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KeyCorp KEY is scheduled to announce fourth-quarter and full-year 2024 results on Jan. 21, before the opening bell. During the quarter, lending activities witnessed a solid 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) improved during the fourth quarter. Further, 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 $149.3 billion, up 2.9% year over year.
The Zacks Consensus Estimate for KEY’s average earning assets is pegged at $173.2 billion, indicating a marginal rise from the prior-year quarter. Our estimate for the metric stands at $173.5 billion.
Further, the Fed has reduced interest rates by 100 basis points (bps) since September 2024. This is likely to have aided KEY’s net interest income (NII) and net interest margin (NIM) through deposit repricing and stabilizing funding costs. Moreover, the yield curve steepened and then normalized during the fourth quarter, further supporting NIM and NII growth to some extent.
The consensus estimate for NII (on a fully tax-equivalent or FTE basis) is pegged at $1.04 billion, suggesting a year-over-year rise of 12%. We project the metric to be the same as the estimate.
The company expects NII to grow 10% or more on a year-over-year basis in the fourth quarter of 2024 while NIM is estimated to be nearly 2.4%.
Factors to Influence KEY’s Q4 Performance
Non-Interest Income: Despite interest rate cuts, mortgage rates remained elevated during the fourth quarter. The rate on a 30-year fixed mortgage increased 79 bps to 6.91% in December 2024 from 6.12% at the start of October. As such, mortgage originations and refinancing activities remained decent despite home price appreciation. 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 $62.3 million suggests a 29.7% year-over-year jump, while consumer mortgage income of $13.2 million indicates 20.2% growth. Our estimates for commercial mortgage servicing fees and consumer mortgage income are $53.5 million and $13.9 million, respectively.
The consensus estimate for trust and investment services income of $143.3 million suggests an increase of 8.5% from the prior-year quarter. We project the metric to be $149.3 million.
Increased client activity and high volatility, driven by the optimism following Donald Trump’s victory in the presidential elections, are expected to have favorably impacted KeyCorp’s trading business in the quarter. Also, deal-making activities were robust. The IPO market saw signs of cautious optimism, given market volatility, geopolitical challenges and global monetary easing, while bond issuance volumes were decent on favorable economic conditions and corporate spreads at near historical lows despite seasonally slow volumes in December. The consensus estimate for KeyCorp’s IB and debt placement fees of $194.5 million indicates a 43% jump. We expect the metric to be $173.9 million.
The Zacks Consensus Estimate of $68.7 million for service charges on deposit accounts implies a 5.7% rise. Our estimate for service charges on deposit accounts is $72.3 million.
With an improvement in consumer spending during the to-be-reported quarter, the Zacks Consensus Estimate for cards and payments income of $87.7 million suggests a rise of 4.4%. Our estimate for the same stands at $82.6 million.
Hence, the consensus estimate for KeyCorp’s total non-interest income of $702.2 million indicates a year-over-year increase of 15.1%. Our estimate for the metric stands at $688 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 led to a rise in total non-interest expenses.
Our estimate for total non-interest expenses stands at $1.18 billion, indicating a decline of 14.3% 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 and inflationary pressure. We estimate provision for credit losses to be $102.2 million, suggesting a marginal rise year over year.
The Zacks Consensus Estimate for non-performing assets is pegged at $733.8 million, indicating a 24.2% surge. Further, the consensus estimate for non-performing loans is $664 million, implying an increase of 15.7%. We project non-performing assets and non-performing loans to be $726.5 million and $614.9 million, respectively.