Slide 1: KeyCorp Second Quarter 2023 Earnings Review
KeyCorp Second Quarter 2023 Earnings Review July 20, 2023 Chris Gorman Clark Khayat Chairman and Chief Financial Officer Chief Executive Officer
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: 2Q23 Highlights
2Q23 Highlights 2Q23 Financial Results Strategic Highlights & Outlook ▪ EPS of $.27 per diluted common share ▪ Balance sheet optimization: reducing risk-weighted ‒ Includes $87MM(1) or $.09 per diluted common share, related to asset (RWAs) allowance build ‒ Period-end RWAs down >$1.3Bn(3) ▪ Strong,
Slide 4: Financial Review
Financial Review
Slide 5: Financial Highlights
Financial Highlights 2Q23 1Q23 2Q22 LQ Δ Y/Y Δ Continuing operations, unless otherwise noted EPS – assuming dilution $.27 $.30 $ .54 (10.0) % (50.0) % Cash efficiency ratio(1) 66.8 % 68.0 % 59.5 % (120) bps 730 bps Return on average tangible common equity(1) 11.0 13.2 20.9 (220) (990) Profitability
Slide 6: Loans
Loans Growth driven by relationship-based strategy across commercial and consumer Total Average Loans Highlights $ in billions Period-end loans down $1Bn vs. 3/31/23 vs. Prior Year ▪ Average loans up 11% from 2Q22 $119.8 $120.7 $114.4 $117.7 $119.0 − Growth in C&I and commercial mortgage real estate
Slide 7: Deposits
Deposits Deposit balances remained relatively stable; period-end deposits up $1Bn from prior quarter Deposits Highlights $ in billions Period-end deposits up $1Bn vs. 3/31/23 ▪ Cumulative total interest-bearing deposit beta: 39%(1) $147.5 $144.2 $145.7 $143.4 $142.9 $145.1 vs. Prior Year ▪ Average d
Slide 8: Net Interest Income and Margin
Net Interest Income and Margin Benefit of higher interest rates and earning assets offset by interest-bearing deposit costs and funding mix shift Net Interest Income & Net Interest Margin Trend (TE) Highlights $ in millions, continuing operations vs. Prior Year $1,203 $1,227 4.0% $1,104 $1,106 $986
Slide 9: Net Interest Income Opportunities
Net Interest Income Opportunities Expecting significant benefit from swap and Treasury maturities NII Pickup from Short-dated Maturities(1) Illustrative, $ in millions $230 $186 $88 Treasuries Swaps $143 $62 $115 $36 ~$900MM $20 annualized NII $80 benefit by 1Q25 $13 $141 $125 $46 $107 $95 $31 $7 $6
Slide 10: Noninterest Income
Noninterest Income Continued challenging environment for investment banking and debt placement outweighs broad-based QoQ fee growth Noninterest Income Highlights vs. Prior Year $ in millions - up / (down) 2Q23 vs. 2Q22 vs. 1Q23 ▪ Noninterest income down $79MM (-11%) from 2Q22 Trust and investment se
Slide 11: Noninterest Expense
Noninterest Expense Benefitting from broad expense discipline and actions taken in 1Q23 to reduce run-rate Noninterest Expense Highlights vs. Prior Year $ in millions - favorable / (unfavorable) 2Q23 vs. 2Q22 vs. 1Q23 ▪ Noninterest expense down $2MM from 2Q22 Personnel $ 622 $ (15) $ 79 − Lower net
Slide 12: Credit Quality
Credit Quality Disciplined underwriting with net charge-offs remaining near historically low levels Net Charge-offs & Provision for Credit Losses Delinquencies to Period-end Total Loans $ in millions Continuing Operations $265 0.16% 0.15% 0.17% 0.14% 0.16% 0.12% 0.12% 0.15% 0.15% 0.14% $167 $139 $10
Slide 13: Capital
Capital Strong, stable position within targeted range, with significant AOCI accretion expected over time Common Equity Tier 1(1) Projected AOCI Accretion(2) Target operating range: 9% - 9.5% Illustrative, $ in billions AOCI burn down by 9.2% 9.2% ~44% the end of 2024 9.1% 9.1% 9.1% $6.0 $4.9 ~55% b
Slide 14: Quarterly Outlook
Quarterly Outlook Guidance as of 7/20/2023 3Q23 (vs. 2Q23) 4Q23 (vs. 3Q23) • Loans: down 1% - 3% • Loans: down 1% - 3% Average Balance Sheet • Deposits: relatively stable • Deposits: relatively stable Net Interest Income (TE) • Net interest income: down 4% - 6% • Net interest income: flat to down 2%
Slide 15: Appendix
Appendix
Slide 16: Deposits: A Diverse Core Base
Deposits: A Diverse Core Base Key’s deposit base is made up of over three and a half million retail, small business, private banking, and commercial clients, with two-thirds of balances covered by FDIC insurance or collateralized 2Q23 Mix by Client Highlights ▪ $9Bn of deposits are from low-cost, st
Slide 17: Commercial Loan Portfolio Detail
Commercial Loan Portfolio Detail Total Commercial Loans Targeted Industry Verticals $ in millions 6/30/23 % of total loans Consumer Healthcare Technology Energy Commercial and industrial $ 60,059 50% Commercial real estate 18,694 16 Industrial Real Estate Public Sector Commercial lease financing 3,8
Slide 18: Commercial Real Estate Loan Portfolio Detail
Commercial Real Estate Loan Portfolio Detail Key has limited exposure to riskier asset classes like office, lodging, and retail Portfolio by Asset Class Office Loan Detail Office Loans as a Portion of Total Loans(1) $ in millions, non-owner occupied 6/30/23 % of total loans 3.2% Multifamily $ 9,028
Slide 19: Credit Quality
Credit Quality Credit Quality by Portfolio Net loan charge- Allowance / Period-end Average Net loan Nonperforming Ending Allowance / offs(3) / average period-end $ in millions loans loans charge-offs loans allowance NPLs (%)(4) loans (%)(4) loans (%)(4) 6/30/23 2Q23 2Q23 2Q23 6/30/23 6/30/23 6/30/23
Slide 20: Balance Sheet Management Detail
Balance Sheet Management Detail 2Q23 Balance Sheet Highlights Highlights Loan Composition(1) Deposit Mix(2) ▪ Attractive business model with relationship-oriented lending 1M LIBOR franchise 2% Noninterest- 3M LIBOR bearing 25% Other 8% 2% − Distinctive commercial capabilities drive C&I growth and ~6
Slide 21: Hedging Strategy
Hedging Strategy Opportunistically locking in future benefit while managing downside risk Hedge Portfolio Recent ALM Hedge Actions(2) $ in billions $ in billions 6/30/23 • Added $3Bn of forward-starting receive fixed swaps - WA receive rate: 3.4% YTD A/LM Hedges (1) $ 25.4 • Executed $3.3Bn of forwa
Slide 22: Investment Portfolio
Investment Portfolio Existing Portfolio Repricing Characteristics Highlights $ in billions ▪ Portfolio used for funding and liquidity management $15.1 ‒ Portfolio composed primarily of fixed-rate GNMA and GSE-backed MBS and CMOs $7.2 ‒ Portfolio yield excluding short-term Treasury/Agency securities:
Slide 23: Securities Maturity Schedule
Securities Maturity Schedule Available for Sale (AFS) Held-to-Maturity (HTM) Agency Agency Agency Agency Agency Agency U.S. Treasury, Residential Residential Commercial Residential Residential Commercial Asset- Remaining maturity, Agencies, and Collateralized Mortgage- Mortgage- Total Remaining matu
Slide 24: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation $ in millions Three months ended 6/30/2023 3/31/2023 6/30/2022 Tangible common equity to tangible assets at period end Key shareholders' equity (GAAP) $ 13,844 $ 14,322 $ 14,427 Less: Intangible assets (1) 2,826 2,836 2,868 Preferred Stock (2) 2,446 2,446 1,856 Tangib
Slide 25: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation $ in millions Three months ended 6/30/2023 3/31/2023 6/30/2022 Return on average tangible common equity from continuing operations Net income (loss) from continuing operations attributable to Key common shareholders (GAAP) $ 250 $ 275 $ 504 Average tangible common equ