01—Abstract
Summary
Summary of the 10-K filed February 28, 2017. Cited figures are marked; the original filing is the authoritative source.
KeyCorp, organized in 1958 under Ohio law and headquartered in Cleveland, reported consolidated total assets of $136.5 billiona at December 31, 2016.
Its results for 2016 were shaped by the August 1, 2016 merger with First Niagara, which contributed approximately $23 billionb of period-end loans and $27.3 billion of period-end deposits, and by merger-related charges. Income from continuing operations attributable to Key common shareholders was $753 million, or $.80 per common share (assuming dilution), compared with $892 million, or $1.05, in 2015. Noninterest expense rose to $3.76 billion, including $465 million of merger-related charges, and the cash efficiency ratio was 73.7%, compared with a long-term target below 60%.
Revenue grew: net interest income was $2.919 billionc, up from $2.348 billion, and noninterest income was $2.071 billion, up 10.2%. Credit quality remained solid, with net loan charge-offs of .29% of average loans and nonperforming loans of $625 million, or .73% of period-end loans, up from $387 million. Capital ratios stayed above requirements, with a Common Equity Tier 1 ratio of 9.54% and a pro forma fully phased-in ratio of 9.43%.
The Board declared a $.085 quarterly dividend for the second through fourth quarters of 2016, and management said it will consider raising the dividend to up to $.095 in the second quarter of 2017. For 2017, management expects net interest income of $3.6 billion to $3.7 billiond, noninterest income of $2.3 billion to $2.4 billion, and noninterest expense of $3.65 billion to $3.75 billion, excluding merger-related charges. It also anticipates mid-single-digit average loan and deposit growth of 4% to 6%.
02—Key points
Key Highlights
- Total assets reached $136.5 billion at December 31, 2016, up from $95.1 billion, following the First Niagara acquisition completed August 1, 2016.
- The First Niagara acquisition, with total consideration of approximately $4.0 billion, was the largest in Key's history and added about 390 branch locations across New York, Pennsylvania, Connecticut and Massachusetts.
- Net income from continuing operations attributable to Key common shareholders fell to $753 million ($.80 per diluted share) from $892 million ($1.05) in 2015, reflecting $465 million of merger-related noninterest expense.
- Net interest income rose to $2.919 billion from $2.348 billion, and the net interest margin was 2.92% (taxable-equivalent), compared with 2.88% in 2015.
- Nonperforming loans increased to $625 million (.73% of period-end loans) from $387 million, driven mainly by credit migration in the oil and gas portfolio.
- Capital returned to shareholders included $133 million of common share repurchases in 2016 and a full-year dividend of $.33 per share, up 14% from 2015.
- The company expects 2017 net interest income of $3.6–$3.7 billion and noninterest income of $2.3–$2.4 billion, assuming one additional rate increase in mid-2017.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 28, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $5.02B$4.26B | +18.0% |
| Operating Income | $790.00M$915.00M | −13.7% |
| Interest Expense | $400.00M$274.00M | +46.0% |
| Net Income | $791.00M$916.00M | −13.6% |
| EPS (Basic) | $0.81$1.06 | −23.6% |
| EPS (Diluted) | $0.80$1.05 | −23.8% |
| Shares Outstanding (Basic) | 927.82M836.85M | +10.9% |
| Shares Outstanding (Diluted) | 938.54M844.49M | +11.1% |
05—Questions
Frequently Asked Questions
How did the First Niagara acquisition affect KeyCorp's 2016 results?
The acquisition, completed August 1, 2016, contributed approximately $23 billion of period-end loans, $9 billion of investment securities and $27.3 billion of period-end deposits. It drove much of the increase in net interest income, noninterest income and noninterest expense, and produced $465 million of merger-related noninterest expense in 2016.
Why did earnings per share decline in 2016?
Income from continuing operations attributable to Key common shareholders fell to $753 million, or $.80 per diluted share, from $892 million, or $1.05. Merger-related charges, which the filing says reduced 2016 results by $.33 per share, were the main driver, while revenue growth partly offset them.
What are KeyCorp's capital and dividend positions?
At December 31, 2016, the Common Equity Tier 1 ratio was 9.54%, the Tier 1 risk-based capital ratio was 10.89% and the total risk-based capital ratio was 12.85%, all above regulatory requirements. The quarterly common dividend was $.085 for the second through fourth quarters of 2016, and the Board will consider raising it to up to $.095 in the second quarter of 2017.
How is credit quality trending?
Net loan charge-offs were $205 million, or .29% of average loans, compared with .24% in 2015. Nonperforming loans rose to $625 million (.73% of period-end loans), mainly from oil and gas loans in commercial, financial and agricultural. The allowance for loan and lease losses was $858 million, or 1.00% of period-end loans, and covered 137% of nonperforming loans.
What outlook did management provide for 2017?
Management expects net interest income of $3.6–$3.7 billion, noninterest income of $2.3–$2.4 billion, and noninterest expense of $3.65–$3.75 billion, excluding merger-related charges. It anticipates average loan and deposit growth of 4% to 6% and expects net loan charge-offs to remain below its 40–60 basis point target range.
06—Continue