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KeyCorp Beats as Expenses Decline (Update 1)

The first-quarter net interest margin was 3.24%, narrowing from 3.37% the previous quarter, but widening from 3.16% a year earlier.

KeyCorp's average total loans grew 1.5% sequentially and 6.5% year over year, to $52.6 billion in the first quarter. Average commercial financial and agricultural loans were up 4% quarter over quarter and 16% year over year, to $23.3 billion.

First-quarter noninterest income totaled $425 million, declining from $439 million in the fourth quarter and $442 million in the first quarter of 2012. The sequential decline mainly reflected a 28% drop in investment banking revenue to $79 million. The year-over-year decline reflected a $20 million gain on the early termination of a lease, booked in the first quarter of 2012.

Investors were less than thrilled, sending KeyCorp's shares down over 1% in afternoon trading, to $9.43.

Jefferies analyst Ken Usdin rates KeyCorp a "hold," with a price target of $10.50, and said in a note to clients after the earnings release that the company's expenses were "in good shape."

"Lower personnel costs drove the majority of the sequential improvement, but most other lines (occupancy, professional fees, marketing) were lower as well. Some of these line items could revert higher, but the starting point is simply better," Usdin wrote.

KeyCorp's March 31 estimated Basel III Tier 1 common equity ratio was a very strong 10.3%. According to Usdin, KeyCorp "continues to be among the best excess capital stories in our coverage universe."

KeyCorp's shares closed at $9.53 Wednesday, returning 14% this year, following a 12% return during 2012. The shares trade just below their reported March 31 tangible book value of $9.78, and for 9.9 times the consensus 2014 EPS estimate of 96 cents. The consensus 2013 EPS estimate is 87 cents.

Following the completion of the Federal Reserve's annual bank stress tests in March, KeyCorp raised its quarterly payout to 5.5 cents from 5 cents a share, and the company's board of directors authorized share repurchases of up to $426 million through the first quarter of 2014. The company also received regulatory approval to put the gain from the Victory sale toward additional share repurchases.

The shares have a dividend yield of 2.31%.

KEY Chart KEY data by YCharts

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

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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