KeyCorp Reports Second Quarter 2019 Net Income Of $403 Million, Or $.40 Per Common Share
CLEVELAND, July 23, 2019 /PRNewswire/ -- KeyCorp (NYSE: 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.
KeyCorpSecond Quarter 2019Financial 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 | ||||||
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SOURCE KeyCorp