KeyCorp. KEY reported third-quarter adjusted earnings from continuing operations of 27 cents per share, which compared favorably with the year-ago tally of 23 cents.
Results reflected improved top-line performance driven by growth in core fee-based businesses as well as notable rise in net interest income during the quarter. This was, however, offset by a substantial rise in provisions and elevated expenses.
Including a non-recurring charge of $19 million toward pension settlement, the company’s earnings per share come in at 26 cents.
Net income from continuing operations attributable to common shareholders, however, jumped 9.6% year over year to $216 million.
Behind the Headlines
Total revenue came in at $1.06 billion, in line with the Zacks Consensus Estimate, and up 7% from the prior-year quarter.
Net interest income (“NII”) increased 2.8% year over year to $591 million. The rise reflected higher loan balances, partly mitigated by lower earning asset yields. However, net interest margin decreased 9 basis points (bps) year over year to 2.87%.
Non-interest income grew 12.7% year over year to $470 million. The improvement was mainly attributable to increased corporate services income and investment banking & debt placement fees, which jumped 35.7% and 23.9%, respectively, during the quarter. This was followed by an 11.9% rise in card income and a 9.1% increase in trust and investment services income.
Non-interest expense rose 2.5% year over year to $724 million. The increase was triggered by a rise in personnel (up 5.2%) costs, partly offset by a 1% slip in non-personnel expenses. The figure includes $19 million in pension settlement charge.
As of Sep 30, 2015, average total deposits came in at $70 billion, up 3.3% year over year. Further, average total loans were $59.3 billion, up 6.2% from the value recorded on Sep 30, 2014.
Credit Quality
Credit quality depicted a mixed bag during the quarter. While provision for loan and lease losses increased significantly to $45 million; net loan charge-offs, as a percentage of average loans, increased 5 bps year over year to 0.27%.
However, nonperforming assets, as a percentage of period-end portfolio loans, other real estate owned properties (“OREO”) assets and other nonperforming assets, declined 5 bps year over year to 0.69%.
Moreover, allowance for loan and lease losses, as a percentage of period end loans, fell 12 bps year over year to 1.31% as of Sep 30, 2015.
Capital Ratios
Capital ratios deteriorated during the quarter. KeyCorp's tangible common equity to tangible assets ratio was 9.90% as of Sep 30, 2015, down from 10.26% as of Sep 30, 2014. In addition, Tier 1 risk-based capital ratio was 10.90% compared with 12.01% as of Sep 30, 2014.
The company’s estimated Basel III Tier 1 common ratio (under the fully phased-in Regulatory Capital Rules) was 10.41% at the end of the quarter. This exceeded the fully phased-in required minimum Tier 1 common equity ratio of 7.00%.
Share Repurchases
During the reported quarter, KeyCorp bought back 8.4 million shares for $123 million, as part of its 2015 capital plan. The company is expected to execute share repurchase of up to $725 million through the second quarter of 2016.
Our Take
A low interest rate environment continues to exert pressure on KeyCorp’s margin, which, in turn, is straining the top-line performance. Moreover, the company’s financials remain challenged by regulatory changes within the financial services industry.
Nevertheless, we remain encouraged by the company’s consistent efforts to streamline operations, diversify products and exit unfit businesses to propel efficiency and growth.
At present, KeyCorp has a Zacks Rank #4 (Sell).
Performance of Other Major Banks
Among other major regional banks, The PNC Financial Services Group, Inc. PNC, Bank of America Corporation BAC, and Wells Fargo & Company WFC surpassed the estimates.
Lower operating expenses and negligible legal costs drove BofA’s third-quarter 2015 earnings of 37 cents per share, which surpassed the Zacks Consensus Estimate of 34 cents.
PNC Financial’s earnings of $1.90 per share beat the Zacks Consensus Estimate by 6.7%. Results were mainly driven by stable expenses, partially offset by a decline in revenues and higher provisions.
Wells Fargo’s earnings of $1.05 per share surpassed the Zacks Consensus Estimate by a penny, driven by higher revenues.
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(We are reissuing this article to correct a mistake. The original article, issued earlier, should no longer be relied upon.)
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