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01/10 18:49
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights strong net interest income growth expectations, improved credit quality, and robust client engagement. The Q&A section confirms cautious optimism among clients, strategic investments in hiring, and a focus on technology. The company's strong CET1 ratio and planned share repurchases further support a positive outlook. Despite some lack of specifics in management responses, the overall sentiment is positive, with expectations of margin improvements and strategic growth initiatives.
Earnings per share (EPS) $0.35, even while adding $36 million to loan loss reserves and prefunding the charitable foundation this quarter.
Revenue Up 21% year-over-year. Reasons include strong commercial loan growth and fee-based business performance.
Expenses Up 6% year-over-year (excluding charitable contribution). Reasons include investments in people and technology.
Pre-provision net revenue (PPNR) Increased by $44 million sequentially, marking a 60% growth since Q1 2024. Reasons include strong commercial loan growth and deposit cost management.
Commercial loan growth Achieved full-year plan of $3 billion growth as of June 30, 2025. Reasons include strong backlogs in institutional and middle market.
Deposit costs Managed down to below 2%. Reasons include prioritizing beta management and runoff of low-yielding consumer mortgages.
Fee income Grew 10% year-over-year. Reasons include strong performance in investment banking, commercial payments, and wealth management.
Assets under management (AUM) Reached a record $64 billion. Reasons include strong sales production in the mass affluent segment.
Net charge-offs $102 million, down 7% from the previous quarter. Reasons include improved credit metrics.
Noninterest income $690 million, up 10% year-over-year. Reasons include growth in investment banking, commercial mortgage servicing, and wealth management.
Tangible book value per share Increased 3% sequentially and 27% year-over-year. Reasons include strong earnings generation.
Net interest income (NII) Up 4% sequentially and 28% year-over-year. Reasons include proactive deposit beta management and commercial loan growth.
Net interest margin (NIM) Increased by 8 basis points to 2.66%. Reasons include fixed-rate asset repricing and swap maturities.
Commercial mortgage servicing fees Grew approximately 15% year-over-year. Reasons include elevated special servicing balances.
Cumulative deposit beta Reached 55% in the second quarter. Reasons include effective beta management during Fed rate cuts.
Credit quality Net charge-offs were $102 million, down 7% sequentially. Criticized loans declined by $200 million or 3%. Reasons include improved credit migration.
Commercial Loan Growth: Achieved full-year plan to grow commercial loans by $3 billion in 2025 as of June 30, with backlogs in institutional and middle market continuing to build.
Investment Banking Performance: Second best first half of the year in history for investment banking, raising over $30 billion of capital for clients in the quarter.
Commercial Mortgage Servicing: Continued strong performance with named special servicing balances reaching record levels.
Market Expansion in Middle Market Banking: Teams onboarded in Chicago and Southern California in November 2024 have driven new client growth, loan volumes, payments, and investment banking business.
Recruitment and Retention: On track to increase frontline bankers and client advisers by 10% in 2025, with strong retention rates and active recruiting pipelines.
Deposit Cost Management: Managed deposit costs down to below 2%, with cumulative down beta reaching mid-50% range.
Operational Efficiency: Pre-provision net revenue increased for the fifth straight quarter, growing over 60% since Q1 2024.
Technology Investments: Increased tech spend by nearly $100 million in 2025, with returns already visible in middle market banking.
Capital Position and Liquidity: Maintaining a leading capital position among peers and ample liquidity to leverage market dislocations.
Guidance Revision: Revised 2025 guidance to reflect stronger-than-expected first half performance, including increased net interest income and loan growth expectations.
Loan Loss Reserves: The company added $36 million to its loan loss reserves, indicating potential concerns about credit quality and future loan defaults.
Macroeconomic Uncertainty: The company highlighted a dynamic and complex macro environment, which could impact client activity and financial performance.
Provision for Credit Losses: Provision for credit losses was $138 million, including $102 million of net charge-offs and a $36 million reserve build, reflecting potential credit risks and economic deterioration.
Deposit Decline: Average deposits declined by less than 1% from the previous quarter, reflecting reductions in higher-cost commercial client balances and retail CDs.
Excess Liquidity Impact: The company is holding $4 billion to $5 billion more cash and short-term liquidity than needed, which negatively impacts net interest margin by 4 to 5 basis points.
Expense Growth: Noninterest expenses increased 7% year-over-year, driven by higher personnel costs, technology investments, and other business services, which could pressure profitability.
Special Servicing Balances: Active special servicing balances remain elevated at approximately $11 billion, up 59% compared to the prior year, indicating stress in commercial real estate loans.
Credit Quality Concerns: While credit quality is broadly stable, net charge-offs were $102 million, and nonperforming assets increased slightly, signaling potential risks in the loan portfolio.
Interest Rate Sensitivity: The company’s cumulative deposit betas to Fed rate cuts reached 55%, which could impact net interest income in a declining rate environment.
Net Interest Income Growth: KeyCorp has revised its 2025 guidance for net interest income growth to 20%-22%, up from the previous guidance of approximately 20%. The company expects fourth-quarter exit rate NII to grow 11% or better compared to Q4 2024, with a fourth-quarter NIM of approximately 2.75%.
Loan Growth: The company has improved its loan guidance for 2025. Average loans for the full year are now expected to decline by 1%-3%, compared to the previous guidance of a 2%-5% decline. On a period-end basis, loans are expected to grow approximately 2%, with commercial loans growing about 5%.
Fee Growth: Adjusted fees are expected to grow by 5% or slightly better for 2025, with upside potential depending on investment banking pipelines in the second half of the year.
Expense Growth: Expenses are projected to increase by 3%-5% for 2025, with the company currently planning to be at the midpoint of this range due to client activity levels and pipelines.
Net Charge-Offs: Net charge-offs as a percentage of loans are expected to be in the range of 40-45 basis points for 2025.
Capital Position: KeyCorp aims to maintain a marked CET1 ratio of 9.5%-10% over time, with plans to manage to the high end of this range in the near term due to macroeconomic uncertainty.
The selected topic was not discussed during the call.
The earnings call summary and Q&A reflect a positive sentiment. KeyCorp's revised guidance for net interest income and improved loan growth are promising. The cautious approach to M&A and focus on organic growth indicate strategic prudence. The company's strong capital position and plans for share buybacks, despite being cautious, suggest confidence in financial health. The focus on fee growth, expense management, and ROTCE improvement further enhances the positive outlook. While some responses lacked detail, the overall strategic direction and financial metrics suggest a likely positive stock price movement in the short term.
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