KeyCorp 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; filed February 22, 2023. This is a full-year 10-K, not a standalone fourth-quarter earnings report. KeyCorp is a U.S. bank holding company operating through Consumer Bank and Commercial Bank, with approximately $189.8 billion in total assets.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Net interest income, GAAP | $4.527 billion | $4.071 billion |
| Net interest income, taxable-equivalent | $4.554 billion | $4.098 billion |
| Net interest margin, taxable-equivalent | 2.64% | 2.50% |
| Noninterest income | $2.718 billion | $3.194 billion |
| Noninterest expense | $4.410 billion | $4.429 billion |
| Provision for credit losses | $502 million expense | $418 million benefit |
| Continuing-operations net income | $1.911 billion | $2.612 billion |
| Diluted EPS from continuing operations | $1.92 | $2.62 |
| Net cash provided by operating activities | $4.469 billion | $1.153 billion |
Net interest income rose on higher rates, earning-asset balances, and favorable balance-sheet mix, partly offset by higher deposit costs and lower PPP-related fees. Noninterest income fell 14.9%, led by a 31.9% decline in investment banking and debt placement fees amid weaker capital-markets activity. The credit-loss provision swung from a benefit to an expense as reserves rose with loan growth and a less favorable economic outlook. Noninterest expense was broadly stable.
- Loans: Year-end continuing-operations loans were $119.4 billion, up 17.2% from $101.9 billion. Commercial loans rose 16.4%; consumer loans rose 19.1%.
- Credit quality: The allowance for loan and lease losses was $1.337 billion, or 1.12% of period-end loans, versus $1.061 billion, or 1.04%, in 2021. Net charge-offs were $161 million, or 0.14% of average loans, down from $184 million, or 0.18%. Nonperforming assets declined to $420 million from $489 million.
- Deposits and funding: Deposits fell to $142.6 billion from $152.6 billion. Uninsured deposits were estimated at $67.1 billion, down from $77.6 billion. Wholesale funds increased to $28.8 billion from $12.8 billion.
- Liquidity and debt: The liquid asset portfolio was $35.5 billion, with $40.5 billion of unused secured borrowing capacity at the Federal Reserve Bank of Cleveland and FHLB. Long-term debt was $19.3 billion, versus $12.0 billion.
- Capital: KeyCorp’s CET1, Tier 1 risk-based, total risk-based, and leverage ratios were 9.10%, 10.60%, 12.79%, and 8.88%, respectively. KeyBank was reported as well capitalized. The common dividend for 2022 was $0.79 per share.
Material changes versus 2021
- Continuing-operations net income declined about 27%, and diluted continuing-operations EPS fell from $2.62 to $1.92.
- Net interest income and margin improved, but noninterest income fell and the provision for credit losses increased substantially from the prior-year reserve release.
- Net loans grew $17.5 billion, while deposits declined about $10.0 billion and wholesale funding rose about $16.0 billion.
- Shareholders’ equity declined to $13.5 billion from $17.4 billion. Accumulated other comprehensive loss widened to $6.3 billion from $586 million, largely reflecting market-value losses on available-for-sale securities and derivatives. Comprehensive income was a loss of $3.792 billion.
- Consumer Bank net income fell to $392 million from $876 million; Commercial Bank net income fell to $1.146 billion from $1.642 billion. Both were affected by higher credit provisions; Commercial Bank also faced lower capital-markets fees.
Outlook, management commentary, and risks
- Management expected positive operating leverage in 2023; noninterest income down 1%–3% year over year; noninterest expense relatively stable; net charge-offs averaging 25–30 basis points of loans; and a GAAP tax rate of approximately 20%.
- Long-term targets include a 54%–56% cash efficiency ratio, net charge-offs of 0.40%–0.60% through a credit cycle, and return on average tangible common equity of 16%–19%. For 2022, the cash efficiency ratio was 60.0% and return on average tangible common equity was 18.34%.
- Management described credit quality as strong but identified commercial real estate weakening, particularly office and retail, as a risk. Non-owner-occupied office and retail exposure was 12% of total commercial real estate exposure; commercial and industrial, commercial real estate, and commercial leases together represented about 69% of loans.
- Other key risks include deposit competition and funding costs, recession and inflation, interest-rate sensitivity, cybersecurity and third-party disruptions, regulatory change, and litigation. Management said established legal reserves were adequate, while noting that outcomes could exceed reserves.
- KeyBank issued debt during 2022; KeyBank also issued $1.5 billion of senior notes in January 2023. The board’s share-repurchase authorization was extended through the third quarter of 2023; approximately $790 million remained available at year-end, though no open-market repurchases were made in 2022.
Most important facts for investors to verify
- How deposit balances, deposit pricing, and uninsured-deposit levels evolve, and whether reliance on wholesale funding persists.
- Whether loan growth and the economic outlook require further credit-reserve increases, especially for commercial real estate and concentrated commercial lending.
- How much of the large securities-related AOCI loss affects reported equity versus regulatory capital, and how the securities portfolio performs as rates change.
- Whether management meets its 2023 guidance and long-term efficiency, credit-loss, and return targets.
- The terms, maturity profile, and cost of increased borrowings, plus the capacity to sustain dividends and any future repurchases.
- The filing reports unqualified audit opinions and effective internal control over financial reporting; investors should review the full notes for credit, liquidity, contingent-liability, and capital details.