KEYCORP annual report, FY2009

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KeyCorp 2009 Form 10-K Summary

Business context and reporting period

KeyCorp’s annual report covers the fiscal year ended December 31, 2009. The Cleveland-based bank holding and financial holding company reported consolidated assets of $93.3 billion at year-end. Through KeyBank and other subsidiaries, it provided retail and commercial banking, investment management, investment banking, leasing and related financial services. Its network included 1,007 full-service branches in 14 states and 1,495 ATMs in 16 states.

Financial performance and condition

  • Assets: $93.3 billion at December 31, 2009.
  • Credit costs: Provision for loan losses increased $1.622 billion, or 106%, during 2009 amid deterioration in the loan portfolio.
  • Impairments and business exits: Key recorded $268 million of noncash intangible-asset impairment charges, attributed to weakness in the National Banking unit and decisions to wind down Austin Capital Management and exit commercial vehicle and office equipment leasing.
  • Bank subsidiary results and dividends: KeyBank recorded net losses of $1.151 billion in 2009 and $1.161 billion in 2008. It paid no dividends to KeyCorp in either year; nonbank subsidiaries paid KeyCorp $0.8 million in 2009.
  • Holding-company liquidity: KeyCorp held $3.5 billion in short-term investments at year-end, available to support dividends, debt service and corporate operations. KeyBank prepaid $539 million of FDIC assessments in December 2009, covering the fourth quarter of 2009 and estimated assessments for 2010–2012.
  • Capital and government support: KeyCorp received $2.5 billion of U.S. Treasury Series B preferred stock under the Capital Purchase Program in 2008. Following the 2009 supervisory capital assessment, it generated more than the required $1.8 billion of additional Tier 1 common equity. Key reported capital above applicable minimum risk-based and leverage requirements; KeyBank was classified as well-capitalized under prompt corrective action standards.
  • Common shares: The quarterly common dividend was reduced to $0.01 per share in July 2009. There were 878,138,496 common shares outstanding as of February 24, 2010.

The provided filing text incorporates the consolidated income statements, balance sheets, cash flows and detailed financial review by reference, but does not provide clear values for consolidated revenue, net income or loss, net interest margin, cash flow, total debt, or other comparable consolidated measures. Verify those figures in the incorporated 2009 Annual Report.

Material changes versus the prior comparable period

  • Provision for loan losses rose by $1.622 billion, or 106%, from 2008, reflecting further deterioration in credit quality.
  • KeyBank’s net loss narrowed slightly, from $1.161 billion in 2008 to $1.151 billion in 2009, but remained substantial; it paid no dividend to the parent in either year.
  • KeyCorp exceeded the $1.8 billion Tier 1 common equity increase required by the 2009 supervisory assessment.
  • The common dividend was cut to $0.01 per quarter in July 2009. The filing says KeyCorp did not expect to increase it above that level for the foreseeable future.
  • The FDIC imposed higher assessments and required advance payment of estimated assessments through 2012; KeyBank’s prepayment was $539 million.

Outlook, risks and contingencies

  • Management described economic and financial-market conditions as uncertain. It highlighted unemployment above 10% at year-end, weak commercial real estate conditions, falling property values, rising vacancies and rents under pressure. It warned that commercial real estate weakness could persist after a broader recovery.
  • Credit quality, especially commercial and commercial real estate exposures, is a key risk. About 71% of the loan portfolio consisted of commercial, financial and agricultural loans, commercial real estate loans and commercial leases. Further deterioration could increase nonperforming loans, charge-offs and required provisions.
  • Liquidity and funding remain exposed to market disruption, deposit outflows, higher funding costs and potential ratings downgrades. Key participated in the FDIC’s Temporary Liquidity Guarantee Program; at year-end, guaranteed debt outstanding was $937.5 million at KeyCorp and $1.0 billion at KeyBank.
  • KeyCorp planned to redeem the Treasury’s Series B preferred stock as soon as practicable, but required Federal Reserve and Treasury approval and could be required to raise more capital. The preferred stock restricts dividends and repurchases; its annual dividend rate rises from 5% to 9% after five years if it remains outstanding. The associated Treasury warrant covers 35,244,361 common shares at an initial exercise price of $10.64.
  • KeyBank could not pay dividends to KeyCorp without regulatory approval at year-end, given its losses in 2008 and 2009. This limits a major source of parent-company cash for debt service and shareholder distributions.
  • Other significant risks include interest-rate and market risk, counterparty exposure, competition, changing regulation and capital requirements, litigation, operational and cybersecurity events, and the possibility that economic recovery or government support measures prove inadequate. The filing discusses proposed regulatory and Basel capital changes whose ultimate effects were not yet determinable.
  • The filing identifies potential litigation and other proceedings by reference to an incorporated note; this excerpt does not provide a clear description or quantified estimate of material contingencies.

Important facts for investors to verify

  • Consolidated 2009 revenue, net income or loss, diluted earnings per share, net interest margin and year-over-year comparisons in the incorporated financial review.
  • Year-end allowance for loan losses, nonperforming assets, charge-offs, loan delinquency trends and commercial real estate concentration details.
  • Consolidated cash flows, total debt, deposit composition, liquidity measures and the effect of the $539 million FDIC prepayment.
  • Regulatory capital ratios and the conditions and timing for any potential redemption of Treasury preferred stock.
  • Details and potential financial exposure from litigation, guarantees, commitments and other contingencies in the incorporated financial statement notes.