01—Abstract
Summary
Summary of the 10-K filed February 26, 2018. 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 and one of the nation's largest bank-based financial services companies, with consolidated total assets of $137.7 billiona at December 31, 2017.
Its principal subsidiary, KeyBank, operates through two segments, Key Community Bank and Key Corporate Bank, with 1,197 full-service retail branches and 1,572 ATMs in 15 states. Net income attributable to Key for 2017 was $1.30 billionb, up from $791 million in 2016, though the filing notes that the Tax Cuts and Jobs Act increased the tax provision by $147 million, and that the 2017 year reflects the full-year impact of the First Niagara acquisition completed August 1, 2016. Key's 2017 results show growth in net interest income to $3.78 billion from $2.92 billion, with net interest margin (TE) of 3.17% versus 2.92% in 2016, and noninterest income of $2.48 billion versus $2.07 billion.
Noninterest expense rose to $4.10 billionc, including $217 million of merger-related charges. Return on average tangible common equity was 10.84% (13.14% excluding notable items), and the cash efficiency ratio was 63.5% (60.2% excluding notable items). Net loan charge-offs were .24% of average loans, and nonperforming loans declined to $503 million from $625 million.
Common Equity Tier 1 was 10.16% at year end, and the company repurchased $730 milliond of common shares during 2017. Looking ahead, management's 2018 guidance calls for net interest income of $3.9 billion to $4.0 billion, noninterest income of $2.5 billion to $2.6 billion, and noninterest expense of $3.85 billion to $3.95 billion, with a GAAP tax rate of 18% to 19%. Management also revised its long-term targets beginning in 2018 to a cash efficiency ratio of 54% to 56%, net loan charge-offs of .40% to .60% of average loans, and a return on tangible common equity of 15% to 18%.
02—Key points
Key Highlights
- Total assets of $137.7 billion at December 31, 2017, with total loans of $86.4 billion and total deposits of $105.2 billion.
- Net income attributable to Key of $1.30 billion in 2017 versus $791 million in 2016; diluted EPS from continuing operations was $1.12 versus $.80.
- Net interest margin (TE) rose to 3.17% from 2.92%, and TE net interest income reached $3.8 billion, reflecting the full-year First Niagara benefit and higher interest rates.
- Tax Cuts and Jobs Act increased the 2017 tax provision by $147 million, or 7.6%, and the effective tax rate was 33.0% versus 18.5% in 2016.
- Cash efficiency ratio excluding notable items improved to 60.2% from 64.3%, and over $400 million in annual run-rate cost savings from the First Niagara merger were reached in 2017.
- Common Equity Tier 1 ratio of 10.16% at year end, and the Federal Reserve did not object to the 2017 capital plan, which authorized up to $800 million of share repurchases.
- Quarterly common dividend increased through 2017 to $.105 per share in the fourth quarter, bringing the annual dividend to $.38; the 2017 capital plan proposed an increase up to $.12 per share for consideration in the second quarter of 2018.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 26, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $6.31B$5.02B | +25.6% |
| Operating Income | $1.29B$790.00M | +63.2% |
| Interest Expense | $613.00M$400.00M | +53.3% |
| Net Income | $1.30B$791.00M | +63.8% |
| EPS (Basic) | $1.14$0.81 | +40.7% |
| EPS (Diluted) | $1.13$0.80 | +41.2% |
| Shares Outstanding (Basic) | 1.07B927.82M | +15.5% |
| Shares Outstanding (Diluted) | 1.09B938.54M | +16.0% |
05—Questions
Frequently Asked Questions
How did KeyCorp's profitability change in 2017?
Net income attributable to Key rose to $1.30 billion in 2017 from $791 million in 2016. Income from continuing operations attributable to Key was $1.29 billion, up from $790 million. Return on average total assets was .96% versus .70%, and return on average common equity was 8.65% versus 6.26%. The filing attributes much of the increase to the full-year impact of the First Niagara acquisition, partly offset by the $147 million tax reform charge and $217 million of merger-related charges.
What drove the increase in net interest income?
Net interest income rose to $3.78 billion in 2017 from $2.92 billion in 2016. The filing cites the full-year benefit of the First Niagara acquisition, including purchase accounting accretion, higher interest rates, low deposit betas, and growth in core earning asset balances. Average loans totaled $86.4 billion versus $71.1 billion, and average deposits totaled $102.9 billion.
What are management's 2018 expectations?
For 2018, Key expects net interest income of $3.9 billion to $4.0 billion, assuming one additional rate increase in June 2018; noninterest income of $2.5 billion to $2.6 billion; and noninterest expense of $3.85 billion to $3.95 billion. The GAAP tax rate is expected to be 18% to 19%, and the provision for credit losses is expected to slightly exceed net loan charge-offs.
How is KeyCorp's capital position and shareholder return?
All capital ratios exceeded regulatory requirements at December 31, 2017. Common Equity Tier 1 was 10.16%, Tier 1 risk-based capital was 11.01%, and total risk-based capital was 12.92%. During 2017 KeyCorp repurchased $730 million of common shares and paid $480 million in cash dividends. Book value per common share was $13.09 and tangible book value was $10.35.
What did the filing say about the Tax Cuts and Jobs Act's effect on Key?
The TCJ Act reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. Key estimated the impact at year end as a $161 million reduction to net income, including a $147 million increase in the income tax provision from revaluing its net deferred tax asset and a $14 million reduction in low-income housing investments. Key expects its future federal income tax liabilities to benefit overall from the Act, and the company expects to finalize the impact by the quarter ending September 30, 2018.
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