Fee Income & NII to Drive KeyCorp's Q3 Earnings, Provisions to Hurt

KeyCorp KEY is slated to announce third-quarter 2025 results on Oct. 16, before the opening bell. During the quarter, lending activities witnessed a decent improvement.

Per the Federal Reserve’s latest data, the demand for commercial and industrial (C&I) loans (accounting for roughly 50% of KeyCorp’s average loan balances) was impressive during the first two months of the third quarter. Further, demand for consumer loans (comprising nearly 31% of average loan balances) remained decent.

For the to-be-reported quarter, we expect KeyCorp’s average loan balance to be $106.2 billion, down marginally year over year. The Zacks Consensus Estimate for KEY’s average earning assets is pegged at $171 billion, indicating a marginal decline from the prior-year quarter. Our estimate for the metric is $172.4 billion.

Furthermore, on Sept. 17, the Fed implemented a 25-basis-point rate cut given softening inflation and a weak labor market. This is less likely to have hurt KEY’s net interest income (“NII”) and net interest margin as rates remained relatively stable for most of the quarter. Hence, funding costs are likely to have stabilized.
 
The consensus estimate for NII (on a fully tax-equivalent or FTE basis) is pegged at $1.18 billion, indicating a year-over-year jump of 22.4%. We project the metric to be $1.17 billion, up 21% from the prior-year quarter.

Other Factors Likely to Impact KeyCorp’s Q3 Earnings

Non-Interest Income: Despite the interest rate cut by the Federal Reserve, mortgage rates have not come down much. The third quarter saw rates fluctuate, but the metric remained in the mid-to-upper 6% range. Hence, refinancing activities and origination volume were decent. So, income from KEY’s mortgage banking business is expected to have recorded some improvement.

The Zacks Consensus Estimate for commercial mortgage servicing fees of $73.6 million implies a roughly 1% year-over-year increase, while consumer mortgage income of $15.8 million indicates a 31.8% jump. Our estimates for commercial mortgage servicing fees and consumer mortgage income are pinned at $81.1 million and $15.1 million, respectively.

The consensus estimate for trust and investment services income of $149.4 million indicates a 6.7% increase from the prior-year quarter. We project the metric to be $146.8 million.

Increased client activity and high volatility due to concerns over the impact of tariffs on the U.S. economy and the Fed’s monetary policy are expected to have favorably impacted KeyCorp’s trading business in the to-be-reported quarter. Also, deal-making activities were decent. The IPO market remained impressive, with a significant increase in both the number of IPOs and the amount of capital raised. Also, bond issuance volumes were decent. The consensus estimate for KeyCorp’s investment banking and debt placement fees of $181.3 million indicates a 6% rise. We expect the metric to be $178.7 million.

The Zacks Consensus Estimate of $72.6 million for service charges on deposit accounts implies an 8.4% rise. Our estimate for service charges on deposit accounts is $70.7 million.

With an improvement in consumer spending during the to-be-reported quarter, the Zacks Consensus Estimate for cards and payments income of $88.4 million indicates growth of 5.3% from the prior-year quarter. Our estimate for the same is $92.3 million.

Thus, the consensus estimate for KeyCorp’s total non-interest income of $704.5 million indicates a year-over-year increase of 5.5%. Our estimate for the metric is $710.1 million.

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 and technological upgrades are expected to have resulted in a rise in total non-interest expenses.

Our estimate for total non-interest expenses is $1.2 billion, indicating a rise of 9.6% year over year.

Asset Quality: During the to-be-reported quarter, KeyCorp is likely to have built reserves to safeguard its financials against delinquent loans (mainly C&I loans) amid macroeconomic uncertainty, though the pace is likely to have slowed given improving economic clarity and potential two more interest rate cuts as signalled by the Fed. We estimate provision for credit losses to be $105.7 million, indicating a 11.3% rise year over year.

The Zacks Consensus Estimate for non-performing assets (NPAs) is pegged at $728.6 million, indicating a 1.7% decline. Further, the consensus estimate for non-performing loans (NPLs) is $718 million, implying a decline of 1.4%. We project NPAs and NPLs to be $750.1 million and $733 million, respectively.

What the Zacks Model Predicts for KeyCorp

Per our proven model, the chances of KeyCorp beating the Zacks Consensus Estimate are high this time. This is because it has 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 +2.64%.

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

Q3 Earnings & Sales Growth Expectations for KeyCorp

The Zacks Consensus Estimate for KEY’s third-quarter earnings is pegged at 38 cents per share, which has remained unchanged over the past week. The figure indicates a 26.7% jump from the prior-year quarter.

The consensus estimate for sales is pegged at $1.88 billion, indicating a rise of 17.3%.

KeyCorp’s Peer Stocks Worth Considering

Here are a couple of KeyCorp’s peer 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:

Truist Financial TFC is scheduled to announce third-quarter 2025 results on Oct. 17. The company carries a Zacks Rank #3 at present and has an Earnings ESP of +0.60%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quarterly earnings estimates for Truist have remained unchanged at 98 cents per share over the past week.

The Earnings ESP for Regions Financial RF is +0.30% and it carries a Zacks Rank of 3 at present. The company is also slated to report third-quarter 2025 results on Oct. 17.

Over the past seven days, the Zacks Consensus Estimate for Regions Financial’s quarterly earnings has been revised 1.7% lower to 59 cents per share.

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This article originally published on Zacks Investment Research (zacks.com).

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