Keycorp · NYSE:KEY
Keycorp — Keycorp /New/ — Q1 2023 Earnings Presentation
30 slides from Keycorp's earnings presentation, Apr 20, 2023
Slide 1: KeyCorp First Quarter 2023 Earnings Review
KeyCorp First Quarter 2023 Earnings Review April 20, 2023 Chris Gorman Chairman and Chief Executive Officer Clark Khayat Executive Vice President and Chief Financial 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: Well Positioned for Dynamic Market Conditions
Well Positioned for Dynamic Market Conditions Positioned to deliver sound, profitable growth ✓ Durable, relationship-based business model provides stability and positions Key to perform through the cycle ✓ Diverse core deposit base driven by a sustained focus on primacy ✓ Strong liquidity position -
Slide 4: First Quarter Results and 2023 Outlook and Updates
4 ▪ EPS of $.30 per diluted common share ‒ Includes $64MM(1) of charges related to expense actions ‒ Includes $94MM(1) related to reserve build ▪ Grew and expanded relationships ‒ Supported clients on and off-balance sheet ‒ Market disruption providing opportunity for client acquisition ▪ Positioned
Slide 5: Financial Review
Financial Review
Slide 6: Financial Highlights
EOP = End of Period; (1) Non-GAAP measure: see appendix for reconciliation; (2) 3/31/2023 ratios are estimated and reflect Key's election to adopt the CECL optional transition provision 6 EPS – assuming dilution $.30 $ .38 $ .45 (21.1) % (33.3) % Cash efficiency ratio(1) 68.0 % 60.3 % 62.4 % 770 bps
Slide 7: Loans
Total Average Loans Highlights 7 $72.1 $75.0 $78.4 $81.0 $83.1 $31.6 $34.1 $36.1 $36.7 $36.8 3.28% 3.41% 3.97% 4.57% 5.01% 1.00% 1Q22 2Q22 3Q22 4Q22 1Q23 Loan Yield Consumer Commercial $ in billions ▪ Average loans up 16% from 1Q22 − Growth in C&I and commercial mortgage real estate loans − Growth i
Slide 8: Deposits
(1) Cumulative beta indexed to 4Q21 8 $ in billions CDs and other time deposits Savings Noninterest-bearing Demand and MMDA $ in billions 1Q23 Average Deposit Mix 60% 27% 8% 5% Average Consumer Average Commercial $150.2 $143.4 $143.4 Total deposit cost (bp) $147.5 $144.2 $145.7 Deposits Balances rem
Slide 9: Deposits: A Diverse Core Base
73% 85% 84% 1Q22 4Q22 1Q23 9 $ in billions, as of 3/31/2023 ▪ 54% of deposits are from consumers, wealth clients, and small businesses ▪ 78% from markets where Key maintains top-5 deposit share ▪ $8Bn of deposits are from low-cost, stable escrow balances ▪ $13.7Bn of uninsured deposits are collatera
Slide 10: Net Interest Income
$ in millions, continuing operations vs. Prior Quarter TE = Taxable equivalent (1) Table may not foot due to rounding $1,020 $1,140 $1,203 $1,227 $1,106 2.46% 2.61% 2.74% 2.73% 2.47% 1Q22 2Q22 3Q22 4Q22 1Q23 ▪ Net interest income up $86MM (+8%), net interest margin increased 1 basis point from 1Q22
Slide 11: Net Interest Income Opportunities
11 Expecting significant benefit from swap and Treasury maturities Net Interest Income Opportunities Illustrative, $ in millions NII Pickup from Short-dated Maturities(1) $10 $34 $56 $76 $85 $97 $109 $6 $11 $17 $29 $50 $71 $28 $41 $66 $92 $114 $147 $180 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 1Q25 ~$720M
Slide 12: Noninterest Income
12 ▪ Noninterest income down $68MM (-10%) from 1Q22 − Lower service charges on deposit accounts (-$24MM) driven by new client friendly fee structure for NSF/OD fees and lower account analysis fees due to the interest rate environment − Lower investment banking and debt placement fees (-$18MM) reflec
Slide 13: Noninterest Expense
13 vs. Prior Quarter vs. Prior Year ▪ Noninterest expense up $106MM (+10%) from 1Q22 − Higher personnel expense (+$71MM) reflecting $36MM of severance and other costs related to efficiency actions, and higher salaries and headcount growth − Higher other expense (+$47MM) reflecting $28MM of other cos
Slide 14: Credit Quality
$1,271 $1,272 $1,338 $1,562 $1,656 290% 297% 343% 404% 398% 1Q22 2Q22 3Q22 4Q22 1Q23 Allowance for credit losses to NPLsAllowance for credit losses 1Q23 allowance for credit losses to period-end loans of 1.38%$ in millions NCO = Net charge-off NPL = Nonperforming Loans 14 Criticized Outstandings(1)
Slide 15: Credit Quality: Prudently Managing CRE
12% 2% 14% 14% 26% 16% Pre-Crisis (2006) 2022 Construction Commercial Mortgage Credit Quality: Prudently Managing CRE We have meaningfully de-risked our business by repositioning our commercial real estate (CRE) portfolio following the global financial crisis ➔ Key’s CRE exposure has declined signif
Slide 16: Liquidity
16 Prudent management – capacity comfortably exceeds the level of uninsured deposits Liquidity Additional Available Liquidity $ in billions, as of 3/31/2023 Liquidity Sources Federal Reserve Cash Balance ~$8 Unpledged Investment Securities ~16 Available FHLB Borrowing Capacity ~7 Fed Availability ~4
Slide 17: Capital
9.4% 9.2% 9.1% 9.1% 9.1% 1Q22 2Q22 3Q22 4Q22 1Q23 $5.5 $4.3 $3.3 1 2 3 (1) 3/31/23 ratio is estimated and reflects Key's election to adopt the CECL optional transition provision 17 Strong, stable position within targeted range, with significant AOCI accretion expected over the next 7 quarters Capita
Slide 18: 2023 Outlook
Full Year 2023 (vs. Full Year 2022) 18 Average Balance Sheet • Loans: up 6% - 9% • Deposits: flat to down 2% Net Interest Income (TE) • Net interest income: down 1% - 3% (previously up 1% - 4%) Noninterest Income • Noninterest income: down 1% - 3% Noninterest Expense • Noninterest expense: relativel
Slide 19: Appendix
Appendix
Slide 20: Commercial Portfolio Highlights
Portfolio Highlights ▪ Target specific client segments focused in seven industry verticals ▪ Experienced bankers with deep industry expertise ▪ Focused on high quality clients ▪ Credit quality metrics remain strong and stable − Disciplined, consistent underwriting − Active surveillance with ongoing
Slide 21: 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 21 $ in millions, non-owner occupied 3/31/23 % of total loans Multifamily $ 8,934 7% Industrial 824 <1 Retail 1,253 1 Seniors Ho
Slide 22: Credit Quality Metrics
(1) From continuing operations 22 Metric(1) 1Q23 4Q22 3Q22 2Q22 1Q22 Delinquencies to EOP total loans: 30-89 days .14 % .15 % .16 % .12 % .11 % Delinquencies to EOP total loans: 90+ days .05 .05 .04 .04 .05 NPLs to EOP portfolio loans .35 .32 .34 .38 .41 NPAs to EOP portfolio loans + OREO + Other NP
Slide 23: Loan Portfolio and Allowance Detail
23 Period-end loans Average loans Net loan charge-offs Net loan charge- offs(3) / average loans (%) Nonperforming loans Ending allowance Allowance / period-end loans (%) Allowance / NPLs (%) 3/31/23 1Q23 1Q23 1Q23 3/31/23 3/31/23 3/31/23 3/31/23 Commercial and industrial(1) $ 60,565 $ 60,281 $ 27 .1
Slide 24: Consumer Loan Portfolio
$2.6 $3.2 $1.9 $1.0 $0.6 1Q22 2Q22 3Q22 4Q22 1Q23 Origination Volume $820 $445 $194 $118 $100 1Q22 2Q22 3Q22 4Q22 1Q23 Origination Volume $ in millions $ in billions Note: Table may not foot due to rounding (1) Indirect auto portfolio was sold on 9/10/21 ▪ High-quality client base: targeting healthc
Slide 25: Balance Sheet Positioning
$0.5 $0.4 $0.7 $1.5 $2.6 $2.9 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 (1) Loan statistics based on 3/31/2023 ending balances; (2) Deposit statistics based on 3/31/2023 average balances; (3) Yield is calculated on the basis of amortized cost; (4) Includes ~$300MM of
Slide 26: Hedging Strategy
(1) Non-zero loan floors; (2) $5.2Bn of swaps set to mature in 2025; $9.1Bn in 2026 (3) Chart includes forward-starting swaps and floor spreads since 4Q22 ▪ Recent actions position Key to benefit from higher rates while maintaining significant upside potential ▪ Balancing desire to lock in potential
Slide 27: Investment Portfolio
$3.0 $3.0 $1.8 $5.0 $13.0 $5.0 $8.0 $16.0 $6.8 2023** 2024 2025 27 Projected Cash Flows & Maturities (under implied forward rates) Floating Rate (including hedges) ▪ Portfolio used for funding and liquidity management ‒ Portfolio composed primarily of fixed-rate GNMA and GSE- backed MBS and CMOs ‒ P
Slide 28: Securities Maturity Schedule
28 Securities Maturity Schedule Available for Sale (AFS) Held-to-Maturity (HTM) Remaining maturity, as of March 31, 2023 $ in millions Agency Residential Collateralized Mortgage Obligations Agency Residential Mortgage- backed Securities Agency Commercial Mortgage- backed Securities Asset- backed Sec
Slide 29: GAAP to Non-GAAP Reconciliation
29 $ in millions (1) For the three months ended March 31, 2023, December 31, 2022, and March 31, 2022, intangible assets exclude $1 million, $2 million, and $2 million, respectively, of period-end purchased credit card receivables; (2) Net of capital surplus; (3) For the three months ended March 31,
Slide 30: GAAP to Non-GAAP Reconciliation
30 $ in millions GAAP to Non-GAAP Reconciliation 3/31/2023 12/31/2022 3/31/2022 Return on average tangible common equity from continuing operations Net income (loss) from continuing operations attributable to Key common shareholders (GAAP) 275$ 356$ 420$ Average tangible common equity (non-GAAP) 8,4