- Net loss of $36 million ($0.10 per common share) for the third quarter
- Loan loss reserve increased $133 million to $1.554 billion, or 2.03% of
total loans
- Capital ratios remain strong; costs well controlled
- Actions taken to exit certain businesses
- Community Banking revenue and deposits up
- Opted-in to IRS global tax settlement; after-tax recovery of up to $100
million anticipated
CLEVELAND, Oct. 21 /PRNewswire-FirstCall/ -- KeyCorp (NYSE: KEY) today
announced a third quarter loss from continuing operations of $36 million,
or $0.10 per common share, compared to income from continuing operations of
$224 million, or $0.57 per diluted common share, for the third quarter of
2007.
The continuation of a difficult economic environment and a resulting
increase in Key's loan loss reserves contributed to the loss recorded for
the current quarter. The Company's third quarter results reflect a $133
million increase in reserves to $1.554 billion, or 2.03% of total loans.
Additionally, third quarter results were adversely impacted by $33 million
of after-tax losses on derivative contracts that resulted from market
disruption caused by the failure of Lehman Brothers.
"We have experienced the most severe financial crisis any of us has
known in our business lifetime," said Chief Executive Officer Henry L.
Meyer, III. "However, in my 35 years in the banking industry, we have
successfully managed through a number of troublesome credit cycles, each of
which seemed daunting at the time. As I reflect back on those past cycles,
I cannot recall a time when we were more prepared than today. Key has
strong capital ratios (8.48% Tier 1 capital) and a strong loan loss reserve
(2.03% of total loans; 161% coverage of nonperforming loans). In the third
quarter, the increase in nonperforming assets slowed -- up only 2.4%. Key
does not have a subprime mortgage portfolio, credit card portfolio, or
consumer automobile loan portfolio -- the epicenters of consumer credit
issues. Also, in both the second and third quarters we were aggressive in
reducing our exposure to the homebuilder segment of our commercial real
estate business. As of the end of the third quarter, our total residential
property exposure in commercial real estate, including loans held for sale,
has been reduced by $1.3 billion, or 34%, from one year ago, with the
majority of this reduction coming from the weakest, or most susceptible,
portion of the portfolio.
"Additionally, we have elected to reduce uncertainty surrounding our
previously disclosed leveraged lease tax issue with the IRS. While we
continue to believe that our initial tax position was correct, it would
have taken years of effort and expense to resolve this matter through
litigation. Consequently, Key has opted-in to the IRS' global settlement
initiative, which is essentially an offer by the federal tax authorities to
resolve all such disputed cases. We expect that the definitive settlement
documents will be executed as soon as the fourth quarter and that Key
should realize an after- tax recovery of between $75 million and $100
million for previously accrued interest on disputed tax balances."
Key continued to take decisive steps in the third quarter to exit low-
return, indirect businesses so that the company can focus its capital and
resources on its best relationship customers. Key is in the process of
exiting direct and indirect retail and floor-plan lending for marine and
recreational vehicle products and will limit new student loans to those
backed by government guarantee. These actions are the result of a series of
decisions made over several years that have seen the Company exit subprime
mortgage and automobile financing, broker-originated home equity lending as
well as dispose of a segment of its residential homebuilder portfolio.
"With respect to our relationship businesses, our Community Banking
group continues to perform solidly, with higher revenue and deposit growth
across our branch network. Despite the market turmoil, we are building a
relationship-based, customer-focused business model which will serve us
well as the economy ultimately recovers," Meyer concluded.
As shown in the following table, the comparability of Key's earnings
for the current, prior and year-ago quarters is affected by several
significant items.
Significant Items Affecting the Comparability of Earnings
Third Quarter 2008 Second Quarter 2008
in millions, except Pre-tax After-tax Impact Pre-tax After-tax Impact
per share amounts Amount Amount on EPS Amount Amount on EPS
Provision for loan
losses in excess of
net charge-offs $(134) $(83) $(.17) $(123) $(77) $(.18)
Realized and unrealized
(losses) gains on
loan and securities
portfolios held for
sale or trading (94)(a) (59)(a) (.12) 62 39 .09
Net (losses) gains from
principal investing (24) (15) (.03) (14) (8) (.02)
Severance and other
exit costs (19) (14) (.03) (8) (5) (.01)
Reversal of litigation
reserve 23 14 .03 -- -- --
Charges related to
leveraged lease tax
litigation -- (30) (.06) (359) (1,011) (2.43)
Gain related to MasterCard
Incorporated shares -- -- -- -- -- --
Third Quarter 2007
Pre-tax After-tax Impact
in millions, except per share amounts Amount Amount on EPS
Provision for loan losses in excess
of net charge-offs $(10) $(6) $(.02)
Realized and unrealized (losses)
gains on loan and securities portfolios
held for sale or trading (77) (49) (.12)
Net (losses) gains from principal investing 9 6 .01
Severance and other exit costs (4) (3) (.01)
Reversal of litigation reserve -- -- --
Charges related to leveraged lease tax
litigation -- -- --
Gain related to MasterCard Incorporated
shares 27 17 .04
(a) Includes $54 million ($33 million after tax) of derivative-related
charges recorded as a result of market disruption caused by the
failure of Lehman Brothers and $31 million ($19 million after tax) of
realized and unrealized losses from the residential properties segment
of the construction loan portfolio.
EPS = Earnings per diluted common share
SUMMARY OF CONTINUING OPERATIONS
Key's taxable-equivalent net interest income was $705 million for the
third quarter of 2008, compared to $712 million for the year-ago quarter.
Average earning assets rose by $6.6 billion, or 8%, due primarily to growth
in commercial loans and the January 1 acquisition of U.S.B. Holding Co.,
Inc., which added approximately $1.5 billion to Key's loan portfolio. The
net interest margin for the current quarter declined to 3.13% from 3.40%
for the third quarter of 2007. Approximately 13 basis points of the
reduction was attributable to the prospective decrease in net interest
income caused by the second quarter 2008 recalculation of income previously
recognized on all leveraged leases being contested by the Internal Revenue
Service ("IRS"). Also contributing to the lower net interest margin were
tighter loan and deposit spreads caused by competitive pricing, and a
higher level of nonperforming assets.
Compared to the second quarter of 2008, taxable-equivalent net interest
income decreased by $33 million and the net interest margin declined by 19
basis points, using adjusted second quarter results, which exclude the
effects of the charges recorded in connection with the tax litigation
pertaining to Key's leveraged lease financing portfolio. As previously
reported, Key's taxable-equivalent net interest income for the second
quarter of 2008 was reduced significantly as a result of an adverse federal
court decision on the company's tax treatment of a Service Contract Lease
transaction entered into by AWG Leasing Trust, in which Key is a partner.
In accordance with the applicable accounting guidance, Key recalculated the
lease income recognized from inception for all of the leveraged leases
being contested by the IRS, not just the single leveraged lease subject to
the Court decision. Key's second quarter results also reflect a $475
million charge to income taxes for the interest cost associated with the
contested tax liabilities. These actions reduced Key's taxable-equivalent
net interest income and net interest margin for the second quarter of 2008
by $838 million and 376 basis points, respectively, and reduced Key's
earnings by $1.011 billion, or $2.43 per common share.
On August 6, 2008, the IRS announced an initiative for the settlement
of all transactions, including the contested leveraged leases entered into
by Key, which the IRS has characterized as LILO/SILO transactions (the
"LILO/SILO Settlement Initiative"). As preconditions to its participation,
Key was required to provide written acceptance to the IRS of the terms of
the LILO/SILO Settlement Initiative and to dismiss its appeal of the AWG
Leasing Trust litigation. Key has complied with these preconditions and was
accepted into the LILO/SILO Settlement Initiative by the IRS on October 6,
2008. However, Key's acceptance into this initiative is not binding until a
closing agreement is executed by both Key and the IRS. Management believes
that, upon the execution of a closing agreement, Key should realize an
after-tax recovery of between $75 million and $100 million for previously
accrued interest on disputed tax balances.
Key's noninterest income was $388 million for the third quarter of
2008, compared to $438 million for the year-ago quarter. Noninterest income
for the current quarter includes $54 million of derivative-related charges
recorded as a result of market disruption caused by the failure of Lehman
Brothers and $31 million of realized and unrealized losses from the
residential properties segment of the construction loan portfolio, while
results for the third quarter of 2007 benefited from a $27 million gain
from the sale of MasterCard Incorporated shares. Excluding these items,
noninterest income was up $62 million. The improvement reflected a $14
million increase in income from trust and investment services, a $6 million
increase in deposit service charges and a $15 million decrease in losses
attributable to changes in the fair values of certain real estate related
investments held by the Private Equity unit within the Real Estate Capital
and Corporate Banking Services line of business. Excluding the loan-related
losses mentioned above, Key had net gains of $1 million from loan sales and
write-downs in the current quarter, compared to net losses of $53 million
for the same period last year. These favorable results were offset in part
by net losses of $24 million from principal investing in the third quarter
of 2008, compared to net gains of $9 million for the year-ago quarter.
The major components of Key's fee-based income for the past five
quarters are shown in the following table.
Fee-Based Income - Major Components
in millions 3Q08 2Q08 1Q08 4Q07 3Q07
Trust and investment services income $133 $138 $129 $131 $119
Service charges on deposit accounts 94 93 88 90 88
Investment banking and capital
markets (loss) income (31) 80 8 12 9
Operating lease income 69 68 69 72 70
Letter of credit and loan fees 53 51 37 58 51
Corporate-owned life insurance income 28 28 28 37 27
Electronic banking fees 27 27 24 25 25
Compared to the second quarter of 2008, noninterest income decreased by
$167 million, reflecting the continued effects of adverse conditions in the
financial markets. Results from investment banking and capital markets
activities decreased by $111 million, due primarily to an $85 million
reduction from dealer trading and derivatives activities, including the
third quarter charges resulting from market disruption caused by the
failure of Lehman Brothers. Additionally, Key recorded $30 million in net
losses from loan sales and write-downs, related primarily to commercial
real estate loans held for sale, compared to net gains of $33 million for
the prior quarter. Net losses from principal investing increased by $10
million from the second quarter of 2008.
Key's noninterest expense was $762 million for the third quarter of
2008, compared to $753 million for the same period last year. Personnel
expense decreased by $2 million as increases in both salaries and severance
expense were more than offset by reductions in costs associated with
employee benefits and stock-based compensation. Nonpersonnel expense rose
by $11 million, reflecting increases of $8 million in professional fees, $6
million in marketing expense, $5 million in net occupancy expense and $7
million resulting from the write-down or amortization of intangible assets.
Included in noninterest expense for the third quarter of 2008 is $19
million of severance and other exit costs, including $10 million of expense
recorded in connection with Key's third quarter 2008 decision to exit
direct and indirect retail and floor-plan lending for marine and
recreational vehicle products. Key expects to record additional
exit-related costs in the fourth quarter. The increase in noninterest
expense relative to the year-ago quarter was moderated by a $23 million
credit to miscellaneous expense, representing the reversal of the remaining
litigation reserve associated with the previously reported Honsador
litigation, which was settled in September.
Compared to the second quarter of 2008, noninterest expense decreased
by $19 million. Personnel expense decreased by $23 million, due primarily
to lower incentive compensation accruals. Nonpersonnel expense was up $4
million, reflecting an $8 million provision for losses on lending-related
commitments in the current quarter, compared to a $2 million credit in the
prior quarter, a $6 million increase in marketing expense and a $4 million
write-off of goodwill recorded during the third quarter in connection with
Key's decision to exit certain businesses. These increases were offset by
the reversal of the remaining Honsador litigation reserve.
ASSET QUALITY
Key's provision for loan losses from continuing operations was $407
million for the third quarter of 2008, compared to $69 million for the
year- ago quarter and $647 million for the second quarter of 2008. Key's
provision for loan losses for the third quarter of 2008 exceeded its net
loan charge- offs by $134 million, as the company continued to build
reserves.
As previously reported, Key has undertaken a process to aggressively
reduce its exposure in the residential properties segment of its
construction loan portfolio through the planned sale of certain loans. In
conjunction with these efforts, Key transferred $384 million of commercial
real estate loans ($719 million, net of $335 million in net charge-offs)
from the held-to-maturity loan portfolio to held-for-sale status in June.
As of June 30, 2008, sales had closed on $44 million of these loans, and
$340 million remained to be sold. During the third quarter, Key continued
to work with bidders to finalize sales terms and documentation. However,
continued disruption in the financial markets has precluded the ability of
certain potential buyers to obtain the necessary funding. As shown in the
following table, the balance of this portfolio was reduced to $133 million
at September 30, 2008, as a result of cash proceeds received from loan
sales, transfers to other real estate owned ("OREO") and both realized and
unrealized losses. Key is continuing to pursue the sale of the remaining
loans, all of which are on nonperforming status.
Loans Held for Sale - Residential Properties Segment of Construction Loan
Portfolio
in millions
Balance at June 30, 2008 $340
Cash proceeds from loan sales (135)
Loans transferred to OREO (35)
Realized and unrealized losses (31)
Payments (6)
Balance at September 30, 2008 $133
Selected asset quality statistics for Key for each of the past five
quarters are presented in the following table.
Selected Asset Quality Statistics
dollars in millions 3Q08 2Q08 1Q08 4Q07 3Q07
Net loan charge-offs $273 $524 $121 $119 $59
Net loan charge-offs to average
loans from continuing operations 1.43% 2.75% .67% .67% .35%
Nonperforming loans at period end $967 $814 $1,054 $687 $498
Nonperforming loans to period-end
portfolio loans 1.26% 1.07% 1.38% .97% .72%
Nonperforming assets at period
end $1,239 $1,210 $1,115 $764 $570
Nonperforming assets to
period-end portfolio loans plus
OREO and other nonperforming
assets 1.61% 1.59% 1.46% 1.08% .83%
Allowance for loan losses $1,554 $1,421 $1,298 $1,200 $955
Allowance for loan losses to
period-end loans 2.03% 1.87% 1.70% 1.69% 1.38%
Allowance for loan losses to
nonperforming loans 160.70 174.57 123.15 174.67 191.77
Net loan charge-offs for the quarter totaled $273 million, or 1.43% of
average loans from continuing operations, compared to $59 million, or
0.35%, for the same period last year and $524 million, or 2.75%, for the
previous quarter. Net loan charge-offs from the commercial, commercial real
estate and education loan portfolios totaled $62 million, $99 million and
$40 million, respectively, in the current quarter. The net charge-offs in
the commercial real estate portfolio reflect continued weakness in the
housing market, while the education loan charge-offs are attributable to a
weakening economic environment.
Key's net loan charge-offs by loan type for each of the past five
quarters are shown in the following table.
Net Loan Charge-offs
dollars in millions 3Q08 2Q08 1Q08 4Q07 3Q07
Commercial, financial and
agricultural $62 $61 $36 $35 $22
Real estate -- commercial mortgage 20 15 4 1 2
Real estate -- construction 79 339 (a) 25 44 6
Commercial lease financing 19 14 9 6 8
Total commercial loans 180 429 74 86 38
Home equity -- Community Banking 9 9 8 6 4
Home equity -- National Banking 12 10 7 6 4
Marine 16 10 16 8 5
Education 40 54 (b) 2 2 1
Other 16 12 14 11 7
Total consumer loans 93 95 47 33 21
Total net loan charge-offs $273 $524 $121 $119 $59
Net loan charge-offs to average
loans from continuing operations 1.43% 2.75% .67% .67% .35%
(a) During the second quarter of 2008, Key transferred $384 million of
commercial real estate loans ($719 million of primarily construction
loans, net of $335 million in net charge-offs) from the loan portfolio
to held-for-sale status.
(b) On March 31, 2008, Key transferred $3.3 billion of education loans
from loans held for sale to the loan portfolio.
The company expects net loan charge-offs for the fourth quarter to be
in the range of 1.20% to 1.60% of average loans.
At September 30, 2008, Key's nonperforming loans totaled $967 million
and represented 1.26% of period-end portfolio loans, compared to 1.07% at
June 30, 2008, and 0.72% at September 30, 2007. At the same time,
nonperforming assets totaled $1.239 billion and represented 1.61% of
portfolio loans, other real estate owned and other nonperforming assets,
compared to 1.59% at June 30, 2008, and 0.83% at September 30, 2007. The
decrease in nonperforming loans held for sale and the increase in OREO and
other nonperforming assets during the third quarter were largely
attributable to the previously discussed activity in the residential
properties segment of Key's construction loan portfolio.
The following table illustrates the trend in Key's nonperforming assets
by loan type over the past five quarters.
Nonperforming Assets
dollars in millions 3Q08 2Q08 1Q08 4Q07 3Q07
Commercial, financial and
agricultural $309 $259 $147 $84 $94
Real estate - commercial
mortgage 119 107 113 41 41
Real estate - construction 334 256 610 415 228
Commercial lease financing 55 57 38 28 30
Total consumer loans 150 135 146 119 105
Total nonperforming loans 967 814 1,054 687 498
Nonperforming loans held for
sale 169 342 9 25 6
OREO and other nonperforming
assets 103 54 52 52 66
Total nonperforming assets $1,239 $1,210 $1,115 $764 $570
Nonperforming loans to
period-end portfolio loans 1.26% 1.07 1.38% .97% .72%
Nonperforming assets to
period-end portfolio loans,
plus OREO and other
nonperforming assets 1.61 1.59 1.46 1.08 .83
Key's allowance for loan losses was $1.554 billion, or 2.03% of loans
outstanding, at September 30, 2008, compared to $1.421 billion, or 1.87%,
at June 30, 2008, and $955 million, or 1.38%, at September 30, 2007.
CAPITAL
Key's capital ratios, as presented in the following table, continued to
exceed all "well-capitalized" regulatory benchmarks at September 30, 2008.
Capital Ratios
9-30-08 6-30-08 3-31-08 12-31-07 9-30-07
Tier 1 risk-based capital (a) 8.48% 8.53% 8.33% 7.44% 7.94%
Total risk-based capital (a) 12.31 12.41 12.34 11.38 11.76
Tangible equity to tangible
assets 6.95 6.98 6.85 6.58 6.87
(a) 9-30-08 ratio is estimated.
Key issued 7 million additional common shares and 75,000 additional
shares of noncumulative perpetual convertible preferred stock on July 11,
2008. These shares were issued as part of the over allotment granted by Key
to the underwriters in connection with the issuances of common shares and
preferred stock completed during the second quarter.
During the third quarter, Key reissued 2 million of its common shares
under employee benefit plans. There was no repurchase activity by Key
during the third quarter, and the company currently does not anticipate any
share repurchase activity during the remainder of 2008.
Share issuances and repurchases that caused the change in Key's
outstanding common shares over the past five quarters are summarized in the
following table.
Summary of Changes in Common Shares Outstanding
in thousands 3Q08 2Q08 1Q08 4Q07 3Q07
Shares outstanding at
beginning of period 485,662 400,071 388,793 388,708 389,362
Common shares issued 7,066 85,106 -- -- --
Shares reissued to acquire
U.S.B. Holding Co., Inc. -- -- 9,895 -- --
Shares reissued under
employee benefit plans 2,037 485 1,383 85 1,346
Common shares repurchased -- -- -- -- (2,000)
Shares outstanding at end
of period 494,765 485,662 400,071 388,793 388,708
LINE OF BUSINESS RESULTS
The following table shows the contribution made by each major business
group to Key's taxable-equivalent revenue and (loss) income from continuing
operations for the periods presented. The specific lines of business that
comprise each of the major business groups are described under the heading
"Line of Business Descriptions." For more detailed financial information
pertaining to each business group and its respective lines of business, see
the tables at the end of this release. Key's line of business results for all
periods presented reflect a new organizational structure that took effect
January 1, 2008.
Major Business Groups
Percent change
3Q08 vs.
dollars in millions 3Q08 2Q08 3Q07 2Q08 3Q07
Revenue from continuing
operations (TE)
Community Banking $658 $661 $629 (.5)% 4.6%
National Banking (a) 482 (130) 507 N/M (4.9)
Other Segments (17) (31) 15 45.2 N/M
Total Segments 1,123 500 1,151 124.6 (2.4)
Reconciling Items (c) (30) (45) (1) 33.3 N/M
Total $1,093 $455 $1,150 140.2% (5.0)%
(Loss) income from
continuing operations
Community Banking $98 $105 $134 (6.7)% (26.9)%
National Banking (a) (133) (672) 70 80.2 N/M
Other Segments (b) 9 (13) 16 N/M (43.8)
Total Segments (26) (580) 220 95.5 N/M
Reconciling Items (c) (10) (546) 4 98.2 N/M
Total $(36) $(1,126) $224 96.8% N/M
(a) National Banking's results for the third quarter of 2008 include
$54 million ($33 million after tax) of derivative-related charges
recorded as a result of market disruption caused by the failure of
Lehman Brothers and $31 million ($19 million after tax) of realized
and unrealized losses from the residential properties segment of the
construction loan portfolio. During the second quarter of 2008,
National Banking's taxable-equivalent net interest income and net
income were reduced by $838 million and $536 million, respectively, as
a result of an adverse federal court decision on the tax treatment of
a Service Contract Lease transaction.
(b) Other Segments' results for the third quarter of 2008 include a
$23 million ($14 million after tax) credit, representing the reversal
of the remaining litigation reserve associated with the Honsador
litigation, which was settled in September.
(c) Reconciling Items for the third and second quarters of 2008 include
charges of $30 million and $475 million, respectively, to income taxes for the interest cost associated with the leveraged lease tax
litigation.
Reconciling Items for the third quarter of 2007 include a $27 million
($17 million after tax) gain related to MasterCard Incorporated
shares.
TE = Taxable Equivalent, N/M = Not Meaningful
Community Banking
Percent change
3Q08 vs.
dollars in millions 3Q08 2Q08 3Q07 2Q08 3Q07
Summary of operations
Net interest income (TE) $445 $439 $412 1.4% 8.0%
Noninterest income 213 222 217 (4.1) (1.8)
Total revenue (TE) 658 661 629 (.5) 4.6
Provision for loan losses 56 44 2 27.3 N/M
Noninterest expense 445 449 413 (.9) 7.7
Income before income
taxes (TE) 157 168 214 (6.5) (26.6)
Allocated income taxes and
TE adjustments 59 63 80 (6.3) (26.3)
Net income $98 $105 $134 (6.7)% (26.9)%
Percent of consolidated
income from continuing
operations N/M N/M 60% N/A N/A
Average balances
Loans and leases $28,872 $28,477 $26,944 1.4% 7.2%
Total assets 31,934 31,304 29,708 2.0 7.5
Deposits 50,384 49,948 46,729 .9 7.8
Assets under management
at period end $18,278 $19,366 $21,903 (5.6)% (16.6)%
TE = Taxable Equivalent, N/M = Not Meaningful, N/A = Not Applicable
Additional Community Banking Data Percent change
3Q08 vs.
dollars in millions 3Q08 2Q08 3Q07 2Q08 3Q07
Average deposits outstanding
NOW and money market deposit
accounts $19,507 $19,656 $20,307 (.8)% (3.9)%
Savings deposits 1,752 1,804 1,569 (2.9) 11.7
Certificates of deposit
($100,000 or more) 6,875 6,661 4,566 3.2 50.6
Other time deposits 13,103 12,735 11,485 2.9 14.1
Deposits in foreign office 1,193 1,306 1,128 (8.7) 5.8
Noninterest-bearing deposits 7,954 7,786 7,674 2.2 3.6
Total deposits $50,384 $49,948 $46,729 .9% 7.8%
Home equity loans
Average balance $9,887 $9,766 $9,690
Weighted-average
loan-to-value ratio 70% 70% 70%
Percent first lien positions 54 55 58
Other data
Branches 986 985 954
Automated teller machines 1,479 1,479 1,439
Community Banking Summary of Operations
Community Banking recorded net income of $98 million for the third
quarter of 2008, compared to $134 million for the year-ago quarter.
Increases in the provision for loan losses and noninterest expense were the
primary causes of the decline, and more than offset an increase in net
interest income.
Taxable-equivalent net interest income rose by $33 million, or 8%, from
the third quarter of 2007. The increase was attributable to a $1.9 billion,
or 7%, rise in average earning assets, due largely to growth in the
commercial loan portfolio, and a $3.7 billion, or 8%, increase in average
deposits. Both loans and deposits experienced organic growth and benefited
from the January 1 acquisition of U.S.B. Holding Co., Inc. described below.
The provision for loan losses rose by $54 million compared to the third
quarter of 2007, reflecting a $51 million increase in net loan charge-offs,
almost half of which was attributable to two specific commercial loans.
Noninterest expense rose by $32 million or 8%, from the year-ago
quarter as a result of increases in personnel expense, marketing expense,
professional fees, costs associated with other real estate owned, and
smaller increases in a variety of other expense components. Overall, the
increase in noninterest expense was largely attributable to initiatives
undertaken with regard to branch modernization, deposit growth and the
acquisition of U.S.B. Holding Co., Inc.
On January 1, 2008, Key acquired U.S.B. Holding Co., Inc., the holding
company for Union State Bank, a 31-branch state-chartered commercial bank
headquartered in Orangeburg, New York. The acquisition doubles Key's branch
penetration in the attractive Lower Hudson Valley area. Assets and deposits
acquired in this transaction were assigned to both the Community Banking
and National Banking groups.
National Banking
Percent change
3Q08 vs.
dollars in millions 3Q08 2Q08 3Q07 2Q08 3Q07
Summary of operations
Net interest income (loss)
(TE) $322 $(476)(a) $355 N/M (9.3)%
Noninterest income 160(a) 346 152 (53.8)% 5.3
Total revenue (TE) 482 (130) 507 N/M (4.9)
Provision for loan losses 350 609 69 (42.5) 407.2
Noninterest expense 342 337 327 1.5 4.6
(Loss) income from
continuing operations
before income taxes (TE) (210) (1,076) 111 80.5 N/M
Allocated income taxes
and TE adjustments (77) (404) 41 80.9 N/M
(Loss) income from
continuing operations (133) (672) 70 80.2 N/M
Loss from discontinued
operations, net of taxes -- -- (14) -- 100.0
Net (loss) income $(133) $(672) $56 80.2% N/M
Percent of consolidated
income from continuing
operations N/M N/M 31% N/A N/A
Average balances from
continuing operations
Loans and leases $47,075 $47,877 $40,279 (1.7)% 16.9 %
Loans held for sale 1,651 1,282 4,692 28.8 (64.8)
Total assets 56,183 56,323 50,961 (.2) 10.2
Deposits 12,439 12,289 12,631 1.2 (1.5)
Assets under management
at period end $58,398 $61,632 $66,197 (5.2)% (11.8)%
(a) National Banking's results for the third quarter of 2008 include
$54 million ($33 million after tax) of derivative-related charges
recorded as a result of market disruption caused by the failure of
Lehman Brothers and $31 million ($19 million after tax) of realized
and unrealized losses from the residential properties segment of the
construction loan portfolio. During the second quarter of 2008,
National Banking's taxable-equivalent net interest income and net
income were reduced by $838 million and $536 million, respectively,
as a result of an adverse federal court decision on the tax treatment
of a Service Contract Lease transaction.
TE = Taxable Equivalent, N/M = Not Meaningful, N/A = Not Applicable
National Banking Summary of Continuing Operations
National Banking recorded a loss of $133 million from continuing
operations for the third quarter of 2008, compared to income of $70 million
from continuing operations for the same period last year. A substantially
higher provision for loan losses, lower net interest income and an increase
in noninterest expense were offset in part by growth in noninterest income.
Taxable-equivalent net interest income decreased by $33 million, or 9%,
from the third quarter of 2007 as a result of tighter loan and deposit
spreads caused by competitive pricing, and a higher level of nonperforming
assets. Also contributing to the decrease was the prospective reduction in
net interest income caused by the second quarter 2008 recalculation of
income previously recognized on all leveraged leases being contested by the
IRS. Average loans and leases grew by $6.8 billion, or 17%, while the level
of average deposits was down slightly from the year-ago quarter.
Contributing to the loan growth was the March 31, 2008, transfer of $3.3
billion of education loans from loans held for sale to the loan portfolio.
Excluding $54 million of derivative-related charges recorded in the
current quarter as a result of market disruption caused by the failure of
Lehman Brothers, noninterest income rose by $62 million, or 41%, from the
third quarter of 2007. The improvement reflected a $15 million increase in
income from trust and investment services, a $23 million reduction in net
losses from loan sales and write-downs, and a $15 million decrease in
losses attributable to changes in the fair values of certain real estate
related investments held by the Private Equity unit within the Real Estate
Capital and Corporate Banking Services line of business. Noninterest income
also benefited from an increase in fee income generated from tuition
payment plan processing.
The provision for loan losses rose by $281 million, due primarily to
higher levels of net loan charge-offs from the commercial, commercial real
estate and education loan portfolios. National Banking's provision for loan
losses for the third quarter of 2008 exceeded its net loan charge-offs by
$147 million, as the company continued to build reserves.
Noninterest expense increased by $15 million, or 5%, from the third
quarter of 2007, reflecting $10 million of additional expense attributable
to severance and other costs recorded during the current quarter in
connection with Key's decision to exit direct and indirect retail and
floor-plan lending for marine and recreational vehicle products.
Other Segments
Other segments consist of Corporate Treasury and Key's Principal
Investing unit. These segments generated net income of $9 million for the
third quarter of 2008, compared to $16 million for the same period last
year. These results reflect less favorable results from principal investing
in the current year.
Line of Business Descriptions
Community Banking
Regional Banking provides individuals with branch-based deposit and
investment products, personal finance services and loans, including
residential mortgages, home equity and various types of installment loans.
This line of business also provides small businesses with deposit,
investment and credit products, and business advisory services.
Regional Banking also offers financial, estate and retirement planning,
and asset management services to assist high-net-worth clients with their
banking, trust, portfolio management, insurance, charitable giving and
related needs.
Commercial Banking provides midsize businesses with products and
services that include commercial lending, cash management, equipment
leasing, investment and employee benefit programs, succession planning,
access to capital markets, derivatives and foreign exchange.
National Banking
Real Estate Capital and Corporate Banking Services consists of two
business units. Real Estate Capital is a national business that provides
construction and interim lending, permanent debt placements and servicing,
equity and investment banking, and other commercial banking products and
services to developers, brokers and owner-investors. This unit deals
primarily with nonowner-occupied properties (i.e., generally properties in
which at least 50% of the debt service is provided by rental income from
nonaffiliated third parties). Particular emphasis has been placed on
providing clients with finance solutions through access to the capital
markets.
Corporate Banking Services provides cash management, interest rate
derivatives, and foreign exchange products and services to clients
throughout the Community Banking and National Banking groups. Through its
Public Sector and Financial Institutions businesses, Corporate Banking
Services provides a full array of commercial banking products and services
to government and not- for-profit entities, and to community banks.
Equipment Finance meets the equipment leasing needs of companies
worldwide and provides equipment manufacturers, distributors and resellers
with financing options for their clients. Lease financing receivables and
related revenues are assigned to other lines of business (primarily
Institutional and Capital Markets, and Commercial Banking) if those
businesses are principally responsible for maintaining the relationship
with the client.
Institutional and Capital Markets through its KeyBanc Capital Markets
unit, provides commercial lending, treasury management, investment banking,
derivatives and foreign exchange, equity and debt underwriting and trading,
and syndicated finance products and services to large corporations and
middle- market companies.
Through its Victory Capital Management unit, Institutional and Capital
Markets also manages or offers advice regarding investment portfolios for a
national client base, including corporations, labor unions, not-for-profit
organizations, governments and individuals. These portfolios may be managed
in separate accounts, common funds or the Victory family of mutual funds.
Consumer Finance provides government guaranteed education loans to
students and their parents, and processes tuition payments for private
schools. Through its Commercial Floor Plan Lending unit, this line of
business also finances inventory for automobile dealers. Starting in
October 2008, Consumer Finance will exit direct and indirect retail and
floor-plan lending for marine and recreational vehicle products and will
limit new education loans to those backed by government guarantee. It will
continue to service existing loans in these portfolios and to honor
existing education loan commitments. These actions are consistent with
Key's strategy of de-emphasizing nonrelationship or out-of-footprint
businesses.
Cleveland-based KeyCorp is one of the nation's largest bank-based
financial services companies, with assets of $101 billion. Key companies
provide investment management, retail and commercial banking, consumer
finance, and investment banking products and services to individuals and
companies throughout the United States and, for certain businesses,
internationally. The company's businesses deliver their products and
services through 986 branches and additional offices; a network of 1,479
ATMs; telephone banking centers (1.800.KEY2YOU); and a Web site,
https://www.key.com/ (R), that provides account access and financial
products 24 hours a day.
This earnings release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, including
statements about our financial condition, results of operations, earnings
outlook, asset quality trends and profitability. Forward-looking statements
are not historical facts but instead represent only management's current
expectations and forecasts regarding future events, many of which, by their
nature, are inherently uncertain and outside of Key's control. Key's actual
results and financial condition may differ, possibly materially, from the
anticipated results and financial condition indicated in these
forward-looking statements.
Although management believes that the expectations and forecasts
reflected in these forward-looking statements are reasonable, actual
results could differ materially due to a variety of factors including: (1)
changes in interest rates; (2) changes in trade, monetary or fiscal policy;
(3) continued disruption in the fixed income markets; (4) adverse capital
markets conditions; (5) changes in general economic conditions, or in the
condition of the local economies or industries in which we have significant
operations or assets, which could, among other things, materially impact
credit quality trends and our ability to generate loans; (6) continued
disruption in the housing markets and related conditions in the financial
markets; (7) increased competitive pressure among financial services
companies due to the recent consolidation of competing financial
institutions and the conversion of certain investment banks to bank holding
companies; (8) heightened legal standards and regulatory practices,
requirements or expectations;(9) the inability to successfully execute
strategic initiatives designed to grow revenues and/or manage expenses;
(10) increased FDIC deposit premiums; (11) consummation of significant
business combinations or divestitures; (12) operational or risk management
failures due to technological or other factors; (13) changes in accounting
or tax practices or requirements; (14) new legal obligations or liabilities
or unfavorable resolution of litigation; and (15) disruption in the economy
and general business climate as a result of terrorist activities or
military actions. For additional information on the factors that could
cause Key's actual results or financial condition to differ materially from
those described in the forward-looking statements consult Key's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2008, and June 30,
2008, Annual Report on Form 10-K for the year ended December 31, 2007, and
Current Reports on Form 8-K, filed with the Securities and Exchange
Commission and available on the Securities and Exchange Commission's
website (http://www.sec.gov). Forward-looking statements are not guarantees of
future performance and should not be relied upon as representing
management's views as of any subsequent date. We do not assume any
obligation to update these forward-looking statements. For further
information regarding KeyCorp, please read KeyCorp's reports that are filed
with the Securities and Exchange Commission and are available at
http://www.sec.gov.
ADD: /FIRST AND FINAL ADD -- CLTU004 -- KeyCorp Earnings/
Financial Highlights
(dollars in millions, except per share amounts)
Three months ended
9-30-08 6-30-08 9-30-07
Summary of operations
Net interest income (loss) (TE) $705 $(100) (a) $712
Noninterest income 388 555 438
Total revenue (TE) 1,093 455 1,150
Provision for loan losses 407 647 69
Noninterest expense 762 781 753
(Loss) income from continuing
operations (36) (1,126) 224
Loss from discontinued operations,
net of taxes (b) --- --- (14)
Net (loss) income (36) (1,126) (a) 210
Net (loss) income applicable to
common shares (48) (1,126) 210
Per common share
(Loss) income from continuing
operations $(.10) $(2.70) $.58
(Loss) income from continuing
operations - assuming dilution (.10) (2.70) .57
Loss from discontinued operations (b) --- --- (.03)
Loss from discontinued operations -
assuming dilution (b) --- --- (.03)
Net (loss) income (.10) (2.70) .54
Net (loss) income - assuming dilution (.10) (2.70) (a) .54
Cash dividends paid .1875 .375 .365
Book value at period end 16.16 16.59 20.12
Tangible book value at period end 12.66 13.00 16.76
Market price at period end 11.94 10.98 32.33
Performance ratios - from continuing
operations
Return on average total assets (.14)% (4.38)% .93 %
Return on average common equity (2.36) (53.35) 11.50
Return on average total equity (1.64) (52.56) 11.50
Net interest margin (TE) 3.13 (.44) 3.40
Performance ratios - from consolidated
operations
Return on average total assets (.14)% (4.38)% (a) .88 %
Return on average common equity (2.36) (53.35)(a) 10.79
Return on average total equity (1.64) (52.56)(a) 10.79
Net interest margin (TE) 3.13 (.44)(a) 3.40
Capital ratios at period end
Equity to assets 8.54 % 8.57 % 8.13 %
Tangible equity to tangible assets 6.95 6.98 6.87
Tier 1 risk-based capital (c) 8.48 8.53 7.94
Total risk-based capital (c) 12.31 12.41 11.76
Leverage (c) 9.46 9.34 8.96
Asset quality
Net loan charge-offs $273 $524 $59
Net loan charge-offs to average loans
from continuing operations 1.43 % 2.75 % .35 %
Allowance for loan losses $1,544 $1,421 $955
Allowance for loan losses to period-
end loans 2.03 % 1.87 % 1.38 %
Allowance for loan losses to
nonperforming loans 160.70 174.57 191.77
Nonperforming loans at period end $967 $814 $498
Nonperforming assets at period end 1,239 1,210 570
Nonperforming loans to period-end
portfolio loans 1.26 % 1.07 % .72 %
Nonperforming assets to period-end
portfolio loans plus
OREO and other nonperforming assets 1.61 1.59 .83
Trust and brokerage assets
Assets under management $76,676 $80,998 $88,100
Nonmanaged and brokerage assets 27,187 29,905 33,273
Other data
Average full-time equivalent
employees 18,291 18,164 18,567
Branches 986 985 954
Taxable-equivalent adjustment $6 $(458) $18
Financial Highlights (continued)
(dollars in millions, except per share amounts)
Nine months ended
9-30-08 9-30-07
Summary of operations
Net interest income (TE) $1,309 (a) $2,118
Noninterest income 1,471 1,741
Total revenue (TE) 2,780 3,859
Provision for loan losses 1,241 166
Noninterest expense 2,275 2,352
(Loss) income from continuing
operations (944) 919
Loss from discontinued operations,
net of taxes (b) --- (25)
Net (loss) income (944)(a) 894
Net (loss) income applicable to
common shares (956) 894
Per common share
(Loss) income from continuing
operations $(2.19) $2.34
(Loss) income from continuing
operations - assuming dilution (2.19) 2.31
Loss from discontinued operations (b) --- (.06)
Loss from discontinued operations -
assuming dilution (b) --- (.06)
Net (loss) income (2.19) 2.28
Net (loss) income - assuming
dilution (2.19)(a) 2.25
Cash dividends paid .9375 1.095
Performance ratios - from continuing
operations
Return on average total assets (1.22)% 1.31 %
Return on average common equity (15.32) 16.03
Return on average total equity (14.66) 16.03
Net interest margin (TE) 1.95 3.46
Performance ratios - from consolidated
operations
Return on average total assets (1.22)% (a) 1.28 %
Return on average common equity (15.32)(a) 15.59
Return on average total equity (14.66)(a) 15.59
Net interest margin (TE) 1.95 (a) 3.46
Asset quality
Net loan charge-offs $918 $156
Net loan charge-offs to average
loans from continuing operations 1.63 % .31 %
Other data
Average full-time equivalent
employees 18,294 19,081
Taxable-equivalent adjustment $(461) $59
(a) The following table entitled "GAAP to Non-GAAP Reconciliations"
presents certain earnings data and performance ratios, excluding
charges related to the tax treatment of certain leveraged lease
financing transactions disallowed by the Internal Revenue Service.
The table reconciles certain GAAP performance measures to the
corresponding non-GAAP measures and provides a basis for
period-to-period comparisons.
(b) Key sold the subprime mortgage loan portfolio held by the Champion
Mortgage finance business in November 2006, and completed the sale of
Champion's origination platform in February 2007. As a result of
these actions, Key has accounted for this business as a discontinued
operation.
(c) 9-30-08 ratio is estimated.
TE = Taxable Equivalent
GAAP to Non-GAAP Reconciliations
(dollars in millions, except per share amounts)
As a result of an adverse federal court decision on Key's tax treatment
of a Service Contract Lease transaction entered into by AWG Leasing Trust,
in which Key is a partner, Key recorded after-tax charges of $1.011
billion, or $2.43 per common share, during the second quarter of 2008.
Additionally, during the first quarter of 2008, Key increased its tax
reserves for certain lease in, lease out transactions and recalculated its
lease income in accordance with prescribed accounting standards, resulting
in after-tax charges of $38 million, or $0.10 per common share. The table
below presents certain earnings data and performance ratios, excluding
these charges (non- GAAP), reconciles the GAAP performance measures to the
corresponding non-GAAP measures and provides a basis for period-to-period
comparisons. Non-GAAP financial measures have inherent limitations, are not
required to be uniformly applied and are not audited. Non-GAAP financial
measures should not be considered in isolation, or as a substitute for
analyses of results as reported under GAAP.
Nine
Three months ended months ended
9-30-08 6-30-08 3-31-08 9-30-08
Net income
Net (loss) income (GAAP) $(36) $(1,126) $218 $(944)
Charges related to leveraged
lease tax litigation, after
tax --- 1,011 38 1,049
Net (loss) income, excluding
charges related to
leveraged lease tax
litigation (non-GAAP) $(36) $(115) $256 $105
Net (loss) income applicable
to common shares (GAAP) $(48) $(1,126) $218 $(956)
Per common share
Net (loss) income - assuming
dilution (GAAP) $(.10) $(2.70) $.54 $(2.19)
Net (loss) income, excluding
charges related to
leveraged lease tax
litigation - assuming
dilution (non-GAAP) (.10) (.28) .64 .23
Performance ratios
Return on average total
assets (a)
Average total assets $103,156 $103,290 $103,356 $103,267
Return on average total
assets (GAAP) (.14)% (4.38)% .85 % (1.22)%
Return on average total
assets, excluding charges
related to leveraged lease
tax
litigation (non-GAAP) (.14) (.45) 1.00 .14
Return on average common
equity (a)
Average common equity $8,077 $8,489 $8,445 $8,336
Return on average common
equity (GAAP) (2.36)% (53.35)% 10.38 % (15.32)%
Return on average common
equity, excluding charges
related to leveraged lease
tax litigation (non-GAAP) (2.36) (5.45) 12.19 1.49
Return on average total
equity (a)
Average total equity $8,734 $8,617 $8,445 $8,599
Return on average total
equity (GAAP) (1.64)% (52.56)% 10.38 % (14.66)%
Return on average total
equity, excluding charges
related to leveraged lease
tax litigation (non-GAAP) (1.64) (5.37) 12.19 1.63
Net interest income and
margin
Net interest income
Net interest income (GAAP) $699 $358 $713 $1,770
Charges related to leveraged
lease tax litigation, pre-
tax --- 359 3 362
Net interest income,
excluding charges related
to leveraged lease tax
litigation (non-GAAP) $699 $717 $716 $2,132
Net interest income/margin
(TE)
Net interest income (loss)
(TE) (as reported) $705 $(100) $704 $1,309
Charges related to leveraged
lease tax litigation, pre-
tax (TE) --- 838 34 872
Net interest income,
excluding charges related
to leveraged lease tax
litigation (TE) (adjusted
basis) $705 $738 $738 $2,181
Net interest margin (TE) (as
reported) (a) 3.13 % (.44)% 3.14 % 1.95 %
Impact of charges related to
leveraged lease tax
litigation, pre-tax (TE) (a) --- 3.76 .15 1.30
Net interest margin,
excluding charges related
to leveraged lease tax
litigation (TE) (adjusted
basis) (a) 3.13 % 3.32 % 3.29 % 3.25 %
(a) Income statement amount has been annualized in calculation of
percentage.
TE = Taxable Equivalent
GAAP = U.S. generally accepted accounting principles
Consolidated Balance Sheets
(dollars in millions)
9-30-08 6-30-08 9-30-07
Assets
Loans $76,705 $75,855 $68,999
Loans held for sale 1,475 1,833 4,791
Securities available for sale 8,391 8,312 7,915
Held-to-maturity securities 28 25 36
Trading account assets 1,449 1,483 1,060
Short-term investments 653 826 528
Other investments 1,556 1,559 1,509
Total earning assets 90,257 89,893 84,838
Allowance for loan losses (1,554) (1,421) (955)
Cash and due from banks 1,937 1,912 2,016
Premises and equipment 801 748 631
Operating lease assets 1,030 1,089 1,135
Goodwill 1,595 1,598 1,202
Other intangible assets 135 146 105
Corporate-owned life insurance 2,940 2,917 2,845
Derivative assets 951 1,693 539
Accrued income and other assets 3,198 2,969 3,781
Total assets $101,290 $101,544 $96,137
Liabilities
Deposits in domestic offices:
NOW and money market deposit
accounts $25,789 $27,278 $24,198
Savings deposits 1,731 1,809 1,544
Certificates of deposit ($100,000
or more) 10,316 8,699 6,672
Other time deposits 13,929 12,541 11,403
Total interest-bearing
deposits 51,765 50,327 43,817
Noninterest-bearing deposits 11,122 10,561 14,003
Deposits in foreign office -
interest-bearing 1,791 3,508 5,894
Total deposits 64,678 64,396 63,714
Federal funds purchased and
securities sold under repurchase
agreements 1,799 2,088 5,398
Bank notes and other short-term
borrowings 5,352 5,985 2,429
Derivative liabilities 589 637 218
Accrued expense and other
liabilities 4,624 4,626 5,009
Long-term debt 15,597 15,106 11,549
Total liabilities 92,639 92,838 88,317
Shareholders' equity
Preferred stock 658 650 ---
Common shares 584 577 492
Capital surplus 2,552 2,544 1,617
Retained earnings 7,320 7,461 8,788
Treasury stock, at cost (2,616) (2,675) (3,023)
Accumulated other comprehensive
income (loss) 153 149 (54)
Total shareholders' equity 8,651 8,706 7,820
Total liabilities and shareholders'
equity $101,290 $101,544 $96,137
Common shares outstanding (000) 494,765 485,662 388,708
Consolidated Statements of Income
(dollars in millions, except per share amounts)
Three months ended Nine months ended
9-30-08 6-30-08 9-30-07 9-30-08 9-30-07
Interest income
Loans $1,066 $717 $1,209 $2,906 $3,546
Loans held for sale 21 20 91 128 248
Securities available for
sale 110 111 106 330 312
Held-to-maturity securities 1 --- --- 2 1
Trading account assets 16 10 11 39 26
Short-term investments 6 8 5 23 24
Other investments 12 14 12 38 40
Total interest income 1,232 880 1,434 3,466 4,197
Interest expense
Deposits 347 347 482 1,122 1,362
Federal funds purchased and
securities sold under
repurchase agreements 10 15 55 53 163
Bank notes and other short-
term borrowings 34 27 30 100 59
Long-term debt 142 133 173 421 554
Total interest expense 533 522 740 1,696 2,138
Net interest income 699 358 694 1,770 2,059
Provision for loan losses 407 647 69 1,241 166
Net interest income (loss)
after provision for loan
losses 292 (289) 625 529 1,893
Noninterest income
Trust and investment
services income 133 138 119 400 359
Service charges on deposit
accounts 94 93 88 275 247
Investment banking and
capital markets (loss)
income (31) 80 9 57 105
Operating lease income 69 68 70 206 200
Letter of credit and loan
fees 53 51 51 141 134
Corporate-owned life
insurance income 28 28 27 84 84
Electronic banking fees 27 27 25 78 74
Net (losses) gains from
loan securitizations and
sales (30) 33 (53) (98) (11)
Net securities gains
(losses) 1 (1) 4 3 (41)
Net (losses) gains from
principal investing (24) (14) 9 (29) 128
Gain from redemption of
Visa Inc. shares --- --- --- 165 ---
Gain from sale of McDonald
Investments branch network --- --- --- --- 171
Other income 68 52 89 189 291
Total noninterest income 388 555 438 1,471 1,741
Noninterest expense
Personnel 381 404 383 1,194 1,222
Net occupancy 65 62 60 193 182
Computer processing 46 43 49 136 149
Operating lease expense 56 55 58 169 165
Professional fees 35 33 27 91 79
Equipment 23 23 22 70 71
Marketing 27 21 21 62 60
Other expense 129 140 133 360 424
Total noninterest expense 762 781 753 2,275 2,352
(Loss) income from
continuing operations
before income taxes (82) (515) 310 (275) 1,282
Income taxes (46) 611 86 669 363
(Loss) income from
continuing operations (36) (1,126) 224 (944) 919
Loss from discontinued
operations, net of taxes --- --- (14) --- (25)
Net (loss) income $(36) $(1,126) $210 $(944) $894
Net (loss) income applicable
to common shares $(48) $(1,126) $210 $(956) $894
Per common share:
(Loss) income from
continuing operations $(.10) $(2.70) $.58 $(2.19) $2.34
Net (loss) income (.10) (2.70) .54 (2.19) 2.28
Per common share - assuming
dilution:
(Loss) income from
continuing operations $(.10) $(2.70) $.57 $(2.19) $2.31
Net (loss) income (.10) (2.70) .54 (2.19) 2.25
Cash dividends declared per
common share $.1875 $.375 $.365 $.9375 $1.095
Weighted-average common
shares outstanding (000) 491,179 416,629 389,319 435,846 393,048
Weighted-average common
shares and potential
common shares
outstanding (000) 491,179 416,629 393,164 435,846 397,816
Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates
From Continuing Operations
(dollars in millions)
Third Quarter 2008
Average
Balance Interest Yield/Rate
Assets
Loans: (a,b)
Commercial, financial and
agricultural $26,345 $356 5.38 %
Real estate - commercial mortgage 10,718 158 5.87
Real estate - construction 7,806 109 5.53
Commercial lease financing 9,585 108 4.52
Total commercial loans 54,454 731 5.35
Real estate - residential 1,899 28 6.04
Home equity:
Community Banking 9,887 141 5.64
National Banking 1,138 22 7.65
Total home equity loans 11,025 163 5.85
Consumer other - Community
Banking 1,264 33 10.37
Consumer other - National
Banking:
Marine 3,586 57 6.33
Education 3,635 54 5.90
Other 308 6 8.22
Total consumer other -
National Banking 7,529 117 6.20
Total consumer loans 21,717 341 6.25
Total loans 76,171 1,072 5.60
Loans held for sale 1,723 21 4.76
Securities available for sale
(a,d) 8,266 110 5.38
Held-to-maturity securities (a) 27 1 13.81
Trading account assets 1,579 16 4.02
Short-term investments 794 6 3.44
Other investments (d) 1,563 12 2.87
Total earning assets 90,123 1,238 5.47
Allowance for loan losses (1,498)
Accrued income and other assets 14,531
Total assets $103,156
Liabilities
NOW and money market deposit
accounts $26,657 108 1.61
Savings deposits 1,783 1 .21
Certificates of deposit ($100,000
or more) (e) 9,506 97 4.05
Other time deposits 13,118 129 3.92
Deposits in foreign office 2,762 12 1.77
Total interest-bearing
deposits 53,826 347 2.57
Federal funds purchased and
securities sold under repurchase
agreements 2,546 10 1.58
Bank notes and other short-term
borrowings 4,843 34 2.72
Long-term debt (e,f) 15,123 142 3.91
Total interest-bearing
liabilities 76,338 533 2.80
Noninterest-bearing deposits 10,756
Accrued expense and other
liabilities 7,328
Total liabilities 94,422
Shareholders' equity
Preferred stock 657
Common shareholders' equity 8,077
Total shareholders' equity 8,734
Total liabilities and
shareholders' equity $103,156
Interest rate spread (TE) 2.67 %
Net interest income (loss)(TE) and
net interest margin (TE) 705 3.13 %
TE adjustment (a) 6
Net interest income, GAAP basis $699
Second Quarter 2008
Average
Balance Interest Yield/Rate
Assets
Loans: (a,b)
Commercial, financial and
agricultural $26,057 $352 5.42 %
Real estate -- commercial mortgage 10,593 156 5.91
Real estate -- construction 8,484 118 5.61
Commercial lease financing 9,798 (709) (28.94)(c)
Total commercial loans 54,932 (83) (.58)
Real estate - residential 1,918 30 6.12
Home equity:
Community Banking 9,765 140 5.78
National Banking 1,200 23 7.68
Total home equity loans 10,965 163 5.99
Consumer other -- Community Banking 1,271 33 10.34
Consumer other -- National Banking:
Marine 3,646 56 6.26
Education 3,595 53 5.88
Other 325 7 8.21
Total consumer other --
National Banking 7,566 116 6.16
Total consumer loans 21,720 342 6.32
Total loans 76,652 259 1.37
Loans held for sale 1,356 20 5.94
Securities available for sale (a,d) 8,315 111 5.40
Held-to-maturity securities (a) 25 --- 11.47
Trading account assets 1,041 10 3.88
Short-term investments 773 8 3.83
Other investments (d) 1,580 14 3.09
Total earning assets 89,742 422 1.89
Allowance for loan losses (1,338)
Accrued income and other assets 14,886
Total assets $103,290
Liabilities
NOW and money market deposit
accounts $27,158 102 1.51
Savings deposits 1,815 1 .27
Certificates of deposit ($100,000
or more) (e) 8,670 88 4.09
Other time deposits 12,751 135 4.27
Deposits in foreign office 4,121 21 1.95
Total interest-bearing
deposits 54,515 347 2.56
Federal funds purchased and
securities sold under repurchase
agreements 3,267 15 1.86
Bank notes and other short-term
borrowings 4,770 27 2.26
Long-term debt (e,f) 14,620 133 3.87
Total interest-bearing
liabilities 77,172 522 2.75
Noninterest-bearing deposits 10,617
Accrued expense and other
liabilities 6,884
Total liabilities 94,673
Shareholders' equity
Preferred stock 128
Common shareholders' equity 8,489
Total shareholders' equity 8,617
Total liabilities and
shareholders' equity $103,290
Interest rate spread (TE) (.86)%
Net interest income (loss)(TE) and
net interest margin (TE) (100)(c) (.44)%(c)
TE adjustment (a) (458)
Net interest income, GAAP basis $358
Third Quarter 2007
Average
Balance Interest Yield/Rate
Assets
Loans: (a,b)
Commercial, financial and
agricultural $22,393 $410 7.25 %
Real estate - commercial mortgage 8,855 172 7.69
Real estate - construction 8,285 167 8.01
Commercial lease financing 10,172 147 5.80
Total commercial loans 49,705 896 7.16
Real estate - residential 1,586 26 6.68
Home equity:
Community Banking 9,690 175 7.14
National Banking 1,193 24 7.85
Total home equity loans 10,883 199 7.22
Consumer other - Community
Banking 1,342 36 10.66
Consumer other - National
Banking:
Marine 3,506 55 6.32
Education 332 8 9.65
Other 326 7 8.92
Total consumer other -
National Banking 4,164 70 6.79
Total consumer loans 17,975 331 7.33
Total loans 67,680 1,227 7.20
Loans held for sale 4,731 91 7.59
Securities available for sale (a,d) 7,825 106 5.45
Held-to-maturity securities (a) 36 --- 6.43
Trading account assets 1,055 11 4.39
Short-term investments 633 5 3.32
Other investments (d) 1,563 12 2.99
Total earning assets 83,523 1,452 6.92
Allowance for loan losses (942)
Accrued income and other assets 12,581
Total assets $95,162
Liabilities
NOW and money market deposit
accounts $24,190 209 3.41
Savings deposits 1,581 --- .19
Certificates of deposit ($100,000
or more) (e) 6,274 80 5.06
Other time deposits 11,512 136 4.68
Deposits in foreign office 4,540 57 5.00
Total interest-bearing
deposits 48,097 482 3.98
Federal funds purchased and
securities sold under repurchase
agreements 4,470 55 4.85
Bank notes and other short-term
borrowings 2,539 30 4.70
Long-term debt (e,f) 11,801 173 5.89
Total interest-bearing
liabilities 66,907 740 4.40
Noninterest-bearing deposits 14,424
Accrued expense and other
liabilities 6,106
Total liabilities 87,437
Shareholders' equity
Preferred stock ---
Common shareholders' equity 7,725
Total shareholders' equity 7,725
Total liabilities and
shareholders' equity $95,162
Interest rate spread (TE) 2.52 %
Net interest income (loss)(TE) and
net interest margin (TE) 712 3.40 %
TE adjustment (a) 18
Net interest income, GAAP basis $694
Average balances have not been restated to reflect Key's January 1,
2008, adoption of Financial Accounting Standards Board ("FASB")
Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts," and FASB Staff Position FIN 39-1, "Amendment of FASB
Interpretation 39."
(a) Interest income on tax-exempt securities and loans has been adjusted
to a taxable-equivalent basis using the statutory federal income tax
rate of 35%.
(b) For purposes of these computations, nonaccrual loans are included in
average loan balances.
(c) During the second quarter of 2008, Key's taxable-equivalent net
interest income and net income were reduced by $838 million and $1.011
billion, respectively, as a result of an adverse federal court
decision on Key's tax treatment of a Service Contract Lease
transaction. Excluding this reduction, the taxable-equivalent yield
on Key's commercial lease financing portfolio would have been 5.25%
for the second quarter of 2008, and Key's taxable-equivalent net
interest margin would have been 3.32%. During the prior quarter, Key
increased its tax reserves for certain lease in, lease out
transactions and recalculated its lease income in accordance with
prescribed accounting standards. These actions reduced Key's first
quarter 2008 taxable-equivalent net interest income and net income by
$34 million and $38 million, respectively. Excluding this reduction,
the taxable-equivalent yield on Key's commercial lease financing
portfolio would have been 5.27% for the first quarter of 2008, and
Key's taxable-equivalent net interest margin would have been 3.29%.
(d) Yield is calculated on the basis of amortized cost.
(e) Rate calculation excludes basis adjustments related to fair value
hedges.
(f) Results from continuing operations exclude the dollar amount of
liabilities assumed necessary to support interest-earning assets held
by the discontinued Champion Mortgage finance business. The interest
expense related to these liabilities, which also is excluded from
continuing operations, was calculated using a matched funds transfer
pricing methodology.
TE = Taxable Equivalent
GAAP = U.S. generally accepted accounting principles
Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates
From Continuing Operations
(dollars in millions)
Nine months ended Nine months ended
September 30, 2008 September 30, 2007
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
Assets
Loans: (a,b)
Commercial,
financial and
agricultural $25,939 $1,100 5.66 % $21,940 $1,203 7.33 %
Real estate --
commercial
mortgage 10,532 489 6.20 8,617 500 7.76
Real estate --
construction 8,251 361 5.84 8,252 500 8.10
Commercial lease
financing 9,795 (503) (6.85)(c) 10,121 435 5.73
Total commercial
loans 54,517 1,447 3.55 48,930 2,638 7.20
Real estate --
residential 1,911 88 6.15 1,501 74 6.61
Home equity:
Community Banking 9,782 435 5.93 9,676 518 7.15
National Banking 1,199 69 7.69 1,105 65 7.86
Total home
equity loans 10,981 504 6.13 10,781 583 7.22
Consumer other --
Community Banking 1,280 100 10.43 1,387 109 10.47
Consumer other --
National Banking:
Marine 3,626 171 6.30 3,317 156 6.29
Education 2,535 114 5.98 334 24 9.57
Other 324 20 8.25 312 21 9.03
Total consumer
other -- National
Banking 6,485 305 6.27 3,963 201 6.78
Total consumer
loans 20,657 997 6.44 17,632 967 7.33
Total loans 75,174 2,444 4.34 66,562 3,605 7.24
Loans held for sale 2,684 128 6.35 4,365 248 7.59
Securities available
for sale (a,d) 8,333 331 5.35 7,723 312 5.39
Held-to-maturity
securities (a) 27 2 12.06 38 1 6.79
Trading account
assets 1,233 39 4.22 875 26 3.97
Short-term
investments 910 23 3.44 718 24 4.56
Other investments (d) 1,565 38 3.00 1,502 40 3.43
Total earning
assets 89,926 3,005 4.46 81,783 4,256 6.95
Allowance for loan
losses (1,358) (942)
Accrued income and
other assets 14,699 12,727
Total assets $103,267 $93,568
Liabilities
NOW and money
market deposit
accounts $26,936 349 1.73 $23,525 565 3.21
Savings deposits 1,821 5 .37 1,614 2 .19
Certificates of
deposit ($100,000
or more) (e) 8,752 280 4.27 6,221 235 5.04
Other time
deposits 12,877 410 4.26 11,872 415 4.68
Deposits in
foreign office 4,240 78 2.45 3,804 145 5.10
Total interest-
bearing
deposits 54,626 1,122 2.74 47,036 1,362 3.87
Federal funds
purchased and
securities
sold under
repurchase
agreements 3,223 53 2.20 4,376 163 4.97
Bank notes and
other short-term
borrowings 4,849 100 2.74 1,813 59 4.37
Long-term debt (e,f) 14,330 421 4.14 12,769 554 5.87
Total interest-
bearing
liabilities 77,028 1,696 2.97 65,994 2,138 4.34
Noninterest-
bearing deposits 10,705 13,867
Accrued expense
and other
liabilities 6,935 6,041
Total
liabilities 94,668 85,902
Shareholders' equity
Preferred stock 263 ---
Common shareholders'
equity 8,336 7,666
Total shareholders'
equity 8,599 7,666
Total liabilities
and
shareholders'
equity $103,267 $93,568
Interest rate spread
(TE) 1.49 % 2.61 %
Net interest income
(TE) and net
interest margin (TE) 1,309(c) 1.95 %(c) 2,118 3.46 %
TE adjustment (a) (461) 59
Net interest
income, GAAP
basis $1,770 $2,059
Average balances have not been restated to reflect Key's January 1,
2008, adoption of Financial Accounting Standards Board ("FASB")
Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts," and FASB Staff Position FIN 39-1, "Amendment of FASB
Interpretation 39."
(a) Interest income on tax-exempt securities and loans has been adjusted
to a taxable-equivalent basis using the statutory federal income tax
rate of 35%.
(b) For purposes of these computations, nonaccrual loans are included in
average loan balances.
(c) During the second quarter of 2008, Key's taxable-equivalent net
interest income and net income were reduced by $838 million and $1.011
billion, respectively, as a result of an adverse federal court
decision on Key's tax treatment of a Service Contract Lease
transaction. During the prior quarter, Key's taxable-equivalent net
interest income and net income were reduced by $34 million and $38
million, respectively, as a result of an increase to Key's tax
reserves for certain lease in, lease out transactions and a
recalculation of its lease income in accordance with prescribed
accounting standards. Excluding these reductions, the
taxable-equivalent yield on Key's commercial lease financing portfolio
would have been 5.02% for the first nine months of 2008, and Key's
taxable-equivalent net interest margin would have been 3.25%.
(d) Yield is calculated on the basis of amortized cost.
(e) Rate calculation excludes basis adjustments related to fair value
hedges.
(f) Results from continuing operations exclude the dollar amount of
liabilities assumed necessary to support interest-earning assets held
by the discontinued Champion Mortgage finance business. The interest
expense related to these liabilities, which also is excluded from
continuing operations, was calculated using a matched funds transfer
pricing methodology.
TE = Taxable Equivalent
GAAP = U.S. generally accepted accounting principles
Noninterest Income
(in millions)
Three months ended Nine months ended
9-30-08 6-30-08 9-30-07 9-30-08 9-30-07
Trust and investment services
income (a) $133 $138 $119 $400 $359
Service charges on deposit
accounts 94 93 88 275 247
Investment banking and capital
markets (loss) income (a) (31) 80 9 57 105
Operating lease income 69 68 70 206 200
Letter of credit and loan fees 53 51 51 141 134
Corporate-owned life insurance income 28 28 27 84 84
Electronic banking fees 27 27 25 78 74
Net (losses) gains from loan
securitizations and sales (30) 33 (53) (98) (11)
Net securities gains (losses) 1 (1) 4 3 (41)
Net (losses) gains from principal
investing (24) (14) 9 (29) 128
Gain from redemption of Visa Inc.
shares --- --- --- 165 ---
Gain from sale of McDonald
Investments branch network --- --- --- --- 171
Other income:
Insurance income 15 20 16 50 45
Loan securitization servicing
fees 4 5 5 13 16
Credit card fees 6 3 4 13 10
Gains related to MasterCard
Incorporated shares --- --- 27 --- 67
Litigation settlement -
automobile residual value
insurance --- --- --- --- 26
Miscellaneous income 43 24 37 113 127
Total other income 68 52 89 189 291
Total noninterest
income $388 $555 $438 $1,471 $1,741
(a) Additional detail provided in tables below.
Trust and Investment Services Income
(in millions)
Three months Nine months
ended ended
9-30-08 6-30-08 9-30-07 9-30-08 9-30-07
Brokerage commissions and fee
income $37 $41 $26 $111 $94
Personal asset management
and custody fees 38 40 41 119 122
Institutional asset management and
custody fees 58 57 52 170 143
Total trust and investment
services income $133 $138 $119 $400 $359
Investment Banking and Capital Markets Income
(in millions)
Three months Nine months
ended ended
9-30-08 6-30-08 9-30-07 9-30-08 9-30-07
Investment banking income $20 $36 $22 $78 $65
(Loss) income from other investments (7) 1 (22) (12) (11)
Dealer trading and derivatives (loss)
income (57) 28 (2) (50) 18
Foreign exchange income 13 15 11 41 33
Total investment banking and
capital markets (loss) income $(31) $80 $9 $57 $105
Noninterest Expense
(dollars in millions)
Three months ended Nine months ended
9-30-08 6-30-08 9-30-07 9-30-08 9-30-07
Personnel (a) $381 $404 $383 $1,194 $1,222
Net occupancy 65 62 60 193 182
Computer processing 46 43 49 136 149
Operating lease expense 56 55 58 169 165
Professional fees 35 33 27 91 79
Equipment 23 23 22 70 71
Marketing 27 21 21 62 60
Other expense:
Postage and delivery 11 12 11 34 34
Franchise and business
taxes 7 8 8 23 25
Telecommunications 7 7 7 22 21
Provision (credit) for
losses on lending-related
commitments 8 (2) 5 (21) 3
Miscellaneous expense 96 115 102 302 341
Total other expense 129 140 133 360 424
Total noninterest
expense $762 $781 $753 $2,275 $2,352
Average full-time equivalent
employees 18,291 18,164 18,567 (b) 18,294 19,081 (b)
(a) Additional detail provided in table below.
(b) The number of average full-time equivalent employees has not been
adjusted for discontinued operations.
Personnel Expense
(in millions)
Three months ended Nine months ended
9-30-08 6-30-08 9-30-07 9-30-08 9-30-07
Salaries $245 $235 $240 $719 $721
Incentive compensation 55 79 55 208 212
Employee benefits 59 65 67 200 222
Stock-based compensation 8 17 17 39 57
Severance 14 8 4 28 10
Total personnel expense $381 $404 $383 $1,194 $1,222
Loan Composition
(dollars in millions)
Percent change
9-30-08 vs.
9-30-08 6-30-08 9-30-07 6-30-08 9-30-07
Commercial, financial and
agricultural $27,207 $25,929 $23,192 4.9 % 17.3 %
Commercial real estate:
Commercial mortgage 10,569 10,737 9,272 (1.6) 14.0
Construction 7,708 7,849 8,214 (1.8) (6.2)
Total commercial real
estate loans 18,277 18,586 (a) 17,486 (1.7) 4.5
Commercial lease financing 9,437 9,610 10,309 (1.8) (8.5)
Total commercial
loans 54,921 54,125 50,987 1.5 7.7
Real estate -- residential
mortgage 1,898 1,928 1,583 (1.6) 19.9
Home equity:
Community Banking 9,970 9,851 9,674 1.2 3.1
National Banking 1,101 1,153 1,230 (4.5) (10.5)
Total home equity
loans 11,071 11,004 10,904 .6 1.5
Consumer other -- Community
Banking 1,274 1,261 1,308 1.0 (2.6)
Consumer other -- National
Banking:
Marine 3,529 3,634 3,549 (2.9) (.6)
Education 3,711 3,584 (b) 334 3.5 N/M
Other 301 319 334 (5.6) (9.9)
Total consumer other --
National Banking 7,541 7,537 4,217 .1 78.8
Total consumer loans 21,784 21,730 18,012 .2 20.9
Total loans $76,705 $75,855 $68,999 1.1 % 11.2 %
Loans Held for Sale Composition
(dollars in millions)
Percent change
9-30-08 vs.
9-30-08 6-30-08 9-30-07 6-30-08 9-30-07
Commercial, financial and
agricultural $159 $212 $67 (25.0)% 137.3 %
Real estate - commercial
mortgage 718 994 1,560 (27.8) (54.0)
Real estate - construction 262 398 (a) 237 (34.2) 10.5
Commercial lease financing 52 42 5 23.8 940.0
Real estate - residential
mortgage 57 79 36 (27.8) 58.3
Home equity --- --- 1 --- (100.0)
Education 223 103 (b) 2,877 116.5 (92.2)
Automobile 4 5 8 (20.0) (50.0)
Total loans held for sale $1,475 $1,833 $4,791 (19.5)% (69.2)%
(a) During the second quarter of 2008, Key transferred $384 million of
commercial real estate loans ($719 million of primarily construction
loans, net of $335 million in net charge-offs) from the loan
portfolio to held-for-sale status.
(b) On March 31, 2008, Key transferred $3.3 billion of education loans
from loans held for sale to the loan portfolio.
N/M = Not Meaningful
Summary of Loan Loss Experience
(dollars in millions)
Three months ended Nine months ended
9-30-08 6-30-08 9-30-07 9-30-08 9-30-07
Average loans outstanding
from continuing
operations $76,171 $76,652 $67,680 $75,174 $66,562
Allowance for loan losses
at beginning of period $1,421 $1,298 $945 $1,200 $944
Loans charged off:
Commercial, financial
and agricultural 75 75 33 200 80
Real estate --
commercial mortgage 21 15 2 40 13
Real estate --
construction 80 340 7 445 10
Total commercial
real estate loans 101 355 (a) 9 485 (a) 23
Commercial lease
financing 24 18 11 57 33
Total commercial
loans 200 448 53 742 136
Real estate --
residential mortgage 2 2 1 8 3
Home equity:
Community Banking 10 9 5 28 15
National Banking 12 11 4 30 10
Total home
equity loans 22 20 9 58 25
Consumer other --
Community Banking 11 11 8 31 23
Consumer other --
National Banking:
Marine 20 16 8 55 22
Education 41 55 (b) 1 98 3
Other 4 2 2 10 6
Total consumer
other -- National
Banking 65 73 11 163 31
Total consumer
loans 100 106 29 260 82
Total loans
charged off 300 554 82 1,002 218
Recoveries:
Commercial, financial
and agricultural 13 14 11 41 24
Real estate --
commercial mortgage 1 --- --- 1 4
Real estate --
construction 1 1 1 2 1
Total commercial
real estate loans 2 1 1 3 5
Commercial lease
financing 5 4 3 15 10
Total commercial
loans 20 19 15 59 39
Real estate --
residential mortgage --- 1 --- 1 1
Home equity:
Community Banking 1 --- 1 2 3
National Banking --- 1 --- 1 1
Total home
equity loans 1 1 1 3 4
Consumer other --
Community Banking 1 1 3 4 6
Consumer other --
National Banking:
Marine 4 6 3 13 9
Education 1 1 --- 2 1
Other --- 1 1 2 2
Total consumer
other -- National
Banking 5 8 4 17 12
Total consumer
loans 7 11 8 25 23
Total recoveries 27 30 23 84 62
Net loan charge-offs (273) (524) (59) (918) (156)
Provision for loan losses
from continuing
operations 407 647 69 1,241 166
Allowance related to loans
acquired, net --- --- --- 32 ---
Foreign currency
translation adjustment (1) --- --- (1) 1
Allowance for loan losses
at end of period $1,554 $1,421 $955 $1,554 $955
Net loan charge-offs to
average loans from
continuing operations 1.43 % 2.75 % .35 % 1.63 % .31 %
Allowance for loan losses
to period-end loans 2.03 1.87 1.38 2.03 1.38
Allowance for loan losses
to nonperforming loans 160.70 174.57 191.77 160.70 191.77
(a) During the second quarter of 2008, Key transferred $384 million of
commercial real estate loans ($719 million of primarily construction
loans, net of $335 million in net charge-offs) from the loan
portfolio to held-for-sale status.
(b) On March 31, 2008, Key transferred $3.3 billion of education loans
from loans held for sale to the loan portfolio.
Changes in Liability for Credit Losses on Lending-Related Commitments
(in millions)
Three months Nine months
ended ended
9-30-08 6-30-08 9-30-07 9-30-08 9-30-07
Balance at beginning of period $51 $53 $50 $80 $53
Provision (credit) for losses on
lending-related commitments 8 (2) 5 (21) 3
Charge-offs --- --- --- --- (1)
Balance at end of period (a) $59 $51 $55 $59 $55
(a) Included in "accrued expense and other liabilities" on the
consolidated balance sheet.
Summary of Nonperforming Assets and Past Due Loans
(dollars in millions)
9-30-08 6-30-08 3-31-07 12-31-07 9-30-07
Commercial, financial and
agricultural $309 $259 $147 $84 $94
Real estate -- commercial
mortgage 119 107 113 41 41
Real estate -- construction 334 256 610 415 228
Total commercial
real estate loans 453 363 (b) 723 456 269
Commercial lease financing 55 57 38 28 30
Total commercial loans 817 679 908 568 393
Real estate -- residential
mortgage 35 32 34 28 29
Home equity:
Community Banking 70 61 60 54 50
National Banking 16 14 14 12 11
Total home equity loans 86 75 74 66 61
Consumer other -- Community
Banking 3 2 2 2 2
Consumer other -- National
Banking:
Marine 22 20 20 20 12
Education 3 4 15 2 ---
Other 1 2 1 1 1
Total consumer other --
National Banking 26 26 36 23 13
Total consumer loans 150 135 146 119 105
Total nonperforming loans 967 814 1,054 687 498
Nonperforming loans held for
sale 169 342 (b) 9 25 6
OREO 64 26 29 21 21
Allowance for OREO losses (4) (2) (2) (2) (1)
OREO, net of allowance 60 24 27 19 20
Other nonperforming assets (a) 43 30 25 33 46
Total nonperforming
assets $1,239 $1,210 $1,115 $764 $570
Accruing loans past due 90
days or more $328 $367 $283 $231 $190
Accruing loans past due 30
through 89 days 937 852 1,169 843 717
Nonperforming loans to
period-end portfolio loans 1.26 % 1.07 % 1.38 % .97 % .72 %
Nonperforming assets to
period-end portfolio loans
plus OREO and other
nonperforming assets 1.61 1.59 1.46 1.08 .83
Summary of Changes in Nonperforming Loans
(in millions)
3Q08 2Q08 1Q08 4Q07 3Q07
Balance at beginning of
period $814 $1,054 $687 $498 $276
Loans placed on
nonaccrual status 530 789 566 378 337
Charge-offs (300) (547) (144) (147) (81)
Loans sold (1) (48) --- (13) (6)
Payments (43) (86) (32) (17) (13)
Transfers to OREO --- --- (10) (5) (12)
Transfer to
nonperforming loans
held for sale (30) (342)b (8) --- ---
Loans returned to
accrual status (3) (6) (5) (7) (3)
Balance at end of period $967 $814 $1,054 $687 $498
(a) Primarily investments held by the Private Equity unit within Key's
Real Estate Capital and Corporate Banking Services line of business.
(b) During the second quarter of 2008, Key transferred $384 million of
commercial real estate loans ($719 million of primarily construction
loans, net of $335 million in net charge-offs) from the loan portfolio
to held-for-sale status.
Line of Business Results
(dollars in millions)
Community Banking
3Q08 2Q08 1Q08 4Q07 3Q07
Summary of operations
Total revenue (TE) $658 $661 $630 $654 $629
Provision for loan
losses 56 44 18 36 2
Noninterest expense 445 449 429 438 413
Net income 98 105 114 113 134
Average loans and
leases 28,872 28,477 28,094 27,234 26,944
Average deposits 50,384 49,948 49,769 47,254 46,729
Net loan charge-offs 70 38 30 31 19
Net loan charge-offs
to average loans .96 % .54 % .43 % .45 % .28 %
Nonperforming assets
at period end $225 $218 $204 $153 $159
Return on average
allocated equity 12.84 % 13.81 % 15.34 % 17.76 % 21.20 %
Average full-time
equivalent employees 8,949 8,785 8,714 8,454 8,625
Supplementary information
(lines of business)
Regional Banking
Total revenue (TE) $557 $559 $530 $556 $534
Provision for loan
losses 39 25 13 26 12
Noninterest expense 399 401 386 386 367
Net income 74 83 82 91 97
Average loans and
leases 19,794 19,621 19,560 18,771 18,667
Average deposits 46,655 46,246 46,178 43,696 43,237
Net loan charge-offs 41 33 29 26 17
Net loan charge-offs
to average loans .82 % .68 % .60 % .55 % .36 %
Nonperforming assets
at period end $168 $157 $142 $119 $119
Return on average
allocated equity 13.67 % 15.21 % 15.14 % 20.75 % 22.03 %
Average full-time
equivalent employees 8,603 8,439 8,365 8,101 8,264
Commercial Banking
Total revenue (TE) $101 $102 $100 $98 $95
Provision for loan
losses 17 19 5 10 (10)
Noninterest expense 46 48 43 52 46
Net income 24 22 32 22 37
Average loans and
leases 9,078 8,856 8,534 8,463 8,277
Average deposits 3,729 3,702 3,591 3,558 3,492
Net loan charge-offs 29 5 1 5 2
Net loan charge-offs
to average loans 1.27 % .23 % .05 % .23 % .10 %
Nonperforming assets
at period end $57 $61 $62 $34 $40
Return on average
allocated equity 10.83 % 10.25 % 15.87 % 11.12 % 19.29 %
Average full-time
equivalent employees 346 346 349 353 361
Percent change 3Q08 vs.
2Q08 3Q07
Summary of operations
Total revenue (TE) (.5)% 4.6 %
Provision for loan losses 27.3 N/M
Noninterest expense (.9) 7.7
Net income (6.7) (26.9)
Average loans and leases 1.4 7.2
Average deposits .9 7.8
Net loan charge-offs 84.2 268.4
Net loan charge-offs to average loans N/A N/A
Nonperforming assets at period end 3.2 41.5
Return on average allocated equity N/A N/A
Average full-time equivalent employees 1.9 3.8
Supplementary information (lines of
business)
Regional Banking
Total revenue (TE) (.4)% 4.3 %
Provision for loan losses 56.0 225.0
Noninterest expense (.5) 8.7
Net income (10.8) (23.7)
Average loans and leases .9 6.0
Average deposits .9 7.9
Net loan charge-offs 24.2 141.2
Net loan charge-offs to average loans N/A N/A
Nonperforming assets at period end 7.0 41.2
Return on average allocated equity N/A N/A
Average full-time equivalent employees 1.9 4.1
Commercial Banking
Total revenue (TE) (1.0)% 6.3 %
Provision for loan losses (10.5) N/M
Noninterest expense (4.2) ---
Net income 9.1 (35.1)
Average loans and leases 2.5 9.7
Average deposits .7 6.8
Net loan charge-offs 480.0 N/M
Net loan charge-offs to average loans N/A N/A
Nonperforming assets at period end (6.6) 42.5
Return on average allocated equity N/A N/A
Average full-time equivalent employees --- (4.2)
Line of Business Results (continued)
(dollars in millions)
National Banking
3Q08 2Q08 1Q08 4Q07 3Q07
Summary of operations
Total revenue (TE) $482 $(130) $438 $610 $507
Provision for loan
losses 350 609 169 327 69
Noninterest expense 342 337 308 388 327
(Loss) income from
continuing
operations (133) (672) (24) (68) 70
Net (loss) income (133) (672) (24) (65) 56
Average loans and
leases (a) 47,075 47,877 44,162 42,040 40,279
Average loans held
for sale (a) 1,651 1,282 4,932 4,709 4,692
Average deposits (a) 12,439 12,289 11,885 12,629 12,631
Net loan charge-offs
(a) 203 486 91 88 40
Net loan charge-offs
to average loans (a) 1.72 % 4.08 % .83 % .83 % .39 %
Nonperforming assets
at period end $1,014 $992 $911 $611 $410
Return on average
allocated
equity (a) (10.28)% (51.59)% (1.96)% (6.02)% 6.62 %
Return on average
allocated equity (10.28) (51.59) (1.96) (5.75) 5.30
Average full-time
equivalent
employees 3,589 3,603 3,758 4,010 3,869
Supplementary information
(lines of business)
Real Estate Capital and
Corporate Banking
Services
Total revenue (TE) $92 $233 $80 $159 $128
Provision for loan
losses 99 366 45 270 43
Noninterest expense 89 68 61 118 88
Net (loss) (60) (126) (16) (143) (2)
Average loans and
leases 16,447 17,086 16,497 15,003 14,160
Average loans held
for sale 792 616 989 1,257 1,584
Average deposits 10,446 10,460 9,785 10,397 10,243
Net loan charge-offs 100 376 38 45 7
Net loan charge-offs
to average loans 2.42 % 8.85 % .93 % 1.19 % .20 %
Nonperforming assets
at period end $714 $779 $732 $475 $281
Return on average
allocated equity (11.76)% (23.61)% (3.42)% (36.89)% (.56)%
Average full-time
equivalent
employees 1,222 1,228 1,233 1,310 1,309
Equipment Finance
Total revenue (TE) $111 $(696) $98 $184 $138
Provision for loan
losses 64 36 24 23 16
Noninterest expense 90 89 96 96 93
Net (loss) income (27) (513) (14) 40 18
Average loans and
leases 10,012 10,326 10,595 10,729 10,681
Average loans held
for sale 49 51 32 15 6
Average deposits 20 21 14 17 16
Net loan charge-offs 32 28 24 18 16
Net loan charge-offs
to average loans 1.27 % 1.09 % .91 % .67 % .59 %
Nonperforming assets
at period end $115 $105 $69 $58 $65
Return on average
allocated equity (11.99)% (225.99)% (6.11)% 17.40 % 8.00 %
Average full-time
equivalent
employees 827 837 859 923 900
Institutional and Capital
Markets
Total revenue (TE) $183 $229 $157 $169 $156
Provision for loan
losses 16 36 16 15 (2)
Noninterest expense 107 128 102 115 105
Net income 37 42 25 25 34
Average loans and
leases 8,364 7,898 7,633 7,219 6,716
Average loans held
for sale 649 494 555 394 373
Average deposits 1,479 1,384 1,459 1,560 1,844
Net loan
(recoveries)
charge-offs (1) 5 2 6 6
Net loan
(recoveries)
charge-offs to
average loans (.05)% .25 % .11 % .33 % .35 %
Nonperforming assets
at period end $58 $26 $12 $15 $17
Return on average
allocated equity 11.47 % 13.48 % 8.29 % 8.50 % 12.55 %
Average full-time
equivalent
employees 975 931 938 979 1,019
Consumer Finance
Total revenue (TE) $96 $104 $103 $98 $85
Provision for loan
losses 171 171 84 19 12
Noninterest expense 56 52 49 59 41
(Loss) income from
continuing
operations (83) (75) (19) 10 20
Net (loss) income (83) (75) (19) 13 6
Average loans and
leases (a) 12,252 12,567 9,437 9,089 8,722
Average loans held
for sale (a) 161 121 3,356 3,043 2,729
Average deposits (a) 494 424 627 655 528
Net loan charge-offs
(a) 72 77 27 19 11
Net loan charge-offs
to average loans (a) 2.34 % 2.46 % 1.15 % .83 % .50 %
Nonperforming assets
at period end $127 $82 $98 $63 $47
Return on average
allocated
equity (a) (35.09)% (32.54)% (8.31)% 4.59 % 9.87
Return on average
allocated equity (35.09) (32.54) (8.31) 5.97 2.96
Average full-time
equivalent
employees 565 607 728 798 641
Percent change
3Q08 vs.
2Q08 3Q07
Summary of operations
Total revenue (TE) N/M (4.9)%
Provision for loan losses (42.5)% 407.2
Noninterest expense 1.5 4.6
(Loss) income from continuing
operations 80.2 N/M
Net (loss) income 80.2 N/M
Average loans and leases (a) (1.7) 16.9
Average loans held for sale (a) 28.8 (64.8)
Average deposits (a) 1.2 (1.5)
Net loan charge-offs (a) (58.2) 407.5
Net loan charge-offs to average
loans (a) N/A N/A
Nonperforming assets at period
end 2.2 147.3
Return on average allocated
equity (a) N/A N/A
Return on average allocated
equity N/A N/A
Average full-time equivalent
employees (.4) (7.2)
Supplementary information
(lines of business)
Real Estate Capital and
Corporate Banking
Services
Total revenue (TE) (60.5)% (28.1)%
Provision for loan losses (73.0) 130.2
Noninterest expense 30.9 1.1
Net (loss) 52.4 N/M
Average loans and leases (3.7) 16.2
Average loans held for sale 28.6 (50.0)
Average deposits (.1) 2.0
Net loan charge-offs (73.4) N/M
Net loan charge-offs to average loans N/A N/A
Nonperforming assets at period end (8.3) 154.1
Return on average allocated equity N/A N/A
Average full-time equivalent employees (.5) (6.6)
Equipment Finance
Total revenue (TE) N/M (19.6)%
Provision for loan losses 77.8 % 300.0
Noninterest expense 1.1 (3.2)
Net (loss) income 94.7 N/M
Average loans and leases (3.0) (6.3)
Average loans held for sale (3.9) 716.7
Average deposits (4.8) 25.0
Net loan charge-offs 14.3 100.0
Net loan charge-offs to average loans N/A N/A
Nonperforming assets at period end 9.5 76.9
Return on average allocated equity N/A N/A
Average full-time equivalent employees (1.2) (8.1)
Institutional and Capital Markets
Total revenue (TE) (20.1)% 17.3 %
Provision for loan losses (55.6) N/M
Noninterest expense (16.4) 1.9
Net income (11.9) 8.8
Average loans and leases 5.9 24.5
Average loans held for sale 31.4 74.0
Average deposits 6.9 (19.8)
Net loan (recoveries) charge-offs N/M N/M
Net loan (recoveries) charge-
offs to average loans N/A N/A
Nonperforming assets at period end 123.1 241.2
Return on average allocated equity N/A N/A
Average full-time equivalent employees 4.7 (4.3)
Consumer Finance
Total revenue (TE) (7.7)% 12.9 %
Provision for loan losses --- N/M
Noninterest expense 7.7 36.6
(Loss) income from continuing
operations (10.7) N/M
Net (loss) income (10.7) N/M
Average loans and leases (a) (2.5) 40.5
Average loans held for sale (a) 33.1 (94.1)
Average deposits (a) 16.5 (6.4)
Net loan charge-offs (a) (6.5) 554.5
Net loan charge-offs to average
loans (a) N/A N/A
Nonperforming assets at period end 54.9 170.2
Return on average allocated
equity (a) N/A N/A
Return on average allocated equity N/A N/A
Average full-time equivalent employees (6.9) (11.9)
(a) From continuing operations.
TE = Taxable Equivalent
N/A = Not Applicable
N/M = Not Meaningful
SOURCE KeyCorp
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Related links:
http://www.key.com
http://www.key.com/newsroom
CONTACT:
Analysts, Vernon L. Patterson,
+1-216-689-0520, Vernon_Patterson@KeyBank.com, or Christopher F.
Sikora, +1-216-689-3133, Chris_F_Sikora@KeyBank.com, or Media,
William C. Murschel, +1-216-828-7416,
William_C_Murschel@KeyBank.com, all of KeyCorp/ /FIRST ADD --
TABULAR MATERIAL -- TO FOLLOW
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