01—Abstract
Summary
Summary of the 10-K filed February 24, 2016. Cited figures are marked; the original filing is the authoritative source.
KeyCorp (KEY), headquartered in Cleveland, Ohio, reported total assets of $95.1 billiona at December 31, 2015, operating through two major segments, Key Community Bank and Key Corporate Bank, with 966 full-service retail branches across 12 states.
For 2015, income from continuing operations attributable to Key common shareholders was $892 millionb, or $1.05 per diluted common share, compared with $917 million, or $1.04, in 2014. Net interest income was $2.348 billion and noninterest income rose 4.6% to $1.88 billion, while noninterest expense increased 2.9% to $2.84 billion. The provision for credit losses rose to $166 million from $57 million, reflecting loan growth and lower recoveries, though net loan charge-offs remained at .24% of average loans.
Capital ratios remained strong, with an estimated Common Equity Tier 1 ratio of 10.94% under the current rules and a Tier 1 risk-based capital ratio of 11.35%. KeyCorp repurchased $460 millionc of common shares during 2015, but suspended its 2015 capital plan repurchase program in the fourth quarter due to the pending acquisition of First Niagara. The quarterly common dividend increased to $.075 per share during 2015, with an additional potential increase to $.085 per share under consideration for 2016.
The dominant event for investors is the October 30, 2015 agreement to acquire First Niagara Financial Group, Inc., in which each First Niagara common share converts into 0.680 of a KeyCorp share plus $2.30d in cash; the filing values the consideration at approximately $4.1 billion and expects closing in the third quarter of 2016, subject to regulatory and shareholder approvals. S&P and Fitch affirmed KeyCorp's ratings but revised the outlook to negative, and Moody's placed the ratings under review for downgrade.
02—Key points
Key Highlights
- Net income attributable to Key was $916 million in 2015, compared with $900 million in 2014; diluted EPS from continuing operations was $1.05 versus $1.04.
- Noninterest income rose $83 million, or 4.6%, to $1.88 billion, led by investment banking and debt placement fees, which reached a record $445 million.
- Average loans totaled $58.6 billion in 2015 versus $55.7 billion in 2014; nonperforming loans declined to $387 million, or .65% of period-end loans.
- The allowance for loan and lease losses was $796 million, or 1.33% of period-end loans, and covered 205.7% of nonperforming loans.
- Common Equity Tier 1 ratio was 10.94% at December 31, 2015, and the estimated fully phased-in ratio was 10.84%; all capital ratios exceeded regulatory requirements.
- Pending First Niagara acquisition valued at approximately $4.1 billion, expected to close in the third quarter of 2016; repurchases were suspended in Q4 2015 pending the merger.
- Rating agencies reacted to the First Niagara deal: S&P and Fitch affirmed ratings with negative outlooks, while Moody's placed KeyCorp under review for downgrade.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 24, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $4.26B$4.11B | +3.5% |
| Operating Income | $915.00M$939.00M | −2.6% |
| Interest Expense | $274.00M$261.00M | +5.0% |
| Net Income | $916.00M$900.00M | +1.8% |
| EPS (Basic) | $1.06$1.01 | +5.0% |
| EPS (Diluted) | $1.05$0.99 | +6.1% |
| Shares Outstanding (Basic) | 836.85M871.46M | −4.0% |
| Shares Outstanding (Diluted) | 844.49M878.20M | −3.8% |
05—Questions
Frequently Asked Questions
How did KeyCorp perform financially in 2015?
Income from continuing operations attributable to Key common shareholders was $892 million, or $1.05 per diluted share, versus $917 million, or $1.04, in 2014. Net interest income rose to $2.348 billion from $2.293 billion, and noninterest income increased 4.6% to $1.88 billion. Noninterest expense rose 2.9% to $2.84 billion, and the provision for credit losses increased to $166 million from $57 million.
What are the key terms of the First Niagara acquisition?
Under the October 30, 2015 merger agreement, each First Niagara common share will convert into 0.680 of a KeyCorp common share and $2.30 in cash, with a fixed exchange ratio. The filing values total consideration at approximately $4.1 billion and expects completion in the third quarter of 2016, subject to regulatory approvals and shareholder votes at both companies.
How strong is KeyCorp's capital position?
At December 31, 2015, the estimated Common Equity Tier 1 ratio was 10.94% under current rules and 10.84% on a fully phased-in basis. The Tier 1 risk-based capital ratio was 11.35%, total risk-based capital was 12.97%, and the leverage ratio was 10.72%. The filing states that all capital ratios exceeded regulatory requirements.
What is happening with share repurchases and dividends?
KeyCorp repurchased $460 million of common shares in 2015 under its 2014 and 2015 capital plans, but suspended the 2015 program in the fourth quarter due to the pending First Niagara merger. The quarterly dividend rose from $.065 to $.075 per share during 2015, bringing the 2015 annual dividend to $.29, and the Board will consider a possible increase to up to $.085 in 2016.
What credit trends should investors note?
Asset quality remained solid: net loan charge-offs were $142 million, or .24% of average loans, and nonperforming loans declined to $387 million from $418 million. The provision rose due to loan growth and lower recoveries. Oil and gas exposure, about 2% of total loans, saw nonperforming loans rise to .54% of that portfolio, and the filing notes commodity price declines since 2014 raised incurred loss estimates.
06—Continue