KEY KeyCorp

By Lisa Beilfuss 

Regional lender KeyCorp said third-quarter profit rose, thanks to higher commercial lending and increased fee revenue.

While revenue topped expectations, per-share earnings fell a penny short of Wall Street expectations. KeyCorp shares, down about 14% over the past three months, rose 4.5% in morning trading.

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 charged reduced earnings per share by one cent.

As it grapples with low rates, the bank, like other regional lenders, has tried to amp up its fee-based businesses to generate stable fees. Noninterest income jumped 13% to $470 million--accounting for 44% of total revenue--in the latest quarter, aided by Pacific Crest. KeyCorp also said it saw higher investment banking and credit card fees during the quarter. Mr. Kimble said fee revenue would grow roughly 4% to 6% this year.

Commercial lending was strong during the quarter and surged 15% from a year earlier, offsetting declines in other segments and pushing average loans up 6.2%. On a call with analysts, E.J. Burke, Co-President of Key Community Bank, said the lender has made a significant investment in commercial bankers. Key is "putting more feet on the street" and is "starting to see dividends coming from those," Mr. Burke said.

Deposits also increased and were up about 2% from the year-ago period.

Like many other lenders hamstrung by low interest rates, 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 last year's 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 a call with analysts and investors, 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. The metric edged down to 2.87% from 2.88% in the second quarter and fell from 2.96% a year earlier. The company had in July signaled that its net interest margin might worsen during the quarter.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

(END) Dow Jones Newswires

October 15, 2015 11:23 ET (15:23 GMT)

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