PR Newswire | Oct 21, 2020 06:31AM EDT

Diluted Common Share

10/21 05:30 CDT

KeyCorp Reports Third Quarter 2020 Net Income Of $397 Million, Or $.41 Per Diluted Common ShareRevenue up 3% from year-ago period, reflecting continued momentum in consumer and commercial businessesStrong balance sheet with Common Equity Tier 1 Capital of 9.5%, up 40 basis points from prior quarterDisciplined risk management and underwriting drives credit quality: net charge-offs to average loans of 49 basis pointsDouble-digit growth in loans and deposits compared to prior yearNoninterest income up 5% from the prior year, driven by growth in payments business and consumer mortgage CLEVELAND, Oct. 21, 2020

CLEVELAND, Oct. 21, 2020 /PRNewswire/ -- KeyCorp (NYSE: KEY) today announced net income from continuing operations attributable to Key common shareholders of $397 million, or $.41 per diluted common share for the third quarter of 2020. This compared to $159 million, or $.16 per diluted common share, for the second quarter of 2020 and $383 million, or $.38 per diluted common share, for the third quarter of 2019, which included $.10 per diluted common share related to notable items.

Key's third quarter results reflect continued momentum in our businesses, strong credit discipline and investments we have made to strengthen our franchise. Our success also demonstrates the resiliency and dedication of our team in serving our clients and supporting our communities.

In the third quarter, revenue increased 3% from the prior year, driven by strong balance sheet growth and higher fee income. Average loans and deposits were both up double-digits from the same period last year, reflecting the impact from the Paycheck Protection Program, as well as strong loan originations from consumer mortgage and Laurel Road. Noninterest income benefitted from higher cards and payments activity and growth in consumer mortgage fees.

During the quarter, expense levels reflected higher variable costs from production-related incentives and cards and payments activity, as well as elevated pandemic-related costs associated with keeping our teammates and clients safe. Through our continuous improvement efforts, we are maintaining our focus on expenses - improving our efficiency while continuing to invest for growth, including our digital capabilities across our franchise.

Importantly, we remain committed to strong risk management practices and being disciplined with our capital. Our Common Equity Tier 1 ratio ended the quarter at 9.5%, up 40 basis points from the prior quarter, and at the upper end of our targeted range.

Despite the challenges presented by the pandemic, low interest rates and economic uncertainty, we are confident that Key is well-positioned to navigate the current environment while concurrently assisting in the recovery phase and investing in our bright future.

- Chris Gorman, Chairman and CEO

Selected Financial Highlights



dollars in millions, except per share data Change 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Income (loss) from continuing operations attributable to Key common $397 $159 $383 149.7 %3.7% shareholders

Income (loss) from continuing operations attributable to Key common shareholders .41 .16 .38 156.3 7.9 per common share - assuming dilution

Return on average tangible common equity from continuing operations ^(a) 12.19 %4.96 %12.38 %N/A N/A

Return on average total assets from continuing operations 1.00 .45 1.14 N/A N/A

Common Equity Tier 1 ratio ^(b) 9.5 9.1 9.5 N/A N/A

Book value at period end $16.25 $16.07 $15.44 1.1 %5.2%

Net interest margin (TE) from continuing operations 2.62 %2.76 %3.00 %N/A N/A





The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial (a)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)9/30/20 ratio is estimated.

TE = Taxable Equivalent, N/A = Not Applicable

INCOME STATEMENT HIGHLIGHTS

Revenue

dollars in millions Change 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Net interest income (TE) $ 1,006 $ 1,025 $ 980 (1.9) % 2.7 %

Noninterest income 681 692 650 (1.6) 4.8

Total revenue $ 1,687 $ 1,717 $ 1,630 (1.7) % 3.5 %

TE = Taxable Equivalent

Taxable-equivalent net interest income was $1.0 billion for the third quarter of 2020, compared to taxable-equivalent net interest income of $980 million for the third quarter of 2019. The increase in net interest income reflects higher earning asset balances partially offset by a lower net interest margin. The net interest margin was impacted by lower interest rates and a change in balance sheet mix, including elevated levels of liquidity and Key's participation in the Paycheck Protection Program ("PPP").

Compared to the second quarter of 2020, taxable-equivalent net interest income decreased by $19 million, primarily reflecting lower loan balances. The lower net interest margin was driven by a shift in balance sheet mix, reflecting continued elevated levels of liquidity.

Noninterest Income



dollars in millions Change 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Trust and investment services income $128$123$1184.1 %8.5 %

Investment banking and debt placement fees 146 156 176 (6.4) (17.0)

Service charges on deposit accounts 77 68 86 13.2 (10.5)

Operating lease income and other leasing gains38 60 42 (36.7) (9.5)

Corporate services income 51 52 63 (1.9) (19.0)

Cards and payments income 114 91 69 25.3 65.2

Corporate-owned life insurance income 30 35 32 (14.3) (6.3)

Consumer mortgage income 51 62 16 (17.7) 218.8

Commercial mortgage servicing fees 18 12 21 50.0 (14.3)

Other income 28 33 27 (15.2) 3.7

Total noninterest income $681$692$650(1.6) %4.8 %



Compared to the third quarter of 2019, noninterest income increased by $31 million, primarily driven by a $45 million increase in cards and payments income related to higher prepaid card activity. Additionally, consumer mortgage income increased $35 million from the year-ago period, driven by strong loan originations and related fees. These increases were partially offset by a $30 million decline in investment banking and debt placement fees, primarily driven by lower loan syndication and M&A fees.

Compared to the second quarter of 2020, noninterest income decreased by $11 million. The largest driver of the quarterly decrease was a $22 million decline in operating lease income, related to gains on the sale of leveraged leases in the prior quarter. Investment banking and debt placement fees and consumer mortgage income delivered solid results, but both declined versus the prior quarter. Partially offsetting these declines was a $23 million increase in cards and payments income related to higher prepaid card activity and a $9 million increase in service charges on deposit accounts.

Noninterest Expense



dollars in millions Change 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Personnel expense $588 $572 $5472.8 %7.5 %

Nonpersonnel expense 449 441 392 1.8 14.5

Total noninterest expense$1,037$1,013$9392.4 %10.4 %



Key's noninterest expense was $1.0 billion for the third quarter of 2020, an increase of $98 million from the year-ago period. The increase is primarily related to higher payments-related expenses from prepaid card activity incurred in the current period, as well as COVID-19-related costs related to steps that the company has taken to ensure the health and safety of teammates. Personnel costs increased by $41 million, reflecting higher production-related incentives, merit increases and employee benefits costs.

Compared to the second quarter of 2020, noninterest expense increased $24 million. The increase was largely due to payments-related costs (in other expense), as well as higher employee benefits costs, which drove an increase in personnel costs quarter over quarter.

BALANCE SHEET HIGHLIGHTS



Average Loans



dollars in millions Change 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Commercial and industrial ^(a)$57,067 $60,480 $48,322(5.6) %18.1%

Other commercial loans 19,677 19,850 19,016 (.9) 3.5

Total consumer loans 28,175 27,611 24,618 2.0 14.4

Total loans $104,919$107,941$91,956(2.8) %14.1%





Commercial and industrial average loan balances include $129 million, (a)$135 million, and $144 million of assets from commercial credit cards at September 30, 2020, June 30, 2020, and September 30, 2019, respectively.

Average loans were $104.9 billion for the third quarter of 2020, an increase of $13.0 billion compared to the third quarter of 2019. Commercial loans increased $9.4 billion, reflecting growth from PPP, as well as core broad-based growth in commercial and industrial loans and increased utilization versus the year-ago period. Consumer loans increased $3.6 billion, driven by strength from Laurel Road and Key's consumer mortgage business.

Compared to the second quarter of 2020, average loans decreased by $3.0 billion. Commercial loans declined as clients paid down elevated line draws from earlier in the year, partly offset by growth in PPP average balances. Consumer loans continue to reflect strength from Laurel Road, as well as Key's consumer mortgage business.

Average Deposits



dollars in millions Change 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Non-time deposits $127,347 $118,694 $97,205 7.3 %31.0 %

Certificates of deposit ($100,000 or more)3,862 4,950 7,625 (22.0) (49.4)

Other time deposits 3,735 4,333 5,449 (13.8) (31.5)

Total deposits $134,944 $127,977 $110,279 5.4 %22.4 %



Cost of total deposits .16 %.30 %.82 %N/A N/A





N/A = Not Applicable

Average deposits totaled $134.9 billion for the third quarter of 2020, an increase of $24.7 billion compared to the year-ago quarter, reflecting growth from consumer and commercial relationships, partially offset by a decline in time deposits as a result of lower interest rates.

Compared to the second quarter of 2020, average deposits increased by $7.0 billion, primarily driven by broad-based commercial growth as well as growth from consumer stimulus payments and lower consumer spending. This growth was offset by a continued decline in time deposits.

ASSET QUALITY



dollars in millions Change 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Net loan charge-offs $128 $96 $196 33.3 %(34.7)%

Net loan charge-offs to average total loans .49 %.36 %.85 %N/A N/A

Nonperforming loans at period end $834 $760 $585 9.7 42.6

Nonperforming assets at period end 1,003 951 711 5.5 41.1

Allowance for loan and lease losses 1,730 1,708 893 1.3 93.7

Allowance for credit losses 1,938 1,906 958 1.7 102.3

Allowance for loan and lease losses to nonperforming loans207.4%224.7%152.6%N/A N/A

Allowance for credit losses to nonperforming loans 232.4 250.8 163.8 N/A N/A

Provision for credit losses $160 $482 $200 (66.8)%(20.0)%





N/A = Not Applicable

Key's provision for credit losses was $160 million for the third quarter of 2020, compared to $200 million for the third quarter of 2019 (which included $123 million related to a previously-disclosed fraud loss), and $482 million for the second quarter of 2020. The provision for credit losses reflects the adoption of a new accounting standard, often referred to as Current Expected Credit Losses ("CECL"), beginning in the first quarter of 2020. This framework requires that management estimate credit losses over the full remaining expected life and consider expected future changes in macroeconomic conditions.

The provision for credit losses exceeded net charge-offs by $32 million. Net loan charge-offs for the third quarter of 2020 totaled $128 million, or .49% of average total loans. These results compare to $196 million, or .85%, for the third quarter of 2019 (which included $123 million related to a previously-disclosed fraud loss) and $96 million, or .36%, for the second quarter of 2020. Key's allowance for credit losses was $1.9 billion, or 1.88% of total period-end loans at September 30, 2020, compared to 1.03% at September 30, 2019, and 1.80% at June 30, 2020.

At September 30, 2020, Key's nonperforming loans totaled $834 million, which represented .81% of period-end portfolio loans. These results compare to .63% at September 30, 2019, and .72% at June 30, 2020. Nonperforming assets at September 30, 2020, totaled $1.0 billion, and represented .97% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to .77% at September 30, 2019, and .89% at June 30, 2020.

CAPITAL

Key's estimated risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at September 30, 2020.

Capital Ratios



9/30/20206/30/20209/30/2019

Common Equity Tier 1 ^(a) 9.5 %9.1 %9.5 %

Tier 1 risk-based capital ^(a) 10.9 10.5 10.9

Total risk based capital ^(a) 13.3 12.8 12.9

Tangible common equity to tangible assets ^(b)7.8 7.6 8.6

Leverage ^(a) 8.7 8.8 9.9





(a)9/30/2020 ratio is estimated and reflects Key's election to adopt the CECL optional transition provision.

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

Key's capital position remained strong in the third quarter of 2020. As shown in the preceding table, at September 30, 2020, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.5% and 10.9%, respectively. Key's tangible common equity ratio was 7.8% at September 30, 2020.

Key has elected the CECL phase-in option provided by regulatory guidance which delays for two years the estimated impact of CECL on regulatory capital and phases it in over three years beginning in 2022. On a fully phased-in basis, Key's Common Equity Tier 1 ratio would be reduced by 31 basis points.

Summary of Changes in Common Shares Outstanding



in thousands Change 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Shares outstanding at beginning of period 975,947975,3191,003,114.1 %(2.7) %

Open market repurchases and return of shares under employee (1) (19) (15,076) (94.7) (100.0) compensation plans

Shares issued under employee compensation plans (net of cancellations)259 647 500 (60.0) (48.2)

Shares outstanding at end of period 976,205975,947988,538 - (1.2) %



Consistent with Key's 2020 Capital Plan, during the third quarter of 2020, Key declared a dividend of $.185 per common share. Per Key's announcement on March 17, 2020, share repurchase activity has been temporarily suspended in response to the COVID-19 pandemic.

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 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Revenue from continuing operations (TE)

Consumer Bank $871 $841 $833 3.6 %4.6 %

Commercial Bank 804 857 780 (6.2) 3.1

Other ^(a) 12 19 17 (36.8) (29.4)

Total $1,687$1,717$1,630(1.7) %3.5 %



Income (loss) from continuing operations attributable to Key

Consumer Bank $241 $91 $196 164.8 %23.0 %

Commercial Bank 160 101 301 58.4 (46.8)

Other ^(a) 23 (7) (84) N/M N/M

Total $424 $185 $413 129.2 %2.7 %





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 (a)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 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Summary of operations

Net interest income (TE) $604 $594 $595 1.7 %1.5 %

Noninterest income 267 247 238 8.1 12.2

Total revenue (TE) 871 841 833 3.6 4.6

Provision for credit losses (16) 167 48 N/M N/M

Noninterest expense 571 555 529 2.9 7.9

Income (loss) before income taxes (TE) 316 119 256 165.5 23.4

Allocated income taxes (benefit) and TE adjustments75 28 60 167.9 25.0

Net income (loss) attributable to Key $241 $91 $196 164.8 %23.0%



Average balances

Loans and leases $41,471$39,197$32,7605.8 %26.6%

Total assets 44,888 44,088 36,397 1.8 23.3

Deposits 83,175 79,502 72,995 4.6 13.9



Assets under management at period end $41,312$39,722$39,4164.0 %4.8 %





TE = Taxable Equivalent

Additional Consumer Bank Data



dollars in millions Change 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Noninterest income

Trust and investment services income $100 $87 $90 14.9 %11.1 %

Service charges on deposit accounts 44 38 58 15.8 (24.1)

Cards and payments income 55 47 52 17.0 5.8

Consumer mortgage income 51 62 16 (17.7) 218.8

Other noninterest income 17 13 22 30.8 (22.7)

Total noninterest income $267 $247 $238 8.1 %12.2 %



Average deposit balances

NOW and money market deposit accounts $52,550 $49,152 $43,638 6.9 %20.4 %

Savings deposits 5,169 4,817 4,406 7.3 17.3

Certificates of deposit ($100,000 or more) 3,550 4,520 6,488 (21.5) (45.3)

Other time deposits 3,701 4,296 5,430 (13.9) (31.8)

Noninterest-bearing deposits 18,205 16,717 13,033 8.9 39.7

Total deposits $83,175 $79,502 $72,995 4.6 %13.9 %



Home equity loans

Average balance $9,528 $9,893 $10,413

Combined weighted-average loan-to-value ratio (at date of origination)70 %70 %70 %

Percent first lien positions 64 63 60



Other data

Branches 1,077 1,077 1,101

Automated teller machines 1,388 1,394 1,422



Consumer Bank Summary of Operations (3Q20 vs. 3Q19)

* Net income attributable to Key of $241 million for the third quarter of 2020, compared to $196 million for the year-ago quarter * Taxable-equivalent net interest income increased by $9 million, or 1.5%, compared to the third quarter of 2019, as a result of strong balance sheet growth, partially offset by the lower interest rate environment * Average loans and leases increased $8.7 billion, or 26.6%, driven by benefit from the PPP, as well as growth from consumer mortgage and Laurel Road * Average deposits increased $10.2 billion, or 13.9%, from the third quarter of 2019, driven by consumer stimulus payments and relationship growth * Provision for credit losses decreased $64 million compared to the third quarter of 2019, due to lower net charge-offs and a reduced allowance, driven by improved macroeconomic factors and continued strength in client credit quality * Noninterest income increased $29 million, or 12.2%, from the year ago quarter, driven by strength in consumer mortgage income and higher trust and investment services income, partially offset by lower consumer spend activity * Noninterest expense increased $42 million, or 7.9%, from the year ago quarter driven by higher variable expenses from production-related incentives and higher loan volumes

Commercial Bank





dollars in millions Change 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Summary of operations

Net interest income (TE) $421 $452 $399 (6.9) %5.5 %

Noninterest income 383 405 381 (5.4) .5

Total revenue (TE) 804 857 780 (6.2) 3.1

Provision for credit losses 163 314 32 (48.1) 409.4

Noninterest expense 443 438 378 1.1 17.2

Income (loss) before income taxes (TE) 198 105 370 88.6 (46.5)

Allocated income taxes and TE adjustments38 4 69 850.0 (44.9)

Net income (loss) attributable to Key $160 $101 $301 58.4 %(46.8)%



Average balances

Loans and leases $62,925$68,038$58,215(7.5) %8.1 %

Loans held for sale 1,383 2,012 1,325 (31.3) 4.4

Total assets 72,613 76,974 66,549 (5.7) 9.1

Deposits 51,238 47,685 36,204 7.5 %41.5 %





TE = Taxable Equivalent, N/M = Not Meaningful

Additional Commercial Bank Data



dollars in millions Change 3Q20 vs.

3Q20 2Q20 3Q19 2Q20 3Q19

Noninterest income

Trust and investment services income $28 $36 $28 (22.2)%-

Investment banking and debt placement fees 146 156 176 (6.4) (17.0)%

Operating lease income and other leasing gains38 46 40 (17.4) (5.0)



Corporate services income 44 45 56 (2.2) (21.4)

Service charges on deposit accounts 32 30 27 6.7 18.5

Cards and payments income 59 44 16 34.1 268.8

Payments and services income 135 119 99 13.4 36.4



Commercial mortgage servicing fees 18 12 20 50.0 (10.0)

Other noninterest income 18 36 18 (50.0) -

Total noninterest income $383$405$381(5.4) %.5 %





N/M = Not Meaningful

Commercial Bank Summary of Operations (3Q20 vs. 3Q19)

* Net income attributable to Key of $160 million for the third quarter of 2020, compared to $301 million for the year-ago quarter * Taxable-equivalent net interest income increased by $22 million, or 5.5%, compared to the third quarter of 2019, with balance sheet growth partially offset by the lower interest rate environment * Average loan and lease balances increased $4.7 billion, or 8.1%, compared to the third quarter of 2019 driven by growth in commercial and industrial loans from line draws and PPP loans * Average deposit balances increased $15 billion, or 41.5%, compared to the third quarter of 2019, driven by growth in targeted relationships and the impact of government programs * Provision for credit losses increased $131 million compared to the third quarter of 2019, driven by an increase in net charge-offs and higher reserve levels * Noninterest income increased $2 million, from the third quarter of 2019, as higher cards and payments income related to prepaid card revenue was partially offset by declines in investment banking and corporate services income * Noninterest expense increased by $65 million, or 17.2%, from the third quarter of 2019 driven by elevated variable expenses related to prepaid card

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

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 $170.5 billion at September 30, 2020.

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 more than 1,000 branches and approximately 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.

INVESTOR RELATIONS:KEY MEDIA NEWSROOM:

www.key.com/ir www.key.com/newsroom

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 thatany 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, 2019, 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. In addition to the aforementioned factors, the COVID-19 global pandemic is adversely affecting us, our clients, and third-party service providers, among others, and its impact may adversely affect our business andresults of operations over a period of time. Any forward-looking statements made by us or on our behalf speak only as of the date they are made and we donot 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 9:00 a.m. ET, on Wednesday, October 21, 2020. A replay of the call will be available through November 4, 2020.

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

*****

KeyCorp Third Quarter 2020 Financial Supplement



Page

13 Financial Highlights

14 GAAP to Non-GAAP Reconciliation

16 Consolidated Balance Sheets

17 Consolidated Statements of Income

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

20 Noninterest Expense

20 Personnel Expense

21 Loan Composition

21 Loans Held for Sale Composition

21 Summary of Changes in Loans Held for Sale

22 Summary of Loan and Lease Loss Experience From Continuing Operations

23 Asset Quality Statistics From Continuing Operations

23 Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

23 Summary of Changes in Nonperforming Loans From Continuing Operations

24 Line of Business Results

Financial Highlights

(dollars in millions, except per share amounts)

Three months ended

9/30/2020 6/30/2020 9/30/2019

Summary of operations

Net interest income (TE) $1,006 $1,025 $980

Noninterest income 681 692 650

Total revenue (TE) 1,687 1,717 1,630

Provision for credit losses 160 482 200

Noninterest expense 1,037 1,013 939

Income (loss) from continuing operations attributable to Key 424 185 413

Income (loss) from discontinued operations, net of taxes 4 2 3

Net income (loss) attributable to Key 428 187 416



Income (loss) from continuing operations attributable to Key common 397 159 383 shareholders

Income (loss) from discontinued operations, net of taxes 4 2 3

Net income (loss) attributable to Key common shareholders 401 161 386



Per common share

Income (loss) from continuing operations attributable to Key common $.41 $.16 $.39 shareholders

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

Net income (loss) attributable to Key common shareholders ^(a) .41 .17 .39



Income (loss) from continuing operations attributable to Key common .41 .16 .38 shareholders - assuming dilution

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

Net income (loss) attributable to Key common shareholders - assuming dilution ^ .41 .17 .39 (a)



Cash dividends declared .185 .185 .185

Book value at period end 16.25 16.07 15.44

Tangible book value at period end 13.32 13.12 12.48

Market price at period end 11.93 12.18 17.84



Performance ratios

From continuing operations:

Return on average total assets 1.00 %.45 %1.14 %

Return on average common equity 9.98 4.05 9.99

Return on average tangible common equity ^(b) 12.19 4.96 12.38

Net interest margin (TE) 2.62 2.76 3.00

Cash efficiency ratio ^(b) 60.6 57.9 56.0



From consolidated operations:

Return on average total assets 1.00 %.46 %1.14 %

Return on average common equity 10.08 4.10 10.07

Return on average tangible common equity ^(b) 12.31 5.02 12.48

Net interest margin (TE) 2.62 2.76 2.98

Loan to deposit ^(c) 77.2 80.4 85.3



Capital ratios at period end

Key shareholders' equity to assets 10.4 %10.2 %11.7 %

Key common shareholders' equity to assets 9.3 9.2 10.4

Tangible common equity to tangible assets ^(b) 7.8 7.6 8.6

Common Equity Tier 1^ (d) 9.5 9.1 9.5

Tier 1 risk-based capital ^(d) 10.9 10.5 10.9

Total risk-based capital ^(d) 13.3 12.8 12.9

Leverage ^(d) 8.7 8.8 9.9



Asset quality - from continuing operations

Net loan charge-offs $128 $96 $196

Net loan charge-offs to average loans .49 %.36 %.85 %

Allowance for loan and lease losses $1,730 $1,708 $893

Allowance for credit losses 1,938 1,906 958

Allowance for loan and lease losses to period-end loans 1.68 %1.61 %.96 %

Allowance for credit losses to period-end loans 1.88 1.80 1.03

Allowance for loan and lease losses to nonperforming loans ^(e) 207.4 224.7 152.6

Allowance for credit losses to nonperforming loans ^(e) 232.4 250.8 163.8

Nonperforming loans at period-end ^(e) $834 $760 $585

Nonperforming assets at period-end ^(e) 1,003 951 711

Nonperforming loans to period-end portfolio loans ^(e) .81 %.72 %.63 %

Nonperforming assets to period-end portfolio loans plus OREO and other .97 .89 .77 nonperforming assets ^(e)



Trust assets

Assets under management $41,312 $39,722 $39,416



Other data

Average full-time equivalent employees 17,097 16,646 16,898

Branches 1,077 1,077 1,101



Taxable-equivalent adjustment $6 $7 $8





Financial Highlights (continued)

(dollars in millions, except per share amounts)

Nine months ended

9/30/2020 9/30/2019

Summary of operations

Net interest income (TE) $3,020 $2,954

Noninterest income 1,850 1,808

Total revenue (TE) 4,870 4,762

Provision for credit losses 1,001 336

Noninterest expense 2,981 2,921

Income (loss) from continuing operations attributable to Key 754 1,242

Income (loss) from discontinued operations, net of taxes 7 6

Net income (loss) attributable to Key 761 1,248



Income (loss) from continuing operations attributable to Key common $674 $1,172 shareholders

Income (loss) from discontinued operations, net of taxes 7 6

Net income (loss) attributable to Key common shareholders 681 1,178



Per common share

Income (loss) from continuing operations attributable to Key common $.70 $1.17 shareholders

Income (loss) from discontinued operations, net of taxes .01 .01

Net income (loss) attributable to Key common shareholders ^(a) .70 1.18



Income (loss) from continuing operations attributable to Key common .69 1.16 shareholders - assuming dilution

Income (loss) from discontinued operations, net of taxes - assuming dilution .01 .01

Net income (loss) attributable to Key common shareholders - assuming dilution ^ .70 1.17 (a)



Cash dividends paid .555 .525



Performance ratios

From continuing operations:

Return on average total assets .63 %1.17 %

Return on average common equity 5.75 10.62

Return on average tangible common equity ^(b) 7.06 13.23

Net interest margin (TE) 2.78 3.06

Cash efficiency ratio ^(b) 60.2 59.9



From consolidated operations:

Return on average total assets .63 %1.16 %

Return on average common equity 5.81 10.68

Return on average tangible common equity ^(b) 7.13 13.30

Net interest margin (TE) 2.78 3.05



Asset quality - from continuing operations

Net loan charge-offs $308 $325

Net loan charge-offs to average total loans .40 %.48 %



Other data

Average full-time equivalent employees 16,758 17,217



Taxable-equivalent adjustment 21 24



(a)Earnings per share may not foot due to rounding.

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

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

(d)September 30, 2020, ratio is estimated and reflects Key's election to adopt the CECL optional transition provision.

GAAP to Non-GAAP Reconciliations (dollars in millions)

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



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

9/30/2020 6/30/2020 9/30/2019 9/30/2020 9/30/2019

Tangible common equity to tangible assets at period-end

Key shareholders' equity (GAAP) $17,722 $17,542 $17,116

Less: Intangible assets ^(a) 2,862 2,877 2,928

Preferred Stock ^(b) 1,856 1,856 1,856

Tangible common equity (non-GAAP) $13,004 $12,809 $12,332

Total assets (GAAP) $170,540 $171,192 $146,691

Less: Intangible assets ^(a) 2,862 2,877 2,928

Tangible assets (non-GAAP) $167,678 $168,315 $143,763

Tangible common equity to tangible assets ratio (non-GAAP) 7.8 %7.6 %8.6 %

Pre-provision net revenue

Net interest income (GAAP) $1,000 $1,018 $972 $2,999 $2,930

Plus: Taxable-equivalent adjustment 6 7 8 21 24

Noninterest income 681 692 650 1,850 1,808

Less: Noninterest expense 1,037 1,013 939 2,981 2,921

Pre-provision net revenue from continuing operations (non-GAAP) $650 $704 $691 $1,889 $1,841

Average tangible common equity

Average Key shareholders' equity (GAAP) $17,730 $17,688 $17,113 $17,545 $16,454

Less: Intangible assets (average) ^(c) 2,870 2,886 2,942 2,886 2,905

Preferred stock (average) 1,900 1,900 1,900 1,900 1,705

Average tangible common equity (non-GAAP) $12,960 $12,902 $12,271 $12,759 $11,844

Return on average tangible common equity from continuing operations

Net income (loss) from continuing operations attributable to Key common $397 $159 $383 $674 $1,172 shareholders (GAAP)

Plus: Notable items, after tax ^(d) - - 94 - 154

Net income (loss) from continuing operations attributable to Key common $397 $159 $477 $674 $1,326 shareholders excluding notable items (non-GAAP)

Average tangible common equity (non-GAAP) 12,960 12,902 12,271 12,759 11,844



Return on average tangible common equity from continuing operations (non- 12.19 %4.96 %12.38 %7.06 %13.23 % GAAP)

Return on average tangible common equity from continuing operations excluding12.19 %4.96 %15.42 %7.06 %14.97 % notable items (non-GAAP)

Return on average tangible common equity consolidated

Net income (loss) attributable to Key common shareholders (GAAP) $401 $161 $386 $681 $1,178

Average tangible common equity (non-GAAP) 12,960 12,902 12,271 12,759 11,844



Return on average tangible common equity consolidated (non-GAAP) 12.31 %5.02 %12.48 %7.13 %13.30 %





GAAP to Non-GAAP Reconciliations (continued)

(dollars in millions)

Three months ended Nine months ended

9/30/2020 6/30/2020 9/30/2019 9/30/2020 9/30/2019

Cash efficiency ratio

Noninterest expense (GAAP) $1,037 $1,013 $939 $2,981 $2,921

Less: Intangible asset amortization 15 18 26 50 70

Adjusted noninterest expense (non-GAAP) $1,022 $995 $913 $2,931 $2,851

Less: Notable items ^(d) - - - - 78

Adjusted noninterest expense excluding notable items (non-GAAP) $1,022 $995 $913 $2,931 $2,773



Net interest income (GAAP) $1,000 $1,018 $972 $2,999 $2,930

Plus: Taxable-equivalent adjustment 6 7 8 21 24

Noninterest income 681 692 650 1,850 1,808

Total taxable-equivalent revenue (non-GAAP) $1,687 $1,717 $1,630 $4,870 $4,762



Cash efficiency ratio (non-GAAP) 60.6 %57.9 %56.0 %60.2 %59.9 %



Cash efficiency ratio excluding notable items (non-GAAP) 60.6 %57.9 %56.0 %60.2 %58.2 %



For the three months ended September 30, 2020, June 30, 2020, and (a)September 30, 2019, intangible assets exclude $5 million, $5 million, and $9 million, respectively, of period-end purchased credit card receivables.

(b)Net of capital surplus.

For the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, average intangible assets exclude $5 million, $6 (c)million, and $9 million, respectively, of average purchased credit card receivables. For the nine months ended September 30, 2020, and September 30, 2019, average intangible assets exclude $6 million and $11 million, respectively, of average purchase credit card receivables.

(d)Additional detail provided in Notable Items table on page 24 of this release.

GAAP = U.S. generally accepted accounting principles

Consolidated Balance Sheets

(dollars in millions)



9/30/2020 6/30/2020 9/30/2019

Assets

Loans $103,081$106,159$92,760

Loans held for sale 1,724 2,007 1,598

Securities available for sale 26,895 23,600 22,378

Held-to-maturity securities 8,384 9,075 10,490

Trading account assets 733 645 963

Short-term investments 14,148 14,036 3,351

Other investments 620 655 620

Total earning assets 155,585 156,177 132,160

Allowance for loan and lease losses (1,730) (1,708) (893)

Cash and due from banks 956 1,059 636

Premises and equipment 765 776 815

Goodwill 2,664 2,664 2,664

Other intangible assets 203 218 272

Corporate-owned life insurance 4,274 4,251 4,216

Accrued income and other assets 7,084 6,976 5,881

Discontinued assets 739 779 940

Total assets $170,540171,192 146,691



Liabilities

Deposits in domestic offices:

NOW and money market deposit accounts $80,791 $78,853 $65,604

Savings deposits 5,585 5,371 4,668

Certificates of deposit ($100,000 or more) 3,345 4,476 7,194

Other time deposits 3,450 4,011 5,300

Total interest-bearing deposits 93,171 92,711 82,766

Noninterest-bearing deposits 43,575 42,802 28,883

Total deposits 136,746 135,513 111,649

Federal funds purchased and securities sold under repurchase agreements 213 267 182

Bank notes and other short-term borrowings 818 1,716 700

Accrued expense and other liabilities 2,356 2,420 2,574

Long-term debt 12,685 13,734 14,470

Total liabilities 152,818 153,650 129,575



Equity

Preferred stock 1,900 1,900 1,900

Common shares 1,257 1,257 1,257

Capital surplus 6,263 6,240 6,287

Retained earnings 12,375 12,154 12,209

Treasury stock, at cost (4,940) (4,945) (4,696)

Accumulated other comprehensive income (loss) 867 936 159

Key shareholders' equity 17,722 17,542 17,116

Noncontrolling interests - - -

Total equity 17,722 17,542 17,116

Total liabilities and equity $170,540$171,192$146,691



Common shares outstanding (000) 976,205 975,947 988,538

Consolidated Statements of Income

(dollars in millions, except per share amounts)

Three months ended Nine months ended

9/30/20206/30/20209/30/20199/30/20209/30/2019

Interest income

Loans $927 $980 $1,073 $2,933 $3,221

Loans held for sale 18 21 18 58 46

Securities available for sale 115 121 136 365 400

Held-to-maturity securities 53 56 64 171 199

Trading account assets 3 5 7 16 24

Short-term investments 1 7 16 14 49

Other investments 2 - 3 3 11

Total interest income 1,119 1,190 1,317 3,560 3,950

Interest expense

Deposits 54 96 227 319 652

Federal funds purchased and securities sold under repurchase agreements - - - 6 1

Bank notes and other short-term borrowings 1 5 4 11 13

Long-term debt 64 71 114 225 354

Total interest expense 119 172 345 561 1020

Net interest income 1,000 1,018 972 2,999 2,930

Provision for credit losses 160 482 200 1,001 336

Net interest income after provision for credit losses 840 536 772 1,998 2,594

Noninterest income

Trust and investment services income 128 123 118 384 355

Investment banking and debt placement fees 146 156 176 418 449

Service charges on deposit accounts 77 68 86 229 251

Operating lease income and other leasing gains 38 60 42 128 123

Corporate services income 51 52 63 165 171

Cards and payments income 114 91 69 271 208

Corporate-owned life insurance income 30 35 32 101 97

Consumer mortgage income 51 62 16 133 42

Commercial mortgage servicing fees 18 12 21 48 58

Other income 28 33 27 (27) 54

Total noninterest income 681 692 650 1,850 1,808

Noninterest expense

Personnel 588 572 547 1,675 1,699

Net occupancy 76 71 72 223 217

Computer processing 59 56 53 170 163

Business services and professional fees 49 49 43 142 132

Equipment 25 25 27 74 75

Operating lease expense 33 34 33 103 91

Marketing 22 24 26 67 69

FDIC assessment 6 8 7 23 23

Intangible asset amortization 15 18 26 50 70

OREO expense, net (1) 6 3 8 10

Other expense 165 150 102 446 372

Total noninterest expense 1,037 1,013 939 2,981 2,921

Income (loss) from continuing operations before income taxes 484 215 483 867 1,481

Income taxes 60 30 70 113 239

Income (loss) from continuing operations 424 185 413 754 1,242

Income (loss) from discontinued operations, net of taxes 4 2 3 7 6

Net income (loss) 428 187 416 761 1,248

Less: Net income (loss) attributable to noncontrolling interests - - - - -

Net income (loss) attributable to Key $428 $187 $416 $761 $1,248



Income (loss) from continuing operations attributable to Key common $397 $159 $383 $674 $1,172 shareholders

Net income (loss) attributable to Key common shareholders 401 161 386 681 1,178

Per common share

Income (loss) from continuing operations attributable to Key common $.41 $.16 $.39 $.70 $1.17 shareholders

Income (loss) from discontinued operations, net of taxes - - - .01 .01

Net income (loss) attributable to Key common shareholders ^(a) .41 .17 .39 .70 1.18

Per common share - assuming dilution

Income (loss) from continuing operations attributable to Key common $.41 $.16 $.38 $.69 $1.16 shareholders

Income (loss) from discontinued operations, net of taxes - - - .01 .01

Net income (loss) attributable to Key common shareholders ^(a) .41 .17 .39 .70 1.17



Cash dividends declared per common share $.185 $.185 $.185 $.555 $.525



Weighted-average common shares outstanding (000) 967,804 967,147 988,319 967,632 998,268

Effect of common share options and other stock awards 6,184 4,994 10,009 6,648 9,632

Weighted-average common shares and potential common shares outstanding (000) ^ 973,988 972,141 998,328 974,280 1,007,900(b)



(a)Earnings per share may not foot due to rounding.

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

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

(dollars in millions)

Third Quarter 2020 Second Quarter 2020 Third Quarter 2019

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) $57,067 $ 474 3.31 %$60,480 $ 518 3.44 %$48,322 $ 543 4.46 %

Real estate - commercial mortgage 13,202 117 3.54 13,510 128 3.80 13,056 163 4.95

Real estate - construction 1,987 18 3.57 1,756 17 3.97 1,463 19 5.22

Commercial lease financing 4,488 35 3.10 4,584 33 2.96 4,497 42 3.68

Total commercial loans 76,744 644 3.34 80,330 696 3.49 67,338 767 4.52

Real estate - residential mortgage 8,398 73 3.46 7,783 69 3.57 6,256 62 3.97

Home equity loans 9,580 91 3.82 9,949 97 3.89 10,488 132 4.97

Consumer direct loans 4,403 56 5.07 4,152 55 5.24 2,548 45 6.99

Credit cards 967 25 10.24 983 25 10.22 1,100 32 11.59

Consumer indirect loans 4,827 44 3.66 4,744 45 3.82 4,226 43 4.10

Total consumer loans 28,175 289 4.10 27,611 291 4.22 24,618 314 5.07

Total loans 104,919 933 3.55 107,941 987 3.67 91,956 1,081 4.67

Loans held for sale 1,924 18 3.61 2,463 21 3.50 1,558 18 4.65

Securities available for sale ^(b), (e) 24,941 115 1.90 20,749 121 2.43 21,867 136 2.52

Held-to-maturity securities ^(b) 8,677 53 2.44 9,331 56 2.43 10,684 64 2.41

Trading account assets 686 3 2.08 760 5 2.43 884 7 3.00

Short-term investments 12,525 1 .04 7,892 7 0.31 2,861 16 2.19

Other investments ^(e) 640 2 1.49 672 - .29 624 3 1.82

Total earning assets 154,312 1,125 2.93 149,808 1,197 3.22 130,434 1,325 4.05

Allowance for loan and lease losses (1,696) (1,413) (881)

Accrued income and other assets 16,195 15,704 14,605

Discontinued assets 752 793 957

Total assets $169,563 $164,892 $145,115

Liabilities

NOW and money market deposit accounts $80,175 26 .13 $75,297 56 .30 $64,595 154 .94

Savings deposits 5,478 1 .04 5,130 - .04 4,709 1 .10

Certificates of deposit ($100,000 or more) 3,862 16 1.60 4,950 24 1.93 7,625 45 2.37

Other time deposits 3,735 11 1.17 4,333 16 1.52 5,449 27 1.96

Total interest-bearing deposits 93,250 54 .23 89,710 96 .43 82,378 227 1.09

Federal funds purchased and securities sold 225 - .05 242 - .03 187 - .50 under repurchase agreements

Bank notes and other short-term borrowings 761 1 .68 2,869 5 .57 626 4 2.04

Long-term debt ^(f), (g) 12,801 64 2.12 12,954 71 2.30 13,347 114 3.51

Total interest-bearing liabilities 107,037 119 .45 105,775 172 .66 96,538 345 1.42

Noninterest-bearing deposits 41,694 38,267 27,901

Accrued expense and other liabilities 2,350 2,369 2,605

Discontinued liabilities ^(g) 752 793 957

Total liabilities 151,833 147,204 128,001

Equity

Key shareholders' equity 17,730 17,688 17,113

Noncontrolling interests - - 1

Total equity 17,730 17,688 17,114

Total liabilities and equity $169,563 $164,892 $145,115

Interest rate spread (TE) 2.48 % 2.56 % 2.63 %

Net interest income (TE) and net interest margin (TE) 1,006 2.62 % 1,025 2.76 % 980 3.00 %

TE adjustment ^(b) 6 7 8

Net interest income, GAAP basis $ 1,000 $ 1,018 $ 972



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

Interest income on tax-exempt securities and loans has been adjusted to a(b)taxable-equivalent basis using the statutory federal income tax rate of 21% for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019.

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

Commercial and industrial average balances include $129 million, $135 (d)million, and $144 million of assets from commercial credit cards for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively.

(e)Yield is calculated on the basis of amortized cost.

(f)Rate calculation excludes basis adjustments related to fair value hedges.

A portion of long-term debt and the related interest expense is allocated(g)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, 2020Nine months ended September 30, 2019

Average Yield/ Average Yield/

Balance Interest ^(a)Rate ^(a)Balance Interest ^(a)Rate ^(a)

Assets

Loans: ^(b), (c)

Commercial and industrial ^(d) $55,676 $ 1,500 3.60 % $47,191 $ 1,622 4.59 %

Real estate - commercial mortgage 13,419 400 3.98 13,744 517 5.03

Real estate - construction 1,804 55 4.06 1,482 60 5.37

Commercial lease financing 4,546 107 3.15 4,490 124 3.66

Total commercial loans 75,445 2,062 3.65 66,907 2,323 4.64

Real estate - residential mortgage 7,801 210 3.59 5,866 176 4.00

Home equity loans 9,894 301 4.07 10,726 404 5.03

Consumer direct loans 4,089 165 5.38 2,256 125 7.42

Credit cards 1,010 81 10.68 1,099 95 11.55

Consumer indirect loans 4,779 135 3.78 3,951 122 4.13

Total consumer loans 27,573 892 4.32 23,898 922 5.15

Total loans 103,018 2,954 3.83 90,805 3,245 4.77

Loans held for sale 2,090 58 3.68 1,329 46 4.64

Securities available for sale ^(b), (e) 22,297 365 2.25 21,059 400 2.52

Held-to-maturity securities ^(b) 9,274 171 2.46 11,035 199 2.41

Trading account assets 837 16 2.55 988 24 3.22

Short-term investments 7,412 14 .24 2,930 49 2.23

Other investments ^(e) 642 3 .72 639 11 2.18

Total earning assets 145,570 3,581 3.30 128,785 3,974 4.12

Allowance for loan and lease losses (1403) (880)

Accrued income and other assets 15,579 14,414

Discontinued assets 794 1,010

Total assets $160,540 $143,329

Liabilities

NOW and money market deposit accounts $74,087 194 .35 $62,827 431 .92

Savings deposits 5,089 2 .04 4,767 3 .09

Certificates of deposit ($100,000 or more) 5,036 74 1.96 8,046 140 2.33

Other time deposits 4,321 49 1.53 5,506 78 1.90

Total interest-bearing deposits 88,533 319 .48 81,146 652 1.07

Federal funds purchased and securities sold under repurchase821 6 .95 262 1 .63 agreements

Bank notes and other short-term borrowings 1,674 11 .87 706 13 2.43

Long-term debt ^(f), (g) 12,733 225 2.45 13,241 354 3.62

Total interest-bearing liabilities 103,761 561 .73 95,355 1020 1.43

Noninterest-bearing deposits 35,922 28,016

Accrued expense and other liabilities 2,518 2,493

Discontinued liabilities ^(g) 794 1,010

Total liabilities 142,995 126,874

Equity

Key shareholders' equity 17,545 16,454

Noncontrolling interests - 1

Total equity 17,545 16,455

Total liabilities and equity $160,540 $143,329

Interest rate spread (TE) 2.57 % 2.69 %

Net interest income (TE) and net interest margin (TE) 3,020 2.78 % 2,954 3.06 %

TE adjustment ^(b) 21 24

Net interest income, GAAP basis $ 2,999 $ 2,930



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

Interest income on tax-exempt securities and loans has been adjusted to a(b)taxable-equivalent basis using the statutory federal income tax rate of 21% for the nine months ended September 30, 2020, and September 30, 2019, respectively.

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

Commercial and industrial average balances include $137 million and $139 (d)million of assets from commercial credit cards for the nine months ended September 30, 2020, and September 30, 2019, respectively.

(e)Yield is calculated on the basis of amortized cost.

(f)Rate calculation excludes basis adjustments related to fair value hedges.

A portion of long-term debt and the related interest expense is allocated(g)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

9/30/20206/30/20209/30/20199/30/20209/30/2019

Personnel ^(a) $588 $572 $547 $1,675 $ 1,699

Net occupancy 76 71 72 223 217

Computer processing 59 56 53 170 163

Business services and professional fees 49 49 43 142 132

Equipment 25 25 27 74 75

Operating lease expense 33 34 33 103 91

Marketing 22 24 26 67 69

FDIC assessment 6 8 7 23 23

Intangible asset amortization 15 18 26 50 70

OREO expense, net (1) 6 3 8 10

Other expense 165 150 102 446 372

Total noninterest expense $1,037 $1,013 $939 $2,981 $ 2,921

Average full-time equivalent employees ^(b)17,097 16,646 16,898 16,758 17,217



(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 Nine months ended

9/30/20206/30/20209/30/20199/30/20209/30/2019

Salaries and contract labor $ 339 $ 332 $ 314 $ 987 $ 956

Incentive and stock-based compensation155 162 143 419 430

Employee benefits 93 76 87 261 263

Severance 1 2 3 8 50

Total personnel expense $ 588 $ 572 $ 547 $ 1,675$ 1,699

Loan Composition

(dollars in millions)



Percent change 9/30/2020 vs

9/30/2020 6/30/2020 9/30/20196/30/2020 9/30/2019

Commercial and industrial ^(a) $55,025 $58,297 $48,362(5.6)% 13.8 %

Commercial real estate:

Commercial mortgage 13,059 13,465 13,167 (3.0) (.8)

Construction 1,947 1,919 1,480 1.5 31.6

Total commercial real estate loans15,006 15,384 14,647 (2.5) 2.5

Commercial lease financing ^(b) 4,450 4,524 4,470 (1.6) (.4)

Total commercial loans 74,481 78,205 67,479 (4.8) 10.4

Residential - prime loans:

Real estate - residential mortgage8,715 8,149 6,527 6.9 33.5

Home equity loans 9,488 9,782 10,456 (3.0) (9.3)

Total residential - prime loans 18,203 17,931 16,983 1.5 7.2

Consumer direct loans 4,395 4,327 2,789 1.6 57.6

Credit cards 970 974 1,105 (.4) (12.2)

Consumer indirect loans 5,032 4,722 4,404 6.6 14.3

Total consumer loans 28,600 27,954 25,281 2.3 13.1

Total loans ^(c), (d) $103,081$106,159$92,760(2.9)% 11.1 %



Loan balances include $128 million, $132 million, and $147 million of (a)commercial credit card balances at September 30, 2020, June 30, 2020, and September 30, 2019, respectively.

Commercial lease financing includes receivables held as collateral for a secured borrowing of $18 million, $18 million, and $10 million at (b)September 30, 2020, June 30, 2020, and September 30, 2019, respectively. Principal reductions are based on the cash payments received from these related receivables.

Total loans exclude loans of $743 million at September 30, 2020, $780 (c)million at June 30, 2020, and $915 million at September 30, 2019, related to the discontinued operations of the education lending business.

Accrued interest of $235 million, $225 million, and $257 million at (d)September 30, 2020, June 30, 2020, and September 30, 2019, respectively, presented in "other assets" on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed in this table.

Loans Held for Sale Composition

(dollars in millions)



Percent change 9/30/2020 vs

9/30/20206/30/20209/30/20196/30/2020 9/30/2019

Commercial and industrial $336 $419 $195 (19.8) % 72.3 %

Real estate - commercial mortgage 1,031 1,107 1,123 (6.9) (8.2)

Commercial lease financing 1 - 100 N/M (99.0)

Real estate - residential mortgage 288 250 120 15.2 140.0

Consumer direct loans 68 231 60 (70.6) 13.3

Total loans held for sale ^(a) $1,724 $2,007 $1,598 (14.1) % 7.9 %



Total loans held for sale include Real estate - residential mortgage (a)loans held for sale at fair value of $288 million at September 30, 2020, $250 million at June 30, 2020, and $120 million at September 30, 2019.

Summary of Changes in Loans Held for Sale

(in millions)



3Q20 2Q20 1Q20 4Q19 3Q19

Balance at beginning of period $2,007$2,143$1,334$1,598$1,790

New originations 3,282 3,621 3,333 3,659 3,222

Transfers from (to) held to maturity, net75 (15) 200 26 237

Loan sales (3,583)(3,679)(2,649)(3,933)(3,602)

Loan draws (payments), net (57) (61) (77) (18) (49)

Valuation adjustments - (2) 2 2 -

Balance at end of period ^(a) $1,724$2,007$2,143$1,334$1,598



Total loans held for sale include Real estate - residential mortgage (a)loans held for sale at fair value of $288 million at September 30, 2020, $250 million at June 30, 2020, $152 million at March 31, 2020, $140 million at December 31, 2019, and $120 million at September 30, 2019.

Summary of Loan and Lease Loss Experience From Continuing Operations

(dollars in millions)



Three months ended Nine months ended

9/30/2020 6/30/2020 9/30/2019 9/30/2020 9/30/2019

Average loans outstanding $104,919 $107,941 $91,956 $103,018 $90,805

Allowance for loan and lease losses at the end of the prior period $1,708 $1359 $890 $900 $883

Cumulative effect from change in accounting principle ^(a) - - - 204 -

Allowance for loan and lease losses at the beginning of the period 1,708 1,359 890 1,104 883

Loans charged off:

Commercial and industrial 101 71 176 232 242



Real estate - commercial mortgage 13 2 - 18 6

Real estate - construction - - - - 4

Total commercial real estate loans 13 2 - 18 10

Commercial lease financing 10 4 1 16 25

Total commercial loans 124 77 177 266 277

Real estate - residential mortgage - 2 1 2 3

Home equity loans 4 2 6 10 16

Consumer direct loans 8 10 10 30 30

Credit cards 9 12 11 32 34

Consumer indirect loans 6 7 8 22 24

Total consumer loans 27 33 36 96 107

Total loans charged off 151 110 213 362 384

Recoveries:

Commercial and industrial 9 5 6 19 22



Real estate - commercial mortgage 2 - - 3 2

Total commercial real estate loans 2 - - 3 2

Commercial lease financing - 1 1 1 4

Total commercial loans 11 6 7 23 28

Real estate - residential mortgage 1 - - 1 1

Home equity loans 3 1 2 6 6

Consumer direct loans 2 2 2 6 5

Credit cards 2 2 2 6 6

Consumer indirect loans 4 3 4 12 13

Total consumer loans 12 8 10 31 31

Total recoveries 23 14 17 54 59

Net loan charge-offs (128) (96) (196) (308) (325)

Provision (credit) for loan and lease losses 150 445 199 934 335

Allowance for loan and lease losses at end of period $1,730 $1,708 $893 $1,730 $893



Liability for credit losses on lending-related commitments at the end of the $198 $161 $64 $68 $64 prior period

Liability for credit losses on contingent guarantees at the end of the prior - - - 7 - period

Cumulative effect from change in accounting principle ^(a), (b) - - - 66 -

Liability for credit losses on lending-related commitments at beginning of 198 161 64 141 64 period

Provision (credit) for losses on lending-related commitments 10 37 1 67 1

Liability for credit losses on lending-related commitments at end of period ^ $208 $198 $65 $208 $65 (c)



Total allowance for credit losses at end of period $1,938 $1,906 $958 $1,938 $958



Net loan charge-offs to average total loans .49 %.36 %.85 %.40 %.48 %

Allowance for loan and lease losses to period-end loans 1.68 1.61 .96 1.68 .96

Allowance for credit losses to period-end loans 1.88 1.80 1.03 1.88 1.03

Allowance for loan and lease losses to nonperforming loans 207.4 224.7 152.6 207.4 152.6

Allowance for credit losses to nonperforming loans 232.4 250.8 163.8 232.4 163.8



Discontinued operations - education lending business:

Loans charged off - $2 $1 $4 $9

Recoveries - 2 1 3 3

Net loan charge-offs - - - $(1) $(6)



(a)The cumulative effect from change in accounting principle relates to the January 1, 2020, adoption of ASU 2016-13.

(b)The nine months ended September 30, 2020, amount excludes $4 million related to the provision for other financial assets.

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

Asset Quality Statistics From Continuing Operations

(dollars in millions)

3Q20 2Q20 1Q20 4Q19 3Q19

Net loan charge-offs $128 $96 $84 $99 $196

Net loan charge-offs to average total loans .49 %.36 %.35 %.42 %.85 %

Allowance for loan and lease losses $1,730 $1,708 $1,359 $900 $893

Allowance for credit losses ^(a) 1,938 1,906 1,520 968 958

Allowance for loan and lease losses to period-end loans 1.68 %1.61 %1.32 %.95 %.96 %

Allowance for credit losses to period-end loans 1.88 1.80 1.47 1.02 1.03

Allowance for loan and lease losses to nonperforming loans 207.4 224.7 215.0 156.0 152.6

Allowance for credit losses to nonperforming loans 232.4 250.8 240.5 167.8 163.8

Nonperforming loans at period end $834 $760 $632 $577 $585

Nonperforming assets at period end 1,003 951 844 715 711

Nonperforming loans to period-end portfolio loans .81 %.72 %.61 %.61 %.63 %

Nonperforming assets to period-end portfolio loans plus OREO and other.97 .89 .82 .75 .77 nonperforming assets



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

Summary of Nonperforming Assets and Past Due Loans From Continuing Operations

(dollars in millions)

9/30/20206/30/2020 3/31/2020 12/31/20199/30/2019

Commercial and industrial $459 $ 404 $ 277 $ 264 $ 238



Real estate - commercial mortgage 104 91 87 83 92

Real estate - construction 1 1 2 2 2

Total commercial real estate loans 105 92 89 85 94

Commercial lease financing 6 9 5 6 7

Total commercial loans 570 505 371 355 339

Real estate - residential mortgage 96 89 89 48 42

Home equity loans 146 141 143 145 179

Consumer direct loans 3 3 4 4 3

Credit cards 2 2 3 3 2

Consumer indirect loans 17 20 22 22 20

Total consumer loans 264 255 261 222 246

Total nonperforming loans 834 760 632 577 585

OREO 105 112 119 35 39

Nonperforming loans held for sale 61 75 89 94 78

Other nonperforming assets 3 4 4 9 9

Total nonperforming assets $1,003 $ 951 $ 844 $ 715 $ 711

Accruing loans past due 90 days or more 73 87 128 97 54

Accruing loans past due 30 through 89 days 336 419 393 329 366

Restructured loans - accruing and nonaccruing ^(a) 306 310 340 347 347

Restructured loans included in nonperforming loans ^(a) 168 166 172 183 176

Nonperforming assets from discontinued operations - education lending 6 7 7 7 7 business

Nonperforming loans to period-end portfolio loans .81 %.72 % .61 % .61 % .63 %

Nonperforming assets to period-end portfolio loans plus OREO and other.97 .89 .82 .75 .77 nonperforming assets



Restructured loans (i.e., troubled debt restructuring) are those for which Key, for reasons related to a borrower's financial difficulties, (a)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)

3Q20 2Q20 1Q20 4Q19 3Q19

Balance at beginning of period $760$632$577$585$561

Loans placed on nonaccrual status ^(a) 387 293 219 268 271

Charge-offs (150)(111)(100)(114)(91)

Loans sold (6) (5) (4) (1) -

Payments (83) (29) (31) (59) (37)

Transfers to OREO - - (3) (3) (4)

Transfers to nonperforming loans held for sale- - - (47) (78)

Loans returned to accrual status (74) (20) (26) (52) (37)

Balance at end of period $834$760$632$577$585



Purchase credit impaired (PCI) loans meeting nonperforming criteria were historically excluded from Key's nonperforming disclosures. As a result of CECL implementation on January 1, 2020, PCI loans became purchased (a)credit deteriorated (PCD) loans. PCD loans that met the definition of nonperforming are now included in nonperforming disclosures, resulting in a $45 million increase in nonperforming loans in the first quarter of 2020.

Line of Business Results

(dollars in millions)



Percentage change 3Q20 vs.

3Q20 2Q20 1Q20 4Q19 3Q19 2Q20 3Q19

Consumer Bank

Summary of operations

Total revenue (TE) $ 871 $ 841 $ 820 $ 825 $ 833 3.6 % 4.6 %

Provision for credit losses (16) 167 140 55 48 N/M N/M

Noninterest expense 571 555 542 550 529 2.9 7.9

Net income (loss) attributable to Key 241 91 105 168 196 164.8 23.0

Average loans and leases 41,471 39,197 35,197 34,148 32,760 5.8 26.6

Average deposits 83,175 79,502 73,320 73,561 72,995 4.6 13.9

Net loan charge-offs 23 39 43 43 40 (41.0) (42.5)

Net loan charge-offs to average total loans.22 %.40 %.49 %.50 %.48 %N/A N/A

Nonperforming assets at period end $ 332 $ 342 $ 306 $ 354 $ 354 (2.9) (6.2)

Return on average allocated equity 27.03 %10.45 %12.26 %19.64 %23.22 %N/A N/A



Commercial Bank

Summary of operations

Total revenue (TE) $ 804 $ 857 $ 630 $ 771 $ 780 (6.2) % 3.1 %

Provision for credit losses 163 314 218 38 32 (48.1) 409.4

Noninterest expense 443 438 358 393 378 1.1 17.2

Net income (loss) attributable to Key 160 101 63 311 301 58.4 (46.8)

Average loans and leases 62,925 68,038 60,082 58,535 58,215 (7.5) 8.1

Average loans held for sale 1,383 2,012 1,607 1,465 1,325 (31.3) 4.4

Average deposits 51,238 47,685 36,256 38,224 36,204 7.5 41.5

Net loan charge-offs 104 57 40 39 35 82.5 197.1

Net loan charge-offs to average total loans.66 %.34 %.27 %.26 %.24 %N/A N/A

Nonperforming assets at period end $ 616 $ 407 $ 402 $ 351 $ 351 51.4 75.5

Return on average allocated equity 12.57 %8.41 %5.40 %26.40 %26.18 %N/A N/A



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

Notable Items

(in millions)



Three months ended Nine months ended

9/30/20206/30/20209/30/20199/30/20209/30/2019

Provision for credit losses - - $(123) - $(123)



Efficiency initiative expenses - - - - (76)

Laurel Road acquisition expenses- - - - (2)

Total notable items - - (123) - (201)

Income taxes - - (29) - (47)

Total notable items, after tax - - $(94) - $(154)

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SOURCE KeyCorp