KeyCorp’s Resilient Q1 2025 Results: Navigating Uncertainty with Strong Credit Metrics

KeyCorp (NYSE: KEY) delivered a robust Q1 2025 performance, reporting net loan charge-offs of $110 million, a 4% sequential decline and a $4 million improvement year-over-year. This marks the latest milestone in the bank’s ongoing credit quality improvement, even as macroeconomic risks loom.

Credit Metrics Signal Resilience

The $110 million in net charge-offs translated to an annualized 0.43% charge-off rate, near historic lows and a clear reflection of improving credit fundamentals. Non-performing loans (NPLs) fell 9% sequentially, with the NPL ratio dropping to 65 basis points—a significant improvement from the prior quarter’s 73 basis points. These figures underscore KeyCorp’s disciplined risk management, which CEO Chris Gorman attributes to proactive “name-by-name” client reviews and broader credit migration trends that have improved for five consecutive quarters.

The bank’s provision for credit losses totaled $118 million, including an $8 million reserve build aimed at mitigating risks from tariffs and geopolitical instability. CFO Clark Hyatt clarified this buffer was calibrated to a 20% probability of a severe economic downturn, demonstrating cautious optimism. Despite these headwinds, KeyCorp’s CET1 capital ratio remains a fortress-like 11.8%, well above regulatory thresholds and peer averages.

Loan Portfolio Shifts Toward Higher-Yield Segments

KeyCorp’s strategic rebalancing of its loan portfolio is a standout theme. While average consumer loans dropped 7.5% year-over-year to $32.0 billion—reflecting intentional runoff of low-yielding residential mortgages—the bank has leaned into commercial and industrial (C&I) lending. C&I loans grew 3% sequentially to over $50 billion, driven by broad-based demand from investment-grade clients.

Total period-end loans hit $105 billion, a $500 million sequential rise, with commercial loans contributing $1.2 billion of this growth. Management emphasized this pivot toward C&I and project financing (e.g., infrastructure loans requiring long lead times) as a deliberate move to boost margins. Despite macroeconomic uncertainty, C&I pipelines remain “historically elevated,” with minimal reliance on volatile M&A activity.

Defensive Posture Amid Macro Risks

KeyCorp’s 30% liquidity buffer (cash and equivalents) and 10% wholesale funding dependency provide a sturdy foundation to weather disruptions. The bank’s $12 billion in commercial mortgage servicing assets also act as a countercyclical hedge, with servicing fees surging 36% year-over-year.

Executives acknowledged clients have paused transactional activity following tariff announcements, but highlighted middle-market borrowers’ resilience through supply chain diversification (e.g., shifting manufacturing to Mexico). This agility, coupled with KeyCorp’s capacity to retain 17% of client capital needs on its balance sheet, reinforces its role as a reliable partner in uncertain times.

Outlook: Growth Amid Caution

KeyCorp reaffirmed its 20% net interest income growth guidance for 2025, buoyed by portfolio remixing and $148.5 billion in average deposits (up 4% year-over-year). While average loans may decline 2-5% due to strategic runoff, period-end commercial loans are projected to grow 2-4%, supported by strong C&I pipelines.

Conclusion: A Fortress Balance Sheet Anchors Growth

KeyCorp’s Q1 results reveal a bank thriving on two pillars: strong credit quality and strategic risk management. With a 0.43% charge-off rate, 11.8% CET1 ratio, and a liquidity buffer covering 30% of assets, the company is positioned to outperform peers in turbulent conditions.

The shift to higher-margin C&I lending, combined with fee growth from servicing and payments, offers a compelling earnings tailwind. While macro risks persist, KeyCorp’s defensive capital structure and diversified revenue streams justify its confidence in delivering 20% net interest income growth. Investors seeking stability in financials would do well to consider KEY, especially with its shares trading at a 1.4x price-to-tangible-book ratio, below its five-year average of 1.6x.

In an era of economic uncertainty, KeyCorp’s results underscore a simple truth: disciplined underwriting and capital allocation can turn headwinds into opportunities.