Strong, core funded balance sheet: period-end deposits up $1.0 billion compared to the prior quarter

Solid credit quality: net charge-offs to average loans of 17 basis points

Built capital: Common Equity Tier 1 of 9.2%(a)

Disciplined expense management: expenses down 9% from prior quarter and relatively stable versus the year-ago period

Net income includes $87 million, or $.09 per share from allowance build

CLEVELAND, July 20, 2023 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced net income from continuing operations attributable to Key common shareholders of $250 million, or $.27 per diluted common share for the second quarter of 2023. This compared to $275 million, or $.30 per diluted common share, for the first quarter of 2023 and $504 million, or $.54 per diluted common share, for the second quarter of 2022.

 

Comments from Chairman and CEO, Chris Gorman

"Key's second quarter results reflect our durable relationship-based business model, sound risk management, and strong balance sheet. Our longstanding commitment to primacy continues to serve us well, resulting in period-end deposit growth of $1 billion from the prior quarter.

Additionally, our results demonstrate our ongoing commitment to expense discipline. Expenses were down nearly 9% from the prior quarter, and stable compared to last year. We remain focused on improving productivity and efficiency across our businesses.

Credit quality continues to be a strength for Key, with net charge-offs to average loans of 17 basis points. In the second quarter, we added to our allowance, which represents over 7 years of annualized net charge-offs.  

We continue to manage capital consistent with our capital priorities, which include supporting our relationship clients and dividends. At the end of the second quarter, Key's Common Equity Tier 1 ratio was 9.2%, up over 10 basis points from the prior quarter. 

I am confident in the long-term outlook for Key and in our ability to deliver value to all of our stakeholders."

 

(a)

June 30, 2023 ratio is estimated and reflects Key's election to adopt the CECL optional transition provision.

 

Selected Financial Highlights













Dollars in millions, except per share data



Change 2Q23 vs.


2Q23

1Q23

2Q22

1Q23

2Q22

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

$      250

$      275

$      504

(9.1) %

(50.4) %

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

.27

.30

.54

(10.0)

(50.0)

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

11.04 %

13.16 %

20.90 %

N/A

N/A

Return on average total assets from continuing operations

.58

.66

1.16

N/A

N/A

Common Equity Tier 1 ratio (b)

9.2

9.1

9.2

N/A

N/A

Book value at period end

$   12.18

$   12.70

$   13.48

(4.1)

(9.6)

Net interest margin (TE) from continuing operations

2.12 %

2.47 %

2.61 %

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)

June 30, 2023 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 

INCOME STATEMENT HIGHLIGHTS












Revenue












Dollars in millions



Change 2Q23 vs.

2Q23

1Q23

2Q22

1Q23

2Q22

Net interest income (TE)

$        986

$      1,106

$      1,104

(10.8) %

(10.7) %

Noninterest income

609

608

688

.2

(11.5)

Total revenue

$      1,595

$      1,714

$      1,792

(6.9) %

(11.0) %







TE = Taxable Equivalent

   

Taxable-equivalent net interest income was $986 million for the second quarter of 2023 and the net interest margin was 2.12%. Compared to the second quarter of 2022, net interest income decreased $118 million, and the net interest margin decreased by 49 basis points. The decline in net interest income and the net interest margin reflects higher interest-bearing deposit costs and a shift in funding mix to higher cost deposits and borrowings.

Compared to the first quarter of 2023, taxable-equivalent net interest income decreased by $120 million, and the net interest margin decreased by 35 basis points. The decline in net interest income and the net interest margin reflects higher interest-bearing deposit costs and a shift in funding mix to higher-cost deposits and borrowings.

Noninterest Income












Dollars in millions



Change 2Q23 vs.

2Q23

1Q23

2Q22

1Q23

2Q22

Trust and investment services income

$        126

$        128

$        137

(1.6) %

(8.0) %

Investment banking and debt placement fees

120

145

149

(17.2)

(19.5)

Cards and payments income

85

81

85

4.9

—

Service charges on deposit accounts

69

67

96

3.0

(28.1)

Corporate services income

86

76

96

13.2

(10.4)

Commercial mortgage servicing fees

50

46

45

8.7

11.1

Corporate-owned life insurance income

32

29

35

10.3

(8.6)

Consumer mortgage income

14

11

14

27.3

—

Operating lease income and other leasing gains

23

25

28

(8.0)

(17.9)

Other income

4

—

3

N/M

(33.3)

Total noninterest income

$        609

$        608

$        688

.2 %

(11.5) %







 

Compared to the second quarter of 2022, noninterest income decreased by $79 million. The decrease was driven by a $29 million decline in investment banking and debt placement fees, reflecting lower merger and acquisition advisory fees and lower syndication fees. Service charges on deposit accounts decreased $27 million, reflecting a reduction in overdraft and non-sufficient funds fees and lower account analysis fees related to the interest rate environment. Additionally, trust and investment services declined $11 million, reflecting a decline in fixed income and equity trading, and corporate services income decreased $10 million.

Compared to the first quarter of 2023, noninterest income increased by $1 million. The increase was driven by broad-based growth across most fee categories, including a $10 million increase in corporate services income, reflecting an increase in income associated with customer derivatives trading. These increases were mostly offset by a $25 million decline in investment banking and debt placement fees due to lower merger and acquisition advisory fees and lower syndication fees.

Noninterest Expense












Dollars in millions



Change 2Q23 vs.

2Q23

1Q23

2Q22

1Q23

2Q22

Personnel expense

$        622

$        701

$        607

(11.3) %

2.5 %

Net occupancy

65

70

78

(7.1)

(16.7)

Computer processing

95

92

78

3.3

21.8

Business services and professional fees

41

45

52

(8.9)

(21.2)

Equipment

22

22

26

—

(15.4)

Operating lease expense

21

20

27

5.0

(22.2)

Marketing

29

21

34

38.1

(14.7)

Other expense

181

205

176

(11.7)

2.8

Total noninterest expense

$      1,076

$      1,176

$      1,078

(8.5) %

(.2) %







 

Compared to the second quarter of 2022, noninterest expense decreased by $2 million. The decline was driven by a $13 million decrease in net occupancy expense as we exit corporate facilities and a $11 million decline in business services and professional fees. Partly offsetting the decline was an increase in computer processing expense of $17 million, due to technology investments, and a $15 million increase in personnel expense, due to an increase in salaries as a result of higher merit increases and employee benefits.

Compared to the first quarter of 2023, noninterest expense decreased $100 million. The decline was primarily driven by a $79 million decrease in personnel expense, reflective of lower incentive and stock-based compensation and a decline in severance expense. Additionally, other expense declined by $24 million, reflecting higher expenses related to corporate real estate rationalization in the prior quarter.

BALANCE SHEET HIGHLIGHTS












Average Loans












Dollars in millions



Change 2Q23 vs.

2Q23

1Q23

2Q22

1Q23

2Q22

Commercial and industrial (a)

$    61,426

$    60,281

$    53,858

1.9 %

14.1 %

Other commercial loans

22,623

22,778

21,173

(.7)

6.8

Total consumer loans

36,623

36,778

34,107

(.4)

7.4

Total loans

$  120,672

$  119,837

$  109,138

.7 %

10.6 %







 

(a)

Commercial and industrial average loan balances include $194 million, $178 million, and $153 million of assets from commercial credit cards at June 30, 2023, March 31, 2023, and June 30, 2022, respectively.

 

Average loans were $120.7 billion for the second quarter of 2023, an increase of $11.5 billion compared to the second quarter of 2022. Commercial loans increased by $9.0 billion, largely reflecting growth in commercial and industrial loans of $7.6 billion, as well as an increase in commercial mortgage real estate loans of $1.5 billion. Consumer loans increased $2.5 billion, largely driven by Key's residential mortgage business.

Compared to the first quarter of 2023, average loans increased by $835 million. The increase was  driven by commercial loans, reflecting growth in commercial and industrial loans.

Average Deposits












Dollars in millions



Change 2Q23 vs.

2Q23

1Q23

2Q22

1Q23

2Q22

Non-time deposits

$  127,687

$  132,907

$  144,012

(3.9) %

(11.3) %

Certificates of deposit ($100,000 or more)

3,851

2,392

1,487

61.0

159.0

Other time deposits

11,365

8,106

1,972

40.2

476.3

Total deposits

$  142,903

$  143,405

$  147,471

(.4) %

(3.1) %







Cost of total deposits

1.49 %

.99 %

.06 %

N/A

N/A







N/A = Not Applicable

 

Average deposits totaled $142.9 billion for the second quarter of 2023, a decrease of $4.6 billion compared to the year-ago quarter. The decline reflects elevated inflation-related spend, changing client behavior due to higher interest rates, and a normalization of pandemic-related deposits.

Compared to the first quarter of 2023, average deposits decreased by $502 million. The decline was driven by changing client behavior due to higher interest rates and normal seasonal deposit outflows in commercial deposits.

ASSET QUALITY












Dollars in millions



Change 2Q23 vs.

2Q23

1Q23

2Q22

1Q23

2Q22

Net loan charge-offs

$       52

$       45

$       44

15.6 %

18.2 %

Net loan charge-offs to average total loans

.17 %

.15 %

.16 %

N/A

N/A

Nonperforming loans at period end

$      431

$      416

$      429

3.6

0.5

Nonperforming assets at period end

462

447

463

3.4

(0.2)

Allowance for loan and lease losses

1,480

1,380

1,099

7.2

34.7

Allowance for credit losses

1,771

1,656

1,272

6.9

39.2

Provision for credit losses

167

139

45

20.1

271.1







Allowance for loan and lease losses to nonperforming loans

343 %

332 %

256 %

N/A

N/A

Allowance for credit losses to nonperforming loans

411

398

297

N/A

N/A







N/A = Not Applicable

 

Key's provision for credit losses was $167 million, compared to $45 million in the second quarter of 2022 and $139 million in the first quarter of 2023. The increase from the year-ago period and prior quarter reflects changes in the economic outlook and portfolio activity.

Net loan charge-offs for the second quarter of 2023 totaled $52 million, or 0.17% of average total loans. These results compare to $44 million, or 0.16%, for the second quarter of 2022 and $45 million, or 0.15%, for the first quarter of 2023. Key's allowance for credit losses was $1.8 billion, or 1.49% of total period-end loans at June 30, 2023, compared to 1.13% at June 30, 2022, and 1.38% at March 31, 2023.

At June 30, 2023, Key's nonperforming loans totaled $431 million, which represented 0.36% of period-end portfolio loans. These results compare to 0.38% at June 30, 2022, and 0.35% at March 31, 2023. Nonperforming assets at June 30, 2023, totaled $462 million, and represented 0.39% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to 0.41% at June 30, 2022, and 0.37% at March 31, 2023.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at June 30, 2023.

Capital Ratios







6/30/2023

3/31/2023

6/30/2022

Common Equity Tier 1 (a)

9.2 %

9.1 %

9.2 %

Tier 1 risk-based capital (a)

10.7

10.6

10.4

Total risk-based capital (a)

13.0

12.8

12.0

Tangible common equity to tangible assets (b)

4.5

4.6

5.3

Leverage (a)

8.7

8.8

8.6




 

(a)

June 30, 2023 ratio is estimated and reflects Key's election to adopt the CECL optional transition provision.

(b)

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

 

Key's capital position remained strong in the second quarter of 2023. As shown in the preceding table, at June 30, 2023, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.2% and 10.7%, respectively. Key's tangible common equity ratio was 4.5% at June 30, 2023.

 Key elected the CECL phase-in option provided by regulatory guidance which delayed for two years the estimated impact of CECL on regulatory capital and phases it in over three years beginning in 2022. Effective for the first quarter 2022, Key is now in the three-year transition period. On a fully phased-in basis, Key's Common Equity Tier 1 ratio would be reduced by eight basis points.

Summary of Changes in Common Shares Outstanding











In thousands



Change 2Q23 vs.


2Q23

1Q23

2Q22

1Q23

2Q22

Shares outstanding at beginning of period

935,229

933,325

932,398

.2 %

.3 %

Open market repurchases and return of shares under employee
  compensation plans

(38)

(4,333)

(24)

(99.1)

58.3

Shares issued under employee compensation plans (net of cancellations)

542

6,237

269

(91.3)

101.5

Shares outstanding at end of period

935,733

935,229

932,643

.1 %

.3 %








N/M = Not Meaningful

 

During the second quarter of 2023, Key declared a dividend of $.205 per common share. Additionally, we have $752 million remaining in our share repurchase authorization through the third quarter of 2023.

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 2Q23 vs.


2Q23

1Q23

2Q22

1Q23

2Q22

Revenue from continuing operations (TE)





Consumer Bank

$         803

$         840

$         858

(4.4) %

(6.4) %

Commercial Bank

805

844

874

(4.6)

(7.9)

Other (a)

(13)

30

60

(143.3)

(121.7)

Total

$       1,595

$       1,714

$       1,792

(6.9) %

(11.0) %








Income (loss) from continuing operations attributable to Key





Consumer Bank

$           82

$           89

$         128

(7.9) %

(35.9) %

Commercial Bank

214

255

340

(16.1)

(37.1)

Other (a)

(10)

(33)

62

69.7

(116.1)

Total

$         286

$         311

$         530

(8.0) %

(46.0) %








 

(a)

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

TE = Taxable Equivalent

 

Consumer Bank












Dollars in millions



Change 2Q23 vs.

2Q23

1Q23

2Q22

1Q23

2Q22

Summary of operations





Net interest income (TE)

$         558

$         612

$         604

(8.8) %

(7.6) %

Noninterest income

245

228

254

7.5

(3.5)

Total revenue (TE)

803

840

858

(4.4)

(6.4)

Provision for credit losses

32

60

8

(46.7)

300.0

Noninterest expense

663

663

681

—

(2.6)

Income (loss) before income taxes (TE)

108

117

169

(7.7)

(36.1)

Allocated income taxes (benefit) and TE adjustments

26

28

41

(7.1)

(36.6)

Net income (loss) attributable to Key

$           82

$           89

$         128

(7.9) %

(35.9) %







Average balances





Loans and leases

$     42,934

$     43,086

$     40,827

(.4) %

5.2 %

Total assets

45,761

45,935

43,897

(.4)

4.2

Deposits

82,498

84,637

91,394

(2.5)

(9.7)







Assets under management at period end

$     53,952

$     53,689

$     49,003

.5 %

10.1 %







TE = Taxable Equivalent

 

Additional Consumer Bank Data












Dollars in millions



Change 2Q23 vs.

2Q23

1Q23

2Q22

1Q23

2Q22

Noninterest income





Trust and investment services income

$       101

$       101

$       104

— %

(2.9) %

Service charges on deposit accounts

41

38

59

7.9

(30.5)

Cards and payments income

66

61

62

8.2

6.5

Consumer mortgage income

14

11

14

27.3

—

Other noninterest income

23

17

15

35.3

53.3

Total noninterest income

$       245

$       228

$       254

7.5 %

(3.5) %







Average deposit balances





Money market deposits

$  27,340

$  28,128

$  31,986

(2.8) %

(14.5) %

Demand deposits

23,845

24,849

25,905

(4.0)

(8.0)

Savings deposits

6,298

7,025

7,515

(10.3)

(16.2)

Certificates of deposit ($100,000 or more)

3,550

2,182

1,375

62.7

158.2

Other time deposits

2,864

2,169

1,966

32.0

45.7

Noninterest-bearing deposits

18,601

20,284

22,647

(8.3)

(17.9)

Total deposits

$  82,498

$  84,637

$  91,394

(2.5) %

(9.7) %







Other data





Branches

965

972

993


Automated teller machines

1,255

1,265

1,308









 

Consumer Bank Summary of Operations (2Q23 vs. 2Q22)

  • Key's Consumer Bank recorded net income attributable to Key of $82 million for the second quarter of 2023, compared to $128 million for the year-ago quarter
  • Taxable-equivalent net interest income decreased by $46 million, or 7.6%, compared to the second quarter of 2022, driven by higher interest-bearing deposit costs and a shift in funding mix
  • Average loans and leases increased $2.1 billion, or 5.2%, from the second quarter of 2022, driven by growth in consumer mortgage loans
  • Average deposits decreased $8.9 billion, or 9.7%, from the second quarter of 2022, reflecting elevated inflation-related spend, changing client behavior due to higher interest rates, and a normalization of pandemic-related deposits
  • Provision for credit losses increased $24 million compared to the second quarter of 2022, driven by increases in both the allowance for credit losses and net loan charge-offs
  • Noninterest income decreased $9 million from the year-ago quarter, driven by lower service charges on deposit accounts due to a planned reduction in overdraft and non-sufficient funds fees
  • Noninterest expense decreased $18 million from the year-ago quarter, reflecting lower incentive compensation and employee benefits from the prior period, partly offset by an increase in salaries

 

Commercial Bank












Dollars in millions



Change 2Q23 vs.

2Q23

1Q23

2Q22

1Q23

2Q22

Summary of operations





Net interest income (TE)

$         459

$         478

$         470

(4.0) %

(2.3) %

Noninterest income

346

366

404

(5.5)

(14.4)

Total revenue (TE)

805

844

874

(4.6)

(7.9)

Provision for credit losses

134

80

37

67.5

262.2

Noninterest expense

405

442

411

(8.4)

(1.5)

Income (loss) before income taxes (TE)

266

322

426

(17.4)

(37.6)

Allocated income taxes and TE adjustments

52

67

86

(22.4)

(39.5)

Net income (loss) attributable to Key

$         214

$         255

$         340

(16.1) %

(37.1) %







Average balances





Loans and leases

$     77,277

$     76,306

$     67,825

1.3 %

13.9 %

Loans held for sale

1,014

876

1,016

15.8

(0.2)

Total assets

87,106

85,852

78,816

1.5

10.5

Deposits

51,420

52,219

54,846

(1.5) %

(6.2) %







TE = Taxable Equivalent

 

Additional Commercial Bank Data












Dollars in millions



Change 2Q23 vs.

2Q23

1Q23

2Q22

1Q23

2Q22

Noninterest income





Trust and investment services income

$           25

$           27

$           33

(7.4) %

(24.2) %

Investment banking and debt placement fees

120

145

150

(17.2)

(20.0)

Cards and payments income

22

20

23

10.0

(4.3)

Service charges on deposit accounts

27

27

36

—

(25.0)

Corporate services income

77

69

87

11.6

(11.5)

Commercial mortgage servicing fees

50

46

45

8.7

11.1

Operating lease income and other leasing gains

24

24

27

—

(11.1)

Other noninterest income

1

8

3

(87.5)

(66.7)

Total noninterest income

$         346

$         366

$         404

(5.5) %

(14.4) %







 

Commercial Bank Summary of Operations (2Q23 vs. 2Q22)

  • Key's Commercial Bank recorded net income attributable to Key of $214 million for the second quarter of 2023 compared to $340 million for the year-ago quarter
  • Taxable-equivalent net interest income decreased by $11 million, or 2.3%, compared to the second quarter of 2022, primarily reflecting higher interest-bearing deposit costs and a shift in funding mix to higher-cost deposits
  • Average loan and lease balances increased $9.5 billion, or 13.9%, compared to the second quarter of 2022, reflecting growth in commercial and industrial loans and an increase in commercial mortgage real estate loans
  • Average deposit balances decreased $3.4 billion compared to the second quarter of 2022, reflecting changing client behavior due to higher interest rates
  • Provision for credit losses increased $97 million compared to the second quarter of 2022, driven by higher allowance for credit losses due to changes in the economic outlook and portfolio activity
  • Noninterest income decreased $58 million from the year-ago quarter, primarily driven by lower investment banking and debt placement fees reflecting lower merger and acquisition advisory fees and lower syndication fees, as well as a decrease in corporate services income
  • Noninterest expense decreased $6 million from the second quarter of 2022, primarily driven by a decline in incentive compensation

 

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

KeyCorp's roots trace back nearly 200 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 $195 billion at June 30, 2023.

Key provides deposit, lending, cash management, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of approximately 1,000 branches and approximately 1,300 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, 2022, Form 10-Q for the quarter ended March 31, 2023, 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 worsening of the U.S. economy due to financial, political, or other shocks, the extensive regulation of the U.S. financial services industry, the soundness of other financial institutions and the impact of changes in the interest rate environment. 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 July 20, 2023. A replay of the call will be available through July 29, 2023.

For up-to-date company information, media contacts, and facts and figures about Key's lines of business, visit our Media Newsroom at https://www.key.com/newsroom.

 

*****

 

           

KeyCorp

Second Quarter 2023

Financial Supplement

 

Page

12

Basis of Presentation

13

Financial Highlights

15

GAAP to Non-GAAP Reconciliation

17

Consolidated Balance Sheets

18

Consolidated Statements of Income

19

Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations

21

Noninterest Expense

21

Personnel Expense

22

Loan Composition

22

Loans Held for Sale Composition

22

Summary of Changes in Loans Held for Sale

22

Summary of Loan and Lease Loss Experience From Continuing Operations

24

Asset Quality Statistics From Continuing Operations

24

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

24

Summary of Changes in Nonperforming Loans From Continuing Operations

25

Line of Business Results

 

Basis of Presentation

Use of Non-GAAP Financial Measures
This document contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding Key's results of operations or financial position. Where non- GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this document, the financial supplement, or conference call slides related to this document, all of which can be found on Key's website (www.key.com/ir).

Annualized Data
Certain returns, yields, performance ratios, or quarterly growth rates are presented on an "annualized" basis. This is done for analytical and decision-making purposes to better discern underlying performance trends when compared to full-year or year-over-year amounts.

Taxable Equivalent
Income from tax-exempt earning assets is increased by an amount equivalent to the taxes that would have been paid if this income had been taxable at the federal statutory rate. This adjustment puts all earning assets, most notably tax-exempt municipal securities, and certain lease assets, on a common basis that facilitates comparison of results to results of peers.

Earnings Per Share Equivalent
Certain income or expense items may be expressed on a per common share basis. This is done for analytical and decision-making purposes to better discern underlying trends in total consolidated earnings per share performance excluding the impact of such items. When the impact of certain income or expense items is disclosed separately, the after-tax amount is computed using the marginal tax rate, with this then being the amount used to calculate the earnings per share equivalent.

 

Financial Highlights

(Dollars in millions, except per share amounts)



Three months ended



6/30/2023

3/31/2023

6/30/2022

Summary of operations



Net interest income (TE)

$           986

$         1,106

$         1,104

Noninterest income

609

608

688


Total revenue (TE)

1,595

1,714

1,792

Provision for credit losses

167

139

45

Noninterest expense

1,076

1,176

1,078

Income (loss) from continuing operations attributable to Key

286

311

530

Income (loss) from discontinued operations, net of taxes

1

1

3

Net income (loss) attributable to Key

287

312

533







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

250

275

504

Income (loss) from discontinued operations, net of taxes

1

1

3

Net income (loss) attributable to Key common shareholders

251

276

507






Per common share



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

$            .27

$            .30

$            .54

Income (loss) from discontinued operations, net of taxes

—

—

—

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

.27

.30

.55







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

.27

.30

.54

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

—

—

—

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

.27

.30

.54







Cash dividends declared

.205

.205

.195

Book value at period end

12.18

12.70

13.48

Tangible book value at period end

9.16

9.67

10.40

Market price at period end

9.24

12.52

17.23






Performance ratios



From continuing operations:



Return on average total assets

.58 %

.66 %

1.16 %

Return on average common equity

8.42

9.85

16.17

Return on average tangible common equity (b)

11.04

13.16

20.90

Net interest margin (TE)

2.12

2.47

2.61

Cash efficiency ratio (b)

66.8

68.0

59.5







From consolidated operations:



Return on average total assets

.58 %

.66 %

1.16 %

Return on average common equity

8.45

9.89

16.27

Return on average tangible common equity (b)

11.09

13.21

21.03

Net interest margin (TE)

2.12

2.47

2.60

Loan to deposit (c)

83.0

84.4

78.3






Capital ratios at period end



Key shareholders' equity to assets

7.1 %

7.3 %

7.7 %

Key common shareholders' equity to assets

5.8

6.0

6.7

Tangible common equity to tangible assets (b)

4.5

4.6

5.3

Common Equity Tier 1 (d)

9.2

9.1

9.2

Tier 1 risk-based capital (d)

10.7

10.6

10.4

Total risk-based capital (d)

13.0

12.8

12.0

Leverage (d)

8.7

8.8

8.6






Asset quality — from continuing operations



Net loan charge-offs

$             52

$             45

$             44

Net loan charge-offs to average loans

.17 %

.15 %

.16 %

Allowance for loan and lease losses

$         1,480

$         1,380

$         1,099

Allowance for credit losses

1,771

1,656

1,272

Allowance for loan and lease losses to period-end loans

1.24 %

1.15 %

.98 %

Allowance for credit losses to period-end loans

1.49

1.38

1.13

Allowance for loan and lease losses to nonperforming loans

343

332

256

Allowance for credit losses to nonperforming loans

411

398

297

Nonperforming loans at period-end

$           431

$           416

$           429

Nonperforming assets at period-end

462

447

463

Nonperforming loans to period-end portfolio loans

.36 %

.35 %

.38 %

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

.39

.37

.41






Trust assets



Assets under management

$       53,952

$       53,689

$       49,003

Other data



Average full-time equivalent employees

17,754

18,220

17,414

Branches

965

971

978

Taxable-equivalent adjustment

$              8

$              7

$              7

 


Financial Highlights (continued)

(Dollars in millions, except per share amounts)


Six months ended


6/30/2023

6/30/2022

Summary of operations


Net interest income (TE)

$                  2,092

$                  2,124

Noninterest income

1,217

1,364

Total revenue (TE)

3,309

3,488

Provision for credit losses

306

128

Noninterest expense

2,252

2,148

Income (loss) from continuing operations attributable to Key

597

977

Income (loss) from discontinued operations, net of taxes

2

4

Net income (loss) attributable to Key

599

981





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

525

924

Income (loss) from discontinued operations, net of taxes

2

4

Net income (loss) attributable to Key common shareholders

527

928




Per common share


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

$                     .57

$                    1.00

Income (loss) from discontinued operations, net of taxes

—

—

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

.57

1.00





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

.56

.99

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

—

—

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

.57

1.00





Cash dividends paid

.41

.39




Performance ratios


From continuing operations:


Return on average total assets

.62 %

1.08 %

Return on average common equity

9.11

13.62

Return on average tangible common equity (b)

12.06

17.15

Net interest margin (TE)

2.29

2.53

Cash efficiency ratio (b)

67.5

60.9





From consolidated operations:


Return on average total assets

.62 %

1.08 %

Return on average common equity

9.15

13.68

Return on average tangible common equity (b)

12.10

17.23

Net interest margin (TE)

2.29

2.53




Asset quality — from continuing operations


Net loan charge-offs

$                      97

$                      77

Net loan charge-offs to average total loans

.16 %

.15 %




Other data


Average full-time equivalent employees

17,987

17,262




Taxable-equivalent adjustment

15

13

 

(a)

Earnings per share may not foot due to rounding.

(b)

The following table entitled "GAAP to Non-GAAP Reconciliations" presents the computations of certain financial measures related to "tangible common equity" and "cash efficiency." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.

(c)

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

(d)

June 30, 2023, ratio is estimated and reflects Key's election to adopt the CECL optional transition provision.

 

GAAP to Non-GAAP Reconciliations
(Dollars in millions)

The table below presents certain non-GAAP financial measures related to "tangible common equity," "return on average tangible common equity," "pre-provision net revenue," and "cash efficiency ratio."

The tangible common equity ratio and the return on average tangible common equity ratio have been a focus for some investors, and management believes these ratios may assist investors in analyzing Key's capital position without regard to the effects of intangible assets and preferred stock.

The table also shows the computation for pre-provision net revenue, which is not formally defined by GAAP. Management believes that eliminating the effects of the provision for credit losses makes it easier to analyze the results by presenting them on a more comparable basis.

The cash efficiency ratio is a ratio of two non-GAAP performance measures. As such, there is no directly comparable GAAP performance measure. The cash efficiency ratio performance measure removes the impact of Key's intangible asset amortization from the calculation. Management believes this ratio provides 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

6/30/2023

3/31/2023

6/30/2022

6/30/2023

6/30/2022

Tangible common equity to tangible assets at period-end





Key shareholders' equity (GAAP)

$  13,844

$  14,322

$  14,427


Less: Intangible assets (a)

2,826

2,836

2,868


Preferred Stock (b)

2,446

2,446

1,856


Tangible common equity (non-GAAP)

$    8,572

$    9,040

$    9,703


Total assets (GAAP)

$ 195,037

$ 197,519

$ 187,008


Less: Intangible assets (a)

2,826

2,836

2,868


Tangible assets (non-GAAP)

$ 192,211

$ 194,683

$ 184,140


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

4.46 %

4.64 %

5.27 %


Pre-provision net revenue





Net interest income (GAAP)

$       978

$    1,099

$    1,097

$    2,077

$    2,111

Plus: Taxable-equivalent adjustment

8

7

7

15

13

Noninterest income

609

608

688

1,217

1,364

Less: Noninterest expense

1,076

1,176

1,078

2,252

2,148

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

$       519

$       538

$       714

$    1,057

$    1,340

Average tangible common equity





Average Key shareholders' equity (GAAP)

$  14,412

$  13,817

$  14,398

$  14,116

$  15,583

Less: Intangible assets (average) (c)

2,831

2,841

2,827

2,836

2,821

Preferred stock (average)

2,500

2,500

1,900

2,500

1,900

Average tangible common equity (non-GAAP)

$    9,081

$    8,476

$    9,671

$    8,780

$  10,862

Return on average tangible common equity from continuing operations





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

$       250

$       275

$       504

$       525

$       924

Average tangible common equity (non-GAAP)

9,081

8,476

9,671

8,780

10,862







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

11.04 %

13.16 %

20.90 %

12.06 %

17.15 %

Return on average tangible common equity consolidated





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

$       251

$       276

$       507

$       527

$       928

Average tangible common equity (non-GAAP)

9,081

8,476

9,671

8,780

10,862







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

11.09 %

13.21 %

21.03 %

12.10 %

17.23 %

 

GAAP to Non-GAAP Reconciliations (continued)

(Dollars in millions)

Three months ended

Six months ended

6/30/2023

3/31/2023

6/30/2022

6/30/2023

6/30/2022

Cash efficiency ratio





Noninterest expense (GAAP)

$    1,076

$    1,176

$    1,078

$    2,252

$    2,148

Less: Intangible asset amortization

10

10

12

20

23

Adjusted noninterest expense (non-GAAP)

$    1,066

$    1,166

$    1,066

$    2,232

$    2,125







Net interest income (GAAP)

$       978

$    1,099

$    1,097

$    2,077

$    2,111

Plus: Taxable-equivalent adjustment

8

7

7

15

13

Noninterest income

609

608

688

1,217

1,364

Total taxable-equivalent revenue (non-GAAP)

$    1,595

$    1,714

$    1,792

$    3,309

$    3,488







Cash efficiency ratio (non-GAAP)

66.8 %

68.0 %

59.5 %

67.5 %

60.9 %







 

(a)

For the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, intangible assets exclude $1 million, $1 million, and $2 million, respectively, of period-end purchased credit card receivables. 

(b)

Net of capital surplus.

(c)

For the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, average intangible assets exclude $1 million, $1 million, and $2 million, respectively, of average purchased credit card receivables.

GAAP = U.S. generally accepted accounting principles

 

Consolidated Balance Sheets

(Dollars in millions)









6/30/2023

3/31/2023

6/30/2022

Assets



Loans

$       119,011

$       119,971

$       112,390

Loans held for sale

1,130

1,211

1,306

Securities available for sale

37,908

39,498

42,437

Held-to-maturity securities

9,189

9,561

8,186

Trading account assets

1,177

1,118

809

Short-term investments

8,959

8,410

2,456

Other investments

1,474

1,587

969


Total earning assets

178,848

181,356

168,553

Allowance for loan and lease losses

(1,480)

(1,380)

(1,099)

Cash and due from banks

758

784

678

Premises and equipment

652

628

638

Goodwill

2,752

2,752

2,752

Other intangible assets

75

85

118

Corporate-owned life insurance

4,378

4,372

4,343

Accrued income and other assets

8,668

8,512

10,529

Discontinued assets

386

410

496


Total assets

$       195,037

$       197,519

$       187,008






Liabilities



Deposits in domestic offices:




Interest-bearing deposits

111,766

106,841

94,892


Noninterest-bearing deposits

33,366

37,307

50,973


Total deposits

145,132

144,148

145,865

Federal funds purchased and securities sold under repurchase agreements 

1,702

1,374

3,234

Bank notes and other short-term borrowings

6,949

10,061

2,809

Accrued expense and other liabilities

5,339

4,861

4,056

Long-term debt

22,071

22,753

16,617


Total liabilities

181,193

183,197

172,581






Equity



Preferred stock

2,500

2,500

1,900

Common shares

1,257

1,257

1,257

Capital surplus

6,231

6,207

6,241

Retained earnings

15,759

15,700

15,118

Treasury stock, at cost

(5,859)

(5,868)

(5,923)

Accumulated other comprehensive income (loss)

(6,044)

(5,474)

(4,166)


Key shareholders' equity

13,844

14,322

14,427

Total liabilities and equity

$       195,037

$       197,519

$       187,008






Common shares outstanding (000)

935,733

935,229

932,643

 

Consolidated Statements of Income

(Dollars in millions, except per share amounts)



Three months ended

Six months ended



6/30/2023

3/31/2023

6/30/2022

6/30/2023

6/30/2022

Interest income






Loans

$             1,576

$             1,476

$                923

$             3,052

$             1,760

Loans held for sale

17

13

10

30

22

Securities available for sale

194

194

188

388

361

Held-to-maturity securities

81

74

48

155

94

Trading account assets

15

12

7

27

13

Short-term investments

111

42

13

153

17

Other investments

16

13

4

29

6


Total interest income

2,010

1,824

1,193

3,834

2,273

Interest expense






Deposits

531

350

20

881

34

Federal funds purchased and securities sold under repurchase agreements

48

22

6

70

6

Bank notes and other short-term borrowings

104

78

9

182

12

Long-term debt

349

275

61

624

110


Total interest expense

1,032

725

96

1,757

162

Net interest income

978

1,099

1,097

2,077

2,111

Provision for credit losses

167

139

45

306

128

Net interest income after provision for credit losses

811

960

1,052

1,771

1,983

Noninterest income






Trust and investment services income

126

128

137

254

273

Investment banking and debt placement fees

120

145

149

265

312

Cards and payments income

85

81

85

166

165

Service charges on deposit accounts

69

67

96

136

187

Corporate services income

86

76

96

162

187

Commercial mortgage servicing fees

50

46

45

96

81

Corporate-owned life insurance income

32

29

35

61

66

Consumer mortgage income

14

11

14

25

35

Operating lease income and other leasing gains

23

25

28

48

60

Other income

4

—

3

4

(2)


Total noninterest income

609

608

688

1,217

1,364

Noninterest expense






Personnel

622

701

607

1,323

1,237

Net occupancy

65

70

78

135

151

Computer processing

95

92

78

187

155

Business services and professional fees

41

45

52

86

105

Equipment

22

22

26

44

49

Operating lease expense

21

20

27

41

55

Marketing

29

21

34

50

62

Other expense

181

205

176

386

334


Total noninterest expense

1,076

1,176

1,078

2,252

2,148

Income (loss) from continuing operations before income taxes

344

392

662

736

1,199

Income taxes

58

81

132

139

222

Income (loss) from continuing operations

286

311

530

597

977

Income (loss) from discontinued operations, net of taxes

1

1

3

2

4

Net income (loss)

287

312

533

599

981

Net income (loss) attributable to Key

$                287

$                312

$                533

$                599

981









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

$                250

$                275

$                504

$                525

$                924

Net income (loss) attributable to Key common shareholders

251

276

507

527

928

Per common share





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

$                 .27

$                 .30

$                 .54

$                 .57

$               1.00

Income (loss) from discontinued operations, net of taxes

—

—

—

—

—

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

.27

.30

.55

.57

1.00

Per common share — assuming dilution





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

$                 .27

$                 .30

$                 .54

$                 .56

$                 .99

Income (loss) from discontinued operations, net of taxes

—

—

—

—

—

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

.27

.30

.54

.57

1.00









Cash dividends declared per common share

$               .205

$               .205

$               .195

$               .410

$               .390









Weighted-average common shares outstanding (000)

926,741

926,490

924,302

926,807

923,717

Effect of common share options and other stock awards

3,713

7,314

7,506

5,513

9,087

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

930,454

933,804

931,808

932,320

932,805

 

(a)

Earnings per share may not foot due to rounding.

(b)

Assumes conversion of common share options and other stock awards, as applicable.

 

Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations

(Dollars in millions)


Second Quarter 2023

First Quarter 2023

Second Quarter 2022


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)

$       61,426

$              881

5.76 %

$       60,281

$              807

5.42 %

$       53,858

$              449

3.34 %

Real estate — commercial mortgage

16,226

235

5.80

16,470

224

5.52

15,231

136

3.58

Real estate — construction

2,641

44

6.64

2,525

39

6.30

2,125

20

3.81

Commercial lease financing

3,756

29

3.07

3,783

27

2.87

3,817

24

2.47

Total commercial loans

84,049

1,189

5.67

83,059

1,097

5.35

75,031

629

3.36

Real estate — residential mortgage

21,659

176

3.25

21,436

172

3.21

18,383

131

2.85

Home equity loans

7,620

109

5.75

7,879

106

5.47

8,208

78

3.83

Consumer direct loans

6,323

77

4.89

6,439

75

4.71

6,514

68

4.19

Credit cards

984

33

13.49

983

32

13.37

943

24

10.20

Consumer indirect loans

37

—

—

41

1

1.24

59

—

—

Total consumer loans

36,623

395

4.33

36,778

386

4.23

34,107

301

3.53

Total loans

120,672

1,584

5.26

119,837

1,483

5.01

109,138

930

3.41

Loans held for sale

1,087

17

6.16

907

13

5.86

1,107

10

3.49

Securities available for sale (b), (e)

38,899

194

1.74

39,172

194

1.72

43,023

188

1.60

Held-to-maturity securities (b)

9,371

81

3.47

8,931

74

3.32

7,291

48

2.65

Trading account assets

1,244

15

4.64

1,001

12

4.86

854

7

3.45

Short-term investments

7,798

111

5.73

3,532

42

4.80

3,591

13

1.45

Other investments (e)

1,566

16

4.03

1,309

13

4.01

800

4

2.27

Total earning assets

180,637

2,018

4.34

174,689

1,831

4.09

165,804

1,200

2.83

Allowance for loan and lease losses

(1,379)


(1,336)


(1,103)


Accrued income and other assets

17,202


17,498


18,826


Discontinued assets

394


419


505


Total assets

$    196,854


$    191,270


$    184,032

Liabilities











Money market deposits

$       32,419

$              123

1.53 %

$       33,853

$                78

.94 %

$       36,362

$                  5

.05 %

Demand deposits

53,569

256

1.91

52,365

183

1.42

49,027

13

.11

Savings deposits

6,592

1

.04

7,346

1

.03

7,891

—

.01

Certificates of deposit ($100,000 or more)

3,851

33

3.48

2,392

16

2.64

1,487

1

.44

Other time deposits

11,365

118

4.17

8,106

72

3.61

1,972

1

.13

Total interest-bearing deposits

107,796

531

1.98

104,062

350

1.36

96,739

20

.08

Federal funds purchased and securities sold
  under repurchase agreements

3,767

48

5.07

2,087

22

4.34

2,792

6

.88

Bank notes and other short-term borrowings

7,982

104

5.22

6,597

78

4.80

1,943

9

1.77

Long-term debt (f), (g)

22,284

349

6.26

20,141

275

5.47

12,662

61

1.92

Total interest-bearing liabilities

141,829

1,032

2.91

132,887

725

2.20

114,136

96

.34

Noninterest-bearing deposits

35,107


39,343


50,732


Accrued expense and other liabilities

5,112


4,804


4,261


Discontinued liabilities (g)

394


419


505


Total liabilities

$    182,442


$    177,453


$    169,634

Equity











Key shareholders' equity

$       14,412


$       13,817


$       14,398


Noncontrolling interests

—


—


—


Total equity

14,412


13,817


14,398


Total liabilities and equity

$    196,854


$    191,270


$    184,032

Interest rate spread (TE)

1.43 %


1.89 %


2.50 %

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

$              986

2.12 %

$           1,106

2.47 %

$           1,104

2.61 %

TE adjustment (b)

8


7


7

Net interest income, GAAP basis

$              978


$           1,099


$           1,097

 

(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, 2023, March 31, 2023, and June 30, 2022.   

(c)

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

(d)

Commercial and industrial average balances include $194 million, $178 million, and $153 million of assets from commercial credit cards for the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, 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, 2023

Six months ended June 30, 2022


Average

Yield/

Average

Yield/


Balance

Interest (a)

Rate (a)

Balance

Interest (a)

Rate (a)

Assets








Loans: (b), (c)








Commercial and industrial (d)

$           60,857

$             1,688

5.59 %

$      52,723

$                 858

3.28 %

Real estate — commercial mortgage

16,347

459

5.66

14,910

257

3.48

Real estate — construction

2,583

83

6.47

2,076

37

3.60

Commercial lease financing

3,770

56

2.97

3,879

48

2.44

Total commercial loans

83,557

2,286

5.51

73,588

1,200

3.28

Real estate — residential mortgage

21,548

348

3.23

17,352

243

2.80

Home equity loans

7,749

215

5.61

8,276

153

3.72

Consumer direct loans

6,380

152

4.80

6,236

129

4.18

Credit cards

984

65

13.43

938

48

10.28

Consumer indirect loans

39

1

0.60

75

—

—

Total consumer loans

36,700

781

4.28

32,877

573

3.49

Total loans

120,257

3,067

5.14

106,465

1,773

3.35

Loans held for sale

997

30

6.02

1,295

22

3.40

Securities available for sale (b), (e)

39,034

388

1.73

43,968

361

1.55

Held-to-maturity securities (b)

9,152

155

3.40

7,239

94

2.59

Trading account assets

1123

27

4.74

848

13

3.10

Short-term investments

5,677

153

5.44

5,447

17

.65

Other investments (e)

1,438

29

4.02

726

6

1.82

Total earning assets

177,678

3,849

4.22

165,988

2,286

2.72

Allowance for loan and lease losses

(1,357)



(1,080)


Accrued income and other assets

17,351



18,152


Discontinued assets

406



522


Total assets

$         194,078



$    183,582

Liabilities








Money market deposits

$           33,110

$                 201

1.23

36,795

$                     9

.05

Other demand deposits

52,993

440

1.67

50,148

20

.08

Savings deposits

6,967

1

.04

7,746

1

.01

Certificates of deposit ($100,000 or more)

3,125

49

3.16

1,562

3

.44

Other time deposits

9,745

190

3.94

2,035

1

.14

Total interest-bearing deposits

105,940

881

1.68

98,286

34

.07

Federal funds purchased and securities sold under repurchase agreements

2,932

70

4.81

1,547

6

.81

Bank notes and other short-term borrowings

7,293

182

5.03

1,327

12

1.82

Long-term debt (f), (g)

21,218

624

5.88

11,751

110

1.86

Total interest-bearing liabilities

137,383

1,757

2.57

112,911

162

.29

Noninterest-bearing deposits

37,213



50,523


Accrued expense and other liabilities

4,960



4,043


Discontinued liabilities (g)

406



522


Total liabilities

$         179,962



$    167,999

Equity








Key shareholders' equity

$           14,116



$      15,583


Noncontrolling interests

—



—


Total equity

14,116



15,583


Total liabilities and equity

$         194,078



$    183,582

Interest rate spread (TE)

1.65 %



2.44 %

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

$             2,092

2.29 %


$             2,124

2.53 %

TE adjustment (b)

15



13

Net interest income, GAAP basis

$             2,077



$             2,111










 

(a)

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

(b)

Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 21% for the six months ended June 30, 2023, and June 30, 2022, respectively.  

(c)

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

(d)

Commercial and industrial average balances include $186 million and $147 million of assets from commercial credit cards for the six months ended June 30, 2023, and June 30, 2022, 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

6/30/2023

3/31/2023

6/30/2022

6/30/2023

6/30/2022

Personnel (a)

$            622

$            701

$            607

$         1,323

$         1,237

Net occupancy

65

70

78

135

151

Computer processing

95

92

78

187

155

Business services and professional fees

41

45

52

86

105

Equipment

22

22

26

44

49

Operating lease expense

21

20

27

41

55

Marketing

29

21

34

50

62

Other expense

181

205

176

386

334

Total noninterest expense

$         1,076

$         1,176

$         1,078

$         2,252

$         2,148

Average full-time equivalent employees (b)

17,754

18,220

17,414

17,987

17,262

 

(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

(Dollars in millions)









Three months ended

Six months ended

6/30/2023

3/31/2023

6/30/2022

6/30/2023

6/30/2022

Salaries and contract labor

$            416

$            419

$           357

$            835

$            705

Incentive and stock-based compensation

93

152

163

245

346

Employee benefits

103

99

83

202

180

Severance

10

31

4

41

6

Total personnel expense

$            622

$            701

$           607

$         1,323

$         1,237

 

Loan Composition

(Dollars in millions)










Change 6/30/2023 vs.

6/30/2023

3/31/2023

6/30/2022

3/31/2023

6/30/2022

Commercial and industrial (a)

$        60,059

$        60,565

$        55,245

(.8) %

8.7 %

Commercial real estate:





Commercial mortgage

16,048

16,348

15,636

(1.8)

2.6

Construction

2,646

2,590

2,144

2.2

23.4

Total commercial real estate loans

18,694

18,938

17,780

(1.3)

5.1

Commercial lease financing (b)

3,801

3,763

3,956

1.0

(3.9)

Total commercial loans

82,554

83,266

76,981

(.9)

7.2

Residential — prime loans:





Real estate — residential mortgage

21,637

21,632

19,588

—

10.5

Home equity loans

7,529

7,706

8,134

(2.3)

(7.4)

Total residential — prime loans

29,166

29,338

27,722

(.6)

5.2

Consumer direct loans

6,257

6,359

6,665

(1.6)

(6.1)

Credit cards

1,001

969

967

3.3

3.5

Consumer indirect loans

33

39

55

(15.4)

(40.0)

Total consumer loans

36,457

36,705

35,409

(.7)

3.0

Total loans (c), (d)

$      119,011

$      119,971

$      112,390

(.8) %

5.9 %

 

(a)

Loan balances include $200 million, $185 million, and $161 million of commercial credit card balances at June 30, 2023, March 31, 2023, and June 30, 2022, respectively.

(b)

Commercial lease financing includes receivables held as collateral for a secured borrowing of $5 million, $6 million, and $12 million at June 30, 2023, March 31, 2023, and June 30, 2022, respectively. Principal reductions are based on the cash payments received from these related receivables.

(c)

Total loans exclude loans of $381 million at June 30, 2023, $407 million at March 31, 2023, and $498 million at June 30, 2022, related to the discontinued operations of the education lending business.

(d)

Accrued interest of $500 million, $487 million, and $233 million at June 30, 2023, March 31, 2023, and June 30, 2022, 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)












Change 6/30/2023 vs.

6/30/2023

3/31/2023

6/30/2022

3/31/2023

6/30/2022

Commercial and industrial

$            221

$            351

$            213

(37.0) %

3.8 %

Real estate — commercial mortgage

829

815

1,004

1.7

(17.4)

Real estate — construction

—

—

6

—

(100.0)

Commercial lease financing

13

—

—

N/M

N/M

Real estate — residential mortgage

67

45

83

48.9

(19.3)

Total loans held for sale

$         1,130

$         1,211

$         1,306

(6.7) %

(13.5) %







N/M = Not Meaningful

 

Summary of Changes in Loans Held for Sale

(Dollars in millions)







2Q23

1Q23

4Q22

3Q22

2Q22

Balance at beginning of period

$          1,211

$            963

$         1,048

$         1,306

$         1,170

New originations

1,798

1,779

3,158

2,157

2,837

Transfers from (to) held to maturity, net

(52)

(13)

(48)

—

(57)

Loan sales

(1,798)

(1,518)

(3,124)

(2,446)

(2,506)

Loan draws (payments), net

(28)

—

(71)

26

(133)

Valuation and other adjustments

(1)

—

—

5

(5)

Balance at end of period

$          1,130

$         1,211

$            963

$         1,048

$         1,306

 

Summary of Loan and Lease Loss Experience From Continuing Operations

(Dollars in millions)








Three months ended

Six months ended

6/30/2023

3/31/2023

6/30/2022

6/30/2023

6/30/2022

Average loans outstanding

$ 120,672

$ 119,837

$ 109,138

$ 120,257

$ 106,465

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

1,380

1,337

1,105

1,337

1,061

Loans charged off:





Commercial and industrial

42

35

39

77

69







Real estate — commercial mortgage

9

5

3

14

7

Real estate — construction

—

—

—

—

—

  Total commercial real estate loans

9

5

3

14

7

Commercial lease financing

1

(1)

—

—

2

  Total commercial loans

52

39

42

91

78

Real estate — residential mortgage

1

—

(2)

1

(3)

Home equity loans

2

1

—

3

1

Consumer direct loans

11

11

10

22

17

Credit cards

9

9

8

18

15

Consumer indirect loans

1

—

1

1

2

  Total consumer loans

24

21

17

45

32

   Total loans charged off

76

60

59

136

110

Recoveries:





Commercial and industrial

15

8

8

23

19







Real estate — commercial mortgage

1

—

1

1

2

Real estate — construction

—

—

1

—

1

  Total commercial real estate loans

1

—

2

1

3

Commercial lease financing

2

1

1

3

1

  Total commercial loans

18

9

11

27

23

Real estate — residential mortgage

1

1

1

2

1

Home equity loans

1

1

1

2

2

Consumer direct loans

2

2

1

4

3

Credit cards

2

1

1

3

3

Consumer indirect loans

—

1

—

1

1

  Total consumer loans

6

6

4

12

10

   Total recoveries

24

15

15

39

33

Net loan charge-offs

(52)

(45)

(44)

(97)

(77)

Provision (credit) for loan and lease losses

152

88

38

240

115

Allowance for loan and lease losses at end of period

$    1,480

$    1,380

$    1,099

$    1,480

$    1,099







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

276

225

166

225

160

Provision (credit) for losses on lending-related commitments

15

51

7

66

13

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

$       291

$       276

$       173

$       291

$       173







Total allowance for credit losses at end of period

$    1,771

$    1,656

$    1,272

$    1,771

$    1,272







Net loan charge-offs to average total loans

.17 %

.15 %

.16 %

.16 %

.15 %

Allowance for loan and lease losses to period-end loans

1.24

1.15

.98

1.24

.98

Allowance for credit losses to period-end loans

1.49

1.38

1.13

1.49

1.13

Allowance for loan and lease losses to nonperforming loans

343

332

256

343

256

Allowance for credit losses to nonperforming loans

411

398

297

411

297







Discontinued operations — education lending business:





Loans charged off

$          2

$          1

$          1

$          3

$          3

Recoveries

1

—

1

1

1

  Net loan charge-offs

$         (1)

$         (1)

$         —

$         (2)

$         (2)

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

 

Asset Quality Statistics From Continuing Operations

(Dollars in millions)

2Q23

1Q23

4Q22

3Q22

2Q22

Net loan charge-offs

$         52

$         45

$         41

$         43

$         44

Net loan charge-offs to average total loans

.17 %

.15 %

.14 %

.15 %

.16 %

Allowance for loan and lease losses

$    1,480

$    1,380

$    1,337

$    1,144

$    1,099

Allowance for credit losses (a)

1,771

1,656

1,562

1,338

1,272

Allowance for loan and lease losses to period-end loans

1.24 %

1.15 %

1.12 %

.98 %

.98 %

Allowance for credit losses to period-end loans

1.49

1.38

1.31

1.15

1.13

Allowance for loan and lease losses to nonperforming loans

343

332

346

293

256

Allowance for credit losses to nonperforming loans

411

398

404

343

297

Nonperforming loans at period end

$       431

$       416

$       387

$       390

$       429

Nonperforming assets at period end

462

447

420

419

463

Nonperforming loans to period-end portfolio loans

.36 %

.35 %

.32 %

.34 %

.38 %

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

.39

.37

.35

.36

.41

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

 

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(Dollars in millions)

6/30/2023

3/31/2023

12/31/2022

9/30/2022

6/30/2022

Commercial and industrial

$       188

$       170

$       174

$       169

$       197






Real estate — commercial mortgage

65

59

21

34

35

Real estate — construction

—

—

—

—

—

Total commercial real estate loans

65

59

21

34

35

Commercial lease financing

1

1

1

2

2

Total commercial loans

254

230

196

205

234

Real estate — residential mortgage

73

75

77

66

67

Home equity loans

97

104

107

112

120

Consumer direct loans

3

3

3

3

3

Credit cards

3

3

3

3

3

Consumer indirect loans

1

1

1

1

2

Total consumer loans

177

186

191

185

195

  Total nonperforming loans (a)

431

416

387

390

429

OREO

15

13

13

12

9

Nonperforming loans held for sale

16

18

20

17

25

Other nonperforming assets

—

—

—

—

—

Total nonperforming assets

$       462

$       447

$       420

$       419

$       463

Accruing loans past due 90 days or more

73

55

60

47

41

Accruing loans past due 30 through 89 days

139

164

180

187

137

Nonperforming assets from discontinued operations — education lending business 

2

3

3

3

3

Nonperforming loans to period-end portfolio loans

.36 %

.35 %

.32 %

.34 %

.38 %

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

.39

.37

.35

.36

.41

 

(a)

On January 1, 2023, Key adopted ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. In connection with the adoption of this guidance, nonperforming loans for periods after January 1, 2023, include certain loans which were modified for borrowers experiencing financial difficulty. Amounts prior to January 1, 2023, include nonperforming troubled debt restructurings (TDRs), for which accounting guidance was eliminated upon adoption of ASU 2022-02.

 

Summary of Changes in Nonperforming Loans From Continuing Operations

(Dollars in millions)

2Q23

1Q23

4Q22

3Q22

2Q22

Balance at beginning of period

$          416

$          387

$          390

$          429

$          439

Loans placed on nonaccrual status

169

143

113

80

118

Charge-offs

(76)

(60)

(67)

(68)

(59)

Loans sold

(23)

(2)

(4)

(3)

(8)

Payments

(20)

(31)

(22)

(29)

(35)

Transfers to OREO

(2)

(2)

(1)

(1)

(2)

Loans returned to accrual status

(33)

(19)

(22)

(18)

(24)

Balance at end of period

$          431

$          416

$          387

$          390

$          429

 

Line of Business Results

(Dollars in millions)
















Change 2Q23 vs.

2Q23

1Q23

4Q22

3Q22

2Q22

1Q23

2Q22

Consumer Bank







Summary of operations







Total revenue (TE)

$             803

$             840

$             860

$             877

$             858

(4.4) %

(6.4) %

Provision for credit losses

32

60

105

37

8

(46.7)

300.0

Noninterest expense

663

663

705

675

681

—

(2.6)

Net income (loss) attributable to Key

82

89

38

125

128

(7.9)

(35.9)

Average loans and leases

42,934

43,086

43,149

42,568

40,827

(.4)

5.2

Average deposits

82,498

84,637

87,370

90,170

91,394

(2.5)

(9.7)

Net loan charge-offs

32

24

21

17

23

33.3

39.1

Net loan charge-offs to average total loans

.30 %

.23 %

.19 %

.16 %

.23 %

30.4

30.4

Nonperforming assets at period end

$             193

$             196

$             202

$             195

$             203

(1.5)

(4.9)

Return on average allocated equity

9.04 %

9.87 %

4.51 %

14.26 %

13.94 %

(8.4)

(35.2)









Commercial Bank







Summary of operations







Total revenue (TE)

$             805

$             844

$             894

$             878

$             874

(4.6) %

(7.9) %

Provision for credit losses

134

80

165

74

37

67.5

262.2

Noninterest expense

405

442

459

451

411

(8.4)

(1.5)

Net income (loss) attributable to Key

214

255

225

287

340

(16.1)

(37.1)

Average loans and leases

77,277

76,306

74,100

71,464

67,825

1.3

13.9

Average loans held for sale

1,014

876

1,377

1,036

1,016

15.8

(.2)

Average deposits

51,420

52,219

54,385

52,272

54,846

(1.5)

(6.2)

Net loan charge-offs

20

21

25

27

21

(4.8)

(4.8)

Net loan charge-offs to average total loans

.10 %

.11 %

.13 %

.15 %

.12 %

(9.1)

(16.7)

Nonperforming assets at period end

$             269

$             251

$             218

$             224

$             260

7.2

3.5

Return on average allocated equity

8.17 %

10.04 %

9.36 %

12.29 %

15.29 %

(18.6)

(46.6)

TE = Taxable Equivalent

 

(PRNewsfoto/KeyCorp)

Cision View original content to download multimedia:https://www.prnewswire.com/news-releases/keycorp-reports-second-quarter-2023-net-income-of-250-million-or-27-per-diluted-common-share-301882003.html

SOURCE KeyCorp

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