Fee income setback takes bite out of KeyCorp's profit

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Lower fee income cut into quarterly profit at KeyCorp.

The $141.5 billion-asset company said in a press release Thursday that first-quarter profit fell by 16% from a year earlier, to $386 million. Earnings per share of 38 cents were 3 cents lower than the mean estimate of analysts polled by FactSet Research Systems.

Total revenue fell by 2%, to $1.5 billion.

Noninterest income decreased by 11%, to $536 million. The results included double-digit declines in income from investment banking, corporate services and trust services. Other income decreased by 50%, largely as a result of market-related losses in the first quarter.

Despite the setback, Key executives expressed confidence the company would meet its full-year target — established in January — of producing $2.5 billion to $2.6 billion in noninterest income in 2019, though it will require a $120 million increase in fee income over each of the next three quarters. Key expects noninterest income to have a double-digit rebound in the second quarter.

"Our pipelines are very strong, and we do have deals to push out of the first quarter into subsequent periods," Don Kimble, the Cleveland company's chief financial officer, said during a conference call to discuss financial results.

Net interest income increased by 3.5%, to $985 million. Total loans increased by 2.4%, to $90 billion, while total deposits rose by 3%, to $108 billion. The net interest margin narrowed by 2 basis points, to 3.13%.

Noninterest expense fell by 3.7%, to $963 million, reflecting efficiency efforts. Personnel expense decreased by 5%, to $563 million, after the company cut 986 positions. Key also closed 34 branches over the 12-month period that ended March 31.

"We continued to execute against our continuous improvement plans across the company, driving a meaningful reduction in our expenses," Beth Mooney, Key's chairman and CEO, said in the release.

Key reported a 61.9% efficiency ratio in the first quarter. The company aims to lower that ratio to 54% to 56% in the second half of this year.

KeyCorp completed its purchase of Laurel Road Bank's digital business in early April. It said the platform will enhance its digital capabilities and aligns with its strategy of building broad-based relationships with targeted clients and prospects.

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