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KeyCorp (KEY) Dips as Q2 Earnings & Revenue Miss Estimates

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KeyCorp’s (KEY - Free Report) second-quarter 2023 earnings from continuing operations of 27 cents per share missed the Zacks Consensus Estimate of 29 cents. The bottom line declined 50% from the prior-year quarter.

The stock declined 3.6% in pre-market trading on worse-than-expected results. A full day’s trading session will depict a clearer picture.

Results have been primarily hurt by declines in net interest income (NII) and fee income. A significant increase in provisions was another negative. However, marginally lower expenses aided the results to some extent.

Net income from continuing operations attributable to common shareholders was $250 million, down 50.4% year over year.

Revenues & Expenses Decline

Total revenues (tax equivalent) declined 11% year over year to $1.60 billion. The top line lagged the Zacks Consensus Estimate of $1.61 billion.

NII (on a tax-equivalent basis) declined 10.7% year over year to $986 million. The decrease reflects higher interest-bearing deposit costs and a shift in the funding mix to higher-cost deposits and borrowings, partially offset by benefits from higher yields on loans. Our estimate for NII was $971 million.

Taxable-equivalent net interest margin from continuing operations decreased 49 basis points (bps) to 2.12%. Our estimate for NIM was 2.18%.

Non-interest income was $609 million, falling 11.5% from the prior-year quarter. The decline was due to a fall in almost all fee income components, except for income from cards and payments, commercial mortgage servicing fees, consumer mortgage income and other income. Our estimate for non-interest income was pegged at $684.3 million.

Non-interest expenses declined marginally to $1.08 billion. We projected the metric to be $1.04 billion.

At second-quarter end, average total deposits were $142.9 billion, down marginally from the prior-quarter end. The decline reflected changing client behavior due to higher interest rates and normal seasonal deposit outflows in commercial deposits.

Average total loans were $120.7 billion, up nearly 1% sequentially. The improvement was driven by commercial loans, reflecting growth in commercial and industrial loans.

Credit Quality Worsens

Net loan charge-offs, as a percentage of average loans, rose 1 bp year over year to 0.17%. Allowance for loan and lease losses was $1.48 billion, up 34.7%.

Provision for credit losses was $167 million, increasing significantly year over year. This reflected the changes in the economic outlook and portfolio activity. We projected the metric to be $216.3 million.

Non-performing assets, as a percentage of period-end portfolio loans, other real estate-owned properties assets and other non-performing assets were 0.39%, down 2 bps year over year.

Capital Ratios Mixed

KeyCorp's tangible common equity to tangible assets ratio was 4.5% as of Jun 30, 2023, down from 5.3% in the corresponding period of 2022. The Tier 1 risk-based capital ratio was 10.7%, up from 10.4%.

The Common Equity Tier 1 ratio was 9.2%, unchanged from the Jun 30, 2022, level.

Our Take

Solid loan balances, along with higher interest rates, are likely to support KeyCorp’s revenues. However, weakening asset quality amid a tough macroeconomic backdrop is a major 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 #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Major Banks

Citigroup’s (C - Free Report) second-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.37 outpaced the Zacks Consensus Estimate of $1.31.

C witnessed a decline in the top line due to lower revenues in the Institutional Clients Group. The higher cost of credit was another spoilsport. Nonetheless, higher revenues in the Personal Banking and Wealth Management segments were tailwinds.

Support from the First Republic Bank acquisition, consumer banking business, higher rates and solid loan balance drove JPMorgan’s (JPM - Free Report) second-quarter 2023 adjusted earnings to $4.37 per share. The bottom line handily surpassed the Zacks Consensus Estimate of $3.62.

The results excluded significant items related to the FRC acquisition on May 1 and net investment securities losses. After considering these, JPM’s earnings were $4.75 per share.


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