KeyCorp Reports Mixed Third Quarter 2025 Results Amid Profit Margin Concerns

KeyCorp Reports Mixed Third Quarter 2025 Performance

KeyCorp (NYSE:KEY) announced its third-quarter 2025 financial results, reporting earnings per share (EPS) of $0.41 against analyst forecasts of $0.38, and revenues reaching $1.9 billion, exceeding the $1.88 billion expectation. Despite these beats, the company's stock experienced a pre-market decline of 3.5%, reflecting underlying investor caution.

Discrepancy Between Earnings Beat and Market Reaction

The market's muted response, with KeyCorp shares trading down at $17.11 pre-market, highlights investor concerns that extend beyond the headline earnings figures. A critical factor is the significant deterioration in the bank's net profit margins, which plummeted to 0.7% in Q3 2025 from 12.5% in the prior year. Furthermore, KeyCorp has seen its EPS decline by 35.3% annually over the past five years. This sustained pressure on profitability appears to overshadow the positive quarterly performance and strategic initiatives.

Conversely, the bank demonstrated robust operational growth in several areas. Adjusted revenue grew 17% year-over-year, driven by net interest income tailwinds and an 8% increase in adjusted noninterest income. The company successfully managed deposit costs, with average deposits reaching $150.4 billion, a $2.6 billion year-over-year increase. In wealth management, assets under management (AUM) hit a record $68 billion, an 11% increase from the previous year. KeyCorp also achieved its year-end target for Net Interest Margin (NIM) of 2.75% ahead of schedule, with management projecting it to be between 2.75-2.80% in Q4 2025.

Broader Context and Strategic Initiatives

From a valuation perspective, KeyCorp is currently trading at US$16.78, substantially below its estimated Discounted Cash Flow (DCF) fair value of US$28.61, indicating a potential 41.4% undervaluation. Its Price-to-Book (P/B) ratio of 1.1x is also considered attractive compared to a peer average of 1.4x for regional banks.

The company is actively pursuing strategic initiatives to bolster its financial performance. These include aggressive deposit management focusing on client deposit growth and optimizing funding costs, as well as wealth management expansion aimed at increasing fee-based income. These efforts are intended to drive a predicted rebound in noninterest income and profit margins. KeyCorp has also maintained dividend payments for an impressive 54 consecutive years, offering a current dividend yield of 4.62%.

"The tech-heavy Nasdaq recorded its best day since February, driven by a 4.5% jump in shares of NVIDIA Corp. (NVDA)." While this quote is not directly about KeyCorp, it provides a general example of market drivers. No specific expert commentary on KeyCorp was provided in the source materials beyond analyst forecasts.

Outlook and Potential Headwinds

Looking ahead, analysts forecast annual EPS growth of 13.9% and revenue growth of 6.4% per year for KeyCorp. More optimistically, profit margins are expected to rebound significantly to 31.0% within three years. Management has set a medium-term target to achieve a return on tangible common equity (RoTCE) of 15% or better by 2027 and aims to improve its NIM by 50 basis points to 3.25%. The company anticipates a record revenue year in 2025 and maintains a positive outlook for 2026, with plans to repurchase approximately $100 million of common stock in Q4 2025.

However, several primary risks could impede KeyCorp from achieving these targets:

• Regulatory Changes: Potential shifts in regulations focusing on safety and soundness could increase compliance costs and constrain lending.
• Market Volatility and Economic Conditions: Broader economic downturns could affect loan growth and deposit costs, impacting profitability.
• Interest Rate Fluctuations: While recent rate cuts benefited regional banks, unexpected changes could negatively impact the Net Interest Margin.
• Intense Competition: The highly competitive financial sector could pressure pricing and market share.
• Sector-Specific Risks: Dependencies on sectors like energy and healthcare could expose the bank to unique vulnerabilities.
• Investor Concerns: Persistent market skepticism, even after beating forecasts, underscores the challenge of rebuilding confidence amidst profit margin concerns.

The broader regional banking sector remains sensitive to signs of stress, and KeyCorp's challenges may signal wider issues for the industry, particularly after a prolonged period of elevated interest rates and events like the Silicon Valley Bank collapse.