KeyCorp Reports 18% Profit Increase -- 2nd Update

By Lisa Beilfuss And Rachel Louise Ensign 

Regional lender KeyCorp said third-quarter profit rose on strong performance in the bank's corporate-focused businesses.

Revenue topped Wall Street expectations and Key shares, now down about 13% over the past three months, rose about 4.5% in afternoon trading.

"People thought we were going to be an underperformer this quarter," Key Chief Executive Beth Mooney said in an interview. Instead, she said the earnings report surprised by showing that the company can grow across the board without the help of higher interest rates.

The Cleveland-based bank reported a profit of $219 million, or 26 cents a share, up from $186 million, or 21 cents, a year earlier. Revenue increased 7% to $1.07 billion. Analysts projected 27 cents in per-share profit on $1.05 billion in revenue, according to Thomson Reuters. Key said a pension settlement charge reduced earnings per share by one cent.

The bank's performance was aided by strong revenue from its business banking segments. Noninterest income jumped 13% to $470 million in the latest quarter, aided by Pacific Crest Securities, a technology-focused investment bank Key acquired last year. The bank posted double-digit growth in investment banking, debt placement and corporate-services income from the year prior.

Commercial lending rose 15% from a year earlier, offsetting declines in other segments and pushing average loans up 6.2% overall. Key executives say their firm has made a significant investment in commercial bankers.

Deposits also increased and were up about 3% from the year-ago period.

Like many other lenders hamstrung by low interest rates that have made lending less profitable, Key has moved to cut costs and has closed some branches. Despite those initiatives, the lender saw noninterest expenses rise 2.5% from the year-ago quarter as it spent more on banker salaries and due to costs associated with the acquisition of Pacific Crest.

Still, KeyCorp managed to push its efficiency ratio, a measure of costs as a percentage of revenue where lower is better, down to 66.9% from 69.7% a year earlier. On the earnings call, Chief Financial Officer Don Kimble said Key still thinks it can get its efficiency ratio to the low-60s range, despite the uncertainty over when interest rates will rise.

KeyCorp's net interest margin, an important gauge of lending profitability that measures how much a bank earns from the difference between what it pays on deposits and what it takes in on loans and investments, declined slightly. The metric edged down to 2.87% from 2.88% in the second quarter and fell from 2.96% a year earlier.

Ms. Mooney said in an interview that she thinks it is time for the Fed to raise interest rates, echoing recent comments from other bank chief executives.

Write to Lisa Beilfuss at [e-mail] and Rachel Louise Ensign at [e-mail]

(END) Dow Jones Newswires

October 15, 2015 16:10 ET (20:10 GMT)

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