KEY
$9.07
Keycorp
($.41)
(4.32%)
Earnings Details
4th Quarter December 2019
Thursday, January 23, 2020 6:30:00 AM
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Summary

Keycorp Misses

Keycorp (KEY) reported 4th Quarter December 2019 earnings of $0.48 per share on revenue of $1.9 billion. The consensus earnings estimate was $0.48 per share on revenue of $1.6 billion. The Earnings Whisper number was $0.49 per share. Revenue fell 0.3% compared to the same quarter a year ago.

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

Results
Reported Earnings
$0.48
Earnings Whisper
$0.49
Consensus Estimate
$0.48
Reported Revenue
$1.94 Bil
Revenue Estimate
$1.64 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

KeyCorp Reports Fourth Quarter 2019 Net Income Of $439 Million, Or $.45 Per Diluted Common Share

CLEVELAND, Jan. 23, 2020 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced net income from continuing operations attributable to Key common shareholders of $439 million, or $.45 per diluted common share for the fourth quarter of 2019, compared to $383 million, or $.38 per diluted common share, for the third quarter of 2019 and $459 million, or $.45 per diluted common share, for the fourth quarter of 2018. Key's fourth quarter 2019 diluted earnings per share was $.48(a), excluding $.03 per diluted common share related to a previously disclosed fraud and a pension settlement charge. Key's results in the third quarter of 2019 and the fourth quarter of 2018 also included notable items; additional detail can be found on page 24 of this release.

"Key's fourth quarter results marked a good finish to another strong year for our company. We achieved our seventh consecutive year of positive operating leverage, supported by solid balance sheet growth, continued momentum in our fee-based businesses and strong expense control. Across our company, we continued to add and expand client relationships, which drove growth in loans, deposits and fees.

Our ongoing focus on expense management and continuous improvement resulted in lower expenses for the year and a 140 basis point improvement in our cash efficiency ratio, excluding notable items. While we have continued to reduce costs, we remain committed to making strategic investments that will drive future growth and returns. Our recent investments in talent, products and capabilities, including our Laurel Road acquisition in April of last year, have exceeded our expectations, benefiting our top line growth, improving the client experience and driving efficiency.

Strong risk management and being disciplined with our capital have also remained top priorities. Credit quality trends remained solid this quarter, and we continue to be diligent in our credit underwriting. We have also returned capital to our shareholders throughout the year in the form of share repurchases and a 9% increase in our common stock dividend.

Our CEO transition continues to progress smoothly, and we remain very confident in the way we have positioned Key for the future. We fully expect to continue on the path to achieve our long-term targets and drive improved returns."

- Beth Mooney, Chairman & CEO

(a) Non-GAAP measure; please refer to pages 14-15 of this release for additional detail and reconciliation

Selected Financial Highlights















dollars in millions, except per share data





Change 4Q19 vs.



4Q19

3Q19

4Q18


3Q19

4Q18

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

$

439


$

383


$

459



14.6

%

(4.4)

%

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

.45


.38


.45



18.4



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

14.09

%

12.38

%

16.40

%


N/A


N/A


Return on average total assets from continuing operations

1.27


1.14


1.37



N/A


N/A


Common Equity Tier 1 ratio (b)

9.43


9.48


9.93



N/A


N/A


Book value at period end

$

15.54


$

15.44


$

13.90



.6

%

11.8

%

Net interest margin (TE) from continuing operations

2.98

%

3.00

%

3.16

%


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)

12/31/19 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 

INCOME STATEMENT HIGHLIGHTS














Revenue














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Net interest income (TE)

$

987


$

980


$

1,008



.7

%

(2.1)

%

Noninterest income

651


650


645



.2


.9


Total revenue

$

1,638


$

1,630


$

1,653



.5

%

(.9)

%








TE = Taxable Equivalent


Taxable-equivalent net interest income was $987 million for the fourth quarter of 2019, compared to taxable-equivalent net interest income of $1.0 billion for the fourth quarter of 2018. The decrease in net interest income reflects a lower net interest margin, which was partially offset by an increase in earning asset balances. The net interest margin was impacted by a lag in deposit pricing as interest rates moved lower. Additionally, purchase accounting accretion declined $8 million.

Compared to the third quarter of 2019, taxable-equivalent net interest income increased by $7 million. The increase was driven by higher earning asset balances, partially offset by a slight decline in the net interest margin. The net interest margin reflected lower earning asset yields and the benefit of lower interest-bearing deposit costs.

Noninterest Income














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Trust and investment services income

$

120


$

118


$

121



1.7

%

(.8)

%

Investment banking and debt placement fees

181


176


186



2.8


(2.7)


Service charges on deposit accounts

86


86


84




2.4


Operating lease income and other leasing gains

39


42


28



(7.1)


39.3


Corporate services income

65


63


58



3.2


12.1


Cards and payments income

67


69


68



(2.9)


(1.5)


Corporate-owned life insurance income

39


32


39



21.9



Consumer mortgage income

14


14


7




100.0


Mortgage servicing fees

26


23


21



13.0


23.8


Other income

14


27


33



(48.1)


(57.6)


Total noninterest income

$

651


$

650


$

645



.2

%

.9

%








Key's noninterest income was $651 million for the fourth quarter of 2019, compared to $645 million for the year-ago quarter. The increase reflects higher operating lease income, as well as growth in corporate services income, driven by higher derivatives income. Investments made in Key's mortgage business continue to drive consumer mortgage income and mortgage servicing fees.

Compared to the third quarter of 2019, noninterest income increased by $1 million, due to growth in investment banking and debt placement fees, related to an increase in commercial mortgage income, as well as seasonally higher corporate-owned life insurance income. The increase was partially offset by lower other income.

Noninterest Expense














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Personnel expense

$

551


$

547


$

576



.7

%

(4.3)

%

Nonpersonnel expense

429


392


436



9.4


(1.6)


Total noninterest expense

$

980


$

939


$

1,012



4.4

%

(3.2)

%








Key's noninterest expense was $980 million for the fourth quarter of 2019, compared to $1.0 billion in the year-ago quarter and $939 million in the prior quarter. The fourth quarter of 2019 included notable items of $22 million, which consist of a pension settlement charge and professional fees related to a previously disclosed fraud loss. The year-ago period included notable items of $41 million, which were efficiency-related expenses and a pension settlement charge, while no notable items were reported in the prior period.

Excluding notable items, noninterest expense decreased by $13 million from the year-ago period, reflecting the successful implementation of Key's expense initiatives, which drove personnel expenses lower. These expenses were partially offset by additional expenses from Laurel Road, which was acquired in April 2019.

Noninterest expense increased $41 million from the prior quarter. The increase was primarily driven by notable items in the quarter - a pension settlement charge of $18 million and professional fees related to a previously disclosed fraud loss of $4 million, as well as seasonally higher business and professional fees and an increase in incentive compensation, driven by higher stock-based compensation related to a quarterly increase in share price.

BALANCE SHEET HIGHLIGHTS














Average Loans














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Commercial and industrial (a)

$

48,345


$

48,322


$

45,129




7.1

%

Other commercial loans

19,312


19,016


20,899



1.6

%

(7.6)


Total consumer loans

25,950


24,618


23,260



5.4


11.6


Total loans

$

93,607


$

91,956


$

89,288



1.8

%

4.8

%








(a)

Commercial and industrial average loan balances include $146 million, $144 million, and $132 million of assets from commercial credit cards at December 31, 2019, September 30, 2019, and December 31, 2018, respectively.


Average loans were $93.6 billion for the fourth quarter of 2019, an increase of $4.3 billion compared to the fourth quarter of 2018. Commercial loans increased $1.6 billion, reflecting broad-based growth in commercial and industrial loans, partially offset by declines in commercial mortgage and construction loans. Consumer loans increased $2.7 billion, driven by solid growth from Laurel Road, residential mortgage loans, and indirect auto lending.

Compared to the third quarter of 2019, average loans increased by $1.7 billion, driven by growth from Laurel Road, residential mortgage, and indirect auto loans. Commercial loans increased $319 million from the prior quarter, reflecting growth in commercial mortgage loans.

Average Deposits














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Non-time deposits

$

100,518


$

97,205


$

94,480



3.4

%

6.4

%

Certificates of deposit ($100,000 or more)

6,899


7,625


8,217



(9.5)


(16.0)


Other time deposits

5,187


5,449


5,255



(4.8)


(1.3)


Total deposits

$

112,604


$

110,279


$

107,952



2.1

%

4.3

%








Cost of total deposits

.71

%

.82

%

.64

%


N/A


N/A









N/A = Not Applicable

Average deposits totaled $112.6 billion for the fourth quarter of 2019, an increase of $4.7 billion compared to the year-ago quarter, reflecting growth from consumer and commercial relationships.

Compared to the third quarter of 2019, average deposits increased by $2.3 billion, primarily driven by short-term and seasonal commercial deposits.

ASSET QUALITY














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Net loan charge-offs

$

99


$

196


$

60



(49.5)

%

65.0

%

Net loan charge-offs to average total loans

.42

%

.85

%

.27

%


N/A


N/A


Nonperforming loans at period end (a)

$

577


$

585


$

542



(1.4)


6.5


Nonperforming assets at period end (a)

715


711


577



.6


23.9


Allowance for loan and lease losses

900


893


883



.8


1.9


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

156.0

%

152.6

%

162.9

%


N/A


N/A


Provision for credit losses

$

109


$

200


$

59



(45.5)

%

84.7

%








(a)

Nonperforming loan balances exclude $446 million, $497 million, and $575 million of purchased credit impaired loans at December 31, 2019, September 30, 2019, and December 31, 2018, respectively.

N/A = Not Applicable

In the fourth quarter of 2019 and the third quarter of 2019, Key realized pre-tax losses related to a previously disclosed fraud incident of $16 million and $123 million, respectively. Excluding the fraud losses, Key's provision for credit losses was $93 million for the fourth quarter of 2019, compared to $59 million for the fourth quarter of 2018 and $77 million for the third quarter of 2019. Key's allowance for loan and lease losses was $900 million, or .95% of total period-end loans at December 31, 2019, compared to .99% at December 31, 2018, and .96% at September 30, 2019.

Excluding the fraud losses, net loan charge-offs for the fourth quarter of 2019 totaled $83 million, or .35% of average total loans. These results compare to $60 million, or .27%, for the fourth quarter of 2018, and  $73 million, or .31%, for the third quarter of 2019.

At December 31, 2019, Key's nonperforming loans totaled $577 million, which represented .61% of period-end portfolio loans. These results compare to .61% at December 31, 2018, and .63% at September 30, 2019. Nonperforming assets at December 31, 2019, totaled $715 million, and represented .75% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .64% at December 31, 2018, and .77% at September 30, 2019.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at December 31, 2019.

Capital Ratios









12/31/2019

9/30/2019

12/31/2018

Common Equity Tier 1 (a)

9.43

%

9.48

%

9.93

%

Tier 1 risk-based capital (a)

10.85


10.91


11.08


Total risk based capital (a)

12.77


12.90


12.89


Tangible common equity to tangible assets (b)

8.64


8.58


8.30


Leverage (a)

9.86


9.93


9.89






(a)

12/31/2019 ratio is estimated.

(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. See below for further information on the Regulatory Capital Rules.

Key's capital position remained strong in the fourth quarter of 2019. As shown in the preceding table, at December 31, 2019, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.43% and 10.85%, respectively. Key's tangible common equity ratio was 8.64% at December 31, 2019.

As a "standardized approach" banking organization, Key's mandatory compliance with the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules") began on January 1, 2015, subject to transitional provisions. Key's estimated Common Equity Tier 1 ratio as calculated under the fully phased-in Regulatory Capital Rules was 9.35% at December 31, 2019.  This estimate exceeds the fully phased-in required minimum Common Equity Tier 1 and Capital Conservation Buffer of 7.00%.

Summary of Changes in Common Shares Outstanding













in thousands





Change 4Q19 vs.



4Q19

3Q19

4Q18


3Q19

4Q18

Shares outstanding at beginning of period

988,538


1,003,114


1,034,287



(1.5)

%

(4.4)

%

Open market repurchases and return of shares under employee 
     compensation plans

(12,968)


(15,076)


(15,216)



(14.0)


(14.8)


Shares issued under employee compensation plans (net of cancellations)

1,619


500


432



223.8


274.8



Shares outstanding at end of period

977,189


988,538


1,019,503



(1.1)

%

(4.2)

%









Consistent with Key's 2019 Capital Plan, during the fourth quarter of 2019, Key declared a dividend of $.185 per common share. Key also completed $241 million of common share repurchases during the quarter.

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 4Q19 vs.



4Q19

3Q19

4Q18


3Q19

4Q18

Revenue from continuing operations (TE)







Consumer Bank

$

825


$

833


$

829



(1.0)

%

(.5)

%

Commercial Bank

771


779


771



(1.0)



Other (a)

42


18


53



133.3


(20.8)

%

     Total

$

1,638


$

1,630


$

1,653



.5

%

(.9)

%









Income (loss) from continuing operations attributable to Key







Consumer Bank

$

166


$

194


$

177



(14.4)

%

(6.2)

%

Commercial Bank

315


304


302



3.6


4.3


Other (a), (b)

(12)


(82)


5



N/M


N/M


     Total

$

469


$

416


$

484



12.7

%

(3.1)

%









(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.

(b)

Other segments included $12 million and $94 million, after tax, of notable items related to a previously disclosed fraud loss for the third quarter and fourth quarters of 2019, respectively; additional detail can be found on page 24 of this release.

TE = Taxable Equivalent, N/M = Not Meaningful

 

Consumer Bank





















dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Summary of operations







Net interest income (TE)

$

586


$

595


$

598



(1.5)

%

(2.0)

%

Noninterest income

239


238


231



.4


3.5


Total revenue (TE)

825


833


829



(1.0)


(.5)


Provision for credit losses

55


48


43



14.6


27.9


Noninterest expense

552


531


554



4.0


(.4)


Income (loss) before income taxes (TE)

218


254


232



(14.2)


(6.0)


Allocated income taxes (benefit) and TE adjustments

52


60


55



(13.3)


(5.5)


Net income (loss) attributable to Key

$

166


$

194


$

177



(14.4)

%

(6.2)

%








Average balances







Loans and leases

$

34,148


$

32,760


$

31,241



4.2

%

9.3

%

Total assets

37,729


36,417


34,450



3.6


9.5


Deposits

73,561


72,995


70,426



.8


4.5









Assets under management at period end

$

40,833


$

39,416


$

36,775



3.6

%

11.0

%








TE = Taxable Equivalent



Additional Consumer Bank Data














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Noninterest income







Trust and investment services income

$

91


$

90


$

89



1.1

%

2.2


Service charges on deposit accounts

58


58


57




1.8

%

Cards and payments income

52


52


51




2.0


Other noninterest income

38


38


34




11.8


Total noninterest income

$

239


$

238


$

231



.4

%

3.5

%








Average deposit balances







NOW and money market deposit accounts

$

44,765


$

43,638


$

41,189



2.6

%

8.7

%

Savings deposits

4,332


4,406


4,579



(1.7)


(5.4)


Certificates of deposit ($100,000 or more)

6,065


6,488


5,863



(6.5)


3.4


Other time deposits

5,164


5,430


5,239



(4.9)


(1.4)


Noninterest-bearing deposits

13,235


13,033


13,556



1.5


(2.4)


Total deposits

$

73,561


$

72,995


$

70,426



.8

%

4.5

%








Home equity loans







Average balance

$

10,295


$

10,413


$

11,144





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

70

%

70

%

70

%




Percent first lien positions

61


60


60












Other data







Branches

1,098


1,101


1,159





Automated teller machines

1,420


1,422


1,505












Consumer Bank Summary of Operations (4Q19 vs. 4Q18)

  • Net income attributable to Key of $166 million for the fourth quarter of 2019, compared to $177 million for the year-ago quarter
  • Taxable equivalent net interest income decreased by $12 million, or 2.0%, from the fourth quarter of 2018, with balance sheet growth offset by lower purchase accounting accretion and change in deposit mix
  • Average loans and leases increased $2.9 billion, or 9.3%. This was driven by Laurel Road along with strength in residential mortgage and indirect auto lending
  • Average deposits increased $3.1 billion, or 4.5%, from the fourth quarter of 2018. This was driven by growth in money market deposits, reflecting Key's relationship strategy
  • Provision for credit losses increased $12 million compared to the fourth quarter of 2018, driven by balance sheet growth. Credit quality remained stable to the year-ago quarter
  • Noninterest income increased $8 million, or 3.5%, from the year ago quarter, driven by growth in consumer mortgage income
  • Noninterest expense decreased $2 million, or 0.4%, from the year ago quarter. The decline reflects the benefit of efficiency initiatives and strong expense discipline. The decline in expense was partially offset by expenses related to the acquisition of Laurel Road

 

Commercial Bank





















dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Summary of operations







Net interest income (TE)

$

416


$

399


$

417



4.3

%

(.2)

%

Noninterest income

355


380


354



(6.6)


.3


Total revenue (TE)

771


779


771



(1.0)



Provision for credit losses

38


32


17



18.8


123.5


Noninterest expense

388


372


401



4.3


(3.2)


Income (loss) before income taxes (TE)

345


375


353



(8.0)


(2.3)


Allocated income taxes and TE adjustments

30


71


51



(57.7)


(41.2)


Net income (loss) attributable to Key

$

315


$

304


$

302



3.6

%

4.3

%








Average balances







Loans and leases

$

58,535


$

58,215


$

56,884



.5

%

2.9

%

Loans held for sale

1,465


1,325


2,250



10.6


(34.9)


Total assets

67,135


66,549


65,603



0.9


2.3


Deposits

38,224


36,204


35,113



5.6

%

8.9

%








TE = Taxable Equivalent, N/M = Not Meaningful



Additional Commercial Bank Data














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Noninterest income







Trust and investment services income

$

29


$

28


$

32



3.6

%

(9.4)

%

Investment banking and debt placement fees

179


176


186



1.7


(3.8)


Operating lease income and other leasing gains

39


40


27



(2.5)


44.4









Corporate services income

58


56


51



3.6


13.7


Service charges on deposit accounts

27


27


26




3.8


Cards and payments income

15


16


17



(6.3)


(11.8)


Payments and services income

100


99


94



1.0


6.4









Mortgage servicing fees

19


20


18



(5.0)


5.6


Other noninterest income

(11)


17


(3)



(164.7)


266.7


Total noninterest income

$

355


$

380


$

354



(6.6)

%

0.3

%








N/M = Not Meaningful

Commercial Bank Summary of Operations (4Q19 vs. 4Q18)

  • Net income attributable to Key of $315 million for the fourth quarter of 2019, compared to $302 million for the year-ago quarter
  • Taxable-equivalent net interest income decreased by $1 million, compared to the fourth quarter of 2018, with balance sheet growth offset by lower loan fees and loan spread compression
  • Average loan and lease balances increased $1.7 billion, or 2.9%, compared to the fourth quarter of 2018, driven by broad-based growth in commercial and industrial loans
  • Average deposit balances increased $3.1 billion, or 8.9%, compared to the fourth quarter of 2018, driven by growth in core deposits
  • Provision for credit losses increased $21 million compared to the fourth quarter of 2018, driven by higher recoveries in the fourth quarter of 2018
  • Noninterest income increased $1 million from the prior year, reflecting stable customer activity
  • Noninterest expense decreased by $13 million, or 3.2%, from the fourth quarter of 2018. The decline reflects the benefit of efficiency initiatives and strong expense discipline

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 $145.0 billion at December 31, 2019.

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 approximately 1,100 branches and more than 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, 2018, 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. 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 Thursday, January 23, 2020.  An audio replay of the call will be available through February 2, 2020.

KeyCorp
Fourth Quarter 2019
Financial Supplement

Financial Highlights

(dollars in millions, except per share amounts)




Three months ended




12/31/2019

9/30/2019

12/31/2018

Summary of operations





Net interest income (TE)

$

987


$

980


$

1,008



Noninterest income

651


650


645




Total revenue (TE)

1,638


1,630


1,653



Provision for credit losses

109


200


59



Noninterest expense

980


939


1,012



Income (loss) from continuing operations attributable to Key

466


413


482



Income (loss) from discontinued operations, net of taxes

3


3


2



Net income (loss) attributable to Key

469


416


484









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

439


383


459



Income (loss) from discontinued operations, net of taxes

3


3


2



Net income (loss) attributable to Key common shareholders

442


386


461








Per common share





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

$

.45


$

.39


$

.45



Income (loss) from discontinued operations, net of taxes





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

.45


.39


.45









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

.45


.38


.45



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





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

.45


.39


.45









Cash dividends declared

.185


.185


.17



Book value at period end

15.54


15.44


13.90



Tangible book value at period end

12.56


12.48


11.14



Market price at period end

20.24


17.84


14.78








Performance ratios





From continuing operations:





Return on average total assets

1.27

%

1.14

%

1.37

%


Return on average common equity

11.40


9.99


13.07



Return on average tangible common equity (b)

14.09


12.38


16.40



Net interest margin (TE)

2.98


3.00


3.16



Cash efficiency ratio (b)

58.7


56.0


59.9









From consolidated operations:





Return on average total assets

1.27

%

1.14

%

1.37

%


Return on average common equity

11.48


10.07


13.13



Return on average tangible common equity (b)

14.19


12.48


16.47



Net interest margin (TE)

2.97


2.98


3.14



Loan to deposit (c)

86.6


85.3


85.6








Capital ratios at period end





Key shareholders' equity to assets

11.75

%

11.67

%

11.17

%


Key common shareholders' equity to assets

10.47


10.40


10.15



Tangible common equity to tangible assets (b)

8.64


8.58


8.30



Common Equity Tier 1 (d)

9.43


9.48


9.93



Tier 1 risk-based capital (d)

10.85


10.91


11.08



Total risk-based capital (d)

12.77


12.90


12.89



Leverage (d)

9.86


9.93


9.89








Asset quality — from continuing operations





Net loan charge-offs

$

99


$

196


$

60



Net loan charge-offs to average loans

.42

%

.85

%

.27

%


Allowance for loan and lease losses

$

900


$

893


$

883



Allowance for credit losses

968


958


946



Allowance for loan and lease losses to period-end loans

.95

%

.96

%

.99

%


Allowance for credit losses to period-end loans

1.02


1.03


1.06



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

156.0


152.6


162.9



Allowance for credit losses to nonperforming loans (e)

167.8


163.8


174.5



Nonperforming loans at period-end (e)

$

577


$

585


$

542



Nonperforming assets at period-end (e)

715


711


577



Nonperforming loans to period-end portfolio loans (e)

.61

%

.63

%

.61

%


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

.75


.77


.64








Trust assets





Assets under management

$

40,833


$

39,416


$

36,775








Other data





Average full-time equivalent employees

16,537


16,898


17,664



Branches

1,098


1,101


1,159








Taxable-equivalent adjustment

$

8


$

8


$

8


 

Financial Highlights (continued)

(dollars in millions, except per share amounts)



Twelve months ended



12/31/2019

12/31/2018

Summary of operations




Net interest income (TE)

$

3,941


$

3,940



Noninterest income

2,459


2,515



Total revenue (TE)

6,400


6,455



Provision for credit losses

445


246



Noninterest expense

3,901


3,975



Income (loss) from continuing operations attributable to Key

1,708


1,859



Income (loss) from discontinued operations, net of taxes

9


7



Net income (loss) attributable to Key

1,717


1,866







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

$

1,611


$

1,793



Income (loss) from discontinued operations, net of taxes

9


7



Net income (loss) attributable to Key common shareholders

1,620


1,800






Per common share




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

$

1.62


$

1.72



Income (loss) from discontinued operations, net of taxes

.01


.01



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

1.63


1.73







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

1.61


1.70



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

.01


.01



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

1.62


1.71







Cash dividends paid

.71


.565






Performance ratios




From continuing operations:




Return on average total assets

1.19

%

1.36

%


Return on average common equity

10.83


12.88



Return on average tangible common equity (b)

13.46


16.22



Net interest margin (TE)

3.04


3.17



Cash efficiency ratio (b)

59.6


60.0







From consolidated operations:




Return on average total assets

1.19

%

1.35

%


Return on average common equity

10.89


12.93



Return on average tangible common equity (b)

13.53


16.28



Net interest margin (TE)

3.03


3.15






Asset quality — from continuing operations




Net loan charge-offs

$

424


$

234



Net loan charge-offs to average total loans

.46

%

.26

%





Other data




Average full-time equivalent employees

17,045


18,180






Taxable-equivalent adjustment

32


31




(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. For further information on the Regulatory Capital Rules, see the "Capital" section of this release.

(c)

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

(d)

December 31, 2019, ratio is estimated.

(e)

Nonperforming loan balances exclude $446 million, $497 million, and $575 million of purchased credit impaired loans at December 31, 2019, September 30, 2019, and December 31, 2018, respectively.

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," "Common Equity Tier 1," "pre-provision net revenue," "cash efficiency ratio," "earnings per common share excluding notable items," "net loan charge-offs to average loans excluding notable items," and "provision for credit losses 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. Traditionally, the banking regulators have assessed bank and bank holding company capital adequacy based on both the amount and the composition of capital, the calculation of which is prescribed in federal banking regulations. In October 2013, the federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules"). The Regulatory Capital Rules require higher and better-quality capital and introduced a new capital measure, "Common Equity Tier 1," a non-GAAP financial measure. The mandatory compliance date for Key as a "standardized approach" banking organization began on January 1, 2015, subject to transitional provisions.

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


Twelve months ended


12/31/2019

9/30/2019

12/31/2018


12/31/2019

12/31/2018

Tangible common equity to tangible assets at period-end







Key shareholders' equity (GAAP)

$

17,038


$

17,116


$

15,595





Less: Intangible assets (a)

2,910


2,928


2,818





Preferred Stock (b)

1,856


1,856


1,421





Tangible common equity (non-GAAP)

$

12,272


$

12,332


$

11,356





Total assets (GAAP)

$

144,988


$

146,691


$

139,613





Less: Intangible assets (a)

2,910


2,928


2,818





Tangible assets (non-GAAP)

$

142,078


$

143,763


$

136,795





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

8.64

%

8.58

%

8.30

%




Earnings per common share (EPS) excluding notable items







EPS from continuing operations attributable to Key common shareholders — 
     assuming dilution (GAAP)

$

.45


$

.38


$

.45





Plus: EPS impact of notable items

.03


.10


.03





EPS from continuing operations attributable to Key common shareholders  — 
     assuming dilution excluding notable items (non-GAAP)

$

.48


$

.48


$

.48





Pre-provision net revenue







Net interest income (GAAP)

$

979


$

972


$

1,000



$

3,909


$

3,909


Plus: Taxable-equivalent adjustment

8


8


8



32


31


Noninterest income

651


650


645



2,459


2,515


Less: Noninterest expense

980


939


1,012



3,901


3,975


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

$

658


$

691


$

641



$

2,499


$

2,480


Average tangible common equity







Average Key shareholders' equity (GAAP)

$

17,178


$

17,113


$

15,384



$

16,636


$

15,131


Less: Intangible assets (average) (c)

2,919


2,942


2,828



2,909


2,869


Preferred stock (average)

1,900


1,900


1,450



1,755


1,205


Average tangible common equity (non-GAAP)

$

12,359


$

12,271


$

11,106



$

11,972


$

11,057


Return on average tangible common equity from continuing operations







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

$

439


$

383


$

459



$

1,611


$

1,793


Plus: Notable items, after tax (d)

29


94


31



183


31


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

$

468


$

477


$

490



$

1,794


$

1,824


Average tangible common equity (non-GAAP)

12,359


12,271


11,106



11,972


11,057









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

14.09

%

12.38

%

16.40

%


13.46

%

16.22

%

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

15.02

%

15.42

%

17.50

%


14.98

%

16.50

%

Return on average tangible common equity consolidated







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

$

442


$

386


$

461



$

1,620


$

1,800


Average tangible common equity (non-GAAP)

12,359


12,271


11,106



11,972


11,057









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

14.19

%

14.19

%

16.47

%


13.53

%

16.28

%

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)


Three months ended


Twelve months ended


12/31/2019

9/30/2019

12/31/2018


12/31/2019

12/31/2018

Cash efficiency ratio







Noninterest expense (GAAP)

$

980


$

939


$

1,012



$

3,901


$

3,975


Less: Intangible asset amortization

19


26


22



89


99


Adjusted noninterest expense (non-GAAP)

$

961


$

913


$

990



$

3,812


$

3,876


Less: Notable items (d)

22



41



100


41


Adjusted noninterest expense excluding notable items (non-GAAP)

$

939


$

913


$

949



$

3,712


$

3,835









Net interest income (GAAP)

$

979


$

972


$

1,000



$

3,909


$

3,909


Plus: Taxable-equivalent adjustment

8


8


8



32


31


Noninterest income

651


650


645



2,459


2,515


Total taxable-equivalent revenue (non-GAAP)

$

1,638


$

1,630


$

1,653



$

6,400


$

6,455









Cash efficiency ratio (non-GAAP)

58.7

%

56.0

%

59.9

%


59.6

%

60.0

%








Cash efficiency ratio excluding notable items (non-GAAP)

57.3

%

56.0

%

57.4

%


58.0

%

59.4

%

Net loan charge-offs to average total loans excluding notable items







Net loan charge-offs (GAAP)

$

99


$

196


$

60



$

424


$

234


Less: Notable items

16


123




139



Net loan charge-offs excluding notable items (non-GAAP)

$

83


$

73


$

60



$

285


$

234









Average loans outstanding

$

93,607


$

91,956


$

89,288



$

91,511


$

88,338









Net loan charge-offs to average total loans excluding notable items (non-GAAP)

.35

%

.31

%

.27

%


.31

%

.26

%

Provision for credit losses excluding notable items







Provision for credit losses (GAAP)

$

109


$

200


$

59



$

445


$

246


Less: Notable Items

16


123




139



Provision for credit loses excluding notable items (non-GAAP)

$

93


$

77


$

59



$

306


$

246


 




Three
months
ended




12/31/2019

Common Equity Tier 1 under the Regulatory Capital Rules ("RCR") (estimates)



Common Equity Tier 1 under current RCR

$

12,353



Adjustments from current RCR to the fully phased-in RCR:




Deferred tax assets and other intangible assets (e)




Common Equity Tier 1 anticipated under the fully phased-in RCR (f)

$

12,353







Net risk-weighted assets under current RCR

$

131,009



Adjustments from current RCR to the fully phased-in RCR:




Mortgage servicing assets (g)

878




Deferred tax assets

201




All other assets




Total risk-weighted assets anticipated under the fully phased-in RCR (f)

$

132,088







Common Equity Tier 1 ratio under the fully phased-in RCR (f)

9.35

%



(a)

For the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, intangible assets exclude $7 million, $9 million, and $14 million, respectively, of period-end purchased credit card receivables.

(b)

Net of capital surplus.

(c)

For the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, average intangible assets exclude $8 million, $9 million, and $15 million, respectively, of average purchased credit card receivables. For the twelve months ended December 31, 2019, and December 31, 2018, average intangible assets exclude $10 million and $20 million, respectively, of average purchase credit card receivables.

(d)

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

(e)

Includes the deferred tax assets subject to future taxable income for realization, primarily tax credit carryforwards, as well as intangible assets (other than goodwill and mortgage servicing assets) subject to the transition provisions of the final rule.

(f)

The anticipated amount of regulatory capital and risk-weighted assets is based upon the federal banking agencies' Regulatory Capital Rules (fully phased-in); Key is subject to the Regulatory Capital Rules under the "standardized approach."

(g)

Item is included in the 25% exceptions bucket calculation and is risk-weighted at 250%.

GAAP = U.S. generally accepted accounting principles

 

Consolidated Balance Sheets

(dollars in millions)










12/31/2019

9/30/2019

12/31/2018

Assets





Loans

$

94,646


$

92,760


$

89,552



Loans held for sale

1,334


1,598


1,227



Securities available for sale

21,843


22,378


19,428



Held-to-maturity securities

10,067


10,490


11,519



Trading account assets

1,040


963


849



Short-term investments

1,272


3,351


2,562



Other investments

605


620


666




Total earning assets

130,807


132,160


125,803



Allowance for loan and lease losses

(900)


(893)


(883)



Cash and due from banks

732


636


678



Premises and equipment

814


815


882



Goodwill

2,664


2,664


2,516



Other intangible assets

253


272


316



Corporate-owned life insurance

4,233


4,216


4,171



Accrued income and other assets

5,494


5,881


5,030



Discontinued assets

891


940


1,100




Total assets

$

144,988


146,691


139,613








Liabilities





Deposits in domestic offices:






NOW and money market deposit accounts

$

66,714


$

65,604


$

59,918




Savings deposits

4,651


4,668


4,854




Certificates of deposit ($100,000 or more)

6,598


7,194


7,913




Other time deposits

5,054


5,300


5,332




Total interest-bearing deposits

83,017


82,766


78,017




Noninterest-bearing deposits

28,853


28,883


29,292




Total deposits

111,870


111,649


107,309



Federal funds purchased and securities sold under repurchase agreements

387


182


319



Bank notes and other short-term borrowings

705


700


544



Accrued expense and other liabilities

2,540


2,574


2,113



Long-term debt

12,448


14,470


13,732




Total liabilities

127,950


129,575


124,017








Equity





Preferred stock

1,900


1,900


1,450



Common shares

1,257


1,257


1,257



Capital surplus

6,295


6,287


6,331



Retained earnings

12,469


12,209


11,556



Treasury stock, at cost

(4,909)


(4,696)


(4,181)



Accumulated other comprehensive income (loss)

26


159


(818)




Key shareholders' equity

17,038


17,116


15,595



Noncontrolling interests



1




Total equity

17,038


17,116


15,596


Total liabilities and equity

$

144,988


$

146,691


$

139,613








Common shares outstanding (000)

977,189


988,538


1,019,503


 

Consolidated Statements of Income

(dollars in millions, except per share amounts)




Three months ended


Twelve months ended




12/31/2019

9/30/2019

12/31/2018


12/31/2019

12/31/2018

Interest income








Loans

$

1,046


$

1,073


$

1,058



$

4,267


$

4,023



Loans held for sale

17


18


26



63


66



Securities available for sale

137


136


115



537


409



Held-to-maturity securities

63


64


71



262


284



Trading account assets

8


7


8



32


29



Short-term investments

12


16


15



61


46



Other investments

2


3


4



13


21




Total interest income

1,285


1,317


1,297



5,235


4,878


Interest expense








Deposits

201


227


174



853


517



Federal funds purchased and securities sold under repurchase agreements

1



1



2


11



Bank notes and other short-term borrowings

4


4


4



17


21



Long-term debt

100


114


118



454


420




Total interest expense

306


345


297



1,326


969


Net interest income

979


972


1,000



3,909


3,909


Provision for credit losses

109


200


59



445


246


Net interest income after provision for credit losses

870


772


941



3,464


3,663


Noninterest income








Trust and investment services income

120


118


121



475


499



Investment banking and debt placement fees

181


176


186



630


650



Service charges on deposit accounts

86


86


84



337


349



Operating lease income and other leasing gains

39


42


28



162


89



Corporate services income

65


63


58



236


233



Cards and payments income

67


69


68



275


270



Corporate-owned life insurance income

39


32


39



136


137



Consumer mortgage income

14


14


7



46


30



Mortgage servicing fees

26


23


21



94


82



Other income (a)

14


27


33



68


176




Total noninterest income

651


650


645



2,459


2,515


Noninterest expense








Personnel

551


547


576



2,250


2,309



Net occupancy

76


72


75



293


308



Computer processing

51


53


55



214


210



Business services and professional fees

54


43


49



186


184



Equipment

25


27


26



100


105



Operating lease expense

32


33


32



123


120



Marketing

27


26


25



96


102



FDIC assessment

8


7


9



31


72



Intangible asset amortization

19


26


22



89


99



OREO expense, net

3


3


1



13


6



Other expense

134


102


142



506


460




Total noninterest expense

980


939


1,012



3,901


3,975


Income (loss) from continuing operations before income taxes

541


483


574



2,022


2,203



Income taxes

75


70


92



314


344


Income (loss) from continuing operations

466


413


482



1,708


1,859



Income (loss) from discontinued operations, net of taxes

3


3


2



9


7


Net income (loss)

469


416


484



1,717


1,866



Less:  Net income (loss) attributable to noncontrolling interests







Net income (loss) attributable to Key

$

469


$

416


$

484



$

1,717


$

1,866











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

$

439


$

383


$

459



$

1,611


$

1,793


Net income (loss) attributable to Key common shareholders

442


386


461



1,620


1,800


Per common share







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

$

.45


$

.39


$

.45



$

1.62


$

1.72


Income (loss) from discontinued operations, net of taxes





.01


.01


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

.45


.39


.45



1.63


1.73


Per common share — assuming dilution







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

$

.45


$

.38


$

.45



$

1.61


$

1.70


Income (loss) from discontinued operations, net of taxes





.01


.01


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

.45


.39


.45



1.62


1.71











Cash dividends declared per common share

$

.185


$

.185


$

.17



$

.710


$

.565











Weighted-average common shares outstanding (000)

973,450


988,319


1,018,614



992,091


1,040,890



Effect of common share options and other stock awards

10,911


10,009


11,803



10,163


13,792


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

984,361


998,328


1,030,417



1,002,254


1,054,682




(a)

For the three and twelve months ended December 31, 2019, net securities gains (losses) totaled $5 million and $20 million, respectively. For the three months ended September 30, 2019, net securities gains (losses) totaled $15 million. For the three and twelve months ended December 31, 2018, net securities gains (losses) totaled less than $1 million. For the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, and the twelve months ended December 31, 2019 and December 31, 2018, Key did not have any impairment losses related to securities.

(b)

Earnings per share may not foot due to rounding.

(c)

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)



Fourth Quarter 2019


Third Quarter 2019


Fourth Quarter 2018



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)

$

48,345


$

522


4.28

%


$

48,322


$

543


4.46

%


$

45,129


$

512


4.51

%


Real estate — commercial mortgage

13,335


159


4.71



13,056


163


4.95



14,656


185


5.03



Real estate — construction

1,495


18


4.87



1,463


19


5.22



1,761


23


5.26



Commercial lease financing

4,482


39


3.52



4,497


42


3.68



4,482


43


3.79



Total commercial loans

67,657


738


4.33



67,338


767


4.52



66,028


763


4.59



Real estate — residential mortgage

6,777


65


3.83



6,256


62


3.97



5,496


54


3.97



Home equity loans

10,362


122


4.69



10,488


132


4.97



11,234


141


4.96



Consumer direct loans

3,125


51


6.45



2,548


45


6.99



1,806


36


7.87



Credit cards

1,103


32


11.38



1,100


32


11.59



1,112


33


11.61



Consumer indirect loans

4,583


46


3.99



4,226


43


4.10



3,612


39


4.28



Total consumer loans

25,950


316


4.84



24,618


314


5.07



23,260


303


5.16



Total loans

93,607


1,054


4.47



91,956


1,081


4.67



89,288


1,066


4.74



Loans held for sale

1,653


17


4.11



1,558


18


4.65



2,319


26


4.50



Securities available for sale (b), (e)

22,262


137


2.49



21,867


136


2.52



18,626


115


2.38



Held-to-maturity securities (b)

10,264


63


2.43



10,684


64


2.41



11,683


71


2.42



Trading account assets

1,103


8


3.08



884


7


3.00



934


8


3.42



Short-term investments

2,716


12


1.73



2,861


16


2.19



2,795


15


2.12



Other investments (e)

603


2


1.82



624


3


1.82



671


4


2.86



Total earning assets

132,208


1,293


3.90



130,434


1,325


4.05



126,316


1,305


4.09



Allowance for loan and lease losses

(882)





(881)





(878)





Accrued income and other assets

14,402





14,605





13,743





Discontinued assets

908





957





1,120





Total assets

$

146,636





$

145,115





$

140,301




Liabilities













NOW and money market deposit accounts

$

66,412


135


.81



$

64,595


154


.94



$

59,292


110


.74



Savings deposits

4,660


1


.07



4,709


1


.10



4,915


1


.08



Certificates of deposit ($100,000 or more)

6,899


40


2.31



7,625


45


2.37



8,217


42


2.02



Other time deposits

5,187


25


1.92



5,449


27


1.96



5,255


21


1.59



Total interest-bearing deposits

83,158


201


.96



82,378


227


1.09



77,679


174


.89



Federal funds purchased and securities sold 
     under repurchase agreements

267


1


.75



187



.50



281


1


.12



Bank notes and other short-term borrowings

801


4


2.02



626


4


2.04



618


4


3.05



Long-term debt (f), (g)

12,531


100


3.22



13,347


114


3.51



12,963


118


3.58



Total interest-bearing liabilities

96,757


306


1.25



96,538


345


1.42



91,541


297


1.28



Noninterest-bearing deposits

29,446





27,901





30,273





Accrued expense and other liabilities

2,347





2,605





1,981





Discontinued liabilities (g)

908





957





1,120





Total liabilities

129,458





128,001





124,915




Equity













Key shareholders' equity

17,178





17,113





15,384





Noncontrolling interests





1





2





Total equity

17,178





17,114





15,386





Total liabilities and equity

$

146,636





$

145,115





$

140,301




Interest rate spread (TE)



2.65

%




2.63

%




2.81

%

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


987


2.98

%



980


3.00

%



1,008


3.16

%

TE adjustment (b)


8





8





8




Net interest income, GAAP basis


$

979





$

972





$

1,000





(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 December 31, 2019, September 30, 2019, and December 31, 2018.

(c)

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

(d)

Commercial and industrial average balances include $146 million, $144 million, and $132 million of assets from commercial credit cards for the three months ended December 31, 2019, September 30, 2019, and December 31, 2018, 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)



Twelve months ended December 31, 2019


Twelve months ended December 31, 2018



Average


Yield/


Average


Yield/



Balance

Interest (a)

Rate (a)


Balance

Interest (a)

Rate (a)

Assets









Loans: (b), (c)









Commercial and industrial (d)

$

47,482


$

2,144


4.51

%


$

44,418


$

1,926


4.34

%


Real estate — commercial mortgage

13,641


676


4.95



14,267


698


4.90



Real estate — construction

1,485


78


5.24



1,816


90


4.97



Commercial lease financing

4,488


163


3.63



4,534


168


3.70



Total commercial loans

67,096


3,061


4.56



65,035


2,882


4.43



Real estate — residential mortgage

6,095


241


3.95



5,473


217


3.97



Home equity loans

10,634


526


4.95



11,530


547


4.74



Consumer direct loans

2,475


176


7.11



1,782


137


7.66



Credit cards

1,100


127


11.51



1,092


125


11.40



Consumer indirect loans

4,111


168


4.09



3,426


146


4.27



Total consumer loans

24,415


1,238


5.07



23,303


1,172


5.03



Total loans

91,511


4,299


4.70



88,338


4,054


4.59



Loans held for sale

1,411


63


4.48



1,501


66


4.43



Securities available for sale (b), (e)

21,362


537


2.51



17,898


409


2.20



Held-to-maturity securities (b)

10,841


262


2.41



12,003


284


2.37



Trading account assets

1017


32


3.18



893


29


3.25



Short-term investments

2,876


61


2.11



2,450


46


1.86



Other investments (e)

630


13


2.09



697


21


3.04



Total earning assets

129,648


5,267


4.06



123,780


4,909


3.94



Allowance for loan and lease losses

(880)





(878)





Accrued income and other assets

14,411





13,910





Discontinued assets

984





1,212





Total assets

$

144,163





$

138,024




Liabilities









NOW and money market deposit accounts

$

63,731


566


.89



$

56,001


297


.53



Savings deposits

4,740


4


.09



5,704


14


.24



Certificates of deposit ($100,000 or more)

7,757


180


2.32



7,728


139


1.80



Other time deposits

5,426


103


1.90



5,025


67


1.34



Total interest-bearing deposits

81,654


853


1.04



74,458


517


.69



Federal funds purchased and securities sold under repurchase agreements

264


2


.66



928


11


1.14



Bank notes and other short-term borrowings

730


17


2.31



915


21


2.34



Long-term debt (f), (g)

13,062


454


3.52



12,715


420


3.27



Total interest-bearing liabilities

95,710


1,326


1.39



89,016


969


1.09



Noninterest-bearing deposits

28,376





30,593





Accrued expense and other liabilities

2,456





2,071





Discontinued liabilities (g)

984





1,212





Total liabilities

127,526





122,892




Equity









Key shareholders' equity

16,636





15,131





Noncontrolling interests

1





1





Total equity

16,637





15,132





Total liabilities and equity

$

144,163





$

138,024




Interest rate spread (TE)



2.67

%




2.85

%

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


3,941


3.04

%



3,940


3.17

%

TE adjustment (b)


32





31




Net interest income, GAAP basis


$

3,909





$

3,909





(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% and 35% for the twelve months ended December 31, 2019, and December 31, 2018, respectively.

(c)

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

(d)

Commercial and industrial average balances include $141 million and $126 million of assets from commercial credit cards for the twelve months ended December 31, 2019, and December 31, 2018, 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


Twelve months ended


12/31/2019

9/30/2019

12/31/2018


12/31/2019

12/31/2018

Personnel (a)

$

551


$

547


$

576



$

2,250


$

2,309


Net occupancy

76


72


75



293


308


Computer processing

51


53


55



214


210


Business services and professional fees

54


43


49



186


184


Equipment

25


27


26



100


105


Operating lease expense

32


33


32



123


120


Marketing

27


26


25



96


102


FDIC assessment

8


7


9



31


72


Intangible asset amortization

19


26


22



89


99


OREO expense, net

3


3


1



13


6


Other expense

134


102


142



506


460


Total noninterest expense

$

980


$

939


$

1,012



$

3,901


$

3,975


Average full-time equivalent employees (b)

16,537


16,898


17,664



17,045


18,180




(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


Twelve months ended


12/31/2019

9/30/2019

12/31/2018


12/31/2019

12/31/2018

Salaries and contract labor

$

312


$

314


$

336



$

1,268


$

1,351


Incentive and stock-based compensation

154


143


139



584


569


Employee benefits

85


87


77



348


343


Severance


3


24



50


46


Total personnel expense

$

551


$

547


$

576



$

2,250


$

2,309


 

Loan Composition

(dollars in millions)











Percent change 12/31/2019 vs


12/31/2019

9/30/2019

12/31/2018


9/30/2019

12/31/2018

Commercial and industrial (a)

$

48,295


$

48,362


$

45,753



(.1)

%

5.6

%

Commercial real estate:







Commercial mortgage

13,491


13,167


14,285



2.5


(5.6)


Construction

1,558


1,480


1,666



5.3


(6.5)


Total commercial real estate loans

15,049


14,647


15,951



2.7


(5.7)


Commercial lease financing (b)

4,688


4,470


4,606



4.9


1.8


Total commercial loans

68,032


67,479


66,310



.8


2.6


Residential — prime loans:







Real estate — residential mortgage

7,023


6,527


5,513



7.6


27.4


Home equity loans

10,274


10,456


11,142



(1.7)


(7.8)


Total residential — prime loans

17,297


16,983


16,655



1.8


3.9


Consumer direct loans

3,513


2,789


1,809



26.0


94.2


Credit cards

1,130


1,105


1,144



2.3


(1.2)


Consumer indirect loans

4,674


4,404


3,634



6.1


28.6


Total consumer loans

26,614


25,281


23,242



5.3


14.5


Total loans (c)

$

94,646


$

92,760


$

89,552



2.0

%

5.7

%



(a)

Loan balances include $144 million, $147 million, and $132 million of commercial credit card balances at December 31, 2019, September 30, 2019, and December 31, 2018, respectively.

(b)

Commercial lease financing includes receivables held as collateral for a secured borrowing of $15 million, $10 million, and $10 million at December 31, 2019, September 30, 2019, and December 31, 2018, respectively. Principal reductions are based on the cash payments received from these related receivables.

(c)

Total loans exclude loans of $865 million at December 31, 2019, $915 million at September 30, 2019, and $1.1 billion at December 31, 2018, related to the discontinued operations of the education lending business.

 

Loans Held for Sale Composition

(dollars in millions)













Percent change 12/31/2019 vs


12/31/2019

9/30/2019

12/31/2018


9/30/2019

12/31/2018

Commercial and industrial

$

367


$

195


$

279



88.2

%

31.5

%

Real estate — commercial mortgage

772


1,123


894



(31.3)


(13.6)


Commercial lease financing

2


100




(98.0)


N/M


Real estate — residential mortgage

140


120


54



16.7


159.3


Consumer direct loans

53


60




(11.7)


N/M


Total loans held for sale (a)

$

1,334


$

1,598


$

1,227



(16.5)

%

8.7

%



(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $140 million at December 31, 2019, $120 million at September 30, 2019, and $54 million at December 31, 2018.

 

Summary of Changes in Loans Held for Sale

(in millions)








4Q19

3Q19

2Q19

1Q19

4Q18

Balance at beginning of period

$

1,598


$

1,790


$

894


$

1,227


$

1,618


New originations

3,659


3,222


3,218


1,676


5,057


Transfers from (to) held to maturity, net

26


237


42


6


24


Loan sales

(3,933)


(3,602)


(2,358)


(2,017)


(5,448)


Loan draws (payments), net

(18)


(49)


(6)


2


(24)


Valuation adjustments

2






Balance at end of period (a)

$

1,334


$

1,598


$

1,790


$

894


$

1,227




(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $140 million at December 31, 2019, $120 million at September 30, 2019, $164 million at June 30, 2019, $71 million at March 31, 2019, and $54 million at December 31, 2018.

 

Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)









Three months ended


Twelve months ended


12/31/2019

9/30/2019

12/31/2018


12/31/2019

12/31/2018

Average loans outstanding

$

93,607


$

91,956


$

89,288



$

91,511


$

88,338


Allowance for loan and lease losses at beginning of period

$

893


$

890


$

887



$

883


$

877


Loans charged off:







Commercial and industrial

77


176


45



319


159









Real estate — commercial mortgage

2



12



8


21


Real estate — construction

1





5



Total commercial real estate loans

3



12



13


21


Commercial lease financing

1


1


1



26


10


Total commercial loans

81


177


58



358


190


Real estate — residential mortgage


1




3


3


Home equity loans

3


6


7



19


21


Consumer direct loans

11


10


9



41


36


Credit cards

10


11


10



44


44


Consumer indirect loans

10


8


8



34


30


Total consumer loans

34


36


34



141


134


Total loans charged off

115


213


92



499


324


Recoveries:







Commercial and industrial

5


6


19



27


37









Real estate — commercial mortgage



1



2


3


Real estate — construction



1




2


Total commercial real estate loans



2



2


5


Commercial lease financing

1


1


1



5


5


Total commercial loans

6


7


22



34


47


Real estate — residential mortgage

1





2


2


Home equity loans

2


2


2



8


11


Consumer direct loans

2


2


2



7


7


Credit cards

1


2


2



7


7


Consumer indirect loans

4


4


4



17


16


Total consumer loans

10


10


10



41


43


Total recoveries

16


17


32



75


90


Net loan charge-offs

(99)


(196)


(60)



(424)


(234)


Provision (credit) for loan and lease losses

106


199


56



441


240


Allowance for loan and lease losses at end of period

$

900


$

893


$

883



$

900


$

883









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

$

65


$

64


$

60



$

64


$

57


Provision (credit) for losses on lending-related commitments

3


1


3



4


6


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

$

68


$

65


$

63



$

68


$

63









Total allowance for credit losses at end of period

$

968


$

958


$

946



$

968


$

946









Net loan charge-offs to average total loans

.42

%

.85

%

.27

%


.46

%

.26

%

Allowance for loan and lease losses to period-end loans

.95


.96


.99



.95


.99


Allowance for credit losses to period-end loans

1.02


1.03


1.06



1.02


1.06


Allowance for loan and lease losses to nonperforming loans

156.0


152.6


162.9



156.0


162.9


Allowance for credit losses to nonperforming loans

167.8


163.8


174.5



167.8


174.5









Discontinued operations — education lending business:







Loans charged off

$

3


$

1


$

4



$

12


$

15


Recoveries

2


1


1



5


5


Net loan charge-offs

$

(1)



$

(3)



$

(7)


$

(10)




(a)

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

 

Asset Quality Statistics From Continuing Operations

(dollars in millions)


4Q19

3Q19

2Q19

1Q19

4Q18

Net loan charge-offs

$

99


$

196


$

65


$

64


$

60


Net loan charge-offs to average total loans

.42

%

.85

%

.29

%

.29

%

.27

%

Allowance for loan and lease losses

$

900


$

893


$

890


$

883


$

883


Allowance for credit losses (a)

968


958


954


945


946


Allowance for loan and lease losses to period-end loans

.95

%

.96

%

.97

%

.98

%

.99

%

Allowance for credit losses to period-end loans

1.02


1.03


1.04


1.05


1.06


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

156.0


152.6


158.6


161.1


162.9


Allowance for credit losses to nonperforming loans (b)

167.8


163.8


170.1


172.4


174.5


Nonperforming loans at period end (b)

$

577


$

585


$

561


$

548


$

542


Nonperforming assets at period end (b)

715


711


608


597


577


Nonperforming loans to period-end portfolio loans (b)

.61

%

.63

%

.61

%

.61

%

.61

%

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

.75


.77


.66


.66


.64




(a)

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

(b)

Nonperforming loan balances exclude $446 million, $497 million, $518 million, $551 million, and $575 million of purchased credit impaired loans at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019, and December 31, 2018, respectively.

 

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(dollars in millions)


12/31/2019

9/30/2019

6/30/2019

3/31/2019

12/31/2018

Commercial and industrial

$

264


$

238


$

189


$

170


$

152








Real estate — commercial mortgage

83


92


85


82


81


Real estate — construction

2


2


2


2


2


Total commercial real estate loans

85


94


87


84


83


Commercial lease financing

6


7


7


9


9


Total commercial loans

355


339


283


263


244


Real estate — residential mortgage

48


42


62


64


62


Home equity loans

145


179


191


195


210


Consumer direct loans

4


3


3


3


4


Credit cards

3


2


2


3


2


Consumer indirect loans

22


20


20


20


20


Total consumer loans

222


246


278


285


298


Total nonperforming loans (a)

577


585


561


548


542


OREO

35


39


38


40


35


Nonperforming loans held for sale

94


78





Other nonperforming assets

9


9


9


9



Total nonperforming assets (a)

$

715


$

711


$

608


$

597


$

577


Accruing loans past due 90 days or more

101


54


74


118


112


Accruing loans past due 30 through 89 days

389


366


299


290


312


Restructured loans — accruing and nonaccruing (b)

347


347


395


365


399


Restructured loans included in nonperforming loans (b)

183


176


228


198


247


Nonperforming assets from discontinued operations — education lending business

7


7


7


7


8


Nonperforming loans to period-end portfolio loans (a)

.61

%

.63

%

.61

%

.61

%

.61

%

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

.75


.77


.66


.66


.64




(a)

Nonperforming loan balances exclude $446 million, $497 million, $518 million, $551 million, and $575 million of purchased credit impaired loans at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019, and December 31, 2018, respectively.                

(b)

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)


4Q19

3Q19

2Q19

1Q19

4Q18

Balance at beginning of period

$

585


$

561


$

548


$

542


$

645


Loans placed on nonaccrual status

268


271


189


196


103


Charge-offs

(114)


(91)


(84)


(91)


(92)


Loans sold

(1)



(38)


(18)


(16)


Payments

(59)


(37)


(23)


(22)


(53)


Transfers to OREO

(3)


(4)


(4)


(8)


(10)


Transfers to nonperforming loans held for sale

(47)


(78)





Transfers to other nonperforming assets




(13)



Loans returned to accrual status

(52)


(37)


(27)


(38)


(35)


Balance at end of period (a)

$

577


$

585


$

561


$

548


$

542




(a)

Nonperforming loan balances exclude $446 million, $497 million, $518 million, $551 million, and $575 million of purchased credit impaired loans at December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019, and December 31, 2018, respectively.

 

Line of Business Results

(dollars in millions)

















Percentage change 4Q19 vs.


4Q19

3Q19

2Q19

1Q19

4Q18


3Q19

4Q18

Consumer Bank









Summary of operations









Total revenue (TE)

$

825


$

833


$

825


$

805


$

829



(1.0)

%

(.5)

%

Provision for credit losses

55


48


40


45


43



14.6


27.9


Noninterest expense

552


531


552


540


554



4.0


(.4)


Net income (loss) attributable to Key

166


194


177


168


177



(14.4)


(6.2)


Average loans and leases

34,148


32,760


31,881


31,321


31,241



4.2


9.3


Average deposits

73,561


72,995


72,303


71,288


70,426



.8


4.5


Net loan charge-offs

43


40


40


34


40



7.5


7.5


Net loan charge-offs to average total loans

.50

%

.48

%

.50

%

.44

%

.51

%


N/A


N/A


Nonperforming assets at period end

$

306


$

354


$

366


$

365


$

364



(13.6)


(15.9)


Return on average allocated equity

19.27

%

22.82

%

21.75

%

21.27

%

21.51

%


N/A


N/A











Commercial Bank









Summary of operations









Total revenue (TE)

$

771


$

779


$

760


$

702


$

771



(1.0)

%

%

Provision for credit losses

38


32


33


16


17



18.8


123.5


Noninterest expense

388


372


389


373


401



4.3


(3.2)


Net income (loss) attributable to Key

315


304


277


250


302



3.6


4.3


Average loans and leases

58,535


58,215


57,918


57,267


56,884



.5


2.9


Average loans held for sale

1,465


1,325


1,168


1,066


2,250



10.6


(34.9)


Average deposits

38,224


36,204


35,960


34,417


35,113



5.6


8.9


Net loan charge-offs

39


35


23


30


19



11.4


105.3


Net loan charge-offs to average total loans

.26

%

.24

%

.16

%

.21

%

.13

%


N/A


N/A


Nonperforming assets at period end

$

402


$

351


$

235


$

225


$

205



14.5


96.1


Return on average allocated equity

26.69

%

26.37

%

24.09

%

22.60

%

26.64

%


N/A


N/A



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

 

Notable Items

(in millions)









Three months ended


Twelve months ended


12/31/2019

9/30/2019

12/31/2018


12/31/2019

12/31/2018

Provision for credit losses

$

(16)


$

(123)




$

(139)










Professional fees related to fraud loss

(4)





(4)



Efficiency initiative expenses



$

(24)



(76)


$

(24)


Laurel Road acquisition expenses





(2)



Pension settlement charge

(18)



(17)



(18)


(17)


Total notable items

$

(38)


$

(123)


$

(41)



$

(239)


$

(41)


Income taxes

(9)


(29)


(10)



(56)


(10)


Total notable items, after tax

$

(29)


$

(94)


$

(31)



$

(183)


$

(31)


 

(PRNewsfoto/KeyCorp)

 

 

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SOURCE KeyCorp