What happened
KeyCorp. (KEY 0.14%) saw its stock price fall 10.1% in April, according to S&P Global Market Intelligence. The stock price is down about 45% year to date (YTD), trading at around $9.60 as of May 2.
The major market indexes were up slightly in April as the S&P 500 gained 1.5%, the Dow Jones Industrial Average was up 2.5%, and the Nasdaq Composite was up 0.1%.
So what
KeyCorp is the holding company for KeyBank, which is the 20th largest bank in the U.S. with roughly $198 billion in assets. The bank's stock price fell precipitously after the company released its first-quarter earnings on April 20. It was a difficult month for most banks, particularly small and mid-sized institutions, which were reeling from the effects of the March banking crisis.
NYSE: KEY
Key Data Points
The bank fell short of analysts' estimates for the quarter. Revenue of $1.7 billion was up 1.1% from the first quarter of 2022 but down 9.7% from the previous quarter. Net interest income was $1.1 billion, up 8.4% year over year, but down 9.9% from the previous quarter. Noninterest income was down 10% year over year.
Loans were up 15% year over year to $120 billion, but deposits were down 4.5% to $143 billion. However, deposits were only down 1.6% from the fourth quarter. But the costs of deposits were much higher -- $725 million, compared to $66 million a year ago. This was due to higher interest paid on deposits and an increase in short-term borrowings. As a result, the net interest margin dropped to 2.47% from 2.73% at the end of the fourth quarter.
In addition, higher provision for credit losses, due to an expected slowdown in the economy, also dragged on earnings. Net income fell to $276 million from $356 million in the previous quarter and $421 million in the first quarter of 2022.
Now what
Several analysts lowered their price targets for KeyCorp after the earnings were released, which further tanked the stock price. Among them was Citigroup, which maintained its buy rating but lowered the price target to $16 from $20. Similarly, Wells Fargo lowered it to $17 from $20 but kept its overweight rating.
One of the concerns was that KeyCorp lowered its guidance for net interest income, calling for it to be down 1% to 3% for fiscal year 2023 after giving previous guidance that it would be up 1% to 4%. CEO Chris Gorman said on the earnings call that this was due to higher deposit costs and a continued shift in the funding mix. Deposits are expected to be flat to down 2% for the year, while loans are anticipated to be up 6% to 9%.
KeyCorp's deposits held up better than most of its peers. The stock is extremely cheap with a 6.8 price-to-earnings ratio and trades below book value. It remains a decent long-term value stock.
