01—Abstract
Summary
Summary of the 10-K filed February 24, 2011. Cited figures are marked; the original filing is the authoritative source.
KeyCorp (KEY), headquartered in Cleveland, Ohio, reported a return to profitability in 2010 after a large loss in 2009.
Net income attributable to Key was $554 milliona for 2010, compared with a net loss of $1.335 billion in 2009. Net income attributable to Key common shareholders was $390 million, or $.44 per diluted common share, compared with a loss of $2.34 per share in 2009. The company cites three consecutive profitable quarters, higher pre-provision net revenue, and a lower provision for loan and lease losses ($638 million in 2010 versus $3.159 billion in 2009).
Total assets were $91.8 billionb at December 31, 2010. Nonperforming assets fell to $1.338 billion from $2.510 billion, and the allowance for loan and lease losses declined to $1.604 billion from $2.534 billion. Capital and liquidity improved during the year.
The Tier 1 common equity ratio rose to 9.34% from 7.50%, and the Tier 1 risk-based capital ratio reached 15.16%. The company also cites a net interest margin of 3.26% for 2010, up 43 basis points, driven mainly by lower funding costs and a shift toward lower-cost deposits. The filing flags continuing risks, including a Moody's downgrade of KeyBank's ratings on November 1, 2010, the phase-out of trust preferred securities as Tier 1 capital starting January 1, 2013, the U.S. Treasury's $2.5 billionc Series B Preferred Stock and warrant, and the possibility of further commercial real estate deterioration.
The company also reports a planned leadership transition, with Beth E. Mooney set to become Chairman and CEO on May 1, 2011, and a multi-year cost program (Keyvolution) targeting $300 million to $375 milliond of run-rate savings by the end of 2012, with $228 million achieved as of December 31, 2010. Pending litigation includes shareholder derivative suits and an ERISA case, which the company says it intends to defend vigorously.
02—Key points
Key Highlights
- Net income attributable to Key of $554 million for 2010, versus a net loss of $1.335 billion in 2009; diluted EPS of $.44 versus a loss of $2.34.
- Provision for loan and lease losses fell to $638 million from $3.159 billion; net loan charge-offs were $1.6 billion, down $687 million.
- Nonperforming assets declined to $1.338 billion from $2.510 billion; the allowance for loan and lease losses was 3.20% of loans.
- Tier 1 common equity ratio rose to 9.34% from 7.50%; Tier 1 risk-based capital ratio was 15.16%; leverage ratio was 13.02%.
- Net interest margin improved to 3.26% from 2.83%, primarily from lower funding costs and a better deposit mix.
- Moody's downgraded KeyBank's short-term, senior long-term and subordinated ratings one notch on November 1, 2010, with escrow deposits of $1.50 to $1.85 billion needing to move in Q1 2011.
- Keyvolution savings reached $228 million toward a $300 million to $375 million run-rate goal by the end of 2012; Beth E. Mooney becomes Chairman and CEO on May 1, 2011.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 24, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Operating Income | $577.00M-$1.29B | +144.8% |
| Interest Expense | $897.00M$1.42B | −36.6% |
| Net Income | $554.00M-$1.33B | +141.5% |
| EPS (Basic) | $0.45$-2.34 | +119.2% |
| EPS (Diluted) | $0.44$-2.34 | +118.8% |
| Shares Outstanding (Basic) | 874.75M697.15M | +25.5% |
| Shares Outstanding (Diluted) | 878.15M697.15M | +26.0% |
05—Questions
Frequently Asked Questions
Did KeyCorp return to profitability in 2010?
Yes. The company reported net income attributable to Key of $554 million for 2010, compared with a net loss of $1.335 billion in 2009. Net income attributable to Key common shareholders was $390 million, or $.44 per diluted share. The company attributes the improvement to higher pre-provision net revenue and a lower provision for loan and lease losses, and notes three consecutive profitable quarters in 2010.
How did credit quality change in 2010?
Credit quality improved across most portfolios. The provision for loan and lease losses declined to $638 million from $3.159 billion. Nonperforming loans were $1.068 billion, or 2.13% of period-end portfolio loans, compared with 3.72% a year earlier. Nonperforming assets were $1.338 billion. The allowance for loan and lease losses was $1.604 billion, or 3.20% of loans, down from 4.31%.
What are the main risks flagged in the filing?
The filing highlights several risks: Moody's downgrade of KeyBank's ratings on November 1, 2010, which could raise funding costs; the phase-out of trust preferred securities as Tier 1 capital beginning January 1, 2013; the possibility that the U.S. Treasury's Series B Preferred Stock repurchase would require common equity issuance and cause dilution; continued weakness in commercial real estate, where values were down 42% from their peak; and restrictions on dividends from KeyBank, which could not pay dividends to KeyCorp in 2010 without regulatory approval.
What is the capital position after the Treasury investment?
As of December 31, 2010, Tier 1 risk-based capital was 15.16%, total risk-based capital was 19.12%, and the leverage ratio was 13.02%, all above the well-capitalized thresholds. The Tier 1 common equity ratio was 9.34%. The filing notes that the $2.5 billion Series B Preferred Stock held by the U.S. Treasury carries a 5% dividend that rises to 9% after five years unless redeemed, and that repurchasing it is subject to Federal Reserve and Treasury approval.
What changes in leadership and cost structure does the company describe?
Henry L. Meyer III will retire on May 1, 2011, and Beth E. Mooney, who was elected President and Chief Operating Officer, will become Chairman and Chief Executive Officer on that date. Separately, the Keyvolution cost program had achieved $228 million of its targeted $300 million to $375 million run-rate savings by the end of 2012. The company also plans to open 35 to 40 new branches in 2011.
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