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NII, Loans to Aid KeyCorp (KEY) Q3 Earnings, Fee Income to Hurt
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KeyCorp (KEY - Free Report) is slated to announce third-quarter 2022 results on Oct 20, before the opening bell. The overall lending scenario remained impressive in the to-be-reported quarter. Per the Federal Reserve’s latest data, consumer loans (constituting roughly 30% of KeyCorp’s average loan balances) and commercial and industrial loans (accounting for almost 50% of average loan balances) witnessed solid improvement.
The Zacks Consensus Estimate for average earning assets is pegged at $167.4 billion, suggesting an 8.5% rise on a year-over-year basis. Our estimate for the metric stands at $168.9 billion, marking a 9.5% improvement.
With the Federal Reserve having increased the interest rates by 150 basis points (bps) during the quarter, KeyCorp’s net interest margin (NIM) and net interest income (NII) are expected to have been favorably impacted. Also, decent loan growth is likely to have offered support. Our estimate for total loans is $108 billion, indicating a 9.5% rise.
The consensus estimate for NII (on a fully tax-equivalent basis) is $1.18 billion, reflecting a rise of 15% from the previous-year quarter’s reported number. We project NII to grow 12.4% to $1.15 billion.
Other Factors at Play
Non-Interest Income: Deal-making came to a grinding halt during the third quarter as raging inflation, equity markets rout and fears of recession dealt a blow to the business sentiments globally. Likewise, the IPOs and follow-up equity issuances dried up as equity markets turned extremely bearish. Also, bond issuances were soft. So, KeyCorp’s investment banking (IB) business is expected to have been muted in the to-be-reported quarter.
Nonetheless, heightened volatility and a substantial rise in client activity in the capital markets seem to have positively impacted trading activities in the quarter. The consensus estimate for KeyCorp’s IB and capital markets income of $169 million indicates a 28.1% year-over-year plunge. Our estimate for the same stands at $197.1 million, reflecting a fall of 16.1%.
Rising mortgage rates (that crossed the 6% mark in September) weighed on mortgage originations and refinancing activities during the second quarter, hurting KeyCorp’s mortgage banking business. Thus, the Zacks Consensus Estimate for consumer mortgage income and mortgage servicing fees is pegged at $15.13 million and $39.23 million, implying a 54.1% plunge and 15.4% growth, respectively, on a year-over-year basis. Our estimates for consumer mortgage income and mortgage servicing fees are $21.4 million and $38.1 million, respectively.
While decent economic growth and pent-up demand are expected to have driven consumers toward using cards, record inflation hurt consumer sentiments. Thus, this might have adversely impacted KEY’s card business. The Zacks Consensus Estimate for cards and payments income of $86 million suggests a 22.5% decrease from the prior-year quarter. Our estimate for the same stands at $84.6 million, reflecting a fall of 23.8%.
Further, the Zacks Consensus Estimate of $92 million for service charges on deposit accounts implies a 1.1% increase. The consensus estimate for trust and investment services income of $134 million suggests a 3.9% rise from the prior-year quarter. Our estimates for service charges on deposit accounts and trust and investment services income are pegged at $86.7 million and $126.4 million, respectively.
Therefore, the consensus estimate for KeyCorp’s total non-interest income of $703 million indicates a fall of 11.8%. Our estimate for the same stands at $711.5 million, reflecting a decline of 10.7%.
Expenses: KeyCorp’s efforts to reorganize operations and exit unprofitable/non-core businesses have helped it save costs in the past. Yet, as the company continues to invest in franchise, technological upgrades and inorganic growth strategy, expenses are expected to have witnessed an uptrend in the third quarter.
Our estimate for total non-interest expenses stands at $1.1 billion, reflecting a 1% decrease from the prior-year quarter number.
Asset Quality: With the rise in loan balance and expectations of economic slowdown due to geopolitical and inflation concerns, KeyCorp is expected to have built reserves in the third quarter. Our estimate for provision for credit losses is pegged at $32.1 million against a provision benefit of $107 million a year ago.
The Zacks Consensus Estimate for non-performing assets (NPAs) is pegged at $488 million, indicating a fall of 4.1% from the last year’s reported quarter. We project NPAs to decline almost 1% to $504.4 million.
What the Zacks Model Predicts
Our proven model doesn’t predict an earnings beat for KeyCorp this time around. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for KeyCorp is -1.20%.
Zacks Rank: The company currently carries a Zacks Rank #3.
The Zacks Consensus Estimate for the company’s third-quarter earnings is pegged at 59 cents, which has been revised 1.7% lower over the past week. The figure suggests a 9.2% decline from the prior-year quarter’s reported number. Our estimate for earnings is 60 cents per share, indicating a 7.7% fall.
The consensus estimate for sales of $1.88 billion indicates a rise of 3.5%. Our estimate for sales is $1.86 billion, reflecting an increase of 2.4%.
Bank Stocks Worth Considering
Here are a few bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for Comerica (CMA - Free Report) is +0.13% and it carries a Zacks Rank #2 (Buy) at present. The company is slated to report third-quarter 2022 results on Oct 19.
Over the past 30 days, the Zacks Consensus Estimate for CMA’s quarterly earnings has been revised 2% north.
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NII, Loans to Aid KeyCorp (KEY) Q3 Earnings, Fee Income to Hurt
KeyCorp (KEY - Free Report) is slated to announce third-quarter 2022 results on Oct 20, before the opening bell. The overall lending scenario remained impressive in the to-be-reported quarter. Per the Federal Reserve’s latest data, consumer loans (constituting roughly 30% of KeyCorp’s average loan balances) and commercial and industrial loans (accounting for almost 50% of average loan balances) witnessed solid improvement.
The Zacks Consensus Estimate for average earning assets is pegged at $167.4 billion, suggesting an 8.5% rise on a year-over-year basis. Our estimate for the metric stands at $168.9 billion, marking a 9.5% improvement.
With the Federal Reserve having increased the interest rates by 150 basis points (bps) during the quarter, KeyCorp’s net interest margin (NIM) and net interest income (NII) are expected to have been favorably impacted. Also, decent loan growth is likely to have offered support. Our estimate for total loans is $108 billion, indicating a 9.5% rise.
The consensus estimate for NII (on a fully tax-equivalent basis) is $1.18 billion, reflecting a rise of 15% from the previous-year quarter’s reported number. We project NII to grow 12.4% to $1.15 billion.
Other Factors at Play
Non-Interest Income: Deal-making came to a grinding halt during the third quarter as raging inflation, equity markets rout and fears of recession dealt a blow to the business sentiments globally. Likewise, the IPOs and follow-up equity issuances dried up as equity markets turned extremely bearish. Also, bond issuances were soft. So, KeyCorp’s investment banking (IB) business is expected to have been muted in the to-be-reported quarter.
Nonetheless, heightened volatility and a substantial rise in client activity in the capital markets seem to have positively impacted trading activities in the quarter. The consensus estimate for KeyCorp’s IB and capital markets income of $169 million indicates a 28.1% year-over-year plunge. Our estimate for the same stands at $197.1 million, reflecting a fall of 16.1%.
Rising mortgage rates (that crossed the 6% mark in September) weighed on mortgage originations and refinancing activities during the second quarter, hurting KeyCorp’s mortgage banking business. Thus, the Zacks Consensus Estimate for consumer mortgage income and mortgage servicing fees is pegged at $15.13 million and $39.23 million, implying a 54.1% plunge and 15.4% growth, respectively, on a year-over-year basis. Our estimates for consumer mortgage income and mortgage servicing fees are $21.4 million and $38.1 million, respectively.
While decent economic growth and pent-up demand are expected to have driven consumers toward using cards, record inflation hurt consumer sentiments. Thus, this might have adversely impacted KEY’s card business. The Zacks Consensus Estimate for cards and payments income of $86 million suggests a 22.5% decrease from the prior-year quarter. Our estimate for the same stands at $84.6 million, reflecting a fall of 23.8%.
Further, the Zacks Consensus Estimate of $92 million for service charges on deposit accounts implies a 1.1% increase. The consensus estimate for trust and investment services income of $134 million suggests a 3.9% rise from the prior-year quarter. Our estimates for service charges on deposit accounts and trust and investment services income are pegged at $86.7 million and $126.4 million, respectively.
Therefore, the consensus estimate for KeyCorp’s total non-interest income of $703 million indicates a fall of 11.8%. Our estimate for the same stands at $711.5 million, reflecting a decline of 10.7%.
Expenses: KeyCorp’s efforts to reorganize operations and exit unprofitable/non-core businesses have helped it save costs in the past. Yet, as the company continues to invest in franchise, technological upgrades and inorganic growth strategy, expenses are expected to have witnessed an uptrend in the third quarter.
Our estimate for total non-interest expenses stands at $1.1 billion, reflecting a 1% decrease from the prior-year quarter number.
Asset Quality: With the rise in loan balance and expectations of economic slowdown due to geopolitical and inflation concerns, KeyCorp is expected to have built reserves in the third quarter. Our estimate for provision for credit losses is pegged at $32.1 million against a provision benefit of $107 million a year ago.
The Zacks Consensus Estimate for non-performing assets (NPAs) is pegged at $488 million, indicating a fall of 4.1% from the last year’s reported quarter. We project NPAs to decline almost 1% to $504.4 million.
What the Zacks Model Predicts
Our proven model doesn’t predict an earnings beat for KeyCorp this time around. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for KeyCorp is -1.20%.
Zacks Rank: The company currently carries a Zacks Rank #3.
KeyCorp Price and EPS Surprise
KeyCorp price-eps-surprise | KeyCorp Quote
The Zacks Consensus Estimate for the company’s third-quarter earnings is pegged at 59 cents, which has been revised 1.7% lower over the past week. The figure suggests a 9.2% decline from the prior-year quarter’s reported number. Our estimate for earnings is 60 cents per share, indicating a 7.7% fall.
The consensus estimate for sales of $1.88 billion indicates a rise of 3.5%. Our estimate for sales is $1.86 billion, reflecting an increase of 2.4%.
Bank Stocks Worth Considering
Here are a few bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for Comerica (CMA - Free Report) is +0.13% and it carries a Zacks Rank #2 (Buy) at present. The company is slated to report third-quarter 2022 results on Oct 19.
Over the past 30 days, the Zacks Consensus Estimate for CMA’s quarterly earnings has been revised 2% north.
BankUnited, Inc. (BKU - Free Report) is scheduled to release third-quarter 2022 earnings on Oct 20. BKU, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.32%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BKU’s quarterly earnings estimates have remained unchanged over the past month.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.