UPDATE: Sterne Agee Reduces PT to $9 on KeyCorp; Credit Provision Offsets Operating Leverage

Sterne Agee cuts its target from $10 to $9 on Neutral-rated KeyCorp

as climbing credit provisions eclipses positive operating leverage in the quarter. Sterne Agee says, "KEY reported 1Q12 profits from continuing operations of $0.21 vs. 1Q11 profits from continuing operations of $0.21, or flat. Adjusted for several special items in the quarter, including a $20mm gain tied to the early termination of a leveraged lease and loan sale gains of $22mm, we put operating EPS at $0.18, or a penny light of expectations. …However, credit provisions moved to the highest level since 2010 as improving loan demand and moderating reserve coverage prompted management to begin migrating provisions towards net charge-offs. With reserve coverage now hovering below 2%, or coverage just above 2x annual NCOs, and loan growth having past its inflection point in 2011, incremental earnings growth will remain a challenge for KEY." KEY closed at $7.88 on Monday.