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KeyCorp (KEY) Up as Q3 Earnings Beat on Higher Fee Income

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KeyCorp’s (KEY - Free Report) third-quarter 2021 earnings of 65 cents per share handily surpassed the Zacks Consensus Estimate of 57 cents. The bottom line improved 58.5% from the prior-year quarter.

The stock rallied 1.1% during the pre-market trading, reflecting investors’ optimism over the better-than-expected results. The full-day trading session will display a clearer picture.

Results benefited from a rise in non-interest income, net interest income, and provision benefit. However, lower rates, a decline in loan balance and an increase in operating expenses were the undermining factors.

Net income from continuing operations attributable to common shareholders was $616 million, up 55.2% year over year.

Revenues Improve & Expenses Rise

Total revenues grew 8% year over year to $1.82 billion. The top line beat the Zacks Consensus Estimate of $1.76 billion.

Net interest income (on tax-equivalent basis) rose 1.9% to $1.03 billion. The increase was driven by higher earning asset balances and lower interest-bearing deposit costs, which were partly offset by lower net interest margin (NIM).

Taxable-equivalent NIM from continuing operations contracted 15 basis points (bps) to 2.47%.

Non-interest income was $797 million, growing 17%. The rise was mainly driven by increase in investment banking and debt placement fees, commercial mortgage servicing fees, service charges on deposit accounts, and corporate service income.

Non-interest expenses were up 7.2% to $1.11 billion. The increase was mainly due to higher personnel costs and marketing expenses.

At the third-quarter end, average total deposits were $146.9 billion, up 1.8% from the prior quarter. Average total loans were $100.1 billion, down modestly.

Credit Quality Improves

Net loan charge-offs, as a percentage of average loans, decreased 38 bps year over year to 0.11%. Allowance for loan and lease losses was $1.08 billion, down 37.3%.

Provision for credit losses was a net benefit of $107 million against a provision of $160 million in the prior-year quarter. Provision benefit was mainly due to $136 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 0.61%, down 36 bps.

Capital Ratios Mixed

KeyCorp's tangible common equity to tangible assets ratio was 7.0% as of Sep 30, 2021, down from 7.8% in the corresponding period of 2020. Tier 1 risk-based capital ratio was 10.9%, on par with the prior-year quarter level.

Share Repurchase Update

During the quarter, KeyCorp repurchased shares worth $593 million. Of the total buyback, $468 million were related to the initial settlement of the accelerated share repurchase program and $125 million were purchased in the open market.

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

State Street’s (STT - Free Report) third-quarter 2021 adjusted earnings of $2.00 per share outpaced the Zacks Consensus Estimate of $1.92. Also, the bottom line was 37.9% higher than the prior-year level.

Truist Financial’s (TFC - Free Report) third-quarter 2021 adjusted earnings of $1.42 per share easily surpassed the Zacks Consensus Estimate of $1.20. The bottom line jumped 46.4% from the prior-year quarter.

First Republic Bank delivered an earnings surprise of 4.4% in third-quarter 2021 on solid top-line strength. Earnings per share of $1.91 surpassed the Zacks Consensus Estimate of $1.83. The bottom line improved 18.6% from the year-ago quarter.


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