KeyCorp Earnings: 2024 Net Interest Income Outlook Unchanged; Fees Strong and Expenses Stable

Key Morningstar Metrics for KeyCorp

• Fair Value Estimate: $19.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of KeyCorp’s Earnings

For its first quarter, KeyCorp KEY reported net income to common shareholders of $183 million, or $0.20 per diluted share, on $1.5 billion of net revenue. An incremental $29 million FDIC special assessment charge (related to the agency increasing its estimated loss from the March 2023 banking events) reduced earnings per share by 10%. We do not anticipate a material change to our fair value estimate of $19 per share, and we continue to view the stock as undervalued.

Net interest income was down more than 20% year over year and 4.5% from the prior quarter. Net interest income is continuing to decline as a result of Key’s previous decisions about balance sheet positioning. Although management is guiding NII to be down for the full year, the second half will be significantly stronger compared with the first. This will primarily be driven by the increased benefit from short-duration swaps and Treasuries maturing and being able to reprice them.

The fourth-quarter annualized NII exit rate is estimated to be over $1 billion, or around 13% higher than this quarter’s annualized NII. Loan growth should have a minimal impact on NII trajectory in 2024, although management said it would be more difficult to keep ending loan balance growth at plus or minus 2% compared with 2023. Headwinds include Key’s lending selectivity and client demand being affected by a higher-for-longer interest rate environment.

We saw a 6% growth in overall fees from the prior quarter and year over year, primarily due to Key’s first-quarter record in investment banking fees. The firm is expecting investment banking revenue of $600 million-$650 million for the year, with $170 million from this quarter alone. KeyCorp continues to do a great job in targeting its investments and growth opportunities. The company is on track to end 2024 with stable expenses for the third year in a row.