KeyCorp Reports Second Quarter 2020 Net Income Of $159 Million, Or $.16 Per Diluted Common Share

Rhea-AI Summary

KeyCorp (NYSE: KEY) reported a net income of $159 million for Q2 2020, up from $118 million in Q1 2020 but down 60.5% from $403 million in Q2 2019. The results reflect the CECL accounting method and the impact of COVID-19. The provision for credit losses exceeded net charge-offs by $386 million, showing prudent risk management. Total revenue was $1.717 billion, a 17.1% increase from Q1 2020, driven by strong noninterest income growth. KeyCorp remains well-capitalized and actively participated in the Paycheck Protection Program, providing over $8 billion in loans.

Positive

• Net income increased 34.7% from Q1 2020 to Q2 2020.
• Total revenue grew 17.1% quarter-over-quarter.
• Noninterest income surged by 45.1% compared to Q1 2020, driven by strong capital markets and consumer mortgage growth.
• Maintained a strong balance sheet with double-digit growth in loans and deposits.
• Successfully processed over 40,000 Paycheck Protection Program loans.

Negative

• Net income decreased 60.5% compared to Q2 2019.
• Significant build in allowance for loan and lease losses due to COVID-19 impacts.
• Lower net interest margin of 2.76%, down from 3.01% in Q1 2020.

CLEVELAND, July 22, 2020 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced net income from continuing operations attributable to Key common shareholders of $159 million, or $.16 per diluted common share for the second quarter of 2020, compared to $118 million, or $.12 per diluted common share, for the first quarter of 2020 and $403 million, or $.40 per diluted common share, for the second quarter of 2019. Key's results in the first and second quarters of 2020 reflect the Current Expected Credit Losses ("CECL") accounting methodology, as well as the impact of the COVID-19 pandemic.

We are pleased with Key's second quarter results, which demonstrated the resiliency of our team and business, the strength of our balance sheet, and our strong risk management practices. Our results also reflected a significant build in our allowance for loan and lease losses, with our provision for credit losses exceeding net charge-offs by $386 million.

Importantly, we generated positive operating leverage versus the year-ago quarter and a record level of pre-provision net revenue. Our results included strong balance sheet trends, with double-digit growth in both loans and deposits. Our fee businesses also benefitted from broad-based growth, driven by strength in capital markets related income, cards and payments and consumer mortgage. Expenses this quarter reflected higher production-related variable costs, expenses related to our payments business, and COVID-19 related expenses, including steps that we continue to take to ensure the health and safety of our teammates.

We have also supported our clients by offering payment deferrals, hardship support, borrower assistance programs, and forbearance options to help provide a bridge for individuals and businesses through these uncertain times. We were very active in the Paycheck Protection Program, processing more than 40,000 loans, and providing over $8 billion of funding to help our clients. 

We have positioned the company to perform through various operating environments and play a role in helping to revitalize our economy. Key remains well-capitalized, highly liquid, and committed to maintaining our moderate risk profile. I remain confident about the future of our company and our ability to create value for all our stakeholders.

-  Chris Gorman, Chairman and CEO

Selected Financial Highlights
dollars in millions, except per share data					Change 2Q20 vs.
		2Q20	1Q20	2Q19		1Q20	2Q19
Income (loss) from continuing operations attributable to Key common shareholders	$	159		$	118		$	403			34.7	%	(60.5)	%
Income (loss) from continuing operations attributable to Key common shareholders per   common share — assuming dilution	.16		.12		.40			33.3		(60.0)
Return on average tangible common equity from continuing operations (a)	4.96	%	3.82	%	13.69	%		N/A	N/A
Return on average total assets from continuing operations	.45		.40		1.19			N/A	N/A
Common Equity Tier 1 ratio (b)	9.1		8.9		9.6			N/A	N/A
Book value at period end	$	16.07		$	15.95		$	15.07			.8	%	6.6	%
Net interest margin (TE) from continuing operations	2.76	%	3.01	%	3.06	%		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)	6/30/20 ratio is estimated.
TE = Taxable Equivalent, N/A = Not Applicable

 

INCOME STATEMENT HIGHLIGHTS
Revenue
dollars in millions					Change 2Q20 vs.
	2Q20	1Q20	2Q19		1Q20	2Q19
Net interest income (TE)	$	1,025		$	989		$	989			3.6	%	3.6	%
Noninterest income	692		477		622			45.1		11.3
Total revenue	$	1,717		$	1,466		$	1,611			17.1	%	6.6	%
TE = Taxable Equivalent

Taxable-equivalent net interest income was $1.0 billion for the second quarter of 2020, compared to taxable-equivalent net interest income of $989 million for the second 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, a lag in deposit pricing as interest rates declined, and a change in balance sheet mix, including elevated levels of liquidity and Key's participation in the Paycheck Protection Program.

Compared to the first quarter of 2020, taxable-equivalent net interest income increased by $36 million, reflecting higher earning asset balances, partially offset by a lower net interest margin. The lower net interest margin reflects elevated levels of liquidity, the impact of lower interest rates, and Key's participation in the Paycheck Protection Program.

Noninterest Income
dollars in millions					Change 2Q20 vs.
	2Q20	1Q20	2Q19		1Q20	2Q19
Trust and investment services income	$	123		$	133		$	122			(7.5)	%	.8	%
Investment banking and debt placement fees	156		116		163			34.5		(4.3)
Service charges on deposit accounts	68		84		83			(19.0)		(18.1)
Operating lease income and other leasing gains	60		30		44			100.0		36.4
Corporate services income	52		62		53			(16.1)		(1.9)
Cards and payments income	91		66		73			37.9		24.7
Corporate-owned life insurance income	35		36		33			(2.8)		6.1
Consumer mortgage income	62		20		15			210.0		313.3
Commercial mortgage servicing fees	12		18		19			(33.3)		(36.8)
Other income	33		(88)		17			N/M		94.1
Total noninterest income	$	692		$	477		$	622			45.1	%	11.3	%

Compared to the second quarter of 2019, noninterest income increased by $70 million, primarily driven by a $47 million increase in consumer mortgage income, driven by a record level of loan originations and related fees in the second quarter of 2020. Additionally, cards and payments income increased $18 million related to prepaid card activity and operating lease income increased $16 million driven by gains from the sale of leveraged leases. These benefits were partially offset by a decline of $15 million in service charges on deposit accounts.

Compared to the first quarter of 2020, noninterest income increased by $215 million. The largest driver of the quarterly increase was a $121 million improvement in other income, primarily driven by $92 million of market-related valuation adjustments in the first quarter of 2020. Other significant drivers for the quarter-over-quarter increase include $42 million of higher consumer mortgage income, and a $40 million increase in investment banking and debt placement fees related to strong commercial mortgage and debt capital markets activity. Operating lease income and cards and payments income also increased, $30 million and $25 million, respectively.

Noninterest Expense
dollars in millions					Change 2Q20 vs.
	2Q20	1Q20	2Q19		1Q20	2Q19
Personnel expense	$	572		$	515		$	589			11.1	%	(2.9)	%
Nonpersonnel expense	441		416		430			6.0		2.6
Total noninterest expense	$	1,013		$	931		$	1,019			8.8	%	(.6)	%

Key's noninterest expense was $1.0 billion for the second quarter of 2020, a decrease of $6 million from the year-ago period. The second quarter of 2019 included notable items of $52 million, primarily personnel-related from Key's efficiency initiatives. Excluding notable items in the year-ago period, expenses increased $46 million. The increase is primarily related to higher other expense, from $25 million of payments-related expenses 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.

Compared to the first quarter of 2020, noninterest expense increased $82 million. The increase was largely due to higher incentive and stock-based compensation from strong revenue production in Key's investment banking and consumer mortgage businesses. Other drivers for the linked quarter increase include $25 million of payments-related costs (in other expense), as well as other COVID-19 related expenses.

BALANCE SHEET HIGHLIGHTS
Average Loans
dollars in millions					Change 2Q20 vs.
	2Q20	1Q20	2Q19		1Q20	2Q19
Commercial and industrial (a)	$	60,480		$	49,466		$	47,227			22.3	%	28.1	%
Other commercial loans	19,850		19,779

FAQ

What was KeyCorp's net income for Q2 2020?

KeyCorp reported a net income of $159 million for Q2 2020.

How did KeyCorp's revenue change in Q2 2020?

KeyCorp's total revenue increased by 17.1% compared to Q1 2020.

What is the significant impact on KeyCorp's financials due to COVID-19?

KeyCorp's financials reflect a substantial provision for credit losses and a decrease in net income compared to Q2 2019.

What steps did KeyCorp take to assist clients during the pandemic?

KeyCorp supported clients with payment deferrals and processed over 40,000 loans through the Paycheck Protection Program.

What was KeyCorp's return on average tangible common equity in Q2 2020?

The return on average tangible common equity for Q2 2020 was 4.96%.