KeyCorp net income dips 4 percent in first quarter

KeyCorp (NYSE: KEY) — parent of KeyBank, which ranks No. 2 in deposit market share in the 16-county Central New York region — recently reported that its net income from continuing operations fell 4 percent in the first quarter to $386 million from $402 million in the year-ago period.

Key’s earnings per share (EPS) was unchanged at 38 cents in the quarter. Its results included 2 cents per share for efficiency-initiative expenses, according to its April 18 earnings report. Adjusting for those charges, Key reported EPS of 40 cents. That missed the consensus analysts’ estimate of 42 cents, according to Zacks Equity Research.

The Cleveland, Ohio–based banking company posted total revenue of $1.52 billion in the first quarter, down 2.1 percent from a year earlier. Net interest income grew 3.5 percent to $985 million in the latest quarter from $952 million a year prior. Noninterest income fell 10.8 percent to $536 million from $601 million.

“Our results this quarter reflect solid underlying trends in our core businesses, strong expense management and continued strength in credit quality. Revenue benefitted from continued balance sheet growth, including an 8 percent increase in commercial and industrial loans from the same period last year, and a 5 percent increase in average deposits. Fee income this quarter declined, primarily due to lower capital-markets income, driven by both seasonality and the timing in closing certain transactions,” Beth Mooney, Key’s chairman, CEO, and president, said in the earnings report. “We continued to execute against our continuous improvement plans across the company, driving a meaningful reduction in our expenses, down 7 percent, excluding notable items, from the year-ago period. Importantly, we remain confident in reaching our targeted cash efficiency ratio of 54 percent to 56 percent in the second half of 2019.”

Key posted noninterest expense of $963 million in the first quarter of 2019, compared to $1 billion in the year-ago period. The decline largely resulted from Key’s efficiency-initiative efforts across the company. Labor expenses declined $31 million compared to the year-ago period, driven by lower salary expenses, incentive compensation, and employee-benefits costs, the earnings report stated. That was partially offset by higher severance expense related to efficiency-initiative actions taken during the quarter. 

Key had average loans of $89.6 billion in the first quarter, up $2.7 billion from the first quarter of 2018, reflecting “broad-based growth in commercial and industrial loans and growth in indirect auto lending, partially offset by continued paydowns in home equity lines of credit,” the banking company said.

“The primary driver of loan growth was commercial and industrial loans with average balances up 8 percent versus the year ago period,” Mooney said on an April 18 conference calls with analysts, discussing the banking company’s earnings.

Capital plans

On the same day as its earnings report, KeyCorp also announced its capital plans for the period starting with the third quarter of 2019, extending one year out. The plans include a common-share repurchase program of up to $1 billion, as well as a 9 percent increase in the banking company’s common-share dividend, from 17 cents to 18.5 cents a common share in the third quarter, subject to board approval. “Our strong capital position supports both our organic growth as well as our planned capital actions,” Mooney said on the conference call.

KeyCorp’s roots trace back 190 years to Albany, New York. Key is one of the nation’s largest bank-based financial-services companies, with assets of about $141.5 billion, as of March 31. The banking company provides deposit, lending, cash management, and investment services to individuals and businesses in 15 states under the name KeyBank through a network of more than 1,100 branches. It operates several dozen branches in Central New York.