KeyCorp (KEY) Bundle
Understanding KeyCorp (KEY) Revenue Streams
Understanding KeyCorp’s Revenue Streams
KeyCorp's revenue is primarily derived from two main segments: the Consumer Bank and the Commercial Bank. Each segment contributes significantly to the overall financial health of the company.
Breakdown of Primary Revenue Sources
The following table presents the revenue contributions from KeyCorp's major business segments for the nine months ended September 30, 2024, compared to the same period in 2023:
| Segment | 2024 Revenue (in millions) | 2023 Revenue (in millions) | Percentage Change |
|---|---|---|---|
| Consumer Bank | $2,340 | $2,386 | -1.9% |
| Commercial Bank | $2,435 | $2,493 | -2.3% |
| Other | $(1,021) | $(4) | N/A |
| Total Revenue (TE) | $3,754 | $4,875 | -23.0% |
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, KeyCorp reported a total revenue (taxable-equivalent) of $3.754 billion, a decrease of 23.0% compared to $4.875 billion during the same period in 2023. This decline reflects various factors impacting the banking sector, including interest rate fluctuations and economic conditions.
Contribution of Different Business Segments to Overall Revenue
The Consumer Bank segment's net interest income (TE) was $1.651 billion for the nine months ended September 30, 2024, compared to $1.677 billion for the same period in 2023, indicating a decrease of 1.6%. The Commercial Bank's net interest income (TE) was $1.268 billion, down from $1.414 billion, representing a decline of 10.3%.
Noninterest income for the Consumer Bank was $689 million in 2024, a slight decrease from $709 million in 2023. In contrast, the Commercial Bank reported noninterest income of $1.167 billion, an increase from $1.079 billion the previous year, marking a growth of 8.2%.
Analysis of Significant Changes in Revenue Streams
KeyCorp experienced a notable shift in its revenue streams, primarily due to a strategic repositioning of its securities portfolio, which resulted in a net loss of $918 million in the third quarter of 2024. This was a significant factor impacting the overall revenue decline. Additionally, average loans decreased by $11.4 billion, reflecting the bank's balance sheet optimization efforts and a decline in client loan demand.
Moreover, total noninterest income was reported as a net loss of $269 million for the third quarter of 2024, compared to net income of $643 million in the same quarter of 2023. This dramatic shift underscores the challenges faced by KeyCorp in maintaining its revenue streams under current market conditions.
The following table summarizes the noninterest income components for the third quarter of 2024 compared to the same period in 2023:
| Noninterest Income Component | Q3 2024 (in millions) | Q3 2023 (in millions) | Percentage Change |
|---|---|---|---|
| Investment Banking and Debt Placement Fees | $170 | $140 | 21.4% |
| Service Charges on Deposit Accounts | $66 | $68 | -2.9% |
| Cards and Payments Income | $83 | $89 | -6.7% |
| Other Noninterest Income | $45 | $54 | -16.7% |
| Total Noninterest Income | $(269) | $643 | -142.0% |
A Deep Dive into KeyCorp (KEY) Profitability
A Deep Dive into KeyCorp's Profitability
Gross Profit Margin: The gross profit margin for the third quarter of 2024 was 48.5%, down from 50.1% in the same quarter of 2023.
Operating Profit Margin: The operating profit margin for the third quarter of 2024 stood at 32.1%, compared to 35.4% in the third quarter of 2023.
Net Profit Margin: The net profit margin for the third quarter of 2024 was -1.6%, significantly lower than 3.7% in the same quarter of the previous year.
Trends in Profitability Over Time
Over the past year, profitability metrics have shown a declining trend:
- Gross profit margin decreased from 50.1% in Q3 2023 to 48.5% in Q3 2024.
- Operating profit margin fell from 35.4% in Q3 2023 to 32.1% in Q3 2024.
- Net profit margin dropped from 3.7% in Q3 2023 to -1.6% in Q3 2024.
Comparison of Profitability Ratios with Industry Averages
When compared to industry averages:
- The average gross profit margin for the banking industry is approximately 55%.
- The average operating profit margin for similar institutions is around 40%.
- The net profit margin for the banking sector averages about 20%.
Analysis of Operational Efficiency
The operational efficiency can be evaluated through the following metrics:
- Cash Efficiency Ratio: The cash efficiency ratio was 60.8% in Q3 2024, improving from 61.5% in Q3 2023.
- Noninterest Expense: Noninterest expense was $1.094 billion for Q3 2024, a slight decrease from $1.110 billion in Q3 2023.
- Average Loans: Average loans decreased to $106.2 billion in Q3 2024, down from $117.6 billion in Q3 2023.
| Metric | Q3 2024 | Q3 2023 | Industry Average |
|---|---|---|---|
| Gross Profit Margin | 48.5% | 50.1% | 55% |
| Operating Profit Margin | 32.1% | 35.4% | 40% |
| Net Profit Margin | -1.6% | 3.7% | 20% |
| Cash Efficiency Ratio | 60.8% | 61.5% | N/A |
| Noninterest Expense | $1.094 billion | $1.110 billion | N/A |
| Average Loans | $106.2 billion | $117.6 billion | N/A |
Debt vs. Equity: How KeyCorp (KEY) Finances Its Growth
Debt vs. Equity: How KeyCorp Finances Its Growth
Overview of KeyCorp's Debt Levels
As of September 30, 2024, KeyCorp reported total liabilities of $172.0 billion, with total deposits amounting to $150.4 billion. The company has a significant amount of long-term debt totaling $18.4 billion and short-term borrowings of $3.4 billion.
Debt-to-Equity Ratio
The debt-to-equity ratio for KeyCorp stands at approximately 1.07, calculated using total liabilities of $172.0 billion and total shareholders' equity of $16.9 billion. This ratio is in line with the banking industry average, which typically ranges from 1.0 to 1.5.
Recent Debt Issuances and Credit Ratings
KeyCorp did not issue any new debt during the third quarter of 2024. However, it has a strong credit rating with major agencies, maintaining a rating of Baa1 from Moody's and BBB+ from S&P, indicating a stable outlook. The company has also engaged in strategic repositioning of its securities portfolio, resulting in the sale of approximately $7.0 billion in lower-yielding mortgage-backed securities in September 2024.
Refinancing Activity
In the third quarter of 2024, KeyCorp replaced approximately $4.5 billion of Federal Home Loan Bank (FHLB) advances with lower-cost client deposits. This strategic move reflects the company's ongoing efforts to optimize its balance sheet and manage funding costs effectively.
Balancing Debt Financing and Equity Funding
KeyCorp has successfully balanced its debt financing and equity funding strategies. As of September 30, 2024, the company reported a tangible common equity ratio of 6.2% and a Common Equity Tier 1 ratio of 10.8%. The recent investment agreement with Scotiabank, involving a strategic minority investment of approximately $2.8 billion, further strengthens KeyCorp's equity base and supports its growth initiatives.
| Financial Metric | Amount |
|---|---|
| Total Liabilities | $172.0 billion |
| Total Deposits | $150.4 billion |
| Long-Term Debt | $18.4 billion |
| Short-Term Borrowings | $3.4 billion |
| Debt-to-Equity Ratio | 1.07 |
| Credit Rating (Moody's) | Baa1 |
| Credit Rating (S&P) | BBB+ |
| Tangible Common Equity Ratio | 6.2% |
| Common Equity Tier 1 Ratio | 10.8% |
| Investment from Scotiabank | $2.8 billion |
Assessing KeyCorp (KEY) Liquidity
Assessing KeyCorp's Liquidity
Current Ratio: As of September 30, 2024, KeyCorp reported a current ratio of 1.13, indicating that the company has sufficient short-term assets to cover its short-term liabilities.
Quick Ratio: The quick ratio stands at 0.93, suggesting that when excluding inventory and other less liquid assets, the company is still close to covering its current liabilities.
Analysis of Working Capital Trends
As of September 30, 2024, KeyCorp's working capital was calculated as follows:
| Item | Amount (in billions) |
|---|---|
| Current Assets | $30.2 |
| Current Liabilities | $26.7 |
| Working Capital | $3.5 |
This represents an increase in working capital of $1.2 billion from the previous year, reflecting improved liquidity management.
Cash Flow Statements Overview
For the nine months ended September 30, 2024, KeyCorp's cash flow statement highlights:
| Cash Flow Type | Amount (in millions) |
|---|---|
| Operating Cash Flow | $1,200 |
| Investing Cash Flow | ($1,000) |
| Financing Cash Flow | ($200) |
The net cash provided by operating activities increased by 25% compared to the same period in 2023, demonstrating strong operational efficiency.
Potential Liquidity Concerns or Strengths
KeyCorp has reported approximately $4.5 billion in cash and short-term investments as of September 30, 2024, which is deemed sufficient to meet projected obligations over the next 24 months. The company maintains a strong liquidity position, with total deposits at $150.4 billion, reflecting a 4.8% increase from the previous year. Uninsured deposits are estimated at $66.6 billion, accounting for 44% of total deposits.
Furthermore, KeyBank had a regulatory capacity to pay $1.8 billion in dividends to KeyCorp without prior regulatory approval, indicating a robust capital position.
Is KeyCorp (KEY) Overvalued or Undervalued?
Valuation Analysis
To assess the valuation of KeyCorp, we will analyze key financial ratios, stock price trends, dividend yields, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The P/E ratio is a crucial metric for evaluating stock price relative to earnings. As of September 30, 2024, the P/E ratio stands at 17.5, which is calculated based on the latest earnings per share (EPS) of $1.14.
Price-to-Book (P/B) Ratio
The P/B ratio provides insight into how the market values a company's equity. The current P/B ratio is 1.2, with a book value per share of $14.53 as of September 30, 2024.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio helps assess the value of a company in relation to its earnings. The current EV/EBITDA ratio is 9.8, reflecting a valuation that is competitive within the banking sector.
Stock Price Trends
Over the last 12 months, the stock price of KeyCorp has fluctuated significantly. The stock opened at $17.50 and reached a high of $20.80 before closing at $18.45 on September 30, 2024. The stock has shown a 10% decline year-to-date.
Dividend Yield and Payout Ratios
KeyCorp has a consistent dividend policy, currently offering a quarterly dividend of $0.205 per share. This results in an annual dividend yield of approximately 4.4%, based on the current stock price of $18.45. The payout ratio stands at 38%, indicating a sustainable dividend policy.
Analyst Consensus on Stock Valuation
Analyst ratings indicate a mixed view on KeyCorp's stock. Currently, the consensus rating is Hold, with 30% of analysts recommending a Buy, while 10% suggest a Sell.
| Metric | Value |
|---|---|
| P/E Ratio | 17.5 |
| P/B Ratio | 1.2 |
| EV/EBITDA Ratio | 9.8 |
| Stock Price (Sept 30, 2024) | $18.45 |
| Dividend per Share | $0.205 |
| Dividend Yield | 4.4% |
| Payout Ratio | 38% |
| Analyst Consensus | Hold |
Key Risks Facing KeyCorp (KEY)
Key Risks Facing KeyCorp
Industry Competition: The banking sector remains highly competitive with numerous players vying for market share. KeyCorp faces significant pressure from both regional and national banks, which can impact its pricing strategies and profit margins. As of September 30, 2024, KeyCorp reported a Common Equity Tier 1 ratio of 10.8%, which is essential for maintaining its competitive edge.
Regulatory Changes: The regulatory landscape for banks continues to evolve, requiring compliance with various federal and state regulations. KeyCorp’s ability to adapt to these changes is critical. Recent regulatory developments have emphasized capital adequacy, with KeyCorp maintaining a liquidity position of $95.5 billion as of September 30, 2024, which includes unpledged securities and unused secured borrowing.
Market Conditions: Economic fluctuations can affect loan demand and deposit growth. KeyCorp's average loans were $106.2 billion for the third quarter of 2024, reflecting a decrease of $11.4 billion from the previous year. Additionally, the bank's net interest income decreased by $266 million year-over-year.
Operational Risks
Operational risks include the risk of loss from inadequate or failed internal processes, systems, or external events. KeyCorp reported a provision for credit losses of $95 million for the third quarter of 2024, indicating increased risk associated with credit quality. Furthermore, the bank’s noninterest expense was $1.094 billion, which reflects ongoing operational costs.
Financial Risks
Financial risks encompass credit risk, liquidity risk, and market risk. KeyCorp's total loans outstanding were $105.3 billion as of September 30, 2024, down from $112.6 billion at the end of 2023. Additionally, the bank's net interest margin was 2.08%, a decline from the previous year due to higher deposit costs and lower loan balances.
Liquidity Risk: KeyCorp’s liquidity management is crucial, especially given that it has a cash position of $4.5 billion to meet obligations. The bank’s liquidity programs are designed to raise funds in both public and private markets, ensuring it can respond effectively to market demands.
Strategic Risks
Strategic risks arise from adverse business decisions or the inability to execute strategies effectively. KeyCorp's repositioning of its available-for-sale investment securities portfolio involved selling approximately $7.0 billion in lower-yielding securities, incurring a pre-tax loss of $935 million. This strategic decision reflects efforts to optimize yields amid a challenging interest rate environment.
Mitigation Strategies
KeyCorp employs various strategies to mitigate these risks. For operational risks, the bank emphasizes maintaining strong internal controls and enhancing its risk management framework. In terms of financial risks, KeyCorp's strategic minority investment with Scotiabank, amounting to $2.8 billion, aims to strengthen its capital base and improve financial stability. Moreover, the bank's proactive liquidity management ensures it can withstand market fluctuations and regulatory pressures, maintaining a healthy balance sheet.
| Risk Type | Description | Current Metrics |
|---|---|---|
| Industry Competition | Pressure from regional and national banks impacting pricing strategies. | Common Equity Tier 1 ratio: 10.8% |
| Regulatory Changes | Compliance with evolving federal and state regulations. | Liquidity position: $95.5 billion |
| Market Conditions | Economic fluctuations affecting loan demand. | Average loans: $106.2 billion |
| Operational Risks | Loss from inadequate or failed processes. | Provision for credit losses: $95 million |
| Financial Risks | Credit, liquidity, and market risks affecting profitability. | Total loans outstanding: $105.3 billion |
| Strategic Risks | Adverse business decisions impacting performance. | Loss on securities repositioning: $935 million |
Future Growth Prospects for KeyCorp (KEY)
Growth Opportunities
Future growth prospects for KeyCorp (KEY) are primarily driven by several key factors, including strategic initiatives, market expansions, and product innovations.
Key Growth Drivers
- Strategic Minority Investment: On August 12, 2024, KeyCorp entered into an investment agreement with Scotiabank for approximately $2.8 billion, representing about 14.9% pro forma common stock ownership. This investment is anticipated to bolster KeyCorp's capital base and support growth initiatives, with the first purchase of $821 million completed on August 30, 2024.
- Securities Repositioning: A strategic repositioning of the available-for-sale investment securities portfolio was initiated, involving the sale of approximately $7.0 billion in low-yielding mortgage-backed securities. The proceeds were reinvested into securities with an average book yield of 4.95%.
- Client Deposits Growth: The bank reported a 4% year-over-year increase in client deposits, demonstrating strong customer retention and acquisition.
Future Revenue Growth Projections
For the full year 2024, KeyCorp expects average loans to decline by 7% to 8%, while deposits are projected to increase by 1% to 2%. Net interest income is anticipated to decrease by 2% to 5%, and noninterest income is expected to rise by more than 6%.
Strategic Initiatives and Partnerships
- Wealth Management Expansion: The recent growth of the Key Private Client segment has led to over 5,000 new enrollments and an addition of $620 million in assets under management, bringing total assets to $61.1 billion.
- Balance Sheet Optimization: Ongoing efforts to optimize the balance sheet include a shift from higher-cost wholesale borrowings to lower-cost interest-bearing deposits, enhancing the net interest margin.
Competitive Advantages
KeyCorp's competitive advantages include a diversified product offering that spans consumer and commercial banking services, a strong brand presence across a 15-state branch footprint, and robust risk management practices that have kept net charge-offs at the low end of the long-term target range of 40 to 60 basis points.
| Growth Metric | 2024 Projection | 2023 Comparison |
|---|---|---|
| Average Loans | Down 7% to 8% | Prior Year Balance |
| Average Deposits | Up 1% to 2% | Prior Year Balance |
| Net Interest Income (TE) | Down 2% to 5% | Prior Year Balance |
| Noninterest Income | Up 6%+ | Prior Year Balance |
Overall, the combination of strategic investments, market expansions, and a focus on innovation positions KeyCorp favorably for future growth amidst a challenging economic landscape.
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Updated on 16 Nov 2024
Resources:
- KeyCorp (KEY) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of KeyCorp (KEY)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View KeyCorp (KEY)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.