KeyBank 2015 Annual Report Download - page 87

Federal banking regulators have promulgated minimum risk-based capital and leverage ratio requirements for
BHCs like KeyCorp and their banking subsidiaries like KeyBank. As of January 1, 2015, Key and KeyBank
(consolidated) were each required to maintain a minimum Tier 1 risk-based capital ratio of 6.00%, a total risk-
based capital ratio of 8.00%, and a Tier 1 leverage ratio of 4.00%. At December 31, 2015, our Tier 1 risk-based
capital ratio, total risk-based capital ratio, and Tier 1 leverage ratio were 11.35%, 12.97%, and 10.72%,
respectively, compared to 11.90%, 13.89%, and 11.26%, respectively, at December 31, 2014. In addition, as of
January 1, 2015, Key and KeyBank (consolidated) were each required to maintain a minimum Common Equity
Tier 1 capital ratio of 4.5%. At December 31, 2015, our Common Equity Tier 1 capital ratio was 10.94%.
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 starting in 2016. The trust preferred securities issued by the KeyCorp capital trusts contribute $85
million, or 9 basis points, to our Tier 1 risk-based capital ratio of 11.35% and Tier 1 leverage ratio of 10.72% at
December 31, 2015. The trust preferred securities contribute $340 million, or 38 basis points, to our total risk-
based capital ratio of 12.97% at December 31, 2015. The new minimum capital and leverage ratios under the
Regulatory Capital Rules together with the estimated ratios of Key at December 31, 2015, 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, 2015. Moreover, after accounting for the
phase-out of our trust preferred securities as Tier 1 eligible (and as Tier 2 instead) as of December 31, 2015, we
estimate KeyCorp would still qualify for the “well capitalized” capital category under the Regulatory Capital
Rules, with an estimated Tier 1 risk-based capital ratio, estimated Tier 1 leverage ratio, estimated Common
Equity Tier 1 capital ratio, and estimated total risk-based capital ratio of 11.26%, 10.63%, 10.94%, and 12.97%,
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.
Traditionally, the banking regulators have assessed bank and BHC capital adequacy based on both the amount
and composition of capital, the calculation of which is prescribed in federal banking regulations. The Federal
Reserve’s assessment of capital adequacy previously focused on a component of Tier 1 risk-based capital, known
as Tier 1 common equity, and its review of the consolidated capitalization of SIFIs, including KeyCorp. The
capital modifications mandated by the Regulatory Capital Rules, which became effective on January 1, 2015, for
Key, require higher and better-quality capital and introduced a new capital measure, “Common Equity Tier 1.”
Common Equity Tier 1 is not formally defined by GAAP and is considered to be a non-GAAP financial measure.
Figure 4 in the “Highlights of Our Performance” section reconciles Key shareholders’ equity, the GAAP
performance measure, to Common Equity Tier 1, the corresponding non-GAAP measure. Our Common Equity
Tier 1 ratio was 10.94% at December 31, 2015.
At December 31, 2015, for Key’s consolidated operations, we had a federal net deferred tax asset of $289 million
and a state deferred tax asset of $32 million, compared to a federal net deferred tax asset of $195 million and a
state deferred tax asset of $22 million at December 31, 2014. We had a valuation allowance against the gross
deferred tax assets associated with certain state net operating loss carryforwards and state credit carryforwards of
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