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High Fee Income, C&I Loans to Aid KeyCorp (KEY) Q2 Earnings

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KeyCorp (KEY - Free Report) is scheduled to report second-quarter 2020 results on Jul 22, before the opening bell. During the quarter, the overall lending scenario was muted, while there was substantial growth in commercial and industrial loans (accounting for roughly 50% of KeyCorp’s average loan balances), which is expected to have offered some support.

The Zacks Consensus Estimate for the company’s average total loans and average earning assets suggests growth from the prior quarter. The consensus estimate for average total loans of $106.8 billion indicates growth of 11.1% sequentially. Also, the consensus estimate for average earning assets of $144.2 billion suggests a 8.3% rise from the prior quarter.

Thus, KeyCorp’s net interest income (NII) growth is expected to have improved in the to-be-reported quarter despite lower rates. The Zacks Consensus Estimate for NII on a fully tax-equivalent basis is pegged at $1 billion, indicating an increase of 1.2% sequentially.

Nonetheless, near-zero interest rates are likely to have resulted in contraction in the bank’s net interest margin in the second quarter.

Other Factors at Play

Rise in Non-interest Income: While deal making and IPO activities were muted during the second quarter, a substantial rise in equity and debt issuances are likely to have led to a rise in KeyCorp’s investment banking fees.

Also, given heightened market volatility and rise in client activities, trading income is likely to have risen. Thus, the consensus estimate for KeyCorp’s investment banking and debt placement fees of $130 million indicates a rise of 12.1% sequentially.

Further, historically low mortgage rates are expected to have resulted in a significant rise in refinancing activity. However, mortgage originations remained muted in the second quarter. Thus, the Zacks Consensus Estimate for consumer mortgage income suggests growth of 42.5% from the prior quarter.

However, owing to bearish consumer sentiments and concerns related to coronavirus, cards and payments income is likely to have declined in the to-be-reported quarter. The consensus estimate for the same suggests a sequential decline of 6.1% to $62 million.

Moreover, the Zacks Consensus Estimate for trust and investment services income suggests fall of 9.8% from the prior quarter.

Therefore, the consensus estimate for total non-interest income of $592 million implies an increase of 24.1% on a sequential basis.

Decline in Expenses: KeyCorp’s efforts to reorganize operations and exit unprofitable/non-core businesses helped it in saving costs in the past. The trend is expected to have continued in the second quarter.

Worsening Asset Quality: As KeyCorp is likely to have built additional loan loss reserves, mainly due to the worsening and uncertain macro-economic backdrop, provisions are expected to have risen in the second quarter.

Further, the consensus estimate for non-performing loans of $822 million suggests a 30.1% rise on a sequential basis.

Here is what our quantitative model predicts:

Our proven model doesn’t conclusively predict an earnings beat for KeyCorp this time around. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and 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 0.00%.

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

KeyCorp Price and EPS Surprise

KeyCorp Price and EPS Surprise

KeyCorp price-eps-surprise | KeyCorp Quote

The Zacks Consensus Estimate for KeyCorp’s earnings for the to-be-reported quarter is pegged at 15 cents, which suggests a plunge of 65.9% year over year. The consensus estimate for sales of $1.6 billion indicates no change from the prior year.

Bank Stocks Worth a Look

Here are some bank stocks that you may want to consider as these have the right combination of elements to post an earnings beat this earnings season.

Bank OZK (OZK - Free Report) is slated to release quarterly results on Jul 23. The company has an Earnings ESP of +52.86% and currently carries a Zacks Rank #3. You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Associated Banc-Corp (ASB - Free Report) is +7.31% and the company presently carries a Zacks Rank #3. It is scheduled to report quarterly numbers on Jul 23.

SVB Financial Group (SIVB - Free Report) is slated to report quarterly numbers of Jul 23. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +6.71%.

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