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Keysight: The AI and Defense Stock Seeing Big Price Target BoostsKeyCorp NYSE: KEY reported higher second-quarter 2026 earnings and raised parts of its full-year outlook, citing stronger commercial loan growth, expanding net interest income and continued momentum in fee-based businesses, while management also addressed investor questions about margin performance, deposit growth and the timing of a recovery in middle-market investment banking.

Chairman and Chief Executive Officer Chris Gorman said KeyCorp earned $0.44 per share in the quarter, up 26% from a year earlier. Revenue rose 7% year-over-year, while pre-provision net revenue increased 9%. The bank’s net interest margin expanded sequentially to 2.89%, and Gorman said the company remains on track to meet or exceed a 3% margin by year-end.

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Banks Are Buying Back Stock Hand Over Fist, Including These 3 Names“Our second quarter results reflect strong business momentum and continued progress against our strategic and financial commitments,” Gorman said.

Commercial Lending Drives Growth KeyCorp’s commercial loan growth was a central focus of the call. Gorman said period-end commercial and industrial loans increased $2.1 billion, or 3%, sequentially, reflecting new client wins and deeper existing relationships. Chief Financial Officer Clark Khayat said average loans rose $2.3 billion sequentially, while period-end loans increased $1.2 billion, as C&I growth was partly offset by the planned runoff of lower-yielding consumer loans.

Intel's New Orbit: From Chip Lag to Leading EdgeKhayat said growth was broad-based across industries and regions, with the largest contributors including utilities, power and renewables, real estate and technology. He also noted that C&I line utilization declined 50 basis points sequentially to 31%, driven by higher commitments.

Management said the bank is intentionally pursuing higher-quality commercial relationships, even where spreads may be somewhat lower. Gorman said about 58% of KeyCorp’s C&I loans are investment grade, and he emphasized that lending is intended to lead to broader relationships in payments, hedging, advisory and other services.

“In order to get the kind of returns that we have to get, we’ve got to do a lot more things for them,” Gorman said.

Guidance Raised on Loan Momentum KeyCorp raised several full-year 2026 guidance metrics. Khayat said the bank now expects revenue to grow 7% to 8%, compared with previous guidance of approximately 7%. Full-year net interest income is now expected to increase 9% to 11%, compared with the prior range of 9% to 10%.

The company also raised its average loan growth forecast to 4% to 5%, from 2% to 4%, and now expects average commercial loans to increase 8% to 10% this year.

Khayat said the updated outlook reflects strong first-half loan growth, success adding and expanding client relationships, and healthy commercial loan pipelines. Gorman said the bank expects revenue to grow about twice as fast as expenses in 2026, producing substantial positive operating leverage.

KeyCorp expects to exit the year with a net interest margin of 3% to 3.05%. Khayat said more than $9 billion of low-yielding fixed assets are expected to reprice through year-end, with a pickup of about 1.25%, helping support margin expansion. He also said the bank expects average client deposits to grow by more than 2% through year-end, largely from core operating deposits.

Deposit Costs and Margin Questions Draw Analyst Focus Analysts repeatedly questioned management about the bank’s margin trajectory after second-quarter net interest margin rose less than expected. Khayat said the quarter reflected stronger-than-expected loan growth, tighter spreads on higher-quality loans and a temporary need for wholesale funding as deposits reached a seasonal low in May.

“We chose to fill that with wholesale funds rather than reprice the client deposit base because the expectation is we’re going to see some good deposit growth here in the second half,” Khayat said.

Average deposits were relatively flat sequentially and year-over-year, while total deposit costs declined two basis points to 1.63%. Average non-interest-bearing deposits increased 2.3% sequentially and represented 19% of total deposits, or 24% when adjusted for hybrid accounts. Khayat said end-of-quarter deposit balances of $153 billion were temporarily elevated by about $4 billion because of transaction timing among relationship clients.

In response to investor questions, Khayat said KeyCorp has good visibility into expected deposit growth, largely from commercial relationship clients. Gorman added that the bank has been focused for years on primacy in commercial relationships, saying KeyCorp has primacy in 82% of its commercial deposits.

Fee Businesses Show Mixed Trends KeyCorp’s fee-based businesses remained an area of emphasis. Gorman said investment banking, commercial payments and wealth collectively grew 8% in the first half of 2026 compared with the first half of 2025.

Investment banking and debt placement fees totaled $169 million in the second quarter. For the first half, investment banking fees were $366 million, up 4% from the year-ago period. Gorman acknowledged that investment banking results were below the company’s expectations in the quarter but said pipelines remain strong. Khayat said overall investment banking pipelines were up 9% from the prior quarter, while M&A pipelines rose 7% to a record level.

KeyCorp expects third-quarter investment banking fees to be up more than 20% sequentially and continues to target mid-single-digit investment banking fee growth for the full year. Gorman said middle-market M&A activity has lagged larger transactions, noting that 40% of KeyCorp’s investment banking fees are driven by private equity.

“I think we are in the early innings of the renaissance of middle market M&A,” Gorman said in response to an analyst question.

In commercial payments, Gorman said total gross payment fees increased 12% year-over-year, helped by investments in bankers and embedded banking. In wealth management, assets under management reached a record $74 billion. Since launching its Mass Affluent strategy in 2023, KeyCorp has added 59,000 households, more than $4 billion of assets under management and nearly $8 billion of total client assets, Gorman said.

Credit, Capital and Strategic Investments Asset quality remained broadly stable, though non-performing assets increased. Khayat said net charge-offs were $115 million, or 42 basis points of average loans, and criticized loans were relatively stable at 4.9%. Non-performing assets rose $126 million sequentially to 74 basis points of loans, largely tied to three credits in real estate, consumer goods and agriculture.

Chief Risk Officer Mohit Ramani said the migration was not related to private credit and did not indicate a broader macro trend. He said KeyCorp continues to expect full-year net charge-offs of 40 to 45 basis points.

“Overall, we don’t feel like a lot of loss content relative to this move,” Ramani said.

KeyCorp reported a CET1 ratio of 11.2% and a marked CET1 ratio of 9.8% at quarter-end. Gorman said the company repurchased more than $340 million of common stock during the quarter and remains on pace to repurchase at least $1.3 billion for the year. Khayat suggested investors assume about $300 million of repurchases per quarter in the second half.

The company also announced an agreement during the quarter to acquire Clearwater U.K., which Gorman described as a strategic extension of KeyCorp’s middle-market advisory franchise. He said the transaction, expected to close in the second half of 2026, will expand the bank’s ability to serve M&A clients and prospects internationally.

Gorman said that despite macroeconomic uncertainty, KeyCorp enters the second half of the year with strong momentum and remains confident in its ability to generate a return on tangible common equity above 15% by the end of 2027, on the way to its longer-term 16% to 19% target.

About KeyCorp (NYSE:KEY)KeyCorp is a bank holding company headquartered in Cleveland, Ohio, that operates through its primary banking subsidiary, KeyBank. It provides a broad range of banking and financial services to individual consumers, small businesses, middle-market companies and large corporations. KeyBank's offerings span traditional deposit and lending products as well as more specialized financial solutions designed for commercial and institutional clients.

The company's product and service mix includes retail banking products such as checking and savings accounts, consumer and residential mortgage lending, and auto financing.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected].

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Key Takeaways KeyCorp's Q2 earnings are expected to rise 20% y/y, while sales are projected to increase 8%.Robust C&I loan demand and stable funding costs may lift KeyCorp's NII 10% to $1.26 billion.Higher trust, deposit and payments income may offset weaker mortgage banking fees at KeyCorp. KeyCorp (KEY - Free Report) is slated to announce second-quarter 2026 results on July 21, before the opening bell. The overall impressive lending scenario in the quarter is likely to have supported the company’s net interest income (NII).

Per the Fed’s latest data, the demand for commercial and industrial (C&I) loans (accounting for roughly 50% of KeyCorp’s average loan balances) was robust in the to-be-reported quarter, while the demand for consumer loans was comparatively modest. Thus, this is likely to have supported the company’s overall loan growth in the second quarter.

The Zacks Consensus Estimate for KEY’s average earning assets is pegged at $172.2 billion, indicating a 1.3% rise from the prior-year quarter.

After cutting rates in 2025, the Federal Reserve has paused interest rate cuts and signaled a hike later in the year. This, along with a solid lending scenario, decent economic growth and stabilizing funding/deposit costs, is expected to have supported KEY’s NII.

The consensus estimate for NII (on a fully tax-equivalent basis) is pegged at $1.26 billion, indicating a year-over-year jump of 10%.

Other Factors to Influence KeyCorp’s Q2 EarningsNon-Interest Income: The second quarter was challenging for the mortgage banking business. It was characterized by elevated mortgage rates, hovering at mid-6% range, and low affordability. While purchase volumes faced pressure from inventory constraints, refinancing activity saw a slight boost as rates were lower than the prior-year quarter level. Given this, income from KEY’s mortgage banking business is less likely to have recorded much improvement.

The Zacks Consensus Estimate for commercial mortgage servicing fees of $58 million implies a 17.1% year-over-year decline. Likewise, the consensus estimate for consumer mortgage income of $13.26 million indicates an 11.6% fall. Management projects commercial mortgage servicing fees of $50-$60 million for the second quarter.

As the quarter witnessed a solid increase in asset inflows, the consensus estimate for KEY’s trust and investment services income of $160.9 million indicates a 10.2% rise from the prior-year quarter.

Higher client activity and volatility in the capital markets, along with industry-wide decent deal-making activities, an impressive IPO market and solid bond issuances, are expected to have supported KeyCorp’s corresponding fee income in the to-be-reported quarter. The consensus estimate for investment banking and debt placement fees of $181.2 million indicates a 1.8% rise. The company projects the metric between $175 million and $180 million.

Management anticipates average deposit balances to be stable to slightly up, with June 30 ending balances expected to be higher. As such, the Zacks Consensus Estimate of $78.9 million for service charges on deposit accounts implies 8.1% year-over-year growth. With an improvement in consumer spending in the to-be-reported quarter, the consensus estimate for cards and payments income of $87.5 million indicates growth of 3%.

Overall, the consensus estimate for KeyCorp’s total non-interest income of $709.4 million suggests an improvement of 2.8% from the prior-year quarter.

Expenses: KeyCorp’s efforts to reorganize operations and exit unprofitable/non-core businesses have helped it save costs in the past. Also, the company’s initiatives to drive operational efficiency are likely to have curbed expense growth in the to-be-reported quarter. Yet, investments in franchises and technological upgrades are expected to have resulted in a rise in total non-interest expenses.

Asset Quality: KEY is unlikely to have set aside a substantial amount for potential loan delinquencies in the second quarter, given the modest improvement in the operating environment, supported by resilient economic growth, broadly stable credit conditions and the announced ceasefire in the Middle East. However, robust lending and persistently higher inflation are likely to have weighed on provision numbers.

What the Zacks Model Predicts for KeyCorpPer our proven model, the chances of KeyCorp beating the Zacks Consensus Estimate for earnings are low this time. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.

You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for KeyCorp is -0.34%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Q2 Earnings & Sales Growth Expectations for KeyCorpThe Zacks Consensus Estimate for KEY’s earnings is pegged at 42 cents per share, which has been unchanged over the past week. The figure indicates a 20% rise from the prior-year quarter.

The consensus estimate for quarterly sales is pegged at $1.98 billion, indicating a year-over-year increase of 8%.

KeyCorp’s Peer Stocks Worth ConsideringHere are a couple of KEY’s peers that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

Truist Financial (TFC - Free Report) is scheduled to announce second-quarter 2026 results tomorrow. The company has a Zacks Rank #3 at present and an Earnings ESP of +0.23%.

Quarterly earnings estimates for Truist Financial have been unchanged at $1.08 per share over the past week.

The Earnings ESP for Regions Financial (RF - Free Report) is +0.25% and it carries a Zacks Rank of 3 at present. The company is slated to report second-quarter 2026 results tomorrow. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past seven days, the Zacks Consensus Estimate for Regions Financial’s quarterly earnings has been unchanged at 64 cents.