KeyBank 2013 Annual Report Download - page 55

Our capital management remains focused on creating value. To that end, we returned approximately 76% of our
net income to shareholders through both common share repurchases and dividends in 2013. We also used our
capital to acquire a commercial real estate servicing portfolio and special servicing business.
The Federal Reserve is currently reviewing of our 2014 capital plan under the CCAR process. Until such time as
it has completed its review and has no objection to our plan, we are not permitted to implement our capital plan
for periods after the first quarter of 2014. Should we receive an objection to our plan, it would likely delay any
actions on capital management until later in the calendar year. For more information about the CCAR process,
see “Capital planning and stress testing” under “Supervision and Regulation” in Item 1 of this report.
Figure 4 presents certain non-GAAP financial measures related to “tangible common equity,” “return on tangible
common equity,” “Tier 1 common equity,” “pre-provision net revenue,” “cash efficiency ratio,” and “adjusted
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. Tier 1 common equity, a non-GAAP financial
measure, is a component of Tier 1 risk-based capital. Tier 1 common equity is not formally defined by GAAP or
prescribed in amount by federal banking regulations applicable to us before January 1, 2015. However, since
analysts and banking regulators may assess our capital adequacy using tangible common equity and Tier 1
common equity, we believe it is useful to enable investors to assess our capital adequacy on these same bases.
Figure 4 also reconciles the GAAP performance measures to the corresponding non-GAAP measures.
Traditionally, the banking regulators have assessed bank and BHC capital adequacy based on both the amount
and the composition of capital, the calculation of which is prescribed in federal banking regulations. Since early
2009, the Federal Reserve has focused its assessment of capital adequacy on a component of Tier 1 capital
known as Tier 1 common equity. Because the Federal Reserve has long indicated that voting common
shareholders’ equity (essentially Tier 1 risk-based capital less preferred stock, qualifying capital securities and
noncontrolling interests in subsidiaries) generally should be the dominant element in Tier 1 risk-based capital,
this focus on Tier 1 common equity is consistent with existing capital adequacy categories. The Regulatory
Capital Rules, described in more detail under the section “Supervision and Regulation” in Item 1 of this report,
also make Tier 1 common equity a priority. The Regulatory Capital Rules change the regulatory capital standards
that apply to BHCs by, among other changes, phasing out the treatment of trust preferred securities and
cumulative preferred securities as Tier 1 eligible capital. By 2016, our trust preferred securities will only be
included in Tier 2 capital.
Figure 4 also shows the computation for pre-provision net revenue, which is not formally defined by GAAP. We
believe that eliminating the effects of the provision for loan and lease losses makes it easier to analyze our results
by presenting them on a more comparable basis.
The cash efficiency ratio and adjusted cash efficiency ratio are ratios of two non-GAAP performance measures.
Accordingly, there are no directly comparable GAAP performance measures. The cash efficiency ratio
performance measure removes the impact of our intangible asset amortization from the calculation. The adjusted
cash efficiency ratio further removes the impact of the efficiency initiative and pension settlement charges. We
believe these ratios provide greater consistency and comparability between our results and those of our 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.
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