KeyCorp's Q1 Earnings Beat Estimates, NII & Fee Income Rise Y/Y

KeyCorp’s KEY first-quarter 2025 adjusted earnings per share from continuing operations of 33 cents beat the Zacks Consensus Estimate by a penny. Further, the bottom line reflected a 50% jump from the prior-year quarter.

Results benefited from a rise in non-interest income, higher net interest income (NII), and lower expenses. However, a lower loan and deposit balance was the undermining factor.

Net income from continuing operations attributable to common shareholders was $370 million, up significantly year over year, excluding $22 million after-tax loss on the sale of securities.

KEY’s Revenues Up, Expenses Decline

Quarterly total revenues (tax equivalent or TE) rose 15.7% year over year to $1.77 billion. Moreover, the top line beat the Zacks Consensus Estimate of $1.76 billion.

NII (on a TE basis) increased 24.7% to $1.11 billion on a year-over-year basis. Net interest margin (NIM) (TE basis) from continuing operations increased 56 basis points (bps) to 2.58%. Both metrics benefited from the lower deposit costs, re-investment of proceeds from maturing low-yielding investment securities, fixed-rate loans, and swaps into higher-yielding investments, the repositioning of the available-for-sale portfolio during the third and fourth quarters of 2024, and an improved funding mix. These benefits were partially offset by the impact of lower interest rates on repricing earning assets and lower loan balances. Our estimate for NII (FTE) and NIM was $1.12 billion and 2.55%, respectively.

Non-interest income was $668 million, up 3.2% year over year. The rise was due to increase in almost all the components of fee income except corporate services income, consumer mortgage income, operating lease income and other leasing gains, and other income. Our estimate for the metric was $661.6 million.

Non-interest expenses declined 1% to $1.13 billion. The fall was due to decline in operating lease expense, business services and professional fees and other expenses. We projected the metric to be $1.19 billion.

KeyCorp’s Loans & Deposits

At first-quarter end, average total deposits were $148.54 billion, marginally down from the prior quarter end. The fall was driven by seasonal decrease in commercial deposit balances. Our estimate for the metric was $147.56 billion.

Average total loans were $104.35 billion, marginally down from the past quarter. The decline was primarily driven by a decrease in commercial mortgage real estate loans and consumer loans. We had anticipated average total loans of $103.6 billion.

Credit Quality Deteriorates For KEY

Net loan charge-offs, as a percentage of average total loans, rose 14 bps year over year to 0.43%. The allowance for loan and lease losses was $1.43 billion, down 7.3%.

Non-performing assets, as a percentage of period-end portfolio loans, other real estate-owned property assets, and other non-performing assets, were 0.67%, up 6 bps year over year.

The provision for credit losses was $118 million, up 16.8%. The increase primarily reflects higher net loan charge-offs.

KeyCorp’s Capital Ratios Improve

KeyCorp's tangible common equity to tangible assets ratio was 7.4% as of March 31, 2025, up from 5% in the corresponding period of 2024. The Tier 1 risk-based capital ratio was 13.5%, up from 12%. The Common Equity Tier 1 ratio was 11.8%, up from 10.3% as of March 31, 2024.

Our Take on KeyCorp

Decent loan balances, balance sheet repositioning efforts, strategic buyouts and relatively higher interest rates will likely support KeyCorp’s revenues in the near term, though rising funding costs will continue to exert pressure. Weakening asset quality amid a tough macroeconomic backdrop is a major concern.

KeyCorp Price, Consensus and EPS Surprise

KeyCorp price-consensus-eps-surprise-chart | KeyCorp Quote

KeyCorp currently carries a Zacks Rank #3 (Hold).

Performance of Other Major Banks

The PNC Financial Services Group, Inc.’s PNC first-quarter 2025 adjusted earnings per share of $3.51 surpassed the Zacks Consensus Estimate of $3.40. In the prior-year quarter, the company reported earnings per share of $3.36. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PNC’s results were aided by a rise in fee income, NII and the loan balance. However, an increase in expenses and provision for credit losses acted as spoilsports.

U.S. Bancorp’s USB first-quarter 2025 adjusted earnings per share (excluding the impacts of notable items) of $1.03 beat the Zacks Consensus Estimate of 99 cents. The bottom line increased 14.4% from the prior-year quarter. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

The results benefited from lower expenses and higher non-interest income. Also, a rise in NII and strong capital position were tailwinds. However, a decline in deposits was concerning for USB.

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This article originally published on Zacks Investment Research (zacks.com).

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