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

PR Newswire - Wed Oct 21, 5:30AM CDT

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)



 

 

 

Cision View original content to download multimedia: http://www.prnewswire.com/news-releases/keycorp-reports-third-quarter-2020-net-income-of-397-million-or-41-per-diluted-common-share-301156776.html

SOURCE KeyCorp

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