Liquidity continues to dominate Q1 earnings season for banking. Saying his company can finally “play offense,” Cleveland-based KeyBank CEO Chris Gorman presented a solid balance sheet and a cautious take on the economic tailwinds for the balance of 2024.
“While it’s still early in the year, we are on pace to deliver against the commitments that we detailed at the beginning of this year,” Gorman said in the Thursday (April 18) earnings report. “Key is back to playing offense and I remain excited about our future and our ability to generate sound profitable growth.”
By the numbers, KeyBank reported Q1 earnings of $183 million, or 20 cents per share, affected by a two-cent FDIC special assessment charge. Despite this, the bank posted its strongest first-quarter investment banking results in history, with fee revenue increasing 6% both sequentially and year-over-year. Retail relationship households grew by 2.5%, and commercial client numbers by 6%, reflecting steady customer deposit growth and reduced reliance on costlier funding sources. Expenses were at $1.1 billion, while non-performing assets and credit losses remained low. KeyBank also continued to build its credit reserves.
The quarter also marked a record for organic capital accumulation. The bank saw strong performance across capital markets and has been actively raising capital, totaling over $22 billion in the quarter, of which 12% was retained on the balance sheet. Gorman took time in the earnings call to highlight a new strategic partnership with Blackstone, which aims to enhance growth and manage credit risks using an underwrite-to-distribute model.
“This partnership will allow us to accelerate growth and manage credit concentration risk within our differentiated commercial platform,” Gorman said. “It is another example of how we are delivering best in class execution for our clients. This deal also further validates our distinctive underwrite to distribute model, in that one of the largest private credit providers has recognized our platform for its ability to originate soundly underwrite and service at volume with our high-quality clients. As markets evolve, we will continue to evaluate the potential for arrangements with other leading providers like this one, which allow us to operate distinctive experience for our clients, while concurrently managing our risk.”
In keeping with the theme of managing liquidity, Gorman also focused on credit quality, highlighting a strong performance with non-performing loans, net credit losses, and delinquencies maintaining low historical levels, all below the bank’s full-year targets for 2024. He did note a first-quarter increase in “criticized” loans, which are an indicator of financial stress, saying that they can be expected during a prolonged period of higher inflation. According to the earnings call presentation, over 90% of the clients considered most vulnerable were in a sustained high-inflation environment, covering over 80% of the bank’s commercial exposures.
In the weeks preceding the first-quarter earnings announcement, KeyBank focused on its residential loan programs. Its Home Buyer Credit program offers homebuyers purchasing eligible properties in designated communities up to $5,000 toward closing costs and prepaid fees. From the program’s inception in September 2022 through March 26, 2024, the bank funded approximately $1.7 million in Home Buyer Credits, for 382 clients. In total, KeyBank has $322.9 million in mortgage loan applications for approximately $2.8 million in Home Buyer Credits to assist 646 clients.
