KEY-PL — KeyCorp

Key Financial Results and Metrics

• Earnings Per Share (EPS): $0.44, up 33% year-over-year.
• Return on Tangible Common Equity (ROTCE): Exceeded 13%, with a goal of 15%+ by year-end 2027.
• Revenue Growth: Increased by 10% year-over-year, with adjusted pre-provision net revenue growing by an additional $29 million sequentially.
• Net Interest Margin (NIM): Expanded by 5 basis points to 2.87%, with a target to exceed 3% by year-end.
• Commercial Loan Growth: Increased by $3.3 billion (4% sequentially), with strong performance across industries.
• Funding Costs: Total funding costs declined by 15 basis points, with interest-bearing deposit costs down by 22 basis points.
• Asset Quality: Net charge-off ratio at 38 basis points; nonperforming assets increased by $65 million but remain below historical levels.

Strategic Updates and Business Highlights

• Share Repurchase: Nearly $400 million of common stock repurchased, exceeding the $300 million commitment; plans to buy back at least $1.3 billion in 2026.
• Investment in Technology: Approximately $1 billion allocated for technology improvements, including AI applications to enhance client experiences.
• Client Growth: Commercial clients up 3%, relationship households up 2%. Significant growth in fee-based businesses (Wealth, investment banking, commercial payments) at 12%.
• Capital Raising: Nearly $47 billion raised on behalf of clients, retaining 19% on the balance sheet.
• Hiring Initiatives: Continued recruitment of bankers in various sectors, including a new middle market banking team in Atlanta.

Forward Guidance and Outlook

• Net Interest Income (NII): Revised full-year growth expectation to 9%-10%, up from 8%-10%.
• Loan Growth: Average loans expected to increase by 2%-4%, with commercial loans projected to grow 6%-8%.
• Investment Banking Fees: Anticipated decline in Q2 fees but projected mid-single digit growth for the full year.
• CET1 Ratio: Expected marked CET1 ratio improvement of over 100 basis points with the proposed Basel III changes.

Bad News, Challenges, or Points of Concern

• Economic Uncertainty: Ongoing macroeconomic volatility may impact loan demand and client sentiment.
• Investment Banking Activity: M&A activity remains subdued, with mid-single digit growth expectations reflecting a cautious outlook.
• Deposit Trends: Average deposits decreased by 2% sequentially, driven by seasonal patterns and intentional runoff of higher-cost brokered CDs.
• Credit Quality Monitoring: While overall credit quality remains strong, there are emerging concerns in specific sectors like utilities and multifamily real estate.

Notable Q&A Insights

• Client Sentiment: Positive consumer metrics; however, commercial clients are cautious due to geopolitical volatility.
• NDFI and Private Credit: Increased scrutiny on private credit, with a noted firming of spreads in recent months.
• Deposit Competition: Expectations for stable deposit pricing, with potential intensification if loan growth accelerates.
• Long-Term Opportunities: Potential for growth in manufacturing reshoring and AI-related investments, though still in early stages.
• Operational Risks in Payments: Emphasis on managing operational and reputational risks as the payments business expands.

Overall, KeyCorp reported a strong first quarter with significant growth in earnings and revenue, while maintaining a cautious outlook on macroeconomic conditions and investment banking activity. The company is focused on strategic investments in technology and talent to drive future growth.