Cleveland-based KeyCorp said profit and revenue edged higher in
the most recent quarter, though a key measure of lending
profitability declined.
Per-share earnings fell a penny short of Wall Street
expectations.
The bank posted earnings of $238 million, up from $219 million
in the prior-year period. On a per-share basis, earnings rose to 27
cents from 24 cents. Revenue at the regional lender rose 4.4% to
$1.1 billion.
Analysts expected 28 cents a share in earnings and $1 billion in
revenue, according to Thomson Reuters.
Lending grew 4.3% in the second quarter, led by a 9.7% increase
in commercial, financial and agriculture loans.
Net interest margin, an important measure of lending
profitability, slipped to 2.88% from 2.98% a year earlier and 2.91%
in the first quarter. Net interest margin measures how much a bank
earns from the difference between what it pays on deposits and what
it takes in on loans and investments. For many banks, the metric
has been under pressure amid continued low interest rates.
To help offset declines stemming from low rates, many banks have
invested in noninterest-income businesses that generate stable
fees. With roughly 1,000 branches in 12 states, KeyCorp has cut its
branch count by about 9% over the past two years and is focused
mainly on corporate and investment services.
Chief Executive Beth Mooney credited growth in fee-based
businesses, in particular a 42% jump in investment-banking profit,
for driving second-quarter results. That business grew to $141
million in the second quarter and represented over a quarter of
fee-based profit.
At the same time, KeyCorp—like other lenders grappling with the
impact of still-low rates—has focused on controlling costs.
Whittling down its number of branches by 2% to 3% a year is part of
KeyCorp's expense-management plan. But in the latest quarter, the
bank said noninterest expenses rose 3.5%, reflecting higher
compensation costs and last year's acquisition of Pacific Crest
Securities. Still, the bank's efficiency ratio, which measures
costs as a percentage of revenue, was 65.1%, compared with last
year's 65.6%. Long term, KeyCorp targets an efficiency ratio below
60%.
Shares in the company, which have been trading recently at their
highest levels since mid-2008, were inactive premarket.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
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