What Management Said
Read the full Q4 2025 transcript ↗I'd like to thank you for joining KeyCorp's Fourth Quarter 2025 earnings conference call. As usual, we will reference our earnings presentation slides, which can be found in the Investor Relations section of the key.com website. This covers our earnings materials as well as remarks made on this morning's call. Our fourth quarter and full-year results demonstrate the continued progress we are making with respect to our organic path to achieving consistently higher returns on capital.
Revenue exceeded $2 billion, growing 12% year-over-year on an adjusted basis, while expenses grew 2%. We have also committed to a more meaningful return of capital to our shareholders, which commenced in the fourth quarter. In spite of stepped-up share repurchases, we continue to maintain peer-leading capital ratios. We intend to manage this ratio down to the higher end of our targeted capital range of 9.5%-10% by the end of 2026.
Combined with our business momentum and meaningful ongoing capital generation, this puts us in a position to accelerate our repurchase activity further in 2026. We delivered full-year record revenue, which increased 16% compared to the prior year, with both net interest income and fee revenue growing greater than projected. As a result, we generated approximately 1,200 basis points of operating leverage and PP&R growth of about 44%. Loan growth outperformed, particularly C&I loans, which grew at 9%, and the recycling of lower-yielding consumer loans into commercial loans enabled us to manage our funding costs more proactively.
What went well
- Q4 2025 earnings were $0.43 per share ($0.41 adjusted), with revenue exceeding $2 billion and growing 12% year-over-year on an adjusted basis while expenses grew just 2%.
- The company met or exceeded all financial targets set at the beginning of the year, delivering full-year record revenue up 16%, roughly 1,200 basis points of operating leverage, and PPNR growth of about 44%.
- Both Q4 NIM (2.82%, up 7 basis points sequentially) and net interest income exceeded previously communicated targets, with full-year NII increasing 23% versus the original 20% expectation.
- Asset quality improved with net charge-offs, NPAs, criticized loans, and delinquencies all declining sequentially; full-year net charge-offs were 41 basis points.
- The company repurchased $200 million of common stock (twice the original October commitment) at an average price of $18 while maintaining a peer-leading 10.3% marked CET1 ratio.
- Wealth assets under management reached a record $70 billion and commercial payments fee-equivalent revenue grew 11% for the year.
What went wrong
- Commercial mortgage servicing fees were $68 million, flat year-over-year and down $6 million from Q3, and are guided lower to $50-$60 million per quarter in 2026 as advance rates decline and clients pay with deposits instead of fees (about $40 million annual fee headwind).
- Average loans were relatively flat sequentially as $550 million of low-yielding consumer loan runoff and CRE net paydowns offset C&I growth.
- C&I line utilization decreased about 1% sequentially to 30%, driven by an increase in commitments.
- Some investors viewed the 2026 guide as conservative or softer than high expectations relative to strong 2025 results.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Revenue growth | FY2026 | high single-digit rate (new) |
| Expense growth | FY2026 | approximately 3%-4% (about half of revenue growth) (new) |
| Share repurchases | Q1 2026 and subsequent quarters | at least $300 million in Q1, similar amounts in subsequent quarters (increased) |
| Net interest margin | Q4 2026 | 3.0%-3.05% (new) |
| Net interest margin | Q4 2027 | 3.25%+ (new) |
| Marked CET1 ratio | end of 2026 | higher end of 9.5%-10% target range (managing down) |
| Investment banking fees | FY2026 | up about 5% (new) |
| Commercial loan growth | FY2026 | about 5% (C&I ~7%) (new) |
| Total loan growth | FY2026 | 1%-2% (new) |
| Commercial mortgage servicing fees | FY2026 | $50-$60 million per quarter (lowered) |
| Return on tangible common equity | year-end 2027 | 15%+ (reiterated) |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Earnings per share | $0.43 ($0.41 adjusted) | Strong franchise momentum; prior-year quarter impacted by securities repositioning |
| Revenue (Q4) | up 12% adjusted | NII up 15% year-over-year and broad-based fee-based growth |
| Full-year revenue | up 16% (record) | NII and fee revenue both growing more than projected |
| Full-year net interest income | up 23% | Stronger commercial loan growth and better deposits on balance and beta |
| Full-year fees | up 7.5% | Investment banking up 13% plus high-single to low-double-digit growth in wealth, payments, and CRE servicing |
| Investment banking and debt placement fees (Q4) | up 10% to $243 million | Debt capital markets and commercial mortgage debt placement, with a pickup in M&A |
| Trust and investment services income | up 10% | Record positive net flows and higher market values; AUM record $70 billion |
| Service charges on deposit accounts | up 20% | Momentum in commercial payments |
| Tangible book value per share | up 18% | Earnings generation |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Net interest margin expansion | 2.75% (Q3 2025) | 2.82% | Improving |
| Balance sheet remix (consumer to commercial) | ongoing consumer runoff | continued runoff of ~$550 million low-yielding consumer loans, C&I growth; $17 billion fixed-rate repricing expected in 2026 | Continuing |
| Capital return | $100 million Q4 buyback discussed (Q3), then $200 million executed | $300 million+ per quarter planned for 2026, payout above 70%-80% target | Accelerating |
| Middle-market M&A recovery | tepid for first nine months of 2025 | first pickup in Q4, expected to roll into Q1 but limited full-year visibility | Early recovery |
| Banker hiring | targeting ~10% frontline growth | achieved just over 9% (closer to 5% in investment banking) | Largely complete |
| Deposit beta | ~55% cumulative IB beta (Q3) | declined modestly to 51%, expect low-to-mid 50s in 2026 | Stabilizing |
Q&A Summary
What are your strategic priorities organically for 2026 that could drive better growth and ROE?
Gorman said the focus is growing organically across middle market and payments, the investment bank, and wealth (especially mass affluent), then driving return on capital (with a path to 16%-19%), return of capital, and positioning for the next leg of growth through hiring, board changes, and $1 billion of tech/AI investment including reimagining horizontal areas like loan underwriting.
Why isn't the investment banking fee guide stronger given sponsor and middle-market activity picking up?
Khayat said they hired closer to 5% in investment banking (versus a 10% overall target) given a competitive market, and while middle-market M&A popped in Q4 they lack visibility that it continues through the year, so the 5% guide is hesitant but with clear upside if the trend holds.
What is your appetite for bank M&A versus a non-bank acquisition, given the board changes, and do you have visibility past Q1?
Gorman said capital priorities are unchanged and bank M&A is not a focus; the company is keenly interested in complementary fee-based, capability-enhancing acquisitions of knowledge workers (group hires or boutiques), and has very good visibility through Q1 with historically high backlogs but conservatism beyond that since it is the deal business.
Walk us from 10.3% marked CET1 to the 9.5%-10% target and the handoff to balance sheet growth.
Khayat said the ~$500 million from 10.3% to 10% plus $700 million+ of distributions implies a payout above the 70%-80% target in 2026; the components are loan growth (top priority), macro/credit performance, and rating-agency considerations, with job one being to reach the top end of the range then reassess.
How should we think about the components of the 15%+ ROTCE and 16%-19% long-term range timing?
Khayat said NIM guidance is 3%+ in Q4 2026 and 3.25%+ in Q4 2027, driven by C&I remix, ~$17 billion of fixed-asset repricing per year, and deposit growth; about 75% of 2026 growth is mechanical, moving toward 50/50, with fees growing in line with or slightly better than expenses, and no timing committed for the 16%-19% goal.
What is the right natural expense growth rate beyond 2026 given the heavy hiring?
Gorman said the long-term target is 2%-3% expense growth including continuous-improvement efficiencies reinvested; the company ran about 4.5% in 2025, is guiding 3%-4% in 2026, and will step down toward the long-term rate over the next year or two.
More on Keycorp /New/
Reported 2026-01-20 · figures from the Keycorp /New/ Q4 2025 earnings call.
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