KeyCorp Earnings: Continued Recovery in Net Interest Income and Slight Guidance Raise

Key Morningstar Metrics for KeyCorp

• Fair Value Estimate: $19.20
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of KeyCorp’s Earnings

KeyCorp KEY delivered strong results, with 29% year-over-year growth in net interest income. Reported earnings per share came in at $0.35, representing a 40% increase from the same period last year. The results translate into a return on tangible common equity of 11.1%.

Why it matters: KeyCorp increased its 2025 NII guidance to up 20%-22% from up 20%. Second-quarter NII came in at $1.14 billion, 4.1% higher sequentially, driven by volume growth of 0.5% and net interest margin expansion of 8 basis points to 2.66%.

• NIM expansion was driven by reduced funding costs and higher asset yields. We note the firm still has lower-yielding hedges rolling off, which should support its NIM expansion in the near term. NIM has expanded by 62 basis points from the prior-year quarter, and the firm now expects fourth-quarter NIM to be 2.75%, up 5 basis points from previous guidance.
• Average loans went up by 1.2% sequentially to $104.7 billion, driven mainly by commercial loan growth. KeyCorp also slightly raised its loan growth guidance in 2025. The bank now expects 2025 average loans to be down 1%-3%, which is 1.5% higher in the midpoint compared with prior guidance.

The bottom line: As we incorporate second-quarter earnings and updated guidance, we maintain our $19.20 fair value estimate for no-moat KeyCorp. We assess shares as slightly undervalued.

Key stats: KeyCorp’s investment banking fees were $178 million in the second quarter, up 41.3% from the prior-year quarter. Over the past four quarters, its investment banking fees have exceeded $170 million, a significantly higher run rate than the $120 million-$150 million range observed from 2022-23.

• KeyCorp mentioned most of its second-quarter investment banking fees were driven by syndication, commercial real estate, and equity issuance.
• KeyCorp’s investment banking fees are mostly advisory fees. Further improvement in middle-market merger and acquisition sentiment will be positive for the bank’s investment banking business.