10 Most Profitable Banks Trading Below Book Value

2. KeyCorp

Shares of KeyCorp (KEY) of Cleveland closed at $9.40 Thursday, returning 12% during January, following a 12% gain last year. The shares were trading just below tangible book value, and for 9.9 times the consensus 2014 EPS estimate of 95 cents. The consensus 2013 EPS estimate is 85 cents.

Based on a quarterly payout of 5 cents, the shares have a dividend yield of 2.13%.

KeyCorp had $89.2 billion in total assets as of Dec. 31. The company's 2012 ROA was 0.99%.

The company reported fourth-quarter net income attributable to common shareholders of $197 million, or 21 cents a share, compared to $214 million, or 23 cents a share, in the third quarter, and $194 million, or 20 cents a share, in the fourth quarter of 2011. Earnings declined sequentially because the company in the third quarter recorded a $54 million gain on the redemption of trust preferred securities. Fourth-quarter earnings were also lowered by $16 million, or a penny a share, from expenses associated with the company's cost-cutting program.

The fourth-quarter bright spot for KeyCorp was an increase in net interest income to $607 million, from $578 million the previous quarter and $563 million a year earlier. The net interest margin expanded to 3.37%, from 3.23% in the third quarter, and 3.13% in the fourth quarter of 2011. The margin expanded mainly resulted from an improving funding mix, as trust preferred shares were redeemed, long-term debt matured, and higher-paying CD deposits matured.

Mosby rates KeyCorp a "buy," with a price target of $11.50, and estimates the company will earn 82 cents a share this year, increasing to 90 cents a share in 2014. The analyst said in a report on Jan. 28 that the company has "two critical strategic objectives: derisk the business model and rebuild its profitability."

Mosby said that KeyCorp was "well under way" in accomplishing the first objective, by shrinking its portfolio of "troubled portfolio of homebuilder, RV, leases, HELOC, and marine loans," by roughly 50% over the past three years, to "under $3 billion."

"By implementing over $150 million in efficiency initiatives, deploying excess capital to rein in the outstanding share count at discount prices, and looking for strategic growth opportunities, we believe KEY can start to improve profitability levels in 2013," he said.

KEY data by YCharts

Interested in more on KeyCorp? See TheStreet Ratings' report card for this stock.

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