) first-quarter earnings from continuing operations came in at 26
cents per share, surpassing the Zacks Consensus Estimate of 24
cents on the back of lower provisions and prudent expense
management. Moreover, this was up 23.8% from the year-ago quarter
figure of 21 cents per share.
KeyCorp's share price gained more than 1% in the pre-trading
session thereby reflecting positive investor response. The
movement of the stock price during the full trading session will
give a better idea about whether KeyCorp has been able to meet
Results benefited from lower expenses, a decline in provision for
loan and lease losses and higher fee income. However, the
pressure on interest income persisted, given a still low interest
rate scenario. Further, continued improvement in asset quality,
growth in loan and deposit balances, along with strong capital
ratios were the other highlights of the quarter.
Net income from continuing operations attributable to common
shareholders came in at $232 million, up 18.4% year over year.
Behind the Headlines
KeyCorp's total revenue came in at $1.00 billion, down 1.0% from
the prior-year quarter. However, it was almost in line with the
Zacks Consensus Estimate.
Tax-equivalent net interest income (NII) fell 3.0% from the
prior-year quarter to $569 million. Likewise, net interest margin
(NIM) decreased 24 basis points (bps) year over year to 3.00%.
The decline in both NII and NIM was mainly due to a fall in
earning assets yields and loan fees, partially offset by loan
growth, maturity of higher-rate certificates of deposit and a
favorable mix of lower-cost deposits.
Non-interest income grew 2.4% year over year to $435 million. The
rise was largely attributable to increase in mortgage servicing
fees and net gains from principal investing, partially offset by
decrease in consumer mortgage income.
Non-interest expense fell 2.8% from the prior-year quarter to
$662 million. The decrease was due to lower personnel expense as
well as non personnel expense.
As of Mar 31, 2014, total deposits came in at $67 billion, up
4.0% from $65 billion as of Mar 31, 2013. Further, total loans
were $55 billion, up 5.5% from Mar 31, 2013.
Credit quality continued to improve during the quarter.
Nonperforming assets, as a percentage of period-end portfolio
loans, OREO assets and other nonperforming assets, were 0.85%,
down 49 bps year over year. Moreover, net loan charge-offs, as a
percentage of average loans, decreased 23 bps year over year to
KeyCorp's allowance for loan and lease losses was $834 million,
down 6.6% from the year-ago quarter. Further, provision for loan
and lease losses came in at $6 million, down 89.1% year over
Though capital ratios deteriorated during the first quarter,
these continued to remain strong. KeyCorp's tangible common
equity to tangible assets ratio was 10.14% as of Mar 31, 2014,
compared with 10.24% as of Mar 31, 2013. In addition, Tier 1
common equity ratio was 11.22% versus 11.40% as of Mar 31, 2013.
The company's estimated Basel III Tier 1 common ratio was 10.67%
at the end of the reported quarter. This exceeded the fully
phased-in required minimum Tier 1 common equity ratio of 7.00%.
During the reported quarter, KeyCorp bought back shares worth
KeyCorp's 2014 capital plan was approved by the Federal Reserve
following the Comprehensive Capital Analysis and Review this
year. In accordance with the approval, the company's board of
directors authorized share repurchases of up to $542 million
through first-quarter 2015.
The capital plan also included a proposed hike in the company's
regular quarterly dividend to $0.065 per share from the earlier
payout of $0.055 per share. However, the same is yet to be
approved by the board of directors.
A decline in expenses and organic growth strategies will continue
supporting KeyCorp's long-term performance. Moreover, we are
optimistic about the company's strong balance sheet and improved
market share. Nevertheless, the sluggish economic recovery,
pressure on top line and stringent regulatory restrictions remain
At present, KeyCorp has a Zacks Rank #2 (Buy).
Performance of Other Major Banks
Among other major regional banks,
M&T Bank Corporation
) beat the Zacks Consensus Estimate. While lower provisions drove
better-than-expected results at M&T Bank, Comerica's
performance was aided by decline in both expenses and provisions.
However, higher expenses weighed on
Northern Trust Corporation
) earnings and the company delivered a negative earnings surprise
this quarter. However, this was partially offset by top-line
COMERICA INC (CMA): Free Stock Analysis
KEYCORP NEW (KEY): Free Stock Analysis Report
M&T BANK CORP (MTB): Free Stock Analysis
NORTHERN TRUST (NTRS): Free Stock Analysis
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