KeyCorp's Earnings Performance Overview
Goldman Sachs recently reaffirmed its Buy rating on KeyCorp (NYSE: KEY) and set a stock price target at $19.00, following the release of the company’s third-quarter earnings report. In this report, KeyCorp disclosed an earnings per share (EPS) of ($0.47). When accounting for various one-time expenses such as a $918 million securities adjustment and a $6 million FDIC reversal, the core EPS is estimated to be $0.30. This figure slightly surpasses the consensus prediction of $0.28, attributed largely to lower operational costs.
Financial Highlights
KeyCorp’s core pre-provision net revenue (PPNR) stood out in the latest quarter, outperforming projections with a reported figure of $513 million compared to the anticipated $496 million. This positive performance was buoyed by a reduction in expenses as well as an improvement in net interest income (NII), which climbed to $952 million against the consensus estimate of $938 million. Despite some setbacks in core fee income, which totaled $649 million, slightly falling short of the $664 million expectation, the overall financial outlook remained robust.
Net Interest Margins and Loan Yields
The net interest margin (NIM) for KeyCorp was reported at 2.17%, marginally below the expected 2.20%. On the deposits front, the average deposits grew by 2.5% to reach $147.77 billion, exceeding forecasts by 1.9%. The demand deposit account (DDA) deposits experienced a modest quarter-over-quarter increase of 0.9%, resulting in a higher-than-expected deposit mix of 20.2% as opposed to the forecast of 19.1%.
Loan and Securities Insights
Regarding loan and securities yields, KeyCorp experienced a rise in loan yields by 7 basis points quarter-over-quarter, reaching 5.73%, which aligned with expectations. Securities yields also saw a rise, going up by 45 basis points to 2.87%, although this fell short of the anticipated 3.07% due to adjustments in the securities portfolio. The interest-bearing deposit costs rose by 11 basis points quarter-over-quarter to 2.96%, which was higher than the expected 2.88%.
Credit Losses and Loan Quality
A key metric of credit health, the provision for credit losses, came in lower than anticipated at $95 million, compared to the $104 million consensus. Nonetheless, net charge-offs were higher than expected at approximately 0.58 basis points against an anticipated 38 basis points. Despite this, the total criticized loans showed a 2% decrease while nonperforming loans (NPLs) rose by 2.5%, now sitting at 0.69%.
Capital Position and Future Guidance
KeyCorp's tangible book value per share (TBVPS) reflected a healthy increase of 15.8%, now at $11.72. The common equity Tier 1 (CET1) capital grew by 30 basis points to 10.8%, while adjusted CET1 capital experienced a significant jump of approximately 90 basis points quarter-over-quarter to around 8.6%.
As for future expectations, KeyCorp updated its full-year 2024 guidance, indicating a potential decrease in average loans while anticipating higher fees and expenses. The company reiterated its net interest income forecast while adjusting net charge-off expectations to the higher end of the previously estimated range.
Market Reactions and Analyst Perspectives
Analysts such as those at Barclays noted that KeyCorp’s EPS has exceeded expectations, maintaining an Equalweight rating with a $16 price target. On the other hand, Baird downgraded their view from Outperform to Neutral, reducing the price target to $17, citing a significant surge in the stock’s value.
Investment Adjustments
Recently, KeyCorp sold about $7 billion worth of low-yielding investment securities, which is projected to result in an after-tax loss of about $700 million for the third quarter of 2024. Despite adverse effects from this transaction, the company has lifted its 2024 fee income projections.
Future Financial Projections
Analysts from firms like Piper Sandler and Citi expressed optimism regarding KeyCorp’s future. Citi recently raised its EPS forecast for 2025 to $1.55, while Piper Sandler upheld an Overweight rating on the stock. Additionally, Jefferies has raised its price target for KeyCorp shares to $19.00, indicating sustained confidence in the bank's financial outlook.
Frequently Asked Questions
What is KeyCorp's current EPS?
KeyCorp's current EPS stands at ($0.47), although adjusted for one-time expenses, the core EPS is estimated at $0.30.
What are the primary challenges KeyCorp faces?
The main challenges include lower core fees and higher-than-expected net charge-offs, although PPNR has exceeded forecasts.
How has KeyCorp's tangible book value changed?
KeyCorp's tangible book value per share has increased by 15.8% to $11.72.
What ratings are analysts giving KeyCorp?
Analysts have mixed views, with Barclays maintaining an Equalweight rating and Baird downgrading to Neutral.
What is the outlook for KeyCorp's 2024 guidance?
KeyCorp projected a decline in average loans, with adjustments made to both net charge-off expectations and fee income guidance.
