01—Abstract
Summary
Summary of the 10-K filed February 27, 2012. Cited figures are marked; the original filing is the authoritative source.
KeyCorp, organized in 1958 under Ohio law and headquartered in Cleveland, is a bank holding company with consolidated total assets of $89 billiona at December 31, 2011.
Its principal subsidiary, KeyBank, operates through two segments, Key Community Bank and Key Corporate Bank, with 1,058 full-service branches in 14 states and 15,381 average full-time equivalent employees for 2011. The filing reports that KeyCorp returned to profitability in 2010 and remained profitable throughout 2011, with net income attributable to Key of $920 millionb for 2011 and net income attributable to Key common shareholders of $813 million, or $.87 per diluted common share. Income from continuing operations attributable to Key common shareholders was $857 million, or $.92 per common share, compared with $413 million, or $.47, in 2010.
The improvement was attributed mainly to lower credit costs, with a negative provision for loan and lease losses of $60 millionc in 2011 versus a $638 million provision in 2010. Asset quality improved during 2011. Net loan charge-offs fell to $541 million, or 1.11% of average loans, from $1.6 billion, or 2.91%, in 2010.
Nonperforming loans declined to $727 million, and nonperforming assets to $859 milliond. The allowance for loan and lease losses was $1.0 billion, or 2.03% of period-end loans. Capital ratios were strong, with a Tier 1 common equity ratio of 11.26% and a tangible common equity ratio of 9.88%.
Management reported a net interest margin of 3.16% for 2011, down ten basis points, and an efficiency ratio of 68%, while the company remains focused on the long-term goals it lists, including a return on average assets of 1.00% to 1.25%. Key risks flagged in the filing include the Dodd-Frank Act and Basel III capital and liquidity rules, which will phase out trust preferred securities as Tier 1 capital starting January 1, 2013.
Other risks include the European sovereign debt crisis, a slow U.S. economic recovery, commercial real estate exposure, and pending litigation tied to Austin Capital Management (Madoff-related claims of up to approximately $186 million in investment losses). The company also announced a January 2012 agreement to acquire 37 retail branches in Buffalo and Rochester, New York, with approximately $2.4 billion in deposits and $400 million in loans, and it has submitted a 2012-2013 capital plan that is still under Federal Reserve review.
02—Key points
Key Highlights
- Net income attributable to Key of $920 million for 2011, up from $554 million in 2010; net income attributable to Key common shareholders was $813 million, or $.87 per diluted share.
- Income from continuing operations attributable to Key common shareholders was $857 million, or $.92 per common share, versus $413 million, or $.47, in 2010.
- Provision for loan and lease losses was a credit of $60 million in 2011, compared with a $638 million provision in 2010.
- Net loan charge-offs declined to $541 million, or 1.11% of average loans, from $1.6 billion, or 2.91%, in 2010; nonperforming loans fell to $727 million.
- Tier 1 common equity ratio was 11.26% at December 31, 2011, up from 9.34% a year earlier; tangible common equity to tangible assets was 9.88%.
- Net interest margin from continuing operations was 3.16% for 2011, down ten basis points from 2010; the efficiency ratio was 68%.
- Agreed in January 2012 to acquire 37 retail branches in Buffalo and Rochester, New York, with about $2.4 billion in deposits and $400 million in loans; closing expected late in the second quarter or early third quarter of 2012.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 27, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Operating Income | $955.00M$577.00M | +65.5% |
| Interest Expense | $622.00M$897.00M | −30.7% |
| Net Income | $920.00M$554.00M | +66.1% |
| EPS (Basic) | $0.87$0.45 | +93.3% |
| EPS (Diluted) | $0.87$0.44 | +97.7% |
| Shares Outstanding (Basic) | 931.93M874.75M | +6.5% |
| Shares Outstanding (Diluted) | 935.80M878.15M | +6.6% |
05—Questions
Frequently Asked Questions
How did KeyCorp's profitability and credit costs change in 2011?
Net income attributable to Key was $920 million in 2011, compared with $554 million in 2010. The company recorded a negative provision for loan and lease losses of $60 million in 2011, versus a $638 million provision in 2010, which the filing cites as the main driver of the earnings improvement along with expense control.
How strong is KeyCorp's capital position under current and proposed rules?
At December 31, 2011, the Tier 1 common equity ratio was 11.26%, the Tier 1 risk-based capital ratio was 12.99%, and the total risk-based capital ratio was 16.51%. KeyBank was well capitalized under prompt corrective action standards. The filing states that Dodd-Frank and Basel III will phase out trust preferred securities as Tier 1 capital beginning January 1, 2013, and that the company expects to satisfy the Basel III framework when U.S. rules are finalized.
What are the main litigation and regulatory risks disclosed?
The filing discloses Austin-related claims, including Madoff-related lawsuits and an arbitration, over investment losses of up to approximately $186 million at Austin's funds. Management said it could not determine whether these matters would have a material adverse effect, and noted the company believes any liability should be covered by insurance subject to a $25 million self-insurance deductible. Other items include a checking account overdraft class action against KeyBank and the Dodd-Frank Act's impact on debit interchange revenue, estimated at an annualized decline of $50 million to $60 million.
What did KeyCorp do with the TARP preferred stock and common shares in 2011?
KeyCorp completed the repurchase of $2.5 billion of Series B Preferred Stock and the related warrant issued to the U.S. Treasury. The company paid $2.867 billion to the Treasury over the investment period, a $367 million return above the initial investment. In March 2011 it also completed a $625 million public offering of 70,621,470 common shares at $8.85 per share and issued $1 billion of 5.1% senior medium-term notes. The quarterly common dividend was raised to $.03 per share in May 2011.
What is the outlook for 2012 described in the filing?
Management expects the net interest margin to show modest improvement in 2012 as funding costs decline. It anticipates continued improvement in asset quality, with lower nonperforming assets and net charge-offs for the year, and expects the provision to be less than net charge-offs in 2012, though it expects the provision to move closer to net charge-offs as loan growth continues. The company plans to build about 20 new branches in 2012, compared with 40 in 2011, and is awaiting Federal Reserve results on its 2012-2013 capital plan.
06—Continue