%	.95		%	N/A		N/A
Common Equity Tier 1 ratio (non-GAAP)^{(a), (b)}	9.55			11.10			10.47			N/A		N/A
Book value at period end	$	12.78		$	13.08		$	12.47		(2.3)	%	2.5	%
Net interest margin (TE) from continuing operations	2.85		%	2.76		%	2.87		%	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)

9-30-16 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

INCOME STATEMENT HIGHLIGHTS

Net interest income

dollars in millions							Change 3Q16 vs.
	3Q16		2Q16		3Q15		2Q16		3Q15
Net interest income (TE)	$	788	$	605	$	598	30.2	%	31.8	%
Merger-related charges	(6)		—		—		N/M		N/M
First Niagara impact ^(a)	175		—		—		N/M		N/M
Total net interest income excluding merger-related charges and First Niagara impact	$	619	$	605	$	598	2.3	%	3.5	%

(a)	Reflects two months of First Niagara activity during the third quarter of 2016.

TE = Taxable Equivalent

The acquisition of First Niagara contributed approximately $175 million of net interest income in the third quarter of 2016, which included $19 million of related purchase accounting accretion. Third quarter 2016 net interest income included an additional $6 million of one-time merger-related charges.

Taxable-equivalent net interest income was $788 million for the third quarter of 2016, and the net interest margin was 2.85%, compared to taxable-equivalent net interest income of $598 million and a net interest margin of 2.87% for the third quarter of 2015. The net interest margin declined two basis points, reflecting higher levels of liquidity, partially offset by the benefit from the First Niagara acquisition. Excluding the impact of First Niagara and merger-related charges, net interest income increased 4% compared to the year-ago quarter, driven by higher earning asset balances.

Compared to the second quarter of 2016, taxable-equivalent net interest income increased by $183 million, and the net interest margin increased by nine basis points. The net interest margin increased primarily due to the acquisition of First Niagara, partially offset by lower reinvestment yields in Key's securities portfolio. Excluding the impact of First Niagara and merger-related charges, net interest income increased by $14 million, driven by higher earning asset balances.

Noninterest Income

dollars in millions							Change 3Q16 vs.
	3Q16		2Q16		3Q15		2Q16		3Q15
Trust and investment services income	$	122	$	110	$	108	10.9	%	13.0	%
Investment banking and debt placement fees	156		98		109		59.2		43.1
Service charges on deposit accounts	85		68		68		25.0		25.0
Operating lease income and other leasing gains	6		18		15		(66.7)		(60.0)
Corporate services income	51		53		57		(3.8)		(10.5)
Cards and payments income	66		52		47		26.9		40.4
Corporate-owned life insurance income	29		28		30		3.6		(3.3)
Consumer mortgage income	6		3		3		100.0		100.0
Mortgage servicing fees	15		10		11		50.0		36.4
Net gains (losses) from principal investing	5		11		11		(54.5)		(54.5)
Other income	8		22		11		(63.6)		(27.3)
Total noninterest income	$	549	$	473	$	470	16.1	%	16.8	%

Merger-related charges	(12)		—		—		N/M		N/M
First Niagara impact ^(a)	53		—		—		N/M		N/M
Total noninterest income excluding merger-related charges and First Niagara impact	$	508	$	473	$	470	7.4	%	8.1	%

(a)	Reflects two months of First Niagara activity during the third quarter of 2016.

The acquisition of First Niagara contributed approximately $53 million of noninterest income in the third quarter of 2016, which primarily impacted service charges on deposit accounts, trust and investment services income, and cards and payments income. Additionally, third quarter 2016 reported noninterest income includes $12 million of merger-related charges, including losses from investment portfolio repositioning.

Key's noninterest income was $549 million for the third quarter of 2016, compared to $470 million for the year-ago quarter. Excluding the impact of First Niagara and merger-related charges discussed above, noninterest income increased $38 million, or 8%, primarily driven by a record quarter in investment banking and debt placement fees. Also benefiting the quarter was continued growth in cards and payments income, as well as service charges on deposit accounts. These increases were partially offset by lower corporate services income, net gains on principal investing and operating lease income and other leasing gains.

Compared to the second quarter of 2016, noninterest income increased by $76 million. Excluding the impact of First Niagara and merger-related charges, noninterest income increased $35 million, or 7%, primarily related to the record quarter in investment banking and debt placement fees. Cards and payments income also increased. Partially offsetting the increases were lower operating lease income and other leasing gains, net gains on principal investing and corporate services income.

Noninterest Expense

dollars in millions							Change 3Q16 vs.
	3Q16		2Q16		3Q15		2Q16		3Q15
Personnel expense	$	594	$	427	$	426	39.1	%	39.4	%
Nonpersonnel expense	488		324		298		50.6		63.8
Total noninterest expense	$	1,082	$	751	$	724	44.1		49.4

Merger-related charges	189		45		—		320.0		N/M
First Niagara impact ^(a)	140		—		—		N/M		N/M
Total noninterest expense excluding merger-related charges and First Niagara impact	$	753	$	706	$	724	6.7	%	4.0	%

(a)	Reflects two months of First Niagara activity during the third quarter of 2016.

N/M = Not Meaningful

Key's noninterest expense was $1.1 billion for the third quarter of 2016, including $140 million related to the operations of First Niagara, which primarily impacted personnel expense, net occupancy, business services and professional fees and other expense.

Additionally, noninterest expense included $189 million of merger-related charges, primarily made up of $97 million in personnel expense related to severance and technology development for systems conversions, as well as fully-dedicated personnel for merger and integration efforts. The remaining $92 million of merger-related charges were nonpersonnel expense, largely recognized in business services and professional fees, computer processing and other expense. In the second quarter of 2016, Key incurred $45 million of merger-related charges, while no merger-related charges were incurred in the third quarter of 2015.

Excluding the $140 million impact of First Niagara and $189 million of merger-related charges, noninterest expense was $29 million higher than the third quarter of last year. The increase was primarily driven by higher performance-based compensation, along with slight increases across various nonpersonnel line items, including FDIC assessment expense. These increases were partially offset by lower employee benefits expense.

Compared to the second quarter of 2016, excluding the impact of First Niagara and merger-related charges, noninterest expense increased by $47 million. The increase was primarily related to higher personnel expense reflecting higher performance-based compensation, as well as an increased FDIC assessment expense.

BALANCE SHEET HIGHLIGHTS

In the third quarter of 2016, Key had average assets of $125.1 billion compared to $94.8 billion in the third quarter of 2015 and $99.2 billion in the second quarter of 2016, primarily reflecting the acquisition of First Niagara.

Key's securities available-for-sale ($18 billion) and held-to-maturity securities ($6.2 billion) averaged $24.2 billion in the third quarter of 2016, compared to $19.2 billion in both the third quarter of 2015 and the second quarter of 2016. The increase compared to both the year-ago quarter and prior quarter primarily reflects the impact of the First Niagara acquisition, which added $4.7 billion of average investment securities, or $9 billion of securities at period-end. During the quarter, Key completed the planned sales and repositioning of First Niagara's portfolio to more closely align with Key's portfolio and investment philosophy.

Average Loans

dollars in millions							Change 3Q16 vs.
	3Q16		2Q16		3Q15		2Q16		3Q15
Commercial, financial and agricultural^(a)	$	37,318	$	32,630	$	30,374	14.4	%	22.9	%
Other commercial loans	19,110		13,222		13,098		44.5		45.9
Home equity loans	11,968		10,098		10,510		18.5		13.9
Other consumer loans	9,301		5,198		5,299		78.9		75.5
Total loans	$	77,697	$	61,148	$	59,281	27.1	%	31.1	%

First Niagara impact ^(b)	15,420		—		—		N/M		N/M
Total loans excluding First Niagara impact	$	62,277	$	61,148	$	59,281	1.8	%	5.1	%

(a)	Commercial, financial and agricultural average loan balances include $107 million, $87 million, and $88 million of assets from commercial credit cards at September 30, 2016, June 30, 2016, and September 30, 2015, respectively.

(b)	Balance includes two months of average First Niagara activity during the third quarter of 2016.

N/M = Not Meaningful

In the third quarter of 2016, the acquisition of First Niagara contributed approximately $15.4 billion of average loans, or $23 billion at period-end, impacting both the commercial and consumer loan portfolios. These results include the estimated fair value adjustment on the acquired portfolio of $686 million and the divestiture of $439 million of loans.

Average loans were $77.7 billion for the third quarter of 2016, an increase of $18.4 billion compared to the third quarter of 2015. Excluding the impact of the First Niagara acquisition, average loans were $62.3 billion for the third quarter of 2016, an increase of $3 billion compared to the third quarter of 2015. The loan growth occurred primarily in the commercial, financial and agricultural portfolio, which increased $3.3 billion. Consumer loans declined $537 million, largely due to paydowns in Key's home equity loan portfolio.

Compared to the second quarter of 2016, average loans increased by $16.5 billion, or $1.1 billion excluding the impact of First Niagara. This increase was driven by growth in commercial, financial and agricultural loans, which increased $1 billion, and reflects broad based growth across Key's commercial lines of business.

Average Deposits

dollars in millions											Change 3Q16 vs.
		3Q16			2Q16			3Q15			2Q16		3Q15
Non-time deposits^(a)		$	85,683		$	67,419		$	64,928		27.1	%	32.0	%
Certificates of deposit ($100,000 or more)		4,204			3,233			1,985			30.0		111.8
Other time deposits		5,031			3,252			3,064			54.7		64.2
	Total deposits	$	94,918		$	73,904		$	69,977		28.4	%	35.6	%

First Niagara impact ^(b)		18,851			—			—			N/M		N/M
	Total deposits excluding First Niagara impact	$	76,067		$	73,904		$	69,977		2.9	%	8.7	%

Cost of total deposits^(a)		.21		%	.19		%	.15		%	N/A		N/A

(a)	Excludes deposits in foreign office.

(b)	Balance includes two months of average First Niagara activity during the third quarter of 2016.

N/M = Not Meaningful

N/A = Not Applicable

In the third quarter of 2016, the acquisition of First Niagara contributed approximately $18.9 billion of average deposits, or $27.3 billion at period-end, which are spread across deposit products and consist primarily of consumer deposits. During the quarter, $1.6 billion of deposits were divested.

Average deposits, excluding deposits in foreign office, totaled $94.9 billion for the third quarter of 2016, an increase of $24.9 billion compared to the year-ago quarter. Excluding the impact of First Niagara, average deposits increased $5.7 billion over the year-ago quarter. Interest-bearing deposits increased $5.9 billion driven by a $4.7 billion increase in NOW and money market deposit accounts and a $1.2 billion increase in certificates of deposits and other time deposits. The increase from the year-ago quarter reflects core deposit growth in Key's retail banking franchise and growth in escrow deposits from our commercial mortgage servicing business.

Compared to the second quarter of 2016, average deposits increased by $21 billion. Excluding the impact of First Niagara, average deposits increased $2.2 billion driven by an increase in escrow deposits from Key's commercial mortgage servicing business, core deposit growth in Key's retail banking franchise, and deposit inflows from Key's commercial clients.

ASSET QUALITY

dollars in millions										Change 3Q16 vs.
	3Q16			2Q16			3Q15			2Q16		3Q15
Net loan charge-offs	$	44		$	43		$	41		2.3	%	7.3	%
Net loan charge-offs to average total loans	.23		%	.28		%	.27		%	N/A		N/A
Nonperforming loans at period end^(a)	$	723		$	619		$	400		16.8	%	80.8	%
Nonperforming assets at period end^(a)	760			637			417			19.3		82.3
Allowance for loan and lease losses	865			854			790			1.3		9.5
Allowance for loan and lease losses to nonperforming loans^(a)	119.6		%	138.0		%	197.5		%	N/A		N/A
Provision for credit losses	$	59		$	52		$	45		13.5	%	31.1	%

(a)	Nonperforming loan balances exclude $959 million, $11 million, and $12 million of purchased credit impaired loans at September 30, 2016, June 30, 2016, and September 30, 2015, respectively.

N/A = Not Applicable

Key's provision for credit losses was $59 million for the third quarter of 2016, compared to $45 million for the third quarter of 2015 and $52 million for the second quarter of 2016. Key's provision for credit losses in the third quarter of 2016 included $12 million related to the acquired credit card portfolio from First Niagara. Key's allowance for loan and lease losses was $865 million, or 1.01% of total period-end loans, at September 30, 2016, compared to 1.31% at September 30, 2015, and 1.38% at June 30, 2016.

Net loan charge-offs for the third quarter of 2016 totaled $44 million, or .23% of average total loans, including $2 million of net charge-offs related to First Niagara. These results compare to $41 million, or .27%, for the third quarter of 2015, and $43 million, or .28%, for the second quarter of 2016.

At September 30, 2016, Key's nonperforming loans totaled $723 million, which represented .85% of period-end portfolio loans, and include $150 million of nonperforming loans related to First Niagara. These results compare to .67% at September 30, 2015, and 1.00% at June 30, 2016. Nonperforming assets at September 30, 2016, totaled $760 million, and represented .89% of period-end portfolio loans and OREO and other nonperforming assets, and include $167 million of nonperforming assets related to First Niagara. These results compare to .69% at September 30, 2015, and 1.03% at June 30, 2016.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at September 30, 2016.

Capital Ratios

	9/30/2016		6/30/2016		9/30/2015
Common Equity Tier 1^{(a), (b)}	9.55	%	11.10	%	10.47	%
Tier 1 risk-based capital^(a)	10.52		11.41		10.87
Total risk based capital^(a)	12.54		13.63		12.47
Tangible common equity to tangible assets^(b)	8.26		9.95		9.90
Leverage^(a)	10.17		10.59		10.68

(a)	9-30-16 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 September 30, 2016, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.55% and 10.52%, respectively. In addition, the tangible common equity ratio was 8.26% at September 30, 2016. The declines from the prior quarter are primarily related to the acquisition of First Niagara.

As a "standardized approach" banking organization, Key's mandatory compliance with the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules") 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 9.39% at September 30, 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 3Q16 vs.
		3Q16	2Q16	3Q15	2Q16		3Q15
Shares outstanding at beginning of period		842,703	842,290	843,608	—		(.1)	%
Common shares repurchased		(5,240)	—	(8,386)	N/M		(37.5)
Shares reissued (returned) under employee benefit plans		4,857	413	63	N/M		N/M
Common shares issued to acquire First Niagara		239,735	—	—	N/M		N/M
	Shares outstanding at end of period	1,082,055	842,703	835,285	28.4	%	29.5	%

N/M = Not Meaningful

During the third quarter of 2016, Key issued 240 million common shares related to the acquisition of First Niagara. Key also resumed its share repurchase program under the 2016 Capital Plan following the close of the First Niagara acquisition. Accordingly, Key completed $65 million of common share repurchases in the third quarter of 2016, including repurchases to offset issuances of common shares under our employee compensation plans.

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 3Q16 vs.
		3Q16		2Q16		3Q15		2Q16		3Q15
Revenue from continuing operations (TE)
Key Community Bank		$	779	$	598	$	579	30.3	%	34.5	%
Key Corporate Bank		553		452		454		22.3		21.8
Other Segments		17		31		35		(45.2)		(51.4)
	Total segments	1,349		1,081		1,068		24.8		26.3
Reconciling Items		(12)		(3)		—		N/M		N/M
	Total	$	1,337	$	1,078	$	1,068	24.0	%	25.2	%

Income (loss) from continuing operations attributable to Key
Key Community Bank		$	103	$	81	$	74	27.2	%	39.2	%
Key Corporate Bank		159		135		136		17.8		16.9
Other Segments		16		24		26		(33.3)		(38.5)
	Total segments	278		240		236		15.8		17.8
Reconciling Items ^(a)		(107)		(41)		(14)		N/M		N/M
	Total	$	171	$	199	$	222	(14.1)	%	(23.0)	%

(a)	Reconciling items consists primarily of the unallocated portion of merger-related charges and items not allocated to the business segments because they do not reflect their normal operations.

TE = Taxable Equivalent, N/M = Not Meaningful

Key Community Bank


dollars in millions								Change 3Q16 vs.
		3Q16		2Q16		3Q15		2Q16		3Q15
Summary of operations
Net interest income (TE)		$	530	$	391	$	379	35.5	%	39.8	%
Noninterest income		249		207		200		20.3		24.5
	Total revenue (TE)	779		598		579		30.3		34.5
Provision for credit losses		37		25		18		48.0		105.6
Noninterest expense		578		444		444		30.2		30.2
	Income (loss) before income taxes (TE)	164		129		117		27.1		40.2
Allocated income taxes (benefit) and TE adjustments		61		48		43		27.1		41.9
	Net income (loss) attributable to Key	$	103	$	81	$	74	27.2	%	39.2	%

Average balances
Loans and leases		$	41,548	$	30,936	$	31,039	34.3	%	33.9	%
Total assets		44,219		32,963		33,155		34.1		33.4
Deposits		69,397		53,794		51,234		29.0		35.5

Assets under management at period end		$	36,752	$	34,535	$	35,158	6.4	%	4.5	%

TE = Taxable Equivalent

Additional Key Community Bank Data

dollars in millions											3Q15
		3Q16			2Q16			3Q15			2Q16		3Q15
Noninterest income
Trust and investment services income		$	86		$	73		$	73		17.8	%	17.8	%
Service charges on deposit accounts		70			56			56			25.0		25.0
Cards and payments income		54			46			43			17.4		25.6
Other noninterest income		39			32			28			21.9		39.3
	Total noninterest income	$	249		$	207		$	200		20.3	%	24.5	%

Average deposit balances
NOW and money market deposit accounts		$	38,417		$	30,144		$	28,568		27.4	%	34.5	%
Savings deposits		4,369			2,365			2,362			84.7		85.0
Certificates of deposit ($100,000 or more)		2,607			2,383			1,560			9.4		67.1
Other time deposits		4,943			3,245			3,061			52.3		61.5
Deposits in foreign office		—			—			271			N/M		N/M
Noninterest-bearing deposits		19,061			15,657			15,412			21.7		23.7
	Total deposits	$	69,397		$	53,794		$	51,234		29.0	%	35.5	%

Home equity loans
Average balance		$	11,703		$	9,908		$	10,281
Combined weighted-average loan-to-value ratio (at date of origination)		70		%	71		%	71		%
Percent first lien positions		55			61			60

Other data
Branches		1,322			949			972
Automated teller machines		1,701			1,236			1,259

N/M = Not Meaningful

Key Community Bank Summary of Operations

Net income increased $29 million, or 39.2% from prior year (up $11 million, or 14.9% excluding the impact of First Niagara)
Average deposits increased $18.2 billion, or 35.5% from the prior year (up $3.8 billion, or 7.4% excluding the impact of First Niagara)
Average loans increased $10.5 billion, or 33.9% from the prior year (up $206 million, or .7% excluding the impact of First Niagara)

Key Community Bank recorded net income attributable to Key of $103 million for the third quarter of 2016, compared to $74 million for the year-ago quarter. First Niagara contributed $18 million of the growth year-over-year.

Taxable-equivalent net interest income increased by $151 million, or 39.8%, from the third quarter of 2015. Excluding the impact of First Niagara, taxable-equivalent net interest income increased $27 million, primarily driven by deposit growth and higher interest rates.

Noninterest income increased $49 million, or 24.5%, from the year-ago quarter. Excluding the impact of First Niagara, noninterest income increased $8 million, or 4%, related to positive trends in cards and payments income and service charges on deposit accounts. Investment banking and debt placement fees also increased from the year-ago period. These increases were partially offset by declines in trust and investment services and consumer mortgage income.

The provision for credit losses increased by $19 million, or 105.6%, from the third quarter of 2015, primarily related to the acquired credit card portfolio from First Niagara. Excluding the impact of First Niagara, the provision for credit losses increased $3 million, or 16.6%, related to an increase in net loan charge-offs of $9 million from the same period one year ago.

Noninterest expense increased by $134 million, or 30.2%, from the year-ago quarter. Excluding the impact of First Niagara, noninterest expense increased $14 million, or 3.1%, mostly driven by the implementation of an FDIC surcharge and increased marketing expense.

Key Corporate Bank


dollars in millions								Change 3Q16 vs.
		3Q16		2Q16		3Q15		2Q16		3Q15
Summary of operations
Net interest income (TE)		$	276	$	222	$	221	24.3	%	24.9	%
Noninterest income		277		230		233		20.4		18.9
	Total revenue (TE)	553		452		454		22.3		21.8
Provision for credit losses		25		30		30		(16.7)		(16.7)
Noninterest expense		307		259		250		18.5		22.8
	Income (loss) before income taxes (TE)	221		163		174		35.6		27.0
Allocated income taxes and TE adjustments		62		29		41		113.8		51.2
	Net income (loss)	159		134		133		18.7		19.5
Less: Net income (loss) attributable to noncontrolling interests		—		(1)		(3)		N/M		N/M
	Net income (loss) attributable to Key	$	159	$	135	$	136	17.8	%	16.9	%

Average balances
Loans and leases		$	34,561	$	28,607	$	26,425	20.8	%	30.8	%
Loans held for sale		1,103		591		918		86.6		20.2
Total assets		40,581		33,909		32,099		19.7		26.4
Deposits		22,708		19,129		18,809		18.7		20.7

TE = Taxable Equivalent, N/M = Not Meaningful

Additional Key Corporate Bank Data

dollars in millions								Change 3Q16 vs.
		3Q16		2Q16		3Q15		2Q16		3Q15
Noninterest income
Trust and investment services income		$	36	$	37	$	35	(2.7)	%	2.9	%
Investment banking and debt placement fees		153		94		107		62.8		43.0
Operating lease income and other leasing gains		9		15		16		(40.0)		(43.8)

Corporate services income		36		40		46		(10.0)		(21.7)
Service charges on deposit accounts		15		12		11		25.0		36.4
Cards and payments income		10		6		4		66.7		150.0
	Payments and services income	61		58		61		5.2		—

Mortgage servicing fees		13		10		11		30.0		18.2
Other noninterest income		5		16		3		(68.8)		66.7
	Total noninterest income	$	277	$	230	$	233	20.4	%	18.9	%

Key Corporate Bank Summary of Operations

Record quarter for investment banking and debt placement fees, up $46 million, or 43% from prior year (no impact from First Niagara)
Net income increased $23 million, or 16.9% from the prior year (up $9 million, or 6.6% excluding the impact of First Niagara)
Average loans and leases increased $8.1 billion, or 30.8% from the prior year (up $3.1 billion, or 11.7% excluding the impact of First Niagara)
Average deposits increased $3.9 billion, or 20.7% from the prior year (up $1.5 billion, or 7.9% excluding the impact of First Niagara)

Key Corporate Bank recorded net income attributable to Key of $159 million for the third quarter of 2016, compared to $136 million for the same period one year ago. First Niagara contributed $14 million of the growth year-over year.

Taxable-equivalent net interest income increased by $55 million, or 24.9%, compared to the third quarter of 2015. Excluding the impact of First Niagara, taxable-equivalent net interest income increased by $18 million, or 8%, compared to the third quarter of 2015. Average loan and lease balances increased $8.1 billion, or 30.8%, from the year-ago quarter, primarily driven by the First Niagara acquisition as well as growth in commercial, financial and agricultural loans. This loan growth was offset by spread compression due to higher funding costs. Average deposit balances increased $3.9 billion, or 20.7%, from the year-ago quarter, mostly driven by the First Niagara acquisition as well as growth in commercial escrow deposits.

Noninterest income increased $44 million, or 18.9%, from the prior year. Excluding the impact of First Niagara, noninterest income increased $40 million, or 17%. This growth was mostly due to a record quarter for investment banking and debt placement fees, which were up $46 million, or 43%, related to strength in commercial mortgage banking, equity capital markets and merger and acquisition advisory fees.

The provision for credit losses decreased $5 million, or 16.7%, compared to the third quarter of 2015. Excluding the impact of First Niagara, the provision for credit losses decreased $7 million, or 22.2%. The decrease was mostly due to lower net loan charge-offs.

Noninterest expense increased by $57 million, or 22.8%, from the third quarter of 2015. Excluding the impact of First Niagara, noninterest expense increased $39 million, or 15.4%. Personnel expense increased $32 million, or 26%, mostly due to increases in incentive compensation and salaries. Several other line items increased over the prior year, including operating lease, cards and payments, FDIC, and overhead expenses.

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 $16 million for the third quarter of 2016, compared to $26 million for the same period last year. This decline was largely attributable to spread compression.

*****

KeyCorp's roots trace back 190 years to Albany, New York. Headquartered in Cleveland, Ohio, Key is one of the nation's largest bank-based financial services companies, with assets of approximately $135.8 billion at September 30, 2016.

Key provides deposit, lending, cash management, insurance, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of more than 1,200 branches and more than 1,500 ATMs. 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 9:00 a.m. ET, on Tuesday, October 25, 2016. An audio replay of the call will be available through November 8, 2016.

Financial Highlights
(dollars in millions, except per share amounts)
			Three months ended
			9/30/2016			6/30/2016			9/30/2015
Summary of operations
	Net interest income (TE)		$	788		$	605		$	598
	Noninterest income		549			473			470
		Total revenue (TE)	1,337			1,078			1,068
	Provision for credit losses		59			52			45
	Noninterest expense		1,082			751			724
	Income (loss) from continuing operations attributable to Key		171			199			222
	Income (loss) from discontinued operations, net of taxes^(a)		1			3			(3)
	Net income (loss) attributable to Key		172			202			219

	Income (loss) from continuing operations attributable to Key common shareholders		165			193			216
	Income (loss) from discontinued operations, net of taxes^(a)		1			3			(3)
	Net income (loss) attributable to Key common shareholders		166			196			213

Per common share
	Income (loss) from continuing operations attributable to Key common shareholders		$	.17		.23			.26
	Income (loss) from discontinued operations, net of taxes ^(a)		—			—			—
	Net income (loss) attributable to Key common shareholders ^(b)		.17			.23			.26

	Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution		.16			.23			.26
	Income (loss) from discontinued operations, net of taxes — assuming dilution ^(a)		—			—			—
	Net income (loss) attributable to Key common shareholders — assuming dilution ^(b)		.17			.23			.25

	Cash dividends paid		.085			.085			.075
	Book value at period end		12.78			13.08			12.47
	Tangible book value at period end		10.14			11.81			11.17
	Market price at period end		12.17			11.05			13.01

Performance ratios
	From continuing operations:
	Return on average total assets		.55		%	.82		%	.95		%
	Return on average common equity		5.09			7.15			8.30
	Return on average tangible common equity ^(c)		6.16			7.94			9.27
	Net interest margin (TE)		2.85			2.76			2.87
	Cash efficiency ratio ^(c)		80.0			69.0			66.9

	From consolidated operations:
	Return on average total assets		.55		%	.82		%	.92		%
	Return on average common equity		5.12			7.26			8.19
	Return on average tangible common equity ^(c)		6.20			8.06			9.14
	Net interest margin (TE)		2.83			2.74			2.84
	Loan to deposit ^(d)		84.7			85.3			89.3

Capital ratios at period end
	Key shareholders' equity to assets		11.04		%	11.18		%	11.22		%
	Key common shareholders' equity to assets		10.18			10.90			10.91
	Tangible common equity to tangible assets ^(c)		8.26			9.95			9.90
	Common Equity Tier 1 ^{(c), (e)}		9.55			11.10			10.47
	Tier 1 risk-based capital ^(e)		10.52			11.41			10.87
	Total risk-based capital ^(e)		12.54			13.63			12.47
	Leverage ^(e)		10.17			10.59			10.68

Asset quality — from continuing operations
	Net loan charge-offs		$	44		$	43		$	41
	Net loan charge-offs to average loans		.23		%	.28		%	.27		%
	Allowance for loan and lease losses		$	865		$	854		$	790
	Allowance for credit losses		918			904			844
	Allowance for loan and lease losses to period-end loans		1.01		%	1.38		%	1.31		%
	Allowance for credit losses to period-end loans		1.07			1.46			1.40
	Allowance for loan and lease losses to nonperforming loans ^(f)		119.6			138.0			197.5
	Allowance for credit losses to nonperforming loans ^(f)		127.0			146.0			211.0
	Nonperforming loans at period end ^(f)		$	723		$	619		$	400
	Nonperforming assets at period end ^(f)		760			637			417
	Nonperforming loans to period-end portfolio loans ^(f)		.85		%	1.00		%	.67		%
	Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets ^(f)		.89			1.03			.69

Trust and brokerage assets
	Assets under management		$	36,752		$	34,535		$	35,158
	Nonmanaged and brokerage assets		45,338			52,102			46,796

Other data
	Average full-time equivalent employees		17,079			13,419			13,555
	Branches		1,322			949			972

Taxable-equivalent adjustment			$	8		8			7

Financial Highlights (continued)
(dollars in millions, except per share amounts)
			Nine months ended
			9/30/2016			9/30/2015
Summary of operations
	Net interest income (TE)		$	2,005		$	1,766
	Noninterest income		1,453			1,395
		Total revenue (TE)	3,458			3,161
	Provision for credit losses		200			121
	Noninterest expense		2,536			2,104
	Income (loss) from continuing operations attributable to Key		557			685
	Income (loss) from discontinued operations, net of taxes ^(a)		5			5
	Net income (loss) attributable to Key		562			690

	Income (loss) from continuing operations attributable to Key common shareholders		$	540		$	668
	Income (loss) from discontinued operations, net of taxes ^(a)		5			5
	Net income (loss) attributable to Key common shareholders		545			673

Per common share
	Income (loss) from continuing operations attributable to Key common shareholders		$	.61		$	.79
	Income (loss) from discontinued operations, net of taxes ^(a)		.01			.01
	Net income (loss) attributable to Key common shareholders ^(b)		.62			.80

	Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution		.60			.78
	Income (loss) from discontinued operations, net of taxes — assuming dilution ^(a)		.01			.01
	Net income (loss) attributable to Key common shareholders — assuming dilution ^(b)		.61			.79

	Cash dividends paid		.245			.215

Performance ratios
	From continuing operations:
	Return on average total assets		.71		%	1.00		%
	Return on average common equity		6.28			8.67
	Return on average tangible common equity ^(c)		7.21			9.69
	Net interest margin (TE)		2.84			2.88
	Cash efficiency ratio ^(c)		72.5			65.7

	From consolidated operations:
	Return on average total assets		.70		%	.99		%
	Return on average common equity		6.34			8.74
	Return on average tangible common equity ^(c)		7.27			9.76
	Net interest margin (TE)		2.81			2.85

Asset quality — from continuing operations
	Net loan charge-offs		133			105
	Net loan charge-offs to average total loans		.27		%	.24		%

Other data
	Average full-time equivalent employees		14,642			13,525

Taxable-equivalent adjustment			24			20

(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)	9-30-16 ratio is estimated.

(f)	Nonperforming loan balances exclude $959 million, $11 million, and $12 million of purchased credit impaired loans at September 30, 2016, June 30, 2016, and September 30, 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 charges, 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 credit losses makes it easier to analyze the results by presenting them on a more comparable basis.

As previously disclosed, Key completed its purchase of First Niagara on August 1, 2016. The definitive agreement and plan of merger to acquire First Niagara was originally announced on October 30, 2015. As a result of this transaction, Key has recognized merger-related charges. The table below shows the computation of merger-related charges, noninterest expense excluding merger-related charges, earnings per common share excluding merger-related charges, and return on average assets from continuing operations excluding merger-related charges. Management believes that eliminating the effects of the merger-related charges 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 charges. 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
				9/30/2016			6/30/2016			9/30/2015
Tangible common equity to tangible assets at period end
	Key shareholders' equity (GAAP)			$	14,996		$	11,313		$	10,705
	Less:	Intangible assets ^(a)		2,855			1,074			1,084
		Preferred Stock, Series A ^(b)		1,156			281			281
		Tangible common equity (non-GAAP)		$	10,985		$	9,958		$	9,340

	Total assets (GAAP)			$	135,805		$	101,150		$	95,420
	Less:	Intangible assets ^(a)		2,855			1,074			1,084
		Tangible assets (non-GAAP)		$	132,950		$	100,076		$	94,336

	Tangible common equity to tangible assets ratio (non-GAAP)			8.26		%	9.95		%	9.90		%

Common Equity Tier 1 at period end
	Key shareholders' equity (GAAP)			$	14,996		$	11,313		10,705
	Less:	Preferred Stock, Series A ^(b)		1,156			281			281
		Common Equity Tier 1 capital before adjustments and deductions		13,840			11,032			10,424
	Less:	Goodwill, net of deferred taxes		2,451			1,031			1,036
		Intangible assets, net of deferred taxes		256			30			29
		Deferred tax assets		1			1			1
		Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes		99			129			54
		Accumulated gains (losses) on cash flow hedges, net of deferred taxes		39			77			21
		Amounts in accumulated other comprehensive income (loss) attributed to
			pension and postretirement benefit costs, net of deferred taxes	(359)			(362)			(385)
		Total Common Equity Tier 1 capital ^(c)		$	11,353		$	10,126		$	9,668

	Net risk-weighted assets (regulatory) ^(c)			$	118,922		$	91,195		92,307

	Common Equity Tier 1 ratio (non-GAAP) ^(c)			9.55		%	11.10		%	10.47		%

Pre-provision net revenue
	Net interest income (GAAP)			$	780		$	597		$	591
	Plus:	Taxable-equivalent adjustment		8			8			7
		Noninterest income		549			473			470
	Less:	Noninterest expense		1,082			751			724
		Pre-provision net revenue from continuing operations (non-GAAP)		$	255		$	327		$	344

GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
			Three months ended
			9/30/2016			6/30/2016			9/30/2015
Average tangible common equity
	Average Key shareholders' equity (GAAP)		$	13,552		$	11,147		$	10,614
	Less:	Intangible assets (average)^(d)	2,255			1,076			1,083
		Preferred Stock, Series A (average)	648			290			290
		Average tangible common equity (non-GAAP)	$	10,649		$	9,781		$	9,241

Return on average tangible common equity from continuing operations
	Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)		$	165		$	193		$	216
	Average tangible common equity (non-GAAP)		10,649			9,781			9,241

	Return on average tangible common equity from continuing operations (non-GAAP)		6.16		%	7.94		%	9.27		%

Return on average tangible common equity consolidated
	Net income (loss) attributable to Key common shareholders (GAAP)		$	166		$	196		$	213
	Average tangible common equity (non-GAAP)		10,649			9,781			9,241

	Return on average tangible common equity consolidated (non-GAAP)		6.20		%	8.06		%	9.14		%

Noninterest expense excluding merger-related charges
	Noninterest expense (GAAP)		$	1,082		$	751		$	724
	Less:	Merger-related charges	189			45			—
		Noninterest expense excluding merger-related charges (non-GAAP)	$	893		$	706		$	724

Earnings per common share (EPS) excluding merger-related charges
	EPS from continuing operations attributable to Key common shareholders —
		assuming dilution	$	.16		$	.23		$	.26
	Add:	EPS impact of merger-related charges	.14			.04			—
		EPS from continuing operations attributable to Key common shareholders
		excluding merger-related charges (non-GAAP)	$	.30		$	.27		.26

Cash efficiency ratio
	Noninterest expense (GAAP)		$	1,082		$	751		$	724
	Less:	Intangible asset amortization	13			7			9
		Adjusted noninterest expense (non-GAAP)	1,069			744			715
	Less:	Merger-related charges	189			45			—
		Adjusted noninterest expense excluding merger-related charges (non-GAAP)	$	880		$	699		$	715

	Net interest income (GAAP)		$	780		$	597		$	591
	Plus:	Taxable-equivalent adjustment	8			8			7
		Noninterest income	549			473			470
		Total taxable-equivalent revenue (non-GAAP)	1,337			1,078			1,068
	Add:	Merger-related charges	18			—			—
		Adjusted noninterest income excluding merger-related charges (non-GAAP)	1,355			$	1,078		1,068

	Cash efficiency ratio (non-GAAP)		80.0		%	69.0		%	66.9		%

	Cash efficiency ratio excluding merger-related charges (non-GAAP)		64.9		%	64.8		%	66.9		%

Return on average total assets from continuing operations excluding merger-related charges
	Income from continuing operations attributable to Key (GAAP)		$	171		$	199		$	222
	Add:	Merger-related charges, after tax	132			28			—
		Income from continuing operations attributable to Key excluding merger-related
		charges, after tax (non-GAAP)	$	303		$	227		$	222

	Average total assets from continuing operations (GAAP)		$	123,469		$	97,413		$	92,649

	Return on average total assets from continuing operations excluding merger-related
		charges (non-GAAP)	.98		%	.94		%	.95		%

			Three months ended
			9/30/2016
Common Equity Tier 1 under the Regulatory Capital Rules ("RCR") (estimates)
	Common Equity Tier 1 under current RCR		$	11,353
	Adjustments from current RCR to the fully phased-in RCR:
		Deferred tax assets and other intangible assets^(e)	(170)
		Common Equity Tier 1 anticipated under the fully phased-in RCR^(f)	$	11,183

	Net risk-weighted assets under current RCR		$	118,922
	Adjustments from current RCR to the fully phased-in RCR:
		Mortgage servicing assets^(g)	547
		Volcker funds	(199)
		All other assets	(133)
		Total risk-weighted assets anticipated under the fully phased-in RCR^(f)	$	119,137

	Common Equity Tier 1 ratio under the fully phased-in RCR^(f)		9.39		%

GAAP to Non-GAAP Reconciliations (continued)
(dollars in millions)
			Nine months ended
			9/30/2016			9/30/2015
Pre-provision net revenue
	Net interest income (GAAP)		$	1,981		$	1,746
	Plus:	Taxable-equivalent adjustment	24			20
		Noninterest income (GAAP)	1,453			1,395
	Less:	Noninterest expense (GAAP)	2,536			2,104
	Pre-provision net revenue from continuing operations (non-GAAP)		$	922		$	1,057

Average tangible common equity
	Average Key shareholders' equity (GAAP)		$	11,890		$	10,591
	Less:	Intangible assets (average)^(h)	1,473			1,086
		Preferred Stock, Series A (average)	410			290
		Average tangible common equity (non-GAAP)	$	10,007		$	9,215

Return on average tangible common equity from continuing operations
	Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)		$	540		$	668
	Average tangible common equity (non-GAAP)		10,007			9,215

	Return on average tangible common equity from continuing operations (non-GAAP)		7.21		%	9.69		%

Return on average tangible common equity consolidated
	Net income (loss) attributable to Key common shareholders (GAAP)		$	545		$	673
	Average tangible common equity (non-GAAP)		10,007			9,215

	Return on average tangible common equity consolidated (non-GAAP)		7.27		%	9.76		%

Cash efficiency ratio
	Noninterest expense (GAAP)		$	2,536		$	2,104
	Less:	Intangible asset amortization (GAAP)	28			27
		Adjusted noninterest expense (non-GAAP)	2,508			2,077
	Less:	Merger-related charges	258			—
		Adjusted noninterest expense excluding merger-related charges (non-GAAP)	$	2,250		$	2,077

	Net interest income (GAAP)		$	1,981		$	1,746
	Plus:	Taxable-equivalent adjustment	24			20
		Noninterest income (GAAP)	1,453			1,395
		Total taxable-equivalent revenue (non-GAAP)	3,458			3,161
	Add:	Merger-related charges	18			—
		Adjusted noninterest income excluding merger-related charges (non-GAAP)	$	3,476		$	3,161

	Cash efficiency ratio (non-GAAP)		72.5		%	65.7		%

	Cash efficiency ratio excluding merger-related charges (non-GAAP)		64.7		%	65.7		%

Return on average total assets from continuing operations excluding merger-related charges
	Income from continuing operations attributable to Key (GAAP)		$	557		$	685
	Add:	Merger-related charges, after tax	175			—
		Income from continuing operations attributable to Key excluding merger-related
		charges, after tax (non-GAAP)	$	732		$	685

	Average total assets from continuing operations (GAAP)		$	105,187		$	91,322

	Return on average total assets from continuing operations excluding merger-related
		charges (non-GAAP)	.93		%	1.00		%

(a)	For the three months ended September 30, 2016, June 30, 2016, and September 30, 2015, intangible assets exclude $51 million, $36 million, and $50 million, respectively, of period-end purchased credit card receivables.

(b)	Net of capital surplus.

(c)	9/30/16 amount is estimated.

(d)	For the three months ended September 30, 2016, June 30, 2016, and September 30, 2015, average intangible assets exclude $47 million, $38 million, and $52 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%.

(h)	For the nine months ended September 30, 2016, and September 30, 2015, average intangible assets exclude $42 million and $58 million, respectively, of average purchased credit card receivables.

GAAP = U.S. generally accepted accounting principles

Consolidated Balance Sheets
(dollars in millions)

			9/30/2016		6/30/2016		9/30/2015
Assets
	Loans		$	85,528	$	62,098	$	60,085
	Loans held for sale		1,137		442		916
	Securities available for sale		20,540		14,552		14,376
	Held-to-maturity securities		8,995		4,832		4,936
	Trading account assets		926		965		811
	Short-term investments		3,216		6,599		1,964
	Other investments		747		577		691
		Total earning assets	121,089		90,065		83,779
	Allowance for loan and lease losses		(865)		(854)		(790)
	Cash and due from banks		749		496		470
	Premises and equipment		1,023		742		771
	Operating lease assets		430		399		315
	Goodwill		2,480		1,060		1,060
	Other intangible assets		426		50		74
	Corporate-owned life insurance		4,035		3,568		3,516
	Derivative assets		1,304		1,234		793
	Accrued income and other assets		3,480		2,673		3,346
	Discontinued assets		1,654		1,717		2,086
		Total assets	$	135,805	$	101,150	$	95,420

Liabilities
	Deposits in domestic offices:
		NOW and money market deposit accounts	$	56,432	$	40,195	$	37,301
		Savings deposits	5,335		2,355		2,338
		Certificates of deposit ($100,000 or more)	4,601		3,381		2,001
		Other time deposits	5,793		3,267		3,020
		Total interest-bearing deposits	72,161		49,198		44,660
		Noninterest-bearing deposits	32,024		26,127		25,985
	Deposits in foreign office — interest-bearing		—		—		428
		Total deposits	104,185		75,325		71,073
	Federal funds purchased and securities sold under repurchase agreements		602		360		407
	Bank notes and other short-term borrowings		809		687		677
	Derivative liabilities		850		746		676
	Accrued expense and other liabilities		1,739		1,326		1,562
	Long-term debt		12,622		11,388		10,308
		Total liabilities	120,807		89,832		84,703

Equity
	Preferred stock		1,165		290		290
	Common shares		1,257		1,017		1,017
	Capital surplus		6,359		3,835		3,914
	Retained earnings		9,260		9,166		8,764
	Treasury stock, at cost		(2,863)		(2,881)		(3,008)
	Accumulated other comprehensive income (loss)		(182)		(114)		(272)
		Key shareholders' equity	14,996		11,313		10,705
	Noncontrolling interests		2		5		12
		Total equity	14,998		11,318		10,717
Total liabilities and equity			$	135,805	$	101,150	$	95,420

Common shares outstanding (000)			1,082,055		842,703		835,285

Consolidated Statements of Income
(dollars in millions, except per share amounts)
			Three months ended						Nine months ended
			9/30/2016		6/30/2016		9/30/2015		9/30/2016		9/30/2015
Interest income
	Loans		$	746	$	567	$	542	$	1,875	$	1,597
	Loans held for sale			10		5		10		23		29
	Securities available for sale			88		74		75		237		217
	Held-to-maturity securities			30		24		24		78		72
	Trading account assets			4		6		5		17		15
	Short-term investments			7		6		1		17		5
	Other investments			5		2		4		10		14
		Total interest income		890		684		661		2,257		1,949

Interest expense
	Deposits			49		34		27		114		79
	Bank notes and other short-term borrowings			2		3		2		7		6
	Long-term debt			59		50		41		155		118
		Total interest expense		110		87		70		276		203

Net interest income				780		597		591		1,981		1,746
Provision for credit losses				59		52		45		200		121
Net interest income after provision for credit losses				721		545		546		1,781		1,625

Noninterest income
	Trust and investment services income			122		110		108		341		328
	Investment banking and debt placement fees			156		98		109		325		318
	Service charges on deposit accounts			85		68		68		218		192
	Operating lease income and other leasing gains			6		18		15		41		58
	Corporate services income			51		53		57		154		143
	Cards and payments income			66		52		47		164		136
	Corporate-owned life insurance income			29		28		30		85		91
	Consumer mortgage income			6		3		3		11		10
	Mortgage servicing fees			15		10		11		37		33
	Net gains (losses) from principal investing			5		11		11		16		51
	Other income ^(a)			8		22		11		61		35
		Total noninterest income		549		473		470		1.453		1,395

Noninterest expense
	Personnel			594		427		426		1.425		1,223
	Net occupancy			73		59		60		193		191
	Computer processing			70		45		41		158		121
	Business services and professional fees			76		40		40		157		115
	Equipment			26		21		22		68		66
	Operating lease expense			15		14		11		42		34
	Marketing			32		22		17		66		40
	FDIC assessment			21		8		8		38		24
	Intangible asset amortization			13		7		9		28		27
	OREO expense, net			3		2		2		6		5
	Other expense			159		106		88		355		258
		Total noninterest expense		1,082		751		724		2,536		2,104
Income (loss) from continuing operations before income taxes				188		267		292		698		916
	Income taxes			16		69		72		141		230
Income (loss) from continuing operations				172		198		220		557		686
	Income (loss) from discontinued operations, net of taxes			1		3		(3)		5		5
Net income (loss)				173		201		217		562		691
	Less: Net income (loss) attributable to noncontrolling interests			1		(1)		(2)		—		1
Net income (loss) attributable to Key			$	172	$	202	$	219	$	562	$	690

Income (loss) from continuing operations attributable to Key common shareholders			$	165	$	193	$	216	$	540	$	668
Net income (loss) attributable to Key common shareholders				166		196		213		545		673

Per common share
Income (loss) from continuing operations attributable to Key common shareholders			$	.17	$	.23	$	.26	$	.61	$	.79
Income (loss) from discontinued operations, net of taxes				—		—		—		.01		.01
Net income (loss) attributable to Key common shareholders ^(b)				.17		.23		.26		.62		.80

Per common share — assuming dilution
Income (loss) from continuing operations attributable to Key common shareholders			$	.16	$	.23	$	.26	$	.60	$	.78
Income (loss) from discontinued operations, net of taxes				—		—		—		.01		.01
Net income (loss) attributable to Key common shareholders ^(b)				.17		.23		.25		.61		.79

Cash dividends declared per common share			$	.085	$	.085	$	.075	$	.245	$	.215

Weighted-average common shares outstanding (000)				982,080		831,899		831,430		880,824		839,758
	Effect of common share options and other stock awards			12,580		6,597		7,450		8,965		7,613
Weighted-average common shares and potential common shares outstanding (000) ^(c)				994,660		838,496		838,880		889,789		847,371

(a)	For the three months ended September 30, 2016, net securities losses totaled $6 million. For the three months ended June 30, 2016, and September 30, 2015, net securities gains (losses) totaled less than $1 million. For the three months ended September 30, 2016, June 30, 2016, and September 30, 2015, Key did not have any impairment losses related to securities.
(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)

			Third Quarter 2016								Second Quarter 2016								Third 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)		$	37,318	$	317			3.38	%	$	32,630	$	270			3.32	%	$	30,374	$	244			3.19	%
	Real estate — commercial mortgage			12,879		126			3.91			8,404		80			3.85			7,988		73			3.65
	Real estate — construction			1,723		21			4.67			869		8			3.78			1,164		11			3.78
	Commercial lease financing			4,508		38			3.33			3,949		37			3.77			3,946		35			3.57
		Total commercial loans		56,428		502			3.54			45,852		395			3.47			43,472		363			3.32
	Real estate — residential mortgage			4,453		45			3.96			2,253		22			4.11			2,258		24			4.19
	Home equity loans			11,968		122			4.07			10,098		102			4.04			10,510		105			3.96
	Consumer direct loans			1,666		30			7.20			1,599		26			6.53			1,597		26			6.53
	Credit cards			996		27			10.80			792		21			10.58			759		21			10.74
	Consumer indirect loans			2,186		28			5.23			554		9			6.56			685		11			6.47
		Total consumer loans		21,269		252			4.73			15,296		180			4.74			15,809		187			4.69
		Total loans		77,697		754			3.86			61,148		575			3.78			59,281		550			3.69
	Loans held for sale			1,152		10			3.48			611		5			3.18			939		10			3.96
	Securities available for sale^{(b), (e)}			17,972		88			1.99			14,268		74			2.08			14,247		74			2.11
	Held-to-maturity securities^(b)			6,250		30			1.86			4,883		24			1.98			4,923		24			1.95
	Trading account assets			860		4			2.12			967		6			2.28			699		5			2.50
	Short-term investments			5,911		7			.48			5,559		6			.45			2,257		1			.26
	Other investments^(e)			717		5			2.74			610		2			1.54			696		4			2.52
		Total earning assets		110,559		898			3.24			88,046		692			3.16			83,042		668			3.21
	Allowance for loan and lease losses			(847)								(833)								(790)
	Accrued income and other assets			13,757								10,200								10,397
	Discontinued assets			1,676								1,738								2,118
		Total assets	$	125,145							$	99,151							$	94,767

Liabilities
	NOW and money market deposit accounts		$	51,318		25			.20		$	39,687		16			.17		$	36,289		15			.16
	Savings deposits			4,521		1			.07			2,375		—			.02			2,371		—			.02
	Certificates of deposit ($100,000 or more)^(f)			4,204		12			1.15			3,233		11			1.39			1,985		6			1.27
	Other time deposits			5,031		11			.85			3,252		7			.85			3,064		6			.70
	Deposits in foreign office			—		—			—			—		—			—			492		—			.23
		Total interest-bearing deposits		65,074		49			.30			48,547		34			.29			44,201		27			.24
	Federal funds purchased and securities sold under repurchase agreements			578		—			.16			337		—			.01			859		—			.08
	Bank notes and other short-term borrowings			1,186		2			.91			694		3			1.39			567		2			1.51
	Long-term debt^{(f), (g)}			10,415		59			2.31			9,294		50			2.25			7,893		41			2.20
		Total interest-bearing liabilities		77,253		110			.57			58,872		87			.60			53,520		70			.53
	Noninterest-bearing deposits			29,844								25,357								26,268
	Accrued expense and other liabilities			2,818								2,032								2,236
	Discontinued liabilities^(g)			1,676								1,738								2,118
		Total liabilities		111,591								87,999								84,142

Equity
	Key shareholders' equity			13,552								11,147								10,614
	Noncontrolling interests			2								5								11
		Total equity		13,554								11,152								10,625

		Total liabilities and equity	$	125,145							$	99,151							$	94,767

Interest rate spread (TE)									2.67	%							2.56	%							2.68	%

Net interest income (TE) and net interest margin (TE)						788			2.85	%				605			2.76	%				598			2.87	%
TE adjustment^(b)						8								8								7
	Net interest income, GAAP basis				$	780							$	597							$	591

(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 $107 million, $87 million, and $88 million of assets from commercial credit cards for the three months ended September 30, 2016, June 30, 2016, and September 30, 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

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

			Nine months ended September 30, 2016								Nine months ended September 30, 2015
			Average								Average
			Balance		Interest		^(a)	Yield/Rate		^(a)	Balance		Interest		^(a)	Yield/ Rate		^(a)
Assets
	Loans:^{(b), (c)}
	Commercial, financial and agricultural ^(d)		$	33,859	$	850			3.35	%	$	29,244	$	700			3.20	%
	Real estate — commercial mortgage			9,818		283			3.85			8,021		220			3.67
	Real estate — construction			1,205		39			4.30			1,168		33			3.76
	Commercial lease financing			4,139		111			3.57			3,998		107			3.57
		Total commercial loans		49,021		1,283			3.50			42,431		1,060			3.34
	Real estate — residential mortgage			2,986		91			4.05			2,241		71			4.22
	Home equity loans			10,773		327			4.06			10,531		313			3.98
	Consumer direct loans			1,619		82			6.77			1,572		77			6.56
	Credit cards			858		69			10.71			743		60			10.80
	Consumer indirect loans			1,118		47			5.67			745		36			6.42
	Total consumer loans			17,354		616			4.74			15,832		557			4.71
	Total loans			66,375		1,899			3.82			58,263		1,617			3.71
	Loans held for sale			864		23			3.58			1,000		29			3.77
	Securities available for sale^{(b), (e)}			15,492		237			2.06			13,569		217			2.15
	Held-to-maturity securities^(b)			5,320		78			1.94			4,945		72			1.93
	Trading account assets			881		17			2.60			740		15			2.62
	Short-term investments			4,971		17			.46			2,627		5			.26
	Other investments^(e)			658		10			2.05			717		14			2.60
	Total earning assets			94,561		2,281			3.23			81,861		1,969			3.22
	Allowance for loan and lease losses			(828)								(792)
	Accrued income and other assets			11,454								10,253
	Discontinued assets			1,739								2,194
	Total assets		$	106,926							$	93,516

Liabilities
	NOW and money market deposit accounts		$	42,935		56			.18		$	35,793		42			.15
	Savings deposits			3,087		1			.04			2,383		—			.02
	Certificates of deposit ($100,000 or more)^(f)			3,402		33			1.28			2,004		19			1.27
	Other time deposits			3,832		24			.83			3,138		17			.71
	Deposits in foreign office			—		—			—			534		1			.23
		Total interest-bearing deposits		53,256		114			.29			43,852		79			.24

	Federal funds purchased and securities sold under repurchase agreements			451		—			.09			713		—			.05
	Bank notes and other short-term borrowings			825		7			1.21			577		6			1.48
	Long-term debt^{(f), (g)}			9,429		155			2.25			7,001		118			2.32
		Total interest-bearing liabilities		63,961		276			.58			52,143		203			.52
	Noninterest-bearing deposits			26,938								26,377
	Accrued expense and other liabilities			2,392								2,200
	Discontinued liabilities^(g)			1,739								2,194
	Total liabilities			95,030								82,914

Equity
	Key shareholders' equity			11,890								10,591
	Noncontrolling interests			6								11
	Total equity			11,896								10,602

	Total liabilities and equity		$	106,926							$	93,516

Interest rate spread (TE)									2.65	%							2.70	%

Net interest income (TE) and net interest margin (TE)						2,005			2.84	%				1,766			2.88	%
TE adjustment^(b)						24								20
	Net interest income, GAAP basis				$	1,981							$	1,746

(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 $93 million and $88 million of assets from commercial credit cards for the nine months ended September 30, 2016, and September 30, 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						Nine months ended
	9/30/2016		6/30/2016		9/30/2015		9/30/2016		9/30/2015
Personnel ^(a)	$	594	$	427	$	426	$	1,425	$	1,223
Net occupancy		73		59		60		193		191
Computer processing		70		45		41		158		121
Business services and professional fees		76		40		40		157		115
Equipment		26		21		22		68		66
Operating lease expense		15		14		11		42		34
Marketing		32		22		17		66		40
FDIC assessment		21		8		8		38		24
Intangible asset amortization		13		7		9		28		27
OREO expense, net		3		2		2		6		5
Other expense		159		106		88		355		258
Total noninterest expense	$	1,082	$	751	$	724	$	2,536	$	2,104

Merger-related charges ^(b)		189		45		—		258		—
First Niagara impact ^(c)		140		—		—		140		—
Total noninterest expense excluding merger-related charges and First Niagara impact	$	753	$	706	$	724	$	2,138	$	2,104

Average full-time equivalent employees ^(d)		17,079		13,419		13,555		14,642		13,525

(a)	Additional detail provided in Personnel Expense table below.

(b)	Additional detail provide in Merger-Related Charges table below.

(c)	Reflects two months of First Niagara activity during the third quarter of 2016.

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

Personnel Expense
(in millions)

	Three months ended						Nine months ended
	9/30/2016		6/30/2016		9/30/2015		9/30/2016		9/30/2015
Salaries and contract labor	$	329	$	266	$	247	$	839	$	714
Incentive and stock-based compensation		162		101		103		352		295
Employee benefits		73		58		75		199		202
Severance		30		2		1		35		12
Total personnel expense	$	594	$	427	$	426	$	1,425	$	1,223

Merger-related charges		97		35		—		148		—
First Niagara impact ^(a)		72		—		—		72		—
Total personnel expense excluding merger-related charges and First Niagara impact	$	425	$	392	$	426	$	1,205	$	1,223

(a) Reflects two months of First Niagara activity during the third quarter of 2016.

Merger-Related Charges
(in millions)

	Three months ended						Nine months ended
	9/30/2016		6/30/2016		9/30/2015		9/30/2016		9/30/2015
Net interest income	$	(6)		—		—	$	(6)		—

Operating lease income and other leasing gains		(2)		—		—		(2)		—
Other income		(10)		—		—		(10)		—
Noninterest income		(12)		—		—		(12)		—

Personnel ^(a)		97	$	35		—		148		—
Business services and professional fees		32		5		—		44		—
Computer processing		15		—		—		15		—
Marketing		9		3		—		13		—
Other nonpersonnel expense		36		2		—		38		—
Noninterest expense		189		45		—		258		—
Total merger-related charges	$	207	$	45		—	$	276		—

(a) Personnel expense includes severance, technology development related to systems conversion, and fully-dedicated personnel for merger and integration efforts.

Loan Composition
(dollars in millions)

								Percent change 9/30/16 vs.
		9/30/2016		6/30/2016		9/30/2015		6/30/2016		9/30/2015
Commercial, financial and agricultural ^(a)		$	39,433	33,376		$	31,095	18.1	%	26.8	%
Commercial real estate:
	Commercial mortgage	14,979		8,582		8,180		74.5		83.1
	Construction	2,189		881		1,070		148.5		104.6
	Total commercial real estate loans	17,168		9,463		9,250		81.4		85.6
Commercial lease financing ^(b)		4,783		3,988		3,929		19.9		21.7
	Total commercial loans	61,384		46,827		44,274		31.1		38.6
Residential — prime loans:
	Real estate — residential mortgage	5,509		2,285		2,267		141.1		143.0
	Home equity loans	12,757		10,062		10,504		26.8		21.4
Total residential — prime loans		18,266		12,347		12,771		47.9		43.0
Consumer direct loans		1,764		1,584		1,612		11.4		9.4
Credit cards		1,084		813		770		33.3		40.8
Consumer indirect loans		3,030		527		658		475.0		360.5
	Total consumer loans	24,144		15,271		15,811		58.1		52.7
	Total loans^{(c), (d)}	$	85,528	$	62,098	$	60,085	37.7	%	42.3	%

(a)	Loan balances include $117 million, $88 million, and $88 million of commercial credit card balances at September 30, 2016, June 30, 2016, and September 30, 2015, respectively.

(b)	Commercial lease financing includes receivables held as collateral for a secured borrowing of $76 million, $102 million, and $162 million at September 30, 2016, June 30, 2016, and September 30, 2015, respectively. Principal reductions are based on the cash payments received from these related receivables.

(c)	At September 30, 2016, total loans include purchased loans of $22.4 billion, of which $959 million were purchased credit impaired. At June 30, 2016, total loans include purchased loans of $104 million, of which $11 million were purchased credit impaired. At September 30, 2015, total loans include purchased loans of $119 million, of which $12 million were purchased credit impaired.

(d)	Total loans exclude loans of $1.6 billion at September 30, 2016, $1.7 billion at June 30, 2016, and $1.9 billion at September 30, 2015, related to the discontinued operations of the education lending business.

Loans Held for Sale Composition
(dollars in millions)

								Percent change 9/30/16 vs.
		9/30/2016		6/30/2016		9/30/2015		6/30/2016		9/30/2015
Commercial, financial and agricultural		$	56	$	150	$	74	(62.7)	%	(24.3)	%
Real estate — commercial mortgage		1,016		270		806		276.3		26.1
Commercial lease financing		3		3		10		—		(70.0)
Real estate — residential mortgage ^(a)		62		19		26		226.3		138.5
	Total loans held for sale^(b)	$	1,137	$	442	$	916	157.2	%	24.1	%

(a)	Real estate — residential mortgage loans held for sale at fair value.

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

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

		3Q16		2Q16		1Q16		4Q15		3Q15
Balance at beginning of period		$	442	$	684	$	639	$	916	$	835
	Purchases	48		—		—		—		—
	New originations	2,857		1,539		1,114		1,655		1,673
	Transfers from (to) held to maturity, net	2		22		—		22		24
	Loan sales	(2,180)		(1,802)		(1,108)		(1,943)		(1,616)
	Loan draws (payments), net	(32)		(1)		39		(11)		—
Balance at end of period^{(a), (b)}		$	1,137	$	442	$	684	$	639	$	916

(a)	Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $62 million at September 30, 2016.

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

Asset Quality Statistics From Continuing Operations
(dollars in millions)

	3Q16			2Q16			1Q16			4Q15			3Q15
Net loan charge-offs	$	44		$	43		$	46		$	37		$	41
Net loan charge-offs to average total loans	.23		%	.28		%	.31		%	.25		%	.27		%
Allowance for loan and lease losses	$	865		$	854		$	826		$	796		$	790
Allowance for credit losses^(a)	918			904			895			852			844
Allowance for loan and lease losses to period-end loans	1.01		%	1.38		%	1.37		%	1.33		%	1.31		%
Allowance for credit losses to period-end loans	1.07			1.46			1.48			1.42			1.40
Allowance for loan and lease losses to nonperforming loans^(b)	119.6			138.0			122.2			205.7			197.5
Allowance for credit losses to nonperforming loans ^(b)	127.0			146.0			132.4			220.2			211.0
Nonperforming loans at period end^(b)	$	723		$	619		$	676		$	387		$	400
Nonperforming assets at period end^(b)	760			637			692			403			417
Nonperforming loans to period-end portfolio loans^(b)	.85		%	1.00		%	1.12		%	.65		%	.67		%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets^(b)	.89			1.03			1.14			.67			.69

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

(b)	Nonperforming loan balances exclude $959 million, $11 million, $11 million, $11 million, and $12 million of purchased credit impaired loans at September 30, 2016, June 30, 2016, March 31, 2016 , December 31, 2015, and September 30, 2015, respectively.

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

	Three months ended									Nine months ended
	9/30/2016			6/30/2016			9/30/2015			9/30/2016			9/30/2015
Average loans outstanding	$	77,697		$	61,148		$	59,281		$	66,375		$	58,263

Allowance for loan and lease losses at beginning of period	854			826			796			796			794
Loans charged off:
Commercial, financial and agricultural	17			35			26			78			59

Real estate — commercial mortgage	—			2			—			3			2
Real estate — construction	9			—			—			9			1
Total commercial real estate loans	9			2			—			12			3
Commercial lease financing	5			3			2			11			5
Total commercial loans	31			40			28			101			67

Real estate — residential mortgage	1			1			1			4			4
Home equity loans	5			7			7			22			25
Consumer direct loans	6			6			6			18			18
Credit cards	9			8			7			25			23
Consumer indirect loans	3			2			4			9			15
Total consumer loans	24			24			25			78			85
Total loans charged off	55			64			53			179			152
Recoveries:
Commercial, financial and agricultural	2			3			2			8			13

Real estate — commercial mortgage	1			6			—			9			2
Real estate — construction	1			—			—			2			1
Total commercial real estate loans	2			6			—			11			3
Commercial lease financing	—			2			2			2			7
Total commercial loans	4			11			4			21			23

Real estate — residential mortgage	1			—			—			3			1
Home equity loans	3			4			4			10			9
Consumer direct loans	1			2			1			4			5
Credit cards	1			1			1			3			2
Consumer indirect loans	1			3			2			5			7
Total consumer loans	7			10			8			25			24
Total recoveries	11			21			12			46			47
Net loan charge-offs	(44)			(43)			(41)			(133)			(105)
Provision (credit) for loan and lease losses	56			71			36			203			102
Foreign currency translation adjustment	(1)			—			(1)			(1)			(1)
Allowance for loan and lease losses at end of period	$	865		$	854		$	790		$	865		$	790

Liability for credit losses on lending-related commitments at beginning of period	$	50		$	69		$	45		$	56		$	35
Provision (credit) for losses on lending-related commitments	3			(19)			9			(3)			19
Liability for credit losses on lending-related commitments at end of period^(a)	$	53		$	50		$	54		$	53		$	54

Total allowance for credit losses at end of period	$	918		$	904		$	844		$	918		$	844

Net loan charge-offs to average total loans	.23		%	.28		%	.27		%	.27		%	.24		%
Allowance for loan and lease losses to period-end loans	1.01			1.38			1.31			1.01			1.31
Allowance for credit losses to period-end loans	1.07			1.46			1.40			1.07			1.40
Allowance for loan and lease losses to nonperforming loans	119.6			138.0			197.5			119.6			197.5
Allowance for credit losses to nonperforming loans	127.0			146.0			211.0			127.0			211.0

Discontinued operations — education lending business:
Loans charged off	$	6		$	6		$	9		$	21		$	25
Recoveries	3			2			2			8			10
Net loan charge-offs	$	(3)		$	(4)		$	(7)		$	(13)		$	(15)

(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)

	9/30/2016			6/30/2016			3/31/2016			12/31/2015			9/30/2015
Commercial, financial and agricultural	$	335		$	321		$	380		$	82		$	89

Real estate — commercial mortgage		32			14			16			19			23
Real estate — construction		17			25			12			9			9
Total commercial real estate loans		49			39			28			28			32
Commercial lease financing		13			10			11			13			21
Total commercial loans		397			370			419			123			142

Real estate — residential mortgage		72			54			59			64			67
Home equity loans		225			189			191			190			181
Consumer direct loans		2			1			1			2			1
Credit cards		3			2			2			2			2
Consumer indirect loans		24			3			4			6			7
Total consumer loans		326			249			257			264			258
Total nonperforming loans^(a)		723			619			676			387			400
OREO		35			15			14			14			17
Other nonperforming assets		2			3			2			2			—
Total nonperforming assets^(a)	$	760		$	637		$	692		$	403		$	417

Accruing loans past due 90 days or more	$	49		$	70		$	70		$	72		$	54
Accruing loans past due 30 through 89 days		317			203			237			208			271
Restructured loans — accruing and nonaccruing^(b)		304			277			283			280			287
Restructured loans included in nonperforming loans^(b)		149			133			151			159			160
Nonperforming assets from discontinued operations — education lending business		5			5			6			7			8
Nonperforming loans to period-end portfolio loans ^(a)		.85	%		1.00	%		1.12	%		.65	%		.67	%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets^(a)		.89			1.03			1.14			.67			.69

(a)	Nonperforming loan balances exclude $959 million, $11 million, $11 million, $11 million, and $12 million of purchased credit impaired loans at September 30, 2016, June 30, 2016, March 31, 2016, December 31, 2015, and September 30, 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)

	3Q16		2Q16		1Q16		4Q15		3Q15
Balance at beginning of period	$	619	$	676	$	387	$	400	$	419
Loans placed on nonaccrual status		78		124		406		81		81
Nonperforming loans acquired from First Niagara		150		—		—		—		—
Charge-offs		(53)		(64)		(60)		(51)		(53)
Loans sold		—		—		(11)		—		(2)
Payments		(32)		(75)		(8)		(21)		(16)
Transfers to OREO		(5)		(6)		(4)		(4)		(4)
Transfers to other nonperforming assets		—		—		—		(1)		—
Loans returned to accrual status		(34)		(36)		(34)		(17)		(25)
Balance at end of period^(a)	$	723	$	619	$	676	$	387	$	400

(a)	Nonperforming loan balances exclude $959 million, $11 million, $11 million, $11 million, and $12 million of purchased credit impaired loans at September 30, 2016, June 30, 2016, March 31, 2016, December 31, 2015, and September 30, 2015, respectively.

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

	3Q16		2Q16		1Q16		4Q15		3Q15
Balance at beginning of period	$	15	$	14	$	14	$	17	$	20
Properties acquired — First Niagara		19		—		—		—		—
Properties acquired — nonperforming loans		5		6		4		4		4
Valuation adjustments		(2)		(2)		(1)		(2)		(2)
Properties sold		(2)		(3)		(3)		(5)		(5)
Balance at end of period	$	35	$	15	$	14	$	14	$	17

Line of Business Results
(dollars in millions)

																Percent change 3Q16 vs.
	3Q16			2Q16			1Q16			4Q15			3Q15			2Q16			3Q15
Key Community Bank
Summary of operations
Total revenue (TE)	$	779		$	598		$	595		$	588		$	579			30.3	%		34.5	%
Provision for credit losses		37			25			42			20			18			48.0			105.6
Noninterest expense		578			444			436			456			444			30.2			30.2
Net income (loss) attributable to Key		103			81			74			70			74			27.2			39.2
Average loans and leases		41,548			30,936			30,789			30,925			31,039			34.3			33.9
Average deposits		69,397			53,794			52,803			52,219			51,234			29.0			35.5
Net loan charge-offs		31			17			23			23			21			82.4			47.6
Net loan charge-offs to average total loans		.30	%		.22	%		.30	%		.30	%		.27	%		N/A			N/A
Nonperforming assets at period end	$	430		$	300		$	303		$	303		$	306			43.3			40.5
Return on average allocated equity		11.41	%		11.99	%		11.09	%		10.39	%		10.92	%		N/A			N/A
Average full-time equivalent employees		9,803			7,331			7,376			7,390			7,476			33.7			31.1

Key Corporate Bank
Summary of operations
Total revenue (TE)	$	553		$	452		$	426		$	479		$	454			22.3	%		21.8	%
Provision for credit losses		25			30			43			26			30			(16.7)			(16.7)
Noninterest expense		307			259			237			257			250			18.5			22.8
Net income (loss) attributable to Key		159			135			118			142			136			17.8			16.9
Average loans and leases		34,561			28,607			27,722			26,981			26,425			20.8			30.8
Average loans held for sale		1,103			591			811			820			918			86.6			20.2
Average deposits		22,708			19,129			18,074			19,080			18,809			18.7			20.7
Net loan charge-offs		12			27			18			12			20			(55.6)			(40.0)
Net loan charge-offs to average total loans		.14	%		.38	%		.26	%		.18	%		.30	%		N/A			N/A
Nonperforming assets at period end	$	313		$	319		$	372		$	74		$	85			(1.9)			268.2
Return on average allocated equity		25.86	%		26.23	%		23.15	%		29.05	%		28.29	%		N/A			N/A
Average full-time equivalent employees		2,331			2,138			2,126			2,113			2,173			9.0			7.3

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