8-K: KeyCorp Boosts 2025 Outlook Amid Strong Growth

KeyCorp presented a robust financial and strategic update, revising its 2025 outlook upwards and highlighting strong performance across its diversified business segments.

Summary

• KeyCorp reported strong financial performance for the first half of 2025, with diluted EPS up 47% to $0.69 and taxable-equivalent net interest income increasing 26% to $2,255 million compared to 1H24.
• The company revised its 2025 financial targets upwards, now expecting net interest income (TE) to be up 20-22% (previously ~20%) and net interest margin to reach ~2.75% in 4Q25 (previously 2.70%+).
• Loan targets were also revised, with ending loans expected to be up ~2% vs. YE 2024 (previously flat) and PE Commercial Loans up ~5% (previously up 2-4%).
• KeyCorp maintains a strong capital position with a Common Equity Tier 1 (CET1) ratio of 11.7% and a Marked Common Equity Tier 1 of 10.0% as of 2Q25.
• The company's diversified fee businesses, including investment banking, wealth management, and commercial payments, showed significant momentum, with noninterest income growing 7% year-over-year in 1H25.
• Credit quality remains strong, with a 10-year average Net Charge-Off (NCO) ratio of 29bps and 1H25 NCOs/Average Loans at 41bps, reflecting a low-to-moderate risk profile.
• A $1 billion share repurchase program has been authorized by the Board, signaling confidence in future performance and commitment to shareholder value.

Sentiment

Score: 9

Explanation: The filing presents a highly positive outlook, showcasing strong financial performance, upward revisions to key financial targets, robust capital positions, and strategic execution across diversified fee-based businesses. The authorized share repurchase program further reinforces a strong commitment to shareholder value, indicating significant confidence in future growth and profitability.

Positives

• Diluted EPS for 1H25 increased by 47% to $0.69 compared to 1H24.
• Taxable-equivalent Net Interest Income for 1H25 grew by 26% to $2,255 million year-over-year.
• Noninterest Income for 1H25 increased by 7% to $1,358 million year-over-year.
• Revenue (TE) for 1H25 rose by 18% to $3,613 million year-over-year.
• Return on Assets improved by 37 basis points to 0.90% in 1H25.
• Return on Tangible Common Equity increased by 204 basis points to 11.2% in 1H25.
• Cash Efficiency Ratio improved significantly by 910 basis points to 63.0% in 1H25.
• Common Equity Tier 1 (CET1) ratio stands at a strong 11.7% as of 2Q25, up ~120bps YoY.
• Marked Common Equity Tier 1 is 10.0% as of 2Q25, up ~270bps YoY, placing KeyCorp in the top quartile among peers.
• Nonperforming Assets (NPAs) / Loans + OREO decreased by 8 basis points to 66bps vs. 4Q24.
• Client deposits and net new relationship household growth were up 2% year-over-year in 1H25.
• Commercial loan growth year-to-date was 5%.
• Net Interest Margin (NIM) is projected to reach ~2.75% in 4Q25 and a medium-term target of 3.25%+, benefiting from clearly defined tailwinds.
• Investment Banking and Debt Placement fees were up 19% in 1H25, with expectations to grow at ~2-3x real GDP annually.
• Assets Under Management (AUM) reached a record $64 billion as of 2Q25, with a 9% CAGR since 2020.
• Commercial mortgage servicing fees were up 25% in 1H25.
• Received a credit ratings upgrade from Fitch to Aand a Positive outlook from Moody's (Baa2 to Baa1).
• The Board authorized a $1 billion share repurchase program.
• Proactive deposit beta management resulted in a cumulative down interest-bearing deposit beta of ~55%.

Negatives

• Provision for Credit Losses increased by 27% to $256 million in 1H25 compared to 1H24.
• The general economic environment includes enduring inflation and a softening labor market, which may challenge monetary policy.

Risks

• Macroeconomic and policy uncertainty could impact the company's neutral interest rate risk position.
• Potential for changes in the regulatory capital framework could affect capital ratios.
• Stress in certain areas of Commercial Real Estate (CRE), specifically Office, Retail, and Sunbelt multifamily markets, could impact asset quality, although KeyCorp states it is well-positioned.
• Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from current projections.

Future Outlook

KeyCorp has upwardly revised its 2025 outlook, projecting average loans to be down 1-3% (previously down 2-5%), ending loans up ~2% vs. YE 2024 (previously flat), and PE Commercial Loans up ~5% (previously up 2-4%). Adjusted noninterest income is expected to be up 5%+ and adjusted noninterest expense up 3-5%. Net Interest Income (TE) is now projected to be up 20-22% (previously ~20%), with Net Interest Margin reaching ~2.75% in 4Q25 (previously 2.70%+). The company anticipates NCOs to Average Loans to be between 40-45 bps. KeyCorp aims to deliver 15%+ Return on Tangible Common Equity (ROTCE) over the medium term, driven by disciplined balance sheet growth, expense discipline, compounding fee advantage, and productive capital deployment. They also project ~2 rate cuts in 2025 and ~3 cuts in 2026, impacting AOCI.

Management Comments

• Chris Gorman, Chairman & Chief Executive Officer, stated that Key's strong foundation positions the company to execute on its targeted scale strategy to deliver sound, profitable growth.
• Federal Reserve Chair Powell characterized the recent monetary policy rate cut as insurance against labor market weakness.

Industry Context

The U.S. corporate credit spreads are nearing their tightest historical levels, reflecting low credit losses and high bond fund inflows. The broader economic environment is characterized by enduring inflation, which remains above the Federal Reserve's 2% target, and a softening labor market with rising unemployment. The commercial real estate (CRE) market faces a significant loan maturity wall, estimated at ~$950 billion in 2025, presenting both challenges and opportunities. The private equity and private credit sectors hold over $1 trillion in dry powder, indicating potential for increased M&A and financing activity. The embedded banking industry is projected for substantial growth, from $32 billion in 2024 to $62 billion by 2030, aligning with KeyCorp's focus on commercial payments innovation.

Comparison to Industry Standards

• KeyCorp maintains leading capital and liquidity positions among its peers (CFG, CMA, FITB, HBAN, MTB, PNC, RF, TFC, USB, ZION).
• The company has closed approximately half the gap to the peer median Net Interest Margin (NIM) of 3.12% over the past year, with clear tailwinds expected to narrow it further.
• KeyCorp's noninterest income as a percentage of average assets (1.69%) is significantly higher than the peer median (1.28%).
• Noninterest income contribution to total revenue (41%) also surpasses the peer median (31%).
• KeyCorp demonstrates superior performance in commercial payments, with Core Treasury TM Fees / Commercial Deposits (71 bps) exceeding the peer top quartile (60 bps), Merchant Spend Volume / Total Deposits (21%) above the peer top quartile (16%), and Card & Automation Volume / Commercial Deposits (10%) also above the peer top quartile (6%).
• The company holds the #1 master and special servicing market share and is the largest named special servicer in AUM for 2024.
• KeyCorp is ranked as the #2 affordable housing originator for 2024.
• Its CET1 capital ratios, both as reported (11.7%) and on a marked basis (10.0%), compare favorably to most peers, placing it in the top quartile.

Stakeholder Impact

• Shareholders: Expected to benefit from increased profitability, upwardly revised financial targets, a $1 billion share repurchase program, and a commitment to delivering 15%+ ROTCE over the medium term.
• Clients: Will benefit from accelerated investments in people and technology, expanded banking teams, and enhanced capabilities across capital markets, wealth management, and commercial payments.
• Employees: Investments in people and technology, including GenAI use cases, are aimed at improving productivity and enabling better service to customers, potentially leading to enhanced work environments and opportunities.
• Creditors: Improved credit ratings (Fitch upgrade, Moody's positive outlook) and strong capital/liquidity positions indicate reduced credit risk.

Next Steps

• Continue to drive strong momentum across differentiated fee businesses focused on targeted scale.
• Make meaningful investments in front-line bankers and technology to drive future growth.
• Complete migration to a hybrid cloud environment, enhance cyber security, and improve data and analytics capabilities.
• Leverage approximately 15 GenAI use cases currently in production to improve employee productivity and customer service.
• Increase the size of wealth client-facing teams, targeting ~10% wealth manager headcount growth in 2025.
• Add middle market bankers and payments advisors, with recent expansions into Chicago and Southern California.
• Pursue niche tuck-in fee-based acquisitions that can be integrated quickly and effectively.
• Execute on the Board-authorized $1 billion share repurchase program.

Key Dates

Recommendation

KeyCorp's investor presentation signals a strong 'strong buy' recommendation. The company has demonstrated exceptional financial performance in 1H25, with significant year-over-year growth in EPS, Net Interest Income, and Noninterest Income. The upward revision of 2025 financial targets, including NII and loan growth, indicates robust operational momentum and a positive outlook. KeyCorp's strong capital ratios, proactive risk management, and leading positions in diversified fee-based businesses (investment banking, wealth, payments, CRE servicing) provide a solid foundation for sustained profitable growth. The authorized $1 billion share repurchase program further underscores management's confidence and commitment to enhancing shareholder value. The favorable credit rating upgrades and positive industry comparisons reinforce the company's strong market position and future prospects.

Keywords

KeyCorp, Banking, Financial Services, Investor Presentation, SEC Filing, Capital Markets, Wealth Management, Commercial Payments, Credit Quality, Net Interest Income, CET1, Deposits, Loans, NIM, Share Repurchase, Risk Management, Corporate Banking