Back to top

Image: Bigstock

KeyCorp's (KEY) Q1 Earnings & Revenues Beat Expectations

Read MoreHide Full Article

KeyCorp’s (KEY - Free Report) first-quarter 2017 adjusted earnings of 32 cents per share handily surpassed the Zacks Consensus Estimate of 28 cents. The figure was up 33.3% from the prior-year quarter.

KeyCorp’s shares rose nearly 3.3% in pre-market trading, reflecting impressive top-line growth. Notably, the price reaction during the full trading session will provide a better idea about how investors accepted the results.

Better-than-expected results were attributable to revenue synergies from the First Niagara Financial Group acquisition deal (completed in Aug 2016) and lower provision for credit losses. However, higher operating expenses were the downside. Notably, the company witnessed a marginal loan growth while deposit balances declined.

 

 



Including merger-related charges of $81 million, net income from continuing operations came in at $296 million, up 62.6% from the prior-year quarter.

First Niagara Deal Continues to Drive Revenues, Expenses Rise

Total revenue surged 58% year over year to $1.50 billion. Also, it compared favorably with the Zacks Consensus Estimate of $1.45 billion.

Tax-equivalent net interest income jumped 51.8% year over year to $926 million. The rise was attributable to benefits from the First Niagara acquisition and ongoing business activities. Also, taxable-equivalent net interest margin from continuing operations grew 24 basis points (bps) year over year to 3.13%.

Non-interest income (excluding merger related charges) was $577 million, an increase of 33.9% from the year-ago quarter. A rise in all fee income components drove the surge.

Non-interest expenses (excluding merger related charges) jumped 37.3% year over year to $932 million due to a rise in both personnel as well as non-personnel expenses. Also, the quarter recorded significantly higher merger-related charges.

Loans Rise Marginally, Deposits Decline

At the end of the first quarter, average total deposits were $102.1 billion, down 2.5% from the prior quarter. However, average total loans were $86.1 billion, up 0.9% sequentially.

Improving Credit Quality

Net loan charge-offs, as a percentage of average loans, fell 4 bps year over year to 0.27%. Provision for credit losses declined 29.2% year over year to $63 million.

Further, non-performing assets, as a percentage of period-end portfolio loans, other real estate owned properties assets and other nonperforming assets were 0.72%, down 42 bps year over year. However, KeyCorp’s allowance for loan and lease losses was $870 million, up 5.3% from the prior-year quarter.

Capital Ratios Deteriorate

KeyCorp's tangible common equity to tangible assets ratio was 8.51% as of Mar 31, 2017, down from 9.97% as of Mar 31, 2016. In addition, Tier 1 risk-based capital ratio was 10.70% versus 11.38% as of Mar 31, 2016.

The company’s estimated Basel III Tier 1 common ratio was 9.87% at the end of the quarter, down from 11.07% as of Mar 31, 2016.

Share Repurchases

During the reported quarter, KeyCorp repurchased $160 million worth of shares as part of its 2016 capital plan.

Our Take

Restructuring initiatives being undertaken by KeyCorp will be supported by its robust balance-sheet position. In addition, the company’s financials will continue to benefit from the synergies of the First Niagara transaction. Further, with gradual rise in interest rates, margin pressure is expected to ease in the coming quarters. However, increased dependence on home equity and commercial real estate loans raises the exposure of the company’s profits to these avenues.

KeyCorp Price, Consensus and EPS Surprise

 

KeyCorp Price, Consensus and EPS Surprise | 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 Regional Banks

U.S. Bancorp (USB - Free Report) reported earnings per share of 82 cents, beating the Zacks Consensus Estimate of 80 cents. Higher revenues, aided by elevated average loans and deposits, were partially offset by escalating expenses and provisions.

Comerica Inc.’s (CMA - Free Report) first-quarter 2017 adjusted earnings per share of $1.02 surpassed the Zacks Consensus Estimate by a penny.  Better-than-expected results reflect higher revenues and lower expenses. Moreover, lower provisions and better credit quality were the tailwinds.

Among other Wall Street giants, SunTrust Banks, Inc. (STI - Free Report) is scheduled to report first-quarter 2017 earnings on Apr 21.

Zacks' 2017 IPO Watch List

Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.

One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Download this IPO Watch List today for free >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Comerica Incorporated (CMA) - free report >>

U.S. Bancorp (USB) - free report >>

Solidion Technology Inc. (STI) - free report >>

KeyCorp (KEY) - free report >>