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KeyCorp earned $229 million, or $0.25 per diluted share, for the third quarter, up from $211 million, or $0.22 per diluted share, for the same period in 2012.

Non interest income grew to $459 million from $429 million in the previous quarter. Reported net interest was $584 million, flat with the previous quarter. Net interest margins declined, falling 12 basis points to 3.11% as earning asset yields fell faster than cost of funds. To combat this, the bank acquired $1 billion of escrow deposits while letting roughly half that amount of higher-yielding time deposits roll off. We expect loan growth to begin picking up as rising rates make this more attractive.

Credit quality again improved as charge-offs fell to 0.28% of average total loans. The nonperforming loan ratio also fell to 1.01% of period-end loans from 1.23% in the previous quarter. The allowance to nonperforming loan ratio improved to 160% from 134%. The reported tangible common equity ratio remained healthy at slightly under 10%, allowing the bank to repurchase $198 million of stock, almost 2% of its market capitalization.

The bank made strides in reducing costs; however, this was not fully reflected in its 67.5% cash efficiency ratio, defined as noninterest expense less intangible amortization divided by total taxable-equivalent revenue. In the second quarter, this ratio stood at 69.1%. When this is adjusted for a $25 million pension settlement and $21 million of reorganization costs, the bank was able to remove $50 million of noninterest expense compared with the same period in 2012, a decrease of nearly 7%. Cost savings were the main driver of improved return on assets to 1.2% and return on equity to 10.6% in the quarter, from 1.01% and 9.56% in the 2012 third quarter, respectively.

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