KeyCorp 10-Q 2024-09-30

UNITED 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 September 30, 2024

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:

(216) 689-3000

Registrant’s telephone number, including area code:

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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.

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.

KEYCORP

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Introduction

This section reviews the financial condition and results of operations of KeyCorp and its subsidiaries for the quarterly periods ended September 30, 2024, and September 30, 2023. 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 “2023 Form 10-K” refer to our Form 10-K for the year ended December 31, 2023, 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 solely to KeyCorp’s subsidiary bank, KeyBank National Association. “KeyBank (consolidated)” refers to the consolidated entity consisting of KeyBank and its subsidiaries.

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 are accounted for as discontinued operations.

• 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 (to accommodate clients’ needs).

• 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.

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,” “will,” “would,” “should,” “could,” 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

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Consolidated Balance Sheets

(a)Total loans held for sale include real estate — residential mortgage loans held for sale at fair value of $61 million at September 30, 2024, and $51 million at December 31, 2023.

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Income

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The information presented in the “Market risk management” section of the Management’s Discussion & Analysis of Financial Condition & Results of Operations is incorporated herein by reference.

As of the end of the period covered by this report, KeyCorp carried out an evaluation, under the supervision and with the participation of KeyCorp’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of KeyCorp’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), to ensure that information required to be disclosed by KeyCorp in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to KeyCorp’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. Based upon that evaluation, KeyCorp’s Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective, in all material respects, as of the end of the period covered by this report. No changes were made to KeyCorp’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the last quarter that materially affected, or are reasonably likely to materially affect, KeyCorp’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information presented in the Legal Proceedings section of Note 17 (“Contingent Liabilities and Guarantees”) of the Notes to Consolidated Financial Statements (Unaudited) is incorporated herein by reference.

On at least a quarterly basis, we assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, we have not accrued legal reserves, consistent with applicable accounting guidance. Based on information currently available to us, advice of counsel, and available insurance coverage, we believe that our established reserves are adequate and the liabilities arising from the legal proceedings will not have a material adverse effect on our consolidated financial condition. We note, however, that in light of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution will not exceed established reserves. As a result, the outcome of a particular matter or a combination of matters may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.

For a discussion of certain risk factors affecting us, see the section titled “Supervision and Regulation” in Part I, Item 1. Business, on pages 11-24 of our 2023 Form 10-K; Part I, Item 1A. Risk Factors, on pages 25-41 of our 2023 Form 10-K; the sections titled “Supervision and regulation” and “Strategic developments” in this report; and our disclosure regarding forward-looking statements in this report. The additional risk factor set forth below represents a new risk that has become applicable since the filing of our 2023 Form 10-K.

Following the final purchase under the Investment Agreement, Scotiabank will hold a significant equity interest in our business and may exercise influence over us, including through its ability to designate up to two directors to KeyCorp’s Board of Directors. In addition, the Investment Agreement is accounted for as a financial instrument at fair value with changes in fair value recorded through earnings, which may have an adverse impact on our results of operations.

In August 2024, KeyCorp entered into an Investment Agreement with Scotiabank, pursuant to which Scotiabank agreed to purchase, in two closings, such number of KeyCorp’s Common Shares that, taken together with all other Common Shares then owned by Scotiabank and its affiliates, would represent approximately 14.9% of the issued

and outstanding Common Shares of KeyCorp on a post-transaction basis. The first closing occurred in August 2024 and Scotiabank currently holds approximately 4.9% of KeyCorp’s outstanding Common Shares. We cannot provide any assurance that the second closing under the Investment Agreement will occur in a timely manner, or at all. Following the second closing, Scotiabank is expected to hold approximately 14.9% of KeyCorp’s issued and outstanding Common Shares. In addition, under the Investment Agreement, following the second closing, Scotiabank will be entitled to designate up to two directors to KeyCorp’s Board of Directors, subject to specified minimum ownership requirements. As a result of the amount of Common Shares that will be held by Scotiabank, together with its director designation rights, Scotiabank may be able to influence our policies and operations and impact matters requiring shareholder approval. In addition, the existence of a large shareholder may have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other shareholders to approve transactions that they may deem to be in the best interests of our company. The interests of Scotiabank with respect to matters potentially or actually involving or affecting us and our other shareholders, such as future acquisitions, financings, and other corporate opportunities and attempts to acquire us, may conflict with the interests of our other shareholders.

In addition, because the exact number of shares to be issued by us to Scotiabank at the second closing is dependent on the total shares outstanding at the time of final purchase, equity classification of the Investment Agreement is precluded and, therefore, the Investment Agreement is accounted for as a financial instrument at fair value with changes in fair value recorded through earnings. As of September 30, 2024, the value of the financial instrument did not have a material impact to our results of operations or financial condition. As a result of the potential future volatility in the market price of our Common Shares used in the fair value estimation of the financial instrument, our financial statements and results of operations may fluctuate in future periods, based on various factors, many of which are outside of our control. Accordingly, we may recognize non-cash gains or losses on the financial instrument for each reporting period and the amount of such gains or losses could be material.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

From time to time, KeyCorp or its principal subsidiary, KeyBank, may seek to retire, repurchase, or exchange outstanding debt of KeyCorp or KeyBank, and capital securities or preferred stock of KeyCorp, through cash purchase, privately negotiated transactions, or otherwise. Such transactions, if any, depend on prevailing market conditions, our liquidity and capital requirements, contractual restrictions, and other factors. The amounts involved may be material.

We did not complete any open market share repurchases in the third quarter of 2024, and have no Board-approved repurchase authorizations outstanding.

During the third quarter of 2024, Key repurchased less than $1 million of shares related to equity compensation programs.

On August 30, 2024, KeyCorp issued 47,829,359 Common Shares for approximately $821 million in gross proceeds to Scotiabank pursuant to the first closing under the Investment Agreement, which was exempt from registration under the Securities Act of 1933, as amended, by virtue of the exemption provided by Section 4(a)(2) of the Securities Act.

The following table summarizes our repurchases of our Common Shares for the three months ended September 30, 2024. Refer to Note 19 (“Shareholders' Equity”) for more information regarding share repurchases made during the three and nine months ended September 30, 2024.

(a)Includes Common Shares deemed surrendered by employees in connection with our stock compensation and benefit plans to satisfy tax obligations. We did not complete any open market share repurchases in the third quarter of 2024.

No director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of KeyCorp adopted, modified,

or terminated any Rule 10b5-1 trading arrangement or any non-Rule 10b5-1 trading arrangement (as such terms

are defined in Item 408 of Regulation S-K of the Exchange Act) during the quarter ended September 30, 2024,

except as may be noted below. We do not permit the use of Rule 10b5-1 trading arrangements by our directors or

executive officers.

Certain of our directors or officers have made elections to participate in, and are participating in, our KeyCorp

Second Amended and Restated Discounted Stock Purchase Plan, our Long-Term Incentive Deferral Plan, our

Directors’ Deferred Share Sub-Plan, and the Dividend Reinvestment Plan and dividend reinvestment features under

various compensation plans and arrangements, and previously made elections to participate in KeyCorp common

stock funds that are now frozen but were previously available as an investment option under our Deferred Savings

Plan and KeyCorp 401(k) plan. By participating in these plans or stock funds, the directors or officers have made,

and/or may from time to time make, elections involving transactions in KeyCorp Common Shares which may be

designed to satisfy the affirmative defense conditions of Rule 10b5-1 under the Exchange Act or may constitute

non-Rule 10b5-1 trading arrangements (as such term is defined in Item 408(c) of Regulation S-K of the Exchange

Act).

Information Available on Website

KeyCorp makes available free of charge on its website, www.key.com, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports as soon as reasonably practicable after KeyCorp electronically files such material with, or furnishes it to, the SEC. We also make available a summary of filings made with the SEC of statements of beneficial ownership of our equity securities filed by our directors and officers under Section 16 of the Exchange Act. Information contained on or accessible through our website or any other website referenced in this report is not part of this report.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the date indicated.