ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
This section reviews the financial condition and results of operations of KeyCorp and its subsidiaries for 2020 and 2019. Some tables include additional periods to comply with disclosure requirements or to illustrate trends in greater depth. When you read this discussion, you should also refer to the consolidated financial statements and related notes in this report. The page locations of specific sections that we refer to are presented in the table of contents. To review our financial condition and results of operations for 2018 and a comparison between the 2018 and 2019 results, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2019 Form 10-K filed with the SEC on February 26, 2020.
Long-term financial targets
(a)See the section entitled “GAAP to non-GAAP Reconciliations,” which presents the computations of certain financial measures related to “cash efficiency.” The section includes tables that reconcile the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.
(a)See the section entitled “GAAP to non-GAAP Reconciliations,” which presents the computations of certain financial measures related to “tangible common equity.” The section includes tables that reconcile the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.
Positive Operating Leverage
Generate positive operating leverage and a cash efficiency ratio in the range of 54.0% to 56.0%.
Building on our performance in 2020, we expect to deliver positive operating leverage again in 2021. While remaining consistent over the past three years, we expect to make continued progress on our cash efficiency ratio during 2021 as we focus on expenses and strategically invest back into our business.
Moderate Risk Profile
Maintain a moderate risk profile by targeting a net loan charge-offs to average loans ratio in the range of .40% to .60% through a credit cycle.
Overall, credit quality remains strong as we continue to remain consistent and disciplined in our credit underwriting and portfolio management and are committed to maintaining our moderate risk profile. During 2020, our net loan charge-offs to average loans ratio was impacted by $443 million of net loan charge-offs. Consistent with long-term targets, net charge-offs to average loans are expected to be in the 50 to 60 basis points range in 2021 based on full year guidance, which is in line with our through-the-cycle range of 40 to 60 basis points.
Financial Return
A return on average tangible common equity in the range of 16.0% to 19.0%.
Our full-year dividend for 2020 was $.74, a 4% increase from the previous year. In 2021, we remain committed to consistently delivering on our stated priorities of supporting organic growth, increasing dividends, and prudently repurchasing Common Shares.
Corporate strategy
We remain committed to enhancing long-term shareholder value by continuing to execute our relationship-based business model, growing our franchise, and being disciplined in our capital management. Our strategic focus is to deliver ease, value, and expertise to help our clients make better financial decisions and build enduring relationships. We intend to pursue this strategy by growing profitably; acquiring and expanding targeted client relationships; effectively managing risk and rewards; maintaining financial strength; and engaging, retaining, and inspiring our diverse and high-performing workforce. These strategic priorities for enhancing long-term shareholder value are described in more detail below.
•Grow profitably — We intend to continue to focus on generating positive operating leverage by growing revenue and creating a more efficient operating environment. We expect our relationship business model to keep generating organic growth as it helps us expand engagement with existing clients and attract new customers. We plan to leverage our continuous improvement culture to maintain an efficient cost structure that is aligned, sustainable, and consistent with the current operating environment and that supports our relationship business model.
•Acquire and expand targeted client relationships — We seek to be client-centric in our actions and have taken purposeful steps to enhance our ability to acquire and expand targeted relationships. We seek to provide solutions to serve our clients' needs. We focus on markets and clients where we can be the most relevant. In aligning our businesses and investments against these targeted client segments, we are able to make a meaningful impact for our clients.
•Effectively manage risk and rewards — Our risk management activities are focused on ensuring we properly identify, measure, and manage risks across the entire company to maintain safety and soundness and maximize profitability.
•Maintain financial strength — With the foundation of a strong balance sheet, we intend to remain focused on sustaining strong reserves, liquidity and capital. We plan to work closely with our Board and regulators to manage capital to support our clients’ needs and drive long-term shareholder value. Our capital remains a competitive advantage for us.
•Engage a high-performing, talented, and diverse workforce — Every day our employees provide our clients with great ideas, extraordinary service, and smart solutions. We intend to continue to engage our high-performing, talented, and diverse workforce to create an environment where they can make a difference, own their careers, be respected, and feel a sense of pride.
Strategic developments
We took the following actions during 2020 in support of our corporate strategy:
•We continued to grow profitably during 2020. Our cash efficiency ratio remained consistent year over year, and we achieved our seventh consecutive year of positive operating leverage. Full year expenses were up 5.3% from the prior year as a result of elevated production-related incentives, higher salaries due to merit increases, payments-related expenses from prepaid card activity, as well as COVID-19-related costs for steps that Key has taken to ensure the health and safety of teammates. Revenue was up for the year, driven by all-time high investment banking and debt placement fees, record consumer mortgage fees and higher prepaid card activity from state government support programs. We continued to see strong balance sheet growth as average loans were up 12.2% and average deposits were up 15.7% compared to the prior year. Our relationship-based business model continues to position us well with our targeted clients, which results in new and expanded relationships.
•Our residential mortgage business is another area where we are seeing strong returns on our investments. Residential mortgage loan originations for 2020 were $8.3 billion, up over 90% from 2019, with $2.5 billion originated in the fourth quarter of 2020. These two investments highlight our commitment to acquire and expand targeted client relationships.
•Overall, credit quality remains strong as our new loan originations in both our commercial and consumer book continue to meet our criteria for high quality loans as we continue to effectively manage risk and rewards.
•Maintaining financial strength while driving long-term shareholder value was again a focus during 2020. At December 31, 2020, our Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.73% and 11.11%, respectively. We repurchased $170 million of Common Shares, including $134 million of Common Shares in the open market and $36 million of Common Shares related to employee equity compensation programs. Our full-year dividend for 2020 was $.74, a 4% increase from the previous year.
•We remained committed to our strategy to engage a high-performing, talented, and diverse workforce. We have been recognized by multiple organizations for our dedication to creating an environment where employees are treated with respect and empowered to bring their authentic selves to work. Some of these awards and recognitions included the Human Rights Campaign naming us one of the Best Places to Work for LGBT Equality, Bloomberg listing us on the Gender-Equality Index, G.I. Jobs and Military Spouse Magazine recognizing us as a Military Friendly® and Military Friendly® Spouse Employer, and receiving the Leading Disability Employer Seal from the National Organization on Disability. We were also named to DiversityInc’s 2019 Top 50 Companies for Diversity.
Chief Diversity, Equity and Inclusion Officer Named
On April 13, 2020, we announced that Greg Jones has been named Chief Diversity, Equity, and Inclusion Officer for the company. In this role, Greg is accountable for leading the strategy and tactics to improve the acquisition, movement, development and retention of diverse talent and suppliers.
Results of Operations
Earnings Overview
The following chart provides a reconciliation of net income from continuing operations attributable to Key common shareholders for the year ended December 31, 2019, to the year ended December 31, 2020 (dollars in millions):
(a)Includes Net income (loss) attributable to noncontrolling interest and Preferred dividends.
Net interest income
One of our principal sources of revenue is net interest income. Net interest income is the difference between interest income received on earning assets (such as loans and securities) and loan-related fee income, and interest expense paid on deposits and borrowings. There are several factors that affect net interest income, including:
•the volume, pricing, mix, and maturity of earning assets and interest-bearing liabilities;
•the volume and value of net free funds, such as noninterest-bearing deposits and equity capital;
•the use of derivative instruments to manage interest rate risk;
•interest rate fluctuations and competitive conditions within the marketplace;
•asset quality; and
•fair value accounting of acquired earning assets and interest-bearing liabilities.
To make it easier to compare both the results among several periods and the yields on various types of earning assets (some taxable, some not), we present net interest income in this discussion on a “TE basis” (i.e., as if all
income were taxable and at the same rate). For example, $100 of tax-exempt income would be presented as $126, an amount that, if taxed at the statutory federal income tax rate of 21%, would yield $100. Prior to 2018, $100 of tax-exempt income would be presented as $154, an amount that, if taxed at the previous statutory federal income tax rate of 35%, would yield $100.
Figure 1 shows the various components of our balance sheet that affect interest income and expense, and their respective yields or rates over the past five years. This figure also presents a reconciliation of TE net interest income to net interest income reported in accordance with GAAP for each of those years. The net interest margin, which is an indicator of the profitability of our earning assets less the cost of funding, is calculated by dividing taxable-equivalent net interest income by average earning assets.
TE net interest income for 2020 was $4.1 billion, and the net interest margin was 2.77%, compared to TE net interest income of $3.9 billion and a net interest margin of 3.04% for the prior year. Net interest income for 2020 reflects an increase in earning asset balances and higher loan fees, partially offset by a lower net interest margin. The net interest margin was impacted by lower interest rates, Key’s participation in the PPP, and elevated levels of liquidity. In 2021, we expect TE net interest income to be relatively stable compared to 2020 and the net interest margin to be relatively stable compared to the fourth quarter of 2020.
Average loans totaled $102.7 billion for 2020, compared to $91.5 billion in 2019. Commercial loans increased $7.7 billion, reflecting Key’s participation in the PPP as well as core broad based growth in commercial and industrial loans. Consumer loans increased $3.5 billion, driven by strength from Laurel Road and Key's consumer mortgage business. For 2021, we expect average loans to be relatively stable compared to 2020.
Average deposits totaled $127.3 billion for 2020, an increase of $17.3 billion compared to 2019, reflecting growth from consumer and commercial relationships, partially offset by a decline in time deposits as a result of lower interest rates. For 2021, we expect average deposits to be up 1% to 3% compared to 2020.
Figure 1. Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates from Continuing Operations
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|
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|
|
Year ended December 31,
|
2020
|
|
2019
|
dollars in millions
|
Average
Balance
|
Interest (a)
|
Yield/
Rate (a)
|
|
Average
Balance
|
Interest (a)
|
Yield/
Rate (a)
|
ASSETS
|
|
|
|
|
|
|
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Loans (b), (c)
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|
|
|
|
|
|
|
Commercial and industrial (d)
|
$
|
55,145
|
|
$
|
1,977
|
|
3.59
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%
|
|
$
|
47,482
|
|
$
|
2,144
|
|
4.51
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%
|
Real estate — commercial mortgage
|
13,279
|
|
521
|
|
3.92
|
|
|
13,641
|
|
676
|
|
4.95
|
|
Real estate — construction
|
1,843
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|
74
|
|
3.99
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|
|
1,485
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|
78
|
|
5.24
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|
Commercial lease financing
|
4,497
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|
139
|
|
3.09
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|
|
4,488
|
|
163
|
|
3.63
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|
Total commercial loans
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74,764
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|
2,711
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|
3.63
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|
|
67,096
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|
3,061
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|
4.56
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Real estate — residential mortgage
|
8,094
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284
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|
3.50
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|
|
6,095
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|
241
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|
3.95
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|
Home equity loans
|
9,772
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|
392
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|
4.01
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|
|
10,634
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|
526
|
|
4.95
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|
Consumer direct loans
|
4,213
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|
221
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|
5.26
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|
|
2,475
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|
176
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|
7.11
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Credit cards
|
1,001
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|
107
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|
10.65
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|
|
1,100
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|
127
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|
11.51
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|
Consumer indirect loans
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4,845
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|
180
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|
3.72
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|
|
4,111
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|
168
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|
4.09
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|
Total consumer loans
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27,925
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|
1,184
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|
4.24
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|
|
24,415
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|
1,238
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|
5.07
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|
Total loans
|
102,689
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|
3,895
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|
3.79
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|
|
91,511
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|
4,299
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|
4.70
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Loans held for sale
|
1,972
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|
69
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|
3.49
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|
|
1,411
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|
63
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|
4.48
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Securities available for sale (b), (e)
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23,742
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|
484
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|
2.10
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|
|
21,362
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|
537
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|
2.51
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Held-to-maturity securities (b)
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8,938
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|
222
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|
2.49
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|
|
10,841
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|
262
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|
2.41
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Trading account assets
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814
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|
20
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|
2.47
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|
|
1,017
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|
32
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|
3.18
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Short-term investments
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9,096
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|
18
|
|
.20
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|
|
2,876
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|
61
|
|
2.11
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|
Other investments (e)
|
635
|
|
6
|
|
.87
|
|
|
630
|
|
13
|
|
2.09
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|
Total earning assets
|
147,886
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|
4,714
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|
3.20
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|
|
129,648
|
|
5,267
|
|
4.06
|
|
Allowance for loan and lease losses
|
(1,481)
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|
|
|
|
(880)
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|
|
|
Accrued income and other assets
|
15,650
|
|
|
|
|
14,411
|
|
|
|
Discontinued assets
|
775
|
|
|
|
|
984
|
|
|
|
Total assets
|
$
|
162,830
|
|
|
|
|
$
|
144,163
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|
|
|
LIABILITIES
|
|
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NOW and money market deposit accounts
|
$
|
75,733
|
|
206
|
|
.27
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|
|
$
|
63,731
|
|
566
|
|
.89
|
|
Savings deposits
|
5,252
|
|
2
|
|
.04
|
|
|
4,740
|
|
4
|
|
.09
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|
Certificates of deposit ($100,000 or more)(f)
|
4,520
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|
83
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|
1.83
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|
|
7,757
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|
180
|
|
2.32
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|
Other time deposits
|
4,041
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|
56
|
|
1.38
|
|
|
5,426
|
|
103
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|
1.90
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|
Deposits in foreign office
|
—
|
|
—
|
|
—
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|
|
—
|
|
—
|
|
—
|
|
Total interest-bearing deposits
|
89,546
|
|
347
|
|
.39
|
|
|
81,654
|
|
853
|
|
1.04
|
|
Federal funds purchased and securities sold under repurchase agreements
|
670
|
|
6
|
|
.88
|
|
|
264
|
|
2
|
|
.66
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|
Bank notes and other short-term borrowings
|
1,452
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|
12
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|
.85
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|
|
730
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|
17
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|
2.31
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|
Long-term debt (f), (g)
|
12,578
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|
286
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|
2.36
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|
|
13,062
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|
454
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|
3.52
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|
Total interest-bearing liabilities
|
104,246
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|
651
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|
.63
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|
|
95,710
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|
1,326
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|
1.39
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|
Noninterest-bearing deposits
|
37,740
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|
|
|
|
28,376
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|
|
|
Accrued expense and other liabilities
|
2,433
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|
|
|
|
2,456
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|
|
|
Discontinued liabilities (g)
|
775
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|
|
|
|
984
|
|
|
|
Total liabilities
|
145,194
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|
|
|
|
127,526
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|
|
EQUITY
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Key shareholders’ equity
|
17,636
|
|
|
|
|
16,636
|
|
|
|
Noncontrolling interests
|
—
|
|
|
|
|
1
|
|
|
|
Total equity
|
17,636
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|
|
|
|
16,637
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|
|
|
Total liabilities and equity
|
$
|
162,830
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|
|
|
|
$
|
144,163
|
|
|
|
Interest rate spread (TE)
|
|
|
2.57
|
%
|
|
|
|
2.67
|
%
|
Net interest income (TE) and net interest margin (TE)
|
|
4,063
|
|
2.77
|
%
|
|
|
3,941
|
|
3.04
|
%
|
Less: TE adjustment (b)
|
|
29
|
|
|
|
|
32
|
|
|
Net interest income, GAAP basis
|
|
$
|
4,034
|
|
|
|
|
$
|
3,909
|
|
|
|
|
|
|
|
|
|
|
(a)Results are from continuing operations. Interest excludes the interest associated with the liabilities referred to in (g) below, calculated using a matched funds transfer pricing methodology.
(b)Interest income on tax-exempt securities and loans has been adjusted to a TE basis using the statutory federal income tax rate in effect that calendar year.
(c)For purposes of these computations, nonaccrual loans are included in average loan balances.
(d)Commercial and industrial average loan balances include $130 million, $141 million, $126 million, $117 million, and $99 million of assets from commercial credit cards for the years ended December 31, 2020, December 31, 2019, December 31, 2018, December 31, 2017, and December 31, 2016, respectively.
(e)Yield is calculated on the basis of amortized cost.
(f)Rate calculation excludes basis adjustments related to fair value hedges.
(g)A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying our matched funds transfer pricing methodology to discontinued operations.
Figure 1. Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates from Continuing Operations (Continued)
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|
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|
|
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|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Compound Annual Rate of
Change (2016-2020)
|
Average
Balance
|
Interest (a)
|
Yield/
Rate (a)
|
|
Average
Balance
|
Interest (a)
|
Yield/
Rate (a)
|
|
Average
Balance
|
Interest (a)
|
Yield/
Rate (a)
|
|
Average
Balance
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,418
|
|
$
|
1,926
|
|
4.34
|
%
|
|
$
|
40,848
|
|
$
|
1,613
|
|
3.95
|
%
|
|
$
|
35,276
|
|
$
|
1,215
|
|
3.45
|
%
|
|
9.3
|
%
|
10.2
|
%
|
14,267
|
|
698
|
|
4.90
|
|
|
14,878
|
|
687
|
|
4.62
|
|
|
11,063
|
|
451
|
|
4.07
|
|
|
3.7
|
|
2.9
|
|
1,816
|
|
90
|
|
4.97
|
|
|
2,143
|
|
103
|
|
4.78
|
|
|
1,460
|
|
76
|
|
5.22
|
|
|
4.8
|
|
(.5)
|
|
4,534
|
|
168
|
|
3.70
|
|
|
4,677
|
|
185
|
|
3.96
|
|
|
4,261
|
|
161
|
|
3.78
|
|
|
1.1
|
|
(2.9)
|
|
65,035
|
|
2,882
|
|
4.43
|
|
|
62,546
|
|
2,588
|
|
4.14
|
|
|
52,060
|
|
1,903
|
|
3.66
|
|
|
7.5
|
|
7.3
|
|
5,473
|
|
217
|
|
3.97
|
|
|
5,499
|
|
214
|
|
3.89
|
|
|
3,632
|
|
148
|
|
4.09
|
|
|
17.4
|
|
13.9
|
|
11,530
|
|
547
|
|
4.74
|
|
|
12,380
|
|
536
|
|
4.33
|
|
|
11,286
|
|
456
|
|
4.04
|
|
|
(2.8)
|
|
(3.0)
|
|
1,782
|
|
137
|
|
7.66
|
|
|
1,765
|
|
126
|
|
7.12
|
|
|
1,661
|
|
113
|
|
6.79
|
|
|
20.5
|
|
14.4
|
|
1,092
|
|
125
|
|
11.40
|
|
|
1,055
|
|
118
|
|
11.15
|
|
|
916
|
|
98
|
|
10.73
|
|
|
1.8
|
|
1.8
|
|
3,426
|
|
146
|
|
4.27
|
|
|
3,120
|
|
148
|
|
4.75
|
|
|
1,593
|
|
89
|
|
5.58
|
|
|
24.9
|
|
15.1
|
|
23,303
|
|
1,172
|
|
5.03
|
|
|
23,819
|
|
1,142
|
|
4.79
|
|
|
19,088
|
|
904
|
|
4.74
|
|
|
7.9
|
|
5.5
|
|
88,338
|
|
4,054
|
|
4.59
|
|
|
86,365
|
|
3,730
|
|
4.32
|
|
|
71,148
|
|
2,807
|
|
3.95
|
|
|
7.6
|
|
6.8
|
|
1,501
|
|
66
|
|
4.43
|
|
|
1,325
|
|
52
|
|
3.96
|
|
|
979
|
|
34
|
|
3.51
|
|
|
15.0
|
|
15.2
|
|
17,898
|
|
409
|
|
2.20
|
|
|
18,548
|
|
369
|
|
1.96
|
|
|
16,661
|
|
329
|
|
1.98
|
|
|
7.3
|
|
8.0
|
|
12,003
|
|
284
|
|
2.37
|
|
|
10,515
|
|
222
|
|
2.11
|
|
|
6,275
|
|
122
|
|
1.94
|
|
|
7.3
|
|
12.7
|
|
893
|
|
29
|
|
3.25
|
|
|
949
|
|
27
|
|
2.81
|
|
|
884
|
|
23
|
|
2.59
|
|
|
(1.6)
|
|
(2.8)
|
|
2,450
|
|
46
|
|
1.86
|
|
|
2,363
|
|
26
|
|
1.11
|
|
|
4,656
|
|
22
|
|
.47
|
|
|
14.3
|
|
(3.9)
|
|
697
|
|
21
|
|
3.04
|
|
|
712
|
|
17
|
|
2.35
|
|
|
679
|
|
16
|
|
2.37
|
|
|
(1.3)
|
|
(17.8)
|
|
123,780
|
|
4,909
|
|
3.94
|
|
|
120,777
|
|
4,443
|
|
3.67
|
|
|
101,282
|
|
3,353
|
|
3.31
|
|
|
7.9
|
|
7.1
|
|
(878)
|
|
|
|
|
(865)
|
|
|
|
|
(835)
|
|
|
|
|
12.1
|
|
|
13,910
|
|
|
|
|
13,807
|
|
|
|
|
12,090
|
|
|
|
|
5.3
|
|
|
1,212
|
|
|
|
|
1,448
|
|
|
|
|
1,707
|
|
|
|
|
(14.6)
|
|
|
$
|
138,024
|
|
|
|
|
$
|
135,167
|
|
|
|
|
$
|
114,244
|
|
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,001
|
|
297
|
|
.53
|
|
|
$
|
54,032
|
|
143
|
|
.26
|
|
|
$
|
46,079
|
|
87
|
|
.19
|
|
|
10.4
|
%
|
18.8
|
|
5,704
|
|
14
|
|
.24
|
|
|
6,569
|
|
13
|
|
.20
|
|
|
3,957
|
|
3
|
|
.07
|
|
|
5.8
|
|
(7.8)
|
|
7,728
|
|
139
|
|
1.80
|
|
|
6,233
|
|
82
|
|
1.31
|
|
|
3,911
|
|
48
|
|
1.22
|
|
|
2.9
|
|
11.6
|
|
5,025
|
|
67
|
|
1.34
|
|
|
4,698
|
|
40
|
|
.85
|
|
|
4,088
|
|
33
|
|
.81
|
|
|
(.2)
|
|
11.2
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
N/M
|
N/M
|
74,458
|
|
517
|
|
.69
|
|
|
71,532
|
|
278
|
|
.39
|
|
|
58,035
|
|
171
|
|
.30
|
|
|
9.1
|
|
15.2
|
|
928
|
|
11
|
|
1.14
|
|
|
517
|
|
1
|
|
.24
|
|
|
487
|
|
1
|
|
.10
|
|
|
6.6
|
|
43.1
|
|
915
|
|
21
|
|
2.34
|
|
|
1,140
|
|
15
|
|
1.34
|
|
|
852
|
|
10
|
|
1.18
|
|
|
11.3
|
|
3.7
|
|
12,715
|
|
420
|
|
3.27
|
|
|
11,921
|
|
319
|
|
2.69
|
|
|
9,802
|
|
218
|
|
2.29
|
|
|
5.1
|
|
5.6
|
|
89,016
|
|
969
|
|
1.09
|
|
|
85,110
|
|
613
|
|
.72
|
|
|
69,176
|
|
400
|
|
.58
|
|
|
8.5
|
|
10.2
|
|
30,593
|
|
|
|
|
31,414
|
|
|
|
|
28,317
|
|
|
|
|
5.9
|
|
|
2,071
|
|
|
|
|
1,970
|
|
|
|
|
2,393
|
|
|
|
|
.3
|
|
|
1,212
|
|
|
|
|
1,448
|
|
|
|
|
1,706
|
|
|
|
|
(14.6)
|
|
|
122,892
|
|
|
|
|
119,942
|
|
|
|
|
101,592
|
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,131
|
|
|
|
|
15,224
|
|
|
|
|
12,647
|
|
|
|
|
6.9
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
5
|
|
|
|
|
(100.0)
|
|
|
15,132
|
|
|
|
|
15,225
|
|
|
|
|
12,652
|
|
|
|
|
6.9
|
|
|
$
|
138,024
|
|
|
|
|
$
|
135,167
|
|
|
|
|
$
|
114,244
|
|
|
|
|
7.3
|
%
|
|
|
|
2.85
|
%
|
|
|
|
2.95
|
%
|
|
|
|
2.73
|
%
|
|
|
|
|
3,940
|
|
3.17
|
%
|
|
|
3,830
|
|
3.17
|
%
|
|
|
2,953
|
|
2.92
|
%
|
|
|
6.6
|
|
|
31
|
|
|
|
|
53
|
|
|
|
|
34
|
|
|
|
|
(3.1)
|
|
|
$
|
3,909
|
|
|
|
|
$
|
3,777
|
|
|
|
|
$
|
2,919
|
|
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e)Yield is calculated on the basis of amortized cost.
(f)Rate calculation excludes basis adjustments related to fair value hedges.
(g)A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying our matched funds transfer pricing methodology to discontinued operations.
Figure 2 shows how the changes in yields or rates and average balances from the prior year affected net interest income. The section entitled “Financial Condition” contains additional discussion about changes in earning assets and funding sources.
Figure 2. Components of Net Interest Income Changes from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 vs. 2019
|
|
|
in millions
|
Average
Volume
|
Yield/ Rate
|
Net Change(a)
|
|
|
|
|
INTEREST INCOME
|
|
|
|
|
|
|
|
Loans
|
$
|
463
|
|
$
|
(867)
|
|
$
|
(404)
|
|
|
|
|
|
Loans held for sale
|
22
|
|
(16)
|
|
6
|
|
|
|
|
|
Securities available for sale
|
56
|
|
(109)
|
|
(53)
|
|
|
|
|
|
Held-to-maturity securities
|
(47)
|
|
7
|
|
(40)
|
|
|
|
|
|
Trading account assets
|
(6)
|
|
(6)
|
|
(12)
|
|
|
|
|
|
Short-term investments
|
48
|
|
(91)
|
|
(43)
|
|
|
|
|
|
Other investments
|
—
|
|
(7)
|
|
(7)
|
|
|
|
|
|
Total interest income (TE)
|
536
|
|
(1,089)
|
|
(553)
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
NOW and money market deposit accounts
|
91
|
|
(451)
|
|
(360)
|
|
|
|
|
|
Savings deposits
|
—
|
|
(2)
|
|
(2)
|
|
|
|
|
|
Certificates of deposit ($100,000 or more)
|
(65)
|
|
(32)
|
|
(97)
|
|
|
|
|
|
Other time deposits
|
(23)
|
|
(24)
|
|
(47)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
3
|
|
(509)
|
|
(506)
|
|
|
|
|
|
Federal funds purchased and securities sold under repurchase agreements
|
4
|
|
—
|
|
4
|
|
|
|
|
|
Bank notes and other short-term borrowings
|
10
|
|
(15)
|
|
(5)
|
|
|
|
|
|
Long-term debt
|
(16)
|
|
(152)
|
|
(168)
|
|
|
|
|
|
Total interest expense
|
1
|
|
(676)
|
|
(675)
|
|
|
|
|
|
Net interest income (TE)
|
$
|
535
|
|
$
|
(413)
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)The change in interest not due solely to volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each.
Provision for credit losses
Our provision for credit losses was $1.0 billion for 2020, compared to $445 million for 2019. The increase of $576 million in our provision for credit losses is primarily due to the economic stress and uncertainty in the U.S. and globally from the ongoing pandemic caused by COVID-19 as well as increased net loan charge-offs. In 2019 our provision for credit losses was impacted by the realization of $139 million from a previously disclosed fraud loss. In 2021 we expect loan charge-offs to average loans to be in the range of 50 to 60 bps.
Noninterest income
Noninterest income for 2020 was $2.7 billion, compared to $2.5 billion during 2019. Noninterest income represented 39% of total revenue for 2020 and 38% of total revenue for 2019. In 2021, we expect noninterest income to be up 1% to 3% compared to 2020.
The following discussion explains the composition of certain elements of our noninterest income and the factors that caused those elements to change.
Figure 3. Noninterest Income
(a)Other noninterest income includes operating lease income and other leasing gains, corporate services income, corporate-owned life insurance income, consumer mortgage income, mortgage servicing fees, and other income. See the "Consolidated Statements of Income" in Part II, Item 8. Financial Statements and Supplementary Data of this report.
Trust and investment services income
Trust and investment services income consists of brokerage commissions, trust and asset management commissions, and insurance income. For 2020, trust and investment services income increased $32 million, or 6.7% as a result of an increase in assets under management.
A significant portion of our trust and investment services income depends on the value and mix of assets under management. At December 31, 2020, our bank, trust, and registered investment advisory subsidiaries had assets under management of $44.1 billion, compared to $40.8 billion at December 31, 2019. The increase from 2019 to 2020 was primarily attributable to the strength of the equity markets during the year.
Figure 4. Assets Under Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
Change 2020 vs. 2019
|
dollars in millions
|
2020
|
2019
|
Amount
|
Percent
|
Assets under management by investment type:
|
|
|
|
|
Equity
|
$
|
27,384
|
|
$
|
25,271
|
|
$
|
2,113
|
|
8.4
|
%
|
Securities lending
|
131
|
|
309
|
|
(178)
|
|
(57.6)
|
|
Fixed income
|
12,130
|
|
11,000
|
|
1,130
|
|
10.3
|
|
Money market
|
4,495
|
|
4,253
|
|
242
|
|
5.7
|
|
Total
|
$
|
44,140
|
|
$
|
40,833
|
|
$
|
3,307
|
|
8.1
|
%
|
|
|
|
|
|
Investment banking and debt placement fees
Investment banking and debt placement fees consist of syndication fees, debt and equity financing fees, financial advisor fees, gains on sales of commercial mortgages, and agency origination fees. For 2020, investment banking and debt placement fees increased $31 million, or 4.9%, from the prior year driven by gains on the sale of commercial mortgages and strong debt and equity financing fees.
Service charges on deposit accounts
Service charges on deposit accounts decreased $26 million, or 7.7%, in 2020 compared to the prior year. These decreases were primarily due to lower customer spending and higher fee waivers related to the ongoing COVID-19 pandemic.
Cards and payments income
Cards and payments income, which consists of debit card, consumer and commercial credit card, and merchant services income, increased $93 million, or 33.8%, in 2020 compared to 2019. This increase was primarily due to higher prepaid card activity from state government support programs.
Other noninterest income
Other noninterest income includes operating lease income and other leasing gains, corporate services income, corporate-owned life insurance income, consumer mortgage income, mortgage servicing fees, and other income. Other noninterest income increased $63 million, or 8.5%, in 2020 compared to 2019, driven primarily by record mortgage origination income partially offset by trading losses and portfolio marks related to the widening credit spreads in the market.
Noninterest expense
Noninterest expense for 2020 was $4.1 billion, compared to $3.9 billion for 2019. Figure 5 gives a breakdown of our major categories of noninterest expense as a percentage of total noninterest expense for the twelve months ended December 31, 2020. In 2021, we expect noninterest expense to be down 1% to 3% compared to 2020.
The following discussion explains the composition of certain elements of our noninterest expense and the factors that caused those elements to change.
Figure 5. Noninterest Expense
(a)Other noninterest expense includes equipment, operating lease expense, marketing, FDIC assessment, intangible asset amortization, OREO expense, net, and other expense. See the "Consolidated Statements of Income" in Part II, Item 8. Financial Statements and Supplementary Data of this report.
Personnel
As shown in Figure 6, personnel expense, the largest category of our noninterest expense, increased by $86 million, or 3.8%, in 2020 compared to 2019. The increase is driven by higher production-related incentives from our record fee production and higher salaries due to merit increases.
Figure 6. Personnel Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
dollars in millions
|
|
|
Change 2020 vs. 2019
|
2020
|
2019
|
Amount
|
Percent
|
Salaries and contract labor
|
$
|
1,329
|
|
$
|
1,268
|
|
$
|
61
|
|
4.8
|
%
|
Incentive and stock-based compensation (a)
|
627
|
|
584
|
|
43
|
|
7.4
|
|
Employee benefits
|
350
|
|
348
|
|
2
|
|
.6
|
|
Severance
|
30
|
|
50
|
|
(20)
|
|
(40.0)
|
|
Total personnel expense
|
$
|
2,336
|
|
$
|
2,250
|
|
$
|
86
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Excludes directors’ stock-based compensation of $2 million in 2020 and $3 million in 2019, reported as “other noninterest expense” in Figure 5.
Net occupancy
Net occupancy expense increased $5 million, or 1.7%, in 2020 compared to 2019, primarily due to higher property reserve expenses and cleaning expenses related to the steps that we have taken to ensure the health and safety of teammates and customers during the ongoing COVID-19 pandemic.
Other noninterest expense
Other noninterest expense includes equipment, operating lease expense, marketing, FDIC assessment, intangible asset amortization, OREO expenses, and other miscellaneous expense categories. In total, other noninterest expense increased $89 million, or 9.3%, in 2020 compared to 2019 primarily attributable to higher payments-related expenses from prepaid card activity.
Income taxes
We recorded a tax provision from continuing operations of $227 million for 2020, compared to $314 million for 2019. The effective tax rate, which is the provision for income taxes as a percentage of income from continuing operations before income taxes, was 14.6% for 2020 and 15.6% for 2019. In 2021, we expect our GAAP tax rate to be approximately 19%.
In 2020, our federal tax expense and effective tax rate differ from the amount that would be calculated using the federal statutory tax rate; primarily from investments in tax-advantaged assets, such as corporate-owned life insurance, tax credits associated with investments in low-income housing projects and energy related projects, and periodic adjustments to our tax reserves as described in Note 14 (“Income Taxes”).
Business Segments Results
We previously reported our results of operations through two business segments, Key Community Bank and Key Corporate Bank, with the remaining operations recorded in Other. In the first quarter of 2019, we underwent a company-wide organizational change, resulting in the realignment of our businesses into two reportable business segments, Consumer Bank and Commercial Bank, with the remaining operations that do not meet the criteria for disclosure as a separate reportable business recorded in Other. The new business segment structure aligns with how management reviews performance and makes decisions by client, segment, and business unit. Prior period information was restated to conform to the new business segment structure.
This section summarizes the highlights and segment imperatives, market and business overview, and financial performance of our two major business segments (operating segments): Consumer Bank and Commercial Bank. Note 25 (“Business Segment Reporting”) describes the products and services offered by each of these business segments and provides more detailed financial information pertaining to the segments. Dollars in the charts are presented in millions.
Consumer Bank
Segment imperatives
•Simplification and digitalization to drive growth and operating leverage
•Relationship-based strategy with a focus on financial wellness as a differentiator
•Deliver ease, value, and expertise to help guide our clients to the right approach to meet their goals
Market and business overview
As the banking industry moves forward, so do our clients. Anticipating our clients’ needs not only today, but for tomorrow and into the future, has become one of the biggest challenges for the banking industry. We view these challenges as an opportunity to help our current client base meet their own goals, as well as attract new and diverse clients. In an increasingly digital world focused on specialized convenience, we have made meaningful steps to meet those demands through new digital portals and the acquisition of Laurel Road in 2019. These platforms place us in a strong position to develop long lasting and meaningful relationships with our current and prospective clients. Financial wellness is a core tenet of our customer relationships and we see it in three different ways: diagnose, enhance, and sustain. Our goal is to get our clients to a place where they can comfortably sustain their current financial position so we can be there for them when they are ready to grow. Clients no longer go to a branch to conduct transactions only, they go to seek advice and gain new perspectives on issues they may be facing. Overall, we have a passion to help our clients through:
•Ease - enabling simple and clear banking with no surprises
•Value - knowing our clients and valuing each relationship
•Expertise - provide our clients with industry-leading expertise and personalized service
Summary of operations
•Net income attributable to Key of $665 million in 2020, compared to $706 million in 2019, a decrease of 5.8%.
•Taxable equivalent net interest income increased in 2020 by $68 million, or 2.9%, from the prior year. The increase in net interest income was primarily driven by strong balance sheet growth and fees related to PPP loans, partially offset by a lower interest rate environment.
•Average loans and leases increased in 2020 by $6.4 billion, or 19.6%, from the prior year. This was driven by growth from Laurel Road and consumer mortgage.
•Average deposits increased in 2020 by $7.3 billion, or 10.0%, from the prior year. This was driven by consumer stimulus payments, lower spend activity, and relationship growth.
•Provision for credit losses increased $100 million in 2020 compared to the prior year. The increase in provision for credit losses is driven by portfolio growth and CECL economic forecasts that capture deterioration triggered by the global COVID-19 pandemic.
•Noninterest income increased in 2020 by $81 million, or 8.8%, from the prior year, primarily driven by growth in consumer mortgage income and originations, as well as increases in cards and payments income.
•Noninterest expense increased in 2020 by $102 million, or 4.7%, from the prior year. The increase is due to higher variable compensation from strong revenue growth and higher variable expenses related to higher loan volumes.
Commercial Bank
Segment imperatives
•Solve complex client needs through a differentiated product set of banking and capital markets capabilities
•Drive targeted scale through distinct product capabilities delivered to a broad set of clients
•Utilize industry expertise and broad capabilities to build relationships with narrowly targeted client sets
Market and business overview
Building relationships and delivering complex solutions for middle market clients requires a distinctive operating model that understands their business and can provide a broad set of product capabilities. As competition for these clients intensifies, we have positioned the business to maintain and grow our competitive advantage by building targeted scale in businesses and client segments. Strong market share in businesses such as real estate loan servicing and equipment finance highlights our ability to successfully meet customer needs through targeted scale in distinct product capabilities. Clients expect us to understand every aspect of their business. Our seven industry verticals are aligned to drive targeted scale in segments where we have a deep breadth of industry expertise. Healthcare is the largest sector of the economy and one of our targeted verticals. Our acquisition of Cain Brothers in 2017 is one example of how we have expanded our business capabilities to further enhance our reputation as a trusted advisor to current and prospective clients. Our business model is positioned to meet our client needs because our focus is not on being a universal bank, but rather being the right bank for our clients.
Summary of operations
•Net income attributable to Key of $633 million in 2020, compared to $1.1 billion in 2019, a decrease of 44.0%.
•Taxable equivalent net interest income increased in 2020 by $77 million, or 4.8%, from the prior year. The increase in net interest income was primarily driven by balance sheet growth and fees related to PPP loans.
•Average loan and lease balances increased $5.1 billion in 2020, or 8.8%, compared to the prior year driven by broad-based growth in commercial, industrial, and PPP loans.
•Average deposit balances increased $10.7 billion in 2020, or 29.4%, compared to the prior year, driven by growth in targeted relationships and the impact of government programs.
•Provision for credit losses increased $620 million in 2020 compared to the prior year, driven by CECL economic forecasts that capture deterioration triggered by the global COVID-19 pandemic and higher net charge-offs.
•Noninterest income increased $117 million in 2020, or 8.4%, from the prior year. The increase was mainly related to higher investment banking fees and cards and payments income, partially offset by decreases in corporate services income.
•Noninterest expense increased by $190 million in 2020, or 12.3%, from the prior year, driven by elevated variable expenses related to prepaid card and higher variable compensation from strong revenue growth.
Financial Condition
Loans and loans held for sale
Figure 7. Breakdown of Loans
(a)Other consumer loans include Consumer direct loans, Credit cards, and Consumer indirect loans. See Note 4 (“Loan Portfolio”) Item 8. Financial Statements of this report.
COVID-19 Hardship Relief Programs
In response to the COVID-19 pandemic, beginning in March 2020, we began providing relief and flexibility to our customers through a variety of solutions, including fee waivers, short-term loan modifications, and payment deferrals as well as the suspension of vehicle repossessions and home foreclosures. While the solutions for our commercial borrowers are individually negotiated and tailored to each borrower’s specific facts and circumstances, the most commonly offered relief measures included temporary covenant waivers and/or deferrals of principal and/or interest payments for up to 90 days. We have also granted short-term loan modifications for our consumer loan customers through extensions, deferrals, and forbearance.
The following table provides a summary of portfolio loans and leases as of December 31, 2020, that have received a payment deferral or forbearance as part of our COVID-19 hardship relief programs:
Figure 8. Loans and Leases COVID-19 Hardship Relief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Balance of Loans and Leases
|
December 31, 2020
|
|
|
|
|
dollars in millions
|
|
Completed Relief
|
In Active Relief
|
Total that have Received Payment Relief
|
Commercial Loans
|
|
$
|
2,899
|
|
$
|
181
|
|
$
|
3,079
|
|
Consumer Loans
|
|
1,179
|
|
394
|
|
1,572
|
|
Total Portfolio Loans and Leases
|
|
$
|
4,077
|
|
$
|
575
|
|
$
|
4,652
|
|
|
|
|
|
|
|
|
|
|
|
The total outstanding balance of commercial loans in active relief as of December 31, 2020, represented 0.3% of our commercial loan portfolio and the total outstanding balance of consumer loans in active relief as of December 31, 2020, represented 1.3% of the consumer portfolio. As of December 31, 2020, the cumulative number of commercial loans that have received any form of hardship relief due to COVID-19 hardships totaled 251 loans and the cumulative number of consumer loans that have received any form of hardship relief due to COVID-19 hardships totaled 4,766 loans.
Under the CARES Act as well as banking regulator interagency guidance, certain loan modifications to borrowers experiencing financial distress as a result of the economic impacts created by COVID-19 may not be required to be treated as TDRs under U.S. GAAP. For COVID-19 related loan modifications which occurred from March 1, 2020, through December 31, 2020, and met the loan modification criteria under either the CARES Act or the criteria specified by the regulatory agencies or were otherwise considered to be short term in nature, we have elected to suspend TDR accounting for such loan modifications. Additionally, loans qualifying for these modifications are not required to be reported as delinquent, nonaccrual, impaired, or criticized solely as a result of a COVID-19 loan modification. Refer to Note 5 (“Asset Quality”) under the headings “TDRs” and “Nonperforming and Past Due Loans”.
For loans that receive a payment deferral or forbearance under these hardship relief programs, we continue to accrue interest and recognize interest income during the period of the deferral. Depending on the terms of each program, all or a portion of this accrued interest may be paid directly by the borrower (either during the relief period, at the end of the relief period, or at maturity of the loan) or added to the customer’s outstanding balance. For certain programs, the maturity date of the loan may also be extended by the number of payments deferred. Interest income will continue to be accrued at the original contractual interest rate unless that rate is concurrently modified upon entering the relief program (in which case, the modified rate would be used to recognize interest).
Commercial loan portfolio
Commercial loans outstanding were $72.0 billion at December 31, 2020, an increase of $3.9 billion, or 5.8%, compared to December 31, 2019, driven by the outstanding balance of $6.7 billion related to the PPP partly offset by a decline in commercial and industrial utilization rates.
As a result of the current economic environment, our commercial loan portfolio is going through active portfolio surveillance. We are conducting ongoing portfolio reviews on our commercial loans with any risk rating migrations being closely monitored. We have centralized internal reporting on enterprise-wide relief initiatives, as well as following any potential relief initiatives that may come in the future. We have also established a pandemic watchlist and are performing ongoing reviews of commercial clients that are likely to be impacted by COVID-19. Overall, these clients represent a small portion of the overall portfolio and are diversified by type and geography. Figure 9 summarizes our commercial portfolios that are at risk of being impacted by the COVID-19 pandemic as of December 31, 2020.
Figure 9. Select Commercial Portfolio Focus Areas
|
|
|
|
|
|
|
|
|
|
|
|
|
dollars in millions
|
Outstanding as of December 31, 2020
|
|
|
Percentage of total loans as of December 31, 2020
|
Consumer behavior (a)
|
$
|
5,083
|
|
|
|
5.0
|
%
|
Education
|
1,541
|
|
|
|
1.5
|
|
Sports
|
690
|
|
|
|
.7
|
|
Restaurants
|
400
|
|
|
|
.4
|
|
|
|
|
|
|
Retail commercial real estate (b)
|
525
|
|
|
|
.5
|
|
|
|
|
|
|
Nondurable retail (c)
|
638
|
|
|
|
.6
|
|
|
|
|
|
|
Travel/Tourism (d)
|
2,523
|
|
|
|
2.5
|
|
Hotels
|
784
|
|
|
|
.8
|
|
|
|
|
|
|
Leveraged lending (e)
|
1,700
|
|
|
|
1.7
|
|
|
|
|
|
|
Oil and gas
|
1,992
|
|
|
|
2.0
|
|
Upstream (reserve based)
|
1,263
|
|
|
|
1.2
|
|
Midstream
|
468
|
|
|
|
.5
|
|
Downstream
|
98
|
|
|
|
.1
|
|
|
|
|
|
|
(a)Consumer behavior includes restaurants, sports, entertainment and leisure, services, education, etc.
(b)Retail commercial real estate is mainly composed of regional malls, strip centers (unanchored) and lifestyle centers.
(c)Nondurable retail includes direct lending to retailers including apparel, hobby shops, nursery garden centers, cosmetics, and gas stations with convenience stores.
(d)Travel/Tourism includes hotels, tours, and air/water/rail leasing.
(e)Leveraged lending exposures have total debt to EBITDA greater than four times or senior debt to EBITDA greater than three times and meet the purpose test (the new debt finances a buyout, acquisition, or capital distribution).
Figure 10 shows the composition of our loan portfolio at December 31 for each of the past five years.
Figure 10. Composition of Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
December 31,
dollars in millions
|
|
Amount
|
|
Percent
of Total
|
|
Amount
|
|
Percent
of Total
|
|
Amount
|
|
Percent
of Total
|
COMMERCIAL
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial (a)
|
|
$
|
52,907
|
|
|
52.3
|
%
|
|
$
|
48,295
|
|
|
51.0
|
%
|
|
$
|
45,753
|
|
|
51.1
|
%
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
|
12,687
|
|
|
12.5
|
|
|
13,491
|
|
|
14.3
|
|
|
14,285
|
|
|
15.9
|
|
Construction
|
|
1,987
|
|
|
2.0
|
|
|
1,558
|
|
|
1.6
|
|
|
1,666
|
|
|
1.9
|
|
Total commercial real estate loans
|
|
14,674
|
|
|
14.5
|
|
|
15,049
|
|
|
15.9
|
|
|
15,951
|
|
|
17.8
|
|
Commercial lease financing (b)
|
|
4,399
|
|
|
4.3
|
|
|
4,688
|
|
|
5.0
|
|
|
4,606
|
|
|
5.1
|
|
Total commercial loans
|
|
71,980
|
|
|
71.1
|
|
|
68,032
|
|
|
71.9
|
|
|
66,310
|
|
|
74.0
|
|
CONSUMER
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate — residential mortgage
|
|
9,298
|
|
|
9.2
|
|
|
7,023
|
|
|
7.4
|
|
|
5,513
|
|
|
6.2
|
|
Home equity loans
|
|
9,360
|
|
|
9.2
|
|
|
10,274
|
|
|
10.9
|
|
|
11,142
|
|
|
12.4
|
|
Consumer direct loans
|
|
4,714
|
|
|
4.7
|
|
|
3,513
|
|
|
3.7
|
|
|
1,809
|
|
|
2.0
|
|
Credit cards
|
|
989
|
|
|
1.0
|
|
|
1,130
|
|
|
1.2
|
|
|
1,144
|
|
|
1.3
|
|
Consumer indirect loans
|
|
4,844
|
|
|
4.8
|
|
|
4,674
|
|
|
4.9
|
|
|
3,634
|
|
|
4.1
|
|
Total consumer loans
|
|
29,205
|
|
|
28.9
|
|
|
26,614
|
|
|
28.1
|
|
|
23,242
|
|
|
26.0
|
|
Total loans (c)
|
|
$
|
101,185
|
|
|
100.0
|
%
|
|
$
|
94,646
|
|
|
100.0
|
%
|
|
$
|
89,552
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
Amount
|
|
Percent
of Total
|
|
Amount
|
|
Percent
of Total
|
|
|
|
|
COMMERCIAL
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial (a)
|
|
$
|
41,859
|
|
|
48.4
|
%
|
|
$
|
39,768
|
|
|
46.2
|
%
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
|
14,088
|
|
|
16.3
|
%
|
|
15,111
|
|
|
17.6
|
%
|
|
|
|
|
Construction
|
|
1,960
|
|
|
2.3
|
|
|
2,345
|
|
|
2.7
|
|
|
|
|
|
Total commercial real estate loans
|
|
16,048
|
|
|
18.6
|
|
|
17,456
|
|
|
20.3
|
|
|
|
|
|
Commercial lease financing (b)
|
|
4,826
|
|
|
5.6
|
|
|
4,685
|
|
|
5.5
|
|
|
|
|
|
Total commercial loans
|
|
62,733
|
|
|
72.6
|
|
|
61,909
|
|
|
72.0
|
|
|
|
|
|
CONSUMER
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate — residential mortgage
|
|
5,483
|
|
|
6.3
|
|
|
5,547
|
|
|
6.4
|
|
|
|
|
|
Home equity loans
|
|
12,028
|
|
|
13.9
|
|
|
12,674
|
|
|
14.7
|
|
|
|
|
|
Consumer direct loans
|
|
1,794
|
|
|
2.1
|
|
|
1,788
|
|
|
2.1
|
|
|
|
|
|
Credit cards
|
|
1,106
|
|
|
1.3
|
|
|
1,111
|
|
|
1.3
|
|
|
|
|
|
Consumer indirect loans
|
|
3,261
|
|
|
3.8
|
|
|
3,009
|
|
|
3.5
|
|
|
|
|
|
Total consumer loans
|
|
23,672
|
|
|
27.4
|
|
|
24,129
|
|
|
28.0
|
|
|
|
|
|
Total loans (c)
|
|
$
|
86,405
|
|
|
100.0
|
%
|
|
$
|
86,038
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Loan balances include $127 million, $144 million, $132 million, $119 million, and $116 million, of commercial credit card balances at December 31, 2020, December 31, 2019, December 31, 2018, December 31, 2017, and December 31, 2016, respectively.
(b)Commercial lease financing includes receivables held as collateral for a secured borrowing of $19 million, $15 million, $10 million, $24 million, and $68 million at December 31, 2020, December 31, 2019, December 31, 2018, December 31, 2017, and December 31, 2016, respectively. Principal reductions are based on the cash payments received from these related receivables. Additional information pertaining to this secured borrowing is included in Note 20 (“Long-Term Debt”).
(c)Total loans exclude loans of $710 million at December 31, 2020, $865 million at December 31, 2019, $1.1 billion at December 31, 2018, $1.3 billion at December 31, 2017, and $1.6 billion at December 31, 2016, related to the discontinued operations of the education lending business.
At December 31, 2020, total loans outstanding from continuing operations were $101.2 billion, compared to $94.6 billion at the end of 2019. For more information on balance sheet carrying value, see Note 1 (“Summary of Significant Accounting Policies”) under the headings “Loans” and “Loans Held for Sale.”
Figure 11 provides our commercial loan portfolio by industry classification as of December 31, 2020, and December 31, 2019.
Figure 11. Commercial Loans by Industry
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Commercial and industrial
|
|
Commercial
real estate
|
|
Commercial
lease financing
|
|
Total commercial
loans
|
|
Percent of
total
|
dollars in millions
|
|
|
|
|
Industry classification:
|
|
|
|
|
|
|
|
|
|
Agriculture
|
$
|
1,002
|
|
|
$
|
148
|
|
|
$
|
97
|
|
|
$
|
1,247
|
|
|
1.7
|
%
|
Automotive
|
1,863
|
|
|
510
|
|
|
19
|
|
|
2,392
|
|
|
3.3
|
|
Business products
|
1,523
|
|
|
117
|
|
|
45
|
|
|
1,685
|
|
|
2.3
|
|
Business services
|
4,098
|
|
|
221
|
|
|
202
|
|
|
4,521
|
|
|
6.3
|
|
Chemicals
|
700
|
|
|
30
|
|
|
34
|
|
|
764
|
|
|
1.1
|
|
Construction materials and contractors
|
2,571
|
|
|
271
|
|
|
233
|
|
|
3,075
|
|
|
4.3
|
|
Consumer discretionary
|
3,832
|
|
|
404
|
|
|
371
|
|
|
4,607
|
|
|
6.4
|
|
Consumer services
|
6,123
|
|
|
900
|
|
|
525
|
|
|
7,548
|
|
|
10.5
|
|
Equipment
|
1,447
|
|
|
84
|
|
|
120
|
|
|
1,651
|
|
|
2.3
|
|
Finance
|
6,190
|
|
|
92
|
|
|
396
|
|
|
6,678
|
|
|
9.3
|
|
Healthcare
|
4,348
|
|
|
1,396
|
|
|
306
|
|
|
6,050
|
|
|
8.4
|
|
Metals and mining
|
1,074
|
|
|
56
|
|
|
29
|
|
|
1,159
|
|
|
1.6
|
|
Oil and gas
|
1,928
|
|
|
43
|
|
|
62
|
|
|
2,033
|
|
|
2.8
|
|
Public exposure
|
2,332
|
|
|
25
|
|
|
709
|
|
|
3,066
|
|
|
4.3
|
|
Commercial real estate
|
5,966
|
|
|
10,187
|
|
|
11
|
|
|
16,164
|
|
|
22.5
|
|
Technology
|
741
|
|
|
20
|
|
|
191
|
|
|
952
|
|
|
1.2
|
|
Transportation
|
1,434
|
|
|
144
|
|
|
631
|
|
|
2,209
|
|
|
3.1
|
|
Utilities
|
5,239
|
|
|
1
|
|
|
397
|
|
|
5,637
|
|
|
7.8
|
|
Other
|
496
|
|
|
25
|
|
|
21
|
|
|
542
|
|
|
.8
|
|
Total
|
$
|
52,907
|
|
|
$
|
14,674
|
|
|
$
|
4,399
|
|
|
$
|
71,980
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
Commercial and industrial
|
|
Commercial
real estate
|
|
Commercial
lease financing
|
|
Total commercial
loans
|
|
Percent of
total
|
dollars in millions
|
|
|
|
|
Industry classification:
|
|
|
|
|
|
|
|
|
|
Agriculture
|
$
|
1,036
|
|
|
$
|
178
|
|
|
$
|
112
|
|
|
$
|
1,326
|
|
|
1.9
|
%
|
Automotive
|
2,048
|
|
|
467
|
|
|
18
|
|
|
2,533
|
|
|
3.7
|
|
Business products
|
1,513
|
|
|
111
|
|
|
57
|
|
|
1,681
|
|
|
2.5
|
|
Business services
|
3,083
|
|
|
203
|
|
|
210
|
|
|
3,496
|
|
|
5.2
|
|
Chemicals
|
776
|
|
|
40
|
|
|
46
|
|
|
862
|
|
|
1.3
|
|
Construction materials and contractors
|
1,876
|
|
|
238
|
|
|
244
|
|
|
2,358
|
|
|
3.5
|
|
Consumer discretionary
|
3,646
|
|
|
400
|
|
|
467
|
|
|
4,513
|
|
|
6.6
|
|
Consumer services
|
4,567
|
|
|
863
|
|
|
535
|
|
|
5,965
|
|
|
8.8
|
|
Equipment
|
1,428
|
|
|
76
|
|
|
98
|
|
|
1,602
|
|
|
2.4
|
|
Finance
|
6,186
|
|
|
64
|
|
|
386
|
|
|
6,636
|
|
|
9.7
|
|
Healthcare
|
3,000
|
|
|
1,564
|
|
|
331
|
|
|
4,895
|
|
|
7.2
|
|
Metals and mining
|
1,117
|
|
|
44
|
|
|
41
|
|
|
1,202
|
|
|
1.8
|
|
Oil and gas
|
2,219
|
|
|
54
|
|
|
90
|
|
|
2,363
|
|
|
3.5
|
|
Public exposure
|
2,422
|
|
|
24
|
|
|
706
|
|
|
3,152
|
|
|
4.6
|
|
Commercial real estate
|
5,126
|
|
|
10,469
|
|
|
12
|
|
|
15,607
|
|
|
22.9
|
|
Technology
|
916
|
|
|
27
|
|
|
182
|
|
|
1,125
|
|
|
1.6
|
|
Transportation
|
1,298
|
|
|
218
|
|
|
737
|
|
|
2,253
|
|
|
3.3
|
|
Utilities
|
5,560
|
|
|
2
|
|
|
397
|
|
|
5,959
|
|
|
8.8
|
|
Other
|
478
|
|
|
7
|
|
|
19
|
|
|
504
|
|
|
.7
|
|
Total
|
$
|
48,295
|
|
|
$
|
15,049
|
|
|
$
|
4,688
|
|
|
$
|
68,032
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial. Commercial and industrial loans are the largest component of our loan portfolio, representing 52% of our total loan portfolio at December 31, 2020, and 51% at December 31, 2019. This portfolio is approximately 73% variable rate and consists of loans primarily to large corporate, middle market, and small business clients.
Commercial and industrial loans totaled $52.9 billion at December 31, 2020, an increase of $4.6 billion compared to December 31, 2019. The growth was broad-based and spread across most industry categories, as the impact of COVID-19 resulted in an outstanding balance of $6.7 billion related to the PPP partially offset by a decline in commercial line utilization rates.
Commercial real estate loans. Our commercial real estate lending business includes both mortgage and construction loans, and is conducted through two primary sources: our 15-state banking franchise, and KeyBank Real Estate Capital, a national line of business that cultivates relationships with owners of commercial real estate located both within and beyond the branch system. Nonowner-occupied properties, generally properties for which at least 50% of the debt service is provided by rental income from nonaffiliated third parties, represented 80% of total commercial real estate loans outstanding at December 31, 2020. Construction loans, which provide a stream of
funding for properties not fully leased at origination to support debt service payments over the term of the contract or project, represented 14% of commercial real estate loans at year end.
At December 31, 2020, commercial real estate loans totaled $14.7 billion, comprised of $12.7 billion of mortgage loans and $2.0 billion of construction loans. Compared to December 31, 2019, this portfolio decreased $375 million, driven by declines in retail properties and office buildings. The impact of e-commerce accelerated by the pandemic resulted in retailers downsizing to smaller, more efficient spaces, with collaborative workspace and open offices losing appeal. Remote working and the need for flexibility in space and leasing is driving the move away from central business district (CBD) markets to lower density regions.
As shown in Figure 12, our commercial real estate loan portfolio includes various property types and geographic locations of the underlying collateral. These loans include commercial mortgage and construction loans in both Consumer Bank and Commercial Bank.
Figure 12. Commercial Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Region
|
|
|
|
|
dollars in millions
|
West
|
Southwest
|
Central
|
Midwest
|
Southeast
|
Northeast
|
National
|
Total
|
Percent of Total
|
Construction
|
Commercial
Mortgage
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Nonowner-occupied:
|
|
|
|
|
|
|
|
|
|
|
|
Retail properties
|
$
|
119
|
|
$
|
15
|
|
$
|
129
|
|
$
|
122
|
|
$
|
72
|
|
$
|
448
|
|
$
|
122
|
|
$
|
1,027
|
|
6.8
|
%
|
$
|
54
|
|
$
|
973
|
|
Multifamily properties
|
685
|
|
228
|
|
875
|
|
800
|
|
1,284
|
|
1,493
|
|
229
|
|
5,594
|
|
38.1
|
|
1,442
|
|
4,152
|
|
Health facilities
|
83
|
|
53
|
|
85
|
|
87
|
|
170
|
|
487
|
|
338
|
|
1,303
|
|
8.7
|
|
91
|
|
1,212
|
|
Office buildings
|
276
|
|
—
|
|
253
|
|
142
|
|
193
|
|
628
|
|
147
|
|
1,639
|
|
11.2
|
|
48
|
|
1,591
|
|
Warehouses
|
54
|
|
31
|
|
66
|
|
40
|
|
52
|
|
259
|
|
161
|
|
663
|
|
4.6
|
|
74
|
|
589
|
|
Manufacturing facilities
|
42
|
|
—
|
|
28
|
|
15
|
|
40
|
|
34
|
|
43
|
|
202
|
|
1.3
|
|
10
|
|
192
|
|
Hotels/Motels
|
76
|
|
—
|
|
19
|
|
—
|
|
12
|
|
107
|
|
91
|
|
305
|
|
2.1
|
|
18
|
|
287
|
|
Residential properties
|
—
|
|
—
|
|
—
|
|
3
|
|
—
|
|
53
|
|
—
|
|
56
|
|
.4
|
|
—
|
|
56
|
|
Land and development
|
15
|
|
5
|
|
—
|
|
2
|
|
5
|
|
28
|
|
—
|
|
55
|
|
.4
|
|
33
|
|
22
|
|
Other
|
108
|
|
22
|
|
6
|
|
93
|
|
69
|
|
245
|
|
279
|
|
822
|
|
6.4
|
|
65
|
|
757
|
|
Total nonowner-occupied
|
1,458
|
|
354
|
|
1,461
|
|
1,304
|
|
1,897
|
|
3,782
|
|
1,410
|
|
11,666
|
|
80.0
|
|
1,835
|
|
9,831
|
|
Owner-occupied
|
870
|
|
4
|
|
275
|
|
499
|
|
63
|
|
1,297
|
|
—
|
|
3,008
|
|
20.0
|
|
152
|
|
2,856
|
|
Total
|
$
|
2,328
|
|
$
|
358
|
|
$
|
1,736
|
|
$
|
1,803
|
|
$
|
1,960
|
|
$
|
5,079
|
|
$
|
1,410
|
|
$
|
14,674
|
|
100.0
|
%
|
$
|
1,987
|
|
$
|
12,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonowner-occupied:
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans
|
$
|
1
|
|
—
|
|
—
|
|
$
|
7
|
|
$
|
6
|
|
$
|
44
|
|
$
|
44
|
|
$
|
103
|
|
N/M
|
$
|
—
|
|
$
|
103
|
|
Accruing loans past due 90 days or more
|
—
|
|
—
|
|
—
|
|
1
|
|
—
|
|
22
|
|
—
|
|
22
|
|
N/M
|
1
|
|
21
|
|
Accruing loans past due 30 through 89 days
|
3
|
|
—
|
|
—
|
|
2
|
|
3
|
|
7
|
|
—
|
|
14
|
|
N/M
|
—
|
|
14
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Nonowner-occupied:
|
|
|
|
|
|
|
|
|
|
|
|
Retail properties
|
$
|
133
|
|
$
|
41
|
|
$
|
143
|
|
$
|
155
|
|
$
|
161
|
|
$
|
580
|
|
$
|
124
|
|
$
|
1,337
|
|
8.9
|
%
|
$
|
85
|
|
$
|
1,252
|
|
Multifamily properties
|
698
|
|
354
|
|
767
|
|
795
|
|
1,205
|
|
1,350
|
|
225
|
|
5,394
|
|
35.8
|
|
1,189
|
|
4,205
|
|
Health facilities
|
76
|
|
44
|
|
104
|
|
93
|
|
163
|
|
497
|
|
405
|
|
1,382
|
|
9.2
|
|
40
|
|
1,342
|
|
Office buildings
|
214
|
|
7
|
|
293
|
|
132
|
|
244
|
|
725
|
|
134
|
|
1,749
|
|
11.6
|
|
69
|
|
1,680
|
|
Warehouses
|
51
|
|
34
|
|
51
|
|
51
|
|
46
|
|
238
|
|
134
|
|
605
|
|
4.0
|
|
7
|
|
598
|
|
Manufacturing facilities
|
36
|
|
—
|
|
38
|
|
4
|
|
40
|
|
43
|
|
54
|
|
215
|
|
1.4
|
|
5
|
|
210
|
|
Hotels/Motels
|
76
|
|
—
|
|
19
|
|
—
|
|
12
|
|
129
|
|
57
|
|
293
|
|
1.9
|
|
6
|
|
287
|
|
Residential properties
|
—
|
|
—
|
|
—
|
|
2
|
|
—
|
|
98
|
|
—
|
|
100
|
|
.7
|
|
5
|
|
95
|
|
Land and development
|
20
|
|
5
|
|
—
|
|
3
|
|
2
|
|
9
|
|
—
|
|
39
|
|
.3
|
|
34
|
|
5
|
|
Other
|
80
|
|
9
|
|
71
|
|
86
|
|
22
|
|
259
|
|
358
|
|
885
|
|
5.9
|
|
23
|
|
862
|
|
Total nonowner-occupied
|
1,384
|
|
494
|
|
1,486
|
|
1,321
|
|
1,895
|
|
3,928
|
|
1,491
|
|
11,999
|
|
79.7
|
|
1,463
|
|
10,536
|
|
Owner-occupied
|
833
|
|
4
|
|
285
|
|
536
|
|
71
|
|
1,321
|
|
—
|
|
3,050
|
|
20.3
|
|
95
|
|
2,955
|
|
Total
|
$
|
2,217
|
|
$
|
498
|
|
$
|
1,771
|
|
$
|
1,857
|
|
$
|
1,966
|
|
$
|
5,249
|
|
$
|
1,491
|
|
$
|
15,049
|
|
100.0
|
%
|
$
|
1,558
|
|
$
|
13,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans
|
$
|
1
|
|
—
|
|
—
|
|
$
|
7
|
|
7
|
|
$
|
20
|
|
$
|
52
|
|
$
|
87
|
|
N/M
|
2
|
|
$
|
85
|
|
Accruing loans past due 90 days or more
|
—
|
|
—
|
|
—
|
|
2
|
|
$
|
—
|
|
11
|
|
—
|
|
13
|
|
N/M
|
$
|
1
|
|
12
|
|
Accruing loans past due 30 through 89 days
|
1
|
|
—
|
|
$
|
—
|
|
7
|
|
—
|
|
8
|
|
—
|
|
16
|
|
N/M
|
2
|
|
14
|
|
|
|
|
|
|
|
West –
|
Alaska, California, Hawaii, Idaho, Montana, Oregon, Washington, and Wyoming
|
Southwest –
|
Arizona, Nevada, and New Mexico
|
Central –
|
Arkansas, Colorado, Oklahoma, Texas, and Utah
|
Midwest –
|
Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin
|
Southeast –
|
Alabama, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, Washington, D.C., and West Virginia
|
Northeast –
|
Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont
|
National –
|
Accounts in three or more regions
|
Consumer loan portfolio
Consumer loans outstanding at December 31, 2020, totaled $29.2 billion, an increase of $2.6 billion, or 9.7%, from one year ago, driven by strength from Laurel Road and Key’s consumer mortgage business. On October 21, 2020, we announced that we would no longer originate indirect auto loans. The current portfolio of approximately $4.6 billion will run off over time.
The home equity portfolio is comprised of loans originated by our Consumer Bank within our 15-state footprint and is the largest segment of our consumer loan portfolio, representing approximately 32% of consumer loans outstanding at year end.
We held the first lien position for approximately 66% of the Consumer Bank home equity portfolio at December 31, 2020, and 61% at December 31, 2019. For loans with real estate collateral, we track borrower performance monthly. Regardless of the lien position, credit metrics are refreshed quarterly, including recent FICO scores as well as original and updated loan-to-value ratios. This information is used in establishing the ALLL. Our methodology is described in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan and Lease Losses.”
Figure 13. Consumer Loans by State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Real estate — residential mortgage
|
Home equity loans
|
Consumer direct loans
|
Credit cards
|
Consumer indirect loans
|
Total
|
State
|
|
|
|
|
|
|
New York
|
$
|
1,164
|
|
$
|
2,553
|
|
$
|
593
|
|
$
|
353
|
|
$
|
731
|
|
$
|
5,394
|
|
Ohio
|
698
|
|
1,375
|
|
479
|
|
217
|
|
957
|
|
3,726
|
|
Washington
|
1,835
|
|
1,300
|
|
236
|
|
86
|
|
20
|
|
3,477
|
|
Pennsylvania
|
516
|
|
14
|
|
303
|
|
4
|
|
19
|
|
856
|
|
California
|
286
|
|
648
|
|
255
|
|
52
|
|
539
|
|
1,780
|
|
Texas
|
74
|
|
7
|
|
241
|
|
3
|
|
10
|
|
335
|
|
Colorado
|
828
|
|
345
|
|
140
|
|
30
|
|
6
|
|
1,349
|
|
Connecticut
|
914
|
|
352
|
|
87
|
|
25
|
|
141
|
|
1,519
|
|
Oregon
|
720
|
|
782
|
|
97
|
|
41
|
|
4
|
|
1,644
|
|
Massachusetts
|
239
|
|
48
|
|
103
|
|
5
|
|
460
|
|
855
|
|
Other
|
2,024
|
|
1,936
|
|
2,180
|
|
173
|
|
1,957
|
|
8,270
|
|
Total
|
$
|
9,298
|
|
$
|
9,360
|
|
$
|
4,714
|
|
$
|
989
|
|
$
|
4,844
|
|
$
|
29,205
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
New York
|
$
|
1,146
|
|
$
|
2,655
|
|
$
|
548
|
|
$
|
404
|
|
$
|
797
|
|
$
|
5,550
|
|
Ohio
|
601
|
|
1,458
|
|
461
|
|
247
|
|
827
|
|
3,594
|
|
Washington
|
1,126
|
|
1,546
|
|
252
|
|
102
|
|
8
|
|
3,034
|
|
Connecticut
|
282
|
|
677
|
|
189
|
|
55
|
|
477
|
|
1,680
|
|
Pennsylvania
|
1,029
|
|
375
|
|
68
|
|
26
|
|
154
|
|
1,652
|
|
Oregon
|
517
|
|
852
|
|
94
|
|
48
|
|
2
|
|
1,513
|
|
Colorado
|
544
|
|
428
|
|
109
|
|
34
|
|
2
|
|
1,117
|
|
Massachusetts
|
123
|
|
434
|
|
71
|
|
38
|
|
359
|
|
1,025
|
|
California
|
117
|
|
412
|
|
131
|
|
47
|
|
118
|
|
825
|
|
Texas
|
257
|
|
48
|
|
62
|
|
6
|
|
437
|
|
810
|
|
Other
|
1,281
|
|
1,389
|
|
1,528
|
|
123
|
|
1,493
|
|
5,814
|
|
Total
|
$
|
7,023
|
|
$
|
10,274
|
|
$
|
3,513
|
|
$
|
1,130
|
|
$
|
4,674
|
|
$
|
26,614
|
|
|
|
|
|
|
|
|
Loan sales
As shown in Figure 14, during 2020, we sold $14.1 billion of our loans. Sales of loans classified as held for sale generated net gains of $233 million during 2020.
Figure 14 summarizes our loan sales during 2020 and 2019.
Figure 14. Loans Sold (Including Loans Held for Sale)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
Commercial
|
Commercial
Real Estate
|
Commercial
Lease
Financing
|
Residential
Real Estate
|
Consumer Direct
|
Total
|
2020
|
|
|
|
|
|
|
Fourth quarter
|
$
|
197
|
|
$
|
2,412
|
|
$
|
135
|
|
$
|
1,256
|
|
—
|
|
$
|
4,000
|
|
Third quarter
|
163
|
|
1,999
|
|
67
|
|
1,235
|
|
$
|
208
|
|
3,672
|
|
Second quarter
|
82
|
|
2,661
|
|
47
|
|
925
|
|
—
|
|
3,715
|
|
First quarter
|
55
|
|
2,022
|
|
81
|
|
546
|
|
—
|
|
2,704
|
|
Total
|
$
|
497
|
|
$
|
9,094
|
|
$
|
330
|
|
$
|
3,962
|
|
$
|
208
|
|
$
|
14,091
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
Fourth quarter
|
$
|
50
|
|
$
|
3,138
|
|
$
|
222
|
|
$
|
559
|
|
—
|
|
$
|
3,969
|
|
Third quarter
|
220
|
|
2,600
|
|
68
|
|
569
|
|
247
|
|
3,704
|
|
Second quarter
|
154
|
|
1,864
|
|
96
|
|
329
|
|
—
|
|
2,443
|
|
First quarter
|
301
|
|
1,536
|
|
34
|
|
225
|
|
—
|
|
2,096
|
|
Total
|
$
|
725
|
|
$
|
9,138
|
|
$
|
420
|
|
$
|
1,682
|
|
247
|
|
$
|
12,212
|
|
|
|
|
|
|
|
|
Figure 15 shows loans that are either administered or serviced by us but not recorded on the balance sheet; this includes loans that were sold.
Figure 15. Loans Administered or Serviced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
in millions
|
2020
|
2019
|
2018
|
2017
|
2016
|
Commercial real estate loans
|
$
|
371,016
|
|
$
|
347,186
|
|
$
|
291,158
|
|
$
|
238,718
|
|
$
|
218,135
|
|
Residential mortgage
|
8,311
|
|
6,146
|
|
5,209
|
|
4,582
|
|
4,198
|
|
Education loans
|
516
|
|
625
|
|
766
|
|
932
|
|
1,122
|
|
Commercial lease financing
|
1,359
|
|
1,047
|
|
916
|
|
862
|
|
899
|
|
Commercial loans
|
684
|
|
591
|
|
549
|
|
488
|
|
418
|
|
Consumer direct
|
1,711
|
|
2,243
|
|
—
|
|
—
|
|
—
|
|
Total
|
$
|
383,597
|
|
$
|
357,838
|
|
$
|
298,598
|
|
$
|
245,582
|
|
$
|
224,772
|
|
|
|
|
|
|
|
In the event of default by a borrower, we are subject to recourse with respect to approximately $5.8 billion of the $384 billion of loans administered or serviced at December 31, 2020. Additional information about this recourse arrangement is included in Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) under the heading “Recourse agreement with FNMA.”
We derive income from several sources when retaining the right to administer or service loans that are sold. We earn noninterest income (recorded as “Consumer mortgage income” and “Commercial mortgage servicing fees”) from fees for servicing or administering loans. This fee income is reduced by the amortization of related servicing assets. In addition, we earn interest income from investing funds generated by escrow deposits collected in connection with the servicing loans. Additional information about our mortgage servicing assets is included in Note 9 (“Mortgage Servicing Assets”).
Maturities and sensitivity of certain loans to changes in interest rates
Figure 16 shows the remaining maturities of certain commercial and real estate loans, and the sensitivity of those loans to changes in interest rates. At December 31, 2020, approximately 23% of these outstanding loans were scheduled to mature within one year.
Figure 16. Remaining Maturities and Sensitivity of Certain Loans to Changes in Interest Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
in millions
|
Within One Year
|
One - Five Years
|
Over Five Years
|
Total
|
Commercial and industrial
|
$
|
11,496
|
|
$
|
34,546
|
|
$
|
6,866
|
|
$
|
52,907
|
|
Real estate — construction
|
944
|
|
726
|
|
316
|
|
1,987
|
|
|
|
|
|
|
Total
|
$
|
12,440
|
|
$
|
35,272
|
|
$
|
7,182
|
|
$
|
54,894
|
|
Loans with floating or adjustable interest rates (a)
|
|
$
|
25,476
|
|
$
|
3,897
|
|
$
|
29,373
|
|
Loans with predetermined interest rates (b)
|
|
9,796
|
|
3,285
|
|
13,081
|
|
Total
|
|
$
|
35,272
|
|
$
|
7,182
|
|
$
|
42,454
|
|
|
|
|
|
|
(a)Floating and adjustable rates vary in relation to other interest rates (such as the base lending rate) or a variable index that may change during the term of the loan.
(b)Predetermined interest rates either are fixed or may change during the term of the loan according to a specific formula or schedule.
Securities
Our securities portfolio totaled $35.2 billion at December 31, 2020, compared to $31.9 billion at December 31, 2019. Available-for-sale securities were $27.6 billion at December 31, 2020, compared to $21.8 billion at December 31, 2019. Held-to-maturity securities were $7.6 billion at December 31, 2020, compared to $10.1 billion at December 31, 2019.
As shown in Figure 17, all of our mortgage-backed securities, which include both securities available-for-sale and held-to-maturity securities, are issued by government-sponsored enterprises or GNMA, and are traded in liquid secondary markets. These securities are recorded on the balance sheet at fair value for the available-for-sale portfolio and at cost for the held-to-maturity portfolio. For more information about these securities, see Note 6 (“Fair Value Measurements”) under the heading “Qualitative Disclosures of Valuation Techniques,” and Note 7 (“Securities”).
Figure 17. Mortgage-Backed Securities by Issuer
|
|
|
|
|
|
|
|
|
December 31,
in millions
|
2020
|
2019
|
FHLMC
|
$
|
8,782
|
|
$
|
5,115
|
|
FNMA
|
13,213
|
|
12,308
|
|
GNMA
|
12,109
|
|
14,112
|
|
Total (a)
|
$
|
34,104
|
|
$
|
31,535
|
|
|
|
|
(a)Includes securities held in the available-for-sale and held-to-maturity portfolios.
Securities available for sale
The majority of our securities available-for-sale portfolio consists of Federal Agency CMOs and mortgage-backed securities. CMOs are debt securities secured by a pool of mortgages or mortgage-backed securities. These mortgage securities generate interest income, serve as collateral to support certain pledging agreements, and provide liquidity value under regulatory requirements.
We periodically evaluate our securities available-for-sale portfolio in light of established A/LM objectives, changing market conditions that could affect the profitability of the portfolio, the regulatory environment, and the level of interest rate risk to which we are exposed. These evaluations may cause us to take steps to adjust our overall balance sheet positioning.
In addition, the size and composition of our securities available-for-sale portfolio could vary with our needs for liquidity and the extent to which we are required (or elect) to hold these assets as collateral to secure public funds and trust deposits. Although we generally use debt securities for this purpose, other assets, such as securities purchased under resale agreements or letters of credit, are used occasionally when they provide a lower cost of collateral or more favorable risk profiles.
Our investing activities continue to complement other balance sheet developments and provide for our ongoing liquidity management needs. Our actions to not reinvest the monthly security cash flows at various times served to provide the liquidity necessary to address our funding requirements. These funding requirements included ongoing loan growth and occasional debt maturities. At other times, we may make additional investments that go beyond the replacement of maturities or mortgage security cash flows as our liquidity position and/or interest rate risk management strategies may require. Lastly, our focus on investing in high quality liquid assets, including GNMA-related securities, is related to liquidity management strategies to satisfy regulatory requirements.
Figure 18 shows the composition, TE yields, and remaining maturities of our securities available for sale. For more information about these securities, including gross unrealized gains and losses by type of security and securities pledged, see Note 7 (“Securities”).
Figure 18. Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dollars in millions
|
U.S. Treasury, Agencies, and Corporations
|
States and Political Subdivisions
|
Agency Residential Collateralized Mortgage Obligations(a)
|
Agency Residential Mortgage-backed Securities(a),(b)
|
Agency Commercial Mortgage-backed Securities(a)
|
Other
Securities
|
Total
|
Weighted-Average Yield(b)
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Remaining maturity:
|
|
|
|
|
|
|
|
|
One year or less
|
$
|
1,000
|
|
$
|
—
|
|
$
|
883
|
|
$
|
1
|
|
—
|
|
$
|
12
|
|
$
|
1,896
|
|
0.63
|
%
|
After one through five years
|
—
|
|
—
|
|
10,257
|
|
2,145
|
|
$
|
3,489
|
|
—
|
|
15,891
|
|
2.08
|
|
After five through ten years
|
—
|
|
—
|
|
3,133
|
|
16
|
|
3,814
|
|
1
|
|
6,964
|
|
2.84
|
|
After ten years
|
—
|
|
—
|
|
—
|
|
2
|
|
2,803
|
|
—
|
|
2,805
|
|
1.35
|
|
Fair value
|
$
|
1,000
|
|
$
|
—
|
|
$
|
14,273
|
|
$
|
2,164
|
|
$
|
10,106
|
|
$
|
13
|
|
$
|
27,556
|
|
—
|
|
Amortized cost
|
1,000
|
|
—
|
|
14,001
|
|
2,094
|
|
9,707
|
|
8
|
|
26,810
|
|
2.09
|
%
|
Weighted-average yield (b)
|
0.16
|
%
|
—
|
|
1.78
|
%
|
1.99
|
%
|
2.77
|
%
|
.05
|
%
|
2.09
|
%
|
—
|
|
Weighted-average maturity
|
— years
|
— years
|
3.8 years
|
3.6 years
|
7.5 years
|
.7 years
|
4.5 years
|
—
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Fair value
|
$
|
334
|
|
$
|
4
|
|
$
|
12,783
|
|
$
|
1,714
|
|
$
|
6,997
|
|
$
|
11
|
|
$
|
21,843
|
|
—
|
|
Amortized cost
|
334
|
|
4
|
|
12,772
|
|
1,677
|
|
6,898
|
|
7
|
|
21,692
|
|
2.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Maturity is based upon expected average lives rather than contractual terms.
(b)Weighted-average yields are calculated based on amortized cost. Such yields have been adjusted to a TE basis using the statutory federal income tax rate in effect that calendar year.
Held-to-maturity securities
Federal Agency CMOs and mortgage-backed securities constitute essentially all of our held-to-maturity securities. The remaining balance comprises asset-back securities and foreign bonds. Figure 19 shows the composition, yields, and remaining maturities of these securities.
Figure 19. Held-to-Maturity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dollars in millions
|
|
|
Agency Residential Collateralized Mortgage Obligations(a)
|
Agency Residential Mortgage-backed Securities(a)
|
Agency Commercial Mortgage-backed Securities(a)
|
Asset-backed securities
|
Other
Securities
|
|
Total
|
|
Weighted-Average Yield(b)
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Remaining maturity:
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
|
$
|
70
|
|
—
|
|
—
|
|
$
|
4
|
|
$
|
3
|
|
|
$
|
77
|
|
|
2.49
|
%
|
After one through five years
|
|
|
2,903
|
|
$
|
234
|
|
$
|
1,777
|
|
15
|
|
12
|
|
|
4,941
|
|
|
2.40
|
|
After five through ten years
|
|
|
802
|
|
37
|
|
1,738
|
|
—
|
|
—
|
|
|
2,577
|
|
|
2.58
|
|
After ten years
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortized cost
|
|
|
$
|
3,775
|
|
$
|
271
|
|
$
|
3,515
|
|
$
|
19
|
|
$
|
15
|
|
|
$
|
7,595
|
|
|
2.46
|
%
|
Fair value
|
|
|
3,899
|
|
285
|
|
3,805
|
|
19
|
|
15
|
|
|
8,023
|
|
|
—
|
|
Weighted-average yield(b)
|
|
|
2.11
|
%
|
2.50
|
%
|
2.83
|
%
|
1.72
|
%
|
3.01
|
%
|
|
2.46
|
%
|
|
—
|
|
Weighted-average maturity
|
|
|
3.7 years
|
4.4 years
|
5.0 years
|
2.8 years
|
2.0 years
|
|
4.3 years
|
|
—
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost
|
|
|
$
|
5,692
|
|
$
|
409
|
|
$
|
3,940
|
|
11
|
|
$
|
15
|
|
|
$
|
10,067
|
|
|
2.43
|
%
|
Fair value
|
|
|
5,666
|
|
415
|
|
4,009
|
|
11
|
|
15
|
|
|
10,116
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Maturity is based upon expected average lives rather than contractual terms.
(b)Weighted-average yields are calculated based on amortized cost. Such yields have been adjusted to a TE basis using the statutory federal income tax rate in effect that calendar year.
Deposits and other sources of funds
Figure 20. Breakdown of Deposits at December 31, 2020
Deposits are our primary source of funding. At December 31, 2020, our deposits totaled $135.3 billion, an increase of $23.4 billion, compared to December 31, 2019. The increase in deposits compared to the prior year reflects the impact of PPP and government stimulus programs, in addition to our strategy to acquire and expand client relationships.
Wholesale funds, consisting of short-term borrowings and long-term debt, totaled $14.7 billion at December 31, 2020, compared to $13.5 billion at December 31, 2019. The increase from the prior year reflects our balance sheet optimization strategy.
Figure 21 shows the maturity distribution of time deposits of $100,000 or more.
Figure 21. Maturity Distribution of Time Deposits of $100,000 or More
|
|
|
|
|
|
December 31, 2020
|
Total
|
in millions
|
Remaining maturity:
|
|
Three months or less
|
$
|
701
|
|
After three through six months
|
773
|
|
After six through twelve months
|
835
|
|
After twelve months
|
424
|
|
Total
|
$
|
2,733
|
|
|
|
Capital
The objective of management of capital is to maintain capital levels consistent with our risk appetite and sufficient in size to operate within a wide range of operating environments. We have identified three primary uses of capital:
1.Investing in our businesses, supporting our clients, and loan growth;
2. Maintaining or increasing our Common Share dividend; and
3. Returning capital in the form of Common Share repurchases to our shareholders.
The following sections discuss certain ways we have deployed our capital. For further information, see the Consolidated Statements of Changes in Equity and Note 24 (“Shareholders' Equity”).
(a)Common Share repurchases were suspended during the third quarter of 2015 due to the then pending merger with First Niagara. We resumed our Common Share repurchase program during the third quarter of 2016 upon the completion of the First Niagara merger. Common Share repurchases were suspended during the second, third and fourth quarters of 2020 in response to the COVID-19 pandemic.
Dividends
Consistent with our capital plans, the Board declared a quarterly dividend of $.185 per Common Share for each quarter of 2020. These quarterly dividend payments brought our annual dividend to $.74 per Common Share for 2020.
Common Shares outstanding
Our Common Shares are traded on the NYSE under the symbol KEY with 32,099 holders of record at December 31, 2020. Our book value per Common Share was $16.53 based on 975.8 million shares outstanding at December 31, 2020, compared to $15.54 based on 977.2 million shares outstanding at December 31, 2019. At December 31, 2020, our tangible book value per Common Share was $13.61, compared to $12.56 at December 31, 2019.
Figure 35 in the section entitled “Fourth Quarter Results” shows per Common Share earnings and dividends paid by quarter for each of the last two years.
Figure 22 shows activities that caused the change in our outstanding Common Shares over the past two years.
Figure 22. Changes in Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Quarters
|
|
in thousands
|
2020
|
Fourth
|
Third
|
Second
|
First
|
2019
|
Shares outstanding at beginning of period
|
977,189
|
|
976,205
|
|
975,947
|
|
975,319
|
|
977,189
|
|
1,019,503
|
|
Open market repurchases and return of shares under employee compensation plans
|
(8,974)
|
|
(1,092)
|
|
(1)
|
|
(19)
|
|
(7,862)
|
|
(50,247)
|
|
Shares issued under employee compensation plans (net of cancellations)
|
7,558
|
|
660
|
|
259
|
|
647
|
|
5,992
|
|
7,933
|
|
Shares outstanding at end of period
|
975,773
|
|
975,773
|
|
976,205
|
|
975,947
|
|
975,319
|
|
977,189
|
|
|
|
|
|
|
|
|
During 2020, Common Shares outstanding decreased by 1.4 million shares due to Common Share repurchases under our 2019 and 2020 capital plans.
At December 31, 2020, we had 280.9 million treasury shares, compared to 279.5 million treasury shares at December 31, 2019. Going forward, we expect to reissue treasury shares as needed in connection with stock-based compensation awards and for other corporate purposes.
Capital adequacy
Capital adequacy is an important indicator of financial stability and performance. All of our capital ratios remained in excess of regulatory requirements at December 31, 2020. Our capital and liquidity levels are intended to position us to weather an adverse operating environment while continuing to serve our clients’ needs, as well as to meet the Regulatory Capital Rules described in the “Supervision and regulation” section of Item 1 of this report. Our shareholders’ equity to assets ratio was 10.56% at December 31, 2020, compared to 11.75% at December 31, 2019. Our tangible common equity to tangible assets ratio was 7.93% at December 31, 2020, compared to 8.64% at December 31, 2019. The new minimum capital and leverage ratios under the Regulatory Capital Rules together with the estimated ratios of KeyCorp at December 31, 2020, calculated on a fully phased-in basis, are set forth under the heading “Basel III” in the “Supervision and Regulation” section in Item 1 of this report.
Figure 23 represents the details of our regulatory capital positions at December 31, 2020, and December 31, 2019, under the Regulatory Capital Rules. Information regarding the regulatory capital ratios of KeyCorp’s banking subsidiaries is presented in Note 24 (“Shareholders' Equity”).
Figure 23. Capital Components and Risk-Weighted Assets
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
dollars in millions
|
2020
|
2019
|
COMMON EQUITY TIER 1
|
|
|
Key shareholders’ equity (GAAP)
|
$
|
17,981
|
|
$
|
17,038
|
|
Less:
|
Preferred Stock (a)
|
1,856
|
|
1,856
|
|
Add:
|
CECL phase-in (b)
|
375
|
|
—
|
|
|
Common Equity Tier 1 capital before adjustments and deductions
|
16,500
|
|
15,182
|
|
Less:
|
Goodwill, net of deferred taxes
|
2,560
|
|
2,584
|
|
|
Intangible assets, net of deferred taxes
|
151
|
|
207
|
|
|
Deferred tax assets
|
1
|
|
9
|
|
|
Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes
|
583
|
|
115
|
|
|
Accumulated gains (losses) on cash flow hedges, net of deferred taxes
|
460
|
|
250
|
|
|
Amounts in AOCI attributed to pension and postretirement benefit costs, net of deferred taxes
|
(306)
|
|
(339)
|
|
|
Total Common Equity Tier 1 capital
|
13,051
|
|
12,356
|
|
TIER 1 CAPITAL
|
|
|
Common Equity Tier 1
|
13,051
|
|
12,356
|
|
Additional Tier 1 capital instruments and related surplus
|
1,856
|
|
1,856
|
|
Less:
|
Deductions
|
—
|
|
—
|
|
|
Total Tier 1 capital
|
14,907
|
|
14,212
|
|
TIER 2 CAPITAL
|
|
|
Tier 2 capital instruments and related surplus
|
1,657
|
|
1,546
|
|
Allowance for losses on loans and liability for losses on lending-related commitments (b)
|
1,412
|
|
978
|
|
Less:
|
Deductions
|
—
|
|
—
|
|
|
Total Tier 2 capital
|
3,069
|
|
2,524
|
|
|
Total risk-based capital
|
$
|
17,976
|
|
$
|
16,736
|
|
|
|
|
|
RISK-WEIGHTED ASSETS
|
|
|
Risk-weighted assets on balance sheet
|
$
|
103,604
|
|
$
|
102,441
|
|
Risk-weighted off-balance sheet exposure
|
29,240
|
|
27,303
|
|
Market risk-equivalent assets
|
1,354
|
|
1,121
|
|
|
Gross risk-weighted assets
|
134,198
|
|
130,865
|
|
Less:
|
Excess allowance for loan and lease losses
|
—
|
|
—
|
|
|
Net risk-weighted assets
|
$
|
134,198
|
|
$
|
130,865
|
|
AVERAGE QUARTERLY TOTAL ASSETS
|
$
|
166,771
|
|
$
|
143,910
|
|
|
|
|
|
CAPITAL RATIOS
|
|
|
Tier 1 risk-based capital
|
11.11
|
%
|
10.86
|
%
|
Total risk-based capital
|
13.40
|
|
12.79
|
|
Leverage (c)
|
8.94
|
|
9.88
|
|
Common Equity Tier 1
|
9.73
|
|
9.44
|
|
|
|
|
|
(a)Net of capital surplus.
(b)Amount reflects our decision to adopt the CECL transitional provision.
(c)The ALLL included in Tier 2 capital is limited by regulation to 1.25% of the institution’s standardized total risk-weighted assets (excluding its standardized market risk-weighted assets). The ALLL includes $36 million and $10 million of allowance classified as “discontinued assets” on the balance sheet at December 31, 2020, and December 31, 2019, respectively.
(d)This ratio is Tier 1 capital divided by average quarterly total assets as defined by the Federal Reserve less: (i) goodwill, (ii) the disallowed intangible and deferred tax assets, and (iii) other deductions from assets for leverage capital purposes.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Off-balance sheet arrangements
We are party to various types of off-balance sheet arrangements, which could lead to contingent liabilities or risks of loss that are not reflected on the balance sheet.
Variable interest entities
In accordance with the applicable accounting guidance for consolidations, we consolidate a VIE if we have: (i) a variable interest in the entity; (ii) the power to direct activities of the VIE that most significantly impact the entity’s economic performance; and (iii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE (i.e., we are considered to be the primary beneficiary). Additional information regarding the nature of VIEs and our involvement with them is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Principles of Consolidation and Basis of Presentation” and in Note 13 (“Variable Interest Entities”).
Commitments to extend credit or funding
Loan commitments provide for financing on predetermined terms as long as the client continues to meet specified criteria. These commitments generally carry variable rates of interest and have fixed expiration dates or other termination clauses. We typically charge a fee for our loan commitments. Since a commitment may expire without resulting in a loan or being fully utilized, the total amount of an outstanding commitment may significantly exceed any related cash outlay. Further information about our loan commitments at December 31, 2020, is presented in Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) under the heading “Commitments to Extend Credit or Funding.” Figure 24 shows the remaining contractual amount of each class of commitment to extend credit or funding. For loan commitments and commercial letters of credit, this amount represents our maximum possible accounting loss on the unused commitment if the borrower were to draw upon the full amount of the commitment and subsequently default on payment for the total amount of the then outstanding loan.
Other off-balance sheet arrangements
Other off-balance sheet arrangements include financial instruments that do not meet the definition of a guarantee in accordance with the applicable accounting guidance, and other relationships, such as liquidity support provided to asset-backed commercial paper conduits, indemnification agreements and intercompany guarantees. Information about such arrangements is provided in Note 22 under the heading “Other Off-Balance Sheet Risk.”
Contractual obligations
Figure 24 summarizes our significant contractual obligations, and lending-related and other off-balance sheet commitments at December 31, 2020, by the specific time periods in which related payments are due or commitments expire.
Figure 24. Contractual Obligations and Other Off-Balance Sheet Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Within 1
year
|
After 1
through 3
years
|
After 3
through 5
years
|
After 5
years
|
Total
|
in millions
|
Contractual obligations:(a)
|
|
|
|
|
|
Deposits with no stated maturity
|
$
|
129,539
|
|
—
|
|
—
|
|
—
|
|
$
|
129,539
|
|
Time deposits of $100,000 or more
|
2,309
|
|
$
|
378
|
|
$
|
38
|
|
$
|
8
|
|
2,733
|
|
Other time deposits
|
2,382
|
|
527
|
|
91
|
|
10
|
|
3,010
|
|
Federal funds purchased and securities sold under repurchase agreements
|
220
|
|
—
|
|
—
|
|
—
|
|
220
|
|
Bank notes and other short-term borrowings
|
759
|
|
—
|
|
—
|
|
—
|
|
759
|
|
Long-term debt
|
2,587
|
|
3,634
|
|
2,435
|
|
5,053
|
|
13,709
|
|
Noncancellable operating leases
|
143
|
|
252
|
|
178
|
|
236
|
|
809
|
|
Liability for unrecognized tax benefits
|
58
|
|
—
|
|
—
|
|
—
|
|
58
|
|
Purchase obligations (b)
|
213
|
|
277
|
|
70
|
|
5
|
|
565
|
|
Total
|
$
|
138,210
|
|
$
|
5,068
|
|
$
|
2,812
|
|
$
|
5,312
|
|
$
|
151,402
|
|
Lending-related and other off-balance sheet commitments:
|
|
|
|
|
|
Commercial, including real estate
|
$
|
17,903
|
|
$
|
19,650
|
|
$
|
11,719
|
|
$
|
885
|
|
$
|
50,157
|
|
Home equity
|
490
|
|
510
|
|
613
|
|
7,686
|
|
9,299
|
|
Credit cards
|
6,685
|
|
—
|
|
—
|
|
—
|
|
6,685
|
|
Purchase cards
|
708
|
|
—
|
|
—
|
|
—
|
|
708
|
|
|
|
|
|
|
|
Commercial letters of credit
|
61
|
|
7
|
|
6
|
|
—
|
|
74
|
|
Principal investing commitments
|
11
|
|
5
|
|
—
|
|
—
|
|
16
|
|
Tax credit investment commitments
|
487
|
|
—
|
|
—
|
|
—
|
|
487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
26,345
|
|
$
|
20,171
|
|
$
|
12,338
|
|
$
|
8,571
|
|
$
|
67,426
|
|
|
|
|
|
|
|
(a)Deposits and borrowings exclude interest.
(b)Includes purchase obligations for goods and services covered by noncancellable contracts and contracts including cancellation fees.
Guarantees
We are a guarantor in various agreements with third parties. As guarantor, we may be contingently liable to make payments to the guaranteed party based on changes in a specified interest rate, foreign exchange rate or other variable (including the occurrence or nonoccurrence of a specified event). These variables, known as underlyings, may be related to an asset or liability, or another entity’s failure to perform under a contract. Additional information regarding these types of arrangements is presented in Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) under the heading “Guarantees.”
Risk Management
Overview
Like all financial services companies, we engage in business activities and assume the related risks. The most significant risks we face are credit, compliance, operational, liquidity, market, reputation, strategic, and model risks. Our risk management activities are shown in the following chart, and we manage such risks across the entire enterprise to maintain safety and soundness and maximize profitability. Certain of these risks are defined and discussed in greater detail in the remainder of this section.
Federal banking regulators continue to emphasize with financial institutions the importance of relating capital management strategy to the level of risk at each institution. We believe our internal risk management processes help us achieve and maintain capital levels that are commensurate with our business activities and risks, and conform to regulatory expectations. The table below depicts our risk management hierarchy and associated responsibilities and activities of each group.
|
|
|
|
|
|
|
|
|
Group
|
Overview and Responsibilities
|
Activities
|
Board of Directors
|
–Oversight capacity
–Ensure Key’s risks are managed in a manner that is not only effective and balanced, but also has a fiduciary duty to the shareholders
|
–Understands Key's risk philosophy
–Approves the risk appetite
–Inquires about risk practices
–Reviews the portfolio of risks
–Compares the actual risks to the risk appetite
–Is apprised of significant risks, both actual and emerging, and determines whether management is responding appropriately
–Challenges management and ensures accountability
|
Board of Directors Audit Committee (a)
|
–Oversight of financial statement integrity, regulatory and legal requirements, independent auditors’ qualifications and independence, and the performance of the internal audit function and independent auditors
–Financial reporting, legal matters, and fraud risk
|
–Meets with management and approves significant policies relating to the risk areas overseen by the Audit Committee
–Receives reports on enterprise risk
–Meets bi-monthly
–Convenes to discuss the content of our financial disclosures and quarterly earnings releases
|
Board of Directors Risk Committee (a)
|
–Assist the Board in oversight of strategies, policies, procedures, and practices relating to the assessment and management of enterprise-wide risk, including credit, market, liquidity, model, operational, compliance, reputation, and strategic risks
–Assist the Board in overseeing risks related to capital adequacy, capital planning, and capital actions
|
–Reviews and provides oversight of management’s activities related to the enterprise-wide risk management framework, which includes an annual review of the ERM Policy, including the Risk Appetite Statement, and management and ERM reports
–Approves any material changes to the charter of the ERM Committee and significant policies relating to risk management, including corporate risk tolerances for major risk categories
|
ERM Committee
|
–Chaired by the Chief Executive Officer and comprising other senior level executives
–Manage risk and ensure that the corporate risk profile is managed in a manner consistent with our risk appetite
–Oversees the ERM Program, which encompasses our risk philosophy, policy, framework, and governance structure for the management of risks across the entire company
|
–Approves and manages the risk-adjusted capital framework we use to manage risks
|
Disclosure Committee
|
–Includes representatives from each of the Three Lines of Defense
–Meets quarterly to review recent internal and external events to determine whether all appropriate disclosures have been made in reports filed with the SEC
|
–Convenes quarterly to discuss the content of our 10-Q and 10-K
|
Tier 2 Risk Governance Committees
|
–Include attendees from each of the Three Lines of Defense
–The First Line of Defense is the line of business primarily responsible to accept, own, proactively identify, monitor, and manage risk
–The Second Line of Defense comprises Risk Management representatives who provide independent, centralized oversight over all risk categories by aggregating, analyzing, and reporting risk information
–Risk Review, our internal audit function, provides the Third Line of Defense. Its role is to provide independent assessment and testing of the effectiveness of, appropriateness of, and adherence to KeyCorp’s risk management policies, practices, and controls
|
–Supports the ERM Committee by identifying early warning events and trends, escalating emerging risks, and discussing forward-looking assessments
|
Chief Risk Officer
|
–Ensure that relevant risk information is properly integrated into strategic and business decisions
–Ensure appropriate ownership of risks
|
–Provides input into performance and compensation decisions
–Assesses aggregate enterprise risk
–Monitors capabilities to manage critical risks
–Executes appropriate Board and stakeholder reporting
|
–The Audit and Risk Committees meet jointly, as appropriate, to discuss matters that relate to each committee’s responsibilities. Committee chairpersons routinely meet with management during interim months to plan agendas for upcoming meetings and to discuss emerging trends and events that have transpired since the preceding meeting. All members of the Board receive formal reports designed to keep them abreast of significant developments during the interim months.
Market risk management
Market risk is the risk that movements in market risk factors, including interest rates, foreign exchange rates, equity prices, commodity prices, credit spreads, and volatilities will reduce Key’s income and the value of its portfolios. These factors influence prospective yields, values, or prices associated with the instrument. We are exposed to market risk both in our trading and nontrading activities, which include asset and liability management activities. Information regarding our fair value policies, procedures, and methodologies is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Fair Value Measurements” and Note 6 (“Fair Value Measurements”) in this report.
Trading market risk
Key incurs market risk as a result of trading activities that are used in support of client facilitation and hedging activities, principally within our investment banking and capital markets businesses. Key has exposures to a wide range of risk factors including interest rates, equity prices, foreign exchange rates, credit spreads, and commodity prices, as well as the associated implied volatilities and spreads. Our primary market risk exposures are a result of trading and hedging activities in the derivative and fixed income markets, including securitization exposures. At December 31, 2020, we did not have any re-securitization positions. We maintain modest trading inventories to facilitate customer flow, make markets in securities, and hedge certain risks including but not limited to credit risk and interest rate risk. The risks associated with these activities are mitigated in accordance with the Market Risk hedging policy. The majority of our positions are traded in active markets.
Management of trading market risks. Market risk management is an integral part of Key’s risk culture. The Risk Committee of our Board provides oversight of trading market risks. The ERM Committee and the Market Risk Committee regularly review and discuss market risk reports prepared by our MRM that contain our market risk exposures and results of monitoring activities. Market risk policies and procedures have been defined and approved by the Market Risk Committee, a Tier 2 Risk Governance Committee, and take into account our tolerance for risk and consideration for the business environment.
The MRM, as the second line of defense, is an independent risk management function that partners with the lines of business to identify, measure, and monitor market risks throughout our company. The MRM is responsible for ensuring transparency of significant market risks, monitoring compliance with established limits, and escalating limit exceptions to appropriate senior management. The various business units and trading desks are responsible for ensuring that market risk exposures are well-managed and prudent. Market risk is monitored through various measures, such as VaR, and through routine stress testing, sensitivity, and scenario analyses. The MRM conducts stress tests for each position using historical worst case and standard shock scenarios. VaR, stressed VaR, and other analyses are prepared daily and distributed to appropriate management.
Covered positions. We monitor the market risk of our covered positions as defined in the Market Risk Rule, which includes all of our trading positions as well as all foreign exchange and commodity positions, regardless of whether the position is in a trading account. Key’s covered positions may also include mortgage-backed and asset-backed securities that may be identified as securitization positions or re-securitization positions under the Market Risk Rule. The MRM as well as the LOB that trades securitization positions monitor the positions, the portfolio composition and the risks identified in this section on a daily basis consistent with the Market Risk policies and procedures. At December 31, 2020, covered positions did not include any re-securitization positions. Instruments that are used to hedge nontrading activities, such as bank-issued debt and loan portfolios, equity positions that are not actively traded, and securities financing activities, do not meet the definition of a covered position. The MRM is responsible for identifying our portfolios as either covered or non-covered. The Covered Position Working Group develops the final list of covered positions, and a summary is provided to the Market Risk Committee.
Our significant portfolios of covered positions are detailed below. We analyze market risk by portfolios of covered positions and do not separately measure and monitor our portfolios by risk type. The descriptions below incorporate the respective risk types associated with each of these portfolios.
•Fixed income includes those instruments associated with our capital markets business and the trading of securities as a dealer. These instruments may include positions in municipal bonds, bonds backed by the U.S. government, agency and corporate bonds, certain mortgage-backed and asset-backed securities, securities issued by the U.S. Treasury, money markets, and certain CMOs. The activities and instruments within the fixed income portfolio create exposures to interest rate and credit spread risks.
•Interest rate derivatives include interest rate swaps, caps, and floors, which are transacted primarily to accommodate the needs of commercial loan clients. In addition, we enter into interest rate derivatives to offset or mitigate the interest rate risk related to the client positions. The activities within this portfolio create exposures to interest rate risk.
VaR and stressed VaR. VaR is the estimate of the maximum amount of loss on an instrument or portfolio due to adverse market conditions during a given time interval within a stated confidence level. Stressed VaR is used to assess extreme conditions on market risk within our trading portfolios. The MRM calculates VaR and stressed VaR on a daily basis, and the results are distributed to appropriate management. VaR and stressed VaR results are also provided to our regulators and utilized in regulatory capital calculations.
We use a historical simulation VaR model to measure the potential adverse effect of changes in interest rates, foreign exchange rates, equity prices, and credit spreads on the fair value of our covered positions and other non-covered positions. Historical scenarios are customized for specific positions, and numerous risk factors are incorporated in the calculation. Additional consideration is given to the risk factors to estimate the exposures that contain optionality features, such as options and cancelable provisions. VaR is calculated using daily observations over a one-year time horizon, and approximates a 95% confidence level. Statistically, this means that we would expect to incur losses greater than VaR, on average, five out of 100 trading days, or three to four times each quarter. We also calculate VaR and stressed VaR at a 99% confidence level.
The VaR model is an effective tool in estimating ranges of possible gains and losses on our positions. However, there are limitations inherent in the VaR model since it uses historical results over a given time interval to estimate future performance. Historical results may not be indicative of future results, and changes in the market or composition of our portfolios could have a significant impact on the accuracy of the VaR model. We regularly review and enhance the modeling techniques, inputs, and assumptions used. Our market risk policy includes the independent validation of our VaR model by Key’s internal model validation group on an annual basis. The Model Risk Committee oversees the Model Validation Program, and results of validations are discussed with the ERM Committee.
Actual losses for the total covered positions did not exceed aggregate daily VaR on any day during the quarters ended December 31, 2020, and December 31, 2019. The MRM backtests our VaR model on a daily basis to evaluate its predictive power. The test compares VaR model results at the 99% confidence level to daily held profit and loss. Results of backtesting are provided to the Market Risk Committee. Backtesting exceptions occur when trading losses exceed VaR. We do not engage in correlation trading or utilize the internal model approach for measuring default and credit migration risk. Our net VaR approach incorporates diversification, but our VaR calculation does not include the impact of counterparty risk and our own credit spreads on derivatives.
The aggregate VaR at the 99% confidence level with a one day holding period for all covered positions was $2.8 million at December 31, 2020, and $.9 million at December 31, 2019. Figure 25 summarizes our VaR at the 99% confidence level with a one day holding period for significant portfolios of covered positions for the three months ended December 31, 2020, and December 31, 2019.
Figure 25. VaR for Significant Portfolios of Covered Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Three months ended December 31,
|
|
|
Three months ended December 31,
|
|
in millions
|
High
|
Low
|
Mean
|
December 31,
|
|
High
|
Low
|
Mean
|
December 31,
|
Trading account assets:
|
|
|
|
|
|
|
|
|
|
Fixed income
|
$
|
2.9
|
|
$
|
1.4
|
|
$
|
2.1
|
|
$
|
2.1
|
|
|
$
|
1.2
|
|
$
|
.6
|
|
$
|
.9
|
|
$
|
.8
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
Interest rate
|
$
|
1.0
|
|
.2
|
|
$
|
.5
|
|
$
|
.5
|
|
|
$
|
.1
|
|
.1
|
|
$
|
.1
|
|
$
|
.1
|
|
Stressed VaR is calculated by running the portfolios through a predetermined stress period which is approved by the Market Risk Committee and is calculated at the 99% confidence level using the same model and assumptions used for general VaR. The aggregate stressed VaR for all covered positions was $2.8 million at December 31, 2020, and $5.1 million at December 31, 2019. Figure 26 summarizes our stressed VaR at the 99% confidence level with a one day holding period for significant portfolios of covered positions for the three months ended December 31, 2020, and December 31, 2019.
Figure 26. Stressed VaR for Significant Portfolios of Covered Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Three months ended December 31,
|
|
|
Three months ended December 31,
|
|
in millions
|
High
|
Low
|
Mean
|
December 31,
|
|
High
|
Low
|
Mean
|
December 31,
|
Trading account assets:
|
|
|
|
|
|
|
|
|
|
Fixed income
|
$
|
2.9
|
|
$
|
1.4
|
|
$
|
2.1
|
|
$
|
2.1
|
|
|
$
|
5.7
|
|
$
|
3.2
|
|
$
|
4.5
|
|
$
|
4.3
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
Interest rate
|
$
|
.9
|
|
$
|
.2
|
|
$
|
.5
|
|
$
|
.5
|
|
|
$
|
1.2
|
|
$
|
.2
|
|
$
|
.4
|
|
$
|
.7
|
|
Internal capital adequacy assessment. Market risk is a component of our internal capital adequacy assessment. Our risk-weighted assets include a market risk-equivalent asset amount, which consists of a VaR component, stressed VaR component, a de minimis exposure amount, and a specific risk add-on including the securitization positions. We had no securitization positions as defined by the Market Risk Rule at December 31, 2020. Specific risk is the price risk of individual financial instruments, which is not accounted for by changes in broad market risk factors and is measured through a standardized approach. Market risk weighted assets, including the specific risk calculations, are run quarterly by the MRM in accordance with the Market Risk Rule and approved by the Chief Market Risk Officer.
Nontrading market risk
Most of our nontrading market risk is derived from interest rate fluctuations and its impacts on our traditional loan and deposit products, as well as investments, hedging relationships, long-term debt, and certain short-term borrowings. Interest rate risk, which is inherent in the banking industry, is measured by the potential for fluctuations in net interest income and the EVE. Such fluctuations may result from changes in interest rates and differences in the repricing and maturity characteristics of interest-earning assets and interest-bearing liabilities. We manage the exposure to changes in net interest income and the EVE in accordance with our risk appetite and in accordance with the Board approved ERM policy.
Interest rate risk positions are influenced by a number of factors, including the balance sheet positioning that arises out of customer preferences for loan and deposit products, economic conditions, the competitive environment within our markets, changes in market interest rates that affect client activity, and our hedging, investing, funding, and capital positions. The primary components of interest rate risk exposure consist of reprice risk, basis risk, yield curve risk, and option risk.
•“Reprice risk” is the exposure to changes in the level of interest rates and occurs when the volume of interest-bearing liabilities and the volume of interest-earning assets they fund (e.g., deposits used to fund loans) do not mature or reprice at the same time.
•“Basis risk” is the exposure to asymmetrical changes in interest rate indexes and occurs when floating-rate assets and floating-rate liabilities reprice at the same time, but in response to different market factors or indexes.
•“Yield curve risk” is the exposure to non-parallel changes in the slope of the yield curve (where the yield curve depicts the relationship between the yield on a particular type of security and its term to maturity) and occurs when interest-bearing liabilities and the interest-earning assets that they fund do not price or reprice to the same term point on the yield curve.
•“Option risk” is the exposure to a customer or counterparty’s ability to take advantage of the interest rate environment and terminate or reprice one of our assets, liabilities, or off-balance sheet instruments prior to contractual maturity without a penalty. Option risk occurs when exposures to customer and counterparty early withdrawals or prepayments are not mitigated with an offsetting position or appropriate compensation.
The management of nontrading market risk is centralized within Corporate Treasury. The Risk Committee of our Board provides oversight of nontrading market risk. The ERM Committee and the ALCO review reports on the interest rate risk exposures described above. In addition, the ALCO reviews reports on stress tests and sensitivity analyses related to interest rate risk. These committees have various responsibilities related to managing nontrading market risk, including recommending, approving, and monitoring strategies that maintain risk positions within approved tolerance ranges. The A/LM policy provides the framework for the oversight and management of interest rate risk and is administered by the ALCO. The MRM, as the second line of defense, provides additional oversight.
LIBOR Transition
As disclosed in Item 1A. Risk Factors of this report, LIBOR in its current form is not expected to be available after 2021 for new contracts and to cease publishing all tenors entirely after June 30, 2023. For most products, the most likely replacement rate is expected to be SOFR, which has been recommended by the ARRC, although uncertainty remains as to whether new benchmarks may evolve and a different credit sensitive benchmark could instead become the market-accepted benchmark. The Federal Reserve and the OCC have encouraged financial institutions not to wait for the end of 2021 to make the transition away from LIBOR. We have established an enterprise wide program to identify and address all LIBOR transition issues. We are collaborating closely with regulators and
industry groups on the transition and closely monitoring developments in industry practices related to LIBOR alternatives. The goals of our LIBOR transition program are to:
•Identify and analyze LIBOR-based exposure and develop and execute transition strategies;
•Review and update near-term strategies and actions for our current LIBOR-based business currently being written;
•Assess financial impact and risk while planning and executing mitigation actions;
•Understand and strategically address the current market approach to LIBOR and SOFR; and
•Determine and execute system and process work to be operationally ready for SOFR or additional credit sensitive benchmarks.
As part of the LIBOR transition program, we completed an initial risk assessment to help us identify the impact and risks associated with various products, systems, processes, and models. This risk assessment has assisted us in making necessary updates to our infrastructure and operational systems and processes to implement a replacement rate, and we are progressing on schedule to be operationally ready for SOFR. We have compiled an inventory of existing legal contracts that are impacted by the LIBOR transition. We are assessing the LIBOR fallback language in those contracts and are devising a strategy to address the LIBOR transition for those contracts. We have also focused on refining LIBOR fallback language in new legal contracts including requiring the use of robust fallback language. Our progress is well-paced, especially as it is likely many of the legacy contracts will be provided additional time to remediate due to recent announcements by the ICE Benchmark Administration, the FCA-regulated and authorized administrator of LIBOR, that certain LIBOR tenors may continue until June 2023 for legacy contract purposes. We expect to leverage recommendations made by the ARRC and ISDA that are tailored to our specific client segments.
Net interest income simulation analysis. The primary tool we use to measure our interest rate risk is simulation analysis. For purposes of this analysis, we estimate our net interest income based on the current and projected composition of our on- and off-balance sheet positions, accounting for recent and anticipated trends in customer activity. The analysis also incorporates assumptions for the current and projected interest rate environments and balance sheet growth projections based on a most likely macroeconomic view. The modeling incorporates investment portfolio and swap portfolio balances consistent with management's desired interest rate risk positioning. The simulation model estimates the amount of net interest income at risk by simulating the change in net interest income that would occur if rates were to gradually increase or decrease over the next 12 months (subject to a floor on market interest rates at zero).
Figure 27 presents the results of the simulation analysis at December 31, 2020, and December 31, 2019. At December 31, 2020, our simulated impact to changes in interest rates was modest. Exposure to declining rates
remains nominal given the low level of market rates in comparison to the floor utilized in the scenario. Exposure to
rising rates has changed from a detriment in 2019 to a benefit currently as the lower actual market rates reduce the
need for additional modeled hedges and lower the projected deposit pricing beta to rising rates. Tolerance levels for risk management require the development of remediation plans to maintain residual risk within tolerance if simulation modeling demonstrates that a gradual, parallel 200 basis point increase or 200 basis point decrease in interest rates over the next 12 months would adversely affect net interest income over the same period by more than 5.5%. Current modeled exposure is within Board approved tolerances.
Figure 27. Simulated Change in Net Interest Income
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Basis point change assumption (short-term rates)
|
-200
|
|
+200
|
|
-150
|
|
+200
|
|
Assumed floor in market rates (in basis points)
|
—
|
|
N/A
|
|
25
|
|
N/A
|
|
Tolerance level
|
-5.50
|
%
|
-5.50
|
%
|
-5.50
|
%
|
-5.50
|
%
|
Interest rate risk assessment
|
-2.52
|
%
|
4.98
|
%
|
-2.47
|
%
|
-1.45
|
%
|
Simulation analysis produces a sophisticated estimate of interest rate exposure based on assumptions input into the model. We tailor certain assumptions to the specific interest rate environment and yield curve shape being modeled and validate those assumptions on a regular basis. However, actual results may differ from those derived in simulation analysis due to unanticipated changes to the balance sheet composition, customer behavior, product pricing, market interest rates, changes in management’s desired interest rate risk positioning, investment, funding and hedging activities, and repercussions from unanticipated or unknown events.
We also perform regular stress tests and sensitivity analyses on the model inputs that could materially change the resulting risk assessments. Assessments are performed using different shapes of the yield curve, including
steepening or flattening of the yield curve, immediate changes in market interest rates, and changes in the relationship of money market interest rates. Assessments are also performed on changes to the following assumptions: loan and deposit balances, the pricing of deposits without contractual maturities, changes in lending spreads, prepayments on loans and securities, investment, funding and hedging activities, and liquidity and capital management strategies.
The results of additional assessments indicate that net interest income could increase or decrease from the base simulation results presented in Figure 27. Net interest income is highly dependent on the timing, magnitude, frequency, and path of interest rate changes and the associated assumptions for deposit repricing relationships, lending spreads, and the balance behavior of transaction accounts. If fixed rate assets increase by $1 billion, or fixed rate liabilities decrease by $1 billion, then the benefit to rising rates would decrease by approximately 25 basis points. If the interest-bearing liquid deposit beta assumption increases or decreases by 5% (e.g., 40% to 45%), then the benefit to rising rates would decrease or increase by approximately 120 basis points.
Our current interest rate risk position could fluctuate to higher or lower levels of risk depending on the competitive environment and client behavior that may affect the actual volume, mix, maturity, and repricing characteristics of loan and deposit flows. Corporate Treasury discretionary activities related to funding, investing, and hedging may also change as a result of changes in customer business flows or changes in management’s desired interest rate risk positioning. As changes occur to both the configuration of the balance sheet and the outlook for the economy, management proactively evaluates hedging opportunities that may change our interest rate risk profile.
We also conduct simulations that measure the effect of changes in market interest rates in the second and third years of a three-year horizon. These simulations are conducted in a manner similar to those based on a 12-month horizon. To capture longer-term exposures, we calculate exposures to changes of the EVE as discussed in the following section.
Economic value of equity modeling. EVE complements net interest income simulation analysis as it estimates risk exposure beyond 12-, 24-, and 36-month horizons. EVE modeling measures the extent to which the economic values of assets, liabilities, and off-balance sheet instruments may change in response to fluctuations in interest rates. EVE is calculated by subjecting the balance sheet to an immediate 200 basis point increase or decrease in interest rates, measuring the resulting change in the values of assets, liabilities, and off-balance sheet instruments, and comparing those amounts with the base case of the current interest rate environment. This analysis is highly dependent upon assumptions applied to assets and liabilities with non-contractual maturities. Those assumptions are based on historical behaviors, as well as our expectations. We develop remediation plans that would maintain residual risk within tolerance if this analysis indicates that our EVE will decrease by more than 15% in response to an immediate increase or decrease in interest rates. We are operating within these guidelines as of December 31, 2020.
Management of interest rate exposure. We use the results of our various interest rate risk analyses to formulate A/LM strategies to achieve the desired risk profile while managing to our objectives for capital adequacy and liquidity risk exposures. Specifically, we manage interest rate risk positions by purchasing securities, issuing term debt with floating or fixed interest rates, and using derivatives. We predominantly use interest rate swaps and options, which modify the interest rate characteristics of certain assets and liabilities.
Figure 28 shows all derivative positions that we hold for A/LM purposes. The swap positions are used to convert the contractual interest rate index of agreed-upon amounts of assets and liabilities (i.e., notional amounts) to another interest rate index. For example, fixed-rate debt is converted to a floating rate through a “receive fixed/pay variable” interest rate swap. The volume, maturity, and mix of portfolio swaps change frequently as we adjust our broader A/LM objectives and the balance sheet positions to be hedged. For more information about how we use interest rate swaps to manage our risk profile, see Note 8 (“Derivatives and Hedging Activities”).
Figure 28. Portfolio Swaps and Options by Interest Rate Risk Management Strategy
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
December 31, 2019
|
|
dollars in millions
|
Notional
Amount
|
Fair
Value
|
|
Maturity
(Years)
|
Receive
Rate
|
Pay
Rate
|
|
Notional
Amount
|
Fair
Value
|
|
Receive fixed/pay variable — conventional A/LM (a)
|
$
|
21,035
|
|
$
|
632
|
|
|
2.4
|
1.8
|
%
|
.2
|
%
|
|
$
|
19,270
|
|
$
|
312
|
|
|
Receive fixed/pay variable — conventional debt
|
7,787
|
|
415
|
|
|
3.8
|
2.1
|
|
.1
|
|
|
8,189
|
|
240
|
|
|
Receive fixed/pay variable — forward A/LM
|
—
|
|
—
|
|
|
—
|
—
|
|
—
|
|
|
3,400
|
|
32
|
|
|
Pay fixed/receive variable — conventional debt
|
50
|
|
(11)
|
|
|
7.5
|
.2
|
|
3.6
|
|
|
50
|
|
(7)
|
|
|
Pay fixed/receive variable — forward securities
|
2,080
|
|
21
|
|
|
11.2
|
.3
|
|
1.0
|
|
|
—
|
|
—
|
|
|
Total portfolio swaps
|
$
|
30,952
|
|
$
|
1,057
|
|
(c)
|
3.4
|
1.8
|
%
|
.2
|
%
|
|
$
|
30,909
|
|
$
|
577
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
Floors — conventional A/LM — purchased (b)
|
$
|
5,000
|
|
$
|
17
|
|
|
.8
|
—
|
|
—
|
|
|
$
|
4,200
|
|
149
|
|
|
Floors — conventional A/LM — sold (b)
|
—
|
|
—
|
|
|
—
|
—
|
|
—
|
|
|
3,900
|
|
(15)
|
|
|
Total floors
|
$
|
5,000
|
|
$
|
17
|
|
|
1.0
|
—
|
|
—
|
|
|
$
|
8,100
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Portfolio swaps designated as A/LM are used to manage interest rate risk tied to both assets and liabilities.
(b)Conventional A/LM floors do not have a stated receive rate or pay rate and are given a strike price on the option.
(c)Excludes accrued interest of $145 million and $543 million at December 31, 2020, and December 31, 2019, respectively.
Liquidity risk management
Liquidity risk, which is inherent in the banking industry, is measured by our ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund new business opportunities at a reasonable cost, in a timely manner, and without adverse consequences. Liquidity management involves maintaining sufficient and diverse sources of funding to accommodate planned, as well as unanticipated, changes in assets and liabilities under both normal and adverse conditions.
Governance structure
We manage liquidity for all of our affiliates on an integrated basis. This approach considers the unique funding sources available to each entity, as well as each entity’s capacity to manage through adverse conditions. The approach also recognizes that adverse market conditions or other events that could negatively affect the availability or cost of liquidity will affect the access of all affiliates to sufficient wholesale funding.
The management of consolidated liquidity risk is centralized within Corporate Treasury. Oversight and governance is provided by the Board, the ERM Committee, the ALCO, and the Chief Risk Officer. The Asset Liability Management Policy provides the framework for the oversight and management of liquidity risk and is administered by the ALCO. The Corporate Treasury Oversight group within the MRM, as the second line of defense, provides additional oversight. Our current liquidity risk management practices are in compliance with the Federal Reserve Board’s Enhanced Prudential Standards.
These committees regularly review liquidity and funding summaries, liquidity trends, peer comparisons, variance analyses, liquidity projections, hypothetical funding erosion stress tests, and goal tracking reports. The reviews generate a discussion of positions, trends, and directives on liquidity risk and shape a number of our decisions. When liquidity pressure is elevated, positions are monitored more closely and reporting is more intensive. To ensure that emerging issues are identified, we also communicate with individuals inside and outside of the company on a daily basis.
Factors affecting liquidity
Our liquidity could be adversely affected by both direct and indirect events. An example of a direct event would be a downgrade in our public credit ratings by a rating agency. Examples of indirect events (events unrelated to us) that could impair our access to liquidity would be an act of terrorism or war, natural disasters, global pandemics (including COVID-19), political events, or the default or bankruptcy of a major corporation, mutual fund or hedge fund. Similarly, market speculation, or rumors about us or the banking industry in general, may adversely affect the cost and availability of normal funding sources.
Our credit ratings at December 31, 2020, are shown in Figure 29 . We believe these credit ratings, under normal conditions in the capital markets, will enable KeyCorp or KeyBank to issue fixed income securities to investors.
Figure 29. Credit Ratings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Short-Term
Borrowings
|
Long-Term
Deposits(a)
|
Senior
Long-Term
Debt
|
Subordinated
Long-Term
Debt
|
Capital
Securities
|
Preferred
Stock
|
KEYCORP (THE PARENT COMPANY)
|
|
|
|
|
|
|
Standard & Poor’s
|
A-2
|
N/A
|
BBB+
|
BBB
|
BB+
|
BB+
|
Moody’s
|
P-2
|
N/A
|
Baa1
|
Baa1
|
Baa2
|
Baa3
|
Fitch
|
F1
|
N/A
|
A-
|
BBB+
|
BB+
|
BB+
|
DBRS
|
R-1(low)
|
N/A
|
A
|
A (low)
|
A (low)
|
BBB
|
|
|
|
|
|
|
|
KEYBANK
|
|
|
|
|
|
|
Standard & Poor’s
|
A-2
|
N/A
|
A-
|
BBB+
|
N/A
|
N/A
|
Moody’s
|
P-2
|
P-1/Aa3
|
A3
|
Baa1
|
N/A
|
N/A
|
Fitch
|
F1
|
A
|
A-
|
BBB+
|
N/A
|
N/A
|
DBRS
|
R-1(middle)
|
A (high)
|
A (high)
|
A
|
N/A
|
N/A
|
(a)P-1 rating assigned by Moody’s is specific to KeyBank’s short-term bank deposit ratings.
Managing liquidity risk
Most of our liquidity risk is derived from our business model, which involves taking in deposits, many of which can be withdrawn at anytime, and lending them out in the form of illiquid loan assets. The assessments of liquidity risk are measured under the assumption of normal operating conditions as well as under a stressed environment. We manage these exposures in accordance with our risk appetite, and within Board-approved policy limits.
We regularly monitor our liquidity position and funding sources and measure our capacity to obtain funds in a variety of hypothetical scenarios in an effort to maintain an appropriate mix of available and affordable funding. In the normal course of business, we perform a monthly hypothetical funding erosion stress test for both KeyCorp and KeyBank. In a “heightened monitoring mode,” we may conduct the hypothetical funding erosion stress tests more frequently, and use assumptions to reflect the changed market environment. Our testing incorporates estimates for loan and deposit lives based on our historical studies. Erosion stress tests analyze potential liquidity scenarios under various funding constraints and time periods. Ultimately, they determine the periodic effects that major direct and indirect events would have on our access to funding markets and our ability to fund our normal operations. To compensate for the effect of these assumed liquidity pressures, we consider alternative sources of liquidity and maturities over different time periods to project how funding needs would be managed.
We maintain a Contingency Funding Plan that outlines the process for addressing a liquidity crisis. The plan provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and responsibilities for managing liquidity through a problem period. As part of the plan, we maintain on-balance sheet liquid reserves referred to as our liquid asset portfolio, which consists of high quality liquid assets. During a problem period, that reserve could be used as a source of funding to provide time to develop and execute a longer-term strategy. The liquid asset portfolio at December 31, 2020, totaled $36.6 billion, consisting of $21.1 billion of unpledged securities, $66.9 million of securities available for secured funding at the FHLB, and $15.4 billion of net balances of federal funds sold and balances in our Federal Reserve account. The liquid asset portfolio can fluctuate due to excess liquidity, heightened risk, or prefunding of expected outflows, such as debt maturities. Additionally, as of December 31, 2020, our unused borrowing capacity secured by loan collateral was $22.6 billion at the Federal Reserve Bank of Cleveland and $8.4 billion at the FHLB of Cincinnati. In 2020, Key’s outstanding FHLB of Cincinnati advances increased by $0.5 billion due to an increase in borrowings.
Long-term liquidity strategy
Our long-term liquidity strategy is to be predominantly funded by core deposits. However, we may use wholesale funds to sustain an adequate liquid asset portfolio, meet daily cash demands, and allow management flexibility to execute business initiatives. Key’s client-based relationship strategy provides for a strong core deposit base that, in conjunction with intermediate and long-term wholesale funds managed to a diversified maturity structure and investor base, supports our liquidity risk management strategy. We use the loan-to-deposit ratio as a metric to monitor these strategies. Our target loan-to-deposit ratio is 90-100% (at December 31, 2020, our loan-to-deposit ratio was 76.5%), which we calculate as the sum of total loans, loans held for sale, and nonsecuritized discontinued loans divided by deposits.
Sources of liquidity
Our primary sources of liquidity include customer deposits, wholesale funding, and liquid assets. If the cash flows needed to support operating and investing activities are not satisfied by deposit balances, we rely on wholesale funding or on-balance sheet liquid reserves. Conversely, excess cash generated by operating, investing, and deposit-gathering activities may be used to repay outstanding debt or invest in liquid assets.
Liquidity programs
We have several liquidity programs, which are described in Note 20 (“Long-Term Debt”), that are designed to enable KeyCorp and KeyBank to raise funds in the public and private debt markets. The proceeds from most of these programs can be used for general corporate purposes, including acquisitions. These liquidity programs are reviewed from time to time by the Board and are renewed and replaced as necessary. There are no restrictive financial covenants in any of these programs.
On March 10, 2020, KeyBank issued $700 million of 1.25% Senior Bank Notes due March 10, 2023. On December 16, 2020, KeyBank issued $750 million of Fixed-to-Floating Rate Senior Bank Notes due January 3, 2024, and $350 million of Floating Rate Senior Bank Notes due January 3, 2024.
Liquidity for KeyCorp
The primary source of liquidity for KeyCorp is from subsidiary dividends, primarily from KeyBank. KeyCorp has sufficient liquidity when it can service its debt; support customary corporate operations and activities (including acquisitions); support occasional guarantees of subsidiaries’ obligations in transactions with third parties at a reasonable cost, in a timely manner, and without adverse consequences; and fund capital distributions in the form of dividends and share buybacks.
We use a parent cash coverage months metric as the primary measure to assess parent company liquidity. The parent cash coverage months metric measures the number of months into the future where projected obligations can be met with the current quantity of liquidity. We generally issue term debt to supplement dividends from KeyBank to manage our liquidity position at or above our targeted levels. The parent company generally maintains cash and short-term investments in an amount sufficient to meet projected debt maturities over at least the next 24 months. At December 31, 2020, KeyCorp held $3.8 billion in cash, which we projected to be sufficient to meet our projected obligations, including the repayment of our maturing debt obligations for the periods prescribed by our risk tolerance.
Typically, KeyCorp meets its liquidity requirements through regular dividends from KeyBank, supplemented with term debt. Federal banking law limits the amount of capital distributions that a bank can make to its holding company without prior regulatory approval. A national bank’s dividend-paying capacity is affected by several factors, including net profits (as defined by statute) for the two previous calendar years and for the current year, up to the date of dividend declaration. During 2020, KeyBank paid $1.25 billion in cash dividends to KeyCorp. At January 1, 2021, KeyBank had regulatory capacity to pay $720 million in dividends to KeyCorp without prior regulatory approval.
On February 6, 2020, KeyCorp issued $800 million of 2.250% Senior Notes due April 6, 2027, under its Medium-Term Note Program.
Our liquidity position and recent activity
Over the past 12 months, our liquid asset portfolio, which includes overnight and short-term investments, as well as unencumbered, high quality liquid securities held as protection against a range of potential liquidity stress scenarios, has increased as a result of an increase in balances held at the Federal Reserve, partially offset by a decrease in unpledged securities. The liquid asset portfolio continues to exceed the amount that we estimate would be necessary to manage through an adverse liquidity event by providing sufficient time to develop and execute a longer-term solution.
From time to time, KeyCorp or KeyBank may seek to retire, repurchase, or exchange outstanding debt, capital securities, preferred shares, or Common Shares through cash purchase, privately negotiated transactions or other means. Additional information on repurchases of Common Shares by KeyCorp is included in Part II, Item 5. Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities of this report. Such transactions depend on prevailing market conditions, our liquidity and capital requirements, contractual restrictions, regulatory requirements, and other factors. The amounts involved may be material, individually or collectively.
The Consolidated Statements of Cash Flows summarize our sources and uses of cash by type of activity for the years ended December 31, 2020, and December 31, 2019.
Credit risk management
Credit risk is the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Like other financial services institutions, we make loans, extend credit, purchase securities, provide financial and payments products, and enter into financial derivative contracts, all of which have related credit risk.
Credit policy, approval, and evaluation
We manage credit risk exposure through a multifaceted program. The Credit Risk Committee approves management credit policies and recommends significant credit policies to the Enterprise Risk Management Committee, the KeyBank Board, and the Risk Committee of the Board for approval. These policies are communicated throughout the organization to foster a consistent approach to granting credit.
Our credit risk management team and certain individuals within our lines of business, to whom credit risk management has delegated limited credit authority, are responsible for credit approval. Individuals with assigned credit authority are authorized to grant exceptions to credit policies. It is not unusual to make exceptions to established policies when mitigating circumstances dictate, however, a corporate level tolerance has been established to keep exceptions at an acceptable level based upon portfolio and economic considerations.
Our credit risk management team uses risk models to evaluate consumer loans. These models, known as scorecards, forecast the probability of serious delinquency and default for an applicant. The scorecards are embedded in the application processing system, which allows for real-time scoring and automated decisions for many of our products. We periodically validate the loan scoring processes.
We maintain an active concentration management program to mitigate concentration risk in our credit portfolios. For individual obligors, we employ a sliding scale of exposure, known as hold limits, which is dictated by the type of loan and strength of the borrower.
Allowance for loan and lease losses
We estimate the appropriate level of the ALLL on at least a quarterly basis. The methodology used is described in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan and Lease Losses.” Briefly, the ALLL estimate uses various models and estimation techniques based on our historical loss experience, current borrower characteristics, current conditions, reasonable and supportable forecasts and other relevant factors. As described in Note 1 (“Summary of Significant Accounting Policies”), on January 1, 2020, we adopted ASC 326, Financial Instruments — Credit Losses, and as such, an expected credit loss methodology, specifically current expected credit losses for the remaining life of our loans and leases, will be used to estimate the appropriate level of the ALLL. For more information, see Note 5 (“Asset Quality”).
As shown in Figure 30, our ALLL from continuing operations increased by $726 million, or 80.7%, from December 31, 2019. Our commercial ALLL decreased by $124 million, or 16.5%, with the adoption of ASU 2016-13, Financial Instruments — Credit Losses at January 1, 2020. The commercial ALLL increased by $472 million, or 75.3%, from January 1, 2020, through December 31, 2020, driven by updated economic forecasts that capture additional deterioration triggered by the global COVID-19 pandemic. Our consumer ALLL increased by $328 million, or 220.1%, with the adoption of ASU 2016-13, Financial Instruments — Credit Losses at January 1, 2020. The consumer ALLL increased $50 million, or 10.5%, from January 1, 2020, through December 31, 2020, driven by portfolio growth and updated economic forecasts that capture additional deterioration triggered by the global COVID-19 pandemic.
Figure 30. Allocation of the Allowance for Loan and Lease Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
December 31,
dollars in millions
|
Total
Allowance
|
Percent of
Allowance
to Total
Allowance
|
Percent of
Loan Type
to Total
Loans
|
|
Total
Allowance
|
Percent of
Allowance
to Total
Allowance
|
Percent of
Loan Type
to Total
Loans
|
|
Total
Allowance
|
Percent of
Allowance
to Total
Allowance
|
Percent of
Loan Type
to Total
Loans
|
Commercial and industrial
|
$
|
678
|
|
41.7
|
%
|
52.3
|
%
|
|
$
|
551
|
|
61.2
|
%
|
51.0
|
%
|
|
$
|
532
|
|
60.2
|
%
|
51.1
|
%
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
327
|
|
20.1
|
|
12.5
|
|
|
143
|
|
15.9
|
|
14.3
|
|
|
142
|
|
16.1
|
|
15.9
|
|
Construction
|
47
|
|
2.9
|
|
2.0
|
|
|
22
|
|
2.4
|
|
1.6
|
|
|
33
|
|
3.8
|
|
1.9
|
|
Total commercial real estate loans
|
374
|
|
23.0
|
|
14.5
|
|
|
165
|
|
18.3
|
|
15.9
|
|
|
175
|
|
19.9
|
|
17.8
|
|
Commercial lease financing
|
47
|
|
2.9
|
|
4.3
|
|
|
35
|
|
3.9
|
|
5.0
|
|
|
36
|
|
4.1
|
|
5.1
|
|
Total commercial loans
|
1,099
|
|
67.6
|
|
71.1
|
|
|
751
|
|
83.4
|
|
71.9
|
|
|
743
|
|
84.2
|
|
74.0
|
|
Real estate — residential mortgage
|
102
|
|
6.3
|
|
9.2
|
|
|
7
|
|
.8
|
|
7.4
|
|
|
7
|
|
0.8
|
|
6.2
|
|
Home equity loans
|
171
|
|
10.5
|
|
9.2
|
|
|
31
|
|
3.5
|
|
10.9
|
|
|
35
|
|
3.9
|
|
12.4
|
|
Consumer direct loans
|
128
|
|
5.3
|
|
4.7
|
|
|
34
|
|
3.8
|
|
3.7
|
|
|
30
|
|
3.4
|
|
2.0
|
|
Credit cards
|
87
|
|
7.9
|
|
1.0
|
|
|
47
|
|
5.2
|
|
1.2
|
|
|
48
|
|
5.4
|
|
1.3
|
|
Consumer indirect loans
|
39
|
|
2.4
|
|
4.8
|
|
|
30
|
|
3.3
|
|
4.9
|
|
|
20
|
|
2.3
|
|
4.1
|
|
Total consumer loans
|
527
|
|
32.4
|
|
28.9
|
|
|
149
|
|
16.6
|
|
28.1
|
|
|
140
|
|
15.8
|
|
26.0
|
|
Total loans (a)
|
$
|
1,626
|
|
100.0
|
%
|
100.0
|
%
|
|
$
|
900
|
|
100.0
|
%
|
100.0
|
%
|
|
$
|
883
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
Total
Allowance
|
Percent of
Allowance
to Total
Allowance
|
Percent of
Loan Type
to Total
Loans
|
|
Total
Allowance
|
Percent of
Allowance
to Total
Allowance
|
Percent of
Loan Type
to Total
Loans
|
|
|
|
|
Commercial and industrial
|
$
|
529
|
|
60.3
|
%
|
48.4
|
%
|
|
$
|
508
|
|
59.2
|
%
|
46.2
|
%
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
133
|
|
15.2
|
|
16.3
|
|
|
144
|
|
16.8
|
|
17.6
|
|
|
|
|
|
Construction
|
30
|
|
3.4
|
|
2.3
|
|
|
22
|
|
2.6
|
|
2.7
|
|
|
|
|
|
Total commercial real estate loans
|
163
|
|
18.6
|
|
18.6
|
|
|
166
|
|
19.4
|
|
20.3
|
|
|
|
|
|
Commercial lease financing
|
43
|
|
4.9
|
|
5.6
|
|
|
42
|
|
4.9
|
|
5.4
|
|
|
|
|
|
Total commercial loans
|
735
|
|
83.8
|
|
72.6
|
|
|
716
|
|
83.5
|
|
71.9
|
|
|
|
|
|
Real estate — residential mortgage
|
7
|
|
0.8
|
|
6.3
|
|
|
17
|
|
2.0
|
|
6.5
|
|
|
|
|
|
Home equity loans
|
43
|
|
4.9
|
|
13.9
|
|
|
54
|
|
6.3
|
|
14.7
|
|
|
|
|
|
Consumer direct loans
|
28
|
|
3.2
|
|
2.1
|
|
|
24
|
|
2.8
|
|
2.1
|
|
|
|
|
|
Credit cards
|
44
|
|
5.0
|
|
1.3
|
|
|
38
|
|
4.4
|
|
1.3
|
|
|
|
|
|
Consumer indirect loans
|
20
|
|
2.3
|
|
3.8
|
|
|
9
|
|
1.0
|
|
3.5
|
|
|
|
|
|
Total consumer loans
|
142
|
|
16.2
|
|
27.4
|
|
|
142
|
|
16.5
|
|
28.1
|
|
|
|
|
|
Total loans (a)
|
$
|
877
|
|
100.0
|
%
|
100.0
|
%
|
|
$
|
858
|
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Excludes allocations of the ALLL related to the discontinued operations of the education lending business in the amount of $36 million at December 31, 2020, $10 million at December 31, 2019, $14 million at December 31, 2018, $16 million at December 31, 2017, and $24 million at December 31, 2016.
Net loan charge-offs
Figure 31 shows the trend in our net loan charge-offs by loan type, while the composition of loan charge-offs and recoveries by type of loan is presented in Figure 32.
Over the past 12 months, net loan charge-offs increased $19 million. In 2021, we expect net loan charge-offs to average loans to remain within our long-term targeted range of 40 to 60 basis points.
Figure 31. Net Loan Charge-offs from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
dollars in millions
|
2020
|
2019
|
2018
|
2017
|
2016
|
Commercial and industrial
|
$
|
317
|
|
$
|
292
|
|
$
|
122
|
|
$
|
93
|
|
$
|
107
|
|
Real estate — commercial mortgage
|
16
|
|
6
|
|
18
|
|
9
|
|
(4)
|
|
Real estate — construction
|
—
|
|
5
|
|
(2)
|
|
1
|
|
7
|
|
Commercial lease financing
|
34
|
|
21
|
|
5
|
|
8
|
|
9
|
|
Total commercial loans
|
367
|
|
324
|
|
143
|
|
111
|
|
119
|
|
Real estate — residential mortgage
|
1
|
|
1
|
|
1
|
|
(1)
|
|
3
|
|
Home equity loans
|
4
|
|
11
|
|
10
|
|
15
|
|
16
|
|
Consumer direct loans
|
30
|
|
34
|
|
29
|
|
28
|
|
22
|
|
Credit cards
|
31
|
|
37
|
|
37
|
|
39
|
|
31
|
|
Consumer indirect loans
|
10
|
|
17
|
|
14
|
|
16
|
|
14
|
|
Total consumer loans
|
76
|
|
100
|
|
91
|
|
97
|
|
86
|
|
Total net loan charge-offs
|
$
|
443
|
|
$
|
424
|
|
$
|
234
|
|
$
|
208
|
|
$
|
205
|
|
Net loan charge-offs to average loans
|
.43
|
%
|
.46
|
%
|
.26
|
%
|
.24
|
%
|
.29
|
%
|
Net loan charge-offs from discontinued operations — education lending business
|
$
|
—
|
|
$
|
7
|
|
$
|
10
|
|
$
|
18
|
|
$
|
17
|
|
(a)Credit amounts indicate that recoveries exceeded charge-offs.
Figure 32. Summary of Loan and Lease Loss Experience from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
dollars in millions
|
2020
|
2019
|
2018
|
2017
|
2016
|
Average loans outstanding
|
$
|
102,689
|
|
$
|
91,511
|
|
$
|
88,338
|
|
$
|
86,365
|
|
$
|
71,148
|
|
Allowance for loan and lease looses at the end of the prior period
|
$
|
900
|
|
$
|
883
|
|
$
|
877
|
|
$
|
858
|
|
$
|
796
|
|
Cumulative effect from change in accounting principle (a)
|
204
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Allowance for loan and lease losses at beginning of period
|
1,104
|
|
883
|
|
877
|
|
858
|
|
796
|
|
Loans charged off:
|
|
|
|
|
|
Commercial and industrial
|
351
|
|
319
|
|
159
|
|
133
|
|
118
|
|
|
|
|
|
|
|
Real estate — commercial mortgage
|
19
|
|
8
|
|
21
|
|
11
|
|
5
|
|
Real estate — construction
|
—
|
|
5
|
|
—
|
|
2
|
|
9
|
|
Total commercial real estate loans (c)
|
19
|
|
13
|
|
21
|
|
13
|
|
14
|
|
Commercial lease financing
|
35
|
|
26
|
|
10
|
|
14
|
|
12
|
|
Total commercial loans (d)
|
405
|
|
358
|
|
190
|
|
160
|
|
144
|
|
Real estate — residential mortgage
|
2
|
|
3
|
|
3
|
|
3
|
|
4
|
|
Home equity loans
|
11
|
|
19
|
|
21
|
|
30
|
|
30
|
|
Consumer direct loans
|
37
|
|
41
|
|
36
|
|
34
|
|
27
|
|
Credit cards
|
39
|
|
44
|
|
44
|
|
44
|
|
35
|
|
Consumer indirect loans
|
28
|
|
34
|
|
30
|
|
31
|
|
21
|
|
Total consumer loans
|
117
|
|
141
|
|
134
|
|
142
|
|
117
|
|
Total loans charged off
|
522
|
|
499
|
|
324
|
|
302
|
|
261
|
|
Recoveries:
|
|
|
|
|
|
Commercial and industrial
|
34
|
|
27
|
|
37
|
|
40
|
|
11
|
|
|
|
|
|
|
|
Real estate — commercial mortgage
|
3
|
|
2
|
|
3
|
|
2
|
|
9
|
|
Real estate — construction
|
—
|
|
—
|
|
2
|
|
1
|
|
2
|
|
Total commercial real estate loans (c)
|
3
|
|
2
|
|
5
|
|
3
|
|
11
|
|
Commercial lease financing
|
1
|
|
5
|
|
5
|
|
6
|
|
3
|
|
Total commercial loans (d)
|
38
|
|
34
|
|
47
|
|
49
|
|
25
|
|
Real estate — residential mortgage
|
1
|
|
2
|
|
2
|
|
4
|
|
1
|
|
Home equity loans
|
7
|
|
8
|
|
11
|
|
15
|
|
14
|
|
Consumer direct loans
|
7
|
|
7
|
|
7
|
|
6
|
|
5
|
|
Credit cards
|
8
|
|
7
|
|
7
|
|
5
|
|
4
|
|
Consumer indirect loans
|
18
|
|
17
|
|
16
|
|
15
|
|
7
|
|
Total consumer loans
|
41
|
|
41
|
|
43
|
|
45
|
|
31
|
|
Total recoveries
|
79
|
|
75
|
|
90
|
|
94
|
|
56
|
|
Net loan charge-offs
|
(443)
|
|
(424)
|
|
(234)
|
|
(208)
|
|
(205)
|
|
Provision (credit) for loan and lease losses
|
965
|
|
441
|
|
240
|
|
227
|
|
267
|
|
Foreign currency translation adjustment
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Allowance for loan and lease losses at end of year
|
$
|
1,626
|
|
$
|
900
|
|
$
|
883
|
|
$
|
877
|
|
$
|
858
|
|
Liability for credit losses on lending-related commitments at the end of the prior period
|
$
|
68
|
|
$
|
64
|
|
$
|
57
|
|
$
|
55
|
|
$
|
56
|
|
Liability for credit losses on contingent guarantees at the end of the prior period
|
7
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Cumulative effect from change in accounting principle (a)(b)
|
66
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Liability for credit losses on lending-related commitments at beginning of the year
|
141
|
|
64
|
|
57
|
|
55
|
|
56
|
|
Provision (credit) for losses on lending-related commitments
|
56
|
|
4
|
|
6
|
|
2
|
|
(1)
|
|
Liability for credit losses on lending-related commitments at end of the year (e)
|
$
|
197
|
|
$
|
68
|
|
$
|
63
|
|
$
|
57
|
|
$
|
55
|
|
Total allowance for credit losses at end of the year
|
$
|
1,823
|
|
$
|
968
|
|
$
|
946
|
|
$
|
934
|
|
$
|
913
|
|
Net loan charge-offs to average total loans
|
.43
|
%
|
.46
|
%
|
.26
|
%
|
.24
|
%
|
.29
|
%
|
Allowance for loan and lease losses to period-end loans
|
1.61
|
|
.95
|
|
.99
|
|
1.01
|
|
1.00
|
|
Allowance for credit losses to period-end loans
|
1.80
|
|
1.02
|
|
1.06
|
|
1.08
|
|
1.06
|
|
Allowance for loan and lease losses to nonperforming loans
|
207.1
|
|
156.0
|
|
162.9
|
|
174.4
|
|
137.3
|
|
Allowance for credit losses to nonperforming loans
|
232.2
|
|
167.8
|
|
174.5
|
|
185.7
|
|
146.1
|
|
Discontinued operations — education lending business:
|
|
|
|
|
|
Loans charged off
|
$
|
5
|
|
$
|
12
|
|
$
|
15
|
|
$
|
26
|
|
$
|
28
|
|
Recoveries
|
5
|
|
5
|
|
5
|
|
8
|
|
11
|
|
Net loan charge-offs
|
$
|
—
|
|
$
|
(7)
|
|
$
|
(10)
|
|
$
|
(18)
|
|
$
|
(17)
|
|
|
|
|
|
|
|
(a)The cumulative effect from change in accounting principle relates to the January 1, 2020, adoption of ASC 2016-13.
(b)Excludes $4 million related to the provision for other financial assets.
(c)See Figure 12 and the accompanying discussion in the “Loans and loans held for sale” section for more information related to our commercial real estate loan portfolio.
(d)See Figure 11 and the accompanying discussion in the “Loans and loans held for sale” section for more information related to our commercial loan portfolio.
(e)Included in “accrued expense and other liabilities” on the balance sheet.
Nonperforming assets
Figure 33 shows the composition of our nonperforming assets. As shown in Figure 33, nonperforming assets increased $222 million during 2020. The increase was in part driven by pandemic impacts on our consumer related mortgages, commercial and industrial exposures, and modest increases in real estate commercial mortgages. NPAs were also impacted by the addition of a single large oil and gas property into OREO. See Note 1 (“Summary of Significant Accounting Policies”) under the headings “Nonperforming Loans,” “Impaired Loans,” and “Allowance for Loan and Lease Losses” for a summary of our nonaccrual and charge-off policies.
Figure 33. Summary of Nonperforming Assets and Past Due Loans from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
dollars in millions
|
2020
|
2019
|
2018
|
2017
|
2016
|
Commercial and industrial
|
$
|
385
|
|
$
|
264
|
|
$
|
152
|
|
$
|
153
|
|
$
|
297
|
|
|
|
|
|
|
|
Real estate — commercial mortgage
|
104
|
|
83
|
|
81
|
|
30
|
|
26
|
|
Real estate — construction
|
—
|
|
2
|
|
2
|
|
2
|
|
3
|
|
Total commercial real estate loans (a)
|
104
|
|
85
|
|
83
|
|
32
|
|
29
|
|
Commercial lease financing
|
8
|
|
6
|
|
9
|
|
6
|
|
8
|
|
Total commercial loans (b)
|
497
|
|
355
|
|
244
|
|
191
|
|
334
|
|
Real estate — residential mortgage
|
110
|
|
48
|
|
62
|
|
58
|
|
56
|
|
Home equity loans
|
154
|
|
145
|
|
210
|
|
229
|
|
223
|
|
Consumer direct loans
|
5
|
|
4
|
|
4
|
|
4
|
|
6
|
|
Credit cards
|
2
|
|
3
|
|
2
|
|
2
|
|
2
|
|
Consumer indirect loans
|
17
|
|
22
|
|
20
|
|
19
|
|
4
|
|
Total consumer loans
|
288
|
|
222
|
|
298
|
|
312
|
|
291
|
|
Total nonperforming loans
|
785
|
|
577
|
|
542
|
|
503
|
|
625
|
|
Nonperforming loans held for sale
|
49
|
|
94
|
|
—
|
|
—
|
|
—
|
|
OREO
|
100
|
|
35
|
|
35
|
|
31
|
|
51
|
|
Other nonperforming assets
|
3
|
|
9
|
|
—
|
|
—
|
|
—
|
|
Total nonperforming assets
|
$
|
937
|
|
$
|
715
|
|
$
|
577
|
|
$
|
534
|
|
$
|
676
|
|
|
|
|
|
|
|
Accruing loans past due 90 days or more
|
$
|
86
|
|
$
|
101
|
|
$
|
112
|
|
$
|
89
|
|
$
|
87
|
|
Accruing loans past due 30 through 89 days
|
241
|
|
389
|
|
312
|
|
359
|
|
404
|
|
Restructured loans — accruing and nonaccruing (c)
|
363
|
|
347
|
|
399
|
|
317
|
|
280
|
|
Restructured loans included in nonperforming loans (c)
|
229
|
|
183
|
|
247
|
|
189
|
|
141
|
|
Nonperforming assets from discontinued operations — education lending business
|
5
|
|
7
|
|
8
|
|
7
|
|
5
|
|
Nonperforming loans to period-end portfolio loans
|
.78
|
%
|
.61
|
%
|
.61
|
%
|
.58
|
%
|
.73
|
%
|
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (c)
|
.92
|
|
.75
|
|
.64
|
|
.62
|
|
.79
|
|
|
|
|
|
|
|
(a)See Figure 12 and the accompanying discussion in the “Loans and loans held for sale” section for more information related to our commercial real estate loan portfolio.
(b)See Figure 11 and the accompanying discussion in the “Loans and loans held for sale” section for more information related to our commercial loan portfolio.
(c)Restructured loans (i.e., TDRs) are those for which Key, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. See Note 5,(“Asset Quality“) for more information on our TDRs.
Figure 34 shows the types of activity that caused the change in our nonperforming loans during each of the last four quarters and the years ended December 31, 2020, and December 31, 2019.
Figure 34. Summary of Changes in Nonperforming Loans from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Quarters
|
|
in millions
|
2020
|
Fourth
|
Third
|
Second
|
First
|
2019
|
Balance at beginning of period
|
$
|
577
|
|
$
|
834
|
|
$
|
760
|
|
$
|
632
|
|
$
|
577
|
|
$
|
542
|
|
Loans placed on nonaccrual status(a)
|
1,199
|
|
300
|
|
387
|
|
293
|
|
219
|
|
924
|
|
Charge-offs
|
(521)
|
|
(160)
|
|
(150)
|
|
(111)
|
|
(100)
|
|
(380)
|
|
Loans sold
|
(24)
|
|
(9)
|
|
(6)
|
|
(5)
|
|
(4)
|
|
(57)
|
|
Payments
|
(226)
|
|
(83)
|
|
(83)
|
|
(29)
|
|
(31)
|
|
(141)
|
|
Transfers to OREO
|
(6)
|
|
(3)
|
|
—
|
|
—
|
|
(3)
|
|
(19)
|
|
Transfers to nonperforming loans held for sale
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(125)
|
|
Transfers to other nonperforming assets
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(13)
|
|
Loans returned to accrual status
|
(214)
|
|
(94)
|
|
(74)
|
|
(20)
|
|
(26)
|
|
(154)
|
|
Balance at end of period
|
$
|
785
|
|
$
|
785
|
|
$
|
834
|
|
$
|
760
|
|
$
|
632
|
|
$
|
577
|
|
|
|
|
|
|
|
|
(a)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 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.
Operational and compliance risk management
Like all businesses, we are subject to operational risk, which is the risk of loss resulting from human error or malfeasance, inadequate or failed internal processes and systems, and external events. These events include, among other things, threats to our cybersecurity, as we are reliant upon information systems and the Internet to conduct our business activities. Operational risk also encompasses compliance risk, which is the risk of loss from violations of, or noncompliance with, laws, rules and regulations, prescribed practices, and ethical standards. Under the Dodd-Frank Act, large financial companies like Key are subject to heightened prudential standards and regulation. This heightened level of regulation has increased our operational risk. Resulting operational risk losses and/or additional regulatory compliance costs could take the form of explicit charges, increased operational costs, harm to our reputation, or foregone opportunities.
We seek to mitigate operational risk through identification and measurement of risk, alignment of business strategies with risk appetite and tolerance, and a system of internal controls and reporting. We continuously strive to strengthen our system of internal controls to improve the oversight of our operational risk and to ensure compliance with laws, rules, and regulations. For example, an operational event database tracks the amounts and sources of operational risk and losses. This tracking mechanism helps to identify weaknesses and to highlight the need to take corrective action. We also rely upon software programs designed to assist in assessing operational risk and monitoring our control processes. This technology has enhanced the reporting of the effectiveness of our controls to senior management and the Board.
The Operational Risk Management Program provides the framework for the structure, governance, roles, and responsibilities, as well as the content, to manage operational risk for Key. The Compliance Risk Committee serves the same function in managing compliance risk for Key. The Operational Risk Committee supports the ERM Committee by identifying early warning events and trends, escalating emerging risks, and discussing forward-looking assessments. The Operational Risk Committee includes attendees from each of the Three Lines of Defense. Primary responsibility for managing and monitoring internal control mechanisms lies with the managers of our various lines of business. The Operational Risk Committee and Compliance Risk Committee are senior management committees that oversee our level of operational and compliance risk and direct and support our operational and compliance infrastructure and related activities. These committees and the Operational Risk Management and Compliance functions are an integral part of our ERM Program. Our Risk Review function regularly assesses the overall effectiveness of our Operational Risk Management and Compliance Programs and our system of internal controls. Risk Review reports the results of reviews on internal controls and systems to senior management and the Risk and Audit Committees and independently supports the Risk Committee’s oversight of these controls.
Cybersecurity
We maintain comprehensive Cyber Incident Response Plans, and we devote significant time and resources to maintaining and regularly updating our technology systems and processes to protect the security of our computer systems, software, networks, and other technology assets against attempts by third parties to obtain unauthorized access to confidential information, destroy data, disrupt or degrade service, sabotage systems, or cause other damage. We and many other U.S. financial institutions have experienced distributed denial-of-service attacks from technologically sophisticated third parties. These attacks are intended to disrupt or disable online banking services and prevent banking transactions. We also periodically experience other attempts to breach the security of our systems and data. These cyberattacks have not, to date, resulted in any material disruption of our operations or material harm to our customers, and have not had a material adverse effect on our results of operations.
Cyberattack risks may also occur with our third-party technology service providers, and may result in financial loss or liability that could adversely affect our financial condition or results of operations. Cyberattacks could also interfere with third-party providers’ ability to fulfill their contractual obligations to us. High-profile cyberattacks have targeted retailers, credit bureaus, and other businesses for the purpose of acquiring the confidential information (including personal, financial, and credit card information) of customers, some of whom are customers of ours. We may incur expenses related to the investigation of such attacks or related to the protection of our customers from identity theft as a result of such attacks. In 2020, many companies and U.S. government organizations were victims of a sophisticated and targeted supply chain attack on the SolarWinds Orion software. While Key does not utilize the SolarWinds software products, some of our vendors do. We may incur expenses to enhance our systems or processes to protect against cyber or other security incidents. Risks and exposures related to cyberattacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these
threats, as well as due to the expanding use of Internet banking, mobile banking, and other technology-based products and services by us and our clients. See the risk factor entitled “Our information systems may experience an interruption or breach in security” in Part 1, Item 1A. Risk Factors for additional information on risks related to information security.
As described in more detail in “Risk Management — Overview” in Item 7 of this report, the Board serves in an oversight capacity ensuring that Key’s risks are managed in a manner that is effective and balanced and adds value for the shareholders. The Board’s Risk Committee has primary oversight for enterprise-wide risk at KeyCorp, including operational risk (which includes cybersecurity). The Risk Committee reviews and provides oversight of management’s activities related to the enterprise-wide risk management framework, including cyber-related risk. Board members are updated on cybersecurity matters at each regularly-scheduled Board meeting. The ERM Committee, chaired by the Chief Executive Officer and comprising other senior level executives, is responsible for managing risk (including cyber-related risk) and ensuring that the corporate risk profile is managed in a manner consistent with our risk appetite. The ERM Committee reports to the Board’s Risk Committee.
GAAP to Non-GAAP Reconciliations
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, nor as a substitute for analyses
of results as reported under GAAP.
The tangible common equity ratio and the return on tangible common equity ratio have been a focus for some investors, and management believes that these ratios may assist investors in analyzing Key’s capital position without regard to the effects of intangible assets and preferred stock. Since analysts and banking regulators may assess our capital adequacy using tangible common equity, we believe it is useful to enable investors to assess our capital adequacy on these same bases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
dollars in millions
|
2020
|
2019
|
2018
|
2017
|
2016
|
Tangible common equity to tangible assets at period end
|
|
|
|
|
|
Key shareholders’ equity (GAAP)
|
$
|
17,981
|
|
$
|
17,038
|
|
$
|
15,595
|
|
$
|
15,023
|
|
$
|
15,240
|
|
Less:
|
Intangible assets (a)
|
2,848
|
|
2,910
|
|
2,818
|
|
2,928
|
|
2,788
|
|
|
Preferred Stock (b)
|
1,856
|
|
1,856
|
|
1,421
|
|
1,009
|
|
1,640
|
|
|
Tangible common equity (non-GAAP)
|
$
|
13,277
|
|
$
|
12,272
|
|
$
|
11,356
|
|
$
|
11,086
|
|
$
|
10,812
|
|
Total assets (GAAP)
|
$
|
170,336
|
|
$
|
144,988
|
|
$
|
139,613
|
|
$
|
137,698
|
|
$
|
136,453
|
|
Less:
|
Intangible assets (a)
|
2,848
|
|
2,910
|
|
2,818
|
|
2,928
|
|
2,788
|
|
|
Tangible assets (non-GAAP)
|
$
|
167,488
|
|
$
|
142,078
|
|
$
|
136,795
|
|
$
|
134,770
|
|
$
|
133,665
|
|
Tangible common equity to tangible assets ratio (non-GAAP)
|
7.93
|
%
|
8.64
|
%
|
8.30
|
%
|
8.23
|
%
|
8.09
|
%
|
Average tangible common equity
|
|
|
|
|
|
Average Key shareholders’ equity (GAAP)
|
$
|
17,636
|
|
$
|
16,636
|
|
$
|
15,131
|
|
$
|
15,224
|
|
$
|
12,647
|
|
Less:
|
Intangible assets (average) (c)
|
2,878
|
|
2,909
|
|
2,869
|
|
2,837
|
|
1,825
|
|
|
Preferred Stock (average)
|
1,900
|
|
1,755
|
|
1,205
|
|
1,137
|
|
627
|
|
|
Average tangible common equity (non-GAAP)
|
$
|
12,858
|
|
$
|
11,972
|
|
$
|
11,057
|
|
$
|
11,250
|
|
$
|
10,195
|
|
Return on average tangible common equity from continuing operations
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Key common shareholders (GAAP)
|
$
|
1,223
|
|
$
|
1,611
|
|
$
|
1,793
|
|
$
|
1,219
|
|
$
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average tangible common equity (non-GAAP)
|
$
|
12,858
|
|
$
|
11,972
|
|
$
|
11,057
|
|
$
|
11,250
|
|
$
|
10,195
|
|
Return on average tangible common equity from continuing operations (non-GAAP)
|
9.51
|
%
|
13.46
|
%
|
16.22
|
%
|
10.84
|
%
|
7.39
|
%
|
|
|
|
|
|
|
Return on average tangible common equity consolidated
|
|
|
|
|
|
Net income (loss) attributable to Key common shareholders (GAAP)
|
$
|
1,237
|
|
$
|
1,620
|
|
$
|
1,800
|
|
$
|
1,226
|
|
$
|
754
|
|
Average tangible common equity (non-GAAP)
|
12,858
|
|
11,972
|
|
11,057
|
|
11,250
|
|
10,195
|
|
Return on average tangible common equity consolidated (non-GAAP)
|
9.62
|
%
|
13.53
|
%
|
16.28
|
%
|
10.90
|
%
|
7.40
|
|
(a)For the years ended December 31, 2020, December 31, 2019, December 31, 2018, December 31, 2017, and December 31, 2016, intangible assets exclude $4 million, $7 million, $14 million, $26 million, and $42 million,, respectively, of period-end purchased credit card relationships.
(b)Net of capital surplus.
(c)For the years ended December 31, 2020, December 31, 2019, December 31, 2018, December 31, 2017, and December 31, 2016, average intangible assets exclude $6 million, $10 million, $20 million, $34 million, and $43 million, respectively, of average purchased credit card relationships.
The cash efficiency ratio is a ratio of two non-GAAP performance measures. Accordingly, there is no directly
comparable GAAP performance measure. The cash efficiency ratio excludes the impact of our intangible asset
amortization from the calculation. We believe this ratio provides greater consistency and comparability between our results and those of our peer banks. Additionally, this ratio is used by analysts and investors to evaluate how effectively management is controlling noninterest expenses in generating revenue, as they develop earnings forecasts and peer bank analysis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
dollars in millions
|
2020
|
2019
|
2018
|
2017
|
2016
|
Cash efficiency ratio
|
|
|
|
|
|
Noninterest expense (GAAP)
|
$
|
4,109
|
|
$
|
3,901
|
|
$
|
3,975
|
|
$
|
4,098
|
|
$
|
3,756
|
|
Less:
|
Intangible asset amortization (GAAP)
|
65
|
|
89
|
|
99
|
|
95
|
|
55
|
|
Adjusted noninterest expense (non-GAAP)
|
$
|
4,044
|
|
$
|
3,812
|
|
$
|
3,876
|
|
$
|
4,003
|
|
$
|
3,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (GAAP)
|
$
|
4,034
|
|
$
|
3,909
|
|
$
|
3,909
|
|
$
|
3,777
|
|
$
|
2,919
|
|
Plus:
|
TE adjustment
|
29
|
|
32
|
|
31
|
|
53
|
|
34
|
|
Noninterest income (GAAP)
|
2,652
|
|
2,459
|
|
2,515
|
|
2,478
|
|
2,071
|
|
Total TE revenue (non-GAAP)
|
$
|
6,715
|
|
$
|
6,400
|
|
$
|
6,455
|
|
$
|
6,308
|
|
$
|
5,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash efficiency ratio (non-GAAP)
|
60.2
|
%
|
59.6
|
%
|
60.0
|
%
|
63.5
|
%
|
73.7
|
%
|
Fourth Quarter Results
Figure 35 shows our financial performance for each of the past eight quarters. Highlights of our results for the fourth quarter of 2020 are summarized below.
Earnings
Our fourth quarter net income from continuing operations attributable to Key common shareholders was $549 million, or $.56 per diluted Common Share, compared to $439 million, or $.45 per diluted Common Share, for the fourth quarter of 2019.
On an annualized basis, our return on average total assets from continuing operations for the fourth quarter of 2020 was 1.35%, compared to 1.27% for the fourth quarter of 2019. The annualized return on average tangible common equity from continuing operations was 16.61% for the fourth quarter of 2020, compared to 14.09% for the year-ago quarter.
Net interest income
TE net interest income was $1.0 billion for the fourth quarter of 2020, compared to TE net interest income of $987 million for the fourth quarter of 2019. The increase in net interest income reflects higher earning asset balances and loan fees, 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 PPP.
Noninterest income
Our noninterest income was $802 million for the fourth quarter of 2020, compared to $651 million for the year-ago quarter. Noninterest income increased by $151 million, primarily driven by a $62 million increase in investment banking and debt placement fees. The record fourth quarter of 2020 for investment banking and debt placement fees was largely related to strong M&A activity. Cards and payments income increased $30 million from the year-ago period, driven by higher prepaid card activity. Additionally, investments made in Key's mortgage business continue to drive consumer mortgage income and commercial mortgage servicing fees, which increased $22 million and $13 million, respectively, from the year-ago quarter.
Noninterest expense
Our noninterest expense was $1.1 billion for the fourth quarter of 2020, compared to $980 million for the fourth quarter of 2019. The increase is primarily related to higher personnel costs of $110 million, reflecting higher production-related incentives and higher salaries due to merit increases. Other drivers for the year-over-year increases include 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.
Provision for credit losses
Our provision for credit losses was $20 million for the fourth quarter of 2020, compared to $109 million for the fourth quarter of 2019. The provision for credit losses reflects the adoption of the CECL accounting standard on January 1, 2020. This framework requires that management estimate credit losses over the full remaining expected life and consider expected future changes in macroeconomic conditions. Our ALLL was $1.6 billion, or 1.61% of total period-end loans, at December 31, 2020, compared to .95% at December 31, 2019.
Net loan charge-offs for the fourth quarter of 2020 totaled $135 million, or .53% of average total loans. These results compare to $99 million, or .42%, for the fourth quarter of 2019. The allowance for credit losses was $1.8 billion, or 1.80% of total period-end loans at December 31, 2020, compared to 1.02% at December 31, 2019.
At December 31, 2020, Key’s nonperforming loans totaled $785 million, which represented .78% of period-end portfolio loans. These results compare to .61% at December 31, 2019. Nonperforming assets at December 31, 2020, totaled $937 million, and represented .92% of period-end portfolio loans and OREO and other nonperforming assets compared to .75% at December 31, 2019.
Income taxes
For the fourth quarter of 2020, we recorded a tax provision from continuing operations of $114 million, compared to a tax provision of $75 million for the fourth quarter of 2019. The fourth quarter of 2019 included a tax benefit of $11 million related to the reversal of a valuation allowance against federal and state capital loss carryforwards acquired from First Niagara Financial Group utilized in the quarter. The effective tax rate for the fourth quarter of 2020 was 16.5%, compared to 14.0% for the same quarter one year ago.
Our federal tax expense and effective tax rate differ from the amount that would be calculated using the federal statutory tax rate; primarily from investments in tax-advantaged assets, such as corporate-owned life insurance, tax credits associated with investments in low-income housing projects and energy related projects, and periodic adjustments to our tax reserves as described in Note 14 (“Income Taxes”).
Figure 35. Selected Quarterly Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Quarters
|
2019 Quarters
|
dollars in millions, except per share amounts
|
Fourth
|
Third
|
Second
|
First
|
Fourth
|
Third
|
Second
|
First
|
FOR THE PERIOD
|
|
|
|
|
|
|
|
|
Interest income
|
$
|
1,125
|
|
$
|
1,119
|
|
$
|
1,190
|
|
$
|
1,251
|
|
$
|
1,285
|
|
$
|
1,317
|
|
$
|
1,329
|
|
$
|
1,304
|
|
Interest expense
|
90
|
|
119
|
|
172
|
|
270
|
|
306
|
|
345
|
|
348
|
|
327
|
|
Net interest income
|
1,035
|
|
1,000
|
|
1,018
|
|
981
|
|
979
|
|
972
|
|
981
|
|
977
|
|
Provision for credit losses
|
20
|
|
160
|
|
482
|
|
359
|
|
109
|
|
200
|
|
74
|
|
62
|
|
Noninterest income
|
802
|
|
681
|
|
692
|
|
477
|
|
651
|
|
650
|
|
622
|
|
536
|
|
Noninterest expense
|
1,128
|
|
1,037
|
|
1,013
|
|
931
|
|
980
|
|
939
|
|
1,019
|
|
963
|
|
Income (loss) from continuing operations before income taxes
|
689
|
|
484
|
|
215
|
|
168
|
|
541
|
|
483
|
|
510
|
|
488
|
|
Income (loss) from continuing operations attributable to Key
|
575
|
|
424
|
|
185
|
|
145
|
|
466
|
|
413
|
|
423
|
|
406
|
|
Income (loss) from discontinued operations, net of taxes
|
7
|
|
4
|
|
2
|
|
1
|
|
3
|
|
3
|
|
2
|
|
1
|
|
Net income (loss) attributable to Key
|
582
|
|
428
|
|
187
|
|
146
|
|
469
|
|
416
|
|
425
|
|
407
|
|
Income (loss) from continuing operations attributable to Key common shareholders
|
549
|
|
397
|
|
159
|
|
118
|
|
439
|
|
383
|
|
403
|
|
386
|
|
Income (loss) from discontinued operations, net of taxes
|
7
|
|
4
|
|
2
|
|
1
|
|
3
|
|
3
|
|
2
|
|
1
|
|
Net income (loss) attributable to Key common shareholders
|
556
|
|
401
|
|
161
|
|
119
|
|
442
|
|
386
|
|
405
|
|
387
|
|
PER COMMON SHARE
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to Key common shareholders
|
$
|
.57
|
|
$
|
.41
|
|
$
|
.16
|
|
$
|
.12
|
|
$
|
.45
|
|
$
|
.39
|
|
$
|
.40
|
|
$
|
.38
|
|
Income (loss) from discontinued operations, net of taxes
|
.01
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Net income (loss) attributable to Key common shareholders (a)
|
.57
|
|
.41
|
|
.17
|
|
.12
|
|
.45
|
|
.39
|
|
.40
|
|
.38
|
|
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution
|
.56
|
|
.41
|
|
.16
|
|
.12
|
|
.45
|
|
.38
|
|
.40
|
|
.38
|
|
Income (loss) from discontinued operations, net of taxes — assuming dilution
|
.01
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Net income (loss) attributable to Key common shareholders — assuming dilution (a)
|
.57
|
|
.41
|
|
.17
|
|
.12
|
|
.45
|
|
.39
|
|
.40
|
|
.38
|
|
Cash dividends paid
|
.185
|
|
.185
|
|
.185
|
|
.185
|
|
.185
|
|
.185
|
|
.170
|
|
.170
|
|
Book value at period end
|
16.53
|
|
16.25
|
|
16.07
|
|
15.95
|
|
15.54
|
|
15.44
|
|
15.07
|
|
14.31
|
|
Tangible book value at period end
|
13.61
|
|
13.32
|
|
13.12
|
|
12.98
|
|
12.56
|
|
12.48
|
|
12.12
|
|
11.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average Common Shares outstanding (000)
|
967,987
|
|
967,804
|
|
967,147
|
|
967,446
|
|
973,450
|
|
988,319
|
|
999,163
|
|
1,006,717
|
|
Weighted-average Common Shares and potential Common Shares outstanding (000) (b)
|
976,460
|
|
973,988
|
|
972,141
|
|
976,110
|
|
984,361
|
|
998,328
|
|
1,007,964
|
|
1,016,504
|
|
AT PERIOD END
|
|
|
|
|
|
|
|
|
Loans
|
$
|
101,185
|
|
$
|
103,081
|
|
$
|
106,159
|
|
$
|
103,198
|
|
$
|
94,646
|
|
$
|
92,760
|
|
$
|
91,937
|
|
$
|
90,178
|
|
Earning assets
|
155,469
|
|
155,585
|
|
156,177
|
|
141,333
|
|
130,807
|
|
132,160
|
|
130,213
|
|
127,296
|
|
Total assets
|
170,336
|
|
170,540
|
|
171,192
|
|
156,197
|
|
144,988
|
|
146,691
|
|
144,545
|
|
141,515
|
|
Deposits
|
135,282
|
|
136,746
|
|
135,513
|
|
115,304
|
|
111,870
|
|
111,649
|
|
109,946
|
|
108,175
|
|
Long-term debt
|
13,709
|
|
12,685
|
|
13,734
|
|
13,732
|
|
12,448
|
|
14,470
|
|
14,312
|
|
14,168
|
|
Key common shareholders’ equity
|
16,081
|
|
15,822
|
|
15,642
|
|
15,511
|
|
15,138
|
|
15,216
|
|
15,069
|
|
14,474
|
|
Key shareholders’ equity
|
17,981
|
|
17,722
|
|
17,542
|
|
17,411
|
|
17,038
|
|
17,116
|
|
16,969
|
|
15,924
|
|
PERFORMANCE RATIOS — FROM CONTINUING OPERATIONS
|
|
|
|
|
|
|
|
|
Return on average total assets
|
1.35
|
%
|
1.00
|
%
|
.45
|
%
|
.40
|
%
|
1.27
|
%
|
1.14
|
%
|
1.19
|
%
|
1.18
|
%
|
Return on average common equity
|
13.65
|
|
9.98
|
|
4.05
|
|
3.10
|
|
11.40
|
|
9.99
|
|
10.94
|
|
10.98
|
|
Return on average tangible common equity (c)
|
16.61
|
|
12.19
|
|
4.96
|
|
3.82
|
|
14.09
|
|
12.38
|
|
13.69
|
|
13.69
|
|
Net interest margin (TE)
|
2.70
|
|
2.62
|
|
2.76
|
|
3.01
|
|
2.98
|
|
3.00
|
|
3.06
|
|
3.13
|
|
Cash efficiency ratio (c)
|
60.3
|
|
60.6
|
|
57.9
|
|
62.3
|
|
58.7
|
|
56.0
|
|
61.9
|
|
61.9
|
|
PERFORMANCE RATIOS — FROM CONSOLIDATED OPERATIONS
|
|
|
|
|
|
|
|
|
Return on average total assets
|
1.36
|
%
|
1.00
|
%
|
.46
|
%
|
.40
|
%
|
1.27
|
%
|
1.14
|
%
|
1.19
|
%
|
1.17
|
%
|
Return on average common equity
|
13.82
|
|
10.08
|
|
4.10
|
|
3.12
|
|
11.48
|
|
10.07
|
|
11.00
|
|
11.01
|
|
Return on average tangible common equity (c)
|
16.82
|
|
12.31
|
|
5.02
|
|
3.86
|
|
14.19
|
|
12.48
|
|
13.75
|
|
13.72
|
|
Net interest margin (TE)
|
2.69
|
|
2.62
|
|
2.76
|
|
3.00
|
|
2.97
|
|
2.98
|
|
3.05
|
|
3.12
|
|
Loan to deposit (d)
|
76.5
|
|
77.2
|
|
80.4
|
|
80.4
|
|
86.6
|
|
85.3
|
|
86.1
|
|
85.1
|
|
CAPITAL RATIOS AT PERIOD END
|
|
|
|
|
|
|
|
|
Key shareholders’ equity to assets
|
10.56
|
%
|
10.39
|
%
|
10.25
|
%
|
11.15
|
%
|
11.75
|
%
|
11.67
|
%
|
11.74
|
%
|
11.25
|
%
|
Key common shareholders’ equity to assets
|
9.47
|
|
9.30
|
|
9.16
|
|
9.96
|
|
10.47
|
|
10.40
|
|
10.46
|
|
10.25
|
|
Tangible common equity to tangible assets (c)
|
7.93
|
|
7.76
|
|
7.61
|
|
8.26
|
|
8.64
|
|
8.58
|
|
8.59
|
|
8.43
|
|
Common Equity Tier 1
|
9.73
|
|
9.47
|
|
9.09
|
|
8.87
|
|
9.44
|
|
9.48
|
|
9.57
|
|
9.81
|
|
Tier 1 risk-based capital
|
11.11
|
|
10.86
|
|
10.45
|
|
10.21
|
|
10.86
|
|
10.91
|
|
11.01
|
|
10.94
|
|
Total risk-based capital
|
13.40
|
|
13.26
|
|
12.80
|
|
12.22
|
|
12.79
|
|
12.90
|
|
13.03
|
|
12.98
|
|
Leverage
|
8.94
|
|
8.72
|
|
8.80
|
|
9.78
|
|
9.88
|
|
9.93
|
|
10.00
|
|
9.89
|
|
TRUST ASSETS
|
|
|
|
|
|
|
|
|
Assets under management
|
$
|
44,140
|
|
$
|
41,312
|
|
$
|
39,722
|
|
$
|
36,189
|
|
$
|
40,833
|
|
$
|
39,416
|
|
$
|
38,942
|
|
$
|
38,742
|
|
OTHER DATA
|
|
|
|
|
|
|
|
|
Average full-time-equivalent employees
|
17,029
|
|
17,097
|
|
16,646
|
|
16,529
|
|
16,537
|
|
16,898
|
|
17,206
|
|
17,554
|
|
Branches
|
1,073
|
|
1,077
|
|
1,077
|
|
1,082
|
|
1,098
|
|
1,101
|
|
1,102
|
|
1,158
|
|
(a)EPS may not foot due to rounding.
(b)Assumes conversion of Common Share options and other stock awards and/or convertible preferred stock, as applicable.
(c)See Figure 36 entitled “Selected Quarterly GAAP to Non-GAAP Reconciliations,” which presents the computations of certain financial measures related to “tangible 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.
(d)Represents period-end consolidated total loans and loans held for sale divided by period-end consolidated total deposits.
Figure 36. Selected Quarterly GAAP to Non-GAAP Reconciliations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Quarters
|
2019 Quarters
|
dollars in millions
|
Fourth
|
Third
|
Second
|
First
|
Fourth
|
Third
|
Second
|
First
|
Tangible common equity to tangible assets at period end
|
|
|
|
|
|
|
|
|
Key shareholders’ equity (GAAP)
|
$
|
17,981
|
|
$
|
17,722
|
|
$
|
17,542
|
|
$
|
17,411
|
|
$
|
17,038
|
|
$
|
17,116
|
|
$
|
16,969
|
|
$
|
15,924
|
|
Less:
|
Intangible assets (a)
|
2,848
|
|
2,862
|
|
2,877
|
|
2,894
|
|
2,910
|
|
2,928
|
|
2,952
|
|
2,804
|
|
|
Preferred Stock (b)
|
1,856
|
|
1,856
|
|
1,856
|
|
1,856
|
|
1,856
|
|
1,856
|
|
1,856
|
|
1,421
|
|
|
Tangible common equity (non-GAAP)
|
$
|
13,277
|
|
$
|
13,004
|
|
$
|
12,809
|
|
$
|
12,661
|
|
$
|
12,272
|
|
$
|
12,332
|
|
$
|
12,161
|
|
$
|
11,699
|
|
Total assets (GAAP)
|
$
|
170,336
|
|
$
|
170,540
|
|
$
|
171,192
|
|
$
|
156,197
|
|
$
|
144,988
|
|
$
|
146,691
|
|
$
|
144,545
|
|
$
|
141,515
|
|
Less:
|
Intangible assets (a)
|
2,848
|
|
2,862
|
|
2,877
|
|
2,894
|
|
2,910
|
|
2,928
|
|
2,952
|
|
2,804
|
|
|
Tangible assets (non-GAAP)
|
$
|
167,488
|
|
$
|
167,678
|
|
$
|
168,315
|
|
$
|
153,303
|
|
$
|
142,078
|
|
$
|
143,763
|
|
$
|
141,593
|
|
$
|
138,711
|
|
Tangible common equity to tangible assets ratio (non-GAAP)
|
7.93
|
%
|
7.76
|
%
|
7.61
|
%
|
8.26
|
%
|
8.64
|
%
|
8.58
|
%
|
8.59
|
%
|
8.43
|
%
|
Average tangible common equity
|
|
|
|
|
|
|
|
|
Average Key shareholders’ equity (GAAP)
|
$
|
17,905
|
|
$
|
17,730
|
|
$
|
17,688
|
|
$
|
17,216
|
|
$
|
17,178
|
|
$
|
17,113
|
|
$
|
16,531
|
|
$
|
15,702
|
|
Less:
|
Intangible assets (average) (c)
|
2,855
|
|
2,870
|
|
2,886
|
|
2,902
|
|
2,919
|
|
2,942
|
|
2,959
|
|
2,813
|
|
|
Preferred Stock (average)
|
1,900
|
|
1,900
|
|
1,900
|
|
1,900
|
|
1,900
|
|
1,900
|
|
1,762
|
|
1,450
|
|
|
Average tangible common equity (non-GAAP)
|
$
|
13,150
|
|
$
|
12,960
|
|
$
|
12,902
|
|
$
|
12,414
|
|
$
|
12,359
|
|
$
|
12,271
|
|
$
|
11,810
|
|
$
|
11,439
|
|
Return on average tangible common equity from continuing operations
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)
|
$
|
549
|
|
$
|
397
|
|
$
|
159
|
|
$
|
118
|
|
$
|
439
|
|
$
|
383
|
|
$
|
403
|
|
$
|
386
|
|
Average tangible common equity (non-GAAP)
|
13,150
|
|
12,960
|
|
12,902
|
|
12,414
|
|
12,359
|
|
12,271
|
|
11,810
|
|
11,439
|
|
Return on average tangible common equity from continuing operations (non-GAAP)
|
16.61
|
%
|
12.19
|
%
|
4.96
|
%
|
3.82
|
%
|
14.09
|
%
|
12.38
|
%
|
13.69
|
%
|
13.69
|
%
|
Return on average tangible common equity consolidated
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Key common shareholders (GAAP)
|
$
|
556
|
|
$
|
401
|
|
$
|
161
|
|
$
|
119
|
|
$
|
442
|
|
$
|
386
|
|
$
|
405
|
|
$
|
387
|
|
Average tangible common equity (non-GAAP)
|
13,150
|
|
12,960
|
|
12,902
|
|
12,414
|
|
12,359
|
|
12,271
|
|
11,810
|
|
11,439
|
|
Return on average tangible common equity consolidated (non-GAAP)
|
16.82
|
%
|
12.31
|
%
|
5.02
|
%
|
3.86
|
%
|
14.19
|
%
|
14.19
|
%
|
14.19
|
%
|
14.19
|
%
|
Cash efficiency ratio
|
|
|
|
|
|
|
|
|
Noninterest expense (GAAP)
|
$
|
1,128
|
|
$
|
1,037
|
|
$
|
1,013
|
|
$
|
931
|
|
$
|
980
|
|
$
|
939
|
|
$
|
1,019
|
|
$
|
963
|
|
Less:
|
Intangible asset amortization (GAAP)
|
15
|
|
15
|
|
18
|
|
17
|
|
19
|
|
26
|
|
22
|
|
22
|
|
|
Adjusted noninterest expense (non-GAAP)
|
$
|
1,113
|
|
$
|
1,022
|
|
$
|
995
|
|
$
|
914
|
|
$
|
961
|
|
$
|
913
|
|
$
|
997
|
|
$
|
941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (GAAP)
|
$
|
1,035
|
|
$
|
1,000
|
|
$
|
1,018
|
|
$
|
981
|
|
$
|
979
|
|
$
|
972
|
|
$
|
981
|
|
$
|
977
|
|
Plus:
|
TE adjustment
|
8
|
|
6
|
|
7
|
|
8
|
|
8
|
|
8
|
|
8
|
|
8
|
|
|
Noninterest income (GAAP)
|
802
|
|
681
|
|
692
|
|
477
|
|
651
|
|
650
|
|
622
|
|
536
|
|
|
Total TE revenue (non-GAAP)
|
$
|
1,845
|
|
$
|
1,687
|
|
$
|
1,717
|
|
$
|
1,466
|
|
$
|
1,638
|
|
$
|
1,630
|
|
$
|
1,611
|
|
$
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash efficiency ratio (non-GAAP)
|
60.3
|
%
|
60.6
|
%
|
57.9
|
%
|
62.3
|
%
|
58.7
|
%
|
56.0
|
%
|
61.9
|
%
|
61.9
|
%
|
|
|
|
|
|
|
|
|
|
(a)For the three months ended December 31, 2020, September 30, 2020, June 30, 2020, and March 31, 2020, intangible assets exclude $4 million, $5 million, $5 million, and $6 million, respectively, of period-end purchased credit card relationships. For the three months ended December 31, 2019, September 30, 2019, June 30, 2019, and March 31, 2019, intangible assets exclude $7 million, $9 million, $10 million, and $12 million, respectively, of period-end purchased credit card relationships.
(b)Net of capital surplus.
(c)For the three months ended December 31, 2020, September 30, 2020, June 30, 2020, and March 31, 2020, average intangible assets exclude $5 million, $5 million, $6 million, and $7 million, respectively, of average purchased credit card relationships. For the three months ended December 31, 2019, September 30, 2019, June 30, 2019, and March 31, 2019, average intangible assets exclude $8 million, $9 million, $11 million, and $13 million, respectively, of average purchased credit card relationships.
Critical Accounting Policies and Estimates
Our business is dynamic and complex. Consequently, we must exercise judgment in choosing and applying accounting policies and methodologies. These choices are critical; not only are they necessary to comply with GAAP, they also reflect our view of the appropriate way to record and report our overall financial performance. All accounting policies are important, and all policies described in Note 1 (“Summary of Significant Accounting Policies”) should be reviewed for a greater understanding of how we record and report our financial performance.
In our opinion, some accounting policies are more likely than others to have a critical effect on our financial results and to expose those results to potentially greater volatility. These policies apply to areas of relatively greater business importance, or require us to exercise judgment and to make assumptions and estimates that affect amounts reported in the financial statements. Because these assumptions and estimates are based on current circumstances, they may prove to be inaccurate, or we may find it necessary to change them. The following is a description of our current critical accounting policies.
In conjunction with the adoption of ASC 326 on January 1, 2020, the critical accounting policy and estimate disclosure for our ALLL was updated. The accounting policy for goodwill was also updated due to the adoption of ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”
Allowance for loan and lease losses
The allowance for loan and lease losses represents management’s estimate of all expected credit losses over the expected contractual life of our existing loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. These critical estimates include significant use of our own historical data and complex methods to interpret them. We have an ongoing process to evaluate and enhance the quality, quantity, and timeliness of our data and interpretation methods used in the determination of these allowances. These evaluations are inherently subjective, as they require material estimates and may be susceptible to significant change, and include, among others:
• PD,
• LGD,
• Outstanding balance of the loan,
• Movement through delinquency stages,
• Amounts and timing of expected future cash flows,
• Value of collateral, which may be obtained from third parties,
• Economic forecasts which are obtained from a third party provider, and
• Qualitative factors, such as changes in current economic conditions, that may not be reflected in modeled
results.
As described in our accounting policy related to the ALLL in Note 1 (“Basis of Presentation and Accounting Policies”) of this report under the heading “Allowance for Loan and Lease Losses," we employ a disciplined process and methodology to establish our ALLL, which has three main components: (i) asset specific / individual loan reserves; (ii) quantitative (formulaic or pooled) reserves; and (iii) qualitative (judgmental) reserves.
We use a non-DCF factor-based approach to estimate expected credit losses that include component PD/LGD/EAD models as well as less complex estimation methods for smaller loan portfolios. Probability of default models estimate the likelihood a borrower will cease making payments as agreed. These models use observed loan-level information and projected paths of macroeconomic variables. Borrower credit attributes including FICO scores of consumers and internally assigned risk ratings for commercial borrowers are significant inputs to the models. Consumer FICO scores are refreshed quarterly and commercial risk ratings are updated annually with select borrowers updated more frequently. The macroeconomic trends that have a significant impact on the probability of default vary by portfolio segment. Exposure at default models estimate the loan balance at the time the borrower stops making payments. We use an amortization based formulaic approach to estimate account level EAD for all
term loans. We use portfolio specific methods in each of our revolving product portfolios. LGD models estimate the loss we will suffer once a loan is in default. Account level inputs to LGD models include collateral attributes, such as loan to value.
If we observe limitations in the data or models, we use model overlays to make adjustments to model outputs to capture a particular risk or compensate for a known limitation. These variables and others may result in actual loan losses that differ from the originally estimated amounts.
This estimate produced by our models is forward-looking and requires management to use forecasts about future economic conditions to determine the expected credit loss over the remaining life of an instrument. Moody’s Consensus forecast is the source of macroeconomic projections, including the interest rate forecasts used in the credit models. We use a two year reasonable and supportable period across all products to forecast economic conditions. As the length of the life of a financial asset increases, these inputs may become impractical to estimate as reasonable and supportable. We believe the two year time horizon appropriately aligns with our business planning, available industry guidance, and reliability of various forecasting services. Following this two year period in which supportable forecasts can be generated, for all modeled loan portfolios, we revert expected credit losses to a level that is consistent with our historical information by reverting the macroeconomic variables (model inputs) to their long run average. We revert to historical loss rates for less complex estimation methods for smaller portfolios.
A four quarter reversion period is used where the macroeconomic variables linearly revert to their long run average following the two year reasonable and supportable period. We use a 20 year lookback period for determining long run historical average of the macroeconomic variables. We determined the 20 year lookback period is appropriate as it captures the previous two economic cycles including the last downturn and our more recent positive credit experience.
The ALLL is sensitive to various macroeconomic drivers such as GDP and unemployment as well as portfolio attributes such as remaining term, outstanding balance, risk ratings, FICO, LTV, and delinquency status. Our ALLL models were designed to capture the correlation between economic and portfolio changes. As such, evaluating shifts in individual portfolio attributes and macroeconomic variables in isolation may not be indicative of past or future performance.
It is difficult to estimate how potential changes in any one factor or input might affect the overall ALLL because we consider a wide variety of factors and inputs in estimating the ALLL. Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors and input may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. However, to consider the impact of a hypothetical alternate economic forecast, we compared the modeled quantitative allowance results using a downside economic scenario. The maximum difference in the quarterly macroeconomic variables between the base and downside scenarios over the two year reasonable and supportable period includes an approximate 8% decline in GDP annualized growth and an approximate 4% increase in the U.S. unemployment rate. The difference between these two scenarios would have driven an increase of approximately 1.9x for commercial and 1.4x for the consumer modeled allowance results.
Similarly, deteriorating conditions for portfolio factors were also considered by moderately stressing key portfolio drivers, relative to the baseline portfolio conditions. Stressing risk ratings by two grades for commercial loans generates a 1.3x increase in the commercial modeled allowance results. Stressing FICO by ten points, and LTV and utilization by 10% for consumer loans generates a 1.2x increase in the consumer modeled allowance results.
Note that these analyses demonstrate the sensitivity of the ALLL to key quantitative assumptions; however, they are not intended to estimate changes in the overall ALLL as they do not reflect qualitative factors related to idiosyncratic risk factors, changes in current economic conditions that may not be reflected in quantitatively derived results, and other relevant factors that must be considered to ensure the ALLL reflects our best estimate of current expected credit losses. With the unprecedented economic uncertainty caused by the COVID-19 pandemic, future ALLL results may vary considerably based on the actual magnitude of the pandemic and impact of the United States' monetary and fiscal response.
Valuation methodologies
Fair value measurements
We measure or monitor many of our assets and liabilities on a fair value basis. Fair value is generally defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) as opposed to the price that would be paid to acquire the asset or received to assume the liability (an entry price), in an orderly transaction between market participants at the measurement date under current market conditions. While management uses judgment when determining the price at which willing market participants would transact when there has been a significant decrease in the volume or level of activity for the asset or liability in relation to “normal” market activity, management’s objective is to determine the point within the range of fair value estimates that is most representative of a sale to a third-party investor under current market conditions. The value to us if the asset or liability were held to maturity is not included in the fair value estimates.
A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Fair value is measured based on a variety of inputs. Fair value may be based on quoted market prices for identical assets or liabilities traded in active markets (Level 1 valuations). If market prices are not available, quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market are used (Level 2 valuations). Where observable market data is not available, the valuation is generated from model based techniques that use significant assumptions not observable in the market, but observable based on our specific data (Level 3 valuations). Unobservable assumptions reflect our estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability.
The selection and weighting of the various fair value techniques may result in a fair value higher or lower than carrying value. Considerable judgment may be involved in determining the amount that is most representative of fair value.
For assets and liabilities recorded at fair value, our policy is to maximize the use of observable inputs
and minimize the use of unobservable inputs when developing fair value measurements for those items where there
is an active market. In certain cases, when market observable inputs for model-based valuation techniques may not
be readily available, we are required to make judgments about assumptions market participants would use
in estimating the fair value of the financial instrument. The models used to determine fair value adjustments are
regularly evaluated by management for relevance under current facts and circumstances.
Changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. When market data is not available, we use valuation techniques requiring more management judgment to estimate the appropriate fair value.
Fair value is used on a recurring basis for certain assets and liabilities in which fair value is the primary measure of
accounting. Fair value is used on a nonrecurring basis to measure certain assets or liabilities (including held-to-maturity securities, commercial loans held for sale, and OREO) for impairment or for disclosure purposes in accordance with current accounting guidance.
Impairment analysis also relates to long-lived assets and core deposit and other intangible assets. An
impairment loss is recognized if the carrying amount of the asset is not likely to be recoverable and exceeds its fair
value. In determining the fair value, management uses models and applies the techniques and assumptions
previously discussed.
See Note 1 under the heading “Fair Value Measurements” and Note 6 (“Fair Value Measurements”) for a detailed discussion of determining fair value, including pricing validation processes.
Goodwill
The valuation and testing methodologies used in our analysis of goodwill impairment are summarized in Note 1
under the heading “Goodwill and Other Intangible Assets.” Goodwill is initially recorded as the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is tested for impairment for all three of our reporting units: Consumer Bank, Commercial Bank and Institutional Bank. We perform our annual impairment test as of October 1st and on an interim basis if events or changes in circumstances between annual tests suggest additional testing is needed. Effective January 1, 2020, we adopted ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” eliminating the second step of goodwill impairment testing. Under the new guidance, if the fair value of a reporting unit declines below its carrying value, an impairment charge will be recognized for any amount by which the carrying value exceeds the reporting unit’s fair value, to the extent that the loss recognized does not exceed the amount of the goodwill allocated to that reporting unit. The adoption of ASU 2017-04 did not impact our current financial condition or results of operations.
In consideration of the deterioration in macroeconomic conditions and industry and market conditions due to the
COVID-19 pandemic during the third quarter of 2020, we identified a triggering event and performed an interim quantitative test. Impairment indicators comprised economic conditions, including projections of the duration of current conditions and timing of a potential recovery; industry and market considerations; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting units; performance of our stock; and other relevant events. We utilized a qualitative approach to our annual goodwill impairment test as of October 1, 2020. No impairment was recorded in 2020 as a result of these assessments.
We continue to monitor the impairment indicators for goodwill and other intangible assets, and to evaluate the carrying amount of these assets quarterly. Additional information is provided in Note 12 (“Goodwill and Other Intangible Assets”).
Derivatives and hedging
We primarily use interest rate swaps to hedge interest rate risk for asset and liability management purposes. These derivative instruments modify the interest rate characteristics of specified on-balance sheet assets and liabilities. Our accounting policies related to derivatives reflect the current accounting guidance, which provides that all derivatives should be recognized as either assets or liabilities on the balance sheet at fair value, after taking into account the effects of master netting agreements. Accounting for changes in the fair value (i.e., gains or losses) of a particular derivative depends on whether the derivative has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship.
The application of hedge accounting requires significant judgment to interpret the relevant accounting guidance, as well as to assess hedge effectiveness, identify similar hedged item groupings, and measure changes in the fair value of the hedged items. We believe our methods of addressing these judgments and applying the accounting guidance are consistent with both the guidance and industry practices. Additional information relating to our use of derivatives is included in Note 1 under the heading “Derivatives and Hedging,” and Note 8 (“Derivatives and Hedging Activities”).
Contingent liabilities, guarantees and income taxes
Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) summarizes contingent liabilities arising from litigation and contingent liabilities arising from guarantees in various agreements with third parties under which we are a guarantor, and the potential effects of these items on the results of our operations. We record a liability for the fair value of the obligation to stand ready to perform over the term of a guarantee. Contingent aspects of guarantees within the scope of ASC 326 are assessed a reserve under CECL. There is a risk that our actual future payments in the event of a default by the guaranteed party could exceed the recorded amount. See Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) for a comparison of the liability recorded and the maximum potential undiscounted future payments for the various types of guarantees that we had outstanding at December 31, 2020.
It is not always clear how the Internal Revenue Code and various state tax laws apply to transactions that we undertake. In the normal course of business, we may record tax benefits and then have those benefits contested by the IRS or state tax authorities. We have provided tax reserves that we believe are adequate to absorb potential adjustments that such challenges may necessitate. However, if our judgment later proves to be inaccurate, the tax reserves may need to be adjusted, which could have an adverse effect on our results of operations and capital.
Additionally, we conduct quarterly assessments that determine the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded. The available evidence used in connection with these assessments includes a history of pretax income, projected future taxable income, potential tax-planning strategies, and projected future reversals of deferred tax liabilities. These assessments are subjective and may change. Based on these criteria, and all available positive and negative evidence, we establish a valuation allowance for deferred tax assets when we are unable to conclude it is more likely than not that they will be realized. However, if our assessments prove incorrect, they could have a material adverse effect on our results of operations in the period in which they occur. For further information on our accounting for income taxes, see Note 1 (“Summary of Significant Accounting Policies”) and Note 14 (“Income Taxes”).
Accounting and reporting developments
Accounting guidance pending adoption at December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Standard
|
Required Adoption
|
Description
|
Effect on Financial Statements or
Other Significant Matters
|
ASU 2020-06,
Debt—Debt with
Conversion and
Other Options
(Subtopic
470-20) and
Derivatives and
Hedging—
Contracts in
Entity’s Own
Equity (Subtopic
815-40)
|
January 1, 2022
Early adoption is
permitted.
|
The ASU simplifies the accounting for convertible debt instruments by eliminating the
legacy accounting models for convertible instruments with beneficial conversion features
or cash conversion features. The guidance
also amends the guidance used to determine if
a freestanding financial instrument or an embedded feature qualifies for a scope
exception from derivative accounting. For freestanding financial instruments and embedded features that have all the
characteristics of a derivative instrument and
are potentially settled in an entity’s own stock,
the guidance simplifies the settlement assessment that entities are required to
perform. Also, the Update now requires the
use of the if-converted method for all
convertible instruments and includes the effect
of potential share settlement in diluted EPS if
the effect is more dilutive. The new guidance
also makes clarifications to the EPS
calculation. Further, the ASU expands
disclosure requirements.
The guidance should be applied on a modified retrospective or retrospective basis.
|
The adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations.
|
Our total European sovereign and non-sovereign debt exposure is presented in Figure 37.
Figure 37. European Sovereign and Non-Sovereign Debt Exposures
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Short- and Long-
Term Commercial
Total (a)
|
Foreign Exchange
and Derivatives
with Collateral (b)
|
Net
Exposure
|
in millions
|
France:
|
|
|
|
Sovereigns
|
—
|
|
—
|
|
—
|
|
Non-sovereign financial institutions
|
—
|
|
—
|
|
—
|
|
Non-sovereign non-financial institutions
|
$
|
1
|
|
—
|
|
$
|
1
|
|
Total
|
1
|
|
—
|
|
1
|
|
Germany:
|
|
|
|
Sovereigns
|
—
|
|
—
|
|
—
|
|
Non-sovereign financial institutions
|
—
|
|
—
|
|
—
|
|
Non-sovereign non-financial institutions
|
33
|
|
—
|
|
33
|
|
Total
|
33
|
|
—
|
|
33
|
|
Italy:
|
|
|
|
Sovereigns
|
—
|
|
—
|
|
—
|
|
Non-sovereign financial institutions
|
—
|
|
—
|
|
—
|
|
Non-sovereign non-financial institutions
|
—
|
|
—
|
|
—
|
|
Total
|
—
|
|
—
|
|
—
|
|
Luxembourg:
|
|
|
|
Sovereigns
|
—
|
|
—
|
|
—
|
|
Non-sovereign financial institutions
|
—
|
|
—
|
|
—
|
|
Non-sovereign non-financial institutions
|
—
|
|
—
|
|
—
|
|
Total
|
—
|
|
—
|
|
—
|
|
Switzerland:
|
|
|
|
Sovereigns
|
—
|
|
—
|
|
—
|
|
Non-sovereign financial institutions
|
—
|
|
1
|
|
1
|
|
Non-sovereign non-financial institutions
|
—
|
|
—
|
|
—
|
|
Total
|
—
|
|
1
|
|
1
|
|
United Kingdom:
|
|
|
|
Sovereigns
|
—
|
|
—
|
|
—
|
|
Non-sovereign financial institutions
|
—
|
|
$
|
406
|
|
406
|
|
Non-sovereign non-financial institutions
|
—
|
|
—
|
|
—
|
|
Total
|
—
|
|
406
|
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe:
|
|
|
|
Sovereigns
|
—
|
|
—
|
|
—
|
|
Non-sovereign financial institutions
|
—
|
|
407
|
|
407
|
|
Non-sovereign non-financial institutions
|
34
|
|
—
|
|
34
|
|
Total
|
$
|
34
|
|
$
|
407
|
|
$
|
441
|
|
|
|
|
|
(a)Represents our outstanding leases.
(b)Represents contracts to hedge our balance sheet asset and liability needs, and to accommodate our clients’ trading and/or hedging needs. Our derivative mark-to-market exposures are calculated and reported on a daily basis. These exposures are largely covered by cash or highly marketable securities collateral with daily collateral calls.
Our credit risk exposure is largely concentrated in developed countries with emerging market exposure essentially limited to commercial facilities; these exposures are actively monitored by management. We do not have at-risk exposures in the rest of the world.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information included under the caption “Risk Management — Market risk management” in the MD&A beginning on page 73 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial performance for each of the past eight quarters is summarized in Figure 36 contained in the “Fourth Quarter Results” section in the MD&A.
Management’s Annual Report on Internal Control over Financial Reporting
We are responsible for the preparation, content and integrity of the financial statements and other statistical data and analyses compiled for this annual report. The financial statements and related notes have been prepared in conformity with U.S. generally accepted accounting principles and include amounts which of necessity are based on management’s best estimates and judgments and give due consideration to materiality. We believe the financial statements and notes present fairly our financial position, results of operations and cash flows in all material respects.
We are responsible for establishing and maintaining a system of internal control that is designed to protect our assets and the integrity of our financial reporting as defined in the Securities Exchange Act of 1934, as amended. This corporate-wide system of controls includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles, and that receipts and expenditures of the Corporation are made only in accordance with authorizations of management and directors of the Corporation; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Corporation’s assets that could have a material effect on the consolidated financial statements. All employees are required to comply with our code of ethics. We conduct an annual certification process to ensure that our employees meet this obligation. Although any system of internal control can be compromised by human error or intentional circumvention of required procedures, we believe our system provides reasonable assurance that financial transactions are recorded and reported properly, providing an adequate basis for reliable financial statements.
During 2020, the Audit Committee of the Board of Directors met regularly with Management, internal audit, and the independent registered public accounting firm, Ernst & Young LLP, to review the scope of their audits and to discuss the evaluation of internal accounting controls and financial reporting matters. The independent registered public accounting firm and the internal auditors have free access to, and meet confidentially with, the audit committee to discuss appropriate matters. Also, the Corporation maintains a Disclosure Review Committee. This committee’s purpose is to design and maintain disclosure controls and procedures to ensure that material information relating to the financial and operating condition of the Corporation is properly reported to its Chief Executive Officer, Chief Financial Officer, General Auditor, and the Audit Committee of the Board of Directors in connection with the preparation and filing of periodic reports and the certification of those reports by the Chief Executive Officer and the Chief Financial Officer.
Management’s Assessment of Internal Control over Financial Reporting
Management assessed, with participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, the effectiveness of our internal control and procedures over financial reporting using criteria described in “Internal Control - Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on that assessment, we believe we maintained an effective system of internal control over financial reporting as of December 31, 2020.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Corporation's internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their accompanying report dated February 22, 2021.
Christopher M. Gorman Donald R. Kimble
Chairman and Chief Executive Officer Chief Financial Officer
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of KeyCorp
Opinion on Internal Control over Financial Reporting
We have audited KeyCorp’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, KeyCorp maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of KeyCorp as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes of KeyCorp and our report dated February 22, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
KeyCorp’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying financial statements. Our responsibility is to express an opinion on KeyCorp’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to KeyCorp in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Cleveland, Ohio
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February 22, 2021
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Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of KeyCorp
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of KeyCorp as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of KeyCorp at December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), KeyCorp’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2021 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 1 and 5 to the consolidated financial statements, KeyCorp changed its method of accounting for credit losses in 2020 due to the adoption of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. As explained below, auditing KeyCorp’s allowance for loan and leases losses (ALLL), including the adoption of the new accounting guidance, was a critical audit matter.
Basis for Opinion
These financial statements are the responsibility of KeyCorp’s management. Our responsibility is to express an opinion on KeyCorp’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to KeyCorp in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
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Allowance for Loan and Lease Losses
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Description of the matter
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On January 1, 2020, KeyCorp adopted Topic 326, which resulted in an increase to the ALLL from continuing operations of $204 million. KeyCorp’s loan and lease portfolio totaled $101.2 billion as of December 31, 2020 and the associated ALLL was $1.6 billion. As discussed in Note 1 and 5 of the financial statements, the ALLL represents management’s current estimate of lifetime credit losses inherent in the loan portfolio at the balance sheet date. Management estimates the ALLL using relevant available information, from internal and external sources, relating to past events, current portfolio specific and economic conditions, and reasonable and supportable forecasts. The ALLL is the sum of (i) asset specific / individual loan reserves; (ii) quantitative (formulaic or pooled) reserves; and (iii) qualitative (judgmental) reserves. Management estimates the quantitative reserves using probability of default / loss given default / exposure at default models (“loss forecasting models”), as well as other estimation methods for smaller loan portfolios. The ALLL also considers qualitative factors related to idiosyncratic risk factors, changes in current economic conditions that may not be reflected in quantitatively derived results, and other relevant factors to reflect management’s best estimate of current expected credit losses.
Auditing management’s ALLL was complex due to the loss forecasting models used to compute the quantitative reserve and involves a high degree of subjectivity and judgment in evaluating management’s determination of the economic forecast and qualitative factor adjustments to the ALLL described above.
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How we addressed the matter in our audit
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We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over KeyCorp’s ALLL process, including controls over the appropriateness of the ALLL methodology, the development, operation and monitoring of loss forecasting models, the reliability and accuracy of data used in developing the ALLL estimate, and management’s review and approval process over the economic forecast, qualitative adjustments and overall ALLL results.
With the assistance of EY specialists we tested management’s loss forecasting models including evaluating the conceptual soundness of model methodology, assessing model performance and governance, testing key modeling assumptions, including the reasonable and supportable forecast period, and independently recalculating model output. We also compared the underlying economic forecast data used to estimate the quantitative reserve to external sources to determine whether it was complete and accurate.
To test the qualitative factor adjustments, among other procedures, we assessed management’s methodology and considered whether relevant risks were reflected in the models and whether adjustments to the model output were appropriate. We tested the completeness, accuracy and relevance of the underlying data used to estimate the qualitative adjustments. We evaluated whether qualitative adjustments were reasonable based on changes in economic conditions, the loan portfolio, management’s policies and procedures, and lending personnel. For example, we evaluated the reasonableness of qualitative adjustments (or lack thereof) for concentrations of credit by independently comparing to loan portfolio information. We also assessed whether qualitative adjustments were consistent with publicly available information (e.g. macroeconomic data). Further, we performed an independent search for the existence of new or contrary information relating to risks impacting the qualitative factor adjustments to validate that management’s considerations are appropriate. Additionally, we evaluated whether the overall ALLL, inclusive of qualitative factor adjustments, appropriately reflects losses expected in the loan and lease portfolio by comparing to peer bank data.
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We have served as KeyCorp’s auditor since 1994.
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Cleveland, Ohio
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February 22, 2021
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Consolidated Balance Sheets
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December 31,
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in millions, except per share data
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2020
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2019
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ASSETS
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Cash and due from banks
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$
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1,091
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$
|
732
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Short-term investments
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16,194
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1,272
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Trading account assets
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735
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1,040
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Securities available for sale
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27,556
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21,843
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Held-to-maturity securities (fair value: $8,023 and $10,116)
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7,595
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10,067
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Other investments
|
621
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605
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Loans, net of unearned income of $449 and $630
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101,185
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94,646
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Allowance for loan and lease losses
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(1,626)
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(900)
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Net loans
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99,559
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93,746
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Loans held for sale (a)
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1,583
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1,334
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Premises and equipment
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753
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814
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Goodwill
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2,664
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2,664
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Other intangible assets
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188
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253
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Corporate-owned life insurance
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4,286
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4,233
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Accrued income and other assets
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6,812
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5,494
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Discontinued assets
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699
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891
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Total assets
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$
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170,336
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$
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144,988
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LIABILITIES
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Deposits in domestic offices:
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NOW and money market deposit accounts
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$
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80,427
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$
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66,714
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Savings deposits
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5,913
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4,651
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Certificates of deposit ($100,000 or more)
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2,733
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6,598
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Other time deposits
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3,010
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5,054
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Total interest-bearing deposits
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92,083
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83,017
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Noninterest-bearing deposits
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43,199
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28,853
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Total deposits
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135,282
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111,870
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Federal funds purchased and securities sold under repurchase agreements
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220
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387
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Bank notes and other short-term borrowings
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759
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705
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Accrued expense and other liabilities
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2,385
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2,540
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Long-term debt
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13,709
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12,448
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Total liabilities
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152,355
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127,950
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EQUITY
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Preferred stock
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1,900
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1,900
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Common Shares, $1 par value; authorized 2,100,000,000 and 2,100,000,000 shares; issued 1,256,702,081 and 1,256,702,081 shares
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1,257
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1,257
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Capital surplus
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6,281
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6,295
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Retained earnings
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12,751
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12,469
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Treasury stock, at cost (280,928,782 and 279,513,530 shares)
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(4,946)
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(4,909)
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Accumulated other comprehensive income (loss)
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738
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26
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Key shareholders’ equity
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17,981
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17,038
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Noncontrolling interests
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—
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—
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Total equity
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17,981
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17,038
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Total liabilities and equity
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$
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170,336
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$
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144,988
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(a)Total loans held for sale include Real estate — residential mortgage loans held for sale at fair value of $264 million at December 31, 2020, and $140 million at December 31, 2019.
See notes to Consolidated Financial Statements
Consolidated Statements of Income
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Year ended December 31,
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dollars in millions, except per share amounts
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2020
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2019
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2018
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INTEREST INCOME
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Loans
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$
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3,866
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$
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4,267
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$
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4,023
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Loans held for sale
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69
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63
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|
66
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Securities available for sale
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484
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537
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409
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Held-to-maturity securities
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222
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|
262
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284
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Trading account assets
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20
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32
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29
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Short-term investments
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18
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61
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46
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Other investments
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6
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13
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21
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Total interest income
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4,685
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5,235
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4,878
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INTEREST EXPENSE
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Deposits
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347
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853
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517
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Federal funds purchased and securities sold under repurchase agreements
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6
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2
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11
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Bank notes and other short-term borrowings
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12
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17
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21
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Long-term debt
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286
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454
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420
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Total interest expense
|
651
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1,326
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|
969
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NET INTEREST INCOME
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4,034
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|
3,909
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3,909
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Provision for credit losses
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1,021
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|
445
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|
246
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Net interest income after provision for credit losses
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3,013
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3,464
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3,663
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NONINTEREST INCOME
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Trust and investment services income
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507
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|
475
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499
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Investment banking and debt placement fees
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661
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630
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650
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Service charges on deposit accounts
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311
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337
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349
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Operating lease income and other leasing gains
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167
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162
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|
89
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Corporate services income
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228
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236
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233
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Cards and payments income
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368
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275
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270
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Corporate-owned life insurance income
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139
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|
136
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137
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Consumer mortgage income
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176
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|
63
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|
43
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Commercial mortgage servicing fees
|
80
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|
77
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|
69
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Other income(a)
|
15
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|
68
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|
176
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Total noninterest income
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2,652
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2,459
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2,515
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NONINTEREST EXPENSE
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Personnel
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2,336
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2,250
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2,309
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Net occupancy
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298
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293
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308
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Computer processing
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232
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214
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210
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Business services and professional fees
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196
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186
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184
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Equipment
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100
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100
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105
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Operating lease expense
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138
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123
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120
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Marketing
|
97
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96
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102
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FDIC assessment
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32
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31
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|
72
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Intangible asset amortization
|
65
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|
89
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|
99
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OREO expense, net
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8
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13
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6
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Other expense
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607
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|
506
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|
460
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Total noninterest expense
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4,109
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3,901
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3,975
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INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
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1,556
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|
2,022
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|
2,203
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Income taxes
|
227
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|
314
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|
344
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INCOME (LOSS) FROM CONTINUING OPERATIONS
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1,329
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|
1,708
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|
1,859
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Income (loss) from discontinued operations
|
14
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|
9
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|
7
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NET INCOME (LOSS)
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1,343
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1,717
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1,866
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Less: Net income (loss) attributable to noncontrolling interests
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—
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—
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—
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NET INCOME (LOSS) ATTRIBUTABLE TO KEY
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$
|
1,343
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$
|
1,717
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$
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1,866
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Income (loss) from continuing operations attributable to Key common shareholders
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$
|
1,223
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$
|
1,611
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$
|
1,793
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Net income (loss) attributable to Key common shareholders
|
1,237
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|
1,620
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|
1,800
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Per Common Share:
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Income (loss) from continuing operations attributable to Key common shareholders
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$
|
1.26
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$
|
1.62
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$
|
1.72
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Income (loss) from discontinued operations, net of taxes
|
.01
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|
.01
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|
.01
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Net income (loss) attributable to Key common shareholders (b)
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1.28
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|
1.63
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|
1.73
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Per Common Share — assuming dilution:
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Income (loss) from continuing operations attributable to Key common shareholders
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$
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1.26
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$
|
1.61
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$
|
1.70
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Income (loss) from discontinued operations, net of taxes
|
.01
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|
.01
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|
.01
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Net income (loss) attributable to Key common shareholders (b)
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1.27
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|
1.62
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|
1.71
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Cash dividends declared per Common Share
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$
|
.740
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$
|
.710
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$
|
.565
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Weighted-average Common Shares outstanding (000)
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967,783
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992,091
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1,040,890
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Effect of convertible preferred stock
|
—
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|
—
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|
—
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Effect of Common Share options and other stock awards
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7,024
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10,163
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|
13,792
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Weighted-average Common Shares and potential Common Shares outstanding (000)(c)
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974,807
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1,002,254
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1,054,682
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(a)Net securities gains (losses) totaled $4 million for the year ended December 31, 2020, $20 million for the year ended December 31, 2019, and less than $1 million for the year ended December 31, 2018. For 2020, 2019, and 2018, we did not have any impairment losses related to securities.
(b)EPS may not foot due to rounding.
(c)Assumes conversion of Common Share options and other stock awards and/or convertible preferred stock, as applicable.
See Notes to Consolidated Financial Statements.
Consolidated Statements of Comprehensive Income
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Year ended December 31,
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in millions
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2020
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2019
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2018
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Net income (loss)
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$
|
1,343
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$
|
1,717
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$
|
1,866
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Other comprehensive income (loss), net of tax:
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Net unrealized gains (losses) on securities available for sale, net of income taxes of $(143), $(151), and $(19)
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452
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|
488
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(62)
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Net unrealized gains (losses) on derivative financial instruments, net of income taxes of $(72), $(93), and $11
|
226
|
|
300
|
|
36
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|
Foreign currency translation adjustments, net of income taxes of $0, $(4), and $11
|
—
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|
14
|
|
(23)
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Net pension and postretirement benefit costs, net of income taxes of $(9), $(13), and $3
|
34
|
|
42
|
|
10
|
|
Total other comprehensive income (loss), net of tax
|
712
|
|
844
|
|
(39)
|
|
Comprehensive income (loss)
|
2,055
|
|
2,561
|
|
1,827
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
—
|
|
—
|
|
—
|
|
Comprehensive income (loss) attributable to Key
|
$
|
2,055
|
|
$
|
2,561
|
|
$
|
1,827
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
Consolidated Statements of Changes in Equity
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Shareholders’ Equity
|
|
dollars in millions, except per share amounts
|
Preferred
Shares
Outstanding
(000)
|
Common
Shares
Outstanding
(000)
|
Preferred
Stock
|
Common
Shares
|
Capital
Surplus
|
Retained
Earnings
|
Treasury
Stock, at
Cost
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Noncontrolling
Interests
|
BALANCE AT DECEMBER 31, 2017
|
521
|
|
1,069,084
|
|
$
|
1,025
|
|
$
|
1,257
|
|
$
|
6,335
|
|
$
|
10,335
|
|
$
|
(3,150)
|
|
$
|
(779)
|
|
2
|
|
Cumulative effect from changes in accounting principle (a)
|
|
|
|
|
|
(2)
|
|
|
|
|
Other reclassification of AOCI
|
|
|
|
|
|
13
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
1,866
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
(39)
|
|
|
Deferred compensation
|
|
|
|
|
21
|
|
|
|
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
Common Shares ($.565 per share)
|
|
|
|
|
|
(590)
|
|
|
|
|
Series D Preferred Stock ($50.00 per depositary share)
|
|
|
|
|
|
(26)
|
|
|
|
|
Series E Preferred Stock ($1.531252 per depositary share)
|
|
|
|
|
|
(31)
|
|
|
|
|
Series F Preferred Stock ($.529688 per depositary share)
|
|
|
|
|
|
(9)
|
|
|
|
|
Issuance of Series F Preferred Stock
|
425
|
|
|
425
|
|
|
(13)
|
|
|
|
|
|
Open market Common Share repurchases
|
|
(54,006)
|
|
|
|
|
|
(1,098)
|
|
|
|
Employee equity compensation program Common Share repurchases
|
|
(2,286)
|
|
|
|
—
|
|
|
(47)
|
|
|
|
Common shares reissued (returned) for stock options and other employee benefit plans
|
|
6,711
|
|
|
|
(12)
|
|
|
114
|
|
|
|
Net contribution from (distribution to) noncontrolling interests
|
|
|
|
|
|
|
|
|
(1)
|
|
BALANCE AT DECEMBER 31, 2018
|
946
|
|
1,019,503
|
|
1,450
|
|
1,257
|
|
6,331
|
|
11,556
|
|
(4,181)
|
|
(818)
|
|
1
|
|
Net income (loss)
|
|
|
|
|
|
1,717
|
|
|
|
—
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
844
|
|
|
Deferred compensation
|
|
|
|
|
9
|
|
|
|
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
Common Shares ($.71 per share)
|
|
|
|
|
|
(707)
|
|
|
|
|
Series D Preferred Stock ($50.00 per depositary share)
|
|
|
|
|
|
(26)
|
|
|
|
|
Series E Preferred Stock ($1.531252 per depositary share)
|
|
|
|
|
|
(31)
|
|
|
|
|
Series F Preferred Stock ($1.4125 per depositary share)
|
|
|
|
|
|
(24)
|
|
|
|
|
Series G Preferred Stock ($.882813 per depositary share)
|
|
|
|
|
|
(16)
|
|
|
|
|
Issuance of Series G Preferred Stock
|
450
|
|
|
450
|
|
|
(15)
|
|
|
|
|
|
Open market Common Share repurchases
|
|
(48,347)
|
|
|
|
|
|
(835)
|
|
|
|
Employee equity compensation program Common Share repurchases
|
|
(1,901)
|
|
|
|
(2)
|
|
|
(33)
|
|
|
|
Common Shares reissued (returned) for stock options and other employee benefit plans
|
|
7,934
|
|
|
|
(28)
|
|
|
140
|
|
|
|
Net contribution from (distribution to) noncontrolling interests
|
|
|
|
|
|
|
|
|
(1)
|
|
BALANCE AT DECEMBER 31, 2019
|
1,396
|
|
977,189
|
|
1,900
|
|
1,257
|
|
6,295
|
|
12,469
|
|
(4,909)
|
|
26
|
|
—
|
|
Cumulative effect from changes in accounting principle (b)
|
|
|
|
|
|
(230)
|
|
|
|
|
Other reclassification of AOCI
|
|
|
|
|
|
(3)
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
1,344
|
|
|
|
—
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
712
|
|
|
Deferred compensation
|
|
|
|
|
4
|
|
|
|
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
Common Shares ($.74 per share)
|
|
|
|
|
|
(723)
|
|
|
|
|
Series D Preferred Stock ($50.00 per depositary share)
|
|
|
|
|
|
(26)
|
|
|
|
|
Series E Preferred Stock ($1.531252 per depositary share)
|
|
|
|
|
|
(31)
|
|
|
|
|
Series F Preferred Stock ($1.4125 per depositary share)
|
|
|
|
|
|
(24)
|
|
|
|
|
Series G Preferred Stock ($1.406252 per depositary share)
|
|
|
|
|
|
(25)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open market Common Share repurchases
|
|
(7,151)
|
|
|
|
|
|
(134)
|
|
|
|
Employee equity compensation program Common Share repurchases
|
|
(1,823)
|
|
|
|
(18)
|
|
|
(36)
|
|
|
|
Common Shares reissued (returned) for stock options and other employee benefit plans
|
|
7,558
|
|
|
|
—
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2020
|
1,396
|
|
975,773
|
|
$
|
1,900
|
|
$
|
1,257
|
|
$
|
6,281
|
|
$
|
12,751
|
|
$
|
(4,946)
|
|
$
|
738
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(a)Includes the impact of implementing ASU 2014-09, ASU 2016-01, and ASU 2017-12.
(b) Includes the impact of implementing ASU 2016-13. See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
in millions
|
2020
|
2019
|
2018
|
OPERATING ACTIVITIES
|
|
|
|
Net income (loss)
|
$
|
1,343
|
|
$
|
1,717
|
|
$
|
1,866
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
Provision for credit losses
|
1,021
|
|
445
|
|
246
|
|
Depreciation and amortization expense, net
|
111
|
|
241
|
|
382
|
|
Accretion of acquired loans
|
28
|
|
50
|
|
86
|
|
Increase in cash surrender value of corporate-owned life insurance
|
(119)
|
|
(121)
|
|
(117)
|
|
Stock-based compensation expense
|
101
|
|
96
|
|
99
|
|
FDIC reimbursement (payments), net of FDIC expense
|
—
|
|
—
|
|
(10)
|
|
Deferred income taxes (benefit)
|
(191)
|
|
53
|
|
98
|
|
Proceeds from sales of loans held for sale
|
14,076
|
|
11,980
|
|
14,019
|
|
Originations of loans held for sale, net of repayments
|
(13,856)
|
|
(11,704)
|
|
(13,948)
|
|
Net losses (gains) from sale of loans held for sale
|
(233)
|
|
(188)
|
|
(183)
|
|
Net losses (gains) and writedown on OREO
|
—
|
|
7
|
|
—
|
|
Net losses (gains) on leased equipment
|
(21)
|
|
(17)
|
|
41
|
|
Net losses (gains) on sales of fixed assets
|
5
|
|
(2)
|
|
9
|
|
Net securities losses (gains)
|
(4)
|
|
(20)
|
|
—
|
|
Net decrease (increase) in trading account assets
|
305
|
|
(191)
|
|
(13)
|
|
Gain on sale of KIBS
|
—
|
|
—
|
|
(83)
|
|
|
|
|
|
Other operating activities, net
|
(893)
|
|
560
|
|
14
|
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
1,673
|
|
2,906
|
|
2,506
|
|
INVESTING ACTIVITIES
|
|
|
|
Cash received (used) in acquisitions, net of cash acquired
|
—
|
|
(185)
|
|
—
|
|
Proceeds from sale of KIBS
|
—
|
|
—
|
|
124
|
|
Net decrease (increase) in short-term investments, excluding acquisitions
|
(14,922)
|
|
1,290
|
|
1,885
|
|
Purchases of securities available for sale
|
(15,619)
|
|
(5,714)
|
|
(4,594)
|
|
Proceeds from sales of securities available for sale
|
583
|
|
362
|
|
—
|
|
Proceeds from prepayments and maturities of securities available for sale
|
9,923
|
|
3,586
|
|
3,197
|
|
Proceeds from prepayments and maturities of held-to-maturity securities
|
2,493
|
|
1,477
|
|
1,558
|
|
Purchases of held-to-maturity securities
|
(17)
|
|
(22)
|
|
(1,242)
|
|
Purchases of other investments
|
(134)
|
|
(52)
|
|
(28)
|
|
Proceeds from sales of other investments
|
101
|
|
60
|
|
62
|
|
Proceeds from prepayments and maturities of other investments
|
15
|
|
56
|
|
40
|
|
Net decrease (increase) in loans, excluding acquisitions, sales, and transfers
|
(7,358)
|
|
(6,190)
|
|
(3,700)
|
|
Proceeds from sales of portfolio loans
|
211
|
|
399
|
|
204
|
|
Proceeds from corporate-owned life insurance
|
66
|
|
59
|
|
78
|
|
Purchases of premises, equipment, and software
|
(63)
|
|
(85)
|
|
(99)
|
|
Proceeds from sales of premises and equipment
|
—
|
|
18
|
|
2
|
|
Proceeds from sales of OREO
|
—
|
|
23
|
|
31
|
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
(24,721)
|
|
(4,918)
|
|
(2,482)
|
|
FINANCING ACTIVITIES
|
|
|
|
Net increase (decrease) in deposits, excluding acquisitions
|
23,412
|
|
4,561
|
|
2,074
|
|
Net increase (decrease) in short-term borrowings
|
(113)
|
|
229
|
|
(148)
|
|
Net proceeds from issuance of long-term debt
|
3,607
|
|
2,129
|
|
2,306
|
|
Payments on long-term debt
|
(2,508)
|
|
(3,634)
|
|
(2,880)
|
|
Issuance of preferred shares
|
—
|
|
435
|
|
412
|
|
Repurchase of Common Shares
|
(134)
|
|
(835)
|
|
(1,098)
|
|
Employee equity compensation program Common Share repurchases
|
(36)
|
|
(33)
|
|
(47)
|
|
|
|
|
|
Net proceeds from reissuance of Common Shares
|
8
|
|
18
|
|
20
|
|
Cash dividends paid
|
(829)
|
|
(804)
|
|
(656)
|
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
23,407
|
|
2,066
|
|
(17)
|
|
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS
|
359
|
|
54
|
|
7
|
|
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR
|
732
|
|
678
|
|
671
|
|
CASH AND DUE FROM BANKS AT END OF YEAR
|
$
|
1,091
|
|
$
|
732
|
|
$
|
678
|
|
|
|
|
|
Additional disclosures relative to cash flows:
|
|
|
|
Interest paid
|
$
|
731
|
|
$
|
1,251
|
|
$
|
892
|
|
Income taxes paid (refunded)
|
241
|
|
18
|
|
12
|
|
Noncash items:
|
|
|
|
Reduction of secured borrowing and related collateral
|
$
|
7
|
|
5
|
|
$
|
20
|
|
Loans transferred to portfolio from held for sale
|
75
|
|
157
|
|
24
|
|
Loans transferred to held for sale from portfolio
|
310
|
|
468
|
|
(33)
|
|
Loans transferred to other real estate owned
|
96
|
|
29
|
|
25
|
|
CMBS risk retentions
|
40
|
|
59
|
|
16
|
|
ABS risk retentions
|
19
|
|
12
|
|
—
|
|
See Notes to Consolidated Financial Statements.
1. Summary of Significant Accounting Policies
Organization
We are one of the nation’s largest bank-based financial services companies, providing deposit, lending, cash management, and investment services to individuals and small and medium-sized businesses through our subsidiary, KeyBank. We also provide 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 through our subsidiary, KBCM. As of December 31, 2020, KeyBank operated 1,073 full-service retail banking branches and 1,386 ATMs in 15 states, as well as additional offices, online and mobile banking capabilities, and a telephone banking call center. Additional information pertaining to our two major business segments, Consumer Bank and Commercial Bank, is included in Note 25 (“Business Segment Reporting”).
Use of Estimates
Our accounting policies conform to GAAP and prevailing practices within the financial services industry. We must make certain estimates and judgments when determining the amounts presented in our consolidated financial statements and the related notes. If these estimates prove to be inaccurate, actual results could differ from those reported.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of KeyCorp and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Some previously reported amounts have been reclassified to conform to current reporting practices.
The consolidated financial statements also include the accounts of any voting rights entities in which we have a controlling financial interest and certain VIEs. In accordance with the applicable accounting guidance for consolidations, we consolidate a VIE if we have the power to direct activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. See Note 13 (“Variable Interest Entities”) for information on our involvement with VIEs.
We use the equity method to account for unconsolidated investments in voting rights entities or VIEs if we have significant influence over the entity’s operating and financing decisions (usually defined as a voting or economic interest of 20% to 50%, but not controlling). Unconsolidated investments in voting rights entities or VIEs in which we have a voting or economic interest of less than 20% generally are carried at fair value or a cost measurement alternative.
In preparing these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users or filed with the SEC.
Cash and Cash Equivalents
Cash and due from banks are considered “cash and cash equivalents” for financial reporting purposes. We do not consider cash on deposit with the Federal Reserve to be restricted.
Loans
Loans held in portfolio, which management has the intent and ability to hold for the foreseeable future or until maturity or payoff, are carried at the principal amount outstanding, net of unearned income, including net deferred loan fees and costs and unamortized premiums and discounts. We defer certain nonrefundable loan origination and commitment fees, and the direct costs of originating or acquiring loans. The net deferred amount is amortized over the estimated lives of the related loans as an adjustment to the yield.
Accrued interest on loans is included in "other assets" on the balance sheet and is excluded from the calculation of the allowance for credit losses due to our charge-off policy to reverse accrued interest on nonperforming loans against interest income in a timely manner. Certain loans that received a payment deferral or forbearance under a COVID-19 hardship relief program have not been classified as nonperforming loans and continue to accrue and recognize interest income during the period of the deferral. We, therefore, recognize an allowance for credit losses for accrued interest receivable amounts that result from deferred payments under a COVID-19 hardship relief program because those amounts would not be considered to be written off in a timely manner. As of December 31, 2020, the allowance for credit losses on accrued interest receivable was immaterial.
Sales-type leases are carried at the aggregate of the lease receivable, estimated unguaranteed residual values, and deferred initial direct fees and costs if certain criteria are met. Direct financing leases are carried at the aggregate of the lease receivable, estimated unguaranteed residual values, and deferred initial direct fees and costs, less unearned income. Unearned income on direct financing leases is amortized over the lease terms using a method approximating the interest method that produces a constant rate of return. Deferred initial direct fees and costs for both sales-type and direct financing leases are amortized over the lease terms as an adjustment to the yield.
Expected credit losses on net investments in leases, including any unguaranteed residual asset, are included in the ALLL. Net gains or losses on sales of lease residuals are included in “other income” or “other expense” on the income statement. Additional information pertaining to the value of lease residuals is provided in Note 10 (“Leases”).
Loans Held for Sale
Loans held for sale generally include certain residential and commercial mortgage loans, other commercial loans, and student loans. Loans are initially classified as held for sale when they are individually identified as being available for immediate sale and a formal plan exists to sell them. Loans held for sale are recorded at either fair value, if elected, or the lower of cost or fair value. Fair value is determined based on available market data for similar assets. When a loan is originated as held-for-sale, origination fees and costs are deferred but not amortized. Upon sale of the loans, deferred origination fees and costs are recognized as part of the calculated gain or loss on sale. Our commercial loans (including commercial mortgage and non-mortgage loans) and student loans, which we originated and intend to sell, are carried at the lower of aggregate cost or fair value. Subsequent declines in fair value for loans held for sale are recognized as a charge to “other income” on the income statement. Consumer real estate - residential mortgages loans have been elected to be carried at fair value. Subsequent increases and decreases in fair value for loans elected to be measured at fair value are recorded to “consumer mortgage income” on the income statement. Additional information regarding fair value measurements associated with our loans held for sale is provided in Note 6 (“Fair Value Measurements”).
We may transfer certain loans to held for sale at the lower of cost or fair value. If a loan is transferred from the loan portfolio to the held-for-sale category, any write-down in the carrying amount of the loan at the date of transfer is recorded as a reduction in the ALLL. When a loan is transferred into the held for sale category, we stop amortizing the related deferred fees and costs. The remaining unamortized fees and costs are recognized as part of the cost basis of the loan at the time it is sold. We may also transfer loans from held for sale to the loan portfolio held for investment. If a loan held for sale for which fair value accounting was elected is transferred to held for investment, it will continue to be accounted for at fair value in the loan portfolio.
Nonperforming Loans
Nonperforming loans are loans for which we do not accrue interest income, and include commercial and consumer
loans and leases, as well as current year TDRs and nonaccruing TDR loans from prior years. Nonperforming loans
do not include loans held for sale. Once a loan is designated nonaccrual, the interest accrued but not collected is reversed against interest income, and payments subsequently received are applied to principal until qualifying for
return to accrual.
We generally classify commercial loans as nonperforming and stop accruing interest (i.e., designate the loan “nonaccrual”) when the borrower’s principal or interest payment is 90 days past due unless the loan is well-secured and in the process of collection. Commercial loans are also placed on nonaccrual status when payment is not past due but we have serious doubts about the borrower’s ability to comply with existing repayment terms. Once a loan is designated nonaccrual (and as a result assessed for impairment), the interest accrued but not collected is generally charged against the ALLL, and payments subsequently received are applied to principal. Commercial
loans are typically charged off in full or charged down to the fair value of the underlying collateral when the borrower’s payment is 180 days past due.
We classify consumer loans as nonperforming and stop accruing interest when the borrower’s payment is 120 days past due, unless the loan is well-secured and in the process of collection. Any second lien home equity loan with an associated first lien that is 120 days or more past due or in foreclosure, or for which the first mortgage delinquency timeframe is unknown, is reported as a nonperforming loan. Secured loans that are discharged through Chapter 7 bankruptcy and not formally re-affirmed are designated as nonperforming and TDRs. Our charge-off policy for most consumer loans takes effect when payments are 120 days past due. Home equity and residential mortgage loans generally are charged down to net realizable value when payment is 180 days past due. Credit card loans and similar unsecured products continue to accrue interest until the account is charged off at 180 days past due.
Commercial and consumer loans may be returned to accrual status if we are reasonably assured that all contractually due principal and interest are collectible and the borrower has demonstrated a sustained period (generally six months) of repayment performance under the contracted terms of the loan and applicable regulation.
Purchased Loans
Purchased performing loans that do not have evidence of deterioration in credit quality at acquisition are recorded at fair value at the acquisition date. Any premium or discount associated with purchased performing loans is recognized as interest income based on the effective yield method of amortization for term loans or the straight-line method of amortization for revolving loans. The methods utilized to estimate the required ALLL for purchased performing loans is similar to originated loans.
Purchased loans that have experienced a more-than-insignificant deterioration in credit quality since origination are deemed PCD loans. PCD loans are initially recorded at fair value along with an allowance for credit losses determined using the same methodology as originated loans. The sum of the loan's purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision for credit losses.
Allowance for Loan and Lease Losses
We estimate the ALLL using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The ALLL is measured on a collective (pool) basis when similar risk characteristics exist. Our portfolio segments include commercial and consumer. Each of these two segments comprises multiple loan classes. Classes are characterized by similarities in initial measurement, risk attributes, and the manner in which we monitor and assess credit risk. The commercial segment is composed of commercial and industrial, commercial real estate, and commercial lease financing loan classes. The consumer lending segment is composed of residential mortgage, home equity, consumer direct, credit card, student lending and consumer indirect loan classes.
The ALLL represents our current estimate of lifetime credit losses inherent in our loan portfolio at the balance sheet date. In determining the ALLL, we estimate expected future losses for the loan's entire contractual term adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications.
The ALLL is the sum of three components: (i) asset specific/ individual loan reserves; (ii) quantitative (formulaic or pooled) reserves; and (iii) qualitative (judgmental) reserves.
Asset Specific / Individual Component
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. We have elected to apply the practical expedient to measure expected credit losses of a collateral dependent asset using the fair value of the collateral, less any costs to sell, when foreclosure is not probable, when repayment of the loan is expected to be provided substantially through the operation or sale of the collateral, and the borrower is experiencing financial difficulty.
Individual reserves are determined as follows:
•For commercial non-accruing loans greater than or equal to a defined dollar threshold, individual reserves are determined based on an analysis of the present value of the loan's expected future cash flows or the fair value of the collateral less costs to sell.
•For commercial non-accruing loans below the defined dollar threshold, an established LGD percentage is multiplied by the loan balance and the results are aggregated for purposes of measuring specific reserve impairment.
•The population of individually assessed consumer loans includes loans deemed collateral dependent, in addition to all TDRs. The expected loss for these loans is estimated based on the present value of the loan's expected future cash flows, except in instances where the loan is collateral dependent, in which case the loan is written down based on the collateral's fair market value less costs to sell.
Quantitative Component
We use a non-DCF factor-based approach to estimate expected credit losses that include component PD/LGD/EAD
models as well as less complex estimation methods for smaller loan portfolios.
•PD: This component model is used to estimate the likelihood that a borrower will cease making payments as agreed. The major contributors to this are the borrower credit attributes and macro-economic trends. The objective of the PD model is to produce default likelihood forecasts based on the observed loan-level information and projected paths of macroeconomic variables.
•LGD: This component model is used to estimate the loss on a loan once a loan is in default.
•EAD: Estimates the loan balance at the time the borrower stops making payments. For all term loans, an amortization based formulaic approach is used for account level EAD estimates. We calculate EAD using a portfolio specific method in each of our revolving product portfolios. For line products that are unconditionally cancellable, the balances will either use a paydown curve or be held flat through the life of the loan.
Qualitative Component
The ALLL also includes identified qualitative factors related to idiosyncratic risk factors, changes in current economic conditions that may not be reflected in quantitatively derived results, and other relevant factors to ensure the ALLL reflects our best estimate of current expected credit losses. While our reserve methodologies strive to reflect all relevant risk factors, there continues to be uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal variations between estimates and actual outcomes. We provide additional reserves that are designed to provide coverage for losses attributable to such risks. The ALLL also includes factors that may not be directly measured in the determination of individual or collective reserves. Such qualitative factors may include:
•The nature and volume of the institution’s financial assets;
•The existence, growth, and effect of any concentrations of credit;
•The volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets;
•The value of the underlying collateral for loans that are not collateral dependent;
•The institution’s lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries;
•The quality of the institution’s credit review function;
•The experience, ability, and depth of the institution’s lending, investment, collection, and other relevant management and staff;
•The effect of other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters; and
•Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the institution operates that affect the collectability of financial assets.
Liability for Credit Losses on Lending-Related Commitments
The liability for credit losses on lending-related commitments, such as letters of credit and unfunded loan commitments, is included in “accrued expense and other liabilities” on the balance sheet. Expected credit losses are estimated over the contractual period in which we are exposed to credit risk via a contractual obligation unless that obligation is unconditionally cancellable by us. The liability for credit losses on lending-related commitments is adjusted as a provision for credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated useful life. Consistent with our estimation process on our loan and lease portfolio, we use a non-DCF factor-based approach to estimate expected credit losses that include component PD/LGD/EAD models as well as less complex estimation methods for smaller portfolios.
Allowance for Credit Losses on Other Financial Assets
The allowance for credit losses on other financial assets, such as other receivables and servicing advances, is
determined based on historical loss information and other available indicators. If such information does not indicate
any expected credit losses, Key may estimate the allowance for credit losses on other financial assets to be zero or
close to zero. As of December 31, 2020, the allowance for credit losses on other financial assets was immaterial.
Fair Value Measurements
Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal market. Therefore, fair value represents an exit price at the measurement date. We value our assets and liabilities based on the principal or most advantageous market where each would be sold (in the case of assets) or transferred (in the case of liabilities). In the absence of observable market transactions, we consider liquidity valuation adjustments to reflect the uncertainty in pricing the instruments.
Valuation inputs can be observable or unobservable. Observable inputs are assumptions based on market data obtained from an independent source. Unobservable inputs are assumptions based on our own information or assessment of assumptions used by other market participants in pricing the asset or liability. Our unobservable inputs are based on the best and most current information available on the measurement date.
All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy that gives the highest ranking to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest ranking to unobservable inputs (Level 3). Fair values for Level 2 assets and liabilities are based on one or a combination of the following factors: (i) quoted market prices for similar assets or liabilities; (ii) observable inputs, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data. The level in the fair value hierarchy ascribed to a fair value measurement in its entirety is based on the lowest level input that is significant to the measurement. Assets and liabilities may transfer between levels based on the observable and unobservable inputs used at the valuation date.
Assets and liabilities are recorded at fair value on a recurring or nonrecurring basis. Nonrecurring fair value adjustments are typically recorded as a result of the application of lower of cost or fair value accounting; or impairment. At a minimum, we conduct our valuations quarterly.
Additional information regarding fair value measurements and disclosures is provided in Note 6 (“Fair Value Measurements”).
Short-Term Investments
Short-term investments consist of segregated, interest-bearing deposits due from banks, the Federal Reserve, and certain non-U.S. banks as well as reverse repurchase agreements and United States Treasury Bills with an original maturity of three months or less.
Trading Account Assets
Trading account assets are debt and equity securities, as well as commercial loans, that we purchase and hold but intend to sell in the near term. These assets are reported at fair value. Realized and unrealized gains and losses on trading account assets are reported in “other income” on the income statement.
Securities
Securities available for sale. Debt securities that we intend to hold for an indefinite period of time but that may be sold in response to changes in interest rates, prepayment risk, liquidity needs, or other factors are classified as available-for-sale and reported at fair value. Realized gains and losses resulting from sales of securities using the specific identification method, are included in “other income” on the income statement. Unrealized holding gains are recorded through other comprehensive income. Unrealized losses in fair value below the amortized cost basis are assessed to determine whether the impairment gets recorded through other comprehensive income or through earnings using a valuation allowance.
For available-for-sale securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of these criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value in “other income” on the income statement. For debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized costs, the nature of the security, the underlying collateral, and the financial condition of the issuers, among other factors. If this assessment indicates a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for available-for-sale securities is recorded for the credit loss, limited by the amount that the fair value is less than the amortized costs basis. Any impairment that has not been recorded through an allowance for available-for-sale securities is recognized in other comprehensive income.
Changes in the allowance available-for-sale are recorded as provision for (or reversal of) credit loss. Losses are charged against the allowance for available-for-sale securities when management believes the uncollectibility of an available-for-sale security is confirmed or when either criteria regarding intent or requirement to sell is met.
“Other securities” held in the available-for-sale portfolio consist of convertible preferred stock of privately held companies. For additional information, refer to Note 7 (“Securities”).
Held-to-maturity securities. Debt securities that we have the intent and ability to hold until maturity are classified as held-to-maturity and are carried at cost and adjusted for amortization of premiums and accretion of discounts using the interest method. This method produces a constant rate of return on the adjusted carrying amount.
The held-to-maturity portfolio is classified by the following major security types: agency residential collateralized mortgage obligations, agency residential mortgage-backed securities, agency commercial mortgage-backed securities, asset backed securities, and other. “Other securities” held in the held-to-maturity portfolio consist of foreign bonds and capital securities. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type. The estimate of expected losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. We do not measure expected credit losses on held-to-maturity securities in which historical credit loss information adjusted for current conditions and reasonable and supportable forecasts results in an expectation that nonpayment of the amortized cost basis is zero.
All of our mortgage-backed securities are issued by U.S. government-sponsored enterprises or GNMA, are highly rated by major rating agencies and have a long history of no credit losses. Other securities are comprised of State of Israel bonds denominated and paid in U.S. dollars. Israel bonds have a long history of no credit losses. Additionally, as of December 31, 2020, the State of Israel's credit rating remains "stable" among Fitch, Moody's, and S&P (A+, A1, AA-).
Other Investments
Other investments include equity and mezzanine instruments as well as other types of investments that generally are carried at the alternative cost method. The alternative cost method results in these investments being recorded at cost, less any impairment, plus or minus changes resulting from observable market transactions. Adjustments are included in “other income” on the income statement.
Derivatives and Hedging
All derivatives are recognized on the balance sheet at fair value in “accrued income and other assets” or “accrued expense and other liabilities.” The net increase or decrease in derivatives is included in “other operating activities, net” within the statement of cash flows. Accounting for changes in fair value (i.e., gains or losses) of derivatives differs depending on whether the derivative has been designated and qualifies as part of a hedge relationship, and on the type of hedge relationship. For derivatives that are not in a hedge relationship, any gain or loss, as well as any premium paid or received, is recognized immediately in earnings in “corporate services income” or “other income” on the income statement, depending whether the derivative is for customer accommodation or risk management, respectively. A derivative that is designated and qualifies as a hedging instrument must be designated as a fair value hedge, a cash flow hedge, or a hedge of a net investment in a foreign operation. Changes in the fair value of a hedging instrument are reflected in the same income statement line as the earnings effect of the change in fair value of the hedged item attributable to the hedged risk.
A fair value hedge is used to limit exposure to changes in the fair value of existing assets, liabilities, and commitments caused by changes in interest rates or other economic factors. The change in the fair value of an instrument designated as a fair value hedge is recorded in earnings at the same time as a change in fair value of the hedged item attributable to the hedged risk.
A cash flow hedge is used to minimize the variability of future cash flows that is caused by changes in interest rates or other economic factors. The gain or loss on a cash flow hedge is recorded as a component of AOCI on the balance sheet and reclassified to earnings in the same period in which the hedged transaction affects earnings (e.g., when we incur variable-rate interest on debt, earn variable-rate interest on loans, or sell commercial real estate loans).
A net investment hedge is used to hedge the exposure of changes in the carrying value of investments as a result of changes in the related foreign exchange rates. The gain or loss on a net investment hedge is recorded as a component of AOCI on the balance sheet when the terms of the derivative match the notional and currency risk being hedged. The amount in AOCI is reclassified into income when the hedged transaction affects earnings (e.g., when we dispose or liquidate a foreign subsidiary).
Hedge “effectiveness” is determined by the extent to which changes in the fair value of a derivative instrument offset changes in the fair value, cash flows, or carrying value attributable to the risk being hedged. If the relationship between the change in the fair value of the derivative instrument and the change in the hedged item falls within a range considered to be the industry norm, the hedge is considered “highly effective” and qualifies for hedge accounting. A hedge is “ineffective” if the relationship between the changes falls outside the acceptable range. In that case, hedge accounting is discontinued on a prospective basis. Hedge effectiveness is tested at least quarterly.
We take into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts held with a single counterparty on a net basis, and to offset the net derivative position with the related cash collateral when recognizing derivative assets and liabilities. As a result, we could have derivative contracts with negative fair values included in derivative assets on the balance sheet and contracts with positive fair values included in derivative liabilities. Derivative assets and derivative liabilities are recorded within “accrued income and other assets” and “accrued expense and other liabilities,” respectively.
Additional information regarding the accounting for derivatives is provided in Note 8 (“Derivatives and Hedging Activities”).
Loan Sales and Securitizations
We sell and at times may securitize loans and other financial assets. We recognize the sale and securitization of loans or other financial assets when the transferred assets are legally isolated from our creditors and the appropriate accounting criteria are met. When we securitize loans or other financial assets, we may retain a portion of the securities issued, including senior interests, subordinated interests, interest-only strips, servicing rights, and other interests, all of which are considered retained interests in the transferred assets. The interests are initially measured at fair value which is based on independent third party market prices or market prices for similar assets. If market prices are not available, fair value is estimated based on the present value of expected future cash flows using assumptions as to discount rates, interest rates, prepayment speeds, and credit losses. Loans sold or securitized are removed from the balance sheet and a net gain or loss is recognized in “other income” at the time of
sale. Gains or losses recognized depend on the fair value of the loans sold and the retained interests at the date of sale.
Servicing Assets
We service commercial real estate and residential mortgage loans. Servicing assets and liabilities purchased or retained are initially measured at fair value and are recorded as a component of “accrued income and other assets” on the balance sheet. When no ready market value (such as quoted market prices, or prices based on sales or purchases of similar assets) is available to determine the fair value of servicing assets, fair value is determined by calculating the present value of future cash flows associated with servicing the loans. This calculation is based on a number of assumptions, including the market cost of servicing, the discount rate, the prepayment rate, and the default rate.
We account for our servicing assets using the amortization method. The amortization of servicing assets is determined in proportion to, and over the period of, the estimated net servicing income and recorded in “mortgage servicing fees” on the income statement.
Servicing assets are evaluated quarterly for possible impairment. This process involves stratifying the assets based upon one or more predominant risk characteristics and determining the fair value of each class. The characteristics may include financial asset type, size, interest rate, date of origination, term and geographic location. If the evaluation indicates that the carrying amount of the servicing assets exceeds their fair value, the carrying amount is reduced by recording a charge to income in the amount of such excess and establishing a valuation reserve allowance. If impairment is determined to be other-than-temporary, a direct write-off of the carrying amount would be recorded. Additional information pertaining to servicing assets is included in Note 9 (“Mortgage Servicing Assets”).
Leases
For leases where Key is the lessee that have initial terms greater than one year, right-of-use assets and corresponding lease liabilities are reported on the balance sheet. Leases with an initial term of less than one year are not recorded on the balance sheet. Our leases where Key is the lessee are primarily classified as operating leases. Operating lease expense is recognized in "net occupancy" and "equipment"on a straight-line basis over the lease term. For additional information, see Note 10 (“Leases”).
Premises and Equipment
Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. We determine depreciation of premises and equipment using the straight-line method over the estimated useful lives of the particular assets. Leasehold improvements are amortized using the straight-line method over the shorter of their useful lives or terms of the leases. Premises and equipment are evaluated for impairment whenever events or circumstances indicate that the carrying value of the asset may not be recoverable.
Goodwill and Other Intangible Assets
Goodwill represents the amount by which the cost of net assets acquired in a business combination exceeds their fair value. Goodwill is assigned to reporting units as of the acquisition date based on the expected benefit to such reporting unit from the synergies of the business combination. Goodwill is not amortized. Goodwill is tested at the reporting unit level for impairment, at least annually as of October 1, or when indicators of impairment exist.
We may elect to perform a qualitative analysis to determine whether or not it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we elect to bypass this qualitative analysis, or conclude via qualitative analysis that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, a quantitative goodwill impairment test is performed. If the fair value is less than the carrying value, an impairment charge is recorded for the difference.
The amount of capital being allocated to our reporting units as a proxy for the carrying value is based on risk-based regulatory capital requirements. Fair values are estimated using a combination of market and income approaches. The market approach incorporates comparable public company multiples along with data related to recent merger and acquisition activity. The income approach consists of discounted cash flow modeling that utilizes internal
forecasts and various other inputs and assumptions. A multi-year internal forecast is prepared for each reporting unit and a terminal growth rate is estimated for each one based on market expectations of inflation and economic conditions in the financial services industry. Earnings projections for reporting units are adjusted for after tax cost savings expected to be realized by a market participant. The discount rate applied to our cash flows is derived from the CAPM. The buildup to the discount rate includes a risk-free rate, 5-year adjusted beta based on peer companies, a market equity risk premium, a size premium and a company specific risk premium. The discount rates differ between our reporting units as they have different levels of risk. A sensitivity analysis is typically performed on key assumptions, such as the discount rates and cost savings estimates.
Other intangible assets with finite lives are amortized on either an accelerated or straight-line basis. We monitor for impairment indicators for goodwill and other intangible assets on a quarterly basis. Additional information pertaining to goodwill and other intangible assets is included in Note 12 (“Goodwill and Other Intangible Assets”).
Business Combinations
We account for our business combinations using the acquisition method of accounting. Under this accounting method, the acquired company’s assets and liabilities are recorded at fair value at the date of acquisition, except as provided for by the applicable accounting guidance, and the results of operations of the acquired company are combined with Key’s results from the date of acquisition forward. Acquisition costs are expensed when incurred. The difference between the purchase price and the fair value of the net assets acquired (including identifiable intangible assets) is recorded as goodwill. Our accounting policy for intangible assets is summarized in this note under the heading “Goodwill and Other Intangible Assets.”
Additional information regarding acquisitions is provided in Note 15 (“Acquisitions, Divestiture, and Discontinued Operations”).
Securities Financing Activities
We enter into repurchase agreements to finance overnight customer sweep deposits. We also enter into repurchase and reverse repurchase agreements to settle other securities obligations. We account for these securities financing agreements as collateralized financing transactions. Repurchase and reverse repurchase agreements are recorded on the balance sheet at the amounts that the securities will be subsequently sold or repurchased. Securities borrowed transactions are recorded on the balance sheet at the amounts of cash collateral advanced. While our securities financing agreements incorporate a right of set off, the assets and liabilities are reported on a gross basis. Reverse repurchase agreements and securities borrowed transactions are included in “short-term investments” on the balance sheet; repurchase agreements are included in “federal funds purchased and securities sold under repurchase agreements.” Fees received in connection with these transactions are recorded in interest income; fees paid are recorded in interest expense.
Additional information regarding securities financing activities is included in Note 16 (“Securities Financing Activities”).
Contingencies and Guarantees
We recognize liabilities for the fair value of our obligations under certain guarantees issued. These liabilities are included in “accrued expense and other liabilities” on the balance sheet. If we receive a fee for a guarantee requiring liability recognition, the amount of the fee represents the initial fair value of the “stand ready” obligation. If there is no fee, the fair value of the stand ready obligation is determined using expected present value measurement techniques, unless observable transactions for comparable guarantees are available. The subsequent accounting for these stand ready obligations depends on the nature of the underlying guarantees. We account for our release from risk under a particular guarantee when the guarantee expires or is settled, or by a systematic and rational amortization method, depending on the risk profile of the guarantee. Contingent aspects of guarantees within the scope of ASC 326 are assessed a reserve under CECL.
Contingent liabilities may result from litigation, claims and assessments, loss or damage to Key. We recognize liabilities from contingencies when a loss is probable and can be reasonably estimated.
Additional information regarding contingencies and guarantees is included in Note 22 (“Commitments, Contingent Liabilities, and Guarantees”).
Revenue Recognition
We recognize revenues as they are earned based on contractual terms, as transactions occur, or as services are provided and collectability is reasonably assured. Our principal source of revenue is interest income from loans and investments. We also earn noninterest income from various banking and financial services offered through both the Commercial and Consumer banks.
Interest Income. The largest source of revenue for us is interest income. Interest income is primarily recognized on an accrual basis according to nondiscretionary formulas in written contracts, such as loan agreements or securities contracts.
Noninterest Income. We earn noninterest income through a variety of financial and transaction services provided to commercial and consumer clients. Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed. In certain circumstances, noninterest income is reported net of associated expenses.
Trust and Investment Services Income. Trust and investment services revenues include brokerage commissions trust and asset management commissions.
Revenue from trade execution and brokerage services is earned through commissions from trade execution on behalf of clients. Revenue from these transactions is recognized at the trade date. Any ongoing service fees are recognized on a monthly basis as services are performed.
Trust and asset management services include asset custody and investment management services provided to individual and institutional customers. Revenue is recognized monthly based on a minimum annual fee, and the market value of assets in custody. Additional fees are recognized for transactional activity at a point in time.
Investment Banking and Debt Placement Fees. Investment banking and debt placement fees primarily represent revenues earned by KeyBanc Capital Markets for various corporate services including advisory, debt placement and underwriting. Revenues for these services are recorded at a point in time, upon completion of a contractually identified transaction, or when an advisory opinion is provided. Investment banking and debt placement costs are reported on a gross basis within other expense on the income statement.
Service Charges on Deposit Accounts. Revenue from service charges on deposit accounts is earned through cash management, wire transfer, and other deposit-related services as well as overdraft, non-sufficient funds, account management and other deposit-related fees. Revenue is recognized for these services either over time, corresponding with deposit accounts’ monthly cycle, or at a point in time for transactional related services and fees. Certain reward costs are netted within revenues from service charges on deposits.
Corporate Services Income. Corporate services income includes various ancillary service revenue including letter of credit fees, loan fees, and certain capital market fees. Revenue from these fees is recorded in a manner that reflects the timing of when transactions occur, and as services are provided.
Cards and Payments income. Cards and payments income includes interchange fees from consumer credit and debit cards processed through card association networks, merchant services, and other card related services. Interchange rates are generally set by the credit card associations and based on purchase volumes and other factors. Interchange fees are recognized as transactions occur. Certain card network costs and reward costs are netted within interchange revenues. Merchant services income represents account management fees and transaction fees charged to merchants for the processing of card association network transactions. Merchant services revenue is recognized as transactions occur, or as services are performed.
Corporate-Owned Life Insurance Income. Income from corporate-owned life insurance primarily represents changes in the cash surrender value of life insurance policies held on certain key employees. Revenue is recognized in each period based on the change in the cash surrender value during the period.
Stock-Based Compensation
Stock-based compensation is measured using the fair value method of accounting on the grant date. The measured cost is recognized over the period during which the recipient is required to provide service in exchange for the award. We estimate expected forfeitures when stock-based awards are granted and record compensation expense only for awards that are expected to vest. Compensation expense related to awards granted to employees is recorded in “personnel expense” on the Consolidated Statements of Income while compensation expense related to awards granted to directors is recorded in “other expense.”
We recognize compensation expense for stock-based, mandatory deferred incentive compensation awards using the accelerated method of amortization over a period of approximately 5 years (the current year performance period and a four-year vesting period, which generally starts in the first quarter following the performance period).
We estimate the fair value of options granted using the Black-Scholes option-pricing model, as further described in Note 17 (“Stock-Based Compensation”). Employee stock options typically become exercisable at the rate of 25% per year, beginning one year after the grant date. Options expire no later than 10 years after their grant date. We recognize stock-based compensation expense for stock options with graded vesting using an accelerated method of amortization.
We use shares repurchased under our annual capital plan submitted to our regulators (treasury shares) for share issuances under all stock-based compensation programs.
Income Taxes
Deferred tax assets and liabilities are determined based on temporary differences between financial statement asset and liability amounts and their respective tax bases, and are measured using enacted tax laws and rates that are expected to apply in the periods in which the deferred tax assets or liabilities are expected to be realized. Deferred tax assets are also recorded for any tax attributes, such as tax credit and net operating loss carryforwards. The net balance of deferred tax assets and liabilities is reported in “Accrued income and other assets” or “Accrued expense and other liabilities” in the consolidated balance sheets, as appropriate. Subsequent changes in the tax laws require adjustment to these assets and liabilities with the cumulative effect included in the provision for income taxes for the period in which the change is enacted. A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized.
Earnings Per Share
Basic net income per common share is calculated using the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each share of common stock and participating securities according to dividends declared (distributed earnings) and participation rights in undistributed earnings. Distributed and undistributed earnings are allocated between common and participating security shareholders based on their respective rights to receive dividends. Nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities (e.g., nonvested service-based restricted stock units). Undistributed net losses are not allocated to nonvested restricted shareholders, as these shareholders do not have a contractual obligation to fund the incurred losses. Net income attributable to common shares is then divided by the weighted-average number of common shares outstanding during the period.
Diluted net income per common share is calculated using the more dilutive of either the treasury method or the two-class method. The dilutive calculation considers the potential dilutive effect of common stock equivalents determined under the treasury stock method. Common stock equivalents include stock options and service- and performance-based restricted stock and stock units granted under our stock plans. Net income attributable to common shares is then divided by the total of weighted-average number of common shares and common stock equivalents outstanding during the period.
Accounting Guidance Adopted in 2020
Measurement of Credit Losses on Financial Instruments (ASU 2016-13, ASU 2018-19, ASU 2019-04, ASU
2019-05, ASU 2019-11, ASU 2020-02, ASU 2020-03)
On January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred-loss methodology that recognized losses when a probable threshold was met with an expected-loss methodology, specifically, recognizing current expected credit losses (CECL) for the remaining life of the asset at the time of origination or acquisition. The CECL methodology applies to loans, debt securities, and other financial assets and net investment in leases measured at amortized cost. It also applies to off-balance sheet credit exposures (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). Assets in the scope of ASC 326 are presented at the net amount expected to be collected after deducting the allowance for credit losses from the amortized cost basis of the assets. ASC 326 also requires credit losses relating to available-for-sale debt securities that management does not intend
to sell or believes that it is more likely than not they will be required to sell to be recorded through an allowance rather than a reduction of the carrying amount.
In accordance with ASC 326, we did not reassess whether recognized purchased credit impaired loans met the criteria of a PCD loan and whether modifications to individual acquired loans accounted for in pools were TDRs as of the date of adoption. At adoption, we elected to not maintain the pools of loans previously accounted for under Subtopic 310-30.
The prospective application resulted in a $4 million adjustment to the amortized cost basis of PCD loans to reflect the addition to the allowance for loans and leases as of January 1, 2020. After the adjustment for the allowance for the loans and leases, the noncredit discount of $15 million is being accreted to interest income using the interest method based on the effective interest rate determined after the adjustment from credit losses as of January 1, 2020.
The ASU requires use of a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Results for reporting periods beginning after January 1, 2020, are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. We posted an adjusting entry decreasing retained earnings as of January 1, 2020, by $230 million, net of deferred taxes of $71 million, for the cumulative effect of adopting ASC 326. The main drivers of the adjustment to retained earnings are summarized in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-ASC 326 Adoption
|
Impact of ASC 326 Adoption
|
As Reported Under ASC 326
|
in millions
|
December 31, 2019
|
January 1, 2020
|
Allowance for credit losses
|
|
|
|
Commercial
|
|
|
|
Commercial and industrial
|
$
|
551
|
|
$
|
(141)
|
|
$
|
410
|
|
Real estate — commercial mortgage
|
143
|
|
16
|
|
159
|
|
Real estate — construction
|
22
|
|
(7)
|
|
15
|
|
Commercial lease financing
|
35
|
|
8
|
|
43
|
|
Total commercial loans
|
751
|
|
(124)
|
|
627
|
|
Consumer
|
|
|
|
Real estate — residential mortgage
|
7
|
|
77
|
|
84
|
|
Home equity loans
|
31
|
|
147
|
|
178
|
|
Consumer direct loans
|
34
|
|
63
|
|
97
|
|
Credit cards
|
47
|
|
35
|
|
82
|
|
Consumer indirect loans
|
30
|
|
6
|
|
36
|
|
Total consumer loans
|
149
|
|
328
|
|
477
|
|
Total ALLL — continuing operations
|
900
|
|
204
|
|
1,104
|
|
Discontinued operations
|
10
|
|
31
|
|
41
|
|
Total ALLL
|
910
|
|
235
|
|
1,145
|
|
Accrued expense and other liabilities
|
75
|
|
70
|
|
145
|
|
Total allowance for credit losses
|
$
|
985
|
|
$
|
305
|
|
$
|
1,290
|
|
|
|
|
|
Simplifying the Test for Goodwill Impairment (ASU 2017-04)
On January 1, 2020, we adopted ASU 2017-04. The ASU amends ASC Topic 350, Intangibles - Goodwill and Other
and eliminates the second step of the test for goodwill impairment.
Under the new accounting guidance, the quantitative analysis requires the estimated fair value of each reporting unit to be compared to its carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than its carrying value, an impairment charge would be recorded for the excess, not to exceed the amount of goodwill allocated to the reporting unit. The adoption of this accounting guidance was applied prospectively and did not affect our financial condition or results of operations. See Note 12 (“Goodwill and Other Intangible Assets”) for additional information.
Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial
Reporting (ASU 2020-04)
We adopted ASU 2020-04 on April 1, 2020. The amendments provide optional expedients and exceptions for certain contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of rate reform. The guidance is effective from the date of issuance until December 31, 2022. The guidance permits Key not to apply modification accounting or remeasure lease payments in lease contracts if the changes to the contract are related to the discontinuation of the reference rate. If certain criteria are met, the amendments also allow exceptions to the dedesignation criteria of the hedging relationship and the assessment of hedge effectiveness during the transition period. It also allows Key to make a one time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020. This one time election may be made at any time after March 12, 2020, but no later than December 31, 2022. Key has not made a determination on whether it will make this election. At the time of adoption, the guidance did not have a significant impact on Key’s
financial condition and results of operations. In January 2021, ASU 2021-01 was issued by the FASB and clarifies that certain exceptions in reference rate reform apply to derivatives that are affected by the discounting transition. We will continue to assess the impact as the reference rate transition occurs over the next two years.
Accounting Guidance Adopted in 2021
|
|
|
|
|
|
|
|
|
|
|
|
Standard
|
Date of Adoption
|
Description
|
Effect on Financial Statements or Other Significant Matters
|
ASU 2019-12, Simplifying the
Accounting for
Income Taxes
|
January 1, 2021
|
This ASU simplifies the accounting for income taxes by removing certain exceptions to the existing guidance, such as exceptions related to the incremental approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period when a
year-to-date loss exceeds the anticipated loss, and the recognition of deferred tax liabilities when a foreign subsidiary becomes an equity method investment and when a foreign equity method investment becomes a subsidiary.
Along with general improvements, it adds simplifications related to franchise taxes, the tax basis of goodwill, and the method for recognizing an enacted change in tax laws. The guidance also specifies that an entity is
not required to allocate the consolidated amount of certain tax expense to a legal entity not subject to tax in its own separate financial statements.
The guidance should be applied on either a retrospective, modified retrospective, or prospective basis depending on the amendment.
|
Key adopted this guidance on January 1, 2021 using the transition guidance prescribed by amendment. The adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations.
|
ASU 2020-01,
Clarifying the
Interactions
between Topic
321,Investments
—Equity
Securities;
Topic 323,
Investments—
Equity Method
and Joint
Ventures; and
Topic 815,
Derivatives and
Hedging
|
January 1, 2021
|
This guidance clarifies that when applying the measurement alternative in Topic 321, companies should consider certain observable transactions that require the application or discontinuance of the equity method under Topic 323.
It also clarifies that companies should not consider whether the underlying securities in certain forward contracts and purchased options would be accounted for under the equity method or fair value option when determining the method of accounting for those contracts.
This guidance should be applied on a prospective basis.
|
Key adopted this guidance on January 1, 2021 on a prospective basis. The adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations.
|
ASU 2020-08,
Codification
Improvements to
Subtopic 310-20,
Receivables—
Nonrefundable
Fees and Other
Costs
|
January 1, 2021
|
This ASU clarifies that at each reporting period an entity should reevaluate whether a callable debt security is within the scope of ASC 310, which says that to the extent the amortized cost basis of an individual callable debt security exceeds the amount repayable by the
issuer at the earliest call date, the premium shall be amortized to the earliest call date, unless prepayment guidance is applied.
This guidance should be applied on a prospective basis.
|
Key adopted this guidance on January 1, 2021 on a prospective basis. The adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations.
|
ASU 2021-01, Reference Rate Reform (Topic 848)
|
January 1, 2021
|
The ASU clarifies that certain optional expedients and exceptions related to contracts modified as a result of reference rate reform and hedge accounting apply to derivatives affected by the discounting transition, such as those that use an interest rate for margining, discounting, or contract price alignment.
The guidance may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020,
Alternatively, it may be applied on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final Update, until the financial statements are available to be issued.
|
Key adopted this guidance on January 1, 2021 on a prospective basis and will assess the impact in conjunction with the reference rate transition as it occurs over the next two years.
|
2. Earnings Per Common Share
Basic earnings per share is the amount of earnings (adjusted for dividends declared on our preferred stock) available to each Common Share outstanding during the reporting periods. Diluted earnings per share is the amount of earnings available to each Common Share outstanding during the reporting periods adjusted to include the effects of potentially dilutive Common Shares. Potentially dilutive Common Shares include stock options and other stock-based awards. Potentially dilutive Common Shares are excluded from the computation of diluted earnings per share in the periods where the effect would be antidilutive.
Our basic and diluted earnings per Common Share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
dollars in millions, except per share amounts
|
2020
|
2019
|
2018
|
EARNINGS
|
|
|
|
Income (loss) from continuing operations
|
$
|
1,329
|
|
$
|
1,708
|
|
$
|
1,859
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
—
|
|
—
|
|
—
|
|
Income (loss) from continuing operations attributable to Key
|
1,329
|
|
1,708
|
|
1,859
|
|
Less: Dividends on preferred stock
|
106
|
|
97
|
|
66
|
|
Income (loss) from continuing operations attributable to Key common shareholders
|
1,223
|
|
1,611
|
|
1,793
|
|
Income (loss) from discontinued operations, net of taxes
|
14
|
|
9
|
|
7
|
|
Net income (loss) attributable to Key common shareholders
|
$
|
1,237
|
|
$
|
1,620
|
|
$
|
1,800
|
|
WEIGHTED-AVERAGE COMMON SHARES
|
|
|
|
Weighted-average Common Shares outstanding (000)
|
967,783
|
|
992,091
|
|
1,040,890
|
|
|
|
|
|
Effect of common share options and other stock awards
|
7,024
|
|
10,163
|
|
13,792
|
|
Weighted-average common shares and potential Common Shares outstanding (000) (a)
|
974,807
|
|
1,002,254
|
|
1,054,682
|
|
EARNINGS PER COMMON SHARE
|
|
|
|
Income (loss) from continuing operations attributable to Key common shareholders
|
$
|
1.26
|
|
$
|
1.62
|
|
$
|
1.72
|
|
Income (loss) from discontinued operations, net of taxes
|
.01
|
|
.01
|
|
.01
|
|
Net income (loss) attributable to Key common shareholders (b)
|
1.28
|
|
1.63
|
|
1.73
|
|
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution
|
1.26
|
|
1.61
|
|
1.70
|
|
Income (loss) from discontinued operations, net of taxes
|
.01
|
|
.01
|
|
.01
|
|
Net income (loss) attributable to Key common shareholders — assuming dilution (b)
|
1.27
|
|
1.62
|
|
1.71
|
|
(a)Assumes conversion of Common Share options and other stock awards and/or convertible preferred stock, as applicable.
(b)EPS may not foot due to rounding.
3. Restrictions on Cash, Dividends, and Lending Activities
Federal law requires a depository institution to maintain a prescribed amount of cash or deposit reserve balances with its Federal Reserve Bank. KeyBank maintained average reserve balances aggregating $97 million in 2020 to fulfill these requirements while they were in effect. As announced on March 15, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
Capital distributions from KeyBank and other subsidiaries are our principal source of cash flows for paying dividends on our common and preferred shares, servicing our debt, and financing corporate operations. Federal banking law limits the amount of capital distributions that a bank can make to its holding company without prior regulatory approval. A national bank’s dividend-paying capacity is affected by several factors, including net profits (as defined by statute) for the previous two calendar years and for the current year, up to the date the dividend is declared.
During 2020, KeyBank paid $1.3 billion in dividends to KeyCorp. At January 1, 2021, KeyBank had regulatory capacity to pay $720 million in dividends to KeyCorp without prior regulatory approval. At December 31, 2020, KeyCorp held $3.8 billion in cash and short-term investments, which can be used to pay dividends to shareholders, service debt, and finance corporate operations.
4. Loan Portfolio
Loan Portfolio by Portfolio Segment and Class of Financing Receivable (a)
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
in millions
|
2020
|
2019
|
Commercial and industrial (a)
|
$
|
52,907
|
|
$
|
48,295
|
|
Commercial real estate:
|
|
|
Commercial mortgage
|
12,687
|
|
13,491
|
|
Construction
|
1,987
|
|
1,558
|
|
Total commercial real estate loans
|
14,674
|
|
15,049
|
|
Commercial lease financing (b)
|
4,399
|
|
4,688
|
|
Total commercial loans
|
71,980
|
|
68,032
|
|
Residential — prime loans:
|
|
|
Real estate — residential mortgage
|
9,298
|
|
7,023
|
|
Home equity loans
|
9,360
|
|
10,274
|
|
Total residential — prime loans
|
18,658
|
|
17,297
|
|
Consumer direct loans
|
4,714
|
|
3,513
|
|
Credit cards
|
989
|
|
1,130
|
|
Consumer indirect loans
|
4,844
|
|
4,674
|
|
Total consumer loans
|
29,205
|
|
26,614
|
|
Total loans (c)
|
$
|
101,185
|
|
$
|
94,646
|
|
|
|
|
(a)Accrued interest of $241 million and $244 million at December 31, 2020, and December 31, 2019, respectively, is presented in "Accrued income and other assets" on the Consolidated Balance Sheets and is excluded from the amortized cost basis disclosed in this table.
(b)Loan balances include $127 million and $144 million of commercial credit card balances at December 31, 2020, and December 31, 2019, respectively.
(c)Commercial lease financing includes receivables of $23 million and $15 million held as collateral for a secured borrowing at December 31, 2020, and December 31, 2019, respectively. Principal reductions are based on the cash payments received from these related receivables. Additional information pertaining to this secured borrowing is included in Note 20 (“Long-Term Debt”).
(d)Total loans exclude loans in the amount of $710 million at December 31, 2020, and $865 million at December 31, 2019, related to the discontinued operations of the education lending business.
5. Asset Quality
ALLL
We estimate the appropriate level of the ALLL on at least a quarterly basis. The methodology is described in Note 1 ("Basis of Presentation and Accounting Policies") under the heading "Allowance for Loan and Lease Losses" of this report.
The ALLL at December 31, 2020, represents our current estimate of lifetime credit losses inherent in the loan portfolio at that date. The changes in the ALLL by loan category for the periods indicated are as follows:
Twelve months ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
December 31, 2019
|
Impact of ASC 326 Adoption
|
January 1, 2020
|
Provision
|
|
Charge-offs
|
Recoveries
|
December 31, 2020
|
Commercial and Industrial
|
$
|
551
|
|
$
|
(141)
|
|
$
|
410
|
|
$
|
585
|
|
|
$
|
(351)
|
|
$
|
34
|
|
$
|
678
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Real estate — commercial mortgage
|
143
|
|
16
|
|
159
|
|
184
|
|
|
(19)
|
|
3
|
|
327
|
|
Real estate — construction
|
22
|
|
(7)
|
|
15
|
|
32
|
|
|
—
|
|
—
|
|
47
|
|
Total commercial real estate loans
|
165
|
|
9
|
|
174
|
|
216
|
|
|
(19)
|
|
3
|
|
374
|
|
Commercial lease financing
|
35
|
|
8
|
|
43
|
|
38
|
|
|
(35)
|
|
1
|
|
47
|
|
Total commercial loans
|
751
|
|
(124)
|
|
627
|
|
839
|
|
|
(405)
|
|
38
|
|
1,099
|
|
Real estate — residential mortgage
|
7
|
|
77
|
|
84
|
|
19
|
|
|
(2)
|
|
1
|
|
102
|
|
Home equity loans
|
31
|
|
147
|
|
178
|
|
(3)
|
|
|
(11)
|
|
7
|
|
171
|
|
Consumer direct loans
|
34
|
|
63
|
|
97
|
|
61
|
|
|
(37)
|
|
7
|
|
128
|
|
Credit cards
|
47
|
|
35
|
|
82
|
|
36
|
|
|
(39)
|
|
8
|
|
87
|
|
Consumer indirect loans
|
30
|
|
6
|
|
36
|
|
13
|
|
|
(28)
|
|
18
|
|
39
|
|
Total consumer loans
|
149
|
|
328
|
|
477
|
|
126
|
|
|
(117)
|
|
41
|
|
527
|
|
Total ALLL — continuing operations
|
900
|
|
204
|
|
1,104
|
|
965
|
|
(a)
|
(522)
|
|
79
|
|
1,626
|
|
Discontinued operations
|
10
|
|
31
|
|
41
|
|
(5)
|
|
|
(5)
|
|
5
|
|
36
|
|
Total ALLL — including discontinued operations
|
$
|
910
|
|
$
|
235
|
|
$
|
1,145
|
|
$
|
960
|
|
|
$
|
(527)
|
|
$
|
84
|
|
$
|
1,662
|
|
|
|
|
|
|
|
|
|
|
(a)Excludes a provision for losses on lending-related commitments of $56 million.
Twelve months ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
December 31, 2018
|
Provision
|
|
|
Charge-offs
|
|
Recoveries
|
December 31, 2019
|
Commercial and Industrial
|
$
|
532
|
|
$
|
311
|
|
|
|
$
|
(319)
|
|
|
$
|
27
|
|
$
|
551
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Real estate — commercial mortgage
|
142
|
|
7
|
|
|
|
(8)
|
|
|
2
|
|
143
|
|
Real estate — construction
|
33
|
|
(6)
|
|
|
|
(5)
|
|
|
—
|
|
22
|
|
Total commercial real estate loans
|
175
|
|
1
|
|
|
|
(13)
|
|
|
2
|
|
165
|
|
Commercial lease financing
|
36
|
|
20
|
|
|
|
(26)
|
|
|
5
|
|
35
|
|
Total commercial loans
|
743
|
|
332
|
|
|
|
(358)
|
|
|
34
|
|
751
|
|
Real estate — residential mortgage
|
7
|
|
1
|
|
|
|
(3)
|
|
|
2
|
|
7
|
|
Home equity loans
|
35
|
|
7
|
|
|
|
(19)
|
|
|
8
|
|
31
|
|
Consumer direct loans
|
30
|
|
38
|
|
|
|
(41)
|
|
|
7
|
|
34
|
|
Credit cards
|
48
|
|
36
|
|
|
|
(44)
|
|
|
7
|
|
47
|
|
Consumer indirect loans
|
20
|
|
27
|
|
|
|
(34)
|
|
|
17
|
|
30
|
|
Total consumer loans
|
140
|
|
109
|
|
|
|
(141)
|
|
|
41
|
|
149
|
|
Total ALLL — continuing operations
|
883
|
|
441
|
|
|
(a) (b)
|
(499)
|
|
(b)
|
75
|
|
900
|
|
Discontinued operations
|
14
|
|
3
|
|
|
|
(12)
|
|
|
5
|
|
10
|
|
Total ALLL — including discontinued operations
|
$
|
897
|
|
$
|
444
|
|
|
|
$
|
(511)
|
|
|
$
|
80
|
|
$
|
910
|
|
|
|
|
|
|
|
|
|
|
(a)Excludes a provision for losses on lending-related commitments of $4 million.
(b)Includes the realization of a $139 million loss related to a previously disclosed fraud incident.
Twelve months ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
December 31, 2017
|
Provision
|
|
Charge-offs
|
Recoveries
|
December 31, 2018
|
Commercial and industrial
|
$
|
529
|
|
$
|
125
|
|
|
$
|
(159)
|
|
$
|
37
|
|
$
|
532
|
|
Real estate — commercial mortgage
|
133
|
|
27
|
|
|
(21)
|
|
3
|
|
142
|
|
Real estate — construction
|
30
|
|
1
|
|
|
—
|
|
2
|
|
33
|
|
Commercial lease financing
|
43
|
|
(2)
|
|
|
(10)
|
|
5
|
|
36
|
|
Total commercial loans
|
735
|
|
151
|
|
|
(190)
|
|
47
|
|
743
|
|
Real estate — residential mortgage
|
7
|
|
1
|
|
|
(3)
|
|
2
|
|
7
|
|
Home equity loans
|
43
|
|
2
|
|
|
(21)
|
|
11
|
|
35
|
|
Consumer direct loans
|
28
|
|
31
|
|
|
(36)
|
|
7
|
|
30
|
|
Credit cards
|
44
|
|
41
|
|
|
(44)
|
|
7
|
|
48
|
|
Consumer indirect loans
|
20
|
|
14
|
|
|
(30)
|
|
16
|
|
20
|
|
Total consumer loans
|
142
|
|
89
|
|
|
(134)
|
|
43
|
|
140
|
|
Total ALLL — continuing operations
|
877
|
|
240
|
|
(a)
|
(324)
|
|
90
|
|
883
|
|
Discontinued operations
|
16
|
|
8
|
|
|
(15)
|
|
5
|
|
14
|
|
Total ALLL — including discontinued operations
|
$
|
893
|
|
$
|
248
|
|
|
$
|
(339)
|
|
$
|
95
|
|
$
|
897
|
|
|
|
|
|
|
|
|
(a)Excludes a provision for losses on lending-related commitments of $6 million.
As described in Note 1 ("Basis of Presentation and Accounting Policies"), we estimate the ALLL using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. In our estimation of expected credit losses, we use a two year reasonable and supportable period across all products. Following this two year period in which supportable forecasts can be generated, for all modeled loan portfolios, we revert expected credit losses to a level that is consistent with our historical information by reverting the macroeconomic variables (model inputs) to their long run average. We revert to historical loss rates for less complex estimation methods for smaller portfolios. A 20 year fixed length look back period is used to calculate the long run average of the macroeconomic variables. A four quarter reversion period is used where the macroeconomic variables linearly revert to their long run average following the two year reasonable and supportable period.
We develop our reasonable and supportable forecasts using relevant data including, but not limited to, changes in economic output, unemployment rates, property values, and other factors associated with the credit losses on financial assets. Some macroeconomic variables apply to all portfolio segments, while others are more portfolio specific. The following table discloses key macroeconomic variables for each loan portfolio.
|
|
|
|
|
|
|
|
|
Segment
|
Portfolio
|
Key Macroeconomic Variables (a)
|
Commercial
|
Commercial and industrial
|
BBB corporate bond rate (spread), GDP, industrial production, and unemployment rate
|
Commercial real estate
|
BBB corporate bond rate (spread), property and real estate price indices, and unemployment rate
|
Commercial lease financing
|
BBB corporate bond rate (spread), GDP, and unemployment rate
|
Consumer
|
Real estate — residential mortgage
|
GDP, home price index, unemployment rate, and 30 year mortgage rate
|
Home equity
|
Home price index, unemployment rate, and 30 year mortgage rate
|
Consumer direct
|
Unemployment rate and U.S. household income
|
Consumer indirect
|
New vehicle sales, Manheim used vehicle value index, and unemployment rate
|
Credit cards
|
Unemployment rate and U.S. household income
|
Discontinued operations
|
Unemployment rate
|
(a)Variables include all transformations and interactions with other risk drivers. Additionally, variables may have varying impacts at different points in the economic cycle.
In addition to macroeconomic drivers, portfolio attributes such as remaining term, outstanding balance, risk ratings, FICO, LTV, and delinquency also drive ALLL changes. Our ALLL models were designed to capture the correlation between economic and portfolio changes. As such, evaluating shifts in individual portfolio attributes and macroeconomic variables in isolation may not be indicative of past or future performance.
Economic Outlook
As of December 31, 2020, the COVID-19 pandemic has continued to create economic stress and uncertainty in the U.S. and globally. We utilized the Moody’s November 2020 Consensus forecast to estimate our expected credit losses as of December 31, 2020. This forecast considered the global economic impact from the ongoing pandemic, as well as the potential United States' fiscal response. We considered all available information at year end, including the December 2020 fiscal stimulus package and the rollout of the COVID vaccines and determined the forecast to be a reasonable view of the outlook for the global economy.
The baseline scenario reflects moderate economic growth over the next two years in markets in which we operate. U.S. GDP continues to rebound from the unprecedented decline in the second quarter of 2020 with a 3% annualized growth rate forecast for the fourth quarter of 2020. GDP continues to grow throughout 2021, returning to pre-pandemic levels by the fourth quarter of 2021. The national unemployment rate forecast is 7.2% in the fourth quarter of 2020, declining to 6.3% by the fourth quarter of 2021.
To the extent we identify credit risk considerations that are not captured by the third-party economic forecast, we address the risk through management’s qualitative adjustments to the ALLL.
As a result of the unprecedented economic uncertainty caused by the COVID-19 pandemic, our future loss estimates may vary considerably from our December 31, 2020, assumptions.
Commercial Loan Portfolio
The ALLL from continuing operations for the commercial segment decreased by $124 million, or 16.5%, from December 31, 2019 to January 1, 2020, with the adoption of ASU 2016-13, Financial Instruments - Credit Losses (ASC 326). The commercial ALLL increased by $472 million, or 75.3%, from January 1, 2020, through December 31, 2020, driven by updated economic forecasts that capture deterioration triggered by the global COVID-19 pandemic.
The primary changes to the economic forecast included higher unemployment and decreased GDP and commercial real estate price indices, which contributed to the ALLL increase for the overall commercial segment. Negative risk rating migration and increased criticized assets during the year also contributed to increases in ALLL levels for the commercial segment.
As of December 31, 2020, we concluded that no ALLL is necessary for $6.7 billion in outstanding PPP loans as they are 100% guaranteed by the SBA.
Consumer Loan Portfolio
The ALLL from continuing operations for the consumer segment increased by $328 million, or 220%, from December 31, 2019 to January 1, 2020, with the adoption of ASU 2016-13, Financial Instruments - Credit Losses (ASC 326). The consumer ALLL increased $50 million, or 10.5%, from January 1, 2020 through December 31, 2020, largely driven by updated economic forecasts that capture deterioration triggered by the global COVID-19 pandemic.
The most meaningful economic forecast change contributing to the increase in reserves since January 1, 2020 is deterioration in the unemployment rate outlook, which impacts all consumer segments. As it relates to the changes in the ALLL due to portfolio factors, shifts are largely driven by attrition activity, targeted portfolio growth and overall strong credit performance. The ALLL results reflect incremental credit risk considerations as a result of the economic stress and related borrower assistance programs, which are addressed through qualitative adjustments.
Credit Risk Profile
The prevalent risk characteristic for both commercial and consumer loans is the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Evaluation of this risk is stratified and monitored by the loan risk rating grades assigned for the commercial loan portfolios and the refreshed FICO score assigned for the consumer loan portfolios. The internal risk grades assigned to loans follow our definitions of Pass and Criticized, which are consistent with published definitions of regulatory risk classifications. Loans with a pass rating represent those loans not classified on our rating scale for problem credits, as minimal credit risk has been identified. Criticized loans are those loans that either have a potential weakness deserving management's close attention or have a well-defined weakness that may put full collection of contractual cash flows at risk. Borrower FICO scores provide information about the credit quality of our consumer loan portfolio as they provide an indication as to the likelihood that a debtor will repay its debts. The scores are obtained from a nationally recognized consumer rating agency and are presented in the tables below at the dates indicated.
Most extensions of credit are subject to loan scoring. Loan grades are assigned at the time of origination, verified by credit risk management, and periodically re-evaluated thereafter. This risk rating methodology blends our judgment with quantitative modeling. Commercial loans generally are assigned two internal risk ratings. The first rating reflects the probability that the borrower will default on an obligation; the second rating reflects expected recovery rates on the credit facility. Default probability is determined based on, among other factors, the financial strength of the borrower, an assessment of the borrower’s management, the borrower’s competitive position within its industry sector, and our view of industry risk in the context of the general economic outlook. Types of exposure, transaction structure, and collateral, including credit risk mitigants, affect the expected recovery assessment.
Commercial Credit Exposure
Credit Risk Profile by Creditworthiness Category and Vintage (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
Term Loans
|
Revolving Loans Amortized Cost Basis
|
Revolving Loans Converted to Term Loans Amortized Cost Basis
|
|
|
Amortized Cost Basis by Origination Year and Internal Risk Rating
|
|
in millions
|
2020
|
2019
|
2018
|
2017
|
2016
|
Prior
|
Total
|
Commercial and Industrial
|
|
|
|
|
|
|
|
|
|
Risk Rating:
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
13,100
|
|
$
|
5,487
|
|
$
|
4,040
|
|
$
|
2,617
|
|
$
|
1,967
|
|
$
|
2,709
|
|
$
|
19,832
|
|
$
|
118
|
|
$
|
49,870
|
|
Criticized (Accruing)
|
66
|
|
198
|
|
174
|
|
236
|
|
150
|
|
279
|
|
1,527
|
|
22
|
|
2,652
|
|
Criticized (Nonaccruing)
|
8
|
|
27
|
|
71
|
|
28
|
|
17
|
|
7
|
|
226
|
|
1
|
|
385
|
|
Total commercial and industrial
|
13,174
|
|
5,712
|
|
4,285
|
|
2,881
|
|
2,134
|
|
2,995
|
|
21,585
|
|
141
|
|
52,907
|
|
Real estate — commercial mortgage
|
|
|
|
|
|
|
|
|
|
Risk Rating:
|
|
|
|
|
|
|
|
|
|
Pass
|
1,591
|
|
2,937
|
|
1,737
|
|
867
|
|
765
|
|
3,027
|
|
885
|
|
43
|
|
11,852
|
|
Criticized (Accruing)
|
12
|
|
142
|
|
81
|
|
145
|
|
72
|
|
255
|
|
22
|
|
2
|
|
731
|
|
Criticized (Nonaccruing)
|
—
|
|
1
|
|
4
|
|
4
|
|
2
|
|
88
|
|
5
|
|
—
|
|
104
|
|
Total real estate — commercial mortgage
|
1,603
|
|
3,080
|
|
1,822
|
|
1,016
|
|
839
|
|
3,370
|
|
912
|
|
45
|
|
12,687
|
|
Real estate — construction
|
|
|
|
|
|
|
|
|
|
Risk Rating:
|
|
|
|
|
|
|
|
|
|
Pass
|
367
|
|
764
|
|
510
|
|
188
|
|
27
|
|
22
|
|
31
|
|
5
|
|
1,914
|
|
Criticized (Accruing)
|
—
|
|
14
|
|
38
|
|
18
|
|
—
|
|
2
|
|
1
|
|
—
|
|
73
|
|
Criticized (Nonaccruing)
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Total real estate — construction
|
367
|
|
778
|
|
548
|
|
206
|
|
27
|
|
24
|
|
32
|
|
5
|
|
1,987
|
|
Commercial lease financing
|
|
|
|
|
|
|
|
|
|
Risk Rating:
|
|
|
|
|
|
|
|
|
|
Pass
|
1,076
|
|
1,050
|
|
534
|
|
504
|
|
228
|
|
901
|
|
—
|
|
—
|
|
4,293
|
|
Criticized (Accruing)
|
10
|
|
35
|
|
15
|
|
26
|
|
7
|
|
4
|
|
—
|
|
—
|
|
97
|
|
Criticized (Nonaccruing)
|
—
|
|
2
|
|
2
|
|
2
|
|
2
|
|
1
|
|
—
|
|
—
|
|
9
|
|
Total commercial lease financing
|
1,086
|
|
1,087
|
|
551
|
|
532
|
|
237
|
|
906
|
|
|
—
|
|
4,399
|
|
Total commercial loans
|
$
|
16,230
|
|
$
|
10,657
|
|
$
|
7,206
|
|
$
|
4,635
|
|
$
|
3,237
|
|
$
|
7,295
|
|
$
|
22,529
|
|
$
|
191
|
|
$
|
71,980
|
|
|
|
|
|
|
|
|
|
|
|
(a)Accrued interest of $140 million, presented in Other Assets on the Consolidated Balance Sheets, was excluded from the amortized cost basis disclosed in this table.
Consumer Credit Exposure
Credit Risk Profile by FICO Score and Vintage (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
Term Loans
|
Revolving Loans Amortized Cost Basis
|
Revolving Loans Converted to Term Loans Amortized Cost Basis
|
|
|
Amortized Cost Basis by Origination Year and FICO Score
|
|
in millions
|
2020
|
2019
|
2018
|
2017
|
2016
|
Prior
|
Total
|
Real estate — residential mortgage
|
|
|
|
|
|
|
|
|
|
FICO Score:
|
|
|
|
|
|
|
|
|
|
750 and above
|
$
|
3,595
|
|
$
|
1,620
|
|
$
|
194
|
|
$
|
254
|
|
$
|
537
|
|
$
|
1,211
|
|
—
|
|
—
|
|
$
|
7,411
|
|
660 to 749
|
710
|
|
284
|
|
76
|
|
48
|
|
100
|
|
332
|
|
—
|
|
—
|
|
1,550
|
|
Less than 660
|
16
|
|
28
|
|
21
|
|
10
|
|
26
|
|
170
|
|
—
|
|
—
|
|
271
|
|
No Score
|
1
|
|
2
|
|
2
|
|
7
|
|
2
|
|
52
|
|
—
|
|
—
|
|
66
|
|
Total real estate — residential mortgage
|
4,322
|
|
1,934
|
|
293
|
|
319
|
|
665
|
|
1,765
|
|
—
|
|
—
|
|
9,298
|
|
Home equity loans
|
|
|
|
|
|
|
|
|
|
FICO Score:
|
|
|
|
|
|
|
|
|
|
750 and above
|
1,043
|
|
404
|
|
168
|
|
202
|
|
190
|
|
839
|
|
$
|
2,689
|
|
$
|
590
|
|
6,125
|
|
660 to 749
|
385
|
|
198
|
|
82
|
|
77
|
|
69
|
|
253
|
|
1,237
|
|
206
|
|
2,507
|
|
Less than 660
|
27
|
|
30
|
|
18
|
|
20
|
|
20
|
|
113
|
|
426
|
|
61
|
|
715
|
|
No Score
|
2
|
|
2
|
|
1
|
|
—
|
|
—
|
|
2
|
|
5
|
|
1
|
|
13
|
|
Total home equity loans
|
1,457
|
|
634
|
|
269
|
|
299
|
|
279
|
|
1,207
|
|
4,357
|
|
858
|
|
9,360
|
|
Consumer direct loans
|
|
|
|
|
|
|
|
|
|
FICO Score:
|
|
|
|
|
|
|
|
|
|
750 and above
|
1,840
|
|
883
|
|
115
|
|
32
|
|
16
|
|
57
|
|
119
|
|
—
|
|
3,062
|
|
660 to 749
|
479
|
|
268
|
|
80
|
|
22
|
|
14
|
|
33
|
|
254
|
|
1
|
|
1,151
|
|
Less than 660
|
23
|
|
37
|
|
21
|
|
8
|
|
5
|
|
10
|
|
81
|
|
—
|
|
185
|
|
No Score
|
65
|
|
35
|
|
21
|
|
21
|
|
10
|
|
11
|
|
153
|
|
—
|
|
316
|
|
Total consumer direct loans
|
2,407
|
|
1,223
|
|
237
|
|
83
|
|
45
|
|
111
|
|
607
|
|
1
|
|
4,714
|
|
Credit cards
|
|
|
|
|
|
|
|
|
|
FICO Score:
|
|
|
|
|
|
|
|
|
|
750 and above
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
488
|
|
—
|
|
488
|
|
660 to 749
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
407
|
|
—
|
|
407
|
|
Less than 660
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
93
|
|
—
|
|
93
|
|
No Score
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
—
|
|
1
|
|
Total credit cards
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
989
|
|
—
|
|
989
|
|
Consumer indirect loans
|
|
|
|
|
|
|
|
|
|
FICO Score:
|
|
|
|
|
|
|
|
|
|
750 and above
|
1,092
|
|
924
|
|
369
|
|
188
|
|
69
|
|
66
|
|
—
|
|
—
|
|
2,708
|
|
660 to 749
|
653
|
|
558
|
|
232
|
|
97
|
|
36
|
|
47
|
|
—
|
|
—
|
|
1,623
|
|
Less than 660
|
143
|
|
163
|
|
99
|
|
54
|
|
25
|
|
28
|
|
—
|
|
—
|
|
512
|
|
No Score
|
1
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
Total consumer indirect loans
|
1,889
|
|
1,645
|
|
700
|
|
339
|
|
130
|
|
141
|
|
—
|
|
—
|
|
4,844
|
|
Total consumer loans
|
$
|
10,075
|
|
$
|
5,436
|
|
$
|
1,499
|
|
$
|
1,040
|
|
$
|
1,119
|
|
$
|
3,224
|
|
$
|
5,953
|
|
$
|
859
|
|
$
|
29,205
|
|
|
|
|
|
|
|
|
|
|
|
(a)Accrued interest of $101 million, presented in Other Assets on the Consolidated Balance Sheets, was excluded from the amortized cost basis disclosed in this table.
Nonperforming and Past Due Loans
Our policies for determining past due loans, placing loans on nonaccrual, applying payments on nonaccrual loans, and resuming accrual of interest for our commercial and consumer loan portfolios are disclosed in Note 1 (”Basis of Presentation and Accounting Policies”) and Note 1 (“Summary of Significant Accounting Policies”) under the heading “Nonperforming Loans”.
Under the CARES Act as well as banking regulator interagency guidance, certain loan modifications to borrowers experiencing financial distress as a result of the economic impacts created by the COVID-19 pandemic may not be required to be reported as past due and nonperforming. For COVID-19 related loan modifications which occurred from March 1, 2020, through December 31, 2020, and met the loan modification criteria under either the CARES Act or the criteria specified by the regulatory agencies, we have elected to re-age to current status all commercial loans and consumer loans that are not secured by real-estate and freeze the delinquency status of consumer real estate secured loans as of the modification or forbearance grant date. At December 31, 2020, the portfolio loans and leases that have received a payment deferral or forbearance as part of our COVID-19 hardship relief programs totaled $575 million, of which $506 million of loan modifications and forbearances made under the criteria of either the CARES Act, banking regulator interagency guidance, or short-term forbearance policies were not reported as nonperforming.
The following aging analysis of past due and current loans as of December 31, 2020, and December 31, 2019, provides further information regarding Key’s credit exposure.
Aging Analysis of Loan Portfolio(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Current
|
30-59
Days Past
Due (b)
|
60-89
Days Past
Due (b)
|
90 and
Greater
Days Past
Due (b)
|
Non-performing
Loans (c)
|
Total Past
Due and
Non-performing
Loans (c)
|
Total
Loans (d)
|
in millions
|
LOAN TYPE
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
52,396
|
|
$
|
36
|
|
$
|
50
|
|
$
|
40
|
|
$
|
385
|
|
$
|
511
|
|
$
|
52,907
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
Commercial mortgage
|
12,548
|
|
9
|
|
5
|
|
21
|
|
104
|
|
139
|
|
12,687
|
|
Construction
|
1,986
|
|
—
|
|
—
|
|
1
|
|
—
|
|
1
|
|
1,987
|
|
Total commercial real estate loans
|
14,534
|
|
9
|
|
5
|
|
22
|
|
104
|
|
140
|
|
14,674
|
|
Commercial lease financing
|
4,369
|
|
21
|
|
1
|
|
—
|
|
8
|
|
30
|
|
4,399
|
|
Total commercial loans
|
$
|
71,299
|
|
$
|
66
|
|
$
|
56
|
|
$
|
62
|
|
$
|
497
|
|
$
|
681
|
|
$
|
71,980
|
|
Real estate — residential mortgage
|
$
|
9,173
|
|
$
|
11
|
|
$
|
3
|
|
$
|
1
|
|
$
|
110
|
|
$
|
125
|
|
$
|
9,298
|
|
Home equity loans
|
9,143
|
|
34
|
|
20
|
|
9
|
|
154
|
|
217
|
|
9,360
|
|
Consumer direct loans
|
4,694
|
|
7
|
|
4
|
|
4
|
|
5
|
|
20
|
|
4,714
|
|
Credit cards
|
972
|
|
5
|
|
3
|
|
7
|
|
2
|
|
17
|
|
989
|
|
Consumer indirect loans
|
4,792
|
|
25
|
|
7
|
|
3
|
|
17
|
|
52
|
|
4,844
|
|
Total consumer loans
|
$
|
28,774
|
|
$
|
82
|
|
$
|
37
|
|
$
|
24
|
|
$
|
288
|
|
$
|
431
|
|
$
|
29,205
|
|
Total loans
|
$
|
100,073
|
|
$
|
148
|
|
$
|
93
|
|
$
|
86
|
|
$
|
785
|
|
$
|
1,112
|
|
$
|
101,185
|
|
|
|
|
|
|
|
|
|
(a)Amounts in table represent amortized cost and exclude loans held for sale.
(b)Accrued interest of $241 million presented in “other assets” on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed in this table.
(c)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 PCD loans. PCD loans that met the definition of nonperforming are now included in nonperforming disclosures.
(d)Net of unearned income, net of deferred fees and costs, and unamortized discounts and premiums.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
Current
|
30-59
Days Past
Due (b)
|
60-89
Days Past
Due (b)
|
90 and
Greater
Days Past
Due (b)
|
Non-performing
Loans
|
Total Past
Due and
Non-performing
Loans
|
Purchased
Credit
Impaired
|
Total
Loans
|
in millions
|
LOAN TYPE
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
47,768
|
|
$
|
110
|
|
$
|
52
|
|
$
|
53
|
|
$
|
264
|
|
$
|
479
|
|
48
|
|
$
|
48,295
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Commercial mortgage
|
13,258
|
|
8
|
|
5
|
|
13
|
|
83
|
|
109
|
|
124
|
|
13,491
|
|
Construction
|
1,551
|
|
3
|
|
—
|
|
1
|
|
2
|
|
6
|
|
1
|
|
1,558
|
|
Total commercial real estate loans
|
14,809
|
|
11
|
|
5
|
|
14
|
|
85
|
|
115
|
|
125
|
|
15,049
|
|
Commercial lease financing
|
4,647
|
|
22
|
|
11
|
|
2
|
|
6
|
|
41
|
|
—
|
|
4,688
|
|
Total commercial loans
|
$
|
67,224
|
|
$
|
143
|
|
$
|
68
|
|
$
|
69
|
|
$
|
355
|
|
$
|
635
|
|
173
|
|
$
|
68,032
|
|
Real estate — residential mortgage
|
$
|
6,705
|
|
$
|
7
|
|
$
|
5
|
|
$
|
1
|
|
$
|
48
|
|
$
|
61
|
|
$
|
257
|
|
$
|
7,023
|
|
Home equity loans
|
10,071
|
|
30
|
|
10
|
|
5
|
|
145
|
|
190
|
|
13
|
|
10,274
|
|
Consumer direct loans
|
3,484
|
|
10
|
|
5
|
|
7
|
|
4
|
|
26
|
|
3
|
|
3,513
|
|
Credit cards
|
1,104
|
|
6
|
|
5
|
|
12
|
|
3
|
|
26
|
|
—
|
|
1,130
|
|
Consumer indirect loans
|
4,609
|
|
32
|
|
8
|
|
3
|
|
22
|
|
65
|
|
—
|
|
4,674
|
|
Total consumer loans
|
$
|
25,973
|
|
$
|
85
|
|
$
|
33
|
|
$
|
28
|
|
$
|
222
|
|
$
|
368
|
|
$
|
273
|
|
$
|
26,614
|
|
Total loans
|
$
|
93,197
|
|
$
|
228
|
|
$
|
101
|
|
$
|
97
|
|
$
|
577
|
|
$
|
1,003
|
|
$
|
446
|
|
$
|
94,646
|
|
|
|
|
|
|
|
|
|
|
(a)Amounts in table represent recorded investment and exclude loans held for sale. Recorded investment represents the principal amount of the loan increased or decreased by net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs.
(b)Past due loan amounts exclude PCI, even if contractually past due (or if we do not expect to collect principal or interest in full based on the original contractual terms), as we are currently accreting income over the remaining term of the loans.
At December 31, 2020, the carrying amount of our commercial nonperforming loans outstanding represented 70% of their original contractual amount owed, total nonperforming loans outstanding represented 76% of their original contractual amount owed, and nonperforming assets in total were carried at 83% of their original contractual amount owed.
Nonperforming loans reduced expected interest income by $27 million, $31 million, and $30 million for each of the twelve months ended December 31, 2020, December 31, 2019, and December 31, 2018, respectively.
The amortized cost basis of nonperforming loans on nonaccrual status for which there is no related allowance for credit losses was $379 million at December 31, 2020.
Collateral-dependent Financial Assets
We classify financial assets as collateral-dependent when our borrower is experiencing financial difficulty, and we expect repayment to be provided substantially through the operation or sale of the collateral. Our commercial loans have collateral that includes cash, accounts receivable, inventory, commercial machinery, commercial properties, commercial real estate construction projects, and stock or ownership interests in the borrowing entity. When appropriate we also consider the enterprise value of the borrower as a repayment source for collateral-dependent loans. Our consumer loans have collateral that includes residential real estate, automobiles, boats, and RVs.
There were no significant changes in the extent to which collateral secures our collateral-dependent financial assets during 2020.
TDRs
We classify loan modifications as TDRs when a borrower is experiencing financial difficulties and we have granted a concession without commensurate financial, structural, or legal consideration. Our loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial needs. Under the CARES Act as well as banking regulator interagency guidance, certain loan modifications to borrowers experiencing financial distress as a result of the economic impacts created by the COVID-19 pandemic may not be required to be treated as TDRs under U.S. GAAP. We elected to suspend TDR accounting for $506 million of COVID-19 related loan modifications as of December 31, 2020, as such loan modifications met the criteria under either the CARES Act, banking regulator interagency guidance or are a short-term forbearance.
Commitments outstanding to lend additional funds to borrowers whose loan terms have been modified in TDRs were $1 million and $4 million at December 31, 2020, and December 31, 2019, respectively.
The consumer TDR other concession category in the table below primarily includes those borrowers’ debts that are discharged through Chapter 7 bankruptcy and have not been formally re-affirmed. At December 31, 2020, and December 31, 2019, the recorded investment of consumer residential mortgage loans in the process of foreclosure was approximately $92 million and $97 million, respectively.
The following table shows the post-modification outstanding recorded investment by concession type for our commercial and consumer accruing and nonaccruing TDRs that occurred during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
in millions
|
|
|
2020
|
2019
|
Commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extension of Maturity Date
|
|
|
$
|
5
|
|
$
|
11
|
|
Payment or Covenant Modification/Deferment
|
|
|
59
|
|
11
|
|
Bankruptcy Plan Modification
|
|
|
—
|
|
—
|
|
Increase in new commitment or new money
|
|
|
—
|
|
8
|
|
Total
|
|
|
$
|
64
|
|
$
|
30
|
|
Consumer loans:
|
|
|
|
|
Interest rate reduction
|
|
|
$
|
41
|
|
$
|
14
|
|
|
|
|
|
|
Other
|
|
|
21
|
|
29
|
|
Total
|
|
|
$
|
62
|
|
$
|
43
|
|
Total TDRs
|
|
|
$
|
126
|
|
$
|
73
|
|
The following table summarizes the change in the post-modification outstanding recorded investment of our accruing and nonaccruing TDRs during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
in millions
|
|
|
2020
|
2019
|
Balance at beginning of the period
|
|
|
$
|
347
|
|
$
|
399
|
|
Additions
|
|
|
173
|
|
112
|
|
Payments
|
|
|
(95)
|
|
(145)
|
|
Charge-offs
|
|
|
(62)
|
|
(19)
|
|
Balance at end of period
|
|
|
$
|
363
|
|
$
|
347
|
|
|
|
|
|
|
A further breakdown of TDRs included in nonperforming loans by loan category for the periods indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Number
of Loans
|
Pre-modification
Outstanding
Recorded
Investment
|
Post-modification
Outstanding
Recorded
Investment
|
|
Number
of Loans
|
Pre-modification
Outstanding
Recorded
Investment
|
Post-modification
Outstanding
Recorded
Investment
|
dollars in millions
|
LOAN TYPE
|
|
|
|
|
|
|
|
Nonperforming:
|
|
|
|
|
|
|
|
Commercial and industrial
|
66
|
|
$
|
136
|
|
$
|
92
|
|
|
51
|
|
$
|
72
|
|
$
|
53
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
Real estate — commercial mortgage
|
7
|
|
62
|
|
50
|
|
|
6
|
|
64
|
|
58
|
|
Total commercial real estate loans
|
7
|
|
62
|
|
50
|
|
|
6
|
|
64
|
|
58
|
|
Total commercial loans
|
73
|
|
198
|
|
142
|
|
|
57
|
|
136
|
|
111
|
|
Real estate — residential mortgage
|
258
|
|
35
|
|
34
|
|
|
181
|
|
13
|
|
11
|
|
Home equity loans
|
630
|
|
41
|
|
37
|
|
|
713
|
|
42
|
|
41
|
|
Consumer direct loans
|
212
|
|
3
|
|
3
|
|
|
172
|
|
2
|
|
2
|
|
Credit cards
|
356
|
|
2
|
|
2
|
|
|
368
|
|
2
|
|
2
|
|
Consumer indirect loans
|
861
|
|
15
|
|
11
|
|
|
1,131
|
|
19
|
|
16
|
|
Total consumer loans
|
2,317
|
|
96
|
|
87
|
|
|
2,565
|
|
78
|
|
72
|
|
Total nonperforming TDRs
|
2,390
|
|
294
|
|
229
|
|
|
2,622
|
|
214
|
|
183
|
|
Prior-year accruing: (a)
|
|
|
|
|
|
|
|
Commercial and industrial
|
3
|
|
5
|
|
—
|
|
|
6
|
|
30
|
|
25
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
Real estate — commercial mortgage
|
—
|
|
—
|
|
—
|
|
|
1
|
|
—
|
|
—
|
|
Total commercial loans
|
3
|
|
5
|
|
—
|
|
|
7
|
|
30
|
|
25
|
|
Real estate — residential mortgage
|
485
|
|
37
|
|
31
|
|
|
493
|
|
37
|
|
31
|
|
Home equity loans
|
1,781
|
|
106
|
|
83
|
|
|
1,751
|
|
104
|
|
84
|
|
Consumer direct loans
|
163
|
|
4
|
|
3
|
|
|
139
|
|
4
|
|
3
|
|
Credit cards
|
536
|
|
3
|
|
1
|
|
|
486
|
|
3
|
|
1
|
|
Consumer indirect loans
|
775
|
|
29
|
|
16
|
|
|
714
|
|
33
|
|
20
|
|
Total consumer loans
|
3,740
|
|
179
|
|
134
|
|
|
3,583
|
|
181
|
|
139
|
|
Total prior-year accruing TDRs
|
3,743
|
|
184
|
|
134
|
|
|
3,590
|
|
211
|
|
164
|
|
Total TDRs
|
6,133
|
|
$
|
478
|
|
$
|
363
|
|
|
6,212
|
|
$
|
425
|
|
$
|
347
|
|
|
|
|
|
|
|
|
|
(a)All TDRs that were restructured prior to January 1, 2020, and January 1, 2019, are fully accruing.
Commercial loan TDRs are considered defaulted when principal and interest payments are 90 days past due. Consumer loan TDRs are considered defaulted when principal and interest payments are more than 60 days past due. During 2020, there were seven commercial loan TDRs and 212 consumer loan TDRs with a combined recorded investment of $10 million that experienced payment defaults after modifications resulting in TDR status during 2019. During 2019, there were no commercial loan TDRs and 356 consumer loan TDRs with a combined recorded investment of $8 million that experienced payment defaults after modifications resulting in TDR status during 2018.
Liability for Credit Losses on Off Balance Sheet Exposures
The liability for credit losses inherent in unfunded lending-related commitments, such as letters of credit and unfunded loan commitments, and certain financial guarantees is included in “accrued expense and other liabilities” on the balance sheet and is assessed a reserve under CECL.
Changes in the liability for credit losses on off balance sheet exposures are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
in millions
|
|
|
2020
|
2019
|
Balance at the end of the prior period
|
|
|
$
|
68
|
|
$
|
64
|
|
Liability for credit losses on contingent guarantees at the end of the prior period
|
|
|
7
|
|
—
|
|
Cumulative effect from change in accounting principle (a), (b)
|
|
|
66
|
|
—
|
|
Balance at beginning of period
|
|
|
141
|
|
64
|
|
Provision (credit) for losses on off balance sheet exposures
|
|
|
56
|
|
4
|
|
Balance at end of period
|
|
|
$
|
197
|
|
$
|
68
|
|
|
|
|
|
|
(a)The cumulative effect from change in accounting principle relates to the January 1, 2020, adoption of ASU 2016-13.
(b)Excludes $4 million related to the provision for other financial assets.
6. Fair Value Measurements
In accordance with GAAP, Key measures certain assets and liabilities at fair value. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants in our principal market. Additional information regarding our accounting policies for determining fair value is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Fair Value Measurements.”
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present assets and liabilities measured at fair value on a recurring basis at December 31, 2020, and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
December 31, 2019
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
in millions
|
ASSETS MEASURED ON A RECURRING BASIS
|
|
|
|
|
|
|
|
|
Trading account assets:
|
|
|
|
|
|
|
|
|
U.S. Treasury, agencies and corporations
|
—
|
|
$
|
633
|
|
—
|
|
$
|
633
|
|
—
|
|
$
|
843
|
|
—
|
|
$
|
843
|
|
States and political subdivisions
|
—
|
|
24
|
|
—
|
|
24
|
|
—
|
|
30
|
|
—
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Other mortgage-backed securities
|
—
|
|
47
|
|
—
|
|
47
|
|
—
|
|
78
|
|
—
|
|
78
|
|
Other securities
|
—
|
|
13
|
|
—
|
|
13
|
|
—
|
|
44
|
|
—
|
|
44
|
|
Total trading account securities
|
—
|
|
717
|
|
—
|
|
717
|
|
—
|
|
995
|
|
—
|
|
995
|
|
Commercial loans
|
—
|
|
18
|
|
—
|
|
18
|
|
—
|
|
45
|
|
—
|
|
45
|
|
Total trading account assets
|
—
|
|
735
|
|
—
|
|
735
|
|
—
|
|
1,040
|
|
—
|
|
1,040
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
U.S. Treasury, agencies and corporations
|
—
|
|
1,000
|
|
—
|
|
1,000
|
|
—
|
|
334
|
|
—
|
|
334
|
|
States and political subdivisions
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4
|
|
—
|
|
4
|
|
Agency residential collateralized mortgage obligations
|
—
|
|
14,273
|
|
—
|
|
14,273
|
|
—
|
|
12,783
|
|
—
|
|
12,783
|
|
Agency residential mortgage-backed securities
|
—
|
|
2,164
|
|
—
|
|
2,164
|
|
—
|
|
1,714
|
|
—
|
|
1,714
|
|
Agency commercial mortgage-backed securities
|
—
|
|
10,106
|
|
—
|
|
10,106
|
|
—
|
|
6,997
|
|
—
|
|
6,997
|
|
Other securities
|
—
|
|
—
|
|
$
|
13
|
|
13
|
|
—
|
|
—
|
|
$
|
11
|
|
11
|
|
Total securities available for sale
|
—
|
|
27,543
|
|
13
|
|
27,556
|
|
—
|
|
21,832
|
|
11
|
|
21,843
|
|
Other investments:
|
|
|
|
|
|
|
|
|
Principal investments:
|
|
|
|
|
|
|
|
|
Direct
|
—
|
|
—
|
|
1
|
|
1
|
|
—
|
|
—
|
|
1
|
|
1
|
|
Indirect (measured at NAV) (a)
|
—
|
|
—
|
|
—
|
|
53
|
|
—
|
|
—
|
|
—
|
|
68
|
|
Total principal investments
|
—
|
|
—
|
|
1
|
|
54
|
|
—
|
|
—
|
|
1
|
|
69
|
|
Equity investments:
|
|
|
|
|
|
|
|
|
Direct
|
—
|
|
—
|
|
13
|
|
13
|
|
—
|
|
—
|
|
12
|
|
12
|
|
Direct (measured at NAV) (a)
|
—
|
|
—
|
|
—
|
|
7
|
|
—
|
|
—
|
|
—
|
|
1
|
|
Indirect (measured at NAV) (a)
|
—
|
|
—
|
|
—
|
|
7
|
|
—
|
|
—
|
|
—
|
|
8
|
|
Total equity investments
|
—
|
|
—
|
|
13
|
|
27
|
|
—
|
|
—
|
|
12
|
|
21
|
|
Total other investments
|
—
|
|
—
|
|
14
|
|
81
|
|
—
|
|
—
|
|
13
|
|
90
|
|
Loans, net of unearned income (residential)
|
—
|
|
—
|
|
11
|
|
11
|
|
—
|
|
—
|
|
4
|
|
4
|
|
Loans held for sale (residential)
|
—
|
|
264
|
|
—
|
|
264
|
|
—
|
|
140
|
|
—
|
|
140
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Interest rate
|
—
|
|
1,528
|
|
56
|
|
1,584
|
|
—
|
|
941
|
|
22
|
|
963
|
|
Foreign exchange
|
$
|
78
|
|
31
|
|
—
|
|
109
|
|
$
|
49
|
|
$
|
18
|
|
$
|
—
|
|
$
|
67
|
|
Commodity
|
—
|
|
424
|
|
2
|
|
426
|
|
—
|
|
208
|
|
—
|
|
208
|
|
Credit
|
—
|
|
—
|
|
1
|
|
1
|
|
—
|
|
—
|
|
1
|
|
1
|
|
Other
|
—
|
|
26
|
|
32
|
|
58
|
|
—
|
|
9
|
|
5
|
|
14
|
|
Derivative assets
|
78
|
|
2,009
|
|
91
|
|
2,178
|
|
49
|
|
1,176
|
|
28
|
|
1,253
|
|
Netting adjustments (b)
|
—
|
|
—
|
|
—
|
|
(380)
|
|
—
|
|
—
|
|
—
|
|
(473)
|
|
Total derivative assets
|
78
|
|
2,009
|
|
91
|
|
1,798
|
|
49
|
|
1,176
|
|
28
|
|
780
|
|
|
|
|
|
|
|
|
|
|
Total assets on a recurring basis at fair value
|
$
|
78
|
|
$
|
30,551
|
|
$
|
129
|
|
$
|
30,445
|
|
$
|
49
|
|
$
|
24,188
|
|
$
|
56
|
|
$
|
23,897
|
|
LIABILITIES MEASURED ON A RECURRING BASIS
|
|
|
|
|
|
|
|
|
Bank notes and other short-term borrowings:
|
|
|
|
|
|
|
|
|
Short positions
|
$
|
256
|
|
$
|
503
|
|
—
|
|
$
|
759
|
|
$
|
19
|
|
$
|
686
|
|
—
|
|
$
|
705
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Interest rate
|
—
|
|
288
|
|
—
|
|
288
|
|
—
|
|
253
|
|
—
|
|
253
|
|
Foreign exchange
|
72
|
|
31
|
|
—
|
|
103
|
|
43
|
|
17
|
|
—
|
|
60
|
|
Commodity
|
—
|
|
408
|
|
—
|
|
408
|
|
—
|
|
200
|
|
—
|
|
200
|
|
Credit
|
—
|
|
—
|
|
$
|
11
|
|
11
|
|
—
|
|
1
|
|
$
|
9
|
|
10
|
|
Other
|
—
|
|
16
|
|
—
|
|
16
|
|
—
|
|
10
|
|
—
|
|
10
|
|
Derivative liabilities
|
72
|
|
743
|
|
11
|
|
826
|
|
43
|
|
481
|
|
9
|
|
533
|
|
Netting adjustments (b)
|
—
|
|
—
|
|
—
|
|
(675)
|
|
—
|
|
—
|
|
—
|
|
(335)
|
|
Total derivative liabilities
|
72
|
|
743
|
|
11
|
|
151
|
|
43
|
|
481
|
|
9
|
|
198
|
|
|
|
|
|
|
|
|
|
|
Total liabilities on a recurring basis at fair value
|
$
|
328
|
|
$
|
1,246
|
|
$
|
11
|
|
$
|
910
|
|
$
|
62
|
|
$
|
1,167
|
|
$
|
9
|
|
$
|
903
|
|
|
|
|
|
|
|
|
|
|
(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
(b)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The net basis takes into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Total derivative assets and liabilities include these netting adjustments.
Qualitative Disclosures of Valuation Techniques
The following table describes the valuation techniques and significant inputs used to measure the classes of assets and liabilities reported at fair value on a recurring basis, as well as the classification of each within the valuation hierarchy.
|
|
|
|
|
|
|
|
|
Asset/liability class
|
Valuation technique
|
Valuation hierarchy classification(s)
|
Securities (includes trading account assets securities available for sale, and U.S. Treasury Bills classified as short-term investments)
|
Fair value of level 1 securities is determined by:
• Quoted market prices available in an active market for identical securities. This includes exchange-traded equity securities.
Fair value of level 2 securities is determined by:
• Pricing models (either by a third party pricing service or internally). Inputs include: yields, benchmark securities, bids, offers, actual trade data (i.e., spreads, credit ratings, and interest rates) for comparable assets, spread tables, matrices, high-grade scales, and option-adjusted spreads.
• Observable market prices of similar securities.
Fair value of level 3 securities is determined by:
• Internally developed valuation techniques, principally discounted cash flow methods (income approach).
• Revenue multiples of comparable public companies (market approach).
For level 3 securities, increases (decreases) in the discount rate and marketability discount used in the discounted cash flow models would have resulted in lower (higher) fair value measurements. Higher volatility factors would have further magnified changes in fair value.
The valuations provided by the third-party pricing service are based on observable market inputs, which include benchmark yields, reported trades, issuer spreads, benchmark securities, bids, offers, and reference data obtained from market research publications. Inputs used by the third-party pricing service in valuing CMOs and other mortgage-backed securities also include new issue data, monthly payment information, whole loan collateral performance, and “To Be Announced” prices. In valuations of securities issued by state and political subdivisions, inputs used by the third-party pricing service also include material event notices. We regularly validate the pricing methodologies of valuations derived from a third-party pricing service to ensure the fair value determination is consistent with applicable accounting guidance and that our assets are properly classified in the fair value hierarchy. To perform this validation, we:
•review documentation received from our third-party pricing service regarding the inputs used in its valuations and determine a level assessment for each category of securities;
•substantiate actual inputs used for a sample of securities by comparing the actual inputs used by our third-party pricing service to comparable inputs for similar securities; and
•substantiate the fair values determined for a sample of securities by comparing the fair values provided by our third-party pricing service to prices from other independent sources for the same and similar securities.
We analyze variances and conduct additional research with our third-party pricing service and take appropriate steps based on our findings.
|
Level 1, 2, and 3 (primarily Level 2)
|
Commercial loans (trading account assets)
|
Fair value is based on:
• Observable market price spreads for similar loans. Valuations reflect prices within the bid-ask spread that are most representative of fair value.
|
Level 2
|
Principal investments (direct)
|
Direct principal investments consist of equity and debt instruments of private companies made by our principal investing entities. Fair value is determined using:
• Operating performance and market multiples of comparable businesses
• Other unique facts and circumstances related to each individual investment
Direct principal investments are accounted for as investment companies in accordance with the applicable accounting guidance, whereby each investment is adjusted to fair value with any net realized or unrealized gain/loss recorded in the current period’s earnings.
We are in the process of winding down our direct principal investment portfolio. As of December 31, 2020, the balance is less than $1 million.
|
Level 3
|
|
|
|
|
|
|
|
|
|
Asset/liability class
|
Valuation technique
|
Valuation hierarchy classification(s)
|
Principal investments (indirect)
|
Indirect principal investments include primary and secondary investments in private equity funds engaged mainly in venture- and growth-oriented investing. These investments do not have readily determinable fair values and qualify for the practical expedient to estimate fair value based upon net asset value per share (or its equivalent, such as member units or an ownership interest in partners’ capital to which a proportionate share of net assets is attributed).
Indirect principal investments are also accounted for as investment companies, whereby each investment is adjusted to fair value with any net realized or unrealized gain/loss recorded in the current period’s earnings.
Under the provisions of the Volcker Rule, we are required to dispose or conform our indirect investments to the requirements of the statute by no later than July 21, 2022. As of December 31, 2020, we have not committed to a plan to sell these investments. Therefore, these investments continue to be valued using the net asset value per share methodology.
|
NAV
|
The following table presents the fair value of our direct and indirect principal investments and related unfunded commitments at December 31, 2020, as well as financial support provided for the years ended December 31, 2020, and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial support provided
|
|
|
|
|
Year ended December 31,
|
|
|
December 31, 2020
|
|
2020
|
|
2019
|
in millions
|
|
Fair Value
|
|
Unfunded
Commitments
|
|
Funded
Commitments
|
|
Funded
Other
|
|
Funded
Commitments
|
|
Funded
Other
|
INVESTMENT TYPE
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct investments
|
|
$
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Indirect investments (a)
|
|
53
|
|
|
$
|
16
|
|
|
$
|
2
|
|
|
—
|
|
|
$
|
2
|
|
|
—
|
|
Total
|
|
$
|
54
|
|
|
$
|
16
|
|
|
$
|
2
|
|
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Our indirect investments consist of buyout funds, venture capital funds, and fund of funds. These investments are generally not redeemable. Instead, distributions are received through the liquidation of the underlying investments of the fund. An investment in any one of these funds typically can be sold only with the approval of the fund’s general partners. At December 31, 2020, no significant liquidation of the underlying investments has been communicated to Key. The purpose of funding our capital commitments to these investments is to allow the funds to make additional follow-on investments and pay fund expenses until the fund dissolves. We, and all other investors in the fund, are obligated to fund the full amount of our respective capital commitments to the fund based on our and their respective ownership percentages, as noted in the applicable Limited Partnership Agreement.
|
|
|
|
|
|
|
|
|
Asset/liability class
|
Valuation technique
|
Valuation hierarchy classification(s)
|
Other direct equity investments
|
Fair value is determined using:
• Discounted cash flows
• Operating performance and market/exit multiples of comparable businesses
• Other unique facts and circumstances related to each individual investment
For level 3 securities, increases in the discount rate applied in the discounted cash flow models would negatively affect the fair value. Increases in valuation multiples of comparable companies would positively affect the fair value. Level 2 investments reflect the price of recent investments, which is deemed representative of fair value.
|
Level 2 and 3
|
Other direct and indirect equity investments (NAV)
|
Certain direct investments do not have readily determinable fair values and qualify for the practical expedient in the accounting guidance that allows us to estimate fair value based upon net asset value per share.
|
NAV
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset/liability class
|
Valuation technique
|
Valuation hierarchy classification(s)
|
Loans held for sale and held for investment (residential)
|
Residential mortgage loans held for sale are accounted for at fair value. Fair values are based on:
• Quoted market prices, where available
• Prices for other traded mortgage loans with similar characteristics
• Purchase commitments and bid information received from market participants
Prices are adjusted as necessary to include:
• The embedded servicing value in the loans
• The specific characteristics of certain loans that are priced based on the pricing of similar loans. (These adjustments represent unobservable inputs to the valuation but are not considered significant given the relative insensitivity of the value to changes in these inputs to the fair value of the loans.)
Residential loans held for investment: Certain residential loans held for sale contain salability exceptions that make them unable to be sold into the performing loan sales market. Loans in this category are transferred to the held to maturity loan portfolio and are included in “Loans, net of unearned income” on the balance sheet. This type of loan is classified as level 3 in the valuation hierarchy as transaction details regarding sales of this type of loan are often unavailable.
Fair value is based upon:
• Unobservable bid information from brokers and investors
Higher (lower) unobservable bid information would have resulted in higher (lower) fair value measurements.
|
Level 1, 2 and 3 (primarily level 2)
|
Derivatives
|
Exchange-traded derivatives are valued using quoted prices in active markets and, therefore, are classified as Level 1 instruments.
The majority of our derivative positions are Level 2 and are valued using internally developed models based on market convention and observable market inputs. These derivative contracts include interest rate swaps, certain options, floors, cross currency swaps, credit default swaps, and forward mortgage loan sale commitments. Significant inputs used in the valuation models include:
• LIBOR, SOFR and OIS curves, index pricing curves, foreign currency curves
• Volatility surfaces (a three-dimensional graph of implied volatility against strike price and maturity)
We have customized derivative instruments and risk participations that are classified as Level 3 instruments. These derivative positions are valued using internally developed models, with inputs consisting of available market data, including:
• Credit spreads and interest rates
The unobservable internally derived assumptions include:
• Loss given default
• Internal risk assessments of customers
The fair value represents an estimate of the amount that the risk participation counterparty would need to pay/receive as of the measurement date based on the probability of customer default on the swap transaction and the fair value of the underlying customer swap. Therefore, for sold risk participation agreements, a higher loss probability and a lower credit rating would negatively affect the fair value of the risk participations and a lower loss probability and higher credit rating would positively affect the fair value of the risk participations. (For purchased risk participation agreements, higher loss probabilities and lower credit ratings would positively affect the fair value.)
|
Level 1, 2, and 3 (primarily level 2)
|
|
|
|
|
|
|
|
|
|
Asset/liability class
|
Valuation technique
|
Valuation hierarchy classification(s)
|
Derivatives (continued)
|
We use interest rate lock commitments for our residential mortgage business, which are classified as Level 3 instruments. The significant components of the valuation model include:
• Interest rates observable in the market
• Investor supplied prices for similar securities
• The probability of the loan closing (i.e. the "pull-through" amount, a significant unobservable input). Increases (decreases) in the probability of the loan closing would have resulted in higher (lower) fair value measurements.
Valuation of residential mortgage forward sale commitments utilizes observable market prices of comparable commitments and mortgage securities (Level 2).
The fair values of our derivatives include a credit valuation adjustment related to both counterparty and our own creditworthiness. The credit component considers master netting and collateral agreements and is determined by the individual counterparty based on potential future exposures, expected recovery rates, and market-implied probabilities of default.
|
Level 1, 2, and 3 (primarily level 2)
|
Liability for short positions
|
This includes fixed income securities held by our broker dealer in its trading inventory. Fair value of level 1 securities is determined by:
• Quoted market prices available in an active market for identical securities
Fair value of level 2 securities is determined by:
• Observable market prices of similar securities
• Market activity, spreads, credit ratings and interest rates for each security type
|
Level 1 and 2
|
We also make liquidity valuation adjustments to the fair value of certain assets to reflect the uncertainty in the pricing and trading of the instruments when we are unable to observe recent market transactions for identical or similar instruments. Liquidity valuation adjustments are based on the following factors:
•the amount of time since the last relevant valuation;
•whether there is an actual trade or relevant external quote available at the measurement date; and
•volatility associated with the primary pricing components.
Changes in Level 3 Fair Value Measurements
The following table shows the change in the fair values of our Level 3 financial instruments measured at fair value on a recurring basis for the years ended December 31, 2020, and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
Beginning
of Period
Balance
|
Gains (Losses) included in
comprehensive income
|
Gains
(Losses)
Included
in Earnings
|
|
Purchases
|
Sales
|
Settlements
|
Transfers Other
|
Transfers
into
Level 3
|
|
Transfers
out of
Level 3
|
|
End of
Period
Balance
|
Unrealized
Gains
(Losses)
Included in
Earnings
|
|
Year ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other securities
|
$
|
11
|
|
$
|
2
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
$
|
13
|
|
—
|
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
1
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
1
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
12
|
|
—
|
|
$
|
1
|
|
(c)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
13
|
|
$
|
1
|
|
|
Loans held for sale (residential)
|
—
|
|
—
|
|
—
|
|
|
—
|
|
$
|
(10)
|
|
—
|
|
$
|
10
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
Loans held for investment (residential)
|
4
|
|
—
|
|
—
|
|
|
—
|
|
(2)
|
|
—
|
|
9
|
|
—
|
|
|
—
|
|
|
11
|
|
—
|
|
|
Derivative instruments (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
|
22
|
|
—
|
|
19
|
|
(d)
|
$
|
17
|
|
(10)
|
|
—
|
|
—
|
|
$
|
99
|
|
(e)
|
$
|
(91)
|
|
(e)
|
56
|
|
—
|
|
|
Credit
|
(8)
|
|
—
|
|
(2)
|
|
(d)
|
1
|
|
(1)
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
(10)
|
|
—
|
|
|
Other (a)
|
5
|
|
—
|
|
7
|
|
|
—
|
|
—
|
|
—
|
|
20
|
|
—
|
|
|
—
|
|
|
32
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
Beginning
of Period
Balance
|
Gains (Losses) included in comprehensive income
|
Gains
(Losses)
Included in
Earnings
|
|
Purchases
|
Sales
|
Settlements
|
Transfers Other
|
Transfers
into
Level 3
|
|
Transfers
out of
Level 3
|
|
End of
Period
Balance
|
Unrealized
Gains
(Losses)
Included in
Earnings
|
|
Year ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other securities
|
$
|
20
|
|
15
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
$
|
(24)
|
|
|
$
|
11
|
|
—
|
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
1
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
1
|
|
—
|
|
|
Equity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
7
|
|
—
|
|
$
|
4
|
|
(c)
|
—
|
|
—
|
|
—
|
|
—
|
|
$
|
1
|
|
|
—
|
|
|
12
|
|
$
|
4
|
|
|
Loans held for sale (residential)
|
—
|
|
—
|
|
—
|
|
|
—
|
|
$
|
(1)
|
|
—
|
|
$
|
1
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
Loans held for investment (residential)
|
3
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
1
|
|
—
|
|
|
—
|
|
|
4
|
|
—
|
|
|
Derivative instruments (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
|
5
|
|
—
|
|
3
|
|
(d)
|
$
|
2
|
|
(1)
|
|
—
|
|
—
|
|
21
|
|
(e)
|
(8)
|
|
(e)
|
22
|
|
—
|
|
|
Credit
|
—
|
|
—
|
|
(8)
|
|
(d)
|
—
|
|
—
|
|
$
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
(8)
|
|
—
|
|
|
Other (a)
|
3
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
$
|
2
|
|
—
|
|
|
—
|
|
|
5
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Amounts represent Level 3 interest rate lock commitments.
(b)Amounts represent Level 3 derivative assets less Level 3 derivative liabilities.
(c)Realized and unrealized gains and losses on principal investments are reported in “other income” on the income statement. Realized and unrealized losses on equity investments are reported in “other income” on the income statement.
(d)Realized and unrealized gains and losses on derivative instruments are reported in “corporate services income” and “other income” on the income statement.
(e)Certain derivatives previously classified as Level 2 were transferred to Level 3 because Level 3 unobservable inputs became significant. Certain derivatives previously classified as Level 3 were transferred to Level 2 because Level 3 unobservable inputs became less significant.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis in accordance with GAAP. The adjustments to fair value generally result from the application of accounting guidance that requires assets and liabilities to be recorded at the lower of cost or fair value, or assessed for impairment. There were no liabilities measured at fair value on a nonrecurring basis at December 31, 2020, and December 31, 2019. The following table presents our assets measured at fair value on a nonrecurring basis at December 31, 2020, and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
December 31, 2019
|
in millions
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
ASSETS MEASURED ON A NONRECURRING BASIS
|
|
|
|
|
|
|
|
|
Impaired loans and leases
|
—
|
|
—
|
|
$
|
108
|
|
$
|
108
|
|
—
|
|
—
|
|
$
|
76
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
Accrued income and other assets
|
—
|
|
$
|
—
|
|
56
|
|
56
|
|
—
|
|
118
|
|
51
|
|
169
|
|
Total assets on a nonrecurring basis at fair value
|
—
|
|
$
|
—
|
|
$
|
164
|
|
$
|
164
|
|
—
|
|
118
|
|
$
|
127
|
|
$
|
245
|
|
|
|
|
|
|
|
|
|
|
Qualitative Disclosures of Valuation Techniques
The following table describes the valuation techniques and significant inputs used to measure the significant classes of assets and liabilities reported at fair value on a nonrecurring basis, as well as the classification of each within the valuation hierarchy.
|
|
|
|
|
|
|
|
|
Asset/liability class
|
Valuation technique
|
Valuation hierarchy classification(s)
|
Collateral-dependent loans
|
When a loan is collateral-dependent, the fair value of the loan is determined based on the fair value of the underlying collateral.
|
Level 3
|
Commercial loans and student loans held for sale
|
Through a quarterly analysis of our loan portfolios held for sale, which include both performing and nonperforming commercial loans and student loans, we determine any adjustments necessary to record the portfolios at the lower of cost or fair value in accordance with GAAP. Valuation inputs include:
• Non-binding bids for the respective loans or similar loans
• Recent sales transactions
• Internal models that emulate recent securitizations
|
Level 2 and 3
|
Direct financing leases and operating lease assets held for sale
|
Valuations of direct financing leases and operating lease assets held for sale are performed using an internal model that relies on market data, including:
• Swap rates and bond ratings
• Our own assumptions about the exit market for the leases
• Details about the individual leases in the portfolio
Leases for which we receive a current nonbinding bid, and for which the sale is considered probable, may be classified as Level 2. Valuations of lease and operating lease assets held for sale that employ our own assumptions are classified as Level 3 assets. The inputs based on our own assumptions include changes in the value of leased items and internal credit ratings.
|
Level 2 and 3
|
OREO, other repossessed personal properties, and right-of-use assets(a)
|
OREO, other repossessed properties, and right-of-use assets are valued based on:
• Appraisals and third-party price opinions, less estimated selling costs
Generally, we classify these assets as Level 3, but OREO and other repossessed properties for which we receive binding purchase agreements are classified as Level 2. Returned lease inventory is valued based on market data for similar assets and is classified as Level 2.
|
Level 2 and 3
|
LIHTC, HTC, and NMTC investments(a)
|
Valuation of LIHTC, HTC and NMTC involves measuring the present value of future tax benefits and comparing that value against the current carrying value of the investment. Expected future tax benefits are discounted to their present value using discounted cash flow modeling that incorporates an appropriate risk premium. LIHTC and HTC investments are impaired when it is more likely than not that the carrying amount of the investment will not be realized.
|
Level 3
|
Other equity investments
|
We have other investments in equity securities that do not have readily determinable fair values and do not qualify for the practical expedient to measure the investment using a net asset value per share. We have elected to measure these securities at cost less impairment plus or minus adjustments due to observable orderly transactions. Impairment is recorded when there is evidence that the expected fair value of the investment has declined to below the recorded cost. At each reporting period, we assess if these investments continue to qualify for this measurement alternative.
At December 31, 2020, and December 31, 2019, the carrying amount of equity investments recorded under this method was $171 million and $134 million, respectively. No impairment was recorded for the year ended December 31, 2020.
|
Level 3
|
Mortgage Servicing Rights(a)
|
Refer to Note 9. Mortgage Servicing Assets
|
Level 3
|
(a)Asset classes included in “Accrued income and other assets” on the Consolidated Balance Sheets
Quantitative Information about Level 3 Fair Value Measurements
The range and weighted-average of the significant unobservable inputs used to fair value our material Level 3 recurring and nonrecurring assets at December 31, 2020, and December 31, 2019, along with the valuation techniques used, are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Asset (Liability)
|
Valuation Technique
|
Significant
Unobservable Input
|
Range
(Weighted-Average) (b), (c)
|
dollars in millions
|
December 31, 2020
|
December 31, 2019
|
December 31, 2020
|
December 31, 2019
|
Recurring
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
Other securities
|
$
|
13
|
|
$
|
11
|
|
Discounted cash flows
|
Discount rate
|
N/A (15.09%)
|
N/A (16.10%)
|
|
|
|
|
Marketability discount
|
N/A (30.00%)
|
N/A (30.00%)
|
|
|
|
|
Volatility factor
|
N/A (44.00%)
|
N/A (43.00%)
|
Other investments:(a)
|
|
|
|
|
|
|
Equity investments
|
|
|
|
|
|
|
Direct
|
13
|
|
12
|
|
Discounted cash flows
|
Discount rate
|
13.90 - 17.04% (15.47%)
|
13.91 - 17.24% (15.61%)
|
|
|
|
|
Marketability discount
|
N/A (30.00%)
|
N/A (30.00%)
|
|
|
|
|
Volatility factor
|
N/A (52.00%)
|
N/A (47.00%)
|
|
|
|
|
|
|
|
Loans, net of unearned income (residential)
|
11
|
|
4
|
|
Market comparable pricing
|
Comparability factor
|
64.50%-99.04% (94.17%)
|
79.00 - 98.00% (91.05%)
|
Derivative instruments:
|
|
|
|
|
|
|
Interest rate
|
56
|
|
22
|
|
Discounted cash flows
|
Probability of default
|
.02 - 100% (7.90%)
|
.02 - 100% (5.40%)
|
|
|
|
|
Internal risk rating
|
1 - 19 (9.675)
|
1 - 19 (9.168)
|
|
|
|
|
Loss given default
|
0 - 1 (.483)
|
0 - 1 (.492)
|
Credit (assets)
|
1
|
|
1
|
|
Discounted cash flows
|
Probability of default
|
.02 - 100% (4.70%)
|
.02 - 100% (4.2%)
|
|
|
|
|
Internal risk rating
|
1 - 19 (10.478)
|
1 - 19 (10.13)
|
|
|
|
|
Loss given default
|
0 - 1 (.490)
|
0 - 1 (.498)
|
Credit (liabilities)
|
(11)
|
|
(9)
|
|
Discounted cash flows
|
Probability of default
|
.02 - 100% (15.45%)
|
.02 - 100% (12.24%)
|
|
|
|
|
Internal risk rating
|
1 - 19 (8.555)
|
1 - 19 (8.058)
|
|
|
|
|
Loss given default
|
0 - 1 (.431)
|
0 - 1 (.411)
|
Other(d)
|
32
|
|
5
|
|
Discounted cash flows
|
Loan closing rates
|
36.95 - 99.68% (77.51%)
|
37.71 - 99.69% (79.33%)
|
Nonrecurring
|
|
|
|
|
|
|
Impaired loans
|
108
|
|
76
|
|
Fair value of underlying collateral
|
Discount rate
|
0 - 100.00% (36.00%)
|
0 - 60.00% (10.00%)
|
|
|
|
|
|
|
|
Accrued income and other assets:(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO
|
16
|
|
5
|
|
Appraised value
|
Appraised value
|
N/M
|
N/M
|
(a) Principal investments, direct is excluded from this table as the balance at December 31, 2020, is insignificant (less than $1 million).
(a)The weighted average of significant unobservable inputs is calculated using a weighting relative to fair value.
(b)For significant unobservable inputs with no range, a single figure is reported to denote the single quantitative factor used.
(c)Amounts represent interest rate lock commitments.
(d)Excludes $40 million and $46 million pertaining to mortgage servicing assets measured at fair value as of December 31, 2020, and December 31, 2019, respectively. Refer to Note 9 (“Mortgage Servicing Assets”) for significant unobservable inputs pertaining to these assets.
Fair Value Disclosures of Financial Instruments
The levels in the fair value hierarchy ascribed to our financial instruments and the related carrying amounts at December 31, 2020, and December 31, 2019, are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Fair Value
|
in millions
|
Carrying
Amount
|
Level 1
|
Level 2
|
Level 3
|
Measured
at NAV
|
Netting
Adjustment
|
|
Total
|
ASSETS (by measurement category)
|
|
|
|
|
|
|
|
|
Fair value - net income
|
|
|
|
|
|
|
|
|
Trading account assets (b)
|
$
|
735
|
|
—
|
|
$
|
735
|
|
—
|
|
—
|
|
—
|
|
|
$
|
735
|
|
Other investments (b)
|
621
|
|
—
|
|
—
|
|
$
|
555
|
|
$
|
66
|
|
—
|
|
|
621
|
|
Loans, net of unearned income (residential) (d)
|
11
|
|
—
|
|
—
|
|
11
|
|
—
|
|
—
|
|
|
11
|
|
Loans held for sale (residential) (b)
|
264
|
|
—
|
|
264
|
|
—
|
|
—
|
|
—
|
|
|
264
|
|
Derivative assets - trading (b)
|
1,676
|
|
$
|
78
|
|
1,939
|
|
91
|
|
—
|
|
$
|
(433)
|
|
(f)
|
1,675
|
|
Fair value - OCI
|
|
|
|
|
|
|
|
|
Securities available for sale (b)
|
27,556
|
|
—
|
|
27,543
|
|
13
|
|
—
|
|
—
|
|
|
27,556
|
|
Derivative assets - hedging (b) (g)
|
123
|
|
—
|
|
70
|
|
—
|
|
—
|
|
53
|
|
(f)
|
123
|
|
Amortized cost
|
|
|
|
|
|
|
|
|
Held-to-maturity securities (c)
|
7,595
|
|
—
|
|
8,023
|
|
—
|
|
—
|
|
—
|
|
|
8,023
|
|
Loans, net of unearned income (d)
|
99,548
|
|
—
|
|
—
|
|
98,946
|
|
—
|
|
—
|
|
|
98,946
|
|
Loans held for sale (b)
|
1,319
|
|
—
|
|
—
|
|
1,319
|
|
—
|
|
—
|
|
|
1,319
|
|
Other
|
|
|
|
|
|
|
|
|
Cash and short-term investments (a)
|
17,285
|
|
17,285
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
17,285
|
|
LIABILITIES (by measurement category)
|
|
|
|
|
|
|
|
|
Fair value - net income
|
|
|
|
|
|
|
|
|
Derivative liabilities - trading (b)
|
154
|
|
72
|
|
746
|
|
11
|
|
—
|
|
(675)
|
|
(f)
|
154
|
|
Fair value - OCI
|
|
|
|
|
|
|
|
|
Derivative liabilities - hedging (b) (g)
|
(3)
|
|
—
|
|
(3)
|
|
—
|
|
—
|
|
—
|
|
(f)
|
(3)
|
|
Amortized cost
|
|
|
|
|
|
|
|
|
Time deposits (e)
|
5,743
|
|
—
|
|
5,765
|
|
—
|
|
—
|
|
—
|
|
|
5,765
|
|
Short-term borrowings (a)
|
979
|
|
256
|
|
723
|
|
—
|
|
—
|
|
—
|
|
|
979
|
|
Long-term debt (e)
|
13,709
|
|
13,925
|
|
734
|
|
—
|
|
—
|
|
—
|
|
|
14,659
|
|
Other
|
|
|
|
|
|
|
|
|
Deposits with no stated maturity (a)
|
129,539
|
|
—
|
|
129,539
|
|
—
|
|
—
|
|
—
|
|
|
129,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Fair Value
|
in millions
|
Carrying
Amount
|
Level 1
|
Level 2
|
Level 3
|
Measured
at NAV
|
Netting
Adjustment
|
|
Total
|
ASSETS (by measurement category)
|
|
|
|
|
|
|
|
|
Fair value - net income
|
|
|
|
|
|
|
|
|
Trading account assets (b)
|
$
|
1,040
|
|
—
|
|
$
|
1,040
|
|
—
|
|
—
|
|
—
|
|
|
$
|
1,040
|
|
Other investments (b)
|
605
|
|
—
|
|
—
|
|
$
|
528
|
|
$
|
77
|
|
—
|
|
|
605
|
|
Loans, net of unearned income (residential) (d)
|
4
|
|
—
|
|
—
|
|
4
|
|
—
|
|
—
|
|
|
4
|
|
Loans held for sale (residential) (b)
|
140
|
|
—
|
|
140
|
|
—
|
|
—
|
|
—
|
|
|
140
|
|
Derivative assets - trading (b)
|
715
|
|
$
|
49
|
|
985
|
|
28
|
|
—
|
|
$
|
(347)
|
|
(f)
|
715
|
|
Fair value - OCI
|
|
|
|
|
|
|
|
|
Securities available for sale (b)
|
21,843
|
|
—
|
|
21,832
|
|
11
|
|
—
|
|
—
|
|
|
21,843
|
|
Derivative assets - hedging (b) (g)
|
65
|
|
—
|
|
191
|
|
—
|
|
—
|
|
(126)
|
|
(f)
|
65
|
|
Amortized cost
|
|
|
|
|
|
|
|
|
Held-to-maturity securities (c)
|
10,067
|
|
—
|
|
10,116
|
|
—
|
|
—
|
|
—
|
|
|
10,116
|
|
Loans, net of unearned income (d)
|
93,742
|
|
—
|
|
—
|
|
92,641
|
|
—
|
|
—
|
|
|
92,641
|
|
Loans held for sale (b)
|
1,194
|
|
—
|
|
—
|
|
1,194
|
|
—
|
|
—
|
|
|
1,194
|
|
Other
|
|
|
|
|
|
|
|
|
Cash and short-term investments (a)
|
2,004
|
|
2,004
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2,004
|
|
LIABILITIES (by measurement category)
|
|
|
|
|
|
|
|
|
Fair value - net income
|
|
|
|
|
|
|
|
|
Derivative liabilities - trading (b)
|
194
|
|
43
|
|
461
|
|
9
|
|
—
|
|
(319)
|
|
(f)
|
194
|
|
Fair value - OCI
|
|
|
|
|
|
|
|
|
Derivative liabilities - hedging (b) (g)
|
4
|
|
—
|
|
20
|
|
—
|
|
—
|
|
(16)
|
|
(f)
|
4
|
|
Amortized cost
|
|
|
|
|
|
|
|
|
Time deposits (e)
|
11,652
|
|
—
|
|
11,752
|
|
—
|
|
—
|
|
—
|
|
|
11,752
|
|
Short-term borrowings (a)
|
1,092
|
|
19
|
|
1,073
|
|
—
|
|
—
|
|
—
|
|
|
1,092
|
|
Long-term debt (e)
|
12,448
|
|
12,694
|
|
$
|
249
|
|
—
|
|
—
|
|
—
|
|
|
12,943
|
|
Other
|
|
|
|
|
|
|
|
|
Deposits with no stated maturity (a)
|
100,218
|
|
—
|
|
100,218
|
|
—
|
|
—
|
|
—
|
|
|
100,218
|
|
Valuation Methods and Assumptions
(a)Fair value equals or approximates carrying amount. The fair value of deposits with no stated maturity does not take into consideration the value ascribed to core deposit intangibles.
(b)Information pertaining to our methodology for measuring the fair values of these assets and liabilities is included in the sections entitled “Qualitative Disclosures of Valuation Techniques” and “Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis” in this Note. Investments accounted for under the cost method (or cost less impairment adjusted for observable price changes for certain equity investments) are classified as Level 3 assets. These investments are not actively traded in an open market as sales for these types of investments are rare. The carrying amount of the investments carried at cost are adjusted for declines in value if they are considered to be other-than-temporary (or due to observable orderly transactions of the same issuer for equity investments eligible for the cost less impairment measurement alternative). These adjustments are included in “other income” on the income statement.
(c)Fair values of held-to-maturity securities are determined by using models that are based on security-specific details, as well as relevant industry and economic factors. The most significant of these inputs are quoted market prices, interest rate spreads on relevant benchmark securities, and certain prepayment assumptions. We review the valuations derived from the models to ensure that they are reasonable and consistent with the values placed on similar securities traded in the secondary markets.
(d)The fair value of loans is based on the present value of the expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a discount rate based on the relative risk of the cash flows, taking into account the loan type, maturity of the loan, liquidity risk, servicing costs, and a required return on debt and capital. In addition, an incremental liquidity discount is applied to certain loans, using historical sales of loans during periods of similar economic conditions as a benchmark. The fair value of loans includes lease financing receivables at their aggregate carrying amount, which is equivalent to their fair value.
(e)Fair values of time deposits and long-term debt are based on discounted cash flows utilizing relevant market inputs.
(f)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The net basis takes into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Total derivative assets and liabilities include these netting adjustments.
(g)Derivative assets-hedging and derivative liabilities-hedging includes both cash flow and fair value hedges. Additional information regarding our accounting policies for cash flow and fair value hedges is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Derivatives and Hedging.”
We determine fair value based on assumptions pertaining to the factors that a market participant would consider in valuing the asset. A substantial portion of our fair value adjustments are related to liquidity. During 2019 and 2020, the fair values of our loan portfolios generally remained stable, primarily due to sustained liquidity in the loan markets. If we were to use different assumptions, the fair values shown in the preceding table could change. Also, because the applicable accounting guidance for financial instruments excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements, the fair value amounts shown in the table above do not, by themselves, represent the underlying value of our company as a whole.
Discontinued assets - education lending business. Our discontinued assets include government-guaranteed and private education loans originated through our education lending business that was discontinued in September 2009. This portfolio consists of loans recorded at carrying value with appropriate valuation reserves and loans in portfolio recorded at fair value. All of these loans were excluded from the table above as follows:
•Loans at carrying value, net of allowance, of $674 million ($567 million at fair value) at December 31, 2020, and $855 million ($729 million at fair value) at December 31, 2019; and
•Portfolio loans at fair value of $2 million at December 31, 2020, and $2 million at December 31, 2019.
These loans and securities are classified as Level 3 because we rely on unobservable inputs when determining fair value since observable market data is not available.
Short-term financial instruments. For financial instruments with a remaining average life to maturity of less than six months, carrying amounts were used as an approximation of fair values.
7. Securities
The amortized cost, unrealized gains and losses, and approximate fair value of our securities available for sale and held-to-maturity securities are presented in the following tables. Gross unrealized gains and losses represent the difference between the amortized cost and the fair value of securities on the balance sheet as of the dates indicated. Accordingly, the amount of these gains and losses may change in the future as market conditions change.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
December 31,
in millions
|
Amortized
Cost (a)
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
SECURITIES AVAILABLE FOR SALE
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, Agencies, and Corporations
|
$
|
1,000
|
|
—
|
|
—
|
|
$
|
1,000
|
|
|
$
|
334
|
|
—
|
|
$
|
—
|
|
$
|
334
|
|
States and political subdivisions
|
—
|
|
—
|
|
—
|
|
—
|
|
|
4
|
|
—
|
|
—
|
|
4
|
|
Agency residential collateralized mortgage obligations
|
14,001
|
|
$
|
297
|
|
$
|
25
|
|
14,273
|
|
|
12,772
|
|
$
|
82
|
|
71
|
|
12,783
|
|
Agency residential mortgage-backed securities
|
2,094
|
|
70
|
|
—
|
|
2,164
|
|
|
1,677
|
|
41
|
|
4
|
|
1,714
|
|
Agency commercial mortgage-backed securities
|
9,707
|
|
432
|
|
33
|
|
10,106
|
|
|
6,898
|
|
139
|
|
40
|
|
6,997
|
|
Other securities
|
8
|
|
5
|
|
—
|
|
13
|
|
|
7
|
|
4
|
|
—
|
|
11
|
|
Total securities available for sale
|
$
|
26,810
|
|
$
|
804
|
|
$
|
58
|
|
$
|
27,556
|
|
|
$
|
21,692
|
|
$
|
266
|
|
$
|
115
|
|
$
|
21,843
|
|
HELD-TO-MATURITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential collateralized mortgage obligations
|
$
|
3,775
|
|
$
|
124
|
|
$
|
—
|
|
$
|
3,899
|
|
|
$
|
5,692
|
|
$
|
23
|
|
$
|
49
|
|
$
|
5,666
|
|
Agency residential mortgage-backed securities
|
271
|
|
14
|
|
—
|
|
285
|
|
|
409
|
|
6
|
|
—
|
|
415
|
|
Agency commercial mortgage-backed securities
|
3,515
|
|
290
|
|
—
|
|
3,805
|
|
|
3,940
|
|
78
|
|
9
|
|
4,009
|
|
Asset-backed securities
|
19
|
|
—
|
|
—
|
|
19
|
|
|
11
|
|
—
|
|
—
|
|
11
|
|
Other securities
|
15
|
|
—
|
|
—
|
|
15
|
|
|
15
|
|
—
|
|
—
|
|
15
|
|
Total held-to-maturity securities
|
$
|
7,595
|
|
$
|
428
|
|
$
|
—
|
|
$
|
8,023
|
|
|
$
|
10,067
|
|
$
|
107
|
|
$
|
58
|
|
$
|
10,116
|
|
|
|
|
|
|
|
|
|
|
|
(a)Amortized cost amounts exclude accrued interest receivable which is recorded within “other assets” on the balance sheet. At December 31, 2020 accrued interest receivable on available for sale securities and held-to-maturity securities totaled $42 million and $15 million, respectively.
The following table summarizes available for sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of December 31, 2020, and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duration of Unrealized Loss Position
|
|
|
|
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
in millions
|
Fair Value
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Gross
Unrealized
Losses
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential collateralized mortgage obligations
|
$
|
2,110
|
|
$
|
25
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
2,110
|
|
$
|
25
|
|
Agency residential mortgage-backed securities
|
6
|
|
—
|
|
(a)
|
$
|
5
|
|
—
|
|
(a)
|
11
|
|
—
|
|
Agency commercial mortgage-backed securities
|
2,709
|
|
33
|
|
|
—
|
|
—
|
|
|
2,709
|
|
33
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential collateralized mortgage obligations
|
—
|
|
—
|
|
|
24
|
|
—
|
|
(a)
|
24
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other securities
|
5
|
|
—
|
|
(a)
|
—
|
|
—
|
|
|
5
|
|
—
|
|
Total securities in an unrealized loss position
|
$
|
4,830
|
|
$
|
58
|
|
|
$
|
29
|
|
$
|
—
|
|
|
$
|
4,859
|
|
$
|
58
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
U.S. Treasury, agencies, and corporations
|
$
|
30
|
|
—
|
|
(b)
|
$
|
30
|
|
—
|
|
(b)
|
$
|
60
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Agency residential collateralized mortgage obligations
|
3,432
|
|
$
|
20
|
|
|
3,221
|
|
$
|
51
|
|
|
6,653
|
|
$
|
71
|
|
Agency residential mortgage-backed securities
|
33
|
|
—
|
|
(b)
|
629
|
|
4
|
|
|
662
|
|
4
|
|
Agency commercial mortgage-backed securities
|
1,541
|
|
17
|
|
|
1,213
|
|
23
|
|
|
2,754
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential collateralized mortgage obligations
|
1,626
|
|
14
|
|
|
2,289
|
|
35
|
|
|
3,915
|
|
49
|
|
Agency residential mortgage-backed securities
|
56
|
|
—
|
|
(b)
|
—
|
|
—
|
|
|
56
|
|
—
|
|
Agency commercial mortgage-backed securities
|
518
|
|
9
|
|
|
—
|
|
—
|
|
|
518
|
|
9
|
|
Asset-backed securities
|
11
|
|
—
|
|
(b)
|
—
|
|
—
|
|
|
11
|
|
—
|
|
Other securities
|
3
|
|
—
|
|
(b)
|
—
|
|
—
|
|
|
3
|
|
—
|
|
Total securities in an unrealized loss position
|
$
|
7,250
|
|
$
|
60
|
|
|
$
|
7,382
|
|
$
|
113
|
|
|
$
|
14,632
|
|
$
|
173
|
|
|
|
|
|
|
|
|
|
|
(a)At December 31, 2020, gross unrealized losses totaled less than $1 million for agency residential mortgage-backed securities available for sale with a loss duration of less than 12 months and less than $1 million for other securities held-to-maturity with a loss duration of less than 12 months. At December 31, 2020, gross unrealized losses totaled less than $1 million for agency residential mortgage-backed securities available for sale with a loss duration greater than 12 months or longer and less than $1 million. for agency residential mortgage-backed securities held to maturity.
(b)At December 31, 2019, gross unrealized losses totaled less than $1 million for U.S. Treasury, Agencies, and Corporations and agency residential mortgage-backed securities available for sale with a loss duration of less than 12 months and less than $1 million for agency residential mortgage-backed securities, asset-backed securities, and other securities held-to-maturity with a loss duration of less than 12 months. At December 31, 2019, gross unrealized losses totaled less than $1 million for U.S. Treasury, Agencies, and Corporations securities available for sale with a loss duration greater than 12 months or longer.
Based on our evaluation at December 31, 2020, under the new impairment model, an allowance for credit losses has not been recorded nor have unrealized losses been recognized into income. The issuers of the securities are of high credit quality and have a long history of no credit losses, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely attributed to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments.
At December 31, 2020, securities available-for-sale and held-to-maturity securities totaling $13.6 billion were pledged to secure securities sold under repurchase agreements, to secure public and trust deposits, to facilitate access to secured funding, and for other purposes required or permitted by law.
The following table shows securities by remaining maturity. CMOs and other mortgage-backed securities in the available-for-sale and held-to-maturity portfolios are presented based on their expected average lives. The remaining securities, in both the available-for-sale and held-to-maturity portfolios, are presented based on their remaining contractual maturity. Actual maturities may differ from expected or contractual maturities since borrowers have the right to prepay obligations with or without prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Available for Sale
|
|
Held-to-Maturity
Securities
|
December 31, 2020
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
in millions
|
|
|
|
Due in one year or less
|
$
|
1,889
|
|
|
$
|
1,896
|
|
|
$
|
77
|
|
|
$
|
78
|
|
Due after one through five years
|
15,410
|
|
|
15,891
|
|
|
4,941
|
|
|
5,150
|
|
Due after five through ten years
|
6,686
|
|
|
6,964
|
|
|
2,577
|
|
|
2,795
|
|
Due after ten years
|
2,825
|
|
|
2,805
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
26,810
|
|
|
$
|
27,556
|
|
|
$
|
7,595
|
|
|
$
|
8,023
|
|
|
|
|
|
|
|
|
|
8. Derivatives and Hedging Activities
We are a party to various derivative instruments, mainly through our subsidiary, KeyBank. The primary derivatives that we use are interest rate swaps, caps, floors, forwards and futures; foreign exchange contracts; commodity derivatives; and credit derivatives. These instruments help us manage exposure to interest rate risk, mitigate the credit risk inherent in our loan portfolio, hedge against changes in foreign currency exchange rates, and meet client financing and hedging needs. As further discussed in this note:
•interest rate risk is the risk that the EVE or net interest income will be adversely affected by fluctuations in interest rates;
•credit risk is the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms; and
•foreign exchange risk is the risk that an exchange rate will adversely affect the fair value of a financial instrument.
At December 31, 2020, after taking into account the effects of bilateral collateral and master netting agreements, we had $123 million of derivative assets and $3 million of derivative liabilities that relate to contracts entered into for hedging purposes. As of the same date, after taking into account the effects of bilateral collateral and master netting agreements and a reserve for potential future losses, we had derivative assets of $1.7 billion and derivative liabilities of $153 million that were not designated as hedging instruments. These positions are primarily comprised of derivative contracts entered into for client accommodation purposes.
Additional information regarding our accounting policies for derivatives is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Derivatives and Hedging.”
Derivatives Designated in Hedge Relationships
Net interest income and the EVE change in response to changes in the mix of assets, liabilities, and off-balance sheet instruments and the associated interest rates tied to each instrument. In addition, differences in the repricing and maturity characteristics of interest-earning assets and interest-bearing liabilities cause net interest income and the EVE to fluctuate. We utilize derivatives that have been designated as part of a hedge relationship in accordance with the applicable accounting guidance to manage net interest income and EVE to within our stated risk tolerances. The primary derivative instruments used to manage interest rate risk are interest rate swaps.
We designate certain “receive fixed/pay variable” interest rate swaps as fair value hedges. These contracts convert certain fixed-rate long-term debt into variable-rate obligations, thereby modifying our exposure to changes in interest rates. As a result, we receive fixed-rate interest payments in exchange for making variable-rate payments over the lives of the contracts without exchanging the notional amounts.
Similarly, we designate certain “receive fixed/pay variable” interest rate swaps as cash flow hedges. These contracts effectively convert certain floating-rate loans into fixed-rate loans to reduce the potential adverse effect of interest rate decreases on future interest income. Again, we receive fixed-rate interest payments in exchange for making variable-rate payments over the lives of the contracts without exchanging the notional amounts.
We designate interest rate floors as cash flow hedges. Interest rate floors also reduce the potential adverse effect of interest rate decreases on future interest income. We receive interest payments when the strike price specified in the contracts falls below a reference rate in exchange for an upfront premium.
We designate certain “pay fixed/receive variable” interest rate swaps as cash flow hedges. These swaps convert certain floating-rate debt into fixed-rate debt. We also use these swaps to manage the interest rate risk associated with anticipated sales of certain commercial real estate loans and certain student loans originated through our Laurel Road digital lending business. The swaps protect against the possible short-term decline in the value of the loans that could result from changes in interest rates between the time they are originated and the time they are sold.
We use foreign currency forward transactions to hedge the foreign currency exposure of our net investment in various foreign equipment finance entities. These entities are denominated in a non-U.S. currency. These swaps are designated as net investment hedges to mitigate the exposure of measuring the net investment at the spot foreign exchange rate. Our last remaining net investment hedge was discontinued in the fourth quarter of 2019 in connection with the liquidation of the net assets of KEF’s Canadian subsidiary.
Derivatives Not Designated in Hedge Relationships
We may enter into interest rate swap contracts to manage economic risks but do not designate the instruments in hedge relationships. Excluding contracts addressing customer exposures, the amount of derivatives hedging risks on an economic basis at December 31, 2020, was not significant.
Like other financial services institutions, we originate loans and extend credit, both of which expose us to credit risk. We actively manage our overall loan portfolio and the associated credit risk in a manner consistent with asset quality objectives and concentration risk tolerances to mitigate portfolio credit risk. Purchasing credit protection through default swaps enables us to transfer to a third party a portion of the credit risk associated with a particular extension of credit, including situations where there is a forecasted sale of loans. We purchase credit default swaps to reduce the credit risk associated with the debt securities held in our trading portfolio.
We also enter into derivative contracts for other purposes, including:
•interest rate swap, cap, and floor contracts entered into generally to accommodate the needs of commercial loan clients;
•energy and base metal swap and option contracts entered into to accommodate the needs of clients;
•foreign exchange forward and option contracts entered into primarily to accommodate the needs of clients; and
•futures contracts and positions with third parties that are intended to offset or mitigate the interest rate or market risk related to client positions discussed above.
Fair Values, Volume of Activity, and Gain/Loss Information Related to Derivative Instruments
The following table summarizes the fair values of our derivative instruments on a gross and net basis as of December 31, 2020, and December 31, 2019. The change in the notional amounts of these derivatives by type from December 31, 2019, to December 31, 2020, indicates the volume of our derivative transaction activity during 2020. The notional amounts are not affected by bilateral collateral and master netting agreements. The derivative asset and liability balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Where master netting agreements are not in effect or are not enforceable under bankruptcy laws, we do not adjust those derivative assets and liabilities with counterparties. Securities collateral related to legally enforceable master netting agreements is not offset on the balance sheet. Our derivative instruments are included in “accrued income and other assets” or “accrued expenses and other liabilities” on the balance sheet, as indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Fair Value (a)
|
|
|
Fair Value
|
in millions
|
Notional
Amount
|
Derivative
Assets
|
Derivative
Liabilities
|
|
Notional
Amount
|
Derivative
Assets
|
Derivative
Liabilities
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate
|
$
|
36,135
|
|
$
|
70
|
|
$
|
(3)
|
|
|
$
|
39,208
|
|
$
|
191
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
Total
|
36,135
|
|
70
|
|
(3)
|
|
|
39,208
|
|
191
|
|
20
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate
|
78,424
|
|
1,514
|
|
291
|
|
|
71,209
|
|
772
|
|
233
|
|
Foreign exchange
|
6,385
|
|
109
|
|
103
|
|
|
6,572
|
|
67
|
|
60
|
|
Commodity
|
9,702
|
|
426
|
|
408
|
|
|
5,324
|
|
208
|
|
200
|
|
Credit
|
423
|
|
1
|
|
11
|
|
|
427
|
|
1
|
|
10
|
|
Other (b)
|
4,951
|
|
58
|
|
16
|
|
|
3,337
|
|
14
|
|
10
|
|
Total
|
99,885
|
|
2,108
|
|
829
|
|
|
86,869
|
|
1,062
|
|
513
|
|
Netting adjustments (c)
|
—
|
|
(380)
|
|
(675)
|
|
|
—
|
|
(473)
|
|
(335)
|
|
Net derivatives in the balance sheet
|
136,020
|
|
1,798
|
|
151
|
|
|
126,077
|
|
780
|
|
198
|
|
Other collateral (d)
|
—
|
|
(2)
|
|
(11)
|
|
|
—
|
|
(2)
|
|
(42)
|
|
Net derivative amounts
|
$
|
136,020
|
|
$
|
1,796
|
|
$
|
140
|
|
|
$
|
126,077
|
|
$
|
778
|
|
$
|
156
|
|
|
|
|
|
|
|
|
|
(a)We take into account bilateral collateral and master netting agreement that allow us to settle all derivative contracts held with a single counterparty on a net basis, and to offset the net derivative position with the related cash collateral when recognizing derivative assets and liabilities. As a result, we could have derivative contracts with negative fair values included in derivative assets and contracts with positive fair values included in derivative liabilities.
(b)Other derivatives include interest rate lock commitments and forward sale commitments related to our residential mortgage banking activities, forward purchase and sales contracts consisting of contractual commitments associated with “to be announced” securities and when issued securities.
(c)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance.
(d)Other collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The other collateral consists of securities and is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the other collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above.
Fair value hedges. During the year ended December 31, 2020, we did not exclude any portion of these hedging instruments from the assessment of hedge effectiveness.
The following tables summarize the amounts that were recorded on the balance sheet as of December 31, 2020 and December 31, 2019, related to cumulative basis adjustments for fair value hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
in millions
|
Balance sheet line item in which the hedge item is included
|
Carrying amount of hedged item(a)
|
Hedge accounting basis adjustment
|
Interest rate contracts
|
Long-term debt(b)
|
$
|
8,182
|
|
$
|
416
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
Securities available for sale(c)
|
2,080
|
|
(21)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
in millions
|
Balance sheet line item in which the hedge item is included
|
Carrying amount of hedged item (a)
|
Hedge accounting basis adjustment
|
Interest rate contracts
|
Long-term debt(b)
|
$
|
8,408
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)The carrying amount represents the portion of the asset or liability designated as the hedged item.
(b)Basis adjustments related to de-designated hedges that no longer qualify as fair value hedges reduced the hedge accounting basis adjustment by $8 million and $9 million at December 31, 2020 and December 31, 2019, respectively.
(c)These amounts are designated as fair value hedges under the last-of-layer method. The carrying amount represents the amortized costs basis of the prepayable financial assets used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At December 31, 2020, the amortized cost of the closed portfolios used in these hedging relationships was $2.5 billion
Cash flow hedges. During the year ended December 31, 2020, we did not exclude any portion of these hedging instruments from the assessment of hedge effectiveness.
Considering the interest rates, yield curves, and notional amounts as of December 31, 2020, we would expect to reclassify an estimated $232 million of after-tax net losses on derivative instruments from AOCI to income during the next 12 months for our cash flow hedges. In addition, we expect to reclassify approximately $73 million of pre-tax net losses related to terminated cash flow hedges from AOCI to income during the next 12 months. As of December 31, 2020, the maximum length of time over which we hedge forecasted transactions is 11 years.
The following tables summarize the effect of fair value and cash flow hedge accounting on the income statement for the years ended December 31, 2020, December 31, 2019, and December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and amount of net gains (losses) recognized in income on fair value and cash flow hedging relationships (a)
|
|
in millions
|
Interest expense – long-term debt
|
Interest income – loans
|
Investment banking and debt placement fees
|
Interest expense – deposits
|
Other income
|
|
Twelve months ended December 31, 2020
|
|
|
|
|
|
|
Total amounts presented in the consolidated statement of income
|
$
|
(286)
|
|
$
|
3,866
|
|
$
|
661
|
|
$
|
(347)
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on fair value hedging relationships
|
|
|
|
|
|
|
Interest contracts
|
|
|
|
|
|
|
Recognized on hedged items
|
(177)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Recognized on derivatives designated as hedging instruments
|
305
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Net income (expense) recognized on fair value hedges
|
128
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Net gain (loss) on cash flow hedging relationships
|
|
|
|
|
|
|
Realized gains (losses) (pre-tax) reclassified from AOCI into net income
|
|
|
|
|
|
|
Interest contracts
|
(4)
|
|
319
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
Net income (expense) recognized on cash flow hedges
|
$
|
(4)
|
|
$
|
319
|
|
$
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
Twelve months ended December 31, 2019
|
|
|
|
|
|
|
Total amounts presented in the consolidated statement of income
|
$
|
(454)
|
|
$
|
4,267
|
|
$
|
630
|
|
$
|
(853)
|
|
$
|
68
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on fair value hedging relationships
|
|
|
|
|
|
|
Interest contracts
|
|
|
|
|
|
|
Recognized on hedged items
|
(247)
|
|
—
|
|
—
|
|
(1)
|
|
—
|
|
|
Recognized on derivatives designated as hedging instruments
|
231
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Net income (expense) recognized on fair value hedges
|
(16)
|
|
—
|
|
—
|
|
$
|
(1)
|
|
$
|
—
|
|
|
Net gain (loss) on cash flow hedging relationships
|
|
|
|
|
|
|
Realized gains (losses) (pre-tax) reclassified from AOCI into net income
|
|
|
|
|
|
|
Interest contracts
|
(1)
|
|
15
|
|
—
|
|
—
|
|
—
|
|
|
Foreign exchange contracts
|
—
|
|
—
|
|
—
|
|
—
|
|
32
|
|
|
Net income (expense) recognized on cash flow hedges
|
$
|
(1)
|
|
$
|
15
|
|
$
|
—
|
|
—
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
Twelve months ended December 31, 2018
|
|
|
|
|
|
|
Total amounts presented in the consolidated statement of income
|
$
|
(420)
|
|
$
|
4,023
|
|
$
|
650
|
|
$
|
(517)
|
|
$
|
176
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on fair value hedging relationships
|
|
|
|
|
|
|
Interest contracts
|
|
|
|
|
|
|
Recognized on hedged items
|
(5)
|
|
—
|
|
—
|
|
1
|
|
—
|
|
|
Recognized on derivatives designated as hedging instruments
|
(12)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Net income (expense) recognized on fair value hedges
|
(17)
|
|
—
|
|
—
|
|
1
|
|
$
|
—
|
|
|
Net gain (loss) on cash flow hedging relationships
|
|
|
|
|
|
|
Realized gains (losses) (pre-tax) reclassified from AOCI into net income
|
|
|
|
|
|
|
Interest contracts
|
(2)
|
|
(68)
|
|
2
|
|
—
|
|
31
|
|
|
|
|
|
|
|
|
|
Net income (expense) recognized on cash flow hedges
|
$
|
(2)
|
|
$
|
(68)
|
|
$
|
2
|
|
—
|
|
31
|
|
|
|
|
|
|
|
|
|
Net investment hedges. We previously entered into foreign currency forward contracts to hedge our exposure to changes in the carrying value of our investments in foreign subsidiaries as a result of changes in the related foreign exchange rates. In December 2019, our last remaining net investment hedge was discontinued in connection with the substantial liquidation of the net assets of KEF’s Canadian subsidiary. The discontinuance of this hedge relationship resulted in reclassification from AOCI into other income of pre-tax gains of $25 million related to cumulative changes in the fair value of the net investment hedge. The gain was offset by the reclassification of $11 million from AOCI into other income related to the pre-tax foreign currency translation adjustment loss on the net investment balance.
The following table summarizes the pre-tax net gains (losses) on our cash flow and net investment hedges for the years ended December 31, 2020, December 31, 2019, and December 31, 2018, and where they are recorded on
the income statement. The table includes net gains (losses) recognized in OCI during the period and net gains (losses) reclassified from AOCI into income during the current period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
Net Gains (Losses)
Recognized in OCI
|
Income Statement Location of Net Gains (Losses)
Reclassified From OCI Into Income
|
Net Gains
(Losses) Reclassified
From OCI Into Income(a)
|
Net Gains (Losses) Recognized in Other Income(a)
|
Twelve months ended December 31, 2020
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
Interest rate
|
$
|
628
|
|
Interest income — Loans
|
$
|
319
|
|
$
|
—
|
|
Interest rate
|
(5)
|
|
Interest expense — Long-term debt
|
(4)
|
|
—
|
|
Interest rate
|
(9)
|
|
Investment banking and debt placement fees
|
—
|
|
—
|
|
Net Investment Hedges
|
|
|
|
|
Foreign exchange contracts
|
—
|
|
Other Income
|
—
|
|
—
|
|
Total
|
$
|
614
|
|
|
$
|
315
|
|
$
|
—
|
|
Twelve months ended December 31, 2019
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
Interest rate
|
$
|
442
|
|
Interest income — Loans
|
$
|
15
|
|
$
|
—
|
|
Interest rate
|
(1)
|
|
Interest expense — Long-term debt
|
(1)
|
|
—
|
|
Interest rate
|
3
|
|
Investment banking and debt placement fees
|
—
|
|
—
|
|
Net Investment Hedges
|
|
|
|
|
Foreign exchange contracts
|
(4)
|
|
Other Income
|
32
|
|
—
|
|
Total
|
$
|
440
|
|
|
$
|
46
|
|
$
|
—
|
|
Twelve months ended December 31, 2018
|
|
|
|
|
Cash Flow Hedges
|
|
|
|
|
Interest rate
|
$
|
(13)
|
|
Interest income — Loans
|
$
|
(68)
|
|
$
|
—
|
|
Interest rate
|
2
|
|
Interest expense — Long-term debt
|
(2)
|
|
—
|
|
Interest rate
|
1
|
|
Investment banking and debt placement fees
|
2
|
|
—
|
|
Net Investment Hedges
|
|
|
|
|
Foreign exchange contracts
|
19
|
|
Other Income
|
31
|
|
—
|
|
Total
|
$
|
9
|
|
|
$
|
(37)
|
|
$
|
—
|
|
|
|
|
|
|
Nonhedging instruments.
The following table summarizes the pre-tax net gains (losses) on our derivatives that are not designated as hedging instruments for the years ended December 31, 2020, December 31, 2019, and December 31, 2018, and where they are recorded on the income statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Year ended December 31,
in millions
|
Corporate
Services
Income
|
Consumer Mortgage Income
|
Other
Income
|
Total
|
|
Corporate
Services
Income
|
Consumer Mortgage Income
|
Other
Income
|
Total
|
|
Corporate
Services
Income
|
Consumer Mortgage Income
|
Other
Income
|
Total
|
NET GAINS (LOSSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
|
$
|
32
|
|
—
|
|
$
|
(10)
|
|
$
|
22
|
|
|
$
|
46
|
|
—
|
|
$
|
(2)
|
|
$
|
44
|
|
|
$
|
38
|
|
—
|
|
$
|
(1)
|
|
$
|
37
|
|
Foreign exchange
|
41
|
|
—
|
|
—
|
|
41
|
|
|
45
|
|
—
|
|
—
|
|
45
|
|
|
42
|
|
—
|
|
—
|
|
42
|
|
Commodity
|
19
|
|
—
|
|
—
|
|
19
|
|
|
6
|
|
—
|
|
—
|
|
6
|
|
|
8
|
|
—
|
|
—
|
|
8
|
|
Credit
|
(4)
|
|
—
|
|
(29)
|
|
(33)
|
|
|
(6)
|
|
—
|
|
(36)
|
|
(42)
|
|
|
2
|
|
—
|
|
(30)
|
|
(28)
|
|
Other
|
—
|
|
$
|
19
|
|
19
|
|
38
|
|
|
—
|
|
$
|
2
|
|
—
|
|
2
|
|
|
—
|
|
$
|
(1)
|
|
12
|
|
11
|
|
Total net gains (losses)
|
$
|
88
|
|
$
|
19
|
|
$
|
(20)
|
|
$
|
87
|
|
|
$
|
91
|
|
$
|
2
|
|
$
|
(38)
|
|
$
|
55
|
|
|
$
|
90
|
|
$
|
(1)
|
|
$
|
(19)
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty Credit Risk
We use several means to mitigate and manage exposure to credit risk on derivative contracts. We enter into bilateral collateral and master netting agreements that provide for the net settlement of all contracts with a single counterparty in the event of default. Additionally, we monitor counterparty credit risk exposure on each contract to determine appropriate limits on our total credit exposure across all product types. We review our collateral positions on a daily basis and exchange collateral with our counterparties in accordance with standard ISDA documentation, central clearing rules, and other related agreements. We hold collateral in the form of cash and highly rated securities issued by the U.S. Treasury, government-sponsored enterprises, or GNMA. Cash collateral netted against derivative assets on the balance sheet totaled $63 million at December 31, 2020, and $207 million at December 31, 2019. The cash collateral netted against derivative liabilities totaled $232 million at December 31, 2020, and $69 million at December 31, 2019.
The following table summarizes the fair value of our derivative assets by type at the dates indicated. These assets represent our gross exposure to potential loss after taking into account the effects of bilateral collateral and master netting agreements and other means used to mitigate risk.
|
|
|
|
|
|
|
|
|
December 31,
in millions
|
2020
|
2019
|
Interest rate
|
$
|
1,448
|
|
$
|
848
|
|
Foreign exchange
|
52
|
|
30
|
|
Commodity
|
178
|
|
95
|
|
Credit
|
(1)
|
|
—
|
|
Other
|
58
|
|
14
|
|
Derivative assets before collateral
|
1,735
|
|
987
|
|
Add (Less): Related collateral
|
63
|
|
(207)
|
|
Total derivative assets
|
$
|
1,798
|
|
$
|
780
|
|
|
|
|
We enter into derivative transactions with two primary groups: broker-dealers and banks, and clients. Since these groups have different economic characteristics, we have different methods for managing counterparty credit exposure and credit risk.
We enter into transactions with broker-dealers and banks for various risk management purposes. These types of transactions are primarily high dollar volume. We enter into bilateral collateral and master netting agreements with these counterparties. We clear certain types of derivative transactions with these counterparties, whereby central clearing organizations become the counterparties to our derivative contracts. In addition, we enter into derivative contracts through swap execution facilities. Swap clearing and swap execution facilities reduce our exposure to counterparty credit risk. At December 31, 2020, we had gross exposure of $250 million to broker-dealers and banks. We had net exposure of $245 million after the application of master netting agreements and cash collateral, where such qualifying agreements exist. We had net exposure of $243 million after considering $3 million of additional collateral held in the form of securities.
We enter into transactions using master netting agreements with clients to accommodate their business needs. In most cases, we mitigate our credit exposure by cross-collateralizing these transactions to the underlying loan collateral. For transactions that are not clearable, we mitigate our market risk by buying and selling U.S. Treasuries and Eurodollar futures or entering into offsetting positions. Due to the cross-collateralization to the underlying loan, we typically do not exchange cash or marketable securities collateral in connection with these transactions. To address the risk of default associated with these contracts, we have established a CVA reserve (included in “accrued income and other assets”) in the amount of $49 million at December 31, 2020. The CVA is calculated from potential future exposures, expected recovery rates, and market-implied probabilities of default. At December 31, 2020, we had gross exposure of $1.7 billion to client counterparties and other entities that are not broker-dealers or banks for derivatives that have associated master netting agreements. We had net exposure of $1.6 billion on our derivatives with these counterparties after the application of master netting agreements, collateral, and the related reserve.
Credit Derivatives
We are a buyer and, under limited circumstances, may be a seller of credit protection through the credit derivative market. We purchase credit derivatives to manage the credit risk associated with specific commercial lending and swap obligations as well as exposures to debt securities. Our credit derivative portfolio was in a net liability position of $9 million as of both December 31, 2020, and December 31, 2019.
Our credit derivative portfolio may consist of the following:
•Single-name credit default swap: A bilateral contract whereby the seller agrees, for a premium, to provide protection against the credit risk of a specific entity (the “reference entity”) in connection with a specific debt obligation. The protected credit risk is related to adverse credit events, such as bankruptcy, failure to make payments, and acceleration or restructuring of obligations, identified in the credit derivative contract.
•Traded credit default swap index: Represents a position on a basket or portfolio of reference entities.
•Risk participation agreement: A transaction in which the lead participant has a swap agreement with a customer. The lead participant (purchaser of protection) then enters into a risk participation agreement with
a counterparty (seller of protection), under which the counterparty receives a fee to accept a portion of the lead participant’s credit risk. If the customer defaults on the swap contract, the counterparty to the risk participation agreement must reimburse the lead participant for the counterparty’s percentage of the positive fair value of the customer swap as of the default date. If the customer swap has a negative fair value, the counterparty has no reimbursement requirements. If the customer defaults on the swap contract and the seller fulfills its payment obligations under the risk participation agreement, the seller is entitled to a pro rata share of the lead participant’s claims against the customer under the terms of the swap agreement.
The following table provides information on the types of credit derivatives sold by us and held on the balance sheet at December 31, 2020, and December 31, 2019. The notional amount represents the amount that the seller could be required to pay. The payment/performance risk shown in the table represents a weighted average of the default probabilities for all reference entities in the respective portfolios. These default probabilities are implied from observed credit indices in the credit default swap market, which are mapped to reference entities based on Key’s internal risk rating.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
December 31,
dollars in millions
|
Notional
Amount
|
Average
Term
(Years)
|
Payment /
Performance
Risk
|
|
Notional
Amount
|
Average
Term
(Years)
|
Payment /
Performance
Risk
|
|
|
|
|
|
|
|
|
Other
|
$
|
227
|
|
12.76
|
19.53
|
%
|
|
$
|
134
|
|
14.30
|
14.56
|
%
|
Total credit derivatives sold
|
$
|
227
|
|
—
|
|
—
|
|
|
$
|
134
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
Credit Risk Contingent Features
We have entered into certain derivative contracts that require us to post collateral to the counterparties when these contracts are in a net liability position. The amount of collateral to be posted is based on the amount of the net liability and thresholds generally related to our long-term senior unsecured credit ratings with Moody’s and S&P. Collateral requirements also are based on minimum transfer amounts, which are specific to each Credit Support Annex (a component of the ISDA Master Agreement) that we have signed with the counterparties. In a limited number of instances, counterparties have the right to terminate their ISDA Master Agreements with us if our ratings fall below a certain level, usually investment-grade level (i.e., “Baa3” for Moody’s and “BBB-” for S&P). At December 31, 2020, KeyBank’s rating was “A3” with Moody’s and “A-” with S&P, and KeyCorp’s rating was “Baa1” with Moody’s and “BBB+” with S&P. As of December 31, 2020, the aggregate fair value of all derivative contracts with credit risk contingent features (i.e., those containing collateral posting or termination provisions based on our ratings) held by KeyBank that were in a net liability position totaled $44 million, which includes $111 million in derivative assets and $156 million in derivative liabilities. We had $30 million in cash and securities collateral posted to cover those positions as of December 31, 2020. There were no derivative contracts with credit risk contingent features held by KeyCorp at December 31, 2020.
The following table summarizes the additional cash and securities collateral that KeyBank would have been required to deliver under the ISDA Master Agreements had the credit risk contingent features been triggered for the derivative contracts in a net liability position as of December 31, 2020, and December 31, 2019. The additional collateral amounts were calculated based on scenarios under which KeyBank’s ratings are downgraded one, two, or three ratings as of December 31, 2020, and December 31, 2019, and take into account all collateral already posted. A similar calculation was performed for KeyCorp, and no additional collateral would have been required at December 31, 2020, or December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
in millions
|
2020
|
|
2019
|
Moody’s
|
S&P
|
|
Moody’s
|
S&P
|
KeyBank’s long-term senior unsecured credit ratings
|
A3
|
A-
|
|
A3
|
A-
|
One rating downgrade
|
$
|
1
|
|
$
|
1
|
|
|
$
|
1
|
|
$
|
1
|
|
Two rating downgrades
|
1
|
|
1
|
|
|
1
|
|
1
|
|
Three rating downgrades
|
1
|
|
1
|
|
|
1
|
|
1
|
|
KeyBank’s long-term senior unsecured credit rating was four ratings above noninvestment grade at Moody’s and S&P as of December 31, 2020, and December 31, 2019. If KeyBank’s ratings had been downgraded below investment grade as of December 31, 2020, and December 31, 2019, payments of up to $2 million and $3 million, respectively, would have been required to either terminate the contracts or post additional collateral for those contracts in a net liability position, taking into account all collateral already posted. If KeyCorp’s ratings had been downgraded below investment grade as of December 31, 2020, and December 31, 2019, no payments would have
been required to either terminate the contracts or post additional collateral for those contracts in a net liability position, taking into account all collateral already posted.
9. Mortgage Servicing Assets
We originate and periodically sell commercial and residential mortgage loans but continue to service those loans for the buyers. We also may purchase the right to service commercial mortgage loans for other lenders. We record a servicing asset if we purchase or retain the right to service loans in exchange for servicing fees that exceed the going market servicing rate and are considered more than adequate compensation for servicing. Additional information pertaining to the accounting for mortgage and other servicing assets is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Servicing Assets.”
Commercial
Changes in the carrying amount of commercial mortgage servicing assets are summarized as follows:
|
|
|
|
|
|
|
|
|
Year ended December 31,
in millions
|
2020
|
2019
|
Balance at beginning of period
|
$
|
539
|
|
$
|
502
|
|
Servicing retained from loan sales
|
138
|
|
108
|
|
Purchases
|
33
|
|
47
|
|
Amortization
|
(117)
|
|
(115)
|
|
Temporary impairments
|
(15)
|
|
(3)
|
|
Balance at end of period
|
$
|
578
|
|
$
|
539
|
|
Fair value at end of period
|
$
|
668
|
|
$
|
665
|
|
|
|
|
The fair value of commercial mortgage servicing assets is determined by calculating the present value of future cash flows associated with servicing the commercial mortgage loans. This calculation uses a number of assumptions that are based on current market conditions. The range and weighted-average of the significant unobservable inputs used to fair value our commercial mortgage servicing assets at December 31, 2020, and December 31, 2019, along with the valuation techniques, are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dollars in millions
|
|
December 31, 2020
|
December 31, 2019
|
Valuation Technique
|
Significant
Unobservable Input
|
Range
|
Weighted-Average
|
Range
|
Weighted-Average
|
Discounted cash flow
|
Expected defaults
|
1.01
|
2.00
|
%
|
1.18
|
%
|
1.00
|
2.00
|
%
|
1.13
|
%
|
|
Residual cash flows discount rate
|
7.48
|
10.62
|
%
|
9.22
|
%
|
7.00
|
11.44
|
%
|
9.32
|
%
|
|
Escrow earn rate
|
0.92
|
1.14
|
%
|
1.04
|
%
|
1.44
|
2.32
|
%
|
2.03
|
%
|
|
Loan assumption rate
|
0.00
|
1.77
|
%
|
1.43
|
%
|
0.01
|
3.37
|
%
|
1.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If these economic assumptions change or prove incorrect, the fair value of commercial mortgage servicing assets may also change. Expected credit losses, escrow earn rates, and discount rates are critical to the valuation of commercial mortgage servicing assets. Estimates of these assumptions are based on how a market participant would view the respective rates and reflect historical data associated with the commercial mortgage loans, industry trends, and other considerations. Actual rates may differ from those estimated due to changes in a variety of economic factors. A decrease in the value assigned to the escrow earn rates would cause a decrease in the fair value of our commercial mortgage servicing assets. An increase in the assumed default rates of commercial mortgage loans or an increase in the assigned discount rates would cause a decrease in the fair value of our commercial mortgage servicing assets. Prepayment activity on commercial serviced loans does not significantly impact the valuation of our commercial mortgage servicing assets. Unlike residential mortgages, commercial mortgages experience significantly lower prepayments due to certain contractual restrictions impacting the borrower’s ability to prepay the mortgage.
The amortization of commercial mortgage servicing assets for each period, as shown in the table at the beginning of this note, is recorded as a reduction to contractual fee income. The contractual fee income from servicing commercial mortgage loans totaled $214 million for the year ended December 31, 2020, $196 million for the year ended December 31, 2019, and $171 million for the year ended December 31, 2018. This fee income was partially offset by $117 million of amortization for the year ended December 31, 2020, $115 million for the year ended December 31, 2019, and $102 million for the year ended December 31, 2018. Both the contractual fee income and the amortization are recorded, net, in “commercial mortgage servicing fees” on the income statement.
Residential
Changes in the carrying amount of residential mortgage servicing assets are summarized as follows:
|
|
|
|
|
|
|
|
|
in millions
|
2020
|
2019
|
Balance at beginning of period
|
$
|
46
|
|
37
|
|
Servicing retained from loan sales
|
36
|
|
$
|
15
|
|
Purchases
|
—
|
|
—
|
|
Amortization
|
(14)
|
|
(6)
|
|
Temporary impairments
|
$
|
(10)
|
|
$
|
—
|
|
Balance at end of period
|
$
|
58
|
|
$
|
46
|
|
Fair value at end of period
|
$
|
60
|
|
$
|
50
|
|
|
|
|
The fair value of residential mortgage servicing assets is determined by calculating the present value of future cash flows associated with servicing the residential mortgage loans. This calculation uses a number of assumptions that are based on current market conditions. The range and weighted-average of the significant unobservable inputs used to fair value our residential mortgage servicing assets at December 31, 2020, along with the valuation techniques, are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
December 31, 2019
|
Valuation Technique
|
Significant
Unobservable Input
|
Range
|
Weighted-Average
|
Range
|
Weighted-Average
|
Discounted cash flow
|
Prepayment speed
|
12.39
|
|
54.27
|
%
|
17.09
|
%
|
10.38
|
|
61.51
|
%
|
12.95
|
%
|
|
Discount rate
|
7.51
|
|
8.63
|
%
|
7.55
|
%
|
7.5
|
|
8.50
|
%
|
7.52
|
%
|
|
Servicing cost
|
$62.00
|
$5,125
|
$75.37
|
$62
|
$4,375
|
$68.73
|
If these economic assumptions change or prove incorrect, the fair value of residential mortgage servicing assets may also change. Prepayment speed, discount rates, and servicing cost are critical to the valuation of residential mortgage servicing assets. Estimates of these assumptions are based on how a market participant would view the respective rates and reflect historical data associated with the residential mortgage loans, industry trends, and other considerations. Actual rates may differ from those estimated due to changes in a variety of economic factors. An increase in the prepayment speed would cause a decrease in the fair value of our residential mortgage servicing assets. An increase in the assigned discount rates and servicing cost assumptions would cause a decrease in the fair value of our residential mortgage servicing assets.
The amortization of residential mortgage servicing assets for December 31, 2020, as shown in the table above, is recorded as a reduction to contractual fee income. The contractual fee income from servicing residential mortgage loans totaled $34 million for the year ended December 31, 2020, $21 million for the year ended December 31, 2019, and $14 million for the year ended December 31, 2018. This fee income was offset by $14 million of amortization for the year ended December 31, 2020, $6 million for the year ended December 31, 2019, and $4 million for the year ended December 31, 2018. Both the contractual fee income and the amortization are recorded, net, in “consumer mortgage income” on the income statement.
10. Leases
As a lessee, we enter into leases of land, buildings, and equipment. Our real estate leases primarily relate to bank branches and office space. The leases of equipment principally relate to technology assets for data processing and data storage. As a lessor, we primarily provide financing through our equipment leasing business.
Lessee
Our leases are classified as either operating or financing and have remaining terms ranging from 1 to 20 years with the exception of certain ground leases that have terms over 30 years. For leases with initial terms greater than one year, a lease liability, measured as the present value of unpaid lease payments, and a corresponding right-of-use asset for the right to use the leased properties are reported on the balance sheet. Lease payments are discounted using Key’s incremental borrowing rate, consistent with what Key would pay to borrow on a collateralized basis over a term similar to each lease. Leases with an initial term of less than one year are not recorded on the balance sheet. The related expense is recognized on a straight-line basis over the lease term.
Certain leases contain options to extend the lease term for up to five years. Some leases give us the option to terminate, for a penalty or at the lessor's discretion. Leases with variable payments are primarily based on adjustments for inflation over the term of the lease based on a contractually defined index. Certain ATM leases include variable payments based on volume of transactions.
Operating lease expense is recognized in "net occupancy" and "equipment" on the income statement. The components of lease expense are summarized as follows:
|
|
|
|
|
|
|
|
|
|
in millions
|
|
December 31, 2020
|
December 31, 2019
|
Operating lease cost
|
|
$
|
135
|
|
$
|
136
|
|
Finance lease cost:
|
|
|
|
Amortization of right-of-use assets
|
|
2
|
|
2
|
|
Interest on lease liabilities
|
|
1
|
|
1
|
|
|
|
|
|
Variable lease cost
|
|
20
|
|
24
|
|
Total lease cost (a)
|
|
$
|
158
|
|
$
|
163
|
|
|
|
|
|
|
|
|
|
(a)Short-term lease cost was less than $1 million for both the twelve months ended December 31, 2020.and the twelve months ended December 31, 2019
Cash flows related to leases are summarized as follows:
|
|
|
|
|
|
|
|
|
|
in millions
|
|
December 31, 2020
|
December 31, 2019
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from finance leases
|
|
$
|
1
|
|
$
|
1
|
|
Operating cash flows from operating leases
|
|
143
|
|
146
|
|
Financing cash flows from finance leases
|
|
2
|
|
2
|
|
Right-of-use assets obtained in exchange for lease obligations: (a)
|
|
|
|
Operating leases
|
|
$
|
86
|
|
$
|
81
|
|
Net gain recognized from sale leaseback transaction (b)
|
|
$
|
—
|
|
$
|
14
|
|
Finance leases
|
|
—
|
|
|
|
|
|
|
(a)There were no right-of-use assets obtained in exchange for finance lease obligations for either the twelve months ended December 31, 2020 or the Twelve months ended December 31, 2019.
(b)During the third quarter of 2019, we entered into a sale leaseback transaction related to one branch which resulted in total proceeds of $16 million.
Additional balance sheet information related to leases is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
Balance sheet classification
|
December 31, 2020
|
December 31, 2019
|
Operating lease assets
|
Accrued income and other assets
|
$
|
630
|
|
$
|
654
|
|
Operating lease liabilities
|
Accrued expense and other liabilities
|
711
|
|
748
|
|
Finance leases:
|
|
|
|
Property and equipment, gross
|
Premises and equipment
|
28
|
|
28
|
|
Accumulated depreciation
|
Premises and equipment
|
(19)
|
|
(17)
|
|
Property and equipment, net
|
|
9
|
|
11
|
|
|
|
|
|
Finance lease liabilities
|
Long-term debt
|
11
|
|
13
|
|
|
|
|
|
Information pertaining to the lease term and weighted-average discount rate is summarized as follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
December 31, 2019
|
Weighted-average remaining lease term:
|
|
|
Operating leases
|
7.09
|
7.50
|
Finance leases
|
5.03
|
6.06
|
Weighted-average discount rate:
|
|
|
Operating leases
|
3.01
|
%
|
3.26
|
%
|
Finance leases
|
3.94
|
%
|
3.94
|
%
|
|
|
|
Maturities of lease liabilities are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
Operating Leases
|
Finance Leases
|
Total
|
2021
|
$
|
140
|
|
$
|
3
|
|
$
|
143
|
|
2022
|
131
|
|
3
|
|
134
|
|
2023
|
116
|
|
2
|
|
118
|
|
2024
|
97
|
|
1
|
|
98
|
|
2025
|
79
|
|
1
|
|
80
|
|
Thereafter
|
233
|
|
3
|
|
236
|
|
Total lease payments
|
796
|
|
13
|
|
809
|
|
Less imputed interest
|
85
|
|
2
|
|
87
|
|
Total
|
$
|
711
|
|
$
|
11
|
|
$
|
722
|
|
|
|
|
|
Lessor Equipment Leasing
Leases may have fixed or floating rate terms. Variable payments are based on an index or other specified rate and are included in rental payments. Certain leases contain an option to extend the lease term or the option to terminate at the discretion of the lessee. Under certain conditions, lease agreements may also contain the option for a lessee to purchase the underlying asset.
Interest income from sales-type and direct financing leases is recognized in "interest income — loans" on the statement of income. Income related to operating leases is recognized in “operating lease income and other leasing gains” on the income statement. The components of equipment leasing income are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
in millions
|
|
December 31, 2020
|
December 31, 2019
|
|
|
|
|
|
|
Sales-type and direct financing leases
|
|
|
|
|
Interest income on lease receivable
|
|
$
|
119
|
|
$
|
121
|
|
|
Interest income related to accretion of unguaranteed residual asset
|
|
(3)
|
|
13
|
|
|
Interest income on deferred fees and costs
|
|
—
|
|
—
|
|
|
Total sales-type and direct financing lease income
|
|
116
|
|
134
|
|
|
Operating leases
|
|
|
|
|
Operating lease income related to lease payments
|
|
136
|
|
133
|
|
|
Other operating leasing gains
|
|
31
|
|
28
|
|
|
Total operating lease income and other leasing gains
|
|
167
|
|
161
|
|
|
Total lease income
|
|
$
|
283
|
|
$
|
295
|
|
|
|
|
|
|
|
Equipment leasing receivables relate to sales-type and direct financing leases. The composition of the net investment in sales-type and direct financing leases is as follows:
|
|
|
|
|
|
|
|
|
|
in millions
|
December 31, 2020
|
December 31, 2019
|
|
Lease receivables
|
$
|
3,570
|
|
$
|
3,792
|
|
|
Unearned income
|
(257)
|
|
(329)
|
|
|
Unguaranteed residual value
|
478
|
|
490
|
|
|
Deferred fees and costs
|
8
|
|
16
|
|
|
Net investment in sales-type and direct financing leases
|
$
|
3,799
|
|
$
|
3,969
|
|
|
|
|
|
|
The residual value component of a lease represents the fair value of the leased asset at the end of the lease term. We rely on industry data, historical experience, independent appraisals and the experience of the equipment leasing asset management team to value lease residuals. Relationships with a number of equipment vendors give the asset management team insight into the life cycle of the leased equipment, pending product upgrades and competing products. Effective January 1, 2019, as a result of the implementation of ASU 2016-02, Key assesses net investments in leases, including residual values, for impairment and recognizes any impairment losses in accordance with the impairment guidance for financial instruments. The carrying amount of residual assets covered by residual value guarantees at December 31, 2020, and December 31, 2019, was $269 million and $289 million, respectively.
At December 31, 2020, minimum future lease payments to be received for sales-type and direct financing leases are as follows:
|
|
|
|
|
|
in millions
|
Sales-type and direct financing lease payments
|
2021
|
$
|
1,085
|
|
2022
|
838
|
|
2023
|
573
|
|
2024
|
371
|
|
2025
|
226
|
|
Thereafter
|
477
|
|
Total lease payments
|
$
|
3,570
|
|
|
|
|
|
|
|
At December 31, 2020, minimum future lease payments to be received for operating leases are as follows:
|
|
|
|
|
|
in millions
|
Operating lease payments
|
2021
|
$
|
122
|
|
2022
|
106
|
|
2023
|
88
|
|
2024
|
76
|
|
2025
|
63
|
|
Thereafter
|
126
|
|
Total lease payments
|
$
|
581
|
|
|
|
The carrying amount of operating lease assets at December 31, 2020 and December 31, 2019, was $859 million and $941 million, respectively.
11. Premises and Equipment
Premises and Equipment
Premises and equipment at December 31, 2020, and December 31, 2019, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
dollars in millions
|
Useful life (in years)
|
2020
|
2019
|
Land
|
Indefinite
|
$
|
126
|
|
$
|
128
|
|
Buildings and improvements
|
15-40
|
722
|
|
729
|
|
Leasehold improvements
|
1-15
|
631
|
|
620
|
|
Furniture and equipment
|
2-15
|
843
|
|
872
|
|
Capitalized building leases
|
1-14 (a)
|
28
|
|
28
|
|
Construction in process
|
N/A
|
44
|
|
48
|
|
Total premises and equipment
|
|
2,394
|
|
2,425
|
|
Less: Accumulated depreciation and amortization
|
|
(1,641)
|
|
(1,611)
|
|
Premises and equipment, net
|
|
$
|
753
|
|
$
|
814
|
|
|
|
|
|
(a)Capitalized building and equipment leases are amortized over the lesser of the useful life of asset or lease term.
Depreciation and amortization expense related to premises and equipment for the years ended December 31, 2020, December 31, 2019, and December 31, 2018 was $115 million, $118 million, and $131 million, respectively. This includes amortization of assets under capital leases.
Software
Eligible costs related to computer software developed or obtained for internal use that add functionality, improve efficiency or extend the useful life of a system are capitalized. Amortization of capitalized software begins when it is ready for its intended use, which is after all substantial testing is completed. Capitalized costs are amortized using the straight-line or accelerated method over its useful life. Balances are included in “Accrued income and other assets”.
Key had capitalized software assets, including internally-developed and purchased software and costs associated with certain cloud computing arrangements of $385 million and $910 million and related accumulated amortization of $183 million and $756 million as of December 31, 2020 and December 31, 2019, respectively. This includes in-
process software that has not started amortizing. Amortization expense related to internal-use software for the years ended December 31, 2020, December 31, 2019, and December 31, 2018 was $49 million, $46 million, and $52 million, respectively.
12. Goodwill and Other Intangible Assets
Our annual goodwill impairment testing is performed as of October 1 each year, or more frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. Additional information pertaining to our accounting policy for goodwill and other intangible assets is summarized in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Goodwill and Other Intangible Assets.”
During 2020, there was deterioration in the market and disruption resulting from the COVID-19 pandemic, which impacted Key’s market capitalization. We conducted a quantitative interim impairment test as of September 30, 2020, and concluded goodwill was not impaired.
As a result of that interim test, we determined that the estimated fair value of the Consumer Bank reporting unit was 11% greater than its carrying amount, the estimated fair value of the Commercial Bank reporting unit was 17% greater than its carrying amount and the estimated fair value of the Institutional Bank reporting unit, which is aggregated in the Commercial Bank reporting segment, was 11% greater than its carrying amount. The fair values of each reporting unit were estimated using a combination of income and market approaches. The income approach utilized discounted cash flow projections for each reporting unit. The market approach consisted primarily of public company metrics but also considered recent transactions in the financial services industry. The carrying amounts of Key’s reporting units represent the average equity based on risk-weighted regulatory capital for goodwill impairment testing and management reporting purposes.
For our annual test, we conducted a qualitative analysis as of October 1, 2020, and concluded goodwill was not impaired. We reviewed and evaluated various qualitative factors such as financial and stock performance, market capitalization, internal forecasts and economic indicators. We will continue to monitor for impairment as appropriate.
During 2019, Key performed a quantitative annual test but it was not necessary to perform further reviews of goodwill in interim periods.
Changes in the carrying amount of goodwill by reporting segment are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
Consumer Bank
|
Commercial Bank
|
Total
|
BALANCE AT DECEMBER 31, 2018
|
$
|
2,102
|
|
$
|
414
|
|
$
|
2,516
|
|
Reallocation of goodwill
|
(498)
|
|
498
|
|
—
|
|
Laurel Road acquisition
|
148
|
|
—
|
|
148
|
|
BALANCE AT DECEMBER 31, 2019
|
1,752
|
|
912
|
|
2,664
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2020
|
$
|
1,752
|
|
$
|
912
|
|
$
|
2,664
|
|
|
|
|
|
Additional information regarding the Laurel Road acquisition is provided in Note 15 (“Acquisitions, Divestiture, and Discontinued Operations”). Additional information regarding the above reallocation of goodwill is provided in Note 25 (“Business Segment Reporting”).
As of December 31, 2020, we expect goodwill in the amount of $517 million to be deductible for tax purposes in future periods.
There were no accumulated impairment losses related to any of Key’s reporting units at December 31, 2020, December 31, 2019, and December 31, 2018.
The following table shows the gross carrying amount and the accumulated amortization of intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
December 31,
in millions
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Intangible assets subject to amortization:
|
|
|
|
|
|
Core deposit intangibles
|
$
|
355
|
|
$
|
236
|
|
|
$
|
355
|
|
$
|
193
|
|
PCCR intangibles
|
16
|
|
12
|
|
|
152
|
|
145
|
|
Other intangible assets
|
105
|
|
40
|
|
|
115
|
|
31
|
|
Total
|
$
|
476
|
|
$
|
288
|
|
|
$
|
622
|
|
$
|
369
|
|
|
|
|
|
|
|
The following table presents estimated intangible asset amortization expense for the next five years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
in millions
|
2021
|
2022
|
2023
|
2024
|
2025
|
Intangible asset amortization expense
|
$
|
62
|
|
$
|
57
|
|
$
|
51
|
|
$
|
28
|
|
$
|
19
|
|
13. Variable Interest Entities
A VIE is a partnership, limited liability company, trust, or other legal entity that meets any one of the following criteria:
•The entity does not have sufficient equity to conduct its activities without additional subordinated financial support from another party.
•The entity’s investors lack the power to direct the activities that most significantly impact the entity’s economic performance.
•The entity’s equity at risk holders do not have the obligation to absorb losses or the right to receive residual returns.
•The voting rights of some investors are not proportional to their economic interests in the entity, and substantially all of the entity’s activities involve, or are conducted on behalf of, investors with disproportionately few voting rights.
Our significant VIEs are summarized below. We define a “significant interest” in a VIE as a subordinated interest that exposes us to a significant portion, but not the majority, of the VIE’s expected losses or residual returns, even though we do not have the power to direct the activities that most significantly impact the entity’s economic performance.
LIHTC investments. Through KCDC, we have made investments directly and indirectly in LIHTC operating partnerships formed by third parties. As a limited partner in these operating partnerships, we are allocated tax credits and deductions associated with the underlying properties. We have determined that we are not the primary beneficiary of these investments because the general partners have the power to direct the activities that most significantly influence the economic performance of their respective partnerships and have the obligation to absorb expected losses and the right to receive residual returns. As we are not the primary beneficiary of these investments, we do not consolidate them.
Our maximum exposure to loss in connection with these partnerships consists of our unamortized investment balance plus any unfunded equity commitments and tax credits claimed but subject to recapture. We had $1.4 billion and $1.5 billion of investments in LIHTC operating partnerships at December 31, 2020, and December 31, 2019, respectively. These investments are recorded in “accrued income and other assets” on our balance sheet. We do not have any loss reserves recorded related to these investments because we believe the likelihood of any loss is remote. For all legally binding unfunded equity commitments, we increase our recognized investment and recognize a liability. As of December 31, 2020, and December 31, 2019, we had liabilities of $484 million and $546 million, respectively, related to investments in qualified affordable housing projects, which are recorded in “accrued expense and other liabilities” on our balance sheet. We continue to invest in these LIHTC operating partnerships.
The assets and liabilities presented in the table below convey the size of KCDC’s direct and indirect investments at December 31, 2020, and December 31, 2019. As these investments represent unconsolidated VIEs, the assets and liabilities of the investments themselves are not recorded on our balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated VIEs
|
in millions
|
Total
Assets
|
Total
Liabilities
|
Maximum
Exposure to Loss
|
December 31, 2020
|
|
|
|
LIHTC investments
|
$
|
6,914
|
|
$
|
2,765
|
|
$
|
1,823
|
|
December 31, 2019
|
|
|
|
LIHTC investments
|
$
|
6,405
|
|
$
|
2,526
|
|
$
|
1,846
|
|
We amortize our LIHTC investments over the period that we expect to receive the tax benefits. In 2020, we recognized $195 million of amortization and $177 million of tax credits associated with these investments within “income taxes” on our income statement. In 2019, we recognized $187 million of amortization and $184 million of tax credits associated with these investments within “income taxes” on our income statement.
Principal investments. Through our principal investing entity, KCC, we have made investments in private equity funds engaged in venture- and growth-oriented investing. As a limited partner to these funds, KCC records these investments at fair value and receives distributions from the funds in accordance with the funds’ partnership agreements. We are not the primary beneficiary of these investments as we do not hold the power to direct the activities that most significantly affect the funds’ economic performance. Such power rests with the funds’ general partners. In addition, we neither have the obligation to absorb the funds’ expected losses nor the right to receive their residual returns. Our voting rights are also disproportionate to our economic interests, and substantially all of the funds’ activities are conducted on behalf of investors with disproportionately few voting rights. Because we are not the primary beneficiary of these investments, we do not consolidate them.
Our maximum exposure to loss associated with indirect principal investments consists of the investments’ fair value plus any unfunded equity commitments. The fair value of our indirect principal investments totaled $53 million and $68 million at December 31, 2020, and December 31, 2019, respectively. These investments are recorded in “other investments” on our balance sheet. Additional information on indirect principal investments is provided in Note 6 (“Fair Value Measurements”). The table below reflects the size of the private equity funds in which KCC was invested as well as our maximum exposure to loss in connection with these investments at December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated VIEs
|
in millions
|
Total
Assets
|
Total
Liabilities
|
Maximum
Exposure to Loss
|
December 31, 2020
|
|
|
|
Indirect investments
|
$
|
10,899
|
|
$
|
168
|
|
$
|
69
|
|
December 31, 2019
|
|
|
|
Indirect investments
|
$
|
12,954
|
|
$
|
205
|
|
$
|
89
|
|
Through our principal investing entities, we have formed and funded operating entities that provide management and other related services to our investment company funds, which directly invest in portfolio companies. In return for providing services to our direct investment funds, these entities’ receive a minority equity interest in the funds. This minority equity ownership is recorded at fair value on the entities’ financial statements. Additional information on our direct principal investments is provided in Note 6 (“Fair Value Measurements”). While other equity investors manage the daily operations of these entities, we retain the power, through voting rights, to direct the activities of the entities that most significantly impact their economic performance. In addition, we have the obligation to absorb losses and the right to receive residual returns that could potentially be significant to these entities. As a result, we have determined that we are the primary beneficiary of these funds and have consolidated them since formation. The entities had no liabilities at December 31, 2020, and December 31, 2019, and other equity investors have no recourse to our general credit.
Other unconsolidated VIEs. We are involved with other various entities in the normal course of business which we have determined to be VIEs. We have determined that we are not the primary beneficiary of these VIEs because we do not have the power to direct the activities that most significantly impact their economic performance. Our assets associated with these unconsolidated VIEs totaled $351 million at December 31, 2020, and $282 million at December 31, 2019. These assets are recorded in “accrued income and other assets,” “other investments,”
“securities available for sale,” and “loans, net of unearned income” on our balance sheet. We had liabilities totaling $1 million associated with these unconsolidated VIEs at December 31, 2020, and $1 million at December 31, 2019. These liabilities are recorded in “accrued expenses and other liabilities” on our balance sheet. We have excluded certain transactions with unconsolidated VIEs from the balances above where we determine our continuing involvement is not significant. In addition, where we only have a lending arrangement in the normal course of business with unconsolidated VIEs we present the balances related to the lending arrangements in Note 5 (“Asset Quality”).
14. Income Taxes
Income taxes included in the income statement are summarized below. We file a consolidated federal income tax return.
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
in millions
|
2020
|
2019
|
2018
|
Currently payable:
|
|
|
|
Federal
|
$
|
336
|
|
$
|
241
|
|
$
|
184
|
|
State
|
83
|
|
20
|
|
62
|
|
Total currently payable
|
419
|
|
261
|
|
246
|
|
Deferred:
|
|
|
|
Federal
|
(156)
|
|
34
|
|
117
|
|
State
|
(36)
|
|
19
|
|
(19)
|
|
Total deferred
|
(192)
|
|
53
|
|
98
|
|
Total income tax (benefit) expense (a)
|
$
|
227
|
|
$
|
314
|
|
$
|
344
|
|
|
|
|
|
(a)There was income tax (benefit) expense on securities transactions of $1 million in 2020, a $5 million in 2019 and no income tax (benefit) expense on securities transactions 2018. Income tax expense excludes equity- and gross receipts-based taxes, which are assessed in lieu of an income tax in certain states in which we operate. These non-income taxes, which are recorded in “noninterest expense” on the income statement, totaled $30 million in 2020, $23 million in 2019, and $15 million in 2018.
On December 22, 2017, the TCJ Act was signed into law. This comprehensive tax legislation provided for significant changes to the U.S. Internal Revenue Code of 1986, as amended, that impacted corporate taxation requirements such as the reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018.
During 2018, we completed and filed our 2017 federal income tax return and management finalized its assessment of the initial impact of the TCJ Act, recorded in 2017, and related regulatory guidance. As a result, our income tax provision was increased by $7 million.
Significant components of our deferred tax assets and liabilities included in “accrued expense and other liabilities” on the balance sheet, are as follows:
|
|
|
|
|
|
|
|
|
December 31,
in millions
|
2020
|
2019
|
Allowance for loan and lease losses
|
$
|
443
|
|
$
|
236
|
|
Employee benefits
|
166
|
|
164
|
|
|
|
|
Federal net operating losses and credits
|
7
|
|
81
|
|
Fair value adjustments
|
—
|
|
21
|
|
Non-tax accruals
|
76
|
|
61
|
|
Operating lease liabilities (a)
|
174
|
|
178
|
|
State net operating losses and credits
|
1
|
|
1
|
|
Other
|
297
|
|
245
|
|
Gross deferred tax assets
|
1,164
|
|
987
|
|
Less: Valuation Allowance
|
—
|
|
—
|
|
Total deferred tax assets
|
1,164
|
|
987
|
|
|
|
|
Leasing transactions
|
556
|
|
628
|
|
Net unrealized securities gains
|
340
|
|
117
|
|
Operating lease right-of-use assets (a)
|
153
|
|
156
|
|
Other
|
215
|
|
175
|
|
Total deferred tax liabilities
|
1,264
|
|
1,076
|
|
Net deferred tax assets (liabilities) (b)
|
$
|
(100)
|
|
$
|
(89)
|
|
|
|
|
(a)A separate deferred tax asset and liability is recognized for each operating lease item resulting from the adoption of ASC 842 in 2019.
(b)From continuing operations.
We conduct quarterly assessments of all available evidence to determine the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded. The available evidence used in connection with these assessments includes taxable income in prior periods, projected future taxable income, potential tax-planning strategies, and projected future reversals of deferred tax items. These assessments involve a degree of subjectivity and may undergo significant change. Based on these criteria, we have no recorded valuation allowances at December 31, 2020.
At December 31, 2020, we had federal net operating loss carryforwards of $26 million and federal credit carryforwards of $1 million. The federal net operating loss carryforwards are from prior acquisitions by First Niagara and are subject to annual limitations under the tax code and, if not utilized, will expire in the years beginning 2027. The federal credit carryforward consists of general business credits which expire in 2037, under the Internal Revenue Code. We currently expect to fully utilize these losses and credits.
We had state net operating loss carryforwards of $30 million, resulting in a net state deferred tax asset of $1 million.
The following table shows how our total income tax expense (benefit) and the resulting effective tax rate were derived:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
dollars in millions
|
2020
|
|
2019
|
|
2018
|
Amount
|
Rate
|
|
Amount
|
Rate
|
|
Amount
|
Rate
|
Income (loss) before income taxes times 21% statutory federal tax rate
|
$
|
327
|
|
21.0
|
%
|
|
$
|
425
|
|
21.0
|
%
|
|
$
|
463
|
|
21.0
|
%
|
Amortization of tax-advantaged investments
|
150
|
|
9.7
|
|
|
132
|
|
6.5
|
|
|
127
|
|
5.8
|
|
Foreign tax adjustments
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
2
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt interest income
|
(28)
|
|
(1.8)
|
|
|
(30)
|
|
(1.5)
|
|
|
(30)
|
|
(1.4)
|
|
Corporate-owned life insurance income
|
(29)
|
|
(1.9)
|
|
|
(29)
|
|
(1.4)
|
|
|
(29)
|
|
(1.3)
|
|
|
|
|
|
|
|
|
|
|
State income tax, net of federal tax benefit
|
37
|
|
2.4
|
|
|
31
|
|
1.5
|
|
|
34
|
|
1.5
|
|
Tax credits
|
(218)
|
|
(14.0)
|
|
|
(231)
|
|
(11.4)
|
|
|
(234)
|
|
(10.6)
|
|
Tax Cuts and Jobs Act
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
7
|
|
.3
|
|
Other
|
(12)
|
|
(.8)
|
|
|
16
|
|
.9
|
|
|
4
|
|
.2
|
|
Total income tax expense (benefit)
|
$
|
227
|
|
14.6
|
%
|
|
$
|
314
|
|
15.6
|
%
|
|
$
|
344
|
|
15.6
|
%
|
|
|
|
|
|
|
|
|
|
Liability for Unrecognized Tax Benefits
The change in our liability for unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
Year ended December 31,
in millions
|
2020
|
2019
|
Balance at beginning of year
|
$
|
19
|
|
$
|
35
|
|
Increase for other tax positions of prior years
|
40
|
|
2
|
|
Decrease for payments and settlements
|
—
|
|
—
|
|
Decrease related to tax positions taken in prior years
|
(1)
|
|
(18)
|
|
Balance at end of year
|
$
|
58
|
|
$
|
19
|
|
|
|
|
Each quarter, we review the amount of unrecognized tax benefits recorded in accordance with the applicable accounting guidance. Any adjustment to unrecognized tax benefits is recorded in income tax expense. The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $58 million at December 31, 2020, and $19 million at December 31, 2019. It is reasonably possible that the balance of unrecognized tax benefits could decrease in the next twelve months due to examinations by various tax authorities or the expiration of statutes of limitations.
As permitted under the applicable accounting guidance, it is our policy to record interest and penalties related to unrecognized tax benefits in income tax expense. We recorded net interest benefit of $0.2 million, $0.9 million, and $0.7 million in 2020, 2019, and 2018, respectively. We did not recover any state tax penalties in 2020, 2019, or 2018. At December 31, 2020, we had an accrued interest payable of $3 million, compared to $2 million at December 31, 2019. There was no liability for accrued state tax penalties at December 31, 2020, and December 31, 2019.
At December 31, 2020 there were no unrecognized tax benefits presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward, compared to $15.9 million at December 31, 2019.
We file federal income tax returns, as well as returns in various state and foreign jurisdictions. We are subject to income tax examination by the IRS for the tax years 2016 and forward. Currently, we are not under IRS audit for any tax years. We are not subject to income tax examinations by other tax authorities for years prior to 2013.
Pre-1988 Bank Reserves acquired in a business combination
Retained earnings of KeyBank included approximately $92 million of allocated bad debt deductions for which no income taxes have been recorded. Under current federal law, these reserves are subject to recapture into taxable income if KeyBank, or any successor, fails to maintain its bank status under the Internal Revenue Code or makes non-dividend distributions or distributions greater than its accumulated earnings and profits. No deferred tax liability has been established as these events are not expected to occur in the foreseeable future.
15. Acquisitions, Divestiture, and Discontinued Operations
Acquisitions
Laurel Road Digital Lending Business. On April 3, 2019, KeyBank acquired Laurel Road's digital lending business from Laurel Road Bank. Laurel Road Bank's three bank branches located in southeast Connecticut were not part of this transaction. Through the acquisition, KeyBank expects to enhance its digital capabilities with state-of-the-art, customer-centric technology and to leverage Laurel Road's proven ability to attract and serve professional millennial clients. The acquisition is accounted for as a business combination. As a result of the acquisition, we recognized identifiable intangible assets with a fair value of $37 million and goodwill of $148 million. The valuation of the acquired assets and liabilities of Laurel Road was final at June 30, 2020.
Discontinued operations
Discontinued operations includes our government-guaranteed and private education lending business. At December 31, 2020, and December 31, 2019, approximately $710 million and $865 million, respectively, of education loans are included in discontinued assets on the consolidated balance sheets. Net interest income after provision for credit losses for this business is not material and is included in income (loss) from discontinued operations, net of taxes on the consolidated statements of income.
16. Securities Financing Activities
The following table summarizes our securities financing agreements at December 31, 2020, and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
in millions
|
Gross Amount
Presented in
Balance Sheet
|
Netting
Adjustments (a)
|
Collateral (b)
|
Net
Amounts
|
|
Gross Amount
Presented in
Balance Sheet
|
Netting
Adjustments (a)
|
Collateral (b)
|
Net
Amounts
|
Offsetting of financial assets:
|
|
|
|
|
|
|
|
|
|
Reverse repurchase agreements
|
$
|
6
|
|
$
|
(6)
|
|
—
|
|
—
|
|
|
$
|
5
|
|
$
|
(5)
|
|
—
|
|
—
|
|
Securities borrowed
|
500
|
|
—
|
|
$
|
(500)
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Total
|
$
|
506
|
|
$
|
(6)
|
|
$
|
(500)
|
|
—
|
|
|
$
|
5
|
|
$
|
(5)
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of financial liabilities:
|
|
|
|
|
|
|
|
|
|
Repurchase agreements (c)
|
$
|
220
|
|
$
|
(6)
|
|
$
|
(214)
|
|
—
|
|
|
$
|
187
|
|
$
|
(7)
|
|
$
|
(180)
|
|
—
|
|
Total
|
$
|
220
|
|
$
|
(6)
|
|
$
|
(214)
|
|
—
|
|
|
$
|
187
|
|
$
|
(7)
|
|
$
|
(180)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(a)Netting adjustments take into account the impact of master netting agreements that allow us to settle with a single counterparty on a net basis.
(b)These adjustments take into account the impact of bilateral collateral agreements that allow us to offset the net positions with the related collateral. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.
(c)Repurchase agreements are collateralized by mortgaged-backed agency securities and are contracted on an overnight or continuous basis.
As of December 31, 2020, the carrying amount of assets pledged as collateral against repurchase agreements totaled $232 million. Assets pledged as collateral are reported in “available for sale” and “held-to-maturity” securities on our balance sheet. At December 31, 2020, the liabilities associated with collateral pledged were solely comprised of customer sweep financing activity and had a carrying value of $214 million. The collateral pledged under customer sweep repurchase agreements is posted to a third-party custodian and cannot be sold or repledged by the secured party. The risk related to a decline in the market value of collateral pledged is minimal given the collateral's high credit quality and the overnight duration of the repurchase agreements.
Like other financing transactions, securities financing agreements contain an element of credit risk. To mitigate and manage credit risk exposure, we generally enter into master netting agreements and other collateral arrangements that give us the right, in the event of default, to liquidate collateral held and to offset receivables and payables with the same counterparty. Additionally, we establish and monitor limits on our counterparty credit risk exposure by product type. For the reverse repurchase agreements, we monitor the value of the underlying securities we received from counterparties and either request additional collateral or return a portion of the collateral based on the value of those securities. We generally hold collateral in the form of highly rated securities issued by the U.S. Treasury and fixed income securities. In addition, we may need to provide collateral to counterparties under our repurchase agreements. With the exception of collateral pledged against customer sweep repurchase agreements, the collateral we pledge and receive can generally be sold or repledged by the secured parties.
17. Stock-Based Compensation
We maintain several stock-based compensation plans, which are described below. Total compensation expense for these plans was $101 million for 2020, $96 million for 2019, and $99 million for 2018. The total income tax benefit recognized in the income statement for these plans was $24 million for 2020, $23 million for 2019, and $23 million for 2018.
Our compensation plans allow us to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, or other awards which may be denominated or payable in or valued by reference to our Common Shares or other factors, discounted stock purchases, and deferred compensation to eligible employees and directors. At December 31, 2020, we had 47,287,594 Common Shares available for future grant under our compensation plans. In accordance with a resolution adopted by the Compensation and Organization Committee of KeyCorp’s Board of Directors, we may not grant options to purchase Common Shares, restricted stock or other shares under any long-term compensation plan in an aggregate amount that exceeds 6% of our outstanding Common Shares in any rolling three-year period.
Stock Options
Stock options granted to employees generally become exercisable at the rate of 25% per year. No option granted by KeyCorp will be exercisable less than one year after, or expire later than ten years from, the grant date. The exercise price is the closing price of our Common Shares on the grant date (or the prior business day if the grant date is not a business day).
We determine the fair value of options granted using the Black-Scholes option-pricing model. This model was originally developed to determine the fair value of exchange-traded equity options, which (unlike employee stock options) have no vesting period or transferability restrictions. Because of these differences, the Black-Scholes model does not precisely value an employee stock option, but it is commonly used for this purpose. The model assumes that the estimated fair value of an option is amortized as compensation expense over the option’s vesting period.
The Black-Scholes model requires several assumptions, which we developed and update based on historical trends and current market observations. Our determination of the fair value of options is only as accurate as the underlying assumptions. The assumptions pertaining to options issued during 2020, 2019, and 2018 are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
2020
|
2019
|
2018
|
Average option life
|
6.5 years
|
6.5 years
|
6.5 years
|
Future dividend yield
|
3.90
|
%
|
3.88
|
%
|
2.28
|
%
|
Historical share price volatility
|
.267
|
|
.266
|
|
.282
|
|
Weighted-average risk-free interest rate
|
1.3
|
%
|
2.5
|
%
|
2.8
|
%
|
In 2019, shareholders approved the 2019 Equity Compensation Plan, under which 71,600,000 shares may be issued as equity awards. The Compensation and Organization Committee has authority to approve all stock option grants but may delegate some of its authority to grant awards from time to time. The committee has delegated to our Chief Executive Officer the authority to grant equity awards, including stock options, to any employee who is not designated an “officer” for purposes of Section 16 of the Exchange Act. No more than 3,000,000 Common Shares may be issued under this authority.
The following table summarizes activity, pricing and other information for our stock options for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
Weighted-Average
Exercise Price Per
Option
|
Weighted-Average
Remaining Life
|
Aggregate
Intrinsic
Value(a)
|
Outstanding at December 31, 2019
|
6,685,808
|
|
$
|
13.32
|
|
5.2 years
|
$
|
47
|
|
Granted
|
549,170
|
|
19.03
|
|
|
|
Exercised
|
(821,916)
|
|
10.37
|
|
|
|
Lapsed or canceled
|
(40,378)
|
|
15.25
|
|
|
|
Outstanding at December 31, 2020
|
6,372,684
|
|
$
|
14.18
|
|
4.6
|
21
|
|
|
|
|
|
|
Expected to vest
|
1,426,063
|
|
18.75
|
|
7.1
|
—
|
|
Exercisable at December 31, 2020
|
4,867,838
|
|
$
|
12.77
|
|
3.8
|
$
|
21
|
|
(a)The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds the exercise price of the option.
The weighted-average grant-date fair value of options was $2.96 for options granted during 2020, $3.07 for options granted during 2019, and $5.12 for options granted during 2018. Stock option exercises numbered 821,916 in 2020, 2,039,208 in 2019, and 1,960,444 in 2018. The aggregate intrinsic value of exercised options was $5 million for 2020, $18 million for 2019, and $21 million for 2018. As of December 31, 2020, unrecognized compensation cost related to nonvested options under the plans totaled $1 million. We expect to recognize this cost over a weighted-average period of 2.5 years.
Cash received from options exercised was $8 million, $18 million, and $20 million in 2020, 2019, and 2018, respectively. The actual tax benefit realized for the tax deductions from options exercised totaled less than $1 million for 2020 and $1 million for both 2019 and 2018.
Long-Term Incentive Compensation Program
Our Long-Term Incentive Compensation Program (the “Program”) rewards senior executives and other employees critical to our long-term financial success. Awards are granted annually in a variety of forms:
•deferred cash payments that generally vest and are payable at the rate of 25% per year;
•time-lapsed (service condition) restricted stock units payable in stock, which generally vest at the rate of 25% per year;
•performance units payable in stock, which vest at the end of the three-year performance cycle and will not vest unless Key attains defined performance levels and the service condition is met; and
•performance units payable in cash, which vest at the end of the three-year performance cycle and will not vest unless Key attains defined performance levels and the service condition is met.
During 2020, the total of performance units vested that were payable in stock and cash numbered 421,352 and 654,108, respectively. The total fair value of the performance units vested during 2020 that were payable in stock and cash was $8 million and $13 million, respectively. During 2019, the performance units vested that were payable in stock and cash numbered 855,233 and 1,139,582, respectively. The total fair value of the performance units vested during 2019 that were payable in stock and cash was $9 million and $20 million, respectively.
The following table summarizes activity and pricing information for the nonvested shares in the Program for the year ended December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting Contingent on
Service Conditions
|
|
Vesting Contingent on
Performance and Service
Conditions - Payable in Stock
|
|
Vesting Contingent on
Performance and Service
Conditions - Payable in Cash
|
|
Number of
Nonvested
Shares
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Number of
Nonvested
Shares
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Number of
Nonvested
Shares
|
Weighted-
Average
Grant-Date
Fair Value
|
Outstanding at December 31, 2019
|
10,296,394
|
|
$
|
17.73
|
|
|
491,189
|
|
$
|
18.87
|
|
|
$
|
3,899,884
|
|
$
|
20.37
|
|
Granted
|
5,796,992
|
|
19.40
|
|
|
(10,666)
|
|
18.98
|
|
|
1,651,519
|
|
16.16
|
|
Vested
|
(4,203,663)
|
|
16.33
|
|
|
(421,352)
|
|
18.96
|
|
|
(654,108)
|
|
19.46
|
|
Forfeited
|
(373,353)
|
|
19.16
|
|
|
—
|
|
—
|
|
|
(117,256)
|
|
13.16
|
|
Outstanding at December 31, 2020
|
11,516,370
|
|
$
|
19.01
|
|
|
59,171
|
|
$
|
18.20
|
|
|
$
|
4,780,039
|
|
$
|
16.23
|
|
|
|
|
|
|
|
|
|
|
The compensation cost of time-lapsed and performance-based restricted stock or unit awards granted under the Program is calculated using the closing trading price of our Common Shares on the grant date (or the prior business day if the grant date is not a business day).
Unlike time-lapsed and performance-based restricted stock or units, we do not pay dividends during the vesting period for performance shares or units that may become payable in excess of targeted performance.
The weighted-average grant-date fair value of awards granted under the Program was $18.68 during 2020, $18.25 during 2019, and $19.28 during 2018. As of December 31, 2020, unrecognized compensation cost related to nonvested shares under the Program totaled $88 million. We expect to recognize this cost over a weighted-average period of 2.3 years. The total fair value of shares vested was $89 million in 2020, $89 million in 2019, and $93 million in 2018.
Deferred Compensation and Other Restricted Stock Awards
Our deferred compensation arrangements include voluntary and mandatory deferral programs for Common Shares awarded to certain employees and directors. Mandatory deferred incentive awards vest at the rate of 25% per year beginning one year after the deferral date. Deferrals under the voluntary programs are immediately vested.
We also may grant, upon approval by the Compensation and Organization Committee (or our Chief Executive Officer with respect to their delegated authority), other time-lapsed restricted stock or unit awards under various programs to recognize outstanding performance.
The following table summarizes activity and pricing information for the nonvested shares granted under our deferred compensation plans and these other restricted stock or unit award programs for the year ended December 31, 2020.
|
|
|
|
|
|
|
|
|
|
Number of
Nonvested
Shares
|
Weighted-Average
Grant-Date
Fair Value
|
Outstanding at December 31, 2019
|
3,037,964
|
|
$
|
17.67
|
|
Granted
|
691,377
|
|
16.22
|
|
Dividend equivalents
|
11
|
|
13.91
|
|
Vested
|
(1,048,864)
|
|
17.18
|
|
Forfeited
|
(108,401)
|
|
18.20
|
|
Outstanding at December 31, 2020
|
2,572,087
|
|
$
|
17.46
|
|
|
|
|
The weighted-average grant-date fair value of awards granted was $16.22 during 2020, $17.57 during 2019, and $20.77 during 2018. As of December 31, 2020, unrecognized compensation cost related to nonvested shares granted under our deferred compensation plans and the other restricted stock or unit award programs totaled $13 million. We expect to recognize this cost over a weighted-average period of 3.9 years. The total fair value of shares vested was $18 million in 2020, $19 million in 2019, and $22 million in 2018. Dividend equivalents presented in the preceding table represent the value of dividends accumulated during the vesting period.
Discounted Stock Purchase Plan
Our Discounted Stock Purchase Plan provides employees the opportunity to purchase our Common Shares at a 10% discount through payroll deductions or cash payments. Purchases are limited to $10,000 in any month and $50,000 in any calendar year, and are immediately vested. To accommodate employee purchases, we issue treasury shares on or around the fifteenth day of the month following the month employee payments are received. We issued 500,508 Common Shares at a weighted-average cost to employees of $11.76 during 2020, 327,243 Common Shares at a weighted-average cost to employees of $15.73 during 2019, and 327,435 Common Shares at a weighted-average cost to employees of $17.48 during 2018.
Information pertaining to our method of accounting for stock-based compensation is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Stock-Based Compensation.”
18. Employee Benefits
Pension Plans
Key maintains a cash balance pension plan and other defined benefit plans. These plans are frozen and closed to new employees. We continue to credit participants’ existing account balances for interest until they receive their plan benefits. Plans provide benefits based upon length of service and compensation levels.
Key utilizes its fiscal year-end as the measurement date for its pension and other postretirement employee benefit plans. Actuarial gains and losses are deferred and amortized over the future service periods of active employees. We determine the expected return on plan assets using a calculated market-related value of plan assets. Gain or loss amounts in AOCI are only amortized to the extent that they exceed 10% of the greater of the market-related value or the projected benefit obligation.
Pre-tax AOCI not yet recognized as net pension cost was $427 million at December 31, 2020, and $471 million at December 31, 2019, consisting entirely of net unrecognized losses.
During 2020, 2019, and 2018, we recognized a settlement loss for lump sum payments made under certain pension plans. In accordance with the applicable accounting guidance for defined benefit plans, we performed a remeasurement of the affected plans in conjunction with the settlement and recognized the settlement loss as reflected in the following table.
The components of net pension cost and the amount recognized in OCI for all funded and unfunded plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
in millions
|
2020
|
2019
|
2018
|
Interest cost on PBO
|
$
|
34
|
|
$
|
46
|
|
$
|
41
|
|
Expected return on plan assets
|
(38)
|
|
(48)
|
|
(53)
|
|
Amortization of losses
|
17
|
|
13
|
|
17
|
|
Settlement loss
|
9
|
|
18
|
|
17
|
|
Net pension cost
|
$
|
22
|
|
$
|
29
|
|
$
|
22
|
|
|
|
|
|
Other changes in plan assets and benefit obligations recognized in OCI:
|
|
|
|
Net (gain) loss
|
$
|
(18)
|
|
$
|
(8)
|
|
$
|
20
|
|
Amortization of gains
|
(26)
|
|
(31)
|
|
(33)
|
|
Total recognized in comprehensive income
|
$
|
(44)
|
|
$
|
(39)
|
|
$
|
(13)
|
|
|
|
|
|
Total recognized in net pension cost and comprehensive income
|
$
|
(22)
|
|
$
|
(10)
|
|
$
|
9
|
|
|
|
|
|
The information related to our pension plans presented in the following tables is based on current actuarial reports using measurement dates of December 31, 2020, and December 31, 2019.
The following table summarizes changes in the PBO related to our pension plans. Actuarial losses in 2020 were primarily a result of the decrease in discount rate, offset by a gain from the decrease in interest crediting rates.
|
|
|
|
|
|
|
|
|
Year ended December 31,
in millions
|
2020
|
2019
|
PBO at beginning of year
|
$
|
1,233
|
|
$
|
1,201
|
|
Interest cost
|
34
|
|
46
|
|
Actuarial losses (gains)
|
66
|
|
91
|
|
Benefit payments
|
(85)
|
|
(105)
|
|
|
|
|
PBO at end of year
|
$
|
1,248
|
|
$
|
1,233
|
|
|
|
|
The following table summarizes changes in the FVA.
|
|
|
|
|
|
|
|
|
Year ended December 31,
in millions
|
2020
|
2019
|
FVA at beginning of year
|
$
|
1,102
|
|
$
|
1,046
|
|
Actual return on plan assets
|
123
|
|
147
|
|
Employer contributions
|
13
|
|
14
|
|
Benefit payments
|
(85)
|
|
(105)
|
|
|
|
|
FVA at end of year
|
$
|
1,153
|
|
$
|
1,102
|
|
|
|
|
The following table summarizes the funded status of the pension plans, which equals the amounts recognized in the balance sheets at December 31, 2020, and December 31, 2019.
|
|
|
|
|
|
|
|
|
December 31,
in millions
|
2020
|
2019
|
Funded status (a)
|
$
|
(95)
|
|
$
|
(131)
|
|
|
|
|
Net prepaid pension cost recognized consists of:
|
|
|
Noncurrent assets
|
$
|
81
|
|
48
|
|
Current liabilities
|
(14)
|
|
$
|
(14)
|
|
Noncurrent liabilities
|
(162)
|
|
(165)
|
|
Net prepaid pension cost recognized (b)
|
$
|
(95)
|
|
$
|
(131)
|
|
|
|
|
(a)The shortage of the FVA under the PBO.
(b)Represents the accrued benefit liability of the pension plans.
At December 31, 2020, our primary qualified cash balance pension plan was sufficiently funded under the requirements of ERISA. Consequently, we are not required to make a minimum contribution to that plan in 2021. We also do not expect to make any significant discretionary contributions during 2021.
At December 31, 2020, we expect to pay the benefits from all funded and unfunded pension plans as follows: 2021 — $92 million; 2022— $91 million; 2023 — $89 million; 2024 — $87 million; 2025 — $84 million and $371 million in the aggregate from 2026 through 2030.
The ABO for all of our pension plans was $1.2 billion at December 31, 2020, and $1.2 billion at December 31, 2019. As indicated in the table below, collectively our plans had an ABO in excess of plan assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
2019
|
in millions
|
Cash Balance Pension Plan
|
Other Defined Benefit Plans
|
Cash Balance Pension Plan
|
Other Defined Benefit Plans
|
PBO
|
$
|
1,072
|
|
$
|
176
|
|
$
|
1,054
|
|
$
|
179
|
|
ABO
|
1,072
|
|
176
|
|
1,054
|
|
179
|
|
Fair value of plan assets
|
1,153
|
|
—
|
|
1,102
|
|
—
|
|
To determine the actuarial present value of benefit obligations, we assumed the following weighted-average rates.
|
|
|
|
|
|
|
|
|
December 31,
|
2020
|
2019
|
Discount rate
|
2.05 %
|
2.89
|
%
|
Compensation increase rate
|
N/A
|
N/A
|
Weighted-average interest crediting rate
|
1.65
|
%
|
2.39
|
%
|
To determine net pension cost, we assumed the following weighted-average rates.
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
2020
|
2019
|
2018
|
Discount rate
|
2.89
|
%
|
4.00
|
%
|
3.25
|
%
|
Compensation increase rate
|
N/A
|
N/A
|
N/A
|
Expected return on plan assets
|
3.75
|
|
4.50
|
|
4.75
|
|
We estimate that we will recognize $15 million in net pension cost for 2021, compared to net pension cost of $22 million in 2020 and $29 million for 2019.
We estimate that a 25 basis point increase or decrease in the expected return on plan assets would change our net pension cost for 2021 by approximately $3 million. Pension cost also is affected by an assumed discount rate. We estimate that a 25 basis point change in the assumed discount rate would change net pension cost for 2021 by approximately $2 million.
The expected return on plan assets is determined by considering a number of factors, the most significant of which are:
•Our expectations for returns on plan assets over the long term, weighted for the investment mix of the assets. These expectations consider, among other factors, historical capital market returns of equity, fixed income, convertible, and other securities, and forecasted returns that are modeled under various economic scenarios.
•Historical returns on our plan assets. Based on an annual reassessment of current and expected future capital market returns, our expected return on plan assets was 3.75% for 2020, 4.5% for 2019 and 4.75% for 2018. We deemed a rate of 2.75% to be appropriate in estimating 2020 pension cost.
The investment objectives of the pension fund are developed to reflect the characteristics of the plan, such as pension formulas, cash lump sum distribution features, and the liability profiles of the plan’s participants. An executive oversight committee reviews the plan’s investment performance at least quarterly, and compares performance against appropriate market indices. The pension fund’s investment objectives are to balance total return objectives with a continued management of plan liabilities, and to minimize the mismatch between assets and liabilities. These objectives are being implemented through liability driven investing and the adoption of a de-risking glide path. The following table shows the asset target allocations prescribed by the pension fund’s investment policies based on the plan’s funded status at December 31, 2020.
|
|
|
|
|
|
|
Target Allocation
|
Asset Class
|
2020
|
Equity securities:
|
|
U.S.
|
4
|
%
|
International
|
2
|
|
Fixed income securities
|
87
|
|
Real assets
|
4
|
|
Other assets
|
3
|
|
Total
|
100
|
%
|
|
|
Equity securities include common stocks of domestic and foreign companies, as well as foreign company stocks traded as American Depositary Shares on U.S. stock exchanges. Debt securities include investments in domestic- and foreign-issued corporate bonds, U.S. government and agency bonds, international government bonds, and mutual funds. Real assets include an investment in a diversified real asset strategy separate account designed to provide exposure to the three core real assets: Treasury Inflation-Protected Securities, commodities, and real estate. Other assets include investments in a multi-strategy investment fund and a limited partnership.
Although the pension funds’ investment policies conditionally permit the use of derivative contracts, we have not entered into any such contracts, and we do not expect to employ such contracts in the future.
The valuation methodologies used to measure the fair value of pension plan assets vary depending on the type of asset, as described below. For an explanation of the fair value hierarchy, see Note 1 (“Summary of Significant Accounting Policies”) under the heading “Fair Value Measurements.”
Equity securities. Equity securities traded on securities exchanges are valued at the closing price on the exchange or system where the security is principally traded. These securities are classified as Level 1 since quoted prices for identical securities in active markets are available.
Debt securities. Substantially all debt securities are investment grade and include domestic- and foreign-issued corporate bonds and U.S. government and agency bonds. These securities are valued using evaluated prices based on observable inputs, such as dealer quotes, available trade information, spreads, bids and offers, prepayment speeds, U.S. Treasury curves, and interest rate movements. Debt securities are classified as Level 2.
Mutual funds. Exchange-traded mutual funds listed or traded on securities exchanges are valued at the closing price on the exchange or system where the security is principally traded. These securities are classified as Level 1 because quoted prices for identical securities in active markets are available.
Collective investment funds. Investments in collective investment funds are valued using the net asset value practical expedient and are not classified within the fair value hierarchy. Fair value is determined based on Key’s proportionate share of total net assets in the fund.
Insurance investment contracts and pooled separate accounts. Deposits under insurance investment contracts and pooled separate accounts with insurance companies do not have readily determinable fair values and are valued using a methodology that is consistent with accounting guidance that allows the plan to estimate fair value based upon net asset value per share (or its equivalent, such as member units or an ownership in partners’ capital to which a proportionate share of net assets is attributed); thus, these investments are not classified within the fair value hierarchy.
Other assets. Other assets include an investment in a multi-strategy investment fund and an investment in a limited partnership. These investments do not have readily determinable fair values and are valued using a methodology consistent with accounting guidance that allows the plan to estimate fair value based upon net asset value per share (or its equivalent, such as member units or an ownership in partners’ capital to which a proportionate share of net assets is attributed); thus, these investments are not classified within the fair value hierarchy.
The following tables show the fair values of our pension plan assets by asset class at December 31, 2020, and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
in millions
|
Level 1
|
Level 2
|
Level 3
|
Total
|
ASSET CLASS
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
Common — U.S.
|
$
|
9
|
|
—
|
|
—
|
|
$
|
9
|
|
|
|
|
|
|
Preferred — U.S.
|
3
|
|
—
|
|
—
|
|
3
|
|
Debt securities:
|
|
|
|
|
Corporate bonds — U.S.
|
—
|
|
$
|
171
|
|
—
|
|
171
|
|
Corporate bonds — International
|
—
|
|
79
|
|
—
|
|
79
|
|
Government and agency bonds — U.S.
|
—
|
|
165
|
|
—
|
|
165
|
|
Government bonds — International
|
—
|
|
2
|
|
—
|
|
2
|
|
State and municipal bonds
|
—
|
|
27
|
|
—
|
|
27
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
Equity — International
|
2
|
|
—
|
|
—
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective investment funds (measured at NAV) (a)
|
—
|
|
—
|
|
—
|
|
636
|
|
Insurance investment contracts and pooled separate accounts (measured at NAV) (a)
|
—
|
|
—
|
|
—
|
|
17
|
|
Other assets (measured at NAV) (a)
|
—
|
|
—
|
|
—
|
|
42
|
|
Total net assets at fair value
|
$
|
14
|
|
$
|
444
|
|
—
|
|
$
|
1,153
|
|
|
|
|
|
|
(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets presented elsewhere within this footnote.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
in millions
|
Level 1
|
Level 2
|
Level 3
|
Total
|
ASSET CLASS
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
Common — U.S.
|
8
|
|
—
|
|
—
|
|
8
|
|
Common — International
|
—
|
|
—
|
|
—
|
|
—
|
|
Preferred — U.S.
|
3
|
|
—
|
|
—
|
|
3
|
|
Debt securities:
|
|
|
|
|
Corporate bonds — U.S.
|
—
|
|
$
|
155
|
|
—
|
|
155
|
|
Corporate bonds — International
|
—
|
|
72
|
|
—
|
|
72
|
|
Government and agency bonds — U.S.
|
—
|
|
190
|
|
—
|
|
190
|
|
Government bonds — International
|
—
|
|
2
|
|
—
|
|
2
|
|
State and municipal bonds
|
—
|
|
27
|
|
—
|
|
27
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
Equity — International
|
2
|
|
—
|
|
—
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective investment funds (measured at NAV) (a)
|
—
|
|
—
|
|
—
|
|
584
|
|
Insurance investment contracts and pooled separate accounts (measured at NAV) (a)
|
—
|
|
—
|
|
—
|
|
16
|
|
Other assets (measured at NAV) (a)
|
—
|
|
—
|
|
—
|
|
43
|
|
Total net assets at fair value
|
$
|
13
|
|
$
|
446
|
|
—
|
|
$
|
1,102
|
|
|
|
|
|
|
(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets presented elsewhere within this footnote.
Other Postretirement Benefit Plans
We sponsor a retiree healthcare plan in which all employees age 55 with five years of service (or employees age 50 with 15 years of service who are terminated under conditions that entitle them to a severance benefit) are eligible to participate. Participant contributions are adjusted annually. Key may provide a subsidy toward the cost of coverage for certain employees hired before 2001 with a minimum of 15 years of service at the time of termination. We use a separate VEBA trust to fund the retiree healthcare plan.
The components of pre-tax AOCI not yet recognized as net postretirement benefit cost are shown below.
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
in millions
|
2020
|
2019
|
Net unrecognized losses (gains)
|
$
|
(10)
|
|
$
|
(10)
|
|
Net unrecognized prior service credit
|
(15)
|
|
(17)
|
|
Total unrecognized AOCI
|
$
|
(25)
|
|
$
|
(27)
|
|
|
|
|
The components of net postretirement benefit cost and the amount recognized in OCI for all funded and unfunded plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
in millions
|
2020
|
2019
|
2018
|
Service cost of benefits earned
|
$
|
—
|
|
$
|
1
|
|
$
|
1
|
|
Interest cost on APBO
|
2
|
|
2
|
|
2
|
|
Expected return on plan assets
|
(2)
|
|
(2)
|
|
(2)
|
|
Amortization of prior service credit
|
(1)
|
|
—
|
|
(1)
|
|
Amortization of gains
|
—
|
|
(1)
|
|
(1)
|
|
Net postretirement benefit
|
(1)
|
|
—
|
|
(1)
|
|
Other changes in plan assets and benefit obligations recognized in OCI:
|
|
|
|
Net (gain) loss
|
$
|
1
|
|
$
|
1
|
|
$
|
1
|
|
Amortization of prior service credit
|
—
|
|
1
|
|
1
|
|
Amortization of losses
|
—
|
|
—
|
|
—
|
|
Total recognized in comprehensive income
|
$
|
1
|
|
$
|
2
|
|
$
|
2
|
|
|
|
|
|
Total recognized in net postretirement benefit cost and comprehensive income
|
$
|
—
|
|
$
|
2
|
|
$
|
1
|
|
|
|
|
|
The information related to our postretirement benefit plans presented in the following tables is based on current actuarial reports using measurement dates of December 31, 2020, and December 31, 2019.
The following table summarizes changes in the APBO. Actuarial losses are a result of asset performance.
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
in millions
|
2020
|
2019
|
APBO at beginning of year
|
$
|
52
|
|
$
|
63
|
|
Service cost
|
—
|
|
1
|
|
Interest cost
|
2
|
|
2
|
|
Plan participants’ contributions
|
1
|
|
1
|
|
Actuarial losses (gains)
|
8
|
|
10
|
|
Benefit payments
|
(11)
|
|
(8)
|
|
Plan amendments
|
—
|
|
(17)
|
|
APBO at end of year
|
$
|
52
|
|
$
|
52
|
|
|
|
|
The following table summarizes changes in FVA.
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
in millions
|
2020
|
2019
|
FVA at beginning of year
|
$
|
52
|
|
$
|
47
|
|
Employer contributions
|
—
|
|
—
|
|
Plan participants’ contributions
|
1
|
|
1
|
|
Benefit payments
|
(11)
|
|
(8)
|
|
Actual return on plan assets
|
10
|
|
12
|
|
FVA at end of year
|
$
|
52
|
|
$
|
52
|
|
|
|
|
The postretirement plans were fully funded at December 31, 2020, and December 31, 2019. Therefore, no liabilities were recognized on our balance sheet.
There are no regulations that require contributions to the VEBA trust that funds our retiree healthcare plan, so there is no minimum funding requirement. We are permitted to make discretionary contributions to the VEBA trust, subject to certain IRS restrictions and limitations. We anticipate that our discretionary contributions in 2021, if any, will be minimal.
At December 31, 2020, we expect to pay the benefits from other postretirement plans as follows: 2021 — $6 million; 2022 — $6 million; 2023 — $5 million; 2024 — $5 million; 2025 — $5 million; and $23 million in the aggregate from 2026 through 2030.
To determine the APBO, we assumed discount rates of 4.0% at December 31, 2020, and 4.5% at December 31, 2019.
To determine net postretirement benefit cost, we assumed the following weighted-average rates.
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
2020
|
2019
|
2018
|
Discount rate
|
4.50
|
%
|
4.50
|
%
|
3.50
|
%
|
Expected return on plan assets
|
4.50
|
|
4.50
|
|
4.50
|
|
The realized net investment income for the postretirement healthcare plan VEBA trust is subject to federal income taxes, which are reflected in the weighted-average expected return on plan assets shown above.
Assumed healthcare cost trend rates do not have a material impact on net postretirement benefit cost or obligations since the postretirement plan has cost-sharing provisions and benefit limitations.
We do not expect to recognize a credit or an expense in net postretirement benefit cost for 2021. We recognized a credit of less than $1 million in 2020 and 2019.
We estimate the expected returns on plan assets for the VEBA trust much the same way we estimate returns on our pension funds. The primary investment objectives of the VEBA trust are to obtain a market rate of return, take into consideration the safety and/or risk of the investment, and to diversify the portfolio in order to satisfy the trust’s anticipated liquidity requirements. The following table shows the asset target allocations prescribed by the trust’s investment policy.
|
|
|
|
|
|
|
Target Allocation
|
Asset Class
|
2020
|
Equity securities
|
80
|
%
|
Fixed income securities
|
20
|
|
Cash equivalents
|
—
|
|
Total
|
100
|
%
|
|
|
Investments consist of mutual funds and collective investment funds that invest in underlying assets in accordance with the target asset allocations shown above. Exchange-traded mutual funds are valued using quoted prices and, therefore, are classified as Level 1. Investments in collective investment funds are valued using the Net Asset Value practical expedient and are not classified within the fair value hierarchy.
The following tables show the fair values of our postretirement plan assets by asset class at December 31, 2020, and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
in millions
|
Level 1
|
Level 2
|
Level 3
|
Total
|
ASSET CLASS
|
|
|
|
|
Mutual funds:
|
|
|
|
|
Equity — U.S.
|
$
|
21
|
|
—
|
|
—
|
|
$
|
21
|
|
Equity — International
|
9
|
|
—
|
|
—
|
|
9
|
|
Fixed income — U.S.
|
7
|
|
—
|
|
—
|
|
7
|
|
|
|
|
|
|
Collective investment funds:
|
|
|
|
|
Equity — U.S.(a)
|
—
|
|
—
|
|
—
|
|
14
|
|
|
|
|
|
|
Other assets (measured at NAV)(a)
|
—
|
|
—
|
|
—
|
|
1
|
|
Total net assets at fair value
|
$
|
37
|
|
—
|
|
—
|
|
$
|
52
|
|
|
|
|
|
|
(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets presented elsewhere within this footnote.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
in millions
|
Level 1
|
Level 2
|
Level 3
|
Total
|
ASSET CLASS
|
|
|
|
|
Mutual funds:
|
|
|
|
|
Equity — U.S.
|
$
|
22
|
|
—
|
|
—
|
|
$
|
22
|
|
Equity — International
|
9
|
|
—
|
|
—
|
|
9
|
|
Fixed income — U.S.
|
7
|
|
—
|
|
—
|
|
7
|
|
Fixed income — International
|
—
|
|
—
|
|
—
|
|
—
|
|
Collective investment funds:
|
|
|
|
|
Equity — U.S. (a)
|
—
|
|
$
|
—
|
|
—
|
|
12
|
|
Other assets (measured at NAV)
|
—
|
|
—
|
|
—
|
|
2
|
|
Total net assets at fair value
|
$
|
38
|
|
$
|
—
|
|
—
|
|
$
|
52
|
|
|
|
|
|
|
(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets presented elsewhere within this footnote.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 introduced a prescription drug benefit under Medicare and prescribes a federal subsidy to sponsors of retiree healthcare benefit plans that offer prescription drug coverage that is “actuarially equivalent” to the benefits under Medicare Part D. Based on our application of the relevant regulatory formula, we determined that the prescription drug coverage related to our retiree healthcare benefit plan is not actuarially equivalent to the Medicare benefit for the vast majority of retirees. For the years ended December 31, 2020, and December 31, 2019, we did not receive federal subsidies.
Employee 401(k) Savings Plan
A substantial number of our employees are covered under a savings plan that is qualified under Section 401(k) of the Internal Revenue Code. The plan permits employees to contribute from 1% to 100% of eligible compensation, with up to 6% being eligible for matching contributions. The plan also permits us to provide a discretionary annual profit sharing contribution to eligible employees who have at least one year of service. We accrued a 1% contribution for 2020 and made contributions of 1% and 2% for 2019 and 2018, respectively, on eligible compensation for employees eligible on the last business day of the respective plan years. We also maintain a deferred savings plan that provides certain employees with benefits they otherwise would not have been eligible to receive under the qualified plan once their compensation for the plan year reached the IRS contribution limits. Total expense associated with the above plans was $103 million in 2020, $98 million in 2019, and $106 million in 2018.
19. Short-Term Borrowings
Selected financial information pertaining to the components of our short-term borrowings is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
dollars in millions
|
2020
|
2019
|
2018
|
FEDERAL FUNDS PURCHASED
|
|
|
|
Balance at year end
|
$
|
—
|
|
200
|
|
$
|
—
|
|
Average during the year
|
455
|
|
$
|
61
|
|
537
|
|
Maximum month-end balance
|
2,285
|
|
1,000
|
|
3,197
|
|
Weighted-average rate during the year (a)
|
1.24
|
%
|
2.12
|
%
|
1.68
|
%
|
Weighted-average rate at December 31 (a)
|
—
|
|
1.56
|
|
—
|
|
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
|
|
|
|
Balance at year end
|
$
|
220
|
|
$
|
187
|
|
$
|
319
|
|
Average during the year
|
215
|
|
203
|
|
391
|
|
Maximum month-end balance
|
267
|
|
283
|
|
614
|
|
Weighted-average rate during the year (a)
|
.11
|
%
|
.22
|
%
|
.09
|
%
|
Weighted-average rate at December 31 (a)
|
.04
|
|
.09
|
|
.09
|
|
OTHER SHORT-TERM BORROWINGS
|
|
|
|
Balance at year end
|
$
|
759
|
|
$
|
705
|
|
$
|
544
|
|
Average during the year
|
1,452
|
|
730
|
|
915
|
|
Maximum month-end balance
|
4,606
|
|
847
|
|
1,133
|
|
Weighted-average rate during the year (a)
|
0.85
|
%
|
2.31
|
%
|
2.34
|
%
|
Weighted-average rate at December 31 (a)
|
.60
|
|
1.99
|
|
2.92
|
|
(a)Rates exclude the effects of interest rate swaps and caps, which modify the repricing characteristics of certain short-term borrowings. For more information about such financial instruments, see Note 8 (“Derivatives and Hedging Activities”).
As described below and in Note 20 (“Long-Term Debt”), KeyCorp and KeyBank have a number of programs and facilities that support our short-term financing needs. Certain subsidiaries maintain credit facilities with third parties, which provide alternative sources of funding. KeyCorp is the guarantor of some of the third-party facilities.
Short-term credit facilities. We maintain cash on deposit in our Federal Reserve account, which has reduced our need to obtain funds through various short-term unsecured money market products. This account, which was maintained at $15.4 billion at December 31, 2020, and the unpledged securities in our investment portfolio provide a buffer to address unexpected short-term liquidity needs. We also have secured borrowing facilities at the FHLB and the Federal Reserve Bank of Cleveland to satisfy short-term liquidity requirements. As of December 31, 2020, our unused secured borrowing capacity was $22.6 billion at the Federal Reserve Bank of Cleveland and $8.4 billion at the FHLB.
20. Long-Term Debt
The following table presents the components of our long-term debt, net of unamortized discounts and adjustments related to hedging with derivative financial instruments. We use interest rate swaps and caps, which modify the repricing characteristics of certain long-term debt, to manage interest rate risk. For more information about such financial instruments, see Note 8 (“Derivatives and Hedging Activities”).
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
dollars in millions
|
2020
|
2019
|
Senior medium-term notes due through 2021 (a)
|
$
|
3,962
|
|
$
|
4,111
|
|
3.136% Subordinated notes due 2028 (b)
|
162
|
|
162
|
|
6.875% Subordinated notes due 2029 (b)
|
115
|
|
109
|
|
7.75% Subordinated notes due 2029 (b)
|
149
|
|
141
|
|
7.25% Subordinated notes due 2021 (c)
|
311
|
|
324
|
|
|
|
|
Other subordinated notes (b)(d)
|
74
|
|
71
|
|
Total parent company
|
4,773
|
|
4,918
|
|
Senior medium-term notes due through 2039 (e)
|
6,718
|
|
5,874
|
|
3.18% Senior remarketable notes due 2027 (f)
|
232
|
|
222
|
|
|
|
|
3.40% Subordinated notes due 2026 (g)
|
625
|
|
589
|
|
6.95% Subordinated notes due 2028 (g)
|
299
|
|
299
|
|
3.90% Subordinated notes due 2029 (g)
|
398
|
|
371
|
|
Secured borrowing due through 2025 (h)
|
19
|
|
15
|
|
Federal Home Loan Bank advances due through 2038 (i)
|
608
|
|
121
|
|
Investment Fund Financing due through 2052 (j)
|
21
|
|
26
|
|
Key Govt Finance, Inc. Other Long Term Debt-ASR
|
4
|
|
—
|
|
Obligations under Capital Leases due through 2032 (k)
|
12
|
|
13
|
|
Total subsidiaries
|
8,936
|
|
7,530
|
|
Total long-term debt
|
$
|
13,709
|
|
$
|
12,448
|
|
|
|
|
(a)Senior medium-term notes had a weighted-average interest rate of 3.7025% at December 31, 2020, and 3.7815% at December 31, 2019. These notes had fixed interest rates at December 31, 2020, and December 31, 2019. These notes may not be redeemed prior to their maturity dates.
(b)See Note 21 (“Trust Preferred Securities Issued by Unconsolidated Subsidiaries”) for a description of these notes.
(c)The First Niagara subordinated debt had a weighted-average interest rate of 7.25% at December 31, 2020, and a weighted-average interest rate of 7.25% at December 31, 2019. These notes may not be redeemed prior to their maturity dates.
(d)The First Niagara variable rate trust preferred securities had a weighted-average interest rate of 1.72% at December 31, 2020, and 3.42% at December 31, 2019. These notes may be redeemed prior to their maturity dates.
(e)Senior medium-term notes had weighted-average interest rates of 2.516% at December 31, 2020, and 2.595% at December 31, 2019. These notes are a combination of fixed and floating rates. These notes may not be redeemed prior to their maturity dates.
(f)The remarketable senior medium-term notes had a weighted-average interest rate of 3.18% at December 31, 2020, and 3.18% at December 31, 2019. These notes had fixed interest rates at December 31, 2017, and December 31, 2018. These notes may not be redeemed prior to their maturity dates.
(g)These notes are all obligations of KeyBank and may not be redeemed prior to their maturity dates.
(h)The secured borrowing had weighted-average interest rates of 4.445% at December 31, 2020, and 4.445% at December 31, 2019. This borrowing is collateralized by commercial lease financing receivables, and principal reductions are based on the cash payments received from the related receivables. Additional information pertaining to these commercial lease financing receivables is included in Note 4 (“Loan Portfolio”).
(i)Long-term advances from the Federal Home Loan Bank had a weighted-average interest rate of 1.15% at December 31, 2020, and 3.506% at December 31, 2019. These advances, which had fixed interest rates, were secured by real estate loans and securities totaling $607 million at December 31, 2020, and $121 million at December 31, 2019.
(j)Investment Fund Financing had a weighted-average interest rate of 1.77% at December 31, 2020, and 1.63% at December 31, 2019.
(k)These are capital leases acquired in the First Niagara merger with a maturity range from March 2021 through October 2032
At December 31, 2020, scheduled principal payments on long-term debt were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
Parent
|
Subsidiaries
|
Total
|
2021
|
$
|
1,315
|
|
$
|
1,272
|
|
$
|
2,587
|
|
2022
|
—
|
|
2,403
|
|
2,403
|
|
2023
|
—
|
|
1,231
|
|
1,231
|
|
2024
|
—
|
|
1,101
|
|
1,101
|
|
2025
|
562
|
|
772
|
|
1,334
|
|
All subsequent years
|
2,896
|
|
2,157
|
|
5,053
|
|
As described below, KeyBank and KeyCorp have a number of programs that support our long-term financing needs.
Global bank note program. On September 28, 2018, KeyBank updated its Bank Note Program authorizing the issuance of up to $20 billion of notes. Under the program, KeyBank is authorized to issue notes with original maturities of seven days or more for senior notes or five years or more for subordinated notes. Notes will be denominated in U.S. dollars. Amounts outstanding under the program and any prior bank note programs are classified as “long-term debt” on the balance sheet.
In 2019, KeyBank issued the following notes under the 2018 Bank Note Program: on February 1, 2019, $600 million of 3.300% Senior Bank Notes due February 1, 2022, and $400 million of Floating Rate Senior Bank Notes due February 1, 2022; and on March 13, 2019, $350 million of 3.900% Subordinated Bank Notes due April 13, 2029.
In 2020, KeyBank issued the following notes under the 2018 Bank Note Program: on March 10, 2020, $700 million of 1.25% Senior Bank Notes due March 10, 2023; and on December 16, 2020, $750 million Fixed-to-Floating Rate Senior Bank Notes due January 3, 2024 and $350 million Floating Rate Senior Bank Notes due January 3, 2024.
As of December 31, 2020, $3.2 billion of notes had been issued under the 2018 Bank Note Program, and $16.8 billion remained available for issuance.
KeyCorp shelf registration, including Medium-Term Note Program. On June 9, 2020 KeyCorp updated its shelf registration statement on file with the SEC under rules that allow companies to register various types of debt and equity securities without limitations on the aggregate amounts available for issuance. KeyCorp also maintains a Medium-Term Note Program that permits KeyCorp to issue notes with original maturities of nine months or more.
In 2019, KeyCorp issued the following notes under the program: On September 11, 2019, $750 million of 2.550% Senior Notes due October 1, 2029.
On February 6, 2020, KeyCorp issued $800 million of 2.25% Senior Notes due April 6, 2027, under the Medium-Term Note Program.
At December 31, 2020, KeyCorp had authorized and available for issuance up to $5.0 billion of additional debt securities under the Medium-Term Note Program.
Issuances of capital securities or preferred stock by KeyCorp must be approved by the Board and cannot be objected to by the Federal Reserve.
21. Trust Preferred Securities Issued by Unconsolidated Subsidiaries
We own the outstanding common stock of business trusts formed by us that issued corporation-obligated mandatorily redeemable trust preferred securities. The trusts used the proceeds from the issuance of their trust preferred securities and common stock to buy debentures issued by KeyCorp. These debentures are the trusts’ only assets; the interest payments from the debentures finance the distributions paid on the mandatorily redeemable trust preferred securities. The outstanding common stock of these business trusts is recorded in “other investments” on our balance sheet.
We unconditionally guarantee the following payments or distributions on behalf of the trusts:
•required distributions on the trust preferred securities;
•the redemption price when a capital security is redeemed; and
•the amounts due if a trust is liquidated or terminated.
The Regulatory Capital Rules require us to treat our mandatorily redeemable trust preferred securities as Tier 2 capital.
The trust preferred securities, common stock, and related debentures are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dollars in millions
|
Trust Preferred
Securities,
Net of Discount (a)
|
Common
Stock
|
Principal
Amount of
Debentures,
Net of Discount (b)
|
Interest Rate
of Trust Preferred
Securities and
Debentures (c)
|
Maturity
of Trust Preferred
Securities and
Debentures
|
December 31, 2020
|
|
|
|
|
|
KeyCorp Capital I
|
$
|
156
|
|
$
|
6
|
|
$
|
162
|
|
0.965
|
%
|
2028
|
KeyCorp Capital II
|
110
|
|
4
|
|
114
|
|
6.875
|
|
2029
|
KeyCorp Capital III
|
145
|
|
4
|
|
149
|
|
7.750
|
|
2029
|
HNC Statutory Trust III
|
20
|
|
1
|
|
21
|
|
1.605
|
|
2035
|
Willow Grove Statutory Trust I
|
19
|
|
1
|
|
20
|
|
1.527
|
|
2036
|
HNC Statutory Trust IV
|
17
|
|
1
|
|
18
|
|
1.494
|
|
2037
|
Westbank Capital Trust II
|
8
|
|
—
|
|
8
|
|
2.429
|
|
2034
|
Westbank Capital Trust III
|
8
|
|
—
|
|
8
|
|
2.429
|
|
2034
|
Total
|
$
|
483
|
|
$
|
17
|
|
$
|
500
|
|
4.464
|
%
|
—
|
|
December 31, 2019
|
$
|
466
|
|
$
|
17
|
|
$
|
483
|
|
5.214
|
%
|
—
|
|
|
|
|
|
|
|
(a)The trust preferred securities must be redeemed when the related debentures mature, or earlier if provided in the governing indenture. Each issue of trust preferred securities carries an interest rate identical to that of the related debenture. Certain trust preferred securities include debt issuance costs and basis adjustments related to fair value hedges totaling $70 million at December 31, 2020, and $57 million at December 31, 2019. See Note 8 (“Derivatives and Hedging Activities”) for an explanation of fair value hedges.
(b)We have the right to redeem these debentures. If the debentures purchased by KeyCorp Capital I, HNC Statutory Trust III, Willow Grove Statutory Trust I, HNC Statutory Trust IV, Westbank Capital Trust II, or Westbank Capital Trust III are redeemed before they mature, the redemption price will be the principal amount, plus any accrued but unpaid interest. If the debentures purchased by KeyCorp Capital II or KeyCorp Capital III are redeemed before they mature, the redemption price will be the greater of: (i) the principal amount, plus any accrued but unpaid interest, or (ii) the sum of the present values of principal and interest payments discounted at the Treasury Rate (as defined in the applicable indenture), plus 20 basis points for KeyCorp Capital II or 25 basis points for KeyCorp Capital III or 50 basis points in the case of redemption upon either a tax or a capital treatment event for either KeyCorp Capital II or KeyCorp Capital III, plus any accrued but unpaid interest. The principal amount of certain debentures includes debt issuance costs and basis adjustments related to fair value hedges totaling $70 million at December 31, 2020, and $57 million at December 31, 2019. See Note 8 for an explanation of fair value hedges. The principal amount of debentures, net of discounts, is included in “long-term debt” on the balance sheet.
(c)The interest rates for the trust preferred securities issued by KeyCorp Capital II and KeyCorp Capital III are fixed. The trust preferred securities issued by KeyCorp Capital I have a floating interest rate, equal to three-month LIBOR plus 74 basis points, that reprices quarterly. The trust preferred securities issued by HNC Statutory Trust III have a floating interest rate, equal to three-month LIBOR plus 140 basis points, that reprices quarterly. The trust preferred securities issued by Willow Grove Statutory Trust I have a floating interest rate, equal to three-month LIBOR plus 131 basis points, that reprices quarterly. The trust preferred securities issued by HNC Statutory Trust IV have a floating interest rate, equal to three-month LIBOR plus 128 basis points, that reprices quarterly. The trust preferred securities issued by Westbank Capital Trust II and Westbank Capital Trust III each have a floating interest rate, equal to three-month LIBOR plus 219 basis points, that reprices quarterly. The total interest rates are weighted-average rates.
22. Commitments, Contingent Liabilities, and Guarantees
Commitments to Extend Credit or Funding
Loan commitments provide for financing on predetermined terms as long as the client continues to meet specified criteria. These agreements generally carry variable rates of interest and have fixed expiration dates or termination clauses. We typically charge a fee for our loan commitments. Since a commitment may expire without resulting in a loan, our aggregate outstanding commitments may significantly exceed our eventual cash outlay.
Loan commitments involve credit risk not reflected on our balance sheet. We mitigate exposure to credit risk with internal controls that guide how we review and approve applications for credit, establish credit limits and, when necessary, demand collateral. In particular, we evaluate the creditworthiness of each prospective borrower on a case-by-case basis and, when appropriate, adjust the allowance for credit losses on lending-related commitments. Additional information pertaining to this allowance is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Liability for Credit Losses on Lending-Related Commitments,” and in Note 5 (“Asset Quality”).
We also provide financial support to private equity investments, including existing direct portfolio companies and indirect private equity funds, to satisfy unfunded commitments. These unfunded commitments are not recorded on our balance sheet. Additional information on principal investing commitments is provided in Note 6 (“Fair Value Measurements”). Other unfunded equity investment commitments at December 31, 2020, and December 31, 2019, related to tax credit investments and were primarily attributable to LIHTC investments. Unfunded tax credit investment commitments are recorded on our balance sheet in “other liabilities.” Additional information on LIHTC commitments is provided in Note 13 (“Variable Interest Entities”).
The following table shows the remaining contractual amount of each class of commitment related to extending credit or funding principal investments as of December 31, 2020, and December 31, 2019. For loan commitments and commercial letters of credit, this amount represents our maximum possible accounting loss on the unused commitment if the borrower were to draw upon the full amount of the commitment and subsequently default on payment for the total amount of the then outstanding loan.
|
|
|
|
|
|
|
|
|
December 31,
in millions
|
2020
|
2019
|
Loan commitments:
|
|
|
Commercial and other
|
$
|
47,792
|
|
$
|
45,323
|
|
Commercial real estate and construction
|
2,365
|
|
2,961
|
|
Home equity
|
9,299
|
|
9,945
|
|
Credit cards
|
6,685
|
|
6,560
|
|
Total loan commitments
|
66,141
|
|
64,789
|
|
|
|
|
Commercial letters of credit
|
74
|
|
91
|
|
Purchase card commitments
|
708
|
|
729
|
|
Principal investing commitments
|
16
|
|
21
|
|
Tax credit investment commitments
|
487
|
|
547
|
|
|
|
|
|
|
|
Total loan and other commitments
|
$
|
67,426
|
|
$
|
66,177
|
|
|
|
|
Legal Proceedings
Litigation. From time to time, in the ordinary course of business, we and our subsidiaries are subject to various litigation, investigations, and administrative proceedings. Private, civil litigations may range from individual actions involving a single plaintiff to putative class action lawsuits with potentially thousands of class members.
Investigations may involve both formal and informal proceedings, by both government agencies and self-regulatory bodies. These matters may involve claims for substantial monetary relief. At times, these matters may present novel claims or legal theories. Due to the complex nature of these various other matters, it may be years before some matters are resolved. While it is impossible to ascertain the ultimate resolution or range of financial liability, based on information presently known to us, we do not believe there is any matter to which we are a party, or involving any of our properties that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on our financial condition. We continually monitor and reassess the potential materiality of these litigation matters. We note, however, that in light of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution will not exceed established reserves. As a result, the outcome of a particular matter, or a combination of matters, may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.
Guarantees
We are a guarantor in various agreements with third parties. The following table shows the types of guarantees that we had outstanding at December 31, 2020. Information pertaining to the basis for determining the liabilities recorded in connection with these guarantees is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Contingencies and Guarantees.”
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Maximum Potential Undiscounted Future Payments
|
Liability Recorded
|
in millions
|
Financial guarantees:
|
|
|
Standby letters of credit
|
$
|
3,231
|
|
$
|
71
|
|
Recourse agreement with FNMA
|
5,811
|
|
23
|
|
Residential mortgage reserve
|
2,471
|
|
10
|
|
Written put options (a)
|
3,631
|
|
54
|
|
Total
|
$
|
15,144
|
|
$
|
158
|
|
|
|
|
(a)The maximum potential undiscounted future payments represent notional amounts of derivatives qualifying as guarantees.
We determine the payment/performance risk associated with each type of guarantee described below based on the probability that we could be required to make the maximum potential undiscounted future payments shown in the preceding table. We use a scale of low (0% to 30% probability of payment), moderate (greater than 30% to 70% probability of payment), or high (greater than 70% probability of payment) to assess the payment/performance risk, and have determined that the payment/performance risk associated with each type of guarantee outstanding at December 31, 2020, is low.
Standby letters of credit. KeyBank issues standby letters of credit to address clients’ financing needs. These instruments obligate us to pay a specified third party when a client fails to repay an outstanding loan or debt instrument or fails to perform some contractual nonfinancial obligation. Any amounts drawn under standby letters of credit are treated as loans to the client; they bear interest (generally at variable rates) and pose the same credit risk to us as a loan. At December 31, 2020, our standby letters of credit had a remaining weighted-average life of 1.7 years, with remaining actual lives ranging from less than 1 year to as many as 13.9 years.
Recourse agreement with FNMA. At December 31, 2020, the outstanding commercial mortgage loans in this program had a weighted-average remaining term of 7.9 years, and the unpaid principal balance outstanding of loans sold by us as a participant was $19.3 billion. The maximum potential amount of undiscounted future payments that we could be required to make under this program, as shown in the preceding table, is equal to approximately 30% of the principal balance of loans outstanding at December 31, 2020. FNMA delegates responsibility for originating, underwriting, and servicing mortgages, and we assume a limited portion of the risk of loss during the remaining term on each commercial mortgage loan that we sell to FNMA. We maintain a reserve for such potential losses in an amount that we believe approximates the fair value of our liability in addition to the expected credit loss for the guarantee as described in Note 5 (“Asset Quality”).
Residential Mortgage Banking. We often originate and sell residential mortgage loans and retain the servicing rights. Our loan sales activity is generally conducted through loan sales in a secondary market sponsored by FNMA and FHLMC and through the issuance of GNMA mortgage backed securities. Subsequent to the sale of mortgage loans, we do not typically retain any interest in the underlying loans except through our relationship as the servicer of the loans.
As is customary in the mortgage banking industry, we, or banks we have acquired, have made certain representations and warranties related to the sale of residential mortgage loans (including loans sold with servicing rights released) and to the performance of our obligations as servicer. The breach of any such representations or warranties could result in losses for us. Our maximum exposure to loss is equal to the outstanding principal balance of the sold loans; however, any loss would be reduced by any payments received on the loans or through the sale of collateral.
At December 31, 2020, the unpaid principal balance outstanding of loans sold by us was $8.2 billion. The maximum potential amount of undiscounted future payments that we could be required to make under this program, as shown in the preceding table, is equal to approximately 30% of the principal balance of loans outstanding at December 31, 2020.
Our liability for estimated repurchase obligations on loans sold, which is included in other liabilities on our balance sheet, was $10 million at December 31, 2020.
Written put options. In the ordinary course of business, we “write” put options for clients that wish to mitigate their exposure to changes in interest rates and commodity prices. At December 31, 2020, our written put options had an average life of three years. These instruments are considered to be guarantees, as we are required to make payments to the counterparty (the client) based on changes in an underlying variable that is related to an asset, a liability, or an equity security that the client holds. We are obligated to pay the client if the applicable benchmark interest rate or commodity price is above or below a specified level (known as the “strike rate”). These written put options are accounted for as derivatives at fair value, as further discussed in Note 8 (“Derivatives and Hedging Activities”). We mitigate our potential future payment obligations by entering into offsetting positions with third parties.
Written put options where the counterparty is a broker-dealer or bank are accounted for as derivatives at fair value but are not considered guarantees since these counterparties typically do not hold the underlying instruments. In addition, we are a purchaser and seller of credit derivatives, which are further discussed in Note 8.
Other Off-Balance Sheet Risk
Other off-balance sheet risk stems from financial instruments that do not meet the definition of a guarantee as specified in the applicable accounting guidance, and from other relationships.
Indemnifications provided in the ordinary course of business. We provide certain indemnifications, primarily through representations and warranties in contracts that we execute in the ordinary course of business in connection with loan and lease sales and other ongoing activities, as well as in connection with purchases and sales of businesses. We maintain reserves, when appropriate, with respect to liability that reasonably could arise as a result of these indemnities.
Intercompany guarantees. KeyCorp, KeyBank, and certain of our affiliates are parties to various guarantees that facilitate the ongoing business activities of other affiliates. These business activities encompass issuing debt, assuming certain lease and insurance obligations, purchasing or issuing investments and securities, and engaging in certain leasing transactions involving clients.
23. Accumulated Other Comprehensive Income
Our changes in AOCI for the years ended December 31, 2020, and December 31, 2019, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
Unrealized gains
(losses) on securities
available for sale
|
Unrealized gains
(losses) on derivative
financial instruments
|
Foreign currency
translation
adjustment
|
Net pension and
postretirement
benefit costs
|
Total
|
Balance at December 31, 2018
|
$
|
(373)
|
|
$
|
(50)
|
|
$
|
(14)
|
|
$
|
(381)
|
|
$
|
(818)
|
|
Other comprehensive income before reclassification, net of income taxes
|
503
|
|
335
|
|
3
|
|
19
|
|
860
|
|
Amounts reclassified from accumulated other comprehensive income, net of income taxes (a)
|
(15)
|
|
(35)
|
|
11
|
|
23
|
|
(16)
|
|
|
|
|
|
|
|
Net current-period other comprehensive income, net of income taxes
|
488
|
|
300
|
|
14
|
|
42
|
|
844
|
|
Balance at December 31, 2019
|
$
|
115
|
|
$
|
250
|
|
$
|
—
|
|
$
|
(339)
|
|
$
|
26
|
|
Other comprehensive income before reclassification, net of income taxes
|
455
|
|
466
|
|
—
|
|
15
|
|
936
|
|
Amounts reclassified from accumulated other comprehensive income, net of income taxes (a)
|
(3)
|
|
(240)
|
|
—
|
|
19
|
|
(224)
|
|
|
|
|
|
|
|
Net current-period other comprehensive income, net of income taxes
|
452
|
|
226
|
|
—
|
|
34
|
|
712
|
|
Balance at December 31, 2020
|
$
|
567
|
|
$
|
476
|
|
$
|
—
|
|
$
|
(305)
|
|
$
|
738
|
|
|
|
|
|
|
|
(a)See table below for details about these reclassifications.
Our reclassifications out of AOCI for the years ended December 31, 2020, and December 31, 2019, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended December 31,
|
Affected Line Item in the Statement
Where Net Income is Presented
|
in millions
|
2020
|
2019
|
Unrealized gains (losses) on available for sale securities
|
|
|
|
Realized gains
|
$
|
4
|
|
20
|
|
Other income
|
|
|
|
|
|
4
|
|
20
|
|
Income (loss) from continuing operations before income taxes
|
|
1
|
|
5
|
|
Income taxes
|
|
$
|
3
|
|
15
|
|
Income (loss) from continuing operations
|
Unrealized gains (losses) on derivative financial instruments
|
|
|
|
Interest rate
|
$
|
319
|
|
$
|
15
|
|
Interest income — Loans
|
Interest rate
|
(4)
|
|
(1)
|
|
Interest expense — Long-term debt
|
|
|
|
|
Foreign exchange contracts
|
—
|
|
32
|
|
Other income
|
|
315
|
|
46
|
|
Income (loss) from continuing operations before income taxes
|
|
75
|
|
11
|
|
Income taxes
|
|
$
|
240
|
|
$
|
35
|
|
Income (loss) from continuing operations
|
|
|
|
|
Foreign currency translation adjustment
|
—
|
|
(14)
|
|
Other income
|
|
—
|
|
(14)
|
|
Income (loss) from continuing operations before income taxes
|
|
—
|
|
(3)
|
|
Income taxes
|
|
—
|
|
(11)
|
|
Income (loss) from continuing operations
|
Net pension and postretirement benefit costs
|
|
|
|
Amortization of losses
|
$
|
(17)
|
|
$
|
(13)
|
|
Other expense
|
Settlement loss
|
(9)
|
|
(18)
|
|
Other expense
|
Amortization of prior service credit
|
1
|
|
—
|
|
Other expense
|
|
(25)
|
|
(31)
|
|
Income (loss) from continuing operations before income taxes
|
|
(6)
|
|
(8)
|
|
Income taxes
|
|
$
|
(19)
|
|
$
|
(23)
|
|
Income (loss) from continuing operations
|
|
|
|
|
24. Shareholders' Equity
Comprehensive Capital Plan
In January 2021, the Board of Directors authorized the repurchase of up to $900 million of our Common Shares, effective through the third quarter of 2021. Under our previous authorization pursuant to our 2019 capital plan, we completed $152 million of Common Share repurchases in the first quarter of 2020, including $117 million of Common Share repurchases in the open market and $35 million of Common Share repurchases related to employee equity compensation programs. These repurchases were completed prior to our announcement to temporarily suspend share repurchase activity on March 17, 2020, in response to the COVID-19 pandemic. We repurchased a total of $489 million of common shares pursuant to the 2019 capital plan, dating back to the third quarter of 2019.
Consistent with our capital plan, the Board declared a quarterly dividend of $.185 per Common Share for each quarter of 2020. These quarterly dividend payments brought our annual dividend to $.74 per Common Share for 2020.
Preferred Stock
The following table summarizes our preferred stock at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock series
|
Amount outstanding (in millions)
|
Shares authorized and outstanding
|
Par value
|
Liquidation preference
|
Ownership interest per depositary share
|
Liquidation preference per depositary share
|
2020 dividends paid per depositary share
|
Fixed-to-Floating Rate Perpetual Noncumulative Series D
|
$
|
525
|
|
21,000
|
|
$
|
1
|
|
$
|
25,000
|
|
1/25th
|
$
|
1,000
|
|
$
|
12.50
|
|
Fixed-to-Floating Rate Perpetual Noncumulative Series E
|
500
|
|
500,000
|
|
1
|
|
1,000
|
|
1/40th
|
25
|
|
.382813
|
|
Fixed Rate Perpetual Noncumulative Series F
|
425
|
|
425,000
|
|
1
|
|
1,000
|
|
1/40th
|
25
|
|
.353125
|
|
Fixed Rate Perpetual Noncumulative Series G
|
450
|
|
450,000
|
|
1
|
|
1,000
|
|
1/40th
|
25
|
|
.351563
|
|
|
|
|
|
|
|
|
|
Capital Adequacy
KeyCorp and KeyBank (consolidated) must meet specific capital requirements imposed by federal banking regulators. Sanctions for failure to meet applicable capital requirements may include regulatory enforcement actions that restrict dividend payments, require the adoption of remedial measures to increase capital, terminate FDIC deposit insurance, and mandate the appointment of a conservator or receiver in severe cases. In addition, failure to maintain a “well capitalized” status affects how regulators evaluate applications for certain endeavors, including acquisitions, continuation and expansion of existing activities, and commencement of new activities, and could make clients and potential investors less confident. As of December 31, 2020, KeyCorp and KeyBank (consolidated) met all regulatory capital requirements.
KeyBank (consolidated) qualified for the “well capitalized” prompt corrective action capital category at December 31, 2020, because its capital and leverage ratios exceeded the prescribed threshold ratios for that capital category and it was not subject to any written agreement, order, or directive to meet and maintain a specific capital level for any capital measure. Since that date, we believe there has been no change in condition or event that has occurred that would cause the capital category for KeyBank (consolidated) to change.
BHCs are not assigned to any of the five prompt corrective action capital categories applicable to insured depository institutions. If, however, those categories applied to BHCs, we believe that KeyCorp would satisfy the criteria for a “well capitalized” institution at December 31, 2020, and since that date, we believe there has been no change in condition or event that has occurred that would cause such capital category to change.
Because the regulatory capital categories under the prompt corrective action regulations serve a limited supervisory function, investors should not use them as a representation of the overall financial condition or prospects of KeyBank or KeyCorp.
At December 31, 2020, Key and KeyBank (consolidated) had regulatory capital in excess of all current minimum risk-based capital (including all adjustments for market risk) and leverage ratio requirements as shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
To Meet Minimum
Capital Adequacy
Requirements
|
|
To Qualify as Well
Capitalized Under Federal
Deposit Insurance Act
|
dollars in millions
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
|
Amount
|
Ratio
|
December 31, 2020
|
|
|
|
|
|
|
|
|
TOTAL CAPITAL TO NET RISK-WEIGHTED ASSETS
|
|
|
|
|
|
|
|
|
Key
|
$
|
17,976
|
|
13.40
|
%
|
|
$
|
10,736
|
|
8.00
|
%
|
|
N/A
|
N/A
|
KeyBank (consolidated)
|
17,195
|
|
13.09
|
|
|
10,511
|
|
8.00
|
|
|
$
|
13,139
|
|
10.00
|
%
|
TIER 1 CAPITAL TO NET RISK-WEIGHTED ASSETS
|
|
|
|
|
|
|
|
|
Key
|
$
|
14,907
|
|
11.11
|
%
|
|
$
|
8,052
|
|
6.00
|
%
|
|
N/A
|
N/A
|
KeyBank (consolidated)
|
14,539
|
|
11.07
|
|
|
7,884
|
|
6.00
|
|
|
$
|
10,511
|
|
8.00
|
%
|
TIER 1 CAPITAL TO AVERAGE QUARTERLY TANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
Key
|
$
|
14,907
|
|
8.94
|
%
|
|
$
|
6,671
|
|
4.00
|
%
|
|
N/A
|
N/A
|
KeyBank (consolidated)
|
14,539
|
|
8.80
|
|
|
6,605
|
|
4.00
|
|
|
$
|
8,256
|
|
5.00
|
%
|
December 31, 2019
|
|
|
|
|
|
|
|
|
TOTAL CAPITAL TO NET RISK-WEIGHTED ASSETS
|
|
|
|
|
|
|
|
|
Key
|
$
|
16,731
|
|
12.79
|
%
|
|
$
|
10,469
|
|
8.00
|
%
|
|
N/A
|
N/A
|
KeyBank (consolidated)
|
16,313
|
|
12.69
|
|
|
10,287
|
|
8.00
|
|
|
$
|
12,858
|
|
10.00
|
%
|
TIER 1 CAPITAL TO NET RISK-WEIGHTED ASSETS
|
|
|
|
|
|
|
|
|
Key
|
$
|
14,207
|
|
10.86
|
%
|
|
$
|
7,852
|
|
6.00
|
%
|
|
N/A
|
N/A
|
KeyBank (consolidated)
|
14,091
|
|
10.96
|
|
|
7,715
|
|
6.00
|
|
|
$
|
7,715
|
|
6.00
|
%
|
TIER 1 CAPITAL TO AVERAGE QUARTERLY TANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
Key
|
$
|
14,207
|
|
9.87
|
%
|
|
$
|
5,756
|
|
4.00
|
%
|
|
N/A
|
N/A
|
KeyBank (consolidated)
|
14,091
|
|
9.91
|
|
|
5,688
|
|
4.00
|
|
|
$
|
7,110
|
|
5.00
|
%
|
25. Business Segment Reporting
Key previously reported its results of operations through two reportable business segments, Key Community Bank and Key Corporate Bank. In the first quarter of 2019, Key underwent a company-wide organizational change, resulting in the realignment of its businesses into two reportable business segments, Consumer Bank and Commercial Bank, with the remaining operations that do not meet the criteria for disclosure as a separate reportable business recorded in Other. The new business segment structure aligns with how management reviews performance and makes decisions by client, segment and business unit. Prior period information was restated to conform to the new business segment structure. Additionally, goodwill was reallocated to the new segments on a relative fair value basis. On March 31, 2019, the Consumer Bank was allocated goodwill in the amount of $1.6 billion and the Commercial Bank was allocated goodwill in the amount of $912 million.
The following is a description of the segments and their primary businesses at December 31, 2020.
Consumer Bank
The Consumer Bank serves individuals and small businesses throughout our 15-state branch footprint by offering a variety of deposit and investment products, personal finance and financial wellness services, lending, mortgage and home equity, student loan refinancing, credit card, treasury services, and business advisory services. In addition, wealth management and investment services are offered to assist institutional, non-profit, and high-net-worth clients with their banking, trust, portfolio management, charitable giving, and related needs.
Commercial Bank
The Commercial Bank is an aggregation of our Institutional and Commercial operating segments. The Commercial operating segment is a full-service corporate bank focused principally on serving the needs of middle market clients in seven industry sectors: consumer, energy, healthcare, industrial, public sector, real estate, and technology. The Commercial operating segment is also a significant servicer of commercial mortgage loans and a significant special servicer of CMBS. The Institutional operating segment delivers a broad suite of banking and capital markets products to its clients, including syndicated finance, debt and equity capital markets, commercial payments, equipment finance, commercial mortgage banking, derivatives, foreign exchange, financial advisory, and public finance.
Other
Other includes various corporate treasury activities such as management of our investment securities portfolio, long-term debt, short-term liquidity and funding activities, and balance sheet risk management, our principal investing unit, and various exit portfolios as well as reconciling items, which primarily represent 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 include intercompany eliminations and certain items that are not allocated to the business segments because they do not reflect their normal operations.
The table on the following page shows selected financial data for our major business segments for the years ended December 31, 2020, 2019, and 2018.
The information was derived from the internal financial reporting system that we use to monitor and manage our financial performance. GAAP guides financial accounting, but there is no authoritative guidance for “management accounting” — the way we use our judgment and experience to make reporting decisions. Consequently, the line of business results we report may not be comparable to line of business results presented by other companies.
The selected financial data is based on internal accounting policies designed to compile results on a consistent basis and in a manner that reflects the underlying economics of the businesses. In accordance with our policies:
•Net interest income is determined by assigning a standard cost for funds used or a standard credit for funds provided based on their assumed maturity, prepayment, and/or repricing characteristics.
•Indirect expenses, such as computer servicing costs and corporate overhead, are allocated based on assumptions regarding the extent that each line of business actually uses the services.
•The consolidated provision for credit losses is allocated among the lines of business primarily based on their actual net loan charge-offs, adjusted periodically for loan growth and changes in risk profile. The amount of the consolidated provision is based on the methodology that we use to estimate our consolidated ALLL. This methodology is described in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan and Lease Losses.”
•Capital is assigned to each line of business based on economic equity.
Developing and applying the methodologies that we use to allocate items among our lines of business is a dynamic process. Accordingly, financial results may be revised periodically to reflect enhanced alignment of expense base allocation drivers, changes in the risk profile of a particular business, or changes in our organizational structure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
Consumer Bank
|
|
Commercial Bank
|
dollars in millions
|
2020
|
2019
|
2018
|
|
2020
|
2019
|
2018
|
SUMMARY OF OPERATIONS
|
|
|
|
|
|
|
|
Net interest income (TE)
|
$
|
2,434
|
|
$
|
2,366
|
|
$
|
2,306
|
|
|
$
|
1,698
|
|
$
|
1,621
|
|
$
|
1,657
|
|
Noninterest income
|
1,003
|
|
922
|
|
915
|
|
|
1,507
|
|
1,390
|
|
1,328
|
|
Total revenue (TE) (a)
|
3,437
|
|
3,288
|
|
3,221
|
|
|
3,205
|
|
3,011
|
|
2,985
|
|
Provision for credit losses
|
288
|
|
188
|
|
147
|
|
|
738
|
|
118
|
|
102
|
|
Depreciation and amortization expense
|
77
|
|
97
|
|
103
|
|
|
144
|
|
135
|
|
139
|
|
Other noninterest expense
|
2,200
|
|
2,078
|
|
2,143
|
|
|
1,589
|
|
1,408
|
|
1,430
|
|
Income (loss) from continuing operations before income taxes (TE)
|
872
|
|
925
|
|
828
|
|
|
734
|
|
1,350
|
|
1,314
|
|
Allocated income taxes (benefit) and TE adjustments
|
207
|
|
219
|
|
196
|
|
|
101
|
|
219
|
|
207
|
|
Income (loss) from continuing operations
|
665
|
|
706
|
|
632
|
|
|
633
|
|
1,131
|
|
1,107
|
|
Income (loss) from discontinued operations, net of taxes
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Net income (loss)
|
665
|
|
706
|
|
632
|
|
|
633
|
|
1,131
|
|
1,107
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Net income (loss) attributable to Key
|
$
|
665
|
|
$
|
706
|
|
$
|
632
|
|
|
$
|
633
|
|
$
|
1,131
|
|
$
|
1,107
|
|
AVERAGE BALANCES (b)
|
|
|
|
|
|
|
|
Loans and leases
|
$
|
38,906
|
|
$
|
32,536
|
|
$
|
31,307
|
|
|
$
|
63,108
|
|
$
|
57,988
|
|
$
|
55,828
|
|
Total assets (a)
|
42,953
|
|
36,096
|
|
34,523
|
|
|
72,056
|
|
66,122
|
|
63,684
|
|
Deposits
|
79,811
|
|
72,544
|
|
68,821
|
|
|
46,862
|
|
36,212
|
|
33,675
|
|
OTHER FINANCIAL DATA
|
|
|
|
|
|
|
|
Expenditures for additions to long-lived assets (a), (b)
|
$
|
40
|
|
$
|
150
|
|
$
|
(38)
|
|
|
$
|
1
|
|
$
|
(8)
|
|
$
|
(17)
|
|
Net loan charge-offs (b)
|
134
|
|
157
|
|
149
|
|
|
309
|
|
128
|
|
85
|
|
Return on average allocated equity (b)
|
18.92
|
%
|
21.30
|
%
|
19.24
|
%
|
|
12.86
|
%
|
24.99
|
%
|
24.94
|
%
|
Return on average allocated equity
|
18.92
|
|
21.30
|
|
19.24
|
|
|
12.86
|
|
24.99
|
|
24.94
|
|
Average full-time equivalent employees (c)
|
8,213
|
|
9,292
|
|
9,957
|
|
|
2,093
|
|
2,232
|
|
2,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
Other
|
|
Key
|
dollars in millions
|
2020
|
2019
|
|
2018
|
|
2020
|
2019
|
2018
|
SUMMARY OF OPERATIONS
|
|
|
|
|
|
|
|
|
Net interest income (TE)
|
$
|
(69)
|
|
$
|
(46)
|
|
|
$
|
(23)
|
|
|
$
|
4,063
|
|
$
|
3,941
|
|
$
|
3,940
|
|
Noninterest income
|
142
|
|
147
|
|
|
272
|
|
|
2,652
|
|
2,459
|
|
2,515
|
|
Total revenue (TE) (a)
|
73
|
|
101
|
|
|
249
|
|
|
6,715
|
|
6,400
|
|
6,455
|
|
Provision for credit losses
|
(5)
|
|
139
|
|
|
(3)
|
|
|
1,021
|
|
445
|
|
246
|
|
Depreciation and amortization expense
|
140
|
|
142
|
|
|
158
|
|
|
361
|
|
374
|
|
400
|
|
Other noninterest expense
|
(41)
|
|
61
|
|
|
2
|
|
|
3,748
|
|
3,527
|
|
3,575
|
|
Income (loss) from continuing operations before income taxes (TE)
|
(21)
|
|
(241)
|
|
|
92
|
|
|
1,585
|
|
2,054
|
|
2,234
|
|
Allocated income taxes (benefit) and TE adjustments
|
(52)
|
|
(96)
|
|
|
(28)
|
|
|
256
|
|
346
|
|
375
|
|
Income (loss) from continuing operations
|
31
|
|
(145)
|
|
|
120
|
|
|
1,329
|
|
1,708
|
|
1,859
|
|
Income (loss) from discontinued operations, net of taxes
|
14
|
|
9
|
|
|
7
|
|
|
14
|
|
9
|
|
7
|
|
Net income (loss)
|
45
|
|
(136)
|
|
|
127
|
|
|
1,343
|
|
1,717
|
|
1,866
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Net income (loss) attributable to Key
|
$
|
45
|
|
$
|
(136)
|
|
(d)
|
$
|
127
|
|
|
$
|
1,343
|
|
$
|
1,717
|
|
$
|
1,866
|
|
AVERAGE BALANCES (b)
|
|
|
|
|
|
|
|
|
Loans and leases
|
$
|
675
|
|
$
|
987
|
|
|
$
|
1,203
|
|
|
$
|
102,689
|
|
$
|
91,511
|
|
$
|
88,338
|
|
Total assets (a)
|
47,046
|
|
40,961
|
|
|
38,605
|
|
|
162,055
|
|
143,179
|
|
136,812
|
|
Deposits
|
613
|
|
1,274
|
|
|
2,555
|
|
|
127,286
|
|
110,030
|
|
105,051
|
|
OTHER FINANCIAL DATA
|
|
|
|
|
|
|
|
|
Expenditures for additions to long-lived assets (a), (b)
|
$
|
120
|
|
$
|
103
|
|
|
$
|
103
|
|
|
$
|
161
|
|
$
|
245
|
|
$
|
48
|
|
Net loan charge-offs (b)
|
—
|
|
139
|
|
|
—
|
|
|
443
|
|
424
|
|
234
|
|
Return on average allocated equity (b)
|
.34
|
%
|
(1.66)
|
%
|
|
1.62
|
%
|
|
7.54
|
%
|
10.27
|
%
|
12.29
|
%
|
Return on average allocated equity
|
.49
|
|
(1.56)
|
|
|
1.71
|
|
|
7.62
|
|
10.32
|
|
12.33
|
|
Average full-time equivalent employees (c)
|
6,520
|
|
5,521
|
|
|
5,774
|
|
|
16,826
|
|
17,045
|
|
18,180
|
|
(a)Substantially all revenue generated by our major business segments is derived from clients that reside in the United States. Substantially all long-lived assets, including premises and equipment, capitalized software, and goodwill held by our major business segments, are located in the United States.
(b)From continuing operations.
(c)The number of average full-time equivalent employees was not adjusted for discontinued operations.
(d)Other segments included $106 million provision for credit loss, net of tax, related to a previously disclosed fraud incident.
26. Condensed Financial Information of the Parent Company
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
December 31,
in millions
|
2020
|
2019
|
ASSETS
|
|
|
Cash and due from banks
|
$
|
3,799
|
|
$
|
3,813
|
|
Short-term investments
|
21
|
|
20
|
|
Securities available for sale
|
12
|
|
10
|
|
Other investments
|
43
|
|
36
|
|
Loans to:
|
|
|
Banks
|
50
|
|
50
|
|
Nonbank subsidiaries
|
16
|
|
16
|
|
Total loans
|
66
|
|
66
|
|
Investment in subsidiaries:
|
|
|
Banks
|
17,645
|
|
16,969
|
|
Nonbank subsidiaries
|
900
|
|
823
|
|
Total investment in subsidiaries
|
18,545
|
|
17,792
|
|
Goodwill
|
167
|
|
167
|
|
|
|
|
Corporate-owned life insurance
|
207
|
|
205
|
|
Derivative assets
|
100
|
|
44
|
|
Accrued income and other assets
|
299
|
|
295
|
|
Total assets
|
$
|
23,259
|
|
$
|
22,448
|
|
LIABILITIES
|
|
|
Accrued expense and other liabilities
|
$
|
505
|
|
$
|
492
|
|
|
|
|
Long-term debt due to:
|
|
|
Subsidiaries
|
500
|
|
483
|
|
Unaffiliated companies
|
4,273
|
|
4,435
|
|
Total long-term debt
|
4,773
|
|
4,918
|
|
Total liabilities
|
5,278
|
|
5,410
|
|
SHAREHOLDERS’ EQUITY (a)
|
17,981
|
|
17,038
|
|
Total liabilities and shareholders’ equity
|
$
|
23,259
|
|
$
|
22,448
|
|
|
|
|
(a)See Key’s Consolidated Statements of Changes in Equity.
CONDENSED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
in millions
|
2020
|
2019
|
2018
|
INCOME
|
|
|
|
Dividends from subsidiaries:
|
|
|
|
Bank subsidiaries
|
$
|
1,250
|
|
$
|
1,204
|
|
$
|
1,675
|
|
Nonbank subsidiaries
|
—
|
|
70
|
|
—
|
|
Interest income from subsidiaries
|
4
|
|
9
|
|
11
|
|
Other income
|
8
|
|
11
|
|
11
|
|
Total income
|
1,262
|
|
1,294
|
|
1,697
|
|
EXPENSE
|
|
|
|
Interest on long-term debt with subsidiary trusts
|
18
|
|
22
|
|
20
|
|
Interest on other borrowed funds
|
114
|
|
151
|
|
137
|
|
Personnel and other expense
|
63
|
|
87
|
|
69
|
|
Total expense
|
195
|
|
260
|
|
226
|
|
Income (loss) before income taxes and equity in net income (loss) less dividends from subsidiaries
|
1,067
|
|
1,034
|
|
1,471
|
|
Income tax (expense) benefit
|
38
|
|
57
|
|
55
|
|
Income (loss) before equity in net income (loss) less dividends from subsidiaries
|
1,105
|
|
1,091
|
|
1,526
|
|
Equity in net income (loss) less dividends from subsidiaries
|
238
|
|
626
|
|
340
|
|
NET INCOME (LOSS)
|
1,343
|
|
1,717
|
|
1,866
|
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
—
|
|
—
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO KEY
|
$
|
1,343
|
|
$
|
1,717
|
|
$
|
1,866
|
|
|
|
|
|
.
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
in millions
|
2020
|
2019
|
2018
|
OPERATING ACTIVITIES
|
|
|
|
Net income (loss) attributable to Key
|
$
|
1,343
|
|
$
|
1,717
|
|
$
|
1,866
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
Deferred income taxes (benefit)
|
2
|
|
(43)
|
|
109
|
|
Stock-based compensation expense
|
11
|
|
8
|
|
8
|
|
Equity in net (income) loss less dividends from subsidiaries
|
(238)
|
|
(626)
|
|
(340)
|
|
|
|
|
|
|
|
|
|
Net (increase) decrease in other assets
|
(66)
|
|
39
|
|
(58)
|
|
Net increase (decrease) in other liabilities
|
12
|
|
11
|
|
8
|
|
Other operating activities, net
|
131
|
|
244
|
|
79
|
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
1,195
|
|
1,350
|
|
1,672
|
|
INVESTING ACTIVITIES
|
|
|
|
Net (increase) decrease in securities available for sale and in short-term and other investments
|
(7)
|
|
(6)
|
|
1
|
|
|
|
|
|
Cash infusion from purchase of Cain Brothers
|
—
|
|
—
|
|
—
|
|
|
|
|
|
Proceeds from sales, prepayments and maturities of securities available for sale
|
—
|
|
—
|
|
—
|
|
Net (increase) decrease in loans to subsidiaries
|
—
|
|
15
|
|
200
|
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
(7)
|
|
9
|
|
201
|
|
FINANCING ACTIVITIES
|
|
|
|
Net proceeds from issuance of long-term debt
|
800
|
|
750
|
|
1,250
|
|
Payments on long-term debt
|
(1,003)
|
|
(300)
|
|
(750)
|
|
Repurchase of Treasury Shares
|
(170)
|
|
(868)
|
|
(1,145)
|
|
Net cash from the issuance (redemption) of Common Shares and preferred stock
|
—
|
|
435
|
|
412
|
|
Cash dividends paid
|
(829)
|
|
(804)
|
|
(656)
|
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
(1,202)
|
|
(787)
|
|
(889)
|
|
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS
|
(14)
|
|
572
|
|
984
|
|
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR
|
3,813
|
|
3,241
|
|
2,257
|
|
CASH AND DUE FROM BANKS AT END OF YEAR
|
$
|
3,799
|
|
$
|
3,813
|
|
$
|
3,241
|
|
|
|
|
|
KeyCorp paid interest on borrowed funds totaling $204 million in 2020, $151 million in 2019, and $131 million in 2018.
27. Revenue from Contracts with Customers
The following table represents a disaggregation of revenue from contracts with customers, by line of business, for the twelve months ended December 31, 2020, and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
2020
|
|
2019
|
dollars in millions
|
Consumer Bank
|
Commercial Bank
|
Total Contract Revenue
|
|
Consumer Bank
|
Commercial Bank
|
Total Contract Revenue
|
NONINTEREST INCOME
|
|
|
|
|
|
|
|
Trust and investment services income
|
$
|
374
|
|
$
|
67
|
|
$
|
441
|
|
|
$
|
355
|
|
$
|
64
|
|
$
|
419
|
|
Investment banking and debt placement fees
|
—
|
|
305
|
|
305
|
|
|
—
|
|
263
|
|
263
|
|
Services charges on deposit accounts
|
189
|
|
122
|
|
311
|
|
|
228
|
|
109
|
|
337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cards and payments income
|
160
|
|
201
|
|
361
|
|
|
164
|
|
106
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noninterest income
|
10
|
|
—
|
|
10
|
|
|
13
|
|
—
|
|
13
|
|
Total revenue from contracts with customers
|
$
|
733
|
|
$
|
695
|
|
$
|
1,428
|
|
|
$
|
760
|
|
$
|
542
|
|
$
|
1,302
|
|
|
|
|
|
|
|
|
|
Other noninterest income (a)
|
|
|
1,082
|
|
|
|
|
1,010
|
|
Noninterest income from other segments (b)
|
|
|
142
|
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
$
|
2,652
|
|
|
|
|
$
|
2,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Noninterest income considered earned outside the scope of contracts with customers.
(b)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. Refer to Note 25 (“Business Segment Reporting”) for more information.
We had no material contract assets or contract liabilities for the twelve months ended December 31, 2020, and December 31, 2019.