KeyCorp Earnings Blow Out Estimates

CLEVELAND ( TheStreet) -- KeyCorp ( RF) on Tuesday reported fourth-quarter net income available to common shareholders of $279 million, or 32 cents a share, which beat the estimate of 13 cents a share, among analysts polled by Thomson Reuters.

The shares were up 1% to $8.70 in early trading Tuesday.

In comparison, KeyCorp reported net income to common shareholders of $178 million, or 20 cents a share, in the third quarter and a loss to common shareholders of $1.6 billion, or $2.34 a share, in the fourth quarter of 2009.

Earnings available to common shareholders exclude dividends paid on preferred shares, including $2.5 billion held by the government for bailout assistance provided in November 2008 through the Troubled Assets Relief Program, or TARP.

The increase in fee income that TheStreet highlighted last quarter as part of our coverage of 10 Banks with Real Earnings Improvement continued. Total noninterest income was $526 million in the fourth quarter, increasing from $486 million the previous quarter and $469 million a year earlier.

The biggest area of improvement was investment banking and capital markets income, which totaled $63 million in the fourth quarter, increasing from $42 million in the third quarter and a loss of $47 million in the fourth quarter of 2009.

KeyCorp's fourth-quarter provision for loan losses of $97 million, up slightly from $94 million the previous quarter but down from $756 million a year earlier. With net charge-offs - loan losses less recoveries - totaling $256 million, the company "released" $159 million in reserves during the fourth quarter, which directly boosted the bottom line.

The fourth-quarter ratio of net charge-offs to average loans was an annualized 2.00%, improving from 2.69% the previous quarter and 4.64% a year earlier. Reserves covered 3.20% of total loans as of December 31.

Key's net interest margin - essentially the average yield on loans and investments less the average cost of funds - was 3.31% for the fourth quarter, compared to 3.35% the previous quarter and 3.04% a year earlier.

The company's return on average assets for the fourth quarter was 1.36%, which is a solid number in the current environment.

Total assets were $91.8 billion as of December 31 and nonperforming assets - including nonaccrual loans and repossessed assets - totaled $1.3 billion, or 2.96% of total assets as of December 31, improving from 1.92% the previous quarter and 2.69% in December 2009.

KeyCorp estimated a Tier 1 common equity ratio of 9.31% as of December 31, and outgoing CEO Henry Meyer said that the company's capital plan submitted early this month for the latest round of regulatory stress tests included a "proposal for repaying TARP preferred stock in a manner that we believe makes sense for Key and our shareholders," adding that "it is our goal to repay TARP in a less dilutive manner than would have been achievable if we repaid prior to undergoing the Federal Reserve's Comprehensive Capital Assessment."

Vice Chairman Beth Mooney is scheduled to take over as the incoming CEO in May.

As of Monday's close, three of the 24 analysts covering KeyCorp rated the shares a buy, 18 recommended investors hold the shares and three analysts recommended selling.

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

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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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