KeyCorp Earnings Call: Record Growth and Bigger Buybacks

KeyCorp ((KEY)) has held its Q4 earnings call. Read on for the main highlights of the call.

KeyCorp Signals Confidence With Record Revenue, Margin Gains and Bigger Buybacks in Latest Earnings Call

The latest KeyCorp earnings call struck a notably upbeat tone, with management highlighting record revenue, expanding net interest income and margin, strong operating leverage, and improving credit quality. Executives balanced this optimism with a candid view of risk: planned capital returns via accelerated buybacks, intentional runoff in low-yield consumer loans, and funding mix shifts will all require careful execution. Still, the message to investors was clear — the bank sees itself on strong footing heading into 2026, with positives materially outweighing the watch points.

Record Quarterly and Full-Year Revenue Growth

KeyCorp reported a strong top-line performance, with fourth-quarter revenue surpassing $2.0 billion and growing 12% year-over-year on an adjusted basis. For the full year 2025, revenue reached a record level, up 16% compared with the prior year. Management framed this as evidence of broad-based momentum across the franchise, driven by both interest income and fee businesses. For investors, the sustained double-digit revenue growth underscores the benefit of earlier strategic repositioning and sets a higher base heading into 2026.

Earnings and Net Interest Income Outperformance

Fourth-quarter earnings per share came in at $0.43, or $0.41 on an adjusted basis, demonstrating solid profitability despite some elevated one-time expenses. A key driver was net interest income (NII): tax-equivalent NII rose 15% year-over-year in Q4, and full-year NII increased roughly 23% versus original expectations. That NII beat is especially notable given the choppy rate environment, suggesting KeyCorp has been effective in managing both its balance sheet and deposit pricing.

Net Interest Margin Expands, With Higher Targets Ahead

Net interest margin (NIM) ended the quarter at 2.82%, up 7 basis points sequentially and above management’s prior 2.75%–2.80% target range. Looking ahead, management now expects NIM to climb to roughly 3.00%–3.05% by the end of 2026 and to 3.25% or higher in 2027. This NIM trajectory, if achieved, would support continued NII growth even if loan growth remains modest. The improved outlook reflects ongoing remixing of earning assets away from low-yield consumer loans and better funding costs, but it also raises the bar for execution.

Powerful Operating Leverage and PPNR Growth

KeyCorp showcased substantial efficiency gains, delivering full-year operating leverage of roughly 1,200 basis points as revenue grew far faster than expenses. Pre-provision net revenue (PPNR) surged about 44% in 2025, while expenses increased only 4.6% against 16% revenue growth. This dynamic is crucial for equity investors, as it demonstrates that the bank is not merely benefiting from rates or volume, but is also structurally improving its cost base and earnings power.

Healthy Loan Growth and Improving Deposit Mix

On the balance sheet, KeyCorp posted full-year commercial and industrial (C&I) loan growth of 9%, with spot commercial loans rising by roughly $1.0–$1.2 billion in the fourth quarter alone. Client deposits rose 2% for the year, and average deposits were up around $300 million sequentially. Importantly, total deposit costs fell 16 basis points to 1.81%, signaling early success in lowering funding costs. Investors watching for deposit stickiness and pricing discipline will likely view these trends positively.

Accelerated Capital Returns Through Share Buybacks

Capital return was a central theme on the call. KeyCorp repurchased $200 million of common stock in the fourth quarter at an average price of $18 per share, doubling its prior commitment. Looking forward, management plans to repurchase at least $300 million in the first quarter and at least $1.2 billion across full-year 2026. This stepped-up buyback program reflects confidence in the bank’s capital position and earnings trajectory, and it could provide meaningful support to EPS and the stock if executed as planned.

Solid Capital Ratios and Tangible Book Value Growth

Despite the larger buybacks, KeyCorp’s capital levels remain robust. The marked Common Equity Tier 1 (CET1) ratio stood at 10.3%, flat sequentially, while the reported CET1 ratio was a stronger 11.7% at quarter-end. Tangible book value per share rose 3% quarter-over-quarter and 18% year-over-year, a notable gain for a regional bank. Management made clear that capital ratios are being actively managed, balancing regulatory strength with shareholder returns.

Credit Quality Continues to Improve

Credit metrics showed clear improvement, easing concerns about asset quality at this stage of the cycle. Fourth-quarter net charge-offs were $104 million, or an annualized 39 basis points, down 9% from the prior quarter. For the full year, net charge-offs were 41 basis points, near the better end of guidance. Nonperforming assets fell 6% sequentially, with the NPA ratio improving to 59 basis points, while criticized loans declined by about $500 million, or 8%. Management nonetheless emphasized its continued conservative stance in reserving.

Fee Revenue Strength and Record Wealth Management Business

Beyond spread income, KeyCorp is seeing healthy momentum in fee businesses. Full-year fee income grew 7.5%, and fourth-quarter adjusted non-interest income was up 8% year-over-year. Investment banking and debt placement fees reached $243 million in Q4, up 10% from a year earlier. The wealth business also delivered standout results: assets under management reached a record $70 billion, and the mass affluent segment posted a third straight year of record sales. Since 2023, that segment has added 54,000 households and nearly $4 billion in AUM, signaling a deepening client franchise.

Commercial Payments and Capital Markets Fuel Growth

Commercial payments remained a bright spot, with fee-equivalent revenue growing about 11% in 2025. KeyCorp also leveraged its capital markets capabilities, raising nearly $140 billion of capital for clients during the year and retaining roughly 20% on its own balance sheet. Management pointed to historically elevated investment banking pipelines, suggesting good near-term visibility, although they remain cautious about conditions further out.

2026 Outlook: Solid Growth With Operating Leverage

Management’s 2026 guidance points to continued, if slightly moderated, growth. They project revenue to increase about 7%, driven by 8%–10% growth in tax-equivalent NII and an NIM target of around 3.0% by the fourth quarter of 2026. Non-interest income is expected to grow roughly 3%–4%, or 5%–6% on an adjusted basis, with investment banking fees up around 5%, wealth fees growing in the high single digits, and commercial payments fees in the low double digits. Average loans are expected to rise 1%–2%, with commercial loans up about 5%, while expenses should grow 3%–4%, implying 300–400 basis points of operating leverage. Management also guided to a net charge-off ratio of 40–45 basis points and a tax rate of about 22%–23%, reinforcing a steady, disciplined growth profile.

Conservative Stance on Investment Banking Visibility

Despite strong recent performance in investment banking, management described the 2026 fee outlook for that business as conservative. They cited limited visibility beyond early 2026 and uncertainty around sustaining middle-market M&A momentum after the first quarter. Hiring has been modest — roughly 5% growth in investment banking headcount — underscoring a careful approach. This caution suggests potential upside if deal activity remains robust, but management is clearly reluctant to overpromise in a volatile fee environment.

Elevated Q4 Expenses and One-Off Items

Noninterest expenses in the fourth quarter reached $1.3 billion, up 7% sequentially and 2% year-over-year. Management flagged roughly $30 million of these costs as unusually elevated and not representative of the go-forward run-rate. While the uptick in expenses partially muted the quarter’s earnings power, executives maintained that underlying cost trends remain under control and aligned with their operating leverage targets for 2026.

Consumer Loan Runoff and Earning-Asset Seasonality

KeyCorp continued to reshape its balance sheet by intentionally running off low-yield consumer assets. In the fourth quarter, about $550 million of low-yielding consumer loans, including mortgages with yields around 3.3%, were allowed to run off. Management expects similar runoff of approximately $600 million per quarter going forward. This strategy, along with typical seasonal patterns, contributes to a flattish outlook for average earning assets and a seasonal NII trough in the fourth quarter, but is expected to support higher NIM and better returns over time.

Headwinds in Commercial Mortgage Servicing Fees

One area of pressure is commercial mortgage servicing. Fees from this business were $68 million in the fourth quarter, flat year-over-year but down $6 million from the third quarter. Looking ahead to 2026, management expects servicing fees to run in the $50–$60 million per quarter range, reflecting lower interest rates and the resolution of special servicing situations. While not a core earnings driver, this represents a modest fee headwind relative to recent levels.

Active Capital Ratio Management and Capital Consumption

To fund its expanded buyback program, KeyCorp is actively managing its marked CET1 ratio down from 10.3% toward a target range of 9.5%–10% by 2026, while keeping reported CET1 comfortably above regulatory minimums. This approach aims to optimize capital efficiency and boost shareholder returns, but it also narrows the capital cushion. Management stressed the need for disciplined management of risk-weighted assets and close monitoring of credit performance to support this more capital-intensive strategy.

Macro Uncertainty and Credit Watch Lists

Even as credit metrics improve, management is not taking the macro backdrop for granted. They highlighted specific watch areas — including a roughly $5 billion consumer discretionary portfolio, certain healthcare exposures, and agriculture — as segments requiring heightened attention. The fourth-quarter provision for credit losses was $108 million, including $104 million of net charge-offs and a modest $4 million reserve build, illustrating a cautiously conservative approach to provisioning amid lingering economic uncertainty.

Funding Mix Transition and Brokered Deposit Reduction

KeyCorp is also pursuing a meaningful shift in its funding mix. Brokered CDs averaged $2.5 billion in the fourth quarter, and management intends to reduce brokered deposits to nearly zero by mid-2026, replacing them with core client deposits. While this should enhance funding stability and lower costs over the long term, the transition introduces near-term execution risk around deposit gathering and pricing. Success in this area will be key to achieving the bank’s NIM and NII targets.

Guidance: Steady Growth, Margin Expansion and Robust Capital Returns

The 2026 guidance paints a picture of steady, disciplined growth supported by margin improvement and substantial capital return. Management expects roughly 7% revenue growth, driven by 8%–10% growth in tax-equivalent NII, with an NIM objective of about 3.0% or more by late 2026 and an anticipated NII exit run-rate above $1.3 billion. Non-interest income is guided to increase 3%–4%, or 5%–6% adjusted for business decisions, with broad-based contributions from investment banking, wealth, and commercial payments. Average loans should rise 1%–2%, including around 5% growth in commercial loans, while expenses are expected to climb 3%–4%, delivering 300–400 basis points of operating leverage. Credit costs are projected to remain contained, with a net charge-off ratio of 40–45 basis points and a tax rate of about 22%–23%. Crucially for shareholders, the company plans amplified capital returns, including at least $300 million of share repurchases in the first quarter and at least $1.2 billion during 2026, while managing its marked CET1 ratio toward the upper end of its 9.5%–10% target range.

In summary, KeyCorp’s latest earnings call portrayed a bank in a strong position, leveraging record revenue, rising margins, and disciplined expenses to drive solid earnings growth. Management’s willingness to step up buybacks underscores confidence in the earnings outlook, even as they acknowledge risks tied to funding transitions, macro conditions, and select portfolio exposures. For investors, the story centers on execution: if KeyCorp delivers on its NIM, fee growth, and capital return plans while maintaining credit discipline, the strategy laid out on this call could translate into attractive shareholder returns over the next several years.