KeyCorp (KEY) Earnings & Analysis

Latest quarter

KeyCorp’s third-quarter revenue and adjusted earnings per share both exceeded the consensus. Revenue as counted by the consensus was $2.1 billion, compared with a $2.0 billion estimate; adjusted EPS was $0.51 against an estimate of $0.46. The company’s reported diluted EPS rose from $0.41 a year earlier to $0.51.

On the call, CFO Clark Khayat said revenue increased 8% year over year. Tax-equivalent net interest income, the difference between interest earned and interest paid, rose 10%, while non-interest income rose 6%. Khayat said investment banking and debt placement fees benefited from merger and syndication activity, increasing 27% from the prior quarter to $214 million.

Khayat said the net interest margin reached 2.95%, up six basis points from the prior quarter, helped by commercial loan growth, deposit funding and asset repricing. He also reported a $61 million provision for credit losses, including a $28 million reserve release that reflected improved portfolio performance and a shift toward higher-credit-quality relationships.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Chris Gorman said commercial lending growth was spread across industries and geographies, with both new client relationships and greater use of existing credit lines contributing. He said clients were investing in their businesses and pointed to growth among utilities, power and renewable customers. Gorman also said transactional real estate was an area to watch because financing costs were affecting deals.

Asked about deposit growth outpacing loan growth, CFO Clark Khayat said seasonal commercial deposits contributed, alongside deeper relationships with existing clients and deposits from new customers. Average deposits rose $3.6 billion sequentially, including $2.8 billion of client deposits. Khayat said competition remained intense and, following the September rate increase, he did not expect another comparably modest increase in deposit pricing. He nevertheless said the company expected fourth-quarter loan growth to be funded by client deposits.

Khayat attributed the quarter’s margin increase partly to commercial loan growth, funding optimization and swaps and securities repricing. He said the bank was keeping its balance sheet fairly neutral to interest-rate changes over a 12 month horizon. Gorman said investment banking pipelines rose 5% sequentially despite deals completed during the quarter, and he remained confident in the company’s investment banking fee outlook.

On investment, Gorman said KeyCorp’s $1 billion technology budget supported new capabilities and that the bank was applying AI to commercial onboarding and servicing, commercial originations, consumer servicing and software engineering. Khayat said the work was at an early stage and included automating consumer-service tasks and streamlining credit and collateral processes.

Gorman said “traditional whole bank M&A is not a priority,” while the company continues to complete smaller acquisitions. Asked about 2027, he said the company would provide guidance at year end and have more to say on specific targets after the fourth quarter.

Guidance

Khayat said KeyCorp now expects approximately 10% full-year net interest income growth, versus its prior 9% to 11% range. It expects average loan growth of approximately 5%, compared with 4% to 5% previously, and average commercial loan growth of approximately 10%, versus eight to 10% previously.

He said the company now expects full-year net charge-offs of 37 to 39 basis points, compared with its prior 40 to 45 basis points, and a fourth-quarter net interest margin of approximately 3%.