Growth in NII, Robust IB Performance to Aid KeyCorp's Q4 Earnings

KeyCorp KEY is slated to announce fourth-quarter and 2025 results on Jan. 20, before the opening bell. In the to-be-reported quarter, lending activities witnessed robust 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) and consumer loans was solid in the quarter.

Management expects 2025 period-end loans to rise 2%, with commercial loans increasing 5%.

The Zacks Consensus Estimate for KEY’s average earning assets for the fourth quarter is pegged at $171.65 billion, indicating a marginal rise from the prior-year quarter’s actual.

Now, in the quarter, the Federal Reserve cut interest rates twice. This, along with a rate cut in September, lowered rates to 3.50-3.75%. While this is likely to have hurt KEY’s net interest income (NII) to some extent, a solid lending scenario and stabilizing funding/deposit costs are expected to have offered the much-needed support.

The consensus estimate for fourth-quarter NII (on a fully tax-equivalent or FTE basis) is pegged at $1.21 billion, indicating a year-over-year jump of 14%. Management expects the metric to grow 13% or more year over year. The 2025 NII (TE) is expected to rise 22% year over year.

Moreover, despite declining rates, the company’s net interest margin (NIM) is expected to have improved in the quarter, supported by loan growth, balance sheet repositioning and stabilizing deposit costs.

Management expects NIM of 2.75-2.8% in the fourth quarter of 2025.

Other Factors Likely to Impact KeyCorp’s Q4 Earnings

Non-Interest Income: Mortgage rates declined substantially in the fourth quarter from the levels observed at the beginning of 2025. This was mainly driven by the Fed’s monetary policy easing. Hence, refinancing activities and origination volumes 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 $69 million implies a 1.5% year-over-year increase, while consumer mortgage income of $13.99 million indicates a 12.6% decline.

The consensus estimate for KEY’s trust and investment services income is pegged at $154 million, which indicates an 8.5% increase from the prior-year quarter’s actual.

Client activity and market volatility were solid in the fourth quarter. Major factors that impacted trading business in the quarter included the longest U.S. government shutdown in history, a dip in consumer sentiment, easing monetary policy and a dominant AI-theme. Thus, increased trading activities are expected to have favorably impacted KeyCorp’s related business in the to-be-reported quarter.

Also, deal-making activities were robust in the quarter. The IPO market remained impressive, with a significant increase in the number of IPOs and the amount of capital raised. Moreover, bond issuance volumes were solid. Thus, KEY’s investment banking (IB) business performance is expected to have improved. The consensus estimate for investment banking and debt placement fees of $230 million indicates a 4.1% year-over-year rise. Management expects fourth-quarter IB fees to rise $10-20 million on a year-over-year basis.

The Zacks Consensus Estimate of $74 million for service charges on deposit accounts implies a 13.8% year-over-year rise.

With an improvement in consumer spending in the to-be-reported quarter, the Zacks Consensus Estimate for cards and payments income of $91 million indicates growth of 7.1% from the prior-year quarter.

Thus, the consensus estimate for KeyCorp’s total non-interest income, which is pegged at $748 million, indicates improvement from negative income reported in the prior-year quarter. Management expects non-interest income growth (excluding securities loss) to be above 6.5% in 2025, driven by high-single-digit fee growth in priority businesses, such as wealth management and commercial payments.

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.

Management expects non-interest expenses (excluding notable charges) to increase slightly above 4% year over year in 2025.

Asset Quality: KeyCorp is less likely to have set aside a huge amount of money for potential delinquent loans, as the interest rates have come down substantially from the highs of 5-5.25%. 

The Zacks Consensus Estimate for fourth-quarter non-performing assets (NPAs) is pegged at $689 million, indicating a 10.8% year-over-year decline. Further, the consensus estimate for non-performing loans (NPLs) is $691 million, implying a decline of 8.8%.

What the Zacks Model Predicts for KeyCorp

Per our proven model, the chances of KeyCorp beating the Zacks Consensus Estimate for earnings 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 are reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for KeyCorp is +1.20%.

Zacks Rank: The company currently carries a Zacks Rank #2 (Buy).

Earnings & Sales Growth Expectations for KeyCorp

The Zacks Consensus Estimate for KEY’s fourth-quarter earnings is pegged at 38 cents per share, which has been unchanged over the past week. The figure indicates no change from the prior-year quarter.

For 2025, the consensus estimate for earnings of $1.47 indicates a rise of 26.7% from the previous year.

The consensus estimate for quarterly sales is pegged at $1.94 billion, indicating a year-over-year rise of 10.3%. Full-year sales estimate is $7.43 billion, indicating 16% growth from the 2024 actual.

Management expects adjusted total revenues (TE) to increase 15% on a year-over-year basis in 2025.

KeyCorp’s Peer Stocks Worth Considering

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

Truist Financial TFC is scheduled to announce fourth-quarter 2025 results on Jan. 21. The company has a Zacks Rank #3 at present and an Earnings ESP of +0.88%.

Quarterly earnings estimates for Truist have been unchanged at $1.09 per share over the past week.

The Earnings ESP for Regions Financial RF is +0.36% and it carries a Zacks Rank of 2 at present. The company is slated to report fourth-quarter 2025 results on Jan. 16. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past seven days, the Zacks Consensus Estimate for Regions Financial’s quarterly earnings has been unchanged at 61 cents per share.

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

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