KEY
$15.95
Keycorp
$.11
.69%
Earnings Details
3rd Quarter September 2020
Wednesday, October 21, 2020 6:30:00 AM
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Summary

Keycorp Beats

Keycorp (KEY) reported 3rd Quarter September 2020 earnings of $0.41 per share on revenue of $1.8 billion. The consensus earnings estimate was $0.35 per share on revenue of $1.7 billion. The Earnings Whisper number was $0.40 per share. Revenue fell 8.5% compared to the same quarter a year ago.

KeyCorp is a bank holding company. The Company through its subsidiaries, provides retail and commercial banking, commercial leasing, investment management, consumer finance and investment banking products and services to its clients.

Results
Reported Earnings
$0.41
Earnings Whisper
$0.40
Consensus Estimate
$0.35
Reported Revenue
$1.80 Bil
Revenue Estimate
$1.70 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

KeyCorp Reports Third Quarter 2020 Net Income Of $397 Million, Or $.41 Per Diluted Common Share

CLEVELAND, Oct. 21, 2020 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced net income from continuing operations attributable to Key common shareholders of $397 million, or $.41 per diluted common share for the third quarter of 2020. This compared to $159 million, or $.16 per diluted common share, for the second quarter of 2020 and $383 million, or $.38 per diluted common share, for the third quarter of 2019, which included $.10 per diluted common share related to notable items.

Key's third quarter results reflect continued momentum in our businesses, strong credit discipline and investments we have made to strengthen our franchise.  Our success also demonstrates the resiliency and dedication of our team in serving our clients and supporting our communities.

In the third quarter, revenue increased 3% from the prior year, driven by strong balance sheet growth and higher fee income.  Average loans and deposits were both up double-digits from the same period last year, reflecting the impact from the Paycheck Protection Program, as well as strong loan originations from consumer mortgage and Laurel Road.  Noninterest income benefitted from higher cards and payments activity and growth in consumer mortgage fees.

During the quarter, expense levels reflected higher variable costs from production-related incentives and cards and payments activity, as well as elevated pandemic-related costs associated with keeping our teammates and clients safe.  Through our continuous improvement efforts, we are maintaining our focus on expenses – improving our efficiency while continuing to invest for growth, including our digital capabilities across our franchise.

Importantly, we remain committed to strong risk management practices and being disciplined with our capital.  Our Common Equity Tier 1 ratio ended the quarter at 9.5%, up 40 basis points from the prior quarter, and at the upper end of our targeted range. 

Despite the challenges presented by the pandemic, low interest rates and economic uncertainty, we are confident that Key is well-positioned to navigate the current environment while concurrently assisting in the recovery phase and investing in our bright future.

Chris Gorman, Chairman and CEO


 

Selected Financial Highlights















dollars in millions, except per share data





Change 3Q20 vs.



3Q20

2Q20

3Q19


2Q20

3Q19

Income (loss) from continuing operations attributable to Key common shareholders

$

397


$

159


$

383



149.7

%

3.7

%

Income (loss) from continuing operations attributable to Key common shareholders
   per common share — assuming dilution

.41


.16


.38



156.3


7.9


Return on average tangible common equity from continuing operations (a)

12.19

%

4.96

%

12.38

%


N/A


N/A


Return on average total assets from continuing operations

1.00


.45


1.14



N/A


N/A


Common Equity Tier 1 ratio (b)

9.5


9.1


9.5



N/A


N/A


Book value at period end

$

16.25


$

16.07


$

15.44



1.1

%

5.2

%

Net interest margin (TE) from continuing operations

2.62

%

2.76

%

3.00

%


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 "Return on average tangible common equity from continuing operations." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.

(b)

9/30/20 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 

INCOME STATEMENT HIGHLIGHTS














Revenue














dollars in millions





Change 3Q20 vs.


3Q20

2Q20

3Q19


2Q20

3Q19

Net interest income (TE)

$

1,006


$

1,025


$

980



(1.9)

%

2.7

%

Noninterest income

681


692


650



(1.6)


4.8


Total revenue

$

1,687


$

1,717


$

1,630



(1.7)

%

3.5

%









TE = Taxable Equivalent

Taxable-equivalent net interest income was $1.0 billion for the third quarter of 2020, compared to taxable-equivalent net interest income of $980 million for the third quarter of 2019. The increase in net interest income reflects higher earning asset balances partially offset by a lower net interest margin. The net interest margin was impacted by lower interest rates and a change in balance sheet mix, including elevated levels of liquidity and Key's participation in the Paycheck Protection Program ("PPP"). 

Compared to the second quarter of 2020, taxable-equivalent net interest income decreased by $19 million, primarily reflecting lower loan balances. The lower net interest margin was driven by a shift in balance sheet mix, reflecting continued elevated levels of liquidity.

Noninterest Income














dollars in millions





Change 3Q20 vs.


3Q20

2Q20

3Q19


2Q20

3Q19

Trust and investment services income

$

128


$

123


$

118



4.1

%

8.5

%

Investment banking and debt placement fees

146


156


176



(6.4)


(17.0)


Service charges on deposit accounts

77


68


86



13.2


(10.5)


Operating lease income and other leasing gains

38


60


42



(36.7)


(9.5)


Corporate services income

51


52


63



(1.9)


(19.0)


Cards and payments income

114


91


69



25.3


65.2


Corporate-owned life insurance income

30


35


32



(14.3)


(6.3)


Consumer mortgage income

51


62


16



(17.7)


218.8


Commercial mortgage servicing fees

18


12


21



50.0


(14.3)


Other income

28


33


27



(15.2)


3.7


Total noninterest income

$

681


$

692


$

650



(1.6)

%

4.8

%








Compared to the third quarter of 2019, noninterest income increased by $31 million, primarily driven by a $45 million increase in cards and payments income related to higher prepaid card activity. Additionally, consumer mortgage income increased $35 million from the year-ago period, driven by strong loan originations and related fees. These increases were partially offset by a $30 million decline in investment banking and debt placement fees, primarily driven by lower loan syndication and M&A fees.

Compared to the second quarter of 2020, noninterest income decreased by $11 million. The largest driver of the quarterly decrease was a $22 million decline in operating lease income, related to gains on the sale of leveraged leases in the prior quarter. Investment banking and debt placement fees and consumer mortgage income delivered solid results, but both declined versus the prior quarter. Partially offsetting these declines was a $23 million increase in cards and payments income related to higher prepaid card activity and a $9 million increase in service charges on deposit accounts. 

Noninterest Expense














dollars in millions





Change 3Q20 vs.


3Q20

2Q20

3Q19


2Q20

3Q19

Personnel expense

$

588


$

572


$

547



2.8

%

7.5

%

Nonpersonnel expense

449


441


392



1.8


14.5


Total noninterest expense

$

1,037


$

1,013


$

939



2.4

%

10.4

%








Key's noninterest expense was $1.0 billion for the third quarter of 2020, an increase of $98 million from the year-ago period. The increase is primarily related to higher payments-related expenses from prepaid card activity incurred in the current period, as well as COVID-19-related costs related to steps that the company has taken to ensure the health and safety of teammates. Personnel costs increased by $41 million, reflecting higher production-related incentives, merit increases and employee benefits costs.

Compared to the second quarter of 2020, noninterest expense increased $24 million. The increase was largely due to payments-related costs (in other expense), as well as higher employee benefits costs, which drove an increase in personnel costs quarter over quarter.


BALANCE SHEET HIGHLIGHTS














Average Loans














dollars in millions





Change 3Q20 vs.


3Q20

2Q20

3Q19


2Q20

3Q19

Commercial and industrial (a)

$

57,067


$

60,480


$

48,322



(5.6)

%

18.1

%

Other commercial loans

19,677


19,850


19,016



(.9)


3.5


Total consumer loans

28,175


27,611


24,618



2.0


14.4


Total loans

$

104,919


$

107,941


$

91,956



(2.8)

%

14.1

%










(a)

Commercial and industrial average loan balances include $129 million, $135 million, and $144 million of assets from commercial credit cards at September 30, 2020, June 30, 2020, and September 30, 2019, respectively.


Average loans were $104.9 billion for the third quarter of 2020, an increase of $13.0 billion compared to the third quarter of 2019. Commercial loans increased $9.4 billion, reflecting growth from PPP, as well as core broad-based growth in commercial and industrial loans and increased utilization versus the year-ago period. Consumer loans increased $3.6 billion, driven by strength from Laurel Road and Key's consumer mortgage business.

Compared to the second quarter of 2020, average loans decreased by $3.0 billion. Commercial loans declined as clients paid down elevated line draws from earlier in the year, partly offset by growth in PPP average balances. Consumer loans continue to reflect strength from Laurel Road, as well as Key's consumer mortgage business.


Average Deposits














dollars in millions





Change 3Q20 vs.


3Q20

2Q20

3Q19


2Q20

3Q19

Non-time deposits

$

127,347


$

118,694


$

97,205



7.3

%

31.0

%

Certificates of deposit ($100,000 or more)

3,862


4,950


7,625



(22.0)


(49.4)


Other time deposits

3,735


4,333


5,449



(13.8)


(31.5)


Total deposits

$

134,944


$

127,977


$

110,279



5.4

%

22.4

%








Cost of total deposits

.16

%

.30

%

.82

%


N/A


N/A










N/A = Not Applicable

Average deposits totaled $134.9 billion for the third quarter of 2020, an increase of $24.7 billion compared to the year-ago quarter, reflecting growth from consumer and commercial relationships, partially offset by a decline in time deposits as a result of lower interest rates.

Compared to the second quarter of 2020, average deposits increased by $7.0 billion, primarily driven by broad-based commercial growth as well as growth from consumer stimulus payments and lower consumer spending. This growth was offset by a continued decline in time deposits.

ASSET QUALITY














dollars in millions





Change 3Q20 vs.


3Q20

2Q20

3Q19


2Q20

3Q19

Net loan charge-offs

$

128


$

96


$

196



33.3

%

(34.7)

%

Net loan charge-offs to average total loans

.49

%

.36

%

.85

%


N/A


N/A


Nonperforming loans at period end

$

834


$

760


$

585



9.7


42.6


Nonperforming assets at period end

1,003


951


711



5.5


41.1


Allowance for loan and lease losses

1,730


1,708


893



1.3


93.7


Allowance for credit losses

1,938


1,906


958



1.7


102.3


Allowance for loan and lease losses to nonperforming loans

207.4

%

224.7

%

152.6

%


N/A


N/A


Allowance for credit losses to nonperforming loans

232.4


250.8


163.8



N/A


N/A


Provision for credit losses

$

160


$

482


$

200



(66.8)

%

(20.0)

%









N/A = Not Applicable

Key's provision for credit losses was $160 million for the third quarter of 2020, compared to $200 million for the third quarter of 2019 (which included $123 million related to a previously-disclosed fraud loss), and $482 million for the second quarter of 2020. The provision for credit losses reflects the adoption of a new accounting standard, often referred to as Current Expected Credit Losses ("CECL"), beginning in the first quarter of 2020. This framework requires that management estimate credit losses over the full remaining expected life and consider expected future changes in macroeconomic conditions.

The provision for credit losses exceeded net charge-offs by $32 million. Net loan charge-offs for the third quarter of 2020 totaled $128 million, or .49% of average total loans. These results compare to $196 million, or .85%, for the third quarter of 2019 (which included $123 million related to a previously-disclosed fraud loss) and $96 million, or .36%, for the second quarter of 2020. Key's allowance for credit losses was $1.9 billion, or 1.88% of total period-end loans at September 30, 2020, compared to 1.03% at September 30, 2019, and 1.80% at June 30, 2020.

At September 30, 2020, Key's nonperforming loans totaled $834 million, which represented .81% of period-end portfolio loans. These results compare to .63% at September 30, 2019, and .72% at June 30, 2020. Nonperforming assets at September 30, 2020, totaled $1.0 billion, and represented .97% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .77% at September 30, 2019, and .89% at June 30, 2020.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at September 30, 2020.

Capital Ratios









9/30/2020

6/30/2020

9/30/2019

Common Equity Tier 1 (a)

9.5

%

9.1

%

9.5

%

Tier 1 risk-based capital (a)

10.9


10.5


10.9


Total risk based capital (a)

13.3


12.8


12.9


Tangible common equity to tangible assets (b)

7.8


7.6


8.6


Leverage (a)

8.7


8.8


9.9








(a)

9/30/2020 ratio is estimated and reflects Key's election to adopt the CECL optional transition provision.

(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." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.

Key's capital position remained strong in the third quarter of 2020. As shown in the preceding table, at September 30, 2020, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.5% and 10.9%, respectively. Key's tangible common equity ratio was 7.8% at September 30, 2020.

Key has elected the CECL phase-in option provided by regulatory guidance which delays for two years the estimated impact of CECL on regulatory capital and phases it in over three years beginning in 2022. On a fully phased-in basis, Key's Common Equity Tier 1 ratio would be reduced by 31 basis points.

Summary of Changes in Common Shares Outstanding













in thousands





Change 3Q20 vs.



3Q20

2Q20

3Q19


2Q20

3Q19

Shares outstanding at beginning of period

975,947


975,319


1,003,114



.1

%

(2.7)

%

Open market repurchases and return of shares under employee
   compensation plans

(1)


(19)


(15,076)



(94.7)


(100.0)


Shares issued under employee compensation plans (net of cancellations)

259


647


500



(60.0)


(48.2)



Shares outstanding at end of period

976,205


975,947


988,538




(1.2)

%









Consistent with Key's 2020 Capital Plan, during the third quarter of 2020, Key declared a dividend of $.185 per common share. Per Key's announcement on March 17, 2020, share repurchase activity has been temporarily suspended in response to the COVID-19 pandemic.

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 3Q20 vs.



3Q20

2Q20

3Q19


2Q20

3Q19

Revenue from continuing operations (TE)







Consumer Bank

$

871


$

841


$

833



3.6

%

4.6

%

Commercial Bank

804


857


780



(6.2)


3.1


Other (a)

12


19


17



(36.8)


(29.4)


   Total

$

1,687


$

1,717


$

1,630



(1.7)

%

3.5

%









Income (loss) from continuing operations attributable to Key







Consumer Bank

$

241


$

91


$

196



164.8

%

23.0

%

Commercial Bank

160


101


301



58.4


(46.8)


Other (a)

23


(7)


(84)



N/M


N/M


   Total

$

424


$

185


$

413



129.2

%

2.7

%











(a)

Other includes other segments that consists of corporate treasury, our principal investing unit, and various exit portfolios as well as reconciling items which primarily represents the unallocated portion of nonearning assets of corporate support functions. Charges related to the funding of these assets are part of net interest income and are allocated to the business segments through noninterest expense. Reconciling items also includes intercompany eliminations and certain items that are not allocated to the business segments because they do not reflect their normal operations.

TE = Taxable Equivalent, N/M = Not Meaningful

 

 

Consumer Bank





















dollars in millions





Change 3Q20 vs.


3Q20

2Q20

3Q19


2Q20

3Q19

Summary of operations







Net interest income (TE)

$

604


$

594


$

595



1.7

%

1.5

%

Noninterest income

267


247


238



8.1


12.2


Total revenue (TE)

871


841


833



3.6


4.6


Provision for credit losses

(16)


167


48



N/M


N/M


Noninterest expense

571


555


529



2.9


7.9


Income (loss) before income taxes (TE)

316


119


256



165.5


23.4


Allocated income taxes (benefit) and TE adjustments

75


28


60



167.9


25.0


Net income (loss) attributable to Key

$

241


$

91


$

196



164.8

%

23.0

%








Average balances







Loans and leases

$

41,471


$

39,197


$

32,760



5.8

%

26.6

%

Total assets

44,888


44,088


36,397



1.8


23.3


Deposits

83,175


79,502


72,995



4.6


13.9









Assets under management at period end

$

41,312


$

39,722


$

39,416



4.0

%

4.8

%









TE = Taxable Equivalent

 

 

Additional Consumer Bank Data














dollars in millions





Change 3Q20 vs.


3Q20

2Q20

3Q19


2Q20

3Q19

Noninterest income







Trust and investment services income

$

100


$

87


$

90



14.9

%

11.1

%

Service charges on deposit accounts

44


38


58



15.8


(24.1)


Cards and payments income

55


47


52



17.0


5.8


Consumer mortgage income

51


62


16



(17.7)


218.8


Other noninterest income

17


13


22



30.8


(22.7)


Total noninterest income

$

267


$

247


$

238



8.1

%

12.2

%








Average deposit balances







NOW and money market deposit accounts

$

52,550


$

49,152


$

43,638



6.9

%

20.4

%

Savings deposits

5,169


4,817


4,406



7.3


17.3


Certificates of deposit ($100,000 or more)

3,550


4,520


6,488



(21.5)


(45.3)


Other time deposits

3,701


4,296


5,430



(13.9)


(31.8)


Noninterest-bearing deposits

18,205


16,717


13,033



8.9


39.7


Total deposits

$

83,175


$

79,502


$

72,995



4.6

%

13.9

%








Home equity loans







Average balance

$

9,528


$

9,893


$

10,413





Combined weighted-average loan-to-value ratio (at date of origination)

70

%

70

%

70

%




Percent first lien positions

64


63


60












Other data







Branches

1,077


1,077


1,101





Automated teller machines

1,388


1,394


1,422












 

Consumer Bank Summary of Operations (3Q20 vs. 3Q19)

  • Net income attributable to Key of $241 million for the third quarter of 2020, compared to $196 million for the year-ago quarter
  • Taxable-equivalent net interest income increased by $9 million, or 1.5%, compared to the third quarter of 2019, as a result of strong balance sheet growth, partially offset by the lower interest rate environment
  • Average loans and leases increased $8.7 billion, or 26.6%, driven by benefit from the PPP, as well as growth from consumer mortgage and Laurel Road
  • Average deposits increased $10.2 billion, or 13.9%, from the third quarter of 2019, driven by consumer stimulus payments and relationship growth
  • Provision for credit losses decreased $64 million compared to the third quarter of 2019, due to lower net charge-offs and a reduced allowance, driven by improved macroeconomic factors and continued strength in client credit quality
  • Noninterest income increased $29 million, or 12.2%, from the year ago quarter, driven by strength in consumer mortgage income and higher trust and investment services income, partially offset by lower consumer spend activity
  • Noninterest expense increased $42 million, or 7.9%, from the year ago quarter driven by higher variable expenses from production-related incentives and higher loan volumes

 


Commercial Bank





















dollars in millions





Change 3Q20 vs.


3Q20

2Q20

3Q19


2Q20

3Q19

Summary of operations







Net interest income (TE)

$

421


$

452


$

399



(6.9)

%

5.5

%

Noninterest income

383


405


381



(5.4)


.5


Total revenue (TE)

804


857


780



(6.2)


3.1


Provision for credit losses

163


314


32



(48.1)


409.4


Noninterest expense

443


438


378



1.1


17.2


Income (loss) before income taxes (TE)

198


105


370



88.6


(46.5)


Allocated income taxes and TE adjustments

38


4


69



850.0


(44.9)


Net income (loss) attributable to Key

$

160


$

101


$

301



58.4

%

(46.8)

%








Average balances







Loans and leases

$

62,925


$

68,038


$

58,215



(7.5)

%

8.1

%

Loans held for sale

1,383


2,012


1,325



(31.3)


4.4


Total assets

72,613


76,974


66,549



(5.7)


9.1


Deposits

51,238


47,685


36,204



7.5

%

41.5

%









TE = Taxable Equivalent, N/M = Not Meaningful

 

 

Additional Commercial Bank Data














dollars in millions





Change 3Q20 vs.


3Q20

2Q20

3Q19


2Q20

3Q19

Noninterest income







Trust and investment services income

$

28


$

36


$

28



(22.2)

%


Investment banking and debt placement fees

146


156


176



(6.4)


(17.0)

%

Operating lease income and other leasing gains

38


46


40



(17.4)


(5.0)









Corporate services income

44


45


56



(2.2)


(21.4)


Service charges on deposit accounts

32


30


27



6.7


18.5


Cards and payments income

59


44


16



34.1


268.8


Payments and services income

135


119


99



13.4


36.4









Commercial mortgage servicing fees

18


12


20



50.0


(10.0)


Other noninterest income

18


36


18



(50.0)



Total noninterest income

$

383


$

405


$

381



(5.4)

%

.5

%









N/M = Not Meaningful

 

Commercial Bank Summary of Operations (3Q20 vs. 3Q19)

  • Net income attributable to Key of $160 million for the third quarter of 2020, compared to $301 million for the year-ago quarter
  • Taxable-equivalent net interest income increased by $22 million, or 5.5%, compared to the third quarter of 2019, with balance sheet growth partially offset by the lower interest rate environment
  • Average loan and lease balances increased $4.7 billion, or 8.1%, compared to the third quarter of 2019 driven by growth in commercial and industrial loans from line draws and PPP loans
  • Average deposit balances increased $15 billion, or 41.5%, compared to the third quarter of 2019, driven by growth in targeted relationships and the impact of government programs
  • Provision for credit losses increased $131 million compared to the third quarter of 2019, driven by an increase in net charge-offs and higher reserve levels
  • Noninterest income increased $2 million, from the third quarter of 2019, as higher cards and payments income related to prepaid card revenue was partially offset by declines in investment banking and corporate services income
  • Noninterest expense increased by $65 million, or 17.2%, from the third quarter of 2019 driven by elevated variable expenses related to prepaid card

 

*******************************************

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 $170.5 billion at September 30, 2020.

Key provides deposit, lending, cash management, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of more than 1,000 branches and approximately 1,400 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.


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www.key.com/ir

www.key.com/newsroom

 

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, 2019, as well as in KeyCorp's subsequent SEC filings, all of which have been or will be filed with the Securities and Exchange Commission (the "SEC") and are or will be 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 regulation of the U.S. financial services industry. In addition to the aforementioned factors, the COVID–19 global pandemic is adversely affecting us, our clients, and third–party service providers, among others, and its impact may adversely affect our business and results of operations over a period of time. 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 Wednesday, October 21, 2020. A replay of the call will be available through November 4, 2020.

For up-to-date company information, media contacts, and facts and figures about Key's lines of business, visit our Media Newsroom at https://www.key.com/newsroom.

*****

           

KeyCorp

Third Quarter 2020

Financial Supplement



Page


13

Financial Highlights

14

GAAP to Non-GAAP Reconciliation

16

Consolidated Balance Sheets

17

Consolidated Statements of Income

18

Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations

20

Noninterest Expense

20

Personnel Expense

21

Loan Composition

21

Loans Held for Sale Composition

21

Summary of Changes in Loans Held for Sale

22

Summary of Loan and Lease Loss Experience From Continuing Operations

23

Asset Quality Statistics From Continuing Operations

23

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

23

Summary of Changes in Nonperforming Loans From Continuing Operations

24

Line of Business Results

 

 

Financial Highlights

(dollars in millions, except per share amounts)



Three months ended



9/30/2020

6/30/2020

9/30/2019

Summary of operations





Net interest income (TE)

$

1,006


$

1,025


$

980



Noninterest income

681


692


650



   Total revenue (TE)

1,687


1,717


1,630



Provision for credit losses

160


482


200



Noninterest expense

1,037


1,013


939



Income (loss) from continuing operations attributable to Key

424


185


413



Income (loss) from discontinued operations, net of taxes

4


2


3



Net income (loss) attributable to Key

428


187


416








Income (loss) from continuing operations attributable to Key common shareholders

397


159


383



Income (loss) from discontinued operations, net of taxes

4


2


3



Net income (loss) attributable to Key common shareholders

401


161


386







Per common share





Income (loss) from continuing operations attributable to Key common shareholders

$

.41


$

.16


$

.39



Income (loss) from discontinued operations, net of taxes





Net income (loss) attributable to Key common shareholders (a)

.41


.17


.39








Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution

.41


.16


.38



Income (loss) from discontinued operations, net of taxes — assuming dilution





Net income (loss) attributable to Key common shareholders — assuming dilution (a)

.41


.17


.39








Cash dividends declared

.185


.185


.185



Book value at period end

16.25


16.07


15.44



Tangible book value at period end

13.32


13.12


12.48



Market price at period end

11.93


12.18


17.84







Performance ratios





From continuing operations:





Return on average total assets

1.00

%

.45

%

1.14

%


Return on average common equity

9.98


4.05


9.99



Return on average tangible common equity (b)

12.19


4.96


12.38



Net interest margin (TE)

2.62


2.76


3.00



Cash efficiency ratio (b)

60.6


57.9


56.0








From consolidated operations:





Return on average total assets

1.00

%

.46

%

1.14

%


Return on average common equity

10.08


4.10


10.07



Return on average tangible common equity (b)

12.31


5.02


12.48



Net interest margin (TE)

2.62


2.76


2.98



Loan to deposit (c)

77.2


80.4


85.3







Capital ratios at period end





Key shareholders' equity to assets

10.4

%

10.2

%

11.7

%


Key common shareholders' equity to assets

9.3


9.2


10.4



Tangible common equity to tangible assets (b)

7.8


7.6


8.6



Common Equity Tier 1 (d)

9.5


9.1


9.5



Tier 1 risk-based capital (d)

10.9


10.5


10.9



Total risk-based capital (d)

13.3


12.8


12.9



Leverage (d)

8.7


8.8


9.9







Asset quality — from continuing operations





Net loan charge-offs

$

128


$

96


$

196



Net loan charge-offs to average loans

.49

%

.36

%

.85

%


Allowance for loan and lease losses

$

1,730


$

1,708


$

893



Allowance for credit losses

1,938


1,906


958



Allowance for loan and lease losses to period-end loans

1.68

%

1.61

%

.96

%


Allowance for credit losses to period-end loans

1.88


1.80


1.03



Allowance for loan and lease losses to nonperforming loans (e)

207.4


224.7


152.6



Allowance for credit losses to nonperforming loans (e)

232.4


250.8


163.8



Nonperforming loans at period-end (e)

$

834


$

760


$

585



Nonperforming assets at period-end (e)

1,003


951


711



Nonperforming loans to period-end portfolio loans (e)

.81

%

.72

%

.63

%


Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (e)

.97


.89


.77







Trust assets





Assets under management

$

41,312


$

39,722


$

39,416







Other data





Average full-time equivalent employees

17,097


16,646


16,898



Branches

1,077


1,077


1,101







Taxable-equivalent adjustment

$

6


$

7


$

8




Financial Highlights (continued)

(dollars in millions, except per share amounts)



Nine months ended



9/30/2020

9/30/2019

Summary of operations


Net interest income (TE)

$

3,020


$

2,954



Noninterest income

1,850


1,808



Total revenue (TE)

4,870


4,762



Provision for credit losses

1,001


336



Noninterest expense

2,981


2,921



Income (loss) from continuing operations attributable to Key

754


1,242



Income (loss) from discontinued operations, net of taxes

7


6



Net income (loss) attributable to Key

761


1,248







Income (loss) from continuing operations attributable to Key common shareholders

$

674


$

1,172



Income (loss) from discontinued operations, net of taxes

7


6



Net income (loss) attributable to Key common shareholders

681


1,178






Per common share


Income (loss) from continuing operations attributable to Key common shareholders

$

.70


$

1.17



Income (loss) from discontinued operations, net of taxes

.01


.01



Net income (loss) attributable to Key common shareholders (a)

.70


1.18







Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution

.69


1.16



Income (loss) from discontinued operations, net of taxes — assuming dilution

.01


.01



Net income (loss) attributable to Key common shareholders — assuming dilution (a)

.70


1.17







Cash dividends paid

.555


.525






Performance ratios


From continuing operations:




Return on average total assets

.63

%

1.17

%


Return on average common equity

5.75


10.62



Return on average tangible common equity (b)

7.06


13.23



Net interest margin (TE)

2.78


3.06



Cash efficiency ratio (b)

60.2


59.9







From consolidated operations:




Return on average total assets

.63

%

1.16

%


Return on average common equity

5.81


10.68



Return on average tangible common equity (b)

7.13


13.30



Net interest margin (TE)

2.78


3.05






Asset quality — from continuing operations


Net loan charge-offs

$

308


$

325



Net loan charge-offs to average total loans

.40

%

.48

%





Other data


Average full-time equivalent employees

16,758


17,217






Taxable-equivalent adjustment

21


24




(a)

Earnings per share may not foot due to rounding.

(b)

The following table entitled "GAAP to Non-GAAP Reconciliations" presents the computations of certain financial measures related to "tangible common equity" 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.

(c)

Represents period-end consolidated total loans and loans held for sale divided by period-end consolidated total deposits.

(d)

September 30, 2020, ratio is estimated and reflects Key's election to adopt the CECL optional transition provision.

 

 

GAAP to Non-GAAP Reconciliations
(dollars in millions)

The table below presents certain non-GAAP financial measures related to "tangible common equity," "return on average tangible common equity," "pre-provision net revenue," and "cash efficiency ratio" and certain ratios excluding notable items.


Notable items include certain revenue or expense items that may occur in a reporting period which management does not consider indicative of ongoing financial performance. Management believes it is useful to consider certain financial metrics with and without notable items, in order to enable a better understanding of company results, increase comparability of period-to-period results, and to evaluate and forecast those results.


The tangible common equity ratio and the return on average 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.


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.


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. Management believes this ratio provide greater consistency and comparability between Key's results and those of its peer banks. Additionally, this ratio is 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


Nine months ended


9/30/2020

6/30/2020

9/30/2019


9/30/2020

9/30/2019

Tangible common equity to tangible assets at period-end







Key shareholders' equity (GAAP)

$

17,722


$

17,542


$

17,116





Less: Intangible assets (a)

2,862


2,877


2,928





Preferred Stock (b)

1,856


1,856


1,856





Tangible common equity (non-GAAP)

$

13,004


$

12,809


$

12,332





Total assets (GAAP)

$

170,540


$

171,192


$

146,691





Less: Intangible assets (a)

2,862


2,877


2,928





Tangible assets (non-GAAP)

$

167,678


$

168,315


$

143,763





Tangible common equity to tangible assets ratio (non-GAAP)

7.8

%

7.6

%

8.6

%




Pre-provision net revenue







Net interest income (GAAP)

$

1,000


$

1,018


$

972



$

2,999


$

2,930


Plus: Taxable-equivalent adjustment

6


7


8



21


24


Noninterest income

681


692


650



1,850


1,808


Less: Noninterest expense

1,037


1,013


939



2,981


2,921


Pre-provision net revenue from continuing operations (non-GAAP)

$

650


$

704


$

691



$

1,889


$

1,841


Average tangible common equity







Average Key shareholders' equity (GAAP)

$

17,730


$

17,688


$

17,113



$

17,545


$

16,454


Less: Intangible assets (average) (c)

2,870


2,886


2,942



2,886


2,905


Preferred stock (average)

1,900


1,900


1,900



1,900


1,705


Average tangible common equity (non-GAAP)

$

12,960


$

12,902


$

12,271



$

12,759


$

11,844


Return on average tangible common equity from continuing operations







Net income (loss) from continuing operations attributable to Key common
   shareholders (GAAP)

$

397


$

159


$

383



$

674


$

1,172


Plus: Notable items, after tax (d)



94




154


Net income (loss) from continuing operations attributable to Key common
   shareholders excluding notable items (non-GAAP)

$

397


$

159


$

477



$

674


$

1,326


Average tangible common equity (non-GAAP)

12,960


12,902


12,271



12,759


11,844









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

12.19

%

4.96

%

12.38

%


7.06

%

13.23

%

Return on average tangible common equity from continuing operations excluding
   notable items (non-GAAP)

12.19

%

4.96

%

15.42

%


7.06

%

14.97

%

Return on average tangible common equity consolidated







Net income (loss) attributable to Key common shareholders (GAAP)

$

401


$

161


$

386



$

681


$

1,178


Average tangible common equity (non-GAAP)

12,960


12,902


12,271



12,759


11,844









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

12.31

%

5.02

%

12.48

%


7.13

%

13.30

%



GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)


Three months ended


Nine months ended


9/30/2020

6/30/2020

9/30/2019


9/30/2020

9/30/2019

Cash efficiency ratio







Noninterest expense (GAAP)

$

1,037


$

1,013


$

939



$

2,981


$

2,921


Less: Intangible asset amortization

15


18


26



50


70


Adjusted noninterest expense (non-GAAP)

$

1,022


$

995


$

913



$

2,931


$

2,851


Less: Notable items (d)






78


Adjusted noninterest expense excluding notable items (non-GAAP)

$

1,022


$

995


$

913



$

2,931


$

2,773









Net interest income (GAAP)

$

1,000


$

1,018


$

972



$

2,999


$

2,930


Plus: Taxable-equivalent adjustment

6


7


8



21


24


Noninterest income

681


692


650



1,850


1,808


Total taxable-equivalent revenue (non-GAAP)

$

1,687


$

1,717


$

1,630



$

4,870


$

4,762









Cash efficiency ratio (non-GAAP)

60.6

%

57.9

%

56.0

%


60.2

%

59.9

%








Cash efficiency ratio excluding notable items (non-GAAP)

60.6

%

57.9

%

56.0

%


60.2

%

58.2

%



(a)

For the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, intangible assets exclude $5 million, $5 million, and $9 million, respectively, of period-end purchased credit card receivables. 

(b)

Net of capital surplus.

(c)

For the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, average intangible assets exclude $5 million, $6 million, and $9 million, respectively, of average purchased credit card receivables. For the nine months ended September 30, 2020, and September 30, 2019, average intangible assets exclude $6 million and $11 million, respectively, of average purchase credit card receivables.

(d)

Additional detail provided in Notable Items table on page 24 of this release.

GAAP = U.S. generally accepted accounting principles

 

 

Consolidated Balance Sheets

(dollars in millions)










9/30/2020

6/30/2020

9/30/2019

Assets





Loans

$

103,081


$

106,159


$

92,760



Loans held for sale

1,724


2,007


1,598



Securities available for sale

26,895


23,600


22,378



Held-to-maturity securities

8,384


9,075


10,490



Trading account assets

733


645


963



Short-term investments

14,148


14,036


3,351



Other investments

620


655


620




Total earning assets

155,585


156,177


132,160



Allowance for loan and lease losses

(1,730)


(1,708)


(893)



Cash and due from banks

956


1,059


636



Premises and equipment

765


776


815



Goodwill

2,664


2,664


2,664



Other intangible assets

203


218


272



Corporate-owned life insurance

4,274


4,251


4,216



Accrued income and other assets

7,084


6,976


5,881



Discontinued assets

739


779


940




Total assets

$

170,540


171,192


146,691








Liabilities





Deposits in domestic offices:






NOW and money market deposit accounts

$

80,791


$

78,853


$

65,604




Savings deposits

5,585


5,371


4,668




Certificates of deposit ($100,000 or more)

3,345


4,476


7,194




Other time deposits

3,450


4,011


5,300




Total interest-bearing deposits

93,171


92,711


82,766




Noninterest-bearing deposits

43,575


42,802


28,883




Total deposits

136,746


135,513


111,649



Federal funds purchased and securities sold under repurchase agreements 

213


267


182



Bank notes and other short-term borrowings

818


1,716


700



Accrued expense and other liabilities

2,356


2,420


2,574



Long-term debt

12,685


13,734


14,470




Total liabilities

152,818


153,650


129,575








Equity





Preferred stock

1,900


1,900


1,900



Common shares

1,257


1,257


1,257



Capital surplus

6,263


6,240


6,287



Retained earnings

12,375


12,154


12,209



Treasury stock, at cost

(4,940)


(4,945)


(4,696)



Accumulated other comprehensive income (loss)

867


936


159




Key shareholders' equity

17,722


17,542


17,116



Noncontrolling interests






Total equity

17,722


17,542


17,116


Total liabilities and equity

$

170,540


$

171,192


$

146,691








Common shares outstanding (000)

976,205


975,947


988,538


 

 

Consolidated Statements of Income

(dollars in millions, except per share amounts)




Three months ended


Nine months ended




9/30/2020

6/30/2020

9/30/2019


9/30/2020

9/30/2019

Interest income








Loans

$

927


$

980


$

1,073



$

2,933


$

3,221



Loans held for sale

18


21


18



58


46



Securities available for sale

115


121


136



365


400



Held-to-maturity securities

53


56


64



171


199



Trading account assets

3


5


7



16


24



Short-term investments

1


7


16



14


49



Other investments

2



3



3


11




Total interest income

1,119


1,190


1,317



3,560


3,950


Interest expense








Deposits

54


96


227



319


652



Federal funds purchased and securities sold under repurchase agreements





6


1



Bank notes and other short-term borrowings

1


5


4



11


13



Long-term debt

64


71


114



225


354




Total interest expense

119


172


345



561


1020


Net interest income

1,000


1,018


972



2,999


2,930


Provision for credit losses

160


482


200



1,001


336


Net interest income after provision for credit losses

840


536


772



1,998


2,594


Noninterest income








Trust and investment services income

128


123


118



384


355



Investment banking and debt placement fees

146


156


176



418


449



Service charges on deposit accounts

77


68


86



229


251



Operating lease income and other leasing gains

38


60


42



128


123



Corporate services income

51


52


63



165


171



Cards and payments income

114


91


69



271


208



Corporate-owned life insurance income

30


35


32



101


97



Consumer mortgage income

51


62


16



133


42



Commercial mortgage servicing fees

18


12


21



48


58



Other income

28


33


27



(27)


54




Total noninterest income

681


692


650



1,850


1,808


Noninterest expense








Personnel

588


572


547



1,675


1,699



Net occupancy

76


71


72



223


217



Computer processing

59


56


53



170


163



Business services and professional fees

49


49


43



142


132



Equipment

25


25


27



74


75



Operating lease expense

33


34


33



103


91



Marketing

22


24


26



67


69



FDIC assessment

6


8


7



23


23



Intangible asset amortization

15


18


26



50


70



OREO expense, net

(1)


6


3



8


10



Other expense

165


150


102



446


372




Total noninterest expense

1,037


1,013


939



2,981


2,921


Income (loss) from continuing operations before income taxes

484


215


483



867


1,481



Income taxes

60


30


70



113


239


Income (loss) from continuing operations

424


185


413



754


1,242



Income (loss) from discontinued operations, net of taxes

4


2


3



7


6


Net income (loss)

428


187


416



761


1,248



Less:  Net income (loss) attributable to noncontrolling interests







Net income (loss) attributable to Key

$

428


$

187


$

416



$

761


$

1,248











Income (loss) from continuing operations attributable to Key common shareholders

$

397


$

159


$

383



$

674


$

1,172


Net income (loss) attributable to Key common shareholders

401


161


386



681


1,178


Per common share







Income (loss) from continuing operations attributable to Key common shareholders

$

.41


$

.16


$

.39



$

.70


$

1.17


Income (loss) from discontinued operations, net of taxes





.01


.01


Net income (loss) attributable to Key common shareholders (a)

.41


.17


.39



.70


1.18


Per common share — assuming dilution







Income (loss) from continuing operations attributable to Key common shareholders

$

.41


$

.16


$

.38



$

.69


$

1.16


Income (loss) from discontinued operations, net of taxes





.01


.01


Net income (loss) attributable to Key common shareholders (a)

.41


.17


.39



.70


1.17











Cash dividends declared per common share

$

.185


$

.185


$

.185



$

.555


$

.525











Weighted-average common shares outstanding (000)

967,804


967,147


988,319



967,632


998,268



Effect of common share options and other stock awards

6,184


4,994


10,009



6,648


9,632


Weighted-average common shares and potential common shares outstanding (000) (b)

973,988


972,141


998,328



974,280


1,007,900




(a)

Earnings per share may not foot due to rounding.

(b)

Assumes conversion of common share options and other stock awards, as applicable.

 

 

Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations

(dollars in millions)



Third Quarter 2020


Second Quarter 2020


Third Quarter 2019



Average


Yield/


Average


Yield/


Average


Yield/



Balance

Interest (a)

Rate (a)


Balance

Interest (a)

Rate (a)


Balance

Interest (a)

Rate (a)

Assets













Loans: (b), (c)













Commercial and industrial (d)

$

57,067


$

474


3.31

%


$

60,480


$

518


3.44

%


$

48,322


$

543


4.46

%


Real estate — commercial mortgage

13,202


117


3.54



13,510


128


3.80



13,056


163


4.95



Real estate — construction

1,987


18


3.57



1,756


17


3.97



1,463


19


5.22



Commercial lease financing

4,488


35


3.10



4,584


33


2.96



4,497


42


3.68



Total commercial loans

76,744


644


3.34



80,330


696


3.49



67,338


767


4.52



Real estate — residential mortgage

8,398


73


3.46



7,783


69


3.57



6,256


62


3.97



Home equity loans

9,580


91


3.82



9,949


97


3.89



10,488


132


4.97



Consumer direct loans

4,403


56


5.07



4,152


55


5.24



2,548


45


6.99



Credit cards

967


25


10.24



983


25


10.22



1,100


32


11.59



Consumer indirect loans

4,827


44


3.66



4,744


45


3.82



4,226


43


4.10



Total consumer loans

28,175


289


4.10



27,611


291


4.22



24,618


314


5.07



Total loans

104,919


933


3.55



107,941


987


3.67



91,956


1,081


4.67



Loans held for sale

1,924


18


3.61



2,463


21


3.50



1,558


18


4.65



Securities available for sale (b), (e)

24,941


115


1.90



20,749


121


2.43



21,867


136


2.52



Held-to-maturity securities (b)

8,677


53


2.44



9,331


56


2.43



10,684


64


2.41



Trading account assets

686


3


2.08



760


5


2.43



884


7


3.00



Short-term investments

12,525


1


.04



7,892


7


0.31



2,861


16


2.19



Other investments (e)

640


2


1.49



672



.29



624


3


1.82



Total earning assets

154,312


1,125


2.93



149,808


1,197


3.22



130,434


1,325


4.05



Allowance for loan and lease losses

(1,696)





(1,413)





(881)





Accrued income and other assets

16,195





15,704





14,605





Discontinued assets

752





793





957





Total assets

$

169,563





$

164,892





$

145,115




Liabilities













NOW and money market deposit accounts

$

80,175


26


.13



$

75,297


56


.30



$

64,595


154


.94



Savings deposits

5,478


1


.04



5,130



.04



4,709


1


.10



Certificates of deposit ($100,000 or more)

3,862


16


1.60



4,950


24


1.93



7,625


45


2.37



Other time deposits

3,735


11


1.17



4,333


16


1.52



5,449


27


1.96



Total interest-bearing deposits

93,250


54


.23



89,710


96


.43



82,378


227


1.09



Federal funds purchased and securities sold
   under repurchase agreements

225



.05



242



.03



187



.50



Bank notes and other short-term borrowings

761


1


.68



2,869


5


.57



626


4


2.04



Long-term debt (f), (g)

12,801


64


2.12



12,954


71


2.30



13,347


114


3.51



Total interest-bearing liabilities

107,037


119


.45



105,775


172


.66



96,538


345


1.42



Noninterest-bearing deposits

41,694





38,267





27,901





Accrued expense and other liabilities

2,350





2,369





2,605





Discontinued liabilities (g)

752





793





957





Total liabilities

151,833





147,204





128,001




Equity













Key shareholders' equity

17,730





17,688





17,113





Noncontrolling interests









1





Total equity

17,730





17,688





17,114





Total liabilities and equity

$

169,563





$

164,892





$

145,115




Interest rate spread (TE)



2.48

%




2.56

%




2.63

%

Net interest income (TE) and net interest margin (TE)


1,006


2.62

%



1,025


2.76

%



980


3.00

%

TE adjustment (b)


6





7





8




Net interest income, GAAP basis


$

1,000





$

1,018





$

972





(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 21% for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019.   

(c)

For purposes of these computations, nonaccrual loans are included in average loan balances.

(d)

Commercial and industrial average balances include $129 million, $135 million, and $144 million of assets from commercial credit cards for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, 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, 2020


Nine months ended September 30, 2019



Average


Yield/


Average


Yield/



Balance

Interest (a)

Rate (a)


Balance

Interest (a)

Rate (a)

Assets









Loans: (b), (c)









Commercial and industrial (d)

$

55,676


$

1,500


3.60

%


$

47,191


$

1,622


4.59

%


Real estate — commercial mortgage

13,419


400


3.98



13,744


517


5.03



Real estate — construction

1,804


55


4.06



1,482


60


5.37



Commercial lease financing

4,546


107


3.15



4,490


124


3.66



Total commercial loans

75,445


2,062


3.65



66,907


2,323


4.64



Real estate — residential mortgage

7,801


210


3.59



5,866


176


4.00



Home equity loans

9,894


301


4.07



10,726


404


5.03



Consumer direct loans

4,089


165


5.38



2,256


125


7.42



Credit cards

1,010


81


10.68



1,099


95


11.55



Consumer indirect loans

4,779


135


3.78



3,951


122


4.13



Total consumer loans

27,573


892


4.32



23,898


922


5.15



Total loans

103,018


2,954


3.83



90,805


3,245


4.77



Loans held for sale

2,090


58


3.68



1,329


46


4.64



Securities available for sale (b), (e)

22,297


365


2.25



21,059


400


2.52



Held-to-maturity securities (b)

9,274


171


2.46



11,035


199


2.41



Trading account assets

837


16


2.55



988


24


3.22



Short-term investments

7,412


14


.24



2,930


49


2.23



Other investments (e)

642


3


.72



639


11


2.18



Total earning assets

145,570


3,581


3.30



128,785


3,974


4.12



Allowance for loan and lease losses

(1403)





(880)





Accrued income and other assets

15,579





14,414





Discontinued assets

794





1,010





Total assets

$

160,540





$

143,329




Liabilities









NOW and money market deposit accounts

$

74,087


194


.35



$

62,827


431


.92



Savings deposits

5,089


2


.04



4,767


3


.09



Certificates of deposit ($100,000 or more)

5,036


74


1.96



8,046


140


2.33



Other time deposits

4,321


49


1.53



5,506


78


1.90



Total interest-bearing deposits

88,533


319


.48



81,146


652


1.07



Federal funds purchased and securities sold under repurchase
   agreements

821


6


.95



262


1


.63



Bank notes and other short-term borrowings

1,674


11


.87



706


13


2.43



Long-term debt (f), (g)

12,733


225


2.45



13,241


354


3.62



Total interest-bearing liabilities

103,761


561


.73



95,355


1020


1.43



Noninterest-bearing deposits

35,922





28,016





Accrued expense and other liabilities

2,518





2,493





Discontinued liabilities (g)

794





1,010





Total liabilities

142,995





126,874




Equity









Key shareholders' equity

17,545





16,454





Noncontrolling interests





1





Total equity

17,545





16,455





Total liabilities and equity

$

160,540





$

143,329




Interest rate spread (TE)



2.57

%




2.69

%

Net interest income (TE) and net interest margin (TE)


3,020

2.78

%



2,954


3.06

%

TE adjustment (b)


21




24




Net interest income, GAAP basis


$

2,999





$

2,930





(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 21% for the nine months ended September 30, 2020, and September 30, 2019, respectively.  

(c)

For purposes of these computations, nonaccrual loans are included in average loan balances.

(d)

Commercial and industrial average balances include $137 million and $139 million of assets from commercial credit cards for the nine months ended September 30, 2020, and September 30, 2019, 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


9/30/2020

6/30/2020

9/30/2019


9/30/2020

9/30/2019

Personnel (a)

$

588


$

572


$

547



$

1,675


$

1,699


Net occupancy

76


71


72



223


217


Computer processing

59


56


53



170


163


Business services and professional fees

49


49


43



142


132


Equipment

25


25


27



74


75


Operating lease expense

33


34


33



103


91


Marketing

22


24


26



67


69


FDIC assessment

6


8


7



23


23


Intangible asset amortization

15


18


26



50


70


OREO expense, net

(1)


6


3



8


10


Other expense

165


150


102



446


372


Total noninterest expense

$

1,037


$

1,013


$

939



$

2,981


$

2,921


Average full-time equivalent employees (b)

17,097


16,646


16,898



16,758


17,217




(a)

Additional detail provided in Personnel Expense table below.

(b)

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


9/30/2020

6/30/2020

9/30/2019


9/30/2020

9/30/2019

Salaries and contract labor

$

339


$

332


$

314



$

987


$

956


Incentive and stock-based compensation

155


162


143



419


430


Employee benefits

93


76


87



261


263


Severance

1


2


3



8


50


Total personnel expense

$

588


$

572


$

547



$

1,675


$

1,699


 

 

Loan Composition

(dollars in millions)











Percent change 9/30/2020 vs


9/30/2020

6/30/2020

9/30/2019


6/30/2020

9/30/2019

Commercial and industrial (a)

$

55,025


$

58,297


$

48,362



(5.6)

%

13.8

%

Commercial real estate:







Commercial mortgage

13,059


13,465


13,167



(3.0)


(.8)


Construction

1,947


1,919


1,480



1.5


31.6


Total commercial real estate loans

15,006


15,384


14,647



(2.5)


2.5


Commercial lease financing (b)

4,450


4,524


4,470



(1.6)


(.4)


Total commercial loans

74,481


78,205


67,479



(4.8)


10.4


Residential — prime loans:







Real estate — residential mortgage

8,715


8,149


6,527



6.9


33.5


Home equity loans

9,488


9,782


10,456



(3.0)


(9.3)


Total residential — prime loans

18,203


17,931


16,983



1.5


7.2


Consumer direct loans

4,395


4,327


2,789



1.6


57.6


Credit cards

970


974


1,105



(.4)


(12.2)


Consumer indirect loans

5,032


4,722


4,404



6.6


14.3


Total consumer loans

28,600


27,954


25,281



2.3


13.1


Total loans (c), (d)

$

103,081


$

106,159


$

92,760



(2.9)

%

11.1

%



(a)

Loan balances include $128 million, $132 million, and $147 million of commercial credit card balances at September 30, 2020, June 30, 2020, and September 30, 2019, respectively.

(b)

Commercial lease financing includes receivables held as collateral for a secured borrowing of $18 million, $18 million, and $10 million at September 30, 2020, June 30, 2020, and September 30, 2019, respectively. Principal reductions are based on the cash payments received from these related receivables.

(c)

Total loans exclude loans of $743 million at September 30, 2020, $780 million at June 30, 2020, and $915 million at September 30, 2019, related to the discontinued operations of the education lending business.

(d)

Accrued interest of $235 million, $225 million, and $257 million at September 30, 2020, June 30, 2020, and September 30, 2019, respectively, presented in "other assets" on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed in this table.

 

 

Loans Held for Sale Composition

(dollars in millions)













Percent change 9/30/2020 vs


9/30/2020

6/30/2020

9/30/2019


6/30/2020

9/30/2019

Commercial and industrial

$

336


$

419


$

195



(19.8)

%

72.3

%

Real estate — commercial mortgage

1,031


1,107


1,123



(6.9)


(8.2)


Commercial lease financing

1



100



N/M


(99.0)


Real estate — residential mortgage

288


250


120



15.2


140.0


Consumer direct loans

68


231


60



(70.6)


13.3


Total loans held for sale (a)

$

1,724


$

2,007


$

1,598



(14.1)

%

7.9

%



(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $288 million at September 30, 2020, $250 million at June 30, 2020, and $120 million at September 30, 2019.

 

 

Summary of Changes in Loans Held for Sale

(in millions)








3Q20

2Q20

1Q20

4Q19

3Q19

Balance at beginning of period

$

2,007


$

2,143


$

1,334


$

1,598


$

1,790


New originations

3,282


3,621


3,333


3,659


3,222


Transfers from (to) held to maturity, net

75


(15)


200


26


237


Loan sales

(3,583)


(3,679)


(2,649)


(3,933)


(3,602)


Loan draws (payments), net

(57)


(61)


(77)


(18)


(49)


Valuation adjustments


(2)


2


2



Balance at end of period (a)

$

1,724


$

2,007


$

2,143


$

1,334


$

1,598




(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $288 million at September 30, 2020, $250 million at June 30, 2020, $152 million at March 31, 2020, $140 million at December 31, 2019, and $120 million at September 30, 2019.

 

 

Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)









Three months ended


Nine months ended


9/30/2020

6/30/2020

9/30/2019


9/30/2020

9/30/2019

Average loans outstanding

$

104,919


$

107,941


$

91,956



$

103,018


$

90,805


Allowance for loan and lease losses at the end of the prior period

$

1,708


$

1359


$

890



$

900


$

883


Cumulative effect from change in accounting principle (a)





204



Allowance for loan and lease losses at the beginning of the period

1,708


1,359


890



1,104


883


Loans charged off:







Commercial and industrial

101


71


176



232


242









Real estate — commercial mortgage

13


2




18


6


Real estate — construction






4


   Total commercial real estate loans

13


2




18


10


Commercial lease financing

10


4


1



16


25


   Total commercial loans

124


77


177



266


277


Real estate — residential mortgage


2


1



2


3


Home equity loans

4


2


6



10


16


Consumer direct loans

8


10


10



30


30


Credit cards

9


12


11



32


34


Consumer indirect loans

6


7


8



22


24


   Total consumer loans

27


33


36



96


107


   Total loans charged off

151


110


213



362


384


Recoveries:







Commercial and industrial

9


5


6



19


22









Real estate — commercial mortgage

2





3


2


   Total commercial real estate loans

2





3


2


Commercial lease financing


1


1



1


4


   Total commercial loans

11


6


7



23


28


Real estate — residential mortgage

1





1


1


Home equity loans

3


1


2



6


6


Consumer direct loans

2


2


2



6


5


Credit cards

2


2


2



6


6


Consumer indirect loans

4


3


4



12


13


   Total consumer loans

12


8


10



31


31


   Total recoveries

23


14


17



54


59


Net loan charge-offs

(128)


(96)


(196)



(308)


(325)


Provision (credit) for loan and lease losses

150


445


199



934


335


Allowance for loan and lease losses at end of period

$

1,730


$

1,708


$

893



$

1,730


$

893









Liability for credit losses on lending-related commitments at the end of the prior period

$

198


$

161


$

64



$

68


$

64


Liability for credit losses on contingent guarantees at the end of the prior period





7



Cumulative effect from change in accounting principle (a), (b)





66



Liability for credit losses on lending-related commitments at beginning of period

198


161


64



141


64


Provision (credit) for losses on lending-related commitments

10


37


1



67


1


Liability for credit losses on lending-related commitments at end of period (c)

$

208


$

198


$

65



$

208


$

65









Total allowance for credit losses at end of period

$

1,938


$

1,906


$

958



$

1,938


$

958









Net loan charge-offs to average total loans

.49

%

.36

%

.85

%


.40

%

.48

%

Allowance for loan and lease losses to period-end loans

1.68


1.61


.96



1.68


.96


Allowance for credit losses to period-end loans

1.88


1.80


1.03



1.88


1.03


Allowance for loan and lease losses to nonperforming loans

207.4


224.7


152.6



207.4


152.6


Allowance for credit losses to nonperforming loans

232.4


250.8


163.8



232.4


163.8









Discontinued operations — education lending business:







Loans charged off


$

2


$

1



$

4


$

9


Recoveries


2


1



3


3


   Net loan charge-offs





$

(1)


$

(6)




(a)

The cumulative effect from change in accounting principle relates to the January 1, 2020, adoption of ASU 2016-13.

(b)

The nine months ended September 30, 2020, amount excludes $4 million related to the provision for other financial assets.

(c)

Included in "Accrued expense and other liabilities" on the balance sheet.

 

 

Asset Quality Statistics From Continuing Operations

(dollars in millions)


3Q20

2Q20

1Q20

4Q19

3Q19

Net loan charge-offs

$

128


$

96


$

84


$

99


$

196


Net loan charge-offs to average total loans

.49

%

.36

%

.35

%

.42

%

.85

%

Allowance for loan and lease losses

$

1,730


$

1,708


$

1,359


$

900


$

893


Allowance for credit losses (a)

1,938


1,906


1,520


968


958


Allowance for loan and lease losses to period-end loans

1.68

%

1.61

%

1.32

%

.95

%

.96

%

Allowance for credit losses to period-end loans

1.88


1.80


1.47


1.02


1.03


Allowance for loan and lease losses to nonperforming loans

207.4


224.7


215.0


156.0


152.6


Allowance for credit losses to nonperforming loans

232.4


250.8


240.5


167.8


163.8


Nonperforming loans at period end

$

834


$

760


$

632


$

577


$

585


Nonperforming assets at period end

1,003


951


844


715


711


Nonperforming loans to period-end portfolio loans

.81

%

.72

%

.61

%

.61

%

.63

%

Nonperforming assets to period-end portfolio loans plus OREO and other
   nonperforming assets

.97


.89


.82


.75


.77




(a)

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

 

 

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(dollars in millions)


9/30/2020

6/30/2020

3/31/2020

12/31/2019

9/30/2019

Commercial and industrial

$

459


$

404


$

277


$

264


$

238








Real estate — commercial mortgage

104


91


87


83


92


Real estate — construction

1


1


2


2


2


Total commercial real estate loans

105


92


89


85


94


Commercial lease financing

6


9


5


6


7


Total commercial loans

570


505


371


355


339


Real estate — residential mortgage

96


89


89


48


42


Home equity loans

146


141


143


145


179


Consumer direct loans

3


3


4


4


3


Credit cards

2


2


3


3


2


Consumer indirect loans

17


20


22


22


20


Total consumer loans

264


255


261


222


246


   Total nonperforming loans

834


760


632


577


585


OREO

105


112


119


35


39


Nonperforming loans held for sale

61


75


89


94


78


Other nonperforming assets

3


4


4


9


9


   Total nonperforming assets

$

1,003


$

951


$

844


$

715


$

711


Accruing loans past due 90 days or more

73


87


128


97


54


Accruing loans past due 30 through 89 days

336


419


393


329


366


Restructured loans — accruing and nonaccruing (a)

306


310


340


347


347


Restructured loans included in nonperforming loans (a)

168


166


172


183


176


Nonperforming assets from discontinued operations — education lending
   business 

6


7


7


7


7


Nonperforming loans to period-end portfolio loans

.81

%

.72

%

.61

%

.61

%

.63

%

Nonperforming assets to period-end portfolio loans plus OREO and other
   nonperforming assets

.97


.89


.82


.75


.77




(a)

Restructured loans (i.e., troubled debt restructuring) 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)


3Q20

2Q20

1Q20

4Q19

3Q19

Balance at beginning of period

$

760


$

632


$

577


$

585


$

561


Loans placed on nonaccrual status (a)

387


293


219


268


271


Charge-offs

(150)


(111)


(100)


(114)


(91)


Loans sold

(6)


(5)


(4)


(1)



Payments

(83)


(29)


(31)


(59)


(37)


Transfers to OREO



(3)


(3)


(4)


Transfers to nonperforming loans held for sale




(47)


(78)


Loans returned to accrual status

(74)


(20)


(26)


(52)


(37)


Balance at end of period

$

834


$

760


$

632


$

577


$

585




(a)

Purchase credit impaired (PCI) loans meeting nonperforming criteria were historically excluded from Key's nonperforming disclosures. As a result of CECL implementation on January 1, 2020, PCI loans became purchased credit deteriorated (PCD) loans. PCD loans that met the definition of nonperforming are now included in nonperforming disclosures, resulting in a $45 million increase in nonperforming loans in the first quarter of 2020.

 

 

Line of Business Results

(dollars in millions)

















Percentage change 3Q20 vs.


3Q20

2Q20

1Q20

4Q19

3Q19


2Q20

3Q19

Consumer Bank









Summary of operations









Total revenue (TE)

$

871


$

841


$

820


$

825


$

833



3.6

%

4.6

%

Provision for credit losses

(16)


167


140


55


48



N/M


N/M


Noninterest expense

571


555


542


550


529



2.9


7.9


Net income (loss) attributable to Key

241


91


105


168


196



164.8


23.0


Average loans and leases

41,471


39,197


35,197


34,148


32,760



5.8


26.6


Average deposits

83,175


79,502


73,320


73,561


72,995



4.6


13.9


Net loan charge-offs

23


39


43


43


40



(41.0)


(42.5)


Net loan charge-offs to average total loans

.22

%

.40

%

.49

%

.50

%

.48

%


N/A


N/A


Nonperforming assets at period end

$

332


$

342


$

306


$

354


$

354



(2.9)


(6.2)


Return on average allocated equity

27.03

%

10.45

%

12.26

%

19.64

%

23.22

%


N/A


N/A











Commercial Bank









Summary of operations









Total revenue (TE)

$

804


$

857


$

630


$

771


$

780



(6.2)

%

3.1

%

Provision for credit losses

163


314


218


38


32



(48.1)


409.4


Noninterest expense

443


438


358


393


378



1.1


17.2


Net income (loss) attributable to Key

160


101


63


311


301



58.4


(46.8)


Average loans and leases

62,925


68,038


60,082


58,535


58,215



(7.5)


8.1


Average loans held for sale

1,383


2,012


1,607


1,465


1,325



(31.3)


4.4


Average deposits

51,238


47,685


36,256


38,224


36,204



7.5


41.5


Net loan charge-offs

104


57


40


39


35



82.5


197.1


Net loan charge-offs to average total loans

.66

%

.34

%

.27

%

.26

%

.24

%


N/A


N/A


Nonperforming assets at period end

$

616


$

407


$

402


$

351


$

351



51.4


75.5


Return on average allocated equity

12.57

%

8.41

%

5.40

%

26.40

%

26.18

%


N/A


N/A


















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

 

 

Notable Items

(in millions)









Three months ended


Nine months ended


9/30/2020

6/30/2020

9/30/2019


9/30/2020

9/30/2019

Provision for credit losses



$

(123)




$

(123)









Efficiency initiative expenses






(76)


Laurel Road acquisition expenses






(2)


Total notable items



(123)




(201)


Income taxes



(29)




(47)


Total notable items, after tax



$

(94)




$

(154)


 

(PRNewsfoto/KeyCorp)

 

 

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SOURCE KeyCorp