KeyCorp (NYSE: KEY) has beaten analysts' estimates by reporting its first-quarter profit of $173 million. After posting profits for four straight quarters, the regional bank appears to have overcome the seriously strong headwind conditions prevailing in the country's small and regional banks.
Improving numbers
KeyCorp experienced improvements in several of its most critical areas. While it posted net income of $0.21 per share in this quarter, it had incurred a loss of $0.11 per share in the corresponding quarter last year. Much of this is a function of the company's efforts to improve efficiency, which have resulted in annualized cost savings of $317 million. The quarter also witnessed an improvement in non-interest expenses and credit costs as compared with the same quarter a year ago. Total non-interest expenses declined to $701 million from $785 million, while total interest expenses also fell to $163 million from $267 million. Things are definitely moving in the right direction.
Credit quality is the key
The bank also saw improvements in its asset and credit quality, as there were noticeable declines in its non-performing assets and non-performing loans. Net charge-offs, too, went down from $329 million in 2010's first quarter to $193 million this quarter. Noticeable improvements also took form in the shape of changes in the provisions for loan and lease losses. While that figure stood at $413 million in the first quarter of 2010, the company wrote off just $40 million worth in this quarter.
CEO Henry Meyer credits the improvement in credit quality to "aggressive actions to exit riskier lending categories which began over four years ago." In fact, lower credit costs are expected to be the trend in general first-quarter results across the banking industry. We clearly saw some of that with JPMorgan's (NYSE: JPM) recently impressive results. Bigger banks such as US Bancorp (NYSE: USB) and Citigroup (NYSE: C) have also gained from credit quality improvements.
For its part, KeyCorp has been focusing on expanding its community banking services. The company opened eight new branches this quarter and plans to open 40 this year. This will play a significant role in the bank's development story.
The Foolish prognosis
A month back, KeyCorp had announced that it expected to raise its dividend to $0.03 a share from $0.01 -- yet another positive signal coming from the bank. And with such strong metrics getting stronger, KeyCorp looks like a battering ram equipping itself to escape the walls of an ugly crisis.
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