DBRS Morningstar Confirms KeyCorp at ‘A’; Trend Stable

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of KeyCorp (KEY or the Company), including the Company’s Long-Term Issuer Rating of ‘A’. At the same time, DBRS Morningstar confirmed the ratings of its primary banking subsidiary, KeyBank, N.A. (the Bank). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is A (high), while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
KEY’s ratings and Stable trend reflect its diversified and strong banking franchise, which includes a retail banking presence in 15 states, a focused national consumer business and a corporate banking presence targeting specific industry verticals. Overall, the business mix results in strong pre-provision profitability, including a high level of non-interest income. The ratings are also supported by KEY’s strong balance sheet, including ample core deposit funding and liquidity, as well as sound capital levels.

The ratings also consider the current operating environment with low-interest rates that have adversely affected KEY’s net interest margin and the expectation that asset quality metrics will likely worsen from their current unsustainably low levels.

RATING DRIVERS
Over the longer term, further strengthening of the franchise, and a sustained improvement in operating earnings performance, while maintaining a similar risk profile, would result in an upgrade of the ratings. Conversely, a sustained weakening of profitability metrics, or an outsized increase in credit losses, would result in a ratings downgrade.

RATING RATIONALE

Franchise Combined Building Block (BB) Assessment: Strong/Good
KEY ranks as the 14th largest U.S. depository (by deposits) and holds strong deposit market shares in a number of markets across its franchise. Beyond traditional banking products, KEY also has a strong investment banking franchise, a differentiator compared to many regional bank competitors.

Earnings Combined Building Block (BB) Assessment: Strong
KEY’s earnings are highly diversified by geography and segment with approximately 40% of revenues derived from non-interest income. While earnings were negatively impacted by reserve building during the first half of 2020, revenues were higher driven by volume growth and a good performance from KEY’s varied sources of non-interest income. Earnings have strongly rebounded in 2021 as the Company has reversed provisions reflecting the improved economic outlook. Boosted by this improvement, KEY reported net income of nearly $2.0 billion for 9M2021, equating to a strong 1.50% ROAA, and up substantially from the $681 million earned in 9M2020.

Risk Combined Building Block (BB) Assessment: Strong
KEY’s asset quality remains sound, and the loan portfolio is fairly granular and well-diversified. While we expect some worsening in asset quality metrics from the current very low levels, previous steps to reduce exposure to some riskier segments, including CRE and construction, should help KEY outperform through the credit cycle.

Funding and Liquidity Combined Building Block (BB) Assessment: Strong
KEY has ample core deposit funding, which readily funds the loan portfolio. Additionally, KEY has access to other funding sources and maintains strong levels of on balance sheet liquidity.

Capitalisation Combined Building Block (BB) Assessment: Strong
Capital levels are sound and the Company generates strong levels of capital through earnings. The Company is expected to manage capital to its targeted CET1 range of 9.0% to 9.5% over time.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/387412.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (July 19, 2021): https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021): https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

The primary sources of information used for this rating include Company Documents, and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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