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KeyCorp Earnings: Reduced Net Interest Income Pressure Should Materialize In the Second Half of 2024

We think the market is punishing KeyCorp without fully considering 2024 guidance; stock remains undervalued.

In this photo illustration, the KeyBank Retail banking company logo seen displayed on a smartphone.
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What We Thought of KeyCorp’s Earnings

KeyCorp’s KEY adjusted fourth-quarter earnings were not too far off the FactSet consensus of $0.23 per share and our estimate of $0.19 per share. Reported earnings were adjusted to $0.25 per share primarily due to the impact of some notable items: an FDIC special assessment charge of $190 million for uninsured deposits of certain failed institutions during the banking turmoil of March 2023, efficiency-related expenses of $67 million, and a pension settlement charge of $18 million.

Fourth-quarter revenue was in line with consensus and our estimates. We do not plan to materially change our $20 fair value estimate for KeyCorp, and we believe the market is punishing it for its fourth-quarter results without fully considering 2024 guidance.

The quarter’s net interest income, or NII, was reported at $928 million, slightly up from $923 million in the previous quarter and significantly down from $1.23 billion in the prior-year quarter. Revenue also declined from the third quarter due to pressure in investment banking and debt placement fees, along with lower customer derivative trading revenue. Core expense growth for 2023 remained relatively stable year over year at 1.1% and was slightly lower than in the prior-year quarter.

KeyCorp took several actions to optimize its balance sheet in 2023 that negatively affected profitability. The company reduced its risk-weighted assets by $14 billion, exited some nonrelationship businesses, and reduced its reliance on brokered deposits and wholesale funding. We should start to see results from this repositioning pay off this year. According to management’s guidance, the core expense base should remain relatively stable, and they expect annual fee income growth of around 5%, with additional possible upside if capital markets rebound. NII is expected to grow in the back half of the year after a moderate decline in the first half.

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The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Michael Wong

Sector Director
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Michael Wong, CFA, CPA, is director of equity research, financial services, North America, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Michael previously served as chair of the valuation committee. Before assuming his current role in 2017, he was a senior equity analyst, covering investment banks and brokerages. Before joining Morningstar in 2008, he worked in corporate and public accounting.

Wong holds a bachelor’s degree in business administration, with concentrations in accounting, corporate finance, and financial services from San Francisco State University, where he graduated summa cum laude. He also holds the Chartered Financial Analyst® designation and is a Certified Public Accountant. Wong has also passed the Certified Financial Manager (CFM) and Certified Management Accountant (CMA) exams.

Wong won the “Technology Thought Leadership” award at the 2016 Industry Awards for his report, The Financial Services Observer: The U.S. Department of Labor’s Fiduciary Rule for Advisors Could Reshape the Financial Sector. In 2011, he ranked second in the Investment Services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. Wong was awarded the summer 2005 Johnson & Johnson Institute of Management Accountants CFM Gold Medal.

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