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Cleveland-based KeyCorp posted a third-quarter loss on a one-time charge but saw its core profits jump 9%, as its much-hoped-for rebound in net interest income started to bear fruit.
KeyCorp did suffer a major one-time hit due to a sale last month of low-yielding bonds, part of a recent deal in which Canada's Bank of Nova Scotia took a small stake in KeyCorp. The Cleveland bank took a one-time $737 million charge from selling the bonds, swinging the company's quarterly earnings into negative territory with a $447 million loss.
Excluding the impact of the one-time transaction, KeyCorp's profits rose to $290 million in the quarter, compared with $266 million in the same quarter a year earlier.
Adjusted diluted earnings per share in the quarter were 30 cents.
"Underlying results were solid as relationship clients, deposits and business-related fees all demonstrated continued momentum," Chief Executive Chris Gorman said in a news release, which also pointed to strong client pipelines and "further expected net interest income tailwinds in the quarters ahead."
The bank's net interest income totaled $964 million, up 4.4% from a year ago.
Continued improvement in net interest income would be welcome for KeyCorp, whose profits underperformed several other regional banks last year. The company had saddled itself with a relatively large pool of low-yielding bonds, dragging down its profits as it collected small interest payments on them.
Selling some $7 billion of those bonds was no doubt painful, but it's given KeyCorp the flexibility to reinvest fresh cash into higher-paying investments and its core business: lending.
The bank was able to do so thanks to the initial $821 million investment it got from Scotiabank last month. The Canadian bank now owns a 4.9% stake in KeyCorp.
Continued improvement in net interest income would be welcome for KeyCorp, whose profits underperformed several other regional banks last year. The company had saddled itself with a relatively large pool of low-yielding bonds, dragging down its profits as it collected small interest payments on them.
Selling some $7 billion of those bonds was no doubt painful, but it's given KeyCorp the flexibility to reinvest fresh cash into higher-paying investments and its core business: lending.
The bank was able to do so thanks to the initial $821 million investment it got from Scotiabank last month. The Canadian bank now owns a 4.9% stake in KeyCorp, the parent company of KeyBank.
A follow-on $2 billion investment from Scotiabank is awaiting approval from the Federal Reserve. Scotiabank's ownership of KeyCorp would rise to 14.9% under the deal, which the companies expect to close in the first quarter of 2025.
The deal specifies that Scotiabank cannot increase its ownership above 19.9% for five years, though some analysts wonder whether the Canadian bank is setting up for buying the bank in full. Doing so would give it more heft in the United States, where its Canadian rivals have a major retail footprint.
In the meantime, KeyCorp has said the deal will enable the bank to be more "front-footed" as it looks to finance its clients' growth.
It had been scaling back its operations slightly over the past year. Average loans at KeyCorp fell to $106.2 billion during the quarter, down from $117.6 billion a year earlier. The company attributed the drop to its "planned balance sheet optimization efforts" along with "tepid client loan demand."
The company has seen more momentum on its fee-driving operations. Pipelines for investment banking and debt placement deals "remain near record levels," Gorman said. Wealth management and commercial payments services are also showing strength, he said.
KeyCorp also recorded $154 million in net loan-charge-offs, more than double the $71 million it saw in the year-ago quarter. The company also said its nonperforming loans rose to 0.69% of total loans, up from 0.39% in the year-ago quarter.
