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KeyCorp (KEY) Slides Despite Q4 Earnings Beat, Revenues Down
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KeyCorp’s (KEY - Free Report) fourth-quarter 2023 adjusted earnings from continuing operations of 25 cents per share surpassed the Zacks Consensus Estimate of 22 cents. This excludes an FDIC special assessment charge, efficiency-related expenses and a pension settlement charge.
The stock lost 2% in pre-market trading on top-line weakness.
Results benefited from a decline in provisions. However, lower net interest income (NII) and non-interest income, along with higher expenses, were the undermining factors. Further, higher deposit costs and lower average loan balance weighed on net interest margin (NIM) despite a higher interest rate environment.
After considering the above-mentioned charges, net income from continuing operations attributable to common shareholders was $30 million, plunging 91.6% year over year.
For 2023, adjusted earnings from continuing operations of $1.15 per share beat the Zacks Consensus Estimate of $1.08. Net income from continuing operations attributable to common shareholders (GAAP) was $821 million, down 54.2% year over year.
Revenues Decline, Expenses Rise
Quarterly total revenues (tax equivalent) declined 19% year over year to $1.54 billion. However, the top line beat the Zacks Consensus Estimate of $1.52 billion.
In 2023, total revenues (tax equivalent) were $6.41 billion, down 11.8% year over year. However, the top line surpassed the Zacks Consensus Estimate of $6.38 billion.
NII (on a tax-equivalent basis) declined 24.4% year over year to $928 million. The fall reflects higher interest-bearing deposit and borrowing costs and a shift in funding mix to higher cost deposits due to the higher interest rate environment, partly offset by a rise in earning asset balances. Our estimate for NII was $937.6 million.
Taxable-equivalent NIM from continuing operations decreased 66 basis points (bps) to 2.07%.
Non-interest income was $610 million, falling 9.1%. The decline was largely due to a fall in investment banking and debt placement fees, corporate services income, cards and payments income and service charges on deposit accounts. Our estimate for non-interest income was pegged at $609.9 million.
Non-interest expenses increased 18.7% from the prior-year quarter to $1.37 billion. This included the impacts of the above-mentioned charges. Excluding these, expenses were $1.1 billion. We projected the metric to be $1.11 billion (didn’t include the above-mentioned non-recurring charges).
At the fourth-quarter end, average total deposits were $145.1 billion, up marginally from the prior-quarter end. The rise was driven by a seasonal increase in commercial deposit balances, partly offset by a decline in other time deposits. Our estimate for the metric was $144.1 billion.
Average total loans were $113.9 billion, down 3.1% sequentially. The decline was due to the company’s planned balance sheet optimization efforts. We had anticipated average total loans of $114.4 billion.
Credit Quality Weakens
Net loan charge-offs, as a percentage of average loans, rose 12 bps year over year to 0.26%. The allowance for loan and lease losses was $1.51 billion, up 12.8%.
Non-performing assets, as a percentage of period-end portfolio loans, other real estate-owned properties assets and other non-performing assets were 0.52%, up 17 bps year over year.
However, the provision for credit losses was $102 million, decreasing 61.5% year over year. The decline reflected a more stable economic outlook and the impacts of KeyCorp’s balance sheet optimization efforts.
Capital Ratios Improve
KeyCorp's tangible common equity to tangible assets ratio was 5.1% as of Dec 31, 2023, up from 4.4% in the corresponding period of 2022. The Tier 1 risk-based capital ratio was 11.7%, up from 10.6 %.
The Common Equity Tier 1 ratio was 10%, up from 9.1% as of Dec 31, 2022.
Our Take
Decent loan balances, along with higher interest rates, are likely to support KeyCorp’s revenues in the near term, though rising funding costs continue to exert pressure. Weakening asset quality amid a tough macroeconomic backdrop is a major near-term concern.
Citigroup Inc.’s (C - Free Report) fourth-quarter 2023 earnings per share (excluding the impact of notable items) of 84 cents surpassed the Zacks Consensus Estimate of 73 cents. It registered earnings of $1.16 a year ago.
Including the impact of notable items in the quarter, C recorded loss per share of $1.16.
Citigroup witnessed growth in total loans and deposits in the quarter. However, a decline in revenues and deteriorating credit quality are the headwinds.
Higher interest rates, the First Republic Bank deal, modest improvement in investment banking (IB) business and solid loan balance drove JPMorgan’s (JPM - Free Report) fourth-quarter 2023 adjusted earnings to $3.97 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.73.
JPM’s results excluded net investment securities losses and the FDIC special assessment charges. After including these, earnings were $3.04 per share.
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KeyCorp (KEY) Slides Despite Q4 Earnings Beat, Revenues Down
KeyCorp’s (KEY - Free Report) fourth-quarter 2023 adjusted earnings from continuing operations of 25 cents per share surpassed the Zacks Consensus Estimate of 22 cents. This excludes an FDIC special assessment charge, efficiency-related expenses and a pension settlement charge.
The stock lost 2% in pre-market trading on top-line weakness.
Results benefited from a decline in provisions. However, lower net interest income (NII) and non-interest income, along with higher expenses, were the undermining factors. Further, higher deposit costs and lower average loan balance weighed on net interest margin (NIM) despite a higher interest rate environment.
After considering the above-mentioned charges, net income from continuing operations attributable to common shareholders was $30 million, plunging 91.6% year over year.
For 2023, adjusted earnings from continuing operations of $1.15 per share beat the Zacks Consensus Estimate of $1.08. Net income from continuing operations attributable to common shareholders (GAAP) was $821 million, down 54.2% year over year.
Revenues Decline, Expenses Rise
Quarterly total revenues (tax equivalent) declined 19% year over year to $1.54 billion. However, the top line beat the Zacks Consensus Estimate of $1.52 billion.
In 2023, total revenues (tax equivalent) were $6.41 billion, down 11.8% year over year. However, the top line surpassed the Zacks Consensus Estimate of $6.38 billion.
NII (on a tax-equivalent basis) declined 24.4% year over year to $928 million. The fall reflects higher interest-bearing deposit and borrowing costs and a shift in funding mix to higher cost deposits due to the higher interest rate environment, partly offset by a rise in earning asset balances. Our estimate for NII was $937.6 million.
Taxable-equivalent NIM from continuing operations decreased 66 basis points (bps) to 2.07%.
Non-interest income was $610 million, falling 9.1%. The decline was largely due to a fall in investment banking and debt placement fees, corporate services income, cards and payments income and service charges on deposit accounts. Our estimate for non-interest income was pegged at $609.9 million.
Non-interest expenses increased 18.7% from the prior-year quarter to $1.37 billion. This included the impacts of the above-mentioned charges. Excluding these, expenses were $1.1 billion. We projected the metric to be $1.11 billion (didn’t include the above-mentioned non-recurring charges).
At the fourth-quarter end, average total deposits were $145.1 billion, up marginally from the prior-quarter end. The rise was driven by a seasonal increase in commercial deposit balances, partly offset by a decline in other time deposits. Our estimate for the metric was $144.1 billion.
Average total loans were $113.9 billion, down 3.1% sequentially. The decline was due to the company’s planned balance sheet optimization efforts. We had anticipated average total loans of $114.4 billion.
Credit Quality Weakens
Net loan charge-offs, as a percentage of average loans, rose 12 bps year over year to 0.26%. The allowance for loan and lease losses was $1.51 billion, up 12.8%.
Non-performing assets, as a percentage of period-end portfolio loans, other real estate-owned properties assets and other non-performing assets were 0.52%, up 17 bps year over year.
However, the provision for credit losses was $102 million, decreasing 61.5% year over year. The decline reflected a more stable economic outlook and the impacts of KeyCorp’s balance sheet optimization efforts.
Capital Ratios Improve
KeyCorp's tangible common equity to tangible assets ratio was 5.1% as of Dec 31, 2023, up from 4.4% in the corresponding period of 2022. The Tier 1 risk-based capital ratio was 11.7%, up from 10.6 %.
The Common Equity Tier 1 ratio was 10%, up from 9.1% as of Dec 31, 2022.
Our Take
Decent loan balances, along with higher interest rates, are likely to support KeyCorp’s revenues in the near term, though rising funding costs continue to exert pressure. 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) fourth-quarter 2023 earnings per share (excluding the impact of notable items) of 84 cents surpassed the Zacks Consensus Estimate of 73 cents. It registered earnings of $1.16 a year ago.
Including the impact of notable items in the quarter, C recorded loss per share of $1.16.
Citigroup witnessed growth in total loans and deposits in the quarter. However, a decline in revenues and deteriorating credit quality are the headwinds.
Higher interest rates, the First Republic Bank deal, modest improvement in investment banking (IB) business and solid loan balance drove JPMorgan’s (JPM - Free Report) fourth-quarter 2023 adjusted earnings to $3.97 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.73.
JPM’s results excluded net investment securities losses and the FDIC special assessment charges. After including these, earnings were $3.04 per share.