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KeyCorp Reports Operating Results (10-K)

February 27, 2012 | About:

KeyCorp (NYSE:KEY) filed Annual Report for the period ended 2011-12-31.

Keycorp New has a market cap of $7.68 billion; its shares were traded at around $8.13 with a P/E ratio of 8.8 and P/S ratio of 1.6. The dividend yield of Keycorp New stocks is 1.5%.

Highlight of Business Operations:

The housing market remained weak throughout 2011 and continued to be a drag on the recovery. In December of 2011 new home sales decreased 7% from December of 2010, while the median price of new homes decreased by 13% over the same period. Building activity improved modestly as housing starts at the end of 2011 increased 25% from a year earlier, but still remained at historically low levels. Existing home sales also remained weak as lower mortgage rates and price discounts were not enough to lure buyers back into the market. In December of 2011 existing home sales increased 4% from the same month a year ago, and the median price of existing homes decreased by 3% over the same period. While remaining historically elevated, the number of new foreclosures decreased 20% in December of 2011 from a year earlier.

As shown in Figure 7, we benefited from a $187 million increase in investment banking and capital market income, $76 million in net gains from loan sales in 2010 compared to a $1 million loss in 2009, and $66 million in net gains from principal investing (including results attributable to noncontrolling interests) in 2010 compared to a $4 million loss in 2009. These favorable results were partially offset by a $79 million decline in net gains on the sale of leased equipment.

Taxable-equivalent net interest income declined by $93 million, or 12%, in 2011 compared to 2010. This is primarily due to the deposit and borrowing spread, which declined by $79 million, or 28%. This decline was driven by a reduction in the value of deposits resulting from historically low interest rates and the movement of $1.5 billion in escrow balances out of the Real Estate Capital line of business to a third party in the first quarter of 2011. Average earning assets fell by $3.1 billion, or 14%, due primarily to reductions in the real estate loan portfolios; however, strong commercial loan growth in the second half of 2011 resulted in a $483 million increase in period end loans from December 31, 2010. Lower average earning asset balances were offset by improved earning asset yields and an increase in loan-related interest fees.

The 2010 improvement in net income from continuing operations attributable to Key related to a decrease in the provision for loan losses, an increase in noninterest income, and a decrease in noninterest expense, partially offset by a decrease in net interest income. Taxable-equivalent net interest income declined by $74 million, or 9% in 2010 compared to 2009 due primarily to decreased earning assets. Noninterest income increased $146 million or 21% driven by fair value adjustments on other real estate investments taken in 2009, and increased investment banking and debt placement fees. The provision for loan and lease losses decreased $1.9 billion on improved credit quality. Noninterest expense decreased $251 million or 20% driven by the decreased provision for lending related commitments, a decrease in intangible amortization expense, decreased miscellaneous expense, and the intangible asset impairment charge taken in 2009.

Typically, the parent company meets its liquidity requirements through regular dividends from KeyBank. Federal banking law limits the amount of capital distributions that a bank can make to its holding company without prior regulatory approval. A national banks dividend-paying capacity is affected by several factors, including net profits (as defined by statute) for the two previous calendar years and for the current year, up to the date of dividend declaration. During 2011, KeyBank paid $300 million in dividends to the parent, and nonbank subsidiaries paid the parent $33 million in cash dividends, and $12 million in noncash dividends. During 2011, the parent did not make any capital infusions to KeyBank, compared to $100 million during 2010. Based upon existing regulatory guidance, KeyBank has capacity to pay $1.3 billion in dividends to KeyCorp at January 1, 2012.

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About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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