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

Diluted earnings per common share of $.48(a), excluding $.03 per diluted common share related to a previously disclosed fraud and a pension settlement charge

Seventh consecutive year of positive operating leverage

Positive momentum in core businesses: solid growth in loans and deposits

Strong expense management: noninterest expense down 3% from 4Q18

Significant capital return: 9% increase in common share dividend and $868 million in share repurchases in 2019

Company Release - 1/23/2020 6:30 AM ET

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

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

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

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

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

- Beth Mooney, Chairman & CEO

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

Selected Financial Highlights















dollars in millions, except per share data





Change 4Q19 vs.



4Q19

3Q19

4Q18


3Q19

4Q18

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

$

439


$

383


$

459



14.6

%

(4.4)

%

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

.45


.38


.45



18.4



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

14.09

%

12.38

%

16.40

%


N/A


N/A


Return on average total assets from continuing operations

1.27


1.14


1.37



N/A


N/A


Common Equity Tier 1 ratio (b)

9.43


9.48


9.93



N/A


N/A


Book value at period end

$

15.54


$

15.44


$

13.90



.6

%

11.8

%

Net interest margin (TE) from continuing operations

2.98

%

3.00

%

3.16

%


N/A


N/A










(a)

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

(b)

12/31/19 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

 

INCOME STATEMENT HIGHLIGHTS














Revenue














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Net interest income (TE)

$

987


$

980


$

1,008



.7

%

(2.1)

%

Noninterest income

651


650


645



.2


.9


Total revenue

$

1,638


$

1,630


$

1,653



.5

%

(.9)

%








TE = Taxable Equivalent


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

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

Noninterest Income














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Trust and investment services income

$

120


$

118


$

121



1.7

%

(.8)

%

Investment banking and debt placement fees

181


176


186



2.8


(2.7)


Service charges on deposit accounts

86


86


84




2.4


Operating lease income and other leasing gains

39


42


28



(7.1)


39.3


Corporate services income

65


63


58



3.2


12.1


Cards and payments income

67


69


68



(2.9)


(1.5)


Corporate-owned life insurance income

39


32


39



21.9



Consumer mortgage income

14


14


7




100.0


Mortgage servicing fees

26


23


21



13.0


23.8


Other income

14


27


33



(48.1)


(57.6)


Total noninterest income

$

651


$

650


$

645



.2

%

.9

%








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

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

Noninterest Expense














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Personnel expense

$

551


$

547


$

576



.7

%

(4.3)

%

Nonpersonnel expense

429


392


436



9.4


(1.6)


Total noninterest expense

$

980


$

939


$

1,012



4.4

%

(3.2)

%








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

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

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

BALANCE SHEET HIGHLIGHTS














Average Loans














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Commercial and industrial (a)

$

48,345


$

48,322


$

45,129




7.1

%

Other commercial loans

19,312


19,016


20,899



1.6

%

(7.6)


Total consumer loans

25,950


24,618


23,260



5.4


11.6


Total loans

$

93,607


$

91,956


$

89,288



1.8

%

4.8

%








(a)

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


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

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

Average Deposits














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Non-time deposits

$

100,518


$

97,205


$

94,480



3.4

%

6.4

%

Certificates of deposit ($100,000 or more)

6,899


7,625


8,217



(9.5)


(16.0)


Other time deposits

5,187


5,449


5,255



(4.8)


(1.3)


Total deposits

$

112,604


$

110,279


$

107,952



2.1

%

4.3

%








Cost of total deposits

.71

%

.82

%

.64

%


N/A


N/A









N/A = Not Applicable

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

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

ASSET QUALITY














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Net loan charge-offs

$

99


$

196


$

60



(49.5)

%

65.0

%

Net loan charge-offs to average total loans

.42

%

.85

%

.27

%


N/A


N/A


Nonperforming loans at period end (a)

$

577


$

585


$

542



(1.4)


6.5


Nonperforming assets at period end (a)

715


711


577



.6


23.9


Allowance for loan and lease losses

900


893


883



.8


1.9


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

156.0

%

152.6

%

162.9

%


N/A


N/A


Provision for credit losses

$

109


$

200


$

59



(45.5)

%

84.7

%








(a)

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

N/A = Not Applicable

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

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

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

CAPITAL

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

Capital Ratios









12/31/2019

9/30/2019

12/31/2018

Common Equity Tier 1 (a)

9.43

%

9.48

%

9.93

%

Tier 1 risk-based capital (a)

10.85


10.91


11.08


Total risk based capital (a)

12.77


12.90


12.89


Tangible common equity to tangible assets (b)

8.64


8.58


8.30


Leverage (a)

9.86


9.93


9.89






(a)

12/31/2019 ratio is estimated.

(b)

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

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

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

Summary of Changes in Common Shares Outstanding













in thousands





Change 4Q19 vs.



4Q19

3Q19

4Q18


3Q19

4Q18

Shares outstanding at beginning of period

988,538


1,003,114


1,034,287



(1.5)

%

(4.4)

%

Open market repurchases and return of shares under employee 
     compensation plans

(12,968)


(15,076)


(15,216)



(14.0)


(14.8)


Shares issued under employee compensation plans (net of cancellations)

1,619


500


432



223.8


274.8



Shares outstanding at end of period

977,189


988,538


1,019,503



(1.1)

%

(4.2)

%









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

LINE OF BUSINESS RESULTS

The following table shows the contribution made by each major business segment to Key's taxable-equivalent revenue from continuing operations and income (loss) from continuing operations attributable to Key for the periods presented. For more detailed financial information pertaining to each business segment, see the tables at the end of this release.

Major Business Segments















dollars in millions





Change 4Q19 vs.



4Q19

3Q19

4Q18


3Q19

4Q18

Revenue from continuing operations (TE)







Consumer Bank

$

825


$

833


$

829



(1.0)

%

(.5)

%

Commercial Bank

771


779


771



(1.0)



Other (a)

42


18


53



133.3


(20.8)

%

     Total

$

1,638


$

1,630


$

1,653



.5

%

(.9)

%









Income (loss) from continuing operations attributable to Key







Consumer Bank

$

166


$

194


$

177



(14.4)

%

(6.2)

%

Commercial Bank

315


304


302



3.6


4.3


Other (a), (b)

(12)


(82)


5



N/M


N/M


     Total

$

469


$

416


$

484



12.7

%

(3.1)

%









(a)

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

(b)

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

TE = Taxable Equivalent, N/M = Not Meaningful

 

Consumer Bank





















dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Summary of operations







Net interest income (TE)

$

586


$

595


$

598



(1.5)

%

(2.0)

%

Noninterest income

239


238


231



.4


3.5


Total revenue (TE)

825


833


829



(1.0)


(.5)


Provision for credit losses

55


48


43



14.6


27.9


Noninterest expense

552


531


554



4.0


(.4)


Income (loss) before income taxes (TE)

218


254


232



(14.2)


(6.0)


Allocated income taxes (benefit) and TE adjustments

52


60


55



(13.3)


(5.5)


Net income (loss) attributable to Key

$

166


$

194


$

177



(14.4)

%

(6.2)

%








Average balances







Loans and leases

$

34,148


$

32,760


$

31,241



4.2

%

9.3

%

Total assets

37,729


36,417


34,450



3.6


9.5


Deposits

73,561


72,995


70,426



.8


4.5









Assets under management at period end

$

40,833


$

39,416


$

36,775



3.6

%

11.0

%








TE = Taxable Equivalent



Additional Consumer Bank Data














dollars in millions





Change 4Q19 vs.


4Q19

3Q19

4Q18


3Q19

4Q18

Noninterest income







Trust and investment services income

$

91


$

90


$

89



1.1

%

2.2


Service charges on deposit accounts

58


58


57




1.8

%

Cards and payments income

52


52


51




2.0


Other noninterest income

38


38


34




11.8


Total noninterest income

$

239


$

238


$

231



.4

%

3.5

%








Average deposit balances







NOW and money market deposit accounts

$

44,765


$

43,638


$

41,189



2.6

%

8.7

%

Savings deposits

4,332


4,406


4,579



(1.7)


(5.4)


Certificates of deposit ($100,000 or more)

6,065


6,488


5,863



(6.5)


3.4


Other time deposits

5,164


5,430


5,239



(4.9)


(1.4)


Noninterest-bearing deposits

13,235


13,033


13,556



1.5


(2.4)


Total deposits

$

73,561


$

72,995


$

70,426



.8

%

4.5

%








Home equity loans







Average balance

$

10,295


$

10,413


$

11,144





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

70

%

70