) fourth quarter 2012 earnings came in at 22 cents per share.
This was in line with the Zacks Consensus Estimate as well as the
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Considering costs associated with the Fit for Growth efficiency
initiative, net income in the reported quarter came in at $197
million or 21 cents per share. This compares with $194 million or
20 cents recorded in the prior-year quarter.
Top-line growth, continued improvement in credit quality and
robust capital ratios were the primary highlights of the quarter.
However, higher operating expenses marginally subdued the
For 2012, KeyCorp's earnings of 90 cents per share were a penny
ahead of the Zacks Consensus Estimate. However, this was
marginally below the last year's earnings of 92 cents.
Behind the Headlines
KeyCorp's total revenue came in at $1.07 million, rising 9.8%
from the prior-year quarter. Moreover, it outpaced the Zacks
Consensus Estimate of $1.06 billion.
For 2012, total revenue was $4.26 billion, up 3.7% from $4.10
billion in 2011. Also, this was ahead of the Zacks Consensus
Estimate of $4.19 billion.
Tax-equivalent net interest income (NII) totaled $607 million,
climbing 7.8% from $563 million in the prior-year quarter. Net
interest margin (NIM) also increased 24 basis points (bps)
sequentially to 3.37%. The improvements in NII and NIM
primarily driven by a change in funding mix, maturity of
long-term debt and maturity of higher-costing certificates of
deposit during the past year.
Non-interest income climbed 12.6% year over year to $466 million.
The upliftment was primarily a result of elevated service charges
on deposit accounts, insurance income, net gains from loan sales
as well as investment banking and capital markets income. These
were partially offset by a decline in operating lease income and
lower gains on leased equipment.
Non-interest expense surged 5.4% from the prior-year quarter to
$756 million. The rise was mainly attributable to increased
personnel expenditure, net occupancy costs, intangible asset
amortization on credit cards as well as higher other intangible
asset amortization. These were partially offset by a fall in
operating lease expense, business services and professional
fees as well as other real estate owned (OREO) expense.
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, was
1.39%, in line sequentially and dipping 34 bps year over year.
Also, net charge-offs, as a percentage of average loans,
decreased 42 bps both sequentially and year over year to 0.44%.
KeyCorp's allowance for loan and lease losses was 1.68% of
period-end loans as of Dec 31, 2012, compared with 1.73% as of
Sep 30, 2012 and 2.03% as of Dec 31, 2011.
Provision for loan and lease losses came in at $57 million, down
47.8% from $109 million recorded in the prior quarter. However,
it was substantially up from credit provision of $22 million in
the prior-year quarter.
As of Dec 31, 2012, KeyCorp had total assets of $89.2 billion
compared with $87.0 billion as of Sep 30, 2012, and $88.8 billion
as of Dec 31, 2011.
Average deposits came in at $63.9 billion, up from $62.7 billion
as of Sep 30, 2012 and $59.6 billion as of Dec 31, 2011. Further,
average loans stood at $51.9 billion compared with $50.7 billion
as of Sep 30, 2012 and $48.7 billion as of Dec 31, 2011.
Capital ratios continued to remain strong during the quarter.
KeyCorp's tangible common equity to tangible assets ratio was
10.15% as of Dec 31, 2012, compared with 9.88% as of Dec 31,
2011. In addition, Tier 1 common equity ratio was 11.16%,
compared with 11.26% at the end of the prior-year quarter.
The company's estimated Basel III Tier 1 common ratio was 10.17%
at the end of the reported quarter compared with 10.14% in the
Share Repurchase Update
During the quarter, KeyCorp bought back 10.53 million shares
worth $89 million. Following these repurchases, the company has
remaining authority to repurchase up to $88 million of its common
shares under its new share repurchase program, which has no
Among other major regional banks,
State Street Corporation
Fifth Third Bancorp
) reported better-than-expected fourth-quarter earnings. Top-line
growth was the main contributing factor for the improved results
at these companies.
We expect KeyCorp's business restructuring actions to continue to
fuel its credit quality and liquidity. Though the company's
capital deployment plan highlights its stable capital position,
we remain wary of the persisting slow economic recovery,
stringent regulatory restrictions and the low interest rate
scenario. Nevertheless, we are optimistic on the company's strong
balance sheet and improved market share.
KeyCorp currently retains a Zacks Rank #3 (Hold).