KeyCorp (KEY) Q3 2026 earnings review
KeyCorp reports record revenue, but its capital ratios fall
KeyCorp earned more from lending and from advising on deals, and fewer of its borrowers fell behind. Revenue reached a record $2.04 billion, up 8%, and profit per share rose faster because the bank set aside less for bad loans. Chief executive Chris Gorman said the return on tangible common equity passed the goal set for the end of 2027.
| Revenue | $2,044M +8.4% from a year ago |
|---|---|
| Profit per share | $0.51 +24% from a year ago |
| Return on tangible common equity | 15.1% 12.9% last quarter |
| Full-year revenue outlook | Raised to ~8% 7–8% three months ago |
⚖️ Verdict: 🟢 Bullish
The story got better because the lending margin grew faster again after three quarters of smaller steps, and the deal fees that missed last quarter beat the plan. The bad news: capital measured after bond losses fell below the bank's own range, and it trimmed its year-end margin goal again.
The question now is whether KeyCorp can reach a 3% lending margin by December while buying back shares on a thinner capital base. Either the $4 billion of low-yield assets maturing in the quarter does the work, or rising deposit costs eat most of it. January's fourth-quarter margin and capital ratio will tell.
🐂 Bull Case
Lending Margin Growth Sped Up Again
KeyCorp makes most of its money from the gap between what it earns on loans and bonds and what it pays for deposits and borrowing, known as the net interest margin. That gap had widened more slowly each quarter since last autumn, and three months ago the step was just 0.02 percentage points.
This quarter the step was three times bigger. The company said most of the gain came from cheaper funding and from low-yield bonds and swaps that matured and that it replaced at higher rates, while one extra day in the quarter also helped the dollar figure.
- Net interest margin: 2.95%, up 0.06 points from last quarter and 0.20 from a year ago
- Net interest income: $1.31 billion, up 10% from a year ago
- Funding mix: 0.03 points of the quarter's gain; bond and swap repricing: 0.02 points
- Interest-bearing deposit cost: 2.04%, up 0.03 points, so the gain did not come from paying depositors less
This matters because the plan for a 15% return rests on the margin reaching 3.25% by the end of 2027. Steps of this size must keep coming for that. One extra day added $8 million, so by our math underlying income still grew about 3.3% from last quarter, the best step in a year.
What to watch: the fourth-quarter margin, due in January. A reading at 3.00% or above would show the bigger step was the start of a trend rather than a one-quarter gain from an extra day and a better borrowing mix.
Deal Fees Came In Above Plan
KeyCorp advises mid-sized companies on mergers and arranges their borrowing through KeyBanc Capital Markets, and these fees are its biggest source of income outside lending. Three months ago they fell short of the bank's own target, and it then promised a rise of at least 20% this quarter.
"Our capital markets team delivered strong results with investment banking and debt placement fees increasing 27% sequentially," chairman and chief executive Chris Gorman said. Fees reached $214 million, above the $203 million the promise implied by our math, and the slides credited "higher M&A fees and syndications".
One quarter does not settle the standing worry that private-equity sellers keep delaying their exits. The company has not updated its full-year fee goal of about 5% growth since July, and by our math that goal needs roughly $239 million in the fourth quarter, slightly less than last year's final quarter.
What to watch: fourth-quarter investment banking fees, due in January. A figure near $240 million would mean the record pipeline KeyCorp described in July is now turning into revenue.
Deposits Grew Faster Than Loans
A bank funds its loans with deposits or with borrowing from markets, and deposits are cheaper. Through the summer KeyCorp had leaned on market borrowing while it waited for customers to bring in cash, and in July it set a goal of raising client deposits by more than 2% by year-end.
This quarter the cash arrived. Average deposits rose $3.6 billion from the previous quarter while average loans grew $1.5 billion, and the company said the growth came from demand and money market accounts rather than from higher-cost term deposits.
- Client deposits: up 1.9% from last quarter and 1.6% from a year ago
- Cost of all deposits: 1.66%, up 0.03 points from last quarter
- Market borrowing (bank notes, repos and long-term debt): $16.7 billion at quarter-end, up $2.1 billion from June by our math
- Noninterest-bearing deposits at quarter-end: $28.2 billion, down $2.7 billion from June
The averages support the bank's story, but the quarter-end figures do so only in part, because total deposits on September 30 were just $0.7 billion above June and the bank still borrowed more from markets. The standing concern that loan growth depends on wholesale money therefore eased but did not go away.
What to watch: average deposits in the fourth quarter, when commercial clients usually hold more cash. A rise from this quarter's $151.2 billion would confirm the more-than-2% goal and let the bank pay down some market borrowing.
Fewer Borrowers Fell Behind
Credit costs are the second lever in a bank's profit after the lending margin, and KeyCorp's had been moving the wrong way: loans no longer paying interest rose for two straight quarters to $818 million in June. Gorman pointed this quarter to "broad-based improvement in credit quality metrics, including lower net charge-offs and nonperforming assets".
- Nonperforming assets: $627 million, down 23% from June
- Net charge-offs: 0.32% of average loans, from 0.42% last quarter
- Provision for credit losses: $61 million, including a $28 million reserve release
- Criticized loans, an early warning measure: $5.55 billion, up $155 million from June
The two halves of the bank told different stories, because the Commercial Bank released reserves "reflective of portfolio changes and lower net charge-offs" while the Consumer Bank added to them in "a reserve build as a result of economic conditions". KeyCorp also cut its full-year loss outlook to 0.37–0.39% of loans from 0.40–0.45%.
That new outlook is less generous than it looks. By our math it leaves fourth-quarter charge-offs at 0.37–0.44% of loans, above this quarter's rate, so the plan itself allows for some of the improvement to reverse. The rise in criticized loans is consistent with that.
What to watch: fourth-quarter net charge-offs and nonperforming assets, due in January. A loss rate that stays near this quarter's would show the fall in bad loans was more than a one-quarter event.
🐻 Bear Case
Capital Fell Below Key's Own Target Band
KeyCorp tracks a capital ratio that counts the unrealised losses on its bond portfolio, which the regulatory ratio leaves out, and it has set a target range of 9.5–10% for it. Gorman described "solid capital levels" this quarter, and the slide deck headed its capital page "Disciplined Capital Management".
That ratio fell to 9.0% from 9.8% in June, below the range for the first time in the five quarters the deck shows. By our math the bond-loss adjustment widened by about $1.1 billion. The bank still spent $320 million buying back 14.2 million shares.
- Tangible common equity to tangible assets: 6.9%, from 7.7% in June and 8.1% a year ago
- Tangible book value per share: $12.35, down 9% from June
- Regulatory common equity ratio: 11.1%, down 0.7 points from a year ago
This matters because the gap between the two capital measures is real money: the bond losses would become actual losses if the bank ever had to sell. Buying back shares at this pace while the marked ratio sits below its floor means either the buyback plan changes or lower interest rates must shrink those losses.
What to watch: the marked capital ratio and the buyback amount in the fourth quarter. A buyback near $300 million with the ratio still below 9.5% would show the bank has put share repurchases ahead of its own capital range.
The Year-End Margin Goal Slipped Again
KeyCorp tells investors each quarter what its lending margin should be at the end of December 2026. The number has moved three times, and this quarter it moved down, to about 3.00% from a range of 3.00–3.05%. The quarter's average was 2.95%. So the plan still needs a further rise of about 0.05 points by December.
- Outlook in January: 3.00–3.05%
- Outlook in April: about 3.05%
- Outlook in July: 3.00–3.05%
- Outlook now: about 3.00%, with earning assets growing $1.5–2 billion from this quarter
The trim came in the same quarter the bank raised its commercial loan plan to about 10% growth but only narrowed its net interest income plan to about 10%, the middle of the old range. More loans and the same income means a thinner spread on each new loan, and the implied fourth quarter needs a margin near 3.03% by our math.
By our math the $4.1 billion of low-yield bonds and swaps maturing in the fourth quarter adds under 0.02 points to the margin, if the bank replaces them at the rates it got on new swaps this quarter. The rest of the step has to come from funding costs, which rose this quarter, or from loan mix.
What to watch: the December margin, reported with fourth-quarter results in January. A reading below 3.00% would be the first miss of this target after three revisions and would put the 3.25% goal for the end of 2027 in doubt.
Risks This Quarter Didn't Answer
Three standing concerns got no new numbers in the release or the slides, so this quarter neither eased nor worsened them, and each waits on a later disclosure.
- Loans modified for borrowers in financial difficulty: the quarterly filing will show whether the commercial total, $388 million in June, kept rising while the bank released reserves.
- Cost of new deposits: the bank has not said what it pays on the operating deposits it is gathering, so the funding gain in the margin walk cannot be checked against them.
- The long-term return goal of 16–19%: repeated again with no date, so no quarter's result can test it.
👓 Other Themes
Key Called Its Series D Preferred Shares
KeyCorp called its Series D preferred shares: preferred stock on the balance sheet fell by $525 million, the quarter carried a $5.9 million call premium, and the series disappears from the fourth-quarter dividend schedule. The slides show preferred dividends falling to $29 million next quarter from $42 million, which lifts profit for common shareholders at the cost of a lower Tier 1 capital ratio.
Business Clients Drew More on Their Credit Lines
Gorman described "a constructive economic environment and continued confidence among the businesses and communities we serve". The slides give one number behind that: companies used 33.1% of their committed commercial credit lines, up about 2 percentage points from June, which KeyCorp attributed to "client investments into their businesses". Higher use of existing lines adds loans without new customers, so the same mood helps the loan plan and raises exposure if conditions turn.
💲 Other KPIs
Up 10.2% from a year ago, the fastest rate in five quarters. The quarterly additions were $2.9 billion in the spring and $2.1 billion now. So the pace eased even as the yearly rate rose. The plan of about 10% growth for the year needs roughly $85.6 billion in the fourth quarter by our math.
A record, up 9.7% from a year ago. Growth slowed from 15.5% last quarter because the year-ago base jumped in the autumn of 2025. Assets under management are client investments the bank runs for a fee; they drove trust and investment services income up 10% from a year ago.
Up 5.8% from a year ago, driven by personnel. Salaries, benefits and incentive pay rose 9.8% as the bank added bankers and fee income grew. Revenue grew faster, so the cash efficiency ratio, costs as a share of revenue, improved to 60.6% from 61.9% in June.
🔮 Guidance
Raised. Revenue should grow about 8% this year, to roughly $8.11 billion. By our math that leaves about $2.15 billion for the fourth quarter, up 7% from a year ago. That is a slower rate than this quarter's, because last year's final quarter carried a very strong deal-fee result. The middle of the range has moved up half a point in each of the last two quarters.
Unchanged at the middle of the old range: about 10% growth this year. By our math the fourth quarter then needs about $1.34 billion of net interest income, up 2.6% from this quarter. On the earning assets the company projects, that is a quarterly margin near 3.03%, so the whole fourth quarter must run at or above the year-end exit rate rather than reach it only in December.
Cut to the bottom of the old range. The margin should end the year near 3.00%, which needs a further 0.05 points from this quarter's average. The target has now moved three times in a year, and the two latest moves were down. Low-yield bonds and swaps maturing in the quarter do only part of that work by our math, so funding costs carry the rest.
Raised. Fee income should grow 4–5% this year after a strong deal quarter. By our math that leaves $783–811 million for the fourth quarter, between 0% and 4% above a year ago, because last year's final quarter was the best fee quarter of 2025. Against this quarter, the middle of that range is about 7% higher.
Raised. This measure strips out mortgage servicing fees, leasing income and securities gains, so it tracks the fee businesses the bank is investing in: investment banking, wealth management and payments. The slides say those three grew 12% together from a year ago, so the higher range follows this quarter's result as much as any new view of the fourth quarter.
Raised to the top of the old range. Costs should grow about 4% this year, to roughly $4.92 billion. By our math the fourth quarter then comes to about $1.28 billion, only 1% above a year ago. That leaves little room for the hiring and incentive pay that lifted costs this quarter, so the plan assumes those slow in the final three months.
Raised to the top of the old range. Average loans should be about 5% higher than last year. By our math the fourth quarter then has to average roughly $114.5 billion, 2.6% above this quarter. Period-end loans stood at $113.0 billion in September, so the bank needs more growth inside the quarter to get there.
Raised to the top of the old range, the third increase this year, and each raise has been smaller than the last. By our math the fourth quarter has to average about $85.6 billion, up 3% from this quarter. That is a bigger step than the $2.1 billion added this quarter, so the raise assumes growth speeds up again.
Cut. Loan losses should run at 0.37–0.39% of average loans this year, down from a 0.40–0.45% range. Losses ran 0.37% in the first nine months. So by our math the new range leaves the fourth quarter at 0.37–0.44%, above this quarter's rate, and the plan treats this quarter's low figure as partly temporary.
Unchanged. The company still expects a tax rate of about 22% for the year. This quarter's rate was 21.5% by our math, so the fourth quarter would need to run a little above 22% for the year to land there.
Unchanged. The bank still aims for a lending margin of 3.25% or more and a return on tangible common equity of 15% or more by the end of 2027. This quarter's return already passed that level, helped by a smaller equity base after bond losses widened. The margin at 2.95% still has 0.30 points to go.
Unchanged. The long-term goals remain a return on tangible common equity of 16–19% and a marked capital ratio of 9.5–10%, with no date for either. The marked ratio sat at 9.0% at quarter-end, below the band it is meant to stay in, so one of the two goals is further away than three months ago.
Unchanged at $1.3 billion for the year. The bank has spent $1.05 billion through September. By our math that leaves about $250 million for the fourth quarter, less than the $320 million bought this quarter, so the pace would slow with the marked capital ratio below its band.
❓ Key Questions
What takes the margin from 2.95% to 3.00% by December?
Maturing low-yield assets add under 0.02 points by our math, and deposit costs rose this quarter. The company has not shown which funding or asset changes supply the rest of the step, after two trims to this target.
Why did quarter-end noninterest-bearing deposits fall $2.7 billion?
Average deposits rose $3.6 billion, but balances at September 30 were only $0.7 billion above June and free deposits dropped. Whether the average gain is durable or a mid-quarter swing decides how much market borrowing the bank can retire.
Will buybacks continue with the marked capital ratio at 9.0%?
The ratio sits below the 9.5–10% range the company set for itself, after $320 million of repurchases. Management has not said whether it will slow buybacks, accept a lower ratio, or wait for bond losses to reverse.
How much did loans to stressed borrowers change this quarter?
Commercial loans modified for borrowers in financial difficulty reached $388 million in June, more than double a year earlier. The bank released reserves again this quarter; the filing will show whether modifications kept rising while coverage fell.
How much of the fourth-quarter deal pipeline is signed?
By our math the full-year fee goal of about 5% growth needs roughly $239 million of investment banking fees in the fourth quarter, slightly under last year's strong final quarter, and that depends on private-equity sellers completing exits.