Why Is KeyCorp (KEY) Down 3.1% Since Last Earnings Report?

A month has gone by since the last earnings report for KeyCorp (KEY). Shares have lost about 3.1% in that time frame, underperforming the S&P 500.

But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is KeyCorp due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

KeyCorp's Q2 Earnings Beat Estimates, NII & Fee Income Rise Y/Y

KeyCorp’s second-quarter 2025 earnings per share from continuing operations of 35 cents surpassed the Zacks Consensus Estimate by a penny. The bottom line reflected a 40% jump from the prior-year quarter’s actual.

Results benefited from a rise in NII and non-interest income. The average loan balance increased sequentially, which was another positive. However, higher expenses and a rise in provisions were undermining factors.

Net income from continuing operations attributable to common shareholders was $387 million, up 63.3% year over year.

Revenues Improve, Expenses Rise

Total revenues increased 20.9% year over year to $1.83 billion. Moreover, the top line beat the Zacks Consensus Estimate of $1.80 billion.

NII (TE basis) increased 27.9% on a year-over-year basis to $1.15 billion. NIM (TE basis) from continuing operations expanded 62 basis points (bps) to 2.66%. Both metrics benefited from lower deposit costs, reinvestment of proceeds from maturing low-yielding investment securities, fixed-rate loans and swaps repricing into higher-yielding investments, the repositioning of the available-for-sale portfolio in 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 variable-rate earning assets and lower loan balances. Our estimate for NII (TE) and NIM was $1.14 billion and 2.62%, respectively.

Non-interest income was $690 million, up 10% year over year. The rise was driven by an increase in almost all the components of fee income, except for corporate-owned life insurance income, consumer mortgage income, operating lease income and other leasing gains, and other income. Our estimate for the metric was $673.3 million.

Non-interest expenses grew 7% year over year to $1.15 billion. The rise was due to an increase in almost all cost components, except for operating lease expenses and other expenses. We projected the metric to be $1.16 billion.

Loans Rise & Deposits Slip

At the end of the second quarter, average total loans were $105.72 billion, up 1.3% from the previous quarter. We had anticipated average total loans of $105.52 billion.

Average total deposits were $147.45 billion, down marginally from the prior-quarter end. The fall was due to a reduction in higher-cost commercial client balances and retail CDs. Our estimate for the metric was $150.58 billion.

Credit Quality: A Mixed Bag

The provision for credit losses was $138 million, up 38% year over year. Our estimate for provision for credit losses was $120.2 million.

Net loan charge-offs, as a percentage of average total loans, rose 5 bps year over year to 0.39%.

However, the allowance for loan and lease losses was $1.45 billion, down 6.5% from the prior-year quarter. Non-performing assets, as a percentage of period-end portfolio loans, other real estate-owned property assets, and other non-performing assets, were 0.66%, down 2 bps year over year.

Capital Ratios Improve

KEY's tangible common equity to tangible assets ratio was 7.8% as of June 30, 2025, up from 5.2% in the corresponding period of 2024. The Tier 1 risk-based capital ratio was 13.4%, up from 12.2%. The Common Equity Tier 1 ratio was 11.7%, up from 10.5% as of June 30, 2024.

Outlook

Management expects the average loan balance to decline 1-3% in 2025 compared with the earlier guidance of a decline of 2-5%.

Period-end loans are expected to rise roughly 2%, up from the previous guidance of no change in loan balance. Further, commercial loans are expected to rise about 5%, higher than the earlier growth of 2-4%.

Management expects third-quarter 2025 investment banking fees to remain flat sequentially if current conditions hold.

NII (TE) is expected to be up 20-22% in 2025, with the fourth-quarter number growing 11% or more year over year. This indicates an increase from the earlier guidance of 20% rise, with the fourth-quarter figure rising 10% or more from the prior year quarter.

NIM is expected to be roughly 2.75% or better by the fourth quarter of 2025, up from the previous guidance of 2.70%. Also, NIM is anticipated to be above 3% by the end of 2026. 

Non-interest income (excluding the securities loss) is expected to be up 5% or more in 2025 from $2.65 billion in 2024.

Non-interest expenses (excluding notable charges) are anticipated to be up in the range of 3-5% from $4.52 billion in 2024.

NCOs to average loans are expected to be in the 40-45 bps range.

The GAAP tax rate is expected to be 21-22%, and the effective tax rate will likely be 23-24%.

How Have Estimates Been Moving Since Then?

Since the earnings release, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, KeyCorp has a average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a score of B on the value side, putting it in the second quintile for value investors.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, KeyCorp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

KeyCorp belongs to the Zacks Banks - Major Regional industry. Another stock from the same industry, State Street Corporation (STT), has gained 1.1% over the past month. More than a month has passed since the company reported results for the quarter ended June 2025.

State Street reported revenues of $3.45 billion in the last reported quarter, representing a year-over-year change of +8.1%. EPS of $2.53 for the same period compares with $2.15 a year ago.

State Street is expected to post earnings of $2.57 per share for the current quarter, representing a year-over-year change of +13.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +2.9%.

State Street has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.

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

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