KeyCorp Reports Fourth Quarter and 2008 Results
- Net loss of $1.13 per common share for the fourth quarter
- Noncash after-tax charge of $420 million ($.85 per common share) taken for goodwill impairment
- Loan loss reserve increased by $249 million to $1.803 billion, or 2.36% of total loans
- Capital position bolstered by $2.500 billion through participation in U.S. Treasury's Capital Purchase Program
- Participating in IRS global tax settlement on leasing transactions
- Press Release
- Source: KeyCorp
- On 6:36 am EST, Thursday January 22, 2009
CLEVELAND, Jan. 22, 2009 /PRNewswire-FirstCall/ -- KeyCorp (NYSE: KEY - News) today announced a fourth quarter loss from continuing operations of $524 million, or $1.13 per common share, compared to income from continuing operations of $22 million, or $.06 per diluted common share, for the fourth quarter of 2007. The quarterly loss was primarily attributable to a noncash accounting charge for goodwill impairment and continued building of loan loss reserves in light of the challenging economic environment.
During the fourth quarter, Key participated in the U.S. Treasury's Capital Purchase Program, bolstering capital by $2.500 billion. For all of 2008, Key raised capital of $4.240 billion.
For the full year, Key had a loss from continuing operations of $1.468 billion, or $3.36 per common share. This compares to income from continuing operations of $941 million, or $2.38 per diluted common share, for 2007. Full-year results were adversely affected by a $1.011 billion after-tax charge taken in the second quarter as a result of an adverse federal tax court ruling that impacted Key's accounting for certain lease financing transactions, and elevated provisions for loan losses. During the fourth quarter, Key and the IRS reached an agreement on all material aspects related to the IRS global tax settlement, which resulted in the reversal of $120 million of the after-tax lease financing charge.
During the fourth quarter, the Company's annual testing for goodwill impairment indicated that the estimated fair value of the National Banking unit was less than the carrying amount, reflecting unprecedented weakness in the financial markets. As a result, Key recorded an after-tax noncash accounting charge of $420 million. However, Key's regulatory and tangible capital ratios were not affected by this adjustment. In light of the current economic environment, Key continued to build its loan loss reserves by taking a $594 million provision for loan losses, which exceeded net charge-offs by $252 million. As of the end of the year, Key's reserve represented 2.36% of period-end loans and 147% of nonperforming loans.
"Key's results for the quarter and the year reflect actions taken to manage risks and to fortify the balance sheet for an extremely challenging operating environment," said Chief Executive Officer Henry L. Meyer III. "The $4.2 billion of capital we raised in 2008 positions us to continue to meet our relationship clients' needs. Like the rest of the banking industry, we face significant head winds, but our core results continue to benefit from solid performance across our Community Banking network, decisions made to exit higher-risk or low-return nonrelationship businesses such as subprime lending, and actions we initiated at the end of 2007 to reduce exposure in the residential properties segment of our commercial real estate business, which has been reduced by $1.3 billion, or 36 percent, over the past year."
Meyer continued: "Key's business mix has allowed us to avoid many of the consumer credit issues affecting the financial services industry. We will continue to proactively take actions to position the Company to weather these challenging times and benefit when conditions improve.
"I'm also pleased to have had Peter Hancock join the Company in December as Vice Chair of National Banking. Peter brings with him a very strong business and risk management background, which are vital skills for these times."
During the fourth quarter of 2008, Key strengthened its capital position with a $2.500 billion capital increase as a participant in the U.S. Treasury's Capital Purchase Program and reduced its quarterly dividend. The Company also issued $1.500 billion of new term debt under the FDIC's Temporary Liquidity Guarantee Program. Key's Tier 1 capital ratio increased to a strong 10.81% at December 31, 2008. The added capital also positioned Key to take advantage of new lending opportunities. During the fourth quarter of 2008, the Company's National Banking and Community Banking businesses originated approximately $5.7 billion in new or renewed loans.
Key also reported it had reached an agreement with the IRS on all material aspects related to the IRS global tax settlement pertaining to certain leveraged lease financing transactions. As a result, the Company recorded an after-tax recovery of $120 million for previously accrued interest on disputed tax balances. A final closing agreement with the IRS is expected during the first quarter of 2009. The positive impact of this recovery was partially offset by $68 million of additional U.S. taxes recorded on accumulated earnings of the Canadian leasing operation.
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
in millions, Fourth Quarter 2008 Third Quarter 2008
except per Pre-tax After-tax Impact Pre-tax After-tax Impact
share amounts Amount Amount on EPS Amount Amount on EPS
Noncash charge for
goodwill impairment $(465) $(420) $(.85) -- -- --
U.S. taxes on
accumulated earnings
of Canadian leasing
operation -- (68) (.14) -- -- --
Provision for loan
losses in excess of
net charge-offs (252) (158) (.32) $(134) $(83) (.17)
Net (losses) gains from
principal investing (33) (21) (.04) (24) (15) (.03)
Severance and other exit
costs (31) (20) (.04) (19) (14) (.03)
Realized and unrealized
losses on loan and
securities portfolios
held for sale or
trading (18) (11) (.02) (94)(b) (59)(b) (.12)
(Charges) credits
related to leveraged
lease tax litigation (18) 120(a) .24 -- (30) (.06)
Reversal of Honsador
litigation reserve -- -- -- 23 14 .03
Liability to Visa -- -- -- -- -- --
Fourth Quarter 2007
in millions, except per share amounts Pre-tax After-tax Impact
Amount Amount on EPS
Noncash charge for goodwill impairment -- -- --
U.S. taxes on accumulated earnings of
Canadian leasing operation -- -- --
Provision for loan losses in excess
of net charge-offs $(244) $(153) $(.39)
Net (losses) gains from principal
investing 6 3 .01
Severance and other exit costs (24) (14) (.04)
Realized and unrealized losses on
loan and securities portfolios held
for sale or trading (30) (19) (.05)
(Charges) credits related to leveraged
lease tax litigation -- -- --
Reversal of Honsador litigation reserve -- -- --
Liability to Visa (64) (40) (.10)
(a) Represents $120 million of previously accrued interest recovered in
connection with Key's opt-in to the IRS global tax settlement.
(b) 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.
EPS = Earnings per diluted common share
SUMMARY OF CONTINUING OPERATIONS
Key's taxable-equivalent net interest income was $646 million for the fourth quarter of 2008, compared to $750 million for the year-ago quarter. Average earning assets rose by $7.214 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. Additionally, Key experienced an increase in short-term investments, reflecting actions taken by the Federal Reserve to begin paying interest on depository institutions' reserve balances effective October 1, 2008. The net interest margin for the current quarter declined to 2.76% from 3.48% for the fourth quarter of 2007. Approximately 21 basis points of the reduction was attributable to the decrease in net interest income caused by recalculations of income recognized on leveraged leases contested by the IRS. Additionally, net interest income for the fourth quarter of 2007 benefited from an $18 million lease accounting adjustment that contributed approximately 9 basis points to the net interest margin. Also contributing to the lower net interest margin were tighter loan spreads caused by elevated funding costs, the increase in lower-yielding short-term investments and a higher level of nonperforming assets.
Compared to the third quarter of 2008, taxable-equivalent net interest income decreased by $59 million and the net interest margin declined by 37 basis points. Average earning assets were up $3.301 billion, or 4%, reflecting an increase in short-term investments. The reductions in net interest income and the net interest margin were due largely to tighter loan spreads resulting from elevated funding costs, an increase in lower-yielding short-term investments and a higher level of nonperforming assets. In addition, these performance measures for the fourth quarter of 2008 were adversely affected by an agreement reached with the IRS on all material aspects related to the IRS global tax settlement pertaining to certain leveraged lease financing transactions. As a result of this agreement and in accordance with applicable accounting standards, Key was required to recalculate the lease income recognized from inception for all of the contested leases. This recalculation reduced Key's net interest income and net interest margin for the current quarter by $18 million and 8 basis points, respectively. Additionally, Key recorded an after-tax recovery of $120 million for previously accrued interest on the disputed tax balances. The Company expects to execute a final closing agreement with the IRS during the first quarter of 2009.
Key's noninterest income was $399 million for the fourth quarter of 2008, compared to $488 million for the year-ago quarter. The decrease reflects net losses of $33 million from principal investing in the fourth quarter of 2008, compared to net gains of $6 million for the same period last year. Also, during the fourth quarter of 2008, Key recorded net losses (included in miscellaneous income) of $39 million related to the volatility associated with the hedge accounting applied to debt instruments, compared to net gains of $3 million in the year-ago quarter. The majority of the net losses are attributable to the restructuring of certain cash collateral arrangements for hedges that reduced exposure to counterparty risk and lowered the cost of borrowings. Additionally, Key's income from investment banking and capital markets activities includes $32 million in losses from investments made by the Private Equity unit within Key's Real Estate Capital and Corporate Banking Services line of business, compared to losses of $23 million in the fourth quarter of 2007. Key also experienced a $16 million decrease in letter of credit and loan fees caused by weakness in the economy. These factors were partially offset by a $7 million increase in income from trust and investment services. In addition, Key had net gains of $3 million from loan sales and write-downs in the current quarter, compared to net losses of $6 million for the same period last year.
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 4Q08 3Q08 2Q08 1Q08 4Q07
Trust and investment services income $138 $133 $138 $129 $131
Service charges on deposit accounts 90 94 93 88 90
Operating lease income 64 69 68 69 72
Letter of credit and loan fees 42 53 51 37 58
Corporate-owned life insurance income 33 28 28 28 37
Electronic banking fees 25 27 27 24 25
Insurance income 15 15 20 15 10
Investment banking and capital
markets income (loss) 6 (31) 80 8 12
Net (losses) gains from principal
investing (33) (24) (14) 9 6
Compared to the third quarter of 2008, noninterest income increased by $11 million. Included in third quarter results are $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. Excluding these items, noninterest income was down $74 million, due primarily to the $39 million of negative ineffective income recorded during the fourth quarter in connection with the previously mentioned restructuring of the cash collateral arrangements for hedges. Adjusting for the derivative-related charges discussed above, income from investment banking and capital markets activities was down $17 million, reflecting a $25 million increase in losses from investments made by the Private Equity unit. Also contributing to the decrease in noninterest income were an $11 million reduction in letter of credit and loan fees, and a $9 million increase in net losses from principal investing. These factors were partially offset by increases of $5 million in income from both trust and investment services, and corporate-owned life insurance.
Key's noninterest expense was $1.303 billion for the fourth quarter of 2008, compared to $896 million for the same period last year. Noninterest expense for the current quarter was adversely affected by a goodwill impairment charge of $465 million, while results for the fourth quarter of 2007 include a $64 million charge for the estimated fair value of Key's liability to Visa Inc. at that time. Excluding these items, noninterest expense was up $6 million, or less than 1%. Personnel expense rose by $12 million as higher incentive compensation accruals and an increase in stock- based compensation more than offset decreases in both salaries and costs associated with employee benefits. Included in noninterest expense for the fourth quarter of 2008 is $31 million of severance and other exit costs, including $8 million of expense recorded in connection with Key's previously reported decision to limit new student loans to those backed by government guarantee. On an adjusted basis, nonpersonnel expense decreased by $6 million, due primarily to a $5 million credit for losses on lending-related commitments in the current quarter, compared to a $25 million provision in the fourth quarter of 2007. This favorable change was offset in part by increases in professional fees and marketing expense of $13 million and $9 million, respectively. Professional fees rose as a result of higher costs associated with collection efforts.
Compared to the third quarter of 2008, noninterest expense increased by $541 million. Excluding the goodwill impairment charge in the fourth quarter and the $23 million third quarter reversal of the remaining litigation reserve associated with the Honsador litigation, noninterest expense was up $53 million. Personnel expense grew by $30 million, due largely to higher incentive compensation accruals and an increase in severance expense. As previously noted, noninterest expense for the current quarter includes severance and other exit costs of $31 million, while results for the third quarter include $19 million of such costs, including $10 million of expense recorded in connection with Key's decision to exit direct and indirect retail and floor-plan lending for marine and recreational vehicle products. On an adjusted basis, nonpersonnel expense was up $23 million, reflecting a $16 million increase in professional fees and a $5 million credit for losses on lending-related commitments in the current quarter, compared to an $8 million provision in the prior quarter.
ASSET QUALITY
Key's provision for loan losses from continuing operations was $594 million for the fourth quarter of 2008, compared to $363 million for the year-ago quarter and $407 million for the third quarter of 2008. Key's provision for loan losses for the fourth quarter of 2008 exceeded its net loan charge-offs by $252 million as the Company continued to build reserves in a weak economy.
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. Key's ability to sell these loans has been hindered by continued disruption in the financial markets which has precluded the ability of certain potential buyers to obtain the necessary funding. As shown in the following table, the balance of this portfolio has been reduced to $88 million at December 31, 2008, primarily as a result of cash proceeds from loan sales, transfers to other real estate owned ("OREO"), and both realized and unrealized losses. Key will continue to pursue the sale or foreclosure 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 September 30, 2008 $133
Cash proceeds from loan sales (10)
Loans transferred to OREO (14)
Realized and unrealized losses (14)
Payments (7)
Balance at December 31, 2008 $88
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 4Q08 3Q08 2Q08 1Q08 4Q07
Net loan charge-offs $342 $273 $524 $121 $119
Net loan charge-offs to average
loans from continuing operations 1.77% 1.43% 2.75% .67% .67%
Nonperforming loans at period end $1,225 $967 $814 $1,054 $687
Nonperforming loans to period-end
portfolio loans 1.60% 1.26% 1.07% 1.38% .97%
Nonperforming assets at
period end $1,464 $1,239 $1,210 $1,115 $764
Nonperforming assets to
period-end portfolio loans plus
OREO and other nonperforming
assets 1.91% 1.61% 1.59% 1.46% 1.08%
Allowance for loan losses $1,803 $1,554 $1,421 $1,298 $1,200
Allowance for loan losses to
period-end loans 2.36% 2.03% 1.87% 1.70% 1.69%
Allowance for loan losses to
nonperforming loans 147.18 160.70 174.57 123.15 174.67
Net loan charge-offs for the quarter totaled $342 million, or 1.77% of average loans from continuing operations, compared to $119 million, or .67%, for the same period last year and $273 million, or 1.43%, for the previous quarter. In the current quarter, the Company experienced an increase in commercial loan net charge-offs related to automobile and marine floor plan lending, and the media segment within Institutional Banking. Key's consumer segments, with the exception of education lending, also experienced increases. The net charge-offs in the commercial real estate portfolio reflect continued weakness in the housing market, while those in the other portfolios are attributable to weakness in the economic environment. As shown in the table below, Key's exit loan portfolio accounted for $139 million, or 41%, of Key's total net loan charge-offs for the fourth quarter of 2008.
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 4Q08 3Q08 2Q08 1Q08 4Q07
Commercial, financial and
agricultural $119 $62 $61 $36 $35
Real estate - commercial mortgage 43 20 15 4 1
Real estate - construction 49 79 339 (a) 25 44
Commercial lease financing 21 19 14 9 6
Total commercial loans 232 180 429 74 86
Home equity - Community Banking 14 9 9 8 6
Home equity - National Banking 17 12 10 7 6
Marine 25 16 10 16 8
Education 33 40 54 (b) 2 2
Other 21 16 12 14 11
Total consumer loans 110 93 95 47 33
Total net loan charge-offs $342 $273 $524 $121 $119
Net loan charge-offs to average
loans from continuing operations 1.77% 1.43% 2.75% .67% .67%
(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 $3.284 billion of education loans
from loans held for sale to the loan portfolio.
At December 31, 2008, Key's nonperforming loans totaled $1.225 billion and represented 1.60% of period-end portfolio loans, compared to 1.26% at September 30, 2008, and .97% at December 31, 2007. Nonperforming assets at December 31, 2008, totaled $1.464 billion and represented 1.91% of portfolio loans, other real estate owned and other nonperforming assets, compared to 1.61% at September 30, 2008, and 1.08% at December 31, 2007. Almost 70% of the increase in commercial loans on nonperforming status during the fourth quarter of 2008 was attributable to automobile and marine floor plan lending. Approximately 35% of the increase in the construction portfolio relates to residential properties in the exit loan portfolio. As shown in the Exit Loan portfolio table below, Key's exit loan portfolio accounted for $481 million, or 33%, of Key's total nonperforming assets for the fourth quarter of 2008. The decrease in nonperforming loans held for sale and the increase in OREO and other nonperforming assets during the fourth quarter were due in part 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 4Q08 3Q08 2Q08 1Q08 4Q07
Commercial, financial and
agricultural $415 $309 $259 $147 $84
Real estate - commercial mortgage 128 119 107 113 41
Real estate - construction 436 334 256 610 415
Commercial lease financing 81 55 57 38 28
Total consumer loans 165 150 135 146 119
Total nonperforming loans 1,225 967 814 1,054 687
Nonperforming loans held for sale 90 169 342 9 25
OREO and other nonperforming assets 149 103 54 52 52
Total nonperforming assets $1,464 $1,239 $1,210 $1,115 $764
Nonperforming loans to period-end
portfolio loans 1.60% 1.26% 1.07% 1.38% .97%
Nonperforming assets to period-end
portfolio loans, plus OREO and
other nonperforming assets 1.91 1.61 1.59 1.46 1.08
The composition of Key's exit loan portfolio at December 31, 2008, the net charge-offs recorded on this portfolio for the fourth quarter and the nonperforming status of these loans at December 31 are shown in the following table. This portfolio, which decreased by $300 million from September 30, 2008, accounted for 41% of Key's net loan charge-offs for the fourth quarter of 2008 and 33% of nonperforming assets outstanding at the end of the year.
Exit Loan Portfolio
Balance on
Balance Net Loan Nonperforming
Outstanding at Charge-offs Status at
in millions 12-31-08 4Q08 12-31-08
Residential properties -- homebuilder $883 $47 $254
Residential properties -- held for sale 88 -- 88
Total residential properties 971 47 342
Marine and RV floor plan 945 14 91
Total commercial loans 1,916 61 433
Private education 2,871 33 --
Home equity -- National Banking 1,051 17 15
Marine 3,401 25 26
RV and other consumer 283 3 7
Total consumer loans 7,606 78 48
Total loans in exit portfolios $9,522 $139 $481
Key's allowance for loan losses was $1.803 billion, or 2.36% of loans outstanding, at December 31, 2008, compared to $1.554 billion, or 2.03%, at September 30, 2008, and $1.200 billion, or 1.69%, at December 31, 2007.
CAPITAL
Key's capital ratios, as presented in the following table, continued to exceed all "well-capitalized" regulatory benchmarks at December 31, 2008.
Capital Ratios
12-31-08 9-30-08 6-30-08 3-31-08 12-31-07
Tier 1 risk-based capital (a) 10.81% 8.55% 8.53% 8.33% 7.44%
Total risk-based capital (a) 14.67 12.40 12.41 12.34 11.38
Tangible equity to tangible
assets 8.92 6.95 6.98 6.85 6.58
(a) 12-31-08 ratio is estimated.
During the fourth quarter, Key bolstered its capital position by $2.500 billion through participation in the U.S. Treasury's Capital Purchase Program. In accordance with standardized terms, Key issued $2.414 billion, or 25,000 shares, of cumulative preferred stock, Series B, with a liquidation preference of $100,000 per share, and 35.2 million common stock warrants with a carrying amount of $87 million to the U.S. Treasury. Additionally, Key reduced its quarterly dividend per common share from $.1875 to $.0625, effective with the December 15, 2008, dividend payment.
During the fourth quarter, Key also reissued .2 million of its common shares under employee benefit plans. There was no repurchase activity by Key during the fourth quarter, and the Company currently does not anticipate any share repurchase activity in the foreseeable future.
Transactions 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 4Q08 3Q08 2Q08 1Q08 4Q07
Shares outstanding at
beginning of period 494,765 485,662 400,071 388,793 388,708
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 237 2,037 485 1,383 85
Shares outstanding at end of
period 495,002 494,765 485,662 400,071 388,793
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
4Q08 vs.
dollars in millions 4Q08 3Q08 4Q07 3Q08 4Q07
Revenue from continuing
operations (TE)
Community Banking $644 $653 $653 (1.4)% (1.4)%
National Banking (a) 539 487 610 10.7 (11.6)
Other Segments (78) (17) 17 (358.8) N/M
Total Segments 1,105 1,123 1,280 (1.6) (13.7)
Reconciling Items (60) (30) (42) (100.0) (42.9)
Total $1,045 $1,093 $1,238 (4.4)% (15.6)%
(Loss) income from continuing
operations
Community Banking $33 $95 $112 (65.3)% (70.5)%
National Banking (a) (662) (130) (67) (409.2) (888.1)
Other Segments (b) (41) 9 21 N/M N/M
Total Segments (670) (26) 66 N/M N/M
Reconciling Items (c) 146 (10) (44) N/M N/M
Total $(524) $(36) $22 N/M N/M
(a) National Banking's results for the fourth quarter of 2008 include a
$465 million ($420 million after tax) noncash charge for goodwill
impairment. For the third quarter of 2008, National Banking's results
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.
(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 2008.
(c) Reconciling Items for the fourth quarter of 2008 include $120 million
of previously accrued interest recovered in connection with Key's
opt-in to the IRS global tax settlement. For the third quarter of
2008, Reconciling Items include a $30 million charge to income taxes
for the interest cost associated with the leveraged lease tax
litigation. Reconciling Items for the fourth quarter of 2007 include
a $64 million ($40 million after tax) charge, representing the fair
value of Key's potential liability to Visa Inc. at that time.
TE = Taxable Equivalent, N/M = Not Meaningful
Community Banking
Percent change
4Q08 vs.
dollars in millions 4Q08 3Q08 4Q07 3Q08 4Q07
Summary of operations
Net interest income (TE) $452 $440 $434 2.7% 4.1%
Noninterest income 192 213 219 (9.9) (12.3)
Total revenue (TE) 644 653 653 (1.4) (1.4)
Provision for loan losses 102 56 36 82.1 183.3
Noninterest expense 489 445 438 9.9 11.6
Income before income taxes (TE) 53 152 179 (65.1) (70.4)
Allocated income taxes and TE
adjustments 20 57 67 (64.9) (70.1)
Net income $33 $95 $112 (65.3)% (70.5)%
Average balances
Loans and leases $29,157 $28,872 $27,234 1.0% 7.1%
Total assets 32,353 31,955 29,978 1.2 7.9
Deposits 51,055 50,384 47,261 1.3 8.0
Assets under management at
period end $15,486 $18,278 $21,592 (15.3)% (28.3)%
TE = Taxable Equivalent, N/M = Not Meaningful, N/A = Not Applicable
Percent change
Additional Community Banking Data 4Q08 vs.
dollars in millions 4Q08 3Q08 4Q07 3Q08 4Q07
Average deposits outstanding
NOW and money market deposit
accounts $17,700 $19,507 $20,471 (9.3)% (13.5)%
Savings deposits 1,695 1,752 1,514 (3.3) 12.0
Certificates of deposit
($100,000 or more) 8,012 6,875 4,918 16.5 62.9
Other time deposits 14,558 13,103 11,454 11.1 27.1
Deposits in foreign office 980 1,193 1,254 (17.9) (21.9)
Noninterest-bearing deposits 8,110 7,954 7,650 2.0 6.0
Total deposits $51,055 $50,384 $47,261 1.3% 8.0%
Home equity loans
Average balance $10,036 $9,887 $9,658
Weighted-average loan-to-
value ratio 70% 70% 70%
Percent first lien positions 54 54 57
Other data
Branches 986 986 955
Automated teller machines 1,478 1,479 1,443
Community Banking Summary of Operations
Community Banking recorded net income of $33 million for the fourth quarter of 2008, compared to $112 million for the year-ago quarter. Increases in the provision for loan losses and noninterest expense, coupled with a decrease in noninterest income caused the decline, and more than offset an increase in net interest income.
Taxable-equivalent net interest income rose by $18 million, or 4%, from the fourth quarter of 2007. The increase was attributable to a $1.905 billion, or 7%, rise in average earning assets, due largely to growth in the commercial loan portfolio, and a $3.794 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.
Noninterest income decreased by $27 million, or 12%, from the year-ago quarter as a result of lower income from both trust and investment services caused by declines in the financial markets, a reduction in service charges on deposit accounts, an increase in the reserve for default losses on client derivatives stemming primarily from the declining interest rate environment, and gains from the sales of securities recorded during the fourth quarter of 2007.
The provision for loan losses rose by $66 million compared to the fourth quarter of 2007, reflecting a $35 million increase in net loan charge-offs. Community Banking's provision for loan losses for the fourth quarter of 2008 exceeded its net loan charge-offs by $36 million, as the Company continued to build reserves in a weak economy.
Noninterest expense increased by $51 million, or 12%, from the year-ago quarter as a result of increases in marketing and personnel expense, higher occupancy costs, a rise in internally allocated overhead and smaller increases in a variety of other expense components.
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
4Q08 vs.
dollars in millions 4Q08 3Q08 4Q07 3Q08 4Q07
Summary of operations
Net interest income (TE) $299 $327 $387 (8.6)% (22.7)%
Noninterest income 240 160(a) 223 50.0 7.6
Total revenue (TE) 539 487 610 10.7 (11.6)
Provision for loan losses 489 350 327 39.7 49.5
Noninterest expense 830(a) 342 388 142.7 113.9
Loss from continuing
operations before income
taxes (TE) (780) (205) (105) (280.5) (642.9)
Allocated income taxes and
TE adjustments (118) (75) (38) (57.3) (210.5)
Loss from continuing
operations (662) (130) (67) (409.2) (888.1)
Income from discontinued
operations, net of taxes -- -- 3 -- (100.0)
Net loss $(662) $(130) $(64) (409.2)% 934.4%
Average balances from
continuing operations
Loans and leases $47,474 $47,075 $42,040 .8% 12.9%
Loans held for sale 1,404 1,651 4,709 (15.0) (70.2)
Total assets 56,996 56,183 53,335 1.4 6.9
Deposits 12,305 12,439 12,622 (1.1) (2.5)
Assets under management at
period end $49,231 $58,398 $63,850 (15.7)% (22.9)%
(a) National Banking's results for the fourth quarter of 2008 include a
$465 million ($420 million after tax) noncash charge for goodwill
impairment. For the third quarter of 2008, National Banking's results
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.
TE = Taxable Equivalent, N/M = Not Meaningful, N/A = Not Applicable
National Banking Summary of Continuing Operations
National Banking recorded a loss of $662 million from continuing operations for the fourth quarter of 2008, compared to a loss of $67 million for the same period one year ago. During the fourth quarter of 2008, results were adversely affected by a goodwill impairment charge of $465 million ($420 million, after tax), which resulted from a reduction in the fair value of net assets caused by weakness in the financial markets. Also contributing to the less favorable results was a substantially higher provision for loan losses and lower net interest income, offset in part by growth in noninterest income.
Taxable-equivalent net interest income decreased by $88 million, or 23%, from the fourth quarter of 2007, due primarily to the reduction caused by recalculations of income recognized on leveraged leases contested by the IRS. Also contributing to the decrease were tighter loan and deposit spreads, and a higher level of nonperforming assets. Average loans and leases grew by $5.434 billion, or 13%, while the level of average deposits was down $317 million, or 3%, from the year-ago quarter. Contributing to the loan growth was the March 31, 2008, transfer of $3.284 billion of education loans from loans held for sale to the loan portfolio.
Noninterest income rose by $17 million, or 8%, from the fourth quarter of 2007. The improvement reflects a $9 million increase in income from trust and investment services, a $13 million increase in gains on leased equipment, and net loan sale gains of $1 million in the current year, compared to net losses of $9 million in the year-ago quarter. These improvements were partially offset by a $16 million decrease in loan fees.
The provision for loan losses rose by $162 million, due primarily to higher levels of net loan charge-offs from the commercial, commercial real estate, education and marine loan portfolios. National Banking's provision for loan losses for the fourth quarter of 2008 exceeded its net loan charge-offs by $213 million, as the Company continued to build reserves in a weak economy.
Excluding the goodwill impairment charge recorded during the fourth quarter of 2008, noninterest expense decreased by $23 million, or 6%, from the fourth quarter of 2007, reflecting a $7 million credit for losses on lending-related commitments in the current quarter, compared to a $22 million provision in the fourth quarter of 2007.
Other Segments
Other segments consist of Corporate Treasury and Key's Principal Investing unit. These segments generated a net loss of $41 million for the fourth quarter of 2008, compared to net income of $21 million for the same period last year. These results reflect net losses of $33 million from principal investing in the fourth quarter of 2008, compared to net gains of $6 million for the same period last year. Additionally, during the fourth quarter of 2008, Key recorded net losses of $39 million related to the volatility associated with the hedge accounting applied to debt instruments, compared to net gains of $3 million in the year-ago quarter. The majority of the net losses are attributable to the restructuring of certain cash collateral arrangements for hedges that reduced exposure to counterparty risk and lowered the cost of borrowings.
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. In October 2008, Consumer Finance exited direct and indirect retail and floor-plan lending for marine and recreational vehicle products and began to limit new education loans to those backed by government guarantee. It continues 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 $105 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 1,478 ATMs; telephone banking centers (1.800.KEY2YOU); and a Web site, https://www.key.com/ ,® 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.
Factors that may cause actual results to differ materially include, among other things: (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) continuation of the recent deterioration 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 insurance 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 KeyCorp and 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 Annual Report on Form 10-K for the year ended December 31, 2007, and subsequent filings with the Securities and Exchange Commission available on the Securities and Exchange Commission's website (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.
ADD: /FIRST AND FINAL ADD -- CLTH007 -- KeyCorp Earnings/
Financial Highlights
(dollars in millions, except per share amounts)
Three months ended
12-31-08 9-30-08 12-31-07
Summary of operations
Net interest income (TE) $646 (a) $705 (a) $750
Noninterest income 399 388 488
Total revenue (TE) 1,045 1,093 1,238
Provision for loan losses 594 407 363
Noninterest expense 1,303 762 896
(Loss) income from continuing
operations (524) (36) 22
Income from discontinued operations,
net of taxes (b) --- --- 3
Net (loss) income (524)(a) (36)(a) 25
Net (loss) income applicable to
common shares (554) (48) 25
Per common share
(Loss) income from continuing
operations $(1.13) $(.10) $.06
(Loss) income from continuing
operations - assuming dilution (1.13) (.10) .06
Income from discontinued operations (b) --- --- .01
Income from discontinued operations -
assuming dilution (b) --- --- .01
Net (loss) income (1.13) (.10) .06
Net (loss) income - assuming dilution (1.13)(a) (.10)(a) .06
Cash dividends paid .0625 .1875 .365
Book value at period end 14.97 16.16 19.92
Tangible book value at period end 12.41 12.66 16.39
Market price at period end 8.52 11.94 23.45
Performance ratios - from continuing
operations
Return on average total assets (1.93)% (.14)% .09 %
Return on average common equity (27.65) (2.36) 1.11
Return on average total equity (21.08) (1.64) 1.11
Net interest margin (TE) 2.76 3.13 3.48
Performance ratios - from consolidated
operations
Return on average total assets (1.93)%(a) (.14)%(a) .10 %
Return on average common equity (27.65)(a) (2.36)(a) 1.26
Return on average total equity (21.08)(a) (1.64)(a) 1.26
Net interest margin (TE) 2.76 (a) 3.13 (a) 3.48
Capital ratios at period end
Equity to assets 10.03 % 8.54 % 7.89 %
Tangible equity to tangible assets 8.92 6.95 6.58
Tangible common equity to tangible
assets 5.95 6.29 6.58
Tier 1 risk-based capital (c) 10.81 8.55 7.44
Total risk-based capital (c) 14.67 12.40 11.38
Leverage (c) 11.03 9.28 8.39
Asset quality
Net loan charge-offs $342 $273 $119
Net loan charge-offs to average loans
from continuing operations 1.77 % 1.43 % .67 %
Allowance for loan losses $1,803 $1,554 $1,200
Allowance for loan losses to period-
end loans 2.36 % 2.03 % 1.69 %
Allowance for loan losses to
nonperforming loans 147.18 160.70 174.67
Nonperforming loans at period end $1,225 $967 $687
Nonperforming assets at period end 1,464 1,239 764
Nonperforming loans to period-end
portfolio loans 1.60 % 1.26 % .97 %
Nonperforming assets to period-end
portfolio loans plus
OREO and other nonperforming assets 1.91 1.61 1.08
Trust and brokerage assets
Assets under management $64,717 $76,676 $85,442
Nonmanaged and brokerage assets 22,728 27,187 33,918
Other data
Average full-time equivalent
employees 17,697 18,098 18,500
Branches 986 986 955
Taxable-equivalent adjustment $7 $6 $40
Financial Highlights (continued)
(dollars in millions, except per share amounts)
Twelve months ended
12-31-08 12-31-07
Summary of operations
Net interest income (TE) $1,955 (a) $2,868
Noninterest income 1,870 2,229
Total revenue (TE) 3,825 5,097
Provision for loan losses 1,835 529
Noninterest expense 3,578 3,248
(Loss) income from continuing
operations (1,468) 941
Loss from discontinued operations,
net of taxes (b) --- (22)
Net (loss) income (1,468)(a) 919
Net (loss) income applicable to
common shares (1,510) 919
Per common share
(Loss) income from continuing
operations $(3.36) $2.40
(Loss) income from continuing
operations - assuming dilution (3.36) 2.38
Loss from discontinued
operations (b) --- (.06)
Loss from discontinued operations -
assuming dilution (b) --- (.05)
Net (loss) income (3.36) 2.35
Net (loss) income - assuming
dilution (3.36)(a) 2.32
Cash dividends paid 1.00 1.46
Performance ratios - from continuing
operations
Return on average total assets (1.41)% .99 %
Return on average common equity (18.32) 12.19
Return on average total equity (16.45) 12.19
Net interest margin (TE) 2.16 3.46
Performance ratios - from consolidated
operations
Return on average total assets (1.41)% (a) .97 %
Return on average common equity (18.32)(a) 11.90
Return on average total equity (16.45)(a) 11.90
Net interest margin (TE) 2.16 (a) 3.46
Asset quality
Net loan charge-offs $1,260 $275
Net loan charge-offs to average
loans from continuing operations 1.67 % .41 %
Other data
Average full-time equivalent
employees 18,095 18,934
Taxable-equivalent adjustment $(454) $99
(a) The following table entitled "GAAP to Non-GAAP Reconciliations"
presents certain earnings data and performance ratios, excluding
(credits) charges related to the tax treatment of certain leveraged
lease financing transactions disallowed by the Internal Revenue
Service, and the charge resulting from Key's annual goodwill
impairment testing completed during the fourth quarter of 2008. 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) 12-31-08 ratio is estimated.
TE = Taxable Equivalent
GAAP to Non-GAAP Reconciliations
(dollars in millions, except per share amounts)
During the fourth quarter of 2008, Key recorded an after-tax credit of
$120 million, or $.24 per common share, in connection with its opt-in
to the IRS global tax settlement. 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 $30 million, or $.06 per
common share, during the third quarter of 2008 and $1.011 billion, or
$2.43 per common share, during the second quarter of 2008. 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 $.10 per common share.
Additionally, during the fourth quarter of 2008, Key recorded an after-
tax charge of $420 million, or $.85 per common share, as a result of
its annual goodwill impairment testing. During the third quarter of
2008, Key recorded an after-tax charge of $4 million, or $.01 per
common share, as a result of goodwill impairment related to
management's decision to limit new education loans.
The table below presents certain earnings data and performance ratios,
excluding these (credits) 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.
Twelve
months
Three months ended ended
12-31-08 9-30-08 6-30-08 3-31-08 12-31-08
Net income
Net (loss) income (GAAP) $(524) $(36) $(1,126) $218 $(1,468)
(Credits) charges related
to leveraged lease tax
litigation, after tax (120) 30 1,011 38 959
Charges related to
goodwill impairment,
after tax 420 4 --- --- 424
Net (loss) income,
excluding (credits)
charges related to leveraged
lease tax litigation and
goodwill impairment
(non-GAAP) $(224) $(2) $(115) $256 $(85)
Preferred dividends $30 $12 --- --- $42
Net (loss) income applicable
to common shares (GAAP) $(554) $(48) $(1,126) $218 $(1,510)
Net (loss) income
applicable to common shares,
excluding (credits) charges
related to leveraged lease
tax litigation and goodwill
impairment (non-GAAP) (254) (14) (115) 256 (127)
Per common share
Net (loss) income -
assuming dilution (GAAP) $(1.13) $(.10) $(2.70) $.54 $(3.36)
Net (loss) income,
excluding (credits)
charges related to
leveraged lease tax
litigation and goodwill
impairment - assuming
dilution (non-GAAP) (.52) (.03) (.28) .64 (.28)
Performance ratios
Return on average total
assets (a)
Average total assets $107,735 $103,156 $103,290 $103,356 $104,390
Return on average total
assets (GAAP) (1.93)% (.14)% (4.38)% .85 % (1.41)%
Return on average total
assets, excluding
(credits) charges related
to leveraged lease tax
litigation and goodwill
impairment (non-GAAP) (.83) (.01) (.45) 1.00 (.08)
Return on average common
equity (a)
Average common equity $7,971 $8,077 $8,489 $8,445 $8,244
Return on average common
equity (GAAP) (27.65)% (2.36)% (53.35)% 10.38 % (18.32)%
Return on average common
equity, excluding
(credits) charges related
to leveraged lease tax
litigation and goodwill
impairment (non-GAAP) (12.68) (.69) (5.45) 12.19 (1.54)
Return on average total
equity (a)
Average total equity $9,888 $8,734 $8,617 $8,445 $8,923
Return on average total
equity (GAAP) (21.08)% (1.64)% (52.56)% 10.38 % (16.45)%
Return on average total
equity, excluding
(credits) charges related
to leveraged lease tax
litigation and goodwill
impairment (non-GAAP) (9.01) (.09) (5.37) 12.19 (.95)
Net interest income and margin
Net interest income
Net interest income (GAAP) $639 $699 $358 $713 $2,409
Charges related to
leveraged lease tax
litigation, pre-tax 18 --- 359 3 380
Net interest income,
excluding charges related
to leveraged lease tax
litigation (non-GAAP) $657 $699 $717 $716 $2,789
Net interest income/margin
(TE)
Net interest income (loss)
(TE) (as reported) $646 $705 $(100) $704 $1,955
Charges related to
leveraged lease tax
litigation, pre-tax (TE) 18 --- 838 34 890
Net interest income,
excluding charges related
to leveraged lease tax
litigation (TE)
(adjusted basis) $664 $705 $738 $738 $2,845
Net interest margin (TE)
(as reported) (a) 2.76 % 3.13 % (.44)% 3.14 % 2.16 %
Impact of charges related
to leveraged lease tax
litigation, pre-tax
(TE) (a) .08 --- 3.76 .15 .98
Net interest margin,
excluding charges related
to leveraged lease tax
litigation (TE)
(adjusted basis) (a) 2.84 % 3.13 % 3.32 % 3.29 % 3.14 %
(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)
12-31-08 9-30-08 12-31-07
Assets
Loans $76,504 $76,705 $70,823
Loans held for sale 1,027 1,475 4,736
Securities available for sale 8,437 8,391 7,860
Held-to-maturity securities 25 28 28
Trading account assets 1,280 1,449 1,056
Short-term investments 5,221 653 516
Other investments 1,526 1,556 1,538
Total earning assets 94,020 90,257 86,557
Allowance for loan losses (1,803) (1,554) (1,200)
Cash and due from banks 1,257 1,937 1,814
Premises and equipment 840 801 681
Operating lease assets 990 1,030 1,128
Goodwill 1,138 1,595 1,252
Other intangible assets 128 135 123
Corporate-owned life insurance 2,970 2,940 2,872
Derivative assets 1,896 951 879
Accrued income and other assets 3,095 3,198 4,122
Total assets $104,531 $101,290 $98,228
Liabilities
Deposits in domestic offices:
NOW and money market deposit
accounts $24,191 $25,789 $27,635
Savings deposits 1,712 1,731 1,513
Certificates of deposit ($100,000
or more) 11,991 10,316 6,982
Other time deposits 14,763 13,929 11,615
Total interest-bearing deposits 52,657 51,765 47,745
Noninterest-bearing deposits 11,485 11,122 11,028
Deposits in foreign office -
interest-bearing 1,118 1,791 4,326
Total deposits 65,260 64,678 63,099
Federal funds purchased and securities
sold under repurchase agreements 1,557 1,799 3,927
Bank notes and other short-term
borrowings 8,477 5,352 5,861
Derivative liabilities 1,038 589 252
Accrued expense and other liabilities 2,724 4,624 5,386
Long-term debt 14,995 15,597 11,957
Total liabilities 94,051 92,639 90,482
Shareholders' equity
Preferred stock, Series A 658 658 ---
Preferred stock, Series B 2,414 --- ---
Common shares 584 584 492
Common stock warrants 87 --- ---
Capital surplus 2,553 2,552 1,623
Retained earnings 6,727 7,320 8,522
Treasury stock, at cost (2,608) (2,616) (3,021)
Accumulated other comprehensive income 65 153 130
Total shareholders' equity 10,480 8,651 7,746
Total liabilities and shareholders'
equity $104,531 $101,290 $98,228
Common shares outstanding (000) 495,002 494,765 388,793
Consolidated Statements of Income
(dollars in millions, except per share amounts)
Three months ended Twelve months ended
12-31-08 9-30-08 12-31-07 12-31-08 12-31-07
Interest income
Loans $996 $1,066 $1,205 $3,902 $4,751
Loans held for sale 18 21 89 146 337
Securities available for
sale 110 110 115 440 427
Held-to-maturity securities 1 1 1 3 2
Trading account assets 17 16 12 56 38
Short-term investments 8 6 13 31 37
Other investments 13 12 12 51 52
Total interest income 1,163 1,232 1,447 4,629 5,644
Interest expense
Deposits 346 347 483 1,468 1,845
Federal funds purchased and
securities sold under
repurchase agreements 4 10 45 57 208
Bank notes and other short-
term borrowings 31 34 45 131 104
Long-term debt 143 142 164 564 718
Total interest expense 524 533 737 2,220 2,875
Net interest income 639 699 710 2,409 2,769
Provision for loan losses 594 407 363 1,835 529
Net interest income after
provision for loan losses 45 292 347 574 2,240
Noninterest income
Trust and investment services
income 138 133 131 538 490
Service charges on deposit
accounts 90 94 90 365 337
Operating lease income 64 69 72 270 272
Letter of credit and loan
fees 42 53 58 183 192
Corporate-owned life
insurance income 33 28 37 117 121
Electronic banking fees 25 27 25 103 99
Insurance income 15 15 10 65 55
Investment banking and
capital markets income
(loss) 6 (31) 12 63 117
Net securities (losses)
gains (5) 1 6 (2) (35)
Net (losses) gains from
principal investing (33) (24) 6 (62) 134
Net gains (losses) from
loan securitizations and
sales 3 (30) (6) (95) (17)
Gain from redemption of
Visa Inc. shares --- --- --- 165 ---
Gain from sale of McDonald
Investments branch network --- --- --- --- 171
Other income 21 53 47 160 293
Total noninterest income 399 388 488 1,870 2,229
Noninterest expense
Personnel 411 381 399 1,605 1,621
Net occupancy 68 65 64 261 246
Operating lease expense 55 56 59 224 224
Computer processing 51 46 52 187 201
Professional fees 51 35 38 142 117
Equipment 22 23 25 92 96
Marketing 25 27 16 87 76
Goodwill impairment 465 4 5 469 5
Other expense 155 125 238 511 662
Total noninterest expense 1,303 762 896 3,578 3,248
(Loss) income from
continuing operations
before income taxes (859) (82) (61) (1,134) 1,221
Income taxes (335) (46) (83) 334 280
(Loss) income from
continuing operations (524) (36) 22 (1,468) 941
Income (loss) from
discontinued operations,
net of taxes --- --- 3 --- (22)
Net (loss) income $(524) $(36) $25 $(1,468) $919
Net (loss) income applicable
to common shares $(554) $(48) $25 $(1,510) $919
Per common share:
(Loss) income from
continuing operations $(1.13) $(.10) $.06 $(3.36) $2.40
Net (loss) income (1.13) (.10) .06 (3.36) 2.35
Per common share - assuming
dilution:
(Loss) income from
continuing operations $(1.13) $(.10) $.06 $(3.36) $2.38
Net (loss) income (1.13) (.10) .06 (3.36) 2.32
Cash dividends declared per
common share $.0625 $.1875 $.74 $1.00 $1.835
Weighted-average common
shares outstanding (000) 492,311 491,179 388,940 450,039 392,013
Weighted-average common
shares and potential
common shares outstanding
(000) 492,311 491,179 389,911 450,039 395,823
Consolidated Average Balance Sheets, Net Interest Income and
Yields/Rates
From Continuing Operations
(dollars in millions)
Fourth Quarter 2008
Average
Balance Interest Yield/Rate
Assets
Loans: (a), (b)
Commercial, financial and
agricultural $27,662 $346 4.98 %
Real estate - commercial mortgage 10,707 151 5.63
Real estate - construction 7,686 100 5.16
Commercial lease financing 9,186 78 3.38(c)
Total commercial loans 55,241 675 4.87
Real estate - residential 1,903 29 6.00
Home equity:
Community Banking 10,037 129 5.13
National Banking 1,088 21 7.62
Total home equity loans 11,125 150 5.37
Consumer other - Community
Banking 1,260 30 9.57
Consumer other - National
Banking:
Marine 3,467 55 6.32
Education 3,661 56 6.19
Other 288 6 8.22
Total consumer other -
National Banking 7,416 117 6.33
Total consumer loans 21,704 326 6.00
Total loans 76,945 1,001 5.19
Loans held for sale 1,495 18 4.84
Securities available for sale
(a), (d) 8,269 111 5.39
Held-to-maturity securities (a) 27 2 10.74
Trading account assets 1,416 17 4.81
Short-term investments 3,715 8 .88
Other investments (d) 1,557 13 3.06
Total earning assets 93,424 1,170 4.98
Allowance for loan losses (1,676)
Accrued income and other assets 15,987
Total assets $107,735
Liabilities
NOW and money market deposit
accounts $24,919 78 1.24
Savings deposits 1,722 1 .16
Certificates of deposit ($100,000
or more) (e) 11,270 118 4.20
Other time deposits 14,560 146 3.98
Deposits in foreign office 1,300 3 .90
Total interest-bearing
deposits 53,771 346 2.56
Federal funds purchased and
securities sold under repurchase
agreements 1,727 4 .86
Bank notes and other short-term
borrowings 9,205 31 1.36
Long-term debt (e), (f) 14,557 143 4.08
Total interest-bearing
liabilities 79,260 524 2.65
Noninterest-bearing deposits 10,860
Accrued expense and other
liabilities 7,727
Total liabilities 97,847
Shareholders' equity 9,888
Total liabilities and
shareholders' equity $107,735
Interest rate spread (TE) 2.33 %
Net interest income (TE) and net
interest margin (TE) 646 (c) 2.76%(c)
TE adjustment (a) 7
Net interest income, GAAP basis $639
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 8,734
Total liabilities and
shareholders' equity $103,156
Interest rate spread (TE) 2.67 %
Net interest income (TE) and net
interest margin (TE) 705 3.13 %
TE adjustment (a) 6
Net interest income, GAAP basis $699
Fourth Quarter 2007
Average
Balance Interest Yield/Rate
Assets
Loans: (a), (b)
Commercial, financial and
agricultural $23,825 $419 6.98 %
Real estate - commercial mortgage 9,351 175 7.42
Real estate - construction 8,192 153 7.42
Commercial lease financing 10,252 171 6.65
Total commercial loans 51,620 918 7.06
Real estate - residential 1,596 27 6.72
Home equity:
Community Banking 9,658 168 6.92
National Banking 1,259 24 7.77
Total home equity loans 10,917 192 7.02
Consumer other - Community
Banking 1,308 35 10.73
Consumer other - National
Banking:
Marine 3,608 58 6.34
Education 329 8 9.47
Other 339 7 8.66
Total consumer other -
National Banking 4,276 73 6.76
Total consumer loans 18,097 327 7.20
Total loans 69,717 1,245 7.10
Loans held for sale 4,748 89 7.53
Securities available for sale
(a), (d) 7,858 115 5.89
Held-to-maturity securities (a) 30 1 6.24
Trading account assets 1,042 12 4.40
Short-term investments 1,226 13 3.94
Other investments (d) 1,589 12 3.02
Total earning assets 86,210 1,487 6.86
Allowance for loan losses (966)
Accrued income and other assets 13,547
Total assets $98,791
Liabilities
NOW and money market deposit
accounts $25,687 197 3.05
Savings deposits 1,523 1 .19
Certificates of deposit ($100,000
or more) (e) 6,887 86 4.98
Other time deposits 11,455 135 4.68
Deposits in foreign office 5,720 64 4.42
Total interest-bearing
deposits 51,272 483 3.74
Federal funds purchased and
securities sold under repurchase
agreements 4,194 45 4.23
Bank notes and other short-term
borrowings 4,233 45 4.15
Long-term debt (e), (f) 11,851 164 5.72
Total interest-bearing
liabilities 71,550 737 4.11
Noninterest-bearing deposits 12,948
Accrued expense and other
liabilities 6,405
Total liabilities 90,903
Shareholders' equity 7,888
Total liabilities and
shareholders' equity $98,791
Interest rate spread (TE) 2.75 %
Net interest income (TE) and net
interest margin (TE) 750 3.48 %
TE adjustment (a) 40
Net interest income, GAAP basis $710
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 fourth quarter of 2008, Key's taxable-equivalent net
interest income was reduced by $18 million as a result of an
agreement reached with the IRS on all material aspects related to the
IRS global tax settlement pertaining to certain leveraged lease
financing transactions. Excluding this reduction, the taxable-
equivalent yield on Key's commercial lease financing portfolio would
have been 4.17% for the fourth quarter of 2008, and Key's taxable-
equivalent net interest margin would have been 2.84%.
(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)
Twelve months ended December 31, 2008
Average
Balance Interest Yield/Rate
Assets
Loans: (a), (b)
Commercial, financial and
agricultural $26,372 $1,446 5.48 %
Real estate - commercial mortgage 10,576 640 6.05
Real estate - construction 8,109 461 5.68
Commercial lease financing 9,642 (425) (4.41)(c)
Total commercial loans 54,699 2,122 3.88
Real estate - residential 1,909 117 6.11
Home equity:
Community Banking 9,846 564 5.73
National Banking 1,171 90 7.67
Total home equity loans 11,017 654 5.93
Consumer other - Community
Banking 1,275 130 10.22
Consumer other - National
Banking:
Marine 3,586 226 6.30
Education 2,818 170 6.05
Other 315 26 8.25
Total consumer other -
National Banking 6,719 422 6.29
Total consumer loans 20,920 1,323 6.33
Total loans 75,619 3,445 4.56
Loans held for sale 2,385 146 6.11
Securities available for sale
(a), (d) 8,317 442 5.36
Held-to-maturity securities (a) 27 4 11.73
Trading account assets 1,279 56 4.38
Short-term investments 1,615 31 1.96
Other investments (d) 1,563 51 3.02
Total earning assets 90,805 4,175 4.59
Allowance for loan losses (1,438)
Accrued income and other assets 15,023
Total assets $104,390
Liabilities
NOW and money market deposit
accounts $26,429 427 1.62
Savings deposits 1,796 6 .32
Certificates of deposit ($100,000
or more) (e) 9,385 398 4.25
Other time deposits 13,300 556 4.18
Deposits in foreign office 3,501 81 2.31
Total interest-bearing
deposits 54,411 1,468 2.70
Federal funds purchased and
securities sold under repurchase
agreements 2,847 57 2.00
Bank notes and other short-term
borrowings 5,944 131 2.20
Long-term debt (e), (f) 14,387 564 4.12
Total interest-bearing
liabilities 77,589 2,220 2.89
Noninterest-bearing deposits 10,744
Accrued expense and other
liabilities 7,134
Total liabilities 95,467
Shareholders' equity 8,923
Total liabilities and
shareholders' equity $104,390
Interest rate spread (TE) 1.70 %
Net interest income (TE) and net
interest margin (TE) 1,955 (c) 2.16 %(c)
TE adjustment (a) (454)
Net interest income, GAAP basis $2,409
Twelve months ended December 31, 2007
Average
Balance Interest Yield/Rate
Assets
Loans: (a), (b)
Commercial, financial and
agricultural $22,415 $1,622 7.23 %
Real estate - commercial mortgage 8,802 675 7.67
Real estate - construction 8,237 653 7.93
Commercial lease financing 10,154 606 5.97
Total commercial loans 49,608 3,556 7.17
Real estate - residential 1,525 101 6.64
Home equity:
Community Banking 9,671 686 7.09
National Banking 1,144 89 7.84
Total home equity loans 10,815 775 7.17
Consumer other - Community
Banking 1,367 144 10.53
Consumer other - National
Banking:
Marine 3,390 214 6.30
Education 333 32 9.54
Other 319 28 8.93
Total consumer other -
National Banking 4,042 274 6.77
Total consumer loans 17,749 1,294 7.29
Total loans 67,357 4,850 7.20
Loans held for sale 4,461 337 7.57
Securities available for sale
(a), (d) 7,757 427 5.52
Held-to-maturity securities (a) 36 2 6.68
Trading account assets 917 38 4.10
Short-term investments 846 37 4.34
Other investments (d) 1,524 52 3.33
Total earning assets 82,898 5,743 6.84
Allowance for loan losses (948)
Accrued income and other assets 12,934
Total assets $94,884
Liabilities
NOW and money market deposit
accounts $24,070 762 3.17
Savings deposits 1,591 3 .19
Certificates of deposit ($100,000
or more) (e) 6,389 321 5.02
Other time deposits 11,767 550 4.68
Deposits in foreign office 4,287 209 4.87
Total interest-bearing
deposits 48,104 1,845 3.84
Federal funds purchased and
securities
sold under repurchase
agreements 4,330 208 4.79
Bank notes and other short-term
borrowings 2,423 104 4.28
Long-term debt (e), (f) 12,537 718 5.84
Total interest-bearing
liabilities 67,394 2,875 4.28
Noninterest-bearing deposits 13,635
Accrued expense and other
liabilities 6,133
Total liabilities 87,162
Shareholders' equity 7,722
Total liabilities and
shareholders' equity $94,884
Interest rate spread (TE) 2.56 %
Net interest income (TE) and net
interest margin (TE) 2,868 3.46 %
TE adjustment (a) 99
Net interest income, GAAP basis $2,769
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 fourth quarter of 2008, Key's taxable-equivalent net
interest income was reduced by $18 million as a result of an agreement
reached with the IRS on all material aspects related to the IRS global
tax settlement pertaining to certain leveraged lease financing
transactions. During the second quarter of 2008, Key's
taxable- equivalent net interest income was reduced by $838 million as
a result of an adverse federal court decision on Key's tax treatment
of a Service Contract Lease transaction. During the first quarter of
2008, Key's taxable-equivalent net interest income was reduced by $34
million 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 4.82% for the twelve months
ended December 31, 2008, and Key's taxable-equivalent net interest
margin would have been 3.14%.
(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 Twelve months ended
12-31-08 9-30-08 12-31-07 12-31-08 12-31-07
Trust and investment services
income (a) $138 $133 $131 $538 $490
Service charges on deposit
accounts 90 94 90 365 337
Operating lease income 64 69 72 270 272
Letter of credit and loan fees 42 53 58 183 192
Corporate-owned life insurance
income 33 28 37 117 121
Electronic banking fees 25 27 25 103 99
Insurance income 15 15 10 65 55
Investment banking and capital
markets income (loss) (a) 6 (31) 12 63 117
Net securities (losses) gains (5) 1 6 (2) (35)
Net (losses) gains from
principal investing (33) (24) 6 (62) 134
Net gains (losses) from loan
securitizations and sales 3 (30) (6) (95) (17)
Gain from redemption of
Visa Inc. shares --- --- --- 165 ---
Gain from sale of McDonald
Investments branch network --- --- --- --- 171
Other income:
Loan securitization
servicing fees 5 4 5 18 21
Credit card fees 3 6 3 16 13
Gains related to
MasterCard Incorporated
shares --- --- --- --- 67
Litigation settlement -
automobile residual
value insurance --- --- --- --- 26
Miscellaneous income 13 43 39 126 166
Total other income 21 53 47 160 293
Total noninterest
income $399 $388 $488 $1,870 $2,229
(a) Additional detail provided in tables below.
Trust and Investment Services Income
(in millions)
Three months ended Twelve months ended
12-31-08 9-30-08 12-31-07 12-31-08 12-31-07
Brokerage commissions and
fee income $48 $37 $31 $159 $125
Personal asset management
and custody fees 39 38 43 158 165
Institutional asset management
and custody fees 51 58 57 221 200
Total trust and investment
services income $138 $133 $131 $538 $490
Investment Banking and Capital Markets Income
(in millions)
Three months ended Twelve months ended
12-31-08 9-30-08 12-31-07 12-31-08 12-31-07
Investment banking income $7 $20 $21 $85 $86
Losses from other investments (32) (7) (23) (44) (34)
Dealer trading and derivatives
income (loss) 11 (57) (1) (39) 17
Foreign exchange income 20 13 15 61 48
Total investment banking
and capital markets income
(loss) $6 $(31) $12 $63 $117
Noninterest Expense
(dollars in millions)
Three months ended Twelve months ended
12-31-08 9-30-08 12-31-07 12-31-08 12-31-07
Personnel (a) $411 $381 $399 $1,605 $1,621
Net occupancy 68 65 64 261 246
Operating lease expense 55 56 59 224 224
Computer processing 51 46 52 187 201
Professional fees 51 35 38 142 117
Equipment 22 23 25 92 96
Marketing 25 27 16 87 76
Noncash charge for goodwill
impairment 465 4 5 469 5
Other expense:
Postage and delivery 12 11 13 46 47
Franchise and business
taxes 7 7 7 30 32
Telecommunications 8 7 7 30 28
(Credit) provision for
losses on lending-
related commitments (5) 8 25 (26) 28
Liability to Visa Inc. --- --- 64 --- 64
Miscellaneous expense 133 92 122 431 463
Total other expense 155 125 238 511 662
Total noninterest
expense $1,303 $762 $896 $3,578 $3,248
Average full-time equivalent
employees 17,697 18,098 18,500(b) 18,095 18,934(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 Twelve months ended
12-31-08 9-30-08 12-31-07 12-31-08 12-31-07
Salaries $241 $245 $255 $960 $976
Incentive compensation 78 55 52 286 264
Employee benefits 58 59 65 258 287
Stock-based compensation 11 8 3 50 60
Severance 23 14 24 51 34
Total personnel expense $411 $381 $399 $1,605 $1,621
Loan Composition
(dollars in millions)
Percent change
12-31-08 vs.
12-31-08 9-30-08 12-31-07 9-30-08 12-31-07
Commercial, financial and
agricultural $27,260 $27,207 $24,797 .2 % 9.9 %
Commercial real estate:
Commercial mortgage 10,819 10,569 9,630 2.4 12.3
Construction 7,717 7,708 8,102 .1 (4.8)
Total commercial real
estate loans (a) 18,536 18,277 17,732 1.4 4.5
Commercial lease financing 9,039 9,437 10,176 (4.2) (11.2)
Total commercial loans 54,835 54,921 52,705 (.2) 4.0
Real estate - residential
mortgage 1,908 1,898 1,594 .5 19.7
Home equity:
Community Banking 10,124 9,970 9,655 1.5 4.9
National Banking 1,051 1,101 1,262 (4.5) (16.7)
Total home equity loans 11,175 11,071 10,917 .9 2.4
Consumer other - Community
Banking 1,233 1,274 1,298 (3.2) (5.0)
Consumer other - National
Banking:
Marine 3,401 3,529 3,637 (3.6) (6.5)
Education (b) 3,669 3,711 331 (1.1) N/M
Other 283 301 341 (6.0) (17.0)
Total consumer other -
National Banking 7,353 7,541 4,309 (2.5) 70.6
Total consumer loans 21,669 21,784 18,118 (.5) 19.6
Total loans $76,504 $76,705 $70,823 (.3)% 8.0 %
Loans Held for Sale Composition
(dollars in millions)
Percent change
12-31-08 vs.
12-31-08 9-30-08 12-31-07 9-30-08 12-31-07
Commercial, financial and
agricultural $102 $159 $250 (35.8)% (59.2)%
Real estate - commercial
mortgage 273 718 1,219 (62.0) (77.6)
Real estate - construction (a) 164 262 35 (37.4) 368.6
Commercial lease financing 7 52 1 (86.5) 600.0
Real estate - residential
mortgage 77 57 47 35.1 63.8
Home equity --- --- 1 --- (100.0)
Education (b) 401 223 3,176 79.8 (87.4)
Automobile 3 4 7 (25.0) (57.1)
Total loans held for sale $1,027 $1,475 $4,736 (30.4)% (78.3)%
(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 $3.284 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 Twelve months ended
12-31-08 9-30-08 12-31-07 12-31-08 12-31-07
Average loans outstanding from
continuing operations $76,945 $76,171 $69,717 $75,619 $67,357
Allowance for loan losses at
beginning of period $1,554 $1,421 $955 $1,200 $944
Loans charged off:
Commercial, financial and
agricultural 132 75 48 332 128
Real estate -- commercial
mortgage 43 21 3 83 16
Real estate -- construction 49 80 44 494 54
Total commercial real
estate loans (a) 92 101 47 577 70
Commercial lease financing 26 24 18 83 51
Total commercial loans 250 200 113 992 249
Real estate -- residential
mortgage 7 2 3 15 6
Home equity:
Community Banking 15 10 6 43 21
National Banking 17 12 6 47 16
Total home equity loans 32 22 12 90 37
Consumer other - Community
Banking 13 11 8 44 31
Consumer other - National
Banking:
Marine 30 20 11 85 33
Education (b) 33 41 2 131 5
Other 4 4 3 14 9
Total consumer other -
National Banking 67 65 16 230 47
Total consumer loans 119 100 39 379 121
Total loans charged off 369 300 152 1,371 370
Recoveries:
Commercial, financial and
agricultural 13 13 13 54 37
Real estate -- commercial
mortgage --- 1 2 1 6
Real estate -- construction --- 1 --- 2 1
Total commercial real
estate loans --- 2 2 3 7
Commercial lease financing 5 5 12 20 22
Total commercial loans 18 20 27 77 66
Real estate -- residential
mortgage --- --- --- 1 1
Home equity:
Community Banking 1 1 --- 3 3
National Banking --- --- --- 1 1
Total home equity loans 1 1 --- 4 4
Consumer other - Community
Banking 2 1 2 6 8
Consumer other - National
Banking:
Marine 5 4 3 18 12
Education --- 1 --- 2 1
Other 1 --- 1 3 3
Total consumer other -
National Banking 6 5 4 23 16
Total consumer loans 9 7 6 34 29
Total recoveries 27 27 33 111 95
Net loan charge-offs (342) (273) (119) (1,260) (275)
Provision for loan losses from
continuing operations 594 407 363 1,835 529
Allowance related to loans
acquired, net --- --- --- 32 ---
Foreign currency translation
adjustment (3) (1) 1 (4) 2
Allowance for loan losses at end
of period $1,803 $1,554 $1,200 $1,803 $1,200
Net loan charge-offs to average
loans from continuing operations 1.77% 1.43% .67% 1.67% .41%
Allowance for loan losses to
period-end loans 2.36 2.03 1.69 2.36 1.69
Allowance for loan losses to
nonperforming loans 147.18 160.70 174.67 147.18 174.67
(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 $3.284 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 ended Twelve months ended
12-31-08 9-30-08 12-31-07 12-31-08 12-31-07
Balance at beginning of period $59 $51 $55 $80 $53
(Credit) provision for
losses on lending-related
commitments (5) 8 25 (26) 28
Charge-offs --- (1)
Balance at end of period (a) $54 $59 $80 $54 $80
(a) Included in "accrued expense and other liabilities" on the
consolidated balance sheet.
Summary of Nonperforming Assets and Past Due Loans
(dollars in millions)
12-31-08 9-30-08 6-30-08 3-31-08 12-31-07
Commercial, financial
and agricultural $415 $309 $259 $147 $84
Real estate - commercial
mortgage 128 119 107 113 41
Real estate - construction 436 334 256 610 415
Total commercial
real estate loans 564 453 363 (b) 723 456
Commercial lease financing 81 55 57 38 28
Total commercial
loans 1,060 817 679 908 568
Real estate - residential
mortgage 39 35 32 34 28
Home equity:
Community Banking 76 70 61 60 54
National Banking 15 16 14 14 12
Total home
equity loans 91 86 75 74 66
Consumer other -
Community Banking 3 3 2 2 2
Consumer other - National
Banking:
Marine 26 22 20 20 20
Education 4 3 4 15 2
Other 2 1 2 1 1
Total consumer
other - National
Banking 32 26 26 36 23
Total consumer
loans 165 150 135 146 119
Total nonperforming
loans 1,225 967 814 1,054 687
Nonperforming loans held
for sale 90 169 342 (b) 9 25
OREO 110 64 26 29 21
Allowance for OREO losses (3) (4) (2) (2) (2)
OREO, net of allowance 107 60 24 27 19
Other nonperforming
assets (a) 42 43 30 25 33
Total nonperforming
assets $1,464 $1,239 $1,210 $1,115 $764
Accruing loans past due
90 days or more $433 $328 $367 $283 $231
Accruing loans past due
30 through 89 days 1,314 937 852 1,169 843
Nonperforming loans to
period-end portfolio
loans 1.60 % 1.26 % 1.07 % 1.38 % .97 %
Nonperforming assets to
period-end portfolio
loans plus OREO and other
nonperforming assets 1.91 1.61 1.59 1.46 1.08
Summary of Changes in Nonperforming Loans
(in millions)
4Q08 3Q08 2Q08 1Q08 4Q07
Balance at beginning of period $967 $814 $1,054 $687 $498
Loans placed on nonaccrual
status 734 530 789 566 378
Charge-offs (369) (300) (547) (144) (147)
Loans sold (5) (1) (48) --- (13)
Payments (77) (43) (86) (32) (17)
Transfers to OREO (22) --- --- (10) (5)
Transfer to nonperforming
loans held for sale --- (30) (342)(b) (8) ---
Loans returned to accrual status (3) (3) (6) (5) (7)
Balance at end of period $1,225 $967 $814 $1,054 $687
(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
4Q08 3Q08 2Q08 1Q08 4Q07
Summary of operations
Total revenue (TE) $644 $653 $656 $629 $653
Provision for loan losses 102 56 44 18 36
Noninterest expense 489 445 448 428 438
Net income 33 95 103 114 112
Average loans and leases 29,157 28,872 28,477 28,093 27,234
Average deposits 51,055 50,384 49,950 49,777 47,261
Net loan charge-offs 66 70 38 30 31
Net loan charge-offs
to average loans .90% .96% .54% .43% .45%
Nonperforming assets
at period end $261 $225 $218 $204 $153
Return on average
allocated equity 4.19% 12.42% 13.49% 15.29% 17.52%
Average full-time
equivalent employees 8,796 8,854 8,785 8,714 8,454
Supplementary information
(lines of business)
Regional Banking
Total revenue (TE) $556 $552 $554 $529 $555
Provision for loan losses 80 39 25 9 26
Noninterest expense 437 398 400 385 385
Net income 24 72 81 84 90
Average loans and leases 20,015 19,795 19,621 19,562 18,776
Average deposits 47,427 46,655 46,253 46,192 43,718
Net loan charge-offs 52 41 33 29 26
Net loan charge-offs
to average loans 1.03% .82% .68% .60% .55%
Nonperforming assets
at period end $184 $168 $157 $142 $119
Return on average
allocated equity 4.34% 13.25% 14.77% 15.43% 20.39%
Average full-time
equivalent employees 8,458 8,512 8,439 8,365 8,101
Commercial Banking
Total revenue (TE) $88 $101 $102 $100 $98
Provision for loan losses 22 17 19 9 10
Noninterest expense 52 47 48 43 53
Net income 9 23 22 30 22
Average loans and leases 9,142 9,077 8,856 8,531 8,458
Average deposits 3,628 3,729 3,697 3,585 3,543
Net loan charge-offs 14 29 5 1 5
Net loan charge-offs
to average loans .61% 1.27% .23% .05% .23%
Nonperforming assets
at period end $77 $57 $61 $62 $34
Return on average
allocated equity 3.83% 10.39% 10.21% 14.90% 11.12%
Average full-time
equivalent employees 338 342 346 349 353
Community Banking
Percent change 4Q08 vs.
3Q08 4Q07
Summary of operations
Total revenue (TE) (1.4)% (1.4)%
Provision for loan losses 82.1 183.3
Noninterest expense 9.9 11.6
Net income (65.3) (70.5)
Average loans and leases 1.0 7.1
Average deposits 1.3 8.0
Net loan charge-offs (5.7) 112.9
Net loan charge-offs to average loans N/A N/A
Nonperforming assets at period end 16.0 70.6
Return on average allocated equity N/A N/A
Average full-time equivalent employees (.7) 4.0
Supplementary information
(lines of business)
Regional Banking
Total revenue (TE) .7 % .2 %
Provision for loan losses 105.1 207.7
Noninterest expense 9.8 13.5
Net income (66.7) (73.3)
Average loans and leases 1.1 6.6
Average deposits 1.7 8.5
Net loan charge-offs 26.8 100.0
Net loan charge-offs to average loans N/A N/A
Nonperforming assets at period end 9.5 54.6
Return on average allocated equity N/A N/A
Average full-time equivalent employees (.6) 4.4
Commercial Banking
Total revenue (TE) (12.9)% (10.2)%
Provision for loan losses 29.4 120.0
Noninterest expense 10.6 (1.9)
Net income (60.9) (59.1)
Average loans and leases .7 8.1
Average deposits (2.7) 2.4
Net loan charge-offs (51.7) 180.0
Net loan charge-offs to average loans N/A N/A
Nonperforming assets at period end 35.1 126.5
Return on average allocated equity N/A N/A
Average full-time equivalent employees (1.2) (4.2)
Line of Business Results (continued)
(dollars in millions)
National Banking
4Q08 3Q08 2Q08 1Q08 4Q07
Summary of operations
Total revenue (TE) $539 $487 $(127) $438 $610
Provision for
loan losses 489 350 609 169 327
Noninterest expense 830 342 337 308 388
Loss from continuing
operations (662) (130) (671) (24) (67)
Net loss (662) (130) (671) (24) (64)
Average loans and
leases (a) 47,474 47,075 47,877 44,163 42,040
Average loans
held for sale (a) 1,404 1,651 1,282 4,932 4,709
Average deposits (a) 12,305 12,439 12,287 11,877 12,622
Net loan charge-
offs (a) 276 203 486 91 88
Net loan charge-
offs to average
loans (a) 2.31 % 1.72 % 4.08 % .83 % .83 %
Nonperforming assets
at period end $1,190 $1,014 $992 $911 $611
Return on average
allocated equity
(a) (49.64)% (10.07)% (51.44)% (1.96)% (5.95)%
Return on average
allocated equity (49.64) (10.07) (51.44) (1.96) (5.68)
Average full-time
equivalent employees 3,316 3,552 3,604 3,759 4,010
Supplementary information
(lines of business)
Real Estate Capital and
Corporate Banking Services
Total revenue (TE) $161 $96 $235 $82 $160
Provision for
loan losses 153 99 366 45 270
Noninterest expense 93 89 67 60 117
Net (loss) (53) (58) (124) (14) (142)
Average loans and
leases 16,604 16,447 17,086 16,497 15,003
Average loans
held for sale 511 792 616 989 1,257
Average deposits 10,390 10,446 10,460 9,784 10,396
Net loan charge-offs 81 100 376 38 45
Net loan charge-offs
to average loans 1.94 % 2.42 % 8.85 % .93 % 1.19 %
Nonperforming assets
at period end $763 $714 $779 $732 $475
Return on average
allocated equity (9.96)% (11.40)% (23.15)% (3.01)% (36.68)%
Average full-time
equivalent employees 1,107 1,209 1,228 1,233 1,310
Equipment Finance
Total revenue (TE) $92 $111 $(696) $94 $183
Provision for
loan losses 33 64 36 24 23
Noninterest expense 349 90 89 96 96
Net (loss) income (276) (27) (513) (16) 40
Average loans and
leases 9,548 10,013 10,326 10,596 10,730
Average loans
held for sale 29 49 51 32 15
Average deposits 15 20 21 14 17
Net loan charge-offs 51 32 28 24 18
Net loan charge-offs
to average loans 2.12 % 1.27 % 1.09 % .91 % .67 %
Nonperforming assets
at period end $158 $115 $105 $69 $58
Return on average
allocated equity (124.21)% (12.00)% (226.24)% (6.97)% (17.40)%
Average full-time
equivalent employees 781 819 838 860 923
Institutional and Capital
Markets
Total revenue (TE) $200 $185 $230 $159 $169
Provision for
loan losses 52 16 36 16 15
Noninterest expense 329 107 128 103 116
Net (loss) income (193) 39 41 25 25
Average loans and
leases 9,352 8,363 7,898 7,633 7,218
Average loans
held for sale 545 649 494 555 394
Average deposits 1,442 1,479 1,384 1,460 1,560
Net loan charge-
offs (recoveries) 38 (1) 5 2 6
Net loan charge-offs
(recoveries) to
average loans 1.62 % (.05)% .25 % .11 % .33 %
Nonperforming assets
at period end $55 $58 $26 $12 $15
Return on average
allocated equity (57.82)% 12.11 % 13.11 % 8.28 % 8.51 %
Average full-time
equivalent employees 939 964 931 938 979
Consumer Finance
Total revenue (TE) $86 $95 $104 $103 $98
Provision for
loan losses 251 171 171 84 19
Noninterest expense 59 56 53 49 59
(Loss) income from
continuing operations (140) (84) (75) (19) 10
Net (loss) income (140) (84) (75) (19) 13
Average loans and
leases (a) 11,970 12,252 12,567 9,437 9,089
Average loans held
for sale (a) 319 161 121 3,356 3,043
Average deposits (a) 458 494 422 619 649
Net loan charge-
offs (a) 106 72 77 27 19
Net loan charge-offs
to average loans (a) 3.52 % 2.34 % 2.46 % 1.15 % .83 %
Nonperforming assets
at period end $214 $127 $82 $98 $63
Return on average
allocated equity
(a) (57.12)% (35.70)% (32.72)% (8.36)% 4.65 %
Return on average
allocated equity (57.12) (35.70) (32.72) (8.36) 6.04
Average full-time
equivalent employees 489 560 607 728 798
National Banking
Percent change 4Q08 vs.
3Q08 4Q07
Summary of operations
Total revenue (TE) 10.7 % (11.6)%
Provision for loan losses 39.7 49.5
Noninterest expense 142.7 113.9
Loss from continuing operations (409.2) (888.1)
Net loss (409.2) (934.4)
Average loans and leases (a) .8 12.9
Average loans held for sale (a) (15.0) (70.2)
Average deposits (a) (1.1) (2.5)
Net loan charge-offs (a) 36.0 213.6
Net loan charge-offs to average loans (a) N/A N/A
Nonperforming assets at period end 17.4 94.8
Return on average allocated equity (a) N/A N/A
Return on average allocated equity N/A N/A
Average full-time equivalent employees (6.6) (17.3)
Supplementary information
(lines of business)
Real Estate Capital and
Corporate Banking Services
Total revenue (TE) 67.7 % .6 %
Provision for loan losses 54.5 (43.3)
Noninterest expense 4.5 (20.5)
Net (loss) 8.6 62.7
Average loans and leases 1.0 10.7
Average loans held for sale (35.5) (59.3)
Average deposits (.5) (.1)
Net loan charge-offs (19.0) 80.0
Net loan charge-offs to average loans N/A N/A
Nonperforming assets at period end 6.9 60.6
Return on average allocated equity N/A N/A
Average full-time equivalent employees (8.4) (15.5)
Equipment Finance
Total revenue (TE) (17.1)% (49.7)%
Provision for loan losses (48.4) 43.5
Noninterest expense 287.8 263.5
Net (loss) income (922.2) N/M
Average loans and leases (4.6) (11.0)
Average loans held for sale (40.8) 93.3
Average deposits (25.0) (11.8)
Net loan charge-offs 59.4 183.3
Net loan charge-offs to average loans N/A N/A
Nonperforming assets at period end 37.4 172.4
Return on average allocated equity N/A N/A
Average full-time equivalent employees (4.6) (15.4)
Institutional and Capital Markets
Total revenue (TE) 8.1 % 18.3 %
Provision for loan losses 225.0 246.7
Noninterest expense 207.5 183.6
Net (loss) income N/M N/M
Average loans and leases 11.8 29.6
Average loans held for sale (16.0) 38.3
Average deposits (2.5) (7.6)
Net loan charge-offs (recoveries) N/M 533.3
Net loan charge-offs
(recoveries) to average loans N/A N/A
Nonperforming assets at period end (5.2) 266.7
Return on average allocated equity N/A N/A
Average full-time equivalent employees (2.6) (4.1)
Consumer Finance
Total revenue (TE) (9.5)% (12.2)%
Provision for loan losses 46.8 N/M
Noninterest expense 5.4 ___
(Loss) income from continuing operations (66.7) N/M
Net (loss) income (66.7) N/M
Average loans and leases (a) (2.3) 31.7
Average loans held for sale (a) 98.1 (89.5)
Average deposits (a) (7.3) (29.4)
Net loan charge-offs (a) 47.2 457.9
Net loan charge-offs to average loans (a) N/A N/A
Nonperforming assets at period end 68.5 239.7
Return on average allocated equity (a) N/A N/A
Return on average allocated equity N/A N/A
Average full-time equivalent employees (12.7) (38.7)
(a) From continuing operations.
TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful
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