KeyCorp Earnings Rise With Loans (Update 1)

• KeyCorp reports first-quarter earnings per share of 21 cents.
• Analysts were expecting EPS of 19 cents.
• Average commercial loans grew 7% during the first quarter; 20% year-over-year.

Updated with comments from Jefferies analyst Ken Usdin.

NEW YORK (TheStreet) - KeyCorp (KEY) on Wednesday reported that its average first-quarter commercial loan balances grew 7% during the first quarter, and 20% year-over-year.

The Cleveland lender reported first-quarter net income from continuing operations attributable to common shareholders of $199 million, or 21 cents a share, compared to $201 million, or 21 cents a share, during the fourth quarter, and $184 million, or 21 cents a share, during the first quarter of 2011.

KeyCorp CEO Beth E. Mooney

The first-quarter earnings came in ahead of the 19 cent EPS estimate among analysts polled by Thomson Reuters.

KeyCorp reported first-quarter noninterest income of $472 million, increasing from $414 million the previous quarter, and $457 million a year earlier. This increase reflected $27 million in gains on leased equipment during the first quarter, increasing from just $9 million in the fourth quarter, and $4 million in the first quarter of 2011. The company also booked $35 million in gains on principal investing, improving from an $8 million loss in the fourth quarter, and matching the results in the first quarter of 2011.

KeyCorp's first-quarter average loans grew 3% sequentially and 2% year-over-year, to $34.8 million, while coveted commercial and industrial loan balances grew to an average $19.7 billion, increasing 7% just in the fourth quarter, and 20% year-over-year.

The company's first-quarter provision for loan and lease losses was $42 million, compared to transfers away from reserves of $22 million the previous quarter, and $40 million a year earlier. While it was quite a significant change for the company to resume adding to loan loss reserves, the reserves still declined by $60 million during the first quarter, boosting operating earnings.

KeyCorp's first-quarter net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings -- was 3.08%, increasing from 3.04% in the fourth quarter but declining from 3.16% in the first quarter of 2011.

The company's first-quarter return on average assets was 1.02%, compared to 1.01% in the fourth quarter and 1.32% during the first quarter of 20112, when the company released $232 million in loan loss reserves.

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