Cleveland-based KeyCorp (NYSE: KEY) has once again beaten analysts' estimates, as improvement in its overall credit portfolio enabled the bank to report a leap in net income.

The quarter in detail
The bank's net income for the quarter jumped to $234 million from $29 million in the second quarter of 2010, primarily due to a sharp decline in loan losses and expenses.

Key's net charge-offs declined to $134 million, its lowest level since the first quarter of 2008. Nonperforming assets -- loans delinquent longer than 90 days -- decreased to $950 million from about $2.1 billion in the corresponding quarter last year. This was the seventh consecutive quarterly decline in the bank's nonperforming assets. Declining provisions -- the money banks set aside for loan losses -- has been a widespread profit-boosting trend in the banking industry.

The results also reflect the banking company's continued focus on expense management. While its non-interest income increased by $7 million, its non-interest expense for the quarter declined to $680 million from $769 million.

On the other hand, Key competitor State Street (NYSE: STT) recently released its earnings report, revealing a surge in operational expenses. There was a 30.6% year-over-year increase due to higher salaries and other related expenses.

Key showed solid improvements on the capital front as both its Tier 1 common equity and Tier 1 risk-based capital ratios ticked up. Tier 1 common equity grew significantly, to 11% from 8.1% in the same quarter last year.

However, net interest income slipped to $570 million from $623 million due to a decline in average earning assets, resulting from the repayment of TARP preferred stock at the end of the preceding quarter.

The Foolish bottom line
On the whole, KeyCorp looks like a well-capitalized bank that has been doing well in improving its earnings and credit quality. I presented my bullish stance on this regional bank in a couple of previous articles, and it is giving me enough reasons to hold that view.

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