KeyBank 2014 Annual Report Download - page 83

As discussed in further detail in the “Supervision and Regulation” section in Item 1 of this report under the
heading “Capital planning and stress testing,” we are required to annually submit a capital plan to the Federal
Reserve setting forth planned capital actions, including any share repurchases our Board of Directors and
management intend to make during the year (subject to the Federal Reserve’s notice of non-objection). Pursuant
to that requirement, we have submitted to the Federal Reserve for review our 2015 capital plan.
Capital adequacy
Capital adequacy is an important indicator of financial stability and performance. All of our capital ratios
remained in excess of regulatory requirements at December 31, 2014. Our capital and liquidity levels are
intended to position us to weather an adverse credit cycle while continuing to serve our clients’ needs, as well as
to meet the Regulatory Capital Rules described in the “Supervision and Regulation” section of Item 1 of this
report. Our shareholders’ equity to assets ratio was 11.22% at December 31, 2014, compared to 11.09% at
December 31, 2013. Our tangible common equity to tangible assets ratio was 9.88% at December 31, 2014,
compared to 9.80% at December 31, 2013.
Federal banking regulators have promulgated minimum risk-based capital and leverage ratio requirements for
BHCs like KeyCorp and their banking subsidiaries like KeyBank. Prior to January 1, 2015, Key and KeyBank
(consolidated) were each required to maintain a minimum Tier 1 risk-based capital ratio of 4.00% and a total
risk-based capital ratio of 8.00%, while Key was required to maintain a minimum Tier 1 leverage ratio of 3.00%
and KeyBank (consolidated) was required to maintain a minimum Tier 1 leverage ratio of 4.00%. At
December 31, 2014, our Tier 1 risk-based capital ratio, total risk-based capital ratio, and Tier 1 leverage ratio
were 11.90%, 13.89%, and 11.26%, respectively, compared to 11.96%, 14.33%, and 11.11%, respectively, at
December 31, 2013.
The adoption of the Regulatory Capital Rules changes the regulatory capital standards that apply to BHCs by
phasing out the treatment of capital securities and cumulative preferred securities as eligible Tier 1 capital. The
phase-out period, which began January 1, 2015, for standardized approach banking organizations such as
KeyCorp, will result in our trust preferred securities issued by the KeyCorp capital trusts being treated only as
Tier 2 capital by 2016. The trust preferred securities issued by the KeyCorp capital trusts contribute $339
million, or 40, 38, and 39 basis points, to our Tier 1 risk-based capital ratio of 11.90%, Tier 1 leverage ratio of
11.26%, and total risk-based capital ratio of 13.89%, respectively, at December 31, 2014. The new minimum
capital and leverage ratios under the Regulatory Capital Rules together with the estimated ratios of Key at
December 31, 2014, calculated on a fully phased-in basis, are set forth under the heading “New minimum capital
and leverage ratio requirements” in the “Supervision and Regulation” section in Item 1 of this report.
As previously indicated in the “Supervision and Regulation” section of Item 1 of this report under the heading
“Revised prompt corrective action capital category ratios,” the prompt corrective action capital category
regulations do not apply to BHCs. If, however, these regulations did apply to BHCs, we believe KeyCorp would
qualify for the “well capitalized” capital category at December 31, 2014. Moreover, after accounting for the
phase-out of our trust preferred securities as Tier 1 eligible (and therefore as Tier 2 instead) as of December 31,
2014, we estimate KeyCorp would still qualify for the “well capitalized” capital category under the regulatory
capital regulations in effect before January 1, 2015, with an estimated Tier 1 risk-based capital ratio, estimated
Tier 1 leverage ratio, and estimated total risk-based capital ratio of 11.50%, 10.88%, and 13.89%, respectively.
The new threshold ratios for a “well capitalized” and an “adequately capitalized” institution under the Regulatory
Capital Rules are described in the “Supervision and Regulation” section of Item 1 of this report under the
heading “Revised prompt corrective action capital category ratios.” Since the regulatory capital categories under
these regulations serve a limited supervisory function, investors should not use them as a representation of the
overall financial condition or prospects of KeyCorp. A discussion of the regulatory capital standards and other
related capital adequacy regulatory standards is included in the section “Regulatory capital and liquidity” in
“Supervision and Regulation” under Item 1 of this report.
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