KeyCorp Says Real Estate Driving Rise in Net Loan Charge-Offs

KeyCorp saw net loan charge-offs rise during the fourth quarter, driven by real estate, healthcare and consumer goods.

They rose to $76 million during the quarter, up from $74 million in the previous quarter and $41 million a year earlier, the bank said in a Thursday (Jan. 18) earnings release.

Compared to average total loans, the net loan charge-offs in the fourth quarter were 0.26%, up from 0.24% in the third quarter and 0.14% in the fourth quarter of 2022, the release said.

The increase was “driven by movements in real estate, healthcare and consumer goods,” KeyCorp Chief Financial Officer Clark Khayat said Thursday during the company’s quarterly earnings call.

The net loan charge-off figures remain well below historical averages, Keycorp Chairman and CEO Chris Gorman said during the call.

“Credit quality remains a clear strength of Key,” Gorman said. “Our credit measures reflect the de-risking we have done over the past decade and our distinctive underwrite-to-distribute model.”

The bank raised its allowance for credit losses to 1.60% of total period-end loans as of Dec. 31. The new allowance is up from 1.54% at Sept. 30 and 1.31% at Dec. 31, 2022, according to the release.

The addition to the allowance for credit losses came in response to “the still uncertain macro outlook,” Khayat said during the call.

Asked by an analyst about a competitor’s comments that scale is more important than it has ever been when it comes to commercial relationships and deposits, Gorman said that banks today must carry more capital, at a time when capital is more expensive, and invest in technology.

That makes scale more important than it was 12 months ago, but “I do not think scale is the answer for a bank like Key,” Gorman said.

“What we’ve decided to do is focus on targeted scale to be really, really relevant to the customers that we try to be relevant to,” Gorman said. “We’re certainly not trying to compete in the same model as the larger banks. They have a nice business model, it works for them, but that’s not a business model that we’re executing at all.”

William S. Demchak, chairman, president and CEO of PNC Financial Services Group, said Tuesday (Jan. 16) during that bank’s earnings call that corporate deposits were moving to the largest banks in the wake of the banking “mini crisis” in March.