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

Rhea-AI Summary

KeyCorp reported a net income of $397 million, or $0.41 per diluted share, for Q3 2020, a significant increase from $159 million in Q2 2020. This reflects a year-over-year income rise of 3.7%. Revenue grew by 3% driven by higher loan and deposit volumes, bolstered by the Paycheck Protection Program. However, noninterest expenses rose by 10.4% due to pandemic-related costs. The Common Equity Tier 1 ratio improved to 9.5%. The bank remains committed to strong risk management despite economic challenges, reflecting confidence in its future growth.

Positive

• Net income rose to $397 million from $159 million in Q2 2020, a 149.7% increase.
• Revenue increased by 3% year-over-year due to strong loan and deposit growth.
• Common Equity Tier 1 ratio improved to 9.5%, indicating solid capital position.

Negative

• Noninterest expenses increased by 10.4% year-over-year, reflecting higher variable costs.
• Lower net interest margin due to decreased interest rates and a shift in balance sheet mix.

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

 

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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.

INVESTOR RELATIONS:	KEY MEDIA NEWSROOM:
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)

 

 

 

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SOURCE KeyCorp

FAQ

What was KeyCorp's net income for Q3 2020?

KeyCorp reported a net income of $397 million for Q3 2020.

How much did KeyCorp's revenue increase in Q3 2020?

KeyCorp's revenue increased by 3% year-over-year in Q3 2020.

What is the Common Equity Tier 1 ratio for KeyCorp?

KeyCorp's Common Equity Tier 1 ratio was 9.5% as of September 30, 2020.

What were the key factors affecting KeyCorp's expenses in Q3 2020?

Expenses rose due to higher variable costs and pandemic-related health measures.

How does KeyCorp's performance in Q3 2020 compare to Q2 2020?

KeyCorp's net income jumped from $159 million in Q2 2020 to $397 million in Q3 2020.