Key Corp slips 4.8% following earnings release, finds support at its 50-sma
AInvestThursday, Jan 18, 2024 9:11 am ET
2min read
KEY --

Key Highlights:

- Earnings per share (EPS) for Q4 2023 were $0.03, significantly lower than the estimated $0.23.

- Quarterly revenue came in at $1.54 billion, meeting the $1.53 billion estimate.

- The earnings report included $209 million, or $0.22 per diluted common share, of charges related to a FDIC special assessment, efficiency-related expenses, and a pension settlement charge.

KeyCorp (KEY) reported its earnings for the fourth quarter of 2023, falling short of analysts' expectations and causing the stock to decline by 4.9%. 

The company announced a net income of $30 million, or $0.03 per diluted common share, compared to $266 million, or $0.29 per diluted common share, in the third quarter of 2023 and $356 million, or $0.38 per diluted common share, in the fourth quarter of 2022. However, it is important to note that the fourth quarter of 2023 included charges of $209 million, or $0.22 per diluted common share, related to an FDIC special assessment, efficiency expenses, and a pension settlement charge. When we backed out the charge, KEY reported EPS of $0.25 which outpaced expectations of $0.23. 

One of the key factors impacting KeyCorp's earnings was the decrease in net interest income and net interest margin compared to the fourth quarter of 2022. Net interest income decreased by $299 million, primarily due to higher interest rates. The cost of interest-bearing deposits and borrowings increased, surpassing the benefit from higher earning asset yields. Additionally, the funding mix shifted towards higher-cost interest-bearing deposits. However, compared to the third quarter of 2023, there was a slight increase of $5 million in net interest income and a six basis points rise in the net interest margin. This improvement was attributed to KeyCorp's actions to manage interest rate risk, elevated levels of liquidity, and an improved funding mix. Higher interest-bearing deposit costs partially offset the benefit from higher earning asset yields.

KeyCorp's noninterest expenses increased by $216 million compared to the fourth quarter of 2022. This increase was primarily driven by a $190 million charge related to the FDIC special assessment, $67 million from efficiency expenses, and $18 million from a pension settlement charge.

The company's average loans decreased by $3.8 billion compared to the fourth quarter of 2022, reflecting its planned balance sheet optimization efforts. Commercial and industrial loans decreased by $1.5 billion, while consumer loans declined by $1.4 billion, mainly driven by a decrease in home equity and consumer direct loans. Compared to the third quarter of 2023, average loans decreased by $3.7 billion, mainly due to KeyCorp's planned balance sheet optimization efforts, resulting in a decrease in commercial loans and consumer loans.

Another important metric, provision for credit losses, decreased to $102 million in the fourth quarter of 2023, compared to $265 million in the fourth quarter of 2022. The decline was attributed to a more stable economic outlook and the impact of the company's balance sheet optimization efforts. However, the provision for credit losses increased from the third quarter of 2023, reflecting credit migration, partially offset by lower loan balances.

Net loan charge-offs for the fourth quarter of 2023 totaled $76 million, or 0.26% of average total loans. This was higher compared to the fourth quarter of 2022 and the third quarter of 2023. KeyCorp's allowance for credit losses stood at $1.8 billion, or 1.60% of total period-end loans at December 31, 2023.

The stock price fell 4.9% following the earnings release, reflecting investor disappointment with the reported results. The stock tested its 50-sma ($13.21) and held that level. It has bounced back to recover most of its losses. Yesterday"s closing price ($13.90) should be tracked for potential resistance. 

In conclusion, KeyCorp's fourth-quarter earnings fell short of expectations, primarily due to charges related to a FDIC special assessment, efficiency expenses, and a pension settlement charge. The company faced challenges with lower net interest income and net interest margin, driven by higher interest rates and a shift in the funding mix towards higher-cost interest-bearing deposits. KeyCorp's planned balance sheet optimization efforts resulted in a decrease in average loans, while the provision for credit losses declined due to a more stable economic outlook. Despite the earnings miss, it is important to consider the impact of the charges on KeyCorp's results and the company's ongoing efforts to manage its balance sheet and credit risk.

$KEY(KEY)


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