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KeyCorp's (KEY) Q4 Earnings Meet Estimates, Expenses Decline

Zacks Equity Research

KeyCorp’s KEY fourth-quarter 2019 adjusted earnings of 48 cents per share were in line the Zacks Consensus Estimate. Also, the figure was on par with the prior-year quarter level.

Results benefited from slight improvement in non-interest income and lower operating expenses. Moreover, growth in loans and deposit balances was a tailwind. However, lower net interest income and significantly higher provisions were the undermining factors.

After taking into consideration certain non-recurring items, net income from continuing operations was $439 million or 45 cents per share compared with $459 million or 45 cents per share in the prior-year quarter.

Revenues & Expenses Decline

Total revenues for the quarter were down 0.9% year over year to $1.64 billion. Also, the figure was marginally below with the Zacks Consensus Estimate.

Tax-equivalent net interest income declined 2.1% year over year to $987 million. The decline was due to lower net interest margin (NIM) and loan fees, partially offset by higher earning asset balances.

Taxable-equivalent net interest margin from continuing operations decreased 18 basis points (bps) year over year to 2.98%.

Non-interest income was $651 million, improving 0.9% year over year. The rise was primarily driven by an increase in operating lease income and other leasing gains, consumer mortgage income and mortgage servicing fees.

Non-interest expenses declined 3.2% year over year to $980 million. The decrease largely reflects the implementation of the company’s expense initiatives, partially offset by expenses from the Laurel Road acquisition.

At the end of the fourth quarter, average total deposits were $112.6 billion, up 2.1% from the prior quarter. Average total loans were $93.6 billion, up 1.8% on a sequential basis.

Credit Quality Worsens

Net loan charge-offs, as a percentage of average loans, grew 15 bps year over year to 0.42%. Also, provision for credit losses rose 84.7% to $109 million. Further, KeyCorp’s allowance for loan and lease losses was $900 million, up 1.9% from the prior-year quarter. These metrics included certain notable non-recurring items.

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.

Capital Ratios Mixed

KeyCorp's tangible common equity to tangible assets ratio was 8.64% as of Dec 31, 2019, up from 8.30% as of Dec 31, 2018. However, Tier 1 risk-based capital ratio was 10.85%, down from 11.08%.

Share Repurchase Update

During the reported quarter, KeyCorp repurchased $241 million worth of shares as part of its 2019 capital plan.

Our Take

Decent loan and deposit growth is expected to support revenues amid the Federal Reserve’s accommodative stance. Despite a decline in costs in the fourth quarter, the company’s overall expenses are expected to remain elevated because of its investments in franchise, technological upgrades and inorganic growth strategy.

KeyCorp Price, Consensus and EPS Surprise

 

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 Banks

Comerica CMA delivered positive earnings surprise of 6.3% in fourth-quarter 2019. Earnings per share of $1.85 surpassed the Zacks Consensus Estimate of $1.74. However, it came in lower than the prior-year quarter figure of $1.95. Higher non-interest income and lower provisions were recorded. Yet, lower loans, decline in net interest income and rise in expenses were undermining factors.

Zions Bancorporation’s ZION fourth-quarter 2019 adjusted earnings per share of $1.14 surpassed the Zacks Consensus Estimate of $1.08. Results benefited from an improvement in non-interest income and decline in provision for credit losses. However, lower net interest income and higher expenses hurt results to some extent.

First Horizon National Corporation’s FHN adjusted fourth-quarter 2019 earnings per share of 47 cents surpassed the Zacks Consensus Estimate of 42 cents. Further, the bottom line was 34.3% higher than the year-ago figure. Results reflect improved deposits balance and higher revenues. However, rising expenses and provisions were major drags.

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