KeyBank continues to reap dividends from its 2019 acquisition of online lending business Laurel Road, citing the transaction, along with residential mortgages, as a key driver for its recent growth in consumer loan originations.
“As far as consumer loans, that relatively stable outlook for total loans would assume consumer loans in aggregate grow about $2 billion from 2020 to 2021. And that growth really coming from both residential mortgage and from Laurel Road,” Chief Financial Officer Don Kimble said during Thursday’s fourth-quarter earnings call.
The $186.3 billion bank in Q4 gained $590 million in originations and last year originated more than $2.3 million in loans from Laurel Road, according to the earnings call.
The online lending business provides solutions to targeted customer segments, such lawyers and graduate students. This year, the Cleveland-based KeyBank launched Laurel Road for Doctors, a digital banking platform tailored to physicians and dentists.
“Keep in mind that we’re at the early stages as far as rolling out that platform throughout our branch network, seeing strong growth there,” Kimble said. “And in of that $2.5 billion in the fourth quarter and of the $8.3 billion for the full year, about half of that was for purchase money as opposed to refinance. And so we think that there still will be opportunities to continue to show growth there.”
The bank reported Q4 net revenue of $1.9 billion, a 5.5% year-over-year increase. It reported Q4 income of $601 million, up from $549 million YoY but down slightly from $616 million sequentially.
While many banks are increasing their tech spend, KeyBank reported that its “computer processing” spend was $73 million, down 11% YoY and down 6% sequentially.
Total noninterest expense for the quarter was $1.1 billion compared with $980 million in Q4 2020, and $1 billion in the prior quarter, according to the earnings report. The elevated spending was due to ”higher production-related incentives, severance and the funding of our philanthropic foundation,” said Chairman and CEO Chris Gorman on the call.
In addition to growing Laurel Road, the bank noted further investments to its enhanced digital and analytics capabilities, but did not note the price tags for those investments. The bank’s “robust analytics” helped KeyBank with branch closings, which it accelerated in 2021, Gorman said. The bank expects to consolidate 70 more branches, or 7% of its network, during the first half of the year.
“Our decisions are driven by client behavior as more activity continues to move to our digital channels,” Gorman said. “It’s also informed by our robust analytics. We expect limited client attrition as a high percentage of the impacted branches are located within 2 miles of another Key facility.”
Shares of Key Corp. [NYSE: KEY] were trading at $24.79 at close of market, down 1.35% from market open.
[Editor’s Note: Tech spend may be incorporated into other non-interest expenses listed at KeyBank, such as equipment, professional services and the catchall “other expenses,” which were $171 million.]
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