- First-quarter net income from continuing operations of $196 million, or 21 cents a share
- Earnings beat the consensus EPS estimate of 20 cents
- $37 million, or 3 cents a share, in costs for efficiency initiative
- Excluding the efficiency initiative costs, second-quarter noninterest expense down $45 million from Q2 2012
Updated from 9:19 a.m. ET with midday market action, information on the effect of the Federal Reserve's final rules on KeyCorp's Tier 1 common equity ratio and comment from Jefferies analyst Ken Usdin.
NEW YORK (
on Thursday reported continued progress in its efforts to trim expenses in a difficult operating environment.
The Cleveland-based regional lender reported second-quarter net income from continuing operations attributable to common shareholders of $193 million, 21 cents a share, compared to $196 million, or 21 cents a share in the first quarter, and $217 million, or 23 cents a share, during the second quarter of 2012.
Second-quarter earnings came in ahead of the 20-cent EPS estimate among analysts polled by
The second-quarter results included $37 million, or 3 cents a share, in charges related to the company's expense reduction initiative. KeyCorp said it had achieved annualized cost savings of roughly $171 million through its "Fit for Growth" efficiency program.
KeyCorp's second-quarter noninterest expense totaled $711 million, increasing from $681 million the previous quarter and $693 million a year earlier. However, second-quarter noninterest expense totaled $674 million, excluding the $37 million in extraordinary costs.
Investors were pleased with the bank's continued efforts to trim expenses, sending KeyCorp's shares up 2.5% in midday trading, to $11.95.
Second-quarter net interest income was $586 million on a tax-adjusted basis, declining slightly from $544 million in the first quarter, but increasing from $544 million during the second quarter of 2012, "which included $30 million associated with Key's third quarter 2012 branch and credit card portfolio acquisitions," according to the company.
Average loans increased slightly during the second quarter to $52.7 billion, but were up 7% year-over-year. KeyCorp CEO Beth Mooney said the company was making significant investments to ramp up loan growth. "We are in the process of acquiring a commercial mortgage servicing portfolio and special servicing business that will significantly enhance our scale and presence in the market. We also launched new mobile capabilities that add accessibility and functionality for both our consumer and commercial clients."
The second-quarter net interest margin was 3.13%, narrowing from 3.24% the previous quarter, but widening from 3.06% a year earlier.
Second-quarter noninterest income totaled $429 million, increasing from $425 million the previous quarter, but declining from $457 million a year earlier, "primarily due to a gain on the early terminations of leveraged leases one year ago."
The company's second-quarter return on average assets from continuing operations was 0.95% and its return on average tangible common equity was 8.60%.
KeyCorp estimated its June 30 Tier 1 common equity ratio under the
final rules for implementing the Basel III capital standards was 10.8%, increasing from 10.3% under earlier proposed rules.
Jefferies analyst Ken Usdin has a "hold" rating on KeyCorp, with a price target of $12, but was impressed with the company's second-quarter results. "KEY continues to impress on expenses and Basel III got a nice boost from rulerevisions," he wrote in a note to clients on Thursday.
The analyst added that "EPS of $0.21 is slightly ahead of consensus due to better credit quality and lower operating expenses," and that KeyCorp's "previousguidance called for mid single-digit Y-Y growth in average balances in '13... still looks achievable."
KeyCorp's shares closed at $11.66 Wednesday, returning 40% this year, following a 12% return during 2012. The shares trade for 1.2 times their reported June 30 tangible book value of $9.77, and for 12 times the consensus 2014 EPS estimate of 97 cents. The consensus 2013 EPS estimate is 87 cents.
Based on a quarterly payout of 5.5 cents, the shares have a dividend yield of 1.89%.
KeyCorp's board of directors has authorized share repurchases of up to $426 million through the first quarter of 2014. The company bought back $112 million in common shares during the second quarter, lowering its share count. Weighted average common shares and potential common shares outstanding were roughly 918.6 million in the second quarter, declining from 926.1 million the previous quarter and 948.1 million a year earlier.
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-- Written by Philip van Doorn in Jupiter, Fla.
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.