KeyCorp’s 2nd quarter profit rises 18 percent

KeyCorp (NYSE: KEY) — parent of KeyBank, which ranks 2nd in deposit market share in the 16-county Central New York area — reported that its second quarter net income from continuing operations rose to $464 million, or 44 cents a share, from $393 million, or 36 cents, in the year-ago period. 

This quarter’s earnings-per-share figure topped the consensus analyst estimate of 42 cents, according to Zacks Equity Research.

“Second quarter results were strong, driven by broad-based growth and momentum in our commercial and consumer businesses. Continued loan growth, higher fees, and expense discipline drove positive operating leverage for the quarter,” Beth Mooney, chairman and CEO of the Cleveland, Ohio–based banking company, said in Key’s July 19 earnings report. 

Key’s taxable-equivalent net interest income totaled $987 million in this year’s second quarter, unchanged from a year earlier. The banking company posted a net interest margin of 3.19 percent, down from 3.30 percent in the year-ago quarter. 

This quarter’s net interest income results included $28 million of “purchase-accounting accretion,” a decline of 

$72 million from the second quarter of 2017. Excluding purchase-accounting accretion, taxable-equivalent net interest income increased by $72 million in the year’s second quarter, and the net interest margin rose by 0.13 percent, Key said. This reflected the benefit from higher interest rates and higher earning asset balances.

Key posted noninterest income of 

$660 million in the second quarter of 2018, up slightly from $653 million in the year-ago quarter. The banking company said growth was led by a rise in investment banking and debt-placement fees, related to strength in advisory fees, including benefit from the acquisition of Cain Brothers. Mortgage-servicing fees also increased, led by portfolio growth and increases in special servicing fees. Other income rose compared to the year-ago quarter, largely due to a gain on the sale of the Key Insurance and Benefits Services unit. These increases were partially offset by a decline in operating lease income and other leasing gains, driven by a $42 million lease residual loss in the second quarter of 2018. Trust and investment services income also fell, due to the sale of Key Insurance and Benefits Services.

Key’s noninterest expense dipped to $993 million in the second quarter from $995 million in the year-ago period. Growth from acquisitions and investments, including Cain Brothers and HelloWallet, as well as the addition of “client-facing bankers” and continued investment in the residential mortgage business, contributed to both personnel and nonpersonnel expense in the latest quarter, Key explained. Efficiency-related expenses of $22 million (mostly severance costs) and $5 million of costs related to the sale of Key Insurance and Benefits Services also affected the current quarter’s results. Key said it also benefited from merger-related cost savings in this year’s second quarter, because in last year’s second quarter, the banking company incurred $44 million of merger-related charges and a $20 million charitable contribution.

KeyCorp’s average loans were $88.6 billion in the second quarter of 2018, up by $2.1 billion from a year prior, “reflecting broad-based growth in commercial and industrial loans, partially offset by a decline in commercial real estate balances related to higher paydowns,” the company noted.

KeyCorp provides deposit, lending, cash management, insurance, and investment services in 15 states through a network of about 1,200 KeyBank branches and more than 1,500 ATMs. Its roots trace back 190 years to Albany, New York.