10-Q: KeyCorp Q2 2025 Earnings Soar on Strong Fee Income

KeyCorp reports a significant increase in net income and improved capital ratios for the second quarter of 2025, driven by strategic fee businesses and disciplined risk management.

Summary

• Net income from continuing operations attributable to common shareholders was $387 million for Q2 2025, resulting in diluted earnings per share of $0.35.
• Net interest income (taxable-equivalent) reached $1.15 billion in Q2 2025, an increase of $251 million compared to Q2 2024.
• The net interest margin for Q2 2025 was 2.66%, up 62 basis points from the same period last year.
• Noninterest income increased 10% year-over-year to $690 million in Q2 2025, driven by differentiated fee businesses.
• Assets Under Management (AUM) reached a record high of $64.2 billion in Q2 2025, an 11.5% increase compared to Q2 2024, due to net positive cash inflows and market impacts.
• The estimated Common Equity Tier 1 ratio stood at 11.72% as of June 30, 2025, an increase of approximately 120 basis points year-over-year.
• Average loans for Q2 2025 were $105.7 billion, a decrease of $3.2 billion compared to Q2 2024, with declines in both commercial and consumer loan categories.
• Average deposits totaled $147.4 billion for Q2 2025, an increase of $3.3 billion compared to the year-ago quarter, reflecting growth in consumer deposits.
• The provision for credit losses increased to $138 million in Q2 2025 from $100 million in Q2 2024, reflecting higher net loan charge-offs and a reserve build for loan growth and a worsening macroeconomic outlook.
• Net loan charge-offs for Q2 2025 were $102 million, an increase of $11 million compared to Q2 2024.
• Nonperforming assets decreased by $65 million from December 31, 2024, to $707 million at June 30, 2025.
• Book value per Common Share was $15.32 at June 30, 2025, up from $14.21 at December 31, 2024.
• Tangible book value per Common Share was $12.83 at June 30, 2025, up from $11.70 at December 31, 2024.

Sentiment

Score: 8

Explanation: The financial results show strong growth in net income, EPS, and noninterest income, coupled with improved capital ratios and record AUM. While loan balances declined and credit loss provisions increased, these are managed within outlook and reflect a disciplined approach. The updated guidance is more favorable.

Positives

• Net income from continuing operations attributable to common shareholders increased significantly from $237 million in Q2 2024 to $387 million in Q2 2025.
• Diluted earnings per share from continuing operations increased from $0.25 in Q2 2024 to $0.35 in Q2 2025.
• Net interest income (taxable-equivalent) increased by $251 million, and net interest margin increased by 62 basis points year-over-year.
• Noninterest income increased 10% year-over-year, driven by strong performance in investment banking and debt placement fees (up 41.3%) and trust and investment services income (up 5.0%).
• Assets Under Management reached a record high of $64.2 billion, up 11.5% year-over-year, indicating strong client engagement and market impacts.
• The estimated Common Equity Tier 1 ratio improved by 120 basis points year-over-year to 11.72%, positioning the company to support existing and prospective clients.
• Net charge-offs are tracking at the low-end of the current outlook for the year, reflecting continuous focus on risk discipline.
• Nonperforming assets decreased by $65 million from December 31, 2024, indicating improved asset quality.
• Book value and tangible book value per common share increased, enhancing shareholder equity.
• The company updated its full-year 2025 guidance for average loans (down 1% to 3% vs. previously down 2% to 5%) and ending loans (up ~2% vs. YE 2024 vs. previously Flat vs. YE 2024) to be more favorable.

Negatives

• Average loans decreased by $3.2 billion compared to the second quarter of 2024, driven by broad-based declines across all loan categories.
• Average commercial loans declined by $787 million, primarily due to a decrease in commercial real estate loans.
• Average consumer loans declined by $2.5 billion, reflective of broad-based declines across all loan categories.
• The provision for credit losses increased by $38 million compared to the year-ago quarter, reflecting higher net loan charge-offs and a higher reserve build due to loan growth and a worsening macroeconomic outlook.
• Noninterest expense increased by $75 million for the six months ended June 30, 2025, primarily due to continued investments in people and higher incentive compensation.
• Total deposits decreased by $2.9 billion from December 31, 2024, to $146.9 billion at June 30, 2025.

Risks

• Extensive regulation of the U.S. financial services industry.
• Complex and evolving laws and regulations regarding privacy and cybersecurity.
• Operational or risk management failures by the company or critical third parties.
• Breaches of security or failures of technology systems due to technological or other factors, cybersecurity threats, and increased risks resulting from remote work.
• An ineffective risk management framework.
• Negative outcomes from claims, litigation, arbitration, investigations, or governmental proceedings.
• Failure or circumvention of controls and procedures.
• Exposure to a wide range of climate-related physical risks across different geographical areas.
• Evolving capital and liquidity standards under applicable regulatory rules.
• Disruption of the U.S. and global financial system and markets, including ongoing volatility in the capital and bond markets and the impact of inflation, tariffs, and a potential global economic downturn or recession.
• Unanticipated changes in liquidity position, including changes in access to or the cost of funding and the ability to secure alternative funding sources.
• Ability to receive dividends from subsidiaries, including KeyBank.
• Downgrades in credit ratings or those of KeyBank.
• A worsening of the U.S. economy due to financial, political or other shocks.
• Ability to anticipate interest rate changes and manage interest rate risk.
• Deterioration of economic conditions in the geographic regions where the company operates.
• The soundness of other financial institutions, including instability in the financial industry.
• Concentrated credit exposure in commercial and industrial loans.
• Deterioration of commercial real estate market fundamentals.
• Defaults by loan clients or counterparties.
• Adverse changes in credit quality trends; declining asset prices; increase in credit losses.
• Geopolitical destabilization.
• Labor shortages and supply chain constraints, as well as the impact of inflation.
• Ability to develop and effectively use the quantitative models relied upon in business planning.
• Ability to manage reputational risk, including risks related to corporate responsibility and sustainability efforts.
• Ability to timely and effectively implement strategic initiatives.
• Increased competitive pressure.
• Ability to adapt products and services to industry standards and consumer preferences.
• Ability to attract and retain talented executives and employees.
• Unanticipated adverse effects of strategic partnerships or acquisitions and dispositions of assets or businesses.
• The potential impact of Scotiabank's significant equity interest in the business.
• Inaccurate assumptions or estimates underlying consolidated financial statements.
• Changes in accounting policies, standards, and interpretations.
• Impairment of goodwill.

Future Outlook

The company expects full year 2025 average loans to be down 1% to 3% (an improvement from the previous guidance of down 2% to 5%), and ending loans to be up approximately 2% versus year-end 2024 (previously flat). Pre-provision commercial loans are projected to be up approximately 5% (previously up 2% to 4%). Net interest income (taxable-equivalent) is expected to increase 20% to 22% (previously approximately 20%), with 4Q25 net interest income (TE) up 11%+ versus 4Q24 (previously 10%+). Adjusted noninterest income is anticipated to be up 5%+, and adjusted noninterest expense is expected to increase 3% to 5%. Net charge-offs to average loans are forecasted to be 40 to 45 basis points for FY2025, with an effective tax rate of approximately 21% to 22% for FY2025.

Management Comments

• Our relationship-based business model and our long-term strategic commitment to primacy, that is, serving as our client's primary bank, continues to serve us well, highlighted by a 3% increase quarter-over-quarter in commercial loans and 2% increase year-over-year in client deposits and net new relationship households.
• Our Assets Under Management stand at a record high of $64.2 billion for the second quarter of 2025, driven by net positive cash inflows and market impacts on portfolios.
• Our continuous focus on maintaining our risk discipline has and should continue to position us to perform well through all business cycles. Net charge-offs are tracking at the low-end of our current outlook for the year.
• Our noninterest income increased 10% year-over-year, driven by differentiated fee businesses strategically focused on targeted scale.
• We ended the quarter with a Common Equity Tier 1 ratio of 11.7%, up approximately 120 basis points year-over-year, which positions us to continue to support existing and prospective clients.

Industry Context

The company operates within the highly regulated U.S. financial services industry, navigating evolving capital and liquidity standards (e.g., Basel III, Regulatory Capital Rules). Its performance reflects a strategic emphasis on relationship-based banking and diversified fee-based businesses, which are key trends for banks seeking stable revenue streams amidst fluctuating interest rates and economic uncertainties. The increase in Assets Under Management aligns with a broader industry focus on wealth management and advisory services. The cautious approach to credit loss provisions and risk management, while showing an increase in provision, is consistent with prudent banking practices in an environment of elevated economic uncertainty and potential policy changes.

Comparison to Industry Standards

• The Common Equity Tier 1 ratio of 11.72% (estimated) significantly exceeds the regulatory minimum of 7.60% (including stress capital buffer), indicating a strong capital position relative to regulatory benchmarks for standardized approach banking organizations.
• The net interest margin of 2.66% for Q2 2025, showing a 62 basis point increase year-over-year, demonstrates effective management of funding costs and asset repricing in a dynamic interest rate environment, which is a positive indicator compared to peers struggling with margin compression.
• The record high Assets Under Management of $64.2 billion, representing an 11.5% year-over-year increase, suggests strong performance in wealth management and investment services, potentially outpacing competitors more reliant on traditional lending.
• The increase in provision for credit losses to $138 million, while higher year-over-year, is noted to be tracking at the low-end of the company's full-year outlook for net charge-offs (40-45 bps), indicating a proactive and disciplined approach to credit risk management consistent with best practices in the banking sector.

Corporate Governance

Legal Proceedings

• A lawsuit was brought by a union representing CFPB employees and other interested parties against the Trump administration, seeking a court order to stop the dismantling of the CFPB. A preliminary injunction was issued on March 25, 2025, enjoining the administration from taking actions to dismantle the CFPB, which was largely upheld on appeal on April 11, 2025.
• Various lawsuits were brought to challenge the CFPB's final rule requiring certain lenders to report detailed data on small business credit applications (Section 1071 of the Dodd-Frank Act). Courts stayed compliance with the rule for the parties in those cases.
• Two trade associations and a national bank filed a lawsuit challenging the CFPB's final rule to implement Section 1033 of the Dodd-Frank Act (personal financial data rights), alleging the CFPB exceeded its statutory authority. On May 23, 2025, the CFPB agreed with the plaintiffs, and on May 30, 2025, the parties filed a motion for summary judgment asking the court to invalidate the rule. The Financial Technology Association, an intervenor, asked the court to uphold the rule on June 29, 2025.

Related Party Transactions

• In February 2025, the company entered into an agreement with Scotiabank, consistent with an Investment Agreement dated August 12, 2024, to permit Scotiabank to participate, through a periodic true-up right, in any repurchase by KeyCorp of its common stock on a pro rata basis.

Stakeholder Impact

• Shareholders: Benefited from increased net income, higher diluted EPS, and an increase in book and tangible book value per share. The authorized share repurchase program signals potential for further shareholder returns.
• Clients (Depositors): Experienced growth in client deposits and net new relationship households, indicating continued trust and engagement with the bank.
• Clients (Borrowers): Saw a decline in average loans, reflecting the company's strategic decision to run off lower-yielding loans, though commercial loans increased quarter-over-quarter.
• Employees: Personnel expense increased due to continued investments in people and higher incentive compensation, suggesting positive impacts on employee compensation and development. Shares were issued under employee compensation plans.
• Regulatory Bodies: The company maintains capital ratios well above regulatory requirements and actively monitors and responds to new regulatory proposals and legal challenges, demonstrating compliance and adaptability.

Next Steps

• Monitoring developments in the lawsuit challenging the CFPB's existence and its authority.
• Monitoring developments regarding the status of the Section 1071 rule for small business loan data collection.
• Monitoring developments in the lawsuit challenging the Section 1033 rule for personal financial data rights.
• Evaluating the impact of the new U.S. tax legislation, the 'One Big Beautiful Bill Act' (OBBBA), on ongoing tax rate and results of operations.
• Reissuing treasury shares as needed in connection with stock-based compensation awards and for other corporate purposes.
• Beginning share repurchases under the authorized $1.0 billion program in the second half of 2025.
• Actively managing the balance sheet to maintain desired interest rate risk positioning in the current environment.
• Proactively evaluating hedging opportunities that may change the interest rate risk profile.

Key Dates

Recommendation

The company's Q2 2025 results demonstrate robust financial health, with significant year-over-year increases in net income and EPS, driven by strong net interest income growth and a 10% rise in noninterest income. The achievement of record Assets Under Management and a substantial improvement in the Common Equity Tier 1 ratio underscore operational strength and a very solid capital position, well exceeding regulatory minimums. While average loan balances saw a slight decline, the updated full-year guidance for loans and net interest income is more favorable than previously expected, signaling positive momentum. The disciplined risk management, with net charge-offs tracking at the low end of the outlook, further supports a positive investment thesis. The authorized $1.0 billion share repurchase program indicates management's confidence and commitment to enhancing shareholder value. These factors collectively point to a strong outlook and make the stock a compelling 'strong buy' for seasoned investors.

Keywords

Banking, Financial Services, Regional Bank, Commercial Banking, Consumer Banking, Wealth Management, Investment Banking, SEC Filing, 10-Q, Earnings, Net Interest Income, Loan Portfolio, Deposits, Capital Ratios, Credit Quality, Risk Management, Assets Under Management