Morningstar

KeyCorp Earnings: Continued Net Interest Margin Expansion, but Medium-Term Targets Seem Ambitious

We plan to raise our fair value estimate of KeyCorp stock.

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Securities in This Article
KeyCorp
(KEY)

Key Morningstar Metrics for KeyCorp

What We Thought of KeyCorp’s Earnings

KeyCorp KEY delivered strong third-quarter results. Net interest income grew 24% year over year, and reported earnings per share came in at $0.41, a 37% increase from the year-ago period. The results translate into a return on tangible common equity of 12.5%.

Why it matters: Net interest margin expanded to 2.75%, up 9 basis points from the previous quarter and 58 basis points from the prior-year quarter. Continued fixed-asset repricing and the maturity of lower-yielding hedges were the two largest drivers of the year-over-year NIM expansion.

  • KeyCorp now expects its fourth-quarter 2026 NIM exit rate to be 3% and its fourth-quarter 2027 NIM exit rate to be 3.25% (medium-term level), both ahead of our current expectations. We acknowledge that our current 2.60% NIM forecast for 2026 is too conservative, and we plan to increase it to around 2.75%.
  • We don’t expect the bank to hit 3.25% NIM as a normalized level. From 2010 to 2019, the bank’s highest NIM was around 3.18%, and it had a loan/deposit ratio of above 80% and a non-interest-bearing deposit mix of 29%-37%.

The bottom line: As we incorporate the latest results and guidance, we expect to increase our $19.20 fair value estimate for no-moat-rated KeyCorp by low single digits to reflect a higher 2026 net interest margin. We assess the shares as undervalued. We think the market might be concerned about recent rumors that KeyCorp made a high bid for FirstBank. In early September, PNC announced an agreement to acquire the Colorado-based bank for $4.1 billion.

  • KeyCorp CEO and Chair Chris Gorman said he would like to focus on organic growth and drive the bank toward a 15% return on tangible common equity target in the medium term.
  • We agree with Gorman that KeyCorp should prioritize internal investments and organic growth. As the bank has excess capital on its balance sheet, buying back shares around the current price level would also be accretive to shareholders.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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