Noninterest income up 6% year-over-year and linked quarter, driven by strength in investment banking and debt placement fees Continued to strengthen the balance sheet by reducing reliance on wholesale funding and higher cost brokered deposits Common Equity Tier 1 ratio increased 120 basis points year-over-year to 10.3%(b) Credit costs remain low: net loan charge-offs to average loans of 29 basis points CLEVELAND, April 18, 2024 /PRNewswire/ -- KeyCorp (NYSE:KEY) today announced net income from continuing operations attributable to Key common shareholders of $183 million, or $.20 per diluted common share, for the first quarter of 2024. Net income from continuing operations attributable to Key common shareholders was $30 million, or $.03 per diluted common share, for the fourth quarter of 2023 and $275 million, or $.30 per diluted common share, for the first quarter of 2023. Included in the first quarter of 2024 are $22 million, or $.02 per diluted common share, after-tax, of charges related to the FDIC special assessment(a). Included in the fourth quarter of 2023 are $209 million, or $.22 per diluted common share, after-tax, of charges related to the FDIC special assessment, efficiency related expenses, and a pension settlement charge(a). Comments from Chairman and CEO, Chris Gorman "We are off to a solid start in 2024. Investment Banking posted its best first quarter in our history, net interest income was within the range of guidance that we provided in January, and expenses remained well controlled. Customer deposits were up 2% year-over-year, while relationship households and commercial clients grew 2.5% and 6%, respectively. Net charge-offs and nonperforming loans remained low and below their historical averages. Our Common Equity Tier 1 ratio rose to 10.3%, bringing our organic capital build to approximately 120 basis points over the past twelve months. Tangible common equity measures were steady to improved, despite the first quarter's increase in interest rates, reflecting the work we have done over the past year to improve our asset liability positioning. We continued to invest and make progress in our fee-based businesses where we have a differentiated value proposition. Last month, we announced a strategic partnership that will help us accelerate growth in our commercial platform, another example of how we are delivering best-in-class execution services for our clients while concurrently managing risk. Key is back to playing offense. I remain excited for our future and believe our strong foundation positions us to deliver sound, profitable growth moving forward." (a) See table on page 24 for more information on Selected Items Impact on Earnings, including information on the FDIC special assessment, efficiency related expenses, and the pension settlement charge. (b) March 31, 2024 ratio is estimated and reflects Key's election to adopt the CECL optional transition provision.   Selected Financial Highlights Dollars in millions, except per share data Change 1Q24 vs. 1Q24 4Q23 1Q23 4Q23 1Q23 Income (loss) from continuing operations attributable to Key common shareholders $      183 $       30 $      275 510.0 % (33.5) % Income (loss) from continuing operations attributable to Key common shareholders per common share — assuming dilution .20 .03 .30 566.7 (33.3) Return on average tangible common equity from continuing operations (a) 7.87 % 1.46 % 13.16 % N/A N/A Return on average total assets from continuing operations .47 .14 .66 N/A N/A Common Equity Tier 1 ratio (b) 10.3 10.0 9.1 N/A N/A Book value at period end $   12.84 $   13.02 $   12.70 (1.4) 1.1 Net interest margin (TE) from continuing operations 2.02 % 2.07 % 2.47 % N/A N/A (a) The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "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. (b) March 31, 2024 ratio is estimated. TE = Taxable Equivalent, N/A = Not Applicable   INCOME STATEMENT HIGHLIGHTS Revenue Dollars in millions Change 1Q24 vs. 1Q24 4Q23 1Q23 4Q23 1Q23 Net interest income (TE) $        886 $        928 $      1,106 (4.5) % (19.9) % Noninterest income 647 610 608 6.1 6.4 Total revenue (TE) $      1,533 $      1,538 $      1,714 (.3) % (10.6) % TE = Taxable Equivalent Taxable-equivalent net interest income was $886 million for the first quarter of 2024 and the net interest margin was 2.02%. Compared to the first quarter of 2023, net interest income decreased by $220 million, and the net interest margin decreased by 45 basis points. While both net interest income and the net interest margin benefited from the reinvestment of proceeds from maturing interest rate swaps, investments, and U.S. Treasury securities into higher-yielding cash and swaps, the decline in net interest income and the net interest margin reflects the higher interest rate environment and Key's balance sheet optimization efforts, which resulted in planned reductions in loan balances. The higher interest rate environment drove earning asset yields higher, but were outpaced by the higher cost of deposits and borrowings. Additionally, the balance sheet experienced a shift in funding mix from noninterest-bearing deposits to higher-cost deposits and borrowings.  Compared to the fourth quarter of 2023, taxable-equivalent net interest income decreased by $42 million, and the net interest margin decreased by five basis points. Net interest income and the net interest margin benefited from the reinvestment of proceeds from maturing interest rate swaps and U.S. Treasury securities into higher-yielding cash, investments, and swaps. The decline in net interest income and the net interest margin was driven by higher deposit costs, an unfavorable funding mix, and lower loan balances. Additionally, net interest income fell in part because of one less day to earn interest.  Noninterest Income Dollars in millions Change 1Q24 vs. 1Q24 4Q23 1Q23 4Q23 1Q23 Trust and investment services income $        136 $        132 $        128 3.0 % 6.3 % Investment banking and debt placement fees 170 136 145 25.0 17.2 Cards and payments income 77 84 81 (8.3) (4.9) Service charges on deposit accounts 63 65 67 (3.1) (6.0) Corporate services income 69 67 76 3.0 (9.2) Commercial mortgage servicing fees 56 48 46 16.7 21.7 Corporate-owned life insurance income 32 36 29 (11.1) 10.3 Consumer mortgage income 14 11 11 27.3 27.3 Operating lease income and other leasing gains 24 22 25 9.1 (4.0) Other income 6 9 — (33.3) N/M Total noninterest income $        647 $        610 $        608 6.1 % 6.4 % N/M = Not Meaningful Compared to the first quarter of 2023, noninterest income increased by $39 million. The increase was driven by investment banking and debt placement fees, up $25 million, related to strong commercial mortgage and debt capital markets activity. Additionally, commercial mortgage servicing fees increased $10 million. Compared to the fourth quarter of 2023, noninterest income increased by $37 million. The increase was driven by investment banking and debt placement fees, up $34 million, reflective of increased merger and acquisition advisory fees, syndication fees, and debt and equity capital markets activity. Commercial mortgage servicing fees increased $8 million, which was partly offset by a $7 million decline in cards and payments income. Noninterest Expense Dollars in millions Change 1Q24 vs. 1Q24 4Q23 1Q23 4Q23 1Q23 Personnel expense $        674 $        674 $        701 .0 % (3.9) % Net occupancy 67 65 70 3.1 (4.3) Computer processing 102 92 92 10.9 10.9 Business services and professional fees 41 44 45 (6.8) (8.9) Equipment 20 24 22 (16.7) (9.1) Operating lease expense 17 18 20 (5.6) (15.0) Marketing 19 31 21 (38.7) (9.5) Other expense 203 424 205 (52.1) (1.0) Total noninterest expense $      1,143 $      1,372 $      1,176 (16.7) % (2.8) % Compared to the first quarter of 2023, noninterest expense decreased $33 million, reflective of lower personnel expense, which decreased $27 million this quarter, due to lower headcount from efficiency related actions taken last year. In the first quarter of 2024, other expense included $29 million from the FDIC special assessment. See the Selected Items Impact on Earnings table on page 24 for more information. Compared to the fourth quarter of 2023, noninterest expense decreased by $229 million. The decline was driven by selected items that impacted earnings in the fourth quarter, which included the FDIC special assessment, efficiency related expenses, and a pension settlement charge in the fourth quarter, which collectively totaled $275 million. The decline was partly offset by a $29 million charge related to the FDIC special assessment in the first quarter of 2024, as well as an increase in employee benefits. See the Selected Items Impact on Earnings table on page 24 for more information. BALANCE SHEET HIGHLIGHTS Average Loans Dollars in millions Change 1Q24 vs. 1Q24 4Q23 1Q23 4Q23 1Q23 Commercial and industrial (a) $    55,220 $    56,664 $    60,281 (2.5) % (8.4) % Other commercial loans 21,222 21,942 22,778 (3.3) (6.8) Total consumer loans 34,592 35,342 36,778 (2.1) (5.9) Total loans $  111,034 $  113,948 $  119,837 (2.6) % (7.3) % (a) Commercial and industrial average loan balances include $211 million, $210 million, and $178 million of assets from commercial credit cards at March 31, 2024, December 31, 2023, and March 31, 2023, respectively. Average loans were $111.0 billion for the first quarter of 2024, a decrease of $8.8 billion compared to the first quarter of 2023, reflective of Key's planned balance sheet optimization efforts. The decline in average loans was mostly driven by lower commercial and industrial loans, as well as a decline in commercial mortgage real estate loans. Additionally, average consumer loans decreased by $2.2 billion, reflective of broad-based declines across all consumer loan categories. Compared to the fourth quarter of 2023, average loans decreased by $2.9 billion. Average commercial loans declined by $2.2 billion, primarily driven by a decrease in commercial and industrial loans. Additionally, average consumer loans declined $750 million, driven by declines across all consumer loan categories. Average Deposits Dollars in millions Change 1Q24 vs. 1Q24 4Q23 1Q23 4Q23 1Q23 Non-time deposits $  128,448 $  130,750 $  132,907 (1.8) % (3.4) % Time deposits 14,430 14,326 10,498 .7 37.5 Total deposits $  142,878 $  145,076 $  143,405 (1.5) % (.4) % Cost of total deposits 2.20 % 2.06 % .99 % N/A N/A N/A = Not Applicable Average deposits totaled $142.9 billion for the first quarter of 2024, a decrease of $527 million compared to the year-ago quarter. The decrease was driven by continued changing client behavior reflective of higher interest rates, as well as a decline in wholesale deposit balances. Compared to the fourth quarter of 2023, average deposits decreased by $2.2 billion. The decline was driven by normal seasonal deposit outflows and a decrease in wholesale deposit balances. ASSET QUALITY Dollars in millions Change 1Q24 vs. 1Q24 4Q23 1Q23 4Q23 1Q23 Net loan charge-offs $       81 $       76 $       45 6.6 % 80.0 % Net loan charge-offs to average total loans .29 % .26 % .15 % N/A N/A Nonperforming loans at period end $      658 $      574 $      416 14.6 58.2 Nonperforming assets at period end 674 591 447 14.0 50.8 Allowance for loan and lease losses 1,542 1,508 1,380 2.3 11.7 Allowance for credit losses 1,823 1,804 1,656 1.1 10.1 Provision for credit losses 101 102 139 (1.0) (27.3) Allowance for loan and lease losses to nonperforming loans 234 % 263 % 332 % N/A N/A Allowance for credit losses to nonperforming loans 277 314 398 N/A N/A N/A = Not Applicable Key's provision for credit losses was $101 million, compared to $139 million in the first quarter of 2023 and $102 million in the fourth quarter of 2023. The decline from the year-ago period reflects a more stable economic outlook and the impact of balance sheet optimization efforts, partly offset by portfolio migration. Net loan charge-offs for the first quarter of 2024 totaled $81 million, or 0.29% of average total loans. These results compare to $45 million, or 0.15%, for the first quarter of 2023 and $76 million, or 0.26%, for the fourth quarter of 2023. Key's allowance for credit losses was $1.8 billion, or 1.66% of total period-end loans at March 31, 2024, compared to 1.38% at March 31, 2023, and 1.60% at December 31, 2023. At March 31, 2024, Key's nonperforming loans totaled $658 million, which represented 0.60% of period-end portfolio loans. These results compare to 0.35% at March 31, 2023, and 0.51% at December 31, 2023. Nonperforming assets at March 31, 2024, totaled $674 million, and represented 0.61% of period-end portfolio loans and OREO and other nonperforming assets. These results compare to 0.37% at March 31, 2023, and 0.52% at December 31, 2023. CAPITAL Key's estimated risk-based capital ratios, included in the following table, continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2024. Capital Ratios 3/31/2024 12/31/2023 3/31/2023 Common Equity Tier 1 (a) 10.3 % 10.0 % 9.1 % Tier 1 risk-based capital (a) 12.0 11.7 10.6 Total risk-based capital (a) 14.5 14.1 12.8 Tangible common equity to tangible assets (b) 5.0 5.1 4.6 Leverage (a) 9.1 9.0 8.8 (a) March 31, 2024 ratio is estimated and reflects Key's election to adopt the CECL optional transition provision. (b) The table entitled "GAAP to Non-GAAP Reconciliations" in the attached financial supplement presents the computations of certain financial measures related to "tangible common equity." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. Key's regulatory capital position remained strong in the first quarter of 2024. As shown in the preceding table, at March 31, 2024, Key's estimated Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 10.3% and 12.0%, respectively. Key's tangible common equity ratio was 5.0% at March 31, 2024. Key elected the CECL phase-in option provided by regulatory guidance which delayed for two years the estimated impact of CECL on regulatory capital and phases it in over three years beginning in 2022. Effective for the first quarter 2022, Key is now in the three-year transition period. On a fully phased-in basis, Key's Common Equity Tier 1 ratio would be reduced by four basis points. Summary of Changes in Common Shares Outstanding In thousands Change 1Q24 vs. 1Q24 4Q23 1Q23 4Q23 1Q23 Shares outstanding at beginning of period 936,564 936,161 933,325 — % .3 % Open market share repurchases — — (2,550) — (100.0) Shares issued under employee compensation plans (net of cancellations and returns) 6,212 403 4,454 1,441.4 39.5 Shares outstanding at end of period 942,776 936,564 935,229 .7 % .8 % Key declared a dividend of $.205 per common share for the first quarter of 2024. 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 1Q24 vs. 1Q24 4Q23 1Q23 4Q23 1Q23 Revenue from continuing operations (TE) Consumer Bank $         773 $         786 $         840 (1.7) % (8.0) % Commercial Bank 791 794 844 (.4) (6.3) Other (a) (31) (42) 30 26.2 (203.3) Total $       1,533 $       1,538 $       1,714 (.3) % (10.6) % Income (loss) from continuing operations attributable to Key Consumer Bank $           55 $             1 $           89 N/M (38.2) % Commercial Bank 200 143 255 39.9 (21.6) Other (a) (36) (79) (33) 54.4 (9.1) Total $         219 $           65 $         311 236.9 % (29.6) % (a) Other includes other segments that consists of corporate treasury, our principal investing unit, and various exit portfolios as well as reconciling items which primarily represents the unallocated portion of nonearning assets of corporate support functions. Charges related to the funding of these assets are part of net interest income and are allocated to the business segments through noninterest expense. Reconciling items also includes intercompany eliminations and certain items that are not allocated to the business segments because they do not reflect their normal operations. TE = Taxable Equivalent N/M = Not Meaningful   Consumer Bank Dollars in millions Change 1Q24 vs. 1Q24 4Q23 1Q23 4Q23 1Q23 Summary of operations Net interest income (TE) $         549 $         558 $         612 (1.6) % (10.3) % Noninterest income 224 228 228 (1.8) (1.8) Total revenue (TE) 773 786 840 (1.7) (8.0) Provision for credit losses (2) 5 60 (140.0) (103.3) Noninterest expense 703 780 663 (9.9) 6.0 Income (loss) before income taxes (TE) 72 1 117 N/M (38.5) Allocated income taxes (benefit) and TE adjustments 17 — 28 N/M (39.3) Net income (loss) attributable to Key $           55 $             1 $           89 N/M (38.2) % Average balances Loans and leases $     40,446 $     41,381 $     43,086 (2.3) % (6.1) % Total assets 43,239 44,178 45,935 (2.1) (5.9) Deposits 84,317 84,856 84,637 (.6) (.4) Assets under management at period end $     57,305 $     54,859 $     53,689 4.5 % 6.7 % TE = Taxable Equivalent N/M = Not Meaningful   Additional Consumer Bank Data Dollars in millions Change 1Q24 vs. 1Q24 4Q23 1Q23 4Q23 1Q23 Noninterest income Trust and investment services income $       109 $       105 $       101 3.8 % 7.9 % Service charges on deposit accounts 33 37 38 (10.8) (13.2) Cards and payments income 56 62 61 (9.7) (8.2) Consumer mortgage income 14 11 11 27.3 27.3 Other noninterest income 12 13 17 (7.7) (29.4) Total noninterest income $       224 $       228 $       228 (1.8) % (1.8) % Average deposit balances Money market deposits $  29,918 $  29,752 $  28,128 .6 % 6.4 % Demand deposits 22,353 23,072 24,849 (3.1) (10.0) Savings deposits 4,987 5,241 7,025 (4.8) (29.0) Time deposits 11,809 10,265 4,351 15.0 171.4 Noninterest-bearing deposits 15,250 16,526 20,284 (7.7) (24.8) Total deposits $  84,317 $  84,856 $  84,637 (.6) % (.4) % Other data Branches 957 959 971 Automated teller machines 1,214 1,217 1,263 Consumer Bank Summary of Operations (1Q24 vs. 1Q23) Key's Consumer Bank recorded net income attributable to Key of $55 million for the first quarter of 2024, compared to $89 million for the year-ago quarter Taxable-equivalent net interest income decreased by $63 million, or 10.3%, compared to the first quarter of 2023, reflective of a shift in funding mix from noninterest-bearing deposits to higher-cost deposits and borrowings, as well as Key's balance sheet optimization efforts Average loans and leases decreased $2.6 billion, or 6.1%, from the first quarter of 2023, driven by broad-based declines across loan categories Average deposits decreased $320 million, or 0.4%, from the first quarter of 2023 Provision for credit losses decreased $62 million compared to the first quarter of 2023, driven by planned balance sheet optimization efforts and an improving economic outlook, partly offset by higher net charge-offs Noninterest income decreased $4 million from the year-ago quarter, driven by declines in service charges on deposit accounts and cards and payments income Noninterest expense increased $40 million from the year-ago quarter, primarily reflective of the FDIC special assessment charge Commercial Bank Dollars in millions Change 1Q24 vs. 1Q24 4Q23 1Q23 4Q23 1Q23 Summary of operations Net interest income (TE) $         391 $         444 $         478 (11.9) % (18.2) % Noninterest income 400 350 366 14.3 9.3 Total revenue (TE) 791 794 844 (.4) (6.3) Provision for credit losses 102 96 80 6.3 27.5 Noninterest expense 442 525 442 (15.8) — Income (loss) before income taxes (TE) 247 173 322 42.8 (23.3) Allocated income taxes and TE adjustments 47 30 67 56.7 (29.9) Net income (loss) attributable to Key $         200 $         143 $         255 39.9 % (21.6) % Average balances Loans and leases $     70,099 $     72,088 $     76,306 (2.8) % (8.1) % Loans held for sale 840 635 876 32.3 (4.1) Total assets 79,456 81,393