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Contractual repricing of $30 billion in fixed-rate swaps, securities, and loans through 2027 driving net interest margin expansion from 2.89% to above 3.25% in Q4 2027, unlocking double-digit earnings growth and multiple re-rating,.
Nonperforming loans to portfolio loans escalating above 1.25% due to commercial real estate and multifamily default contagion.
KeyCorp is rated Buy with a central fair value of $22.75 against an October 9, 2026 share price of $19.97, offering 13.92% implied upside supported by a $30 billion fixed-rate asset repricing pipeline through 2027 and at least $1.3 billion in planned FY2026 share buybacks,,.45
KeyCorp's second quarter 2026 results demonstrated accelerating operational momentum. Net interest margin expanded by 23 basis points year-over-year to 2.89%, while net interest income grew 9% to $1.26 billion, driven by balance sheet reinvestment and 11.9% year-over-year growth in commercial and industrial loans to $62.7 billion. The bank delivered 130 basis points of positive operating leverage year-over-year, lifting diluted EPS by 26% to $0.44.
At $19.97 per share, KeyCorp trades at a 12.22% discount to its central fair value estimate of $22.75, and carries a forward P/E of 9.89x, broadly aligned with regional peers CFG (9.75x) and RF (9.49x). With regulatory Common Equity Tier 1 capital solid at 11.2%, KeyCorp is executing on an authorized $3.0 billion share repurchase authorization, targeting at least $1.3 billion in 2026 buybacks,.345
Key risks to the investment thesis center on credit migration and deposit pricing dynamics. Q2 2026 nonperforming loans rose 18.6% sequentially to $809 million (0.73% of loans) due to idiosyncratic stress in multifamily, consumer, and agricultural credits,. Furthermore, regional deposit competition requires careful beta management to avoid eroding margin expansion. However, strong credit loss coverage of 213% against NPLs provides a robust buffer.5
Maturing low-yielding securities, swaps, and loans across $30 billion of assets provide predictable, compounding net interest income growth through 2027.5
Management guidance to grow revenues two times faster than expenses in FY2026 ensures pre-provision net revenue outpaces balance sheet growth,.5
At least $1.3 billion in common share repurchases in 2026 coupled with a 4.1% dividend yield delivers top-tier capital return among regional peers,.
KeyCorp is rated Buy with a central fair value of $22.75, representing 13.92% implied upside from the October 9, 2026 share price of $19.97. High-visibility net interest margin expansion, disciplined overhead management, and significant share buybacks underpin an attractive risk-adjusted total return profile.4
KeyCorp is an established bank-based financial services holding company headquartered in Cleveland, Ohio, with roots tracing back over 200 years. As of June 30, 2026, the company operated approximately $191.3 billion in total assets and $147.6 billion in average deposits, serving commercial and retail clients across 15 states via 939 branches and 1,107 automated teller machines.
Operations are conducted primarily through two main segments: the Commercial Bank and the Consumer Bank. The Commercial Bank provides corporate banking, cash management, derivatives, syndicated finance, and capital markets advisory under KeyBanc Capital Markets across specialized industry sectors, generating $939 million in FY2025 revenue,. The Consumer Bank delivers retail deposit gathering, residential mortgages, home equity lending, and wealth management ($74.2 billion in assets under management), generating $810 million in FY2025 revenue,.
Under a joint stress test incorporating a severe commercial credit downturn, rising deposit costs, and persistent unrealized securities losses, KeyCorp's earnings power faces sharp contraction. Credit provisions doubling to absorb NPLs rising above 1.25% would eliminate approximately $200M in annual pre-tax earnings. Concurrently, if deposit competition suppresses NIM to 2.75%, net interest margin would compress by 14 basis points (or 30 basis points against the 3.05% exit target). In this severe stress environment, return on tangible common equity would fall toward 6%–7%, down from 12.89% in Q2 2026, compelling the board to suspend the planned $1.3B share repurchase program to safeguard capital against its $2.15B AOCI deficit.
KeyCorp commands a narrow competitive moat derived from its entrenched regional branch infrastructure across 15 states and strong relationship switching costs in middle-market commercial banking. In Q2 2026, KeyCorp managed $191.3B in total assets and $147.6B in average deposits, demonstrating enduring franchise stability across core Midwestern and Pacific Northwestern markets.
The Commercial Bank segment generates durable returns through targeted industry verticals, where 91% of commercial borrowers maintain multi-product relationships spanning treasury management, syndicated finance, and derivatives. This integration supports an operating margin structure competitive with regional peers CFG (35.13%), RF (39.32%), and FITB (39.08%).
On the retail banking side, KeyCorp's branch and ATM network provides stable funding, with non-interest-bearing deposits making up 19% of total deposits (24% including hybrid accounts). Although digital platforms and aggressive pricing by regional competitors challenge retail deposit retention, primary checking account growth of 3% household expansion in Q2 2026 underscores ongoing customer retention.
The highlighted cell is Fair value when every assumption sits at its base level ($22.75). Each row and column shows what Fair value becomes when one assumption moves.
A free-cash-flow drop test is not available in this run; use the discount-rate and terminal-growth grid as the primary valuation pressure test.
A quarterly beat driven by accelerated net interest margin expansion and commercial loan growth reaffirms the core repricing thesis, validating ongoing positive operating leverage and capital returns.
KeyCorp expanded commercial and industrial loans by 11.9% year-over-year in Q2 2026 to $62.7 billion, while consumer loans contracted 7.4% to $28.9 billion through the intentional run-off of low-yielding residential mortgages and consumer paper. Overall earning assets are guided to grow by $1.0B to $2.0B from 2Q26 levels.
In a bull cycle, accelerating commercial borrowing demand, benign credit performance, disciplined regional deposit pricing, and sustained reinvestment of fixed-rate assets at higher market yields drive expanding margins and double-digit return on tangible equity.
In a bear cycle, rapid deposit disintermediation, severe credit quality erosion across commercial real estate and multifamily loans, and unexpected Federal Reserve rate cuts compress asset yields faster than deposit costs can be re-priced downwards.
A moderate conviction rating reflects strong catalyst visibility from the $30B asset repricing schedule through 2027 and $1.3B+ in FY2026 share buybacks, balanced against macro sensitivity to regional deposit betas and commercial real estate credit migration.5
Risk management focuses on credit quality surveillance in commercial real estate and multifamily portfolios, where criticized loans ticked up in Q2 2026. Exposure to regional deposit rate competition is managed by monitoring quarterly deposit beta trends. Position sizing is capped at 5% to limit exposure to single-name regional bank regulatory risks.
KeyCorp trades at 9.89x forward P/E, a 12.22% discount to intrinsic fair value of $22.75. The valuation undervalues the predictable earnings lift from $30B in asset repricing through 2027 relative to regional peers CFG (9.75x), MTB (10.33x), and FITB (10.23x).34
With a 4.1% dividend yield ($0.82 per share annually) and at least $1.3B in share repurchases in FY2026 (~6% of shares), total capital return yield exceeds 10%, backed by an estimated 11.2% CET1 ratio.5
Tactical investors should monitor near-term credit migration following the 18.6% sequential rise in NPLs in Q2 2026, waiting for confirmation of credit stabilization before expanding beyond base position allocations.
KeyCorp is rated Buy based on a central fair value of $22.75 per share, representing 13.92% implied upside from the October 9, 2026 share price of $19.97.4
The investment case is anchored by high-visibility margin expansion from $30B of fixed-rate asset repricing through 2027, positive operating leverage from strict overhead discipline,, and substantial capital return via at least $1.3B of planned 2026 common share buybacks supported by an 11.2% CET1 ratio,.
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The records this analysis drew on, as they stood when it was run.
In the Bear scenario, regional deposit competition intensifies, driving deposit betas higher and erasing asset repricing gains. Commercial real estate and multifamily credit distress leads to higher charge-offs and elevated provisioning, depressing return on tangible equity. In response to capital constraints and regulatory pressure, management suspends share repurchases, leading to a derating of valuation multiples.
Chief Risk Officer confirmed rising criticized loans and NPLs in multifamily and commercial portfolios, with Q2 2026 NPLs jumping 18.6% sequentially to $809M (0.73% of loans) and charge-offs rising to 0.42%. An escalation of NPLs above 1.25% would necessitate doubling credit loss provisions, halting buybacks, and compressing ROE toward 6%-7% as modeled in the bear scenario.5
Management targets NIM expansion to 3.0%-3.05% exit 2026, but noted intensifying deposit competition in regional markets requiring higher CD and MMDA promotional rates,. If deposit betas spike and NIM drops below 2.75% (down from 2.89% in Q2 2026), operating margin contracts by over 300 bps, eradicating guided operating leverage,.5
The base thesis assumes KeyCorp sustains a terminal P/E multiple of 10.0x, in line with peers CFG (9.75x) and RF (9.49x). If regulatory pressure on Category IV banks increases capital constraints due to KeyCorp's $2.15B AOCI loss while Midwest growth lags peers, KeyCorp's multiple derates 20% to 8.0x, destroying equity upside.35
The five developments that would weaken our investment case.
Acceleration of criticized commercial real estate and multifamily loans migrating to nonaccrual status, requiring doubled provisioning and threatening common share repurchases,.
Current:0.73% ($809M in Q2 2026)
Alert if> 1.25% of portfolio loans
Intensifying regional deposit competition driving promotional CD and MMDA rates higher, spiking deposit betas and eradicating guided operating leverage,.
Current:2.89% (Q2 2026)
Alert if< 2.75% taxable-equivalent margin
Widening accumulated other comprehensive income unrealized losses combined with RWA growth restricting capital flexibility and triggering regulatory distribution caps,.
Current:9.8% (Q2 2026)
Alert if< 9.0% marked CET1
Net charge-offs breaching the upper bound of guided 40-45 bps full-year range due to idiosyncratic borrower distress in commercial portfolios,.
Current:0.42% ($115M in Q2 2026)
Alert if> 0.55% of average loans
Expense inflation exceeding guided 3%-4% full-year range, turning operating leverage negative and eliminating pre-provision net revenue growth,.
Current:5.46% YoY in Q2 2026
Alert if> 5.0% full-year expense growth
With a moderate cost of equity estimated at 8.73%, KeyCorp generated an annualized return on average tangible common equity of 12.89% in Q2 2026, generating positive economic profit above its hurdle rate. Management targets ROTCE exceeding 15% by year-end 2027, supported by structural fixed-rate asset repricing.2
Each lens answers a different valuation question. Only included lenses set Fair value; floors and diagnostics provide context.
Project SBC-adjusted EPS, discount each year's earnings at cost of equity, then add a Gordon-growth terminal value.
Under the moderate discount rate, $7.60 comes from forecast-period earnings and $29.84 from the long-term value, totaling $37.44.
Project EPS through the explicit advantage period, fade growth as competition catches up, and discount the full stream at cost of equity.
Apply a terminal P/E to the dated forward EPS path, then discount that future share value back to the analysis date.
Discount the explicit dividend path and its Gordon-growth terminal value at cost of equity.
Solve for the growth rate that makes the model value equal the report-date share price.
The Base scenario reflects the modal expected operating path. Structural fixed-rate repricing across the asset pipeline steadily lifts net interest margin into the guided range by late FY2026. Controlled overhead expansion generates positive operating leverage, advancing diluted EPS toward consensus targets in FY2026 and FY2027. Capital generation funds the planned share repurchase program while maintaining robust regulatory capital ratios.15
In the Bull scenario, KeyCorp accelerates fixed-rate asset reinvestment at premium yields while deposit costs fall faster than expected due to disciplined beta management. Commercial borrowing surges across KeyBanc Capital Markets verticals, lifting C&I loan growth and investment banking fees. Operating efficiency improves rapidly, driving ROTCE expansion and supporting enhanced capital return, propelling valuation toward $35.57.
In-line results confirm that structural fixed-rate asset repricing is progressing as guided, keeping full-year targets of 7%-8% revenue growth and 9%-11% net interest income growth on track,.
A miss driven by net interest margin contraction below 2.80% or nonperforming loans exceeding 0.95% signals that deposit competition or credit deterioration is eroding operating leverage and endangering capital return targets.
KeyCorp's earnings quality is supported by a clean GAAP revenue and operating structure without material non-GAAP adjustments in Q2. Diluted EPS matched GAAP net income from continuing operations attributable to common shareholders. Asset quality reflected a modest credit reserve release based on economic scenario modeling and commercial loan mix improvement, while net charge-offs remained disciplined across average loans. Core net interest income provided the predominant share of total taxable-equivalent revenue, reinforcing underlying operational consistency.
Consensus estimate momentum is positive post-Q2 2026 earnings release. FY2026 consensus EPS estimates moved up from $1.83 on 2026-10-05 to $1.84 on 2026-10-10. FY2027 consensus EPS estimates rose from $2.13 to $2.15 over the same period. Revenue consensus similarly increased, with FY2026 rising to $8.10B from $8.09B and FY2027 expanding to $8.66B from $8.62B.
Serves as the primary operational gauge of the $30B fixed-rate asset repricing pipeline through 2027.5
Monitors credit quality migration following an 18.6% sequential jump in NPLs in multifamily, consumer, and agricultural loans.5
Measures KeyCorp's ability to retain sticky funding amidst competitive promotional pricing in regional markets.5
Validates management's core thesis driver of growing revenues twice as fast as expenses in FY2026.5
Direct driver of EPS accretion and tangible book value growth.
| $1.82B |
| $1.59B |
| $1.44B |
| $1.64B |
| $1.75B |
| -1.0% |
| Gross profit | $7.46B | $7.03B | $5.73B | $4.06B | $6.97B | -1.7% |
| Operating income | $3.25B | $3.22B | $1.16B | $-306.0M | $2.30B | -8.3% |
| Net income | $2.63B | $1.92B | $967.0M | $-161.0M | $1.83B | -8.6% |
| EPS (diluted) | $2.63 | $1.93 | $0.88 | $-0.32 | $1.52 | -12.8% |
| EBITDA | $3.29B | $3.36B | $1.31B | $-233.0M | $2.33B | -8.3% |
| R&D | — | — | — | — | — | — |
| SG&A | $2.69B | $2.66B | $2.66B | $2.78B | $3.20B | +4.4% |
As a regulated financial institution, KeyCorp's cash generation is driven by net interest income and fee generation. In FY2025, operating cash flow was $2.21B and free cash flow reached $2.10B, against capital expenditures of $107M (compared to $65M in FY2024 and $142M in FY2023). Stock-based compensation was $132M in FY2025. Robust liquidity is underscored by $174.2B in total earning assets and $12.4B in short-term investments.67
KeyCorp's capital allocation hierarchy explicitly prioritizes supporting core client relationship lending first, investing in strategic capabilities second, sustaining the quarterly dividend third ($0.21 per share, $0.82 annualized), and repurchasing shares fourth. Supported by an estimated 11.2% CET1 ratio (well above regulatory benchmarks), the board authorized a $3.0B common share repurchase program, with management expecting to repurchase at least $1.3B in shares during FY2026 ($341M repurchased in Q2 2026 at an average price of $21.95),.
KeyCorp's return profile is on an improving trajectory, driven by fixed-rate asset repricing and disciplined non-interest expense containment. The bank generated an annualized ROTCE of 12.89% in Q2 2026 (up 180 bps YoY), with management targeting ROTCE > 15% by Q4 2027. Baseline ROE of 10.33% and expanding operating margins (projected to reach 39.0% by FY2030) confirm widening economic value creation.
Return on average tangible common equity of 12.89% in Q2 2026 comfortably exceeds KeyCorp's cost of equity of 8.73%, generating an economic value spread of over 415 basis points.
Management affirmed that between Q2 2026 and December 31, 2027, approximately $30B of fixed-rate assets reprice across swaps, securities, and loans, after Q2 2026 NIM expanded 23 bps YoY to 2.89%.
Reinvestment of maturing low-yielding assets provides sustained margin accretion toward the guided 3.00%–3.05% exit rate for FY2026 and >3.25% in Q4 2027,.
Management guidance projects FY2026 revenue growth of 7% to 8% against operating expense growth of 3% to 4%, producing 130 bps of operating leverage in Q2 2026.
Overhead containment allows net interest income growth to flow directly to pre-provision net revenue, lifting projected operating margins from 36.5% in FY2026 to 39.0% by FY2030.
Q2 2026 average commercial loans grew 10.3% YoY to $76.2B (C&I up 11.7% to $62.1B), while consumer loans contracted 7.4% YoY to $29.1B due to intentional run-off of low-yielding residential mortgages.
Reallocating balance sheet capacity into higher-yielding commercial relationships strengthens corporate fee generation in syndications and payments.
| Revenue | $6,308,000,000 |
|---|---|
| Cost of revenue | $474,000,000 |
| Gross profit | $5,834,000,000 |
| Operating expenses | $3,906,000,000 |
| Operating income | $1,928,000,000 |
| Non-operating items and tax | -$632,000,000 |
| Net income | $1,296,000,000 |
| Total assets | $184,381,000,000 |
|---|---|
| Cash | $1,287,000,000 |
| Current assets | $118,702,000,000 |
| Total liabilities | $164,000,000,000 |
| Current liabilities | $154,083,000,000 |
| Shareholders’ equity | $20,381,000,000 |
| Net income | $1,829,000,000 |
|---|---|
| Operating inflow | $2,208,000,000 |
| Depreciation and amortization | $87,000,000 |
| Stock-based compensation | $132,000,000 |
| Other operating adjustments | $160,000,000 |
| Operating cash flow | $2,208,000,000 |
| Cash available | $7,170,000,000 |
| Beginning cash | $1,743,000,000 |
| Investing inflow | $3,219,000,000 |
| Financing outflow | $5,883,000,000 |
| Share repurchases | $200,000,000 |
| Dividends paid | $1,054,000,000 |
| Net debt repayment | $3,556,000,000 |
| Other financing activities | $1,073,000,000 |
| Ending cash | $1,287,000,000 |
| Investing cash flow | $3,219,000,000 |
| Financing cash flow | -$5,883,000,000 |
Point-in-time financial data used in the 2026-10-10 analysis.
| Period | Revenue | EBITDA | Net income | Operating cash flow | Free cash flow | Capex | Depreciation and amortization | Stock-based compensation | Share repurchases | Dividends paid | Net debt issuance | Investing cash flow | Financing cash flow | Beginning cash | Ending cash | Cash and investments | Total debt | Operating margin | ROIC | WACC | ROIC − WACC spread |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2016-12-31 | $5B | $1.3B | $791M | $1.7B | $1.5B | $145M | $123M | $99M | $140M | $335M | — | -$6.5B | $4.8B | — | $677M | $3.5B | $12.4B | 19.3% | — | 4.9% | — |
| 2017-12-31 | $6.3B | $2.3B | $1.3B | $1.8B | $1.7B | $112M | $138M | $100M | $664M | $480M | — | -$2.2B | $418M | $677M | $671M | $5.1B | $14.3B | 30.6% | — | 4.0% | — |
| 2018-12-31 | $1.3B | $2.6B | $1.9B | $2.5B | $2.4B | $99M | $131M | $99M | $1.1B | $656M | — | -$2.5B | -$17M | $671M | $678M | $3.2B | $13.7B | 167.4% | — | 5.1% | — |
| 2019-12-31 | $1.3B | $2.3B | $1.7B | $2.9B | $2.8B | $85M | $118M | $96M | $835M | $804M | — | -$4.9B | $2.1B | $678M | $732M | $2B | $12.4B | 155.3% | — | 5.5% | — |
| 2020-12-31 | $1.4B | $1.7B | $1.3B | $1.7B | $1.6B | $63M | $115M | $101M | $134M | $829M | — | -$24.7B | $23.4B | $732M | $1.1B | $17.3B | $13.7B | 109.0% | — | 4.4% | — |
| 2021-12-31 | $1.8B | $3.3B | $2.6B | $1.2B | $1.1B | $66M | $107M | $104M | $585M | $823M | — | -$15.1B | $13.7B | $1.1B | $913M | $11.9B | $12B | 178.5% | — | 4.6% | — |
| 2022-12-31 | $1.6B | $3.4B | $1.9B | $4.5B | $4.4B | $96M | $96M | $120M | $0 | $854M | $16.7B | -$10.9B | $6.4B | $913M | $887M | $3.3B | $19.3B | 202.3% | — | 5.9% | — |
| 2023-12-31 | $1.4B | $1.3B | $967M | $2.9B | $2.8B | $142M | $89M | $121M | $0 | $911M | -$6.3B | $1.4B | -$4.3B | $887M | $941M | $11.8B | $19.6B | 80.8% | — | 11.3% | — |
| 2024-12-31 | $1.6B | -$233M | -$161M | $664M | $599M | $65M | $91M | $104M | $0 | $927M | -$8.4B | $2.5B | -$2.4B | $941M | $1.7B | $19.2B | $12.1B | -18.6% | — | — | — |
| 2025-12-31 | $1.7B | $2.3B | $1.8B | $2.2B | $2.1B | $107M | $87M | $132M | $200M | $1.1B | -$3.6B | $3.2B | -$5.9B | $1.7B | $1.3B | $11.5B | $9.9B | 131.7% | — | 9.1% | — |
KeyCorp (KEY) trades at 9.9x forward earnings against a peer median of 10.0x. The comparison uses 4 peers: Citizens Financial Group Inc., Regions Financial Corporation, M&T Bank Corporation and Fifth Third Bancorp, as of 2026-10-10.
| positive |
| Regional banks are pruning low-density physical branches while expanding digital corporate payment rails and wealth management platforms to optimize operational efficiency. |
| Evolving Regulatory Capital Requirements (Basel III Endgame) | neutral | Potential inclusion of accumulated other comprehensive income (AOCI) unrealized losses in Category IV regulatory capital requires regional banks to maintain elevated common equity buffers. |
| Consolidation and Scale Competition in Regional Banking | negative | Mid-sized regional banks face scale competition from money-center peers in technological investments, requiring specialized vertical expertise in middle-market commercial lending to defend market share. |
KeyCorp is positioned favorably relative to regional peers CFG, RF, MTB, and FITB, balancing 11.9% C&I loan growth with disciplined 1.63% total deposit costs. While its marked CET1 ratio of 9.8% reflects an AOCI deficit of $(2.154)B, statutory CET1 of 11.2% affords adequate headroom to pursue $1.3B+ in 2026 share repurchases,.5
| Why |
|---|
| $19.50 - $20.00 | Deploy initial 50% of target allocation | The October 9, 2026 share price ($19.97) offers a 12.22% discount to central fair value of $22.75, providing an attractive risk-adjusted entry point. |
| $18.00 - $18.50 | Add 30% of target allocation | Represents an expanded 18%-20% discount to fair value, well-supported by tangible book value of $13.62 per share. |
| $17.00 - $17.50 | Deploy final 20% of target allocation | Captures high margin of safety during broader market drawdowns; forward dividend yield exceeds 4.7% ($0.82 annual dividend). |
Not every cited input appears here: internal calculations and intermediate model outputs have no external record, and some citations could not be matched to one.
Add depreciation to net income, subtract maintenance capex, divide by diluted shares, and apply a normalized valuation multiple.
Multiply the peer median PEG by this stock's forecast growth to derive an implied forward P/E, then apply it to forward EPS.
| Regions Financial Corporation |
| $23.0B |
| 9.5x |
| 3.2x |
| 11.9% |
| 39.3% |
| MTB | M&T Bank Corporation | $31.5B | 10.3x | 3.3x | 10.7% | 45.1% |
| FITB | Fifth Third Bancorp | $45.9B | 10.2x | 4.5x | 8.4% | 39.1% |
