Q4 2024 Earnings Summary
- KeyCorp expects net interest income to increase by 20% in 2025 over 2024, with net interest margin (NIM) reaching 2.7% or better by Q4 2025 and potentially exceeding 3% in 2026, indicating improved profitability and earnings growth.
- KeyCorp is investing in growth areas such as wealth management and investment banking, planning to grow the investment banking platform by 10% and continuing to hire wealth advisers, which can enhance noninterest income and diversify revenue streams.
- Strong M&A backlog and client optimism suggest potential for increased fee income and loan growth, as KeyCorp's middle market clients are confident in their growth prospects, with 80% expressing confidence, and the M&A backlog being at its largest ever.
- KeyCorp expects average loans to decline by 2-5% in 2025, with end-of-period loans remaining flat, indicating potential challenges in loan growth despite "great pipelines" and client confidence. Utilization levels remain at historically low levels of about 31%, compared to typical levels of 35-36%, and every 1% increase in utilization is worth about $700 million in outstandings for KeyCorp.
- Deposit betas are increasing, having reached 40% in Q4 2024, approaching 45% by year-end, and expected to be in the mid-40s to high-40s throughout 2025, potentially pressuring net interest income as funding costs rise. Management expects deposit betas to approach 50%.
- KeyCorp still holds a portion of long-dated securities yielding less than 2%, which "will take some time to work through," potentially weighing on the bank's earnings performance until these are addressed.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | ~67% decline from ~$2,660 million in Q4 2023 to $865 million in Q4 2024 | Total Revenue declined dramatically due to a major impact from strategic repositioning—including a significant loss on sale of securities—and reduced fee‐based and interest income compared to the robust revenue levels seen in Q4 2023. |
Operating Income | Fell from $57 million in Q4 2023 to a loss of $413 million in Q4 2024 | Operating Income swung sharply into negative territory as the heavy securities-related losses overwhelmed the previously positive margins, reflecting both external market challenges and internal repositioning efforts that reversed prior gains. |
Net Income | Turned negative from $65 million in Q4 2023 to –$244 million in Q4 2024 | Net Income deterioration was driven by the same significant securities sale loss and revenue declines that eroded profitability, a stark contrast to the modest earnings observed in Q4 2023. |
Basic EPS | Dropped from $0.03 in Q4 2023 to –$0.28 in Q4 2024 | Basic EPS suffered due to the combination of revenue shortfalls and heavy operating losses, mirroring the sharp downturn in net income and reflecting the substantial impact of one-time losses relative to the prior period’s positive but marginal EPS. |
Cash and Cash Equivalents | Increased by about 36% from $1,276 million in Q3 2024 to $1,743 million in Q4 2024 | The liquidity position improved as a result of strategic balance sheet management, notably an increase in short-term investments and higher cash balances, contrasting with Q3 2024’s lower cash levels. |
Long-term Debt | Declined approximately 23% from $15,677 million in Q3 2024 to $12,105 million in Q4 2024 | Long-term Debt moderated significantly as KeyCorp undertook active debt reduction and capital management measures, a shift from the higher leverage observed in Q3 2024, likely in anticipation of changing market conditions. |
Dividend Payments | Surged from $23 million in Q3 2024 to $652 million in Q4 2024 | Dividend Payments escalated dramatically indicating an aggressive capital distribution move in Q4 2024, a marked departure from Q3 2024’s modest payout, potentially reflecting a shift in capital management strategy despite operating challenges. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Interest Income (NII) | Q4 2025 | no prior guidance | 10%+ higher than Q4 2024 | no prior guidance |
Net Interest Margin (NIM) | Q4 2025 | no prior guidance | 2.7% or better; may approach 2.8% | no prior guidance |
Net Interest Income (NII) | FY 2025 | no prior guidance | Up roughly 20% vs. FY 2024 | no prior guidance |
Average Loans | FY 2025 | no prior guidance | Down 2% to 5% vs. FY 2024 | no prior guidance |
Noninterest Income | FY 2025 | no prior guidance | Up at least 5% | no prior guidance |
Expenses | FY 2025 | no prior guidance | Up 3% to 5% vs. FY 2024 | no prior guidance |
Net Charge-Offs (NCOs) | FY 2025 | no prior guidance | 40–45 basis points | no prior guidance |
Nonperforming Assets (NPAs) | FY 2025 | no prior guidance | Expected to improve | no prior guidance |
Tax Rate | FY 2025 | no prior guidance | 21%–22% GAAP; 23%–24% TE | no prior guidance |
Deposit Betas | FY 2025 | no prior guidance | Mid-40% to high-40% range, nearing 50% by year-end | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Loan Growth Outlook | Q3: Stable outlook with consumer down $2–3B. Q2: Tepid demand. Q1: Weak demand, clients cautious. | Expects flat overall loan growth for 2025, with a $3B decline in consumer offset by 2%–4% commercial increases. | Slightly improved from prior quarters, but sentiment remains cautious. |
Credit Quality and Non-Performing Loans | Q3: Also stable, elevated charge-offs from a few idiosyncratic credits. Q2: NPLs remained low at 66 bps. Q1: Issues remained at historically low levels. | Stable to improving; NPLs up 4% but expected to decline by mid-2025. Net charge-offs down 26% sequentially. | Consistent stability, with a slightly more optimistic tone in Q4. |
Investment Banking and M&A Backlog | Q3: Near record backlog, up 10% QoQ. Q2: Pipeline near record and expected to fuel a stronger H2. Q1: Record M&A backlog; IB fees rose 17% y/y. | Second-strongest full-year fees ($221M in Q4), M&A pipelines remain at historically elevated levels. | Consistently strong, momentum sustained across all quarters. |
Net Interest Income, Deposit Betas, and Net Interest Margin | Q3: NII $964M, up 7%, deposit betas in low-mid 30s, NIM +13 bps. Q2: NII $899M; deposit beta ~53%, NIM +2 bps. Q1: NII down 4.5% sequentially; deposit beta just below 52%, NIM 2.02%. | NII up 10% sequentially, deposit betas ~45% by December, NIM up 24 bps. | Gradual improvement quarter by quarter, with higher NII and margin. |
Wealth Management and Mass Affluent Expansion | Q3: AUM $61B, 5,000 new households in Q3 alone. Q2: AUM $57.6B, mass affluent business gained 5,600 new households. Q1: 6,000 new households, AUM >$57B. | AUM at record $61.4B, added ~40,000 mass affluent households over two years. | Ongoing strength, continuing to add new clients and assets. |
Securities Portfolio Repositioning | Q3: First tranche ~$7B sold, reinvested at ~4.9% ; Q2: Not explicitly mentioned; Q1: Reduced duration and DVO1 to manage rate risk. | Sold $3B of securities at ~1.5% yield, reinvested at ~5.5%, providing a major NII tailwind. | Expanded repositioning efforts, driving higher yields and improved capital. |
Client Confidence | Q3: Not explicitly mentioned as “confidence,” though strong pipelines discussed. Q2: Clients hesitant to borrow due to rates and economic uncertainty. Q1: Reduced investment amid market volatility. | Survey of ~700 clients: 80% confident in growth but haven't started large CapEx. | Increasing optimism compared to prior quarters, though action still pending. |
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Net Interest Margin Outlook
Q: What is your NIM guidance for next year?
A: Management expects the Net Interest Margin (NIM) to approach 2.8% by year-end, consistent with the 2.7% plus guidance. If loan growth exceeds expectations, NIM could get closer to 2.8%. -
Loan Growth Expectations
Q: Can you elaborate on your loan growth assumptions?
A: The bank anticipates flat end-of-period loans for the year, with a $3 billion runoff in consumer loans offset by a 2% to 4% increase in commercial loans. Commercial loan pipelines are robust, and loan demand may pick up as clients begin investing in property, plant, and equipment. -
Capital Position and Securities Repositioning
Q: Will you do more securities repositioning given your strong capital?
A: While constantly evaluating opportunities, management does not plan any major securities repositioning like those in the third and fourth quarters. The current Common Equity Tier 1 (CET1) ratio is strong, and capital rules are yet to be finalized. -
Impact of M&A on Loan Demand
Q: Will a pickup in M&A increase loan demand?
A: A robust M&A market leads to higher loan demand as transactions often require financing. Management notes that private equity has significant capital ready to deploy, and increased M&A activity should benefit lending. -
Deposit Beta Expectations
Q: What deposit beta are you assuming in your NII guidance?
A: Deposit betas finished the year at 40%, approaching 45% by the end of the quarter. Management expects betas to reach the mid to high 40% range throughout the year, approaching 50% as the year progresses. -
Investments in Talent and Growth Strategy
Q: Is there an appetite to aggressively add talent for growth?
A: Yes, the bank will continue investing in the business, hiring wealth advisors and expanding the investment banking platform by 10%. They are committed to hiring groups of people and pursuing bolt-on acquisitions to drive growth. -
Credit Quality and Reserve Releases
Q: Should we expect further reserve releases in 2025?
A: Management expects credit metrics to peak, with stability or improvement throughout the year. While not anticipating significant reserve releases, they acknowledge potential minor adjustments based on portfolio performance. -
Long-term NIM Expectations
Q: Where do you see NIM in the longer term?
A: By 2026, management expects NIM to reach 3% or possibly higher, as the balance sheet continues to improve and market factors evolve. -
Balance Sheet Size and Earning Assets
Q: How should we think about average earning assets?
A: Average earning assets are expected to remain relatively flat throughout the year, with ongoing client deposit growth and balance sheet optimization. -
Capital Markets vs. Bank Lending Impact
Q: Does capital markets activity affect your loan growth?
A: The bank serves clients through both capital markets and lending. In times of active capital markets, they facilitate client funding needs through capital markets, which may temporarily reduce loan growth but strengthen client relationships.