KeyBank 2014 Annual Report Download - page 55

To make it easier to compare results among several periods and the yields on various types of earning assets
(some taxable, some not), we present net interest income in this discussion on a “taxable-equivalent basis” (i.e.,
as if it were all taxable and at the same rate). For example, $100 of tax-exempt income would be presented as
$154, an amount that — if taxed at the statutory federal income tax rate of 35% — would yield $100.
Figure 5 shows the various components of our balance sheet that affect interest income and expense, and their
respective yields or rates over the past five years. This figure also presents a reconciliation of taxable-equivalent
net interest income to net interest income reported in accordance with GAAP for each of those years. The net
interest margin, which is an indicator of the profitability of the earning assets portfolio less cost of funding, is
calculated by dividing taxable-equivalent net interest income by average earning assets.
Taxable-equivalent net interest income for 2014 was $2.317 billion, and the net interest margin was 2.97%.
These results compare to taxable-equivalent net interest income of $2.348 billion and a net interest margin of
3.12% for the prior year. The decreases in net interest income, which declined $31 million, and the net interest
margin were attributable to lower earning asset yields. These decreases were partially offset by loan growth, the
maturity of higher-rate certificates of deposit, and a more favorable mix of lower-cost deposits and wholesale
borrowings.
Taxable-equivalent net interest income for 2013 increased $60 million compared to 2012 due to an increase in
average loans, a more favorable funding mix, and higher loan fees, partially offset by lower earning asset yields.
The net interest margin declined nine basis points primarily resulting from lower earning asset yields, which
were partially offset by a more favorable funding mix.
Average earning assets totaled $78.1 billion for 2014, compared to $75.4 billion in 2013. Commercial, financial
and agricultural loan growth of $2.7 billion from the prior year was broad-based across our commercial lines of
business. Consumer loans remained relatively stable, as modest increases across our core consumer loan
portfolio, primarily home equity loans and direct term loans, were mostly offset by run-off in our designated
consumer exit portfolio.
Average deposits, excluding deposits in foreign office, totaled $67.3 billion for 2014, an increase of $1.9 billion
compared to 2013. Demand deposits and NOW and money market deposit accounts each increased $1.4 billion,
mostly due to growth related to commercial client inflows as well as increases related to the commercial
mortgage servicing business. These increases were partially offset by run-off in certificates of deposit.
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