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KeyCorp (KEY) Down as Q1 Earnings Miss on Higher Provisions

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KeyCorp’s (KEY - Free Report) first-quarter 2022 earnings from continuing operations of 45 cents per share missed the Zacks Consensus Estimate of 48 cents. The bottom line also declined 26.2% from the prior-year quarter.

The stock lost more than 1.2% during the pre-market trading, reflecting investors’ bearish stance over the lower-than-expected results. The full-day trading session will display a clearer picture.

A fall in non-interest income due to a tough operating backdrop and higher provisions hurt KEY’s results. The company’s capital ratios deteriorated during the quarter. However, a rise in net interest income (NII), solid average loan growth and lower expenses acted as tailwinds.

Net income from continuing operations attributable to common shareholders was $420 million, down 28.9% year over year.

Revenues & Expenses Down

Total revenues fell 3.1% year over year to $1.70 billion. The top line lagged the Zacks Consensus Estimate of $1.76 billion.

NII (on a tax-equivalent basis) rose 0.8% to $1.02 billion. The increase was mainly driven by higher earning asset balances and a favorable balance sheet mix, partly offset by lower reinvestment yields, the exit of the indirect auto loan portfolio and lower loan fees from the Paycheck Protection Program.

Taxable-equivalent net interest margin from continuing operations contracted 15 basis points (bps) to 2.46%.

Non-interest income was $676 million, falling 8.4%. The decline was mainly due to lower consumer mortgage income, cards and payments income and other income.

Non-interest expenses declined marginally to $1.07 billion. This was driven by a fall in non-personnel costs.

At the first-quarter end, average total deposits were $150.2 billion, down slightly from the prior quarter. This was mainly due to lower levels of commercial deposits.

Average total loans were $103.8 billion, up 4.4%. The growth was largely driven by robust strength in both commercial and consumer loan portfolios.

Credit Quality: Mixed Bag

Net loan charge-offs, as a percentage of average loans, decreased 33 bps year over year to 0.13%. Allowance for loan and lease losses was $1.11 billion, down 23.2%. Non-performing assets, as a percentage of period-end portfolio loans, other real estate-owned properties assets and other non-performing assets were 0.44%, down 34 bps.

Provision for credit losses was $83 million against a benefit of $93 million in the prior-year quarter. The increase mainly reflected the uncertain economic outlook arising from the Ukraine conflict, risks related to higher inflation and loan growth.

Capital Ratios Deteriorates

KeyCorp's tangible common equity to tangible assets ratio was 6.0% as of Mar 31, 2022, down from 7.5% in the corresponding period of 2021. Tier 1 risk-based capital ratio was 10.7%, down from 11.3%.

Common Equity Tier 1 ratio was 9.4%, down from 9.9% as of Mar 31, 2021.

Our Take

Solid loans and deposit balances, along with expectations of higher interest rates, are likely to continue supporting KeyCorp’s revenues. However, elevated expenses remain a near-term concern.

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 Major Banks

Truist Financial’s (TFC - Free Report) first-quarter 2022 adjusted earnings of $1.23 per share handily surpassed the Zacks Consensus Estimate of $1.12. The bottom line grew 4.2% from the prior-year quarter.

Truist Financial’s results were aided by modest average loan growth and provision benefits. However, lower revenues, a rise in expenses and relatively lower rates were the major headwinds.

U.S. Bancorp (USB - Free Report) reported first-quarter 2022 earnings per share of 99 cents, which beat the Zacks Consensus Estimate of 93 cents. However, the bottom line compares unfavorably with the prior-year quarter’s figure of $1.45.

U.S. Bancorp’s results were supported by an increase in revenues, loan growth and lower non-performing assets. USB’s capital position was decent in the quarter. However, higher expenses and elevated provision for credit losses were the offsetting factors.

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