KeyCorp's Q2 2026 EPS rose 26% to $0.44 as falling deposit costs lifted net interest income 9.6% and the credit provision fell by a third, but nonperforming loans climbed to $809 million.
Revenue
$2.0B
+6.8% YoY
Net income
$473M
+21.6% YoY
Diluted EPS
$0.44
+25.7% YoY
Overview
KeyCorp, the Cleveland-based regional bank, earned $473 million for common shareholders in the second quarter of 2026 (the three months to June 30). That is up 22% from $389 million a year earlier. Diluted earnings per share rose 26%, from $0.35 to $0.44. EPS grew faster than profit because Key bought back stock: the average diluted share count fell 2.5%, from 1,107 million to 1,080 million.
Three things drove the gain:
Net interest income rose 9.6%. This is the gap between what Key earns on loans and securities and what it pays on deposits and borrowings. Deposit costs fell faster than loan yields.
Provision for credit losses fell by a third, from $138 million to $92 million. The provision is the amount a bank sets aside from profit to cover loans it expects to go bad.
Fee income grew only 2.3%, and expenses grew 5.5%, led by pay and benefits. Revenue still grew faster than costs.
The weak spot is credit quality. Nonperforming loans rose to $809 million, up from $682 million three months earlier and $696 million a year earlier. Nonperforming loans are loans that have stopped paying interest as agreed. In the quarter, $365 million of loans were moved to nonaccrual status, the most in the five quarters the 10-Q shows. Key calls the cause "idiosyncratic exposures within select commercial and industrial industries and multifamily real estate" and says this is not "broader credit deterioration."
Key metrics
In this report, "revenue" means GAAP net interest income plus noninterest income (fees and other revenue). Key's own headline figure, "total revenue (TE)", was $1,964 million, up 6.7%. It adds an $8 million taxable-equivalent adjustment, which shows tax-exempt interest as if it were taxed. Net income is net income attributable to Key common shareholders, the figure diluted EPS is based on. Income from continuing operations, the figure in Key's press-release headline, was $472 million, versus $387 million a year earlier.
Metric
Q2 2026
Q2 2025
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Net interest margin (NIM): net interest income as a share of the bank's interest-earning assets, at an annual rate. It measures how profitably the bank lends and invests the money it gathers.
Cash efficiency ratio: costs as a share of revenue, leaving out amortization of intangible assets. Lower is better. On this measure it cost Key about 62 cents to earn each dollar of revenue.
Net charge-offs: loans written off as uncollectable, minus later recoveries.
CET1 ratio: the bank's core loss-absorbing capital as a share of its risk-weighted assets.
The comparison is not distorted by securities sales. Net securities gains were $3 million this quarter and zero a year earlier. The 10-Q shows no adjustments to noninterest expense in either quarter.
Why the margin widened
NIM rose 23 basis points to 2.89% (a basis point is 0.01 percentage point). The 10-Q gives three reasons: "a reduction in deposit costs as a result of declining interest rates and proactive deposit beta management"; reinvestment of maturing low-yielding securities and fixed-rate swaps into higher-yielding assets; and a shift toward commercial and industrial (C&I) loans, which pay more. The average balance sheet shows each effect:
Deposit costs fell further than asset yields. The rate paid on interest-bearing deposits dropped from 2.44% to 2.01%. Interest expense on deposits fell $130 million, from $730 million to $600 million. The average yield on earning assets fell less, from 4.90% to 4.75%. Money-market deposits went from 2.60% to 2.11%. Expensive time deposits (CDs) shrank by a quarter, from $15.6 billion to $11.7 billion on average, and their rate fell from 3.70% to 3.21%.
Old, low-yielding assets rolled off. Held-to-maturity securities grew to $9.4 billion from $7.0 billion on average, and their yield rose from 3.46% to 4.05%. Long-term debt costs fell by $43 million.
The loan mix moved toward C&I. Average C&I loans rose $6.5 billion (+11.7%) to $62.1 billion. Average consumer loans fell $2.3 billion (−7.4%) to $29.1 billion, which Key calls "the intentional run-off of low-yielding loans." Residential mortgages yield 3.35%; C&I loans yield 5.78%.
Lower rates pulled the other way: the C&I loan yield itself fell from 6.04% to 5.78%. Compared with Q1, NII (TE) rose $28 million, and the margin rose only 2 basis points. Most of the sequential gain came from loan growth plus one extra day in the quarter, not from wider spreads.
Fees: wealth and payments up, deal fees and servicing down
Noninterest income line
Q2 2026
Q2 2025
Change
Trust and investment services
$159M
$146M
+8.9%
Investment banking and debt placement
$169M
$178M
−5.1%
Cards and payments
$94M
$85M
+10.6%
Service charges on deposits
$77M
$73M
+5.5%
Corporate services
$80M
$76M
+5.3%
Commercial mortgage servicing
$49M
$70M
−30.0%
Other income
$15M
$1M
N/M
Total
$706M
$690M
+2.3%
Wealth management: assets under management reached $74.2 billion, up 15.5%. The 10-Q attributes this to "constructive market performance." That makes part of the fee growth dependent on stock prices, not only on new clients.
Investment banking fell because of "lower merger and acquisition advisory fees, commercial mortgage gains on sale, and loan syndication fees." The 10-Q also cites "delays in M&A closings." For the first half, these fees are still up 3.8% because Q1 was strong. On April 22, Key agreed to buy UK advisory firm Clearwater Corporate Finance; the deal closed on August 3, 2026, after this quarter ended.
Commercial mortgage servicing fees fell by $21 million because of lower special servicing (fees earned for working out troubled commercial real estate loans for other lenders). This one line accounts for most of the weakness in total fees.
Costs: pay and benefits
Noninterest expense rose $63 million. Personnel costs rose $81 million (+11.5%) to $786 million, while all other costs fell $18 million. Within personnel costs, employee benefits jumped 29.6% ($108 million to $140 million), and incentive and stock-based pay rose 15.5%. The 10-Q gives the reasons: "merit increases, higher headcount and growth in the fee businesses." Revenue (TE) still grew faster than expenses, 6.7% against 5.5%. The CEO puts this gap, called operating leverage, at about 130 basis points.
Credit: fewer reserves, more problem loans
The provision fell because Key built reserves in 2025, when the economic outlook looked worse. The 2026 outlook "has been more resilient." This quarter's $92 million provision covered $115 million of net charge-offs. The remaining $23 million came from releasing reserves: Key judged it needed fewer reserves because its commercial loan mix improved. (Loan loss reserves are money set aside in advance for expected losses; when a bank reduces them, the reduction adds to profit.)
Problem loans are rising:
Nonperforming loans (period-end)
Jun 2026
Mar 2026
Dec 2025
Jun 2025
Commercial and industrial
$358M
$284M
$256M
$280M
Commercial mortgage
$256M
$190M
$157M
$226M
Total nonperforming loans
$809M
$682M
$615M
$696M
Allowance for loan losses / nonperforming loans
178.6%
—
—
207.8%
Reserves are covering less of the problem-loan book. The loan-loss allowance covered 2.08 times nonperforming loans a year ago and 1.79 times now. Total credit reserves fell from 1.64% to 1.56% of loans. Loans 30–89 days past due, an early warning sign, dropped to $138 million from $266 million a year earlier. That fits Key's view that the new nonaccruals are a few large individual loans rather than a broad slowdown. Net charge-offs of 0.42% are within Key's full-year guidance of 40–45 basis points.
Takeaway: The earnings gain came mostly from interest income (falling deposit costs and a shift into C&I loans) and from a $46 million smaller provision. The reserve release happened in the same quarter that nonperforming loans jumped 19% from March. If the new problem loans turn into write-offs, Key will need a larger provision, and that part of the profit gain would reverse.
Capital, buybacks and Scotiabank
Key repurchased $341 million of stock (about 16 million shares) in the quarter. In May, the board approved a new $3.0 billion buyback authorization, replacing the earlier $1.0 billion one. Key says it remains on pace to repurchase at least $1.3 billion of stock in 2026. The dividend was unchanged at $0.205 per share.
Scotiabank (The Bank of Nova Scotia) owns a large stake in Key, and the 10-Q lists that stake among the factors that could affect results. Under a February 2025 agreement, Scotiabank may sell shares back to Key in proportion to each buyback. This quarter, $49 million of the $341 million came from Scotiabank. As a result, buybacks do not raise Scotiabank's percentage ownership.
The buybacks and faster loan growth used up capital. The CET1 ratio fell to an estimated 11.2%, from 11.4% in March and 11.7% a year earlier. Risk-weighted assets grew to $152.3 billion from $143.4 billion. Tangible book value per share was $13.62, down from $13.77 at December 31. Key, like other banks of its size, leaves unrealized securities losses out of regulatory capital. Counting those losses, its "marked" CET1 ratio is 9.8%.
Outlook
On July 21, Key raised its full-year 2026 guidance (compared with 2025):
Item
2025 baseline
2026 guidance
Revenue (TE)
$7,513M
up 7–8% (was ~7%)
Net interest income (TE)
$4,671M
up 9–11% (was 9–10%)
Noninterest income
$2,842M
up 3–4%
Adjusted noninterest expense
$4,729M
up 3–4%
Average loans
$105.7B
up 4–5% (was 2–4%)
Average commercial loans
$74.5B
up 8–10% (was 6–8%)
Net charge-offs / average loans
—
40–45 bp
Q4 2026 NIM (exit rate)
—
3.00–3.05% (was ~3.05%)
Key also keeps its targets for the end of 2027: a return on tangible common equity above 15% (12.9% this quarter) and a NIM above 3.25%.
Our view: The guidance requires net interest income to keep growing in the second half. First-half NII (TE) was $2,488 million. Hitting 9–11% full-year growth means about $1.30–1.35 billion per quarter in the second half, compared with $1.258 billion in Q2. The NIM target was trimmed slightly, to a range starting at 3.00% from about 3.05%, and now assumes average earning assets grow $1–2 billion instead of staying flat. More of the growth therefore has to come from a larger balance sheet rather than wider margins. Key's own rate simulation shows net interest income roughly neutral to rate moves (+0.15% if rates fall 200 bp, +0.17% if they rise 200 bp). The Fed's path matters less for Key than loan growth and deposit pricing. The main risk to watch in Q3 is credit. Another quarter of $300 million-plus nonaccrual inflows would test management's "idiosyncratic" explanation and make further reserve releases hard to justify.
The 10-Q gives the June 30, 2026 capital ratios as estimates. The prior-year CET1 ratio, cash efficiency ratio and period-end balances come from Key's July 21, 2026 earnings release (Exhibit 99.1 to its 8-K). All other figures come from the Q2 2026 Form 10-Q.