Executive Summary / Key Takeaways

• KeyCorp is executing a strategic transformation, leveraging robust capital and liquidity to drive sustainable profitability and higher returns, targeting a Return on Tangible Common Equity (ROTCE) of 15% or better and a Net Interest Margin (NIM) of 3.25% or better by the end of 2027.
• The company's financial performance in Q3 2025 demonstrated significant momentum, with diluted EPS of $0.41, a Return on Assets (ROA) exceeding 1%, and Net Interest Income (TE) growing 22% year-over-year, reaching a 2.75% NIM ahead of schedule.
• Strategic balance sheet optimization, including two major securities repositionings in 2024 and disciplined deposit beta management (cumulative interest-bearing beta around 55%), is a key driver of Net Interest Income expansion, complemented by a shift towards higher-yielding commercial and industrial (C&I) loans.
• KeyCorp is aggressively investing in its high-priority fee-based businesses—Investment Banking, Commercial Payments, and Wealth Management—and technology modernization, aiming for 5-6% adjusted noninterest income growth in 2025 and expecting a second-best year in investment banking history.
• While economic uncertainty and competitive pressures persist, KeyCorp's strong credit quality, conservative risk management, and ample capital (CET1 ratio of 11.8%, marked CET1 of 10.3%) provide resilience and flexibility for continued organic growth and planned share repurchases.

A Bicentennial Blueprint: Strategic Evolution and Foundational Strengths

KeyCorp, celebrating its bicentennial in 2025, has a rich history that underpins its current strategic direction as a prominent regional bank in the United States. Operating across a 15-state branch network, the company's core business spans comprehensive retail and commercial banking services. Its overarching strategy is centered on relationship-based banking, achieving targeted scale in high-growth fee businesses, continuous balance sheet optimization, and disciplined risk management. This approach is designed to leverage its foundational strengths: a robust capital base, ample liquidity, diversified revenue streams, and deep client relationships.

The banking industry currently operates within a dynamic macroeconomic environment characterized by slowing growth, persistent inflationary pressures, and geopolitical complexities. Despite these headwinds, KeyCorp has strategically positioned itself to capitalize on opportunities. The company's long-term commitment to its clients is evident in its sustained investment in both its physical presence and digital capabilities.

Technological Edge: Modernizing for Client Experience and Efficiency

KeyCorp's competitive differentiation is increasingly rooted in its ongoing technological modernization and digital innovation. Despite lacking proprietary, quantifiable technology differentiators, the company's strength lies in its strategic investment across its operational platforms to enhance client experience and drive efficiency. In 2024, KeyCorp completed two significant core modernization projects: its commercial loan platform and derivatives platform. This foundational work streamlines critical banking functions, improving speed and accuracy for commercial clients.

The company has also made substantial progress in its cloud migration journey, with its contact center technology and consumer online banking portal already transitioned. The goal is to complete this cloud migration in 2025, with all but two major systems and half of its applications moved to a hybrid cloud environment. This shift is expected to improve scalability, resilience, and agility across its digital offerings. KeyCorp plans to increase its overall technology spend by approximately 10% to $900 million in 2025, with a focus on "transform or change the bank" initiatives. This investment aims to simplify banking for clients and empower teammates to deliver better service.

A tangible example of KeyCorp's digital innovation in the consumer space is its EasyUp® tool, launched in August 2019. This feature allows clients to automatically transfer up to $5 from every debit card purchase into a linked savings account. As of July 31, 2025, EasyUp® has helped clients collectively save over $182 million, with the average user saving $490 per year. This tool fosters financial wellness and deepens client relationships. In commercial banking, a strategic partnership and equity investment in Qolo are advancing virtual account management capabilities, further enhancing KeyCorp's embedded banking offerings. These technological advancements collectively contribute to KeyCorp's competitive moat by improving operational efficiency, reducing costs, and delivering a superior, more integrated client experience, thereby supporting growth in deposits, payments, and wealth management.

Financial Performance: A Trajectory of Accelerated Returns

KeyCorp's financial performance in the third quarter of 2025 reflects a clear upward trajectory, driven by strategic initiatives and disciplined execution. The company reported net income from continuing operations attributable to common shareholders of $454 million, translating to diluted earnings per share of $0.41. This performance pushed the return on assets (ROA) above 1% for the quarter. Pre-provision net revenue (PPNR) saw a healthy increase of $33 million, or 5%, quarter-over-quarter, marking the sixth consecutive quarter of PPNR improvement.

Revenue, adjusted for the prior year's securities portfolio repositioning, grew a robust 17% year-over-year in the third quarter of 2025. This growth was broad-based, with fee income demonstrating high single-digit growth for both the quarter and on a year-to-date basis compared to 2024. Net interest income (TE) reached $1.19 billion in Q3 2025, a significant 22% increase from the year-ago quarter, contributing to a net interest margin (NIM) of 2.75%. This achievement met KeyCorp's year-end NIM target a quarter ahead of schedule. The expansion in NII and NIM was primarily fueled by lower deposit costs, the strategic reinvestment of proceeds from maturing low-yielding investment securities, and the repricing of fixed-rate loans and swaps into higher-yielding assets. The balance sheet composition also shifted favorably towards higher-yielding commercial and industrial (C&I) loans, supported by an improved funding mix with increased lower-cost deposits and reduced wholesale borrowings.

Average deposits for Q3 2025 totaled $150.40 billion, an increase of $2.60 billion year-over-year, driven by growth in consumer deposits. Deposit costs declined by 2 basis points quarter-over-quarter to 1.97%, with the cumulative interest-bearing beta remaining around 55%, aligning with the terminal beta from the rising rate cycle. This aggressive deposit beta management was facilitated by KeyCorp's historically low loan-to-deposit ratio and the ongoing loan remixing, which limited incremental funding needs. Average loans for Q3 2025 were $106.20 billion, a slight decrease of $17 million year-over-year. However, average commercial loans increased by $2.30 billion, primarily from C&I loans, while average consumer loans declined by $2.40 billion due to broad-based reductions, reflecting the intentional run-off of lower-yielding assets. Commercial loans constituted 54% of the total loan portfolio at September 30, 2025, with approximately 91% being variable rate.

Noninterest income for Q3 2025 was $702 million, a substantial increase from a net loss of $269 million in the year-ago quarter, primarily due to the absence of a $918 million loss from securities repositioning in Q3 2024. Investment banking and debt placement fees rose 8% year-over-year, and Trust and investment services fees increased 7%. Assets Under Management (AUM) reached a record $67.90 billion, up 11% year-over-year, driven by positive net cash inflows and market impacts. Service charges on deposit accounts increased 11.90%, and cards and payments income grew 2.40%. Noninterest expense for Q3 2025 was $1.20 billion, up from $1.10 billion in Q3 2024, with personnel expense increasing 10.70% due to higher incentive compensation and strategic investments in human capital.

Capital Strength and Risk Discipline

KeyCorp maintains a robust capital position, with its Common Equity Tier 1 (CET1) ratio at 11.80% at the end of Q3 2025, an increase of over 100 basis points year-over-year. The marked CET1 ratio, which accounts for unrealized available-for-sale (AFS) and pension losses, also improved to 10.3%. These ratios position KeyCorp at or near the top of its peer group, providing significant flexibility and optionality. The company's stress capital buffer is 3.20% as of October 1, 2025, remaining in effect until September 30, 2026. KeyBank National Association, the subsidiary bank, is considered "well capitalized" under regulatory frameworks.

Liquidity is ample, with $5.40 billion in cash and short-term investments at September 30, 2025, projected to cover obligations for the next 24 months. The consolidated loan-to-deposit ratio stood at 71%, and uninsured deposits represented 44% of total deposits. KeyCorp's liquid asset portfolio, including unpledged securities and unused borrowing capacity, totaled $100.20 billion. The company continues to hold approximately $4 billion to $5 billion more cash than needed, which, while impacting NIM by 4-5 basis points, has a de minimis effect on NII.

Credit quality remains stable to improving. Net charge-offs (NCOs) were $114 million (42 basis points of average loans) in Q3 2025, with year-to-date NCOs of 41 basis points falling within the full-year target range of 40 to 45 basis points. Nonperforming assets (NPAs) declined 6% sequentially, with the NPA ratio improving to 63 basis points, and criticized loans decreased 3% quarter-over-quarter. The provision for credit losses increased to $107 million in Q3 2025, reflecting a higher reserve due to economic uncertainty, partly offset by lower net charge-offs. KeyCorp's office exposure in its commercial real estate (CRE) portfolio is limited to 4%, and 75% of its construction loans are multi-family projects. The company's risk discipline is a continuous focus, positioning it to perform well through all business cycles.

Competitive Landscape and Strategic Positioning

KeyCorp operates in a highly competitive regional banking landscape, facing direct rivals such as PNC Financial Services Group , Fifth Third Bancorp (FITB), Regions Financial Corporation (RF), and U.S. Bancorp , as well as indirect competition from fintechs and online banks. KeyCorp's competitive advantages stem from its strong regional brand, extensive branch network, and diversified service offerings, particularly in wealth management and commercial advisory. The company's relationship-based model is a significant differentiator, with over 95% of its borrowing commercial customers engaging in more comprehensive relationships beyond just lending. This allows KeyCorp to monetize client relationships through various fee-based services, even when loan pricing is competitive.

Compared to larger rivals like PNC (PNC) and U.S. Bancorp (USB), KeyCorp's scale is smaller, and its historical financial performance in terms of profitability and cash flow has sometimes lagged. However, KeyCorp's strategic focus on targeted scale in specialized fee businesses, such as investment banking, commercial payments, and commercial mortgage servicing, provides a competitive edge. The company's investment banking business, for example, is on track for its second-best year in history, driven by strong backlogs in sectors like energy (renewables, data centers) and healthcare. This specialized expertise allows KeyCorp to compete effectively in niche markets where it can offer tailored solutions.

KeyCorp's technological investments, while not always leading in raw innovation speed compared to some larger, more digitally advanced competitors, are strategically aimed at enhancing client experience and operational efficiency. The modernization of its core platforms and cloud migration efforts are critical to maintaining competitiveness against rivals who are also expanding their digital capabilities. The company's ability to leverage its balance sheet opportunistically during market dislocations, such as bridging transactions when capital markets are choppy, further highlights its flexibility. While pricing on quality loans remains a challenge due to excess market capacity, KeyCorp's integrated business model allows it to generate value beyond traditional lending margins.

Outlook and Growth Catalysts

KeyCorp's outlook for 2025 and its medium-term targets underscore a confident growth trajectory. For the full year 2025, KeyCorp expects Net Interest Income (TE) to increase by 22%, with a Net Interest Margin of 2.75% to 2.80% by Q4 2025. Adjusted noninterest income is projected to grow 5-6%, and adjusted noninterest expense is expected to increase by 4%. The company anticipates achieving record revenue in 2025, along with fee-based operating leverage greater than 100 basis points and overall positive operating leverage exceeding 10%.

By the end of 2027, KeyCorp targets a Return on Tangible Common Equity (ROTCE) of 15% or better and a Net Interest Margin of 3.25% or better. The NIM expansion is expected to come equally from fixed asset repricing and strong organic activity, supported by disciplined deposit pricing. The ROTCE target will be driven by compounding fee advantages, continued expense discipline, and strategic share repurchases. The company plans to repurchase approximately $100 million of common stock in Q4 2025, with further buybacks expected in 2026, aiming to maintain its marked CET1 ratio around 10.3%.

Key growth catalysts include continued strong commercial loan growth, particularly in C&I, with ending commercial loans projected to be up 5% by year-end 2025. Investment banking pipelines, especially in M&A, are at historically elevated levels, suggesting a potential pickup in activity. The company's focus on expanding its mass affluent segment and leaning into Home Equity Lines of Credit (HELOCs) presents a $2 billion to $3 billion opportunity. Furthermore, ongoing technology investments are expected to enhance efficiency and client engagement, supporting long-term growth.

Risks and Challenges

Despite the positive outlook, KeyCorp faces several pertinent risks. The broader economic environment remains uncertain, with persistent inflationary pressures and geopolitical complexities posing potential downside risks. While KeyCorp's baseline forecast assumes no U.S. recession in 2025, the company has made qualitative reserve adjustments to account for a "pretty severe downturn at about a 20% probability." A "higher for longer" interest rate scenario could impact leveraged companies, although only 2-3% of KeyCorp's loans are in this category.

The commercial real estate market, particularly office, multifamily (Sunbelt), and lodging sectors, continues to be monitored closely, as evidenced by elevated active special servicing balances. Policy uncertainty, including the evolving tariff landscape and potential regulatory changes like Basel III endgame, could also influence the operating environment. Operational risks, including cybersecurity threats, remain a constant focus, necessitating continuous investment in robust internal controls. While KeyCorp's balance sheet is positioned to be fairly neutral to rate cuts, a very flat or inverted yield curve over an extended period could challenge NIM expansion.

Conclusion

KeyCorp is undergoing a profound transformation, strategically leveraging its deep client relationships, diversified fee businesses, and robust capital to achieve higher levels of sustainable profitability. The company's strong financial performance in Q3 2025, marked by a significant increase in Net Interest Income, an early achievement of its NIM target, and record Assets Under Management, demonstrates the effectiveness of its strategic balance sheet optimization and disciplined execution. With a clear roadmap to a 15% or better Return on Tangible Common Equity and a 3.25% or better Net Interest Margin by 2027, KeyCorp is poised for accelerated returns.

The company's continuous investment in technology, from core system modernization to digital tools like EasyUp®, is enhancing operational efficiency and client experience, reinforcing its competitive moat. While macroeconomic uncertainties and competitive pressures persist, KeyCorp's strong capital position, conservative risk management, and strategic focus on organic growth in commercial lending and high-priority fee businesses provide resilience. For discerning investors, KeyCorp presents a compelling investment thesis: a regional bank strategically reshaping its future, poised to deliver outsized growth and enhanced shareholder value through disciplined capital management and a relentless focus on client-centric innovation.