December 10, 2022

RB Group

Business Service

KeyCorp (KEY) Q2 Earnings Beat Estimates on Higher NII,

KeyCorp’s KEY second-quarter 2022 earnings from continuing operations of 54 cents per share beat the Zacks Consensus Estimate of 52 cents. The bottom line, however, declined 25% from the prior-year quarter.

A rise in net interest income (NII) driven by robust average loan growth and higher interest rates supported KEY’s results. However, a fall in non-interest income due to a tough operating backdrop and higher provisions acted as headwinds. Also, the company’s capital ratios deteriorated during the quarter.

Net income from continuing operations attributable to common shareholders was $504 million, down 27.8% year over year.

Revenues & Expenses Rise

Total revenues rose 1.1% year over year to $1.79 billion. The top line also surpassed the Zacks Consensus Estimate of $1.76 billion.

NII (on a tax-equivalent basis) grew 7.9% to $1.1 billion. The increase was mainly driven by higher earning asset balances, rise in rates and a favorable balance sheet mix, lower loan fees from the Paycheck Protection Program and an increase in interest-bearing deposit costs.

Taxable-equivalent net interest margin from continuing operations increased 9 basis points (bps) to 2.61%.

Non-interest income was $688 million, falling 8.3%. The decline was mainly due to lower consumer mortgage income, cards and payments income, and other income.

Non-interest expenses increased marginally to $1.08 billion.

At the second-quarter end, average total deposits were $147.5 billion, down 1.8% from the prior quarter. Average total loans were $109.1 billion, up 5.2%. The growth was primarily driven by robust strength in both commercial and consumer loan portfolios.

Credit Quality: Mixed Bag

Net loan charge-offs, as a percentage of average loans, rose 7 bps year over year to 0.16%. Provision for credit losses was $45 million against a benefit of $222 million in the prior-year quarter. This mainly reflected the uncertain economic outlook and loan growth.

Allowance for loan and lease losses was $1.09 billion, down 9.9%. Non-performing assets, as a percentage of period-end portfolio loans, other real estate-owned properties assets and other non-performing assets were 0.41%, down 32 bps.

Capital Ratios Deteriorates

KeyCorp’s tangible common equity to tangible assets ratio was 5.3% as of Jun 30, 2022, down from 7.4% in the corresponding period of 2021. Tier 1 risk-based capital ratio was 10.4%, down from 11.3%.

Common Equity Tier 1 ratio was 9.2%, down from 9.9% as of Jun 30, 2021.

Our Take

Solid loans and deposit balances, along with higher interest rates, are likely to continue supporting KeyCorp’s revenues. However, elevated expenses and weakness in the mortgage business remain near-term concerns.

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

Truist Financial’s TFC second-quarter 2022 adjusted earnings of $1.20 per share surpassed the Zacks Consensus Estimate of $1.17. However, the bottom line declined 22.6% from the prior-year quarter.

Results were aided by average loan growth and higher rates, which drove NII. However, lower non-interest income and a rise in provisions were the major headwinds for TFC.

The PNC Financial Services Group, Inc. PNC reported second-quarter 2022 earnings per share, as adjusted (excluding integration costs related to the BBVA USA acquisition) of $3.42, which surpassed the Zacks Consensus Estimate of $3.11. Also, the bottom line increased 30% year over year.

Higher NII, driven by interest-earning assets and loan growth, were tailwinds for PNC. However, rising expenses and a decline in fee income were hurdles.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.