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KeyCorp (KEY) Beats on Q3 Earnings as Revenues Improve
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KeyCorp’s (KEY - Free Report) third-quarter 2018 earnings of 45 cents per share surpassed the Zacks Consensus Estimate of 44 cents. Also, this compared favorably with earnings of 32 cents recorded in the prior-year quarter.
However, shares of the company have lost almost 3% in pre-market trading. Notably, the stock’s price performance after the full day’s trading will give a better indication about investors’ sentiments.
Improvement in net interest income and fee income drove results. Further, a decline in expenses was a tailwind. However, higher provision for credit losses was an undermining factor.
Net income from continuing operations was $468 million, up 34.1% from the prior-year quarter.
Revenues Improve, Expenses Decline
Total revenues were up 3.1% year over year to $1.60 billion. However, the figure lagged the Zacks Consensus Estimate of $1.63 billion.
Tax-equivalent net interest income (NII) increased 3.2% year over year to $993 million. This included $26 million of purchase accounting accretion (PAA).
Also, taxable-equivalent net interest margin (NIM) from continuing operations increased 3 basis points (bps) year over year to 3.18%.
Non-interest income was $609 million, reflecting an increase of 2.9% from the year-ago quarter. The rise was mainly driven by higher operating lease income and other leasing gains, and higher consumer mortgage income.
Non-interest expenses decreased 2.8% year over year to $964 million. The decline was driven by a fall in both personnel costs and nonpersonnel expenses.
Strong Balance Sheet
At the end of the third quarter, average total deposits were $105.63 billion, up 1.6% from the prior quarter. Average total loans were $88.47 billion, down marginally on a sequential basis.
Credit Quality Worsens
Net loan charge-offs, as a percentage of average loans, increased 12 bps year over year to 0.27%. Provision for credit losses increased 21.6% year over year to $62 million.
Further, KeyCorp’s allowance for loan and lease losses was $887 million, up marginally from the prior-year quarter. Also, non-performing assets, as a percentage of period-end portfolio loans, other real estate owned properties assets and other nonperforming assets were 0.75%, up 11 bps year over year.
Capital Ratios Deteriorate
KeyCorp's tangible common equity to tangible assets ratio was 8.05% as of Sep 30, 2018, down from 8.49% as of Sep 30, 2017. Also, Tier 1 risk-based capital ratio was 11.09%, down from 11.11% as of Sep 30, 2017.
The company’s estimated Basel III Common Equity Tier 1 ratio was 9.93% at the end of the quarter.
Share Repurchases
During the reported quarter, KeyCorp repurchased $542 million worth of shares as part of its 2018 capital plan.
Our Take
KeyCorp remains well positioned for revenue growth, given the rise in interest rates and improving loan and deposit balances. Further, tax rate cut will aid profitability to some extent. However, persistently increasing expenses, owing to investments in franchise and acquisitions, are likely to curb bottom-line growth. Further, the company's significant exposure to risky loan portfolios remains a major concern.
Comerica’s (CMA - Free Report) third-quarter 2018 adjusted earnings per share of $1.86 surpassed the Zacks Consensus Estimate of $1.76. Higher revenues and improved credit metrics were recorded. However, lower deposits and loans remained an undermining factor. Also, higher expenses were a headwind.
The PNC Financial Services Group (PNC - Free Report) delivered a positive earnings surprise of 3.3% in third-quarter 2018. Earnings per share of $2.82 beat the Zacks Consensus Estimate of $2.73. Continued easing of pressure on net interest margin led to higher net interest income during the reported quarter. Though mortgage banking revenues declined, overall non-interest income witnessed year-over-year growth.
Driven by expense management, Citigroup (C - Free Report) delivered a positive earnings surprise of 4.8% in third-quarter 2018. Earnings from continuing operations per share of $1.74 for the quarter handily outpaced the Zacks Consensus Estimate of $1.66. Though investment banking revenues disappointed as strong advisory business was more than offset by lower underwriting fees on low client activity, reduced expenses and credit costs acted as tailwinds.
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KeyCorp (KEY) Beats on Q3 Earnings as Revenues Improve
KeyCorp’s (KEY - Free Report) third-quarter 2018 earnings of 45 cents per share surpassed the Zacks Consensus Estimate of 44 cents. Also, this compared favorably with earnings of 32 cents recorded in the prior-year quarter.
However, shares of the company have lost almost 3% in pre-market trading. Notably, the stock’s price performance after the full day’s trading will give a better indication about investors’ sentiments.
Improvement in net interest income and fee income drove results. Further, a decline in expenses was a tailwind. However, higher provision for credit losses was an undermining factor.
Net income from continuing operations was $468 million, up 34.1% from the prior-year quarter.
Revenues Improve, Expenses Decline
Total revenues were up 3.1% year over year to $1.60 billion. However, the figure lagged the Zacks Consensus Estimate of $1.63 billion.
Tax-equivalent net interest income (NII) increased 3.2% year over year to $993 million. This included $26 million of purchase accounting accretion (PAA).
Also, taxable-equivalent net interest margin (NIM) from continuing operations increased 3 basis points (bps) year over year to 3.18%.
Non-interest income was $609 million, reflecting an increase of 2.9% from the year-ago quarter. The rise was mainly driven by higher operating lease income and other leasing gains, and higher consumer mortgage income.
Non-interest expenses decreased 2.8% year over year to $964 million. The decline was driven by a fall in both personnel costs and nonpersonnel expenses.
Strong Balance Sheet
At the end of the third quarter, average total deposits were $105.63 billion, up 1.6% from the prior quarter. Average total loans were $88.47 billion, down marginally on a sequential basis.
Credit Quality Worsens
Net loan charge-offs, as a percentage of average loans, increased 12 bps year over year to 0.27%. Provision for credit losses increased 21.6% year over year to $62 million.
Further, KeyCorp’s allowance for loan and lease losses was $887 million, up marginally from the prior-year quarter. Also, non-performing assets, as a percentage of period-end portfolio loans, other real estate owned properties assets and other nonperforming assets were 0.75%, up 11 bps year over year.
Capital Ratios Deteriorate
KeyCorp's tangible common equity to tangible assets ratio was 8.05% as of Sep 30, 2018, down from 8.49% as of Sep 30, 2017. Also, Tier 1 risk-based capital ratio was 11.09%, down from 11.11% as of Sep 30, 2017.
The company’s estimated Basel III Common Equity Tier 1 ratio was 9.93% at the end of the quarter.
Share Repurchases
During the reported quarter, KeyCorp repurchased $542 million worth of shares as part of its 2018 capital plan.
Our Take
KeyCorp remains well positioned for revenue growth, given the rise in interest rates and improving loan and deposit balances. Further, tax rate cut will aid profitability to some extent. However, persistently increasing expenses, owing to investments in franchise and acquisitions, are likely to curb bottom-line growth. Further, the company's significant exposure to risky loan portfolios remains a major concern.
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 Banks
Comerica’s (CMA - Free Report) third-quarter 2018 adjusted earnings per share of $1.86 surpassed the Zacks Consensus Estimate of $1.76. Higher revenues and improved credit metrics were recorded. However, lower deposits and loans remained an undermining factor. Also, higher expenses were a headwind.
The PNC Financial Services Group (PNC - Free Report) delivered a positive earnings surprise of 3.3% in third-quarter 2018. Earnings per share of $2.82 beat the Zacks Consensus Estimate of $2.73. Continued easing of pressure on net interest margin led to higher net interest income during the reported quarter. Though mortgage banking revenues declined, overall non-interest income witnessed year-over-year growth.
Driven by expense management, Citigroup (C - Free Report) delivered a positive earnings surprise of 4.8% in third-quarter 2018. Earnings from continuing operations per share of $1.74 for the quarter handily outpaced the Zacks Consensus Estimate of $1.66. Though investment banking revenues disappointed as strong advisory business was more than offset by lower underwriting fees on low client activity, reduced expenses and credit costs acted as tailwinds.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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