KeyCorp's Profit May Dip Even as Net Interest Margin Climbs

High interest rates have improved net interest margin

One woman delivering a document to another in an office.

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Key Takeaways

  • KeyCorp is expected to say EPS fell to $0.54 in the fourth quarter from $0.64 a year ago.
  • Revenue will likely decline by less than a percent to $1.9 billion.
  • KeyCorp's net interest margin probably rose to the highest level in nearly three years as the Fed raised interest rates multiple times in 2022.

 KeyCorp (KEY) will probably say profits fell in the fourth quarter as higher expenses and lower overdraft revenue offset its widest net interest margin in almost three years.

Net income fell about a sixth to $507.8 million, or earnings per share (EPS) of $0.54, as revenue dropped by about 1% to $1.9 billion, according to estimates from Visible Alpha.

Higher interest rates have been a boon for many banks in the past year, allowing them to widen net interest margins. Yet KeyCorp said in December that it earned less from overdrafts after lowering customer fees, and said a pension settlement boosted expenses, as well as higher incentive compensation, and charges due to reductions in office space. It also said its expenses would be at the higher range of expectations because of pension settlement charges, higher incentive compensation, and charges due to reduction in office space, raised expenses.

KeyCorp shares are down by 29% in the past year, compared with a 10% drop in the S&P 500 Financial Sector Index.

1-year total return graph of S&P 500 Financial Sector Index and KeyCorp
Source: TradingView.


KeyCorp Key Stats
  Estimate for Q4 FY 2022 Actual for Q4 FY 2021 Actual for Q4 FY 2020
Earnings Per Share ($) 0.54 0.64 0.56
Revenue ($B) 1.9 1.9 1.8
Net Interest Margin (%) 2.89 2.44 2.70

Source: Visible Alpha

The Key Metric: Net Interest Margin

Net interest margin is a key metric reflecting the difference between net interest income and interest expenses. Banks generate interest income from business loans and mortgages and pay out interest on deposit accounts. When interest rates are low, it's difficult for banks to have a wide margin. Conversely, a period of high interest rates allows banks to increase interest income faste than interest expenses, widening the net interest margin.

KeyCorp will likely its margins widened to 2.89% in the fourth quarter as the Federal Reserve raised benchmark rates to the highest in 15 years.

Article Sources
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  1. American Banker. "KeyCorp's simple recipe amid lower overdraft revenue: Get more customers."

  2. Federal Reserve Statistical Release. "Large Commercial Banks."

  3. KeyCorp. "KeyCorp Fourth Quarter 2022 Earnings Webcast."

  4. Visible Alpha. "Financial Data."

  5. "JPMorgan, Bank of America, Citigroup and Wells Fargo are part of Zacks Earnings Preview."

  6. McKinsey. "Global Banking Annual Review 2022: Banking on a sustainable path."

  7. Goldman Sachs Equity Research. "KeyCorp (KEY): Provides 4Q update ahead of GS Financials Conference."

  8. Bloomberg. "Highest Interest Rates in 15 Years Are Derailing the American Dream."

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