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Fee Income to Aid KeyCorp (KEY) Q1 Earnings, Lower NII to Hurt

KeyCorp KEY is scheduled to announce first-quarter 2024 results on Apr 18, before the opening bell. During the quarter, lending activities witnessed modest improvement.

Per the Federal Reserve’s latest data, the demand for commercial and industrial loans (accounting for almost 50% of KeyCorp’s average loan balances) was subdued in the first quarter. On the other hand, demand for consumer loans (constituting roughly 30% of average loan balances) was decent.

In the to-be-reported quarter, we expect KeyCorp’s average loan balance to be $110.8 billion, down 7.5% from the prior-year quarter.

The Zacks Consensus Estimate for KEY’s average earning assets is pegged at $169.9 billion, indicating a 2.7% decline from the prior-year quarter’s reported number. Our estimate for the metric stands at $173.3 billion, suggesting an almost 1% fall.

Further, the Federal Reserve kept the interest rates unchanged in the quarter at a 22-year high of 5.25-5.5%. This is likely to have aided KEY’s net interest income (NII) and net interest margin. However, both the metrics are likely to have been negatively impacted by muted loan growth, and higher deposit and funding costs.

The consensus estimate for KEY’s NII (on a fully tax-equivalent basis) is pegged at $889.2 million, suggesting a year-over-year decline of 19.6%. We project NII to fall 19.3% to $892.5 million.

Management expects NII to be down 3-5% sequentially.

Other Factors to Impact Q1 Results

Non-Interest Income: Mortgage rates increased, with the rate on a 30-year fixed mortgage rising to 6.79% in March from 6.62% at the start of January. This, along with home price appreciation, hampered mortgage originations and refinancing activities. Hence, income from KEY’s mortgage banking business is less likely to have improved much.

The Zacks Consensus Estimate for commercial mortgage servicing fees of $47.3 million suggests a 2.8% year-over-year rise, while consumer mortgage income of $11.3 million indicates a 2% rise. Our estimates for commercial mortgage servicing fees and consumer mortgage income are $46.9 million and $12.6 million, respectively.

The Zacks Consensus Estimate for cards and payments income of $83.3 million suggests a year-over-year rise of 2.8%. Our estimate for the same stands at $83.9 million.

Increased client activity in the capital markets is expected to have favorably impacted KeyCorp’s trading business in the quarter. Also, global deal-making activities showed signs of improvement. IPOs and bond issuance volumes were decent as global equity and bond markets witnessed solid performance. The consensus estimate for KeyCorp’s IB and debt placement fees of $149.8 million indicates 3.3% growth. We expect the metric to be $133.8 million.

The consensus estimate for trust and investment services income of $132.8 million suggests an increase of 3.7% from the prior-year quarter. We project the metric to be $127.4 million.

The Zacks Consensus Estimate of $64.9 million for service charges on deposit accounts implies a 3.1% fall. Our estimate for service charges on deposit accounts is $66.7 million.

Hence, the consensus estimate for KeyCorp’s total non-interest income of $628.8 million indicates a year-over-year increase of 3.4%. Our estimate for the metric stands at $609.7 million, suggesting a marginal rise.

Expenses: KeyCorp’s efforts to reorganize operations and exit unprofitable/non-core businesses have helped it save costs in the past. Also, the company’s initiatives to drive operational efficiency are likely to have curbed expense growth in the to-be-reported quarter. Yet, investments in franchise, technological upgrades and inorganic growth strategies are expected to have led to a slight rise in total non-interest expenses.

Our estimate for total non-interest expenses stands at $1.09 billion.

Asset Quality: We estimate provision for credit losses to be $106.6 million in the first quarter, suggesting a 23.3% year-over-year decline.

The Zacks Consensus Estimate for non-performing assets is pegged at $556.8 million, indicating a 24.6% rise. We project the metric to be $459.6 million.

What the Zacks Model Predicts

Our proven model predicts an earnings beat for KeyCorp this time around. This is because it has 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 +0.36%.

Zacks Rank: The company currently carries a Zacks Rank #3.


KeyCorp Price and EPS Surprise

KeyCorp price-eps-surprise | KeyCorp Quote

Q1 Earnings & Sales Growth Expectations

The Zacks Consensus Estimate for KEY’s first-quarter earnings is pegged at 23 cents, which has been unchanged over the past seven days. The figure suggests a 47.7% plunge from the prior-year quarter’s actual.

The consensus estimate for sales of $1.51 billion indicates a decline of 11.5%.

Other Bank Stocks Worth Considering

Here are a couple of other bank stocks that you may want to consider, as our model shows that these, too, have the right combination of elements to post an earnings beat this time:

The Earnings ESP for Citizens Financial Group CFG is +0.25% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2024 results on Apr 17.

Over the past seven days, the Zacks Consensus Estimate for CFG’s quarterly earnings has been revised 1.3% lower to 75 cents.

Fifth Third Bancorp FITB is scheduled to release first-quarter 2024 earnings on Apr 19. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +0.89%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

FITB’s quarterly earnings estimates have moved 1.4% north over the past week to 71 cents.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.


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Fifth Third Bancorp (FITB) : Free Stock Analysis Report

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Citizens Financial Group, Inc. (CFG) : Free Stock Analysis Report

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