KeyCorp Reports Second Quarter 2019 Net Income Of $403 Million, Or $.40 Per Common Share

CLEVELAND, July 23, 2019 /PRNewswire/ -- KeyCorp KEY today announced net income from continuing operations attributable to Key common shareholders of $403 million, or $.40 per common share for the second quarter of 2019, compared to $386 million, or $.38 per common share, for the first quarter of 2019 and $464 million, or $.44 per common share, for the second quarter of 2018. Key's second quarter 2019 results included $.04 per common share of notable items, primarily related to efficiency initiative expenses. Key's results in the first quarter of 2019 and the second quarter of 2018 also included notable items; additional detail can be found on page 24 of this release.

Our second quarter results were driven by broad-based growth in our commercial and consumer businesses, along with disciplined expense management and strong credit quality. Revenue trends reflect growth in both loans and deposits, along with positive momentum in our fee-based businesses, including investment banking and debt placement and cards and payments. In addition to strong organic growth, we are also benefiting from the investments we continue to make across our franchise. Our recent acquisition of Laurel Road and the investments we have made in our residential mortgage business contributed to our top line results this quarter and position us well for the future.

Expenses this quarter were well-managed, as we continued to execute on our continuous improvement plans. We made meaningful progress toward our cash efficiency ratio target of 54% to 56%, which we expect to achieve in the second half of 2019. Maintaining our moderate risk profile through disciplined underwriting continues to be a priority. Credit quality and capital remain strong and position us to continue to deliver on our commitments of profitable growth and improved returns.

Beth Mooney, Chairman and CEO



Selected Financial Highlights





























dollars in millions, except per share data









Change 2Q19 vs.





2Q19

1Q19

2Q18



1Q19

2Q18

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

$

403



$

386



$

464





4.4

%

(13.1)

%

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

     common share — assuming dilution

.40



.38



.44





5.3



(9.1)



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

13.69

%

13.69

%

16.73

%



N/A



N/A



Return on average total assets from continuing operations

1.19



1.18



1.41





N/A



N/A



Common Equity Tier 1 ratio (b)

9.60



9.81



10.13





N/A



N/A



Book value at period end

$

15.07



$

14.31



$

13.29





5.3

%

13.4

%

Net interest margin (TE) from continuing operations

3.06

%

3.13

%

3.19

%



N/A



N/A





















(a)

The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "Return on average tangible common equity from continuing operations." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.

(b)

6/30/19 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 



INCOME STATEMENT HIGHLIGHTS



























Revenue



























dollars in millions









Change 2Q19 vs.



2Q19

1Q19

2Q18



1Q19

2Q18

Net interest income (TE)

$

989



$

985



$

987





.4

%

.2

%

Noninterest income

622



536



660





16.0



(5.8)



Total revenue

$

1,611



$

1,521



$

1,647





5.9

%

(2.2)

%

















TE = Taxable Equivalent

Taxable-equivalent net interest income was $989 million for the second quarter of 2019, compared to taxable-equivalent net interest income of $987 million for the second quarter of 2018. The increase in net interest income reflects the benefit from higher earning asset balances and higher interest rates, partially offset by a lower net interest margin, driven by an elevated level of liquidity, higher interest-bearing deposit costs, lower loan fees, and a continued decline in purchase accounting accretion. Second quarter 2019 net interest income included $17 million of purchase accounting accretion, a decline of $11 million from the second quarter of 2018.

Compared to the first quarter of 2019, taxable-equivalent net interest income increased by $4 million. The increase was driven by higher earning asset balances and one additional day in the quarter. These benefits were partially offset by a decline in net interest margin, driven by an elevated level of liquidity, reflecting higher short-term deposits and higher interest-bearing deposit costs, as well as a decline in purchase accounting accretion of $5 million from the first quarter.



Noninterest Income



























dollars in millions









Change 2Q19 vs.



2Q19

1Q19

2Q18



1Q19

2Q18

Trust and investment services income

$

122



$

115



$

128





6.1

%

(4.7)

%

Investment banking and debt placement fees

163



110



155





48.2



5.2



Service charges on deposit accounts

83



82



91





1.2



(8.8)



Operating lease income and other leasing gains

44



37



(6)





18.9



N/M



Corporate services income

53



55



61





(3.6)



(13.1)



Cards and payments income

73



66



71





10.6



2.8



Corporate-owned life insurance income

33



32



32





3.1



3.1



Consumer mortgage income

10



8



7





25.0



42.9



Mortgage servicing fees

24



21



22





14.3



9.1



Other income

17



10



99





70.0



(82.8)



Total noninterest income

$

622



$

536



$

660





16.0

%

(5.8)

%

















Key's noninterest income was $622 million for the second quarter of 2019, compared to $660 million for the year-ago quarter and $536 million in the prior quarter. The year-ago quarter included notable items with a net impact of $36 million from the sale of Key Insurance and Benefit Services, included in other income, and a residual loss on an operating lease. There were no notable noninterest income items in the current and prior quarters.

Excluding notable items, noninterest income declined $2 million from the year-ago period. The decline reflects the sale of Key Insurance and Benefit Services, which resulted in a year-over-year reduction in trust and investment services income. Offsetting the decline was growth in investment banking and debt placement fees of $8 million and higher consumer mortgage income.

Compared to the first quarter of 2019, noninterest income increased by $86 million, due to growth in investment banking and debt placement fees, trust and investment services income, operating lease income, and cards and payments. Consumer mortgage and mortgage servicing fees increased from the prior quarter, primarily related to the growth in our residential mortgage business.



Noninterest Expense



























dollars in millions









Change 2Q19 vs.



2Q19

1Q19

2Q18



1Q19

2Q18

Personnel expense

$

589



$

563



$

586





4.6

%

.5

%

Nonpersonnel expense

430



400



407





7.5



5.7



Total noninterest expense

$

1,019



$

963



$

993





5.8

%

2.6

%

















Key's noninterest expense was $1.0 billion for the second quarter of 2019, compared to $993 million in the year-ago quarter and $963 million in the prior quarter. The second quarter of 2019 included notable items of $52 million, which were efficiency-related expenses, primarily personnel related. The year-ago quarter and prior quarter both included notable items, primarily efficiency-related expenses, which were $27 million and $26 million, respectively.

Excluding notable items, noninterest expense increased by $1 million from the year-ago period, reflecting the impact of Key's acquisition of Laurel Road in April 2019, offset by the successful implementation of Key's expense initiatives. The change also reflected an increase in charitable contributions and volume-driven expenses, which were partially offset by the elimination of the FDIC surcharge.

Excluding notable items, noninterest expense increased $30 million from the prior quarter, due to an increase in salaries and incentive compensation, a higher operating lease expense, and seasonally higher marketing costs; many of the increases reflected the impact of the Laurel Road acquisition. These expenses were partially offset by a seasonal decline in employee benefits expense.



BALANCE SHEET HIGHLIGHTS



























Average Loans



























dollars in millions









Change 2Q19 vs.



2Q19

1Q19

2Q18



1Q19

2Q18

Commercial and industrial (a)

$

47,227



$

45,998



$

45,030





2.7

%

4.9

%

Other commercial loans

19,765



20,383



20,394





(3.0)



(3.1)



Total consumer loans

23,793



23,268



23,220





2.3



2.5



Total loans

$

90,785



$

89,649



$

88,644





1.3

%

2.4

%



















(a)

Commercial and industrial average loan balances include $141 million, $133 million, and $126 million of assets from commercial credit cards at June 30, 2019, March 31, 2019, and June 30, 2018, respectively.



Average loans were $90.8 billion for the second quarter of 2019, an increase of $2.1 billion compared to the second 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 $573 million, driven by solid growth from Laurel Road, residential mortgage loans, and indirect auto lending.  Home equity loans declined $900 million, largely the result of continued paydowns in home equity lines of credit.

Compared to the first quarter of 2019, average loans increased by $1.1 billion, driven by solid growth in commercial and industrial loans, partly offset by declines in commercial mortgage and construction loans. Consumer loans increased $525 million from the prior quarter, as growth from Laurel Road and residential mortgage loans more than offset the decline in home equity loans. Laurel Road loan originations were over $400 million for the quarter.



Average Deposits



























dollars in millions









Change 2Q19 vs.



2Q19

1Q19

2Q18



1Q19

2Q18

Non-time deposits

$

95,885



$

93,699



$

91,538





2.3

%

4.7

%

Certificates of deposit ($100,000 or more)

8,147



8,376



7,516





(2.7)



8.4



Other time deposits

5,569



5,501



4,949





1.2



12.5



Total deposits

$

109,601



$

107,576



$

104,003





1.9

%

5.4

%















Cost of total deposits

.82

%

.76

%

.43

%



N/A



N/A



















N/A = Not Applicable

Average deposits totaled $109.6 billion for the second quarter of 2019, an increase of $5.6 billion compared to the year-ago quarter, reflecting growth from consumer and commercial relationships.

Compared to the first quarter of 2019, average deposits increased by $2 billion, primarily driven by continued growth from consumer and commercial relationships, as well as short-term deposits.



ASSET QUALITY



























dollars in millions









Change 2Q19 vs.



2Q19

1Q19

2Q18



1Q19

2Q18

Net loan charge-offs

$

65



$

64



$

60





1.6

%

8.3

%

Net loan charge-offs to average total loans

.29

%

.29

%

.27

%



N/A



N/A



Nonperforming loans at period end (a)

$

561



$

548



$

545





2.4



2.9



Nonperforming assets at period end (a)

608



597



571





1.8



6.5



Allowance for loan and lease losses

890



883



887





.8



.3



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

158.6

%

161.1

%

162.8

%



N/A



N/A



Provision for credit losses

$

74



$

62



$

64





19.4

%

15.6

%

















(a)

Nonperforming loan balances exclude $518 million, $551 million, and $629 million of purchased credit impaired loans at June 30, 2019, March 31, 2019, and June 30, 2018, respectively.

N/A = Not Applicable

Key's provision for credit losses was $74 million for the second quarter of 2019, compared to $64 million for the second quarter of 2018 and $62 million for the first quarter of 2019. Key's allowance for loan and lease losses was $890 million, or .97% of total period-end loans at June 30, 2019, compared to 1.01% at June 30, 2018, and .98% at March 31, 2019.

Net loan charge-offs for the second quarter of 2019 totaled $65 million, or .29% of average total loans. These results compare to $60 million, or .27%, for the second quarter of 2018, and $64 million, or .29%, for the first quarter of 2019.

At June 30, 2019, Key's nonperforming loans totaled $561 million, which represented .61% of period-end portfolio loans. These results compare to .62% at June 30, 2018, and .61% at March 31, 2019. Nonperforming assets at June 30, 2019, totaled $608 million, and represented .66% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .65% at June 30, 2018, and .66% at March 31, 2019.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at June 30, 2019.

Capital Ratios

















6/30/2019

3/31/2019

6/30/2018

Common Equity Tier 1 (a)

9.60

%

9.81

%

10.13

%

Tier 1 risk-based capital (a)

11.05



10.94



10.95



Total risk based capital (a)

13.07



12.98



12.83



Tangible common equity to tangible assets (b)

8.59



8.43



8.32



Leverage (a)

10.02



9.89



9.87













(a)

6/30/2019 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 second quarter of 2019. As shown in the preceding table, at June 30, 2019, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.60% and 11.05%, respectively. Key's tangible common equity ratio was 8.59% at June 30, 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 9.53% at June 30, 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 2Q19 vs.





2Q19

1Q19

2Q18



1Q19

2Q18

Shares outstanding at beginning of period

1,013,186



1,019,503



1,064,939





(.6)

%

(4.9)

%

Open market repurchases and return of shares under employee 

     compensation plans

(10,412)



(11,791)



(6,259)





(11.7)



66.4



Shares issued under employee compensation plans (net of cancellations)

340



5,474



264





(93.8)



28.8



     Shares outstanding at end of period

1,003,114



1,013,186



1,058,944





(1.0)

%

(5.3)

%



















Consistent with Key's 2018 Capital Plan, during the second quarter of 2019, Key declared a dividend of $.17 per common share and completed $180 million of common share repurchases. These repurchases included $179 million of common share repurchases in the open market and $1 million of share repurchases related to employee equity compensation programs.

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 2Q19 vs.





2Q19

1Q19

2Q18



1Q19

2Q18

Revenue from continuing operations (TE)













Consumer Bank

$

825



$

805



$

810





2.5

%

1.9

%

Commercial Bank

759



701



721





8.3



5.3



Other (a)

27



15



116





80.0



(76.7)

%

     Total

$

1,611



$

1,521



$

1,647





5.9

%

(2.2)

%

















Income (loss) from continuing operations attributable to Key













Consumer Bank

$

172



$

161



$

155





6.8

%

11.0

%

Commercial Bank

283



257



256





10.1



10.5



Other (a)

(30)



(11)



71





N/M



N/M



     Total

$

425



$

407



$

482





4.4

%

(11.8)

%



















(a)

Other includes other segments that consists of corporate treasury, our principal investing unit, and various exit portfolios as well as reconciling items which primarily represents the unallocated portion of nonearning assets of corporate support functions. Charges related to the funding of these assets are part of net interest income and are allocated to the business segments through noninterest expense. Reconciling items also includes intercompany eliminations and certain items that are not allocated to the business segments because they do not reflect their normal operations.

TE = Taxable Equivalent, N/M = Not Meaningful

 



Consumer Bank









































dollars in millions









Change 2Q19 vs.



2Q19

1Q19

2Q18



1Q19

2Q18

Summary of operations













Net interest income (TE)

$

594



$

591



$

574





.5

%

3.5

%

Noninterest income

231



214



236





7.9



(2.1)



Total revenue (TE)

825



805



810





2.5



1.9



Provision for credit losses

40



45



39





(11.1)



2.6



Noninterest expense

560



548



569





2.2



(1.6)



Income (loss) before income taxes (TE)

225



212



202





6.1



11.4



Allocated income taxes (benefit) and TE adjustments

53



51



47





3.9



12.8



Net income (loss) attributable to Key

$

172



$

161



$

155





6.8

%

11.0

%















Average balances













Loans and leases

$

31,881



$

31,321



$

31,276





1.8

%

1.9

%

Total assets

35,469



34,732



34,495





2.1



2.8



Deposits

72,303



71,288



68,279





1.4



5.9

















Assets under management at period end

$

38,942



$

38,742



$

39,663





.5

%

(1.8)

%

















TE = Taxable Equivalent

 



Additional Consumer Bank Data



























dollars in millions









Change 2Q19 vs.



2Q19

1Q19

2Q18



1Q19

2Q18

Noninterest income













Trust and investment services income

$

91



$

85



$

91





7.1

%



Service charges on deposit accounts

56



53



62





5.7



(9.7)

%

Cards and payments income

54



48



52





12.5



3.8



Other noninterest income

30



28



31





7.1



(3.2)



Total noninterest income

$

231



$

214



$

236





7.9

%

(2.1)

%















Average deposit balances













NOW and money market deposit accounts

$

42,800



$

42,261



$

40,231





1.3

%

6.4

%

Savings deposits

4,506



4,524



4,883





(.4)



(7.7)



Certificates of deposit ($100,000 or more)

6,644



6,393



5,026





3.9



32.2



Other time deposits

5,549



5,484



4,929





1.2



12.6



Noninterest-bearing deposits

12,804



12,626



13,210





1.4



(3.1)



Total deposits

$

72,303



$

71,288



$

68,279





1.4

%

5.9

%















Home equity loans













Average balance

$

10,618



$

10,905



$

11,496









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

70

%

70

%

70

%







Percent first lien positions

60



60



60























Other data













Branches

1,102



1,158



1,177









Automated teller machines

1,430



1,502



1,537























Consumer Bank Summary of Operations (2Q19 vs. 2Q18)

  • Net income of $172 million for the second quarter of 2019, compared to $155 million for the year-ago quarter
  • Taxable-equivalent net interest income increased by $20 million, or 3.5%, from the second quarter of 2018. The increase in net interest income was primarily driven by balance sheet growth
  • Average loans and leases increased $605 million, or 1.9%. This was driven by Laurel Road and strength in residential mortgage and indirect auto lending. This growth was partially offset by an $878 million, or 7.6%, decrease in home equity balances
  • Average deposits increased $4.0 billion, or 5.9%, from the second quarter of 2018. This was driven by growth in money market and certificates of deposit, reflecting Key's relationship strategy
  • Provision for credit losses increased $1 million compared to the second quarter of 2018, as credit quality remained stable
  • Noninterest income decreased $5 million, or 2.1%, from the year-ago quarter driven by lower service charges on deposit accounts
  • Noninterest expense decreased $9 million, or 1.6%, from the year-ago quarter. The decline reflects the benefit of efficiency initiatives, strong expense discipline, and the elimination of the FDIC quarterly surcharge. The decline in expense was partially offset by expenses related to the acquisition of Laurel Road

 



Commercial Bank









































dollars in millions









Change 2Q19 vs.



2Q19

1Q19

2Q18



1Q19

2Q18

Summary of operations













Net interest income (TE)

$

405



$

402



$

418





.7

%

(3.1)

%

Noninterest income

354



299



303





18.4



16.8



Total revenue (TE)

759



701



721





8.3



5.3



Provision for credit losses

33



16



25





106.3



32.0



Noninterest expense

381



364



391





4.7



(2.6)



Income (loss) before income taxes (TE)

345



321



305





7.5



13.1



Allocated income taxes and TE adjustments

62



64



49





(3.1)



26.5



Net income (loss) attributable to Key

$

283



$

257



$

256





10.1

%

10.5

%















Average balances













Loans and leases

$

57,924



$

57,292



$

56,175





1.1

%

3.1

%

Loans held for sale

1,168



1,066



1,301





9.6



(10.2)



Total assets

65,907



64,898



63,948





1.6



3.1



Deposits

35,961



34,418



33,169





4.5

%

8.4

%

















TE = Taxable Equivalent, N/M = Not Meaningful

 



Additional Commercial Bank Data



























dollars in millions









Change 2Q19 vs.



2Q19

1Q19

2Q18



1Q19

2Q18

Noninterest income













Trust and investment services income

$

31



$

30



$

30





3.3

%

3.3

%

Investment banking and debt placement fees

163



111



155





46.8



5.2



Operating lease income and other leasing gains

43



37



(8)





16.2



(637.5)

















Corporate services income

50



48



53





4.2



(5.7)



Service charges on deposit accounts

27



27



28







(3.6)



Cards and payments income

17



18



16





(5.6)



6.3



Payments and services income

94



93



97





1.1



(3.1)

















Mortgage servicing fees

20



17



19





17.6



5.3



Other noninterest income

4



12



10





(66.7)



(60.0)



Total noninterest income

$

355



$

300



$

303





18.3

%

17.2

%

















N/M = Not Meaningful

Commercial Bank Summary of Operations (2Q19 vs. 2Q18)

  • Net income attributable to Key of $283 million for the second quarter of 2019, compared to $256 million for the year-ago quarter
  • Taxable-equivalent net interest income decreased by $13 million, or 3.1%, compared to the second quarter of 2018, driven by lower purchase accounting accretion and loan spread compression
  • Average loan and lease balances increased $1.7 billion, or 3.1%, compared to the second quarter of 2018 driven by broad-based growth in commercial and industrial loans
  • Average deposit balances increased $2.8 billion, or 8.4%, compared to the second quarter of 2018, driven by growth in core deposits and short-term transactional deposits
  • Provision for credit losses increased $8 million compared to the second quarter of 2018, driven by loan growth. Credit quality remained stable compared to the second quarter of 2018
  • Noninterest income increased $51 million, or 16.8%, from the prior year. The year-ago quarter included a notable item of $42 million related to a residual loss on an operating lease. Investment banking and debt placement fees increased $8 million, or 5.2%, from the prior year, primarily related to strength in loan syndication fees
  • Noninterest expense decreased by $10 million, or 2.6%, from the second quarter of 2018. The decline reflects the benefit of efficiency initiatives, strong expense discipline, and the elimination of the FDIC quarterly surcharge


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 $144.5 billion at June 30, 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 over 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 10:00 a.m. ET, on Tuesday, July 23, 2019.  An audio replay of the call will be available through August 2, 2019.

KeyCorp

Second Quarter 2019

Financial Supplement

Financial Highlights

(dollars in millions, except per share amounts)







Three months ended







6/30/2019

3/31/2019

6/30/2018

Summary of operations









Net interest income (TE)

$

989



$

985



$

987





Noninterest income

622



536



660







Total revenue (TE)

1,611



1,521



1,647





Provision for credit losses

74



62



64





Noninterest expense

1,019



963



993





Income (loss) from continuing operations attributable to Key

423



406



479





Income (loss) from discontinued operations, net of taxes (a)

2



1



3





Net income (loss) attributable to Key

425



407



482

















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

403



386



464





Income (loss) from discontinued operations, net of taxes (a)

2



1



3





Net income (loss) attributable to Key common shareholders

405



387



467















Per common share









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

$

.40



$

.38



$

.44





Income (loss) from discontinued operations, net of taxes (a)









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

.40



.38



.44

















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

.40



.38



.44





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









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

.40



.38



.44

















Cash dividends declared

.17



.17



.12





Book value at period end

15.07



14.31



13.29





Tangible book value at period end

12.12



11.55



10.59





Market price at period end

17.75



15.75



19.54















Performance ratios









From continuing operations:









Return on average total assets

1.19

%

1.18

%

1.41

%



Return on average common equity

10.94



10.98



13.29





Return on average tangible common equity (c)

13.69



13.69



16.73





Net interest margin (TE)

3.06



3.13



3.19





Cash efficiency ratio (c)

61.9



61.9



58.8

















From consolidated operations:









Return on average total assets

1.19

%

1.17

%

1.40

%



Return on average common equity

11.00



11.01



13.37





Return on average tangible common equity (c)

13.75



13.72



16.84





Net interest margin (TE)

3.05



3.12



3.17





Loan to deposit (d)

86.1



85.1



86.9















Capital ratios at period end









Key shareholders' equity to assets

11.74

%

11.25

%

10.96

%



Key common shareholders' equity to assets

10.46



10.25



10.21





Tangible common equity to tangible assets (c)

8.59



8.43



8.32





Common Equity Tier 1 (e)

9.60



9.81



10.13





Tier 1 risk-based capital (e)

11.05



10.94



10.95





Total risk-based capital (e)

13.07



12.98



12.83





Leverage (e)

10.02



9.89



9.87















Asset quality — from continuing operations









Net loan charge-offs

$

65



$

64



$

60





Net loan charge-offs to average loans

.29

%

.29

%

.27

%



Allowance for loan and lease losses

$

890



$

883



$

887





Allowance for credit losses

954



945



945





Allowance for loan and lease losses to period-end loans

.97

%

.98

%

1.01

%



Allowance for credit losses to period-end loans

1.04



1.05



1.07





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

158.6



161.1



162.8





Allowance for credit losses to nonperforming loans (f)

170.1



172.4



173.4





Nonperforming loans at period-end (f)

$

561



$

548



$

545





Nonperforming assets at period-end (f)

608



597



571





Nonperforming loans to period-end portfolio loans (f)

.61

%

.61

%

.62

%



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

.66



.66



.65















Trust assets









Assets under management

$

38,942



$

38,742



$

39,663















Other data









Average full-time equivalent employees

17,206



17,554



18,376





Branches

1,102



1,158



1,177















Taxable-equivalent adjustment

$

8



$

8



$

8



 

Financial Highlights (continued)

(dollars in millions, except per share amounts)





Six months ended





6/30/2019

6/30/2018

Summary of operations







Net interest income (TE)

$

1,974



$

1,939





Noninterest income

1,158



1,261





Total revenue (TE)

3,132



3,200





Provision for credit losses

136



125





Noninterest expense

1,982



1,999





Income (loss) from continuing operations attributable to Key

829



895





Income (loss) from discontinued operations, net of taxes (a)

3



5





Net income (loss) attributable to Key

832



900













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

$

789



$

866





Income (loss) from discontinued operations, net of taxes (a)

3



5





Net income (loss) attributable to Key common shareholders

792



871











Per common share







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

$

.79



$

.82





Income (loss) from discontinued operations, net of taxes (a)







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

.79



.82













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

.78



.81





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







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

.78



.81













Cash dividends paid

.34



.225











Performance ratios







From continuing operations:







Return on average total assets

1.18

%

1.33

%



Return on average common equity

10.96



12.53





Return on average tangible common equity (c)

13.69



15.82





Net interest margin (TE)

3.10



3.17





Cash efficiency ratio (c)

61.9



60.8













From consolidated operations:







Return on average total assets

1.18

%

1.33

%



Return on average common equity

11.01



12.60





Return on average tangible common equity (c)

13.74



15.91





Net interest margin (TE)

3.08



3.15











Asset quality — from continuing operations







Net loan charge-offs

$

129



$

114





Net loan charge-offs to average total loans

.29

%

.26

%









Other data







Average full-time equivalent employees

17,379



18,458











Taxable-equivalent adjustment

16



16





(a)

In September 2009, management decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank National Association.

(b)

Earnings per share may not foot due to rounding.

(c)

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.

(d)

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

(e)

June 30, 2019, ratio is estimated.

(f)

Nonperforming loan balances exclude $518 million, $551 million, and $629 million of purchased credit impaired loans at June 30, 2019, March 31, 2019, and June 30, 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" and "cash efficiency ratio 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, including the impact of tax reform and related actions, 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



Six months ended



6/30/2019

3/31/2019

6/30/2018



6/30/2019

6/30/2018

Tangible common equity to tangible assets at period-end













Key shareholders' equity (GAAP)

$

16,969



$

15,924



$

15,100









Less: Intangible assets (a)

2,952



2,804



2,858









Preferred Stock (b)

1,856



1,421



1,009









Tangible common equity (non-GAAP)

$

12,161



$

11,699



$

11,233









Total assets (GAAP)

$

144,545



$

141,515



$

137,792









Less: Intangible assets (a)

2,952



2,804



2,858









Tangible assets (non-GAAP)

$

141,593



$

138,711



$

134,934









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

8.59

%

8.43

%

8.32

%







Pre-provision net revenue













Net interest income (GAAP)

$

981



$

977



$

979





$

1,958



$

1,923



Plus: Taxable-equivalent adjustment

8



8



8





16



16



Noninterest income

622



536



660





1,158



1,261



Less: Noninterest expense

1,019



963



993





1,982



1,999



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

$

592



$

558



$

654





$

1,150



$

1,201



Average tangible common equity













Average Key shareholders' equity (GAAP)

$

16,531



$

15,702



$

15,032





$

16,119



$

14,961



Less: Intangible assets (average) (c)

2,959



2,813



2,883





2,886



2,899



Preferred stock (average)

1,762



1,450



1,025





1,607



1,025



Average tangible common equity (non-GAAP)

$

11,810



$

11,439



$

11,124





$

11,626



$

11,037



Return on average tangible common equity from continuing operations













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

     shareholders (GAAP)

$

403



$

386



$

464





$

789



$

866



Average tangible common equity (non-GAAP)

11,810



11,439



11,124





11,626



11,037

















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

13.69

%

13.69

%

16.73

%



13.69

%

15.82

%

Return on average tangible common equity consolidated













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

$

405



$

387



$

467





$

792



$

871



Average tangible common equity (non-GAAP)

11,810



11,439



11,124





11,626



11,037

















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

13.75

%

13.72

%

16.84

%



13.74

%

15.91

%

Cash efficiency ratio













Noninterest expense (GAAP)

$

1,019



$

963



$

993





$

1,982



$

1,999



Less: Intangible asset amortization

22



22



25





44



54



Adjusted noninterest expense (non-GAAP)

$

997



$

941



$

968





$

1,938



$

1,945



Less: Notable items (d)

52



26



27





78



27



Adjusted noninterest expense excluding notable items (non-GAAP)

$

945



$

915



$

941





$

1,860



$

1,918

















Net interest income (GAAP)

$

981



$

977



$

979





$

1,958



$

1,923



Plus: Taxable-equivalent adjustment

8



8



8





16



16



Noninterest income

622



536



660





1,158



1,261



Total taxable-equivalent revenue (non-GAAP)

$

1,611



$

1,521



$

1,647





$

3,132



$

3,200



Plus: Notable items (d)





(36)







(36)



Adjusted total taxable-equivalent revenue excluding notable items (non-GAAP)

$

1,611



$

1,521



$

1,611





$

3,132



$

3,164

















Cash efficiency ratio (non-GAAP)

61.9

%

61.9

%

58.8

%



61.9

%

60.8

%















Cash efficiency ratio excluding notable items (non-GAAP)

58.7

%

60.2

%

58.4

%



59.4

%

60.6

%

 

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)







Three

months

ended







6/30/2019

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





Common Equity Tier 1 under current RCR

$

12,283





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)

$

12,283













Net risk-weighted assets under current RCR

$

127,912





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







Mortgage servicing assets (g)

822







Deferred tax assets

165







All other assets







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

$

128,899













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

9.53

%



(a)

For the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, intangible assets exclude $10 million, $12 million, and $20 million, respectively, of period-end purchased credit card receivables.

(b)

Net of capital surplus.

(c)

For the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, average intangible assets exclude $11 million, $13 million, and $21 million, respectively, of average purchased credit card receivables. For the six months ended June 30, 2019, and June 30, 2018, average intangible assets exclude $12 million and $23 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)



















6/30/2019

3/31/2019

6/30/2018

Assets









Loans

$

91,937



$

90,178



$

88,222





Loans held for sale

1,790



894



1,418





Securities available for sale

21,528



20,854



17,367





Held-to-maturity securities

10,878



11,234



12,277





Trading account assets

1,005



979



833





Short-term investments

2,443



2,511



2,646





Other investments

632



646



709







Total earning assets

130,213



127,296



123,472





Allowance for loan and lease losses

(890)



(883)



(887)





Cash and due from banks

607



611



784





Premises and equipment

829



849



892





Goodwill

2,664



2,516



2,516





Other intangible assets

298



300



361





Corporate-owned life insurance

4,201



4,184



4,147





Accrued income and other assets

5,633



5,596



5,285





Discontinued assets

990



1,046



1,222







Total assets

$

144,545



141,515



137,792















Liabilities









Deposits in domestic offices:











NOW and money market deposit accounts

$

63,619



$

61,380



$

55,059







Savings deposits

4,747



4,839



6,199







Certificates of deposit ($100,000 or more)

8,084



8,396



7,547







Other time deposits

5,524



5,573



4,943







Total interest-bearing deposits

81,974



80,188



73,748







Noninterest-bearing deposits

27,972



27,987



30,800







Total deposits

109,946



108,175



104,548





Federal funds purchased and securities sold under repurchase agreements

161



266



1,667





Bank notes and other short-term borrowings

720



679



639





Accrued expense and other liabilities

2,435



2,301



1,983





Long-term debt

14,312



14,168



13,853







Total liabilities

127,574



125,589



122,690















Equity









Preferred stock

1,900



1,450



1,025





Common shares

1,257



1,257



1,257





Capital surplus

6,266



6,259



6,315





Retained earnings

12,005



11,771



10,970





Treasury stock, at cost

(4,457)



(4,283)



(3,382)





Accumulated other comprehensive income (loss)

(2)



(530)



(1,085)







Key shareholders' equity

16,969



15,924



15,100





Noncontrolling interests

2



2



2







Total equity

16,971



15,926



15,102



Total liabilities and equity

$

144,545



$

141,515



$

137,792















Common shares outstanding (000)

1,003,114



1,013,186



1,058,944



 



Consolidated Statements of Income

(dollars in millions, except per share amounts)







Three months ended



Six months ended







6/30/2019

3/31/2019

6/30/2018



6/30/2019

6/30/2018

Interest income















Loans

$

1,082



$

1,066



$

1,000





$

2,148



$

1,940





Loans held for sale

15



13



16





28



28





Securities available for sale

135



129



97





264



192





Held-to-maturity securities

67



68



72





135



141





Trading account assets

9



8



7





17



14





Short-term investments

17



16



8





33



16





Other investments

4



4



5





8



11







Total interest income

1,329



1,304



1,205





2,633



2,342



Interest expense















Deposits

223



202



112





425



203





Federal funds purchased and securities sold under repurchase agreements



1



5





1



9





Bank notes and other short-term borrowings

5



4



7





9



13





Long-term debt

120



120



102





240



194







Total interest expense

348



327



226





675



419



Net interest income

981



977



979





1,958



1,923



Provision for credit losses

74



62



64





136



125



Net interest income after provision for credit losses

907



915



915





1,822



1,798



Noninterest income















Trust and investment services income

122



115



128





237



261





Investment banking and debt placement fees

163



110



155





273



298





Service charges on deposit accounts

83



82



91





165



180





Operating lease income and other leasing gains

44



37



(6)





81



26





Corporate services income

53



55



61





108



123





Cards and payments income

73



66



71





139



133





Corporate-owned life insurance income

33



32



32





65



64





Consumer mortgage income

10



8



7





18



14





Mortgage servicing fees

24



21



22





45



42





Other income (a)

17



10



99





27



120







Total noninterest income

622



536



660





1,158



1,261



Noninterest expense















Personnel

589



563



586





1,152



1,180





Net occupancy

73



72



79





145



157





Computer processing

56



54



51





110



103





Business services and professional fees

45



44



51





89



92





Equipment

24



24



26





48



52





Operating lease expense

32



26



30





58



57





Marketing

24



19



26





43



51





FDIC assessment

9



7



21





16



42





Intangible asset amortization

22



22



25





44



54





OREO expense, net

4



3







7



2





Other expense

141



129



98





270



209







Total noninterest expense

1,019



963



993





1,982



1,999



Income (loss) from continuing operations before income taxes

510



488



582





998



1,060





Income taxes

87



82



103





169



165



Income (loss) from continuing operations

423



406



479





829



895





Income (loss) from discontinued operations, net of taxes

2



1



3





3



5



Net income (loss)

425



407



482





832



900





Less:  Net income (loss) attributable to noncontrolling interests













Net income (loss) attributable to Key

$

425



$

407



$

482





$

832



$

900





















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

$

403



$

386



$

464





$

789



$

866



Net income (loss) attributable to Key common shareholders

405



387



467





792



871



Per common share













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

$

.40



$

.38



$

.44





$

.79



$

.82



Income (loss) from discontinued operations, net of taxes













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

.40



.38



.44





.79



.82



Per common share — assuming dilution













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

$

.40



$

.38



$

.44





$

.78



$

.81



Income (loss) from discontinued operations, net of taxes













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

.40



.38



.44





.78



.81





















Cash dividends declared per common share

$

.17



$

.17



$

.12





$

.34



$

.225





















Weighted-average common shares outstanding (000)

999,163



1,006,717



1,052,652,000





1,003,047,000



1,054,378,000





Effect of common share options and other stock awards

8,801



9,787



13,141,000





9,318,000



14,561,000



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

1,007,964



1,016,504



1,065,793,000





1,012,365,000



1,068,939,000





(a)

For the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, and the six months ended June 30, 2019 and June 30, 2018, net securities gains (losses) totaled less than $1 million. For the three months ended June 30, 2019, March 31, 2019, and June 30, 2018, and the six months ended June 30, 2019 and June 30, 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)





Second Quarter 2019



First Quarter 2019



Second 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)

$

47,227



$

547



4.65

%



$

45,998



$

532



4.68

%



$

45,030



$

485



4.32

%



Real estate — commercial mortgage

13,866



175



5.06





14,325



179



5.07





14,055



172



4.89





Real estate — construction

1,423



20



5.41





1,561



21



5.48





1,789



23



4.97





Commercial lease financing

4,476



41



3.65





4,497



41



3.66





4,550



41



3.61





Total commercial loans

66,992



783



4.69





66,381



773



4.71





65,424



721



4.41





Real estate — residential mortgage

5,790



58



4.03





5,543



56



4.02





5,451



54



3.97





Home equity loans

10,701



135



5.05





10,995



137



5.07





11,601



135



4.67





Consumer direct loans

2,352



43



7.39





1,862



37



8.06





1,768



33



7.54





Credit cards

1,091



31



11.26





1,105



32



11.80





1,080



30



11.21





Consumer indirect loans

3,859



40



4.15





3,763



39



4.13





3,320



35



4.26





Total consumer loans

23,793



307



5.17





23,268



301



5.23





23,220



287



4.97





Total loans

90,785



1,090



4.81





89,649



1,074



4.85





88,644



1,008



4.56





Loans held for sale

1,302



15



4.56





1,121



13



4.74





1,375



16



4.50





Securities available for sale (b), (e)

21,086



135



2.54





20,206



129



2.51





17,443



97



2.13





Held-to-maturity securities (b)

11,058



67



2.41





11,369



68



2.41





12,226



72



2.36





Trading account assets

1,124



9



3.28





957



8



3.36





943



7



3.21





Short-term investments

3,200



17



2.23





2,728



16



2.28





2,015



8



1.76





Other investments (e)

640



4



2.00





654



4



2.69





710



5



3.08





Total earning assets

129,195



1,337



4.14





126,684



1,312



4.17





123,356



1,213



3.92





Allowance for loan and lease losses

(881)









(878)









(875)









Accrued income and other assets

14,321









14,314









13,897









Discontinued assets

1,009









1,066









1,241









Total assets

$

143,644









$

141,186









$

137,619







Liabilities

























NOW and money market deposit accounts

$

63,071



147



.93





$

60,773



130



.87





$

54,749



59



.44





Savings deposits

4,781



1



.09





4,811



1



.08





6,276



5



.35





Certificates of deposit ($100,000 or more)

8,147



48



2.37





8,376



47



2.25





7,516



32



1.70





Other time deposits

5,569



27



1.93





5,501



24



1.79





4,949



16



1.22





Total interest-bearing deposits

81,568



223



1.10





79,461



202



1.03





73,490



112



.61





Federal funds purchased and securities sold 

     under repurchase agreements

194





.20





409



1



.89





1,475



5



1.41





Bank notes and other short-term borrowings

842



5



2.46





649



4



2.75





1,116



7



2.27





Long-term debt (f), (g)

13,213



120



3.67





13,160



120



3.67





12,748



102



3.20





Total interest-bearing liabilities

95,817



348



1.46





93,679



327



1.42





88,829



226



1.02





Noninterest-bearing deposits

28,033









28,115









30,513









Accrued expense and other liabilities

2,253









2,622









2,002









Discontinued liabilities (g)

1,009









1,066









1,241









Total liabilities

127,112









125,482









122,585







Equity

























Key shareholders' equity

16,531









15,702









15,032









Noncontrolling interests

1









2









2









Total equity

16,532









15,704









15,034









Total liabilities and equity

$

143,644









$

141,186









$

137,619







Interest rate spread (TE)





2.68

%







2.75

%







2.90

%

Net interest income (TE) and net interest margin 

     (TE)



989



3.06

%





985



3.13

%





987



3.19

%

TE adjustment (b)



8









8









8







Net interest income, GAAP basis



$

981









$

977









$

979







(a)

Results are from continuing operations.  Interest excludes the interest associated with the liabilities referred to in (g) below, calculated using a matched funds transfer pricing methodology.

(b)

Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 21% for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018.

(c)

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

(d)

Commercial and industrial average balances include $141 million, $133 million, and $126 million of assets from commercial credit cards for the three months ended June 30, 2019, March 31, 2019, and June 30, 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)





Six months ended June 30, 2019



Six months ended June 30, 2018





Average



Yield/



Average



Yield/





Balance

Interest (a)

Rate (a)



Balance

Interest (a)

Rate (a)

Assets

















Loans: (b), (c)

















Commercial and industrial (d)

$

46,616



$

1,079



4.67

%



$

43,888



$

919



4.22

%



Real estate — commercial mortgage

14,094



354



5.07





14,070



337

4.83





Real estate — construction

1,492



41



5.45





1,872



45



4.80





Commercial lease financing

4,486



82



3.66





4,607



82



3.57





Total commercial loans

66,688



1,556



4.70





64,437



1,383



4.32





Real estate — residential mortgage

5,667



114



4.02





5,465



108



3.96





Home equity loans

10,847



272



5.06





11,738



269



4.61





Consumer direct loans

2,109



80



7.68





1,767



66



7.53





Credit cards

1,098



63



11.53





1,080



60



11.27





Consumer indirect loans

3,811



79



4.14





3,303



70



4.28





Total consumer loans

23,532



608



5.20





23,353



573



4.94





Total loans

90,220



2,164



4.83





87,790



1,956



4.49





Loans held for sale

1,212



28



4.64





1,282



28



4.31





Securities available for sale (b), (e)

20,649



264



2.52





17,665



192



2.09





Held-to-maturity securities (b)

11,213



135



2.41





12,134



141



2.33





Trading account assets

1041



17



3.31





925



14



3.11





Short-term investments

2,965



33



2.25





2,032



16



1.64





Other investments (e)

647



8



2.35





716



11



3.02





Total earning assets

127,947



2,649



4.16





122,544



2,358



3.85





Allowance for loan and lease losses

(879)









(875)









Accrued income and other assets

14,317









13,982









Discontinued assets

1,037









1,272









Total assets

$

142,422









$

136,923







Liabilities

















NOW and money market deposit accounts

$

61,928



277



.90





$

54,129



105



.39





Savings deposits

4,796



2



.08





6,254



10



.32





Certificates of deposit ($100,000 or more)

8,261



95



2.31





7,246



59



1.64





Other time deposits

5,535



51



1.86





4,907



29



1.17





Total interest-bearing deposits

80,520



425



1.06





72,536



203



.56





Federal funds purchased and securities sold under repurchase agreements

301



1



.67





1448



9



1.26





Bank notes and other short-term borrowings

746



9



2.59





1,228



13



2.05





Long-term debt (f), (g)

13,187



240



3.67





12,608



194



3.08





Total interest-bearing liabilities

94,754



675



1.44





87,820



419



.96





Noninterest-bearing deposits

28,074









30,747









Accrued expense and other liabilities

2,437









2,121









Discontinued liabilities (g)

1,037









1,272









Total liabilities

126,302









121,960







Equity

















Key shareholders' equity

16,119









14,961









Noncontrolling interests

1









2









Total equity

16,120









14,963









Total liabilities and equity

$

142,422









$

136,923







Interest rate spread (TE)





2.72

%







2.89

%

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



1,974

3.10

%





1,939



3.17

%

TE adjustment (b)



16







16







Net interest income, GAAP basis



$

1,958









$

1,923







(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 six months ended June 30, 2019, and June 30, 2018, respectively.

(c)

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

(d)

Commercial and industrial average balances include $137 million and $123 million of assets from commercial credit cards for the six months ended June 30, 2019, and June 30, 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



Six months ended



6/30/2019

3/31/2019

6/30/2018



6/30/2019

6/30/2018

Personnel (a)

$

589



$

563



$

586





$

1,152



$

1,180



Net occupancy

73



72



79





145



157



Computer processing

56



54



51





110



103



Business services and professional fees

45



44



51





89



92



Equipment

24



24



26





48



52



Operating lease expense

32



26



30





58



57



Marketing

24



19



26





43



51



FDIC assessment

9



7



21





16



42



Intangible asset amortization

22



22



25





44



54



OREO expense, net

4



3







7



2



Other expense

141



129



98





270



209



Total noninterest expense

$

1,019



$

963



$

993





$

1,982



$

1,999



Average full-time equivalent employees (b)

17,206



17,554



18,376





17,379



18,458





(a)

Additional detail provided in Personnel Expense table below.

(b)

The number of average full-time equivalent employees has not been adjusted for discontinued operations.

 

Personnel Expense

(in millions)

















Three months ended



Six months ended



6/30/2019

3/31/2019

6/30/2018



6/30/2019

6/30/2018

Salaries and contract labor

$

322



$

320



$

341





$

642



$

680



Incentive and stock-based compensation

155



132



147





287



292



Employee benefits

83



93



82





176



187



Severance

29



18



16





47



21



Total personnel expense

$

589



$

563



$

586





$

1,152



$

1,180



 



Loan Composition

(dollars in millions)





















Percent change 6/30/2019 vs



6/30/2019

3/31/2019

6/30/2018



3/31/2019

6/30/2018

Commercial and industrial (a)

$

48,544



$

46,474



$

44,569





4.5

%

8.9

%

Commercial real estate:













Commercial mortgage

13,299



14,344



14,162





(7.3)



(6.1)



Construction

1,439



1,420



1,736





1.3



(17.1)



Total commercial real estate loans

14,738



15,764



15,898





(6.5)



(7.3)



Commercial lease financing (b)

4,578



4,507



4,509





1.6



1.5



Total commercial loans

67,860



66,745



64,976





1.7



4.4



Residential — prime loans:













Real estate — residential mortgage

6,053



5,615



5,452





7.8



11.0



Home equity loans

10,575



10,846



11,519





(2.5)



(8.2)



Total residential — prime loans

16,628



16,461



16,971





1.0



(2.0)



Consumer direct loans

2,350



2,165



1,785





8.5



31.7



Credit cards

1,096



1,086



1,094





.9



.2



Consumer indirect loans

4,003



3,721



3,396





7.6



17.9



Total consumer loans

24,077



23,433



23,246





2.7



3.6



Total loans (c)

$

91,937



$

90,178



$

88,222





2.0

%

4.2

%



(a)

Loan balances include $143 million, $133 million, and $126 million of commercial credit card balances at June 30, 2019, March 31, 2019, and June 30, 2018, respectively.

(b)

Commercial lease financing includes receivables held as collateral for a secured borrowing of $11 million, $12 million, and $16 million at June 30, 2019, March 31, 2019, and June 30, 2018, respectively. Principal reductions are based on the cash payments received from these related receivables.

(c)

Total loans exclude loans of $964 million at June 30, 2019, $1.0 billion at March 31, 2019, and $1.2 billion at June 30, 2018, related to the discontinued operations of the education lending business.

 



Loans Held for Sale Composition

(dollars in millions)

























Percent change 6/30/2019 vs



6/30/2019

3/31/2019

6/30/2018



3/31/2019

6/30/2018

Commercial and industrial

$

255



$

99



$

217





157.6

%

17.5

%

Real estate — commercial mortgage

1,123



724



1,139





55.1



(1.4)



Commercial lease financing





4





N/M



N/M



Real estate — residential mortgage

164



71



58





131.0



182.8



Consumer direct loans

248









N/M



N/M



Total loans held for sale (a)

$

1,790



$

894



$

1,418





100.2

%

26.2

%



(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $164 million at June 30, 2019, $71 million at March 31, 2019, and $58 million at June 30, 2018.

 

Summary of Changes in Loans Held for Sale

(in millions)















2Q19

1Q19

4Q18

3Q18

2Q18

Balance at beginning of period

$

894



$

1,227



$

1,618



$

1,418



$

1,667



New originations

3,218



1,676



5,057



2,976



2,665



Transfers from (to) held to maturity, net

42



6



24



4



(4)



Loan sales

(2,358)



(2,017)



(5,448)



(2,491)



(2,909)



Loan draws (payments), net

(6)



2



(24)



(289)



(1)



Balance at end of period (a)

$

1,790



$

894



$

1,227



$

1,618



$

1,418





(a)

Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $164 million at June 30, 2019, $71 million at March 31, 2019, $54 million at December 31, 2018, $87 million at September 30, 2018, and $58 million at June 30, 2018.

 



Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)

















Three months ended



Six months ended



6/30/2019

3/31/2019

6/30/2018



6/30/2019

6/30/2018

Average loans outstanding

$

90,785



$

89,649



$

88,644





$

90,220



$

87,790



Allowance for loan and lease losses at beginning of period

$

883



$

883



$

881





$

883



$

877



Loans charged off:













Commercial and industrial

30



36



39





66



76

















Real estate — commercial mortgage

1



5



2





6



3



Real estate — construction



4







4





Total commercial real estate loans

1



9



2





10



3



Commercial lease financing

16



8



4





24



5



Total commercial loans

47



53



45





100



84



Real estate — residential mortgage

1



1







2



1



Home equity loans

6



4



6





10



10



Consumer direct loans

10



10



9





20



17



Credit cards

12



11



12





23



24



Consumer indirect loans

8



8



7





16



15



Total consumer loans

37



34



34





71



67



Total loans charged off

84



87



79





171



151



Recoveries:













Commercial and industrial

6



10



7





16



13

















Real estate — commercial mortgage

1



1



1





2



1



Real estate — construction











1



Total commercial real estate loans

1



1



1





2



2



Commercial lease financing

2



1







3



1



Total commercial loans

9



12



8





21



16



Real estate — residential mortgage



1







1





Home equity loans

2



2



3





4



6



Consumer direct loans

2



1



2





3



4



Credit cards

2



2



2





4



3



Consumer indirect loans

4



5



4





9



8



Total consumer loans

10



11



11





21



21



Total recoveries

19



23



19





42



37



Net loan charge-offs

(65)



(64)



(60)





(129)



(114)



Provision (credit) for loan and lease losses

72



64



66





136



124



Allowance for loan and lease losses at end of period

$

890



$

883



$

887





$

890



$

887

















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

$

62



$

64



$

60





$

64



$

57



Provision (credit) for losses on lending-related commitments

2



(2)



(2)







1



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

$

64



$

62



$

58





$

64



$

58

















Total allowance for credit losses at end of period

$

954



$

945



$

945





$

954



$

945

















Net loan charge-offs to average total loans

.29

%

.29

%

.27

%



.29

%

.26

%

Allowance for loan and lease losses to period-end loans

.97



.98



1.01





.97



1.01



Allowance for credit losses to period-end loans

1.04



1.05



1.07





1.04



1.07



Allowance for loan and lease losses to nonperforming loans

158.6



161.1



162.8





158.6



162.8



Allowance for credit losses to nonperforming loans

170.1



172.4



173.4





170.1



173.4

















Discontinued operations — education lending business:













Loans charged off

$

4



$

4



$

3





$

8



$

7



Recoveries

1



1



1





2



3



Net loan charge-offs

$

(3)



$

(3)



$

(2)





$

(6)



$

(4)





(a)

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

 

Asset Quality Statistics From Continuing Operations

(dollars in millions)



2Q19

1Q19

4Q18

3Q18

2Q18

Net loan charge-offs

$

65



$

64



$

60



$

60



$

60



Net loan charge-offs to average total loans

.29

%

.29

%

.27

%

.27

%

.27

%

Allowance for loan and lease losses

$

890



$

883



$

883



$

887



$

887



Allowance for credit losses (a)

954



945



946



947



945



Allowance for loan and lease losses to period-end loans

.97

%

.98

%

.99

%

.99

%

1.01

%

Allowance for credit losses to period-end loans

1.04



1.05



1.06



1.06



1.07



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

158.6



161.1



162.9



137.5



162.8



Allowance for credit losses to nonperforming loans (b)

170.1



172.4



174.5



146.8



173.4



Nonperforming loans at period end (b)

$

561



$

548



$

542



$

645



$

545



Nonperforming assets at period end (b)

608



597



577



674



571



Nonperforming loans to period-end portfolio loans (b)

.61

%

.61

%

.61

%

.72

%

.62

%

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

     assets (b)

.66



.66



.64



.75



.65





(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 $518 million, $551 million, $575 million, $606 million, and $629 million of purchased credit impaired loans at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, and June 30, 2018, respectively.

 



Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(dollars in millions)



6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

Commercial and industrial

$

189



$

170



$

152



$

227



$

178















Real estate — commercial mortgage

85



82



81



98



42



Real estate — construction

2



2



2



2



2



Total commercial real estate loans

87



84



83



100



44



Commercial lease financing

7



9



9



10



21



Total commercial loans

283



263



244



337



243



Real estate — residential mortgage

62



64



62



62



55



Home equity loans

191



195



210



221



222



Consumer direct loans

3



3



4



4



4



Credit cards

2



3



2



2



2



Consumer indirect loans

20



20



20



19



19



Total consumer loans

278



285



298



308



302



Total nonperforming loans (a)

561



548



542



645



545



OREO

38



40



35



28



26



Other nonperforming assets

9



9





1





Total nonperforming assets (a)

$

608



$

597



$

577



$

674



$

571



Accruing loans past due 90 days or more

74



118



112



87



103



Accruing loans past due 30 through 89 days

299



290



312



368



429



Restructured loans — accruing and nonaccruing (b)

395



365



399



366



347



Restructured loans included in nonperforming loans (b)

228



198



247



211



184



Nonperforming assets from discontinued operations — education lending business

7



7



8



6



6



Nonperforming loans to period-end portfolio loans (a)

.61

%

.61

%

.61

%

.72

%

.62

%

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

     nonperforming assets (a)

.66



.66



.64



.75



.65





(a)

Nonperforming loan balances exclude $518 million, $551 million, $575 million, $606 million, and $629 million of purchased credit impaired loans at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, and June 30, 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)



2Q19

1Q19

4Q18

3Q18

2Q18

Balance at beginning of period

$

548



$

542



$

645



$

545



$

541



Loans placed on nonaccrual status

189



196



103



263



175



Charge-offs

(84)



(91)



(92)



(81)



(78)



Loans sold

(38)



(18)



(16)





(1)



Payments

(23)



(22)



(53)



(57)



(33)



Transfers to OREO

(4)



(8)



(10)



(5)



(5)



Transfers to other nonperforming assets



(13)









Loans returned to accrual status

(27)



(38)



(35)



(20)



(54)



Balance at end of period (a)

$

561



$

548



$

542



$

645



$

545





(a)

Nonperforming loan balances exclude $518 million, $551 million, $575 million, $606 million, and $629 million of purchased credit impaired loans at June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, and June 30, 2018, respectively.

 



Line of Business Results

(dollars in millions)

































Percentage change 2Q19 vs.



2Q19

1Q19

4Q18

3Q18

2Q18



1Q19

2Q18

Consumer Bank

















Summary of operations

















Total revenue (TE)

$

825



$

805



$

829



$

809



$

810





2.5

%

1.9

%

Provision for credit losses

40



45



43



32



39





(11.1)



2.6



Noninterest expense

560



548



561



563



569





2.2



(1.6)



Net income (loss) attributable to Key

172



161



172



163



155





6.8



11.0



Average loans and leases

31,881



31,321



31,241



31,172



31,276





1.8



1.9



Average deposits

72,303



71,288



70,426



69,124



68,279





1.4



5.9



Net loan charge-offs

40



34



40



36



39





17.6



2.6



Net loan charge-offs to average total loans

.50

%

.44

%

.51

%

.46

%

.50

%



N/A

N/A

Nonperforming assets at period end

$

366



$

365



$

364



$

380



$

371





.3



(1.3)



Return on average allocated equity

21.12

%

20.38

%

20.90

%

19.78

%

18.88

%



N/A

N/A



















Commercial Bank

















Summary of operations

















Total revenue (TE)

$

759



$

701



$

771



$

753



$

721





8.3

%

5.3

%

Provision for credit losses

33



16



17



31



25





106.3



32.0



Noninterest expense

381



364



395



379



391





4.7



(2.6)



Net income (loss) attributable to Key

283



257



307



279



256





10.1



10.5



Average loans and leases

57,924



57,292



56,915



56,135



56,175





1.1



3.1



Average loans held for sale

1,168



1,066



2,250



1,042



1,301





9.6



(10.2)



Average deposits

35,961



34,418



35,113



33,603



33,169





4.5



8.4



Net loan charge-offs

23



30



19



26



22





(23.3)



4.5



Net loan charge-offs to average total loans

.16

%

.21

%

.13

%

.18

%

.16

%



N/A

N/A

Nonperforming assets at period end

$

235



$

225



$

205



$

280



$

187





4.4



25.7



Return on average allocated equity

24.57

%

23.26

%

27.10

%

24.89

%

22.99

%



N/A

N/A



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

 

Notable Items

(in millions)

















Three months ended



Six months ended



6/30/2019

3/31/2019

6/30/2018



6/30/2019

6/30/2018

Gain on sale of Key Insurance and Benefits Services





$

78







$

78



Expenses related to the sale of Key Insurance and Benefits Services





5







5



Net gain on sale of Key Insurance and Benefits Services





73







73

















Efficiency initiative expenses

$

(50)



$

(26)



(22)





$

(76)



(22)



Laurel Road acquisition expenses

(2)









(2)





Lease residual loss





(42)







(42)



Total notable items

$

(52)



$

(26)



$

9





$

(78)



$

9



Income taxes

(12)



(6)



7





(18)



7



Total notable items, after tax

$

(40)



$

(20)



$

2





$

(60)



$

2



 

(PRNewsfoto/KeyCorp)

 

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/keycorp-reports-second-quarter-2019-net-income-of-403-million-or-40-per-common-share-300889311.html

SOURCE KeyCorp

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