KeyCorp's Q3 Earnings Beat, Stock Dips on Weak Asset Quality

Core Viewpoint - KeyCorp reported adjusted earnings of 30 cents per share for Q3 2024, exceeding the Zacks Consensus Estimate of 27 cents, reflecting a 3.4% increase year-over-year despite challenges in credit quality and net interest margin [1][2]. Financial Performance - Total quarterly revenues reached $695 million, with adjusted total revenues rising 3% year-over-year to $1.61 billion, surpassing the Zacks Consensus Estimate of $1.59 billion [3]. - Net interest income (NII) increased by 4.4% to $964 million, while the net interest margin (NIM) improved by 16 basis points to 2.17% [3]. - Non-interest income was negative $269 million, but adjusted non-interest income grew approximately 1% to $649 million, driven by higher trust and investment services income [4]. Loan and Deposit Trends - Average total deposits were $147.8 billion, up 2.5% from the previous quarter, attributed to growth in consumer and commercial deposits [5]. - Average total loans decreased by 2.5% sequentially to $106.2 billion due to planned balance sheet optimization efforts [5]. Credit Quality - Net loan charge-offs increased by 34 basis points year-over-year to 0.58%, with non-performing assets rising to 0.70%, up 29 basis points [6]. - The provision for credit losses was $95 million, reflecting a 17.3% increase due to changes in economic outlook and credit portfolio migration [6]. Capital Ratios - KeyCorp's tangible common equity to tangible assets ratio improved to 6.2% as of September 30, 2024, up from 4.4% a year earlier [7]. - The Tier 1 risk-based capital ratio rose to 12.6%, and the Common Equity Tier 1 ratio increased to 10.8% [7]. Strategic Developments - Scotiabank announced a $2.8 billion investment in KeyCorp, acquiring nearly 163 million shares, which is expected to enhance KeyCorp's capital ratios and tangible book value per share [8]. Market Outlook - The company anticipates that decent loan balances, balance sheet repositioning, strategic buyouts, and higher interest rates will support revenues in the near term, although rising funding costs and weakening asset quality remain concerns [9].