KeyCorp net income declines in 3rd quarter

But, adjusted earnings per share beats the analysts’ estimates

KeyCorp (NYSE: KEY) — parent of KeyBank, which ranks No. 2 in deposit market share in the 16-county Central New York region — reported that its net income from continuing operations fell to $383 million, or 38 cents a share, from $468 million, or 45 cents, in the year-ago period.

Excluding a previously disclosed fraud loss of 10 cents a share, Key’s adjusted third-quarter earnings per share was 48 cents. That beat the consensus analyst estimate of 47 cents, according to Zacks Equity Research.

“Our results this quarter reflect positive revenue momentum and strong expense management that drove our cash efficiency ratio to its lowest level in over a decade,” Beth Mooney, KeyCorp chairman and CEO, said in the earnings report.

“We generated positive operating leverage compared to the prior year and previous quarter, supported by strong balance sheet growth, as well as continued momentum in our fee-based businesses, including record third quarter investment banking and debt placement fees. We produced another quarter of strong, broad-based growth in commercial and industrial loans and saw higher consumer loan balances…,” she added.

Key produced taxable-equivalent net interest income of $980 million in the third quarter, down from $993 million in the year-ago period. Lower net interest margin, driven by higher interest-bearing deposit costs, and lower loan fees led the decline.

Key’s noninterest income in the third quarter was $650 million, up from $609 million in the year-prior quarter. The increase resulted from growth in investment banking and debt-placement fees, as well as growth in corporate-services income, caused by higher derivatives income, according to the earnings report. 

The Cleveland, Ohio–based banking company incurred noninterest expense of $939 million in the third quarter, down from $964 million in the year-earlier quarter. The decline reflected the successful implementation of Key’s expense-reduction initiatives and the elimination of the FDIC’s requirement that banks pay quarterly surcharges that cover some of the costs of insuring their customers’ deposits.

These expenses were partially offset by acquisition expenses associated with Key’s acquisition of Laurel Road Bank’s digital-lending business.

Key’s average loans were $92 billion in the third quarter, an increase of $3.5 billion compared to a year prior. Its commercial loans increased by $2.1 billion, reflecting broad-based growth in commercial and industrial loans, partially offset by declines in commercial mortgage and construction loans, the banking company said. Consumer loans increased $1.4 billion, “driven by solid growth from Laurel Road,” residential mortgage loans, and indirect auto lending. Home-equity loans declined by $927 million, largely the result of continued paydowns in home-equity lines of credit.

In the third quarter, Key realized a $123 million pre-tax loss related to a “previously disclosed fraud incident,” the earnings report stated. Excluding the fraud loss, Key’s provision for credit losses was $77 million in the third quarter, compared to $62 million in the third quarter of 2018.

Excluding the fraud loss, net loan charge-offs for the third quarter totaled $73 million, or 0.31 percent of average total loans. These results compare to $60 million, or 0.27 percent, for the third quarter of 2018.

KeyCorp, which says its roots trace back 190 years to Albany, has assets of more than $140 billion. KeyBank has more than 1,100 branches in 15 states. It operates several dozen branches in Central New York.