KeyCorp's (KEY) Q4 Earnings Meet Estimates, Expenses Decline
Zacks Investment Research | Jan 22, 2020 09:35PM ET
KeyCorp’s (NYSE: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.
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