DocumentUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-11302
KeyCorp
Exact name of registrant as specified in its charter:
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Ohio | 34-6542451 |
State or other jurisdiction of incorporation or organization: | I.R.S. Employer Identification Number: |
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127 Public Square, | Cleveland, | Ohio | 44114-1306 |
Address of principal executive offices: | Zip Code: |
(216) 689-3000
Registrant’s telephone number, including area code:
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares, $1 par value | KEY | New York Stock Exchange |
Depositary Shares (each representing a 1/40th interest in a share of Fixed-to-Floating Rate | KEY PrI | New York Stock Exchange |
Perpetual Non-Cumulative Preferred Stock, Series E) | | |
Depositary Shares (each representing a 1/40th interest in a share of Fixed Rate Perpetual Non- | KEY PrJ | New York Stock Exchange |
Cumulative Preferred Stock, Series F) | | |
Depositary Shares (each representing a 1/40th interest in a share of Fixed Rate Perpetual Non- | KEY PrK | New York Stock Exchange |
Cumulative Preferred Stock, Series G) | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ |
Smaller reporting company | ☐ | Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Common Shares with a par value of $1 each | 970,519,438 shares |
Title of class | Outstanding at April 29, 2021 |
KEYCORP
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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Item 2. | | |
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Item 3. | | |
Item 4. | | |
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| PART II. OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 6. | | |
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PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion & Analysis of Financial Condition & Results of Operations
Introduction
This section reviews the financial condition and results of operations of KeyCorp and its subsidiaries for the quarterly periods ended March 31, 2021, and March 31, 2020. Some tables may 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 and notes that we refer to are presented in the Table of Contents.
References to our “2020 Form 10-K” refer to our Form 10-K for the year ended December 31, 2020, which has been filed with the SEC and is available on its website (www.sec.gov) and on our website (www.key.com/ir).
Terminology
Throughout this discussion, references to “Key,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of KeyCorp and its subsidiaries. “KeyCorp” refers solely to the parent holding company, and “KeyBank” refers to KeyCorp’s subsidiary bank, KeyBank National Association.
We want to explain some industry-specific terms at the outset so you can better understand the discussion that follows.
•We use the phrase continuing operations in this document to mean all of our businesses other than our government-guaranteed and private education lending business, which has been accounted for as discontinued operations since 2009.
•We engage in capital markets activities primarily through business conducted by our Commercial Bank segment. These activities encompass a variety of products and services. Among other things, we trade securities as a dealer, enter into derivative contracts (both to accommodate clients’ financing needs and to mitigate certain risks), and conduct transactions in foreign currencies (both to accommodate clients’ needs and to benefit from fluctuations in exchange rates).
•For regulatory purposes, capital is divided into two classes. Federal regulations currently prescribe that at least one-half of a bank or BHC’s total risk-based capital must qualify as Tier 1 capital. Both total and Tier 1 capital serve as bases for several measures of capital adequacy, which is an important indicator of financial stability and condition. Banking regulators evaluate a component of Tier 1 capital, known as Common Equity Tier 1, under the Regulatory Capital Rules. The “Capital” section of this report under the heading “Capital adequacy” provides more information on total capital, Tier 1 capital, and the Regulatory Capital Rules, including Common Equity Tier 1, and describes how these measures are calculated.
The acronyms and abbreviations identified below are used in the Management’s Discussion & Analysis of Financial Condition & Results of Operations as well as in the Notes to Consolidated Financial Statements (Unaudited). You may find it helpful to refer back to this page as you read this report.
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ABO: Accumulated benefit obligation. ALCO: Asset/Liability Management Committee. ALLL: Allowance for loan and lease losses. A/LM: Asset/liability management. AML: Anti-money laundering. AOCI: Accumulated other comprehensive income (loss). APBO: Accumulated postretirement benefit obligation. ARRC: Alternative Reference Rates Committee. ASC: Accounting Standards Codification. ASU: Accounting Standards Update. ATMs: Automated teller machines. Austin: Austin Capital Management, Ltd. BSA: Bank Secrecy Act. BHCA: Bank Holding Company Act of 1956, as amended. BHCs: Bank holding companies. Board: KeyCorp Board of Directors. CAPM: Capital Asset Pricing Model. CCAR: Comprehensive Capital Analysis and Review. Cain Brothers: Cain Brothers & Company, LLC. CECL: Current Expected Credit Losses. CFPB: Consumer Financial Protection Bureau, also known as the Bureau of Consumer Financial Protection. CFTC: Commodities Futures Trading Commission. CMBS: Commercial mortgage-backed securities. CMO: Collateralized mortgage obligation. Common Shares: KeyCorp common shares, $1 par value. CVA: Credit Valuation Adjustment. DCF: Discounted cash flow. DIF: Deposit Insurance Fund of the FDIC. Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. EAD: Exposure at default. EBITDA: Earnings before interest, taxes, depreciation, and amortization. EPS: Earnings per share. ERISA: Employee Retirement Income Security Act of 1974. ERM: Enterprise risk management. EVE: Economic value of equity. FASB: Financial Accounting Standards Board. FDIA: Federal Deposit Insurance Act, as amended. FDIC: Federal Deposit Insurance Corporation. Federal Reserve: Board of Governors of the Federal Reserve System. FHLB: Federal Home Loan Bank of Cincinnati. FHLMC: Federal Home Loan Mortgage Corporation. FICO: Fair Isaac Corporation. FINRA: Financial Industry Regulatory Authority. First Niagara: First Niagara Financial Group, Inc. FNMA: Federal National Mortgage Association. FSOC: Financial Stability Oversight Council. FVA: Fair value of employee benefit plan assets. GAAP: U.S. generally accepted accounting principles. | GNMA: Government National Mortgage Association. HelloWallet: HelloWallet, LLC. HTC: Historic tax credit. IRS: Internal Revenue Service. ISDA: International Swaps and Derivatives Association. KBCM: KeyBanc Capital Markets, Inc. KCC: Key Capital Corporation. KCDC: Key Community Development Corporation. KEF: Key Equipment Finance. KIBS: Key Insurance & Benefits Services, Inc. LCR: Liquidity coverage ratio. LGD: Loss given default. LIBOR: London Interbank Offered Rate. LIHTC: Low-income housing tax credit. LTV: Loan-to-value. Moody’s: Moody’s Investor Services, Inc. MRM: Market Risk Management group. MRC: Market Risk Committee. N/A: Not applicable. Nasdaq: The Nasdaq Stock Market LLC. NAV: Net asset value. NFA: National Futures Association. N/M: Not meaningful. NMTC: New market tax credit. NOW: Negotiable Order of Withdrawal. NPR: Notice of proposed rulemaking. NYSE: New York Stock Exchange. OCC: Office of the Comptroller of the Currency. OCI: Other comprehensive income (loss). OREO: Other real estate owned. PBO: Projected benefit obligation. PCCR: Purchased credit card relationship. PCD: Purchased credit deteriorated. PD: Probability of default. PPP: Paycheck Protection Program. S&P: Standard and Poor’s Ratings Services, a Division of The McGraw-Hill Companies, Inc. SEC: U.S. Securities & Exchange Commission. SIFIs: Systemically important financial institutions, including large, interconnected BHCs and nonbank financial companies designated by FSOC for supervision by the Federal Reserve. SOFR: Secured Overnight Financing Rate. TCJ Act: Tax Cuts and Jobs Act. TDR: Troubled debt restructuring. TE: Taxable-equivalent. U.S. Treasury: United States Department of the Treasury. VaR: Value at risk. VEBA: Voluntary Employee Beneficiary Association. VIE: Variable interest entity. |
Forward-looking statements
From time to time, we have made or will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do not relate strictly to historical or current facts. Forward-looking statements usually can be identified by the use of words such as “goal,” “objective,” “plan,” “expect,” “assume,” “anticipate,” “intend,” “project,” “believe,” “estimate,” or other words of similar meaning. Forward-looking statements provide our current expectations or forecasts of future events, circumstances, results or aspirations. Our disclosures in this report contain forward-looking statements. We may also make forward-looking statements in other documents filed with or furnished to the SEC. In addition, we may make forward-looking statements orally to analysts, investors, representatives of the media, and others.
Forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements.
There is no assurance that any list of risks and uncertainties or risk factors is complete. Factors that could cause our actual results to differ from those described in forward-looking statements include, but are not limited to:
•our concentrated credit exposure in commercial and industrial loans;
•deterioration of commercial real estate market fundamentals;
•defaults by our loan counterparties or clients;
•adverse changes in credit quality trends;
•declining asset prices;
•deterioration of asset quality and an increase in credit losses due to the COVID-19 global pandemic;
•the decline in oil prices;
•the extensive regulation of the U.S. financial services industry;
•changes in accounting policies, standards, and interpretations;
•operational or risk management failures by us or critical third parties;
•breaches of security or failures of our technology systems due to technological or other factors and cybersecurity threats;
•negative outcomes from claims or litigation;
•failure or circumvention of our controls and procedures;
•the occurrence of natural or man-made disasters, global pandemics, conflicts, or terrorist attacks, or other adverse external events;
•increased operational risks resulting from the COVID-19 global pandemic;
•our participation in the Paycheck Protection Program;
•evolving capital and liquidity standards under applicable regulatory rules;
•disruption of the U.S. financial system;
•our ability to receive dividends from our subsidiaries, including KeyBank;
•unanticipated changes in our liquidity position, including but not limited to, changes in our access to or the cost of funding and our ability to secure alternative funding sources;
•downgrades in our credit ratings or those of KeyBank;
•uncertainty in markets due to the COVID-19 global pandemic;
•a worsening of the U.S. economy due to financial, political or other shocks;
•our ability to anticipate interest rate changes and manage interest rate risk;
•uncertainty surrounding the transition from LIBOR to an alternate reference rate;
•deterioration of economic conditions in the geographic regions where we operate;
•the soundness of other financial institutions;
•economic disruption related to interest rate risk and market risk due to the COVID-19 global pandemic;
•our ability to attract and retain talented executives and employees and to manage our reputational risks;
•our ability to timely and effectively implement our strategic initiatives;
•increased competitive pressure;
•our ability to adapt our products and services to industry standards and consumer preferences;
•unanticipated adverse effects of strategic partnerships or acquisitions and dispositions of assets or businesses; and
•our ability to develop and effectively use the quantitative models we rely upon in our business planning.
Any forward-looking statements made by us or on our behalf speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances. Before making an investment decision, you should carefully consider all risks and uncertainties disclosed in our 2020 Form 10-K and any subsequent reports filed with the SEC by Key, as well as our registration statements under the Securities Act of 1933, as amended, all of which are or will upon filing be accessible on the SEC’s website at www.sec.gov and on our website at www.key.com/ir.
Long-term financial targets
Our financial outlook and results of operations have been impacted by the economic fallout of the COVID-19 pandemic. Our long-term targets have not changed as we expect to continue to deliver positive operating leverage and strong financial returns as we emerge from this period of economic & financial stress.
(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%.
Our results for the first quarter of 2021 continue to reflect the hard work and dedication of our team and their commitment to serving our clients as we work through the ongoing pandemic. We achieved positive operating leverage compared to the year-ago quarter, and generated record first quarter revenue, up 19% from the year-ago quarter. This was driven by a record first quarter for investment banking & debt placement fees and continued strength in consumer mortgage fee income.
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.
We believe our strong risk management practices and disciplined underwriting continue to strengthen our credit quality. Net charge-offs to average loans decreased seven basis points, and nonperforming loans declined by $57 million from the prior quarter. Our provision for credit losses reflects a benefit from strong credit metrics and an improved outlook for the overall economy, credit migration, and loan production.
Financial Return
A return on average tangible common equity in the range of 16.00% to 19.00%.
We have continued to maintain a strong level of capital. Return on average tangible common equity increased ~160 basis points from the prior quarter, to 18.2%. We ended the first quarter of 2021 with a Common Equity Tier 1 ratio of 9.9%, which is above our targeted range of 9.0% to 9.5%. We believe that this provides us with sufficient capacity to continue to support our customers and their borrowing needs and return capital to our shareholders.
Selected financial data
Our financial performance for each of the last five quarters is summarized in Figure 1.
Figure 1. Selected Financial Data
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| 2021 | | 2020 | |
dollars in millions, except per share amounts | First | | Fourth | Third | Second | First | |
FOR THE PERIOD | | | | | | | |
Interest income | $ | 1,087 | | | $ | 1,125 | | $ | 1,119 | | $ | 1,190 | | $ | 1,251 | | |
Interest expense | 82 | | | 90 | | 119 | | 172 | | 270 | | |
Net interest income | 1,005 | | | 1,035 | | 1,000 | | 1,018 | | 981 | | |
Provision for credit losses | (93) | | | 20 | | 160 | | 482 | | 359 | | |
Noninterest income | 738 | | | 802 | | 681 | | 692 | | 477 | | |
Noninterest expense | 1,071 | | | 1,128 | | 1,037 | | 1,013 | | 931 | | |
Income (loss) from continuing operations before income taxes | 765 | | | 689 | | 484 | | 215 | | 168 | | |
Income (loss) from continuing operations attributable to Key | 618 | | | 575 | | 424 | | 185 | | 145 | | |
Income (loss) from discontinued operations, net of taxes | 4 | | | 7 | | 4 | | 2 | | 1 | | |
Net income (loss) attributable to Key | 622 | | | 582 | | 428 | | 187 | | 146 | | |
Income (loss) from continuing operations attributable to Key common shareholders | 591 | | | 549 | | 397 | | 159 | | 118 | | |
Income (loss) from discontinued operations, net of taxes | 4 | | | 7 | | 4 | | 2 | | 1 | | |
Net income (loss) attributable to Key common shareholders | 595 | | | 556 | | 401 | | 161 | | 119 | | |
PER COMMON SHARE | | | | | | | |
Income (loss) from continuing operations attributable to Key common shareholders | $ | .61 | | | $ | .57 | | $ | .41 | | $ | .16 | | $ | .12 | | |
Income (loss) from discontinued operations, net of taxes | — | | | .01 | | — | | — | | — | | |
Net income (loss) attributable to Key common shareholders (a) | .62 | | | .57 | | .41 | | .17 | | .12 | | |
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution | .61 | | | .56 | | .41 | | .16 | | .12 | | |
Income (loss) from discontinued operations, net of taxes — assuming dilution | — | | | .01 | | — | | — | | — | | |
Net income (loss) attributable to Key common shareholders — assuming dilution (a) | .61 | | | .57 | | .41 | | .17 | | .12 | | |
Cash dividends paid | .185 | | | .185 | | .185 | | .185 | | .185 | | |
Book value at period end | 16.22 | | | 16.53 | | 16.25 | | 16.07 | | 15.95 | | |
Tangible book value at period end | 13.30 | | | 13.61 | | 13.32 | | 13.12 | | 12.98 | | |
Weighted-average common shares outstanding (000) | 964,878 | | | 967,987 | | 967,804 | | 967,147 | | 967,446 | | |
Weighted-average common shares and potential common shares outstanding (000) (b) | 974,297 | | | 976,460 | | 973,988 | | 972,141 | | 976,110 | | |
AT PERIOD END | | | | | | | |
Loans | $ | 100,926 | | | $ | 101,185 | | $ | 103,081 | | $ | 106,159 | | $ | 103,198 | | |
Earning assets | 160,810 | | | 155,469 | | 155,585 | | 156,177 | | 141,333 | | |
Total assets | 176,203 | | | 170,336 | | 170,540 | | 171,192 | | 156,197 | | |
Deposits | 142,183 | | | 135,282 | | 136,746 | | 135,513 | | 115,304 | | |
Long-term debt | 12,499 | | | 13,709 | | 12,685 | | 13,734 | | 13,732 | | |
Key common shareholders’ equity | 15,734 | | | 16,081 | | 15,822 | | 15,642 | | 15,511 | | |
Key shareholders’ equity | 17,634 | | | 17,981 | | 17,722 | | 17,542 | | 17,411 | | |
PERFORMANCE RATIOS — FROM CONTINUING OPERATIONS | | | | | | | |
Return on average total assets | 1.44 | % | | 1.35 | % | 1.00 | % | .45 | % | .40 | % | |
Return on average common equity | 14.98 | | | 13.65 | | 9.98 | | 4.05 | | 3.10 | | |
Return on average tangible common equity (c) | 18.25 | | | 16.61 | | 12.19 | | 4.96 | | 3.82 | | |
Net interest margin (TE) | 2.61 | | | 2.70 | | 2.62 | | 2.76 | | 3.01 | | |
Cash efficiency ratio (c) | 60.3 | | | 60.3 | | 60.6 | | 57.9 | | 62.3 | | |
PERFORMANCE RATIOS — FROM CONSOLIDATED OPERATIONS | | | | | | | |
Return on average total assets | 1.45 | % | | 1.36 | % | 1.00 | % | .46 | % | .40 | % | |
Return on average common equity | 15.08 | | | 13.82 | | 10.08 | | 4.10 | | 3.12 | | |
Return on average tangible common equity (c) | 18.37 | | | 16.82 | | 12.31 | | 5.02 | | 3.86 | | |
Net interest margin (TE) | 2.60 | | | 2.69 | | 2.62 | | 2.76 | | 3.00 | | |
Loan-to-deposit (d) | 73.1 | | | 76.5 | | 77.2 | | 80.4 | | 92.1 | | |
CAPITAL RATIOS AT PERIOD END | | | | | | | |
Key shareholders’ equity to assets | 10.0 | % | | 10.6 | % | 10.4 | % | 10.2 | % | 11.1 | % | |
Key common shareholders’ equity to assets | 9.0 | | | 9.5 | | 9.3 | | 9.2 | | 10.0 | | |
Tangible common equity to tangible assets (c) | 7.5 | | | 7.9 | | 7.8 | | 7.6 | | 8.3 | | |
Common Equity Tier 1 | 9.9 | | | 9.7 | | 9.5 | | 9.1 | | 8.9 | | |
Tier 1 risk-based capital | 11.3 | | | 11.1 | | 10.9 | | 10.5 | | 10.2 | | |
Total risk-based capital | 13.4 | | | 13.4 | | 13.3 | | 12.8 | | 12.2 | | |
Leverage | 8.9 | | | 8.9 | | 8.7 | | 8.8 | | 9.8 | | |
TRUST ASSETS | | | | | | | |
Assets under management | $ | 45,218 | | | $ | 44,140 | | $ | 41,312 | | $ | 39,722 | | $ | 36,189 | | |
OTHER DATA | | | | | | | |
Average full-time-equivalent employees | 17,086 | | | 17,029 | | 17,097 | | 16,646 | | 16,529 | | |
Branches | 1,068 | | | 1,073 | | 1,077 | | 1,077 | | 1,082 | | |
(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 the section entitled “GAAP to Non-GAAP Reconciliations,” which presents the computations of certain financial measures related to “tangible common equity” and “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.
(d)Represents period-end consolidated total loans and loans held for sale divided by period-end consolidated total deposits.
Strategic developments
The first quarter of 2021 was a strong start to the year and positions us to grow and deliver on our commitments to all of our stakeholders. We have remained committed to supporting our employees, our communities, and our clients throughout the pandemic. Providing value to all stakeholders creates the foundation to deliver sustainable long-term performance. The corporate governance processes that we have in place allow us to oversee any changes and new requirements that may occur across our geographic footprint. Our actions and results during the first quarter of 2021 reflect our response to the current environment and support our corporate strategy described in the “Introduction” section under the “Corporate strategy” heading on page 45 of our 2020 Form 10-K.
•Our business resiliency plans remained in effect and we maintained our operational effectiveness across the entire organization. The health and safety of our clients, employees, and communities in which we operate have continued to be our top priority. Nearly every branch has been open for business and continues to follow guidelines on how to minimize physical contact with our clients and between our employees. Our return-to-office protocols, which began in the second quarter of 2020, continued during the first quarter of 2021. This plan is flexible as the ongoing pandemic changes and may impact the communities in which our employees and clients operate differently.
•We are committed to playing a critical role in providing capital and assistance to our clients and supporting broader initiatives to strengthen our economy. We continue to support our clients through SBA-guaranteed loans to small businesses, payment deferrals, hardship support, borrower assistance programs, and forbearance options to help provide a bridge for individuals and businesses through these uncertain times.
•On February 25, 2021, we acquired AQN Strategies, a client-focused analytics firm with deep expertise in the financial services industry. This acquisition aligns to Key’s relationship strategy and underscores our commitment to a data-driven approach to grow our business.
•On March 30, 2021, we unveiled Laurel Road for Doctors, a national digital bank tailored to physicians and dentists with products and services informed by their needs. With Laurel Road for Doctors, we continue to expand targeted client relationships by bringing together a full set of solutions, expertise, and services to drive value for healthcare professionals.
•Credit quality is also playing a critical role in this environment. Our risk profile and strategy is different than the one we had leading up to, and during, the 2007-2009 financial crisis. We have significantly reduced our exposure to high-risk sectors and industries and have positioned Key to perform well through all phases of the business cycle, including highly stressed environments. Our moderate risk profile will continue to inform our credit decisions and the way we underwrite loans.
•Capital and liquidity continued to be clear strengths for us during the first quarter of 2021. Our strong capital position allows us to continue to execute against each of our capital priorities of organic growth, dividends, and share repurchases. During the first quarter we repurchased $135 million of common shares, and the Board of Directors approved a common share dividend of $.185 per Common Share.
Demographics
The Consumer Bank serves individuals and small businesses throughout our 15-state branch footprint and through our Laurel Road digital brand by offering a variety of deposit and investment products, personal finance and financial wellness services, lending, student loan refinancing, mortgage and home equity, credit card, treasury services, and business advisory services. In addition, wealth management and investment services are offered to assist non-profit and high-net-worth clients with their banking, trust, portfolio management, life insurance, charitable giving, and related needs.
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.
Supervision and regulation
The following discussion provides a summary of recent regulatory developments and should be read in conjunction with the disclosure included in our 2020 Form 10-K under the heading “Supervision and Regulation” in Item 1. Business and under the heading “II. Compliance Risk” in Item 1A. Risk Factors.
Regulatory capital requirements
The final rule to implement the Basel III international capital framework (“Basel III”) was effective January 1, 2015, with a multi-year transition period (“Regulatory Capital Rules”). As of April 1, 2020, the Regulatory Capital Rules were fully phased-in for Key. The Basel III capital framework and the U.S. implementation of the Basel III capital framework are discussed in more detail in Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation — Regulatory capital requirements.”
Under the Regulatory Capital Rules, standardized approach banking organizations, such as KeyCorp and KeyBank, are required to meet the minimum capital and leverage ratios set forth in Figure 2 below. At March 31, 2021, KeyCorp’s ratios under the fully phased-in Regulatory Capital Rules are set forth in Figure 2.
Figure 2. Minimum Capital Ratios and KeyCorp Ratios Under the Regulatory Capital Rules
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Ratios (including stress capital buffer) | Regulatory Minimum Requirement | Stress Capital Buffer (b) | Regulatory Minimum With Stress Capital Buffer | KeyCorp March 31, 2021 (c) |
Common Equity Tier 1 | 4.5 | % | 2.5 | % | 7.0 | % | 9.9 | % |
Tier 1 Capital | 6.0 | | 2.5 | | 8.5 | | 11.3 | |
Total Capital | 8.0 | | 2.5 | | 10.5 | | 13.4 | |
Leverage (a) | 4.0 | | N/A | 4.0 | | 8.9 | |
(a)As a standardized approach banking organization, KeyCorp is not subject to the 3% supplemental leverage ratio requirement, which became effective January 1, 2018.
(b)Stress capital buffer must consist of Common Equity Tier 1 capital. As a standardized approach banking organization, KeyCorp is not subject to the countercyclical capital buffer of up to 2.5% imposed upon an advanced approaches banking organization under the Regulatory Capital Rules.
(c)Ratios reflect the five-year transition of CECL impacts on regulatory ratios.
Revised prompt corrective action framework
The federal prompt corrective action (“PCA”) framework under the FDIA groups FDIC-insured depository institutions into one of five prompt corrective action capital categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” In addition to implementing the Basel III capital framework in the United States, the Regulatory Capital Rules also revised the PCA capital category threshold ratios applicable to FDIC-insured depository institutions such as KeyBank, with an effective date of January 1, 2015. The revised PCA framework table in Figure 3 identifies the capital category thresholds for a “well capitalized” and an “adequately capitalized” institution under the PCA Framework.
Figure 3. "Well Capitalized" and "Adequately Capitalized" Capital Category Ratios under Revised PCA Framework
| | | | | | | | | | | |
Prompt Corrective Action | | Capital Category |
Ratio | | Well Capitalized (a) | Adequately Capitalized |
Common Equity Tier 1 Risk-Based | | 6.5 | % | 4.5 | % |
Tier 1 Risk-Based | | 8.0 | | 6.0 | |
Total Risk-Based | | 10.0 | | 8.0 | |
Tier 1 Leverage (b) | | 5.0 | | 4.0 | |
(a)A “well capitalized” institution also must not be subject to any written agreement, order, or directive to meet and maintain a specific capital level for any capital measure.
(b)As a “standardized approach” banking organization, KeyBank is not subject to the 3% supplemental leverage ratio requirement, which became effective January 1, 2018.
As of March 31, 2021, KeyBank (consolidated) satisfied the risk-based and leverage capital requirements necessary to be considered “well capitalized” for purposes of the PCA framework. However, investors should not regard this determination as a representation of the overall financial condition or prospects of KeyBank because the PCA framework is intended to serve a limited supervisory function. Moreover, it is important to note that the PCA framework does not apply to BHCs, like KeyCorp.
Recent regulatory capital-related developments
See Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Regulatory capital requirements - Recent regulatory capital-related developments” for a discussion of recent regulatory capital-related developments.
Capital planning and stress testing
On January 19, 2021, the Federal Reserve issued a final rule to make conforming changes to the capital planning, regulatory reporting, and stress capital buffer requirements for firms subject to Category IV standards (including KeyCorp) to make these requirements consistent with the tailored regulatory framework for large banking organizations that the Federal Reserve adopted in an October 2019 rulemaking. The final rule revises the elements of the capital plan that Category IV firms are required to submit to the Federal Reserve and makes related changes to regulatory reporting requirements. Also, the final rule updates the frequency for calculating the stress capital buffer for these firms. In addition, the final rule makes certain clarifying changes to the stress testing rules applicable to all large banking organizations.
Due to the economic uncertainty caused by the COVID-19 pandemic, the Federal Reserve placed temporary restrictions on capital distributions by BHCs having more than $100 billion in total consolidated assets (including KeyCorp), that are in addition to limitations on capital distributions that apply under the Regulatory Capital Rules. On June 25, 2020, the Federal Reserve stated that for the third quarter of 2020, BHCs with more than $100 billion in total assets are prohibited from (i) making share repurchases (other than share repurchase relating to issuances of common stock for employee stock ownership plans); and (ii) paying common stock dividends that exceed the amount paid in the second quarter of 2020 or exceed an amount equal to the average of the firm’s net income for the four preceding calendar quarters unless otherwise specified by the Federal Reserve. The Federal Reserve continued these restriction on dividends and share repurchases by large BHCs for the fourth quarter of 2020 in an announcement made on September 17, 2020.
On December 18, 2020, the Federal Reserve stated that because of the ongoing economic uncertainty, it was extending its limits on capital distributions by BHCs with more than $100 billion in total assets into the first quarter of 2021, with certain modifications. The Federal Reserve noted that these firms (i) are prohibited from increasing their common stock dividends to an amount greater than the amount paid in the second quarter of 2020; and (ii) are prohibited from paying common stock dividends and making share repurchase that, in the aggregate, exceed an amount equal to the average of the firm’s net income for the four preceding calendar quarters. The Federal Reserve further indicated that it was extending the time period for the Federal Reserve to notify firms whether their stress capital buffer requirements will be recalculated until March 31, 2021.
On March 25, 2021, the Federal Reserve said that it was continuing into the second quarter of 2021 the restrictions on dividends and share repurchases for BHCs with more than $100 billion in total assets that it announced on December 18, 2020, and indicated that it was extending the time period for the Federal Reserve to notify firms whether their stress capital buffer requirements will be recalculated until June 30, 2021. The Federal Reserve also announced that these temporary restrictions on BHC dividends and share repurchases will end for most firms after June 30, 2021. Firms subject to the Federal Reserve’s supervisory stress test in 2021 with capital levels above those required by the stress test will no longer by subject to the temporary additional restrictions after that date while firms with capital levels below those required by the stress test will remain subject to the restrictions.
For BHCs that are on a two-year stress test cycle and are not subject to the Federal Reserve’s supervisory stress test in 2021 (including KeyCorp), the temporary additional restrictions on dividends and share repurchases will end after June 30, 2021. Beginning on July 1, 2021, these firms will be allowed to make capital distributions that are consistent with the Regulatory Capital Rules, inclusive of the stress capital buffer requirement based on the firm’s June 2020 stress test. In August 2020, the Federal Reserve confirmed that KeyCorp’s required stress capital buffer, based on its June 2020 stress test, is 2.5%, which is the minimum buffer requirement for firms the size of KeyCorp.
See Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Regulatory capital requirements - Capital planning and stress testing” for an overview of capital planning and stress testing requirements.
Liquidity requirements
See Item. 1 Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Regulatory capital requirements - Liquidity requirements” for a discussion of liquidity requirements, including the Liquidity Coverage Rules.
Volcker Rule
The Volcker Rule is discussed in detail in Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Other Regulatory Developments - Volcker Rule.”
Community Reinvestment Act
See Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Other Regulatory Developments - Community Reinvestment Act” for a discussion of recent developments concerning the Community Reinvestment Act.
Supervision and governance
On February 26, 2021, the Federal Reserve issued supervisory guidance describing the key attributes of effective boards of directors of large financial institutions, including BHCs with $100 billion or more in total consolidated assets. This supervisory guidance adopts a principles-based approach to describe attributes of effective boards of directors and provides illustrative examples of effective practices. The Federal Reserve indicated that it intends to use the board effectiveness guidance in informing its assessment of governance and controls at all firms subject to the large financial institution rating system (“LFI Rating System”) (including KeyCorp).
See Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Other Regulatory Developments - Supervision and governance” for a discussion of other recent supervision and governance-related developments, including a discussion of the LFI Rating System.
Regulatory developments concerning COVID-19
On March 30, 2021, President Biden signed into law the PPP Extension Act, which extends the deadline for submitting loan applications under this program from March 31, 2021, to May 31, 2021. KeyBank participates as a lender in the PPP, which provides SBA-guaranteed loans to small businesses.
On March 31, 2021, the CFPB announced that it is rescinding seven policy statements issued in 2020, which provided financial institutions with temporary regulatory flexibility in complying with various consumer protection laws when they are working with customers affected by the COVID-19 pandemic. The CFPB indicated that, with these rescissions, it intends to exercise the full scope of its supervision and enforcement authority provided by the Dodd-Frank Act.
The CFPB issued a compliance bulletin on April 1, 2021, urging mortgage servicers to take proactive measures to prevent avoidable foreclosures. The CFPB indicated that it will be closely monitoring how servicers engage with borrowers and will consider a servicer’s effectiveness in helping borrowers when it evaluates a servicer’s compliance with mortgage servicing rules.
On April 5, 2021, the CFPB requested public comment on a proposal that would amend the CFPB’s mortgage servicing rules to help ensure that borrowers affected by the COVID-19 pandemic have an opportunity to be evaluated for loss mitigation before the initiation of foreclosure proceedings. Among other things, the proposal (i) would establish a temporary COVID-19 emergency pre-foreclosure review period that would generally prohibit servicers from commencing a foreclosure action involving a borrower’s principal residence until after December 31, 2021; (ii) would permit servicers to offer certain streamlined loan modification options based on the evaluation of an incomplete application; and (iii) would revise the early intervention and reasonable diligence obligations of servicers to ensure that they communicate timely and accurate information to borrowers about their loss mitigation options. Certain requirements would apply only until August 31, 2022. Comments on the proposal are due by May 10, 2021.
See Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Other Regulatory Developments - Regulatory developments concerning COVID-19” for a discussion of other recent regulatory developments relating to the COVID-19 pandemic.
Results of Operations
Earnings overview
The following chart provides a reconciliation of net income from continuing operations attributable to Key common shareholders for the three months ended March 31, 2020, to the three months ended March 31, 2021 (dollars in millions):
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 across 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.
Figure 4 shows the various components of our balance sheet that affect interest income and expense and their respective yields or rates over the past five quarters. This figure also presents a reconciliation of TE net interest income to net interest income reported in accordance with GAAP for each of those quarters. The net interest margin, which is an indicator of the profitability of the earning assets portfolio less cost of funding, is calculated by dividing annualized TE net interest income by average earning assets.
TE net interest income was $1.0 billion for the first quarter of 2021, compared to TE net interest income of $989 million for the first quarter of 2020. 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.
Average loans were $100.7 billion for the first quarter of 2021, an increase of $4.6 billion compared to the first quarter of 2020. Commercial loans increased $2.2 billion, reflecting Key’s participation in the PPP partially offset by decreased utilization versus the year-ago period. Consumer loans increased $2.4 billion, driven by strength from Laurel Road and Key's consumer mortgage business.
Average deposits totaled $137.7 billion for the first quarter of 2021, an increase of $27.4 billion compared to the year-ago quarter, reflecting growth from consumer and commercial relationships, partially offset by a decline in time deposits as a result of lower interest rates.
Figure 4. Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates and Components of Net Interest Income Changes from Continuing Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2021 | | Three months ended March 31, 2020 | | Change in Net interest income due to |
dollars in millions | Average Balance | Interest (a) | Yield/ Rate (a) | | Average Balance | Interest (a) | Yield/ Rate (a) | | Volume | Yield/Rate | Total |
ASSETS | | | | | | | | | | | |
Loans (b), (c) | | | | | | | | | | | |
Commercial and industrial (d) | $ | 52,581 | | $ | 453 | | 3.48 | % | | $ | 49,466 | | $ | 508 | | 4.13 | % | | $ | 31 | | $ | (86) | | $ | (55) | |
Real estate — commercial mortgage | 12,658 | | 114 | | 3.67 | | | 13,548 | | 155 | | 4.60 | | | (10) | | (31) | | (41) | |
Real estate — construction | 2,048 | | 19 | | 3.75 | | | 1,666 | | 20 | | 4.75 | | | 4 | | (5) | | (1) | |
Commercial lease financing | 4,142 | | 31 | | 2.99 | | | 4,565 | | 39 | | 3.39 | | | (3) | | (5) | | (8) | |
Total commercial loans | 71,429 | | 617 | | 3.50 | | | 69,245 | | 722 | | 4.19 | | | 22 | | (127) | | (105) | |
Real estate — residential mortgage | 9,699 | | 76 | | 3.12 | | | 7,215 | | 68 | | 3.75 | | | 21 | | (13) | | 8 | |
Home equity loans | 9,282 | | 85 | | 3.73 | | | 10,155 | | 113 | | 4.49 | | | (9) | | (19) | | (28) | |
Consumer direct loans | 4,817 | | 56 | | 4.72 | | | 3,709 | | 54 | | 5.91 | | | 14 | | (12) | | 2 | |
Credit cards | 933 | | 24 | | 10.45 | | | 1,082 | | 31 | | 11.50 | | | (4) | | (3) | | (7) | |
Consumer indirect loans | 4,568 | | 37 | | 3.30 | | | 4,768 | | 46 | | 3.86 | | | (2) | | (7) | | (9) | |
Total consumer loans | 29,299 | | 278 | | 3.84 | | | 26,929 | | 312 | | 4.66 | | | 20 | | (54) | | (34) | |
Total loans | 100,728 | | 895 | | 3.60 | | | 96,174 | | 1,034 | | 4.32 | | | 42 | | (181) | | (139) | |
Loans held for sale | 1,531 | | 11 | | 2.89 | | | 1,885 | | 19 | | 3.99 | | | (3) | | (5) | | (8) | |
Securities available for sale (b), (e) | 30,039 | | 130 | | 1.76 | | | 21,172 | | 129 | | 2.49 | | | 45 | | (44) | | 1 | |
Held-to-maturity securities (b) | 7,188 | | 45 | | 2.53 | | | 9,820 | | 62 | | 2.51 | | | (16) | | (1) | | (17) | |
Trading account assets | 848 | | 5 | | 2.15 | | | 1,065 | | 8 | | 2.95 | | | (1) | | (2) | | (3) | |
Short-term investments | 16,510 | | 5 | | .13 | | | 1,764 | | 6 | | 1.42 | | | 9 | | (10) | | (1) | |
Other investments (e) | 614 | | 2 | | 1.40 | | | 614 | | 1 | | .40 | | | — | | 1 | | 1 | |
Total earning assets | 157,458 | | 1,094 | | 2.81 | | | 132,494 | | 1,259 | | 3.82 | | | 76 | | (242) | | (166) | |
Allowance for loan and lease losses | (1,623) | | | | | (1,097) | | | | | | | |
Accrued income and other assets | 16,398 | | | | | 14,831 | | | | | | | |
Discontinued assets | 686 | | | | | 838 | | | | | | | |
Total assets | $ | 172,919 | | | | | $ | 147,066 | | | | | | | |
| | | | | | | | | | | |
LIABILITIES | | | | | | | | | | | |
NOW and money market deposit accounts | $ | 81,439 | | 10 | | .05 | | | $ | 66,721 | | 112 | | .67 | | | 20 | | (122) | | (102) | |
Savings deposits | 6,203 | | 1 | | .03 | | | 4,655 | | 1 | | .05 | | | — | | — | | — | |
Certificates of deposit ($100,000 or more) | 2,571 | | 6 | | .96 | | | 6,310 | | 34 | | 2.20 | | | (14) | | (14) | | (28) | |
Other time deposits | 2,902 | | 4 | | .57 | | | 4,901 | | 22 | | 1.81 | | | (7) | | (11) | | (18) | |
Total interest-bearing deposits | 93,115 | | 21 | | .09 | | | 82,587 | | 169 | | .82 | | | (1) | | (147) | | (148) | |
Federal funds purchased and securities sold under repurchase agreements | 243 | | — | | .04 | | | 2,002 | | 6 | | 1.17 | | | (3) | | (3) | | (6) | |
Bank notes and other short-term borrowings | 878 | | 1 | | .64 | | | 1,401 | | 5 | | 1.58 | | | (1) | | (3) | | (4) | |
Long-term debt (f), (g) | 12,831 | | 60 | | 1.93 | | | 12,443 | | 90 | | 2.96 | | | 3 | | (33) | | (30) | |
Total interest-bearing liabilities | 107,067 | | 82 | | .31 | | | 98,433 | | 270 | | 1.10 | | | (2) | | (186) | | (188) | |
Noninterest-bearing deposits | 44,625 | | | | | 27,741 | | | | | | | |
Accrued expense and other liabilities | 2,772 | | | | | 2,838 | | | | | | | |
Discontinued liabilities (g) | 686 | | | | | 838 | | | | | | | |
Total liabilities | 155,150 | | | | | 129,850 | | | | | | | |
EQUITY | | | | | | | | | | | |
Key shareholders’ equity | 17,769 | | | | | 17,216 | | | | | | | |
Noncontrolling interests | — | | | | | — | | | | | | | |
Total equity | 17,769 | | | | | 17,216 | | | | | | | |
Total liabilities and equity | $ | 172,919 | | | | | $ | 147,066 | | | | | | | |
| | | | | | | | | | | |
Interest rate spread (TE) | | | 2.50 | % | | | | 2.72 | % | | | | |
Net interest income (TE) and net interest margin (TE) | | 1,012 | | 2.61 | % | | | 989 | | 3.01 | % | | $ | 78 | | $ | (56) | | 22 | |
TE adjustment (b) | | 7 | | | | | 8 | | | | | | |
Net interest income, GAAP basis | | $ | 1,005 | | | | | $ | 981 | | | | | | |
| | | | | | | | | | | |
(a)Results are from continuing operations. Interest excludes the interest associated with the liabilities referred to in (g), calculated using a matched funds transfer pricing methodology.
(b)Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 21% for the three months ended March 31, 2021, and March 31, 2020.
(c)For purposes of these computations, nonaccrual loans are included in average loan balances.
(d)Commercial and industrial average balances include $126 million and $145 million of assets from commercial credit cards for the three months ended March 31, 2021, and March 31, 2020, 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.
Provision for credit losses
Key’s provision for credit losses was a net benefit of $93 million, including a $207 million reserve release for the three months ended March 31, 2021, compared to an expense of $359 million for the three months ended March 31, 2020. The reserve release was largely driven by expected improvement in the economic outlook.
Noninterest income
As shown in Figure 5, noninterest income was $738 million, and represented 42% of total revenue for the first quarter of 2021, compared to $477 million, representing 33% of total revenue, for the year-ago quarter.
The following discussion explains the composition of certain elements of our noninterest income and the factors that caused those elements to change.
Figure 5. 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, commercial mortgage servicing fees, and other income. See the "Consolidated Statements of Income" in Item 1. Financial Statements of this report.
Trust and investment services income
Trust and investment services income consists of brokerage commissions, trust and asset management fees, and insurance income. The assets under management that primarily generate these revenues are shown in Figure 6. For the three months ended March 31, 2021, trust and investment services income remained constant compared to the same period one year ago. This was primarily due to an increase in trust and asset management fees partially related to higher levels of assets under management offset by decreased commercial brokerage income.
A significant portion of our trust and investment services income depends on the value and mix of assets under management. At March 31, 2021, our bank, trust, and registered investment advisory subsidiaries had assets under management of $45.2 billion, compared to $36.2 billion at March 31, 2020. Assets under management were up, as shown in Figure 6, due to increased portfolio yields.
Figure 6. Assets Under Management
| | | | | | | | | | | | | | | | | |
in millions | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 |
Assets under management by investment type: | | | | | |
Equity | $ | 29,071 | | $ | 27,384 | | $ | 24,851 | | $ | 23,303 | | $ | 20,421 | |
Securities lending | 155 | | 131 | | 130 | | 171 | | 188 | |
Fixed income | 11,865 | | 12,130 | | 11,767 | | 11,318 | | 10,911 | |
Money market | 4,127 | | 4,495 | | 4,564 | | 4,930 | | 4,669 | |
Total assets under management | $ | 45,218 | | $ | 44,140 | | $ | 41,312 | | $ | 39,722 | | $ | 36,189 | |
| | | | | |
Investment banking and debt placement fees
Investment banking and debt placement fees consists of syndication fees, debt and equity financing fees, financial adviser fees, gains on sales of commercial mortgages, and agency origination fees. Investment banking and debt placement fees for the three months ended March 31, 2021, increased $46 million, or 39.7%, from the year-ago quarter. This increase was primarily driven by higher gains on the sales of commercial mortgages, and increased debt and equity underwriting fees.
Service charges on deposit accounts
Service charges on deposit accounts decreased $11 million, or 13.1%, for the three months ended March 31, 2021, compared to the same period one year ago. This decrease was primarily driven by elevated balances reducing fee assessments and higher fee waivers related to the ongoing COVID-19 pandemic.
Cards and payments income
Cards and payments income, which consists of debit card, prepaid card, consumer and commercial credit card, and merchant services income, increased $39 million, or 59.1%, for the three months ended March 31, 2021, compared to the same period one year ago. This increase was primarily driven by increased prepaid card activity due to state support program activity.
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, commercial mortgage servicing fees, and other income. Other noninterest income for the three months ended March 31, 2021, increased $187 million, or 239.7%, from the year-ago quarter, primarily due to higher consumer mortgage income driven by strong loan originations and related fees.
Noninterest expense
As shown in Figure 7, noninterest expense was $1.1 billion for the first quarter of 2021, compared to $931 million for the first quarter of 2020.
The following discussion explains the composition of certain elements of our noninterest expense and the factors that caused those elements to change.
Figure 7. 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 Item 1. Financial Statements of this report.
Personnel
Personnel expense, the largest category of our noninterest expense, increased by $109 million, or 21.2%, for the three months ended March 31, 2021, compared to the same period one year ago. The activity reflected higher incentive and stock-based compensation, attributed to an increase in revenue from stock performance and an increase in employee benefits compared to the year ago quarter.
Net occupancy
Net occupancy expense remained constant for the first quarter of 2021, compared to the same period one year ago.
Other noninterest expense
Other noninterest expense includes equipment, operating lease expense, marketing, FDIC assessment, intangible asset amortization, OREO expense, and other miscellaneous expense categories. Other noninterest expense for the three months ended March 31, 2021, increased $7 million, or 2.9%, from the year-ago quarter, primarily due to payments-related expense from increased prepaid card activity partially offset by a decrease in other real estate owned expenses.
Income taxes
We recorded tax expense of $147 million for the first quarter of 2021 and $23 million for the first quarter of 2020.
Our federal tax expense and effective tax rate differs 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 energy related projects and low-income housing investments, and periodic adjustments to our tax reserves.
Additional information pertaining to how our tax expense (benefit) and the resulting effective tax rates were derived is included in Note 14 (“Income Taxes”) beginning on page 158 of our 2020 Form 10-K.
Business Segment Results
This section summarizes the financial performance of our two major business segments (operating segments): Consumer Bank and Commercial Bank. Note 20 (“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. For more information on the segment imperatives and market and business overview, see “Business Segment Results” beginning on page 54 of our 2020 Form 10-K. Dollars in the charts are presented in millions.
Consumer Bank
Summary of operations
•Net income attributable to Key of $217 million for the first quarter of 2021, compared to $103 million for the year-ago quarter
•Taxable-equivalent net interest income increased by $26 million, or 4.5%, compared to the first quarter of 2020, driven by strong balance sheet growth and fees related to PPP loans, partially offset by the lower interest rate environment
•Average loans and leases increased $6.1 billion, or 18.3%, driven by benefit from the PPP, as well as growth from Laurel Road and consumer mortgage
•Average deposits increased $11.9 billion, or 16.3%, from the first quarter of 2020. This was driven by consumer stimulus payments and relationship growth
•Provision for credit losses decreased $159 million compared to the first quarter of 2020. The provision for credit losses was a net benefit and was driven by expected improvements in economic conditions and continued strength in client credit quality
•Noninterest income increased $28 million, or 12.2%, from the year ago quarter, due to higher trust and investment services income, and strength in consumer mortgage income
•Noninterest expense increased $62 million, or 11.5%, from the year ago quarter, driven by higher variable compensation from significantly favorable revenue and higher variable expenses related to higher loan volumes
Commercial Bank
Summary of operations
•Net income attributable to Key of $383 million for the first quarter of 2021, compared to $66 million for the year-ago quarter
•Taxable-equivalent net interest income decreased by $10 million, compared to the first quarter of 2020, as the lower interest rate environment offset fees related to PPP loans
•Average loan and lease balances decreased $1.2 billion, compared to the first quarter of 2020 as lower utilization offset PPP loans
•Average deposit balances increased $15.5 billion, or 42.4%, compared to the first quarter of 2020, driven by growth in targeted relationships and the impact of government programs
•Provision for credit losses decreased $289 million compared to the first quarter of 2020. The provision for credit losses was a net benefit and was driven by expected improvements in economic conditions
•Noninterest income increased $227 million, from the year-ago quarter, driven by favorable market-related adjustments to customer derivatives compared to detriments in 2020, increased investment banking client activity, and higher cards and payments income related to prepaid card revenue
•Noninterest expense increased by $81 million, or 22.4%, from the first quarter of 2020, driven by higher variable compensation from significantly favorable revenue and elevated variable expenses related to prepaid card
Financial Condition
Loans and loans held for sale
Figure 8. Breakdown of Loans at March 31, 2021
(a)Other consumer loans include Consumer direct loans, Credit cards, and Consumer indirect loans. See Note 3 (“Loan Portfolio”) in Item 1. Financial Statements of this report.
At March 31, 2021, total loans outstanding from continuing operations were $100.9 billion, compared to $101.2 billion at December 31, 2020. 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” starting on page 100 of our 2020 Form 10-K.
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 March 31, 2021, and December 31, 2020, that have received a payment deferral or forbearance as part of our COVID-19 hardship relief programs:
Figure 9. Loans and Leases COVID-19 Hardship Relief
| | | | | | | | | | | | | | |
| | Outstanding Balance of Loans and Leases |
March 31, 2021 | | | | |
dollars in millions | | Completed Relief | In Active Relief | Total that have Received Payment Relief |
Commercial Loans | | $ | 2,716 | | $ | 129 | | $ | 2,844 | |
Consumer Loans | | 1,204 | | 255 | | 1,459 | |
Total Portfolio Loans and Leases | | $ | 3,920 | | $ | 384 | | $ | 4,304 | |
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 March 31, 2021, represented 0.2% of the commercial loan portfolio and the total outstanding balance of consumer loans in active relief as of March 31, 2021, represented 0.9% of the consumer loan portfolio.
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 March 31, 2021, 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 4 (“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 $71.4 billion at March 31, 2021, a decrease of $0.6 billion, or .8%, compared to December 31, 2020, driven by lower commercial and industrial utilization rates, partly offset by an increase in PPP funding.
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 established a pandemic watchlist and are performing ongoing reviews of commercial clients that are likely to be impacted by COVID-19. These clients represent a small portion of the overall portfolio and are diversified by type and geography. Figure 10 summarizes our commercial portfolios that are at risk of being impacted by the COVID-19 pandemic as of March 31, 2021, and December 31, 2020.
Figure 10. Select Commercial Portfolio Focus Areas
| | | | | | | | | | | | | | |
dollars in millions | Outstanding as of March 31, 2021 | Percentage of total loans as of March 31, 2021 | Outstanding as of December 31, 2020 | Percentage of total loans as of December 31, 2020 |
Consumer behavior (a) | $ | 5,112 | | 5.1 | % | $ | 5,083 | | 5.0 | % |
Education | 1,557 | | 1.5 | | 1,541 | | 1.5 | |
Sports | 664 | | .7 | | 690 | | .7 | |
Restaurants | 368 | | .4 | | 400 | | .4 | |
| | | | |
Retail commercial real estate (b) | 396 | | .4 | | 525 | | .5 | |
| | | | |
Nondurable retail (c) | 595 | | .6 | | 638 | | .6 | |
| | | | |
Travel/Tourism (d) | 2,440 | | 2.4 | | 2,523 | | 2.5 | |
Hotels | 767 | | .8 | | 784 | | .8 | |
| | | | |
Leveraged lending (e) | 1,674 | | 1.7 | | 1,700 | | 1.7 | |
| | | | |
Oil and gas | 1,792 | | 1.8 | | 1,992 | | 2.0 | |
Upstream (reserve based) | 1,141 | | 1.1 | | 1,263 | | 1.2 | |
Midstream | 389 | | .4 | | 468 | | .5 | |
Downstream | 58 | | .1 | | 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 11 provides our commercial loan portfolios by industry classification at March 31, 2021, and December 31, 2020.
Figure 11. Commercial Loans by Industry
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2021 | Commercial and industrial | | Commercial real estate | | Commercial lease financing | | Total commercial loans | | Percent of total |
dollars in millions | | | | |
Industry classification: | | | | | | | | | |
Agriculture | $ | 958 | | | $ | 129 | | | $ | 97 | | | $ | 1,184 | | | 1.7 | % |
Automotive | 1,672 | | | 509 | | | 17 | | | 2,198 | | | 3.1 | |
Business products | 1,561 | | | 128 | | | 43 | | | 1,732 | | | 2.4 | |
Business services | 3,942 | | | 218 | | | 204 | | | 4,364 | | | 6.1 | |
Chemicals | 761 | | | 32 | | | 29 | | | 822 | | | 1.2 | |
Commercial real estate | 5,591 | | | 10,353 | | | 11 | | | 15,955 | | | 22.3 | |
Construction materials and contractors | 2,606 | | | 263 | | | 228 | | | 3,097 | | | 4.3 | |
Consumer discretionary | 3,744 | | | 489 | | | 258 | | | 4,491 | | | 6.3 | |
Consumer services | 5,883 | | | 906 | | | 490 | | | 7,279 | | | 10.2 | |
Equipment | 1,339 | | | 84 | | | 131 | | | 1,554 | | | 2.2 | |
Finance | 5,770 | | | 93 | | | 357 | | | 6,220 | | | 8.7 | |
Healthcare | 3,945 | | | 1,351 | | | 292 | | | 5,588 | | | 7.8 | |
Metals and mining | 1,076 | | | 51 | | | 25 | | | 1,152 | | | 1.6 | |
Oil and gas | 1,742 | | | 41 | | | 55 | | | 1,838 | | | 2.6 | |
Public exposure | 2,475 | | | 14 | | | 696 | | | 3,185 | | | 4.5 | |
Technology | 748 | | | 18 | | | 169 | | | 935 | | | 1.3 | |
Transportation | 1,431 | | | 130 | | | 603 | | | 2,164 | | | 3.0 | |
Utilities | 5,269 | | | — | | | 394 | | | 5,663 | | | 7.9 | |
Other | 1,973 | | | 15 | | | 5 | | | 1,993 | | | 2.8 | |
Total | $ | 52,486 | | | $ | 14,824 | | | $ | 4,104 | | | $ | 71,414 | | | 100.0 | % |
| | | | | | | | | |
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 | |
Commercial real estate | 5,966 | | | 10,187 | | | 11 | | | 16,164 | | | 22.5 | |
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 | |
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 | % |
| | | | | | | | | |
Commercial and industrial. Commercial and industrial loans are the largest component of our loan portfolio, representing 52% of our total loan portfolio at March 31, 2021, and 52% at December 31, 2020. This portfolio is approximately 71% variable rate and consists of loans originated primarily to large corporate, middle market, and small business clients.
Commercial and industrial loans totaled $52.5 billion at March 31, 2021, a decrease of $0.4 billion, or 0.8%, compared to December 31, 2020. The decline was broad-based and spread across most industry categories, reflecting continued declines in commercial line utilization rates, mostly offset by over $2 billion of additional lending related to the PPP during the first quarter of 2021.
Commercial real estate loans. Our commercial real estate portfolio 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 within the Commercial Bank 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 79% of total commercial real estate loans outstanding at March 31, 2021. 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 period end.
At March 31, 2021, commercial real estate loans totaled $14.8 billion, which includes $12.7 billion of mortgage loans and $2.1 billion of construction loans. Compared to December 31, 2020, this portfolio increased $150 million, or 1.0%. The growth reflects an increase in construction loans as the impact of COVID-19 resulted in a decline in retail, office and hospitality lending. However, we continue to focus primarily on owners of completed and stabilized commercial real estate in accordance with our relationship strategy.
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 | | Total | Percent of Total | Construction | Commercial Mortgage |
dollars in millions | West | Southwest | Central | Midwest | Southeast | Northeast | National |
March 31, 2021 | | | | | | | | | | | |
Nonowner-occupied: | | | | | | | | | | | |
Retail properties | $ | 119 | | $ | 15 | | $ | 127 | | $ | 120 | | $ | 71 | | $ | 434 | | $ | 125 | | $ | 1,011 | | 6.8 | % | $ | 55 | | $ | 956 | |
Multifamily properties | 658 | | 271 | | 988 | | 820 | | 1,348 | | 1,493 | | 161 | | 5,739 | | 38.7 | | 1,559 | | 4,180 | |
Health facilities | 87 | | 49 | | 81 | | 87 | | 170 | | 479 | | 293 | | 1,246 | | 8.4 | | 106 | | 1,140 | |
Office buildings | 287 | | — | | 272 | | 144 | | 230 | | 597 | | 131 | | 1,661 | | 11.2 | | 43 | | 1,618 | |
Warehouses | 53 | | 30 | | 66 | | 18 | | 66 | | 268 | | 120 | | 621 | | 4.2 | | 65 | | 556 | |
Manufacturing facilities | 41 | | — | | 28 | | 20 | | 40 | | 34 | | 47 | | 210 | | 1.4 | | 15 | | 195 | |
Hotels/Motels | 75 | | — | | 19 | | — | | 12 | | 110 | | 91 | | 307 | | 2.1 | | 19 | | 288 | |
Residential properties | — | | — | | — | | 3 | | — | | 47 | | — | | 50 | | .4 | | — | | 50 | |
Land and development | 18 | | 5 | | — | | 2 | | 5 | | 28 | | — | | 58 | | .4 | | 35 | | 23 | |
Other | 125 | | 21 | | 6 | | 99 | | 67 | | 241 | | 305 | | 864 | | 5.8 | | 65 | | 799 | |
Total nonowner-occupied | 1,463 | | 391 | | 1,587 | | 1,313 | | 2,009 | | 3,731 | | 1,273 | | 11,767 | | 79.4 | | 1,962 | | 9,805 | |
Owner-occupied | 960 | | 1 | | 277 | | 488 | | 60 | | 1,271 | | — | | 3,057 | | 20.6 | | 160 | | 2,897 | |
Total | $ | 2,423 | | $ | 392 | | $ | 1,864 | | $ | 1,801 | | $ | 2,069 | | $ | 5,002 | | $ | 1,273 | | 14,824 | | 100.0 | % | $ | 2,122 | | $ | 12,702 | |
| | | | | | | | | | | |
Nonperforming loans | $ | 1 | | — | | — | | $ | 8 | | $ | 4 | | $ | 23 | | $ | 29 | | $ | 65 | | N/M | $ | — | | $ | 65 | |
Accruing loans past due 90 days or more | 1 | | — | | — | | 1 | | 3 | | 21 | | — | | 26 | | N/M | — | | 26 | |
Accruing loans past due 30 through 89 days | 5 | | $ | — | | $ | 12 | | 3 | | — | | 20 | | — | | 40 | | N/M | 10 | | 30 | |
| | | | | | | | | | | |
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 | |
| | | | | | | | | | | |
Nonperforming loans | $ | 1 | | — | | — | | $ | 7 | | $ | 6 | | $ | 44 | | $ | 44 | | $ | 103 | | N/M | $ | 2 | | $ | 85 | |
Accruing loans past due 90 days or more | — | | — | | — | | 1 | | — | | 22 | | — | | 22 | | N/M | 1 | | 12 | |
Accruing loans past due 30 through 89 days | 3 | | — | | — | | 2 | | 3 | | 7 | | — | | 14 | | 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 as of March 31, 2021 totaled $29.5 billion, an increase of $0.3 billion, or 1.1%, from December 31, 2020, driven by growth from the consumer mortgage business and Laurel Road, partly offset by the runoff of indirect auto loans.
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 31% of consumer loans outstanding at March 31, 2021.
We held the first lien position for approximately 68% of the home equity portfolio at March 31, 2021, and 66% at December 31, 2020. 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 updated loan-to-value ratios. This information is used in establishing the ALLL. Our methodology is described in Note 1 (“Basis of Presentation and Accounting Policies”) under the heading “Allowance for Loan and Lease Losses” of this report.
Figure 13. Consumer Loans by State
| | | | | | | | | | | | | | | | | | | | |
in millions | Real estate — residential mortgage | Home equity loans | Consumer direct loans | Credit cards | Consumer indirect loans | Total |
March 31, 2021 | | | | | | |
New York | $ | 1,150 | | $ | 2,545 | | $ | 586 | | $ | 323 | | $ | 642 | | $ | 5,246 | |
Ohio | 732 | | 1,362 | | 476 | | 201 | | 856 | | 3,627 | |
Washington | 2,141 | | 1,237 | | 227 | | 80 | | 18 | | 3,703 | |
Pennsylvania | 290 | | 642 | | 261 | | 49 | | 481 | | 1,723 | |
California | 807 | | 13 | | 332 | | 3 | | 17 | | 1,172 | |
Texas | 84 | | 7 | | 263 | | 3 | | 9 | | 366 | |
Colorado | 899 | | 317 | | 145 | | 28 | | 5 | | 1,394 | |
Connecticut | 881 | | 345 | | 91 | | 23 | | 124 | | 1,464 | |
Oregon | 756 | | 767 | | 98 | | 39 | | 3 | | 1,663 | |
Florida | 364 | | 57 | | 250 | | 12 | | 29 | | 712 | |
Other | 2,196 | | 1,866 | | 2,133 | | 148 | | 2,099 | | 8,442 | |
Total | $ | 10,300 | | $ | 9,158 | | $ | 4,862 | | $ | 909 | | $ | 4,283 | | $ | 29,512 | |
| | | | | | |
| | | | | | |
December 31, 2020 | | | | | | |
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 | 286 | | 648 | | 255 | | 52 | | 539 | | 1,780 | |
California | 516 | | 14 | | 303 | | 4 | | 19 | | 856 | |
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 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Figure 14 summarizes our loan sales for the first three months of 2021 and all of 2020.
Figure 14. Loans Sold (Including Loans Held for Sale)
| | | | | | | | | | | | | | | | | | | | |
in millions | Commercial | Commercial Real Estate | Commercial Lease Financing | Residential Real Estate | Consumer Direct | Total |
2021 | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
First quarter | $ | 124 | | $ | 1,930 | | $ | 156 | | $ | 1,129 | | $ | — | | $ | 3,339 | |
Total | $ | 124 | | $ | 1,930 | | $ | 156 | | $ | 1,129 | | $ | — | | $ | 3,339 | |
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 | |
| | | | | | |
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
| | | | | | | | | | | | | | | | | |
in millions | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 |
Commercial real estate loans | $ | 386,908 | | $ | 371,016 | | $ | 380,110 | | $ | 357,509 | | $ | 354,919 | |
Residential mortgage | 8,838 | | 8,311 | | 7,670 | | 6,922 | | 6,405 | |
Education loans | 489 | | 516 | | 540 | | 567 | | 594 | |
Commercial lease financing | 1,371 | | 1,359 | | 1,273 | | 1,126 | | 1,029 | |
Commercial loans | 695 | | 684 | | 652 | | 623 | | 614 | |
Consumer direct | 1,109 | | 1,711 | | 1,966 | | 1,710 | | 1,999 | |
Total | $ | 399,410 | | $ | 383,597 | | $ | 392,211 | | $ | 368,457 | | $ | 365,560 | |
| | | | | |
In the event of default by a borrower, we are subject to recourse with respect to approximately $6.0 billion of the $399.4 billion of loans administered or serviced at March 31, 2021. Additional information about this recourse arrangement is included in Note 17 (“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 8 (“Mortgage Servicing Assets”).
Securities
Our securities portfolio totaled $40.8 billion at March 31, 2021, compared to $35.2 billion at December 31, 2020. Available-for-sale securities were $33.9 billion at March 31, 2021, compared to $27.6 billion at December 31, 2020. Held-to-maturity securities were $6.9 billion at March 31, 2021, and $7.6 billion at December 31, 2020.
As shown in Figure 16, 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 amortized cost for the held-to-maturity portfolio. For more information about these securities, see Note 1 (“Basis of Presentation and Accounting Policies”), Note 5 (“Fair Value Measurements”) under the heading “Qualitative Disclosures of Valuation Techniques,” and Note 6 (“Securities”).
Figure 16. Mortgage-Backed Securities by Issuer
| | | | | | | | |
in millions | March 31, 2021 | December 31, 2020 |
FHLMC | $ | 8,969 | | $ | 8,782 | |
FNMA | 15,414 | | 13,213 | |
GNMA | 11,442 | | 12,109 | |
Total (a) | $ | 35,825 | | $ | 34,104 | |
| | |
(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.
Figure 17 shows the composition, 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 6 (“Securities”).
Figure 17. 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) | Agency Commercial Mortgage-backed Securities (a) | Other Securities | Total | Weighted-Average Yield (b) |
March 31, 2021 | | | | | | | | |
Remaining maturity: | | | | | | | | |
One year or less | $ | — | | — | | $ | 878 | | $ | 3 | |