KeyCorp, the last of the biggest U.S. banks to report first-quarter results, said its net earnings rose sharply but operating profits were flat with those of a year earlier - in line with cautious guidance the company issued during the quarter.
Gains from the sale of its credit card portfolio drove KeyCorp's net income up by 25%, to $367 million. Excluding the gain and other nonoperating items, the Cleveland-based bank's earnings came to 55 cents a share, a penny above the consensus First Call estimate and matching those of the comparable 1999 quarter.
Loans increased by 4%, to $64 billion, but net interest income fell 2%, to $671 million, because of the October sale of its Long Island branches and the January sale of its credit card business.
A $332 million gain from the credit card sale boosted noninterest income, which increased 31%, to $806 million. Offsetting the credit card gain were $121 million in increased loan-loss provisions as well as a decline in gains from loan securitizations, which contributed $20 million to first-quarter 1999 net income, the company said.
"This is a transitional year for the bank" as it winds down its securitization activities and holds more loans on the balance sheet, said Katrina Blecher of Brown Brothers Harriman.
Increases in investment banking and capital markets, trust and asset management, and services charges on deposit accounts also helped raise noninterest income. Deposits increased 5%, to $43 billion.
The decision to deemphasize securitization and sale of some home equity loans should "generate consistent returns that will more than offset their unfavorable short-term effects," said Robert W. Gillespie, chairman and chief executive officer, in a press statement.
Noninterest expenses declined 4%, to $727 million.
Keycorp also reported some deterioration of its credit quality, with allowance for loan losses increasing 5%, to $979 million, due to more net loan chargeoffs. The provision for loan losses increased 65%, to $183 million, as the company altered its method for assessing credit risk.
KeyCorp's inability to generate steady profit growth in recent years, despite a series of acquisitions and restructurings, has left its stock out of favor on Wall Street. The company has come in for additional criticism from at least one former employee, who is waging an Internet campaign trying to persuade shareholders to oust Mr. Gillespie.
KeyCorp shares rose 68.75 cents Thursday to close at $31.4375.