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Higher Rates, Loan Growth to Aid KeyCorp's (KEY) Q1 Earnings
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KeyCorp (KEY - Free Report) is slated to announce first-quarter 2023 results on Apr 20, before the opening bell. While loan growth has been strong in the to-be-reported quarter, the overall lending scenario wasn’t that impressive. Per the Fed’s latest data, the demand for consumer loans (constituting roughly 30% of KeyCorp’s average loan balances) improved in January and February. Commercial and industrial loan (accounting for almost 50% of average loan balances) demand was soft.
However, following the bank runs in the first week of March, overall loan demand is likely to have decelerated as recessionary fears gained ground.
Nevertheless, the Zacks Consensus Estimate for KEY’s average earning assets for the first quarter is pegged at $174 billion, suggesting a rise of 4.7% on a year-over-year basis. Our estimate for the metric is $175.8 billion, marking a 5.8% rise from the prior-year quarter’s reported figure.
Moreover, continuing with its hawkish monetary policy stance, the Federal Reserve raised interest rates by another 50 basis points in the quarter. The policy rate has thus reached a 15-year high of 4.75-5%. While the inversion of the yield curve in the March-end quarter is expected to have been an offsetting factor, KEY’s net interest income (NII) and net interest margin (NIM) are expected to have improved, supported by the rise in rates and decent loan growth.
The consensus estimate for NII (on a fully tax-equivalent basis) is pegged at $1.17 billion, suggesting a rise of 14.4% from the previous-year quarter’s reported number. We project NII growth of 19.4% to $1.22 billion.
Other Key Factors and Estimates for Q1
Non-Interest Income: Heightened volatility and a rise in client activity in the capital markets seem to have positively impacted KEY’s trading activities in the quarter.
However, global deal-making has been dismal for the fifth consecutive quarter. Raging inflation, geopolitical tensions, equity market rout, higher interest rates and fears of a recession dealt a blow to business sentiments and plans for expansion through acquisitions. Thus, deal volume and total value crashed in the first quarter. For similar reasons, IPOs and follow-up equity issuances dried up. Also, bond issuances are likely to have been muted. These are expected to have hurt KeyCorp’s investment banking (IB) business in the to-be-reported quarter.
The consensus estimate for KeyCorp’s IB and capital market income of $151 million indicates a 7.4% year-over-year decline. Our estimate for IB and debt placement fees is $137.5 million, implying a fall of 15.6%.
Rising mortgage rates (which reached 6.32% in March) weighed on mortgage originations and refinancing activities in the first quarter, hurting KeyCorp’s mortgage banking business. The Zacks Consensus Estimate for consumer mortgage income is pegged at $9.48 million, implying a 54.9% plunge on a year-over-year basis. Our estimate for consumer mortgage income is $12.5 million, reflecting a 40.5% year-over-year decline.
The Zacks Consensus Estimate for cards and payments income of $81 million suggests a 1.3% rise from the prior-year quarter’s reported figure. Our estimate for the same is $73.5 million, indicating a fall of 8.2%.
The Zacks Consensus Estimate of $70 million for service charges on deposit accounts implies a 23.1% decline. The consensus estimate for trust and investment services income of $125 million suggests a fall of 8.1% from the prior-year quarter’s actuals. Our estimates for service charges on deposit accounts, and trust and investment services income are $75.3 million and $113.3 million, respectively.
Therefore, the consensus estimate for KeyCorp’s total non-interest income of $634 million indicates a year-over-year fall of 6.2%. Our estimate for the same is $585.5 million, implying a decline of 13.4%.
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 has been investing in franchise, technological upgrades and inorganic growth strategy, expenses are expected to have witnessed an uptrend in the first quarter.
Our estimate for total non-interest expenses is $1.08 billion, indicating a marginal rise from the prior-year quarter’s reported number.
Asset Quality: Given the global recession risk due to geopolitical and macroeconomic concerns and tighter financial conditions, KeyCorp is expected to have built reserves in the first quarter. Our estimate for provision for credit losses is pegged at $194.2 million, implying a substantial jump from the year-ago quarter’s reported figure. We expect non-performing assets (NPAs) to decline 2% year over year to $457.8 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 -3.31%.
Zacks Rank: The company currently carries a Zacks Rank #5 (Strong Sell).
The Zacks Consensus Estimate for KEY’s first-quarter earnings is pegged at 42 cents, which has been revised 6.7% lower over the past seven days. The figure suggests a 6.7% decline from the prior-year quarter’s reported number. Our estimate for earnings is 43 cents per share.
The consensus estimate for sales of $1.79 billion indicates a rise of 5.8%. Our estimate for sales is $1.80 billion, suggesting an increase of 6.3%.
Stocks Worth Considering
A couple of finance 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, are The Bank of New York Mellon Corporation (BK - Free Report) and BankUnited (BKU - Free Report) .
The Earnings ESP for BNY Mellon is +2.24% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2023 results on Apr 18.
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Higher Rates, Loan Growth to Aid KeyCorp's (KEY) Q1 Earnings
KeyCorp (KEY - Free Report) is slated to announce first-quarter 2023 results on Apr 20, before the opening bell. While loan growth has been strong in the to-be-reported quarter, the overall lending scenario wasn’t that impressive. Per the Fed’s latest data, the demand for consumer loans (constituting roughly 30% of KeyCorp’s average loan balances) improved in January and February. Commercial and industrial loan (accounting for almost 50% of average loan balances) demand was soft.
However, following the bank runs in the first week of March, overall loan demand is likely to have decelerated as recessionary fears gained ground.
Nevertheless, the Zacks Consensus Estimate for KEY’s average earning assets for the first quarter is pegged at $174 billion, suggesting a rise of 4.7% on a year-over-year basis. Our estimate for the metric is $175.8 billion, marking a 5.8% rise from the prior-year quarter’s reported figure.
Moreover, continuing with its hawkish monetary policy stance, the Federal Reserve raised interest rates by another 50 basis points in the quarter. The policy rate has thus reached a 15-year high of 4.75-5%. While the inversion of the yield curve in the March-end quarter is expected to have been an offsetting factor, KEY’s net interest income (NII) and net interest margin (NIM) are expected to have improved, supported by the rise in rates and decent loan growth.
The consensus estimate for NII (on a fully tax-equivalent basis) is pegged at $1.17 billion, suggesting a rise of 14.4% from the previous-year quarter’s reported number. We project NII growth of 19.4% to $1.22 billion.
Other Key Factors and Estimates for Q1
Non-Interest Income: Heightened volatility and a rise in client activity in the capital markets seem to have positively impacted KEY’s trading activities in the quarter.
However, global deal-making has been dismal for the fifth consecutive quarter. Raging inflation, geopolitical tensions, equity market rout, higher interest rates and fears of a recession dealt a blow to business sentiments and plans for expansion through acquisitions. Thus, deal volume and total value crashed in the first quarter. For similar reasons, IPOs and follow-up equity issuances dried up. Also, bond issuances are likely to have been muted. These are expected to have hurt KeyCorp’s investment banking (IB) business in the to-be-reported quarter.
The consensus estimate for KeyCorp’s IB and capital market income of $151 million indicates a 7.4% year-over-year decline. Our estimate for IB and debt placement fees is $137.5 million, implying a fall of 15.6%.
Rising mortgage rates (which reached 6.32% in March) weighed on mortgage originations and refinancing activities in the first quarter, hurting KeyCorp’s mortgage banking business. The Zacks Consensus Estimate for consumer mortgage income is pegged at $9.48 million, implying a 54.9% plunge on a year-over-year basis. Our estimate for consumer mortgage income is $12.5 million, reflecting a 40.5% year-over-year decline.
The Zacks Consensus Estimate for cards and payments income of $81 million suggests a 1.3% rise from the prior-year quarter’s reported figure. Our estimate for the same is $73.5 million, indicating a fall of 8.2%.
The Zacks Consensus Estimate of $70 million for service charges on deposit accounts implies a 23.1% decline. The consensus estimate for trust and investment services income of $125 million suggests a fall of 8.1% from the prior-year quarter’s actuals. Our estimates for service charges on deposit accounts, and trust and investment services income are $75.3 million and $113.3 million, respectively.
Therefore, the consensus estimate for KeyCorp’s total non-interest income of $634 million indicates a year-over-year fall of 6.2%. Our estimate for the same is $585.5 million, implying a decline of 13.4%.
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 has been investing in franchise, technological upgrades and inorganic growth strategy, expenses are expected to have witnessed an uptrend in the first quarter.
Our estimate for total non-interest expenses is $1.08 billion, indicating a marginal rise from the prior-year quarter’s reported number.
Asset Quality: Given the global recession risk due to geopolitical and macroeconomic concerns and tighter financial conditions, KeyCorp is expected to have built reserves in the first quarter. Our estimate for provision for credit losses is pegged at $194.2 million, implying a substantial jump from the year-ago quarter’s reported figure. We expect non-performing assets (NPAs) to decline 2% year over year to $457.8 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 -3.31%.
Zacks Rank: The company currently carries a Zacks Rank #5 (Strong Sell).
The Zacks Consensus Estimate for KEY’s first-quarter earnings is pegged at 42 cents, which has been revised 6.7% lower over the past seven days. The figure suggests a 6.7% decline from the prior-year quarter’s reported number. Our estimate for earnings is 43 cents per share.
The consensus estimate for sales of $1.79 billion indicates a rise of 5.8%. Our estimate for sales is $1.80 billion, suggesting an increase of 6.3%.
Stocks Worth Considering
A couple of finance 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, are The Bank of New York Mellon Corporation (BK - Free Report) and BankUnited (BKU - Free Report) .
The Earnings ESP for BNY Mellon is +2.24% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2023 results on Apr 18.
BankUnited is expected to release first-quarter 2023 earnings on Apr 25. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +4.84%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.