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Consumer Loans, IB to Support KeyCorp's (KEY) Q2 Earnings

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KeyCorp (KEY - Free Report) is scheduled to report second-quarter 2021 results on Jul 20, before the opening bell. Similar to the past several quarters, the overall lending scenario was subdued in the to-be-reported quarter despite re-opening of the economy.

Per the latest Federal Reserve data, commercial and industrial loan balances (accounting for almost 50% of KeyCorp’s average loan balances) witnessed a decline. On the other hand, consumer loans, which account for almost 30% of its average loan balance, recorded a rise. This seems to be driven by rise in consumer confidence as economic growth remains robust.

The Zacks Consensus Estimate for average earning assets of $159.6 billion suggests an 1.4% rise sequentially.

KeyCorp’s net interest income (NII) is expected to have witnessed a slight rise despite overall muted loan growth, the near-zero interest rate environment and flattening of the yield curve. The consensus estimate for NII (on a fully tax-equivalent basis) of $1.03 billion indicates growth of 1.9% from the prior quarter’s reported figure.

Other Major Factors at Play

Non-Interest Income: Similar to the past few quarters, deal making continued at a rapid pace in second-quarter 2021 on the back of a brighter macroeconomic outlook, solid cash reserves and lower interest rates. The IPO markets witnessed similar momentum, which along with a steady rise in follow-up equity issuances, is likely to have offered support to equity underwriting fees. Bond issuance volumes were also modest. These are expected to have provided support to KeyCorp’s investment banking (IB) business. On the other hand, trading business normalized in the second quarter amid reduced market volatility. The consensus estimate for KeyCorp’s IB and capital markets income of $167 million indicates an increase of 3.1% sequentially.

Steadily rising deposit balance during the quarter is expected to have supported the company’s service charge on deposits. The consensus estimate of $75 million indicates 2.7% improvement on a sequential basis.

The consensus estimate for cards and payments income of $105 million is on par with the quarter-ago level. The Zacks Consensus Estimate for trust and investment services income of $124 million suggests a 6.8% decline from the prior quarter.

Low mortgage rates continued to fuel the demand for new mortgages in the quarter. Yet, as rates gradually increased, refinancing activities are not expected to have been great. The Zacks Consensus Estimate for consumer mortgage income and mortgage servicing fees is pegged at $44 million and $24 million, suggesting a decline of 6.4% and 29.4%, respectively, from the prior-quarter levels.

Thus, the consensus estimate for total non-interest income of $704 million indicates a fall of 4.6% on a sequential basis.

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

As the demand for digital banking services continues to rise, KeyCorp identified nearly 70 branches for consolidation by 2021-end. The majority of the branch closures is expected in the second quarter of 2021. This is also likely to have resulted in lower costs.

Asset Quality: Driven by improving macroeconomic backdrop and stable credit market conditions, KeyCorp is likely to have released reserves in the second quarter. This might have supported the company’s earnings in the to-be-reported quarter.

What the Zacks Model Predicts

Our proven model predicts an earnings beat for KeyCorp this time around. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

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 +0.26%.

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 earnings of 55 cents per share have been revised 1.9% upward over the past seven days. The figure suggests a 243.8% rise from the prior-year quarter’s reported number.

The consensus estimate for sales of $1.73 billion indicates 1.3% growth from the year-ago quarter’s reported figure.

Other Banks Worth a Look

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

The Earnings ESP for Hancock Whitney Corporation (HWC - Free Report) is +2.18% and it carries a Zacks Rank #2 (Buy) at present. The company is slated to report quarterly numbers on Jul 20.

BankUnited (BKU - Free Report) is scheduled to release earnings on Jul 22. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +3.07%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bank OZK (OZK - Free Report) is slated to report quarterly results on Jul 22. The company currently has an Earnings ESP of +7.68% and a Zacks Rank of 2.

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

KeyCorp (KEY) - free report >>

BankUnited, Inc. (BKU) - free report >>

Hancock Whitney Corporation (HWC) - free report >>

Bank OZK (OZK) - free report >>

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