Keycorp · NYSE:KEY
Keycorp — Debt Investor Presentation (September 2024)
40 slides from Keycorp's debt investor presentation, Sep 9, 2024
Slide 1: KeyCorp Fixed Income Investor Presentation
KeyCorp Fixed Income Investor Presentation September 9-10, 2024 Tim Schmidt Brian Mauney Corporate Treasurer Director, Investor Relations 1
Slide 2: Forward-looking Statements and Additional Information
Forward-looking Statements and Additional Information This communication contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to, KeyCorp’s expectations or predictions of future financial or business performance or
Slide 3: Table of Contents
Table of Contents 04 Business and Financial Update Recent financial results and trends, lending developments, and credit portfolio update 15 Liquidity and Funding Deposit dynamics, debt issuance, credit spread performance, liquidity risk management framework 24 Interest Rate Risk Management IRR mana
Slide 4: Business and Financial Update
Business and Financial Update 4
Slide 5: We Have Strengthened Our Balance Sheet
We Have Strengthened Our Balance Sheet Financials Significant Funding Improvement Earning Asset Optimization ~$12Bn Reduction in Highest-cost Funding Sources ~140 bps CET1 Build ~20bps ~30bps ~20bps ~20bps ~50bps (1) (1) ~$5Bn Remix into Core Customer Deposits Significant RWA Optimization with Limit
Slide 6: 2Q24 Results
2Q24 Results Financials Driving New Relationships ✓Enhanced +3% Strengthening the 34bps Focused on YoY Increase in noninterest underwrite-to- income Balance Sheet NCOs / Average Loans Primacy distribute Momentum across Wealth platformPayments, Management, through and Commercial Mortgage partnership
Slide 7: 2Q24 Highlights
2Q24 Highlights $ in millions, excluding EPS Financials From continuing operations, unless otherwise noted ▪ EPS of $0.25, up 25% sequentially Reported QoQ YoY ▪ Net interest income up 1.5% QoQ driven by fixed-rate asset EPS $0.25 25.0% (7.4)% repricing, partly offset by higher funding costs and imp
Slide 8: Net Interest Income and Margin (TE)
Net Interest Income and Margin (TE) Financials From continuing operations, $ in millions NII Walk (TE) ~$39 $9 $(18) $986 +1.5% $(9) $923 $928 $886 $899 1Q24 Swaps & Deposit Lower Loans Forward- Other 2Q24 UST Roll-off Cost & Mix (remixed into starting Swaps 2.12% 2.07% 2.04% ST investments) 2.01% 2
Slide 9: NII Opportunity From Swaps and Treasuries
NII Opportunity From Swaps and Treasuries Financials Tailwinds from Short-term Swaps & Treasuries Maturities(1) Maturities Schedule $ in millions; cumulative view $ in billions $238 $4.8 $4.5 $198 $151 $3.1 $2.8 $2.6 $2.9 $2.7 ~$118 ~$79 $1.7 0.49% 0.50% $1.1 $1.9 $1.9 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24
Slide 10: Average Loans
Average Loans Financials $ in billions vs. Prior Quarter $120.7 $117.6 ▪ Average loans down 1.9% from 1Q24 $113.9 $111.0 $109.0 EOP Loans: $107.1Bn Consumer $36.6 $36.1 − Decline in commercial loans (-$1.3Bn), driven by lower $35.3 $34.6 $33.9 C&I and commercial real estate loans 5.41% 5.51% 5.61% 5
Slide 11: Credit Quality
Credit Quality Financials Net Charge-offs & Provision for Credit Losses Delinquencies to Period-end Total Loans $ in millions Continuing Operations 0.26% 0.29% 0.34% 0.17% 0.24% 0.26% 0.15% 0.20% 0.22% $167 $102 $101 $91 $100 0.12% $71 $81 $76 $81 $52 0.13% 0.06% 0.04% 0.09% 0.11% 2Q23 3Q23 4Q23 1Q2
Slide 12: Commercial Real Estate
Commercial Real Estate Financials High-quality CRE portfolio has relatively limited exposure and is diversified by property type and geography Nonowner-occupied CRE Loan Portfolio Composition As a % Total Loans As a % Total Loans Office Highlights All banks >$10Bn assets • $0 nonowner-occupied const
Slide 13: Commercial Real Estate: Multifamily
Commercial Real Estate: Multifamily Financials Business leverages our originate-to-distribute model and is a mixture of market rate and affordable housing Multifamily Portfolio Highlights Affordable Housing Loan Portfolio Highlights ▪ Diversified - no more than ~4% of Multifamily loans concentrated
Slide 14: Credit Quality by Portfolio
Credit Quality by Portfolio Financials Allowance for Credit Losses (ACL) Net Loan Charge-offs(1) to Average Loans (%)(2) $ in millions $1,771 $1,778 1,804 1,823 1,833 4.31% 1.54% 1.60% 1.66% 1.71% 1.01% 1.49% 0.41% 0.21% 0.00% 0.00% 2Q23 3Q23 4Q23 1Q24 2Q24 (3), (4) C&I CRE Resi Mtg Home Equity Cred
Slide 15: Liquidity and Funding
Liquidity and Funding 15
Slide 16: Our Liquidity Risk Management Framework
Our Liquidity Risk Management Framework Liquidity Key Points ▪ We have a framework that defines clear objectives and aintain sufficient liquidity to rudently manage funding principles consistent with our existing risk appetite and meet normal and costs contingency funding limits obligations at paren
Slide 17: Contemplated Securities Repositioning
Contemplated Securities Repositioning Liquidity Contemplated repositioning would accelerate timing of expected profitability, liquidity and capital improvements(1) AFS Securities Investment Portfolio AFS Securities by Yield (fair value) AFS Securities by Maturity (fair value) ▪ In connection with th
Slide 18: Our Share of AFS Exceeds Most Peers
Our Share of AFS Exceeds Most Peers Liquidity Key Points % AFS and HTM Data as of 6/30/2024 ▪ In keeping with our liquidity risk management framework, we classify most securities as AFS and limit our HTM allocation ▪ While there is uncertainty about pending regulatory liquidity rules, we plan to cla
Slide 19: We Maintain Ample Contingency Liquidity
We Maintain Ample Contingency Liquidity Liquidity Key Points LCR Portfolio Composition by HQLA Categories $ in billions, as of 6/30/2024 ▪ Our liquid asset portfolio consists of cash and securities guaranteed by the U.S. Treasury, U.S. government Level 1 assets agency (Level 1 assets) or U.S. govern
Slide 20: Growing and Prudently Managing Client Deposits
Growing and Prudently Managing Client Deposits Funding Key Points Average Deposits $ in billions ▪ We continue to prudently grow client deposits, up 5% from last year $142.9 $144.8 $145.1 $142.9 $144.2 ▪ Deposit cost increases are decelerating as the interest rate cycle $9.0 $6.0 $3.3 $2.5 $1.4 Othe
Slide 21: Prudently Managing Wholesale Funding
Prudently Managing Wholesale Funding Funding Key Points Wholesale Funding(1) Brokered Deposits $ in billions $ in billions ▪ We have actively improved the quality of our funding base by materially reducing total wholesale funding since the 28% $9 44% $31 2023 banking sector stress $22 $5 ▪ We have s
Slide 22: Strong Credit Spread Performance
Strong Credit Spread Performance Funding Key Points Category IV Bank 10-year Debt Spreads ▪ KeyCorp debt credit spreads have tightened sharply since the 2023 banking sector stress and outperformed 500 peer bank spreads T+460 bps, Peers+155 bps ▪ Absolute spread, now ~T+160 bps, has tightened ~300 bp
Slide 23: Issuing Entities and Credit Ratings
Issuing Entities and Credit Ratings Funding Key Points KeyCorp (parent company) Senior debt ratings ( oody’s/S& /Fitch): aa2 (S)/ (S)/ + (S) ▪ We consider funding needs and costs and regulatory rules when choosing our issuing entity Primary funding uses: ▪ Pending long-term debt rules for large bank
Slide 24: Interest Rate Risk Management
Interest Rate Risk Management 24
Slide 25: Our IRR Management Framework
Our IRR Management Framework IRR/ALM Key Points ▪ We have a framework that defines clear objectives and principles consistent with our risk appetite and limits rudently managing II sensitivity; 1) mitigate earnings volatility, and 2) expand net interest margin ( I ) Enhance long term shareholder val
Slide 26: Our Balance Sheet Is Naturally Asset Sensitive
Our Balance Sheet Is Naturally Asset Sensitive IRR/ALM With a mostly floating-rate commercial lending book and a material share of fixed-rate deposits, our business mix leans asset sensitive 2Q24 Loan Composition 2Q24 Deposit Mix Other 2% Time Savings Prime Deposits 3M SOFR 4% 8% 11% Demand 7% 38% F
Slide 27: We Are Hedging Our Risk to Lower Rates
We Are Hedging Our Risk to Lower Rates IRR/ALM $ in billions; ending balances 2Q24 ALM Hedge Actions $19.6 ▪ Executed $5.75Bn of forward-starting receive-fixed swaps – $18.5 $18.8 $18.8 $18.8 WA receive rate: 4.06% (March 2025 start date) ▪ Executed $1.35Bn of spot pay-fixed swaps to hedge securitie
Slide 28: Capital Management
Capital Management 28
Slide 29: BNS Stake Raises Already Strong Capital Ratios
BNS Stake Raises Already Strong Capital Ratios Capital Capital raise and contemplated repositioning bolsters balance sheet strength and earnings generation(1) Illustrative Pro forma for capital raise and Standalone Pro forma for capital raise(2) contemplated repositioning(1) CET1 10.5% 12.4% 11.3–11
Slide 30: Capital Ratios Compare Favorably to Most Peers
Capital Ratios Compare Favorably to Most Peers Capital Strengthened financial profile provides Key a competitive advantage CET1 AOCI-adjusted CET1(2) 2Q24 2Q24 Pro forma ~70–95bps(3) above peer median CET1 Pro forma ~90–120bps(3) above peer median AOCI-adj. CET1(2) Capital raise 12.4% Peer 3 11.3% (
Slide 31: We Prudently Manage Our Capital
We Prudently Manage Our Capital Capital Key Points ▪ Pro forma 2Q24 capital stack reflects $2.8 billion investment from Scotiabank ▪ Our current capital stack fully uses the allowable 1.5% additional Tier 1 capital and 2% Tier 2 capital • Subordinated debt and legacy trust preferred securities compr
Slide 32: Appendix
Appendix 32
Slide 33: BNS Strategic Investment Highlights
BNS Strategic Investment Highlights O u g wh gh gK ’ g ✓ ~$2.8Bn strategic minority investment from a significant global financial institution at an attractive market premium ✓ Fortifies capital position: ~195–200bps increase in reported and marked CET1 ratios ‒ ~80–110bps(3) increase in reported CE
Slide 34: BNS Investment Transaction Summary
BNS Investment Transaction Summary Investment structured on attractive terms with standard governance protections Size ~$2.8Bn, representing ~14.9% pro forma ownership Standstill Customary standstill agreement for five years Pricing Fixed price of $17.17 Scotiabank to purchase 163MM shares of common
Slide 35: Capital Enables Investments in Organic Focus Areas
Capital Enables Investments in Organic Focus Areas Differentiated fee businesses Proven track record with organic and inorganic targeted investments 2011 – 2024E(4) Key Private Client Trust & Investment Services Income(5), Investment Banking & Debt Placement, and Cards & Payments Fees KBCM +8-9% ~8%
Slide 36: Key's Business Momentum
K ’ Bu C&I loan growth Momentum in fee businesses C&I Loan Growth 2010-2023(1,2) IB&DP: Fees as a % of Commercial Loans(3) Wealth: AUM as a % of Total Assets(4) 2019-2023 Key 0.93% 29% H8 21% 201% 0.51% Key Peer Median KEY Peer Median 131% Payments: Commercial Operating Deposits Payments: Revenue Gr
Slide 37: BNS Investment Key Takeaways
BNS Investment Key Takeaways Strategic investment enables Key to seize future growth opportunities while fortifying the balance sheet Strategic Fortifies capital Improves Flexibility to Explore mutually Navigate an investment at financial profile pursue beneficial uncertain a premium opportunities i
Slide 38: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation $ in millions 2Q24 1Q24 2Q23 Tangible common equity to tangible assets at period end Key shareholders’ equity (G ) $ 14,789 $ 14,547 $ 13,844 Less: Intangible assets(1) 2,793 2,799 2,826 Preferred stock(2) 2,446 2,446 2,446 Tangible common equity (non-GAAP) $ 9,550 $
Slide 39: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation $ in millions 2Q24 1Q24 2Q23 Return on average tangible common equity from continuing operations Net income (loss) from continuing operations attributable to Key common shareholders (GAAP) $ 237 $ 183 $ 250 Average tangible common equity (non-GAAP) 9,178 9,347 9,081 R
Slide 40: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation CET1 – AOCI Impact(1) ($ in millions) 2Q23 3Q23 4Q23 1Q24 2Q24 Common Equity Tier 1 (A) $ 14,887 $ 15,007 $ 14,894 $ 14,821 $ 14,893 Add: AFS and Pension Accumulated Other Comprehensive Income (Loss) (4,961) (5,581) (4,573) (4,608) (4,530) Adjusted Common Equity Tier
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