01—Abstract
Summary
Summary of the 10-Q filed July 26, 2024. Cited figures are marked; the original filing is the authoritative source.
KeyCorp's second-quarter 2024 Form 10-Q reports net income of $274 million for the quarter, compared to $287 milliona a year earlier, and income from continuing operations attributable to Key common shareholders of $237 million, or $.25 per diluted share, versus $250 million in the year-ago quarter.
Net interest income (TE) was $899 millionb with a net interest margin of 2.04%, down $87 million and eight basis points year over year, reflecting lower loan balances and higher deposit costs. Average loans fell $11.7 billion to $109.0 billion, while average deposits rose $1.3 billion to $144.2 billion. Noninterest income increased to $627 million from $609 million, helped by trust and investment income and commercial mortgage servicing fees.
Credit quality metrics moved higher but remain within management's stated targets. Net loan charge-offs were $91 millionc, or .34% of average loans, up from $52 million a year earlier, and nonperforming loans rose to $710 million from $574 million at December 31, 2023. The provision for credit losses fell to $100 million from $167 million.
Total loans declined to $107.1 billiond from $112.6 billion at year-end 2023, with commercial loans down 5.2%. Capital strengthened, with the Common Equity Tier 1 ratio at an estimated 10.5% at June 30, 2024, compared with 10.02% at December 31, 2023, and KeyCorp declared a quarterly common dividend of $.205 per share. Management's 2024 expectations call for average loans down 7% to 8% and net interest income (TE) down 2% to 5% versus 2023, and the company did not repurchase common shares in the quarter.
For investors, the key tension is between a shrinking balance sheet and pressure on net interest income on one side, and improving capital ratios and a fee income base that is growing on the other. Preliminary results from the Federal Reserve's 2024 stress test imply a stress capital buffer of 3.1% for KeyCorp, effective October 1, 2024, and the company is subject to proposed capital rules, including the expanded risk-based approach, that could change its capital requirements from July 2025.
02—Key points
Key Highlights
- Net income of $274 million for Q2 2024 versus $287 million in Q2 2023; diluted EPS from continuing operations of $.25 versus $.27.
- Net interest income (TE) of $899 million, down $87 million year over year, with net interest margin of 2.04%, down eight basis points.
- Average loans of $109.0 billion, down $11.7 billion year over year, while average deposits rose $1.3 billion to $144.2 billion.
- Net loan charge-offs of $91 million (.34% of average loans), up from $52 million a year earlier; nonperforming loans rose to $710 million from $574 million at December 31, 2023.
- Noninterest income of $627 million versus $609 million a year earlier, led by trust and investment services income up $13 million (10.3%).
- Common Equity Tier 1 ratio of an estimated 10.5% at June 30, 2024, up from 10.02% at December 31, 2023; quarterly common dividend of $.205 per share.
- Preliminary 2024 stress test results imply a stress capital buffer of 3.1% for KeyCorp, effective October 1, 2024.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed July 26, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $1.53B$1.59B | −4.3% |
| Operating Income | $492.00M$597.00M | −17.6% |
| Net Income | $274.00M$287.00M | −4.5% |
| EPS (Basic) | $0.25$0.27 | −7.4% |
| EPS (Diluted) | $0.25$0.27 | −7.4% |
| Shares Outstanding (Basic) | 931.73M926.74M | +0.5% |
| Shares Outstanding (Diluted) | 938.49M930.45M | +0.9% |
05—Questions
Frequently Asked Questions
How did KeyCorp's core lending and net interest income perform in the second quarter of 2024?
Net interest income (TE) was $899 million, down $87 million from the second quarter of 2023, and net interest margin fell to 2.04% from 2.12%. The filing attributes the decline to lower loan balances, which averaged $109.0 billion, down $11.7 billion, as well as higher deposit costs and a shift in funding mix toward higher-cost deposits and borrowings. Management expects full-year 2024 net interest income (TE) to be down 2% to 5% versus 2023.
Is credit quality deteriorating at KeyCorp?
Credit metrics have moved higher but remain within the company's stated targets. Net loan charge-offs were .34% of average loans in the second quarter, compared with .17% a year earlier, and nonperforming loans reached $710 million, or .66% of period-end portfolio loans. The provision for credit losses decreased to $100 million from $167 million, and the filing states that net charge-offs and delinquencies remain below the long-term target.
How strong is KeyCorp's capital position after the stress test and proposed rules?
At June 30, 2024, the estimated Common Equity Tier 1 ratio was 10.5%, Tier 1 risk-based capital was 12.2%, and total risk-based capital was 14.7%, all above regulatory requirements. The Federal Reserve's stress test implied a preliminary stress capital buffer of 3.1% for KeyCorp, effective October 1, 2024. The Capital Proposal, which would expand risk-weighted asset calculations and include AOCI in regulatory capital for Category IV banks, is expected to take effect on or about July 1, 2025, with phase-ins.
What are KeyCorp's expectations for full-year 2024?
Management expects average loans to decline 7% to 8% versus 2023, average deposits to be relatively stable with client deposits up, net interest income (TE) to decline 2% to 5%, and noninterest income to rise 5% or more. Noninterest expense is expected to be relatively stable, and the net charge-off ratio is expected to be 30 to 40 basis points for FY2024. The effective tax rate is expected to be about 20%.
Did KeyCorp repurchase shares or change its dividend in the quarter?
KeyCorp did not complete any open market share repurchases in the second quarter of 2024 and has no Board-approved repurchase authorizations outstanding. It paid a quarterly common dividend of $.205 per share for the second quarter. Common shares outstanding rose slightly to 943.2 million from 936.6 million at December 31, 2023, mainly from shares issued under employee compensation plans.
06—Continue