KeyCorp (NYSE:KEY) is cashing in lately, setting quarterly revenue and net income records. The strong showing in its latest quarterly earnings report (released earlier this month) suggests the Ohio-based regional bank is fully recovered from the worst of the 2020 pandemic hit. It also points to the stock being set up for a promising future.

Let's find out what has shareholders so excited.

A record second quarter with a strong economic outlook

KeyCorp, which operates nearly 1,100 full-service retail banking branches and a network of approximately 1,400 ATMs across 15 states, reported record revenue in the fiscal 2021 second quarter of $1.77 billion (analyst consensus estimates called for $1.73 billion). That revenue came from flat net interest income of $1.02 billion and a strong upward trajectory in noninterest income to $750 million -- a jump of 8.4%.

A view of a bank building's exterior.

Image source: Getty Images.

The jump was largely the result of strong demand for its investment banking and debt placement fees services. The demand for these services translated to a record-setting 39.1% year-over-year fee surge from $156 million in Q2 2020 to $217 million in Q2 2021.

KeyCorp's increased revenue mostly offset increased expenses and resulted in a "record second-quarter 2021 net income of $698 million," or $0.72 in diluted EPS (versus average analyst estimates of $0.53). KeyCorp EPS in Q2 2020 was $0.16.

Given the challenging macroeconomic environment in Q2 2020, it might be more useful to compare KeyCorp's Q2 2021 diluted EPS to Q1 2021. The bank posted an impressive 18% sequential growth rate against the $0.61 in diluted EPS in Q1.

A healthy balance sheet became even healthier

KeyCorp's reasonably strong balance sheet significantly improved in the past year. A useful metric to assess this strength is the Common Equity Tier 1 ratio or CET1 ratio. The CET1 ratio is a measure of how well a bank can withstand a financial crisis.

KeyCorp's CET1 ratio improved from 9.1% in Q2 2020 to 9.9% in Q2 2021. For context, the statutory requirement for a bank is a 4.5% CET1 ratio plus an additional 2.5 percentage points to account for the bank's risk-weighted assets, bringing the total CET1 ratio to 7%.

As KeyCorp's CET1 ratio demonstrates, the company is comfortably higher than the minimum 7% CET1 ratio that banking regulations call for. KeyCorp appears to have very adequate resources to endure most economic recessions.

A well-timed share repurchase authorization

A number of banks have recently authorized huge share repurchase programs, so it should come as little surprise that KeyCorp's board of directors approved a stock buyback plan using up to $1.5 billion and running through Q3 2022. While the bank may not use all of the $1.5 billion in allocations, it is important to note that it is a sizeable amount, equal to about 8% of KeyCorp's market cap.

With shares already undervalued (the stock price is nine times this year's $2.18 EPS forecast) and a price-to-book value ratio of just over 1 (based on KeyCorp's book value per share of $16.75 as of Q2 2021), investors should be thrilled that the company will be reducing its share count. The increased diluted EPS will lower the overall dividend obligation.

The broader economic recovery and the share buyback should allow the company to announce a dividend increase in Q4. Chairman and CEO Chris Gorman subtly said as much in his opening remarks during KeyCorp's Q2 2021 earnings call.

A solid income stock with room for additional upside

It's quite likely that KeyCorp's robust second-quarter results are just the beginning for the company. This assumption is partially rooted in the broader macroeconomic forecast from The Conference Board, which sees strong U.S. economic expansion for the rest of the year. In mid-July, the Conference Board forecast 6.6% real GDP growth this year and a respectable 3.8% real GDP growth forecast for 2022. Actual GDP growth in the second quarter came in at a 6.5% annualized rate, which fell a bit below analyst estimates of 8.5%. Either way, the economy is growing and KeyCorp stands to benefit.

Long-term investors would do well to consider purchasing shares of KeyCorp below $20 a share. While waiting for the market to reward the stock with a higher valuation, current investors are getting a 3.7% dividend yield, which is nearly triple the S&P 500's average 1.4% yield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.