Fee Income & NII to Aid KeyCorp's Q1 Earnings, High Provisions to Hurt

KeyCorp KEY is scheduled to announce first-quarter 2025 results on April 17, before the opening bell. During the quarter, lending activities witnessed a decent improvement.

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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) declined during the first quarter. Nonetheless, demand for consumer loans (constituting roughly 31% of average loan balances) improved significantly.
 
For the to-be-reported quarter, we expect KeyCorp’s average loan balance to be $103.6 billion, down 6.7% year over year.

The Zacks Consensus Estimate for KEY’s average earning assets is pegged at $172 billion, indicating a 1.2% rise from the prior-year quarter. Our estimate for the metric stands at $175.8 billion.

Further, the Fed kept interest rates unchanged at 4.25%-4.5% due to sticky inflation and tariff-related concerns. This is likely to have supported KEY’s net interest income (NII) and net interest margin (NIM) through higher yields on interest-earning assets and past balance sheet repositioning actions, partially offset by elevated funding costs. Moreover, the yield curve steepened during the first quarter, further supporting NIM and NII growth.

The consensus estimate for NII (on a fully tax-equivalent or FTE basis) is pegged at $1.10 billion, suggesting a year-over-year jump of 25.8%. We project the metric to be $1.12 billion.

Other Factors Likely to Influence KEY’s Q1 Performance

Non-Interest Income: Despite no rate cuts, mortgage rates declined during the first quarter. The rate on a 30-year fixed mortgage decreased 26 bps to 6.65% in March 2025 from 6.91% at the start of January. Thus, mortgage originations and refinancing activities are likely to have improved during the quarter. Hence, income from KEY’s mortgage banking business is expected to have recorded some improvement.

The Zacks Consensus Estimate for commercial mortgage servicing fees of $59.7 million suggests a 6.7% year-over-year rise, while consumer mortgage income of $15.3 million indicates 9.1% growth. Our estimates for commercial mortgage servicing fees and consumer mortgage income are $47.2 million and $16.7 million, respectively.

The consensus estimate for trust and investment services income of $143.9 million suggests an increase of 5.8% from the prior-year quarter. We project the metric to be $145 million.

Increased client activity and high volatility due to concerns regarding a potential trade war following Donald Trump’s announcement of “reciprocal tariffs” 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 saw signs of cautious optimism, given market volatility, geopolitical challenges, and higher-for-longer interest rates. Also, bond issuance volumes declined on unfavorable economic conditions despite tight corporate spreads. The consensus estimate for KeyCorp’s IB and debt placement fees of $156.8 million indicates a 7.8% fall. We expect the metric to be $185.3 million.

The Zacks Consensus Estimate of $64.4 million for service charges on deposit accounts implies a 2.2% rise. Our estimate for service charges on deposit accounts is $63.2 million.

With an improvement in consumer spending during the to-be-reported quarter, the Zacks Consensus Estimate for cards and payments income of $84.2 million suggests a rise of 9.3% from the prior-year quarter. Our estimate for the same stands at $80.8 million.

Hence, the consensus estimate for KeyCorp’s total non-interest income of $653.8 million indicates a year-over-year increase of 1.1%. Our estimate for the metric stands at $661.6 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 stands at $1.19 billion, indicating a rise of 4.2% year over year.

Asset Quality: During the to-be-reported quarter, KEY is likely to have built reserves to safeguard its financials against delinquent loans (mainly C&I loans) amid a higher for longer interest rate backdrop, recessionary fears and inflationary pressure. We estimate provision for credit losses to be $104.8 million, suggesting a 3.8% rise year over year.

The Zacks Consensus Estimate for non-performing assets (NPAs) is pegged at $773.1 million, indicating a 14.7% surge. Further, the consensus estimate for non-performing loans (NPLs) is $760.9 million, implying an increase of 15.6%. We project NPAs and NPLs to be $774.2 million and $752.8 million, respectively.

What the Zacks Model Predicts for KeyCorp

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 -0.77%.

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

Q1 Earnings & Sales Growth Expectations for KEY

The Zacks Consensus Estimate for KEY’s first-quarter earnings is pegged at 32 cents, which has remained unchanged over the past week. The figure suggests a 45.5% jump from the prior-year quarter.

KeyCorp Price and EPS Surprise

KeyCorp price-eps-surprise | KeyCorp Quote

The consensus estimate for sales is pegged at $1.76 billion, indicating a rise of 15.4%.

KEY’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:

State Street Corp. STT is scheduled to release first-quarter 2025 results on April 17. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +1.21%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quarterly earnings estimates for STT have been revised marginally lower over the past week to $1.98.

The Earnings ESP for Truist Financial TFC is +0.15% and it carries a Zacks Rank of 3 at present. The company is slated to report first-quarter 2025 results on April 17.

Over the past seven days, the Zacks Consensus Estimate for TFC’s quarterly earnings has remained unchanged at 86 cents.

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

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