KeyCorp's reentry into the mortgage business is set to occur next year, Chief Executive Beth Mooney said Thursday.

The Cleveland company has been in and out of the residential mortgage business since the 1990s but said in March that it had decided to make mortgages a priority again because of its strategic emphasis on cross-selling more products to retail customers.

KeyCorp has been making the necessary investments and should be "in a position to underwrite and offer mortgages in 2016 directly," Mooney said during a conference call about second-quarter earnings.

"We don't view it as a stand-alone business as yet but an importantÂ…product that our clients value," Mooney said. "That is an important strategic initiative for us."

Traditionally KeyCorp has used an "outsourced model" for mortgages and will originate them in-house instead, Mooney explained.

Unlike some of its peers, KeyCorp generates a large portion of its consumer loan book from home equity lines of credit. It originally became a major player in mortgages in 1991 when it purchased Goldome but sold its mortgage-servicing rights portfolio and platform almost four years later. It reentered mortgages when it bought Champion Mortgage in 1997 but sold its subprime loan portfolio and origination business about a decade later.

To ramp up mortgages yet again, KeyCorp this year hired Mark Danahy, a veteran of the mortgage business, as president of its mortgage operations.

Separately, management at the $94.6 billion-asset KeyCorp also addressed the possibility of rising interest rates and what effect they could have on deposits, a hot topic during second-quarter bank earnings calls this week.

JPMorgan Chase's chief financial officer, Marianne Lake, warned Tuesday that she is "expecting retail deposits to reprice higher and faster in this cycle than in previous rising-rate cycles" because of technological, regulatory and other changes.

KeyCorp is ready for any change, executives emphasized.

CFO Don Kimble said loan-to-deposit ratios were stronger than during the rate increase in the early 2000s, which should minimize the short-term impact. But longer term, consumer deposits are likely to be "much more valuable and I think we'll see an increase in competition for those consumer deposits."

Moreover, Mooney described KeyCorp's deposits as relatively sticky overall.

The "mix of our deposit base is stronger than it has ever been" because the company has worked to gather more core retail and commercial deposits and chased less rate-sensitive money, she said.

Still, there is some uncertainty. "We have been in such an extended low interest rate environment that the competitive dynamics of how the industry will respond is a chapter that is yet to be written," Mooney said.

In the second quarter, KeyCorp reported a profit of $233 million, up almost 9% from a year earlier, as fee income surged. Total revenue increased more than 4%, to $1.1 billion, from a year earlier. Noninterest income was $488 million, up roughly 7% from a year earlier, mainly driven by a 18% jump in trust and investment services revenue and a 42% increase in investment banking and debt-placement fees.

Net interest income rose 2%, to $591 million, as the commercial, financial and agricultural loan portfolio increased almost 10%, to $29.3 billion. Average total loans increased more than 4%, to $58 billion. KeyCorp's net interest margin declined 10 basis points, to 2.88%, year over year.

Noninterest expenses totaled $711 million, up more than 3% from a year earlier, mainly because of performance-based compensation and the acquisition of Pacific Crest Securities, a technology-focused investment bank, in the third quarter of 2014, KeyCorp said. The company's efficiency ratio improved five basis points, to 65.1%.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.