KeyCorp’s (KEY - Free Report) first-quarter 2023 adjusted earnings from continuing operations of 44 cents per share beat the Zacks Consensus Estimate of 41 cents. The bottom line declined 2.2% from the prior-year quarter. Our estimate for the metric was 43 cents per share.
Shares of KEY lost more than 4.5% in early-market trading on concerns including deposit outflows, rising funding costs and deteriorating credit quality weighed on investor sentiments.
A rise in net interest income (NII) driven by decent average loan growth and higher interest rates supported KEY’s results. However, a fall in non-interest income due to a tough operating backdrop, higher provisions and a rise in expenses were the undermining factors. Also, a decline in average deposits was a headwind.
Net income from continuing operations attributable to common shareholders was $275 million, down 34.5% year over year. We had projected the same to be $398 million.
Revenues & Expenses Rise
Total revenues grew 1.1% year over year to $1.71 billion. The top line lagged the Zacks Consensus Estimate of $1.79 billion. Our estimate for the metric was $1.8 billion.
NII (on a tax-equivalent basis) grew 8.4% to $1.11 billion. The increase was mainly driven by higher earning asset balances and a rise in rates, partly offset by higher funding costs. Our estimate for NII was $1.22 billion.
Taxable-equivalent net interest margin from continuing operations increased 1 basis point (bp) to 2.47%. Our estimate for NIM was 2.76%.
Non-interest income was $608 million, falling 10.1%. The decline was mainly due to lower consumer mortgage income, investment banking and debt placement fees and operating lease income and other leasing gains. Our estimate for non-interest income was $585.5 million.
Non-interest expenses increased 9.9% to $1.18 billion. We had projected the metric to be $1.08 billion.
At the first-quarter end, average total deposits were $143.4 billion, down 1.6% from the prior quarter. The decline reflected the normalization of pandemic-related balances, changing client behavior owing to higher interest rates and normal seasonal deposit outflows.
Average total loans were $119.8 billion, up 1.8%. The growth was primarily driven by robust strength in commercial loan portfolios.
Credit Quality Worsening
Net loan charge-offs, as a percentage of average loans, rose 2 bps year over year to 0.15%. Allowance for loan and lease losses was $1.38 billion, up 24.9%.
Provision for credit losses was $139 million, surging 67.5%. This mainly reflected the uncertain economic outlook and loan growth. We had projected the metric to be $194 million.
Non-performing assets, as a percentage of period-end portfolio loans, other real estate-owned properties assets and other non-performing assets were 0.37%, down 7 bps.
Capital Ratios Deteriorates
KeyCorp's tangible common equity to tangible assets ratio was 4.6% as of Mar 31, 2023, down from 6% in the corresponding period of 2022. Tier 1 risk-based capital ratio was 10.6%, declining from 10.7%.
Common Equity Tier 1 ratio was 9.1%, down from 9.4% as of Mar 31, 2022.
Our Take
Solid loans balances, along with higher interest rates, are likely to continue supporting KeyCorp’s revenues. However, elevated expenses and weakness in the mortgage business amid a tough macroeconomic backdrop are near-term concerns.
KeyCorp currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Major Banks
The PNC Financial Services Group, Inc.’s (PNC - Free Report) first-quarter 2023 earnings per share of $3.98 surpassed the Zacks Consensus Estimate of $3.60 and improved 21% year over year. Per our estimate, the metric was $3.64 per share.
PNC’s results were aided by an increase in NII, supported by higher rates and loan growth. However, rising expenses and higher provisions were headwinds.
U.S. Bancorp’s (USB - Free Report) first-quarter 2023 earnings per share (excluding merger and integration-related charges) of $1.16 handily beat the Zacks Consensus Estimate of $1.13 per share. It grew 17.2% from the prior-year quarter.
Results have benefited from an increase in NII, supported by higher interest rates. However, a decline in non-interest income (largely on lower mortgage banking income) and higher expenses were the headwinds. Also, USB’s credit quality deteriorated in the reported quarter.
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KeyCorp’s (KEY - Free Report) first-quarter 2023 adjusted earnings from continuing operations of 44 cents per share beat the Zacks Consensus Estimate of 41 cents. The bottom line declined 2.2% from the prior-year quarter. Our estimate for the metric was 43 cents per share.
Shares of KEY lost more than 4.5% in early-market trading on concerns including deposit outflows, rising funding costs and deteriorating credit quality weighed on investor sentiments.
A rise in net interest income (NII) driven by decent average loan growth and higher interest rates supported KEY’s results. However, a fall in non-interest income due to a tough operating backdrop, higher provisions and a rise in expenses were the undermining factors. Also, a decline in average deposits was a headwind.
Net income from continuing operations attributable to common shareholders was $275 million, down 34.5% year over year. We had projected the same to be $398 million.
Revenues & Expenses Rise
Total revenues grew 1.1% year over year to $1.71 billion. The top line lagged the Zacks Consensus Estimate of $1.79 billion. Our estimate for the metric was $1.8 billion.
NII (on a tax-equivalent basis) grew 8.4% to $1.11 billion. The increase was mainly driven by higher earning asset balances and a rise in rates, partly offset by higher funding costs. Our estimate for NII was $1.22 billion.
Taxable-equivalent net interest margin from continuing operations increased 1 basis point (bp) to 2.47%. Our estimate for NIM was 2.76%.
Non-interest income was $608 million, falling 10.1%. The decline was mainly due to lower consumer mortgage income, investment banking and debt placement fees and operating lease income and other leasing gains. Our estimate for non-interest income was $585.5 million.
Non-interest expenses increased 9.9% to $1.18 billion. We had projected the metric to be $1.08 billion.
At the first-quarter end, average total deposits were $143.4 billion, down 1.6% from the prior quarter. The decline reflected the normalization of pandemic-related balances, changing client behavior owing to higher interest rates and normal seasonal deposit outflows.
Average total loans were $119.8 billion, up 1.8%. The growth was primarily driven by robust strength in commercial loan portfolios.
Credit Quality Worsening
Net loan charge-offs, as a percentage of average loans, rose 2 bps year over year to 0.15%. Allowance for loan and lease losses was $1.38 billion, up 24.9%.
Provision for credit losses was $139 million, surging 67.5%. This mainly reflected the uncertain economic outlook and loan growth. We had projected the metric to be $194 million.
Non-performing assets, as a percentage of period-end portfolio loans, other real estate-owned properties assets and other non-performing assets were 0.37%, down 7 bps.
Capital Ratios Deteriorates
KeyCorp's tangible common equity to tangible assets ratio was 4.6% as of Mar 31, 2023, down from 6% in the corresponding period of 2022. Tier 1 risk-based capital ratio was 10.6%, declining from 10.7%.
Common Equity Tier 1 ratio was 9.1%, down from 9.4% as of Mar 31, 2022.
Our Take
Solid loans balances, along with higher interest rates, are likely to continue supporting KeyCorp’s revenues. However, elevated expenses and weakness in the mortgage business amid a tough macroeconomic backdrop are near-term concerns.
KeyCorp currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Major Banks
The PNC Financial Services Group, Inc.’s (PNC - Free Report) first-quarter 2023 earnings per share of $3.98 surpassed the Zacks Consensus Estimate of $3.60 and improved 21% year over year. Per our estimate, the metric was $3.64 per share.
PNC’s results were aided by an increase in NII, supported by higher rates and loan growth. However, rising expenses and higher provisions were headwinds.
U.S. Bancorp’s (USB - Free Report) first-quarter 2023 earnings per share (excluding merger and integration-related charges) of $1.16 handily beat the Zacks Consensus Estimate of $1.13 per share. It grew 17.2% from the prior-year quarter.
Results have benefited from an increase in NII, supported by higher interest rates. However, a decline in non-interest income (largely on lower mortgage banking income) and higher expenses were the headwinds. Also, USB’s credit quality deteriorated in the reported quarter.
4 Oil Stocks with Massive Upsides
Global demand for oil is through the roof... and oil producers are struggling to keep up. So even though oil prices are well off their recent highs, you can expect big profits from the companies that supply the world with "black gold."
Zacks Investment Research has just released an urgent special report to help you bank on this trend.
In Oil Market on Fire, you'll discover 4 unexpected oil and gas stocks positioned for big gains in the coming weeks and months. You don't want to miss these recommendations.
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