KeyCorp's ( KEY ) first-quarter
adjusted earnings came in at 22 cents per share. This was
marginally ahead of the Zacks Consensus Estimate as well as the
year-ago earnings of 20 cents.COMERICA INC (CMA): Free Stock Analysis ReportKEYCORP NEW (KEY): Free Stock Analysis ReportM&T BANK CORP (MTB): Free Stock Analysis
ReportUS BANCORP (USB): Free Stock Analysis ReportTo read this article on Zacks.com click here.
Considering costs associated with the Fit for Growth efficiency
initiative, net income attributable to common shareholders came in
at $199 million or 21 cents per share. This compares with $194
million or 20 cents recorded in the prior-year quarter.
The slight improvement in earnings was driven by a rise in net
interest income and almost stable operating expenses, which were
partially offset by fall in fee income. Moreover, continued
improvement in asset quality and strong capital ratios were the
other highlights of the quarter.
Behind the Headlines
KeyCorp's total revenue came in at $1.01 million, rising 1.3% from
the prior-year quarter. However, it lagged the Zacks Consensus
Estimate of $1.05 billion.
Tax-equivalent net interest income (NII) totaled $589 million,
climbing 5.4% from $559 million in the prior-year quarter.
Likewise, net interest margin (NIM) increased 8 basis points (bps)
year over year to 3.24%. The improvements in NII and NIM were
primarily driven by a change in funding mix as well as maturity of
long-term debt and higher-costing certificates of deposit in
Non-interest income declined 3.8% year over year to $425 million.
The drop primarily resulted from a fall in operating lease income
and other leasing gains along with lower net gains from principal
investing. These were partially offset by rise in investment
banking and debt placement fees as well as other income.
Non-interest expense inched up 0.3% from the prior-year quarter to
$681 million. The rise was mainly attributable to increase in
personnel expenditure and intangible asset amortization costs.
These were partially offset by a fall in marketing expense,
operating lease expense and various other miscellaneous
Credit quality continued to display an improvement during the
quarter. Nonperforming assets, as a percentage of period-end
portfolio loans, OREO assets and other nonperforming assets were
1.34%, dipping 21 bps year over year. Also, net charge-offs, as a
percentage of average loans, decreased 44 bps year over year to
KeyCorp's allowance for loan and lease losses was 1.70% of
period-end loans as of Mar 31, 2013 and 1.92% as of Mar 31, 2012.
However, provision for loan and lease losses came in at $55
million, up 30.6% from $42 million recorded in the prior-year
As of Mar 31, 2013, KeyCorp had total assets of $89.2 billion
compared with $87.4 billion as of Mar 31, 2012.
Average deposits came in at $63.6 billion, up 6.7% from $59.6
billion as of Mar 31, 2012. Further, average loans stood at $52.6
billion increasing 6.5% from $49.4 billion as of Mar 31,
Capital ratios continued to remain strong during the quarter.
KeyCorp's tangible common equity to tangible assets ratio was
10.24% as of Mar 31, 2013, compared with 10.26% as of Mar 31, 2012.
In addition, Tier 1 common equity ratio was 11.39%, compared with
11.55% at the end of the prior-year quarter.
The company's estimated Basel III Tier 1 common ratio was 10.28%
at the end of the reported quarter compared with 10.38% in the
Capital Deployment Activities
In Mar 2013, the Federal Reserve approved KeyCorp's capital plan
following the 2013 Comprehensive Capital Analysis and Review
(CCAR). Consequently, the board of directors at KeyCorp announced a
$426 million share buyback program through the first quarter of
Further, KeyCorp will consider a dividend hike in May. The company
is looking forward to raising its dividend by 10% to 5.5 cents. The
dividend hike, if approved, would become effective second-quarter
During the quarter, KeyCorp bought back 6.8 million shares worth
$65 million. Following these repurchases, the company's
authorization to buyback shares under the 2012 capital plan
In Feb 2013, KeyCorp decided to sell-off its investment management
subsidiary, Victory Capital Management and broker dealer affiliate
Victory Capital Advisers. The company signed a deal with Crestview
Partners - a private equity firm - to vend the subsidiary for $246
million in cash and debt.
KeyCorp stated that of the total sale price, $201 million is in
cash, while the remaining $45 million is a seller note, whose final
value would be determined by the end of the year. The company
anticipates that upon closure, the deal will lead to an after-tax
gain in the range of $145-$155 million. Moreover, the sale is
expected to be completed by the end of the third-quarter of
Performance of Other Major Regional Banks
M&T Bank Corporation ( MTB ) and
Comerica Incorporated ( CMA ) reported
better-than-expected first-quarter earnings. For M&T Bank,
earnings were primarily aided by reduced provision for credit
losses, partially offset by rise in expenses and declining top
line. Comerica's results reflected reduced expenses, partly offset
by a decline in revenues.
Nevertheless, U.S. Bancorp ( USB ) was aided by
reduced non-interest expenses and a lower provision for credit
losses, as the company's first-quarter earnings were in line with
the Zacks Consensus Estimate.
We expect KeyCorp's business restructuring actions to continue to
fuel its credit quality and liquidity. Though the company's capital
deployment initiatives highlight its stable capital position, we
remain wary of the persisting slow economic recovery, stringent
regulatory restrictions and the low interest-rate scenario.
However, we are optimistic on the company's strong balance sheet
and improved market share.
KeyCorp currently retains a Zacks Rank #3 (Hold).