KeyCorp Eyes Embedded Banking Expansion as Deposits Climb in Q4

In its fourth-quarter results released Tuesday (Jan. 21), financial institution KeyCorp, noted growth in its deposits. Management stated on a conference call with analysts that growth opportunities lie within embedded banking offerings.

Earnings supplementals show that overall average deposits were $149.7 billion in the most recent quarter, up from $145.1 billion last year and 1.3% higher than the third-quarter’s levels. The company noted growth in both consumer and commercial deposits.

Drilling down a bit, the supplementals indicated that credit card charge-offs were 4.5%.

During the conference call with analysts, CEO Christopher Gorman said: “Non-performing assets are peaking, and assuming the macro environment remains constructive for the balance of the year, we expect non-performing loans to begin to decline by midyear.”

Within the consumer segment, said the CEO, the company grew its number of “relationship households in excess of 3% for the second consecutive year, including growth of 5-8% throughout our Western markets. In our Eastern markets, we continue to grow households.”

Embedded Banking Opportunities

Gorman took note of commercial payments-related revenues, which grew in the mid-single digit percentage points.

“Over the last decade, payments has been an area of focus and an area of consistent investment,” he said. “We were one of the first banks to build embedded banking capabilities. We will continue to develop our differentiated platform with plans to invest in additional software advisors and relationship bankers, enhanced digital and analytics tools, while concurrently continuing to invest in embedded banking.”

CFO Clark Khayat said on the call that looking ahead, average loans will be down 2-5% with year end 2025 balances flat to where they ended 2024.

Investors sent the shares lower by 4% in intraday trading on Tuesday.

During the Q&A session with analysts, CEO Gorman stated: “We’ve worked really hard to get our balance sheet to a more resilient place here. We believe today we’re fairly neutral in rates, and we can effectively manage through a variety of rate environment.”

Asked about the lending environment, management noted that a survey of middle-market clients revealed that 80% of those enterprises are confident in their growth prospects as they eye making investments in property, plants and equipment.

The Regulatory Outlook

Elsewhere, Gorman stated: “People think that the regulatory environment is going to improve … With the regulatory environment around M&A … it’s been very challenging to get deals approved, and I’m not speaking of the banking sector. I’m speaking of our M&A business. And I think there’ll be a pretty significant unlock there.”

Offering further insight into investment roadmaps, Gorman said that, with respect to the ongoing migration to the cloud, “every year, we’ve replaced 2 core systems to the point now where we only have a couple … We will continue to invest in the business. We’ll continue to hire groups of people. We’ll also continue to look at what I call bolt-on acquisitions.

“Consumer lending is an important element to the balance sheet,” he added. “We’re not at the moment leaning into that, but I would expect that we will do so over time,” including further moves into personal lending.