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KEYCORP /NEW/ (KEY)·Q4 2024 Earnings Summary

Executive Summary

  • Reported GAAP diluted EPS was $(0.28) on total revenue (TE) of $865M; adjusted EPS was $0.38 after a $(915)M pre-tax securities loss tied to the second AFS portfolio repositioning .
  • Net interest income (TE) rose 10% QoQ to $1.061B and net interest margin expanded 24 bps to 2.41%, driven by securities repricing, swap terminations, funding mix improvements, and deposit beta management .
  • Fee momentum remained strong despite the securities loss: Investment Banking & Debt Placement fees were $221M in Q4 (up 63% YoY), commercial mortgage servicing and wealth fees also grew; adjusted noninterest income rose 18% YoY .
  • Credit trends improved sequentially: net charge-offs fell to $114M (0.43% of average loans), criticized loans declined 7% QoQ, and CET1 rose ~114 bps QoQ to 12.0% (marked CET1 9.8%) .
  • 2025 guidance: NII up ~20% YoY, NIM 2.7%+ by Q4, noninterest income up ≥5%, expenses up 3–5%, NCOs 40–45 bps; management highlighted structural tailwinds from repositioning and swap amortization as catalysts .

What Went Well and What Went Wrong

What Went Well

  • Net interest momentum: NII (TE) +10% QoQ to $1.061B; NIM to 2.41% as higher-yield reinvestments and funding optimization took hold .
  • Capital and liquidity strengthened: CET1 to 12.0% and tangible common equity ratio to 7.0%; Scotiabank minority investment completed (approx. $2.0B for 14.9%) providing capital to execute securities repositioning .
  • Fee businesses outperformed: Investment Banking fees $221M (robust across M&A/DCM/ECM/syndications); management pipelines at historically elevated levels; “We raised over $125B of capital for clients in 2024, $54B in Q4 alone” .

What Went Wrong

  • Reported noninterest income was negative due to $(908)M net securities losses (Q4 total selected items after-tax $(657)M), leading to GAAP EPS loss .
  • Average loans down 1.4% QoQ to $104.711B amid tepid demand; consumer loans declined and commercial loan utilization remained ~31% (below typical 35–36%) .
  • Cash efficiency ratio elevated at 141.3% on reported basis; ~$50M unusually elevated expenses (seasonal/miscellaneous) that management does not expect to recur in 2025 .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Net Interest Income (TE) ($MM)$928 $899 $964 $1,061
Noninterest Income ($MM)$610 $627 $(269) $(196)
Total Revenue (TE) ($MM)$1,538 $1,526 $695 $865
EPS (GAAP, Diluted) ($)$0.03 $0.25 $(0.47) $(0.28)
EPS (Adjusted, Diluted) ($)$0.25 N/A$0.30 $0.38
Net Interest Margin (TE) (%)2.07% 2.04% 2.17% 2.41%
Provision for Credit Losses ($MM)$102 $100 $95 $39

Segment performance:

Segment MetricQ4 2023Q3 2024Q4 2024
Consumer Bank Revenue (TE) ($MM)$770 $814 $872
Consumer Bank Net Income ($MM)$(11) $86 $88
Commercial Bank Revenue (TE) ($MM)$804 $868 $999
Commercial Bank Net Income ($MM)$150 $300 $379

Key KPIs:

KPIQ4 2023Q2 2024Q3 2024Q4 2024
Average Loans ($MM)$113,948 $108,961 $106,244 $104,711
Average Deposits ($MM)$145,076 $144,180 $147,771 $149,733
CET1 (%)10.0% 10.5% 10.8% 12.0%
Net Loan Charge-offs ($MM)$76 $91 $154 $114
NCOs to Avg Loans (%)0.26% 0.34% 0.58% 0.43%
NPLs at Period End ($MM)$574 $710 $728 $758
NPLs to Loans (%)0.51% 0.66% 0.69% 0.73%
Allowance for Credit Losses ($MM)$1,804 $1,833 $1,774 $1,699

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Income (TE)FY2025N/AUp ~20% YoY Introduced
Net Interest Margin (TE)Q4 2025N/A2.7%+ by Q4 (approach 2.8% with stronger loan growth) Introduced
Noninterest IncomeFY2025N/AUp ≥5% (capital markets upside) Introduced
ExpensesFY2025N/AUp 3–5% off $4.545B base Introduced
Average LoansFY2025N/ADown 2–5% (consumer runoff ~$3B; commercial up 2–4%) Introduced
Ending LoansYE2025N/AFlat vs YE2024 Introduced
Net Charge-offs to Avg LoansFY2025N/A40–45 bps Introduced
Tax RateFY2025N/AGAAP 21–22%; TE effective 23–24% Introduced
Q4-to-Q4 NII Exit4Q25 vs 4Q24N/A≥10% higher Introduced
Dividend per ShareQ1 2025N/A$0.205 declared Maintained payout

Earnings Call Themes & Trends

TopicQ2 2024 (Q-2)Q3 2024 (Q-1)Q4 2024 (Current)Trend
Capital/ScotiabankCET1 10.5%; organic build; pipelines improving Initial $821M tranche received; CET1 10.8% Investment completed (~$2.0B, 14.9%); CET1 12.0%; marked CET1 9.8% Strengthening capital
Net Interest Income trajectoryNII +1.5% QoQ; NIM +2 bps NII +7% QoQ; NIM +13 bps NII +10% QoQ; NIM +24 bps (structural tailwinds) Accelerating
Deposits and betasDeposits +$1.3B QoQ; betas rising Deposits +2.5% QoQ; mix shift benefits Deposits +1.3% QoQ; interest-bearing costs −25 bps; cumulative beta ~40–45% Dec exit Improving costs
Loan demand/utilizationLoans −$2.1B QoQ; demand tepid Loans −$2.7B QoQ; utilization ~31% Loans −$1.5B QoQ; utilization ~31%; path to 35–36% could add ~$700M per 1% Stabilizing bottom
Investment bankingPipelines “meaningfully higher” IB fees +35.7% QoQ; servicing +19.7% IB fees $221M; raised $54B in Q4; hire +10% in 2025 Robust
Technology/CloudOngoing digital investments [40]n/aCloud migration nearing completion; 2025 tech spend ~$900M Elevated spend
Credit qualityNCOs 0.34%; NPLs rising off low base NCOs 0.58%; criticized loans improving NCOs 0.43%; NPAs ~0.74%; criticized down 7%; peak likely mid-2025 decline Peaking/improving

Management Commentary

  • CEO: “On an adjusted basis, revenues were up 16% YoY and 11% sequentially… net interest income was up 10% QoQ… We achieved YoY positive operating leverage for a second consecutive quarter” .
  • CEO: “Fourth quarter fees were a robust $221 million… pipelines, most notably M&A, remain at historically elevated levels… plan to hire another 10% [bankers] in 2025” .
  • CFO: “We sold ~$10B of market value securities… added $54M to 2024 NII and will add about another $270M in 2025 NII… NIM should be 2.7%+ by Q4” .
  • CFO: “Deposit costs declined by 21 bps; interest-bearing deposits down 25 bps; betas reached ~40% in Q4 and closer to 45% in December” .
  • CEO: “We plan to increase overall tech spend by about 10% to $900 million… make it easier for clients to bank with Key” .

Q&A Highlights

  • NIM arc: “Approach 2.8% consistent with 2.7%+ guide; upside with stronger loan growth” .
  • Deposit betas: Expect mid-to-high 40s through 2025; second rate cut in December has limited full-year impact .
  • Loan growth: End-of-period loans flattish in 2025; consumer runoff (~$3B) offset by 2–4% commercial growth; utilization below normal presents upside .
  • Securities positioning: No additional large repositionings planned; capital targets to be updated after final rules .
  • Longer-term NIM: “No reason we wouldn’t be at 3% or better sometime in 2026” .
  • Credit/Reserves: Book stable-to-improving; reserve releases not expected to be “massive,” but plus/minus possible .

Estimates Context

  • S&P Global consensus estimates could not be retrieved at time of analysis due to provider request limits; therefore, we cannot formally benchmark Q4 actuals versus SPGI consensus for EPS and revenue. We attempted multiple SPGI pulls for “Primary EPS Consensus Mean,” “Revenue Consensus Mean,” and “Net Income Normalized Consensus Mean” across Q4 2024–Q2 2024 but received daily limit errors. As a result, estimates comparisons are unavailable and should be treated as not assessed at this time. Values from S&P Global were not obtained due to “Daily Request Limit Exceeded.”*

Key Takeaways for Investors

  • Structural NII tailwinds in 2025 from ~$10B AFS repositioning and swap amortization underpin ~20% YoY NII growth and NIM 2.7%+ exit; this provides line-of-sight to earnings recovery even if loan demand remains mixed .
  • Fee engines (IB, servicing, wealth) are strong and diversified; IB fees at $221M and record AUM $61B support “fee-based operating leverage” as expenses rise modestly with growth investments .
  • Funding cost relief is underway: deposit costs fell 21 bps QoQ and betas moderated; continued remix away from brokered/CDs should aid margins and liability costs .
  • Credit appears at/near peak pressure: NPAs low at 0.74%; NCOs down QoQ to 0.43%; criticized loans fell 7%—management expects improvement into mid-2025 assuming a constructive macro .
  • Capital position (CET1 12.0%) and marked CET1 9.8% (top quartile per management) offer flexibility; no additional large repositioning planned; watch for updated capital targets post-final rules .
  • Near-term trading lens: Focus on confirmation of deposit cost decline, NIM progression, and fee strength; beats/misses vs consensus need validation once SPGI estimates are accessible.*
  • Medium-term thesis: Earnings normalization via NII structural lifts, fee growth, credit normalization, and operating leverage, with potential upside if commercial utilization lifts and capital markets remain supportive .
\* S&P Global consensus data unavailable at time of analysis due to provider limit; estimates comparisons not assessed.