KeyCorp Earnings: Solid NII Growth, but 2025 Loan Growth Guidance Disappoints

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 reported fourth-quarter results that largely met our expectations. Adjusting for a loss of $0.66 per share from the sale of lower-yielding securities, earnings per share of $0.38 came in 52% higher year over year, aided by a 60%-plus increase in investment banking fees and a 14% increase in net interest income.

The bank provided an outlook for 2025 that included NII growth of 20%, consistent with previous outlooks and our projection. The bank expects fee income to increase 5%-plus, with expenses increasing 3%-5% in 2025. It also reported that Scotiabank closed on its second tranche of investment (around $2 billion) in KeyCorp in December. As we incorporate the results and guidance, we don’t expect a material change to our fair value estimate of $19.20 per share. We assess the stock as slightly undervalued.

KeyCorp reported NII of $1.06 billion for the fourth quarter, a 14% increase year over year. Net interest margin was 2.41%, up 34 basis points from the year-ago quarter. Management expects another 30-basis-point expansion in 2025. The bank repositioned its balance sheet in the back half of 2024, selling over 50% of the long-duration low-yielding securities while reinvesting in securities with higher yields. The bank maintained its outlook for NII to be 20% higher in 2025, which is largely in line with our forecast.

We believe the market was hoping for a larger lift in NII in 2025, as the firm’s initial $1 billion-plus NII guidance for the fourth quarter didn’t include securities repositioning. Loan demand has been weak, though, with the bank’s average loans declining 8% in the fourth quarter relative to the year-ago period. Management expects average loan balances to decline 2%-5% in 2025, which is slightly disappointing compared with peers. KeyCorp expects the runoff of some consumer loans to be partially offset by growth in commercial loans, as the firm usually outperforms the industry in commercial loan growth.