KeyCorp (NYSE:KEY) reported a profitable first quarter of 2011 as it rebounded from a loss in the same quarter last year. The bank benefited from improved asset quality in its portfolio, leading to a credit in its provision for loan losses.
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KeyCorp is a community bank with operations in 14 states ranging from Alaska to Maine, with a concentration in the Upper Midwest and Northeastern United States. The bank reported total assets of $90.4 billion and total deposits of $60.8 billion as of March 2011.
KeyCorp reported net income of $173 million, or 19 cents per diluted share in the first quarter of 2011. The bank reported a loss of $96 million or 11 cents per diluted share in the same quarter in 2010.
KeyCorp's earnings benefited from improved credit quality and lower loan loss provisions in the quarter, as the bank reported a credit of $40 million in the most recent quarter. The bank reported a charge of $413 million in the same quarter of 2010.
KeyCorp reported average loan balances during the first quarter of 2011 of $49.3 billion, a sequential and year over year decline for the bank. KeyCorp attributed the decline to a reduction in exposure to commercial real estate.
KeyCorp improved its asset quality during the quarter on both a sequential and year over year basis. Nonperforming assets in the first quarter of 2011 totaled $1.09 billion, down from $1.34 billion in the previous quarter and $2.43 billion a year earlier.
KeyCorp has also been focused on reigning in costs and continued that effort in the first quarter of 2011. Over the last 10 quarters, the bank has achieved cost savings equal to a $317 million annual run rate. KeyCorp is close to achieving the top range of its cost savings goal of between $300 million and $375 million.
During the first quarter of 2011, KeyCorp also completed the repayment of capital raised from the U.S Treasury as part of the Capital Purchase Program (CPP) of the Troubled Asset Relief Program (TARP). The bank issued 25,000 shares of series B fixed rate perpetual preferred stock, along with warrants to purchase common stock in the future.
KeyCorp repurchased $2.5 billion of the preferred issue after raising equity and debt in the capital markets, and also announced its intention to repurchase the warrants.
Other banks that redeemed securities issued under the CPP include SunTrust Banks (NYSE:STI) which repurchased $4.85 billion of two preferred stock issues in late March 2011, and Fifth Third Bancorp (Nasdaq:FITB), which repaid $3.4 billion in February 2011. Both companies issued a combination of debt and equity to replace the capital.
One of the largest banks that has yet to repay its CPP investment is Regions Financial (NYSE:RF), which received $3.5 billion in capital from the government.
Tangible Book Value
One metric that some investors use to evaluate a bank is the level and growth of tangible book value. (For related reading, see Digging Into Book Value.) KeyCorp reported tangible book value of $8.59 per share at the end of the first quarter of 2011, up from $7.91 in the comparable quarter of 2010. Using the current market price of KeyCorp, the stock is trading at one times its tangible book value.
KeyCorp saw an improvement in credit quality trends in the first quarter of 2011, leading to a profitable quarter for this large bank. This was a vast improvement over the first quarter of 2010 when the bank reported a net loss.
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