KeyCorp Profits Fall 50% as Credit Loss Provisions Jump

KeyCorp’s profits plunged 50% as the regional lender set aside more funds for credit losses.

The bank released earnings Thursday (July 20), showing that its provisions for credit losses rose by 271% to $167 million, compared to $45 million for the same quarter last year.

According to the earnings report, KeyCorp’s net interest income declined by almost 11%, from $986 million in the quarter that ended in June versus $1.1 billion in the same quarter in 2022. The bank’s net income from continuing operations attributable to the company’s common shareholders was $250 million compared with $504 million last year.

The bank is one of many lenders around the country raising its loan loss provisions amid rising borrowing costs.

As noted here earlier this week, many regional banks have been warning that revenues could drop, with recent earnings from their larger counterparts highlighting the pressures facing smaller lenders. 

These banks have been coping with higher interest rates that have led them to pay more on customer funds as the value of their bonds falls, and future interest rate hikes and the threat of more regulation won’t make the situation any easier.

“As we go through earnings season, the attention is going to shift back from deposit levels to deposit costs, and the attention is going to shift back to net interest income,” Morgan Stanley analyst Manan Gosalia told Bloomberg News. “These things are heading the wrong way.”

That report noted that KeyCorp had last month warned that net interest income would dip by 12% this quarter and not the 4% to 5% it had earlier forecast.

The news comes as banks are facing growing pressure to offer innovations to retain their customers, as recent PYMNTS research — per the report “Credit Union Innovation: The Race to Meet Consumer Demand” — has shown.

The number of consumers who would switch or consider moving to new financial institutions (FIs) if that FI did not provide innovative financial products has risen by almost half in the last five years. Just 19% of account holders said they would make the switch in 2018, compared to 29% as of last year.

“The increase in the proportion of FI account holders willing to switch to another FI to find more innovative products and services indicates the value consumers place upon innovation,” said the report, done in collaboration with PSCU.