KeyCorp Q3 Earnings Hurt by Drop in Operating Lease Income

KeyCorp announced Q3/14 net income from continuing operations attributable to Key common shareholders of $197 million compared to $229 million in Q3/13. The bank said the Q3/14 net interest margin was 2.96% compared to a net interest margin of 3.11% a year earlier. Key noted that the net interest margin was negatively impacted by higher levels of excess liquidity, and lower earning asset yields.

Also noted was noninterest income was down $42 million primarily due to $27 million in lower operating lease income and other leasing gains as the prior year included the benefit of an early termination of a leveraged lease.

For the nine months ended September 30, 2014, net income was $671 million compared to $618 million for the same period one year ago. During the nine months ended September 30, 2014, Key said it incurred $69 million of costs related to both its efficiency initiative and a pension settlement charge, compared to $93 million during the nine months ended September 30, 2013.

KeyCorp noted that Q3/14 and YTD September average commercial lease financing balances were $4,145 billion and $4,280 billion, respectively compared to $4,633 billion and $4,740 billion in the same periods one-year ago. Commercial lease financing yields for Q3/14 and YTD were 3.66% and 3.67%, respectively compared to 3.14% and 3.68% in the same 2013 periods.

The bank said average loans up 5% from prior year, driven by an 11% increase in commercial, financial and agricultural loans. Credit quality remains strong, with net loan charge-offs to average loans of .22% compared to .28% in Q3/13. Year-to-date net loan charge-offs to average loans were .20% compared to .33% for the same nine-month period in 2013.

“Key’s third quarter reflects solid results in our core businesses as we continue to execute on our relationship strategy, while remaining disciplined in managing risk and our strong capital position,” said chairman and CEO Beth Mooney. “Compared with the same period last year, average loans increased 5%, driven by growth in commercial, financial and agricultural loans. We saw positive trends in several of our fee-based businesses, while we realized lower gains from principal investing and leveraged lease terminations. In the third quarter, the number of retail clients grew and we improved sales productivity across both the Community Bank and Corporate Bank. We also closed the acquisition of Pacific Crest Securities during the quarter, adding an important new industry vertical and underscoring our commitment to be the leading corporate and investment bank serving middle market clients.”

To view the full KeyCorp news release, click here.

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