KeyCorp 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied filing text does not provide a standalone fourth-quarter income statement summary. Amounts below are U.S. dollars.
Business context
KeyCorp is a Cleveland-based bank holding company operating primarily through KeyBank. It reported approximately $186.3 billion in year-end assets and served clients through Consumer Bank and Commercial Bank, with 999 branches and 1,317 ATMs across 15 states, plus digital banking businesses. Foreign revenue was immaterial.
Key financial metrics
| Metric | 2021 | 2020 / change |
|---|---|---|
| Total assets, year-end | $186.3 billion | $170.3 billion |
| Total revenue, taxable-equivalent basis | $7.292 billion | $6.715 billion; up 9% |
| Net interest income, GAAP | $4.071 billion | $4.034 billion |
| Net interest income, taxable-equivalent | $4.098 billion | $4.063 billion |
| Net interest margin | 2.50% | 2.77% |
| Noninterest income | $3.194 billion | $2.652 billion; up 20% |
| Noninterest expense | $4.429 billion | $4.109 billion; up 8% |
| Net income attributable to Key | $2.625 billion | $1.343 billion |
| Net income attributable to common shareholders | $2.519 billion | $1.237 billion |
| Diluted EPS | $2.63 | $1.27 |
| Cash from operating / investing / financing activities | $1.153 billion / $(15.068) billion / $13.737 billion | $1.673 billion / $(24.721) billion / $23.407 billion |
Net income rose substantially as the provision for credit losses shifted from $1.021 billion of expense in 2020 to a $418 million benefit in 2021. The 2021 income statement reported $642 million of income tax expense and a 19.7% effective tax rate, versus $227 million and 14.6% in 2020. The 2021 cash efficiency ratio was 59.9%, compared with 60.2% in 2020; this is a non-GAAP measure.
Balance sheet, credit, liquidity and capital
- Loans: Portfolio loans were $101.9 billion at year-end, up from $101.2 billion. Commercial loans were $70.8 billion; commercial and industrial loans were $50.5 billion. Commercial real estate loans totaled $16.2 billion, with multifamily lending a key driver of growth.
- Deposits and funding: Deposits rose to $152.6 billion from $135.3 billion. Uninsured deposits were estimated at $77.6 billion. Wholesale funds totaled $12.8 billion, down from $14.7 billion.
- Debt: Long-term debt was $12.0 billion, down from $13.7 billion. The filing lists $12.8 billion of wholesale funds as short-term borrowings plus long-term debt.
- Liquidity: The liquid asset portfolio was $46.2 billion. Unused secured borrowing capacity was reported as $23.9 billion at the Federal Reserve Bank of Cleveland and $12.8 billion at the FHLB of Cincinnati. The loan-to-deposit ratio was 68.9% against a 90%–100% target range. KeyCorp held $2.3 billion in parent-company cash and short-term investments.
- Credit quality: Net charge-offs were $184 million, or 0.18% of average loans, versus $443 million, or 0.43%, in 2020. Nonperforming assets declined to $489 million from $937 million. The allowance for loan and lease losses was $1.061 billion, down from $1.626 billion.
- Capital: KeyCorp reported a 9.48% Common Equity Tier 1 ratio, 10.77% Tier 1 ratio, 12.49% total risk-based capital ratio and 8.47% leverage ratio in its regulatory capital table. These exceeded the stated minimums. KeyBank was categorized as well capitalized under the prompt corrective action framework.
- Shareholder returns: The 2021 common dividend was $0.75 per share. Key repurchased approximately $1.2 billion of common shares during the year, and shares outstanding fell by 46.9 million.
Material changes versus 2020
- Revenue increased 9%, supported by fee growth; investment banking and debt placement fees rose 41.8% to $937 million, reflecting higher M&A advisory and underwriting activity.
- Net interest margin declined 27 basis points to 2.50%. Management cited balance-sheet mix, elevated liquidity and lower reinvestment yields; lower deposit costs and PPP-related loan fees partly offset the pressure.
- The credit-loss provision swung to a benefit, driven by improved economic expectations, better asset quality and lower charge-offs. The allowance fell 34.7% year over year.
- Noninterest expense increased 7.8%, including higher production-related incentives, software and cloud costs, professional fees and marketing.
- Deposits grew $17.3 billion, while long-term debt declined $1.7 billion. Securities increased to $52.9 billion from $35.2 billion.
- Key sold its $3.3 billion indirect auto loan portfolio in the third quarter and purchased senior notes from a securitization backed by the sold loans. The balance sheet included $2.5 billion of related asset-backed securities at year-end.
- Other notable actions included acquisitions of AQN Strategies and XUP Payments and the launch of Laurel Road for Doctors.
Outlook, commentary and risks
- 2022 outlook: Management expected taxable-equivalent net interest income to be relatively stable versus 2021 and net interest margin to be relatively stable versus fourth-quarter 2021. Average loans and deposits were each expected to grow 1%–3% from 2021. Noninterest income and expense were each expected to decline 1%–3%; the expected GAAP tax rate was approximately 20%.
- Management expected 2022 net charge-offs to average 20–30 basis points. Its longer-term target was 40–60 basis points through a credit cycle. It cited positive operating leverage in 2021 and expected it again in 2022; the stated cash efficiency ratio target was 54%–56%.
- COVID-19 hardship relief balances totaled $2.8 billion, but only $75 million remained in active relief at year-end. Management said 96% of expired COVID-19 deferrals were current.
- Key highlighted commercial and industrial, commercial real estate and commercial lease exposures as significant credit risks. Other identified risks included pandemic effects, supply-chain constraints, labor shortages and inflation, interest-rate changes, cybersecurity and third-party disruptions, regulatory change, litigation, climate-related impacts and the transition from LIBOR.
- LIBOR exposure remained material: reported outstanding balances included $42.7 billion of loans and $102.6 billion notional of derivative contracts directly or indirectly dependent on LIBOR. Key said it had completed transition work for contracts with tenors ending in 2021 and was preparing for remaining transitions.
- Legal proceedings were described as ordinary-course matters; management believed established reserves were adequate and did not expect a material adverse effect on consolidated financial condition, while cautioning that outcomes could exceed reserves.
- Unusual year-over-year items included the large credit-reserve release and a $1.324 billion after-tax decline in other comprehensive income, mainly reflecting unrealized losses on available-for-sale securities and derivatives.
Most important facts for investors to verify
- Reconcile reported capital ratios: the regulatory capital table gives CET1 of 9.48% and Tier 1 of 10.77%, while the strategic developments discussion cites 9.43% and 10.71%, respectively.
- Review the quality and sustainability of the 2021 earnings increase, particularly the $418 million credit-loss benefit and unusually low 0.18% net charge-off ratio.
- Assess whether the 2022 revenue, expense and margin outlook is consistent with the bank’s funding mix, deposit repricing and interest-rate sensitivity.
- Monitor uninsured deposits, commercial credit concentrations, commercial real estate conditions and any renewed pandemic-related borrower stress.
- Check the complete debt maturity, contingent commitment and guarantee disclosures, including the $73.9 billion of loan commitments and $16.9 billion maximum potential payments under listed guarantees.