It's easy to get locked into thinking in absolutes: "This company is always and forever better than that company." But as stock market history has taught us, today's Apple can be tomorrow's Atari in the blink of an eye. Remember, people were once afraid to compete with Woolworth and Montgomery Ward.
So even though KeyCorp (NYSE:KEY) isn't exactly the best-loved bank, don't assume there isn't money to be made. My positive slant on KeyCorp last quarter was anemic and caveat-filled, but the stock has nevertheless continued to climb as investors grow more comfortable with this bank and large banks in general.
Key's results for this quarter were a mixed bag. On the plus side, net income was up almost 10%, returns improved, and credit quality still looks quite good. Net interest income rose 6% this quarter, as the bank coupled a modest increase in earning assets with a slight improvement in the net interest margin. While there were some moving parts to the non-interest income figures (both in this quarter and the year-ago one), the overall reported result was down 4%.
In less promising news, loan growth was a bit sluggish, and I'm not sure that the community banking business has truly recovered. Overall commercial loan growth was decent, but the loan and deposit growth in the community banking business was pretty weak -- and the earnings growth there seemed to have a lot to do with lower expenses. What's more, management said it expects commercial loan growth to slow down. Given the current weakness in consumer loans, that's bad news.
I favored KeyCorp back in January not because I thought it was the best company. I consider many banks operationally superior, including U.S. Bancorp (NYSE:USB), WellsFargo (NYSE:WFC), and Bank of America (NYSE:BAC). I liked KeyCorp's potential to surpass the market's expectations and close the gap a bit on valuation. Since the latter has now happened, I'd wait for more signs of progress in the community-banking business before getting much more enthusiastic here.
Further financial Foolishness:
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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).
