01—Abstract
Summary
Summary of the 10-K filed February 26, 2013. Cited figures are marked; the original filing is the authoritative source.
KeyCorp (KEY) reported its 2012 annual results on Form 10-K filed February 26, 2013.
The company, a bank holding company headquartered in Cleveland with consolidated total assets of $89.2 billiona at December 31, 2012, earned net income attributable to Key of $858 million for 2012, or $.89 per common share, compared to $920 million in 2011. Income from continuing operations attributable to Key common shareholders was $827 million, or $.88 per share. Net interest income was flat at $2.26 billion, while noninterest income rose 8.8% to $1.97 billion, and noninterest expense rose 4.2% to $2.91 billion.
The company's provision for loan and lease losses was $229 millionb, compared with a credit of $60 million in 2011, but net loan charge-offs fell to $345 million (.69% of average loans) from $541 million. Asset quality continued to improve, with nonperforming loans declining to $674 million (1.28% of period-end loans) and the allowance for loan and lease losses at $888 million (1.68% of loans). Capital ratios remained strong, with a Tier 1 common equity ratio of 11.36% and a Tier 1 risk-based capital ratio of 12.15%.
The company returned approximately 50% of net income to shareholders through dividends and share repurchases, and it used its capital to acquire 37 branches in Western New York and Elan Financial's Key-branded credit card assets in 2012. Key also noted that the Federal Reserve's 2013 CCAR review and the phase-in of Basel III and Dodd-Frank capital rules are key near-term uncertainties, and it disclosed an agreement announced February 21, 2013 to sell its Victory Capital Management business for $246 millionc.
02—Key points
Key Highlights
- Net income attributable to Key of $858 million for 2012 ($.89 per common share), down from $920 million in 2011.
- Net interest income of $2.26 billion, flat versus 2011; net interest margin (TE) of 3.21% versus 3.16% in 2011.
- Noninterest income rose $159 million, or 8.8%, to $1.97 billion, led by gains on leased equipment, loan sales and other income.
- Net loan charge-offs fell to $345 million (.69% of average loans) from $541 million (1.11%) in 2011; nonperforming loans declined to $674 million.
- Tier 1 common equity ratio of 11.36% at December 31, 2012, versus 11.26% a year earlier; Tier 1 risk-based capital ratio of 12.15%.
- Dividends were raised to $.05 per common share per quarter from $.03, and the company returned approximately 50% of 2012 net income to shareholders through dividends and repurchases.
- Subsequent event: agreement announced February 21, 2013 to sell Victory Capital Management and Victory Capital Advisors for $246 million, with an estimated after-tax gain of $145 million to $155 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 26, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Operating Income | $835.00M$955.00M | −12.6% |
| Interest Expense | $441.00M$622.00M | −29.1% |
| Net Income | $858.00M$920.00M | −6.7% |
| EPS (Basic) | $0.89$0.87 | +2.3% |
| EPS (Diluted) | $0.89$0.87 | +2.3% |
| Shares Outstanding (Basic) | 938.94M931.93M | +0.8% |
| Shares Outstanding (Diluted) | 943.26M935.80M | +0.8% |
05—Questions
Frequently Asked Questions
How did KeyCorp's earnings and profitability change in 2012?
Net income attributable to Key was $858 million, or $.89 per share, versus $920 million in 2011. Income from continuing operations attributable to Key common shareholders was $827 million, or $.88 per share, compared with $857 million, or $.92, in 2011. Revenue growth in noninterest income was offset by a higher provision for loan and lease losses ($229 million versus a $60 million credit in 2011) and higher noninterest expense.
What is the state of KeyCorp's credit quality?
Credit quality continued to improve. Net loan charge-offs were $345 million, or .69% of average loans, down from $541 million, or 1.11%, in 2011. Nonperforming loans fell to $674 million, or 1.28% of period-end loans, and the allowance for loan and lease losses was $888 million, or 1.68% of loans, covering 131.75% of nonperforming loans.
How strong is KeyCorp's capital position and what are the regulatory risks?
At December 31, 2012, the Tier 1 common equity ratio was 11.36%, the Tier 1 risk-based capital ratio was 12.15%, and the total risk-based capital ratio was 15.13%. The filing states Key expects to satisfy the Basel III capital framework once U.S. rules are finalized. Key's 2013 capital plan is under Federal Reserve CCAR review, with results due March 14, 2013, and until the Federal Reserve has no objection, Key cannot take further capital actions beyond the first quarter of 2013.
What strategic actions did KeyCorp take during 2012?
Key acquired 37 retail branches in Western New York on July 13, 2012, adding approximately $2 billion in assets and deposits, and acquired Key-branded credit card assets from Elan Financial Services on August 1, 2012 for approximately $718 million. It also redeemed trust preferred securities totaling about $707 million in July 2012 and committed to lend $5 billion to small and medium-sized businesses by the end of 2014, a pledge it had already met.
What did KeyCorp say about its outlook and pending transactions?
Key expects its net interest margin to be in the 3.30% range in the first quarter of 2013, with continued downward pressure of one to three basis points per quarter thereafter. It expects average total loans to grow in the mid to upper single digit range in 2013 and net charge-offs and provision expense to remain within its 40 to 60 basis point target range. It also announced on February 21, 2013 an agreement to sell Victory Capital Management for $246 million, expected to close in the third quarter of 2013.
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