Although banks still aren't getting a whole lot of Wall Street lovin', investors seemed to like the fourth-quarter earnings report from Cleveland-based KeyCorp (NYSE:KEY). Not only did this large bank surpass forecasts, but guidance was also rather positive.
Looking at the numbers, we see that revenue grew more than 11% as solid low-teens growth in the corporate banking business offset mid single-digit growth in the consumer business. KeyCorp's overall net interest income climbed 7% (while average earning assets rose 4%), and non-interest income was up sharply, though helped by gains from securitizations and sales.
Turning to some of the metrics used to evaluate banks, we see that the bank's return on assets was up from the third quarter, though still a bit soft in absolute terms. Likewise, return on equity was better, but not at a level that I'd call great. On a more positive note, net interest margin increased from the year-ago level; it now sits at a reasonably robust 3.71%. KeyCorp took a little hit from some commercial airline charge-offs, but overall non-performing loans fell as a percentage of period-ending loans.
There was a fairly big split between the retail banking operations and those of corporate banking. In retail, net interest income was down, as was non-interest income when you adjusted for gains and losses in the respective quarters. KeyCorp's average loans also dropped, and deposits were up just 5.5%. By comparison, net interest income was very strong in corporate banking, and both loans and deposits grew strongly, though net income was lower due to higher expenses.
All in all, I'm not sure how excited to be about this quarter. Once you adjust for loan sales and such, both consumer banking and corporate banking showed declines in net income. What's more, even though KeyCorp's management appears committed to improving operations in the retail franchise (the 11th-largest in the country), it seems there's quite a bit of work still to do.
Still, this bank trades at a valuation similar to fellow Ohio-based bank Fifth Third (NASDAQ:FITB) and is arguably in better shape today. I'd personally prefer a bank like U.S. Bancorp (NYSE:USB) over KeyCorp today, but patient investors might just want to hang on. If management can get the retail bank performing well (without sacrificing the corporate side), this story would get a lot more interesting.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
