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KeyCorp (KEY) Down as Q4 Earnings Lag Estimates on Provisions
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KeyCorp’s (KEY - Free Report) fourth-quarter 2022 earnings from continuing operations of 38 cents per share lagged the Zacks Consensus Estimate of 55 cents. The bottom line also declined 40.6% from the prior-year quarter. Our estimate for the metric was 54 cents per share.
Shares of KEY lost 2% in pre-market market trading on lower-than-expected quarterly performance. Higher provisions and weak fee income performance weighed on investor sentiments.
A rise in net interest income (NII) driven by robust average loan growth and higher interest rates supported KEY’s results. Also, a modest decline in expenses was a tailwind. However, a fall in non-interest income due to a tough operating backdrop and higher provisions were the undermining factors.
Net income from continuing operations attributable to common shareholders was $356 million, down 40.7% year over year. We had projected the same to be $506.6 million.
In 2022, earnings from continuing operations of $1.94 per share missed the consensus estimate of $2.09 and decreased 26.5% from $2.64 in the prior year. Net income from continuing operations available to common shareholders was $1.79 billion, down 28.5%.
Revenues Decline, Expenses Dip Modestly
Total revenues fell 2.5% year over year to $1.89 billion. The top line also lagged the Zacks Consensus Estimate of $1.92 billion. Our estimate for the metric was $1.92 billion.
In 2022, total revenues dipped from the prior year to $7.27 billion. The top line missed the Zacks Consensus Estimate of $7.29 billion.
NII (on a tax-equivalent basis) grew 18.2% to $1.23 billion. The increase was mainly driven by higher earning asset balances and a rise in rates. Our estimate for NII was $1.24 billion.
Taxable-equivalent net interest margin from continuing operations increased 29 basis points (bps) to 2.73%. Our estimate for NIM was 2.76%.
Non-interest income was $671 million, falling 26.2%. The decline was mainly due to lower consumer mortgage income, investment banking and debt placement fees and other income.
Non-interest expenses decreased 1.2% to $1.16 billion. We had projected the metric to be $1.13 billion.
At the fourth-quarter end, average total deposits were $145.7 billion, up 1% from the prior quarter. Average total loans were $117.7 billion, up 2.9%. The growth was primarily driven by robust strength in commercial loan portfolios.
Credit Quality Deteriorating
Net loan charge-offs, as a percentage of average loans, rose 6 bps year over year to 0.14%. Provision for credit losses was $265 million compared with $4 million in the prior-year quarter. This mainly reflected the uncertain economic outlook and loan growth.
Allowance for loan and lease losses was $1.33 billion, up 26% year over year.
Non-performing assets, as a percentage of period-end portfolio loans, other real estate-owned properties assets and other non-performing assets were 0.35%, down 13 bps.
Capital Ratios Deteriorates
KeyCorp's tangible common equity to tangible assets ratio was 4.4% as of Dec 31, 2022, down from 6.9% in the corresponding period of 2021. Tier 1 risk-based capital ratio was 10.6%, declining from 10.8%.
Common Equity Tier 1 ratio was 9.1%, down from 9.5% as of Dec 31, 2021.
Our Take
Solid loans and deposit 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.
Citizens Financial Group (CFG - Free Report) reported fourth-quarter 2022 underlying earnings per share of $1.32, surpassing the Zacks Consensus Estimate of $1.30. Also, the bottom line rose from $1.26 in the year-ago quarter.
Results reflect NII growth on solid loan and deposit balances. However, an escalation in expenses, lower non-interest income and a rise in provisions were the undermining factors.
Signature Bank’s (SBNY - Free Report) fourth-quarter 2022 earnings per share of $4.65 lagged the Zacks Consensus Estimate of $4.92. However, the bottom line increased 7.1% from the prior-year quarter. We had projected earnings of $5.42 per share.
Results were hurt by increases in non-interest expenses and provisions. However, higher revenues acted as a tailwind.
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KeyCorp (KEY) Down as Q4 Earnings Lag Estimates on Provisions
KeyCorp’s (KEY - Free Report) fourth-quarter 2022 earnings from continuing operations of 38 cents per share lagged the Zacks Consensus Estimate of 55 cents. The bottom line also declined 40.6% from the prior-year quarter. Our estimate for the metric was 54 cents per share.
Shares of KEY lost 2% in pre-market market trading on lower-than-expected quarterly performance. Higher provisions and weak fee income performance weighed on investor sentiments.
A rise in net interest income (NII) driven by robust average loan growth and higher interest rates supported KEY’s results. Also, a modest decline in expenses was a tailwind. However, a fall in non-interest income due to a tough operating backdrop and higher provisions were the undermining factors.
Net income from continuing operations attributable to common shareholders was $356 million, down 40.7% year over year. We had projected the same to be $506.6 million.
In 2022, earnings from continuing operations of $1.94 per share missed the consensus estimate of $2.09 and decreased 26.5% from $2.64 in the prior year. Net income from continuing operations available to common shareholders was $1.79 billion, down 28.5%.
Revenues Decline, Expenses Dip Modestly
Total revenues fell 2.5% year over year to $1.89 billion. The top line also lagged the Zacks Consensus Estimate of $1.92 billion. Our estimate for the metric was $1.92 billion.
In 2022, total revenues dipped from the prior year to $7.27 billion. The top line missed the Zacks Consensus Estimate of $7.29 billion.
NII (on a tax-equivalent basis) grew 18.2% to $1.23 billion. The increase was mainly driven by higher earning asset balances and a rise in rates. Our estimate for NII was $1.24 billion.
Taxable-equivalent net interest margin from continuing operations increased 29 basis points (bps) to 2.73%. Our estimate for NIM was 2.76%.
Non-interest income was $671 million, falling 26.2%. The decline was mainly due to lower consumer mortgage income, investment banking and debt placement fees and other income.
Non-interest expenses decreased 1.2% to $1.16 billion. We had projected the metric to be $1.13 billion.
At the fourth-quarter end, average total deposits were $145.7 billion, up 1% from the prior quarter. Average total loans were $117.7 billion, up 2.9%. The growth was primarily driven by robust strength in commercial loan portfolios.
Credit Quality Deteriorating
Net loan charge-offs, as a percentage of average loans, rose 6 bps year over year to 0.14%. Provision for credit losses was $265 million compared with $4 million in the prior-year quarter. This mainly reflected the uncertain economic outlook and loan growth.
Allowance for loan and lease losses was $1.33 billion, up 26% year over year.
Non-performing assets, as a percentage of period-end portfolio loans, other real estate-owned properties assets and other non-performing assets were 0.35%, down 13 bps.
Capital Ratios Deteriorates
KeyCorp's tangible common equity to tangible assets ratio was 4.4% as of Dec 31, 2022, down from 6.9% in the corresponding period of 2021. Tier 1 risk-based capital ratio was 10.6%, declining from 10.8%.
Common Equity Tier 1 ratio was 9.1%, down from 9.5% as of Dec 31, 2021.
Our Take
Solid loans and deposit 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 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
Citizens Financial Group (CFG - Free Report) reported fourth-quarter 2022 underlying earnings per share of $1.32, surpassing the Zacks Consensus Estimate of $1.30. Also, the bottom line rose from $1.26 in the year-ago quarter.
Results reflect NII growth on solid loan and deposit balances. However, an escalation in expenses, lower non-interest income and a rise in provisions were the undermining factors.
Signature Bank’s (SBNY - Free Report) fourth-quarter 2022 earnings per share of $4.65 lagged the Zacks Consensus Estimate of $4.92. However, the bottom line increased 7.1% from the prior-year quarter. We had projected earnings of $5.42 per share.
Results were hurt by increases in non-interest expenses and provisions. However, higher revenues acted as a tailwind.