KeyCorp (NYSE: KEY) today announced second quarter net income from continuing operations attributable to Key common shareholders of $243 million, or $.26 per common share. Key’s second quarter 2011 results compare to net income from continuing operations attributable to Key common shareholders of $56 million, or $.06 per common share, for the second quarter of 2010. The results for second quarter 2011 reflect an improvement in noninterest expense and lower credit costs from the same period one year ago. Second quarter 2011 net income attributable to Key common shareholders was $234 million compared to net income attributable to Key common shareholders of $29 million for the same quarter one year ago.
For the six-month period ended June 30, 2011, net income from continuing operations attributable to Key common shareholders was $427 million, or $.46 per common share, compared to a net loss from continuing operations attributable to Key common shareholders of $42 million, or $.05 per common share, for the same period one year ago. Net income attributable to Key common shareholders for the six-month period ended June 30, 2011, was $407 million compared to a net loss attributable to Key common shareholders of $67 million for the same period one year ago.
During the second quarter of 2011, the Company continued to benefit from improved asset quality. Nonperforming assets declined $1.1 billion, and nonperforming loans decreased by $861 million from the year-ago quarter to $950 million and $842 million, respectively. Net charge-offs declined $301 million from the second quarter of 2010 to $134 million, or 1.11%, of average loan balances for the second quarter of 2011.
‘Key’s second quarter results represent another step forward for our company,’ said Chairman and Chief Executive Officer Beth Mooney. ‘Our results reflected continued improvement in credit quality, disciplined expense management and continued execution of our business plan. We were also encouraged by the growth in our commercial, financial and agricultural loan portfolio, which benefited from the strategic alignment between our relationship-focused Community Bank and the deep industry expertise and advisory capabilities of our Corporate Bank.’
Mooney continued: ‘We believe Key is well positioned for growth based on our strong capital, balance sheet and liquidity. By continuing to focus on meeting our clients’ borrowing needs, Key originated approximately $9.5 billion in new or renewed loans and commitments to consumers and businesses during the second quarter of 2011.’
At June 30, 2011, Key’s estimated Tier 1 common equity and Tier 1 risk-based capital ratios were 11.01% and 13.76%, compared to 10.74% and 13.48%, respectively, at March 31, 2011. The Board of Directors approved a quarterly dividend increase to $0.03 per common share for the second quarter of 2011.
As previously reported, Key completed the repurchase of the $2.5 billion of Fixed-Rate Perpetual Preferred Stock, Series B and corresponding warrant issued to the U.S. Treasury Department. As a result of the repurchase, the Company recorded a $49 million one-time deemed dividend in the first quarter of 2011 related to the remaining difference between the repurchase price and the carrying value of the preferred shares at the time of repurchase. Beginning with the second quarter of 2011, the repurchase resulted in the elimination of quarterly dividends of $31 million and discount amortization of $4 million, or $140 million on an annual basis, related to these preferred shares. In total, Key paid $2.867 billion to the U.S. Treasury during the investment period in the form of dividends, principal and repurchase of the warrant, resulting in a return to the U.S. Treasury of $367 million above the initial investment of $2.5 billion on November 14, 2008.
The following table shows Key’s continuing and discontinued operating results for the comparative quarters and for the six-month periods ended June 30, 2011 and 2010.
(a) In September 2009, management made the decision to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank National Association. In April 2009, management made the decision to curtail the operations of Austin Capital Management, Ltd., an investment subsidiary that specializes in managing hedge fund investments for its institutional customer base. As a result of these decisions, Key has accounted for these businesses as discontinued operations. The loss from discontinued operations for the six-month period ended June 30, 2011, was primarily attributable to fair value adjustments related to the education lending securitization trusts.
(b) 3-31-11 includes a $49 million deemed dividend.
(c) Earnings per share may not foot due to rounding.
SUMMARY OF CONTINUING OPERATIONS
Taxable-equivalent net interest income was $570 million for the second quarter of 2011, and the net interest margin was 3.19%. These results compare to taxable-equivalent net interest income of $623 million and a net interest margin of 3.17% for the second quarter of 2010. The decrease in net interest income is attributable to a decline in earning assets, partially offset by lower funding costs resulting from continued improvement in the mix of deposits. This improved mix of deposits results from a reduction in the level of higher costing certificates of deposit.
Compared to the first quarter of 2011, taxable-equivalent net interest income decreased by $34 million, and the net interest margin declined six basis points. The decline in the net interest margin and net interest income reflects the impact of a $3.2 billion decline in average earning assets resulting from the repayment of the TARP preferred stock at the end of the first quarter and the movement of approximately $1.5 billion of escrow deposits during the first quarter of 2011. These escrow deposits were moved as a result of a change in the short-term ratings of KeyBank National Association by Moody’s in November 2010.
Key’s noninterest income was $454 million for the second quarter of 2011, compared to $492 million for the year-ago quarter. Net gains (losses) from loan sales decreased $14 million from the second quarter of 2010. In addition, operating lease income and service charges on deposit accounts both declined $11 million compared to the same period one year ago. Consistent with Key’s expectations, the reduction in service charges on deposit accounts is a result of the changes associated with implementing Regulation E in the third quarter of 2010. Partially offsetting this decline in noninterest income from the second quarter of 2010 were increases in investment banking and capital markets income of $11 million and letter of credit and loan fees of $5 million.
CLEVELAND, July 19, 2011 ‘ KeyCorp (NYSE: KEY)