Commercial Loans Rule KeyCorp’s Loan Portfolio
Commercial loans account for about 72% of KeyCorp’s (KEY) loan portfolio. Commercial loans include financial, agricultural, commercial real estate, and commercial lease financing. Commercial, financial, and agricultural loans contribute around half of the total portfolio, while commercial real estate loans contribute ~16%.
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KeyCorp’s two largest industry exposures for commercial loans are services and manufacturing. The services and manufacturing industries represent 22% and 17%, respectively, of the total commercial, financial, and agricultural loan portfolio.
Consumer loans, including residential real estate, home equity, credit cards, and other consumer loans, account for the remaining 28% of the loan portfolio. The home equity portfolio is the largest segment of the company’s consumer loan portfolio and contributes 19% to the total loan portfolio.
The graph above shows a breakdown of the company’s loan portfolio.
Loan growth lower than peers
KeyCorp’s year-end loans have grown at a CAGR (compound average growth rate) of 2.7% since 2010. During the same period, JP Morgan (JPM) and PNC Financial Services (PNC) recorded 8%, while Wells Fargo (WFC), Citigroup, and U.S. Bancorp recorded 6% CAGR loan growth.
The average CAGR loan growth at large banks over the last five years is 3%. KeyCorp had a negative growth from $58.8 billion in 2009 to $57.4 billion at the end of 2014. This was due to the decline in loan balances in 2010 and 2011 due to KeyCorp’s exit from educational lending. The company is showing positive loan growth over the last three years.
Healthy loan growth results in higher interest income, a key source of a bank’s revenues. KeyCorp forms ~1.4% of the SPDR S&P Regional Banking ETF (KRE) and ~3.1% of the iShares U.S. Regional Banks ETF (IAT).