Modest loan growth, IB to support KeyCorp’s third quarter results (KEY)

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KeyCorp KEY is expected to report third quarter 2021 results on October 21, ahead of the opening bell. Unlike previous quarters, the overall lending scenario improved somewhat during the reportable quarter.

According to the latest Federal Reserve The data, consumer loans, which account for nearly 30% of KeyCorp’s average loan balance, recorded an increase. This appears to be due to an increase in consumer confidence as economic growth remains robust. In contrast, commercial and industrial loan balances (representing nearly 50% of its average loan balances) continued to decline.

Zacks’ consensus estimate for an average earning asset of $ 165.3 billion suggests a sequential increase of 1.6%.

In addition, the steepening of the yield curve during the quarter and the modest improvement in the lending scenario likely offered some support to KeyCorp’s net interest income (NII) despite the close interest rate environment. zero. NII’s consensus estimate (on a fully tax-equivalent basis) of $ 1.02 billion indicates stable sequential performance.

Other factors at play

Non-interest income: As in recent quarters, transactions continued at a sustained pace in the third quarter thanks to the resumption of normal activities, levels of excess liquidity, the appetite of companies to strengthen their size and share in the market. market, falling interest rates and a strong economic recovery. . The IPO markets have seen a similar dynamic, which, along with a steady increase in follow-up share issuances, is likely to have offered support to share subscription commissions. Bond issuance volumes were also modest. These should have helped KeyCorp’s investment banking (IB) business.

In contrast, trading activity continued to normalize in the third quarter. For example, KeyCorp IB’s consensus estimate of revenue and capital markets of $ 223 million indicates a 2.8% increase sequentially.

The steadily rising deposit balance during the quarter should have supported the company’s service charges on deposits. The consensus estimate of $ 85 million indicates a 2.4% improvement on a sequential basis.

Zacks’ consensus estimate for trust and investment services revenue of $ 134 million suggests a modest increase from the previous quarter. On the flip side, the consensus estimate for card and payment revenue of $ 111 million indicates a decline of 1.8% from a quarter’s level.

Low mortgage rates continued to fuel demand for mortgages during the quarter, leading to an increase in new originations. Yet the origination boom in 2020 driven by historically low rates makes comparison difficult for the quarter. A gradual slowdown in refinancing activity and faster prepayments also weighed on mortgage banking activity. Zacks’ consensus estimate for consumer mortgage income and mortgage servicing fees is set at $ 22.5 million and $ 36 million, which suggests a decline of 13.5% and 18. 2%, respectively, compared to the previous quarter.

Thus, the consensus estimate of total non-interest income of $ 752 million indicates a marginal increase on a sequential basis.

Expenses: KeyCorp’s efforts to reorganize its operations and pull out of unprofitable / non-core businesses have reduced costs in the past. The trend is expected to continue in the third quarter.

As demand for digital banking services continues to grow, KeyCorp has identified nearly 70 branches for consolidation by the end of 2021. While 54 branches were already consolidated in the second quarter, 14 additional branch closures were planned for the third trimester. This has also likely resulted in lower costs.

Asset quality: Driven by the improving macroeconomic environment and stable credit market conditions, KeyCorp is expected to have released reserves in the third quarter (similar to the previous quarter). This could have supported the company’s profits in the reportable quarter.

What Zacks’ model predicts

Our proven model predicts increased profits for KeyCorp this time around. This is because it has the right combination of the two key ingredients – a ESP on earnings and Zacks Rank # 3 (Hold) or better – to increase the odds of beating winnings.

You can discover the best stocks to buy or sell before they are flagged with our ESP Income Filter.

ESP on income: The ESP of earnings for KeyCorp is + 0.56%.

Zack Rank: The company currently holds a Zacks Rank # 3.

KeyCorp price and EPS surprise

KeyCorp price-eps-surprise | KeyCorp quote

Zacks’ consensus estimate for a profit of 57 cents a share has been revised to 3.6% north in the past 30 days. The figure suggests a 39% increase from the number reported in the previous year’s quarter. The consensus estimate of revenues of $ 1.76 billion indicates growth of 4.9%.

Other banks to consider

Here are a few other bank stocks you might want to take a look at, as they have the right mix of elements to show a beaten earnings this earnings season.

ESP gains for Citizens Financial Group, Inc. CFG is + 1.15% and he currently carries a rank 3 of Zacks. The company is expected to release quarterly figures on October 20.

BankUnited BKU is expected to release its results on October 21. The company, which currently holds a Zacks # 3 rank, has an ESP on earnings of + 1.90%. You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.

OZK Bank OZK is expected to release its quarterly results on October 21. The company currently has an ESP on earnings of + 6.70% and a Zacks ranking of 2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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