KeyCorp’s Profit Rises As Credit Loss Provisions Drop 20%

KeyCorp’s 3Q earnings rose 7.9% to $0.41 per share year-on-year helped by lower provision for credit losses. Analysts were looking for EPS of $0.37.

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KeyCorp’s (KEY) provisions for credit losses in the reported quarter declined 20% to $160 million year-over-year, and were lower than analysts’ estimates of $231.4 million. Revenues grew 3.5% year-on-year to $1.69 billion and topped the Street consensus by $10 million.

KeyCorp said that revenue growth was “driven by strong balance sheet growth and higher fee income. Average loans and deposits were both up double-digits from the same period last year, reflecting the impact from the Paycheck Protection Program, as well as strong loan originations from consumer mortgage and Laurel Road.”

The company’s noninterest income rose 4.8% in 3Q year-over-year due to “higher cards and payments activity and growth in consumer mortgage fees.” Net interest income increased 2.7% year-on-year to $1.006 billion, as higher earning asset balances were offset by a lower net interest margin (NIM). Notably, the 2.62% NIM in 3Q declined from 3% in the year-ago quarter. (See KEY stock analysis on TipRanks)

Ahead of 3Q results, Citigroup analyst Keith Horowitz on Oct. 12, maintained a Buy rating and a price target of $15 (14.7% upside potential) amid expectations for improved net interest income in 2021. Horowitz forecasts “better PPNR [pre-provision net revenue] than the Street over the next 12 mo. [months] and better than peer core PTPP [pre-tax pre-provision profit] growth next year (flat vs down 3% for the group).”

Currently, the Street is sidelined on the stock. The Hold analyst consensus is based on 2 Buys, 3 Holds and 1 Sell. The average price target of $13.70 implies upside potential of about 4.7% to current levels. Shares have declined by about 35.4% year-to-date.