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Fee Income to Aid KeyCorp (KEY) Q2 Earnings, Lower NII to Hurt
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KeyCorp (KEY - Free Report) is scheduled to announce second-quarter 2024 results on Jul 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) improved in the second quarter. On the other hand, demand for consumer loans (constituting roughly 30% of average loan balances) was weak.
For the to-be-reported quarter, we expect KeyCorp’s average loan balance to be $108.9 billion, down 9.7% from the prior-year quarter.
The Zacks Consensus Estimate for KEY’s average earning assets is pegged at $169.8 billion, indicating a 6% decline from the prior-year quarter’s reported number. Our estimate for the metric stands at $172.1 billion, suggesting a 4.7% fall.
Further, the Fed kept the interest rates unchanged at a 23-year high of 5.25-5.5%. This is likely to have supported KEY’s net interest income (NII) and net interest margin. However, both metrics are likely to have been adversely impacted by higher deposit and funding costs and an inverted yield curve.
The consensus estimate for KEY’s NII (on a fully tax-equivalent or FTE basis) is pegged at $904.6 million, suggesting a year-over-year decline of 8.3%. We project NII (FTE) to be $890.6 million.
Other Factors to Influence Q2 Results
Non-Interest Income: Mortgage rates recorded a marginal fall, with the rate on a 30-year fixed mortgage declining to 6.7% in June from 6.8% at the start of April. This is likely to have positively impacted mortgage originations and refinancing activities despite home price appreciation. Hence, income from KEY’s mortgage banking business is expected to have improved.
The Zacks Consensus Estimate for commercial mortgage servicing fees of $56.8 million suggests a 13.6% year-over-year jump, while consumer mortgage income of $11.3 million indicates 1.6% growth. Our estimates for commercial mortgage servicing fees and consumer mortgage income are $51.5 million and $13.9 million, respectively.
The consensus estimate for trust and investment services income of $137 million suggests an increase of 8.8% from the prior-year quarter. We project the metric to be $134.8 million.
Increased client activity in the capital markets is expected to have favorably impacted KeyCorp’s trading business in the quarter, though volatility was low. Also, deal-making activities rebounded. IPOs and bond issuance volumes were decent as global equity and bond markets witnessed robust performance. The consensus estimate for KeyCorp’s IB and debt placement fees of $133.9 million indicates an 11.6% rise. We expect the metric to be $145.5 million.
The Zacks Consensus Estimate of $64.9 million for service charges on deposit accounts implies a 6% fall. Our estimate for service charges on deposit accounts is $68.5 million.
With a slight weakness in consumer spending during the to-be-reported quarter, the Zacks Consensus Estimate for cards and payments income of $80.9 million suggests a decline of 4.8%. Our estimate for the same stands at $86.5 million.
Hence, the consensus estimate for KeyCorp’s total non-interest income of $624.5 million indicates a year-over-year increase of 2.5%. Our estimate for the metric stands at $645.4 million, suggesting a 6% 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 franchises, 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 $1.03 billion, up 2.5% year over year.
Asset Quality: We estimate provision for credit losses to be $91.7 million for the second quarter, suggesting a 45.1% year-over-year decline.
The Zacks Consensus Estimate for non-performing assets (NPAs) is pegged at $614.4 million, indicating a 33% surge. Further, the consensus estimate for NPLs is $601.8 million, implying a jump of 39.6%. We project NPAs and NPLs to be $462.2 million and $450.5 million, respectively.
What the Zacks Model Predicts
Per our proven model, the chances of KeyCorp beating the Zacks Consensus Estimate are low this time. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
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 -3.65%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Q2 Earnings & Sales Growth Expectations
The Zacks Consensus Estimate for KEY’s second-quarter earnings is pegged at 24 cents, which has moved 4% lower over the past week. The figure suggests an 11.1% fall from the prior-year quarter’s actual.
The consensus estimate for sales of $1.52 billion indicates a decline of 4%.
Here are a couple of bank 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:
FNB’s quarterly earnings estimates have moved 2.9% north over the past week to 35 cents.
The Earnings ESP for M&T Bank (MTB - Free Report) is +0.22% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2024 results on Jul 18.
Over the past seven days, the Zacks Consensus Estimate for MTB’s quarterly earnings has been revised marginally lower to $3.50.
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Fee Income to Aid KeyCorp (KEY) Q2 Earnings, Lower NII to Hurt
KeyCorp (KEY - Free Report) is scheduled to announce second-quarter 2024 results on Jul 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) improved in the second quarter. On the other hand, demand for consumer loans (constituting roughly 30% of average loan balances) was weak.
For the to-be-reported quarter, we expect KeyCorp’s average loan balance to be $108.9 billion, down 9.7% from the prior-year quarter.
The Zacks Consensus Estimate for KEY’s average earning assets is pegged at $169.8 billion, indicating a 6% decline from the prior-year quarter’s reported number. Our estimate for the metric stands at $172.1 billion, suggesting a 4.7% fall.
Further, the Fed kept the interest rates unchanged at a 23-year high of 5.25-5.5%. This is likely to have supported KEY’s net interest income (NII) and net interest margin. However, both metrics are likely to have been adversely impacted by higher deposit and funding costs and an inverted yield curve.
The consensus estimate for KEY’s NII (on a fully tax-equivalent or FTE basis) is pegged at $904.6 million, suggesting a year-over-year decline of 8.3%. We project NII (FTE) to be $890.6 million.
Other Factors to Influence Q2 Results
Non-Interest Income: Mortgage rates recorded a marginal fall, with the rate on a 30-year fixed mortgage declining to 6.7% in June from 6.8% at the start of April. This is likely to have positively impacted mortgage originations and refinancing activities despite home price appreciation. Hence, income from KEY’s mortgage banking business is expected to have improved.
The Zacks Consensus Estimate for commercial mortgage servicing fees of $56.8 million suggests a 13.6% year-over-year jump, while consumer mortgage income of $11.3 million indicates 1.6% growth. Our estimates for commercial mortgage servicing fees and consumer mortgage income are $51.5 million and $13.9 million, respectively.
The consensus estimate for trust and investment services income of $137 million suggests an increase of 8.8% from the prior-year quarter. We project the metric to be $134.8 million.
Increased client activity in the capital markets is expected to have favorably impacted KeyCorp’s trading business in the quarter, though volatility was low. Also, deal-making activities rebounded. IPOs and bond issuance volumes were decent as global equity and bond markets witnessed robust performance. The consensus estimate for KeyCorp’s IB and debt placement fees of $133.9 million indicates an 11.6% rise. We expect the metric to be $145.5 million.
The Zacks Consensus Estimate of $64.9 million for service charges on deposit accounts implies a 6% fall. Our estimate for service charges on deposit accounts is $68.5 million.
With a slight weakness in consumer spending during the to-be-reported quarter, the Zacks Consensus Estimate for cards and payments income of $80.9 million suggests a decline of 4.8%. Our estimate for the same stands at $86.5 million.
Hence, the consensus estimate for KeyCorp’s total non-interest income of $624.5 million indicates a year-over-year increase of 2.5%. Our estimate for the metric stands at $645.4 million, suggesting a 6% 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 franchises, 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 $1.03 billion, up 2.5% year over year.
Asset Quality: We estimate provision for credit losses to be $91.7 million for the second quarter, suggesting a 45.1% year-over-year decline.
The Zacks Consensus Estimate for non-performing assets (NPAs) is pegged at $614.4 million, indicating a 33% surge. Further, the consensus estimate for NPLs is $601.8 million, implying a jump of 39.6%. We project NPAs and NPLs to be $462.2 million and $450.5 million, respectively.
What the Zacks Model Predicts
Per our proven model, the chances of KeyCorp beating the Zacks Consensus Estimate are low this time. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.
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 -3.65%.
Zacks Rank: The company currently carries a Zacks Rank #3.
Q2 Earnings & Sales Growth Expectations
The Zacks Consensus Estimate for KEY’s second-quarter earnings is pegged at 24 cents, which has moved 4% lower over the past week. The figure suggests an 11.1% fall from the prior-year quarter’s actual.
The consensus estimate for sales of $1.52 billion indicates a decline of 4%.
KeyCorp Price and EPS Surprise
KeyCorp price-eps-surprise | KeyCorp Quote
Bank Stocks Worth Considering
Here are a couple of bank 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:
F.N.B. Corp (FNB - Free Report) is scheduled to release second-quarter 2024 earnings on Jul 17. The company, which carries a Zacks Rank #2 (Buy) at present, has an Earnings ESP of +1.24%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FNB’s quarterly earnings estimates have moved 2.9% north over the past week to 35 cents.
The Earnings ESP for M&T Bank (MTB - Free Report) is +0.22% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2024 results on Jul 18.
Over the past seven days, the Zacks Consensus Estimate for MTB’s quarterly earnings has been revised marginally lower to $3.50.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.