KeyCorp (KEY) Income Statement

Net interest income has climbed steadily from $875M in 2024Q1 to $1.2B by 2026Q2, a 37% cumulative increase, driven by loan repricing and volume growth. However, the pace of NII growth has moderated from a peak of 28.6% in 2025Q2 to 9.6% in 2026Q2, suggesting that the benefit of higher asset yields is being increasingly offset by rising funding costs. The reported NIM of 0.7% remains exceptionally low, indicating that the bank's interest-earning asset mix, likely including a large low-yield securities portfolio, is constraining spread expansion. Investors should monitor whether NII growth can sustain above 10% as deposit betas continue to pressure funding costs.

The NIM has not improved despite a rising rate environment, hovering at 0.5-0.7% throughout the period, which is far below the typical 2-3% range for regional banks. This suggests that the bank's securities portfolio, likely carrying low-yield long-duration bonds, is dragging down overall asset yields, while deposit costs have risen faster than loan repricing. The flat NIM trajectory, combined with a 63.6% efficiency ratio in 2026Q2, indicates that operating leverage is not being generated from spread income. Peer comparison shows Regions Financial and M&T Bank with gross margins above 74%, underscoring KeyCorp's margin disadvantage. The bank may need to let the low-yield portfolio run off and redeploy into higher-yielding assets to see meaningful NIM recovery.

The efficiency ratio, which measures non-interest expense as a percentage of total revenue, jumped from a stable 40-43% range in 2025 to 63.6% in 2026Q2, reflecting a 22% sequential drop in total revenue. This revenue decline appears driven by a collapse in non-interest income, which fell to zero in 2026Q2 from $723M in 2026Q1, likely due to a sharp slowdown in investment banking and capital markets activity. The bank's high fixed cost base, including branch network and personnel expenses, means that revenue volatility directly impacts operating leverage. If fee income remains depressed, the efficiency ratio could stay elevated, pressuring pre-provision net revenue and overall profitability.

Provision expense has been consistent, ranging from $95M to $138M over the last five quarters, indicating a steady credit environment with no major deterioration in loan quality. However, the 2026Q2 provision of $0 is a notable outlier, which may reflect a release of reserves or a change in macroeconomic assumptions, but it also raises questions about whether credit costs are being deferred. The bank's exposure to commercial real estate and healthcare verticals, as noted in the company intelligence, warrants monitoring for potential future provisioning needs. With net income of $509M in 2026Q2, the absence of provision expense contributed to earnings, but investors should question the sustainability of this zero-provision quarter.

Non-interest income has been highly volatile, ranging from -$310M in 2024Q3 to $782M in 2025Q4, with the 2026Q2 figure of $0 representing a complete collapse. This volatility is characteristic of a bank with significant capital markets exposure, where M&A advisory and debt underwriting fees are transaction-driven and unpredictable. The fee-to-income ratio, which was 26-27% in 2025, fell to zero in 2026Q2, indicating a severe disruption in fee-generating activities. This dependency on lumpy investment banking revenue makes KeyCorp's earnings less predictable than peers like Huntington, which rely more on stable retail fees. The Scotiabank investment may provide capital, but it does not address the structural volatility of the fee stream.

The 2026Q2 quarter represents a significant break from the prior trend, as the bank had been generating $628-782M in quarterly non-interest income throughout 2025. The sudden disappearance of fee income, combined with a $59M operating loss before provision, suggests a severe downturn in capital markets activity or a one-time accounting adjustment. Despite this, net income of $509M was supported by a $0 provision and a $568M positive swing from operating income, implying that the bank may have released reserves or recognized gains elsewhere. This quarter could signal the start of a new, more challenging earnings environment if fee income does not recover, and it warrants close monitoring of the 2026Q3 results.