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KeyCorp (KEY) Gains on Q3 Earnings Beat, Declining Provisions
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KeyCorp’s (KEY - Free Report) third-quarter 2023 earnings from continuing operations of 29 cents per share surpassed the Zacks Consensus Estimate of 27 cents. However, the bottom line declined 47.3% from the prior-year quarter.
The stock gained 3% in pre-market trading on better-than-expected results. However, a full day’s trading session will depict a clearer picture.
Results have been aided by a decline in provisions. However, lower net interest income (NII) and non-interest income, along with marginally higher expenses, were the undermining factors. Despite higher interest rates, the net interest margin witnessed a year-over-year decline on higher deposit costs.
Net income from continuing operations attributable to common shareholders was $266 million, down 48.1% year over year.
Revenues Decline, Expenses Rise Marginally
Total revenues (tax equivalent) declined 17% year over year to $1.57 billion. However, the top line beat the Zacks Consensus Estimate of $1.55 billion.
NII (on a tax-equivalent basis) declined 23.3% year over year to $923 million. The decrease reflects higher interest-bearing deposit costs and a shift in funding mix to higher cost deposits and borrowings due to the higher interest rate environment, partly offset by higher earning asset balances and yields. Our estimate for NII was $932.3 million.
Taxable-equivalent net interest margin from continuing operations decreased 73 basis points (bps) year over year to 2.01%. Our estimate for NIM was 2.12%.
Non-interest income was $643 million, falling 5.9% from the prior-year quarter. The decline was due to a fall in investment banking and debt placement fees, cards and payments income, service charges on deposit accounts, and corporate services income. Our estimate for non-interest income was pegged at $625.1 million.
Non-interest expenses increased marginally from the prior-year quarter to $1.11 billion. We projected the metric to be $1.08 billion.
At the third-quarter end, average total deposits were $144.8 billion, up 1.3% from the prior-quarter end. The rise was driven by an increase in consumer and commercial deposit balances, partly offset by a decline in other time deposits, reflecting a decrease in wholesale deposit balances.
Average total loans were $117.6 billion, down 2.5% sequentially. The decline was due to a reduction in non-relationship loan balances as part of the company’s planned balance sheet optimization efforts.
Credit Quality: A Mixed Bag
Net loan charge-offs, as a percentage of average loans, rose 9 bps year over year to 0.24%. The allowance for loan and lease losses was $1.49 billion, up 30.1% 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 0.41%, up 5 bps year over year.
However, the provision for credit losses was $81 million, decreasing 25.7% year over year. The decline reflects a more stable economic outlook and the impacts of balance sheet optimization efforts. We projected the metric to be $133.7 million.
Capital Ratios Improve
KeyCorp's tangible common equity to tangible assets ratio was 4.4% as of Sep 30, 2023, up from 4.3% in the corresponding period of 2022. The Tier 1 risk-based capital ratio was 11.4%, up from 10.7%.
The Common Equity Tier 1 ratio was 9.8%, up from 9.1% as of Sep 30, 2022.
Our Take
Solid loan balances, along with higher interest rates, are likely to support KeyCorp’s revenues in the near term. However, weakening asset quality amid a tough macroeconomic backdrop is a major near-term concern.
Citigroup Inc.’s (C - Free Report) third-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.52 outpaced the Zacks Consensus Estimate of $1.26.
In the quarter, Citigroup witnessed a rise in revenues, driven by higher revenues in the Institutional Clients Group, as well as the Personal Banking and Wealth Management segments. The higher cost of credit was a spoilsport for C.
Support from higher interest rates, the First Republic Bank deal, robust consumer and commercial banking businesses, and solid loan balance drove JPMorgan’s (JPM - Free Report) third-quarter 2023 earnings to $4.33 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.89.
The results included net investment securities losses and legal expenses. After excluding these, JPM’s quarterly earnings were $3.94 per share.
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KeyCorp (KEY) Gains on Q3 Earnings Beat, Declining Provisions
KeyCorp’s (KEY - Free Report) third-quarter 2023 earnings from continuing operations of 29 cents per share surpassed the Zacks Consensus Estimate of 27 cents. However, the bottom line declined 47.3% from the prior-year quarter.
The stock gained 3% in pre-market trading on better-than-expected results. However, a full day’s trading session will depict a clearer picture.
Results have been aided by a decline in provisions. However, lower net interest income (NII) and non-interest income, along with marginally higher expenses, were the undermining factors. Despite higher interest rates, the net interest margin witnessed a year-over-year decline on higher deposit costs.
Net income from continuing operations attributable to common shareholders was $266 million, down 48.1% year over year.
Revenues Decline, Expenses Rise Marginally
Total revenues (tax equivalent) declined 17% year over year to $1.57 billion. However, the top line beat the Zacks Consensus Estimate of $1.55 billion.
NII (on a tax-equivalent basis) declined 23.3% year over year to $923 million. The decrease reflects higher interest-bearing deposit costs and a shift in funding mix to higher cost deposits and borrowings due to the higher interest rate environment, partly offset by higher earning asset balances and yields. Our estimate for NII was $932.3 million.
Taxable-equivalent net interest margin from continuing operations decreased 73 basis points (bps) year over year to 2.01%. Our estimate for NIM was 2.12%.
Non-interest income was $643 million, falling 5.9% from the prior-year quarter. The decline was due to a fall in investment banking and debt placement fees, cards and payments income, service charges on deposit accounts, and corporate services income. Our estimate for non-interest income was pegged at $625.1 million.
Non-interest expenses increased marginally from the prior-year quarter to $1.11 billion. We projected the metric to be $1.08 billion.
At the third-quarter end, average total deposits were $144.8 billion, up 1.3% from the prior-quarter end. The rise was driven by an increase in consumer and commercial deposit balances, partly offset by a decline in other time deposits, reflecting a decrease in wholesale deposit balances.
Average total loans were $117.6 billion, down 2.5% sequentially. The decline was due to a reduction in non-relationship loan balances as part of the company’s planned balance sheet optimization efforts.
Credit Quality: A Mixed Bag
Net loan charge-offs, as a percentage of average loans, rose 9 bps year over year to 0.24%. The allowance for loan and lease losses was $1.49 billion, up 30.1% 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 0.41%, up 5 bps year over year.
However, the provision for credit losses was $81 million, decreasing 25.7% year over year. The decline reflects a more stable economic outlook and the impacts of balance sheet optimization efforts. We projected the metric to be $133.7 million.
Capital Ratios Improve
KeyCorp's tangible common equity to tangible assets ratio was 4.4% as of Sep 30, 2023, up from 4.3% in the corresponding period of 2022. The Tier 1 risk-based capital ratio was 11.4%, up from 10.7%.
The Common Equity Tier 1 ratio was 9.8%, up from 9.1% as of Sep 30, 2022.
Our Take
Solid loan balances, along with higher interest rates, are likely to support KeyCorp’s revenues in the near term. However, weakening asset quality amid a tough macroeconomic backdrop is a major near-term concern.
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
Citigroup Inc.’s (C - Free Report) third-quarter 2023 earnings per share (excluding divestiture-related impacts) of $1.52 outpaced the Zacks Consensus Estimate of $1.26.
In the quarter, Citigroup witnessed a rise in revenues, driven by higher revenues in the Institutional Clients Group, as well as the Personal Banking and Wealth Management segments. The higher cost of credit was a spoilsport for C.
Support from higher interest rates, the First Republic Bank deal, robust consumer and commercial banking businesses, and solid loan balance drove JPMorgan’s (JPM - Free Report) third-quarter 2023 earnings to $4.33 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.89.
The results included net investment securities losses and legal expenses. After excluding these, JPM’s quarterly earnings were $3.94 per share.