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KeyCorp (KEY) Q2 Earnings Beat Estimates on Higher Fee Income

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KeyCorp’s (KEY - Free Report) second-quarter 2021 earnings of 72 cents per share handily surpassed the Zacks Consensus Estimate of 55 cents. The bottom line improved substantially from 16 cents earned in the prior-year quarter.

The stock rallied almost 1.5% during the pre-market trading, reflecting investors’ optimism over the results. The full-day trading session will display a clearer picture.

Results benefited from a rise in non-interest income, higher loan and deposit balances, and provision benefit. However, lower rates and increase in operating expenses were the undermining factors.

Net income from continuing operations attributable to common shareholders was $698 million, up significantly from $159 million recorded in the year-ago quarter.

Revenues Improve & Expenses Rise

Total revenues grew 3.3% year over year to $1.77 billion. The top line beat the Zacks Consensus Estimate of $1.73 billion.

Net interest income (on tax-equivalent basis) declined marginally year over year to $1.02 billion. The fall was due lower net interest margin (NIM), partially offset by higher earning asset balances.

Taxable-equivalent NIM from continuing operations contracted 24 basis points (bps) to 2.52%.

Non-interest income was $750 million, growing 8.4%. The upswing was largely driven by increase in investment banking and debt placement fees, commercial mortgage servicing fees, service charges on deposit accounts, and cards and payments income.

Non-interest expenses jumped 6.2% to $1.08 billion. The increase was mainly due to higher personnel costs and marketing expenses.

At the second-quarter end, average total deposits were $144.3 billion, up 4.8% from the prior quarter. Average total loans were $100.8 billion, up slightly.

Credit Quality Improves

Net loan charge-offs, as a percentage of average loans, decreased 27 bps year over year to 0.09%. Allowance for loan and lease losses was $1.22 billion, down 28.6%.

Provision for credit losses was a net benefit of $222 million against a provision of $482 million in the prior-year quarter. Provision benefit was mainly due to $244 million reserve release, which was largely driven by continued improvement in the economic outlook.

Non-performing assets, as a percentage of period-end portfolio loans, other real estate owned properties assets and other non-performing assets were 0.73%, down 16 bps.

Capital Ratios Mixed

KeyCorp's tangible common equity to tangible assets ratio was 7.4% as of Jun 30, 2021, down from 7.6% in the corresponding period of 2020. Tier 1 risk-based capital ratio was 11.3%, up from 10.5% in the prior-year quarter.

Capital Deployment Updates

During the quarter, KeyCorp repurchased shares worth $300 million.

Further, KeyCorp's board of directors has approved a new share repurchase authorization of up to $1.5 billion, through the third quarter of 2022. This supersedes the remaining capacity under the previous authorization. The company plans to increase quarterly dividend effective fourth quarter 2021, subject to board approval.

Our Take

Solid loans and deposit balances, along with a focus on fee income, are likely to continue supporting KeyCorp’s revenues. However, lower rates, and subdued demand for commercial and industrial loans are near-term concerns.

KeyCorp Price, Consensus and EPS Surprise

KeyCorp Price, Consensus and EPS Surprise

KeyCorp price-consensus-eps-surprise-chart | KeyCorp Quote

KeyCorp currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Performance of Other Banks

People's United Financial Inc. (PBCT - Free Report) has reported second-quarter 2021 operating earnings of 41 cents per share, which surpassed the Zacks Consensus Estimate of 32 cents. The bottom line is above the year-ago quarter’s figure of 24 cents.

Truist Financial’s (TFC - Free Report) second-quarter 2021 adjusted earnings of $1.55 per share easily surpassed the Zacks Consensus Estimate of $1.17. The bottom line jumped 89% from the prior-year quarter.

First Republic Bank (FRC - Free Report) delivered an earnings surprise of 14.04% in second-quarter 2021 on solid top-line strength. Earnings per share of $1.95 surpassed the Zacks Consensus Estimate of $1.71. Additionally, the bottom line climbed 45.3% from the year-ago quarter.

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