KeyCorp 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020; includes fourth-quarter results. KeyCorp is a U.S. bank holding company operating through Consumer Bank and Commercial Bank, with approximately $170.3 billion in total assets and 1,073 branches in 15 states at year-end.
Financial performance and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Net interest income, GAAP | $4.034 billion | $3.909 billion |
| Noninterest income | $2.652 billion | $2.459 billion |
| Total revenue, taxable-equivalent basis | $6.715 billion | $6.400 billion |
| Provision for credit losses | $1.021 billion | $445 million |
| Noninterest expense | $4.109 billion | $3.901 billion |
| Continuing income attributable to Key common shareholders | $1.223 billion | $1.611 billion |
| Diluted continuing-operations EPS | $1.26 | $1.61 |
| Net interest margin, taxable-equivalent | 2.77% | 3.04% |
Fourth-quarter continuing income attributable to common shareholders was $549 million, or $0.56 per diluted share, versus $439 million, or $0.45, in fourth-quarter 2019. Q4 provision for credit losses was $20 million, compared with $109 million a year earlier.
Operating cash flow was $1.673 billion; investing cash flow was negative $24.721 billion and financing cash flow was positive $23.407 billion. Cash and due from banks increased $359 million to $1.091 billion. The filing separately reports a $36.6 billion liquid-asset portfolio, including $15.4 billion in Federal Reserve and federal funds balances.
At year-end, loans were $101.2 billion, deposits $135.3 billion, long-term debt $13.7 billion, and shareholders’ equity $18.0 billion. The loan-to-deposit ratio was 76.5%. Regulatory capital ratios were 9.73% CET1, 11.11% Tier 1, 13.40% total risk-based capital, and 8.94% leverage. KeyBank was classified as well capitalized under prompt corrective action rules.
Changes versus the prior year
- Continuing income attributable to common shareholders declined about 24%, while taxable-equivalent revenue rose about 5%. Lower interest rates reduced net interest margin, but larger earning-asset balances and loan fees supported net interest income growth.
- Provision for credit losses more than doubled, reflecting pandemic-related economic uncertainty, CECL estimates, and higher charge-offs. Net charge-offs were $443 million, or 0.43% of average loans, versus $424 million, or 0.46%, in 2019.
- Nonperforming assets increased to $937 million from $715 million; nonperforming loans rose to $785 million from $577 million.
- Deposits increased $23.4 billion and period-end loans increased $6.5 billion. Growth reflected PPP and government stimulus funds, customer relationships, and consumer mortgage and Laurel Road activity.
- Commercial Bank net income fell 44% to $633 million, chiefly amid higher credit provision and expenses. Consumer Bank net income declined 5.8% to $665 million.
Outlook, risks and unusual items
- Management’s 2021 outlook: taxable-equivalent net interest income expected to be relatively stable versus 2020; margin relatively stable versus Q4 2020; average loans relatively stable; average deposits up 1%–3%; noninterest income up 1%–3%; noninterest expense down 1%–3%; and a GAAP tax rate of approximately 19%. Net charge-offs were expected at 50–60 basis points. Management also expected positive operating leverage.
- Capital returns: The 2020 common dividend was $0.74 per share, up 4%. A January 2021 authorization allowed up to $900 million of buybacks through Q3 2021, subject to regulatory conditions. Federal Reserve restrictions capped dividend increases and limited aggregate dividends and repurchases in Q1 2021.
- COVID-19 and credit: Key reported $4.652 billion of loans and leases that had received payment relief; $575 million remained in active relief at year-end. The company provided over 43,000 PPP loans totaling more than $8 billion. Further deterioration in borrower repayment, commercial real estate, oil and gas, or the broader economy could increase losses and reserves.
- CECL: Adoption on January 1, 2020 reduced opening retained earnings by $230 million after tax and increased the continuing-operations allowance by $204 million. The year-end allowance for loan and lease losses was $1.626 billion, or 1.61% of loans.
- Concentrations and other risks: Commercial and industrial, commercial real estate, and commercial lease exposures represented approximately 71% of loans. Other identified risks include low interest rates, LIBOR transition, cybersecurity and third-party disruptions, regulation, litigation, and market or liquidity stress.
- Other notable items: No goodwill impairment was recorded. The auditor issued unqualified opinions on the financial statements and internal controls; the allowance for loan losses was identified as a critical audit matter. Management said established legal reserves were adequate, while noting outcomes could exceed reserves and affect a particular period.
Important facts for investors to verify
- Whether pandemic-related relief borrowers resume normal payments and how credit migration, charge-offs, and the allowance evolve.
- Progress against 2021 revenue, expense, margin, deposit, and charge-off expectations, and the assumptions underlying those projections.
- Capital levels and regulatory limits governing dividends and the authorized share repurchase program.
- Liquidity composition and funding needs as unusually high deposits and cash balances change.
- Potential effects of CRE weakness, oil and gas exposure, PPP-related litigation or scrutiny, and unresolved legal contingencies.
- CECL model assumptions and the comparability of 2020 results with prior periods following the accounting change.