KeyCorp 2023 Form 10-K Summary
Business context and reporting period
KeyCorp is a Cleveland-based bank holding company operating through Consumer Bank and Commercial Bank, primarily via KeyBank. It reported approximately $188.3 billion in total assets at December 31, 2023, with 959 branches across 15 states. The filing covers the fiscal year ended December 31, 2023; the information provided does not give a clear standalone set of fourth-quarter results.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income, GAAP | $3.913 billion | $4.527 billion |
| Net interest income, taxable-equivalent | $3.943 billion | $4.554 billion |
| Net interest margin, taxable-equivalent | 2.17% | 2.64% |
| Noninterest income | $2.470 billion | $2.718 billion |
| Noninterest expense | $4.734 billion | $4.410 billion |
| Net income attributable to Key common shareholders | $824 million | $1.799 billion |
| Diluted earnings per common share | $0.88 | $1.93 |
| Net cash from operating activities | $2.903 billion | $4.469 billion |
Net interest income fell 13% as higher deposit costs and a shift toward more expensive funding outweighed higher asset yields and balances. Noninterest income declined 9%; noninterest expense rose 7%, including the FDIC special assessment. The provision for credit losses was $489 million versus $502 million. The effective tax rate was 16.9%, compared with 18.1%.
Average loans increased to $118.0 billion from $111.3 billion, while average deposits decreased to $144.1 billion from $146.9 billion. Period-end loans were $112.6 billion, down from $119.4 billion; deposits were $145.6 billion, up from $142.6 billion. Total assets declined to $188.3 billion from $189.8 billion. Long-term debt was $19.6 billion; wholesale funding totaled $22.6 billion, down from $28.8 billion.
Capital strengthened: KeyCorp’s CET1 ratio was 10.02%, Tier 1 ratio 11.67%, and total risk-based capital ratio 14.15%, versus 9.10%, 10.60%, and 12.79%, respectively, in 2022. KeyBank met the “well capitalized” PCA thresholds. Tangible common equity to tangible assets was 5.06%, up from 4.37%. The annual common dividend was $0.82 per share.
Liquidity measures included a 77.9% loan-to-deposit ratio and $86.5 billion of available contingent liquidity, compared with $76.1 billion in 2022. KeyCorp held $2.7 billion in cash and short-term investments at year-end. Uninsured deposits were $61.5 billion, or 42% of deposits, down from $67.1 billion, or 47%.
Material changes versus 2022
- Common earnings from continuing operations fell to $821 million from $1.793 billion; diluted continuing-operations EPS declined to $0.88 from $1.92.
- The cash efficiency ratio increased to 73.2% from 60.0%, reflecting lower revenue and higher expenses.
- Net loan charge-offs increased to $244 million from $161 million; the ratio rose to 0.21% from 0.14%. Nonperforming loans increased to $574 million from $387 million.
- The allowance for loan and lease losses rose to $1.508 billion from $1.337 billion; the allowance-to-period-end-loans ratio rose to 1.34% from 1.12%.
- Available-for-sale securities had a $5.520 billion unrealized loss at year-end, compared with $6.435 billion in 2022. The filing attributes the losses primarily to interest rates and market conditions, and says no credit-loss allowance was recorded.
- Key reduced loans through balance-sheet optimization and sold $8.9 billion of loans during 2023, compared with $12.5 billion in 2022.
Outlook, management commentary, risks and unusual items
For full-year 2024 versus 2023, management expects average loans down 5%–7%, average deposits flat to down 2%, taxable-equivalent net interest income down 2%–5%, noninterest income up at least 5%, and noninterest expense relatively stable excluding specified 2023 items. Management additionally expects year-end loans to be relatively stable, net interest income to increase by low single digits versus the fourth-quarter 2023 annualized exit rate and to be up more than 10% in fourth-quarter 2024 versus fourth-quarter 2023, net charge-offs of 30–40 basis points, and an effective tax rate near 20%.
The $190 million FDIC special assessment for the 2023 bank failures was recognized in fourth-quarter 2023 expense. Other identified 2023 items include $131 million of efficiency-related expenses and an $18 million pension settlement charge. Management cited expense discipline, balance-sheet optimization, stronger capital, and improved liquidity and funding as priorities. The filing says the FDIC assessment is expected to be collected over eight quarterly periods beginning in 2024.
Key risks include its commercial and industrial, commercial real estate, and commercial lease exposures, higher funding costs, credit deterioration, interest-rate and economic uncertainty, regulatory changes, and operational, cyber and third-party risks. Commercial loans were 68.9% of period-end loans; office exposure was 5% of commercial real estate loans. The filing notes pressure on commercial real estate values, particularly office, and forecasts a 7% decline in the national commercial real estate price index used in its year-end credit-loss outlook. Moody’s baseline forecast assumed slower U.S. growth in 2024 and easing policy rates beginning midyear.
Major regulatory developments include proposed capital rules that could increase requirements and include most AOCI components in regulatory capital for Category IV firms such as Key. Credit-rating agencies downgraded KeyCorp and KeyBank in 2023. On February 9, 2024, subsidiaries agreed to pay the SEC a $10 million penalty and accept prospective relief in a records-preservation matter. A securities class action and related derivative suits were also disclosed; the company said it was too early to assess the class action’s potential material effect. Management believes existing legal reserves are adequate but cautions that outcomes may exceed reserves. The auditor issued an unqualified opinion on the financial statements and internal controls; management and the auditor concluded internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- Whether the 2024 net interest income outlook is achievable given deposit pricing, funding mix and the specified fourth-quarter exit-rate comparisons.
- How commercial credit quality develops, particularly nonperforming loans, criticized exposures, charge-offs, and commercial real estate office and multifamily performance.
- Whether reserve levels remain adequate as economic forecasts and collateral values change.
- The potential impact of proposed capital and long-term debt rules, including treatment of AOCI, on capital ratios and shareholder distributions.
- How ratings, uninsured deposits, contingent liquidity, and the FDIC assessment affect funding costs and liquidity.
- The eventual financial and regulatory outcomes of the SEC settlement, securities litigation, and other contingencies.