KeyCorp Q1 2024 Form 10-Q Summary
Business context and reporting period
KeyCorp is a U.S. bank holding company operating through its Consumer Bank and Commercial Bank, with additional corporate and treasury activities. This unaudited quarterly report covers the three months ended March 31, 2024; income-statement and cash-flow comparisons are against Q1 2023, while balance-sheet comparisons are generally against December 31, 2023. The filing reports continuing operations separately from its discontinued education-lending business.
Financial performance and condition
| Metric | Q1 2024 / March 31, 2024 | Comparison |
|---|---|---|
| Net interest income (GAAP) | $875 million | Down from $1.099 billion in Q1 2023 |
| Net interest income (taxable-equivalent) | $886 million; net interest margin 2.02% | Down $220 million; margin down 45 basis points from Q1 2023 |
| Noninterest income | $647 million | Up from $608 million; investment banking and debt placement fees rose to $170 million from $145 million |
| Noninterest expense | $1.143 billion | Down from $1.176 billion; includes a $29 million FDIC special assessment |
| Provision for credit losses | $101 million | Down from $139 million |
| Income from continuing operations | $219 million; $183 million attributable to common shareholders; diluted EPS $0.20 | Common-shareholder income was $275 million and diluted EPS $0.30 in Q1 2023 |
| Loans | $109.9 billion at quarter-end; average loans $111.0 billion | Quarter-end loans down $2.7 billion from year-end; average loans down $8.8 billion year over year |
| Deposits | $144.2 billion at quarter-end; average deposits $142.9 billion | Quarter-end deposits down $1.4 billion from year-end; average deposits down $527 million year over year |
| Credit quality | Net charge-offs $81 million, or 0.29% of average loans; nonperforming loans $658 million | Charge-offs were $45 million, or 0.15%, in Q1 2023; nonperforming loans were $574 million at year-end 2023 |
| Capital | CET1 10.27%; Tier 1 11.97%; total risk-based capital 14.54%; leverage 9.11% | CET1 was 10.02% at year-end 2023 |
| Liquidity and debt | Total contingent liquidity $85.3 billion; parent-company cash $3.4 billion; long-term debt $20.8 billion; loan-to-deposit ratio 77% | Contingent liquidity was $86.5 billion at year-end; long-term debt was $19.6 billion |
Total taxable-equivalent revenue was $1.533 billion, down from $1.714 billion a year earlier. The cash efficiency ratio, a non-GAAP measure, was 74.0% versus 68.0%. Q1 net income attributable to common shareholders produced a 7.9% return on average tangible common equity, below the company’s long-term 16%–19% target. Key paid a $0.205 per-share common dividend and made no open-market share repurchases.
Net cash from operating activities was $359 million versus $718 million in Q1 2023. Investing activities provided $374 million, compared with $7.336 billion used in the prior-year quarter; financing activities used $427 million, compared with $6.515 billion provided. Cash and due from banks increased $306 million to $1.247 billion. These bank cash flows include substantial loan, securities, deposit, and funding movements.
Material changes and management commentary
- Lower net interest income primarily reflected planned loan-balance reductions, higher deposit and borrowing costs, and a shift from noninterest-bearing deposits to higher-cost funding. The company said reinvestment of maturing swaps and securities into higher-yielding assets partly offset these pressures.
- Management attributed the lower credit-loss provision to a more stable economic outlook and balance-sheet optimization, partly offset by portfolio migration. The commercial allowance increased $71 million from year-end, with C&I downgrades and higher criticized exposures cited; the consumer allowance fell $37 million.
- Consumer Bank net income was $55 million, down from $89 million; Commercial Bank net income was $200 million, down from $255 million. Commercial average deposits increased 7.4% year over year, while average loan balances declined in both segments.
- Key reported 6% year-over-year commercial client growth, 2.5% net new relationship household growth, and $57.3 billion in assets under management. It also launched Key Private Client and announced a commercial-platform strategic partnership; the filing does not quantify the partnership’s expected financial contribution.
Guidance, risks, contingencies, and unusual items
- 2024 expectations versus 2023: average loans down 5%–7%; average deposits flat to down 2%; taxable-equivalent net interest income down 2%–5%; noninterest income up at least 5%; noninterest expense relatively stable, defined as within plus or minus 2%; net charge-offs to average loans of 30–40 basis points; and an effective tax rate of about 20%.
- Additional guidance calls for period-end loans to be relatively stable versus year-end 2023 and taxable-equivalent net interest income to rise low-single digits from the Q4 2023 annualized exit rate, with Q4 2024 more than 10% above Q4 2023. Expense guidance excludes the $29 million 2024 FDIC special assessment and specified 2023 FDIC, efficiency-related, and pension items.
- Credit risks include the concentration in commercial and industrial lending (about 50% of loans) and commercial real estate. Office loans were 5% of commercial real estate loans; 80% of CRE loans were nonowner-occupied. Management’s baseline forecast anticipated CRE prices falling about 6% in 2024 and noted office as the most vulnerable property type. Nonperforming assets increased to $674 million from $591 million at year-end.
- Estimated uninsured deposits were $62.1 billion, or 43% of deposits; approximately $15.1 billion were collateralized by government-backed securities. Key said its liquid asset portfolio exceeded its estimated needs for an adverse liquidity event, but funding costs, deposit behavior, ratings downgrades, and market disruption remain risks.
- Available-for-sale securities had $5.714 billion of gross unrealized losses at quarter-end, largely attributed by management to interest rates and market conditions; the filing says no credit-loss allowance was recorded and management did not expect to be required to sell the securities before recovery.
- The Q1 $29 million incremental FDIC special assessment followed a higher FDIC loss estimate. Key had recognized a separate $190 million pre-tax special assessment in Q4 2023. Goodwill impairment tests following a real-estate-capital business realignment found no impairment.
- Guarantees had $18.514 billion of maximum potential undiscounted payments and $320 million of recorded liabilities; management assessed payment/performance risk as low. The filing says the securities class action was dismissed without prejudice in March 2024 and the related derivative action was dismissed without prejudice in April 2024. Other litigation and contingencies remain subject to uncertainty.
- Key described proposed regulatory capital and long-term debt rules that could affect large banking organizations, including KeyCorp and KeyBank. It also noted a preliminary injunction affecting enforcement timing of the revised Community Reinvestment Act rule and an SEC stay, after quarter-end, of climate-disclosure rules pending judicial review.
Important facts for investors to verify
- Track whether funding costs ease enough to stabilize net interest income and whether Key meets its full-year NII and revenue guidance.
- Monitor C&I criticized and nonperforming loans, CRE delinquencies and loss trends, and whether rising charge-offs require further reserve increases.
- Assess deposit mix, uninsured deposit levels, wholesale funding reliance, and the availability and cost of contingent liquidity.
- Review capital and tangible common equity trends, dividend capacity, and the potential effect and timing of proposed regulatory capital and long-term debt requirements.
- Reconcile reported GAAP results with taxable-equivalent and other non-GAAP measures, and note that the auditor performed an interim review, not a full audit of these quarterly statements.