Keycorp 3Q14 Earnings Call Notes

posted in: Notes | 0

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Expect credit to remain strong in 4Q

” the quality of our new business volume has consistently been better than that of our existing portfolio. We expect net charge-offs to remain below our targeted range of 40 basis points to 60 basis points in the fourth quarter.”

Short end of the curve means a lot more to earnings than the long end

“The long end of the curve doesn’t have as much of an impact on us as the shorter end of the curve. If you look at our asset portfolio, loans typically have an average life of three years. Most of our loans are LIBOR-based, and so we’re going to see more lift when we see the shorter end of the curve moving up. When we look at the investment securities that we’re purchasing, over the last couple of quarters, we’ve seen yields for purchases in the 2% to 2.25% level. And so with the long end of the curve coming down, it’s going to push that down a little bit, but it shouldn’t have a meaningful impact in the overall margin from what our current guidance would suggest.”

Net interest margin has plateaued

“If we look at our margin today of 2.96%, we believe that even with rates being flat with where they’re at today, that the margin will hold in relatively stable over the next several years, and so we do believe that we’re at kind of a plateau there.”

2% rates drives the agency side of the business

” With rates like this at the 10-year, what you’ll see is a significant pick-up in some of the things we do when we act as agent, not principal. And as a result, whether it’s Fannie, Freddie, FHA, those longer-term fixed deals, you’ll see a lot of our clients opting for those. Obviously, the CMBS market has enjoyed a nice recovery this year. We think total issuance in the CMBS market will be between $90 billion and $95 billion this year. So that’s really – you really see it impacted more our clients going long and going fixed, and that really lends itself to our business model where we’re functioning as agent, not principal”