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KeyCorp reaffirmed its 2026 outlook, citing constructive client activity, commercial loan growth expected near the high end of its 4%–5% target, improving credit quality and deposit growth above 2% in the second half.
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The bank raised its fee-income growth outlook to 4%–5% following the Clearwater acquisition, while investment banking, payments and wealth management continued to show growth opportunities.
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KeyCorp expects further margin expansion, plans at least $1.3 billion in share repurchases this year and is increasingly confident in achieving its target of more than 15% core return on tangible common equity by 2027.
KeyCorp (NYSE:KEY) Chief Financial Officer Clark Khayat said the bank remains confident in its 2026 outlook as client activity, loan growth and credit quality have continued to perform constructively despite uncertainty around interest rates, tariffs and geopolitical developments.
Speaking at an investor conference, Khayat said the economic backdrop has changed substantially from expectations a year earlier, when markets anticipated rate cuts. Forward markets were instead indicating a high probability of three rate increases, he said. Even so, clients have become more comfortable operating amid shifting uncertainty, and KeyCorp continues to see healthy activity across lending and fee-based businesses.
Loan Growth, Deposits and Margin Outlook
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Khayat said KeyCorp remains confident in the midpoint of its full-year average loan growth outlook of 4% to 5%, with commercial lending potentially tracking toward the higher end of expectations. While growth has moderated from an exceptionally strong first half, the company continues to add commercial clients across its geographic footprint and industries.
Demand has been especially strong in utilities, power and renewable-energy-related lending, according to Khayat. KeyCorp has approximately $700 million to $800 million in direct data-center exposure, but he said power demand has supported broader utility and renewable lending opportunities.
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Higher interest rates have not yet materially reduced borrower demand, Khayat said, though he noted that three additional rate hikes could potentially begin to slow activity. The company’s net interest income and net interest margin guidance is currently relatively agnostic to rate moves, as the balance sheet has been positioned to remain broadly neutral across different rate scenarios.
KeyCorp expects average client deposits to increase by more than 2% in the second half of the year. Khayat said deposit growth has been tracking ahead of loan growth during the current quarter, supported by seasonal rebuilding in commercial operating accounts and new client relationships. Deposit costs had risen only 1 to 2 basis points so far, he added.
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The company reported a 2.89% net interest margin in the second quarter and continues to target approximately 3% to 3.05% in the near term, followed by 3.25% or more next year. Khayat cited fixed-rate asset repricing, deposit balances and funding optimization as major drivers. About $9 billion of fixed assets are expected to reprice in the second half of 2026, followed by roughly $21 billion in 2027.
Technology and AI Focus
Khayat, who recently assumed responsibility for technology before moving operations functions into the individual businesses they support, said KeyCorp has pursued a long-term modernization strategy for its core systems. The bank has sought to modernize selected systems annually to avoid major, concentrated technology investments, he said.
He said KeyCorp sees artificial intelligence as particularly useful in improving end-to-end client and employee processes when the underlying data and workflows are integrated. Employees have access to Microsoft Copilot tools, while the bank is also evaluating broader AI applications that could generate efficiency gains.
“The question is that expense dollars out, or is it effectively just more revenue for the same dollar of expense?” Khayat said of the potential benefits.
Clearwater Acquisition and Fee Businesses
KeyCorp updated its guidance to reflect the August closing of its Clearwater acquisition, a U.K.-based firm with a European presence that had previously operated as a referral partner. The company raised its fee-income growth outlook to 4% to 5% from 3% to 4% and increased its expense outlook to about 4% from 3% to 4%.
Khayat said the transaction is expected to be roughly pre-provision net revenue neutral in the second half because of deal structure and integration costs. He expects Clearwater to contribute approximately $60 million to $70 million in revenue next year, assuming market-neutral conditions.
The bank’s investment-banking pipeline remains strong, including what Khayat described as record merger-and-acquisition pipelines. Some activity has begun to convert into completed business, although he said middle-market M&A and sponsor activity have not yet normalized.
KeyCorp also sees growth opportunities in payments and wealth management. Khayat said payments platforms have produced low-double-digit year-over-year growth, while wealth management reached a record $74 billion in assets under management during the second quarter.
Credit, Capital and 2027 Targets
Credit quality remained benign and improved during the quarter, Khayat said, despite areas being monitored including commercial real estate, agriculture and consumer goods. He said nonperforming assets cited in the prior quarter appeared to be moving toward resolution, while charge-offs may come in below the company’s guidance if current trends continue.
KeyCorp expects to complete at least $1.3 billion in share repurchases this year. Khayat said its CET1 capital ratio could fall below the company’s 9.5% operating range in the quarter because of accumulated other comprehensive income effects, but management remains comfortable with that position.
He said KeyCorp is focused on organic growth rather than traditional bank acquisitions and remains incrementally more confident in its ability to achieve its target of more than 15% core return on tangible common equity by 2027, subject to market conditions. The company’s longer-term priorities include further margin improvement, fee-business growth, disciplined expense management, capital management and credit performance.
About KeyCorp (NYSE:KEY)
KeyCorp is a financial services company headquartered in Cleveland, Ohio, and the parent company of KeyBank National Association. Founded in 1825, KeyBank is one of the largest regional banks in the United States and provides banking and financial services to individuals, businesses, institutions and government entities.
KeyBank’s consumer banking activities include checking and savings accounts, residential mortgages, home equity lending, personal loans, credit cards and financial planning.
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The article “KeyCorp Reaffirms 2026 Outlook as Loan Growth, Margins and Fees Gain Momentum” was originally published by MarketBeat.
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