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KeyCorp delivered a strong Q2 FY2025 beat with robust revenue, margin expansion, and raised guidance, but rising expenses and short interest warrant close monitoring of future cost efficiency and deposit trends.

# KeyCorp Delivers Strong Q2 FY2025 Beat with Margin Expansion and Raised Guidance

---

## Executive Summary

- **KeyCorp (KEY) delivered a robust Q2 FY2025, beating consensus on both revenue and EPS.** Total revenue reached **$1.84B** (up 20.6% YoY), and net income attributable to common shareholders was **$389M** (up 40% YoY), with EPS at **$0.35**—all exceeding expectations. The outperformance was driven by **broad-based commercial loan growth, record fee income (notably in investment banking and commercial payments), and disciplined deposit cost management**.

- **Earnings quality was high, with clear margin expansion.** Net interest margin (NIM) improved to **2.66%** (up 62 bps YoY), reflecting a healthier loan and deposit mix. However, **noninterest expenses rose 7% YoY** due to accelerated hiring and technology investments, signaling a strategic focus on long-term growth but also introducing near-term cost pressures.

- **Management struck a bullish tone, raising full-year guidance** for net interest income (now targeting 20–22% growth) and commercial loan growth, while reiterating confidence in ongoing fee income momentum. The bank maintained a solid capital position (CET1 at **11.7%**) and continues to build credit reserves prudently.

- **Risks include rising short interest (now at 3.84% of float), elevated expense growth, and macroeconomic uncertainty.** However, the market may be underappreciating the upside from strategic investments in technology and talent, as well as the sustainability of margin expansion and fee income growth.

- **Catalyst watch:** Investors should monitor the Q3 expense trajectory, deposit growth trends, and the realization of returns from technology investments, which could drive further re-rating.

---

## Performance Snapshot

| Metric                | Reported | Consensus | Surprise | YoY Change |
|-----------------------|----------|-----------|----------|------------|
| Revenue               | $1.84B   | $1.77B    | +$70M    | +20.6%     |
| EPS                   | $0.35    | $0.29     | +$0.06   | +40.0%     |
| Net Interest Margin   | 2.66%    | 2.58%     | +8 bps   | +62 bps    |
| Noninterest Expenses  | $1.01B   | $0.97B    | +$40M    | +7.0%      |
| CET1 Ratio            | 11.7%    | 11.5%     | +20 bps  | +30 bps    |
| Fee Income Growth     | +12%     | +7%       | +5 pts   | +12%       |

---

## Earnings Quality

KeyCorp’s Q2 FY2025 results reflect **high-quality earnings**. Revenue growth was broad-based, with **commercial loan balances and fee income both exceeding expectations**. The improvement in net interest margin to **2.66%** demonstrates effective deposit cost management and a favorable shift in asset mix. While noninterest expenses increased by 7% YoY, this was primarily due to **strategic investments in technology and personnel**—not one-off or nonrecurring items. The bank’s cost structure is evolving, but the underlying profitability remains strong, as evidenced by the 40% YoY increase in net income.

---

## Management Commentary & Guidance

Management’s tone on the earnings call was **decisively bullish**. Leadership highlighted momentum in core businesses, particularly in commercial lending and fee-based services. **Guidance was raised** for net interest income (now 20–22% growth for FY2025) and commercial loan growth, with expectations for fee income to exceed 5% growth. Management acknowledged higher operating expenses but framed them as **necessary investments** to support future growth and efficiency. The bank’s capital position remains robust (CET1 at 11.7%), and credit reserves are being built cautiously in light of macroeconomic uncertainties.

---

## Key Risks

- **Cost Inflation:** Noninterest expenses are rising faster than revenue, driven by hiring and technology spend. If these investments do not yield productivity gains, margins could come under pressure.
- **Short Interest:** Short interest has climbed to **3.84% of float**, above peer averages, reflecting some market skepticism.
- **Macroeconomic/Regulatory:** While credit reserves are being built, a deteriorating economic environment could pressure asset quality and loan growth.

---

## Expected Market Reaction

Analyst and investor commentary suggests an **initially positive reaction** to the strong headline results and raised guidance. However, **concerns over expense growth and rising short interest** may temper enthusiasm, leading to a **mixed or cautious sentiment** until there is more clarity on the payoff from strategic investments and deposit trends.

---

## Final Takeaway

**KeyCorp’s Q2 FY2025 was a strong quarter, marked by high-quality revenue growth, margin expansion, and confident forward guidance.** The market may be underestimating the long-term benefits of the bank’s technology and talent investments, while overemphasizing short-term cost pressures and short interest. 

**Upcoming catalysts:**  
- Q3 expense and deposit growth trends  
- Early returns from technology and personnel investments

Investors should watch for evidence that expense growth is translating into sustainable revenue and efficiency gains, which could drive further upside for KeyCorp.

KeyCorp Q2 Beat: Margin Gains, Guidance Raised

KeyCorp is set for further margin and earnings growth, driven by strong fee income, improved efficiency, and underappreciated benefits from recent technology investments.

# KeyCorp’s Next Quarter: Margin Momentum, Fee Growth, and the Underappreciated Tech Edge

## Executive Summary

We are **bullish** on KeyCorp’s (NYSE: KEY) upcoming quarter, driven by **sustained double-digit fee growth** and a **notable expansion in operating margins**—from **12.3% in Q3 2024 to 19.3% in Q2 2025**. Management’s upgraded guidance and robust performance in both Consumer and Commercial segments point to further upside in revenue and earnings. The market may be underestimating the **impact of $100M in recent technology investments**, which are poised to accelerate operational efficiency and margin gains ahead of consensus expectations. However, modest deposit declines and potential credit cost volatility remain risks to monitor.

## Recent Trends Signal What’s Next

KeyCorp’s last two quarters have shown a clear acceleration in both top-line and margin performance. **Q2 2025 revenue reached $1.84B**, up sequentially, while **operating margin expanded to 19.3%** from 12.3% in Q3 2024. The Commercial Bank led with **$974M in revenue (+26.8% YoY)**, and Consumer AUM hit a record **$64B (+11.5% YoY)**. These trends suggest continued momentum into the next quarter, especially as fee-based businesses and net interest income remain strong.

### Quarterly Financial Trend Table

| Quarter     | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|-------------|--------------|------------------|----------------------|---------------|---------|
| Q3 2024     | 1.68         | 54.2             | 12.3                 | 7.8           | 0.29    |
| Q4 2024     | 1.72         | 56.1             | 14.7                 | 9.2           | 0.32    |
| Q1 2025     | 1.78         | 57.8             | 17.1                 | 10.5          | 0.36    |
| Q2 2025     | 1.84         | 59.0             | 19.3                 | 12.1          | 0.39    |

## Management’s Forward Tone and Positioning

Management’s tone has shifted from caution to **measured optimism**. In the Q2 2025 call, leadership stated, “We’re seeing strong pipelines and robust execution across our core businesses,” signaling confidence in near-term growth. This contrasts with Q4 2024’s “heightened uncertainty” language. The **raised FY2025 guidance**—with net interest income growth of 20–22% and a target NIM of 2.75% by Q4—reflects a clear expectation of continued margin and revenue expansion. The communication strategy now emphasizes execution and efficiency, rather than risk management.

## KPI Trends & Upcoming Quarter Drivers

KeyCorp’s next quarter will hinge on three primary KPIs:

- **Investment Banking Fees:** Up **41% YoY** in Q2 2025, this line is expected to remain a key revenue driver.
- **Commercial Loan Growth:** Up **5.5% YoY**, supporting both interest and fee income.
- **Efficiency Ratio:** Improved to **62.4% in Q2 2025**, indicating better cost control and operational leverage.

### KPI Movement Table

| KPI                        | Q2 2024 | Q2 2025 | YoY Change | QoQ Change | Impact Next Quarter         |
|----------------------------|---------|---------|------------|------------|----------------------------|
| Inv. Banking Fees ($M)     | 210     | 296     | +41%       | +9%        | Revenue/EPS Upside         |
| Commercial Loans ($B)      | 41.2    | 43.5    | +5.5%      | +1.2%      | Stable Lending Income      |
| Efficiency Ratio (%)       | 67.8    | 62.4    | -5.4 pts   | -1.1 pts   | Margin Expansion           |
| Deposit Growth (%)         | +1.1    | -2.6    | -3.7 pts   | -1.2 pts   | Funding Cost Risk          |

Fee and loan growth will likely drive revenue and EPS, while the improved efficiency ratio should support further margin expansion. However, the modest decline in deposits could pressure funding costs if competition intensifies.

## Missed by the Street

A key overlooked signal is the **$100M YoY increase in technology investments** (Q2 2025 10-Q), described as “significant technology investments in cloud, automation, and machine learning.” This is not yet reflected in consensus models but could yield **earlier-than-expected cost savings** and margin benefits, especially as management links these investments to “operational efficiency gains” in the next two quarters.

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario | Revenue ($B) | GAAP EPS | Operating Margin | Key Assumptions                                         |
|----------|--------------|----------|------------------|---------------------------------------------------------|
| Bull     | 1.93         | 0.40     | 20.5%            | Fee growth accelerates, tech investments boost margins  |
| Base     | 1.90         | 0.38     | 19.8%            | Steady fee/loan growth, margin expansion continues      |
| Bear     | 1.85         | 0.36     | 19.3%            | Credit costs rise, deposit competition intensifies      |

**Base case is most likely**, given current fee pipelines, margin trends, and management’s confident tone. The bull case could materialize if technology-driven efficiencies ramp faster than expected.

## Appendix – Data Tables & Management Quotes

### Quarterly Financials Table

| Quarter     | Revenue ($B) | EPS ($) | Operating Margin (%) |
|-------------|--------------|---------|----------------------|
| Q3 2024     | 1.68         | 0.29    | 12.3                 |
| Q4 2024     | 1.72         | 0.32    | 14.7                 |
| Q1 2025     | 1.78         | 0.36    | 17.1                 |
| Q2 2025     | 1.84         | 0.39    | 19.3                 |

### KPI Movement Table

| KPI                        | Q2 2024 | Q2 2025 | YoY Change | QoQ Change |
|----------------------------|---------|---------|------------|------------|
| Inv. Banking Fees ($M)     | 210     | 296     | +41%       | +9%        |
| Commercial Loans ($B)      | 41.2    | 43.5    | +5.5%      | +1.2%      |
| Efficiency Ratio (%)       | 67.8    | 62.4    | -5.4 pts   | -1.1 pts   |
| Deposit Growth (%)         | +1.1    | -2.6    | -3.7 pts   | -1.2 pts   |

### Key Management Quotes

1. **“We’re seeing strong pipelines and robust execution across our core businesses.”**  
   *Q2 2025 Earnings Call*  
   *Signals confidence in near-term revenue growth.*

2. **“We expect net interest income to grow 20–22% for FY2025, with NIM reaching 2.75% by Q4.”**  
   *Q2 2025 Earnings Call*  
   *Indicates management’s bullish outlook on margin expansion.*

3. **“Significant technology investments in cloud, automation, and machine learning are already driving operational efficiency gains.”**  
   *Q2 2025 10-Q*  
   *Suggests cost savings and margin upside not yet in consensus.*

4. **“Deposit competition remains manageable, but we are monitoring for any shifts in pricing pressure.”**  
   *Q2 2025 Earnings Call*  
   *Highlights a key risk to funding costs.*

5. **“Credit quality remains stable, though we remain vigilant given the dynamic macro environment.”**  
   *Q2 2025 Earnings Call*  
   *Implies a watchful stance on potential credit cost headwinds.*

6. **“We are on track to deliver our targeted efficiency ratio improvement for the year.”**  
   *Q2 2025 Earnings Call*  
   *Reinforces the margin expansion narrative.*

7. **“Our commercial and consumer pipelines are at record levels, supporting our outlook for continued growth.”**  
   *Q2 2025 Earnings Call*  
   *Points to sustained momentum in core businesses.*

---

**In summary:** KeyCorp’s next quarter is set up for continued margin and earnings growth, with technology investments providing a potential upside surprise. The base case scenario is most likely, but the risk/reward skews positive given current trends and management’s execution focus.

KeyCorp: Margin Expansion and Tech-Driven Upside