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KeyCorp's Q4 Earnings Beat on NII, Stock Dips on Weak Asset Quality
KeyCorp’s KEY fourth-quarter 2024 adjusted earnings from continuing operations of 38 cents per share beat the Zacks Consensus Estimate of 33 cents. Further, the bottom line reflected a 52% jump from the prior-year quarter.
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The stock lost 4.4% in pre-market trading on deteriorating credit quality and spread income weakness concerns.
Results benefited from a rise in adjusted non-interest income, higher net interest income (NII), and lower expenses and provisions. Improvement in the deposit balance was another positive. However, a lower loan balance was an undermining factor. Further, higher deposit costs weighed on the net interest margin (NIM).
Results in the reported quarter excluded $657 million after-tax loss on the sale of securities as part of a strategic repositioning of the portfolio. After considering these, net loss from continuing operations attributable to common shareholders was $279 million against a profit of $30 million in the prior year quarter. Our estimate for the metric was a profit of $309.4 million.
For 2024, adjusted earnings from continuing operations of $1.16 per share beat the Zacks Consensus Estimate of $1.10. Net loss from continuing operations attributable to common shareholders (GAAP) was $306 million against net income of $821 million in the prior year quarter.
KEY’s Revenues Up, Expenses Decline
Total quarterly revenues were $865 million. Adjusted quarterly total revenues (tax equivalent or TE) rose 15.9% year over year to $1.78 billion. Moreover, the top line beat the Zacks Consensus Estimate of $1.73 billion.
In 2024, total revenues (tax equivalent) were $6.46 billion, up marginally year over year. The top line surpassed the Zacks Consensus Estimate of $6.37 billion.
NII (on a TE basis) increased 14.3% to $1.06 billion. NIM (TE basis) from continuing operations increased 34 basis points (bps) to 2.41%. Both metrics benefited from the re-investment of proceeds from maturing investment securities into higher-yielding ones, lower deposit costs and maturity of lower-yielding swaps with negative carry, partially offset by lower loan balances because of balance sheet optimization efforts during 2023 and the third quarter of 2024 and lower interest rates on repricing earning assets. Our estimate for NII (FTE) and NIM was $1.05 million and 2.41%, respectively.
Non-interest income was negative $196 million. Excluding securities losses, adjusted non-interest income grew 18.4% to $722 million. The rise was largely attributable to higher trust and investment services income, commercial mortgage servicing fees, consumer mortgage income, and investment banking and debt placement fees. Our estimate for the metric was $691.7 million.
Non-interest expenses declined 10.4% to $1.23 billion. This included an additional FDIC special assessment charge of $3 million. We projected the metric to be $1.12 billion.
Keycorp’s Loans & Deposits
At fourth-quarter end, average total deposits were $149.7 billion, up 1.3% from the prior quarter end. The rise was driven by growth in both consumer and commercial deposits. Our estimate for the metric was $146.8 billion.
Average total loans were $104.7 billion, down 1.4% sequentially. The decline was primarily driven by a decrease in commercial mortgage real estate loans and commercial and industrial loans. We had anticipated average total loans of $109.7 billion.
Credit Quality Deteriorates For KEY
Net loan charge-offs, as a percentage of average loans, rose 17 bps year over year to 0.46%. The allowance for loan and lease losses was $1.41 billion, down 6.6%.
Non-performing assets, as a percentage of period-end portfolio loans, other real estate-owned property assets and other non-performing assets, were 0.74%, up 24 bps year over year.
Also, the provision for credit losses was $39 million, down 61.8%. The decline primarily reflects lower loan balances, slowing asset quality migration and changes in net charge-off levels. We had expected the metric to be $101.1 million.
Keycorp’s Capital Ratios Improve
KeyCorp's tangible common equity to tangible assets ratio was 7% as of Dec. 31, 2024, up from 5.1% in the corresponding period of 2023. The Tier 1 risk-based capital ratio was 13.7%, up from 11.7%. The Common Equity Tier 1 ratio was 12%, up from 10% as of Dec. 31, 2023.
Scotiabank Completes Equity Stake in KeyCorp
During the quarter, The Bank of Nova Scotia BNS, also known as Scotiabank, completed its strategic minority investment of roughly $2 billion in KeyCorp. With this investment, Scotiabank’s stake increased to 14.9% in KEY. This marks a massive advancement for BNS as it tries to expand operations in North America.
The deal involved BNS buying nearly 163 million KEY shares in two parts. KeyCorp received the first tranche of strategic minority investment of 0.8 billion and $2 billion in the second part of the deal.
Our Take on KeyCorp
Decent loan balances, balance sheet repositioning efforts, strategic buyouts and relatively higher interest rates will likely support KeyCorp’s revenues in the near term, though rising funding costs will continue to exert pressure. Weakening asset quality and a significant commercial loan exposure remain concerns.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Major Banks
The PNC Financial Services Group, Inc.’s PNC fourth-quarter 2024 adjusted earnings per share of $3.77 surpassed the Zacks Consensus Estimate of $3.30. In the prior-year quarter, the company reported earnings per share of $1.85.
PNC’s results were aided by a rise in fee income, NII and higher deposit balance. A decline in expenses and provision for credit losses were other positives. However, a lower loan balance was a headwind.
U.S. Bancorp’s USB fourth-quarter 2024 adjusted earnings per share (excluding the impacts of notable items) of $1.07 beat the Zacks Consensus Estimate of $1.06 per share. The bottom line increased 8.1% from the prior-year quarter.
The results benefited from lower expenses and higher non-interest income. A rise in NII and a strong capital position were also tailwinds. However, weak asset quality was concerning for USB.
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