Grade: B — Generally Healthy, Recovery in Progress
Framework: Bank-specific credit quality analysis + Schilit principles (traditional manufacturing checks partially N/A for banks)
Data: SEC EDGAR 10-K (Filed 2026-02-23) + Yahoo Finance
Auditor: Ernst & Young LLP — Clean opinion
One-line verdict: KeyCorp is a regional bank in recovery mode. Net income surged 110% to $1.83 billion ($1.89 per diluted share) in 2025, driven by a dramatic improvement in net interest income as deposit costs declined. Taxable-equivalent NII increased 20.6% to $4.67 billion, with net interest margin expanding from 2.16% to 2.69%. Credit quality is stable — net charge-offs held flat at 0.53% while the provision for credit losses increased modestly to $471 million on economic uncertainty. Capital ratios are strong: CET1 of 11.78%, Tier 1 of 13.46%, well above regulatory minimums. The screening engine flags cash-to-debt ratio as a concern, but this is structural for a bank that funds itself through deposits and wholesale borrowing. The 2024 results included a $2.8 billion loss on investment securities repositioning that depressed that year's net income to -$161 million — 2025 represents a normalization, not a sudden improvement.
| Metric | Result |
|---|---|
| Red Flags (Engine) | **1** (C4 — structural for banks) |
| Watch Items | **0** |
| Checks Completed | **9/18** (9 N/A — standard checks inapplicable to banks) |
| Beneish M-Score | **N/A** (not applicable to banks) |
| F-Score (Fraud Probability) | **1.87** (0.69% probability) |
| Altman Z-Score | **N/A** (not applicable to banks) |
| Auditor | Ernst & Young LLP — Unqualified opinion |
| Fiscal Year | 2025 (ended December 31, 2025) |
| Report Date | 2026-04-05 |
Important note on bank screening: The Beneish M-Score and Altman Z-Score were not designed for depository institutions and are not applicable. Bank earnings quality must be assessed through net interest margin, credit quality metrics, capital ratios, and efficiency — not traditional manufacturing screens.
NII Recovery Drives Earnings Rebound
Per the 10-K:
| Metric | 2023 | 2024 | 2025 | Trend |
|---|---|---|---|---|
| Net Interest Income (TE) | $3,943M | $3,810M | **$4,671M** | +22.6% |
| Net Interest Margin (TE) | 2.17% | 2.16% | **2.69%** | +53 bps |
| Noninterest Income | $2,470M | $809M | **$2,842M** | Recovery |
| Total Revenue (TE) | $6,413M | $4,619M | **$7,513M** | +62.7% |
| Provision for Credit Losses | $489M | $335M | **$471M** | +40.6% |
| Net Income | $967M | ($161M) | **$1,829M** | Recovery |
| Net Charge-off Rate | 0.32% | 0.53% | **0.53%** | Stable |
Per the 10-K: "Net income attributable to Key of $527 million in 2025, compared to $251 million in 2024, an increase of 110.0%, largely driven by favorable rates on deposits." (This refers to the Consumer Bank segment; consolidated net income was $1.83 billion.)
The 2024 results were distorted by investment securities repositioning losses. The 10-K notes noninterest income of $809 million in 2024 versus $2,842 million in 2025 — the 2024 figure included approximately $2.8 billion in realized losses from the securities portfolio restructuring.
Net Interest Income: The Core Engine
Per the interest rate analysis tables:
| Component | 2023 | 2024 | 2025 |
|---|---|---|---|
| Total Earning Assets Yield | 4.37% | 4.81% | **4.86%** |
| Total Interest-bearing Liabilities Cost | 2.91% | 3.39% | **2.78%** |
| Interest Rate Spread | 1.46% | 1.42% | **2.08%** |
| Net Interest Margin | 2.17% | 2.16% | **2.69%** |
The NIM expansion was driven primarily by declining deposit costs. Total interest-bearing deposit costs fell from 2.82% to 2.41% as rate cuts flowed through. Long-term debt cost also declined from 6.22% to 6.50% but the outstanding balance dropped from $20.98 billion to $11.30 billion — a 46% reduction that substantially reduced interest expense.
Credit Quality: Stable but Watchful
Per the 10-K:
| Credit Metric | 2023 | 2024 | 2025 |
|---|---|---|---|
| Provision for Credit Losses | $489M | $335M | **$471M** |
| Net Charge-offs | $133M* | $207M | **$190M** |
| Net Charge-off Rate | 0.32% | 0.53% | **0.53%** |
*Consumer Bank segment only shown; total figures differ.
Per the 10-K: "Provision for credit losses increased $43 million in 2025 compared to the prior year, driven by increased economic uncertainty slightly offset by loan balance run-off."
Average total loans declined 7.7% from $107.7 billion to $105.7 billion, reflecting broad-based declines across all loan categories. This deliberate balance sheet shrinkage reduces credit exposure but also limits revenue growth.
Capital: Strong Position
Per the 10-K:
| Capital Ratio | Regulatory Minimum (with buffers) | KEY Dec 2025 |
|---|---|---|
| Common Equity Tier 1 | 7.70% | **11.78%** |
| Tier 1 Capital | 9.20% | **13.46%** |
| Total Capital | 11.20% | **15.70%** |
| Leverage | 4.00% | **10.50%** |
All ratios are well above regulatory minimums with substantial buffers. The CET1 ratio of 11.78% provides a 410 bps cushion above the 7.70% minimum (including the stress capital buffer of 3.20%).
Total equity grew from $15.4 billion to $19.5 billion (+27%), reflecting retained earnings growth and the normalization of AOCI losses from the securities portfolio.
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | N/A | Insufficient data (bank) |
| A2 | AR vs Revenue Growth | N/A | Insufficient data (bank) |
| A3 | Revenue vs CFFO | PASS | Revenue +65.7%, CFFO +232.5% |
| B1 | Inventory vs COGS | PASS | No material inventory |
| B2 | CapEx vs Revenue | PASS | CapEx growth 64.6% vs revenue 65.7% |
| B3 | SG&A Ratio | N/A | Not applicable to banks |
| B4 | Gross Margin | N/A | Not applicable to banks |
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 1.21 |
| C2 | Free Cash Flow | PASS | FCF $2.1B, FCF/NI = 1.15 |
| C3 | Accruals Ratio | PASS | -0.2%. Low accruals |
| C4 | Cash vs Debt | **FAIL*** | Cash $1.3B covers 12% of debt $11.0B |
| D1 | Goodwill + Intangibles | PASS | $2.8B = 14% of equity |
| D2 | Leverage | N/A | Standard leverage metrics not applicable to banks |
| D3 | Soft Asset Growth | N/A | Not applicable to banks |
| D4 | Asset Impairment | N/A | No write-off data |
| E1 | Serial Acquirer FCF | PASS | FCF after acquisitions positive |
| E2 | Goodwill Surge | PASS | Goodwill change -1% YoY |
| F1 | Beneish M-Score | N/A | Not applicable to banks |
*The C4 flag is a structural false positive for banks. Banks fund themselves through deposits ($149.3 billion) and wholesale borrowing, not retained cash. Cash-to-debt ratio is not a meaningful measure of bank liquidity.
Key Risks from the 10-K
1. Economic Uncertainty
The provision for credit losses increased to $471 million "driven by increased economic uncertainty." KeyCorp's exposure to commercial real estate, commercial and industrial loans, and consumer lending makes it vulnerable to economic downturns.
2. Loan Balance Decline
Average loans declined 7.7% year-over-year. While this reduces credit risk, sustained loan shrinkage limits revenue growth and could indicate reduced client demand or deliberate de-risking.
3. Interest Rate Sensitivity
The dramatic NIM improvement was driven by falling deposit costs. If rates reverse course or deposit competition intensifies, NIM could compress. The bank's NII sensitivity is meaningful given that NII represents the majority of revenue.
Summary
Grade: B. Generally healthy. A regional bank in recovery with strong capital ratios, stable credit quality, and dramatically improved NII.
KeyCorp's 2025 results represent a normalization from a challenging 2024 that included large securities repositioning losses. The NIM expansion from 2.16% to 2.69% drove a $861 million increase in NII. Capital ratios are strong across all measures — CET1 at 11.78% provides substantial cushion. Credit quality is stable with charge-offs holding at 0.53%.
The screening engine's only real flag — cash-to-debt ratio — is structural for a bank. Bank earnings quality here should be evaluated through the lens of:
**Disclaimer**: This report is based on KeyCorp's fiscal year 2025 10-K filed with the SEC on February 23, 2026. This is NOT investment advice.
**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade B means the company is generally healthy with minor concerns to monitor.