KeyCorp Reports First Quarter 2020 Net Income Of $118 Million, Or $.12 Per Diluted Common Share

CLEVELAND, April 16, 2020 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced net income from continuing operations attributable to Key common shareholders of $118 million, or $.12 per diluted common share for the first quarter of 2020, compared to $439 million, or $.45 per diluted common share, for the fourth quarter of 2019 and $386 million, or $.38 per diluted common share, for the first quarter of 2019. Key's results in the first quarter of 2020 reflect the Current Expected Credit Losses ("CECL") accounting methodology, as well as the impact of COVID-19 and market-related valuation adjustments.

Key's results reflect the extraordinary events that have unfolded as a result of COVID-19 and the efforts to contain its spread.  At Key, we stand with those we serve and as leaders we are focused on demonstrating the strength and resiliency that will carry our company and our country through this challenging period.

As previously announced, Chris Gorman will assume the role of CEO on May 1st.  Our leadership transition has been seamless, and I am confident in Chris and the talented and diverse team at Key.  I know that they will navigate this current environment and take the company's performance to the next level.  I have been proud and privileged to serve as CEO of a company that always puts our clients, our colleagues and our communities first.

Beth Mooney, Chairman and CEO

We are prepared to operate under challenging circumstances and we proudly recognize that Key plays a critical role in the health of our financial system and our economy.  Over the past decade, under Beth's leadership, we have transformed our company, including significantly improving our risk profile.

Today, Key is stronger, better capitalized and more liquid and we stand ready to support our clients, our teammates and our communities in managing through these difficult times.  The team at Key appreciates the trust and confidence that all of our stakeholders place in us and we take great pride in knowing that Key is part of the solution and the path forward for all those whom we serve.

Chris Gorman, President and COO

Selected Financial Highlights















dollars in millions, except per share data





Change 1Q20 vs.



1Q20

4Q19

1Q19


4Q19

1Q19

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

$

118


$

439


$

386



(73.1)

%

(69.4)

%

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

.12


.45


.38



(73.3)


(68.4)


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

3.82

%

14.09

%

13.69

%


N/A


N/A


Return on average total assets from continuing operations

.40


1.27


1.18



N/A


N/A


Common Equity Tier 1 ratio (b)

8.95


9.44


9.81



N/A


N/A


Book value at period end

$

15.95


$

15.54


$

14.31



2.6

%

11.5

%

Net interest margin (TE) from continuing operations

3.01

%

2.98

%

3.13

%


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)

3/31/20 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 

INCOME STATEMENT HIGHLIGHTS














Revenue














dollars in millions





Change 1Q20 vs.


1Q20

4Q19

1Q19


4Q19

1Q19

Net interest income (TE)

$

989


$

987


$

985



.2

%

.4

%

Noninterest income

477


651


536



(26.7)


(11.0)


Total revenue

$

1,466


$

1,638


$

1,521



(10.5)

%

(3.6)

%








TE = Taxable Equivalent

Taxable-equivalent net interest income was $989 million for the first quarter of 2020, compared to taxable-equivalent net interest income of $985 million for the first quarter of 2019. The increase in net interest income reflects higher earning asset balances, which was partially offset by a lower net interest margin. The net interest margin was impacted by a lag in deposit pricing as interest rates declined.

Compared to the fourth quarter of 2019, taxable-equivalent net interest income increased by $2 million, reflecting a higher net interest margin, partially offset by one less day in the first quarter of 2020. The net interest margin benefited from lower interest-bearing deposit costs and a favorable mix of earning asset balances, partially offset by lower earning asset yields.

Noninterest Income














dollars in millions





Change 1Q20 vs.


1Q20

4Q19

1Q19


4Q19

1Q19

Trust and investment services income

$

133


$

120


$

115



10.8

%

15.7

%

Investment banking and debt placement fees

116


181


110



(35.9)


5.5


Service charges on deposit accounts

84


86


82



(2.3)


2.4


Operating lease income and other leasing gains

30


39


37



(23.1)


(18.9)


Corporate services income

62


65


55



(4.6)


12.7


Cards and payments income

66


67


66



(1.5)



Corporate-owned life insurance income

36


39


32



(7.7)


12.5


Consumer mortgage income

20


21


11



(4.8)


81.8


Commercial mortgage servicing fees

18


19


18



(5.3)



Other income

(88)


14


10



N/M


N/M


Total noninterest income

$

477


$

651


$

536



(26.7)

%

(11.0)

%








Key's noninterest income was $477 million for the first quarter of 2020, compared to $536 million for the year-ago quarter and $651 million in the prior quarter. In the first quarter of 2020, other income was impacted by market-related valuation adjustments totaling $92 million, comprised of $73 million from customer derivatives and $19 million related to trading losses. Both were negatively impacted by wider credit spreads in the quarter.

Compared to the first quarter of 2019, noninterest income decreased by $59 million, due to a decline in other income, as well as lower operating lease income. The decrease was partially offset by growth in several fee categories: trust and investment services income, investment banking and debt placement fees, consumer mortgage income, and corporate services income.

Compared to the fourth quarter of 2019, noninterest income decreased by $174 million, due to a decline in other income, as well as lower investment banking and debt placement fees, due to a disruption in the capital markets related to COVID-19 and increased market volatility. The decrease was partially offset by higher trust and investment services income.

Noninterest Expense














dollars in millions





Change 1Q20 vs.


1Q20

4Q19

1Q19


4Q19

1Q19

Personnel expense

$

515


$

551


$

563



(6.5)

%

(8.5)

%

Nonpersonnel expense

416


429


400



(3.0)


4.0


Total noninterest expense

$

931


$

980


$

963



(5.0)

%

(3.3)

%








Key's noninterest expense was $931 million for the first quarter of 2020, compared to $963 million in the year-ago quarter and $980 million in the prior quarter. There were no notable items in the first quarter of 2020. The year-ago period included notable items of $26 million, which were efficiency-related expenses, while the prior period included notable items of $22 million, which consisted of a pension settlement charge and professional fees related to a previously disclosed fraud loss.

Excluding notable items in the year-ago period, noninterest expense decreased $6 million, reflecting the successful implementation of Key's expense initiatives, which drove personnel expenses lower, including lower incentive compensation expense, as well as a decline in intangible asset amortization. These expenses were partially offset by additional expenses from Laurel Road, which was acquired in April 2019.

Excluding notable items in the prior period, noninterest expense decreased $27 million. The decrease was primarily driven by a decline in personnel expenses, including lower incentive compensation expense, as well as a seasonal decline in marketing costs. These expenses were partially offset by an increase in employee benefits and higher operating lease expense.

BALANCE SHEET HIGHLIGHTS














Average Loans














dollars in millions





Change 1Q20 vs.


1Q20

4Q19

1Q19


4Q19

1Q19

Commercial and industrial (a)

$

49,466


$

48,345


$

45,998



2.3

%

7.5

%

Other commercial loans

19,779


19,312


20,383



2.4


(3.0)


Total consumer loans

26,929


25,950


23,268



3.8


15.7


Total loans

$

96,174


$

93,607


$

89,649



2.7

%

7.3

%








(a)

Commercial and industrial average loan balances include $145 million, $146 million, and $133 million of assets

from commercial credit cards at March 31, 2020, December 31, 2019, and March 31, 2019, respectively.

Average loans were $96.2 billion for the first quarter of 2020, an increase of $6.5 billion compared to the first quarter of 2019. Commercial loans increased $2.9 billion, reflecting broad-based growth in commercial and industrial loans, partially offset by declines in commercial mortgage. Consumer loans increased $3.7 billion, driven by solid growth from Laurel Road, residential mortgage loans, and indirect auto lending.

Compared to the fourth quarter of 2019, average loans increased by $2.6 billion. Commercial loans increased $1.6 billion, reflecting an increase in commercial and industrial utilization rates. Consumer loans increased $979 million, driven by growth from Laurel Road, residential mortgage, and indirect auto loans. On a period-end basis, total loans increased $8.6 billion compared to the linked quarter, largely the result of a $7.7 billion increase in commercial and industrial loans, due to higher utilization rates in March.

Average Deposits














dollars in millions





Change 1Q20 vs.


1Q20

4Q19

1Q19


4Q19

1Q19

Non-time deposits

$

99,117


$

100,518


$

93,699



(1.4)

%

5.8

%

Certificates of deposit ($100,000 or more)

6,310


6,899


8,376



(8.5)


(24.7)


Other time deposits

4,901


5,187


5,501



(5.5)


(10.9)


Total deposits

$

110,328


$

112,604


$

107,576



(2.0)

%

2.6

%








Cost of total deposits

.62

%

.71

%

.76

%


N/A


N/A









N/A = Not Applicable

Average deposits totaled $110.3 billion for the first quarter of 2020, an increase of $2.8 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 fourth quarter of 2019, average deposits decreased by $2.3 billion, primarily driven by short-term and seasonal deposit outflows, which more than offset growth from the penetration of existing retail and commercial relationships. On a period-end basis, deposit inflows in March were commensurate to loan growth.

ASSET QUALITY














dollars in millions





Change 1Q20 vs.


1Q20

4Q19

1Q19


4Q19

1Q19

Net loan charge-offs

$

84


$

99


$

64



(15.2)

%

31.3

%

Net loan charge-offs to average total loans

.35

%

.42

%

.29

%


N/A


N/A


Nonperforming loans at period end

$

632


$

577


$

548



9.5


15.3


Nonperforming assets at period end

844


715


597



18.0


41.4


Allowance for loan and lease losses

1,359


900


883



51.0


53.9


Allowance for loan and lease losses to nonperforming loans

215.0

%

156.0

%

161.1

%


N/A


N/A


Provision for credit losses

$

359


$

109


$

62



229.4

%

479.0

%








N/A = Not Applicable

On January 1, 2020, Key adopted a new accounting standard, often referred to as Current Expected Credit Losses ("CECL"), which establishes a single allowance framework for all financial assets carried at amortized cost and certain off-balance sheet exposures. This framework requires that management estimate credit losses over the full remaining expected life and consider expected future changes in macroeconomic conditions.

Upon adoption, Key's ALLL from continuing operations increased by $204 million, or 23%, and the reserve for off-balance sheet exposures increased by $66 million, or 88%, as compared to December 31, 2019. The increase in the total allowance for credit losses resulted in a $230 million decrease to retained earnings, net of deferred tax balances.

Net loan charge-offs for the first quarter of 2020 totaled $84 million, or .35% of average total loans. These results compare to $64 million, or .29%, for the first quarter of 2019, and $83 million, excluding the fraud loss, or .35%, for the fourth quarter of 2019. In the fourth quarter of 2019, Key realized pre-tax losses related to a previously disclosed fraud incident of $16 million.

 Key's provision for credit losses was $359 million for the first quarter of 2020. These results compare to $62 million for the first quarter of 2019 and $93 million, excluding the fraud loss, for the fourth quarter of 2019. The increase in provision for credit losses is mainly attributable to the significant change in the economic scenario from the COVID-19 pandemic. Key's allowance for loan and lease losses was $1.4 billion, or 1.32% of total period-end loans at March 31, 2020, compared to .98% at March 31, 2019, and .95% at December 31, 2019.

At March 31, 2020, Key's nonperforming loans totaled $632 million, which represented .61% of period-end portfolio loans. These results compare to .61% at March 31, 2019, and .61% at December 31, 2019. Purchased credit impaired ("PCI") loans and leases 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 meet the definition of nonperforming are now included in nonperforming disclosures, resulting in a $45 million increase in NPLs in the first quarter of 2020.

Nonperforming assets at March 31, 2020, totaled $844 million, and represented .82% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .66% at March 31, 2019, and .75% at December 31, 2019.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2020.

Capital Ratios















3/31/2020

12/31/2019

3/31/2019

Common Equity Tier 1 (a)



8.95

%

9.44

%

9.81

%

Common Equity Tier 1 CECL fully phased-in (b)



8.75




Tier 1 risk-based capital (a)



10.31


10.86


10.94


Total risk based capital (a)



12.34


12.79


12.98


Tangible common equity to tangible assets (c)



8.26


8.64


8.43


Leverage (a)



9.75


9.88


9.89








(a)

3/31/2020 ratio is estimated and reflects Key's election to adopt the CECL optional transition

provision.

(b)

3/31/2020 ratio is estimated and is calculated to reflect the full impact of CECL and excludes

the benefit of phase–ins.

(c)

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 first quarter of 2020. As shown in the preceding table, at March 31, 2020, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 8.95% and 10.30%, respectively. Key's tangible common equity ratio was 8.44% at March 31, 2020.

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 8.84% at March 31, 2020.  This estimate exceeds the fully phased-in required minimum Common Equity Tier 1 and Capital Conservation Buffer of 7.00%.

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 20 basis points.

Summary of Changes in Common Shares Outstanding













in thousands





Change 1Q20 vs.



1Q20

4Q19

1Q19


4Q19

1Q19

Shares outstanding at beginning of period

977,189


988,538


1,019,503



(1.1)

%

(4.2)

%

Open market repurchases and return of shares under employee
  compensation plans

(7,862)


(12,968)


(11,791)



(39.4)


(33.3)


Shares issued under employee compensation plans (net of cancellations)

5,992


1,619


5,474



270.1


9.5



Shares outstanding at end of period

975,319


977,189


1,013,186



(.2)

%

(3.7)

%









Consistent with Key's 2019 Capital Plan, during the first quarter of 2020, Key declared a dividend of $.185 per common share. Key also completed $120 million of common share repurchases. These repurchases included $117 million of common share repurchases in the open market and $3 million of share repurchases related to employee equity compensation programs. These repurchases were completed prior to Key's announcement on March 17, 2020 to temporarily suspend share repurchase activity 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 1Q20 vs.



1Q20

4Q19

1Q19


4Q19

1Q19

Revenue from continuing operations (TE)







Consumer Bank

$

820


$

825


$

805



(.6)

%

1.9

%

Commercial Bank

629


771


702



(18.4)


(10.4)


Other (a)

17


42


14



(59.5)


21.4

%

     Total

$

1,466


$

1,638


$

1,521



(10.5)

%

(3.6)

%









Income (loss) from continuing operations attributable to Key







Consumer Bank

$

105


$

166


$

168



(36.7)

%

(37.5)

%

Commercial Bank

70


315


250



(77.8)


(72.0)


Other (a), (b)

(29)


(12)


(11)



N/M


N/M


     Total

$

146


$

469


$

407



(68.9)

%

(64.1)

%









(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, after tax, of notable items related to a previously disclosed fraud loss for the fourth quarter of 2019;

additional detail can be found on page 24 of this release.

TE = Taxable Equivalent, N/M = Not Meaningful

 

Consumer Bank





















dollars in millions





Change 1Q20 vs.


1Q20

4Q19

1Q19


4Q19

1Q19

Summary of operations







Net interest income (TE)

$

590


$

586


$

591



.7

%

(.2)

%

Noninterest income

230


239


214



(3.8)


7.5


Total revenue (TE)

820


825


805



(.6)


1.9


Provision for credit losses

140


55


45



154.5


211.1


Noninterest expense

543


552


540



(1.6)


.6


Income (loss) before income taxes (TE)

137


218


220



(37.2)


(37.7)


Allocated income taxes (benefit) and TE adjustments

32


52


52



(38.5)


(38.5)


Net income (loss) attributable to Key

$

105


$

166


$

168



(36.7)

%

(37.5)

%








Average balances







Loans and leases

$

35,197


$

34,148


$

31,321



3.1

%

12.4

%

Total assets

38,460


37,729


34,732



1.9


10.7


Deposits

73,320


73,561


71,288



(.3)


2.9









Assets under management at period end

$

36,189


$

40,833


$

38,742



(11.4)

%

(6.6)

%








TE = Taxable Equivalent

 

Additional Consumer Bank Data














dollars in millions





Change 1Q20 vs.


1Q20

4Q19

1Q19


4Q19

1Q19

Noninterest income







Trust and investment services income

$

93


$

91


$

85



2.2

%

9.4


Service charges on deposit accounts

55


58


53



(5.2)


3.8

%

Cards and payments income

49


52


48



(5.8)


2.1


Other noninterest income

33


38


28



(13.2)


17.9


Total noninterest income

$

230


$

239


$

214



(3.8)

%

7.5

%








Average deposit balances







NOW and money market deposit accounts

$

45,583


$

44,765


$

42,261



1.8

%

7.9

%

Savings deposits

4,345


4,332


4,524



.3


(4.0)


Certificates of deposit ($100,000 or more)

5,587


6,065


6,393



(7.9)


(12.6)


Other time deposits

4,869


5,164


5,484



(5.7)


(11.2)


Noninterest-bearing deposits

12,936


13,235


12,626



(2.3)


2.5


Total deposits

$

73,320


$

73,561


$

71,288



(.3)

%

2.9

%








Home equity loans







Average balance

$

10,093


$

10,295


$

10,905





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

70

%

70

%

70

%




Percent first lien positions

62


61


60












Other data







Branches

1,082


1,098


1,177





Automated teller machines

1,398


1,420


1,502












Consumer Bank Summary of Operations (1Q20 vs. 1Q19)

  • Net income attributable to Key of $105 million for the first quarter of 2020, compared to $168 million for the year-ago quarter
  • Taxable equivalent net interest income decreased by $1 million from the first quarter of 2019, with balance sheet growth offset by lower loan fees and a lower interest rate environment
  • Average loans and leases increased $3.9 billion, or 12.4%. This was driven by strong loan growth in Laurel Road, residential mortgage, and indirect auto lending
  • Average deposits increased $2 billion, or 2.9%, from the first quarter of 2019. This was driven by growth in money market deposits, partially offset by a decrease in time deposits
  • Provision for credit losses increased $95 million compared to the first quarter of 2019. The increase in provision for credit losses is mainly attributable to the significant change in the economic scenario from the COVID-19 pandemic, as well as balance sheet growth
  • Noninterest income increased $16 million, or 7.5%, from the year ago quarter, driven by growth in trust and investment services income and consumer mortgage income
  • Noninterest expense increased $3 million, or 0.6%, from the year ago quarter. The increase reflects the addition of Laurel Road, partially offset by strong expense management

Commercial Bank





















dollars in millions





Change 1Q20 vs.


1Q20

4Q19

1Q19


4Q19

1Q19

Summary of operations







Net interest income (TE)

$

410


$

416


$

402



(1.4)

%

2.0

%

Noninterest income

219


355


300



(38.3)


(27.0)


Total revenue (TE)

629


771


702



(18.4)


(10.4)


Provision for credit losses

214


38


16



463.2


N/M


Noninterest expense

353


388


373



(9.0)


(5.4)


Income (loss) before income taxes (TE)

62


345


313



(82.0)


(80.2)


Allocated income taxes and TE adjustments

(8)


30


63



N/M


N/M


Net income (loss) attributable to Key

$

70


$

315


$

250



(77.8)

%

(72.0)

%








Average balances







Loans and leases

$

60,082


$

58,535


$

57,267



2.6

%

4.9

%

Loans held for sale

1,607


1,465


1,066



9.7


50.8


Total assets

69,383


67,135


64,873



3.3


7.0


Deposits

36,058


38,224


34,417



(5.7)

%

4.8

%








TE = Taxable Equivalent, N/M = Not Meaningful















Additional Commercial Bank Data














dollars in millions





Change 1Q20 vs.


1Q20

4Q19

1Q19


4Q19

1Q19

Noninterest income







Trust and investment services income

$

39


$

29


$

30



34.5

%

30.0

%

Investment banking and debt placement fees

116


179


110



(35.2)


5.5


Operating lease income and other leasing gains

30


39


37



(23.1)


(18.9)









Corporate services income

57


58


48



(1.7)


18.8


Service charges on deposit accounts

28


27


27



3.7


3.7


Cards and payments income

17


15


18



13.3


(5.6)


Payments and services income

102


100


93



2.0


9.7









Commercial mortgage servicing fees

18


19


17



(5.3)


5.9


Other noninterest income

(86)


(11)


13



N/M


N/M


Total noninterest income

$

219


$

355


$

300



(38.3)

%

(27.0)

%








N/M = Not Meaningful

Commercial Bank Summary of Operations (1Q20 vs. 1Q19)

  • Net income attributable to Key of $70 million for the first quarter of 2020, compared to $250 million for the year-ago quarter
  • Taxable-equivalent net interest income increased by $8 million, compared to the first quarter of 2019, with balance sheet growth partially offset by a lower interest rate environment
  • Average loan and lease balances increased $2.8 billion, or 4.9%, compared to the first quarter of 2019, driven by broad-based growth in commercial and industrial loans and partially offset by a decline in commercial mortgage balances due to disciplined risk management
  • Average deposit balances increased $1.6 billion, or 4.8%, compared to the first quarter of 2019, driven by growth in core deposits
  • Provision for credit losses increased $198 million compared to the first quarter of 2019. The increase in provision for credit losses is mainly attributable to the significant change in the economic scenario from the COVID-19 pandemic, as well as balance sheet growth
  • Noninterest income decreased $81 million from the prior year, driven by market-related valuation adjustments of customer derivatives, as well as fixed income trading losses
  • Noninterest expense decreased $20 million, or 5.4%, from the first quarter of 2019. The decline reflects the continued benefit of efficiency initiatives undertaken throughout 2019, as well as 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 $156.2 billion at March 31, 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 Thursday, April 16, 2020.  An audio replay of the call will be available through April 26, 2020.

 

Financial Highlights

(dollars in millions, except per share amounts)




Three months ended




3/31/2020

12/31/2019

3/31/2019

Summary of operations





Net interest income (TE)

$

989


$

987


$

985



Noninterest income

477


651


536




Total revenue (TE)

1,466


1,638


1,521



Provision for credit losses

359


109


62



Noninterest expense

931


980


963



Income (loss) from continuing operations attributable to Key

145


466


406



Income (loss) from discontinued operations, net of taxes

1


3


1



Net income (loss) attributable to Key

146


469


407









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

118


439


386



Income (loss) from discontinued operations, net of taxes

1


3


1



Net income (loss) attributable to Key common shareholders

119


442


387








Per common share





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

$

.12


$

.45


$

.38



Income (loss) from discontinued operations, net of taxes





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

.12


.45


.38









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

.12


.45


.38



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





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

.12


.45


.38









Cash dividends declared

.185


.185


.17



Book value at period end

15.95


15.54


14.31



Tangible book value at period end

12.98


12.56


11.55



Market price at period end

10.37


20.24


15.75








Performance ratios





From continuing operations:





Return on average total assets

.40

%

1.27

%

1.18

%


Return on average common equity

3.10


11.40


10.98



Return on average tangible common equity (b)

3.82


14.09


13.69



Net interest margin (TE)

3.01


2.98


3.13



Cash efficiency ratio (b)

62.3


58.7


61.9









From consolidated operations:





Return on average total assets

.40

%

1.27

%

1.17

%


Return on average common equity

3.12


11.48


11.01



Return on average tangible common equity (b)

3.86


14.19


13.72



Net interest margin (TE)

3.00


2.97


3.12



Loan to deposit (c)

92.1


86.6


85.1








Capital ratios at period end





Key shareholders' equity to assets

11.15

%

11.75

%

11.25

%


Key common shareholders' equity to assets

9.96


10.47


10.25



Tangible common equity to tangible assets (b)

8.26


8.64


8.43



Common Equity Tier 1 (d)

8.95


9.44


9.81



Tier 1 risk-based capital (d)

10.31


10.86


10.94



Total risk-based capital (d)

12.34


12.79


12.98



Leverage (d)

9.75


9.88


9.89









Financial Highlights (continued)

(dollars in millions)




Three months ended




3/31/2020

12/31/2019

3/31/2019

Asset quality — from continuing operations





Net loan charge-offs

$

84


$

99


$

64



Net loan charge-offs to average loans

.35

%

.42

%

.29

%


Allowance for loan and lease losses

$

1,359


$

900


$

883



Allowance for credit losses

1,520


968


945



Allowance for loan and lease losses to period-end loans

1.32

%

.95

%

.98

%


Allowance for credit losses to period-end loans

1.47


1.02


1.05



Allowance for loan and lease losses to nonperforming loans

215.0


156.0


161.1



Allowance for credit losses to nonperforming loans

240.5


167.8


172.4



Nonperforming loans at period end

$

632


$

577


$

548



Nonperforming assets at period end

844


715


597



Nonperforming loans to period-end portfolio loans

.61

%

.61

%

.61

%


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

.82


.75


.66








Trust assets





Assets under management

$

36,189


$

40,833


$

38,742








Other data





Average full-time equivalent employees

16,529


16,537


17,554



Branches

1,082


1,098


1,158








Taxable-equivalent adjustment

$

8


$

8


$

8




(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)

March 31, 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," "Common Equity Tier 1," "pre-provision net revenue," "cash efficiency ratio," "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


3/31/2020

12/31/2019

3/31/2019

Tangible common equity to tangible assets at period-end




Key shareholders' equity (GAAP)

$

17,411


$

17,038


$

15,924


Less: Intangible assets (a)

2,894


2,910


2,804


     Preferred Stock (b)

1,856


1,856


1,421


     Tangible common equity (non-GAAP)

$

12,661


$

12,272


$

11,699


Total assets (GAAP)

$

156,197


$

144,988


$

141,515


Less: Intangible assets (a)

2,894


2,910


2,804


     Tangible assets (non-GAAP)

$

153,303


$

142,078


$

138,711


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

8.26

%

8.64

%

8.43

%

Pre-provision net revenue




Net interest income (GAAP)

$

981


$

979


$

977


Plus: Taxable-equivalent adjustment

8


8


8


     Noninterest income

477


651


536


Less: Noninterest expense

931


980


963


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

$

535


$

658


$

558


Average tangible common equity




Average Key shareholders' equity (GAAP)

$

17,216


$

17,178


$

15,702


Less: Intangible assets (average) (d)

2,902


2,919


2,813


     Preferred stock (average)

1,900


1,900


1,450


Average tangible common equity (non-GAAP)

$

12,414


$

12,359


$

11,439


Return on average tangible common equity from continuing operations




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

$

118


$

439


$

386


Plus: Notable items, after tax (e)


29


20


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

$

118


$

468


$

406


Average tangible common equity (non-GAAP)

12,414


12,359


11,439






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

3.82

%

14.09

%

13.69

%

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

3.82

%

15.02

%

14.39

%

Return on average tangible common equity consolidated




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

$

119


$

442


$

387


Average tangible common equity (non-GAAP)

12,414


12,359


11,439






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

3.86

%

14.19

%

13.72

%



GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)


Three months ended


3/31/2020

12/31/2019

3/31/2019

Cash efficiency ratio




Noninterest expense (GAAP)

$

931


$

980


$

963


Less: Intangible asset amortization

17


19


22


     Adjusted noninterest expense (non-GAAP)

$

914


$

961


$

941


Less: Notable items (e)


22


26


     Adjusted noninterest expense excluding notable items (non-GAAP)

$

914


$

939


$

915






Net interest income (GAAP)

$

981


$

979


$

977


Plus: Taxable-equivalent adjustment

8


8


8


     Noninterest income

477


651


536


     Total taxable-equivalent revenue (non-GAAP)

$

1,466


$

1,638


$

1,521






Cash efficiency ratio (non-GAAP)

62.3

%

58.7

%

61.9

%





Cash efficiency ratio excluding notable items (non-GAAP)

62.3

%

57.3

%

60.2

%

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




Net loan charge-offs (GAAP)

$

84


$

99


$

64


Less: Notable items


16



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

$

84


$

83


$

64






Average loans outstanding

$

96,174


$

93,607


$

89,649






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

.35

%

.35

%

.29

%

Provision for credit losses excluding notable items




Provision for credit losses (GAAP)

$

359


$

109


$

62


Less: Notable Items


16



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

$

359


$

93


$

62











Three
months
ended








3/31/2020

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






     Common Equity Tier 1 under current RCR





$

12,259


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


          Deferred tax assets and other intangible assets (f)






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





$

12,259










     Net risk-weighted assets under current RCR





$

136,929


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


          Mortgage servicing assets (h)





1,458


          Deferred tax assets





285


          All other assets






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





$

138,672










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

8.84

%



(a)

For the three months ended March 31, 2020, December 31, 2019, and March 31, 2019, intangible assets exclude $6 million, $7 million, and $12 million,

respectively, of period-end purchased credit card receivables.

(b)

Net of capital surplus.

(c)

Key has elected the 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.

(d)

For the three months ended March 31, 2020, December 31, 2019, and March 31, 2019, average intangible assets exclude $7 million, $8 million, and $13

million, respectively, of average purchased credit card receivables.

(e)

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

(f)

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.

(g)

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."

(h)

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)










3/31/2020

12/31/2019

3/31/2019

Assets





Loans

$

103,198


$

94,646


$

90,178



Loans held for sale

2,143


1,334


894



Securities available for sale

20,807


21,843


20,854



Held-to-maturity securities

9,638


10,067


11,234



Trading account assets

795


1,040


979



Short-term investments

4,073


1,272


2,511



Other investments

679


605


646




Total earning assets

141,333


130,807


127,296



Allowance for loan and lease losses

(1,359)


(900)


(883)



Cash and due from banks

865


732


611



Premises and equipment

791


814


849



Goodwill

2,664


2,664


2,516



Other intangible assets

236


253


300



Corporate-owned life insurance

4,243


4,233


4,184



Accrued income and other assets

6,604


5,494


5,596



Discontinued assets

820


891


1,046




Total assets

$

156,197


144,988


141,515








Liabilities





Deposits in domestic offices:






NOW and money market deposit accounts

$

71,005


$

66,714


$

61,380




Savings deposits

4,753


4,651


4,839




Certificates of deposit ($100,000 or more)

5,630


6,598


8,396




Other time deposits

4,623


5,054


5,573




Total interest-bearing deposits

86,011


83,017


80,188




Noninterest-bearing deposits

29,293


28,853


27,987




Total deposits

115,304


111,870


108,175



Federal funds purchased and securities sold under repurchase agreements

2,444


387


266



Bank notes and other short-term borrowings

4,606


705


679



Accrued expense and other liabilities

2,700


2,540


2,301



Long-term debt

13,732


12,448


14,168




Total liabilities

138,786


127,950


125,589








Equity





Preferred stock

1,900


1,900


1,450



Common shares

1,257


1,257


1,257



Capital surplus

6,222


6,295


6,259



Retained earnings

12,174


12,469


11,771



Treasury stock, at cost

(4,956)


(4,909)


(4,283)



Accumulated other comprehensive income (loss)

814


26


(530)




Key shareholders' equity

17,411


17,038


15,924



Noncontrolling interests



2




Total equity

17,411


17,038


15,926


Total liabilities and equity

$

156,197


$

144,988


$

141,515








Common shares outstanding (000)

975,319


977,189


1,013,186


 


Consolidated Statements of Income

(dollars in millions, except per share amounts)




Three months ended




3/31/2020

12/31/2019

3/31/2019

Interest income





Loans

$

1,026


$

1,046


$

1,066



Loans held for sale

19


17


13



Securities available for sale

129


137


129



Held-to-maturity securities

62


63


68



Trading account assets

8


8


8



Short-term investments

6


12


16



Other investments

1


2


4




Total interest income

1,251


1,285


1,304


Interest expense





Deposits

169


201


202



Federal funds purchased and securities sold under repurchase agreements

6


1


1



Bank notes and other short-term borrowings

5


4


4



Long-term debt

90


100


120




Total interest expense

270


306


327


Net interest income

981


979


977


Provision for credit losses

359


109


62


Net interest income after provision for credit losses

622


870


915


Noninterest income





Trust and investment services income

133


120


115



Investment banking and debt placement fees

116


181


110



Service charges on deposit accounts

84


86


82



Operating lease income and other leasing gains

30


39


37



Corporate services income

62


65


55



Cards and payments income

66


67


66



Corporate-owned life insurance income

36


39


32



Consumer mortgage income

20


21


11



Commercial mortgage servicing fees

18


19


18



Other income

(88)


14


10




Total noninterest income

477


651


536


Noninterest expense





Personnel

515


551


563



Net occupancy

76


76


72



Computer processing

55


51


54



Business services and professional fees

44


54


44



Equipment

24


25


24



Operating lease expense

36


32


26



Marketing

21


27


19



FDIC assessment

9


8


7



Intangible asset amortization

17


19


22



OREO expense, net

3


3


3



Other expense

131


134


129




Total noninterest expense

931


980


963


Income (loss) from continuing operations before income taxes

168


541


488



Income taxes

23


75


82


Income (loss) from continuing operations

145


466


406



Income (loss) from discontinued operations, net of taxes

1


3


1


Net income (loss)

146


469


407



Less:  Net income (loss) attributable to noncontrolling interests




Net income (loss) attributable to Key

$

146


$

469


$

407








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

$

118


$

439


$

386


Net income (loss) attributable to Key common shareholders

119


442


387


Per common share




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

$

.12


$

.45


$

.38


Income (loss) from discontinued operations, net of taxes




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

.12


.45


.38


Per common share — assuming dilution




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

$

.12


$

.45


$

.38


Income (loss) from discontinued operations, net of taxes




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

.12


.45


.38








Cash dividends declared per common share

$

.185


$

.185


$

.17








Weighted-average common shares outstanding (000)

967,446


973,450


1,006,717



Effect of common share options and other stock awards

8,664


10,911


9,787


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

976,110


984,361


1,016,504




(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)



First Quarter 2020


Fourth Quarter 2019


First 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)

$

49,466


$

508


4.13

%


$

48,345


$

522


4.28

%


$

45,998


$

532


4.68

%


Real estate — commercial mortgage

13,548


155


4.60



13,335


159


4.71



14,325


179


5.07



Real estate — construction

1,666


20


4.75



1,495


18


4.87



1,561


21


5.48



Commercial lease financing

4,565


39


3.39



4,482


39


3.52



4,497


41


3.66



Total commercial loans

69,245


722


4.19



67,657


738


4.33



66,381


773


4.71



Real estate — residential mortgage

7,215


68


3.75



6,777


65


3.83



5,543


56


4.02



Home equity loans

10,155


113


4.49



10,362


122


4.69



10,995


137


5.07



Consumer direct loans

3,709


54


5.91



3,125


51


6.45



1,862


37


8.06



Credit cards

1,082


31


11.50



1,103


32


11.38



1,105


32


11.80



Consumer indirect loans

4,768


46


3.86



4,583


46


3.99



3,763


39


4.13



Total consumer loans

26,929


312


4.66



25,950


316


4.84



23,268


301


5.23



Total loans

96,174


1,034


4.32



93,607


1,054


4.47



89,649


1,074


4.85



Loans held for sale

1,885


19


3.99



1,653


17


4.11



1,121


13


4.74



Securities available for sale (b), (e)

21,172


129


2.49



22,262


137


2.49



20,206


129


2.51



Held-to-maturity securities (b)

9,820


62


2.51



10,264


63


2.43



11,369


68


2.41



Trading account assets

1,065


8


2.95



1,103


8


3.08



957


8


3.36



Short-term investments

1,764


6


1.42



2,716


12


1.73



2,728


16


2.28



Other investments (e)

614


1


0.40



603


2


1.82



654


4


2.69



Total earning assets

132,494


1,259


3.82



132,208


1,293


3.90



126,684


1,312


4.17



Allowance for loan and lease losses

(1,097)





(882)





(878)





Accrued income and other assets

14,831





14,402





14,314





Discontinued assets

838





908





1,066





Total assets

$

147,066





$

146,636





$

141,186




Liabilities













NOW and money market deposit accounts

$

66,721


112


.67



$

66,412


135


.81



$

60,773


130


.87



Savings deposits

4,655


1


.05



4,660


1


.07



4,811


1


.08



Certificates of deposit ($100,000 or more)

6,310


34


2.20



6,899


40


2.31



8,376


47


2.25



Other time deposits

4,901


22


1.81



5,187


25


1.92



5,501


24


1.79



Total interest-bearing deposits

82,587


169


.82



83,158


201


.96



79,461


202


1.03



Federal funds purchased and securities sold
  under repurchase agreements

2,002


6


1.17



267


1


.75



409


1


.89



Bank notes and other short-term borrowings

1,401


5


1.58



801


4


2.02



649


4


2.75



Long-term debt (f), (g)

12,443


90


2.96



12,531


100


3.22



13,160


120


3.67



Total interest-bearing liabilities

98,433


270


1.10



96,757


306


1.25



93,679


327


1.42



Noninterest-bearing deposits

27,741





29,446





28,115





Accrued expense and other liabilities

2,838





2,347





2,622





Discontinued liabilities (g)

838





908





1,066





Total liabilities

129,850





129,458





125,482




Equity













Key shareholders' equity

17,216





17,178





15,702





Noncontrolling interests









2





Total equity

17,216





17,178





15,704





Total liabilities and equity

$

147,066





$

146,636





$

141,186




Interest rate spread (TE)



2.72

%




2.65

%




2.75

%

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


989


3.01

%



987


2.98

%



985


3.13

%

TE adjustment (b)


8





8





8




Net interest income, GAAP basis


$

981





$

979





$

977





(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 March 31,

2020, December 31, 2019, and March 31, 2019.

(c)

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

(d)

Commercial and industrial average balances include $145 million, $146 million, and $133 million of assets from commercial credit cards for the three months ended March 31, 2020,

December 31, 2019, and March 31, 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


3/31/2020

12/31/2019

3/31/2019

Personnel (a)

$

515


$

551


$

563


Net occupancy

76


76


72


Computer processing

55


51


54


Business services and professional fees

44


54


44


Equipment

24


25


24


Operating lease expense

36


32


26


Marketing

21


27


19


FDIC assessment

9


8


7


Intangible asset amortization

17


19


22


OREO expense, net

3


3


3


Other expense

131


134


129


Total noninterest expense

$

931


$

980


$

963


Average full-time equivalent employees (b)

16,529


16,537


17,554



(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


3/31/2020

12/31/2019

3/31/2019

Salaries and contract labor

$

316


$

312


$

320


Incentive and stock-based compensation

102


154


132


Employee benefits

92


85


93


Severance

5



18


Total personnel expense

$

515


$

551


$

563


 


Loan Composition

(dollars in millions)











Percent change 3/31/2020 vs


3/31/2020

12/31/2019

3/31/2019


12/31/2019

3/31/2019

Commercial and industrial (a)

$

55,983


$

48,295


$

46,474



15.9

%

20.5

%

Commercial real estate:







Commercial mortgage

13,548


13,491


14,344



.4


(5.5)


Construction

1,710


1,558


1,420



9.8


20.4


Total commercial real estate loans

15,258


15,049


15,764



1.4


(3.2)


Commercial lease financing (b)

4,677


4,688


4,507



(.2)


3.8


Total commercial loans

75,918


68,032


66,745



11.6


13.7


Residential — prime loans:







Real estate — residential mortgage

7,498


7,023


5,615



6.8


33.5


Home equity loans

10,103


10,274


10,846



(1.7)


(6.9)


Total residential — prime loans

17,601


17,297


16,461



1.8


6.9


Consumer direct loans

3,833


3,513


2,165



9.1


77.0


Credit cards

1,041


1,130


1,086



(7.9)


(4.1)


Consumer indirect loans

4,805


4,674


3,721



2.8


29.1


Total consumer loans

27,280


26,614


23,433



2.5


16.4


Total loans (c), (d)

$

103,198


$

94,646


$

90,178



9.0

%

14.4

%



(a)

Loan balances include $143 million, $144 million, and $135 million of commercial credit card balances at March 31,

2020, December 31, 2019, and March 31, 2019, respectively.

(b)

Commercial lease financing includes receivables held as collateral for a secured borrowing of $14 million, $15 million,

and $12 million at March 31, 2020, December 31, 2019, and March 31, 2019, respectively. Principal reductions are

based on the cash payments received from these related receivables.

(c)

Total loans exclude loans of $821 million at March 31, 2020, $865 million at December 31, 2019, and $1.0 billion at

March 31, 2019, related to the discontinued operations of the education lending business.

(d)

Accrued interest of $241 million, $244 million, and $279 million at March 31, 2020, December 31, 2019, and March 

31, 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 3/31/2020 vs


3/31/2020

12/31/2019

3/31/2019


12/31/2019

3/31/2019

Commercial and industrial

$

446


$

367


$

99



21.5

%

350.5

%

Real estate — commercial mortgage

1,284


772


724



66.3


77.3


Commercial lease financing

8


2




300.0


N/M


Real estate — residential mortgage

152


140


71



8.6


114.1


Consumer direct loans

253


53




377.4


N/M


Total loans held for sale (a)

$

2,143


$

1,334


$

894



60.6

%

139.7

%



(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of

$152 million at March 31, 2020, $140 million at December 31, 2019, and $71 million at March 31, 2019.

 

Summary of Changes in Loans Held for Sale

(in millions)








1Q20

4Q19

3Q19

2Q19

1Q19

Balance at beginning of period

$

1,334


$

1,598


$

1,790


$

894


$

1,227


New originations

3,333


3,659


3,222


3,218


1,676


Transfers from (to) held to maturity, net

200


26


237


42


6


Loan sales

(2,649)


(3,933)


(3,602)


(2,358)


(2,017)


Loan draws (payments), net

(77)


(18)


(49)


(6)


2


Valuation adjustments

2


2





Balance at end of period (a)

$

2,143


$

1,334


$

1,598


$

1,790


$

894




(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $152 million

at March 31, 2020, $140 million at December 31, 2019, $120 million at September 30, 2019, $164 million at June 

30, 2019, and $71 million at March 31, 2019.

 


Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)






Three months ended


3/31/2020

12/31/2019

3/31/2019

Average loans outstanding

$

96,174


$

93,607


$

89,649


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

$

900


$

893


$

883


Cumulative effect from change in accounting principle (a)

204




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

1,104


893


883


Loans charged off:




Commercial and industrial

60


77


36






Real estate — commercial mortgage

3


2


5


Real estate — construction


1


4


Total commercial real estate loans

3


3


9


Commercial lease financing

2


1


8


Total commercial loans

65


81


53


Real estate — residential mortgage



1


Home equity loans

4


3


4


Consumer direct loans

12


11


10


Credit cards

11


10


11


Consumer indirect loans

9


10


8


Total consumer loans

36


34


34


Total loans charged off

101


115


87


Recoveries:




Commercial and industrial

5


5


10






Real estate — commercial mortgage

1



1


Total commercial real estate loans

1



1


Commercial lease financing


1


1


Total commercial loans

6


6


12


Real estate — residential mortgage


1


1


Home equity loans

2


2


2


Consumer direct loans

2


2


1


Credit cards

2


1


2


Consumer indirect loans

5


4


5


Total consumer loans

11


10


11


Total recoveries

17


16


23


Net loan charge-offs

(84)


(99)


(64)


Provision (credit) for loan and lease losses

339


106


64


Allowance for loan and lease losses at end of period

$

1,359


$

900


$

883






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

$

68


$

65


$

64


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

7




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

66




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

141


65


64


Provision (credit) for losses on lending-related commitments

20


3


(2)


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

$

161


$

68


$

62






Total allowance for credit losses at end of period

$

1,520


$

968


$

945






Net loan charge-offs to average total loans

.35

%

.42

%

.29

%

Allowance for loan and lease losses to period-end loans

1.32


.95


.98


Allowance for credit losses to period-end loans

1.47


1.02


1.05


Allowance for loan and lease losses to nonperforming loans

215.0


156.0


161.1


Allowance for credit losses to nonperforming loans

240.5


167.8


172.4






Discontinued operations — education lending business:




Loans charged off

$

2


$

3


$

4


Recoveries

1


2


1


Net loan charge-offs

$

(1)


(1)


$

(3)




(a)

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

(b)

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)


1Q20

4Q19

3Q19

2Q19

1Q19

Net loan charge-offs

$

84


$

99


$

196


$

65


$

64


Net loan charge-offs to average total loans

.35

%

.42

%

.85

%

.29

%

.29

%

Allowance for loan and lease losses

$

1,359


$

900


$

893


$

890


$

883


Allowance for credit losses (a)

1,520


968


958


954


945


Allowance for loan and lease losses to period-end loans

1.32

%

.95

%

.96

%

.97

%

.98

%

Allowance for credit losses to period-end loans

1.47


1.02


1.03


1.04


1.05


Allowance for loan and lease losses to nonperforming loans

215.0


156.0


152.6


158.6


161.1


Allowance for credit losses to nonperforming loans

240.5


167.8


163.8


170.1


172.4


Nonperforming loans at period end

$

632


$

577


$

585


$

561


$

548


Nonperforming assets at period end

844


715


711


608


597


Nonperforming loans to period-end portfolio loans

.61

%

.61

%

.63

%

.61

%

.61

%

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

.82


.75


.77


.66


.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)


3/31/2020

12/31/2019

9/30/2019

6/30/2019

3/31/2019

Commercial and industrial

$

277


$

264


$

238


$

189


$

170








Real estate — commercial mortgage

87


83


92


85


82


Real estate — construction

2


2


2


2


2


Total commercial real estate loans

89


85


94


87


84


Commercial lease financing

5


6


7


7


9


Total commercial loans

371


355


339


283


263


Real estate — residential mortgage

89


48


42


62


64


Home equity loans

143


145


179


191


195


Consumer direct loans

4


4


3


3


3


Credit cards

3


3


2


2


3


Consumer indirect loans

22


22


20


20


20


Total consumer loans

261


222


246


278


285


Total nonperforming loans

632


577


585


561


548


OREO

119


35


39


38


40


Nonperforming loans held for sale

89


94


78




Other nonperforming assets

4


9


9


9


9


Total nonperforming assets

$

844


$

715


$

711


$

608


$

597


Accruing loans past due 90 days or more

128


97


54


74


118


Accruing loans past due 30 through 89 days

393


329


366


299


290


Restructured loans — accruing and nonaccruing (a)

340


347


347


395


365


Restructured loans included in nonperforming loans (a)

172


183


176


228


198


Nonperforming assets from discontinued operations — education lending business

7


7


7


7


7


Nonperforming loans to period-end portfolio loans

.61

%

.61

%

.63

%

.61

%

.61

%

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

.82


.75


.77


.66


.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)


1Q20

4Q19

3Q19

2Q19

1Q19

Balance at beginning of period

$

577


$

585


$

561


$

548


$

542


Loans placed on nonaccrual status (a)

219


268


271


189


196


Charge-offs

(100)


(114)


(91)


(84)


(91)


Loans sold

(4)


(1)



(38)


(18)


Payments

(31)


(59)


(37)


(23)


(22)


Transfers to OREO

(3)


(3)


(4)


(4)


(8)


Transfers to nonperforming loans held for sale


(47)


(78)




Transfers to other nonperforming assets





(13)


Loans returned to accrual status

(26)


(52)


(37)


(27)


(38)


Balance at end of period

$

632


$

577


$

585


$

561


$

548




(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 1Q20 vs.


1Q20

4Q19

3Q19

2Q19

1Q19


4Q19

1Q19

Consumer Bank









Summary of operations









Total revenue (TE)

$

820


$

825


$

833


$

825


$

805



(.6)

%

1.9

%

Provision for credit losses

140


55


48


40


45



154.5


211.1


Noninterest expense

543


552


531


552


540



(1.6)


.6


Net income (loss) attributable to Key

105


166


194


177


168



(36.7)


(37.5)


Average loans and leases

35,197


34,148


32,760


31,881


31,321



3.1


12.4


Average deposits

73,320


73,561


72,995


72,303


71,288



(.3)


2.9


Net loan charge-offs

43


43


40


40


34




26.5


Net loan charge-offs to average total loans

.49

%

.50

%

.48

%

.50

%

.44

%


N/A


N/A


Nonperforming assets at period end

$

342


$

306


$

354


$

366


$

365



11.8


(6.3)


Return on average allocated equity

12.18

%

19.27

%

22.82

%

21.75

%

21.27

%


N/A


N/A











Commercial Bank









Summary of operations









Total revenue (TE)

$

629


$

771


$

779


$

760


$

702



(18.4)

%

(10.4)

%

Provision for credit losses

214


38


32


33


16



463.2


N/M


Noninterest expense

353


388


372


389


373



(9.0)


(5.4)


Net income (loss) attributable to Key

70


315


304


277


250



(77.8)


(72.0)


Average loans and leases

60,082


58,535


58,215


57,918


57,267



2.6


4.9


Average loans held for sale

1,607


1,465


1,325


1,168


1,066



9.7


50.8


Average deposits

36,058


38,224


36,204


35,960


34,417



(5.7)


4.8


Net loan charge-offs

40


39


35


23


30



2.6


33.3


Net loan charge-offs to average total loans

.27

%

.26

%

.24

%

.16

%

.21

%


N/A


N/A


Nonperforming assets at period end

$

407


$

402


$

351


$

235


$

225



1.2


80.9


Return on average allocated equity

6.00

%

26.69

%

26.37

%

24.09

%

22.60

%


N/A


N/A



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

 

Notable Items

(in millions)






Three months ended


3/31/2020

12/31/2019

3/31/2019

Provision for credit losses


$

(16)







Professional fees related to fraud loss


(4)



Efficiency initiative expenses



$

(26)


Pension settlement charge


(18)



Total notable items


$

(38)


$

(26)


Income taxes


(9)


(6)


Total notable items, after tax


$

(29)


$

(20)


 

KeyBank (PRNewsFoto/KeyCorp) (PRNewsfoto/KeyCorp)

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/keycorp-reports-first-quarter-2020-net-income-of-118-million-or-12-per-diluted-common-share-301041807.html

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