KeyCorp's (KEY) Q3 Earnings Beat, Revenues & Expenses Up Y/Y

KeyCorp’s KEY third-quarter 2020 earnings of 41 cents per share surpassed the Zacks Consensus Estimate of 35 cents. However, the figure compares unfavorably with adjusted earnings of 48 cents in the prior-year quarter.

Results benefited from a rise in revenues, robust loan and deposit balances, and lower provisions. However, lower rates and rise in operating expenses were the undermining factors.

Net income from continuing operations was $397 million, up 3.7% year over year.

Revenues & Expenses Increase

Total revenues grew 3.5% year over year to $1.69 billion. However, the figure missed the Zacks Consensus Estimate of $1.70 billion.

Tax-equivalent net interest income increased 2.7% to $1 billion. The rise was attributed to higher earning asset balances, partially offset by lower net interest margin (NIM).

Taxable-equivalent NIM from continuing operations decreased 38 basis points (bps) to 2.62%.

Non-interest income was $681 million, increasing 4.8% year over year. The rise was largely driven by substantial growth in consumer mortgage income, and cards and payments income.

Non-interest expenses rose 10.4% from the prior year to $1.04 billion. The increase was mainly due to higher payments-related expenses from prepaid card activity and production-related incentives.

At third quarter-end, average total deposits were $134.9 billion, up 5.4% from the prior quarter. Average total loans were $104.9 billion, down 2.8% on a sequential basis.

Credit Quality: Mixed Bag

Net loan charge-offs, as a percentage of average loans, declined 36 bps year over year to 0.49%. Also, provision for credit losses fell 20% to $160 million.

However, KeyCorp’s allowance for loan and lease losses was $1.73 billion, surging 93.7%. Further, non-performing assets, as a percentage of period-end portfolio loans, other real estate owned properties assets and other nonperforming assets were 0.97%, up 20 bps.

Strong Capital Ratios

KeyCorp's tangible common equity to tangible assets ratio was 7.8% as of Sep 30, 2020, down from 8.6% in the corresponding period of 2019. Also, Tier 1 risk-based capital ratio was 10.9%, on par with the prior-year quarter.

Our Take

Solid loan and deposit balance along with focus on fee income is likely to continue supporting KeyCorp’s revenues amid low interest rates. However, deteriorating asset quality and economic slowdown remain near-term concerns.

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 Major Banks

PNC Financial PNC pulled off third-quarter 2020 positive earnings surprise of 62% on prudent expense management. Earnings per share of $3.39 surpassed the Zacks Consensus Estimate of $2.09. Also, the figure was 15% higher than the prior-year level.

U.S. Bancorp’s USB reported third-quarter 2020 earnings per share of 99 cents, which surpassed the Zacks Consensus Estimate of 93 cents. However, the bottom line compares unfavorably with $1.15 reported in the prior-year quarter.

Truist Financial’s TFC third-quarter 2020 adjusted earnings of 97 cents per share surpassed the Zacks Consensus Estimate of 88 cents. Results excluded restructuring charges and BB&T-SunTrust Banks merger-related charges, incremental operating expenses related to the merger, securities gains and charges related to a charitable contribution. Compared to the previous quarter, adjusted earnings improved 18.3%.

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