Company Announcements

KeyCorp Reports Third Quarter 2019 Net Income Of $383 Million, Or $.38 Per Diluted Common Share

CLEVELAND, Oct. 17, 2019 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced net income from continuing operations attributable to Key common shareholders of $383 million, or $.38 per diluted common share for the third quarter of 2019, compared to $403 million, or $.40 per diluted common share, for the second quarter of 2019 and $468 million, or $.45 per diluted common share, for the third quarter of 2018. Key's third quarter 2019 diluted earnings per share was $.48(a), excluding $.10 per diluted common share related to a previously disclosed fraud loss. Key's results in the second quarter of 2019 included notable items; additional detail can be found on page 24 of this release.

"Our results this quarter reflect positive revenue momentum and strong expense management that drove our cash efficiency ratio to its lowest level in over a decade. This places us within our targeted cash efficiency ratio range of 54% to 56% and reflects the successful execution of our cost initiatives and ongoing commitment to continuous improvement. While expenses declined 3% from the year-ago period, we have continued to invest a portion of our cost savings back in to the business to drive future growth.

We generated positive operating leverage compared to the prior year and previous quarter, supported by strong balance sheet growth, as well as continued momentum in our fee-based businesses, including record third quarter investment banking and debt placement fees. We produced another quarter of strong, broad-based growth in commercial and industrial loans and saw higher consumer loan balances, driven by Laurel Road and residential mortgage lending.

We have remained disciplined with credit underwriting and managing our strong capital position. In the third quarter, we increased our quarterly common stock dividend by 9% − from $.17 to $.185. We remain committed to delivering results for our shareholders, while maintaining our moderate risk profile as we move through different parts of the business cycle."

- Beth Mooney, Chairman and CEO

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


Selected Financial Highlights















dollars in millions, except per share data





Change 3Q19 vs.



3Q19

2Q19

3Q18


2Q19

3Q18

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

$

383


$

403


$

468



(5.0)

%

(18.2)

%

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

.38


.40


.45



(5.0)


(15.6)


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

12.38

%

13.69

%

16.81

%


N/A


N/A


Return on average total assets from continuing operations

1.14


1.19


1.40



N/A


N/A


Common Equity Tier 1 ratio (b)

9.52


9.57


9.95



N/A


N/A


Book value at period end

$

15.44


$

15.07


$

13.33



2.5

%

15.8

%

Net interest margin (TE) from continuing operations

3.00

%

3.06

%

3.18

%


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)

9/30/19 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

INCOME STATEMENT HIGHLIGHTS














Revenue














dollars in millions





Change 3Q19 vs.


3Q19

2Q19

3Q18


2Q19

3Q18

Net interest income (TE)

$

980


$

989


$

993



(.9)

%

(1.3)

%

Noninterest income

650


622


609



4.5


6.7


Total revenue

$

1,630


$

1,611


$

1,602



1.2

%

1.7

%


TE = Taxable Equivalent


Taxable-equivalent net interest income was $980 million for the third quarter of 2019, compared to taxable-equivalent net interest income of $993 million for the third quarter of 2018. The decrease in net interest income reflects a lower net interest margin, driven by higher interest-bearing deposit costs, and lower loan fees. Additionally, purchase accounting accretion declined $9 million. These declines were partially offset by higher earning asset balances.

Compared to the second quarter of 2019, taxable-equivalent net interest income decreased by $9 million. The decrease was driven by a lower net interest margin, resulting from a decline in interest rates, and lower loan fees. These declines were partially offset by higher earning asset balances, driven by solid consumer and commercial loan growth, and one additional day in the quarter.

Noninterest Income














dollars in millions





Change 3Q19 vs.


3Q19

2Q19

3Q18


2Q19

3Q18

Trust and investment services income

$

118


$

122


$

117



(3.3)

%

.9

%

Investment banking and debt placement fees

176


163


166



8.0


6.0


Service charges on deposit accounts

86


83


85



3.6


1.2


Operating lease income and other leasing gains

42


44


35



(4.5)


20.0


Corporate services income

63


53


52



18.9


21.2


Cards and payments income

69


73


69



(5.5)



Corporate-owned life insurance income

32


33


34



(3.0)


(5.9)


Consumer mortgage income

14


10


9



40.0


55.6


Mortgage servicing fees

23


24


19



(4.2)


21.1


Other income

27


17


23



58.8


17.4


Total noninterest income

$

650


$

622


$

609



4.5

%

6.7

%



Key's noninterest income was $650 million for the third quarter of 2019, compared to $609 million for the year-ago quarter. The increase reflects growth in investment banking and debt placement fees, which reached a record third quarter level, as well as growth in corporate services income, due to higher derivatives income. Investments made in Key's mortgage business continue to drive consumer mortgage income and mortgage servicing fees.

Compared to the second quarter of 2019, noninterest income increased by $28 million, due to growth in investment banking and debt placement fees and corporate services income, due to higher derivatives income, as well as consumer mortgage income.

Noninterest Expense














dollars in millions





Change 3Q19 vs.


3Q19

2Q19

3Q18


2Q19

3Q18

Personnel expense

$

547


$

589


$

553



(7.1)

%

(1.1)

%

Nonpersonnel expense

392


430


411



(8.8)


(4.6)


Total noninterest expense

$

939


$

1,019


$

964



(7.9)

%

(2.6)

%










Key's noninterest expense was $939 million for the third quarter of 2019, compared to $964 million in the year-ago quarter and $1.0 billion in the prior quarter. The prior quarter included notable items of $52 million, primarily efficiency-related expenses, while no notable items were reported in the current quarter or the year-ago period.

Noninterest expense decreased by $25 million from the year-ago period, reflecting the successful implementation of Key's expense initiatives and the elimination of the FDIC surcharge. These expenses were partially offset by Laurel Road acquisition expenses.

Excluding notable items, noninterest expense decreased $28 million from the prior quarter, reflecting the successful implementation of Key's expense initiatives, which drove lower salaries and declines across most non-personnel expenses.


BALANCE SHEET HIGHLIGHTS














Average Loans














dollars in millions





Change 3Q19 vs.


3Q19

2Q19

3Q18


2Q19

3Q18

Commercial and industrial (a)

$

48,322


$

47,227


$

44,749



2.3

%

8.0

%

Other commercial loans

19,016


19,765


20,471



(3.8)


(7.1)


Total consumer loans

24,618


23,793


23,247



3.5


5.9


Total loans

$

91,956


$

90,785


$

88,467



1.3

%

3.9

%








(a)

Commercial and industrial average loan balances include $144 million, $141 million, and $128 million of assets from commercial
credit cards at September 30, 2019, June 30, 2019, and September 30, 2018, respectively.


Average loans were $92.0 billion for the third quarter of 2019, an increase of $3.5 billion compared to the third quarter of 2018. Commercial loans increased $2.1 billion, reflecting broad-based growth in commercial and industrial loans, partially offset by declines in commercial mortgage and construction loans. Consumer loans increased $1.4 billion, driven by solid growth from Laurel Road, residential mortgage loans, and indirect auto lending. Home equity loans declined $927 million, largely the result of continued paydowns in home equity lines of credit.

Compared to the second quarter of 2019, average loans increased by $1.2 billion, driven by solid growth in commercial and industrial loans, partially offset by a decline in commercial mortgage loans. Consumer loans increased $825 million from the prior quarter, as growth from Laurel Road, residential mortgage, and indirect auto more than offset the decline in home equity loans. Laurel Road originations were $500 million in the current quarter.


Average Deposits














dollars in millions





Change 3Q19 vs.


3Q19

2Q19

3Q18


2Q19

3Q18

Non-time deposits

$

97,205


$

95,885


$

92,414



1.4

%

5.2

%

Certificates of deposit ($100,000 or more)

7,625


8,147


8,186



(6.4)


(6.9)


Other time deposits

5,449


5,569


5,026



(2.2)


8.4


Total deposits

$

110,279


$

109,601


$

105,626



.6

%

4.4

%








Cost of total deposits

.82

%

.82

%

.53

%


N/A


N/A









N/A = Not Applicable

Average deposits totaled $110.3 billion for the third 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 second quarter of 2019, average deposits increased by $678 million, primarily driven by continued growth from consumer relationships, as well as short-term commercial deposits.


ASSET QUALITY














dollars in millions





Change 3Q19 vs.


3Q19

2Q19

3Q18


2Q19

3Q18

Net loan charge-offs

$

196


$

65


$

60



201.5

%

226.7

%

Net loan charge-offs to average total loans

.85

%

.29

%

.27

%


N/A


N/A


Nonperforming loans at period end (a)

$

585


$

561


$

645



4.3


(9.3)


Nonperforming assets at period end (a)

711


608


674



16.9


5.5


Allowance for loan and lease losses

893


890


887



.3


.7


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

152.6

%

158.6

%

137.5

%


N/A


N/A


Provision for credit losses

$

200


$

74


$

62



170.3

%

222.6

%








(a)

Nonperforming loan balances exclude $497 million, $518 million, and $606 million of purchased credit impaired loans at September 30, 2019, June 30, 2019, and
September 30, 2018, respectively.

N/A = Not Applicable

In the third quarter of 2019, Key realized a $123 million pre-tax loss related to a previously disclosed fraud incident. Excluding the fraud loss, Key's provision for credit losses was $77 million for the third quarter of 2019, compared to $62 million for the third quarter of 2018 and $74 million for the second quarter of 2019. Key's allowance for loan and lease losses was $893 million, or .96% of total period-end loans at September 30, 2019, compared to .99% at September 30, 2018, and .97% at June 30, 2019.

Excluding the fraud loss, net loan charge-offs for the third quarter of 2019 totaled $73 million, or .31% of average total loans. These results compare to $60 million, or .27%, for the third quarter of 2018, and $65 million, or .29%, for the second quarter of 2019.

At September 30, 2019, Key's nonperforming loans totaled $585 million, which represented .63% of period-end portfolio loans. These results compare to .72% at September 30, 2018, and .61% at June 30, 2019. Nonperforming assets at September 30, 2019, totaled $711 million, and represented .77% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .75% at September 30, 2018, and .66% at June 30, 2019.

CAPITAL

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

Capital Ratios









9/30/2019

6/30/2019

9/30/2018

Common Equity Tier 1 (a)

9.52

%

9.57

%

9.95

%

Tier 1 risk-based capital (a)

10.96


11.01


11.11


Total risk based capital (a)

12.96


13.03


12.99


Tangible common equity to tangible assets (b)

8.58


8.59


8.05


Leverage (a)

9.92


10.00


10.03
















(a)

9/30/2019 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 third quarter of 2019. As shown in the preceding table, at September 30, 2019, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.52% and 10.96%, respectively. Key's tangible common equity ratio was 8.58% at September 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 9.44% at September 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 3Q19 vs.



3Q19

2Q19

3Q18


2Q19

3Q18

Shares outstanding at beginning of period

1,003,114


1,013,186


1,058,944



(1.0)

%

(5.3)

%

Open market repurchases and return of shares under employee
compensation plans

(15,076)


(10,412)


(25,418)



44.8


(40.7)


Shares issued under employee compensation plans (net of cancellations)

500


340


761



47.1


(34.3)


Shares outstanding at end of period

988,538


1,003,114


1,034,287



(1.5)

%

(4.4)

%









Consistent with Key's 2019 Capital Plan, during the third quarter of 2019, Key declared a dividend of $.185 per common share, representing a 9% increase from the prior quarter. Key also completed $248 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 3Q19 vs.



3Q19

2Q19

3Q18


2Q19

3Q18

Revenue from continuing operations (TE)







Consumer Bank

$

833


$

825


$

809



1.0

%

3.0

%

Commercial Bank

779


760


753



2.5


3.5


Other (a)

18


26


40



(30.8)


(55.0)

%

Total

$

1,630


$

1,611


$

1,602



1.2

%

1.7

%








Income (loss) from continuing operations attributable to Key







Consumer Bank

$

194


$

177


$

168



9.6

%

15.5

%

Commercial Bank

304


277


274



9.7


10.9


Other (a), (b)

(82)


(29)


40



N/M


N/M


Total

$

416


$

425


$

482



(2.1)

%

(13.7)

%









(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 $94 million, after tax, of notable items related to a previously disclosed fraud loss for the third quarter of 2019; additional detail can be found on page 24 of this release.

TE = Taxable Equivalent, N/M = Not Meaningful


Consumer Bank





















dollars in millions





Change 3Q19 vs.


3Q19

2Q19

3Q18


2Q19

3Q18

Summary of operations







Net interest income (TE)

$

595


$

594


$

583



.2

%

2.1

%

Noninterest income

238


231


226



3.0


5.3


Total revenue (TE)

833


825


809



1.0


3.0


Provision for credit losses

48


40


32



20.0


50.0


Noninterest expense

531


552


557



(3.8)


(4.7)


Income (loss) before income taxes (TE)

254


233


220



9.0


15.5


Allocated income taxes (benefit) and TE adjustments

60


56


52



7.1


15.4


Net income (loss) attributable to Key

$

194


$

177


$

168



9.6

%

15.5

%








Average balances







Loans and leases

$

32,760


$

31,881


$

31,172



2.8

%

5.1

%

Total assets

36,417


35,469


34,368



2.7


6.0


Deposits

72,995


72,303


69,124



1.0


5.6









Assets under management at period end

$

39,416


$

38,942


$

40,575



1.2

%

(2.9)

%








TE = Taxable Equivalent


Additional Consumer Bank Data














dollars in millions





Change 3Q19 vs.


3Q19

2Q19

3Q18


2Q19

3Q18

Noninterest income







Trust and investment services income

$

90


$

91


$

89



(1.1)

%

1.1


Service charges on deposit accounts

58


56


57



3.6


1.8

%

Cards and payments income

52


54


52



(3.7)


.0


Other noninterest income

38


30


28



26.7


35.7


Total noninterest income

$

238


$

231


$

226



3.0

%

5.3

%








Average deposit balances







NOW and money market deposit accounts

$

43,638


$

42,800


$

40,540



2.0

%

7.6

%

Savings deposits

4,406


4,506


4,749



(2.2)


(7.2)


Certificates of deposit ($100,000 or more)

6,488


6,644


5,384



(2.3)


20.5


Other time deposits

5,430


5,549


5,014



(2.1)


8.3


Noninterest-bearing deposits

13,033


12,804


13,437



1.8


(3.0)


Total deposits

$

72,995


$

72,303


$

69,124



1.0

%

5.6

%








Home equity loans







Average balance

$

10,413


$

10,618


$

11,317





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

70

%

70

%

70

%




Percent first lien positions

60


60


60












Other data







Branches

1,101


1,102


1,166





Automated teller machines

1,422


1,430


1,518












Consumer Bank Summary of Operations (3Q19 vs. 3Q18)

  • Net income attributable to Key of $194 million for the third quarter of 2019, compared to $168 million for the year-ago quarter
  • Taxable equivalent net interest income increased by $12 million, or 2.1%, from the third quarter of 2018. The increase in net interest income was primarily driven by balance sheet growth
  • Average loans and leases increased $1.6 billion, or 5.1%. This was driven by Laurel Road along with strength in residential mortgage and indirect auto lending. This growth was partially offset by a $904 million, or 8.0%, decrease in home equity balances
  • Average deposits increased $3.9 billion, or 5.6%, from the third 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 $16 million compared to the third quarter of 2018, driven by balance sheet growth. Credit quality remained stable to the year-ago quarter
  • Noninterest income increased $12 million, or 5.3%, from the year ago quarter. This was primarily driven by growth in consumer mortgage income which increased $5 million, or 55.6%
  • Noninterest expense decreased $26 million, or 4.7%, 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 3Q19 vs.


3Q19

2Q19

3Q18


2Q19

3Q18

Summary of operations







Net interest income (TE)

$

399


$

405


$

415



(1.5)

%

(3.9)

%

Noninterest income

380


355


338



7.0


12.4


Total revenue (TE)

779


760


753



2.5


3.5


Provision for credit losses

32


33


31



(3.0)


3.2


Noninterest expense

372


389


385



(4.4)


(3.4)


Income (loss) before income taxes (TE)

375


338


337



10.9


11.3


Allocated income taxes and TE adjustments

71


61


63



16.4


12.7


Net income (loss) attributable to Key

$

304


$

277


$

274



9.7

%

10.9

%








Average balances







Loans and leases

$

58,215


$

57,918


$

56,096



.5

%

3.8

%

Loans held for sale

1,325


1,168


1,042



13.4


27.2


Total assets

66,549


65,901


63,488



1.0


4.8


Deposits

36,204


35,960


33,603



0.7

%

7.7

%








TE = Taxable Equivalent, N/M = Not Meaningful


Additional Commercial Bank Data





















dollars in millions





Change 3Q19 vs.


3Q19

2Q19

3Q18


2Q19

3Q18

Noninterest income







Trust and investment services income

$

28


$

31


$

28



(9.7)

%

%

Investment banking and debt placement fees

176


163


165



8.0


6.7


Operating lease income and other leasing gains

40


43


36



(7.0)


11.1









Corporate services income

56


50


46



12.0


21.7


Service charges on deposit accounts

27


27


28




(3.6)


Cards and payments income

16


17


17



(5.9)


(5.9)


Payments and services income

99


94


91



5.3


8.8









Mortgage servicing fees

20


20


15




33.3


Other noninterest income

17


4


3



325.0


466.7


Total noninterest income

$

380


$

355


$

338



7.0

%

12.4

%








N/M = Not Meaningful

Commercial Bank Summary of Operations (3Q19 vs. 3Q18)

  • Net income attributable to Key of $304 million for the third quarter of 2019, compared to $274 million for the year-ago quarter
  • Taxable-equivalent net interest income decreased by $16 million, or 3.9%, compared to the third quarter of 2018, driven by lower purchase accounting accretion and loan spread compression
  • Average loan and lease balances increased $2.1 billion, or 3.8%, compared to the third quarter of 2018 driven by broad-based growth in commercial and industrial loans
  • Average deposit balances increased $2.6 billion, or 7.7%, compared to the third quarter of 2018, driven by growth in core deposits
  • Provision for credit losses increased $1 million compared to the third quarter of 2018. Credit quality remained relatively stable compared to the third quarter of 2018
  • Noninterest income increased $42 million, or 12.4%, from the prior year. Investment banking and debt placement fees increased $11 million, or 6.7%, from the prior year, primarily related to strength in commercial mortgage fees. Corporate services income increased $10 million, or 21.7%, driven by increased client activity related to derivatives
  • Noninterest expense decreased by $13 million, or 3.4%, from the third 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 $146.7 billion at September 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/irat 9:00 a.m. ET, on Thursday, October 17, 2019. An audio replay of the call will be available through October 27, 2019.

KeyCorp
Third Quarter 2019
Financial Supplement


Financial Highlights

(dollars in millions, except per share amounts)




Three months ended




9/30/2019

6/30/2019

9/30/2018

Summary of operations





Net interest income (TE)

$

980


$

989


$

993



Noninterest income

650


622


609




Total revenue (TE)

1,630


1,611


1,602



Provision for credit losses

200


74


62



Noninterest expense

939


1,019


964



Income (loss) from continuing operations attributable to Key

413


423


482



Income (loss) from discontinued operations, net of taxes

3


2




Net income (loss) attributable to Key

416


425


482









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

383


403


468



Income (loss) from discontinued operations, net of taxes

3


2




Net income (loss) attributable to Key common shareholders

386


405


468








Per common share





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

$

.39


$

.40


$

.45



Income (loss) from discontinued operations, net of taxes





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

.39


.40


.45









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

.38


.40


.45



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





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

.39


.40


.45









Cash dividends declared

.185


.17


.17



Book value at period end

15.44


15.07


13.33



Tangible book value at period end

12.48


12.12


10.59



Market price at period end

17.84


17.75


19.89








Performance ratios





From continuing operations:





Return on average total assets

1.14

%

1.19

%

1.40

%


Return on average common equity

9.99


10.94


13.36



Return on average tangible common equity (b)

12.38


13.69


16.81



Net interest margin (TE)

3.00


3.06


3.18



Cash efficiency ratio (b)

56.0


61.9


58.7









From consolidated operations:





Return on average total assets

1.14

%

1.19

%

1.39

%


Return on average common equity

10.07


11.00


13.36



Return on average tangible common equity (b)

12.48


13.75


16.81



Net interest margin (TE)

2.98


3.05


3.16



Loan to deposit (c)

85.3


86.1


87.0








Capital ratios at period end





Key shareholders' equity to assets

11.67

%

11.74

%

10.96

%


Key common shareholders' equity to assets

10.40


10.46


9.93



Tangible common equity to tangible assets (b)

8.58


8.59


8.05



Common Equity Tier 1 (d)

9.52


9.57


9.95



Tier 1 risk-based capital (d)

10.96


11.01


11.11



Total risk-based capital (d)

12.96


13.03


12.99



Leverage (d)

9.92


10.00


10.03








Asset quality — from continuing operations





Net loan charge-offs

$

196


$

65


$

60



Net loan charge-offs to average loans

.85

%

.29

%

.27

%


Allowance for loan and lease losses

$

893


$

890


$

887



Allowance for credit losses

958


954


947



Allowance for loan and lease losses to period-end loans

.96

%

.97

%

0.99

%


Allowance for credit losses to period-end loans

1.03


1.04


1.06



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

152.6


158.6


137.5



Allowance for credit losses to nonperforming loans (e)

163.8


170.1


146.8



Nonperforming loans at period-end (e)

$

585


$

561


$

645



Nonperforming assets at period-end (e)

711


608


674



Nonperforming loans to period-end portfolio loans (e)

.63

%

.61

%

.72

%


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

.77


.66


.75








Trust assets





Assets under management

$

39,416


$

38,942


$

40,575








Other data





Average full-time equivalent employees

16,898


17,206


18,150



Branches

1,101


1,102


1,166








Taxable-equivalent adjustment

$

8


$

8


$

7


Financial Highlights (continued)

(dollars in millions, except per share amounts)



Nine months ended



9/30/2019

9/30/2018

Summary of operations




Net interest income (TE)

$

2,954


$

2,932



Noninterest income

1,808


1,870



Total revenue (TE)

4,762


4,802



Provision for credit losses

336


187



Noninterest expense

2,921


2,963



Income (loss) from continuing operations attributable to Key

1,242


1,377



Income (loss) from discontinued operations, net of taxes

6


5



Net income (loss) attributable to Key

1,248


1,382







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

$

1,172


$

1,334



Income (loss) from discontinued operations, net of taxes

6


5



Net income (loss) attributable to Key common shareholders

1,178


1,339






Per common share




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

$

1.17


$

1.27



Income (loss) from discontinued operations, net of taxes

.01


.01



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

1.18


1.28







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

1.16


1.26



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

.01


.01



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

1.17


1.26







Cash dividends paid

.525


.395






Performance ratios




From continuing operations:




Return on average total assets

1.17

%

1.35

%


Return on average common equity

10.62


12.81



Return on average tangible common equity (b)

13.23


16.16



Net interest margin (TE)

3.06


3.17



Cash efficiency ratio (b)

59.9


60.1







From consolidated operations:




Return on average total assets

1.16

%

1.35

%


Return on average common equity

10.68


12.86



Return on average tangible common equity (b)

13.30


16.22



Net interest margin (TE)

3.05


3.15






Asset quality — from continuing operations




Net loan charge-offs

$

325


$

174



Net loan charge-offs to average total loans

.48

%

.26

%





Other data




Average full-time equivalent employees

17,217


18,354






Taxable-equivalent adjustment

24


23




(a)

Earnings per share may not foot due to rounding.

(b)

The following table entitled "GAAP to Non-GAAP Reconciliations" presents the computations of certain financial measures related to "tangible common equity" and "cash efficiency." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. For further information on the Regulatory Capital Rules, see the "Capital" section of this release.

(c)

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

(d)

September 30, 2019, ratio is estimated.

(e)

Nonperforming loan balances exclude $497 million, $518 million, and $606 million of purchased credit impaired loans at September 30, 2019, June 30, 2019, and September 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," "earnings per common share excluding notable items," "net loan charge-offs to average loans excluding notable items," and "provision for credit losses excluding notable items."

Notable items include certain revenue or expense items that may occur in a reporting period which management does not consider indicative of ongoing financial performance. Management believes it is useful to consider certain financial metrics with and without notable items, in order to enable a better understanding of company results, increase comparability of period-to-period results, and to evaluate and forecast those results.

The tangible common equity ratio and the return on average tangible common equity ratio have been a focus for some investors, and management believes these ratios may assist investors in analyzing Key's capital position without regard to the effects of intangible assets and preferred stock. Traditionally, the banking regulators have assessed bank and bank holding company capital adequacy based on both the amount and the composition of capital, the calculation of which is prescribed in federal banking regulations. In October 2013, the federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the "Regulatory Capital Rules"). The Regulatory Capital Rules require higher and better-quality capital and introduced a new capital measure, "Common Equity Tier 1," a non-GAAP financial measure. The mandatory compliance date for Key as a "standardized approach" banking organization began on January 1, 2015, subject to transitional provisions.

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

The cash efficiency ratio is a ratio of two non-GAAP performance measures. As such, there is no directly comparable GAAP performance measure. The cash efficiency ratio performance measure removes the impact of Key's intangible asset amortization from the calculation. Management believes this ratio provide greater consistency and comparability between Key's results and those of its peer banks. Additionally, this ratio is used by analysts and investors as they develop earnings forecasts and peer bank analysis.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.


Three months ended


Nine months ended


9/30/2019

6/30/2019

9/30/2018


9/30/2019

9/30/2018

Tangible common equity to tangible assets at period-end







Key shareholders' equity (GAAP)

$

17,116


$

16,969


$

15,208





Less: Intangible assets (a)

2,928


2,952


2,838





Preferred Stock (b)

1,856


1,856


1,421





Tangible common equity (non-GAAP)

$

12,332


$

12,161


$

10,949





Total assets (GAAP)

$

146,691


$

144,545


$

138,805





Less: Intangible assets (a)

2,928


2,952


2,838





Tangible assets (non-GAAP)

$

143,763


$

141,593


$

135,967





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

8.58

%

8.59

%

8.05

%




Earnings per common share (EPS) excluding notable items







EPS from continuing operations attributable to Key common shareholders —
assuming dilution (GAAP)

$

.38


$

.40


$

.45





Plus: EPS impact of notable items

.10


.04






EPS from continuing operations attributable to Key common shareholders —
assuming dilution excluding notable items (non-GAAP)

$

.48


$

.44


$

.45





Pre-provision net revenue







Net interest income (GAAP)

$

972


$

981


$

986



$

2,930


$

2,909


Plus: Taxable-equivalent adjustment

8


8


7



24


23


Noninterest income

650


622


609



1,808


1,870


Less: Noninterest expense

939


1,019


964



2,921


2,963


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

$

691


$

592


$

638



$

1,841


$

1,839


Average tangible common equity







Average Key shareholders' equity (GAAP)

$

17,113


$

16,531


$

15,210



$

16,454


$

15,045


Less: Intangible assets (average) (c)

2,942


2,959


2,848



2,905


2,882


Preferred stock (average)

1,900


1,762


1,316



1,705


1,123


Average tangible common equity (non-GAAP)

$

12,271


$

11,810


$

11,046



$

11,844


$

11,040


Return on average tangible common equity from continuing operations







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

$

383


$

403


$

468



$

1,172


$

1,334


Average tangible common equity (non-GAAP)

12,271


11,810


11,046



11,844


11,040









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

12.38

%

13.69

%

16.81

%


13.23

%

16.16

%

Return on average tangible common equity consolidated







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

$

386


$

405


$

468



$

1,178


$

1,339


Average tangible common equity (non-GAAP)

12,271


11,810


11,046



11,844


11,040









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

12.48

%

13.75

%

16.81

%


13.30

%

16.22

%

GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)



Three months ended


Nine months ended


9/30/2019

6/30/2019

9/30/2018


9/30/2019

9/30/2018

Cash efficiency ratio







Noninterest expense (GAAP)

$

939


$

1,019


$

964



$

2,921


$

2,963


Less: Intangible asset amortization

26


22


23



70


77


Adjusted noninterest expense (non-GAAP)

$

913


$

997


$

941



$

2,851


$

2,886









Net interest income (GAAP)

$

972


$

981


$

986



$

2,930


$

2,909


Plus: Taxable-equivalent adjustment

8


8


7



24


23


Noninterest income

650


622


609



1,808


1,870


Total taxable-equivalent revenue (non-GAAP)

$

1,630


$

1,611


$

1,602



$

4,762


$

4,802









Cash efficiency ratio (non-GAAP)

56.0

%

61.9

%

58.7

%


59.9

%

60.1

%

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







Net loan charge-offs (GAAP)

$

196


$

65


$

60



$

325


$

174


Less: Notable items

123





123



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

$

73


$

65


$

60



$

202


$

174









Average loans outstanding

$

91,956


$

90,785


$

88,467



$

90,805


$

88,018









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

.31

%

.29

%

.27

%


.30

%

.26

%

Provision for credit losses excluding notable items







Provision for credit losses (GAAP)

$

200


$

74


$

62



$

336


$

187


Less: Notable Items

123





123



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

$

77


$

74


$

62



$

213


$

187





Three
months
ended




9/30/2019

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



Common Equity Tier 1 under current RCR

$

12,288



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)

$

12,288







Net risk-weighted assets under current RCR

$

129,099



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




Mortgage servicing assets (g)

838




Deferred tax assets

201




All other assets




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

$

130,138







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

9.44

%





(a)

For the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, intangible assets exclude $9 million, $10 million, and $17 million, respectively, of period-end purchased credit card receivables.

(b)

Net of capital surplus.

(c)

For the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, average intangible assets exclude $9 million, $11 million, and $18 million, respectively, of average purchased credit card receivables. For the nine months ended September 30, 2019, and September 30, 2018, average intangible assets exclude $11 million and $21 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)










9/30/2019

6/30/2019

9/30/2018

Assets





Loans

$

92,760


$

91,937


$

89,268



Loans held for sale

1,598


1,790


1,618



Securities available for sale

22,378


21,528


18,341



Held-to-maturity securities

10,490


10,878


11,869



Trading account assets

963


1,005


958



Short-term investments

3,351


2,443


2,272



Other investments

620


632


681




Total earning assets

132,160


130,213


125,007



Allowance for loan and lease losses

(893)


(890)


(887)



Cash and due from banks

636


607


319



Premises and equipment

815


829


891



Goodwill

2,664


2,664


2,516



Other intangible assets

272


298


338



Corporate-owned life insurance

4,216


4,201


4,156



Accrued income and other assets

5,881


5,633


5,308



Discontinued assets

940


990


1,157




Total assets

$

146,691


144,545


138,805








Liabilities





Deposits in domestic offices:






NOW and money market deposit accounts

$

65,604


$

63,619


$

57,219




Savings deposits

4,668


4,747


4,948




Certificates of deposit ($100,000 or more)

7,194


8,084


8,453




Other time deposits

5,300


5,524


5,130




Total interest-bearing deposits

82,766


81,974


75,750




Noninterest-bearing deposits

28,883


27,972


30,030




Total deposits

111,649


109,946


105,780



Federal funds purchased and securities sold under repurchase agreements

182


161


1,285



Bank notes and other short-term borrowings

700


720


637



Accrued expense and other liabilities

2,574


2,435


2,044



Long-term debt

14,470


14,312


13,849




Total liabilities

129,575


127,574


123,595








Equity





Preferred stock

1,900


1,900


1,450



Common shares

1,257


1,257


1,257



Capital surplus

6,287


6,266


6,315



Retained earnings

12,209


12,005


11,262



Treasury stock, at cost

(4,696)


(4,457)


(3,910)



Accumulated other comprehensive income (loss)

159


(2)


(1,166)




Key shareholders' equity

17,116


16,969


15,208



Noncontrolling interests


2


2




Total equity

17,116


16,971


15,210


Total liabilities and equity

$

146,691


$

144,545


$

138,805








Common shares outstanding (000)

988,538


1,003,114


1,034,287



Consolidated Statements of Income

(dollars in millions, except per share amounts)





Three months ended


Nine months ended




9/30/2019

6/30/2019

9/30/2018


9/30/2019

9/30/2018

Interest income








Loans

$

1,073


$

1,082


$

1,025



$

3,221


$

2,965



Loans held for sale

18


15


12



46


40



Securities available for sale

136


135


102



400


294



Held-to-maturity securities

64


67


72



199


213



Trading account assets

7


9


7



24


21



Short-term investments

16


17


15



49


31



Other investments

3


4


6



11


17




Total interest income

1,317


1,329


1,239



3,950


3,581


Interest expense








Deposits

227


223


140



652


343



Federal funds purchased and securities sold under repurchase agreements



1



1


10



Bank notes and other short-term borrowings

4


5


4



13


17



Long-term debt

114


120


108



354


302




Total interest expense

345


348


253



1,020


672


Net interest income

972


981


986



2,930


2,909


Provision for credit losses

200


74


62



336


187


Net interest income after provision for credit losses

772


907


924



2,594


2,722


Noninterest income








Trust and investment services income

118


122


117



355


378



Investment banking and debt placement fees

176


163


166



449


464



Service charges on deposit accounts

86


83


85



251


265



Operating lease income and other leasing gains

42


44


35



123


61



Corporate services income

63


53


52



171


175



Cards and payments income

69


73


69



208


202



Corporate-owned life insurance income

32


33


34



97


98



Consumer mortgage income

14


10


9



32


23



Mortgage servicing fees

23


24


19



68


61



Other income (a)

27


17


23



54


143




Total noninterest income

650


622


609



1,808


1,870


Noninterest expense








Personnel

547


589


553



1,699


1,733



Net occupancy

72


73


76



217


233



Computer processing

53


56


52



163


155



Business services and professional fees

43


45


43



132


135



Equipment

27


24


27



75


79



Operating lease expense

33


32


31



91


88



Marketing

26


24


26



69


77



FDIC assessment

7


9


21



23


63



Intangible asset amortization

26


22


23



70


77



OREO expense, net

3


4


3



10


5



Other expense

102


141


109



372


318




Total noninterest expense

939


1,019


964



2,921


2,963


Income (loss) from continuing operations before income taxes

483


510


569



1,481


1,629



Income taxes

70


87


87



239


252


Income (loss) from continuing operations

413


423


482



1,242


1,377



Income (loss) from discontinued operations, net of taxes

3


2




6


5


Net income (loss)

416


425


482



1,248


1,382



Less: Net income (loss) attributable to noncontrolling interests







Net income (loss) attributable to Key

$

416


$

425


$

482



$

1,248


$

1,382











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

$

383


$

403


$

468



$

1,172


$

1,334


Net income (loss) attributable to Key common shareholders

386


405


468



1,178


1,339


Per common share







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

$

.39


$

.40


$

.45



$

1.17


$

1.27


Income (loss) from discontinued operations, net of taxes





.01


.01


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

.39


.40


.45



1.18


1.28


Per common share — assuming dilution







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

$

.38


$

.40


$

.45



$

1.16


$

1.26


Income (loss) from discontinued operations, net of taxes





.01


.01


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

.39


.40


.45



1.17


1.26











Cash dividends declared per common share

$

.185


$

.17


$

.17



$

.525


$

.395











Weighted-average common shares outstanding (000)

988,319


999,163


1,036,479



998,268


1,048,397



Effect of common share options and other stock awards

10,009


8,801


13,497



9,632


14,419


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

998,328


1,007,964


1,049,976



1,007,900


1,062,816


(a)

For the three and nine months ended September 30, 2019, net securities gains (losses) totaled $15 million. For the three months ended June 30, 2019, and September 30, 2018, and the nine months ended September 30, 2018, net securities gains (losses) totaled less than $1 million. For the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, and the nine months ended September 30, 2019 and September 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)




Third Quarter 2019


Second Quarter 2019


Third 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)

$

48,322


$

543


4.46

%


$

47,227


$

547


4.65

%


$

44,749


$

495


4.39

%


Real estate — commercial mortgage

13,056


163


4.95



13,866


175


5.06



14,268


176


4.89



Real estate — construction

1,463


19


5.22



1,423


20


5.41



1,759


22


5.05



Commercial lease financing

4,497


42


3.68



4,476


41


3.65



4,444


43


3.88



Total commercial loans

67,338


767


4.52



66,992


783


4.69



65,220


736


4.49



Real estate — residential mortgage

6,256


62


3.97



5,790


58


4.03



5,466


55


3.99



Home equity loans

10,488


132


4.97



10,701


135


5.05



11,415


137


4.80



Consumer direct loans

2,548


45


6.99



2,352


43


7.39



1,789


35


7.71



Credit cards

1,100


32


11.59



1,091


31


11.26



1,095


32


11.43



Consumer indirect loans

4,226


43


4.10



3,859


40


4.15



3,482


37


4.25



Total consumer loans

24,618


314


5.07



23,793


307


5.17



23,247


296


5.06



Total loans

91,956


1,081


4.67



90,785


1,090


4.81



88,467


1,032


4.64



Loans held for sale

1,558


18


4.65



1,302


15


4.56



1,117


12


4.59



Securities available for sale (b), (e)

21,867


136


2.52



21,086


135


2.54



17,631


102


2.22



Held-to-maturity securities (b)

10,684


64


2.41



11,058


67


2.41



12,065


72


2.40



Trading account assets

884


7


3.00



1,124


9


3.28



787


7


3.37



Short-term investments

2,861


16


2.19



3,200


17


2.23



2,928


15


1.93



Other investments (e)

624


3


1.82



640


4


2.00



685


6


3.27



Total earning assets

130,434


1,325


4.05



129,195


1,337


4.14



123,680


1,246


3.98



Allowance for loan and lease losses

(881)





(881)





(886)





Accrued income and other assets

14,605





14,321





13,935





Discontinued assets

957





1,009





1,186





Total assets

$

145,115





$

143,644





$

137,915




Liabilities













NOW and money market deposit accounts

$

64,595


154


.94



$

63,071


147


.93



$

56,391


82


.58



Savings deposits

4,709


1


.10



4,781


1


.09



5,413


3


.20



Certificates of deposit ($100,000 or more)

7,625


45


2.37



8,147


48


2.37



8,186


38


1.86



Other time deposits

5,449


27


1.96



5,569


27


1.93



5,026


17


1.40



Total interest-bearing deposits

82,378


227


1.09



81,568


223


1.10



75,016


140


.74



Federal funds purchased and securities sold
under repurchase agreements

187



.50



194



.20



552


1


1.00



Bank notes and other short-term borrowings

626


4


2.04



842


5


2.46



596


4


2.76



Long-term debt (f), (g)

13,347


114


3.51



13,213


120


3.67



12,678


108


3.34



Total interest-bearing liabilities

96,538


345


1.42



95,817


348


1.46



88,842


253


1.13



Noninterest-bearing deposits

27,901





28,033





30,610





Accrued expense and other liabilities

2,605





2,253





2,065





Discontinued liabilities (g)

957





1,009





1,186





Total liabilities

128,001





127,112





122,703




Equity













Key shareholders' equity

17,113





16,531





15,210





Noncontrolling interests

1





1





2





Total equity

17,114





16,532





15,212





Total liabilities and equity

$

145,115





$

143,644





$

137,915




Interest rate spread (TE)



2.63

%




2.68

%




2.85

%

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


980


3.00

%



989


3.06

%



993


3.18

%

TE adjustment (b)


8





8





7




Net interest income, GAAP basis


$

972





$

981





$

986



(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 September 30, 2019, June 30, 2019, and September 30, 2018.

(c)

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

(d)

Commercial and industrial average balances include $144 million, $141 million, and $128 million of assets from commercial credit cards for the three months ended September 30, 2019, June 30, 2019, and September 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)




Nine months ended September 30, 2019


Nine months ended September 30, 2018



Average


Yield/


Average


Yield/



Balance

Interest (a)

Rate (a)


Balance

Interest (a)

Rate (a)

Assets









Loans: (b), (c)









Commercial and industrial (d)

$

47,191


$

1,622


4.59

%


$

44,178


$

1,414


4.28

%


Real estate — commercial mortgage

13,744


517


5.03



14,137


513


4.85



Real estate — construction

1,482


60


5.37



1,834


67


4.88



Commercial lease financing

4,490


124


3.66



4,552


125


3.67



Total commercial loans

66,907


2,323


4.64



64,701


2,119


4.38



Real estate — residential mortgage

5,866


176


4.00



5,466


163


3.97



Home equity loans

10,726


404


5.03



11,629


406


4.67



Consumer direct loans

2,256


125


7.42



1,774


101


7.59



Credit cards

1,099


95


11.55



1,085


92


11.32



Consumer indirect loans

3,951


122


4.13



3,363


107


4.27



Total consumer loans

23,898


922


5.15



23,317


869


4.98



Total loans

90,805


3,245


4.77



88,018


2,988


4.54



Loans held for sale

1,329


46


4.64



1,226


40


4.40



Securities available for sale (b), (e)

21,059


400


2.52



17,653


294


2.14



Held-to-maturity securities (b)

11,035


199


2.41



12,111


213


2.35



Trading account assets

988


24


3.22



879


21


3.19



Short-term investments

2,930


49


2.23



2,334


31


1.76



Other investments (e)

639


11


2.18



706


17


3.10



Total earning assets

128,785


3,974


4.12



122,927


3,604


3.90



Allowance for loan and lease losses

(880)





(879)





Accrued income and other assets

14,414





13,966





Discontinued assets

1,010





1,243





Total assets

$

143,329





$

137,257




Liabilities









NOW and money market deposit accounts

$

62,827


431


.92



$

54,891


187


.46



Savings deposits

4,767


3


.09



5,971


13


.28



Certificates of deposit ($100,000 or more)

8,046


140


2.33



7,563


97


1.72



Other time deposits

5,506


78


1.90



4,947


46


1.25



Total interest-bearing deposits

81,146


652


1.07



73,372


343


.63



Federal funds purchased and securities sold under repurchase agreements

262


1


.63



1,146


10


1.22



Bank notes and other short-term borrowings

706


13


2.43



1,015


17


2.19



Long-term debt (f), (g)

13,241


354


3.62



12,631


302


3.17



Total interest-bearing liabilities

95,355


1,020


1.43



88,164


672


1.02



Noninterest-bearing deposits

28,016





30,701





Accrued expense and other liabilities

2,493





2,102





Discontinued liabilities (g)

1,010





1,243





Total liabilities

126,874





122,210




Equity









Key shareholders' equity

16,454





15,045





Noncontrolling interests

1





2





Total equity

16,455





15,047





Total liabilities and equity

$

143,329





$

137,257




Interest rate spread (TE)



2.69

%




2.88

%

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


2,954

3.06

%



2,932


3.17

%

TE adjustment (b)


24




23




Net interest income, GAAP basis


$

2,930




$

2,909



(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 nine months ended September 30, 2019, and September 30, 2018, respectively.

(c)

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

(d)

Commercial and industrial average balances include $139 million and $125 million of assets from commercial credit cards for the nine months ended September 30, 2019, and September 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


Nine months ended


9/30/2019

6/30/2019

9/30/2018


9/30/2019

9/30/2018

Personnel (a)

$

547


$

589


$

553



$

1,699


$

1,733


Net occupancy

72


73


76



217


233


Computer processing

53


56


52



163


155


Business services and professional fees

43


45


43



132


135


Equipment

27