KeyCorp (KEY) Q3 2024 earnings summary

Executive summary

• Reported a net loss of $447 million, or $(0.47) per share, due to a $918 million pre-tax loss on securities sales as part of a portfolio repositioning; adjusted net income was $290 million, or $0.30 per share, excluding this charge.

• Net interest income rose 7% quarter-over-quarter to $964 million, driven by reinvestment into higher-yielding assets and improved funding mix.

• Completed the initial $821 million tranche of a $2.8 billion strategic minority investment from Scotiabank, boosting capital ratios.

• Fee-based businesses, including investment banking and commercial mortgage servicing, showed strong momentum, with investment banking and debt placement fees reaching $171 million and commercial mortgage servicing fees up 59% year-over-year.

• Wealth management assets under management hit a record $61 billion, up 16% year-over-year, with strong mass affluent segment growth.

Financial highlights

• Net interest income (taxable equivalent) was $964 million, up 7.2% sequentially and 4.4% year-over-year; net interest margin increased to 2.17%.

• Noninterest income was $(269) million, down sharply due to the $918 million securities loss; excluding this, investment banking and commercial mortgage servicing fees grew year-over-year.

• Noninterest expense was $1.09 billion, down 1.4% year-over-year, with lower marketing and FDIC assessment costs offset by higher personnel and technology expenses.

• Average loans declined 9.7% year-over-year to $106.2 billion, while average deposits rose 2.0% to $147.8 billion.

• Tangible book value per share increased nearly 16% sequentially to $11.72.

Outlook and guidance

• Management expects further net interest income tailwinds and stable-to-improving credit outlook in coming quarters.

• For full year 2024: average loans expected down 7–8%, average deposits up 1–2%, net interest income (TE) down 2–5%, noninterest income up 6%+ (excluding $918 million loss), noninterest expense down 2% (excluding special items), net charge-offs to average loans 35–40 bps, effective tax rate ~13%.

• The final tranche of the Scotiabank investment is anticipated in Q1 2025, subject to regulatory approval.

• For 2025, targeting low to mid-single digit expense growth, maintaining expense discipline despite higher capital.

• Positive operating leverage and cash efficiency ratio targeted at 54-56%.