Key's profit tops estimates on growth in deposits and fees

• Forward look: Key restated its 3.25% net interest margin target for 2027.
• Expert quote: "The visibility we have now makes us feel like we can fund loan growth with deposits … and we can effectively manage the deposits within the scope of where rates are." — Chief Financial Officer Clark Khayat

Powered by solid credit quality, robust deposit-gathering and the tailwind generated by $24 billion of lower-yielding assets that are set to roll off its balance sheet, KeyCorp expects positive profitability momentum to carry over into the fourth quarter and the new year.

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"With our strong trajectory and healthy pipelines, I believe we are well-positioned to drive another year of outsized revenue and earnings growth in 2027," Chairman and CEO Chris Gorman said Tuesday on a conference call with analysts.

The $193.1 billion-asset Key reported third-quarter earnings Tuesday. Revenue increased 8% from a year ago to a company-record $2.05 billion. Net income of $537 million rose 18.3% year over year. 

Key's quarterly profit amounted to $0.51 per share. Analysts were expecting $0.46, according to S&P Capital IQ.

Those results resonated with investors. Key shares were trading up more than 4% on Tuesday afternoon at $20.76. 

The Cleveland-based bank reported a third-quarter net interest margin of 2.95%, up 20 basis points from the Sept. 30, 2025, level.

Expansion should continue through the remainder of the year, with the margin expected to hit 3% by Dec. 31, and Key remains on track to reach its year-end 2027 goal of reporting a 3.25% net interest margin, according to Chief Financial Officer Clark Khayat. He cited fixed-asset repricing, along with stronger-than expected deposit growth, as the primary drivers. 

Indeed, Key previously forecast deposit growth, excluding noncore time deposits, of $3 billion in the second half of 2026, and it nearly reached that target in the third quarter. Average deposits totaled $151.2 billion on Sept. 30, up $3.6 billion from June 30. Excluding the time deposits, the increase totaled $2.8 billion.

"The visibility we have now makes us feel like we can fund loan growth with deposits, we can [replace] wholesale funding with deposits, and we can effectively manage the deposits within the scope of where rates are," Khayat said. 

Key should also benefit from approximately $24 billion in low-yielding securities, swaps and residential mortgages running off the balance sheet by the end of 2027. 

That runoff alone will drive 70% of the net-interest-margin expansion that's needed to hit the bank's 3.25% target, Khayat said.

Key reported growth in both loans and fee income during the quarter ended Sept. 30. Average loans increased 5% year over year to $111.2 billion. As a result, third-quarter net interest income totaled $1.3 billion, up 10% from a year ago. At the same time, fee income of $744 million rose 6%.

A promising area within residential lending

Though Gorman said Key plans to continue letting lower-yielding mortgages and other consumer loans run off, he highlighted home-equity lending as one segment of the housing market where it does see an opportunity to grow. 

"Many of our customers have significant equity in their homes," the CEO said. "What we're doing is we're building a digital interface for home equity that's as good as our home mortgage app."

Key's home-equity loans totaled $5.3 billion on Sept. 30, down about 10% from the same period last year. Gorman, however, tabbed home equity as "an area you'll see grow in 2027."

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Overall, Key has not detected any signs of slowing loan demand, and pipelines in its capital-markets business, the largest single fee-income contributor, remain robust, according to Gorman.  
Key posted strong credit metrics. Net charge-offs of $89 million declined 22% from a year ago. Nonperforming and criticized assets were down, too. 

Continued strong credit quality has emerged as a common theme among banks that have reported third-quarter earnings to date. At the $38.4 billion-asset, Richmond, Virginia-based Atlantic Union Bankshares, for instance, third-quarter net charge-offs totaled $2.3 million, or 0.03% of average loans held for investment. Meanwhile, the $7.2 billion-asset Mercantile Bancorp in Grand Rapids, Michigan, reported a third consecutive quarter of recoveries. 

"The credit is so resilient," RBC Capital Markets analyst Gerard Cassidy said on Key's earnings call. "Across the board, the banking industry's credit is very strong."