Chronicle Journal: Finance

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

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


19,765



.4


.4


Total consumer loans

27,611


26,929


23,793



2.5


16.0


Total loans

$

107,941


$

96,174


$

90,785



12.2

%

18.9

%








(a) 

Commercial and industrial average loan balances include $135 million, $145 million, and $141 million of assets from commercial credit cards at June 30, 2020, March 31, 2020, and June 30, 2019, respectively.


Average loans were $107.9 billion for the second quarter of 2020, an increase of $17.2 billion compared to the second quarter of 2019. Commercial loans increased $13.3 billion, reflecting growth from participation in the Paycheck Protection Program during the current quarter, as well as core broad-based growth in commercial and industrial loans and increased utilization versus the year-ago period. Consumer loans increased $3.8 billion, driven by strength from Laurel Road and Key's consumer mortgage business.

Compared to the first quarter of 2020, average loans increased by $11.8 billion. The second quarter of 2020 included over $8 billion of loans related to the Paycheck Protection Program, which, in addition to the increase in commercial and industrial utilization rates in March 2020, drove the majority of commercial loan growth from the prior quarter. Consumer loan growth continued to be driven by strength from Laurel Road, as well as a record quarter in Key's consumer mortgage business. 

Average Deposits














dollars in millions





Change 2Q20 vs.


2Q20

1Q20

2Q19


1Q20

2Q19

Non-time deposits

$

118,694


$

99,117


$

95,885



19.8

%

23.8

%

Certificates of deposit ($100,000 or more)

4,950


6,310


8,147



(21.6)


(39.2)


Other time deposits

4,333


4,901


5,569



(11.6)


(22.2)


Total deposits

$

127,977


$

110,328


$

109,601



16.0

%

16.8

%








Cost of total deposits

.30

%

.62

%

.82

%


N/A


N/A










N/A = Not Applicable

Average deposits totaled $128.0 billion for the second quarter of 2020, an increase of $18.4 billion compared to the year-ago quarter, reflecting growth from consumer and commercial relationships, partially offset by a decline in time deposits.

Compared to the first quarter of 2020, average deposits increased by $17.6 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 decline in time deposits, primarily related to lower interest rates.

ASSET QUALITY














dollars in millions





Change 2Q20 vs.


2Q20

1Q20

2Q19


1Q20

2Q19

Net loan charge-offs

$

96


$

84


$

65



14.3

%

47.7

%

Net loan charge-offs to average total loans

.36

%

.35

%

.29

%


N/A


N/A


Nonperforming loans at period end

$

760


$

632


$

561



20.3


35.5


Nonperforming assets at period end

951


844


608



12.7


56.4


Allowance for loan and lease losses

1,708


1,359


890



25.7


91.9


Allowance for loan and lease losses to nonperforming loans

224.7

%

215.0

%

158.6

%


N/A


N/A


Provision for credit losses

$

482


$

359


$

74



34.3

%

551.4

%









N/A = Not Applicable

Key's provision for credit losses was $482 million for the second quarter of 2020, compared to $74 million for the second quarter of 2019, and $359 million for the first 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 $386 million. Net loan charge-offs for the second quarter of 2020 totaled $96 million, or .36% of average total loans. These results compare to $65 million, or .29%, for the second quarter of 2019, and $84 million, or .35%, for the first quarter of 2020. Key's allowance for loan and lease losses was $1.7 billion, or 1.61% of total period-end loans at June 30, 2020, compared to .97% at June 30, 2019, and 1.32% at March 31, 2020.

At June 30, 2020, Key's nonperforming loans totaled $760 million, which represented .72% of period-end portfolio loans. These results compare to .61% at June 30, 2019, and .61% at March 31, 2020.

Nonperforming assets at June 30, 2020, totaled $951 million, and represented .89% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .66% at June 30, 2019, and .82% at March 31, 2020.

CAPITAL

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

Capital Ratios









6/30/2020

3/31/2020

6/30/2019

Common Equity Tier 1 (a)

9.1

%

8.9

%

9.6

%

Tier 1 risk-based capital (a)

10.4


10.2


11.0


Total risk based capital (a)

12.8


12.2


13.0


Tangible common equity to tangible assets (b)

7.6


8.3


8.6


Leverage (a)

8.8


9.8


10.0






(a) 

6/30/2020 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 second quarter of 2020. As shown in the preceding table, at June 30, 2020, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.1% and 10.4%, respectively. Key's tangible common equity ratio was 7.6% at June 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 29 basis points.

Summary of Changes in Common Shares Outstanding









in thousands





Change 2Q20 vs.



2Q20

1Q20

2Q19


1Q20

2Q19

Shares outstanding at beginning of period

975,319


977,189


1,013,186



(.2)

%

(3.7)

%

Open market repurchases and return of shares under employee
   compensation plans

(19)


(7,862)


(10,412)



(99.8)


(99.8)


Shares issued under employee compensation plans (net of cancellations)

647


5,992


340



(89.2)


90.3



Shares outstanding at end of period

975,947


975,319


1,003,114



.1

%

(2.7)

%









Consistent with Key's 2019 Capital Plan, during the second 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 2Q20 vs.



2Q20

1Q20

2Q19


1Q20

2Q19

Revenue from continuing operations (TE)







Consumer Bank

$

841


$

820


$

825



2.6

%

1.9

%

Commercial Bank

847


629


760



34.7


11.4


Other (a)

29


17


26



70.6


11.5



Total

$

1,717


$

1,466


$

1,611



17.1

%

6.6

%









Income (loss) from continuing operations attributable to Key







Consumer Bank

$

91


$

105


$

177



(13.3)

%

(48.6)

%

Commercial Bank

120


70


277



71.4


(56.7)


Other (a)

(24)


(29)


(29)



N/M


N/M



Total

$

187


$

146


$

425



28.1

%

(56.0)

%









(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 2Q20 vs.


2Q20

1Q20

2Q19


1Q20

2Q19

Summary of operations







Net interest income (TE)

$

594


$

590


$

594



.7

%


Noninterest income

247


230


231



7.4


6.9

%

Total revenue (TE)

841


820


825



2.6


1.9


Provision for credit losses

167


140


40



19.3


317.5


Noninterest expense

555


543


552



2.2


.5


Income (loss) before income taxes (TE)

119


137


233



(13.1)


(48.9)


Allocated income taxes (benefit) and TE adjustments

28


32


56



(12.5)


(50.0)


Net income (loss) attributable to Key

$

91


$

105


$

177



(13.3)

%

(48.6)

%








Average balances







Loans and leases

$

39,197


$

35,197


$

31,881



11.4

%

22.9

%

Total assets

44,106


38,460


35,469



14.7


24.4


Deposits

79,502


73,320


72,303



8.4


10.0









Assets under management at period end

$

39,722


$

36,189


$

38,942



9.8

%

2.0

%









TE = Taxable Equivalent

 

Additional Consumer Bank Data














dollars in millions





Change 2Q20 vs.


2Q20

1Q20

2Q19


1Q20

2Q19

Noninterest income







Trust and investment services income

$

87


$

93


$

91



(6.5)

%

(4.4)

%

Service charges on deposit accounts

38


55


56



(30.9)


(32.1)


Cards and payments income

46


49


54



(6.1)


(14.8)


Other noninterest income

76


33


30



130.3


153.3


Total noninterest income

$

247


$

230


$

231



7.4

%

6.9

%








Average deposit balances







NOW and money market deposit accounts

$

49,152


$

45,583


$

42,800



7.8

%

14.8

%

Savings deposits

4,817


4,345


4,506



10.9


6.9


Certificates of deposit ($100,000 or more)

4,520


5,587


6,644



(19.1)


(32.0)


Other time deposits

4,296


4,869


5,549



(11.8)


(22.6)


Noninterest-bearing deposits

16,717


12,936


12,804



29.2


30.6


Total deposits

$

79,502


$

73,320


$

72,303



8.4

%

10.0

%








Home equity loans







Average balance

$

9,893


$

10,093


$

10,618





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

70

%

70

%

70

%




Percent first lien positions

63


62


60












Other data







Branches

1,077


1,082


1,102





Automated teller machines

1,394


1,398


1,430












Consumer Bank Summary of Operations (2Q20 vs. 2Q19)

  • Net income attributable to Key of $91 million for the second quarter of 2020, compared to $177 million for the year-ago quarter
  • Taxable equivalent net interest income was flat compared to the second quarter of 2019 as the lower interest rate environment offset balance sheet growth
  • Average loans and leases increased $7.3 billion, or 22.9%, driven by loan production related to the Paycheck Protection Program, as well as growth from Laurel Road and consumer mortgage
  • Average deposits increased $7.2 billion, or 10.0%, from the second quarter of 2019. This was driven by consumer stimulus payments and lower consumer spend activity
  • Provision for credit losses increased $127 million compared to the second quarter of 2019. The increase in provision for credit losses is mainly attributable to the change in the economic scenario under the CECL accounting methodology, as well as balance sheet growth
  • Noninterest income increased $16 million, or 6.9%, from the year-ago quarter, driven by a record quarter in consumer mortgage income partially offset by lower consumer spend activity
  • Noninterest expense increased $3 million, or .5%, from the year ago quarter

 

Commercial Bank





















dollars in millions





Change 2Q20 vs.


2Q20

1Q20

2Q19


1Q20

2Q19

Summary of operations







Net interest income (TE)

$

442


$

410


$

405



7.8

%

9.1

%

Noninterest income

405


219


355



84.9


14.1


Total revenue (TE)

847


629


760



34.7


11.4


Provision for credit losses

314


214


33



46.7


851.5


Noninterest expense

403


353


389



14.2


3.6


Income (loss) before income taxes (TE)

130


62


338



109.7


(61.5)


Allocated income taxes and TE adjustments

10


(8)


61



N/M


(83.6)


Net income (loss) attributable to Key

$

120


$

70


$

277



71.4

%

(56.7)

%








Average balances







Loans and leases

$

68,038


$

60,082


$

57,918



13.2

%

17.5

%

Loans held for sale

2,012


1,607


1,168



25.2


72.3


Total assets

76,974


69,383


65,901



10.9


16.8


Deposits

46,099


36,058


35,960



27.8

%

28.2

%









TE = Taxable Equivalent, N/M = Not Meaningful

 

Additional Commercial Bank Data














dollars in millions





Change 2Q20 vs.


2Q20

1Q20

2Q19


1Q20

2Q19

Noninterest income







Trust and investment services income

$

36


$

39


$

31



(7.7)

%

16.1

%

Investment banking and debt placement fees

156


116


162



34.5


(3.7)


Operating lease income and other leasing gains

46


30


43



53.3


7.0









Corporate services income

45


57


50



(21.1)


(10.0)


Service charges on deposit accounts

30


28


27



7.1


11.1


Cards and payments income

44


17


17



158.8


158.8


Payments and services income

119


102


94



16.7


26.6









Commercial mortgage servicing fees

12


18


20



(33.3)


(40.0)


Other noninterest income

36


(86)


5



N/M


620.0


Total noninterest income

$

405


$

219


$

355



84.9

%

14.1

%









N/M = Not Meaningful

 

Commercial Bank Summary of Operations (2Q20 vs. 2Q19)

  • Net income attributable to Key of $120 million for the second quarter of 2020, compared to $277 million for the year-ago quarter
  • Taxable-equivalent net interest income increased by $37 million, compared to the second quarter of 2019, with balance sheet growth partially offset by lower interest rate environment
  • Average loan and lease balances increased $10.1 billion, or 17.5%, compared to the second quarter of 2019 driven by growth in commercial and industrial loans from line draws and Paycheck Protection Program loans
  • Average deposit balances increased $10.1 billion, or 28.2%, compared to the second quarter of 2019, driven by growth in targeted relationships and the impact of government programs
  • Provision for credit losses increased $281 million compared to the second quarter of 2019. The increase in provision for credit losses is mainly attributable to the change in the economic scenario under the CECL accounting methodology, but also impacted by line draws on commercial credits
  • Noninterest income increased $50 million, or 14.1%, from the second quarter of 2019, driven by higher cards and payments income related to prepaid card revenue, as well as higher other income
  • Noninterest expense increased by $14 million, or 3.6%, from the second quarter of 2019 driven by higher incentives related to strong revenue production

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

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 $171.2 billion at June 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.

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, July 22, 2020. A replay of the call will be available through August 5, 2020.

Financial Highlights

(dollars in millions, except per share amounts)




Three months ended




6/30/2020

3/31/2020

6/30/2019

Summary of operations





Net interest income (TE)

$

1,025


$

989


$

989



Noninterest income

692


477


622




Total revenue (TE)

1,717


1,466


1,611



Provision for credit losses

482


359


74



Noninterest expense

1,013


931


1,019



Income (loss) from continuing operations attributable to Key

185


145


423



Income (loss) from discontinued operations, net of taxes

2


1


2



Net income (loss) attributable to Key

187


146


425









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

159


118


403



Income (loss) from discontinued operations, net of taxes

2


1


2



Net income (loss) attributable to Key common shareholders

161


119


405








Per common share





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

$

.16


$

.12


$

.40



Income (loss) from discontinued operations, net of taxes





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

.17


.12


.40









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

.16


.12


.40



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





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

.17


.12


.40









Cash dividends declared

.185


.185


.17



Book value at period end

16.07


15.95


15.07



Tangible book value at period end

13.12


12.98


12.12



Market price at period end

12.18


10.37


17.75








Performance ratios





From continuing operations:





Return on average total assets

.45

%

.40

%

1.19

%


Return on average common equity

4.05


3.10


10.94



Return on average tangible common equity (b)

4.96


3.82


13.69



Net interest margin (TE)

2.76


3.01


3.06



Cash efficiency ratio (b)

57.9


62.3


61.9









From consolidated operations:





Return on average total assets

.46

%

.40

%

1.19

%


Return on average common equity

4.10


3.12


11.00



Return on average tangible common equity (b)

5.02


3.86


13.75



Net interest margin (TE)

2.76


3.00


3.05



Loan to deposit (c)

80.4


92.1


86.1








Capital ratios at period end





Key shareholders' equity to assets

10.2

%

11.1

%

11.7

%


Key common shareholders' equity to assets

9.2


10.0


10.5



Tangible common equity to tangible assets (b)

7.6


8.3


8.6



Common Equity Tier 1 (d)

9.1


8.9


9.6



Tier 1 risk-based capital (d)

10.4


10.2


11.0



Total risk-based capital (d)

12.8


12.2


13.0



Leverage (d)

8.8


9.8


10.0








Asset quality — from continuing operations





Net loan charge-offs

$

96


$

84


$

65



Net loan charge-offs to average loans

.36

%

.35

%

.29

%


Allowance for loan and lease losses

$

1,708


$

1,359


$

890



Allowance for credit losses

1,906


1,520


954



Allowance for loan and lease losses to period-end loans

1.61

%

1.32

%

.97

%


Allowance for credit losses to period-end loans

1.80


1.47


1.04



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

224.7


215.0


158.6



Allowance for credit losses to nonperforming loans (e)

250.8


240.5


170.1



Nonperforming loans at period-end (e)

$

760


$

632


$

561



Nonperforming assets at period-end (e)

951


844


608



Nonperforming loans to period-end portfolio loans (e)

.72

%

.61

%

.61

%


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

.89


.82


.66








Trust assets





Assets under management

$

39,722


$

36,189


$

38,942








Other data





Average full-time equivalent employees

16,646


16,529


17,206



Branches

1,077


1,082


1,102








Taxable-equivalent adjustment

$

7


$

8


$

8


 

Financial Highlights (continued)

(dollars in millions, except per share amounts)



Six months ended



6/30/2020

6/30/2019

Summary of operations




Net interest income (TE)

$

2,014


$

1,974



Noninterest income

1,169


1,158



Total revenue (TE)

3,183


3,132



Provision for credit losses

841


136



Noninterest expense

1,944


1,982



Income (loss) from continuing operations attributable to Key

330


829



Income (loss) from discontinued operations, net of taxes

3


3



Net income (loss) attributable to Key

333


832







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

$

277


$

789



Income (loss) from discontinued operations, net of taxes

3


3



Net income (loss) attributable to Key common shareholders

280


792






Per common share




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

$

.29


$

.79



Income (loss) from discontinued operations, net of taxes




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

.29


.79







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

.28


.78



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




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

.29


.78







Cash dividends paid

.37


.34






Performance ratios




From continuing operations:




Return on average total assets

.43

%

1.18

%


Return on average common equity

3.58


10.96



Return on average tangible common equity (b)

4.40


13.69



Net interest margin (TE)

2.88


3.10



Cash efficiency ratio (b)

60.0


61.9







From consolidated operations:




Return on average total assets

.43

%

1.18

%


Return on average common equity

3.62


11.01



Return on average tangible common equity (b)

4.45


13.74



Net interest margin (TE)

2.87


3.08






Asset quality — from continuing operations




Net loan charge-offs

$

180


$

129



Net loan charge-offs to average total loans

.35

%

.29

%





Other data




Average full-time equivalent employees

16,587


17,379






Taxable-equivalent adjustment

15


16


(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) 

June 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


Six months ended


6/30/2020

3/31/2020

6/30/2019


6/30/2020

6/30/2019

Tangible common equity to tangible assets at period-end







Key shareholders' equity (GAAP)

$

17,542


$

17,411


$

16,969





Less: Intangible assets (a)

2,877


2,894


2,952





Preferred Stock (b)

1,856


1,856


1,856





Tangible common equity (non-GAAP)

$

12,809


$

12,661


$

12,161





Total assets (GAAP)

$

171,192


$

156,197


$

144,545





Less: Intangible assets (a)

2,877


2,894


2,952





Tangible assets (non-GAAP)

$

168,315


$

153,303


$

141,593





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

7.6

%

8.3

%

8.6

%




Pre-provision net revenue







Net interest income (GAAP)

$

1,018


$

981


$

981



$

1,999


$

1,958


Plus: Taxable-equivalent adjustment

7


8


8



15


16


Noninterest income

692


477


622



1,169


1,158


Less: Noninterest expense

1,013


931


1,019



1,944


1,982


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

$

704


$

535


$

592



$

1,239


$

1,150


Average tangible common equity







Average Key shareholders' equity (GAAP)

$

17,688


$

17,216


$

16,531



$

17,452


$

16,119


Less: Intangible assets (average) (c)

2,886


2,902


2,959



2,894


2,886


Preferred stock (average)

1,900


1,900


1,762



1,900


1,607


Average tangible common equity (non-GAAP)

$

12,902


$

12,414


$

11,810



$

12,658


$

11,626


Return on average tangible common equity from continuing operations







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

$

159


$

118


$

403



$

277


$

789


Plus: Notable items, after tax (d)



40




60


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

$

159


$

118


$

443



$

277


$

849


Average tangible common equity (non-GAAP)

12,902


12,414


11,810



12,658


11,626









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

4.96

%

3.82

%

13.69

%


4.40

%

13.69

%

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

4.96

%

3.82

%

15.05

%


4.40

%

14.73

%

Return on average tangible common equity consolidated







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

$

161


$

119


$

405



$

280


$

792


Average tangible common equity (non-GAAP)

12,902


12,414


11,810



12,658


11,626









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

5.02

%

3.86

%

13.75

%


4.45

%

13.74

%

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)


Three months ended


Six months ended


6/30/2020

3/31/2020

6/30/2019


6/30/2020

6/30/2019

Cash efficiency ratio







Noninterest expense (GAAP)

$

1,013


$

931


$

1,019



$

1,944


$

1,982


Less: Intangible asset amortization

18


17


22



35


44


Adjusted noninterest expense (non-GAAP)

$

995


$

914


$

997



$

1,909


$

1,938


Less: Notable items (d)



52




78


Adjusted noninterest expense excluding notable items (non-GAAP)

$

995


$

914


$

945



$

1,909


$

1,860









Net interest income (GAAP)

$

1,018


$

981


$

981



$

1,999


$

1,958


Plus: Taxable-equivalent adjustment

7


8


8



15


16


Noninterest income

692


477


622



1,169


1,158


Total taxable-equivalent revenue (non-GAAP)

$

1,717


$

1,466


$

1,611



$

3,183


$

3,132









Cash efficiency ratio (non-GAAP)

57.9

%

62.3

%

61.9

%


60.0

%

61.9

%








Cash efficiency ratio excluding notable items (non-GAAP)

57.9

%

62.3

%

58.7

%


60.0

%

59.4

%

(a) 

For the three months ended June 30, 2020, March 31, 2020, and June 30, 2019, intangible assets exclude $5 million, $6 million, and $10 million, respectively, of period-end purchased credit card receivables.

(b) 

Net of capital surplus.

(c) 

For the three months ended June 30, 2020, March 31, 2020, and June 30, 2019, average intangible assets exclude $6 million, $7 million, and $11 million, respectively, of average purchased credit card receivables. For the six months ended June 30, 2020, and June 30, 2019, average intangible assets exclude $6 million and $12 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)










6/30/2020

3/31/2020

6/30/2019

Assets





Loans

$

106,159


$

103,198


$

91,937



Loans held for sale

2,007


2,143


1,790



Securities available for sale

23,600


20,807


21,528



Held-to-maturity securities

9,075


9,638


10,878



Trading account assets

645


795


1,005



Short-term investments

14,036


4,073


2,443



Other investments

655


679


632




Total earning assets

156,177


141,333


130,213



Allowance for loan and lease losses

(1,708)


(1,359)


(890)



Cash and due from banks

1,059


865


607



Premises and equipment

776


791


829



Goodwill

2,664


2,664


2,664



Other intangible assets

218


236


298



Corporate-owned life insurance

4,251


4,243


4,201



Accrued income and other assets

6,976


6,604


5,633



Discontinued assets

779


820


990




Total assets

$

171,192


156,197


144,545








Liabilities





Deposits in domestic offices:






NOW and money market deposit accounts

$

78,853


$

71,005


$

63,619




Savings deposits

5,371


4,753


4,747




Certificates of deposit ($100,000 or more)

4,476


5,630


8,084




Other time deposits

4,011


4,623


5,524




Total interest-bearing deposits

92,711


86,011


81,974




Noninterest-bearing deposits

42,802


29,293


27,972




Total deposits

135,513


115,304


109,946



Federal funds purchased and securities sold under repurchase agreements

267


2,444


161



Bank notes and other short-term borrowings

1,716


4,606


720



Accrued expense and other liabilities

2,420


2,700


2,435



Long-term debt

13,734


13,732


14,312




Total liabilities

153,650


138,786


127,574








Equity





Preferred stock

1,900


1,900


1,900



Common shares

1,257


1,257


1,257



Capital surplus

6,240


6,222


6,266



Retained earnings

12,154


12,174


12,005



Treasury stock, at cost

(4,945)


(4,956)


(4,457)



Accumulated other comprehensive income (loss)

936


814


(2)




Key shareholders' equity

17,542


17,411


16,969



Noncontrolling interests



2




Total equity

17,542


17,411


16,971


Total liabilities and equity

$

171,192


$

156,197


$

144,545








Common shares outstanding (000)

975,947


975,319


1,003,114


 

Consolidated Statements of Income

(dollars in millions, except per share amounts)




Three months ended


Six months ended




6/30/2020

3/31/2020

6/30/2019


6/30/2020

6/30/2019

Interest income








Loans

$

980


$

1,026


$

1,082



$

2,006


$

2,148



Loans held for sale

21


19


15



40


28



Securities available for sale

121


129


135



250


264



Held-to-maturity securities

56


62


67



118


135



Trading account assets

5


8


9



13


17



Short-term investments

7


6


17



13


33



Other investments


1


4



1


8




Total interest income

1,190


1,251


1,329



2,441


2,633


Interest expense








Deposits

96


169


223



265


425



Federal funds purchased and securities sold under repurchase agreements


6




6


1



Bank notes and other short-term borrowings

5


5


5



10


9



Long-term debt

71


90


120



161


240




Total interest expense

172


270


348



442


675


Net interest income

1,018


981


981



1,999


1,958


Provision for credit losses

482


359


74



841


136


Net interest income after provision for credit losses

536


622


907



1,158


1,822


Noninterest income








Trust and investment services income

123


133


122



256


237



Investment banking and debt placement fees

156


116


163



272


273



Service charges on deposit accounts

68


84


83



152


165



Operating lease income and other leasing gains

60


30


44



90


81



Corporate services income

52


62


53



114


108



Cards and payments income

91


66


73



157


139



Corporate-owned life insurance income

35


36


33



71


65



Consumer mortgage income

62


20


15



82


26



Commercial mortgage servicing fees

12


18


19



30


37



Other income

33


(88)


17



(55)


27




Total noninterest income

692


477


622



1,169


1,158


Noninterest expense








Personnel

572


515


589



1,087


1,152



Net occupancy

71


76


73



147


145



Computer processing

56


55


56



111


110



Business services and professional fees

49


44


45



93


89



Equipment

25


24


24



49


48



Operating lease expense

34


36


32



70


58



Marketing

24


21


24



45


43



FDIC assessment

8


9


9



17


16



Intangible asset amortization

18


17


22



35


44



OREO expense, net

6


3


4



9


7



Other expense

150


131


141



281


270




Total noninterest expense

1,013


931


1,019



1,944


1,982


Income (loss) from continuing operations before income taxes

215


168


510



383


998



Income taxes

30


23


87



53


169


Income (loss) from continuing operations

185


145


423



330


829



Income (loss) from discontinued operations, net of taxes

2


1


2



3


3


Net income (loss)

187


146


425



333


832



Less:  Net income (loss) attributable to noncontrolling interests







Net income (loss) attributable to Key

$

187


$

146


$

425



$

333


$

832











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

$

159


$

118


$

403



$

277


$

789


Net income (loss) attributable to Key common shareholders

161


119


405



280


792


Per common share







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

$

.16


$

.12


$

.40



$

.29


$

.79


Income (loss) from discontinued operations, net of taxes







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

.17


.12


.40



.29


.79


Per common share — assuming dilution







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

$

.16


$

.12


$

.40



$

.28


$

.78


Income (loss) from discontinued operations, net of taxes







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

.17


.12


.40



.29


.78











Cash dividends declared per common share

$

.185


$

.185


$

.17



$

.37


$

.34











Weighted-average common shares outstanding (000)

967,147


967,446


999,163



967,380


1,003,047



Effect of common share options and other stock awards

4,994


8,664


8,801



6,892


9,318


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

972,141


976,110


1,007,964



974,272


1,012,365


(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)



Second Quarter 2020


First Quarter 2020


Second 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)

$

60,480


$

518


3.44

%


$

49,466


$

508


4.13

%


$

47,227


$

547


4.65

%


Real estate — commercial mortgage

13,510


128


3.80



13,548


155


4.60



13,866


175


5.06



Real estate — construction

1,756


17


3.97



1,666


20


4.75



1,423


20


5.41



Commercial lease financing

4,584


33


2.96



4,565


39


3.39



4,476


41


3.65



Total commercial loans

80,330


696


3.49



69,245


722


4.19



66,992


783


4.69



Real estate — residential mortgage

7,783


69


3.57



7,215


68


3.75



5,790


58


4.03



Home equity loans

9,949


97


3.89



10,155


113


4.49



10,701


135


5.05



Consumer direct loans

4,152


55


5.24



3,709


54


5.91



2,352


43


7.39



Credit cards

983


25


10.22



1,082


31


11.50



1,091


31


11.26



Consumer indirect loans

4,744


45


3.82



4,768


46


3.86



3,859


40


4.15



Total consumer loans

27,611


291


4.22



26,929


312


4.66



23,793


307


5.17



Total loans

107,941


987


3.67



96,174


1,034


4.32



90,785


1,090


4.81



Loans held for sale

2,463


21


3.50



1,885


19


3.99



1,302


15


4.56



Securities available for sale (b), (e)

20,749


121


2.43



21,172


129


2.49



21,086


135


2.54



Held-to-maturity securities (b)

9,331


56


2.43



9,820


62


2.51



11,058


67


2.41



Trading account assets

760


5


2.43



1,065


8


2.95



1,124


9


3.28



Short-term investments

7,892


7


.31



1,764


6


1.42



3,200


17


2.23



Other investments (e)

672



.29



614


1


.40



640


4


2.00



Total earning assets

149,808


1,197


3.22



132,494


1,259


3.82



129,195


1,337


4.14



Allowance for loan and lease losses

(1,413)





(1,097)





(881)





Accrued income and other assets

15,704





14,831





14,321





Discontinued assets

793





838





1,009





Total assets

$

164,892





$

147,066





$

143,644




Liabilities













NOW and money market deposit accounts

$

75,297


56


.30



$

66,721


112


.67



$

63,071


147


.93



Savings deposits

5,130



.04



4,655


1


.05



4,781


1


.09



Certificates of deposit ($100,000 or more)

4,950


24


1.93



6,310


34


2.20



8,147


48


2.37



Other time deposits

4,333


16


1.52



4,901


22


1.81



5,569


27


1.93



Total interest-bearing deposits

89,710


96


.43



82,587


169


.82



81,568


223


1.10



Federal funds purchased and securities sold
   under repurchase agreements

242



.03



2,002


6


1.17



194



.20



Bank notes and other short-term borrowings

2,869


5


.57



1,401


5


1.58



842


5


2.46



Long-term debt (f), (g)

12,954


71


2.30



12,443


90


2.96



13,213


120


3.67



Total interest-bearing liabilities

105,775


172


.66



98,433


270


1.10



95,817


348


1.46



Noninterest-bearing deposits

38,267





27,741





28,033





Accrued expense and other liabilities

2,369





2,838





2,253





Discontinued liabilities (g)

793





838





1,009





Total liabilities

147,204





129,850





127,112




Equity













Key shareholders' equity

17,688





17,216





16,531





Noncontrolling interests









1





Total equity

17,688





17,216





16,532





Total liabilities and equity

$

164,892





$

147,066





$

143,644




Interest rate spread (TE)



2.56

%




2.72

%




2.68

%

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


1,025


2.76

%



989


3.01

%



989


3.06

%

TE adjustment (b)


7





8





8




Net interest income, GAAP basis


$

1,018





$

981





$

981



(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 June 30, 2020, March 31, 2020, and June 30, 2019.

(c) 

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

(d) 

Commercial and industrial average balances include $135 million, $145 million, and $141 million of assets from commercial credit cards for the three months ended June 30, 2020, March 31, 2020, and June 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)



Six months ended June 30, 2020


Six months ended June 30, 2019



Average


Yield/


Average


Yield/



Balance

Interest (a)

Rate (a)


Balance

Interest (a)

Rate (a)

Assets









Loans: (b), (c)









Commercial and industrial (d)

$

54,973


$

1,026


3.75

%


$

46,616


$

1,079


4.67

%


Real estate — commercial mortgage

13,529


283


4.20



14,094


354

5.07



Real estate — construction

1,711


37


4.35



1,492


41


5.45



Commercial lease financing

4,575


72


3.17



4,486


82


3.66



Total commercial loans

74,788


1,418


3.81



66,688


1,556


4.70



Real estate — residential mortgage

7,500


137


3.66



5,667


114


4.02



Home equity loans

10,052


210


4.19



10,847


272


5.06



Consumer direct loans

3,930


109


5.56



2,109


80


7.68



Credit cards

1,032


56


10.89



1,098


63


11.53



Consumer indirect loans

4,756


91


3.84



3,811


79


4.14



Total consumer loans

27,270


603


4.44



23,532


608


5.20



Total loans

102,058


2,021


3.98



90,220


2,164


4.83



Loans held for sale

2,174


40


3.71



1,212


28


4.64



Securities available for sale (b), (e)

20,960


250


2.46



20,649


264


2.52



Held-to-maturity securities (b)

9,575


118


2.47



11,213


135


2.41



Trading account assets

913


13


2.73



1041


17


3.31



Short-term investments

4,828


13


.52



2,965


33


2.25



Other investments (e)

643


1


.34



647


8


2.35



Total earning assets

141,151


2,456


3.51



127,947


2,649


4.16



Allowance for loan and lease losses

(1255)





(879)





Accrued income and other assets

15,268





14,317





Discontinued assets

815





1,037





Total assets

$

155,979





$

142,422




Liabilities









NOW and money market deposit accounts

$

71,009


168


.47



$

61,928


277


.90



Savings deposits

4,893


1


.04



4,796


2


.08



Certificates of deposit ($100,000 or more)

5,630


58


2.08



8,261


95


2.31



Other time deposits

4,617


38


1.67



5,535


51


1.86



Total interest-bearing deposits

86,149


265


.62



80,520


425


1.06



Federal funds purchased and securities sold under repurchase agreements

1,122


6


1.05



301


1


.67



Bank notes and other short-term borrowings

2,135


10


.90



746


9


2.59



Long-term debt (f), (g)

12,698


161


2.62



13,187


240


3.67



Total interest-bearing liabilities

102,104


442


.87



94,754


675


1.44



Noninterest-bearing deposits

33,004





28,074





Accrued expense and other liabilities

2,604





2,437





Discontinued liabilities (g)

815





1,037





Total liabilities

138,527





126,302




Equity









Key shareholders' equity

17,452





16,119





Noncontrolling interests





1





Total equity

17,452





16,120





Total liabilities and equity

$

155,979





$

142,422




Interest rate spread (TE)



2.64

%




2.72

%

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


2,014


2.88

%



1,974


3.10

%

TE adjustment (b)


15





16




Net interest income, GAAP basis


$

1,999





$

1,958



(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 six months ended June 30, 2020, and June 30, 2019, respectively.

(c) 

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

(d) 

Commercial and industrial average balances include $140 million and $137 million of assets from commercial credit cards for the six months ended June 30, 2020, and June 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


Six months ended


6/30/2020

3/31/2020

6/30/2019


6/30/2020

6/30/2019

Personnel (a)

$

572


$

515


$

589



$

1,087


$

1,152


Net occupancy

71


76


73



147


145


Computer processing

56


55


56



111


110


Business services and professional fees

49


44


45



93


89


Equipment

25


24


24



49


48


Operating lease expense

34


36


32



70


58


Marketing

24


21


24



45


43


FDIC assessment

8


9


9



17


16


Intangible asset amortization

18


17


22



35


44


OREO expense, net

6


3


4



9


7


Other expense

150


131


141



281


270


Total noninterest expense

$

1,013


$

931


$

1,019



$

1,944


$

1,982


Average full-time equivalent employees (b)

16,646


16,529


17,206



16,587


17,379


(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


Six months ended


6/30/2020

3/31/2020

6/30/2019


6/30/2020

6/30/2019

Salaries and contract labor

$

332


$

316


$

322



$

648


$

642


Incentive and stock-based compensation

162


102


155



264


287


Employee benefits

76


92


83



168


176


Severance

2


5


29



7


47


Total personnel expense

$

572


$

515


$

589



$

1,087


$

1,152


 


Loan Composition

(dollars in millions)











Percent change 6/30/2020 vs


6/30/2020

3/31/2020

6/30/2019


3/31/2020

6/30/2019

Commercial and industrial (a)

$

58,297


$

55,983


$

48,544



4.1

%

20.1

%

Commercial real estate:







Commercial mortgage

13,465


13,548


13,299



(.6)


1.2


Construction

1,919


1,710


1,439



12.2


33.4


Total commercial real estate loans

15,384


15,258


14,738



.8


4.4


Commercial lease financing (b)

4,524


4,677


4,578



(3.3)


(1.2)


Total commercial loans

78,205


75,918


67,860



3.0


15.2


Residential — prime loans:







Real estate — residential mortgage

8,149


7,498


6,053



8.7


34.6


Home equity loans

9,782


10,103


10,575



(3.2)


(7.5)


Total residential — prime loans

17,931


17,601


16,628



1.9


7.8


Consumer direct loans

4,327


3,833


2,350



12.9


84.1


Credit cards

974


1,041


1,096



(6.4)


(11.1)


Consumer indirect loans

4,722


4,805


4,003



(1.7)


18.0


Total consumer loans

27,954


27,280


24,077



2.5


16.1


Total loans (c), (d)

$

106,159


$

103,198


$

91,937



2.9

%

15.5

%

(a) 

Loan balances include $132 million, $143 million, and $143 million of commercial credit card balances at June 30, 2020, March 31, 2020, and June 30, 2019, respectively.

(b) 

Commercial lease financing includes receivables held as collateral for a secured borrowing of $18 million, $14 million, and $11 million at June 30, 2020, March 31, 2020, and June 30, 2019, respectively. Principal reductions are based on the cash payments received from these related receivables.

(c) 

Total loans exclude loans of $780 million at June 30, 2020, $821 million at March 31, 2020, and $964 million at June 30, 2019, related to the discontinued operations of the education lending business.

(d) 

Accrued interest of $225 million, $241 million, and $272 million at June 30, 2020, March 31, 2020, and June 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 6/30/2020 vs


6/30/2020

3/31/2020

6/30/2019


3/31/2020

6/30/2019

Commercial and industrial

$

419


$

446


$

255



(6.1)

%

64.3

%

Real estate — commercial mortgage

1,107


1,284


1,123



(13.8)


(1.4)


Commercial lease financing


8




N/M


N/M


Real estate — residential mortgage

250


152


164



64.5


52.4


Consumer direct loans

231


253


248



(8.7)


(6.9)


Total loans held for sale (a)

$

2,007


$

2,143


$

1,790



(6.3)

%

12.1

%

(a) 

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $250 million at June 30, 2020, $152 million at March 31, 2020, and $164 million at June 30, 2019.

 

Summary of Changes in Loans Held for Sale

(in millions)








2Q20

1Q20

4Q19

3Q19

2Q19

Balance at beginning of period

$

2,143


$

1,334


$

1,598


$

1,790


$

894


New originations

3,621


3,333


3,659


3,222


3,218


Transfers from (to) held to maturity, net

(15)


200


26


237


42


Loan sales

(3,679)


(2,649)


(3,933)


(3,602)


(2,358)


Loan draws (payments), net

(61)


(77)


(18)


(49)


(6)


Valuation adjustments

(2)


2


2




Balance at end of period (a)

$

2,007


$

2,143


$

1,334


$

1,598


$

1,790


(a) 

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $250 million at June 30, 2020, $152 million at March 31, 2020, $140 million at December 31, 2019, $120 million at September 30, 2019, and $164 million at June 30, 2019.

 


Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)









Three months ended


Six months ended


6/30/2020

3/31/2020

6/30/2019


6/30/2020

6/30/2019

Average loans outstanding

$

107,941


$

96,174


$

90,785



$

102,058


$

90,220


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

$

1,359


$

900


$

883



$

900


$

883


Cumulative effect from change in accounting principle (a)


204




204



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

1,359


1,104


883



1,104


883


Loans charged off:







Commercial and industrial

71


60


30



131


66









Real estate — commercial mortgage

2


3


1



5


6


Real estate — construction






4


Total commercial real estate loans

2


3


1



5


10


Commercial lease financing

4


2


16



6


24


Total commercial loans

77


65


47



142


100


Real estate — residential mortgage

2



1



2


2


Home equity loans

2


4


6



6


10


Consumer direct loans

10


12


10



22


20


Credit cards

12


11


12



23


23


Consumer indirect loans

7


9


8



16


16


Total consumer loans

33


36


37



69


71


Total loans charged off

110


101


84



211


171


Recoveries:







Commercial and industrial

5


5


6



10


16









Real estate — commercial mortgage


1


1



1


2


Total commercial real estate loans


1


1



1


2


Commercial lease financing

1



2



1


3


Total commercial loans

6


6


9



12


21


Real estate — residential mortgage






1


Home equity loans

1


2


2



3


4


Consumer direct loans

2


2


2



4


3


Credit cards

2


2


2



4


4


Consumer indirect loans

3


5


4



8


9


Total consumer loans

8


11


10



19


21


Total recoveries

14


17


19



31


42


Net loan charge-offs

(96)


(84)


(65)



(180)


(129)


Provision (credit) for loan and lease losses

445


339


72



784


136


Allowance for loan and lease losses at end of period

$

1,708


$

1,359


$

890



$

1,708


$

890









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

$

161


$

68


$

62



$

68


$

64


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


7




7



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


66




66



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

161


141


62



141


64


Provision (credit) for losses on lending-related commitments

37


20


2



57



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

$

198


$

161


$

64



$

198


$

64









Total allowance for credit losses at end of period

$

1,906


$

1,520


$

954



$

1,906


$

954









Net loan charge-offs to average total loans

.36

%

.35

%

.29

%


.35

%

.29

%

Allowance for loan and lease losses to period-end loans

1.61


1.32


.97



1.61


.97


Allowance for credit losses to period-end loans

1.80


1.47


1.04



1.80


1.04


Allowance for loan and lease losses to nonperforming loans

224.7


215.0


158.6



224.7


158.6


Allowance for credit losses to nonperforming loans

250.8


240.5


170.1



250.8


170.1









Discontinued operations — education lending business:







Loans charged off

$

2


$

2


$

4



$

4


$

8


Recoveries

2


1


1



3


2


Net loan charge-offs


$

(1)


$

(3)



$

(1)


$

(6)


(a) 

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

(b) 

March 31, 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)


2Q20

1Q20

4Q19

3Q19

2Q19

Net loan charge-offs

$

96


$

84


$

99


$

196


$

65


Net loan charge-offs to average total loans

.36

%

.35

%

.42

%

.85

%

.29

%

Allowance for loan and lease losses

$

1,708


$

1,359


$

900


$

893


$

890


Allowance for credit losses (a)

1,906


1,520


968


958


954


Allowance for loan and lease losses to period-end loans

1.61

%

1.32

%

.95

%

.96

%

.97

%

Allowance for credit losses to period-end loans

1.80


1.47


1.02


1.03


1.04


Allowance for loan and lease losses to nonperforming loans

224.7


215.0


156.0


152.6


158.6


Allowance for credit losses to nonperforming loans

250.8


240.5


167.8


163.8


170.1


Nonperforming loans at period end

$

760


$

632


$

577


$

585


$

561


Nonperforming assets at period end

951


844


715


711


608


Nonperforming loans to period-end portfolio loans

.72

%

.61

%

.61

%

.63

%

.61

%

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

.89


.82


.75


.77


.66


(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)


6/30/2020

3/31/2020

12/31/2019

9/30/2019

6/30/2019

Commercial and industrial

$

404


$

277


$

264


$

238


$

189








Real estate — commercial mortgage

91


87


83


92


85


Real estate — construction

1


2


2


2


2


Total commercial real estate loans

92


89


85


94


87


Commercial lease financing

9


5


6


7


7


Total commercial loans

505


371


355


339


283


Real estate — residential mortgage

89


89


48


42


62


Home equity loans

141


143


145


179


191


Consumer direct loans

3


4


4


3


3


Credit cards

2


3


3


2


2


Consumer indirect loans

20


22


22


20


20


Total consumer loans

255


261


222


246


278


Total nonperforming loans

760


632


577


585


561


OREO

112


119


35


39


38


Nonperforming loans held for sale

75


89


94


78



Other nonperforming assets

4


4


9


9


9


Total nonperforming assets

$

951


$

844


$

715


$

711


$

608


Accruing loans past due 90 days or more

87


128


97


54


74


Accruing loans past due 30 through 89 days

419


393


329


366


299


Restructured loans — accruing and nonaccruing (a)

310


340


347


347


395


Restructured loans included in nonperforming loans (a)

166


172


183


176


228


Nonperforming assets from discontinued operations — education lending business

7


7


7


7


7


Nonperforming loans to period-end portfolio loans

.72

%

.61

%

.61

%

.63

%

.61

%

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

.89


.82


.75


.77


.66


(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)


2Q20

1Q20

4Q19

3Q19

2Q19

Balance at beginning of period

$

632


$

577


$

585


$

561


$

548


Loans placed on nonaccrual status (a)

293


219


268


271


189


Charge-offs

(111)


(100)


(114)


(91)


(84)


Loans sold

(5)


(4)


(1)



(38)


Payments

(29)


(31)


(59)


(37)


(23)


Transfers to OREO


(3)


(3)


(4)


(4)


Transfers to nonperforming loans held for sale



(47)


(78)



Loans returned to accrual status

(20)


(26)


(52)


(37)


(27)


Balance at end of period

$

760


$

632


$

577


$

585


$

561


(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 2Q20 vs.


2Q20

1Q20

4Q19

3Q19

2Q19


1Q20

2Q19

Consumer Bank









Summary of operations









Total revenue (TE)

$

841


$

820


$

825


$

833


$

825



2.6

%

1.9

%

Provision for credit losses

167


140


55


48


40



19.3


317.5


Noninterest expense

555


543


552


531


552



2.2


.5


Net income (loss) attributable to Key

91


105


166


194


177



(13.3)


(48.6)


Average loans and leases

39,197


35,197


34,148


32,760


31,881



11.4


22.9


Average deposits

79,502


73,320


73,561


72,995


72,303



8.4


10.0


Net loan charge-offs

39


43


43


40


40



(9.3)


(2.5)


Net loan charge-offs to average total loans

.40

%

.49

%

.50

%

.48

%

.50

%


N/A


N/A


Nonperforming assets at period end

$

332


$

342


$

306


$

354


$

366



(2.9)


(9.3)


Return on average allocated equity

10.38

%

12.18

%

19.27

%

22.82

%

21.75

%


N/A


N/A











Commercial Bank









Summary of operations









Total revenue (TE)

$

847


$

629


$

771


$

779


$

760



34.7

%

11.4

%

Provision for credit losses

314


214


38


32


33



46.7


851.5


Noninterest expense

403


353


388


372


389



14.2


3.6


Net income (loss) attributable to Key

120


70


315


304


277



71.4


(56.7)


Average loans and leases

68,038


60,082


58,535


58,215


57,918



13.2


17.5


Average loans held for sale

2,012


1,607


1,465


1,325


1,168



25.2


72.3


Average deposits

46,099


36,058


38,224


36,204


35,960



27.8


28.2


Net loan charge-offs

57


40


39


35


23



42.5


147.8


Net loan charge-offs to average total loans

.34

%

.27

%

.26

%

.24

%

.16

%


N/A


N/A


Nonperforming assets at period end

$

616


$

407


$

402


$

351


$

235



51.4


162.1


Return on average allocated equity

10.00

%

6.00

%

26.69

%

26.37

%

24.09

%


N/A


N/A



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

 

Notable Items

(in millions)









Three months ended


Six months ended


6/30/2020

3/31/2020

6/30/2019


6/30/2020

6/30/2019

Efficiency initiative expenses



$

(50)




$

(76)


Laurel Road acquisition expenses



(2)




(2)


Total notable items



$

(52)




$

(78)


Income taxes



(12)




(18)


Total notable items, after tax



$

(40)




$

(60)


 

(PRNewsfoto/KeyCorp)

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/keycorp-reports-second-quarter-2020-net-income-of-159-million-or-16-per-diluted-common-share-301097825.html

SOURCE KeyCorp

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